BRIDGE BANCORP, INC.
ROOted iN tHe cOMMuNitY
2012 Annual Report
BRIDGE
BANCORP, INC.
Bridge Bancorp, inc., a New York corporation (NASdAQ: BdGe), is a bank holding company
engaged in commercial banking and financial services through its wholly owned subsidiary,
Bridgehampton National Bank (the Bank, BNB). established in 1910 by farmers and merchants,
the Bank today has approximately $1.6 billion in assets and an ongoing commitment to the tenets
of community banking: developing long-term relationships with customers, offering knowledge
and understanding of the local marketplace and taking an active role in making the towns and
villages it serves better places to live and work. throughout its history, BNB has established a reputa-
tion for personal service, access to decision makers and engaged involvement in the community.
A full range of products and services to businesses, consumers and municipalities is offered by
BNB. its professional team of lenders and branch managers offers flexible banking programs
in partnership with customers to help meet their financial needs. Products and services include
convenient technologies like online banking, online bill pay, remote deposit capture, merchant
services and lockbox as well as the traditional menu of deposit and loan products. in addition,
title insurance is offered through Bridge Abstract and investment counsel is provided by Bridge
investment Services.
BNB operates in markets throughout Suffolk county, Long island from Orient Point to Wading
River and from Montauk Point to deer Park. in 2012 the Bank opened new branches in Ronkonkoma,
near MacArthur Airport and in Hauppauge, bringing the total number of BNB branches to 22.
Peconic Landing
Greenport
Shelter island (coming soon)
Southold
Mattituck
cutchogue
Sag Harbor
Montauk
east Hampton Village
east Hampton
Hampton Bays
Bridgehampton
Southampton (Windmill Lane)
Southampton Village
Westhampton Beach
center Moriches
Wading River
Rocky Point
Hauppauge
deer Park
Ronkonkoma
Shirley
Patchogue
Bridge Bancorp, inc.
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FiNANCiAL HigHLigHtS
(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
Cash dividends paid
Book value
2012
2011
$
12,772
$
10,359
11.78%
0.88%
14.37%
0.88%
$ 1,624,713
$ 1,337,458
$ 1,409,322
$ 1,188,185
$ 798,446
$ 612,143
$ 118,672
$ 106,987
$
$
$
1.48
1.15
13.32
$
$
$
1.54
0.92
12.82
TOTAL ASSETS
(at December 31, in millions)
TOTAL DEPOSITS
(at December 31, in millions)
NET INCOME
(in millions)
RETURN ON
AVERAGE EQUITY
(percentage)
TOTAL ASSETS
(at December 31, in millions)
TOTAL DEPOSITS
(at December 31, in millions)
NET INCOME
(in millions)
RETURN ON
AVERAGE EQUITY
(percentage)
2000
1500
1000
500
0
1500
1200
900
600
300
0
15
12
9
6
3
0
20
15
10
5
0
$2,000
$1,500
$1,000
$500
$0
$1,624.7
$1,500
$1,200
$900
$600
$300
$0
$1,409.3
$15
$12
$9
$6
$3
$0
$12.8
20%
15%
10%
5%
0%
11.78%
’08
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’08
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’08
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Long Island, with its long tradition of innovation and
entrepreneurship, is home to many successful companies,
as well as world class education and research centers.
These businesses, supported by our highly educated
workforce, design, distribute and manufacture everything
from high tech military items to high end windows and
doors. As a century old institution catering to these
businesses, BNB understands their challenges and oppor-
tunities, and the importance of the banker/customer
partnership. Our success is measured by the success of our
customers, as we both contribute to the growth and
vitality of the Long Island economy.
Bridge Bancorp, inc.
FELLOW SHAREHOLDERS:
“ We are privileged to operate on Long island, an economy with a rich
diversity of business, known for its entrepreneurship and innovation.”
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As each year ends, we contemplate our accom-
plishments, our challenges and our opportunities,
and i look forward to sharing these reflections
with you: our shareholders, customers and friends.
it is a collaborative effort, as i deliberate with my
colleagues. their comments are not limited to
issues affecting our Company, but also reflect
events in our communities, our state and nation.
We are privileged to operate on Long island, an
economy with a rich diversity of business, known
for its entrepreneurship and innovation. We have
witnessed the economic challenges all local busi-
nesses have faced and watched the successful
ones emerge retooled and stronger. this annual
message provides insight not only into our strate-
gies, but also into the environment’s impact
on our current and future performance.
By most measures, 2012 continued our sustained
track record of financial success, highlighted by a
record level of net income, substantial growth in
deposits and loans, and a continuation of
dividends. Our commitment to identifying and
leveraging market opportunities added a sub-
stantial number of new customers, leading to
another year of double digit deposit growth.
Unlike some of our competitors, we identified
and funded loans for many local, credit-worthy
entities, helping them invest and expand. this
is the essence of community banking, where the
“raw materials” of customers’ deposits and share-
holders’ capital are reinvested back into the local
community. Our loans finance buildings, equip-
ment and inventory, allowing business operators
and entrepreneurs to grow and prosper, provid-
ing the impetus for local economic expansion
and job creation.
We are committed to our expansion strategy, as
investments in facilities, personnel and technol-
ogy have paid handsome dividends. At 102 years
strong, we are one of only a handful of Long
island based community banks where decisions
affecting local businesses and communities are
made by local management under the direction
of a local Board.
As we expand our western profile, we continue to
have deep roots on the eastern end of Long island
and remain committed to the communities that
provide the foundation of this organization. A
substantial portion of our loans are made to busi-
nesses and individuals on the East End, and
while we have opened new branches further west
on Long island, we have also reinvested in several
legacy branches, most notably in Montauk, East
Hampton and Southold.
Over the past five years we’ve opened seven
branches, tripling our assets and doubling our
capital. We’ve augmented our strong and dedicated
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Bridge Bancorp, inc.
ROOtED iN tHE COMMUNity iN WHiCH WE
iNvESt
BNB invests every day in the communities it serves through its
people, products and services. Loans provided to local businesses, are
investments fueling growth, creating jobs. These investments
increase the vibrancy of the local economy, improving the quality of
life and the creation of strong neighborhoods. Our staff live and
work here, and have a vested interest in their communities’ success.
team with the addition of experienced relation-
ship bankers. these individuals understand the
current environment and are committed to deliv-
ering personal service and a superior level of
financial expertise to their customers. We often
ask potential customers, “Where do you bank?”
and “Who is your banker?” the “who” is by far
the driving force in making a final banking
decision.
Some may be skeptical of our simple strategy.
While many banks pledge to deliver superior
service and state of the art products, their claims
TOTAL LOANS BY TYPE
at December 31, 2012
42%
25%
Commercial Mortgages
Commercial Loans
Residential &
Consumer Loans
10%
Equity Loans
9%
Multifamily Loans
8%
Construction & Land Loans 6%
Average Yield 6.00%
are not supported by facts. We have demonstrated
results, evidenced by our ability to grow profitably,
attracting bankers and their customers. Positive
referrals and our reputation have brought new
business to our door and our commitment to the
customer is a critical element of our success.
TOTAL DEPOSITS BY TYPE
at December 31, 2012
Moving forward, the entire organization needs
to be involved and committed to operating in
this highly regulated environment. Employees
must understand the strategic vision, know their
roles, and how they contribute to our collective
success. We have created a challenging atmosphere
that rewards employees for their accomplish-
ments. We have been deliberate and steadfast,
Demand Deposits
ensuring that our personnel, systems, policies,
Money Markets
procedures and technology are robust enough to
Savings & NOW
deal with the realities of banking in the post
Certificates of Deposit
“great Recession” world. the Dodd-Frank legis-
Average Cost of
lation alone encompasses 2,000 pages and will
Customer Deposits 0.45%
result in many more reams of regulations affecting
all aspects of our operations.
38%
37%
14%
11%
technology is a critical element in our efforts to
maintain relevance as an industry and with our
customers. However, new devices or software
Fire Island Ferry
Robert Moses Bridge
Thomas Ryzuk, Dart Fuel Oil Inc.,
Centereach, NY
TOTAL LOANS BY TYPE
at December 31, 2012
Commercial Mortgages
Commercial Loans
Residential &
42%
25%
Consumer Loans
10%
Equity Loans
9%
Multifamily Loans
8%
Construction & Land Loans 6%
Average Yield 6.00%
Bridge Bancorp, inc.
ROOtED iN tHE COMMUNity iN WHiCH WE
WORk
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Community Banking is about building strong relationships,
partnering with local businesses and entrepreneurs. We offer, along
with traditional products and services, advice and counsel to help
our customers plan and execute their strategies for growth, expansion
and success. As a Long Island based community bank, BNB
professionals understand the unique nature and challenges of our
marketplace. This local expertise coupled with local decision making
and our high level of personal service is the key to forging this
successful partnership.
Although the expanded regulatory environment
will be challenging, we accept the new reality
and will continue to take the necessary steps to
succeed. We will add to staff, write new policies,
and ultimately operate with higher levels of capi-
tal. these pressures will potentially dampen the
industry’s efficiency, increase expenses, lower
profits, and decrease shareholder returns.
Perhaps the most pressing issue for all banks is
the persistently low level of interest rates. in
banking, we borrow from our depositors in the
short term, and lend to customers for a longer
Carolyn and Stuart Feldschuh,
Snowflake, Riverhead, NY
TOTAL DEPOSITS BY TYPE
at December 31, 2012
Demand Deposits
Money Markets
Savings & NOW
Certificates of Deposit
38%
37%
14%
11%
Average Cost of
Customer Deposits 0.45%
(with myriad passwords and security features)
will never replace the personal touch of a phone
call or a visit. Our new online and mobile bank-
ing platforms, coupled with a more robust and
interactive website, enhance the relationships we
have forged with our customers. tomorrow’s suc-
cessful community bank will combine technol-
ogy touch points with experienced relationship
bankers, serving markets through a network of
the traditional brick and mortar branches. People
want to know there is a “Bank,” where they bank.
growing a business is not without risks, but we
believe the opportunities available today, with the
displacement of many competitors and the chang-
ing landscape, are something we cannot ignore.
We also continue dealing with the fallout from
the past several years of economic turmoil.
While the economy appears to be improving, job
creation and unemployment remain major
impediments to increased consumer confidence
and activity. As such, business investment has
been limited, hindering robust economic growth.
Existing customers are wary of expanding and
credit outlooks for new customers are limited.
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Bridge Bancorp, inc.
ROOtED iN tHE COMMUNity iN WHiCH WE
LivE
For over 102 years, BNB has focused on one mission—to deliver its
brand of community banking to the towns and villages across Long
Island. Each year, we rededicate ourselves, focusing on further
strengthening the partnership between the Bank and the communi-
ties we serve. We strive to expand, improve technology and deliver
new products and services, but we never lose sight of our principal
mission. Our commitment is to our customers, employees and share-
holders, who comprise the community this community bank serves.
term, adding a cost for credit. this difference in
rates is our margin, or gross profit. given the
current lower rates, this margin has been declin-
ing and will continue to do so. With the Federal
Reserve Bank using conventional and unconven-
tional means, the risks of abrupt and significant
movements in rates have been amplified. the
consequences of rates increasing from these abso-
lute low levels are both difficult to predict and
manage. Certainly, longer term bonds and loans
will decline in value as rates rise, and customers
will require higher interest on their deposits.
Another challenge will be whether consumers
and businesses can sustain the higher payments
required, when their borrowing rates increase.
increases in rates will affect every bank’s ability
to manage its net interest margin and income
over time.
While our challenges are many, we believe we
have established a foundation and platform for
continued success. We continually reassess our
strengths, recognize opportunities and monitor
our challenges. i remain impressed by our staff’s
commitment and genuine passion for serving
their customers, and am grateful to our strong
Board of Directors, who share our vision and
support our mission. We remain committed
to the critical role of a community bank, where
personal contact and local decisions create part-
nerships. the successful community bank is
both supported by and a support to its commu-
nity. in the end, our success is the result of
collective achievement—when we succeed, we
succeed together.
Sincerely,
kevin M. O’Connor
President and Chief Executive Officer
i-tri Triathalon participants in East Hampton
with BNB Lending Officer and i-tri board
member, Gisella Recalde.
cORPORAte iNFORMAtiON
inVestor reLAtions
exchange: NASdAQ®
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 website: www.bridgenb.com.
stock trAnsfer Agent
And r egistrAr
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 mail-
ings, 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 780
Washington, dc 20015-2035
notice of AnnuAL meeting
the Annual Meeting of Shareholders
is scheduled for 11:00 a.m. on Friday,
May 3, 2013 in the community
Room, Bridgehampton National
Bank, 2200 Montauk Highway,
Bridgehampton, NY 11932.
Bridge BAncorp, inc.
BOARD OF DIRECTORS
Marcia Z. Hefter
chairperson
Dennis A. Suskind
Vice chairperson
Kevin M. O’Connor
Emanuel Arturi
Antonia M. Donohue
Charles I. Massoud
Albert E. McCoy, Jr.
Howard H. Nolan, CPA
Rudolph J. Santoro
Thomas J. Tobin
COMPANY OFFICERS
Kevin M. O’Connor
President and chief executive Officer
Howard H. Nolan, CPA
Sr. executive Vice President,
chief Financial Officer and
corporate Secretary
BridgehAmpton
nAtionAL BAnk
EXECUTIVE OFFICERS
Kevin M. O’Connor
President and chief executive Officer
Howard H. Nolan, CPA
Senior executive Vice President,
chief Administrative and
Financial Officer
James J. Manseau
executive Vice President,
chief Retail Banking Officer
Kevin L. Santacroce
executive Vice President,
chief Lending Officer
senior Vice presidents
Seamus J. doyle
Nancy Foster
Patricia F. Horan
John M. Mccaffery
deborah McGrory
Stephen Sheridan
thomas H. Simson
John P. Vivona
Joseph Walsh
Aidan P. Wood
VICE PRESIDENTS
Sharon Abbondondelo
William Araneo
Steven Bodziner
Edward Burger
Lance P. Burke
Kimberly Cioch
Deborah Cosgrove
Michelle Dosch
Michael Fearon
Beth Flanagan
Maria M. Fontana
Peter M. Gajda
Stanley Glinka
Michael V. Hadix
Maureen Hines
Patricia Liotta
John B. MacCulley
Theresa Mackey
Norma Marx
Marie A. McAlary
Margaret B. Meighan
Robert P. Mensing
Nancy Messer
William J. Newham, III
Corrine Newman
Deborah Orlowski
Claudia Pilato
Sarah Quinn, CPA
Philip Rinaldi
Ann Marie Roberts
Keith Robertson
Stephanie Saggio
Raymond Sanchez
Susan G. Schaefer
Thomas Sullivan
Dawn M. Turnbull
Donna Wetjen
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
Photography by Jim Lennon
BRIDGE
BANCORP, INC.
2200 Montauk Highway
P.O. Box 3005
Bridgehampton, New York 11932
631.537.1000
www.bridgenb.com
BridgehAmpton nAtionAL BAnk BrAnches
Sag Harbor
631.725.6622
Shirley
631.281.1245
Southampton Village
631.287.6504
Southampton,
Windmill Lane
631.287.9500
Southold
631.765.1500
Wading River
631.929.4250
Westhampton Beach
631.288.7756
Bridgehampton
631.537.8834
Center Moriches
631.909.4990
Cutchogue
631.734.5002
Deer Park
631.392.1301
East Hampton
631.324.8480
East Hampton Village
631.324.8481
Greenport
631.477.0220
Hampton Bays
631.728.9041
Hauppauge
631.909.7500
Mattituck
631.298.0190
Montauk
631.668.6400
Patchogue
631.923.1495
Peconic Landing
(Greenport)
631.477.8150
Rocky Point
631.886.0002
Ronkonkoma
631.940.1470
Bridge ABstrAct LLc
2200 Montauk Highway
P.O. Box 3031
Bridgehampton, NY 11932
631.537.5750
www.bridgeabstractllc.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:95)(cid:3)(cid:3)(cid:3)
AN
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
Commission File No. 001-34096
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 pursuant to Section 12 (b) of the Act:
Title of each class
Common Stock, Par Value of $0.01 Per Share
Name of each exchange on which registered
The Nasdaq Stock Market, LLC
Securities registered pursuant to Section 12 (g) of the Act:
(Title of Class)
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:134)(cid:3)No (cid:95)
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 (cid:134)(cid:3)No (cid:95)(cid:3)
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 (cid:95)(cid:3)No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:95)(cid:3)No (cid:134)
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. (cid:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer (cid:134)(cid:3)Accelerated filer (cid:95)(cid:3)Non-accelerated filer (cid:134)(cid:3)Smaller reporting company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134)(cid:3)No (cid:95)
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, 2012, was $191,463,050.
The number of shares of the Registrant’s common stock outstanding on March 11, 2013 was 8,974,740.
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 2012 Annual Meeting to be filed pursuant to Regulation 14A on or before April
30, 2013 (Part III).
TABLE OF CONTENTS
PART I
Item 1
Business
Item 1A
Risk Factors
Item 1B
Unresolved Staff Comments
Item 2
Item 3
Item 4
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5
Item 6
Item 7
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Financial Statements and Supplementary Data
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
7
11
11
11
11
11
14
15
34
36
80
80
80
80
80
81
81
81
81
82
83
PART I
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. In October 2009, the
Company formed Bridge Statutory Capital Trust II (the “Trust”) as a subsidiary, which sold $16.0 million of 8.5% cumulative
convertible Trust Preferred Securities (the “Trust Preferred Securities”) in a private placement to accredited investors.
The Bank operates twenty two branches on eastern Long Island. Federally chartered in 1910, the Bank was founded by local farmers
and merchants. For 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
mortgage loans; (5) secured and unsecured commercial and consumer loans; (6) FHLB, FNMA, GNMA and FHLMC and non agency
mortgage-backed securities, collateralized mortgage obligations and other asset backed securities; (7) New York State and local
municipal obligations; and (8) U.S government sponsored entity (“U.S. GSE”) securities. The Bank also offers the CDARS program,
providing up to $50.0 million of FDIC insurance to its customers. In addition, the Bank offers merchant credit and debit card
processing, automated teller machines, cash management services, lockbox processing, online banking services, remote deposit
capture, safe deposit boxes, individual retirement accounts and investment services through Bridge Investment Services, offering a full
range of investment products and services through a third party broker dealer. 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 257 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 maintains equity incentive plans under which it may issue
shares of 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 savings banks, credit unions, 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 in Suffolk County, New York. Suffolk County is located on the eastern portion of Long
Island and has a population of approximately 1.5 million. 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.
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Since 2008, the Bank has opened seven new branches. In 2009, the Bank opened two new branches in Shirley and in the Village of
East Hampton, New York. During 2010, the Bank opened three new branches located in Center Moriches, Patchogue and Deer Park,
New York. In November 2010, the Bank relocated its branch at 26 Park Place, East Hampton, New York to 55 Main Street, East
Hampton, New York. In June 2012, the Bank opened a new branch in Ronkonkoma, New York. This location’s proximity to
MacArthur Airport complements the Patchogue branch and extends the Bank’s reach into the Bohemia market. In late December
2012, the Bank opened a new branch and administrative offices in Hauppauge, New York. The recent branch openings move the Bank
geographically westward and demonstrate its commitment to traditional growth through branch expansion. In May 2011, the Bank
acquired Hamptons State Bank (“HSB”) which increased the Bank’s presence in an existing market with a branch located in the
Village of Southampton. In July 2011, the Bank converted the former HSB customers to its core operating system. Management spent
considerable time ensuring the transition progressed smoothly for HSB’s former customers and shareholders. Management has
demonstrated its ability to successfully integrate the former HSB customers and achieve expected cost savings while continuing to
execute its business strategy. Management will continue to seek opportunities to expand its reach into other contiguous markets by
network expansion, or through the addition of professionals with established customer relationships.
The Bank routinely adds to its menu of products and services, continually meeting the needs of consumers and businesses. We believe
positive outcomes in the future will result from the expansion of our geographic footprint, investments in infrastructure and
technology and continued focus on placing our customers first. Plans for 2013 include a new internet banking platform and mobile
banking products.
The Company, the Bank and its subsidiaries with the exception of the real estate investment trust, which files its own federal and state
income tax returns, 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
The Bank is a national bank organized under the laws of the United States of America. The lending, investment, and other business
operations of the Bank are governed by federal law and regulations and the Bank is prohibited from engaging in any operations not
specifically authorized by such laws and regulations. The Bank is subject to extensive regulation by the Office of the Comptroller of
the Currency (“OCC”) and to a lesser extent by the Federal Deposit Insurance Corporation (“FDIC”), as its deposit insurer as well as
by the Board of Governors of the Federal Reserve System. The Bank’s deposit accounts are insured up to applicable limits by the
FDIC under its Deposit Insurance Fund (“DIF”). A summary of the primary laws and regulations that govern the operations of the
Bank are set forth below.
Loans and Investments
There are no restrictions on the type of loans a national bank can originate and/or purchase. However, OCC regulations govern the
Bank’s investment authority. Generally, a national bank is prohibited from investing in corporate equity securities for its own account.
Under OCC regulations, a national bank may invest in investment securities, which is generally defined as securities in the form of a
note, bond or debenture. The OCC classifies investment securities into five different types and, depending on its type, a national bank
may have the authority to deal in and underwrite the security. The OCC has also permitted national banks to purchase certain
noninvestment grade securities that can be reclassified and underwritten as loans.
Lending Standards
The federal banking agencies adopted uniform regulations prescribing standards for extensions of credit that are secured by liens on
interests in real estate or made for the purpose of financing the construction of a building or other improvements to real estate. Under
these regulations, all insured depository institutions, such as the Bank, must adopt and maintain written policies that establish
appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are made for the purpose
of financing permanent improvements to real estate. These policies must establish loan portfolio diversification standards, prudent
underwriting standards (including loan-to-value limits) that are clear and measurable, loan administration procedures, and
documentation, approval and reporting requirements. The real estate lending policies must reflect consideration of the Interagency
Guidelines for Real Estate Lending Policies that have been adopted by the federal bank regulators.
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Federal Deposit Insurance
The Bank is a member of the DIF, which is administered by the FDIC. Deposit accounts at the Bank are insured by the FDIC. On July
21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act permanently raised the deposit insurance available on all
deposit accounts to $250,000. In addition, certain non-interest bearing transaction accounts had unlimited deposit insurance through
December 31, 2012. Refer to Item 1A. Risk Factors for more detailed information related to this new regulation.
Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory
evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. An institution’s
rate depends upon the category to which it is assigned, and certain adjustments specified by FDIC regulations. Assessment rates, as
adjusted, previously ranged from seven to 77.5 basis points of assessable deposits. No institution may pay a dividend if in default of
the federal deposit insurance assessment. In May 2009, the FDIC issued a final rule to impose an emergency special assessment of 5
basis points on all banks based on their total assets less tier one capital as of June 30, 2009. The special assessment was payable on
September 30, 2009. During the second quarter of 2009, the Company recorded an expense of $0.4 million related to the FDIC special
assessment. On November 12, 2009, the FDIC issued a final rule that required insured institutions to prepay their estimated quarterly
risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC also adopted a uniform 3 basis
point increase in assessment rates effective on January 1, 2011. The Company’s prepayment of FDIC assessments for 2010, 2011 and
2012 was $3.8 million which was amortized to expense over three years. On July 21, 2010, the Dodd-Frank Wall Street Reform and
Consumer Protection Act (“Dodd-Frank Act”) was signed by the President. Section 331(b) of the Dodd-Frank Act required the FDIC
to change the definition of the assessment base which assessment fees are determined. The new definition for the assessment base is
the average consolidated total assets of the insured depository institution less the average tangible equity of the insured depository
institution, rather than deposits. The new methodology became effective on April 1, 2011 and the Company recorded a reduction in its
FDIC assessment fees of $0.4 million during 2011 compared to 2010. The new financial reform legislation created a new Consumer
Financial Protection Bureau, tightened capital standards and resulted in new laws and regulations that are expected to increase the cost
of operations. Refer to Item 1A. Risk Factors for more detailed information related to this new regulation.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is
in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC. We do not know of any practice, condition or violation that might lead to termination of deposit insurance.
In addition to the FDIC assessments, the Financing Corporation (FICO) is authorized to impose and collect, with the approval of the
FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to
recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017
through 2019. For the quarter ended December 31, 2012, the annualized FICO assessment was equal to 0.64 basis points of average
consolidated total assets less average tangible equity.
Capitalization
Under OCC regulations, all national banks are required to comply with minimum capital requirements. For an institution determined
by the OCC to not be anticipating or experiencing significant growth and to be, in general, a strong banking organization, rated
composite 1 under the Uniform Financial Institutions Ranking System established by the Federal Financial Institutions Examination
Council, the minimum capital leverage requirement is a ratio of Tier I capital to total assets of 3%. For all other institutions, the
minimum leverage capital ratio is not less than 4%. Tier I capital is the sum of common shareholders’ equity, non-cumulative
perpetual preferred stock (including any related surplus) and minority investments in certain subsidiaries, less intangible assets (except
for certain servicing rights and credit card relationships) and certain other specified items.
The OCC regulations require national banks to maintain certain levels of regulatory capital in relation to regulatory risk-weighted
assets. The ratio of regulatory capital to regulatory risk-weighted assets is referred to as a bank’s “risk-based capital ratio.” Risk-based
capital ratios are determined by allocating assets and specified off-balance sheet items (including recourse obligations, direct credit
substitutes and residual interests) to four risk-weighted categories ranging from 0% to 100%, with higher levels of capital being
required for the categories perceived as representing greater risk. For example, under the OCC’s risk-weighting system, cash and
securities backed by the full faith and credit of the U.S. government are given a 0% risk weight, loans secured by one-to-four family
residential properties generally have a 50% risk weight, and commercial loans have a risk weighting of 100%.
National banks, such as the Bank, must maintain a minimum ratio of total capital to risk-weighted assets of at least 8%, of which at
least one-half must be Tier I capital. Total capital consists of Tier I capital plus Tier 2 or supplementary capital items, which include
allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, cumulative preferred stock and certain other capital
instruments, and a portion of the net unrealized gain on equity securities. The includable amount of Tier 2 capital cannot exceed the
amount of the institution’s Tier I capital. Banks that engage in specified levels of trading activities are subject to adjustments in their
risk based capital calculation to ensure the maintenance of sufficient capital to support market risk.
