2017 Annual Report
BRIDGE BANCORP, INC.
Financial Highlights
(in thousands, except per share data and financial ratios)
At or for the year ended December 31,
2017
2016
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
$
20,539
$
35,491
4.64%
0.49%
9.82%
0.92%
$ 4,430,002
$ 3,102,752
$ 3,334,543
$ 429,200
$ 4,054,570
$ 2,600,440
$ 2,926,009
$ 407,987
$
$
$
1.04
0.92
21.78
$
$
$
2.00
0.92
21.36
Reconciliation of GAAP and Adjusted (non-GAAP): net income, diluted earnings per share (EPS), return on average assets
(ROA) and return on average equity (ROE):
For the year ended December 31,
2017
2016
As reported—(GAAP)
Adjustments:
Restructuring costs
Acquisition costs
Amortization of non-compete
agreement
Measurement period fixed asset
adjustment
Income tax effect of adjustments
above
Deferred tax asset remeasurement
Net
Income
Diluted
EPS
ROA
ROE
Net
Income
Diluted
EPS
ROA
ROE
$20,539
$ 1.04
0.49%
4.64% $ 35,491
$ 2.00
0.92%
9.82%
8,020
—
0.40
—
0.19%
—
1.81%
—
—
(920)
—
(0.05)
—
(0.02%)
—
(0.25%)
—
—
—
—
—
—
—
—
1,459
0.08
0.04%
0.40%
(309)
(0.02)
(0.01%)
(0.09%)
(2,807)
7,572
(0.15)
0.39
(0.07%)
0.18%
(0.63%)
1.71%
(80)
—
(0.01)
—
—
—
(0.01%)
—
Adjusted results—(non-GAAP)
$33,324
$ 1.68
0.79%
7.53% $ 35,641
$ 2.00
0.93%
9.87%
The tables above provide a reconciliation of GAAP (as reported) and non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of historical or
future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly comparable measure
calculated and presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The Company’s management believes the presentation
of non-GAAP financial measures provide investors with a greater understanding of the Company’s operating results in addition to the results measured in accordance with GAAP.
While management uses these non-GAAP measures in its analysis of the Company’s performance, this information should not be viewed as a substitute for financial results
determined in accordance with GAAP or considered to be more important than financial results determined in accordance with GAAP.
Many Success Stories...
1910
The year was 1910. The U.S. Census was under-
way, a gallon of milk cost .32 cents and
Bridgehampton National Bank officially opened
its doors on February 19. Initial deposits totaled
$2,249.86. And, fifty people—local farmers and
merchants—agreed to buy 250 shares to provide
this new community bank capital of $25,000.
2008
Named a top 20 best performing bank by
Independent Banker, this was also the year that
Bridge Bancorp, Inc. was approved and began
trading on the NASDAQ Global Select Market
under the symbol BDGE. This was an import-
ant milestone in the development and future
growth of the Company. A team of 175 dedicated
bankers continued to build on past success.
1989
With consistently strong growth each year, share-
holders overwhelmingly approved the formation
of Bridge Bancorp, Inc. as a one bank holding
company for The Bridgehampton National
Bank. Total shareholders increased to 502, with
480,000 shares outstanding and a stated contin-
ued commitment to provide community-based
banking through excellence in service.
2010
Celebrating 100 Years Strong, Bridgehampton
National Bank’s 19 branches reflect the character
of the communities they serve in Suffolk County.
200 dedicated bankers focus on delivering
superior service and local decision-making.
Despite a turbulent economy, the mission and
strategy of the Company remains the same—to
be a true community bank delivering value to
all of its constituents.
Celebrating
AN ONGOING SUCCESS STORY
IT’S OUR 100th BIRTHDAY
2011
Our first acquisition, of Hamptons State Bank,
(HSB) was completed. An historic milestone, HSB
customers were successfully integrated onto the
BNB platform. This transaction introduced
new customers, increased visibility within the
community and added a group of new, talented
bankers to the team. A very successful equity
offering added to a year of positive results.
2015
A transformational year. BNB completed its
third acquisition, integrating the 11 branches of
Community National Bank (CNB) into its
branch network that now totaled 40. BNB
expanded its partnership model of community
banking in Nassau County, and added a branch
in Bayside, Queens and a branch in midtown
Manhattan.
2014
The tenets of the BNB business model remain
the same. With 29 branches and 348 bankers
and support staff, the market reach grows across
Long Island. The completed acquisition of First
National Bank of New York (FNBNY) launched
BNB into Nassau County and established a
lending office in New York City. The Bank had
reached $2.3 billion in assets.
2017
With a nod to its roots on the East End of
Long Island, and a look towards future growth,
Bridgehampton National Bank became BNB
Bank. This change from a national charter to a
New York chartered commercial bank brought
with it both regulatory and operational efficiency.
The long established BNB brand continues to
stand for community banking at its best.
One Bank.
A tradition
of growth,
partnership
and progress.
Bridge Bancorp, Inc. is a bank holding company engaged in commercial banking and financial
services through its wholly owned subsidiary, BNB Bank (“BNB”). Established in 1910, BNB, with
assets of approximately $4.4 billion, operates 38 retail branch locations serving Long Island and the
greater New York metropolitan area. In addition, the Bank operates a loan production office in
Manhattan. 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, named a 2017 Best Place to Work on Long Island, 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.
Bridge Bancorp, Inc. 2017 Annual Report • 1
Anne Shybunko-Moore,
GSE Dynamics
Kevin O’Connor,
BNB Bank
Fellow
Shareholders:
A Tradition of Growth, Partnership and Progress
Tradition is the bedrock of this institution, and each year I look forward to the
opportunity—if you will, the tradition—of communicating with you, our shareholders,
to bring you up to date on the results of your company.
$4.4
Billion
in assets at year end 2017.
A community bank is not defined by size, but by mission. I made this statement in 2010 on
Bridgehampton National Bank’s 100th anniversary, when BNB, while growing, was much
smaller than it is today. The success of BNB Bank in 2017 is based on the same mission, commitment
and dedication that began in 1910, at its founding by local business people, as a bank that understood and
partnered with its customers and its community. Loans were made with a handshake and a conversation.
Bankers knew the business people personally, recognized the challenges of doing business in a rural area,
and actively engaged with their customers to find financial solutions that worked for them.
In 2017, and for each of the last ten years, I have guided this institution using the same partnership model of
community banking. Our “community” has flourished, and today customers span more than 1,400 square miles,
across Long Island and into Queens and Manhattan. We represent diverse business segments from manufacturing
and technology to hospitality and education, and we apply sound, strategic technology to our business practices.
As the world becomes increasingly digital and some institutions replace high touch with high tech, there is an
increasing demand from customers for more contact and personalization. Dedicated BNB bankers frequently
communicate with the local businesses they represent. So, each customer has, in essence, a personal, private
BNB Banker, who has taken the time to understand them and their business, and can help guide them on their
financial path and through the ups and downs of the economy. I encourage customers and prospects to know
the name of their banker. At BNB, our core principle of partnership guides our goals of growth and progress in
our endeavors and with all our constituents.
Industry leader GSE Dynamics, a woman-owned small business, is a defense manufacturing
company and proven supplier of structural components. In 2012, it moved its Composites
Facility from Georgia back to New York. Owner and CEO, Anne Shybunko-Moore, partnered
with BNB Bank on a successful transition. A relationship based on trust and respect, President
and CEO Kevin O’Connor and the BNB banking team believed in Anne and her plans for
expansion. The facility, pictured here, is now an integral supplier of composite structures for
the U.S. military.
Bridge Bancorp, Inc. 2017 Annual Report • 3
tradition
CUSTOMER SINCE
2015
T. ANTHONY, LTD.
Michael Root
In a world of mass-produced products, T. Anthony handcrafts each piece of its luxury leather goods and
travelware collection, insisting on the highest standards of quality. President Michael Root believes that
straightforward American design, skilled artistry and superior materials have set them apart. The company,
established in 1946, is still family run. Its traditional practices and laser focus on producing a superior product
have stood the test of time.
When choosing his bank, Michael looked for a shared philosophy and commitment to excellence and service.
He values the exceptional personal attention and business knowledge he receives from his BNB banker, qualities
he could not find at large money center banks. And, he appreciates the BNB tradition of putting customers first.
4 • Bridge Bancorp, Inc. 2017 Annual Report
I challenge our banking team to learn more, be more acces-
sible and own the partnerships they have nurtured with their
customers. Our success and the achievements I report to you
each year are the outcome of this commitment, to deliver on our
promise of community banking going beyond expectations. Our
customer-centric focus differentiates our company, and contributes to its
steady success.
2017 was defined by achievement across all areas of the institution: financial,
management, culture, and community. Through the hard work of our branch staff
$3.1
Billion
in loans at year end 2017.
and lending team, we accomplished record revenues. Both our acquired and de-novo
branches experienced strong deposit growth, and our legacy East End markets also had
significant sustained growth. As our newer branches mature, we see great progress. Our newest
branches, Astoria in the west and Riverhead in the east, are each gaining traction, adding customers
and deposits. Soon Riverhead will be moving into a larger Main Street location with parking and a
drive-thru to better serve this market.
Operational efficiency was one of our themes in 2017 with two major initiatives: the finalization of our
charter conversion from a national bank to a New York chartered commercial bank, and identifying and
executing a branch rationalization strategy. Together, these strategies create a bank better prepared for 2018
and beyond.
In December, we received approval from the New York State Department of Financial Services to convert from
a national bank to a New York chartered commercial bank. This change, to a State Charter, had been under
consideration for some time. The primary impact is enhanced efficiency from a regulatory and operational
standpoint. It has been seamless to our customers, who experienced no disruption of service. The new name,
BNB Bank, is a nod to our roots on the East End, and a look towards our future growth. BNB has been part of
our brand identity since 1989.
Total Loans by Type
(at December 31, 2017)
42%
Commercial Mortgages
20%
Commercial Loans
19%
Multi-family Loans
Residential & Consumer Loans 14%
3%
Construction & Land Loans
2%
Equity Loans
Average Yield on Loans 4.57%
Bridge Bancorp, Inc. 2017 Annual Report • 5
Total Deposits by Type
(at December 31, 2017)
Demand Deposits
Money Markets
Savings & NOW
Certificates of Deposit
40%
35%
18%
7%
Average Cost of Deposits 0.37%
growth
CUSTOMER SINCE
1993
SUMMERHILL LANDSCAPES, INC.
Declan Blackmore
Declan Blackmore’s story is one of passion, persistence and growth. A horticultural graduate of Kidalton
College in Ireland, he came to the U.S. for an internship, and today owns and operates Summerhill Landscapes,
Inc. one of the most successful landscaping companies on the East End. Summerhill employs over 130 people
and serves 250 customers. It has a peerless reputation for building and maintaining beautiful, enduring gardens
that complement their surroundings.
This year, Summerhill celebrates 25 years in business, and BNB Bank has been part of its incredible growth
from the beginning. Declan was drawn to BNB because of its community connections and support of local
business. He stayed for the accessibility of management and the local decision making. Declan also appreciates
that, like Summerhill, BNB reinvests in its neighborhood, by supporting many non-profit organizations.
6 • Bridge Bancorp, Inc. 2017 Annual Report
Our second initiative was the decision to streamline the
branch network, eliminating market redundancy. Over the
last half of 2017, a project team worked tirelessly to ensure a
smooth transition, and in mid-February 2018 six branches were
closed: Center Moriches, Cutchogue, Hewlett, Massapequa, Melville
North and New Hyde Park. In all cases, another BNB branch was less than
five miles away. Customers were welcomed into their new home branches with
special outreach and customer appreciation. Although there are costs associated
with closing these branches, we expect long-term savings.
$3.3
Billion
in total deposits at
year end 2017 with 40% in
demand deposits.
Underlying our operational initiatives is a vigilant view of cyber security. I have great
confidence in the security team in place in our institution. They have been proactive, not
only in protecting customers’ private information with carefully selected systems and proce-
dures, but also educating them on how they can actively participate in their own security. To that
end, the Bank hosted a series of cyber security workshops held in multiple locations with a panel of
outside experts, including one at the Bloomberg headquarters in Manhattan. Over 300 customers
attended with materials made available to many more.
All of our accomplishments are a direct result of the ability and dedication of our workforce, that today numbers
nearly 500. Strategically, we continue to focus on attracting candidates with skill sets that complement our culture.
This year we invested in and implemented a new human resources system that has the capability to consolidate
data across all aspects of HR, tracking compensation, performance, recruiting, training and talent management.
42%
Commercial Mortgages
20%
Commercial Loans
A talent review process was applied organization-wide to identify and track rising stars, providing development
19%
Multi-family Loans
support where needed, and managing mobility and succession. Our HR team has actively promoted broader
Total Loans by Type
Residential & Consumer Loans 14%
BNB brand exposure at college fairs and by formally establishing a summer internship program. These activities
(at December 31, 2017)
3%
Construction & Land Loans
keep the pipeline full of experienced bankers and energetic new talent, both critical to delivering on our
2%
Equity Loans
commitment to be the top community bank in the markets we serve.
Average Yield on Loans 4.57%
Total Deposits by Type
(at December 31, 2017)
Demand Deposits
Money Markets
Savings & NOW
Certificates of Deposit
40%
35%
18%
7%
Average Cost of Deposits 0.37%
Bridge Bancorp, Inc. 2017 Annual Report • 7
partnership
CUSTOMER SINCE
2015
ADVENTURELAND
Steve and Paul Gentile
Adventureland, Long Island’s Amusement Park, has been creating family memories since 1962. Located in
Farmingdale, the park sits on 15 acres, features 30 rides and attractions and employs almost 600 local residents
when the season is in full swing. Family owned and operated, Adventureland’s Steve and Paul Gentile chose
BNB as the financier of their newest ride, TURBULENCE, which is Long Island’s largest and only spinning
roller coaster. BNB Bank was there to support their vision and legacy, as they launched the new ride. Steve and
Paul value the partnership and the clear understanding that BNB bankers have of this unique family business.
“They have created a friendship with us that makes us feel like part of the BNB family.”
8 • Bridge Bancorp, Inc. 2017 Annual Report
Partnership is a powerful part of the DNA of this institution.
Our growth and progress is attributable to the relationships
we have forged with our shareholders, our customers and the
community. We collaborate with and support dozens of non-profits.
From helping aspiring business owners, to creating affordable housing,
BNB helps catalyze the work of many organizations across Long Island and
New York City. Over 50 of our officers serve on the boards of organizations
working in the community. In 2017, through a new lending product for
480
Employees
non-profits, BNB worked with the CDC of Long Island and Suffolk County to
launch a program to help improve water quality by financing the replacement of old
septic tanks. With our support, nine schools in low to moderate income neighborhoods
gained access to a dynamic new online financial education program helping young people
learn about starting a small business and understand personal finance.
Total Assets
(at December 31, in millions)
I am so proud of all the achievements of this institution and our talented banking team. We have a
dedicated and passionate workforce, along with an experienced management team and board of directors.
We invest in what is best for our customers and we respond to the demand for new products and services
$4,430.0
delivered electronically. We are well positioned in economically attractive markets that continue to present
opportunities for community banking.
However, challenges are ever present. We experienced credit losses in 2017 resulting primarily from the charge-
off of loans and additional reserves associated with two specific relationships. While we consider these isolated
$5,000
$4,000
$3,000
$2,000
5000
4000
3000
2000
occurrences, we must be vigilant in our credit consideration and review. Our strong loan growth necessitates
equally assertive deposit growth to foster a healthy loan to deposit ratio, supporting our customers lending
1000
$1,000
demands. Interest rates present unique challenges as short-term rates are rising, while long-term rates remain low.
0
0
’13
’14
’15
’16
’17
Total Assets
(at December 31, in millions)
Net Income
(in millions)
$20.5
’13
’14
’15
’16
’17
Bridge Bancorp, Inc. 2017 Annual Report • 9
$40
$30
$20
$10
0
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
$4,430.0
’13
’14
’15
’16
’17
$5,000
40
$4,000
30
$3,000
20
$2,000
10
$1,000
0
0
$40
3500
$30
3000
2500
$20
2000
1500
$10
1000
0
500
0
$3,500
3500
$3,000
3000
$2,500
2500
$2,000
2000
$1,500
1500
$1,000
1000
$500
500
0
0
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
Net Income
(in millions)
$20.5
’13
’14
’15
’16
’17
Total Loans
(at December 31, in millions)
$3,102.8
’13
’14
’15
’16
’17
Total Loans
(at December 31, in millions)
Total Deposits
(at December 31, in millions)
$3,102.8
$3,334.5
’13
’14
’15
’16
’17
’13
’14
’15
’16
’17
Total Deposits
(at December 31, in millions)
$3,334.5
’13
’14
’15
’16
’17
5000
4000
3000
2000
1000
0
40
30
20
10
0
3500
3000
2500
2000
1500
1000
500
0
3500
3000
2500
2000
1500
1000
500
0
progress
CUSTOMER SINCE
2012
LOVE LANE KITCHEN, LLC.
Carolyn Iannone
Love Lane Kitchen is frequented and loved by locals and visitors alike. It has a reputation for charm, as well as
fresh, delicious, locally sourced food. Carolyn Iannone had managed Love Lane Kitchen since 2009, when the
opportunity to buy the business came up in 2012. It was a very organic move to become the owner, expanding
her passion and love for the work and her staff. Carolyn is devoted to the North Fork of Long Island and showcases
its bounty through seasonally changing menus, inviting customers to appreciate what the North Fork offers
through its farms, wineries, and breweries.
Carolyn credits her BNB bankers with her progress from manager to owner. They served as her mentors
providing sound advice especially during the first few months. As a result, she adopted efficient systems that
help her run Love Lane Kitchen today. “The banking team understands the challenges of a seasonal, small
business because they work and live here too.”
10 • Bridge Bancorp, Inc. 2017 Annual Report
Total Assets
(at December 31, in millions)
$4,430.0
’13
’14
’15
’16
’17
Total Assets
(at December 31, in millions)
Net Income
(in millions)
5000
4000
3000
2000
1000
0
40
$5,000
30
$4,000
20
$3,000
$4,430.0
The resulting flat yield curve impacts our ability to drive
profits. On a positive note, the new tax code has reduced our
$2,000
10
$5,000
$4,000
$3,000
$2,000
$1,000
0
$40
$30
$20
$10
tax rate from 35% to 21%, which has provided the opportunity
$1,000
to invest in our people by increasing the wages of our lowest
0
0
$20.5
’13
’14
’15
’16
’17
paid employees.
0
’16
The environment we operate in is fluid. We are developing a relationship with
’14
’13
’15
’17
a new set of regulators. As we continue to grow, we must consider how future
generations will conduct business and interact with their financial institutions.
I believe that this organization is poised and ready to address all of the issues and
challenges ahead. I am enthusiastic about the future and honored to work with a board
that is mindful of our legacy, yet committed to a vision for the future. Steve Jobs said, “The
Net Income
(in millions)
Total Loans
(at December 31, in millions)
only way to do great work is to love what you do.” I expect we will all be doing great work.
Thank you for this opportunity.
