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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 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 Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports); and (2) has been subject
to such filing requirements for the past 90 days. YES (X) NO___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of March 5, 2003 was approximately $54,994,000.
The number of shares of the Issuer's Common Stock, no par value, outstanding as
of March 5, 2003 was 3,699,823.
For the fiscal year ended December 31, 2002, the Issuer had total revenues of
$13,989,000.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business 3
Item 2. Description of Property 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of 11
Security Holders
PART II
Item 5. Market for Registrant's Common Equity and 12
Related Stockholder Matters
Item 6. Selected Consolidated Financial Data 13
and Other Data
Item 7. Management's Discussion and Analysis of 14
Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures 35
about Market Risk
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes In and Disagreements with Accountants 35
on Accounting and Financial Disclosures
PART III
Item 10. Directors and Executive Officers 35
of the Registrant
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial 42
Owners and Management
Item 13. Certain Relationships and Related 44
Transactions
PART IV
Item 14. Exhibits and Financial Statement Schedules 45
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Bridge View Bancorp (the "Company") is a one-bank holding company incorporated
under the laws of the State of New Jersey in May, 1996 to serve as a holding
company for Bridge View Bank (the "Bank"; unless the context otherwise requires,
all references to the "Company" in this Annual Report shall be deemed to refer
also to the Bank). The Company was organized at the direction of the Board of
Directors of the Bank for the purpose of acquiring all of the capital stock of
the Bank. Pursuant to the New Jersey Banking Act of 1948 (the "Banking Act"), as
amended, and pursuant to approval of the shareholders of the Bank, the Company
acquired the Bank and became its holding company on December 6, 1996. As part of
the Acquisition, shareholders of the Bank received two shares of common stock,
no par value, (the "Common Stock") of the Company for each outstanding share of
the common stock of the Bank, $5.00 per share par value ("Bank Common Stock").
The only significant activities of the Company are the ownership and supervision
of the Bank. The Company's main office is located at 457 Sylvan Avenue,
Englewood Cliffs, Bergen County, New Jersey, 07632.
The Bank is a commercial bank formed under the laws of the State of New Jersey
on October 11, 1988. The Bank operates from its main office at 457 Sylvan
Avenue, Englewood Cliffs, New Jersey, 07632, and its ten branch offices located
at 1605 Lemoine Avenue, Fort Lee, New Jersey, 07024, 115 River Road, Edgewater,
New Jersey, 07020, 899 Palisade Avenue, Fort Lee, New Jersey, 07024, 77 River
Street, Hackensack, NJ, 07601, 20 West Railroad Avenue, Tenafly, NJ 07670, 4
Park Street, Harrington Park, NJ 07640, 35 North Washington Avenue, Bergenfield,
NJ 07621, 819 Teaneck Road, Teaneck, NJ 07666, 245 Main Street, Ridgefield Park,
NJ 07660, 85 Jefferson Avenue, Westwood, NJ 07675. All branch locations are in
Bergen County, NJ.
The Bank is subject to the supervision and regulation of the Board of Governors
of the Federal Reserve System (the "FRB"). The Bank's deposits are insured by
the Bank Insurance Fund (the "BIF") of the Federal Deposit Insurance Corporation
("FDIC") up to applicable limits. The operation of the Company and the Bank are
subject to the supervision and regulation of the FRB, FDIC, and the New Jersey
Department of Banking and Insurance (the " Department"). The principal executive
offices of the Bank are located at 457 Sylvan Avenue, Englewood Cliffs, New
Jersey, 07632, and the telephone number is (201) 871 - 7800.
3
Business of the Company
The Company's primary business is ownership and supervision of the Bank. The
Company, through the Bank, conducts a traditional commercial banking business,
accepting deposits from the general public, including individuals, businesses,
non-profit organizations, and governmental units. The Bank makes commercial
loans, consumer loans, and both residential and commercial real estate loans. In
addition, the Bank provides other customer services and makes investments in
securities, as permitted by law. The Bank has sought to offer an alternative,
community-oriented style of banking in an area, which is presently dominated by
larger, statewide and national institutions. The Bank has sought to be a
positive force in the area by assisting in the development of the residential
sector, by serving the needs of small and medium-sized businesses and the local
professional community, and by meeting the requirements of individuals residing,
working, and shopping in the Bank's eastern Bergen County market area by
extending consumer, commercial, and real estate loans and by offering
depository services. The Bank believes that the following attributes
have attracted local business people and residents:
-- Competitively priced services;
-- Direct access to Bank management by members of the community,
whether during or after business hours;
-- Strategically located branch offices;
-- Full service business hours of 7:00 am to 7:00 pm weekdays and
9:00 am to 1:00 pm Saturdays;
-- Local conditions and needs are taken into account when
deciding loan applications and making other business decisions
affecting members of the community;
-- Responsiveness to requests for information and services by
depositors and others; and
-- Positive involvement in the community affairs of eastern
Bergen County.
Service Area
The Company's service area primarily consists of Bergen County, New Jersey. The
Company operates its main office in Englewood Cliffs, New Jersey and ten branch
offices in Fort Lee(2), Edgewater, Hackensack, Tenafly, Harrington Park,
Bergenfield, Teaneck, Ridgefield Park, and Westwood, New Jersey; all in Bergen
County, NJ.
4
Competition
The Company operates in a highly competitive environment competing for deposits
and loans with commercial banks, thrifts, and other financial institutions, many
of which have greater financial resources than the Company. Many large financial
institutions in New York City and other parts of New Jersey compete for the
business of New Jersey residents located in the Company's service area. In
addition, since passage of the Gramm-Leach-Bliley Financial Modernization Act of
1999 (the "Modernization Act"), securities firms and insurance companies have
been allowed to acquire or form financial institutions, thereby further
increasing competition in the financial services market. Certain of these
institutions have significantly higher lending limits than the Company and
provide services to their customers which the Company does not offer. In
addition, the Company's competitors generally have established positions in the
Service Area and have greater resources than the Company with which to pay for
advertising, physical facilities, personnel, and interest on deposited funds.
Management believes the Company is able to compete on a substantially equal
basis with its competitors because it provides responsive personalized services
through its knowledge and awareness of the Company's service area, customers,
and business.
Employees
At December 31, 2002, the Company employed ninety eight full-time equivalent
employees. None of these employees is covered by a collective bargaining
agreement. The Company believes that its employee relations remain good.
5
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal
and state law. These laws and regulations are intended to protect depositors,
not stockholders. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
the applicable law or regulation may have a material effect on the business and
prospects of the Company and the Bank.
Bank Holding Company Regulations
As a bank holding company registered under the Bank Holding Company Act of 1956,
as amended (the "BHCA"), the Company is subject to the regulation and
supervision of the FRB. The Company is required to file with the FRB annual
reports and other information regarding its business operations and those of its
subsidiaries. Under the BHCA, the Company's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity which the FRB determines to be so closely related to banking or
managing or controlling banks as to be properly incident thereto.
The BHCA requires among other things , the prior approval of the FRB in any case
where a bank holding company proposes to: (i) acquire all or substantially all
of the assets of any other bank, (ii) acquire direct or indirect ownership or
control of more than 5% of the outstanding voting stock of any bank (unless it
owns a majority of such bank's voting shares), or (iii) merge or consolidate
with any other bank holding company. The FRB will not approve any acquisition,
merger, or consolidation that would have a substantially anti-competitive
effect, unless the anti-competitive impact of the proposed transaction is
clearly outweighed by a greater public interest in meeting the convenience and
needs of the community to be served, when reviewing acquisitions or mergers.
Additionally, the BHCA prohibits a bank holding company, with certain limited
exceptions, from (i) acquiring or retaining direct or indirect ownership or
control of more than 5% of the outstanding voting stock of any company which is
not a bank or bank holding company, or (ii) engaging directly or indirectly in
activities other than those of banking, managing, or controlling banks, or
performing services for its subsidiaries; unless such non-banking business is
determined by the FRB to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In making such
determinations, the FRB is required to weigh the expected benefits to the public
such as greater convenience, increased competition or gains in efficiency,
against the possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest, or unsound banking
practices.
The BHCA was substantially amended through the Modernization Act. The
Modernization Act permits bank holding companies and banks which meet certain
capital, management and Community Reinvestment Act standards to engage in a
broader range of non-banking activities. In addition, bank holding companies
which elect to become financial holding companies may engage in certain banking
and non-banking activities without prior FRB approval. Finally, the
Modernization Act imposes certain new privacy requirements on all financial
institutions and their treatment of consumer information. At this time, the
Company has elected not to become a financial holding company, as we do not
engage in any non-banking activities.
6
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default. Under a policy of the FRB with respect
to bank holding company operations, a bank holding company is required to serve
as a source of financial strength to its subsidiary depository institutions and
to commit resources to support such institutions in circumstances where it might
not do so absent such policy. The FRB also has the authority under the BHCA to
require a bank holding company to terminate any activity or to relinquish
control of a non-banking subsidiary upon the FRB's determination that such
activity or control constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the bank holding company.
The Company is also under the jurisdiction of the Securities and Exchange
Commission for matters relating to the offering and sale of its securities and
is subject to the Securities and Exchange Commission's rules and regulations
relating to periodic reporting, reporting to shareholders, proxy solicitations,
and insider trading.
7
Capital Adequacy Guidelines for Bank Holding Companies.
The FRB has adopted risk-based capital guidelines for bank holding companies.
The risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Under these guidelines, assets and
off-balance sheet items are assigned to broad risk categories each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The risk-based guidelines apply on a consolidated basis to bank holding
companies with consolidated assets of $150 million or more. The minimum ratio or
total capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) is 8%. At least 4% of the total
capital is required to be "Tier I Capital", consisting of common stockholders'
equity and certain preferred stock, less certain goodwill items and other
intangible assets. The remainder, "Tier II Capital", may consist of (a) the
allowance for loan losses of up to 1.25% of risk-weighted assets, (b) excess of
qualifying preferred stock, (c) hybrid capital instruments, (d) debt, (e)
mandatory convertible securities, and (f) qualifying subordinated debt. Total
capital is the sum of Tier I and Tier II capital less reciprocal holdings of
other banking organizations' capital instruments, investments in unconsolidated
subsidiaries and any other deductions as determined by the FRB (determined on a
case-by-case basis or as a matter of policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50%, and 100%. In
addition, certain off-balance sheet items are given similar credit conversion
factors to convert them to asset equivalent amounts to which an appropriate
risk-weight will apply. These computations result in the total risk-weighted
assets. Most loans are assigned to the 100% risk category, except for performing
first mortgage loans fully secured by residential property which carry a 50%
risk-weighting. Most investment securities (including, primarily, general
obligation claims of states or other political subdivisions of the United
States) are assigned to the 20% category, except for municipal or state revenue
bonds, which have a 50% risk-weight, and direct obligations of the U.S. Treasury
or obligations backed by the full faith and credit of the U.S. Government, which
have a 0% risk-weight. In converting off-balance sheet items, direct credit
substitutes including general guarantees and standby letters of credit backing
financial obligations, are given a 10% risk-weighting. Transactions related to
contingencies such as bid bonds, standby letters of credit backing non-financial
obligations, and undrawn commitments (including commercial credit lines with an
initial maturity of more than one year) have a 50% risk-weighting. Short term
commercial letters of credit have a 20% risk-weighting and certain short-term
unconditionally cancelable commitments have a 0% risk-weighting.
In addition to the risk-based capital guidelines, the FRB has adopted a minimum
Tier I capital (leverage) ratio, under which a bank holding company must
maintain a minimum level of Tier I capital to average total consolidated assets
of at least 3% in the case of a bank holding company that has the highest
regulatory examination rating and is not contemplating a significant growth or
expansion. All other bank holding companies are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the stated minimum.
8
Bank Regulation
As a New Jersey chartered commercial bank, the Bank is subject to the
regulation, supervision, and control of the New Jersey Department of Banking and
Insurance (the "Department"). As an FDIC-insured institution, the Bank is
subject to regulation, supervision, and control of the FDIC, an agency of the
federal government. The regulations of the FDIC and the Department impact
virtually all activities of the Bank, including the minimum level of capital the
Bank must maintain, the ability of the Bank to pay dividends, and the ability of
the Bank to expand through new branches or acquisitions and various other
matters.
Insurance of Deposits
The Bank's deposits are insured up to a maximum of $100,000 per depositor under
the Bank Insurance Fund (the "BIF"). The Federal Deposit Insurance Corporation
Improvements Act of 1991 ("FDICIA") affected a major restructuring of the
federal regulatory framework applicable to depository institutions and deposit
insurance. FDICIA requires the FDIC to establish a risk-based assessment system
for all insured depository institutions. Under this legislation, the FDIC has
established an insurance premium assessment matrix that sets the assessment
premium for a particular institution in accordance with its capital level and
overall rating by the primary regulator. Under the matrix as currently in
effect, the assessment ranges from 0 to 31 basis points of assessed deposits.
Dividend Rights
Under the Banking Act, a bank may declare and pay dividends only if, after
payment of the dividend, the capital stock of the Company will be unimpaired and
either the bank will have a surplus of not less than 50% of its capital stock or
the payment of the dividend will not reduce the bank's surplus.
Recent Developments
The Company has entered into an agreement to merge with and into Interchange
Financial Services Corporation, with Bridge View Bank merging with and into
Interchange Bank. This agreement is presently subject to regulatory approval and
shareholder approval of both Bridge View Bancorp and Interchange Financial
Services Corporation and is anticipated to close in second quarter, 2003.
9
ITEM 2. DESCRIPTION OF PROPERTY
The Company conducts its business through its main office located at 457 Sylvan
Avenue, Englewood Cliffs, New Jersey, and its eleven branch network. The
following table sets forth certain information regarding the Company's
properties as of December 31, 2002.
Leased Date of Lease
Location or Owned Expiration
457 Sylvan Avenue Owned N/A
Englewood Cliffs, NJ
1605 Lemoine Avenue Leased November, 2007
Fort Lee, NJ
115 River Road Leased April, 2005
Edgewater, NJ
899 Palisade Avenue Leased September, 2006
Fort Lee, NJ
77 River Street Leased December, 2012
Hackensack, NJ
20 West Railroad Avenue Leased April, 2005
Tenafly, NJ
4 Park Street Leased December, 2009
Harrington Park, NJ
35 North Washington Avenue Owned N/A
Bergenfield, NJ
819 Teaneck Road Owned N/A
Teaneck, NJ
245 Main Street Owned N/A
Ridgefield Park, NJ
85 Jefferson Street Leased May, 2025
Westwood, NJ
ITEM 3. LEGAL PROCEEDINGS
The Company and the Bank are periodically parties to or otherwise
involved in legal proceedings arising in the normal course of
business, such as claims to enforce liens, claims involving the making
and servicing of real property loans, and other issues incident to the
Bank's business. Management does not believe that there is any pending
or threatened proceedings against the Company or the Bank which, if
determined adversely, would have a material effect on the business,
financial position or results of operations of the Company or the
Bank.
10
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of the Registrant's shareholders during the
Fourth Quarter of fiscal 2002.
11
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Commencing on December 20, 1996, the Company's Common Stock began
trading on the American Stock Exchange under the symbol "BVB". As of
December 31, 2002, there were 1,234 stockholders of record of the
Common Stock.
The following table sets forth the quarterly high and low bid
prices of the Common Stock as reported on the American Stock Exchange
for the periods presented. The stock prices and cash dividends are
adjusted to reflect stock dividends and stock splits through the 2002
stock dividend.
