2015 Annual Report
sharing a VISION
BRIDGE
BANCORP, INC.
Financial Highlights
(in thousands, except per share data and financial ratios)
For the year ended December 31,
2015
2014
EARNINGS
Net income
Return on average equity
Return on average assets
BALANCE SHEET
Assets
Loans
Deposits
Stockholders’ equity
PER SHARE DATA
Diluted earnings
Cash dividends paid
Book value
$
21,111
$
13,763
7.91%
0.71%
7.76%
0.64%
$ 3,781,959
$ 2,288,524
$ 2,410,774
$ 1,338,327
$ 2,843,625
$ 1,833,779
$ 341,128
$ 175,118
$
$
$
1.43
0.92
19.62
$
$
$
1.18
0.92
15.03
Reconciliation of GAAP and core: net income, diluted earnings per share (EPS), return on average assets (ROA) and
return on average equity (ROE):
For the year ended December 31,
2015
2014
Reported—(GAAP)
Adjustments, net of income taxes:
Acquisition costs and branch
restructuring
Non-compete agreement
Net securities losses
Tax benefit related to NYC
tax law change
Gain on sale of loans
Net
Income
Diluted
EPS
ROA
ROE
Net
Income
Diluted
EPS
ROA
ROE
$21,111
$ 1.43
0.71%
7.91% $ 13,763
$1.18
0.64%
7.76%
6,272
467
5
0.42
0.03
—
0.21%
0.02%
—
2.35%
0.17%
—
(351)
(179)
(0.02)
(0.01)
(0.01%)
(0.01%)
(0.13%)
(0.07%)
3,812
—
709
—
—
0.33
—
0.06
—
—
0.18%
—
0.03%
2.15%
—
0.40%
—
—
—
—
Core results
$27,325
$1.85
0.92%
10.23% $ 18,284
$1.57
0.85% 10.31%
The tables above provide a reconciliation of GAAP (As Reported) and non-GAAP (Core) financial measures. A non-GAAP financial measure is a numerical measure of
historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly
comparable measure calculated and presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The Company’s
management believes the presentation of non-GAAP financial measures provide investors with a greater understanding of the Company’s operating results in addition to
the results measured in accordance with GAAP. While management uses these non-GAAP measures in its analysis of the Company’s performance, this information should
not be viewed as a substitute for financial results determined in accordance with GAAP or considered to be more important than financial results determined in accordance
with GAAP.
About Us
Bridge Bancorp, Inc. is a bank holding company engaged in commercial banking and financial services through its wholly
owned subsidiary, The Bridgehampton National Bank (“BNB”). Established in 1910, BNB, with assets of approximately
$3.8 billion, operates 40 retail branch locations serving Long Island and the greater New York metropolitan area. In addition,
the Bank operates two loan production offices: one in Manhattan, and one in Riverhead, New York. Through its branch
network and its electronic delivery channels, BNB provides deposit and loan products and financial services to local businesses,
consumers and municipalities. Title insurance services are offered through BNB’s wholly owned subsidiary, Bridge Abstract.
Bridge Financial Services, Inc. offers financial planning and investment consultation.
BNB also has a rich tradition of involvement in the community, supporting programs and initiatives that promote local
business, the environment, education, healthcare, social services and the arts.
Our Branches and Lending Reach
BNB Branches
Bay Shore
Bayside
Bridgehampton
Center Moriches
Cutchogue
Deer Park
East Hampton
East Hampton Village
Garden City
Great Neck
Greenport
Hampton Bays
Hauppauge
Hewlett
Huntington
Manhattan
Massapequa
Mattituck
Melville
Melville South
Merrick
Montauk
New Hyde Park
Through Believe iN Beyond initiatives, BNB looks
internally at how to be a better company—to deliver
value to all customers outside and in.
Oceanside
Patchogue
Peconic Landing
Port Jefferson
Rockville Centre
Rocky Point
Ronkonkoma
Sag Harbor
Shelter Island
Shirley
Smithtown
Southampton Village
Southampton
(Windmill Lane)
Southold
Wading River
Westhampton Beach
Woodbury
Commercial
Loan Offices
Manhattan
Riverhead
delivering on our promise COMMUNITY BANKING
FROM MONTAUK TO MANHATTAN
Total Assets
(at December 31, in millions)
Total Loans
(at December 31, in millions)
Total Loans by Type
(at December 31, 2015)
$3,782.0
$2,500
$2,410.8
$2,000
$1,500
$1,000
$500
0
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
Commercial Mortgages
Commercial Loans
Residential &
Consumer Loans
Home Equity Loans
Multifamily Loans
Construction & Land Loans
44%
21%
14%
3%
14%
4%
Average Yield 4.75%
Total Deposits
(at December 31, in millions)
Net Income
(in millions)
Total Deposits by Type
(at December 31, 2015)
$2,843.6
’11
’12
’13
’14
’15
$25
$20
$15
$10
$5
0
$21.1
’11
’12
’13
’14
’15
Demand Deposits
Money Markets
Savings & NOW
Certificates of Deposit
Average Cost of
Customer Deposits 0.23%
41%
34%
15%
10%
$4,000
$3,000
$2,000
$1,000
0
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
Kevin M. O’Connor
PRESIDENT AND CEO
Bridge Bancorp, Inc. 2015 Annual Report • 3
Fellow Shareholders:
Through this message to you, our shareholders, we strive to share our vision, deliver important information
about our results and involve you in an ongoing dialogue about our strengths and accomplishments. We review
where we are today and highlight our goals and aspirations. We share our thoughts regarding the state of BNB
and the banking industry, our role in the marketplace and the ever-evolving economic environment. Finally,
and most importantly, this message provides a direct way to explain the “Why?” behind our strategy and the
resulting decisions and outcomes.
2015 was a transformative and eventful year for BNB. We began by preparing for the acquisition and
inte gration of Community National Bank (“CNB”). We ended, focused on implementing a structured internal
initiative to enhance the ways BNB will deliver on the commitments made to our customers, our community
and ultimately you, our shareholders. We successfully integrated the 11 CNB branches and retained a majority
$3.8
Billion
in assets at year end.
A 65% increase over 2014.
of CNB customers who experienced a positive transition. We also
introduced new products and services, achieved strong organic
growth, and continued to build on the expanded footprint and
reach of BNB.
To put the impact of this acquisition and overall growth in perspec-
tive, it is useful to reflect on BNB’s recent trajectory and how the
BNB story has evolved. In 2005, we were a successful com munity
bank of $500 million with 10 branches, located primarily on the
east end of Long Island. We delivered great products and services to
a vibrant community. Our team was highly motivated, providing
capital for entrepreneurs, business people and consumers to grow
their businesses and purchase buildings or homes, contributing to a robust local economy. BNB bankers part-
nered with their customers to assist them in navigating the complex world of finance. Ultimately, they delivered
community banking the BNB way, which was both aspirational and results oriented. Customers realized their
goals and dreams with our help.
Today, parts of the story are much different. Our size and scope have increased dramatically to almost $4 billion
in assets with 40 branches stretching from Montauk to Manhattan. We have added a large number of
talented bankers. We are nearly 500 employees strong. However, our theme remains the same: BNB bankers
still help customers realize their goals and dreams, albeit in larger numbers and with additional geographic and
industry diversity. This steadfast commitment to service is unwavering and is the fundamental tenet of BNB
and its bankers. Our ability to leverage the legacy of BNB is “Why” we believed adding CNB was pivotal and
important. Our Board’s shared vision and commitment to the BNB model, coupled with the dedication
of many long-serving employees, provided the bridge to take BNB from where we were in 2005 to where
we are today. This legacy and culture allows us to add new faces, new locations and new products while
remaining true to the mission of community banking, providing our growth with both purpose and focus.
4 • Bridge Bancorp, Inc. 2015 Annual Report
Our financial results in this report were all positively impacted by
the Company’s growth. We achieved a record level of $27.3 million
in core income, our core earnings per share grew by 18% to $1.85
and we paid over $13.4 million in dividends. All of this was possible
due to the significant effort and diligence of your BNB team. On
June 19th, the CNB transaction closed. We then converted data
systems, upgraded technology in the 11 branches and changed all
CNB signage. All of this happened over one short weekend with all
locations reopened on Monday as BNB—without a hitch. Our
team spent the next several months visiting every significant CNB
business customer, touring their facilities, meeting their staff,
80%
Increase in loans
in 2015, loans exceeded
$2.4 billion at year end.
understanding their businesses and, ultimately, assuring them that BNB was a partner they could trust and rely
on to assist them in achieving their individual visions of success.
At the same time we focused on this major acquisition, we continued to add customers while increasing deposits
and loans throughout our expanded footprint and in our mature markets. The conversion of the three former
First National Bank of NY (“FNBNY”) branches to commercial locations continued. The seven new Nassau
county branches, combined with those we acquired through FNBNY, brings us to nine in this highly desirable
and densely populated market, home to over 50,000 businesses.
The CNB acquisition brought us an expanded branch network covering Nassau County and moved us into the
Queens and Manhattan markets. It also opened doors to new products and services, providing BNB with the
opportunity to make a difference through its Small Business Administration (“SBA”) lending. Companies that
were just starting out, or that did not fit certain loan criteria could now be addressed by our BNB bankers with
experience and knowledge in this specific lending niche. In partnership with the SBA, we are able to provide
these companies with much needed financing. This service represents a natural extension of the type of lending
BNB provides.
Entering new markets also demands a close look at local business needs and a critical and creative look at
our products and services. We have always been proud of how well our bankers understand their customers’
market environment. As part of that analysis, we have established a new department specializing in equipment
financing. This complementary offering will expand relationships with existing customers and provide new
opportunities. We have also begun offering international currency services to accommodate our customers who
trade worldwide.
I indicated above we have embarked on a formalized internal initiative. The rationale for this was simple: after
three acquisitions in over three years combined with our extraordinary organic growth, we wanted to focus
on ourselves. We believe it is prudent to take a closer look at the Company we have built, from the inside out,
ensuring we could deliver on the promises made to our customers, employees and shareholders. To accomplish
Al Notarnicola
Doreen Argenti-Colombo
GOLD MEDAL GYMNASTICS CENTERS
HUNTINGTON, ROCKY POINT, CENTEREACH,
SMITHTOWN, GARDEN CITY
“BNB is a bank that values small business.
They came through for us and supported our
growth without hesitation. The staff is amazing,
they know us and don’t treat us like a number.”
Robert Bakes
BAKES & KROPP
SAG HARBOR AND MANHATTAN
“BNB has a real partnership style that has
allowed me to explore new opportunities and
focus on improving my business. It’s the local
connection, the Long Island locations and a
clear sense that my business is valued.”
Bridge Bancorp, Inc. 2015 Annual Report • 7
this we created the Believe iN Beyond initiative which is engaging staff throughout the bank, working together
to address challenges and find solutions. The focus is on three overarching concepts:
• Capitalize on revenue opportunities in new or acquired businesses, products and branches
• Identify efficiencies, improve/streamline processes while ensuring we have the right technology solutions
• Maximize the talent of our team, develop the next leaders and provide opportunities for the best to succeed
This process has energized our team, evidenced by the fact we have already seen the impact generated by new
ideas shared in multi-disciplinary meetings. We are highly confident the outcome will create a platform for
future success and enable us to achieve our goal: To be the pre-eminent community bank in our marketplace.
We believe that to achieve this we must maximize our relationships and have the most efficient systems/processes,
40
Branches
all delivered by the best bankers. We want optimum efficiency and
organization to capitalize on growth opportunities available in our
marketplace. Our Believe initiative is a thoughtful internal project
which allows us to assess, develop and implement the platform on
which we can build the future.
Businesses do not exist in a vacuum and the current and future
success of BNB must always be considered against the backdrop
of the economy. The eight-year economic recovery continues with
modest GDP and job growth. The improvement convinced the Fed
to increase interest rates, in December 2015, for the first time since
2008. National gains have been mirrored in the local marketplace
as the Long Island unemployment rate declined to 4.4% from the previous year’s 5.1%. We strive to back-up the
broad statistical measures with local anecdotal evidence. While not a scientific survey, we found our customers
had better 2015’s than 2014’s and prior to recent turmoil in the stock market, they projected
a stronger 2016. The long-term impact of this market volatility is not yet evident. However, the immediate
effect has been to lower intermediate and long-term rates, while seeming to put the Fed on hold for a period.
Lower rates provide opportunities for borrowers, but challenges banking sector profitability.
Increasingly, the state of the world at large pushes customers and banks into an even more dynamic relationship.
Interest rates, compliance, cybersecurity, terrorism, new financial technologies—these factors impact how we
live and do business on a daily basis. The next generation of business owners and operators, who will build the
local businesses and economy of tomorrow, will operate in a more technologically driven way. They will have
less reliance on brick and mortar locations. How they conduct business and gather information is a complex
puzzle of social media, internet sites and digital services. As a community bank, we must ask ourselves how we
will refresh our banking model to consider the business and technology trends of the future, while maintaining
a strong culture of service. It is not a time for “business as usual.” We continue to develop processes and
8 • Bridge Bancorp, Inc. 2015 Annual Report
procedures to ensure compliance with new regulations, which
are designed to protect the financial system, but which increase
the complexity of product delivery. The cybersecurity threat has
become, at BNB and throughout the industry, a major topic of
discussion and concern. The speed at which data moves and the
desire for people to exploit this for financial or political gain creates a
challenging situation for bankers, customers, technology companies
and, ultimately, the government. Whether it is the rogue hacker or
some form of state-sponsored attack, we have and will continue to
invest in software, hardware and people to combat this threat. We
additionally have a responsibility to maintain an ongoing dialogue
$2.8
Billion
in total deposits, a 55%
increase compared to 2014.
with our customers, so that we all play a role in maintaining the safety of data.
I am confident we are building an organization that can and will meet the challenges of the future. Our Believe
initiative is helping us become stronger and smarter. Our partnership with customers will always set us apart,
but it must be in the context of smart new technology and inspired products and services. At BNB we have
always believed in doing what is right…for our customers, our shareholders and for the communities we serve.
2015 was an exciting year of accomplishment and I look forward to what lies ahead of us on the horizon.
Sincerely,
Kevin M. O’Connor
President and Chief Executive Officer
Prasad Venigalla
PHARMACIES
14 LONG ISLAND LOCATIONS
“I changed banks initially for convenience, but
later it was about BNB’s valuable service and
products, like online tools and technology.
I appreciate BNB’s responsiveness and easy
access to all levels of leadership.”
Jim Conroy
SWEENEY AND CONROY INC.,
CONROY BUILDERS, INC.
MANHATTAN, MONTAUK
“BNB is a user friendly local bank that took
a serious interest in our business.
The President and senior lending officer
visited our projects, discussed our business
interests and banking needs and provided the
support we were looking for.”
from the outer edge of
Manhattan to the shores of
Montauk, LONG ISLAND
IS OUR HOME
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, 2015
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, 2015, was $438,956,096.
The number of shares of the Registrant’s common stock outstanding on March 11, 2016 was 17,448,227.
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 2016 Annual Meeting to be filed pursuant to Regulation 14A on or before April
29, 2016 (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
8
12
12
12
12
12
15
16
34
36
86
86
86
86
86
87
87
87
87
88
89
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 and Bridge Financial
Services LLC (“Bridge Financial Services’), an investment services subsidiary that was formed in March 2014; 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.
Federally chartered in 1910, the Bank was founded by local farmers and merchants and now operates forty branches, thirty-eight in the
primary market areas of Suffolk and Nassau Counties, Long Island, with one branch in Bayside, Queens and one in Manhattan. For
over a century, the Bank has maintained its focus on building customer relationships in its 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) multi-family mortgage loans; (3) home equity loans; (4) construction loans;
(5) residential mortgage loans; (6) secured and unsecured commercial and consumer loans; (7) FHLB, FNMA, GNMA and FHLMC
and non-agency mortgage-backed securities, collateralized mortgage obligations and other asset backed securities; (8) New York State
and local municipal obligations; and (9) U.S government sponsored entity (“U.S. GSE”) securities. The Bank also offers the CDARS
program, providing multi-millions of FDIC insurance on CD deposits 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 as well as investment services through Bridge Financial Services,
which offers 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 433 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
Page -1-
employees. In recent years, more national chains have opened retail stores within the villages on the north and south forks of the
island. Major employers in the region include the municipalities, school districts, hospitals, and financial institutions.
The Company, the Bank and its subsidiaries, with the exception of the real estate investment trust which files its own federal and state
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.
DeNovo Branch Expansion
Since 2010, the Bank has opened ten new branches including seven over the last three years. The Bank opened two branches in 2012:
one in Ronkonkoma, New York with proximity to MacArthur Airport complementing the Patchogue branch and extending the Bank’s
reach into the Bohemia market and one branch and administrative offices in Hauppauge, New York. In 2013, the Bank opened two
branches: one in Rocky Point, New York and one on Shelter Island, New York. In 2014, the Bank opened three branches: one in Bay
Shore, New York in September, one in Port Jefferson, New York in November and one in Smithtown, New York in December. These
branch openings demonstrate the Bank’s commitment to traditional growth through branch expansion and move the Bank
geographically westward.
Mergers and Acquisitions
Hamptons State Bank
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 and demonstrated its ability to successfully integrate the former HSB customers and achieve expected cost savings while
continuing to execute its business strategy.
FNBNY
On February 14, 2014, the Company acquired FNBNY Bancorp and its wholly owned subsidiary, the First National Bank of New
York (collectively “FNBNY”) at a purchase price of $6.1 million and issued an aggregate of 240,598 Company shares in exchange for
all the issued and outstanding stock of FNBNY. The purchase price was subject to certain post-closing adjustments equal to 60 percent
of the net recoveries on $6.3 million of certain identified problem loans over a two-year period after the acquisition. As of February
14, 2016, a net recovery of $0.4 million was realized and $0.3 million has been distributed to the former FNBNY shareholders. At
acquisition, FNBNY had total acquired assets on a fair value basis of $211.9 million, with loans of $89.7 million, investment
securities of $103.2 million and deposits of $169.9 million. With three full-service branches, including the Company’s first two
branches in Nassau County located in Merrick and Massapequa, and one in western Suffolk County located in Melville, the
transaction expanded our geographic footprint into Nassau County, complemented our existing branch network and enhanced our
asset generation capabilities. The expanded branch network allows us to serve a greater portion of the Long Island and metropolitan
marketplace.
Community National Bank (“CNB”)
On June 19, 2015, the Company acquired Community National Bank (“CNB”) at a purchase price of $157.5 million, issued an
aggregate of 5.647 million Bridge Bancorp common shares in exchange for all the issued and outstanding common stock of CNB and
recorded goodwill of $89.0 million, which is not deductible for tax purposes. At acquisition, CNB had total acquired assets on a fair
value basis of $899.9 million, with loans of $734.0 million, investment securities of $90.1 million and deposits of $786.9 million. The
transaction expanded the Company’s geographic footprint across Long Island including Nassau County, Queens and into New York
City. It complements the Bank’s existing branch network and enhances asset generation capabilities. The expanded branch network
allows the Bank to serve a greater portion of the Long Island and metropolitan marketplace through a network of 40 branches.
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.
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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.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) made extensive changes in the
regulation of insured depository institutions. Among other things, the Dodd-Frank Act created a new Consumer Financial Protection
Bureau as an independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau assumed responsibility for
the implementation of the federal financial consumer protection and fair lending laws and regulations, a function previously assigned
to prudential regulators, and has authority to impose new requirements. However, institutions of less than $10 billion in assets, such as
the Bank, continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject
to the primary enforcement authority of their prudential regulator rather than the Consumer Financial Protection Bureau.
In addition, the Dodd-Frank Act directed changes in the way that institutions are assessed for deposit insurance, mandated the revision
of regulatory capital requirements, required regulations requiring originators of certain securitized loans to retain a percentage of the
risk for the transferred loans, stipulated regulatory rate-setting for certain debit card interchange fees, repealed restrictions on the
payment of interest on commercial demand deposits and contained a number of reforms related to mortgage originations.
The Dodd-Frank Act contained the so-called “Volcker Rule,” which generally prohibits banking organizations from engaging in
proprietary trading and from investing in, sponsoring or having certain relationships with hedge or private equity funds (“covered
funds”). On December 13, 2013, federal agencies issued a final rule implementing the Volcker Rule which, among other things,
requires banking organizations to restructure and limit certain of their investments in and relationships with covered funds. The final
rule unexpectedly included within the interests subject to its restrictions collateralized debt obligations backed by trust-preferred
securities (“TRUPs CDOs”). Many banking organizations had purchased such instruments because of their favorable tax, accounting
and regulatory treatment and would have been subject to unexpected write-downs. In response to concerns expressed by community
banking organizations, the federal agencies subsequently issued an interim final rule which grandfathers TRUPS CDOs issued before
May 19, 2010 if (i) acquired by a banking organization on or before December 10, 2013 and (ii) the organization reasonably believed
the proceeds from the TRUPS CDOs were invested primarily in any trust preferred security or subordinated debt instrument issued by
a depository institution holding company with less than $15 billion in assets or by a mutual holding company.
In addition, the Consumer Financial Protection Bureau has finalized the rule implementing the “Ability to Pay” requirements of the
Dodd-Frank Act. The regulations generally require creditors to make a reasonable, good faith determination as to a borrower’s ability
to repay most residential mortgage loans. The final rule establishes a safe harbor for certain “Qualified Mortgages,” which contain
certain features deemed less risky and omit certain other characteristics considered to enhance risk. The Ability to Repay final rules
were effective January 10, 2014.
Many of the provisions of the Dodd-Frank Act are subject to delayed effective dates and/or require the issuance of implementing
regulations. The regulatory process is ongoing and the impact on operations cannot yet be fully assessed. However, there is a
significant possibility that the Dodd-Frank Act will, at a minimum, result in increased regulatory burden, compliance costs and interest
expense for the Company and the Bank.
