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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999
( ) 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 : 1-12165
Bridge View Bancorp
(Exact name of Registrant as specified in its charter)
New Jersey 22-3461336
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
457 Sylvan Avenue, Englewood Cliffs, NJ 07632
(Address of principal executive offices) (Zip Code)
201-871-7800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class: Name of each exchange on which registered:
Common Stock, No Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
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, as amended, 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of March 8, 2000 was $47,297,000.
The number of shares of the Issuer's Common Stock, no par value, outstanding as
of March 8, 2000 was 2,782,146.
For the fiscal year ended December 31, 1999, the Issuer had total revenues of
$12,558,000.
1
DOCUMENTS INCORPORATED BY REFERENCE
10-K Item Document Incorporated
Item 9. Directors and Executive Officers of the Company; Proxy Statement for 2000 Annual Meeting of Shareholders to
Compliance with Section 16(a) Of the Exchange Act be filed no later than April 29, 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Item 10. Executive Compensation Proxy Statement for 2000 Annual Meeting of Shareholders to
be filed no later than April 29, 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Item 11. Security Ownership of Certain Beneficial Owners and Proxy Statement for 2000 Annual Meeting of Shareholders to
Management be filed no later than April 29, 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Item 12. Certain Relationships and Related Transactions Proxy Statement for 2000 Annual Meeting of Shareholders to
be filed no later than April 29, 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
2
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Description of Business 4
Item 2. Description of Property 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of 11
Security Holders
PART II
Item 5. Market for Registrant's Common Equity and 12
Related Stockholder Matters
Item 6. Selected Consolidated Financial Data and Other Data 13
Item 7. Management's Discussion and Analysis of 14
Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 35
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes In and Disagreements with Accountants 35
on Accounting and Financial Disclosures
PART III
Item 10. Directors and Executive Officers of the Registrant 35
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial 36
Owners and Management
Item 13. Certain Relationships and Related Transactions 36
PART IV
Item 14. Exhibits and Financial Statement Schedules 37
3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Bridge View Bancorp (the "Company") is a one-bank holding company incorporated
under the laws of the State of New Jersey in May, 1996 to serve as a holding
company for Bridge View Bank (the "Bank"; unless the context otherwise requires,
all references to the "Company" in this Annual Report shall be deemed to refer
also to the Bank). The Company was organized at the direction of the Board of
Directors of the Bank for the purpose of acquiring all of the capital stock of
the Bank. Pursuant to the New Jersey Banking Act of 1948 (the "Banking Act"), as
amended, and pursuant to approval of the shareholders of the Bank, the Company
acquired the Bank and became its holding company on December 6, 1996. As part of
the Acquisition, shareholders of the Bank received two shares of common stock,
no par value, (the "Common Stock") of the Company for each outstanding share of
the common stock of the Bank, $5.00 per share par value ("Bank Common Stock").
The only significant activities of the Company are the ownership and supervision
of the Bank. The Company's main office is located at 457 Sylvan Avenue,
Englewood Cliffs, Bergen County, New Jersey, 07632.
The Bank is a commercial bank formed under the laws of the State of New Jersey
on October 11, 1988. The Bank operates from its main office at 457 Sylvan
Avenue, Englewood Cliffs, New Jersey, 07632, and its six branch offices located
at 1605 Lemoine Avenue, Fort Lee, New Jersey, 07024, 115 River Road, Edgewater,
New Jersey, 07020, 899 Palisade Avenue, Fort Lee, New Jersey, 07024, 77 River
Street, Hackensack, NJ, 07601, 20 West Railroad Avenue, Tenafly, NJ 07670, and 4
Park Street, Harrington Park, NJ 07640. All branch locations are in Bergen
County, NJ
The Bank is subject to the supervision and regulation of the Board of Governors
of the Federal Reserve System (the "FRB"). The Bank's deposits are insured by
the Bank Insurance Fund (the "BIF") of the Federal Deposit Insurance Corporation
("FDIC") up to applicable limits. The operation of the Company and the Bank are
subject to the supervision and regulation of the FRB, FDIC, and the New Jersey
Department of Banking and Insurance (the " Department"). The principal executive
offices of the Bank are located at 457 Sylvan Avenue, Englewood Cliffs, New
Jersey, 07632, and the telephone number is (201) 871 - 7800.
Business of the Company
The Company's primary business is ownership and supervision of the Bank. The
Company, through the Bank, conducts a traditional commercial banking business,
accepting deposits from the general public, including individuals, businesses,
non-profit organizations, and governmental units. The Bank makes commercial
loans, consumer loans, and both residential and commercial real estate loans. In
addition, the Bank provides other customer services and makes investments in
securities, as permitted by law. The Bank has sought to offer an alternative,
community-oriented style of banking in an area, which is presently dominated by
larger, statewide and national institutions. The Bank has sought to be a
positive force in the area by assisting in the development of the residential
sector, by serving the needs of small and medium-sized businesses and the local
professional community, and by meeting the requirements of individuals residing,
working, and shopping in the Bank's eastern Bergen County market area by
4
extending consumer, commercial, and real estate loans and by offering depository
services. The Bank believes that the following attributes have attracted local
business people and residents:
o Competitively priced services;
o Direct access to Bank management by members of the community, whether during
or after business hours;
o Strategically located branch offices;
o Full service business hours of 7:00 am to 7:00 pm weekdays and 9:00 am to
1:00 pm Saturdays;
o Local conditions and needs are taken into account when deciding loan
applications and making other business decisions affecting members of the
community;
o Responsiveness to requests for information and services by depositors and
others; and
o Positive involvement in the community affairs of eastern Bergen County.
Since opening in 1990, the Bank has established six branches in addition to its
main office. The Bank expects to continue to seek additional strategically
located de novo branch locations within Bergen County. Particular emphasis will
be placed on presenting an alternative banking culture in communities which are
dominated by non-local competitors and where no community banking approach
exists or in locations which the Company perceives to be economically emerging.
Service Area
The Company's service area primarily consists of the greater area of Bergen
County, New Jersey. The Company operates its main office in Englewood Cliffs,
New Jersey and six branch offices in Fort Lee(2), Edgewater, Hackensack,
Tenafly, and Harrington Park, New Jersey; all in Bergen County, NJ.
Competition
The Company operates in a highly competitive environment competing for deposits
and loans with commercial banks, thrifts, and other financial institutions, many
of which have greater financial resources than the Company. Many large financial
institutions in New York City and other parts of New Jersey compete for the
business of New Jersey residents located in the Company's service area. Certain
of these institutions have significantly higher lending limits than the Company
and provide services to their customers which the Company does not offer. In
addition, the Company's competitors generally have established positions in the
Service Area and have greater resources than the Company with which to pay for
advertising, physical facilities, personnel, and interest on deposited funds.
Management believes the Company is able to compete on a substantially equal
basis with its competitors because it provides responsive personalized services
through its knowledge and awareness of the Company's service area, customers,
and business.
Employees
At December 31, 1999, the Company employed fifty eight full-time employees and
eight part-time employees. None of these employees is covered by a collective
bargaining agreement. The Company believes that its employee relations remain
good.
5
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal
and state law. These laws and regulations are intended to protect depositors,
not stockholders. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
the applicable law or regulation may have a material effect on the business and
prospects of the Company and the Bank.
Bank Holding Company Regulations
As a bank holding company registered under the Bank Holding Company Act of 1956,
as amended (the "BHCA"), the Company is subject to the regulation and
supervision of the FRB. The Company is required to file with the FRB annual
reports and other information regarding its business operations and those of its
subsidiaries. Under the BHCA, the Company's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity which the FRB determines to be so closely related to banking or
managing or controlling banks as to be properly incident thereto.
The BHCA requires among other things , the prior approval of the FRB in any case
where a bank holding company proposes to: (i) acquire all or substantially all
of the assets of any other bank, (ii) acquire direct or indirect ownership or
control of more than 5% of the outstanding voting stock of any bank (unless it
owns a majority of such bank's voting shares), or (iii) merge or consolidate
with any other bank holding company. The FRB will not approve any acquisition,
merger, or consolidation that would have a substantially anti-competitive
effect, unless the anti-competitive impact of the proposed transaction is
clearly outweighed by a greater public interest in meeting the convenience and
needs of the community to be served, when reviewing acquisitions or mergers.
Additionally, the BHCA prohibits a bank holding company, with certain limited
exceptions, from (i) acquiring or retaining direct or indirect ownership or
control of more than 5% of the outstanding voting stock of any company which is
not a bank or bank holding company, or (ii) engaging directly or indirectly in
activities other than those of banking, managing, or controlling banks, or
performing services for its subsidiaries; unless such non-banking business is
determined by the FRB to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In making such
determinations, the FRB is required to weigh the expected benefits to the public
such as greater convenience, increased competition or gains in efficiency,
against the possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest, or unsound banking
practices.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default. Under a policy of the FRB with respect
to bank holding company operations, a bank holding company is required to serve
as a source of financial strength to its subsidiary depository institutions and
to commit resources to support such institutions in circumstances where it might
not do so absent such policy. The FRB also has the authority under the BHCA to
require a bank holding company to terminate any activity or to relinquish
control of a non-banking subsidiary upon the FRB's determination that such
activity or control constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the bank holding company.
6
The Company is also under the jurisdiction of the Securities and Exchange
Commission for matters relating to the offering and sale of its securities and
is subject to the Securities and Exchange Commission's rules and regulations
relating to periodic reporting, reporting to shareholders, proxy solicitations,
and insider trading.
On November 12, 1999, President Clinton signed into law legislation that allows
bank holding companies to engage in a wider range of nonbanking activities,
including greater authority to engage in securities and insurance activities.
Under the Gramm-Leach-Bliley Act (the "GLB Act"), a bank holding company that
elects to become a financial holding company may engage in any activity that the
Federal Reserve Board, in consultation with the Secretary of the Treasury,
determines by regulation or order is (1) financial in nature, (2) incidental to
any such financial activity, or (3) complementary to any such financial activity
and does not pose a substantial risk to the safety or soundness of depository
institutions or the financial system generally. The GLB Act makes significant
changes in the U.S. banking law, principally by repealing the restrictive
provisions of the 1933 Glass-Steagall Act. The GLB Act specifies certain
activities that are deemed to be financial in nature, including lending,
exchanging, transferring, investing for others, or safeguarding money or
securities; underwriting and selling insurance; providing financial, investment,
or economic advisory services; underwriting, dealing in or making a market in,
securities; and any activity currently permitted for bank holding companies by
the Federal Reserve Board under section 4(c)(8) of the Bank Holding Company Act.
The GLB Act does not authorize banks or their affiliates to engage in commercial
activities that are not financial in nature. A bank holding company may elect to
be treated as a financial holding company only if all depository institution
subsidiaries of the holding company are well capitalized, well managed and have
at least a satisfactory rating under the Community Reinvestment Act.
The GLB Act also provides that state banks may invest in financial subsidiaries
(assuming they have the requisite investment authority under applicable state
law) subject to the same conditions that apply to national bank investments in
financial subsidiaries. National banks are also authorized by the GLB Act to
engage, through "financial subsidiaries," in any activity that is permissible
for a financial holding company (as described above) and any activity that the
Secretary of the Treasury, in consultation with the Federal Reserve Board,
determines is financial in nature or incidental to any such financial activity,
except (1) insurance underwriting, (2) real estate development or real estate
investment activities (unless otherwise permitted by law), (3) insurance company
portfolio investments, and (4) merchant banking. The authority of a national
bank to invest in a financial subsidiary is subject to a number of conditions,
including, among other things, requirements that the bank must be well managed
and well capitalized (after deducting from the bank's capital outstanding
investments in financial subsidiaries.)
The GLB Act also contains a number of other provisions that will affect the
Company's operations and the operations of all financial institutions. One of
the new provisions relates to the financial privacy of consumers, authorizing
federal banking regulators to adopt rules that will limit the ability of banks
and other financial entities to disclose non-public information about consumers
to non-affiliated entities. These limitations are expected to require more
disclosure to consumers, and in some circumstances, to require consent by the
consumer before information is allowed to be provided to a third party. At this
time, the Company does not have any plans to become a financial holding company
and is unable to predict the impact the GLB Act may have upon it or its
subsidiaries' financial condition or results of operations.
7
Capital Adequacy Guidelines for Bank Holding Companies.
The FRB has adopted risk-based capital guidelines for bank holding companies.
The risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Under these guidelines, assets and
off-balance sheet items are assigned to broad risk categories each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The risk-based guidelines apply on a consolidated basis to bank holding
companies with consolidated assets of $150 million or more. For bank holding
companies with less than $150 million in consolidated assets, the guidelines
will be applied on a bank-only basis unless: (a) the parent bank holding company
is engaged in non-bank activity involving significant leverage, or (b) the
parent company has a significant amount of outstanding debt that is held by the
general public. The minimum ratio or total capital to risk-weighted assets
(including certain off-balance sheet activities, such as standby letters of
credit) is 8%. At least 4% of the total capital is required to be "Tier I",
consisting of common stockholders' equity and certain preferred stock, less
certain goodwill items and other intangible assets. The remainder, "Tier II
Capital", may consist of (a) the allowance for loan losses of up to 1.25% of
risk-weighted assets, (b) excess of qualifying preferred stock, (c) hybrid
capital instruments, (d) debt, (e) mandatory convertible securities, and (f)
qualifying subordinated debt. Total capital is the sum of Tier I and Tier II
capital less reciprocal holdings of other banking organizations' capital
instruments, investments in unconsolidated subsidiaries and any other deductions
as determined by the FRB (determined on a case-by-case basis or as a matter of
policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50%, and 100%. In
addition, certain off-balance sheet items are given similar credit conversion
factors to convert them to asset equivalent amounts to which an appropriate
risk-weight will apply. These computations result in the total risk-weighted
assets. Most loans are assigned to the 100% risk category, except for performing
first mortgage loans fully secured by residential property which carry a 50%
risk-weighting. Most investment securities (including, primarily, general
obligation claims of states or other political subdivisions of the United
States) are assigned to the 20% category, except for municipal or state revenue
bonds, which have a 50% risk-weight, and direct obligations of the U.S. Treasury
or obligations backed by the full faith and credit of the U.S. Government, which
have a 0% risk-weight. In converting off-balance sheet items, direct credit
substitutes including general guarantees and standby letters of credit backing
financial obligations, are given a 10% risk-weighting. Transaction related to
contingencies such as bid bonds, standby letters of credit backing non-financial
obligations, and undrawn commitments (including commercial credit lines with an
initial maturity of more than one year) have a 50% risk-weighting. Short term
commercial letters of credit have a 20% risk-weighting and certain short-term
unconditionally cancelable commitments have a 0% risk-weighting.
In addition to the risk-based capital guidelines, the FRB has adopted a minimum
Tier I capital (leverage) ratio, under which a bank holding company must
maintain a minimum level of Tier I capital to average total consolidated assets
of at least 3% in the case of a bank holding company that has the highest
regulatory examination rating and is not contemplating a significant growth or
expansion. All other bank holding companies are expected to maintain a leverage
ratio of at 100 to 200 basis points above the stated minimum.
8
Bank Regulation
As a New Jersey chartered commercial bank, the Bank is subject to the
regulation, supervision, and control of the New Jersey Department of Banking and
Insurance (the "Department"). As an FDIC-insured institution, the Bank is
subject to regulation, supervision, and control of the FDIC, an agency of the
federal government. The regulations of the FDIC and the Department impact
virtually all activities of the Bank, including the minimum level of capital the
Bank must maintain, the ability of the Bank to pay dividends, and the ability of
the Bank to expand through new branches or acquisitions and various other
matters.
Insurance of Deposits
The Bank's deposits are insured up to a maximum of $100,000 per depositor under
the Bank Insurance Fund (the BIF). The Federal Deposit Insurance Corporation
Improvements Act of 1991 ("FDICIA") affected a major restructuring of the
federal regulatory framework applicable to depository institutions and deposit
insurance. FDICIA requires the FDIC to establish a risk-based assessment system
for all insured depository institutions. Under this legislation, the FDIC has
established an insurance premium assessment matrix that sets the assessment
premium for a particular institution in accordance with its capital level and
overall rating by the primary regulator. Under the matrix as currently in
effect, the assessment ranges from 0 to 31 basis points of assessed deposits,
with those institutions at the low end of the assessment schedule paying only a
statutory mandated $2,000 premium.
Dividend Rights
Under the Banking Act, a bank may declare and pay dividends only if, after
payment of the dividend, the capital stock of the Company will be unimpaired and
either the bank will have a surplus of not less than 50% of its capital stock or
the payment of the dividend will not reduce the bank's surplus.
9
Recent Legislation
On November 12, 1999, President Clinton signed into law legislation that allows
bank holding companies to engage in a wider range of nonbanking activities,
including greater authority to engage in securities and insurance activities.
Under the Gramm-Leach-Bliley Act (the "GLB Act"), a bank holding company that
elects to become a financial holding company may engage in any activity that the
Federal Reserve Board, in consultation with the Secretary of the Treasury,
determines by regulation or order is (1) financial in nature, (2) incidental to
any such financial activity, or (3) complementary to any such financial activity
and does not pose a substantial risk to the safety or soundness of depository
institutions or the financial system generally. The GLB Act makes significant
changes in the U.S. banking law, principally by repealing the restrictive
provisions of the 1933 Glass-Steagall Act. The GLB Act specifies certain
activities that are deemed to be financial in nature, including lending,
exchanging, transferring, investing for others, or safeguarding money or
securities; underwriting and selling insurance; providing financial, investment,
or economic advisory services; underwriting, dealing in or making a market in,
securities; and any activity currently permitted for bank holding companies by
the Federal Reserve Board under section 4(c)(8) of the Bank Holding Company Act.
The GLB Act does not authorize banks or their affiliates to engage in commercial
activities that are not financial in nature. A bank holding company may elect to
be treated as a financial holding company only if all depository institution
subsidiaries of the holding company are well capitalized, well managed and have
at least a satisfactory rating under the Community Reinvestment Act.
The GLB Act also provides that state banks may invest in financial subsidiaries
(assuming they have the requisite investment authority under applicable state
law) subject to the same conditions that apply to national bank investments in
financial subsidiaries. National banks are also authorized by the GLB Act to
engage, through "financial subsidiaries," in any activity that is permissible
for a financial holding company (as described above) and any activity that the
Secretary of the Treasury, in consultation with the Federal Reserve Board,
determines is financial in nature or incidental to any such financial activity,
except (1) insurance underwriting, (2) real estate development or real estate
investment activities (unless otherwise permitted by law), (3) insurance company
portfolio investments, and (4) merchant banking. The authority of a national
bank to invest in a financial subsidiary is subject to a number of conditions,
including, among other things, requirements that the bank must be well managed
and well capitalized (after deducting from the bank's capital outstanding
investments in financial subsidiaries).
The GLB Act also contains a number of other provisions that will affect the
Company's operations and the operations of all financial institutions. One of
the new provisions relates to the financial privacy of consumers, authorizing
federal banking regulators to adopt rules that will limit the ability of banks
and other financial entities to disclose non-public information about consumers
to non-affiliated entities. These limitations are expected to require more
disclosure to consumers, and in some circumstances, to require consent by the
consumer before information is allowed to be provided to a third party. At this
time, the Company does not have any plans to become a financial holding company
and is unable to predict the impact the GLB Act may have upon it or its
subsidiaries' financial condition or results of operations.
Additional proposals to change the laws and regulations governing the banking
and financial services industry are frequently introduced in Congress, in the
state legislature and before the various bank regulatory agencies. The
likelihood and timing of any such changes and the impact such changes might have
on Bridge View Bank cannot be determined at this time.
10
ITEM 2. DESCRIPTION OF PROPERTY
The Company conducts its business through its main office located at 457 Sylvan
Avenue, Englewood Cliffs, New Jersey, and its six branch offices. The following
table sets forth certain information regarding the Company's properties as of
December 31, 1999.
Leased Date of Lease
Location or Owned Expiration
- -------- -------- ---------------
457 Sylvan Avenue Owned N/A
Englewood Cliffs, NJ
1605 Lemoine Avenue Leased November, 2002
Fort Lee, NJ
115 River Road Leased April, 2006
Edgewater, NJ
899 Palisade Avenue Leased September, 2001
Fort Lee, NJ
77 River Street Leased December, 2012
Hackensack, NJ
20 West Railroad Avenue Leased April, 2005
Tenafly, NJ
4 Park Street Leased August, 2004
Harrington Park, NJ
ITEM 3. LEGAL PROCEEDINGS
The Company and the Bank are periodically parties to or otherwise involved in
legal proceedings arising in the normal course of business, such as claims to
enforce liens, claims involving the making and servicing of real property loans,
and other issues incident to the Bank's business. Management does not believe
that there is any pending or threatened proceedings against the Company or the
Bank which, if determined adversely, would have a material effect on the
business, financial position or results of operations of the Company or the
Bank.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of the Registrant's shareholders during the
Fourth Quarter of fiscal 1999.
11
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Commencing on December 20, 1996, the Company's Common Stock began trading on the
American Stock Exchange under the symbol "BVB". Prior to that time, the Common
Stock was not traded on any securities exchange. As of December 31, 1999, there
were 1,087 stockholders of record of the Common Stock.
The following table sets forth the quarterly high and low bid prices of the
Common Stock as reported on the American Stock Exchange for the quarterly
periods presented. The stock prices and cash dividends are adjusted to reflect
stock dividends and stock splits through the 1999 stock dividend.
Bid
------------------- Cash
High Low Dividend
Year Ended December 31, 1999
Fourth Quarter $20.83 $14.75 $0.05
Third quarter 20.00 16.19 0.05
Second quarter 25.12 15.54 0.05
First quarter 28.10 17.62 0.05
Year Ended December 31, 1998
Fourth quarter $20.24 $16.55 $0.05
Third quarter 25.71 17.62 0.05
Second quarter 30.61 22.68 0.05
First quarter 36.29 20.97 0.05
================================================================================
The Company and its predecessor, the Bank, began paying quarterly dividends
during January, 1996. Although the amount of the dividends to be paid by the
Company will be determined by its Board of Directors while giving consideration
to the Company's earnings, capital needs, financial condition, and other
relevant factors, the Board of Directors of the Company currently intends to
adhere to the dividend policy previously established by the Bank.
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER DATA
Selected Consolidated Financial Data and Other Data
(in thousands, except per share data)
Set forth below is selected historical financial data of the Company. This
information is derived in part from and should be read in conjunction with the
consolidated financial statements and notes thereto presented in the Annual
Report to Stockholders.
Years Ended December 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Selected Operating Data:
Total interest income $ 12,558 $ 10,883 $ 9,942 $ 7,870 $ 6,378
Total interest expense 3,182 3,006 3,123 2,324 1,844
-------- -------- -------- -------- -------
Net interest income 9,376 7,877 6,819 5,546 4,534
Provision for loan losses 195 140 160 193 92
-------- -------- -------- -------- -------
Net interest income after provision for loan loss 9,181 7,737 6,659 5,353 4,442
Other income 1,409 1,301 1,102 793 578
Other expenses 5,662 4,848 4,361 3,615 3,004
-------- -------- -------- -------- -------
Income before income taxes 4,928 4,190 3,400 2,531 2,016
Income tax expense 1,792 1,587 1,337 987 781
Net income $ 3,136 $ 2,603 $ 2,063 $ 1,544 $ 1,235
======== ======== ======== ======== =======
Basic Earnings per Share (1) $1.13 $0.94 $0.80 $0.64 $0.51
Diluted Earnings per Share (1) $1.10 $0.91 $0.75 $0.63 $0.50
(1) All shares data has been restated to reflect stock dividends and stock split
through the 1999 stock dividend.
At December 31,
---------------------------------------------------------------------
Selected Financial Data: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Total Assets $203,272 $170,768 $144,620 $139,060 $96,794
Net Loans 116,961 96,955 82,186 75,752 55,408
Total Deposits 183,205 152,700 128,745 126,333 85,225
Stockholders' Equity 19,329 17,237 15,157 12,218 11,035
At or for the year ended December 31,
---------------------------------------------------------------------
Selected Financial Ratios: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Return on Average Assets (ROA) 1.66% 1.67% 1.47% 1.42% 1.39%
Return on Average Equity (ROE) 17.07% 16.05% 15.25% 13.35% 12.12%
Equity to Total Assets at Year-End 9.51% 10.09% 10.48% 8.79% 11.40%
Dividend Payout Ratio 17.53% 20.13% 22.69% 24.09% 0.00%
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's consolidated
financial statements and the notes thereto included herein. When necessary,
reclassifications have been made to prior years' data throughout the following
discussion and analysis for purposes of comparability.
In addition to historical information, this discussion and analysis contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements.
Important factors that might cause such a difference include, but are not
limited to, those discussed in this section. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date of the report. The Company undertakes no obligation
to publicly revise or update these forward-looking statements to reflect events
and circumstances that arise after such date.
OVERVIEW AND STRATEGY
The Company was formed in 1996 to act as a holding company for the Bank, which
began full service operation as a commercial bank on March 15, 1990. The Company
accepts deposits from the general public, including individuals, businesses,
non-profit organizations and governmental units located primarily within its
trade area. The Company makes commercial loans, consumer loans, residential and
commercial real estate loans, and issues both mastercard and visa credit cards.
In addition, the Company provides other customer services and makes investments
in securities, as permitted by law. The Company has sought to offer an
alternative, community-oriented style of banking in an area presently dominated
by larger, statewide and national institutions. The Company has sought to be a
positive force in its area by assisting in the development of the residential
sector; by serving the needs of small and medium-sized businesses and the local
professional community, and by meeting the requirements of individuals residing,
working, and shopping in the eastern Bergen County, New Jersey market area by
extending consumer, commercial, and real estate loans and by offering depository
services. The Company believes that the following attributes have made the
Company attractive to local business people and residents:
o Competitively priced services;
o Strategically located branch offices;
o Full service business hours of 7:00 am to 7:00 pm weekdays and 9:00 am to
1:00 pm Saturdays;
o Local conditions and needs are taken into account when deciding loan
applications and making other business decisions affecting members of the
community;
o Responsiveness to requests for information and services by depositors and
others; and
o Positive involvement in the community affairs of eastern Bergen County.
14
Since opening in 1990, the Bank has established six branches in addition to its
main office. The Company expects to continue to seek additional strategically
located de novo branch locations within Bergen County. Particular emphasis will
continue to be placed on presenting an alternative banking culture in
communities which are dominated by non-local competitors and where no community
banking approach exists or in locations which the Company perceives to be
economically emerging.
