2016
ANNUA L R EPORT
BR IDGE BA NCOR P, INC.
Financial Highlights
(in thousands, except per share data and financial ratios)
For the year ended December 31,
2016
2015
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
$
35,491
$
21,111
9.82%
0.92%
7.91%
0.71%
$ 4,054,570
$ 2,600,440
$ 2,926,009
$ 407,987
$ 3,781,959
$ 2,410,774
$ 2,843,625
$ 341,128
$
$
$
2.00
0.92
21.36
$
$
$
1.43
0.92
19.62
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 $4.1 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
Hauppauge
East Hampton Village
Hewlett
Garden City
Great Neck
Greenport
Hampton Bays
Huntington
Manhattan
Massapequa
Mattituck
Melville
Melville South
Merrick
Montauk
New Hyde Park
Oceanside
Patchogue
Peconic Landing
Port Jefferson
Rockville Centre
Rocky Point
Ronkonkoma
Sag Harbor
Shelter Island
Shirley
Smithtown
Southampton
(Windmill Lane)
Southold
Wading River
COMMERCIAL
LOAN OFFICES
Manhattan
Riverhead
Southampton Village
Westhampton Beach
Woodbury
Lending
Reach
Technology
Solutions
Branch
Network
Online Security
& Privacy
Bob Busking,
President and Paul
Siller, Vice President,
Westhampton
Architectural Glass
Team BNB
At BNB, helping our customers succeed is our top priority. Each customer is
backed by experienced professionals at all touch points. The branch staff is the
frontline, providing personal, daily interaction. The lending team stands ready
with flexible, customized solutions. Technology experts not only facilitate smooth
transactions and easy access, but also safeguard customer data. It is a team effort
and the cornerstone of the BNB partnership. Bob Busking, President and
Paul Siller, Vice President of Westhampton Architectural Glass have “experienced
terrific service at every level.”
Bob Busking, Marie McAlary, BNB Lender
and Paul Siller
2
| Bridge Bancorp, Inc. 2016 Annual Report
Fellow Shareholders:
Each year, I am proud and humbled on behalf of the entire dedicated
and hardworking BNB banking team, to report our results to you,
our shareholders. In 2016, we furthered the positive financial tra-
jectory of the Company, including a record level of net income.
Just as important, this message will highlight the rationale for
our actions and our strategic initiatives and identify our chal-
lenges and opportunities. It is, in short, a chance to recommit to
our vision, mission statement, and collective plans, to you and all
stakeholders.
$4.1
Billion
in assets at year end.
BNB’s mission sets a clear tone throughout the Company: To be the
preeminent community bank in our markets, providing added value and
superior customer service. What does this mean? What will it take to achieve this goal? And how can we
maintain this position in a fluid economic environment, with increasing competition from all areas of the mar-
ketplace? Contemplating these questions, and considering how we have and will continue to deliver on our
promise, a pivotal concept comes to mind: Partnership. The success of any endeavor involves vision, hard
work, perseverance and, of course, a modicum of good luck. It is also often a collaborative effort among individ-
uals or groups achieving collective success or simply a partnership, with a singular goal of succeeding. While
assessing this year’s results and bridging toward the future, partnership was the underlying theme. First, we have
partnered with you, our shareholders. We deliver results, and your investment and trust provides the capital to
enable us to partner with our customers.
It follows that successful sustainable customer relationships are partnerships. We must truly work in concert
with customers, and keenly understand their business needs, aspirations and dreams. We need to recognize the
unique requirements of their respective industries to achieve their goals. The customer and the banker working
together is, unquestionably, a partnership particularly for community banks. At BNB, we have a dedicated
group of talented and experienced professionals, a banking team, behind every customer. The branch banker,
the lender, the operations and technology staff collaborate with our customers to deliver, and continually
improve, the banking experience, while safeguarding their trust at all levels.
Partnerships can also extend far beyond the obvious relationships. We have developed close affiliations with
trusted and influential individuals, such as lawyers, accountants, and insurance professionals, who partner with
their clients to provide assistance and counsel. These individuals, often referred to as “Centers of Influence,” are
great sources of new and continuing relationships through referrals. They understand their clients and look to
BNB to provide them access to the best banking services. We partner with these trusted advisors, demonstrating
our commitment by delivering. In an increasingly digital world, personal contact and word of mouth remain
powerful sales tools. Our reputation for accessible and responsive bankers is noted by our partners at all levels
and our customers appreciate the sincerity and “hands-on” approach.
Kevin M. O’Connor
President and CEO
Katie McGowan,
founder, HorseAbility
Branch Network
With 40 branches across Long Island and into NYC and Queens, brick and
mortar is still part of the banking proposition. However, the branch staff makes
the difference. Friendly, responsive and focused on service, customers have
ready access to local bankers, who know the marketplace and are active in the
community. Working with BNB frees up HorseAbility’s founder, Katie
McGowan, to focus on delivering and expanding therapeutic riding programs
to children and adults with special needs.
Terry Going, BNB Branch Manager, Theresa
McCarthy, BNB Lender and Katie McGowan
Bridge Bancorp, Inc. 2016 Annual Report
| 5
Partnership also spreads into the neighborhoods we serve. Our com-
munity bank is committed to its responsibility to help support the
organizations making significant contributions to the quality of
life for the underserved and those at risk. This partnership,
between BNB and these grassroots organizations, is the heart of
community banking. As in years past, BNB was honored for its
proactive community involvement, contributing to dozens of
events and organizations with time, talent and treasure: providing
volunteers, financial expertise, and funding.
$2.6
Billion
in loans at year end.
Delivering strong financial results, while satisfying customer and com-
munity needs, reflects one of the critical challenges to BNB, and to our
industry. Using a partnership model to address this challenge, the BNB team
accesses the products, systems and processes to deliver on the promises made by our branch and lending staff,
who represent the face of BNB. We continually ask ourselves, how can we do it better, faster and more effi-
ciently? There is also the need to partner among disciplines, to manage the risks inherent in our business: credit,
interest rate, compliance, operational, and of course, cybersecurity. This is an evolving process, and in 2016 we
established a formal Chief Risk Officer position, who has primary responsibility to oversee and assist the man-
agement team in assessing and controlling these risks, while preserving the dynamic way a successful commu-
nity bank meets its customers’ needs.
Finally, we understand the partnership we have forged with our regulators and other constituents, who are
responsible for the global management of systemic risks and issues. Much has been written and discussed
regarding the evolving regulatory process and the impacts on our industry, of this necessary, but challenging
construct. We have remained steadfast in prudently managing BNB, protecting our customers, our shareholders
and complying with regulations—demonstrating that this unique partnership is fundamental to our growth.
Total Loans by Type
(at December 31, 2016)
Total Deposits by Type
(at December 31, 2016)
Commercial Mortgages
Commercial Loans
Multi-family Loans
Residential &
Consumer Loans
Equity Loans
Construction & Land Loans
39%
20%
20%
15%
3%
3%
Average Yield
on Loans 4.69%
Demand Deposits
Money Markets
Savings & NOW
Certificates of Deposit
Average Cost
of Deposits 0.24%
39%
36%
18%
7%
6
| Bridge Bancorp, Inc. 2016 Annual Report
40
Branches
How did our focus on partnership translate to results in 2016? This
was the first full year following our acquisition of Community
National Bank. We are a vibrant, energized network of 40 branches
delivering community banking to a diverse portfolio of customers,
from local food markets to high tech manufacturing, from real
estate professionals to local distribution companies, across Long
Island, and parts of the five boroughs of New York City. After last
year’s successful integration and the expansion into new markets, we
are gaining traction and achieving growth. This new group of enthusiastic
BNB bankers are partnering with their customers, marketing our expanded
products, and are set to deliver increases in deposits and loans. This changing foot-
print also provides new opportunities, allowing us to leverage the benefits our expansion provided. Additionally,
we have seen continued growth in our legacy markets, a direct result of the strong, solid relationships cultivated
by those banking teams. We ended the year at $4.1 billion in assets, and reported 68% growth in net income to
$35.5 million, with net earnings of $2.00 per share, and we paid over $16 million in dividends.
Total Loans by Type
Contributing to this success was the implementation of initiatives resulting from “Believe iN Beyond,” a part-
(at December 31, 2016)
nership across bank departments, to produce real bottom line profitability and implement systemic changes.
39%
20%
Internal teams focused on three major areas: revenue opportunities, efficiency and streamlining key processes,
20%
and identifying and cultivating talented bankers. A sampling of the achievements included an increase of 17%
in municipal banking deposits, a commitment to a new loan origination system to streamline loan processing,
15%
3%
and a 14% increase in service fee revenue. We enhanced our “talent management” initiatives in several ways,
3%
providing more definitive career development paths for BNB bankers. These, among others, are prime examples
Commercial Mortgages
Commercial Loans
Multi-family Loans
Residential &
Consumer Loans
Equity Loans
Construction & Land Loans
of what we can achieve when we collaborate toward a common goal…in partnership.
Average Yield
on Loans 4.69%
Total Deposits by Type
(at December 31, 2016)
Demand Deposits
Money Markets
Savings & NOW
Certificates of Deposit
Average Cost
of Deposits 0.24%
39%
36%
18%
7%
Charles Boyce,
President, Boyce Technologies
Lending Reach
BNB lenders understand that customers need capital for expansion, equipment,
inventory, real estate…financing their dreams. Flexible solutions and access to
decision makers, combined with knowledge and understanding that each cus-
tomer is unique, are BNB hallmarks. No cookie cutters here. Boyce Technologies,
the provider of innovative, reliable safety communications to mass transit riders,
came to BNB to finance a major expansion. Now, Charles Boyce considers BNB
an extension of the Boyce family.
Frank Trifaro, BNB Branch Manager, Tracy
Mackey, BNB Regional Manager and Charles Boyce
Shelley Scoggin,
Owner, The Market
Technology Solutions
Online banking, remote capture, cash management, merchant services…
technology enhances a customer’s ability to do business efficiently and with ease.
BNB technology backs up the customer every day in obvious ways, but also
through thousands of seamless transactions. Behind the scene, the BNB electronic
banking and information services teams monitor and innovate regularly. Shelley
Scoggin, owner of The Market, a health food café and shop, in Greenport has been
a customer for twenty years with “great support from BNB Merchant Services.”
Emily Reeve, BNB Branch Manager and
Shelley Scoggin
Bridge Bancorp, Inc. 2016 Annual Report
| 9
We must always be vigilant and prepared to take advantage of the
opportunities arising in the marketplace. In 2016, another local
community bank was acquired by a larger regional institution.
This pattern has repeated itself over the past decade, as financial
market upheaval and institution-specific challenges further
reduce the number of local banks headquartered on Long Island.
This consolidation provides us with both potential bankers and
prospects. Customers who rely on working with a local bank have
sought out our bankers, due to the uncertainty created with the merged
$2.9
Billion
in total deposits at year end
with 39% in demand deposits.
institution. Most are looking to keep their business with a bank offering
highly personal service, and access to local decision makers—both BNB hallmarks. Upheaval also causes many
talented bankers to seek new opportunities, providing a chance for BNB to engage new team members who
have deep roots in their local communities.
5000
$5,000
This opportunity, among others in markets relatively new to BNB, provided the impetus for us to take steps to
$4,054.6
fund future growth. We successfully completed a sale of $50 million in new common equity, expecting to use
Total Assets
(at December 31, in millions)
the new capital to support growth and future investments in our franchise. We will continue to expand the
BNB footprint, with new branch locations built around talented bankers with local market experience and
relationships.
2000
$2,000
We head into 2017 with a new national paradigm, with promises of regulatory relief and tax cuts, among other
goals for the new administration. The promises are many, but the ultimate form these will take, and the
impacts they will have, remain uncertain. However, at the grassroots level, where our customers operate and our
$4,000
$3,000
$1,000
0
4000
3000
1000
0
bankers interact on a daily basis, the concern still revolves around how to operate profitably, grow and succeed.
’12
’13
’14
’15
’16
Against this backdrop, with an understanding of the economics in play, BNB will continue making partnership
Total Assets
(at December 31, in millions)
Net Income
(in millions)
$4,054.6
$35.5
$40
$30
$20
$10
0
’12
’13
’14
’15
’16
’12
’13
’14
’15
’16
5000
4000
3000
2000
1000
0
40
30
20
10
0
3000
2500
2000
1500
1000
500
0
3000
2500
2000
1500
1000
500
0
$5,000
40
$4,000
30
$3,000
20
$2,000
10
$1,000
0
0
$40
3000
$30
2500
$20
2000
1500
$10
1000
0
500
0
$3,000
3000
$2,500
2500
$2,000
2000
$1,500
1500
$1,000
1000
$500
500
0
0
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
Net Income
(in millions)
Total Loans
(at December 31, in millions)
$35.5
$2,600.4
’12
’13
’14
’15
’16
’12
’13
’14
’15
’16
Total Loans
(at December 31, in millions)
Total Deposits
(at December 31, in millions)
$2,600.4
$2,926.0
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
’12
’13
’14
’15
’16
’12
’13
’14
’15
’16
Total Deposits
(at December 31, in millions)
$2,926.0
’12
’13
’14
’15
’16
5000
4000
3000
2000
1000
0
Total Assets
(at December 31, in millions)
40
10
| Bridge Bancorp, Inc. 2016 Annual Report
$5,000
$4,054.6
30
$4,000
20
$3,000
Total Assets
(at December 31, in millions)
$4,054.6
’12
’13
’14
’15
’16
Net Income
(in millions)
$5,000
$4,000
$3,000
$2,000
$1,000
0
$40
$30
$20
$35.5
a priority and expansion of our brand of community banking a cornerstone of this franchise. We have added a
$2,000
10
$10
stand-alone drive-through to complement our Sag Harbor branch, are planning a branch in East Moriches, and
are reviewing locations for branches in Astoria and New York City. We are anticipating a major move into
0
Riverhead, establishing the BNB brand on Main Street, filling a very important void in the local community.
’12
’13
’14
’15
’16
$1,000
0
0
We are laser focused on technology, and recognize these investments keep us relevant in an evolving world. We
’14
’15
’12
’13
’16
continually enhance our cybersecurity initiatives to protect the data our customers entrust to us and we have an
ongoing commitment to deliver non-traditional and digital offerings to enhance the BNB customer experience.
I close this message by thanking you and the BNB board for the partnership we have forged and for the support
and trust you place in each of us. We recognize this organization is clearly focused, and remains ready to deliver
the type of localized community banking the marketplace is demanding, and deserves. We understand the
banking landscape is evolving, but it remains a people business, where service and trust are critical. We continue
Net Income
(in millions)
Total Loans
(at December 31, in millions)
to build upon the many partnerships that define us. This solid foundation, coupled with our commitment to
excel, provide the impetus for us to deliver superior results in 2017 and beyond. I am confident in what we can
$40
$35.5
achieve, and am excited to be your partner.
3000
Sincerely,
2500
$30
2000
$20
1500
1000
$10
500
0
Kevin M. O’Connor
’12
0
President and Chief Executive Officer
’13
’14
’15
’16
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
$2,600.4
’12
’13
’14
’15
’16
Total Loans
(at December 31, in millions)
Total Deposits
(at December 31, in millions)
$2,600.4
’12
’13
’14
’15
’16
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
$2,926.0
’12
’13
’14
’15
’16
$3,000
3000
$2,500
2500
$2,000
2000
$1,500
1500
$1,000
1000
$500
500
0
0
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
Total Deposits
(at December 31, in millions)
$2,926.0
’12
’13
’14
’15
’16
5000
4000
3000
2000
1000
0
40
30
20
10
0
3000
2500
2000
1500
1000
500
0
3000
2500
2000
1500
1000
500
0
Omid Pourmoradi,
President & CEO,
Shahla P. Moradi,
Creative Designer,
Navid Pourmoradi,
COO, and Parviz
Pourmoradi, Founder,
The Faviana Group
Online Security & Privacy
Safeguarding and respecting customers’ personal and business data is paramount
at BNB. Security professionals stand behind every customer. Ever vigilant and
watchful, the BNB security team apply state-of-the-art procedures and programs
to protect all data. Nothing is taken for granted. The Faviana Group, designers and
manufacturers of special occasion and prom dresses, headquartered in NYC,
have placed their trust in their BNB lender and the entire BNB banking team.
Omid Pourmoradi, Nick Tavantzis,
BNB Lender and Navid Pourmoradi
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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 No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No
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 No
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 No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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.:
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
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, 2016, was $469,323,830.
The number of shares of the Registrant’s common stock outstanding on February 28, 2017 was 19,692,088.
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 2017 Annual Meeting to be filed pursuant to Regulation 14A on or before April
28, 2017 (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
Item 16
Form 10-K Summary
SIGNATURES
EXHIBIT INDEX
1
7
12
12
12
12
13
15
16
34
36
85
85
85
85
85
86
86
86
86
87
87
88
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. The Trust
Preferred Securities were redeemed effective January 18, 2017.
Federally chartered in 1910, the Bank was founded by local farmers and merchants and now operates forty branches in its primary
market areas of Suffolk and Nassau Counties on Long Island and the New York City boroughs, including thirty-eight in Suffolk and
Nassau Counties, one 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 in its market area. 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) residential mortgage loans; (4) secured and unsecured commercial and consumer loans; (5) home equity loans; (6)
construction loans; (7) FHLB, FNMA, GNMA and FHLMC 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 Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”)
programs, providing multi-millions of dollars of Federal Deposit Insurance Corporation (“FDIC”) insurance on 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, and 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 477 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 areas are Suffolk and Nassau Counties on Long Island and the New York City boroughs with its legacy
markets being primarily in Suffolk County and its newer expansion markets being primarily in Nassau County and Bayside, Queens
and Manhattan. Long Island has a population of approximately 3 million and both counties are relatively affluent and well-educated
enjoying above average median household incomes. In total, Long Island has a sizable industry base with a majority of Suffolk
County tending towards high tech manufacturing and Nassau County favoring wholesale and retail trade. Suffolk County, particularly
Eastern Long Island, is semi-rural and also the point of origin for the Bank. 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-
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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 which
has boosted the Bank’s legacy market opportunities. The Bank’s opportunities in Nassau County are vast as there is a deposit base
totaling approximately $21 billion across zip codes in which the Bank operates. As the Bank currently has $454 million or 2% of this
Nassau County deposit base, there is much room for growth in these expansion markets. Industries represented across the principal
market area include retail establishments; construction and trades; restaurants and bars; lodging and recreation; professional entities;
real estate; health services; passenger transportation; high-tech manufacturing; and agricultural and related businesses. Given its
proximity, Long Island’s economy is closely linked with New York City’s and major employers in the area include 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 and has plans to open between two and four locations over the next year. 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, one in Port Jefferson, New York and one in Smithtown, New York. 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.
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 the Company’s geographic footprint into Nassau County, complemented the existing branch network and
enhanced asset generation capabilities. The expanded branch network allows the Bank to serve a greater portion of the Long Island
and metropolitan marketplace.
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 $96.5 million, which is not deductible for tax purposes. At acquisition, CNB had total acquired assets on a fair
value basis of $895.3 million, with loans of $729.4 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 Long Island and the New York City boroughs 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. Management believes positive outcomes in the future will result from the
expansion of the Company’s geographic footprint, investments in infrastructure and technology and continued focus on placing
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 FDIC, as its deposit insurer as well as by the Board of Governors of the Federal
Reserve System (“FRB”). 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. 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, the Dodd-Frank Act has resulted 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
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 Act permanently raised the deposit insurance available on all deposit accounts to $250,000
with a retroactive effective date of January 1, 2008.
The FDIC assesses insured depository institutions to maintain the DIF. Under the FDIC’s risk-based assessment system, institutions
deemed less risky pay lower assessments. Assessments for institutions of less than $10 billion of assets are now based on financial
measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three
years. That system, effective July 1, 2016, replaced the previous system under which institutions were placed into risk categories.
The Dodd-Frank Act required the FDIC to revise its procedures to base 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 basis points
to 45 basis points of total assets less tangible equity. In conjunction with the DIF’s reserve ratio achieving 1.15%, the assessment
range (inclusive of possible adjustments) was reduced for insured institutions of less than $10 billion of total assets to 1.5 basis points
to 30 basis points, effective July 1, 2016.
The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured
deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. The Dodd-Frank Act requires insured institutions
with assets of $10 billion or more to fund the increase from 1.15% to 1.35% and, effective July 1, 2016, such institutions are subject to
a surcharge to achieve that goal. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of
the FDIC, and the FDIC has exercised that discretion by establishing a long-range fund ratio of 2%.
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
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imposed by the FDIC. The Company does 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, 2016, the annualized FICO assessment was equal to 0.56 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 ratio of 8.0%, and a tier 1 capital to total assets leverage ratio of 4.0%. 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. 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.
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 April 26, 2016, the federal regulatory agencies approved a second proposed joint rulemaking to implement Section 956 of the
Dodd-Frank Act, which 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.
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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 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 8.0% (increased from 6.0%); (3) a total risk-based capital ratio of 10.0%
(unchanged); and (4) a tier 1 leverage ratio of 5.0% (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 FRB has adopted Regulation W, which comprehensively implements and interprets Sections 23A and 23B, in part by
codifying prior FRB 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.
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.
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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, the Bank’s 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 FRB 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 FRB.
The FRB 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 FRB 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 is being 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 issued trust preferred securities that qualified for grandfathering. These securities were redeemed as of January 18,
2017. The Company met all capital adequacy requirements under the new capital rules on December 31, 2016.
The policy of the FRB 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 FRB 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 FRB 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 FRB. 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.
