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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(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, 1997
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________ to
_____________.
Commission file number : 1-12165
Bridge View Bancorp
(Exact name of registrant as specified in its charter)
New Jersey 22-3461336
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
457 Sylvan Avenue, Englewood Cliffs, NJ 07632
(Address of principal executive offices) (Zip Code)
201-871-7800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class: Name of each exchange on which registered:
Common Stock, No Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the Issuer: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days. YES (X) NO___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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-KSB or any amendments to
this Form 10-KSB. ( )
The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of February 28, 1998 was $61,645,000.
The number of shares of the Issuer's Common Stock, no par value, outstanding
as of February 28, 1998 was 2,521,840.
For the fiscal year ended December 31, 1997, the Issuer had total revenues of
$11,044,000.
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DOCUMENTS INCORPORATED BY REFERENCE
10-KSB Item Document Incorporated
- --------------------------------------------------------------------------------
Item 9. Directors and Executive Proxy Statement for 1998
Officers of the Company; Annual Meeting of
Compliance with Section 16(a) Shareholders to be filed no
Of the Exchange Act later than April 29, 1998.
- --------------------------------------------------------------------------------
Item 10. Executive Compensation Proxy Statement for 1998
Annual Meeting of
Shareholders to be filed no
later than April 29, 1998.
- --------------------------------------------------------------------------------
Item 11. Security Ownership of Certain Proxy Statement for 1998
Beneficial Owners and Annual Meeting of
Management Shareholders to be filed no
later than April 29, 1998.
- --------------------------------------------------------------------------------
Item 12. Certain Relationships and Proxy Statement for 1998
Related Transactions Annual Meeting of
Shareholders to be filed no
later than April 29, 1998.
- --------------------------------------------------------------------------------
2
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TABLE OF CONTENTS
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PAGE
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PART I
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Item 1. Description of Business 4
Item 2. Description of Property 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of 10
Security Holders
PART II
Item 5. Market for Registrant's Common Equity and 10
Related Stockholder Matters
Item 6. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
Item 7. Financial Statements and Supplementary Data 32
Item 8. Changes In and Disagreements with Accountants 32
on Accounting and Financial Disclosures
PART III
Item 9. Directors and Executive Officers of the Registrant 33
Item 10. Executive Compensation 33
Item 11. Security Ownership of Certain Beneficial 33
Owners and Management
Item 12. Certain Relationships and Related Transactions 33
PART IV
Item 13. Exhibits and Financial Statement Schedules 34
</TABLE>
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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 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 three branch offices
located at 1605 Lemoine Avenue, Fort Lee, New Jersey, 07024, 115 River Road,
Edgewater, New Jersey, 07020, and 899 Palisade Avenue, Fort Lee, New Jersey,
07024. The Bank has secured regulatory approval for a branch office at 77
River Street, Hackensack, NJ 07601 and intends to apply for permission to open
a branch office at 20 West Railroad Avenue, Tenafly, NJ 07650.
The Company 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 Company are located at
457 Sylvan Avenue, Englewood Cliffs, New Jersey, 07632, and the telephone
number is (201) 871 - 7800.
Business of the Company
The Company's primary business is ownership and supervision of the Bank. The
Company, through the Bank, conducts a traditional commercial banking business,
accepting deposits from the general public, including individuals, businesses,
non-profit corporations, and governmental units within its trade area. 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 mainly 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
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depository services. The Bank believes that the following attributes have
attracted local business people and residents:
o Competitively priced services;
o Direct access to Bank management by members of the community, whether
during or after business hours;
o Strategically located branch offices;
o Full service business hours of 7:00 am to 7:00 pm weekdays and 9:00 am to
1:00 pm Saturdays;
o Local conditions and needs are taken into account when deciding loan
applications and making other business decisions affecting members of the
community;
o Responsiveness to requests for information and services by depositors and
others; and
o Positive involvement in the community affairs of eastern Bergen County.
Since opening in 1990, the Bank has established three branches in addition to
its main office. The Bank expects to continue to seek additional strategically
located de novo branch locations within Bergen County and expects to open two
additional branch offices during 1998. Particular emphasis will be placed on
presenting an alternative banking culture in communities which are dominated
by non-local competitors and where no community banking approach exists or in
locations which the Company perceives to be economically emerging.
Service Area
The Company's service area primarily consists of the greater area of Bergen
County, New Jersey. The Company operates its main office in Englewood Cliffs,
New Jersey and three branch offices in Fort Lee(2) and Edgewater, New Jersey.
Future branches are planned in Hackensack and Tenafly; both in Bergen County,
NJ.
Competition
The Company operates in a highly competitive environment competing for
deposits and loans with commercial banks, thrifts, and other financial
institutions, many of which have greater financial resources than the Company.
Many large financial institutions in New York City and other parts of New
Jersey compete for the business of New Jersey residents located in the
Company's service area. Certain of these institutions have significantly
higher lending limits than the Company and provide services to their customers
which the Company does not offer. In addition, the Company's competitors
generally have established positions in the Service Area and have greater
resources than the Company with which to pay for advertising, physical
facilities, personnel, and interest on deposited funds.
Management believes the Company is able to compete on a substantially equal
basis with its competitors because it provides responsive personalized
services through its knowledge and awareness of the Company's service area,
customers, and business.
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Employees
At December 31, 1997, the Company employed forty-four full-time employees and
five part-time employees. None of these employees is covered by a collective
bargaining agreement. The Company believes that its employee relations remain
good.
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.
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There are a number of obligations and restrictions imposed on banking 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.
Capital Adequacy Guidelines for Bank Holding Companies.
The FRB has adopted risk-based capital guidelines for bank holding companies.
The risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and
bank holding companies to account for off-balance sheet exposure and to
minimize disincentives for holding liquid assets. Under these guidelines,
assets and off-balance sheet items are assigned to broad risk categories each
with appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The risk-based guidelines apply on a consolidated basis to bank holding
companies with consolidated assets of $150 million or more. For bank holding
companies with less than $150 million in consolidated assets, the guidelines
will be applied on a bank-only basis: unless (a) the parent bank holding
company is engaged in non-bank activity involving significant leverage, or (b)
the parent company has a significant amount of outstanding debt that is held
by the general public. The minimum ratio or total capital to risk-weighted
assets (including certain off-balance sheet activities, such as standby
letters of credit)is 8%. At least 4% of the total capital is required to be
"Tier I", consisting of common stockholders' equity and certain preferred
stock, less certain goodwill items and other intangible assets. The remainder,
"Tier II Capital", may consist of (a) the allowance for loan losses of up to
1.25% of risk-weighted assets, (b) excess of qualifying preferred stock, ( c)
hybrid capital instruments, (d) debt, (e) mandatory convertible securities,
and (f) qualifying subordinated debt. Total capital is the sum of Tier I and
Tier II capital less reciprocal holdings of other banking organizations'
capital instruments, investments in unconsolidated subsidiaries and any other
deductions as determined by the FRB (determined on a case-by-case basis or as
a matter of policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50%, and 100%.
In addition, certain off-balance sheet items are given similar credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations
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result in the total risk-weighted assets. Most loans are assigned to the 100%
risk category, except for performing first mortgage loans fully secured by
residential property which carry a 50% risk-weighting. Most investment
securities (including, primarily, general obligation claims of states or other
political subdivisions of the United States) are assigned to the 20% category,
except for municipal or state revenue bonds, which have a 50% risk-weight, and
direct obligations of the U.S. Treasury or obligations backed by the full
faith and credit of the U.S. Government, which have a 0% risk-weight. In
converting off-balance sheet items, direct credit substitutes including
general guarantees and standby letters of credit backing financial
obligations, are given a 10% risk-weighting. Transaction related to
contingencies such as bid bonds, standby letters of credit backing
non-financial obligations, and undrawn commitments (including commercial
credit lines with an initial maturity of more than one year) have a 50%
risk-weighting. Short term commercial letters of credit have a 20%
risk-weighting and certain short-term unconditionally cancelable commitments
have a 0% risk-weighting.
In addition to the risk-based capital guidelines, the FRB has adopted a
minimum Tier I capital (leverage) ratio, under which a bank holding company
must maintain a minimum level of Tier I capital to average total consolidated
assets of at least 3% in the case of a bank holding company that has the
highest regulatory examination rating and is not contemplating a significant
growth or expansion. All other bank holding companies are expected to maintain
a leverage ratio of at 100 to 200 basis points above the stated minimum.
Bank Regulation
As a New Jersey chartered commercial bank, the Bank is subject to the
regulation, supervision, and control of the 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 if 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 BIF. The Federal Deposit Insurance Corporation Improvements Act of
1991 ("FDICIA") affected a major restructuring of the federal regulatory
framework applicable to depository institutions and deposit insurance. FDICIA
requires the FDIC to establish a risk-based assessment system for all insured
depository institutions. Under this legislation, the FDIC has established an
insurance premium assessment matrix that sets the assessment premium for a
particular institution in accordance with its capital level and overall rating
by the primary regulator. Under the matrix as currently in effect, the
assessment ranges from 0 to 31 basis points of assessed deposits, with those
institutions at the low end of the assessment schedule paying only a statutory
mandated $2,000 premium.
Dividend Rights
Under the Banking Act, a bank may declare and pay dividends only if, after
payment of the dividend, the capital stock of the Company will be unimpaired
and either the bank will have a surplus of not less than 50% of its capital
stock or the payment of the dividend will not reduce the bank's surplus.