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The OCC, along with the other federal banking agencies, has adopted a regulation providing that the agencies will take into account
the exposure of a bank’s capital and economic value to changes in interest rate risk in assessing a bank’s capital adequacy. The OCC
also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s
capital level is, or is likely to become, inadequate in light of the particular circumstances.
On June 6, 2012, the OCC and the other federal bank regulatory agencies issued a series of proposed rules that would revise their
leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with
agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The
proposed rules would apply to all depository institutions, top-tier bank holding companies with total consolidated assets of $500
million or more and top-tier savings and loan holding companies. Among other things, the proposed rules would establish a new
common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets) and a higher minimum Tier 1 capital to risk-based
assets requirement (6% of risk-weighted assets) and assign higher risk weight (150%) to exposures that are more than 90 days past due
or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of
real property. The proposed rules would also require unrealized gains and losses on certain securities holdings to be included for
purposes of calculating regulatory capital requirements. The proposed rules would limit a banking organization’s capital distributions
and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of a
specified amount of common equity Tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital
requirements. The proposed rules indicated that the final rules would become effective on January 1, 2013, and the changes set forth
in the final rules will be phased in from January 1, 2013 through January 1, 2019. However, the agencies subsequently indicated that,
due to the volume of public comments received, the final rule has been delayed past January 1, 2013.
Safety and Soundness Standards
Each federal banking agency, including the OCC, has adopted guidelines establishing general standards relating to internal controls,
information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality,
earnings and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices
to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an
unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to
the services performed by an executive officer, employee, director, or principal shareholder.
On February 7, 2011, the FDIC approved a rulemaking to implement Section 956 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act that prohibits incentive-based compensation that encourages inappropriate risk taking.
Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to
institutions that do not meet minimum capital requirements. For these purposes, the statute establishes five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.
The OCC may order national banks which have insufficient capital to take corrective actions. For example, a bank which is
categorized as “undercapitalized” would be subject to growth limitations and would be required to submit a capital restoration plan,
and a holding company that controls such a bank would be required to guarantee that the bank complies with the restoration plan. A
“significantly undercapitalized” bank would be subject to additional restrictions. National banks deemed by the OCC to be “critically
undercapitalized” would be subject to the appointment of a receiver or conservator.
The recently proposed rules that would increase regulatory capital standards would adjust the prompt corrective action tiers to account
for the changes.
Dividends
Under federal law and applicable regulations, a national bank may generally declare a dividend, without approval from the OCC, in an
amount equal to its year-to-date net income plus the prior two years’ net income that is still available for dividend.
Transactions with Affiliates and Insiders
Sections 23A and 23B of the Federal Reserve Act govern transactions between a national bank and its affiliates, which includes the
Company. The Federal Reserve Board has adopted Regulation W, which comprehensively implements and interprets Sections 23A
and 23B, in part by codifying prior Federal Reserve Board interpretations under Sections 23A and 23B.
An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. A subsidiary
of a bank that is not also a depository institution or a “financial subsidiary” under federal law is not treated as an affiliate of the bank
for the purposes of Sections 23A and 23B; however, the OCC has the discretion to treat subsidiaries of a bank as affiliates on a case-
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by-case basis. Sections 23A and 23B limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with
any one affiliate to an amount equal to 10% of such bank’s capital stock and surplus, and limit all such transactions with all affiliates
to an amount equal to 20% of such capital stock and surplus. The statutory sections also require that all such transactions be on terms
that are consistent with safe and sound banking practices. The term “covered transaction” includes the making of loans, purchase of
assets, issuance of guarantees and other similar types of transactions. Further, most loans by a bank to any of its affiliates must be
secured by collateral in amounts ranging from 100 to 130 percent of the loan amounts. In addition, any covered transaction by an
association with an affiliate and any purchase of assets or services by an association from an affiliate must be on terms that are
substantially the same, or at least as favorable, to the bank as those that would be provided to a non-affiliate.
A bank’s loans to its executive officers, directors, any owner of more than 10% of its stock (each, an insider) and any of certain
entities affiliated with any such person (an insider’s related interest) are subject to the conditions and limitations imposed by Section
22(h) of the Federal Reserve Act and the FRB’s Regulation O thereunder. Under these restrictions, the aggregate amount of the loans
to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to national banks. All loans
by a bank to all insiders and insiders’ related interests in the aggregate may not exceed the bank’s unimpaired capital and unimpaired
surplus. With certain exceptions, loans to an executive officer, other than loans for the education of the officer’s children and certain
loans secured by the officer’s residence, may not exceed the greater of $25,000 or 2.5% of the bank’s unimpaired capital and
unimpaired surplus, but in no event more than $100,000. Regulation O also requires that any proposed loan to an insider or a related
interest of that insider be approved in advance by a majority of the board of directors of the bank, with any interested director not
participating in the voting, if such loan, when aggregated with any existing loans to that insider and the insider’s related interests,
would exceed either $500,000 or the greater of $25,000 or 5% of the bank’s unimpaired capital and surplus. Generally, such loans
must be made on substantially the same terms as, and follow credit underwriting procedures that are no less stringent than, those that
are prevailing at the time for comparable transactions with other persons and must not present more than a normal risk of collectibility.
An exception is made for extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely available to
employees of the bank and that does not give any preference to insiders of the bank over other employees of the bank.
Examinations and Assessments
The Bank is required to file periodic reports with and is subject to periodic examination by the OCC. Federal regulations generally
require annual on-site examinations for all depository institutions and annual audits by independent public accountants for all insured
institutions. The Bank is required to pay an annual assessment to the OCC to fund its supervision.
Community Reinvestment Act
Under the Community Reinvestment Act (“CRA”), the Bank has a continuing and affirmative obligation consistent with its safe and
sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to
develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The
CRA requires the OCC in connection with its examination of the Bank, to assess its record of meeting the credit needs of its
community and to take that record into account in its evaluation of certain applications by the Bank. For example, the regulations
specify that a bank’s CRA performance will be considered in its expansion (e.g., branching) proposals and may be the basis for
approving, denying or conditioning the approval of an application. As of the date of its most recent regulatory examination, the Bank
was rated “satisfactory” with respect to its CRA compliance.
USA PATRIOT Act
The USA PATRIOT Act of 2001 gave the federal government new powers to address terrorist threats through enhanced domestic
security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements.
The USA PATRIOT Act also required the federal banking agencies to take into consideration the effectiveness of controls designed to
combat money laundering activities in determining whether to approve a merger or other acquisition application of a member
institution. Accordingly, if the Bank engages in a merger or other acquisition, our controls designed to combat money laundering
would be considered as part of the application process. The Bank has established policies, procedures and systems designed to comply
with these regulations.
Bridge Bancorp, Inc.
The Company, 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.
The Federal Reserve Board has adopted consolidated capital adequacy guidelines for bank holding structured similarly, but not
identically, to those of the OCC for the Bank. As of December 31, 2012, the Company’s total capital and Tier 1 capital ratios
exceeded these minimum capital requirements. The Dodd-Frank Act directs the Federal Reserve Board to issue consolidated capital
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requirements for depository institution holding companies that are less stringent, both quantitatively and in terms of components of
capital, than those applicable to institutions themselves. That will eliminate from Tier 1 capital the inclusion of certain instruments,
such as trust preferred securities, that are currently includable by bank holding companies. The Dodd-Frank Act grandfathers
instruments issued prior to May 19, 2010 for bank holding companies of under $15 billion in consolidated assets. The Company has
issued trust preferred securities that should qualify for the grandfather. However, the previously referenced proposed capital rules
would impose a phase out of ineligible securities, including trust preferred securities, over ten years and does not refer to the
grandfather provision. It is, therefore, uncertain whether any final rule will incorporate the Dodd-Frank Act grandfather.
The policy of the Federal Reserve Board is that a bank holding company must serve as a source of strength to its subsidiary banks by
providing capital and other support in times of distress. The Dodd-Frank Act codified the source of strength policy and requires the
issuance of implementing regulations.
Under the prompt corrective action provisions of federal law, a bank holding company parent of an undercapitalized subsidiary bank is
required to guarantee, within specified limits, the capital restoration plan that is required of an undercapitalized bank. If an
undercapitalized bank fails to file an acceptable capital restoration plan or fails to implement an accepted plan, the Federal Reserve
Board may prohibit the bank holding company parent of the undercapitalized bank from paying dividends or making any other capital
distribution.
As a bank holding company, the Company is required to obtain the prior approval of the Federal Reserve Board to acquire more than
5% of a class of voting securities of any additional bank or bank holding company or to acquire all, or substantially all, the assets of
any additional bank or bank holding company. In addition, the bank holding companies may generally only engage in activities that
are closely related to banking as determined by the Federal Reserve Board. Bank holding companies that meet certain criteria may opt
to become a financial holding company and thereby engage in a broader array of financial activities.
Federal Reserve Board policy is that a bank holding company should pay cash dividends only to the extent that the company’s net
income for the past two years is sufficient to fund the dividends and the prospective rate of earnings retention is consistent with the
company’s capital needs, asset quality and overall financial condition.
A bank holding company is required to receive prior Federal Reserve Board approval of the redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such
purchases or redemptions during the preceding 12 months, will be equal to 10% or more of the company’s consolidated net worth.
Such approval is not required for a bank holding company that meets certain qualitative criteria.
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 14 to the Consolidated Financial Statements.
The Company had nominal results of operations for 2012, 2011, and 2010 on a parent-only basis. On December 21, 2012, the
Company filed a shelf registration statement on form S-3 to register up to $75 million of securities and a prospectus and prospectus
supplement. On June 27, 2012, the Company filed a shelf registration statement on Form S-3 to register up to 800,000 of securities
pursuant to the DRP Plan with the SEC. On December 20, 2011, the Company raised $24.1 million in capital from the sale of
1,377,000 shares of common stock to selected institutional and other private investors in a registered direct offering. In November
2011, the Company filed a prospectus supplement under which it may from time to time sell up to $10.0 million of its common stock
pursuant to an at-the-market equity offering program. During 2011 the Company issued 30,220 shares of common stock and raised
$0.6 million in capital under this program. No additional shares were issued under this program in 2012. On May 27, 2011, the
Company issued 273,479 shares of common stock with an aggregate value of $5.8 million in connection with the acquisition of
Hamptons State Bank. In 2009, the Company completed the private placement of $16.0 million in aggregate liquidation amount of
8.50% cumulative convertible trust preferred securities (the "TPS”), through its subsidiary, Bridge Statutory Capital Trust II. The TPS
have a liquidation amount of $1,000 per security and the TPS shares are convertible into our common stock, at an effective conversion
price of $31 per share. The TPS mature in 30 years but are callable by the company at par any time after September 30, 2014. In April
2009, the Company announced that its Board of Directors approved and adopted a Dividend Reinvestment Plan (“DRP Plan”) and
filed a registration statement on Form S-3 to register 600,000 shares of common stock with the Securities and Exchange Commission
(“SEC”) pursuant to the DRP Plan. Since the inception of the DRP Plan in April 2009 through December 31, 2012, the Company has
issued 856,005 shares of common stock and raised $16.8 million in capital. During 2008, the Company received approval and began
trading on the NASDAQ Global Select Market under the symbol “BDGE”. 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
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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,
investment services, income from its title insurance 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 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
The concentration of our loan portfolio in loans secured by commercial and residential real estate properties located in eastern Long
Island could materially adversely affect our financial condition and results of operations if general economic conditions or real estate
values in this area decline.
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 in Suffolk County which is located on
eastern Long Island. 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 our
control would impact these local economic conditions and could negatively affect our financial condition and results of operations.
Additionally, while we have 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 our earnings.
Changes in interest rates could affect our profitability.
The Bank’s ability to earn a profit, like most financial institutions, depends primarily on net interest income, which is the difference
between the interest income that the Bank earns on its interest-earning assets, such as loans and investments, and the interest expense
that the Bank pays on its 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.
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 its 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.
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.
Changes in interest rates also affect the fair value of our securities portfolio. Generally, the value of securities moves inversely with
changes in interest rates. As of December 31, 2012, our securities portfolio totaled $739.8 million.
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In addition, the Dodd-Frank Act eliminated the federal prohibition on paying interest on demand deposits effective July 21, 2011, thus
allowing businesses to have interest-bearing checking accounts. Depending on competitive responses, this change to existing law
could increase our interest expense.
Strong competition within our market area may limit our growth and profitability.
The Bank’s market area is located in Suffolk County on eastern Long Island and its customer base is mainly located in the towns of
East Hampton, Southampton, Southold and Riverhead. Since 2009, the Bank has expanded its market areas to include branches in the
towns of Brookhaven, Babylon and Islip. During 2012, the Bank opened two new branches: one in June located in Ronkonkoma, New
York and one in December 2012 located in Hauppauge, New York. The Bank also opened administrative offices in December 2012 in
Hauppauge, New York, to better service customers as the Bank continues to move westward. Competition in the banking and financial
services industry remains intense. The profitability of the Bank depends on the continued ability to successfully compete. The Bank
competes with commercial banks, savings banks, credit unions, 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 may offer 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 increased competition for the recruitment and retention of qualified staff.
Our future success depends on the success and growth of The Bridgehampton National Bank.
Our primary business activity for the foreseeable future will be to act as the holding company of the Bank. Therefore, our future
profitability will depend on the success and growth of this subsidiary. The continued and successful implementation of our growth
strategy will require, among other things, that we increase our market share by attracting new customers that currently bank at other
financial institutions in our market area.
In addition, our ability to successfully grow will depend on several factors, including
favorable market conditions, the competitive responses from other financial institutions in our market area, and our ability to maintain
high asset quality. While we believe we have the management resources, market opportunities and internal systems in place to obtain
and successfully manage future growth, growth opportunities may not be available and we may not be successful in continuing our
growth strategy. In addition, continued growth requires that we incur additional expenses, including salaries, data processing and
occupancy expense related to new branches and related support staff. Many of these increased expenses are considered fixed
expenses. Unless we can successfully continue our growth, our results of operations could be negatively affected by these increased
costs. Finally, our growth is also affected by the seasonality of our markets in Eastern Long Island, including the Hamptons and North
Fork, a region that is a recreational destination for the New York metropolitan area, and a highly regarded resort locale world-
wide. This seasonality results in more economic activity in the summer months and decrease activity in the off season, which can
adversely impact the consistency and sustainability of growth.
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.
We operate in a highly regulated environment.
The Bank and Company are subject to extensive regulation, supervision and examination by the OCC, the FDIC, the Federal Reserve
Board and the SEC. Such regulation and supervision governs the activities in which a financial institution and its holding company
may engage and are intended primarily for the protection of the consumer rather than for the protection of shareholders. 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’s operations, 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 effective 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.
We may be adversely affected by current economic and market conditions.
The national and global economic downturn that began in 2007 has resulted in unprecedented levels of financial market volatility
which depressed the market value of financial institutions, limited access to capital and/or had a material adverse effect on the
financial condition or results of operations of banking companies. Since 2008, significant declines in the values of mortgage-backed
securities and derivative securities of financial institutions, government sponsored entities, and major commercial and investment
banks has led to decreased confidence in financial markets among borrowers, lenders, and depositors, as well as disruption and
Page -8-
extreme volatility in the capital and credit markets and the failure of some entities in the financial sector. As a result, many lenders and
institutional investors have reduced or ceased to provide funding to borrowers. While financial markets appear to be stabilizing, and
there are a few positive signs of economic recovery, including increased local real estate activity, economic uncertainty remains.
Unemployment rates are high and consumer confidence is low. While the timing of an economic recovery remains unknown, this may
have an adverse affect on our financial condition and results of operations. Turbulence in the capital and credit markets may adversely
affect our liquidity and financial condition and the willingness of certain counterparties and customers to do business with us.
Increases to the allowance for credit losses may cause our earnings to decrease.
Our customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may be
insufficient to pay any remaining loan balance. Hence, we may experience significant loan losses, which could have a material adverse
effect on our operating results. We make various assumptions and judgments about the collectibility of our loan portfolio, including
the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans.
In determining the amount of the allowance for credit losses, we rely on loan quality reviews, past loss experience, and an evaluation
of economic conditions, among other factors. If our assumptions prove to be incorrect, our allowance for credit losses may not be
sufficient to cover losses inherent in our loan portfolio, resulting in additions to the allowance. Material additions to the allowance
through charges to earnings would materially decrease our net income.
Bank regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or
loan charge-offs. Any increase in our allowance for credit losses or loan charge-offs as required by these regulatory authorities could
have a material adverse effect on our results of operations and/or financial condition.
The trust preferred securities that we issued have rights that are senior to those of our common shareholders. The conversion of the
trust preferred securities into shares of our common stock could result in dilution of your investment.
In October 2009 we issued $16 million of 8.5% cumulative convertible trust preferred securities from a special purpose trust, and we
issued an identical amount of junior subordinated debentures to this trust. Payments of the principal and interest on the trust preferred
securities are conditionally guaranteed by us. Further, the accompanying junior subordinated debentures that we issued to the trust are
senior to our shares of common stock. As a result, we must make payments on the junior subordinated debentures before any
dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the obligations with respect
to the junior subordinated debentures must be satisfied before any distributions can be made on our common stock. We have the right
to defer distributions on the junior subordinated debentures (and the related trust preferred securities) for up to five years, during
which time no dividends may be paid on our common stock.
In addition, each $1,000 in liquidation amount of the trust preferred securities currently is convertible, at the option of the holder, into
32.2581 shares of our common stock. The conversion of these securities into shares of our common stock would dilute the ownership
interests of purchasers of our common stock in this offering.
The Dodd-Frank Wall Street Reform and Consumer Protection Act will, among other things, tighten capital standards, create a new
Consumer Financial Protection Bureau and result in new laws and regulations that are expected to increase our cost of operations.
The Dodd-Frank Act is significantly changing the bank regulatory structure and is impacting the largest financial institutions as well
as regional banks and community banks. The federal regulatory agencies, specifically the SEC and the new Consumer Financial
Protection Bureau, are given significant discretion in drafting the implementing regulations.
The major bank-related provisions under the Dodd-Frank Act pertain to: capital requirements; mortgage reform and minimum lending
standards; consumer financial protection bureau; sale of mortgage loans (including risk retention requirements); FDIC insurance-
related provisions; preemption standards for national banks; abolishment of the Office of Thrift Supervision; interchange fee for debit
card transactions; Volcker Rule; regulation of derivatives/swaps; Financial Services Oversight Council; resolution authority; and
corporate governance matters (e.g.; “say on pay”; new executive compensation disclosure and clawbacks, etc.). Given the range of
topics in the Dodd-Frank Act and the voluminous regulations required to implement by the Dodd-Frank Act, the full impact will not
be known for some time.
Certain provisions of the Dodd-Frank Act impacted banks upon enactment of the legislation. Examples of this were the permanent
increase of FDIC deposit insurance limits, the FDIC Assessment Base calculation change and the removal of the cap for the Deposit
Insurance Fund, all of which in turn affected banks' FDIC deposit insurance premiums. Certain provisions of the Dodd-Frank Act are
expected to have a near-term effect on us. For example, a provision of the Dodd-Frank Act eliminated the federal prohibitions on
paying interest on demand deposits, thus allowing businesses to have interest-bearing checking accounts. Depending on competitive
responses, this significant change to existing law could increase our interest expense.
The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer
protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection
Page -9-
laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and
practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings
institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by
their applicable bank regulators. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for
national banks and federal savings associations, and gives state attorneys general the ability to enforce federal consumer protection
laws.
It is difficult to predict at this time what specific impact the Dodd-Frank Act and the many yet to be written implementing rules and
regulations will have on community banks. However, it is expected that at a minimum they will increase our operating and compliance
costs and could increase our interest expense.
The short-term and long-term impact of the changing regulatory capital requirements and anticipated new capital rules are uncertain.
On June 7, 2012, the Federal Reserve Board issued proposed rules that would substantially amend the regulatory risk-based capital
rules applicable to us. The OCC subsequently approved these proposed rules on June 12, 2012. The proposed rules implement the
“Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. Basel III was initially intended to be implemented
beginning January 1, 2013, however on November 9, 2012, the U.S. federal banking agencies announced that the proposed rules
would not become effective on January 1, 2013, and it is not clear when the proposed rules will become effective.
Various provisions of the Dodd-Frank Act increase the capital requirements of financial institutions. The proposed rules include new
minimum risk-based capital and leverage ratios, which would be phased in during 2013 and 2014, and would refine the definition of
what constitutes “capital” for purposes of calculating these ratios. The proposed new minimum capital requirements would be: (i) a
new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8%
(unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The proposed rules would also establish a
“capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and would result in the following minimum
ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The
new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and
would increase each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends,
engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations
would establish a maximum percentage of eligible retained income that could be utilized for such actions. While the proposed Basel
III changes and other regulatory capital requirements will result in higher regulatory capital standards, it is difficult at this time to
predict when or how any new standards will ultimately be applied. In addition, in the current economic and regulatory environment,
bank regulators may impose capital requirements that are more stringent than those required by applicable existing regulations.
The application of more stringent capital requirements could, among other things, result in lower returns on equity, require the raising
of additional capital, and result in regulatory actions if we were to be unable to comply with such requirements. Furthermore, the
imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen the term
of our funding, restructure our business models, and/or increase our holdings of liquid assets. Implementation of changes to asset risk
weightings for risk based capital calculations, items included or deducted in calculating regulatory capital or additional capital
conservation buffers, could result in management modifying our business strategy and could limit our ability to make distributions,
including paying dividends or buying back our shares.
Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings.
Information technology systems are critical to our business. We use various technology systems to manage our customer
relationships, general ledger, securities investments, deposits, and loans. We have established policies and procedures to prevent or
limit the impact of system failures, interruptions, and security breaches, but such events may still occur or may not be adequately
addressed if they do occur. In addition, any compromise of our systems could deter customers from using our products and services.
Although we rely on security systems to provide security and authentication necessary to effect the secure transmission of data, these
precautions may not protect our systems from compromises or breaches of security.
In addition, we outsource a majority of our data processing to certain third-party providers. If these third-party providers encounter
difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be
affected, and our business operations could be adversely affected. Threats to information security also exist in the processing of
customer information through various other vendors and their personnel.
The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of
customers and business thereby subjecting us to additional regulatory scrutiny, or could expose us to litigation and possible financial
liability. Any of these events could have a material adverse effect on our financial condition and results of operations.
Page -10-
Severe Weather, Acts of Terrorism and Other External Events Could Impact Our Ability to Conduct Business
Recent weather-related events have adversely impacted our market area, especially areas located near coastal waters and flood prone
areas. Such events that may cause significant flooding and other storm-related damage may become more common events in the
future. Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and
communication systems and the metropolitan New York area remain central targets for potential acts of terrorism. Such events could
cause significant damage, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to
repay their loans, reduce the value of collateral securing repayment of our loans, and result in the loss of revenue. While we have
established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on
our business, operations and financial condition.
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 in Suffolk County, New York. The Bank’s Main Office in Bridgehampton is owned. The Bank
also owns buildings that house branches located in; Montauk, Southold, Westhampton Beach, Southampton Village, and East
Hampton Village. The Bank currently leases out a portion of the Montauk and Westhampton Beach buildings. The Bank leases fifteen
additional properties in Suffolk County as branch locations. Additionally, the Bank utilizes space for a branch in the retirement
community, Peconic Landing at 1500 Brecknock Road, Greenport. The Bank currently subleases a portion of the leased property
located in Patchogue. In 2011, the Bank purchased 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 consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
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 trades on the NASDAQ Global Select Market under the symbol “BDGE”. The following table details
the quarterly high and low sale prices of the Company’s common stock and the dividends declared for such periods.
At December 31, 2012 the Company had approximately 858 shareholders of record, not including the number of persons or entities
holding stock in nominee or the street name through various banks and brokers.
Page -11-
COMMON STOCK INFORMATION
By Quarter 2012
First
Second
Third
Fourth
By Quarter 2011
First
Second
Third
Fourth
Stock Prices
High
Low
Dividends
Declared
22.33
23.59
24.54
23.24
$
$
$
$
19.30
19.02
19.58
19.07
$
$
$
$
0.23
0.23
0.23
0.46
Stock Prices
High
Low
Dividends
Declared
25.94
22.68
22.19
20.79
$
$
$
$
20.94
20.73
17.77
17.51
$
$
$
$
0.23
—
0.23
0.23
$
$
$
$
$
$
$
$
Stockholders received cash dividends totaling $9.9 million in 2012 and $6.1 million in 2011. During the second quarter of 2011, the
Board revised its policy of dividend declaration to the month following the end of the quarter. This change in policy resulted in the
declaration of the second quarter dividend in July 2011, and only three declared quarterly dividends during 2011. Due to the likelihood
of a change in the tax rates on dividends beginning in 2013, management decided to accelerate the timing of the payment of the
Company’s fourth quarter dividend to shareholders into calendar year 2012 resulting in five dividend payments in 2012. The ratio of
dividends per share to net income per share was 77.50% in 2012 compared to 44.35% in 2011.
There are various legal limitations with respect to the Company’s ability to pay dividends to shareholders and the Bank’s ability to pay
dividends to the Company. Under the New York Business Corporation Law, the Company may pay dividends on its outstanding
shares unless the Company is insolvent or would be made insolvent by the dividend. Under federal banking law, the prior approval of
the Federal Reserve Board and the Office Comptroller of the Currency (the “OCC”) may be required in certain circumstances prior to
the payment of dividends by the Company or the Bank. A national bank may generally declare a dividend, without approval from the
OCC, in an amount equal to its year-to-date net income plus the prior two years’ net income that is still available for dividend. At
December 31, 2012, the Bank had $33.5 million of retained net income available for dividends to the Company. The OCC also has
the authority to prohibit a national bank from paying dividends if such payment is deemed to be an unsafe or unsound practice. In
addition, as a depository institution the deposits of which are insured by the FDIC, the Bank may not pay dividends or distribute any
of its capital assets while it remains in default on any assessment due to the FDIC. The Bank currently is not (and never has been) in
default under any of its obligations to the FDIC.
The Federal Reserve Board has issued a policy statement regarding the payment of dividends by bank holding companies. In general,
the Federal Reserve Board’s policy provides that dividends should be paid only out of current earnings and only if the prospective rate
of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall
financial condition. The Federal Reserve Board has the authority to prohibit the Company from paying dividends if such payment is
deemed to be an unsafe or unsound practice.