Bid
--------------------------
Cash
High Low Dividend
Year Ended December 31, 2002
Fourth Quarter $15.14 $12.00 $0.10
Third quarter 14.55 12.91 0.10
Second quarter 15.00 12.95 0.10
First quarter 13.97 12.72 0.09
Year Ended December 31, 2001
Fourth quarter $15.14 $12.00 $0.09
Third quarter 14.55 12.91 0.09
Second quarter 15.00 12.95 0.09
First quarter 13.97 12.72 0.08
The Company and its predecessor, the Bank, began paying quarterly dividends
during January, 1996. Although the amount of the dividends to be paid by the
Company will be determined by its Board of Directors while giving consideration
to the Company's earnings, capital needs, financial condition, and other
relevant factors, the Board of Directors of the Company currently intends to
adhere to the dividend policy previously established by the Bank.
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER DATA
Selected Consolidated Financial Data and Other Data
(in thousands, except per share data)
Set forth below is selected historical financial data of the
Company. This information is derived in part from and should be read
in conjunction with the consolidated financial statements and notes
thereto presented in the Annual Report to Stockholders.
Years Ended December 31,
2002 2001 2000 1999 1998
------------------------------------------------------------
Selected Operating Data:
Total interest income $13,989 $14,829 $15,232 $12,558 $10,883
Total interest expense 1,691 3,191 4,290 3,182 3,006
------------------------------------------------------------
Net interest income 12,298 11,638 10,942 9,376 7,877
Provision for loan losses 570 165 190 195 140
------------------------------------------------------------
Net interest income after
provision for
loan loss 11,728 11,473 10,752 9,181 7,737
Other income 2,522 1,907 1,501 1,409 1,301
Other expenses 8,826 6,299 5,950 5,662 4,848
------------------------------------------------------------
Income before income taxes 5,424 7,081 6,303 4,928 4,190
Income tax expense 2,066 2,512 2,201 1,792 1,587
------------------------------------------------------------
Net income $3,358 $4,569 $4,102 $3,136 $2,603
============================================================
Basic Earnings per Share (1) $0.95 $1.29 $1.16 $0.89 $0.74
Diluted Earnings per Share (1) $0.91 $1.25 $1.13 $0.86 $0.72
(1) All shares data has been restated to reflect stock dividends and stock split
through the 2002 stock dividend.
At December 31,
------------------------------------------------------------
Selected Financial Data: 2002 2001 2000 1999 1998
------------------------------------------------------------
Total Assets $281,566 $237,820 $234,927 $203,272 $170,768
Net Loans 188,804 149,308 131,385 116,961 96,955
Total Deposits 251,050 209,624 208,365 183,205 152,700
Stockholders' Equity 29,032 26,866 23,263 19,329 17,237
At or for the year ended December 31,
------------------------------------------------------------
Selected Financial Ratios: 2002 2001 2000 1999 1998
------------------------------------------------------------
Return on Average Assets (ROA) 1.30% 1.98% 1.92% 1.66% 1.67%
Return on Average Equity (ROE) 11.93% 18.32% 19.47% 17.07% 16.05%
Equity to Total Assets at Year-End 10.31% 11.30% 9.90% 9.51% 10.09%
Dividend Payout Ratio 41.27% 27.60% 14.84% 17.53% 20.13%
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's consolidated
financial statements and the notes thereto included herein. When necessary,
reclassifications have been made to prior years' data throughout the following
discussion and analysis for purposes of comparability.
In addition to historical information, this discussion and analysis contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements.
Important factors that might cause such a difference include, but are not
limited to, those discussed in this section, and also include economic
conditions, both in the Company's trade area and nationally, changes in interest
rates and monetary policy, the continued viability of the Company's customers
and a variety of other matters, most, if not at all of which, are beyond the
Company's control. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date of the report. The Company undertakes no obligation to publicly revise or
update these forward-looking statements to reflect events and circumstances that
arise after such date.
OVERVIEW AND STRATEGY
The Company was formed in 1996 to act as a holding company for the Bank, which
began full service operation as a commercial bank on March 15, 1990. The Company
accepts deposits from the general public, including individuals, businesses,
non-profit organizations and governmental units located primarily within its
trade area. The Company makes commercial loans, consumer loans, residential and
commercial real estate loans, and issues both mastercard and visa credit cards.
In addition, the Company provides other customer services and makes investments
in securities, as permitted by law. The Company has sought to offer an
alternative, community-oriented style of banking in an area presently dominated
by larger, statewide and national institutions. The Company has sought to be a
positive force in its area by assisting in the development of the residential
sector; by serving the needs of small and medium-sized businesses and the local
professional community, and by meeting the requirements of individuals residing,
working, and shopping in the eastern Bergen County, New Jersey market area by
extending consumer, commercial, and real estate loans and by offering depository
services. The Company believes that the following attributes have made the
Company attractive to local business people and residents:
-- Competitively priced services;
-- Strategically located branch offices;
-- Full service business hours of 7:00 am to 7:00 pm weekdays and
9:00 am to 1:00 pm Saturdays;
-- Local conditions and needs are taken into account when
deciding loan applications and making other business decisions
affecting members of the community;
-- Responsiveness to requests for information and services by
depositors and others; and
-- Positive involvement in the community affairs of eastern
Bergen County.
14
Since opening in 1990, the Bank has increased its branch network to eleven
branches, including its main office.
RESULTS OF OPERATIONS - 2002 versus 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.
15
NET INCOME
For the year ended December 31, 2002, net income decreased by $1,211,000, or
26.5%, to $3,358,000 from $4,569,000 for the year ended December 31, 2001. The
decrease in net income for the year ended December 31, 2002 compared to 2001
included increase in the provision for loan losses, increases in non-interest
expense associated with opening and staffing of four new branches, funding of
the Directors' Retirement Plan, and included an increase of almost 2.5% in the
Company's effective tax rate as a result of the New Jersey State Legislature's
enactment of the Business Tax Reform Act. Additionally, certain expenses related
to the proposed merger with Interchange Financial Services Corporation
contributed to the decrease in net income. The Company experienced an increase
in non-interest income, reaching $2,522,000 for the year ended December 31, 2002
from $1,907,000 for the same period in 2001. The increase in non-interest income
reflects the combination of an increase in average deposit levels and a
recognized gain of $102,500 from the sale of a security during the second
quarter 2002.
On a per share basis, basic earnings per share for the year ended December 31,
2002 were $0.95 as compared to $1.29 for the year ended December 31, 2001,
representing a decrease of 26.4%. Diluted earnings per share were $0.91 for 2002
as compared to $1.25 for 2001. All share data has been restated to reflect all
stock dividends and stock splits through the March 5, 2002 stock dividend.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
upon the volume of interest-earning assets and interest bearing liabilities and
the interest rate paid on them. For the year ended December 31, 2002, net
interest income increased by $660,000, or 5.7%, to $12,298,000 from $11,638,000
for the year ended December 31, 2001. This increase in net interest income is
primarily the result of a 47.0% decrease in interest expense from $3,191,000 in
2001 to $1,691,000 in 2002, partially offset by a reduction of $840,000 in total
interest income. The decrease in interest expense reflects a reduction in the
rates paid on the Company's interest bearing liabilities to 1.16% for the twelve
months ended December 31, 2002 from the 2.41% paid in the prior year, as well as
an $11.1 million increase in the average balance of non-interest bearing
deposits year over year. The reductions in rate were partially offset by a $13.7
million increase in the average balance of interest bearing liabilities for 2002
compared to 2001.
Average Balance Sheets
The following table sets forth certain information relating to the Company's
average assets and liabilities for the years ended December 31, 2002, 2001, and
2000, and reflects the average yield on assets and average cost of liabilities
for the period indicated. Such yields are derived by dividing income or expense,
on a tax-equivalent basis, by the average balance of assets or liabilities,
respectively, for the periods shown. Securities available for sale are reflected
in the following table at amortized cost. Non-accrual loans are included in the
average loan balance. Amounts have been computed on a fully tax-equivalent
basis, assuming a blended tax rate of 38% in 2002 and 36% during 2001 and 2000.
16
For the years ended December 31,
(dollars in thousands)
2002 2001 2000
----------------------------- ----------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- -------- ---------- --------- -------- ---------- --------- -------- ----------
ASSETS :
Interest-Earning Assets:
Loans (net of unearned income) $169,712 $12,010 7.08% $136,732 $11,115 8.13% $125,214 $11,048 8.82%
Tax-Exempt Securities 8,214 295 3.59 7,684 501 6.52 10,375 620 5.98
Taxable Investment Securities 33,455 1,418 4.24 43,347 2,433 5.61 52,225 3,209 6.15
Federal Funds Sold 19,517 306 1.57 22,321 913 4.09 7,394 490 6.63
Interest-earning cash accounts 2,469 55 2.23 226 13 5.75 513 38 7.41
FHLB Stock 431 17 3.94 480 34 7.08 512 38 7.42
--------- -------- --------- -------- --------- --------
Total Interest-earning Assets 233,798 14,101 6.03% 210,790 15,009 7.12% 196,233 15,443 7.87%
--------- -------- --------- -------- --------- --------
Non-interest earning Assets 26,378 21,453 18,294
Allowance for Loan Losses (1,650) (1,499) (1,368)
--------- --------- ---------
TOTAL ASSETS $258,526 $230,744 $213,159
========= ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-Bearing
Liabilities :
Demand Deposits $45,132 $236 0.52% $38,725 $472 1.22% $31,673 $551 1.74%
Savings Deposits 29,301 136 0.46 22,857 219 0.96 22,144 310 1.40
Money Market Deposits 25,681 201 0.78 15,988 213 1.33 14,133 265 1.88
Time Deposits 45,643 1,117 2.45 52,840 2,212 4.19 59,897 3,136 5.24
Short Term Borrowings 64 1 1.56 1,760 75 4.26 206 28 6.59
---------- -------- ---------- -------- --------- --------
Total Interest-Bearing
Liabilities 145,821 1,691 1.16% 132,170 3,191 2.41% 128,053 4,290 3.35%
---------- -------- ---------- -------- --------- --------
Non-Interest Bearing
Liabilities:
Demand Deposits 83,650 72,535 62,863
Other Liabilities 913 1,094 1,178
---------- ---------- ---------
Total Non-Interest Bearing
Liabilities 84,563 73,629 64,041
Stockholders' Equity 28,142 24,945 21,065
---------- ---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $258,526 $230,744 $213,159
========== ========== =========
Net Interest Income
(Tax Equivalent Basis) $12,410 $11,818 $11,153
Tax Equivalent Basis
adjustment (112) (180) (211)
--------- --------- --------
Net Interest Income $12,298 $11,638 $10,942
========= ========= ========
Net Interest Rate Spread 4.87% 4.71% 4.52%
========= ========= ========
Net Interest Margin 5.31% 5.61% 5.68%
========= ========= ========
Ratio of Interest-Earning
Assets to Interest-
Bearing Liabilities 1.60 1.59 1.53
========== ========== =========
17
Rate/Volume Analysis
The following table presents, by category, the major factors that contributed to
the changes in net interest income on a tax equivalent basis for each of the
years ended December 31, 2002 and 2001.
Year Ended Year Ended
December 31, December 31,
2002 versus 2001 versus
2001 2000
--------------------------------- ----------------------------------------
( in thousands )
Increase (Decrease) Increase (Decrease)
due to change in due to change in
Average Average
Volume Rate Net Volume Rate Net
--------------------------------- ----------------------------------------
Interest Income :
Loans (net of
unearned income) $ 2,677 $ (1,782) $ 895 $ 1,016 $ (949) $ 67
Tax Exempt Securities 35 (241) (206) (161) 42 (119)
Taxable Investment
Securities (557) (458) (1,015) (546) (230) (776)
Federal Funds Sold (115) (492) (607) 990 (567) 423
Interest earning cash
accounts 129 (87) 42 (21) (4) (25)
Federal Home Loan
Bank Stock (3) (14) (17) (2) (2) (4)
--------------------------------- ----------------------------------------
Total Interest Income 2,166 (3,074) (908) 1,276 (1,710) (434)
--------------------------------- ----------------------------------------
Interest Expense :
Demand Deposits 80 (316) (236) 123 (202) (79)
Savings Deposits 64 (147) (83) 10 (101) (91)
Money Market Deposits 129 (141) (12) 35 (87) (52)
Time Deposits (301) (794) (1,095) (370) (554) (924)
Short Term Borrowings (72) (2) (74) 102 (55) 47
--------------------------------- ----------------------------------------
Total Interest
Expense (100) (1,400) (1,500) (100) (999) (1,099)
--------------------------------- ----------------------------------------
Net change in
Interest Income $ 2,266 $ (1,674) $ 592 $ 1,376 $ (711) $ 665
================================= ========================================
18
PROVISION FOR LOAN LOSSES
For the year ended December 31, 2002, the Company's provision for loan losses
was $570,000, an increase of $405,000 from the provision of $165,000 for the
year ended December 31, 2001. The increased provision is directly related to the
growth of the loan portfolio, which experienced an increase of 26.3% from $151.4
million at December 31, 2001 to $191.2 million at December 31, 2002 as well as
an increase in net charge-offs which experienced a $226,000 increase during
2002.
OTHER INCOME
Other income, which was primarily attributable to service fees received from
deposit accounts, for the year ended December 31, 2002, was $2,522,000, an
increase of $615,000 or 32.2% above the $1,907,000 received during the year
ended December 31, 2001. The increase in other income reflects the combination
of an increase in average deposit levels and a recognized gain of $102,500 from
the sale of a security during the second quarter 2002.
OTHER EXPENSES
Other expenses for the year ended December 31, 2002 amounted to $8,826,000, an
increase of $2,257,000 or 40.1% over the $6,299,000 for the year ended December
31, 2001. This increase is related, primarily, to opening and staffing of four
new branches, data processing costs, increases for employee and director
benefits, as well as other administrative expenses resulting from the Company's
growth since December 31, 2001 or related to the proposed merger.
INCOME TAX EXPENSE
The income tax provision, which includes both federal and state taxes, for the
years ended December 31, 2002 and 2001 was $2,066,000 and $2,512,000,
respectively. The income tax expense includes the effect of an almost 2.5%
increase in the Company's effective tax rate as a result of the New Jersey State
Legislature's enactment of the Business Tax Reform Act during 2002.
RESULTS OF OPERATIONS - 2001 versus 2000
NET INCOME
For the year ended December 31, 2001, net income increased by $467,000 or 11.4%
to $4,569,000 from $4,102,000 for the year ended December 31, 2000. The increase
in net income for 2001 compared to 2000 is a result of a 6.4% increase in net
interest income to $11,638,000 from $10,942,000 in the prior year coupled with a
27.0%, or $406,000, increase in fee income to $1,907,000 from $1,501,000 for
2000. The increase in net interest income is primarily the result of a 25.6%
decrease in interest expense from $4,290,000 in 2000 to $3,191,000 in 2001.
Other expenses increased by $349,000 or 5.9%, to $6,299,000 for the year ended
December 31, 2001 from $5,950,000 for the year ended December 31, 2000. This
increase is related primarily to data processing fees, customary increases for
salary and employee benefits, as well as other administrative expenses resulting
from the Company's growth since December 31, 2000.
19
On a per share basis, basic earnings per share for the year ended December 31,
2001 were $1.29 as compared to $1.16 for the year ended December 31, 2000,
representing an increase of 11.2%. Diluted earnings per share were $1.25 for
2001 as compared to $1.13 for 2000. All share data has been restated to reflect
all stock dividends and stock splits through the March 5, 2002 stock dividend.