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Recent Regulatory Enactments
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the "Deposit
Act") became law. The primary purpose of the Deposit Act is to recapitalize
the Savings Association Insurance Fund of the FDIC (the "SAIF") by charging
all SAIF member institutions a one-time special assessment. The Deposit Act
will lead to equalization of the deposit insurance assessments between BIF and
SAIF insured institutions, and will also separate out from insurance
assessment payments required for debt service and principal repayment on bonds
issued by the Federal Finance Corporation ("FICO") in the mid-1980's to fund a
portion of the thrift bailout. Under the Deposit Act, BIF insured
institutions, like the Bank are required to pay a portion of the obligations
owed under the FICO bonds. SAIF institutions are required to pay 6.4 basis
points on assessed deposits while BIF-insured institutions will only be
required to pay 1.3 basis points on assessed deposits. The disparity will stay
in effect until such time as the federal thrift and commercial bank are merged
and the deposit insurance funds are thereafter merged. Under the Deposit Act,
this may occur by January 1, 1999. At that time, all federally insured
institutions should have the same total FDIC assessment.
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act (the "Interstate Act") was enacted. The Interstate Act
generally enhances the ability of bank holding companies to conduct their
business across state borders. The Interstate Act has two main provisions. The
first provision, generally provides that, commencing on September 29, 1995,
bank holding companies may acquire banks located in any state regardless of
state law. These acquisitions are subject to certain restriction, including
caps on the total percentage of deposits that a bank holding company may
control both nationally and in any single state. New Jersey law currently
allows interstate acquisitions by bank holding companies whose home state has
"reciprocal" legislation which would allow acquisitions by New Jersey-based
bank holding companies.
The second major provision of the Interstate Act permitted, as of June 1,
1997, banks located in different states to merge and continue to operate as a
single institution in more than one state. States may, by legislation passed
before June 1, 1997, opt out of the interstate bank merger provisions of the
Interstate Act. In addition, states may elect to opt in and allow interstate
bank mergers prior to June 1, 1997.
A final provision of the Interstate Act permits banks located in one state to
establish new branches in another state without obtaining a separate charter
in that state, but only if the state in which the branch is located has
adopted legislation specifically allowing interstate de novo branching.
In April, 1996, the New Jersey legislature passed legislation which permitted
interstate bank mergers prior to June 1, 1997, provided that the home state of
the institution acquiring the New Jersey institution permits interstate
mergers prior to June 1, 1997. In addition, the legislation permits an
out-of-state institution to acquire an existing branch of a New Jersey-based
institution, and thereby, conduct a business in New Jersey. The legislation
does not permit interstate de novo branches. This legislation is likely to
enhance competition in the New Jersey marketplace as bank holding companies
located outside of New Jersey become freer to acquire institutions located
within the state of New Jersey.
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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 three branch offices. The
following table sets forth certain information regarding the Company's
properties as of December 31, 1997.
Leased Date of Lease
Location or Owned Expiration
- -------- -------- ----------
457 Sylvan Avenue Office Building March, 1999
Englewood Cliffs, NJ Owned; Land Leased (Land Lease)
1605 Lemoine Avenue Leased November, 1997
Fort Lee, NJ
115 River Road Leased April, 2006
Edgewater, NJ
899 Palisade Avenue Leased September, 2001
Fort Lee, 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.
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 1997.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Commencing on December 20, 1996, the Company's Common Stock began trading on
the American Stock Exchange under the symbol "BVB". Prior to that time, the
Common Stock was not traded on any recognized securities exchange. As of
December 31, 1997, there were 626 stockholders of record of the Common Stock.
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The following table sets forth the quarterly high and low bid prices of the
Common Stock as reported on the American Stock Exchange since December 20,
1996. (Prices and cash dividends are effected for the effect of the 5% stock
dividend at April 1, 1997, and the stock split at December 1, 1997.
Bid
--------------------------
Cash
High Low Dividend
---- --- --------
1997 Fourth Quarter $27.75 $15.00 $0.05
1997 Third Quarter $18.50 $14.25 $0.05
1997 Second Quarter $15.25 $12.63 $0.05
1997 First Quarter $17.14 $11.91 $0.05
1996 Fourth Quarter $11.55 $ 9.41 None
(since December 20, 1996)
======================================================================
The Company 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.
ITEM 6. 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.
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
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investments in securities, as permitted by law. The Company has sought to
offer an alternative, community-oriented style of banking in an area presently
dominated by larger, statewide and national institutions. The Company has
sought to be a positive force in its area by assisting in the development of
the residential sector; by serving the needs of small and medium-sized
businesses and the local professional community, and by meeting the
requirements of individuals residing, working, and shopping in the eastern
Bergen County, New Jersey market area by extending consumer, commercial, and
real estate loans and by offering depository services. The Company believes
that the following attributes have made the Company attractive to local
business people and residents:
o Competitively priced services;
o Strategically located branch offices;
o Full service business hours of 7:00 am to 7:00 pm weekdays and 9:00 am to
1:00 pm Saturdays;
o Local conditions and needs are taken into account when deciding loan
applications and making other business decisions affecting members of the
community;
o Responsiveness to requests for information and services by depositors and
others; and
o Positive involvement in the community affairs of eastern Bergen County.
Since opening in 1990, the Bank has established three branches in addition to
its main office. The Company expects to continue to seek additional
strategically located de novo branch locations within Bergen County.
Particular emphasis will be placed on presenting an alternative banking
culture in communities which are dominated by non-local competitors and where
no community banking approach exists or in locations which the Company
perceives to be economically emerging.
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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.
<TABLE>
<CAPTION>
Years Ended December 31,
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1997 1996 1995
---- ---- ----
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Selected Operating Data:
Total interest income $9,942 $7,870 $6,378
Total interest expense 3,123 2,324 1,844
------ ------ ------
Net interest income before provision for
loan loss 6,819 5,546 4,534
Provision for loan loss
160 193 92
------ ------ ------
Net interest income after provision for
loan loss 6,659 5,353 4,442
Other operating income 1,102 793 578
Other operating expenses 4,361 3,615 3,004
------ ------ ------
Income before income taxes 3,400 2,531 2,016
Income tax provision 1,337 987 781
Net income $2,063 $1,544 $1,235
====== ====== ======
Basic Earnings per Share(1) $ 0.88 $ 0.70 $ 0.56
Diluted Earnings per Share(1) $ 0.84 $ 0.69 $ 0.55
</TABLE>
(1) All share data has been restated to reflect the 5% stock dividends and
the 2 for 1 stock split in 1997 and 1996.
<TABLE>
<CAPTION>
Years Ended December 31,
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1997 1996 1995
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Total Assets $144,620 $139,060 $96,794
Net Loans 82,186 75,752 55,408
Total Deposits 128,745 126,333 85,225
Stockholders' Equity 15,157 12,218 11,035
At or for the year ended December 31,
----------------------------------------------
Selected Financial Ratios: 1997 1996 1995
---- ---- ----
Return on Average Assets (ROA) 1.47% 1.42% 1.39%
Return on Average Equity (ROE) 15.25% 13.35% 12.12%
Equity to Total Assets at Year-End 10.48% 10.62% 11.47%
Dividend Payout Ratio 22.46% 24.09% 0.00%
</TABLE>
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RESULTS OF OPERATIONS - 1997 versus 1996
The Company's results of operations depend primarily on its net interest
income, which is the difference between the interest earned on its
interest-earning assets and the interest paid on funds borrowed to support
those assets, primarily deposits. Net interest margin is the difference
between the weighted average rate received on interest-earning assets and the
weighted average rate paid on interest-bearing liabilities, as well as the
average level of interest-earning assets as compared with that of
interest-bearing liabilities. Net income is also affected by the amount of
non-interest income and other operating expenses.
NET INCOME
For the year ended December 31, 1997, net income increased by $519,000 or
33.6% to $2,063,000 from $1,544,000 for the year ended December 31, 1996. The
increase in net income is a result of a $2,072,000, or 26.3%, increase in
interest income; partially offset by a $799,000, or 34.4% increase in interest
expense. The increase in interest income was primarily attributable to an
increase in average loans of $22.7 million and an increase in average
investment securities of $12,810,000. In addition to the increase in net
interest income, non-interest income, consisting primarily of service charges
on deposit accounts, increased by $309,000 or 39.0%. The yield remained
relatively stable, with the average yield on interest earning assets
decreasing slightly to 7.81% for the year ending December 31, 1997 as compared
to 7.95% for the year ending December 31, 1996. The volume increases in the
Bank's loan and securities portfolio were primarily funded through deposit
growth.
Interest expense rose $799,000 or 34.4% for the year ending December 31, 1997
compared to the year ended December 31, 1996. This increase reflects the
effect of time deposit promotions in each of the Company's new branch offices
during 1996.
Operating expenses increased by $746,000 or 20.6% for the year ended December
31, 1997 compared to 1996. These increases reflect the Company's continued
growth which also affected staff additions, occupancy expenses, salary and
employee benefits, data processing, as well as other administrative expenses
attributable to the Company's two new branch offices which opened in the third
and fourth quarters, 1996.
On a per share basis, basic earnings per share were $0.88 for the year ended
December 31, 1997 as compared to $0.70 for the year ended December 31, 1996.
Diluted earnings per share were $0.84 for the full year of 1997 as compared to
$0.69 for the full year of 1996. Per share data has been restated to reflect
5% stock dividends and the 2 for 1 stock split in 1997 and 1996.
14
<PAGE>
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.
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, 1997 and 1996
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 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.
