Back to GetFilings.com




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, 2005


Commission file number 000-18546


BRIDGE BANCORP, INC.
(Exact name of registrant as specified in its charter)

NEW YORK
  
11-2934195
(State or other jurisdiction of incorporation or organization)
  
(IRS Employer Identification Number)
     
2200 MONTAUK HIGHWAY, BRIDGEHAMPTON, NEW YORK
  
11932
(Address of principal executive offices)
  
(Zip Code)

Registrant’s telephone number, including area code: (631) 537-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

There were 6,260,644 shares of common stock outstanding as of May 06, 2005.




BRIDGE BANCORP, INC.

FINANCIAL INFORMATION
   
Item 1.
   
 
   
 
   
 
   
 
   
 
   
Item 2.
   
Item 3.
   
Item 4.
   
OTHER INFORMATION
   
Item 1.
   
Item 2.
   
Item 3.
   
Item 4.
   
Item 5.
   
Item 6.
   
31.1
31.2
32.1
   
 







Item 1. Financial Statements
BRIDGE BANCORP, INC. AND SUBSIDIARY
          
Consolidated Statements of Condition (unaudited)
          
(In thousands, except share and per share amounts)
  
March 31,
  
December 31,
  
   
2005
  
2004
  
ASSETS
          
Cash and due from banks
  
$
11,639
  
$
8,744
  
Interest earning deposits with banks
    
102
    
118
  
Federal funds sold
    
2,166
    
-
  
Total cash and cash equivalents
    
13,907
    
8,862
  
               
Securities available for sale
    
183,517
    
202,042
  
Securities, restricted
    
1,979
    
1,979
  
Securities held to maturity (fair value of $21,213 and $21,131, respectively)
    
21,270
    
21,213
  
Total securities, net
    
206,766
    
225,234
  
               
Loans
    
297,101
    
296,134
  
Less: Allowance for loan losses
    
(2,302
)
  
(2,188
)
Loans, net
    
294,799
    
293,946
  
               
Banking premises and equipment, net
    
13,997
    
13,817
  
Accrued interest receivable
    
2,730
    
2,469
  
Other assets
    
3,858
    
2,872
  
Total Assets
  
$
536,057
  
$
547,200
  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
Demand deposits
  
$
158,753
  
$
158,366
  
Savings, N.O.W. and money market deposits
    
256,686
    
242,814
  
Certificates of deposit of $100,000 or more
    
35,727
    
35,306
  
Other time deposits
    
28,989
    
32,825
  
Total deposits
    
480,155
    
469,311
  
               
Overnight borrowings
    
5,500
    
26,700
  
Accrued interest on depositors’ accounts
    
296
    
273
  
Other liabilities and accrued expenses
    
3,851
    
3,703
  
Total Liabilities
    
489,802
    
499,987
  
               
Stockholders’ equity:
              
Common stock, par value $.01 per share:
              
Authorized: 20,000,000 shares; 6,386,306 issued; 6,260,644
              
and 6,254,489 shares outstanding at March 31, 2005 and December 31, 2004, respectively
    
64
    
64
  
Surplus
    
21,521
    
21,462
  
Undivided profits
    
28,728
    
27,856
  
Less: Treasury Stock at cost, 125,662 and 131,817 shares at March 31, 2005 and
   December 31, 2004, respectively
    
(2,287
)
  
(2,330
)
Unearned stock awards
    
(131
)
  
(121
)
     
47,985
    
46,931
  
Accumulated other comprehensive income:
             
  Net unrealized (loss)/gain on securities, net of taxes of $1,020 and $267 at March 31,
    2005 and December 31, 2004, respectively
    
(1,519
)
  
403
  
  Net minimum pension liability, net of taxes of $81 at March 31, 2005 and December 31,
    2004
    
(121
)
  
(121
)
Total Stockholders’ Equity
    
46,255
    
47,213
  
Total Liabilities and Stockholders’ Equity
  
$
536,057
  
$
547,200
  
See accompanying notes to the Consolidated Financial Statements

Page 1


BRIDGE BANCORP, INC. AND SUBSIDIARY
          
Consolidated Statements of Income (unaudited)
          
(In thousands, except per share amounts)
          
   
For the three months ended March 31,
  
   
2005
  
2004
  
Interest income:
              
    Loans
  
$
4,881
  
$
4,613
  
    Mortgage-backed securities
    
1,073
    
888
  
    U.S. Treasury and government agency securities
   
499
    
523
  
    State and municipal obligations
   
438
    
388
  
    Federal funds sold
    
5
    
24
  
    Other securities
    
16
    
7
  
        Total interest income
    
6,912
    
6,443
  
               
Interest expense:
              
Savings, N.O.W. and money market deposits
    
528
    
294
  
Certificates of deposit of $100,000 or more
    
148
    
119
  
Other time deposits
    
107
    
117
  
Federal funds purchased
    
20
    
9
  
Other borrowed money
    
113
    
-
  
Total interest expense
    
916
    
539
  
               
Net interest income
    
5,996
    
5,904
  
Provision for loan losses
    
-
    
-
  
               
Net interest income after provision for loan losses
    
5,996
    
5,904
  
 
              
Other income:
              
    Service charges on deposit accounts
    
551
    
582
  
Net securities gains
    
63
    
621
  
Fees for other customer services
    
223
    
253
  
Title fee income
    
160
    
112
  
Other operating income
    
24
    
23
  
Total other income
    
1,021
    
1,591
  
               
Other expenses:
              
    Salaries and employee benefits
    
2,091
    
1,915
  
Net occupancy expense
    
341
    
331
  
Furniture and fixture expense
    
248
    
243
  
Other operating expenses
    
888
    
914
  
Total other expenses
    
3,568
    
3,403
  
               
Income before provision for income taxes
    
3,449
    
4,092
  
Provision for income taxes
    
1,199
    
1,467
  
Net income
  
$
2,250
  
$
2,625
  
Basic earnings per share
  
$
0.36
  
$
0.42
  
Diluted earnings per share
  
$
0.36
  
$
0.41
  
Comprehensive income
  
$
328
  
$
3,330
  


See accompanying notes to the Consolidated Financial Statements.