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FRB 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 FRB 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 FRB 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 2016, 2015, and 2014 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 $259.2 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.
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 the Bank’s loan portfolio in loans secured by commercial, multi-family and residential real estate properties
located on Long Island and the New York City boroughs could materially adversely affect its 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, multi-family and residential real estate properties located in Nassau and Suffolk Counties on Long Island, and in the
New York City boroughs. The local economic conditions on Long Island and in New York City have a significant impact on the
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volume of loan originations and the quality of 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 Bank’s control would impact these local economic conditions and could negatively affect the Bank’s financial condition
and results of operations. Additionally, 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 Bank’s earnings.
If bank regulators impose limitations on the Bank’s commercial real estate lending activities, earnings could be adversely affected.
In 2006, the FDIC, the OCC and the FRB (collectively, the “Agencies”) issued joint guidance entitled “Concentrations in Commercial
Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”). Although the CRE Guidance did not establish
specific lending limits, it provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny
where total non-owner occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial
real estate and construction and land loans, represent 300% or more of an institution’s total risk-based capital and the outstanding
balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months. The Bank’s level
of non-owner occupied commercial real estate equaled 312% of total risk-based capital at December 31, 2016. Including owner-
occupied commercial real estate, the ratio of commercial real estate loans to total risk-based capital ratio would be 425% at December
31, 2016.
In December 2015, the Agencies released a new statement on prudent risk management for commercial real estate lending (the “2015
Statement”). In the 2015 Statement, the Agencies express concerns about easing commercial real estate underwriting standards, direct
financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor
lending risks, and indicate that the Agencies will continue “to pay special attention” to commercial real estate lending activities and
concentrations going forward. If the OCC were to impose restrictions on the amount of commercial real estate loans the Bank can hold
in its portfolio, or require higher capital ratios as a result of the level of commercial real estate loans held, the Bank’s earnings would
be adversely affected.
Changes in interest rates could affect the Bank’s 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 and borrowings. 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 the securities portfolio. Generally, the value of securities moves inversely with
changes in interest rates. As of December 31, 2016, the securities portfolio totaled $1.08 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 the Bank’s interest expense.
Strong competition within the Bank’s market area may limit its growth and profitability.
The Bank’s primary market area is located in Nassau and Suffolk Counties on Long Island and the New York City boroughs.
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 the Bank’s competitors have substantially greater resources and lending limits than
the Bank and may offer certain services that the Bank does not provide. In addition, competitors may offer deposits at higher rates and
loans with lower fixed rates, more attractive terms and less stringent credit structures than the Bank has been willing to offer.
Page -8-
Acquisitions involve integrations and other risks.
Acquisitions involve a number of risks and challenges including: the Bank’s ability to integrate the branches and operations acquired,
and the associated internal controls and regulatory functions, into the Bank’s current operations; the Bank’s ability to limit the outflow
of deposits held by the Bank’s new customers in the acquired branches and to successfully retain and manage the loans acquired; and
the Bank’s ability to attract new deposits and to generate new interest-earning assets in geographic areas not previously served.
Additionally, no assurance can be given that the operation of acquired branches would not adversely affect the Bank’s existing
profitability; that the Bank would be able to achieve results in the future similar to those achieved by the Bank’s existing banking
business; that the Bank would be able to compete effectively in the market areas served by acquired branches; or that the Bank would
be able to manage any growth resulting from the transaction effectively. The Bank faces 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 the Company’s book and tangible
book value per share.
The Company’s future success depends on the success and growth of The Bridgehampton National Bank.
The Company’s primary business activity for the foreseeable future will be to act as the holding company of the Bank. Therefore, the
Company’s future profitability will depend on the success and growth of this subsidiary. The continued and successful
implementation of the Company’s growth strategy will require, among other things that the Bank increases its market share by
attracting new customers that currently bank at other financial institutions in the Bank’s market area. In addition, the Company’s
ability to successfully grow will depend on several factors, including favorable market conditions, the competitive responses from
other financial institutions in the Bank’s market area, and the Bank’s ability to maintain high asset quality. While the Company
believes it has the management resources, market opportunities and internal systems in place to obtain and successfully manage future
growth, growth opportunities may not be available and the Company may not be successful in continuing its growth strategy. In
addition, continued growth requires that the Company incurs 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
the Company can successfully continue its growth, its results of operations could be negatively affected by these increased costs.
The loss of key personnel could impair the Company’s future success.
The Company’s future success depends in part on the continued service of its executive officers, other key management, and staff, as
well as its ability to continue to attract, motivate, and retain additional highly qualified employees. The loss of services of one or more
of the Company’s key personnel or its inability to timely recruit replacements for such personnel, or to otherwise attract, motivate, or
retain qualified personnel could have an adverse effect on the Company’s business, operating results and financial condition.
The Company operates in a highly regulated environment.
The Bank and Company are subject to extensive regulation, supervision and examination by the OCC, the FDIC, the FRB 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, the Company has been
required to adopt new policies and procedures and to install new systems. The Company cannot be certain that the policies,
procedures, and systems in place are effective and there is no assurance that in every instance the Company is 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 the Company’s operations.
The Company may be adversely affected by current economic and market conditions.
Although economic and real estate conditions improved in 2016, the Company continues 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 the
Company has taken, and continues to take, steps to reduce its exposure to the risks that stem from adverse changes in such conditions,
it nonetheless could be impacted by them to the degree that they affect the loans the Bank originates and the securities it invests 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 the Bank’s earnings to decrease.
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, the Bank may experience significant loan losses, which could have a material
adverse effect on its operating results. The Bank makes various assumptions and judgments about the collectability of its loan
portfolio, including the creditworthiness of 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, the Bank relies on loan quality reviews, past loss
experience, and an evaluation of economic conditions, among other factors. If its assumptions prove to be incorrect, the allowance for
credit losses may not be sufficient to cover probable incurred losses in the loan portfolio, resulting in additions to the allowance.
Material additions to the allowance through charges to earnings would materially decrease the Bank’s net income.
Bank regulators periodically review the allowance for credit losses and may require the Bank to increase its provision for credit losses
or loan charge-offs. Any increase in the allowance for credit losses or loan charge-offs as required by these regulatory authorities
could have a material adverse effect on the Bank’s results of operations and/or financial condition.
The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for the Company for the first
fiscal year beginning after December 15, 2019. This standard, referred to as Current Expected Credit Loss, will require that the Bank
determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for
loan losses. This will change the current method of providing allowances for loan losses that are probable, which may require the
Bank to increase its allowance for loan losses, and will greatly increase the types of data the Bank would need to collect and review to
determine the appropriate level of the allowance for loan losses.
The subordinated debentures the Company issued have rights that are senior to those of the Company’s common shareholders.
In 2015, the Company issued $40.0 million of 5.25% fixed-to-floating rate subordinated debentures due 2025 and $40.0 million of
5.75% fixed-to-floating rate subordinated debentures due 2030. Because these subordinated debentures rank senior to the Company’s
common stock, if the Company fails to timely make principal and interest payments on the subordinated debentures, the Company may
not pay any dividends on its common stock. Further, if the Company declares bankruptcy, dissolves or liquidates, it must satisfy all of its
subordinated debenture obligations before it may pay any distributions on its common stock.
The Dodd-Frank Act tightened capital standards, created a new Consumer Financial Protection Bureau (“CFPB”) and resulted in
new laws and regulations that are expected to increase the Company’s 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 CFPB, 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; CFPB; 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;
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 be implemented 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 DIF, all of
which in turn affected banks’ FDIC deposit insurance premiums. Certain provisions of the Dodd-Frank Act had a near-term effect on
the Company. 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 CFPB with broad powers to supervise and enforce consumer protection laws. The CFPB 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 CFPB 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.
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 the Company’s operating and compliance costs
and could increase interest expense.
Page -10-
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 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 of 4.5% of risk-weighted assets, set the leverage ratio at a
uniform 4.0% of total assets, increased the minimum tier 1 capital to risk-based assets requirement from 4.0% to 6.0% of risk-
weighted assets and assigned a higher risk weight of 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’
is being 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 the Company was unable to comply with such requirements. Furthermore, the
imposition of liquidity requirements in connection with the implementation of Basel III could result in the Company having to
lengthen the terms of funding, restructure business models, and/or increase 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 the Company’s business strategy and could limit its ability to
make distributions, including paying dividends or buying back shares.
Risks associated with system failures, interruptions, or breaches of security could negatively affect the Company’s operations and
earnings.
Information technology systems are critical to the Company’s business. The Company collects, processes and stores sensitive
customer data by utilizing computer systems and telecommunications networks operated by it and third party service providers. The
Company has 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 the
Company’s systems could deter customers from using the Bank’s products and services. Although the Company relies on security
systems to provide security and authentication necessary to effect the secure transmission of data, these precautions may not protect
the systems from compromises or breaches of security.
In addition, the Company maintains interfaces with certain third-party service providers. If these third-party service providers
encounter difficulties, or if the Company has difficulty communicating with them, the Company’s ability to adequately process and
account for transactions could be affected, and 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 the Company’s reputation and result in a loss
of customers and business thereby subjecting it to additional regulatory scrutiny, or could expose it to litigation and possible financial
liability. Any of these events could have a material adverse effect on the Company’s financial condition and results of operations.
The Company is 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 the Company may not be able to anticipate or prevent all such
attacks. The Company 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 the Company’s ability to conduct business.
In the past, weather-related events have adversely impacted the Company’s 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 remains a central target for potential acts of terrorism. Such events
could cause significant damage, impact the stability of the Company’s facilities and result in additional expenses, impair the ability of
borrowers to repay their loans, reduce the value of collateral securing repayment of loans, and result in the loss of revenue. While the
Page -11-
Company has established and regularly tests disaster recovery procedures, the occurrence of any such event could have a material
adverse effect on the Company’s business, operations and financial condition.
Changes in tax laws could have a negative impact on the Company.
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.
The Company may incur impairment to its goodwill.
Goodwill arises when a business is purchased for an amount greater than the fair value of the net assets acquired. The Company
recognized goodwill as an asset on its balance sheet in connection with the CNB, FNBNY and HSB acquisitions. The Company
evaluates goodwill for impairment at least annually. Although the Company determined that goodwill was not impaired during 2016,
a significant and sustained decline in the Company’s stock price and market capitalization, a significant decline in its 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 the Company was to conclude that a future write-down of the goodwill was necessary, then it 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, 2016, the Bank has seven owned properties: its headquarters and branch office in Bridgehampton; five branches
located in Montauk, Southold, Westhampton Beach, Southampton Village, and East Hampton Village; and a drive up facility located
in Sag Harbor which is scheduled to open in the first quarter of 2017. 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 five additional properties as branch locations: twenty four in Suffolk County,
including one property in East Moriches scheduled to open in the first quarter of 2017; 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.
Additionally, the Bank leases two properties as loan production offices: one in Riverhead, New York and one in New York City.
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, the resolution of any such pending or threatened litigation is not expected to have a material
adverse effect on the Company’s consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
Page -12-
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
At December 31, 2016, the Company had approximately 1,030 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 sale prices of the Company’s common stock and the dividends declared for such periods.
COMMON STOCK INFORMATION
By Quarter 2016
First
Second
Third
Fourth
By Quarter 2015
First
Second
Third
Fourth
Stock Prices
High
Low
Dividends
Declared
30.71
31.47
30.62
38.95
$
$
$
$
26.23
27.09
27.50
26.90
$
$
$
$
0.23 —
0.23
0.23
0.23
Stock Prices
High
Low
Dividends
Declared
26.93
27.93
28.35
32.40
$
$
$
$
24.50
24.21
25.57
25.74
$
$
$
$
0.23
0.23
0.23
0.23
$
$
$
$
$
$
$
$
Stockholders received cash dividends totaling $16.1 million in 2016 and $13.4 million in 2015. The ratio of dividends paid to net
income was 45.48% in 2016 compared to 63.55% in 2015.
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 FRB and 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, 2017, the Bank had $37.6 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 FRB has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the FRB’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 FRB 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
NASDAQfi stock market and for certain bank stocks of financial institutions with an asset size of $1 billion to $5 billion, as reported
by SNL Financial LC (“SNL”) from December 31, 2011 through December 31, 2016. 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
350
300
250
200
150
100
e
u
l
a
V
x
e
d
n
I
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
Bridge Bancorp, Inc.
NASDAQ Composite
SNL Bank $1B-$5B
Index
Bridge Bancorp, Inc.
NASDAQ Composite
SNL Bank $1B-$5B
Period Ending
12/31/11
$100.00
100.00
100.00
12/31/12
$107.83
117.45
123.31
12/31/13
$142.07
164.57
179.31
12/31/14
$151.75
188.84
187.48
12/31/15
$178.66
201.98
209.86
12/31/16
$229.73
219.89
301.92
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, 2016. The total number of shares purchased as part of the publicly
announced plan totaled 141,959 as of December 31, 2016. The maximum number of remaining shares that may be purchased under
the plan totals 167,041 as of December 31, 2016. 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, 2016.
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.
2016
819,722
34,743
223,237
2,600,440
4,054,570
2,926,009
407,987
2016
137,716
16,845
120,871
5,550
115,321
16,046
77,081
54,286
18,795
35,491
$
$
$
Selected Financial Data:
Securities available for sale
Securities, restricted
Securities held to maturity
Loans held for investment
Total assets
Total deposits
Total stockholders’ equity
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)
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
800,203
24,788
208,351
2,410,774
3,781,959
2,843,625
341,128
$
December 31,
2014
587,184
10,037
214,927
1,338,327
2,288,524
1,833,779
175,118
$
2013
575,179 $
7,034
201,328
1,013,263
1,896,612
1,539,079
159,460
2012
529,070
2,978
210,735
798,446
1,624,574
1,409,322
118,672
$
$
Year Ended December 31,
2014
74,910
7,460
67,450
2,200
65,250
8,166
52,414
21,002
7,239
13,763
2015
106,240
10,129
96,111
4,000
92,111
12,668
72,890
31,889
10,778
21,111
$
$
9.82%
0.92%
9.38%
45.48%
2.01 $
2.00 $
0.92 $
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
$
$
$
2013
58,430 $
7,272
51,158
2,350
48,808
8,891
37,937
19,762
6,669
13,093 $
9.89%
0.77%
7.80%
51.58%
1.36 $
1.36 $
0.69 $
2012
54,514
7,555
46,959
5,000
41,959
10,673
33,780
18,852
6,080
12,772
11.78%
0.88%
7.49%
77.50%
1.48
1.48
1.15
2016 amount includes reversal of $0.6 million of acquisition costs, net of taxes, associated with the CNB and FNBNY acquisitions.
2015 amount includes $6.3 million of acquisition costs, net of taxes, associated with the CNB acquisition.
2014 amount includes $3.8 million of acquisition costs, net of taxes, associated with the FNBNY and CNB acquisitions and branch restructuring costs.
2013 amount includes $0.4 million of acquisition costs, net of taxes, associated with the FNBNY acquisition.
(1)
(2)
(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 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. The
Company claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.
Factors that could cause future results to vary from current management expectations include, but are not limited to, changing
economic conditions; legislative and regulatory changes, including increases in FDIC insurance rates; monetary and fiscal policies of
the federal government; changes in tax policies; rates and regulations of federal, state and local tax authorities; changes in interest
rates; deposit flows; the cost of funds; demand for loan products; demand for financial services; competition; the Company’s 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 The Company Is and How It Generates 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, 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 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 insurance 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 $9.2 million and $0.50 per diluted share for the fourth quarter 2016 compared to $8.0 million and
$0.46 per diluted share for the fourth quarter 2015. Net income for 2016 was $35.5 million and $2.00 per diluted
share, compared to $21.1 million and $1.43 per diluted share in 2015.
Returns on average assets and equity for 2016 were 0.92% and 9.82%, respectively.
Net interest income increased to $120.9 million for 2016 compared to $96.1 million in 2015.
Net interest margin was 3.48% for 2016 and 3.57% for 2015.
Total assets of $4.1 billion at December 31, 2016, an increase of $272.6 million or 7.2% over December 31, 2015.
Total loans held for investment of $2.6 billion at December 31, 2016, an increase of $189.7 million or 7.9% from
December 31, 2015.
Page -16-
•
•
•
•
Total securities of $1.1 billion at December 31, 2016, an increase of $44.4 million or 4.3% over December 31, 2015.
Total deposits of $2.9 billion at December 31, 2016, an increase of $82.4 million or 2.9% over December 31, 2015.
Allowance for loan losses was 1.00% of loans as of December 31, 2016, compared to 0.86% at December 31, 2015.
A cash dividend of $0.23 per share was declared in January 2017 and paid in February 2017.
Significant Recent Events
Public Offering of Common Stock
On November 28, 2016, the Company completed a public offering of common stock wherein the Company sold 1,613,000 shares of
common stock at a price of $31.00 per share, for gross proceeds of approximately $50.0 million. No shares were sold pursuant to the
option granted to the underwriters. The net proceeds of the offering, after deducting underwriting discounts and commissions and
offering expenses, were approximately $47.5 million. The purpose of the offering was in part to provide additional capital to Bridge
Bancorp to support organic growth, the pursuit of strategic acquisition opportunities and other general corporate purposes, including
contributing capital to the Bank.
Issuance of 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.
Acquisition of Community National Bank
On June 19, 2015, the Company acquired 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 $96.5
million, which is not deductible for tax purposes. At acquisition, CNB had total acquired assets on a fair value basis of $895.3
million, with loans of $729.4 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 Long Island and the New York City boroughs through a network of 40 branches.
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 Act enacted on July 21, 2010.
In 2013, the FDIC and the other federal bank regulatory agencies issued a final rule
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 of 4.5% of risk-
weighted assets, increased the minimum tier 1 capital to risk-based assets requirement from 4.0% to 6.0% of risk-weighted assets and
assigned a higher risk weight of 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, deferred 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 is being
phased in from January 1, 2016 to 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 requirements.
Page -17-
Challenges and Opportunities
In December 2016, the Federal Reserve increased the federal funds target rate 25 basis points to a target range of 50 to 75 basis points.
The Federal Open Market Committee’s (“FOMC”) stance of monetary policy remains accommodative, thereby supporting some
further strengthening in labor market conditions and a return to two percent inflation.
In determining the timing and size of future
adjustments to the target range for the federal funds rate, the FOMC will assess realized and expected economic conditions relative to
its objectives of maximum employment and two percent inflation. The FOMC is maintaining its existing policy of reinvesting
principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and
of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds
rate is well under way. This policy, by keeping the FOMC’s holdings of longer-term securities at sizeable levels, should help maintain
accommodative financial conditions.
Interest rates have been at or near historic lows for an extended period of time. Growth and service strategies have the potential to
offset the compression on the 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, the most recent of which
was in December 2014 in Smithtown, New York. The more recent branch openings have moved 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. Pending acquisitions of local competitors may also
provide additional growth opportunities.
Although the turmoil in the financial markets has subsided somewhat since the Presidential election in the middle of the fourth
quarter, market 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
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 deposits and loans, and generating higher levels of revenue and income.
Corporate objectives for 2017 include: expanding the branch network through de novo branch openings; leveraging the Bank’s
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. 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. This is 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 to grow and strengthen the franchise. The Company recognizes the potential risks of the current economic environment
and will monitor the impact of market events as management evaluates loans and investments and considers growth initiatives.
Management and the Board have built a solid foundation for growth and the Company is positioned to adapt to anticipated changes in
the industry resulting from new regulations and legislative initiatives.
CRITICAL ACCOUNTING POLICIES
Note 1 of the Notes to the Consolidated Financial Statements for the year ended December 31, 2016 contains a summary of significant
accounting policies. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation
techniques, valuation assumptions and other subjective assessments. The Company’s policy with respect to the methodologies used to
determine the allowance for loan losses is its most critical accounting policy. This policy is important to the presentation of the
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 the results of operations or financial condition.
The following is a description of this critical accounting policy and an explanation of the methods and assumptions underlying its
application.
Page -18-
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. The judgments made regarding the allowance for loan losses can have a material effect on the results of
operations of the Company. If the allowance for loan losses is not sufficient to cover actual losses, the Company’s earnings could
decrease.
The allowance for loan losses is established and maintained through a provision for loan losses based on probable incurred losses 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 Financial Accounting Standards Board (“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 the Company’s 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. 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
the Bank’s 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 mortgage loans; residential real estate mortgages, home equity loans; commercial,
industrial and agricultural loans, secured and unsecured; real estate construction and land loans; and consumer loans. Management
considers a variety of factors in determining the adequacy of the valuation allowance and has developed a range of valuation
allowances necessary to adequately provide for probable incurred losses in each pool of loans. Management considers the Bank’s
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, management 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, management evaluates and considers the allowance ratios and coverage percentages
of both peer group and regulatory agency data. These evaluations are inherently subjective because, even though they are based on
objective data, it is management’s interpretation of that data that determines the amount of the appropriate allowance. If the
evaluations prove to be incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in the loan portfolio,
resulting in additions to the allowance for loan losses.
The Credit Risk Management Committee (“CRMC”) is comprised of Bank management. The adequacy of the allowance is analyzed
quarterly, with any adjustment to a level deemed appropriate by the CRMC, based on its risk assessment of the entire portfolio. Each
quarter, members of the CRMC 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 CRMC’s review of the classified loans and the overall allowance levels as they relate to the
entire loan portfolio at December 31, 2016 and 2015, 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.
Page -19-
For additional information regarding the allowance for loan losses, see Note 3 of the Notes to the Consolidated Financial Statements.