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 are generally defined as marketable 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, adopted and maintain written policies that establish appropriate
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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.
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.
Effective July 22, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act permanently raised the deposit insurance
available on all deposit accounts to $250,000 with a retroactive effective date of January 1, 2008.
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. Institutions deemed less
risky pay lower rates. The Dodd-Frank Act required the FDIC to revise its procedures to base its assessments upon each insured
institution’s total assets less tangible equity instead of deposits. The FDIC finalized a rule, effective April 1, 2011, that set the
assessment range at 2.5 to 45 basis points of total assets less tangible equity. The FDIC may adjust the scale uniformly, except that no
adjustment can deviate more than two basis points from the base scale without notice and comment. No institution may pay a
dividend if in default of the federal deposit insurance assessment.
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, 2015, the annualized FICO assessment was equal to 0.60 basis points of average
consolidated total assets less average tangible equity.
Capitalization
Federal regulations require FDIC insured depository institutions, including national banks, to meet several minimum capital standards:
a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to
risk-based assets of 8% and a 4% Tier 1 capital to total assets leverage ratio. The existing capital requirements were effective January
1, 2015 and are the result of a final rule implementing regulatory amendments based on recommendations of the Basel Committee on
Banking Supervision and certain requirements of the Dodd-Frank Act.
As noted, the capital standards require the maintenance of common equity Tier 1 capital, Tier 1 capital and total capital to risk-
weighted assets of at least 4.5%, 6% and 8%, respectively, and a leverage ratio of at least 4% Tier 1 capital. Common equity Tier 1
capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common
equity Tier 1 and Additional Tier 1 capital. Additional Tier 1 capital generally includes certain noncumulative perpetual preferred
stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital
(common equity Tier 1 capital plus Additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and
related surplus meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock,
mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance
for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out
election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on
available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out
have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities).
Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, assets, including certain off-
balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor
assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset
categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk
weight of 50% is generally assigned to prudently underwritten first lien one to four- family residential mortgages, a risk weight of
100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of
between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
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In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain
discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of
common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital
requirements. The capital conservation buffer requirement is being phased in beginning January 1, 2016 at 0.625% of risk-weighted
assets and increasing each year until fully implemented at 2.5% on January 1, 2019.
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 recent final rule that increased regulatory capital standards adjusted the prompt corrective action tiers as of January 1, 2015. The
various categories have been revised to incorporate the new common equity Tier 1 capital requirement, the increase in the Tier 1 to
risk-based assets requirement and other changes. Under the revised prompt corrective action requirements, insured depository
institutions are required to meet the following in order to qualify as “well capitalized:” (1) a common equity Tier 1 risk-based capital
ratio of 6.5% (new standard); (2) a Tier 1 risk-based capital ratio of 8% (increased from 6%); (3) a total risk-based capital ratio of 10%
(unchanged) and (4) a Tier 1 leverage ratio of 5% (unchanged).
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. Dividends
exceeding those amounts require application to and approval by the OCC.
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-
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.
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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 previously adopted consolidated capital adequacy guidelines for bank holding structured similarly, but not
identically, to those of the OCC for the Bank. The Dodd-Frank Act directed the Federal Reserve Board to issue consolidated capital
requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of
capital, than those applicable to institutions themselves. The previously discussed final rule regarding regulatory capital requirements
implements the Dodd-Frank Act as to bank holding company capital standards. Consolidated regulatory capital requirements identical
to those applicable to the subsidiary banks applied to bank holding companies as of January 1, 2015. As is the case with institutions
themselves, the capital conservation buffer will be phased-in between 2016 and 2019. The new capital rule eliminates from Tier 1
capital the inclusion of certain instruments, such as trust preferred securities, that were previously includable by bank holding
companies. However, the final rule grandfathers trust preferred issuances prior to May 19, 2010 in accordance with the Dodd-Frank
Act. The Company has issued trust preferred securities that qualify for the grandfather. The Company met all capital adequacy
requirements under the new capital rules on December 31, 2015.
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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.
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.
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 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 had nominal results of operations for 2015, 2014, and 2013 on a parent-only basis. 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 16 of the Notes to the
Consolidated Financial Statements). Since 2013, the Company has actively managed its capital position in response to its growth and
has raised $210.7 million in capital.
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.
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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 Suffolk County 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, 2015, our securities portfolio totaled $1.0 billion.
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 primary market area is located in Nassau and Suffolk Counties, Long Island. Since 2010, the Bank has expanded its
market areas to include branches in the towns of Babylon, Smithtown and Islip. In December 2012, the Bank opened administrative
offices in Hauppauge, New York, to better service customers as the Bank continues to move westward. During 2013, the Bank
opened two new branches: one in March located in Rocky Point, New York and one in May located on Shelter Island, New York.
During 2014, the Bank opened three branches in Suffolk County: Bay Shore, Port Jefferson and Smithtown, New York and added
three branches, including the first two branches in Nassau County, from the acquisition of FNBNY. The acquisition of CNB during
2015 expanded the Bank’s geographic footprint across Long Island including Nassau County, Queens and into New York City.
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
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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.
Acquisitions involve integrations and other risks
Acquisitions involve a number of risks and challenges including: our ability to integrate the branches and operations we acquire, and
the associated internal controls and regulatory functions, into our current operations; our ability to limit the outflow of deposits held
by our new customers in the acquired branches and to successfully retain and manage the loans we acquire; our ability to attract new
deposits and to generate new interest-earning assets in geographic areas we have not previously served. Additionally, no assurance
can be given that the operation of acquired branches would not adversely affect our existing profitability; that we would be able to
achieve results in the future similar to those achieved by our existing banking business; that we would be able to compete effectively
in the market areas served by acquired branches; or that we would be able to manage any growth resulting from the transaction
effectively. We face the additional risk that the anticipated benefits of the acquisition may not be realized fully or at all, or within the
time period expected. Finally, acquisitions typically involve the payment of a premium over book and trading values and therefore,
may result in dilution of our book and tangible book value per share.
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 and fall 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. 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.
Although economic and real estate conditions improved in 2015, we continue to operate in a challenging environment both nationally
and locally. This poses significant risks to both the Company’s business and the banking industry as a whole. Although we have
taken, and continue to take, steps to reduce our exposure to the risks that stem from adverse changes in such conditions, we
nonetheless could be impacted by them to the degree that they affect the loans we originate and the securities we invest in. Specific
risks include reduced loan demand from quality borrowers; increased competition for loans; increased loan loss provisions resulting
from deterioration in loan quality caused by, among other things, depressed real estate values and high levels of unemployment;
reduced net interest income and net interest margin caused by a sustained period of low interest rates; interest rate volatility; price
competition for deposits due to liquidity concerns or otherwise; and volatile equity markets.
Page -9-
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 collectability 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 probable incurred losses 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 and subordinated debentures 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. In addition, we issued $80 million of subordinated debentures in 2015. As a result, we must
make payments on the junior subordinated debentures and the 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 and the 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 tightened capital standards, created a new Consumer Financial
Protection Bureau and resulted 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 pertained 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 had
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.
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
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 are examined by their
applicable bank regulators. The Dodd-Frank Act also weakened 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.
Page -10-
It is difficult to fully assess at this time what specific impact the Dodd-Frank Act and the 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.
In July 2013, the OCC and the other federal bank regulatory agencies issued a final rule that will 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. Among other things, the rule
establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), sets the leverage ratio at a
uniform 4% of total assets, increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted
assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to
certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rule also
requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating
regulatory capital requirements unless a one-time opt-out is exercised. The rule limits a banking organization’s capital distributions
and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation
buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its
minimum risk-based capital requirements. The final rule became effective January 1, 2015. The “capital conservation buffer” will be
phased in from January 1, 2016 to January 1, 2019, when the full capital conservation buffer will be effective.
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 operations and earnings.
Information technology systems are critical to our business. We collect, process and store sensitive customer data by utilizing
computer systems and telecommunications networks operated by us and third party service providers. 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 maintain interfaces with certain third-party service providers. If these third-party service 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.
We are exposed to cyber-security risks, including denial of service, hacking, and identity theft.
There have been well-publicized distributed denials of service attacks on large financial services companies. Distributed denial of
service attacks are designed to saturate the targeted online network with excessive amounts of network traffic, resulting in slow
response times, or in some cases, causing the site to be temporarily unavailable. Hacking and identity theft risks, in particular, could
cause serious reputational harm. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks.
We may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.
Severe weather, acts of terrorism and other external events could impact our ability to conduct business
In the past, 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
Page -11-
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.
Changes in tax laws
The Company is subject to income tax under Federal, New York State, New York City and New Jersey State laws and regulations.
Changes in such laws and regulations could increase the Company’s tax burden and such increase could have a material negative
impact on the consolidated financial statements.
We may incur impairment to our goodwill
Goodwill arises when a business is purchased for an amount greater than the fair value of the net assets acquired. We recognized
goodwill as an asset on our balance sheet in connection with the CNB, FNBNY and HSB acquisitions. We evaluate goodwill for
impairment at least annually. Although we determined that goodwill was not impaired during 2015, a significant and sustained
decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse
change in the business climate, slower growth rates or other factors could result in impairment of goodwill. If we were to conclude
that a future write-down of the goodwill was necessary, then we would record the appropriate charge to earnings, which could be
materially adverse to the Company’s consolidated financial statements.
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.
As of December 31, 2015, the Bank has six owned properties: our headquarters and branch office in Bridgehampton and 5 branches
located in Montauk, Southold, Westhampton Beach, Southampton Village, and East Hampton Village. 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. The Bank currently leases out a
portion of the Montauk and Westhampton Beach buildings. The Bank leases thirty four additional properties as branch locations:
twenty three in Suffolk County, nine in Nassau County, one in Queens and one in Manhattan. The Bank currently subleases a portion
of the leased property located in Patchogue and Melville, New York. The Bank leases two properties as loan production offices: one in
Riverhead, New York and one in New York City. In addition, one leased property in New York City is fully sublet.
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 the Company’s 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
At December 31, 2015, the Company had approximately 1,049 shareholders of record, not including the number of persons or entities
holding stock in nominee or the street name through various banks and brokers
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 closing prices of the Company’s common stock and the dividends declared for such periods.
Page -12-
COMMON STOCK INFORMATION
By Quarter 2015
First
Second
Third
Fourth
By Quarter 2014
First
Second
Third
Fourth
Stock Prices
High
Low
Dividends
Declared
26.70
27.89
28.12
32.05
$
$
$
$
24.55
24.33
25.85
26.26
$
$
$
$
0.23—
0.23
0.23
0.23
Stock Prices
High
Low
Dividends
Declared
27.35
27.40
25.37
27.03
$
$
$
$
23.74
23.28
23.03
23.31
$
$
$
$
0.23
0.23
0.23
0.23
$
$
$
$
$
$
$
$
Stockholders received cash dividends totaling $13.4 million in 2015 and $10.7 million in 2014. The ratio of dividends per share to net
income per share was 63.55% in 2015 compared to 77.43% in 2014.
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
January 1, 2016, the Bank had $27.6 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 -13-
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 LC (“SNL”) from December 31, 2010 through December 31, 2015. 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
220
200
180
160
140
120
100
e
u
l
a
V
x
e
d
n
I
80
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
Bridge Bancorp, Inc.
NASDAQ Composite
SNL Bank $1B-$5B
Index
Bridge Bancorp, Inc.
NASDAQ Composite
SNL Bank $1B-$5B
Period Ending
12/31/10
100.00
100.00
100.00
12/31/11
83.40
99.21
91.20
12/31/12
89.93
116.82
112.45
12/31/13
118.48
163.75
163.52
12/31/14
126.55
188.03
170.98
12/31/15
149.00
201.40
191.39
ISSUER PURCHASES OF EQUITY SECURITIES
The Board of Directors approved a stock repurchase program on March 27, 2006 which authorized the repurchase of 309,000 shares.
No shares were purchased during the year ended December 31, 2015. The total number of shares purchased as part of the publicly
announced plan totaled 141,959 as of December 31, 2015. The maximum number of remaining shares that may be purchased under
the plan totals 167,041 as of December 31, 2015. 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, 2015.
Page -14-
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.
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(1)(2)(3)(4)
December 31,
Selected Financial Ratios and Other Data:
Return on average equity(1)(2)(3)(4)
Return on average assets(1)(2)(3)(4)
Average equity to average assets
Dividend payout ratio (5)(6)
Basic earnings per share(1)(2)(3)(4)
Diluted earnings per share(1)(2)(3)(4)
Cash dividends declared per common share (5)(6)
2015
2014
2013
2012
2011
$
$
$
$
$
$
800,203 $
24,788
208,351
—
2,410,774
3,781,959
2,843,625
341,128
587,184
10,037
214,927
—
1,338,327
2,288,524
1,833,779
175,118
106,240 $
10,129
96,111
4,000
92,111
12,668
72,890
31,889
10,778
21,111 $
74,910
7,460
67,450
2,200
65,250
8,166
52,414
21,002
7,239
13,763
$
$
$
575,179
7,034
201,328
—
1,013,263
1,896,612
1,539,079
159,460
58,430
7,272
51,158
2,350
48,808
8,891
37,937
19,762
6,669
13,093
7.91%
0.71%
9.01%
63.55%
1.43 $
1.43 $
0.92 $
7.76%
0.64%
8.27%
77.43%
1.18
1.18
0.92
$
$
$
9.89%
0.77%
7.80%
51.58%
1.36
1.36
0.69
$
$
$
$
$
$
529,070 $
2,978
210,735
—
798,446
1,624,574
1,409,322
118,672
441,439
1,660
169,153
2,300
612,143
1,337,345
1,188,185
106,987
54,514 $
7,555
46,959
5,000
41,959
10,673
33,780
18,852
6,080
12,772 $
50,426
7,616
42,810
3,900
38,910
6,949
30,837
15,022
4,663
10,359
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
(1)
(2)
2015 amount includes $6.3 of acquisition costs, net of income taxes, associated with the CNB acquisition.
2014 amount includes $3.8 million of acquisition costs associated with the FNBNY and CNB acquisitions and branch restructuring costs,
net of income taxes
2013 amount includes $0.4 million of acquisition costs, net of income taxes, associated with the FNBNY acquisition.
2011 amount includes $0.5 million of acquisition costs, net of income taxes, associated with the HSB acquisition.
(3)
(4)
(5) The dividend payout ratio and cash dividends declared per common share for 2012 includes five declared quarterly dividends.
(6) The dividend payout ratio and cash dividends declared per common share for 2013 and 2011 includes three declared quarterly dividends.
Page -15-
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.
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; our ability to
successfully integrate acquired entities; 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 including 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 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 $8.0 million and $0.46 per diluted share for the fourth quarter 2015 compared to $4.2 million and
$0.36 per diluted share for the fourth quarter 2014. Net income for 2015 was $21.1 million and $1.43 per diluted
share, compared to $13.8 million and $1.18 per diluted share in 2014.
Returns on average assets and equity for 2015 were 0.71% and 7.91%, respectively.
Net interest income increased to $96.1 million for 2015 compared to $67.5 million in 2014.
Net interest margin was 3.57% for 2015 and 3.41% for 2014.
Total assets of $3.8 billion at December 31, 2015, an increase of $1.5 billion or 65.3% over the same date last year.
Total loans held for investment of $2.4 billion at December 31, 2015, an increase of 80.1% from December 31,
2014.
Page -16-
•
•
•
•
•
Total investment securities of $1.0 billion at December 31, 2015, an increase of 25.7% over December 31, 2014.
Total deposits of $2.8 billion at December 31, 2015, an increase of $1.0 billion or 55.1% over 2014 level.
Allowance for loan losses was 0.86% of loans as of December 31, 2015, compared to 1.32% at December 31, 2014.
Completed the acquisition of CNB in June 2015.
A cash dividend of $0.23 per share was declared in January 2016 and paid in February 2016.
Significant Events
Issuance of sub debt
In September 2015, the Company issued $80.0 million in aggregate principal amount of fixed-to-floating rate subordinated debentures
(the “Notes”). $40.0 million of the Notes are callable at par after five years, have a stated maturity of September 30, 2025 and bear
interest at a fixed annual rate of 5.25% per year, from and including September 21, 2015 until but excluding September 30, 2020.
From and including September 30, 2020 to the maturity date or early redemption date, the interest rate will reset quarterly to an annual
interest rate equal to the then-current three-month LIBOR plus 360 basis points. The remaining $40.0 million of the Notes are callable
at par after ten years, have a stated maturity of September 30, 2030 and bear interest at a fixed annual rate of 5.75% per year, from and
including September 21, 2015 until but excluding September 30, 2025. From and including September 30, 2025 to the maturity date
or early redemption date, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR
plus 345 basis points.
The Notes are included in Tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.
Acquisition of Community National Bank
On June 19, 2015, the Company acquired Community National Bank (“CNB”) at a purchase price of $157.5 million, issued an
aggregate of 5.647 million Bridge Bancorp common shares in exchange for all the issued and outstanding common stock of CNB and
recorded goodwill of $89.0 million, which is not deductible for tax purposes. At acquisition, CNB had total acquired assets on a fair
value basis of $899.9 million, with loans of $734.0 million, investment securities of $90.1 million and deposits of $786.9 million. The
transaction expanded the Company’s geographic footprint across Long Island including Nassau County, Queens and into New York
City. It complements the Bank’s existing branch network and enhances asset generation capabilities. The expanded branch network
allows the Bank to serve a greater portion of the Long Island and metropolitan marketplace through a network of 40 branches.
Acquisition of FNBNY
On February 14, 2014, the Company acquired FNBNY Bancorp and its wholly owned subsidiary, the First National Bank of New
York (collectively “FNBNY”) at a purchase price of $6.1 million and issued an aggregate of 240,598 Company shares in exchange for
all the issued and outstanding stock of FNBNY. The purchase price was subject to certain post-closing adjustments equal to 60 percent
of the net recoveries on $6.3 million of certain identified problem loans over a two-year period after the acquisition. As of February
14, 2016, a net recovery of $0.4 million was realized and $0.3 million has been distributed to the former FNBNY shareholders. At
acquisition, FNBNY had total acquired assets on a fair value basis of $211.9 million, with loans of $89.7 million, investment
securities of $103.2 million and deposits of $169.9 million. With three full-service branches, including the Company’s first two
branches in Nassau County located in Merrick and Massapequa, and one in western Suffolk County located in Melville, the
transaction expanded our geographic footprint into Nassau County, complemented our existing branch network and enhanced our
asset generation capabilities. The expanded branch network allowed the Company to serve a greater portion of the Long Island and
metropolitan marketplace.
Current Regulatory Environment
The Bank continues to operate in a highly regulated environment with many new regulations issued and remaining to be issued under
the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) enacted on July 21, 2010. 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.
Additionally, the Federal Deposit Insurance Corporation and the other federal bank regulatory agencies issued a final rule In July 2013
that revised 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. Among other things, the rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-
weighted assets), increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and
Page -17-
assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain
commercial real estate facilities that finance the acquisition, development or construction of real property. The rule also requires
unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory
capital unless a one-time opt-out is exercised. Additional constraints were also imposed on the inclusion in regulatory capital of
mortgage-servicing assets, defined tax assets and minority interests. The rule limits a banking organization’s capital distributions and
certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of
common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital
requirements. The final rule became effective for the Bank on January 1, 2015. The capital conservation buffer requirement will be
phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be
effective. The final rules, while more favorable to community banks, require that all banks maintain higher levels of capital. The
Bank’s current capital levels meet these new requirements.
In December 2015, the Federal Reserve increased the federal funds target rate 25 basis points. The Federal Open Market Committee
(“FOMC”) anticipates maintaining the federal funds target rate at 25 to 50 basis points due to uncertain global economic conditions.
In determining the timing and amount of future adjustments to the target rate, the Committee will assess labor market conditions,
inflation and economic activity, as well as global market developments. The Committee continues its existing policy of reinvesting
principal payments from its holdings of agency debt and agency mortgage-backed securities and rolling over maturing Treasury
securities at auction and anticipates doing so until normalization of the level of the federal funds rate is well under way.
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 2010, the Bank has
opened ten new branches, including the most recent branch openings in September 2014 in Bay Shore, New York, November 2014 in
Port Jefferson, New York and December 2014 in Smithtown, New York. Most of the recent branch openings move the Bank
geographically westward and demonstrate its commitment to traditional growth through branch expansion. The Bank has also grown
through acquisitions including the June 2015 acquisition of CNB, the February 2014 acquisition of FNBNY, and the May 2011
acquisition of Hampton State Bank. 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.
Challenges and Opportunities
As noted earlier, on June 19, 2015, the Company acquired CNB. This acquisition increases the Company’s scale and continues the
westward expansion into new markets in Nassau County, Queens and Manhattan. Management recognizes the challenges associated
acquisitions and leveraged the experience gained in the acquisitions of FNBNY in 2014 and Hamptons State Bank in 2011, to
successfully integrate the operations of CNB.
Although the economy, real estate values and unemployment rates have improved, recent declines in the stock market and in oil prices
indicate that economic uncertainty still exists. The Bank continues to face challenges associated with ever increasing regulations and
the current historically low interest rate environment. Over time, additional rate increases should provide some relief to net interest
margin compression as new loans are funded and securities are reinvested at higher rates. However, in the short term, the fair value of
our available for sale securities declines when rates increase, resulting in net unrealized losses and a reduction in stockholders’ equity.