Page 2



BRIDGE BANCORP, INC. AND SUBSIDIARY
                                  
Consolidated Statements of Stockholders’ Equity (unaudited)
                                  
(In thousands, except share and per share amounts)
                                  
                               
Accumulated
      
   
Common
 
Stock
                  
Unearned
  
Other
      
   
Shares
         
Comprehensive
  
Undivided
  
Treasury
  
Stock
  
Comprehensive
      
   
Outstanding
  
Amount
  
Surplus
  
Income
  
Profits
  
Stock
  
Awards
  
Income
  
Total
  
Balance at December 31, 2004
    
6,254,489
  
$
64
  
$
21,462
        
$
27,856
  
$
(2,330
)
$
(121
)
$
282
  
$
47,213
  
Net income
                    
$
2,250
    
2,250
                      
2,250
  
Stock awards vested
    
6,155
          
36
                
28
    
28
          
92
  
Stock awards granted
                
23
                
15
    
(38
)
        
-
  
Cash dividends declared, $0.22 per share
                            
(1,378
)
                    
(1,378
)
Other comprehensive income, net of tax
                                                        
Unrealized losses in securities available for sale,
net of tax
                      
(1,922
)
                    
(1,922
)
  
(1,922
)
Comprehensive income
                    
$
328
                                
                                                         
Balance at March 31, 2005
    
6,260,644
  
$
64
  
$
21,521
        
$
28,728
  
$
(2,287
)
$
(131
)
$
(1,640
)
$
46,255
  

See accompanying notes to the Consolidated Financial Statements.

Page 3


BRIDGE BANCORP, INC. AND SUBSIDIARY
          
Consolidated Statements of Cash Flows (unaudited)
          
(In thousands)
          
           
Three months ended March 31,
  
2005
  
2004
  
Operating activities:
              
Net Income
  
$
2,250
  
$
2,625
  
Adjustments to reconcile net income to net cash
              
provided by operating activities:
              
Provision for loan losses
    
-
    
-
  
Depreciation and amortization
    
236
    
239
  
Amortization and accretion, net
    
218
    
329
  
Earned or allocated expense of restricted stock awards
    
28
    
20
  
Net securities gains
    
(63
)
  
(621
)
Increase in accrued interest receivable
    
(261
)
  
(450
)
Decrease in other assets
    
5
    
2,073
  
Increase in accrued and other liabilities
    
467
    
212
  
Net cash provided by operating activities
    
2,880
    
4,427
  
               
Investing activities:
              
Purchases of securities available for sale
    
(757
)
  
(27,109
)
Purchases of securities held to maturity
    
(3,332
)
  
(3,250
)
Proceeds from sales of securities available for sale
    
11,051
    
22,783
  
Proceeds from maturing securities available for sale
    
-
    
650
  
Proceeds from maturing securities held to maturity
    
3,275
    
4,991
  
Proceeds from principal payments on mortgage-backed securities
    
4,866
    
4,500
  
Net increase in loans
    
(853
)
  
(15,640
)
Purchases of banking premises and equipment, net of disposals
    
(416
)
  
(187
)
Net cash provided by (used by) investing activities
    
13,834
    
(13,262
)
               
Financing activities:
              
Net increase in deposits
    
10,844
    
13,409
  
Decrease in other borrowings
    
(21,200
)
  
(1,400
)
Net proceeds from exercise of stock options
              
issued pursuant to equity incentive plan
    
-
    
53
  
Cash dividends paid
    
(1,313
)
  
(2,609
)
Net cash (used by) provided by financing activities
    
(11,669
)
  
9,453
  
               
Increase in cash and cash equivalents
    
5,045
    
618
  
Cash and cash equivalents beginning of period
    
8,862
    
13,039
  
Cash and cash equivalents end of period
  
$
13,907
  
$
13,657
  
               
Supplemental Information-Cash Flows:
              
Cash paid for:
              
Interest
  
$
893
  
$
533
  
Income taxes
  
$
471
  
$
481
  
Noncash investing and financing activities:
              
Dividends declared and unpaid
  
$
1,378
  
$
1,011
  

See accompanying notes to the Consolidated Financial Statements.

Page 4


BRIDGE BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Basis of Presentation

Bridge Bancorp, Inc. (the “Company”) is incorporated under the laws of the State of New York as a single bank holding company. The Company’s business currently consists of the operations of its wholly-owned subsidiary, The Bridgehampton National Bank (the “Bank”). The Bank includes its real estate investment trust subsidiary, Bridgehampton Community, Inc. and a financial subsidiary, Bridgehampton Abstract Holding LLC, which has a 100% ownership in an investment in Bridge Abstract LLC (“Bridge Abstract”). Effective April 1, 2004, Bridgehampton Abstract Holding LLC acquired 100% ownership of Bridge Abstract from 51% ownership. Subsequent to December 31, 2004, Bridgehampton Abstract Holding LLC was dissolved.

The accompanying Unaudited Consolidated Financial Statements, which include the accounts of the Company and its wholly-owned subsidiary, the Bank, have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The Unaudited Consolidated Financial Statements included herein reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. In preparing the interim financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reported periods. Such estimates are subject to change in the future as additional information becomes available or previously existing circumstances are modified. Actual future results could differ significantly from those estimates. The annualized results of operations for the three months ended March 31, 2005 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Unaudited Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Company’s 2004 Annual Report on Form 10-K.

2. Earnings Per Share

Diluted earnings per share, which reflect the potential dilution that could occur if outstanding stock options were exercised and dilutive stock awards were fully vested and resulted in the issuance of common stock that then shared in the earnings of the Company, is computed by dividing net income by the weighted average number of common shares and common stock equivalents. All share and per share amounts have been adjusted for the three-for-two stock split effective July 9, 2004.

Computation of Per Share Income
  
Three months ended
  
(in thousands, except per share data)
  
March 31,
 
March 31,
  
   
2005
  
2004
  
           
Net Income
  
$
2,250
  
$
2,625
  
               
Common Equivalent Shares:
              
               
Weighted Average Common Shares Outstanding
    
6,259
    
6,242
  
Weighted Average Common Equivalent Shares
    
60
    
65
  
Weighted Average Common and Common Equivalent Shares
    
6,319
    
6,307
  
Basic earnings per share
  
$
0.36
  
$
0.42
  
Diluted earnings per share
  
$
0.36
  
$
0.41
  

3. Stock Based Compensation Plans

Employee compensation expense under stock options is reported using the intrinsic value method. No stock based compensation cost is reflected in net income, as all the options granted had an exercise price equal to the market price

Page 5

of the underlying common stock at date of grant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” We have used the Black-Scholes option pricing model to estimate the grant date fair value of our option grants. All per share amounts have been adjusted for the three-for-two stock split effective July 9, 2004.