RESULTS OF OPERATIONS - 1999 versus 1998
The Company's results of operations depend primarily on its net interest income,
which is the difference between the interest earned on its interest-earning
assets and the interest paid on funds borrowed to support those assets,
primarily deposits. Net interest margin is the difference between the weighted
average rate received on interest-earning assets and the weighted average rate
paid on interest-bearing liabilities, as well as the average level of
interest-earning assets as compared with that of interest-bearing liabilities.
Net income is also affected by the amount of non-interest income and other
operating expenses.
NET INCOME
For the year ended December 31, 1999, net income increased by $533,000 or 20.5%
to $3,136,000 from $2,603,000 for the year ended December 31, 1998. The increase
in net income for 1999 compared to 1998 is a result of a 19.0% increase in net
interest income to $9,376,000 from $7,877,000 in the prior year and an 8.3%
increase in fee income of $108,000 to $1,409,000 from $1,301,000 for 1998. The
increase in net interest income is the result of a 20.6% increase in total net
loans to $116,961,000 at December 31, 1999, from $96,955,000 at December 31,
1998 combined with a 94.8% increase in total investment securities from
$35,453,000 in 1998 to $69,053,000 in 1999, while interest expense increased
only 5.9% during the same period to $3,182,000 from $3,006,000. The annual
increase in investment securities is driven by an increase in deposits and
represents employment of deposits not used to fund loan growth.
Other expenses increased by $814,000 or 16.8%, to $5,662,000 for the year ended
December 31, 1999 from $4,848,000 for the year ended December 31, 1998. These
increases reflect the Company's continued growth which also affected staff
additions, occupancy expenses, salary and employee benefits, data processing, as
well as other administrative expenses attributable to the Company's new branch
office which opened in the fourth quarter of 1998.
15
On a per share basis, basic earnings per share for the year ended December 31,
1999 were $1.13 as compared to $0.94 for the year ended December 31, 1998,
representing an increase of 20.2%. Diluted earnings per share were $1.10 for
1999 as compared to $0.91 for 1998. All share data has been restated to reflect
all stock dividends and stock splits through the 1999 stock dividend.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
upon the volume of interest-earning assets and interest bearing liabilities and
the interest rate paid on them. For the year ended December 31, 1999, net
interest income increased by $1,506,000, or 19.1%, to $9,383,000 from $7,877,000
for the year ended December 31, 1998 resultant from gains of 20.6% in net loans
and 94.8% in investment securities with a 5.9% increase in interest expense.
Average Balance Sheets
The following table sets forth certain information relating to the Company's
average assets and liabilities for the years ended December 31, 1999, 1998, and
1997, and reflects the average yield on assets and average cost of liabilities
for the period indicated. Such yields are derived by dividing income or expense,
on a tax-equivalent basis, by the average balance of assets or liabilities,
respectively, for the periods shown. Securities available for sale are reflected
in the following table at amortized cost. Non-accrual loans are included in the
average loan balance. Amounts have been computed on a fully tax-equivalent
basis, assuming a blended tax rate of 37%.
16
1999
---------------------------------------
Average Average
Balance Interest Yield/Cost
---------- -------- -----------
ASSETS :
Interest-Earning Assets:
Loans (net of unearned income) $105,486 $ 9,009 8.54%
Tax-Exempt Securities 10,766 662 6.15
Taxable Investment Securities 39,923 2,298 5.76
Federal Funds Sold 16,346 803 4.91
FHLB Account 440 16 3.64
FHLB Stock 503 35 6.96
-------- -------
Total Interest-earning Assets 173,464 12,823 7.39%
-------- -------
Non-interest earning Assets 16,674
Allowance for Loan Losses (1,094)
--------
TOTAL ASSETS $189,044
========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Demand Deposits $ 31,399 $ 194 0.62%
Savings Deposits 20,613 310 1.50
Money Market Deposits 15,509 265 1.71
Time Deposits 52,384 2,413 4.61
Short Term Borrowings 0 0 0.00
-------- -------
Total Interest-Bearing Liabilities 119,905 3,182 2.65%
-------- -------
Non-Interest Bearing Liabilities:
Demand Deposits 49,953
Other Liabilities 812
--------
Total Non-Interest Bearing
Liabilities 50,765
Stockholders' Equity 18,374
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $189,044
Net Interest Income ========
(Tax Equivalent Basis) $ 9,641
Tax Equivalent Basis adjustment 258
-------
Net Interest Income $ 9,383
=======
Net Interest Rate Spread 4.74%
=====
Net Interest Margin 5.56%
=====
Ratio of Interest-Earning Assets
to Interest-Bearing Liabilities 1.45
====
For the years ended December 31,
(dollars in thousands)
1998 1997
--------------------------------------- ----------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
---------- ----------- ----------- ---------- ---------- -----------
ASSETS :
Interest-Earning Assets:
Loans (net of unearned income) $ 87,178 $ 7,856 9.01% $ 80,626 $ 7,241 8.98%
Tax-Exempt Securities 9,438 558 5.91 5,951 401 6.74
Taxable Investment Securities 29,539 1,726 5.84 35,501 2,066 5.82
Federal Funds Sold 16,606 878 5.29 6,464 350 5.41
FHLB Account 508 21 4.13 291 13 4.47
FHLB Stock 476 34 7.14 476 31 6.51
-------- ------- -------- -------
Total Interest-earning Assets 143,745 11,073 7.70% 129,309 10,102 7.81%
-------- ------- -------- -------
Non-interest earning Assets 12,208 11,684
Allowance for Loan Losses (991) (964)
-------- --------
TOTAL ASSETS $154,962 $140,029
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Demand Deposits $ 26,289 $ 249 0.95% $ 20,281 $ 219 1.08%
Savings Deposits 17,216 340 1.97 15,395 330 2.14
Money Market Deposits 12,406 260 2.10 11,986 252 2.10
Time Deposits 43,942 2,157 4.91 46,135 2,315 5.02
Short Term Borrowings 0 0 0.00 130 7 5.38
-------- ------- -------- -------
Total Interest-Bearing Liabilities 99,853 3,006 3.01% 93,927 3,123 3.32%
-------- ------- -------- -------
Non-Interest Bearing Liabilities:
Demand Deposits 38,151 31,954
Other Liabilities 736 620
-------- --------
Total Non-Interest Bearing
Liabilities 38,887 32,574
Stockholders' Equity 16,222 13,528
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $154,962 $140,029
======== ========
Net Interest Income
(Tax Equivalent Basis) $ 8,067 $ 6,979
Tax Equivalent Basis adjustment 190 160
------- -------
Net Interest Income $ 7,877 $ 6,819
======= =======
Net Interest Rate Spread 4.69% 4.49%
===== =====
Net Interest Margin 5.61% 5.40%
===== =====
Ratio of Interest-Earning Assets
to Interest-Bearing Liabilities 1.44 1.38
==== ====
17
Rate/Volume Analysis
The following table presents, by category, the major factors that contributed to
the changes in net interest income on a tax equivalent basis for each of the
years ended December 31, 1999 and 1998.
Year Ended Year Ended
December 31, December 31,
1999 versus 1998 versus
1998 1997
----------------------------------- -----------------------------------
(in thousands)
Increase (Decrease) Increase (Decrease)
due to change in due to change in
Average Average
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
Interest Income:
Loans (net of unearned
income $ 1,564 $(411) $ 1,153 $ 591 $ 24 $ 615
Tax Exempt Securities 82 22 104 206 (49) 157
Taxable Investment
Securities 598 (26) 572 (347) 7 (340)
Federal Funds Sold (13) (62) (75) 537 (9) 528
Federal Home Loan
Bank Account (2) (3) (5) 9 (1) 8
Federal Home Loan
Bank Stock 2 (1) 1 0 3 3
------- ----- ------- ------ ---- ------
Total Interest Income 2,231 (481) 1,750 996 (25) 971
------- ----- ------- ------ ---- ------
Interest Expense:
Demand Deposits 32 (87) (55) 57 (27) 30
Savings Deposits 51 (81) (30) 36 (26) 10
Money Market Deposits 53 (48) 5 8 0 8
Time Deposits 389 (133) 256 (108) (50) (158)
Short Term Borrowings 0 0 0 0 (7) (7)
------- ----- ------- ------ ---- ------
Total Interest Expense 525 (349) 176 (7) (110) (117)
------- ----- ------- ------ ---- ------
Net change in Interest
Income $ 1,706 $(132) $ 1,574 $1,003 $ 85 $1,088
======= ===== ======= ====== ==== ======
18
PROVISION FOR LOAN LOSSES
For the year ended December 31, 1999, the Company's provision for loan losses
was $195,000, an increase of $55,000 from the provision of $140,000 for the year
ended December 31, 1998. The increased provision reflects the continued growth
of the loan portfolio.
OTHER INCOME
Other income, which was primarily attributable to service fees received from
deposit accounts, for the year ended December 31, 1999, was $1,409,000, an
increase of $108,000 or 8.3% above the $1,301,000 received during the year ended
December 31, 1998. The increase in service fees is attributable to the higher
level of average deposits.
OTHER EXPENSES
Other expenses for the year ended December 31, 1999 amounted to $5,662,000, an
increase of $814,000 or 16.8% over the $4,848,000 for the year ended December
31, 1998. These increases are related primarily to staff additions, occupancy
expense, data processing fees, customary increases for salary and employee
benefits, as well as other administrative expenses resulting from the bank's
growth.
INCOME TAX EXPENSE
The income tax provision, which includes both federal and state taxes, for the
years ended December 31, 1999 and 1998 was $1,792,000 and $1,587,000,
respectively. The increase in income taxes is a direct result of the increase in
income before taxes in 1999.
RESULTS OF OPERATIONS - 1998 versus 1997
NET INCOME
For the year ended December 31, 1998, net income increased by $540,000 or 26.2%
to $2,603,000 from $2,063,000 for the year ended December 31, 1997. The increase
in net income for 1998 compared to 1997 is a result of a 15.5% increase in net
interest income to $7,877,000 from $6,819,000 in the prior year and an 18.1%
increase in fee income of $199,000 to $1,301,000 from $1,102,000 for 1997. The
increase in net interest income is the result of an 18.0% increase in total net
loans to $96,955,000 at December 31, 1998, from $82,186,000 at December 31, 1997
combined with a more profitable deposit mix which led to a 3.8% decrease in
interest expense from $3,123,000 in 1997 to $3,006,000 in 1998. The average
yield on interest earning assets decreased slightly to 7.70% for the year ending
December 31, 1998 as compared to 7.81% for the year ending December 31, 1997,
while the volume increases in the Bank's loan and securities portfolio were
primarily funded through deposit growth.
Other expenses increased by $487,000 or 11.2% for the year ended December 31,
1998 compared to 1997. These increases reflect the Company's continued growth
which also affected staff additions, occupancy expenses, salary and employee
benefits, data processing, as well as other administrative expenses attributable
to the Company's new branch office which opened in the fourth quarter of 1998.
On a per share basis, basic earnings per share were $0.94 for the year ended
December 31, 1998 as compared to $0.80 for the year ended December 31, 1997.
Diluted earnings per share were $0.91 for the full year of 1998 as compared to
$0.75 for the full year of 1997. All share data has been restated to reflect all
stock dividends and stock splits through the 1999 stock dividend.
19
FINANCIAL CONDITION
At December 31, 1999, the Company's total assets were $203,272,000 compared to
$170,768,000 at December 31, 1998. Total loans increased to $118,545,000 at
December 31, 1999 from $98,233,000 at December 31, 1998. Total deposits at year
end 1999 were $183,205,000 compared to $152,700,000 at December 31, 1998.
LOAN PORTFOLIO
At December 31, 1999, the Company's total loans were $118,545,000, an increase
of $20,312,000 or 20.7% over total loans of $98,233,000 at December 31, 1998.
The increase in the loan portfolio represents continued penetration of the local
small business market. Management believes that the Company's success in
penetrating this market is attributable to the Company's trade area becoming
primarily served by large institutions headquartered out of state due to mergers
and acquisitions within the industry. Management believes that it is not cost
efficient for these larger institutions to provide the level of personal service
the Company provides to small business borrowers.
The Company's loan portfolio consists of commercial loans, real estate loans,
and consumer loans. Commercial loans are made for the purpose of providing
working capital, financing the purchase of equipment or inventory, as well as
for other business purposes. Real estate loans consist of loans secured by
commercial or residential real property and loans for the construction of
commercial or residential property. Consumer loans are made for the purpose of
financing the purchase of consumer goods, home improvements, and other personal
needs, and are generally secured by the personal property being purchased.
The Company's loans are primarily to businesses and individuals located in
eastern Bergen County, New Jersey. The Company has not made loans to borrowers
outside of the United States. Commercial lending activities are focused
primarily on lending to small business borrowers. The Company believes that its
strategy of customer service, competitive rate structures, and selective
marketing have enabled the Company to gain market entry to local loans. Bank
mergers and lending restrictions at larger banks competing with the Company have
also contributed to the Company's efforts to attract borrowers.
