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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 September 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 October 31, 2002
1
INDEX
BRIDGE VIEW BANCORP
Part I - Financial Information
- --------------------------------
Item 1. Financial Statement
Consolidated Statements of Financial Condition
as of September 30, 2002(unaudited) and December 31, 2001
Consolidated Statements of Income
for the three months ended September 30, 2002 and 2001 (unaudited)
and the nine months ended September 30, 2002 and 2001 (unaudited)
Consolidated Statements of Cash Flows
for the nine months ended September 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)
September 30, December 31,
2002 2001
--------------- ---------------
ASSETS (unaudited)
Cash and cash equivalents :
Cash and due from banks $ 18,027 $ 13,771
Federal funds sold 27,500 10,500
--------------- ---------------
TOTAL CASH AND CASH EQUIVALENTS 45,527 24,271
--------------- ---------------
Securities:
Available for sale 37,572 38,728
Held to maturity 2,209 13,245
--------------- ---------------
TOTAL SECURITIES 39,781 51,973
--------------- ---------------
Loans, net of allowance for losses of $1,676 and
$1,605,
and deferred loan fees of $514 and $471, respectively 174,763 149,308
Premises and equipment, net 9,966 9,523
Accrued interest receivable and other assets
2,469 2,745
--------------- ---------------
TOTAL ASSETS $ 272,506 $ 237,820
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand
deposits $ 91,942 $ 78,894
Interest bearing deposits:
Savings and time deposits 131,788 109,150
Certificates of deposit $100,000 + 19,304 21,580
--------------- ---------------
TOTAL DEPOSITS 243,034 209,624
Accrued interest payable and other liabilities
729 1,330
TOTAL LIABILITIES 243,763 210,954
Commitments and Contingencies
Stockholders' equity:
Common stock, no par value,
authorized 10,000,000 shares issued
and outstanding 3,550,809 in 2002
and 3,226,145 in 2001 30,872 25,277
(Accumulated deficit)Retained earnings (2,310) 1,428
Accumulated other comprehensive income 181 161
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 28,743 26,866
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 272,506 $ 237,820
=============== ===============
See notes to unaudited consolidated financial statements.
3
BRIDGE VIEW BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands)
(except per share data)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ----- ---- ----
Interest Income :
Loans $ 3,048 $ 2,762 $ 8,755 $ 8,380
Federal funds sold 103 132 233 824
Investment Securities
Taxable 303 740 1,185 1,849
Tax - exempt 41 77 144 261
--------- -------- -------- --------
TOTAL INTEREST INCOME 3,495 3,711 10,317 11,314
Interest Expense :
Savings deposits 129 221 443 775
Other time deposits 148 219 410 863
Time deposits $100,000 + 118 233 358 989
Borrowed funds 0 21 1 69
--------- -------- -------- --------
TOTAL INTEREST EXPENSE 395 694 1,212 2,696
Net Interest Income 3,100 3,017 9,105 8,618
Provision for loan losses 120 60 330 100
Net interest income after provision
for loan losses 2,980 2,957 8,775 8,518
Non-interest income :
Realized gain on sale of
securities - - 103 -
Service charge income 527 548 1,665 1,410
--------- -------- -------- --------
TOTAL NON-INTEREST INCOME 527 548 1,768 1,410
Non-interest expense :
Salaries and related expenses 1,045 823 2,994 2,464
Premises and fixed assets 438 320 1,274 978
Other 569 452 1,681 1,394
--------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE 2,052 1,595 5,949 4,836
Income before income taxes 1,455 1,910 4,594 5,092
Income tax expense 668 668 1,736 1,782
--------- -------- -------- --------
NET INCOME $ 787 $ 1,242 $ 2,858 $ 3,310
========= ======== ======== ========
Earnings per share :
Basic $0.22 $0.35 $0.81 $0.93
Diluted $0.21 $0.34 $0.78 $0.91
See notes to unaudited consolidated financial statements.
