UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
COMMISSION FILE NUMBER 000-50105
_________________________________________
BRIDGE STREET FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-4217332
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
300 STATE ROUTE 104, OSWEGO, NEW YORK 13126
- ------------------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (315) 343-4100
----------------
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 Rule 12b-2 of the Exchange Act). (check one): Yes [ ] No [ X ]
Number of shares of common stock outstanding
as of May 9, 2005
Class Outstanding
COMMON STOCK, $0.01 PAR VALUE 2,477,257
- -----------------------------
BRIDGE STREET FINANCIAL, INC.
FORM 10-Q
INDEX
Part I - FINANCIAL INFORMATION PAGE
Item 1-Financial statements (unaudited):
Consolidated Statements of Financial
Condition at March 31, 2005 and December 31,
2004
Consolidated Statements of Income
for the three-month periods ended
March 31, 2005 and March 31, 2004
Consolidated Statements of Changes in Shareholders'
Equity for the three-month period ended March 31,
2005 3 Consolidated Statements of Cash Flows for
the three-month periods ended March 31, 2005 and
March 31, 2004
Notes to Unaudited Condensed Interim Consolidated
Financial Statements
Item 2- Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3- Quantitative and Qualitative Disclosures about Market Risk
Item 4- Controls and Procedures
Part II- OTHER INFORMATION
Item 1-Legal Proceedings
Item 2-Unregistered Sales of Equity Securities and Use of Proceeds
Item 3-Defaults Upon Senior Securities
Item 4-Submission of Matters to a Vote of Security Holders
Item 5-Other Information
Item 6- Exhibits
Signatures
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BRIDGE STREET FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands, except share and per share data)
(unaudited)
MARCH 31, DECEMBER 31,
Assets 2005 2004
--------- ------------
Cash and due from banks $ 14,065 7,956
Securities available for sale, at fair value 47,497 49,412
Securities held to maturity (fair value of $6,359 on
March 31, 2005, and $6,742 on December 31, 2004) 6,438 6,686
Loans held for sale 66 334
Loans 132,692 134,551
Less: allowance for loan losses 1,344 1,352
--------- ---------
Loans, net 131,348 133,199
--------- ---------
Federal Home Loan Bank stock 1,304 1,509
Premises and equipment, net 8,692 8,670
Accrued interest receivable 996 847
Bank owned life insurance 6,091 6,038
Goodwill 1,954 318
Other intangible assets, net 1,249 --
Other assets 3,936 3,906
--------- ---------
Total assets $ 223,636 218,875
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 29,010 30,513
Savings and money market 79,311 71,638
Time 54,337 51,096
--------- ---------
162,658 153,247
Escrow deposits 552 1,228
Short-term debt -- 3,675
Long-term debt 26,770 26,077
Other liabilities 3,871 3,402
--------- ---------
Total liabilities 193,851 187,629
--------- ---------
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000
shares authorized, at March 31, 2005
and December 31, 2004, no shares issued -- --
Common stock, $0.01 par value, 5,000,000
shares authorized, 2,857,319 and
2,853,319 shares issued at March 31, 2005
and December 31, 2004 29 29
Additional paid-in capital 18,183 18,074
Unvested restricted stock awards, 25,891 and
25,466 shares at March 31, 2005 and December 31, 2004 (354) (323)
Treasury stock, at cost, 299,170 and 236,170
shares at March 31, 2005 and December 31, 2004 (2,963) (1,825)
Unallocated common stock held by Employee Stock
Ownership Plan (ESOP) 40,466 and 42,925
shares at March 31, 2005 and December 30, 2004 (125) (134)
Retained earnings 14,994 14,982
Accumulated other comprehensive income 21 443
--------- ---------
Total shareholders' equity 29,785 31,246
--------- ---------
Total liabilities and shareholders' equity $ 223,636 218,875
========= =========
See accompanying notes to unaudited condensed consolidated interim financial
statements.
BRIDGE STREET FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In thousands, except share data)
(unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
2005 2004
------ ------
Interest and dividend income:
Loans $1,890 1,729
Securities 627 637
Federal funds sold and other short-term investments 13 18
------ ------
Total interest and dividend income 2,530 2,384
------ ------
Interest expense:
Deposits and escrow accounts 518 452
Borrowings 283 260
------ ------
Total interest expense 801 712
------ ------
Net interest income 1,729 1,672
Provision for loan losses 116 90
------ ------
Net interest income after provision for loan losses 1,613 1,582
------ ------
Noninterest income:
Service charges 602 593
Insurance commissions and fees 165 --
Net gains on sale of loans 29 35
Increase in value of bank-owned life insurance 53 58
Other 167 159
------ ------
Total noninterest income 1,016 845
------ ------
Noninterest expenses:
Salaries and employee benefits 1,238 1,181
Occupancy and equipment 342 332
Data processing 223 203
Office supplies, printing and postage 61 70
Professional fees 130 110
Director fees 44 38
Marketing and advertising 58 43
Other 298 269
------ ------
Total noninterest expenses 2,394 2,246
------ ------
Income before income tax expense 235 181
Income tax expense 45 20
------ ------
Net income $ 190 161
====== ======
Basic net income per share $ 0.08 0.06
====== ======
Diluted net income per share $ 0.07 0.06
====== ======
See accompanying notes to unaudited condensed interim consolidated financial
statements.