20
The following table sets forth the classification of the Company's loans by
major category as of December 31, 1999, 1998, 1997, 1996, and 1995,
respectively:
December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
Commercial and Industrial $ 17,610 $18,906 $15,568 $12,555 $11,277
Real Estate:
Non-residential properties 51,553 33,487 25,929 23,000 14,001
Residential properties 42,084 37,703 36,988 37,706 28,224
Construction 6,901 5,443 2,783 1,752 1,320
Consumer 397 2,694 2,056 1,705 1,473
-------- ------- ------- ------- -------
Total Loans $118,545 $98,233 $83,324 $76,718 $56,295
======== ======= ======= ======= =======
The following table sets forth fixed and adjustable rate loans as of December
31, 1999 in terms of interest rate sensitivity (in thousands):
Within 1 to 5 After 5
One Year Years Years Total
-------- ------- ------- -------
Loans with Fixed Rate $ 9,168 $59,635 $9,194 $77,997
Loans with Adjustable Rate 38,198 2,337 13 40,548
ASSET QUALITY
The Company's principal assets are its loans. Inherent in the lending function
is the risk of the borrower's inability to repay a loan under its existing
terms. Risk elements include non-accrual loans, past due and restructured loans,
potential problem loans, loan concentrations, and other real estate owned.
Non-performing assets include loans that are not accruing interest (non-accrual
loans) as a result of principal or interest being in default for a period of 90
days or more. When a loan is classified as non-accrual, interest accruals
discontinue and all past due interest, including interest applicable to prior
years, is reversed and charged against current income. Until the loan becomes
current, any payments received from the borrower are applied to outstanding
principal until such time as management determines that the financial condition
of the borrower and other factors merit recognition of such payments of
interest.
The Company attempts to minimize overall credit risk through loan
diversification and its loan approval procedures. Due diligence begins at the
time a borrower and the Company begin to discuss the origination of a loan.
Documentation, including a borrower's credit history, materials establishing the
value and liquidity of potential collateral, the purpose of the loan, the source
and timing of the repayment of the loan, and other factors are analyzed before a
loan is submitted for approval. Loans made are also subject to periodic audit
and review.
21
The following table sets forth information concerning the Company's
non-performing assets as of the dates indicated :
December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
Non-performing loans $ 25 $ 0 $ 439 $ 0 $ 0
Other real estate owned 0 163 0 139 0
--------- ----- ------- ----- -----
Total non-performing assets $ 25 $ 163 $ 439 $ 139 $ 0
Non-performing assets to total gross
loans and other real estate owned 0.02% 0.17% 0.53% 0.18% 0.00%
Non-performing assets to total assets 0.01% 0.10% 0.30% 0.10% 0.00%
Non-performing loans to total gross loans 0.02% 0.00% 0.53% 0.00% 0.00%
Allowance for possible loan losses as a
Percentage of non-performing loans 5,240.00% N/A 229.84% N/A N/A
As of December 31, 1999, the Company has one non-accrual loan which represents a
line of credit. At December 31, 1998, the Company had no non-accrual loans.
Other than as disclosed above, there were no loans where information about
possible credit problems of borrowers causes management to have serious doubts
as to the ultimate collectibility of such loans.
As of December 31, 1999 and 1998, there were no concentrations of loans
exceeding 25% of the Company's total loans and the Company had no foreign loans.
The Company's loans are primarily to businesses and individuals located in
eastern Bergen County, New Jersey.
OTHER REAL ESTATE OWNED
As of December 31, 1999, there is no other real estate owned compared to
$163,000 at December 31, 1998. This decrease was due to the 1999 sale of the
only property owned. Other real estate owned is stated at the lower of the
carrying value or fair market value less estimated cost to sell.
22
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. The Company maintains an
allowance for loan losses at a sufficient level to provide for losses inherent
in the loan portfolio. Loan losses are charged directly to the allowance when
they occur and any recovery is credited to the allowance. Risks within the loan
portfolio are analyzed on a continuous basis by the Company's officers, by
external independent loan review function, and by the Company's audit committee.
A risk system, consisting of multiple grading categories, is utilized as an
analytical tool to assess risk and appropriate reserves. In addition to the risk
system, management further evaluates risk characteristics of the loan portfolio
under current and anticipated economic conditions and considers such factors as
the financial condition of the borrower, past and expected loss experience, and
other factors which management feels deserve recognition in establishing an
appropriate reserve. These estimates are reviewed at least quarterly, and, as
adjustments become necessary, they are realized in the periods in which they
become known. Additions to the allowance are made by provisions charged to the
expense and the allowance is reduced by net-chargeoffs (i.e. loans judged to be
uncollectible are charged against the reserve, less any recoveries on the
loans.) Although management attempts to maintain the allowance at an adequate
level, future addition to the allowance may be required based upon changes in
market conditions. Additionally, various regulatory agencies periodically review
the allowance for loan losses. These agencies may require additional provisions
based upon their judgment about information available to them at the time of
their examination.
The Company's allowance for loan losses totaled $1,310,000 and $1,127,000 at
December 31, 1999 and 1998, respectively. This increase in the allowance is due
to the continued growth of the loan portfolio. The following is a summary of the
reconciliation of the allowance for loan losses for the periods indicated:
At December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
Balance, beginning of year $ 1,127 $ 1,009 $ 861 $ 692 $ 626
Charge-offs (13) (22) (30) (36) (33)
Recoveries 1 0 18 12 7
Provision charged to expense 195 140 160 193 92
------- ------- ------- ------ -----
Balance, end of year $ 1,310 $ 1,127 $ 1,009 $ 861 $ 692
Ratio of net charge-offs to average loans
Outstanding 0.01% 0.03% 0.02% 0.04% 0.05%
Balance of allowance at end of year as a
Percentage of loans at end of year 1.11% 1.15% 1.21% 1.12% 1.14%
23
The following table sets forth, for each of the Company's major lending areas,
the amount and percentage of the Company's allowance for loan losses
attributable to such category, and the percentage of total loans represented by
such category, as of the periods indicated :
Allocation of the Allowance for Loan Losses by Category
For the years ended December 31,
(dollars in thousands)
1999 1998 1997
% of % of
Total Total
Amount % of ALL Loans Amount % of ALL Loans Amount % of ALL
------ -------- ----- ------ -------- ----- ------ --------
Balance applicable to:
Commercial $ 466 35.57% 14.86% $ 342 30.35% 19.25% $ 262 25.97%
Real Estate:
Non-residential property 350 26.72% 43.48% 306 27.15% 34.09% 258 25.57%
Residential property 233 17.79% 35.50% 224 19.88% 38.38% 234 23.19%
Construction 68 5.19% 5.82% 54 4.79% 5.54% 28 2.78%
Consumer 26 1.98% 0.34% 22 1.95% 2.74% 22 2.18%
------------------- ------------------- -------------------
Sub-total $1,143 87.25% 100.00% $ 948 84.12% 100.00% $ 804 79.69%
------------------- ------------------- -------------------
Unallocated Reserves 167 12.75% 179 15.88% 205 20.31%
------ ------ ------
TOTAL $1,310 100.00% 100.00% $1,127 100.00% 100.00% $1,009 100.00%
====== ======= ======= ====== ======= ======= ====== =======
1996 1995
% of % of % of
Total Total Total
Loans Amount % of ALL Loans Amount % of ALL Loans
----- ------ -------- ----- ------ -------- -----
Balance applicable to:
Commercial 31.49% $ 235 27.29% 25.43% $ 147 21.24% 23.34%
Real Estate:
Non-residential property 25.65% 238 27.64% 31.04% 157 22.69% 27.74%
Residential property 37.37% 234 27.18% 39.02% 196 28.32% 43.98%
Construction 3.34% 18 2.09% 2.28% 13 1.88% 2.35%
Consumer 2.15% 21 2.44% 2.23% 18 2.60% 2.59%
------------------ ------------------
Sub-total 100.00% $ 746 86.64% 100.00% $ 531 76.73% 100.00%
------------------ ------------------
Unallocated Reserves 115 13.36% 161 23.27%
----- -----
TOTAL 100.00% $ 861 100.00% 100.00% $ 692 100.00% 100.00%
======= ===== ======= ======= ===== ======= =======
24
INVESTMENT SECURITIES
The Company maintains an investment portfolio to fund increased loan demand or
deposit withdrawals and other liquidity needs and to provide an additional
source of interest income. The portfolio is composed of U.S. Treasury
Securities, obligations of U.S. Government Agencies, selected municipal and
state obligations, stock in the Federal Home Loan Bank, and equity securities of
another financial institution.
Securities are classified as "held-to-maturity" (HTM), "available for sale"
(AFS), or "trading" at time of purchase. Securities classified as HTM are based
upon management's intent and the Company's ability to hold them to maturity.
Such securities are stated at cost, adjusted for unamortized purchase premiums
and discounts. Securities which are bought and held principally for the purpose
of selling them in the near term are classified as trading securities, which are
carried at market value. Realized gains and losses as well as gains and losses
from marking the portfolio to market value are included in trading revenue. The
Company has no trading securities. Securities not classified as HTM or trading
securities are classified as AFS and are stated at fair value. Unrealized gains
and losses on AFS securities are excluded from results of operations, and are
reported as a component of accumulated other comprehensive (loss)income which is
included in stockholders' equity, net of taxes. Securities classified as AFS
include securities that may be sold in response to changes in interest rates,
changes in prepayment risks, the need to increase regulatory capital, or other
similar requirements.
Management determines the appropriate classification of securities at the time
of purchase. At December 31, 1999, $46,846,000 of the Company's investment
securities were classified as held to maturity and $22,207,000 were classified
as available for sale. At December 31, 1999, the Company held no securities
which it classified as trading securities.
At December 31, 1999, total investment securities were $69,053,000, an increase
of $33,600,000, from total investment securities of $35,453,000 at December 31,
1998 This increase in investment securities from year end 1998 to year end 1999
reflects an excess of deposits not used to fund loan growth.
25
The following table sets forth the carrying value of the Company's security
portfolio as of the dates indicated.
At December 31,
----------------------------------------------------------------------------------
(in thousands)
1999 1998 1997
----------------------- ------------------------- --------------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- ---------- ----------- ---------- ----------- ---------
Available for sale
U.S. Government and agency
Obligations $22,035 $21,367 $ 6,006 $ 6,034 $12,507 $12,543
FHLBNY stock 512 512 476 476 476 476
Other equity securities 469 328 469 469 - -
------- ------- ------- ------- ------- -------
Total available for sale $23,016 $22,207 $ 6,951 $ 6,979 $12,983 $13,019
Held to Maturity
U.S. Government and agency
Obligations $34,596 $34,323 $16,278 $16,402 $19,442 $19,470
Municipal obligations 12,250 12,254 12,196 12,212 5,339 5,364
------- ------- ------- ------- ------- -------
Total held to maturity $46,846 $46,577 $28,474 $28,614 $24,781 $24,834
Total Investment Securities $69,862 $68,784 $35,425 $35,593 $37,764 $37,853
======= ======= ======= ======= ======= =======
The following table sets forth as of December 31, 1999 and December 31, 1998,
the maturity distribution of the Company's debt investment portfolio:
Maturity of Debt Investment Securities
December 31, 1999
(in thousands)
Securities Securities
Held to Maturity Available for Sale
------------------------------------------ -------------------------------------------
Weighted Weighted
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
--------- ------- -------- --------- -------- --------
Within 1 year $25,981 $25,971 5.58% $2,963 $ 2,960 5.73%
1 to 5 years 20,865 20,606 5.93% 19,072 18,407 6.21%
------- ------- ------- -------
$46,846 $46,577 $22,035 $21,367
======= ======= ======= =======
26
December 31, 1998
(in thousands)
Securities Securities
Held to Maturity Available for Sale
------------------------------------------ -------------------------------------------
Weighted Weighted
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
--------- ------- -------- --------- -------- --------
Within 1 year $21,089 $21,142 5.92% $ 6,006 $ 6,034 6.07%
1 to 5 years 7,385 7,472 5.63% 0 0 0.00%
------- ------- ------- -------
$28,474 $28,614 $ 6,006 $ 6,034
======= ======= ======= =======
The Company sold no securities from its portfolio during 1999 or 1998.
DEPOSITS
Deposits are the Company's primary source of funds. The Company experienced a
growth in average deposit balances of $31,854,000 or 23.1% to $169,858,000 at
December 31, 1999 as compared to $138,004,000 at December 31, 1998. This growth
was accomplished as a result of continued market penetration and the addition of
new branches as well as continued customer referrals during 1999. Among the
increase in deposits, average non-interest bearing deposits grew $11,802,000 or
30.9% from 1998 to 1999 while average interest bearing demand deposits grew
$8,213,000 or 21.2% during 1999 as compared to 1998. Average time deposits also
experienced a significant increase by growing $8,442,000, or 19.2%, from
$43,942,000 in 1998 to $52,384,000 in 1999. The aggregate amount of average
non-interest bearing deposits totaled 29.4% of the Company's total average
deposits at December 31, 1999 as compared to 27.6% at December 31, 1998. The
Company has no foreign deposits, nor are there any material concentrations of
deposits.
The following table sets forth the average amount of various types of deposits
for each of the periods indicated:
December 31,
(Dollars in Thousands)
1999 1998 1997
------------------------- ------------------------- -------------------------
Average Average Average
Amount Yield/Rate Amount Yield/Rate Amount Yield/Rate
-------- ---------- -------- ---------- -------- ----------
Non-interest Bearing Demand $49,953 - $ 38,151 - $ 31,954 -
Interest Bearing Demand 46,908 0.98% 38,695 1.32% 32,267 1.46%
Savings 20,613 1.50% 17,216 1.97% 15,395 2.14%
Time Deposits 52,384 4.61% 43,942 4.91% 46,135 5.02%
-------- -------- --------
$169,858 $138,004 $125,751
======== ======== ========
27
The Company does not actively solicit short-term deposits of $100,000 or more
because of the liquidity risks posed by such deposits. The following table
summarizes the maturity distribution of certificates of deposit of denominations
of $100,000 or more as of December 31, 1999 (in thousands).