FINANCIAL CONDITION
At December 31, 2002, the Company's total assets were $281,566,000 compared to
$237,820,000 at December 31, 2001. Total loans increased to $191,226,000 at
December 31, 2002 from $151,384,000 at December 31, 2001. Total deposits at year
end 2002 were $251,050,000 compared to $209,624,000 at December 31, 2001.
LOAN PORTFOLIO
At December 31, 2001, the Company's total loans were $191,226,000, an increase
of $39,842,000 or 26.3% over total loans of $151,384,000 at December 31, 2001.
The increase in the loan portfolio continues to be attributable to the effect of
customer referrals, selective marketing, and growth within the local Bergen
County community as well as the effect of successful marketing and networking
related to the four new branches. 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
maintains 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.
20
The following table sets forth the classification of the Company's loans by
major category as of December 31, 2002, 2001, 2000, 1999, and 1998,
respectively:
December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ---------- ----------- ---------- ------------
(in thousands)
Commercial and Industrial $32,187 $30,655 $26,087 $17,610 $18,906
Real Estate :
Non-residential properties 73,508 65,633 55,699 51,553 33,487
Residential properties 62,558 43,112 43,000 39,981 37,703
Construction 18,158 8,443 4,902 6,901 5,443
Consumer 4,815 3,541 3,567 2,500 2,694
----------- ---------- ----------- ---------- ------------
Total Loans $191,226 $151,384 $133,255 $118,545 $98,233
=========== ========== =========== ========== ============
The following table sets forth fixed and adjustable rate loans as of December
31, 2002 in terms of interest rate sensitivity (in thousands) :
Within
One Year 1 to 5 After 5
Years Years Total
--------- --------- --------- -----------
Loans with Fixed Rate $23,998 $23,689 $92,224 $139,911
Loans with Adjustable Rate 48,980 1,489 846 51,315
ASSET QUALITY
The Company's principal assets are its loans. Inherent in the lending function
is the risk of the borrower's inability to repay a loan under its existing
terms. Risk elements include non-accrual loans, past due and restructured loans,
potential problem loans, loan concentrations, and other real estate owned.
Non-performing assets include loans that are not accruing interest (non-accrual
loans) as a result of principal or interest being in default for a period of 90
days or more. When a loan is classified as non-accrual, interest accruals
discontinue and all past due interest, including interest applicable to prior
years, is reversed and charged against current income. Until the loan becomes
current, any payments received from the borrower are applied to outstanding
principal until such time as management determines that the financial condition
of the borrower and other factors merit recognition of such payments of
interest.
The Company attempts to minimize overall credit risk through loan
diversification and its loan approval procedures. Due diligence begins at the
time a borrower and the Company begin to discuss the origination of a loan.
Documentation, including a borrower's credit history, materials establishing the
value and liquidity of potential collateral, the purpose of the loan, the source
and timing of the repayment of the loan, and other factors are analyzed before a
loan is submitted for approval. Loans made are also subject to periodic audit
and review.
21
The following table sets forth information concerning the Company's
non-performing assets as of the dates indicated :
December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ---------- ----------- ----------- -----------
(in thousands)
Non-performing loans $0 $0 $25 $25 $0
Other real estate owned 0 0 0 0 163
----------- ---------- ----------- ----------- -----------
Total non-performing assets $0 $0 $25 $25 $163
Non-performing assets to total gross
loans and other real estate
owned N/A N/A 0.02% 0.02% 0.17%
Non-performing assets to total
assets N/A N/A 0.01% 0.01% 0.10%
Non-performing loans to total gross
loans N/A N/A 0.02% 0.02% 0.00%
Allowance for possible loan losses
as a percentage of
non-performing loans N/A N/A 5,892.00% 5,240.00% N/A
As of December 31, 2002 and 2001, respectively, the Company had no non-accrual
loans. At December 31, 2000, the Company had one non-accrual loan which
represented a line of credit.
Other than as disclosed above, there were no loans where information about
possible credit problems of borrowers causes management to have serious doubts
as to the ultimate collectibility of such loans.
As of December 31, 2002 and 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.
22
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents a critical accounting policy. The
allowance is a reserve established through charges to earnings in the form of a
provision for loan losses. The Company maintains an allowance for loan losses at
a sufficient level to provide for losses inherent in the loan portfolio. Loan
losses are charged directly to the allowance when they occur and any recovery is
credited to the allowance. Risks within the loan portfolio are analyzed on a
continuous basis by the Company's officers, by external independent loan review
function, and by the Company's audit committee. A risk system, consisting of
multiple grading categories, is utilized as an analytical tool to assess risk
and appropriate reserves. In addition to the risk system, management further
evaluates risk characteristics of the loan portfolio under current and
anticipated economic conditions and considers such factors as the financial
condition of the borrower, past and expected loss experience, and other factors
which management feels deserve recognition in establishing an appropriate
reserve. These estimates are reviewed at least quarterly, and, as adjustments
become necessary, they are realized in the periods in which they become known.
Additions to the allowance are made by provisions charged to the expense and the
allowance is reduced by net-chargeoffs (i.e. loans judged to be uncollectible
are charged against the reserve, less any recoveries on the loans.) Although
management attempts to maintain the allowance at an adequate level, future
additions to the allowance may be required based upon changes in market
conditions. Additionally, various regulatory agencies periodically review the
allowance for loan losses. These agencies may require additional provisions
based upon their judgment about information available to them at the time of
their examination. Although management uses the best information available, the
level of the allowance for loan losses remains an estimate which is subject to
significant judgment and short term change.
The Company's allowance for loan losses totaled $1,916,000 and $1,605,000 at
December 31, 2002 and 2001, respectively. This increase in the allowance is due
to the continued growth of the loan portfolio. The following is a summary of the
reconciliation of the allowance for loan losses for the periods indicated :
At December 31,
-------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ----------- ---------- ------------
(in
thousands)
Balance, beginning of year $1,605 $1,473 $1,310 $1,127 $1,009
Charge-offs
Commercial and Industrial (2) (25) (25) - -
Real Estate (267) (30) - - -
Consumer (7) - (4) (13) (22)
---------- ---------- ----------- ---------- ------------
Total Charge-offs (276) (55) (29) (13) (22)
Recoveries
Commercial and Industrial - - 2 - -
Real Estate 17 - - - -
Consumer - 22 - 1 -
---------- ---------- ----------- ---------- ------------
Total Recoveries 17 22 2 1 -
Provision charged to expense 570 165 190 195 140
---------- ---------- ----------- ---------- ------------
Balance, end of year $1,916 $1,605 $1,473 $1,310 $1,127
Ratio of net charge-offs to average
loans outstanding 0.15% 0.02% 0.02% 0.01% 0.03%
Balance of allowance at end of year as
a percentage of loans at end of year 1.00% 1.06% 1.11% 1.11% 1.15%
23
The following table sets forth, for each of the Company's major lending areas,
the amount and percentage of the Company's allowance for loan losses
attributable to such category, and the percentage of total loans represented by
such category, as of the periods indicated:
Allocation of the Allowance for Loan Losses by Category
For the years ended December 31,
(dollars in thousands)
2002 2001 2000 1999 1998
% of % of % of % of % of
Total Total Total Total Total
Amount % of Loans Amount % of Loans Amount % of Loans Amount % of Loans Amount % of Loans
ALL ALL ALL ALL ALL
---------------------------------------------------------------------------------------------------------
Balance applicable to:
Commercial $692 36.12% 16.83% $613 38.19% 20.25% $506 34.36% 19.58% $466 35.57% 14.86% $342 30.35% 19.25%
Real Estate :
Non-
residential
property 499 26.04% 38.44% 456 28.41% 43.35% 416 28.24% 41.80% 350 26.72% 43.48% 306 27.15% 34.09%
Residential
property 403 21.03% 32.71% 279 17.38% 28.86% 279 18.94% 34.55% 233 17.79% 35.50% 224 19.88% 38.38%
Construction 182 9.50% 9.50% 84 5.23% 5.58% 50 3.39% 3.68% 68 5.19% 5.82% 54 4.79% 5.54%
Consumer 60 3.13% 2.52% 39 2.44% 1.96% 36 2.44% 0.39% 26 1.98% 0.34% 22 1.95% 2.74%
-------------- -------------- -------------- -------------- --------------
Sub-total $1,836 95.82%100.00%$1,471 91.65%100.00%$1,287 87.37%100.00%$1,143 87.25%100.00% $948 84.12%100.00%
-------------- -------------- -------------- -------------- --------------
Unallocated
Reserves 80 4.18% 134 8.35% 186 12.63% 167 12.75% 179 15.88%
------- ------- ------- ------- -------
TOTAL $1,916 100.00%100.00%$1,605 100.00%100.00%$1,473 100.00%100.00%$1,310 100.00%100.00%$1,127 100.00%100.00%
=========================================================================================================
24
INVESTMENT SECURITIES
The Company maintains an investment portfolio to fund increased loan demand or
deposit withdrawals and other liquidity needs and to provide an additional
source of interest income. The portfolio is composed of U.S. Treasury
Securities, obligations of U.S. Government Agencies, selected municipal and
state obligations, stock in the Federal Home Loan Bank, and equity securities of
another financial institution.
Securities are classified as "held-to-maturity" (HTM), "available for sale"
(AFS), or "trading" at time of purchase. Securities classified as HTM are based
upon management's intent and the Company's ability to hold them to maturity.
Such securities are stated at cost, adjusted for unamortized purchase premiums
and discounts. Securities which are bought and held principally for the purpose
of selling them in the near term are classified as trading securities, which are
carried at market value. Realized gains and losses as well as gains and losses
from marking the portfolio to market value are included in trading revenue. The
Company has no trading securities. Securities not classified as HTM or trading
securities are classified as AFS and are stated at fair value. Unrealized gains
and losses on AFS securities are excluded from results of operations, and are
reported as a component of accumulated other comprehensive income(loss) which is
included in stockholders' equity, net of taxes. Securities classified as AFS
include securities that may be sold in response to changes in interest rates,
changes in prepayment risks, the need to increase regulatory capital, or other
similar requirements.
Management determines the appropriate classification of securities at the time
of purchase. At December 31, 2002, $525,000 of the Company's investment
securities were classified as held to maturity and $40,110,000 were classified
as available for sale. At December 31, 2002, the Company held no securities
which it classified as trading securities.
At December 31, 2002, total investment securities were $40,635,000, a decrease
of $11,338,000, from total investment securities of $51,973,000 at December 31,
2001. This decrease in investment securities from year end 2001 to year end 2002
reflects the maturity of investment securities which continue to be used to fund
loan growth.
25
The following table sets forth the carrying value of the Company's security
portfolio as of the dates indicated.
At December 31,
-----------------------------------------------------------------
(in thousands)
2002 2001 2000
-------------------- ---------------------- --------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- --------- --------- ---------- ---------- ----------
Available for sale
U.S. Government and agency
Obligations $29,322 $29,824 $34,702 $35,080 $20,076 $20,076
Municipal and state
obligations 9,536 9,536 2,878 2,878 - -
FHLBNY stock 431 431 430 430 512 512
Other equity securities 469 319 469 340 469 340
--------- --------- --------- ---------- --------- ----------
Total available for sale $39,758 $40,110 $38,479 $38,728 $21,057 $20,928
Held to Maturity
U.S. Government and agency
Obligations $ 525 $ 558 $ 8,573 $ 8,682 $24,586 $24,636
Municipal and state
obligations - - 4,672 4,671 10,155 10,160
--------- --------- --------- ---------- --------- ----------
Total held to maturity $525 $558 $13,245 $13,353 $34,741 $34,796
Total Investment
Securities $40,283 $40,668 $51,724 $52,081 $55,798 $55,724
========= ========= ========= ========== ========= ==========
The following table sets forth as of December 31, 2002 and December 31, 2001,
the maturity distribution of the Company's debt investment portfolio :
Maturity of Debt Investment Securities
December 31, 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 - - - $14,557 $14,698 2.74%
1 to 5 years $525 $558 5.00% 22,196 22,518 3.58%
Over 5 years - - - 2,105 2,144 5.00%
---------- ---------- ---------- ---------
$525 $558 $38,858 $39,360
========== ========== ========== =========
26
December 31, 2001
(in thousands)
Securities Securities
Held to Maturity Available for Sale
Weighted Weighted
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
---------- ---------- --------- ---------- --------- ----------
Within 1 year $12,709 $12,807 5.14% $2,878 $2,878 3.30%
1 to 5 years 536 546 5.00% 33,703 34,073 4.77%
Over 5 years - - - 999 1,007 8.02%
---------- ---------- ---------- ---------
$13,245 $13,353 $37,580 $37,958
========== ========== ========== =========
During 2002, the Company sold one security and recognized a gain of $102,500
from the transaction. The Company sold no securities from its portfolio during
2001.
DEPOSITS
Deposits are the Company's primary source of funds. The Company experienced a
growth in average deposit balances of $26,462,000 or 11.5% to $229,407,000 at
December 31, 2002 as compared to $202,945,000 at December 31, 2001. This market
penetration was accomplished as a result of the combined effect of four new
branches and continued customer referrals during 2002. Average non-interest
bearing demand deposits increased by $11,115,000 or 15.3% and average interest
bearing demand deposits increased by $16,100,000 or 29.4% from 2001 to 2002.
Average time deposits experienced a decrease of $7,197,000, or 13.6%, from
$52,840,000 in 2001 to $45,643,000 in 2002. The aggregate amount of average
non-interest bearing deposits totaled 36.5% of the Company's total average
deposits at December 31, 2002 as compared to 35.7% at December 31, 2001. The
Company has no foreign deposits, nor are there any material concentrations of
deposits.
The following table sets forth the average amount of various types of deposits
for each of the periods indicated :
December 31,
(Dollars in Thousands)
2002 2001 2000
---------------------- ---------------------- ------------------------
Average Average Average
Amount Yield/Rate Amount Yield/Rate Amount Yield/Rate
---------- ---------- --------- ---------- --------- --------------
Non-interest Bearing
Demand $83,650 - $72,535 - $62,863 -
Interest Bearing Demand 70,813 0.62% 54,713 1.25% 45,806 1.78%
Savings 29,301 0.46% 22,857 0.96% 22,144 1.40%
Time Deposits 45,643 2.45% 52,840 4.19% 59,897 5.24%
---------- --------- ---------
$229,407 $202,945 $190,710
========== ========= =========
27
The Company does not actively solicit short-term deposits of
$100,000 or more because of the liquidity risks posed by such
deposits. The following table summarizes the maturity distribution of
certificates of deposit of denominations of $100,000 or more as of
December 31, 2002
(in thousands).
Three months or less $ 11,264
Over three months through twelve months 5,929
Over one year through three years 427
Over three years 0
Total $ 17,620
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 $251,050,000 at December 31,
2002 as compared to $209,624,000 at December 31, 2001. The increase in
funds provided by deposit inflows during this period has been
sufficient to provide for the Company's loan demand.
Through the investment portfolio, the Company has generally sought
to obtain a safe, yet slightly higher yield than would have been
available to the Company as a net seller of overnight federal funds
while still maintaining liquidity. Through its investment portfolio,
the Company also attempts to manage its maturity gap by seeking
maturities of investments which coincide as closely as possible with
maturities of deposits. The investment portfolio also includes
securities held for sale to provide liquidity for anticipated loan
demand and liquidity needs.
Although the Company has traditionally been a net "seller" of
federal funds, the Company does have lines of credit with the Federal
Home Loan Bank of New York and First Tennessee Bank for "purchase" of
federal funds in the event that temporary liquidity needs arise. The
Company also has the ability to borrow from the Federal Home Loan Bank
of New York should that need arise.
Management believes that the Company's current sources of funds
provide adequate liquidity for the current cash flow needs of the
Company.