       
Three months ended,
  
(In thousands, except
      
March 31,
 
March 31,
  
per share data)
      
2005
  
2004
  
Net Income:
    
As Reported:
  
$
2,250
  
$
2,625
  
 
    
Pro Forma:
  
$
2,235
  
$
2,579
  
Basic EPS:
    
As Reported:
  
$
0.36
  
$
0.42
  
 
    
Pro Forma: 
  
$
0.36
  
$
0.41
  
Diluted EPS:
    
As Reported:
  
$
0.36
  
$
0.41
  
 
    
Pro Forma: 
  
$
0.35
  
$
0.41
  

4. Securities

A summary of the amortized cost and estimated fair value of securities is as follows:

   
March 31, 2005
  
December 31, 2004
  
(In thousands)
      
Estimated
      
Estimated
  
   
Amortized
  
Fair
  
Amortized
  
Fair
  
   
Cost
  
Value
  
Cost
  
Value
  
Available for sale:
                          
U.S. Treasury and government agency securities
  
$
43,030
  
$
42,466
  
$
53,736
  
$
54,039
  
State and municipal obligations
    
40,402
    
40,736
    
40,027
    
41,044
  
Mortgage-backed securities
    
102,624
    
100,315
    
107,609
    
106,959
  
Federal Reserve Bank Stock
    
36
    
36
    
36
    
36
  
Federal Home Loan Bank Stock
    
1,943
    
1,943
    
1,943
    
1,943
  
Total available for sale
    
188,035
    
185,496
    
203,351
    
204,021
  
Held to maturity:
                          
    State and municipal obligations
    
21,270
    
21,213
    
21,213
    
21,131
  
Total held to maturity
    
21,270
    
21,213
    
21,213
    
21,131
  
Total debt and equity securities
  
$
209,305
  
$
206,709
  
$
224,564
  
$
225,152
  

Securities having a fair value of approximately $125,823,000 and $110,479,000 at March 31, 2005 and December 31, 2004, respectively, were pledged to secure public deposits and Federal Home Loan Bank overnight borrowings. The Bank did not hold any trading securities during the three months ended March 31, 2005 or the year ended December 31, 2004.


Page 6

5. Loans

The following table sets forth the major classifications of loans:

   
March 31, 2005
  
December 31, 2004
  
(In thousands)
              
               
Real estate mortgage loans
  
$
231,810
  
$
236,812
  
Commercial, financial, and agricultural loans
    
36,769
    
34,342
  
Installment/consumer loans
    
6,418
    
6,685
  
Real estate construction loans
    
22,273
    
18,452
  
Total loans
    
297,270
    
296,291
  
Unearned income
    
(169
)
  
(157
)
     
297,101
    
296,134
  
Allowance for loan losses
    
(2,302
)
  
(2,188
)
Net loans
  
$
294,799
  
$
293,946
  

The principal business of the Bank is lending, primarily in commercial mortgages, home equity loans, residential mortgages, commercial loans, construction 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 collectibility of such a loan portfolio is susceptible to changes in market and economic conditions in this region.

Nonaccrual loans at March 31, 2005 and December 31, 2004 were $372,000 and $1,695,000, respectively. Subsequent to December 31, 2004, three loans with a total principal balance of $1,288,000 were removed from the nonaccrual list, two loans returning to accrual status and one loan being repaid. There were no loans 90 days or more past due that were still accruing, or any restructured loans at March 31, 2005 and December 31, 2004.

As of March 31, 2005 and December 31, 2004, the Company had no impaired loans, as defined by SFAS No. 114. For a loan to be considered impaired, management reviews current conditions, loan to value ratios, current business operations, and the collateral valuation as well as current information and events to determine whether it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement.

6. Allowance for Loan Losses

Management monitors its entire loan portfolio on a regular basis, with consideration given to detailed analyses of classified loans, repayment patterns, current delinquencies, probable incurred losses, past loss experience, current economic conditions, and various types of concentrations of credit. Additions to the allowance are charged to expense and realized losses, net of recoveries, are charged to the allowance. Based on the determination of management and the Classification Committee, the overall level of reserves is periodically adjusted to account for the inherent and specific risks within the entire portfolio. Based on the Classification Committee’s review of the classified loans and the overall reserve levels as they relate to the entire loan portfolio at March 31, 2005, we believe the allowance for loan losses is adequate. The following table sets forth changes in the allowance for loan losses.

(In thousands)
  
For the Three Months Ended
  
For the Year Ended
  
   
March 31, 2005
  
March 31, 2004
  
December 31, 2004
  
Beginning balance
  
$
2,188
  
$
2,144
  
$
2,144
  
Provision for loan loss
    
-
    
-
    
300
  
Net recoveries/(charge-offs)
    
114
    
(1
)
  
(256
)
Ending balance
  
$
2,302
  
$
2,143
  
$
2,188
  

7. Employee Benefits

The Bank maintains a noncontributory pension plan through the New York State Bankers Association Retirement System covering all eligible employees.

The Bridgehampton National Bank Supplemental Executive Retirement Plan (“SERP”) provides benefits to certain

Page 7

employees, as recommended by the Compensation Committee of the Board of Directors and approved by the full Board of Directors, whose benefits under the Pension Plan are limited by the applicable provisions of the Internal Revenue Code. The benefit under the SERP is equal to the additional amount the employee would be entitled to under the Pension Plan in the absence of such Internal Revenue Code limitations. The assets of the SERP are held in a rabbi trust to maintain the tax-deferred status for the individuals in the plan. As a result, the assets of the trust are reflected on the Consolidated Statements of Condition of the Company.

The Company did not contribute to the pension plan in the three months ended March 31, 2005. Contributions to the rabbi trust were approximately $350,000 for the three months of 2005. The Company does not anticipate making any additional contributions to the pension plan or the rabbi trust through the end of the year.

The Company’s funding policy with respect to its benefit plans is to contribute at least the minimum amounts required by applicable laws and regulations.

(In thousands)
  
At March 31,
 
   
Pension Benefits
  
SERP Benefits
  
Components of net periodic benefit cost
  
2005
  
2004
  
2005
  
2004
  
Service cost
  
$
79
  
$
69
  
$
22
  
$
16
  
Interest cost
    
56
    
50
    
18
    
13
  
Expected return on plan assets
    
(74
)
  
(52
)
  
-
    
-
  
Amortization of net loss
    
6
    
7
    
6
    
2
  
Amortization of unrecognized prior service cost
    
2
    
2
    
-
    
-
  
Amortization of unrecognized transition (asset) obligation
    
(2
)
  
(2
)
  
(7
)
  
(7
)
Net periodic benefit cost
  
$
67
  
$
74
  
$
39
  
$
24
  



Page 8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Private Securities Litigation Reform Act Safe Harbor Statement

This report may contain statements relating to the future results of the Company (including certain projections and business trends) that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Such forward-looking statements, in addition to historical information, which involve risk and uncertainties, are based on the beliefs, assumptions and expectations of management of the Company. Words such as “expects,” “believes,” “should,” “plans,” “anticipates,” “will,” “potential,” “could,” “intend,” “may,” “outlook,” “predict,” “project,” “would,” “estimates,” “assumes,” “likely,” and variations of such similar expressions are intended to identify such forward-looking statements. Examples of forward-looking statements include, but are not limited to, possible or assumed estimates with respect to the financial condition, expected or anticipated revenue, and results of operations and business of the Company, including earnings growth; revenue growth in retail banking, lending and other areas; origination volume in the Company’s consumer, commercial and other lending businesses; current and future capital management programs; non-interest income levels, including fees from the abstract subsidiary and banking services as well as product sales; tangible capital generation; market share; expense levels; and other business operations and strategies. For this presentation, the Company claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.

