SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2002
( ) 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 Issuer: (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
---- ----
APPLICABLE TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the Registrant's classes of common
stock, as of the last practicable date.
3,550,809 shares of Common Stock as of August 7, 2002
1
INDEX
BRIDGE VIEW BANCORP
Part I - Financial Information
Item 1. Financial Statement
Consolidated Statements of Financial Condition
as of June 30, 2002(unaudited) and December 31, 2001
Consolidated Statements of Income
for the three months ended June 30, 2002 and 2001 (unaudited) and the
six months ended June 30, 2002 and 2001 (unaudited)
Consolidated Statements of Cash Flows
for the six months ended June 30, 2002 and 2001 (unaudited)
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Explanatory Note: This Form 10-Q 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-Q "we" and "us" and "
our" refer to Bridge View Bancorp and its consolidated subsidiary Bridge View
Bank, depending on the context.
2
BRIDGE VIEW BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
( in thousands)
June 30, December 31,
2002 2001
------------------ -----------------
ASSETS (unaudited)
Cash and cash equivalents :
Cash and due from banks.............. $ 18,076 $ 13,771
Federal funds sold...................... 21,600 10,500
-------- --------
TOTAL CASH AND CASH EQUIVALENTS 39,676 24,271
-------- --------
Securities:
Available for sale....................... 33,807 38,728
Held to maturity........................ 4,223 13,245
-------- --------
TOTAL SECURITIES 38,030 51,973
-------- --------
Loans, net of allowance for losses of $1,558 and $1,605,
and deferred loan fees of $476 and $471, respectively..... 168,901 149,308
Premises and equipment, net............. 9,737 9,523
Accrued interest receivable and other assets.............. 2,378 2,745
-------- ---------
TOTAL ASSETS $258,722 $ 237,820
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand
deposits.................................. $ 78,300 $ 78,894
Interest bearing deposits:
Savings and time deposits......... 132,448 109,150
Certificates of deposit $100,000 +.. 19,078 21,580
-------- ---------
TOTAL DEPOSITS 229,826 209,624
Accrued interest payable and other liabilities............. 696 1,330
TOTAL LIABILITIES 230,522 210,954
Commitments and Contingencies
Stockholders' equity:
Common stock, no par value,
authorized 10,000,000 shares issued
and 3,550,809 outstanding in 2002
and 3,548,763 in 2001.................. 30,872 25,277
(Accumulated deficit) retained earnings............. (2,742) 1,428
Accumulated other comprehensive income............ 70 161
-------- ---------
TOTAL STOCKHOLDERS' EQUITY 28,200 26,866
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$258,722 $237,820
======== ========
See notes to unaudited consolidated financial statements.
3
BRIDGE VIEW BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands)
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Interest Income :
Loans.................................. $ 2,921 $ 2,770 $ 5,707 $ 5,618
Federal funds sold..................... 99 363 130 692
Investment Securities
Taxable............................... 391 553 882 1,109
Tax - exempt......................... 52 64 103 184
------- -------- ------- -------
TOTAL INTEREST INCOME 3,463 3,750 6,822 7,603
Interest Expense :
Savings deposits....................... 172 229 314 554
Other time deposits.................... 127 287 262 644
Time deposits $100,000 +............ 113 336 240 756
Borrowed funds..................... 0 20 1 48
------- -------- ------- -------
TOTAL INTEREST EXPENSE 412 872 817 2,002
Net Interest Income 3,051 2,878 6,005 5,601
Provision for loan losses................ 150 30 210 40
Net interest income after provision for loan
losses 2,901 2,848 5,795 5,561
Non-interest income :
Realized gain on sale of securities... 103 - 103 -
Service charge income................. 656 448 1,138 862
------- -------- ------- -------
TOTAL NON-INTEREST INCOME 759 448 1,241 862
Non-interest expense :
Salaries and related expenses........ 1,004 826 1,949 1,641
Premises and fixed assets............. 469 327 836 658
Other..................................... 616 468 1,112 942
------- -------- ------- -------
TOTAL NON-INTEREST EXPENSE 2,089 1,621 3,897 3,241
Income before income taxes 1,571 1,675 3,139 3,182
Income tax expense 535 587 1,068 1,114
------- -------- ------- -------
NET INCOME $1,036 $1,088 $ 2,071 $ 2,068
======= ======== ======= =======
Earnings per share :
Basic $0.29 $0.31 $0.58 $0.58
Diluted $0.28 $0.30 $0.56 $0.57
See notes to unaudited consolidated financial statements.
