10-Q 1 a13-19712_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, 2013

______________________

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 11,175,571 shares of common stock outstanding as of November 5, 2013.

 

 



Table of Contents

 

 

BRIDGE BANCORP, INC.

 

PART I -

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012

3

 

 

 

 

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2013 and 2012

4

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2013 and 2012

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2013 and 2012

6

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012

7

 

 

 

 

Condensed Notes to Consolidated Financial Statements

8

 

 

 

Item 2.

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

36

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

52

 

 

 

Item 4.

Controls and Procedures

53

 

 

 

PART II -

OTHER INFORMATION

54

 

 

 

Item 1.

Legal Proceedings

54

 

 

 

Item 1A.

Risk Factors

54

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

 

 

 

Item 3.

Defaults Upon Senior Securities

54

 

 

 

Item 4.

Mine Safety Disclosures

54

 

 

 

Item 5.

Other Information

54

 

 

 

Item 6.

Exhibits

54

 

 

 

Signatures

 

55

 

 



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,

 

 

 

2013

 

2012

 

ASSETS

 

 

 

 

 

Cash and due from banks

 

$

32,612

 

$

46,855

 

Interest earning deposits with banks

 

4,362

 

4,394

 

Total cash and cash equivalents

 

36,974

 

51,249

 

 

 

 

 

 

 

Securities available for sale, at fair value

 

488,664

 

529,070

 

Securities held to maturity (fair value of $195,415 and $213,702, respectively)

 

197,622

 

210,735

 

Total securities

 

686,286

 

739,805

 

 

 

 

 

 

 

Securities, restricted

 

4,424

 

2,978

 

 

 

 

 

 

 

Loans held for investments

 

933,234

 

798,446

 

Allowance for loan losses

 

(15,483

)

(14,439

)

Loans, net

 

917,751

 

784,007

 

 

 

 

 

 

 

Premises and equipment, net

 

27,830

 

26,001

 

Accrued interest receivable

 

5,454

 

5,436

 

Goodwill

 

2,034

 

2,034

 

Core deposit intangible

 

204

 

249

 

Other real estate owned

 

 

250

 

Other assets

 

20,597

 

12,704

 

Total Assets

 

$

1,701,554

 

$

1,624,713

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Demand deposits

 

$

487,281

 

$

529,205

 

Savings, NOW and money market deposits

 

868,318

 

722,869

 

Certificates of deposit of $100,000 or more

 

69,625

 

118,724

 

Other time deposits

 

37,800

 

38,524

 

Total deposits

 

1,463,024

 

1,409,322

 

 

 

 

 

 

 

Federal funds purchased and Federal Home Loan Bank overnight borrowings

 

41,000

 

44,500

 

Federal Home Loan Bank term advances

 

40,000

 

15,000

 

Repurchase agreements

 

11,315

 

12,390

 

Junior subordinated debentures

 

16,002

 

16,002

 

Accrued interest payable

 

219

 

147

 

Other liabilities and accrued expenses

 

10,987

 

8,680

 

Total Liabilities

 

1,582,547

 

1,506,041

 

 

 

 

 

 

 

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; 9,254,247 and 8,923,010 shares issued, respectively;
9,249,925 and 8,907,890 shares outstanding, respectively

 

93

 

89

 

Surplus

 

70,428

 

64,208

 

Retained earnings

 

60,413

 

55,102

 

Less: Treasury Stock at cost, 4,322 and 15,120 shares, respectively

 

(103

)

(309

)

 

 

130,831

 

119,090

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

Net unrealized (loss) gain on securities, net of deferred income taxes of $5,689 and ($1,803), respectively

 

(8,642

)

2,738

 

Pension liability, net of deferred income taxes of $1,950 and $2,036, respectively

 

(2,918

)

(3,050

)

Net unrealized loss on cash flow hedge, net of deferred income taxes of $174 and $70, respectively

 

(264

)

(106

)

Total Stockholders’ Equity

 

119,007

 

118,672

 

Total Liabilities and Stockholders’ Equity

 

