Solid foundation. Bright future.
2007 Annual Report
Peconic Landing
Greenport
Southold
Montauk
Mattituck
Cutchogue
Sag Harbor
Wading River
Hampton Bays
Westhampton
East Hampton
Bridgehampton
Southampton
Southampton Village
EastErN LONg IsLaNd’s truE COMMuNItY BaNk
Bridge Bancorp, Inc. (“the Company”), a New York corporation (NASDAQ®/OTCBB:BDGE), is a one bank holding company
engaged in commercial banking and financial services through its wholly owned subsidiary, The Bridgehampton National Bank
(“the Bank,” “BNB”). With assets of approximately $600 million, the Bank operates in markets throughout eastern Long Island.
Established in 1910 by farmers and merchants, the Bank provides a full range of products and services to businesses, consumers
and municipalities. As a true community bank, BNB has a steadfast commitment to enhancing the quality of life on eastern
Long Island by supporting programs and initiatives that promote local business, protect the environment, focus on the arts
and education, assist with healthcare and social services and reach out to youth.
The Bridge Group of companies includes Bridge Bancorp, Inc., The Bridgehampton National Bank and Bridge Abstract LLC,
the Bank’s title insurance subsidiary.
The Bridgehampton National Bank provides deposit and loan products and financial services through its full service branch
network and electronic delivery channels. Bridge Abstract brokers title insurance services. The Company’s primary market area
includes the South and North Forks of eastern Long Island, extending westward to Riverhead Town. BNB currently operates
retail branches in Bridgehampton, Cutchogue, East Hampton, Greenport, Hampton Bays, Mattituck, Montauk, Peconic Landing
in Greenport, Sag Harbor, Southampton, Southampton Village, Southold, Wading River and Westhampton Beach.
Ponquogue Bridge, Hampton Bays
F ina nc ia l Hig hlig ht s
(in thousands, except per share data and financial ratios)
For the year ended December 31,
EARNINGS
Net income
Return on average equity
Return on average assets
BALANCE SHEET
Assets
Deposits
Loans
Stockholders’ equity
PER SHARE DATA
Diluted earnings per share
Cash dividends declared per common share
Book value
2007
2006
$ 8,294
$ 8,168
17.47%
1.38%
17.68%
1.49%
$ 607,424
$ 508,909
$ 375,236
$ 51,109
$ 573,644
$ 504,412
$ 325,997
$ 45,539
$
$
$
1.36
0.92
8.36
$
$
$
1.33
0.92
7.51
Total Assets
Return on Average Assets
(at December 31, dollars in millions)
800
(percent)
Net Income
(dollars in millions)
Return on Average Equity
(percent)
700
600
500
400
300
200
100
0
2.0
1.5
1.0
0.5
0.0
Total Assets
(at December 31, dollars in millions)
Return on Average Assets
(percent)
Net Income
(dollars in millions)
Return on Average Equity
(percent)
511.6
547.2
533.4 573.6 $607.4
1.91
1.89
1.76
1.49
2003 2004 2005 2006
2007
2003 2004 2005 2006
1.38%
2007
9.6
10.4
9.6
8.2
2003 2004 2005 2006
$8.3
2007
22.58 22.82 20.15 17.68 17.47%
2003 2004 2005 2006
2007
2007 Annual Report BRIDGE BANCoRP, INC.
1
12
10
8
6
4
2
0
25
20
15
10
5
0
Solid foundation…
DeAR ShAReholDeRS,
This is a transition period for our Company and it gives me a great deal of pleasure to extend a warm welcome
to Kevin M. O’Connor, our new President and Chief Executive Officer. Kevin brings a considerable banking resume
to our Company to augment a young but seasoned management group. In these uncertain banking times, it is
comforting to have a leadership team that recognizes the importance of maintaining banking fundamentals and
respecting our history of asset quality and performance. Regrettably, the industry is experiencing the credit
excesses of the recent past that we have avoided through disciplined strategy and guidance from our Board of
Directors. It is with deep gratitude that we acknowledge the dedication and active participation of our Chairperson
Raymond Wesnofske as he retires from our board.
As we look to the future, I am confident the markets will reward and recognize those banks that have exhibited
a consistent and conservative approach to credit underwriting standards that result in quality asset structures. I
look forward to continued participation with the Company as President Emeritus and Advisor/Member of our
Board of Directors. It has been my honor to serve you in a position in which I have experienced great enjoyment,
particularly so in working with our shareholders and customers. Throughout my career I have had the distinct
pleasure of working with true professionals who recognize that their responsibilities are much more than simply
the bottom line, but also the betterment and reinvestment in our communities.
Thank you.
Thomas J. Tobin
President Emeritus and
Special Advisor to the Board of Directors
2
BRIDGE BANCoRP, INC.
2007 Annual Report
Thomas J. Tobin’s commitment to the community has been steadfast. Under his leadership and with Raymond Wesnofske
as Chairperson of the Board, Bridgehampton National Bank has earned recognition and been honored as a
community bank that supports the institutions that preserve and enrich the quality of life on eastern Long Island.
Peconic Land Trust
With support from BNB, for
over 20 years, the Peconic Land
Trust has focused on and brought
attention to issues of the environ
ment, preservation and protection,
including the historic landmark
designation of Fort Corchaug on
the North Fork of Long Island.
CMEE and SYS
The Children’s Museum
of the East End (CMEE)
and Southampton Youth
Services (SYS) both exist
today because of support
from BNB. Their creativity,
vision, and contribution to
the youth of the community
was embraced by the Bank.
Community
Preservation Fund
As one of the original supporters,
BNB helped to bring decision
makers together—to preserve open
space, farmland and historic sites
using funds raised through a 2%
tax on certain real estate trans
actions. To date, over 10,000
acres have been preserved and
over $500 million raised.
East End Executive
Development
In 2004, the executive directors of
24 local nonprofits were invited
to participate in a special program
initiated by BNB. A top faculty
from Columbia University offered
a curriculum of business and mar
keting topics designed to support
the success of these institutions.
Villa Maria
The Dominican Sisters were able
to negotiate a special sale of this
spectacular estate with the help
of BNB. A piece of the property
has been set aside, preserved in
its natural state, protecting the
beautiful vistas and magnificent
landscape in perpetuity.
Serving
Communities
Twenty years ago, BNB had
four branches. Today, customers
experience personal service and
convenience through a network
of 14 branches that focus on
helping people and businesses
thrive. The most recent branch
opened in Wading River
in September.
2007 Annual Report BRIDGE BANCoRP, INC.
3
Kevin M. O’Connor
President and Chief Executive Officer
Bright future…
My Fellow ShAReholDeRS,
I am pleased to have the opportunity to address you, for the first time, as President and Ceo of
Bridge Bancorp, Inc. I clearly see the factors that for almost 100 years have set us apart. It begins with our
steadfast commitment to the community and a willingness to understand and satisfy our customers’ needs,
while maintaining our responsibility to you, our shareholders. Despite the challenging economic environ-
ment, increased competition, our own growth initiatives and ambitious customer service standards, we
again achieved strong returns. Clear direction, conservative, careful growth and a customer centric focus
will continue to be the basis for our future success.
I am also humbled to be following Thomas J. Tobin, whose achievements have been the major catalyst for the
organization’s success. I am gratified that Tom will be staying on as President Emeritus and Advisor/Member of
the Board. His experience is invaluable and is essential to completing the transition that began last year.
Building on the momentum of the past several years, our Company posted impressive results in 2007, with
earnings of $8.3 million or $1.36 per share. Our returns on average equity of 17.47% and average assets of 1.38%
again ranked near the top of our national peer group of community banks. These results are noteworthy given the
challenging interest rate environment, our investments in growth and the ongoing economic turbulence. Headlines
over the past year signaled turmoil for many financial institutions, with both lenders and borrowers under stress.
Reports of delinquent loans continue to mount and the industry’s credit losses have soared to record levels. Our
credit quality remains strong and we have successfully avoided subprime and other questionable lending practices.
However, given the current headwinds, we remain extremely cautious for the future and will diligently monitor the
economy’s impact on our Company.
Our results and strong capital position allowed us to continue our trend of uninterrupted dividends and
support of various growth strategies. During 2007, we paid $0.92 per share or $5.6 million in dividends to our
shareholders, a dividend yield of approximately 3.75%.
As we review the past year’s achievements and consider future opportunities, we see our success directly
attributable to the steady and prudent growth of our branch deposits and localized lending activities. Lower cost
branch deposits provided a predictable funding source for loans, which we maintained on our balance sheet. Our
positive results contrast with those of other more seemingly diversified and sophisticated financial institutions
that have taken record losses and experienced some highly publicized liquidity and capital concerns.
Growth is integral to our plans for the future. Over the past several years, we have expanded our branch
network, and in 2007 we opened three new branches: in January our Hampton Road location in Southampton
4
BRIDGE BANCoRP, INC.
2007 Annual Report
A classic red barn, Cutchogue
Village, followed by our Cutchogue location in February and finally in September, we opened in Wading River, our
first branch in Riverhead Town.
Our branch expansion, as measured by both deposit growth and lending opportunities, has clearly been a
success. For the year, average deposits grew by $50 million, a 10% increase. Another important metric, consumer
and commercial deposits, achieved a seasonal high of $500 million during the fall of 2007. We remain optimistic
for continued growth, as 4 of our 14 branches have been open 3 years or less, offering significant growth
opportunities. Our more established branches also continue to add customers and balances as local people
working with our experienced staff recognize the benefit of banking with the premier local financial institution.
The development of our new East Hampton branch is in progress, and we hope to break ground in 2008. We will
continue to seek opportunities where we believe our banking model can be successful.
The branch network serves as the front line for customer contact both for consumer and commercial deposits,
and equally as important, the origination point for local business loans. In addition, we are able to offer customers
electronic banking products and services, effectively expanding the geographic footprint of our network. In 2007,
we introduced BridgeNEXUS, our remote deposit capture product, complementing our full offering of cash
management services.
Our lending activities remain robust and we achieved double digit loan growth with loans totaling
$375 million at year end, a 15% increase above the prior year. We remain diligent, and conservative in our under-
writing and assessment of credit and repayment risk. We have attempted to avoid the mistakes others have made
as we conduct the difficult business of lending. There are definitely signs of credit difficulties within the national
economy and although they are not as evident in our markets, management has adopted a heightened awareness
for such signs or slowdowns in economic activity. We have made adjustments to certain products and our pricing
reflects the new reality of lending in 2008.
2007 Annual Report BRIDGE BANCoRP, INC.
5
Fall splendor, Water Mill
Despite the flat interest rate environment, our loan and deposit growth allowed us to maintain a healthy net
interest margin of 4.69% and earn record net interest income of $25.4 million. This, coupled with increases in
non-interest income, positioned us to absorb the additional costs attributable to our growth initiatives and credit
costs associated with our growing loan portfolio. Non-interest income growth reflects a combination of banking
fees, associated with growth in our deposits, and the success of our title insurance subsidiary, Bridge Abstract.
This success resulted from a strategic initiative to capitalize on the strong local real estate market and the
community’s commitment to preserve open space. The increase in non-interest expense resulted from investments
in infrastructure and staff. The pace of the increases should decline in 2008, but we will continue to identify initia-
tives we believe will contribute to enhancing shareholder value.
We also recognize our responsibility as a true community bank. The word that characterizes our efforts is
“involvement.” In addition to offering financial support to many local non-profit organizations, our staff also
contributes their own time and resources. We participate at The Shelter Island 10K, Potato Hampton 5K, Ellen’s
Run and other local races. We sponsor exhibitions at The Children’s Museum of the East End (CMEE), Guild Hall
and the Parrish Art Museum benefiting our children. We collaborate and volunteer at Southampton Youth Services
(SYS) and the East Hampton YMCA. In Wading River, we opened the Branch with a holiday tree lighting and
contributed to the high school program supporting families in need. The relationships we have with the communi-
ties we serve, are substantive.
As a shareholder and new member of the Board, I want to share with you the upcoming changes to our Board.
First, I would like to thank and celebrate our retiring Chairperson Raymond Wesnofske. Ray has served you for
38 years, presiding over the most successful period in this Company’s history. His strong local knowledge and
vision, along with determined leadership, has inspired management. His calming influence and steady voice will
be missed. Ray will be succeeded in his role as Chairperson by Marcia Hefter, a Board member for nearly 20 years.
Marcia previously served as Vice Chairperson. A local attorney and business woman, she brings experience and
energy to this role. Dennis Suskind, a director for over 5 years, assumes the role of Vice Chairperson. His unique
perspective and experience on Wall Street and as a local entrepreneur will be invaluable. We have also added two
6
BRIDGE BANCoRP, INC.
2007 Annual Report
A look at the light, Montauk
Celebrating Veteran’s Day, Wading River
new directors. Emanuel Arturi is a nationally recognized business consultant specializing in the financial services
industry. His business experience and knowledge of our western markets adds a new dimension to the Board. We
have also nominated, to stand for election, Albert E. McCoy, Jr., a name recognizable to our longtime shareholders.
Mr. McCoy’s father, Albert, Sr., served with distinction on this Board for over 20 years. Mr. McCoy has been a
successful local entrepreneur, skillfully building on his father’s legacy. He will add deeper local knowledge and
challenge management to seek new opportunities.
These changes demonstrate the continuing evolution of our Company. We recognize our mission and
enthusiastically accept the challenges of the market and of our shareholders. We understand, as a public company,
we must continue to achieve superior financial results, deliver dividends and strive to increase our share price.
Our goal is to accomplish all of this while balancing our role as a member of the larger community. These are
exactly the objectives achieved by Tom Tobin and his Board of Directors. Now, under my leadership, with the
support of you and our Board and with the help of a dedicated staff, we will take on the new and difficult
challenges before us. Along with the rest of management, I look forward to building on this past year, making 2008
a very successful year for our Company.
On a personal note, I would like to thank our Board of Directors for the opportunity to lead this dynamic and
driven management team, carrying on the traditions that began in 1910. Their vision for the Company and their
faith in me is inspiring. I look forward to meeting many of you in the years to come, and thank you on behalf of
the rest of the Board and management for your support and commitment to the mission of Bridge Bancorp.
Please review the Form 10-K that follows to learn more about the Company and the results of operations
for 2007.
Sincerely,
Kevin M. O’Connor
President and Chief Executive Officer
2007 Annual Report BRIDGE BANCoRP, INC.
7
Total Loans
(at December 31, dollars in millions)
Total Deposits
(percent)
400
350
300
250
200
150
100
50
0
600
500
400
300
200
100
0
The pleasures of summer, Bridgehampton
Total Loans
(at December 31, dollars in millions)
Total Deposits
(at December 31, dollars in millions)
273.2 296.1 302.3 326.0 $375.2
2003 2004 2005 2006
2007
457.2 469.3 468.0 504.4 $508.9
2003 2004 2005 2006
2007
With gratitude
Raymond Wesnofske
Director Since 1970
Chairperson of the Board since 1989
For 38 years, Raymond Wesnofske has offered his unique insight and experience to the management of
Bridgehampton National Bank. A graduate of Cornell University, he came to the board as a successful local
potato farmer. His potato business, which included packing and marketing, was recognized as state-of-the-art.
When a vacancy occurred on the board in 1970, the late Chairperson Sayre Baldwin was heard to remark “what
about the young Wesnofske?” Ray went on to succeed Baldwin as Chairperson.
In his almost 40 years of tenure with Bridge Bancorp, he has served with four different presidents. With his
wife Lynn at his side, he has seen the Bank grow and helped to guide it to the success it enjoys today. Ray has
numerous interests. He has been an avid pilot, and for many years flew his Piper Cherokee…69Whiskey, all over
the Northeast. He continues to be enthusiastic about trotter racing and he and Lynn have owned several race
horses. He also has a passion for architecture. As he retires from the Board this April, the current Board of
Directors, management team and the entire staff extend a heartfelt thank you for his immeasurable contributions
and best wishes for the time and leisure to pursue his interests.
8
BRIDGE BANCoRP, INC.
2007 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
⌧⌧
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
Commission File No. 000-18546
BRIDGE BANCORP, INC.
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation or organization)
11-2934195
(IRS Employer Identification Number)
2200 MONTAUK HIGHWAY, BRIDGEHAMPTON, NEW YORK
(Address of principal executive offices)
11932
(Zip Code)
Registrant’s telephone number, including area code: (631) 537-1000
Securities registered under Section 12 (b) of the Exchange Act:
Title of each class
None
Name of each exchange on which registered
None
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, Par Value of $0.01 Per Share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) of this chapter is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated
filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The approximate aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing price of the
Common Stock on June 30, 2007, was $136,467,094.
The number of shares of the Registrant’s common stock outstanding on March 7, 2008 was 6,140,072.
Portions of the following documents are incorporated into the Parts of this Report on Form 10-K indicated below:
The Registrant’s definitive Proxy Statement for the 2008 Annual Meeting to be filed pursuant to Regulation 14A on or before April 30,
2008 (Part III).
T A B L E O F C O N T E N T S
PART I
Item 1
Business
Item 1A
Risk Factors
Item 1B
Unresolved Staff Comments
Item 2
Properties
Item 3
Legal Proceedings
Item 4
Submission of Matters to a Vote of Security Holders
PART II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Item 6
Selected Financial Data
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Item 8
Financial Statements and Supplementary Data
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A
Controls and Procedures
Item 9B
Other Information
PART III
Item 10
Directors, Executive Officers and Corporate Governance
Item 11
Executive Compensation
Item 12
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13
Certain Relationships and Related Transactions, and Director Independence
Item 14
Principal Accountant Fees and Services
PART IV
Item 15
Exhibits and Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
1
3
4
4
4
4
5
7
8
23
25
52
52
52
52
52
53
53
53
53
54
55
PART I
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2008, are incorporated by reference into
Part III.
Item 1. Business
Bridge Bancorp, Inc. (the “Registrant” or “Company”) is a registered bank holding company for The Bridgehampton National Bank
(the “Bank”). The Bank was established in 1910 as a national banking association and is headquartered in Bridgehampton, New York.
The Registrant was incorporated under the laws of the State of New York in 1988, at the direction of the Board of Directors of the Bank
for the purpose of becoming a bank holding company pursuant to a plan of reorganization; under which the former shareholders of the
Bank became the shareholders of the Company. Since commencing business in March 1989, after the reorganization, the Registrant
has functioned primarily as the holder of all of the Bank’s common stock. In May 1999, the Bank established a real estate investment
trust subsidiary, Bridgehampton Community, Inc. (“BCI”) as an operating subsidiary. The assets transferred to BCI are viewed by the
bank regulators as part of the Bank’s assets in consolidation. The operations of the Bank also include Bridge Abstract LLC (“Bridge
Abstract”), a wholly owned subsidiary of the Bank which is a broker of title insurance services.
The Bank operates fourteen branches on eastern Long Island. Federally chartered in 1910, the Bank was founded by local farmers and
merchants. For nearly a century, the Bank has maintained its focus on building customer relationships in this market area. The mission
of the Company is to grow through the provision of exceptional service to its customers, its employees, and the community. The
Company strives to achieve excellence in financial performance and build long term shareholder value. The Bank engages in full
service commercial and consumer banking business, including accepting time, savings and demand deposits from the consumers,
businesses and local municipalities surrounding its branch offices. These deposits, together with funds generated from operations and
borrowings, are invested primarily in: (1) commercial real estate loans; (2) home equity loans; (3) construction loans; (4) residential
mortgages; (5) secured and unsecured commercial and consumer loans; (6) FHLB, FNMA, GNMA and FHLMC mortgage-backed
securities; (7) New York State and local municipal obligations; and (8) U.S. Treasury and government agency securities. The Bank
also offers the CDARS program, providing up to $50,000,000 of FDIC insurance to its customers. In addition, the Bank offers
merchant credit and debit card processing, automated teller machines, cash management services, online banking services, safe deposit
boxes and individual retirement accounts. Through its title insurance abstract subsidiary, the Bank acts as a broker for title insurance
services. The Bank’s customer base is comprised principally of small businesses, municipal relationships and consumer relationships.
The Bank employs 157 people on a full-time and part-time basis. The Bank provides a variety of employment benefits and considers
its relationship with its employees to be positive. In addition, the Company has an equity incentive plan under which it may issue
shares of the common stock of the Company.
All phases of the Bank’s business are highly competitive. The Bank faces direct competition from a significant number of financial
institutions operating in its market area, many with a statewide or regional presence, and in some cases, a national presence. There is
also competition for banking business from competitors outside of its market areas. Most of these competitors are significantly larger
than the Bank, and therefore have greater financial and marketing resources and lending limits than those of the Bank. The fixed cost
of regulatory compliance remains high for community banks as compared to their larger competitors that are able to achieve economies
of scale. The Bank considers its major competition to be local commercial banks as well as other commercial banks with branches in
the Bank’s market area. Other competitors include mortgage brokers and financial services firms other than financial institutions such
as investment and insurance companies. Increased competition within the Bank’s market areas may limit growth and profitability.
Additionally, as the Bank’s market area expands westward, competitive pressure in new markets is expected to be strong. The title
insurance abstract subsidiary also faces competition from other title insurance brokers as well as directly from the companies that
underwrite title insurance. In New York State, title insurance is obtained on most transfers of real estate and mortgage transactions.
The Bank’s principal market area is located on eastern Long Island. During 2007, the Bank opened three new branches. In January
2007, the Bank opened a state-of-the-art branch facility in the Village of Southampton; in February 2007, the Bank opened a new full-
service branch facility in Cutchogue; and in September 2007, the Bank opened its first full-service branch facility in the Town of
Riverhead, located in Wading River. The opening of the branch facility in Westhampton Beach in December 2005, and the branch in
Wading River in September 2007, move the Bank geographically westward and demonstrate the Bank’s commitment to traditional
growth through branch expansion. Plans for a new East Hampton branch are in process and awaiting regulatory approval.
The Bank routinely adds to its menu of products and services, continually meeting the needs of consumers and businesses. During the
third quarter of 2007, the Bank completed the pilot phase of the remote deposit capture product, "BridgeNEXUS" and rolled out the
product on a selected basis to customers in the fourth quarter. Remote deposit capture provides added convenience to customers and
the ability for the Bank to expand its footprint into areas without local branches.
Page -1-
Eastern Long Island is semi-rural. Surrounded by water and including the Hamptons and North Fork, the region is a recreational
destination for the New York metropolitan area, and a highly regarded resort locale world-wide. While the local economy flourishes in
the summer months as a result of the influx of tourists and second homeowners, the year-round population has grown considerably in
recent years, resulting in a reduction of the seasonal fluctuations in the economy. Industries represented in the marketplace include
retail establishments; construction and trades; restaurants and bars; lodging and recreation; professional entities; real estate; health
services; passenger transportation and agricultural and related businesses. During the last decade, the Long Island wine industry has
grown with an increasing number of new wineries and vineyards locating in the region each year. The vast majority of businesses are
considered small businesses employing fewer than ten full-time employees. In recent years, more national chains have opened retail
stores within the villages on the north and south forks of the island. Major employers in the region include the municipalities, school
districts, hospitals, and financial institutions.
The Company, the Bank and its subsidiaries with the exception of the real estate investment trust, which files its own federal and state
tax return, report their income on a consolidated basis using the accrual method of accounting and are subject to federal and state
income taxation. In general, banks are subject to federal income tax in the same manner as other corporations. However, gains and
losses realized by banks from the sale of available for sale securities are generally treated as ordinary income, rather than capital gains
or losses. The Bank is subject to the New York State Franchise Tax on Banking Corporations based on certain criteria. The taxation of
net income is similar to federal taxable income subject to certain modifications.
REGULATION AND SUPERVISION
The Bridgehampton National Bank is chartered by and is subject to extensive regulation, examination and supervision by the Office of
the Comptroller of the Currency (the “OCC”). The Bank is a member of the Federal Home Loan Bank of New York and its deposit
accounts are insured up to applicable limits by the Federal Deposit Insurance Corporation (the “FDIC”). The Bank also is a member of
the Federal Reserve System. The Bank must file reports with the OCC concerning its activities and financial condition, in addition to
obtaining regulatory approvals prior to entering into certain transactions, such as mergers with or acquisitions of, other financial
institutions. There are periodic examinations by the OCC to test compliance with various regulatory requirements.
