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, 2001
( ) 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 5, 2002 was $55,651,000.
The number of shares of the Issuer's Common Stock, no par value, outstanding as
of March 5, 2002 was 3,548,760.
For the fiscal year ended December 31, 2001, the Issuer had total revenues of
$14,829,000.
1
DOCUMENTS INCORPORATED BY REFERENCE
10-K Item Document Incorporated
Item 9. Directors and Executive Proxy Statement for 2002
Officers of the Company; Annual Meeting of
Compliance with Section 16(a) Shareholders to be filed no
Of the Exchange Act later than April 30, 2002.
- --------------------------------------------------------------------------------
Item 10. Executive Compensation Proxy Statement for 2002
Annual Meeting of
Shareholders to be filed no
later than April 30, 2002.
- --------------------------------------------------------------------------------
Item 11. Security Ownership of Certain Proxy Statement for 2002
Beneficial Owners and Annual Meeting of
Management Shareholders to be filed no
later than April 30, 2002.
- --------------------------------------------------------------------------------
Item 12. Certain Relationships and Proxy Statement for 2002
Related Transactions Annual Meeting of
Shareholders to be filed no
later than April 30, 2002.
- --------------------------------------------------------------------------------
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 12
Security Holders
PART II
Item 5. Market for Registrant's Common Equity and 13
Related Stockholder Matters
Item 6. Selected Consolidated Financial Data and Other Data 14
Item 7. Management's Discussion and Analysis of 15
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
During December, 2001, the Bank successfully bid to purchase three bank branches
and to assume the lease of another branch formerly operated by Fleet/Summit Bank
which have been closed as a result of that merger. In connection with its bid,
the Bank will not assume any deposits of these four branches nor acquire any
loans or other assets. In January, 2002, the Bank received regulatory approval
to open and operate these branches. The four new branches are located at 35
North Washington Avenue, Bergenfield, New Jersey, 819 Teaneck Road, Teaneck, New
Jersey, 245 Main Street, Ridgefield Park, New Jersey, and 85 Jefferson Avenue,
Westwood, New Jersey; all in Bergen County, New Jersey. They are expected to
open in early second quarter, 2002.
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.
4
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
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:
- -- Competitively priced services;
- -- Direct access to Bank management by members of the community, whether
during or after business hours;
- -- Strategically located branch offices;
- -- Full service business hours of 7:00 am to 7:00 pm weekdays and 9:00 am to
1:00 pm Saturdays;
- -- Local conditions and needs are taken into account when deciding loan
applications and making other business decisions affecting members of the
community;
- -- Responsiveness to requests for information and services by depositors and
others; and
- -- Positive involvement in the community affairs of eastern Bergen County.
Since opening in 1990, the Bank has increased its branch network to eleven
branches, including its main office and the four new branches expected to open
in the second quarter. 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 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. The new branches will be open in Bergenfield,
Teaneck, Ridgefield Park, and Westwood, New Jersey; all in Bergen County.
5
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. In
addition, since passage of the Gramm-Leach-Bliley Financial Modernization Act of
1999 (the "Modernization Act"), securities firms and insurance companies have
been allowed to acquire or form financial institutions, thereby further
increasing competition in the financial services market. 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, 2001, the Company employed sixty-six full-time employees and
eleven part-time employees. None of these employees is covered by a collective
bargaining agreement. The Company believes that its employee relations remain
good.
6
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.
The BHCA was substantially amended through the Modernization Act. The
Modernization Act permits bank holding companies and banks which meet certain
capital, management and Community Reinvestment Act standards to engage in a
broader range of non-banking activities. In addition, bank holding companies
which elect to become financial holding companies may engage in certain banking
and non-banking activities without prior FRB approval. Finally, the
Modernization Act imposes certain new privacy requirements on all financial
institutions and their treatment of consumer information. At this time, the
Company has elected not to become a financial holding company, as we do not
engage in any non-banking activities.
7
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.
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.
8
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. 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 Capital", 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. Transactions 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 least 100 to 200 basis points above the stated minimum.
9
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.
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.
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 eleven branch network. The
following table sets forth certain information regarding the Company's
properties as of December 31, 2001.
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, 2006
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
*35 North Washington Avenue Owned N/A
Bergenfield, NJ
*819 Teaneck Road Owned N/A
Teaneck, NJ
*245 Main Street Owned N/A
Ridgefield Park, NJ
*85 Jefferson Street Leased May, 2026
Westwood, NJ
* Anticipated openings in second quarter, 2002
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.
11
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 2001.
12
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". As of December 31, 2001, there
were 1,302 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 periods
presented. The stock prices and cash dividends are adjusted to reflect stock
dividends and stock splits through the 2002 stock dividend.
Bid
--------------------------
Cash
High Low Dividend
Year Ended December 31, 2001
Fourth Quarter $15.14 $12.00 $0.10
Third quarter 14.55 12.91 0.10
Second quarter 15.00 12.95 0.10
First quarter 13.97 12.72 0.09
Year Ended December 31, 2000
Fourth quarter $13.23 $10.75 $0.05
Third quarter 16.33 11.36 0.05
Second quarter 13.74 10.44 0.05
First quarter 16.73 12.69 0.04
================================================================================
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.
13
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,
---------- -------------- -------------- --------------- --------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Selected Operating Data:
Total interest income $ 14,829 $ 15,232 $ 12,558 $ 10,883 $ 9,942
Total interest expense 3,191 4,290 3,182 3,006 3,123
----- ----- ----- ----- -----
Net interest income 11,638 10,942 9,376 7,877 6,819
Provision for loan losses
165 190 195 140 160
--- --- --- --- ---
Net interest income after provision for
loan loss 11,473 10,752 9,181 7,737 6,659
Other income 1,907 1,501 1,409 1,301 1,102
Other expenses 6,299 5,950 5,662 4,848 4,361
----- ----- ----- ----- -----
Income before income taxes 7,081 6,303 4,928 4,190 3,400
Income tax expense 2,512 2,201 1,792 1,587 1,337
----- ----- ----- ----- -----
Net income $ 4,569 $ 4,102 $ 3,136 $ 2,603 $ 2,063
======== ======== ======== ======== ======
Basic Earnings per Share (1) $1.29 $1.16 $0.89 $0.74 $0.63
Diluted Earnings per Share (1) $1.25 $1.13 $0.86 $0.72 $0.59
(1) All shares data has been restated to reflect stock dividends and stock split through the 2002 stock dividend.
At December 31,
------------------------------------------------------------------------------
Selected Financial Data: 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Total Assets $237,820 $234,927 $203,272 $170,768 $144,620
Net Loans 149,308 131,385 116,961 96,955 82,186
Total Deposits 209,624 208,365 183,205 152,700 128,745
Stockholders' Equity 26,866 23,263 19,329 17,237 15,157
At or for the year ended December 31,
------------------------------------------------------------- --------------
Selected Financial Ratios: 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Return on Average Assets (ROA) 1.98% 1.92% 1.66% 1.67% 1.47%
Return on Average Equity (ROE) 18.32% 19.47% 17.07% 16.05% 15.25%
Equity to Total Assets at Year-End 11.30% 9.90% 9.51% 10.09% 10.48%
Dividend Payout Ratio 27.60% 14.84% 17.53% 20.13% 22.69%
14
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, and also include economic
conditions, both in the Company's trade area and nationally, changes in interest
rates and monetary policy, the continued viability of the Company's customers
and a variety of other matters, most, if not at all of which, are beyond the
Company's control. 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:
- -- Competitively priced services;
- -- Strategically located branch offices;
- -- Full service business hours of 7:00 am to 7:00 pm weekdays and 9:00 am to
1:00 pm Saturdays;
- -- Local conditions and needs are taken into account when deciding loan
applications and making other business decisions affecting members of the
community;
- -- Responsiveness to requests for information and services by depositors and
others; and
- -- Positive involvement in the community affairs of eastern Bergen County.