$

1,701,554

 

$

1,624,713

 

 

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,

 

 

 

2013

 

2012

 

2013

 

2012

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans (including fee income)

 

$

11,583

 

$

10,467

 

$

33,433

 

$

29,753

 

Mortgage-backed securities, CMOs and other asset-backed securities

 

1,796

 

1,710

 

4,708

 

5,793

 

U.S. GSE securities

 

749

 

747

 

2,199

 

2,361

 

State and municipal obligations

 

650

 

579

 

1,976

 

2,164

 

Corporate Bonds

 

100

 

153

 

301

 

473

 

Deposits with banks

 

7

 

28

 

20

 

70

 

Other interest and dividend income

 

28

 

23

 

115

 

68

 

Total interest income

 

14,913

 

13,707

 

42,752

 

40,682

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Savings, NOW and money market deposits

 

905

 

952

 

2,648

 

2,829

 

Certificates of deposit of $100,000 or more

 

257

 

360

 

927

 

1,113

 

Other time deposits

 

86

 

101

 

257

 

324

 

Federal funds purchased and repurchase agreements

 

134

 

97

 

389

 

323

 

Federal Home Loan Bank advances

 

142

 

38

 

225

 

46

 

Junior subordinated debentures

 

341

 

341

 

1,024

 

1,024

 

Total interest expense

 

1,865

 

1,889

 

5,470

 

5,659

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

13,048

 

11,818

 

37,282

 

35,023

 

Provision for loan losses

 

500

 

600

 

1,650

 

3,925

 

Net interest income after provision for loan losses

 

12,548

 

11,218

 

35,632

 

31,098

 

 

 

 

 

 

 

 

 

 

 

Non interest income:

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

777

 

827

 

2,424

 

2,492

 

Fees for other customer services

 

925

 

854

 

2,486

 

2,179

 

Net securities gains

 

11

 

186

 

659

 

2,179

 

Title fee income

 

357

 

344

 

1,041

 

1,037

 

Other operating (loss) income

 

(10

)

24

 

22

 

101

 

Total non interest income

 

2,060

 

2,235

 

6,632

 

7,988

 

 

 

 

 

 

 

 

 

 

 

Non interest expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

5,292

 

5,211

 

16,012

 

15,584

 

Occupancy and equipment

 

1,407

 

1,005

 

4,016

 

2,954

 

Technology and communications

 

726

 

545

 

1,885

 

1,569

 

Marketing and advertising

 

589

 

433

 

1,470

 

1,187

 

Professional services

 

336

 

232

 

957

 

803

 

FDIC assessments

 

239

 

190

 

675

 

542

 

Acquisition costs

 

338

 

 

338

 

 

Amortization of core deposit intangible

 

14

 

16

 

45

 

51

 

Cost of extinguishment of debt

 

 

 

 

158

 

Other operating expenses

 

920

 

847

 

2,726

 

2,419

 

Total non interest expense

 

9,861

 

8,479

 

28,124

 

25,267

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

4,747

 

4,974

 

14,140

 

13,819

 

Income tax expense

 

1,624

 

1,614

 

4,652

 

4,457

 

Net income

 

$

3,123

 

$

3,360

 

$

9,488

 

$

9,362

 

Basic earnings per share

 

$

0.34

 

$

0.39

 

$

1.04

 

$

1.09

 

Diluted earnings per share

 

$

0.34

 

$

0.39

 

$

1.04

 

$

1.09

 

 

See accompanying condensed notes to the Unaudited Consolidated Financial Statements.