4
BRIDGE VIEW BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Six months ended June 30,
2002 2001
------------------ -----------------
Cash flows from operating activities :
Net Income..................................................... $ 2,071 $ 2,068
Adjustments to reconcile net income to net cash
Provided by operating activities :
Depreciation and amortization............................ 219 195
Provision for loan losses................................... 210 40
Gains from sales of loans held for sale.............. 0 (23)
Net gains from securities transactions................. (103) 0
Decrease in accrued interest receivable
and other assets............................................. 367 218
Decrease in accrued interest payable and
other liabilities................................... (634) (467)
-------- ---------
Net Cash Provided by Operating Activities 2,130 2,031
Cash flows from investing activities :
Proceeds from sales/maturities of investment
securities.............................................. 25,999 34,495
Purchases of investment securities......................... (13,149) (32,601)
Net increase in loans........................... (19,593) (2,345)
Purchases of premises and equipment............... 433 269
-------- ---------
Net Cash Used in Investing Activities (6,310) (182)
Cash flows from financing activities :
Net increase(decrease) in deposits......................... 20,202 (3,826)
Proceeds from issuance of common stock................. 29 51
Cash paid for dividends...................................... (646) (323)
-------- ---------
Net Cash Provided by (Used in) Financing Activities 19,585 (4,098)
Net change in cash and cash equivalents 15,405 (2,249)
Cash and cash equivalents at beginning of period 24,271 41,561
-------- ---------
Cash and cash equivalents at end of period $39,676 $39,312
======== =========
Cash paid during the period for :
Interest.......................................................... 847 2,087
Income taxes.................................................. 1,929 2,046
See notes to unaudited consolidated financial statements.
5
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(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). All significant
inter-company accounts and transactions have been eliminated in
consolidation. Certain accounts in prior periods have been restated to
conform to the current presentation.
The consolidated condensed financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to such rules
and regulations. The accompanying consolidated financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods
presented. Such adjustments are of a normal recurring nature. These
consolidated unaudited financial statements should be read in conjunction
with the audited financial statements and the notes thereto as of and for
the year ended December 31, 2001. The results for the six months ended
June 30, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002.
Organization
The Company is a New Jersey Corporation and registered bank holding
company with the Board of Governors of the Federal Reserve System. The
Bank is a commercial bank which provides a full range of banking
servicies to individuals and corporate customers in New Jersey. Both the
Company and the Bank are 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 Presentation
The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America. 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
statements presentation of 2002. The reclassifications have no effect
upon stockholders' equity or net income as previously reported.
6
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 from period to period included as a
separate component of stockholders' equity.
Securities Held to Maturity
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 it is management's
intention to hold these securities to maturity.
(2) Retained Earnings - Stock Dividend
The Company declared a 10% Stock Dividend (the "2002 Stock Dividend") on
March 5, 2002 and paid the dividend on April 2, 2002. Retained earnings
decreased by the market value of shares issued in connection with the
2002 Stock Dividend. Earnings per share and all share data has been
restated to reflect the effect of the 2002 stock dividend.