15
Since opening in 1990, the Bank has established a network of eleven branches,
including its main office and the four new offices expected to open in the
second quarter. 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 - 2001 versus 2000
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, 2001, net income increased by $467,000 or 11.4%
to $4,569,000 from $4,102,000 for the year ended December 31, 2000. The increase
in net income for 2001 compared to 2000 is a result of a 6.4% increase in net
interest income to $11,638,000 from $10,942,000 in the prior year coupled with a
27.0%, or $406,000, increase in fee income to $1,907,000 from $1,501,000 for
2000. The increase in net interest income is primarily the result of a 25.6%
decrease in interest expense from $4,290,000 in 2000 to $3,191,000 in 2001.
Other expenses increased by $349,000 or 5.9%, to $6,299,000 for the year ended
December 31, 2001 from $5,950,000 for the year ended December 31, 2000. This
increase is related primarily to data processing fees, customary increases for
salary and employee benefits, as well as other administrative expenses resulting
from the Company's growth since December 31, 2000.
16
On a per share basis, basic earnings per share for the year ended December 31,
2001 were $1.29 as compared to $1.16 for the year ended December 31, 2000,
representing an increase of 11.2%. Diluted earnings per share were $1.25 for
2001 as compared to $1.13 for 2000. All share data has been restated to reflect
all stock dividends and stock splits through the March 5, 2002 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, 2001, net
interest income increased by $696,000, or 6.4%, to $11,638,000 from $10,942,000
for the year ended December 31, 2000. This increase in net interest income is
primarily the result of a 25.6% decrease in interest expense from $4,290,000 in
2000 to $3,191,000 in 2001, partially offset by a reduction of $403,000 in total
interest income. The decrease in interest expense reflects a reduction in the
rates paid on the Company's interest bearing liabilities to 2.41% for the twelve
months ended December 31, 2001 from the 3.35% paid in the prior year, as well as
a $9.6 million increase in the average balance of non-interest bearing deposits
year over year. The reductions in rate were partially offset by a $4.1 million
increase in the average balance of interest bearing liabilities for 2001
compared to 2000.
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, 2001, 2000, and
1999, 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 36%.
17
For the years ended December 31,
(dollars in thousands)
2001 2000 1999
-------- ---------- ---------- ------- -------- ---------- ------- -------- -----------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
-------- ---------- ---------- ------- -------- ---------- ------- -------- -----------
ASSETS :
Interest-Earning Assets:
Loans (net of
unearned income) $136,732 $ 11,115 8.13% $125,214 $ 11,048 8.82% $105,486 $9,009 8.54%
Tax-Exempt Securities 7,684 501 6.52 10,375 620 5.98 10,766 662 6.15
Taxable Investment
Securities 43,347 2,433 5.61 52,225 3,209 6.15 39,923 2,298 5.76
Federal Funds Sold 22,321 913 4.09 7,394 490 6.63 16,346 803 4.91
FHLB Account 226 13 5.75 513 38 7.41 440 16 3.64
FHLB Stock 480 34 7.08 512 38 7.42 503 35 6.96
---------- ------- -------- ------- -------- ------
Total Interest-earning
Assets 210,790 15,009 7.12% 196,233 15,443 7.87% 173,464 12,823 7.39%
---------- ------- -------- ------- -------- ------
Non-interest earning Assets 21,453 18,294 16,674
Allowance for Loan Losses (1,499) (1,368) (1,094)
---------- -------- --------
TOTAL ASSETS $230,744 $213,159 $189,044
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Demand Deposits $38,725 $ 472 1.22% $31,673 $ 551 1.74% $31,399 $ 194 0.62%
Savings Deposits 22,857 219 0.96 22,144 310 1.40 20,613 310 1.50
Money Market Deposits 15,988 213 1.33 14,133 265 1.88 15,509 265 1.71
Time Deposits 52,840 2,212 4.19 59,897 3,136 5.24 52,384 2,413 4.61
Short Term Borrowings 1,760 75 4.26 206 28 6.59 0 0 0.00
---------- ------- -------- ------- -------- ------
Total Interest-Bearing
Liabilities 132,170 3,191 2.41% 128,053 4,290 3.35% 119,905 3,182 2.65%
---------- ------- -------- ------- -------- ------
Non-Interest Bearing Liabilities:
Demand Deposits 72,535 62,863 49,953
Other Liabilities 1,094 1,178 812
----------- -------- --------
Total Non-Interest Bearing 73,629 64,041 50,765
Liabilities
Stockholders' Equity 24,945 21,065 18,374
----------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $230,744 $213,159 $189,044
======== ======== ========
Net Interest Income
(Tax Equivalent Basis) $11,818 $11,153 $9,641
Tax Equivalent Basis adjustment (180) (211) 265
------- ------- ------
Net Interest Income $11,638 $10,942 $9,376
======= ======= ======
Net Interest Rate Spread 4.71% 4.52% 4.74%
===== ===== =====
Net Interest Margin 5.61% 5.68% 5.56%
===== ===== =====
Ratio of Interest-Earning Assets
to Interest-Bearing Liabilities 1.59 1.53 1.45
==== ==== ====
18
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, 2001 and 2000.
Year Ended Year Ended
December 31, December 31,
2001 versus 2000 versus
2000 1999
---------------------------------------- --------------------------------------------
( 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) $1,016 $ (949) $ 67 $1,685 $ 354 $ 2,039
Tax Exempt Securities (161) 42 (119) (24) (18) (42)
Taxable Investment
Securities (546) (230) (776) 708 203 911
Federal Funds Sold 990 (567) 423 (439) 126 (313)
Federal Home Loan Bank
Account (21) (4) (25) 3 19 22
Federal Home Loan
Bank Stock (2) (2) (4) 1 2 3
-------- -------- -------- ---------- ---------- ---------
Total Interest Income 1,276 (1,710) (434) 1,934 686 2,620
-------- -------- -------- ---------- ---------- ---------
Interest Expense :
Demand Deposits 123 (202) (79) 2 355 357
Savings Deposits 10 (101) (91) 23 (23) 0
Money Market Deposits 35 (87) (52) (24) 24 0
Time Deposits (370) (554) (924) 346 377 723
Short Term Borrowings 102 (55) 47 28 0 28
-------- -------- -------- ---------- ---------- ---------
Total Interest Expense (100) (999) (1,099) 375 733 1,108
-------- -------- -------- ---------- ---------- ---------
Net change in Interest
Income $ 1,376 $ (711) $ 665 $ 1,559 $ (47) $ 1,512
======== ======== ======== ========= ========== =========
19
PROVISION FOR LOAN LOSSES
For the year ended December 31, 2001, the Company's provision for loan losses
was $165,000, a decrease of $25,000 from the provision of $190,000 for the year
ended December 31, 2000. The reduction of the provision reflects management's
view of the economy of its service area and management's view of the strength of
the Company's loan portfolio.
OTHER INCOME
Other income, which was primarily attributable to service fees received from
deposit accounts, for the year ended December 31, 2001, was $1,907,000, an
increase of $406,000 or 27.0% above the $1,501,000 received during the year
ended December 31, 2000. The increase in service fees is attributable to the
higher level of average deposits in connection with certain pricing strategies.
OTHER EXPENSES
Other expenses for the year ended December 31, 2001 amounted to $6,299,000, an
increase of $349,000 or 5.9% over the $5,950,000 for the year ended December 31,
2000. This increase is related, primarily, to data processing fees, customary
increases for salary and employee benefits, as well as other administrative
expenses resulting from the Company's growth since December 31, 2000. The
Company expects that these expenses will continue to increase in 2002, as the
Company establishes and staffs its four newest branches.
INCOME TAX EXPENSE
The income tax provision, which includes both federal and state taxes, for the
years ended December 31, 2001 and 2000 was $2,512,000 and $2,201,000,
respectively. The increase in income taxes is a direct result of the increase in
income before taxes in 2001.