The Bank is subject to various statutory requirements and rules and regulations promulgated and enforced primarily by the OCC and to
a lesser extent the FDIC. These statutes, rules and regulations relate to insurance of deposits, minimum capital requirements, allowable
investments, lending authority, mergers, consolidations, issuance of securities, payment of dividends, establishment of branches and
other aspects of our business.
This regulation and supervision establishes a comprehensive framework of activities in which the Bank may engage and is intended
primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan loss reserves.
Bridge Bancorp, Inc., as a bank holding company controlling the Bank, is subject to the Bank Holding Company Act of 1956, as
amended (“BHCA”), and the rules and regulations of the Federal Reserve Board under the BHCA applicable to bank holding
companies. The Company is required to file reports with, and otherwise comply with the rules and regulations of the Federal Reserve
Board.
Such regulation and supervision govern the activities in which a bank and its holding company may engage and are intended primarily
for the protection of the insurance fund and depositors. These regulatory authorities have extensive enforcement authority over the
institutions that they regulate to prohibit or correct activities that violate law, regulation or a regulatory agreement or which are deemed
to be unsafe or unsound banking practices. Enforcement actions may include the appointment of a conservator or receiver, the issuance
of a cease and desist order, the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors,
officers, employees and institution-affiliated parties, the issuance of directives to increase capital, the issuance of formal and informal
agreements, the removal of or restrictions on directors, officers, employees and institution-affiliated parties, and the enforcement of any
such mechanisms through restraining orders or other court actions. Any change in laws and regulations, whether by the OCC, the
FDIC, the Federal Reserve Board or through legislation, could have a material adverse impact on the Bank and the Company and their
operations and stockholders. Additional information on regulatory requirements is set forth in Note 13 to the Consolidated Financial
Statements.
Bridge Bancorp, Inc. had nominal results of operations for 2007, 2006 and 2005 on a parent-only basis. Equity incentive plan grants of
stock options and stock awards are recorded directly to the holding company. The Company’s sources of funds are dependent on
dividends from the Bank, its own earnings, additional capital raised and borrowings. The information in this report reflects principally
the financial condition and results of operations of the Bank. The Bank’s results of operations are primarily dependent on its net
interest income. The Bank also generates non interest income, such as fee income on deposit accounts and merchant credit and debit
card processing programs, income from its title insurance abstract subsidiary, and net gains on sales of securities and loans. The level
Page -2-
of its non interest expenses, such as salaries and benefits, occupancy and equipment costs, other general and administrative expenses,
expenses from its title insurance abstract subsidiary, and income tax expense, further affects the Bank’s net income.
The Company files certain reports with the Securities and Exchange Commission (“SEC”) under the federal securities laws. The
Company’s operations are also subject to extensive regulation by other federal, state and local governmental authorities and it is subject
to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of its operations.
Management believes that the Company is in substantial compliance, in all material respects, with applicable federal, state and local
laws, rules and regulations. Because the Company’s business is highly regulated, the laws, rules and regulations applicable to it are
subject to regular modification and change. There can be no assurance that these proposed laws, rules and regulations, or any other
laws, rules or regulations, will not be adopted in the future, which could make compliance more difficult or expensive or otherwise
adversely affect the Company’s business, financial condition or prospects.
OTHER INFORMATION
Through a link on the Investor Relations section of the Bank’s website of www.bridgenb.com, copies of the Company’s Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) for 15(d) of the Exchange Act, are made available, free of charge, as soon as reasonably practicable after
electronically filing such material with, or furnishing it to, the SEC. Copies of such reports and other information also are available at
no charge to any person who requests them or at www.sec.gov. Such requests may be directed to Bridge Bancorp, Inc., Investor
Relations, 2200 Montauk Highway, PO Box 3005, Bridgehampton, NY 11932, (631) 537-1000.
Item 1A. Risk Factors
Concentration of Loan Portfolio
The Bank generally invests a significant portion of its assets in loans secured by commercial and residential real estate properties
located in eastern Long Island. A downturn in real estate values and economic conditions on eastern Long Island could have a
significant impact on the value of collateral securing the loans as well as the ability for the repayment of loans. See a further discussion
in “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Loans.”
Changes in Interest Rates Could Affect Profitability
The ability to earn a profit, like most financial institutions, depends on the net interest income, which is the difference between the
interest income that the Bank earns on its interest-bearing assets, such as loans and investments, and the interest expense which we pay
on our interest-bearing liabilities, such as deposits. The Bank’s profitability depends on its ability to manage its assets and liabilities
during periods of changing market interest rates.
A sustained decrease in market interest rates could adversely affect the Bank’s earnings. When interest rates decline, borrowers tend to
refinance higher-rate, fixed-rate loans at lower rates. Under those circumstances, the Bank would not be able to reinvest those
prepayments in assets earning interest rates as high as the rates on those prepaid loans or in investment securities. In addition, the
majority of the Bank’s loans are at variable interest rates, which would adjust to lower rates.
In a period of rising interest rates, the interest income earned on the Bank’s assets may not increase as rapidly as the interest paid on its
liabilities. In an increasing interest rate environment, the Bank’s cost of funds is expected to increase more rapidly than interest earned
on its loan and investment portfolio as the primary source of funds is deposits with generally shorter maturities than those on its loans
and investments. This makes the balance sheet more liability sensitive in the short term.
Geographic Location and Competition
The Bank’s market area is located on eastern Long Island and its customer base is mainly located in the towns of East Hampton,
Southampton, Southold and Riverhead. Competition in the banking and financial services industry is intense. The profitability of the
Bank depends on the continued ability to successfully compete. The Bank competes with commercial banks, savings banks, insurance
companies, and brokerage and investment banking firms. Many of our competitors have substantially greater resources and lending
limits than the Bank and may offer certain services that the Bank does not provide. In addition, competitors recently have been
offering deposits at higher rates and loans with lower fixed rates, more attractive terms and less stringent credit structures than the Bank
has been willing to offer. Furthermore, the high cost of living on the twin forks of eastern Long Island creates staff recruitment and
retention challenges.
The Company’s Future Depends on Successful Growth of its Subsidiary
The Company’s primary business activity for the foreseeable future will be to act as the holding company of the Bank. Therefore, the
Company’s future profitability will depend on the success and growth of this subsidiary.
Page -3-
The Loss of Key Personnel Could Impair our Future Success
Our future success depends in part on the continued service of our executive officers, other key management, as well as our staff, and
on our ability to continue to attract, motivate, and retain additional highly qualified employees. The loss of services of one or more of
our key personnel or our inability to timely recruit replacements for such personnel, or to otherwise attract, motivate, or retain qualified
personnel could have an adverse effect on our business, operating results, and financial condition. In April 2007, the Company’s Chief
Financial Officer (“CFO”) resigned and the Company’s Chief Operating Officer, Howard H. Nolan assumed the CFO’s responsibilities.
On February 26, 2008, the Board appointed Mr. Nolan as the Company's CFO.
In addition, on October 9, 2007, the Company announced that Thomas J. Tobin would be retiring as President and Chief Executive
Officer effective on December 31, 2007. Kevin M. O’Connor was appointed to the Board of Directors and became Mr. Tobin’s
successor as President and Chief Executive Officer effective January 1, 2008. Mr. Tobin remains a member of the Board of Directors
and assumed his new role as President Emeritus and Advisor to the Board effective January 1, 2008.
Highly Regulated Environment
We are subject to extensive regulation, supervision and examination by the OCC, FDIC, the Federal Reserve Board and the SEC. Such
regulation and supervision govern the activities in which a financial institution and its holding company may engage and are intended
primarily for the protection of the consumer. Recently regulators have intensified their focus on the USA PATRIOT Act’s anti-money
laundering and Bank Secrecy Act compliance requirements. In order to comply with regulations, guidelines and examination
procedures in this area as well as other areas of the Bank, we have been required to adopt new policies and procedures and to install
new systems. We cannot be certain that the policies, procedures, and systems we have in place are flawless and there is no assurance
that in every instance we are in full compliance with these requirements. Regulatory authorities have extensive discretion in
connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution.
Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, may have a material
impact on our operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
At present, the Registrant does not own or lease any property. The Registrant uses the Bank’s space and employees without separate
payment. Headquarters are located at 2200 Montauk Highway, Bridgehampton, New York 11932. The Bank’s internet address is
www.bridgenb.com
All of the Bank’s properties are located on eastern Long Island in New York. The Bank’s Main Office in Bridgehampton is owned.
The Bank also owns buildings that house its Montauk Branch located at 1 The Plaza, Montauk; its Southold Branch located at 54790
Main Road, Southold; its Westhampton Beach Office at 194 Mill Road, Westhampton Beach; and its Southampton Village Branch
located at 150 Hampton Road, Southampton. The Bank currently leases out a portion of the Montauk building and the Westhampton
Beach building. The Bank leases eight additional properties on eastern Long Island as branch locations at 32845 Main Road,
Cutchogue; 26 Park Place, East Hampton; 218 Front Street, Greenport; 48 East Montauk Highway, Hampton Bays; Mattituck Plaza,
Main Road, Mattituck; 2 Bay Street, Sag Harbor; 425 County Road 39A, Southampton and 6324 Route 25A, Wading River.
Additionally, the Bank utilizes space for a branch in the retirement community, Peconic Landing at 1500 Brecknock Road, Greenport.
In 2003, the Bank purchased property in the Village of East Hampton and is currently planning construction of a building on that site.
The Bank has contractual rights to purchase real estate in the Town of Southold which will also be considered as a site for a future
branch facility.
Item 3. Legal Proceedings
The Registrant and its subsidiary are subject to certain pending and threatened legal actions that arise out of the normal course of
business. In the opinion of management at the present time, the resolution of any pending or threatened litigation will not have a
material adverse effect on its financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the shareholders during the fourth quarter of the fiscal year covered by this report.
Page -4-
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
COMMON STOCK INFORMATION
The Company’s common stock is traded on the NASDAQ® over the counter bulletin board market under the symbol, “BDGE.” The
following table details the quarterly high and low bid prices of the Company’s common stock and the dividends declared for such
periods.
At December 31, 2007 the Company had approximately 772 shareholders of record, not including the number of persons or entities
holding stock in nominee or the street name through various banks and brokers.
COMMON STOCK INFORMATION
By Quarter 2007
First
Second
Third
Fourth
By Quarter 2006
First
Second
Third
Fourth
Stock Prices
High
Dividends
Low Declared
$24.75
$24.60
$24.75
$25.05
$23.60
$23.80
$23.50
$23.25
$0.23
$0.23
$0.23
$0.23
Stock Prices
High
Low
Dividends
Declared
$26.30
$26.65
$26.10
$25.85
$24.15
$24.65
$24.50
$23.75
$0.23
$0.23
$0.23
$0.23
Stockholders received cash dividends totaling $5,612,000 in 2007 and $5,668,000 in 2006. The ratio of dividends per share to net
income per share was 67.67% in 2007 compared to 68.98% in 2006.
Page -5-
PERFORMANCE GRAPH
Pursuant to the regulations of the SEC, the graph below compares the performance of the Company with that of the total return for the
NASDAQ® stock market and for certain bank stocks of financial institutions with an asset size $500 million to $1 billion, as reported
by SNL Financial L.C. from December 31, 2002 through December 31, 2007. The graph assumes the reinvestment of dividends in
additional shares of the same class of equity securities as those listed below.
Bridge Bancorp, Inc.
Total Return Performance
l
e
u
a
V
x
e
d
n
I
225
200
175
150
125
100
75
12/
31
/02
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
Bridge Bancorp, Inc.
NASDAQ Composite
SNL Bank $500M-$1B Index
December, 31
Index
Bridge Bancorp, Inc.
NASDAQ® Composite
SNL $500M-$1B Bank Index
2002
2003
2004
2005
100.00
100.00
100.00
162.28
150.01
144.19
217.97
162.89
163.41
181.94
165.13
170.41
2006
183.38
180.85
193.81
2007
192.81
198.60
155.31
ISSUER PURCHASES OF EQUITY SECURITIES
Period
October 2007
November 2007
December 2007
Total Number
of Shares
Purchased in
Month
-
-
-
Average Pri
Paid per S
ce
hare
-
-
-
Total Number of
Shares Purchased as
Part of Publicly
or
(1)
Announced Plans
s-2006
141,959
141,959
141,959
ogram
Pr
Maximum Number (or
Approximate Dollar
es tha
V
t
alue) of Shar
May Yet Be Purchased
Under the Plans or
Programs
167,041
167,041
167,041
(1)
-
-
-
T
he Board of Directors approved a stock r
epurcha
se program
on Ma
rch 27, 20
06.
e Board of Directors approved repurchase of shares up to 309,000 shares.
e is no expiration date for the stock repurchase plan.
ere is no stock repurchase plan that has expired or that has been terminated during the period ended
Th
Ther
Th
December 31, 2007.
Page -6-
Item
6. Selected Financial Data
Five-Year Summary of Operations
(In t
housands, except per shar
e data and financial ratios)
orth below
are selected consolidated financial and oth
Set f
iness
of the Bank. This financial data is derived in part from, and should be read in conjunction with, the Consolidated Financial Statements
of th
er data of the ompan
e Company.
iness is p
Compan
rimarily
the bus
y’s bus
y. The
C
December 31,
Selected Financial Data:
2007
2006
2005
2004(2)
2003(2)
Securities available for sale
Securities, restricted
Securities held to maturit
Total loans
Total assets
T
To
tal stockholders’ equity
otal deposits
y
Year Ended December 31,
Selected Operating Data:
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Total non interest income
Total non interest expenses
Income before income taxes
Provision for income taxes
Net income
December 31,
Selected Financial Ratios and Other Data:
Return on average equity
Return on average assets
Average equity to average assets
Dividend payout ratio (1)
Diluted earnings per share
Basic earnings per share
Cash dividends declared per common share (1)
$
187,384
2,387
5,836
37
5,236
60
7,424
508,909
51,109
$ 35,864
10,437
25,427
600
24,827
5,678
18,168
12,337
4,043
$ 8,294
17.47%
1.38%
7.91%
67.67%
$1.36
$1.37
$0.92
$
202,590
878
9,444
32
5,997
57
3,644
504,412
45,539
$ 32,030
8,337
23,693
85
23,608
4,413
16,002
12,019
3,851
$ 8,168
17.68%
1.49%
8.41%
68.98%
$1.33
$1.33
$0.92
$
182,801
1,377
1
0,012
30
2,264
53
3,444
468,025
46,651
$ 28,713
4,319
24,394
300
24,094
5,105
14,647
14,552
4,929
$ 9,623
20.15%
1.76%
8.71%
58.88%
$1.53
$1.54
$0.91
$
202,042
1,979
2
1,213
29
6,134
54
7,200
469,311
47,213
$ 26,923
2,351
24,572
300
24,272
5,440
13,564
16,148
5,771
$ 10,377
22.82%
1.89%
8.30%
43.39%
$1.64
$1.66
$0.72
$
193,699
1,642
1
4,396
27
3,188
51
1,613
457,159
42,794
$ 25,968
2,601
23,367
-
23,367
4,716
12,997
15,086
5,488
$ 9,598
22.58%
1.91%
8.46%
50.98%
$1.53
$1.55
$0.78
(1) On December 15, 2003, the Company declared a special dividend of approximately $1,660,000, or $0.27 per share.
(2) Amounts have been restated for a three-for-two stock split, in the form of a stock dividend, effective July 9, 2004.
Page -7-
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This report may contain statements relating to the future results of the Company (including certain projections and business trends) that
are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Such
forward-looking statements, which involve risk and uncertainties, are based on the beliefs, assumptions and expectations of
management of the Company. Words such as “expects,” “believes,” “should,” “plans,” “anticipates,” “will,” “potential,” “could,”
“intend,” “may,” “outlook,” “predict,” “project,” “would,” “estimates,” “assumes,” “likely,” and variations of such similar expressions
are intended to identify such forward-looking statements. Examples of forward-looking statements include, but are not limited to,
possible or assumed estimates with respect to the financial condition, expected or anticipated revenue, and results of operations and
business of the Company, including earnings growth; revenue growth in retail banking, lending and other areas; origination volume in
the Company’s consumer, commercial and other lending businesses; current and future capital management programs; non-interest
income levels, including fees from the abstract subsidiary and banking services as well as product sales; tangible capital generation;
market share; expense levels; and other business operations and strategies. For this presentation, the Company claims the protection of
the safe harbor for forward-looking statements contained in the PSLRA.
Factors that could cause future results to vary from current management expectations include, but are not limited to, changing
economic conditions; legislative and regulatory changes; monetary and fiscal policies of the federal government; changes in tax
policies; rates and regulations of federal, state and local tax authorities; changes in interest rates; deposit flows; the cost of funds;
demand for loan products; demand for financial services; competition; changes in the quality and composition of the Bank’s loan and
investment portfolios; changes in management’s business strategies; changes in accounting principles, policies or guidelines; changes
in real estate values and other factors discussed elsewhere in this report, factors set forth under Item 1A., Risk Factors, and in other
reports filed by the Company with the SEC. The forward-looking statements are made as of the date of this report, and the Company
assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those
projected in the forward-looking statements.
OVERVIEW
Who We Are and How We Generate Income
Bridge Bancorp, Inc. (“the Company”), a New York corporation, is a single bank holding company formed in 1989. On a parent-only
basis, the Company has had minimal results of operations. In the event the Company subsequently expands its current operations, it
will be dependent on dividends from its wholly owned subsidiary, The Bridgehampton National Bank (“the Bank”), its own earnings,
additional capital raised, and borrowings as sources of funds. The information in this report reflects principally the financial condition
and results of operations of the Bank. The Bank’s results of operations are primarily dependent on its net interest income, which is
mainly the difference between interest income on loans and investments and interest expense on deposits and borrowings. The Bank
also generates non interest income, such as fee income on deposit accounts and merchant credit and debit card processing programs,
income from its title abstract subsidiary, and net gains on sales of securities and loans. The level of its non interest expenses, such as
salaries and benefits, occupancy and equipment costs, other general and administrative expenses, expenses from its title insurance
subsidiary, and income tax expense, further affects the Bank’s net income. Certain reclassifications have been made to prior year
amounts and the related discussion and analysis to conform to the current year presentation.
Year to Date and Quarterly Highlights
• Returns on average equity and average assets of 17.47% and 1.38% respectively for 2007;
• Net income of $8.3 million or $1.36 per diluted share for 2007 as compared to net income of $8.2 million or $1.33 per diluted
share for 2006;
• Net income of $2.0 million or $0.33 per diluted share for the fourth quarter 2007 as compared with $2.0 million or $0.34 per
diluted share for the same period one year ago;
• A net interest margin of 4.7% for 2007 as compared to 4.8% for 2006;
• Total assets of $607.4 million at December 31, 2007, an increase of 5.9% over the same date last year;
• Total loans of $375.2 million, an increase of 15.1% at December 31, 2007 from December 31, 2006;
• Continued sound credit quality;
Page -8-
• Total investments of $193.2 million at December 31, 2007, a decrease of 8.9% over December 31, 2006;
• Balance sheet and interest rate risk management included a repositioning of a portion of the available for sale investment
securities portfolio resulting in a net pretax loss of $101,000 during the first quarter of 2007;
• Total deposits of $508.9 million at December 31, 2007, with an increase in average deposits of 10.1% over December 31,
2006;
• The Company’s capital levels remain strong with a Tier 1 Capital to Average Assets ratio of 8.36%. The Company is
positioned well for future growth. Stockholders’ equity totaled $51.1 million at December 31, 2007 as compared $45.5
million at December 31, 2006;
• Declaration of cash dividends totaling $0.92 for 2007; and
• Execution of the Bank’s branch expansion plan, including the opening of three new branches in 2007: Southampton Village,
Cutchogue and Wading River.
New Developments
On October 9, 2007, the Company announced that Thomas J. Tobin will be retiring as President and Chief Executive Officer effective
on December 31, 2007. Kevin M. O’Connor has been appointed to the Board of Directors and became Mr. Tobin’s successor as
President and Chief Executive Officer effective January 1, 2008. Mr. Tobin remains a member of the Board of Directors and assumed
a new role as President Emeritus and Advisor to the Board effective January 1, 2008 through March 2, 2010.
Opportunities and Challenges
The economic and competitive landscape has changed over the past two years. Recognizing that our market areas are generally
affluent, large money center banks increasingly meet their funding needs by aggressively pricing deposits in the Bank’s markets.
Competition for deposits and loans is intense as various banks in the marketplace, large and small, promise excellent service yet often
price their products irrationally. Deposit growth is essential to the Bank’s ability to raise earnings therefore branch expansion and
building share in our existing markets remain key strategic goals. Controlling funding costs yet protecting the deposit base along with
focusing on profitable growth, presents a unique set of challenges in this operating environment.
Growing profits in the current flat or inverted yield curve environment presents significant challenges to the Bank since, as a
community bank, its income historically relies heavily on the interest rate spread between short term and long term rates. The ability of
the Bank to borrow on a short term basis at a lower cost and invest on a long term basis at a higher yield is diminished. Pressure on net
interest income persisted during 2007; however, improvements in both rate and volume during the second half of 2007 resulted in
positive net interest income for the year ended December 31, 2007 as compared to the prior year. The yield curve remained flat or
slightly inverted during much of the year. During the second half of 2007, the financial markets experienced significant volatility
resulting from the continued fallout of sub-prime lending and the global liquidity crises. The Federal Reserve responded by lowering
the targeted federal funds rate and discount rate in September, October and December 2007. The Federal Reserve acted again in
January 2008 twice lowering the targeted federal funds rate and discount rate to the current level of 3.00% and 3.5%, respectively.
Since December 2006, the Federal Reserve has lowered rates a total of 225 basis points. Despite the Federal Reserve's actions to cut
interest rates, many competitors have increased the deposit rates offered. This practice, along with the flat yield curve, continues to
challenge bank management to grow the institution and achieve profitable margins on this growth.
Growth and service strategies have potential to offset the tighter net interest margin with volume as the customer base grows through
expanding the Bank’s footprint, while maintaining and developing existing relationships. During 2007, the Bank opened three new
branches; Southampton Village, Cutchogue and its 14th branch office which is located in Wading River. We continue to make our way
through the regulatory process and expect that the opening of our new facility in the Village of East Hampton will be a 2009 event. We
believe positive outcomes in the future will result from the expansion of our geographic footprint, investments in infrastructure and
technology, such as BridgeNEXUS, our remote deposit capture product, and continued focus on placing our customers first.
Corporate objectives for 2008 include: leveraging our expanding branch network to build customer relationships and grow loans and
deposits; focusing on opportunities and processes that continue to enhance the customer experience at the Bank; improving operational
efficiencies and prudent management of non-interest expense; and maximizing non-interest income through Bridge Abstract as well as
other lines of business. The ability to attract, retain, train and cultivate employees at all levels of the Company remains significant to
meeting these objectives.
Page -9-
CRITICAL ACCOUNTING POLICIES
Note 1 to our Consolidated Financial Statements for the year ended December 31, 2007 contains a summary of our significant
accounting policies. Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques,
valuation assumptions and other subjective assessments. Our policy with respect to the methodologies used to determine the allowance
for loan losses is our most critical accounting policy. This policy is important to the presentation of our financial condition and results
of operations, and it involves a higher degree of complexity and requires management to make difficult and subjective judgments,
which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions and
estimates could result in material differences in our results of operations or financial condition.
The following is a description of our critical accounting policy and an explanation of the methods and assumptions underlying its
application.
ALLOWANCE FOR LOAN LOSSES
Management considers the accounting policy on loans and the related allowance for loan losses to be the most critical and requires
complex management judgment as discussed below. The judgments made regarding the allowance for loan losses can have a material
effect on the results of operations of the Company.
The allowance for loan losses is established and maintained through a provision for loan losses based on probable incurred losses
inherent in the Bank’s loan portfolio. Management evaluates the adequacy of the allowance on a quarterly basis. The allowance is
comprised of both individual valuation allowances and loan pool valuation allowances. If the allowance for loan losses is not sufficient
to cover actual loan losses, the Company’s earnings could decrease.
The Bank monitors its entire loan portfolio on a regular basis, with consideration given to detailed analysis of classified loans,
repayment patterns, probable incurred losses, past loss experience, current economic conditions, and various types of concentrations of
credit. Additions to the allowance are charged to expense and realized losses, net of recoveries, are charged to the allowance.