BRIDGE STREET FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Three months ended March 31, 2005
(unaudited)
UNALLOCATED
UNVESTED COMMON
ADDITIONAL RESTRICTED STOCK
COMMON PAID-IN STOCK TREASURY HELD BY
STOCK CAPITAL AWARDS STOCK ESOP
-------- ---------- ---------- -------- -----------
Balance at December 31, 2004 $ 29 18,074 (323) (1,825) (134)
Purchase of treasury stock (63,000 shares) -- -- -- (1,138) --
Cash dividends ($0.07 per share) -- -- -- -- --
Net proceeds from the exercise of stock options (750 shares) -- 2 -- -- --
Issue restricted stock (3,250 shares) -- 57 (57) -- --
Amortization of restricted stock, net of cancellations (2,825 shares) -- -- 26 -- --
Tax benefit on vested restricted stock and exercised stock options -- 14 -- -- --
Allocation of ESOP stock (2,459 shares) -- 36 -- -- 9
Comprehensive income:
Net income -- -- -- -- --
Other comprehensive loss -- -- -- -- --
Total comprehensive loss
-------- ---------- ---------- -------- -----------
Balance at March 31, 2005 $ 29 18,183 (354) (2,963) (125)
======= ========== ========== ======== ===========
ACCUMULATED
OTHER
COMPRE-
RETAINED HENSIVE
EARNINGS INCOME TOTAL
-------- ----------- -------
Balance at December 31, 2004 14,982 443 31,246
Purchase of treasury stock (63,000 shares) -- -- (1,138)
Cash dividends ($0.07 per share) (178) -- (178)
Net proceeds from the exercise of stock options (750 shares) -- -- 2
Issue restricted stock (3,250 shares) -- -- --
Amortization of restricted stock, net of cancellations (2,825 shares) -- -- 26
Tax benefit on vested restricted stock and exercised stock options -- -- 14
Allocation of ESOP stock (2,459 shares) -- -- 45
Comprehensive income:
Net income 190 -- 190
Other comprehensive loss -- (422) (422)
-------
Total comprehensive loss (232)
-------- ----------- -------
Balance at March 31, 2005 14,994 21 29,553
======== =========== =======
See accompanying notes to unaudited condensed consolidated interim financial
statements.
BRIDGE STREET FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
THREE MONTHS ENDED MARCH 31,
2005 2004
------------ ------------
Cash flows from operating activities:
Net income $ 190 161
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 169 177
Provision for loan losses 116 90
Net gain on sale of loans (29) (35)
Net increase in cash surrender value of life insurance (53) (58)
Net amortization of securities premiums 39 51
Proceeds from sale of loans held for sale 3,180 4,169
Loans originated for sale (2,883) (3,846)
Tax benefit on vested restricted stock and excercised stock options 14 --
ESOP stock released for allocation and amortization of restricted stock 71 65
Change in:
Accrued interest receivable (149) (142)
Other assets (129) (463)
Other liabilities 139 57
------------ ------------
Net cash provided by operating activities 675 226
------------ ------------
Cash flows from investing activities:
Proceeds from maturity of and principal collected on securities available for sale 1,176 2,408
Proceeds from maturity of and principal collected on securities held to maturity 248 355
Purchases of securities available for sale -- (998)
Proceeds fron sale (purchase) of Federal Home Loan Bank of New York stock 205 (13)
Disbursements for loan originations net of principal collections 1,700 (577)
Purchase of insurance agency, net of cash acquired (1,496) --
Purchases of premises and equipment (161) (1,141)
------------ ------------
Net cash provided by investing activities 1,672 34
------------ ------------
Cash flows from financing activities:
Net increase in demand, savings and money market deposits 6,170 (1,736)
Net decrease in time deposits 3,241 923
Net decrease in escrow deposits (676) (817)
Net decrease in short-term borrowing (3,675) --
Repayment of long-term debt 16 --
Net proceeds from the exercise of stock options 2 19
Purchase of treasury stock (1,138) --
Dividends on common stock (178) (106)
------------ ------------
Net cash provided by (used in) financing activities 3,762 (1,717)
------------ ------------
Net increase (decrease) in cash and cash equivalents 6,109 (1,457)
Cash and cash equivalents at beginning of period 7,956 15,272
------------ ------------
Cash and cash equivalents at end of period $ 14,065 13,815
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 804 713
Income taxes 21 7
============ ============
Non-cash investing and financing activities:
Transfer of loans to real estate owned $ 35 11
Adjustment of securities available for sale to fair value, net of taxes (422) 389
============ ============
Acquisition of financial service company:
Fair value of non-cash assets acquired in purchase acquisition $ 151 --
Fair value of non-cash liabilites assumed in acquisition (1,039) --
============ ============
See accompanying notes to consolidated interim financial statements.
BRIDGE STREET FINANCIAL, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2005
(1) Basis of presentation
The accompanying unaudited condensed consolidated interim financial
statements include the accounts of Bridge Street Financial, Inc.