Strategies for managing for the eventuality of higher rates have a cost. Extending liability maturities or shortening the tenor of assets
increases interest expense and reduces interest income. An additional method for managing in a higher rate environment is to grow
stable core deposits, requiring continued investment in people, technology and branches. Over time, the costs of these strategies
should provide long term benefits.
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
continues to deliver the desired results: increasing core deposits and loans, and generating higher levels of revenue and income.
Corporate objectives for 2016 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 that continued
investments to generate core funding, quality loans and new sources of revenue remain keys to continue creating long term
shareholder value. The 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.
Page -18-
CRITICAL ACCOUNTING POLICIES
Note 1 of our Notes to Consolidated Financial Statements for the year ended December 31, 2015 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
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
Page -19-
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 Management Committee is comprised of Bank management. The adequacy of the allowance is analyzed quarterly,
with any adjustment to a level deemed appropriate by the Credit Risk Management Committee, based on its risk assessment of the
entire portfolio. Each quarter, members of the Credit Risk Management Committee meet with the Credit Risk Committee of the Board
to review credit risk trends and the adequacy of the allowance for loan losses. Based on the Credit Risk Management Committee’s
review of the classified loans and the overall allowance levels as they relate to the loan portfolio at December 31, 2015 and 2014,
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 of the Notes to the Consolidated Financial Statements.
NET INCOME
Net income for 2015 totaled $21.1 million or $1.43 per diluted share while net income for 2014 totaled $13.8 million or $1.18 per
diluted share, as compared to net income of $13.1 million, or $1.36 per diluted share for the year ended December 31, 2013. Net
income increased $7.3 million or 53.4% in 2015 compared to 2014 and net income for 2014 increased $0.7 million or 5.1% as
compared to 2013. Significant trends for 2015 include: (i) a $28.7 million or 42.5% increase in net interest income; (ii) a $1.8 million
increase in the provision for loan losses; (iii) a $4.5 million or 55.1% increase in total non-interest income compared to 2014; and (iv)
a $20.5 million or 39.1% increase in total non-interest expenses including $9.8 million of costs associated with the acquisition of CNB
that closed on June 19, 2015. The effective income tax rate was 33.8% for 2015 compared to 34.5% for 2014.
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 -20-
Years Ended December 31,
(Dollars in thousands)
Interest earning assets:
Loans, net (1)(2)
Mortgage-backed, CMOs
and other asset-back
securities
Tax exempt securities (2)
Taxable securities
Federal funds sold
Deposits with banks
2015
Interest
Average
Yield/
Cost
Average
Balance
2014
Average
Balance
Interest
Average
Yield/
Cost
Average
Balance
2013
Interest
Average
Yield/
Cost
$ 1,876,934
$
89,204
4.75% $ 1,176,715 $ 57,637
4.90% $
883,511
$ 45,257
5.12%
562,553
73,796
197,363
8
18,614
11,173
2,590
4,574
—
47
1.99
3.51
2.32
—
0.25
3.94
512,929
10,644
86,795
222,018
—
12,423
2,925
4,702
—
32
2,010,880
75,940
2.08
3.37
2.12
—
0.26
3.78
395,402
112,393
213,368
—
9,773
6,956
3,355
4,012
—
28
1,614,447
59,608
1.76
2.99
1.88
—
0.29
3.69
40,728
93,405
$ 2,145,013
33,417
49,398
$ 1,697,262
market deposits
$ 1,289,678
$
4,002
0.31% $
996,315 $
3,223
0.32% $
827,464
$
3,543
0.43%
Total interest earning assets
2,729,268
107,588
Non interest earning assets:
Cash and due from banks
Other assets
Total assets
55,570
179,205
$ 2,964,043
Interest bearing liabilities:
Savings, NOW and money
Certificates of deposit of
$100,000 or more
Other time deposits
Federal funds purchased and
repurchase agreements
Federal Home Loan Bank
term advances
Subordinated debentures
Junior subordinated
debentures
134,211
96,617
115,648
127,358
21,911
15,875
Total interest bearing liabilities
1,801,298
Non-interest bearing liabilities:
929
673
474
1,425
1,261
1,365
10,129
0.69
0.70
0.41
1.12
5.76
8.60
0.56
873,794
21,936
2,697,028
267,015
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
1,079
340
505
440
—
1,365
7,272
1.08
0.88
0.85
1.07
—
8.60
0.67
767
426
588
1,091
—
1,365
7,460
0.81
0.72
0.72
0.87
—
8.60
0.54
94,599
59,321
81,768
125,949
—
15,870
1,373,822
578,936
14,714
1,967,472
177,409
99,899
38,462
59,747
41,113
—
15,864
1,082,549
474,367
7,994
1,564,910
132,352
$ 2,964,043
$ 2,144,881
$ 1,697,262
97,459
3.38%
68,480
3.24%
52,336
3.02%
$
927,970
3.57% $
637,058
3.41% $
531,898
3.24%
151.52%
146.37%
149.13%
Net interest income
$
96,111
(1,348)
(1,030)
$ 67,450
(1,178)
$ 51,158
(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 -21-
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) (2)
Mortgage-backed, CMOs and other asset-backed
securities
Tax exempt securities (2)
Taxable securities
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
Subordinated debentures
Junior subordinated debentures
Total interest bearing liabilities
Net interest income
2015 Over 2014
Changes Due To
2014 Over 2013
Changes Due To
Volume
Rate
Net
Change
Volume
Rate
Net
Change
$ 33,380
$ (1,813)
$
31,567
$ 14,403
$(2,023)
$
12,380
1,004
(453)
(549)
16
33,398
(475)
118
421
(1)
(1,750)
529
(335)
(128)
15
31,648
2,288
(824)
166
7
16,040
884
462
259
193
13
1,261
—
3,072
(105)
(300)
(12)
(307)
321
—
—
(403)
779
162
247
(114)
334
1,261
—
2,669
666
(93)
157
168
753
—
—
1,651
1,400
394
524
(3)
292
(986)
(219)
(71)
(85)
(102)
—
—
(1,463)
3,688
(430)
690
4
16,332
(320)
(312)
86
83
651
—
—
188
$ 30,326
$ (1,347)
$
28,979
$ 14,389
$ 1,755
$
16,144
(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 increased to 3.57% in 2015 compared to 3.41% for the year ended December 31, 2014 and 3.24% in 2013. The
increase in 2015 compared to 2014 and 2013 is primarily attributable to the positive impact of increased loan demand, higher deposit
balances, higher yields on securities, and the positive impact of accretion of purchase accounting discounts. The total average interest
earning assets in 2015 increased $718.4 million or 35.7% over 2014 levels, yielding 3.94% and the overall funding cost was 0.38%,
including demand deposits. The yield on interest earning assets increased approximately 16 basis points while the cost of interest
bearing liabilities increased approximately 2 basis points during 2015 compared to 2014 due to the borrowing costs related to the
subordinated debentures. Average total deposits increased $664.1 million compared to 2014 and funded higher yielding average loans,
which grew $700.2 million from the comparable 2014 levels.
Net interest income was $96.1 million in 2015 compared to $67.5 million in 2014 and $51.2 million in 2013. The increase in net
interest income of $28.6 million or 42.4% as compared to 2014, and the increase in net interest income of $16.3 million or 31.9% in
2014 as compared to 2013, 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 $718.4 million or 35.7% to $2.7 billion in 2015 compared to $2.0 billion in 2014. During
this period, the yield on average total interest earning assets increased to 3.94% from 3.78%. Average total interest earning assets grew
by $396.4 million or 24.6% to $2.0 billion in 2014 compared to $1.6 billion in 2013. During this period, the yield on average total
interest earning assets increased to 3.78% from 3.69%.
Page -22-
For the year ended December 31, 2015, average loans grew by $700.2 million or 59.5% to $1.88 billion as compared to $1.18 billion
in 2014 and increased $293.2 million or 33.2% compared to $883.5 million in 2013. Real estate mortgage loans, multi-family 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, 2015, average total investments increased by $12.0 million or 1.5% to $833.7 million as compared
to $821.7 million in 2014 and increased $100.5 million or 14.0% as compared to $721.2 million in 2013. 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 2015, 2014 and 2013 resulting in net losses of $0.008 million and $1.1 million in 2015 and 2014,
respectively, and net gains of $2.6 million for 2013. There were no federal funds sold in 2015, 2014 and 2013.
Average total interest bearing liabilities were $1.80 billion in 2015 compared to $1.38 billion in 2014 and $1.08 billion in 2013. The
Bank grew deposits in 2015 as a result of opening three new branches in the fourth quarter of 2014, building new relationships in
existing markets and the CNB acquisition, which closed in June 2015, adding eleven additional branches to the existing branch
network. The cost of interest bearing liabilities increased to 0.56% for 2015 compared to 0.54% for 2014 and 0.67% for 2013. During
2015, the Bank reduced interest rates on deposit products through prudent management of deposit pricing. The reduction in deposit
rates was offset by higher long-term borrowing costs associated with $80.0 million in subordinated debentures issued in September
2015. 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, 2015, average total deposits increased by $665.1 million or 38.5% to $2.40 billion as compared to
average total deposits of $1.73 billion for the year ended December 31, 2014. Components of this increase include an increase in
average demand deposits for 2015 of $294.9 million or 50.9% to $873.8 million as compared to $578.9 million in average demand
deposits for 2014 which increased by $104.6 million or 22.0% from $474.4 million in average demand deposits for 2013. The average
balances in savings, NOW and money market accounts increased $293.4 million or 29.4% to $1.29 billion for the year ended
December 31, 2015 compared to $996.3 million for the same period last year and increased $168.9 million or 20.4% over the 2013
amount of $827.5 million. Average balances in certificates of deposit of $100,000 or more and other time deposits increased $76.9
million or 50.0% to $230.8 million for 2015 as compared to 2014 and increased $15.6 million or 11.3% in 2014 as compared to 2013.
Average public fund deposits comprised 14.7% of total average deposits during 2015, 16.8% in 2014 and 17.1% in 2013. Average
federal funds purchased and repurchase agreements together with average Federal Home Loan Bank term advances increased $35.3
million or 17.0% to $243.0 million for the year ended December 31, 2015 as compared to average balances for 2014 and increased
$106.9 million or 106.0% to $207.7 million for the year ended December 31, 2014 as compared to average balances for the same
period in 2013.
Total interest income increased to $106.2 million in 2015 from $74.9 million in 2014 and $58.4 million in 2013, an increase of 41.8%
during 2015 from 2014 and a 28.2% increase during 2014 from 2013. The ratio of interest earning assets to interest bearing liabilities
increased to 151.5% in 2015 as compared to 146.4% in 2014 and 149.1% in 2013. Interest income on loans increased $31.1 million in
2015 over 2014 and $12.4 million in 2014 over 2013 was primarilydue to growth in the loan portfolio. The yield on average loans was
4.8% for 2015, 4.9% for 2014 and 5.1% for 2013.
Interest income on investments in asset-backed, tax exempt and taxable securities decreased $0.3 million or 1.5% in 2015 to $17.0
million from $17.3 million in 2014 and increased $4.1 million or 31.1% in 2014 from $17.3 million in 2013. Interest income on
securities included net amortization of premiums on securities of $4.9 million in 2015 compared to $3.8 million in 2014 and $5.2
million in 2013. The tax adjusted average yield on total securities was 2.2% in 2015, 2.2% in 2014, and 2.0% in 2013.
Total interest expense increased to $10.1 million for 2015 as compared to $7.5 million and $7.3 million for 2014 and 2013,
respectively. The increase in interest expense in 2015 is a result of the increase in average interest bearing liabilities. The cost of
average interest bearing liabilities was 0.56% in 2015, 0.54% in 2014, and 0.67% in 2013.
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 areas of Nassau and Suffolk Counties that are located on 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 $26.9 million or 1.1% of total loans at December 31, 2015 were categorized as classified loans compared to
$30.3 million or 2.3% at December 31, 2014 and $46.6 million or 4.6% at December 31, 2013. Classified loans include loans with
credit quality indicators with the internally assigned grades of special mention, substandard and doubtful. These loans are categorized
Page -23-
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 declining
trend in the levels of classified loans reflects the improving economic environment.
At December 31, 2015, approximately $14.4 million of these classified loans were commercial real estate (“CRE”) loans which were
well secured with real estate as collateral. Of the $14.4 million of CRE loans, $13.3 million were current and $1.1 million were past
due. In addition, all of the CRE loans have personal guarantees. At December 31, 2015, approximately $2.3 million of classified loans
were residential real estate loans with $0.1 million current and $2.2 million past due. Commercial, financial, and agricultural loans
represented $10.1 million with $9.6 million current and $0.5 million past due. There were no classified real estate construction and
land loans.. 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 $1.40 billion or 58.3% of the total loan portfolio at December 31, 2015
compared to $814.4 million or 61.0% at December 31, 2014 and $592.4 million or 58.6% at December 31, 2013. 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.
As of December 31, 2015 and December 31, 2014, the Company had impaired loans as defined by FASB ASC No. 310,
“Receivables” of $3.0 million and $6.2 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 less costs to
sell 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 less costs to sell 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 increased $0.1 million to $1.3 million or 0.06% of total loans at December 31, 2015 from $1.2 million or 0.09% of
total loans at December 31, 2014. Approximately $0.09 million of the nonaccrual loans at December 31, 2015 and $0.5 million at
December 31, 2014, represent troubled debt restructured loans.
Net charge-offs were $0.9 million for the year ended December 31, 2015 compared to $0.6 million for the year ended December 31,
2014 and $0.8 million for the year ended December 31, 2013. The ratio of allowance for loan losses to nonaccrual loans was 1,537%,
1,466% and 419%, at December 31, 2015, 2014, and 2013, 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 $4.0 million was recorded in 2015 as compared to $2.2 million in 2014 and $2.4
million in 2013. The allowance for loan losses increased to $20.7 million at December 31, 2015 as compared to $17.6 million at
December 31, 2014 and $16.0 million at December 31, 2013. As a percentage of total loans, the allowance was 0.86%, 1.32% and
1.58% at December 31, 2015, 2014 and 2013, respectively. In accordance with current accounting guidance, the acquired CNB 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 Nassau and Suffolk Counties.
Page -24-
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
2015
2014
2013
2012
2011
$
17,637
$
16,001 $
14,439
$
10,837 $
8,497
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
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
Allocation of Allowance for Loan Losses
50
—
249
827
—
2
1,128
—
—
79
149
—
7
235
461
—
257
104
—
2
824
—
—
170
87
—
3
260
—
—
420
420
23
53
916
—
—
34
87
2
5
128
—
—
1,210
285
—
15
1,510
—
—
7
83
—
22
112
—
—
259
372
864
186
1,681
—
—
6
96
—
19
121
(893)
4,000
20,744
$
(564)
2,200
17,637 $
(788)
2,350
16,001
$
(1,398)
5,000
14,439 $
(1,560)
3,900
10,837
$
(0.04%)
(0.04%)
(0.09%)
(0.21%)
(0.28%)
The following table sets forth the allocation of the total allowance for loan losses by loan type:
Years Ended December 31,
(Dollars in thousands)
2015
Percentage
of Loans
to Total
Loans
2014
Percentage
of Loans
to Total
Loans
2013
Percentage
of Loans
to Total
Loans
Amount
Amount
2012
2011
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
$
$
7,850
4,208
2,115
5,405
1,030
136
20,744
Non-Interest Income
43.8% $
14.6
6,994
2,670
44.5% $ 6,279
1,597
16.4
47.9% $
10.6
4,445
1,239
41.7% $
8.3
16.3
20.8
2,208
4,526
3.8
0.7
1,104
135
100.0% $ 17,637
11.7
21.8
2,712
4,006
4.8
0.8
1,206
201
100.0% $ 16,001
15.2
20.7
2,803
4,349
4.7
0.9
1,375
228
100.0% $ 14,439
3,530
395
2,280
2,895
18.0
24.7
6.1
1.2
1,465
272
100.0% $ 10,837
46.4%
3.5
23.1
19.0
6.6
1.4
100.0%
Total non-interest income increased by $4.5 million or 55.1% in 2015 to $12.7 million and decreased by $0.7 million or 8.2% in 2014
to $8.2 million as compared to $8.9 million in 2013. The increase in total non-interest income in 2015 compared to 2014 was
primarily the result of a $1.1 million decrease in net securities losses recognized for 2015, a $2.2 million increase in other operating
income and $0.5 million increases in both service charges on deposit accounts and fees for other customer services. The decrease in
total non-interest income in 2014 compared to 2013 was primarily the result of a $1.7 million decrease in net securities gains
recognized for 2014, partially offset by an increase of $0.8 million in other operating income and $0.2 million in fees for other
customer services.
Net securities losses of $8,000 were recognized in 2015 compared to net securities losses of $1.1 million in 2014. The decrease in net
securities losses was the result of selling a portion of the available for sale investment securities portfolio in 2014 to position the
balance sheet for the future and better manage capital, liquidity and interest rate risk. Net securities gains of $0.7 million were
recognized in 2013. Bridge Abstract, the Bank’s title insurance abstract subsidiary, generated title fee income of $1.9 million in 2015
and $1.7 million in 2014 and 2013. Service charges on deposit accounts for the year ended December 31, 2015 increased $0.5 million
or 16.6% to $3.7 million compared to $3.2 million for the years ended December 31, 2014 and 2013. Fees for other customer services
Page -25-
increased $0.5 million or 17.0% to $3.3 million compared to $2.8 million in 2014 and increased $0.2 million or 6.3% to $3.5 million
compared to $3.3 million in 2013.
Other operating income for the year ended December 31, 2015 increased $2.2 million to $3.8 million compared to $1.6 million in
2014 and $0.8 million in 2013. The increase in 2015 is attributed to $1.0 million in gain on sales of mortgages and SBA loans, loan
swap fee income of $0.4 million, $0.6 million in BOLI income and $0.2 million of loan service fee income.
Non-Interest Expense
Total non-interest expense increased $20.5 million or 39.1% to $72.9 million in 2015 compared to $52.4 million over the same period
in 2014 and increased $14.5 million or 38.2% in 2014 from $37.9 million in 2013. The primary components of these increases were
higher salaries and employee benefits, occupancy and equipment, technology and communications, marketing and advertising,
professional services, FDIC assessments, amortization of core deposit intangibles, and other operating expenses. Additionally, during
2015 costs of $9.8 million were incurred related to the CNB acquisition.
Salaries and benefits increased $7.9 million or 30.2% to $33.9 million in 2015 as compared to $26.0 million in 2014 and increased
$4.5 million or 20.8% from $21.5 million as of December 31, 2013. The increases in salary and benefits reflect additional positions to
support the Company’s expanding infrastructure primarily related to the acquisition of CNB, a larger loan portfolio, and the related
employee benefit costs.
Occupancy and equipment increased $3.3 million or 43.5% to $11.0 million in 2015 compared to $7.7 million in 2014 and increased
$2.3 million or 43.5% from $5.4 million in 2014 compared to 2013. Technology and communications increased $0.4 million or 13.4%
to $3.6 million compared to $3.2 million in 2014 and increased $0.6 million or 22.4% in 2014 from $2.6 million in 2013. Marketing
and advertising increased $0.7 million or 28.6% to $3.1 million in 2015 from $2.4 million in 2014 and increased $0.5 million or
30.4% from $1.9 million in 2013. Higher occupancy and equipment expense, technology and communications, and marketing and
advertising expense in 2015 and 2014 relate to the Company’s increased branch network and expanding infrastructure. Professional
services increased $0.8 million or 51.4% to $2.3 million in 2015 from $1.5 million in 2014 and increased $0.2 million or 14.7% in
2014 from $1.3 million in 2013. FDIC assessments increased $0.3 million to $1.6 million compared to $1.3 million and $0.9 million
in 2014 and 2013 respectively. In 2015, the Company incurred costs of $9.8 million related to the acquisition of CNB. For 2014, the
Company incurred costs of $5.5 million related to the FNBNY and CNB acquisitions and branch restructuring costs. The acquisition
costs of $0.5 million in 2013 were related solely to the FNBNY acquisition. The Company recorded amortization of other intangible
assets of $1.4 million in 2015 primarily related to the CNB and FNBNY acquisitions, $0.3 million related to the FNBNY acquisition
in 2014 and $0.1 million in 2013 for the HSB acquisition. Other operating expenses increased $1.6 million or 36.5% to $6.1 million in
2015 compared to $4.5 million in 2014 and $3.8 million in 2013.
Income Tax Expense
Income tax expense for December 31, 2015 was $10.8 million representing an increase of $3.5 million from 2014. Income tax expense
for December 31, 2014 was $7.2 million representing an increase of $0.5 million from 2013. The effective tax rate was 33.8% for the
year ended December 31, 2015 compared to 34.5% for the year ended December 31, 2014. The decrease in the effective tax rate
relates primarily to the tax benefit recognized as a result of the change in New York City tax rates. The increase in income tax expense
reflects higher income before income taxes, a lower percentage of interest income from tax exempt securities and higher state taxes.
The effective tax rate for the year ended December 31, 2013 was 33.8%.
FINANCIAL CONDITION
The assets of the Company totaled $3.78 billion at December 31, 2015, an increase of $1.49 billion or 65.3% from the previous year-
end with growth funded by deposits, borrowings and capital. This increase reflects strong growth in new and existing markets as well
as $899.9 million in acquired assets from CNB on June 19, 2015.