15
<PAGE>
<TABLE>
<CAPTION>
For the years ended December 31,
(dollars in thousands)
1997 1996
---------------------------------------------- -------------------------------------------
Average Average
Average Yield / Average Yield /
Balance Interest Cost Balance Interest Cost
----------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS :
Interest-Earning Assets:
Loans (net of unearned income) $ 80,626 $ 7,241 8.98% $ 65,690 $ 5,961 9.07%
Tax-Exempt Securities 5,951 401 6.74 6,668 429 6.43
Taxable Investment Securities 35,501 2,066 5.82 21,974 1,290 5.87
Federal Funds Sold 6,464 350 5.41 6,426 339 5.28
FHLB Account 291 13 4.47 0 0
FHLB Stock 476 31 6.51 0 0
----------- ---------- ---------- ----------
Total Interest-earning Assets 129,309 10,102 7.81% 101,050 8,038 7.95%
----------- ---------- ---------- ----------
Non-interest earning Assets 11,684 8,617
Allowance for Possible Loan
Losses (964) (797)
----------- ----------
TOTAL ASSETS $140,029 $108,870
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities :
NOW Deposits $20,281 $ 219 1.08% $15,134 $ 166 1.10%
Savings Deposits 15,395 330 2.14 13,212 284 2.15
Money Market Deposits 11,986 252 2.10 11,879 259 2.18
Time Deposits 46,135 2,315 5.02 33,159 1,601 4.83
Short Term Borrowings 130 7 5.38 245 14 5.71
----------- ---------- ---------- ----------
Total Interest-Bearing
Liabilities 93,927 3,123 3.32% 73,629 2,324 3.16%
----------- ---------- ---------- ----------
Non-Interest Bearing
Liabilities :
Demand Deposits 31,954 23,218
Other Liabilities 620 461
----------- ----------
Total Non-Interest Bearing
Liabilities 32,574 23,679
Stockholders' Equity 13,528 11,562
----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $140,029 $108,870
======== ========
Net Interest Income $6,979 $5,714
====== ======
Net Interest Rate Spread 4.49% 4.79%
===== =====
Net Interest Margin 5.40% 5.65%
===== =====
Ratio of Interest-Earning
Assets to Interest-Bearing
Liabilities 1.38 1.37
==== ====
</TABLE>
16
<PAGE>
Rate/Volume Analysis
The following table presents, by category, the major factors that contributed
to the changes in net interest income for each of the years ended December 31,
1997 and 1996. Amounts have been computed on a fully tax-equivalent basis,
assuming a blended tax rate of 39%.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 versus 1996 1996 versus 1995
------------------------------------------ ----------------------------------------------
(in thousands)
Increase (Decrease) Increase (Decrease)
due to change in due to change in
Average Average
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
Interest Income :
Taxable Loans (net of
unearned income) $ 1,340 $ (60) $ 1,280 $ 1,460 $ (211) $ 1,249
Tax Exempt Securities (48) 20 (28) 186 (7) 179
Taxable Investment
Securities 787 (11) 776 (24) 107 83
Federal Funds Sold 2 9 11 83 (38) 45
Federal Home Loan Bank
Account 13 0 13 0 0 0
Federal Home Loan
Bank Stock 31 0 31 0 19 19
-- - -- - -- --
Total Interest Income 2,125 (42) 2,083 1,705 (130) 1,575
------ ---- ----- ------ ----- -----
Interest Expense :
NOW Deposits 56 (3) 53 39 (46) (7)
Savings Deposits 47 (1) 46 (27) (36) (63)
Money Market Deposits 3 (10) (7) 45 (46) (1)
Time Deposits 651 62 713 509 27 536
Net Term Borrowings (6) (1) (7) 0 14 14
--- --- --- - -- --
Total Interest Expense 751 47 798 566 (87) 479
--- -- --- --- ---- ---
Net change in Interest
Income $ 1,374 $ (89) $ 1,285 $ 1,139 $ (43) $ 1,096
======== ====== ======== ======= ======= ========
</TABLE>
17
<PAGE>
PROVISION FOR LOAN LOSSES
For the year ended December 31, 1997, the Company's provision for loan losses
was $160,000, a decrease of $33,000 from the provision of $193,000 for the
year ended December 31, 1996. The decreased provision reflects the continued
stability of the loan portfolio.
OTHER INCOME
Other income, which was primarily attributable to service fees received from
deposit accounts, amounted, for the year ended December 31,1997, to
$1,102,000, an increase of $309,000 above the $793,000 received during the
year ended December 31, 1996. The increase in service fees is attributable to
the higher level of average deposits.
OTHER EXPENSES
Other expenses for the year ended December 31,1997 amounted to $4,361,000, an
increase of $746,000 over the $3,615,000 for the year ended December 31, 1996.
These increases are related primarily to staff additions, occupancy expense,
data processing fees, customary increases for salary and employee benefits, as
well as other administrative expenses resulting from the bank's growth and its
two newest branches which were opened in August, 1996 and November, 1996.
INCOME TAX EXPENSE
The income tax provision, which includes both federal and state taxes, for the
years ended December 31, 1997 and 1996 was $1,337,000 and $987,000,
respectively. The increase in income taxes is a direct result of the increase
in income before taxes in 1997.
RESULTS OF OPERATIONS - 1996 versus 1995
For the year ended December 31, 1996, net income increased by $309,000 or
25.0% to $1,544,000 from $1,235,000 for the year ended December 31, 1995. The
increase in net income was attributable to an increase in interest income of
$1,492,000 or 23.4%; partially offset by a $480,000 or 26.0% increase in
interest expense. The increase in interest income was primarily attributable
to an increase of 36.6% in total loans and a 56.1% increase in investment
securities. In addition to the increase in net interest income, non-interest
income, consisting primarily of service charges on deposit account, increased
by $215,000 or 37.2%.
Interest expense rose $480,000 or 26.0% for the year ending December 31, 1996
compared to the year ended December 31, 1995 due to an increase in
interest-bearing deposits of $35,000,000 or 56.5% compared to the same period
in 1995.
Operating expenses for the year ended December 31, 1996 amounted to
$3,615,000, an increase of $611,000, or 20.3%, above the $3,004,000 for the
year ended December 31, 1995. These increases were related, primarily, to
staff additions, occupancy costs, and advertising attributable to the
Company's two new branches during the second half of 1996, as well as
administrative costs associated with the Company's stock being listed on the
American Stock Exchange.
For the year ended December 31, 1996, the Company's provision for loan losses
aggregated $193,000, an increase of $101,000 above the year ended 1995
provision of $92,000. The increased provision reflected the continued growth
in the loan portfolio.
18
<PAGE>
Income tax expense, which included both federal and state taxes, was $987,000
and $781,000 for the years ended December 31, 1996 and 1995, respectively. The
increase in income taxes resulted from the increase in pre-tax income for
1996.
On a per share basis, Basic earnings per share were $0.70 for the year ended
December 31, 1996 as compared to $0.56 for the year ended December 31, 1995
and Diluted earnings per share were $0.69 for the full year of 1996 as
compared to $0.55 for the full year 1995.
FINANCIAL CONDITION
At December 31, 1997, the Company's total assets were $144,620,000 compared to
$139,060,000 at December 31, 1996. Total loans increased to $83,324,000 at
December 31, 1997 from $76,718,000 at December 31, 1996. Total deposits at
year end 1997 were $128,745,000 compared to $126,333,000 at December 31, 1996.
LOAN PORTFOLIO
At December 31, 1997, the Company's total loans were $83,324,000, an increase
of $6,606,000 or 8.6% over total loans at December 31, 1996. The increase in
the loan portfolio represents continued penetration of the local small
business market. Management believes that the Company's success in penetrating
this market is attributable to the Company's trade area becoming primarily
served by large institutions headquartered out of state due to mergers and
acquisitions within the industry. Management believes that it is not cost
efficient for these larger institutions to provide the level of personal
service the Company provides to small business borrowers.
The Company's loan portfolio consists of commercial loans, real estate loans,
and consumer loans. Commercial loans are made for the purpose of providing
working capital, financing the purchase of equipment or inventory, as well as
for other business purposes. Real estate loans consist of loans secured by
commercial or residential real property and loans for the construction of
commercial or residential property. Consumer loans are made for the purpose of
financing the purchase of consumer goods, home improvements, and other
personal needs, and are generally secured by the personal property being
purchased.
The Company's loans are primarily to businesses and individuals located in
eastern Bergen County, New Jersey. The Company has not made loans to borrowers
outside of the United States. Commercial lending activities are focused
primarily on lending to small business borrowers. The Company believes that
its strategy of customer service, competitive rate structures, and selective
marketing have enabled the Company to gain market entry to local loans. Bank
mergers and lending restrictions at larger banks competing with the Company
have also contributed to the Company's efforts to attract borrowers.
19
<PAGE>
The following table sets forth the classification of the Company's loans by
major category as of December 31, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------ -----------------------------
(Dollars in thousands)
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial and Industrial $15,568 18.7% $12,555 16.4%
Real Estate :
Non-residential properties 25,929 31.1% 23,000 30.0%
Residential properties 36,988 44.4% 37,706 49.1%
Construction 2,783 3.3% 1,752 2.3%
Consumer 2,056 2.5% 1,705 2.2%
------------ ------------ --------- --------
Total Loans $83,324 100% $76,718 100%
======= ======== ======= ========
</TABLE>
The following table sets forth fixed and adjustable rate loans as of December
31, 1997 in terms of interest rate sensitivity (in thousands):
<TABLE>
<CAPTION>
Within
One Year 1 to 5 After 5
Years Years Total
----------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Loans with Fixed Rate $4,106 $40,132 $4,788 $49,026
Loans with Adjustable Rate 27,114 4,625 2,559 34,298
</TABLE>
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.
20
<PAGE>
The Company attempts to minimize overall credit risk through loan
diversification and its loan approval procedures. Due diligence begins at the
time a borrower and the Company begin to discuss the origination of a loan.
Documentation, including a borrower's credit history, materials establishing
the value and liquidity of potential collateral, the purpose of the loan, the
source and timing of the repayment of the loan, and other factors are analyzed
before a loan is submitted for approval. Loans made are also subject to
periodic audit and review.
The following table sets forth information concerning the Company's
non-performing assets as of the dates indicated:
<TABLE>
<CAPTION>
Non-Performing Assets
(dollars in thousands)
December 31,
----------------------------------
1997 1996
--------- -------
<S> <C> <C>
Non-accrual loans $ 439 $ 0
Non-accrual loans to total loans 0.53% 0
Non-performing assets to total assets 0.30% 0
Allowance for possible loan losses as
a percentage of non-performing loans 229.84% N/A
</TABLE>
As of December 31, 1997, the Company has two non-accrual loans. One represents
a construction loan totaling $234,676, while the other is a home equity loan
aggregating $203,975. The Company has no other non-performing loans and has no
real estate owned (REO) as a result of a foreclosure.