RESULTS OF OPERATIONS - 2000 versus 1999
NET INCOME
For the year ended December 31, 2000, net income increased by $966,000 or 30.8%
to $4,102,000 from $3,136,000 for the year ended December 31, 1999. The increase
in net income for 2000 compared to 1999 is a result of a 16.7% increase in net
interest income to $10,942,000 from $9,376,000 in the prior year coupled with a
6.5% increase in fee income to $1,501,000 from $1,409,000 for 1999. The increase
in net interest income is the result of a 21.3% increase in interest income,
reaching $15,232,000 in 2000 from $12,558,000 in 1999.
Other expenses increased by $288,000 or 5.1%, to $5,950,000 for the year ended
December 31, 2000 from $5,662,000 for the year ended December 31, 1999. This
increase reflects the costs associated with the addition of two new branches
within the local Bergen County community as well as the Company's continued
growth, which also affected staff additions, occupancy expenses, salary and
employee benefits, and data processing.
20
On a per share basis, basic earnings per share for the year ended December 31,
2000 were $1.16 as compared to $0.89 for the year ended December 31, 1999,
representing an increase of 30.3%. Diluted earnings per share were $1.13 for
2000 as compared to $0.95 for 1999. All share data has been restated to reflect
all stock dividends and stock splits through the 2002 stock dividend.
FINANCIAL CONDITION
At December 31, 2001, the Company's total assets were $237,820,000 compared to
$234,927,000 at December 31, 2000. Total loans increased to $151,384,000 at
December 31, 2001 from $133,255,000 at December 31, 2000. Total deposits at year
end 2001 were $209,624,000 compared to $208,365,000 at December 31, 2000.
LOAN PORTFOLIO
At December 31, 2001, the Company's total loans were $151,384,000, an increase
of $18,129,000 or 13.6% over total loans of $133,255,000 at December 31, 2000.
The increase in the loan portfolio continues to be attributable to the effect of
customer referrals, selective marketing, and growth within the local Bergen
County community. Management believes that the Company will remain successful in
loan acquisition within this market due to the fact that, through mergers and
acquisitions, the Company's trade area is now primarily served by large
institutions, frequently headquartered out of state. Management believes that it
is not cost-efficient for these larger institutions to provide the level of
personal service 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.
21
The following table sets forth the classification of the Company's loans by
major category as of December 31, 2001, 2000, 1999, 1998, and 1997,
respectively:
December 31,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands)
Commercial and Industrial $ 30,655 $ 26,087 $ 17,610 $18,906 $15,568
Real Estate :
Non-residential properties 65,633 55,699 51,553 33,487 25,929
Residential properties 43,112 43,000 39,981 37,703 36,988
Construction 8,443 4,902 6,901 5,443 2,783
Consumer 3,541 3,567 2,500 2,694 2,056
------------- ------------ ------------- ----------- -----------
Total Loans $151,384 $133,255 $118,545 $98,233 $83,324
======== ======== ======== ======= =======
The following table sets forth fixed and adjustable rate loans as of December
31, 2001 in terms of interest rate sensitivity (in thousands) :
Within
One 1 to 5 After 5
Year Years Years Total
----------- ---------- ----------- -------------
Loans with Fixed Rate $ 14,866 $3,448 $55,058 $73,372
Loans with Adjustable Rate 34,602 32,818 10,592 78,012
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.
22
The following table sets forth information concerning the Company's
non-performing assets as of the dates indicated :
December 31,
------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands)
Non-performing loans $ 0 $ 25 $ 25 $ 0 $ 439
Other real estate owned 0 0 0 163 0
-------------- ------------- ------------- ----------- -----------
Total non-performing assets $ 0 $ 25 $ 25 $ 163 $ 439
Non-performing assets to total gross
loans and other real estate owned N/A 0.02% 0.02% 0.17% 0.53%
Non-performing assets to total assets N/A 0.01% 0.01% 0.10% 0.30%
Non-performing loans to total gross loans
N/A 0.02% 0.02% 0.00% 0.53%
Allowance for possible loan losses as a
Percentage of non-performing loans N/A 5,892.00% 5,240.00% N/A 229.84%
As of December 31, 2001, the Company had no non-accrual loans. At December 31,
2000, the Company had one non-accrual loan which represented a line of credit.
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, 2001 and 2000, 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.
23
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents a critical accounting policy. The
allowance 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
additions 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. Although management uses the best information available, the
level of the allowance for loan losses remains an estimate which is subject to
significant judgment and short term change.
The Company's allowance for loan losses totaled $1,605,000 and $1,473,000 at
December 31, 2001 and 2000, 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,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands)
Balance, beginning of year $ 1,473 $ 1,310 $ 1,127 $ 1,009 $ 861
Charge-offs
Commercial and Industrial (25) (25) - - -
Real Estate (30) - - - (9)
Consumer - (4) (13) (22) (21)
----------- ------------ ------------- ------------ ------------
Total Charge-offs (55) (29) (13) (22) (30)
Recoveries
Commercial and Industrial - 2 - - -
Real Estate - - - - -
Consumer 22 - 1 - 18
----------- ------------ ------------- ------------ ------------
Total Recoveries 22 2 1 - 18
Provision charged to expense 165 190 195 140 160
----------- ------------ ------------- ------------ ------------
Balance, end of year $ 1,605 $ 1,473 $ 1,310 $ 1,127 $ 1,009
Ratio of net charge-offs to average loans
Outstanding 0.02% 0.02% 0.01% 0.03% 0.02%
Balance of allowance at end of year as a
Percentage of loans at end of year 1.06% 1.11% 1.11% 1.15% 1.21%
24
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)
2001 2000 1999 1998 1997
% of % of % of % of % of
Total Total Total Total Total
Amount % of ALL Loans Amount % of ALL Loans Amount % of ALL Loans Amount % of ALL Loans Amount % of ALL Loans
------ -------- ----- ------ -------- ----- ------ -------- ----- ------ -------- ----- ------ -------- -----
Balance
applicable to:
Commercial $ 613 38.19% 20.25% $ 506 34.36% 19.58% $ 466 35.57% 14.86% $ 342 30.35% 19.25% $ 262 25.97% 31.49%
Real Estate :
Non-residential 456 28.41% 43.35% 416 28.24% 41.80% 350 26.72% 43.48% 306 27.15% 34.09% 258 25.57% 25.65%
property
Residential
property 279 17.38% 28.86% 279 18.94% 34.55% 233 17.79% 35.50% 224 19.88% 38.38% 234 23.19% 37.37%
Construction 84 5.23% 5.58% 50 3.39% 3.68% 68 5.19% 5.82% 54 4.79% 5.54% 28 2.78% 3.34%
Consumer 39 2.44% 1.96% 36 2.44% 0.39% 26 1.98% 0.34% 22 1.95% 2.74% 22 2.18% 2.15%
Sub-total $1,471 91.65% 100.00% $1,287 87.37% 100.00% $1,143 87.25% 100.00% $ 948 84.12% 100.00% $ 804 79.69% 100.00%
Unallocated
Reserves 134 8.35% 186 12.63% 167 12.75% 179 15.88% 205 20.31%
TOTAL $1,605 100.00% 100.00% $1,473 100.00% 100.00% $1,310 100.00% 100.00% $1,127 100.00% 100.00% $1,009 100.00% 100.00%
====== ======= ======= ====== ======= ======= ====== ======= ======= ====== ======= ======= ====== ====== =======
25
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 income(loss) 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, 2001, $13,245,000 of the Company's investment
securities were classified as held to maturity and $38,728,000 were classified
as available for sale. At December 31, 2001, the Company held no securities
which it classified as trading securities.
At December 31, 2001, total investment securities were $51,973,000, a decrease
of $3,696,000, from total investment securities of $55,669,000 at December 31,
2000. This decrease in investment securities from year end 2000 to year end 2001
reflects the maturity of investment securities which continue to be used to fund
loan growth.
26
The following table sets forth the carrying value of the Company's security
portfolio as of the dates indicated.