7
(3) Earnings Per Share Reconciliation
The reconciliation of the numerator and the denominator of Basic EPS with
that of Diluted EPS is presented for the three month periods and the six
month periods ended June 30, 2002 and 2001, respectively.(in thousands,
except share data)
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Basic earnings per share
Net Income $ 1,036 $ 1,088 $2,071 $2,068
======= ======= ====== ======
Average number of shares outstanding 3,551 3,549 3,550 3,547
===== ===== ===== =====
Basic earnings per share $ 0.29 $ 0.31 $ 0.58 $ 0.58
======== ======== ======== ======
Diluted earnings per share
Net Income $ 1,036 $ 1,088 $2,071 $2,068
======= ======= ====== ======
Average number of shares of common stock
and equivalents outstanding :
Average common shares outstanding 3,551 3,549 3,550 3,547
Additional shares considered in
Diluted computation assuming :
Exercise of options 149 101 143 102
------ ------- ------ ------
Average number of shares outstanding on a
diluted basis 3,700 3,650 3,693 3,649
===== ===== ===== =====
Diluted earnings per share $ 0.28 $ 0.30 $ 0.56 $ 0.57
====== ====== ====== ======
8
(4) Comprehensive Income
Total comprehensive income is presented for the three month periods and
the six months periods ended June 30, 2002 and 2001, respectively.
Three months ended June 30,
(in thousands) 2002 2001
---- ----
Comprehensive Income
Net income $1,036 $1,088
Other comprehensive income,
net of taxes 182 23
Less: Reclassification adjustment for
Gains on sales of securities during the
Period, net of tax of $35 68 0
------ ------
Total comprehensive income $1,150 $1,111
====== ======
Six months ended June 30,
(in thousands) 2002 2001
---- ----
Comprehensive Income
Net income $2,071 $2,068
Other comprehensive (loss)income,
net of taxes (23) 56
Less: Reclassification adjustment for
Gains on sales of securities during the
Period, net of tax of $35 68 0
------ ------
Total comprehensive income $1,980 $2,124
====== ======
9
(5) Recent Accounting Pronouncements
SFAS No. 145
In April, 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
The Statement was issued to eliminate an inconsistency in the required
accounting for sale-leaseback transactions and certain lease modifications that
were similar to sale-leaseback transactions and to rescind FASB Statement No.
44, Accounting for Intangible Assets of Motor Carrier as well as amending other
existing authoritative pronouncements to make various technical corrections.
SFAS No. 145 also rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishments of Debt and SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. Under SFAS No. 4, as amended by SFAS No. 64, gains
and losses from the extinguishment of debt were required to be classified as an
extraordinary item, if material. Under SFAS No. 145, gains or losses from the
extinguishment of debt are to be classified as a component of operating income,
rather than as an extraordinary item. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002, with early adoption of the provisions related to
the rescission of SFAS No. 4 encouraged. Upon adoption, companies must
reclassify prior period amounts previously classified as an extraordinary item.
Management does not anticipate that the initial adoption of SFAS No. 145 will
have a significant impact on the Company's consolidated financial statements.
SFAS No. 146
In July, 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. The Statement is
to be applied prospectively to exit or disposal activities initiated after
December 31, 2002.
10
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.
RESULTS OF OPERATIONS - Three Months Ended June 30, 2002 and 2001 and
Six Months Ended June 30, 2002 and 2001
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 spread 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 three months ended June 30, 2002, net income decreased by $52,000 or
4.8% to $1,036,000 from $1,088,000 for the three months ended June 30, 2001. For
the six months ended June 30, 2002, net income reached $2,071,000, a modest
increase of $3,000 or 0.2%, when compared to net income of $2,068,000 for the
six months ended June 30, 2001. The increase in net income for the first half of
2002 compared to 2001 is the product of a 7.2% increase in net interest income
to $6,005,000 from $5,601,000 in the prior year. This increase was derived by a
$1,185,000 or 59.2% decrease in interest expense from $2,002,000 in 2001 to
$817,000 in 2002 combined with a $781,000, or 10.3%, decrease in interest income
from $7,603,000 to $6,822,000 for the same period. The Company's non-interest
income experienced a 44.0% increase reaching $1,241,000 for the six months ended
June 30, 2002 from $862,000 for the same period in 2001. The increase in
non-interest income reflects the combination of an increase in average deposit
levels as well as a recognized gain from the sale of an investment security
totaling $102,500.