$40
Sincerely,
3500
3000
$30
2500
2000
$20
1500
$10
1000
Kevin M. O’Connor
500
President and Chief Executive Officer
0
0
’13
’14
’15
’16
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
$20.5
’17
$3,102.8
’13
’14
’15
’16
’17
Total Loans
(at December 31, in millions)
Total Deposits
(at December 31, in millions)
$3,334.5
$3,102.8
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
’13
’14
’15
’16
’17
’13
’14
’15
’16
’17
Bridge Bancorp, Inc. 2017 Annual Report • 11
$3,500
3500
$3,000
3000
$2,500
2500
$2,000
2000
$1,500
1500
$1,000
1000
$500
500
0
0
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
Total Deposits
(at December 31, in millions)
$3,334.5
’13
’14
’15
’16
’17
5000
4000
3000
2000
1000
0
40
30
20
10
0
3500
3000
2500
2000
1500
1000
500
0
3500
3000
2500
2000
1500
1000
500
0
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:95)(cid:3)(cid:3)(cid:3)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
Commission File No. 001-34096
BRIDGE BANCORP, INC.
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation or organization)
11-2934195
(IRS Employer Identification Number)
2200 MONTAUK HIGHWAY, BRIDGEHAMPTON, NEW YORK
(Address of principal executive offices)
11932
(Zip Code)
Registrant’s telephone number, including area code: (631) 537-1000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class
Common Stock, Par Value of $0.01 Per Share
Name of each exchange on which registered
The Nasdaq Stock Market, LLC
Securities registered pursuant to Section 12 (g) of the Act:
(Title of Class)
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:134)(cid:3)No (cid:95)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes (cid:134)(cid:3)No (cid:95)(cid:3)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:95)(cid:3)No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:95)(cid:3)No (cid:134)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:134)(cid:3)(cid:3)
Non-accelerated filer (cid:134)(cid:3)(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
Accelerated filer (cid:95)(cid:3)(cid:3)
(cid:3)Smaller reporting company
(cid:134)(cid:3)Emerging growth company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134)(cid:3)No (cid:95)
The approximate aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing price of
the Common Stock on June 30, 2017, was $621,775,535.
The number of shares of the Registrant’s common stock outstanding on February 28, 2018 was 19,780,705.
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 2018 Annual Meeting to be filed pursuant to Regulation 14A on or before April
30, 2018 (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
8
12
12
13
13
14
16
17
35
37
89
89
89
90
90
90
90
90
91
91
92
93
PART I
Item 1. Business
Bridge Bancorp, Inc. (the “Registrant” or “Company”), is a registered bank holding company for BNB Bank (the “Bank”), which was
formerly known as The Bridgehampton National Bank prior to the Bank’s conversion to a New York chartered commercial bank in
December 2017. 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 and the Trust was cancelled effective April 24,
2017.
The Bank was established in 1910 and is headquartered in Bridgehampton, New York. During 2017, the Bank conducted a branch
rationalization study analyzing branch performance and market opportunities. As a result of the study, and in an effort to increase
efficiency and remove branch redundancy, the Bank closed six locations in the first quarter of 2018. The branches closed in Suffolk
County, New York are located in Cutchogue, Center Moriches, and Melville, and the branches closed in Nassau County, New York
are located in Massapequa, New Hyde Park and Hewlett. The Bank now operates thirty-eight branches in its primary market areas of
Suffolk and Nassau Counties on Long Island and the New York City boroughs, including thirty-five in Suffolk and Nassau Counties,
two in 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 Bank is to grow through the provision of exceptional service to its customers, its employees, and the
community. The Bank 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.
As of December 31, 2017, the Bank had 480 full-time equivalent employees. 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, Queens and
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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 worldwide.
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 $17 billion across zip codes in which the Bank operates. As the Bank currently has $362 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. On December 22, 2017, the President
signed the Tax Cuts and Jobs Act (“Tax Act”), resulting in significant changes to existing tax law, including a lower federal statutory
tax rate of 21%. The Tax Act was generally effective as of January 1, 2018. In the fourth quarter of 2017, the Company recorded a
charge of $7.6 million, which consisted primarily of the deferred tax asset remeasurement from the previous 35% federal statutory rate
to the new 21% federal statutory tax rate.
DeNovo Branch Expansion
Since 2010, the Bank has opened fourteen new branches, of which four locations were opened over the last year, to continue
expansion into new markets and strengthen the Bank’s position in existing markets. 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. In 2017, the Bank opened three branches in
Suffolk County, New York: one in Riverhead, capitalizing on a new market opportunity presented by the sale of Suffolk County
National Bank to People’s United Bank in the second quarter, one in East Moriches, and a second satellite branch in Sag Harbor. The
Bank also opened a branch in Astoria, New York in 2017. This record of consistent branch openings demonstrates the Bank’s
commitment to traditional growth through branch expansion and moves 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. The transaction expanded the Company’s geographic footprint into
Nassau County, complemented the existing branch network and enhanced asset generation capabilities.
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.
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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.
REGULATION AND SUPERVISION
BNB Bank
The Bank is a New York chartered commercial bank and a member of the Federal Reserve System (a “member bank”). The lending,
investment, and other business operations of the Bank are governed by New York and federal laws 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 New York State Department of Financial Services (“NYSDFS”) and, as a member bank, 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”) and the FDIC has certain regulatory authority as deposit insurer. 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
The powers of a New York commercial bank are established by New York law and applicable federal law. New York commercial
banks have authority to originate and purchase any type of loan, including commercial, commercial real estate, residential mortgages
or consumer loans. Aggregate loans by a state commercial bank to any single borrower or group of related borrowers are generally
limited to 15% of the Bank’s capital and surplus, plus an additional 10% if secured by specified readily marketable collateral.
Federal and state law and regulations limit the Bank’s investment authority. Generally, a state member bank is prohibited from
investing in corporate equity securities for its own account other than the equity securities of companies through which the bank
conducts its business. Under federal and state regulations, a New York state member bank may invest in investment securities for its
own account up to specified limit depending upon the type of security. “Investment Securities” are generally defined as marketable
obligations that are investment grade and not predominantly speculative in nature. Applicable regulations classify investment
securities into five different types and, depending on its type, a state member bank may have the authority to deal in and underwrite
the security. New York-chartered state member banks may also purchase certain non-investment 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.
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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
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 maturing beginning in
2017 and continuing through 2019. For the quarter ended December 31, 2017, the annualized FICO assessment was equal to 0.54
basis points of average consolidated total assets less average tangible equity.
Capitalization
Federal regulations require FDIC insured depository institutions, including state member 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. The capital conservation buffer was 1.25% in calendar year
2017 and increased to 1.875% on January 1, 2018.
Safety and Soundness Standards
Each federal banking agency, including the FRB, 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
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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. In addition, the NYSDFS
issued guidance applicable to incentive compensation in October 2016.
Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to
institutions that do not meet minimum capital requirements. For these purposes, the statute establishes five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.
The FRB may order member banks which have insufficient capital to take corrective actions. For example, a bank, which is
categorized as “undercapitalized” would be subject to other growth limitations, 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. Member banks deemed by the FRB 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 New York member bank may generally declare a dividend, without prior regulatory
approval, 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 NYSDFS and FRB. In addition, a member bank may be
limited in paying cash dividends if it does not maintain the capital conservation buffer described previously.
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 FRB 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,
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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
collectability. An exception is made for extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely
available to employees of the bank and that does not give any preference to insiders of the bank over other employees of the bank.
Examinations and Assessments
The Bank is required to file periodic reports with and is subject to periodic examination by the NYSDFS and the FRB. Applicable
laws and regulations generally require periodic on-site examinations and annual audits by independent public accountants for all
insured institutions. The Bank is required to pay an annual assessment to the NYSDFS to fund its supervision.
Community Reinvestment Act
Under the federal Community Reinvestment Acts (“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 FRB 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 or mergers) proposals and may be the
basis for approving, denying or conditioning the approval of an application. As of the date of its most recent CRA examination, which
was conducted by the Office of the Comptroller of the Currency, the Bank’s regulator under its previous national bank charter, the
Bank’s CRA performance was rated “satisfactory”.
New York law imposes a similar obligation on the Bank to serve the credit needs of its community. New York law contains its own
CRA provisions, which are substantially similar to federal law.
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 applicable to 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 and the Trust was cancelled effective April 24, 2017. The Company met all capital adequacy requirements under the new capital
rules on December 31, 2017.
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
Page -6-
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.
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.
In addition, FRB guidance sets forth the supervisory expectation that bank
holding companies will inform and consult with FRB staff in advance of issuing a dividend that exceeds earnings for the quarter and
should inform the FRB and should eliminate, defer or significantly reduce dividends if (i) net income available to stockholders for the
past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (ii) prospective rate
of earnings retention is not consistent with the bank holding company’s capital needs and overall current and prospective financial
condition, or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy
ratios.
A bank holding company that is not well capitalized or well managed, as such terms are defined in the regulations, or that is subject to
any unresolved supervisory issues, is required to give the FRB prior written notice of any repurchase or redemption of its outstanding
equity securities if the gross consideration for repurchase or redemption, when combined with the net consideration paid for all such
repurchases or redemptions during the preceding 12 months, will be equal to 10% or more of the company’s consolidated net worth.
The FRB may disapprove such a repurchase or redemption if it determines that the proposal would constitute an unsafe and unsound
practice or violate a law or regulation. FRB guidance generally provides for bank holding company consultation with Federal Reserve
Bank staff prior to engaging in a repurchase or redemption of a bank holding company’s stock, even if a formal written notice is not
required.
The NYSDFS and FRB have extensive enforcement authority over the institutions and holding companies 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 for an institution; 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 applicable New York or federal laws and
regulations 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 2017, 2016, and 2015 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 18 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 $260.2 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.
Page -7-
OTHER INFORMATION
Through a link on the Investor Relations section of the Bank’s website of www.bnbbank.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
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 federal bank regulatory agencies (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 345% of total risk-based capital at December 31, 2017. Including
owner-occupied commercial real estate, the ratio of commercial real estate loans to total risk-based capital ratio would be 458% at
December 31, 2017.
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 NYSDFS or FRB 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.
Page -8-
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, 2017, the securities portfolio totaled $976.1 million.
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.
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 BNB 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 may be adversely affected by current economic and market conditions.
Although economic and real estate conditions improved in 2017, 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 Company operates in a highly regulated environment, Federal and state regulators periodically examine the Company’s
business, and it may be required to remediate adverse examination findings.
The FRB and the NYSDFS, periodically examine the Company’s business, including its compliance with laws and regulations. If, as a
result of an examination, a federal banking agency were to determine that the Company’s financial condition, capital resources, asset
quality, earnings prospects, management, liquidity or other aspects of any of its operations had become unsatisfactory, or that the
Company was in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate. These
actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting
from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in the Company’s
capital, to restrict the Company’s growth, to assess civil monetary penalties against the Company’s officers or directors, to remove
officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors,
to terminate the Bank’s deposit insurance and place it into receivership or conservatorship. If the Company becomes subject to any
regulatory actions, it could have a material adverse effect on the Company’s business, results of operations, financial condition and
growth prospects.
New and future rulemaking from the Consumer Financial Protection Bureau (“CFPB”) may have a material effect on the Company’s
operations and operating costs.
The CFPB has the authority to issue new consumer finance regulations and is authorized, individually or jointly with bank regulatory
agencies, to conduct investigations to determine whether any person is, or has, engaged in conduct that violates new and existing
consumer financial laws or regulations. However, because the Bank has less than $10 billion in total consolidated assets, the FRB and
NYSDFS, not the CFPB, are responsible for examining and supervising the Bank’s compliance with these consumer protection laws
and regulations. In addition, in accordance with a memorandum of understanding entered into between the CFPB and U.S. Department
of Justice, the two agencies have agreed to coordinate efforts related to enforcing the fair lending laws, which includes information
sharing and conducting joint investigations, and have done so on a number of occasions.
In addition, the CFPB has issued a final rule on arbitration that, among other things, prohibits class action waivers in certain consumer
financial services contracts. The rule, which became effective on September 18, 2017, applies to contracts entered into on or after
March 19, 2018 (and will not apply to prior contracts with class action waivers or arbitration agreements unless such accounts or debts
are sold after that date). This rule could increase the likelihood that the Bank becomes subject to class action litigation concerning
consumer banking products and services and could result in increased litigation costs.
Page -10-
The Bank is subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose
nondiscriminatory lending requirements on financial institutions. With respect to the Bank, the NYSDFS, FRB, the United States
Department of Justice and other federal and state agencies are responsible for enforcing these laws and regulations. A successful
regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety
of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on
mergers and acquisitions activity and restrictions on expansion. Private parties may also have the ability to challenge an institution’s
performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on the Bank’s
business, financial condition and results of operations.
The Bank faces a risk of noncompliance and enforcement action with the federal Bank Secrecy Act (the “BSA”) and other anti-money
laundering and counter terrorist financing statutes and regulations.
The BSA, the USA PATRIOT Act and other laws and regulations require financial institutions, among others, to institute and maintain
an effective anti-money laundering compliance program and to file reports such as suspicious activity reports and currency transaction
reports. The Bank’s products and services, including its debit card issuing business, are subject to an increasingly strict set of legal and
regulatory requirements intended to protect consumers and to help detect and prevent money laundering, terrorist financing and other
illicit activities. The Banks is required to comply with these and other anti-money laundering requirements. The federal banking
agencies and the U.S. Treasury Department’s Financial Crimes Enforcement Network are authorized to impose significant civil money
penalties for violations of those requirements and have recently engaged in coordinated enforcement efforts against banks and other
financial services providers with the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. The
Bank is also subject to increased scrutiny of compliance with the regulations administered and enforced by the U.S. Treasury
Department’s Office of Foreign Assets Control. If the Bank violates these laws and regulations, or its policies, procedures and systems
are deemed deficient, the Bank would be subject to liability, including fines and regulatory actions, which may include restrictions on
its ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of the Bank’s business
plan, including its acquisition plans.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious
reputational consequences for the Bank. Any of these results could have a material adverse effect on the Bank’s business, financial
condition, results of operations and growth prospects.
The short-term and long-term impact of the changing regulatory capital requirements and anticipated new capital rules are uncertain.
In July 2013, 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
Page -11-
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
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.
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 2017,
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 were 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.bnbbank.com.
As of December 31, 2017, the Bank owns seven properties in New York: 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. In 2011, the Bank purchased real estate in the Town of Southold, New York, 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-six additional properties as branch locations in New York: twenty-four in Suffolk County; nine in Nassau County; two in
Page -12-
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 one property as a loan production office 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 -13-
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
At December 31, 2017, the Company had approximately 1,000 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 2017
First
Second
Third
Fourth
By Quarter 2016
First
Second
Third
Fourth
Stock Prices
High
Low
Dividends
Declared
38.35
37.25
34.65
36.85
$
$
$
$
33.20
32.10
29.95
33.05
$
$
$
$
0.23—
0.23
0.23
0.23
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
$
$
$
$
$
$
$
$
Stockholders received cash dividends totaling $18.2 million in 2017 and $16.1 million in 2016. The ratio of dividends paid to net
income was 88.80% in 2017 compared to 45.48% in 2016.
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 the banking laws, the prior approval of
the FRB and the NYSDFS may be required in certain circumstances prior to the payment of dividends by the Company or the
Bank. A New York state member bank, such as BNB Bank, may generally declare a dividend, without approval from the NYSDFS or
the FRB, in an amount equal to its year-to-date net income plus the prior two years’ net income that is still available for dividends.
The NYSDFS and the FRB have the authority to prohibit a New York commercial 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 -14-
PERFORMANCE GRAPH
Pursuant to the regulations of the SEC, the graph below compares the performance of the Company with that of the total return for the
NASDAQ® stock market and for certain bank stocks of financial institutions with an asset size of $1 billion to $5 billion, as reported
by SNL Financial LC (“SNL”) from December 31, 2012 through December 31, 2017. The graph assumes the reinvestment of
dividends in additional shares of the same class of equity securities as those listed below.
Bridge Bancorp, Inc.
300
250
200
150
100
e
u
l
a
V
x
e
d
n
I
50
12/31/12
Index
Bridge Bancorp, Inc.
NASDAQ Composite
SNL Bank $1B-$5B
Total Return Performance
Bridge Bancorp, Inc.
NASDAQ Composite Index
SNL U.S. Bank $1B-$5B Index
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
Period Ending
12/31/12
100.00
100.00
100.00
12/31/13
131.75
140.12
145.41
12/31/14
140.72
160.78
152.04
12/31/15
165.68
171.97
170.20
12/31/16
213.04
187.22
244.85
12/31/17
202.10
242.71
261.04
ISSUER PURCHASES OF EQUITY SECURITIES
The following table sets forth information in connection with repurchases of shares of the Company’s common stock during the three months ended
December 31, 2017:
October 1, 2017 through October 31, 2017
November 1, 2017 through November 30, 2017
December 1, 2017 through December 31, 2017
Total
Total Number
of Shares
Purchased (1)
—
612
—
612
Average Price
Paid per Share
$ —
$ 33.30
$ —
$ 33.30
Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs
—
—
—
—
Maximum Number of
Shares That May Yet
Be Purchased Under
the Plans or
Programs
167,041
167,041
167,041
167,041
(1) Represents shares withheld by the Company to pay the taxes associated with the vesting of restricted stock awards.
Page -15-
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, 2017. The total number of shares purchased as part of the publicly
announced plan totaled 141,959 as of December 31, 2017. The maximum number of remaining shares that may be purchased under
the plan totals 167,041 as of December 31, 2017. 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, 2017.
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.
2017
759,916
35,349
180,866
3,102,752
4,430,002
3,334,543
429,200
2017
149,849
22,689
127,160
14,050
113,110
18,102
91,727
39,485
18,946
20,539
$
$
$
Selected Financial Data:
Securities available for sale, at fair value
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)(5)
Selected Financial Ratios and Other Data:
Return on average equity(1)(2)(3)(4)(5)
Return on average assets(1)(2)(3)(4)(5)
Average equity to average assets
Dividend payout ratio(6)
Basic earnings per share(1)(2)(3)(4)(5)
Diluted earnings per share(1)(2)(3)(4)(5)
Cash dividends declared per common share(6)
$
$
$
$
$
$
2016
819,722
34,743
223,237
2,600,440
4,054,570
2,926,009
407,987
$
December 31,
2015
800,203
24,788
208,351
2,410,774
3,781,959
2,843,625
341,128
$
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
$
$
Year Ended December 31,
2015
106,240
10,129
96,111
4,000
92,111
12,668
72,890
31,889
10,778
21,111
2016
137,716
16,845
120,871
5,550
115,321
16,046
77,081
54,286
18,795
35,491
$
$
4.64%
0.49%
10.53%
88.80%
1.04
1.04
0.92
$
$
$
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
$
$
$
2014
74,910 $
7,460
67,450
2,200
65,250
8,166
52,414
21,002
7,239
13,763 $
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
(1)
2017 amount includes $5.2 million, net of taxes, associated with restructuring costs and a charge of $7.6 million associated with the write-down of deferred
tax assets due to the enactment of the Tax Act.
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.
(2)
(3)
(4)
(5)
(6) The dividend payout ratio and cash dividends declared per common share for 2013 includes three declared quarterly dividends.
Page -16-
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, BNB 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 loss for the 2017 fourth quarter of $6.9 million, or $0.35 per diluted share. Inclusive of:
o Charge of $7.6 million, or $0.39 per share, from the remeasurement of net deferred tax assets related to the Tax Act.
o Charge of $5.2 million, after tax, or $0.26 per share, from restructuring costs.