Three months or less $25,669
Over three months through twelve months 8,751
Over one year through three years 562
Over three years 126
-------
Total $35,108
=======
LIQUIDITY
The Company's liquidity is a measure of its ability to fund loans, withdrawals
or maturities of deposits, and other cash outflows in a cost-effective manner.
The Company's principal sources of funds are deposits, scheduled amortization
and prepayments of loan principal, maturities of investment securities, and
funds provided by operations. While scheduled loan payments and maturing
investments are relatively predictable sources of funds, deposit flow and loan
prepayments are greatly influenced by general interest rates, economic
conditions, and competition.
The Company's total deposits equaled $183,205,000 at December 31, 1999 as
compared to $152,700,000 at December 31, 1998. The increase in funds provided by
deposit inflows during this period has been more than sufficient to provide the
Company's loan demand and excess funds have been invested in investment
securities and federal funds sold.
Through the Company's investment portfolio, the Bank has generally sought to
obtain a safe, yet slightly higher yield than would have been available to the
Company as a net seller of overnight federal funds while still maintaining
liquidity. Through its investment portfolio, the Company also attempts to manage
its maturity gap by seeking maturities of investments which coincide as closely
as possible with maturities of deposits. The Bank's investment portfolio also
includes securities held for sale to provide liquidity for anticipated loan
demand and liquidity needs.
Although the Bank has traditionally been a net "seller" of federal funds,
the Bank does have lines of credit with the Federal Home Loan Bank of New York,
Summit Bank, and Bank of New York for "purchase" of federal funds in the event
that temporary liquidity needs arise. The Bank also has the ability to borrow
from the Federal Home Loan Bank of New York should that need arise.
Management believes that the Company's current sources of funds provide adequate
liquidity for the current cash flow needs of the Company.
28
INTEREST RATE SENSITIVITY ANALYSIS
The principal objective of the Company's asset and liability management function
is to evaluate the interest-rate risk included in certain balance sheet
accounts; determine the level of risk appropriate given the Company's business
focus, operating environment, capital and liquidity requirements; establish
prudent asset concentration guidelines; and manage the risk consistent with
Board approved guidelines. The Company seeks to reduce the vulnerability of its
operations to changes in interest rates and to manage the ratio of interest-rate
sensitive assets to interest-rate sensitive liabilities within specified
maturities or repricing dates. The Company's actions in this regard are taken
under the guidance of the Asset/Liability Committee (ALCO) of the Board of
Directors. The ALCO generally reviews the Company's liquidity, cash flow needs,
maturities of investments, deposits and borrowings, and current market
conditions and interest rates.
One of the monitoring tools used by the ALCO is an analysis of the extent to
which assets and liabilities are interest rate sensitive and measures the
Company's interest rate sensitivity "gap". An asset or liability is said to be
interest rate sensitive within a specific time period if it will mature or
reprice within that time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
Accordingly, during a period of rising rates, a negative gap may result in the
yield on the institution's assets increasing at a slower rate than the increase
in its cost of interest-bearing liabilities resulting in a decrease in net
interest income. Conversely, during a period of falling interest rates, an
institution with a negative gap would experience a repricing of its assets at a
slower rate than its interest-bearing liabilities which, consequently, may
result in its net interest income growing.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at the periods indicated which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods presented. Except as noted, the amount of
assets and liabilities which reprice or mature during a particular period were
determined in accordance with the earlier of the term to repricing or the
contractual terms of the asset or liability. Because the Bank has no interest
bearing liabilities with a maturity greater than five years, management believes
that a static gap for the over five year time period reflects a more accurate
assessment of interest rate risk. The Company's loan repayment assumptions are
based upon actual historical repayment rates.
29
Cumulative Rate Sensitive Balance Sheet
December 31, 1999
(in thousands)
0-3 0-6 0-1 0-5 5+ All
Months Months Year Years Years Others TOTAL
-------- -------- -------- -------- ------- -------- --------
Investment Securities $ 11,653 $ 21,065 $ 29,074 $ 68,213 $ 0 $ 840 $ 69,053
Loans :
Commercial 27,228 30,871 32,374 79,048 4,590 0 83,638
Mortgages 72 199 1,004 13,966 4,601 0 18,567
Consumer 13,911 13,951 13,988 16,324 16 0 16,340
Federal Funds Sold 0 0 0 0 0 0 0
Other Assets 0 0 0 0 0 15,674 15,674
--------- -------- -------- -------- -------- -------- --------
TOTAL ASSETS $ 52,864 $ 66,086 $ 76,440 $177,551 $186,758 $203,272 $203,272
========= ======== ======== ======== ======== ======== ========
Transaction / Demand Accounts $ 29,626 $ 29,626 $ 29,626 $ 29,626 $ 0 $ 0 $ 29,626
Money Market 14,462 14,462 14,462 14,462 0 0 14,462
Savings 21,914 21,914 21,914 21,914 0 0 21,914
CD's < $100,000 13,443 23,392 28,134 30,099 0 0 30,099
CD's > $100,000 25,669 32,489 34,420 35,108 0 0 35,108
Other Liabilities 0 0 0 0 0 51,996 51,996
Equity 0 0 0 0 0 20,067 20,067
--------- -------- -------- -------- -------- -------- --------
TOTAL LIABILITIES
AND EQUITY $105,114 $121,883 $128,556 $131,209 $131,209 $203,272 $203,272
========= ======== ======== ======== ======== ======== ========
Dollar Gap (52,250) (55,797) (52,116) 46,342 55,549
Gap / Total Assets -25.71% -27.45% -25.64% 22.80% 27.33%
Target Gap Range +/-35.0% +/- 30.0% +/- 25.0% +/-25.0% -
RSA / RSL 50.29% 54.22% 59.46% 135.32% 142.34%
(Rate Sensitive Assets to
Rate Sensitive Liabilities)
30
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending and deposit taking activities. Thus, management actively monitors
and manages its interest rate risk exposure.
The Company's profitability is affected by fluctuations in interest rates. A
sudden and substantial increase in interest rates may adversely impact the
Company's earnings to the extent that the interest rates borne by assets and
liabilities do not change at the same speed, to the same extent, or on the same
basis. The Company monitors the impact of changing interest rates on its net
interest income using several tools. One measure of the Company's exposure to
differential changes in interest rates between assets and liabilities is shown
in the Company's Cumulative Rate Sensitive Balance Sheet under the Interest Rate
Sensitivity Analysis caption.
The Company's primary objective in managing interest rate risk is to minimize
the adverse impact of changes in interest rates on the Company's net interest
income and capital, while structuring the Company's asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability structure to control interest rate risk.
The Company continually evaluates interest rate risk management opportunities.
Management believes that hedging instruments currently available are not
cost-effective, and therefore, has focused its efforts on increasing the
Company's yield-cost spread through retail growth opportunities.
The following table discloses the Company's financial instruments that are
sensitive to change in interest rates, categorized by expected maturity, and the
instruments' fair values at December 31, 1999. Market risk sensitive instruments
are generally defined as on- and off- balance sheet financial instruments.
31
Expected Maturity/Principal Repayment
December 31, 1999
(Dollars in thousands)
Avg. There- Fair
Int. Rate 2000 2001 2002 2003 2004 After Total Value
--------- ---- ---- ---- ----- ----- ----- ----- -----
Interest Rate
Sensitive
Assets:
Loans.......... 8.54% 47,366 12,098 8,331 15,760 25,783 9,207 118,545 119,943
Tax Exempt
Securities..... 5.91% 7,395 -- -- -- -- -- 7,395 7,395
Investment
Securities..... 5.76% 22,670 13,488 5,999 5,991 12,670 -- 60,818 61,389
Fed Funds
Sold........... N/A -- -- -- -- -- -- -- --
Interest Rate
Sensitive
Liabilities:
Demand
Deposits....... 0.62% 29,626 -- -- -- -- -- 29,626 29,626
Savings
Deposits....... 1.50% 21,914 -- -- -- -- -- 21,914 21,914
Money Market
Deposits....... 1.71% 14,462 -- -- -- -- -- 14,462 14,462
Time
Deposits....... 4.61% 62,554 1,585 847 202 19 -- 65,207 65,062
CAPITAL
A significant measure of the strength of a financial institution is its capital
base. The Company's federal regulators have classified and defined Company
capital into the following components : (1) Tier I Capital, which includes
tangible shareholders' equity for common stock and qualifying perpetual
preferred stock, and (2) Tier II Capital, which includes a portion of the
allowance for possible loan losses, certain qualifying long-term debt, and
preferred stock which does not qualify for Tier I Capital. Minimum capital
levels are regulated by risk-based capital adequacy guidelines which require
certain capital as a percent of the Company's assets and certain off-balance
sheet items adjusted for predefined credit risk factors (risk-adjusted assets).
A Bank Holding Company is required to maintain, at a minimum, Tier I Capital as
a percentage of risk-adjusted assets of 4.0% and combined Tier I and Tier II
Capital as a percentage risk-adjusted assets of 8.0%.
In addition to the risk-based guidelines, the Company's regulators require that
an institution which meets the regulator's highest performance and operation
standards maintain a minimum leverage ratio (Tier I Capital as a percentage of
tangible assets) of 3.0%. For those institutions with higher levels of risk or
that are experiencing or anticipating significant growth, the minimum leverage
ratio will be evaluated through the ongoing regulatory examination process. The
Company is subject to substantially similar regulations by its federal
regulations.
32
The following table summarizes the risk-based and leverage capital ratios for
the Bank at December 31, 1999, as well as the required minimum regulatory
capital ratios :
Capital Adequacy
Minimum
December 31, Regulatory
1999 Requirements
------------ ------------
Risk-Based Capital :
Tier I Capital Ratio 16.01% 4.0%
Total Capital Ratio 16.71% 8.0%
Leverage Ratio 10.22% 3.0%
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
the Company's operations. Unlike most industrial companies, nearly all of the
assets and liabilities of the Company are monetary. As a result, interest rates
have a greater impact on the Company's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
RECENTLY ISSUED ACCOUNTING STANDARDS AND OTHER OPERATIONAL ISSUES
SFAS No. 133
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 supersedes the disclosure requirements in SFAS No. 80, 105, and 119.
This statement was to be effective for periods after June 15, 1999. SFAS 137
extended the adoption date of SFAS 133 to fiscal years beginning after June 15,
2000. The adoption of SFAS No. 133 is not expected to have a material impact on
the financial position or results of operations of the Company.
YEAR 2000
Due to the technological issues surrounding the Year 2000, the Company formally
initiated an ongoing project during 1997 to ensure that its financial condition,
results of operations or liquidity will not be adversely affected by the Year
2000 computer software failures. The Company adopted a Year 2000 Compliance Plan
and established a Year 2000 Compliance Committee, which includes members of
senior management from all areas of company and from the Company's Board of
Directors. The objectives of the plan and the committee were to ensure that the
Bank would be prepared for the new millennium by addressing mission critical as
well as non-mission critical applications. This plan was periodically
represented to the Company's customers and shareholders to provide comfort to
their concerns over the Year 2000.
33
The Bank's operations continued through the date change from December 31, 1999
to January 1, 2000 without interruption. The Company experienced no significant
Year 2000-related disruptions during that period or since that date. There was
no negative impact upon computer systems, electronic systems, telecommunications
equipment, or utilities. Since implementing the Year 2000 Plan, the Company's
expenditures for external contracts and personnel as well as for system
enhancements to ensure readiness have been less than $75,000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See disclosures on market risk in Management's Discussion and Analysis on pages
32 and 33.
ITEM 8. FINANCIAL STATEMENTS
The Consolidated Statements of Financial Condition of the Company as of December
31, 1999 and 1998, and the related Consolidated Statements of Income,
Stockholders' Equity, and Cash Flows for each of the years in the three year
period ended December 31, 1999 are included herein as indicated on the "Index to
Consolidated Financial Statements" on page 38.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
Information concerning the directors and executive officers is included in the
definitive Proxy Statement for the Company's 2000 Annual Meeting under the
caption "Proposal 1. Election of Directors" and information concerning
compliance with Section 16(a) of the Exchange Act is included under the caption
"Compliance with Section 16(a) of the Securities Exchange Act of 1934", each of
which is incorporated herein by reference. It is expected that such Proxy
Statement will be filed with the Securities and Exchange Commission no later
than April 29, 2000.
34
Set forth below is the name of and certain biographical information regarding
the additional principal officer of the Company who does not also serve as a
director. The term of office for such officer is one year.
Thomas W. Thomasma, 46, has been Senior Vice President and Senior Lending
Officer of the Bank since 1994. He previously served in Senior Lending
capacities at Independence Bank and at First Fidelity Bank for more than five
years.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is included in the definitive
Proxy Statement for the Company's 2000 Annual Meeting under the caption
"Executive Compensation" and is hereby incorporated by reference. It is expected
that such Proxy Statement will be filed with the Securities and Exchange
Commission no later than April 29, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is included in the definitive Proxy Statement for the Company's 2000
Annual Meeting under the caption "Security Ownership of Certain Beneficial
Owners and Management" which is incorporated herein by reference. It is expected
that such Proxy Statement will be filed with the Securities and Exchange
Commission no later than April 29, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
included in the definitive Proxy Statement for the Company's 2000 Annual Meeting
under the caption "Certain Transactions with Management" which is incorporated
herein by reference. It is expected that such Proxy Statement will be filed with
the Securities and Exchange Commission no later than April 29, 2000.