 

 

4



Table of Contents

 

 

BRIDGE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

(In thousands)

 

 

 

For the

 

For the

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Net Income

 

$

3,123

 

$

3,360

 

$

9,488

 

$

9,362

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

Change in unrealized net gains/losses on securities available for sale, net of reclassification and deferred tax effects

 

(2,237

)

(91

)

(11,380

)

(1,679

)

Adjustment to pension liability, net of deferred income taxes

 

44

 

43

 

132

 

130

 

Unrealized loss on cash flow hedge, net of deferred income taxes

 

(331

)

(102

)

(158

)

(122

)

Total other comprehensive loss

 

(2,524

)

(150

)

(11,406

)

(1,671

)

Comprehensive income (loss)

 

$

599

 

$

3,210

 

$

(1,918

)

$

7,691

 

 

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
Loss

 

Total

 

Balance at January 1, 2013

 

$

89

 

$

64,208

 

$

55,102

 

$

(309

)

$

(418

)

$

118,672

 

Net income

 

 

 

 

 

9,488

 

 

 

 

 

9,488

 

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

 

3

 

5,608

 

 

 

 

 

 

 

5,611

 

Stock awards granted and distributed

 

1

 

(435

)

 

 

434

 

 

 

 

Stock awards forfeited

 

 

 

79

 

 

 

(79

)

 

 

 

Vesting of stock awards

 

 

 

 

 

 

 

(149

)

 

 

(149

)

Tax effect of stock plans

 

 

 

(9

)

 

 

 

 

 

 

(9

)

Share based compensation expense

 

 

 

977

 

 

 

 

 

 

 

977

 

Cash dividend declared, $0.46 per share

 

 

 

 

 

(4,177

)

 

 

 

 

(4,177

)

Other comprehensive loss, net of deferred income taxes

 

 

 

 

 

 

 

 

 

(11,406

)

(11,406

)

Balance at September 30, 2013

 

$

93

 

$

70,428

 

$

60,413

 

$

(103

)

$

(11,824

)

$

119,007

 

 

 

 

Common
Stock

 

Surplus

 

Retained
Earnings

 

Treasury
Stock

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Total

 

Balance at January 1, 2012

 

$

84

 

$

52,962

 

$

52,228

 

$

(715

)

$

2,428

 

$

106,987

 

Net income

 

 

 

 

 

9,362

 

 

 

 

 

9,362

 

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

 

3

 

6,561

 

 

 

 

 

 

 

6,564

 

Stock awards granted and distributed

 

 

 

(580

)

 

 

580

 

 

 

 

Stock awards forfeited

 

 

 

6

 

 

 

(6

)

 

 

 

Vesting of stock awards

 

 

 

 

 

 

 

(88

)

 

 

(88

)

Tax effect of stock plans

 

 

 

(10

)

 

 

 

 

 

 

(10

)

Share based compensation expense

 

 

 

1,030

 

 

 

 

 

 

 

1,030

 

Cash dividend declared, $0.69 per share

 

 

 

 

 

(5,858

)

 

 

 

 

(5,858

)

Other comprehensive loss, net of deferred income taxes

 

 

 

 

 

 

 

 

 

(1,671

)

(1,671

)

Balance at September 30, 2012

 

$

87

 

$

59,969

 

$

55,732

 

$

(229

)

$

757

 

$

116,316

 

 

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

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2013

 

2012

 

Cash flows from operating activities:

 

 

 

 

 

Net Income

 

$

9,488

 

$

9,362

 

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

 

 

 

 

 

Provision for loan losses

 

1,650

 

3,925

 

Depreciation and amortization

 

1,498

 

1,313

 

Net amortization on securities

 

4,280

 

3,696

 

Amortization of core deposit intangible

 

45

 

51

 

Share based compensation expense

 

977

 

1,030

 

Net securities gains

 

(659

)

(2,179

)

Increase in accrued interest receivable

 

(18

)

(472

)

(Increase) decrease in other assets

 

(1,822

)

244

 

Increase in accrued expenses and other liabilities

 

806

 

2,905

 

Net cash provided by operating activities

 

16,245

 

19,875

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of securities available for sale

 

(228,021

)

(388,698

)

Purchases of securities, restricted

 

(49,843

)

(16,325

)

Purchases of securities held to maturity

 

(55,105

)

(116,347

)

Proceeds from sales of securities available for sale

 

129,431

 

67,077

 

Redemption of securities, restricted

 

48,397

 