Individual valuation allowances are established in connection with specific loan reviews and the asset classification process including
the procedures for impairment testing under Statement of Accounting Standard (“SFAS”) No. 114, “Accounting by Creditors for
Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15,” and SFAS No. 118, “Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures, an Amendment of SFAS No. 114.” Such valuation, which includes a
review of loans for which full collectibility in accordance with contractual terms is not reasonably assured, considers the estimated fair
value of the underlying collateral less the costs to sell, if any, or the present value of expected future cash flows, or the loan’s
observable market value. Any shortfall that exists from this analysis results in a specific allowance for the loan. Pursuant to our
policy, loan losses must be charged-off in the period the loans, or portions thereof, are deemed uncollectible. Assumptions and
judgments by management, in conjunction with outside sources, are used to determine whether full collectibility of a loan is not
reasonably assured. These assumptions and judgments also are used to determine the estimates of the fair value of the underlying
collateral or the present value of expected future cash flows or the loan’s observable market value. Individual valuation allowances
could differ materially as a result of changes in these assumptions and judgments. Individual loan analyses are periodically performed
on specific loans considered impaired. The results of the individual valuation allowances are aggregated and included in the overall
allowance for loan losses.
Loan pool valuation allowances represent loss allowances that have been established to recognize the inherent risks associated with our
lending activities, but which, unlike individual allowances, have not been allocated to particular problem assets. Pool evaluations are
broken down as follows: first, loans with homogenous characteristics are pooled by loan type and include home equity loans,
residential mortgages, land loans and consumer loans. Then all remaining loans are segregated into pools based upon the risk rating of
each credit. Key factors in determining a credit’s risk rating include management’s evaluation of: cash flow, collateral, guarantor
support, financial disclosures, industry trends and strength of company management. The determination of the adequacy of the
valuation allowance is a process that takes into consideration a variety of factors. The Bank has developed a range of valuation
allowances necessary to adequately provide for probable incurred losses inherent in each pool of loans. We consider our own charge-
off history along with the growth in the portfolio as well as the Bank’s credit administration and asset management philosophies and
procedures when determining the allowances for each pool. In addition, we evaluate and consider the impact that existing and
projected economic and market conditions may have on the portfolio as well as known and inherent risks in the portfolio. Finally, we
evaluate and consider the allowance ratios and coverage percentages of both peer group and regulatory agency data. These evaluations
are inherently subjective because, even though they are based on objective data, it is management’s interpretation of that data that
determines the amount of the appropriate allowance. If the evaluations prove to be incorrect, the allowance for loan losses may not be
sufficient to cover losses inherent in the loan portfolio, resulting in additions to the allowance for loan losses.
Page -10-
The Classification Committee is comprised of both members of management and the Board of Directors. The adequacy of the reserves
is analyzed quarterly, with any adjustment to a level deemed appropriate by the Classification Committee, based on its risk assessment
of the entire portfolio. Based on the Classification Committee’s review of the classified loans and the overall reserve levels as they
relate to the entire loan portfolio at December 31, 2007, management believes the allowance for loan losses has been established at
levels sufficient to cover the probable incurred losses in the Bank’s loan portfolio. Future additions or reductions to the allowance may
be necessary based on changes in economic, market or other conditions. Changes in estimates could result in a material change in the
allowance. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the Bank’s
allowance for loan losses. Such agencies may require the Bank to recognize adjustments to the allowance based on their judgments of
the information available to them at the time of their examination.
For additional information regarding our allowance for loan losses, see Note 3 to the Consolidated Financial Statements.
NET INCOME
Net income for 2007 totaled $8.3 million or $1.36 per diluted share while net income for 2006 totaled $8.2 million or $1.33 per diluted
share, as compared to net income of $9.6 million, or $1.53 per diluted share for the year ended December 31, 2005. Net income
increased $126,000 or 1.5% as compared to 2006 and net income for 2006 decreased $1.5 million or 15.1% compared to 2005.
Significant trends for 2007 include: (i) a $1.7 million or 7.3% increase in net interest income; (ii) a $515,000 increase in the provision
for loan losses; (iii) a $1.3 million or 28.7% increase in total non interest income; (iv) a $2.2 million or 13.5% increase in total non
interest expenses and (v) a $192,000 or 5.0% increase in income tax expense.
NET INTEREST INCOME
Net interest income, the primary contributor to earnings, represents the difference between income on interest earning assets and
expenses on interest bearing liabilities. Net interest income depends upon the volume of interest earning assets and interest bearing
liabilities and the interest rates earned or paid on them.
The following table sets forth certain information relating to the Company’s average consolidated balance sheets and its consolidated
statements of income for the years indicated and reflect the average yield on assets and average cost of liabilities for the years
indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively,
for the years shown. Average balances are derived from daily average balances and include non-performing accrual loans. The yields
and costs include fees, which are considered adjustments to yields. Interest on nonaccrual loans has been included only to the extent
reflected in the consolidated statements of income. For purposes of this table, the average balances for investments in debt and equity
securities exclude unrealized appreciation/depreciation due to the application of SFAS No. 115, “Accounting for Certain Investments in
Debt and Equity Securities.”
Page -11-
Year Ended December 31,
(Dollars in thousands)
Interest earning assets:
Loans, net (including loan fee income)
Mortgage-backed securities
Tax exempt securities (1)
Taxable securities
Federal funds sold
Securities, restricted
Deposits with banks
2007
2006
2005
Average
Balance
Interest
Average
Yield/
Cost
Average
Balance
Interest
Average
Yield/
Cost
Average
Balance
Interest
Average
Yield/
Cost
$347,029
$26,347 7.6%
$307,394
$23,345 7.6%
$299,950
$20,724 6.9%
120,314
53,599
27,643
12,375
886
173
5,764
2,823
1,155
638
58
4
4.7
5.2
4.1
5.1
6.6
2.3
6.5
112,463
57,948
26,258
10,800
907
348
4,989
3,060
970
560
65
21
516,118
33,010
4.4
5.2
3.6
5.1
7.2
6.0
6.4
102,460
60,005
41,485
7,971
2,034
93
4,160
2,944
1,520
265
95
2
513,998
29,710
4.0
4.8
3.6
3.3
4.7
2.2
5.8
Total interest earning assets
562,019
36,789
Non interest earning assets:
Cash and due from banks
Other assets
Total assets
Interest bearing liabilities:
Savings, NOW and
money market deposits
Certificates of deposit of $100,000
or more
Other time deposits
Other borrowed money
Federal funds purchased and
repurchase agreements
Federal Home Loan Bank advances
16,081
22,242
$600,342
14,307
18,963
$549,388
15,871
18,186
$548,055
$287,450
$7,634 2.7%
$259,747
$6,322 2.4%
$249,382
$3,022 1.2%
35,965
28,044
1,403
4,632
110
1,452
1,058
65
4.0
3.8
4.6
24,293
25,420
4,205
888
723
216
3.7
2.8
5.1
223
4.8
5 4.6
3,666
188
5.1
-
- -
28,777
27,805
6,688
1,999
-
550
470
205
1.9
1.7
3.1
72
3.6
- -
Total interest bearing liabilities
357,604
10,437
2.9
317,331
8,337
2.6
314,651
4,319
1.4
Non interest bearing liabilities:
Demand deposits
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Net interest income/interest
rate spread (2)
Net interest earning assets/net interest
margin (3)
Ratio of interest earning assets to
interest bearing liabilities
Less: Tax equivalent adjustment
Net interest income
191,022
4,229
552,855
47,487
$600,342
183,157
2,699
503,187
46,201
$549,388
183,260
2,386
500,297
47,758
$548,055
26,352
3.6%
24,673
3.8%
25,391
4.4%
$204,415
4.7%
$198,787
4.8%
$199,347
4.9%
157.2%
162.6%
163.4%
(925)
$25,427
(980)
$23,693
(997)
$24,394
(1) The above table is presented on a tax equivalent basis.
(2) Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.
(3) Net interest margin represents net interest income divided by average interest earning assets.
Page -12-
RATE/VOLUME ANALYSIS
Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The following table illustrates the extent to
which changes in interest rates and in the volume of average interest earning assets and interest bearing liabilities have affected the
Bank’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i)
changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rates
(changes in rates multiplied by prior volume); and (iii) the net changes. For purposes of this table, changes that are not due solely to
volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate.
Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes
between volume and rates. In addition, average earning assets include nonaccrual loans.
Year Ended December 31,
(In thousands)
Interest income on interest earning assets:
Loans (including loan fee income)
Mortgage-backed securities
Tax exempt securities (1)
Taxable securities
Federal funds sold
Securities, restricted
Deposits with banks
Total interest earning assets
Interest expense on interest bearing liabilities:
Savings, NOW and money market deposits
Certificates of deposit of $100,000 or more
Other time deposits
Other borrowed money
Federal funds purchased and repurchase agreements
Federal Home Loan Bank advances
Total interest bearing liabilities
Net interest income
2007 Over 2006
Changes Due To
2006 Over 2005
Changes Due To
Volume
Rate
Net Change
Volume
Rate
Net Change
$2,995
364
(228)
53
81
(1)
(8)
3,256
701
464
80
(132)
47
5
1,165
$2,091
$ 7
411
(9)
132
(3)
(6)
(9)
523
611
100
255
(19)
(12)
-
935
$(412)
$3,002
775
(237)
185
78
(7)
(17)
3,779
1,312
564
335
(151)
35
5
2,100
$1,679
$525
426
(101)
(562)
114
(67)
15
350
131
(97)
(43)
(94)
77
-
(26)
$376
$ 2,096
$2,621
403
217
12
181
37
4
2,950
829
116
(550)
295
(30)
19
3,300
3,169
3,300
435
296
105
39
-
4,044
$(1,094)
338
253
11
116
-
4,018
$(718)
(1) The above table is presented on a tax equivalent basis.
Net interest margin compression continued in 2007 as the net interest margin decreased to 4.7% for the year ended December 31, 2007
from 4.8% for 2006 and 4.9% in 2005. These decreases were primarily the result of the increase in the cost of the average total interest
bearing liabilities being greater than the increase in the yield on average total interest earning assets. The cost of interest bearing
liabilities increased approximately 30 basis points during 2007 compared to prior year, which was partly offset by increased yields of
approximately 10 basis points on interest earning assets.
Net interest income was $25.4 million in 2007 compared to $23.7 million in 2006 and $24.4 million in 2005. The increase in net
interest income of $1.7 million or 7.3% as compared to 2006 primarily resulted from the effect of the increase in the volume of average
total interest earning assets being greater than the effect of the increase in both volume and rate of average total interest bearing
liabilities. The decrease in net interest income of $0.7 million or 2.9% in 2006 as compared to 2005 resulted from the effect of the
increase in rate for the average total interest bearing liabilities being greater than the effect of the increase in the rate of average total
interest earning assets.
Average total interest earning assets grew by $45.9 million or 8.9% to $562.0 million in 2007 compared to $516.1 million in 2006.
During this period, the yield on average total interest earning assets increased to 6.5% from 6.4%. Average interest earning assets grew
$2.1 million or 0.4% in 2006 from $514.0 million in 2005. During this period, the yield on average total interest earning assets
increased to 6.4% from 5.8%.
For the year ended December 31, 2007, average loans grew by $39.6 million or 12.9% to $347.0 million as compared to $307.4 million
in 2006 and increased $7.4 million or 2.5% in 2006 as compared to $300.0 million in 2005. Real estate mortgage loans and
commercial loans primarily contributed to the growth. The Bank remains committed to growing loans with prudent underwriting,
sensible pricing and limited credit and extension risk.
Page -13-
For the year ended December 31, 2007, average total investments increased by $4.9 million or 2.5% to $202.4 million as compared to
$197.5 million in 2006 and decreased $8.4 million or 4.1% in 2006 as compared to $206.0 million in 2005. To position the balance
sheet for the future and better manage liquidity and interest rate risk, a portion of the available for sale investment securities portfolio
was sold during 2007 resulting in a net loss of $101,000 compared to a net loss of $289,000 in 2006. Average federal funds sold
increased to $12.4 million or 14.6% in 2007 from $10.8 million in 2006 and increased $2.8 million or 35.5% in 2006 as compared to
$8.0 million in 2005. The increase in the average federal funds sold in 2007 and 2006 was primarily due to growth in the average
deposits.
Average total interest bearing liabilities totaled $357.6 million in 2007 compared to $317.3 million in 2006 and $314.7 million in 2005.
The Bank continued to offer deposit promotions during the year in connection with the three new branch openings and to reduce
potential core deposits outflows. These deposit promotions were the primary cause for the increased cost of interest bearing liabilities at
2.9% for 2007 as opposed to a cost of 2.6% during 2006 and 1.4% in 2005. Since the Company’s interest bearing liabilities generally
reprice or mature more quickly than its interest earning assets, an increase in short term interest rates would initially result in a decrease
in net interest income. Additionally, the large percentages of deposits in money market accounts reprice at short term market rates
making the balance sheet more liability sensitive. Funding costs began to decline in the second half of 2007 in response to the Federal
Reserve lowering the targeted federal funds rate and discount rate and the prudent management of deposit pricing.
For the year ended December 31, 2007, average total deposits increased by $49.9 million or 10.1% to $542.5 million as compared to
average total deposits for the year ended December 31, 2006. Components of this increase include an increase in average demand
deposits for 2007 of $7.9 million or 4.3% to $191.0 million as compared to average demand deposits for 2006. The average balances in
savings, NOW and money market accounts increased $27.7 million or 10.7% to $287.5 million for the year ended December 31, 2007
compared to the same period last year. Average balances in certificates of deposit of $100,000 or more and other time deposits
increased $14.3 million or 28.8% to $64.0 million for 2007 as compared to 2006. Average public fund deposits comprised 21.7% of
total average deposits during 2007 and 22.5% of total average deposits during 2006. Average federal funds purchased and repurchase
agreements together with average other borrowed money and average Federal Home Loan Bank advances decreased $1.7 million or
21.9% for the year ended December 31, 2007 as compared to average balances for the same period in the prior year.
Total interest income increased to $35.9 million from $32.0 million in 2006 and $28.7 million in 2005, an increase of 12.0% between
2007 and 2006 and an 11.6% increase between 2006 and 2005. The ratio of interest earning assets to interest bearing liabilities
decreased to 157.2% in 2007 as compared to 162.6% in 2006 and 163.4% in 2005. Interest income on loans increased $3.0 million in
2007 over 2006 primarily due to growth in the loan portfolio. Interest income on loans increased $2.6 million in 2006 over 2005
predominately due to the increase in yield on average loans. The yield on average loans was 7.6% for 2007 and 2006, respectively as
compared to 6.9% in 2005.
Interest income on investment in mortgage-backed, taxable and tax exempt securities increased to $8.9 million or 9.5% in 2007 from
$8.1 million in 2006 and increased $0.4 million or 5.0% in 2006 from $7.7 million in 2005. Interest income on securities included net
accretion of discounts of $22,000 in 2007 compared to amortization of premiums on securities of $0.3 million in 2006 and $0.8 million
in 2005 as the rate environment changed and prepayments substantially slowed on the mortgage-backed security portfolio. The tax
adjusted average yield on total securities increased to 4.8% in 2007 from 4.6% in 2006 and 4.2% in 2005. Average federal funds sold
increased $1.6 million or 14.6% in 2007 from 2006 and increased $2.8 million or 35.5% in 2006 from 2005.
Interest expense increased $2.1 million or 25.2% to $10.4 million in 2007 and increased $4.0 million or 93.0% to $8.3 million in 2006
from $4.3 million in 2005. The increases in interest expense in 2007 and 2006 resulted from growth in average deposit balances and the
upward trend in the cost of average interest bearing liabilities. The cost of average interest bearing liabilities was 2.9% in 2007, 2.6%
in 2006, and 1.4% in 2005.
Provision for Loan Losses
The Bank’s loan portfolio consists primarily of real estate loans secured by commercial and residential real estate properties located in
the Bank’s principal lending area on eastern Long Island. The interest rates charged by the Bank on loans are affected primarily by the
demand for such loans, the supply of money available for lending purposes, the rates offered by its competitors, the Bank’s relationship
with the customer, and the related credit risks of the transaction. These factors are affected by general and economic conditions
including, but not limited to, monetary policies of the federal government, including the Federal Reserve Board, legislative policies and
governmental budgetary matters.
The performance of the loan portfolio continued to be strong for the years ended December 31, 2007 and 2006. Nonaccrual loans
decreased $194,000 to $229,000 in 2007 from 2006. In 2006, nonaccrual loans decreased $235,000 to $423,000 from 2005.
Nonaccrual loans represented 0.06% and 0.1% of net loans at December 31, 2007 and 2006, respectively.
Loans of approximately $12.9 million, $4.2 million, and $5.1 million at December 31, 2007, 2006, and 2005, respectively, were
classified as potential problem loans. This represents 3.4%, 1.3% and 1.7% of total loans at December 31, 2007, 2006, and 2005,
Page -14-
respectively. These are loans for which management has information that indicates the borrower may not be able to comply with the
present repayment terms. The increase of $8.7 million in potential problem loans at December 31, 2007, represents four commercial
and three residential real estate mortgage loans which are currently performing under their original terms. These loans are subject to
increased management attention and their classification is reviewed on at least a quarterly basis. Due to the structure and nature of the
credits, management currently believes that the likelihood of sustaining a material loss on these relationships is remote. As of
December 31, 2007, December 31, 2006, and December 31, 2005, there were no impaired loans as defined by SFAS No. 114
“Accounting by Creditors for Impairment of a Loan – An Amendment of FASB Statement No. 5 and 15” (SFAS 114”). For a loan to be
considered impaired, management determines after review whether it is probable that the Bank will not be able to collect all amounts
due according to the contractual terms of the loan agreement. Additionally management applies its normal loan review procedures in
making these judgments. As of December 31, 2007, there were no loans considered to be a troubled debt restructuring, as defined by
SFAS No. 114. As of December 31, 2006, there was one loan considered to be a troubled debt restructuring, totaling $118,000. After
review of the estimated fair value of the underlying collateral less the costs to sell, management believed it would be able to collect all
amounts due without a shortfall according to the modified terms of the loan agreement. Subsequent to December 31, 2006, six
consecutive payments were made on this loan in accordance with the modified loan terms; hence it is no longer classified as a troubled
debt restructuring. As of December 31, 2005, there were no loans considered to be a troubled debt restructuring, as defined by SFAS
No. 114. The Bank had no foreclosed real estate at December 31, 2007, December 31, 2006 and December 31, 2005.
Net charge-offs were $158,000 for the year ended December 31, 2007 and net recoveries were $44,000 for the year ended December
31, 2006. Net charge-offs were $105,000 for the year ended December 31, 2005. The ratio of allowance for loan losses to nonaccrual
loans was 1290%, 594% and 362%, at December 31, 2007, 2006, and 2005, respectively.
Based on our continuing review of the overall loan portfolio, the current asset quality of the portfolio, the growth in the loan portfolio
and the net charge-offs or recoveries, a provision for loan losses of $600,000 was recorded in 2007 as compared to $85,000 in 2006 and
$300,000 in 2005. The allowance for loan losses increased to $2,954,000 at December 31, 2007 as compared to $2,512,000 at
December 31, 2006 and $2,383,000 at December 31, 2005. As a percentage of total loans, the allowance was 0.79%, 0.77% and 0.79%
at December 31, 2007, 2006 and 2005, respectively. Management continues to carefully monitor the loan portfolio as well as real estate
trends on eastern Long Island. The Bank’s consistent and rigorous underwriting standards preclude sub prime lending, and management
remains cautious about the potential for an indirect impact on the local economy and real estate values in the future.
The following table sets forth changes in the allowance for loan losses.
December 31,
(Dollars in thousands)
Allowance for loan losses
2007
2006
2005
2004
2003
balance at beginning of period
$2,512
$2,383
$2,188
$2,144
$2,294
Charge-offs:
Real estate mortgage loans
Real estate construction loans
Commercial, financial and agricultural loans
Installment/consumer loans
Total
Recoveries:
Real estate mortgage loans
Real estate construction loans
Commercial, financial and agricultural loans
Installment/consumer loans
Total
Net (charge-offs) recoveries
Provision for loan losses
charged to operations
Balance at end of period
-
-
203
23
226
1
-
13
54
68
(158)
600
$2,954
-
-
33
50
83
6
-
59
62
127
44
85
$2,512
7
-
153
129
289
17
100
37
30
184
3
-
302
65
370
23
-
61
30
114
38
-
163
148
349
13
-
90
96
199
(105)
(256)
(150)
300
$2,383
300
$2,188
-
$2,144
Ratio of net (charge-offs) recoveries during period
to average loans outstanding
(0.05%)
0.01%
(0.04%)
(0.09%)
(0.06%)
Page -15-
Allocation of Allowance for Loan Losses
The following table sets forth the allocation of the total allowance for loan losses by loan type.
Year Ended December 31,
(Dollars in thousands)
Commercial, financial and
2007
Percentage
of Loans
to Total
2006
Percentage
of Loans
to Total
2005
Percentage
of Loans
to Total
2004
Percentage
of Loans
To Total
2003
Percentage
of Loans
to Total
Amount
Loans
Amount
Loans
Amount
Loans
Amount
Loans
Amount
Loans
agricultural loans
$ 420
13.4%
$ 303
11.2%
$ 273
10.5%
$ 315
11.6%
$ 272
12.4%
Real estate construction loans
Real estate mortgage loans
Installment/consumer loans
253
4.0
2,194
80.3
87
2.3
121
4.5
183
5.9
148
6.2
148
7.3
2,009
81.6
1,817
80.4
1,659
80.0
1,663
78.1
79
2.7
110
3.2
66
2.2
61
2.2
Total
$2,954
100.0%
$2,512
100.0%
$2,383
100.0%
$2,188
100.0%
$2,144
100.0%
Non Interest Income
Total non interest income increased by $1.3 million or 28.7% in 2007 to $5.7 million and decreased $0.7 million or 13.6% to $4.4
million in 2006 as compared to $5.1 million in 2005. The increase in total non interest income in 2007 compared to 2006 was due to (i)
a $0.5 million increase in service charges on deposit accounts;(ii) a $0.3 million increase in fees for other customer services; (iii) a $0.3
million increase in revenues from the title insurance abstract subsidiary, Bridge Abstract; and (iv) a $0.2 million decrease in net
securities losses. The decline in total non interest income during 2006 compared to 2005 was due to (i) $0.3 million in net securities
losses compared to $0.1 million net securities gains in the prior year; (ii) a $0.3 million decrease in title fee income from Bridge
Abstract; (iii) a $0.1 million decline in fees from other customer services; and (iv) a $35,000 decrease in service charges on deposit
accounts , partly offset by an increase in other operating income of $61,000. Excluding net securities losses and gains, total non
interest income increased $1.1 million or 22.9% in 2007 and decreased $0.3 million or 5.8% for the year ended December 31, 2006.
Net securities losses of $101,000 and $289,000 were recognized in 2007 and 2006, respectively, while net gains on securities of
$116,000 were recognized in 2005. The net losses on securities in 2007 and 2006 were due to repositioning of the available for sale
investment portfolio.
Bridge Abstract, the Bank’s title insurance abstract subsidiary, generated title fee income of $1.3 million, $1.0 million and $1.3 million
in 2007, 2006 and 2005, respectively. The increase of $0.3 million or 28.5% in 2007 was due to an increase in the number and average
value of transactions processed by the subsidiary. The decrease of $0.3 million or 19.4% in 2006 was due to a slowdown in the volume
of transactions processed by the subsidiary.
Fees from other customer services increased $0.3 million or 21.9% to $1.7 million in 2007 as compared to $1.4 million in 2006. The
increase was due primarily to additional sales volume in our merchant and debit card cash management services. Fees from other
customer services declined $62,000 or 4.2% in 2006 as compared to 2005. This decline was primarily due to revenues from merchant
processing decreasing $54,000 or 7.7% from 2005. Service charges on deposit accounts for the year ended December 31, 2007 totaled
$2.5 million, an increase of $0.5 million as compared to 2006. This increase was driven by growth in the number of deposit accounts
subject to service charges and changes in our service fee structure. For the year ended December 31, 2006, service charges were $2.1
million, a decrease of $35,000 from 2005. The Company believes that the decline was attributable to the change in customer behavior
to avoid paying fees for overdrafts and uncollected account balances, which partially stems from changes in our fee policies.