4
BRIDGE VIEW BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Nine months ended September 30,
2002 2001
--------------- ---------------
Cash flows from operating activities :
Net Income $ 2,858 $ 3,310
Adjustments to reconcile net income to net cash
provided by operating activities :
Depreciation and amortization 334 288
Provision for loan losses 330 100
Gains from sales of loans held for sale 0 (40)
Net gains from securities transactions (103) 0
Decrease(increase) in accrued interest
receivable
and other assets 276 (79)
Decrease in accrued interest payable and
other liabilities (601) (320)
-------- --------
Net Cash Provided by Operating Activities 3,094 3,259
Cash flows from investing activities :
Proceeds from maturities of investment
securities 35,240 42,759
Purchases of investment securities (23,254) (47,147)
Net increase in loans (25,455) (4,315)
Purchases of premises and equipment (777) 275
Net Cash Used in Investing Activities (14,246) (8,428)
-------- --------
Cash flows from financing activities :
Net increase(decrease) in deposits 33,410 (8,981)
Proceeds from issuance of common stock 30 51
Cash paid for dividends (1,032) (969)
-------- --------
Net Cash Provided by(used in) Financing Activities 32,408 (9,899)
Net change in cash and cash equivalents 21,256 (15,068)
Cash and cash equivalents at beginning of period 24,271 41,561
-------- --------
Cash and cash equivalents at end of period $ 45,527 $ 26,493
======== ========
Cash paid during the period for :
Interest 1,225 3,131
Income taxes 2,682 3,069
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 conformity 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 nine months ended September 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.
6
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.
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 nine month periods ended September 30, 2002 and 2001,
respectively.(in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Basic earnings per share
- ------------------------
Net Income $ 787 $ 1,242 $ 2,858 $ 3,310
========== ========== ========== ==========
Average number of shares
outstanding 3,551 3,549 3,551 3,548
========= ========= ========= =========
Basic earnings per share $ 0.22 $ 0.35 $ 0.81 $ 0.93
========== ========== ========== ==========
Diluted earnings per share
- --------------------------
Net Income $ 787 $ $1,242 $ 2,858 $ 3,310
========== ========== ========== ==========
Average number of shares of common
stock and equivalents outstanding:
Average common shares
outstanding 3,551 3,549 3,551 3,548
Additional shares considered
in
Diluted computation assuming:
Exercise of options and
warrants 197 100 113 103
--------- --------- --------- ---------
Average number of shares
outstanding on a diluted basis 3,748 3,649 3,664 3,651
========= ========= ========= =========
Diluted earnings per share $ 0.21 $ 0.34 $ 0.78 $ 0.91
========== ========== ========== ==========
8
(4) Comprehensive Income
Total comprehensive income is presented for the three month periods and the
nine month periods ended September 30, 2002 and 2001, respectively.
Three months ended September 30,
2002 2001
(in thousands) ---- ----
Comprehensive Income
--------------------
Net income $ 787 $ 1,242
Other comprehensive income,
net of taxes 179 278
Less: Reclassification adjustment for
Gains on sales of securities during the
Period, net of tax of $35 68 0
-------- -------
Total comprehensive income $ 898 $ 1,520
======== =======
Nine months ended September 30,
2002 2001
(in thousands) ---- ----
Comprehensive Income
Net income $ 2,858 $ 3,310
Other comprehensive income,
net of taxes 88 334
Less: Reclassification adjustment for
Gains on sales of securities during the
Period, net of tax of $35 68 0
-------- -------
Total comprehensive income $ 2,878 $ 3,644
======== =======
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.
SFAS No. 147
In October, 2002, the FASB issued Statement No. 147, Acquisitions of Certain
Financial Institutions- an amendment to FASB Statements No. 72 and 144 and FASB
Interpretation No. 9. This Statement removes acquisitions of financial
institutions from the scope of both Statement 72 and Interpretation 9 and
requires that those transactions be accounted for in accordance with FASB
Statements No. 141, Business Combinations, and No. 142, Goodwill and Other
Intangible Assets. The provisions of Statement No. 147 that relate to the
application of the purchase method of accounting apply to all acquisitions of
financial institutions, except transactions between two or more mutual
enterprises.
Statement No. 147 clarifies that a branch acquisition that meets the definition
of a business should be accounted for as a business combination, otherwise the
transaction should be accounted for as an acquisition of net assets that does
not result in the recognition of goodwill. The provisions of Statement No. 147
are effective October 1, 2002. This Statement will not have any impact on the
consolidated financial statements.
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 September 30, 2002 and 2001 and
Nine Months Ended September 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 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 three months ended September 30, 2002, net income decreased by $455,000
or 36.6% to $787,000 from $1,242,000 for the three months ended September 30,
2001. This decrease during the third quarter of 2002 as compared to 2001
included the recognition of a "catch-up" adjustment in income tax expense; the
effect of certain retroactive tax reforms that were passed on July 2, 2002, by
the New Jersey State Legislature's enactment of the Business Tax Reform Act.