28
INTEREST RATE SENSITIVITY ANALYSIS
The principal objective of the Company's asset and liability
management function is to evaluate the interest-rate risk included in
certain balance sheet accounts; determine the level of risk
appropriate given the Company's business focus, operating environment,
capital and liquidity requirements; establish prudent asset
concentration guidelines; and manage the risk consistent with Board
approved guidelines. The Company seeks to reduce the vulnerability of
its operations to changes in interest rates and to manage the ratio of
interest-rate sensitive assets to interest-rate sensitive liabilities
within specified maturities or repricing dates. The Company's actions
in this regard are taken under the guidance of the Asset/Liability
Committee (ALCO) of the Board of Directors. The ALCO generally reviews
the Company's liquidity, cash flow needs, maturities of investments,
deposits and borrowings, and current market conditions and interest
rates.
One of the monitoring tools used by the ALCO is an analysis of the
extent to which assets and liabilities are interest rate sensitive and
measures the Company's interest rate sensitivity "gap". An asset or
liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. A gap is
considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets.
Accordingly, during a period of rising rates, a negative gap may
result in the yield on the institution's assets increasing at a slower
rate than the increase in its cost of interest-bearing liabilities
resulting in a decrease in net interest income. Conversely, during a
period of falling interest rates, an institution with a negative gap
would experience a repricing of its assets at a slower rate than its
interest-bearing liabilities which, consequently, may result in its
net interest income growing.
The following table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at the periods
indicated which are anticipated by the Company, based upon certain
assumptions, to reprice or mature in each of the future time periods
presented. Except as noted, the amount of assets and liabilities which
reprice or mature during a particular period were determined in
accordance with the earlier of the term to repricing or the
contractual terms of the asset or liability. Because the Bank has no
interest bearing liabilities with a maturity greater than five years,
management believes that a static gap for the over five year time
period reflects a more accurate assessment of interest rate risk. The
Company's loan repayment assumptions are based upon actual historical
repayment rates. At December 31, 2002, the Company is within the
target gap range as established by the Asset/Liability Committee of
the Board of Directors.
29
Cumulative Rate Sensitive Balance Sheet
December 31, 2002
(in thousands)
0 - 3 0 - 6 0 - 1 Year 0 - 5 5 + Years All Others
Months Months Years TOTAL
----------- ------ ---------- -------- -------- ---------- -----
Investment Securities $2,056 $4,263 $14,644 $37,741 $2,144 $0 $39,885
Loans :
Commercial 33,298 36,527 43,924 58,379 72,920 0 131,299
Mortgages 1 39 429 9,957 19,666 0 29,623
Consumer 27,031 28,284 28,625 29,820 484 0 30,304
Federal Funds Sold 19,500 19,500 19,500 19,500 0 0 19,500
Other Assets 0 0 0 0 0 30,955 30,955
------------------------------------------------------------ ------------
TOTAL ASSETS $81,886 $88,613 $107,122 $155,397 $250,611 $281,566 $281,566
============================================================ ============
Transaction /
Demand Accounts $47,231 $47,231 $47,231 $47,231 $ 0 $ 0 $47,231
Money Market 21,049 21,049 21,049 21,049 0 0 21,049
Savings 33,113 33,113 33,113 33,113 0 0 33,113
CD's less than
$100,000 18,185 31,456 35,615 38,004 0 0 38,004
CD's greater than
$100,000 11,264 17,153 17,193 17,620 0 0 17,620
Other Liabilities 0 0 0 0 0 95,517 95,517
Equity 0 0 0 0 0 29,032 29,032
------------------------------------------------------------ ------------
TOTAL LIABILITIES AND
EQUITY $130,842 $150,002 $154,201 $157,017 $157,017 $281,566 $281,566
============================================================ ============
Dollar Gap (48,956) (61,389) (47,079) (1,620) 93,594
Gap / Total Assets -17.40% -21.82% -16.74% -0.58% 33.24%
Target Gap Range +/-35.0% +/- 30.0% +/- 25.0% +/-25.0% -
RSA / RSL 62.58% 59.07% 69.47% 98.97% 159.61%
(Rate Sensitive Assets to
Rate Sensitive Liabilities)
30
MARKET RISK
Market risk is the risk of loss from adverse changes in market
prices and rates. The Company's market risk arises primarily from
interest rate risk inherent in its lending and deposit taking
activities. Thus, management actively monitors and manages its
interest rate risk exposure.
The Company's profitability is affected by fluctuations in
interest rates. A sudden and substantial increase in interest rates
may adversely impact the Company's earnings to the extent that the
interest rates borne by assets and liabilities do not change at the
same speed, to the same extent, or on the same basis. The Company
monitors the impact of changing interest rates on its net interest
income using several tools. One measure of the Company's exposure to
differential changes in interest rates between assets and liabilities
is shown in the Company's Cumulative Rate Sensitive Balance Sheet
under the Interest Rate Sensitivity Analysis caption.
The Company's primary objective in managing interest rate risk is
to minimize the adverse impact of changes in interest rates on the
Company's net interest income and capital, while structuring the
Company's asset-liability structure to obtain the maximum yield-cost
spread on that structure. The Company relies primarily on its
asset-liability structure to control interest rate risk.
The Company continually evaluates interest rate risk management
opportunities. Management believes that hedging instruments currently
available are not cost-effective, and therefore, has focused its
efforts on increasing the Company's yield-cost spread through retail
growth opportunities.
The following table discloses the Company's financial instruments
that are sensitive to change in interest rates, categorized by
expected maturity, and the instruments' fair values at December 31,
2002. Market risk sensitive instruments are generally defined as on-
and off- balance sheet financial instruments.
31
Expected Maturity/Principal Repayment
December 31, 2002
(Dollars in thousands)
Avg. There- Fair
Int. After Total Value
Rate 2003 2004 2005 2006 2007
------ ----- ----- ----- ------- ----- ------ ----- -----
Interest
Rate
Sensitive
Assets :
Loans 7.08% 72,978 6,567 6,465 7,051 5,095 93,070 191,226 195,188
Tax Exempt
Securities 3.59% 9,536 -- -- -- -- -- 9,536 9,536
Investment
Securities 4.24% 5,108 10,288 9,707 1,010 2,092 2,144 30,349 30,382
Fed Funds
Sold 1.57% 19,500 -- -- -- -- -- 19,500 19,500
Interest
Bearing
Cash 2.23% 2,377 -- -- -- -- -- 2,377 2,377
Interest
Rate
Sensitive
Liabilities:
Demand
Deposits 0.52% 47,231 -- -- -- -- -- 47,231 47,231
Savings
Deposits 0.46% 33,113 -- -- -- -- -- 33,113 33,113
Money Market
Deposits
0.78% 21,049 -- -- -- -- -- 21,049 21,049
Time
Deposits 2.45% 52,808 2,816 -- -- -- -- 55,624 56,024
Short Term
Borrowings 1.56% -- -- -- -- -- -- -- --
CAPITAL
A significant measure of the strength of a financial institution
is its capital base. The Company's federal regulators have classified
and defined Company capital into the following components : (1) Tier I
Capital, which includes tangible shareholders' equity for common stock
and qualifying preferred stock, and (2) Tier II Capital, which
includes a portion of the allowance for possible loan losses, certain
qualifying long-term debt, and preferred stock which does not qualify
for Tier I Capital. Minimum capital levels are regulated by risk-based
capital adequacy guidelines which require certain capital as a percent
of the Company's assets and certain off-balance sheet items adjusted
for predefined credit risk factors (risk-adjusted assets).
A Bank Holding Company is required to maintain, at a minimum, Tier
I Capital as a percentage of risk-adjusted assets of 4.0% and combined
Tier I and Tier II Capital as a percentage risk-adjusted assets of
8.0%.
In addition to the risk-based guidelines, the Company's regulators
require that an institution which meets the regulator's highest
performance and operation standards maintain a minimum leverage ratio
(Tier I Capital as a percentage of tangible assets) of 3.0%. For those
institutions with higher levels of risk or that are experiencing or
anticipating significant growth, the minimum leverage ratio will be
evaluated through the ongoing regulatory examination process. The Bank
is subject to substantially similar regulations by its federal
regulations.
32
The following table summarizes the risk-based and leverage capital
ratios for the Company at December 31, 2002, as well as the required
minimum regulatory capital ratios :
Minimum
December 31, Regulatory
2002 Requirements
------------ -----------
Risk-Based Capital :
Tier I Capital Ratio 14.46% 4.0%
Total Capital Ratio 15.42% 8.0%
Leverage Ratio 10.40% 4.0%
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and notes
thereto, presented elsewhere herein, have been prepared in accordance
with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative
purchasing power of money over time and due to inflation. The impact
of inflation is reflected in the increased cost of the Company's
operations. Unlike most industrial companies, nearly all of the assets
and liabilities of the Company are monetary. As a result, interest
rates have a greater impact on the Company's performance than do the
effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the
prices of goods and services.
RECENTLY ISSUED ACCOUNTING STANDARDS AND OTHER OPERATIONAL ISSUES
SFAS No. 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.
33
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.
SFAS No. 148
In December, 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 148,
"Accounting for Stock-Based Compensation, Transition and Disclosure."
SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. SFAS No. 148 also requires that
disclosures of the pro forma effect of using the fair value method of
accounting for stock-based employee compensation be displayed more
prominently and in a tabular format. Additionally, SFAS No. 148
requires disclosure of the pro forma effect in interim financial
statements. The additional disclosure requirements of SFAS No. 148 are
effective for fiscal years ended after December 15, 2002. The Company
has adopted the expanded disclosure provisions of this statement
effective December 31, 2002.
34
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
See disclosures on market risk in Management's Discussion and
Analysis on pages 31 and 32.
ITEM 8. FINANCIAL STATEMENTS
The Consolidated Statements of Financial Condition of the Company
as of December 31, 2002 and 2001, and the related Consolidated
Statements of Income, Stockholders' Equity, and Cash Flows for each of
the years in the three year period ended December 31, 2002 are
included herein as indicated on the "Index to Consolidated Financial
Statements" on page 46.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names of the directors of the
Company, their ages, a brief description of their recent business
experience, including present occupations, and the year in which each
became a director of the Company or the Bank.
Name, Age and Position with Principal Occupations During the Director Term
the Company Past Five Years Since (1) Expires
- ---------------------------------------------------------------------------------
Mark Metzger, 61, Director Private Investor 1988 2003
- ---------------------------------------------------------------------------------
Joseph C. Parisi, 77, Chairman and Chief Executive
Chairman of the Board Officer,
Otterstedt Insurance Agency 1988 2003
- ---------------------------------------------------------------------------------
John A. Schepisi, 58, Vice Senior Partner, Schepisi &
Chairman of the Board McLaughlin,
Attorneys at Law 1988 2003
- ---------------------------------------------------------------------------------
Albert F. Buzzetti, 63, President and Chief Executive
President and Chief Officer of the Company and the
Executive Officer, Bank
Director 1988 2004
- ---------------------------------------------------------------------------------
Jeremiah F. O'Connor, 46, President, USA Running Co. LLC
Director 1988 2005
- ---------------------------------------------------------------------------------
Gerald A. Calabrese, Jr., President, Century 21, Calabrese
52, Realty and Chairman and Chief
Director Executive Officer,Metropolitan
Mortgage Company 1988 2004
- ---------------------------------------------------------------------------------
Glenn L. Creamer, 50, Executive Vice President
Director J. Fletcher Creamer & Son, Inc.
(Construction) 1988 2004
- ---------------------------------------------------------------------------------
______________________
(1) Includes prior service on Board of Directors of the Bank
35
No director of the Company is also a director of any other company
registered pursuant to Section 12 of the Securities Exchange Act of
1934 or subject to the requirements of Section 15(d) of such Act or
any company registered as an investment company under the Investment
Company Act of 1940.
Board of Directors' Meetings
Pursuant to the New Jersey Business Corporation Act and the
Company's Bylaws, the Company's business and affairs are managed under
the direction of the Board of Directors. The Board of Directors of the
Company held 13 meetings during 2002. The Board of Directors holds
regularly scheduled meetings each month and special meetings as
circumstances require.
All of the directors of the Company attended at least 75% of the
total number of Board meetings held and committee meetings held during
2002.
Committees of the Board
During 2002, the Board of Directors maintained an Audit Committee,
Personnel Committee and a Stock Option Committee. The full Board of
Directors acts as a Nominating Committee.
Audit Committee. The Audit Committee of the Company and the Bank
consists of Directors Jeremiah F. O'Connor (Chairman), Glenn L.
Creamer, Joseph C. Parisi (ex officio), Mark Metzger, and John A.
Schepisi (ex officio).
Audit Committee Report
The Audit Committee meets periodically to consider the adequacy of
the Company's financial controls and the objectivity of its financial
reporting. The Audit Committee meets with the Company's independent
auditors and the Company's internal auditors, both whom have
unrestricted access to the Audit Committee.
All Directors who serve on the Audit Committee are "independent"
for purposes of the American Stock Exchange listing standards. The
Board has adopted a written charter for the Audit Committee setting
for the audit related functions the Audit Committee is to perform. A
copy of the Charter was attached as an exhibit to the Company's Proxy
Statement for the 2001 Annual Meeting.
In connection with this year's financial statements, the Audit
Committee has reviewed and discussed the Company's audited financial
statements with the Company's officers and KPMG, LLP, our independent
auditors. We have discussed with KPMG, LLP the matters required to be
discussed by Statement on Auditing Standards 61 (Communication with
Audit Committees). We also have received the written disclosures and
letters from KPMG, LLP required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and
have discussed with representatives of KPMG, LLP their independence.
36
Based on these reviews and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for
the fiscal year 2002 for filing with the U.S. Securities and Exchange
Commission.
Jeremiah F. O'Connor (Chairman)
Glenn L. Creamer
Mark Metzger
Joseph C. Parisi (ex officio)
John A. Schepisi (ex officio)
Personnel Committee. The Company maintains a Personnel Committee
which sets the compensation for the executive officers of the Company
and provides oversight on executive hiring. In 2002, the Committee
consisted of Directors Jeremiah F. O'Connor, Jr. (Chairman), Gerald A.
Calabrese, Jr., Glenn L. Creamer, Albert F. Buzzetti, Joseph C. Parisi
(ex officio) and John A. Schepisi (ex officio) and met one time.
Stock Option Committee. The Company maintains a Stock Option
Committee which recommends granting of certain stock options form time
to time and determines the exercise price at which such options may be
granted. The Committee met one time in 2002. The Committee consists of
Directors, Mark Metzger, Jeremiah F. O'Connor, Jr., Albert F.
Buzzetti, Joseph C. Parisi (ex officio) and John A. Schepisi (ex
officio).
Compensation of Directors
Directors' Fees. Directors of the Company, other than full-time
employees of the Company, received fees of $800 per Board meeting
attended and $400 per committee meeting attended in 2002. For 2003 the
fees will remain unchanged.
1994 Stock Option Plan for Non-Employee Directors. The Company
maintains the 1994 Stock Option Plan for Non-Employee Directors (the
"1994 Non-Employee Plan"). Under the 1994 Non-Employee Plan, 146,174
shares of Common Stock have been reserved for issuance. Non-employee
directors of the Company, the Bank and any other subsidiaries which
the Company may acquire or incorporate may participate in the 1994
Non-Employee Plan. Under the 1994 Non-Employee Plan, each current
non-employee member of the Board of Directors has received options to
purchase 21,926 shares of Common Stock at exercise prices ranging from
$3.16 to $3.40, 100% of the fair market value on the date such options
were granted. No options remain available for grant under the 1994
Non-Employee Plan.