NET INCOME
Net income for the year ended December 31, 2016 totaled $35.5 million or $2.00 per diluted share compared to $21.1 million or $1.43
per diluted share for the year ended December 31, 2015 and $13.8 million or $1.18 per diluted share for the year ended December 31,
2014. Net income increased $14.4 million or 68.1% in 2016 compared to 2015 and net income for 2015 increased $7.3 million or
53.4% as compared to 2014. Changes in net income for the year ended December 31, 2016 compared to December 31, 2015 include:
(i) a $24.8 million or 25.8% increase in net interest income; (ii) a $1.6 million increase in the provision for loan losses; (iii) a $3.4
million or 26.7% increase in total non-interest income; and (iv) a $4.2 million or 5.7% increase in total non-interest expense. 2015
includes $9.8 million of costs associated with the acquisition of CNB which closed on June 19, 2015 and 2016 includes a full year of
CNB operations versus a half year in 2015. The effective income tax rate was 34.6% for 2016 compared to 33.8% for 2015. Changes
in net income for the year ended December 31, 2015 compared to December 31, 2014 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; and (iv) a $20.5 million or 39.1% increase in total non-interest expense. The effective income tax rate was 33.8% for
2015 compared to 34.5% for 2014.
ANALYSIS OF 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 on a tax
equivalent basis. 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 and costs, 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-
2016
Interest
Average
Yield/
Cost
Average
Balance
Year Ended December 31,
2015
Average
Balance
Interest
Average
Yield/
Cost
Average
Balance
2014
Interest
Average
Yield/
Cost
$ 2,494,750
$ 117,114
4.69% $ 1,876,934 $ 89,204
4.75% $ 1,176,715
$ 57,637
4.90%
1.98
3.21
2.56
—
0.51
3.96
562,553
11,173
73,796
197,363
8
18,614
2,590
4,574
—
47
2,729,268
107,588
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
55,570
179,205
$ 2,964,043
40,728
93,273
$ 2,144,881
(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
681,899
83,677
219,049
—
29,054
13,484
2,689
5,612
—
147
Total interest earning assets(2)
3,508,429
139,046
Non interest earning assets:
Cash and due from banks
Other assets
Total assets
62,676
278,455
$ 3,849,560
Interest bearing liabilities:
Savings, NOW and money
market deposits
$ 1,585,158
$
5,250
0.33% $ 1,289,678 $
4,002
0.31% $
996,315
$
3,223
0.32%
Total interest bearing liabilities
2,340,660
Non interest bearing liabilities:
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
Demand deposits
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and
stockholders’ equity
Net interest income/interest
rate spread (2) (3)
Net interest earning assets/net
interest margin (2) (4)
Ratio of interest earning assets
to interest bearing liabilities
126,904
96,842
932
684
162,118
1,075
275,591
78,427
15,620
3,001
4,539
1,364
16,845
0.73
0.71
0.66
1.09
5.79
8.73
0.72
134,211
96,617
115,648
127,358
21,911
929
673
474
1,425
1,261
15,875
1,365
1,801,298
10,129
0.69
0.70
0.41
1.12
5.76
8.60
0.56
1,110,824
36,839
3,488,323
361,237
873,794
21,936
2,697,028
267,015
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
$ 3,849,560
$ 2,964,043
$ 2,144,881
122,201
3.24%
97,459
3.38%
68,480
3.24%
$ 1,167,769
3.48% $
927,970
3.57% $
637,058
3.41%
149.89%
151.52%
146.37%
Tax equivalent adjustment
(1,330)
Net interest income
$ 120,871
(1,348)
$ 96,111
(1,030)
$ 67,450
(1)
(2)
(3)
(4)
Amounts are net of deferred origination costs/(fees) and the allowance for loan losses.
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.
(In thousands)
Volume
Rate
Net
Change
Volume
Rate
Net
Change
Year Ended December 31,
2016 Over 2015
Changes Due To
2015 Over 2014
Changes Due To
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
$ 29,048
$ (1,138)
$
27,910
$ 33,380
$(1,813)
$
31,567
2,367
331
535
35
32,316
974
(51)
2
(56)
(232)
503
65
(858)
274
54
9
239
1,615
3,271
(22)
6,028
$ 26,288
362
(39)
7
21
688
$ (1,546)
$
2,311
99
1038
100
31,458
1,248
3
11
601
1,576
3,278
(1)
6,716
24,742
1,004
(453)
(549)
16
33,398
(475)
118
421
(1)
(1,750)
884
462
259
193
13
1,261
—
3,072
$ 30,326
(105)
(300)
(12)
(307)
321
—
—
(403)
$(1,347)
$
529
(335)
(128)
15
31,648
779
162
247
(114)
334
1,261
—
2,669
28,979
(1) Amounts are net of deferred origination costs/(fees) and the allowance for loan losses.
(2) Presented on a tax equivalent basis.
Net interest income was $120.9 million for the year ended December 31, 2016 compared to $96.1 million in 2015 and $67.5 million in
2014. The increase in net interest income was $24.8 million or 25.8% as compared to 2015 and $28.6 million or 42.5% in 2015 as
compared to 2014. Average net interest earning assets increased $239.8 million to $1.17 billion for the year ended 2016 compared to
$928.0 million for the year ended 2015 and increased $290.9 million to $928.0 million for the year ended 2015 compared to $637.1
million for the year ended 2014. The increases in average net interest earning assets reflect the assets acquired from CNB as well as
organic growth in loans and securities. The net interest margin decreased to 3.48% in 2016 compared to 3.57% in 2015 and 3.41% in
2014. The decrease in the net interest margin for 2016 compared to 2015 reflects the higher costs of borrowings associated with the
$80 million in subordinated debentures issued in September 2015 and higher overall borrowing costs due to the Fed Funds rate
increase in December 2015. The increase in the net interest margin in 2015 compared to 2014 was 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.
Interest income increased $31.5 million or 29.6% to $137.7 million in 2016 from $106.2 million in 2015 as average interest earning
assets increased $779.2 million or 28.5% to $3.51 billion in 2016 compared to $2.73 billion in 2015. Interest income increased $31.3
million or 41.8% to $106.2 million in 2015 from $74.9 million in 2014, due to an increase of $718.4 million in average interest
earning assets to $2.73 billion for the year ended 2015 from $2.01 billion in 2014. The increase in average interest earning assets for
the year ended 2016 compared to 2015 reflects the full year effect of assets acquired from CNB as well as organic growth in loans and
Page -22-
securities. The tax adjusted average yield on interest earning assets was 3.96% for the year ended 2016, 3.94% in 2015 and 3.78% in
2014.
Interest income on loans increased $27.9 million to $116.7 million in 2016 over 2015 and $31.1 million to $88.8 million in 2015 over
2014 primarily due to growth in the loan portfolio. For the year ended December 31, 2016, average loans grew by $617.8 million or
32.9% to $2.49 billion as compared to $1.88 billion in 2015 and increased $700.2 million or 59.5% in 2015 compared to $1.18 billion
in 2014. The increases in average loans were the result of the CNB acquisition as well as organic growth. Commercial real estate
mortgage loans, multi-family mortgage loans, residential mortgage loans and commercial and industrial loans primarily contributed to
this growth. The tax adjusted yield on average loans was 4.69% for 2016, 4.75% for 2015 and 4.90% for 2014. The Bank remains
committed to growing loans with prudent underwriting, sensible pricing and limited credit and extension risk.
Interest income on investments securities increased $3.4 million or 19.6% in 2016 to $20.8 million from $17.4 million in 2015 and
increased $0.1 million in 2015 from $17.3 million in 2014. Interest income on securities included net amortization of premiums on
securities of $6.5 million in 2016 compared to $4.9 million in 2015 and $3.8 million in 2014. For the year ended December 31, 2016,
average total investments increased by $150.9 million or 18.1% to $984.6 million as compared to $833.7 million in 2015 and
increased $12.0 million in 2015 compared to $821.7 million in 2014. 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 2016, 2015
and 2014. The tax adjusted average yield on total securities was 2.21% in 2016, 2.20% in 2015, and 2.22% in 2014.
Total interest expense increased to $16.8 million for 2016 as compared to $10.1 million for 2015 and $7.5 million for 2014. The
increase in interest expense in 2016 is a result of the increase in average interest bearing liabilities. Average total interest bearing
liabilities were $2.34 billion in 2016 compared to $1.80 billion in 2015 and $1.37 billion in 2014. The increases in average interest
bearing liabilities were primarily the result of the CNB acquisition. The cost of average interest bearing liabilities was 0.72% in 2016,
0.56% in 2015, and 0.54% in 2014. The increase in the cost of average interest bearing liabilities is primarily due to the higher costs
of borrowings associated with the issuance of the subordinated debentures in September 2015 and higher overall borrowing costs due
to the Fed Funds rate increase in December 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 would initially result in a decrease in net interest
income. Additionally, the large percentages of deposits in money market accounts reprice at short term market rates making the
balance sheet more liability sensitive. The Bank continues its prudent management of deposit pricing.
For the year ended December 31, 2016, average total deposits increased by $525.4 million or 21.9% to $2.92 billion as compared to
average total deposits of $2.39 billion for the year ended December 31, 2015 and increased by $665.1 million or 38.5% in 2015 as
compared to average total deposits of 1.73 billion for the year ended December 31, 2014. The Bank grew deposits in 2016 and 2015 as
a result of the acquisition of CNB which closed in June 2015, adding eleven additional branches to the existing branch network;
building new relationships in existing and new markets; and the opening three new branches in the fourth quarter of 2014.
Components of this increase include an increase in the average balances in savings, NOW and money market accounts of $295.5
million or 22.9% to $1.59 billion for the year ended December 31, 2016 compared to $1.29 billion for 2015 and an increase of $293.4
million or 29.4% in 2015 as compared to the 2014 average balance of $996.3 million. Average balances in certificates of deposit
decreased $7.1 million to $223.7 million for 2016 as compared to 2015 and increased $76.9 million or 50.0% in 2015 as compared to
2014. Average demand deposits increased $237.0 million or 27.1% to $1.11 billion in 2016 as compared to $873.8 million in 2015
and increased $294.9 million or 50.9% in 2015 from $578.9 million in 2014. Average public fund deposits comprised 17.1% of total
average deposits during 2016, 14.7% in 2015 and 16.8% in 2014.
Average federal funds purchased and repurchase agreements increased $46.5 million or 40.2% to $162.1 million for the year ended
December 31, 2016 compared to $115.6 million for 2015 and increased $33.8 million or 41.4% in 2015 compared to $81.8 million in
2014. Average FHLB advances increased $148.2 million or 116.4% to $275.6 million for the year ended December 31, 2016
compared to $127.4 million for 2015 and increased $1.5 million in 2015 compared to $125.9 million in 2014. Average subordinated
debentures increased $56.5 million or 257.9% to $78.4 million for the year ended December 31, 2016 compared to $21.9 million for
2015. The subordinated debentures were issued in September 2015.
Provision and Allowance for Loan Losses
The Bank’s loan portfolio consists primarily of real estate loans secured by commercial, multi-family and residential real estate
properties located in the Bank’s principal lending areas of Nassau and Suffolk Counties on Long Island and the New York City
boroughs. 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 FRB, legislative policies and governmental budgetary matters.
Based on the Company’s continuing review of the overall loan portfolio, the current asset quality of the portfolio, the growth in the
loan portfolio and the net charge-offs, a provision for loan losses of $5.6 million was recorded in 2016 as compared to $4.0 million in
2015 and $2.2 million in 2014. Net charge-offs were $0.4 million for the year ended December 31, 2016 compared to $0.9 million for
Page -23-
the year ended December 31, 2015 and $0.6 million for the year ended December 31, 2014. The ratio of allowance for loan losses to
nonaccrual loans was 2,087%, 1,537% and 1,466%, at December 31, 2016, 2015, and 2014, respectively. The allowance for loan
losses increased to $25.9 million at December 31, 2016 as compared to $20.7 million at December 31, 2015 and $17.6 million at
December 31, 2014. The allowance as a percentage of total loans was 1.00%, 0.86% and 1.32% at December 31, 2016, 2015 and
2014, respectively. The increases in the allowance for loan losses and the provisions for loan losses reflect loan portfolio growth,
primarily multi-family mortgage loans, coupled with an increase in classified loans, primarily commercial, industrial and agricultural
loans, as further discussed below, as well as certain acquired loans being refinanced by the Bank.
In accordance with current
accounting guidance, the acquired CNB loans were recorded at fair value as of acquisition, effectively netting estimated future losses
against the loan balances, whereas loans originated and refinanced by the Bank have recorded reserves. Management continues to
carefully monitor the loan portfolio as well as real estate trends in Nassau and Suffolk Counties and the New York City boroughs.
Loans totaling $84.3 million or 3.2% of total loans at December 31, 2016 were categorized as classified loans compared to
$26.9 million or 1.1% at December 31, 2015 and $30.3 million or 2.3% at December 31, 2014. Classified loans include loans with
credit quality indicators with the internally assigned grades of special mention, substandard and doubtful. These loans are categorized
as classified loans as management has information that indicates the borrower may not be able to comply with the present repayment
terms. These loans are subject to increased management attention and their classification is reviewed at least quarterly.
At December 31, 2016, $42.5 million of these classified loans were commercial real estate (“CRE”) loans, which were well secured
with real estate as collateral. Of the $42.5 million of CRE loans, $41.7 million were current and $0.8 million were past due. In
addition, all of the CRE loans have personal guarantees. At December 31, 2016, $2.6 million of classified loans were residential real
estate loans with $1.9 million current and $0.7 million past due. Commercial, industrial, and agricultural loans represented $38.8
million of classified loans, with $38.6 million current and $0.2 million past due. Taxi medallion loans represented $26.4 million of the
classified commercial, industrial and agricultural loans at December 31, 2016. The Bank’s taxi medallion loan portfolio was
downgraded to special mention at December 31, 2016 due to weakening cash flows and declining collateral values. All of the Bank’s
taxi medallion loans are collateralized by New York City – Manhattan medallions, have personal guarantees and were current as of
December 31, 2016. The Bank has not experienced any delinquencies in this portfolio. No new originations of taxi medallion loans
are currently planned and management expects these balances to decline through amortization and pay offs. There were $0.3 million
of classified real estate construction and land loans, all of which are current. 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, the Company does not expect to sustain a material loss on these relationships.
CRE loans, including multi-family loans, represented $1.54 billion or 59.2% of the total loan portfolio at December 31, 2016
compared to $1.35 billion or 56.1% at December 31, 2015 and $814.4 million or 60.9% at December 31, 2014. The Bank’s
underwriting standards for CRE loans require 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, 2016 and 2015, the Company had impaired loans as defined by FASB ASC No. 310, “Receivables” of
$3.4 million and $2.6 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 restructurings (“TDRs”). 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.
Nonaccrual loans decreased $0.1 million to $1.2 million or 0.05% of total loans at December 31, 2016 from $1.3 million or 0.06% of
total loans at December 31, 2015. TDRs represent $0.3 million of the nonaccrual loans at December 31, 2016 and $0.1 million at
December 31, 2015.
Page -24-
The following table sets forth changes in the allowance for loan losses:
(Dollars in thousands)
Beginning balance
Charge-offs:
Commercial real estate mortgage loans
Multi-family mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total
Recoveries:
Commercial real estate mortgage loans
Multi-family mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total
Net charge-offs
Provision for loan losses charged to operations
Ending balance
Ratio of net charge-offs during period to average loans
outstanding
Allocation of Allowance for Loan Losses
Year Ended December 31,
2016
2015
2014
2013
2012
$
20,744
$
17,637 $
16,001 $
14,439 $
10,837
—
—
(56)
(930)
—
(1)
(987)
109
—
96
386
—
6
597
(390)
5,550
25,904
$
(50)
—
(249)
(827)
—
(2)
(1,128)
—
—
79
149
—
7
235
(893)
4,000
20,744 $
(461)
—
(257)
(104)
—
(2)
(824)
—
—
(420)
(420)
(23)
(53)
(916)
—
—
170
87
—
3
260
(564)
2,200
17,637 $
—
—
34
87
2
5
128
(788)
2,350
16,001 $
—
—
(1,210)
(285)
—
(15)
(1,510)
—
—
7
83
—
22
112
(1,398)
5,000
14,439
(0.02%)
(0.04%)
(0.04%)
(0.09%)
(0.21%)
$
The following table sets forth the allocation of the total allowance for loan losses by loan classification:
2016
Percentage
of Loans
to Total
Loans
2015
Percentage
of Loans
to Total
Loans
Amount
Amount
December 31,
2014
Percentage
of Loans
to Total
Loans
Amount
2013
2012
Percentage
of Loans
to Total
Loans
Amount
Percentage
of Loans
to Total
Loans
Amount
$
8,759
39.2% $
7,850
41.5% $ 6,994
44.5% $
6,279
47.9% $
4,445
41.7%
6,264
1,961
7,837
20.0
16.9
20.2
4,208
2,115
5,405
14.6
18.6
20.8
2,670
2,208
4,526
16.4
11.7
21.8
1,597
2,712
4,006
10.6
15.2
20.7
1,239
2,803
4,349
8.3
18.0
24.7
6.1
1.2
100.0%
Installment/consumer loans..............................................................
955
128
25,904
3.1
0.6
1,030
136
100.0% $ 20,744
3.8
0.7
1,104
135
100.0% $ 17,637
4.8
0.8
1,206
201
100.0% $ 16,001
4.7
0.9
1,375
228
100.0% $ 14,439
(Dollars in thousands)
Commercial real estate
mortgage loans
Multi-family mortgage
loans
Residential real estate
mortgage loans
Commercial, industrial and
agricultural loans
Real estate construction
and land loans
Total
$
Non-Interest Income
Total non-interest income increased by $3.3 million or 26.7% to $16.0 million in 2016 compared to $12.7 million in 2015 and
increased by $4.5 million or 55.1% in 2015 as compared to $8.2 million in 2014. The increase in total non-interest income in 2016
compared to 2015 was primarily the result of a $1.6 million increase in other operating income, a $0.9 million increase in fees for
other customer services, and $0.5 million increases in both service charges on deposit accounts and net securities gains. The increase
in total non-interest income in 2015 compared to 2014 was primarily the result of a $2.2 million increase in other operating income, a
$1.1 million decrease in net securities losses recognized for 2015 versus 2014, and $0.5 million increases in both service charges on
deposit accounts and fees for other customer services.
Other operating income for the year ended December 31, 2016 increased $1.6 million to $5.4 million compared to $3.8 million in
2015 and increased $2.2 million in 2015 compared to $1.6 million in 2014. The increase in 2016 is attributed to miscellaneous income
of $0.9 million primarily related to a net recovery associated with certain identified FNBNY acquired problem loans, a $0.7 million
increase in BOLI income, a $0.6 million increase in gains on sales of SBA loans, and a $0.3 million increase in SBA loan service fee
income, partially offset by $0.4 million decreases in both gain on sale of loans and loan swap fee income. The increase in 2015
compared to 2014 is attributed to $1.0 million in gains 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.
Page -25-
Net securities gains of $0.4 million were recognized in 2016 compared to net securities losses of $8,000 in 2015 and net securities
losses of $1.1 million 2014. The securities gains in 2016 were primarily attributable to the sale of $235.7 million of lower yielding
securities in the 2016 second quarter as part of a deleveraging strategy by the Company. The decrease in net securities losses from
2014 to 2015 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. Bridge Abstract, the Bank’s title insurance subsidiary,
generated title fee income of $1.8 million in 2016, $1.9 million in 2015, and $1.7 million in 2014. Service charges on deposit
accounts for the year ended December 31, 2016 increased $0.5 million or 12.0% to $4.2 million compared to $3.7 million for the year
ended December 31, 2015 and increased $0.5 million or 16.6% in 2015 compared to $3.2 million in 2014. Fees for other customer
services increased $0.9 million or 27.2% to $4.2 million in 2016 compared to $3.3 million in 2015 and increased $0.5 million or
17.0% in 2015 compared to $2.8 million in 2014.
Non-Interest Expense
Total non-interest expense increased $4.2 million or 5.7% to $77.1 million in 2016 compared to $72.9 million in 2015 and increased
$20.5 million or 39.1% in 2015 from $52.4 million in 2014. The increase from 2015 to 2016 is a result of increases in all expense
categories, offset by a decrease in acquisition costs, all of which were attributable to the CNB acquisition. The reversal of accrued
acquisition costs in 2016 is due to the reversal of pending merger related liabilities recorded at the acquisition date which have since
been settled. The increase from 2014 to 2015 is a result of increases in all expense categories, also attributable to the CNB acquisition.
2015 included acquisition costs of $9.8 million related to the CNB acquisition and 2014 included acquisition costs related to the
FNBNY acquisition and branch restructuring charges of $5.5 million.
Salaries and benefits increased $7.0 million or 20.8% to $40.9 million in 2016 as compared to $33.9 million in 2015 and increased
$7.9 million or 30.2% in 2015 from $26.0 million for 2014. The increases in salaries and benefits reflect additional positions to
support the Company’s expanding infrastructure primarily related to the acquisition of CNB and a larger loan portfolio.