Interest expense fell $460,000, or 52.8%, for the three month period ended June
30, 2002 compared to the three month period ended June 30, 2001. Interest
expense decreased $1,185,000, or 59.2%, to $817,000 for the six month period
ended June 30, 2002 compared to $2,002,000 for the six month period ended June
30, 2002. These fluctuations directly reflect the interest rate environment over
the same period.
11
Basic earnings per share for the six month periods ended June 30, 2002 and 2001
remained level at $0.58. Diluted earnings per share for the six months ended
June 30, 2002 were $0.56 as compared to $0.57 for the six months ended June 30,
2001. For the quarter ended June 30, 2002, basic earnings per share were $0.29
as compared to $0.31 for the same period ended June 30, 2001, representing a
decrease of 6.5%. For the quarter ended June 30, 2002, diluted earnings per
share were $0.28, representing a decrease of 6.7% below the $0.30 per share for
the same period in 2001. The decrease in earnings per share directly reflects
the Bank's costs associated with opening and staffing the four branches obtained
at the end of 2001. These costs equate to $0.13 per share for the first six
months of 2002 and $0.09 per share during the second quarter of 2002. Share data
has been restated to include the effect of the 2002 Stock Dividend.
PROVISION FOR LOAN LOSSES
For the quarter ended June 30, 2002, the Company's provision for loan losses was
$150,000, an increase of $120,000 from the provision of $30,000 for the quarter
ended June 30, 2001. The provision for the six months ended June 30, 2002 was
$210,000 as compared to $40,000 for the six months ended June 30, 2001. The
increased provision is reflective of the continued growth in the loan portfolio
as well as the effect of $257,000 in charge-offs during the second quarter of
2002. At June 30, 2002, the Bank had no delinquent loans.
NON-INTEREST INCOME
Non-interest income, which was primarily attributable to service fees received
from deposit accounts and the recognized gain from the sale of an investment
security, amounted, for the three months ended June 30, 2002, to $759,000, an
increase of $311,000, or 69.4%, from $448,000 for the three months ended June
30, 2001. For the six months ended June 30, 2002, non-interest income reached
$1,241,000, an increase of $379,000 or 44.0% above the non-interest income level
of $862,000 for the six months ended June 30, 2001.
NON-INTEREST EXPENSE
Non-interest expense for the quarter ended June 30, 2002, amounted to
$2,089,000, an increase of $468,000 or 28.9% from $1,621,000 for the quarter
ended June 30, 2001. For the six months ended June 30, 2002, non-interest
expense totaled $3,897,000, an increase of $656,000 or 20.2%, from $3,241,000
for the six months ended June 30, 2001. These increases in non-interest expense
continue to represent the Bank's costs in connection with the opening and
staffing of the four branches obtained at the end of 2001.
12
INCOME TAX EXPENSE
The income tax provision, which includes both federal and state taxes, for the
quarters ended June 30, 2002 and 2001 was $535,000 and $587,000, respectively.
For the first half of 2002 and 2001, the income tax provision totaled $1,068,000
and $1,114,000, respectively.
On July 2, 2002, the New Jersey State Legislature passed the Business Tax Reform
Act. This enactment, which is retroactive to January 1, 2002, will increase the
Company's effective tax rate. Although the Company is reviewing alternatives to
minimize the effect of the new legislation, generally accepted accounting
principles requires the recognition of a "catch-up" adjustment in income tax
expense for the first six months of 2002. The effect of these changes is
approximately $120,000 in additional state taxes or approximately $0.035 per
share. As required, this adjustment will be included in the quarter ending
September 30, 2002. Additionally, the Company expects its annual effective tax
rate to increase from 34.0% to approximately 37.8%.