At December 31,
-------------------------------------------------------------------------------------
(in thousands)
2001 2000 1999
--------- ------- ---------- ------ -------- -------- -- ------------ ---------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
----------- ---------- ----------- ---------- ----------- ----------
Available for sale
U.S. Government and agency
Obligations $34,702 $35,080 $20,076 $20,076 $22,035 $21,367
Municipal and state obligations 2,878 2,878 - - - -
FHLBNY stock 430 430 512 512 512 512
Other equity securities 469 340 469 340 469 328
----------- ---------- ----------- ---------- ----------- ----------
Total available for sale $38,479 $38,728 $21,057 $20,928 $23,016 $22,207
Held to Maturity
U.S. Government and agency
Obligations $8,573 $8,682 $24,586 $24,636 $34,596 $34,323
Municipal and state obligations 4,672 4,671 10,155 10,160 12,250 12,254
----------- ---------- ----------- ---------- ----------- ----------
Total held to maturity $13,245 $13,353 $34,741 $34,796 $46,846 $46,577
Total Investment Securities $51,724 $52,081 $55,798 $55,724 $69,862 $68,784
======= ======= ======= ======= ======= =======
The following table sets forth as of December 31, 2001 and December 31, 2000,
the maturity distribution of the Company's debt investment portfolio :
Maturity of Debt Investment Securities
December 31, 2001
(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 $12,709 $12,807 5.14% $ 2,878 $ 2,878 3.30%
1 to 5 years 536 546 5.00% 33,703 34,073 4.77%
Over 5 years - - - 999 1,007 8.02%
---------- ------------- ------------ -----------
$13,245 $13,353 $37,580 $37,958
======= ======= ======= =======
27
December 31, 2000
(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 $24,440 $24,453 6.13% $ 999 $ 998 5.25%
1 to 5 years 10,301 10,343 6.16% 18,078 18,057 6.34%
Over 5 years - - - 999 1,021 8.02%
----------- ------------- ------------ -----------
$34,741 $34,796 $20,076 $20,076
======= ======= ======= =======
The Company sold no securities from its portfolio during 2001 or 2000.
DEPOSITS
Deposits are the Company's primary source of funds. The Company experienced a
growth in average deposit balances of $12,235,000 or 6.4% to $202,945,000 at
December 31, 2001 as compared to $190,710,000 at December 31, 2000. This growth
continues to be accomplished as a result of continued market penetration
combined with continued customer referrals during 2001. Average non-interest
bearing demand deposits increased by $9,672,000 or 15.4% and average interest
bearing demand deposits increased by $8,907,000 or 19.4% from 2000 to 2001.
Average time deposits experienced a decrease of $7,057,000, or 11.8%, from
$59,897,000 in 2000 to $52,840,000 in 2001. The aggregate amount of average
non-interest bearing deposits totaled 35.7% of the Company's total average
deposits at December 31, 2001 as compared to 33.0% at December 31, 2000. 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)
2001 2000 1999
---------------------------- ---------------------------- ------------------------------
Average Average Average
Amount Yield/Rate Amount Yield/Rate Amount Yield/Rate
------------ ------------- ------------ ------------ ----------- -------------
Non-interest Bearing Demand $72,535 - $62,863 - $49,953 -
Interest Bearing Demand 54,713 1.25% 45,806 1.78% 46,908 0.98%
Savings 22,857 0.96% 22,144 1.40% 20,613 1.50%
Time Deposits 52,840 4.19% 59,897 5.24% 52,384 4.61%
------------ ------------ -----------
$202,945 $190,710 $169,858
======== ======== ========
28
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, 2001 (in thousands).
Three months or less $ 16,017
Over three months through twelve months 5,563
Over one year through three years 0
Over three years 0
-----------
Total $ 21,580
===========
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 $209,624,000 at December 31, 2001 as
compared to $208,365,000 at December 31, 2000. The increase in funds provided by
deposit inflows during this period has been sufficient to provide for the
Company's loan demand.
Through the investment portfolio, the Company 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 investment portfolio also includes
securities held for sale to provide liquidity for anticipated loan demand and
liquidity needs.
Although the Company has traditionally been a net "seller" of federal funds, the
Company does have lines of credit with the Federal Home Loan Bank of New York
and First Tennessee Bank for "purchase" of federal funds in the event that
temporary liquidity needs arise. The Company 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.
29
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. At December 31, 2001, the Company
is within the target gap range as established by the Asset/Liability Committee
of the Board of Directors.
30
Cumulative Rate Sensitive Balance Sheet
December 31, 2001
(in thousands)
0 - 3 0 - 6 0 - 1 0 - 5 5 + All TOTAL
Months Months Year Years Years Others
------- -------- --------- -------- -------- --------- ---------
Investment Securities $ 4,346 $ 8,936 $ 15,587 $ 50,196 $ 1,007 $ 0 $ 51,203
Loans :
Commercial 26,054 26,631 28,291 53,229 56,749 0 109,978
Mortgages 721 1,027 1,811 11,508 8,262 0 19,770
Consumer 19,076 19,191 19,366 20,997 639 0 21,636
Federal Funds Sold 10,500 10,500 10,500 10,500 0 0 10,500
Other Assets 0 0 0 0 0 24,733 24,733
------------ ------------ ------------- ------------ ----------- ------------ ---------------
TOTAL ASSETS $60,697 $ 66,285 $ 75,555 $146,430 $213,087 $237,820 $237,820
======= ======== ======== ======== ======== ======== ========
Transaction /
Demand Accounts $43,033 $43,033 $43,033 $43,033 $ 0 $ 0 $43,033
Money Market 19,419 19,419 19,419 19,419 0 0 19,419
Savings 27,748 27,748 27,748 27,748 0 0 27,748
CD's < $100,000 10,219 15,787 18,395 18,950 0 0 18,950
CD's > $100,000 16,017 20,621 21,580 21,580 0 0 21,580
Other Liabilities 0 0 0 0 0 80,224 80,224
Equity 0 0 0 0 0 26,866 26,866
------------ ------------ ------------- ------------ ----------- ------------ --------------
TOTAL LIABILITIES AND EQUITY
$116,436 $126,608 $130,175 $130,730 $130,730 $237,820 $237,820
======== ======== ======== ======== ======== ======== ========
Dollar Gap (55,739) (60,323) (54,620) 15,700 82,357
Gap / Total Assets -23.44% -25.37% -22.97% 6.60% 34.63%
Target Gap Range +/-35.0% +/- 30.0% +/- 25.0% +/-25.0% -
RSA / RSL 52.13% 52.35% 58.04% 112.01% 163.00%
(Rate Sensitive Assets to
Rate Sensitive Liabilities)
31
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, 2001. Market risk sensitive instruments
are generally defined as on- and off- balance sheet financial instruments.
32
Expected Maturity/Principal Repayment
December 31, 2001
(Dollars in thousands)
Avg. There- Fair
Int. Rate 2002 2003 2004 2005 2006 After Total Value
--------- ---- ---- ---- ----- ----- ------ ----- -----
Interest Rate
Sensitive
Assets :
Loans.......... 8.13% 49,468 6,598 8,589 10,982 10,097 65,650 151,384 154,334
Tax Exempt
Securities... 6.52% 7,455 -- -- -- -- -- 7,455 7,455
Investment
Securities... 5.61% 8,132 7,048 6,176 4,574 16,811 1,007 43,748 43,856
Fed Funds
Sold............ 4.09% 10,500 -- -- -- -- -- 10,500 10,500
Interest Rate
Sensitive
Liabilities :
Demand
Deposits....... 1.22% 43,033 -- -- -- -- -- 43,033 43,033
Savings
Deposits....... 0.96% 27,748 -- -- -- -- -- 27,748 27,748
Money Market
Deposits.......
1.33% 19,419 -- -- -- -- -- 19,419 19,419
Time Deposits.......
4.19% 39,975 555 -- -- -- -- 40,530 42,647
Short Term
Borrowings... 4.26% -- -- -- -- -- -- -- --
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 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
Bank is subject to substantially similar regulations by its federal regulations.