1998 Stock Option Plan for Non-Employee Directors. The Company
maintains the 1998 Stock Option Plan for Non-Employee Directors (the
"1998 Non-Employee Plan"). Under the 1998 Non-Employee Plan, 186,760
shares of Common Stock have been reserved for issuance. Non-employee
directors of the Company, the Bank and any other subsidiaries which
the Company may acquire or incorporate may participate in the 1998
Non-Employee Plan. Under the 1998 Non-Employee Plan, each current
non-employee member of the Board of Directors has received options to
purchase 22,680 shares of Common Stock at an exercise price of $20.05,
100% of the fair market value on the date such options were granted.
Under the 1998 Non-Employee Plan, 13,339 options remain available for
grant.
37
2001 Stock Option Plan for Non-Employee Directors. The Company
maintains the 2001 Stock Option Plan for Non-Employee Directors (the
"2001 Non-Employee Plan"). Under the 2001 Non-Employee Plan, 141,929
shares of Common Stock have been reserved for issuance. Non-employee
directors of the Company, the Bank and any other subsidiaries which
the Company may acquire or incorporate may participate in the 2001
Non-Employee Plan. Under the 2001 Non-Employee Plan, each current
non-employee member of the Board of Directors has received options to
purchase 20,091 shares of Common Stock at an exercise price of $13.64, 100% of
the fair market value on the date such options were granted.
One thousand two hundred eighty nine options remain available for
grant under the 2001 Non-Employee Plan.
Director Retirement Plan. Directors of the Company participate in
the Director Retirement Plan, a deferred compensation plan funded in
the form of whole-life insurance. The Company contributes $10,000 per
Director to the Director Retirement Plan annually.
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities
and Exchange Commission. Officers, directors and greater than ten
percent stockholders are required by regulation of the Securities and
Exchange Commission to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of Section 16(a) forms
received by it or written representations from certain reporting
persons that no Forms 5 were required for those persons, the Company
believes that, during the fiscal year ended December 31, 2002, all
filing requirements applicable to all officers, directors and greater
than ten percent beneficial owners were met.
ITEM 11. EXECUTIVE COMPENSATION
Personnel Committee Report on Executive Compensation
The Company's compensation package for its executive officers
consists of base salary, an annual bonus, annual discretionary stock
option grants and various broad based employee benefits. The objective
of the Company's executive compensation is to enhance the Company's
long-term profitability by providing compensation that will attract
and retain superior talent, reward performance and align the interests
of the executive officers with the long term interests of the
shareholders of the Company.
Base salary levels for the Company's executive officers are
competitively set relative to companies in peer businesses. The annual
financial performance of the Company is one of the most important
factors in reviewing base salaries and bonuses. In reviewing base
salaries, the Personnel Committee also takes into account individual
experience and performance.
The Company's annual bonuses are intended to provide a direct cash
incentive to executive officers and other key employees to maximize
the Company's profitability. Financial performance is compared against
budgets as well as peer businesses.
38
Stock options are intended to encourage officers and other key
employees to remain employed by the Company by providing them with a
long term interest in the Company's overall performance as reflected
by the performance of the market of the Company's Common Stock. In
granting stock options, the Personnel Committee and the Stock Option
Committee take into account prior stock option grants and consider the
executive's level of compensation and past contributions to the
Company.
Albert F. Buzzetti was the President and Chief Executive Officer
of the Company and the Bank for 2002. Mr. Buzzetti's base salary is
set competitively relative to other chief executive officers in
financial service companies in the Company's market area. In
determining Mr. Buzzetti's base salary as well as annual bonus, the
Committee reviewed independent compensation data and the Company's
performance as compared against budgets and peer businesses. As with
the Company's other executive officers, Mr. Buzzetti's total
compensation involves certain subjective judgments and is not based
solely upon any specific objective criteria or weighting.
Jeremiah F. O'Connor, Jr. Albert F. Buzzetti (ex officio)
Gerald A. Calabrese, Jr. Joseph C. Parisi (ex officio)
Glenn L. Creamer John A. Schepisi (ex officio)
Compensation Committee Interlocks And Insider Participation
The members of the Personnel Committee of the Board of Directors
of the Company for the fiscal year ended December 31, 2002 were
Jeremiah F. O'Connor, Jr. (Chairman), Gerald A. Calabrese, Jr., Glenn
L. Creamer, Albert F. Buzzetti (ex officio), Joseph C. Parisi (ex
officio) and John A. Schepisi (ex officio). Mr. Buzzetti is the only
member of the Personnel Committee who is also an officer or employee
of the Company.
Mr. Schepisi is a partner in the law firm of Schepisi &
McLaughlin, Attorneys at Law, who have acted as the Company's general
counsel since April 1995. During 2002, the Company paid legal fees
totaling $115,000 to Schepisi & McLaughlin.
Mr. Parisi is Chief Executive Officer of the Otterstedt Agency, an
insurance agency through which the Company's Blanket Bond insurance
policy as well as other policies have been placed with various
insurance carriers. Gross insurance premiums in 2002 totaled $78,000.
Mr. Calabrese, a state-licensed appraiser, has conducted
appraisals related to the Company's home equity lines of credit at the
expense of the Company. The cost of 2002 appraisals was $40,000.
Mr. Creamer is the Treasurer and Safety Director of J. Fletcher
Creamer and Son, Inc., a construction company. During 2002, the
Company paid construction costs totaling $22,000 to J. Fletcher
Creamer and Son, Inc..
39
Information with respect to Executive Officers
The following table sets forth the names of the Company's
executive officers not serving on the Board and whose individual
remuneration exceeded $100,000 for the last fiscal year, their ages, a
brief description of their recent business experience, including
present occupations, and the year in which each became an officer of
the Company or the Bank.
Name and Address of Principal Occupation for Past Five Officer
Executive Officer (1) Years Since
(2)
- ----------------------------------------------------------------------
Thomas W. Thomasma, 49, Senior Vice President and Chief
Senior Vice President Lending Officer of the Company
and Chief Lending
Officer 1994
- ----------------------------------------------------------------------
_______________
(1) The address for Mr. Thomasma is c/o Bridge View Bancorp, 457
Sylvan Avenue, Englewood Cliffs, New Jersey 07632.
(2) Includes prior service as an officer of the Bank.
Executive Compensation and All Other Compensation
The following table sets forth a summary for the last three fiscal
years of the cash and non-cash compensation awarded to, earned by, or
paid to, the Chief Executive Officer of the Company and each of the
four most highly compensated executive officers whose individual
remuneration exceeded $100,000 for the last fiscal year.
SUMMARY COMPENSATION TABLE
Cash and Cash Equivalent Forms
of Remuneration
Long Term Awards Long Term Payouts
Annual Compensation
-----------------------------------------------------------------------
Name and Principal Position Other Securities LTIP All Other
Year Salary Bonus Annual Underlying Payouts Compensation
($) ($) ($)(1) Options/SARs (2) ($)
(#)
- -----------------------------------------------------------------------------------------------------
Albert F. Buzzetti, President 2002 $210,000 $40,000 $12,035 0 None 0
and CEO -----------------------------------------------------------------------
2001 $200,000 $35,000 $12,035 0 None 0
-----------------------------------------------------------------------
2000 $190,000 $35,000 $12,035 0 None 0
- -----------------------------------------------------------------------------------------------------
Thomas W. Thomasma, Senior 2002 $124,000 0 $2,700 0 None 0
Vice President -----------------------------------------------------------------------
2001 $118,000 0 $2,700 0 None 0
-----------------------------------------------------------------------
2000 $112,000 0 $2,700 0 None 0
=====================================================================================================
_______________
(1) Other annual compensation includes the estimated personal
benefit of use of Company-leased automobiles or automobile allowances.
Other annual compensation with respect to Mr. Buzzetti includes the
cost of a life insurance policy, the beneficiary of which is
designated by Mr. Buzzetti.
40
(2) For fiscal year 2002, 2001 and 2000, the Company had no
long-term incentive plans in existence, and therefore made no payouts
for awards under such plans.
1994 and 2001 Employee Stock Option Plans. The Company maintains
the 1994 Employee Stock Option Plan (the "1994 Plan") and the 2001
Employee Stock Option Plan (the "2001 Plan"). Under the 1994 Plan,
146,174 shares of Common Stock have been reserved for issuance. Under
the 2001 Plan, 128,557 shares of Common Stock have been reserved for
issuance. Employees of the Company, the Bank and any subsidiaries
which the Company may incorporate or acquire are eligible to
participate in the each of the 1994 Plan and the 2001 Plan. The Stock
Option Committee manages the 1994 and 2001 Plans and approves
participants from the eligible employees. No option granted under the
1994 or 2001 Plans may be exercised more than 10 years after the date
of its grant. The purchase price for shares of Common Stock subject to
options under the 1994 and 2001 Plans may not be less than 100% of the
fair market value on the date such option is granted.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
During fiscal year 2002, there were no individual grants of stock
options made to each of the named executive officers.
41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information concerning the
beneficial ownership of the Common Stock, no par value, as of December
31, 2002, by (i) each person who is known by the Company to own
beneficially more than five percent (5%) of the issued and outstanding
Common Stock, (ii) each director and nominee for director of the
Company, (iii) each executive officer of the Company described in this
Form 10-K under the caption "Executive Compensation" and (iv)
all directors and executive officers of the Company as a group. Other
than as set forth in this table, the Company is not aware of any
individual or group which holds in excess of 5% of the outstanding
Common Stock.
Name and Address of Number of Shares Percent
Beneficial Owner(1) Beneficially Owned (2) of Class
- ---------------------------------------------------------------------------------------------
Albert F. Buzzetti (3) 144,194 4.06%
- ---------------------------------------------------------------------------------------------
Gerald A. Calabrese, Jr. (4) 178,124 5.01%
- ---------------------------------------------------------------------------------------------
Glenn L. Creamer (5) 100,336 2.82%
- ---------------------------------------------------------------------------------------------
Estate of Bernard Mann (6) 216,080 6.08%
- ---------------------------------------------------------------------------------------------
Mark Metzger (7) 220,559 6.21%
- ---------------------------------------------------------------------------------------------
Jeremiah F. O'Connor (8) 178,555 5.02%
- ---------------------------------------------------------------------------------------------
Joseph C. Parisi (9) 192,337 5.41%
- ---------------------------------------------------------------------------------------------
John A. Schepisi(10) 291,768 8.21%
- ---------------------------------------------------------------------------------------------
Thomas W. Thomasma 5,752 *
- ---------------------------------------------------------------------------------------------
Directors and Executive Officers
as a Group (8 persons)(11) 1,311,625 36.74%
- ---------------------------------------------------------------------------------------------
_______________
* Ownership of less than 1%
(1) The address for all persons listed is c/o Bridge View Bancorp,
457 Sylvan Avenue, Englewood Cliffs, New Jersey 07632.
(2) Beneficially owned shares include shares over which the named
person exercised either sole or shared voting power or sole or shared
investment power. It also includes shares owned (i) by a spouse, minor
children or by relatives sharing the same home, (ii) by entities owned
or controlled by the named person, or (iii) by other persons if the
named person has the right to acquire such shares within 60 days by
the exercise of any right or option. Unless otherwise noted, all
shares are owned of record and beneficially by the named person,
either directly or through the dividend reinvestment plan.
(3) Includes 2,686 shares owned by Mr. Buzzetti's wife. Mr.
Buzzetti disclaims beneficial ownership of the shares owned by his
wife and of shares owned by other family members. Includes an
aggregate of 80,522 shares purchasable pursuant to options which are
presently exercisable or exercisable within sixty (60) days.
42
(4) Includes 5,197 shares owned by Mr. Calabrese's minor children.
Mr. Calabrese disclaims any beneficial ownership of shares owned by
other family members who are not dependents. Includes an aggregate of
68,694 shares purchasable pursuant to options which are presently
exercisable or exercisable within sixty (60) days.
(5) Mr. Creamer disclaims any beneficial ownership of shares owned
by family members who are not dependents. Includes an aggregate of
68,694 shares purchasable pursuant to options which are presently
exercisable or exercisable within sixty (60) days.
(6) Mr. Mann died october 31, 2002.Includes 49,983 shares owned by Mr.
Mann's wife. Mr. Mann's estate disclaims any beneficial ownership of shares
owned by his wife as well as shares by other family members. Includes an
aggregate of 68,694 shares purchasable pursuant to options which are presently
exercisable or exercisable within sixty (60) days.
(7) Includes 2,039 shares owned by Mr. Metzger's wife and 1,170
shares owned by the Metzger Family Partnership of which he is trustee.
Mr. Metzger disclaims beneficial ownership of shares owned by his wife
and of any other shares held by emancipated members of his family.
Includes an aggregate of 46,771 shares purchasable pursuant to options
which are presently exercisable or exercisable within sixty (60) days.
(8) Includes 8,069 shares owned by Mr. O'Connor's dependent
children, and 19,284 shares held by the AtHome Medical Pension Plan.
Mr. O'Connor disclaims beneficial ownership of shares owned by
emancipated family members. Includes an aggregate of 68,694 shares
purchasable pursuant to options which are presently exercisable or
exercisable within sixty (60) days.
(9) Includes 88,988 shares owned jointly by Mr. Parisi and his
wife. Mr. Parisi disclaims beneficial ownership of any shares owned by
emancipated family members. Includes an aggregate of 68,694 shares
purchasable pursuant to options which are presently exercisable or
exercisable within sixty (60) days.
(10) Includes 7,652 shares owned by Mr. Schepisi's wife, and
20,145 shares owned by Homaro Co., a partnership which Mr. Schepisi
manages but with regard to which he disclaims beneficial interest. Mr.
Schepisi disclaims beneficial ownership of any shares owned by his
wife or by any emancipated family members. Includes an aggregate of
68,694 shares purchasable pursuant to options which are presently
exercisable or exercisable within sixty (60) days.
(11) Includes 470,763 shares purchasable pursuant to options which
are presently exercisable or exercisable within sixty (60) days.
43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
By Board policy, the Company does not extend credit to any
director, officer, their affiliates or unemancipated family members.
The firm of Schepisi & McLaughlin, Attorneys at Law, has acted as
the Company's general counsel since April 1995. John A. Schepisi, the
firm's Senior Partner, is Vice Chairman of the Company's Board. During
2002, the Company paid legal fees totaling $115,000 to Schepisi &
McLaughlin.
The Company's Blanket Bond insurance policy, as well as other
policies, have been placed with various insurance carriers by the
Otterstedt Agency of which the Company's Board Chairman, Joseph C.
Parisi, is Chief Executive Officer. Gross insurance premiums in 2002
totaled $78,000.
Residential appraisals on the Company's home equity lines of
credit are conducted at the expense of the Company. Certain of those
appraisals were conducted by Gerald A. Calabrese, Jr., a
state-licensed appraiser, who is a Director of the Company. The cost
of 2002 appraisals was $40,000.
The construction company, J. Fletcher Creamer and Son, Inc.
performed certain building construction for the Company. Glenn L.
Creamer, is Treasurer and Safety Director of J. Fletcher Creamer and
Son, Inc. and serves as a Director of the Company. During 2002, the
Company paid construction costs aggregating $22,000 to J. Fletcher
Creamer and Son, Inc..
44
ITEM 14. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits.