15,007

 

Maturities, calls and principal payments of securities available for sale

 

117,771

 

211,802

 

Maturities, calls and principal payments of securities held to maturity

 

69,950

 

76,662

 

Net increase in loans

 

(135,394

)

(119,321

)

Proceeds from loan sale

 

 

575

 

Proceeds from sales of real estate owned, net

 

218

 

 

 

Purchase of premises and equipment

 

(3,327

)

(2,462

)

Net cash used in investing activities

 

(105,923

)

(272,030

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

53,702

 

126,662

 

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

 

(3,500

)

62,000

 

Net increase in FHLB term advances

 

25,000

 

15,000

 

Net decrease in repurchase agreements

 

(1,075

)

(3,804

)

Net proceeds from issuance of common stock

 

5,611

 

6,564

 

Repurchase of surrendered stock from vesting of restricted stock awards

 

(149

)

(88

)

Excess tax expense from share based compensation

 

(9

)

(10

)

Cash dividends paid

 

(4,177

)

(5,858

)

Net cash provided by financing activities

 

75,403

 

200,466

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(14,275

)

(51,689

)

Cash and cash equivalents at beginning of period

 

51,249

 

79,546

 

Cash and cash equivalents at end of period

 

$

36,974

 

$

27,857

 

 

 

 

 

 

 

Supplemental Information-Cash Flows:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

 

$

5,398

 

$

5,766

 

Income tax

 

$

4,152

 

$

2,985

 

 

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

Securities which settled in the subsequent period

 

$

3,000

 

$

17,874

 

Financing of sale of loans held for sale

 

$

 

$

1,725

 

 

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 nine months ended September 30, 2013 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 total 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, 2012.

 

2. EARNINGS PER SHARE

 

Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) No. 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, 2013 and 2012 is as follows:

 

 

 

Three months ended,

 

Nine months ended,

 

 

 

September 30,

 

September 30,

 

(In thousands, except per share data)

 

2013

 

2012

 

2013

 

2012

 

Net Income

 

$

3,123

 

$

3,360

 

$

9,488

 

$

9,362

 

Less: Dividends paid on and earnings allocated to participating securities

 

(85

)

(88

)

(254

)

(244

)

Income attributable to common stock

 

$

3,038

 

$

3,272

 

$

9,234

 

$

9,118

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, including participating securities

 

9,241

 

8,695

 

9,109

 

8,573

 

Less: weighted average participating securities

 

(248

)

(226

)

(242

)

(225

)

Weighted average common shares outstanding

 

8,993

 

8,469

 

8,867

 

8,348

 

Basic earnings per common share

 

$

0.34

 

$

0.39

 

$

1.04

 

$

1.09

 

 

 

 

 

 

 

 

 

 

 

Income attributable to common stock

 

$

3,038

 

$

3,272

 

$

9,234

 

$

9,118

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

8,993

 

8,469

 

8,867

 

8,348

 

Weighted average common equivalent shares outstanding

 

 

1

 

 

1

 

Weighted average common and equivalent shares outstanding

 

8,993

 

8,470

 

8,867

 

8,349

 

Diluted earnings per common share

 

$

0.34

 

$

0.39

 

$

1.04

 

$

1.09

 

 

 

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There were 49,362 and 49,737 options outstanding at September 30, 2013 and September 30, 2012, 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, 2013, 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. 2012 Stock-Based Incentive Plan (“Plan”) and the Company accounts for this Plan under the FASB ASC No. 718 and 505. On May 4, 2012, the stockholders of the Company approved the Plan. The plan provides for the grant of stock-based and other incentive awards to officers, employees and directors of the Company.

 

No new grants of stock options were awarded and no compensation expense was attributable to stock options for the nine months ended September 30, 2013 and September 30, 2012 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 nine months of 2013 and 2012. The intrinsic value of options outstanding and exercisable at September 30, 2013 and September 30, 2012 was $0 and $16,000, respectively.