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, 1997 and 1996, although there were no concentrations of
loans exceeding 10% 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.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. The Company attempts to
maintain an allowance for loan losses at a sufficient level to provide for
potential losses in the loan portfolio. Loan losses are charged directly to
the allowance when they occur and any recovery is credited to the allowance.
Risks within the loan portfolio are analyzed on a continuous basis by the
Company's officers, by external independent loan review auditors, and by the
Company's audit committee. A risk system, consisting of multiple grading
categories, is utilized as an analytical tool to assess risk and appropriate
reserves. In addition to the risk system, management further evaluates risk
characteristics of the loan portfolio under current and anticipated economic
conditions and considers such factors as the financial condition of the
borrower, past and expected loss experience, and other factors which
management feels deserve recognition in establishing an appropriate reserve.
These estimates are reviewed at least quarterly, and, as adjustments become
necessary, they are realized in the periods in which they become known.
Addition 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.)
21
<PAGE>
Although management attempts to maintain the allowance at an adequate level,
future addition to the allowance may be required based upon changes in market
conditions. Additionally, various regulatory agencies periodically review the
allowance for loan losses. These agencies may require additional provisions
based upon their judgment about information available to them at the time of
their examination.
The Company's allowance for loan losses totaled $1,009,000 and $861,000 at
December 31, 1997 and 1996, 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 years ended
December 31, 1997 and 1996 (dollars in thousands):
1997 1996
---- ----
(dollars in thousands)
Balance, beginning of year $ 861 $ 692
Charge-offs (30) (36)
Recoveries 18 12
Provision charged to expense 160 193
------- -------
Balance, end of year $ 1,009 $ 861
======= =======
Ratio of net charge-offs to
average loans outstanding 0.02% 0.04%
Balance of allowance at end of year as
a percentage of loans at end of year 1.21% 1.12%
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:
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan Losses by Category
(dollars in thousands)
December 31,
-----------------------------------------------------------------------------------------
1997 1996
--------------------------------------------- ------------------------------------------
% of % of
Total Total
Amount % of ALL Loans Amount % of ALL Loans
----------- ------------- ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance applicable to:
Commercial $ 262 25.97% 31.49% $ 235 27.29% 25.43%
Real Estate :
Non-residential property 258 25.57% 25.65% 238 27.64% 31.04%
Residential property 234 23.19% 37.37% 234 27.18% 39.02%
Construction 28 2.78% 3.34% 18 2.10% 2.28%
Consumer 22 2.18% 2.15% 21 2.43% 2.23%
------- ------- ------- ------
Sub-total $ 804 79.69% 100.00% $ 746 86.64% 100.00%
Unallocated Reserves 205 20.31% 115 13.36%
------- ------- ------- ------
TOTAL $1,009 100.00% 100.00% $ 861 100.00% 100.00%
====== ======= ======= ======= ======= =======
</TABLE>
22
<PAGE>
INVESTMENT SECURITIES
The Company maintains an investment portfolio to fund increased loan demand or
deposit withdrawals and other liquidity needs and to provide an additional
source of interest income. The portfolio is composed of U.S. Treasury
Securities, obligation of U.S. Government Agencies and selected municipal and
state obligations.
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. 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
separate component of 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, 1997, $24,781,000 of the Company's investment
securities were classified as held to maturity and $12,543,000 were classified
as available for sale. At December 31, 1997, the Company held no securities
which it classified as trading securities.
At December 31, 1997, total investment securities $37,324,000, an increase of
$1,163,000, from total investment securities of $36,161,000 at December 31,
1996. This increase in investment securities from year end 1996 to year end
1997 reflects increases in total deposits in excess of funds needed for new
loan originations.
The following table sets forth the carrying value of the Company's security
portfolio as of the dates indicated.
23
<PAGE>
A comparative summary of securities available for sale at December 31, 1997
and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amor- unreal- unreal-
tized ized ized Market
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1997 - U.S. Government and
agency obligations $ 12,507 46 (10) $ 12,543
======== ====== ====== ========
1996 - U.S. Government and
agency obligations $ 8,647 15 (18) $ 8,644
======== ====== ====== ========
</TABLE>
A comparative summary of investment securities held to maturity at December
31, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amor- unreal- unreal-
tized ized ized Market
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1997:
U.S. Government and agency
securities $ 19,442 37 ( 9) $19,470
Municipal obligations 5,339 25 - 5,364
--------- ------ ----- -------
$ 24,781 62 ( 9) $24,834
========= ====== ====== =======
1996:
U.S. Government and agency
obligations $ 21,183 48 (37) $21,194
Municipal obligations 6,334 18 - 6,352
--------- ------ ----- -------
$ 27,517 66 (37) $27,546
========= ====== ===== =======
</TABLE>
24
<PAGE>
The following table sets forth as of December 31, 1997 and December 31, 1996,
the maturity distribution of the Company's investment portfolio :
<TABLE>
<CAPTION>
Maturity of Investment Securities
December 31, 1997
(in thousands)
Securities
Investment Securities Available for Sale
---------------------------------------------- -------------------------------------------
Weighted Weighted
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
------------ ------------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Within 1 Year $14,946 $14,956 5.89% $ 6,488 $ 6,493 5.89%
1 to 5 Years 9,835 9,878 5.89% 6,019 6,050 6.07%
-------- -------- ------- --------
$24,781 $24,834 $12,507 $12,543
======= ======= ======= =======
December 31, 1996
(in thousands)
Securities
Investment Securities Available for Sale
---------------------------------------------- -------------------------------------------
Weighted Weighted
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
------------ ------------- ----------- ------------ ------------ -----------
Within 1 Year $15,702 $15,723 6.06% $4,000 $4,002 5.80%
1 to 5 Years 11,423 11,417 5.67% 4,647 4,642 5.86%
Over 5 Years 392 406 9.12% - - -
------- -------- ------- ------
$27,517 $27,546 $8,647 $8,644
======= ======= ====== ======
</TABLE>
The Company sold no securities from its portfolio during 1997 or during 1996.
DEPOSITS
Deposits are the Company's primary source of funds. The Company experienced a
growth in average deposit balances of $29,149,000 or 30.2% to $125,751,000 at
December 31, 1997 as compared to $96,602,000 at December 31, 1996. This growth
was accomplished as a result of the growth of two new branches which were
opened during the third and fourth quarters of 1996. Among the increase in
deposits, average time deposits grew $12,976,000 or 39.1% from 1996 to 1997
while average non-interest bearing demand deposits grew $8,736,000 or 37.6%
during 1997 as compared to 1996. The aggregate amount of average non-interest
bearing deposits totaled 30.8% of the Company's total deposits at December 31,
1997 as compared to 23.2% at December 31, 1996. The Company has no foreign
deposits, nor are there any material concentrations of deposits.
25
<PAGE>
The following table sets forth the average amount of various types of deposits
for each of the periods indicated:
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands)
1997 1996
------------------------ -------------------------
Amount % Amount %
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Non-interest Bearing Demand $ 31,954 25.4% $ 23,218 24.0%
Interest Bearing Demand 32,267 25.7% 27,013 28.0%
Savings 15,395 12.2% 13,212 13.7%
Time Deposits 46,135 36.7% 33,159 34.3%
-------- ----- -------- ----
$125,751 100% $ 96,602 100%
======== ===== ======== =====
</TABLE>
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 deposits of
denominations of $100,000 or more as of December 31, 1997 (in thousands).
Three months or less $ 13,410
Over three months through twelve months 5,127
Over one year through three years --
Over three years 158
-----------
TOTAL $ 18,695
===========
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 $128,745,000 at December 31, 1997 as
compared to $126,333,000 at December 31, 1996. The increase in funds provided
by deposit inflows during this period has been more than sufficient to provide
the Company's loan demand and excess funds have been invested in investment
securities and federal funds sold.
26
<PAGE>
Through the Company's investment portfolio, the Company has generally sought
to obtain a safe, yet slightly higher yield than would have been available to
the Company as a net seller of overnight federal funds while still maintaining
liquidity. Through its investments portfolio, the Company also attempts to
manage its maturity gap by seeking maturities of investments which coincide as
closely as possible with maturities of deposits. The Bank's investment
portfolio also includes securities held for sale to provide liquidity for
anticipated loan demand and other liquidity needs.
Although the Bank has been traditionally been a net "seller" of federal funds,
the Bank does maintain lines of credit with the Federal Home Loan Bank of New
York, Summit Bank, and Bank of New York for "purchase" of federal funds in the
event that temporary liquidity needs arise.
Management believes that the Company's current sources of funds provide
adequate liquidity for the current cash flow needs of the Company.
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.
27
<PAGE>
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.