33
The following table summarizes the risk-based and leverage capital ratios for
the Company at December 31, 2001, as well as the required minimum regulatory
capital ratios :
Minimum
December 31, Regulatory
2001 Requirements
---------------- -----------------
Risk-Based Capital :
Tier I Capital Ratio 16.27% 4.0%
Total Capital Ratio 17.25% 8.0%
Leverage Ratio 11.43% 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. 141 and SFAS No.142
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, "Business Combinations," and Statement No. 142, "Goodwill and
Other Intangible Assets." Statement No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method business combinations completed after June 30,
2001. Statement No. 141 also specifies the criteria acquired intangible assets
must meet to be recognized and reported apart from goodwill. Statement No. 142
will require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually in
accordance with the provisions of Statement No. 142. Statement No. 142 also
requires that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company adopted the provisions of Statement No. 141 upon issuance. The
initial adoption of Statement No. 141 had no impact on the Company's
consolidated financial statements. The Company adopted Statement No. 142
effective January 1, 2002. The Company currently has no recorded goodwill or
intangible assets and does not anticipate that the initial adoption of Statement
No. 142 will have a significant impact on the Company's consolidated financial
statements.
34
SFAS No. 140
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (A Replacement
of FASB Statement 125)." SFAS No. 140 superseded and replaced the guidance in
SFAS No. 125 and, accordingly, provided guidance on the following topics:
securitization transactions involving financial assets, sales of financial
assets such as receivables, loans, and securities; factoring transactions and
wash sales; servicing assets and liabilities, collateralized borrowing
arrangements, securities lending transactions; repurchase transactions; loan
participations; and extinguishment of liabilities. The initial adoption of SFAS
No. 140 did not have a material impact on the Company's financial statements.
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, 2001 and 2000, 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, 2001 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 2002 Annual Meeting under the
caption "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 30,
2002.
35
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, 49, 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 2002 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 30, 2002.
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 2002
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 30, 2002.
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 2002 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 30, 2002.
36
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)
- -------------------------------------------------------------------------------
10(i) Bridge View Bancorp 2001 Employee Stock Option Plan
- -------------------------------------------------------------------------------
10(ii) Bridge View Bancorp 2001 Stock Option Plan for Non-Employee
Directors
- -------------------------------------------------------------------------------
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
Press Release dated January 7, 2002
37
BRIDGE VIEW BANCORP AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
-------
Independent Auditors' Report..............................................39
Consolidated Statements of Financial Condition
as of December 31, 2001 and 2000.................................40
Consolidated Statements of Income for the years
ended December 31, 2001, 2000, and 1999..........................41
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2001,
2000, and 1999...................................................42
Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000, and 1999..........................43
Notes to Consolidated Financial Statements................................44
Explanatory Note: This Form 10-K contains certain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 which
involve risks and uncertainties. Such statements are not historical facts and
include expressions about management's confidence, strategies, and expectations
about new and existing programs, products, relationships, opportunities,
technology, and market conditions. These statements may be identified by the use
of such words as "believe," "expect," "anticipate," "should," "may,"
"potential," or similar statements or variations of such terms. Examples of
forward looking statements include, but are not limited to, estimates with
respect to the financial condition, results of operations, and business of
Bridge View Bancorp, that are subject to various factors which could cause
actual results to differ materially from these estimates. These factors include:
changes in general, economic and market conditions, legislative and regulatory
conditions, or the development of an interest rate environment which adversely
affects Bridge View Bancorp's interest rate margin or other income anticipated
from operations and investments. As used in this Form 10-K, "we" and "us" and
"our" refer to Bridge View Bancorp and its consolidated subsidiary Bridge View
Bank, depending on the context.
38
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, 2001 and 2000, 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, 2001.
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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
Short Hills, New Jersey
January 31, 2002 except as to
Notes 12 and 19, which are as
of March 5, 2002
39
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 2001 and 2000
(Dollars in Thousands)
Assets 2001 2000
---- ----
Cash and cash equivalents:
Cash and due from banks (note 3) $ 13,771 $ 21,061
Federal funds sold 10,500 20,500
------ ------
Total cash and cash equivalents 24,271 41,561
------ ------
Securities available for sale (note 4) 38,728 20,928
Investment securities, estimated market value of
$13,353 in 2001 and $34,796 in 2000 (note 4) 13,245 34,741
Loans (note 5):
Commercial 109,978 90,496
Mortgage 19,770 22,320
Consumer and other 21,636 20,439
------ ------
Total loans 151,384 133,255
Deferred loan fees (471) (397)
Allowance for loan losses (1,605) (1,473)
------- -------
Net loans 149,308 131,385
------- -------
Premises and equipment, net (note 6) 9,523 3,768
Accrued interest receivable 1,412 1,797
Other assets (note 8) 1,333 747
----- ---
Total assets $237,820 $234,927
======== ========
Liabilities and Stockholders' Equity
Deposits (note 7):
Noninterest-bearing demand deposits 78,894 79,798
Interest bearing deposits:
Savings and time deposits 109,150 96,342
Certificates of deposit of $100,000 or more 21,580 32,225
------ ------
Total deposits 209,624 208,365
Accounts payable and accrued liabilities 1,330 1,299
Short term borrowings 0 2,000
Total liabilities 210,954 211,664
------- -------
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
3,548,763 shares in 2001 and 3,535,597 shares
in 2000 25,277 21,266
Retained earnings 1,428 2,079
Other comprehensive income(loss), net of taxes 161 (82)
--- ----
Total stockholders' equity 26,866 23,263
------ ------
Total liabilities and stockholders' equity $237,820 $234,927
======== ========
See accompanying notes to consolidated financial statements.
40
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2001, 2000 and 1999
(Dollars in thousands, except per share data)
2001 2000 1999
---- ---- ----
Interest income:
Loans $ 11,115 $ 11,036 $9,009
Municipals - nontaxable 321 409 397
Investment securities 2,433 3,221 2,349
Federal funds sold and FHLBNY income 960 566 803
------------- ---------- ----------
Total interest income 14,829 15,232 12,558
------------- ---------- ----------
Interest expense:
Savings and time deposits 1,944 2,574 1,947
Certificates of deposit of $100,000 or more 1,173 1,688 1,234
Short term borrowings 74 28 1
------------- ---------- ----------
Total interest expense 3,191 4,290 3,182
------------- ---------- ----------
Net interest income 11,638 10,942 9,376
Provision for loan losses (note 5) 165 190 195
------------- ---------- ----------
Net interest income after provision for loan
losses 11,473 10,752 9,181
Other income - principally fees and service charges 1,907 1,501 1,409
------------- ---------- ----------
Other expenses:
Salaries and employee benefits (note 13) 3,255 2,945 2,625
Occupancy and equipment expense (note 9) 1,284 1,230 1,167
Professional fees 202 228 271
Director and stockholder expense (note 13) 292 244 270
Advertising and business promotion 37 18 89
Stationary and supplies 154 231 240
Data processing 469 436 365
FDIC expense 46 42 18
Other operating expenses 560 576 617
------------- ---------- ----------
Total other expenses 6,299 5,950 5,662
------------- ---------- ----------
Income before income taxes 7,081 6,303 4,928
Income tax expense (note 8) 2,512 2,201 1,792
------------- ---------- ----------
Net Income $4,569 $4,102 $3,136
====== ====== ======
Earnings per share: (note 11)
Basic $1.29 $1.16 $0.89
===== ===== =====
Diluted $1.25 $1.13 $0.86
===== ===== =====
All share data has been restated to reflect all stock dividends and stock splits
through the 2002 stock dividend.
See accompanying notes to consolidated financial statements.
41
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2001, 2000 and 1999
(Dollars in Thousands)
Accumulated
Other
Comprehensive
Capital Retained (Loss)income,
Stock Earnings net of tax Total
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
Net income - 4,102 - 4,102
Other comprehensive income(loss): Unrealized
holding gains on securities available for
sale (net of taxes $(227)) - - 403 403
----------
Total comprehensive income - - - 4,505
5% stock dividend 2,226 (2,226) - -
Common stock issued upon exercise of stock options
5 - - 5
Cash dividends paid - (576) - (576)
---------- --------- --- ----------
Balance at December 31, 2000 21,266 2,079 (82) 23,263
Net income - 4,569 - 4,569
Other comprehensive income(loss): Unrealized
Holding gains on securities available for
sale (net of taxes $(158)) - - 243 243
----------
Total comprehensive income - - - 4,812
10% stock dividend 3,959 (3,959) - -
Common stock issued upon exercise of stock options 52 - - 52
Cash dividends paid - (1,261) - (1,261)
---------- --------- --- ----------
Balance at December 31, 2001 $25,277 1,428 161 26,866
========== ========= ======= ==========
See accompanying notes to consolidated financial statements.