 

A summary of the status of the Company’s stock options as of and for the nine months ended September 30, 2013 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, 2012

 

49,962

 

$

25.32

 

 

 

 

 

Granted

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

Expired

 

(600

)

$

15.47

 

 

 

 

 

Outstanding, September 30, 2013

 

49,362

 

$

25.44

 

2.73 years

 

 

Vested and Exercisable, September 30, 2013

 

49,362

 

$

25.44

 

2.73 years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

Exercise

 

 

 

 

 

Range of Exercise Prices

 

Options

 

Price

 

 

 

 

 

 

 

4,572

 

$

24.00

 

 

 

 

 

 

 

39,659

 

$

25.25

 

 

 

 

 

 

 

3,000

 

$

26.55

 

 

 

 

 

 

 

2,131

 

$

30.60

 

 

 

 

 

 

 

49,362

 

 

 

 

 

 

 

 

During the nine months ended September 30, 2013 restricted stock awards of 72,940 shares were granted. Of the 72,940 shares granted, 51,175 shares vest over seven years with one third vesting after each of the years five, six and seven; 12,652 shares vest over five years with one third vesting after each of the years three, four and five; and the remaining 9,113 shares vest ratably over approximately five years. During the nine months ended September 30, 2012, restricted stock awards of 21,993 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 $281,000 and $868,000 for the three and nine months ended September 30, 2013, respectively, and $292,000 and $912,000 for the three and nine months ended September 30, 2012, respectively.

 

 

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A summary of the status of the Company’s unvested restricted stock as of and for the nine months ended September 30, 2013 is as follows:

 

 

 

 

 

Weighted

 

 

 

 

 

Average Grant-Date

 

 

 

Shares

 

Fair Value

 

Unvested, December 31, 2012

 

177,927

 

$

21.38

 

Granted

 

72,940

 

$

20.78

 

Vested

 

(31,399

)

$

21.66

 

Forfeited

 

(3,187

)

$

21.49

 

Unvested, September 30, 2013

 

216,281

 

$

21.13

 

 

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 $109,000 for the three and nine months ended September 30, 2013, respectively, and $39,000 and $118,000 for the three and nine months ended September 30, 2012, 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, 2013 and December 31, 2012 and the corresponding amounts of unrealized gains and losses therein:

 

 

 

September 30, 2013

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(In thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

157,086

 

$

19

 

$

(8,481

)

$

148,624

 

State and municipal obligations

 

56,532

 

613

 

(803

)

56,342

 

U.S. GSE residential mortgage-backed securities

 

15,318

 

112

 

(129

)

15,301

 

U.S. GSE residential collateralized mortgage obligations

 

228,834

 

806

 

(4,994

)

224,646

 

U.S. GSE commercial mortgage-backed securities

 

3,090

 

 

(108

)

2,982

 

U.S. GSE commercial collateralized mortgage obligations

 

5,114

 

54

 

 

5,168

 

Non Agency commercial mortgage-backed securities

 

3,749

 

 

(105

)

3,644

 

Other Asset backed securities

 

33,272

 

60

 

(1,375

)

31,957

 

Total available for sale

 

502,995

 

1,664

 

(15,995

)

488,664

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

7,442

 

 

(131

)

7,311

 

State and municipal obligations

 

64,451

 

1,067

 

(149

)

65,369

 

U.S. GSE residential mortgage-backed securities

 

8,222

 

 

(212

)

8,010

 

U.S. GSE residential collateralized mortgage obligations

 

70,842

 

567

 

(2,708

)

68,701

 

U.S. GSE commercial mortgage-backed securities

 

10,181

 

 

(302

)

9,879

 

U.S. GSE commercial collateralized mortgage obligations

 

13,615

 

37

 

(470

)

13,182

 

Corporate Bonds

 

22,869

 

156

 

(62

)

22,963

 

Total held to maturity

 

197,622

 

1,827

 

(4,034

)

195,415

 

Total securities

 

$

700,617

 

$

3,491

 

$

(20,029

)

$

684,079

 

 

 

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December 31, 2012

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(In thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