Other operating income for the year ended December 31, 2007 totaled $166,000, a decrease of $3,000 from $169,000 for the year
ended December 31, 2006, and increased $61,000 or 56.5% in 2006 from the prior year.
Non Interest Expense
Non interest expenses increased by $2.2 million or 13.5% in 2007 to $18.2 million from $16.0 million in 2006, and non interest
expense increased $1.4 million or 9.3% in 2006 from $14.6 million in 2005. The primary component of this change was an increase in
salaries and employee benefits, net occupancy expense and furniture and fixture expense. Salaries and benefits increased $1.6 million
or 17.1% in 2007 as compared to 2006 and increased $0.8 million or 10.1% in 2006 as compared to 2005. The increases in salary and
benefits reflect base salary increases, filling vacant positions, hiring new employees to support the Company’s expanding infrastructure
and new branch offices, increases in incentive based compensation and an increase in employee benefit costs, particularly medical
insurance costs and pension expense.
Net occupancy expense increased $0.3 million or 22.6% to $1.7 million in 2007 from $1.4 million in 2006 and increased $0.2 million
or 14.6% in 2006 from $1.2 million in 2005. Higher net occupancy expenses were due to increases in depreciation expense and rent
expense related to the opening of new branch offices in 2007 and in 2005 as well as annual rent increases in other branch locations.
Page -16-
Furniture and fixture expense increased $91,000 or 12.3% to $833,000 in 2007 from $742,000 in 2006 and increased $23,000 or 3.2%
in 2006 from $719,000 in 2005. The increase in furniture and fixture expense in 2007 relates primarily to the opening of three new
branches.
Income Tax Expense
Income tax expense for December 31, 2007, 2006, and 2005 was $4.0 million, $3.9 million and $4.9 million, respectively. The
increase in 2007 was due to an increase in income before income taxes of $0.3 million to $12.3 million from $12.0 million in 2006 and
a higher effective tax rate. The increase in the effective tax rate primarily resulted from a lower percentage of interest income from tax
exempt securities in 2007 compared to 2006 partially offset by a reduction in the New York State tax rate. The decrease in income tax
expense in 2006 was due to the reduction in income before income taxes and a lower effective rate resulting from a higher percentage
of interest income from tax exempt securities. The effective tax rate was 32.8%, 32.0% and 33.9% for the years ended December 31,
2007, 2006, and 2005, respectively.
FINANCIAL CONDITION
The assets of the Company totaled $607.4 million at December 31, 2007, an increase of $33.8 million or 5.9% from the previous year-
end. This increase was primarily driven by growth in total loans of $49.2 million or 15.1%, an increase in securities, restricted of $1.5
million or 172% and an increase of $1.1 million or 8.2% in cash and cash equivalents, partly offset by a decrease in total securities of
$18.8 million or 8.9%.
Total stockholders’ equity was $51.1 million at December 31, 2007, an increase of $5.6 million or 12.2% from December 31, 2006
primarily due to net income of $8.3 million, a decrease in net unrealized losses on securities of $1.7 million and a $0.8 million decrease
in the pension liability associated with SFAS 158, partially offset by the declaration of dividends totaling $5.6 million. In December
2007, the Company declared a quarterly dividend of $0.23 per share. The Company continues its long term trend of uninterrupted
dividends.
Loans
During 2007, the Company continued to experience growth trends in real estate lending. The concentration of loans in our primary
market areas may increase risk. Unlike larger banks that are more geographically diversified, the Bank’s loan portfolio consists
primarily of real estate loans secured by commercial and residential real estate properties located in the Bank’s principal lending area
on eastern Long Island. The markets in which the Company operates have experienced substantial growth in construction and land
development activity over the past several years, which has been a factor in overall loan growth. The local economic conditions on
eastern Long Island have a significant impact on the volume of loan originations and the quality of our loans, the ability of borrowers to
repay these loans, and the value of collateral securing these loans. A considerable decline in the general economic conditions caused
by inflation, recession, unemployment or other factors beyond the Company’s control would impact these local economic conditions
and could negatively affect the financial results of the Company’s operations. Additionally, while the Company has a significant
amount of commercial real estate loans, the majority of which are owner-occupied, decreases in tenant occupancy may also have a
negative effect on the ability of borrowers to make timely repayments of their loans, which would have an adverse impact on the
Company’s earnings.
The interest rates charged by the Bank on loans are affected primarily by the demand for such loans, the supply of money available for
lending purposes, the rates offered by its competitors, the Bank’s relationship with the customer, and the related credit risks of the
transaction. These factors are affected by general and economic conditions including, but not limited to, monetary policies of the
federal government, including the Federal Reserve Board, legislative policies and governmental budgetary matters.
The Bank targets its business lending and marketing initiatives towards promotion of loans that primarily meet the needs of small to
medium-sized businesses. These small- to medium-sized businesses generally have fewer financial resources in terms of capital or
borrowing capacity than larger entities. If general economic conditions negatively impact these businesses, the results of operations
and financial condition may be adversely affected.
With respect to the underwriting of loans, there are certain risks, including the risk of non-payment that is associated with each type of
loan that the Bank markets. Approximately 84.7% of the Bank’s loan portfolio at December 31, 2007 is secured by real estate and
approximately 43.3% is comprised of commercial real estate loans. Home equity lines of credit comprise approximately 15.8%,
construction mortgage loans comprise approximately 9.5%, residential mortgages comprise approximately 11.4%, and land loans
comprise approximately 4.7%. Risks associated with a concentration in real estate loans include potential losses from fluctuating
values of land and improved properties. Home equity loans represent loans originated in the Bank’s geographic markets with loan to
value ratios generally of 75% or less. The Bank’s residential mortgage portfolio includes approximately $5.0 million in interest only
mortgages. The underwriting standards for interest only mortgages are consistent with the remainder of the loan portfolio and do not
include any features that result in negative amortization. Largest loan concentrations by industry are loans granted to lessors of
commercial property both owner occupied and nonowner occupied. The Bank uses conservative underwriting criteria to better insulate
Page -17-
itself from a downturn in real estate values and economic conditions on eastern Long Island that could have a significant impact on the
value of collateral securing the loans as well as the ability of customers to repay loans.
The remainder of the loan portfolio is comprised of commercial and consumer loans, which represent approximately 15.3% of the
Bank’s loan portfolio. The primary risks associated with commercial loans are the cash flow of the business, the experience and quality
of the borrowers’ management, the business climate, and the impact of economic factors. The primary risks associated with consumer
loans relate to the borrower, such as the risk of a borrower’s unemployment as a result of deteriorating economic conditions or the
amount and nature of a borrower’s other existing indebtedness, and the value of the collateral securing the loan if the Bank must take
possession of the collateral. Consumer loans also have risks associated with concentrations of loans in a single type of loan.
The Bank’s policy for charging off loans is a multi-step process. A loan is considered a potential charge-off when it is in default of
either principal or interest for a period of 90, 120 or 180 days, depending upon the loan type, as of the end of the prior month. In
addition to date criteria, other triggering events may include, but are not limited to, notice of bankruptcy by the borrower or guarantor,
death of the borrower, and deficiency balance from the sale of collateral. These loans identified are presented for evaluation at the
regular meeting of the Classification Committee. The recovery of charged-off balances is actively pursued until the potential for
recovery has been exhausted, or until the expense of collection does not justify the recovery efforts.
Total loans grew $49.2 million or 15.1%, during 2007 and $23.7 million or 7.9% during 2006. Average net loans grew $39.6 million or
12.9% during 2007 over 2006 and $7.4 million or 2.5% during 2006 when compared to 2005. Real estate mortgage loans were the
largest contributor of the growth for both 2007 and 2006 and increased $35.4 million or 13.3% and $22.9 million or 9.4%, respectively.
Growth in real estate loans is primarily attributed to an increase in commercial and residential mortgages and increases in the home
equity loan portfolio. Commercial, financial and agricultural loans increased $14.0 million or 38.5% in 2007 from 2006 and increased
$4.9 million or 15.3% in 2006 from 2005. Real estate construction loans increased $100,000 or 0.7% in 2007 and decreased $3.2
million or 17.8% in 2006. Installment/consumer loans declined $295,000 or 3.3% and decreased $1.0 million or 10.0% during 2006.
Fixed rate loans represented 19.2%, 16.7% and 13.8% of total loans at December 31, 2007, 2006, and 2005, respectively.
The following table sets forth the major classifications of loans:
December 31,
(In thousands)
2007
2006
2005
2004
2003
Real estate mortgage loans
Commercial, financial, and agricultural loans
Installment/consumer loans
Real estate construction loans
$301,193
50,531
8,553
14,867
$265,824
36,498
8,848
14,767
Total loans
375,144
325,937
$242,928
31,644
9,827
17,960
302,359
(95)
302,264
(2,383)
$236,812
34,342
6,685
18,452
296,291
(157)
296,134
(2,188)
$213,256
33,810
6,105
20,037
273,208
(20)
273,188
(2,144)
60
325,997
(2,512)
$323,485
$299,881
$293,946
$271,044
Unamortized cost/(Unearned income)
Allowance for loan losses
Net loans
92
375,236
(2,954)
$372,282
Page -18-
Selected Loan Maturity Information
The following table sets forth the approximate maturities and sensitivity to changes in interest rates of certain loans, exclusive of real
estate mortgage loans and installment/consumer loans to individuals as of December 31, 2007:
(In thousands)
Commercial loans
Construction loans (1)
Total
Rate provisions:
Amounts with fixed interest rates
Amounts with variable interest rates
Total
Within One
Year
After One
But Within
Five Years
After
Five Years
Total
$17,954
4,592
$22,546
$ 2,907
19,639
$22,546
$18,709
1,350
$20,059
$ 13,868
$50,531
8,925
14,867
$22,793
$65,398
$ 10,895
9,164
$ 6,555
$20,357
16,238
45,041
$20,059
$22,793
$65,398
(1)
Included in the “After Five Years” column, are one-step construction loans that contain a preliminary
construction period (interest only) that automatically convert to amortization at the end of the
the construction phase.
Past Due, Nonaccrual and Restructured Loans
The following table sets forth selected information about past due, nonaccrual and restructured loans:
December 31,
(In thousands)
2007
2006
2005
2004
2003
Loans 90 days or more past due and still accruing
Nonaccrual loans
Restructured loans
Other real estate owned, net
Total
$ -
229
-
-
$229
$ -
305
118
-
$423
$ -
658
-
-
$658
$ -
1,695
-
-
$1,695
$ -
152
-
-
$152
Year Ended December 31,
(In thousands)
Gross interest income that has not been paid or recorded
during the year under original terms:
Nonaccrual loans
Restructured loans
Gross interest income recorded during the year:
Nonaccrual loans
Restructured loans
Commitments for additional funds
2007
2006
2005
2004
2003
$12
$ -
$ 5
$ -
-
$ 9
$ 1
$12
$ 9
-
$38
-
$17
-
-
$16
-
$12
-
-
$ 9
-
$ 6
-
-
Securities
Total securities decreased to $193.2 million at December 31, 2007 from $212.0 million at December 31, 2006. The available for sale
portfolio decreased 7.5% to $187.4 million and the securities held to maturity declined 38.2% to $5.8 million. Securities held as
available for sale may be sold in response to, or in anticipation of, changes in interest rates and resulting prepayment risk, or other
factors. U.S. Treasury and government agency securities decreased to $19.1 million at December 31, 2007 from $33.8 million at
December 31, 2006 and state and municipal obligations declined by $1.0 million, while mortgage-backed securities increased by $0.5
million. Fixed rate securities represent 96.8% of total securities at December 31, 2007. Mortgage-backed securities represented
approximately 64.3% of the available for sale balance at December 31, 2007 as compared to 59.2% at the prior year-end. A change in
market rates was the primary reason for the net increase in unrealized gains in securities available for sale, which increased other
comprehensive income.
Page -19-
A summary of the amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of securities is as follows:
December 31,
(In thousands)
Available for sale:
U.S. Treasury and government
Gross
Amortized Unrealized Unrealized
Losses
Gains
Gross
Cost
2007
Estimated
Fair
Value
Gross
Amortized Unrealized Unrealized
Losses
Gross
Gains
Cost
2006
Estimated
Fair
Value
Gross
Amortized Unrealized Unrealized
Losses
Gross
Gains
Cost
2005
Estimated
Fair
Value
agency securities
$ 19,035
$ 139
$ (38)
$ 19,136
$ 34,123
$ -
$ (346)
$ 33,777
$ 38,443
$ 7
$ (788)
$ 37,662
State and municipal obligations
47,547
Mortgage-backed securities
Total available for sale
Held to maturity:
State and municipal obligations
Total held to maturity
120,450
187,032
5,836
5,836
435
1,060
1,634
8
8
(179)
47,803
(1,065)
120,445
(1,282)
187,384
-
-
5,844
5,844
49,008
122,009
205,140
9,444
9,444
316
364
680
-
-
(481)
48,843
(2,403)
119,970
51,392
96,938
(3,230)
202,590
186,773
(2)
(2)
9,442
9,442
10,012
10,012
387
27
421
-
-
(559)
(3,046)
51,220
93,919
(4,393)
182,801
(23)
(23)
9,989
9,989
Total securities
$192,868
$1,642
$(1,282)
$193,228
$214,584
$680
$(3,232)
$212,032
$196,785
$421
$(4,416)
$192,790
The following table sets forth the fair value, amortized cost, maturities and approximated weighted average yield (based on the
estimated annual income divided by the average book value) at December 31, 2007. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Yields on
tax-exempt obligations have been computed on a tax-equivalent basis.
December 31, 2007
(Dollars in thousands)
Available for sale:
U.S. Treasury and
government agency
securities
Mortgage-backed
securities
State and municipal
obligations
Within
One Year
After One But
After Five But
Within Five Years
Within Ten Years
After
Ten Years
Total
Fair Value
Amount
Amortized
Cost
Amount Yield
Fair Value
Amount
Amortized
Cost
Amount Yield
Fair Value
Amount
Amortized
Cost
Amount Yield
Fair Value
Amount
Amortized
Cost
Amount
Yield
Fair Value
Amount
Amortized
Cost
Amount
$14,315
$14,341 5.97%
$4,821
$4,694 7.29% $ -
$ -
-%
$ - $ -
-% $ 19,136
$ 19,035
-
-
-
10,701
10,876 5.68
18,866
18,860 6.53
90,878
90,714 7.42
120,445
120,450
5,164
5,166 4.34
22,271
22,332 4.45
18,923
18,587 5.76
1,445
1,462 5.79
47,803
47,547
Total available for sale
19,479
19,507 5.54
37,793
37,902 5.15
37,789
37,447 6.15
92,323
92,176 7.39
187,384
187,032
Held to maturity:
State and municipal
obligations
Total held to maturity
5,844
5,844
5,836 5.30
5,836 5.30
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,844
5,844
5,836
5,836
Total securities
$25,323
$25,343 5.48% $37,793
$37,902 5.15% $37,789
$37,447 6.15%
$92,323
$92,176
7.39% $193,228 $192,868
Deposits and Borrowings
Borrowings including Fed Funds purchased, repurchase agreements and FHLB advances, increased $23.4 million to $42.0 million at
December 31, 2007 from the prior year-end. The increase was consistent with a strategy to utilize wholesale funding due to seasonal
deposit outflows and favorable borrowing rates. Total deposits increased $4.5 million or 0.9% in 2007 as compared to 2006. The
growth in deposits is attributable to an increase in core deposits of $33.7 million, driven by the opening of three new branches and the
offering of promotional deposit products, partially offset by a decrease of $29.2 million in public funds deposits. Demand deposits
increased $2.5 million or 1.4%. Savings, NOW and money market deposits decreased $17.0 million or 6.3% primarily related to public
funds. Certificates of deposit of $100,000 or more grew $14.3 million or 46.7% from December 31, 2006 and other time deposits
increased $4.7 million or 15.5% as compared to the prior year.
Page -20-
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2007.
(In thousands)
3 months or less
Over 3 thru 6 months
Over 6 thru 12 months
Over 12 months thru 24 months
Over 24 months thru 36 months
Over 36 months thru 48 months
Over 48 months thru 60 months
Over 60 months
Total
Less than
$100,000
$100,000 or
Greater
Total
$19,561
$26,819
$46,380
9,662
3,043
1,742
515
262
213
-
12,757
3,721
348
201
155
768
-
22,419
6,764
2,090
716
417
981
-
$34,998
$44,769
$79,767
LIQUIDITY
The objective of liquidity management is to ensure the sufficiency of funds available to respond to the needs of depositors and
borrowers, and to take advantage of unanticipated earnings enhancement opportunities for Company growth. Liquidity management
addresses the ability of the Company to meet financial obligations that arise in the normal course of business. Liquidity is primarily
needed to meet customer borrowing commitments, deposit withdrawals either on demand or contractual maturity, to repay other
borrowings as they mature, to fund current and planned expenditures and to make new loans and investments as opportunities arise.
The Company’s principal sources of liquidity included cash and cash equivalents of $5.8 million as of December 31, 2008, and
dividends from the Bank. Cash available for distribution of dividends to shareholders of the Company is primarily derived from
dividends paid by the Bank to the Company. Due to regulatory restrictions (see Note 1 (l) to the Consolidated Financial Statements),
dividends from the Bank to the Company at December 31, 2007, were limited to $11.5 million which represents the Bank’s 2007
retained net income and net retained earnings from the previous two years, of which $11.0 million was declared from the Bank to the
Company during 2007. Prior regulatory approval is required if the total of all dividends declared by the Bank in any calendar year
exceeds the total of the Bank’s net income of that year combined with its retained net income of the preceding two years. In the event
that the Company subsequently expands its current operations, in addition to dividends from the Bank, it will need to rely on its own
earnings, additional capital raised and other borrowings to meet liquidity needs.
The Bank’s most liquid assets are cash and cash equivalents, securities available for sale and securities held to maturity due within one
year. The levels of these assets are dependent upon the Bank’s operating, financing, lending and investing activities during any given
period. Other sources of liquidity include loan and investment securities principal repayments and maturities, lines of credit with other
financial institutions including the Federal Home Loan Bank, growth in core deposits and sources of wholesale funding such as
brokered certificates of deposit. While scheduled loan amortization, maturing securities and short-term investments are a relatively
predictable source of funds, deposit flows and loan and mortgage-backed securities prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Bank adjusts its liquidity levels as appropriate to meet funding needs such as
seasonal deposit outflows, loans, and asset and liability management objectives. Historically, the Bank has relied on its deposit base,
drawn through its full-service branches that serve its market area and local municipal deposits, as its principal source of funding. The
Bank seeks to retain existing deposits and loans and maintain customer relationships by offering quality service and competitive
interest rates to its customers, while managing the overall cost of funds needed to finance its strategies.
During 2007, the Bank grew its individual, partnership and corporate account balances (“core deposits”) and reduced its level of public
funds. However, during 2006 the Bank relied more heavily on funding from municipal accounts which are more rate sensitive and
therefore volatile, as individual, partnership and corporate account balances declined. The Bank’s Asset/Liability and Funds
Management Policy allows for wholesale borrowings of up to 25% of total assets. At December 31, 2007, the Bank had aggregate lines
of credit of $74,500,000 with unaffiliated correspondent banks to provide short-term credit for liquidity requirements. Of these
aggregate lines of credit, $54,500,000 is available on an unsecured basis. The Bank also has the ability, as a member of the Federal
Home Loan Bank (“FHLB”) system, to borrow against unencumbered residential and commercial mortgages owned by the Bank. The
Bank also has a master repurchase agreement with the FHLB, which increases its borrowing capacity. As of December 31, 2007, the
amount of overnight borrowings under these lines was $7.0 million. The Bank had $25.0 million of securities sold under agreements to
repurchase outstanding as of December 31, 2007 and a $10.0 million advance that was collateralized by securities outstanding as of
December 31, 2007 with the FHLB. In addition, the Bank has an approved broker relationship for the purpose of issuing brokered
certificates of deposit. As of December 31, 2007 and December 31, 2006, the Bank had issued $7.2 million and $2.0 million,
respectively, of brokered certificates of deposit.
Page -21-
Management continually monitors the liquidity position and believes that sufficient liquidity exists to meet all of our operating
requirements. Based on the objectives determined by the Asset and Liability Committee, the Bank’s liquidity levels may be affected
by the use of short-term and wholesale borrowings, and the amount of public funds in the deposit mix. The Asset and Liability
Committee is comprised of members of senior management and the Board. Excess short-term liquidity is invested in overnight federal
funds sold.
CONTRACTUAL OBLIGATIONS
In the ordinary course of operations, the Company enters into certain contractual obligations.
The following represents contractual obligations outstanding at December 31, 2007:
(In thousands)
Operating leases
Purchase obligation
Time deposits
Total contractual obligations outstanding
Total
Amounts
Committed
$ 3,329
250
79,767
$83,346
Less than
One Year
One to
Three Years
Four to Five
Years
Over Five
Years
$ 641
$ 1,081
$ 548
$ 1,059
250
75,563
$76,454
-
2,806
$3,887
-
1,398
$1,946
-
-
$1,059
COMMITMENTS, CONTINGENT LIABILITIES, AND OFF-BALANCE SHEET ARRANGEMENTS
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet
customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in
the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit
loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to
make such commitments as are used for loans, often including obtaining collateral at exercise of the commitment. At December 31,
2007, the Company had $23.5 million in outstanding loan commitments and $106.2 million in outstanding commitments for various
lines of credit including unused overdraft lines. The Company also has $3.0 million of standby letters of credit as of December 31,
2007. See Note 11 of the Notes to the Consolidated Financial Statements for additional information on loan commitments and standby
letters of credit.
CAPITAL RESOURCES
Stockholders’ equity increased to $51.1 million at December 31, 2007 from $45.5 million at December 31, 2006 as a result of
undistributed net income; plus the change in net unrealized appreciation in securities available for sale, net of deferred taxes; the
change in pension liability under SFAS 158, net of deferred taxes; and the issuance of shares of common stock pursuant to the equity
incentive plan; less the declaration of dividends. The ratio of average stockholders’ equity to average total assets decreased to 7.91% at
year end 2007 from 8.41% at year end 2006.
The Company’s capital strength is paralleled by the solid capital position of the Bank, as reflected in the excess of its regulatory capital
ratios over the minimum risk-based capital adequacy ratio levels required for classification as a “well capitalized” institution by the
FDIC (see Note 13 to the Consolidated Financial Statements). Management believes that the current capital levels along with future
retained earnings will allow the Bank to maintain a position exceeding required capital levels and which is sufficient to support
Company growth. Additionally, the Company has the ability to issue additional common stock and/or trust preferred securities should
the need arise.
The Company had returns on average equity of 17.47%, 17.68% and 20.15% and returns on average assets of 1.38%, 1.49% and
1.76%, for the years ended December 31, 2007, 2006, and 2005, respectively. The Company utilizes cash dividends and stock
repurchases to manage capital levels. Cash dividends totaled $5.6 million in 2007 compared to dividends paid in 2006 of $5.7 million.
The dividend payout ratios for 2007 and 2006 were 67.67% and 68.98%, respectively. The Company continues its trend of
uninterrupted dividends.
On March 27, 2006, the Company approved its stock repurchase plan allowing the repurchase of up to 5% of its then current
outstanding shares, 309,000 shares. There is no expiration date for the share repurchase plan. The Company considers opportunities
for stock repurchases carefully. The Company did not repurchase any shares in 2007. During 2006, 157,334 shares were repurchased at
a total cost of approximately $4,039,000 or an average price per share of $25.67.
Page -22-
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and notes thereto presented herein have been prepared in accordance with U.S. generally
accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars
without considering changes in the relative purchasing power of money over time due to inflation. The primary effect of inflation on
the operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets
and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more significant effect on
the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices. Changes
in interest rates could aversely affect our results of operations and financial condition. Interest rates do not necessarily move in the
same direction, or in the same magnitude, as the prices of goods and services. Interest rates are highly sensitive to many factors, which
are beyond the control of the Company, including the influence of domestic and foreign economic conditions and the monetary and
fiscal policies of the United States government and federal agencies, particularly the Federal Reserve Bank.
IMPACT OF PROSPECTIVE ACCOUNTING STANDARDS
For discussion regarding the impact of new accounting standards, refer to Note 1 q) of Notes to Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Management considers interest rate risk to be the most significant market risk for the Company. Market risk is the risk of loss from
adverse changes in market prices and rates. Interest rate risk is the exposure to adverse changes in the net income of the Company as a
result of changes in interest rates.