42
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999
(Dollars in Thousands)
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income $ 4,569 $ 4,102 $ 3,136
Adjustments to reconcile net income to net cash provided by
Operating activities:
Provision for loan losses 165 190 195
Depreciation and amortization 319 403 324
Deferred tax expense(benefit) 185 (67) 191
Net amortization and accretion of premiums and discounts on
investment securities 25 18 52
Gains from sale of loans held for sale (40) (23) (44)
Changes in operation assets and liabilities:
Decrease(Increase) in accrued interest receivable 385 (224) (421)
(Increase)decrease in other assets (586) (185) 78
Increase(decrease) in accounts payable and accrued 31 561 (93)
---------- ---------- ----------
liabilities
Net cash provided by operating activities 5,053 4,775 3,418
---------- ---------- ----------
Cash flows from investing activities:
Purchases of investment securities (7,089) (17,445) (39,825)
Maturities of investment securities 28,585 29,714 21,245
Maturities/calls of securities available for sale 38,085 3,000 6,000
Purchases of securities available for sale (55,977) (1,600) (22,085)
Net increase in loans (17,923) (14,424) (20,006)
Purchase of FHLBNY stock - - 36
Purchases of premises and equipment, net (6,074) (318) (1,610)
---------- ---------- ----------
Net cash used in investing activities (20,393) (1,073) (56,245)
---------- ---------- ----------
Cash flows from financing activities:
Net increase in deposits 1,259 25,160 30,505
Proceeds from FHLB Advance - 2,000 -
Repayment of FHLB Advance (2,000) - -
Issuance of common stock and options exercised 52 5 8
Dividends paid (1,261) (576) (550)
---------- ---------- ----------
Net cash provided by financing activities (1,950) 26,589 29,963
---------- ---------- ----------
(Decrease)increase in cash and cash equivalents (17,290) 30,291 (22,864)
Cash and cash equivalents at beginning of year 41,561 11,270 34,134
---------- ---------- ----------
Cash and cash equivalents at end of year $24,271 $41,561 $11,270
======= ======= =======
Supplemental information:
Cash paid during the year for:
Interest $3,394 $4,291 $3,060
====== ====== ======
Income taxes $2,861 $1,968 $1,781
====== ====== ======
See accompanying notes to consolidated financial statements.
43
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
(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, Bridge View Investment
Company, and Bridge View Delaware, Inc. (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 accounting principles generally accepted in the United States of
America. 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 2001. 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
income(loss) which is a separate component of stockholders' equity.
44
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.
45
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 is 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, 2001, 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. 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
Basic Earnings Per Share excludes dilution and represents the effect of
earnings upon the weighted average number of shares outstanding for the
period. Diluted Earnings Per Share 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 due to stock dividends.
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.
46
(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, 2001 and 2000
was $0.1 million and $0.1 million, respectively, representing reserves
required to be maintained at the Federal Reserve Bank of New York.
(4) Securities Available for Sale and Investment Securities
A comparative summary of securities available for sale at December 31,
2001 and 2000 is as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
2001
----
U.S. Government and
Agency obligations $ 34,702 385 (7) $35,080
Municipal and state obligations 2,878 0 0 2,878
FHLBNY stock 430 0 0 430
Other equity securities 469 0 (129) 340
----------- --------- -------- ---------
Total available for sale $ 38,479 385 (136) $38,728
=========== ========= ======== =========
2000
U.S. Government and
Agency obligations $ 20,076 25 (25) $20,076
FHLBNY stock 512 0 0 512
Other equity securities 469 0 (129) 340
----------- -------- -------- ----------
Total available for sale $ 21,057 25 (154) $20,928
======== ======== ======== ==========
47
A comparative summary of held to maturity investment securities at
December 31, 2001 and 2000 is as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
2001
----
U.S. Government and
Agency obligations $8,573 109 0 $8,682
Municipal and state obligations 4,672 0 (1) 4,671
----------- ------- --------- --------
Total held to maturity $13,245 109 (1) $13,353
=========== ======= ========= ========
2000
U.S. Government and
Agency obligations $ 24,586 77 (27) $24,636
Municipal and state obligations 10,155 5 0 10,160
----------- ------- --------- --------
Total held to maturity $34,741 82 (27) $34,796
=========== ======= ========= ========
Debt investment securities held at December 31, 2001 mature as follows (in
thousands):
Securities Securities
Held to Maturity Available for Sale
-------------------------------- -------------------------------
Amortized Market Amortized Market
cost Value cost Value
Within one year $12,709 $12,807 $ 2,878 $ 2,878
One to five years 536 546 33,703 34,073
Over five years - - 999 1,007
------------- ------------- ------------- -------------
$13,245 $13,353 $37,580 $37,958
============= ============= ============= =============
For the years ended December 31, 2001, 2000, and 1999, respectively,
there were no sales of securities.
Securities with an amortized cost of $2.1 million and $2.0 million,
respectively, were pledged to secure public funds on deposit at December
31, 2001 and 2000.
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, 2001, no amount was
outstanding under this line of credit.
48
(5) Loans and Allowance for Loan Losses
The activity in the allowance for loan losses is as follows (in
thousands):
2001 2000 1999
---- ---- ----
Balance at beginning of year $ 1,473 $ 1,310 $ 1,127
Provision charged to expense 165 190 195
Loans charged off (55) (29) (13)
Recoveries 22 2 1
------ ------- --------
Balance at end of year $1,605 $1,473 $1,310
====== ======= ========
There were no impaired loans at December 31, 2001 and 2000. As of
December 31, 2001, the Company had no non-accrual loans compared to one
non-accrual loan for $25,000 at December 31, 2000 and 1999, respectively.
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.
49
(6) Premises and Equipment, net
At December 31, premises and equipment consists of the following (in
thousands):
2001 2000
---- ----
Land $ 4,330 $ 1,400
Building 4,867 1,697
Furniture and equipment 1,631 1,648
Leasehold improvements 907 916
--------- ----------
11,735 5,661
Less accumulated depreciation and
amortization 2,212 1,893
--------- ----------
Total premises and equipment, net $ 9,523 $ 3,768
========= ==========
During December, 2001, the Bank successfully bid to purchase three bank branches
and to assume the lease of another branch formerly operated by Fleet/Summit Bank
which have been closed as a result of that merger. In connection with its bid,
the Bank will not assume any deposits of these four branches nor acquire any
loans or other assets. In January, 2002, the Bank received regulatory approval
to open and operate these branches. The four new branches are located at 35
North Washington Avenue, Bergenfield, New Jersey, 819 Teaneck Road, Teaneck, New
Jersey, 245 Main Street, Ridgefield Park, New Jersey, and 85 Jefferson Avenue,
Westwood, New Jersey; all in Bergen County, New Jersey. They are expected to
open in early second quarter, 2002.
