BRIDGE BANCORP, INC.
20 18 ANNUAL REPORT
Bridge Bancorp, Inc.
(in thousands, except per share data and financial ratios)
At or for the year ended December 31,
EARNINGS
Net income
Financial Highlights
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
2018
2017
$
39,227
$
20,539
8.66%
0.87%
4.64%
0.49%
$ 4,700,744
$ 4,430,002
$ 3,275,811
$ 3,102,752
$ 3,886,393
$ 3,334,543
$ 453,830
$ 429,200
$
$
$
1.97
0.92
22.93
$
$
$
1.04
0.92
21.78
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,
2018
2017
As reported—(GAAP)
Adjustments:
Net securities losses
Net fraud loss
Office relocation costs
Restructuring costs
Income tax effect of adjustments
above
Deferred tax asset remeasurement
Net
Income
Diluted
EPS
ROA
ROE
Net
Income
Diluted
EPS
ROA
ROE
$39,227
$ 1.97
0.87%
8.66%
$20,539
$1.04
0.49%
4.64%
7,921
8,900
750
—
0.40
0.45
0.04
—
0.18%
0.20%
0.02%
—
1.75%
1.97%
0.17%
—
—
—
—
8,020
—
—
—
0.40
—
—
—
0.19%
—
—
—
1.81%
(3,865)
—
(0.20)
—
(0.09%)
—
(0.86%)
—
(2,807)
7,572
(0.15)
0.39
(0.07%)
0.18%
(0.63%)
1.71%
Adjusted results—(non-GAAP)
$52,933
$ 2.66
1.18%
11.69%
$33,324
$1.68
0.79%
7.53%
The tables above provide a reconciliation of certain financial measures calculated under generally accepted accounting principles (“GAAP”) (as reported) and non-
GAAP. 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 GAAP in the United States. The
Company’s management believes the presentation of non-GAAP financial measures provides 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.
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
$4.7 billion, operates 40 locations, including one loan production office in Manhattan, serving Long Island and
Bridge Bancorp, Inc.
the greater New York metropolitan area. 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 Long Island Business News Best Place to
Work on Long Island and one of Long Island’s Top Workplaces for 2018 by Newsday, also has a rich tradition of
involvement in the community, supporting programs and initiatives that promote local business, the environ-
ment, education, healthcare, social services and the arts.
AT A GLANCE
Billion in total deposits
at year end 2018 with 38% in
demand deposits
$
Billion in assets
at year end 2018
Employees
$
3.9
4.7
475
BNB Bank continues to focus on profitably growing its business by
adding and expanding relationships. This was evident in 2018 with both
loans and deposits realizing double-digit annualized increases.
1
Bridge Bancorp, Inc.
Delivering beyond expectations. This is our guiding principle, and the commitment we make
to our shareholders, customers and employees. As we look back at 2018, and forward to a
Fellow Shareholders:
new year, our management team critically reviews, evaluates and plans with this principle in
mind. We understand the businesses in our marketplace and are laying the groundwork for
a banking evolution, integrating digital delivery of products responsive to customer needs,
while maintaining the core principles of community banking, reliant on people.
Committed to delivering beyond expectations
We made major strides in 2018 that position BNB Bank to take its community
banking model to the next level.
In 2018, we realized growth across the Bank’s footprint. Our legacy markets on the East End
of Long Island continue to deliver solid deposit and loan growth. In these markets our brand
is strong and our connection to the community comes from over 100 years of history, as well
as a track record of developing partnerships, often handed down through generations. Our
newest geography is to the west: Nassau County, Queens and New York City. The potential
for growth is tremendous. While larger institutions have dominated this market, BNB pro-
vides a high-touch banking alternative. New customers value a relationship offering them
personalized service with flexible solutions, bankers who are passionate and dedicated, with
local market knowledge and access to decision makers. Our growing reputation as the lead-
ing community banking partner is evidenced by double digit growth, increasing numbers of
customer referrals, and the talented bankers who have joined us.
We made major strides in 2018 positioning BNB to take its community banking model to the
next level. First, the decision to centralize operations in Hauppauge brings critical functions
under one roof, encourages interdepartmental engagement and supports an energetic and
interactive culture. Of course, with nearly 500 employees and a branch network extending
nearly 120 miles, we are cognizant of the need to improve communications and access to
information for everyone. In January 2019, we launched our new intranet, THE BRIDGE, a
communications platform that invites discussion and makes information easily accessible. It
has already become part of our daily conversation.
2
A strong executive management team stands behind President and Chief Executive Officer, Kevin M. O’Connor.
(Left to right) Arthur R. Phidd, Chief Information Officer; John M. McCaffery, Chief Financial Officer; Kevin L. Santacroce,
Chief Lending Officer; John P. Vivona, Chief Risk Officer; Howard H. Nolan, Chief Operating Officer; Eric C. Bukowski,
Chief Credit Officer; James J. Manseau, Chief Retail Banking Officer; Austin Stonitsch, Chief Talent Officer.
Part of encouraging growth is to make sure the right structure is in place. We made several
organizational changes to facilitate our growing business. Our loan department was reorgan-
ized in 2018, specifically in response to market needs. A Middle Market lending team now
complements the Business Banking division. As our lending capacity has increased, we are
able to support the financial needs of larger businesses. A $35 million loan for a customer
project would not have been possible just two years ago. Our growth fuels customer growth,
and mutual success.
The lending environment is increasingly competitive. Large banks, that previously ignored
our customer base, are now paying attention. FinTech has accelerated the loan process and
changed customer expectations. We took a hard look at our own processes and added tech-
nology to streamline risk assessment and our approval process, delivering expedited and prudent
decisions to our customers. While the addition of the Middle Market team addresses larger
customers, we are proud that our SBA division has been designated a top lender in New York.
This aligns with our goal of supporting the success of local business at every level.
2018 brought an increasing focus on our menu of products. Our Cash Management tool kit was
rebranded as Treasury Management. This decision aligns these products and services, includ-
ing online banking, remote deposit, lockbox and merchant, with the rest of the marketplace.
3
Bridge Bancorp, Inc.
Online
Banking
Remote
Deposit
LENDER
Credit &
Debit
Cards
BNB
Website
BNB BANK
CUSTOMER
EXPERIENCE
Merchant
Services
Lockbox
BANKER
Mobile
Banking
ATMs
Enhancing Personalized Service
In the past, support of these products was mixed in with lead generation and sales. The sepa-
ration of these two functions frees the sales team to be more focused and efficient.
Having the right people is always at the heart of our strategy for growth. The addition of an
experienced CIO has opened both our minds and the door to effective digital channels. A
dynamic HR department has identified the talent needed to build our future, and the people
with the skill set for success. With a large percentage of women bank employees, we wanted
to provide access to mentoring and career development. Today, the BNB Women’s Internal
Network (WIN), made up of women bankers from various departments, has initiated a pro-
gram inviting BNB women professionals to network with, and learn from, each other. The
goal is to empower each person to be their best selves and achieve the highest level of career
success. Taking this concept a step further, our senior women business development officers
are reaching out to engage women-owned business customers in the conversation.
I am proud to say that this ongoing focus on our people has resulted in BNB Bank being iden-
tified by both Long Island Business News and Newsday as one of the best places to work on
Long Island, a designation we do not take lightly.
Each year has it challenges. A troubling fraud loss triggered careful review and dialogue on
internal procedures. The implementation of a proactive risk management program now
4
Digital platforms and artificial intelligence are
already changing how customers interact with
their institutions. At BNB Bank, the information
and communications technology team is proac-
tively analyzing the customer journey at every
touch point. This critical data is driving a trans-
formation that will, over time, improve the customer
experience and help develop a responsive menu
of products and services. The result will be a com-
munity bank that successfully marries personal
service with technology innovation—banking at
the next level.
Enriching the Customer Experience
Mike Mere, owner and president of M&M Sign and
Awning, started 40 years ago in a small two car
garage in East Northport, NY. Today Mike oversees
one of the top awning and sign companies on the
East Coast, manufacturing and installing high qual-
ity products. The company now occupies 50,000 sq.
feet in two buildings. His partnership with his BNB
banker has allowed him to confidently grow his busi-
ness knowing he has the financial support to move
To see more visit bnbbank.com/success_stories
his business forward.
Accu Data Workforce Solutions offers uncom-
promising, quality services in Payroll, Human
Resources and Benefits Administration. This
family-run business consistently puts its custom-
ers first, developing long-term relationships based
on trust. It’s focus has fueled rapid growth. BNB
Bank has grown with Accu Data, financing its
headquarters, building and delivering reliable
banking and technology solutions customized to
meet the demands of Accu Data’s business. And,
President Ralph Accardo values the direct and
To see more visit bnbbank.com/success_stories
easy access he has to his banker.
Positioned for New Opportunities
®
Sea Tow’s growth has been fueled by hard work,
innovation and strategic use of technology. When
the Coast Guard discontinued non-emergency
services in 1983, Captain Joe founded, what is
. With the next
today Your Road Service at Sea
generation, Captain Joseph Frohnhoefer III and
Kristen Frohnhoefer, at the helm, Sea Tow offers
on-water assistance nationwide, in Puerto Rico
and the U.S.V.I. BNB provides Sea Tow easy
access to technology like remote deposit, ACH
and merchant services; paramount to the opera-
To see more visit bnbbank.com/success_stories
tion of this international organization.
guides both customers and staff to identify vulnerabilities and react quickly to red flags. This
protects both the Bank and our customers from fraud and malicious behavior.
Our plans for 2019 are increasingly data centric, with the customer experience as the focus.
We honor the traditions of highly personalized service, which are the foundation of our suc-
cess. However, future success is dependent on our ability to be nimble. We understand the
next generation will not walk that same path, or do business exactly as it’s done today. We
expect many current, and certainly future, customers will make more online purchases and
expect to hear from their financial institution via email and text. They assign a premium to the
quality and ease of the banking interaction, while making it a priority to work with a socially
responsible corporation.
BNB is prepared to deliver a banking experience our legacy and future customers can both
embrace. Our focus is on engineering multiple delivery channels. New technologies will
enhance the information gathered by our bankers, and help us deliver a unique customer
experience based on transaction data. From a withdrawal at an ATM, to online banking, bill
payment or an in-branch interaction, we will follow the path and serve up products and
services targeted to that individual customer.
Long Island, including the contiguous boroughs of Brooklyn and Queens, offers endless busi-
ness opportunities, with a population of almost 8 million and proximity to the world’s greatest
city. We estimate that in Nassau County alone there is more than $70 billion in deposits.
There is positive momentum across Long Island as initiatives are in progress addressing the
issues of housing and the environment. Economic indicators are trending up, with low unem-
ployment and greater job growth.
It is an exciting time to be a community bank, and we have the structure in place to take this
institution to the next level. I am optimistic about the future of Long Island and BNB Bank.
We have made hard decisions and smart choices, we recognize the challenging work before
us and have the right people in place to address it. At our foundation, we have the support of
an exceptional board of directors who embrace our vision. I thank each of you for your trust
and for joining us on this journey.
Sincerely,
Kevin M. O’Connor
President and Chief Executive Officer
7
(at December 31, in millions)
Total Assets
$5,000
$4,700.7
(in millions)
Net Income
$40
$39.2
$4,000
$3,000
$2,000
$1,000
0
$30
$20
$10
0
’14
’15
’16
’17
’18
’14
’15
’16
’17
’18
(at December 31, 2018)
Total Loans by Type
(at December 31, 2018)
Total Deposits by Type
AVERAGE YIELD
ON LOANS
4.56%
42% Commercial Mortgages
20% Commercial Loans
18% Multi-family Loans
14% Residential & Consumer Loans
4% Construction & Land Loans
2% Equity Loans
AVERAGE COST
OF DEPOSITS
38% Demand Deposits
36% Money Markets
18% Savings & NOW
8% Certificates of Deposit
0.59%
(at December 31, in millions)
$3,500Total Loans
$3,275.8
(at December 31, in millions)
Total Deposits
$4,000
$3,886.4
$3,000
$2,000
$1,000
0
’14
’15
’16
’17
’18
’14
’15
’16
’17
’18
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
8
Bridge Bancorp, Inc.
BRIDGE BANCORP, INC.
(cid:1006) (cid:1004) (cid:1005) (cid:1012) (cid:3) (cid:38)(cid:75)(cid:90) (cid:68) (cid:3) (cid:1005) (cid:1004) (cid:883) (cid:60)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:95)(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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
(I.R.S. Employer Identification No.)
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) 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) No (cid:95)
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) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes (cid:95) 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:134)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth 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)
Non-accelerated filer (cid:134)
Accelerated filer (cid:95)
Smaller reporting company (cid:134)
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) 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, 2018, was $585,597,423.
The number of shares of the Registrant’s common stock outstanding on February 28, 2019 was 19,845,981.
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 2019 Annual Meeting to be filed pursuant to Regulation 14A on or before April 30, 2019 (Part III).