Page -12-
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 $1 billion to $5 billion, as reported by
SNL Financial L.C. from December 31, 2007 through December 31, 2012. 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
150
125
100
75
50
e
u
l
a
V
x
e
d
n
I
25
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
Bridge Bancorp, Inc.
NASDAQ Composite
SNL Bank $1B-$5B
Index
Bridge Bancorp, Inc.
NASDAQ Composite
SNL Bank $1B-$5B
Period Ended
12/31/07
100.00
100.00
100.00
12/31/08
79.71
60.02
82.94
12/31/09
107.70
87.24
59.45
12/31/10
114.63
103.08
67.39
12/31/11
95.60
102.26
61.46
12/31/12
103.09
120.42
75.78
ISSUER PURCHASES OF EQUITY SECURITIES
The Board of Directors approved a stock repurchase program on March 27, 2006 which approved the repurchase of 309,000 shares.
No shares have been purchased during the year ended December 31, 2012. The total number of shares purchased as part of the
publicly announced plan totaled 141,959 as of December 31, 2012. The maximum number of remaining shares that may be purchased
under the plan totals 167,041 as of December 31, 2012. There is no expiration date for the stock repurchase plan. There is no stock
repurchase plan that has expired or that has been terminated during the period ended December 31, 2012.
Page -13-
Item 6. Selected Financial Data
Five-Year Summary of Operations
(In thousands, except per share data and financial ratios)
Set forth below are selected consolidated financial and other data of the Company. The Company’s business is primarily the business
of the Bank. This financial data is derived in part from, and should be read in conjunction with, the Consolidated Financial Statements
of the Company.
2012
2011
2010
2009
2008
December 31,
Selected Financial Data:
Securities available for sale
Securities, restricted
Securities held to maturity
Loans held for sale
Loans held for investment
Total assets
Total deposits
Total stockholders’ equity
Years 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 expense
Income before income taxes
Income tax expense
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) (2)
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common share
$
$
$
$
$
$
529,070
2,978
210,735
—
798,446
1,624,713
1,409,322
118,672
54,514
7,555
46,959
5,000
41,959
10,673
33,780
18,852
6,080
12,772
$
$
$
441,439
1,660
169,153
2,300
612,143
1,337,458
1,188,185
106,987
50,426
7,616
42,810
3,900
38,910
6,949
30,837
15,022
4,663
10,359
$
$
$
323,539
1,284
147,965
—
504,060
1,028,456
916,993
65,720
$ 306,112
1,205
77,424
—
448,038
897,257
793,538
61,855
$ 310,695
3,800
43,444
—
429,683
839,059
659,085
56,139
44,899
7,740
37,159
3,500
33,659
7,433
27,879
13,213
4,047
9,166
$
$
$
$
$
43,368
7,815
35,553
4,150
31,403
6,174
24,765
12,812
4,049
8,763
15.58%
1.06%
6.80%
65.43%
1.41
1.41
0.92
$
$
$
$
$
39,620
9,489
30,131
2,000
28,131
6,064
21,157
13,038
4,288
8,750
16.29%
1.24%
7.62%
64.74%
1.42
1.42
0.92
11.78%
0.88%
7.49%
77.50%
1.48
1.48
1.15
$
$
$
14.37%
0.88%
6.11%
44.35%
1.54
1.54
0.69
$
$
$
15.29%
0.95%
6.18%
63.42%
1.45
1.45
0.92
(1) The dividend payout ratio for 2012 includes five declared quarterly dividends.
(2) The dividend payout ratio for 2011 includes three declared quarterly dividends.
Page -14-
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, in addition to historical information, 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,” “estimated,” “assumes,”
“likely,” and variation 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 consumer, commercial and other lending businesses; current and future
capital management programs; non-interest income levels, including fees from the title 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, including increases in FDIC insurance rates; 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; demands 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; expanded regulatory requirements as a result of the Dodd-Frank Act,
which could adversely affect operating results; and other factors discussed elsewhere in this report, factors set forth under Item 1A.,
Risk Factors, and in quarterly and other reports filed by the Company with the Securities and Exchange Commission. 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., 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. The Company is 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, investment services, 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. These reclassifications did not have an impact on net income or
total stockholders’ equity.
Year and Quarterly Highlights
•
•
•
•
•
Net income of $3.4 million and $0.39 per diluted share for the fourth quarter 2012 compared to $3.0 million and
$0.42 per diluted share for the fourth quarter 2011. Net income for 2012 was $12.8 million and $1.48 per diluted
share, compared to $10.4 million and $1.54 per diluted share, including $0.5 million in acquisition costs, net of tax,
associated with the HSB merger in 2011.
Returns on average assets and equity for 2012 were 0.88% and 11.78%, respectively.
Net interest income increased to $47.0 million for 2012 compared to $42.8 million in 2011.
Net interest margin was 3.52% for 2012 and 3.97% for 2011.
Total assets of $1.6 billion at December 31, 2012, an increase of $0.3 billion or 21.5% over the same date last year.
Page -15-
•
•
•
•
•
•
Total loans held for investment of $798.4 million at December 31, 2012, an increase of 30.4% from December 31,
2011.
Total investment securities of $742.8 million at December 31, 2012, an increase of 21.3% over December 31, 2011.
Total deposits of $1.4 billion at December 31, 2012, an increase of $221.1 million or 18.6% over 2011 level.
Allowance for loan losses was 1.81% of loans as of December 31, 2012, compared to 1.77% at December 31, 2011.
The Company’s Tier 1 Capital to quarterly average assets ratio was 8.4% as of December 31, 2012, as compared to
9.3% as of 2011. Stockholders’ equity totaled $118.7 million at December 31, 2012, an increase of $11.7 million
from December 31, 2011 as a result of the capital raised through the DRIP, as well as continued earnings growth, net
of dividends.
A cash dividend of $0.23 per share was declared and paid in December 2012 for the fourth quarter of 2012.
Current Environment
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed by the President.
The Act permanently raised the current standard maximum deposit insurance amount to $250,000. Section 331(b) of the Dodd-Frank
Act required the FDIC to change the definition of the assessment base from which assessment fees are determined. The new definition
for the assessment base is the average consolidated total assets of the insured depository institution less the average tangible equity of
the insured depository institution. The financial reform legislation, among other things, created a new Consumer Financial Protection
Bureau, tightened capital standards and resulted in new regulations that are expected to increase the cost of operations.
On June 12, 2012, the OCC, the Federal Reserve and the FDIC issued proposed rules that would revise capital calculations and
requirements. More specifically, the agencies are proposing to revise the risk based and leverage capital requirements consistent with
the Basel Committee on Banking Supervision (“Basel III”), implement a new common equity Tier 1 minimum capital requirement,
increase the minimum Tier 1 capital requirement, implement a new supplementary leverage ratio, apply limits on capital distributions
and certain discretionary incentive payments if the Bank does not hold a specified buffer of common equity Tier 1 capital in addition
to the minimum risk based capital requirements, revise the advanced approaches risk based capital rules consistent with Basel III and
revise the calculation of risk weighted assets to enhance risk sensitivity.
Since the second half of 2007 and continuing through 2010, the financial markets experienced significant volatility resulting from the
continued fallout of sub-prime lending and the global liquidity crises. Various government initiatives along with eight rate cuts by the
Federal Reserve totaling 500 basis points were designed to improve liquidity for the distressed financial markets. The objective of
these efforts was to help consumers, reduce the potential surge of residential mortgage loan foreclosures and stabilize the banking
system. Effective as of February 19, 2010, the Federal Reserve increased the discount rate 50 basis points to 0.75%. The Federal
Reserve stated that this rate change was intended to normalize their lending facility and to step away from emergency lending to
banks. From April 2010 through September 2012 the Federal Reserve decided to maintain the federal funds target rate between 0 and
25 basis points due to a continued national depressed housing market, tight credit markets and as an effort to foster employment.
These actions have resulted in a prolonged low interest rate environment reducing yields on interest earning assets and compressing
the Company’s net interest margin. In June 2012, the FOMC lowered its expectations for employment and GDP growth. In September
2012, the FOMC noted that economic activity was increasing, the growth in unemployment had slowed and the housing market was
beginning to show signs of improvement. However, the FOMC anticipates maintaining federal funds target rate at least through mid-
2015 in order to support economic and job growth.
Growth and service strategies have the potential to offset the compression on net interest margin with volume as the customer base
grows through expanding the Bank’s footprint, while maintaining and developing existing relationships. Since 2008, the Bank has
opened seven new branches. The recent branch openings move the Bank geographically westward and demonstrate its commitment to
traditional growth through branch expansion. In May 2011, the Bank acquired HSB which increased the Bank’s presence in an
existing market with a branch located in the Village of Southampton. In July 2011, the Bank converted the former HSB customers to
the Bank’s core operating system. Management spent considerable time ensuring the transition progressed smoothly for HSB’s former
customers and shareholders. Management has demonstrated its ability to successfully integrate the former HSB customers and achieve
expected cost savings while continuing to execute its business strategy. Management will continue to seek opportunities to expand its
reach into other contiguous markets by network expansion, or through the addition of professionals with established customer
relationships.
Page -16-
Challenges and Opportunities
Despite fiscal and monetary policy initiatives implemented to combat the recession, the Company continues operating in an unsettled
economic environment. Five years after the financial crisis, the Banking environment remains uncertain with the fallout from both
regulatory activity and the economic impact of decisions made during and subsequent to the crisis. The costs, in terms of compliance
and greater capitalization, continue impacting shareholders expectations and returns.
While recent news on employment appears positive, issues still linger regarding the recovery’s strength and sustainability. Job
creation remains a primary focus of the government, and the Federal Reserve Board’s (the “FRB”) recent announcements regarding
continued quantitative easing is an attempt, through monetary policy, to increase economic activity and create jobs. Locally, the
economy appears stronger than other parts of New York and the nation. The credit environment appears to be stabilizing and our
Company and many of our customers avoided significant damage from the effects of Hurricane Sandy, however, the continued
confidence of consumers and businesses remains critical to future economic activity.
The FRB’s activities have heightened the challenges for the banking industry. Lower rates, while beneficial for certain segments of the
economy, pose issues for others. Customers who rely on their savings to provide income have been impacted, and industry wide banks
are seeing the returns on their loans and investments decline. The eventuality of rising rates is one of the industry’s greatest challenges
and threats, creating margin pressures and ultimately impacting credit, as businesses adjust and manage with potentially higher
borrowing costs. These circumstances warrant proactive management to mitigate interest rate and credit risk and maintain overall
profitability. During the twelve months ended December 31, 2012, the Company repositioned its balance sheet, as the continuing low
rate environment presented opportunities to exit certain positions in the bond portfolio. Securities aggregating $152 million were sold
at a net gain of $2.6 million. A portion of the sales proceeds were used to repay borrowings with the balance available to fund future
loan growth. Management believes this strategy was appropriate and prudent given current market indicators. Management is cautious
managing the types of loans it originates and investment it makes, while remaining prepared to deal with the eventuality of higher
rates. Additionally, although asset quality measures remain strong, management continues to prudently assess its reserves in light of
continued weakness in the overall economy.
The prospects of the financial services sector and the Company continue to be impacted by the final outcome of the implementation of
the Dodd-Frank Act. The Company expects new rules, regulations and related compliance and process changes and will increase its
compliance resources appropriately. The proposed changes to calculating capital under Basel III may increase the complexity and
level of capital requirements. The Bank continues to collaborate with its primary regulator to ensure compliance with current
requirements and interpretations. It is the belief of management that its strong risk management culture is a primary reason for its long
term success and management views the current challenges as opportunities to expand its business and deliver the promise of
successful community banking to its customers and shareholders. Management must maintain its stringent underwriting standards and
diligently monitor credit concentrations and exposures as the Company grows. Management needs to prudently price all products and
structure its balance sheet for the eventuality of higher rates. Management seeks new sources of revenue while monitoring
expenditures and identifying opportunities to achieve efficiencies. Finally, management must capitalize on current competitors’
dislocations and distractions while investing in infrastructure and technology to be prepared for the evolving competitive landscape.
The Company’s record achievements in 2012 of substantial organic loan, deposit and revenue growth, coupled with strong asset
quality and capitalization levels combined to deliver industry leading returns. This is a testament to the Company’s unwavering
commitment to community banking, whereby the Company partners with its customers, delivering advice and solutions for their
financial needs. This is the core of the Company’s business model and dedication to these principles contributes to its current success,
and is paramount in all future initiatives. The key to delivering on the Company’s mission is combining its expanding branch network,
improving technology, and experienced professionals with the critical element of local decision making. The successful expansion of
the franchise’s geographic reach delivered the desired results; increasing core deposits and loans, and generating record levels of
revenue and income. This revenue offset higher credit and compliance costs allowing the Company to continue building the
infrastructure necessary to manage in today’s increasingly complex regulatory environment. 2012 marked another step in the
continuing evolution of the Company and demonstrated ongoing commitment to identify, leverage and efficiently execute on market
opportunities. Looking ahead, management sees the potential to continue this strategic course with similar positive results.
Corporate objectives for 2013 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. Management believes there remain opportunities to grow its franchise and continued
investments to generate core funding, quality loans and new sources of revenue, remain keys to continue creating long term
shareholder value. Management remains committed to branch based banking and in June 2012, the Company opened a new branch in
Ronkonkoma, near MacArthur Airport, a regional transportation hub. The bank opened its 22nd branch in Hauppauge, New York, in
December 2012. The Bank also received regulatory approval to open two additional branches in Shelter Island, New York and Rocky
Point, New York. The Company expects to open these locations during the first half of 2013. The Company began to pilot its new
electronic banking platform in the first quarter of 2013. This will allow the Company to enhance the delivery of current technology,
and more importantly, effectively deliver the next generation of products and services to its existing and new customer base. The
Page -17-
ability to attract, retain, train and cultivate employees at all levels of the Company remains significant to meeting corporate objectives.
The Company has made great progress toward the achievement of these objectives, and avoided many of the problems facing other
financial institutions as a result of maintaining discipline in its underwriting, expansion strategies, investing and general business
practices. The Company has capitalized on opportunities presented by the market and diligently seeks opportunities for growth and to
strengthen the franchise. The Company recognizes the potential risks of the current economic environment and will monitor the
impact of market events as we consider growth initiatives and evaluate loans and investments. Management and the Board have built a
solid foundation for growth and the Company is positioned to adapt to anticipated changes in the industry resulting from new
regulations and legislative initiatives.
CRITICAL ACCOUNTING POLICIES
Note 1 to our Consolidated Financial Statements for the year ended December 31, 2012 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 the 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 FASB Accounting Standard Codification (“ASC”) No. 310, “Receivables”. 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 are also 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 loan analyses
are periodically performed on specific loans considered impaired. For collateral dependent impaired loans, appraisals are performed
by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose
qualifications and licenses have been reviewed and verified by the Company. Once received, the Credit Administration department
reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with
independent data sources, such as recent market data or industry-wide statistics. On a quarterly basis, the Company compares the
actual selling price of collateral that has been sold, based on these independent sources, as well as recent appraisals associated with
current loan origination activity, to the most recent appraised value to determine if additional adjustments should be made to the
appraisal value to arrive at fair value. Adjustments to fair value are made only when the analysis indicates a probable decline in
collateral values. 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 into loans with homogenous characteristics by loan type and include commercial real estate mortgages, owner and
non-owner occupied; multi-family mortgages; residential real estate mortgages, first lien and home equity; commercial loans, secured
Page -18-
and unsecured; installment/consumer loans; and real estate construction and land loans. 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, and concentrations in the portfolio when determining the allowances for each pool. In addition, we evaluate and consider
the credit’s risk rating which includes management’s evaluation of: cash flow, collateral and trends in current values, guarantor
support, financial disclosures, industry trends and strength of borrowers’ management, the impact that 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.
The Credit Risk Committee is comprised of members of both management and the Board of Directors. The adequacy of the allowance
is analyzed quarterly, with any adjustment to a level deemed appropriate by the Credit Risk Committee, based on its risk assessment
of the entire portfolio. Based on the Credit Risk Committee’s review of the classified loans and the overall allowance levels as they
relate to the entire loan portfolio at December 31, 2012, 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 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 2012 totaled $12.8 million or $1.48 per diluted share while net income for 2011 totaled $10.4 million or $1.54 per
diluted share, as compared to net income of $9.2 million, or $1.45 per diluted share for the year ended December 31, 2010. Net
income increased $2.4 million or 23.3% compared to 2011 and net income for 2011 increased $1.2 million or 13.0% as compared to
2010. Significant trends for 2012 include: (i) a $4.1 million or 9.7% increase in net interest income; (ii) a $1.1 million increase in the
provision for loan losses; (iii) a $3.8 million or 53.6% increase in total non interest income including net securities gains of $2.6
million; and (iv) a $3.0 million or 9.5% increase in total non interest expenses including a decline of $0.8 million of acquisition costs
associated with the HSB merger that were incurred during 2011. The effective income tax rate was 32.3% for 2012 compared to
31.0% for 2011.
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 nonaccrual 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 FASB ASC 320, “Investments - Debt and Equity Securities.”
Page -19-
2012
Interest
Average
Yield/
Cost
Average
Balance
2011
Average
Balance
Interest
Average
Yield/
Cost
Average
Balance
2010
Interest
Average
Yield/
Cost
$
671,103
$
40,255
6.00% $
554,469 $ 35,434
6.39% $
461,289
$ 30,223
6.55%
2.16
2.95
2.12
—-
0.28
4.07
277,073
124,616
111,311
—
48,841
9,000
4,417
2,993
—
123
1,116,310
51,967
3.25
3.54
2.69
—-
0.25
4.66
242,997
104,824
82,678
1,750
20,804
9,585
4,153
2,328
5
54
914,342
46,348
3.94
3.96
2.82
0.29
0.26
5.07
19,025
44,952
$ 1,180,287
15,857
39,707
$
969,906
Years Ended December 31,
(Dollars in thousands)
Interest earning assets:
Loans, net (1)
Mortgage-backed, CMOs
and other asset-back
securities
Tax exempt securities (2)
Taxable securities
Federal funds sold
Deposits with banks
342,302
141,899
191,445
—
27,840
7,391
4,181
4,068
—
78
Total interest earning assets
1,374,589
55,973
Non interest earning assets:
Cash and due from banks
Other assets
Total assets
22,760
48,836
$ 1,446,185
Interest bearing liabilities:
Savings, NOW and money
market deposits
$
718,559
$
3,738
0.52% $
613,068 $
3,936
0.64% $
480,642
$
3,594
0.75%
Certificates of deposit of
$100,000 or more
Other time deposits
Federal funds purchased and
repurchase agreements
Federal Home Loan Bank
term advances
Junior subordinated
debentures
Total interest bearing liabilities
Non interest bearing liabilities:
Demand deposits
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and
stockholders’ equity
Net interest income/interest
rate spread (3)
Net interest earning assets/net
interest margin (4)
Ratio of interest earning assets
to interest bearing liabilities
Less: Tax equivalent
adjustment
131,695
40,949
38,613
18,068
16,002
963,886
365,999
7,923
1,337,808
108,377
1,453
416
461
122
1,365
7,555
1.10
1.02
1.19
0.68
8.53
0.78
1,264
507
543
—
1,366
7,616
1.09
1.17
3.09
0.00
8.54
0.95
115,895
43,282
17,582
82
16,002
805,911
294,566
7,721
1,108,198
72,089
100,775
45,630
22,128
19
16,002
665,196
238,740
6,028
909,964
59,942
$ 1,446,185
$ 1,180,287
$
969,906
1,489
762
530
—
1,365
7,740
1.48
1.67
2.40
0.00
8.53
1.16
48,418
3.29%
44,351
3.71%
38,608
3.91%
$
410,703
3.52% $
310,399
3.97% $
249,146
4.22%
142.61%
138.52%
137.45%
Net interest income
$
46,959
(1,459)
(1,541)
$ 42,810
(1,449)
$ 37,159
(1)
(2)
(3)
(4)
Amounts are net of deferred origination costs/ (fees) and the allowance for loan loss, and include loans held for sale.
The above table is presented on a tax equivalent basis.
Net interest rate spread represents the difference between the yield on average interest earning assets and the cost of average interest bearing liabilities.
Net interest margin represents net interest income divided by average interest earning assets.
Page -20-
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.
Years Ended December 31,
(In thousands)
Interest income on interest earning assets:
Loans (1)
Mortgage-backed, CMOs and other asset-backed
securities
Tax exempt securities (2)
Taxable securities
Federal funds sold
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
Federal funds purchased and repurchase
agreements
Federal Home Loan Bank Advances
Junior subordinated debentures
Total interest bearing liabilities
Net interest income
2012 Over 2011
Changes Due To
2011 Over 2010
Changes Due To
Volume
Rate
Net
Change
Volume
Rate
Net
Change
$ 7,089
$ (2,268)
$
4,821
$ 5,966
$ (755)
$
5,211
1,828
561
1,811
—
(58)
11,231
609
141
(27)
387
93
—
1,203
(3,437)
(797)
(736)
—
13
(7,225)
(807)
48
(64)
(469)
29
(1)
(1,264)
(1,609)
(236)
1,075
—
(45)
4,006
(198)
189
(91)
(82)
122
(1)
(61)
1,231
733
777
(3)
71
8,775
913
320
(37)
(122)
—
—
1,074
(1,816)
(469)
(112)
(2)
(2)
(3,156)
(571)
(545)
(218)
135
—
1
(1,198)
(585)
264
665
(5)
69
5,619
342
(225)
(255)
13
—
1
(124)
$ 10,028
$ (5,961)
$
4,067
$ 7,701
$(1,958)
$
5,743
(1) Amounts are net of deferred origination costs/ (fees) and the allowance for loan loss, and include loans held for sale.
(2) The above table is presented on a tax equivalent basis.
The net interest margin declined to 3.52% in 2012 compared to 3.97% for the year ended December 31, 2011 and 4.22% in 2010. The
decrease in 2012 and 2011 was primarily the result of the historically low market interest rates which was partly offset by strong core
deposit growth and higher loan demand. The total average interest earning assets in 2012 increased $258.3 million or 23.1% over 2011
levels, yielding 4.07% and the overall funding cost was 0.57%, including demand deposits. The yield on interest earning assets
decreased approximately 59 basis points which was partly offset by a decrease in the cost of interest bearing liabilities of
approximately 17 basis points during 2012 compared to 2011. The increase in average total deposits of $190.4 million partially funded
average lowering yielding securities of $162.6 million, and average net loans grew $116.6 million from the comparable 2011 levels.
Net interest income was $47.0 million in 2012 compared to $42.8 million in 2011 and $37.2 million in 2010. The increase in net
interest income of $4.1 million or 9.7% as compared to 2011, and the increase in net interest income of $5.7 million or 15.2% in 2011
as compared to 2010, primarily resulted from the effect of the increase in the volume of average total interest earning assets and the
decrease in the cost of average total interest bearing liabilities being greater than the effect of the increase in volume of average total
interest bearing liabilities and the decrease in yield on average total interest earning assets.
Average total interest earning assets grew by $258.3 million or 23.1% to $1.4 billion in 2012 compared to $1.1 billion in 2011. During
this period, the yield on average total interest earning assets decreased to 4.07% from 4.66%. Average total interest earning assets
grew by $202.0 million or 22.1% to $1.1 billion in 2011 compared to $914.3 million in 2010. During this period, the yield on average
total interest earning assets decreased to 4.66% from 5.07%.
Page -21-
For the year ended December 31, 2012, average loans grew by $116.6 million or 21.0% to $671.1 million as compared to $554.5
million in 2011 and increased $209.8 million or 45.5% compared to $461.3 million in 2010. 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.
For the year ended December 31, 2012, average total investments increased by $162.6 million or 31.7% to $675.6 million as
compared to $513.0 million in 2011 and increased $245.1 million or 56.9% as compared to $430.5 million in 2010 levels. To position
the balance sheet for the future and better manage capital, liquidity and interest rate risk, a portion of the available for sale investment
securities portfolio was sold during 2012, 2011 and 2010 resulting in a net gain of $2.6 million, $0.1 million and $1.3 million,
respectively. There were no federal funds sold in 2012 and 2011 compared to average federal funds sold of $1.8 million in 2010. The
zero balance in the average federal funds sold in 2012 and 2011 was offset by average interest earning cash balances of $27.8 million
in 2012, $48.8 million in 2011 and $20.8 million in 2010.
Average total interest bearing liabilities were $963.9 million in 2012 compared to $805.9 million in 2011 and $665.2 million in 2010.
The Bank grew deposits in 2012 as a result of opening one branch in 2012 and three new branches during 2010, building new
relationships in existing markets and the HSB merger which was completed during 2011. During 2012, the Bank reduced interest rates
on deposit products through prudent management of deposit pricing. The reduction in deposit rates resulted in a decrease in the cost of
interest bearing liabilities to 0.78% for 2012 compared to 0.95% for 2011 and 1.16% for 2010. 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 initially
results 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.
For the year ended December 31, 2012, average total deposits increased by $190.4 million or 17.8% to $1.26 billion as compared to
average total deposits of $1.07 billion for the year ended December 31, 2011. Components of this increase include an increase in
average demand deposits for 2012 of $71.4 million or 24.3% to $366.0 million as compared to a $294.6 million in average demand
deposits for 2011 and increased by $127.3 million or 53.3% compared to $238.7 million in average demand deposits for 2010. The
average balances in savings, NOW and money market accounts increased $105.5 million or 17.2% to $718.6 million for the year
ended December 31, 2012 compared to $613.1 million for the same period last year and increased $237.9 million or 49.5% over 2010
levels of $480.6 million. Average balances in certificates of deposit of $100,000 or more and other time deposits increased $13.5
million or 8.5% to $172.6 million for 2012 as compared to 2011 and increased $26.2 million or 17.9% in 2011 as compared to 2010.
Average public fund deposits comprised 17.3% of total average deposits during 2012, 18.2% in 2011 and 18.8% in 2010. Average
federal funds purchased and repurchase agreements together with average Federal Home Loan Bank term advances increased $39.0
million or 220.9% for the year ended December 31, 2012 as compared to average balances for 2011 and decreased $4.5 million or
20.2% for the year ended December 31, 2011 as compared to average balances for the same period in the prior year.