This "catch-up" adjustment combined with increases in non-interest expense, the
provision for loan losses, and the Company's effective tax rate contributed to
the decrease in net income. For the nine months ended September 30, 2002, net
income was $2,858,000, a decrease of $452,000 or 13.7%, when compared to net
income of $3,310,000 for the nine months ended September 30, 2001. The decrease
in net income for the first nine months of 2002 compared to 2001 reflects the
charge for the previously mentioned "catch-up" adjustment in combination with
increases in the provision for loan losses, increases in non-interest expense
associated with opening and staffing four new branches, and an increase of 3.8%
in the Company's effective tax rate.
Interest expense fell $299,000, or 43.1%, for the three month period ended
September 30, 2002 compared to the three month period ended September 30, 2001.
Interest expense decreased $1,484,000, or 55.0%, to $1,212,000 for the nine
month period ended September 30, 2002 compared to $2,696,000 for the nine month
period ended September 30, 2001. These fluctuations directly reflect the
interest rate environment over the same period.
11
For the quarter ended September 30, 2002, basic earnings per share were $0.22 as
compared to $0.35 for the same period in 2001, a decrease of 37.1%. For the
quarter ended September 30, 2002, diluted earnings per share were $0.21, a
decrease of $0.13, or 38.2%, below the $0.34 per share for the same period in
2001. Basic earnings per share for the nine month period ended September 30,
2002 were $0.81 as compared to $0.93 for the nine month period ended September
30, 2001, representing a decrease of 12.9%, while diluted earnings per share for
the nine months ended September 30, 2002 fell to $0.78, a decrease of $0.13, or
14.3%, below the $0.91 per share for the nine months ended September 30, 2001.
PROVISION FOR LOAN LOSSES
For the quarter ended September 30, 2002, the Company's provision for loan
losses was $120,000, an increase of $60,000 from the provision of $60,000 for
the quarter ended September 30, 2001. The provision for the nine months ended
September 30, 2002 was $330,000 as compared to $100,000 for the nine months
ended September 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 September 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, amounted, for the three months ended September 30, 2002,
to $527,000, a slight decrease of $21,000, or 3.8%, from $548,000 for the three
months ended September 30, 2001. For the nine months ended September 30, 2002,
non-interest income reflected $1,768,000, an increase of $358,000 or 25.4% above
the non-interest income level of $1,410,000 for the nine months ended September
30, 2001. The increase in non-interest income for the nine months ended
September 30, 2002 included the recognized gain from the sale of an investment
security.
NON-INTEREST EXPENSE
Non-interest expense for the quarter ended September 30, 2002, amounted to
$2,052,000, an increase of $457,000 or 28.7% from $1,595,000 for the quarter
ended September 30, 2001. For the nine months ended September 30, 2002,
non-interest expense aggregated $5,949,000, an increase of $1,113,000 or 23.0%,
from $4,836,000 for the nine months ended September 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 September 30, 2002 and 2001 was $668,000, for both periods
respectively. For the first nine months of 2002 and 2001, the income tax
provision totaled $1,736,000 and $1,782,000, respectively.
On July 2, 2002, the New Jersey State Legislature passed the Business Tax Reform
Act. This enactment, which was retroactive to January 1, 2002, increased the
Company's effective tax rate. Although the Company is reviewing alternatives to
minimize the effect of the new legislation, generally accepted accounting
principles required the recognition of a "catch-up" adjustment in income tax
expense for the first six months of 2002. The "catch-up" effect of these changes
is approximately $120,000 in additional state taxes or approximately $0.035 per
share. As required, this adjustment was 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 : September 30, 2002 and December 31, 2001
At September 30, 2002, the Company's total assets were $272,506,000 compared to
$237,820,000 at December 31, 2001, an increase of 14.6%. Total loans experienced
a 16.9% increase to $176,953,000 at September 30, 2002 from $151,384,000 at
December 31, 2001. Total deposits at September 30, 2002 were $243,034,000, 15.9%
higher than the $209,624,000 at December 31, 2001.
13
LOAN PORTFOLIO
At September 30, 2002, the Company's total loans were $176,953,000, an increase
of $25,569,000, or 16.9%, 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 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.