35
ITEM 14. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits.
================================================================================
Exhibit
Number Description of Exhibits
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3(i) Certificate of Incorporation of the Company (1)
- --------------------------------------------------------------------------------
3(ii) Bylaws of the Company (1)
- --------------------------------------------------------------------------------
4(i) Form of Non-Transferable Warrant Certificate (1)
- --------------------------------------------------------------------------------
4(ii) Form of Stock Certificate (2)
- --------------------------------------------------------------------------------
10(i) Bridge View Bank 1994 Stock Option Plan (1)
- --------------------------------------------------------------------------------
10(ii) Bridge View Bank 1994 Stock Option Plan for Non-Employee Directors (1)
- --------------------------------------------------------------------------------
21 Subsidiaries of the Registrant
- --------------------------------------------------------------------------------
23 Consent of Independent Auditors
- --------------------------------------------------------------------------------
27 Financial Data Schedule
================================================================================
(1) Incorporated by reference from Exhibits 2(a) to 6(b) from the Company's
Registration Statement on Form 10-SB, Registration No. 1-12165.
(2) Incorporated by reference from Exhibit 4(ii) from the Company's
Registration Statement on Form SB-2, Registration No. 333-20697.
(b) Reports on Form 8-K
None
36
BRIDGE VIEW BANCORP AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report..................................................39
Consolidated Statements of Financial Condition
as of December 31, 1999 and 1998.....................................40
Consolidated Statements of Income for the years
ended December 31, 1999, 1998, and 1997..............................41
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999,
1998, and 1997.......................................................42
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998, and 1997..............................43
Notes to Consolidated Financial Statements....................................44
37
Independent Auditors' Report
The Board of Directors and Stockholders of
Bridge View Bancorp:
We have audited the accompanying consolidated statements of financial condition
of Bridge View Bancorp and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bridge View Bancorp
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Short Hills, New Jersey
February 3, 2000
38
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 1999 and 1998
(Dollars in Thousands)
1999 1998
---- ----
Assets
Cash and cash equivalents:
Cash and due from banks (note 3) $ 11,270 $ 11,534
Federal funds sold 0 22,600
-------- --------
Total cash and cash equivalents 11,270 34,134
-------- --------
Securities available for sale (note 4) 22,207 6,979
Investment securities, estimated market value of
$46,577 in 1999 and $28,614 in 1998 (note 4) 46,846 28,474
Loans (note 5):
Commercial 83,638 65,691
Mortgage 18,567 15,192
Consumer and other 16,340 17,350
-------- --------
Total loans 118,545 98,233
Deferred loan fees (274) (151)
Allowance for loan losses (1,310) (1,127)
-------- --------
Net loans 116,961 96,955
-------- --------
Premises and equipment, net (note 6) 3,853 2,243
Accrued interest receivable 1,573 1,152
Other assets (note 8) 562 831
-------- --------
Total assets $203,272 $170,768
======== ========
Liabilities and Stockholders' Equity
Deposits (note 7):
Noninterest-bearing demand deposits 51,996 43,253
Interest bearing deposits:
Savings and time deposits 96,101 89,449
Certificates of deposit of $100,000 or more 35,108 19,998
-------- --------
Total deposits 183,205 152,700
Accounts payable and accrued liabilities 738 831
-------- --------
Total liabilities 183,943 153,531
-------- --------
Commitments and contingencies (notes 9 and 15)
Stockholders' equity (notes 12 and 14):
Capital stock, no par value. Authorized
10,000,000 shares; issued and outstanding
2,781,683 shares in 1999 and 2,647,900 shares
in 1998 19,035 16,379
Retained earnings 779 841
Other comprehensive (loss)income, net of taxes (485) 17
-------- --------
Total stockholders' equity 19,329 17,237
-------- --------
Total liabilities and stockholders' equity $203,272 $170,768
======== ========
See accompanying notes to consolidated financial statements.
39
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data)
1999 1998 1997
---- ---- ----
Interest income:
Loans $ 9,009 $ 7,856 $7,241
Municipals - nontaxable 397 368 241
Investment securities 2,349 1,726 2,066
Federal funds sold and FHLBNY income 803 933 394
------- ------- ------
Total interest income 12,558 10,883 9,942
------- ------- ------
Interest expense:
Savings and time deposits 1,947 1,920 2,092
Certificates of deposit of $100,000 or more 1,234 1,086 1,024
Federal funds purchased 1 0 7
------- ------- ------
Total interest expense 3,182 3,006 3,123
------- ------- ------
Net interest income 9,376 7,877 6,819
Provision for loan losses (note 5) 195 140 160
------- ------- ------
Net interest income after provision for loan
Losses 9,181 7,737 6,659
Other income - principally fees and service charges 1,409 1,301 1,102
------- ------- ------
Other expenses:
Salaries and employee benefits (note 13) 2,758 2,196 2,093
Occupancy and equipment expense (note 9) 1,181 1,143 1,008
Professional fees 271 197 193
Director and stockholder expense (note 13) 285 196 130
Advertising and business promotion 89 68 94
Stationary and supplies 240 168 156
Data processing 365 324 309
FDIC expense 18 16 15
Other operating expenses 455 540 363
------- ------- ------
Total other expenses 5,662 4,848 4,361
------- ------- ------
Income before income taxes 4,928 4,190 3,400
Income tax expense (note 8) 1,792 1,587 1,337
------- ------- ------
Net Income $ 3,136 $ 2,603 $2,063
======= ======= ======
Earnings per share: (note 11)
Basic $1.13 $0.94 $0.80
===== ===== =====
Diluted $1.10 $0.91 $0.75
===== ===== =====
All share data has been restated to reflect all stock dividends and stock splits
through the 1999 stock dividend.
See accompanying notes to consolidated financial statements.
40
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
Accumulated
Other
Comprehensive
Capital Retained (Loss)income,
Stock Earnings net of tax Total
----- -------- ---------- -----
Balance at December 31, 1996 $10,647 1,573 (2) 12,218
Net income - 2,063 - 2,063
Other Comprehensive income(loss): Unrealized
holding losses on securities available for
sale (net of tax $11) - - 24 24
-----
Total Comprehensive Income 2,087
5% stock dividend 1,380 (1,380) - -
Common stock issued upon exercise of stock
warrants 1,281 - - 1,281
Common stock issued upon exercise of stock
options 39 - - 39
Cash dividends paid - (468) - (468)
------- ------ ---- ------
Balance at December 31, 1997 $13,347 1,788 22 15,157
Net income - 2,603 - 2,603
Other comprehensive income(loss): Unrealized
holding losses on securities available for
sale (net of taxes $(1)) - - (5) (5)
------
Total comprehensive income - - - 2,598
5% stock dividend 3,026 (3,026) - -
Common stock issued upon exercise of stock
options 6 - - 6
Cash dividends paid - (524) - (524)
------- ------ ---- ------
Balance at December 31, 1998 16,379 841 17 17,237
Net income - 3,136 - 3,136
Other comprehensive income(loss): Unrealized
holding losses on securities available for
sale (net of taxes $(337)) - - (502) (502)
------
Total comprehensive income - - - 2,634
5% stock dividend 2,648 (2,648) - -
Common stock issued upon exercise of stock
options 8 - - 8
Cash dividends paid - (550) - (550)
------- ------ ---- ------
Balance at December 31, 1999 $19,035 779 (485) 19,329
======= ====== ==== ======
See accompanying notes to consolidated financial statements.
41
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income $ 3,136 $ 2,603 $ 2,063
Adjustments to reconcile net income to net cash provided by
Operating activities:
Provision for loan losses 195 140 160
Depreciation and amortization 324 208 190
Deferred tax expense(benefit) 191 (84) (126)
Net amortization and accretion of premiums and discounts on
investment securities 52 (10) 25
Proceeds from sales of loans held for sale - - 50
Gains from sale of loans held for sale (44) (49) (17)
Changes in operation assets and liabilities:
Increase in accrued interest receivable (421) (83) (38)
Decrease(increase) in other assets 78 (544) 171
(Decrease)increase in accounts payable and accrued liabilities (93) 113 209
--------- -------- --------
Net cash provided by operating activities 3,418 2,294 2,687
--------- -------- --------
Cash flows from investing activities:
Purchases of investment securities (39,825) (19,466) (16,634)
Maturities of investment securities 21,245 15,784 19,373
Proceeds from repayments of securities available for sale - 373 559
Maturities of securities available for sale 6,000 6,120 5,000
Purchases of securities available for sale (22,085) (469) (9,447)
Net increase in loans (20,006) (14,769) (6,644)
Purchase of FHLBNY stock 36 - -
Purchases of premises and equipment (1,610) (799) (87)
--------- -------- --------
Net cash used in investing activities (56,245) (13,226) (7,880)
--------- -------- --------
Cash flows from financing activities:
Net increase in deposits 30,505 23,955 2,412
Issuance of common stock and options and warrants exercised 8 6 1,320
Dividends paid (550) (524) (468)
--------- -------- --------
Net cash provided by financing activities 29,963 23,437 3,264
--------- -------- --------
(Decrease)increase in cash and cash equivalents (22,864) 12,505 (1,929)
Cash and cash equivalents at beginning of year 34,134 21,629 23,558
--------- -------- --------
Cash and cash equivalents at end of year $11,270 $34,134 $21,629
======= ======= =======
Supplemental information:
Cash paid during the year for:
Interest $3,060 $3,011 $3,189
====== ====== ======
Income taxes $1,781 $1,516 $1,319
====== ====== ======
See accompanying notes to consolidated financial statements.
42
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts
of Bridge View Bancorp (the Company) and its direct and indirect
wholly-owned subsidiaries, Bridge View Bank and Bridge View Investment
Company (the Bank).
Organization
The Bank is a commercial bank which provides a full range of banking
services to individuals and corporate customers in New Jersey. The Bank
is subject to competition from other financial institutions. The Bank is
regulated by state and federal agencies and is subject to periodic
examinations by those regulatory authorities.
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. All significant
intercompany accounts and transactions have been eliminated. In preparing
the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated statement of financial
condition and revenues and expenses for the year. Actual results could
differ significantly from those estimates. Certain prior period amounts
have been reclassified to conform to the financial statement presentation
of 1999. The reclassifications have no effect on stockholders' equity or
net income as previously reported.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for
loan losses. In connection with the determination of the allowance for
loan losses, management generally obtains independent appraisals for
significant properties.
Securities Available for Sale
Management determines the appropriate classification of securities at the
time of purchase. If management has the intent and the Bank has the
ability at the time of purchase to hold securities until maturity, they
are classified as investment securities. Securities to be held for
indefinite periods of time and not intended to be held to maturity are
classified as securities available for sale. Gains or losses on sales of
securities available for sale are based upon the specific identification
method. Securities available for sale are reported at fair value with
changes in the carrying value included in accumulated other comprehensive
(loss)income which is a separate component of stockholders' equity.
43
Investment Securities
Investment securities are carried at the principal amount outstanding,
adjusted for amortization of premiums and accretion of discounts using a
method that approximates the level-yield method over the terms of the
securities. Investment securities are carried at the principal amount
outstanding because the Bank has the ability and the intent to hold these
securities to maturity.
Premises and Equipment
Premises and equipment are stated at historical cost, less accumulated
depreciation and amortization. Depreciation of fixed assets is
accumulated on a straight-line basis over the estimated useful lives of
the related asset. Leasehold improvements are amortized on a
straight-line basis over the shorter of their estimated useful lives or
the term of the lease. Maintenance and repairs are charged to expense in
the year incurred.
Loans
Loans are stated at their principal amount outstanding, net of deferred
loan origination fees and costs. Interest income on loans is accrued and
credited to interest income when earned. A loan which is 90 days past due
is reviewed to determine whether such loan should be placed on a
nonaccrual status. A loan is placed on nonaccrual when collection of
principal and interest is deemed unlikely. Loans which are well secured
and in the process of collection are not placed on a nonaccrual status.
Once a loan is placed on nonaccrual status, interest previously accrued
and uncollected is charged against current earnings, and interest is
included in earnings thereafter to the extent received in cash. Loan
origination fees and certain direct loan origination costs are deferred
and recognized over the life of the loan as an adjustment to yield using
a method which approximates the interest method.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be
impaired when it is probable that the Company will be unable to collect
all amounts due according to the contractual terms of the loan agreement.
When a loan is considered to be impaired, the amount of impairment is
measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or the fair value of the
collateral. Impairment losses are included in the allowance for loan
losses through provisions charged to operations.
Allowance for Loan Losses
Losses on loans are charged to the allowance for loan losses. Additions
to this allowance are made by recoveries of loans previously charged off
and by a provision charged to expense. The determination of the balance
of the allowance for loan losses is based on an analysis of the loan
portfolio, economic conditions and other factors warranting recognition.
Management believes that the allowance for loan losses is maintained at a
sufficient level to provide for losses inherent in the loan portfolio.
While management uses available information to recognize losses on loans,
future additions may be necessary based on changes in economic
conditions, particularly in New Jersey. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Bank's allowance for loan losses. Such agencies may require
the Bank to recognize additions to the allowance based on their judgments
about information available to them at the time of their examination.