Factors that could cause future results to vary from current management expectations include, but are not limited to, changing economic conditions; legislative and regulatory changes; monetary and fiscal policies of the federal government; changes in tax policies; rates and regulations of federal, state and local tax authorities; changes in interest rates; deposit flows; the cost of funds; demand for loan products; demand for financial services; competition; changes in the quality and composition of the Bank’s loan and investment portfolios; changes in management’s business strategies; changes in accounting principles, policies or guidelines; changes in real estate values and other factors discussed elsewhere in this report, and in other reports filed by the Company with the Securities and Exchange Commission. The forward-looking statements are made as of the date of this report, and the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

Overview

Bridge Bancorp, Inc. (“the Company”), a New York corporation, is a one-bank holding company formed in 1989. On a parent-only basis, the Company has had minimal results of operations. In the event the Company subsequently expands its current operations, it will be dependent on dividends from its wholly owned subsidiary, The Bridgehampton National Bank (“the Bank”), its own earnings, additional capital raised, and borrowings as sources of funds. The information in this report reflects principally the financial condition and results of operations of the Bank. The Bank’s results of operations are primarily dependent on its net interest income, which is mainly the difference between interest income on loans and investments and interest expense on deposits and borrowings. The Bank also generates other income, such as fee income on deposit accounts and merchant credit and debit card processing programs, income from its title abstract subsidiary, and net gains on sales of securities and loans. The level of its other expenses, such as salaries and benefits, occupancy and equipment costs, other general and administrative expenses, expenses from its title insurance subsidiary, and income tax expense, further affects the Bank’s net income. This discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements, the notes thereto, and other financial information included in the Company’s 2004 Form 10-K and this filing. Certain reclassifications have been made to prior year amounts, and the related discussion and analysis, to conform to the current year presentation.

Performance ratios for the three month period include returns on average equity and average assets of 19.04% and 1.65%, respectively. Maintaining operating efficiency continues to be a priority with an efficiency ratio of 49.2% for the first quarter.

Net interest income increased 1.6% for the first quarter of 2005 over the first quarter of 2004. As expected, earnings reflect compression of our net interest margin to 4.9% from 5.1% over the same period in the prior year, as the liability side of the balance sheet repriced upward at a faster pace than the asset side. Throughout the period of declining interest rates from early 2001 through mid year 2004, the Bank proactively reduced rates on deposit accounts. In the first quarter of 2005, with the goal of protecting our customer base, the Bank responded to competitive pressures by

Page 9

raising interest rates on interest bearing deposits, resulting in a higher cost of funds. Average cost of interest bearing liabilities increased to 1.1% for the first three months of 2005, from 0.7% for the first quarter of 2004. Asset growth was funded by higher average borrowings for the quarter than the same period last year. The overnight borrowing position is expected to reverse in the second quarter when historically average deposit balances increase. Management continues to expect that the balance sheet will benefit from the rising rate environment over the long term. However, continued margin compression is anticipated through 2005, relative to changes in market rates and the steepness and shape of the yield curve. The balance sheet is managed closely with attention to both interest rate and credit risks.

The Bank remains focused on primarily serving the small businesses, as well as the consumers, within its communities. Demand deposits grew 11.8% at March 31, 2005 over the same date for the prior year. Total loans grew 2.9% year over year for the three month period, primarily attributable to growth in commercial construction and home equity lending. Loan quality remains strong. At the same time, the ratio of the allowance for loan losses to total loans at March 31, 2005 increased to 0.78% from 0.74% at the same date last year, benefiting from net recoveries for the quarter. Bridge Abstract continues to demonstrate excellent potential for generation of non-interest revenues.

Total assets decreased 2.0% to $536,057,000 at March 31, 2005, approximately $11,143,000 less than total assets at December 31, 2004, due to sales of investment securities. Total deposits grew 2.3%, or $10,844,000 from December 31, 2004 to $480,155,000, with growth in savings, NOW, and money market deposits of 5.7%. Demand deposits remained flat and represented 33.1% of total deposits at March 31, 2005. Stockholders’ equity totaled $46,255,000 at March 31, 2005 as compared to $45,282,000 at March 31, 2004 and $47,213,000 at December 31, 2004. The decrease in stockholders’ equity from December 31, 2004 is primarily caused by the reduction in fair market value of the securities available for sale portfolio principally as a result of changes in market interest rates. With a Tier 1 Capital to Average Assets ratio of 8.4%, the Company remains well positioned for future growth.

The branch network remains the key driver of long term opportunities for core deposit growth. The Bank has a new branch office under construction in Westhampton Beach and properties for expanded facilities in the municipal approval process in both Southampton and East Hampton Villages. The Westhampton Beach branch, which will incorporate a café, is scheduled to open later this year. Efforts for improved facilities in the Mattituck market, as well as purchasing a facility in Center Moriches, continue.

In March 2005 the Company declared a quarterly dividend of $0.22 per share. The dividend represents an increase of $0.01, up 4.8% from $0.21 the prior quarter, and on a year-to-date basis (restated for a stock split in the form of a stock dividend) an increase of 37.5%.

Critical Accounting Policies

Management of the Company evaluates those accounting estimates that are judged to be critical - those most important to the portrayal of the Company’s financial condition and results, and that require management’s most difficult, subjective and complex judgments. Management considers the accounting policy on loans and the related allowance for loan losses to be the most critical. The judgments made regarding the allowance for loan losses can have a material effect on the results of operations of the Company. Management believes the accounting policy on loans and the related allowance for loan losses is the most critical and requires complex management judgment as discussed below. Further discussion of the application of this critical accounting policy can be found under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

The allowance for loan losses is established and maintained through a provision for loan losses based on probable incurred losses inherent in the Bank’s loan portfolio. Management evaluates the adequacy of the allowance on a quarterly basis. The allowance is comprised of both individual valuation allowances and loan pool valuation allowances. If the allowance for loan losses is not sufficient to cover actual loan losses, the Company’s earnings could decrease.