The following table sets forth the classification of the Company's loans by
major category as of September 30, 2002 and December 31, 2001, respectively :
September 30, 2002 December 31, 2001
------------------ -----------------
(Dollars in thousands)
Amount Percent Amount Percent
------ ------- ------ -------
Commercial $122,883 69.4% $ 109,978 72.6%
Mortgage 29,219 16.5% 19,770 13.1%
Consumer 24,851 14.1% 21,636 14.3%
--------- -------- --------- ---------
Total Loans $176,953 100% $ 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)
September 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 September 30, 2002, and December 31, 2001, the Company had no
non-performing loans.
In addition, there were no loans at September 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 September 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 attempts to maintain 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 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 $1,676,000 and $1,529,000 at
September 30, 2002 and 2001, respectively. This increase in the allowance is due
to provisions exceeding charge-offs, reflecting the continued growth of the loan
portfolio. The following is a summary of the reconciliation of the allowance for
loan losses for the nine month periods ended September 30, 2002 and 2001,
respectively :
Nine months ended
September 30,
2002 2001
---- ----
(dollars in thousands)
Balance, beginning of period $1,605 $1,473
Charge-offs (259) (48)
Recoveries 0 4
Provision charged to expense 330 100
------ ------
Balance, end of period $1,676 $1,529
====== ======
Balance of allowance at end of period as
a percentage of loans at end of period 0.95% 1.11%
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 September 30, 2002, $2,209,000 of the Company's investment
securities were classified as held to maturity and $37,572,000 were classified
as available for sale. At September 30, 2002, the Company held no securities
which it classified as trading securities.
At September 30, 2002, total investment securities were $39,781,000, a decrease
of $12,192,000 or 23.5%, from total investment securities of $51,973,000 at
December 31, 2001. This decrease in investment securities from year end 2001
through the first nine months of 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 September 30, 2002 and
December 31, 2001 is as follows (in thousands) :
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- -------------- --------------- ------------
September 30, 2002
U.S. Government and agency
Obligations $29,241 440 - $29,681
Municipal and state obligations 7,141 - - 7,141
FHLBNY stock 431 - - 431
Other equity securities 469 - (150) 319
------------- -------------- --------------- ------------
Total available for sale $37,282 440 (150) $37,572
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 September 30, 2002 and
December 31, 2001 is as follows (in thousands) :
Gross Gross Fair
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- -------------- --------------- ------------
September 30, 2002
U.S. Government and agency
Obligations $ 1,530 35 - $ 1,565
Municipal and state obligations 679 - - 679
------------- -------------- --------------- ------------
Total held to maturity $ 2,209 35 - $ 2,244
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 September 30, 2002, the maturity
distribution of the Company's debt investment portfolio :
Maturity of Debt Investment Securities
September 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 $ 1,681 $ 1,684 3.89% $ 7,140 $ 7,140 3.15%
1 to 5 Years 528 560 5.00% 27,137 27,549 3.69%
Over 5 Years - - - 2,105 2,133 5.00%
-------------- --------------- -------------- --------------
$ 2,209 $ 2,244 $36,382 $36,822
======= ======= ======= =======
During the first nine 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 $33,410,000 or 15.9% to $243,034,000 at
September 30, 2002 as compared to $209,624,000 at December 31, 2001. This
increase was accomplished as a result of opening four branches during second and
third quarter, 2002, as well as continued market penetration through customer
referrals. Within the increase in total deposits, all deposit types experienced
growth of at least 14% since December 31, 2001. 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) :
September 30, December 31 ,
2002 2001
---- ----
Amount % Amount %
-------- --- -------- ---
Non-interest Bearing Demand $ 91,942 37.8% $ 78,894 37.7%
Interest Bearing Demand 71,227 29.3% 62,452 29.8%
Savings 30,628 12.6% 25,454 12.1%
Time Deposits 49,237 20.3% 42,824 20.4%
-------- ----- -------- -----
$243,034 100% $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 September 30, 2002 (in thousands).