The Company’s primary earnings source is net interest income, which is affected by changes in the level of interest rates, the
relationship between rates, the impact of interest rate fluctuations on asset prepayments, the level and composition of deposits and
liabilities, and the credit quality of earning assets. The Company’s objectives in its asset and liability management are to maintain a
strong, stable net interest margin, to utilize its capital effectively without taking undue risks, to maintain adequate liquidity, and to
reduce vulnerability of its operations to changes in interest rates.
The Company’s Asset and Liability Committee evaluates periodically, but at least four times a year, the impact of changes in market
interest rates on assets and liabilities, net interest margin, capital and liquidity. Risk assessments are governed by policies and limits
established by senior management, which are reviewed and approved by the full Board of Directors at least annually. The economic
environment continually presents uncertainties as to future interest rate trends. The Asset and Liability Committee regularly utilizes a
model that projects net interest income based on increasing or decreasing interest rates, in order to be better able to respond to changes
in interest rates.
At December 31, 2007, $189,277,000 or 96.8% of the Company’s securities had fixed interest rates. Changes in interest rates affect the
value of the Company’s interest earning assets and in particular its securities portfolio. Generally, the value of securities fluctuates
inversely with changes in interest rates. Decreases in the fair value of securities available for sale, therefore, could have an adverse
effect on stockholders’ equity. Increases in interest rates could result in decreases in the market value of interest earning assets, which
could adversely affect the Company’s results of operations if sold. The Company is also subject to reinvestment risk associated with
changes in interest rates. Changes in market interest rates also could affect the type (fixed-rate or adjustable-rate) and amount of loans
originated by the Company and the average life of loans and securities, which can impact the yields earned on the Company’s loans and
securities. Changes in interest rates may affect the average life of loans and mortgage related securities. In periods of decreasing
interest rates, the average life of loans and securities held by the Company may be shortened to the extent increased prepayment
activity occurs during such periods which, in turn, may result in the investment of funds from such prepayments in lower yielding
assets. Under these circumstances the Company is subject to reinvestment risk to the extent that it is unable to reinvest the cash
received from such prepayments at rates that are comparable to the rates on existing loans and securities. Additionally, increases in
interest rates may result in decreasing loan prepayments with respect to fixed rate loans, and therefore an increase in the average life of
such loans, may result in a decrease in loan demand, and make it more difficult for borrowers to repay adjustable rate loans.
The Company utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure to net interest income
to sustained interest rate changes. Management routinely monitors simulated net interest income sensitivity over a rolling two-year
horizon. The simulation model captures the seasonality of the Company’s deposit flows and the impact of changing interest rates on
the interest income received and the interest expense paid on all assets and liabilities reflected on the Company’s Balance Sheet. This
sensitivity analysis is compared to the asset and liability policy limits that specify a maximum tolerance level for net interest income
exposure over a one-year horizon given both a 200 basis point upward and downward shift in interest rates. A parallel and pro rata
shift in rates over a twelve-month period is assumed.
Page -23-
The following reflects the Company’s net interest income sensitivity analysis at December 31, 2007:
Change in Interest
Rates in Basis Points
(Dollars in thousands)
2007
Potential Change
in Net
Interest Income
$ Change
$(1,833)
$(897)
-
$555
$1,120
200
100
Static
(100)
(200)
% Change
(7.05)%
(3.45)%
-
2.13%
4.31%
The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected
operating results. These hypothetical estimates are based upon numerous assumptions including, but not limited to, the nature and
timing of interest rate levels and yield curve shapes, prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, and reinvestment and replacement of asset and liability cash flows. While assumptions are developed based upon
perceived current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these
assumptions including how customer preferences or competitor influences may change.
Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment and
refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate
assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals,
prepayment penalties and product preference changes and other internal and external variables. Furthermore, the sensitivity analysis
does not reflect actions that management might take in responding to, or anticipating changes in interest rates and market conditions.
Page -24-
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
Cash and due from banks
Interest earning deposits with banks
Total cash and cash equivalents
Securities available for sale, at fair value
Securities held to maturity (fair value of $5,844 and $9,442, respectively)
Total securities, net
Securities, restricted
Loans
Allowance for loan losses
Loans, net
Premises and equipment, net
Accrued interest receivable
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Demand deposits
Savings, NOW and money market deposits
Certificates of deposit of $100,000 or more
Other time deposits
Total deposits
Federal funds purchased and repurchase agreements
Federal Home Loan Bank advances
Accrued interest payable
Other liabilities and accrued expenses
Total Liabilities
Commitments and contingent liabilities
Stockholders’ equity:
Common stock, par value $0.01 per share:
Authorized: 20,000,000 shares; 6,386,306 issued; 6,111,802 and 6,078,565 shares outstanding, respectively
Surplus
Retained Earnings
Less: Treasury stock at cost, 276,274 and 307,741 shares, respectively
Accumulated other comprehensive income (loss):
Net unrealized gain (loss) on securities, net of deferred taxes of ($140) and $1,025, respectively
Change in pension assets (liability), net of deferred taxes of ($7) and $490, respectively
Total Stockholders’ Equity
December 31,
2007
December 31,
2006
$ 14,213
135
14,348
187,384
5,836
193,220
2,387
375,236
(2,954)
372,282
18,469
2,707
4,011
$ 13,231
32
13,263
202,590
9,444
212,034
878
325,997
(2,512)
323,485
18,005
2,692
3,287
$607,424
$573,644
$176,130
253,012
44,769
34,998
508,909
32,000
10,000
641
4,765
556,315
-
64
21,671
37,031
(7,889)
50,877
213
19
51,109
$173,628
269,966
30,518
30,300
504,412
18,600
-
855
4,238
528,105
-
64
21,565
34,347
(8,176)
47,800
(1,525)
(736)
45,539
Total Liabilities and Stockholders’ Equity
$607,424
$573,644
See accompanying notes to Consolidated Financial Statements.
Page -25-
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Year Ended December 31,
2007
2006
2005
Interest income:
Loans (including fee income)
Mortgage-backed securities
Tax exempt interest income:
State and municipal obligations
Taxable interest income:
U.S. Treasury and government agency securities
Federal funds sold
Other securities
Deposits with banks
Total interest income
Interest expense:
Savings, NOW and money market deposits
Certificates of deposit of $100,000 or more
Other time deposits
Other borrowed money
Federal funds purchased and repurchase agreements
Federal Home Loan Bank advances
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non interest income:
Service charges on deposit accounts
Fees for other customer services
Title fee income
Net securities (losses) gains
Other operating income
Total non interest income
Non interest expenses:
Salaries and employee benefits
Net occupancy expense
Furniture and fixture expense
Data/Item processing
Advertising
Other operating expenses
Total non interest expenses
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
Comprehensive Income
See accompanying notes to Consolidated Financial Statements.
$26,347
5,764
$23,345
4,989
$20,724
4,160
2,080
1,947
970
560
65
21
32,030
1,520
265
95
2
28,713
6,322
3,022
888
723
216
188
-
550
470
205
72
-
8,337
4,319
23,693
85
23,608
2,069
1,422
1,042
(289)
169
4,413
9,187
1,414
742
445
414
3,800
16,002
12,019
3,851
$ 8,168
$ 1.33
$ 1.33
$ 9,019
24,394
300
24,094
2,104
1,484
1,293
116
108
5,105
8,347
1,234
719
397
401
3,549
14,647
14,552
4,929
$ 9,623
$ 1.54
$ 1.53
$ 6,877
1,898
1,155
638
58
4
35,864
7,634
1,452
1,058
65
223
5
10,437
25,427
600
24,827
2,540
1,734
1,339
(101)
166
5,678
10,755
1,734
833
423
429
3,994
18,168
12,337
4,043
$ 8,294
$ 1.37
$ 1.36
$ 10,787
Page -26-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
Common
Stock
Comprehensive
Income
Retained
Earnings
Treasury
Stock
Surplus
Accumulated
Other
Comprehensive
Income
(Loss)
Unearned
Stock
Awards
Total
Balance at December 31, 2004
$64 $21,462
$27,856
$(2,330)
$(121)
$282
$47,213
Net income
Stock awards vested
Stock awards granted
Stock awards forfeited
Exercise of stock options, including tax benefit
Treasury stock purchases
Cash dividends declared, $0.91 per share
Other comprehensive income, net of deferred tax
Unrealized net losses in securities available for sale
Minimum pension liability adjustment
Comprehensive Income
Balance at December 31, 2005
Net income
Transfer due to adoption of SFAS 123(R)
Stock awards granted
Stock awards forfeited
Exercise of stock options, including tax benefit
Share based compensation expense
Treasury stock purchases
Cash dividends declared, $0.92 per share
Other comprehensive income, net of deferred tax
Change in unrealized net losses in securities available
for sale, net of reclassification and tax effects
Adjustment to initially apply SFAS 158, net of
deferred tax
Comprehensive Income
65
(90)
38
28
38
(21)
134
(2,134)
36
52
(17)
98
9,623
9,623
(5,666)
(2,779)
33
6,877
9,623
129
-
-
232
(2,134)
(5,666)
(2,779)
(2,779)
33
33
$64 $21,631
$31,813
$(4,285)
$(108)
$(2,464)
$46,651
(108)
(189)
2
110
119
8,168
8,168
108
189
(2)
(39)
(4,039)
(5,634)
851
9,019
8,168
-
-
-
71
119
(4,039)
(5,634)
851
851
(648)
(648)
Balance at December 31, 2006
$64 $21,565
$34,347
$(8,176)
-
$(2,261)
$45,539
Net income
Stock awards granted
Stock awards forfeited
Exercise of stock options, including tax benefit
Share based compensation expense
Cash dividends declared, $0.92 per share
Other comprehensive income, net of deferred tax
Change in unrealized net gains in securities available
for sale, net of reclassification and deferred tax effects
Adjustment to pension liability, net of deferred tax
Comprehensive Income
Balance at December 31, 2007
(271)
39
94
244
8,294
8,294
271
(39)
55
(5,610)
1,738
755
10,787
8,294
-
-
149
244
(5,610)
1,738
755
1,738
755
$64 $21,671
$37,031
$(7,889)
-
$232
$51,109
See accompanying notes to Consolidated Financial Statements.
Page -27-
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
Operating activities:
Net Income
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses
Depreciation and amortization
(Accretion) and amortization, net
Share based compensation expense
Tax benefit from exercise of stock options issued pursuant
to equity incentive plans
SERP expense
Net securities losses (gains)
Increase in accrued interest receivable
Deferred income tax expense (benefit)
(Increase) decrease in other assets
Increase (decrease) in accrued and other liabilities
Net cash provided by operating activities
Investing activities:
Purchases of securities available for sale
Purchases of securities, restricted
Purchases of securities held to maturity
Sales of securities available for sale
Redemption of securities, restricted
Maturities of securities available for sale
Maturities of securities held to maturity
Principal payments on mortgage-backed securities
Net increase in loans
Purchases of premises and equipment
Net cash (used) provided by investing activities
Financing activities:
Net increase (decrease) in deposits
Increase (decrease) in other borrowings
Purchase of Treasury stock
Net proceeds from exercise of stock options
issued pursuant to equity incentive plan
Cash dividends paid
Net cash provided (used) by financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents beginning of year
Cash and cash equivalents end of year
Supplemental Information-Cash Flows:
Cash paid for:
Interest
Income taxes
Noncash investing and financing activities:
Dividends declared and unpaid at year end
See accompanying notes to Consolidated Financial Statements.
Page -28-
2007
2006
2005
$ 8,294
$ 8,168
$ 9,623
600
1,223
(22)
244
(25)
214
101
(15)
(257)
(1,346)
595
9,606
(37,935)
(16,595)
(5,836)
8,484
15,086
28,978
9,444
18,503
(49,397)
(1,687)
(30,955)
4,497
23,400
-
149
(5,612)
22,434
1,085
13,263
$14,348
85
886
272
119
(21)
268
289
(68)
(400)
1,975
(35)
11,538
(62,500)
(10,343)
(9,444)
19,537
10,842
5,675
10,012
18,361
(23,689)
(3,251)
(44,800)
36,387
4,100
(4,039)
70
(5,668)
30,850
(2,412)
15,675
$13,263
300
847
786
65
(16)
153
(116)
(155)
21
(986)
405
10,927
(32,273)
(190)
(13,262)
21,173
792
2,995
24,463
22,032
(6,235)
(2,670)
16,825
(1,286)
(12,200)
(2,134)
232
(5,551)
(20,939)
6,813
8,862
$15,675
$ 10,651
$ 4,598
$ 7,810
$ 3,323
$ 4,264
$ 5,023
$ 1,406
$ 1,394
$ 1,428
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bridge Bancorp, Inc. (the “Company”) is incorporated under the laws of the State of New York as a single bank holding company. The
Company’s business currently consists of the operations of its wholly-owned subsidiary, The Bridgehampton National Bank (the
“Bank”). The Bank’s operations include its real estate investment trust subsidiary, Bridgehampton Community, Inc. (“BCI”) and a
financial title insurance subsidiary, Bridge Abstract LLC (“Bridge Abstract”). The financial statements have been prepared in
accordance with U.S. generally accepted accounting principles and general practices within the financial institution industry. The
following is a description of the significant accounting policies that the Company follows in preparing its Consolidated Financial
Statements.
a) Basis of Financial Statement Presentation
The accompanying Consolidated Financial Statements are prepared on the accrual basis of accounting and include the accounts of the
Company and its wholly-owned subsidiary, the Bank. All material intercompany transactions and balances have been eliminated.
The preparation of financial statements, in conformity with U.S. generally accepted accounting principles, requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of each consolidated balance sheet and the related consolidated statement of income for the years then ended.
Such estimates are subject to change in the future as additional information becomes available or previously existing circumstances are
modified. Actual future results could differ significantly from those estimates. The allowance for loan losses, fair values of financial
instruments, deferred taxes, prepayment speeds on mortgage-backed securities, and pension assumptions are particularly subject to
change. Certain reclassifications have been made to prior year amounts, and the related discussion and analysis, to conform to the
current year presentation.
b) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold,
which mature overnight. Cash flows are reported net for customer loan and deposit transactions and overnight borrowings.
c) Securities
Debt and equity securities are classified in one of the following categories: (i) “held to maturity” (management has a positive intent and
ability to hold to maturity), which are reported at amortized cost and (ii) “available for sale” (all other debt and marketable equity
securities), which are reported at fair value, with unrealized gains and losses reported net of tax, as accumulated other comprehensive
income, a separate component of stockholders’ equity.
Premiums and discounts on securities are amortized to expense and accreted to income over the estimated life of the respective
securities using the interest method. Gains and losses on the sales of securities are recognized upon realization based on the specific
identification method. Declines in the fair value of securities below their cost that are other than temporary are reflected as realized
losses. In estimating other-than-temporary losses, management considers: (1) the length of time and extent that fair value has been less
than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Company’s ability and intent to hold the security
for a period sufficient to allow for any anticipated recovery in fair value.
d) Loans and Loan Interest Income Recognition
Loans are stated at the principal amount outstanding, less net deferred origination costs and fees. Loan origination and commitment
fees and certain direct and indirect costs incurred in connection with loan originations are deferred and amortized to income over the
life of the related loans as an adjustment to yield. When a loan prepays, the remaining unamortized net deferred origination fees or
costs are recognized in the current year. Interest on loans is credited to income based on the principal outstanding during the period.
Loans that are 90 days past due are automatically placed on nonaccrual and previously accrued interest is reversed and charged against
interest income. However, if the loan is in the process of collection and the Bank has reasonable assurance that the loan will be fully
collectible based upon individual loan evaluation assessing such factors as collateral and collectibility, accrued interest will be
recognized as earned. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.
A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by
Page -29-
management in determining impairment include payment status and the probability of collecting scheduled principal and interest
payments when due. The impairment of a loan is measured at the value of expected future cash flows using the loan’s effective interest
rate, or at the loan’s observable market price or the fair value of the collateral less costs to sell if the loan is collateral dependent.
Generally, the Bank measures impairment of such loans by reference to the fair value of the collateral less costs to sell. Loans that
experience minor payment delays and payment shortfall generally are not classified as impaired.
e) Allowance for Loan Losses
The Bank monitors its entire loan portfolio on a regular basis, with consideration given to loan growth, detailed analyses of classified
loans, repayment patterns, current delinquencies, probable incurred losses, past loss experience, current economic conditions, and
various types of concentrations of credit. Additions to the allowance are charged to expense and realized losses, net of recoveries, are
charged to the allowance. Based on the determination of management and the Classification Committee, the overall level of reserves is
periodically adjusted to account for the inherent and specific risks within the entire portfolio. Based on the Classification Committee’s
review of the classified loans and the overall reserve levels as they relate to the entire loan portfolio at December 31, 2007,
management believes the allowance for loan losses is adequate.
A loan is considered a potential charge-off when it is in default of either principal or interest for a period of 90, 120 or 180 days,
depending upon the loan type, as of the end of the prior month. In addition to delinquency criteria, other triggering events may include,
but are not limited to, notice of bankruptcy by the borrower or guarantor, death of the borrower, and deficiency balance from the sale of
collateral.
While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based
on changes in conditions. In addition, various regulatory agencies, as an integral part of the examination process, periodically review
the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to, or charge-offs against, the
allowance based on their judgment about information available to them at the time of their examination.
f) Premises and Equipment
Buildings, furniture and fixtures and equipment are stated at cost less accumulated depreciation. Buildings and related components are
depreciated using the straight-line method using a useful life of fifty years for buildings and a range of two to ten years for equipment,
computer hardware and software, and furniture and fixtures. Leasehold improvements are amortized over the lives of the respective
leases or the service lives of the improvements, whichever is shorter. Land is recorded at cost.
Improvements and major repairs are capitalized, while the cost of ordinary maintenance, repairs and minor improvements is charged to
expense.
g) Other Real Estate Owned
Other real estate owned consists of real estate acquired by foreclosure or deed in lieu of foreclosure and is recorded at the lower of the
net loan balance at the foreclosure date plus acquisition costs or fair value, less estimated costs to sell. Subsequent valuation
adjustments are made if fair value less estimated costs to sell the property falls below the carrying amount. At December 31, 2007 and
2006, the Company carried no other real estate owned.
h) Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of
credit, issued to meet customer-financing needs. The face amount for these items represents the exposure to loss, before considering
customer collateral or ability to repay. Such financial instruments are recorded on the balance sheet when they are funded.
i) Income Taxes
The Company follows the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities,
computed using enacted tax rates. Deferred tax assets are recognized if it is more likely than not that a future benefit will be realized.
It is management’s position, as currently supported by the facts and circumstances, that no valuation allowance is necessary against any
of the Company’s deferred tax assets.
The Company adopted Financial Accounting Standards Board (“FASB”) Interpretation 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”), as of January 1, 2007. A tax position is recognized as a benefit only if it is “more likely than not” that the tax
position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the
Page -30-
largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more
likely than not” test, no tax benefit is recorded. The adoption had no affect on the Company’s financial statements.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company did not have any
amounts accrued for interest and penalties at December 31, 2007.
j) Treasury Stock
Repurchases of common stock are recorded as treasury stock at cost. Treasury stock is reissued using the first in, first out method.
k) Earnings Per Share
Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the
period. Diluted earnings per share, which reflects the potential dilution that could occur if outstanding stock options were exercised
and if stock awards were fully vested and resulted in the issuance of common stock that then shared in the earnings of the Company, is
computed by dividing net income by the weighted average number of common shares and common stock equivalents.
l) Dividends
Cash available for distribution of dividends to shareholders of the Company is primarily derived from dividends paid by the Bank to the
Company. Due to regulatory restrictions, dividends from the Bank to the Company at December 31, 2007, were limited to $11.5
million which represents the Bank’s 2007 retained net income and net retained earnings from the previous two years, of which $11.0
million was declared from the Bank to the Company during 2007. Prior regulatory approval is required if the total of all dividends
declared by the Bank in any calendar year exceeds the total of the Bank’s net income of that year combined with its retained net income
of the preceding two years.
m) Segment Reporting
While management monitors the revenue streams of the various products and services, the identifiable segments are not material and
operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the financial service
operations are considered by management to be aggregated in one reportable operating segment.
n) Stock Based Compensation Plans
Statement of Financial Accounting Standards 123(R) (“SFAS 123(R)”), “Accounting for Stock-Based Compensation, Revised,”
requires companies to record compensation cost for stock options and stock awards granted to employees in return for employee
service. The cost is measured at the fair value of the options and awards when granted, and this cost is expensed over the employee
service period, which is normally the vesting period of the options and awards. The Company adopted SFAS 123(R) beginning
January 1, 2006 applying the modified prospective transition method. Under the modified prospective transition method, the financial
statements will not reflect restated amounts.
Prior to 2006, substantially all of the options granted by the Company vested immediately and compensation expense would have been
recorded on the date of grant.
The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition
provisions of SFAS 123(R). The Black-Scholes option pricing model was used to estimate the grant date fair value of option grants.
For the Year Ended
(In thousands, expect per share)
Net Income:
Diluted EPS:
Basic EPS:
As Reported:
Pro Forma:
As Reported:
Pro Forma:
As Reported:
Pro Forma:
2005
$9,623
9,606
$ 1.53
1.53
$ 1.54
1.54
o) Comprehensive Income
Comprehensive income includes net income and all other changes in equity during a period, except those resulting from investments by
Page -31-
owners and distributions to owners. Other comprehensive income includes revenues, expenses, gains and losses that under generally
accepted accounting principles are included in comprehensive income but excluded from net income. Comprehensive income and
accumulated other comprehensive income are reported net of deferred income taxes. Accumulated other comprehensive income for the
Company includes unrealized holding gains or losses on available for sale securities, the minimum pension liability for the years prior
to the adoption of Statement of Financial Accounting Standards 158 (“SFAS 158”), “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R.)”, and the pension liability
after adopting SFAS No. 158. SFAS 158 requires employers to recognize the overfunded or underfunded status of a defined benefit
postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year
the changes occur through comprehensive income. Other comprehensive income is net of reclassification adjustments for realized gains
(losses) on sales of available for sale securities.
p) Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in
Note 12. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market
conditions could significantly affect the estimates.
q) New Accounting Standards
SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments," (“SFAS 155’) amends SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" and SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." SFAS 155 (i) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative
that otherwise would require bifurcation, (ii) clarifies which interest-only strips and principal-only strips are not subject to the
requirements of SFAS 133, (iii) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (iv) clarifies
that concentrations of credit risk in the form of subordination are not embedded derivatives, and (v) amends SFAS 140 to eliminate the
prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. Adoption of SFAS 155 on January 1, 2007 did not have a significant impact on the
Company's financial statements.
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109" (“FIN 48”)
prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. The Company adopted FIN No. 48 on January 1, 2007. See Note 8 - Income Taxes for
additional information.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a
fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction
on the sale or use of an asset. This statement does not require any new fair value measurements. It is effective for financial statements
issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective
Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of
SFAS 157, with respect to its current practice of measuring fair value and disclosure in its financial statements, however the impact of
adoption of this standard is not anticipated to be material.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including
an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure selected financial assets
and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between
companies that choose different measurement attributes for similar types of assets and liabilities. Early adoption was permitted as of
the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of
SFAS 157. The Company did not early adopt SFAS 159. The standard is effective as of the beginning of an entity’s first fiscal year
that begins after November 15, 2007. The Company did not elect the fair value option for any financial assets and liabilities as of
January 1, 2008.
On November 5, 2007, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 109, Written Loan
Commitments Recorded at Fair Value through Earnings (“SAB 109”). Previously, SAB 105, Application of Accounting Principals to
Loan Commitments, stated that in measuring the fair value of a derivative loan commitment, a company should not incorporate the
expected net future cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the
Page -32-
expected net future cash flows related to the associated servicing of the loan should be included in measuring fair value for all written
loan commitments that are accounted for at fair value through earnings. SAB 105 also indicated that internally-developed intangible
assets should not be recorded as part of the fair value of a derivative loan commitment, and SAB 109 retains that view. SAB 109 is
effective for derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The Company does
not expect the impact of this standard to be material.
On December 21, 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”) that amends and replaces Question 6 of
Section D.2 of Topic 14, Share Based Payment, of the Staff Accounting Bulletin Series. SAB 110 states that the continued use of the
simplified method in developing an estimate of the expected term of “plain vanilla” share options in accordance with SFAS No.