=====================================================================
Exhibit
Number Description of Exhibits
---------------------------------------------------------------------------
(2) Agreement and Plan of Merger dated November 18, 2002 by and
between Interchange Financial Services and Bridge View Bancorp (1)
---------------------------------------------------------------------------
3(i) Certificate of Incorporation of the Company (2)
----------------------------------------------------------------------------
3(ii) Bylaws of the Company (2)
-------------------------------------------------------------------------
4(i) Form of Non-Transferable Warrant Certificate (2)
---------------------------------------------------------------------------
4(ii) Form of Stock Certificate (3)
---------------------------------------------------------------------------
10(i) Bridge View Bank 1994 Stock Option Plan (2)
---------------------------------------------------------------------------
10(ii) Bridge View Bank 1994 Stock Option Plan for Non-Employee Directors(2)
----------------------------------------------------------------------------
10(i) Bridge View Bancorp 2001 Employee Stock Option Plan (4)
----------------------------------------------------------------------------
10(ii) Bridge View Bancorp 2001 Stock Option Plan for Non-Employee
Directors (4)
----------------------------------------------------------------------------
21 Subsidiaries of the Registrant
----------------------------------------------------------------------------
23 Consent of Independent Auditors
----------------------------------------------------------------------------
27 Financial Data Schedule
----------------------------------------------------------------------------
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
============================================================================
(1) Incorporated by reference from Exhibit 2.1 to the Company's
Current Report on Form 8-K dated November 22, 2002.
(2) Incorporated by reference from Exhibits 2(a) to 6(b) from the
Company's Registration Statement on Form 10-SB, Registration No.
1-12165.
(3) Incorporated by reference from Exhibit 4(ii) from the Company's
Registration Statement on Form SB-2, Registration No. 333-20697.
(4) Incorporated by reference from Exhibit B and C from the Company's
Definitive Proxy Statement filed April 18, 2001.
(b) Reports on Form 8-K
Report on Form 8-K dated January 11, 2002
Report on Form 8-K dated November 22, 2002.
45
BRIDGE VIEW BANCORP AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report............................................ 47
Consolidated Statements of Financial Condition
as of December 31, 2002 and 2001.......................................48
Consolidated Statements of Income for the years ended December
31, 2002, 2001, and 2000.............................. 49
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2002, 2001, and 2000...................50
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001, and 2000....................................51
Notes to Consolidated Financial Statements...............................52
Explanatory Note: This Form 10-K contains certain "forward looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 which involve risks and uncertainties. Such
statements are not historical facts and include expressions about
management's confidence, strategies, and expectations about new and
existing programs, products, relationships, opportunities, technology,
and market conditions. These statements may be identified by the use
of such words as "believe," "expect," "anticipate," "should," "may,"
"potential," or similar statements or variations of such terms.
Examples of forward looking statements include, but are not limited
to, estimates with respect to the financial condition, results of
operations, and business of Bridge View Bancorp, that are subject to
various factors which could cause actual results to differ materially
from these estimates. These factors include: changes in general,
economic and market conditions, legislative and regulatory conditions,
or the development of an interest rate environment which adversely
affects Bridge View Bancorp's interest rate margin or other income
anticipated from operations and investments. As used in this Form
10-K, "we" and "us" and "our" refer to Bridge View Bancorp and its
consolidated subsidiary Bridge View Bank, depending on the context.
46
Independent Auditors' Report
The Board of Directors and Stockholders of
Bridge View Bancorp:
We have audited the accompanying consolidated statements of
financial condition of Bridge View Bancorp and subsidiaries as of
December 31, 2002 and 2001, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 2002. These consolidated
financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Bridge View Bancorp and subsidiaries as of December 31, 2002 and
2001, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
Short Hills, New Jersey
January 31, 2003
47
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 2002 and 2001
(Dollars in Thousands)
Assets 2002 2001
Cash and cash equivalents:
Cash and due from banks (note 3) $19,673 $13,771
Federal funds sold 19,500 10,500
--------------------------------------
Total cash and cash equivalents 39,173 24,271
--------------------------------------
Securities available for sale (note 4) 40,110 38,728
Investment securities, estimated market value
of
$558 in 2002 and $13,353 in 2001 (note 4) 525 13,245
Loans (note 5):
Commercial 131,299 109,978
Mortgage 29,623 19,770
Consumer and other 30,304 21,636
--------------------------------------
Total loans 191,226 151,384
Deferred loan fees (506) (471)
Allowance for loan losses (1,916) (1,605)
--------------------------------------
Net loans 188,804 149,308
--------------------------------------
Premises and equipment, net (note 6) 10,326 9,523
Accrued interest receivable 1,265 1,412
Other assets (note 8) 1,363 1,333
--------------------------------------
Total assets $281,566 $237,820
======================================
Liabilities and Stockholders' Equity
Deposits (note 7):
Noninterest-bearing demand deposits 94,034 78,894
Interest bearing deposits:
Savings and time deposits 139,396 109,150
Certificates of deposit of $100,000 or
more 17,620 21,580
--------------------------------------
Total deposits 251,050 209,624
Accounts payable and accrued liabilities 1,484 1,330
Total liabilities 252,534 210,954
--------------------------------------
Commitments and contingencies (notes 9 and 15)
Stockholders' equity (notes 12 and 14):
Capital stock , no par value. Authorized
10,000,000 shares; issued and
outstanding
3,576,344 shares in 2002 and 3,548,763
shares
in 2001 27,196 25,277
Retained earnings 1,618 1,428
Other comprehensive income(loss), net of
taxes 218 161
--------------------------------------
Total stockholders' equity 29,032 26,866
--------------------------------------
Total liabilities and
stockholders' equity $281,566 $237,820
======================================
See accompanying notes to consolidated financial statements.
48
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2002, 2001 and 2000
(Dollars in thousands, except per share data)
2002 2001 2000
Interest income:
Loans $12,010 $11,115 $11,036
Municipals - nontaxable 183 321 409
Investment securities 1,490 2,433 3,221
Federal funds sold and FHLBNY income 306 960 566
------------------------------------
Total interest income 13,989 14,829 15,232
------------------------------------
Interest expense:
Savings and time deposits 1,220 1,944 2,574
Certificates of deposit of $100,000 or more 470 1,173 1,688
Short term borrowings 1 74 28
------------------------------------
Total interest expense 1,691 3,191 4,290
------------------------------------
Net interest income 12,298 11,638 10,942
Provision for loan losses (note 5) 570 165 190
------------------------------------
Net interest income after provision
for loan
losses 11,728 11,473 10,752
Other income - principally fees and service
charges 2,522 1,907 1,501
------------------------------------
Other expenses:
Salaries and employee benefits (note 13) 4,402 3,255 2,945
Occupancy and equipment expense (note 9) 1,815 1,284 1,230
Professional fees 344 202 228
Director and stockholder expense (note 13) 537 292 244
Advertising and business promotion 115 37 18
Stationary and supplies 245 154 231
Data processing 572 469 436
FDIC expense 40 46 42
Other operating expenses 756 560 576
------------------------------------
Total other expenses 8,826 6,299 5,950
------------------------------------
Income before income taxes 5,424 7,081 6,303
Income tax expense (note 8) 2,066 2,512 2,201
------------------------------------
Net Income $3,358 $4,569 $4,102
====================================
Earnings per share: (note 11)
Basic $0.95 $1.29 $1.16
====================================
Diluted $0.91 $1.25 $1.13
====================================
All share data has been restated to reflect all stock dividends
and stock splits through the 2002 stock dividend.
See accompanying notes to consolidated financial statements.
49
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2002, 2001 and 2000
(Dollars in Thousands)
Accumulated
Other
Comprehensive
Capital Retained (Loss)income,
Stock Earnings net of tax Total
-------------------------------------------------
Balance at December 31, 1999 $ 19,035 779 (485) 19,329
Net income - 4,102 - 4,102
Other comprehensive income(loss):
Unrealized
holding losses on securities available
for
sale (net of taxes $(227)) - - 403 403
------------
Total comprehensive income - - - 4,505
5% stock dividend 2,226 (2,226) - -
Common stock issued upon exercise of stock
options 5 - - 5
Cash dividends paid - (576) - (576)
-------------------------------------------------
Balance at December 31, 2000 21,266 2,079 (82) 23,263
Net income - 4,569 - 4,569
Other comprehensive income(loss):
Unrealized
holding gains on securities available
for
sale (net of taxes $(158)) - - 243 243
------------
Total comprehensive income - - - 4,812
5% stock dividend 3,959 (3,959) - -
Common stock issued upon exercise of stock
options 52 - - 52
Cash dividends paid - (1,261) - (1,261)
-------------------------------------------------
Balance at December 31, 2001 25,277 1,428 161 26,866
Net income - 3,358 - 3,358
Other comprehensive income(loss):
Unrealized
Holding gains on securities available
for
sale (net of taxes $(75)) - - 121 121
Reclassification adjustment for gains
included in income (net of taxes of
$39) - - (64) (64)
------------
Total comprehensive income - - - 3,415
10% stock dividend 1,782 (1,782) - -
Common stock issued upon exercise of stock
options 137 - - 137
Cash dividends paid - (1,386) - (1,386)
-------------------------------------------------
Balance at December 31, 2002 $ 27,196 1,618 218 29,032
=================================================
See accompanying notes to consolidated financial statements.
50
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2002, 2001 and 2000
(Dollars in Thousands)
2002 2001 2000
Cash flows from operating activities:
Net income $3,358 $4,569 $4,102
Adjustments to reconcile net income to net cash
provided by
Operating activities:
Provision for loan losses 570 165 190
Depreciation and amortization 453 319 403
Deferred tax (benefit)expense (260) 185 (67)
Net amortization and accretion of premiums and
discounts on
investment securities (119) 25 18
Net gains from securities transactions (103) 0 0
Gains from sale of loans held for sale 0 (40) (23)
Changes in operation assets and liabilities:
Decrease(Increase) in accrued interest
receivable 147 385 (224)
(Increase)decrease in other assets (30) (586) (185)
Increase in accounts payable and accrued
liabilities 154 31 561
---------------------------
Net cash provided by operating
activities 4,170 5,053 4,775
---------------------------
Cash flows from investing activities:
Purchases of investment securities - (7,089) (17,445)
Maturities of investment securities 12,720 28,585 29,714
Maturities/calls of securities available for sale 25,177 38,085 3,000
Sale of securities available for sale 4,103 - -
Purchases of securities available for sale (30,693) (55,977) (1,600)
Net increase in loans (39,496) (17,923) (14,424)
Purchase of FHLBNY stock - - -
Purchases of premises and equipment, net (1,256) (6,074) (318)
---------------------------
Net cash used in investing activities (29,445) (20,393) (1,073)
---------------------------
Cash flows from financing activities:
Net increase in deposits 41,426 1,259 25,160
Proceeds from FHLB Advance - - 2,000
Repayment of FHLB Advance - (2,000) -
Issuance of common stock and options exercised 137 52 5
Dividends paid (1,386) (1,261) (576)
---------------------------
Net cash provided by (used in)
financing activities 40,177 (1,950) 26,589
---------------------------
Increase(decrease) in cash and cash
equivalents 14,902 (17,290) 30,291
Cash and cash equivalents at beginning of year 24,271 41,561 11,270
---------------------------
Cash and cash equivalents at end of year $39,173 $24,271 $41,561
===========================
Supplemental information:
Cash paid during the year for:
Interest $1,655 $3,394 $4,291
===========================
Income taxes $3,022 $2,861 $1,968
===========================
See accompanying notes to consolidated financial statements.
51
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
(1) Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the
accounts of Bridge View Bancorp (the Company) and its direct and
indirect wholly-owned subsidiaries, Bridge View Bank, Bridge View
Investment Company, and Bridge View Delaware, Inc. (the Bank).
Organization
The Bank is a commercial bank which provides a full range of
banking services to individuals and corporate customers in New Jersey.
The Bank is subject to competition from other financial institutions.
The Bank is regulated by state and federal agencies and is subject to
periodic examinations by those regulatory authorities.
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States of America. All significant intercompany accounts and
transactions have been eliminated. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the date of the consolidated statement of financial condition
and revenues and expenses for the year. Actual results could differ
significantly from those estimates. Certain prior period amounts have
been reclassified to conform to the financial statement presentation
of 2001. The reclassifications have no effect on stockholders' equity
or net income as previously reported.
Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the
allowance for loan losses. In connection with the determination of the
allowance for loan losses, management generally obtains independent
appraisals for significant properties.
Securities Available for Sale
Management determines the appropriate classification of securities
at the time of purchase. If management has the intent and the Bank has
the ability at the time of purchase to hold securities until maturity,
they are classified as investment securities. Securities to be held
for indefinite periods of time and not intended to be held to maturity
are classified as securities available for sale. Gains or losses on
sales of securities available for sale are based upon the specific
identification method. Securities available for sale are reported at
fair value with changes in the carrying value included in accumulated
other comprehensive income(loss) which is a separate component of
stockholders' equity.
52
Investment Securities
Investment securities are carried at the principal amount
outstanding, adjusted for amortization of premiums and accretion of
discounts using a method that approximates the level-yield method over
the terms of the securities. Investment securities are carried at the
principal amount outstanding because the Bank has the ability and the
intent to hold these securities to maturity.
Premises and Equipment
Premises and equipment are stated at historical cost, less
accumulated depreciation and amortization. Depreciation of fixed
assets is accumulated on a straight-line basis over the estimated
useful lives of the related asset. Leasehold improvements are
amortized on a straight-line basis over the shorter of their estimated
useful lives or the term of the lease. Maintenance and repairs are
charged to expense in the year incurred.
Loans
Loans are stated at their principal amount outstanding, net of
deferred loan origination fees and costs. Interest income on loans is
accrued and credited to interest income when earned. A loan which is
90 days past due is reviewed to determine whether such loan should be
placed on a nonaccrual status. A loan is placed on nonaccrual when
collection of principal and interest is deemed unlikely. Loans which
are well secured and in the process of collection are not placed on a
nonaccrual status. Once a loan is placed on nonaccrual status,
interest previously accrued and uncollected is charged against current
earnings, and interest is included in earnings thereafter to the
extent received in cash. Loan origination fees and certain direct loan
origination costs are deferred and recognized over the life of the
loan as an adjustment to yield using a method which approximates the
interest method.
Management, considering current information and events regarding
the borrowers' ability to repay their obligations, considers a loan to
be impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. When a loan is considered to be impaired, the amount of
impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or the
fair value of the collateral. Impairment losses are included in the
allowance for loan losses through provisions charged to operations.
Allowance for Loan Losses
Losses on loans are charged to the allowance for loan losses.
Additions to this allowance are made by recoveries of loans previously
charged off and by a provision charged to expense. The determination
of the balance of the allowance for loan losses is based on an
analysis of the loan portfolio, economic conditions and other factors
warranting recognition. Management believes that the allowance for
loan losses is maintained at a sufficient level to provide for losses
inherent in the loan portfolio. While management uses available
information to recognize losses on loans, future additions may be
necessary based on changes in economic conditions, particularly in New
Jersey. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Bank's allowance
for loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on their judgments about information
available to them at the time of their examination.
53
Stock-Based Compensation
Stock based compensation is accounted for under the intrinsic
value based method. Included in the Notes to Consolidated Financial
Statements are the pro forma disclosures required by Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", which assumes the fair value based method
of accounting had been adopted.
The Corporation applies APB Opinion No. 25 in accounting for its
Plans and, accordingly, no compensation cost has been recognized for
its stock options in the consolidated financial statements. Had the
Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Corporation's
net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands, except per share data):
2002 2001 2000
------------------------------------------
Net income:
As reported $3,358 $4,569 $4,102
LESS: compensation expense determined
under the fair value based method
for all awards, net of tax 482 478 245
------------------------------------------
Pro forma 2,876 4,091 3,857
==========================================
Basic earnings per share:
As reported $0.95 $1.29 $1.16
Pro forma 0.81 1.15 1.09
==========================================
Diluted earnings per share:
As reported $0.91 $1.25 $1.13
Pro forma 0.78 1.12 1.06
==========================================
54
The per share weighted-average fair values of stock options
granted during 2002, 2001, and 2000 were $18.40, $13.43 and $11.57,
respectively, on the date of grant using th e Black Scholes
option-pricing model with the following weighted-average assumptions
for 2002, 2001 and 2000, respectively : expected dividend yields of
6.00% and 3.00%, risk-free interest rates of 3.25% and 5.0%, and
expected lives of five years.