Net income for the full year 2017 was $20.5 million, or $1.04 per diluted share, compared to $35.5 million, or $2.00 per
diluted share, for the full year 2016.
Net interest income increased to $127.2 million for 2017, compared to $120.9 million in 2016.
Net interest margin was 3.31% for 2017 and 3.45% for 2016.
Total assets of $4.4 billion at December 31, 2017, an increase of $375.4 million, or 9.3%, over December 31, 2016.
Page -17-
•
•
•
•
Total loans held for investment at December 31, 2017 totaled $3.1 billion, an increase of $502.3 million, or 19.3%, over
December 31, 2016.
Total deposits of $3.3 billion at December 31, 2017, an increase of $408.5 million, or 14.0%, over December 31, 2016.
Allowance for loan losses was 1.02% of loans as of December 31, 2017, compared to 1.00% at December 31, 2016.
A cash dividend of $0.23 per share was declared and paid in January 2018 for the fourth quarter.
Significant Recent Events
Charter Conversion and Branch Rationalization
In the fourth quarter 2017, the Company executed on two major initiatives: identifying and executing a branch rationalization strategy
and the finalization of the Bank’s charter conversion from a national bank to a New York chartered commercial bank effective
December 31, 2017. In connection with its charter conversion, the Bank obtained approval from the Federal Reserve Bank of New
York to remain a member bank of the Federal Reserve System. Following an assessment of the Company’s branch network to ensure
it is covering its markets efficiently, the Company identified six branches that it closed in the first quarter of 2018. As a result, the
Company recorded a restructuring charge of $8.0 million in the fourth quarter 2017, with $7.7 million attributable to existing lease
obligations, employee severance, and other related branch charges. The impact on pre-tax income for the year ended December 31,
2018, in the form of cost savings is expected to be $4.0 million, with an expected payback period of no more than 24 months.
Current Regulatory Environment
The Bank continues to operate in a highly regulated environment with many new regulations issued and remaining to be issued under
In 2013, the FDIC and the other federal bank regulatory agencies issued a final rule
the Dodd-Frank Act enacted on July 21, 2010.
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.
Challenges and Opportunities
In December 2017, the Federal Reserve decided to increase the target range for the federal funds rate to 1.25 to 1.50 percent. The
Federal Open Market Committee’s (“FOMC”) stance on monetary policy remains accommodative, thereby supporting strong labor
market conditions and a sustained 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. This assessment will take into account a wide range of information, including
measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and
international developments. The FOMC will carefully monitor actual and expected inflation developments relative to its symmetric
inflation goal. The FOMC stated its expectation that economic conditions will evolve in a manner that would warrant gradual
increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in
the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
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 fourteen branches, including one in
September 2017 in Astoria, New York, two in April 2017 in Riverhead and East Moriches, New York, and one in March 2017 in Sag
Harbor, New York. The Bank has also grown through acquisitions including the June 2015 acquisition of Community National Bank
(“CNB”), the February 2014 acquisition of First National Bank of New York (“FNBNY”), and the May 2011 acquisition of Hamptons
State Bank (“HSB”). Management will continue to seek opportunities to expand its reach into other contiguous markets by network
Page -18-
expansion, or through the addition of professionals with established customer relationships. Recent and pending acquisitions of local
competitors may also provide additional growth opportunities.
The Bank continues to face challenges associated with ever-increasing regulations and the current 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 term 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 include: leveraging the Bank’s 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, 2017 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.
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.
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 collectability 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,
Page -19-
or portions thereof, are deemed uncollectable. Assumptions and judgments by management, in conjunction with outside sources, are
used to determine whether full collectability 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, 2017 and 2016, management believes the allowance for loan losses has been established at levels
sufficient to cover the probable incurred losses in the Bank’s loan portfolio. Future additions or reductions to the allowance may be
necessary based on changes in economic, market or other conditions. Changes in estimates could result in a material change in the
allowance. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the allowance
for loan losses. Such agencies may require the Bank to recognize adjustments to the allowance based on their judgments of the
information available to them at the time of their examination.
For additional information regarding the allowance for loan losses, see Note 5 of the Notes to the Consolidated Financial Statements.
NET INCOME
Net income for the year ended December 31, 2017 totaled $20.5 million, or $1.04 per diluted share, compared to $35.5 million, or
$2.00 per diluted share, for the year ended December 31, 2016 and $21.1 million, or $1.43 per diluted share, for the year ended
December 31, 2015. Net income decreased $15.0 million, or 42.1%, in 2017 compared to 2016 and net income for 2016 increased
$14.4 million, or 68.1%, as compared to 2015. Changes in net income for the year ended December 31, 2017 compared to December
31, 2016 include: (i) a $6.3 million, or 5.2%, increase in net interest income; (ii) an $8.5 million increase in the provision for loan
losses; (iii) a $2.1 million, or 12.8%, increase in total non-interest income; and (iv) a $14.6 million, or 19.0%, increase in total non-
interest expense. The effective income tax rate was 48.0% for 2017 compared to 34.6% for 2016. 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. The effective income tax rate was 34.6% for 2016 compared to 33.8% for
2015.
Weighted average common and common equivalent shares outstanding were higher for the year ended December 31, 2017 versus
2016 due in part to the $50 million common stock offering in November 2016.
Page -20-
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 periods indicated and reflects the average yield on assets and average cost of liabilities for those periods
on a tax equivalent basis based on the U.S. federal statutory tax rate of 35%. The Tax Act lowered the U.S, federal statutory tax rate to
21% effective as of January 1, 2018. The Company expects its tax equivalent adjustment to interest income will decrease as a result of
the lower federal statutory tax rate in 2018. Such yields and costs are derived by dividing income or expense by the average balance of
assets or liabilities, respectively, for the periods 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 -21-
2017
Interest
Average
Yield/
Cost
2016
Interest
Average
Balance
Average
Balance
Average
Yield/
Cost
Average
Balance
2015
Interest
Average
Yield/
Cost
Year Ended December 31,
$ 2,774,422
$ 126,802
4.57% $ 2,494,750 $ 117,114
4.69% $ 1,876,934
$ 89,204
4.75%
2.07
2.75
3.15
—
1.13
3.93
681,899
13,484
219,049
83,677
—
29,054
5,612
2,689
—
147
3,508,429
139,046
1.98
2.56
3.21
—
0.51
3.96
562,553
197,363
73,796
8
18,614
11,173
4,574
2,590
—
47
2,729,268
107,588
1.99
2.32
3.51
—
0.25
3.94
62,676
278,455
$ 3,849,560
55,570
179,205
$ 2,964,043
(Dollars in thousands)
Interest earning assets:
Loans, net (1)(2)
Mortgage-backed, CMOs
and other asset-back
securities
Taxable securities
Tax exempt securities (2)
Federal funds sold
Deposits with banks
737,212
15,231
220,744
90,077
—
24,554
6,074
2,835
—
278
Total interest earning assets(2)
3,847,009
151,220
Non-interest earning assets:
Cash and due from banks
Other assets
Total assets
70,053
283,966
$ 4,201,028
Interest bearing liabilities:
Savings, NOW and money
market deposits
$ 1,717,529
$
7,858
0.46% $ 1,585,158 $
5,250
0.33% $ 1,289,678
$
4,002
0.31%
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
147,366
72,550
1,843
725
132,514
1,571
401,258
78,566
6,105
4,539
668
48
Total interest bearing liabilities
2,550,451
22,689
Non-interest bearing liabilities:
1.25
1.00
1.19
1.52
5.78
7.19
0.89
126,904
96,842
932
684
162,118
1,075
275,591
78,427
3,001
4,539
15,620
1,364
2,340,660
16,845
0.73
0.71
0.66
1.09
5.79
8.73
0.72
1,174,840
33,465
3,758,756
442,272
1,110,824
36,839
3,488,323
361,237
929
673
474
1,425
1,261
1,365
10,129
0.69
0.70
0.41
1.12
5.76
8.60
0.56
134,211
96,617
115,648
127,358
21,911
15,875
1,801,298
873,794
21,936
2,697,028
267,015
$ 4,201,028
$ 3,849,560
$ 2,964,043
128,531
3.04%
122,201
3.24%
97,459
3.38%
$ 1,296,558
3.34% $ 1,167,769
3.48% $
927,970
3.57%
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)
Tax equivalent adjustment
(1,371)
(0.03)%
(1,330)
(0.03)%
(1,348)
(0.05)%
Net interest income/net interest
margin (4)
Ratio of interest earning assets
to interest bearing liabilities
$ 127,160
3.31%
$ 120,871
3.45%
$ 96,111
3.52%
150.84%
149.89%
151.52%
(1)
(2)
(3)
(4)
Amounts are net of deferred origination costs/(fees) and the allowance for loan losses.
Presented on a tax equivalent basis based on the U.S. federal statutory tax rate of 35%.
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 -22-
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)
Interest income on interest earning assets:
Loans (1) (2)
Mortgage-backed, CMOs and other asset-backed
securities
Taxable securities
Tax exempt securities (2)
Deposits with banks
Total interest income on interest earning assets (2)
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 expenses on interest bearing liabilities
Net interest income (2)
Year Ended December 31,
2017 Over 2016
Changes Due To
2016 Over 2015
Changes Due To
Volume
Rate
Net
Change
Volume
Rate
Net
Change
$ 12,754
$ (3,066)
$
9,688
$ 29,048
$(1,138)
$
27,910
1,137
43
200
(26)
14,108
610
419
(54)
157
(1,934)
463
168
(198)
(225)
1,662
9
(1,111)
768
$ 13,340
2,145
743
239
721
1,442
(9)
(205)
5,076
$ (7,010)
$
1,747
462
146
131
12,174
2,608
911
41
496
3,104
—
(1,316)
5,844
6,330
2,367
535
331
35
32,316
(56)
503
(232)
65
(858)
974
(51)
2
239
1,615
3,271
(22)
6,028
$ 26,288
274
54
9
362
(39)
7
21
688
$(1,546)
$
2,311
1,038
99
100
31,458
1,248
3
11
601
1,576
3,278
(1)
6,716
24,742
(1) Amounts are net of deferred origination costs/(fees) and the allowance for loan losses.
(2) Presented on a tax equivalent basis based on the U.S. federal statutory tax rate of 35%.
Net interest income was $127.2 million for the year ended December 31, 2017 compared to $120.9 million in 2016 and $96.1 million
in 2015. The increase in net interest income was $6.3 million, or 5.2%, as compared to 2016 and $24.8 million, or 25.8%, in 2016 as
compared to 2015. Average net interest earning assets increased $128.8 million to $1.3 billion for the full year 2017 compared to $1.2
billion for the full year 2016, and increased $239.8 million to $1.2 billion for the full year 2016 compared to $928.0 million for the full
year 2015. The increases in average net interest earning assets reflect organic growth in loans and an increase in securities, partially
offset by increases in average deposits and average borrowings. The net interest margin decreased to 3.31% in 2017 compared to
3.45% in 2016 and 3.52% in 2015. The decrease in the net interest margin for 2017 compared to 2016 reflects the higher overall
funding costs due in part to the Fed Funds rate increases in December 2016, March 2017, June 2017, and December 2017, partially
offset by the decrease in costs associated with the junior subordinated debentures, which were redeemed in January 2017. 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.
Interest income increased $12.1 million, or 8.8%, to $149.8 million in 2017 from $137.7 million in 2016 as average interest earning
assets increased $338.6 million, or 9.7%, to $3.8 billion in 2017 compared to $3.5 billion in 2016. Interest income increased $31.5
million, or 29.6%, to $137.7 million in 2016 from $106.2 million in 2015, due to an increase of $779.2 million in average interest
earning assets to $3.5 billion for 2016 from $2.7 billion in 2015. The tax adjusted average yield on interest earning assets was 3.93%
for the full year 2017, 3.96% in 2016 and 3.94% in 2015.
Page -23-
Interest income on loans increased $9.7 million to $126.4 million in 2017 over 2016, and $27.9 million to $116.7 million in 2016 over
2015, primarily due to growth in the loan portfolio, partially offset by a decrease in the average yield on loans. For the year ended
December 31, 2017, average loans grew by $279.7 million, or 11.2%, to $2.8 billion as compared to $2.5 billion in 2016, and
increased $617.8 million, or 32.9%, in 2016 as compared to $1.9 billion in 2015. The increases in average loans were the result of the
organic growth in commercial real estate mortgage loans, multi-family mortgage loans, commercial and industrial loans, and
residential mortgage loans, as well as the acquisition of CNB. The Bank remains committed to growing loans with prudent
underwriting, sensible pricing and limited credit and extension risk.
Interest income on securities increased $2.3 million, or 11.1%, in 2017 to $23.1 million from $20.8 million in 2016, and increased
$3.4 million, or 19.6%, in 2016 from $17.4 million in 2015. Interest income on securities included net amortization of premiums on
securities of $6.4 million in 2017, compared to $6.5 million in 2016 and $4.9 million in 2015. For the year ended December 31, 2017,
average total securities increased by $63.4 million, or 6.4%, to $1.0 billion as compared to $984.6 million in 2016, and increased
$150.9 million in 2016 compared to $833.7 million in 2015.
Total interest expense increased to $22.7 million in 2017, as compared to $16.8 million in 2016 and $10.1 million in 2015. The
increase in interest expense in 2017 is a result of the increase in the cost of average interest bearing liabilities coupled with an increase
in average interest bearing liabilities. The cost of average interest bearing liabilities was 0.89% in 2017, 0.72% in 2016, and 0.56% in
2015. The increase in the cost of average interest bearing liabilities is primarily due to higher overall funding costs, due in part to the
Fed Funds rate increases in December 2016, March 2017, June 2017 and December 2017, partially offset by the decrease in costs
associated with the junior subordinated debentures, which were redeemed in January 2017. 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. The Company began extending the terms of certain matured borrowings at the end
of the 2017 first quarter in anticipation of further Fed Funds rate increases. 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. Average total interest bearing liabilities were $2.6 billion in 2017, compared to $2.3 billion in 2016
and $1.8 billion in 2015. The increases in average interest bearing liabilities in 2017 were primarily due to increases in both average
borrowings and average deposits. The Bank grew average interest bearing liabilities in 2016 and 2015 as a result of the acquisition of
CNB deposits in June 2015.
For the year ended December 31, 2017, average total deposits increased by $192.6 million, or 6.6%, to $3.1 billion, as compared to
$2.9 billion in 2016, and increased by $525.4 million, or 21.9%, in 2016 as compared to $2.4 billion in 2015. The increase in average
total deposits reflects higher average balances in savings, NOW and money market accounts of $132.4 million, or 8.4%, in 2017 as
compared to 2016, and an increase of $295.5 million, or 22.9%, in 2016 as compared to 2015. Average demand deposits increased
$64.0 million, or 5.8%, in 2017 as compared to 2016, and increased $237.0 million, or 27.1%, in 2016 as compared to 2015. The
Bank’s deposit growth in 2016 over 2015 includes the acquisition of CNB, which closed in June 2015, adding eleven additional
branches to the existing branch network. The cost of average savings, NOW and money market accounts was 0.46% for the year
ended December 31, 2017, compared to 0.33% in 2016 and 0.31% in 2015. Average public fund deposits comprised 16.0% of total
average deposits during 2017, as compared to 17.1% in 2016 and 14.7% in 2015.
Average federal funds purchased and repurchase agreements decreased $29.6 million, or 18.3%, to $132.5 million for the year ended
December 31, 2017 compared to $162.1 million for 2016, and increased $46.5 million, or 40.2%, in 2016 compared to $115.6 million
in 2015. Average FHLB advances increased $125.7 million, or 45.6%, to $401.3 million for the year ended December 31, 2017
compared to $275.6 million for 2016, and increased $148.2 million in 2016 compared to $127.4 million in 2015. Average
subordinated debentures increased $139 thousand, or 0.2%, to $78.6 million for the year ended December 31, 2017, compared to
$78.4 million for 2016, and increased $56.5 million, or 257.9%, compared to $21.9 million in 2015. The junior subordinated
debentures were redeemed in January 2017.
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 Federal Reserve Board, 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 $14.1 million was recorded in 2017, as compared to $5.6 million
in 2016 and $4.0 million in 2015. Net charge-offs were $8.2 million for the year ended December 31, 2017, as compared to $0.4
million for the year ended December 31, 2016 and $0.9 million for the year ended December 31, 2015. The increase in charge-offs in
2017 resulted primarily from the charge-off of loans and specific reserves associated with two specific relationships. The Company
Page -24-
considers the losses incurred as isolated and not indicative of any negative trends within either the borrowers’ industries or the
Company’s overall credit profile. The ratio of allowance for loan losses to nonaccrual loans was 456%, 2,087% and 1,537%, at
December 31, 2017, 2016, and 2015, respectively. The allowance for loan losses increased to $31.7 million at December 31, 2017 as
compared to $25.9 million at December 31, 2016 and $20.7 million at December 31, 2015. The allowance as a percentage of total
loans was 1.02%, 1.00% and 0.86% at December 31, 2017, 2016 and 2015, respectively. The increases in the allowance for loan
losses and the provision for loan losses reflect loan growth in all portfolios and an increase in charge-offs and specific reserves,
coupled with an increase in substandard loans. 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 $85.3 million or 2.8%, of total loans at December 31, 2017 were categorized as classified loans compared to
$84.3 million, or 3.2%, at December 31, 2016 and $26.9 million, or 1.1%, at December 31, 2015. 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, 2017, $34.0 million of these classified loans were commercial real estate (“CRE”) loans. Of the $34.0 million of
CRE loans, $30.2 million were current and $3.8 million were past due. At December 31, 2017, $6.6 million of classified loans were
residential real estate loans with $5.9 million current and $0.7 million past due. Commercial, industrial, and agricultural loans
represented $44.4 million of classified loans, with $40.0 million current and $4.4 million past due. Taxi medallion loans represented
$24.6 million of the classified commercial, industrial and agricultural loans at December 31, 2017. 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 and
certain loans have been further downgraded to substandard during 2017. All of the Bank’s taxi medallion loans are collateralized by
New York City – Manhattan medallions and have personal guarantees. All taxi medallion loans were current as of December 31, 2017
except one, which was nonaccrual. No new originations of taxi medallion loans are currently planned, and management expects these
balances to decline through amortization and pay-offs. At December 31, 2017, there were $0.3 million of classified real estate
construction and land loans, all of which are current.
CRE loans, including multi-family loans, represented $1.9 billion, or 61.0%, of the total loan portfolio at December 31, 2017
compared to $1.5 billion, or 59.2%, at December 31, 2016 and $1.4 billion, or 56.1%, at December 31, 2015. 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, 2017 and 2016, the Company had individually impaired loans as defined by FASB ASC No. 310, “Receivables”
of $22.5 million and $3.4 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 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 on 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. The increase in impaired loans from December 31, 2016 is the result of the modification of certain
CRE mortgage loans to one borrower totaling $7.8 million and certain taxi medallion loans as TDRs totaling $6.8 million, coupled
with an increase in nonaccrual loans. The TDR loans are current and classified as performing TDRs at December 31, 2017.
Nonaccrual loans increased $5.8 million to $7.0 million, or 0.22%, of total loans at December 31, 2017 from $1.2 million, or 0.05%,
of total loans at December 31, 2016. The increase was primarily due to a $2.1 million CRE loan and $3.5 million in commercial,
industrial and agricultural loans to two borrowers, which became nonaccrual during the quarter ended December 31, 2017. TDRs
represent $5 thousand of the nonaccrual loans at December 31, 2017 and $0.3 million at December 31, 2016.