The Bank monitors its entire loan portfolio on a regular basis, with consideration given to detailed analysis of classified loans, repayment patterns, probable incurred losses, past loss experience, current economic conditions, and various types of concentrations of credit. Additions to the allowance are charged to expense and realized losses, net of recoveries, are charged to the allowance.

Page 10

Individual valuation allowances are established in connection with specific loan reviews and the asset classification process including the procedures for impairment testing under Statement of Accounting Standard (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15,” and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures, an Amendment of SFAS No. 114.” Such valuation, which includes a review of loans for which full collectibility in accordance with contractual terms is not reasonably assured, considers the estimated fair value of the underlying collateral less the costs to sell, if any, or the present value of expected future cash flows, or the loan’s observable market value. Any shortfall that exists from this analysis results in a specific allowance for the loan. Pursuant to our policy, loan losses must be charged-off in the period the loans, or portions thereof, are deemed uncollectible. Assumptions and judgments by management, in conjunction with outside sources, are used to determine whether full collectibility of a loan is not reasonably assured. These assumptions and judgments also are used to determine the estimates of the fair value of the underlying collateral or the present value of expected future cash flows or the loan’s observable market value. Individual valuation allowances could differ materially as a result of changes in these assumptions and judgments. Individual loan analyses are periodically performed on specific loans considered impaired. The results of the individual valuation allowances are aggregated and included in the overall allowance for loan losses.

Loan pool valuation allowances represent loss allowances that have been established to recognize the inherent risks associated with our lending activities, but which, unlike individual allowances, have not been allocated to particular problem assets. Pool evaluations are broken down as follows: first, loans with homogenous characteristics are pooled by loan type and include home equity loans, residential mortgages, land loans and consumer loans. Then all remaining loans are segregated into pools based upon the risk rating of each credit. Key factors in determining a credit’s risk rating include management’s evaluation of: cash flow, collateral, guarantor support, financial disclosures, industry trends and management. The determination of the adequacy of the valuation allowance is a process that takes into consideration a variety of factors. The Bank has developed a range of valuation allowances necessary to adequately provide for probable incurred losses inherent in each pool of loans. We consider our own charge-off history along with the growth in the portfolio as well as the Bank’s credit administration and asset management philosophies and procedures when determining the allowances for each pool. In addition, we evaluate and consider the impact that existing and projected economic and market conditions may have on the portfolio as well as known and inherent risks in the portfolio. Finally, we evaluate and consider the allowance ratios and coverage percentages of both peer group and regulatory agency data. These evaluations are inherently subjective because, even though they are based on objective data, it is management’s interpretation of that data that determines the amount of the appropriate allowance. If the evaluations prove to be incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in the loan portfolio, resulting in additions to the allowance for loan losses.

The Classification Committee is comprised of both members of management and the Board of Directors. The adequacy of the reserves is analyzed quarterly, with any adjustment to a level deemed appropriate by the Classification Committee, based on its risk assessment of the entire portfolio. Based on the Classification Committee’s review of the classified loans and the overall reserve levels as they relate to the entire loan portfolio at March 31, 2005, management believes the allowance for loan losses has been established and maintained at levels sufficient to cover the probable incurred losses in the Bank’s loan portfolio. Future additions or reductions to the allowance may be necessary based on changes in economic, market or other conditions. Changes in estimates could result in a material change in the allowance. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize adjustments to the allowance based on their judgments of the information available to them at the time of their examination.

Net Income

Net income for the three-month period ended March 31, 2005 totaled $2,250,000 or $0.36 per diluted share as compared to $2,625,000 or $0.41 per diluted share for the same period in 2004. Highlights for the three months ended March 31, 2005 include: (i) $92,000 or 1.6% increase in net interest income; (ii) $570,000 or 35.8% decrease in total other income and (iii) $165,000 or 4.9% increase in total other expenses, over the same period in 2004. The effective income tax rate decreased to 34.8% from 35.9% for the same period last year.

Page 11

Analysis of Net Interest Income

Net interest income, the primary contributor to earnings, represents the difference between income on interest earning assets and expenses on interest bearing liabilities. Net interest income depends upon the volume of interest earning assets and interest bearing liabilities and the interest rates earned or paid on them.

The following table sets forth certain information relating to the Company’s average consolidated statements of financial condition and its consolidated statements of income for the periods indicated and reflect the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are derived from daily average balances and include non-performing accrual loans. The yields and costs include fees, which are considered adjustments to yields. Interest on nonaccrual loans has been included only to the extent reflected in the consolidated statements of income. For purposes of this table, the average balances for investments in debt and equity securities exclude unrealized appreciation/depreciation due to the application of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”

Page 12




Three months ended March 31,
  
2005
  
2004
  
(In thousands)
          
Average
          
Average
  
   
Average
      
Yield/
  
Average
      
Yield/
  
   
Balance
  
Interest
  
Cost
  
Balance
  
Interest
  
Cost
  
                                       
Interest earning assets:
                                      
Loans, net (including loan fee income)
  
$
295,293
  
$
4,881
    
6.7
%
$
279,078
  
$
4,613
    
6.7
%
Mortgage-backed securities
    
105,582
    
1,073
    
4.1
    
90,039
    
888
    
4.0
  
Taxable securities
    
52,609
    
499
    
3.8
    
53,657
    
523
    
3.9
  
Tax exempt securities (1)
    
61,315
    
671
    
4.4
    
48,812
    
613
    
5.0
  
Federal funds sold
    
857
    
5
    
2.3
    
9,711
    
24
    
1.0
  
Securities, restricted
    
1,979
    
16
    
3.1
    
1,642
    
7
    
1.7
  
Deposits with banks
    
64
    
-
    
-
    
137
    
-
    
-
  
Total interest earning assets
    
517,699
    
7,145
    
5.6
    
483,076
    
6,668
    
5.5
  
Non interest earning assets:
                                      
Cash and due from banks
    
14,748
                
16,729
              
Other assets
    
19,094
                
18,483
              
Total assets
  
$
551,541
              
$
518,288
              
                                       
Interest bearing liabilities:
                                      