178,421

 

$

377

 

$

(346

)

$

178,452

 

State and municipal obligations

 

58,867

 

1,132

 

(36

)

59,963

 

U.S. GSE residential mortgage-backed securities

 

19,462

 

1,135

 

 

20,597

 

U.S. GSE residential collateralized mortgage obligations

 

224,226

 

2,762

 

(542

)

226,446

 

U.S. GSE commercial mortgage-backed securities

 

3,132

 

6

 

 

3,138

 

U.S. GSE commercial collateralized mortgage obligations

 

9,079

 

278

 

 

9,357

 

Non Agency commercial mortgage-backed securities

 

4,754

 

235

 

 

4,989

 

Other Asset backed securities

 

26,588

 

65

 

(525

)

26,128

 

Total available for sale

 

524,529

 

5,990

 

(1,449

)

529,070

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

4,992

 

24

 

 

5,016

 

State and municipal obligations

 

98,752

 

2,241

 

(31

)

100,962

 

U.S. GSE residential mortgage-backed securities

 

9,483

 

26

 

 

9,509

 

U.S. GSE residential collateralized mortgage obligations

 

59,388

 

704

 

(404

)

59,688

 

U.S. GSE commercial mortgage-backed securities

 

10,324

 

350

 

 

10,674

 

U.S. GSE commercial collateralized mortgage obligations

 

4,975

 

254

 

 

5,229

 

Corporate Bonds

 

22,821

 

134

 

(331

)

22,624

 

Total held to maturity

 

210,735

 

3,733

 

(766

)

213,702

 

Total securities

 

$

735,264

 

$

9,723

 

$

(2,215

)

$

742,772

 

 

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, 2013. 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, 2013

 

 

 

Amortized

 

Fair

 

(In thousands)

 

Cost

 

Value

 

Maturity

 

 

 

 

 

Available for sale:

 

 

 

 

 

Within one year

 

$

5,707

 

$

5,751

 

One to five years

 

64,269

 

64,099

 

Five to ten years

 

143,669

 

137,259

 

Beyond ten years

 

289,350

 

281,555

 

Total

 

$

502,995

 

$

488,664

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

Within one year

 

$

24,367

 

$

24,516

 

One to five years

 

35,388

 

35,551

 

Five to ten years

 

31,553

 

31,512

 

Beyond ten years

 

106,314

 

103,836

 

Total

 

$

197,622

 

$

195,415

 

 

 

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Table of Contents

 

 

Securities with unrealized losses at September 30, 2013 and December 31, 2012, 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, 2013

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

losses

 

Fair Value

 

losses

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

148,255

 

$

8,481

 

$

 

$

 

State and municipal obligations

 

20,756

 

765

 

2,422

 

38

 

U.S. GSE residential mortgage-backed securities

 

5,854

 

129

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

162,405

 

4,683

 

8,888

 

311

 

U.S. GSE commercial mortgage-backed securities

 

2,982

 

108

 

 

 

Non Agency commercial mortgage-backed securities

 

3,643

 

105

 

 

 

Other Asset backed securities

 

21,206

 

1,280

 

2,902

 

95

 

Total available for sale

 

365,101

 

15,551

 

14,212

 

444

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

7,311

 

131

 

 

 

State and municipal obligations

 

11,345

 

146

 

573

 

3

 

U.S. GSE residential mortgage-backed securities

 

8,011

 

212

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

29,596

 

1,746

 

16,963

 

962

 

U.S. GSE commercial mortgage-backed securities

 

9,879

 

302

 

 

 

U.S. GSE commercial collateralized mortgage obligations

 

8,493

 

470

 

 

 

Corporate Bonds

 

4,960

 

40

 

3,978

 

22

 

Total held to maturity

 

$

79,595

 

$

3,047

 

$

21,514

 

$

987

 

 

 

 

Less than 12 months

 

Greater than 12 months

 

December 31, 2012

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

losses

 

Fair Value

 

losses

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

79,692

 

$

346

 

$

 

$

 