Cash and due from banks increased $34.6 million or 76.8% to $79.8 million compared to December 2014 levels and interest earning
deposits with banks increased $18.2 million or 274.7%. Total securities increased $206.4 million or 25.7% to $1.0 billion and net
loans increased $1.1 billion or 81% to $2.4 billion compared to December 2014 levels. The increase in net loans includes $734.0
million of CNB acquired 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. At December 31, 2015, goodwill increased $89.0 million to
$98.4 million due to the CNB acquisition. Other intangible assets increased $7.5 million to $8.4 million. The increase in other
intangible assets includes a $5.1 million core deposit intangible and a $1.5 million non-compete intangible related to the CNB
acquisition, as well as $0.9 million of mortgage servicing rights. Total deposits grew $1.0 billion to $2.84 billion at December 31,
2015 compared to $1.83 billion at December 2014 and included $786.9 million of CNB acquired deposits in addition to organic
growth in all markets and included both new commercial and consumer relationships. Demand deposits increased $453.8 million to
$1.2 billion as of December 31, 2015 compared to $703.1 million at December 31, 2014. Savings, NOW and money market deposits
increased $404.6 million to $1.394 billion at December, 2015 from $989.3 million at December 31, 2014. Certificates of deposit of
Page -26-
$100,000 or more increased $84.7 million to $167.8 million at December 31, 2015 from $83.1 million at December 31, 2014. Other
time deposits increased $66.8 million to $125.1 million as of December 31, 2015 from $58.3 at December 31, 2014.
Federal funds purchased at December 31, 2015 increased $45.0 million or 60.0% to $120.0 million compared to $75.0 million in 2014.
Federal Home Loan Bank term advances increased $159.2 million or 115.1% to $297.5 million for December 31, 2015 compared to
$138.3 million in 2014. Repurchase agreements increased $14.6 million to $50.9 million or 40.3% compared to $36.3 million as of
December 31, 2014. Other liabilities and accrued expenses increased $20.4 million to $34.6 million as of December 31, 2015 from
$14.2 million as of December 31, 2014.
Stockholders’ equity was $341.1 million at December 31, 2015, an increase of $166.0 million or 94.8% from December 31, 2014,
reflecting primarily, the issuance of $157.2 million in common equity in connection with the CNB transaction, the proceeds from the
issuance of shares of common stock under the Dividend Reinvestment Plan of $0.8 million, share based compensation of $1.7 million
and net income of $21.1 million partially offset by $13.4 million in declared cash dividends, a decrease in other comprehensive
income, net of deferred income taxes of $1.3 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 compared to three dividend
payments totaling $6.8 million in 2013.
Loans
During 2015, 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
principal lending areas of Nassau and Suffolk Counties on Long Island. The bank’s portfolio also includes to a lesser extent loans on
properties located in the New York City market. The local economic conditions on 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 74.5% of the Bank’s loan portfolio at December 31, 2015 is secured by real estate.
Approximately 43.7% of the Bank’s loan portfolio is comprised of commercial real estate loans. Multifamily loans represent 14.6%
of the Bank’s loan portfolio. Residential real estate mortgage loans represent 16.3% of the Bank’s loan portfolio and include home
equity lines of credit of approximately 2.8% and residential mortgages of approximately 13.5% of the Bank’s loan portfolio. Real
estate construction and land loans comprise approximately 3.8% 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 $83.7 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 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 21.6% of the
Bank’s loan portfolio. The commercial loans are made to businesses and include term loans, lines of credit, senior secured loans to
corporations and taxi medallion loans. 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
Page -27-
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 Management 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 $1.07 billion or 80.2%, during 2015 and $324.4 million or 32.1% during 2014. Average net loans grew $700.2
million or 59.5% during 2015 over 2014 and $293.2 million or 33.2% during 2014 when compared to 2013. Real estate mortgage
loans were the largest contributor of the growth for both 2015 and 2014 and increased $826.5 million or 85.2% and $224.7 million or
30.1%, respectively. Commercial real estate mortgage loans grew $458.0 million or 76.9% during 2015 and multi-family mortgage
loans grew $131.8 million or 60.2% during 2015. Commercial, financial and agricultural loans increased $210.0 million or 72.0% in
2015 from 2014 and increased $82.3 million or 39.3% in 2014 from 2013. Real estate construction and land loans increased $27.6
million or 43.4% in 2015 and increased $16.6 million or 35.3% in 2014. Installment/consumer loans increased $7.5 million or 73.8%
in 2015 and increased $0.8 million or 9.0% during 2014. Fixed rate loans represented 25.1%, 32.5% and 33.9% of total loans at
December 31, 2015, 2014, and 2013, respectively.
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
2015
2014
2013
2012
2011
$ 1,053,399 $
350,793
392,815
501,766
91,153
17,596
2,407,522
3,252
2,410,774
(20,744)
$ 2,390,030 $
595,397 $ 484,900
107,488
218,985
153,417
156,156
209,452
291,743
46,981
63,556
9,287
10,124
1,011,525
1,335,961
1,738
2,366
1,013,263
1,338,327
(16,001)
(17,637)
1,320,690 $ 997,262
$ 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 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, 2015:
(In thousands)
Commercial loans
Construction and land loans (1)
Total
Rate provisions:
Amounts with fixed interest rates
Amounts with variable interest rates
Total
Within One
Year
After One
But Within
Five Years
After
Five Years
Total
$
$
$
$
230,000
44,285
274,285
23,766
250,520
274,286
$
$
$
$
138,588
16,618
155,206
$ 133,178
30,250
$ 163,428
$ 501,766
91,153
$ 592,919
88,566
66,639
155,205
$
53,850
109,578
$ 163,428
$ 166,182
426,737
$ 592,919
(1) 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 and Other Real Estate Owned
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 excluding restructured 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 excluding restructured 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
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
2015
2014
2013
2012
2011
964 $
850
60
1,681
250
3,805 $
144 $
713
490
5,031
—
1 $
1,856
1,965
5,184
2,242
6,378 $ 11,248 $
491 $
2,262
1,027
5,039
250
9,069 $
411
2,156
2,004
4,904
—
9,475
2015
2014
2013
2012
2011
6 $
1
1 $
109
—
33 $
84
66 $
60
155 $
84
4 $
214
—
94 $
282
—
33 $
226
—
122
436
41
241
—
2015
2014
2013
2012
2011
238 $
—
612
—
—
—
850
—
—
60
—
—
—
60
300
—
69
118
—
—
487
1,391
—
—
290
—
—
1,681
4,541
—
—
489
—
—
5,030
295 $
—
315
75
—
—
685
352 $
—
1,436
—
—
—
1,788
492 $
—
1,496
193
—
—
2,181
617
—
618
720
—
—
1,955
3,743
4,260
—
329
526
—
—
5,115
—
—
717
310
—
—
1,027
3,208
4,284
—
336
380
—
—
5,000
449
—
1,156
260
250
—
2,115
—
—
1,786
218
—
—
2,004
4,119
4,630
—
—
274
—
—
4,904
$
2,591 $
6,202 $
8,858 $
8,208 $
9,023
Restructured loans totaled $1.8 million and $5.5 million as of December 31, 2015 and December 31, 2014, respectively.
Page -29-
Total Non-performing impaired loans
910
1,172
Securities
Total securities increased to $1.0 billion at December 31, 2015 from $802.1 million at December 31, 2014. The available for sale
portfolio increased $213.0 million or 36.3% to $800.2 million from $587.2 million at December 31, 2014. 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 increased by $98.8 million at December 31, 2015, commercial mortgage-backed securities
increased by $9.5 million, residential collateralized mortgage obligations increased by $59.3 million, commercial collateralized
mortgage obligations increased by $40.1 million, state and municipal obligations increased by $24.2 million, and corporate bonds
increased by $14.5 million, while U.S. government sponsored entity (“U.S. GSE”) securities decreased by $32.8, and other asset
backed securities decreased by $0.1 million. Securities held to maturity decreased $6.6 million or 0.03% to $208.4 million at
December 31, 2015 compared to $214.9 million at December 31, 2014. Commercial mortgage-backed securities increased by $9.8
million, residential collateralized mortgage obligations increased by $1.4 million, residential mortgage-backed securities increased by
$0.9 million while U.S. government sponsored entity (“U.S. GSE”) securities decreased by $3.8, commercial collateralized mortgage
obligations decreased by $3.0 million and corporate bonds decreased by $11.9 million. Fixed rate securities represented 93.4% of
total securities at December 31, 2015 compared to 91.5% at December 31, 2014. Residential collateralized mortgage obligations
represented approximately 39.7% of the available for sale balance at December 31, 2015 as compared to 44.0% at the prior year-end.
The following table sets forth the fair value, amortized cost, maturities and approximated weighted average yield at December 31,
2015. 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.
Page -30-
December 31, 2015
(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
— $
— —% $ 33,747 $
33,990 1.67% $ 28,927 $
29,248 2.11% $
— $
— —% $
62,674 $
63,238
obligations
4,801
4,785 1.26
46,591
46,696 1.56
27,692
27,478 2.62
8,851
8,871
3.18
87,935
87,830
US GSE Residential
mortgage-backed
securities
US GSE Residential
collateralized
mortgage
obligations
US GSE
Commercial
mortgage-backed
securities
US GSE
Commercial
collateralized
mortgage
obligations
Other Asset backed
securities
Corporate Bonds
Total available for
—
—
—
— —
— —
—
—
— —
14,369
14,441 1.70
185,895
186,856
2.06
200,264
201,297
— —
4,227
4,242 1.24
313,651
317,011
1.98
317,878
321,253
— —
5,898
5,925 1.88
6,520
6,566 2.29
—
— —
12,418
12,491
—
— —
—
1,000
— —
1,000 0.52
—
—
—
— —
5,968
5,974 2.13
58,230
58,835
2.13
64,198
64,809
— —
— —
—
31,465
— —
32,000 2.73
22,371
—
24,250 —
— —
22,371
32,465
24,250
33,000
sale
$ 5,801 $
5,785 1.13% $ 86,236 $
86,611 1.63% $119,168 $ 119,949 2.32% $ 588,998 $ 595,823
1.96% $ 800,203 $ 808,168
Held to maturity:
US GSE securities $
State and municipal
— $
— —% $
7,467 $
7,466 1.65% $
— $
— —% $
— $
— —% $
7,467 $
7,466
obligations
4,864
4,859 1.13
16,474
16,384 2.03
39,098
37,616 3.21
6,044
6,019
2.99
66,480
64,878
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
—
—
—
—
—
4,864
$ 10,665 $
— —
— —
—
—
— —
—
— —
7,503
7,609
1.75
7,503
7,609
— —
1,536
1,494 3.71
59,516
59,439
2.52
61,052
60,933
— —
5,032
5,080 1.88
14,685
14,841 2.47
3,236
3,135
2.91
22,953
22,056
— —
— —
—
11,042
— —
11,000 2.03
—
—
— —
— —
33,506
—
33,409
2.42
— —
33,506
11,042
33,409
11,000
4,859 1.13
109,611
10,644 1.13% $ 126,261 $ 126,541 1.72% $174,487 $ 173,900 2.54% $ 698,803 $ 705,434
53,951 3.02
39,930 1.94
109,805
55,319
40,015
2.47
208,351
210,003
2.04% $1,010,206 $1,016,519
Deposits and Borrowings
Borrowings, including federal funds purchased, repurchase agreements, subordinated debentures and junior subordinated debentures,
increased $297.2 million to $562.6 million at December 31, 2015 from the prior year-end. Total deposits increased $1.0 billion or
55.0% in 2015 as compared to 2014. The growth in deposits is attributable to an increase in individual, partnership and corporate
(“core deposits”) account balances of $890.6 million, driven by the addition of the branches acquired in the CNB transaction, the
building of new relationships in current markets, and an increase of $119.2 million in public funds deposits. Demand deposits
increased $453.8 million or 64.5% and savings, NOW and money market deposits increased $404.6 million or 40.9% primarily related
to core deposits growth. Certificates of deposit of $100,000 or more increased $84.7 million or 101.9% from December 31, 2014 and
other time deposits increased $66.8 million or 114.6% as compared to the prior year.
Page -31-
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2015:
(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
Total
LIQUIDITY
Less than
$100,000
$100,000 or
Greater
Total
$
$
19,955
35,033
16,794
30,478
11,826
8,249
2,770
125,105
$
$
33,306
55,696
24,866
24,393
14,006
12,006
3,477
167,750
$
$
53,261
90,729
41,660
54,871
25,832
20,255
6,247
292,855
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 opportunities for Company growth or earnings enhancement. 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 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 $25.5 million as of December 31, 2015, 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 2015, the Bank paid $10.0 million in cash 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. As of January 1, 2016, the Bank has $27.6
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 capital contributions of $50.0 million and $24.0 million to the Bank during
the twelve months ended December 31, 2015 and 2014, respectively.
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 2015, 2014 and 2013, 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, 2015, the Bank had
aggregate lines of credit of $295.0 million with unaffiliated correspondent banks to provide short term credit for liquidity
requirements. Of these aggregate lines of credit, $275.0 million is available on an unsecured basis. As of December 31, 2015, the
Bank had $120.0 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,
2015, the Bank had no outstanding FHLB overnight borrowings and $297.5 million outstanding in FHLB term borrowings. The Bank
had $50.0 million of securities sold under agreements to repurchase outstanding as of December 31, 2015 with brokers and $0.9
million outstanding with customers. As of December 31, 2014, the Bank had $35.0 million of securities sold under agreements to
repurchase outstanding with brokers and $1.3 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, 2015, the Bank had $22.4 million
outstanding in brokered certificates of deposit and $148.0 million outstanding in brokered money market accounts. As of December
31, 2014, the Bank had $8.3 million of brokered certificates of deposits and no outstanding brokered money market accounts.
Management continually monitors the liquidity position and believes that sufficient liquidity exists to meet all of our operating
requirements. Based on the objectives determined by the Asset and Liability Committee, the Bank’s liquidity levels may be affected
by the use of short-term and wholesale borrowings, and the amount of public funds in the deposit mix. The Asset and Liability
Page -32-
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, 2015:
(In thousands)
Operating leases
FHLB term advances and repurchase agreements
Subordinated debentures
Junior subordinated debentures
Time deposits
Total contractual obligations outstanding
Total
Amounts
Committed
$
$
50,897
347,458
80,000
16,002
291,995
786,352
Less than
One Year
One to
Three Years
Four to
Five Years
Over Five
Years
$
$
6,710
300,392
—
—
184,865
491,967
$
$
12,408
47,066
—
—
80,647
140,121
$
9,925
—
—
—
26,483
$ 36,408
$
$
21,854
—
80,000
16,002
—
117,856
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,
2015, the Company had $46.0 million in outstanding loan commitments and $418.6 million in outstanding commitments for various
lines of credit including unused overdraft lines. The Company also has $14.9 million of standby letters of credit as of December 31,
2015. See Note 14 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 $341.1 million at December 31, 2015 from $175.1 million at December 31, 2014 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; (v) the declaration of dividends; and (vi) shares issued in
connection with the acquisition of CNB. The ratio of average stockholders’ equity to average total assets was 9.78% at year-end 2015
compared to 8.27% at year-end 2014.
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 16 of the Notes to the Consolidated Financial Statements). Since 2013, the Company has actively managed its capital
position in response to its growth. During this period, the Company has raised $210.7 million in capital through the following
initiatives:
(cid:120) On October 8, 2013, the Company completed a public offering with net proceeds of $37.6 million in capital from the sale of
1,926,250 shares of common stock. The purpose of the offering was in part to provide additional capital to Bridge Bancorp to
support its acquisition of FNBNY Bancorp, Inc. and for general corporate purposes.
(cid:120) On February 14, 2014, the Company issued 240,598 shares of common stock with net proceeds of $5.9 million in capital.
These shares were issued directly in connection with the acquisition of FNBNY.
(cid:120) On June 19, 2015, the Company issued 5,647,268 shares of common stock with net proceeds of $157.1 million in capital.
These shares were issued in connection with the acquisition of CNB.
Proceeds of $10.1 million in capital through issuance of common stock through the Dividend Reinvestment Plan.
(cid:120)
The Company has the ability to issue additional common stock and/or preferred stock should the need arise and intends on filing a
new shelf registration statement in March 2016 to replenish issuable securities.
The Company had returns on average equity of 7.91%, 7.76%, and 9.89%, and returns on average assets of 0.71%, 0.64%, and 0.77%
for the years ended December 31, 2015, 2014, and 2013, respectively. The Company also utilizes cash dividends and stock
Page -33-
repurchases to manage capital levels. In 2015, the Company declared four quarterly cash dividends totaling $13.4 million compared to
four quarterly cash dividends of $10.7 million in 2014. The dividend payout ratios for 2015 and 2014 were 63.54% and 77.43%,
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 2015, 2014 or 2013.
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 u) 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
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, 2015, $942.4 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 of 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
Page -34-
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.
In addition to the above scenarios, the Company considers other, non-parallel rate shifts that would also exert pressure on earnings.
The recent increase in short-term interest rates by the FOMC without a corresponding rise in long-term rates has resulted in the
flattening of the yield curve. This has had the effect of raising short-term borrowings costs without allowing longer term assets to
reprice higher.
The following reflects the Company’s net interest income sensitivity analysis at December 31, 2015:
Change in Interest
Rates in Basis Points
(Dollars in thousands)
200
100
Static
(100)
Potential Change
in Future Net
Interest Income
$ Change
% Change
$
$
$
(5,472)
(2,836)
—
210
(4.91)%
(2.55)%
—
0.19%
As noted in the table above, a 200 basis point increase in interest rates is projected to decrease net interest income over the next twelve
months by 4.91 percent. Our balance sheet sensitivity to such a move in interest rates at December 31, 2015 decreased as compared to
December 31, 2014 (which was a decrease of 5.18 percent in net interest income over a 12 month period). This decrease is due to
several factors which reflect our strategy to lessen our exposure to rising rates. Over the intervening year, the effective duration (a
measure of price sensitivity to interest rates) of the bond portfolio decreased from 3.99 to 3.40. Additionally, the bank has increased
its use of swaps to extend liabilities.
The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of
expected operating results. These hypothetical estimates are based upon numerous assumptions including, but not limited to, the
nature and timing of interest rate levels and yield curve shapes, prepayments on loans and securities, deposit decay rates, pricing
decisions on loans and deposits, and reinvestment and replacement of asset and liability cash flows. While assumptions are developed
based upon perceived current economic and local market conditions, the Company cannot make any assurances as to the predictive
nature of these assumptions including how customer preferences or competitor influences may change.
Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment and
refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate
assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals,
prepayment penalties and product preference changes and other internal and external variables. Furthermore, the sensitivity analysis
does not reflect actions that management might take in responding to, or anticipating changes in interest rates and market conditions.
Page -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 $210,003 and $216,289, respectively)
Total securities
Securities, restricted
Loans held for investment
Allowance for loan losses
Loans, net
Premises and equipment, net
Accrued interest receivable
Goodwill
Other intangible assets
Prepaid pension
Bank owned life insurance
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 or more
Other time deposits
Total deposits
Federal funds purchased
Federal Home Loan Bank advances
Repurchase agreements
Subordinated debentures, net
Junior subordinated debentures, net
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: 40,000,000 shares; 17,388,918 and 11,651,398 shares issued, respectively;
17,388,918 and 11,650,405 shares outstanding, respectively
Surplus
Retained earnings
Less: Treasury Stock at cost, 0 and 993 shares, respectively
Accumulated other comprehensive loss, net of income tax
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See accompanying notes to Consolidated Financial Statements.
Page -36-
December 31,
2015
December 31,
2014
$
79,750 $
24,808
104,558
$
$
800,203
208,351
1,008,554
24,788
2,410,774
(20,744)
2,390,030
39,595
9,270
98,445
8,376
6,047
53,314
250
38,732
3,781,959 $
1,156,882 $
1,393,888
167,750
125,105
2,843,625
120,000
297,507
50,891
78,363
15,878
34,567
3,440,831
—
—
174
278,333
72,243
—
350,750
(9,622)
341,128
$
3,781,959 $
45,109
6,621
51,730
587,184
214,927
802,111
10,037
1,338,327
(17,637)
1,320,690
32,424
6,425
9,450
842
4,927
30,644
—
19,244
2,288,524
703,130
989,287
83,071
58,291
1,833,779
75,000
138,327
36,263
—
15,873
14,164
2,113,406
—
—
117
118,846
64,547
(25)
183,485
(8,367)
175,118
2,288,524
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
Deposits with banks
Other interest and dividend income
Total interest income
Interest expense:
Savings, NOW and money market deposits
Certificates of deposit of $100 or more
Other time deposits
Federal funds purchased and repurchase agreements
Federal Home Loan Bank advances
Subordinated debentures
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 (losses) gains
Other operating income
Total non-interest income
Non-interest expense:
Salaries and employee benefits
Occupancy and equipment
Technology and communications
Marketing and advertising
Professional services
FDIC assessments
Acquisition costs and branch restructuring
Amortization of other intangible assets
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-
2015
2014
2013
$
$
88,760
11,173
3,198
1,630
840
47
592
106,240
4,002
929
673
474
1,425
1,261
1,365
10,129
96,111
4,000
92,111
3,737
3,317
1,866
(8)
3,756
12,668
33,871
11,045
3,599
3,125
2,327
1,593
9,766
1,447
6,117
72,890
31,889
10,778
21,111
1.43
1.43
$
$
$
$
$
$
57,628
10,644
2,735
2,716
749
32
406
74,910
3,223
767
426
588
1,091
—
1,365
7,460
67,450
2,200
65,250
3,206
2,835
1,662
(1,090)
1,553
8,166
26,011
7,712
3,175
2,430
1,537
1,265
5,504
300
4,480
52,414
21,002
7,239
13,763
1.18
1.18
$
$
$
$
45,250
6,956
2,638
2,982
399
28
177
58,430
3,543
1,079
340
505
440
—
1,365
7,272
51,158
2,350
48,808
3,174
2,613
1,687
659
758
8,891
21,532
5,374
2,594
1,864
1,340
924
499
59
3,751
37,937
19,762
6,669
13,093
1.36
1.36
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Years Ended December 31,
Net Income
Other comprehensive (loss) income:
Change in unrealized net gains (losses) on securities available for sale,
net of reclassification and deferred income taxes
Adjustment to pension liability, net of reclassifications and
deferred income taxes
Unrealized (loss) gain on cash flow hedge, net of reclassifications and
deferred income taxes
Total other comprehensive (loss) income
Comprehensive income
See accompanying notes to Consolidated Financial Statements.