TABLE OF CONTENTS
PART I
Item 1
Business
Item 1A
Risk Factors
Item 1B
Unresolved Staff Comments
Item 2
Properties
Item 3
Legal Proceedings
Item 4
Mine Safety Disclosures
PART II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6
Selected Financial Data
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Item 8
Financial Statements and Supplementary Data
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A
Controls and Procedures
Item 9B
Other Information
PART III
Item 10
Directors, Executive Officers and Corporate Governance
Item 11
Executive Compensation
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13
Certain Relationships and Related Transactions, and Director Independence
Item 14
Principal Accountant Fees and Services
PART IV
Item 15
Exhibits and Financial Statement Schedules
Item 16
Form 10-K Summary
EXHIBIT INDEX
SIGNATURES
1
1
10
16
16
16
16
17
17
19
20
39
41
96
96
96
96
96
97
97
97
97
98
98
98
99
101
Item 1. Business
PART I
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. 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. The Bank operates 39 branches in
its primary market areas of Suffolk and Nassau Counties on Long Island and the New York City boroughs, including 36
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 and land loans; (7) Federal Home
Loan Bank (“FHLB”), Federal National Mortgage Association (“Fannie Mae”), Government National Mortgage
Association (“Ginnie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) mortgage-backed securities,
collateralized mortgage obligations and other asset backed securities; (8) New York State and local municipal obligations;
(9) U.S. government-sponsored enterprise (“U.S. GSE”) securities; and (10) corporate bonds. 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 LLC, 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, 2018, the Bank had 473 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. Refer to Note 15. “Stock-Based
Compensation Plans” for further details of the Company’s equity incentive plans.
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
Page -1-
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 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 the zip codes in which the Bank operates. As the Bank had $423.6 million, or 3%, of this
Nassau County deposit base at December 31, 2018, 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 15 branches in New York, including eight branches over the last five years, to continue
expansion into new markets and strengthen the Bank’s position in existing markets. In 2014, the Bank opened three
branches in Suffolk County in Bay Shore, Port Jefferson and Smithtown. In 2017, the Bank opened three branches in
Suffolk County: one in Riverhead, capitalizing on a 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 drive-up facility located in Sag Harbor.
The Bank also opened a branch in Astoria, Queens in 2017. In 2018, the Bank opened a limited service branch in Suffolk
County located in Melville.
Branch Rationalization
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 were located in Cutchogue, Center
Page -2-
Moriches, and Melville. The branches closed in Nassau County, New York were located in Massapequa, New Hyde Park
and Hewlett.
Mergers and Acquisitions
Hamptons State Bank (“HSB”)
In May 2011, the Bank acquired HSB, which increased the Bank’s presence in an existing market with a branch located
in the Village of Southampton.
First National Bank of New York
In February 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 of the
Company’s 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 (“CNB”)
In June 2015, the Company acquired CNB at a purchase price of $157.5 million, issued an aggregate of 5.647 million of
the Company’s 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. The transaction complemented the Bank’s existing branch network and enhanced asset
generation capabilities.
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
Page -3-
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.
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%.
Page -4-
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 September 2019. For the quarter ended December 31, 2018,
the annualized FICO assessment was equal to 0.32 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 was 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.
Community Bank Leverage Ratio
Legislation enacted in 2018 requires the federal banking agencies, including the FRB, to amend the regulatory capital
regulations to establish a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total
consolidated assets) of between 8% and 10% of average total consolidated assets. Banking organizations of less than $10
billion of assets that have capital meeting the specified level and satisfying other criteria could elect to follow this
alternative framework and be deemed in compliance with all applicable capital requirements, including the risk-based
Page -5-
requirements and would be considered “well capitalized” under “prompt corrective action” statutes. The federal banking
agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for
purposes of the capital ratio requirement. The agencies have issued a proposed rule that, if finalized, would set the
Community Bank Leverage Ratio at 9%.
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 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). Under
the proposed rulemaking discussed above, an institution would be deemed to be “well capitalized” if it meets the
“Community Bank Leverage Ratio.”
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 retained net income plus the prior two years’ retained net
income that is still available for dividend. Dividends exceeding those amounts require application to and approval by the
Page -6-
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 member 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, 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 Act (“CRA”), the Bank has a continuing and affirmative obligation consistent
with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does
it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the 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
Page -7-
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 Federal Reserve Bank
of New York and the NYSDFS, 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 companies 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 was phased-
in between 2016 and 2019. The new capital rule eliminated 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 grandfathered 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, 2018.
The policy of the FRB is that a bank holding company must serve as a source of strength to its subsidiary banks by
providing capital and other support in times of distress. The Dodd-Frank Act codified the source of strength policy.
Under the prompt corrective action provisions of federal law, a bank holding company parent of an undercapitalized
subsidiary bank is required to guarantee, within specified limits, the capital restoration plan that is required of an
undercapitalized bank. If an undercapitalized bank fails to file an acceptable capital restoration plan or fails to implement
an accepted plan, the FRB may prohibit the bank holding company parent of the undercapitalized bank from paying
dividends or making any other capital distribution.
As a bank holding company, the Company is required to obtain the prior approval of the FRB to acquire more than 5% of
a class of voting securities of any additional bank or bank holding company or to acquire all, or substantially all, the assets
of any additional bank or bank holding company. In addition, the bank holding companies may generally only engage in
activities that are closely related to banking as determined by the FRB. Bank holding companies that meet certain criteria
may opt to become a financial holding company and thereby engage in a broader array of financial activities.
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
Page -8-
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.
Current FRB regulations provide that 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. However, it has recently come to the attention of the Company that the FRB staff is interpreting the
capital regulations as requiring a bank holding company to secure FRB approval prior to redeeming or repurchasing any
capital stock that is included in regulatory capital.
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 2018, 2017, and 2016 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 $261.2 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 -9-
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 334% of total risk-based capital at December 31, 2018. Including owner-occupied commercial real estate,
the ratio of commercial real estate loans to total risk-based capital ratio would be 447% at December 31, 2018.
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,
Page -10-
and the interest expense that the Bank pays on its interest-bearing liabilities, such as deposits and borrowings. The Bank’s
profitability depends on its ability to manage its assets and liabilities during periods of changing market interest rates.
In a period of rising interest rates, the interest income earned on the Bank’s assets may not increase as rapidly as the interest
paid on its liabilities. In an increasing interest rate environment, the Bank’s cost of funds is expected to increase more
rapidly than interest earned on its loan and investment portfolio as its primary source of funds is deposits with generally
shorter maturities than those on its loans and investments. This makes the balance sheet more liability sensitive in the short
term.
A sustained decrease in market interest rates could adversely affect the Bank’s earnings. When interest rates decline,
borrowers tend to refinance higher-rate, fixed-rate loans at lower rates. Under those circumstances, the Bank would not be
able to reinvest those prepayments in assets earning interest rates as high as the rates on those prepaid loans or in investment
securities. In addition, the majority of the Bank’s loans are at variable interest rates, which would adjust to lower rates.
Changes in interest rates also affect the fair value of the securities portfolio. Generally, the value of securities moves
inversely with changes in interest rates. As of December 31, 2018, the securities portfolio totaled $865.1 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.
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,
Page -11-
or to otherwise attract, motivate, or retain qualified personnel could have an adverse effect on the Company’s business,
operating results and financial condition.
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 Company’s business may be adversely affected by fraud and other financial crimes.
The Company’s loans to businesses and individuals and its deposit relationships and related transactions are subject to
exposure to the risk of loss due to fraud and other financial crimes. While the Company has policies and procedures
designed to prevent such losses, losses may still occur.
The Company has recently experienced losses due to fraud. In 2018, the Company incurred a pre-tax charge, net of
recovery, of $8.9 million relating to the fraudulent conduct of a business customer through its deposit accounts. The
Company has filed a claim for the loss with its insurance carrier, however, the extent and amount of coverage is not yet
certain.
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 may be required to transition from the use of LIBOR in the future.
On July 27, 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR,
announced that it intends to stop persuading or compelling banks to submit rates for the calibration of LIBOR to the
administrator of LIBOR after 2021. The continuation of LIBOR cannot be guaranteed after 2021. At this time, no
consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and it is impossible to predict the
effect of any such alternatives on the value of LIBOR-based securities and variable rate loans, subordinated debentures,
Page -12-
or other securities or financial arrangements, given LIBOR's role in determining market interest rates globally. Uncertainty
as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect
LIBOR rates and the value of LIBOR-based loans and securities in the Company’s portfolio and may impact the
availability and cost of hedging instruments and borrowings. The Company has material contracts that are indexed to
LIBOR and is monitoring this activity and evaluating the related risks. If LIBOR rates are no longer available and the
Company is required to implement substitute indices for the calculation of interest rates, the Company may incur expenses
in effecting the transition, and may be subject to disputes or litigation with customers and security holders over the
appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on the Company’s
results of operations.
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.
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
Page -13-
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 non-accrual 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’ was phased in from
January 1, 2016 to January 1, 2019.
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.
Page -14-
Risks associated with system failures, interruptions, or breaches of security could negatively affect the
Company’s operations and earnings.
Information technology systems are critical to the Company’s business. The Company collects, processes and stores
sensitive customer data by utilizing computer systems and telecommunications networks operated by it and third party
service providers. The Company has established policies and procedures to prevent or limit the impact of system failures,
interruptions, and security breaches, but such events may still occur or may not be adequately addressed if they do occur.
In addition, any compromise of the Company’s systems could deter customers from using the Bank’s products and
services. Although the Company takes numerous protective measures and otherwise endeavors to protect and maintain the
privacy and security of confidential data, these systems may be vulnerable to unauthorized access, computer viruses, other
malicious code, cyberattacks, including distributed denial of service attacks, cyber-theft and other events that could have
a security impact. If one or more of such events were to occur, this potentially could jeopardize confidential and other
information processed and stored in, and transmitted through, the Company’s systems or otherwise cause interruptions or
malfunctions in the Company’s or the Company’s customers' operations.
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. The Company may be required to expend significant additional resources to
modify its protective measures or to investigate and remediate vulnerabilities or other exposures, and it may be subject to
litigation and financial losses that are not fully covered by the Company’s insurance. 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.
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
Page -15-
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 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 2018, 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 December 31, 2018, the Bank owned eight properties located in Suffolk County, New York consisting of its corporate
headquarters and branch office located at 2200 Montauk Highway in Bridgehampton; six branches located in Montauk,
Southold, Westhampton Beach, Southampton Village, East Hampton Village and Mattituck; and one drive-up facility
located in Sag Harbor. In 2018, the Bank purchased the Mattituck branch property which it had previously leased. The
Bank leases a portion of the Montauk and Westhampton Beach properties to commercial lessees.
At December 31, 2018, the Bank maintained executive offices and back office operations at leased facilities located in
Suffolk County, New York at 898 and 888 Veterans Highway in Hauppauge. The Bank leases 30 additional properties as
branch locations in New York: 21 in Suffolk County; six in Nassau County; two in Queens; and one in Manhattan.
Additionally, the Bank leases one property as a loan production office in Manhattan. The Bank subleases a portion of the
leased properties located in Patchogue and Melville in Suffolk County to commercial sublessees.
For additional information on the Company’s premises and equipment, see Note 6. “Premises and Equipment, net” in the
notes to the consolidated financial statements.
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 -16-
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
At February 28, 2019, the Company had approximately 996 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”.
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, 2013 through December 31, 2018. The graph
assumes the reinvestment of dividends in additional shares of the same class of equity securities as those listed below.
Bridge Bancorp, Inc.
Period Ending
12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18
100.00
114.80
100.00
168.30
100.00
157.27
153.41
173.22
179.51
161.71
133.62
168.38
125.76
122.74
117.04
106.81
114.75
104.56
Index
Bridge Bancorp, Inc.
NASDAQ Composite
SNL Bank $1B-$5B
Page -17-
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, 2018:
October 1, 2018 through October 31, 2018
November 1, 2018 through November 30, 2018
December 1, 2018 through December 31, 2018
Total
Total Number of
Shares
Average Price
Total Number of
Shares Purchased Maximum Number
of Shares That May
Yet Be Purchased
Announced Plans Under the Plans or
as Part of
Publicly
Purchased (1) Paid per Share or Programs
Programs (2)
— $
566
—
566
—
30.08
—
30.08
—
—
—
—
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.
(2) The Board of Directors approved a stock repurchase plan in March 2006 that authorized the repurchase of 309,000
shares. In February 2019, the Company announced the adoption of a new stock repurchase plan for up to 1,000,000
shares, replacing the previous plan. There is no expiration date for the stock repurchase plan. No shares were
purchased under a repurchase program during the quarter ended December 31, 2018.
Page -18-
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.
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
$
$
2018
680,886
24,028
160,163
3,275,811
4,700,744
3,886,393
453,830
2017
759,916
35,349
180,866
3,102,752
4,430,002
3,334,543
429,200
December 31,
2016
$
$
819,722
34,743
223,237
2,600,440
4,054,570
2,926,009
407,987
$
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
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 (1)(2)(3)(4)(5)
Basic earnings per share (1)(2)(3)(4)(5)
Diluted earnings per share (1)(2)(3)(4)(5)
Cash dividends declared per common share
$
$
$
2018
168,984
32,204
136,780
1,800
134,980
11,568
98,180
48,368
9,141
39,227
$
$
$
$
Year Ended December 31,
2016
137,716
16,845
120,871
5,550
115,321
16,046
77,081
54,286
18,795
35,491
2017
149,849
22,689
127,160
14,050
113,110
18,102
91,727
39,485
18,946
20,539
$
$
2015
106,240
10,129
96,111
4,000
92,111
12,668
72,890
31,889
10,778
21,111
$
$
2014
74,910
7,460
67,450
2,200
65,250
8,166
52,414
21,002
7,239
13,763
8.66 %
0.87
10.08
46.76
1.97
1.97
0.92
$
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
$
7.76 %
0.64
8.27
77.43
1.18
1.18
0.92
(1) 2018 amount includes $6.2 million of net securities losses, net of taxes, associated with the balance sheet restructure,
$6.9 million of net fraud loss, net of taxes, related to the fraudulent conduct of a business customer through its deposit
accounts at BNB, and $0.6 million of office relocation costs, net of taxes.