("OCNB" or the "Company") and its wholly owned subsidiary, Oswego
County National Bank (the "Bank"). All significant intercompany
balances and transactions have been eliminated in consolidation. The
statements were prepared in accordance with the instructions for Form
10-Q and, therefore, do not include information or footnotes necessary
for a complete presentation of financial position, results of
operations and cash flows in conformity with accounting principles
generally accepted in the United States of America. However, in the
opinion of management, all material adjustments necessary for fair
presentation, consisting of normal accruals and adjustments have been
made in the accompanying statements. The results of operations for the
interim periods presented should not be considered indicative of
results that may be expected for an entire fiscal year or any other
interim period. The accompanying unaudited condensed consolidated
interim financial statements are intended to be read in conjunction
with the Company's audited financial statements and footnotes for the
year ended December 31, 2004 included in the annual report on Form
10-K.
(2) Earnings per share
Basic and diluted earnings per share are calculated by dividing net
income available to common shareholders by the weighted average number
of shares outstanding during the period (exclusive of unallocated ESOP
shares). Diluted earnings per share is computed by adding to weighted
average shares outstanding the number of potentially issuable shares
under the Company's stock option plan and the nonvested shares in a
restricted stock plan, under the treasury stock method. The following
table summarizes the number of shares utilized in the Company's
earnings per share calculations for the periods covered in the
financial statements.
NUMBER OF SHARES UTILIZED THREE MONTHS ENDED MARCH 31,
in per share computations 2005 2004
- ------------------------- --------- ---------
For basic earnings per share 2,493,875 2,579,078
Added for: Stock options 75,244 92,685
Restricted stock 3,815 4,939
--------- ---------
For diluted earnings per share 2,572,934 2,676,702
========= =========
(3) Other comprehensive (loss) income
The following summarizes the components of other comprehensive (loss)
income for the three-month periods ended March 31, 2005 and 2004:
THREE MONTHS
ENDED MARCH 31,
2005 2004
-------- --------
(in thousands)
Other comprehensive (loss) income, before tax:
Net unrealized holding (loss) gain on securities
arising during the period $ (703) 648
Reclassification adjustment for securities
gains included in net income - -
-------- --------
Other comprehensive (loss) income before tax (703) 648
Income tax benefit (expense) related to items
of other comprehensive income 281 (259)
-------- --------
Other comprehensive (loss) income, net of tax $ (422) 389
======== ========
(4) Stock based compensation
Compensation expense is recognized for the Company's Employee Stock
Ownership Plan ("ESOP") equal to the average fair value of shares
committed to be released for allocation to participant accounts. Any
difference between the average fair value of the shares committed to be
released for allocation and the ESOP's original acquisition cost is
charged or credited to shareholders' equity (additional paid-in
capital). The cost of unallocated ESOP shares (shares not yet released
for allocation) is reflected as a reduction of shareholders' equity.
The Company accounts for stock options granted under its stock option
plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
related Interpretations. Accordingly, compensation expense is
recognized only if the exercise price of the options is less than the
fair value of the underlying stock at the grant date. Statement of
Financial Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, encourages entities to recognize the fair
value of all stock-based awards on the date of the grant as
compensation expense over the vesting period. Alternatively, SFAS No.
123 allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma disclosure of net income and earnings per
share as if the fair-value-based method defined in SFAS No. 123 had
been applied. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123
and recognized the cost over the vesting period, the Company's net
income and earnings per share for the three-month periods ended March
31, 2005 and 2004 would have been reduced to the pro forma amounts
indicated below:
THREE MONTHS
ENDED MARCH 31,
(in thousands, except per share data) 2005 2004
-------- --------
Net income
As reported $ 190 161
Add: Stock based compensation for
restricted stock, net of tax 16 16
Deduct: Total stock-based compensation expense
determined under fair value based method
for all awards, net of tax 27 26
-------- --------
Pro forma net income $ 179 151
======== ========
Basic earnings per share:
As reported 0.08 0.06
Pro forma 0.07 0.06
Diluted earnings per share:
As reported 0.07 0.06
Pro forma 0.07 0.06
(5) Obligations under guarantees
The Company does not issue any guarantees that would require liability
recognition or disclosures, other than its standby letters of credit.
Standby letters of credit are conditional commitments issued by the
Company to guarantee payment on behalf of a customer and guarantee the
performance of a customer to a third party. The credit risk involved in
issuing these instruments is essentially the same as that involved in
extending loans to customers. Since a portion of these instruments will
expire unused, the total amounts do not necessarily represent future
cash requirements. Each customer is evaluated individually for
creditworthiness under the same underwriting standards used for
commitments to extend credit and on-balance-sheet instruments. Company
policies governing loan collateral apply to standby letters of credit
at the time of credit extension. Outstanding commitments on standby
letters of credit at March 31, 2005 and March 31, 2004 were
approximately $318,000 and $1.1 million, respectively. The fair value
of the Company's standby letters of credit at March 31, 2005 and 2004
was insignificant.
(6) Pension and Other Postretirement Plans
The following table sets forth the components of net periodic benefit
cost for the Company's defined benefit pension plan and the other
postretirement benefit plan for the three-month period ended March 31,
2005 and 2004.
THREE MONTHS ENDED MARCH 31,
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- -------------------
2005 2004 2005 2004
------- ------- --------- --------
Service cost $ 56 52 - -
Interest cost 69 65 12 12
Expected return on assets (87) (86) - -
Amortization of transition obligation - - 3 3
Amortization of net loss 19 18 - -
------- ------- --------- --------
Net periodic benefit cost $ 57 49 15 15
======= ======= ========= ========
For the fiscal year ending December 31, 2005, the Company expects to
contribute approximately $220,000 and $48,000 to the defined benefit
pension plan and the postretirement plan, respectively.