<TABLE>
<CAPTION>
Cumulative Rate Sensitive Balance Sheet
December 31, 1997
(in thousands)
0 - 3 0 - 6 0 - 1 0 - 5 All
Months Months Year Year 5 + Years Others TOTAL
------ ------ ----- ---- --------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Securities $ 5,006 $ 9,113 $21,439 $ 37,324 $ 0 $ 0 $ 37,324
Loans :
Commercial 20,942 21,617 23,248 46,243 1,707 0 47,950
Participations 350 482 482 2,260 179 0 2,439
Mortgages 0 182 182 13,222 2,034 0 15,256
Consumer 15,377 15,395 15,442 17,246 433 0 17,679
Federal Funds Sold 12,000 12,000 12,000 12,000 0 0 12,000
Other Assets 0 0 0 0 0 11,972 11,972
----------- ----------- ----------- ------------ ------------ ------------- ----------
TOTAL ASSETS $53,675 $58,789 $72,793 $128,295 $132,648 $144,620 $144,620
======= ======= ======= ======== ======== ======== ========
Transaction /
NOW Accounts $21,679 $21,679 $21,679 $21,679 $ 0 $ 0 $ 21,679
Money Market 11,215 11,215 11,215 11,215 0 0 11,215
Savings 16,292 16,292 16,292 16,292 0 0 16,292
CD's < $100,000 9,817 16,190 19,372 21,189 30 0 21,219
CD's > $100,000 13,590 16,777 18,924 19,551 0 0 19,551
Other Liabilities 0 0 0 0 0 39,507 39,507
Equity 0 0 0 0 0 15,157 15,157
----------- ----------- ----------- ------------ ------------ ------------- ----------
TOTAL LIABILITIES AND
EQUITY $72,593 $82,153 $87,482 $89,926 $89,956 $144,620 $144,620
======= ======= ======= ======= ======= ======== ========
Dollar Gap (18,918) (23,364) (14,689) 38,369 42,692
Gap / Total Assets -13.09% -16.17% -10.16% 26.55% 29.52%
Target Gap Range +/-35.0% +/- 30.0% +/- 25.0% +/-25.0%
RSA / RSL 73.94% 71.56% 83.21% 142.67% 147.46%
(Rate Sensitive Assets to
Rate Sensitive Liabilities)
</TABLE>
28
<PAGE>
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.
29
<PAGE>
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, 1997. Market risk sensitive
instruments are generally defined as on- and off- balance sheet financial
instruments.
<TABLE>
<CAPTION>
Expected Maturity/Principal Repayment
December 31, 1997
(Dollars in thousands)
Avg. Int. There Fair
Rate 1998 1999 2000 2001 2002 -After Total Value
--------- ---- ---- ---- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate
Sensitive
Assets:
Loans ........ 8.98% 31,207 5,984 10,068 16,489 12,235 7,341 83,324 83,874
Tax Exempt
Securities ... 6.74% 4,687 151 -- -- -- -- 4,838 4,838
Investment
Securities ... 5.82% 16,752 15,343 -- -- 391 -- 32,486 32,539
Fed Funds
Sold ......... 5.41% 12,000 -- -- -- -- -- 12,000 12,000
FHLB Stock ... 6.51% 476 -- -- -- -- -- 476 476
Interest Rate
Sensitive
Liabilities:
NOW Deposits . 1.08% 21,679 -- -- -- -- -- 21,679 21,679
Savings
Deposits ..... 2.14% 16,292 -- -- -- -- -- 16,292 16,292
Money Market
Deposits ..... 2.10% 11,215 -- -- -- -- -- 11,215 11,215
Time
Deposits ..... 5.02% 38,348 909 699 465 318 30 40,769 40,730
</TABLE>
30
<PAGE>
CAPITAL
A significant measure of the strength of a financial institution is its
capital base. The Company's federal regulators have classified and defined
Company capital into the following components: (1) Tier I Capital, which
includes tangible shareholders' equity for common stock and qualifying
perpetual preferred stock, and (2) Tier II Capital, which includes a portion
of the allowance for possible loan losses, certain qualifying long-term debt,
and preferred stock which does not qualify for Tier I Capital. Minimum capital
levels are regulated by risk-based capital adequacy guidelines which require
certain capital as a percent of the Company's assets and certain off-balance
sheet items adjusted for predefined credit risk factors (risk-adjusted
assets).
A Bank Holding Company is required to maintain, at a minimum, Tier I Capital
as a percentage of risk-adjusted assets of 4.0% and combined Tier I and Tier
II Capital as a percentage risk-adjusted assets of 8.0%.
In addition to the risk-based guidelines, the Company's regulators require
that an institution which meets the regulator's highest performance and
operation standards maintain a minimum leverage ratio (Tier I Capital as a
percentage of tangible assets) of 3.0%. For those institutions with higher
levels of risk or that are experiencing or anticipating significant growth,
the minimum leverage ratio will be evaluated through the ongoing regulatory
examination process. The Company is subject to substantially similar
regulations by its federal regulations.
The following table summarizes the risk-based and leverage capital ratios for
the Bank at December 31, 1997, as well as the required minimum regulatory
capital ratios:
Capital Adequacy
Minimum
December 31, Regulatory
1997 Requirements
------------ -------------
Risk-Based Capital:
Tier I Capital Ratio 16.18% 4.0%
Total Capital Ratio 17.26% 8.0%
Leverage Ratio 10.82% 3.0%
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost
of the Company's operations. Unlike most industrial companies, nearly all of
the assets and liabilities of the Company are monetary. As a result, interest
rates have a greater impact on the Company's performance than do the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services.
31
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS 130
Federal Accounting Standards Board Statement No. 130, "Reporting Comprehensive
Income", (SFAS 130) established standards for reporting and displaying of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. SFAS 130
requires all items that are required to be recognized under accounting
standards as components of comprehensive income to be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 does not require a specific format for that financial
statement but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement. SFAS 130
requires that an enterprise (a) classify items of other comprehensive by their
nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
YEAR 2000
Due to the technological issues surrounding the Year 2000, the Company has
adopted a Year 2000 Compliance Plan. The Company has also established a Year
2000 Compliance Committee, which includes members of senior management from
all operating areas. The objectives of the plan and the committee are to
ensure that the Bank will be prepared for the new millenium. As recommended by
the Federal Financial Institutions Examination Council, the Year 2000 Plan
includes the following phases: Awareness, Assessment, Renovation, Validation,
and Implementation.
The Company is currently in the Assessment stage and has identified the most
critical applications, which includes addressing contract and service
agreements. Management believes that it is currently on target to be
appropriately prepared for any changes and no material expenses have been
identified.
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Statements of Financial Condition of the Company as of
December 31, 1997 and 1996, 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, 1997 are included herein as indicated on the "Index
to Consolidated Financial Statements" on page 35.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
32
<PAGE>
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
Information concerning the directors and executive officers is included in the
definitive Proxy Statement for the Company's 1998 Annual Meeting under the
caption "Proposal 1. Election of Directors" and information concerning
compliance with Section 16(a) of the Exchange Act is included under the
caption "Compliance with Section 16(a) of the Securities Exchange Act of
1934", each of which is incorporated herein by reference. It is expected that
such Proxy Statement will be filed with the Securities and Exchange Commission
no later than April 29, 1998.
Set forth below is the name of and certain biographical information regarding
the additional principal officer of the Company who does not also serve as a
director. The term of office for such officer is one year.
Thomas W. Thomasma, 43, has been Senior Vice President and Senior Lending
Officer of the Bank since 1994. He previously served in Senior Lending
capacities at Independence Bank and at First Fidelity Bank for more than five
years.
ITEM 10. EXECUTIVE COMPENSATION
Information concerning executive compensation is included in the definitive
Proxy Statement for the Company's 1998 Annual Meeting under the caption
"Executive Compensation" and is hereby incorporated by reference. It is
expected that such Proxy Statement will be filed with the Securities and
Exchange Commission no later than April 29, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is included in the definitive Proxy Statement for the Company's
1998 Annual Meeting under the caption "Security Ownership of Certain
Beneficial Owners and Management" which is incorporated herein by reference.
It is expected that such Proxy Statement will be filed with the Securities and
Exchange Commission no later than April 29, 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
included in the definitive Proxy Statement for the Company's 1998 Annual
Meeting under the caption "Certain Transactions with Management" which is
incorporated herein by reference. It is expected that such Proxy Statement
will be filed with the Securities and Exchange Commission no later than April
29, 1998.
33
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits.
==========================================================================
Exhibit
Number Description of Exhibits
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
3(i) Certificates of Incorporation of the Company (1)
- --------------------------------------------------------------------------
3(ii) Bylaws of the Company (1)
- --------------------------------------------------------------------------
4(i) Form of Non-Transferable Warrant Certificate (1)
- --------------------------------------------------------------------------
4(ii) Form of Stock Certificate (2)
- --------------------------------------------------------------------------
10(i) Bridge View Bank 1994 Stock Option Plan (1)
- --------------------------------------------------------------------------
10(ii) Bridge View Bank 1994 Stock Option Plan for Non-Employee
Directors (1)
- --------------------------------------------------------------------------
21 Subsidiaries of the Registrant
- --------------------------------------------------------------------------
23 Consent of Independent Auditors'
- --------------------------------------------------------------------------
27 Financial Data Schedule
==========================================================================
(1) Incorporated by reference from Exhibits 2(a) to 6(b) from the Company's
Registration Statement on Form 10-SB, Registration No. 1-12165.
(2) Incorporated by reference from Exhibit 4(ii) from the Company's
Registration Statement on Form SB-2, Registration No. 333-20697.
(b) Reports on Form 8-K
(i) A Current Report on Form 8-K related to the Company's
announcement of its earnings for the first quarter of
1997 filed May 6, 1997.
(ii) A Current Report on Form 8-K related to the Company's
announcement of its earnings for the second quarter
of 1997 filed July 30, 1997.