2015
2014
2013
$
21,111
$
13,763
$
13,093
(1,434)
8,687
(14,732)
380
(201)
(1,255)
19,856
$
(3,348)
(470)
4,869
18,632
$
1,907
7
(12,818)
275
$
Page -38-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
Balance at January 1, 2013
$
89
$
64,208
$
55,102
$
(309)
$
(418)
$
118,672
Common
Stock
Surplus
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Net income
Shares issued under the dividend reinvestment plan
(“DRP”)
Shares issued in common stock offerings, net of offering
costs (1,926,250 shares)
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, $0.69 per share
Other comprehensive loss, net of deferred income taxes
Balance at December 31, 2013
Net income
Shares issued under the DRP
Shares issued in the acquisition of FNBNY Bancorp,
net of offering costs (240,598 shares)
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, $0.92 per share
Other comprehensive income, net of deferred income
taxes
4
19
1
8,656
37,558
(435)
79
(6)
21
1,296
13,093
(6,754)
434
(79)
(291)
10
$
113
$
111,377
$
61,441
$
(235)
$
(12,818)
(13,236)
$
1
2
1
630
5,946
(432)
58
(3)
36
1,234
13,763
(10,657)
431
(58)
(173)
10
13,093
8,660
37,577
—
—
(291)
4
21
1,296
(6,754)
(12,818)
159,460
13,763
631
5,948
—
—
(173)
7
36
1,234
(10,657)
Balance at December 31, 2014
$
117
$
118,846
$
64,547
$
(25)
$
4,869
(8,367)
$
4,869
175,118
Net income
Shares issued under the DRP
Shares issued in the acquisition of CNB
net of offering costs (5,647,268 shares)
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, $0.92 per share
Other comprehensive loss, net of deferred income taxes
Balance at December 31, 2015
56
1
779
157,143
(263)
125
(36)
50
1,689
21,111
(13,415)
262
(125)
(228)
116
$
174
$
278,333
$
72,243
$
— $
(1,255)
(9,622)
$
21,111
779
157,199
—
—
(228)
80
50
1,689
(13,415)
(1,255)
341,128
See accompanying notes to Consolidated Financial Statements.
Page -39-
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
Depreciation and (accretion) amortization
Net amortization on securities
Increase in cash surrender value of bank owned life insurance
Amortization of intangible assets
Share based compensation expense
Net securities losses (gains)
Increase in accrued interest receivable
Small Business Administration (“SBA”) loans originated for sale
Proceeds from sale of the guaranteed portion of SBA loans
Gain on sale of the guaranteed portion of SBA loans
Gain on sale of loans
(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
Proceeds from sales of other real estate owned (“OREO”), net
Purchase of bank owned life insurance
Purchase of premises and equipment
Net cash acquired in business combination
Net cash used in investing activities
Cash flows from financing activities:
Net increase in deposits
Net increase in federal funds purchased
Net increase in FHLB advances
Repayment of acquired unsecured debt
Net increase (decrease) in repurchase agreements
Net proceeds from issuance of subordinated debentures
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 benefit from share based compensation
Cash dividends paid
Other, net
Net cash provided by financing activities
Net increase (decrease) 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:
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-
2015
2014
2013
$
21,111 $
13,763 $
13,093
4,000
(3,789)
4,936
(1,225)
1,447
1,689
8
(267)
(5,043)
5,659
(507)
(477)
(6,815)
10,799
31,526
(330,646)
(318,887)
(21,650)
75,750
308,808
113,217
34,897
(354,375)
21,011
—
—
(4,325)
24,628
(451,572)
223,872
45,000
124,087
—
14,628
78,324
779
80
(228)
50
(13,415)
(303)
472,874
2,200
481
3,763
(609)
300
1,234
1,090
(777)
—
—
—
—
5,783
(1,417)
25,811
(342,185)
(408,439)
(52,464)
360,963
408,036
80,242
37,983
(235,320)
—
2,942
(20,000)
(5,232)
2,926
(170,548)
125,300
11,000
1,499
(1,450)
24,893
—
631
7
(173)
36
(10,657)
(192)
150,894
52,828
51,730
104,558 $
6,157
45,573
51,730 $
2,350
1,852
5,168
(35)
59
1,296
(659)
(212)
—
—
—
—
(1,366)
3,483
25,029
(333,359)
(164,503)
(68,251)
129,431
160,447
130,411
76,128
(217,668)
—
218
(10,000)
(4,029)
—
(301,175)
129,773
19,500
83,000
—
(1,020)
—
46,237
4
(291)
21
(6,754)
—
270,470
(5,676)
51,249
45,573
8,793 $
8,744 $
7,377 $
4,068 $
7,194
5,108
250 $
577 $
2,242
875,302 $
831,422 $
209,022 $
213,224 $
—
—
$
$
$
$
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014 and 2013
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 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”), a financial title insurance subsidiary, Bridge Abstract LLC (“Bridge Abstract”), and Bridge Financial Services LLC (“Bridge
Financial Services’), an investment services subsidiary.
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 9 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.
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 and accreted to interest 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.
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
Page -41-
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 partial charge-offs, 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 loan evaluation assessing such factors as collateral and collectibility, accrued interest will be recognized as earned. If
a payment is 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
less costs to sell 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 through the acquisition of Community National Bank on June 19, 2015 and First National Bank of New
York on February 14, 2014, 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 purchased 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 value. Any subsequent declines in fair value below the
initial carrying value are recorded as a valuation allowance, which is established through a charge to earnings.
Unless otherwise noted, the above policy is applied consistently to all loan classes.
f) Allowance for Loan Losses
Page -42-
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 probable incurred losses 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, 2015, 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) Bank-Owned Life Insurance
The Bank is the owner and beneficiary of life insurance policies on certain employees. Bank-owned life insurance (“BOLI”) is
recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value
adjusted for other charges or other amounts due that are probable at settlement.
i) Other Real Estate Owned
Real estate properties acquired through, or in lieu of, foreclosure are initially recorded at fair value less costs to sell when acquired,
establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If
fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are
charged to expense as incurred.
j) Goodwill and Other Intangible Assets
Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred
over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired
Page -43-
in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at
least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed.
The Company has selected November 30th as the date to perform the annual impairment test. Intangible assets with definite useful
lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an
indefinite life on our balance sheet.
Other intangible assets include core deposit intangible assets and a non-compete intangible arising from whole bank acquisitions. They
are amortized on an accelerated method over their estimated useful lives of ten years and two years, respectively. Other intangible
assets also include servicing rights which result from the sale of Small Business Administration (“SBA”) loans with servicing rights
retained. Servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair
value is based on market prices for comparable servicing contracts, when available or alternatively, is based on a valuation model that
calculates the present value of estimated future net servicing income. Servicing assets are subsequently measured using the
amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of,
the estimated future net servicing income of the underlying loans. Servicing assets totaled $893,000 at December 31, 2015. There
were no servicing assets at December 31, 2014.
k) 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.
l) Derivatives
The Company records cash flow hedges at the inception of the derivative contract based on the Company’s intentions and belief as to
likely effectiveness as a hedge. Cash flow hedges represent 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 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.
m) 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
Page -44-
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, 2015 and 2014, 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, 2015 and December 31, 2014, respectively.
n) Treasury Stock
Repurchases of common stock are recorded as treasury stock at cost. Treasury stock is reissued using the first in, first out method.
o) 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.
p) Dividends
Cash available for distribution of dividends to stockholders of the Company is primarily derived from cash and cash equivalents of the
Company and dividends paid by the Bank 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. Dividends from the Bank to the Company at January 1, 2016 are limited to $27.6 million which represents the
Bank’s net retained earnings from the previous two years. During 2015, the Bank paid dividends of $10.0 million to the Company.
q) 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.
r) 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, restricted stock awards and restricted stock
units granted to employees in return for employee service. The cost is measured at the fair value of the options and awards when
granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options and awards.
The Company’s stock-based compensation plans are described in Note 12.
s) 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. Other 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.
t) 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 14. 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.
Page -45-
u) New Accounting Standards
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2016-02,
“Leases – (Topic 842). ASU 2016-02 was issued to increase transparency and comparability among organizations by recognizing
lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 will
require lessees to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-
use asset representing its right to use the underlying asset for the lease term. The amendments in this update become effective for
annual periods and interim periods within those annual periods beginning after December 15, 2019. We are currently evaluating the
impact of adopting the new guidance on the consolidated financial statements
In January 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2016-01,
“Financial Instruments – Overall (Subtopic 825-10): Recognition and measurement of Financial Assets and Financial Liabilities.”
ASU 2016-01 requires all equity investments to be measured at fair value with changes in the fair value recognized through net
income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The
amendments in this Update also require an entity to present separately in other comprehensive income the portion of the total change
in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the
liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this Update
eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public
business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is
required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The
amendments in this update become effective for annual periods and interim periods within those periods beginning after December 15,
2017. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” creating FASB Topic 606, Revenue
from Contracts with Customers. The guidance in this update affects any entity that either enters into contracts with customers to
transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of
other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the
core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature,
amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative
information is required about contracts with customers, significant judgments and changes in judgments, and assets recognized from
the costs to obtain or fulfill a contract. The amendments in this update become effective for annual periods and interim periods within
those annual periods beginning after December 15, 2016. We are currently evaluating the impact of adopting the new guidance on the
consolidated financial statements.
v) Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current period 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
Other asset backed securities
Corporate Bonds
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
2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair
Value
Amortized
Cost
2014
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
63,238
87,830
$
— $
427
(564)
(322)
$
62,674
87,935
$
97,560
63,583
$
201,297
321,253
12,491
64,809
24,250
33,000
808,168
7,466
64,878
7,609
60,933
23,056
33,409
11,000
208,351
$ 1,016,519
$
237
513
7
9
—
—
1,193
1
1,715
—
617
210
282
42
2,867
4,060
(1,270)
200,264
100,931
(3,888)
317,878
261,256
(80)
12,418
3,016
(620)
(1,879)
(535)
(9,158)
64,198
22,371
32,465
800,203
—
(113)
(106)
(498)
(313)
7,467
66,480
7,503
61,052
22,953
24,179
24,190
17,952
592,667
11,283
64,864
6,667
59,539
13,213
(185)
—
(1,215)
(10,373)
33,506
11,042
210,003
$ 1,010,206
$
36,413
22,948
214,927
$ 807,594
$
4
318
534
310
—
44
—
161
1,371
135
1,658
—
507
233
267
139
2,939
4,310
$
(2,139)
(208)
$
95,425
63,693
(40)
101,425
(2,967)
258,599
(71)
2,945
(141)
(1,153)
(135)
(6,854)
24,082
23,037
17,978
587,184
(41)
(98)
(97)
(862)
(26)
11,377
66,424
6,570
59,184
13,420
(431)
(22)
(1,577)
(8,431)
36,249
23,065
216,289
$ 803,473
$
Securities with unrealized losses at year-end 2015 and 2014, 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:
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
Other asset backed securities
Corporate Bonds
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
$
2015
2014
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
$
37,759
39,621
$
235
298
$ 24,914
5,118
$
$
90,233
14,592
$
136,025
187,543
8,594
51,178
—
27,640
488,360
—
18,375
7,503
15,918
13,982
7,912
—
63,690
$
1,224
1,781
80
503
—
360
4,481
—
113
106
149
313
8
—
689
1,510
66,830
—
10,034
22,371
4,825
135,602
—
—
—
15,679
—
3,813
—
$ 19,492
$
Page -47-
329
24
46
2,107
—
117
1,879
175
4,677
—
—
—
349
—
177
—
526
$
4,991
12,330
$
—
60,126
—
13,830
23,038
9,865
124,180
—
11,343
—
10,422
—
14,392
3,978
40,135
$
$
8
79
—
349
—
108
1,153
135
1,832
—
97
—
46
—
73
22
238
2,131
129
40
2,618
71
33
—
—
5,022
41
1
97
816
26
358
—
1,339
$
1,554
122,179
2,944
4,636
—
—
236,138
7,414
202
6,569
30,413
4,188
8,611
—
57,397
$
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
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, 2015, the majority of unrealized losses on both the available for sale and held to maturity securities are related to the
Company’s U.S. GSE residential collateralized mortgage obligations and Other Asset Backed securities. The decrease in fair value of
the U.S. GSE residential collateralized mortgage obligations and Other Asset Backed securities is attributable to changes in interest
rates and not credit quality. 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, 2015.
The following table sets forth the fair value, amortized cost and maturities of the securities at December 31, 2015. 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, 2015
(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
Other Asset backed securities
Corporate Bonds
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
Within
One Year
Fair
Value
Amount
Amortized
Cost
Amount
After One But
Within Five Years
Fair
Value
Amount
Amortized
Cost
Amount
After Five But
Within Ten Years
Fair Value
Amount
Amortized
Cost
Amount
After
Ten Years
Total
Fair Value
Amount
Amortized
Cost
Amount
Fair Value
Amount
Amortized
Cost
Amount
$
— $
— $ 33,747 $
4,801
4,785
46,591
33,990 $ 28,927 $
46,696
27,692
29,248 $
27,478
— $
8,851
— $
8,871
62,674 $
87,935
63,238
87,830
—
—
—
—
—
1,000
5,801
—
—
—
—
—
—
—
14,369
14,441
185,895
186,856
200,264
201,297
4,227
4,242
313,651
317,011
317,878
321,253
5,898
5,925
6,520
6,566
—
—
12,418
12,491
—
—
1,000
5,785
—
—
—
86,236
—
—
—
86,611
5,968
—
31,465
119,168
5,974
—
32,000
119,949
58,230
22,371
—
588,998
58,835
24,250
—
595,823
64,198
22,371
32,465
800,203
64,809
24,250
33,000
808,168
—
4,864
—
4,859
7,467
16,474
7,466
16,384
—
39,098
—
37,616
—
—
—
—
—
—
1,536
1,494
59,516
59,439
61,052
60,933
—
6,044
7,503
—
6,019
7,609
7,467
66,480
7,466
64,878
7,503
7,609
5,032
5,080
14,685
14,841
3,236
3,135
22,953
23,056
—
—
—
—
—
—
—
—
4,864
$ 10,665 $
—
—
— 11,042
40,015
—
11,000
39,930
—
—
55,319
4,859
10,644 $ 126,251 $ 126,541 $ 174,487 $ 173,900 $
—
—
53,951
33,506
—
109,805
698,803 $
33,409
33,506
33,409
11,000
11,042
—
208,351
210,003
109,611
705,434 $ 1,010,206 $ 1,016,519
There were $75.8 million of proceeds on sales of available for sale securities with gross gains of approximately $0.5 million and gross
losses of approximately $0.5 million realized in 2015. There were $361.0 million of proceeds on sales of available for sale securities
with gross gains of approximately $1.2 million and gross losses of approximately $2.3 million realized in 2014. There were $129.4
million of proceeds on sales of available for sale securities with gross gains of approximately $1.5 million and gross losses of
approximately $0.8 million realized in 2013.
Securities having a fair value of approximately $611.0 million and $451.1 million at December 31, 2015 and 2014, 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, 2015 and 2014.
As of December 31, 2015, there was no issuer, other than U.S. Government and its Sponsored Entities, where the Bank had invested
holdings that exceeded 10% of consolidated stockholder’s equity. As of December 31, 2014, there was one issuer, other than U.S.
Page -48-
Government and its Sponsored Entities, where the Bank had invested holdings that exceeded 10% of consolidated stockholder’s equity
and represented 13% of consolidated stockholder’s equity. These assets were more than 95% backed by a U.S. Government guarantee.
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
2015
2014
1,053,399 $
350,793
392,815
501,766
91,153
17,596
2,407,522
3,252
2,410,774
(20,744)
595,397
218,985
156,156
291,743
63,556
10,124
1,335,961
2,366
1,338,327
(17,637)
2,390,030 $ 1,320,690
$
$
On June 19, 2015, the Company completed the acquisition of Community National Bank (“CNB”) resulting in the addition of $734.0
million of acquired loans recorded at their fair value. There were approximately $659.7 million of acquired CNB loans remaining as
of December 31, 2015.
On February 14, 2014, the Company completed the acquisition of FNBNY Bancorp, Inc. and its wholly owned subsidiary First
National Bank of New York (collectively “FNBNY”) resulting in the addition of $89.7 million of acquired loans recorded at their fair
value. There were approximately $37.7 million and $64.9 million of acquired FNBNY loans remaining as of December 31, 2015 and
2014, respectively.
Lending Risk
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 Nassau and Suffolk Counties located on Long Island 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, can
Page -49-
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.
Commercial, Industrial and Agricultural Loans
Loans in this classification are made to businesses and include term loans, lines of credit, senior secured loans to corporations and taxi
medallion loans. 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 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
Page -50-
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 Management Committee is comprised of Bank management. The adequacy of the allowance is analyzed quarterly,
with any adjustment to a level deemed appropriate by the Credit Risk Management Committee, based on its risk assessment of the
entire portfolio. Each quarter, members of the Credit Risk Management Committee meet with the Credit Risk Committee of the Board
to review credit risk trends and the adequacy of the allowance for loan losses. Based on the Credit Risk Management Committee’s
review of the classified loans and the overall allowance levels as they relate to the loan portfolio at December 31, 2015 and 2014,
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
2015
2014
2013
$
17,637
$
16,001
$
14,439
(1,128)
235
(893)
4,000
20,744
$
(824)
260
(564)
2,200
17,637
$
(916)
128
(788)
2,350
16,001
$
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, 2015, 2014 and 2013. The loan segment
represents the categories that the Bank develops to determine its allowance for loan losses.
December 31, 2015
(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
Ending balance: loans acquired with
deteriorated credit quality
Loans
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Ending balance: loans acquired with
deteriorated credit quality
(1)
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
$
$
$
$
$
$
$
$
$
6,994 $
(50)
—
906
7,850 $
2,670 $
—
—
1,538
4,208 $
2,208
(249)
79
77
2,115
$
$
4,526 $
(827)
149
1,557
5,405 $
1,104
—
—
(74)
1,030
$
$
135
(2)
7
(4)
136
$
$
17,637
(1,128)
235
4,000
20,744
20 $
— $ — $
9 $
— $
— $
29
7,830 $
4,208 $
2,115
$
5,396 $
1,030
$
136
$
20,715
— $
— $
— $
— $
— $
— $
—
1,053,399 $
350,793 $
392,815
$
501,766 $
91,153
$
17,596
$
2,407,522
1,629 $
— $
672
$
290 $
— $
— $
2,591
1,051,135 $
347,054 $
390,876
$
495,045 $
91,153
$
17,596
$
2,392,859
635 $
3,739 $
1,267
$
6,431 $
— $
— $
12,072
(1) Includes loans acquired on June 19, 2015 from CNB, on February 14, 2014 from FNBNY and on May 27, 2011 from HSB.
Page -51-
December 31, 2014
(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
Ending balance: loans acquired with
deteriorated credit quality
Loans
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Ending balance: loans acquired with
deteriorated credit quality
(1)
December 31, 2013
(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
Ending balance: loans acquired with
deteriorated credit quality
Loans
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Ending balance: loans acquired with
deteriorated credit quality
(1)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Total
16,001
(824)
260
2,200
17,637
Total
14,439
(916)
128
2,350
16,001
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
6,279 $
(461)
—
1,176
6,994 $
1,597 $
—
—
1,073
2,670 $
2,712
(257)
170
(417)
2,208
$
$
4,006 $
(104)
87
537
4,526 $
1,206
—
—
(102)
1,104
$
$
201
(2)
3
(67)
135
$
$
23 $
— $
72
$
79 $
— $
— $
174
6,971 $
2,670 $
2,136
$
4,447 $
1,104
$
135
$
17,463
— $
— $
— $
— $
— $
— $
—
595,397 $
218,985 $
156,156
$
291,743 $
63,556
$
10,124
$
1,335,961
5,136 $
— $
383
$
682 $
— $
— $
6,201
582,946 $
218,985 $
154,897
$
286,368 $
63,556
$
10,124
$
1,316,876
7,315 $
— $
876
$
4,693 $
— $
— $
12,884
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
4,445 $
—
—
1,834
6,279 $
1,239 $
—
—
358
1,597 $
2,803
(420)
34
295
2,712
$
$
4,349 $
(420)
87
(10)
4,006 $
1,375
(23)
2
(148)
1,206
$
$
228 $
(53)
5
21
201 $
116 $
— $
122
$
— $
— $
— $
238
6,163 $
1,597 $
2,590
$
4,006 $
1,206
$
201 $
15,763
— $
— $
— $
— $
— $
— $
—
484,900 $
107,488 $
153,417
$
209,452 $
46,981
$
9,287 $
1,011,525
5,950 $
— $
2,382
$
526 $
— $
— $
8,858
478,129 $
107,488 $
151,035
$
208,677 $
46,641
$
9,287 $
1,001,257
821 $
— $
— $
249 $
340
$
— $
1,410
(1) Includes loans acquired on February 14, 2014 from FNBNY and on May 27, 2011 from HSB
(1) Includes loans acquired on May 27, 2011 from HSB
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.
Page -52-
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 do not
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.