FINANCIAL CONDITION : June 30, 2002 and December 31, 2001
At June 30, 2002, the Company's total assets were $258,722,000 compared to
$237,820,000 at December 31, 2001, an increase of 8.8%. Total loans experienced
a 12.9% increase to $170,935,000 at June 30, 2002 from $151,384,000 at December
31, 2001. Total deposits at June 30, 2002 were $229,826,000, 9.6% higher than
the $209,624,000 at December 31, 2001.
13
LOAN PORTFOLIO
At June 30, 2002, the Company's total loans were $170,935,000, an increase of
$19,551,000 or 12.9% over total loans of $151,384,000 at December 31, 2001. The
increase in the loan portfolio since year end continues to be a combination of
decreased customer payoffs and the lasting effect of continued customer
referrals, selective marketing, and continued growth within the local Bergen
County community. Management maintains its belief 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.
The following table sets forth the classification of the Company's loans by
major category as of June 30, 2002 and December 31, 2001, respectively:
June 30, 2002 December 31, 2001
------------- -----------------
(Dollars in thousands)
Amount Percent Amount Percent
Commercial $119,388 69.8% $ 109,978 72.6%
Mortgage 28,045 16.4% 19,770 13.1%
Consumer 23,502 13.8% 21,636 14.3%
------------ ------------ ------------- -----------
Total Loans $170,935 100% $151,384 100%
============ ============ ============= ===========
14
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.
The following table sets forth information concerning the Company's
non-performing assets as of the dates indicated :
Non-Performing Assets
(dollars in thousands)
June 30, December 31,
2002 2001
---- ----
Non-performing loans $ 0 $ 0
Other real estate 0 0
--------- -----------
Total non-performing assets $ 0 $ 0
Non-performing loans to total gross loans N/A N/A
Non-performing assets to total assets N/A N/A
As of June 30, 2002, the Company had no non-accrual loans. At December 31, 2001,
the Company also had no non-accrual loans.
Other than as disclosed above, there were no loans at June 30, 2002 where
information about possible credit problems of borrowers causes management to
have serious doubts as to the ultimate collectibility of such loans.
As of June 30, 2002 and December 31, 2001, 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.
15
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 level believed sufficient by management 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 auditors, and by the Company's audit committee.
A risk system, consisting of multiple grading categories, is utilized as an
analytical tool to assess risk and appropriate reserves. In addition to the risk
system, management further evaluates risk characteristics of the loan portfolio
under current and anticipated economic conditions and considers such factors as
the financial condition of the borrower, past and expected loss experience, and
other factors which management feels deserve recognition in establishing an
appropriate reserve. These estimates are reviewed at least quarterly, and, as
adjustments become necessary, they are realized in the periods in which they
become known. Additions to the allowance are made by provisions charged to the
expense and the allowance is reduced by net-chargeoffs (i.e. loans judged to be
uncollectible are charged against the reserve, less any recoveries on the
loans.) Although management attempts to maintain the allowance at an adequate
level, future addition to the allowance may be required based upon changes in
market conditions. Additionally, various regulatory agencies periodically review
the allowance for loan losses. These agencies may require additional provisions
based upon their judgment about information available to them at the time of
their examination. 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 $1,558,000 and $1,486,000 at
June 30, 2002 and 2001, respectively. The fluctuation in the allowance is due to
continued growth of the loan portfolio as well as the effect of $257,000 in
charge-offs during the second quarter of 2002. At June 30, 2002, the Bank had no
delinquent loans. The following is a summary of the reconciliation of the
allowance for loan losses for the six month periods ended June 30, 2002 and
2001, respectively:
Six months ended
June 30,
2002 2001
---- ----
(dollars in thousands)
Balance, beginning of period $1,605 $1,473
Charge-offs (257) (27)
Recoveries 0 0
Provision charged to expense 210 40
-------- --------
Balance, end of period $1,558 $1,486
======== ========
Balance of allowance at end of period as
a percentage of loans at end of period 0.91% 1.10%
16
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, obligation of U.S. Government Agencies, selected municipal and state
obligations, stock in the Federal Home Loan Bank ("FHLB"), and equity securities
of another financial institution.