Occupancy and equipment increased $1.8 million or 15.9% to $12.8 million in 2016 compared to $11.0 million in 2015 and increased
$3.3 million or 43.2% in 2015 from $7.7 million in 2014. Technology and communications increased $1.3 million or 36.1% to $4.9
million in 2016 compared to $3.6 million in 2015 and increased $0.4 million or 13.4% in 2015 from $3.2 million in 2014. Marketing
and advertising increased $0.9 million or 29.5% to $4.0 million in 2016 from $3.1 million in 2015 and increased $0.7 million or
28.6% in 2015 from $2.4 million in 2014. Higher occupancy and equipment expense, technology and communications, and marketing
and advertising expense are primarily related to the higher operating costs associated with the acquired CNB operations and facilities,
investments in technology and additional marketing costs. Professional services increased $1.3 million or 56.7% to $3.6 million in
2016 from $2.3 million in 2015 and increased $0.8 million or 51.4% in 2015 from $1.5 million in 2014. FDIC assessments were $1.6
million in 2016 and 2015 and $1.3 million in 2014. The Company recorded amortization of other intangible assets of $2.6 million in
2016 and $1.4 million in 2015 primarily related to the CNB and FNBNY acquisitions, and $0.3 million in 2014 primarily related to
the FNBNY acquisition. Other operating expenses totaled $7.4 million in 2016, $6.1 million in 2015 and $4.5 million in 2014.
Income Tax Expense
Income tax expense for December 31, 2016 was $18.8 million representing an increase of $8.0 million from 2015. Income tax expense
for the year ended December 31, 2015 was $10.8 million representing an increase of $3.5 million from 2014. The effective tax rate
was 34.6% for the year ended December 31, 2016, 33.8% for the year ended December 31, 2015 and 34.5% for the year ended
December 31, 2014. The lower effective tax rate in 2015 relates primarily to the tax benefit associated with the change in New York
City tax law recognized in 2015. The increases in income tax expense reflect higher income before income taxes.
FINANCIAL CONDITION
The assets of the Company totaled $4.05 billion at December 31, 2016, an increase of $272.6 million or 7.2% from the previous year-
end with growth funded by deposits, borrowings and capital. This increase reflects growth in new and existing markets.
Cash and due from banks increased $22.5 million or 28.3% to $102.3 million compared to December 2015 levels and interest earning
deposits with banks decreased $13.3 million or 53.4%. Total securities increased $44.4 million or 4.3% to $1.08 billion and net loans
increased $184.5 million or 7.7% to $2.57 billion compared to December 2015 levels. 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, 2016, goodwill increased $7.5 million to $106.0 million due to the measurement period adjustments related to the CNB
acquisition. Bank owned life insurance (“BOLI”) increased $31.9 million to $85.2 million at December 31, 2016 resulting from an
additional $30.0 million investment made in the 2016 second quarter. Total deposits grew $82.4 million to $2.93 billion at December
31, 2016 compared to $2.84 billion at December 2015. Demand deposits decreased $5.6 million to $1.15 billion as of December 31,
2016 compared to $1.16 billion at December 31, 2015. Savings, NOW and money market deposits increased $174.1 million to $1.57
billion at December 31, 2016 from $1.39 billion at December 31, 2015. Certificates of deposit of $100,000 or more decreased $41.6
million to $126.2 million at December 31, 2016 from $167.8 million at December 31, 2015. Other time deposits decreased $44.6
Page -26-
million to $80.5 million as of December 31, 2016 from $125.1 million as of December 31, 2015. The decreases in certificates of
deposit were the result of the run off of acquired high rate certificates of deposit during 2016. Federal funds purchased at December
31, 2016 decreased $20.0 million or 16.7% to $100.0 million compared to $120.0 million at December 31, 2015. FHLB advances
increased $199.2 million or 66.9% to $496.7 million at December 31, 2016 compared to $297.5 million at December 31, 2015.
Repurchase agreements decreased $50.2 million to $0.7 million at December 31, 2016 compared to $50.9 million at December 31,
2015.
Stockholders’ equity was $408.0 million at December 31, 2016, an increase of $66.9 million or 19.6% from December 31, 2015,
primarily due to the proceeds from the common stock offering of $47.5 million, net income of $35.5 million, the proceeds from the
issuance of shares of common stock under the dividend reinvestment plan (“DRP”) of $0.9 million, and share based compensation of
$2.1 million, partially offset by $16.1 million in dividends, and an increase in other comprehensive loss, net of deferred income taxes,
of $3.4 million.
Loans
During 2016, the Company continued to experience growth trends in commercial and multi-family real estate lending. The
concentration of loans in the Company’s 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, multi-family and residential real
estate properties located in the Bank’s principal lending areas of Nassau and Suffolk Counties on Long Island and the New York City
boroughs. The local economic conditions on Long Island have a significant impact on the volume of loan originations, the quality of
loans, the ability of borrowers to repay these loans, and the value of collateral securing these loans. A considerable decline in 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, 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 FRB, 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 of the Company 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 79.2% of the Bank’s loan portfolio at December 31, 2016 is secured by real estate.
Commercial real estate loans represent 39.2% of the Bank’s loan portfolio. Multi-family mortgage loans represent 20.0% of the
Bank’s loan portfolio. Residential real estate mortgage loans represent 16.9% of the Bank’s loan portfolio and include home equity
lines of credit representing 2.5% and residential mortgages representing 14.4% of the Bank’s loan portfolio. Real estate construction
and land loans represent 3.1% of the Bank’s loan portfolio. Risks associated with a concentration in real estate loans include potential
losses from fluctuating values of land and improved properties. Home equity loans represent loans originated in the Bank’s geographic
markets with original loan to value ratios generally of 75% or less. The Bank’s residential mortgage portfolio includes approximately
$82.0 million in interest only mortgages. The underwriting standards for interest only mortgages are consistent with the remainder of
the loan portfolio and do not include any features that result in negative amortization. The Bank uses conservative underwriting
criteria to better insulate itself from a downturn in real estate values and economic conditions on Long Island and the New York City
boroughs 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 20.8% 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,
equipment financing 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
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.
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
Page -27-
regular meeting of the CRMC. 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 $188.7 million or 7.8%, to $2.60 billion at December 31, 2016 compared to $2.41 billion at December 31, 2015 with
multi-family mortgage loans being the largest contributor of the growth. Multi-family mortgage loans grew $167.4 million or 47.7%
during 2016. Commercial real estate mortgage loans increased $17.5 million during 2016 while residential real estate mortgage loans
decreased $7.1 million in 2016. Commercial, industrial and agricultural loans increased $22.7 million or 4.5% in 2016 from 2015.
Real estate construction and land loans decreased $10.5 million or 11.6% in 2016. Installment/consumer loans decreased $1.2 million
in 2016. Fixed rate loans represented 23.0% and 25.1% of total loans at December 31, 2016 and 2015, respectively.
The following table sets forth the major classifications of loans at the dates indicated:
December 31,
(In thousands)
Commercial real estate mortgage loans
Multi-family mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total loans
Net deferred loan costs and fees
Total loans held for investment
Allowance for loan losses
Net loans
Selected Loan Maturity Information
2014
2016
$ 1,016,983 $
518,146
439,653
524,450
80,605
16,368
2,596,205
4,235
2,600,440
(25,904)
2015
999,474 $ 595,397
218,985
350,793
156,156
446,740
291,743
501,766
63,556
91,153
10,124
17,596
1,335,961
2,407,522
2,366
3,252
1,338,327
2,410,774
(17,637)
(20,744)
$ 2,574,536 $ 2,390,030 $1,320,690
2013
$ 484,900
107,488
153,417
209,452
46,981
9,287
1,011,525
1,738
1,013,263
(16,001)
$ 997,262
2012
$ 332,782
66,080
143,703
197,448
48,632
9,167
797,812
634
798,446
(14,439)
$ 784,007
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, 2016:
(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
238,958
28,983
267,941
$
After One
But Within
Five Years
134,573
$
31,608
166,181
$
After
Five Years
$ 150,919
20,014
$ 170,933
Total
$ 524,450
80,605
$ 605,055
$
$
64,019
203,922
267,941
$
$
85,215
80,966
166,181
$
60,170
110,763
$ 170,933
$ 209,404
395,651
$ 605,055
(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, and restructured loans and other real estate owned:
(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
(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
$
$
$
$
2016
2015
December 31,
2014
2013
2012
1,027 $
909
332
2,417
—
4,685 $
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
2016
Year Ended December 31,
2014
2015
2013
2012
17 $
1
1 $
123
—
6 $
1
1 $
109
—
33 $
84
66 $
60
4 $
214
—
94 $
282
—
155
84
33
226
—
The following table sets forth individually impaired loans by loan classification:
(In thousands)
Nonaccrual loans excluding restructured loans:
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Total
Restructured loans - nonaccrual:
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Total
Total non-performing impaired loans
Restructured loans - performing:
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Total
Total impaired loans
Securities
2016
2015
December 31,
2014
2013
2012
$
185 $
719
—
904
238 $
612
—
850
295 $
315
75
685
—
65
—
65
—
60
—
60
300
69
118
487
969
910
1,172
1,354
—
1,030
2,384
1,391
—
290
1,681
4,541
—
489
5,030
352 $
1,436
—
1,788
617
618
720
1,955
3,743
4,260
329
526
5,115
492
1,496
193
2,181
—
717
310
1,027
3,208
4,284
336
380
5,000
$
3,353 $
2,591 $
6,202 $
8,858 $
8,208
Securities totaled $1.08 billion at December 31, 2016 compared to $1.03 billion at December 31, 2015, including restricted securities
totaling $34.7 million at December 31, 2016 and $24.8 million at December 31, 2015. The available for sale portfolio increased $19.5
million to $819.7 million from $800.2 million at December 31, 2015. Securities classified 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. During the 2016 second quarter, the
Company sold $235.7 million of lower yielding available for sale securities as part of a deleveraging strategy to repay certain
borrowings, fund acquired high rate certificate of deposit run off, fund loan growth and invest in BOLI. The increase in securities
available for sale is primarily the result of a $49.6 million increase in residential collateralized mortgage obligations and a $28.2
million increase in state and municipal obligations, partially offset by a $42.2 million decrease in residential mortgage-backed
securities, a $9.0 million decrease in commercial collateralized mortgage obligations, and a $6.1 million decrease in commercial
Page -29-
mortgage-backed securities. Securities held to maturity increased $14.8 million to $223.2 million at December 31, 2016 compared to
$208.4 million at December 31, 2015. The increase in securities held to maturity is primarily the result of an $8.3 million increase in
commercial collateralized mortgage obligations, a $5.8 million increase in residential mortgage-backed securities, a $5.7 million
increase in commercial mortgage-backed securities, and a $1.8 million increase in state and municipal obligations, partially offset by a
$7.5 million decrease in U.S. GSE securities. Fixed rate securities represented 93.9% of total available for sale and held to maturity
securities at December 31, 2016 compared to 93.4% at December 31, 2015.
The following table sets forth the fair values, amortized costs, contractual maturities and approximate weighted average yields of the
available for sale and held to maturity securities portfolios at December 31, 2016. 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.
Within
One Year
After One But
Within Five Years
December 31, 2016
After Five But
Within Ten Years
After
Ten Years
Estimated
Fair
Value
Amortized
Cost
Yield
Estimated
Fair
Value
Amortized
Cost Yield
Estimated
Fair
Value
Amortized
Cost
Yield
Estimated
Fair
Value
Amortized
Cost
Yield
Total
Estimated
Fair
Value
Amortized
Cost
$
— $
— —% $ 26,593 $
26,994 1.57% $ 37,056 $
37,999
2.05% $
— $
— —% $
63,649 $
64,993
14,635
14,638 1.77
50,964
51,473 1.75
42,921
43,461
2.82
7,645
7,720
3.36
116,165
117,292
—
— —
—
—
— —
— —
—
— —
— —
— —
14,638 1.77% $ 77,557 $
—
—
—
—
—
—
— —
16,124
16,227
1.91
141,924
144,219
1.98
158,048
160,446
— —
9,263
9,361
1.80
358,248
363,737
1.73
367,511
373,098
— —
6,307
6,337
2.30
—
— —
6,307
6,337
— —
—
— —
55,192
56,148
2.28
55,192
56,148
— —
— —
—
30,297
32,000
78,467 1.69% $ 141,968 $ 145,385
— —
2.73
2.41% $ 585,562 $ 596,074
22,553
—
24,250
0.02
— —
24,250
22,553
32,000
30,297
1.79% $ 819,722 $ 834,564
obligations
$
9,631 $
9,635 1.62% $ 16,982 $
16,818 2.69% $ 39,133 $
38,361 4.31% $
1,875 $
1,852
4.12% $
67,621 $
66,666
—
— —
— —
—
—
— —
1,688
1,701
1.92
11,468
11,742
1.89
13,156
13,443
— —
7,389
7,394
2.01
54,050
54,245
2.21
61,439
61,639
— —
5,016
5,063 1.89
14,568
14,621
2.47
8,815
9,088
3.01
28,399
28,772
— —
11,000 2.56
67,206
20,635 2.12
35,273 1.98% $ 99,555 $ 100,348 1.87% $ 209,676 $ 212,591
— —
— —
21,881 2.50
4,930
—
67,708
—
—
21,998
1.77
36,307
— —
—
113,515
112,515
3.40
2.72% $ 698,077 $ 709,589
2.75
41,237
41,717
— —
11,026
11,000
223,237
222,878
2.45
1.90% $1,042,600 $1,057,801
36,588
5,129
Page -30-
(Dollars 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 $ 14,635 $
—
—
Held to maturity:
State and municipal
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
—
—
—
11,026
20,657
$ 35,292 $
Deposits and Borrowings
Borrowings, including federal funds purchased, FHLB advances, repurchase agreements, subordinated debentures and junior
subordinated debentures, increased $128.5 million to $691.1 million at December 31, 2016 from $562.6 million at December 31,
2015. Total deposits increased $82.4 million to $2.93 billion at December 31, 2016 compared to $2.84 billion at December 31, 2015.
Individual, partnership and corporate (“core deposits”) account balances increased $3.3 million and public funds deposits increased
$79.1 million. The growth in deposits is attributable to an increase in savings, NOW and money market deposits of $174.1 million or
12.5%, partially offset by a slight decrease in demand deposits and decreases in certificates of deposit. Demand deposits decreased
$5.6 million. Certificates of deposit of $100,000 or more decreased $41.6 million or 24.8% from December 31, 2015 and other time
deposits decreased $44.6 million or 35.6% as compared to December 31, 2015.
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2016:
(In thousands)
3 months or less
Over 3 through 6 months
Over 6 through 12 months
Over 12 months through 24 months
Over 24 months through 36 months
Over 36 months through 48 months
Over 48 months through 60 months
Over 60 months
Total
LIQUIDITY
Less than
$100,000
$100,000 or
Greater
$
$
12,079
17,338
22,027
17,375
8,280
2,337
1,098
—
80,534
$
$
15,828
13,386
17,614
21,285
12,037
3,387
42,290
371
126,198
Total
27,907
30,724
39,641
38,660
20,317
5,724
43,388
371
206,732
$
$
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 $29.0 million as of December 31, 2016, 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 2016, the Bank paid $14.8 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, 2017, the Bank had $37.6
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 $39.5 million to the Bank during the year ended
December 31, 2016.
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 FHLB and FRB, growth in core deposits and sources of wholesale funding such as brokered
deposits. 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.
The Bank’s Asset/Liability and Funds Management Policy allows for wholesale borrowings of up to 25% of total assets. At December
31, 2016, the Bank had aggregate lines of credit of $349.5 million with unaffiliated correspondent banks to provide short term credit
for liquidity requirements. Of these aggregate lines of credit, $329.5 million is available on an unsecured basis. As of December 31,
2016, the Bank had $100.0 million in overnight borrowings outstanding under these lines. The Bank also has the ability, as a member
of the 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, 2016, the Bank had $175.0
Page -31-
million outstanding in FHLB overnight borrowings and $321.7 million outstanding in FHLB term borrowings. As of December 31,
2015, the Bank had $120.0 million in overnight borrowings outstanding, nothing outstanding in FHLB overnight borrowings and
$297.5 million outstanding in FHLB term borrowings. As of December 31, 2016, the Bank had securities sold under agreements to
repurchase of $0.7 million outstanding with customers and nothing outstanding with brokers. As of December 31, 2015, the Bank had
$50.0 million of securities sold under agreements to repurchase outstanding with brokers and $0.9 million outstanding with customers.
In addition, the Bank has approved broker relationships for the purpose of issuing brokered deposits. As of December 31, 2016, the
Bank had $18.4 million outstanding in brokered certificates of deposit and $161.8 million outstanding in brokered money market
accounts. As of December 31, 2015, the Bank had $22.4 million outstanding in brokered certificates of deposits and $148.0 million
outstanding in brokered money market accounts.
Liquidity policies are established by senior management and reviewed and approved by the full Board of Directors at least annually.
Management continually monitors the liquidity position and believes that sufficient liquidity exists to meet all of the Company’s
operating requirements. The Bank’s liquidity levels are affected by the use of short term and wholesale borrowings and the amount of
public funds in the deposit mix. 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 table presents contractual obligations outstanding at December 31, 2016:
(In thousands)
Operating leases
FHLB advances and repurchase agreements
Subordinated debentures
Junior subordinated debentures (1)
Time deposits
Total contractual obligations outstanding
Total
Less than
One Year
One to
Three Years
Four to
Five Years
Over Five
Years
$
$
49,701
497,358
80,000
15,702
206,732
849,493
$
$
7,201
469,787
—
—
98,272
575,260
$
$
12,189
27,571
—
—
58,977
98,737
$ 10,026
—
—
—
49,112
$ 59,138
$
$
20,285
—
80,000
15,702
371
116,358
(1) The junior subordinated debentures and related trust preferred securities (“TPS”) were redeemed as of January 18, 2017. Prior to
redemption, 15,450 shares of the TPS, representing $15.5 million in aggregate liquidation amount of TPS and related junior
subordinated debentures, were converted into shares of common stock of the Company, resulting in the issuance of a total of
532,740 shares of the Company’s common stock and the cancellation of the related junior subordinated debentures. As of January
18, 2017, $350,000 in aggregate liquidation amount of the TPS and related junior subordinated debentures were redeemed.
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,
2016, the Company had $66.8 million in outstanding loan commitments and $466.3 million in outstanding commitments for various
lines of credit including unused overdraft lines. The Company also had $21.5 million of standby letters of credit as of December 31,
2016. See Note 14 of the Notes to the Consolidated Financial Statements for additional information on loan commitments and standby
letters of credit.
Page -32-
CAPITAL RESOURCES
Stockholders’ equity increased to $408.0 million at December 31, 2016 from $341.1 million at December 31, 2015 as a result of the
common stock offering; undistributed net income; and the issuance of shares of common stock through the DRP and the stock based
compensation plan; partially offset by the declaration of dividends; the change in pension plan under FASB ASC 715-30, net of
deferred taxes; and the change in net unrealized depreciation in securities available for sale, net of deferred taxes. The ratio of average
stockholders’ equity to average total assets was 9.38% for the year ended December 31, 2016 compared to 9.01% for the year ended
December 31, 2015.
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 $259.2 million in capital through the following
initiatives:
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 and for general corporate purposes.
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.
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.
On November 28, 2016, the Company completed a public offering with net proceeds of $47.5 million in capital from the sale
of 1,613,000 shares of common stock. The purpose of the offering was in part to provide additional capital to Bridge Bancorp
to support organic growth, the pursuit of strategic acquisition opportunities and other general corporate purposes, including
contributing capital to Bank.
Proceeds of $11.0 million in capital through issuance of common stock through the DRP.
The Company has the ability to issue additional common stock and/or preferred stock should the need arise under a shelf registration
statement filed in April 2016.
The Company had returns on average equity of 9.82% and 7.91%, and returns on average assets of 0.92% and 0.71%, for the years
ended December 31, 2016 and 2015, respectively. The Company also utilizes cash dividends and stock repurchases to manage capital
levels. In 2016, the Company declared four quarterly cash dividends totaling $16.1 million compared to four quarterly cash dividends
of $13.4 million in 2015. The dividend payout ratios for 2016 and 2015 were 45.48% and 63.55%, 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 2016 and
2015.
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 the Company’s 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 FRB.
IMPACT OF PROSPECTIVE ACCOUNTING STANDARDS
For a discussion regarding the impact of new accounting standards, refer to Note 1 of the Notes to the Consolidated Financial
Statements.
Page -33-
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, 2016, $978.9 million or 93.9% of the Company’s available for sale and held to maturity 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 impact of changing interest rates on the interest income received and the interest expense
paid on all assets and liabilities reflected on the Company’s consolidated balance sheet. This sensitivity analysis is compared to the
asset and liability policy limits that specify a maximum tolerance level for net interest income exposure over a one-year horizon given
a 100 and 200 basis point upward shift in interest rates and a 100 basis point downward shift in interest rates. A parallel and pro-rata
shift in rates over a twelve-month period is assumed.
In addition to the above scenarios, the Company considers other, non-parallel rate shifts that would also exert pressure on earnings.
The current low interest rate environment presents the possibility for a flattening of the yield curve. This could happen if the Federal
Open Market Committee began to raise short-term interest rates without there being a corresponding rise in long-term rates. This
would have the effect of raising short-term borrowing costs without allowing longer term assets to reprice higher.