(2) 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.
(3) 2016 amount includes reversal of $0.6 million of acquisition costs, net of taxes, associated with the CNB and FNBNY
acquisitions.
(4) 2015 amount includes $6.3 million of acquisition costs, net of taxes, associated with the CNB acquisition.
(5) 2014 amount includes $3.8 million of acquisition costs, net of taxes, associated with the FNBNY and CNB
acquisitions and branch restructuring costs.
Page -19-
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
(cid:120)
(cid:120)
Net income for the 2018 fourth quarter of $13.9 million, or $0.70 per diluted share.
Net income for the full year 2018 was $39.2 million, or $1.97 per diluted share, compared to $20.5 million, or
$1.04 per diluted share, for the full year 2017. Inclusive of:
Page -20-
o Pre-tax charge of $8.9 million, or $0.35 per diluted share after tax, related to the fraudulent conduct of a
business customer through its deposit accounts at BNB in the 2018 third quarter.
o Pre-tax net securities losses of $7.9 million, or $0.31 per diluted share after tax, related to the Company’s
balance sheet restructure in the 2018 second quarter.
o Pre-tax charge of $0.8 million, or $0.03 per diluted share after tax, related to the Company’s office relocation
costs in the 2018 fourth quarter.
Net interest income increased to $136.8 million for 2018, compared to $127.2 million in 2017.
Tax-equivalent net interest margin was 3.33% for 2018 and 3.34% in 2017.
Total assets of $4.7 billion at December 31, 2018, an increase of $270.7 million, or 6.1%, over December 31,
2017.
Total loans held for investment at December 31, 2018 of $3.3 billion, an increase of $173.1 million, or 5.6%,
over December 31, 2017.
Total deposits of $3.9 billion at December 31, 2018, an increase of $551.9 million, or 16.5%, over December 31,
2017.
Allowance for loan losses was 0.96% of loans as of December 31, 2018, compared to 1.02% at December 31,
2017.
A cash dividend of $0.23 per share was declared and paid in January 2019 for the fourth quarter.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Significant Recent Events
Net Fraud Loss
The Company incurred a pre-tax charge, net of recovery, of $8.9 million in 2018 relating to the fraudulent conduct of a
business customer through its deposit accounts at the Bank. The Company is working with the appropriate law enforcement
authorities in connection with this matter. The customer has filed a petition pursuant to Chapter 11 of the bankruptcy code.
In January 2019, the Company filed a claim for the loss with its insurance carrier, however, the extent and amount of
coverage is not yet certain.
Challenges and Opportunities
In December 2018, in view of realized and expected labor market conditions and inflation, the Federal Open Market
Committee (“FOMC”) decided to raise the target range for the federal funds rate to 2.25 to 2.50 percent. Information
received since the FOMC met in December indicates that the labor market has continued to strengthen and that economic
activity has been rising at a solid rate. On a 12-month basis, both overall inflation and inflation for items other than food
or energy remain near 2 percent. In support of its goals to foster maximum employment and price stability, in January
2019 the FOMC decided to maintain the target range for the federal funds rate at 2.25 to 2.50 percent. The FOMC continues
to view sustained expansion of economic activity, strong labor market conditions, and inflation near the FOMC’s
symmetric 2 percent objective as the most likely outcomes. 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
maximum employment objective and its symmetric 2.00 percent inflation objective. 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.
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 fifteen
branches, including one in November 2018 in Melville, New York. The Bank has also grown through acquisitions
Page -21-
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 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, these strategies should provide long-term benefits.
The Company has established five strategic objectives to achieve its vision: (1) acquire new customers in growth markets;
(2) build new sales and marketing disciplines; (3) deepen customer relationships; (4) expand use of automation; and (5)
improve talent management. 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. In particular, management is focused on expanding and retaining its loan team
as it continues to grow the loan portfolio. 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, 2018 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.
Page -22-
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, 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. 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 credit risk ratings, 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.
For Purchased Credit Impaired (“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.
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,
delinquency and charge-off trends, and the overall allowance levels as they relate to the entire loan portfolio at December
31, 2018 and 2017, 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
Page -23-
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, 2018 totaled $39.2 million, or $1.97 per diluted share, compared to $20.5
million, or $1.04 per diluted share, for the year ended December 31, 2017 and $35.5 million, or $2.00 per diluted share,
for the year ended December 31, 2016. Net income increased $18.7 million, or 91.0%, in 2018 compared to 2017, and net
income for 2017 decreased $15.0 million, or 42.1%, as compared to 2016. Changes in net income for the year ended
December 31, 2018 compared to December 31, 2017 include: (i) a $9.6 million, or 7.6%, increase in net interest income;
(ii) a $12.3 million, or 87.2%, decrease in the provision for loan losses; (iii) a $6.5 million, or 36.1%, decrease in total
non-interest income; (iv) a $6.5 million, or 7.0%, increase in total non-interest expense; and (v) a $9.8 million, or 51.8%,
decrease in income tax expense. The effective income tax rate was 18.9% for 2018 compared to 48.0% for 2017. 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.
The weighted average common and common equivalent shares outstanding used in the computation of diluted earnings
per share for the years ended December 31, 2018, 2017 and 2016 were 19.5 million, 19.4 million and 17.9 million,
respectively. 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.
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 on 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. 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 non-accrual loans. The yields and costs include
fees and costs, which are considered adjustments to yields. Interest on non-accrual loans has been included only to the
extent reflected in the consolidated statements of income. The Tax Act lowered the U.S, federal statutory tax rate from
35% to 21% effective as of January 1, 2018. The Company’s tax-equivalent adjustment to interest income decreased for
the year ended December 31, 2018 as a result of the lower federal statutory tax rate in 2018. 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 -24-
(Dollars in thousands)
Interest-earning assets:
Loans, net (1)(2)
Mortgage-backed securities, CMOs and other
asset-backed securities
Taxable securities
Tax-exempt securities (2)
Deposits with banks
Total interest-earning assets (2)
Non-interest-earning assets:
Cash and due from banks
Other assets
Total assets
Interest-bearing liabilities:
Savings, NOW and money market deposits
Certificates of deposit of $100,000 or more
Other time deposits
Federal funds purchased and repurchase
agreements
FHLB advances
Subordinated debentures
Junior subordinated debentures
Total interest-bearing liabilities
Non-interest-bearing liabilities:
Demand deposits
Other liabilities
Total liabilities
Stockholders' equity
Total liabilities and stockholders' equity
Net interest income/net interest rate spread (2) (3)
Net interest-earning assets
Net interest margin (2) (4)
Tax-equivalent adjustment
Net interest income
Net interest margin (4)
Ratio of interest-earning assets to interest-bearing
liabilities
2018
Year Ended December 31,
2017
Average
Balance
Average
Yield/
Average
Balance
Interest Cost
Interest Cost
Average
Yield/
Average
Balance
2016
Average
Yield/
Interest Cost
$ 3,167,933 $ 144,568
4.56 % $ 2,774,422 $ 126,802
4.57 % $ 2,494,750 $ 117,114
4.69 %
679,805
168,326
62,595
52,143
4,130,802
16,591
5,413
1,932
1,076
169,580
2.44
3.22
3.09
2.06
4.11
737,212
220,744
90,077
24,554
3,847,009
15,231
6,074
2,835
278
151,220
2.07
2.75
3.15
1.13
3.93
681,899
219,049
83,677
29,054
3,508,429
13,484
5,612
2,689
147
139,046
1.98
2.56
3.21
0.51
3.96
76,730
285,546
$ 4,493,078
70,053
283,966
$ 4,201,028
62,676
278,455
$ 3,849,560
$ 1,922,515 $ 15,928
3,007
1,801
184,438
107,153
0.83 % $ 1,717,529 $
1.63
1.68
147,366
72,550
7,858
1,843
725
0.46 % $ 1,585,158 $
1.25
1.00
126,904
96,842
5,250
932
684
0.33 %
0.73
0.71
69,604
324,653
78,706
—
2,687,069
1,200
5,729
4,539
—
32,204
1.72
1.76
5.77
—
1.20
132,514
401,258
78,566
668
2,550,451
1,571
6,105
4,539
48
22,689
1.19
1.52
5.78
7.19
0.89
162,118
275,591
78,427
15,620
2,340,660
1,075
3,001
4,539
1,364
16,845
0.66
1.09
5.79
8.73
0.72
1,310,857
42,392
4,040,318
452,760
$ 4,493,078
1,174,840
33,465
3,758,756
442,272
$ 4,201,028
1,110,824
36,839
3,488,323
361,237
$ 3,849,560
137,376
2.91 %
128,531
3.04 %
122,201
3.24 %
$ 1,443,733
$ 1,296,558
$ 1,167,769
(596)
$ 136,780
3.33 %
(0.02)
3.31 %
(1,371)
$ 127,160
3.34 %
(0.03)
3.31 %
(1,330)
$ 120,871
3.48 %
(0.03)
3.45 %
153.73 %
150.84 %
149.89 %
(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 21%, 35% and 35% for the years
ended December 2018, 2017 and 2016, respectively.
(3) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of
average interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average interest-earning assets.
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
Page -25-
volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and
rates. In addition, average interest-earning assets include non-accrual loans.
(In thousands)
Interest income on interest-earning assets:
Loans, net (1) (2)
Mortgage-backed securities, 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
FHLB advances
Subordinated debentures
Junior subordinated debentures
Total interest expense on interest-bearing liabilities
Net interest income (2)
Year Ended December 31,
2018 Over 2017
Changes Due To
2017 Over 2016
Changes Due To
Volume
Rate
Net
Change Volume
Net
Change
Rate
$ 17,958 $
(1,251)
(1,585)
(849)
461
14,734
(192) $ 17,766
1,360
(661)
(903)
798
18,360
2,611
924
(54)
337
3,626
$ 12,754 $ (3,066) $ 9,688
1,747
462
146
131
12,174
1,137
43
200
(26)
14,108
610
419
(54)
157
(1,934)
8,070
1,164
1,076
(371)
(376)
1,035
527
443
(919)
(1,267)
8
(48)
(221)
7,035
637
633
548
891
(8)
—
9,736
—
(48)
9,515
$ 14,955 $ (6,110) $ 8,845
463
168
(198)
(225)
1,662
9
(1,111)
2,608
2,145
911
743
41
239
496
721
3,104
1,442
—
(9)
(1,316)
(205)
5,844
5,076
$ 13,340 $ (7,010) $ 6,330
768
(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 21%, 35% and 35% for the years
ended December 2018, 2017 and 2016, respectively.
Net interest income was $136.8 million for the year ended December 31, 2018 compared to $127.2 million in 2017 and
$120.9 million in 2016. The increase in net interest income was $9.6 million, or 7.6%, in 2018 as compared to 2017 and
$6.3 million, or 5.2%, in 2017 as compared to 2016. Average net interest-earning assets increased $147.2 million to $1.4
billion for the full year 2018 compared to $1.3 billion for the full year 2017 and increased $128.8 million to $1.3 billion
for the full year 2017 compared to $1.2 billion for the full year 2016. The increase in average net interest-earning assets
in 2018 reflects organic growth in loans and a decrease in average borrowings, partially offset by a decrease in average
investment securities and an increase in average deposits. The increase in average net interest-earning assets in 2017
reflects organic growth in loans and an increase in average investment securities, partially offset by increases in average
deposits and average borrowings. Tax-equivalent net interest margin decreased to 3.33% in 2018 compared to 3.34% in
2017 and 3.48% in 2016. The decrease in tax-equivalent net interest margin for 2018 compared to 2017 reflects higher
overall funding costs due in part to the Fed Funds rate increases in 2018 and 2017, partially offset by a higher average
yield on interest-earning assets primarily due to loan portfolio growth, and a higher average yield on investment securities.
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 2017 and 2016, partially offset by the decrease in costs associated with the junior
subordinated debentures, which were redeemed in January 2017.
Total interest income increased to $169.0 million in 2018 compared to $149.8 million in 2017 as average interest-earning
assets increased $283.8 million, or 7.4%, to $4.1 billion in 2018 compared to $3.8 billion in 2017. Interest income increased
to $149.8 million in 2017 compared to $137.7 million in 2016, as average interest-earning assets increased $338.6 million
to $3.8 billion in 2017 compared to $3.5 billion in 2016. The increase in average interest-earning assets in 2018 reflects
organic growth in loans, partially offset by a decrease in average investment securities. The increase in average interest-
earning assets in 2017 reflects organic growth in loans and an increase in average investment securities. The tax-equivalent
average yield on interest-earning assets was 4.11% in 2018, 3.93% in 2017 and 3.96% in 2016.
Interest income on loans increased to $144.4 million in 2018 compared to $126.4 million in 2017 and $116.7 million in
2016, 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, 2018, average loans grew by $393.5 million, or 14.2%, to $3.2 billion as compared to $2.8 billion in
Page -26-
2017, and increased $279.7 million, or 11.2%, in 2017 as compared to $2.5 billion in 2016. The increases in average loans
were the result of the organic growth in commercial real estate mortgage loans, residential mortgage loans, commercial
and industrial loans, multi-family mortgage loans, and real estate construction and land loans. The tax-equivalent average
yield on loans was 4.56% in 2018, 4.57% in 2017 and 4.69% in 2016. The Company remains committed to growing loans
with prudent underwriting, sensible pricing and limited credit and extension risk.