Income Taxes
The Bank uses the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Earnings Per Share
Basic Earnings Per Share excludes dilution and represents the
effect of earnings upon the weighted average number of shares
outstanding for the period. Diluted Earnings Per Share reflects the
effect of earnings upon weighted average shares including the
potential dilution that could occur if securities or contracts to
issue common stock were converted or exercised, utilizing the treasury
stock method. All per share data has been restated to reflect changes
due to stock dividends.
Comprehensive Income
Comprehensive income consists of net income or loss for the
current period and income, expenses, or gains and losses that bypass
the income statement and are reported directly as a separate component
of equity. The Company includes the required disclosures in the
consolidated statements of stockholders' equity.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks and
federal funds sold, which are generally sold for one-day periods.
55
(2) Formation of Bank Holding Company and Exchange of Common Stock
The Company is a New Jersey corporation organized in May 1996 at
the direction of the Board of Directors of the Bank for the purpose of
acquiring all of the capital stock of the Bank. As part of the
acquisition in December 1996, shareholders of the Bank received shares
of the Company's common stock, no par value per share (the Common
Stock), in a ratio of two shares of Common Stock for each outstanding
share of the Common Stock of the Bank, $5.00 per share par value. The
acquisition was accounted for in a manner similar to a pooling of
interest resulting in no changes in the underlying assets and
liabilities.
(3) Cash on Hand and Due from Banks
Included in cash on hand and due from banks at December 31, 2002
and 2001 was $0.1 million and $0.1 million, respectively, representing
reserves required to be maintained at the Federal Reserve Bank of New
York.
(4) Securities Available for Sale and Investment Securities
A comparative summary of securities available for sale at December
31, 2002 and 2001 is as follows (in thousands):
Gross Gross
AmortizedCostUnrealizedUnrealized Market
2002 Gains Losses Value
- ------------------------------- -------------------------------------------
U.S. Government and
Agency obligations $ 29,322 502 0 $29,824
Municipal and state obligations 9,536 0 0 9,536
FHLBNY stock 431 0 0 431
Other equity securities 469 0 (150) 319
-------------------------------------------
Total available for sale $39,758 502 (150) $40,110
===========================================
2001
- -------------------------------
U.S. Government and
Agency obligations $ 34,702 385 ( 7) $35,080
Municipal and state obligations 2,878 0 0 2,878
FHLBNY stock 430 0 0 430
Other equity securities 469 0 (129) 340
-------------------------------------------
Total available for sale $38,479 385 (136) $38,728
===========================================
56
A comparative summary of held to maturity investment securities at
December 31, 2002 and 2001 is as follows (in thousands):
Gross Gross
Amortized Cost Unrealized Unrealized Market
2002 Gains Losses Value
- ------------------------------- -------------------------------------------
U.S. Government and
Agency obligations $ 525 33 0 $ 558
-------------------------------------------
Total held to maturity $525 33 0 $558
===========================================
2001
- -------------------------------
U.S. Government and
Agency obligations $ 8,573 109 0 $ 8,682
Municipal and state obligations 4,672 0 (1) 4,671
-------------------------------------------
Total held to maturity $13,245 109 (1) $13,353
===========================================
Debt investment securities held at December 31, 2002 mature as
follows (in thousands):
Securities Securities
Held to Maturity Available for Sale
Amortized Market Amortized Market
Cost Value cost Value
----------- ----------- ----------- -----------
Within one year - - $14,557 $14,698
One to five years 525 558 22,196 22,518
Over five years - - 2,105 2,144
----------- ----------- ----------- -----------
$ 525 $ 558 $38,858 $39,360
=========== =========== =========== ===========
For the year ended December 31, 2002, the Company sold one
security with a carrying amount of $4,102,500 and recognized a gain of
$102,500 from the transaction. For the years ended December 31, 2001
and 2000, respectively, there were no sales of securities.
Securities with an amortized cost of $2.1 million and $2.1
million, respectively, were pledged to secure public funds on deposit
at December 31, 2002 and 2001.
The Bank is a member of the Federal Home Loan Bank of New York
(FHLBNY). As a result, the Bank is required to hold shares of capital
stock of FHLBNY, which are carried at cost, based upon a specified
formula. The Bank has an $11,864,000 line of credit with the FHLBNY
which is renewable each year. The interest rate is variable and
generally at 10 basis points above the federal funds rate. At December
31, 2002, no amount was outstanding under this line of credit.
57
(5) Loans and Allowance for Loan Losses
The activity in the allowance for loan losses is as follows (in
thousands):
2002 2001 2000
---------------------------------
Balance at beginning of year $1,605 $1,473 $1,310
Provision charged to expense 570 165 190
Loans charged off (276) (55) (29)
Recoveries 17 22 2
---------------------------------
Balance at end of year $1,916 $1,605 $1,473
=================================
There were no impaired loans at December 31, 2002 and 2001. As of
December 31, 2002 and 2001, respectively, the Company had no
non-accrual loans compared to one non-accrual loan for $25,000 at
December 31, 2000.
The Company grants commercial, mortgage and installment loans to
those New Jersey residents and businesses within its local trading
area. Its borrowers' abilities to repay their obligations are
dependent upon various factors, including the borrowers' income and
net worth, cash flows generated by the underlying collateral, value of
the underlying collateral and priority of the Company's lien on the
property. Such factors are dependent upon various economic conditions
and individual circumstances beyond the Company's control; the Company
is therefore subject to risk of loss. The Company believes its lending
policies and procedures adequately minimize the potential exposure to
such risks and that adequate provisions for loan losses are provided
for all known and inherent risks.
58
(6) Premises and Equipment, net
At December 31, premises and equipment consists of the following
(in thousands):
2002 2001
---------------------------------------------------
Land $4,330 $4,330
Building 4,984 4,867
Furniture and equipment 2,606 1,631
Leasehold improvements 1,071 907
---------------------------------------------------
12,991 11,735
Less accumulated depreciation and
amortization 2,665 2,212
---------------------------------------------------
Total premises and equipment, net $10,326 $9,523
===================================================
During, 2002, the Bank received regulatory approval to open and
operate four new branches. The branches were opened at the following
locations: 35 North Washington Avenue, Bergenfield, New Jersey; 819
Teaneck Road, Teaneck, New Jersey; 245 Main Street, Ridgefield Park,
New Jersey; and 85 Jefferson Avenue, Westwood, New Jersey; all in
Bergen County, New Jersey.
Depreciation expense amounted to $453,000, $319,000, and $403,000
for the years ended December 31, 2002, 2001, and 2000, respectively.
59
(7) Deposits
At December 31, a summary of the maturity of certificates of
deposit is as follows(in thousands):
2002 2001
Certificates of deposit maturing:
One year or less $ 52,808 $ 39,975
One to three years 2,693 555
Over three years 123 0
Total certificates of deposit $ 55,624 $ 40,530
(8) Income Taxes
Income tax expense from operations for the years ended December 31
is as follows (in thousands):
2002 2001 2000
---------------------------------
Federal:
Current $1,931 $1,901 $2,052
Deferred (224) 225 (57)
---------------------------------
1,707 2,126 1,995
---------------------------------
State:
Current 395 426 216
Deferred (36) (40) (10)
---------------------------------
359 386 206
---------------------------------
$2,066 $2,512 $2,201
=================================
Total income tax expense for the years ended December 31 is
allocated as follows (in thousands):
2002 2001 2000
---------------------------------
Income tax expense from operations $2,066 $2,512 $2,201
Stockholders' equity - unrealized gain on
Securities available for sale 36 158 227
---------------------------------
$2,102 $2,670 $2,428
=================================
Income tax expense from operations differed from the amounts
computed by applying the U.S. federal income tax rate (38% in 2002,
34% in 2001 and 2000) to income taxes as a result of the following (in
thousands):
2002 2001 2000
---------------------------------
Computed "expected" tax expense $1,844 $2,408 $2,143
Increase(decrease) in taxes resulting from:
State taxes, net of federal income tax
benefit 237 255 136
Tax-exempt income (62) (109) (139)
Other 47 (42) 61
---------------------------------
$2,066 $2,512 $2,201
----------------------===========
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities as of December 31, 2002 and 2001 are as follows (in
thousands):
2002 2001
Deferred tax assets:
Bank premises, furniture and equipment,
principally due to differences in depreciation $ 197 154
Deferred compensation 184 87
Loans, principally due to allowance for loan
losses and deferred fee income 723 621
Other 19 8
Total gross deferred tax assets 1,123 870
Deferred tax liabilities:
Deferred fee income 4 15
Unrealized gains on securities available
for sale 98 62
Investment securities, principally due to
accretion of discounts 21 17
Total gross deferred tax liabilities 123 94
Net deferred tax asset $1,000 $ 776
At December 31, 2002, management believes that no valuation
allowance for the deferred tax asset is necessary due to sufficient
taxes paid in the statutory carryback period.
60
(9) Leases
The Company leases banking facilities under operating leases which
expire at various dates through 2012, containing certain renewal
options. Rental expense amounted to $665,000, $562,000 and $521,000
for the years ended December 31, 2002, 2001, and 2000, respectively.
The following is a schedule of future minimum lease payments
(exclusive of payments for maintenance, insurance, taxes and
additional rental payments based on increases in certain indexes) for
operating leases with initial or remaining terms in excess of one year
from December 31, 2002 (in thousands):
Year ending December 31:
2003 $ 645
2004 611
2005 584
2006 565
2007 549
Thereafter 3,055
(10) Related-party Transactions
Certain directors of the Bank are associated with professional
firms that rendered various professional services for the Bank. The
Bank paid the firms, excluding rental payments, approximately
$255,000, $199,000 and $133,000 during the years ended December 31,
2002, 2001 and 2000, respectively. It is the Bank's policy not to
originate loans to directors, executive officers or their affiliates.
61
(11) Earnings Per Share Reconciliation
The Company's calculation of earnings per share is as follows:
Year Ended December 31,
2002 2001 2000
(in thousands, except per share data)
Basic earnings per share :
Net Income $3,358 $4,569 $4,102
Average number of shares outstanding 3,552 3,549 3,534
Basic earnings per share $ 0.95 $ 1.29 $ 1.16
Diluted earnings per share :
Net Income $3,358 $4,569 $4,102
Average number of shares of common
stock and equivalents outstanding:
Average common shares outstanding 3,552 3,549 3,534
Additional shares considered in
diluted computation assuming :
Exercise of options and warrants 130 100 96
Average number of shares outstanding
on a diluted basis 3,682 3,649 3,630
Diluted earnings per share $ 0.91 $ 1.25 $ 1.13
62
(12) Stockholders' Equity and Dividend Restrictions
The Bank declared a two for one stock split effective December 1,
1997 and December 6, 1996 as well as 10% stock dividends effective
March 5, 2002 and March 1, 2001 as well as 5% stock dividends effective
March 30, 2000, April 1, 1999, April 3, 1998, April 1, 1997, April 1,
1996, April 1, 1995, and February 28, 1994.
The Company's ability to pay cash dividends is based on its
ability to receive cash from its bank subsidiary. New Jersey law
provides that no dividend may be paid unless, after the payment of
such dividend, the capital of the Bank will not be impaired and either
the Bank will have statutory surplus of not less than 50% of its
capital stock or the payment of such dividend will not reduce the
statutory surplus of the Bank. At December 31, 2002, this restriction
did not result in any effective limitations on the manner in which the
Bank is currently operating.
(13) Benefit Plans
During 1994, the Company's stockholders approved the 1994 Stock
Option Plan for Non Employee Directors (Directors' Plan) and the 1994
Employee Stock Option Plan (Employees' Plan). The Directors' Plan
provided for options to purchase up to 153,489 shares of the Company's
common stock to be issued to directors who are not employees of the
Company. The Employees' Plan provided for options to purchase up to
153,489 shares of the Company's common stock to be issued to employees
of the Company. Previously issued options to an employee of the
Company were terminated upon adoption of these plans. The option price
per share approximates the market value of the Company's stock on the
date of grant. At December 31, 2002, 131,538 granted options to
purchase shares remain outstanding under the Directors' Plan and
47,092 granted options are outstanding under the Employees' Plan.
During 1998, the Company's stockholders approved the adoption of
an additional stock option plan for non-employee directors of the
Company (the 1998 Stock Option Plan). The 1998 Stock Option Plan
authorized the granting of 200,103 options to purchase shares of the
Company's common stock to individuals who were then directors of
Bridge View Bancorp. During 1998, 186,760 options were granted to
non-employee directors. At December 31, 2002, 186,760 granted options
to purchase shares remain outstanding under the Directors' Plan and
30,146 granted options are outstanding under the Employees' Plan.
During 2001, the Company's stockholders approved the 2001 Stock
Option Plan for Non-Employee Directors ("2001 Directors Plan") and the
2001 Employee Stock Option Plan ("2001 Employee Plan"). The 2001
Directors Plan provided for options to purchase up to 141,930 shares
of the Company's common stock to be issued to directors who are not
employees of the Company. The 2001 Employee Plan provided for options
to purchase up to 141,930 shares of the Company's common stock to be
issued to employees of the Company. The option price per share
approximates the market value of the Company's stock on the date of
the grant. At December 31, 2002, 140,637 granted options to purchase
shares remain outstanding under the 2001 Directors Plan and 33,591
granted options are outstanding under the 2001 Employee Plan.
63
(13) Benefit Plans, continued
A summary of the stock option plans for the years ended December
31, 2001, 2000, and 1999 is as follows:
Number
Of Option Price
Shares Per Share
-------------- -----------------
Outstanding at December 31, 1999 417,115 3.16 - 20.06
Granted 3,025 12.19
Forfeited - -
Exercised (1,335) 3.91
--------------
Outstanding at December 31, 2000 418,805 3.16 - 20.06
Granted 175,994 11.57 - 13.64
Forfeited - -
Exercised - -
Outstanding at December 31, 2001 594,799 3.16 - 20.06
Granted 2,500 18.40
Forfeited - -
Exercised (27,535) -
--------------
Outstanding at December 31, 2002 569,764 3.16 - 20.06
At December 31, 2002, 2001, and 2000, the number of options
outstanding was 569,764, 594,799, and 418,805, respectively, and the
weighted-average price of those options was $12.72, $12.47, and
$11.76, respectively.
During 2002, 2,500 options were granted. During 2001, 175,994
options were granted. During 2000, 3,025 options were granted.
The Company currently offers a 401(k) profit sharing plan (the
Plan) covering all full-time employees, wherein employees can invest
up to 15% of their pretax earnings. The Company matches a percentage
of employee contributions at the Board's discretion. The Company made
matching contributions of $55,000, $46,000, and $38,000 in the years
ended December 31, 2002, 2001, and 2000, respectively.
During 1998, the Company provided its directors with a Director
Retirement Plan. The Plan provides for a retirement benefit payable
over a 5 year period or a death benefit to be provided to the
director's beneficiaries. During 2002, 2001, and 2000, the amount
charged to expense related to the Retirement Plan was $526,000,
$135,000, and $118,000, respectively.