The following reflects the Company’s net interest income sensitivity analysis at December 31, 2016:
Change in Interest
Rates in Basis Points
(Dollars in thousands)
200
100
Static
(100)
Potential Change
in Future Net
Interest Income
$ Change
% Change
$
$
$
(7,656)
(3,968)
—
1,171
(6.52)%
(3.38)%
—
1.00%
Page -34-
As noted in the previous table, a 200 basis point increase in interest rates is projected to decrease net interest income over the next
twelve months by 6.52 percent. The Company’s balance sheet sensitivity to such a move in interest rates at December 31, 2016
increased as compared to December 31, 2015 (which was a decrease of 4.91 percent in net interest income over a twelve month
period). This increase is the result of larger short term funding balances coupled with a short term rate increase in comparison to the
prior year. Overall, the strategy for the Bank remains focused on reducing its 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 4.45 to 3.73. 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 on 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 on
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 $222,878 and $210,003, 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 $100,000 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 (40,000,000 shares authorized; 19,106,246
and 17,388,918 shares issued, respectively; and19,100,389 and 17,388,918 shares outstanding,
respectively)
Surplus
Retained earnings
Treasury Stock at cost, 5,857 and 0 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,
2016
December 31,
2015
$
102,280 $
11,558
113,838
819,722
223,237
1,042,959
79,750
24,808
104,558
800,203
208,351
1,008,554
34,743
24,788
2,600,440
(25,904)
2,574,536
35,263
10,233
105,950
5,824
7,070
85,243
—
38,911
4,054,570 $
1,151,268 $
1,568,009
126,198
80,534
2,926,009
100,000
496,684
674
78,502
15,244
29,470
3,646,583
—
—
191
329,427
91,594
(161)
421,051
(13,064)
407,987
4,054,570 $
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
$
$
$
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
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 $100,000 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 gains (losses)
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-
For the Year Ended December 31,
2015
2014
2016
$
$
$
$
116,723
13,483
3,777
1,294
1,124
147
1,168
137,716
5,250
932
684
1,075
3,001
4,539
1,364
16,845
120,871
5,550
115,321
4,187
4,220
1,833
449
5,357
16,046
40,913
12,798
4,897
4,048
3,646
1,635
(920)
2,637
7,427
77,081
54,286
18,795
35,491
2.01
2.00
$
$
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
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the Year Ended December 31,
2015
2014
2016
Net Income
Other comprehensive (loss) income:
Change in unrealized net (losses) gains on securities available for sale,
net of reclassifications and deferred income taxes
Adjustment to pension liability, net of reclassifications and
deferred income taxes
Unrealized gains (losses) on cash flow hedges, net of reclassifications and
deferred income taxes
Total other comprehensive (loss) income
Comprehensive income
See accompanying notes to Consolidated Financial Statements.
$
35,491
$
21,111
$
13,763
(4,082)
(1,434)
8,687
(630)
1,270
(3,442)
32,049
$
380
(201)
(1,255)
19,856
$
(3,348)
(470)
4,869
18,632
$
Page -38-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
Balance at January 1, 2014
$
113
$
111,377
$
61,441
$
(235)
$
(13,236)
$
159,460
Common
Stock
Surplus
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
Net income
Shares issued under the dividend reinvestment plan
(“DRP”)
Shares issued in the acquisition of FNBNY Bancorp,
net of offering costs (240,598 shares)
Stock awards granted and distributed
Stock awards forfeited
Repurchase of surrendered stock from vesting of
restricted 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
1
2
1
630
5,946
(432)
58
(3)
36
1,234
13,763
(10,657)
431
(58)
(173)
10
Balance at December 31, 2014
$
117
$
118,846
$
64,547
$
(25)
$
13,763
631
5,948
—
—
(173)
7
36
1,234
(10,657)
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
Repurchase of surrendered stock from vesting of
restricted 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
Net income
Shares issued under the DRP
Shares issued in common stock offering, net of offering
costs (1,613,000 shares)
Shares issued for trust preferred securities conversions
(10,344 shares)
Stock awards granted and distributed
Stock awards forfeited
Repurchase of surrendered stock from vesting of
restricted stock awards
Exercise of stock options
Impact of modification of convertible trust preferred
securities
Shared based compensation expense
Cash dividend declared, $0.92 per share
Other comprehensive loss, net of deferred income taxes
Balance at December 31, 2016
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)
$
35,491
16
1
921
47,505
292
(205)
173
(90)
356
2,142
204
(173)
(344)
152
$
191
$
329,427
$
91,594
$
(161)
$
(3,442)
(13,064)
$
(16,140)
21,111
779
157,199
—
—
(228)
80
50
1,689
(13,415)
(1,255)
341,128
35,491
921
47,521
292
-
-
(344)
62
356
2,142
(16,140)
(3,442)
407,987
See accompanying notes to Consolidated Financial Statements.
Page -39-
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Year Ended December 31,
2015
2016
2014
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
35,491 $
21,111 $
13,763
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 (gains) losses
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
Decrease (increase) in other assets
(Decrease) increase 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 (decrease) increase in federal funds purchased
Net increase in Federal Home Loan Bank advances
Repayment of acquired unsecured debt
Net (decrease) increase 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 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 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-
5,550
(6,746)
6,501
(1,929)
2,637
2,142
(449)
(963)
(11,944)
13,286
(1,097)
(98)
8,331
(6,476)
44,236
(462,702)
(537,930)
(46,495)
264,358
527,975
167,045
30,460
(206,380)
18,116
278
(30,000)
(4,270)
—
(279,545)
83,120
(20,000)
199,666
—
(50,217)
—
48,442
62
(344)
—
(16,140)
—
244,589
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
9,280
104,558
113,838 $
52,828
51,730
104,558 $
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
6,157
45,573
51,730
16,640 $
21,585 $
8,793 $
8,744 $
7,377
4,068
— $
— $
— $
250 $
577
875,302 $
831,422 $
209,022
213,224
$
$
$
$
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015 and 2014
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 an investment services subsidiary,
Bridge Financial Services LLC (“Bridge Financial Services”).
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. GAAP, 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, federal funds purchased, Federal Home Loan Bank (“FHLB”) 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, Federal Reserve Bank (“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 determining other-than-temporary impairment (“OTTI”), management considers many factors including: (1) the length of
time and extent to which the 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 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 these criteria, the amount of impairment is split into two components: (1) OTTI related
to credit loss, which must be recognized in the income statement and (2) OTTI 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 an other-than-temporary decline exists involves a high degree of
subjectivity and judgment and is based on the information available to management at a point in time.
Page -41-
d) Federal Home Loan Bank Stock
The Bank is a member of the FHLB system. Members are required to own a particular amount of stock based on the level of
borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost and classified as a restricted
security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are
reported as income.
e) Loans, Loan Interest Income Recognition and Loans Held for Sale
Loans are stated at the principal amount outstanding, net of 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 an 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 troubled debt restructured loan performing in accordance with its modified terms is maintained on accrual status.
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 present 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 expected future cash flows using the loan’s effective interest 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 (“CNB”) on June 19, 2015 and First National Bank of
New York (“FNBNY”) 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 the 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 management to evaluate the need for an addition to the allowance for loan
losses.
Purchased credit impaired loans that were nonaccrual prior to 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.
Page -42-
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
The allowance for loan losses is established and maintained through a provision for loan losses based on probable incurred losses 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 regularly, 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 Financial Accounting Standards Board ("FASB") Accounting Standards 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 the Company’s 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
the Bank’s 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 mortgage loans; home equity loans; residential real estate mortgages; commercial,
industrial and agricultural loans, secured and unsecured; real estate construction and land loans; and consumer loans. Management
considers a variety of factors in determining the adequacy of the valuation allowance and has developed a range of valuation
allowances necessary to adequately provide for probable incurred losses in each pool of loans. Management considers the Bank’s
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, management 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, management evaluates and considers 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 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.
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.
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.
Unless otherwise noted, the above policy is applied consistently to all loan segments.
Page -43-
g) Premises and Equipment
Buildings, furniture and fixtures, and equipment are carried 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 the 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
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 the Company’s balance sheet.
Other intangible assets include core deposit intangible assets and non-compete intangibles arising from whole bank acquisitions. Core
deposit intangibles are amortized on an accelerated method over their estimated useful lives of ten years. The non-compete intangible
was fully amortized as of December 31, 2016. 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 $975,000 at December 31, 2016 and $893,000 at December 31, 2015.
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 (“OCI”) 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.
Page -44-
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. When
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 in 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 ASU 740, Accounting for Uncertainty in Income Taxes, a tax position is recognized as a benefit only if it is
“more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax
positions not meeting the “more likely than not” test, no tax benefit is recorded. There are no such tax positions in the Company’s
financial statements at December 31, 2016 and 2015.
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, 2016 and 2015.
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 (“EPS”) 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 EPS. Basic earnings per common share is computed by dividing net income attributable to common shareholders by the
weighted average number of common shares outstanding during the period. Diluted EPS, 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 including assumed conversions by the weighted average
number of common shares and common equivalent shares outstanding during the period.
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, 2017 are limited to $37.6 million which represents the
Bank’s net retained earnings from the previous two years. During 2016, the Bank paid dividends of $14.8 million to the Company.
Page -45-
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, “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.
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 plan. 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) New Accounting Standards
In March 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, “Compensation – Stock Compensation (Topic
718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies several aspects of the accounting for
employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes,
forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is
effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016, with early adoption
permitted. The Company adopted ASU 2016-09 in the first quarter of 2016. The adoption of ASU 2016-09 did not have a material
impact on the Company’s consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for
Measurement Period Adjustments.” ASU 2015-16 eliminates the requirement for an acquirer to retrospectively adjust the financial
statements for measurement-period adjustments that occur in periods after a business combination is consummated. ASU 2015-16 is
effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The adoption of
ASU 2015-16 resulted in a fixed asset measurement period adjustment of $0.3 million that was recorded in 2016 related to the
recovery of depreciation expense recorded in 2015.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts
and Cash Payments.” ASU 2016-15 provides guidance on the presentation and classification in the statement of cash flows of eight
specific cash flow issues, including debt prepayment or debt extinguishment costs, proceeds from the settlement of insurance claims
and proceeds from the settlement of BOLI policies, with the objective of reducing diversity in practice. For public entities, like the
Company, ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. Since the
provisions of ASU 2016-15 are disclosure related, adoption will not have an impact on the Company’s consolidated financial
statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit
Losses on Financial Instruments.” ASU 2016-13 significantly changes the impairment model for most financial assets that are
measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model and also provides for
recording credit losses on available for sale debt securities through an allowance account. ASU 2016-13 also requires certain
incremental disclosures. ASU 2016-13 is effective for public entities that are SEC filers, like the Company, for interim and annual
reporting periods beginning after December 15, 2019. The Company is currently assessing its data and system needs and evaluating
the impact of adopting ASU 2016-13, but can not yet determine the overall impact this guidance will have on the Company’s
consolidated financial statements.
Page -46-
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU 2016-02 affects any entity that enters into a lease
and is intended to increase the transparency and comparability of financial statements among organizations. ASU 2016-02 requires,
among other changes, a lessee to recognize on its balance sheet a lease asset and a lease liability for those leases previously classified
as operating leases. The lease asset would represent the right to use the underlying asset for the lease term and the lease liability would
represent the discounted value of the required lease payments to the lessor. ASU 2016-02 would also require entities to disclose key
information about leasing arrangements. ASU 2016-02 is effective for interim and annual reporting periods beginning after December
15, 2018. As of December 31, 2016, the Bank leases thirty five properties as branch locations and two properties as loan production
offices. The adoption of ASU 2016-02 will result in an increase in the Company’s assets and liabilities. The Company is in the
process of quantifying the impact ASU 2016-02 will have on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10) - Recognition and
Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01 are intended to improve the
recognition, measurement, presentation and disclosure of financial assets and liabilities to provide users of financial statements with
information that is more useful for decision-making purposes. Among other changes, ASU 2016-01 would require equity securities to
be measured at fair value with changes in fair value recognized through net income, but would allow equity securities that do not have
readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon
identification of an impairment. The amendments would simplify the impairment assessment of such equity securities and would
require enhanced disclosure about these investments. ASU 2016-01 would also require separate presentation of financial assets and
liabilities by measurement category and type of instrument, such as securities or loans, on the balance sheet or in the notes, and would
eliminate certain other disclosures relating to the methods and assumptions used to estimate fair value. For public entities, like the
Company, the amendments in ASU 2016-01 are effective for interim and annual reporting periods beginning after December 15, 2017.
ASU 2016-01 is not expected to have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The amendments in ASU
2014-09 are intended to improve financial reporting by providing a comprehensive framework for addressing revenue recognition
issues that can be applied to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. While the
guidance in ASU 2014-09 supersedes most existing industry-specific revenue recognition accounting guidance, much of a bank’s
revenue comes from financial instruments such as debt securities and loans which are scoped-out of the guidance. The amendments
also include improved disclosures to enable users of financial statements to better understand the nature, amount, timing and
uncertainty of revenue that is recognized. For public entities, like the Company, ASU 2014-09, as amended, is effective for interim
and annual reporting periods beginning after December 15, 2017. Most of the Company’s revenue comes from financial instruments,
i.e. loans and securities, which are not within the scope of ASU 2014-09. The Company is in the process of evaluating the impact
ASU 2014-09 will have on non-interest income but does not expect the adoption of the guidance to have a material impact on the
Company’s consolidated financial statements.
u) Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Page -47-
2. SECURITIES
The following table summarizes the amortized cost and estimated fair value of the available for sale and held to maturity investment
securities portfolio and the corresponding amounts of gross unrealized gains and losses therein:
(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
2016
2015
December 31,
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
64,993
117,292
$
— $
212
(1,344)
(1,339)
$
63,649
116,165
$
63,238
87,830
$
160,446
373,098
6,337
56,148
24,250
32,000
834,564
—
66,666
13,443
61,639
28,772
41,717
11,000
223,237
$ 1,057,801
$
16
149
6
—
—
—
383
—
1,085
—
352
136
93
26
1,692
2,075
(2,414)
158,048
201,297
(5,736)
367,511
321,253
(36)
6,307
12,491
(956)
(1,697)
(1,703)
(15,225)
—
(130)
(287)
(552)
(509)
55,192
22,553
30,297
819,722
—
67,621
13,156
61,439
28,399
64,809
24,250
33,000
808,168
7,466
64,878
7,609
60,933
23,056
(573)
—
(2,051)
(17,276)
41,237
11,026
222,878
$ 1,042,600
$
33,409
11,000
208,351
$ 1,016,519
$
—
427
237
513
7
9
—
—
1,193
1
1,715
—
617
210
282
42
2,867
4,060
$
(564)
(322)
$
62,674
87,935
(1,270)
200,264
(3,888)
317,878
(80)
12,418
(620)
(1,879)
(535)
(9,158)
—
(113)
(106)
(498)
(313)
64,198
22,371
32,465
800,203
7,467
66,480
7,503
61,052
22,953
(185)
—
(1,215)
(10,373)
$
33,506
11,042
210,003
$ 1,010,206
Page -48-
The following table summarizes securities with gross unrealized losses at December 31, 2016 and 2015, aggregated by category and
length of time that individual securities have been in a continuous unrealized loss position:
2016
2015
December 31,
Less than 12 months
Gross
Unrealized
Losses
Estimated
Fair
Value
Greater than 12 months
Estimated
Fair
Value
Gross
Unrealized
Losses
Less than 12 months
Gross
Unrealized
Losses
Estimated
Fair
Value
Greater than 12 months
Gross
Unrealized
Losses
Estimated
Fair
Value
$
63,649
78,883
$
(1,344)
(1,338)
$
— $
240
— $
(1)
37,759
39,621
$
$
(235)
(298)
140,514
(2,409)
241
(5)
136,025
(1,224)
$
24,914
5,118
1,510
(329)
(24)
(46)
319,197
(5,221)
15,627
(515)
187,543
(1,781)
66,830
(2,107)
2,573
(36)
—
—
8,594
48,901
—
17,834
671,551
21,867
13,156
31,297
12,860
(886)
—
(1,166)
(12,400)
(130)
(287)
(455)
(286)
6,292
22,552
12,463
57,415
—
—
3,873
5,877
22,666
—
101,846
$
(372)
—
(1,530)
$
$
3,790
—
13,540
$
(70)
(1,697)
(537)
(2,825)
—
—
51,178
—
27,640
488,360
18,375
7,503
(97)
15,918
(223)
(201)
—
(521)
$
13,982
7,912
—
63,690
$
(80)
(503)
—
(360)
(4,481)
(113)
(106)
(149)
(313)
(8)
—
(689)
$
—
10,034
22,371
4,825
135,602
—
—
15,679
—
3,813
—
19,492
$
—
(117)
(1,879)
(175)
(4,677)
—
—
(349)
—
(177)
—
(526)
(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:
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
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 OTTI quarterly and more frequently when economic or
market concerns warrant. Consideration is given to the length of time and 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 debt security or more likely than not will be required to sell the debt 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 and whether downgrades by bond rating agencies have occurred.
At December 31, 2016, substantially all of the securities in an unrealized loss position had a fixed interest rate and the cause of the
temporary impairment was directly related to changes in interest rates. The Company generally views changes in fair value caused by
changes in interest rates as temporary, which is consistent with its experience. Other asset backed securities are comprised of student
loan backed bonds which are guaranteed by the U.S. Department of Education for 97% to 100% of principal. Additionally, the bonds
have credit support of 3% to 5% and have maintained their Aaa Moody’s rating during the time the Bank has owned them. None of
the unrealized losses are related to credit losses. 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, 2016.
The following table sets forth the estimated fair value, amortized cost and contractual maturities of the securities portfolio at
December 31, 2016. 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.
Page -49-
Within
One Year
After One but
Within Five Years
December 31, 2016
After Five but
Within Ten Years
After
Ten Years
Total
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
$
— $
— $
14,635
14,638
26,593 $
50,964
26,994 $ 37,056 $
51,473
42,921
37,999 $
43,461
— $
7,645
— $
63,649 $
7,720
116,165
64,993
117,292
—
—
—
—
—
—
—
—
—
—
—
—
16,124
16,227
141,924
144,219
158,048
160,446
9,263
9,361
358,248
363,737
367,511
373,098
6,307
6,337
—
—
6,307
6,337
—
—
—
14,635
—
—
—
14,638
—
—
—
77,557
—
—
—
78,467
—
—
30,297
141,968
—
—
32,000
145,385
55,192
22,553
—
585,562
56,148
24,250
—
596,074
55,192
22,553
30,297
819,722
56,148
24,250
32,000
834,564
9,631
9,635
16,982
16,818
39,133
38,361
1,875
1,852
67,621
66,666
—
—
—
—
—
—
—
—
—
—
1,688
1,701
11,468
11,742
13,156
13,443
7,389
7,394
54,050
54,245
61,439
61,639
5,016
5,063
14,568
14,621
8,815
9,088
28,399
28,772
—
11,026
20,657
35,292 $
—
11,000
20,635
35,273 $
—
—
21,998
99,555 $
$
—
—
21,881
41,717
36,307
11,000
—
223,237
112,515
100,348 $ 209,676 $ 212,591 $ 698,077 $ 709,589 $ 1,042,600 $ 1,057,801
36,588
—
113,515
41,237
11,026
222,878
5,129
—
67,206
4,930
—
67,708
(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:
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
There were $264.4 million of proceeds on sales of available for sale securities with gross gains of approximately $1.6 million and
gross losses of approximately $1.2 million realized in 2016. 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.
Securities having a fair value of $570.1 million and $611.0 million at December 31, 2016 and 2015, respectively, were pledged to
secure public deposits and FHLB and FRB overnight borrowings. The Company did not hold any trading securities during the years
ended December 31, 2016 and 2015.
The Bank is a member of the FHLB of New York. 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. The Bank is a member of the Atlantic Central Banker’s Bank
(“ACBB”) and is required to own ACBB stock. The Bank is also a member of the FRB system and required to own FRB stock.
FHLB, ACBB and FRB stock is carried at cost and periodically evaluated for impairment based on ultimate recovery of par value.
Both cash and stock dividends are reported as income. The Bank owned $34.7 million and $24.8 million in FHLB, ACBB and FRB
stock at December 31, 2016 and 2015, respectively. These amounts were reported as restricted securities in the consolidated balance
sheets.
As of December 31, 2016 and 2015, there was no issuer, other than the U.S. Government and its sponsored entities, where the Bank
had invested holdings that exceeded 10% of consolidated stockholders’ equity.
Page -50-
3. LOANS
The following table sets forth the major classifications of loans:
(In thousands)
Commercial real estate mortgage loans
Multi-family mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total loans
Net deferred loan costs and fees
Total loans held for investment
Allowance for loan losses
Net loans
December 31,
2016
1,016,983 $
518,146
439,653
524,450
80,605
16,368
2,596,205
4,235
2,600,440
(25,904)
2015
999,474
350,793
446,740
501,766
91,153
17,596
2,407,522
3,252
2,410,774
(20,744)
2,574,536 $ 2,390,030
$
$
On June 19, 2015, the Company completed the acquisition of Community National Bank (“CNB”) resulting in the addition of $729.4
million of acquired loans recorded at their fair value. There were approximately $464.2 million and $659.7 million of acquired CNB
loans remaining as of December 31, 2016 and 2015, respectively.
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 $26.5 million and $37.7 million of acquired FNBNY loans remaining as of December 31, 2016 and
2015, respectively.
Lending Risk
The principal business of the Bank is lending in commercial real estate mortgage loans, multi-family mortgage loans, residential real
estate mortgage loans, construction loans, home equity loans, commercial, industrial and agricultural loans, land loans and consumer
loans. The Bank considers its primary lending area to be Nassau and Suffolk Counties located on Long Island and the New York City
boroughs. A substantial portion of the Bank’s loans are secured by real estate in these areas. Accordingly, the ultimate collectibility of
the 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 located largely in the Bank’s 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 five 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 may be 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 generally 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 have an
effect on the credit quality in this loan class. The Bank generally does not originate loans with a loan-to-value ratio greater than 80%
and does not grant subprime loans.
Page -51-
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,
equipment financing 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. Construction delays, cost overruns, market conditions and the availability of permanent
financing, to the extent such permanent financing is not being provided by the Bank, all affect the credit risk in this loan class.