Interest income on investment securities increased to $23.5 million in 2018 from $23.1 million in 2017 and $20.8 million
in 2016. The increase in 2018 compared to 2017 reflects a higher average yield on investment securities, partially offset
by a decrease in the average investment securities. The increase in 2017 compared to 2016 reflects a higher average yield
on investment securities and growth in the investment securities portfolio. For the year ended December 31, 2018, average
total investment securities decreased $137.3 million, or 13.1%, to $910.7 million as compared to $1.0 billion in 2017, and
increased $63.4 million in 2017 compared to $984.6 million in 2016. Interest income on investment securities included
net amortization of premiums on securities of $4.0 million in 2018, compared to $6.4 million in 2017 and $6.5 million in
2016.
Total interest expense increased to $32.2 million in 2018, compared to $22.7 million in 2017 and $16.8 million in 2016.
The increase in total interest expense in 2018 compared to 2017 was a result of an increase in the average cost of interest-
bearing liabilities coupled with an increase in average deposits, partially offset by a decrease in average borrowings. The
increase in total interest expense in 2017 compared to 2016 was a result of an increase in the average cost of interest-
bearing liabilities coupled with an increase in average interest-bearing liabilities. The average cost of interest-bearing
liabilities was 1.20% in 2018, 0.89% in 2017, and 0.72% in 2016. The increase in the average cost of interest-bearing
liabilities was primarily due to higher overall funding costs, due in part to the Fed Funds rate increases in 2018, 2017 and
2016, 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, in a rising rate environment the cost of funds increases faster than the yields on assets. The Company began
extending the terms of certain matured borrowings by utilizing interest rate swap agreements at the end of the 2017 first
quarter in anticipation of further Fed Funds rate increases. Additionally, a large percentage 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 $2.7 billion in 2018, compared to
$2.6 billion in 2017 and $2.3 billion in 2016. The increase in average interest-bearing liabilities in 2018 compared to 2017
was primarily due to an increase in average deposits, partially offset by a decrease in average borrowings. The increase in
average interest-bearing liabilities in 2017 compared to 2016 was primarily due to increases in both average borrowings
and average deposits.
For the year ended December 31, 2018, average total deposits increased by $412.7 million to $3.5 billion as compared to
$3.1 billion in 2017, and increased by $192.6 million, or 6.6%, in 2017 as compared to $2.9 billion in 2016. The increase
in average total deposits reflects higher average savings, NOW and money market deposits, average demand deposits, and
average certificates of deposit. The average balances in savings, NOW and money market accounts increased $205.0
million, or 11.9%, in 2018 compared to 2017, and increased $132.4 million, or 8.4%, in 2017 compared to 2016. The
average cost of savings, NOW and money market accounts was 0.83% for the year ended December 31, 2018, compared
to 0.46% in 2017 and 0.33% in 2016. Average demand deposits increased $136.0 million, or 11.6%, in 2018 compared to
2017, and increased $64.0 million, or 5.8%, in 2017 compared to 2016. Average balances in certificates of deposit
increased $71.7 million, or 32.6%, to $291.6 million in 2018 compared to 2017 and decreased $3.8 million, or 1.7%, in
2017 as compared to 2016. The cost of average certificates of deposit increased to 1.65% for the year ended December 31,
2018 compared to 1.17% in 2017 and 0.72% in 2016. Average public fund deposits comprised 15.4% of total average
deposits during 2018, compared to 16.0% in 2017 and 17.1% in 2016.
Average federal funds purchased and repurchase agreements decreased $62.9 million, or 47.5%, to $69.6 million for
the year ended December 31, 2018 compared to $132.5 million for 2017, and decreased $29.6 million, or 18.3%, in 2017
compared to $162.1 million for 2016. Average FHLB advances decreased $76.6 million, or 19.1%, to $324.7 million for
the year ended December 31, 2018, compared to $401.3 million in 2017 and increased $125.7 million in 2017 compared
to $275.6 million in 2016. Average subordinated debentures increased $140 thousand, or 0.2%, to $78.7 million for
the year ended December 31, 2018, compared to $78.6 million for 2017, and increased $139 thousand, or 0.2%, compared
to $78.4 million in 2016. The junior subordinated debentures were redeemed in January 2017.
Page -27-
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 $1.8 million was recorded in 2018, as
compared to $14.1 million in 2017 and $5.6 million in 2016. Net charge-offs were $2.1 million for the year ended
December 31, 2018, as compared to $8.2 million for the year ended December 31, 2017 and $0.4 million for the year
ended December 31, 2016. The charge-offs in 2018 resulted from the charge-off of one loan which was fully reserved for
and partial charge-offs recognized on eleven taxi medallion loans attributable to payoff settlements accepted by the Bank.
The charge-offs in 2017 resulted primarily from the charge-off of loans and specific reserves associated with two specific
relationships. The ratio of allowance for loan losses to non-accrual loans was 1,119%, 456% and 2,087% at December 31,
2018, 2017, and 2016, respectively. The allowance for loan losses totaled $31.4 million at December 31, 2018, $31.7
million at December 31, 2017 and $25.9 million at December 31, 2016. The allowance as a percentage of total loans was
0.96%, 1.02% and 1.00% at December 31, 2018, 2017, and 2016, respectively. 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 $87.9 million or 2.7%, of total loans at December 31, 2018 were categorized as classified loans compared
to $85.3 million or 2.8%, at December 31, 2017 and $84.3 million, or 3.2%, at December 31, 2016. 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, 2018, $35.0 million of these classified loans were commercial real estate (“CRE”) loans. Of the $35.0
million of CRE loans, $33.5 million were current and $1.5 million were past due. At December 31, 2018, $12.4 million of
classified loans were residential real estate loans with $11.0 million current and $1.4 million past due. Commercial,
industrial, and agricultural loans represented $39.7 million of classified loans, with $39.1 million current and $0.6 million
past due. Taxi medallion loans represented $16.2 million of the classified commercial, industrial and agricultural loans at
December 31, 2018. All of the Bank’s taxi medallion loans are collateralized by New York City medallions and have
personal guarantees. All taxi medallion loans were current as of December 31, 2018. No new originations of taxi medallion
loans are currently planned and management expects these balances to continue to decline through amortization and pay-
offs. During the year ended December 31, 2018, nine taxi medallion loans totaling $6.9 million, net of charge-offs, were
paid off. Four were paid in full and the Bank accepted settlements on the other five which resulted in partial charge-offs.
In January 2019, seven additional taxi medallion loans, totaling $6.2 million, net of charge-offs, were paid off under Bank
accepted settlements. The charge-offs related to these settlements were recognized in the 2018 fourth quarter. Taxi
medallion loan charge-offs, net of recoveries, totaled $0.9 million for the year ended December 31, 2018. At December
31, 2018, there was $0.3 million of classified real estate construction and land loans which were current and $0.4 million
of classified multi-family loans which were current.
CRE loans, including multi-family loans, represented $2.0 billion, or 59.9%, of the total loan portfolio at December 31,
2018 compared to $1.9 billion, or 61.0%, at December 31, 2017 and $1.5 billion, or 59.2%, at December 31, 2016. 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.
Page -28-
As of December 31, 2018 and 2017, the Company had individually impaired loans as defined by FASB ASC No. 310,
“Receivables” of $19.4 million and $22.5 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 non-accrual loans and troubled debt restructuring loans
(“TDRs”) and at December 31, 2018 included $2.7 million in other impaired performing loans related to three taxi
medallion loans which paid off in January 2019. 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 decrease
in impaired loans from December 31, 2017 was attributable to the payoff of certain TDRs, coupled with a decrease in non-
accrual loans due to the charge-off of one loan and sales and payoffs, partially offset by new TDRs during the year ended
December 2018. During the year ended December 31, 2018, the Bank modified certain loans as TDRs totaling $9.2 million.
Non-accrual loans were $2.8 million, or 0.09%, of total loans at December 31, 2018 compared to $7.0 million, or 0.22%,
of total loans at December 31, 2017. TDRs represent $133 thousand of the non-accrual loans at December 31, 2018 and
$5 thousand at December 31, 2017.
The Bank’s other real estate owned at December 31, 2018 was $0.2 million, consisting of one property, compared to none
at December 31, 2017.
The following table sets forth changes in the allowance for loan losses:
(In thousands)
Beginning balance
Charge-offs:
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Installment/consumer loans
Total
Recoveries:
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural 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
Year Ended December 31,
2018
2017
2016
2015
2014
$ 31,707 $ 25,904 $ 20,744 $ 17,637 $ 16,001
—
(24)
(2,806)
(11)
(2,841)
—
—
(8,245)
(49)
(8,294)
—
(56)
(930)
(1)
(987)
(50)
(249)
(827)
(2)
(1,128)
(461)
(257)
(104)
(2)
(824)
—
28
16
3
47
—
3
747
2
752
(2,089)
1,800
—
170
87
3
260
(564)
2,200
$ 31,418 $ 31,707 $ 25,904 $ 20,744 $ 17,637
—
79
149
7
235
(893)
4,000
109
96
386
6
597
(390)
5,550
(8,247)
14,050
(0.07) %
(0.30) %
(0.02) %
(0.04) %
(0.04) %
Page -29-
Allocation of Allowance for Loan Losses
The following table sets forth the allocation of the total allowance for loan losses by loan classification:
2018
Percentage
of Loans
to Total
Loans
Amount
$ 10,792
2,566
3,935
Amount
42.0 % $ 11,048
4,521
17.9
2,438
15.9
2017
December 31,
2016
2015
2014
Percentage
of Loans
to Total
Loans
Amount
41.7 % $ 9,225
6,264
19.2
1,495
15.0
Percentage
of Loans
to Total
Loans
Amount
42.0 % $ 7,850
4,208
20.0
2,115
14.1
Percentage
of Loans
to Total
Loans
Amount
43.8 % $ 6,994
2,670
14.6
2,208
16.3
12,722
1,297
106
$ 31,418
19.8
3.8
0.6
12,838
740
122
19.9
3.5
0.7
7,837
955
128
20.2
3.1
0.6
5,405
1,030
136
20.8
3.8
0.7
4,526
1,104
135
100.0 % $ 31,707
100.0 % $ 25,904
100.0 % $ 20,744
100.0 % $ 17,637
Percentage
of Loans
to Total
Loans
44.5 %
16.4
11.7
21.8
4.8
0.8
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 decreased $6.5 million, or 36.1%, in 2018 to $11.6 million, compared to $18.1 million in 2017
and increased by $2.1 million, or 12.8%, to $18.1 million in 2017 compared to $16.0 million in 2016. The decrease in total
non-interest income in 2018 compared to 2017 was primarily due to a $7.9 million net securities loss related to the balance
sheet restructure in the second quarter 2018, and a decrease in title fee income, partially offset by increases in service
charges and other fees, other operating income and gain on sale of Small Business Administration (“SBA”) loans. 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.
Net securities losses of $7.9 million were recognized in 2018 compared to net securities gains of $38 thousand in 2017
and $0.4 million in 2016. The net securities losses in 2018 were attributable to the sale of $240.3 million of securities
related to balance sheet restructure in the second quarter 2018. 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.
Other operating income increased $0.8 million to $3.5 million in 2018, compared to $2.7 million in 2017, primarily due
to a $0.5 million increase in net gain of sale of loans, and 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.
Non-Interest Expense
Total non-interest expense increased $6.5 million, or 7.0%, to $98.2 million in 2018 from $91.7 million in 2017, and
increased $14.6 million, or 19.0%, to $91.7 million in 2017 compared to $77.1 million in 2016. The increase in 2018
compared to 2017 is primarily due to an $8.9 million net fraud loss, higher salaries and benefits, professional services,
office relocation costs, technology and communications expenses, and FDIC assessments, partially offset by lower
occupancy and equipment, and marketing and advertising expenses. The increase in 2017 compared to 2016 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 by lower amortization of other intangible assets, professional services and FDIC assessments. The reversal
of accrued acquisition costs in 2016 is due to the reversal of pending merger related liabilities recorded at the acquisition
date, which have since been settled.
The Company incurred an $8.9 million pre-tax net fraud loss charge in 2018 related to the fraudulent conduct of a business
customer through its deposit accounts at the Bank. Salaries and employee benefits increased $3.9 million to $50.5 million
in 2018, compared to $46.6 million 2017 and increased $5.0 million from $41.6 million in 2016. The increase in salaries
and employee benefits in 2018 compared to 2017 is primarily due to additional staff related to business development, and
risk management. The increase in salaries and employee benefits in 2017 compared to 2016 is primarily due to additional
staff related to new branches, business development, and risk management. Occupancy and equipment decreased $0.8
Page -30-
million to $13.2 million in 2018 compared to $14.0 million in 2017 and increased $1.2 million from $12.8 million in 2016.