44
Other Real Estate Owned (OREO)
OREO is carried at the lower of cost or fair value, less estimated cost
to sell. When a property is acquired, the excess of the carrying amount
over fair value, if any, is charged to the allowance for loan losses. An
allowance for OREO has been established, through charges to OREO expense,
to maintain properties at the lower of cost or fair value less estimated
cost to sell. At December 31, 1999, the Company did not have any other
real estate owned.
Stock-Based Compensation
Stock based compensation is accounted for under the intrinsic value based
method as prescribed by the Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees". Included in the Notes to
Consolidated Financial Statements are the pro forma disclosures required
by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", which assumes the fair value
based method of accounting had been adopted.
Income Taxes
The Bank uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
Earnings Per Share
Earnings per share is based upon the computational standards established
by the FASB Statement of Financial Accounting Standards No. 128. This
statement provided for the replacement of Primary EPS and Fully Diluted
EPS with Basic EPS and Diluted EPS. Basic EPS excludes dilution and
represents the effect of earnings upon the weighted average number of
shares outstanding for the period. Diluted EPS reflects the effect of
earnings upon weighted average shares including the potential dilution
that could occur if securities or contracts to issue common stock were
converted or exercised, utilizing the treasury stock method. All per
share data has been restated to reflect changes through the 1999 stock
dividend.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," (SFAS 130) requires entities presenting a complete
set of financial statements to include details of comprehensive income.
Comprehensive income consists of net income or loss for the current
period and income, expenses, or gains and losses that bypass the income
statement and are reported directly as a separate component of equity.
The Company includes the required disclosures in the consolidated
statements of stockholders' equity.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks and federal
funds sold, which are generally sold for one-day periods.
45
(2) Formation of Bank Holding Company and Exchange of Common Stock
The Company is a New Jersey corporation organized in May 1996 at the
direction of the Board of Directors of the Bank for the purpose of
acquiring all of the capital stock of the Bank. As part of the
acquisition in December 1996, shareholders of the Bank received shares of
the Company's common stock, no par value per share (the Common Stock), in
a ratio of two shares of Common Stock for each outstanding share of the
Common Stock of the Bank, $5.00 per share par value. The acquisition was
accounted for in a manner similar to a pooling of interest resulting in
no changes in the underlying assets and liabilities.
(3) Cash on Hand and Due from Banks
Included in cash on hand and due from banks at December 31, 1999 and 1998
was $0.1 million and $3.7 million, respectively, representing reserves
required to be maintained by the Federal Reserve Bank.
(4) Securities Available for Sale and Investment Securities
A comparative summary of securities available for sale at December 31,
1999 and 1998 is as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Market
1999 Cost Gains Losses Value
---- ---- ----- ------ -----
U.S. Government and
Agency obligations $22,035 0 (668) $21,367
FHLBNY stock 512 0 0 512
Other equity securities 469 0 (141) 328
------- ----- ---- -------
Total available for sale $23,016 0 (809) $22,207
======= ===== ==== =======
1998
----
U.S. Government and
Agency obligations $ 6,006 28 0 $ 6,034
FHLBNY stock 476 0 0 476
Other equity securities 469 0 0 469
------- ----- ---- -------
Total available for sale $ 6,951 28 0 $ 6,979
======= ===== ==== =======
46
A comparative summary of held to maturity investment securities at
December 31, 1999 and 1998 is as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Market
1999 Cost Gains Losses Value
---- ---- ----- ------ -----
U.S. Government and
Agency obligations $34,596 0 (273) $34,323
Municipal obligations 12,250 4 0 12,254
------- ---- ---- -------
Total held to maturity $46,846 4 (273) $46,577
======= ==== ==== =======
1998
----
U.S. Government and
Agency obligations $16,278 124 0 $16,402
Municipal obligations 12,196 16 0 12,212
------- ---- ---- -------
Total held to maturity $28,474 140 0 $28,614
======= ==== ==== =======
Debt investment securities held at December 31, 1999 mature as follows
(in thousands):
Securities Securities
Held to Maturity Available for Sale
----------------------- --------------------------
Amor- Amor-
tized Market Tized Market
Cost Value Cost Value
---- ----- ---- -----
Within one year $25,981 $25,971 $ 2,963 $ 2,960
One to five years 20,865 20,606 19,072 18,407
------- ------- ------- -------
$46,846 $46,577 $22,035 $21,367
======= ======= ======= =======
For the years ended December 31, 1999, 1998, and 1997, respectively,
there were no sales of securities.
Securities with an amortized cost of $2.0 million were pledged to secure
public funds on deposit at December 31, 1999 and 1998.
The Bank is a member of the Federal Home Loan Bank of New York (FHLBNY).
As a result, the Bank is required to hold shares of capital stock of
FHLBNY, which are carried at cost, based upon a specified formula. The
Bank has a $15,000,000 line of credit with the FHLBNY which is renewable
each year. The interest rate is variable and generally at 25 basis points
above the federal funds rate. At December 31, 1999, no amount was
outstanding under this line of credit.
47
(5) Loans and Allowance for Loan Losses
The activity in the allowance for loan losses is as follows (in
thousands):
1999 1998 1997
---- ---- ----
Balance at beginning of year $ 1,127 $ 1,009 $ 861
Provision charged to expense 195 140 160
Loans charged off (13) (22) (30)
Recoveries 1 0 18
------- ------- ------
Balance at end of year $ 1,310 $ 1,127 $1,009
======= ======= ======
There were no impaired loans at December 31, 1999 and 1998 and as such
there were no commitments to fund additional amounts to these borrowers.
As of December 31, 1999, the Company had one non-accrual loan of $25,000
compared to none at December 31, 1998.
The Company grants commercial, mortgage and installment loans to those
New Jersey residents and businesses within its local trading area. Its
borrowers' abilities to repay their obligations are dependent upon
various factors, including the borrowers' income and net worth, cash
flows generated by the underlying collateral, value of the underlying
collateral and priority of the Company's lien on the property. Such
factors are dependent upon various economic conditions and individual
circumstances beyond the Company's control; the Company is therefore
subject to risk of loss. The Company believes its lending policies and
procedures adequately minimize the potential exposure to such risks and
that adequate provisions for loan losses are provided for all known and
inherent risks.
(6) Premises and Equipment, net
At December 31, premises and equipment consists of the following (in
thousands):
1999 1998
---- ----
Land $ 1,400 $ -
Building 1,677 1,677
Furniture and equipment 1,474 1,211
Leasehold improvements 792 521
------- ------
5,343 3,409
Less accumulated depreciation and
amortization 1,490 1,166
------- ------
Total premises and equipment, net $ 3,853 $2,243
======= ======
48
(7) Deposits
At December 31, a summary of the maturity of certificates of deposit is
as follows:
1999 1998
---- ----
Certificates of deposit maturing:
One year or less $62,554 $40,949
One to three years 2,432 1,518
Over three years 221 660
------- -------
Total certificates of deposit $65,207 $43,127
======= =======
(8) Income Taxes
Income tax expense from operations for the years ended December 31 is as
follows (in thousands):
1999 1998 1997
---- ---- ----
Federal:
Current $ 1,310 $ 1,367 $ 1,205
Deferred 164 (72) (111)
------- ------- -------
1,474 1,295 1,094
------- ------- -------
State:
Current 291 304 258
Deferred 27 (12) (15)
------- ------- -------
318 292 243
------- ------- -------
$ 1,792 $ 1,587 $ 1,337
======= ======= =======
Total income tax expense for the years ended December 31 is allocated as
follows (in thousands):
1999 1998 1997
---- ---- ----
Income tax expense from operations $1,792 $1,587 $ 1,337
Stockholders' equity - unrealized loss(gain) on
securities available for sale and stock options 337 (23) (33)
------ ------ -------
$2,129 $1,564 $ 1,304
====== ====== =======
49
Income tax expense from operations differed from the amounts computed by
applying the U.S. federal income tax rate (34% in 1999, 1998 and 1997) to
income taxes as a result of the following (in thousands):
1999 1998 1997
---- ---- ----
Computed "expected" tax expense $ 1,676 $ 1,425 $ 1,156
Increase(decrease) in taxes resulting from:
State taxes, net of federal income tax benefit 245 193 160
Tax-exempt income (135) (114) (61)
Other 6 83 82
------- ------- -------
$ 1,792 $ 1,587 $ 1,337
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1999 and 1998 are as follows (in thousands):
1999 1998
---- ----
Deferred tax assets:
Bank premises, furniture and equipment,
principally due to differences in depreciation $ 84 55
Loans, principally due to allowance for loan
losses and deferred fee income 462 431
Unrealized loss on securities available
for sale 324 0
Other 13 26
---- ----
Total gross deferred tax assets 883 512
---- ----
Deferred tax liabilities:
Deferred fee income 33 81
Unrealized gain on securities available for sale 0 13
Investment securities, principally due to
accretion of discounts 7 5
Accrual to cash adjustment 0 75
Other 0 23
---- ----
Total gross deferred tax liabilities 40 197
---- ----
Net deferred tax asset $843 $315
==== ====
At December 31, 1999, management believes that no valuation allowance for
the deferred tax asset is necessary due to sufficient taxes paid in the
statutory carryback period.
50
(9) Leases
The Company leases banking facilities under operating leases which expire
at various dates through 2012, containing certain renewal options. Rental
expense amounted to $542,000, $672,000 and $594,000 for the years ended
December 31, 1999, 1998, and 1997, respectively. During 1999, the Bank
exercised its option to purchase the main office's land in Englewood
Cliffs from a partnership which includes one of the directors of the
Company. The purchase price represented the fair value of the land.
The following is a schedule of future minimum lease payments (exclusive
of payments for maintenance, insurance, taxes and additional rental
payments based on increases in certain indexes) for operating leases with
initial or remaining terms in excess of one year from December 31, 1999
(in thousands):
Year ending December 31:
2000 $ 431
2001 393
2002 327
2003 327
2004 116
Thereafter 1,066
======
(10) Related-party Transactions
Certain directors of the Bank are associated with professional firms that
rendered various professional services for the Bank. The Bank paid the
firms, excluding rental payments, approximately $111,000, $113,000 and
$93,000 during the years ended December 31, 1999, 1998 and 1997,
respectively. It is the Bank's policy not to originate loans to
directors, executive officers or their affiliates.
51
(11) Earnings Per Share Reconciliation
The Company's calculation of earnings per share is as follows:
Year Ended December 31,
1999 1998 1997
---- ---- ----
(in thousands, except per share data)
Basic earnings per share:
Net Income $3,136 $2,603 $2,063
====== ====== ======
Average number of shares outstanding 2,781 2,780 2,591
====== ====== ======
Basic earnings per share $ 1.13 $ 0.94 $ 0.80
====== ====== ======
Diluted earnings per share:
Net Income $3,136 $2,603 $2,063
====== ====== ======
Average number of shares of common
stock and equivalents outstanding:
Average common shares outstanding 2,781 2,780 2,591
Additional shares considered in
diluted computation assuming:
Exercise of options and warrants 81 84 158
------ ------ ------
Average number of shares outstanding
on a diluted basis 2,862 2,864 2,749
====== ====== ======
Diluted earnings per share $ 1.10 $ 0.91 $ 0.75
====== ====== ======
52
(12) Stockholders' Equity and Dividend Restrictions
The Bank declared a two for one stock split effective December 1, 1997
and December 6, 1996 as well as 5% stock dividends effective April 1,
1999, April 3, 1998, April 1, 1997, April 1, 1996, April 1, 1995, and
February 28, 1994.
The Company's ability to pay cash dividends is based on its ability to
receive cash from its bank subsidiary. New Jersey law provides that no
dividend may be paid unless, after the payment of such dividend, the
capital of the Bank will not be impaired and either the Bank will have
statutory surplus of not less than 50% of its capital stock or the
payment of such dividend will not reduce the statutory surplus of the
Bank. At December 31, 1999, this restriction did not result in any
effective limitations on the manner in which the Bank is currently
operating.
(13) Benefit Plans
During 1994, the Bank's stockholders approved the 1994 Stock Option Plan
for Non Employee Directors (Directors' Plan) and the 1994 Employee Stock
Option Plan (Employees' Plan). The Directors' Plan provided for options
to purchase up to 120,809 shares of the Bank's common stock to be issued
to directors who are not employees of the Bank. The Employees' Plan
provided for options to purchase up to 120,809 shares of the Bank's
common stock to be issued to employees of the Bank. Previously issued
options to an employee of the Bank were terminated upon adoption of these
plans. The option price per share approximates the market value of the
Bank's stock on the date of grant. At December 31, 1999, 120,809 granted
options to purchase shares remain outstanding under the Directors' Plan
and 74,126 granted options are outstanding under the Employees' Plan.
During 1998, the Bank's stockholders approved the adoption of an
additional stock option plan for non-employee directors of the Company
(the 1998 Stock Option Plan). The 1998 Stock Option Plan authorized the
granting of 157,500 options to purchase shares of the Company's common
stock to individuals who were then directors of Bridge View Bancorp.
During 1998, 147,000 options were granted to non-employee directors. At
December 31, 1999, 10,500 of these options remain available for future
distribution.