Installment and Consumer Loans
Loans in this classification may be either secured or unsecured. 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 following tables represent the changes in the allowance for loan losses for the years ended December 31, 2016, 2015 and 2014, by
portfolio segment, as defined under FASB ASC 310-10. The portfolio segments represent the categories that the Bank uses to
determine its allowance for loan losses.
(In thousands)
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
(In thousands)
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
(In thousands)
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
Commercial
Real Estate
Mortgage Loans
Multi-family
Loans
Year Ended December 31, 2016
Residential
Real Estate
Mortgage
Loans
Commercial,
Industrial and
Agricultural
Loans
Real Estate
Construction
and Land
Loans
Installment/
Consumer
Loans
$
$
$
$
$
$
7,850 $
—
109
800
8,759 $
4,208 $
—
—
2,056
6,264 $
2,115
(56)
96
(194)
1,961
$
$
5,405 $
(930)
386
2,976
7,837 $
1,030
—
—
(75)
955
Commercial
Real Estate
Mortgage Loans
Multi-family
Loans
Year Ended December 31, 2015
Residential
Real Estate
Mortgage
Loans
Commercial,
Industrial and
Agricultural
Loans
Real Estate
Construction
and Land
Loans
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
Commercial
Real Estate
Mortgage Loans
Multi-family
Loans
Year Ended December 31, 2014
Residential
Real Estate
Mortgage
Loans
Commercial,
Industrial and
Agricultural
Loans
Real Estate
Construction
and Land
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
$
$
$
$
$
$
136 $
(1)
6
(13)
128 $
Installment/
Consumer
Loans
135 $
(2)
7
(4)
136 $
Installment/
Consumer
Loans
201 $
(2)
3
(67)
135 $
Total
20,744
(987)
597
5,550
25,904
Total
17,637
(1,128)
235
4,000
20,744
Total
16,001
(824)
260
2,200
17,637
Page -52-
The following tables represent the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment,
as defined under FASB ASC 310-10, and based on impairment method as of December 31, 2016 and 2015. The tables include loans
acquired on June 19, 2015 from CNB and February 14, 2014 from FNBNY.
(In thousands)
Allowance for loan losses:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Loans acquired with deteriorated
credit quality
Total allowance for loan losses
Loans:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Loans acquired with deteriorated
credit quality
Total loans
(In thousands)
Allowance for loan losses:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Loans acquired with deteriorated
credit quality
Total allowance for loan losses
Loans:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Loans acquired with deteriorated
credit quality
Total loans
Commercial
Real Estate
Mortgage Loans
Multi-family
Loans
Residential
Real Estate
Mortgage
Loans
December 31, 2016
Commercial,
Industrial and
Agricultural
Loans
Real Estate
Construction
and Land
Loans
Installment/
Consumer
Loans
Total
$
$
$
$
$
$
$
$
— $
— $
— $
1 $
— $
— $
1
8,759
6,264
—
8,759 $
—
6,264 $
1,961
—
1,961
$
7,836
—
7,837 $
955
—
955
$
128
—
128 $
25,903
—
25,904
1,539 $
— $
784
$
1,030 $
— $
— $
3,353
1,013,563
514,853
437,999
519,686
1,881
1,016,983 $
3,293
518,146 $
870
439,653
$
3,734
524,450 $
80,605
—
80,605
$
16,368
2,583,074
—
16,368 $
9,778
2,596,205
Commercial
Real Estate
Mortgage Loans
Multi-family
Loans
Residential
Real Estate
Mortgage
Loans
December 31, 2015
Commercial,
Industrial and
Agricultural
Loans
Real Estate
Construction
and Land Loans
Installment/
Consumer
Loans
Total
20 $
— $
— $
9 $
— $
— $
29
7,830
4,208
—
7,850 $
—
4,208 $
2,115
—
2,115
$
5,396
—
5,405 $
1,030
—
1,030
$
136
—
136 $
20,715
—
20,744
1,629 $
— $
672
$
290 $
— $
— $
2,591
992,137
347,054
444,801
495,074
5,708
999,474 $
3,739
350,793 $
1,267
446,740
$
6,402
501,766 $
91,153
—
91,153
$
17,596
2,387,815
—
17,596 $
17,116
2,407,522
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.
Credit Quality Indicators
The Company categorizes loans into risk categories of pass, special mention, substandard and doubtful 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 do not exhibit certain risk factors that
require greater than usual monitoring by management.
Page -53-
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 in 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 tables represent loans categorized by class and internally assigned risk grades:
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family
Residential real estate:
Residential mortgage
Home equity
Commercial and industrial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total loans
Pass
Special Mention
Substandard
Doubtful
Total
December 31, 2016
$
$
404,584
569,870
518,146
372,853
64,195
75,837
409,879
80,272
16,268
2,511,904
$
$
$
18,909
20,035
—
82
563
31,143
2,493
—
—
73,225
$
722
2,863
—
1,583
377
2,254
2,844
333
100
11,076
$
$
— $
—
—
—
—
424,215
592,768
518,146
374,518
65,135
—
—
—
—
— $
109,234
415,216
80,605
16,368
2,596,205
At December 31, 2016 there were $0.01 million and $1.5 million of acquired CNB loans included in the special mention and
substandard grades, respectively, and $0.2 million and $0.2 million of acquired FNBNY loans included in the special mention and
substandard grades, respectively.
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family
Residential real estate:
Residential mortgage
Home equity
Commercial and industrial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total loans
Pass
Special Mention
Substandard
Doubtful
Total
December 31, 2015
$
$
465,967
519,124
350,785
377,482
66,910
121,037
370,642
91,153
17,496
2,380,596
$
$
$
3,239
542
—
87
523
151
3,191
—
—
7,733
$
2,115
8,487
8
845
893
2,549
4,196
—
100
19,193
$
$
— $
—
—
—
—
471,321
528,153
350,793
378,414
68,326
—
—
—
—
— $
123,737
378,029
91,153
17,596
2,407,522
At December 31, 2015 there were $0.02 million and $9.6 million of acquired CNB loans included in the special mention and
substandard grades, respectively, and $0.1 million and $0.2 million of acquired FNBNY loans included in the special mention and
substandard grades, respectively.
Page -54-
Past Due and Nonaccrual Loans
The following tables represent the aging of the recorded investment in past due loans as of December 31, 2016 and 2015 by class of
loans, as defined by FASB ASC 310-10:
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family
Residential real estate:
Residential mortgages
Home equity
Commercial and industrial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total loans
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family
Residential real estate:
Residential mortgages
Home equity
Commercial and industrial:
Secured
Unsecured
Real estate construction and land loans
Installment/consumer loans
Total loans
30-59 Days
Past Due
60-89 Days
Past Due
December 31, 2016
>90 Days
Past Due
And
Accruing
Nonaccrual
Including 90
Days or More
Past Due
Total Past
Due and
Nonaccrual
Current
Total Loans
$
$
222 $
—
—
1,232
532
27
115
—
28
2,156
$
— $
—
—
—
—
—
—
—
—
— $
467
—
—
—
238
204
118
—
—
1,027
$
$
184 $
—
—
770
265
—
22
—
—
1,241 $
873 $
—
—
423,342 $
592,768
518,146
2,002
1,035
231
255
—
28
372,516
64,100
109,003
414,961
80,605
16,340
4,424 $ 2,591,781 $
424,215
592,768
518,146
374,518
65,135
109,234
415,216
80,605
16,368
2,596,205
30-59 Days
Past Due
60-89 Days
Past Due
$
$
— $
—
—
939
69
—
128
—
—
1,136
$
— $
—
—
245
100
—
24
—
—
369 $
>90 Days
Past Due
And
Accruing
December 31, 2015
Nonaccrual
Including 90
Days or More
Past Due
Total Past
Due and
Nonaccrual
Current
Total Loans
435
—
—
—
188
341
—
—
—
964
$
$
631 $
—
—
62
610
—
44
—
3
1,350 $
1,066 $
—
—
470,255 $
528,153
350,793
1,246
967
341
196
—
3
377,168
67,359
123,396
377,833
91,153
17,593
3,819 $ 2,403,703 $
471,321
528,153
350,793
378,414
68,326
123,737
378,029
91,153
17,596
2,407,522
There were no FNBNY acquired loans 30-89 days past due at December 31, 2016 and 2015. There were $1.0 million and $1.2 million
of CNB acquired loans that were 30-89 days past due at December 31, 2016 and 2015, respectively. All loans 90 days or more past
due that are still accruing interest represent loans acquired from CNB, FNBNY and Hamptons State Bank (“HSB”) which were
recorded at fair value upon acquisition. These loans are considered to be accruing as management can reasonably estimate future cash
flows and expects 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
At December 31, 2016 and 2015, the Company had individually impaired loans as defined by FASB ASC No. 310, “Receivables” of
$3.4 million and $2.6 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 restructurings (“TDRs”). 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 on 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.
Page -55-
The following tables set forth the recorded investment, unpaid principal balance and related allowance by class of loans at December
31, 2016, 2015 and 2014 for individually impaired loans. The tables also set forth the average recorded investment of individually
impaired loans and interest income recognized while the loans were impaired during the years ended December 31, 2016, 2015 and
2014:
December 31, 2016
Unpaid
Principal
Balance
Related
Allocated
Allowance
Year Ended December 31, 2016
Average
Recorded
Investment
Interest
Income
Recognized
Recorded
Investment
$
$
326
1,213
$
538
1,213
— $
—
(In thousands)
With no related allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial and industrial:
Secured
Unsecured
Total with no related allowance recorded
With an allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial and industrial:
Secured
Unsecured
Total with an allowance recorded
Total:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial and industrial:
Secured
Unsecured
Total
$
176
614
276
328
274
227
1,895
—
—
—
—
—
43
43
176
614
276
328
274
270
1,938
$
$
10
75
—
—
12
19
116
—
—
—
—
—
7
7
10
75
—
—
12
26
123
520
264
556
408
3,287
—
—
—
—
—
66
66
326
1,213
520
264
556
474
3,353
$
$
558
285
556
408
3,558
—
—
—
—
—
66
66
538
1,213
558
285
556
474
3,624
$
—
—
—
—
—
—
—
—
—
—
1
1
—
—
—
—
—
1
1
Page -56-
(In thousands)
With no related allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial and industrial:
Secured
Unsecured
Total with no related allowance recorded
With an allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial and industrial:
Secured
Unsecured
Total with an allowance recorded
Total:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial and industrial:
Secured
Unsecured
Total
December 31, 2015
Unpaid
Principal
Balance
Related
Allocated
Allowance
Year Ended December 31, 2015
Average
Recorded
Investment
Interest Income
Recognized
Recorded
Investment
$
$
384
927
62
610
96
—
2,079
—
318
—
—
—
194
512
384
1,245
62
610
96
194
2,591
$
564 $
928
— $
—
412 $
938
73
700
96
—
2,361
—
318
—
—
—
194
512
564
1,246
73
700
96
194
2,873 $
$
—
—
—
—
—
—
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
Page -57-
(In thousands)
With no related allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial and industrial:
Secured
Unsecured
Total with no related allowance recorded
With an allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial and industrial:
Secured
Unsecured
Total with an allowance recorded
Total:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial and industrial:
Secured
Unsecured
Total
December 31, 2014
Unpaid
Principal
Balance
Related
Allocated
Allowance
Year Ended December 31, 2014
Average
Recorded
Investment
Interest
Income
Recognized
Recorded
Investment
$
$
3,562
1,251
$
3,707
1,568
— $
—
$
3,974
961
143
169
345
—
5,470
—
323
—
71
—
337
731
3,562
1,574
143
240
345
337
6,201
$
231
377
345
—
6,228
—
323
—
89
—
339
751
3,707
1,891
231
466
345
339
6,979
$
$
—
—
—
—
—
—
23
—
72
—
79
174
—
23
—
72
—
79
174
$
199
229
354
—
5,717
—
27
—
75
—
206
308
3,974
988
199
304
354
206
6,025
$
113
63
—
—
25
—
201
—
—
—
13
—
—
13
113
63
—
13
25
—
214
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 no other real estate owned at December 31, 2016 compared to $250,000 at December 31, 2015.
Troubled Debt Restructurings
The terms of certain loans were modified and are considered TDRs. 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 loans 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.
Page -58-
The following table presents loans by class modified as troubled debt restructurings during the years indicated:
Modifications During the Years Ended December 31,
2016
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
2015
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number of
Loans
Number of
Loans
2014
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number of
Loans
— $
—
1
1
3
1
—
6 $
— $
—
252
69
459
525
—
1,305 $
—
—
252
69
459
525
—
1,305
— $
—
—
—
—
3
—
3 $
— $
—
—
—
—
160
—
160 $
—
—
—
—
—
160
—
160
— $
1
—
1
—
1
1
4 $
— $
323
—
127
—
127
5
582 $
—
323
—
127
—
127
5
582
(Dollars in thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial and industrial:
Secured
Unsecured
Installment/consumer loans
Total
The TDRs described above did not increase the allowance for loan losses during the years ended December 31, 2016, 2015 and 2014.
There were $0.1 million, $0.7 million and $0.5 million of charge-offs related to TDRs during the years ended December 31, 2016,
2015 and 2014, respectively. There was one loan modified as a TDR during 2016 where there was a payment default. This loan has
since been brought current. There were no loans modified as TDRs during 2015 and 2014 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.
At December 31, 2016 and 2015, the Company had $0.3 million and $0.1 million, respectively, of nonaccrual TDRs and $2.4 million
and $1.7 million, respectively, of performing TDRs. At December 31, 2016 and 2015, total nonaccrual TDRs are secured with
collateral that has an appraised value of $1.3 million and $0.3 million, respectively. The Bank has no commitment to lend additional
funds to these debtors.
The terms of certain other loans were modified during the year ended December 31, 2016 that did not meet the definition of a TDR.
These loans have a total recorded investment at December 31, 2016 of $38.9 million. These loans were 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 principal 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 FASB 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 about the
collection of the loan.
The Bank makes an estimate of the loans’ contractual principal and contractual interest payments as well as the expected total cash
flows 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
the allowance for loan losses.
Page -59-
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 from the remaining loans, representing further
realization of accretable yield, are recognized as interest income upon receipt. These proceeds may include cash or real estate acquired
in foreclosure.
At the acquisition date, the PCI 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 of $11.9
million represented the non-accretable difference. The difference between the expected cash flows and fair value of $6.6 million
represented the initial accretable yield. At December 31, 2016, the contractually required principal and interest payments receivable
and carrying amount of the purchased credit impaired loans was $12.2 million and $7.0 million, respectively, with a remaining non-
accretable difference of $1.3 million. At December 31, 2015, the contractually required principal and interest payments receivable
and carrying amount of the purchased credit impaired loans was $16.7 million and $8.3 million, respectively, with a remaining non-
accretable difference of $1.5 million.
At the acquisition date, the PCI loans acquired as part of the CNB acquisition had contractually required principal and interest
payments receivable of $23.4 million, expected cash flows of $10.1 million, and a fair value (initial carrying amount) of $8.7 million.
The difference between the contractually required principal and interest payments receivable and the expected cash flows of $13.3
million represented the non-accretable difference. The difference between the expected cash flows and fair value of $1.4 million
represented the initial accretable yield. At December 31, 2016, the contractually required principal and interest payments receivable
and carrying amount of the purchased credit impaired loans was $12.2 million and $2.3 million, respectively, with a remaining non-
accretable difference of $6.9 million. At December 31, 2015, the contractually required principal and interest payments receivable and
carrying amount of the purchased credit impaired loans was $22.5 million and $8.2 million, respectively, with a remaining non-
accretable difference of $13.3 million.
The following table summarizes the activity in the accretable yield for the purchased credit impaired loans:
(In thousands)
Balance at beginning of period
Accretable discount arising from acquisition of PCI loans
Accretion
Reclassification from nonaccretable difference during the period
Other
Accretable discount at end of period
Year Ended December 31,
2015
2016
7,113
—
(4,924)
4,492
234
6,915
$
$
8,432
259
(3,570)
1,992
—
7,113
$
$
The allowance for loan losses was not increased during the years ended December 31, 2016 and 2015 for those purchased credit
impaired loans disclosed above. In addition, no allowances for loan losses were reversed during 2016.
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 2016 and 2015.
The following table sets forth selected information about related party loans for the year ended December 31, 2016:
(In thousands)
Balance at January 1, 2016
New loans
Repayments
Balance at December 31, 2016
Balance
Outstanding
$
$
22,789
1,901
(2,574)
22,116
Page -60-
4. PREMISES AND EQUIPMENT
The following table details the components of premises and equipment:
(In thousands)
Land
Building and improvements
Furniture, fixtures and equipment
Leasehold improvements
Accumulated depreciation and amortization
Total
December 31,
2016
2015
7,951
15,272
20,295
13,562
57,080
(21,817)
35,263
$
$
7,381
14,839
22,292
17,887
62,399
(22,804)
39,595
$
$
Depreciation and amortization amounted to $3.5 million, $3.6 million and $2.6 million for the years ended December 31, 2016, 2015
and 2014, 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 comparing 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
permits 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 2016. The Company has one reporting unit, Bridge
Bancorp. Inc., and evaluated goodwill at that reporting unit level. The Company 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 following table reflects the changes in goodwill:
(In thousands)
Balance at January 1
Acquired goodwill
Measurement period adjustments(1)
Impairment
Balance at December 31
(1) See Note 20 for details on the measurement period adjustments.
Acquired Intangible Assets
The following table reflects acquired intangible assets:
Year Ended December 31,
2016
98,445
—
7,505
—
105,950
$
$
2015
9,450
88,995
—
—
98,445
$
$
(In thousands)
Amortized intangible assets:
Core deposit intangibles
Non-compete intangible
Total
December 31,
2016
2015
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
$
$
7,211 $
—
7,211 $
2,362 $
—
2,362 $
7,211 $
2,188
9,399 $
1,186
730
1,916
Page -61-
Aggregate amortization expense for the years ended December 31, 2016, 2015, and 2014 was $2.6 million, $1.4 million, and $0.3
million, respectively.
The following table reflects estimated amortization expense for each of the next five years and thereafter:
Total
1,047
917
787
656
531
911
4,849
$
$
(In thousands)
2017
2018
2019
2020
2021
Thereafter
Total
6. DEPOSITS
Time Deposits
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2016:
(In thousands)
2017
2018
2019
2020
2021
Thereafter
Total
Total
98,272
38,660
20,317
5,724
43,388
371
206,732
$
$
The deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2016 and 2015 were $65.4 million and $52.0
million, respectively. Deposits from principal officers, directors and their affiliates at December 31, 2016 and 2015 were
approximately $13.9 million and $13.3 million, respectively.
7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase totaled $0.7 million at December 31, 2016 and $50.9 million at December 31, 2015.
The repurchase agreements were collateralized by investment securities, of which 49% were U.S. GSE residential collateralized
mortgage obligations and 51% were U.S. GSE residential mortgage-backed securities with a carrying amount of $2.3 million at
December 31, 2016 and 96% were U.S. GSE securities and 4% were U.S. GSE residential collateralized mortgage obligations with a
carrying amount of $55.9 million at December 31, 2015.
Securities sold under agreements to repurchase are financing arrangements with $0.7 million maturing during the first quarter of 2017.
At maturity, the securities underlying the agreements are returned to the Company.
The following table summarizes information concerning securities sold under agreements to repurchase:
(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
Year Ended December 31,
2016
2015
$
$
45,630
0.85%
51,197
0.83%
$
$
30,317
0.65%
51,400
0.64%
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 the Company’s policies, eligible counterparties are defined and monitored to
minimize exposure.
Page -62-
8. FEDERAL HOME LOAN BANK ADVANCES
The following tables set 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.
(Dollars in thousands)
Contractual Maturity
Overnight
2017
2018
2019
Total FHLB advances
(Dollars in thousands)
Contractual Maturity
Overnight
2016
2017
2018
2019
Total FHLB advances
December 31, 2016
Amount
$
175,000
294,113
25,431
2,140
321,684
496,684
Weighted
Average Rate
0.74%
0.82%
1.05
1.04
0.84%
0.80%
December 31, 2015
Amount
—
249,599
19,149
25,781
2,978
297,507
297,507
Weighted
Average Rate
—%
0.75%
0.74
1.04
1.08
0.78%
0.78%
$
$
$
Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized by
$923.9 million and $666.3 million of residential and commercial mortgage loans under a blanket lien arrangement at December 31,
2016 and 2015, respectively. Based on this collateral and the Company’s holdings of FHLB stock, the Company is eligible to borrow
up to a total of $1.22 billion at December 31, 2016.
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. $40.0 million of the subordinated debentures 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
subordinated debentures 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 subordinated debentures totaled $78.5 million at December 31,
2016 and $78.4 million at December 31, 2015.
The subordinated debentures 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, prior to May 27, 2016, were convertible into the Company’s common stock, at an
effective conversion price of $31 per share. The TPS mature in 2039 but are callable by the Company at par any time after September
30, 2014.
Page -63-
On May 27, 2016, the Company permanently increased the conversion ratio of the TPS from 32.2581 shares, representing a
conversion price of $31 per share, to 34.4828 shares, representing a conversion price of $29 per share. This increase in the conversion
ratio was accounted for as a modification of the TPS which resulted in a $0.4 million decrease in the TPS balance and a corresponding
increase to Surplus which represents the increase in the fair value of the conversion option immediately before and after the
modification. The decrease in the TPS balance resulting from the modification will be amortized as a yield adjustment over the
remaining term of the TPS consistent with the related deferred debt issuance costs.