The decrease in occupancy and equipment expense in 2018 compared to 2017 reflects the cost savings related to the
execution of the Company's branch rationalization strategy. Technology and communications increased $0.7 million to
$6.5 million in 2018 compared to $5.8 million in 2017 and increased $0.9 million from $4.9 million in 2016. Marketing
and advertising decreased $0.1 million to $4.6 million in 2018 compared to $4.7 million in 2017 and increased $0.7 million
from $4.0 million in 2016. Professional services increased $0.9 million to $4.0 million in 2018 compared to $3.1 million
in 2017 and decreased $0.5 million from $3.6 million in 2016. FDIC assessments were $1.7 million in 2018, $1.3 million
in 2017, and $1.6 million in 2016. The Company recorded amortization of other intangible assets of $0.9 million in 2018,
$1.0 million in 2017, $2.6 million in 2016, primarily related to the CNB and FNBNY acquisitions. Other operating
expenses totaled $7.2 million in 2018, $7.1 million in 2017, and $6.8 million in 2016.
Income Tax Expense
Income tax expense decreased $9.8 million, or 51.8%, to $9.1 million in 2018 compared to $18.9 million in 2017, and
increased $0.1 million, or 0.8%, from $18.8 million in 2016. The effective tax rate was 18.9% in 2018, 48.0% in 2017 and
34.6% in 2016. The decrease in 2018 compared to 2017 reflects a lower effective tax rate in 2018 due to the enactment of
the Tax Act in the fourth quarter of 2017, partially offset by higher income before income taxes in 2018. 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 Company estimates it will record income tax at an effective tax rate of
approximately 22% in 2019.
Financial Condition
Total assets increased $270.7 million, or 6.1%, to $4.7 billion at December 31, 2018 compared to December 31, 2017.
Cash and cash equivalents increased $200.6 million to $295.4 million at December 31, 2018 compared to December 31,
2017, including proceeds from a large deposit made in December 2018 which was not readily deployed into securities or
loans. Total securities decreased $111.1 million to $865.1 million at December 31, 2018 compared to December 31, 2017,
which includes the Company’s sale of $238.3 million of securities in 2018. Total loans held for investment, net, increased
$173.1 million, or 5.6%, to $3.3 billion at December 31, 2018 compared to December 31, 2017, which includes the
Company’s sale of $39.8 million of commercial real estate and multi-family loans in 2018. The ability to grow the loan
portfolio, while minimizing interest rate risk sensitivity and maintaining credit quality, remains a strong focus of
management.
Total liabilities increased $246.1 million, or 6.2%, to $4.2 billion at December 31, 2018 compared to December 31, 2017.
Total deposits increased $551.9 million, or 16.5%, to $3.9 billion at December 31, 2018 compared to December 31, 2017.
Demand deposits increased $109.9 million, or 8.2%, to $1.4 billion at December 31, 2018 compared to December 31,
2017. Savings, NOW and money market deposits increased $334.8 million, or 18.9%, to $2.1 billion at December 31,
2018 compared to December 31, 2017. Certificates of deposit increased $107.1 million, or 48.2%, to $329.5 million at
December 31, 2018 compared to December 31, 2017. The deposit growth in 2018 reflects the Company’s strategy to fund
loan growth primarily with deposits. Federal funds purchased were zero at December 31, 2018 compared to $50.0 million
at December 31, 2017. FHLB advances decreased $260.9 million, or 52.0%, to $240.4 million at December 31, 2018
compared to December 31, 2017. The decrease in wholesale borrowings in 2018 reflects the Company’s strategy to pay
down its higher cost borrowings.
Total stockholders’ equity increased $24.6 million, or 5.7%, to $453.8 million at December 31, 2018 compared to
December 31, 2017, primarily due to net income of $39.2 million, share based compensation of $3.5 million, and proceeds
from the issuance of common stock under the Dividend Reinvestment Plan (“DRP”) of $1.0 million, partially offset by
$18.3 million in dividends.
Loans
During 2018, the Company continued to experience growth in most 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
Page -31-
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 are associated
with each type of loan that the Bank markets. Approximately 79.6% of the Bank’s loan portfolio at December 31, 2018
was secured by real estate. Commercial real estate loans represented 42.0% of the Bank’s loan portfolio. Multi-family
mortgage loans represented 17.9% of the Bank’s loan portfolio. Residential real estate mortgage loans represented 15.9%
of the Bank’s loan portfolio, including home equity lines of credit representing 2.2% and residential mortgages
representing 13.7% of the Bank’s loan portfolio. Real estate construction and land loans represented 3.8% of the Bank’s
loan portfolio. Risks associated with a concentration in real estate loans include potential losses from fluctuating values of
land and improved properties. Home equity loans represent loans originated in the Bank’s geographic markets with original
loan to value ratios generally of 75% or less. The Bank’s residential mortgage portfolio included approximately $54.9
million in interest only mortgages at December 31, 2018. 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 was comprised of commercial and consumer loans, which represented 20.4% of the
Bank’s loan portfolio, at December 31, 2018. 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 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. 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 $173.1 million, or 5.6%, to $3.3 billion at December 31, 2018 compared to $3.1 billion at December 31,
2017 with commercial real mortgage loans being the largest contributor of the growth. Commercial real estate mortgage
loans increased $79.7 million, or 6.2%, during 2018. Residential real estate mortgage loans increased $55.5 million, or
12.0%, during 2018. Commercial, industrial and agricultural loans increased $29.7 million, or 4.8%, in 2018. Real estate
construction and land loans increased $15.6 million, or 14.5%, in 2018. Multi-family mortgage loans and
Page -32-
installment/consumer loans both decreased slightly during 2018. Fixed rate loans represented 23.9% and 24.3% of total
loans at December 31, 2018 and 2017, 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
December 31,
2016
2018
2017
2015
$ 1,373,556 $ 1,293,906 $ 1,091,752 $ 1,053,399 $
2014
595,397
218,985
156,156
291,743
63,556
10,124
1,335,961
2,366
1,338,327
(17,637)
$ 3,244,393 $ 3,071,045 $ 2,574,536 $ 2,390,030 $ 1,320,690
585,827
519,763
645,724
123,393
20,509
3,268,772
7,039
3,275,811
(31,418)
350,793
392,815
501,766
91,153
17,596
2,407,522
3,252
2,410,774
(20,744)
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)
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, 2018:
After One
Within One But Within
After
(In thousands)
Commercial loans
Construction and land loans (1)
Total
Rate provisions:
Amounts with fixed interest rates
Amounts with variable interest rates
Total
Year
$ 268,093
Five Years Five Years
Total
$ 645,724
123,393
$ 355,366 $ 199,081 $ 214,670 $ 769,117
$ 199,439
15,231
$ 178,192
87,273
20,889
$
18,690 $ 123,252 $ 49,321 $ 191,263
577,854
$ 355,366 $ 199,081 $ 214,670 $ 769,117
336,676
165,349
75,829
(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.
Past Due, Non-accrual and Restructured Loans and Other Real Estate Owned
The following table sets forth selected information about past due, non-accrual, and restructured loans and other real estate
owned:
(In thousands)
Loans 90 days or more past due and still accruing
Non-accrual loans excluding restructured loans
Restructured loans - non-accrual
Restructured loans - performing
Other real estate owned, net
Total
2017
December 31,
2016
2015
2014
2018
$
308 $
2,675
133
16,913
175
1,834 $
6,950
5
16,727
—
1,027 $
909
332
2,417
—
4,685 $
964 $
850
60
1,681
250
144
713
490
5,031
—
3,805 $ 6,378
$ 20,204 $ 25,516 $
Page -33-
(In thousands)
Gross interest income that has not been paid or recorded during the year under
original terms:
Non-accrual loans
Restructured loans
Gross interest income recorded during the year:
Non-accrual loans
Restructured loans
2018
2017
2016
2015
2014
Year Ended December 31,
$
36 $
—
110 $
—
17 $
1
6 $
1
33
84
$
39 $
716
282 $
619
1 $
1 $
123
109
4
214
—
Commitments for additional funds
—
—
—
—
The following table sets forth individually impaired loans by loan classification:
(In thousands)
Non-accrual loans excluding restructured loans:
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Total
Restructured loans - non-accrual:
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Total
2018
2017
December 31,
2016
2015
2014
$
1,158 $
—
4
1,162
2,305 $
100
4,124
6,529
185 $
719
—
904
238 $
612
—
850
—
—
—
—
—
—
—
—
—
65
—
65
—
60
—
60
295
315
75
685
300
69
118
487
Total non-performing impaired loans
1,162
6,529
969
910
1,172
Restructured loans - performing:
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Total
Impaired loans - performing:
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Total
1,926
—
13,535
15,461
8,857
—
7,106
15,963
1,354
—
1,030
2,384
1,391
—
290
1,681
4,541
—
489
5,030
—
—
2,732
2,732
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total performing impaired loans
18,193
15,963
2,384
1,681
5,030
Total impaired loans
Securities
$ 19,355 $ 22,492 $
3,353 $
2,591 $ 6,202
Securities totaled $865.1 million at December 31, 2018 compared to $976.1 million at December 31, 2017, including
restricted securities totaling $24.0 million at December 31, 2018 and $35.3 million at December 31, 2017. The available
for sale portfolio decreased $79.0 million to $680.9 million from $759.9 million at December 31, 2017. 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 2018, the Company sold $238.3 million of securities available for sale compared
to $52.4 million in 2017. The decrease in securities available for sale is primarily the result of a $93.4 million decrease in
residential mortgage-backed securities, a $46.3 million decrease in state and municipal obligations, and a $27.8 million
decrease in GSE securities, partially offset by a $50.4 million increase in residential collateralized mortgage obligations,
and a $41.9 million increase in commercial collateralized mortgage obligations. Securities held to maturity decreased
$20.7 million to $160.2 million at December 31, 2018 compared to $180.9 million at December 31, 2017. The decrease in
securities held to maturity is primarily the result of a $1.9 million decrease in commercial collateralized mortgage
obligations, a $6.0 million decrease in residential collateralized mortgage obligations, a $7.2 million decrease in state and
municipal obligations, and a $3.9 million decrease in commercial mortgage-backed securities. Fixed rate securities
Page -34-
represented 88.4% of total available for sale and held to maturity securities at December 31, 2018 compared to 87.5% at
December 31, 2017.
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, 2018. 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 21%.
Within
One Year
After One But
Within Five Years
December 31, 2018
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
— $
— — % $ 14,546 $ 14,997 1.76 % $ 14,504
$ 15,000 2.43 % $
— $
— — % $ 29,050 $ 29,997
5,028
5,049 1.73
11,744
11,786 2.76
20,011
20,186 2.92
3,948
3,959 3.87
40,731
40,980
—
— —
—
— —
—
—
—
93,538
96,536 2.27
93,538
96,536
—
— —
—
— —
5,153
5,085 3.07
352,624
357,820 2.79
357,777 362,905
—
— —
3,508
3,536 2.46
—
— —
—
— —
3,508
3,536
—
— —
—
— —
—
— —
90,638
93,177 3.02
90,638
93,177
—
—
— —
— —
—
—
— —
— —
—
42,425
— —
46,000 3.06
23,219
—
24,250 3.79
— —
23,219
42,425
24,250
46,000
$ 5,028 $
$ 2,394 $
5,049 1.73 % $ 29,798 $ 30,319 2.23 % $ 82,093
$ 86,271 2.92 % $ 563,967 $ 575,742 2.79 % $ 680,886 $ 697,381
2,404 2.17 % $ 25,988 $ 25,954 3.21 % $ 24,876 $ 24,882 3.79 % $
296 $
300 3.38 % $ 53,554 $ 53,540
—
— —
—
—
—
7,105
7,333 1.84
2,247
2,355 2.22
9,352
9,688
—
— —
—
—
—
5,123
5,211 2.17
42,154
43,033 2.70
47,277
48,244
—
— —
5,997
6,048 2.47
4,743
4,915 2.27
7,742
8,135 2.99
18,482
19,098
—
— —
2,558
2,687 1.56
—
—
—
25,569
26,906 2.62
28,127
29,593
2,394
$ 7,422 $
2,404 2.17
156,792 160,163
7,453 1.87 % $ 64,341 $ 65,008 2.62 % $ 123,940 $ 128,612 2.97 % $ 641,975 $ 656,471 2.78 % $ 837,678 $ 857,544
34,689 2.95
80,729 2.69
42,341 3.08
34,543
78,008
41,847
(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
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
Deposits and Borrowings
Borrowings, including federal funds purchased, repurchase agreements, FHLB advances and subordinated debentures,
decreased $311.1 million to $319.8 million at December 31, 2018 from $630.9 million at December 31, 2017. Total
deposits increased $551.9 million to $3.9 billion at December 31, 2018 compared to $3.3 billion at December 31, 2017.
Individual, partnership and corporate (“core deposits”) account balances increased $430.8 million and public funds and
brokered deposits increased $121.1 million. The growth in deposits is attributable to increases in savings, NOW and money
market deposits of $334.8 million, or 18.9%, to $2.1 billion at December 31, 2018, an increase in demand deposits of
$109.9 million, or 8.2%, to $1.4 billion at December 31, 2018, and an increase in certificates of deposit of $107.1 million,
Page -35-
or 48.2%, to $329.5 million at December 31, 2018. Certificates of deposit of $100,000 or more increased $48.5 million,
or 30.6%, from December 31, 2017 and other time deposits increased $58.6 million, or 91.9%, as compared to December
31, 2017.