123(R), “Accounting for Stock-Based Compensation, Revised,” that was outlined in Staff Accounting Bulletin No. 107 is acceptable.
r) Federal Home Loan Bank (FHLB) Stock
The Bank is a member of the FHLB system. Members are required to own a particular amount of stock based on the level of
borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security,
and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as
income.
s) Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
2. SECURITIES
A summary of the amortized cost, gross unrealized gains and losses and estimated fair value of securities is as follows:
December 31,
(In thousands)
Available for sale:
U.S. Treasury and government
2007
2006
Gross
Amortized Unrealized Unrealized
Losses
Gains
Cost
Gross Estimated
Fair
Value
Gross
Amortized Unrealized Unrealized
Losses
Gains
Cost
Gross Estimated
Fair
Value
agency securities
$ 19,035
$ 139
$ (38)
$ 19,136
$ 34,123
$ -
$ (346) $ 33,777
State and municipal obligations
Mortgage-backed securities
Total available for sale
Held to maturity:
State and municipal obligations
Total held to maturity
Total securities
47,547
120,450
187,032
5,836
5,836
435
1,060
1,634
8
8
(179)
47,803
49,008
(1,065)
120,445
122,009
(1,282)
187,384
205,140
-
-
5,844
5,844
9,444
9,444
316
364
680
-
-
(481)
48,843
(2,403)
119,970
(3,230)
202,590
(2)
(2)
9,442
9,442
$192,868
$1,642
$(1,282)
$193,228
$214,584
$680
$(3,232) $212,032
Securities with unrealized losses at year-end 2007 and 2006, aggregated by category and length of time that individual securities have
been in a continuous unrealized loss position, are as follows:
December 31,
(In thousands)
2007
2006
Less than 12 months Greater than 12 months Less than 12 months
Greater than 12 months
Unrealized
Unrealized
Unrealized
Unrealized
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
U.S. Treasury and government
agency securities
$ -
$ -
$12,328
$ 38
$13,684
$13
$20,093
$ 333
State and municipal obligations
Mortgage-backed securities
3,284
-
49
-
14,918
49,468
130
1,065
9,343
1,252
13
5
25,228
75,135
470
2,398
Total temporarily impaired securities
$3,284
$49
$76,714
$1,233
$24,279
$31
$120,456
$3,201
Page -33-
Unrealized losses on securities have not been recognized into income, as the losses on these securities would be expected to dissipate as
they approach their maturity dates. The Company evaluates securities for other-than-temporary impairment periodically and with
increased frequency when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the
extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and
ability of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value. In
analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its
agencies, whether downgrades by bond rating agencies have occurred, and the issuer’s financial condition.
The following table sets forth the fair value, amortized cost and maturities of the securities at December 31, 2007. Expected maturities
will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties.
December 31, 2007
(Dollars in thousands)
Available for sale:
U.S. Treasury and
government agency
securities
Mortgage-backed
securities
State and municipal
obligations
Within
One Year
After One But
After Five But
Within Five Years
Within Ten Years
After
Ten Years
Total
Fair Value
Amount
Amortized
Cost
Amount
Fair Value
Amount
Amortized
Cost
Amount
Fair Value
Amount
Amortized
Cost
Amount
Fair Value
Amount
Amortized
Cost
Amount
Fair Value
Amount
Amortized Cost
Amount
$14,315
$14,341
$4,821
$4,694
$ -
$ -
$ -
$ -
$ 19,136
$ 19,035
-
-
10,701
10,876
18,866
18,860
90,878
90,714
120,445
120,450
5,164
5,166
22,271
22,332
18,923
18,587
1,445
1,462
47,803
47,547
Total available for sale
19,479
19,507
37,793
37,902
37,789
37,447
92,323
92,176
187,384
187,032
Held to maturity:
State and municipal
obligations
Total held to maturity
5,844
5,844
5,836
5,836
-
-
-
-
-
-
-
-
-
-
-
-
5,844
5,844
5,836
5,836
Total securities
$25,323
$25,343
$37,793
$37,902
$37,789
$37,447
$92,323
$92,176
$193,228
$192,868
There were $8,484,000, $19,537,000 and $21,173,000 of proceeds on sales of available for sale securities in 2007, 2006, and 2005,
respectively. Gross gains of approximately $13,000 and $180,000 were realized on sales of available for sale securities during 2006
and 2005, respectively. Gross losses of approximately $101,000, $302,000, and $64,000 were realized on sales of available for sale
securities during 2007, 2006, and 2005, respectively. There were no sales of held to maturity securities during 2007, 2006, and 2005.
Securities having a fair value of approximately $176,454,000 and $198,967,000 at December 31, 2007 and 2006, respectively, were
pledged to secure public deposits and Federal Home Loan Bank and Federal Reserve Bank overnight borrowings. The Company did
not hold any trading securities during the years ended December 31, 2007 and 2006.
There were no investment holdings of any one issuer that exceeded 10% of stockholders’ equity at December 31, 2007 and 2006, other
than U.S. Government and its Agencies.
Page -34-
3. LOANS
The following table sets forth the major classifications of loans:
December 31,
(In thousands)
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, financial, and agricultural loans
Installment/consumer loans
Real estate construction loans
Total loans
Net deferred loan cost and fees
Allowance for loan losses
Net loans
2007
2006
$175,876
125,317
50,531
8,553
14,867
375,144
92
375,236
(2,954)
$372,282
$159,054
106,770
36,498
8,848
14,767
325,937
60
325,997
(2,512)
$323,485
Lending Risk
The principal business of the Bank is lending, primarily in commercial real estate loans, residential mortgages, construction loans,
home equity loans, commercial and industrial loans, construction loans, land loans and consumer loans. The Bank considers its
primary lending area to be eastern Long Island in Suffolk County, New York, and a substantial portion of the Bank’s loans are secured
by real estate in this area. Accordingly, the ultimate collectibility of such a loan portfolio is susceptible to changes in market and
economic conditions in this region.
Allowance for Loan Losses
The following table sets forth changes in the allowance for loan losses:
December 31,
(In thousands)
Allowance for loan losses
balance at beginning of period
Charge-offs
Recoveries
Net (charge-offs) recoveries
Provision for loan losses
charged to operations
2007
2006
2005
$2,512
(226)
68
(158)
600
$2,383
(83)
127
44
85
$2,188
(289)
184
(105)
300
Balance at end of period
$2,954
$2,512
$2,383
Past Due, Nonaccrual and Restructured Loans
Nonaccrual loans at December 31, 2007 and 2006 were $229,000 and $423,000, respectively. There were no loans 90 days or more
past due that were still accruing interest at December 31, 2007 and 2006.
As of December 31, 2007, 2006 and 2005, the Bank did not have any impaired loans as defined in SFAS No. 114. As of December 31,
2006 there was one loan considered to be a troubled debt restructuring, totaling $118,000, as defined by SFAS No. 114. After review
of the estimated fair value of the underlying collateral less the costs to sell, management believed it would be able to collect all amounts
due without a shortfall according to the modified terms of the loan agreements. Subsequent to December 31, 2006, six consecutive
payments were made on this loan in accordance with the modified terms; hence it is no longer classified as a troubled debt
restructuring. There were no restructured loans at December 31, 2007 and December 31, 2005.
Related Party Loans
Certain directors, executive officers, and their related parties, including their immediate families and companies in which they are
principal owners, were loan customers of the Bank during 2007 and 2006. The loans were made during the ordinary course of business
on substantially the same terms as loans to other individuals and businesses of comparable risks. The Company does not extend loans
to its directors and executive officers for the purpose of financing the purchase of its common stock.
Page -35-
The following table sets forth selected information about related party loans at December 31, 2007:
4. PREMISES AND EQUIPMENT
Premises and equipment consist of:
Balance
Outstanding
(In thousands)
Balance at December 31, 2006
$1,179
New loans
Effective change in related parties
Advances
Repayments
138
(487)
672
(153)
Balance at December 31, 2007
$1,349
December 31,
(In thousands)
Land
Construction in progress
Buildings and improvements
Furniture and fixtures
Leasehold improvements
2007
2006
$ 6,142
$ 6,142
98
11,605
8,012
2,241
3,242
8,741
7,108
1,238
28,098
26,471
Less: accumulated
depreciation and amortization
(9,629)
(8,466)
$18,469
$18,005
5. DEPOSITS
Time Deposits
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2007:
(In thousands)
2008
2009
2010
2011
2012
Total
Less than
$100,000
$100,000 or
Greater
Total
$32,266
$43,297
$75,563
1,742
515
262
213
348
201
155
768
2,090
716
417
981
$34,998
$44,769
$79,767
Deposits from principal officers, directors and their affiliates at December 31, 2007 and 2006 were approximately $3,670,000 and
$2,938,000, respectively. Public fund deposits at December 31, 2007 and 2006 were $90,620,000 and $119,823,000, respectively.
6. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
At December 31, 2007, securities sold under agreements to repurchase totaled $25,000,000 and were secured by mortgage-backed
securities with a carrying amount of $30,225,000.
Securities sold under agreements to repurchase are financing arrangements that mature within two years. The arrangement outstanding
as of December 31, 2007 was entered into during December and will mature before the end of the next fiscal quarter. The securities
sold under agreements to repurchase had an average balance of $753,000 during the year with an average interest rate of 4.5%. The
maximum month-end balance during the year was $25,000,000 and the weighted average interest rate as of December 31, 2007 was
4.5%. At maturity, the securities underlying the agreements are returned to the Company. There were no securities sold under
agreements to repurchase outstanding as of December 31, 2006.
Page -36-
7. FEDERAL HOME LOAN BANK ADVANCES
As of December 31, 2007, there was one advance from the Federal Home Loan Bank for $10,000,000 with a fixed interest rate of 4.3%
maturing in January 2008. The advance is payable at its maturity date and is subject to a prepayment penalty. The advance was
collateralized by $14,900,000 of agency securities as of December 31, 2007. There were no advances from the Federal Home Loan
Bank outstanding as of December 31, 2006.
8. INCOME TAXES
The components of income tax expense are as follows:
Year Ended December 31,
2007
2006
2005
(In thousands)
Current:
Federal
State
Deferred:
Federal
State
$3,221
565
3,786
194
63
257
$2,967
484
3,451
310
90
400
$4,087
863
4,950
(22)
1
(21)
Income tax expense
$4,043
$3,851
$4,929
The reconciliation of the expected Federal income tax expense at the statutory tax rate to the actual provision follows:
Year Ended December 31,
(Dollars in thousands)
Federal income tax expense computed by applying
the statutory rate to income before income taxes
Tax exempt interest
State taxes, net of Federal income tax benefit
Other
Income tax expense
Amount
$4,195
(644)
415
77
$4,043
2007
Percentage
of Pre-tax
Earnings
2006
Percentage
of Pre-tax
Amount
Earnings
Amount
34%
(5)
3
1
$4,087
(706)
379
91
34%
(6)
3
1
$4,984
(665)
568
42
33%
$3,851
32%
$4,929
2005
Percentage
of Pre-tax
Earnings
34%
(5)
4
1
34%
Page -37-
Deferred tax assets and liabilities are comprised of the following:
December 31,
(In thousands)
Deferred tax assets:
Allowance for loan losses
Total
Deferred tax liabilities:
Pension expense
Other
Depreciation
Total
Total before other comprehensive income
SFAS 115 deferred tax (liability) asset
SFAS 158 deferred tax (liability) asset
Net deferred tax asset
2007
2006
$1,300
1,300
$1,102
1,102
(435)
(94)
(227)
(756)
544
(140)
(7)
$397
(265)
(219)
(332)
(816)
286
1,025
490
$1,801
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the State of New York. The Company
is no longer subject to examination by taxing authorities for years before 2003. The Company does not expect the total amount of
unrecognized tax benefits to significantly increase in the next twelve months.
9. EMPLOYEE BENEFITS
a) Pension Plan and Supplemental Executive Retirement Plan
The Bank maintains a noncontributory pension plan through the New York State Bankers Association Retirement System covering all
eligible employees. The Bank uses a September 30th measurement date for this plan.
During 2001, the Bank adopted the Bridgehampton National Bank Supplemental Executive Retirement Plan (“SERP”). The SERP
provides benefits to certain employees, as recommended by the Compensation Committee of the Board of Directors and approved by
the full Board of Directors, whose benefits under the pension plan are limited by the applicable provisions of the Internal Revenue
Code. The benefit under the SERP is equal to the additional amount the employee would be entitled to under the Pension Plan and the
401(k) Plan in the absence of such Internal Revenue Code limitations. The assets of the SERP are held in a rabbi trust to maintain the
tax-deferred status of the plan and are subject to the general, unsecured creditors of the Company. As a result, the assets of the trust are
reflected on the Consolidated Balance Sheets of the Company.
Page -38-
Information about changes in obligations and plan assets of the defined benefit pension plan and the defined benefit plan component of
the SERP are as follows:
At December 31,
(In thousands)
Change in benefit obligation
Pension Benefits
SERP Benefits
2007
2006
2007
2006
Benefit obligation at beginning of year
$4,943
$4,631
$1,119
$1,181
Service cost
Interest cost
Benefits paid and expected expenses
Assumption changes and other
Benefit obligation at end of year
Change in plan assets, at fair value
Plan assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid and actual expenses
Plan assets at end of year
451
280
(205)
(753)
424
252
(195)
(169)
$4,716
$4,943
61
53
(17)
(162)
$1,054
65
55
(105)
(77)
$1,119
$5,005
$4,034
785
990
(206)
$6,574
500
666
(195)
$5,005
-
-
17
(17)
-
-
-
-
-
-
Funded status (plan assets less benefit obligations)
$ 1,858
$ 62
$ (1,054)
$ (1,119)
Amounts recognized in accumulated other comprehensive income at December 31, consist of:
At December 31,
(In thousands)
Net actuarial (gains)/loss
Prior service cost
Transition obligation
Minimum additional pension liability
Net amount recognized
Pension Benefits
SERP Benefits
2007
2006
2007
2006
$(431)
120
-
-
$(311)
$725
128
-
-
$853
$4
-
280
-
$284
$ -
-
371
(147)
$224
The accumulated benefit obligation was $3,787,000 and $989,000 for the pension plan and the SERP, respectively, as of December 31,
2007. As of December 31, 2006, the accumulated benefit obligation was $3,717,000 and $945,000 for the pension plan and the SERP,
respectively.
Page -39-
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income
Pension Benefits
SERP Benefits
2007
2006
2005
2007
2006
2005
At December 31,
(In thousands)
Components of net periodic benefit cost and other
amounts recognized in Other Comprehensive Income
Service cost
Interest cost
Expected return on plan assets
Amortization of net loss
Amortization of unrecognized prior service cost
Amortization of unrecognized transition (asset) obligation
$451
280
(395)
14
9
-
$424
252
(327)
40
9
(3)
$317
223
(296)
25
10
(9)
Net periodic benefit cost
$359
$395
$270
Net (gain) loss
Prior service cost
Transition obligation
Amortization of net (gain) loss
Amortization of prior service cost
Amortization of transition obligation
Deferred taxes
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and other
comprehensive income
($1,141)
-
-
(14)
(9)
-
(1,164)
462
(702)
($343)
-
-
-
-
-
-
-
-
-
$395
-
-
-
-
-
-
-
-
-
$270
$61
52
-
-
-
28
$141
$4
-
(64)
-
-
(28)
(88)
35
(53)
$88
$65
55
-
-
-
28
$ 87
71
-
22
-
28
$148
$208
-
-
-
-
-
-
-
-
-
$148
-
-
-
-
-
-
-
-
-
$208
The estimated net loss and prior service costs for the defined benefit pension plan that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the next fiscal year are $0 and $9,000. The estimated unrecognized net
transition obligation for the SERP that will be amortized from accumulated other comprehensive income into net periodic benefit cost
over the next fiscal year is $28,000.
The Company’s pension plan weighted-average asset allocations at September 30, 2007 and 2006 by asset category are as follows:
Plan Assets at September 30,
2007
2006
Asset Category:
Equity Securities
Debt Securities
Other
Total
57.9%
39.9
2.2
100.0%
59.8%
39.9
0.3
100.0%
Investment Policies
The New York State Bankers Retirement System (the “System”) was established in 1938 to provide for the payment of benefits to
employees of participating banks. The System is overseen by a Board of Trustees (“Trustees”), who meet quarterly, and set the
investment policy guidelines.
The System utilizes two investment management firms (which will be referred to as “Firm I” and “Firm II”). Firm I is investing
approximately 68% of the portfolio and Firm II is investing approximately 32% of the portfolio. The System’s investment objective is
to exceed the investment benchmarks in each asset category. Each firm operates under a separate written investment policy approved
by the Trustees and designed to achieve an allocation approximating 60% invested in Equity Securities and 40% invested in Debt
Securities.
Each Firm shall report at least quarterly to the Investment Committee of the System and semi-annually to the Board.
Equities: The target allocation percentage for equity securities is 60% but may vary from 50%-70% at the investment manager’s
discretion.
Firm I is employed for its expertise as a Value Manager. It is allowed to invest a certain amount of the equity portfolio under its
management in international securities and to hedge said international securities so as to protect against currency devaluations.
Page -40-
The equities managed by Firm II are in a separately managed Large Cap Core Equity Fund. The portfolio is permitted to invest in a
diversified range of securities in the United States (“US”) equity markets. Although the portfolio holds primarily common stocks, from
time to time the portfolio may invest in other types of investments on an opportunistic basis.
Fixed Income: For both investment portfolios, the target allocation percentage for debt securities is 40%, but may vary from 30% to
50% at the investment manager’s discretion.
The Fixed Income Portfolio managed by Firm I operates with guidelines relating to types of debt securities, quality ratings, maturities,
and maximum single and sector allocations.
The portfolio may trade foreign currencies in both spot and forward markets to affect securities transactions and to hedge underlying
asset positions. The purchase and sale of futures and options on futures on foreign currencies and on foreign and domestic bonds, bond
indices and short-term securities is permitted; however, purchases may not be used to leverage the portfolio. Currency transactions
may only be used to hedge 0-100% of currency exposure of foreign securities.
The Fixed Income managed by Firm II is a Core Bond Fixed Income Fund. The portfolio investments are limited to US Dollar
denominated, fixed income securities and selective derivatives designed to have similar attributes of such fixed income securities. The
term “fixed income security” is defined to include instruments with fixed, floating, variable, adjustable, auction-rate, zero, or other
coupon features.
Expected Long-Term Rate-of-Return
The expected long-term rate-of-return on plan assets reflects long-term earnings expectations on existing plan assets and those
contributions expected to be received during the current plan year. In estimating that rate, appropriate consideration was given to
historical returns earned by plan assets in the fund and the rates of return expected to be available for reinvestment. Average rates of
return over the past 1, 3, 5 and 10-year periods were determined and subsequently adjusted to reflect current capital market assumptions
and changes in investment allocations.
At December 31,
Pension Benefits
SERP Benefits
2007
2006
2005
2007
2006
2005
Weighted Average Assumptions Used to Determine Benefit Obligations
Discount rate
Rate of compensation increase
6.00%
5.75%
5.50%
4.52%
4.69%
4.68%
4.00
4.50
4.50
5.00
5.00
5.00
Weighted Average Assumptions Used to Determine Net Periodic Benefit
Cost (Income)
Discount rate
Rate of compensation increase
Expected long-term rate of return
Contributions
5.75%
5.50%
6.00%
4.69%
4.73%
4.90%
4.50
8.00
4.50
8.00
4.00
8.00
5.00
-
4.00
-
4.00
-
The Company is not required to contribute to the pension plan in 2008. The Company expects to contribute $41,000 to the SERP plan
in 2008.
Estimated Future Payments
The following benefit payments, which reflect expected future service, are expected to be paid as follows:
Year
(In thousands)
2008
2009
2010
2011
2012
Following 5 years
Pension and SERP Payments
116
138
1,393
137
204
1,101
Page -41-
b) 401(k) Plan
A savings plan is maintained under Section 401(k) of the Internal Revenue Code and covers substantially all current employees. Newly
hired employees can elect to participate in the savings plan after completing six months of service. Under the provisions of the savings
plan, employee contributions are partially matched by the Bank with cash contributions. Participants can invest their account balances
into several investment alternatives. The savings plan does not allow for investment in the Company’s common stock. During the
years ended December 31, 2007, 2006 and 2005 the Bank made cash contributions of $140,000, $128,000, and $114,000, respectively.
c) Equity Incentive Plan
During 2006, the Bridge Bancorp, Inc. Equity Incentive Plan (the “Plan”) was approved by the shareholders to provide for the grant of
options to purchase shares of common stock of the Company and for the award of shares of common stock. The plan supersedes the
Bridge Bancorp, Inc. Equity Incentive Plan that was approved in 1996 and amended in 2001. Of the total 620,000 shares of common
stock approved for issuance under the Plan, 533,099 shares remain available for issuance at December 31, 2007.
The Compensation Committee of the Board of Directors determines options awarded under the Plan. The Company accounts for this
Plan under SFAS 123(R).
The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
For the Year Ended
2007
2006
2005
Risk free interest rate
-
4.70%
3.66%
Expected dividend yield
-
3.67
3.76
Expected volatility
Expected life (in years)
-
-
20.2
6.0
21.3
4.6
A summary of the status of the Company’s stock options as of December 31, 2007 follows:
Outstanding, December 31, 2006
Granted
Exercised
Forfeited
Outstanding, December 31, 2007
Vested or expected to vest
Exercisable, December 31, 2007
Range of Exercise Prices
Weighted
Weighted
Average
Average
Remaining
Aggregate
Exercise
Contractual
Price
Life
Intrinsic
Value
6.50 years
6.39 years
5.51 years
$293,861
$293,861
$293,861
$21.37
-
$14.66
$25.26
$21.72
$21.57
$19.93
Price
$12.53
$ 13.17-14.67
$15.47
$24.00
$25.25
$26.00-$30.60
Number
of
Options
128,245
-
(13,500)
(14,330)
100,415
96,256
67,180
Number of
Shares
8,400
13,683
11,100
9,596
51,998
5,638
The aggregate intrinsic value for options outstanding and exercisable as of December 31, 2007 is the same because the options that are
unvested have no intrinsic value.
Page -42-
A summary of activity related to the stock options follows:
December 31,
(Dollars in thousands, except for per share data)
Intrinsic value of options exercised
Cash received from options exercised
Tax benefit realized from option exercises
Weighted average fair value of options granted
2007
$130
124
25
-
2006
2005
$180
49
21
$4.45
$289
216
16
$4.39
A summary of the status of the Company’s shares of unvested restricted stock as of December 31, 2007 follows:
Unvested, December 31, 2006
Granted
Vested
Forfeited
Unvested, December 31, 2007
Weighted
Average Grant-Date
Fair Value
$25.50
$24.50
$25.70
$25.36
$24.82
Shares
19,850
22,000
(2,030)
(3,147)
36,673
During the year ended December 31, 2006 the Company granted 63,983 options to purchase shares of common stock of the Company.
These options vest ratably over five years beginning December 31, 2006 and have a 10 year contractual term. Compensation expense
attributable to these options was $44,000 and $68,000 for the years ended December 31, 2007 and December 31, 2006, respectively.
As of December 31, 2007 and December 31, 2006, there was $173,000 and $217,000, respectively, of total unrecognized compensation
costs related to nonvested stock options granted under the Plan.
The Company’s Equity Incentive Plan also provides for issuance of restricted stock awards. During the year ended December 31,
2007, the Company granted restricted stock awards of 22,000 shares. These awards vest over five years with a third vesting after three
years, four years and five years. During the year ended December 31, 2006, the Company granted restricted stock awards of 15,987
shares. These awards cliff vest as of December 31, 2008. During the year ended December 31, 2005, the Company granted restricted
stock awards of 1,239 shares. These awards vest over three years in January of each year following the date of the award. Such shares
are subject to restrictions based on continued service as employees of the Company or employees of subsidiaries of the Company.
Compensation expense attributable to these awards was approximately $200,000, $51,000 and $65,000 for the years ended December
31, 2007, 2006, and 2005, respectively. The related tax benefit recorded in 2007, 2006 and 2005 was $78,000, $21,000 and $22,000,
respectively. The total fair value of shares vested during the years ended December 31, 2007, 2006 and 2005 was $50,000, $85,000
and $188,000, respectively. As of December 31, 2007 and December 31, 2006, there was $733,000 and $411,000, respectively, of total
unrecognized compensation costs related to nonvested restricted stock awards granted under the Plan.