(7) Acquisition
On March 4, 2005, Bridge Street Financial, Inc. acquired 100% of the
stock of Ladd's Agency, Inc., ("Ladd's Agency") an insurance agency with offices
in North Syracuse and Auburn, New York, in a cash transaction. The aggregate
purchase price was approximately $1,785,000, which included cash payments of
$1,621,000 and capitalized transaction costs of $164,000. In addition, Ladd's
Agency shareholders may receive an aggregate of $770,000 if Ladd's Agency meets
certain performance targets in each of the next three years. The results of
operations of the insurance agency will be included in the consolidated
statements of Bridge Street Financial, Inc. from March 1, 2005, the effective
date of the transaction. The excess of the purchase price over the fair value of
identifiable assets acquired less liabilities assumed resulted in preliminary
identifiable other intangible assets of $1,253,000, goodwill of $1,631,000 and
deferred tax liabilities of $501,000. The identifiable other intangible assets
are being amortized over 15 years.
The following table presents unaudited pro forma information as if the
acquisition of Ladd's Agency had been consummated as of the beginning the 2004
first quarter. This pro forma information gives effect to certain adjustments,
including purchase accounting adjustments, amortization of intangibles and
income tax effects. The pro forma information does not necessarily reflect the
results of operations that would have occurred had the Company acquired Ladd's
Agency at the beginning of 2004.
THREE MONTHS ENDED MARCH 31,
----------------------------
(in thousands, except per share data) 2005 2004
------------- --------------
(Pro forma)
Net interest income $ 1,599 1,563
Noninterest income 1,373 1,566
Noninterest expense 2,666 2,663
Net income 235 341
Basis earnings per share $ 0.09 0.13
============== ==============
Diluted earnings per share $ 0.09 0.13
============== ==============
(8) Segment Information
The Company has two business segments, banking and financial services.
The financial service segment is the insurance agency business which was
acquired as of March 1, 2005. The banking segment includes the results of Bridge
Street Financial, Inc. excluding the financial services. Segment information for
2004 is not presented since the Company results were in the banking sector only
prior to the insurance agency acquisition. Selected operating information for
those segments follows:
THREE MONTHS ENDED MARCH 31, 2005
---------------------------------
FINANCIAL CONSOLIDATED
BANK SERVICES TOTAL
------------- ------------- ------------
(in thousands)
Net interest income $ 1,733 (4) 1,729
Provision for loan losses 116 0 116
------------- ------------- ------------
Net interest income after provision for loan losses 1,617 (4) 1,613
Noninterest income 851 165 1,016
Noninterest expense 2,248 146 2,394
------------- ------------- ------------
Income before income taxes 220 15 235
Income tax expense 39 6 45
------------- ------------- ------------
Net income 181 9 190
============= ============= ============
(9) Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123R "Share-Based Payment."
This Statement is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation" and supersedes Accounting for Stock Issued to Employees" and its
related implantation guidance. This Statement requires a public entity to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. That cost
will be recognized over the period during which an employee is required to
provide services in exchange for the award. The grant-date fair value of
employee share options and similar instruments will be estimated using
option-pricing models adjusted for unique characteristics of those instruments
(unless observable market prices for the same or similar instruments are
available). If any equity award is modified after the grant date, incremental
compensation cost will be recognized in an amount equal to the excess of the
fair value of the modified award over the fair value of the original award
immediately before the modification. This revised Statement was to become
effective for the Company as of July 1, 2005 and may be adopted prospectively or
retrospectively; however, the SEC superseded the FASB's implantation timetable
in April 2005, changing the effective date to the beginning of 2006. Adoption of
this statement will affect the Company's results of operations. The extent of
the impact has not yet been quantified.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
This discussion contains certain forward-looking statements based on
current expectations, estimates and projections about the Company's industry,
and management's beliefs and assumptions. Words such as anticipates, assumes,
expects, intends, plans, believes, estimates, projects and variations of such
words and expressions are intended to identify forward-looking statements. Such
statements are not guarantees of future performance and are subject to risks and
uncertainties that are difficult to forecast. Therefore, actual results may
differ materially from those expressed or forecast in such forward-looking
statements. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information or otherwise.
OVERVIEW
Bridge Street Financial, Inc. (the "Company") reported net income of
$190,000 for the quarter ended March 31, 2005 compared to $161,000 for the same
period of 2004. The Company's results for the first quarter of 2005 include the
results for the recently acquired Ladd's Agency (the "Insurance Agency") since
the effective purchase date of March 1, 2005. The increase in net income for the
first quarter of 2005 resulted primarily from a $57,000 increase in net interest
income and a $171,000 increase in noninterest income, which was partially offset
by a $26,000 increase in the provision for loan losses, a $148,000 increase in
noninterest expense and a $25,000 increase in income tax expense.
Bridge Street Financial's total assets increased $4.8 million or 2.2%
to $223.6 million at March 31, 2005 compared to total assets of $218.9 million
at December 31, 2004. The increase in total assets during the three months ended
March 31, 2005 was due primarily to a $9.4 million increase in deposits which
resulted in a $6.1 million increase in cash and due from banks and a reduction
in short-term debt of $3.7 million. During the three months ended March 31,
2005, securities decreased $2.2 million and loans decreased $1.9 million.