50
(7) Deposits
At December 31, a summary of the maturity of certificates of deposit is
as follows(in thousands):
2001 2000
---- ----
Certificates of deposit maturing:
One year or less $ 39,975 $ 59,057
One to three years 555 1,867
Over three years 0 174
----------- ---------
Total certificates of deposit $ 40,530 $ 61,098
=========== =========
(8) Income Taxes
Income tax expense from operations for the years ended December 31 is as
follows (in thousands):
2001 2000 1999
---- ---- ----
Federal:
Current $ 1,901 $ 2,052 $ 1,310
Deferred 225 (57) 164
------- ------- -------
2,126 1,995 1,474
------- ------- -------
State:
Current 426 216 291
Deferred (40) (10) 27
------- ------- -------
386 206 318
------- ------- -------
$2,512 $2,201 $1,792
===== ===== =====
Total income tax expense for the years ended December 31 is allocated as
follows (in thousands):
2001 2000 1999
---- ---- ----
Income tax expense from operations $2,512 $2,201 $1,792
Stockholders' equity - unrealized loss(gain) on
securities available for sale 158 227 (337)
------- ------- --------
$2,670 $2,428 $1,455
===== ===== =====
51
Income tax expense from operations differed from the amounts computed by
applying the U.S. federal income tax rate (34% in 2001, 2000 and 1999) to
income taxes as a result of the following (in thousands):
2001 2000 1999
---- ---- ----
Computed "expected" tax expense $ 2,408 $ 2,143 $ 1,676
Increase(decrease) in taxes resulting from:
State taxes, net of federal income tax benefit 255 136 245
Tax-exempt income (109) (139) (135)
Other (42) 61 6
--------- --------- ---------
$ 2,512 $ 2,201 $ 1,792
--------- ========= =========
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, 2001 and 2000 are as follows (in thousands):
2001 2000
Deferred tax assets:
Bank premises, furniture and equipment,
principally due to differences in depreciation $ 154 84
Deferred compensation 87 0
Loans, principally due to allowance for loan
losses and deferred fee income 621 527
Unrealized loss on securities available
for sale 0 376
Other 8 14
---- ----
Total gross deferred tax assets 870 1,001
------- ------
Deferred tax liabilities:
Deferred fee income 15 25
Unrealized gains on securities available
for sale 62 0
Investment securities, principally due to
accretion of discounts 17 14
----- ----
Total gross deferred tax liabilities 94 39
---- ----
Net deferred tax asset $ 776 $ 962
=== ===
At December 31, 2001, management believes that no valuation allowance for
the deferred tax asset is necessary due to sufficient taxes paid in the
statutory carryback period.
52
(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 $562,000, $521,000 and $542,000 for the years ended
December 31, 2001, 2000, and 1999, respectively. In late December, 2001,
the Bank successfully bid to assume the lease of a Fleet/Summit branch
located in Westwood, NJ. 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, 2001
(in thousands):
Year ending December 31:
2002 $ 612
2003 493
2004 340
2005 276
2006 239
Thereafter 2,679
======
(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 $199,000, $133,000 and
$111,000 during the years ended December 31, 2001, 2000 and 1999,
respectively. It is the Bank's policy not to originate loans to
directors, executive officers or their affiliates.
53
(11) Earnings Per Share Reconciliation
The Company's calculation of earnings per share is as follows:
Year Ended December 31,
2001 2000 1999
---- ---- ----
(in thousands, except per share data)
Basic earnings per share :
Net Income $4,569 $4,102 $3,136
===== ===== =====
Average number of shares outstanding 3,549 3,534 3,534
===== ===== =====
Basic earnings per share $ 1.29 $ 1.16 $ 0.89
==== ==== ====
Diluted earnings per share :
Net Income $4,569 $4,102 $3,136
===== ===== =====
Average number of shares of common
stock and equivalents outstanding :
Average common shares outstanding 3,549 3,534 3,534
Additional shares considered in
diluted computation assuming :
Exercise of options and warrants 100 96 102
----- ------ -----
Average number of shares outstanding
on a diluted basis 3,649 3,630 3,636
===== ===== =====
Diluted earnings per share $ 1.25 $ 1.13 $ 0.86
==== ==== ====
54
(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 a 10% stock dividends effective March 5,
2002 and March 1, 2001 as well as 5% stock dividends effective March 30,
2000, 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, 2001, 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 Company'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 153,489 shares of the Company's common stock to
be issued to directors who are not employees of the Company. The
Employees' Plan provided for options to purchase up to 153,489 shares of
the Company's common stock to be issued to employees of the Company.
Previously issued options to an employee of the Company were terminated
upon adoption of these plans. The option price per share approximates the
market value of the Company's stock on the date of grant. At December 31,
2001, 153,489 granted options to purchase shares remain outstanding under
the Directors' Plan and 92,983 granted options are outstanding under the
Employees' Plan.
During 1998, the Company'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 200,103 options to purchase shares of the Company's common
stock to individuals who were then directors of Bridge View Bancorp.
During 1998, 186,764 options were granted to non-employee directors. At
December 31, 2001, 13,339 of these options remain available for future
distribution.
During 2001, the Company's stockholders approved the 2001 Stock Option
Plan for Non-Employee Directors ("2001 Directors Plan") and the 2001
Employee Stock Option Plan ("2001 Employee Plan"). The 2001 Directors
Plan provided for options to purchase up to 141,930 shares of the
Company's common stock to be issued to directors who are not employees of
the Company. The 2001 Employee Plan provided for options to purchase up
to 141,930 shares of the Company's common stock to be issued to employees
of the Company. The option price per share approximates the market value
of the Company's stock on the date of the grant. At December 31, 2001,
140,641 granted options to purchase shares remain outstanding under the
2001 Directors Plan and 35,492 granted options are outstanding under the
2001 Employee Plan.
55
(13) Benefit Plans, continued
A summary of the stock option plans for the years ended December 31,
2001, 2000, and 1999 is as follows:
Number
Of Option Price
Shares Per Share
Outstanding at December 31, 1998 434,310 3.16 - 20.06
Granted - -
Forfeited 1,843 3.91 - 20.06
Exercised (1,724) 3.91
-------
Outstanding at December 31, 1999 434,429 3.16 - 20.06
Granted 3,025 12.19
Forfeited - -
Exercised (1,335) 3.91
-------
Outstanding at December 31, 2000 436,119 3.16 - 20.06
Granted 179,157 11.57 - 13.64
Forfeited - -
Exercised - -
Outstanding at December 31, 2001 615,276 3.16 - 20.06
At December 31, 2001, 2000, and 1999, the number of options exercisable
was 615,276, 436,119, and 434,429, respectively, and the weighted-average
price of those options was $12.47, $11.76, and $11.73, respectively.
At December 31, 2001 and 2000, there were 133,452 and 28,750 additional
shares available for grant under the Plans. During 2001, 179,157 options
were granted. During 2000, 3,025 options were granted. No options were
granted during 1999. The per share weighted-average fair values of stock
options granted during 2001 and 2000 were $13.43 and $11.57,
respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions for 2001 and 2000,
respectively : expected dividend yields of 6.00% and 3.00%, risk-free
interest rates of 3.25% and 5.0%, and expected lives of five years.
56
(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 Company
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):
2001 2000 1999
---- ---- ----
Net income:
As reported $ 4,569 $ 4,102 $ 3,136
Pro forma 4,091 3,857 2,891
===== ===== =====
Basic earnings per share:
As reported $ 1.29 $ 1.16 $ 0.89
Pro forma 1.15 1.09 0.82
==== ==== ====
Diluted earnings per share:
As reported $ 1.25 $ 1.13 $ 0.86
Pro forma 1.12 1.06 0.80
==== ==== ====
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 $46,000, $38,000, and $26,000 in the years ended
December 31, 2001, 2000, and 1999, 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 2001, 2000, and 1999, the amount charged to expense
related to the Retirement Plan was $135,000, $118,000, and $140,000,
respectively.
57
(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, 2001, 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, 2001, 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, 2001 and 2000, 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, 2001:
Leverage (Tier I)
Capital $26,621 11.43% $9,313 4.00% $11,642 5.00%
Risk-based capital:
Tier I 26,621 16.27 6,531 4.00 9,829 6.00
Total 28,226 17.25 13,106 8.00 16,382 10.00
December 31, 2000:
Leverage (Tier I)
Capital $23,263 10.91% $8,526 4.00% $10,658 5.00%
Risk-based capital:
Tier I 23,263 16.28 5,717 4.00 8,575 6.00
Total 24,735 17.31 11,433 8.00 14,292 10.00
58
(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, 2001 and 2000 totaled $35.6
million and $24.7 million, respectively. Additionally, unused credit card
commitments totaled $1,021,000 at December 31, 2001.