Total interest income increased to $54.5 million in 2012 from $50.4 million in 2011 and $44.9 million in 2010, an increase of 8.1%
during 2012 from 2011 and a 12.3% increase during 2011 from 2010. The ratio of interest earning assets to interest bearing liabilities
increased to 142.6% in 2012 as compared to 138.5% in 2011 and 137.5% in 2010. Interest income on loans increased $4.8 million in
2012 over 2011 and $5.2 million in 2011 over 2010 primarily due to growth in the loan portfolio. The yield on average loans was
6.0% for 2012, 6.4% for 2011 and 6.6% for 2010.
Interest income on investments in mortgage-backed, tax exempt and taxable securities decreased $0.7 million or 4.6% in 2012 to
$14.2 million from $14.9 million in 2011 and increased $0.3 million or 1.7% in 2011 from $14.6 million in 2010. Interest income on
securities included net amortization of premiums on securities of $5.6 million in 2012 compared to net amortization of premiums on
securities of $2.4 million in 2011 and net amortization of premiums on securities of $1.5 million in 2010. The tax adjusted average
yield on total securities decreased to 2.3% in 2012 from 3.2% in 2011 and 3.7% in 2010.
Total interest expense remained flat at $7.6 million as compared to 2011 and decreased $0.1 million or 1.6% to $7.6 million in 2011
from $7.7 million in 2010 as a result of prudent management of deposit pricing. The cost of average interest bearing liabilities was
0.78% in 2012, 0.95% in 2011, and 1.16% in 2010.
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 of Suffolk County which is located on the eastern portion of 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.
Loans of approximately $53.6 million or 6.7% of total loans at December 31, 2012 were categorized as classified loans compared to
$57.7 million or 9.4% at December 31, 2011 and $43.9 million or 8.7% at December 31, 2010. Classified loans include loans with
Page -22-
credit quality indicators with the internally assigned grades of special mention, substandard and doubtful. These loans are categorized
as classified loans as management has information that indicates the borrower may not be able to comply with the present repayment
terms. These loans are subject to increased management attention and their classification is reviewed at least quarterly. The decrease
in the 2012 levels of classified loans reflects the current economic environment. The higher classified loans as of December 31, 2011
primarily related to a $15.2 million increase in the special mention category as well as acquired classified loans from the HSB merger.
At December 31, 2012, approximately $34.1 million of these loans were commercial real estate (“CRE”) loans which were well
secured with real estate as collateral. Of the $34.1 million of CRE loans, $32.4 million were current and $1.7 million were past due. In
addition, all but $2.1 million of the CRE loans have personal guarantees. At December 31, 2012, approximately $5.6 million of
classified loans were residential real estate loans with $3.4 million current and $2.2 million past due. Commercial, financial, and
agricultural loans represented $10.3 million of classified loans and $9.8 million was current and $0.5 million was past due.
Approximately $3.5 million of classified loans represented real estate construction and land loans, which were all current. All real
estate construction and land loans are well secured with collateral. The remaining $0.1 million in classified loans are consumer loans
that are unsecured and current, have personal guarantees and demonstrate sufficient cash flow to pay the loans. Due to the structure
and nature of the credits, we do not expect to sustain a material loss on these relationships.
CRE loans, including multi-family loans, represented $398.9 million or 50.0% of the total loan portfolio at December 31, 2012
compared to $305.3 million or 49.9% at December 31, 2011 and $245.3 million or 48.7% at December 31, 2010. The Bank’s
underwriting standards for CRE loans requires an evaluation of the cash flow of the property, the overall cash flow of the borrower
and related guarantors as well as the value of the real estate securing the loan. In addition, the Bank’s underwriting standards for CRE
loans are consistent with regulatory requirements with original loan to value ratios generally less than or equal to 75%. The Bank
considers charge-off history, delinquency trends, cash flow analysis, and the impact of the local economy on commercial real estate
values when evaluating the appropriate level of the allowance for loan losses. Real estate values in our geographic markets increased
significantly from 2000 through 2007. Commencing in 2008, following the financial crisis and significant downturn in the economy,
real estate values began to decline. This decline continued into 2009 and appears to have stabilized in 2010. The estimated decline in
residential and commercial real estate values range from 15-20% from the 2007 levels, depending on the nature and location of the
real estate.
As of December 31, 2012 and December 31, 2011, the Company had impaired loans as defined by FASB ASC No. 310,
“Receivables” of $8.2 million and $9.0 million, respectively. 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. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually
classified nonaccrual loans and troubled debt restructured (“TDR”) loans. For impaired loans, the Bank evaluates the impairment of
the loan in accordance with FASB ASC 310-10-35-22. Impairment is determined based on the present value of expected future cash
flows discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to
determine the fair value of the loan. The fair value of the collateral is determined based upon recent appraised values. The fair value of
the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan
loss allowance allocation is required. These methods of fair value measurement for impaired loans are considered level 3 within the
fair value hierarchy described in FASB ASC 820-10-50-5.
Nonaccrual loans decreased $0.9 million to $3.3 million or 0.41% of total loans at December 31, 2012 from $4.2 million or 0.68% of
total loans at December 31, 2011. Approximately $1.0 million of the nonaccrual loans at December 31, 2012 and $2.0 million at
December 31, 2011, represent troubled debt restructured loans. As of December 31, 2012 two of the borrowers with loans totaling
$0.3 million are complying with the modified terms of the loans and are currently making payments. Another borrower with loans
totaling $0.7 million is currently in default and foreclosure proceedings have been initiated. The decrease in nonaccrual troubled debt
restructured loans at December 31, 2012 was primarily due to one loan totaling $0.3 million where the borrower has made six months
of consecutive payments in accordance with the restructured terms and the loan is now a performing trouble debt restructure loan. In
addition, one loan had $0.7 million in charge-offs in 2012. Nonaccrual troubled debt restructured loans are secured with collateral that
has an appraised value of $2.7 million. In 2011, nonaccrual loans decreased $2.5 million to $4.2 million from $6.7 million in 2010.
Approximately $2.0 million of the nonaccrual loans at December 31, 2011 represented troubled debt restructured loans where two of
the borrowers with loans totaling $0.5 million were complying with the modified terms of the loans and were currently making
payments. Another borrower with loans totaling $1.5 million was past due but making payments. Furthermore, the Bank had no
commitment to lend additional funds to these debtors.
In addition, the Company has six borrowers with performing TDR loans of $5.0 million at December 31, 2012 that are current and
secured with collateral that has an appraised value of approximately $12.3 million. At December 31, 2011, the Company had four
borrowers with TDR loans of $4.9 million that were current and secured with collateral that had an appraised value of approximately
$11.5 million. Management believes that the ultimate collection of principal and interest is reasonably assured and therefore continues
to recognize interest income on an accrual basis. In addition, the Bank has no commitment to lend additional funds to these debtors.
Two of the loans were restructured during the third quarter of 2012, one of the loans in the second quarter of 2012 and one loan in the
first quarter of 2012 and since that time the interest income recognized has been immaterial. The fifth loan was restructured during the
Page -23-
third quarter 2011 and since that time $0.08 million of interest income has been recognized. The sixth loan was restructured during the
third quarter of 2008 and since that time $0.5 million of interest income has been recognized.
The Bank had $0.3 million of foreclosed real estate owned at December 31, 2012 and had none at December 31, 2011 and 2010,
respectively.
Net charge-offs were $1.4 million for the year ended December 31, 2012 compared to $1.6 million for the year ended December 31,
2011 and $1.0 for the year ended December 31, 2010. The ratio of allowance for loan losses to nonaccrual loans was 439%, 260% and
126%, at December 31, 2012, 2011, and 2010, 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, a provision for loan losses of $5.0 million was recorded in 2012 as compared to $3.9 million in 2011 and $3.5
million in 2010. The allowance for loan losses increased to $14.4 million at December 31, 2012 as compared to $10.8 million at
December 31, 2011 and $8.5 million at December 31, 2010. As a percentage of total loans, the allowance was 1.81%, 1.77% and
1.69% at December 31, 2012, 2011 and 2010, respectively. In accordance with current accounting guidance, the acquired HSB loans
were recorded at fair value, effectively netting estimated future losses against the loan balances. Management continues to carefully
monitor the loan portfolio as well as real estate trends in Suffolk County and 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 balance at beginning of period
2012
2011
2010
2009
2008
$
10,837 $
8,497 $
6,045 $
3,953 $
2,954
Charge-offs:
Commercial real estate mortgage loans
Multi-family loans
Residential real estate mortgage loans
Commercial, financial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total
Recoveries:
Commercial real estate mortgage loans
Multi-family loans
Residential real estate mortgage loans
Commercial, financial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total
—
—
1,210
285
—
15
1,510
—
—
7
83
—
22
112
—
—
259
372
864
186
1,681
—
—
6
96
—
19
121
73
—
20
879
—
148
1,120
—
—
4
56
—
12
72
47
—
653
1,098
240
55
2,093
—
—
6
28
—
1
35
—
—
480
534
—
56
1,070
—
—
—
53
—
16
69
Net charge-offs
Provision for loan losses charged to operations
Balance at end of period
Ratio of net charge-offs during period to average loans
outstanding
(1,398)
5,000
14,439 $
(1,560)
3,900
10,837 $
(1,048)
3,500
8,497 $
(2,058)
4,150
6,045 $
(1,001)
2,000
3,953
$
(0.21%)
(0.28%)
(0.22%)
(0.47%)
(0.25%)
Page -24-
Allocation of Allowance for Loan Losses
The following table sets forth the allocation of the total allowance for loan losses by loan type:
Years Ended December 31,
(Dollars in thousands)
2012
Percentage
of Loans
to Total
Loans
2011
Percentage
of Loans
to Total
Loans
2010
Percentage
of Loans
to Total
Loans
Amount
Amount
2009
2008
Percentage
of Loans
to Total
Loans
Amount
Percentage
of Loans
to Total
Loans
Amount
Amount
Commercial real estate
mortgage loans
Multi-family loans
Residential real estate
mortgage loans
Commercial, financial and
agricultural loans
Real estate construction
and land loans
Installment/consumer loans.
Total
$
$
4,445
1,239
2,803
4,349
1,375
228
14,439
Non Interest Income
41.7% $
8.3
3,530
395
46.4% $ 3,310
133
3.5
18.0
24.7
2,280
2,895
6.1
1.2
1,465
272
100.0% $ 10,837
23.1
19.0
1,642
2,804
6.6
1.4
185
423
100.0% $ 8,497
46.9% $
1.8
28.0
19.4
2.0
1.9
100.0% $
2,529
36
1,781
1,083
346
270
6,045
44.6% $
1.0
27.5
20.9
4.3
1.7
100.0% $
1,718
41
1,158
699
268
69
3,953
43.4%
1.1
29.3
17.7
6.8
1.7
100.0%
Total non interest income increased by $3.8 million or 53.6% in 2012 to $10.7 million and decreased by $0.5 million or 6.5% in 2011
to $6.9 million as compared to $7.4 million in 2010. The increase in total non interest income in 2012 compared to 2011 was primarily
the result of $2.5 million increase in net securities gains recognized for 2012 compared to the same period last year. Title fee income
related to Bridge Abstract increased $0.6 million or 60.9% to $1.6 million for 2012 compared to $1.0 million for the same period in
2011. Fees for other customer services were $3.0 million and represented an increase of $0.4 million or 15.9% from $2.6 million for
the same period last year, related to higher electronic banking and investment services income. Service charges on deposit accounts
increased $0.2 million or 5.6% to $3.3 million for 2012 compared to $3.1 million for the same period in 2011. The decrease in total
non interest income in 2011 compared to 2010 was due to a decrease in net securities gains of $1.2 million and a decrease in revenues
from the title insurance abstract subsidiary, Bridge Abstract, of $0.1 million, partially offset by an increase in service charges on
deposit accounts of $0.4 million and an increase of $0.4 million in fees for other customer services.
Net securities gains of $2.6 million were recognized in 2012 compared to net securities gains of $0.1 million and $1.3 million
recognized in 2011 and 2010, respectively. The sales of securities 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 $1.6 million in 2012, $1.0
million in 2011, and $1.1 million in 2010, respectively. The increase of $0.6 million or 60.9% in 2012 compared to 2011 was directly
dependent on the number and average value of transactions processed by the subsidiary.
Service charges on deposit accounts for the year ended December 31, 2012 totaled $3.3 million, an increase of $0.2 million as
compared to 2011. For the year ended December 31, 2011, service charges on deposit accounts totaled $3.1 million, an increase of
$0.4 million as compared to 2010. These increases primarily represented higher overdraft fees. Fees from other customer services
increased $0.4 million or 15.9% to $3.0 million in 2012 as compared to $2.6 million in 2011. Fees from other customer services
increased $0.4 million or 18.0% to $2.6 million in 2011 as compared to $2.2 million in 2010. These increases were predominately due
to higher electronic banking and investment services.
Other operating income for the year ended December 31, 2012 totaled $0.1 million in line with 2011 and 2010.
Non Interest Expense
Total non interest expense increased $3.0 million or 9.5% to $33.8 million in 2012 compared to $30.8 million over the same period in
2011 and increased $2.9 million or 10.6% in 2011 from $27.9 million in 2010. The primary components of these increases were
higher salaries and employees benefits, occupancy and equipment, marketing and advertising, extinguishment of debt, other operating
expenses and amortization of core deposit intangible partially offset by lower professional services and FDIC assessments.
Additionally during 2011, acquisition costs of $0.8 million were incurred related to the HSB merger.
Salaries and benefits increased $2.7 million or 14.8% to $20.7 million in 2012 as compared to $18.0 million in 2011 and increased
$2.0 million or 12.9% from $16.0 million as of December 31, 2010. The increases in salary and benefits reflect additional positions to
support the Company’s expanding infrastructure, new branches and a larger loan portfolio, and the related employee benefit costs,
particularly pension expense.
Occupancy and equipment increased $0.2 million or 3.7% to $4.5 million compared to $4.3 million in 2011 and increased $0.3 million
or 8.8% from $4.0 million in 2010. Marketing and advertising expense increased $0.3 million or 23.3% to $1.6 million in 2012 from
$1.3 million in 2011 and increased $0.2 million or 16.7% from $1.1 million in 2010. Higher occupancy and equipment expense and
Page -25-
marketing and advertising expense in 2012 and 2011 relates to the Company’s increased branch network. Professional services
decreased $0.2 million or 14.5% to $1.0 million in 2012 from $1.2 million in 2011 and increased $0.1 million or 5.8% in 2011 from
$1.1 million in 2010. Data/item processing expense was $0.6 million and remained in line with 2011 and 2010 levels. FDIC
assessments remained at $0.8 million as compared to 2011 and decreased $0.5 to $0.8 million from $1.3 million or 35.2% in 2011
from 2010. For 2011 the Company incurred acquisition costs of $0.8 million and recorded amortization of core deposit intangibles of
$0.04 million in connection with the HSB merger. Amortization of core deposit intangibles was $0.07 million in 2012.
Cost on Extinguishment of debt for 2012 was $0.2 million related to the prepayment of a $5 million repurchase agreement. Other
operating expenses increased $0.6 million or 10.2% to $6.2 million compared to $5.6 million in 2011 and remained at $5.6 in 2011
compared to 2010.
Income Tax Expense
Income tax expense for December 31, 2012 was $6.1 million representing an increase of $1.4 million from 2011. Income tax expense
for 2011 was $4.7 million representing and increase of $0.6 million from 2010. The increase in 2012 was due to an increase in income
before income taxes of $3.9 million to $18.9 million from $15.0 million in 2011. The effective tax rate was 32.3% for the year ended
December 31, 2012 compared to 31.0% for the year ended December 31, 2011. The increase was related to a lower percentage of
interest income from tax exempt securities. The effective tax rate for the year ended December 31, 2010 was 30.6%. The increase in
the effective tax rate for 2011 compared to 2010 was related to nondeductible acquisition costs related to the HSB merger.
FINANCIAL CONDITION
The assets of the Company totaled $1.62 billion at December 31, 2012, an increase of $287.3 million or 21.5% from the previous
year-end with growth funded by deposits, borrowings and capital. This increase reflects strong organic growth in new and existing
markets.
Cash and due from banks increased $20.9 million or 80.8% to $46.9 million compared to December 2011 levels and interest earning
deposits with banks decreased $49.2 million or 91.8% as funds were invested in loan and securities. Total securities increased $129.2
million or 21.2% to $739.8 million and net loans increased $182.7 million or 30.4% to $784.0 million compared to December 2011
levels. There were no loans held for sale in 2012 compared to loans held for sale in 2011 of $2.3 million. Loans held for sale in 2011
represented one relationship with two loans that was sold in January 2012 and recorded previously as nonaccrual troubled debt
restructured loans. The ability to grow the investment and loan portfolios, while minimizing interest rate risk sensitivity and
maintaining credit quality remains a strong focus of management. Goodwill of $2.0 million and core deposit intangible of $0.3 million
were recorded in 2011 in connection with the HSB merger. Core deposit intangible decreased $0.1 to $0.2 million in 2012 compared
to $0.3 million in 2011. Total deposits grew $221.1 million to $1.41 billion at December 31, 2012 compared to $1.19 billion at
December 2011. The deposit growth occurred in all markets and included both new commercial and consumer relationships. Demand
deposits increased $207.7 million to $529.2 million as of December 31, 2012 compared to $321.5 million at December 31, 2011.
Savings, NOW and money market deposits increased $39.0 million to $722.9 million at December, 2012 from $683.9 million at
December 31, 2011. Certificates of deposit of $100,000 or more decreased $21.9 million to $118.7 million at December 31, 2012 from
$140.6 million at December 31, 2011. Other time deposits decreased $3.7 million to $38.5 million as of December 31, 2012 from
$42.2 at December 31, 2011.
Fed funds purchased and Federal Home Loan Bank overnight borrowings at December 31, 2012 were $44.5 million. There were no
Federal Funds purchased and Federal Home Loan Bank overnight borrowings for 2011. Federal Home Loan Bank term advances were
$15.0 million for December 31, 2012. There were no Federal Home Loan Bank term advances for December 31, 2011. Repurchase
agreements decreased $4.5 million to $12.4 million or 26.7% compared to $16.9 million as of December 31, 2011. Other liabilities
and accrued expenses decreased $0.4 million to $8.7 million as of December 31, 2012 from $9.1 million as of December 31, 2011 due
to decreases in deferred taxes.
Stockholders’ equity was $118.7 million at December 31, 2012, an increase of $11.7 million or 10.9% from December 31, 2011,
reflecting the proceeds from the issuance of shares of common stock under the Dividend Reinvestment Plan of $10.5 million, share
based compensation of $1.3 million, an increase in the pension liability of $0.3 million, and net income of $12.8 million, partially
offset by $9.9 million in declared cash dividends and a decrease in the unrealized gains in securities of $3.0 million. In December
2012, due to the likelihood of a change in the tax rates on dividends beginning in 2013, the Company decided to accelerate the timing
of the payment of the Company’s fourth quarter dividend to shareholders of $0.23 per share into calendar year 2012 resulting in five
dividend payments in 2012. This continues the Company’s long term trend of uninterrupted dividends.
Loans
During 2012, the Company continued to experience growth trends in commercial and residential 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
Page -26-
principal lending area in Suffolk County which is located on eastern Long Island. 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 74.1% of the Bank’s loan portfolio at December 31, 2012 is secured by real estate.
Approximately 41.7% of the Bank’s loan portfolio is comprised of commercial real estate loans. Multifamily loans represent 8.3% of
the Bank’s loan portfolio. Residential real estate mortgage loans represent 18.0% of the Bank’s loan portfolio and include home equity
lines of credit of approximately 8.5% and residential mortgages of approximately 9.5% of the Bank’s loan portfolio. Real estate
construction and land loans comprise approximately 6.1% of the Bank’s loan portfolio. 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 original loan to value ratios generally of 75% or less. The Bank’s residential
mortgage portfolio includes approximately $2.0 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.
The largest loan concentrations by industry are loans granted to lessors of commercial property both owner occupied and non-owner
occupied. The Bank uses conservative underwriting criteria to better insulate 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 25.9% 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 specific types of consumer loans
within the portfolio.
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 Credit Risk Committee. A loan is charged off when a loss is reasonably assured. 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 $186.3 million or 30.4%, during 2012 and $110.4 million or 21.9% during 2011. Average net loans grew $116.6
million or 21.0% during 2012 over 2011 and $93.2 million or 20.2% during 2011 when compared to 2010. Real estate mortgage loans
were the largest contributor of the growth for both 2012 and 2011 and increased $96.2 million or 21.6% and $60.1 million or 15.6%,
respectively. Commercial real estate mortgage loans grew $48.9 million or 17.2% during 2012 and multi-family mortgage loans grew
$44.7 million or 208.8% during 2012. Commercial, financial and agricultural loans increased $81.1 million or 69.7% in 2012 from
2011 and increased $18.7 million or 19.1% in 2011 from 2010. Real estate construction and land loans increased $8.1 million or
20.0% in 2012 and increased $30.6 million or 308.4% in 2011. Installment/consumer loans increased $0.6 million or 7.0% in 2012 and
decreased $1.1 million or 11.3% during 2011. Fixed rate loans represented 31.7%, 27.0% and 27.7% of total loans at December 31,
2012, 2011, and 2010, respectively.
Page -27-
The following table sets forth the major classifications of loans:
December 31,
(In thousands)
Commercial real estate mortgage loans
Multi-family loans
Residential real estate mortgage loans
Commercial, financial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total loans
Net deferred loan costs and fees
Allowance for loan losses
Net loans
Selected Loan Maturity Information
2012
2011
2010
2009
2008
$ 332,782
66,080
143,703
197,448
48,632
9,167
797,812
634
798,446
(14,439)
$ 784,007
$ 283,917
21,402
141,027
116,319
40,543
8,565
611,773
370
612,143
(10,837)
$ 601,306
$ 236,048
9,217
140,986
97,663
9,928
9,659
503,501
559
504,060
(8,497)
$ 495,563
$ 199,712
4,447
123,013
93,682
19,347
7,352
447,553
485
448,038
(6,045)
$ 441,993
$ 186,543
4,503
125,813
75,919
29,094
7,545
429,417
266
429,683
(3,953)
$ 425,730
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, 2012:
(In thousands)
Commercial loans
Construction and land loans (1)
Total
Rate provisions:
Amounts with fixed interest rates
Amounts with variable interest rates
Total
(1)
Within One
Year
After One
But Within
Five Years
After
Five Years
Total
$
$
$
$
51,903
33,562
85,465
16,956
68,509
85,465
$
$
$
$
69,653
5,575
75,228
57,438
17,790
75,228
$
$
$
$
75,892
9,495
85,387
$ 197,448
48,632
$ 246,080
28,103
57,284
85,387
$ 102,497
143,583
$ 246,080
Included in the “After Five Years” column, are one-step construction loans that contain a preliminary construction
period (interest only) that automatically converts to amortization at the end of the construction phase.
Page -28-
Past Due, Nonaccrual and Restructured Loans
The following table sets forth selected information about past due, nonaccrual, restructured loans and other real estate owned:
December 31,
(In thousands)
Loans 90 days or more past due and still accruing
Nonaccrual loans
Restructured loans - Nonaccrual
Restructured loans - Performing
Other real estate owned, net
Total
Years 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
The following table sets forth impaired loans by loan type:
December 31,
(In thousands)
Nonaccrual loans:
Commercial real estate mortgage loans
Multi-family loans
Residential real estate mortgage loans
Commercial, financial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total
Restructured loans - Nonaccrual:
Commercial real estate mortgage loans
Multi-family loans
Residential real estate mortgage loans
Commercial, financial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total
Total Non-performing impaired loans
Restructured loans - Performing:
Commercial real estate mortgage loans
Multi-family loans
Residential real estate mortgage loans
Commercial, financial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total
Total Impaired Loans
$
$
$
$
$
2012
2011
2010
2009
2008
491 $
2,262
1,027
5,039
250
9,069 $
411 $
2,156
2,004
4,904
—
9,475 $
— $
1,997
4,728
3,219
—
9,944 $
— $
1,001
4,890
3,229
—
9,120 $
—
3,068
—
3,229
—
6,297
2012
2011
2010
2009
2008
155 $
84
33 $
226
—
122 $
436
123 $
255
52 $
189
41 $
241
—
17 $
105
—
37 $
288
—
127
12
189
238
—
2012
2011
2010
2009
2008
492 $
—
1,496
193
—
—
2,181
449 $
—
1,156
260
250
—
2,115
228 $
—
1,397
—
250
82
1,957
324 $
—
511
61
—
105
1,001
—
—
426
96
2,540
6
3,068
—
—
717
310
—
—
1,027
3,208
4,284
—
336
380
—
—
5,000
—
—
1,786
218
—
—
2,004
4,119
4,630
—
—
274
—
—
4,904
—
—
2,037
—
2,686
—
4,723
6,680
3,186
—
—
—
—
—
3,186
—
—
2,120
—
2,770
—
4,890
5,891
3,229
—
—
—
—
—
3,229
—
—
—
—
—
—
—
3,068
3,229
—
—
—
—
—
3,229
$
8,208 $
9,023 $
9,866 $
9,120 $
6,297
Restructured loans totaled $6.0 million and $6.9 million as of December 31, 2012 and December 31, 2011, respectively.
Page -29-
Securities
Total securities increased to $739.8 million at December 31, 2012 from $610.6 million at December 31, 2011. The available for sale
portfolio increased 19.9% to $529.1 million from $441.4 million at December 31, 2011. 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. Residential
mortgage-backed securities decreased by $50.4 million at December 31, 2012 while U.S. government sponsored entity (“U.S. GSE”)
securities increased by $46.8 million, residential collateralized mortgage obligations increased by $47.1 million, state and municipal
obligations increased by $5.7 million, commercial mortgage-backed securities increased by $3.1 million, commercial collateralized
mortgage obligations increased by $4.1 million, non-agency commercial mortgage-backed securities increased by $5.0 million, and
other asset backed securities increased by $26.1 million. Securities held to maturity increased 24.6% to $210.7 million at December
31, 2012 compared to $169.2 million at December 31, 2011. State and municipal obligations held to maturity decreased by $5.6
million, while U.S. GSE securities increased by $5.0 million, residential mortgage-backed securities increased by $9.5 million,
residential collateralized mortgage obligations increased by $17.3 million, commercial mortgage-backed securities increased by $10.3
million and commercial collateralized mortgage obligations increased by $5.0 million. Fixed rate securities represented 93.4% of total
securities at December 31, 2012 compared to 91.5% at December 31, 2011. Residential collateralized mortgage obligations
represented approximately 42.8% of the available for sale balance at December 31, 2012 as compared to 40.6% at the prior year-end.