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2018:
(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 or
$100,000
Greater
Total
$ 76,503 $
20,196
11,979
9,715
1,436
882
1,693
—
48,188 $ 124,691
73,374
53,178
54,417
42,438
25,409
15,694
43,857
42,421
3,336
2,454
4,029
2,336
378
378
$ 122,404 $ 207,087 $ 329,491
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 and deposit withdrawals, either on
demand or on 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 $1.5 million as of December 31, 2018,
and dividend capabilities 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 2018, the Bank paid $15.0 million in cash
dividends to the Company. Prior regulatory approval is required if the total of all dividends declared by the Bank in any
calendar year exceeds the total of the Bank’s net income for that year combined with its retained net income of the
preceding two years. As of January 1, 2019, the Bank had $51.4 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 any capital contributions to the Bank during the year ended December 31, 2018.
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 on 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 flows, 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, 2018, the Bank had aggregate lines of credit of $373.0 million with unaffiliated correspondent banks to
provide short-term credit for liquidity requirements. Of these aggregate lines of credit, $353.0 million is available on an
unsecured basis. As of December 31, 2018, the Bank had no overnight borrowings outstanding under these lines. As of
December 31, 2017, the Bank had $50.0 million in overnight borrowings outstanding. 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
Page -36-
31, 2018, the Bank had no FHLB overnight borrowings outstanding and $240.4 million outstanding in FHLB term
borrowings. As of December 31, 2017, the Bank had $185.0 million in FHLB overnight borrowings and $316.4 million
outstanding in FHLB term borrowings. As of December 31, 2018, the Bank had securities sold under agreements to
repurchase of $0.5 million outstanding with customers and nothing outstanding with brokers. 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. In addition, the Bank has approved broker relationships for the purpose of issuing brokered
deposits. As of December 31, 2018, the Bank had $101.6 million outstanding in brokered certificates of deposit and $150.2
million outstanding in brokered money market accounts. As of December 31, 2017, the Bank had $44.9 million outstanding
in brokered certificates of deposits and $163.2 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 FRB.
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, 2018:
(In thousands)
Operating leases
FHLB advances and repurchase agreements
Subordinated debentures
Time deposits
Total contractual obligations outstanding
Less than
One Year Three Years
One to
$
12,689
Total
$ 49,222 $
240,972
80,000
329,491
7,248
240,972
—
252,482
$ 699,685 $ 500,702 $
Four to
Over Five
Five Years Years
$ 10,598 $ 18,687
—
80,000
378
$ 17,963 $ 99,065
—
—
7,365
—
—
69,266
81,955
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, 2018, the Company had $65.8 million in outstanding
loan commitments and $636.8 million in outstanding commitments for various lines of credit including unused overdraft
lines. The Company also had $26.0 million of standby letters of credit as of December 31, 2018. See Note 17 of the
Notes to the Consolidated Financial Statements for additional information on loan commitments and standby letters of
credit.
Capital Resources
Stockholders’ equity increased to $453.8 million at December 31, 2018 from $429.2 million at December 31, 2017 as a
result of undistributed net income, 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 10.08% for
the year ended December 31, 2018 compared to 10.53% for the year ended December 31, 2017.
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
Page -37-
has actively managed its capital position in response to its growth. During this period, the Company has raised $261.2
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.
(cid:120) Proceeds of $12.9 million in capital through issuance of common stock through the DRP.
The Company has the ability to issue additional common stock and/or preferred stock should the need arise under a shelf
registration statement filed in April 2016.
The Company had returns on average equity of 8.66% and 4.64%, and returns on average assets of 0.87% and 0.49%, for
the years ended December 31, 2018 and 2017, respectively. The Company also utilizes cash dividends and stock
repurchases to manage capital levels. In 2018, the Company declared four quarterly cash dividends totaling $18.3 million
compared to four quarterly cash dividends of $18.2 million in 2017. The dividend payout ratios for 2018 and 2017 were
46.76% and 88.80%, respectively. The Company continues its trend of uninterrupted dividends. In March 2006, the
Company approved its stock repurchase plan allowing the repurchase of up to 5% of its then current outstanding shares,
309,000 shares. The Company considers opportunities for stock repurchases carefully. The Company did not repurchase
any shares in 2018 and 2017. In February 2019, the Company announced the approval of a repurchase program for up to
1,000,000 shares of common stock, replacing the previous plan. There is no expiration date for the share repurchase plan.
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
Page -38-
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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Asset/Liability Management
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, 2018, $743.5 million, or 88.4%, of the Company’s available for sale and held to maturity securities had
fixed interest rates. At December 31, 2018, $2.5 billion, or 76.1%, of the Company’s loan portfolio had adjustable or
floating 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 100 and 200 basis point upward shifts 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.
Page -39-
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 FOMC 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, 2018 and 2017:
Change in Interest
Rates in Basis Points
(Dollars in thousands)
200
100
Static
(100)
Change in Interest
Rates in Basis Points
(Dollars in thousands)
200
100
Static
(100)
December 31, 2018
Potential Change
in Future Net
Interest Income
Year 1
Year 2
$ Change % Change $ Change % Change
$ (2,212)
(898)
—
(435)
(1.57) % $ 8,767
7,355
(0.64)
—
—
(266)
(0.31)
6.23 %
5.23
—
(0.19)
December 31, 2017
Potential Change
in Future Net
Interest Income
Year 1
Year 2
$ Change % Change $ Change % Change
$ (4,548)
(2,262)
—
918
(3.45) % $ 3,217
2,937
(1.71)
—
—
1,090
0.70
2.44 %
2.23
—
0.83
As noted in the table above, a 200 basis point increase in interest rates is projected to decrease net interest income by
1.57 percent in year 1 and increase net interest income by 6.23 percent in year 2. The Company’s balance sheet sensitivity
to such a move in interest rates at December 31, 2018 decreased as compared to December 31, 2017 (which was a decrease
of 3.45 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. The lower projected interest rate sensitivity trend can
be attributed to the strategic balance sheet restructuring of the Company’s investment portfolio, as well as the increase in
non-public, non-brokered deposits in 2018. 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 3.23 years at December 31, 2017 to 3.05 years at December 31, 2018. 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 -40-
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-bearing deposits with banks
Total cash and cash equivalents
Securities available for sale, at fair value
Securities held to maturity (fair value of $156,792 and $179,885, respectively)
Total securities
Securities, restricted
Loans held for investment
Allowance for loan losses
Loans, net
Premises and equipment, net
Accrued interest receivable
Goodwill
Other intangible assets
Prepaid pension
Bank owned life insurance
Other real estate owned
Other assets
Total assets
Liabilities
Demand deposits
Savings, NOW and money market deposits
Certificates of deposit of $100,000 or more
Other time deposits
Total deposits
Federal funds purchased
Repurchase agreements
Federal Home Loan Bank ("FHLB") advances
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; 19,815,680 and 19,719,575 shares issued, respectively;
and 19,790,884 and 19,709,360 shares outstanding, respectively)
Surplus
Retained earnings
Treasury stock at cost, 24,796 and 10,215 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 -41-
December 31,
2018
December 31,
2017
$
$
$
$
$
142,145
153,223
295,368
680,886
160,163
841,049
76,614
18,133
94,747
759,916
180,866
940,782
24,028
35,349
3,275,811
(31,418)
3,244,393
35,008
11,236
105,950
4,374
10,263
89,712
175
39,188
4,700,744
1,448,605
2,108,297
207,087
122,404
3,886,393
—
539
240,433
78,781
40,768
4,246,914
—
—
$
$
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
877
501,374
78,641
35,367
4,000,802
—
—
198
352,093
117,432
(781)
468,942
(15,112)
453,830
4,700,744
197
347,691
96,547
(296)
444,139
(14,939)
429,200
4,430,002
$
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
FHLB 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 (losses) gains
Title fee income
Gain on sale of Small Business Administration ("SBA") 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
Net fraud loss
Office relocation costs
Restructuring costs
Reversal of accrued acquisition costs
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 -42-
Year Ended December 31,
2017
2016
2018
$
$
$
$
144,380
16,591
837
2,812
1,422
1,076
1,866
168,984
15,928
3,007
1,801
1,200
5,729
4,539
-
32,204
136,780
1,800
134,980
9,853
(7,921)
1,797
2,078
2,219
3,542
11,568
50,458
13,245
6,465
4,597
4,004
1,665
8,900
750
—
—
917
7,179
98,180
48,368
9,141
39,227
1.97
1.97
$
$
$
$
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
46,560
13,998
5,753
4,742
3,153
1,310
—
—
8,020
—
1,047
7,144
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
41,557
12,798
4,897
4,048
3,646
1,635
—
—
—
(920)
2,637
6,783
77,081
54,286
18,795
35,491
2.01
2.00
Year Ended December 31,
2017
20,539
2018
39,227
$
$
(348)
(832)
1,007
(173)
39,054
(505)
193
1,089
777
21,316
$
$
2016
35,491
(4,082)
(630)
1,270
(3,442)
32,049
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive (loss) income:
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 on cash flow hedges, net of reclassifications and deferred income taxes
Total other comprehensive (loss) income
Comprehensive income
$
$
See accompanying notes to Consolidated Financial Statements.
Page -43-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
Common
Stock
Surplus
Retained Treasury Comprehensive
Stock
Earnings
Loss
Total
Accumulated
Other
(9,622) $ 341,128
35,491
921
47,521
292
—
—
(344)
62
356
2,142
(16,140)
(3,442)
(3,442)
(13,064) $ 407,987
20,539
951
14,949
—
—
(350)
2,585
(2,652)
—
(18,238)
777
(14,939) $ 429,200
777
39,227
954
63
—
—
(586)
3,487
(18,342)
(173)
(15,112) $ 453,830
(173)
Balance at January 1, 2016
Net income
Shares issued under the dividend reinvestment plan (“DRP”)
Shares issued in common stock offering, net of offering costs (1,613,000
shares)
Shares issued for trust preferred securities conversions (10,344 shares)
Stock awards granted and distributed
Stock awards forfeited
Repurchase of surrendered stock from vesting of restricted stock awards
Exercise of stock options
Impact of modification of convertible trust preferred securities
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
Balance at December 31, 2017
Net income
Shares issued under the DRP
Shares issued under the Employee Stock Purchase Plan, net of offering costs
Stock awards granted and distributed
Stock awards forfeited
Repurchase of surrendered stock from vesting of restricted stock awards
Share based compensation expense
Cash dividend declared, $0.92 per share
Other comprehensive loss, net of deferred income taxes
Balance at December 31, 2018
See accompanying notes to Consolidated Financial Statements.
$
174 $ 278,333 $
72,243 $
35,491
— $
16
1
921
47,505
292
(205)
173
(90)
356
2,142
204
(173)
(344)
152
$
191 $ 329,427 $
91,594 $
(161) $
(16,140)
5
1
951
14,944
(434)
218
2,585
20,539
2,652
(18,238)
433
(218)
(350)
$
197 $ 347,691 $
96,547 $
(296) $
1
954
63
(539)
437
3,487
39,227
(18,342)
538
(437)
(586)
$
198 $ 352,093 $ 117,432 $
(781) $
Page -44-
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 amortization of premises and equipment
Net (accretion) and other amortization
Net amortization on securities
Increase in cash surrender value of bank owned life insurance
Amortization of intangible assets
Share based compensation expense
Net securities losses (gains)
Decrease (increase) in accrued interest receivable
SBA loans originated for sale
Proceeds from sale of the guaranteed portion of SBA loans
Gain on sale of the guaranteed portion of SBA loans
(Gain) loss on sale of loans
(Increase) decrease in other assets
Increase (decrease) in accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of securities available for sale
Purchases of securities, restricted
Purchases of securities held to maturity
Proceeds from sales of securities available for sale
Redemption of securities, restricted
Maturities, calls and principal payments of securities available for sale
Maturities, calls and principal payments of securities held to maturity
Net increase in loans
Proceeds from loan sale
Proceeds from sales of other real estate owned ("OREO"), net
Purchase of bank owned life insurance
Purchase of premises and equipment
Net cash used in investing activities
Cash flows from financing activities:
Net increase in deposits
Net decrease in federal funds purchased
Net (decrease) increase in FHLB advances
Repayment of junior subordinated debentures
Net (decrease) increase in repurchase agreements
Net proceeds from issuance of common stock
Net proceeds from exercise of stock options
Repurchase of surrendered stock from vesting of restricted stock awards
Cash dividends paid
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid for:
Interest
Income taxes
Non-cash investing and financing activities:
Conversion of junior subordinated debentures
Transfers from portfolio loans to other real estate owned
See accompanying notes to Consolidated Financial Statements.
Page -45-
2018
Year Ended December 31,
2017
2016
$
39,227
$
20,539
$
35,491
1,800
3,822
(2,093)
4,009
(2,219)
917
3,487
7,921
416
(28,340)
30,898
(2,078)
(441)
(2,373)
3,430
58,383
(255,746)
(505,272)
(1,000)
230,372
516,593
92,818
20,851
(213,973)
40,133
—
—
(5,325)
(80,549)
551,891
(50,000)
(260,855)
—
(338)
1,017
—
(586)
(18,342)
222,787
200,621
94,747
295,368
32,254
2,474
—
175
$
$
$
$
$
14,050
3,827
(7,936)
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
(19,091)
113,838
94,747
22,917
8,445
15,350
—
$
$
$
$
$
5,550
3,480
(10,226)
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
9,280
104,558
113,838
16,640
21,585
—
—
$
$
$
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017 and 2016
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.
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.
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, FHLB advances, and repurchase agreements.