Page -25-
The following table sets forth changes in the allowance for loan losses:
(Dollars in thousands)
Beginning balance
Charge-offs:
Commercial real estate 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
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,
2017
2016
2015
2014
2013
$
25,904
$
20,744 $
17,637 $
16,001 $
14,439
—
—
(8,245)
—
(49)
(8,294)
—
28
16
—
3
47
(8,247)
14,050
31,707
$
—
(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)
—
170
87
—
3
260
(564)
2,200
17,637 $
—
(420)
(420)
(23)
(53)
(916)
—
34
87
2
5
128
(788)
2,350
16,001
(0.30%)
(0.02%)
(0.04%)
(0.04%)
(0.09%)
The following table sets forth the allocation of the total allowance for loan losses by loan classification:
2017
Percentage
of Loans
to Total
Loans
2016
Percentage
of Loans
to Total
Loans
Amount
Amount
December 31,
2015
Percentage
of Loans
to Total
Loans
Amount
2014
2013
Percentage
of Loans
to Total
Loans
Amount
Percentage
of Loans
to Total
Loans
Amount
$
11,048
41.7% $
9,225
42.0% $ 7,850
43.8% $
6,994
44.5% $
6,279
47.9%
4,521
2,438
12,838
740
122
31,707
19.2
15.0
19.9
6,264
1,495
7,837
20.0
14.1
20.2
4,208
2,115
5,405
14.6
16.3
20.8
2,670
2,208
4,526
16.4
11.7
21.8
1,597
2,712
4,006
3.5
0.7
955
128
100.0% $ 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
10.6
15.2
20.7
4.7
0.9
100.0%
(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
Installment/consumer loans.
Total
$
Non-Interest Income
Total non-interest income increased by $2.1 million, or 12.8%, to $18.1 million in 2017 compared to $16.0 million in 2016 and
increased by $3.3 million, or 26.7%, in 2016 as compared to $12.7 million in 2015. The increase in total non-interest income in 2017
compared to 2016 was primarily due to increases in service charges and other fees, gain on sale of SBA loans, title fee income, other
operating income, BOLI income, partially offset by a decrease in net securities gains. The increase in total non-interest income in
2016 compared to 2015 was primarily due to higher service charges and other fees, BOLI income, gain on sale of SBA loans, net
securities gains, and other operating income.
Service charges and other fees for the year ended December 31, 2017 increased $0.6 million, or 7.0%, to $9.0 million compared to
$8.4 million for the year ended December 31, 2016, and increased $1.3 million, or 19.2%, in 2016 compared to $7.1 million in 2015.
Net securities gains of $38 thousand were recognized in 2017, compared to $0.4 million in 2016 and net securities losses of $8
thousand in 2015. The net 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. Bridge Abstract, the Bank’s title insurance subsidiary,
generated title fee income of $2.4 million in 2017, $1.8 million in 2016, and $1.9 million in 2015. Gain on sale of SBA loans
increased $0.6 million, or 54.0%, to $1.7 million in 2017 compared to $1.1 million in 2016, and increased $0.6 million, or 116.4%, in
2016 compared to $0.5 million in 2015. BOLI income increased $0.4 million, or 16.6%, to $2.3 million in 2017 compared to $1.9
million in 2016, and increased $0.7 million, or 57.5%, in 2016 compared to $1.2 million in 2015.
Page -26-
Other operating income increased $0.4 million to $2.7 million in 2017 compared to $2.3 million in 2016, primarily due to an increase
in loan swap fee income of $0.9 million, and increased $0.3 million in 2016 compared to $2.0 million in 2015, primarily due to a $0.9
million increase in miscellaneous income primarily related to a net recovery associated with certain identified FNBNY acquired
problem loans recorded in 2016.
Non-Interest Expense
Total non-interest expense increased $14.6 million, or 19.0%, to $91.7 million in 2017 compared to $77.1 million in 2016, and
increased $4.2 million, or 5.7%, in 2016 from $72.9 million in 2015. The increase in 2017 is primarily due to restructuring costs
related to branch restructuring and charter conversion, and higher salaries and employee benefits, occupancy and equipment,
technology and communications, marketing and advertising, and other operating expenses, partially offset lower amortization of other
intangible assets, professional services and FDIC assessments. 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.
Salaries and employee benefits increased $4.9 million, or 11.9%, to $45.8 million in 2017 compared to $40.9 million in 2016, and
increased $7.0 million, or 20.8%, in 2016 from $33.9 million in 2015. The increase in salaries and employee benefits in 2017 is
primarily due to additional staff related to new branches, business development, and risk management. The increase in salaries and
employee benefits in 2016 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 $1.2 million, or 9.4%, to $14.0 million in 2017
compared to $12.8 million in 2016, and increased $1.8 million, or 15.9%, in 2016 from $11.0 million in 2015. Technology and
communications increased $0.8 million, or 17.5%, to $5.7 million in 2017 compared to $4.9 million in 2016, and increased $1.3
million, or 36.1%, in 2016 from $3.6 million in 2015. Marketing and advertising increased $0.7 million, or 17.1%, to $4.7 million in
2017 from $4.0 million in 2016, and increased $0.9 million, or 29.5%, in 2016 from $3.1 million in 2015. Higher occupancy and
equipment, technology and communications, and marketing and advertising expenses in 2016 were primarily related to the higher
operating costs associated with the acquired CNB operations and facilities, investments in technology and additional marketing costs.
Professional services decreased $0.5 million, or 13.5%, to $3.1 million in 2017 from $3.6 million in 2016, and increased $1.3 million,
or 56.7%, in 2016 from $2.3 million in 2015. FDIC assessments were $1.3 million in 2017, and $1.6 million in 2016 and 2015. The
Company recorded amortization of other intangible assets of $1.0 million in 2017, $2.6 million in 2016, and $1.4 million in 2015
primarily related to the CNB and FNBNY acquisitions. Other operating expenses totaled $7.9 million in 2017, $7.4 million in 2016
and $6.1 million in 2015.
Income Tax Expense
Income tax expense increased $0.1 million, or 0.8%, to $18.9 million in 2017 compared to $18.8 million in 2016, and increased $8.0
million, or 74.4%, in 2016 from $10.8 million in 2015. The effective tax rate was 48.0% in 2017, 34.6% in 2016 and 33.8% in 2015.
Income tax expense in 2017 included a $7.6 million charge to write-down the Company’s deferred tax assets due to the enactment of
the Tax Act in the fourth quarter 2017. The increase in income tax expense in 2016 compared to 2015 reflects higher income before
income taxes. The lower effective tax rate in 2015 compared to 2016 relates primarily to the tax benefit associated with the change in
New York City tax law recognized in 2015. The Company estimates it will record income tax at an effective tax rate of approximately
23% in 2018.
FINANCIAL CONDITION
The Company’s total assets increased $375.4 million, or 9.3%, to $4.4 billion at December 31, 2017 compared to December 31, 2016,
with loan growth funded primarily by deposits. Net loans increased $496.5 million, or 19.3%, to $3.1 billion compared to December
31, 2016. The ability to grow the loan portfolio, while minimizing interest rate risk sensitivity and maintaining credit quality, remains
a strong focus of management. Total securities decreased $101.6 million to $976.1 million at December 31, 2017 compared to
December 31, 2016. Cash and cash equivalents decreased $19.1 million to $94.7 million at December 31, 2017 compared to
December 31, 2016. Total deposits grew $408.5 million, or 14.0%, to $3.3 billion at December 31, 2017 compared to $2.9 billion at
December 2016. Demand deposits increased $187.4 million to $1.3 billion as of December 31, 2017 compared to $1.2 billion at
December 31, 2016. Savings, NOW and money market deposits increased $205.5 million to $1.8 billion at December 31, 2017 from
$1.6 billion at December 31, 2016. Certificates of deposit of $100,000 or more increased $32.4 million to $158.6 million at December
31, 2017 from $126.2 million at December 31, 2016. Other time deposits decreased $16.7 million to $63.8 million as of December 31,
2017 from $80.5 million as of December 31, 2016. Federal funds purchased at December 31, 2017 decreased $50.0 million, or 50.0%,
to $50.0 million compared to $100.0 million at December 31, 2016. FHLB advances increased $4.7 million, or 0.9%, to $501.4
million at December 31, 2017 compared to $496.7 million at December 31, 2016. Repurchase agreements increased $0.2 million to
$0.9 million at December 31, 2017 compared to $0.7 million at December 31, 2016. Junior subordinated debentures decreased $15.2
million for the year ended December 31, 2017 due to the redemption in January 2017.
Page -27-
Total stockholders’ equity increased $21.2 million, or 5.2%, to $429.2 million at December 31, 2017 compared to $408.0 million at
December 31, 2016. The increase in 2017 is primarily due to net income of $20.5 million, the issuance of common stock related to the
trust preferred securities conversions of $14.9 million, and share based compensation of $2.6 million, partially offset by $18.2 million
in dividends.
Loans
During 2017, the Company continued to experience growth in all loan portfolios. 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 79.4% of the Bank’s loan portfolio at December 31, 2017 is secured by real estate.
Commercial real estate loans represent 41.7% of the Bank’s loan portfolio. Multi-family mortgage loans represent 19.2% of the
Bank’s loan portfolio. Residential real estate mortgage loans represent 15.0% of the Bank’s loan portfolio and include home equity
lines of credit representing 2.1% and residential mortgages representing 12.9% of the Bank’s loan portfolio. Real estate construction
and land loans represent 3.5% 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
$56.1 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 20.6% of the Bank’s loan
portfolio. The commercial loans are made to businesses and include term loans, lines of credit, senior secured loans to corporations,
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
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 $502.3 million, or 19.3%, to $3.1 billion at December 31, 2017 compared to $2.6 billion at December 31, 2016 with
commercial real mortgage loans being the largest contributor of the growth. Commercial real estate mortgage loans increased $202.2
million, or 18.5%, during 2017. Residential real estate mortgage loans increased $99.4 million, or 27.2%, and multi-family mortgage
Page -28-
loans grew $77.1 million, or 14.9%, during 2017. Commercial, industrial and agricultural loans increased $91.6 million, or 17.5%, in
2017. Real estate construction and land loans increased $27.2 million, or 33.7%, and installment/consumer loans increased $4.7
million in 2017. Fixed rate loans represented 24.3% and 23.0% of total loans at December 31, 2017 and 2016, respectively.
The following table sets forth the major classifications of loans at the dates indicated:
(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
2017
2016
December 31,
2015
$ 1,293,906 $ 1,091,752 $1,053,399
350,793
392,815
501,766
91,153
17,596
2,407,522
3,252
2,410,774
(20,744)
$ 3,071,045 $ 2,574,536 $2,390,030
595,280
464,264
616,003
107,759
21,041
3,098,253
4,499
3,102,752
(31,707)
518,146
364,884
524,450
80,605
16,368
2,596,205
4,235
2,600,440
(25,904)
2014
$ 595,397
218,985
156,156
291,743
63,556
10,124
1,335,961
2,366
1,338,327
(17,637)
$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
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, 2017:
(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
235,405
44,933
280,338
$
After One
But Within
Five Years
175,457
$
45,378
220,835
$
After
Five Years
$ 224,042
17,644
$ 241,686
Total
$ 634,904
107,955
$ 742,859
$
$
20,633
259,705
280,338
$
$
118,909
101,926
220,835
$
64,484
177,202
$ 241,686
$ 204,026
538,833
$ 742,859
(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 -29-
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
$
$
$
$
2017
2016
December 31,
2015
1,834 $
6,950
5
16,727
—
25,516 $
1,027 $
909
332
2,417
—
4,685 $
964 $
850
60
1,681
250
3,805 $
2014
2013
144 $
713
490
5,031
—
1
1,856
1,965
5,184
2,242
6,378 $ 11,248
2017
Year Ended December 31,
2015
2016
2014
2013
110 $
—
282 $
619
—
17 $
1
1 $
123
—
6 $
1
1 $
109
—
33 $
84
4 $
214
—
66
60
94
282
—
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
Restructured loans - performing:
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Total
Total impaired loans
Securities
2017
2016
December 31,
2015
2014
2013
$
2,305 $
100
4,124
6,529
185 $
719
—
904
238 $
612
—
850
295 $
315
75
685
—
—
—
—
—
65
—
65
—
60
—
60
300
69
118
487
8,857
—
7,106
15,963
1,354
—
1,030
2,384
1,391
—
290
1,681
4,541
—
489
5,030
$
22,492 $
3,353 $
2,591 $
6,202 $
8,858
352
1,436
—
1,788
617
618
720
1,955
3,743
4,260
329
526
5,115
Total non-performing impaired loans
6,529
969
910
1,172
Securities totaled $976.1 million at December 31, 2017 compared to $1.1 billion at December 31, 2016, including restricted securities
totaling $35.3 million at December 31, 2017 and $34.7 million at December 31, 2016. The available for sale portfolio decreased $59.8
million to $759.9 million from $819.7 million at December 31, 2016. 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 2017, the Company sold $52.4
million of securities compared to $264.4 million in 2016. The decrease in securities available for sale is primarily the result of a $60.1
million decrease in residential collateralized mortgage obligations, a $29.1 million decrease in state and municipal obligations, and a
$6.5 million decrease in commercial collateralized mortgage obligations, partially offset by a $28.9 million increase in residential
mortgage-backed securities, and a $13.4 million increase in corporate bonds. Securities held to maturity decreased $42.3 million to
$180.9 million at December 31, 2017 compared to $223.2 million at December 31, 2016. The decrease in securities held to maturity is
Page -30-
primarily the result of an $11.0 million decrease in Corporate bonds, a $10.2 million decrease in commercial collateralized mortgage
obligations, a $7.4 million decrease in residential collateralized mortgage obligations, a $5.9 million decrease in state and municipal
obligations, and a $5.8 million decrease in commercial mortgage-backed securities. Fixed rate securities represented 87.5% of total
available for sale and held to maturity securities at December 31, 2017 compared to 93.9% at December 31, 2016.
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, 2017. 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 based on the U.S. federal statutory tax rate of 35%.
Within
One Year
After One But
Within Five Years
December 31, 2017
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
$
— $
— —% $ 37,271 $
37,994 1.73% $ 19,543 $
20,000
2.29% $
— $
— —% $
56,814 $
57,994
9,588
9,600 1.75
45,196
45,683 1.94
31,809
31,884
2.85
429
415
4.03
87,022
87,582
—
— —
— —
—
—
—
— —
—
—
— —
25,203
25,482
1.91
161,698
164,223
2.10
186,901
189,705
— —
5,468
5,543
2.04
301,922
308,847
2.00
307,390
314,390
— —
5,979
6,017 2.31
—
—
— —
—
— —
5,979
6,017
— —
48,716
49,965
2.31
48,716
49,965
—
—
—
— —
— —
— —
— —
— —
9,600 1.75% $ 88,446 $
46,000
89,694 1.88% $ 125,716 $ 128,909
—
43,693
— —
3.09
2.63% $ 536,166 $ 547,700
23,401
—
24,250
1.33
— —
24,250
23,401
46,000
43,693
2.03% $ 759,916 $ 775,903
obligations
$
3,766 $
3,774 1.71% $ 17,610 $
17,430 3.31% $ 38,599 $
37,882 4.17% $
1,695 $
1,676
4.16% $
61,670 $
60,762
(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 $
—
—
9,588 $
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
Total held to maturity
Total securities
—
—
—
3,766
$ 13,354 $
—
— —
— —
—
—
— —
5,011
5,103
1.74
6,152
6,321
1.91
11,163
11,424
— —
6,769
6,795
2.00
47,059
47,455
2.56
53,828
54,250
— —
9,373
9,311 2.59
4,916
5,022
2.26
8,303
8,620
3.00
22,592
22,953
— —
3,774 1.71
54,802
13,374 1.74% $ 119,280 $ 120,465 2.13% $ 181,011 $ 183,711
4,030 1.68
30,771 2.88
—
55,295
3,851
30,834
27,447
26,781
— —
3.50
91,519
89,990
2.89% $ 626,156 $ 639,219
31,477
30,632
2.68
2.62
180,866
179,885
2.11% $ 939,801 $ 956,769
Page -31-
Deposits and Borrowings
Borrowings, including federal funds purchased, FHLB advances, repurchase agreements, subordinated debentures and junior
subordinated debentures, decreased $60.2 million to $630.9 million at December 31, 2017 from $691.1 million at December 31, 2016.
Total deposits increased $408.5 million to $3.3 billion at December 31, 2017 compared to $2.9 billion at December 31, 2016.
Individual, partnership and corporate (“core deposits”) account balances increased $384.1 million and public funds deposits increased
$24.4 million. The growth in deposits is attributable to increases in savings, NOW and money market deposits of $205.5 million, or
13.1%, to $1.8 billion at December 31, 2017, an increase in demand deposits of $187.4 million, or 16.3%, to $1.3 billion at December
31, 2017, and an increase in certificates of deposit of $15.6 million, or 7.0%, to $222.4 million at December 31, 2017. Certificates of
deposit of $100,000 or more increased $32.4 million, or 25.7%, from December 31, 2016 and other time deposits decreased $16.8
million, or 20.8%, as compared to December 31, 2016.
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2017:
(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
10,344
16,068
15,533
14,361
5,438
1,128
908
—
63,780
$
$
$100,000 or
Greater
$
$
25,976
24,944
32,713
23,504
6,283
41,775
2,656
733
158,584
Total
36,320
41,012
48,246
37,865
11,721
42,903
3,564
733
222,364
$
$
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 $7.9 million as of December 31, 2017, 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 2017, the Bank did not pay 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
for that year combined with its retained net income of the preceding two years. As of January 1, 2018, the Bank had $48.2 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 did not make capital contributions to the Bank during the year ended December 31,
2017.
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, 2017, the Bank had aggregate lines of credit of $369.5 million with unaffiliated correspondent banks to provide short-term credit
for liquidity requirements. Of these aggregate lines of credit, $349.5 million is available on an unsecured basis. As of December 31,
Page -32-
2017, the Bank had $50.0 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, 2017, the Bank had $185.0
million outstanding in FHLB overnight borrowings and $316.4 million outstanding in FHLB term borrowings. As of December 31,
2016, the Bank had $175.0 million in FHLB overnight borrowings and $321.7 million outstanding in FHLB term borrowings. As of
December 31, 2017, the Bank had securities sold under agreements to repurchase of $0.9 million outstanding with customers and
nothing outstanding with brokers. 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, 2017, the Bank had $44.9 million
outstanding in brokered certificates of deposit and $163.2 million outstanding in brokered money market accounts. As of December
31, 2016, the Bank had $58.6 million outstanding in brokered certificates of deposits and $177.0 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, 2017:
(In thousands)
Operating leases
FHLB advances and repurchase agreements
Subordinated debentures
Time deposits
Total contractual obligations outstanding
Total
Less than
One Year
One to
Three Years
Four to
Five Years
Over Five
Years
$
$
47,322
502,251
80,000
222,364
851,937
$ 6,473
500,960
—
125,578
633,011
$
$
$
11,698
1,291
—
49,586
62,575
$ 10,228
—
—
46,467
$ 56,695
$
$
18,923
—
80,000
733
99,656
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,
2017, the Company had $124.3 million in outstanding loan commitments and $576.7 million in outstanding commitments for various
lines of credit including unused overdraft lines. The Company also had $26.9 million of standby letters of credit as of December 31,
2017. See Note 17 of the Notes to the Consolidated Financial Statements for additional information on loan commitments and standby
letters of credit.