To position the balance sheet for the future and better manage capital, liquidity and interest rate risk, a portion of the available for sale
investment securities portfolio was sold during 2012 and 2011 resulting in a net gain of $2.6 million and $0.1 million, respectively.
The sale of securities and the change in market rates were the primary reasons for the net decrease in unrealized gains in securities
available for sale which decreased other comprehensive income.
Page -30-
The following table sets forth the fair value, amortized cost, maturities and approximated weighted average yield at December 31,
2012. 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, 2012
(Dollars in
thousands)
Within
One Year
Amortized
Cost
Amount Yield
Fair
Value
Amount
After One But
Within Five Years
After Five But
Within Ten Years
Fair
Value
Amount
Amortized
Cost
Amount Yield
Fair
Value
Amount
Amortized
Cost
Amount Yield
Fair
Value
Amount
After
Ten Years
Amortized
Cost
Amount Yield
Total
Fair
Value
Amount
Amortized
Cost
Amount
Available for sale:
US GSE securities
State and municipal
$
— $
— —% $
568 $
539 4.71% $137,880 $ 137,824 1.83% $ 40,004 $
40,058
1.90% $ 178,452 $ 178,421
obligations
16,160
16,123
2.44
38,099
37,165 3.22
5,227
5,123 3.14
477
456
5.49
59,963
58,867
US GSE Residential
mortgage-backed
securities
US GSE Residential
collateralized
mortgage
obligations
US GSE
Commercial
mortgage-backed
securities
US GSE
Commercial
collateralized
mortgage
obligations
Non Agency
Commercial
mortgage-backed
securities
Other Asset backed
securities
Total available for
—
—
—
—
—
—
— —
568
533 3.78
9,831
9,314 3.47
10,198
9,615
3.57
20,597
19,462
— —
— —
— —
— —
— —
—
—
—
—
—
— —
15,401
15,422 1.42
211,045
208,804
1.50
226,446
224,226
— —
3,138
3,132 2.11
—
— —
3,138
3,132
— —
— —
—
—
— —
9,357
9,079
2.26
9,357
9,079
— —
4,989
4,754
2.61
4,989
4,754
— —
7,971
7,996 2.54
18,157
18,592
1.78
26,128
26,588
sale
16,160
16,123
2.44
39,235
38,237 3.25
179,448
178,811 1.95
294,227
291,358
1.69
529,070
524,529
Held to maturity:
US GSE securities
State and municipal
$
— $
— —% $
— $
— —% $
5,016 $
4,992 2.65% $
— $
— —% $
5,016 $
4,992
obligations
50,390
50,362
1.19
25,459
25,058 2.68
6,756
6,270 4.22
18,357
17,062
5.52
100,962
98,752
US GSE Residential
mortgage-backed
securities
US GSE Residential
collateralized
mortgage
obligations
US GSE
Commercial
mortgage-backed
securities
US GSE
Commercial
collateralized
mortgage
obligations
Corporate Bonds
Total held to
maturity
Total securities
—
—
—
—
—
— —
— —
— —
—
—
—
— —
—
— —
9,509
9,483
1.19
9,509
9,483
— —
780
751 5.05
58,908
58,637
1.14
59,688
59,388
— —
10,674
10,324 2.57
—
— —
10,674
10,324
— —
— —
—
22,624
— —
22,821 1.81
—
—
— —
— —
5,229
—
4,975
2.96
— —
5,229
22,624
4,975
22,821
50,390
$ 66,550 $
50,362
66,485
1.19
1.49% $ 87,318 $
48,083
47,879 2.27
90,157
86,116 2.70% $202,674 $ 201,148 2.09% $ 386,230 $ 381,515
22,337 3.13
92,003
23,226
2.07
210,735
1.78% $ 742,772 $ 735,264
213,702
Deposits and Borrowings
Borrowings including Fed funds purchased, repurchase agreements and junior subordinated debentures, increased $55.0 million to
$87.9 million at December 31, 2012 from the prior year-end. Total deposits increased $221.1 million or 18.6% in 2012 as compared to
2011. The growth in deposits is attributable to an increase in individual, partnership and corporate (“core deposits”) account balances
of $183.4 million, driven by the opening of one new branch in 2012, three new branches opening during 2010, the building of new
relationships in current markets, an increase of $37.7 million in public funds deposits and the acquisition of HSB in 2011. Demand
deposits increased $207.7 million or 64.6% and Savings, NOW and money market deposits increased $39.0 million or 5.7% primarily
Page -31-
related to core deposits growth. Certificates of deposit of $100,000 or more decreased $21.9 million or 15.5% from December 31,
2011 and other time deposits decreased $3.7 million or 8.8% as compared to the prior year.
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2012:
(In thousands)
3 Months or less
Over 3 through 6 months
Over 6 through 12 months
Over 12 months through 24 months
Over 24 months through 36 months
Over 36 months through 48 months
Over 48 months through 60 months
Over 60 months
Total
LIQUIDITY
Less than
$100,000
$100,000 or
Greater
Total
$
$
9,177
6,765
9,725
7,970
1,370
830
2,687
—
38,524
$
$
23,861
7,810
62,876
12,110
3,519
1,752
6,796
—
118,724
$
$
33,038
14,575
72,601
20,080
4,889
2,582
9,483
—
157,248
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 $5.2 million as of December 31, 2012, 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. During 2012, the Bank did not pay a cash dividend to the Company. 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. At December 31, 2012, the Bank had $33.5 million of
retained net income available for dividends to the Company. 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 Company made a capital contribution of $7.0 million to the Bank during the twelve months
ended December 31, 2012.
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 and Federal Reserve 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 2012, 2011 and 2010, the Bank grew its core deposits as well as its level of public funds. The Bank’s Asset/Liability and
Funds Management Policy allows for wholesale borrowings of up to 25% of total assets. At December 31, 2012, the Bank had
aggregate lines of credit of $282.5 million with unaffiliated correspondent banks to provide short term credit for liquidity
requirements. Of these aggregate lines of credit, $262.5 million is available on an unsecured basis. As of December 31, 2012, the
Bank had $44.5 million in overnight borrowings outstanding under these lines. 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,
2012, the Bank had $15.0 million outstanding in FHLB term borrowings. The Bank had $10.0 million of securities sold under
agreements to repurchase outstanding as of December 31, 2012 with brokers and $2.4 million outstanding with customers. As of
December 31, 2011, the Bank had $15.0 million of securities sold under agreements to repurchase outstanding with brokers and $1.9
million outstanding with customers. In addition, the Bank has an approved broker relationship for the purpose of issuing brokered
certificates of deposit. As of December 31, 2012 and 2011 the Bank had no brokered certificates of deposits.
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
Page -32-
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 or in an interest earning account at the Federal Reserve.
CONTRACTUAL OBLIGATIONS
In the ordinary course of operations, the Company enters into certain contractual obligations.
The following represents contractual obligations outstanding at December 31, 2012:
(In thousands)
Operating leases
FHLB term advances and repurchase agreements
Junior subordinated debentures
Time deposits
Total contractual obligations outstanding
Total
Amounts
Committed
Less than
One Year
One to
Three Years
Four to
Five Years
Over Five
Years
$
$
19,416 $
27,390
16,002
157,248
220,056 $
1,658 $
17,390
—
120,214
139,262 $
3,466 $
10,000
—
24,969
38,435 $
2,837 $
—
—
12,065
14,902 $
11,455
—
16,002
—
27,457
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,
2012, the Company had $64.3 million in outstanding loan commitments and $183.2 million in outstanding commitments for various
lines of credit including unused overdraft lines. The Company also has $3.8 million of standby letters of credit as of December 31,
2012. See Note 12 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 $118.7 million at December 31, 2012 from $107.0 million at December 31, 2011 as a result of (i)
undistributed net income; (ii) the issuance of shares of common stock through the Dividend Reinvestment Plan and the stock based
compensation plan; (iii) the change in pension liability under FASB ASC 715-30, net of deferred taxes; (iv) the change in net
unrealized appreciation in securities available for sale, net of deferred taxes; and (v) less the declaration of dividends. The ratio of
average stockholders’ equity to average total assets decreased to 7.49% at year end 2012 from 6.11% at year end 2011.
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 risk-based capital adequacy ratio levels required for classification as a “well capitalized” institution by the FDIC
(see Note 14 to the Consolidated Financial Statements). Since 2009, the Company has actively managed its capital position in
response to its growth. During this period, the Company has raised capital through the following initiatives:
(cid:120)
(cid:120)
(cid:120)
In April 2009, the Company implemented a Dividend Reinvestment Plan (“DRP Plan”) and filed a registration statement on
Form S-3 to register 600,000 shares of common stock with the Securities and Exchange Commission (“SEC”) pursuant to the
DRP Plan. In April 2010, the Company increased the discount from 3% to 5%, and raised the quarterly optional cash
purchase amount to $50,000 under the DRP Plan. Proceeds from the issuance of common stock related to the DRP Plan for
the twelve months ended December 31, 2012 and 2011, was $10.5 million and $4.6 million, respectively. Since the inception
of the DRP Plan in April 2009 through December 31, 2012, the Company has issued 856,005 shares of common stock and
raised $16.8 million in capital.
In June 2009, the Company filed a shelf registration statement on Form S-3 with the SEC to register up to $50 million of
securities for sale from time to time.
In December 2009, the Company completed the private placement of $16.0 million in aggregate liquidation amount of 8.50%
cumulative convertible trust preferred securities (the "TPS”), through its subsidiary, Bridge Statutory Capital Trust II. The
TPS have a liquidation amount of $1,000 per security and the TPS shares are convertible into our common stock, at an
effective conversion price of $31 per share. The TPS mature in 30 years but are callable by the Company at par any time
after September 30, 2014. The Company issued $16.0 million of Junior Subordinated Debentures (the “Debentures”) to the
trust in exchange for ownership of all of the common security of the trust and the proceeds of the preferred securities sold by
the trust. In accordance with current accounting guidance, the trust is not consolidated in the Company’s financial statements,
Page -33-
but rather the Debentures are shown as a liability. The Debentures bear interest at a fixed rate equal to 8.50% and mature on
December 31, 2039. Consistent with regulatory requirements, the interest payments may be deferred for up to 5 years, and
are cumulative. The Debentures have the same prepayment provisions as the TPS. The Debentures may be included in Tier I
capital (with certain limitations applicable) under current regulatory guidelines and interpretations.
(cid:120) On May 27, 2011, the Company issued 273,479 shares of common stock in connection with the acquisition of Hamptons
(cid:120)
State Bank, increasing capital by $5.8 million.
In November 2011, the Company filed a prospectus supplement under which it may from time to time sell up to $10.0
million of its common stock pursuant to an at-the-market equity offering program. During 2011 the Company issued 30,220
shares of common stock and raised $0.6 million in capital under this program.
(cid:120) On December 20, 2011, the Company raised $24.1 million in capital from the sale of 1,377,000 shares of common stock to
selected institutional and other private investors in a registered direct offering under its shelf registration statement.
(cid:120) On June 27, 2012, the Company filed a shelf registration statement with the SEC on Form S-3 to register up to an additional
800,000 of securities pursuant to the DRP Plan.
(cid:120) On December 21, 2012, the Company filed a shelf registration statement on Form S-3 to register up to $75 million of
securities and a prospectus and prospectus supplement, replacing the previously expired shelf registration statement on Form
S-3 filed in June 2009.
The Company has the ability to issue additional common stock and/or preferred stock should the need arise.
The Company had returns on average equity of 11.78%, 14.37%, and 15.29% and returns on average assets of 0.88%, 0.88%, and
0.95%, for the years ended December 31, 2012, 2011, and 2010, respectively. The Company also utilizes cash dividends and stock
repurchases to manage capital levels. In 2012, the Company declared five quarterly cash dividends totaling $9.9 million compared to
three quarterly cash dividends of $4.6 million in 2011. The dividend payout ratios for 2012 and 2011 were 77.50% and 44.35%,
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 2012, 2011 or 2010.
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 adversely 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 r) of the 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
Page -34-
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, 2012, $694.0 million or 93.4% 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. Increases in interest rates could result in decreases in the market value of interest earning
assets, which could adversely affect the Company’s stockholders’ equity and its 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. 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 consolidated 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 a 100 and 200 basis point upward shift in interest rates and a 100 basis point
downward shift in interest rates. A parallel and pro-rata shift in rates over a twelve-month period is assumed.
The following reflects the Company’s net interest income sensitivity analysis at December 31, 2012:
Change in Interest
Rates in Basis Points
(Dollars in thousands)
200
100
Static
(100)
2012
Potential Change
in Net
Interest Income
$ Change
% Change
$
$
$
(899)
467
—
(338)
(1.83)%
0.95%
—
(0.69)%
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.
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.
Page -35-
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 $213,702 and $170,952, respectively)
Total securities
Securities, restricted
Loans held for sale
Loans held for investment
Allowance for loan losses
Loans, net
Premises and equipment, net
Accrued interest receivable
Goodwill
Core deposit intangible
Other real estate owned
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 Federal Home Loan Bank overnight borrowings
Federal Home Loan Bank term advances
Repurchase agreements
Junior subordinated debentures
Accrued interest payable
Other liabilities and accrued expenses
Total Liabilities
Commitments and Contingencies
Stockholders’ equity:
Preferred stock, par value $.01 per share (2,000,000 shares authorized; none issued)
Common stock, par value $.01 per share:
Authorized: 20,000,000 shares; 8,923,010 and 8,374,917 shares issued, respectively; 8,907,890 and
8,345,399 shares outstanding, respectively
Surplus
Retained earnings
Less: Treasury Stock at cost, 15,120 and 29,518 shares, respectively
Accumulated other comprehensive income (loss):
Net unrealized gain on securities, net of deferred income taxes of ($1,803) and ($3,774), respectively
Pension liability, net of deferred income taxes of $2,036 and $2,205, respectively
Net unrealized loss on cash flow hedge, net of deferred income taxes of $70 and $0, respectively
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See accompanying notes to Consolidated Financial Statements.
Page -36-
December 31,
2012
December 31,
2011
$
46,855 $
4,394
51,249
$
$
529,070
210,735
739,805
2,978
—
798,446
(14,439)
784,007
26,001
5,436
2,034
249
250
12,704
1,624,713 $
529,205 $
722,869
118,724
38,524
1,409,322
44,500
15,000
12,390
16,002
147
8,680
1,506,041
—
—
89
64,208
55,102
(309)
119,090
2,738
(3,050)
(106)
118,672
$
1,624,713 $
25,921
53,625
79,546
441,439
169,153
610,592
1,660
2,300
612,143
(10,837)
601,306
24,171
4,940
2,034
316
—
10,593
1,337,458
321,496
683,863
140,578
42,248
1,188,185
—
—
16,897
16,002
319
9,068
1,230,471
—
—
84
52,962
52,228
(715)
104,559
5,734
(3,306)
—
106,987
1,337,458
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years Ended December 31,
Interest income:
Loans (including fee income)
Mortgage-backed securities, CMOs and other assets-backed securities
State and municipal obligations
U.S. GSE securities
Corporate bonds
Federal funds sold
Deposits with banks
Other interest and dividend income
Total interest income
Interest expense:
Savings, NOW and money market deposits
Certificates of deposit of $100,000 or more
Other time deposits
Federal funds purchased and repurchase agreements
Federal Home Loan Bank advances
Junior subordinated debentures
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 gains
Other operating income
Total non interest income
Non interest expense:
Salaries and employee benefits
Occupancy and equipment
Marketing and advertising
Professional services
Data/Item processing
FDIC assessments
Acquisition costs
Amortization of core deposit intangible
Cost of extinguishment of debt
Other operating expenses
Total non interest expense
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
See accompanying notes to Consolidated Financial Statements.
Page -37-
2012
2011
2010
$
$
$
$
40,255
7,391
3,126
2,977
574
—
78
113
54,514
3,738
1,453
416
461
122
1,365
7,555
46,959
5,000
41,959
3,313
2,958
1,635
2,647
120
10,673
20,705
4,484
1,590
1,047
597
754
—
67
158
4,378
33,780
18,852
6,080
12,772
1.48
1.48
$
$
$
$
35,434
9,000
2,876
2,220
705
—
123
68
50,426
3,936
1,264
507
543
—
1,366
7,616
42,810
3,900
38,910
3,137
2,553
1,016
135
108
6,949
18,036
4,325
1,290
1,225
559
825
793
42
—
3,742
30,837
15,022
4,663
10,359
1.54
1.54
$
$
$
$
30,223
9,585
2,704
2,054
231
5
54
43
44,899
3,594
1,489
762
530
—
1,365
7,740
37,159
3,500
33,659
2,756
2,163
1,103
1,303
108
7,433
15,978
3,975
1,105
1,158
555
1,274
—
—
—
3,834
27,879
13,213
4,047
9,166
1.45
1.45
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Years Ended December 31,
Net Income
Other comprehensive (loss) income:
Change in unrealized net gains on securities available for sale, net of
reclassification and deferred tax effects
Adjustment to pension liability, net of deferred income taxes
Unrealized loss on cash flow hedge, net of deferred income taxes
Total other comprehensive (loss) income
Comprehensive income
See accompanying notes to Consolidated Financial Statements.
2012
2011
2010
$
12,772
$
10,359
$
9,166
(2,996)
256
(106)
(2,846)
9,926
$
2,185
(1,524)
—
661
11,020
$
(1,700)
(55)
—
(1,755)
7,411
$
Page -38-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
Balance at January 1, 2010
Net income
Shares issued under the dividend reinvestment plan
(“DRP”), net of offering costs
Stock awards granted and distributed
Vesting of stock awards
Exercise of stock options
Tax effect of stock plans
Shared based compensation expense
Cash dividend declared, $0.92 per share
Other comprehensive income, net of deferred taxes
Balance at December 31, 2010
Net income
Shares issued under the DRP
Shares issued in common stock offerings, net of
offering costs (1,407,220 shares)
Shares issued in the acquisition of Hamptons State
Bank (273,479 shares)
Stock awards granted and distributed
Stock awards forfeited
Vesting of stock awards
Tax effect of stock plans
Shared based compensation expense
Cash dividend declared, $0.69 per share
Other comprehensive income, net of deferred income
taxes
Common
Stock
Surplus
$
64
$
18,631
$
Retained
Earnings
43,110
9,166
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
$
(3,472)
$
3,522
$
1,395
(1,147)
(20)
11
881
1,147
(37)
37
(5,813)
Total
61,855
9,166
1,395
—
(37)
17
11
881
(5,813)
$
64
$
19,751
$
46,463
$
(2,325)
$
(1,755)
1,767
$
(1,755)
65,720
3
14
3
4,624
23,447
5,847
(1,777)
39
(16)
1,047
10,359
(4,594)
1,777
(39)
(128)
Balance at December 31, 2011
$
84
$
52,962
$
52,228
$
(715)
$
Net income
Shares issued under the DRP, net of offering costs
Stock awards granted and distributed
Stock awards forfeited
Vesting of stock awards
Exercise of stock options
Tax effect of stock plans
Shared based compensation expense
Cash dividend declared, $1.15 per share
Other comprehensive income, net of deferred income
taxes
5
10,502
(580)
6
(7)
(18)
1,343
12,772
(9,898)
580
(6)
(175)
7
Balance at December 31, 2012
$
89
$
64,208
$
55,102
$
(309)
$
See accompanying notes to Consolidated Financial Statements.
Page -39-
10,359
4,627
23,461
5,850
—
—
(128)
(16)
1,047
(4,594)
661
2,428
661
106,987
$
12,772
10,507
—
—
(175)
—
(18)
1,343
(9,898)
(2,846)
(418)
$
(2,846)
118,672
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
Cash flows from operating activities:
2012
2011
2010
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
12,772
$
10,359 $
9,166
Provision for loan losses
Depreciation and amortization
Net amortization on securities
Amortization of core deposit intangible
Share based compensation expense
Net securities gains
Increase in accrued interest receivable
(Increase) decrease in other assets
Increase (decrease) in accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of securities available for sale
Purchases of securities, restricted
Purchases of securities held to maturity
Proceeds from sales of securities available for sale
Redemption of securities, restricted
Maturities, calls and principal payments of securities available for sale
Maturities, calls and principal payments of securities held to maturity
Net increase in loans
Proceeds from loan sale
Purchase of premises and equipment
Net cash acquired in business combination
Net cash used in investing activities
Cash flows from financing activities:
5,000
1,762
5,573
67
1,343
(2,647)
(496)
(2,287)
1,737
22,824
(511,979)
(31,355)
(132,304)
151,959
30,037
266,095
89,123
(186,226)
575
(3,592)
—
(327,667)
3,900
1,843
2,400
42
1,047
(135)
(787)
1,593
(1,582)
18,680
(302,760)
(315)
(83,911)
14,084
225
196,886
61,844
(73,029)
—
(2,031)
2,309
(186,698)
3,500
1,612
1,454
—
881
(1,303)
(474)
2,041
(1,454)
15,423
(226,213)
(2,055)
(137,240)
31,446
1,976
175,013
66,056
(57,070)
—
(3,989)
—
(152,076)
Net increase in deposits
Net increase (decrease) increase in federal funds purchased and FHLB overnight
221,137
214,252
123,455
borrowings
Net increase (decrease) of FHLB term advances
Net (decrease) increase in repurchase agreements
Net proceeds from issuance of common stock
Net proceeds from exercise of stock options
Repurchase of surrendered stock from exercise of stock options and vesting of
restricted stock awards
Excess tax (expense) benefit from share based compensation
Cash dividends paid
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Information-Cash Flows:
Cash paid for:
Interest
Income tax
Noncash investing and financing activities:
Dividends declared and unpaid at end of period
Transfers from portfolio loans to loans held for sale
Financing of sale of loans held for sale
Transfers from portfolio loans to OREO
Acquisition of noncash assets and liabilities:
Fair value of assets acquired
Fair value of liabilities assumed
See accompanying notes to Consolidated Financial Statements.
Page -40-
44,500
15,000
(4,507)
10,507
—
(175)
(18)
(9,898)
276,546
(28,297)
79,546
51,249
7,727
5,260
$
$
$
— $
— $
$
$
1,725
250
(7,000)
(5,016)
527
28,088
—
(128)
(16)
(6,061)
224,646
56,628
22,918
79,546 $
7,730 $
4,550 $
— $
2,300 $
— $
— $
— $
— $
66,566 $
65,059 $
5,000
—
1,370
1,395
17
(37)
11
(5,787)
125,424
(11,229)
34,147
22,918
7,838
5,922
1,467
—
—
—
—
—
$
$
$
$
$
$
$
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011 and 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bridge Bancorp, Inc. (the “Company”) is incorporated under the laws of the State of New York and is a registered 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”).
In addition to the Bank, the Company has another subsidiary, Bridge Statutory Capital Trust II, which was formed in 2009. In
accordance with current accounting guidance, the trust is not consolidated in the Company’s financial statements. See Note 7 for a
further discussion of Bridge Statutory Capital Trust II.
The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) 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.
b) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest earning
deposits with banks, and federal funds sold, which mature overnight. Cash flows are reported net for customer loan and deposit
transactions, overnight borrowings and federal funds purchased, Federal Home Loan Bank advances, and repurchase agreements.
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, (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, and (iii) “restricted” which represents FHLB, FRB and bankers’ banks stock
which are reported at cost.
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 impairment (“OTTI”), management considers many factors including: (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, (3) whether the
market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the security or more
than likely than not will be required to sell the security before its anticipated recovery. If either of the criteria regarding intent or
requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.
For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1)
OTTI related to credit loss, which must be recognized in the income statement and (2) impairment related to other factors, which is
recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows
expected to be collected and the amortized cost basis. The assessment of whether any other than temporary decline exists may involve
a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
Page -41-
d) 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 and 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.
e) Loans, Loan Interest Income Recognition and Loans Held for Sale
Loans are stated at the principal amount outstanding, net of deferred origination costs and fees and purchase premiums and discounts.
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. Past due status is based on the contractual terms of the loan. 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
If a payment is
loan evaluation assessing such factors as collateral and collectibility, accrued interest will be recognized as earned.
received when a loan is nonaccrual or a troubled debt restructuring loan is nonaccrual, the payment is applied to the principal balance.
A performing troubled debt restructuring loan is on accrual status in line with the modified terms. 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
management in determining impairment include payment status and the probability of collecting scheduled principal and interest
payments when due. Loans for which the terms have been modified as a concession to the borrower due to the borrower experiencing
financial difficulties are considered troubled debt restructurings and are classified as impaired. Loans considered to be troubled debt
restructurings can be categorized as nonaccrual or performing. 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.
Loans over $50,000 are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the
loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if
repayment is expected solely from the collateral. Loans with balances less than $50,000, are collectively evaluated for impairment,
and accordingly, they are not separately identified for impairment disclosures.
Loans that were acquired from the acquisition of Hamptons State Bank on May 27, 2011 were initially recorded at fair value with no
carryover of the related allowance for loan losses. After acquisition, losses are recognized through the allowance for loan losses.
Determining fair value of the loans involves estimating the amount and timing of expected principal and interest cash flows to be
collected on the loans and discounting those cash flows at a market interest rate. Some of the loans at time of acquisition showed
evidence of credit deterioration since origination. These loans are considered purchase credit impaired loans.
For purchased credit impaired loans, the excess of cash flows expected at acquisition over the estimated fair value is referred to as the
accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually
required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount.
The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent
increases to the expected cash flows result in the reversal of a corresponding amount of the nonaccretable discount which is then
reclassified as accretable discount and recognized into interest income over the remaining life of the loan using the interest method.
Subsequent decreases to the expected cash flows require us to evaluate the need for an addition to the allowance for loan losses.
Purchased credit impaired loans that met the criteria for nonaccrual of interest prior to the acquisition may be considered performing
upon acquisition, regardless of whether the customer is contractually delinquent, if management can reasonably estimate the timing
and amount of the expected cash flows on such loans and if management expects to fully collect the new carrying value of the loans.