10. EARNINGS PER SHARE
The following is a reconciliation of earnings per share for December 31, 2007, 2006 and 2005:
For the Year Ended December 31,
(In thousands, except per share data)
Net income
Common equivalent shares:
2007
2006
2005
$8,294
$8,168
$9,623
Weighted average common shares outstanding
Weighted average common equivalent shares
Weighted average common and common equivalent shares
Basic earnings per share
Diluted earnings per share
6,072
20
6,092
$ 1.37
$ 1.36
6,139
20
6,159
$ 1.33
$ 1.33
6,241
34
6,275
$ 1.54
$ 1.53
There are approximately 57,636 options outstanding at December 31, 2007 that were not included in the computation of diluted
earnings per share because the options’ exercise prices were greater than the average market price of common stock and were,
therefore, antidilutive. There were approximately 36,673 shares of unvested restricted stock at December 31, 2007 with a grant price
Page -43-
higher than the average market price of the common stock.
11. COMMITMENTS AND CONTINGENCIES AND OTHER MATTERS
In the normal course of business, there are various outstanding commitments and contingent liabilities, such as claims and legal actions,
minimum annual rental payments under non-cancelable operating leases, guarantees and commitments to extend credit, which are not
reflected in the accompanying consolidated financial statements. No material losses are anticipated as a result of these commitments
and contingencies.
a) Leases
The Company is obligated to make minimum annual rental payments under non-cancelable operating leases for its premises. Projected
minimum rentals under existing leases are as follows:
December 31, 2007
(In thousands)
2008
2009
2010
2011
2012
Thereafter
Total minimum rentals
$ 641
633
448
307
241
1,059
$3,329
Certain leases contain renewal options and rent escalation clauses. In addition, certain leases provide for additional payments based
upon real estate taxes, interest and other charges. Rental expenses under these leases for the years ended December 31, 2007, 2006 and
2005 approximated $584,000, $516,000, and $456,000, respectively.
b) Loan commitments
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet
customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in
the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit
loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to
make such commitments as are used for loans, often including obtaining collateral at exercise of the commitment.
The following represents commitments outstanding:
December 31,
(In thousands)
2007
2006
Standby letters of credit
Loan commitments outstanding (1)
Unused lines of credit
$ 3,016
23,452
106,207
$ 2,736
16,718
98,960
Total commitments outstanding
$132,675
$118,414
(1) Of the $23,452,000 of loan commitments outstanding at December 31, 2007, $6,589,000
are fixed rate commitments and $16,863,000 are variable rate commitments.
c) Other
During 2007, the Bank was required to maintain certain cash balances with the Federal Reserve Bank of New York for reserve and
clearing requirements. These balances averaged $1,142,000 in 2007 and the balance at December 31, 2007 was $815,000.
During 2007, 2006 and 2005, the Bank maintained an overnight line of credit with the Federal Home Loan Bank of New York
(“FHLB”). The Bank has the ability to borrow against its unencumbered residential and commercial mortgages and investment
securities owned by the Bank. At December 31, 2007, the Bank had aggregate lines of credit of $74,500,000 with unaffiliated
correspondent banks to provide short-term credit for liquidity requirements. Of these aggregate lines of credit, $54,500,000 is available
on an unsecured basis. As of December 31, 2007, the Bank had $7,000,000 in such borrowings outstanding.
In March 2001, the Bank entered into a Master Repurchase Agreement with the FHLB whereby the FHLB agrees to purchase securities
from the Bank, upon the Bank’s request, with the simultaneous agreement to sell the same or similar securities back to the Bank at a
Page -44-
future date. Securities are limited, under the agreement, to government securities, securities issued, guaranteed or collateralized by any
agency or instrumentality of the U.S. Government or any government sponsored enterprise, and non-agency AA and AAA rated
mortgage-backed securities. At December 31, 2007, there was $71,820,000 available for transactions under this agreement. The Bank
had $25,000,000 of securities sold under agreements to repurchase outstanding as of December 31, 2007 and a $10,000,000 advance
that was collateralized by securities outstanding as of December 31, 2007 (See Notes 6 and 7).
12. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at specific points in time and are based on existing on-and off-balance sheet financial instruments. Such
estimates are generally subjective in nature and dependent upon a number of significant assumptions associated with each financial
instrument or group of financial instruments, including estimates of discount rates, risks associated with specific financial instruments,
estimates of future cash flows, and relevant available market information. Changes in assumptions could significantly affect the
estimates. In addition, fair value estimates do not reflect the value of anticipated future business, premiums or discounts that could
result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument, or the tax consequences of
realizing gains or losses on the sale of financial instruments.
The Company used the following method and assumptions in estimating the fair value of its financial instruments:
Cash and Due from Banks and Federal Funds Sold: Carrying amounts approximate fair value, since these instruments are either
payable on demand or have short-term maturities.
Securities Available for Sale and Held to Maturity: The estimated fair values are based on independent dealer quotations and quoted
market prices.
Loans: The estimated fair values of real estate mortgage loans and other loans receivable are based on discounted cash flow
calculations that use available market benchmarks when establishing discount factors for the types of loans. All nonaccrual loans are
carried at their current fair value. Exceptions may be made for adjustable rate loans (with resets of one year or less), which would be
discounted straight to their rate index plus or minus an appropriate spread.
Deposits: The estimated fair value of certificates of deposits are based on discounted cash flow calculations that use a replacement cost
of funds approach to establishing discount rates for certificates of deposits maturities. Stated value is fair value for all other deposits.
Wholesale Funding: The estimated fair value of borrowed funds and wholesale certificates of deposit are based on discounted cash
flow calculations that use a replacement cost of funds approach to establishing discount rates for funding maturities.
Accrued Interest Receivable and Payable: For these short-term instruments, the carrying amount is a reasonable estimate of the fair
value.
Off-Balance-Sheet Liabilities: The fair value of off-balance-sheet commitments to extend credit is estimated using fees currently
charged to enter into similar agreements.
Page -45-
The estimated fair values and recorded carrying values of the Bank’s financial instruments are as follows:
December 31,
(In thousands)
Financial Assets:
Cash and due from banks
Interest bearing deposits with banks
Securities available for sale
Securities restricted
Securities held to maturity
Loans, net
Accrued interest receivable
Financial Liabilities:
Demand and other deposits
Overnight borrowings
Accrued interest payable
Off-Balance-Sheet Liabilities
Commitments to extend credit
2007
Carrying
Amount
Fair
Value
2006
Carrying
Amount
Fair
Value
$ 14,213
$ 14,213
$ 13,231
$ 13,231
135
187,384
2,387
5,836
372,282
2,707
508,909
42,000
641
135
187,384
2,387
5,844
378,698
2,707
508,747
42,000
641
32
202,590
878
9,444
323,485
2,692
504,412
18,600
855
32
202,590
878
9,442
318,697
2,692
504,365
18,600
855
23,452
-
16,718
-
13. REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital
requirements that involve quantitative measures of the Company’s and Bank’s assets, liabilities, and certain off-balance sheet items
calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classifications also are subject to
qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum
amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk weighted assets (as
defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2007, that the
Company and the Bank met all capital adequacy requirements with which it must comply.
As of December 31, 2007, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as “well
capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” the Bank must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. Since that notification, there
are no conditions or events that management believes have changed the institution’s category.
Page -46-
The Company and the Bank’s actual capital amounts and ratios are presented in the following table:
Bridge Bancorp, Inc. (Consolidated)
As of December 31,
(Dollars in thousands)
2007
For Capital
Adequacy
Purposes
Actual
Amount
Ratio
Amount
Total Capital (to risk weighted assets)
Tier 1 Capital (to risk weighted assets)
Tier 1 Capital (to average assets)
$53,950
50,877
50,877
12.1%
11.5%
8.4%
$35,542
17,771
24,347
As of December 31,
(Dollars in thousands)
2006
For Capital
Adequacy
Purposes
Actual
Amount
Ratio
Amount
Total Capital (to risk weighted assets)
Tier 1 Capital (to risk weighted assets)
Tier 1 Capital (to average assets)
$50,312
47,800
47,800
12.6%
11.9%
8.3%
$32,032
16,016
23,075
Bridgehampton National Bank
As of December 31,
(Dollars in thousands)
2007
For Capital
Adequacy
Purposes
Actual
Amount
Ratio
Amount
Total Capital (to risk weighted assets)
Tier 1 Capital (to risk weighted assets)
Tier 1 Capital (to average assets)
$47,860
44,906
44,906
10.8%
10.1%
7.4%
$35,524
17,762
24,338
As of December 31,
(Dollars in thousands)
2006
For Capital
Adequacy
Purposes
Actual
Amount
Ratio
Amount
Total Capital (to risk weighted assets)
$50,152
Tier 1 Capital (to risk weighted assets)
Tier 1 Capital (to average assets)
47,640
47,640
12.5%
11.9%
8.3%
$32,019
16,010
23,073
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
n/a
n/a
n/a
n/a
n/a
n/a
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
n/a
n/a
n/a
n/a
n/a
n/a
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
$44,405
26,643
30,423
10.0%
6.0%
5.0%
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
$40,024
24,015
28,841
10.0%
6.0%
5.0%
Ratio
8.0%
4.0%
4.0%
Ratio
8.0%
4.0%
4.0%
Ratio
8.0%
4.0%
4.0%
Ratio
8.0%
4.0%
4.0%
Page -47-
14. BRIDGE BANCORP, INC. (PARENT COMPANY ONLY)
Condensed Statements of Financial Condition
December 31,
(In thousands, except share data)
ASSETS
Cash and cash equivalents
Dividend receivable from the Bank
Other assets
Investment in the Bank
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Dividends payable
Other liabilities
Total Liabilities
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
2007
2006
$ 5,751
$ 2
1,406
221
45,137
$52,515
1,408
157
45,379
$46,946
$ 1,406
$ 1,394
-
1,406
13
1,407
51,109
$52,515
45,539
$46,946
Condensed Statements of Income
Year Ended December 31,
(In thousands)
Dividends from the Bank
Non interest expenses
Income before income taxes and equity in
undistributed earnings of the Bank
Income tax expense
Income before equity in undistributed
earnings of the Bank
Equity in (overdistributed) undistributed earnings of the Bank
Net income
2007
2006
2005
$11,029
$9,482
$6,390
1
1
1
11,028
-
11,028
(2,734)
$8,294
9,481
6,389
-
-
9,481
(1,313)
$8,168
6,389
3,234
$9,623
Page -48-
Condensed Statements of Cash Flows
Year Ended December 31,
(In thousands)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in overdistributed (undistributed) earnings of the Bank
Income tax benefit from exercise of employee stock options
Decrease in other assets
(Decrease) increase in other liabilities
Net cash provided by operating activities
Cash flows used by financing activities:
Net proceeds from issuance of common stock upon exercise of stock options
Purchase of treasury stock
Dividends paid
Net cash used by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2007
2006
2005
$8,294
$8,168
$9,623
2,734
25
172
(13)
11,212
149
-
(5,612)
(5,463)
5,749
2
$ 5,751
1,313
21
602
(545)
9,559
70
(4,039)
(5,668)
(9,637)
(78)
80
$ 2
(3,234)
16
93
11
6,509
232
(2,134)
(5,551)
(7,453)
(944)
1,024
$ 80
15. OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) components and related tax effects were as follows:
Year Ended December 31,
(In thousands)
Unrealized holding gains (losses) on available for sale
securities
Reclassification adjustment for losses (gains) realized in
income
Tax effect
Net change in unrealized gain (loss) on available for sale
securities
Change in post-retirement obligation
Tax effect
Net change in post-retirement obligation
Total
2007
2006
2005
$2,802
101
(1,165)
1,738
1,252
(497)
755
$2,493
$1,134
($4,528)
289
(572)
851
-
-
-
(116)
1,865
(2,779)
-
-
-
$851
($2,779)
The following is a summary of the accumulated other comprehensive income balances, net of tax:
Balance as of
December 31, 2006
Current Period
Change
Balance as of
December 31, 2007
(In thousands)
Unrealized gains (losses) on available for sale securities
Unrealized gain (loss) on pension benefits
Total
($1,525)
(736)
($2,261)
$1,738
755
$2,493
$213
19
$232
Page -49-
16. QUARTERLY FINANCIAL DATA (Unaudited)
Selected Consolidated Quarterly Financial Data
2007 Quarter Ended,
March 31,
June 30,
September 30,
December 31,
(In thousands, except per share amounts)
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non interest income
Non interest expenses
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
$8,556
$8,862
$9,309
$9,137
2,769
5,787
45
5,742
1,234
4,480
2,496
747
$1,749
$ 0.29
$ 0.29
2,707
6,155
50
6,105
1,541
4,376
3,270
1,063
$2,207
$ 0.36
$ 0.36
2,496
6,813
150
6,663
1,541
4,627
3,577
1,255
$2,322
$ 0.38
$ 0.38
2,465
6,672
355
6,317
1,362
4,685
2,994
978
$2,016
$ 0.33
$ 0.33
2006 Quarter Ended,
March 31,
June 30,
September 30,
December 31,
(In thousands, except per share amounts)
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non interest income
Non interest expenses
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
$7,555
1,576
5,979
-
5,979
739
3,769
2,949
1,010
$1,939
$ 0.31
$ 0.31
$7,674
1,882
5,792
-
5,792
1,260
4,073
2,979
941
$2,038
$ 0.33
$ 0.33
$8,281
2,267
6,014
-
6,014
1,200
4,137
3,077
925
$2,152
$ 0.35
$ 0.35
$8,520
2,612
5,908
85
5,823
1,214
4,023
3,014
975
$2,039
$ 0.34
$ 0.34
Page -50-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit Committee
Board of Directors
Bridge Bancorp, Inc.
Bridgehampton, New York
We have audited the accompanying consolidated balance sheets of Bridge Bancorp, Inc. as of December 31, 2007 and 2006, and the related
statements of consolidated income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31,
2007. We also have audited Bridge Bancorp, Inc’s. internal control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Bridge Bancorp, Inc.’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Report By Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these
consolidated financial statements and an opinion on Bridge Bancorp, Inc’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating
management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bridge
Bancorp, Inc. as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three-year
period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, Bridge Bancorp, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
Livingston, New Jersey
March 6, 2008
Crowe Chizek and Company LLC
Page -51-
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Principal
Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of
December 31, 2007. Based on that evaluation, the Company’s Principal Executive Officer and Principal Chief Financial Officer
concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by the annual
report.
Report By Management On Internal Control Over Financial Reporting
Management of Bridge Bancorp, Inc. (“the Company”) is responsible for establishing and maintaining an effective system of internal
control over financial reporting. The Company's system of internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. There are inherent limitations in the effectiveness of any system of internal control over
financial reporting, including the possibility of human error and circumvention or overriding of controls. Accordingly, even an
effective system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement
preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become
inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the Company’s internal control over financial reporting as of December 31, 2007. This assessment was based on
criteria for effective internal control over financial reporting described in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of
December 31, 2007, the Company maintained effective internal control over financial reporting based on those criteria.
The Company’s independent registered public accounting firm that audited the financial statements that are included in this annual
report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting. The attestation report
of Crowe Chizek and Company LLC appears on the previous page.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the year that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
“Item 1 – Election of Directors,” “Compliance with Section 16 (a) of the Exchange Act,” and “Code of Ethics” set forth in the
Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2008, are incorporated herein by
reference.
Item 11. Executive Compensation
“Compensation of Directors,” “Compensation of Executive Officers,” “Report of the Compensation Committee on Executive
Compensation,” “Compensation Committee Interlocks and Insider Participation,” and “Employment Contracts and Severance
Agreements” set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2008, are
incorporated herein by reference.
Page -52-
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
“Beneficial Ownership” and “Item 1 – Election of Directors”, set forth in the Registrant’s Proxy Statement for the Annual Meeting of
Shareholders to be held on April 25, 2008, are incorporated herein by reference.
Set forth below is certain information as of December 31, 2007, regarding the Company’s equity compensation plan that has been
approved by stockholders.
Equity Compensation
Plan approved by
Stockholders
1996 Equity Incentive Plan
2006 Equity Incentive Plan
Total
Number of securities to
be Issued upon Exercise
of outstanding options
and awards
50,187
86,901
137,088
Weighted Average
Exercise Price with
respect to Outstanding
Stock Options
$17.93
$25.25
$21.72
Number of Securities
Remaining Available for
Issuance under the Plan
-
533,099
533,099
Item 13. Certain Relationships and Related Transactions, and Director Independence
“Certain Relationships and Related Transactions, and Director Independence” set forth in the Registrant’s Proxy Statement for the
Annual Meeting of Shareholders to be held on April 25, 2008, is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
“Item 2 - Ratification of the Appointment of Independent Auditors,” “Fees Paid to Crowe Chizek,” and “Policy on Audit Committee
Pre-approval Of Audit and Non-audit Services of Independent Auditor” set forth in the Registrant’s Proxy Statement for the Annual
Meeting of Shareholders to be held on April 25, 2008, is incorporated herein by reference.
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a) The following Consolidated Financial Statements, including notes thereto, and financial schedules of the Company, required in
response to this item are included in Part II, Item 8.
1. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedules
Page No.
25
26
27
28
29
51
Financial Statement Schedules have been omitted because they are not applicable or the required information is shown in the
Consolidated Financial Statements or Notes thereto under Item 8, “Financial Statements and Supplementary Data.”
3. Exhibits.
See Index of Exhibits on page 55.
Page -53-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 14, 2008
March 14, 2008
March 14, 2008
BRIDGE BANCORP, INC.
Registrant
/s/ Kevin M. O’Connor
Kevin M. O’Connor
President and Chief Executive Officer
/s/ Howard H. Nolan
Howard H. Nolan
Senior Executive Vice President, Chief Financial
Officer and Treasurer
/s/ Sarah K. Quinn
Sarah K. Quinn
Vice President, Controller and Principal
Accounting Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
March 14, 2008
March 14, 2008
March 14, 2008
March 14, 2008
March 14, 2008
March 14, 2008
March 14, 2008
March 14, 2008
March 14, 2008
March 14, 2008
/s/ Raymond Wesnofske
Raymond Wesnofske
,Director
/s/ Thomas J. Tobin
Thomas J. Tobin
/s/ Thomas E. Halsey
Thomas E. Halsey
/s/ Marcia Z. Hefter
Marcia Z. Hefter
/s/ R. Timothy Maran
R. Timothy Maran
,Director
,Director
,Director
,Director
/s/ Charles I. Massoud
Charles I. Massoud
,Director
/s/ Howard H. Nolan
Howard H. Nolan
/s/ Dennis A. Suskind
Dennis A. Suskind
,Director
,Director
/s/ Kevin M. O’Connor
Kevin M. O’Connor
,Director
/s/ Emanuel Arturi
Emanuel Arturi
,Director
Page -54-
Exhibit Number
Description of Exhibit
Exhibit
EXHIBIT INDEX
3.1
3.1(i)
3.2
10.1
10.2
10.3
10.5
10.6
23
31.1
31.2
32.1
Certificate of Incorporation of the registrant (incorporated by reference to Registrant’s
amended Form 10, File No. 0-18546, filed October 15, 1990)
Certificate of Amendment of the Certificate of Incorporation of the Registrant
(incorporated by reference to Registrant’s Form 10, File No. 0-18546, filed August 13,
1999)
Revised By-laws of the Registrant (incorporated by reference to Registrant’s Form 8-K,
File No. 0-18546, filed December 17, 2007)
Amended and Restated Employment Contract - Thomas J. Tobin (incorporated by
reference to Registrant’s Form 8-K, File No. 0-18546, filed October 9, 2007)
Employment Contract – Howard H. Nolan (incorporated by reference to Registrant’s
Form 10-Q, File No. 0-18546, filed November 7, 2006)
Employment Contract – Kevin M. O’Connor (incorporated by reference to Registrant’s
Form 8-K, File No. 0-18546, filed October 9, 2007)
Equity Incentive Plan (incorporated by reference to Registrant’s Form S-8, File No.
0-18546, filed August 14, 2006)
*
*
*
*
*
*
*
Supplemental Executive Retirement Plan (Revised for 409A)
Accountants’ Consent
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule
13a-14(b) and U.S.C. Section 1350
* Denotes incorporated by reference.
Page -55-
EXHIBIT 10.6
BRIDGEHAMPTON NATIONAL BANK
Supplemental Executive Retirement Plan
Article I – Purpose and Establishment
1.1
Purpose: Bridgehampton National Bank (the “Bank”) desires to establish a supplemental executive retirement plan
for the exclusive benefit of certain of its executive employees to avoid decreased retirement benefits because of limitations imposed by
Section 401(a)(17) and/or Section 415 of the Internal Revenue Code of 1986, as amended. The Bank intends that any Participant or
Beneficiary (as hereinafter defined) under the Plan shall have the status of a general unsecured creditor of the Bank and Bridge
Bancorp, Inc. (the holding company for the Bank)(the “Company”), as to the Plan and any related Trust Fund (as hereinafter defined)
which may be established.
1.2
Establishment: The Bank hereby establishes the Bridgehampton National Bank Supplemental Executive Retirement
Plan, effective January 1, 2001.
Article II – Definitions
2.1
“Actuary” shall mean the firm which provides actuarial services for the Pension Plan or such other firm as may be
appointed by the Chief Executive Officer of the Bank (“CEO”) from time to time to provide actuarial services for the Plan.
2.2
“Agreement” shall mean a separate participation agreement executed by a corporate officer on behalf of the Bank and
a Participant evidencing such Participant’s participation in the Plan and any special circumstances regarding participation.
2.3
“Beneficiary” shall mean the Beneficiary designated under the Plan with respect to which benefits hereunder are
payable. The Participant shall designate a Beneficiary hereunder by delivering to the Committee a written designation of Beneficiary
specifically made with respect to this Plan. Any change in designation of a Beneficiary must also be delivered to the Committee in
writing. In the absence of a Beneficiary designation, any benefits owed under the Plan on behalf of a deceased Participant shall be paid
to the Participant’s estate.
2.4
2.5
2.6
“Board” shall mean the Board of Directors of the Bank.
“Change in Control” shall have the meaning set forth in Section 6.8 of the Plan.
“Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time, and the rules and
regulations promulgated thereunder.
2.7
“Committee” shall mean the Chief Executive Officer and the Chief Financial Officer of the Bank or any such other
individuals designated by the Board from time to time.
2.8
“Compensation” shall mean a Participant’s total taxable wages paid to him from the Bank or the Company, or a
subsidiary of either (any such subsidiary referred to herein as a “Subsidiary”), in any calendar year.
2.9
2.10
“Effective Date” shall mean January 1, 2001.
“Participant” shall mean a senior executive employee of the Bank who has been nominated by the Board or who is
participating in the Plan pursuant to the terms of an employment agreement between the executive and the Bank. Such senior executive
employee shall become a Participant in the Plan on the date specified in such an employment agreement, or, if no such date is specified
in such an employment agreement, on the date specified by the Board.
2.11.
“Plan” shall mean the Plan as is set forth in this document as it may be amended from time to time. The Plan shall be
known as the Bridgehampton National Bank Supplemental Executive Retirement Plan.
2.12
“Retirement Plans” shall mean the Prototype Plan of the New York State Bankers Retirement System as adopted by
The Bridgehampton National Bank (the “Pension Plan”) and the Bridgehampton National Bank 401(k) Plan (the “401(k) Plan”) as they
may be amended from time to time, or such other qualified retirement plan or plans as the Bank may from time to time adopt.
2.13
“Total and Permanent Disability” shall mean the Participant is unable to perform his duties for the Bank because he is
disabled within the meaning of Treasury regulation 1.409A-3(i)(4) or any successor thereto.
2.14
“Trust Agreement” shall mean the agreement(s) including any amendments thereto entered into between the Bank
and the Trustee(s) to carry out the provisions of the Plan.
2.15
“Trust Fund” shall mean the cash and other properties held and administered by the Trustee(s) pursuant to the Trust
Agreement(s) to carry out the provisions of the Plan.
2.16
Article III – Eligibility
“Trustee” shall mean the designated trustee(s) acting at any time under the Trust Agreement(s).