Savings, N.O.W. and
                                      
money market deposits
  
$
250,589
  
$
528
    
0.9
%
$
251,020
  
$
294
    
0.5
%
    Certificates of deposit of $100,000
                                      
or more
    
35,862
    
148
    
1.7
    
36,590
    
119
    
1.3
  
Other time deposits
    
30,611
    
107
    
1.4
    
31,888
    
117
    
1.5
  
Federal funds purchased
    
3,104
    
20
    
2.6
    
2,655
    
9
    
1.4
  
Other borrowings
    
17,280
    
113
    
2.7
    
-
    
-
    
-
  
Total interest bearing liabilities
    
337,446
    
916
    
1.1
    
322,153
    
539
    
0.7
  
Non interest bearing liabilities:
                                      
Demand deposits
    
163,733
                
147,994
              
Other liabilities
    
2,432
                
3,962
              
    Total liabilities
    
503,611
                
474,109
              
Stockholders’ equity
    
47,930
                
44,179
              
Total liabilities and stockholders’ equity
  
$
551,541
              
$
518,288
              
                                       
Net interest income/interest rate spread (2)
          
6,229
    
4.5
%
        
6,129
    
4.8
%
                                       
Net interest earning assets/net interest margin (3)
  
$
180,253
          
4.9
%
$
160,923
          
5.1
%
                                       
Ratio of interest earning assets to
                                      
interest bearing liabilities
                
153.4
%
              
150.0
%
                                       
Less: Tax equivalent adjustment
          
(233
)
              
(225
)
      
                                       
Net interest income
        
$
5,996
              
$
5,904
        

(1)
The above table is presented on a tax equivalent basis.
(2)
Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.
(3)
Net interest margin represents net interest income divided by average interest earning assets.



Page 13

Rate/Volume Analysis

Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The following table illustrates the extent to which changes in interest rates and in volume of average interest earning assets and interest bearing liabilities have affected the Bank’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume); and (iii) the net changes. For purposes of this table, changes, which are not due solely to volume or rate changes, have been allocated to these categories based on the respective percentage changes in average volume and rate. Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates. In addition, average earning assets include nonaccrual loans.

   
Three months ended March 31
  
   
2005 Over 2004
  
(In thousands)
  
Changes Due To
  
 
    
Volume
    
Rate
    
Net Change
  
Interest income on interest
                   
earning assets:
                    
                     
Loans (including loan fee income)
  
$
237
  
$
31
  
$
268
  
Mortgage-backed securities
    
155
    
30
    
185
  
Taxable securities
    
(10
)
  
(14
)
  
(24
)
Tax exempt securities (1)
    
456
    
(398
)
  
58
  
Federal funds sold
    
(112
)
  
93
    
(19
)
Securities, restricted
    
2
    
7
    
9
  
Deposits with banks
    
-
    
-
    
-
  
Total interest earning assets
    
728
    
(251
)
  
477
  
                     
Interest expense on interest
                    
bearing liabilities:
                    
                     
Savings, N.O.W. and money market deposits
    
(4
)
  
238
    
234
  
Certificates of deposit of $100,000 or more
    
(16
)
  
45
    
29
  
Other time deposits
    
(5
)
  
(5
)
  
(10
)
Federal funds purchased
    
2
    
9
    
11
  
Other borrowings
    
113
    
-
    
113
  
Total interest bearing liabilities
    
90
    
287
    
377
  
Net interest income
  
$
638
  
$
(538
)
$
100
  

(1) The above table is presented on a tax equivalent basis.

The net interest margin decreased to 4.9% from 5.1% from the same three-month period in 2004. The increase in net interest income of $92,000 or 1.6% for the current three-month period over the same period last year primarily resulted from a 7.2% increase in average total interest earning assets to $517,699,000 from $483,076,000. The yield on average interest earning assets for the three-month period ended March 31, 2005 increased to 5.6% from 5.5% during the same period in 2004. The effect of the increase in the volume of average total interest earning assets was greater than the effect of the increase in the rate of average total interest earning assets. Average interest bearing liabilities increased 4.8% to $337,446,000 in 2005 from $322,153,000 for the same period last year. The cost of average interest bearing liabilities increased to 1.1% during 2005 from 0.7% for 2004.

For the quarter ended March 31, 2005, the yield on average interest earning assets was up slightly from the quarter ended March 31, 2004. The cost of average interest bearing liabilities also was up from the same quarter in 2004 due to increases in interest rates on interest bearing deposits and average overnight borrowings. Because the Company’s interest bearing liabilities generally reprice or mature more quickly than its interest earning assets, an increase in short term interest rates would initially result in a decrease in net interest income.

Page 14

Average loans grew by $16,215,000 or 5.8% when compared to the same three-month period in 2004. Real estate mortgage loans contributed to the growth as well as an increase in real estate construction. Commercial, financial, and agricultural loans and installment/consumer loans had minimal decreases. Real estate mortgage loans at March 31, 2005 increased $5,602,000 or 2.5% over March 31, 2004. Growth in real estate loans is mainly attributed to an increase in commercial construction loans, home equity loans and residential mortgages. The Bank is committed to growing loans with prudent underwriting, sensible pricing and limited credit and extension risk.

Total average investments increased $27,335,000 or 14.1% compared to the same three-month period in 2004. Average mortgage-backed securities increased 17.3% to $105,582,000 when compared to the same three-month period in 2004, while average tax exempt securities grew 25.6% to $61,315,000 from $48,812,000. Average federal funds sold decreased $8,854,000 or 91.2% over the same period in the prior year.

Average deposits grew by $13,303,000, or 2.9%, over the same three-month period last year. Components of this growth include an increase in average demand deposits of $15,739,000 or 10.6% and increases in average savings balances offset with decreases in average balances for NOW and money market accounts, certificates of deposit of $100,000 or more and other time deposits. Average federal funds purchased and other borrowings increased to $20,384,000 from the same three-month period in 2004. Average public fund deposits declined from the prior year comprising 17.6% of total average deposits at March 31, 2005 and 20.4% of total average deposits at March 31, 2004.

Provision and Allowance for Loan Losses

The Bank’s loan portfolio consists primarily of real estate loans secured by commercial and residential real estate properties located in the Bank’s principal lending area on eastern Long Island. The interest rates charged by the Bank on loans are affected primarily by the demand for such loans, the supply of money available for lending purposes, the rates offered by its competitors, the Bank’s relationship with the customer and the related credit risks of the transaction. These factors are affected by general and economic conditions including, but not limited to, monetary policies of the federal government, including the Federal Reserve Board, legislative policies and governmental budgetary matters.

The credit quality of the loan portfolio remained strong for the quarter ended March 31, 2005. Since December 31, 2004, nonaccrual loans decreased $1,323,000 to $372,000 from $1,695,000, representing 0.13% of net loans at March 31, 2005. Total nonaccrual loans represented 0.6% of net loans at December 31, 2004. Subsequent to December 31, 2004, three loans having a total principal amount of $1,288,000 were removed from the nonaccrual list with two loans returning to accrual status and one loan repaid. The Bank had no foreclosed real estate at March 31, 2005 and December 31, 2004. The Bank incurred net recoveries in the amount of $114,000 for the three months ended March 31, 2005 as compared to net charge-offs of $1,000 for the same period in 2004.