As such, management may no longer consider the loans to be nonaccrual or nonperforming and may accrue interest on these loans,
including the impact of any accretable discount.
Loans held for sale are carried at the lower of aggregate cost, or estimated fair market value. At December 31, 2011, the Company had
$2.3 million of loans held for sale. These loans were subsequently sold in January 2012 with no resulting gain or loss recognized.
There were no loans held for sale at December 31, 2012.
Unless otherwise noted, the above policy is applied consistently to all loan classes.
Page -42-
f) Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable incurred credit 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, delinquency
status, past loss experience, current economic conditions, and various types of concentrations of credit. Additionally, the Bank
considers its credit administration and asset management philosophies and procedures and concentrations in the portfolio when
determining the allowances for each pool. The Bank evaluates and considers the credit’s risk rating which includes management’s
evaluation of: cash flow, collateral, guarantor support, financial disclosures, industry trends and strength of borrowers’ management,
the impact that economic and market conditions may have on the portfolio as well as known and inherent risks in the portfolio.
Finally, the Bank evaluates and considers 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.
The allowance consists of specific and general components. The specific component relates to loans that are individually classified as
impaired.
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 Credit Risk Committee, the overall level of allowance is periodically adjusted to account for the
inherent and specific risks within the entire portfolio. Based on the Credit Risk Committee’s review of the classified loans and the
overall allowance levels as they relate to the entire loan portfolio at December 31, 2012, 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. Refer to Note 3 for further
details.
Unless otherwise noted, the above policy is applied consistently to all loan segments.
g) 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 are charged
to expense.
h) Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as unused lines of credit, 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) Derivatives
The Company records a cash flow hedge at the inception of the derivative contract based on the Company’s intentions and belief as to
likely effectiveness as a hedge. The cash flow hedge represents a hedge of a forecasted transaction or the variability of cash flows to
be received or paid related to a recognized asset or liability. For a cash flow hedge, the gain or loss on the derivative is reported in
other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects
earnings. The changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash
Page -43-
flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify
for hedge accounting are reported currently in earnings, as noninterest income.
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the
item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in noninterest income.
Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.
The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective
and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking
cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The
Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are
used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge
accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the
hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment
is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income. A cash
flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were
accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will
affect earnings.
j) 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.
In accordance with FASB ASC 740, Accounting for Uncertainty in Income Taxes, 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 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. There are no such tax positions on the Company’s
financial statements at December 31, 2012 and 2011, respectively.
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, 2012 or 2011.
k) Treasury Stock
Repurchases of common stock are recorded as treasury stock at cost. Treasury stock is reissued using the first in, first out method.
l) Earnings Per Share
Earnings per share is calculated in accordance with FASB ASC 260-10, “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities”. This ASC addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing
earnings per share (“EPS”). Basic earnings per common share is net income attributable to common shareholders 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 junior subordinated debentures were converted into
common shares, is computed by dividing net income attributable to common shareholders by the weighted average number of
common shares and common stock equivalents.
m) Dividends
Cash available for distribution of dividends to shareholders of the Company is primarily derived from cash and cash equivalents of the
Company and dividends paid by the Bank to the Company. Due to regulatory restrictions, dividends from the Bank to the Company at
December 31, 2012, were limited to $33.5 million which represents the Bank’s 2012 retained net income and net retained earnings
from the previous two years. During 2012, the Bank did not pay dividends to the Company. 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.
Page -44-
n) 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.
o) Stock Based Compensation Plans
Stock based compensation awards are recorded in accordance with FASB ASC No. 718 and 505, “Accounting for Stock-Based
Compensation” which 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.
p) Comprehensive Income
Comprehensive income includes net income and all other changes in equity during a period, except those resulting from investments
by 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, unrealized gains or losses on cash
flow hedges and changes in the funded status of the pension liability. FASB ASC 715-30 “Compensation – Retirement Benefits –
Defined Benefit Plans – Pension” 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.
q) 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 13. 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.
r) New Accounting Standards
In October 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2012-06, “Business
Combinations” (“ASU 2012-06”). Accounting for a business combination requires that at each subsequent reporting date, an acquirer
measure an indemnification asset on the same basis as the indemnified liability or asset, subject to any contractual limitations on its
amount, and for an indemnification asset that is not subsequently measured at its fair value, management’s assessment of the
collectibility of the indemnification asset. This Update addresses the diversity in practice about how to interpret the terms on the same
basis and contractual limitations when subsequently measuring an indemnification asset recognized in a government-assisted (Federal
Deposit Insurance Corporation or National Credit Union Administration) acquisition of a financial institution that includes a loss-
sharing agreement (indemnification agreement). The Company does not anticipate the adoption of this ASU to have a material impact
on the financials.
In October 2012, the FASB issued Accounting Standards Update No. 2012-04, “Technical Corrections and Improvements” (“ASU
2012-04”). The amendments in this Update represent changes to clarify the Codification, correct unintended application of guidance,
or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or
create a significant administrative cost to most entities. Additionally, the amendments will make the Codification easier to understand
and the fair value measurement guidance easier to apply by eliminating inconsistencies and providing needed clarifications. The
amendments in this Update that will not have transition guidance will be effective upon issuance for both public entities and nonpublic
entities. For public entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning
after December 15, 2012. The Company does not anticipate the adoption of this ASU to have a material impact on the financials.
In August 2012, the FASB issued Accounting Standards Update No. 2012-03, “Technical Amendments and Corrections to SEC
Sections” (“ASU 2012-03”). The accounting guidance includes amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting
Standards Update No. 2010-22. The accounting guidance is effective immediately and did not have a material impact on the
Company.
In December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Comprehensive Income (Topic 220) Deferral of the
Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in
Page -45-
Accounting Standards Update No. 2011-05”. In order to defer only those changes in Update 2011-05 that relate to the presentation of
reclassification adjustments, the paragraphs in this Update supersede certain pending paragraphs in Update 2011-05. The amendments
are being made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of
reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income
for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for
reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments,
entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation
requirements in effect before Update 2011-05.
In September 2011, the FASB issued Accounting Standards Update No. 2011-8, “Intangibles – Goodwill and Other (Topic 350)
Testing Goodwill for Impairment” (“ASU 2011-8”). ASU 2011-8 clarifies the guidance for goodwill impairment testing by allowing
companies to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill
impairment test. The company would not be required to calculate the fair value of a reporting unit unless the company determines,
based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. ASU 2011-8
includes a number of events and circumstances for companies to consider in conducting the qualitative assessment. ASU 2011-8 is
effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early
adoption is permitted. The Company has early adopted ASU 2011-8 for its annual impairment test for the year ended December 31,
2011 and it did not have a material impact on the Company.
In June 2011, the FASB issued Accounting Standards Update No.2011-5, “Comprehensive Income (Topic 220)” (“ASU 2011-5”).
ASU 2011-5 gives companies the option to present the total of comprehensive income, the components of net income, and the
components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. In both choices, the company is required to present each component of net income along with total net
income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for
comprehensive income. ASU 2011-5 eliminates the option to present the components of other comprehensive income as part of the
statement of changes in stockholders' equity. The amendments in this guidance do not change the items that must be reported in other
comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-5 is effective
for fiscal years, and interim periods within those years, beginning after December 15, 2011. Adoption of ASU 2011-5 did not have a
material impact on the Company and the relevant disclosures were included in this document.
In May 2011, the FASB issued Accounting Standards Update No.2011-4, “Fair Value Measurement and Disclosures (Topic 820)”
(“ASU 2011-4”). ASU 2011-4 clarifies the guidance for determining fair value including some instances where a particular principle
or requirement for measuring fair value or disclosing information about fair value measurements has changed. This Update results in
common principles and requirements for measuring fair value and for disclosing information about fair value measurements in
accordance with current accounting guidance. ASU 2011-4 is effective for interim and annual reporting periods ending on or after
December 15, 2011. Adoption of AUS 2011-4 did not have a material impact on the Company and the relevant disclosures were
included in this document.
s) Reclassifications
Certain reclassifications have been made to prior year amounts, and the related discussion and analysis, to conform to the current year
presentation.
Page -46-
2. SECURITIES
A summary of the amortized cost, gross unrealized gains and losses and fair value of securities is as follows:
December 31,
(In thousands)
Available for sale:
U.S. GSE securities
State and municipal obligations
U.S. GSE residential mortgage-
backed securities
U.S. GSE residential collateralized
mortgage obligations
U.S. GSE commercial mortgage-
backed securities
U.S. GSE commercial collateralized
mortgage obligations
Non Agency commercial mortgage-
backed securities
Other asset backed securities
Total available for sale
Held to maturity:
U.S. GSE securities
State and municipal obligations
U.S. GSE residential mortgage-
backed securities
U.S. GSE residential collateralized
mortgage obligations
U.S. GSE commercial mortgage-
backed securities
U.S. GSE commercial collateralized
mortgage obligations
Corporate Bonds
Total held to maturity
Total securities
2012
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair
Value
Amortized
Cost
2011
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$ 178,421
58,867
$
19,462
224,226
3,132
9,079
4,754
26,588
524,529
4,992
98,752
9,483
59,388
10,324
4,975
22,821
210,735
$ 735,264
$
377
1,132
1,135
2,762
6
278
235
65
5,990
24
2,241
26
704
350
254
134
3,733
9,723
$
(346)
(36)
$
178,452
59,963
$ 130,708
52,861
$
—
20,597
67,317
(542)
226,446
175,878
—
—
—
3,138
9,357
4,989
—
5,167
—
(525)
(1,449)
26,128
529,070
—
431,931
—
(31)
—
(404)
—
5,016
100,962
9,509
59,688
10,674
—
104,314
—
42,081
—
968
1,366
3,667
3,493
—
70
—
—
9,564
—
2,048
—
1,104
—
$
(2)
(8)
—
$ 131,674
54,219
70,984
(46)
179,325
—
—
—
—
(56)
—
(5)
—
(21)
—
—
5,237
—
—
441,439
—
106,357
—
43,164
—
—
(331)
(766)
(2,215)
5,229
22,624
213,702
742,772
$
$
—
22,758
169,153
$ 601,084
—
3
3,155
12,719
$
—
(1,330)
(1,356)
(1,412)
—
21,431
170,952
$ 612,391
$
Securities with unrealized losses at year-end 2012 and 2011, 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)
Available for sale:
2012
2011
Less than 12 months
Fair
Value
Unrealized
losses
Greater than 12 months
Unrealized
losses
Fair
Value
Less than 12 months
Greater than 12 months
Fair Value
Unrealized
losses
Fair Value
Unrealized
losses
U.S. GSE securities
State and municipal obligations
U.S. GSE residential mortgage-
backed securities
U.S. GSE residential collateralized
mortgage obligations
Other asset backed securities
Total available for sale
$
79,692
13,878
$
90
65,961
18,109
177,730
Held to maturity:
State and municipal obligations
U.S. GSE residential collateralized
mortgage obligations
Corporate Bonds
Total held to maturity
28,939
41,563
—
70,502
$
$
346
36
—
542
525
1,449
31
404
—
435
$
— $
226
— $
—
—
—
—
226
—
—
17,669
$ 17,669
$
—
—
—
—
—
—
331
331
$
7,196
4,283
—
7,672
—
19,151
7,011
4,810
4,664
16,485
$
$
2
8
—
46
—
56
5
21
336
362
$
— $
—
—
—
—
—
—
—
12,006
12,006
$
$
—
—
—
—
—
—
—
—
994
994
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, whether the market
decline was affected by macroeconomic conditions, and whether the Company has the intent to sell the security or more than likely
than not will be required to sell the security before its anticipated recovery. In analyzing an issuer’s financial condition, the Company
Page -47-
may consider whether the securities are issued by the federal government or its entities, whether downgrades by bond rating agencies
have occurred, and the issuer’s financial condition.
At December 31, 2012, the majority of unrealized losses on available for sale securities are related to the Company’s U.S. GSE
residential collateralized mortgage obligations, Other asset backed securities and U.S. GSE securities. The majority of unrealized
losses on held to maturity securities are related to U.S. GSE residential collateralized mortgage obligations and corporate bonds. The
decrease in fair value of the U.S. GSE residential collateralized mortgage obligations, Other asset backed securities and the corporate
bond portfolio is attributable to changes in interest rates and not credit quality. Each issuer of corporate bonds has maintained their
well capitalized status and continues to be reviewed periodically. The Company does not have the intent to sell these securities and it
is more likely than not that it will not be required to sell the securities before their anticipated recovery. Therefore, the Company does
not consider these securities to be other-than-temporarily impaired at December 31, 2012.
The following table sets forth the fair value, amortized cost and maturities of the securities at December 31, 2012. 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, 2012
(In thousands)
Available for sale:
U.S. GSE securities
State and municipal
obligations
U.S. GSE residential
mortgage-backed
securities
U.S. GSE residential
collateralized mortgage
obligations
U.S. GSE commercial
mortgage-backed
securities
U.S. GSE commercial
collateralized mortgage
obligations
Non Agency commercial
mortgage-backed
securities
Other Asset backed
Within
One Year
After One But
Within Five Years
After Five But
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
$
— $
— $
568 $
539
$ 137,880 $ 137,824
$
40,004 $
40,058
$ 178,452 $
178,421
16,160
16,123
38,099
37,165
5,227
5,123
477
456
59,963
58,867
—
—
—
—
—
—
—
—
—
—
568
533
9,831
9,314
10,198
9,615
20,597
19,462
—
—
—
—
—
—
—
—
15,401
15,422
211,045
208,804
226,446
224,226
3,138
3,132
—
—
3,138
3,132
—
—
—
—
9,357
9,079
9,357
9,079
4,989
4,754
4,989
4,754
securities
Total available for sale
—
16,160
—
16,123
—
39,235
—
38,237
7,971
179,448
7,996
178,811
18,157
294,227
18,592
291,358
26,128
529,070
26,588
524,529
Held to maturity:
U. S. GSE securities
State and municipal
obligations
U.S. GSE residential
mortgage-backed
securities
U.S. GSE residential
collateralized mortgage
obligations
U.S. GSE commercial
mortgage-backed
securities
U.S. GSE commercial
collateralized mortgage
obligations
Corporate Bonds
Total held to maturity
Total securities
$
—
—
—
—
50,390
50,362
25,459
25,058
5,016
6,756
4,992
6,270
—
—
5,016
4,992
18,357
17,062
100,962
98,752
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,509
9,483
9,509
9,483
780
751
58,908
58,637
59,688
59,388
10,674
10,324
—
—
10,674
10,324
—
—
50,390
66,550 $
—
—
50,362
66,485
$
—
22,624
48,083
87,318 $
—
22,821
47,879
86,116
—
—
23,226
—
—
22,337
$ 202,674 $ 201,148
5,229
—
92,003
$ 386,230 $
4,975
—
90,157
381,515
5,229
22,624
213,702
$ 742,772 $
4,975
22,821
210,735
735,264
There were $152.0 million of proceeds on sales of available for sale securities with gross gains of approximately $3.2 million and
gross losses of approximately $0.6 realized in 2012. There were $14.1 million of proceeds on sales of available for sale securities
with gross gains of approximately $0.1 million and gross losses of approximately $0.01 realized in 2011. There were $31.4 million of
proceeds on sales of available for sale securities and gross gains of approximately $1.3 million realized in 2010. No securities were
sold at a loss in 2010.
Page -48-
Securities having a fair value of approximately $333.0 million and $287.8 million at December 31, 2012 and 2011, 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, 2012, 2011 and 2010.
As of December 31, 2012, there was one issuer, other than U.S. Government and its Sponsored Entities, where the Bank had invested
holdings that exceeded 10% of stockholder’s equity and represented 13% of stockholder’s equity. These assets are more than 95%
backed by a U.S. Government guarantee. There were no investment holdings of any one issuer that exceeded 10% of stockholders’
equity at December 31, 2011, other than U.S. Government and its Sponsored Entities. As of December 31, 2010, there was one issuer
where the Bank had invested holdings that exceeded 10% of stockholder’s equity and represented 14% of stockholder’s equity. The
majority of these holdings matured in the first quarter of 2011.
3. LOANS
The following table sets forth the major classifications of loans:
December 31,
(In thousands)
Commercial real estate mortgage loans
Multi-family mortgage loans
Residential real estate mortgage loans
Commercial, financial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total loans
Net deferred loan costs and fees
Allowance for loan losses
Net loans
Lending Risk
2012
2011
$
$
332,782
66,080
143,703
197,448
48,632
9,167
797,812
634
798,446
(14,439)
784,007
$
$
283,917
21,402
141,027
116,319
40,543
8,565
611,773
370
612,143
(10,837)
601,306
The principal business of the Bank is lending, primarily in commercial real estate mortgage loans, multi-family mortgage loans,
residential real estate mortgage loans, construction loans, home equity loans, commercial and industrial 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.
Commercial Real Estate Mortgages
Loans in this classification include income producing investment properties and owner occupied real estate used for business
purposes. The underlying properties are generally located largely in our primary market area. The cash flows of the income producing
investment properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn,
will have an effect on credit quality. Generally, management seeks to obtain annual financial information for borrowers with loans in
excess of $0.25 million in this category. In the case of owner-occupied real estate used for business purposes, a weakened economy
and resultant decreased consumer and/or business spending will have an adverse effect on credit quality.
Multi-Family Mortgages
Loans in this classification include income producing residential investment properties of 5 or more families. The loans are usually
made in areas with limited single family residences generating high demand for these facilities. Loans are made to established owners
with a proven and demonstrable record of strong performance. Loans are secured by a first mortgage lien on the subject property with
a loan to value ratio generally not exceeding 75%. Repayment is derived generally from the rental income generated from the property
and maybe supplemented by the owners’ personal cash flow. Credit risk arises with an increase in vacancy rates, property
mismanagement and the predominance of non-recourse loans that are customary in the industry.
Residential Real Estate Mortgages and Home Equity Loans
Loans in these classifications are made to and secured by owner-occupied residential real estate and repayment is dependent on the
credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will
have an effect on the credit quality in this loan class. The Bank generally does not originate loans with a loan-to-value ratio greater
than 80% and does not grant subprime loans.
Page -49-
Commercial, Industrial and Agricultural Loans
Loans in this classification are made to businesses. Generally these loans are secured by assets of the business and repayment is
expected from the cash flows of the business. A weakened economy, and resultant decreased consumer and/or business spending will
have an effect on the credit quality in this loan class.
Real Estate Construction and Land Loans
Loans in this classification primarily include land loans to local individuals, contractors and developers for developing the land for
sale or for the purpose of making improvements thereon. Repayment is derived primarily from sale of the lots/units including any pre-
sold units. Credit risk is affected by market conditions, time to sell at an adequate price and cost overruns. To a lesser extent this class
includes commercial development projects that the Company finances, which in most cases require interest only during construction,
and then convert to permanent financing. Credit risk is affected by construction delays, cost overruns, market conditions and the
availability of permanent financing, to the extent such permanent financing is not being provided by us.
Installment and Consumer Loans
Loans in this classification may be either secured or unsecured and repayment is dependent on the credit quality of the individual
borrower and, if applicable, sale of the collateral securing the loan such as automobiles. Therefore, the overall health of the economy,
including unemployment rates and housing prices, will have an effect on the credit quality in this loan class.
Allowance for Loan Losses
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.
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 FASB Accounting Standard Codification (“ASC”) No. 310, “Receivables”. 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 are also 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 into loans with homogenous characteristics by loan type and include commercial real estate mortgages, multi-family
mortgage loans, home equity loans, residential real estate mortgages, commercial and industrial loans, real estate construction and
land loans and consumer loans. 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 credit’s risk rating which includes management’s evaluation of: cash flow,
collateral, guarantor support, financial disclosures, industry trends and strength of borrowers’ management, the impact that 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.
The Credit Risk Committee is comprised of members of both management and the Board of Directors. The adequacy of the allowance
is analyzed quarterly, with any adjustment to a level deemed appropriate by the Credit Risk Committee, based on its risk assessment
Page -50-
of the entire portfolio. Based on the Credit Risk Committee’s review of the classified loans and the overall allowance levels as they
relate to the entire loan portfolio at December 31, 2012, 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 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.
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
Provision for loan losses charged to operations
Balance at end of period
2012
2011
2010
$
$
10,837
(1,510)
112
(1,398)
5,000
14,439
$
$
8,497
(1,681)
121
(1,560)
3,900
10,837
$
$
6,045
(1,120)
72
(1,048)
3,500
8,497
The following table represents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment,
as defined under ASC 310-10, and based on impairment method as of December 31, 2012 and 2011. The loan segment represents the
categories that the Bank develops to determine its allowance for loan losses.
December 31, 2012
(In thousands)
Allowance for Loan Losses
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Loans
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Ending balance: loans
acquired with deteriorated
credit quality
$
$
$
$
$
$
$
$
Commercial
Real Estate
Mortgage
Loans
Multi-family
Loans
Residential Real
Estate Mortgage
Loans
Commercial,
Financial and
Agricultural
Loans
Real Estate
Construction
and Land
Loans
Installment/
Consumer
Loans
Total
3,530 $
—
—
915
4,445 $
395 $
—
—
844
1,239 $
2,280
(1,210)
7
1,726
2,803
$
$
2,895 $
(285)
83
1,656
4,349 $
1,465
—
—
(90)
1,375
$
$
272
(15)
22
(51)
228
$
$
10,837
(1,510)
112
5,000
14,439
— $
— $
141
$
228 $
— $
— $
369
4,445 $
1,239 $
2,662
332,782 $
66,080 $
143,703
$
$
4,121 $
1,375
197,448 $
48,632
$
$
228
9,167
$
$
14,070
797,812
4,776 $
— $
2,549
$
883 $
— $
— $
8,208
327,282 $
66,080 $
141,154
$
196,350 $
48,331
$
9,167
$
788,364
724 $
— $
— $
215 $
301
$
— $
1,240
Page -51-
December 31, 2011
(In thousands)
Allowance for Loan Losses
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Loans
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Ending balance: loans
acquired with deteriorated
credit quality
$
$
$
$
$
$
$
$
Commercial
Real Estate
Mortgage
Loans
Multi-family
Loans
Residential Real
Estate Mortgage
Loans
Commercial,
Financial and
Agricultural
Loans
Real Estate
Construction and
Land Loans
Installment/
Consumer
Loans
3,310 $
—
—
220
3,530 $
133 $
—
—
262
395 $
1,642
(259)
6
891
2,280
$
$
2,804 $
(372)
96
367
2,895 $
185
(864)
—
2,144
1,465
$
$
423
(186)
19
16
272
$
$
Total
8,497
(1,681)
121
3,900
10,837
— $
— $
105
$
162 $
— $
— $
267
3,530 $
395 $
2,175
283,917 $
21,402 $
141,027
$
$
2,733 $
1,465
116,319 $
40,543
$
$
272
8,565
$
$
10,570
611,773
5,079 $
— $
2,942
$
752 $
250
$
— $
9,023
278,202 $
21,402 $
138,085
$
115,364 $
40,029
$
8,565
$
601,647
636 $
— $
— $
203 $
264
$
— $
1,103
The Company has an immaterial amount of purchased loans as a result of the acquisition of Hamptons State Bank in 2011, for which
there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all
contractually required payments would not be collected. These loans are referred to as loans acquired with deteriorated credit quality
in the table above.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt
including repayment patterns, probable incurred losses, past loss experience, current economic conditions, and various types of
concentrations of credit. Assigned risk rating grades are continuously updated as new information is obtained. Loans risk rated special
mention, substandard and doubtful are reviewed on a quarterly basis. The Company uses the following definitions for risk rating
grades:
Pass: Loans classified as pass include current loans performing in accordance with contractual terms, pools of homogenous residential
real estate and installment/consumer loans that are not individually risk rated and loans which exhibit certain risk factors that require
greater than usual monitoring by management.
Special mention: Loans classified as special mention, while generally not delinquent, have potential weaknesses that deserve
management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for
the loan or in the Bank's credit position at some future date.
Substandard: Loans classified as substandard have a well defined weakness or weaknesses that jeopardize the liquidation of the debt.
There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in a substandard loan, and may also be at delinquency status
and have defined weaknesses based on currently existing facts, conditions and values making collection or liquidation in full highly
questionable and improbable.
Page -52-
The following table represents loans by class categorized by internally assigned risk grades:
December 31, 2012
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family loans
Residential real estate:
First lien
Home equity
Commercial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total loans
December 31, 2011
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family loans
Residential real estate:
First lien
Home equity
Commercial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total loans
Pass
Special Mention
Substandard
Doubtful
Total
Grades:
$
138,675
$
11,285
$
11,039
$
— $
159,967
66,080
72,158
65,955
81,661
105,454
45,178
9,058
7,523
—
—
745
1,447
1,948
—
—
4,293
—
2,846
1,282
5,605
1,234
3,454
109
—
—
717
—
—
99
—
—
160,999
171,783
66,080
75,721
67,982
88,713
108,735
48,632
9,167
$
744,186
$
22,948
$
29,862
$
816
$
797,812
Pass
Special Mention
Substandard
Doubtful
Total
Grades:
$
120,662
$
14,975
$
9,839
$
— $
126,016
21,402
64,725
70,947
52,686
53,421
35,979
8,283
9,443
—
—
584
4,258
1,613
—
264
2,982
—
1,351
1,972
3,208
1,124
4,314
18
—
—
1,223
225
—
9
250
—
145,476
138,441
21,402
67,299
73,728
60,152
56,167
40,543
8,565
$
554,121
$
31,137
$
24,808
$
1,707
$
611,773
Page -53-
Past Due and Nonaccrual Loans
The following table represents the aging of the recorded investment in past due loans as of December 31, 2012 and December 31,
2011 by class of loans, as defined by ASC 310-10:
December 31, 2012
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family loans
Residential real estate:
First lien
Home equity
Commercial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total loans
December 31, 2011
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family loans
Residential real estate:
First lien
Home equity
Commercial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total loans
30-59 Days
Past Due
60-89 Days
Past Due
>90 Days
Past Due
And
Accruing
Nonaccrual
Including 90
Days or More
Past Due
Total Past
Due and
Nonaccrual
Current
Total Loans
$
— $
1,265 $
—
—
—
965
—
22
—
—
—
—
158
—
—
—
—
—
491
—
—
—
—
—
—
—
—
$
492 $
2,248 $
158,751 $
160,999
—
—
1,203
1,010
136
426
22
—
—
—
171,783
66,080
1,361
1,975
136
448
22
—
74,360
66,007
88,577
108,287
48,610
9,167
171,783
66,080
75,721
67,982
88,713
108,735
48,632
9,167
$
987
$
1,423 $
491
$
3,289 $
6,190 $
791,622 $
797,812
30-59 Days
Past Due
60-89 Days
Past Due
>90 Days
Past Due
And
Accruing
Nonaccrual
Including 90
Days or More
Past Due
Total Past
Due and
Nonaccrual
Current
Total Loans
$
485
$
1,281 $
406
$
449
$
2,621
$
142,855
$
145,476
—
—
—
448
—
—
—
1
—
—
—
255
—
53
—
—
—
—
—
—
—
—
—
5
—
—
1,561
1,382
479
40
250
—
—
—
138,441
21,402
138,441
21,402
1,561
2,085
479
93
250
6
65,738
71,643
59,673
56,074
40,293
8,559
67,299
73,728
60,152
56,167
40,543
8,565
$
934
$
1,589 $
411
$
4,161
$
7,095
$
604,678
$
611,773
Page -54-
All loans 90 days or more past due that are still accruing interest represent loans that were acquired from Hamptons State Bank on
May 27, 2011 and were recorded at fair value upon acquisition. These loans are considered to be accruing as management can
reasonably estimate future cash flows on these acquired loans and expect to fully collect the carrying value of these loans. Therefore,
the difference between the carrying value of these loans and their expected cash flows is being accreted into income.