The Company issued $16.0 million of junior subordinated debentures (the “Debentures”) to the trust in exchange for ownership of all
of the common securities of the trust and the proceeds of the preferred securities sold by the trust. In accordance with current
accounting guidance, the trust is not consolidated in the Company’s financial statements, but rather the Debentures are shown as a
liability. The Debentures bear interest at a fixed rate equal to 8.50% and mature on December 31, 2039. Consistent with regulatory
requirements, the interest payments may be deferred for up to 5 years, and are cumulative. The Debentures have the same prepayment
provisions as the TPS.
The Debentures are included in tier 1 capital (with certain limitations applicable) under current regulatory guidelines and
interpretations.
During the year ended December 31, 2016, 300 shares of TPS with a liquidation amount of $300,000 were converted into 10,344
shares of the Company’s common stock. The conversions are reflected in the Consolidated Statement of Stockholders’ Equity for the
year ended December 31, 2016. The TPS and Debentures, net totaled $15.2 million at December 31, 2016 and $15.9 million at
December 31, 2015.
On December 15, 2016, the Company notified holders of the TPS of the full redemption of the TPS on January 18, 2017. The
redemption price equaled the liquidation amount, plus accrued but unpaid interest until but not including the redemption date. TPS
not converted into shares of the Company’s common stock on or prior to January 17, 2017 were redeemed as of January 18, 2017.
15,450 shares of TPS with a liquidation amount of $15.5 million were converted into 532,740 shares of the Company’s common
stock, which includes 100 shares of TPS with a liquidation amount of $100,000 which were converted into 3,448 shares of the
Company’s common stock on December 28, 2016. The remaining 350 shares of TPS with a liquidation amount of $350,000 were
redeemed on January 18, 2017.
10. DERIVATIVES
Cash Flow Hedges of Interest Rate Risk
As part of its asset liability management, the Company utilizes interest rate swap agreements to help manage its interest rate risk
position. The notional amount of the interest rate swap does not represent the amount 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 $175.0 million and $125.0 million as of December 31, 2016 and 2015, respectively,
were designated as cash flow hedges of certain FHLB advances. 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.
The following table summarizes information about the interest rate swaps designated as cash flow hedges:
(Dollars in thousands)
Notional amounts
Weighted average pay rates
Weighted average receive rates
Weighted average maturity
$
December 31,
2016
2015
175,000
$
1.61%
0.95%
2.98 years
125,000
1.58%
0.51%
3.22 years
Interest expense recorded on these swap transactions totaled $944,000, $657,000 and $470,000 during the years ended December 31,
2016, 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, 2016, the Company had
$944,000 of reclassifications to interest expense. During the next twelve months, the Company estimates that $805,000 will be
reclassified as an increase in interest expense.
Page -64-
The following table presents 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 years ended December 31, 2016, 2015 and 2014:
(In thousands)
Interest rate contracts
Year ended December 31, 2016
Year ended December 31, 2015
Year ended December 31, 2014
Amount of gain (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)
$
$
$
1,191
$
(1,008) $
(1,249) $
(944)
(657)
(470)
$
$
$
—
—
—
The following table reflects the cash flow hedges included in the Consolidated Balance Sheets:
2016
Fair
Value
Asset
December 31,
Fair
Value
Liability
Notional
Amount
Notional
Amount
$
175,000
$
1,994
$
(1,153)
$
100,000
$
—
—
—
25,000
2015
Fair
Value
Asset
14
—
Fair
Value
Liability
$
(713)
(595)
(In thousands)
Included in other assets/(liabilities):
Interest rate swaps related to FHLB
advances
Forward starting interest rate swap
related to FHLB advances
Non-Designated Hedges
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 the interest rate swaps:
(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
December 31,
2016
2015
62,472
$
3.50%
3.50%
13.97 years
— $
56,328
3.39%
3.39%
15.59 years
—
$
$
As of December 31, 2016 the termination value of derivatives in a net asset position, which includes accrued interest but excludes any
adjustment for nonperformance risk, related to these agreements was $0.6 million. The Company has minimum collateral posting
thresholds with certain of its derivative counterparties. If the termination value of derivatives is a net liability position, the Company is
required to post collateral against its obligations under the agreements. However, if the termination value of derivatives is a net asset
position, the counterparty is required to post collateral to the Company. At December 31, 2016, the Company had received collateral
of $1.2 million from its counterparty under these agreements. If the Company had breached any of these provisions at December 31,
2016, it could have been required to settle its obligations under the agreements at the termination value.
Page -65-
11. INCOME TAXES
The following table details the components of income tax expense:
(In thousands)
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total income tax expense
Year Ended December 31,
2015
2016
2014
$
$
14,730
780
15,510
2,388
897
3,285
18,795
$
$
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
The following table is a reconciliation of the expected Federal income tax expense at the statutory tax rate to the actual provision:
(Dollars in thousands)
Federal income tax expense computed by
applying the statutory rate to income before
income taxes
Tax exempt interest
State taxes, net of federal income tax benefit
Other
Income tax expense
2016
Percentage
of Pre-tax
Earnings
Amount
Year Ended December 31,
2015
Percentage
of Pre-tax
Earnings
Amount
2014
Percentage
of Pre-tax
Earnings
Amount
$
$
19,000
(986)
1,090
(309)
18,795
35% $
(2)
2
—
35% $
11,161
(927)
1,087
(543)
10,778
35% $
(3)
3
(1)
34% $
7,141
(665)
743
20
7,239
34%
(3)
4
—
35%
The following table summarizes the composition of deferred tax assets and liabilities:
(In thousands)
Deferred tax assets:
Allowance for loan losses and off-balance sheet credit exposure
Net unrealized losses on securities
Compensation and related benefit obligations
Purchase accounting fair value adjustments
Net change in pension and other post-retirement benefits plans
Net operating loss carryforward
Net loss on cash flow hedges
Other
Total deferred tax assets
Deferred tax liabilities:
Pension and SERP expense
Depreciation
REIT undistributed net income
Net deferred loan costs and fees
Net gain on cash flow hedges
State and local taxes
Other
Total deferred tax liabilities
Net deferred tax asset
December 31,
2016
2015
$
$
11,401
6,019
2,226
14,376
3,249
2,470
-
756
40,497
(4,715)
(1,537)
(86)
(1,844)
(341)
(1,862)
(179)
(10,564)
29,933
$
$
9,154
3,224
1,435
15,942
2,811
1,955
524
672
35,717
(4,142)
(1,828)
(482)
(1,416)
-
(1,541)
-
(9,409)
26,308
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 2013. 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.
Page -66-
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 tax law changes on the carrying
amount of the Company’s deferred tax assets and liabilities was 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, 2016, the remaining NOL carryforward was $4.0 million.
In connection with the CNB acquisition, the
Company acquired New York State and New York City net operating losses in the amount of $14.8 million and $6.2 million,
respectively. The Company recorded a deferred tax asset that it expects to realize within the carryforward period.
12. EMPLOYEE BENEFITS
Pension Plan and Supplemental Executive Retirement Plan
The Bank maintains a noncontributory pension plan (the “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”. During 2012, the Company amended the pension plan revising the formula for determining benefits effective January 1,
2013, except for certain grandfathered employees. Additionally, new employees hired on or after October 1, 2012 are not eligible for
the pension plan.
During 2001, the Bank adopted the Bridgehampton National Bank Supplemental Executive Retirement Plan (“SERP”). As
recommended by the Compensation Committee of the Board of Directors and approved by the full Board of Directors, the SERP
provides benefits to certain employees, 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.
The following table provides information about changes in obligations and plan assets of the defined benefit pension plan and the
defined benefit plan component of the SERP:
(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
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid and actual expenses
Fair value of plan assets at end of year
Funded status at end of year
Pension Benefits
Year Ended December 31,
SERP Benefits
Year Ended December 31,
2016
2015
2016
2015
$
$
$
$
$
18,515
1,153
794
(279)
661
20,844
24,562
1,416
2,215
(279)
27,914
7,070
$
$
$
$
$
18,960
1,134
706
(264)
(2,021)
18,515
23,887
(60)
999
(264)
24,562
6,047
$
$
$
$
$
2,555
176
105
(112)
280
3,004
$
$
— $
—
112
(112)
— $
2,457
168
91
(112)
(49)
2,555
—
—
112
(112)
—
(3,004)
$
(2,555)
The following table presents amounts recognized in accumulated other comprehensive income at December 31:
(In thousands)
Net actuarial loss
Prior service cost
Transition obligation
Net amount recognized
Pension Benefits
December 31,
SERP Benefits
December 31,
2016
2015
2016
2015
$
$
7,874
(715)
—
7,159
$
$
7,108
(792)
—
6,316
$
$
800
—
32
832
$
$
546
—
60
606
The accumulated benefit obligation was $19.4 million for the pension plan and $2.2 million for the SERP as of December 31, 2016.
As of December 31, 2015, the accumulated benefit obligation was $17.1 million for the pension plan and $1.9 million for the SERP.
Page -67-
The following table summarizes the components of net periodic benefit cost and other amounts recognized in other comprehensive
income:
(In thousands)
Components of net periodic benefit cost and other amounts
Pension Benefits
Year Ended December 31,
SERP Benefits
Year Ended December 31,
recognized in other comprehensive income:
2016
2015
2014
2016
2015
2014
Service cost
Interest cost
Expected return on plan assets
Amortization of net loss
Amortization of prior service credit
Amortization of transition obligation
Net periodic benefit cost (credit)
Net loss (gain)
Amortization of net loss
Amortization of prior service credit
Amortization of transition obligation
Total recognized in other comprehensive income
$
$
$
$
1,153
794
(1,927)
406
(77)
—
349
1,172
(406)
77
—
843
$
$
$
$
1,134
706
(1,838)
376
(77)
—
301
(123)
(376)
77
—
(422)
$
$
$
$
905
639
(1,625)
27
(77)
—
(131)
5,099
(27)
77
—
5,149
$
$
$
$
176
105
—
27
—
28
336
280
(27)
—
(28)
225
$
$
$
$
168
91
—
32
—
28
319
$
$
(48) $
(32)
—
(27)
(107) $
132
88
—
—
—
28
248
430
—
—
(27)
403
The estimated net loss 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 $450,000 and $77,000, respectively. The estimated
net loss and 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 $51,000 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.
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
December 31,
2015
2016
2014
2016
SERP Benefits
December 31,
2015
2014
4.05%
3.00
4.30%
3.00
4.30%
3.00
7.50
3.90%
3.00
7.50
3.90%
3.00
4.90%
3.00
7.50
4.01%
5.00
4.20%
5.00
—
4.20%
5.00
3.80%
5.00
—
3.80%
5.00
4.70%
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 sets the investment policy
guidelines.
The Plan’s overall investment strategy is to achieve a mix of approximately 97% of investments for long‐term growth and 3% for
near‐term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. Cash equivalents consist
primarily of short term investment funds. Equity securities primarily include investments in common stock, mutual funds, depository
receipts and exchange traded funds. Fixed income securities include corporate bonds, government issues, mortgage backed securities,
high yield securities and mutual funds.
The weighted average expected long term rate-of-return is estimated based on current trends in Plan assets as well as projected future
rates of return on those assets and reasonable actuarial assumptions based on the guidance provided by Actuarial Standard of Practice
No. 27 for the real and nominal rate of investment return for a specific mix of asset classes. The long term rate of return considers
historical returns for the S&P 500 index and corporate bonds from 1926 to 2015 representing cumulative returns of approximately
10% and 5%, respectively. These returns were considered along with the target allocations of asset categories.
Page -68-
The following table indicates the target allocations for Plan assets:
Asset Category
Cash Equivalents
Equity Securities
Fixed income securities
Total
Target
Allocation
2017
0 – 5%
45 - 65%
35 - 55%
Percentage of Plan Assets
At December 31,
2016
2015
3.0%
64.0%
33.0%
100.0%
4.6%
62.2%
33.2%
100.0%
Weighted-Average
Expected Long-
term Rate of
Return
—
10.0%
5.0%
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: letter stock, private placements, or
direct payments; securities not readily marketable; Bridge Bancorp, Inc. stock.; pledging or hypothecating securities, except for loans
of securities that are fully collateralized; purchasing or selling derivative securities for speculation or leverage; and investments by the
investment managers in their own securities, their affiliates or subsidiaries (excluding money market funds).
Fair value is defined under FASB 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. These levels are described in
Note 15.
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
at the NAV at the measurement date. If the Plan can never redeem the investment with the investee at the NAV, it is considered as
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, 2016 and 2015:
(Dollars in thousands)
Cash and cash equivalents:
Cash
Short term investment funds
Total cash and 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
December 31, 2016:
Fair Value Measurements Using:
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
— $
—
—
8,950
3,038
5,770
124
17,882
1,706
—
—
—
1,706
19,588
$
—
822
822
—
—
—
—
—
242
1,795
960
4,507
7,504
8,326
$
$
— $
822
822
8,950
3,038
5,770
124
17,882
1,948
1,795
960
4,507
9,210
27,914
$
Page -69-
(Dollars in thousands)
Cash and cash equivalents:
Cash
Short term investment funds
Total cash and 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
December 31, 2015
Fair Value Measurements 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
The Company has no minimum required pension contribution due to the overfunded status of the plan.
Estimated Future Payments
The following table summarizes benefits expected to be paid under the pension plan and SERP as of December 31, 2016, which
reflect expected future service:
Year
2017
2018
2019
2020
2021
2022-2026
401(k) Plan
$
Pension and SERP
Payments
(in thousands)
574
677
740
908
1,005
6,476
The Company provides a 401(k) plan which covers substantially all current employees. Newly hired employees are automatically
enrolled in the plan on the 60th day of employment, unless they elect not to participate. Participants may contribute a portion of their
pre-tax base salary, generally not to exceed $18,000 for the calendar year ended December 31, 2016. Under the provisions of the
401(k) plan, employee contributions are partially matched by the Bank as follows: 100% of each employee’s contributions up to1% of
each employee’s compensation plus 50% of each employee’s contributions over 1% but not in excess of 6% of each employee’s
compensation for a maximum contribution of 3.5% of a participating employee’s compensation. Participants can invest their account
balances into several investment alternatives. The 401(k) plan does not allow for investment in the Company’s common stock. During
the years ended December 31, 2016, 2015 and 2014 the Bank made cash contributions of $786,000, $623,000, and $530,000,
respectively. The 401(k) plan also includes a discretionary profit-sharing component. The Company made discretionary profit sharing
contributions of $424,000 in 2016, $276,000 in 2015 and $247,000 in 2014.
Equity Incentive Plan
The Bridge Bancorp, Inc. 2012 Stock-Based Incentive Plan (the “2012 Equity Incentive Plan”) provides for the grant of stock-based
and other incentive awards to officers, employees and directors of the Company. The plan superseded the Bridge Bancorp, Inc. 2006
Equity Incentive Plan. The number of shares of common stock of Bridge Bancorp, Inc. available for stock-based awards under the
2012 Equity Incentive Plan is 525,000 plus 278,385 shares that were remaining under the 2006 Equity Incentive Plan. Of the total
803,385 shares of common stock approved for issuance under the 2012 Equity Incentive Plan, 503,705 shares remain available for
issuance at December 31, 2016, including shares that may be granted in the form of restricted stock awards or restricted stock units.
Page -70-
The Compensation Committee of the Board of Directors determines awards under the 2012 Equity Incentive Plan. The Company
accounts for the 2012 Equity Incentive Plan under FASB ASC No. 718.
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, 2016, 2015 and 2014 and there was no compensation
expense attributable to stock options for the years ended December 31, 2016, 2015 and 2014 because all stock options were vested.
The following tables summarize stock option activity for the year ended December 31, 2016:
(Dollars in thousands, except per share amounts)
Outstanding, January 1, 2016
Exercised
Outstanding, December 31, 2016
(In thousands)
Intrinsic value of options exercised
Cash received from options exercised
Tax benefit realized from option exercised
Restricted Stock Awards
Number
of
Options
23,725
(23,725)
—
$
$
Weighted
Average
Exercise
Price
25.25
25.25
Year Ended December 31,
2015
2014
2016
$
$
115
62
—
$
52
80
—
4
4
—
The following table summarizes the unvested restricted stock activity for the year ended December 31, 2016:
Unvested, January 1, 2016
Granted
Vested
Forfeited
Unvested, December 31, 2016
Weighted
Average Grant-Date
Fair Value
$
$
$
$
$
23.46
27.99
22.42
25.95
24.59
Shares
281,076
69,309
(41,727)
(6,667)
301,991
During the year ended December 31, 2016, the Company granted restricted stock awards of 69,309 shares. Of the 69,309 shares
granted, 36,000 shares vest over seven years with a third vesting after years five, six and seven, 27,709 shares vest over five years with
a third vesting after years three, four and five, and 5,600 shares vest ratably over 3 years. During the year ended December 31, 2015,
the Company granted restricted stock awards of 71,187 shares. Of the 71,187 shares granted, 30,625 shares vest over seven years with
a third vesting after years five, six and seven, 24,812 shares vest over 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 stock awards of 80,273 shares. Of the 80,273 shares granted,
53,425 shares vest over seven years with a third vesting after years five, six and seven, 20,598 shares vest over five years with a third
vesting after years three, four and five and 6,250 shares vest ratably over two years. Compensation expense attributable to these
awards was $1.5 million, $1.3 million and $1.1 million for the years ended December 31, 2016, 2015 and 2014, respectively. The total
fair value of shares vested during the years ended December 31, 2016, 2015 and 2014, was $935,000, $732,000 and $579,000,
respectively. As of December 31, 2016, there was $4.4 million of total unrecognized compensation costs related to non-vested
restricted stock awards granted under the 2012 Equity Incentive Plan and the 2006 Equity Incentive Plan. The cost is expected to be
recognized over a weighted-average period of 4.06 years.
Restricted Stock Units
Effective in 2015, the Board revised the design of the Long Term Incentive Plan (“LTI Plan”) for Named Executive Officers to
include performance based awards. The LTI Plan includes 60% performance vested awards based on 3-year relative Total
Shareholder Return to the proxy peer group and 40% time vested awards. The awards are in the form of restricted stock units which
cliff vest after five years and require an additional two year holding period before being delivered in shares of common stock. The
Company recorded expense of $193,000 and $81,000 in connection with these awards for the years ended December 31, 2016 and
2015, respectively.
Page -71-
In April 2009, the Company adopted a Directors Deferred Compensation Plan (“Directors Plan”). Under the Directors 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 the Directors Plan, the Company recorded expense of $493,000,
$342,000 and $147,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
13. EARNINGS PER SHARE
FASB ASC No. 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 certain 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.
The following is a reconciliation of earnings per share for the years ended December 31, 2016, 2015 and 2014:
(In thousands, except per share data)
Net income
Dividends paid on and earnings allocated to participating securities
Income attributable to common stock
2016
Year Ended December 31,
2015
$ 35,491 $ 21,111 $ 13,763
(319)
$ 34,759 $ 20,660 $ 13,444
(451)
(732)
2014
Weighted average common shares outstanding, including participating securities
Weighted average participating securities
Weighted average common shares outstanding
Basic earnings per common share
17,670
(366)
17,304
14,792
(319)
14,473
$
2.01 $
1.43 $
11,633
(278)
11,355
1.18
Income attributable to common stock
Impact of assumed conversions - interest on 8.5% trust preferred securities
Income attributable to common stock including assumed conversions
$ 34,759 $ 20,660 $ 13,444
—
$ 35,637 $ 20,660 $ 13,444
878
—
Weighted average common shares outstanding
Incremental shares from assumed conversions of options and restricted stock units
Incremental shares from assumed conversions of 8.5% trust preferred securities
Weighted average common and equivalent shares outstanding
Diluted earnings per common share
17,304
13
534
17,851
14,473
4
—
14,477
$
2.00 $
1.43 $
11,355
—
—
11,355
1.18
There were no stock options that were antidilutive at December 31, 2016 and 2015. At December 31, 2014, there were 39,870 stock
options outstanding 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 $15.7 million in convertible trust
preferred securities outstanding at December 31, 2016 were dilutive for the year ended December 31, 2016 and therefore were
included in the computation of diluted EPS. The $16.0 million in convertible trust preferred securities outstanding at December 31,
2015 and 2014 were not included in the computation of diluted earnings per share for the years then ended because the assumed
conversion of the trust preferred securities was antidilutive during those years.
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.
Page -72-
Leases
At December 31, 2016, the Company was obligated to make minimum annual rental payments under non-cancelable operating leases
for its premises. Projected minimum rental payments under existing leases are as follows:
Year
2017
2018
2019
2020
2021
Thereafter
Total
Amount
(In thousands)
$
$
7,201
6,336
5,853
5,231
4,795
20,285
49,701
Certain leases contain rent escalation clauses which are reflected in the amounts listed above. In addition, certain leases provide for
additional payments based on real estate taxes, interest and other charges. Certain leases contain renewal options which are not
reflected in the table. Rent expense under operating leases for the years ended December 31, 2016, 2015 and 2014 totaled $6.8
million, $5.3 million, and $3.4 million, respectively, net of subleases.
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:
(In thousands)
Standby letters of credit
Loan commitments outstanding (1)
Unused lines of credit
Total commitments outstanding
December 31,
2016
21,507
66,779
466,271
554,557
$
$
2015
14,930
46,034
418,596
479,560
$
$
(1) Of the $66.8 million of loan commitments outstanding at December 31, 2016, $21.2 million are fixed rate commitments and $45.6 million are
variable rate commitments. Of the $46.0 million of loan commitments outstanding at December 31, 2015, $13.1 million are fixed rate
commitments and $32.9 million are variable rate commitments.