Loans of approximately $6,986,000 or 2.4% of total loans at March 31, 2005 were classified as potential problem loans. This was a decrease of $693,000 from $7,679,000 or 2.6% of total loans at December 31, 2004. These are loans for which management has information that indicates the borrower may not be able to comply with the present payment terms. These loans are subject to increased management attention and their classification is reviewed on at least a quarterly basis. Due to the structure and nature of the credits, management currently believes that the likelihood of sustaining a loss on these relationships is remote.

Based on our continuing review of the overall loan portfolio, of the current asset quality of the portfolio, and the net recoveries of $114,000, no provision for loan losses was recorded during the first three months of 2005. The allowance for loan losses increased to $2,302,000 at March 31, 2005, as compared to $2,188, 000 at December 31, 2004. As a percentage of total loans, the allowance was 0.78% at March 31, 2005 and 0.74% at December 31, 2004.

Non Interest Income

Total other income decreased during the three-month period ended March 31, 2005 by $570,000 or 35.8% over the same period last year. Net gains on sales of securities during the three months ended March 31, 2005 totaled $63,000, compared to net securities gains for the three-month period ended March 31, 2004 of $621,000. Excluding net securities gains, total other income decreased $12,000 or 1.2% for the three months ended March 31, 2005. Service charges on deposit accounts for the three-month period ended March 31, 2005 totaled $551,000 and fees for other customer services for the three-month period ended March 31, 2005 totaled $223,000, reflecting decreases from the same three-month period in 2004.

Page 15

Bridge Abstract generated title fee income of $160,000 and $112,000 for the three-month periods ended March 31, 2005 and 2004, respectively.

Non Interest Expense

Total other expenses increased during the three-month period ended March 31, 2005 by $165,000 or 4.9% over the same period last year. The primary component of this increase was salary and benefit expense increasing $176,000 or 9.2% for the three-month period ended March 31, 2005 over the same period last year. Increases in salaries and employee benefit costs were due to base salary increases and in filling vacant positions, as well as increased insurance costs.

Total other operating expenses for the three-month period ended March 31, 2005 totaled $888,000; a decrease of $26,000 or 2.9% over the same period last year.

Income Taxes

The provision for income taxes decreased during the three-month period ended March 31, 2005 by $268,000 or 18.3% over the same period last year due in part to the decrease in net securities gains. The effective tax rate for the three-month period ended March 31, 2005 decreased to 34.76% as compared to 35.85% for the same period last year.

Financial Condition

Assets totaled $536,057,000 at March 31, 2005, a decrease of $11,143,000 or 2.0% from December 31, 2004. This change is primarily a result of decreases in the investment portfolio of $18,468,000, or 8.2%. Inflows were due to an increase in savings, N.O.W. and money market deposits of $13,872,000, or 5.7%, which in part were used to pay down the overnight borrowing position. The net increase in deposits of $10,844,000 or 2.3% is primarily attributed to an increase in N.O.W. and money market deposits by individuals and businesses.

Total stockholders’ equity was $46,255,000 at March 31, 2005, a decrease of 2.0% from December 31, 2004.

Liquidity

The objective of liquidity management is to ensure the sufficiency of funds available to respond to the needs of depositors and borrowers, and to access unanticipated earnings enhancement opportunities for Company growth. Liquidity management addresses the ability to meet deposit withdrawals either on demand or contractual maturity, to repay other borrowings as they mature and to make new loans and investments as opportunities arise.

The Company’s principal source of liquidity is dividends from the Bank. Due to regulatory restrictions, dividends from the Bank to the Company at March 31, 2005 were limited to $14,088,000, which represents the Bank’s 2005 retained net income and the net undivided profits from the previous two years. The dividends received from the Bank are used primarily for dividends to the shareholders and stock repurchases. In the event that the Company subsequently expands its current operations, in addition to dividends from the Bank, it will need to rely on its own earnings, additional capital raised and other borrowings to meet liquidity needs.

The Bank’s most liquid assets are cash and cash equivalents, securities available for sale and securities held to maturity due within one year. The levels of these assets are dependent upon the Bank’s operating, financing, lending and investing activities during any given period. Other sources of liquidity include loan and security principal repayments and maturities, lines of credit with other financial institutions including the Federal Home Loan Bank, and growth in core deposits. While scheduled loan amortization, maturing securities and short-term investments are a relatively predictable source of funds, deposit flows and loan and mortgage-backed securities prepayments are greatly influenced by general interest rates, economic conditions and competition. The Bank adjusts its liquidity levels as appropriate to meet funding needs such as seasonal deposit outflows, loans, and asset and liability management objectives. Historically, the Bank has relied on its deposit base, drawn through its full-service branches that serve its market area, as its principal source of funding. The Bank seeks to retain existing deposits and loans and maintain customer relationships by offering quality service and competitive interest rates to its customers, while managing the overall cost of funds needed to finance its strategies. The Bank’s Asset/Liability and Funds Management Policy allows for wholesale borrowings of up to 15% of total assets. At March 31, 2005, the Bank had aggregate lines of credit of

Page 16

$42,000,000 with unaffiliated correspondent banks to provide short-term credit for liquidity requirements. Of these aggregate lines of credit, $22,000,000 is available on an unsecured basis. The Bank also has the ability, as a member of the Federal Home Loan Bank (“FHLB”) system, to borrow against unencumbered residential mortgages owned by the Bank. The Bank also has a master repurchase agreement with the FHLB, which increases its borrowing capacity. In addition, the Bank has an approved broker relationship for the purpose of issuing brokered certificates of deposit. As of March 31, 2005, the amount of overnight borrowings was $5,500,000.

Management continually monitors the liquidity position and believes that sufficient liquidity exists to meet all of our operating requirements. Based on the objectives determined by the Asset and Liability Committee, the Bank’s liquidity levels may be affected by the use of short-term and wholesale borrowings. The Asset and Liability Committee is comprised of members of senior management and the Board. Excess short-term liquidity is invested in overnight federal funds sold. Management believes the Company has sufficient liquidity to meet its operating requirements.

Capital Resources

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Bank’s assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classification also are subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of March 31, 2005, that the Company and the Bank meet all capital adequacy requirements with which it must comply.