34
<PAGE>
BRIDGE VIEW BANCORP AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
-------
Independent Auditors' Report ............................... 36
Consolidated Statements of Financial Condition
as of December 31, 1997 and 1996 ......... 37
Consolidated Statements of Income for the years
ended December 31, 1997, 1996, and 1995 .. 38
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997,
1996, and 1995 ........................... 39
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996, and 1995 .. 40
Notes to Consolidated Financial Statements ........ 42
35
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Bridge View Bancorp:
We have audited the accompanying consolidated statements of financial
condition of Bridge View Bancorp and subsidiaries as of December 31, 1997 and
1996, 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, 1997. These consolidated financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bridge
View Bancorp and subsidiaries at December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
February 6, 1998
36
<PAGE>
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets 1997 1996
--------- ---------
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks (note 3) $ 9,629 9,058
Federal funds sold 12,000 14,500
--------- ---------
Total cash and cash equivalents 21,629 23,558
--------- ---------
Securities available for sale (note 4) 12,543 8,644
Investment securities, estimated market value of
$24,834 in 1997 and $27,546 in 1996 (note 4) 24,781 27,517
FHLBNY stock, at cost 476 476
Loans (note 5):
Commercial 50,389 45,080
Mortgage 17,679 12,693
Consumer and other 15,256 18,945
--------- ---------
Total loans 83,324 76,718
Deferred loan fees (129) (105)
Allowance for loan losses (1,009) (861)
--------- ---------
Net loans 82,186 75,752
--------- ---------
Premises and equipment, net (Note 6) 1,652 1,752
Accrued interest receivable 1,069 1,031
Other assets (note 8) 284 330
--------- ---------
Total assets $ 144,620 139,060
========= =========
Liabilities and Stockholders' Equity
Deposits (note 7):
Noninterest-bearing demand deposits 38,790 29,352
Interest-bearing deposits:
Savings and time deposits 71,260 72,577
Certificates of deposit of $100,000 or more 18,695 24,404
--------- ---------
Total deposits 128,745 126,333
Accounts payable and accrued liabilities 718 509
--------- ---------
Total liabilities 129,463 126,842
--------- ---------
Stockholders' equity (notes 12 and 14):
Capital stock, no par value. Authorized
10,000,000 shares; issued and outstanding
2,521,010 shares in 1997 and 2,201,472
shares in 1996 13,347 10,647
Net unrealized (loss) gain on securities available
for sale 22 (2)
Retained earnings 1,788 1,573
--------- ---------
Total stockholders' equity 15,157 12,218
Commitments and contingencies (notes 9 and 15)
Total liabilities and stockholders' equity $ 144,620 139,060
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1997, 1996 and 1995
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans $7,241 5,961 4,712
Securities available for sale 852 366 384
Municipals - nontaxable 241 262 165
Investment securities 1,214 924 823
Federal funds sold and dividends on FHLBNY stock 394 357 294
------ ------ ------
Total interest income 9,942 7,870 6,378
------ ------ ------
Interest expense:
Savings and time deposits 2,092 1,545 1,431
Certificates of deposit of $100,000 or more 1,024 765 413
Federal funds purchased 7 14 --
------ ------ ------
Total interest expense 3,123 2,324 1,844
------ ------ ------
Net interest income 6,819 5,546 4,534
Provision for Loan Losses (note 5) 160 193 92
------ ------ ------
Net interest income after provision
for loan losses 6,659 5,353 4,442
Other income - principally fees and service charges 1,102 793 578
------ ------ ------
Other expenses:
Salaries and employee benefits (note 13) 2,093 1,674 1,361
Occupancy and equipment expense (note 9) 1,008 826 773
Professional fees 193 153 115
Advertising and business promotion 94 108 65
Stationery and supplies 156 204 136
Data processing 309 229 173
FDIC expense 15 2 87
Other operating expenses 493 419 294
------ ------ ------
Total other expenses 4,361 3,615 3,004
------ ------ ------
Income before income tax expense 3,400 2,531 2,016
Income tax expense (note 8) 1,337 987 781
------ ------ ------
Net income $2,063 1,544 1,235
====== ====== ======
Earnings per share:
Basic $ 0.88 0.70 0.56
====== ====== ======
Diluted 0.84 0.69 0.55
====== ====== ======
</TABLE>
Per share data has been restated to reflect the 5% stock dividends and the 2
for 1 stock split in 1997 and 1996.
See accompanying notes to consolidated financial statements.
38
<PAGE>
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Net
unrealized
gain(loss) on
securities
Capital Retained available
stock earnings for sale Total
----- -------- -------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 9,521 260 (194) 9,587
Net income -- 1,235 -- 1,235
5% stock dividend 518 (518) -- --
Common stock issued upon exercise of stock warrants
8 -- -- 8
Net change in unrealized loss on securities
available for sale, net of tax -- -- 205 205
------- ------- ------- -------
Balance at December 31, 1995 10,047 977 11 11,035
Net income -- 1,544 -- 1,544
5% stock dividend 576 (576) -- --
Common stock issued upon exercise of stock warrants
23 -- -- 23
Common stock issued upon exercise of stock options
1 -- -- 1
Cash Dividend Paid -- (372) -- (372)
Net change in unrealized loss on securities
available for sale, net of tax -- -- (13) (13)
------- ------- ------- -------
Balance at December 31, 1996 10,647 1,573 (2) 12,218
Net income -- 2,063 -- 2,063
5% stock dividend 1,380 (1,380) -- --
Common stock issued upon exercise of stock warrants
1,281 -- -- 1,281
Common stock issued upon exercise of stock options
39 -- -- 39
Cash dividends paid -- (468) -- (468)
Net change in unrealized gain /(loss) on
securities available for sale, net of tax -- -- 24 24
------- ------- ------- -------
Balance at December 31, 1997 $13,347 1,788 22 15,157
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE>
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,063 1,544 1,235
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 160 193 92
Depreciation and amortization 190 152 155
Deferred taxes (126) (47) 40
Net amortization and accretion of premiums and discounts
on investment securities 25 (2) (21)
Net loss on sale of securities available for sale -- -- 5
Loans originated for sale -- (175) (1,188)
Proceeds from sales of loans held for sale 50 125 1,285
Fees from sale of loans held for sale (17) (7) (11)
Changes in operating assets and liabilities:
Increase in accrued interest receivable (38) (294) (130)
Decrease (increase) in other assets 171 17 (38)
Increase (decrease) in accounts payable and accrued liabilities 209 (26) 166
-------- -------- --------
Net cash provided by operating activities 2,687 1,480 1,590
-------- -------- --------
Cash flows from investing activities:
Purchases of investment securities (16,634) (22,538) (14,310)
Maturities of investment securities 19,373 12,649 22,012
Proceeds from repayments of securities available for sale 559 107 133
Proceeds from sale of securities available for sale -- -- 2,915
Maturities of securities available for sale 5,000 4,000 1,000
Purchase of securities available for sale (9,447) (5,992) (2,982)
Net increase in loans (6,644) (20,612) (12,063)
Purchase of FHLBNY stock -- (476) --
Purchases of banking premises and equipment (87) (352) (21)
-------- -------- --------
Net cash used in investing activities (7,880) (33,214) (3,316)
-------- -------- --------
Cash flows from financing activities:
Net increase in deposits 2,412 41,109 8,588
Issuance of common stock and options and warrants exercised 1,320 24 8
Dividends paid (468) (372) --
-------- -------- --------
Net cash provided by financing activities 3,264 40,761 8,596
-------- -------- --------
(Decrease) increase in cash and cash equivalents (1,929) 9,027 6,870
Cash and cash equivalents at beginning of year 23,558 14,531 7,661
-------- -------- --------
Cash and cash equivalents at end of year $ 21,629 23,558 14,531
======== ======== ========
Supplemental information:
Cash paid during the year for:
Interest $ 3,189 2,105 1,801
======== ======== ========
Income taxes $ 1,319 1,221 408
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE>
BRIDGE VIEW BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts
of Bridge View Bancorp (the Company) and its direct and indirect
wholly-owned subsidiaries, Bridge View Bank and Bridge View Investment
Company (the Bank). All intercompany accounts and transactions have
been eliminated in consolidation. Certain accounts in prior periods
have been restated to conform to the current presentation.
Organization
The Bank is a commercial bank which provides a full range of banking
services to individuals and corporate customers in New Jersey. The Bank
is subject to competition from other financial institutions. The Bank
is regulated by state and federal agencies and is subject to periodic
examinations by those regulatory authorities.
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. 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.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance
for loan losses. In connection with the determination of the allowance
for loan losses, management generally obtains independent appraisals
for significant properties.
Securities Available for Sale
Management determines the appropriate classification of securities at
the time of purchase. If management has the intent and the Bank has the
ability at the time of purchase to hold securities until maturity, they
are classified as investment securities. Securities to be held for
indefinite periods of time and not intended to be held to maturity are
classified as securities available for sale. Gains or losses on sales
of securities available for sale are based upon the specific
identification method. Securities available for sale are reported at
fair value with changes in the carrying value from period to period
included as a separate component of stockholders' equity.
41
<PAGE>
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 it is management's
intention 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.
42
<PAGE>
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
adequate. 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.
Income Taxes
The Bank uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Earnings Per Share
Earnings per share is based upon the computational standards
established by the FASB Statement of Financial Accounting Standards No.
128. This statement provided for the replacement of Primary EPS and
Fully Diluted EPS with Basic EPS and Diluted EPS. Basic EPS excludes
dilution and represents the effect of earnings upon the weighted
average number of shares outstanding for the period. Diluted EPS
reflects the effect of earnings upon weighted average shares including
the potential dilution that could occur if securities or contracts to
issue common stock were converted or exercised. All per share data has
been restated to reflect this new statement as well as the two-for-one
exchanges in 1997 and 1996, respectively, and all stock dividends.
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.
43
<PAGE>
(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, 1997 and
1996 was $3.2 million and $2.2 million, respectively, representing
reserves required to be maintained by the Federal Reserve Bank.
(4) Securities Available for Sale and Investment Securities
A comparative summary of investment securities available for sale at
December 31, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amor- unreal- unreal-
tized ized ized Market
cost gains losses value
<S> <C> <C> <C> <C>
1997 - U.S. Government and
agency obligations $ 12,507 46 (10) 12,543
======== ====== ===== ========
1996 - U.S. Government and
agency obligations $ 8,647 15 (18) 8,644
======== ====== ===== ========
</TABLE>
44
<PAGE>
A comparative summary of held to maturity investment securities at
December 31, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amor- unreal- unreal-
tized ized ized Market
cost gains losses value
--------- ------ ----- ---------
<S> <C> <C> <C> <C>
1997:
U.S. Government and agency
securities $ 19,442 37 ( 9) 19,470
Municipal obligations 5,339 25 - 5,364
--------- ------ ----- ---------
$ 24,781 62 ( 9) 24,834
======== ====== ===== =========
1996:
U.S. Government and agency
obligations 21,183 48 (37) 21,194
Municipal obligations 6,334 18 - 6,352
--------- ------ ----- ---------
$ 27,517 66 (37) 27,546
======== ====== ===== =========
</TABLE>
The investments held at December 31, 1997 mature as follows (in
thousands):
<TABLE>
<CAPTION>
Securities Securities
held to available
maturity for sale
Amor- Amor-
tized Market tized Market
cost value cost value
<S> <C> <C> <C> <C>
Within one year $14,946 14,955 6,488 6,493
One to five years 9,835 9,879 6,019 6,050
Over five years - - - -
------- ------ ------ -------
$24,781 24,834 12,507 12,543
====== ====== ====== =======
</TABLE>
For the years ended December 31, 1997 and 1996, respectively, there
were no sales of securities.