Page -33-
CAPITAL RESOURCES
Stockholders’ equity increased to $429.2 million at December 31, 2017 from $408.0 million at December 31, 2016 as a result of
undistributed net income; the shares of common stock issued for trust preferred securities conversions; the shares of common stock
issued under the DRP, and the stock based compensation plan; partially offset by the declaration of dividends; and the net change in
unrealized losses on available for sale securities, pension benefits, and cash flow hedges. The ratio of average stockholders’ equity to
average total assets was 10.53% for the year ended December 31, 2017 compared to 9.38% for the year ended December 31, 2016.
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 18 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 $260.2 million in capital through the following
initiatives:
(cid:120) On October 8, 2013, the Company completed a public offering with net proceeds of $37.6 million in capital from the sale of
1,926,250 shares of common stock. The purpose of the offering was in part to provide additional capital to Bridge Bancorp to
support its acquisition of FNBNY and for general corporate purposes.
(cid:120) On February 14, 2014, the Company issued 240,598 shares of common stock with net proceeds of $5.9 million in capital.
These shares were issued directly in connection with the acquisition of FNBNY.
(cid:120) On June 19, 2015, the Company issued 5,647,268 shares of common stock with net proceeds of $157.1 million in capital.
These shares were issued in connection with the acquisition of CNB.
(cid:120) 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 $11.9 million in capital through issuance of common stock through the DRP.
(cid:120)
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 4.64% and 9.82%, and returns on average assets of 0.49% and 0.92%, for the years
ended December 31, 2017 and 2016, respectively. The Company also utilizes cash dividends and stock repurchases to manage capital
levels. In 2017, the Company declared four quarterly cash dividends totaling $18.2 million compared to four quarterly cash dividends
of $16.1 million in 2016. The dividend payout ratios for 2017 and 2016 were 88.80% and 45.48%, 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 2017 and
2016.
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 -34-
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, 2017, $823.2 million, or 87.5%, 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 may 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, 2017:
Change in Interest
Rates in Basis Points
(Dollars in thousands)
200
100
Static
(100)
Potential Change
in Future Net
Interest Income
Year 1
$ Change % Change
Year 2
$ Change % Change
$
$
$
(4,548)
(2,262)
—
918
(3.45)% $
(1.71)% $
—
0.70% $
3,217
2,937
—
1,090
2.44%
2.23%
—
0.83%
Page -35-
As noted in the table above, a 200 basis point increase in interest rates is projected to decrease net interest income by 3.45 percent in
year 1 and increase net interest income by 2.44 percent in year 2. The Company’s balance sheet sensitivity to such a move in interest
rates at December 31, 2017 decreased as compared to December 31, 2016 (which was a decrease of 6.52 percent in net interest income
over a twelve-month period). This decrease is the result of a higher proportion of the Company’s assets repricing to market rates,
coupled with a large increase in demand deposits and the Company’s ability to hold the costs of interest bearing deposits to below
market rates. 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 3.73 at December 31, 2016 to
3.23 at December 31, 2017. Additionally, the Bank has increased its use of swaps to extend liabilities. The Company believes that its
strong core funding profile also provides protection from rising rates due to the ability of the Bank to lag increases in the rates paid to
on these accounts to market rates.
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 -36-
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 $179,885 and $222,878, 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 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; 19,719,575
and 19,106,246 shares issued, respectively; and 19,709,360 and 19,100,389 shares outstanding,
respectively)
Surplus
Retained earnings
Treasury stock at cost, 10,215 and 5,857 shares, respectively
Accumulated other comprehensive loss, net of income taxes
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See accompanying notes to Consolidated Financial Statements.
Page -37-
December 31,
2017
December 31,
2016
$ 76,614 $
18,133
94,747
759,916
180,866
940,782
102,280
11,558
113,838
819,722
223,237
1,042,959
35,349
34,743
3,102,752
(31,707)
3,071,045
33,505
11,652
105,950
5,214
9,936
87,493
34,329
$ 4,430,002 $
$
$
1,338,701
1,773,478
158,584
63,780
3,334,543
50,000
501,374
877
78,641
-
35,367
4,000,802
—
—
197
347,691
96,547
(296)
444,139
(14,939)
429,200
$
4,430,002 $
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
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Interest income:
Loans (including fee income)
Mortgage-backed securities, CMOs and other asset-backed securities
U.S. GSE securities
State and municipal obligations
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 and other fees
Net securities gains (losses)
Title fee income
Gain on sale of Small Business Administration loans
BOLI income
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 -38-
Year Ended December 31,
2016
2015
2017
$
$
126,420
15,231
1,198
3,788
1,233
278
1,701
149,849
7,858
1,843
725
1,571
6,105
4,539
48
22,689
127,160
14,050
113,110
8,996
38
2,394
1,689
2,250
2,735
18,102
45,766
13,998
5,753
4,742
3,153
1,310
8,020
1,047
7,938
91,727
39,485
18,946
$
20,539
$ 1.04
$ 1.04
$
$
$
116,723
13,483
1,294
3,777
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
8,407
449
1,833
1,097
1,929
2,331
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
1,630
3,198
840
47
592
106,240
4,002
929
673
474
1,425
1,261
1,365
10,129
96,111
4,000
92,111
7,054
(8)
1,866
507
1,225
2,024
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
$
$
$
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss):
Change in unrealized net losses 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 income (loss)
Comprehensive income
See accompanying notes to Consolidated Financial Statements.
Year Ended December 31,
2016
2015
2017
$
20,539
$
35,491
$
21,111
(505)
193
1,089
777
21,316
$
$
(4,082)
(1,434)
(630)
1,270
(3,442)
32,049
$
380
(201)
(1,255)
19,856
Page -39-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
Balance at December 31, 2014
$
117
$
118,846
$
64,547
$
(25)
$
(8,367)
$
175,118
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 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
Share 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
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)
$
921
35,491
costs (1,613,000 shares)
16
47,505
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
Share based compensation expense
Cash dividend declared, $0.92 per share
Other comprehensive loss, net of deferred income taxes
Balance at December 31, 2016
Net income
Shares issued under the DRP
Shares issued for trust preferred securities conversions
(529,292 shares)
Stock awards granted and distributed
Stock awards forfeited
Repurchase of surrendered stock from vesting of
restricted stock awards
Share based compensation expense
Impact of Tax Cuts and Jobs Act related to accumulated
other comprehensive income reclassification
Cash dividend declared, $0.92 per share
Other comprehensive income, net of deferred income
taxes
1
292
(205)
173
(90)
356
2,142
204
(173)
(344)
152
$
191
$
329,427
$
91,594
$
(161)
$
(3,442)
(13,064)
$
(16,140)
5
1
951
14,944
(434)
218
2,585
20,539
433
(218)
(350)
2,652
(18,238)
(2,652)
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
20,539
951
14,949
-
-
(350)
2,585
-
(18,238)
777
(14,939)
$
777
429,200
Balance at December 31, 2017
$
197
$
347,691
$
96,547
$
(296)
$
See accompanying notes to Consolidated Financial Statements.
Page -40-
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
Depreciation and (accretion)
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
Loss (gain) on sale of loans
Decrease (increase) in other assets
Increase (decrease) in accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of securities available for sale
Purchases of securities, restricted
Purchases of securities held to maturity
Proceeds from sales of securities available for sale
Redemption of securities, restricted
Maturities, calls and principal payments of securities available for sale
Maturities, calls and principal payments of securities held to maturity
Net increase in loans
Proceeds from loan sale
Proceeds from sales of other real estate owned (“OREO”), net
Purchase of bank owned life insurance
Purchase of premises and equipment
Net cash acquired in business combination
Net cash used in investing activities
Cash flows from financing activities:
Net increase in deposits
Net (decrease) increase in federal funds purchased
Net increase in Federal Home Loan Bank advances
Repayment of junior subordinated debentures
Net increase (decrease) in repurchase agreements
Net proceeds from issuance of subordinated debentures
Net proceeds from issuance of common stock
Net proceeds from exercise of stock options
Repurchase of surrendered stock from vesting of restricted stock awards
Excess tax benefit from share based compensation
Cash dividends paid
Other, net
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Information-Cash Flows:
Cash paid for:
Interest
Income tax
Noncash investing and financing activities:
Conversion of junior subordinated debentures
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 -41-
Year Ended December 31,
2016
2017
2015
$ 20,539 $
35,491 $
21,111
14,050
(4,109)
6,361
(2,250)
1,047
2,585
(38)
(1,419)
(18,596)
20,667
(1,689)
58
5,426
4,194
46,826
(116,956)
(654,017)
(4,128)
52,367
653,411
118,092
45,334
(526,989)
23,171
—
—
(2,069)
—
(411,784)
408,597
(50,000)
5,056
(352)
203
—
951
—
(350)
—
(18,238)
—
345,867
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
(19,091)
113,838
$ 94,747 $
9,280
104,558
113,838 $
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
52,828
51,730
104,558
$
$
$
$
$
$
22,917 $
8,445 $
16,640 $
21,585 $
15,350 $
— $
— $
— $
8,793
8,744
—
250
— $
— $
— $
— $
875,302
831,422
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bridge Bancorp, Inc. (the “Company”) is a bank holding company incorporated under the laws of the State of New York. The
Company’s business currently consists of the operations of its wholly-owned subsidiary, BNB Bank (the “Bank”). The Bank’s
operations include its real estate investment trust subsidiary, Bridgehampton Community, Inc.; a financial title insurance subsidiary,
Bridge Abstract LLC (“Bridge Abstract”); and an investment services subsidiary, Bridge Financial Services, Inc. (“Bridge Financial
Services”). In addition to the Bank, the Company had another subsidiary, Bridge Statutory Capital Trust II (“the Trust”), which was
formed in 2009 and sold $16.0 million of 8.5% cumulative convertible trust preferred securities (“TPS”) in a private placement to
accredited investors. In accordance with accounting guidance, the Trust was not consolidated in the Company’s financial statements.
The TPS were redeemed effective January 18, 2017 and the Trust was cancelled effective April 24, 2017.
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 taxes, as accumulated other
comprehensive income, a separate component of stockholders’ equity, and (iii) “restricted” which represents FHLB, FRB and
bankers’ banks stock which are reported at cost.
Premiums and discounts on securities are amortized and accreted to interest income over the estimated life of the respective securities
using the interest method. Gains and losses on the sales of securities are recognized upon realization based on the specific
identification method. Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized
losses. In 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.
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
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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 collectable based
upon an individual loan evaluation assessing such factors as collateral and collectability, 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.
Non-residential real estate loans over $200,000 and residential real estate loans over $1.0 million are individually evaluated for
impairment. Smaller balance loans may also be individually evaluated for impairment if they are part of a larger impaired
relationship. 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 below the aforementioned thresholds 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.
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.
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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 collectability 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 uncollectable. Assumptions and judgments by management, in conjunction with outside sources, are
used to determine whether full collectability 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.
For PCI loans, a valuation allowance is established when it is probable that the Bank will be unable to collect all the cash flows
expected at acquisition plus additional cash flows expected to be collected arising from changes in estimate after acquisition. A
specific allowance is established when subsequent evaluations of expected cash flows from PCI loans reflect a decrease in those
estimates. The allowance established represents the excess of the recorded investment in those loans over the present value of the
currently estimated future cash flow, discounted at the last effective accounting yield.
The Bank uses assumptions and methodologies that are relevant to estimating the level of impairment and probable losses in the loan
portfolio. To the extent that the data supporting such assumptions has limitations, management's judgment and experience play a key
role in recording the allowance estimates. Additions to the allowance for loan losses are made by provisions charged to earnings.
Furthermore, an improvement in the expected cash flows related to PCI loans would result in a reduction of the required specific
allowance with a corresponding credit to the provision.
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.
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Unless otherwise noted, the above policy is applied consistently to all loan segments.
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 indefinite-lived
intangible assets are not amortized, but tested for impairment at least annually, or more frequently if events and circumstances exist
that indicate the carrying amount of the asset may be impaired. The Company has selected November 30 as the date to perform the
annual impairment test. Goodwill and the BNB Bank trademark are intangible assets with indefinite lives on the Company’s balance
sheet.
Other intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.
Core deposit intangible assets are amortized on an accelerated method over their estimated useful lives of ten years. Non-compete
intangible assets arising from whole bank acquisitions were 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 $1.2 million at
December 31, 2017 and $975 thousand at December 31, 2016.
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.
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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, 2017 and 2016.
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, 2017 and 2016.
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, 2018 are limited to $48.2 million, which represents the
Bank’s net retained earnings from the previous two years. During 2017, the Bank did not pay dividends to the Company.
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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) Adoption of New Accounting Standards and Newly Issued Not Yet Effective Accounting Standards
The following are new accounting standards that are likely to be broadly applicable to financial institutions.
Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB amended existing guidance related to revenue from contracts with customers. This amendment supersedes
and replaces nearly all existing revenue recognition guidance, establishes a new control-based revenue recognition model, changes the
basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific
topics and expands and improves disclosures about revenue. In addition, the amendment specifies the accounting for some costs to
obtain or fulfill a contract with a customer. These amendments are effective for public business entities for annual reporting periods
beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted only as of
annual reporting periods beginning after December 15, 2016, including interim reporting periods within that period. The amendments
allow for one of two transition methods: full retrospective or modified retrospective. The full retrospective approach requires
application to all periods presented. The modified retrospective transition requires application to uncompleted contracts at the date of
adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of
initial application on uncompleted contracts. 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. 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 determined its service charges on deposit accounts and fees for other customer
services within non-interest income are in scope of the amended guidance. As a result of the Company’s assessment of revenue
recognition, it has determined the recognition, measurement and presentation of services charges on deposit accounts and fees for
other customer services will not change. The Company has not identified any material differences in the amount and timing of
revenue recognition for these revenue streams that are within the scope of ASU 2014-09. The Company adopted the guidance in the
first quarter of 2018, using the modified retrospective method of adoption. The Company’s adoption did not have a material impact
on its consolidated financial statements.
ASU 2016-02, Leases (Topic 842)
In February 2016, the FASB amended existing guidance that requires lessees recognize the following for all leases (with the exception
of short-term leases) at the commencement date (1) A lease liability, which is a lessee’s obligation to make lease payments arising
from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or
control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain
targeted improvements were made to align, where necessary, the lessor accounting model and Topic 606, Revenue from Contracts
with Customers. ASU 2016-02 is effective for public business entities for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. Early application is permitted. Lessees (for capital and operating leases) and lessors (for
sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or
entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective
approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees
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and lessors may not apply a full retrospective transition approach. The Company is currently evaluating the impact of ASU 2016-02
on the consolidated financial statements. Based on leases outstanding at December 31, 2017, the Company does not expect the updates
to have a material impact on the income statement, but does anticipate the adoption of ASU 2016-02 will result in an increase in the
Company’s consolidated balance sheet as a result of recognizing right-of-use assets and lease liabilities.
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)
In June 2016, FASB issued guidance to replace the incurred loss model with an expected loss model, which is referred to as the
current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets
measured at amortized cost, including loan receivables, held-to maturity debt securities, and reinsurance receivables. It also applies to
off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees,
and other similar instruments) and net investments in leases recognized by a lessor. For public business entities that meet the
definition of an SEC filer, like the Company, the standard is effective for fiscal years beginning after December 15, 2019, including
interim periods within those fiscal years. All entities may early adopt for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. The Company plans to adopt ASU 2016-13 in the first quarter of 2020 using the required
modified retrospective method with a cumulative effect adjustment as of the beginning of the reporting period. The Company has
created a cross-functional committee responsible for evaluating the impact of adopting ASU 2016-13, assessing data and system
needs, and implementing required changes to loss estimation methods under the CECL model. The Company cannot yet determine the
overall impact this guidance will have on the Company’s consolidated financial statements.
ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
In January 2017, the FASB amended existing guidance to simplify the subsequent measurement of goodwill by eliminating Step 2
from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment test by
comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which
the carrying amount of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting
unit. The amendments also eliminate the requirement for any reporting unit with a zero or negative carrying amount to perform a
qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments are
effective for public business entities that are an SEC filer, like the Company, for annual or interim goodwill impairment tests in fiscal
years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on
testing dates after January 1, 2017. The amendments should be applied prospectively. An entity is required to disclose the nature of
and reason for the change in accounting principle upon transition in the first annual period and in the interim period within the first
annual period when the entity initially adopts the amendments. The adoption of ASU 2017-04 is not expected to have a material effect
on the Company’s operating results or financial condition.
ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost
In March 2017, the FASB amended existing guidance to improve the presentation of net periodic pension cost and net periodic
postretirement benefit cost. The amendments require that an employer report the service cost component in the same line item or items
as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net
benefit costs are required to be presented in the income statement separately from the service cost component and outside a subtotal of
income from operations, if one is presented. The line item used in the income statement to present the other components of net benefit
cost must be disclosed. Additionally, only the service cost component of net benefit cost is eligible for capitalization, if applicable.
For public business entities, like the Company, ASU 2017-07 was effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. Early adoption is permitted as of the beginning of an annual period for which financial
statements (interim or annual) have not been issued or made available for issuance. The amendments should be applied retrospectively
for the presentation of the service cost component and the other components of net periodic pension cost and net periodic
postretirement benefit cost in the income statement. The amendments allow a practical expedient that permits an employer to use the
amounts disclosed in its pension and postretirement benefit plan note for the prior comparative periods as the estimation basis for
applying the retrospective presentation requirements. The amendment requires disclosure that the practical expedient was used. The
components of net benefit cost are disclosed in Note 14 to the consolidated financial statements. The Company adopted the guidance
in the first quarter of 2018. The Company will present its other components of net benefit expense outside of Salaries and employee
benefits in the Other operating expenses income statement line. The change in presentation will not change the Company’s operating
results or financial condition.
ASU 2017-09, Compensation – Stock Compensation (Topic 718) – Scope of Modification Accounting
In May 2017, the FASB provided guidance about which changes to the terms or conditions of a share-based payment award require an
entity to apply modification accounting in Topic 718. The current disclosure requirements in Topic 718 apply regardless of whether
an entity is required to apply modification accounting under the amendments in ASU 2017-09. The amendments in ASU 2017-09 are
effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early
adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been
issued. The amendments should be applied prospectively to an award modified on or after the adoption date. The adoption of ASU
2017-09 is not expected to have a material effect on the Company’s operating results or financial condition.
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ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB provided guidance to improve the financial reporting of hedging relationships to better portray the
economic results of an entity’s risk management activities in its financial statements. The amendments also simplify the application of
the hedge accounting guidance. The amendments in the Update better align an entity’s risk management activities and financial
reporting for hedging relationships through changes in both the designation and measurement guidance for qualifying hedging
relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for both nonfinancial and
financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in
the financial statements. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim
periods within those fiscal years, with early adoption, including adoption in an interim period, permitted. ASU 2017-12 requires a
modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening
balance of each affected component of equity in the consolidated balance sheet as of the date of adoption. While the Company
continues to assess all potential impacts of the standard, ASU 2017-12 is not expected to have a material impact on the Company’s
consolidated financial statements.
ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income
In February 2018, the FASB amended existing guidance to allow a reclassification from accumulated other comprehensive income to
retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“Tax Act”). Consequently, the amendments
eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial
statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Act, the
underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is
not affected. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years, with early adoption, including adoption in an interim period, permitted. The Company
adopted ASU 2018-02 at the beginning of the fourth quarter 2017 and reclassified $2.7 million from accumulated other
comprehensive income to retained earnings. For additional information, see Note 13 to the consolidated financial statements.
u) Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
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:
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
2017
2016
December 31,
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
57,994
87,582
$
— $
259
(1,180)
(819)
$
56,814
87,022
$
64,993
117,292
$
189,705
314,390
6,017
49,965
24,250
46,000
775,903
60,762
11,424
54,250
22,953
29
16
2
—
—
—
306
972
—
244
77
(2,833)
186,901
160,446
(7,016)
307,390
373,098
(40)
5,979
6,337
(1,249)
(849)
(2,307)
(16,293)
48,716
23,401
43,693
759,916
(64)
61,670
(261)
(666)
(438)
11,163
53,828
22,592
56,148
24,250
32,000
834,564
66,666
13,443
61,639
28,772
31,477
—
180,866
$ 956,769
$
—
—
1,293
1,599
(845)
—
(2,274)
(18,567)
30,632
—
179,885
939,801
$
$
41,717
11,000
223,237
$ 1,057,801
$
Page -49-
—
212
16
149
6
—
—
—
383
1,085
—
352
136
93
26
1,692
2,075
$
(1,344)
(1,339)
$
63,649
116,165
(2,414)
158,048
(5,736)
367,511
(36)
6,307
(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
(573)
—
(2,051)
(17,276)
$
41,237
11,026
222,878
$ 1,042,600
The following table summarizes securities with gross unrealized losses at December 31, 2017 and 2016, aggregated by category and
length of time that individual securities have been in a continuous unrealized loss position:
(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
2017
2016
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
$
— $
35,350
— $
(301)
56,815
28,165
$
(1,180)
(518)
$
63,649
78,883
$
(1,344)
(1,338)
$
— $
240
107,408
(1,153)
69,571
(1,680)
140,514
(2,409)
241
77,705
2,345
452
—
13,588
236,848
7,709
1,359
21,329
8,789
(759)
(40)
(1)
—
(412)
(2,666)
(57)
(16)
(94)
(121)
(116)
(404)
224,932
(6,257)
319,197
(5,221)
15,627
—
—
2,573
(36)
48,264
23,401
30,105
481,253
1,009
9,804
21,112
8,303
(1,248)
(849)
(1,895)
(13,627)
48,901
—
17,834
671,551
(886)
—
(1,166)
(12,400)
(7)
21,867
(245)
(572)
(317)
13,156
31,297
12,860
(130)
(287)
(455)
(286)
—
6,292
22,552
12,463
57,415
—
—
3,873
5,877
20,290
60,518
$
(729)
(1,870)
22,666
101,846
$
(372)
(1,530)
$
$
3,790
13,540
$
$
—
(1)
(5)
(515)
—
(70)
(1,697)
(537)
(2,825)
—
—
(97)
(223)
(201)
(521)
mortgage obligations
Total held to maturity
10,341
49,527
$
$
Other-Than-Temporary Impairment
Management evaluates securities for other-than-temporary impairment (“OTTI”) quarterly and more frequently when economic or
market conditions warrant. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general
segments and applying the appropriate OTTI model. Investment securities classified as available for sale or held to maturity are
generally evaluated for OTTI under FASB ASC 320, “Accounting for Certain Investments in Debt and Equity Securities”. In
determining OTTI under the FASB ASC 320 model, management considers many factors, including: (1) the length of time and the
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 debt security or
more likely than not will be required to sell the debt 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.
At December 31, 2017, 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. The
corporate bonds within the portfolio have all maintained an investment grade rating by either Moody’s or Standard and Poor’s. None
of the unrealized losses is 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, 2017.
Page -50-
The following table sets forth the estimated fair value, amortized cost and contractual maturities of the securities portfolio at
December 31, 2017. 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.
Within
One Year
After One but
Within Five Years
December 31, 2017
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
$
— $
9,588
— $
9,600
37,271 $
45,196
37,994 $ 19,543 $
45,683
31,809
20,000 $
31,884
— $
429
— $
415
56,814 $
87,022
57,994
87,582
—
—
—
—
—
—
9,588
—
—
—
—
—
—
9,600
—
—
—
—
25,203
25,482
161,698
164,223
186,901
189,705
5,468
5,543
301,922
308,847
307,390
314,390
5,979
6,017
—
—
—
—
5,979
6,017
—
—
—
88,446
—
—
—
89,694
—
—
43,693
125,716
—
—
46,000
128,909
48,716
23,401
—
536,166
49,965
24,250
—
547,700
48,716
23,401
43,693
759,916
49,965
24,250
46,000
775,903
3,766
3,774
17,610
17,430
38,599
37,882
1,695
1,676
61,670
60,762
—
—
—
—
—
—
—
—
—
—
5,011
5,103
6,152
6,321
11,163
11,424
6,769
6,795
47,059
47,455
53,828
54,250
9,373
9,311
4,916
5,022
8,303
8,620
22,592
22,953
—
3,766
13,354 $
—
3,774
13,374 $ 119,280 $
3,851
30,834
$
31,477
26,781
4,030
30,771
180,866
89,990
120,465 $ 181,011 $ 183,711 $ 626,156 $ 639,219 $ 939,801 $ 956,769
30,632
179,885
27,447
91,519
—
54,802
—
55,295
(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
Total held to maturity
Total securities
Sales and Calls of Securities
There were $52.4 million of proceeds on sales of available for sale securities with gross gains of approximately $0.3 million and gross
losses of approximately $0.3 million realized in 2017. 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.
Pledged Securities
Securities having a fair value of $513.5 million and $570.1 million at December 31, 2017 and 2016, respectively, were pledged to
secure public deposits and FHLB and FRB overnight borrowings.
Trading Securities
The Company did not hold any trading securities during the years ended December 31, 2017 and 2016.
Restricted Securities
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 $35.3 million and $34.7 million in FHLB, ACBB and FRB
stock at December 31, 2017 and 2016, respectively. These amounts were reported as restricted securities in the consolidated balance
sheets.
Page -51-
As of December 31, 2017 and 2016, 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.
3. 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
Carrying
Value
56,814
87,022
186,901
307,390
5,979
48,716
23,401
43,693
759,916
4,546
1,823
$
$
$
$
December 31, 2017
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)
$
$
$
$
56,814
87,022
186,901
307,390
5,979
48,716
23,401
43,693
759,916
4,546
1,823
Page -52-
(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
Carrying
Value
63,649
116,165
158,048
367,511
6,307
55,192
22,553
30,297
819,722
2,510
1,670
$
$
$
$
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
Page -53-
The following tables summarize assets measured at fair value on a non-recurring basis:
December 31, 2017
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)
$
—
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
Carrying
Value
$
—
Carrying
Value
$
64
(In thousands)
Impaired loans
(In thousands)
Impaired loans
Impaired loans with an allocated allowance for loan losses at December 31, 2017 had a carrying amount of zero, which is made up of
the outstanding balance of $1.7 million, net of a valuation allowance of $1.7 million. This resulted in an additional provision for loan
losses of $1.7 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, 2016 had a carrying amount of $64 thousand, which is made up of the outstanding
balance of $65 thousand, net of a valuation allowance of $1 thousand. This resulted in an additional provision for loan losses of $1
thousand that is included in the amount reported on the Consolidated Statements of Income. There was no other real estate owned at
December 31, 2017 and 2016.
The Company used the following methods and assumptions in estimating the fair value of its financial instruments:
Cash and Due from Banks and Interest Earning Deposits with Banks: 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
Page -54-
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 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, repurchase agreements 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, repurchase agreements and FHLB advances and
a Level 2 classification for all other maturity terms.
Subordinated Debentures: The estimated fair value is based on valuation models using observable market data as of the measurement
date resulting in a Level 2 classification.
Junior Subordinated Debentures: The estimated fair value is based on estimates using market data for similarly risk weighted items
and takes into consideration the convertible features of the debentures into 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, 2017 and 2016.
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.
Page -55-
The following tables summarize the estimated fair values and recorded carrying amounts of the Company’s financial instruments at
December 31, 2017 and 2016:
(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
Derivatives
Accrued interest payable
Carrying
Amount
76,614
18,133
759,916
35,349
180,866
3,071,045
4,546
11,652
222,364
3,112,179
50,000
501,374
877
78,641
1,823
1,574
(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, 2017
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)
76,614 $
18,133
—
n/a
—
—
—
—
—
3,112,179
50,000
185,000
—
—
—
—
— $
—
759,916
n/a
179,885
—
4,546
3,211
220,775
—
—
313,558
877
77,933
1,823
462
— $
—
—
n/a
—
3,010,023
—
8,441
—
—
—
—
—
—
—
1,112
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
—
—
—
—
—
— $
—
819,722
n/a
222,878
—
2,510
3,480
206,026
—
—
321,249
674
78,303
—
1,670
403
— $
—
—
n/a
—
2,542,395
—
6,753
—
—
—
—
—
—
15,258
—
1,446
Total
Fair Value
76,614
18,133
759,916
n/a
179,885
3,010,023
4,546
11,652
220,775
3,112,179
50,000
498,558
877
77,933
1,823
1,574
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 -56-
4. LOANS
The following table sets forth the major classifications of loans:
December 31,
(In thousands)
Commercial real estate mortgage loans
Multi-family mortgage loans
Residential real estate mortgage loans
Commercial, 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
Loans, net
$
$
2016
2017
1,293,906 $ 1,091,752
518,146
364,884
524,450
80,605
16,368
2,596,205
4,235
2,600,440
(25,904)
3,071,045 $ 2,574,536
595,280
464,264
616,003
107,759
21,041
3,098,253
4,499
3,102,752
(31,707)
In June 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 $359.4 million and $464.2 million of acquired CNB
loans remaining as of December 31, 2017 and 2016, respectively.
In February 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 $15.4 million and $26.5 million of acquired FNBNY loans remaining as of December 31, 2017 and 2016,
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 is secured by real estate in these areas. Accordingly, the ultimate collectability 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 $250,000 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 -57-
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.
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.
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, 2017
1,796
8,056
—
4,854
698
12,637
14,553
—
16
42,610
$
$
$
19,589
4,589
—
290
792
13,560
3,539
319
5
42,683
$
— $
—
—
—
—
472,649
821,257
595,280
398,173
66,091
—
—
—
—
— $
112,313
503,690
107,759
21,041
3,098,253
$
$
451,264
808,612
595,280
393,029
64,601
86,116
485,598
107,440
21,020
3,012,960
$
$
Page -58-
At December 31, 2017 there were $0.4 million and $1.6 million of acquired CNB loans included in the special mention and
substandard grades, respectively, and $0.2 million and $0.3 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, 2016
$
$
404,584
643,426
518,146
299,297
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
4,076
—
370
377
2,254
2,844
333
100
11,076
$
$
— $
—
—
—
—
424,215
667,537
518,146
299,749
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.
Past Due and Nonaccrual Loans
The following tables represent the aging of the recorded investment in past due loans as of December 31, 2017 and 2016 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
>90 Days
Past Due
And
Accruing
December 31, 2017
Nonaccrual
Including 90
Days or More
Past Due
Total Past
Due and
Nonaccrual
Current
Total Loans
284 $
—
—
2,074
329
113
18
—
36
2,854
$
— $
—
—
398
—
41
35
281
5
760 $
175
1,163
—
—
271
225
—
—
—
1,834
$
$
2,205 $
—
—
2,664 $
1,163
—
469,985 $
820,094
595,280
401
161
570
3,618
—
—
6,955 $
2,873
761
949
3,671
281
41
395,300
65,330
111,364
500,019
107,478
21,000
12,403 $ 3,085,850 $
472,649
821,257
595,280
398,173
66,091
112,313
503,690
107,759
21,041
3,098,253
30-59
Days
Past Due
60-89
Days
Past Due
>90 Days
Past Due
And
Accruing
December 31, 2016
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
$
$
Page -59-
184 $
—
—
770
265
—
22
—
—
1,241 $
873 $
—
—
423,342 $
667,537
518,146
2,002
1,035
231
255
—
28
297,747
64,100
109,003
414,961
80,605
16,340
4,424 $ 2,591,781 $
424,215
667,537
518,146
299,749
65,135
109,234
415,216
80,605
16,368
2,596,205
$
$
$
$
There were $2.4 million and $1.0 million of acquired loans that were 30-89 days past due at December 31, 2017 and 2016,
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, 2017 and 2016, the Company had individually impaired loans as defined by FASB ASC No. 310, “Receivables” of
$22.5 million and $3.4 million, respectively. During the year ended December 31, 2017, the Bank modified certain commercial real
estate mortgage loans as troubled debt restructurings (“TDRs”) totaling $7.8 million, which are classified as special mention, and
certain taxi medallion loans totaling $6.8 million, which are classified as substandard, which, coupled with an increase in nonaccrual
loans, caused the increase in impaired loans from December 31, 2016. 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 -60-
The following tables set forth the recorded investment, unpaid principal balance and related allowance by class of loans at December
31, 2017, 2016 and 2015 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, 2017, 2016 and
2015:
(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, 2017
Unpaid
Principal
Balance
Related
Allocated
Allowance
Year Ended December 31, 2017
Average
Recorded
Investment
Interest
Income
Recognized
Recorded
Investment
$
$
2,073
9,089
$
2,073
9,089
— $
—
$
173
7,001
—
100
7,368
2,154
20,784
—
—
—
—
—
1,708
1,708
2,073
9,089
—
100
—
100
8,013
2,408
21,683
—
—
—
—
—
3,235
3,235
2,073
9,089
—
100
—
—
—
—
—
—
—
—
—
—
1,708
1,708
—
—
—
—
—
8
2,633
592
10,407
—
—
—
—
—
142
142
173
7,001
—
8
7,368
3,862
22,492
$
8,013
5,643
24,918
$
$
—
1,708
1,708
$
2,633
734
10,549
$
80
400
—
—
211
36
727
—
—
—
—
—
174
174
80
400
—
—
211
210
901
Page -61-
(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, 2016
Unpaid
Principal
Balance
Related
Allocated
Allowance
Year Ended December 31, 2016
Average
Recorded
Investment
Interest Income
Recognized
Recorded
Investment
$
$
326
1,213
520
264
556
408
3,287
—
—
—
—
—
66
66
326
1,213
520
264
556
474
3,353
$
538 $
1,213
558
285
556
408
3,558
—
—
—
—
—
66
66
538
1,213
558
285
556
474
3,624 $
$
— $
—
176 $
614
—
—
—
—
—
—
—
—
—
—
1
1
—
—
—
—
—
1
1
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
Page -62-
(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
73
700
96
—
2,361
—
318
—
—
—
194
512
564
1,246
73
700
96
194
2,873
$
— $
—
—
—
—
—
—
—
20
—
—
—
9
29
—
20
—
—
—
9
29
$
$
412
938
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
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, 2017 and 2016.
Troubled Debt Restructurings
The terms of certain loans were modified and are considered TDRs. The modification of the terms of such loans generally includes
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 -63-
The following table presents loans by class modified as troubled debt restructurings during the years indicated:
Modifications During the Years Ended December 31,
2017
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
2016
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number of
Loans
Number of
Loans
2015
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number of
Loans
— $
2
—
—
7
2
—
11 $
— $
7,764
—
—
6,828
189
—
14,781 $
—
7,764
—
—
6,828
189
—
14,781
— $
—
1
1
3
1
—
6 $
— $
—
252
69
459
525
—
1,305 $
—
—
252
69
459
525
—
1,305
— $
—
—
—
—
3
—
3 $
— $
—
—
—
—
160
—
160 $
—
—
—
—
—
160
—
160
(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, 2017, 2016 and 2015.
There were $0.4 million, $0.1 million and $0.7 million of charge-offs related to TDRs during the years ended December 31, 2017,
2016 and 2015, respectively. During the year ended December 31, 2017 there were two loans modified as TDRs for which there was
a payment default within twelve months following the modification. There was one loan modified as a TDR during 2016 and no loans
modified as TDRs during 2015 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, 2017 and 2016, the Company had $5 thousand and $0.3 million, respectively, of nonaccrual TDRs and $16.7 million
and $2.4 million, respectively, of performing TDRs. The nonaccrual TDR at December 31, 2017 was unsecured. At December 31,
2016, total nonaccrual TDRs were secured with collateral that had an appraised value of $1.3 million. 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, 2017 that did not meet the definition of a TDR.
These loans have a total recorded investment at December 31, 2017 of $52.5 million. These loans were to borrowers who were not
experiencing financial difficulties.
Purchased Credit Impaired 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 -64-
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, 2017, the contractually required principal and interest payments receivable
and carrying amount of the PCI loans was $4.0 million and $2.4 million, respectively, with a remaining non-accretable difference of
$0.7 million. At December 31, 2016, the contractually required principal and interest payments receivable and carrying amount of the
PCI loans was $12.2 million and $7.0 million, respectively, with a remaining non-accretable difference of $1.3 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, 2017, the contractually required principal and interest payments receivable
and carrying amount of the PCI loans was $7.6 million and $1.0 million, respectively, with a remaining non-accretable difference of
$5.3 million. At December 31, 2016, the contractually required principal and interest payments receivable and carrying amount of the
PCI loans was $12.2 million and $2.3 million, respectively, with a remaining non-accretable difference of $6.9 million.
The following table summarizes the activity in the accretable yield for the PCI loans:
(In thousands)
Balance at beginning of period
Accretion
Reclassification from nonaccretable difference during the period
Other
Accretable discount at end of period
Year Ended December 31,
2016
2017
6,915
(5,221)
457
-
2,151
$
$
7,113
(4,924)
4,492
234
6,915
$
$
The allowance for loan losses was increased $0.1 million during the year ended December 31 2017 for those PCI loans disclosed
above and a $0.1 million charge-off was recorded. The allowance for loan losses was not increased during the year ended December
31, 2016 for those PCI loans disclosed above and there were no charge-offs recorded.
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 2017 and 2016.
The following table sets forth selected information about related party loans for the year ended December 31, 2017:
(In thousands)
Balance at beginning of period
New loans
Repayments
Balance at end of period
Year Ended
December 31,
2017
$
$
22,116
1,645
(2,619)
21,142
Page -65-
5. 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 quarterly. The allowance is comprised of both
individual valuation allowances and loan pool valuation allowances.
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, 2017 and 2016. The tables include loans
acquired from CNB and 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, 2017
Commercial,
Industrial and
Agricultural
Loans
Real Estate
Construction
and Land
Loans
Installment/
Consumer
Loans
Total
$
$
$
$
$
$
$
$
— $
— $
— $
1,708 $
— $
— $
1,708
11,048
4,521
—
11,048 $
—
4,521 $
2,438
—
2,438
$
11,130
—
12,838 $
740
—
740
$
122
—
122 $
29,999
—
31,707
11,162 $
— $
100
$
11,230 $
— $
— $
22,492
1,281,837
593,645
463,575
604,329
107,759
21,041
3,072,186
907
1,293,906 $
1,635
595,280 $
589
464,264
$
444
616,003 $
—
107,759
$
—
21,041 $
3,575
3,098,253
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
9,225
6,264
—
9,225 $
—
6,264 $
1,495
—
1,495
$
7,836
—
7,837 $
955
—
955
$
128
—
128 $
25,903
—
25,904
1,539 $
— $
784
$
1,030 $
— $
— $
3,353
1,088,332
514,853
363,230
519,686
1,881
1,091,752 $
3,293
518,146 $
870
364,884
$
3,734
524,450 $
80,605
—
80,605
$
16,368
2,583,074
—
16,368 $
9,778
2,596,205
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.