Management determines the appropriate classification of securities at the time
of purchase. At June 30, 2002, $4,223,000 of the Company's investment securities
were classified as held to maturity and $33,807,000 were classified as available
for sale. At June 30, 2002, the Company held no securities which it classified
as trading securities.
At June 30, 2002, total investment securities were $37,259,000, a decrease of
$13,944,000 or 27.2%, from total investment securities of $51,203,000 at
December 31, 2001. This decrease in investment securities from year end 2001 to
second quarter 2002 reflects the maturity of investment securities which were
used to fund loan growth.
The following table sets forth the carrying value of the Company's security
portfolio as of the dates indicated.
17
A comparative summary of securities available for sale at June 30, 2002 and
December 31, 2001 is as follows (in thousands) :
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------------ ------------ ----------
June 30, 2002
- -------------
U.S. Government and agency
Obligations $25,660 26 - $25,896
Municipal and state obligations 7,140 - - 7,140
FHLBNY stock 431 - - 431
Other equity securities 469 - (129) 340
----------- ------------ ------------ ----------
Total available for sale $33,700 26 (129) $33,807
December 31, 2001
- -----------------
U.S. Government and agency
Obligations $34,702 385 (7) $35,080
Municipal and state obligations 2,878 - - 2,878
FHLBNY stock 430 - - 430
Other equity securities 469 - (129) 340
----------- ------------ ------------ ----------
Total available for sale $38,479 385 (136) $38,728
A comparative summary of securities held to maturity at June 30, 2002 and
December 31, 2001 is as follows (in thousands) :
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------------ ------------ ----------
June 30, 2002
- -------------
U.S. Government and agency
Obligations $3,544 42 - $3,586
Municipal and state obligations 679 - - 679
----------- ------------ ------------ ----------
Total held to maturity $4,223 42 - $4,265
December 31, 2001
- -----------------
U.S. Government and agency
Obligations $8,573 109 - $8,682
Municipal and state obligations 4,672 - (1) 4,671
----------- ------------ ------------ ----------
Total held to maturity $13,245 109 (1) $13,353
18
The following table sets forth as of June 30, 2002, the maturity distribution of
the Company's debt investment portfolio :
Maturity of Debt Investment Securities
June 30, 2002
(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 $3,692 $ 3,714 4.04% $7,140 $ 7,140 3.15%
1 to 5 Years 531 551 5.00% $25,660 $25,896 4.03%
Over 5 Years - - - - - -
----------- -------- ------- -------
$4,223 $ 4,265 $32,800 $33,036
====== ======= ======= =======
During the first six months of 2002, the Company sold one investment security
from its portfolio and realized a gain of approximately $102,500. The Company
sold no securities from its portfolio during 2001.
19
DEPOSITS
Deposits are the Company's primary source of funds. The Company experienced an
increase in deposit balances of $20,202,000 or 9.6% to $229,826,000 at June 30,
2002 as compared to $209,624,000 at December 31, 2001. This increase was
accomplished as a result of continued market penetration combined with continued
customer referrals. Within the increase in total deposits, interest bearing
demand deposits grew $19,150,000 or 30.7% from December 31, 2001 to June 30,
2002. The Company has no foreign deposits, nor are there any material
concentrations of deposits.
The following table sets forth the amount of various types of deposits for each
of the periods indicated (in thousands) :
June 30, December 31 ,
2002 2001
---- ----
Amount % Amount %
------ - ------ -
Non-interest Bearing Demand $78,300 34.1% $78,894 37.7%
Interest Bearing Demand 81,602 35.5% 62,452 29.8%
Savings 29,027 12.6% 25,454 12.1%
Time Deposits 40,897 17.8% 42,824 20.4%
-------- ----- -------- -----
$229,826 100% $209,624 100%
======== ==== ======== ====
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 June 30, 2002 (in thousands).