53
(13) Benefit Plans, continued
A summary of the stock option plans for the years ended December 31,
1999, 1998, and 1997 is as follows:
Number
Of Option Price
Shares Per Share
------ ---------
Outstanding at December 31, 1996 181,154 4.02 - 4.97
Granted - -
Exercised (8,946) 4.31 - 4.97
-------
Outstanding at December 31, 1997 172,208 4.02 - 4.97
Granted 170,783 25.48
Exercised (1,149) 4.97
-------
Outstanding at December 31, 1998 341,842 4.02 - 25.48
Granted - -
Forfeited 1,450 4.97 - 25.48
Exercised (1,357) 4.97
-------
Outstanding at December 31, 1999 341,935 4.02 - 25.48
At December 31, 1999, 1998, and 1997, the number of options exercisable
was 341,935, 341,842, and 172,208, respectively, and the weighted-average
price of those options was $14.90, $14.82, and $4.19, respectively.
At December 31, 1999 and 1998, there were 25,010 and 23,560 additional
shares available for grant under the Plans. No options were granted
during 1999, while a total of 170,783 options were granted in 1998. The
per share weighted-average fair values of stock options granted during
1998 were $7.16 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions for
1998 : expected dividend yields of 5.80% and 3.06%, risk-free interest
rates of 5.4% and 6.3%, and expected lives of five years.
54
(13) Benefit Plans, continued
The Corporation applies APB Opinion No. 25 in accounting for its Plans
and, accordingly, no compensation cost has been recognized for its stock
options in the consolidated financial statements. Had the Corporation
determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Corporation's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below (in thousands, except per share data):
1999 1998 1997
---- ---- ----
Net income:
As reported $ 3,136 $ 2,603 $ 2,063
Pro forma 2,891 2,358 2,063
===== ===== =====
Basic earnings per share:
As reported $ 1.13 $ 0.94 $ 0.80
Pro forma 1.04 0.85 0.80
==== ==== ====
Diluted earnings per share:
As reported $ 1.10 $ 0.91 $ 0.75
Pro forma 1.01 0.82 0.75
==== ==== ====
The Company currently offers a 401(k) profit sharing plan (the Plan)
covering all full-time employees, wherein employees can invest up to 15%
of their pretax earnings. The Company matches a percentage of employee
contributions at the Board's discretion. The Company made matching
contributions of $26,000, $28,000, and $22,000 in the years ended
December 31, 1999, 1998, and 1997, respectively.
During 1998, the Company provided its directors with a Director
Retirement Plan. The Plan provides for a retirement benefit payable over
a 5 year period or a death benefit to be provided to the director's
beneficiaries. During 1999 and 1998, the amount charged to expense
related to the Retirement Plan was $140,000 and $50,000, respectively.
55
(14) Regulatory Capital Requirements
Federal Deposit Insurance Corporation (FDIC) regulations require banks to
maintain minimum levels of regulatory capital. Under the regulations in
effect at December 31, 1999, the Bank was required to maintain (i) a
minimum leverage ratio of Tier I capital to total adjusted assets of
4.0%, and (ii) minimum ratios of Tier I and total capital to
risk-weighted assets of 4.0% and 8.0%, respectively.
Under its prompt corrective actions regulations, the FDIC is required to
take certain supervisory actions (and may take additional discretionary
actions) with respect to an undercapitalized institution. Such actions
could have a direct material effect on the institution's financial
statements. The regulations establish a framework for the classification
of savings institutions into five categories: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized,
and critically undercapitalized. Generally, an institution is considered
well capitalized if it has a leverage (Tier I) capital ratio of at least
5.0%; a Tier I risk-based capital ratio of at least 6.0%; and a total
risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the FDIC
about capital components, risk weightings and other factors.
Management believes that, as of December 31, 1999, the Bank meets all
capital adequacy requirements to which it is subject. Further, the most
recent FDIC notification categorized the Bank as a well-capitalized
institution under the prompt corrective action regulations. There have
been no conditions or events since that notification that management
believes have changed the Bank's capital classification.
The following is a summary of the Bank's actual capital amounts and
ratios as of December 31, 1999 and 1998, compared to the FDIC minimum
capital adequacy requirements and the FDIC requirements for
classification as a well-capitalized institution:
FDIC requirements
-------------------------------------------
Minimum capital For classification
Bank actual adequacy as well capitalized
------------------ ---------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
December 31, 1999:
Leverage (Tier I)
Capital $19,329 10.22% $7,562 4.00% $ 9,452 5.00%
Risk-based capital:
Tier I 19,729 16.01 4,931 4.00 7,396 6.00
Total 21,039 16.71 9,861 8.00 12,327 10.00
December 31, 1998:
Leverage (Tier I)
Capital $17,220 11.11% $6,198 4.00% $ 7,748 5.00%
Risk-based capital:
Tier I 17,220 15.68 4,393 4.00 6,590 6.00
Total 18,347 16.71 8,786 8.00 10,982 10.00
56
(15) Commitments and Contingencies
The Bank is a party to transactions with off-balance-sheet risk in the
normal course of business in order to meet the financing needs of its
customers. These transactions consist of commitments to extend credit and
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the accompanying consolidated
statements of financial condition.
The Bank uses the same credit policies and collateral requirements in
making commitments and conditional obligations as it does for
on-balance-sheet loans. Commitments to extend credit are agreements to
lend to customers as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee.
Since the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Bank
upon extension of credit, is based on management's credit evaluation of
the borrower. Outstanding available loan commitments, primarily variable
rate home equity loans, at December 31, 1999 and 1998 totaled $34.9
million and $29.8 million, respectively. Additionally, unused credit card
commitments totaled $944,000 at December 31, 1999.
57
(15) Continued
Most of the Company's lending activity is with customers located in
Bergen County, New Jersey. At December 31, 1999 and 1998, respectively,
the Company had outstanding letters of credit to customers totaling
$2,323,000 and $672,000 whereby the Company guarantees performance to a
third party. These letters of credit generally have fixed expiration
dates of one year or less.
(16) Financial Information of Parent Company
The following information on the parent only financial statements as of
December 31, 1999 and 1998 and for the years then ended should be read in
conjunction with the notes to the consolidated financial statements.
Statement of Financial Condition
December 31,
1999 1998
---- ----
(in thousands)
Assets:
Cash and due from subsidiary $ 862 $ 1,324
Equity securities 328 -
Investment in subsidiary 18,104 15,927
Other assets 56 7
------- -------
Total assets $19,350 $17,258
======= =======
Liabilities:
Due to subsidiary $ 21 $ 21
Shareholders' equity:
Common stock 19,035 16,379
Other comprehensive (loss) income, net of taxes (485) 17
Retained earnings 779 841
------- -------
Total shareholders' equity 19,329 17,237
------- -------
Total liabilities and shareholders'
Equity $19,350 $17,258
======= =======
58
(16) Continued
Statement of Income
For the years ended
December 31,
1999 1998 1997
---- ---- ----
Dividend income from subsidiary $ 550 $ 524 $ 468
Expenses (7) (8) (7)
------ ------ ------
Income before equity in undistributed
earnings of subsidiary bank 543 516 461
Income after equity in undistributed
earnings of subsidiary bank 2,593 2,087 1,602
------ ------ ------
Net income $3,136 $2,603 $2,063
====== ====== ======
Statement of Cash Flow
For the years ended
December 31,
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income $ 3,136 $ 2,603 $ 2,063
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earning of the
subsidiary bank (2,593) (2,087) (1,602)
Decrease in other assets, net 6 6 7
------ ------- -------
Net cash provided by operating activities 549 522 468
Cash flows from investing activities:
Purchases of securities (469) - -
------ ------- -------
Net cash used in financing activities (469) - -
Cash flows from financing activities:
Dividends paid (550) (524) (468)
Proceeds from exercise of options 8 6 1,320
------ ------- -------
Net cash (used in) provided by financing
activities (542) (518) 852
Net change in cash for the period (462) 4 1,320
Net cash at beginning of year 1,324 1,320 -
------ ------- -------
Net cash at end of year $ 862 $ 1,324 $ 1,320
====== ======= =======
59
(17) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires that the Bank disclose the
estimated fair value of its financial instruments whether or not
recognized in the consolidated balance sheet. Fair value estimates and
assumptions are set forth below for the Bank's financial instruments at
December 31, 1999 and 1998 (in thousands):
1999 1998
------------------------ -----------------------
Esti- Esti-
Carry- mated fair Carry- mated fair
ing amount value ing amount value
---------- ---------- ---------- ----------
Financial assets:
Cash and cash equivalents $ 11,270 11,270 34,134 34,134
Securities available for sale 22,207 22,207 6,979 6,979
Investment securities 46,846 46,577 28,474 28,614
Net loans 116,961 116,834 96,955 101,107
Financial liabilities - deposits 183,205 183,060 152,700 152,857
======== ======= ======= =======
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value.
Securities Available for Sale
All securities available for sale are valued using quoted market
prices.
Investment Securities
All investment securities are valued using quoted market prices.
Net Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type, such as
residential and commercial real estate, commercial and other
consumer. The fair value of loans is estimated by discounting
contractual cash flows using estimated market discount rates which
reflect the credit and interest rate risk inherent in the loans.
60
(17) Continued
Deposits
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, is equal to the amount payable
on demand as of year end. The fair value of certificates of deposit
is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.
Commitments to Extend Credit
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements; at December 31, 1999 and 1998,
such amounts were not material.
Limitation
The preceding fair value estimates were made at December 31, 1999 and
1998, based on pertinent market data and relevant information on the
financial instrument. These estimates do not include any premium or
discount that could result from an offer to sell at one time the
Bank's entire holdings of a particular financial instrument or
category thereof. Since no market exists for a substantial portion of
the Bank's financial instruments, fair value estimates were
necessarily based on judgments regarding future expected loss
experience, current economic conditions, risk assessment of various
financial instruments, and other factors. Given the innately
subjective nature of these estimates, the uncertainties surrounding
them and the matter of significant judgment that must be applied,
these fair value estimates cannot be calculated with precision.
Modifications in such assumptions could meaningfully alter these
estimates.
Since these fair value approximations were made solely for on- and
off-balance-sheet financial instruments at December 31, 1999 and
1998, no attempt was made to estimate the value of anticipated future
business. Furthermore, certain tax implications related to the
realization of the unrealized gains and losses could have a
substantial impact on these fair value estimates and have not been
incorporated into the estimates.
61
(18) Quarterly Financial Data (unaudited)
The following represents summarized unaudited quarterly financial data of the
Company which, in the opinion of management, reflects adjustments (comprising
only normal recurring accruals) necessary for fair presentation.
Three Months Ended
(in thousands, except per share data)
December 31 September 30 June 30 March 31
----------- ------------ ------- --------
1999
Interest income $ 3,580 $ 3,269 $ 2,939 $ 2,770
Interest expense 982 814 681 705
------------ ---------- ---------- ---------
Net interest income 2,598 2,455 2,258 2,065
Provision for loan losses 60 45 50 40
Other expense, net 1,066 1,070 1,064 1,053
Provision for federal and state
income taxes 535 488 414 355
------------ ---------- ---------- ---------
Net income $ 937 $ 852 $ 730 $ 617
============ ========== ========== =========
Net earnings per share:
Basic $ 0.34 $ 0.31 $ 0.26 $ 0.22
============ ========== ========== =========
Diluted $ 0.33 $ 0.30 $ 0.25 $ 0.22
============ ========== ========== =========
1998
Interest income $ 2,776 $ 2,849 $ 2,708 $ 2,550
Interest expense 751 765 761 729
------------ ---------- ---------- ---------
Net interest income 2,025 2,084 1,947 1,821
Provision for loan losses 0 20 40 80
Other expense, net 838 897 890 922
Provision for federal and state
income taxes 431 442 391 323
------------ ---------- ---------- ---------
Net income $ 756 $ 725 $ 626 $ 496
============ ========== ========== =========
Net earnings per share:
Basic $ 0.27 $ 0.26 $ 0.23 $ 0.18
============ ========== ========== =========
Diluted $ 0.26 $ 0.25 $ 0.22 $ 0.17
============ ========== ========== =========
62
(19) Recent Accounting Pronouncements
SFAS 133
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 supersedes the disclosure requirements in SFAS No. 80, 105, and 119.
This statement was to be effective for periods after June 15, 1999. SFAS 137
delayed the effective date to fiscal years beginning after June 15, 2000. The
adoption of SFAS 133 is not expected to have a material impact on the financial
position or results of operations of the Company.
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BRIDGE VIEW BANCORP
By: /s/ Albert F. Buzzetti
---------------------------
Albert F. Buzzetti
President and CEO
Dated : March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
================================================================================
Name Title Date
- --------------------------------------------------------------------------------
/s/ Albert F. Buzzetti President, Chief March 24, 2000
- -------------------------------- Executive Officer and
Albert F. Buzzetti Director
/s/ Gerald A. Calabrese Director March 24, 2000
- ---------------------------------
Gerald A. Calabrese
/s/ Glenn L. Creamer Director March 24, 2000
- ---------------------------------
Glenn L. Creamer
/s/ Bernard Mann Director March 24, 2000
- ---------------------------------
Bernard Mann
/s/ Mark Metzger Director March 24, 2000
- ---------------------------------
Mark Metzger
/s/ Jeremiah F. O'Connor Director March 24, 2000
- ---------------------------------
Jeremiah F. O'Connor
/s/ Joseph C. Parisi Director March 24, 2000
- ---------------------------------
Joseph C. Parisi
/s/ John A. Schepisi Director March 24, 2000
- ---------------------------------
John A. Schepisi
65