Additionally, goodwill and other intangible assets, net of amortization,
increased $2.9 million as a result of the Insurance Agency acquisition.
FINANCIAL CONDITION
Total assets increased by $4.8 million or 2.2% to $223.6 million at
March 31, 2005 from $218.9 million at December 31, 2004. The increase in total
assets resulted primarily from a $6.1 million increase in cash and due from
banks and a $2.9 million increase in goodwill and other intangible assets, net
of amortization, which were partially offset by a $2.2 million decrease in
securities and a $1.9 million decrease in loans. During the three months ended
March 31, 2005 deposits increased $9.4 million. The increase in deposits
provided funding for the $6.1 million increase in cash and due from banks and a
$3.7 million reduction in short-term debt.
Total securities decreased $2.2 million or 3.9% to $53.9 million at
March 31, 2005 compared to $56.1 million at December 31, 2004. Government agency
obligations available for sale decreased $89,000, mortgage-backed securities
available for sale decreased $1.4 million, municipal securities available for
sale decreased $288,000, and mortgage-back securities held to maturity decreased
$248,000. The decrease in securities is primarily the result of proceeds
received for principal payments and a reduction in fair value that has resulted
from increasing interest rates.
The following table presents the composition of the Company's
securities portfolio at the dates indicated.
March 31, December 31,
2005 2004
------------ ------------
(In thousands)
SECURITIES AVAILABLE FOR SALE (fair value)
U.S. Government agency obligations $ 4,127 4,216
Municipal securities 17,373 17,661
Corporate securities 1,802 1,832
Mortgage-backed securities 19,854 21,290
Other equity securities 4,341 4,413
------------ ------------
Total securities $ 47,497 49,412
SECURITIES HELD TO MATURITY (amortized cost)
Mortgage-backed securities $ 6,438 6,686
Total loans decreased by $1.9 million or 1.4% to $132.7 million at
March 31, 2005 from $134.6 million at December 31, 2004. Commercial mortgages
and commercial loans decreased $660,000, or 1.1%, to $59.6 million at March 31,
2005 from $60.3 million at December 31, 2004. Residential mortgages decreased
$335,000 to $61.8 million at March 31, 2005 as compared to $62.1 million at
December 31, 2004. Consumer loans decreased $864,000 to $11.3 million at March
31, 2005 as compared to $12.2 million at December 31, 2004. The Company
attributes the reduction in loans primarily to seasonal factors associated with
low loan origination volume in the first quarter of the year.
The following table presents the composition of the Company's loan
portfolio by type of loan at the dates indicated.
March 31, December 31,
LOANS 2005 2004
- ----- ------------------- ------------------
(in thousands)
Residential mortgage
and home equity $ 61,767 62,102
Commercial mortgage 35,137 35,535
Commercial 24,481 24,743
Consumer 11,307 12,171
------------------- ------------------
$ 132,692 134,551
=================== ==================
In addition to the previously mentioned loan balances, the Company had
$66,000 of loans held for sale on March 31, 2005 as compared to $334,000 at
December 31, 2004. The loans held for sale consisted of fixed rate residential
mortgages and are carried at the lower of aggregate cost or market value.
Bridge Street Financial's deposits increased by $9.4 million or 6.1% to
$162.7 million at March 31, 2005 from $153.2 million at December 31, 2004.
Savings and money market deposits increased by $7.7 million, time deposits
increased $3.2 million and demand deposits decreased by $1.5 million. The
increase in deposit balances is due primarily to favorable customer response to
the Company's deposit growth initiatives during the first quarter of 2005.
Bridge Street Financial's short-term borrowings with the Federal Home
Loan Bank of New York ("FHLB") were paid off at March 31, 2005 as compared to
short-term borrowings of $3.7 million December 31, 2004. The reduction in
borrowing from the FHLB is due to the Company's utilization of excess funds to
reduce borrowings. Long-term debt increased $693,000 to $26.8 million at March
31, 2005 as compared to $26.1 million at December 31, 2004. The increase in
long-term debt was due to debt assumed as a part of the Insurance Agency
acquisition.
Shareholders' equity decreased $1.5 million during the three months
ended March 31, 2005 to $29.8 million from $31.2 million at December 31, 2004.
The decrease in shareholders' equity was primarily due to an increase in
treasury stock of $1.1 million resulting from the Company's previously announced
stock repurchase program, a $422,000 decrease in net change in the unrealized
gain on securities available for sale, net of tax and dividend payments of
$178,000, which were partially offset by net income of $190,000, and an increase
of $87,000 from the exercise of stock options, the allocation of ESOP shares and
the amortization of restricted stock.
At March 31, 2005, nonperforming assets were 0.37% of total assets as
compared to 0.48% at December 31, 2004.