Securities
Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent
and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before
maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other
comprehensive income, net of tax. Equity securities are carried at fair value, with changes in fair value reported in net
income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or
minus changes resulting in observable price changes in orderly transactions for the identical or a similar investment.
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01, Financial Instruments, which
requires equity investments (except those accounted for under the equity method of accounting or those that result in
consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The
adoption of this guidance resulted in no change to the Company’s Consolidated Financial Statements.
Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are
amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where
Page -46-
prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific
identification method.
Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more
frequently when economic or market conditions warrant such evaluation. For securities in an unrealized loss position,
management considers the extent and duration of the unrealized loss, and the near-term prospects of the issuer.
Management also assesses whether it intends to sell, or is more likely than not that it will be required to sell, a security in
an unrealized loss position before recovery of its amortized cost basis. 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 as
follows: (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. For equity securities, the entire
amount of impairment is recognized through earnings.
Securities, Restricted
Securities, restricted represents FHLB, Federal Reserve Bank (“FRB”) and bankers’ banks stock, which are reported at
cost. 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 periodically evaluated for
impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.
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 non-accrual 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 non-accrual or a troubled debt restructuring loan is non-accrual, 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 and 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
non-accrual 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. Loans that experience minor payment delays and payment shortfalls 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. Loans with balances below the aforementioned thresholds are collectively evaluated for impairment,
and accordingly, they are not separately identified for impairment disclosures.
Page -47-
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 (“PCI”) loans.
For PCI 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 non-
accretable discount. The non-accretable 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
non-accretable 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.
PCI loans that were non-accrual 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 non-accrual 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.
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;
Page -48-
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 credit risk ratings, 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.
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.
Unless otherwise noted, the above policy is applied consistently to all loan segments.
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.
Page -49-
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.
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.
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, 2017.
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, 2018 and 2017.
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.
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.
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.
Page -50-
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.
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, 2018 and 2017.
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, 2018 and 2017.
Treasury Stock
Repurchases of common stock are recorded as treasury stock at cost. Treasury stock is reissued using the first in, first out
method.
Earnings Per Share (“EPS”)
Basic EPS is net income attributable to common shareholders divided by the weighted average number of common shares
outstanding during the period. All outstanding unvested share-based payment awards that contain rights to nonforfeitable
dividends are considered participating securities for this calculation. Diluted EPS includes the dilutive effect of additional
potential common shares issuable under stock options.
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,
Page -51-
2019 are limited to $51.4 million, which represents the Bank’s net retained earnings from the previous two years. During
2018, the Bank paid $15.0 million in cash dividends to the Company.
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.
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. The Company’s performance-based restricted stock awards (“RSAs”) vest
subject to the achievement of the Company’s 2018 corporate goals.
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.
Adoption of Accounting Standards Effective in 2018
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
On January 1, 2018, the Company adopted ASU 2014-09 and all subsequent amendments to the ASU (collectively,
Accounting Standards Codification 606 (“ASC 606”), which (i) creates a single framework for recognizing revenue from
contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the
transfer of nonfinancial assets, such as other real estate owned. The majority of the Company's revenues come from interest
income and other sources that are outside the scope of ASC 606. The Company's services that fall within the scope of ASC
606 are presented in services charges and other fees within non-interest income and are recognized as revenue as the
Company satisfies its obligations to its customers.
The Company adopted ASC 606 using the modified retrospective method applied to all contracts not completed as of
January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior
period amounts continue to be reported in accordance with legacy GAAP. The adoption of ASC 606 did not result in a
change to the accounting for any in-scope revenue streams; as such, no cumulative effect adjustment to retained earnings
was recorded at January 1, 2018.
The Company evaluated its customer contracts, which are typically day-to-day contracts where each day represents a
renewal of the contract. The Company's revenue streams accounted for under ASC 606 primarily consist of service charges
on deposit accounts and fees for other customer services. The Company's revenues from transaction-based fees, such as
overdraft fees, ATM use fees, stop payment charges, and ACH fees are recognized at the time the transaction is executed,
which is the point in time the Company fulfills the customer's request and satisfies the performance obligation. Account
maintenance fees, which relate primarily to monthly service charges, are earned over the course of the month, representing
the same period over which the Company satisfies the performance obligation. The Company earns revenues from
Page -52-
interchange fees from debit cardholder transactions conducted through the MasterCard payment network. Interchange fees
from cardholder transactions are recognized daily, concurrently with the services provided to the cardholder. As a result
of the Company's assessment ASC 606, there is no change in the amount and timing of revenue recognized in the year
ended December 31, 2018.
ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets
and Financial Liabilities
In January 2016, the FASB amended existing guidance that requires equity investments (except those accounted for under
the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with
changes in fair value recognized in net income. ASU 2016-01 requires public business entities to use the exit price notion
when measuring the fair value of financial instruments for disclosure purposes. The amendments require separate
presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities
or loans and receivables). ASU 2016-01 eliminates the requirement for public business entities to disclose the methods
and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments
measured at amortized cost. These amendments are effective for public business entities for fiscal years beginning after
December 31, 2017, including interim periods within those fiscal years. The adoption of this standard did not impact the
Company's Consolidated Financial Statements; however, it did impact the fair value disclosures included in Note 3. “Fair
Value”.
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. 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 Company
adopted the guidance in the first quarter of 2018 using the practical expedient for prior comparative periods. The change
in presentation did not impact the Company's operating results or financial condition. Refer to Note 14. “Pension and Other
Postretirement Plans” for further details of the components of net periodic benefit cost.
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 did not impact the Company's
Consolidated Financial Statements.
Page -53-
Standards Effective in 2019
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, lessor accounting
with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new guidance also requires
enhanced disclosure about an entity’s leasing arrangements. The Company adopted Topic 842 in the first quarter of 2019.
An entity may adopt the new guidance by either restating prior periods and recording a cumulative effect adjustment at
the earliest comparative period presented or by recording a cumulative effect adjustment at the beginning of the period of
adoption. The Company elected the transition approach of applying the new leases standard at the beginning of the period
of adoption on January 1, 2019. The new guidance includes a number of optional transition-related practical expedients.
The practical expedients relate to the identification and classification of leases that commenced before the effective date,
initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee
options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply these practical
expedients will, in effect, continue to account for leases that commence before the effective date in accordance with
previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease
liability for all operating leases at each reporting date based on the present value of the remaining minimum rental
payments that were tracked and disclosed under previous GAAP. The effect of adopting this standard was an approximate
$39 million increase in assets and liabilities in the Company's Consolidated Balance Sheets as a result of recognizing right-
of-use assets and lease liabilities.
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 ASU 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 ASU are
effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. All transition
requirements and elections should be applied to hedging relationships existing on the date of adoption. The effect of
adoption should be reflected as of the beginning of the fiscal year of adoption. For cash flow and net investment hedges
existing at the date of adoption, an entity shall apply a cumulative-effect adjustment related to eliminating the separate
measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the
opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this
ASU. The amended presentation and disclosure guidance is required only prospectively. The adoption of this standard did
not have an effect on the Company's Consolidated Financial Statements.
Standards Effective in 2020
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. 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 certain leases recognized by a lessor. In addition, the
amendments in this ASU require credit losses be presented as an allowance rather than as a write-down on available-for-
sale debt securities. 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. For
Page -54-
calendar year-end SEC filers, like the Company, the standard is effective for March 31, 2020 interim financial statements.
For debt securities with other-than-temporary impairment (“OTTI”), the guidance will be applied prospectively. Existing
PCI assets will be grandfathered and classified as purchase credit deteriorated (“PCD”) assets at the date of adoption. The
asset will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption and will
continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date.
Subsequent changes in expected credit losses will be recorded through the allowance. For all other assets within the scope
of CECL, a cumulative-effect adjustment will be recognized in retained earnings as of the beginning of the first reporting
period in which the guidance is effective. The Company has created a cross-functional CECL committee that is assessing
data and system needs and implementing required changes to loss estimation methods under the CECL model. 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 to the allowance for loan losses as of the beginning of the reporting period. The Company
expects the adoption will result in an increase to the allowance for loan losses balance. The effect on the Company’s
Consolidated Financial Statements is being evaluated.
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. Additionally, an entity should consider income tax effects from any
tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if
applicable. 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. 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 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 Consolidated Financial Statements.
ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
In August 2018, the FASB issued ASU 2018-15 to align the requirements for capitalizing implementation costs incurred
in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The
amendments in this ASU are effective for public business entities, like the Company, for fiscal years beginning after
December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is
permitted, including adoption in any interim period. The amendments in this ASU should be applied either retrospectively
or prospectively to all implementation costs incurred after the date of adoption. The adoption of ASU 2018-15 is not
expected to have a material effect on the Company's Consolidated Financial Statements.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Page -55-
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:
December 31,
(In thousands)
Available for sale:
2018
Gross
Gross
Gross
2017
Gross
Estimated
Amortized Unrealized Unrealized
Cost
Losses
Gains
Amortized Unrealized Unrealized
Gains
Losses
Cost
Fair
Value
Estimated
Fair
Value
$ 29,997
$
40,980
— $
105
(947) $ 29,050 $ 57,994 $
(354)
40,731
87,582
— $ (1,180) $
259
(819)
56,814
87,022
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
29,593
160,163
$ 857,544 $
96,536
38
(3,036)
93,538
189,705
29
(2,833)
186,901
362,905
826
(5,954) 357,777
314,390
16
(7,016)
307,390
3,536
—
(28)
3,508
6,017
2
(40)
5,979
93,177
24,250
46,000
697,381
—
—
—
969
(2,539)
(1,031)
(3,575)
90,638
23,219
42,425
(17,464) 680,886
49,965
24,250
46,000
775,903
—
—
—
306
(1,249)
(849)
(2,307)
(16,293)
48,716
23,401
43,693
759,916
53,540
290
(276)
53,554
60,762
972
(64)
61,670
9,688
—
(336)
9,352
11,424
—
(261)
11,163
48,244
163
(1,130)
47,277
54,250
244
(666)
53,828
19,098
4
(620)
18,482
22,953
77
(438)
22,592
—
457
31,477
180,866
1,426 $ (21,292) $ 837,678 $ 956,769 $
28,127
(1,466)
(3,828) 156,792
30,632
(845)
—
1,293
179,885
(2,274)
1,599 $ (18,567) $ 939,801
Page -56-
The following table summarizes securities with gross unrealized losses at December 31, 2018 and 2017, aggregated by
category and length of time that individual securities have been in a continuous unrealized loss position:
2018
2017
December 31,
(In thousands)
Available for sale:
U.S. GSE securities
State and municipal obligations
U.S. GSE residential mortgage-backed
securities
U.S. GSE residential collateralized
mortgage obligations
U.S. GSE commercial mortgage-
backed securities
U.S. GSE commercial collateralized
mortgage obligations
Other asset-backed securities
Corporate bonds
Total available for sale
Held to maturity:
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
Less than 12 months
Estimated Gross
Fair
Value
Unrealized
Losses
Fair
Value
Greater than 12 months Less than 12 months
Gross
Estimated Gross
Unrealized
Unrealized
Estimated
Fair
Value
Losses
Losses
Greater than 12 months
Estimated Gross
Fair
Value
Unrealized
Losses
$
— $
6,655
— $ 29,050 $
21,273
(15)
(947) $
(339)
— $
35,350
— $ 56,815
$
28,165
(301)
(1,180)
(518)
—
—
88,762
(3,036)
107,408
(1,153)
69,571
(1,680)
46,452
(141)
172,468
(5,813)
77,705
(759)
224,932
(6,257)
—
—
3,508
(28)
2,345
(40)
—
—
46,705
—
—
$
$ 99,812
(623)
—
—
43,933
23,219
42,425
(1,916)
(1,031)
(3,575)
(1,248)
(849)
(1,895)
$ (16,685) $ 236,848 $ (2,666) $ 481,253 $ (13,627)
48,264
23,401
30,105
452
—
13,588
(1)
—
(412)
(779) $ 424,638
$
8,286 $
(26) $ 22,142 $
(250) $
7,709 $
(57) $
1,009 $
(7)
—
—
9,352
(336)
1,359
(16)
9,804
(245)
—
—
40,665
(1,130)
21,329
(94)
21,112
(572)
—
—
16,205
(620)
8,789
(121)
8,303
(317)
—
8,286 $
$
28,127
—
(26) $ 116,491 $
10,341
(1,466)
(3,802) $ 49,527 $
20,290
(116)
(404) $ 60,518 $
(729)
(1,870)
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, 2018, 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 Aa3 Moody’s
rating during the time the Bank has owned them. The corporate bonds within the portfolio have all maintained an
Page -57-
investment grade rating by either Moody’s or Standard and Poor’s. None of the unrealized losses were 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, 2018.
The following table sets forth the estimated fair value, amortized cost and contractual maturities of the securities portfolio
at December 31, 2018. 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.