The following table represents loans by class categorized by internally assigned risk grades:
December 31, 2015
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family loans
Residential real estate:
Residential
Home equity
Commercial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total loans
Pass
Special Mention
Substandard
Doubtful
Total
Grades:
$
465,967
$
3,239
$
2,115
$
— $
573,049
350,785
323,557
66,910
121,037
370,642
91,153
17,496
542
—
87
523
151
3,191
—
—
8,487
8
845
893
2,549
4,196
—
100
—
—
—
—
—
—
—
—
471,321
582,078
350,793
324,489
68,326
123,737
378,029
91,153
17,596
$
2,380,596
$
7,733
$
19,193
$
— $
2,407,522
At December 31, 2015 there were $0.02 million and $9.6 million, respectively, of acquired CNB loans included in the special mention
and substandard grades and $0.1 million and $0.2 million, respectively, of acquired FNBNY loans included in the special mention and
substandard grades.
Page -53-
December 31, 2014
(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:
$
243,512
$
7,133
$
5,963
$
— $
334,790
217,855
88,405
64,994
91,007
191,942
63,190
9,921
171
202
—
212
621
4,168
—
100
3,828
928
1,613
932
2,339
1,666
366
103
—
—
—
—
—
—
—
—
256,608
338,789
218,985
90,018
66,138
93,967
197,776
63,556
10,124
$
1,305,616
$
12,607
$
17,738
$
— $
1,335,961
At December 31, 2014 there were $0.3 million and $1.5 million, respectively, of acquired FNBNY loans included in the special
mention and substandard grades.
Past Due and Nonaccrual Loans
The following table represents the aging of the recorded investment in past due loans as of December 31, 2015 and December 31,
2014 by class of loans, as defined by ASC 310-10:
December 31, 2015
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family loans
Residential real estate:
Residential mortgages
Home equity
Commercial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total loans
December 31, 2014
(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
$
$
— $
—
—
939
69
—
128
—
—
1,136
$
— $
—
—
245
100
—
24
—
—
369 $
435
$
—
—
—
188
341
—
—
—
964
$
631 $
—
—
62
610
—
44
—
3
1,350 $
1,066 $
—
—
470,255 $
582,078
350,793
1,246
967
341
196
—
3
323,243
67,359
123,396
377,833
91,153
17,593
3,819 $ 2,403,703 $
471,321
582,078
350,793
324,489
68,326
123,737
378,029
91,153
17,596
2,407,522
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
$
$
— $
181
—
—
919
—
25
—
1
1,126
$
— $
10
—
—
134
—
—
—
—
144
$
184 $
—
—
—
—
—
—
—
—
184 $
Page -54-
595 $
10
—
143
374
—
222
—
3
1,347 $
779 $
201
—
255,829 $
338,588
218,985
256,608
338,789
218,985
143
1,427
—
247
—
4
89,875
64,711
93,967
197,529
63,556
10,120
2,801 $ 1,333,160 $
90,018
66,138
93,967
197,776
63,556
10,124
1,335,961
As of December 31, 2015, there were $1.2 million of CNB acquired loans that were 30-89 days past due. There were no FNBNY
acquired loans that were 30-89 days past due at December 31, 2015 and 2014. All loans 90 days or more past due that are still
accruing interest represent loans that were acquired from CNB and FNBNY which were recorded at fair value upon acquisition. These
loans are considered to be accruing as management can reasonably estimate future cash flows and expect to fully collect the carrying
value of these acquired 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, 2015 and 2014, the Company had impaired loans as defined by FASB ASC No. 310, “Receivables” of
$2.6 million and $6.2 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, 2015, 2014 and 2013:
Recorded
Investment
Unpaid Principal
Balance
Related
Allocated
Allowance
Average
Recorded
Investment
Interest Income
Recognized
December 31, 2015
(In thousands)
With no related allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial:
Secured
Unsecured
Total with no related allowance recorded
With an allowance recorded:
Commercial real estate – Owner occupied
Commercial real estate – Non-owner occupied
Residential real estate– Residential mortgages
Residential real estate – Home equity
Commercial–Secured
Commercial–Unsecured
Total with an allowance recorded
Total:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial:
Secured
Unsecured
Total
564 $
928
— $
—
412 $
938
$
$
384
927
62
610
96
—
2,079
—
318
—
—
—
194
512
384
1,245
62
610
96
194
73
700
96
—
2,361
—
318
—
—
—
194
512
564
1,246
73
700
96
194
$
2,591
$
2,873 $
Page -55-
—
—
—
—
—
—
20
—
—
—
9
29
—
20
—
—
—
9
29
66
631
93
—
2,140
—
320
—
—
—
223
543
412
1,258
66
631
93
223
$
2,683 $
10
62
—
—
6
—
78
—
15
—
—
—
17
32
10
77
—
—
6
17
110
December 31, 2014
(In thousands)
With no related allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial:
Secured
Unsecured
Total with no related allowance recorded
With an allowance recorded:
Commercial real estate – Owner occupied
Commercial real estate – Non-owner occupied
Residential real estate– Residential mortgages
Residential real estate – Home equity
Commercial–Secured
Commercial–Unsecured
Total with an allowance recorded
Total:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial:
Secured
Unsecured
Total
Recorded
Investment
Unpaid Principal
Balance
Related
Allocated
Allowance
Average
Recorded
Investment
Interest Income
Recognized
$
3,562
$
1,251
3,707 $
1,568
— $
—
143
169
345
—
5,470
—
323
—
71
—
337
731
3,562
1,574
143
240
345
337
231
377
345
—
6,228
—
323
—
89
—
339
751
3,707
1,891
231
466
345
339
—
—
—
—
—
—
23
—
72
—
79
174
—
23
—
72
—
79
3,974 $
961
199
229
354
—
5,717
—
27
—
75
—
206
308
3,974
988
199
304
354
206
$
6,201
$
6,979 $
174
$
6,025 $
113
63
—
—
25
—
201
—
—
—
13
—
—
13
113
63
—
13
25
—
214
Page -56-
December 31, 2013
(In thousands)
With no related allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
First lien
Home equity
Commercial:
Secured
Unsecured
Total with no related allowance recorded
With an allowance recorded:
Commercial real estate – Owner occupied
Commercial real estate – Non-owner occupied
Residential real estate – First Lien
Residential real Estate – Home equity
Total with an allowance recorded
Total:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
First lien
Home equity
Commercial:
Secured
Unsecured
Total
Recorded
Investment
Unpaid Principal
Balance
Related
Allocated
Allowance
Average
Recorded
Investment
Interest Income
Recognized
$
3,696
$
917
1,463
689
352
174
7,291
720
617
152
78
1,567
4,416
1,534
1,615
767
352
174
$
8,858
$
3,805 $
917
— $
—
3,730 $
917
2,213
1,046
352
—
8,333
720
617
156
89
1,582
4,525
1,534
2,369
1,135
352
—
9,915 $
—
—
—
—
—
94
22
42
80
238
94
22
42
80
—
—
238
1,482
633
450
232
7,444
420
515
141
81
1,157
4,150
1,432
1,623
714
450
232
$
8,601 $
118
60
26
—
26
59
289
—
—
—
—
—
118
60
26
—
26
59
289
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 $250,000 other real estate owned at December 31, 2015 and none at December 31, 2014.
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 -57-
The following table presents loans by class modified as troubled debt restructurings:
Years Ended December 31,
2015
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
2014
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number of
Contracts
Number of
Contracts
2013
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number of
Contracts
(Dollars in thousands)
Trouble Debt Restructurings
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Home equity:
Commercial:
Unsecured
Installment/consumer loans
— $
— $
—
—
3
—
—
—
160
—
Total loans
3 $
160 $
—
—
—
160
—
160
— $
1
1
1
1
— $
323
127
127
5
4 $
582 $
—
323
127
127
5
582
1 $
1
720 $
620
—
1
—
—
33
—
720
620
—
33
—
3 $
1,373 $
1,373
The TDRs described above did not increase the allowance for loan losses during the years ended December 31, 2015, 2014 and 2013.
There were $0.7 million and $0.5 million of charge-offs related to TDRs during the years ended December 31, 2015 and 2014,
respectively. There were no charge-offs related to TDRs during the year ended December 31, 2013. There were no loans modified as
TDRs during 2015 and 2014 for which there was a payment default within twelve months following the modification. During 2013,
there was one loan modified as a TDR 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. The Bank had no
commitments to lend additional amounts to loans that were classified as TDRs.
At December 31, 2015 and 2014, the Company had $0.1 million and $0.5 million, respectively of nonaccrual TDR loans and $1.7
million and $5.0 million, respectively of performing TDRs. At December 31, 2015 and 2014, total nonaccrual TDR loans are secured
with collateral that has an appraised value of $0.3 million and $0.9 million, respectively.
The terms of certain other loans were modified during the year ended December 31, 2015 that did not meet the definition of a TDR.
These loans have a total recorded investment as of December 31, 2015 of $11.0 million. The modification of these loans involved a
modification of the terms of loans to borrowers who were not experiencing financial difficulties.
Acquired Loans
Loans acquired in a business combination are recorded at their fair value at the acquisition date. Credit discounts are included in the
determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.
In determining the acquisition date fair value of purchased loans, acquired loans are aggregated into pools of loans with common
characteristics. Each loan is reviewed at acquisition to determine if it should be accounted for as a loan that has experienced credit
deterioration and it is probable that at acquisition, the Company will not be able to collect all the contractual principle and interest due
from the borrower. All loans with evidence of deterioration in credit quality are considered purchased credit impaired (“PCI”) loans
unless the loan type is specifically excluded from the scope of ASC 310-30 “Loans and Debt Securities Acquired with Deteriorated
Credit Quality,” such as loans with active revolver features or because management has minimal doubt in the collection of the loan.
The Bank makes an estimate of the loans’ contractual principal and contractual interest payments as well as the total cash flows it
expects to collect from the pools of loans, which includes undiscounted expected principal and interest. The excess of contractual
amounts over the total cash flows expected to be collected from the loans is referred to as non-accretable difference, which is not
accreted into income. The excess of the expected undiscounted cash flows over the fair value of the loans is referred to as accretable
discount. Accretable discount is recognized as interest income on a level-yield basis over the life of the loans. Management has not
included prepayment assumptions in its modeling of contractual or expected cash flows. The Bank continues to estimate cash flows
expected to be collected over the life of the loans. Subsequent increases in total cash flows expected to be collected are recognized as
an adjustment to the accretable yield with the amount of periodic accretion adjusted over the remaining life of the loans. Subsequent
decreases in cash flows expected to be collected over the life of the loans are recognized as impairment in the current period through
allowance for loan losses.
Page -58-
A PCI loan may be resolved either through a sale of the loan, by working with the customer and obtaining partial or full repayment, by
short sale of the collateral, or by foreclosure. When a loan accounted for in a pool is resolved, it is removed from the pool at its
carrying amount. Any differences between the amounts received and the outstanding balance are absorbed by the non-accretable
difference of the pool. For loans not accounted for in pools, a gain or loss on resolution would be recognized based on the difference
between the proceeds received and the carrying amount of the loan.
Payments received earlier than expected or in excess of expected cash flows from sales or other resolutions may result in the carrying
value of a pool being reduced to zero even though outstanding contractual balances and expected cash flows remain related to loans in
the pool. Once the carrying value of a pool is reduced to zero, any future proceeds, which may include cash or real estate acquired in
foreclosure, from the remaining loans, representing further realization of accretable yield, are recognized as interest income upon
receipt.
At the acquisition date, the purchased credit impaired loans acquired as part of the FNBNY acquisition had contractually required
principal and interest payments receivable of $40.3 million; expected cash flows of $28.4 million; and a fair value (initial carrying
amount) of $21.8 million. The difference between the contractually required principal and interest payments receivable and the
expected cash flows ($11.9 million) represented the non-accretable difference. The difference between the expected cash flows and
fair value ($6.6) million represented the initial accretable yield. At December 31, 2015, the contractually required principal and
interest payments receivable and carrying amount of the purchased credit impaired loans was $13.9 million and $8.3 million,
respectively, with a remaining non-accretable difference of $1.5 million.
At the acquisition date, the purchased credit impaired loans acquired as part of the CNB acquisition had contractually required
principal and interest payments receivable of $8.2 million; expected cash flows of $3.0 million; and a fair value (initial carrying
amount) of $2.7 million. The difference between the contractually required principal and interest payments receivable and the
expected cash flows ($5.2 million) represented the non-accretable difference. The difference between the expected cash flows and fair
value ($0.3) million represented the initial accretable yield. At December 31, 2015, the contractually required principal and interest
payments receivable and carrying amount of the purchased credit impaired loans was $8.2 million and $2.8 million, respectively, with
a remaining non-accretable difference of $5.2 million. Considering the closing date of the transaction, the amounts presented are
preliminary and subject to adjustment as fair value assessments are finalized. Refer to Note 20. “Business Combinations,” for details
related to the CNB acquisition.
The following table summarizes the activity in the accretable yield for the purchased credit impaired loans:
December 31,
(In thousands)
Balance at the beginning of the period
Accretable discount arising from acquisition of PCI loans
Accretion
Reclassification from (to) nonaccretable difference during the period
Accretable discount at end of period
2015
2014
$
$
8,432
259
(3,570)
1,992
7,113
$
$
—
6,580
(1,598)
3,450
8,432
The allowance for loan losses was not increased during the years ended December 31, 2015 and 2014 for those purchased credit
impaired loans disclosed above. In addition, no allowances for loan losses were reversed during 2015.
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 2015 and 2014.
The following table sets forth selected information about related party loans at December 31, 2015:
(In thousands)
Balance at January 1, 2015
New loans
Effective change in related parties
Advances
Repayments
Balance at December 31, 2015
Balance
Outstanding
$
$
2,759
—
20,118
13
(101)
22,789
Page -59-
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
Total
2015
2014
$
$
$
7,381
14,839
22,292
17,887
62,399
7,381
14,829
19,134
11,243
52,587
(22,804)
39,595
$
(20,163)
32,424
Depreciation and amortization amounted to $3.6 million, $2.6 million and $2.0 million for 2015, 2014 and 2013, respectively.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
FASB ASC No. 350, Intangibles —Goodwill and Other, requires a company to perform an impairment test on goodwill annually, or
more frequently if events or changes in circumstance indicate that the asset might be impaired, by computing the fair value of such
goodwill to its recorded or carrying amount. If the carrying amount of goodwill exceeds the fair value, an impairment charge must be
recorded in an amount equal to the excess. The FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment,” which permit
an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less
than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described
in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.
The Company tested goodwill for impairment during the fourth quarter of 2015. The Company has one reporting unit, Bridge
Bancorp. Inc. and as such, evaluated goodwill at that reporting unit level. At December 31, 2015, the Company’s reporting unit
elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded
its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the
reporting unit exceeded its carrying value and no further testing was required. The results of this assessment indicated that goodwill
was not impaired.
Goodwill
The change in goodwill during the year is as follows:
(In thousands)
Balance at January 1
Acquired goodwill
Impairment
Balance at December 31
Acquired Intangible Assets
Acquired intangible assets were as follows at year end:
At December 31,
(In thousands)
Amortized intangible assets:
Core deposit intangibles
Non-compete intangible
Total
2015
2014
$
$
9,450
88,995
—
98,445
$
$
2,034
7,416
—
9,450
2015
2014
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
$
$
7,211 $
2,188
9,399 $
1,186 $
730
1,916 $
1,311 $
—
1,311 $
469
—
469
Aggregate amortization expense for the years ended December 31, 2015, 2014, and 2013 was $1,447,000, $300,000, and $59,000,
respectively.
Page -60-
Estimated amortization expense for each of the next five years and thereafter is as follows:
Total
2,272
1,412
916
786
656
1,441
7,483
$
$
(In thousands)
2016
2017
2018
2019
2020
Thereafter
6. DEPOSITS
Time Deposits
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2015:
(In thousands)
2016
2017
2018
2019
2020
Total
Total
185,650
54,871
25,832
20,255
6,247
292,855
$
$
The deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2015 and 2014 were $52.0 million and $27.6
million, respectively. Deposits from principal officers, directors and their affiliates at December 31, 2015 and 2014 were
approximately $13.3 million and $2.6 million, respectively.
7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
At December 31, 2015 and 2014, securities sold under agreements to repurchase totaled $50.9 million and $36.3 million, respectively,
and were secured by U.S. GSE, residential mortgage-backed securities and residential collateralized mortgage obligations with
carrying amounts of $55.9 million and $40.3 million, respectively.
Securities sold under agreements to repurchase are financing arrangements with $0.9 million maturing during the first quarter of 2016
and $50.0 million maturing during the fourth quarter of 2016. 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:
(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
2015
2014
$
$
30,317
0.65%
51,400
0.64%
$
$
14,185
2.71%
36,879
2.67%
The primary risk associated with these secured borrowings is the requirement to pledge a market value based balance of collateral in
excess of the borrowed amount. The excess collateral pledged represents an unsecured exposure to the lending counterparty. As the
market value of the collateral changes, both through changes in discount rates and spreads as well as related cash flows, additional
collateral may need to be pledged. In accordance with our policies, eligible counterparties are defined and monitored to minimize our
exposure.
8. FEDERAL HOME LOAN BANK ADVANCES
The following table sets forth the contractual maturities and weighted average interest rates of FHLB advances for each of the next
five years. There are no FHLB advances with contractual maturities after 2019.
Page -61-
Contractual Maturity
(Dollars in thousands)
Overnight
2016
2017
2018
2019
Contractual Maturity
(Dollars in thousands)
Overnight
2015
2016
2017
2018
December 31, 2015
Amount
Weighted
Average Rate
$
$
—
249,599
19,149
25,781
2,978
297,507
297,507
—%
0.75%
0.74
1.04
1.08
0.78%
0.78%
December 31, 2014
Amount
$
69,000
41,508
11,703
—
16,116
69,327
138,327
$
Weighted
Average Rate
0.32%
0.37%
0.69
—
1.00
0.57%
0.44%
Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized by
$666.3 million and $385.2 million of residential and commercial mortgage loans under a blanket lien arrangement at year end 2015
and 2014, respectively. Based on this collateral and the Company’s holdings of FHLB stock, the Company is eligible to borrow up to
a total of $1.1 billion at year end 2015.
9. BORROWED FUNDS
Subordinated Debentures
In September 2015, the Company issued $80.0 million in aggregate principal amount of fixed-to-floating rate subordinated debentures
(the “Notes”). $40.0 million of the Notes are callable at par after five years, have a stated maturity of September 30, 2025 and bear
interest at a fixed annual rate of 5.25% per year, from and including September 21, 2015 until but excluding September 30, 2020.
From and including September 30, 2020 to the maturity date or early redemption date, the interest rate will reset quarterly to an annual
interest rate equal to the then-current three-month LIBOR plus 360 basis points. The remaining $40.0 million of the Notes are callable
at par after ten years, have a stated maturity of September 30, 2030 and bear interest at a fixed annual rate of 5.75% per year, from and
including September 21, 2015 until but excluding September 30, 2025. From and including September 30, 2025 to the maturity date
or early redemption date, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR
plus 345 basis points.
The Notes are included in Tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.
Junior Subordinated Debentures
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
Page -62-
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.
10. DERIVATIVES
Cash Flow Hedges of Interest Rate Risk
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.
Interest rate swaps with notional amounts totaling $125.0 million and $75.0 million as of December 31, 2015 and 2014, respectively,
were designated as cash flow hedges of certain Federal Home Loan Bank advances and repurchase agreements. The swaps were
determined to be fully effective during the periods 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/(other liabilities) 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 should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective
during the remaining term of the swaps.
Summary information about the interest rate swaps designated as cash flow hedges as of December 31 is as follows:
(Dollars in thousands)
Notional amounts
Weighted average pay rates
Weighted average receive rates
Weighted average maturity
$
2015
2014
125,000
$
1.58%
0.51%
3.22 years
75,000
1.39%
0.24%
3.86 years
Interest expense recorded on these swap transactions totaled $657,000 and $470,000 during 2015 and 2014, respectively, and is
reported as a component of interest expense on FHLB Advances. Amounts reported in accumulated other comprehensive income
related to derivatives will be reclassified to interest income/expense as interest payments are made/received on the Company’s
variable-rate assets/liabilities. During the year ended December 31, 2015, the Company had $657,000 of reclassifications to interest
expense. During the next twelve months, the Company estimates that $762,000 will be reclassified as an increase in interest expense.
The following tables present the net gains (losses) 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:
(In thousands)
Interest rate contracts
(In thousands)
Interest rate contracts
2015
Amount of (loss)
recognized in OCI
(Effective Portion)
Amount of (loss)
reclassified from OCI to
interest expense
Amount of (loss)
recognized in other non-
interest income
(Ineffective Portion)
(1,008) $
(657)
$
—
2014
Amount of (loss)
recognized in OCI
(Effective Portion)
Amount of (loss)
reclassified from OCI to
interest expense
Amount of (loss)
recognized in other non-
interest income
(Ineffective Portion)
(1,249) $
(470)
$
—
$
$
Page -63-
The following table reflects the cash flow hedge included in the Consolidated Balance Sheets:
As of December 31,
(In thousands)
Included in other assets/(liabilities):
Interest rate swaps related to FHLB
Advances
Forward starting interest rate swap
related to repurchase agreements
Forward starting interest rate swap
related to FHLB Advances
Non-Designated Hedges
Notional
Amount
$
100,000
$
—
25,000
2015
Fair
Value
Asset
14
—
—
Fair
Value
Liability
Notional
Amount
$
(713)
$
40,000
$
—
(595)
10,000
25,000
2014
Fair
Value
Asset
32
—
—
Fair
Value
Liability
$
(280)
(445)
(250)
Derivatives not designated as hedges may be used to manage the Company’s exposure to interest rate movements or to provide service
to customers but do not meet the requirements for hedge accounting under U.S. GAAP. The Company executes interest rate swaps
with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers
are simultaneously offset by interest rate swaps that the Company executes with a third party in order to minimize the net risk
exposure resulting from such transactions. These interest-rate swap agreements do not qualify for hedge accounting treatment, and
therefore changes in fair value are reported in current period earnings.