Impaired Loans
As of December 31, 2012 and December 31, 2011, the Company had impaired loans as defined by FASB ASC No. 310,
“Receivables” of $8.2 million and $9.0 million, respectively. 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. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually
classified nonaccrual loans and troubled debt restructured (“TDR”) loans. For impaired loans, the Bank evaluates the impairment of
the loan in accordance with FASB ASC 310-10-35-22. Impairment is determined based on the present value of expected future cash
flows discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to
determine the fair value of the loan. The fair value of the collateral is determined based upon recent appraised values. The fair value of
the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan
loss allowance allocation is required. These methods of fair value measurement for impaired loans are considered level 3 within the
fair value hierarchy described in FASB ASC 820-10-50-5.
The following tables represent impaired loans by class at December 31, 2012 and 2011:
December 31, 2012
(In thousands)
With no related allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family loans
Residential real estate:
First lien
Home equity
Commercial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total with no related allowance recorded
With an allowance recorded:
Residential real estate – Home equity
Commercial – Unsecured
Total with an allowance recorded
Total:
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family loans
Residential real estate:
First lien
Home equity
Commercial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total
Recorded
Investment
Unpaid
Principal
Balance
Related
Allocated
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
3,860 $
3,931 $
916
—
1,539
736
515
95
—
—
7,661
274
273
547
3,860
916
—
1,539
1,010
916
—
2,151
1,094
520
97
—
—
8,709
287
302
589
3,931
916
—
2,151
1,381
515
368
—
—
8,208 $
$
520
399
—
—
9,298 $
Page -55-
— $
—
—
—
—
—
—
—
—
—
141
228
369
—
—
—
—
141
—
228
—
—
369
3,816 $
916
—
1,484
768
281
42
2
—
7,309
244
236
480
3,816
916
—
1,484
1,012
281
278
2
—
7,789 $
$
116
61
—
35
—
14
—
—
—
226
—
—
—
116
61
—
35
—
14
—
—
—
226
Recorded
Investment
Unpaid Principal
Balance
Related
Allocated
Allowance
Average
Recorded
Investment
Interest Income
Recognized
$
4,163 $
4,206 $
— $
4,208 $
December 31, 2011
(In thousands)
With no related allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family loans
Residential real estate:
First lien
Home equity
Commercial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
916
—
338
688
533
—
250
—
916
—
344
860
533
—
371
—
Total with no related allowance recorded
6,888
7,230
With an allowance recorded:
Residential real estate – First lien
Residential real estate – Home equity
Commercial – Secured
Total with an allowance recorded
Total:
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family loans
Residential real estate:
First lien
Home equity
Commercial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total
1,223
693
219
2,135
4,163
916
—
1,561
1,381
752
—
250
—
1,329
700
229
2,258
4,206
916
—
1,673
1,560
762
—
371
—
$
9,023 $
9,488 $
—
—
—
—
—
—
—
—
—
76
29
162
267
—
—
—
76
29
162
—
—
—
267
929
—
346
778
535
—
250
—
7,046
1,241
694
235
2,170
4,208
929
—
1,587
1,472
770
—
250
—
415
15
—
—
—
7
—
—
—
437
—
—
—
—
415
15
—
—
—
7
—
—
—
$
9,216 $
437
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes
of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.
The Bank had $0.3 million foreclosed real estate owned at December 31, 2012, and had none at December 31, 2011.
Troubled Debt Restructurings
The terms of certain loans were modified and are considered troubled debt restructurings (“TDR”). The modification of the terms of
such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the
maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of
the recorded investment in the loan. The modification of these loans involved a loan to borrowers who were experiencing financial
difficulties.
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed to determine if that borrower
is currently in payment default under any of its obligations or whether there is a probability that the borrower will be in payment
default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s
internal underwriting policy.
Page -56-
The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31,
2012:
(In thousands)
Troubled Debt Restructurings
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-Family
Residential real estate:
First lien
Home equity
Commercial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total loans
Number of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
1
$
—
—
—
—
1
1
—
—
$
163
—
—
—
—
387
42
—
—
3
$
592
$
160
—
—
—
—
380
39
—
—
579
The TDRs described above did not increase the allowance for loan losses and there were charge offs of $0.4 million during the year
ended December 31, 2012.
At December 31, 2012, there were no loans modified as TDRs for which there was a payment default within twelve months following
the modification. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.
As of December 31, 2012 and December 31, 2011, the Company had $1.0 million and $2.0 million, respectively of nonaccrual TDR
loans. As of December 31, 2012 two of the borrowers with loans totaling $0.3 million are complying with the modified terms of the
loans and are currently making payments. Another borrower with loans totaling $0.7 million is currently in default and foreclosure
proceedings have been initiated. The decrease in nonaccrual TDR loans at December 31, 2012 was due to the reclassification of a
$0.3 million nonaccrual TDR loan to a performing TDR as the borrower has made six months of consecutive payments in line with the
restructured terms. In addition, there was charge-offs totaling $0.7 million during 2012. Total nonaccrual TDR loans are secured with
collateral that has an appraised value of $2.7 million. Furthermore, the Bank has no commitment to lend additional funds to these
debtors.
In addition, the Company has six borrowers with performing TDR loans of $5.0 million at December 31, 2012 that are current and
secured with collateral that has an appraised value of approximately $12.3 million. At December 31, 2011, the Company had four
borrowers with TDR loans of $4.9 million that were current and secured with collateral that had an appraised value of approximately
$11.5 million. Management believes that the ultimate collection of principal and interest is reasonably assured and therefore continues
to recognize interest income on an accrual basis. Two of the loans were restructured during the third quarter of 2012, one of the loans
in the second quarter of 2012 and one loan in the first quarter of 2012 and since that time the interest income recognized has been
immaterial. The fifth loan was restructured during the third quarter 2011 and since that time $0.08 million of interest income has been
recognized. The sixth loan was restructured during the third quarter of 2008 and since that time $0.5 million of interest income has
been recognized. In addition, the Bank has no commitment to lend additional funds to these debtors.
The terms of certain other loans were modified during the year ended December 31, 2012 that did not meet the definition of a TDR.
These loans have a total recorded investment as of December 31, 2012 of $50.3 million. The modification of these loans involved a
modification of the terms of loans to borrowers who were not experiencing financial difficulties.
Page -57-
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 2012 and 2011.
The following table sets forth selected information about related party loans at December 31, 2012:
(In thousands)
Balance at December 31, 2011
New loans
Effective change in related parties
Advances
Repayments
Balance at December 31, 2012
4. PREMISES AND EQUIPMENT
Premises and equipment consist of:
December 31,
(In thousands)
Land
Building and improvements
Furniture, fixtures and equipment
Leasehold improvements
Less: accumulated depreciation and amortization
5. DEPOSITS
Time Deposits
Balance
Outstanding
1,050
—
—
745
(524)
1,271
2012
2011
7,174
13,837
15,229
6,803
43,043
(17,042)
26,001
$
$
$
7,174
13,720
12,445
6,120
39,459
(15,288)
24,171
$
$
$
$
$
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2012:
(In thousands)
2013
2014
2015
2016
2017
Total
Less than
$100,000
$100,000 or
Greater
Total
$
$
25,667 $
7,970
1,370
830
2,687
38,524 $
94,547 $
12,110
3,519
1,752
6,796
118,724 $
120,214
20,080
4,889
2,582
9,483
157,248
Deposits from principal officers, directors and their affiliates at December 31, 2012 and 2011 were approximately $5.5 million and
$4.7 million, respectively. Public fund deposits at December 31, 2012 and 2011 were $269.8 million and $232.0 million, respectively.
6. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
At December 31, 2012, 2011 and 2010, securities sold under agreements to repurchase totaled $12.4 million, $16.9 million and $16.4
million, respectively, and were secured by U.S. GSE, residential mortgage-backed securities and residential collateralized mortgage
obligations with a carrying amount of $17.1 million, $23.3 million and $22.3 million, respectively.
Securities sold under agreements to repurchase are financing arrangements with $2.4 million maturing during the first quarter of 2013
and $10.0 million maturing during the first quarter of 2015. At maturity, the securities underlying the agreements are returned to the
Company. Information concerning the securities sold under agreements to repurchase is summarized as follows:
Page -58-
(Dollars in thousands)
Average daily balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Weighted average interest rate at year-end
7. JUNIOR SUBORDINATED DEBENTURES
2012
2011
2010
$
$
13,016
3.01%
16,722
2.99%
$
$
16,715
3.23%
17,469
3.18%
$
$
16,648
3.10%
17,192
3.21%
In December 2009, the Company completed the private placement of $16.0 million in aggregate liquidation amount of 8.50%
cumulative convertible trust preferred securities (the "TPS”), through its subsidiary, Bridge Statutory Capital Trust II. The TPS have a
liquidation amount of $1,000 per security and are convertible into our common stock, at an effective conversion price of $31 per
share. The TPS mature in 30 years but are callable by the Company at par any time after September 30, 2014.
The Company issued $16.0 million of junior subordinated debentures (the “Debentures”) to the trust in exchange for ownership of all
of the common security of the trust and the proceeds of the preferred securities sold by the trust. In accordance with current
accounting guidance, the trust is not consolidated in the Company’s financial statements, but rather the Debentures are shown as a
liability. The Debentures bear interest at a fixed rate equal to 8.50% and mature on December 31, 2039. Consistent with regulatory
requirements, the interest payments may be deferred for up to 5 years, and are cumulative. The Debentures have the same prepayment
provisions as the TPS.
The Debentures may be included in Tier I capital (with certain limitations applicable) under current regulatory guidelines and
interpretations.
8. DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate
risk position. The notional amount of the interest rate swap does not represent amounts exchanged by the parties. The amount
exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.
An interest rate swap with a notional amount totaling $15.0 million was entered into on June 28, 2012 and was designated as a cash
flow hedge of certain Federal Home Loan Bank advances. The swap was determined to be fully effective during the period presented
and therefore no amount of ineffectiveness has been included in net income. The aggregate fair value of the swaps is recorded in other
assets with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other
comprehensive income (loss) would be reclassified to current earnings if the hedge transaction becomes probable of not occurring.
The Company expects the hedges to remain fully effective during the remaining term of the swap.
Summary information about the interest rate swap designated as a cash flow hedge as of December 31, 2012 is as follows:
(Dollars in thousands)
Notional amounts
Weighted average pay rates
Weighted average receive rates
Weighted average maturity
Unrealized gains (losses)
As of December 31, 2012
15,000
0.99%
0.31%
4.49 years
(176)
$
$
Interest expense recorded on this swap transaction totaled $45,000 for the twelve months ended December 31, 2012 and is reported as
a component of interest expense on FHLB Advances.
Cash Flow Hedge
The following table presents the net gains (losses), net of tax, recorded in accumulated other comprehensive income and the
Consolidated Statements of Income relating to the cash flow derivative instruments for the twelve months ended December 31, 2012.
(In thousands)
Interest rate contracts
2012
Amount of gain (loss)
recognized in OCI
(Effective Portion)
Amount of gain (loss)
reclassified from OCI to
interest income
Amount of gain (loss)
recognized in other non-
interest income
(Ineffective Portion)
$
(106) $
— $
—
Page -59-
The following table reflects the cash flow hedge included in the Consolidated Balance Sheet as of December 31, 2012:
(In thousands)
Included in other liabilities:
Notional Amount
Fair Value
2012
Interest rate swap related to FHLB Advance
$
15,000
$
(176)
9. INCOME TAXES
The components of income tax expense are as follows:
Years Ended December 31,
(In thousands)
Current:
Federal
State
Deferred:
Federal
State
Income tax expense
2012
2011
2010
$
$
5,660
582
6,242
(229)
67
(162)
6,080
$
$
3,700
603
4,303
469
(109)
360
4,663
$
$
3,340
530
3,870
347
(170)
177
4,047
The reconciliation of the expected Federal income tax expense at the statutory tax rate to the actual provision follows:
Years Ended December 31,
(Dollars in thousands)
2012
Percentage
of Pre-tax
Earnings
Amount
2011
2010
Percentage
of Pre-tax
Earnings
Percentage
of Pre-tax
Earnings
Amount
Amount
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
$
$
6,479
(878)
445
34
6,080
34% $
(5)
2
1
32% $
5,134
(896)
341
84
4,663
34% $
(6)
2
1
31% $
4,492
(817)
262
110
4,047
34%
(6)
2
1
31%
Page -60-
Deferred income tax assets and liabilities are comprised of the following:
December 31,
(In thousands)
Deferred tax assets:
Allowance for loan losses
Restricted stock awards
Purchase accounting fair value adjustments
Net operating loss carryforward
Other
Total
Deferred tax liabilities:
Pension and SERP expense
Depreciation
REIT undistributed net income
Net deferred loan costs and fees
Other
Total
Total before other comprehensive income
Deferred tax liabilities:
Net unrealized gains on securities
Deferred tax assets:
Net change in pension liability
Net change in cash flow hedge
Net deferred tax asset
2012
2011
$
$
6,144
777
777
516
276
8,490
(2,765)
(1,386)
(657)
(602)
(281)
(5,691)
2,799
4,592
710
1,168
617
456
7,543
(2,124)
(1,411)
(627)
(440)
(304)
(4,906)
2,637
(1,803)
(3,774)
2,036
70
3,102
$
2,205
—
1,068
$
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 2009. The Company does not expect the total
amount of unrecognized income tax benefits to significantly increase in the next twelve months.
10. EMPLOYEE BENEFITS
a) Pension Plan and Supplemental Executive Retirement Plan
The Bank maintains a noncontributory pension plan covering all eligible employees. The Bank uses a December 31st measurement
date for this plan in accordance with FASB ASC 715-30 “Compensation – Retirement Benefits – Defined Benefit Plans – Pension”. In
September 2011, the Bank transferred all of the Plan assets out of the New York State Bankers Association Retirement System to the
new Trustee, Bank of America, N.A. During 2012, the Company amended the pension plan revising the formula for determining
benefits effective January 1, 2013, except for certain grandfathered employees. Additionally, new employees hired on or after October
1, 2012 are not eligible for the pension 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 -61-
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:
Benefit obligation at beginning of year
Service cost
Interest cost
Benefits paid and expected expenses
Assumption changes and other
Plan amendment
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
Funded status (plan assets less benefit obligations)
Pension Benefits
SERP Benefits
2012
2011
2012
2011
$
$
$
$
$
11,584
1,131
508
(366)
1,345
(1,095)
13,107
13,403
1,600
2,500
(378)
17,125
4,018
$
$
$
$
$
8,761
919
483
(234)
1,655
—
11,584
11,023
20
2,727
(367)
13,403
1,819
$
$
$
$
$
1,731
120
52
(112)
208
—
1,999
$
$
— $
—
112
(112)
— $
1,542
109
57
(112)
135
—
1,731
—
—
112
(112)
—
(1,999)
$
(1,731)
Amounts recognized in accumulated other comprehensive income at December 31, consist of:
At December 31,
(In thousands)
Net actuarial loss
Prior service cost
Transition obligation
Plan amendment
Net amount recognized
Pension Benefits
2012
2011
SERP Benefits
2012
2011
$
$
5,561
71
—
(1,094)
4,538
$
$
5,060
81
—
—
5,141
$
$
406
—
142
—
548
$
$
200
—
170
—
370
The accumulated benefit obligation was $11.6 million and $1.6 million for the pension plan and the SERP, respectively, as of
December 31, 2012. As of December 31, 2011, the accumulated benefit obligation was $9.4 million and $1.5 million for the pension
plan and the SERP, respectively.
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income
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
Net periodic benefit cost
Net (gain) loss
Prior service cost
Transition obligation
Amortization of net gain
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
Pension Benefits
SERP Benefits
2012
2011
2010
2012
2011
2010
$
$
$
1,131
508
(993)
248
10
—
904
$
$
(345) $
—
—
(248)
(10)
—
(603)
240
(363)
$
$
$
919
483
(761)
102
9
—
752
2,529
—
—
(102)
(9)
—
2,418
(960)
1,458
769
434
(681)
104
9
—
635
254
—
—
(104)
(9)
—
141
(56)
85
$
$
$
$
$
$
120
52
—
—
—
30
202
208
—
—
—
—
(30)
178
(71)
107
$
$
$
109
57
—
—
—
28
194
136
—
—
—
—
(28)
108
(43)
65
96
62
—
—
—
28
186
(22)
—
—
—
—
(28)
(50)
20
(30)
comprehensive income
$
541
$
2,210
$
720
$
309
$
259
$
156
Page -62-
The estimated net loss, transition obligation and prior service credit 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 $288,000, $0 and $77,000,
respectively. The estimated net loss and 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 $15,000 and $28,000, respectively.
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,
Weighted Average Assumptions Used to
Determine Benefit Obligations
Discount rate
Rate of compensation increase
Weighted Average Assumptions Used to
Determine Net Periodic Benefit Cost
Discount rate
Rate of compensation increase
Expected long-term rate of return
Plan Assets
Pension Benefits
2011
2012
2010
2012
SERP Benefits
2011
2010
4.20%
3.00
4.53%
3.00
4.53%
3.00
7.50
5.58%
3.50
7.00
5.58%
3.50
5.89%
4.00
7.50
3.90%
5.00
3.13%
5.00
3.13%
5.00
—
3.87%
5.00
—
3.87%
5.00
4.31%
5.00
—
The Plan seeks to provide retirement benefits to the employees of the Bank who are entitled to receive benefits under the Plan. The
Plan Assets are overseen by a Committee comprised of management, who meet quarterly, and set the investment policy guidelines.
The Plan’s overall investment strategy is to achieve a mix of approximately 97% of investments for long-term growth and 3% for
near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers.
Cash equivalents consist primarily of short term investment funds.
Equity securities primarily include investments in common stock, mutual funds, depository receipts and exchange traded funds.
Fixed income securities include corporate bonds, government issues, mortgage backed securities, high yield securities and mutual
funds.
The weighted average expected long term rate-of-return is estimated based on current trends in Plan assets as well as projected future
rates of return on those assets and reasonable actuarial assumptions based on the guidance provided by ASOP No. 27 for the real and
nominal rate of investment return for a specific mix of asset classes. The following assumptions were used in determining the long-
term rate-of-return:
The long term rate of return considers historical returns for the S&P 500 index and long term U.S. government bonds from 1926 to
2012 representing cumulative returns of approximately 9.8% and 5.7%, respectively. These returns were considered along with the
target allocations of asset categories.
Page -63-
Effective August 30, 2011, the Plan revised its investment guidelines. Except for pooled vehicles and mutual funds, which are
governed by the prospectus and unless expressly authorized by management, the Plan and its investment managers are prohibited from
purchasing the following investments:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Purchases of letter stock, private placements, or direct payments
Purchases of securities not readily marketable
Pledging or hypothecating securities, except for loans of securities that are fully collateralized
Purchasing or selling derivative securities for speculation or leverage
Investments by the investment managers in their own securities, their affiliates or subsidiaries (excluding
money market funds)
Purchases of Bridge Bancorp stock
The target allocations for Plan assets are shown in the table below:
Asset Category
Cash Equivalents
Equity Securities
Fixed income securities
Total
Percentage of Plan Assets
At December 31,
Target
Allocation
2013
2012
2011
Weighted-
Average
Expected
Long-term
Rate of
Return
0 – 5%
45 - 65%
35 - 55%
9.4%
54.2%
36.4%
21.6%
43.1%
35.3%
100.0%
100.0%
—
4.7%
2.8%
7.5%
Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs
and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which
the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the
measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market
participants would use in pricing an asset or liability.
In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value
measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Investments valued using the Net Asset Value (“NAV”) are classified as level 2 if the System can redeem its investment with the
investee at the NAV at the measurement date. If the System can never redeem the investment with the investee at the NAV, it is
considered a level 3. If the System can redeem the investment at the NAV at a future date, the System's assessment of the significance
of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the
asset.
Page -64-
In accordance with FASB ASC 715-20, the following table represents the Plan’s fair value hierarchy for its financial assets measured
at fair value on a recurring basis as of December 31, 2012 and 2011:
(Dollars in thousands)
Cash and Cash Equivalents
Cash
Short term investment funds
Total cash equivalents
Equities:
U.S. Large cap
U.S. Mid cap
International
Total equities
Fixed income securities:
Government issues
Corporate bonds
High yield bonds and bond funds
Total fixed income securities
Total Plan Assets
(Dollars in thousands)
Cash and Cash Equivalents
Cash
Short term investment funds
Total cash equivalents
Equities:
U.S. Large cap
U.S. Mid cap
U.S. Small cap
International
Total equities
Fixed income securities:
Government issues
Corporate bonds
High yield bonds and bond funds
Total fixed income securities
Total Plan Assets
Fair Value Measurements at
December 31, 2012 Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
24
— $
24
1,591
1,591
8,075
596
601
9,272
9,296 $
1,717
1,396
3,125
6,238
7,829
Fair Value Measurements at
December 31, 2011 Using:
Carrying
Value
$
24 $
1,591
1,615
8,075
596
601
9,272
1,717
1,396
3,125
6,238
17,125 $
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
2,563 $
336
2,899
3,388
326
326
1,739
5,779
1,589
1,078
2,058
4,725
13,403 $
2,563
— $
2,563
3,388
326
326
1,739
5,779
8,342 $
336
336
1,589
1,078
2,058
4,725
5,061
Page -65-
$
$
$
The Company expects to contribute $2.0 million to the pension plan during 2013.
Estimated Future Payments
The following benefit payments, which reflect expected future service, are expected to be paid as follows:
Year
(In thousands)
2013
2014
2015
2016
2017
Following 5 years
b) 401(k) Plan
Pension and SERP Payments
$
560,186
606,708
657,058
740,152
900,932
7,103,618
The Company provides a 401(k) plan which 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,
2012, 2011 and 2010 the Bank made cash contributions of $263,000, $253,000, and $243,000 respectively.
c) Equity Incentive Plan
On May 4, 2012 the Bridge Bancorp, Inc. 2012 Stock-Based Incentive Plan (the “2012 Plan”) was approved by the shareholders to
provide for the grant of stock-based and other incentive awards to officers, employees and directors of the Company. The plan
supersedes the Bridge Bancorp, Inc. Equity Incentive Plan that was approved in 2006 (the “2006 Plan”). The number of shares of
Common Stock of Bridge Bancorp, Inc. available for stock-based awards under the 2012 Plan is 525,000 plus 278,385 shares that
were remaining under the 2006 Plan. Of the total 803,385 shares of common stock approved for issuance under the Plan, 800,809
shares remain available for issuance at December 31, 2012.
The Compensation Committee of the Board of Directors determines awards under the Plan. The Company accounts for this Plan under
FASB ASC No. 718 and 505.
Page -66-
Stock Options
The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option-pricing model. No new
grants of stock options were awarded during the years ended December 31, 2012, 2011, and 2010.
A summary of the status of the Company’s stock options as of December 31, 2012 follows:
(Dollars in thousands, except per share amounts)
Outstanding, December 31, 2011
Granted
Exercised
Forfeited
Expired
Outstanding, December 31, 2012
Vested and Exercisable, December 31, 2012
Range of Exercise Prices
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
3.44 years
3.44 years
$
$
3
3
25.05
—
15.47
25.28
—
25.32
25.32
Exercise
Price
15.47
24.00
25.25
26.55
30.60
Number
of
Options
54,223
—
(1,500)
(2,761)
—
49,962
49,962
Number
of
Options
600
4,572
39,659
3,000
2,131
49,962
$
$
$
$
$
$
$
$
$
$
The aggregate intrinsic value for options outstanding and exercisable as of December 31, 2012 is the same because all options are
currently vested.
A summary of activity related to the stock options follows:
December 31,
(In thousands)
Intrinsic value of options exercised
Cash received from options exercised
Tax benefit realized from option exercises
Weighted average fair value of options granted
2012
2011
2010
$
$
7
—
—
—
— $
—
—
—
16
17
6
—
There was no compensation expense attributable to stock options in 2012 because all stock options were vested. Compensation
expense attributable to stock options was $0 and $41,000 for the years ended December 31, 2011 and 2010, respectively.