Securities with an amortized cost of $2.0 million and $2.0 million were
pledged to secure public funds on deposit at December 31, 1997 and
1996, respectively.
45
<PAGE>
During 1996, the Bank became a member of the Federal Home Loan Bank of
New York (FHLBNY). As a result, the Bank is required to hold shares of
capital stock of FHLBNY, which are carried at cost, based upon a
specified formula. The Bank has a $15,000,000 line of credit with the
FHLBNY which is renewable each year. The interest rate is variable and
generally at 25 basis points above the federal funds rate. At December
31, 1997, no amount was outstanding on this line of credit.
(5) Loans and Allowance for Loan Losses
The activity in the allowance for loan losses is as follows (in
thousands):
1997 1996 1995
---- ---- ----
Balance at beginning of year $ 861 692 626
Provision charged to expense 160 193 92
Loans charged off (30) (36) (33)
Recoveries 18 12 7
------ ---- ----
Balance at end of year $ 1,009 861 692
===== ==== ====
There were no impaired loans at December 31, 1997 and 1996 and the
average balance for impaired loans in 1996 was $109,000. There were no
commitments to fund additional amounts to these borrowers.
The Company grants commercial, mortgage and installment loans to those
New Jersey residents and businesses within its local trading area. Its
borrowers' abilities to repay their obligations are dependent upon
various factors, including the borrowers' income and net worth, cash
flows generated by the underlying collateral, value of the underlying
collateral and priority of the Company's lien on the property. Such
factors are dependent upon various economic conditions and individual
circumstances beyond the Company's control; the Company is therefore
subject to risk of loss. The Company believes its lending policies and
procedures adequately minimize the potential exposure to such risks and
that adequate provisions for loan losses are provided for all known and
inherent risks.
(6) Banking Premises and Equipment
At December 31, banking premises and equipment consists of the
following (in thousands):
1997 1996
------ -------
Building $ 1,677 1,677
Furniture and equipment 891 807
Leasehold improvements 42 36
------ -------
2,610 2,520
Less accumulated depreciation and amortization 958 768
------ -------
Total banking premises and
equipment, net $ 1,652 1,752
====== =======
46
<PAGE>
(7) Deposits
At December 31, a summary of the maturity of certificates of deposit is
as follows:
1997 1996
--------- ---------
Certificates of deposit maturing:
One year or less $ 38,357 $ 52,359
One to three years 1,600 929
Over three years 813 634
--------- ---------
Total certificates $ 40,770 $ 53,922
(8) Income Taxes
Income tax expense from operations for the years ended December 31 is
as follows (in thousands):
1997 1996 1995
------- ------- -------
Federal:
Current $ 1,205 855 585
Deferred (111) (38) 35
------- ------- -------
1,094 817 620
------- ------- -------
State:
Current 258 179 156
Deferred (15) (9) 5
------- ------- -------
243 170 161
------- ------- -------
$ 1,337 987 781
======= ======= =======
Total income tax expense for the years ended December 31 is allocated
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income tax expense from operations $ 1,337 987 781
Stockholders' equity - unrealized loss (gain)
on securities available for sale and stock options (33) 6 (136)
------- ------- -------
$ 1,304 993 645
======= ======= =======
</TABLE>
47
<PAGE>
(8), Continued
Income tax expense from operations differed from the amounts computed
by applying the U.S. federal income tax rate (34% in 1997, 1996 and
1995) to income taxes as a result of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,156 861 685
Increase (decrease) in taxes resulting from:
State taxes, net of federal income tax
benefit 160 112 106
Tax-exempt income (61) (67) (29)
Other 82 81 19
------- ------- -------
$ 1,337 987 781
======= ======= =======
</TABLE>
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, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Interest income $ 14 0
Start-up costs 11 11
Bank premises, furniture and equipment,
principally due to differences in depreciation 55 62
Unrealized loss on securities available for sale -- 1
Loans, principally due to allowance for loan
losses and deferred fee income 358 302
---- ----
Total gross deferred tax assets 438 376
---- ----
Deferred tax liabilities:
Accrued expenses 22 47
Deferred fee income 29 20
Unrealized gain on securities available for sale 10 --
Investment securities, principally due to
accretion of discounts 37 29
Accrual to cash adjustment 106 161
---- ----
Total gross deferred tax liabilities 204 257
---- ----
Net deferred tax asset $234 119
==== ====
</TABLE>
48
<PAGE>
(8), Continued
At December 31, 1997, management believes that no valuation allowance
for the deferred tax asset is necessary due to sufficient taxes paid in
the statutory carryback period.
(9) Leases
The Bank leases land in Englewood Cliffs, New Jersey, on which its
headquarters building is located, from a general partnership owned
partly by a director under a ten-year operating lease with five
five-year renewal options. The Bank has the option to purchase the land
six months prior to expiration of the original ten-year term or six
months prior to the end of the 16th year of the lease. The purchase
price shall be the market value of the land only as determined by an
appraisal. Also, the Bank leases three other branch facilities in New
Jersey and certain business related equipment.
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,
1997 (in thousands):
Year ending December 31:
1998 $ 546
1999 330
2000 273
2001 218
2002 150
===
Rental expense amounted to $594,000, $513,000 and $464,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
(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 $93,000, $115,790
and $58,000 during the years ended December 31, 1997, 1996 and 1995,
respectively. It is the Bank's policy not to originate loans to
directors, executive officers or their affiliates.
49
<PAGE>
(11) Earnings Per Share Reconciliation
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings per
Share" (SFAS 128). SFAS 128 establishes standards for the presentation
and disclosure for earnings per share (EPS). It also simplifies the
standards for computing EPS and makes them comparable to international
EPS standards. SFAS 128 replaces the presentation of primary and fully
diluted EPS with basic and diluted EPS, respectively, and requires the
reconciliation of the numerator and the denominator of basic EPS with
that of diluted EPS. Basic EPS is computed by dividing net income by
the weighted-average number of common shares outstanding for the
period. The diluted EPS computation includes the potential impact of
dilutive securities including stock options and restricted stock
grants. The dilutive effect of stock options is computed using the
treasury stock method which assumes the repurchase of common shares of
the Company at the average market price for the period. The
reconciliation of the numerator and the denominator of basic EPS with
that of diluted EPS is presented for the years ended December 31, 1997,
1996, and 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
------ ------ ------
(in thousands, except per share data)
<S> <C> <C> <C>
Basic earnings per share:
Net Income $2,063 1,544 1,235
====== ====== ======
Average number of shares outstanding 2,350 2,198 2,194
====== ====== ======
Basic earnings per share $ 0.88 0.70 0.56
====== ====== ======
Diluted earnings per share:
Net Income $2,063 1,544 1,235
====== ====== ======
Average number of shares of common stock and equivalents outstanding:
Average common shares outstanding 2,350 2,198 2,194
Additional shares considered in diluted computation assuming:
Exercise of options and warrants 143 33 70
------ ------ ------
Average number of shares outstanding
on a diluted basis 2,493 2,231 2,264
====== ====== ======
Diluted earnings per share $ 0.84 0.69 0.55
====== ====== ======
</TABLE>
50
<PAGE>
(12) Stockholders' Equity and Dividend Restrictions
Warrants to purchase common stock were distributed to stockholders of
record as of October 1, 1992. One warrant was issued for each five
shares of common stock owned on that date. Each warrant entitles the
holder to purchase one share of common stock. Any warrants not
exercised by September 30, 1997 expired on that day. During 1997 and
1996, 311,458 and 5,464 warrants, respectively, were exercised. At
December 31, 1996, 330,763 warrants were outstanding.
During 1994, the Bank's stockholders approved the 1994 Stock Option
Plan for Non Employee Directors (Directors' Plan) and the 1994 Employee
Stock Option Plan (Employees' Plan). The Directors' Plan provided for
options to purchase up to 109,632 shares of the Bank's common stock to
be issued to directors who are not employees of the Bank. The
Employees' Plan provided for options to purchase up to 109,632 shares
of the Bank's common stock to be issued to employees of the Bank.
Previously issued options to an employee of the Bank were terminated
upon adoption of these plans. The option price per share approximates
the market value of the Bank's stock on the date of grant.
A summary of the stock option plans for the years ended December 31,
1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>
Option
Number price
of price per
shares share
------ -----
<S> <C> <C>
Outstanding at December 31, 1994 104,185 $ 4.43
Granted 56,809 4.76
Exercised - -
---------
Outstanding at December 31, 1995 160,994 4.43 - 4.76
Granted 15,330 5.48
Exercised (210) 5.48
Forfeited (11,802) 4.43
---------
Outstanding at December 31, 1996 164,312 4.43 - 5.48
Granted - -
Exercised (8,114) 4.76 - 5.48
--------
Outstanding at December 31, 1997 156,198 4.43 - 5.48
========
</TABLE>
51
<PAGE>
(12), Continued
At December 31, 1997, 1996, and 1995, the number of options exercisable
was 156,198, 164,312, and 160,994, respectively, and the
weighted-average price of those options was $4.62, $4.64, and $4.55,
respectively.