NONPERFORMING ASSETS March 31, December 31,
(dollars in thousands) 2005 2004
-------------------- -----------------
Nonaccrual loans $ 789 1,055
Restructured loans - -
-------------------- -----------------
Nonperforming loans 789 1,055
Other real estate 33 6
-------------------- -----------------
Nonperforming assets $ 822 1,061
==================== =================
Nonperforming assets
to total assets 0.37% 0.48%
Allowance for loan losses
to nonperforming loans 170.34% 128.15%
While management views the current level of nonperforming assets to be
very manageable, future experience may be affected by regional and national
economic conditions, underwriting judgments and business and personal factors
affecting Bridge Street Financial's customers. At March 31, 2005, the allowance
for loan losses is at a level that management believes, to the best of its
knowledge, is adequate to cover known losses and the risk of loss inherent in
the loan portfolio. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the allowance for loan
losses. Such agencies may require additions to the allowance based on their
judgments about information available to them at the time of their examinations.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND
2004
Net income was $190,000 for the three months ended March 31, 2005
compared to net income of $161,000 for the three months ended March 31, 2004.
For the three months ended March 31, 2005 compared to the three months ended
March 31, 2004, net interest income increased $57,000 and noninterest income
increased $171,000. The increase in net interest income and noninterest income
was partially offset by a $26,000 increase in the provision for loan losses, a
$148,000 increase in noninterest expense and a $25,000 increase in income tax
expense. Return on average equity was 2.53% in the three-month period of 2005
compared to 2.03% in the three-month period ended March 31, 2004. Return on
average assets was 0.35% for the three-month period ended March 31, 2005
compared to 0.31% in the same period of 2004.
Net Interest Income
Net interest income increased $57,000 to $1,729,000 in the three months
ended March 31, 2005 from $1,672,000 in the three months ended March 31, 2004.
The increase in net interest income during the three-month period was the result
of increased interest income which exceeded an increase in interest expense.
Interest income increased $146,000 and interest expense increased $89,000.
Bridge Street Financial's net interest rate margin on a tax equivalent basis of
3.95% for the first three months of 2005 increased 3 basis points from the same
three-month period of 2004. For the three months ended March 31, 2005, net
interest income on a tax equivalent basis increased $87,000 due to increases in
volume of interest earning assets and interest bearing liabilities and decreased
$15,000 from changes in interest rates.
Interest Income
Interest income increased $146,000 to $2.5 million for the three months
ended March 31, 2005 as compared to $2.4 million for the same period in 2004.
The increase in interest income is due primarily to a $7.7 million increase in
average interest earning assets in 2005 compared to 2004. Interest income on a
tax equivalent basis increased by $161,000, or 6.4%, to $2.7 million in the
three months ended March 31, 2005. The increase in interest income resulted from
a $174,000 increase in interest income on loans, which was partially offset by a
$5,000 decrease in interest income from federal funds sold and other short-term
investments and a $8,000 decrease in income from investments. The increase in
loan interest income resulted from a $14.5 million increase in the balances of
average loans which were partially offset by a reduction in the average yield on
loans to 5.77% in 2005 from 5.83% in 2004. The decrease in securities interest
income resulted from a decrease of $1.9 million in average securities in 2005
compared to the same period in 2004, which was partially offset by a 16 basis
point increase in average yield in 2005 to 5.42% from 5.26% in the same period
in 2004.
Interest Expense
Interest expense increased by $89,000 to $801,000 for the three months
ended March 31, 2005 compared to $712,000 for the three months ended March 31,
2004. The increase in interest expense resulted from higher average balances of
deposits, higher average balances of borrowings, and higher rates on deposits,
which was partially offset by lower rates on borrowings. Average interest
bearing deposit balances increased $793,000 or 0.6% compared to 2004, and
average borrowings increased $5.1 million compared to 2004. The average rate on
deposits and borrowing increased 18 basis points to 2.11% for the three months
ended March 31, 2005 compared to 1.93% for the same period in 2004.
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
For the three months For the three months
ended March 31, 2005 ended March 31, 2004
-------------------- --------------------
(dollars in thousands) Average Average Average Average
Balance Interest Yield/Rates Balance Interest Yield/Rates
--------- ---------- ----------- ---------- ---------- -----------
Interest earnings assets:
Loan, gross (1),(2) $ 133,697 $ 1,903 5.77% $ 119,190 $ 1,729 5.83%
Securities, at amortized cost (2) 57,433 768 5.42% 59,356 776 5.26%
Federal funds sold and other 2,404 13 2.19% 7,243 18 1.00%
--------- ---------- -------- ---------- ---------- --------
Total interest earning assets 193,534 2,684 5.62% 185,789 2,523 5.46%
Noninterest earning assets 24,050 23,831
--------- ----------
Total assets 217,584 209,620
========== ==========
Interest bearing liabilities;
Savings, NOW, money market (3) 73,009 162 0.90% 73,459 136 0.74%
Time deposits 52,736 356 2.74% 51,493 316 2.47%
Borrowings 28,476 283 4.03% 23,334 260 4.48%
--------- ---------- -------- ---------- ---------- --------
Total interest bearing liabilities 154,221 801 2.11% 148,286 712 1.93%
Noninterest bearing deposits 28,996 26,359
Other noninterest liabilities 3,904 3,108
--------- ----------
Total liabilities 187,121 177,753
Shareholders' equity 30,463 31,867
--------- ----------
Total liabilities and equity 217,584 209,620
========== ==========
Excess of earnings assets over interest
bearing liabilities 39,313 37,503
========== ==========
Net interest income 1,883 1,811
----------- -----------
Tax equivalent adjustment (154) (139)
Net interest income per consolidated
financial statements 1,729 1,672
=========== ===========
Net interest rate spread 3.51% 3.53%
Net interest rate margin (4) 3.95% 3.92%
Average interest-earning assets to average
interest-bearing liabilities 125.49% 125.29%
- --------------------------------
(1) Includes nonaccruing loans.