64
(14) Regulatory Capital Requirements
Federal Deposit Insurance Corporation (FDIC) regulations require
banks to maintain minimum levels of regulatory capital. Under the
regulations in effect at December 31, 2002, the Bank was required to
maintain (i) a minimum leverage ratio of Tier I capital to total
adjusted assets of 4.0%, and (ii) minimum ratios of Tier I and total
capital to risk-weighted assets of 4.0% and 8.0%, respectively.
Under its prompt corrective actions regulations, the FDIC is
required to take certain supervisory actions (and may take additional
discretionary actions) with respect to an undercapitalized
institution. Such actions could have a direct material effect on the
institution's financial statements. The regulations establish a
framework for the classification of savings institutions into five
categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Generally, an institution is considered well
capitalized if it has a leverage (Tier I) capital ratio of at least
5.0%; a Tier I risk-based capital ratio of at least 6.0%; and a total
risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific
quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to
qualitative judgments by the FDIC about capital components, risk
weightings and other factors.
Management believes that, as of December 31, 2002, the Bank meets
all capital adequacy requirements to which it is subject. Further, the
most recent FDIC notification categorized the Bank as a
well-capitalized institution under the prompt corrective action
regulations. There have been no conditions or events since that
notification that management believes have changed the Bank's capital
classification.
The following is a summary of the Bank's actual capital amounts
and ratios as of December 31, 2002 and 2001, compared to the FDIC
minimum capital adequacy requirements and the FDIC requirements for
classification as a well-capitalized institution:
FDIC requirements
-----------------------------------------
Minimum capital For classification
Bank actual adequacy as well capitalized
-------------------- -----------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------- ------------------- -------------------
December 31, 2002:
Leverage (Tier I)
Capital $28,814 10.40% $11,081 4.00% $13,852 5.00%
Risk-based capital:
Tier I 28,814 14.46 7,972 4.00 11,958 6.00
Total 30,730 15.42 15,944 8.00 19,930 10.00
December 31, 2001:
Leverage (Tier I)
Capital $26,621 11.43% $9,313 4.00% $11,642 5.00%
Risk-based capital:
Tier I 26,621 16.27 6,531 4.00 9,829 6.00
Total 28,226 17.25 13,106 8.00 16,382 10.00
65
(15) Commitments and Contingencies
The Bank is a party to transactions with off-balance-sheet risk in
the normal course of business in order to meet the financing needs of
its customers. These transactions consist of commitments to extend
credit and involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
accompanying consolidated statements of financial condition.
The Bank uses the same credit policies and collateral requirements
in making commitments and conditional obligations as it does for
on-balance-sheet loans. Commitments to extend credit are agreements to
lend to customers as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a fee. Since the commitments may expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the borrower. Outstanding available
loan commitments, primarily variable rate home equity loans, at
December 31, 2002 and 2001 totaled $22.6 million and $35.6 million,
respectively. Additionally, unused credit card commitments totaled
$1,125,000 at December 31, 2002.
66
(15), Continued
Most of the Company's lending activity is with customers located
in Bergen County, New Jersey. At December 31, 2002 and 2001,
respectively, the Company had outstanding letters of credit to
customers totaling $1,272,000 and $1,376,000 whereby the Company
guarantees performance to a third party. These letters of credit
generally have fixed expiration dates of one year or less.
(16) Financial Information of Parent Company
The following information on the parent only financial statements
as of December 31, 2002 and 2001 and for the years then ended should
be read in conjunction with the notes to the consolidated financial
statements.
Statement of Financial Condition
(in thousands)
December 31,
2002 2001
(in thousands)
Assets:
Cash and due from subsidiary $1,053 $919
Equity securities 340 340
Investment in subsidiary 27,608 25,576
Other assets 52 52
--------------------------------------
Total assets $29,053 $26,887
======================================
Liabilities:
Due to subsidiary $21 $21
Stockholders' equity:
Common stock 27,196 25,277
Other comprehensive (loss)income, net
of taxes 218 161
Retained earnings 1,618 1,428
--------------------------------------
Total stockholders' equity 29,032 26,866
--------------------------------------
Total liabilities and
stockholders'
Equity $ 29,053 $ 26,887
======================================
67
(16), Continued
Statement of Income
(in thousands)
For the years ended
December 31,
2002 2001 2000
Dividend income from subsidiary $1,383 $1,257 $576
Expenses 0 0 0
---------------------------------------------------------
Income before equity in undistributed
earnings of subsidiary bank 1,383 1,257 576
Equity in undistributed
earnings of subsidiary bank 1,975 3,312 3,526
---------------------------------------------------------
Net income $3,358 $4,569 $4,102
=========================================================
Statement of Cash Flow
(in thousands)
For the years ended
December 31,
2002 2001 2000
Cash flows from operating activities:
Net income $3,358 $4,569 $4,102
Adjustments to reconcile net income to
net cash
provided by operating activities:
Equity in undistributed earnings
of the
subsidiary bank (1,975) (3,312) (3,526)
Decrease in other assets, net 0 4 0
---------------------------------------------------------
Net cash provided by
operating activities 1,383 1,261 576
Cash flows from investing activities:
Purchases of securities - - -
---------------------------------------------------------
Net cash provided by financing
activities - - -
Cash flows from financing activities:
Dividends paid (1,386) (1,261) (576)
Proceeds from exercise of options 137 52 5
---------------------------------------------------------
Net cash (used in)provided by
financing
Activities (1,249) (1,209) (571)
Net change in cash for the period 134 52 5
Net cash at beginning of year 919 867 862
---------------------------------------------------------
Net cash at end of year $1,053 $919 $867
=========================================================
68
(17) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments," requires that the Bank
disclose the estimated fair value of its financial instruments whether
or not recognized in the consolidated balance sheet. Fair value
estimates and assumptions are set forth below for the Bank's financial
instruments at December 31, 2002 and 2001 (in thousands):
2002 2001
-------------------------------------------
Esti- Esti-
Carry- mated Carry- Mated fair
ing amount fair ing amount value
value
-------------------------------------------
Financial assets:
Cash and cash equivalents $ 39,173 39,173 24,271 24,271
Securities available for sale 40,110 40,110 38,728 38,728
Investment securities 525 558 13,245 13,353
Net loans 188,804 192,766 149,308 154,334
Financial liabilities:
Deposits 251,050 251,451 209,624 209,824
Short term borrowings - - - -
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value.
Securities Available for Sale
All securities available for sale are valued using quoted market
prices.
Investment Securities
All investment securities are valued using quoted market prices.
Net Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type, such as
residential and commercial real estate, commercial and other consumer.
The fair value of loans is estimated by discounting contractual cash
flows using estimated market discount rates which reflect the credit
and interest rate risk inherent in the loans.
69
(17), Continued
Deposits
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, is equal to the amount payable on
demand as of year end. The fair value of certificates of deposit is
based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently offered for deposits of
similar remaining maturities.
Short term borrowings
The carrying amount approximates fair value.
Commitments to Extend Credit
The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements; at December 31, 2002
and 2001, such amounts were not material.
Limitation
The preceding fair value estimates were made at December 31, 2002
and 2001, based on pertinent market data and relevant information on
the financial instrument. These estimates do not include any premium
or discount that could result from an offer to sell at one time the
Bank's entire holdings of a particular financial instrument or
category thereof. Since no market exists for a substantial portion of
the Bank's financial instruments, fair value estimates were
necessarily based on judgments regarding future expected loss
experience, current economic conditions, risk assessment of various
financial instruments, and other factors. Given the innately
subjective nature of these estimates, the uncertainties surrounding
them and the matter of significant judgment that must be applied,
these fair value estimates cannot be calculated with precision.
Modifications in such assumptions could meaningfully alter these
estimates.
Since these fair value approximations were made solely for on- and
off-balance-sheet financial instruments at December 31, 2002 and 2001,
no attempt was made to estimate the value of anticipated future
business. Furthermore, certain tax implications related to the
realization of the unrealized gains and losses could have a
substantial impact on these fair value estimates and have not been
incorporated into the estimates.
70
(18) Quarterly Financial Data (unaudited)
The following represents summarized unaudited quarterly financial data of
the Company which, in the opinion of management, reflects adjustments
(comprising only normal recurring accruals) necessary for fair presentation.
Three Months Ended
(in thousands, except per share data)
December 31 September 30 June 30 March 31
2002
Interest income $ 3,672 $ 3,495 $ 3,463 $ 3,359
Interest expense 479 395 412 405
Net interest income 3,193 3,100 3,051 2,954
Provision for loan losses 240 120 150 60
Other expense, net 2,123 1,525 1,330 1,326
Provision for federal and state
income taxes 330 668 535 533
Net income $ 500 $ 787 $ 1,036 $ 1,035
Net earnings per share:
Basic $ 0.14 $ 0.22 $ 0.29 $ 0.29
Diluted $ 0.14 $ 0.21 $ 0.28 $ 0.28
2001
Interest income $ 3,515 $ 3,711 $ 3,750 $ 3,853
Interest expense 495 694 872 1,130
Net interest income 3,020 3,017 2,878 2,723
Provision for loan losses 65 60 30 10
Other expense, net 966 1,047 1,173 1,206
Provision for federal and state
income taxes 730 668 587 527
Net income $ 1,259 $ 1,242 $ 1,088 $ 980
Net earnings per share:
Basic $ 0.36 $ 0.38 $ 0.31 $ 0.27
Diluted $ 0.35 $ 0.37 $ 0.30 $ 0.27
71
(19) 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.
72
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.
SFAS No. 148
In December, 2002, FASB issued Statement of Financial Accounting
Standards Statement No. 148, "Accounting for Stock-Based Compensation,
Transition and Disclosure." Statement No. 148 provides alternative
methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. Statement
No. 148 also requires that disclosures of the pro forma effect of
using the fair value method of accounting for stock-based employee
compensation be displayed more prominently and in a tabular format.
Additionally, Statement No. 148 requires disclosure of the pro forma
effect in interim financial statements. The additional disclosure
requirements of Statement No. 148 are effective for fiscal years ended
after December 15, 2002. The Company has adopted the expanded
disclosure provisions of this statement effective December 31, 2002.
(20) Subsequent Event (unaudited)
The Company has entered into an agreement to merge with and into
Interchange Financial Services Corporation, with Bridge View Bank
merging with and into Interchange Bank. This agreement is presently
subject to regulatory approval and shareholder approval of both Bridge
View Bancorp and Interchange Financial Services Corporation and is
anticipated to close in second quarter 2003.
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BRIDGE VIEW BANCORP
By: /s/ Albert F. Buzzetti
--------------------------
Albert F. Buzzetti
President and CEO
Dated : March 20, 2003
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
=========================================
Name Title Date
/s/ Albert F. Buzzetti
---------------------
Albert F. Buzzetti President, Chief March 20, 2003
Executive Officer and
Director
/s/ Gerald A. Calabrese
-----------------------
Gerald A. Calabrese Director March 20, 2003
/s/ Glenn L. Creamer
--------------------
Glenn L. Creamer Director March 20, 2003
/s/ Mark Metzger
----------------
Mark Metzger Director March 20, 2003
/s/ Jeremiah F. O'Connor
------------------------
Jeremiah F. O'Connor Director March 20, 2003
/s/ Joseph C. Parisi
--------------------
Joseph C. Parisi Director March 20, 2003
/s/ John A. Schepisi
--------------------
John A. Schepisi Director March 20, 2003
74
INDEX TO EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits.
=====================================================================
Exhibit
Number Description of Exhibits
----------------------------------------------------------------------------
(3) Agreement and Plan of Merger dated November 18, 2002 by and
between Interchange Financial Services and
Bridge View Bancorp(1)
----------------------------------------------------------------------------
3(i) Certificate of Incorporation of the Company (2)
----------------------------------------------------------------------------
3(ii) Bylaws of the Company (2)
----------------------------------------------------------------------------
4(i) Form of Non-Transferable Warrant Certificate (2)
----------------------------------------------------------------------------
4(ii) Form of Stock Certificate (3)
----------------------------------------------------------------------------
10(i) Bridge View Bank 1994 Stock Option Plan (2)
----------------------------------------------------------------------------
10(ii) Bridge View Bank 1994 Stock Option Plan for Non-Employee
Directors (2)
----------------------------------------------------------------------------
10(i) Bridge View Bancorp 2001 Employee Stock Option Plan (4)
----------------------------------------------------------------------------
10(ii) Bridge View Bancorp 2001 Stock Option Plan for Non-Employee
Directors (4)
----------------------------------------------------------------------------
21 Subsidiaries of the Registrant
----------------------------------------------------------------------------
23 Consent of Independent Auditors
----------------------------------------------------------------------------
28 Financial Data Schedule
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98 Certifications pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
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99 Certifications pursuant to Item 307 of SEC Regulations S-K and
S-B
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(5) Incorporated by reference from Exhibit 2.1 to the Company's Current
Report on Form 8-K dated November 22, 2002.
(6) Incorporated by reference from Exhibits 2(a) to 6(b) from the
Company's Registration Statement on Form 10-SB, Registration No.
1-12165.
(7) Incorporated by reference from Exhibit 4(ii) from the Company's
Registration Statement on Form SB-2, Registration No. 333-20697.
(8) Incorporated by reference from Exhibit B and C from the Company's
Definitive Proxy Statement filed April 18, 2001.
(b) Reports on Form 8-K
Report on Form 8-K dated January 11, 2002
Report on Form 8-K dated November 22, 2002.
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EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The Registrant has one subsidiary, Bridge View Bank.
Bridge View Bank has one wholly-owned subsidiary, Bridge View Investment
Company.
Bridge View Investment Company has one wholly-owned subsidiary, Bridge View
Delaware, Inc..
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EXHIBIT 23
Independent Auditors' Consent
The Board of Directors
Bridge View Bancorp :
We consent to the incorporation by reference in Registration Statement
No.333-19741 on Form S-8 of Bridge View Bancorp of our report dated January 31,
2003, relating to the consolidated statements of financial condition of Bridge
View Bancorp and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 2002, which report
appears in the Annual Report on Form 10-K of Bridge View Bancorp for the year
ended December 31, 2002.
/s/ KPMG LLP
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Short Hills, New Jersey
March 20, 2003
77
Exhibit 98
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Albert F. Buzzetti and Michael Lesler hereby
jointly certify as follows:
(a) They are the Chief Executive Officer and the Chief Financial Officer,
respectively, of Bridge View Bancorp (the "Company");
(b) To the best of their knowledge, the Company's Annual Report on Form
10-K for the year ended December 31, 2002 (the "Report") complies in
all material respects with the requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended; and
(c) To the best of their knowledge, based upon a review of the Report, the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company
/s/ Albert F. Buzzetti
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Albert F. Buzzetti
President and Chief Executive Officer
Date: March 20, 2003
/s/ Michael Lesler
----------------------
Michael Lesler
Senior Vice President and
Chief Financial Officer
Date: March 20, 2003
78
CERTIFICATIONS PURSUANT TO ITEM 307 OF
SEC REGULATIONS S-K AND S-B
I, Albert F. Buzzetti, President, certify that:
1. I have reviewed this annual report on Form 10-K of Bridge View Bancorp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Albert F. Buzzetti
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Albert F. Buzzetti
President and Chief Executive Officer
Date: March 20, 2003
79
CERTIFICATIONS PURSUANT TO ITEM 307 OF
SEC REGULATIONS S-K AND S-B
I, Michael Lesler, Senior Vice President, certify that:
1. I have reviewed this annual report on Form 10-K of Bridge View Bancorp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Michael Lesler
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Michael Lesler
Senior Vice President and
Chief Financial Officer
Date: March 20, 2003
80