Page -66-
The following tables represent the changes in the allowance for loan losses for the years ended December 31, 2017, 2016 and 2015, 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, 2017
Residential
Real Estate
Mortgage
Loans
Commercial,
Industrial and
Agricultural
Loans
Real Estate
Construction
and Land
Loans
Installment/
Consumer
Loans
$
$
9,225 $
—
—
1,823
11,048 $
6,264 $
—
—
(1,743)
4,521 $
1,495
—
28
915
2,438
$
$
7,837 $
(8,245)
16
13,230
12,838 $
955
—
—
(215)
740
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
$
$
7,850 $
—
109
1,266
9,225 $
4,208 $
—
—
2,056
6,264 $
2,115
(56)
96
(660)
1,495
$
$
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
$
$
$
$
$
$
128
(49)
3
40
122
$
$
Installment/
Consumer
Loans
136
(1)
6
(13)
128
$
$
Installment/
Consumer
Loans
135
(2)
7
(4)
136
$
$
Total
25,904
(8,294)
47
14,050
31,707
Total
20,744
(987)
597
5,550
25,904
Total
17,637
(1,128)
235
4,000
20,744
Page -67-
6. PREMISES AND EQUIPMENT, NET
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 premises and equipment, net
December 31,
2017
7,980
15,368
21,464
12,271
57,083
(23,578)
33,505
$
$
$
$
2016
7,951
15,272
20,295
13,562
57,080
(21,817)
35,263
Depreciation and amortization amounted to $3.8 million, $3.5 million and $3.6 million for the years ended December 31, 2017, 2016
and 2015, respectively.
7. 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 2017. 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 beginning of period
Measurement period adjustments(1)
Balance at end of period
(1) See Note 22 for details on the measurement period adjustments.
Acquired Intangible Assets
The following table reflects acquired intangible assets:
Year Ended December 31,
2017
105,950
—
105,950
$
$
2016
98,445
7,505
105,950
$
$
(In thousands)
Intangible assets subject to amortization:
Core deposit intangibles
Intangible assets not subject to amortization:
Trademark
Total intangible assets
December 31,
2017
2016
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
$
$
7,211 $
3,409 $
7,211 $
255
7,466 $
—
3,409 $
—
7,211 $
2,362
—
2,362
Page -68-
Aggregate amortization expense for intangible assets with finite lives for the years ended December 31, 2017, 2016, and 2015 was
$1.0 million, $2.6 million, and $1.4 million, respectively.
In the year ended December 31, 2017, the Company acquired a trademark of $255 thousand related to the Bank’s name change to
BNB Bank.
The following table reflects estimated amortization expense for each of the next five years and thereafter:
Total
917
787
656
531
413
498
3,802
$
$
(In thousands)
2018
2019
2020
2021
2022
Thereafter
Total
8. DEPOSITS
Time Deposits
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2017:
(In thousands)
2018
2019
2020
2021
2022
Thereafter
Total
Total
125,578
37,865
11,721
42,903
3,564
733
222,364
$
$
The deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2017 and 2016 were $93.0 million and $65.4
million, respectively. Deposits from principal officers, directors and their affiliates at December 31, 2017 and 2016 were
approximately $23.2 million and $13.9 million, respectively.
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase totaled $0.9 million at December 31, 2017 and $0.7 million at December 31, 2016. The
repurchase agreements were collateralized by investment securities, of which 52% were U.S. GSE residential collateralized mortgage
obligations and 48% were U.S. GSE residential mortgage-backed securities with a carrying amount of $1.8 million at December 31,
2017 and 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.
Securities sold under agreements to repurchase are financing arrangements with $0.9 million maturing during the first quarter of 2018.
At maturity, the securities underlying the agreements are returned to the Company. 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.
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,
2017
2016
$
$
867
0.05%
1,300
0.05%
$
$
45,630
0.85%
51,197
0.83%
Page -69-
10. FEDERAL HOME LOAN BANK ADVANCES
The following table summarizes information concerning FHLB advances:
(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,
$
$
2017
401,258
1.52%
563,974
1.57%
$
$
2016
275,592
1.09%
496,684
0.80%
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
2018
2019
Total FHLB advances
(Dollars in thousands)
Contractual Maturity
Overnight
2017
2018
2019
Total FHLB advances
December 31, 2017
Amount
$
185,000
315,083
1,291
316,374
501,374
$
Weighted
Average Rate
1.53%
1.59
0.94
1.59
1.57%
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%
Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized by
$1.2 billion and $923.9 million of residential and commercial mortgage loans under a blanket lien arrangement at December 31, 2017
and 2016, respectively. Based on this collateral and the Company’s holdings of FHLB stock, the Company is eligible to borrow up to
a total of $1.3 billion at December 31, 2017.
11. 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 $78.6 million at December 31,
2017 and $78.5 million at December 31, 2016.
The subordinated debentures are included in tier 2 capital (with certain limitations applicable) under current regulatory guidelines and
interpretations.
Page -70-
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 (“TPS”), through its subsidiary, Bridge Statutory Capital Trust II (the “Trust”). The
TPS had a liquidation amount of $1,000 per security, were convertible into the Company’s common stock, at a modified effective
conversion price of $29 per share, matured in 2039 and were callable by the Company at par after September 30, 2014.
The Company issued $16.0 million of junior subordinated debentures (the “Debentures”) to the Trust in exchange for ownership of all
of the common securities of the Trust and the proceeds of the TPS sold by the Trust. In accordance with accounting guidance, the
Trust was not consolidated in the Company’s financial statements, but rather the Debentures were shown as a liability. The
Debentures had the same interest rate, maturity and prepayment provisions as the TPS.
On December 15, 2016, the Company notified holders of the $15.8 million in outstanding 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. The Trust was cancelled effective April 24, 2017.
12. 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 $290.0 million and $175.0 million as of December 31, 2017 and 2016, 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 at December 31, 2017 and
2016:
(Dollars in thousands)
Notional amounts
Weighted average pay rates
Weighted average receive rates
Weighted average maturity
$
December 31,
2017
2016
290,000
$
1.78%
1.61%
2.64 years
175,000
1.61%
0.95%
2.98 years
Interest expense recorded on these swap transactions totaled $1.4 million, $0.9 million and $0.7 million during the years ended
December 31, 2017, 2016 and 2015, 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, 2017, the
Company had $1.4 million of reclassifications to interest expense. During the next twelve months, the Company estimates that $0.2
million will be reclassified as a decrease in interest expense.
Page -71-
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, 2017, 2016 and 2015:
(In thousands)
Interest rate contracts
Year ended December 31, 2017
Year ended December 31, 2016
Year ended December 31, 2015
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)
$
$
$
$
463
1,191
$
(1,008) $
(1,419)
(944)
(657)
$
$
$
—
—
—
The following table reflects the cash flow hedges included in the Consolidated Balance Sheets at the dates indicated:
2017
Fair
Value
Asset
Notional
Amount
December 31,
Fair
Value
Liability
Notional
Amount
2016
Fair
Value
Asset
Fair
Value
Liability
$
290,000
$
3,133
$
(410)
$
175,000
$
1,994
$
(1,153)
(In thousands)
Included in other assets/(liabilities):
Interest rate swaps 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 at December 31, 2017 and 2016:
(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,
2017
2016
147,967
$
3.96%
3.96%
12.37 years
— $
62,472
3.50%
3.50%
13.97 years
—
$
$
As of December 31, 2017, the termination value of derivatives in a net liability position, which includes accrued interest but excludes
any adjustment for nonperformance risk, related to these agreements was $0.3 million and the termination value of derivatives in a net
asset position was $2.0 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, 2017, the Company did not post collateral to its counterparty under the agreements in a net liability
position and received collateral of $2.1 million from its counterparty under the agreements in a net asset position. If the Company had
breached any of these provisions at December 31, 2017, it could have been required to settle its obligations under the agreements at
the termination value.
Page -72-
13. 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,
2016
2017
2015
$
$
8,762
937
9,699
10,251
(1,004)
9,247
18,946
$
$
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
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 income
State taxes, net of federal income tax benefit
Deferred tax asset remeasurement (1)
Other
Income tax expense
2017
Percentage
of Pre-tax
Earnings
Amount
Year Ended December 31,
2016
Percentage
of Pre-tax
Earnings
Amount
2015
Percentage
of Pre-tax
Earnings
Amount
$
$
13,820
(1,808)
725
7,572
(1,363)
18,946
35% $
(5)
2
19
(3)
48% $
19,000
(1,661)
1,090
-
366
18,795
35% $
(3)
2
-
1
35% $
11,161
(1,356)
1,087
-
(114)
10,778
35%
(4)
3
-
-
34%
(1) 2017 amount includes a charge to write-down deferred tax assets due to the enactment of the Tax Act of $7.6 million.
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
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
Page -73-
December 31,
2017
2016
$
$
9,906
4,650
2,508
7,576
2,279
1,997
1,119
30,035
(3,915)
(808)
(2,146)
(1,406)
(792)
(1,255 )
(221)
(10,543)
19,492
$
$
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
On December 22, 2017, the President signed the Tax Act, resulting in significant changes to existing tax law, including a lower federal
statutory tax rate of 21%. The Tax Act was generally effective as of January 1, 2018. In the fourth quarter of 2017, the Company
recorded a charge of $7.6 million, which consisted primarily of the deferred tax asset remeasurement from the previous 35% federal
statutory rate to the new 21% federal statutory tax rate.
On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”), which
provides a measurement period of up to one year from the enactment date to refine and complete the accounting. The Company has
completed its accounting for the effects of the Tax Act, and has made reasonable estimates of the effect of the change in federal
statutory tax rate and remeasurement of deferred tax assets based on the rate at which they are expected to reverse in the future.
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 2014. 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.
In connection with the acquisition of FNBNY, the Company acquired a federal net operating loss (“NOL”) carryforward subject to
Internal Revenue Code Section 382. The Company recorded a deferred tax asset that it expects to realize within the carryforward
period. At December 31, 2017, the remaining federal NOL carryforward was $3.5 million. In connection with the CNB and FNBNY
acquisitions, the Company acquired New York State and New York City NOL carryforwards. The Company recorded a deferred tax
asset that it expects to realize within the carryforward period. At December 31, 2017, the remaining New York State and New York
City NOL carryforwards were $18.0 million and $8.8 million, respectively.
14. PENSION AND OTHER POSTRETIREMENT PLANS
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 31
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,
2017
2016
2017
2016
$
$
$
$
$
20,844
1,129
750
(285)
2,321
24,759
27,914
4,859
2,207
(285)
34,695
9,936
$
$
$
$
$
18,515
1,153
794
(279)
661
20,844
24,562
1,416
2,215
(279)
27,914
7,070
$
$
$
$
$
3,004
212
105
(112)
710
3,919
$
$
— $
—
112
(112)
— $
2,555
176
105
(112)
280
3,004
—
—
112
(112)
—
(3,919)
$
(3,004)
Page -74-
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,
2017
2016
2017
2016
$
$
6,987
(639)
—
6,348
$
$
7,874
(715)
—
7,159
$
$
1,459
—
5
1,464
$
$
800
—
32
832
The accumulated benefit obligation was $23.1 million for the pension plan and $2.5 million for the SERP as of December 31, 2017.
As of December 31, 2016, the accumulated benefit obligation was $19.4 million for the pension plan and $2.2 million for the SERP.
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:
2017
2016
2015
2017
2016
2015
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
Net loss (gain)
Amortization of net loss
Amortization of prior service credit
Amortization of transition obligation
Total recognized in other comprehensive income
$
$
$
$
1,129
750
(2,129)
479
(77)
—
152
(409)
(479)
77
—
(811)
$
$
$
$
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)
$
$
$
$
212
105
—
51
—
27
395
710
(51)
—
(27)
632
$
$
$
$
176
105
—
27
—
28
336
280
(27)
—
(28)
225
$
$
$
$
168
91
—
32
—
28
319
(48)
(32)
—
(27)
(107)
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 $330 thousand and $77 thousand, 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 are $121 thousand and $5 thousand, 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
Pension Benefits
December 31,
2016
2017
2015
2017
SERP Benefits
December 31,
2016
2015
3.52%
3.00
4.05%
3.00
4.05%
3.00
7.25
4.30%
3.00
7.50
4.30%
3.00
3.90%
3.00
7.50
3.50%
5.00
4.01%
5.00
4.20%
5.00
4.01%
5.00
—
4.20%
5.00
—
3.80%
5.00
—
Page -75-
Plan Assets
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.
The following table indicates the target allocations for Plan assets:
Asset Category
Cash Equivalents
Equity Securities
Fixed income securities
Total
Target
Allocation
2018
0 – 5%
45 - 65%
35 - 55%
Percentage of Plan Assets
At December 31,
2017
2016
8.1%
58.7%
33.2%
100.0%
3.0%
64.0%
33.0%
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 3.
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.
Page -76-
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, 2017 and 2016:
(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
(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
Carrying
Value
$
— $
December 31, 2017:
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)
— $
—
—
9,587
3,131
7,283
367
20,368
1,507
—
—
—
1,507
21,875
$
—
2,821
2,821
—
—
—
—
—
127
2,837
1,007
6,028
9,999
12,820
2,821
2,821
9,587
3,131
7,283
367
20,368
1,634
2,837
1,007
6,028
11,506
34,695
$
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
— $
822
822
8,950
3,038
5,770
124
17,882
1,948
1,795
960
4,507
9,210
27,914
$
— $
—
—
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
$
$
$
The Company has no minimum required pension contribution due to the overfunded status of the plan.
Page -77-
Estimated Future Payments
The following table summarizes benefits expected to be paid under the pension plan and SERP as of December 31, 2017, which
reflect expected future service:
Year
2018
2019
2020
2021
2022
2023-2027
401(k) Plan
$
Pension and SERP
Payments
(in thousands)
667
743
915
1,030
1,113
7,256
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, 2017. 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 to 1%
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, 2017, 2016 and 2015 the Bank made cash contributions of $1.0 million, $786 thousand, and $623
thousand, respectively. The 401(k) plan also includes a discretionary profit-sharing component. The Company made discretionary
profit sharing contributions of $550 thousand in 2017, $424 thousand in 2016 and $276 thousand in 2015.
15. STOCK BASED COMPENSATION PLANS
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, 411,748 shares remain available for
issuance at December 31, 2017, including shares that may be granted in the form of restricted stock awards or restricted stock units.
The Compensation Committee of the Board of Directors determines awards under the 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, 2017, 2016 and 2015 and there was no compensation
expense attributable to stock options for the years ended December 31, 2017, 2016 and 2015 because all stock options were vested.
There were no stock options outstanding as of December 31, 2017 and 2016.
The following table summarizes stock option exercise activity:
(In thousands)
Intrinsic value of options exercised
Cash received from options exercised
Tax benefit realized from option exercised
Page -78-
Year Ended December 31,
2016
2015
2017
$
$
__
__
—
$
115
62
—
52
80
—
Restricted Stock Awards
The following table summarizes the unvested restricted stock activity for the year ended December 31, 2017:
Unvested, January 1, 2017
Granted
Vested
Forfeited
Unvested, December 31, 2017
Weighted
Average Grant-Date
Fair Value
$
$
$
$
$
24.59
35.61
23.62
27.07
27.16
Shares
301,991
71,781
(47,867)
(8,213)
317,692
During the year ended December 31, 2017, restricted stock awards of 71,781 shares were granted. Of the 71,781 shares granted,
31,860 shares vest over seven years with a third vesting after years five, six and seven, 25,396 shares vest over five years with a third
vesting after years three, four and five, 11,070 shares vest ratably over three years and 3,455 shares vest ratably over nine months.
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 three 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 three years and 1,200 shares vest ratably over two
years. Compensation expense attributable to these awards was $1.7 million, $1.5 million and $1.3 million for the years ended
December 31, 2017, 2016 and 2015, respectively. The total fair value of shares vested during the years ended December 31, 2017,
2016 and 2015, was $1.1 million, $935 thousand and $732 thousand, respectively. As of December 31, 2017, there was $5.0 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 3.92 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 three-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 $309 thousand, $193 thousand and $81 thousand in connection with these awards for the years ended
December 31, 2017, 2016 and 2015, respectively.
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 $530 thousand,
$493 thousand and $342 thousand for the years ended December 31, 2017, 2016 and 2015, respectively.
16. EARNINGS PER SHARE
Financial Accounting Standards Board Accounting Standards Codification (“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.
Page -79-
The following table presents the computation of EPS for the years ended December 31, 2017, 2016 and 2015:
(In thousands, except per share data)
Net income
Dividends paid on and earnings allocated to participating securities
Income attributable to common stock
2017
Year Ended December 31,
2016
$ 20,539 $ 35,491 $ 21,111
(451)
$ 20,124 $ 34,759 $ 20,660
(732)
(415)
2015
Weighted average common shares outstanding, including participating securities
Weighted average participating securities
Weighted average common shares outstanding
Basic earnings per common share
19,759
(404)
19,355
17,670
(366)
17,304
$
1.04 $
2.01 $
14,792
(319)
14,473
1.43
Income attributable to common stock
Impact of assumed conversions - interest on 8.5% trust preferred securities
Income attributable to common stock including assumed conversions
$ 20,124 $ 34,759 $ 20,660
—
$ 20,124 $ 35,637 $ 20,660
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
19,355
24
—
19,379
17,304
13
534
17,851
$
1.04 $
2.00 $
14,473
4
—
14,477
1.43
There were no stock options outstanding for the year ended December 31, 2017. There were no stock options that were antidilutive at
December 31, 2016 and 2015. The assumed conversion of the TPS was antidilutive for the years ended December 31, 2017 and 2015,
and therefore was not included in the computation of diluted earnings per share during those years. The assumed conversion of the
TPS was dilutive for the year ended December 31, 2016, and therefore was included in the computation of diluted earnings per share
during that year.
17. 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.
Leases
At December 31, 2017, 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
2018
2019
2020
2021
2022
Thereafter
Total
Amount
(In thousands)
$ 6,473
6,089
5,609
5,386
4,842
18,923
$ 47,322
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, 2017, 2016 and 2015 totaled $7.3
million, $6.8 million, and $5.3 million, respectively, net of subleases.
Page -80-
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,
2017
26,913
124,284
576,698
727,895
$
$
$
$
2016
21,507
66,779
466,271
554,557
(1) Of the $124.3 million of loan commitments outstanding at December 31, 2017, $36.8 million are fixed rate commitments and $87.5 million are
variable rate commitments. 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.
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 2017, the Bank was required to maintain certain cash balances with the FRB for reserve and clearing requirements. The
required cash balance at December 31, 2017 was $3.9 million. During 2017, the Bank invested overnight with the FRB and the
average balance maintained during 2017 was $22.4 million.
During 2017, 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, 2017, the Bank
had aggregate lines of credit of $369.5 million with unaffiliated correspondent banks to provide short-term credit for liquidity
requirements. Of these aggregate lines of credit, $349.5 million is available on an unsecured basis. As of December 31, 2017, the
Bank had $50.0 million of such borrowings outstanding.