(2) Includes tax equivalent adjustment for tax-exempt loans and securities
income assuming a 40% combined federal and state income tax rate. Average
balance represents the amortized cost of securities excluding net unrealized
gains or losses.
(3) Includes advance payments by borrowers for taxes and insurance (mortgage
escrow deposits).
(4) Equals net interest income divided by average interest-earning assets.
Rate/Volume Analysis
The following table presents the extent to which changes in interest
rates and changes in volume of interest-related assets and liabilities have
affected Bridge Street Financial's interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), and (ii)
changes in rate (change in rate multiplied by prior year volume). The combined
effect of changes in both rate and volume has been allocated proportionately to
the change due to rate and the change due to volume.
THREE MONTHS ENDED
MARCH 31, 2005
COMPARED TO
THREE MONTHS ENDED
MARCH 31, 2004
INCREASE/(DECREASE)
--------------------------------------
DUE TO
-----------------------
VOLUME RATE NET
--------- ---------- --------
Interest income:
Loans $ 190 $ (16) $ 174
Securities (28) 20 (8)
Federal funds sold and other (17) 12 (5)
--------- ---------- --------
Total interest income 145 16 161
--------- ---------- --------
Interest expense
Savings,NOW and money
market deposits (1) 27 26
Time deposits 7 33 40
Borrowings 52 (29) 23
--------- ---------- --------
Total interest expense 58 31 89
--------- ---------- --------
Increase (decrease) in net
interest income $ 87 $ (15) $ 72
========= ========== ========
Provision for Loan Losses
The provision for loan losses was $116,000 in the three month ended
March 31, 2005, as compared to $90,000 for the same period in 2004. The increase
in the provision for loan losses was primarily due to increased net loan
charge-offs offset somewhat by reduced nonperforming loans. Charge-offs net of
recoveries during the three months ended March 31, 2005 were $124,000 as
compared to $56,000 in the same in 2004. The Company records charge-offs as a
result of loan customers on various commercial and consumer loans being
delinquent with future payment doubtful. Requirements for allowance provisions
are based on management's assessment of inherent losses in these portfolios
based upon specific credit review and analysis of past-due, non-performing,
historical losses and local economic trends. The allowance for loan losses as a
percentage of ending loans was 1.01% at March 31, 2005 as compared to 1.00% at
December 31, 2004.
Noninterest Income
Noninterest income increased $171,000 to $1,016,000 for the three
months ended March 31, 2005 compared to $845,000 for the same period in 2004.
The increase in noninterest income was due primarily to $165,000 of noninterest
income from the Insurance Agency acquired in March 2005. Additionally, service
charges and other noninterest income increased $17,000, which were partially
offset by a $6,000 reduction of net gains on sale of loans, and a $5,000
decrease in the income from the investment in bank-owned life insurance
resulting from a reduction in the rate of earnings. The reduction in gains on
sale of loans is the result of reduced volume of mortgage banking activity in
the first quarter of 2005 compared to the same period in 2004.
Noninterest Expense
Noninterest expense increased during the three months ended March 31,
2005 by $148,000 or 6.6% compared to the three months ended March 31, 2004. The
increase in noninterest expense is primarily the result of $146,000 of
noninterest expense recorded for the Insurance Agency in March 2005. In the
three months ended March 31, 2004 the Company's noninterest expense included the
recognition of $75,000 of severance costs related to a staff reduction program.
Income Taxes
Income tax expense for the three months ended March 31, 2005 was
$45,000 as compared to $20,000 for the same period in 2004. The income tax
expense in the three-month period ended March 31, 2005 is greater than the same
period in 2004 due to increased income before income tax expense and a higher
effective tax rate in 2005. The Company's effective income tax rate is based on
the projected effective income tax rate for the twelve-month period ended
December 31, 2005. The income tax rate is below statutory rates due primarily to
favorable tax benefits from tax-exempt income on securities and income from
bank-owned life insurance. The benefit from these favorable tax items is
projected to be lower in 2005 due to increased income before income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, represented by cash, cash equivalents,
securities available for sale and potential borrowings, is a product of its
operating, investing and financing activities. The primary sources of funds are
deposits and borrowings; the amortization, prepayment and maturity of
outstanding loans, securities and other short-term investments; and funds
provided from operations. While scheduled payments from the amortization of
loans, maturing securities and short-term investments are relatively predictable
sources of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions and competition. In addition, the
Company invests excess funds in federal funds sold and other short-term
interest-earning assets that provide liquidity to meet lending requirements. The
Company also utilizes borrowings to fund a portion of its asset growth.
Excess liquidity is generally invested in short-term investments such
as federal funds sold or U.S. Treasury securities. On a longer term basis, the
Company maintains a strategy of investing in various lending products. Such
products frequently have short terms (five years or less) or interest rates that
adjust at least every five years. Funds are utilized to meet ongoing commitments
to pay maturing certificates of deposit and savings withdrawals, fund loan
commitments and to maintain a portfolio of investment securities. At March 31,
2005, the Company had outstanding commitments to originate loans of
approximately $21.3 million and unused letters of credit of approximately
$318,000. At March 31, 2005, the Company also had certificates of deposit
scheduled to mature in one year or less totaling $35.6 million. Based on
historical experience, management believes that a significant portion of
maturing deposits will remain with the Company. It is anticipated that the
Company will continue to have sufficient deposit funds and available borrowings
to meet its current commitments.