Three months or less $ 13,350
Over three months through twelve months 5,398
Over one year through three years 330
Over three years 0
-----------
TOTAL $ 19,078
===========
20
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 $229,826,000 at June 30, 2002 as compared
to $209,624,000 at December 31, 2001. The increase in funds provided by deposit
inflows during this period has been more than sufficient to provide the
Company's loan demand and excess funds have been invested in investment
securities and federal funds sold.
Through the Company's investment portfolio, the 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 investments portfolio, the Company also attempts to
manage its maturity gap by seeking maturities of investments which coincide as
closely as possible with maturities of deposits. The Bank's investment portfolio
also includes securities held for sale to provide liquidity for anticipated loan
demand and other liquidity needs.
Although the Bank has traditionally been a net "seller" of federal funds, the
Bank does maintain 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.
Management believes that the Company's current sources of funds provide adequate
liquidity for the current cash flow needs of the Company.
21
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.
22
Cumulative Rate Sensitive Balance Sheet
June 30, 2002
(in thousands)
0 - 3 0 - 6 0 - 1 0 - 5 All
Months Months Year Year 5 + Years Others TOTAL
------ ------ ----- ----- --------- ------ -------
Investment Securities $ 2,008 $6,570 $10,832 $ 37,259 $ 0 $ 0 $ 37,259
Loans :
Commercial 28,919 32,102 39,236 55,271 64,116 0 119,387
Mortgages 571 974 1,169 11,071 16,974 0 28,045
Consumer 20,781 21,110 21,608 23,019 484 0 23,503
Federal Funds Sold 21,600 21,600 21,600 21,600 0 0 21,600
Other Assets 0 0 0 0 0 28,928 28,928
--------------- ------------ ------------ ------------ ------------- ------------ --------------
TOTAL ASSETS $73,879 $82,356 $94,445 $148,220 $229,794 $258,722 $258,722
======= ======= ======= ======== ======== ======== ========
Transaction Accounts $55,214 $55,214 $55,214 $55,214 $ 0 $ 0 $55,214
Money Market 26,389 26,389 26,389 26,389 0 0 26,389
Savings 31,218 31,218 31,218 31,218 0 0 31,218
CD's < $100,000 10,031 16,389 19,182 19,627 0 0 19,627
CD's > $100,000 13,350 17,377 18,748 19,078 0 0 19,078
Short term borrowings 0 0 0 0 0 0 0
Other Liabilities 0 0 0 0 0 78,996 78,996
Equity 0 0 0 0 0 28,200 28,200
--------------- ------------ ------------ ------------ ------------- ------------ --------------
TOTAL LIABILITIES AND
EQUITY
$136,202 $146,587 $150,751 $151,526 $151,526 $258,722 $258,722
======== ======== ======== ======== ======== ======== ========
Dollar Gap (62,322) (64,231) (56,306) (3,306) 78,268
Gap / Total Assets -24.09% -24.83% -21.76% 1.28% 30.25%
Target Gap Range +/-35.0% +/- 30.0% +/- 25.0% +/-25.0%
RSA / RSL 54.24% 56.18% 62.65% 97.82% 151.65%
(Rate Sensitive Assets to
Rate Sensitive Liabilities)
23
CAPITAL
A significant measure of the strength of a financial institution is its capital
base. The Company's federal regulators have classified and defined Company
capital into the following components : (1) Tier I Capital, which includes
tangible shareholders' equity for common stock and qualifying perpetual
preferred stock, and (2) Tier II Capital, which includes a portion of the
allowance for possible loan losses, certain qualifying long-term debt, and
preferred stock which does not qualify for Tier I Capital. Minimum capital
levels are regulated by risk-based capital adequacy guidelines which require
certain capital as a percent of the Company's assets and certain off-balance
sheet items adjusted for predefined credit risk factors (risk-adjusted assets).
A Bank Holding Company is required to maintain, at a minimum, Tier I Capital as
a percentage of risk-adjusted assets of 4.0% and combined Tier I and Tier II
Capital as a percentage risk-adjusted assets of 8.0%.