The following table presents summary information about these interest rate swaps as of December 31:
(Dollars in thousands)
Notional amounts
Weighted average pay rates
Weighted average receive rates
Weighted average maturity
Fair value of combined interest rate swaps
Credit-Risk-Related Contingent Features
$
$
2015
2014
56,328
$
3.39%
3.39%
3.39 years
— $
11,175
3.28%
3.28%
9.64 years
—
As of December 31, 2015 the termination value of derivatives in a net liability position, which includes accrued interest but
excludes any adjustment for nonperformance risk, related to these agreements was $2.2 million. As of December 31, 2015, the
Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $1.9
million against its obligations under these agreements. If the Company had breached any of these provisions at December 31, 2015, it
could have been required to settle its obligations under the agreements at the termination value.
11. 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
2015
2014
2013
$
$
8,248
1,230
9,478
1,457
(157)
1,300
10,778
$
$
3,926
507
4,433
2,187
619
2,806
7,239
$
$
5,500
664
6,164
403
102
505
6,669
Page -64-
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)
2015
Percentage
of Pre-tax
Earnings
Amount
2014
2013
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
$
$
11,161
(927)
1,087
(543)
10,778
Deferred tax assets and liabilities are comprised of the following:
35% $
(3)
3
(1)
34% $
7,141
(665)
743
20
7,239
34% $
(3)
4
—
35% $
6,828
(740)
502
79
6,669
34%
(4)
3
1
34%
December 31,
(In thousands)
Deferred tax assets:
Allowance for loan losses
Net unrealized losses on securities
Restricted stock awards
Purchase accounting fair value adjustments
Net change in pension liability
Net operating loss carryforward
Net loss on cash flow hedge
Other
Total
Deferred tax liabilities:
Pension and SERP expense
Depreciation
REIT undistributed net income
Net deferred loan costs and fees
Other
Total
Net deferred tax asset
2015
2014
$
$
9,034
3,224
1,435
15,942
2,811
1,955
524
792
35,717
(4,142)
(1,828)
(482)
(1,416)
(1,541)
(9,409)
26,308
$
$
7,311
2,177
1,003
8,321
2,985
2,063
374
351
24,585
(3,765)
(1,832)
(628)
(981)
(707)
(7,913)
16,672
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the State and City of New York and
the State of New Jersey. The Company is no longer subject to examination by taxing authorities for years before 2012. There are no
unrecorded tax benefits and the Company does not expect the total amount of unrecognized income tax benefits to significantly
increase in the next twelve months.
Tax laws were enacted in 2014 and 2015 that changed the manner in which financial institutions and their affiliates are taxed in New
York State and New York City, effective January 1, 2015. The initial impact of enactment of these law changes on the carrying
amount of the Company’s deferred tax assets and liabilities were immaterial to the consolidated financial statements.
In connection with the acquisitions of HSB and FNBNY, the Company acquired net operating loss (“NOL”) carryfowards subject to
Internal Revenue Code Section 382. The Company recorded a deferred tax asset that it expects to realize within the carryfoward
period. At December 31, 2015, the remaining NOL carryforward was $4.5 million.
12. 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.
Page -65-
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. 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
2015
2014
2015
2014
$
$
$
$
$
18,960
1,134
706
(264)
(2,021)
—
18,515
23,887
(60)
999
(264)
24,562
6,047
$
$
$
$
$
13,243
905
639
(282)
4,455
—
18,960
21,828
981
1,361
(283)
23,887
4,927
$
$
$
$
$
2,457
168
91
(112)
(49)
—
2,555
$
$
— $
—
112
(112)
— $
1,919
132
88
(112)
430
—
2,457
—
—
112
(112)
—
(2,555)
$
(2,457)
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
2015
2014
SERP Benefits
2015
2014
$
$
7,108
(792)
—
—
6,316
$
$
7,631
(869)
—
—
6,762
$
$
546
—
60
—
606
$
$
628
—
87
—
715
The accumulated benefit obligation was $17.1 million and $1.9 million for the pension plan and the SERP, respectively, as of
December 31, 2015. As of December 31, 2014, the accumulated benefit obligation was $16.7 million and $1.9 million for the pension
plan and the SERP, respectively.
Page -66-
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 (credit)
Net (gain) loss
Prior service cost
Transition obligation
Amortization of net loss
Amortization of prior service cost
Amortization of transition obligation
Deferred taxes
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and other
Pension Benefits
SERP Benefits
2015
2014
2013
2015
2014
2013
$
$
$
1,134
706
(1,838)
376
(77)
—
301
$
$
(123) $
—
—
(376)
77
—
(422)
141
(281)
$
$
$
905
639
(1,625)
27
(77)
—
(131)
5,099
—
—
(27)
77
—
5,149
(2,044)
3,105
931
564
(1,385)
325
(77)
—
358
(2,677)
—
—
(325)
77
—
(2,925)
1,161
(1,764)
$
$
$
168
91
—
32
—
28
319
$
$
(48) $
—
—
(32)
—
(27)
(107)
33
(74)
$
$
$
132
88
—
—
—
28
248
430
—
—
—
—
(27)
403
(160)
243
comprehensive income
$
20
$
2,974
$
(1,406)
$
245
$
491
$
149
76
—
—
—
43
268
(193)
—
—
—
—
(43)
(236)
93
(143)
125
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 $400,000, $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 $27,000 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
2014
2015
2013
2015
SERP Benefits
2014
2013
4.30%
3.00
3.90%
3.00
3.90%
3.00
7.50
4.90%
3.00
7.50
4.90%
3.00
4.20%
3.00
7.50
4.20%
5.00
3.80%
5.00
—
3.80%
5.00
4.70%
5.00
—
4.70%
5.00
3.90%
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 semi-annually, 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.
Page -67-
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 corporate bonds from 1926 to 2014 representing
cumulative returns of approximately 10.1% and 5%, respectively. These returns were considered along with the target allocations of
asset categories.
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
2016
2015
2014
Weighted-
Average
Expected
Long-term
Rate of
Return
0 – 5%
45 - 65%
35 - 55%
4.6%
62.2%
33.2%
4.1%
62.1%
33.8%
100.0%
100.0%
—
4.9%
2.6%
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 Plan can redeem its investment with the investee
Page -68-
at the NAV at the measurement date. If the Plan can never redeem the investment with the investee at the NAV, it is considered a level
3. If the Plan can redeem the investment at the NAV at a future date, the Plan'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.
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, 2015 and 2014:
Fair Value Measurements at
December 31, 2015 Using:
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
$
1,129
21
1,150
$
1,129
—
1,129
7,472
2,259
4,390
1,151
15,272
1,329
1,308
562
4,941
8,140
24,562
$
7,472
2,259
4,390
1,151
15,272
984
—
—
—
984
17,385
$
—
21
21
—
—
—
—
—
345
1,308
562
4,941
7,156
7,177
Fair Value Measurements at
December 31, 2014 Using:
Quoted Prices In
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
$
15
964
979
9,918
800
782
3,361
14,861
1,413
1,220
533
4,881
8,047
23,887
$
$
15
—
15
9,919
800
782
3,361
14,862
—
—
—
—
—
14,877
$
—
964
964
—
—
—
—
—
1,413
1,220
533
4,881
8,047
9,011
$
$
$
$
(Dollars in thousands)
Cash and Cash Equivalents
Cash
Short term investment funds
Total cash equivalents
Equities:
U.S. Large cap
U.S. Mid cap/small cap
International
Equities blend
Total equities
Fixed income securities:
Government issues
Corporate bonds
Mortgage backed
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
Mortgage backed
High yield bonds and bond funds
Total fixed income securities
Total Plan Assets
The Company has no minimum required pension contribution due to the overfunded status of the plan.
Page -69-
Estimated Future Payments
The following benefit payments, which reflect expected future service, are expected to be paid as follows:
Year
2016
2017
2018
2019
2020
2021-2025
b) 401(k) Plan
$
Pension and SERP
Payments
506
568
663
733
899
5,913
The Company provides a 401(k) plan which covers substantially all current employees. Newly hired employees are automatically
enrolled in the plan on the 90th day of employment, unless they elect not to participate. 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, 2015, 2014 and 2013 the Bank made cash contributions of $623,000, $530,000, and $466,000, respectively.
Effective on January 1, 2013, the plan was amended to include a discretionary profit-sharing component. The Company made
discretionary profit sharing contributions of $276,000 in 2015 and $247,000 in 2014. There were no profit-sharing contributions made
in 2013.
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, 581,369
shares remain available for issuance at December 31, 2015, including shares that may be granted in the form of restricted stock awards
or restricted stock units.
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.
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, 2015 and 2014.
A summary of the status of the Company’s stock options as of December 31, 2015 follows:
(Dollars in thousands, except per share amounts)
Outstanding, January 1, 2015
Granted
Exercised
Forfeited
Expired
Outstanding, December 31, 2015
Vested and Exercisable, December 31, 2015
Range of Exercise Prices
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
25.63
—
25.53
—
30.60
25.25
25.25
Exercise
Price
25.25
0.91 years
0.91 years
$
$
123
123
Number
of
Options
39,870
—
(14,014)
—
(2,131)
23,725
23,725
Number
of
Options
23,725
23,725
Page -70-
$
$
$
$
$
$
The aggregate intrinsic value for options outstanding and exercisable as of December 31, 2015 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
2015
2014
2013
$
$
52
80
—
—
$
3
7
—
—
4
4
—
—
There was no compensation expense attributable to stock options for the years ended December 31, 2015, 2014, and 2013 because all
stock options were vested.
Restricted Stock Awards
A summary of the status of the Company’s shares of unvested restricted stock for the year ended December 31, 2015 follows:
Unvested, January 1, 2015
Granted
Vested
Forfeited
Unvested, December 31, 2015
Weighted
Average Grant-Date
Fair Value
$
$
$
$
$
22.48
26.33
21.79
26.61
23.46
Shares
248,444
71,187
(33,586)
(4,969)
281,076
The 2012 Plan provides for issuance of restricted stock awards. During the year ended December 31, 2015, the Company granted
restricted awards of 71,187 shares. Of the 71,187 shares granted, 30,625 shares vest over approximately seven years with a third
vesting after years five, six and seven, 24,812 shares vest over approximately five years with a third vesting after years three, four and
five, 10,550 shares vest ratably over five years, 4,000 shares vest ratably over 3 years and 1,200 shares vest ratably over two years.
During the year ended December 31, 2014, the Company granted restricted awards of 80,273 shares. Of the 80,273 shares granted,
53,425 shares vest over approximately seven years with a third vesting after years five, six and seven, 20,598 shares vest over
approximately five years with a third vesting after years three, four and five and 6,250 shares vest ratably over two years. During the
year ended December 31, 2013, the Company granted restricted stock awards of 72,940 shares. Of the 72,940 shares granted, 51,175
shares vest over approximately seven years with a third vesting after years five, six and seven, 12,652 shares vest over approximately
five years with a third vesting after years three, four and five and 9,113 shares vest ratably over 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 $1,266,000, $1,087,000 and $1,152,000 for the years ended December 31, 2015, 2014, and 2013,
respectively. The total fair value of shares vested during the years ended December 31, 2015, 2014 and 2013 was $732,000, $579,000
and $1,065,000, respectively. As of December 31, 2015, there was $4,124,000 of total unrecognized compensation costs related to
non-vested restricted stock awards granted under the Plan. The cost is expected to be recognized over a weighted-average period of
4.17 years.
Restricted Stock Units
Effective for 2015, the Board revised the design of the Long Term Incentive Plan (“LTI Plan”) for Named Executive Officers
(“NEOs”) to include performance based awards. Sixty percent of the awards are performance vested and 40% are time vested. The
performance based awards are in the form of restricted stock units (“RSUs”) and are subject to adjustment up or down based upon the
Company’s 3-year relative Total Shareholder Return (“TSR”) to the proxy peer group. The awards cliff vest in five years and require
an additional two year holding period before the RSUs are delivered in shares of common stock. The Company recorded expenses of
approximately $81,000 for the year ended December 31, 2015.
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 $342,000, $147,000 and $144,000 for
the years ended December 31, 2015, 2014 and 2013, respectively.
Page -71-
13. 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 non-forfeitable 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, 2015, 2014 and 2013:
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
2014
2014
2013
$ 21,111 $ 13,763 $ 13,093
(329)
$ 20,660 $ 13,444 $ 12,764
(319)
(451)
14,792
(319)
14,473
11,633
(278)
11,355
$
1.43 $
1.18 $
9,622
(242)
9,380
1.36
$ 20,660 $ 13,444 $ 12,764
14,473
4
14,477
11,355
—
11,355
$
1.43 $
1.18 $
9,380
—
9,380
1.36
There were 0, 39,870 and 45,395 options outstanding at December 31, 2015, 2014 and 2013, respectively 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, 2015,
2014, and 2013 were not included in the computation of diluted earnings per share because the assumed conversion of the trust
preferred securities was antidilutive.
14. COMMITMENTS AND CONTINGENCIES AND OTHER MATTERS
In the normal course of business, there are various outstanding commitments and contingent liabilities, such as claims and legal
actions, minimum annual rental payments under non-cancelable operating leases, guarantees and commitments to extend credit, which
are not reflected in the accompanying consolidated financial statements. No material losses are anticipated as a result of these
commitments and contingencies.
a) Leases
At December 31, 2015, 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)
2016
2017
2018
2019
2020
Thereafter
Total
$
$
6,710
6,621
5,787
5,287
4,638
21,854
50,897
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, 2015, 2014 and 2013 approximated $5.3 million, $3.4
million, and $2.3 million, respectively, net of subleases in place.
Page -72-
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
2015
2014
$
$
14,930
46,034
418,596
479,560
$
$
1,903
58,930
248,328
309,161
(1) Of the $46.0 million of loan commitments outstanding at December 31, 2014, $13.1 million are fixed rate
commitments and $32.9 million are variable rate commitments.
c) Other
During 2015, 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, 2015 was $2.7 million. During 2015, 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 2015 was $14.3 million.
During 2015, 2014 and 2013, 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, 2015, the Bank had aggregate lines of credit of $295.0 million with unaffiliated
correspondent banks to provide short-term credit for liquidity requirements. Of these aggregate lines of credit, $275.0 million is
available on an unsecured basis. As of December 31, 2015, the Bank had $120.0 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, 2015, there was $1.1 billion available for transactions under this
agreement.
The Bank had $50.9 million of securities sold under agreements to repurchase outstanding as of December 31, 2015 (See Note 7).
15. 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 -73-
Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
(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
Other Asset-backed securities
Corporate Bonds
Total available for sale securities
Derivatives
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 mortgage-backed securities
U.S. GSE Commercial collateralized mortgage
Obligations
Other Asset-backed securities
Corporate Bonds
Total available for sale securities
Derivatives
Financial Liabilities:
Derivatives
$
$
$
$
$
$
$
$
Fair Value Measurements at
December 31, 2015 Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
62,674
87,935
200,264
317,878
12,418
64,198
22,371
32,465
800,203
779
2,073
$
$
$
62,674
87,935
200,264
317,878
12,418
64,198
22,371
32,465
800,203
779
2,073
Fair Value Measurements at
December 31, 2014 Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
95,425
63,693
101,425
258,599
2,945
24,082
23,037
17,978
587,184
280
1,223
Page -74-
$
$
$
$
95,425
63,693
101,425
258,599
2,945
24,082
23,037
17,978
587,184
280
1,223
Assets measured at fair value on a non-recurring basis are summarized below:
Fair Value Measurements at
December 31, 2015 Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
483
250
Fair Value Measurements at
December 31, 2014 Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
558
Carrying
Value
$
483
250
Carrying
Value
$
558
(In thousands)
Impaired loans
Other real estate owned
(In thousands)
Impaired loans
Impaired loans with allocated allowance for loan losses at December 31, 2015, had a carrying amount of $0.5 million, which is made
up of the outstanding balance of $0.5 million, net of a valuation allowance of $0.03 million. This resulted in an additional provision
for loan losses of $0.03 million that is included in the amount reported on the income statement. Impaired loans with allocated
allowance for loan losses at December 31, 2014, had a carrying amount of $0.5 million, which is made up of the outstanding balance
of $0.7 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 Consolidated Statements of Income.
Other real estate owned at December 31, 2015 had a carrying amount of $250,000 and no valuation allowance recorded. There was no
Other Real Estate Owned at December 31, 2014. Accordingly, there was no additional provision for loan losses included in the
amount reported on the Consolidated Statements of Income.
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 to ASC 820-10.
Page -75-
Impaired Loans and Other Real Estate Owned: 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. The fair value of other real estate
owned is also evaluated in accordance with current accounting guidance and determined based upon recent appraised values less the
estimated cost to sell. 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. All appraisals undergo a second review process to insure that
the methodology employed and the values derived are accurate. 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. Adjustments made in the appraisal process are not deemed material to the
overall financial statements given the level of impaired loans measured at fair value on a nonrecurring basis.
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.
Subordinated Debentures: The estimated fair value is derived using discounted cash flow methodology based on a spread to the
London Interbank Offered Rate (“LIBOR”) curve at the time of issuance and assuming the debt was issued at PAR resulting in a Level
3 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, 2015 and December 31, 2014.
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 -76-
The estimated fair values and recorded carrying values of the Company’s financial instruments are as follows:
(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
Derivatives
Accrued interest receivable
Financial Liabilities:
Certificates of deposit
Demand and other deposits
Federal funds purchased
Federal Home Loan Bank advances
Repurchase agreements
Subordinated Debentures
Junior Subordinated Debentures
Derivatives
Accrued interest payable
Carrying
Amount
79,750
24,408
800,203
24,788
208,351
2,390,030
779
9,270
292,855
2,550,770
120,000
297,507
50,891
78,363
15,878
2,073
1,644
(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
Derivatives
Accrued interest receivable
Financial Liabilities:
Certificates of deposit
Demand and other deposits
Federal funds purchased
Federal Home Loan Bank advances
Repurchase agreements
Subordinated Debentures
Junior Subordinated Debentures
Derivatives
Accrued interest payable
Carrying
Amount
45,109
6,621
587,184
10,037
214,927
1,320,690
280
6,425
141,362
1,692,417
75,000
138,327
36,263
—
16,002
1,223
308
Fair Value Measurement at
December 31, 2015 Using:
Quoted Prices In
Active Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
79,750 $
—
—
n/a
—
—
—
—
—
2,550,770
120,000
197,243
—
—
—
—
93
— $
24,408
800,203
n/a
210,003
—
779
3,228
293,368
—
—
100,772
51,480
—
—
2,073
1,551
— $
—
—
n/a
—
2,379,171
—
6,042
—
—
—
—
—
78,830
16,566
—
—
Fair Value Measurement at
December 31, 2014 Using:
Quoted Prices In
Active Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
45,109 $
—
—
n/a
—
—
—
—
—
1,692,417
75,000
98,070
—
—
—
—
77
— $
6,621
587,184
n/a
216,289
—
280
2,721
142,264
—
—
40,165
36,991
—
—
1,223
231
— $
—
—
n/a
—
1,317,625
—
3,704
—
—
—
—
—
—
16,528
—
—
Total
79,750
24,408
800,203
n/a
210,003
2,379,171
779
9,270
293,368
2,550,770
120,000
298,015
51,480
78,830
16,566
2,073
1,644
Total
45,109
6,621
587,184
n/a
216,289
1,317,625
280
6,425
142,264
1,692,417
75,000
138,235
36,991
—
16,528
1,223
308
16. 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
Page -77-
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 of total and Tier 1 capital to risk weighted assets and of Tier 1 capital to average assets. Tier 1 capital, risk
weighted assets and average assets are as defined by regulation. The required minimums for the Corporation and Bank are set forth in
the table that follows. The Company and the Bank met all capital adequacy requirements on December 31, 2015.
On January 1, 2015, the Basel III Capital Rules became effective and include transition provisions through January 1, 2019. These
rules provide for the following minimum capital to risk-weighted assets ratios as of January 1, 2015: a) 4.5% based upon common
equity tier 1 capital ("CET1"); b) 6.0% based upon tier 1 capital; and c) 8.0% based upon total regulatory capital. A minimum leverage
ratio (tier 1 capital as a percentage of total average assets) of 4.0% is also required under the Basel III Capital Rules.
When fully phased in, the Basel III Capital Rules will additionally require institutions to retain a capital conservation buffer,
composed of CET1, of 2.5% above these required minimum capital ratio levels. The capital conservation buffer requirement is being
phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing by 0.625% each subsequent January 1, until it
reaches 2.5% on January 1, 2019. When the capital conservation buffer is fully phased in on January 1, 2019, the Company and the
Bank will effectively have the following minimum capital to risk-weighted assets ratios: a) 7.0% based upon CET1; b) 8.5% based
upon tier 1 capital; and c) 10.5% based upon total regulatory capital.
The Company and the Bank made the one-time, permanent election to continue to exclude the effects of accumulated other
comprehensive income or loss items included in stockholders' equity for the purposes of determining the regulatory capital ratios.
As of December 31, 2015, 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 following table presents actual capital levels and minimum required levels for the Company and the Bank at December 31, 2015
(under Basel III rules) and December 31, 2014.