At December 31, 1997 and 1996, there were 42,941 additional shares
available for grant under the Plans. No options were granted during
1997. The per share weighted-average fair values of stock options
granted during 1996 and 1995 were $1.49 and $2.56, respectively, on the
date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions for 1996 and 1995, respectively:
expected dividend yields of 3.06% and 0%, risk-free interest rates of
6.3% and 6.0%, and expected lives of five years.
The Corporation applies APB Opinion No. 25 in accounting for its Plans
and, accordingly, no compensation cost has been recognized for its
stock options in the consolidated financial statements. Had the
Corporation determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Corporation's
net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands, except per share data):
1997 1996 1995
---- ---- ----
Net income:
As reported $ 2,063 1,544 1,235
Pro forma 2,063 1,506 1,232
========= ======== ========
Diluted earnings per share:
As reported $ 0.84 0.69 0.57
Pro forma 0.84 0.68 0.57
========= ======== ========
The Bank declared a two for one stock split effective December 1, 1997
and 5% stock dividends effective April 1, 1997, April 1, 1996, and
April 1, 1995.
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, 1997, this restriction did not result in any
effective limitations on the manner in which the Bank is currently
operating.
52
<PAGE>
(13) Employee Benefit Plans
The Company currently offers a 401(k) profit sharing plan (the Plan)
covering all 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 Bank made matching
contributions of $22,000, $19,000, and $14,000 in the years ended
December 31, 1997, 1996, and 1995, respectively. The Plan was incepted
in July 1995.
(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, 1997, 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, 1997, 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.
53
<PAGE>
(14), Continued
The following is a summary of the Bank's actual capital amounts and
ratios as of December 31, 1997 and 1996, compared to the FDIC minimum
capital adequacy requirements and the FDIC requirements for
classification as a well-capitalized institution:
<TABLE>
<CAPTION>
FDIC requirements
------------------------------------------------
Minimum capital For classification
Bank actual adequacy as well capitalized
--------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997:
Leverage (Tier I)
capital $ 15,157 10.82% $ 5,601 4.00% $ 7,001 5.00%
Risk-based capital:
Tier I 15,157 16.18 3,747 4.00 5,620 6.00
Total 16,166 17.26 7,493 8.00 9,366 10.00
December 31, 1996 Leverage (Tier I)
capital $ 12,218 11.20% $ 4,365 4.00% $ 5,456 5.00%
Risk-based capital:
Tier I 12,218 13.72 3,562 4.00 5,343 6.00
Total 13,079 14.69 7,125 8.00 8,906 10.00
</TABLE>
(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, 1997 and 1996 totaled $23.9 million and $21.4 million,
respectively. Additionally, unused credit card commitments totaled
$490,000 at December 31, 1997.
54
<PAGE>
(15), Continued
Most of the Company's lending activity is with customers located in
Bergen County, New Jersey. At December 31, 1997 and 1996, respectively,
the Company had outstanding letters of credit to customers totaling
$511,000 and $390,000 whereby the Company guarantees performance to a
third party. These letters of credit generally have fixed expiration
dates of less than one year.
(16) Financial Information of Parent Company
Bridge View Bancorp (the parent company) was incorporated on December
6, 1996 for the purpose of acquiring the Bank. The following
information on the parent only financial statements as of December 31,
1997 and 1996 and for the years then ended should be read in
conjunction with the notes to the consolidated financial statements.
<TABLE>
<CAPTION>
Statement of Financial Condition
December 31,
1997 1996
----- ----
(In thousands)
<S> <C> <C>
Assets:
Cash due from subsidiary $ 1,320 $ --
Investment in subsidiary 13,844 12,218
Deferred organization expense 14 21
-------- --------
Total assets $ 15,178 $ 12,239
======== ========
Liabilities - due to subsidiary $ 21 21
Shareholders' equity:
Common stock 13,347 10,647
Net unrealized loss on securities available
for sale 22 (2)
Retained earnings 1,788 1,573
-------- --------
Total shareholders' equity 15,157 12,218
-------- --------
Total liabilities and shareholders'
equity $ 15,178 $ 12,239
======== ========
</TABLE>
55
<PAGE>
(16), Continued
<TABLE>
<CAPTION>
Statement of Income
For the years ended December 31,
1997 1996
------- -------
(In thousands)
<S> <C> <C>
Dividend income from subsidiary $ 468 $ --
Expenses (7) --
------- -------
Income before equity in undistributed
earnings of subsidiary bank 461 --
Income - equity in undistributed earnings
of subsidiary bank 1,602 137
------- -------
Net income $ 2,063 $ 137
======= =======
Statement of Cash Flow
For the years ended December 31,
1997 1996
------ ------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,063 $ 137
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of the (1,602) (137)
subsidiary bank
Decrease (increase) in other assets 7 (21)
Increase in other liabilities 0 21
------- -------
Net cash provided by operating activities 468 --
Cash flows from investing activities -- --
Cash flows from financing activities:
Dividends Paid (468) --
Proceeds from exercise of warrant 1,281 --
Proceeds from exercise of options 39 --
------- -------
Net cash provided by financing activities 852 --
Net change in cash for the period $ 1,320 $ --
======= =======
</TABLE>
56
<PAGE>
(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, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
Esti- Esti-
Carry- mated fair Carry- mated fair
ing amount value ing amount value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 21,629 21,629 23,558 23,558
Securities available for sale 12,543 12,543 8,644 8,644
Investment securities 24,781 24,834 27,517 27,546
Net loans 82,186 83,874 75,752 75,611
FHLBNY stock 476 476 476 476
Accrued interest receivable 786 786 1,031 1,031
Financial liabilities - deposits 128,745 128,705 126,333 126,500
======== ======== ======== ========
</TABLE>
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.
57
<PAGE>
(17), Continued
FHLBNY Stock
The carrying amount approximates fair value.
Accrued Interest Receivable
The carrying amount approximates fair value.
Deposits
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, is equal to the amount payable
on demand as of year end. The fair value of certificates of deposit
is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.
Commitments to Extend Credit
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements; at December 31, 1997 and 1996,
such amounts were not material.
Limitation
The preceding fair value estimates were made at December 31, 1997
and 1996, 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, 1997 and
1996, 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.
58
<PAGE>
(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)
<TABLE>
<CAPTION>
December 31 September 30 June 30 March 31
----------- ------------ ------- --------
<S> <C> <C> <C> <C>
1997
Interest income $2,541 $2,505 $2,496 $2,402
Interest expense 721 706 796 900
------ ------ ------ ------
Net interest income 1,820 1,799 1,700 1,502
Provision for loan losses 0 40 60 60
Other expense, net 812 809 794 845
Provision for federal and state
income taxes 398 376 331 233
------ ------ ------ ------
Net income 610 574 515 364
====== ====== ====== ======
Net earnings per share:
Basic $ 0.24 $ 0.24 $ 0.21 $ 0.17
====== ====== ====== ======
Diluted $ 0.23 $ 0.23 $ 0.20 $ 0.16
====== ====== ====== ======
1996
Interest income $2,238 $2,009 $1,844 $1,780
Interest expense 742 600 489 493
------ ------ ------ ------
Net interest income 1,496 1,409 1,355 1,287
Provision for loan losses 30 50 60 53
Other expenses, net 759 723 687 652
Provision for federal and state
income taxes 277 248 237 227
------ ------ ------ ------
Net income 430 388 371 355
====== ====== ====== ======
Net earnings per share:
Basic $ 0.20 $ 0.18 $ 0.17 $ 0.16
====== ====== ====== ------
Diluted $ 0.19 $ 0.17 $ 0.16 $ 0.16
====== ====== ====== ======
</TABLE>
59
<PAGE>
(19) Recent Accounting Pronouncements
SFAS 130
Federal Accounting Standards Board Statement No. 130, "Reporting Comprehensive
Income", (SFAS 130) established standards for reporting and displaying of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. SFAS 130
requires all items that are required to be recognized under accounting
standards as components of comprehensive income to be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 does not require a specific format for that financial
statement but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement. SFAS 130
requires that an enterprise (a) classify items of other comprehensive by their
nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
60
<PAGE>
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 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
==============================================================================
Name Title Date
- --------------------------------------------------------------------------------
/s/ Albert F. Buzzetti President, Chief March 27, 1998
- -------------------------------- Executive Officer and
Albert F. Buzzetti Director
/s/ Michael Lesler Principal Accounting March 27, 1998
- -------------------------------- and Reporting Officer
Michael Lesler
/s/ Gerald A. Calabrese Director March 27, 1998
- ---------------------------------
Gerald A. Calabrese
/s/ Glenn L. Creamer Director March 27, 1998
- ---------------------------------
Glenn L. Creamer
/s/ Bernard Mann Director March 27, 1998
- ---------------------------------
Bernard Mann
/s/ Mark Metzger Director March 27, 1998
- ---------------------------------
Mark Metzger
/s/ Jeremiah F. O'Connor Director March 27, 1998
- ---------------------------------
Jeremiah F. O'Connor
/s/ Joseph C. Parisi Director March 27, 1998
- ---------------------------------
Joseph C. Parisi
/s/ John A. Schepisi Director March 27, 1998
- ---------------------------------
John A. Schepisi
61
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The Registrant has one subsidiary, Bridge View Bank.
Bridge View Bank has a single wholly-owned subsidiary, Bridge View
Investment Company.
63
<PAGE>
EXHIBIT 23
Independent Auditors' Consent
The Board of Directors
Bridge View Bancorp:
We consent to incorporation by reference in the Form 10-KSB of Bridge View
Bancorp our report dated February 6, 1998, relating to the consolidated
statements of financial condition of Bridge View Bancorp and subsidiaries as
of December 31, 1997 and 1996, 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, 1997, which report appears in the
December 31, 1997, annual report on Form 10-KSB of Bridge View Bancorp.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
March 27, 1998
64
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED DECEMBER 31, 1997 YEAR END FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001022809
<NAME> BRIDGE VIEW BANCORP
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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