Litigation
The Company and its subsidiaries are subject to certain pending and threatened legal actions that arise out of the normal course of
business. In the opinion of management, the resolution of any such pending or threatened litigation is not expected to have a material
adverse effect on the Company’s consolidated financial statements.
Other
During 2016, the Bank was required to maintain certain cash balances with the Federal Reserve Bank of New York (“FRB”) for
reserve and clearing requirements. The required cash balance at December 31, 2016 was $7.3 million. During 2016, the FRB offered
higher interest rates on overnight deposits compared to the Bank’s correspondent banks. Therefore, the Bank invested overnight with
the FRB and the average balance maintained during 2016 was $23.1 million.
During 2016 and 2015, the Bank maintained an overnight line of credit with the 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, 2016, the Bank
had aggregate lines of credit of $349.5 million with unaffiliated correspondent banks to provide short-term credit for liquidity
requirements. Of these aggregate lines of credit, $329.5 million is available on an unsecured basis. As of December 31, 2016, the
Bank had $100.0 million of such borrowings outstanding.
Page -73-
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, 2016, there was up to $1.22 billion available for transactions under this
agreement, assuming availability of required collateral.
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.
The following tables summarize assets and liabilities measured at fair value on a recurring basis:
(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
December 31, 2016
Fair Value Measurements Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
$
$
63,649
116,165
158,048
367,511
6,307
55,192
22,553
30,297
819,722
2,510
1,670
Carrying
Value
63,649
116,165
158,048
367,511
6,307
55,192
22,553
30,297
819,722
2,510
1,670
$
$
$
$
Page -74-
(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
$
$
$
$
December 31, 2015
Fair Value Measurements Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
$
62,674
87,935
200,264
317,878
12,418
64,198
22,371
32,465
800,203
779
Carrying
Value
62,674
87,935
200,264
317,878
12,418
64,198
22,371
32,465
800,203
779
2,073
$
2,073
The following tables summarize assets measured at fair value on a non-recurring basis:
December 31, 2016
Fair Value Measurements Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
64
December 31, 2015
Fair Value Measurements Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
483
250
Carrying
Value
$
64
Carrying
Value
483
250
$
(In thousands)
Impaired loans
(In thousands)
Impaired loans
Other real estate owned
Impaired loans with an allocated allowance for loan losses at December 31, 2016 had a carrying amount of $0.06 million, which is
made up of the outstanding balance of $0.07 million, net of a valuation allowance of $0.01 million. This resulted in an additional
provision for loan losses of $0.01 million that is included in the amount reported on the Consolidated Statements of Income. Impaired
loans with an 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 Consolidated Statements of Income.
There was no other real estate owned at December 31, 2016. Other real estate owned at December 31, 2015 had a carrying amount of
$0.3 million and no valuation allowance recorded. Accordingly, there was no additional provision for loan losses included in the
amount reported on the Consolidated Statements of Income.
Page -75-
The Company used the following methods 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 and as such are classified as Level 1.
Securities Available for Sale and Held to Maturity: If available, the estimated fair values are based on independent dealer quotations
on nationally recognized securities exchanges and are classified as 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 resulting in a Level 2 classification.
Restricted Securities: It is not practicable to determine the fair value of FHLB, ACBB and FRB stock due to restrictions placed on
transferability.
Derivatives: Represents interest rate swaps for which the estimated fair values are based on valuation models using observable market
data as of the measurement date resulting in a Level 2 classification.
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 purposes
under FASB ASC 825-10, do not conform to FASB ASC 820-10.
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 on recent appraised values. The fair value of other real estate
owned is also evaluated in accordance with current accounting guidance and determined based on 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 reasonable. 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 quarterly 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 sale price of collateral that has been sold to the most recent appraised
value to determine what additional adjustments should be made to appraisal values 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 consolidated
financial statements given the level of impaired loans measured at fair value on a nonrecurring basis.
Deposits: The estimated fair values of certificates of deposit are based on discounted cash flow calculations that use a replacement
cost of funds approach to establishing discount rates for certificate of deposit maturities resulting in a Level 2 classification. Stated
value is fair value for all other deposits resulting in a Level 1 classification.
Borrowed Funds: Represents federal funds purchased and FHLB advances for which the estimated fair values 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 1 classification for overnight federal funds purchased and FHLB advances and a Level 2 classification for all other maturity
terms.
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.
Page -76-
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 Company common stock 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, 2 or 3 classification consistent with the underlying asset or liability the interest is associated with.
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, 2016 and 2015.
Fair value estimates are made at specific points in time and are based on existing on-and off-balance sheet financial instruments.
These estimates are subjective in nature and dependent on 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.
The following tables summarize the estimated fair values and recorded carrying amounts of the Company’s financial instruments at
December 31, 2016 and 2015:
(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
102,280
11,558
819,722
34,743
223,237
2,574,536
2,510
10,233
206,732
2,719,277
100,000
496,684
674
78,502
15,244
1,670
1,849
December 31, 2016
Fair Value Measurement Using:
Quoted Prices In
Active Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
102,280 $
11,558
—
n/a
—
—
—
—
—
2,719,277
100,000
175,000
—
—
—
—
87
— $
—
819,722
n/a
222,878
—
2,510
3,480
206,026
—
—
321,249
674
—
—
1,670
316
— $
—
—
n/a
—
2,542,395
—
6,753
—
—
—
—
—
78,303
15,258
—
1,446
Total
Fair Value
102,280
11,558
819,722
n/a
222,878
2,542,395
2,510
10,233
206,026
2,719,277
100,000
496,249
674
78,303
15,258
1,670
1,849
Page -77-
December 31, 2015
Fair Value Measurement Using:
Quoted Prices In
Active Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
79,750 $
24,408
—
n/a
—
—
—
—
—
2,550,770
120,000
—
—
—
—
—
93
— $
—
800,203
n/a
210,003
—
779
3,228
293,368
—
—
298,015
51,480
—
—
2,073
329
— $
—
—
n/a
—
2,379,171
—
6,042
—
—
—
—
—
78,830
16,566
—
1,222
Total
Fair Value
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
(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
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
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 Company and Bank are set forth in the tables
that follow. The Company and the Bank met all capital adequacy requirements at December 31, 2016 and 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 on common equity
tier 1 capital ("CET1"); b) 6.0% based on tier 1 capital; and c) 8.0% based on 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 on CET1; b) 8.5% based on tier 1 capital; and c) 10.5% based
on 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, 2016, 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 tables below. Since that notification,
there are no conditions or events that management believes have changed the institution’s category.
Page -78-
The following tables present actual capital levels and minimum required levels for the Company and the Bank under Basel III rules at
December 31, 2016 and 2015.
(Dollars in thousands)
Common equity tier 1 capital to risk weighted assets:
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
(Dollars in thousands)
Common equity tier 1 capital to risk weighted assets:
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
Actual Capital
Amount
Ratio
December 31, 2016
Minimum Capital
Adequacy Requirement
Ratio
Amount
Minimum To Be Well
Capitalized Under Prompt
Corrective Action Provisions
Amount
Ratio
$
312,731
378,352
10.8 % $
13.1
130,065
130,054
4.5 %
4.5
$
434,184
404,532
328,004
378,352
328,004
378,352
15.0
14.0
11.3
13.1
8.6
9.9
231,226
231,208
173,419
173,406
152,391
152,382
8.0
8.0
6.0
6.0
4.0
4.0
n/a
187,856
n/a
289,010
n/a
231,208
n/a
190,478
n/a
6.5%
n/a
10.0
n/a
8.0
n/a
5.0
Actual Capital
Amount
Ratio
$ 249,921
319,351
366,393
340,371
265,373
319,351
265,373
319,351
9.3 %
11.9
13.6
12.7
9.9
11.9
7.6
9.1
December 31, 2015
Minimum Capital
Adequacy Requirement
Ratio
Amount
Minimum To Be Well
Capitalized Under Prompt
Corrective Action Provisions
Amount
Ratio
$ 121,074
121,074
4.5 %
4.5
n/a
$ 174,884
215,243
215,242
161,432
161,432
140,490
140,492
8.0
8.0
6.0
6.0
4.0
4.0
n/a
269,053
n/a
215,242
n/a
175,615
n/a
6.5%
n/a
10.0
n/a
8.0
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
(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
December 31,
2016
2015
$
$
$
$
29,049
228
474,035
503,312
78,502
15,244
1,579
95,325
407,987
503,312
$
$
$
$
25,475
16
411,106
436,597
78,363
15,878
1,228
95,469
341,128
436,597
Page -79-
Condensed Statements of Income
(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
Condensed Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Year Ended December 31,
2015
2014
2016
$
$
14,800
5,903
260
8,637
(2,126)
10,763
24,728
35,491
$
$
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
Year Ended December 31,
2015
2014
2016
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
$ 35,491
$ 21,111
$ 13,763
Equity in undistributed earnings of the Bank
Amortization
(Increase) decrease 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 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
(24,728)
152
(212)
351
11,054
(12,877)
44
72
1,228
9,578
(14,751)
5
76
(48)
(955)
(39,500)
—
(39,500)
(50,000)
—
(50,000)
(24,000)
(1)
(24,001)
—
—
48,442
62
(344)
—
(16,140)
—
32,020
78,324
—
779
80
(228)
50
(13,415)
(303)
65,287
—
(1,450)
631
7
(173)
36
(10,657)
(192)
(11,798)
3,574
25,475
$ 29,049
24,865
610
$ 25,475
(36,754)
37,364
610
$
Page -80-
18. OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the components of other comprehensive (loss) income and related income tax effects:
(In thousands)
Unrealized holding (losses) gains on available for sale securities
Reclassification adjustment for (gains) losses realized in income
Income tax effect
Net change in unrealized (losses) gains on available for sale securities
$
Unrealized net (loss) gain 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 gain (loss) on cash flow hedges
Year Ended December 31,
2016
2015
(6,428)
(449)
2,795
(4,082)
(1,452)
384
438
(630)
1,191
944
(865)
1,270
$
(2,489) $
8
1,047
(1,434)
196
358
(174)
380
(1,008)
657
150
(201)
2014
13,315
1,090
(5,718)
8,687
(5,529)
(23)
2,204
(3,348)
(1,249)
470
309
(470)
Other comprehensive (loss) income
$
(3,442)
$
(1,255) $
4,869
The following is a summary of the accumulated other comprehensive loss balances, net of income tax at the dates indicated:
(In thousands)
Unrealized losses on available for sale securities
Unrealized losses on pension benefits
Unrealized (losses) gains on cash flow hedges
Accumulated other comprehensive loss
December 31, 2015
$
Other
Comprehensive
(Loss) Income December 31, 2016
(4,741) $
(4,111)
(770)
(9,622) $
(4,082) $
(630)
1,270
(3,442) $
(8,823)
(4,741)
500
(13,064)
$
The following represents the reclassifications out of accumulated other comprehensive (loss) income:
Year Ended December 31,
2016
2015
2014
Affected Line Item in the
Consolidated Statements of Income
$
449
$
(8)
$
(1,090)
Net securities gain (losses)
(In thousands)
Realized gains (losses) on sale of available for
sale securities
Amortization of defined benefit pension plan
and defined benefit plan component of
the SERP:
Prior service credit
Transition obligation
Actuarial losses
Realized losses on cash flow hedges
Total reclassifications, before income tax
Income tax benefit
Total reclassifications, net of income tax
$
$
77
(28)
(433)
(944)
(879)
356
(523)
77
(27)
(408)
(657)
(1,023)
414
(609)
$
$
77
(27)
(27)
(470)
(1,537)
611
(926)
$
$
Salaries and employee benefits
Salaries and employee benefits
Salaries and employee benefits
Interest expense
Income tax expense
Page -81-
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected Consolidated Quarterly Financial Data
(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 expense
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
(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 expense
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
March 31,
33,607
$
4,175
29,432
1,250
28,182
3,995
18,907(1)
13,270
4,644
8,626
0.49
0.49
$
$
$
March 31,
20,507
$
1,812
18,695
800
17,895
2,804
13,310(3)
7,389
2,626
4,763
0.41
0.41
$
$
$
$
$
$
$
$
$
$
$
2016 Quarter Ended
June 30,
34,733
4,143
30,590
900
29,690
4,269
20,441
13,518
4,664
8,854
0.51
0.50
September 30, December 31,
34,615
$
4,450
30,165
1,400
28,765
3,748
18,529(2)
13,984
4,824
9,160
0.50
0.50
34,761 $
4,077
30,684
2,000
28,684
4,034
19,204
13,514
4,663
8,851 $
0.50 $
0.50 $
$
$
$
2015 Quarter Ended
June 30,
22,380
1,953
20,427
700
19,727
2,527
22,034(4)
220
(243)
463
0.04
0.04
September 30, December 31,
31,609
$
3,705
27,904
1,000
26,904
3,411
18,173(6)
12,142
4,147
7,995
0.46
0.46
31,744 $
2,659
29,085
1,500
27,585
3,926
19,373(5)
12,138
4,248
7,890 $
0.45 $
0.45 $
$
$
$
(1) 2016 amount includes reversal of costs associated with the CNB and FNBNY acquisitions of $0.3 million.
(2) 2016 amount includes reversal of costs associated with the CNB and FNBNY acquisitions of $0.7 million.
(3) 2015 amount includes costs associated with the CNB acquisition of $0.2 million.
(4) 2015 amount includes costs associated with the CNB acquisition of $8.2 million.
(5) 2015 amount includes costs associated with the CNB acquisition of $0.9 million.
(6) 2015 amount includes costs associated with the CNB acquisition of $0.5 million.
20. BUSINESS COMBINATIONS
On June 19, 2015, the Company acquired 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 $96.5
million, which is not deductible for tax purposes. 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 Long Island and the New York
City boroughs 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 years ended December 31,
2016 and 2015 include the operating results of CNB since the acquisition date of June 19, 2015.
Page -82-
The following table summarizes the finalized fair values of the assets acquired and liabilities assumed on June 19, 2015:
(In thousands)
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
$ 24,628
90,109
736,348
21,445
6,398
6,698
14,484
$ 900,110
$ 786,853
35,581
5,647
$ 828,081
Measurement
Period
Adjustments (1)
$
-
-
(6,935)
-
(5,122)
-
7,245
$ (4,812)
$
-
-
6,214
$ 6,214
As Adjusted
$ 24,628
90,109
729,413
21,445
1,276
6,698
21,729
$ 895,298
$ 786,853
35,581
11,861
$ 834,295
72,029
157,503
(11,026)
-
61,003
157,503
$ 85,474
$ 11,026
$ 96,500
(1) Explanation of measurement period adjustments:
Loans – represents adjustments to the initial fair values related to certain purchased credit impaired loans based on the finalization
of the initial provisional analyses.
Premises and equipment – represents write down to estimated fair value based on the final valuation performed on leasehold
improvements.
Other assets – represents adjustments to the net deferred tax asset resulting from the adjustments to the initial fair values related
to acquired assets and liabilities assumed.
Other liabilities and accrued expenses - represents adjustments to the initial fair values reported to adjust other liabilities to
estimated fair value and record certain liabilities directly related to the CNB acquisition.
Page -83-
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, 2016 and 2015, 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, 2016. We also have audited Bridge Bancorp, Inc.’s internal control over financial reporting as
of December 31, 2016, 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, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2016 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, 2016, 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 10, 2017
Crowe Horwath LLP
Page -84-
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, 2016. 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, 2016. 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, 2016, 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, 2016, 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 5, 2017 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 5, 2017 and is incorporated herein by reference thereto.
Page -85-
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 5, 2017 and is incorporated
herein by reference thereto.
Set forth below is certain information as of December 31, 2016, 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
2006 Equity Incentive Plan
2012 Equity Incentive Plan
Total
Number of securities to
be issued upon exercise
of outstanding options
and awards
Weighted average
exercise price with
respect to outstanding
stock options
Number of securities
remaining available for
issuance under the Plan
62,598
355,530
418,128
—
—
—
—
503,705
503,705
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 5, 2017 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,
LLP” and “Policy on Audit Committee Pre-approval of Audit and Non-audit Services of Independent Registered Public Accounting
Firm” will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 5, 2017, and is
incorporated herein by reference thereto.
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, “Financial Statements and Supplementary Data.”
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
84
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 in Part II, Item 8, “Financial Statements and Supplementary Data.”
3.
Exhibits
See Exhibit Index on page 88.
Page -86-
Item 16. Form 10-K Summary
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
March 10, 2017
March 10, 2017
March 10, 2017
BRIDGE BANCORP, INC.
Registrant
/s/ Kevin M. O’Connor
Kevin M. O’Connor
President and Chief Executive Officer
/s/ John M. McCaffery
John M. McCaffery
Executive Vice President and Chief Financial Officer
/s/ Katherine A. O’Brien
Katherine A. O’Brien
Vice President, Principal Accounting Officer
Pursuant to the requirements of the Securities 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 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
/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 -87-
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
10.7
21.1
23.1
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 and Exhibit 10.1 to the Registrant’s
Quarterly Reports on Form 10-Q, File No. 0-18546, filed May 10 and August 8, 2016)
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)
2012 Stock-Based Incentive Plan (incorporated by reference to the Registrant’s Definitive Proxy
Statement, File No. 0-18546, filed April 2, 2012)
Bridge Bancorp, Inc. Amended and Restated Directors Deferred Compensation Plan
*
*
*
*
*
*
*
*
*
*
Subsidiaries of Bridge Bancorp, Inc.
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 18 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, 2016, filed on March 10, 2017, formatted in XBRL:
(i) Consolidated Balance Sheets as of December 31, 2016 and 2015, (ii) Consolidated Statements
of Income for the Years Ended December 31, 2016, 2015 and 2014, (iii) Consolidated Statements
of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014,
(iv) Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016,
2015 and 2014, (v) Consolidated Statements of Cash Flows for the Years Ended December 31,
2016, 2015 and 2014, 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 -88-
Corporate Information
The BNB Executive Team. Pictured left to right, standing: Kevin Santacroce, EVP, Chief Lending Officer; Kevin O’Connor,
President & CEO; John McCaffery, EVP, Chief Financial Officer & Treasurer. Sitting: Howard Nolan, SEVP, Chief Operating
Officer; James Manseau, EVP, Chief Retail Banking Officer.
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
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
Sr. Executive Vice President,
Chief Operating Officer and
Corporate Secretary
BRIDGEHAMPTON NATIONAL BANK
EXECUTIVE OFFICERS
Kevin M. O’Connor
President and Chief Executive Officer
Howard H. Nolan
Sr. Executive Vice President,
Chief Operating Officer
James J. Manseau
Executive Vice President,
Chief Retail Banking Officer
John M. McCaffery
Executive Vice President,
Chief Financial Officer and
Treasurer
Kevin L. Santacroce
Executive Vice President,
Chief Lending Officer
SENIOR VICE PRESIDENTS
Eric Bukowski
Kimberly Cioch
Michelle Dosch
Seamus J. Doyle
Nancy Foster
Patricia F. Horan
Theresa Mackey
Deborah McGrory
Ralph G. Meyer
Matthew Murphy
William J. Newham, III
Michael Ogus
Thomas Pfundstein
Stephen Sheridan
Thomas H. Simson
Austin Stonitsch
James Thompson
John Tuohy
John P. Vivona
Joseph Walsh
Catherine Wilinski
Aidan P. Wood
VICE PRESIDENTS
Sharon Abbondondelo
William Araneo
Noman Arshad
Sabrina Aucello
David Barczak
Saveeta Barnes
JoAnn Bello
Kendro Benjamin
Cynthia Berner
Steven Bodziner
Maria Bozzella
Edward Burger
Lance P. Burke
Michael-James Caldwell
Christina Cinotti
Stephanie Clancy
Laura Collins
LuAnn Commisso
Deborah Cosgrove
Matthew Crennan
Prudence D’Auria
Ann Marie Davis
Daniel Delehanty
Gail DeSibio
Elizabeth Drury
Gada Elkenani
Anthony Errera
John Farina
Beth Flanagan
Stuart Fliegelman
Maria M. Fontana
Christopher Fragnito
Steven Frascatore
Peter M. Gajda
Michelle Gee
Stanley Glinka
Theresa Going
Laura Gorman
Jeffrey Greenwald
Michael V. Hadix
Vaughn Henry
Peter Hillick
Maureen Hines
Susan Hughes
Chanbir Kaur
Kerrie Kemerson
Craig Kittilsen
Monica LaCroix-Rubin
Michael Lanzisera
Judith Limpert
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 E. O’Brien
Katherine O’Brien
Hayley Orientale
Deborah Orlowski
William F. Penteck III
Claudia Pilato
Mohammad Qamar
Jill Ramundo
Philip Rinaldi
Keith Robertson
Lydia Ross
Frank Sabalja
Raymond Sanchez
Susan G. Schaefer
Veronica Sheppard
Jacqueline Shirian
Maria Silverman
Randy Snell
Michele Staubitz
Thomas Sullivan
Nicholas Tavantzis
Kathleen Taveira
Frank Trifaro
Dawn M. Turnbull
Alice Wattley
Tong Grace Zhuo
INVESTOR RELATIONS
Exchange: NASDAQ®
Symbol: BDGE
Howard H. Nolan
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 informa-
tion 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, consol-
idate 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 5,
2017 in the Community Room,
Bridgehampton National Bank,
2200 Montauk Highway,
Bridgehampton, NY 11932.
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BRIDGE
BANCORP, INC.
2200 Montauk Highway
P.O. Box 3005
Bridgehampton, New York 11932
631.537.1000
www.bridgenb.com