Three months or less $ 11,605
Over three months through twelve months 7,270
Over one year through three years 429
Over three years 0
-----------
TOTAL $ 19,304
===========
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 $243,034,000 at September 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 for
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 investment portfolio, the Company also attempts to manage
its maturity gap by seeking maturities of investments which coincide as closely
as possible with maturities of deposits. The Bank's investment portfolio also
includes securities held for sale to provide liquidity for anticipated loan
demand and 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
September 30, 2002
(in thousands)
0 - 3 0 - 6 0 - 1 0 - 5 All
Months Months Year Year 5 + Years Others TOTAL
------ ------ ----- ----- --------- ------ -----
Investment Securities $ 3,920 $ 3,920 $ 8,182 $ 36,898 $ 2,133 $ 0 $ 39,031
Loans :
Commercial 28,652 31,266 40,530 54,570 68,313 0 122,883
Mortgages 344 459 800 10,730 18,489 0 29,219
Consumer 22,411 22,862 23,120 24,473 378 0 24,851
Federal Funds Sold 27,500 27,500 27,500 27,500 0 0 27,500
Other Assets 0 0 0 0 0 29,022 29,022
---------------------------------------------------------- -----------
TOTAL ASSETS $ 82,827 $ 86,007 $100,132 $154,171 $243,484 $272,506 $272,506
======== ======== ======== ======== ======== ======== ===========
Transaction Accounts $ 48,543 $ 48,543 $ 48,543 $ 48,543 $ 0 $ 0 $ 48,543
Money Market 22,684 22,684 22,684 22,684 0 0 22,684
Savings 30,628 30,628 30,628 30,628 0 0 30,628
Time < $100,000 10,633 24,407 28,053 28,876 0 0 28,876
Time > $100,000 11,605 18,243 18,875 20,360 0 0 20,360
Short term borrowings 0 0 0 0 0 0 0
Other Liabilities 0 0 0 0 0 92,672 92,672
Equity 0 0 0 0 0 28,743 28,743
---------------------------------------------------------- -----------
TOTAL LIABILITIES AND
EQUITY $124,093 $144,505 $148,783 $151,091 $151,091 $272,506 $272,506
======== ======== ======== ======== ======== ======== ===========
Dollar Gap (41,266) (58,498) (48,651) 3,080 92,393
Gap / Total Assets -15.14% -21.47% -17.85% 1.13% 33.90%
Target Gap Range +/-35.0% +/- 30.0% +/- 25.0% +/-25.0%
RSA / RSL 66.75% 59.52% 67.30% 102.04% 161.15%
(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 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 Company at September 30, 2002, as well as the required minimum regulatory
capital ratios :
Capital Adequacy
Minimum
September 30, Regulatory
2002 Requirements
---------------- -----------------
Risk-Based Capital :
Tier I Capital Ratio 15.25% 4.0%
Total Capital Ratio 16.15% 8.0%
Leverage Ratio 10.91% 3.0%
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 was retroactive to January 1, 2002, increased our
effective tax rate. Although the Company is reviewing alternatives to minimize
the effect of the new legislation, generally accepted accounting principles
required the recognition of a "catch-up" adjustment in income tax expense for
the first six months of 2002. The "catch-up" effect of these changes is
approximately $120,000 in additional state taxes or approximately $0.035 per
share. As required, this adjustment was 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
SFAS No. 147
In October, 2002, the FASB issued Statement No. 147, Acquisitions of Certain
Financial Institutions- an amendment to FASB Statements No. 72 and 144 and FASB
Interpretation No. 9. This Statement removes acquisitions of financial
institutions from the scope of both Statement 72 and Interpretation 9 and
requires that those transactions be accounted for in accordance with FASB
Statements No. 141, Business Combinations, and No. 142, Goodwill and Other
Intangible Assets. The provisions of Statement No. 147 that relate to the
application of the purchase method of accounting apply to all acquisitions of
financial institutions, except transactions between two or more mutual
enterprises.
Statement No. 147 clarifies that a branch acquisition that meets the definition
of a business should be accounted for as a business combination, otherwise the
transaction should be accounted for as an acquisition of net assets that does
not result in the recognition of goodwill. The provisions of Statement No. 147
are effective October 1, 2002. This Statement will not have any impact on the
consolidated financial statements.
26
PART II OTHER INFORMATION
- ------- -----------------
Item 1. Legal proceedings - NONE
The Company and the Bank and 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 - NONE
Item 5. Other information - NONE
Item 6. Exhibits and reports on Form 8-K
Exhibit
Number Description of Exhibits
------ -----------------------
98 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99 Certifications pursuant to Item 307 of SEC
Regulations S-K and S-B
27
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.
/s/ Albert F. Buzzetti
By: _____________________________
(Registrant - Bridge View Bancorp)
Albert F. Buzzetti
President and Chief Executive Officer
Date: November 14, 2002
28
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibits
------ -----------------------
98 Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99 Certifications pursuant to Item 307 of SEC
Regulations S-K and S-B
29