In addition to the risk-based guidelines, the Company's regulators require that
an institution which meets the regulator's highest performance and operation
standards maintain a minimum leverage ratio (Tier I Capital as a percentage of
tangible assets) of 3.0%. For those institutions with higher levels of risk or
that are experiencing or anticipating significant growth, the minimum leverage
ratio will be evaluated through the ongoing regulatory examination process.
The following table summarizes the risk-based and leverage capital ratios for
the Bank at June 30, 2002, as well as the required minimum regulatory capital
ratios:
Capital Adequacy
Minimum
June 30, Regulatory
2002 Requirements
---------------- --------------
Risk-Based Capital :
Tier I Capital Ratio 15.59% 4.0%
Total Capital Ratio 16.46% 8.0%
Leverage Ratio 11.03% 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.
24
CURRENT OPERATIONAL AND ACCOUNTING ISSUES
New Jersey Business Tax Reform Act
On July 2, 2002, the New Jersey State Legislature passed the Business Tax Reform
Act. This enactment, which is retroactive to January 1, 2002, will increase our
effective tax rate. Although the Company is reviewing alternatives to minimize
the effect of the new legislation, generally accepted accounting principles
requires the recognition of a "catch-up" adjustment in income tax expense for
the first six months of 2002. The effect of these changes is approximately
$120,000 in additional state taxes or approximately $0.035 per share. As
required, this adjustment will be included in the quarter ending September 30,
2002. Additionally, the Company expects its annual effective tax rate to
increase from 34.0% to approximately 37.8%.
SFAS No. 145
In April, 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
The Statement was issued to eliminate an inconsistency in the required
accounting for sale-leaseback transactions and certain lease modifications that
were similar to sale-leaseback transactions and to rescind FASB Statement No.
44, Accounting for Intangible Assets of Motor Carrier as well as amending other
existing authoritative pronouncements to make various technical corrections.
SFAS No. 145 also rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishments of Debt and SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. Under SFAS No. 4, as amended by SFAS No. 64, gains
and losses from the extinguishment of debt were required to be classified as an
extraordinary item, if material. Under SFAS No. 145, gains or losses from the
extinguishment of debt are to be classified as a component of operating income,
rather than as an extraordinary item. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002, with early adoption of the provisions related to
the rescission of SFAS No. 4 encouraged. Upon adoption, companies must
reclassify prior period amounts previously classified as an extraordinary item.
Management does not anticipate that the initial adoption of SFAS No. 145 will
have a significant impact on the Company's consolidated financial statements.
SFAS No. 146
In July, 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. The Statement is
to be applied prospectively to exit or disposal activities initiated after
December 31, 2002.
25
PART II OTHER INFORMATION
Item 1. Legal proceedings - NONE
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.
Item 2. Changes in securities - NONE
Item 3. Defaults upon senior securities - NONE
Item 4. Submission of matters to a vote of securities holders
The Company's Annual Meeting was held on May 16, 2002. At the Annual
Meeting, the following matter was voted on:
ELECTION OF DIRECTORS - The following directors received the
following votes :
- -------------------------- ----------- ---------- ------------------------
DIRECTORS FOR AGAINST WITHHELD
- -------------------------- ----------- ---------- ------------------------
Bernard Mann 3,246,371 -- 520
- -------------------------- ----------- ---------- ------------------------
Jeremiah F. O'Connor, Jr. 3,246,371 -- 520
- -------------------------- ----------- ---------- ------------------------
All nominees were reelected.
Item 5. Other information - NONE
Item 6. Exhibits and reports on Form 8-K
Exhibit
Number Description of Exhibits
99 Certification pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
26
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: /s/ Albert F. Buzzetti
---------------------------
(Registrant - Bridge View Bancorp)
Albert F. Buzzetti
President and Chief Executive Officer
Date: August 13, 2002
27
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibits
99 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
28