In March 2001, the Bank entered into a Master Repurchase Agreement with the FHLB whereby the FHLB agrees to purchase
securities from the Bank, upon the Bank’s request, with the simultaneous agreement to sell the same or similar securities back to the
Bank at a future date. Securities are limited, under the agreement, to government securities, securities issued, guaranteed or
collateralized by any agency or instrumentality of the U.S. Government or any government sponsored enterprise, and non-agency AA
and AAA rated mortgage-backed securities. At December 31, 2017, there was up to $1.3 billion available for transactions under this
agreement, assuming availability of required collateral.
18. 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, 2017 and 2016.
Page -81-
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, 2017, 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.
The following tables present actual capital levels and minimum required levels for the Company and the Bank under Basel III rules at
December 31, 2017 and 2016:
Actual Capital
Minimum Capital
Adequacy Requirement
December 31, 2017
Minimum Capital
Adequacy Requirement with
Capital Conservation Buffer
Minimum To Be Well
Capitalized Under Prompt
Corrective Action Provisions
(Dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
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
$336,393
408,089
10.0%
12.1
$152,011
152,002
4.5%
4.5
$ 194,237
194,224
5.75%
5.75
n/a
$ 219,558
448,376
440,072
13.3
13.0
270,242
270,225
8.0
8.0
312,468
312,448
336,393
408,089
10.0
12.1
202,682
202,669
6.0
6.0
244,907
244,892
9.25
9.25
7.25
7.25
n/a
6.5%
n/a
10.0
n/a
337,781
n/a
270,225
n/a
8.0
336,393
408,089
7.9
9.6
170,440
170,441
4.0
4.0
n/a
n/a
n/a
n/a
n/a
213,051
n/a
5.0
Actual Capital
Minimum Capital
Adequacy Requirement
Minimum Capital
Adequacy Requirement with
Capital Conservation Buffer
Minimum To Be Well
Capitalized Under Prompt
Corrective Action Provisions
December 31, 2016
(Dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
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
$312,731
378,352
10.8%
13.1
$130,065
130,054
4.5%
4.5
$148,129
148,117
5.125%
5.125
n/a
$ 187,856
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
Page -82-
249,290
249,271
191,484
191,469
n/a
n/a
8.625
8.625
6.625
6.625
n/a
n/a
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
19. 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
Condensed Statements of Income
(In thousands)
Dividends from the Bank
Interest expense
Non-interest expense
(Loss) income before income taxes and equity in undistributed
earnings of the Bank
Income tax benefit
(Loss) income before equity in undistributed earnings of the Bank
Equity in undistributed earnings of the Bank
Net income
December 31,
2017
2016
7,858
210
500,896
508,964
78,641
—
1,123
79,764
429,200
508,964
$
$
$
$
29,049
228
474,035
503,312
78,502
15,244
1,579
95,325
407,987
503,312
Year Ended December 31,
2016
2015
2017
— $
4,588
147
(4,735)
(1,774)
(2,961)
23,500
20,539
$
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
$
$
$
$
$
$
Page -83-
Condensed Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Year Ended December 31,
2016
2015
2017
Net income
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
$ 20,539
$ 35,491
$ 21,111
Equity in undistributed earnings of the Bank
Amortization
Decrease (increase) in other assets
(Decrease) increase in other liabilities
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Investment in the Bank
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from issuance of subordinated debentures
Repayment of junior 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 (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(23,500)
139
18
(398)
(3,202)
(24,728)
152
(212)
351
11,054
(12,877)
44
72
1,228
9,578
—
—
(39,500)
(39,500)
(50,000)
(50,000)
—
(352)
951
—
(350)
—
(18,238)
—
(17,989)
—
—
48,442
62
(344)
—
(16,140)
—
32,020
78,324
—
779
80
(228)
50
(13,415)
(303)
65,287
(21,191)
29,049
7,858
$
3,574
25,475
$ 29,049
24,865
610
$ 25,475
Page -84-
20. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the components of other comprehensive loss and related income tax effects:
(In thousands)
Unrealized holding losses on available for sale securities
Reclassification adjustment for (gains) losses realized in income
Income tax effect
Net change in unrealized losses 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,
2017
2016
2015
$
(1,107)
(38)
640
(505)
(302)
480
15
193
463
1,419
(793)
1,089
$
(6,428) $
(449)
2,795
(4,082)
(2,489)
8
1,047
(1,434)
(1,452)
384
438
(630)
1,191
944
(865)
1,270
196
358
(174)
380
(1,008)
657
150
(201)
Other comprehensive income (loss)
$
777
$
(3,442) $
(1,255)
The following is a summary of the accumulated other comprehensive loss balances, net of income taxes at the dates indicated:
(In thousands)
Unrealized losses on available for sale securities
Unrealized (losses) gains on pension benefits
Unrealized gains on cash flow hedges
Accumulated other comprehensive (loss) income, net of income taxes $
$
December 31,
2016
Other
Comprehensive
Income
Impact of
Tax Act
(1)
December 31,
2017
(8,823) $
(4,741)
500
(13,064) $
(505) $ (2,009) $
193
1,089
(985)
342
777 $ (2,652) $
(11,337)
(5,533)
1,931
(14,939)
(1) Impact of Tax Act related to reclassification to retained earnings.
The following represents the reclassifications out of accumulated other comprehensive (loss) income:
(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 taxes
Income tax benefit
Total reclassifications, net of income taxes
Year Ended December 31,
2017
2016
2015
Affected Line Item in the
Consolidated Statements of Income
$
38
$
449
$
(8)
Net securities gain (losses)
77
(27)
(530)
(1,419)
(1,861)
762
(1,099)
$
77
(28)
(433)
(944)
(879)
356
(523)
$
77
(27)
(408)
(657)
(1,023)
414
(609)
$
Salaries and employee benefits
Salaries and employee benefits
Salaries and employee benefits
Interest expense
Income tax expense
Page -85-
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected Consolidated Quarterly Financial Data
2017 Quarter Ended
(In thousands, except per share amounts)
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Non-interest expense
Income (loss) before income taxes
Income tax expense
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) 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,
$
35,217
4,756
30,461
800
29,661
4,122
20,296
13,487
4,316
9,171
0.47
0.47
$
$
$
March 31,
33,607
$
4,175
29,432
1,250
28,182
3,995
18,907(4)
13,270
4,644
8,626
0.49
0.49
$
$
$
$
$
$
$
$
$
$
$
June 30,
36,234
5,441
30,793
950
29,843
4,509
21,006
13,346
4,505
8,841
0.45
0.45
September 30, December 31,
39,960
$
6,399
33,561
10,400(1)
23,161
4,499
29,154(2)
(1,494)
5,422(3)
(6,916)
(0.35)
(0.35)
38,438 $
6,093
32,345
1,900
30,445
4,972
21,271
14,146
4,703
9,443 $
0.48 $
0.48 $
$
$
$
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(5)
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 $
$
$
$
(1) 2017 amount includes net charge-offs primarily from loans and specific reserves associated with two relationships of $8.0 million.
(2) 2017 amount includes restructuring costs associated with branch restructuring and charter conversion of $8.0 million.
(3) 2017 amount includes a charge to write-down deferred tax assets due to the enactment of the Tax Act of $7.6 million.
(4) 2016 amount includes reversal of costs associated with the CNB and FNBNY acquisitions of $0.3 million.
(5) 2016 amount includes reversal of costs associated with the CNB and FNBNY acquisitions of $0.7 million.
22. 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.
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,
2017, 2016 and 2015 include the operating results of CNB since the acquisition date of June 19, 2015.
Page -86-
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
72,029
157,503
$ 85,474
Measurement
Period
Adjustments (1)
$ -
-
(6,935)
-
(5,122)
-
7,245
$ (4,812)
$ -
-
6,214
$ 6,214
(11,026)
-
$ 11,026
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
61,003
157,503
$ 96,500
(1) Explanation of measurement period adjustments:
Loans – represents adjustments to the initial fair values related to certain PCI 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 -87-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Audit Committee of Bridge Bancorp, Inc.
Bridgehampton, New York
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Bridge Bancorp, Inc. (the “Company”) as of December 31, 2017 and 2016, the
related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period
ended December 31, 2017, and the related notes (collectively referred to as “financial statements”). We also have audited the Company’s internal
control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework: (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December
31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—
Integrated Framework: (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report On Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
We have served as the Company’s auditor since 2002.
New York, New York
March 9, 2018
Crowe Horwath LLP
Page -88-
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, 2017. 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, 2017. 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, 2017, 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, 2017, that
has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
On March 9, 2018, the Company and the Bank amended their employment agreement with Howard H. Nolan, Senior Executive Vice
President, Chief Operating Officer and a member of the Board of Directors of the Bank and the Company, and entered into
substantially similar employment agreements with James J. Manseau, Executive Vice President, Chief Retail Banking Officer of the
Bank and the Company, John M. McCaffery, Executive Vice President, Chief Financial Officer of the Bank and the Company, and
Kevin L. Santacroce, Executive Vice President, Chief Lending Officer of the Bank and the Company, which agreements superseded
and replaced their prior change in control agreements. The term of each employment agreement is two years, renewing daily, so that
the remaining term is twenty-four months, unless notice of non-renewal is provided to the executive. Base salary is reviewed annually
and can be increased but not decreased.
Pursuant to these agreements, if an executive voluntarily terminates his employment without “good reason,” or if the executive’s
employment is terminated for cause, no benefits are provided under the agreement.
In the event of (i) the executive’s involuntary termination for any reason other than disability, death, retirement or termination for
cause, or (ii) the executive’s resignation upon the occurrence of certain events constituting “good reason,” including a reduction in the
executive’s duties, responsibilities or base salary, the executive would be entitled to a severance benefit equal to a cash lump sum
payment equal to 24 months base salary and the value of continued health and medical insurance coverage for 24 months, payable
within ten business days following the date of termination of employment.
In the event of (i) the executive’s involuntary termination for any reason other than cause, or (ii) the executive’s resignation upon the
occurrence of certain events constituting “good reason,” including a reduction in the executive’s duties, responsibilities or pay, within
Page -89-
two years (one year for Mr. Nolan) following a change in control, the executive would be entitled to a severance benefit equal to a
cash lump sum payment equal to three times the sum of base salary and the highest annual bonus earned during the prior three years
and the value of continued health and medical insurance coverage for 36 months, payable within ten business days following the date
of termination of employment. Each employment agreement provides that the executive’s cash severance will be reduced to the
limitation under Section 280G of the Internal Revenue Code only if this will result in the executive receiving a greater total payment
as measured on an after-tax basis.
Except in the event of a change in control, following termination of employment each executive is subject to non-competition
restrictions.
The foregoing description is qualified in its entirety by reference to the amendment to employment agreement and form of
employment agreement that are attached hereto as Exhibits 10.1(iii) and 10.7, respectively, and are incorporated by reference into this
Form 10-K.
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 4, 2018 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 4, 2018 and is incorporated herein by reference thereto.
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 4, 2018 and is incorporated
herein by reference thereto.
Set forth below is certain information as of December 31, 2017, 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
19,928
133,468
153,396
—
—
—
—
411,748
411,748
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 4, 2018 and is incorporated herein by
reference thereto.
Item 14. Principal Accountant Fees and Services
The information regarding the Company’s independent registered public accounting firm’s fees and services will be set forth in the
Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 4, 2018, and is incorporated herein by
reference thereto.
Page -90-
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.
37
38
39
40
41
42
88
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 93.
Item 16. Form 10-K Summary
Not applicable.
Page -91-
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 9, 2018
March 9, 2018
March 9, 2018
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/ Nicholas Parrinelli
Nicholas Parrinelli
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 9, 2018
March 9, 2018
March 9, 2018
March 9, 2018
March 9, 2018
March 9, 2018
March 9, 2018
March 9, 2018
March 9, 2018
March 9, 2018
March 9, 2018
March 9, 2018
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
/s/ Marcia Z. Hefter
Marcia Z. Hefter
/s/ Dennis A. Suskind
Dennis A. Suskind
/s/ Kevin M. O’Connor
Kevin M. O’Connor
/s/ Emanuel Arturi
Emanuel Arturi
/s/ 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 -92-
EXHIBIT INDEX
Exhibit Number
Description of Exhibit
Exhibit
*
*
*
*
*
*
*
*
*
*
*
3.1
3.1(i)
3.1(ii)
3.2
10.1
10.1(i)
10.1(ii)
Certificate of Incorporation of the Registrant (incorporated by reference to Registrant’s amended
Form 10-QSB, 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-Q, 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. 001-34096, filed November 18,
2008)
Revised Bylaws of the Registrant
Amended and Restated Employment Contract – Howard H. Nolan (incorporated by reference to
Registrant’s Form 8-K, File No. 001-34096, filed June 24, 2015
First Amendment to the Amended and Restated Employment Contract – Howard H. Nolan
(incorporated by reference to Registrant’s Form 10-Q, File No. 0-18546, filed May 10, 2016
Second Amendment to the Amended and Restated Employment Contract – Howard H. Nolan
(incorporated by reference to Registrant’s Form 10-Q, File No. 0-18546, filed August 8, 2016
10.1(iii)
Third Amendment to the Amended and Restated Employment Contract – Howard H. Nolan
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
Employment Contract – Kevin M. O’Connor (incorporated by reference to Registrant’s Form 8-K,
File No. 0-18546, filed October 15, 2007)
Equity Incentive Plan (incorporated by reference to Registrant’s Definitive Proxy Statement, File
No. 0-18546, filed March 24, 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. 001-34096, filed April 2, 2012)
Bridge Bancorp, Inc. Amended and Restated Directors Deferred Compensation Plan (incorporated
by reference to Registrant’s Form 10-K, File No. 001-34096, filed March 10, 2017)
Form of Employment Agreement entered into with James J. Manseau, John M. McCaffery and
Kevin L. Santacroce
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, 2017, filed on March 9, 2018, formatted in XBRL: (i) Consolidated
Balance Sheets as of December 31, 2017 and 2016, (ii) Consolidated Statements of Income for the
Years Ended December 31, 2017, 2016 and 2015, (iii) Consolidated Statements of Comprehensive
Income for the Years Ended December 31, 2017, 2016 and 2015, (iv) Consolidated Statements of
Stockholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015, (v) Consolidated
Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015, and (vi) the
Notes to Consolidated Financial Statements.
XBRL Instance Document
Page -93-
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
*
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 -94-
BNB BANK
BRANCHES
Astoria
Bay Shore
Bayside
Bridgehampton
Deer Park
East Hampton
East Hampton Village
East Moriches
Garden City
Great Neck
Greenport
Hampton Bays
Hauppauge
Huntington
Manhattan
Mattituck
Melville
Merrick
Montauk
Oceanside
Patchogue
Peconic Landing
Port Jefferson
Riverhead
Rockville Centre
Rocky Point
Ronkonkoma
Sag Harbor
Sag Harbor Drive-Thru
Shelter Island
Shirley
Smithtown
Southampton Village
Southampton
(Windmill Lane)
Southold
Wading River
Westhampton Beach
Woodbury
LENDING OFFICE
Manhattan
Corporate Information
BRIDGE BANCORP, INC.
BOARD OF DIRECTORS
Marcia Z. Hefter
Chairperson
Dennis A. Suskind
Vice Chairperson
Kevin M. O’Connor
Emanuel Arturi
Charles I. Massoud
Albert E. McCoy, Jr.
Raymond A. Nielsen
Howard H. Nolan
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 &
Corporate Secretary
BNB 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 & Treasurer
Kevin L. Santacroce
Executive Vice President,
Chief Lending Officer
SENIOR VICE PRESIDENTS
Eric C. Bukowski
Lance P. Burke
Kimberly Cioch
Michelle Dosch
Seamus J. Doyle
Nancy A. Foster
Patricia Horan
12 • Bridge Bancorp, Inc. 2017 Annual Report
Theresa Mackey
Deborah A. McGrory
Ralph G. Meyer
Matthew J. Murphy
William J. Newham
Michael D. Ogus
Thomas M. Pfundstein
Stephen Sheridan
Thomas H. Simson
Stephen J. Sipola
Austin Stonitsch
James B. Thompson
John M. Tuohy
John P. Vivona
Joseph F. Walsh
Aidan P. Wood
VICE PRESIDENTS
Sharon F. Abbondondelo
Noman Arshad
Sabrina Aucello
David C. Barczak
JoAnn Bello
Cynthia M. Berner
Steven Bodziner
Maria Bozzella
Agim B. Bracovic
Edward F. Burger
Michael J. Caldwell
Andrew D. Cameron
Maria L. Cawley
Christina Cinotti
Stephanie Clancy
Laura L. Collins
LuAnn Commisso
Matthew A. Crennan
John Daly
Daniel P. Delehanty
Gail M. DeSibio
Jamie M. Desmond
Elizabeth Drury
Anthony V. Errera
John Farina
Stuart M. Fliegelman
Christopher Fragnito
Steven J. Frascatore
Peter M. Gajda
Anna M. Garcia Afkham
Michelle E. Gee
Stanley J. Glinka
Theresa E. Going
Laura B. Gorman
Sean M. Granholm
Jeffrey Greenwald
Michael V. Hadix
Beth Flanagan Hard
Vaughn Henry
Peter K. Hillick
Maureen Hines
Susan L. Hughes
Steven J. Karaman
Chanbir Kaur
Kerrie E. Kemerson
Craig Kittilsen
Monica E. LaCroix-Rubin
Michael Lanzisera
Krisanthi Lilaj
Judith A. Limpert
Patricia Liotta
David D. Luce
John B. MacCulley
Thomas J. Malley
Marie A. McAlary
Michelle McAteer
Theresa V. McCarthy
Scott McGrath
Margaret Meighan
Nancy L. Messer
Stephen Molfetta
Roger W. Morris
Corrinne E. Newman
Eileen E. O’Brien
Katherine O’Brien
Hayley Orientale
Deborah L. Orlowski
Nicholas Parrinelli
William F. Penteck III
Claudia Pilato
Mohammad N. Qamar
John J. Quinlivan
Jill M. Ramundo
Philip G. Rinaldi
Keith E. Robertson
Frank J. Sabalja
Raymond P. Sanchez
Susan G. Schaefer
Giselle T. Sellino
Veronica Sheppard
Jacqueline Shirian
Maria A. Silverman
Randy A. Snell
Michele Staubitz
William M. Stephens
Thomas J. Sullivan
Nicholas C. Tavantzis
Kathleen M. Taveira
Frank C. Trifaro
Dawn M. Turnbull
Gerald W. Veryzer
Alice E. Wattley
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@bnbbank.com
Shareholders seeking information
about the Company may access
presentations, press releases and
government filings through the
Bank’s website:
www.bnbbank.com.
STOCK TRANSFER AGENT
AND REGISTRAR
Computershare Investor Services
P.O. Box 30170
College Station, TX 77842-3170
800.368.5948
www.computershare.com
Shareholders who would like
to make changes to the name,
address or ownership of their
stock, consolidate accounts, elimi-
nate 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 4, 2018 in the
Community Room, BNB Bank,
2200 Montauk Highway,
Bridgehampton, NY 11932.
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
Photography by Jim Lennon and Kerlin Morales
BRIDGE
BANCORP, INC.
2200 Montauk Highway
P.O. Box 3005
Bridgehampton, New York 11932
631.537.1000
www.bnbbank.com