59
(15), Continued
Most of the Company's lending activity is with customers located in
Bergen County, New Jersey. At December 31, 2001 and 2000, respectively,
the Company had outstanding letters of credit to customers totaling
$1,376,000 and $1,405,000 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, 2001 and 2000 and for the years then ended should be read in
conjunction with the notes to the consolidated financial statements.
Statement of Financial Condition
(in thousands)
December 31,
2001 2000
---- ----
(in thousands)
Assets:
Cash and due from subsidiary $ 919 $ 867
Equity securities 340 340
Investment in subsidiary 25,576 22,021
Other assets 52 56
-- --
Total assets $ 26,887 $ 23,284
====== ======
Liabilities:
Due to subsidiary $ 21 $ 21
Stockholders' equity:
Common stock 25,277 21,266
Other comprehensive (loss)income, net of taxes 161 (82)
Retained earnings 1,428 2,079
----- -----
Total stockholders' equity 26,866 23,263
------ ------
Total liabilities and stockholders'
Equity $ 26,887 $ 23,284
======== ========
60
(16), Continued
Statement of Income
(in thousands) For the years ended
December 31,
2001 2000 1999
---- ---- ----
Dividend income from subsidiary $ 1,257 $ 576 $ 550
Expenses 0 0 (7)
----- ------- ---
Income before equity in undistributed
earnings of subsidiary bank 1,257 576 543
Income after equity in undistributed
earnings of subsidiary bank 3,312 3,526 2,593
----- ----- -----
Net income $4,569 $4,102 $3,136
===== ===== =====
Statement of Cash Flow
(in thousands) For the years ended
December 31,
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income $ 4,569 $ 4,102 $ 3,136
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of the
subsidiary bank (3,312) (3,526) (2,593)
Decrease in other assets, net 4 0 6
--------- ---------- -----------
Net cash provided by operating activities 1,261 576 549
Cash flows from investing activities:
Purchases of securities - - (469)
--------- ---------- -----------
Net cash provided by financing activities - - (469)
Cash flows from financing activities:
Dividends paid (1,261) (576) (550)
Proceeds from exercise of options 52 5 8
--------- ---------- -----------
Net cash (used in)provided by financing
Activities (1,209) (571) (542)
Net change in cash for the period 52 5 (462)
Net cash at beginning of year 867 862 1,324
--------- ---------- -----------
Net cash at end of year $ 919 $ 867 $ 862
========= ========== ===========
61
(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, 2001 and 2000 (in thousands):
2001 2000
------------------------- ------------------------
Esti- Esti-
Carry- mated Carry- Mated fair
ing amount fair ing amount value
value
---------- -------- ---------- -----------
Financial assets:
Cash and cash equivalents $ 24,271 24,271 41,561 41,561
Securities available for sale 38,728 38,728 20,928 20,928
Investment securities 13,245 13,353 34,741 34,796
Net loans 149,308 154,334 131,385 134,359
Financial liabilities:
Deposits 209,624 209,824 208,365 208,454
Short term borrowings - - 2,000 2,000
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.
62
(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.
Short term borrowings
The carrying amount approximates fair value.
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, 2001 and 2000,
such amounts were not material.
Limitation
The preceding fair value estimates were made at December 31, 2001
and 2000, 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, 2001 and
2000, 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.
63
(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
----------- ------------ ------- --------
2001
Interest income $ 3,515 $ 3,711 $ 3,750 $ 3,853
Interest expense 495 694 872 1,130
-------------- ----------- --------- ---------
Net interest income 3,020 3,017 2,878 2,723
Provision for loan losses 65 60 30 10
Other expense, net 966 1,047 1,173 1,206
Provision for federal and state
income taxes 730 668 587 527
-------------- ---------- --------- ---------
Net income $ 1,259 $ 1,242 $ 1,088 $ 980
===== ===== ===== ======
Net earnings per share:
Basic $ 0.36 $ 0.38 $ 0.31 $ 0.27
====== ====== ==== ====
Diluted $ 0.35 $ 0.37 $ 0.30 $ 0.27
====== ====== ==== ====
2000
Interest income $ 4,036 $ 3,911 $ 3,735 $ 3,550
Interest expense 1,250 1,108 943 989
------------ ---------- --------- ---------
Net interest income 2,786 2,803 2,792 2,561
Provision for loan losses 70 30 40 50
Other expense, net 924 1,187 1,186 1,152
Provision for federal and state
income taxes 602 546 560 493
------------ ---------- --------- ---------
Net income $ 1,190 $ 1,040 $ 1,006 $ 866
===== ===== ===== ======
Net earnings per share:
Basic $ 0.34 $ 0.30 $ 0.28 $ 0.25
==== ==== ==== ====
Diluted $ 0.33 $ 0.29 $ 0.28 $ 0.24
==== ==== ==== ====
64
(19) Subsequent Event - Stock Dividend
On March 5, 2002, the Company declared a 10% Stock Dividend (the "2002
Stock Dividend"). The dividend is payable to all holders of record as of March
15, 2002 and will be paid on April 2, 2002. Earnings per share and all share
data has been restated to reflect the effect of the 2002 stock dividend.
(20) Recent Accounting Pronouncements
SFAS No. 140
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (A Replacement
of FASB Statement 125)." SFAS No. 140 superseded and replaced the guidance in
SFAS No. 125 and, accordingly, provided guidance on the following topics:
securitization transactions involving financial assets, sales of financial
assets such as receivables, loans, and securities; factoring transactions and
wash sales; servicing assets and liabilities, collateralized borrowing
arrangements, securities lending transactions; repurchase transactions; loan
participations; and extinguishment of liabilities. The initial adoption of SFAS
No. 140 did not have a material impact on the Company's financial statements.
SFAS No. 141 and SFAS No.142
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, "Business Combinations," and Statement No. 142, "Goodwill and
Other Intangible Assets." Statement No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method business combinations completed after June 30,
2001. Statement No. 141 also specifies the criteria acquired intangible assets
must meet to be recognized and reported apart from goodwill. Statement No. 142
will require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of Statement No. 142. Statement No. 142 also
requires that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company adopted the provisions of Statement No. 141 upon issuance. The
initial adoption of Statement No. 141 had no impact on the Company's
consolidated financial statements. The Company adopted Statement No. 142
effective January 1, 2002. The Company currently has no recorded goodwill or
intangible assets and does not anticipate that the initial adoption of Statement
No. 142 will have a significant impact on the Company's consolidated financial
statements.
65
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:
-------------------------
Albert F. Buzzetti
President and CEO
Dated : March 22, 2002
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
-------------------------------------------------------------------------
President, Chief March 22, 2002
------------------------ Executive Officer and
Albert F. Buzzetti Director
Director March 22, 2002
------------------------
Gerald A. Calabrese
Director March 22, 2002
------------------------
Glenn L. Creamer
Director March 22, 2002
------------------------
Bernard Mann
Director March 22, 2002
------------------------
Mark Metzger
Director March 22, 2002
------------------------
Jeremiah F. O'Connor
Director March 22, 2002
------------------------
Joseph C. Parisi
Director March 22, 2002
------------------------
John A. Schepisi
66
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The Registrant has one subsidiary, Bridge View Bank.
Bridge View Bank has one wholly-owned subsidiary, Bridge View Investment
Company.
Bridge View Investment Company has one wholly-owned subsidiary, Bridge View
Delaware, Inc..
67
EXHIBIT 23
Independent Auditors' Consent
The Board of Directors
Bridge View Bancorp :
We consent to the incorporation by reference in Registration Statement
No.333-19741 on Form S-8 of Bridge View Bancorp of our report dated
January 31, 2002, except as to notes 12 and 19 which are as of March 5,
2002, relating to the consolidated statements of financial condition of
Bridge View Bancorp and subsidiaries as of December 31, 2001 and 2000,
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, 2001, which report appears in the Annual Report on Form 10-K
of Bridge View Bancorp for the year ended December 31, 2001.
/s/ KPMG LLP
Short Hills, New Jersey
March 22, 2002