At March 31, 2005, the Company had total borrowings from the FHLB of
$26.1 million. Also available to the Company are overnight and one-month
borrowing facilities with the FHLB, each in the amount of $10.4 million, an
overnight credit plus line of $9.0 million with the FHLB and a $5.0 million
overnight line of credit with a commercial bank.
The Company and the Bank are subject to various regulatory capital
requirements administered by the Federal banking regulators. Failure to meet
minimum capital requirements could result in certain mandatory and discretionary
responses by regulators that could have a material effect on the Company's
financial condition and results of operations. In addition, the ability of the
Company and the Bank to pay dividends is subject to regulations administered by
the banking agencies. At March 31, 2005, the Company and the Bank exceeded the
capital requirements set forth by the regulators for well capitalized
organizations.
On April 24, 2005 the Company announced the commencement of a Stock
Repurchase Plan under which the Company may purchase up to 255,900 shares of
common stock, or 10% of the outstanding shares. The repurchases can be made from
time to time at the discretion of management and the Stock Repurchase Plan will
continue until the purchase of authorized shares is complete.
Off Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements that have,
or in management's opinion, are reasonably likely to have, a current or future
affect on the Company's financial condition, revenue or expenses, results of
operations, liquidity, capital resources or expenditures that is material to
investors.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company's most significant type of market risk is interest rate
risk. The primary focus of the Company's interest rate risk policy is to manage
the exposure of net interest income to changes in interest rates. The Company
monitors interest rate sensitivity through the use of a net interest income
model, which projects estimates of changes in net income over a range of
interest rate scenarios.
The following table as of March 31, 2005 presents the estimated impact
on the Company's net interest income resulting from changes in the interest
rates during the next twelve months. These estimates require making certain
assumptions including loan and mortgage-related investment prepayment speeds,
reinvestment rates, and deposit maturities. These assumptions are inherently
uncertain and therefore, the Company cannot precisely predict the impact of
changes in interest rates on net interest income. Actual results may be
significantly different due to timing, magnitude and frequency of interest rate
changes and changes in market conditions.
NET INTEREST INCOME
----------------------------------------------
DOLLAR PERCENTAGE
Change in Interest Rates ESTIMATED CHANGE CHANGE
in Basis Points AMOUNT FROM BASE FROM BASE
- ----------------------------- ---------- ----------- --------------
+ 200 $ 8,898 515 6.14%
+ 100 8,704 321 3.83%
Base 8,383 - 0.00%
- 100 8,089 (294) -3.51%
- 200 7,666 (717) -8.55%
Item 4. Controls and Procedures
Management, including the Company's President and Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of the end of the period covered by this report.
Based upon that evaluation, the President and Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and procedures were
effective, in all material respects, to ensure that information required to be
disclosed in the reports the Company files and submits under the Exchange Act is
recorded, processed, summarized and reported as and when required.
There have been no changes in the Company's internal control over
financial reporting identified in connection with the evaluation that occurred
during the Company's last fiscal quarter that has materially affected, or that
is reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
COMPANY PURCHASES OF EQUITY SECURITIES
(C) TOTAL NUMBER OF (D) MAXIMUM NUMBER (OR
(A) TOTAL NUMBER (B) AVERAGE SHARES (OR UNITS) APPROXIMATE DOLLAR VALUE)
OF SHARES PRICE PAID PURCHASED AS PART OF OF SHARES (OR UNITS) THAT
(OR UNITS) PER SHARE PUBLICLY ANNOUNCED PLANS MAY YET BE PURCHASED UNDER
PERIOD PURCHASED (OR UNIT) ($) OR PROGRAMS (1) THE PLANS OR PROGRAMS
- -------------------------------- ----------------- --------------- -------------------------- -----------------------------
January 1, 2005 through January
31, 2005........................ 63,000 $18.07 63,000 200
February 1, 2005 through
February 28, 2005............... - - - 200
March 1, 2005 through March 31,
2005............................ - - - 200
Total........................... 128,700 $16.15 128,700 200
(1) In January of 2004 the Company announced the Board of Directors had
approved a stock repurchase plan. Under the plan, the Company may
repurchase up to 128,900 shares of common stock, or 5% of its
outstanding shares. The repurchases may be made from time to time at
the discretion of management of the Company. The repurchase plan will
continue until the Company completes the purchase of authorized shares.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
(a) None
(b) None
Item 6. Exhibits
Exhibits
10.11 Stock purchase agreement by and between Bridge
Street Financial, Inc. and Robert J. Rowe, et. al.,
dated February 23, 2005.
31.1 Rule 13a-14(a)/ 15d-14(a) Certification
31.2 Rule 13a-14(a)/ 15d-14(a) Certification
32.1 Section 1350 Certifications.
SIGNATURES
In accordance with the requirements 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 Street Financial, Inc.
Date: May 10, 2005 By: /s/ Gregory J. Kreis
--------------------------------------------
Gregory J. Kreis
President and Chief Executive Officer
Date: May 10, 2005 By: /s/ Eugene R. Sunderhaft
--------------------------------------------
Eugene R. Sunderhaft
Senior Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)