3.1
Eligibility: To receive a benefit, a Participant or his Beneficiary must qualify for a benefit under any one of the
Retirement Plans, the amount of which is reduced by reason of the application of the limitations set forth in Section 401(a)(17) and/or
Section 415 of the Code, or any successor or alternative provisions thereto which have the effect of statutorily limiting or reducing the
Participant’s allocations or benefits under the Retirement Plans.
Article IV – Benefits: Accrual and Entitlement, Form of Payment
Benefit Accrual and Entitlement:
(A)
4.1
Aggregate Benefits: The benefits under this Plan to which an eligible Participant or his Beneficiary shall be
Page -56-
entitled, shall be an amount equal to (B) plus (C) below:
(B)
401(k) Plan: For each year the Plan is in effect, a credit shall be made to each Participant’s separate account
in an amount equal to the amount that would have been contributed by the Bank to the Participant’s account under the 401(k) Plan
based on the Participant’s Compensation for services to be performed subsequent to the initial election of the Participant which is made
pursuant to Section 4.2, below, and the then existing maximum matching contribution rate set forth in the 401(k) Plan as a percentage
of such Compensation, without giving effect to Section 401(a)(17), Section 401(m)(2) and Section 415 of the Code, less the maximum
amount that could have been contributed to the Participant’s account under the 401(k) Plan with respect to such Compensation. This
bookkeeping account entry will be credited with earnings (or losses) on an annual basis in the same percentage as the aggregate
earnings or losses in the Participant’s account under the 401(k) Plan. In the event the Participant has received full distribution of his
account from the 401(k) Plan, earnings (or losses) will be credited to any unpaid balance of the Participant’s account in the same
percentage as overall earnings (or losses) under the 401(k) Plan each year.
(C)
Pension Plan: Each Participant will be entitled to an accrual under the Plan based on the existing formula
under the Pension Plan as it may be changed from time to time. Such accrual shall be made without regard to Section 401(a)(17) and
Section 415 of the Code. All years of service credited to the Participant under the Pension Plan shall be credited to the Participant
under the Plan for purposes of this Section. The benefits to which the Participant shall be entitled under this subsection 4.1(C) of the
Plan shall equal the benefit the Participant would be entitled to under the Pension Plan if such benefit were computed based upon the
Participant’s Compensation for services to be performed subsequent to the initial election of the Participant which is made pursuant to
Section 4.2, below, without the restrictions or the limitations imposed by Section 401(a)(17) and Section 415 of the Code, as either
section is now or hereinafter in effect less the amount of benefits payable under the Pension Plan with respect to such amounts of
Compensation. The Actuary shall use the factors applicable to the Pension Plan at time of payment for purposes of determining the
amount of any benefit.
(D)
Additional Retirement Plans: In the event the Bank or the Company adopts any other Retirement Plan either
the methodology of subsection 4.1(B) or 4.1(C) above shall be applicable to the calculation of the Participant’s benefits under the
additional Retirement Plan.
4.2
Payment of Benefits:
The provisions of this subsection 4.2 are subject to the Change in Control provisions of subsection 6.8 below.
(A)
Participant Election: Subject to the provisions of subsections (B) and (C) below, the payment of benefits to
which a Participant or his Beneficiary shall be entitled under each of subsection 4.1(B) and subsection 4.1(C) of this Plan shall be made
in the form elected by the Participant with respect thereto in a written election made by the Participant within thirty (30) days after the
date that the Participant becomes a Participant in the Plan, or, if no compensation is to be deferred for the calendar year in which such
date occurs, not later than the close of the calendar year preceding the year in which compensation is first deferred pursuant to the terms
of the Plan, provided that no such election shall apply to compensation paid for services performed prior to the election, subject to and
in accordance with Treasury regulation 1.409A-2 or any successor thereto. Benefit payments shall commence in the form elected by
the Participant on the six (6) month anniversary of the date that the Participant separates from service with the Bank, unless such
commencement date is deferred in accordance with a duly filed election of the Participant. After making an initial election as to a form
of benefit pursuant to this subsection 4.2(A), any subsequent election of a different form of benefit or commencement date must be
made prior to the commencement of benefits in the form selected in accordance with and subject to Section 409A of the Code and the
regulations promulgated thereunder, or any successor thereto. A subsequent election shall not take effect until at least twelve (12)
months after the date on which the election is made and unless payment is to be made to the Participant (or on behalf of the Participant)
on account of disability, death or an unforeseeable emergency, the payment with respect to which the subsequent election is made shall
be deferred for a period that is not less than five (5) years from the date such payment was otherwise scheduled to be made. For the
purposes of the Plan and any election made pursuant thereto, each form of benefit payment (whether to be made in a single lump sum
or in installments) shall be treated as a “single payment” as that term is used in Treasury regulation 1.409A-2(b) or any successor
thereto. Notwithstanding the above, as provided in IRS Notice 2007-86, published October 22, 2007, a Participant may file a
subsequent election of a different form of benefit on or before December 31, 2008 and the election will be effective immediately.
Provided, however, that no Participant election made in 2007 pursuant to this section may cause an amount to be paid in 2007 that
would otherwise be paid in a later year, or cause an amount to be paid after 2007 that would otherwise have been paid in 2007 and no
Participant election made in 2008 pursuant to this section may cause an amount to be paid in 2008 that would otherwise have been paid
in a later year, or cause an amount to be paid after 2008 that would otherwise have been paid in 2008.
(B)
Section 4.1(B) Benefits: Any benefit payable pursuant to subsection 4.1(B) of the Plan must be paid either
in a single lump sum payment or in equal annual installments over either a five (5) or ten (10) year period from date of commencement.
(C)
Section 4.1(C) Benefits: Any benefit payable pursuant to subsection 4.1(C) of the Plan must be paid in the
form of benefit selected by the Participant from the forms of benefit available under the Pension Plan. The available forms of benefit
under the Pension Plan are listed on Exhibit A attached hereto and made part hereof. For the purpose of determining any lump sum
payment payable pursuant to this Section 4.2(C), the present value of the Participant’s accrued benefit shall be determined on the basis
of the 1983 GAM Mortality Table as modified and set forth under IRS Revenue Ruling 95-6, and an interest rate equal to the annual
rate of interest on 30-year Treasury securities for the month of November most recently preceding the beginning of the calendar year in
which the distribution is made (or such other mortality table or annual interest rate that may be applied under Section 1.59 or a
succeeding section of the Pension Plan at the time the lump sum payment is to be determined).
(D)
Preretirement Death Benefits. In the event that a Participant dies before payment begins of his benefits
Page -57-
under Plan Sections 4.1(B) and 4.1(C), the Plan shall pay said benefits to the Participant’s designated beneficiary. The Plan shall pay
benefits under Plan Section 4.1(B) to the Participant’s designated beneficiary in the form of benefit elected by the Participant under
Plan Section 4.1(B). The Plan shall pay benefits under Plan Section 4.1(C) to the Participant’s designated beneficiary in the form of a
lump sum, in the event the Participant had elected a lump sum as his form of benefit under Plan Section 4.1(C) or, in the event the
Participant had elected any of the annuity options available under the Plan as his form of benefit under Plan Section 4.1(C), in the form
of a 100% joint and survivor annuity determined as thought the Participant had retired upon the date of death and had immediately
commenced receiving his or her benefits. Payment of all benefits shall commence within 90 days of the Participant’s death.
(E)
Grantor Trust: The Bank or the Company may establish a Trust or Trusts for the purpose of retaining assets
set aside by the Bank or the Company pursuant to a Trust Agreement for payment of all or a portion of the benefits payable pursuant to
the Plan. Any benefits not paid from the Trust shall be paid from the Bank’s or the Company’s general funds. All Trust Funds shall be
subject to the claims of general creditors of the Bank or the Company in the event either the Bank or the Company is insolvent, as such
term will be defined in the Trust Agreement.
(F)
Retirement Plan Provisions: Any benefit payable under the Retirement Plans shall be solely in accordance
with the terms and provisions thereof, and nothing in this Agreement shall operate or be construed in any way to modify, amend or
affect the terms and provisions of the Retirement Plans.
No Third Party Rights: Nothing contained in this Plan nor any reference to the Retirement Plans is intended
to give or shall give (in the absence of a Beneficiary designation) any spouse or former spouse of a Participant or any other person any
right to benefits under the Plan.
(G)
(H)
Tax Payment: Notwithstanding the preceding provisions of this Section 4.2, the Trustee may make
payments from the Trust before they would otherwise be due in order to pay any Federal Insurance Contributions Act (“FICA”) tax
imposed under Section 3101, Section 3121(a) and Section 3121(v)(2) of the Code, where applicable, on compensation deferred under
the Plan (the “FICA Amount”), or to pay the income tax at source on wages imposed under Section 3401 of the Code or the
corresponding withholding provisions of applicable state, local or foreign tax laws as a result of the payment of the FICA Amount, and
to pay the additional income tax at source on wages attributable to the pyramiding Section 3401 wages and taxes. Furthermore, the
Trustee may also make payments from the Trust before they would otherwise be due at any time the Plan fails to meet the requirements
of Section 409A of the Code and the regulations promulgated thereunder, or any successor thereto, with respect to the Participant. The
amount of any payments pursuant to this Section 4.2(H) shall not exceed the lesser of (a) the aggregate of the FICA Amount and the
income tax withholding related to such FICA Amount, or (b) the amount required to be included in the Participant’s income as a result
of the failure to comply with the requirements of Section 409A of the Code and the regulations promulgated thereunder, or any
successor thereto.
4.3
Vesting of Benefits:
A Participant shall have a fully vested non-forfeitable right to benefits hereunder at such time as the Participant has a
fully vested non-forfeitable right to benefits under the corresponding underlying Retirement Plan.
Article V – Administration; Amendments and Termination; Rights Against Employer
5.1
Administration: The Committee shall administer this Plan, subject to Board review, in accordance with the
provisions of the Plan and related Trust. Such administration shall include but not be limited to the authority to execute the Plan on
behalf of the Bank and any and all documents including the Agreements pertaining thereto. The Agreements may set forth different
terms of participation for different Participants. If any terms of participation are governed by a Participant’s employment agreement
with the Bank, the specific terms of the employment agreement shall be referenced in the Agreement and shall control. Subject to
Board review, any determination or decision by the Committee shall be conclusive and binding on all persons who at any time have or
claim to have any interest whatsoever under this Plan.
5.2
Liability of Committee, Indemnification: To the extent permitted by law, no member of the Committee shall be
liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless
attributable to his own gross negligence or willful misconduct. The Bank and the Company shall indemnify the members of the
Committee against any and all claims, losses, damages, expenses, including advancement of counsel fees, incurred by them, and any
liability, including any amounts paid in settlement with their approval, arising from their action or failure to act, except when the same
is judicially determined to be attributable to their gross negligence or willful misconduct.
5.3
Amendment: The Board, shall have the right to amend this Plan at any time and from time to time, including a
retroactive amendment, by resolution. Any such amendment shall become effective upon the date stated therein, and shall be binding
on all Participants, except as otherwise provided in such amendment; provided, however, that said amendment shall not adversely
affect benefits on a retroactive basis nor shall such amendment adversely affect benefits to the affected Participant or Beneficiary where
the cause giving rise to such benefit (e.g., retirement) has already occurred. For purposes of this Plan, a Change in Control shall
constitute a cause having occurred which gives rise to a Participant’s and/or his Beneficiary’s benefits hereunder, and such benefits
shall not be adversely affected.
5.4
Termination of the Plan: The Bank has established this Plan with the bona fide intention and expectation that from
year to year it will deem it advisable to continue it in effect. However, the Board, in its sole discretion, reserves the right to terminate
the Plan in its entirety at any time, and in such event, benefit accruals hereunder shall cease and the obligation to pay benefits shall be
fixed on date of termination, provided, however, benefits shall not be affected, where the cause giving rise to such benefit (e.g.,
retirement, Change in Control) has already occurred.
Page -58-
5.5
Rights Against the Bank, the Company or any Subsidiary: The establishment of this Plan shall not be construed as
giving to any Participant, employee or any person whomsoever, any legal, equitable or other rights against the Bank, the Company, or
any Subsidiary, or its officers, directors, agents or shareholders, or as giving to any Participant or Beneficiary any equity or other
interest in the assets or business of the Bank, the Company or any Subsidiary, or in shares of Company stock, or giving any employee
the right to be retained in the employment of the Bank, the Company or any Subsidiary. All employees and Participants shall be
subject to discharge to the same extent they would have been if this Plan had never been adopted. The rights of a Participant hereunder
shall be solely those of an unsecured general creditor of the Bank and the Company; provided, however, that the Bank may terminate
this Plan or any benefit hereunder, subject to Sections 5.3 and 5.4 above.
5.6
Expenses: The cost of this Plan and related Trust and the expenses of administering the Plan and related Trust,
including, without limitation, any fees or taxes applicable to the related Trust shall be borne by the Bank.
Article VI – General and Miscellaneous
6.1
Spendthrift Clause: No right, title or interest of any kind in the Plan shall be transferable or assignable by any
Participant or Beneficiary or be subject to alienation, anticipation, encumbrance, garnishment, attachment, execution or levy of any
kind, whether voluntary or involuntary, nor subject to the debts, contracts, liabilities, engagements, or torts of the Participant or
Beneficiary. Any attempt to alienate, anticipate, encumber, sell, transfer, assign, pledge, garnish, attach or otherwise subject to legal or
equitable process or encumber or dispose of any interest in the Plan shall be void.
6.2
Severability: In the event that any provision of this Plan shall be declared illegal or invalid for any reason, said
illegality or invalidity shall not affect the remaining provisions of this Plan but shall be fully severable and this Plan shall be construed
and enforced as if said illegal or invalid provision had never been inserted herein.
6.3
Construction: The article and section headings and numbers are included only for convenience of reference and are
not to be taken as limiting or extending the meaning of any of the terms and provisions of this Plan. Whenever appropriate, words used
in the singular shall include the plural or the plural may be read as the singular. When used herein, the masculine gender includes the
feminine gender.
6.4
Governing Law: The validity and effect of this Plan and the rights and obligations of all persons affected hereby
shall be construed and determined in accordance with the laws of the State of New York unless superseded by federal law.
6.5
No Requirement to Fund: Neither the Bank nor the Company is required to fund this Plan; however, either may do so
as provided in the Trust Agreement. Participants shall have no security interest in any such amounts. It is the Bank’s intention that this
Plan be construed as an unfunded excess benefit plan as said term is defined in Sections 3(36) and 4(b)(5) of the Employee Retirement
Income Security Act of 1974, as amended from time to time.
6.6
Payment Due an Incompetent: If the Committee receives evidence that a Participant or Beneficiary entitled to receive
any payment under the Plan is physically or mentally incompetent to receive such payment the Committee may, in its sole discretion,
direct the payment to any other person or trust which has been legally appointed by the courts.
6.7
Taxes: Participant acknowledges that all amounts payable hereunder shall be reduced by any and all federal, state
and local taxes imposed upon the Participant or his Beneficiary which are required to be paid or withheld by the Bank.
6.8
Change in Control:
(A)
Definition: For purposes of this Plan, a “Change in Control” shall mean an event which constitutes a change
in the ownership or effective control of the Bank or the Company, or in the ownership of a substantial portion of the assets of the Bank
or the Company, as set forth in Treasury regulation 1.409A-3(i)(5) or any successor thereto.
(B)
Operation: In the event a Participant is in the active employ of the Bank at any time within the thirty (30)
day period immediately preceding a Change in Control, the Participant shall receive payment of his benefits under the Plan on the date
a Change in Control occurs. Benefits payable to the Participant pursuant to subsection 4.1(B) above shall be paid on the date of a
Change in Control in a single lump sum payment. Benefits payable to a Participant pursuant to Section 4.1(C) above shall also be paid
to the Participant in a single lump sum payment on the date of a Change in Control using the actuarial factors for purposes of
determining lump sum benefit payments under the Pension Plan. Unless otherwise specified in the Agreement or in a separate
employment agreement or change in control agreement, no further benefits shall accrue under the Plan after the date a Change in
Control occurs and the Plan shall terminate as of that date.
The remainder of this page is intentionally left blank.
Page -59-
Exhibit A
Forms of Benefit
5 Year Certain & Life Pension
Single Life Pension
50% Joint & Survivor Pension
50% Joint & Survivor Pension with 5 Year Certain
100% Joint & Survivor Pension
50% Joint & Survivor Pension with Pop-up
100% Joint & Survivor Pension with Pop-up
Lump Sum Payment
Page -60-
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-50933 on Form S-8 of Bridge Bancorp, Inc. of our
report dated March 6, 2008 with respect to the consolidated financial statements of Bridge Bancorp, Inc. and the effectiveness of
internal control over financial reporting, which report appears in this Annual Report on Form 10-K of Bridge Bancorp, Inc. for the year
ended December 31, 2007.
Livingston, New Jersey
March 11, 2008
Crowe Chizek and Company LLC
Page -61-
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)
EXHIBIT 31.1
I, Kevin M. O’Connor, certify that:
1)
I have reviewed this annual report on Form 10-K of Bridge Bancorp, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 14, 2008
/s/ Kevin M. O’Connor
Kevin M. O’Connor
President and Chief Executive Officer
Page -62-
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A)
EXHIBIT 31.2
I, Howard H. Nolan, certify that:
1)
I have reviewed this annual report on Form 10-K of Bridge Bancorp, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 14, 2008
/s/ Howard H. Nolan
Howard H. Nolan
Senior Executive Vice President, Chief Financial Officer
and Treasurer
Page -63-
This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”)
and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the
Exchange Act or otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.
EXHIBIT 32.1
CERTIFICATION PURSUANT TO RULE 13A-14(B) 18 U.S.C. SECTION 1350,
As adopted pursuant to
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Bridge Bancorp, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2007
as filed with the Securities and Exchange Commission on March 14, 2008, (the “Report”), we, Kevin M. O’Connor, President and
Chief Executive Officer of the Company and, Howard H. Nolan, Senior Executive Vice President, Chief Financial Officer and
Treasurer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 14, 2008
/s/ Kevin M. O’Connor
Kevin M. O’Connor
President and Chief Executive Officer
/s/ Howard H. Nolan
Howard H. Nolan
Senior Executive Vice President, Chief Financial Officer,
and Treasurer
A signed original of this written statement required by Section 906 has been provided to Bridge Bancorp, Inc. and will be retained by
Bridge Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Page -64-
corporate information
Bridge Bancorp, Inc.
Bridgehampton National Bank Officers
Board of directors and
affiliations
Ray Wesnofske
Chairperson
Marcia Z. Hefter
Vice Chairperson
Partner
Esseks, Hefter & Angel, LLP
Riverhead and Water Mill, NY
Kevin M. O’Connor
President and Chief Executive Officer
Emanuel Arturi
CEO, Retired
BusinessEdge Solutions Inc.
Remsenburg, NY
Thomas E. Halsey
Owner
Halsey Farm
Water Mill, NY
R. Timothy Maran
Insurance Broker, Retired
Maran Corporate Risk Associates, Inc.
Southampton, NY
Charles I. Massoud
President
Paumanok Vineyards
Aquebogue, NY
Howard H. Nolan, CPA
Sr. Executive Vice President
Chief Financial Officer,
Corporate Secretary and Treasurer
Dennis A. Suskind
Co-Owner
Water Mill Party
Water Mill, NY
Partner, Retired
Goldman, Sachs & Co.
New York, NY
Thomas J. Tobin
President Emeritus and
Special Advisor to the Board
company officers
Kevin M. O’Connor
President and Chief Executive Officer
Howard H. Nolan, CPA
Sr. Executive Vice President
Chief Financial Officer,
Corporate Secretary and Treasurer
Thomas J. Tobin
President Emeritus and
Special Advisor to the Board
Kevin M. O’Connor
Aidan Wood
Commercial Lending Officer
East Hampton/Montauk
assistant Vice presidents
Sharon Abbondondelo
Branch Manager, Westhampton Beach
Sabrina Aucello
Branch Manager, Southampton
Deborah Cosgrove
Facilities Manager
Robert Curtin
Branch Manager, Wading River
Jeffrey M. Greenwald
Branch Manager, Bridgehampton
Peter Hillick
Credit Administrator
Erin D. Kaelin
Training and Development Manager
Caroline Kalish
Data Processing Operations Manager
Michelle McAteer
Assistant Controller
Margaret Meighan
Branch Manager, East Hampton
Nancy Messer
Loan Officer, North Fork
Susan G. Schaefer
Branch Manager, Sag Harbor
Marion Stark
Branch Operations Coordinator
assistant cashiers
Laura Gorman
Treasury Manager
Emily Healy
Branch Manager, Greenport and
Peconic Landing
Maria Press
Cash Management Sales Manager
Jill Ramundo
Branch Manager, Montauk
President and Chief Executive Officer
Howard H. Nolan, CPA
Sr. Executive Vice President,
Chief Administrative Officer and
Chief Financial Officer
Thomas J. Tobin
President Emeritus and
Special Advisor to the Board
senior Vice presidents
Deborah McGrory
Director of Human Resources
Kevin L. Santacroce
Chief Lending Officer
Thomas H. Simson
Chief Information Officer
Vice presidents
Steven Bodziner, Esq.
Bridge Abstract LLC
Kimberly Cioch
Commercial Lending Officer
Bridgehampton
Peter M. Coleman
Senior Lending Officer
North Fork
Michelle Dosch
Director of Operations
Seamus J. Doyle
Senior Lending Officer
Southampton/Sag Harbor
Patricia F. Horan
Regional Branch Administrator
North Fork Market
John B. MacCulley
Senior Lending Officer
Wading River/Riverhead
Marie McAlary
Senior Lending Officer
Hampton Bays/Westhampton
Maureen P. Mougios
Director of Risk Management
Claudia Pilato
Director of Marketing
Sarah Quinn, CPA
Controller
Donna Wetjen
Branch Operations Manager
PICturEd aBOvE frOM LEft tO rIgHt
Kevin L. Santacroce, Senior Vice President, Chief Lending Officer; Howard H. Nolan, Senior Executive Vice President,
Chief Administrative Officer and Chief Financial Officer; Kevin M. O’Connor, President and Chief Executive Officer;
Thomas H. Simson, Senior Vice President, Chief Information Officer; Deborah McGrory, Senior Vice President, Director of
Human Resources.
sag HarBor
631.725.6622
soutHampton,
County road 39
631.283.1286
soutHampton ViLLage
631.287.6504
soutHoLd
631.765.1500
Wading riVer
631.929.4250
WestHampton BeaCH
631.288.7756
Bridge aBstraCt LLC
2200 Montauk Highway
P.O. Box 3031
Bridgehampton, NY 11932
631.537.5750
BaNkINg OffICEs
Headquarters
631.537.1000
BridgeHampton
631.537.8834
CutCHogue
631.734.5002
east Hampton
631.324.8480
greenport
631.477.0220
Hampton Bays
631.728.9041
mattituCk
631.298.0190
montauk
631.668.6400
peConiC Landing
(greenport)
631.477.8150
www.bridgenb.com
INvEstOr rELatIONs
Exchange: NASDAQ®/OTCBB
Symbol: BDGE
Howard H. Nolan, CPA
Senior Executive Vice President and
Corporate Secretary
2200 Montauk Highway, P.O. Box 3005
Bridgehampton, NY 11932
631.537.1000
hnolan@bridgenb.com
Shareholders seeking information about the Company
may access presentations, press releases and government
filings through the Bank’s web site: www.bridgenb.com.
stOCk traNsfEr agENt aNd rEgIstrar
Registrar and Transfer Co.
10 Commerce Drive
Cranford, NJ 07016
800.368.5948
www.rtco.com
Shareholders that would like to make changes to the
name, address or ownership of their stock, consolidate
accounts, eliminate duplicate mailings, or replace lost
certificates or dividend checks, should contact Registrar
and Transfer Co.
sECurItIEs COuNsEL
Luse Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, NW, Suite 400
Washington, DC 20015-2035
Notice of ANNuAl MeetiNg
The Annual Meeting of Shareholders
is scheduled for 11:00 a.m. on Friday,
April 25, 2008 in the Community Room,
Bridgehampton National Bank,
2200 Montauk Highway,
Bridgehampton, NY 11932.
2007 annual report Bridge Bancorp, inc.
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2200 Montauk Highway, P.O. Box 3005, Bridgehampton, New York 11932
631.537.1000
www.bridgenb.com
Wrap photo onto Spine