State and municipal obligations

 

13,878

 

36

 

226

 

 

U.S. GSE residential mortgage-backed securities

 

90

 

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

65,961

 

542

 

 

 

Other Asset backed securities

 

18,109

 

525

 

 

 

Total available for sale

 

177,730

 

1,449

 

226

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

28,939

 

31

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

41,563

 

404

 

 

 

Corporate Bonds

 

 

 

17,669

 

331

 

Total held to maturity

 

$

70,502

 

$

435

 

$

17,669

 

$

331

 

 

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

 

 

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Table of Contents

 

 

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, 2013, the majority of unrealized losses on both the available for sale and held to maturity securities are related to the Company’s U.S. GSE securities and U.S. GSE residential collateralized mortgage obligations.  The decrease in fair value of these securities is attributable to changes in interest rates and not credit quality. 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, 2013.

 

Proceeds from sales of securities available for sale were $54.3 million and $3.3 million for the three months ended September 30, 2013 and 2012, respectively. Proceeds from sales of securities available for sale were $129.4 million and $67.1 million for the nine months ended September 30, 2013 and 2012, respectively. Gross gains of $0.01 million and $0.2 million were realized on these sales during the three months ended September 30, 2013 and 2012, respectively. Gross gains of $0.7 million and $2.2 million were realized on these sales during the nine months ended September 30, 2013 and 2012, respectively. Proceeds from calls of securities were $1.1 million and $44.5 million for the three months ended September 30, 2013 and 2012, respectively. Proceeds from calls of securities were $47.8 million and $153.0 million for the nine months ended September 30, 2013 and 2012, respectively.

 

Securities having a fair value of approximately $275.2 million and $333.0 million at September 30, 2013 and December 31, 2012, 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, 2013 or the year ended December 31, 2012.

 

The Bank is a member of the Federal Home Loan Bank of New York (“FHLB”). 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 $4.4 million and $3.0 million in FHLB, ACBB and FRB stock in the aggregate, at September 30, 2013 and December 31, 2012, respectively.  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

 

 

Assets and liabilities measured on a recurring basis:

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

September 30, 2013 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

 

$

148,624

 

 

 

$

148,624

 

 

 

State and municipal obligations

 

56,342

 

 

 

56,342

 

 

 

U.S. GSE residential mortgage-backed securities

 

15,301

 

 

 

15,301

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

224,646

 

 

 

224,646

 

 

 

U.S. GSE commercial mortgage-backed securities

 

2,982

 

 

 

2,982

 

 

 

U.S. GSE commercial collateralized mortgage obligations

 

5,168

 

 

 

5,168

 

 

 

Non Agency commercial mortgage-backed securities

 

3,644

 

 

 

3,644

 

 

 

Other Asset backed securities

 

31,957

 

 

 

31,957

 

 

 

Total available for sale

 

$

488,664

 

 

 

$

488,664

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives

 

$

(438

)

 

 

$

(438

)

 

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

December 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

 

$

178,452

 

 

 

$

178,452

 

 

 

State and municipal obligations

 

59,963

 

 

 

59,963

 

 

 

U.S. GSE residential mortgage-backed securities

 

20,597

 

 

 

20,597

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

226,446

 

 

 

226,446

 

 

 

U.S. GSE commercial mortgage-backed securities

 

3,138

 

 

 

3,138

 

 

 

U.S. GSE commercial collateralized mortgage obligations

 

9,357

 

 

 

9,357

 

 

 

Non Agency commercial mortgage-backed securities

 

4,989

 

 

 

4,989

 

 

 

Other Asset backed securities

 

26,128

 

 

 

26,128

 

 

 

Total available for sale

 

$

529,070

 

 

 

$

529,070

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives

 

$

(176

)

 

 

$

(176

)

 

 

 

 

14



Table of Contents

 

 

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

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

September 30, 2013 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

 

$

1,369

 

 

 

 

 

$

1,369

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

December 31, 2012 Using:

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

Quoted Prices In

 

Other

 

Significant