As of December 31, 2015
(Dollars in thousands)
Common Equity Tier 1 Capital to Risk Weighted Assets:
Actual
Amount
Ratio
Basel III
Minimum Capital
Adequacy Requirement
Ratio
Amount
Minimum To Be Well
Capitalized Under Prompt
Corrective Action Provisions
Amount
Ratio
$ 249,921
319,351
9.3 % $ 121,074
121,074
11.9
4.5 %
4.5
n/a
$ 174,884
Consolidated
Bank
Total Capital to Risk Weighted Assets:
Consolidated
Bank
Tier 1 Capital to Risk Weighted Assets:
Consolidated
Bank
Tier 1 Capital to Average Assets:
Consolidated
Bank
366,393
340,371
265,373
319,351
265,373
319,351
13.6
12.7
9.9
11.9
7.6
9.1
215,243
215,242
161,432
161,432
140,490
140,492
8.0
8.0
4.0
4.0
4.0
4.0
Basel I
Minimum Capital
Adequacy Requirement
Ratio
Amount
n/a
6.5%
n/a
10.0
n/a
8.0
n/a
5.0
n/a
269,053
n/a
215,242
n/a
175,615
Minimum To Be Well
Capitalized Under Prompt
Corrective Action Provisions
Amount
Ratio
As of December 31, 2014
(Dollars in thousands)
Common Equity Tier 1 Capital to Risk Weighted Assets:
Actual
Amount
Ratio
Consolidated
Bank
Total Capital to Risk Weighted Assets:
Consolidated
Bank
Tier 1 Capital to Risk Weighted Assets:
Consolidated
Bank
Tier 1 Capital to Average Assets:
Consolidated
Bank
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$ 207,340
206,633
13.0 % $ 127,445
127,427
13.0
8.0 %
8.0
n/a
$ 159,284
189,527
188,820
189,527
188,820
11.9
11.9
8.4
8.3
Page -78-
63,722
63,714
90,614
90,617
4.0
4.0
4.0
4.0
n/a
95,571
n/a
113,271
n/a
n/a
n/a
10.0%
n/a
6.0
n/a
5.0
17. 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
Subordinated debentures
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 (loss) before income taxes and equity in undistributed
earnings of the Bank
Income tax benefit
Income (loss) before equity in undistributed earnings of the Bank
Equity in undistributed earnings of the Bank
Net income
2015
2014
25,475
16
411,106
436,597
78,363
15,878
1,228
95,469
341,128
436,597
$
$
$
$
610
89
190,292
190,991
—
15,873
—
15,873
175,118
190,991
2015
2014
2013
10,000
2,626
73
7,301
(933)
8,234
12,877
21,111
$
— $
1,365
86
(1,451)
(463)
(988)
14,751
13,763
$
$
—
1,365
69
(1,434)
(483)
(951)
14,044
13,093
$
$
$
$
$
$
Page -79-
Condensed Statements of Cash Flows
Years ended December 31,
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash (used in) operating activities:
Equity in undistributed earnings of the Bank
Amortization
Decrease (increase) in other assets
Increase (decrease) in other liabilities
Net cash provided by (used in) 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 subordinated debentures
Repayment of acquired unsecured debt
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 benefit from share based compensation
Cash dividends paid
Other, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
18. OTHER COMPREHENSIVE INCOME (LOSS)
2015
2014
2013
$ 21,111
$ 13,763
$ 13,093
(12,877)
44
72
1,228
9,578
(14,751)
5
76
(48)
(955)
(14,044)
5
(105)
(5)
(1,056)
(50,000)
—
(50,000)
(24,000)
(1)
(24,001)
78,324
—
779
80
(228)
50
(13,415)
(303)
65,287
—
(1,450)
631
7
(173)
36
(10,657)
(192)
(11,798)
(6,000)
—
(6,000)
—
—
46,237
4
(291)
21
(6,754)
—
39,217
24,865
610
$ 25,475
(36,754)
37,364
610
$
32,161
5,203
$ 37,364
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 losses (gains) realized in income
Income tax effect
Net change in unrealized (losses) gains on available for sale securities
Unrealized net gain (loss) arising during the period
Reclassification adjustment for amortization realized in income
Income tax effect
Net change in post-retirement obligation
Change in fair value of derivatives used for cash flow hedges
Reclassification adjustment for losses realized in income
Income tax effect
Net change in unrealized (loss) gain on cash flow hedges
$
2015
2014
2013
(2,489)
8
1,047
(1,434)
196
358
(174)
380
(1,008)
657
150
(201)
$
13,315
1,090
(5,718)
8,687
$ (23,771)
(659)
9,698
(14,732)
(5,529)
(23)
2,204
(3,348)
(1,249)
470
309
(470)
2,871
291
(1,255)
1,907
(259)
271
(5)
7
Total
$
(1,255)
$
4,869
$ (12,818)
Page -80-
The following is a summary of the accumulated other comprehensive income balances, net of income tax:
Details about Accumulated Other Comprehensive Income
(In thousands)
Unrealized (losses) gains on available for sale securities
Unrealized (losses) gains on pension benefits
Unrealized (losses) on cash flow hedges
Total
Balance as of
January 1, 2015
Current
Period
Change
Balance as of
December 31, 2015
$
$
(3,307) $
(4,491)
(569)
(8,367) $
(1,434) $
380
(201)
(1,255) $
(4,741)
(4,111)
(770)
(9,622)
The following represents the reclassifications out of accumulated other comprehensive income:
Details about accumulated Other
Comprehensive Income
(In thousands)
Realized (losses) gains on sale of available
for sale securities
Income tax benefit (expense)
Net of income tax
Amortization of defined benefit pension
plan and the defined benefit plan
component of the SERP:
Prior service credit
Transition obligation
Actuarial losses
Income tax benefit (expense)
Net of income tax
Realized losses on cash flow hedges
Income tax effect
Net of income tax
Twelve Months Ended December 31,
2015
2014
2013
Affected Line Item in the Consolidated
Statements of Income
$
$
$
(8)
3
(5)
77
(27)
(408)
(358)
145
(213)
(657)
266
(391)
$
$
$
(1,090)
433
(657)
77
(27)
(27)
23
(9)
14
(470)
187
(283)
$
$
$
659
(262)
397
77
(43)
(325)
(291)
116
(175)
(271)
108
(163)
Net securities losses
Income tax expense
Salaries and employee benefits
Salaries and employee benefits
Salaries and employee benefits
Income tax expense
Interest Expense
Income tax expense
Total reclassifications, net of income tax
$
(609)
$
(926)
$
59
Page -81-
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected Consolidated Quarterly Financial Data
2015 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
2014 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,
$
$
$
$
$
$
$
$
20,507
1,812
18,695
800
17,895
2,804
13,310(2)
7,389
2,626
4,763
0.41
0.41
March 31,
17,358
1,822
15,536
700
14,836
802(1)
15,013(2)
625
219
406
0.04
0.04
$
$
$
$
$
$
$
$
22,380
1,953
20,427
700
19,727
2,527
22,034(3)
220
(243)
463
0.04
0.04
$
$
$
$
31,744 $
2,659
29,085
1,500
27,585
3,926
19,373(4)
12,138
4,248
7,890 $
0.45 $
0.45 $
31,609
3,705
27,904
1,000
26,904
3,411
18,173(5)
12,142
4,147
7,995
0.46
0.46
June 30,
September 30, December 31,
18,730
1,915
16,815
500
16,315
2,292
12,124(3)
6,483
2,165
4,318
0.37
0.37
$
$
$
$
19,219 $
1,857
17,362
500
16,862
2,562
12,094
7,330
2,459
4,871 $
0.42 $
0.42 $
19,603
1,866
17,737
500
17,237
2,510
13,183(5)
6,564
2,396
4,168
0.36
0.36
(1)
(2)
(3)
(4)
(5)
2014 amount includes net securities losses of $1.1 million.
2015 amount includes costs associated with the CNB acquisition of $0.2 million.
2014 amount includes costs associated with the FNBNY acquisition and branch restructuring of $4.4 million.
2015 amount includes costs associated with the CNB acquisition of $8.2 million.
2014 amount includes costs associated with the FNBNY acquisition of $0.3 million.
2015 amount includes costs associated with the CNB acquisition of $0.9 million.
2015 amount includes costs associated with the CNB acquisition of $0.5 million.
2014 amount includes costs associated with the CNB acquisition of $0.8 million
20. BUSINESS COMBINATIONS
On June 19, 2015, the Company acquired Community National Bank (“CNB”) at a purchase price of $157.5 million, issued an
aggregate of 5.647 million Bridge Bancorp common shares in exchange for all the issued and outstanding common stock of CNB and
recorded goodwill of $89.0 million, which is not deductible for tax purposes. At acquisition, CNB had total acquired assets on a fair
value basis of $899.9 million, with loans of $734.0 million, investment securities of $90.1 million and deposits of $786.9 million. The
transaction expanded the Company’s geographic footprint across Long Island including Nassau County, Queens and into New York
City. It complements the Bank’s existing branch network and enhances asset generation capabilities. The expanded branch network
allows the Bank to serve a greater portion of the Long Island and metropolitan marketplace through a network of 40 branches.
The acquisition was accounted for under the acquisition method of accounting in accordance with FASB ASC 805, “Business
Combinations.” Accordingly, the assets acquired and liabilities assumed were recorded at their respective acquisition date fair values,
and identifiable intangible assets were recorded at fair value. The operating results of the Company for the year ended December 31,
2015 include the operating results of CNB since the acquisition date of June 19, 2015.
Page -82-
The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed on June 19, 2015:
(In thousands)
(In thousands, except per share amounts)
Cash and due from banks
Securities
Loans
Bank Owned Life Insurance
Premises and equipment
Other intangible assets
Other assets
Total Assets Acquired
Deposits
Federal Home Loan Bank term advances
Other liabilities and accrued expenses
Total Liabilities Assumed
Net Assets Acquired
Consideration Paid
Goodwill Recorded on Acquisition
As Initially
Reported
Measurement Period
Adjustments
As Adjusted
$
$
$
$
$
24,628
90,109
736,348
21,445
6,398
6,698
14,484
900,110
786,853
35,581
5,647
828,081
72,029
157,503
85,474
$
$
$
$
— $
—
(2,362)
—
—
—
2,182
(180)
$
—
—
3,341
3,341
(3,521)
—
3,521
$
$
24,628
90,109
733,986
21,445
6,398
6,698
16,666
899,930
786,853
35,581
8,988
831,422
68,508
157,503
88,995
The above fair values are final with the exception of loans, premises and equipment, other assets, other liabilities and accrued
expenses which are subject to adjustment as the Company finalizes fair value assessments. In accordance with FASB ASC 805-10
(Subtopic 25-15), the Company has up to one year from date of acquisition to complete this assessment.
The following table presents selected unaudited pro forma financial information reflecting the Merger assuming it was completed as of
January 1, 2015 and January 1, 2014. The unaudited pro forma financial information is presented for illustrative purposes only and is
not necessarily indicative of the financial results of the combined companies had the Merger actually been completed at the beginning
of the periods presented, nor does it indicate future results for any other interim or full fiscal year period.
The unaudited pro forma information, for the years ended December 31, 2015 and 2014, set forth below reflects the adjustments
related to estimated amortization and accretion of purchase accounting fair value adjustments related to interest income on loans and
investments, interest expense on time deposits and borrowings, unfavorable leases, SBA loan servicing rights, and core deposit and
other intangibles. In the table below, merger-related expenses of $11.8 million and $1.3 million were excluded from pro forma non-
interest expenses for the year ended December 31, 2015 and 2014, respectively. Additionally, the unaudited pro forma information
does not reflect management’s estimate of any revenue enhancement opportunities or anticipated cost savings:
Unaudited
(In thousands, except per share amounts)
Net Interest Income
Net income
Basic earnings per share
Diluted earnings per share
Pro Forma for the Year
Ended December 31,
2014
2015
102,400
129,538
$
35,856
2.06
2.06
$
$
$
20,089
1.90
1.90
$
$
$
$
Page -83-
On February 14, 2014, the Company acquired FNBNY resulting in the addition of total acquired assets on a fair value basis of $211.9
million, with loans of $89.7 million, investment securities of $103.2 million and deposits of $169.9 million.
The acquisition was accounted for under the acquisition method of accounting in accordance with FASB ASC 805, “Business
Combinations.” Accordingly, the assets acquired and liabilities assumed were recorded at their respective acquisition date fair values,
and identifiable intangible assets were recorded at fair value. The operating results of the Company include the operating results of
FNBNY since the acquisition date of February 14, 2014.
The following table summarizes the finalized fair value of the assets acquired and liabilities assumed:
(In thousands)
(In thousands, except per share amounts)
Cash and due from banks
Interest earning deposits with banks
Securities
Loans
Premises and equipment
Core deposit intangible
Other assets
Total Assets Acquired
Deposits
Federal Home Loan Bank term advances
Unsecured debt
Other liabilities and accrued expenses
Total Liabilities Assumed
Net Assets Acquired/(Liabilities Assumed)
Consideration Paid
Goodwill Recorded on Acquisition
February 14, 2014
1,883
1,044
103,192
89,714
1,787
951
13,378
211,949
169,873
39,282
1,450
2,620
213,225
(1,276)
6,140
7,416
$
$
$
$
21. PRESENTATION OF DEBT ISSUANCE COSTS
During the third quarter of 2015, the Company adopted Accounting Standards Update (“ASU”) No. 2015-03 “Simplifying the
Presentation of Debt Issuance Costs,” which requires that debt issuance costs be presented in the balance sheet as a direct deduction
from the carrying amount of debt liability. This ASU is required to be applied retrospectively to all periods presented. The following
table summarizes the impact of retrospective application to the balance sheet for the year ended December 31, 2014:
(in thousands)
Other assets
As previously reported
As reported under the new guidance
Total assets
As previously reported
As reported under the new guidance
Junior subordinated debentures
As previously reported
As reported under the new guidance
Total liabilities
As previously reported
As reported under the new guidance
December 31,
2014
$
$
$
$
19,373
19,244
2,288,653
2,288,524
16,002
15,873
2,113,535
2,113,406
Page -84-
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, 2015 and 2014, 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, 2015. We also have audited Bridge Bancorp, Inc.’s internal control over financial reporting as
of December 31, 2015, based on criteria established in Internal Control—Integrated Framework (2013) 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, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2015 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, 2015, based on criteria established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
New York, New York
March 14, 2016
Crowe Horwath LLP
Page -85-
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, 2015. 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, 2015. This assessment was based
on criteria for effective internal control over financial reporting described in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as
of December 31, 2015, 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, 2015, 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
The information regarding Directors, Executive officers and Corporate Governance will be set forth in the Registrant’s Proxy
Statement for the Annual Meeting of Shareholders to be held on May 6, 2016 and is incorporated herein by reference thereto.
Item 11. Executive Compensation
The information regarding Executive Compensation will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of
Shareholders to be held on May 6, 2016 and is incorporated herein by reference thereto.
Page -86-
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information regarding Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters will
be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 6, 2016 and is incorporated
herein by reference thereto.
Set forth below is certain information as of December 31, 2015, regarding the Company’s equity compensation plans that have been
approved by stockholders. The Company does not have any equity compensation plans that have not been approved by shareholders.
Equity Compensation
Plan approved by
Stockholders
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
2006 Equity Incentive Plan
2012 Equity Incentive Plan
Total
114,602
262,830
377,432
$
$
25.25
—
25.25
—
581,369
581,369
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information regarding Certain Relationships and Related Transactions and Director Independence will be set forth in the
Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 6, 2016 and is incorporated herein by
reference thereto.
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 6, 2016, 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
85
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 89.
Page -87-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 14 , 2016
March 14 , 2016
March 14 , 2016
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/ Lisa A. DiIorio
Lisa A. DiIorio
Vice President, Principal Accounting Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
March 14, 2016
March 14, 2016
March 14 , 2016
March 14 , 2016
March 14 , 2016
March 14 , 2016
March 14 , 2016
March 14 , 2016
March 14 , 2016
March 14 , 2016
March 14 , 2016
March 14 , 2016
/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/ 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
/s/ Raymond A. Nielsen
Raymond A. Nielsen
/s/ Daniel Rubin
Daniel Rubin
/s/ Christian Yegen
Christian Yegen
Page -88-
,Director
,Director
,Director
,Director
,Director
,Director
,Director
,Director
,Director
,Director
,Director
,Director
EXHIBIT INDEX
Exhibit Number
Description of Exhibit
Exhibit
3.1
3.1(i)
3.1(ii)
3.2
10.1
10.2
10.3
10.4
10.5
10.6
23
31.1
31.2
32.1
101
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
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. 1-34096, filed July 3, 2013)
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)
Form of Change in Control Agreement entered into with Messrs. McCaffery, Manseau and
Santacroce (incorporated by reference to Registrant’s Form 10-K, File No. 001-34096, filed
March 16, 2015)
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)
Agreement and Plan of Merger by and between Bridge Bancorp, Inc., The Bridgehampton
National Bank and Community National Bank (incorporated by reference to Registrant’s
Form 8-K, File No. 001-34096, filed December 18, 2014)
*
*
*
*
*
*
*
*
*
*
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, 2015, filed on March 14, 2016, formatted in XBRL:
(i) Consolidated Balance Sheets as of December 31, 2015 and December 31, 2014,
(ii) Consolidated Statements of Income for the Years Ended December 31, 2015, 2014 and
2013, (iii) Consolidated Statements of Comprehensive Income for the Years Ended December
31, 2015, 2014 and 2013, (iv) Consolidated Statements of Stockholders’ Equity for the Years
Ended December 31, 2015, 2014 and 2013, (v) Consolidated Statements of Cash Flows for
the Years Ended December 31, 2015, 2014 and 2013, and (vi) the Notes to Consolidated
Financial Statements.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Labels Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definitions Linkbase Document
*
Denotes incorporated by reference.
Page -89-
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-
199123 and 333-187262) of Bridge Bancorp, Inc. of our report dated March 14, 2016 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, 2015.
New York, New York
March 14, 2016
Crowe Horwath LLP
Page -90-
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 14, 2016
/s/ Kevin M. O’Connor
Kevin M. O’Connor
President and Chief Executive Officer
Page -91-
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 14, 2016
/s/ Howard H. Nolan
Howard H. Nolan
Senior Executive Vice President and Chief Financial Officer
Page -92-
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, 2015
as filed with the Securities and Exchange Commission on March 14, 2016, (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 14, 2016
/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 -93-
Corporate Information
BRIDGE BANCORP, INC.
BOARD OF DIRECTORS
Marcia Z. Hefter
Chairperson
Dennis A. Suskind
Vice Chairperson
Kevin M. O’Connor
Emanuel Arturi
Charles I. Massoud
Albert E. McCoy, Jr.
Raymond A. Nielsen
Howard H. Nolan, CPA
Daniel Rubin
Rudolph J. Santoro
Thomas J. Tobin
Christian C. Yegen
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
Sr. Executive Vice President,
Chief Administrative and Financial Officer
James J. Manseau
Executive Vice President,
Chief Retail Banking Officer
John M. McCaffery
Executive Vice President, Treasurer
Kevin L. Santacroce
Executive Vice President,
Chief Lending Officer
SENIOR VICE PRESIDENTS
Eric Bukowski
Michelle Dosch
Seamus J. Doyle
Nancy Foster
Patricia F. Horan
Theresa Mackey
Deborah McGrory
Ralph Meyer
Matthew Murphy
William J. Newham, III
Michael Ogus
Thomas Pfundstein
Stephen Sheridan
Thomas H. Simson
James Thompson
John Tuohy
John P. Vivona
Joseph Walsh
Catherine Wilinski
Aidan P. Wood
VICE PRESIDENTS
Sharon Abbondondelo
William Araneo
Noman Arshad
Saveeta Barnes
Shepherd Baum
JoAnn Bello
Steven Bodziner
Maria Bozzella
Edward Burger
Lance P. Burke
Michael-James Caldwell
Anthony Carbone
Kimberly Cioch
Stephanie Clancy
Laura Collins
LuAnn Commisso
Deborah Cosgrove
Matthew Crennan
Prudence D’Auria
Ann Marie Davis
John DePasquale
Elizabeth Drury
Anthony Errera
Michael Fearon
Beth Flanagan
Stuart Fliegelman
Maria M. Fontana
Steven Frascatore
Peter M. Gajda
Stanley Glinka
Theresa Going
Laura Gorman
Michael V. Hadix
Peter Hillick
Maureen Hines
Chanbir Kaur
Craig Kittilsen
Monica LaCroix-Rubin
Patricia Liotta
David Luce
John B. MacCulley
Thomas Malley
Norma Marx
Marie A. McAlary
Michelle McAteer
Theresa McCarthy
Scott McGrath
Margaret B. Meighan
Nancy Messer
Roger Morris
Corrinne Newman
Eileen O’Brien
Hayley Orientale
Deborah Orlowski
William Penteck III
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Claudia Pilato
Mary Ann Pino
Philip Rinaldi
Keith Robertson
Lydia Ross
Frank Sabalja
Raymond Sanchez
Susan G. Schaefer
Jacqueline Shirian
Maria Silverman
Michele Staubitz
Thomas Sullivan
Nicholas Tavantzis
Kathleen Taveira
Frank Trifaro
Dawn M. Turnbull
Jeanne Marie Wickel
Tong Grace Zhuo
INVESTOR RELATIONS
Exchange: NASDAQ®
Symbol: BDGE
Howard H. Nolan, CPA
Sr. 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 REGISTRAR
Computershare Investor Services
P.O. Box 30170
College Station, TX 77842-3170
800.368.5948
www.computershare.com
Shareholders who would like to make changes to
the name, address or ownership of their stock,
consolidate accounts, eliminate duplicate mailings,
or replace lost certificates or dividend checks,
should contact Computershare.
SECURITIES COUNSEL
Luse Gorman, 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 6, 2016 in the
Community Room, Bridgehampton National Bank,
2200 Montauk Highway, Bridgehampton, NY 11932.
BRIDGE
BANCORP, INC.
2200 Montauk Highway
P.O. Box 3005
Bridgehampton, New York 11932
631.537.1000
www.bridgenb.com