The Company’s only activity is the ownership of the Bank, and therefore, its capital, capital ratios, and minimum required levels of capital are substantially the same as the Bank’s. At March 31, 2005 and December 31, 2004, actual capital levels and minimum required levels for the Bank were as follows:

               
 
  
To Be Well
  
           
For Capital
  
Capitalized Under
  
 
          
Adequacy
  
Prompt Corrective
  
(In thousands)
  
Actual
  
Purposes
  
Action Provisions
  
   
Amount
  
Ratio
  
Amount
  
Ratio
  
Amount
  
Ratio
  
                                       
As of March 31, 2005
                                      
Total Capital (to risk weighted assets)
  
$
48,759
    
13.6
%
$
28,868
    
>8.0
%
$
35,873
    
>10.0
%
Tier 1 Capital (to risk weighted assets)
    
46,457
    
13.0
    
14,349
    
>4.0
    
21,524
    
>6.0
  
Tier 1 Capital (to average assets)
    
46,457
    
8.4
    
22,092
    
>4.0
    
27,615
    
>5.0
  

As of December 31, 2004
      
Total Capital (to risk weighted assets)
  
$
47,773
    
13.2
%
$
28,924
    
>8.0
%
$
36,154
    
>10.0
%
Tier 1 Capital (to risk weighted assets)
    
45,585
    
12.6
    
14,462
    
>4.0
    
21,693
    
>6.0
  
Tier 1 Capital (to average assets)
    
45,585
    
8.1
    
22,512
    
>4.0
    
28,140
    
>5.0
  

Impact of Inflation and Changing Prices

The unaudited Consolidated Financial Statements and notes thereto presented herein have been prepared in accordance with U.S. generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary effect of inflation on the operations of the Company is reflected in increased operating

Page 17

costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more significant effect on the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices. Changes in interest rates could aversely affect our results of operations and financial condition. Interest rates do not necessarily move in the same direction, or in the same magnitude, as the prices of goods and services. Interest rates are highly sensitive to many factors, which are beyond the control of the Company, including the influence of domestic and foreign economic conditions and the monetary and fiscal policies of the United States government and federal agencies, particularly the Federal Reserve Bank.

Recent Regulatory and Accounting Developments

SFAS 123R, “Accounting for Stock-Based Compensation, Revised,” requires all public companies to record compensation cost for stock options provided to employees in return for employee service. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options. The Securities and Exchange Commission in April 2005 amended the compliance dates for SFAS 123R from periods beginning after June 15, 2005 to the beginning of the next fiscal year. Historically options granted by the Company have vested immediately; compensation expense would be recorded on the date of grant. The effect on results of operations will depend on the level of future option grants and the calculation of the fair value of the options granted at such future date and so cannot currently be predicted. No existing options vest after adoption date so no additional compensation expense will be recorded subsequent to the date of adoption with respect to outstanding options. There will be no significant effect on financial position as total equity will not change.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Asset/Liability Management

Management considers interest rate risk to be the most significant market risk for the Company. Market risk is the risk of loss from adverse changes in market prices and rates. Interest rate risk is the exposure to adverse changes in the net income of the Company as a result of changes in interest rates.

The Company’s primary earnings source is net interest income, which is affected by changes in the level of interest rates, the relationship between rates, the impact of interest rate fluctuations on asset prepayments, the level and composition of deposits and liabilities, and the credit quality of earning assets. The Company’s objectives in its asset and liability management are to maintain a strong, stable net interest margin, to utilize its capital effectively without taking undue risks, to maintain adequate liquidity, and to reduce vulnerability of its operations to changes in interest rates.

The Company’s Asset and Liability Committee evaluates periodically, but at least four times a year, the impact of changes in market interest rates on assets and liabilities, net interest margin, capital and liquidity. Risk assessments are governed by policies and limits established by senior management, which are reviewed and approved by the full Board of Directors at least annually. The economic environment continually presents uncertainties as to future interest rate trends. The Asset and Liability Committee regularly utilizes a model that projects net interest income based on increasing or decreasing interest rates, in order to be better able to respond to changes in interest rates.

The Company utilizes a simulation model to quantify the estimated exposure to net interest income to sustained interest rate changes. Management routinely monitors simulated net interest income sensitivity over a rolling two-year horizon. The simulation model captures the impact of changing interest rates on the interest income received and the interest expense paid on all assets and liabilities reflected on the Company’s Statement of Condition. This sensitivity analysis is compared to the asset and liability policy limits that specify a maximum tolerance level for net interest income exposure over a one-year horizon given both a 200 basis point upward and downward shift in interest rates. Because of the current historically low rate environment, the simulation modeled was a 100 basis point shift downward at March 31, 2005 and December 31, 2004. A parallel and pro rata shift in rates over a twelve-month period is assumed. The following reflects the Company’s net interest income sensitivity analysis at March 31, 2005 and December 31, 2004:

Page 18


   
March 31, 2005
  
December 31, 2004
  
Change in Interest
  
Potential Change
  
Potential Change
  
Rates in Basis Points
  
in Net
 
in Net
 
(RATE SHOCK)
  
Interest Income
  
Interest Income
  
(In thousands)
                  
   
$ Change
  
% Change
  
$ Change
  
% Change
  
200
 
$
(14)
    
(0.06
)%
$
(472
)
  
(1.84
)%
Static
    
-
   
-
    
-
   
-
  
(100)
  
$
243
    
0.98
%
$
220
    
0.86
%

The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including, but not limited to, the nature and timing of interest rate levels and yield curve shapes, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, and reinvestment and replacement of asset and liability cash flows. While assumptions are developed based upon perceived current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences may change.

Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment and refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals, prepayment penalties and product preference changes and other internal and external variables. Furthermore, the sensitivity analysis does not reflect actions that management might take in responding to, or anticipating changes in interest rates and market conditions.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2005. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report. There has been no change in the Company’s internal control over financial reporting during the quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


Page 19

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

a.  
Exhibits


31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and  18 U.S.C. Section 1350

 
b.  
Reports on Form 8-K
 

(i)
Current Report on Form 8-K (Item 2.02 and 9.01), filed on January 28, 2005, and
(ii)
Current Report on Form 8-K (Item 8.01), filed on March 23, 2005.

 


Page 20


SIGNATURES

In accordance with the requirement of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 
BRIDGE BANCORP, INC.
 
Registrant
   
   
May 09, 2005
/s/ Thomas J. Tobin
 
Thomas J. Tobin
 
President and Chief Executive Officer
   
May 09, 2005
/s/ Janet T. Verneuille
 
Janet T. Verneuille
 
Senior Vice President, Chief Financial Officer
 
and Treasurer
   



Page 21