Restricted Stock Awards
A summary of the status of the Company’s shares of unvested restricted stock for the year ended December 31, 2012 follows:
Unvested, December 31, 2011
Granted
Vested
Forfeited
Unvested, December 31, 2012
Weighted
Average Grant-Date
Fair Value
$
$
$
$
$
21.56
19.82
21.46
22.06
21.38
Shares
211,371
21,993
(55,207)
(230)
177,927
The 2012 Plan provides for issuance of restricted stock awards. During the year ended December 31, 2012, the Company granted
restricted stock awards of 21,993 shares. These shares vest over approximately five years with a third vesting after years three, four
and five. During the year ended December 31, 2011, the Company granted restricted stock awards of 68,588 shares. Of the 68,588
shares granted, 5,000 shares vest ratably over three years, 44,588 shares vest over approximately five years with a third vesting after
Page -67-
years three, four and five and 19,000 shares vest over approximately 7 years with a third vesting after years five, six and seven. During
the year ended December 31, 2010, the Company granted restricted stock awards of 43,850 shares. Of the 43,850 shares granted,
29,420 shares vest over five years with a third vesting after years three, four and five and 10,000 shares vest over approximately 7
years with a third vesting after years five, six and seven. The remaining 4,430 vest ratably over approximately five years. Such shares
are subject to restrictions based on continued service as employees of the Company or its subsidiaries. Compensation expense
attributable to these awards was approximately $1,185,000, $909,000 and $728,000 for the years ended December 31, 2012, 2011, and
2010, respectively. The total fair value of shares vested during the years ended December 31, 2012, 2011 and 2010 was $1,140,000,
$774,000 and $280,000, respectively. As of December 31, 2012, there was $2,466,000 of total unrecognized compensation costs
related to nonvested restricted stock awards granted under the Plan. The cost is expected to be recognized over a weighted-average
period of 3.5 years.
Restricted Stock Units
In April 2009, the Company adopted a Directors Deferred Compensation Plan. Under the Plan, independent directors may elect to
defer all or a portion of their annual retainer fee in the form of restricted stock units. In addition, Directors receive a non-election
retainer in the form of restricted stock units. These restricted stock units vest ratably over one year and have dividend rights but no
voting rights. In connection with this Plan, the Company recorded expenses of approximately $158,000, $138,000 and $112,000 for
the years ended December 31, 2012, 2011 and 2010, respectively.
11. EARNINGS PER SHARE
FASB ASC 260-10-45 addresses whether instruments granted in share-based payment transactions are participating securities prior to
vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”). The restricted stock
awards and restricted stock units granted by the Company contain nonforfeitable rights to dividends and therefore are considered
participating securities. The two-class method for calculating basic EPS excludes dividends paid to participating securities and any
undistributed earnings attributable to participating securities. Prior period EPS figures have been presented in accordance with this
accounting guidance.
The following is a reconciliation of earnings per share for December 31, 2012, 2011 and 2010:
For the Years Ended December 31,
(In thousands, except per share data)
Net Income
Less: Dividends paid on and earnings allocated to participating securities
Income attributable to common stock
Weighted average common shares outstanding, including participating securities
Less: weighted average participating securities
Weighted average common shares outstanding
Basic earnings per common share
Income attributable to common stock
Weighted average common shares outstanding
Weighted average common equivalent shares outstanding
Weighted average common and equivalent shares outstanding
Diluted earnings per common share
2012
2011
2010
$ 12,772 $ 10,359 $ 9,166
(243)
$ 12,444 $ 10,060 $ 8,923
(299)
(328)
8,633
(223)
8,410
1.48 $
6,712
(193)
6,519
1.54 $
6,308
(170)
6,138
1.45
$
$ 12,444 $ 10,060 $ 8,923
8,410
1
8,411
1.48 $
6,519
1
6,520
1.54 $
6,138
1
6,139
1.45
$
There were 49,362 options outstanding at December 31, 2012 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. The
$16.0 million in convertible trust preferred securities outstanding at December 31, 2012, were not included in the computation of
diluted earnings per share because the assumed conversion of the trust preferred securities was antidilutive.
12. 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.
Page -68-
a) Leases
At December 31, 2012, the Company was obligated to make minimum annual rental payments under non-cancelable operating leases
for its premises. Projected minimum rentals under existing leases are as follows:
Year
(In thousands)
2013
2014
2015
2016
2017
Thereafter
Total minimum rentals
$
$
1,658
1,876
1,590
1,446
1,391
11,455
19,416
Certain leases contain rent escalation clauses which are reflected in the amounts listed above. In addition, certain leases provide for
additional payments based upon real estate taxes, interest and other charges. Certain leases contain renewal options which are not
reflected. Rental expenses under leases for the years ended December 31, 2012, 2011 and 2010 approximated $1.5 million, $1.2
million, and $1.2 million, 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)
Standby letters of credit
Loan commitments outstanding (1)
Unused lines of credit
Total commitments outstanding
2012
2011
$
$
3,800
64,336
183,183
251,319
$
$
3,130
45,841
155,209
204,180
(1) Of the $64.3 million of loan commitments outstanding at December 31, 2012, $21.3 million are fixed rate
commitments and $43.0 million are variable rate commitments.
c) Other
During 2012, the Bank was required to maintain certain cash balances with the Federal Reserve Bank of New York for reserve and
clearing requirements. The required cash balance at December 31, 2012 was $1.0 million. During 2012, the Federal Reserve Bank of
New York offered higher interest rates on overnight deposits compared to our correspondent banks. Therefore the Bank invested
overnight with the Federal Reserve Bank of New York and the average balance maintained during 2012 was $26.1 million.
During 2012, 2011 and 2010, 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, 2012, the Bank had aggregate lines of credit of $282.5 million with unaffiliated
correspondent banks to provide short-term credit for liquidity requirements. Of these aggregate lines of credit, $262.5 million is
available on an unsecured basis. As of December 31, 2012, the Bank had $44.5 million of 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 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, 2012, there was $487.5 million available for transactions under this
agreement.
Page -69-
The Bank had $12.4 million of securities sold under agreements to repurchase outstanding as of December 31, 2012 (See Note 6).
13. FAIR VALUE
FASB ASC No. 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of
inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the
measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market
participants would use in pricing an asset or liability.
Page -70-
Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair Value Measurements at
December 31, 2012 Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
(In thousands)
Financial Assets:
Available for sale securities
U.S. GSE securities
State and municipal obligations
U.S. GSE Residential mortgage-backed securities
U.S. GSE Residential collateralized mortgage
obligations
U.S. GSE Commercial mortgage-backed securities
U.S. GSE Commercial collateralized mortgage
obligations
Non Agency commercial mortgage-backed securities
Other Asset backed securities
Total available for sale
Financial Liabilities:
Derivatives
(In thousands)
Financial Assets:
Available for sale securities
U.S. GSE securities
State and municipal obligations
U.S. GSE Residential mortgage-backed securities
U.S. GSE Residential collateralized mortgage
obligations
U.S. GSE Commercial collateralized mortgage
obligations
Total available for sale
178,452
59,963
20,597
226,446
3,138
9,357
4,989
26,128
529,070
(176)
$
$
Fair Value Measurements at
December 31, 2011 Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
131,674
54,219
70,984
179,325
5,237
441,439
$
$
$
$
$
178,452
59,963
20,597
226,446
3,138
9,357
4,989
26,128
529,070
(176)
Carrying
Value
131,674
54,219
70,984
179,325
5,237
441,439
Page -71-
Assets measured at fair value on a non-recurring basis are summarized below:
Fair Value Measurements at
December 31, 2012 Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
178
Fair Value Measurements at
December 31, 2011 Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
1,868
2,300
Carrying
Value
$
178
Carrying
Value
$
1,868
2,300
(In thousands)
Impaired loans
(In thousands)
Impaired loans
Loans held for sale
The fair value of the loan is compared to the carrying value to determine if any write-down or specific reserve is required. These
methods of fair value measurement for impaired loans are considered level 3 within the fair value hierarchy described in current
accounting guidance. Impaired loans with allocated allowance for loan losses at December 31, 2012, had a carrying amount of $0.2
million, which is made up of the outstanding balance of $0.5 million, net of a valuation allowance of $0.3 million. This resulted in an
additional provision for loan losses of $0.3 million that is included in the amount reported on the income statement. Impaired loans
with allocated allowance for loan losses at December 31, 2011, had a carrying amount of $1.9 million, which is made up of the
outstanding balance of $2.1 million, net of a valuation allowance of $0.2 million. This resulted in an additional provision for loan
losses of $0.2 million that is included in the amount reported on the income statement. Charge-offs of $0.9 million were incurred on
loans transferred to loans held for sale at December 31, 2011. No loans were transferred to loans held for sale in 2012.
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. Cash on hand and non-interest due from bank accounts are Level 1 and interest
bearing Cash Due from Banks and Federal Funds Sold are Level 2.
Securities Available for Sale and Held to Maturity: The estimated fair values are based on independent dealer quotations on nationally
recognized securities exchanges, if available (Level 1). For securities where quoted prices are not available, fair value is based on
matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on
quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities
(Level 2).
Restricted Securities: It is not practicable to determine the fair value of FHLB, ACBB and FRB stock due to restrictions placed on its
transferability.
Derivatives: Represents an interest rate swap and the estimated fair values are based on valuation models using observable market data
as of measurement date (Level 2).
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 resulting in a Level 3
classification. 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. All nonaccrual loans are carried at their current fair value. The methods
utilized to estimate the fair value of loans do not necessarily represent an exit price and therefore, while permissible for presentation
purposed under ASC 825-10, do not conform with ASC 820-10.
Page -72-
Impaired Loans: For impaired loans, the Company evaluates the fair value of the loan in accordance with current accounting
guidance. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair
value of the collateral is determined based upon recent appraised values. These appraisals may utilize a single valuation approach or a
combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal
process by the independent appraisers to adjust for differences between the comparable sales and income data available. Adjustments
may relate to location, square footage, condition, amenities, market rate of leases as well as timing of comparable sales. Such
adjustments are generally capped at 15% of appraised value and typically result in a Level 3 classification of the inputs for
determining fair value. These adjustments as of December 31, 2012 were not material to the financial statements. The fair value of the
loan is compared to the carrying value to determine if any write-down or specific reserve is required. Impaired loans are evaluated on
a quarterly basis for additional impairment and adjusted accordingly.
Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or
certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the
Company. Once received, the Credit Administration department reviews the assumptions and approaches utilized in the appraisal as
well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide
statistics. On a quarterly basis, the Company compares the actual selling price of collateral that has been sold to the most recent
appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value. Management
also considers the appraisal values for commercial properties associated with current loan origination activity. Collectively, this
information is reviewed to help assess current trends in commercial property values. For each collateral dependent impaired loan,
management considers information that relates to the type of commercial property to determine if such properties may have
appreciated or depreciated in value since the date of the most recent appraisal. Adjustments to fair value are made only when the
analysis indicates a probable decline in collateral values.
Loans Held For Sale: Loans held for sale are carried at the lower of cost or fair values. The fair value of loans held for sale is
determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as
outstanding commitments from third party investors (Level 3).
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 resulting in a Level 2 classification. Stated
value is fair value for all other deposits resulting in a Level 1 classification.
Borrowed Funds: The estimated fair value of borrowed funds are based on discounted cash flow calculations that use a replacement
cost of funds approach to establishing discount rates for funding maturities resulting in a Level 2 classification.
Junior Subordinated Debentures: The estimated fair value is based on estimates using market data for similarly risk weighted items
and takes into consideration the convertible features of the debentures into common stock of the Company which is an unobservable
input resulting in a Level 3 classification.
Accrued Interest Receivable and Payable: For these short-term instruments, the carrying amount is a reasonable estimate of the fair
value resulting in a Level 1 or 2 classification.
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. The fair value is immaterial as of December 31, 2012 and December 31, 2011.
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 Company’s entire holdings of a particular financial instrument, or the tax consequences of
realizing gains or losses on the sale of financial instruments.
Page -73-
The estimated fair values and recorded carrying values of the Company’s financial instruments are as follows:
Fair Value Measurement at
December 31, 2012 Using:
Quoted
Prices In
Active
Markets for
Identical
Assets
(Level 1)
46,855 $
—
—
n/a
—
—
—
Carrying
Amount
$
46,855 $
4,394
529,070
2,978
210,735
784,007
5,436
157,248
1,252,074
—
1,252,074
(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:
Certificates of deposit
Demand and other deposits
Federal funds purchased and
Federal Home Loan Bank overnight borrowings
Federal Home Loan Bank term advances
Repurchase agreements
Junior Subordinated Debentures
Derivatives
Accrued interest payable
44,500
15,000
12,390
16,002
176
147
44,500
—
—
—
—
1
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
— $
4,394
529,070
n/a
213,702
—
2,945
158,764
—
—
14,824
13,064
—
176
146
Total
46,855
4,394
529,070
n/a
213,702
807,597
5,436
— $
—
—
n/a
—
807,597
2,491
—
158,764
— 1,252,074
—
—
—
17,101
—
—
44,500
14,824
13,064
17,101
176
147
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 (including loans held for sale)
Accrued interest receivable
Financial liabilities:
2011
Carrying
Amount
Fair
Value
$
25,921
53,625
441,439
1,660
169,153
603,606
4,940
$
25,921
53,625
441,439
n/a
170,952
632,616
4,940
Demand and other deposits
Federal funds purchased and Federal Home Loan Bank overnight
1,188,185
1,190,080
borrowings
Repurchase agreements
Junior subordinated debentures
Accrued interest payable
—
16,897
16,002
319
—
17,990
16,915
319
Page -74-
14. 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, 2012, the
Company and the Bank met all capital adequacy requirements.
As of December 31, 2012, 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 below. Since that notification,
there are no conditions or events that management believes have changed the institution’s category.
The Company’s 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)
Total Capital (to risk weighted assets)
Tier 1 Capital (to risk weighted assets)
Tier 1 Capital (to average assets)
As of December 31,
(Dollars In thousands)
2012
For Capital
Adequacy
Purposes
Actual
Amount
$ 145,765
132,906
132,906
Ratio
Amount
14.2% $ 82,171
12.9% 41,085
8.4% 63,136
Ratio
8.0%
4.0%
4.0%
2011
For Capital
Adequacy
Purposes
Actual
Total Capital (to risk weighted assets)
Tier 1 Capital (to risk weighted assets)
Tier 1 Capital (to average assets)
Amount
$ 128,226
118,334
118,334
Ratio
Amount
16.2% $ 63,228
31,614
15.0%
51,010
9.3%
Ratio
8.0%
4.0%
4.0%
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
n/a
n/a
n/a
n/a
n/a
n/a
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
n/a
n/a
n/a
n/a
n/a
n/a
Page -75-
Bridgehampton National Bank
As of December 31,
(Dollars In thousands)
Total Capital (to risk weighted assets)
Tier 1 Capital (to risk weighted assets)
Tier 1 Capital (to average assets)
As of December 31,
(In thousands)
2012
For Capital
Adequacy
Purposes
Actual
Amount
$ 140,487
127,630
127,630
Ratio
Amount
13.7% $ 82,155
12.4% 41,077
8.1% 63,132
2011
For Capital
Adequacy
Purposes
Actual
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
8.0% $ 102,693
61,616
4.0%
78,915
4.0%
10.0%
6.0%
5.0%
Ratio
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
Ratio
8.0% $
4.0%
4.0%
79,016
47,410
63,751
10.0%
6.0%
5.0%
Total Capital (to risk weighted assets)
Tier 1 Capital (to risk weighted assets)
Tier 1 Capital (to average assets)
Amount
$ 115,383
105,494
105,494
Ratio
Amount
14.6% $ 63,213
31,606
13.4%
51,001
8.3%
15. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Bridge Bancorp, Inc. (Parent Company only) follows:
Condensed Balance Sheets
December 31,
(In thousands)
ASSETS
Cash and cash equivalents
Other assets
Investment in the Bank
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Junior subordinated debentures
Other liabilities
Total Liabilities
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
Condensed Statements of Income
Years ended December 31,
(In thousands)
Dividends from the Bank
Interest expense
Non interest expense
Income before income taxes and equity in undistributed earnings of the Bank
Income tax benefit
Income before equity in undistributed earnings of the Bank
Equity in undistributed earnings of the Bank
Net income
2012
2011
5,203
199
129,277
134,679
16,002
5
16,007
118,672
134,679
$
$
$
$
13,002
192
110,028
123,222
16,002
233
16,235
106,987
123,222
2012
2011
2010
— $
— $
1,365
82
(1,447)
(466)
(981)
13,753
12,772
$
1,366
69
(1,435)
(445)
(990)
11,349
10,359
$
1,700
1,365
43
292
(431)
723
8,443
9,166
$
$
$
$
$
$
Page -76-
Condensed Statements of Cash Flows
Years ended December 31,
(In thousands)
Cash flows from operating activities:
2012
2011
2010
Net income
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
$ 12,772
$ 10,359
$
9,166
Equity in undistributed earnings of the Bank
(Increase) decrease in other assets
(Decrease) increase in other liabilities
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Investment in the Bank
Cash in lieu of fractional shares for business acquisition
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from issuance of common stock
Net proceeds from exercise of stock options
Repurchase of surrendered stock from exercise of stock options and vesting
of restricted stock awards
Excess tax (expense) benefit from share based compensation
Cash dividends paid
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
16. OTHER COMPREHENSIVE INCOME (LOSS)
(13,753)
(7)
(227)
(1,215)
(11,349)
558
198
(234)
(8,443)
(450)
(6)
267
(7,000)
—
(7,000)
(12,000)
(3)
(12,003)
—
—
—
10,507
—
(175)
(18)
(9,898)
416
28,088
—
(128)
(16)
(6,061)
21,883
(7,799)
13,002
5,203
$
9,646
3,356
$ 13,002
$
1,395
17
(37)
11
(5,787)
(4,401)
(4,134)
7,490
3,356
Other comprehensive income (loss) components and related income tax effects were as follows:
Years Ended December 31,
(In thousands)
Unrealized holding (losses) gains on available for sale securities
Reclassification adjustment for gains realized in income
Income tax effect
Net change in unrealized (loss) gain on available for sale securities
Change in fair value of derivatives used for cash flow hedges
Reclassification adjustment for gains realized in income
Income tax effect
Net change in unrealized loss on cash flow hedge
Change in post-retirement obligation
Income tax effect
Net change in post-retirement obligation
Total
2012
2011
2010
$
$
(2,321)
(2,647)
1,972
(2,996)
$
3,758
(135)
(1,438)
2,185
(1,518)
(1,303)
1,121
(1,700)
(176)
—
70
(106)
425
(169)
256
—
—
—
—
(2,527)
1,003
(1,524)
—
—
—
—
(91)
36
(55)
$
(2,846)
$
661
$
(1,755)
The following is a summary of the accumulated other comprehensive income balances, net of income tax:
(In thousands)
Unrealized gains on available for sale securities
Unrealized losses on cash flow hedges
Unrealized losses on pension benefits
Total
Page -77-
Balance as of
December 31,
2011
Current
Period
Change
Balance as of
December 31,
2012
$
$
5,734 $
—
(3,306)
2,428 $
(2,996) $
(106)
256
(2,486)_$
2,738
(106)
(3,050)
(418)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected Consolidated Quarterly Financial Data
2012 Quarter Ended,
(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
2011 Quarter Ended,
(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
March 31,
June 30,
September 30, December 31,
$
$
$
$
$
$
$
$
13,298
1,898
11,400
825
10,575
1,953
8,221
4,307
1,368
2,939
0.35
0.35
March 31,
11,596
1,812
9,784
700
9,084
1,454
7,408
3,130
970
2,160
0.34
0.34
$
$
$
$
$
$
$
$
13,677
1,872
11,805
2,500
9,305
3,800
8,567
4,538
1,475
3,063
0.36
0.36
$
$
$
$
13,707 $
1,889
11,818
600
11,218
2,235
8,479
4,974
1,614
3,360 $
0.39 $
0.39 $
13,832
1,896
11,936
1,075
10,861
2,685
8,513
5,033
1,623
3,410
0.39
0.39
June 30,
September 30, December 31,
12,333
1,872
10,461
900
9,561
1,825
7,784
3,602
1,126
2,476
0.38
0.38
$
$
$
$
13,471 $
1,949
11,522
1,450
10,072
1,766
7,824
4,014
1,241
2,773 $
0.41 $
0.41 $
13,026
1,983
11,043
850
10,193
1,904
7,821
4,276
1,326
2,950
0.42
0.42
Page -78-
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, 2012 and 2011, and the
related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the
three-year period ended December 31, 2012. We also have audited Bridge Bancorp, Inc.’s internal control over financial reporting as
of December 31, 2012, 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 Report By Management On Internal Control Over Financial
Reporting located in Item 9A. 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, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control, based on the assessed risk. Our audits also included 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, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2012 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, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
New York, New York
March 13, 2013
Crowe Horwath LLP
Page -79-
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, 2012. Based on that evaluation, the Company’s Principal Executive Officer and Principal 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 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, 2012. 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, 2012, 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 Horwath LLP 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 quarter ended December 31, 2012, that
has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
“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 May 3, 2013, 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 May 3, 2013, are
incorporated herein by reference.
Page -80-
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 May 3, 2013, are incorporated herein by reference.
Set forth below is certain information as of December 31, 2012, regarding the Company’s equity compensation plans that have been
approved by stockholders.
Equity Compensation
Plan approved by
Stockholders
1996 Equity Incentive Plan
2006 Equity Incentive Plan
2012 Equity Incentive Plan
Total
Number of securities to
be Issued upon
Exercise
of outstanding options
and awards
Weighted Average
Exercise Price with
respect to
Outstanding
Stock Options
Number of Securities
Remaining Available
for
Issuance under the Plan
10,303
241,430
—
251,733
$
$
$
25.61
25.25
—
25.32
—
—
800,809
800,809
Item 13. Certain Relationships and Related Transactions, and Director Independence
“Certain Relationships and Related Transactions”, and “Director Nominations” set forth in the Registrant’s Proxy Statement for the
Annual Meeting of Shareholders to be held on May 3, 2013, is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
“Item 2 - Ratification of the Appointment of the Independent Registered Public Accounting Firm” “Fees Paid to Crowe Horwath,” and
“Policy on Audit Committee Pre-approval of Audit and Non-audit Services of Independent Registered Public Accounting Firm” set
forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 3, 2013, is incorporated herein by
reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(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 Comprehensive 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.
36
37
38
39
40
41
79
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 83.
Page -81-
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 13, 2013
March 13, 2013
March 13, 2013
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 and Chief Financial
Officer
/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 13, 2013
March 13, 2013
March 13, 2013
March 13, 2013
March 13, 2013
March 13, 2013
March 13, 2013
March 13, 2013
March 13, 2013
March 13, 2013
,Director
,Director
,Director
,Director
,Director
,Director
,Director
,Director
,Director
,Director
/s/ Marcia Z. Hefter
Marcia Z. Hefter
/s/ Dennis A. Suskind
Dennis A. Suskind
/s/ Kevin M. O’Connor
Kevin M. O’Connor
/s/ Emanuel Arturi
Emanuel Arturi
/s/ Antonia M. Donohue
Antonia M. Donohue
/s/ Charles I. Massoud
Charles I. Massoud
/s/ Albert E. McCoy Jr.
Albert E. McCoy Jr.
/s/ Howard H. Nolan
Howard H. Nolan
/s/ Rudolph J. Santoro
Rudolph J. Santoro
/s/ Thomas J. Tobin
Thomas J. Tobin
Page -82-
EXHIBIT INDEX
Exhibit Number
Description of Exhibit
Exhibit
2.1
3.1
3.1(i)
3.1(ii)
3.2
10.1
10.2
10.3
10.5
10.6
23
31.1
31.2
32.1
101
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
Agreement and Plan of Merger and among Bridge Bancorp, Inc., The Bridgehampton
National Bank and Hamptons State Bank (incorporated by reference to Registrant’s Form 8-
K, File No. 0-18546, filed February 10, 2011)
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)
Certificate of Amendment of the Certificate of Incorporation of the Registrant (incorporated
by reference to Registrant’s Definitive Proxy Statement, File No. 0-18546, filed November
18, 2008)
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)
Amended and Restated Employment Contract – Howard H. Nolan (incorporated by reference
to Registrant’s Form 8-K, File No. 0-18546, filed June 27, 2012)
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) (incorporated by reference to
Registrant’s Form 10-K, File No. 0-18546, filed March 14, 2008)
*
*
*
*
*
*
*
*
*
*
Consent of Independent Registered Public Accounting Firm
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
The following financial statements from Bridge Bancorp, Inc.’s Annual Report on Form 10-K
for the Year Ended December 31, 2012, filed on March XX, 2013, formatted in XBRL:
(i) Consolidated Balance Sheets as of December 31, 2012 and December 31, 2011,
(ii) Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and
2010, (iii) Consolidated Statements of Comprehensive Income for the Years Ended December
31, 2012, 2011 and 2010, (iv) Consolidated Statements of Stockholders’ Equity for the Years
Ended December 31, 2012, 2011 and 2010, (v) Consolidated Statements of Cash Flows for
the Years Ended December 31, 2012, 2011 and 2010, and (vi) the Notes to Consolidated
Financial Statements. (1)
XBRL Instance Document (1)
XBRL Taxonomy Extension Schema Document (1)
XBRL Taxonomy Extension Calculation Linkbase Document (1)
XBRL Taxonomy Extension Labels Linkbase Document (1)
XBRL Taxonomy Extension Presentation Linkbase Document (1)
XBRL Taxonomy Extension Definitions Linkbase Document (1)
(1)
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and
Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
*
Denotes incorporated by reference.
Page -83-
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements on Form S-3 and S-8 (File Numbers: 333-136600, 333-
185646, and 333-182373) of Bridge Bancorp, Inc. of our report dated March 13, 2013 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, 2012.
New York, New York
March 13, 2013
Crowe Horwath LLP
Page -84-
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)
I, Kevin M. O’Connor, certify that:
1)
2)
3)
4)
I have reviewed this annual report on Form 10-K of Bridge Bancorp, Inc.;
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;
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;
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)
b)
c)
d)
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;
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;
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
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 (or persons
performing the equivalent functions):
a)
b)
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
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 13, 2013
/s/ Kevin M. O’Connor
Kevin M. O’Connor
President and Chief Executive Officer
Page -85-
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A)
I, Howard H. Nolan, certify that:
1)
2)
3)
4)
I have reviewed this annual report on Form 10-K of Bridge Bancorp, Inc.;
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;
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;
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)
b)
c)
d)
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;
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;
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
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 (or persons
performing the equivalent functions):
a)
b)
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
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 13, 2013
/s/ Howard H. Nolan
Howard H. Nolan
Senior Executive Vice President and Chief Financial Officer
Page -86-
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, 2012
as filed with the Securities and Exchange Commission on March 13, 2013, (the “Report”), we, Kevin M. O’Connor, President and
Chief Executive Officer of the Company and, Howard H. Nolan, Senior Executive Vice President and Chief Financial Officer 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 13, 2013
/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 and Chief Financial Officer
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 -87-