After One but
December 31, 2018
After Five but
Within
One Year
Estimated
Fair
Value
Amortized
Cost
Within Five Years
Estimated
Fair
Value
Cost
Amortized
Within Ten Years
Estimated
Fair
Value
Cost
Amortized
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
After
Ten Years
Total
$
— $
5,028
— $ 14,546 $ 14,997 $ 14,504 $
5,049
11,744
11,786
20,011
15,000 $
20,186
— $
— $ 29,050 $
3,948
3,959
40,731
29,997
40,980
—
—
—
—
—
—
93,538
96,536
93,538
96,536
—
—
—
—
5,153
5,085
352,624
357,820
357,777
362,905
—
—
3,508
3,536
—
—
—
—
3,508
3,536
—
—
—
5,028
—
—
—
5,049
—
—
—
29,798
—
—
—
30,319
—
—
42,425
82,093
—
—
46,000
86,271
90,638
23,219
—
563,967
93,177
24,250
—
575,742
90,638
23,219
42,425
680,886
93,177
24,250
46,000
697,381
2,394
2,404
25,988
25,954
24,876
24,882
296
300
53,554
53,540
—
—
—
—
7,105
7,333
2,247
2,355
9,352
9,688
—
—
—
—
5,123
5,211
42,154
43,033
47,277
48,244
—
—
5,997
6,048
4,743
4,915
7,742
8,135
18,482
19,098
—
2,394
7,422 $
$
2,558
34,543
29,593
—
—
2,404
160,163
42,341
7,453 $ 64,341 $ 65,008 $ 123,940 $ 128,612 $ 641,975 $ 656,471 $ 837,678 $ 857,544
25,569
78,008
—
41,847
28,127
156,792
26,906
80,729
2,687
34,689
(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 $230.4 million of proceeds on sales of available for sale securities with gross losses of approximately $7.9
million realized in 2018. 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 $3.3 million of proceeds from calls of securities in 2018.
Pledged Securities
Securities having a fair value of $354.3 million and $513.5 million at December 31, 2018 and 2017, 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, 2018 and 2017.
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
Page -58-
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 $24.0 million and
$35.3 million in FHLB, ACBB and FRB stock at December 31, 2018 and 2017, respectively. These amounts were reported
as restricted securities in the consolidated balance sheets.
As of December 31, 2018 and 2017, 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
As described in Note 1. Significant Accounting Policies, during the first quarter of 2018, the Company adopted ASU
2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities. The Company adopted the amended guidance that requires public business entities to use the exit
price notion when measuring the fair value of financial instruments for disclosure purposes.
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:
u
(In thousands)
Financial assets:
Available for sale securities:
U.S. GSE securities
State and municipal obligations
U.S. GSE residential mortgage-backed securities
U.S. GSE residential collateralized mortgage obligations
U.S. GSE commercial mortgage-backed securities
U.S. GSE commercial collateralized mortgage obligations
Other asset-backed securities
Corporate bonds
Total available for sale securities
Derivatives
Financial liabilities:
Derivatives
December 31, 2018
Fair Value Measurements Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable Unobservable
Significant
Inputs
(Level 2)
Inputs
(Level 3)
$
$
$
$
29,050
40,731
93,538
357,777
3,508
90,638
23,219
42,425
680,886
6,363
2,215
Carrying
Value
$
$
$
29,050
40,731
93,538
357,777
3,508
90,638
23,219
42,425
680,886
6,363
$
2,215
Page -59-
(In thousands)
Financial assets:
Available for sale securities:
U.S. GSE securities
State and municipal obligations
U.S. GSE residential mortgage-backed securities
U.S. GSE residential collateralized mortgage obligations
U.S. GSE commercial mortgage-backed securities
U.S. GSE commercial collateralized mortgage obligations
Other asset-backed securities
Corporate bonds
Total available for sale securities
Derivatives
Financial liabilities:
Derivatives
December 31, 2017
Fair Value Measurements Using:
Quoted Prices
In Active
Markets for
Significant
Other
Significant
Carrying
Value
Identical
Assets
(Level 1)
Observable Unobservable
Inputs
(Level 2)
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
$
$
$
$
56,814
87,022
186,901
307,390
5,979
48,716
23,401
43,693
759,916
4,546
1,823
The following tables summarize assets measured at fair value on a non-recurring basis:
December 31, 2018
Fair Value Measurements Using:
(In thousands)
Impaired loans
Other real estate owned
(In thousands)
Impaired loans
Other real estate owned
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Carrying
Value
$
$
2,532
175
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
2,532
175
December 31, 2017
Fair Value Measurements Using:
Quoted Prices
In Active
Markets for
Significant
Other
Observable
Inputs
(Level 2)
Identical
Assets
(Level 1)
Carrying
Value
$
$
—
—
Significant
Unobservable
Inputs
(Level 3)
$
$
—
—
Impaired loans with an allocated allowance for loan losses at December 31, 2018 had a carrying amount of $2.5 million,
which is made up of the outstanding balance of $2.7 million, net of a valuation allowance of $0.2 million. This resulted in
an additional provision for loan losses of $0.2 million that is included in the amount reported on the Consolidated
Statements of Income. 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.
Other real estate owned at December 31, 2018 had a carrying amount of $0.2 million with no valuation allowance recorded.
Accordingly, there was no additional provision for loan losses included in the amount reported on the Consolidated
Statements of Income. There was no other real estate owned at December 31, 2017.
Page -60-
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.
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.
Impaired Loans and Other Real Estate Owned: For impaired loans, the Company evaluates the fair value of the loan in
accordance with current accounting guidance. For loans that are collateral dependent, the fair value of the collateral is used
to determine the fair value of the loan. The fair value of the collateral is determined based on recent appraised values. The
fair value of other real estate owned is also evaluated in accordance with current accounting guidance and determined
based on recent appraised values less the estimated cost to sell. These appraisals may utilize a single valuation approach
or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in
the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income
data available. Adjustments may relate to location, square footage, condition, amenities, market rate of leases as well as
timing of comparable sales. All appraisals undergo a second review process to insure that the methodology employed and
the values derived are reasonable. The fair value of the loan is compared to the carrying value to determine if any write-
down or specific reserve is required. Impaired loans are evaluated quarterly for additional impairment and adjusted
accordingly.
Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial
properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been
reviewed and verified by the Company. Once received, the Credit 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. 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.
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, 2018 and 2017.
Page -61-
Fair value estimates are made at specific points in time and are based on existing on-and off-balance sheet financial
instruments. These estimates are subjective in nature and dependent on a number of significant assumptions associated
with each financial instrument or group of financial instruments, including estimates of discount rates, risks associated
with specific financial instruments, estimates of future cash flows, and relevant available market information. Changes in
assumptions could significantly affect the estimates. In addition, fair value estimates do not reflect the value of anticipated
future business, premiums or discounts that could result from offering for sale at one time the Company’s entire holdings
of a particular financial instrument, or the tax consequences of realizing gains or losses on the sale of financial instruments.
The following tables summarize the estimated fair values and recorded carrying amounts of the Company’s financial
instruments at December 31, 2018 and 2017:
(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
FHLB advances
Repurchase agreements
Subordinated debentures
Derivatives
Accrued interest payable
(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
FHLB advances
Repurchase agreements
Subordinated debentures
Derivatives
Accrued interest payable
December 31, 2018
Fair Value Measurements Using:
Significant
Quoted Prices In
Significant
Active Markets for Observable Unobservable
Other
Carrying
Amount
Identical Assets
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
Total
Fair Value
$ 142,145 $
153,223
680,886
24,028
160,163
3,244,393
6,363
11,236
142,145 $
153,223
—
n/a
—
—
—
—
— $
—
680,886
n/a
156,792
—
6,363
2,936
— $
—
—
n/a
—
3,216,204
—
8,300
142,145
153,223
680,886
n/a
156,792
3,216,204
6,363
11,236
329,491
3,556,902
240,433
539
78,781
2,215
1,524
—
3,556,902
—
—
—
—
—
326,865
—
236,209
539
74,400
2,215
1,524
—
—
—
—
—
—
—
326,865
3,556,902
236,209
539
74,400
2,215
1,524
December 31, 2017
Fair Value Measurements Using:
Significant
Other
Quoted Prices In
Active Markets for Observable Unobservable
Significant
Carrying
Amount
Identical Assets
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
Total
Fair Value
$
76,614 $
18,133
759,916
35,349
180,866
3,071,045
4,546
11,652
76,614 $
18,133
—
n/a
—
—
—
—
— $
—
759,916
n/a
179,885
—
4,546
3,211
— $
—
—
n/a
—
3,010,023
—
8,441
76,614
18,133
759,916
n/a
179,885
3,010,023
4,546
11,652
222,364
3,112,179
50,000
501,374
877
78,641
1,823
1,574
—
3,112,179
50,000
185,000
—
—
—
—
220,775
—
—
313,558
877
77,933
1,823
1,574
—
—
—
—
—
—
—
—
220,775
3,112,179
50,000
498,558
877
77,933
1,823
1,574
Page -62-
4. LOANS
The following table sets forth the major classifications of loans:
(In thousands)
Commercial real estate mortgage loans
Multi-family mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total loans
Net deferred loan costs and fees
Total loans held for investment
Allowance for loan losses
Loans, net
December 31,
2018
2017
$ 1,373,556 $ 1,293,906
595,280
464,264
616,003
107,759
21,041
3,098,253
4,499
3,102,752
(31,707)
$ 3,244,393 $ 3,071,045
585,827
519,763
645,724
123,393
20,509
3,268,772
7,039
3,275,811
(31,418)
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 $275.0 million and $359.4 million
of acquired CNB loans remaining as of December 31, 2018 and 2017, 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 $10.1 million and $15.4 million of acquired FNBNY loans remaining as of
December 31, 2018 and 2017, 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 $1.0 million in this category. In the case of owner-occupied real estate
used for business purposes, a weakened economy and resultant decreased consumer and/or business spending will have
an adverse effect on credit quality.
Multi-Family Mortgages
Loans in this classification include income producing residential investment properties of five or more families. 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
Page -63-
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.
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.
Page -64-
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, 2018
$
480,503 $
858,069
585,409
12,045 $
2,188
418
17,850 $
2,901
—
— $
—
—
510,398
863,158
585,827
438,891
68,480
8,510
1,594
1,114
1,174
—
—
448,515
71,248
147,474
458,526
123,089
20,464
$ 3,180,905 $
5,536
12,886
—
9
43,186 $
15,530
5,772
304
36
44,681 $
168,540
—
477,184
—
123,393
—
—
20,509
— $ 3,268,772
At December 31, 2018 there were $1.3 million and $0.2 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
451,264
808,612
595,280
393,029
64,601
128,729
442,985
107,440
21,020
$ 3,012,960
December 31, 2017
Special Mention Substandard Doubtful
Total
$
$
1,796 $
8,056
—
19,589 $
4,589
—
— $
—
—
472,649
821,257
595,280
4,854
698
290
792
—
—
398,173
66,091
12,637
14,553
—
16
42,610 $
13,560
3,539
319
5
42,683 $
154,926
—
461,077
—
107,759
—
—
21,041
— $ 3,098,253
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.
Page -65-
Past Due and Non-accrual Loans
The following tables represent the aging of the recorded investment in past due loans as of December 31, 2018 and 2017
by class of loans, as defined by FASB ASC 310-10:
December 31, 2018
(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
60-89
Days
Past Due Past Due
>90 Days Non-accrual
Past Due
And
Accruing
Including 90 Total Past
Days or More
Past Due
Due and
Non-accrual Current
Total Loans
$
$
333
—
—
$
194
—
—
892
1,033
230
—
330
1,108
—
84
3,780 $
196
—
—
—
620 $
— $
—
—
—
308
—
—
—
—
308 $
$
253
885
—
199
624
$
780
885
—
509,618
862,273
585,827
$
510,398
863,158
585,827
1,321
1,965
447,194
69,283
448,515
71,248
174
621
—
52
2,808 $
700
1,729
—
136
168,540
167,840
477,184
475,455
123,393
123,393
20,509
20,373
7,516 $ 3,261,256 $ 3,268,772
30-59
Days
60-89
Days
Past Due
Past Due
>90 Days
Past Due
And
Accruing
December 31, 2017
Non-accrual
Including 90
Days or More
Past Due
Total Past
Due and
Non-accrual Current
Total Loans
$
284 $
—
—
— $
—
—
175 $
1,163
—
2,205 $
—
—
2,664 $
1,163
—
469,985 $
820,094
595,280
472,649
821,257
595,280
2,074
329
398
—
—
271
401
161
2,873
761
395,300
65,330
398,173
66,091
113
18
—
36
2,854 $
41
35
281
5
760 $
225
—
—
—
1,834 $
570
3,618
—
—
6,955 $
949
3,671
281
41
154,926
153,977
461,077
457,406
107,759
107,478
21,041
21,000
12,403 $ 3,085,850 $ 3,098,253
At December 31, 2018, there were acquired loans of $1.7 million that were 30-89 days past due, $0.3 million that were 90
days past due and still accruing interest and $1.0 million that were non-accrual. At December 31, 2017, there were acquired
loans of $2.4 million that were 30-89 days past due, $1.8 million that were 90 days past due and still accruing interest and
none that were non-accrual.
Impaired Loans
At December 31, 2018 and 2017, the Company had individually impaired loans as defined by FASB ASC No. 310,
“Receivables” of $19.4 million and $22.5 million, respectively. The decrease in impaired loans was attributable to the
payoff of certain troubled debt restructurings (“TDRs”), coupled with a decrease in non-accrual loans due to the charge-
off of one loan and sales and payoffs, partially offset by new TDRs. During the year ended December 31, 2018, the Bank
modified certain loans as TDRs totaling $9.2 million. 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 non-accrual loans and TDRs and at December 31, 2018 included $2.7 million in other
impaired performing loans related to three taxi medallion loans which paid off in January 2019. 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
Page -66-
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.
The following tables set forth the recorded investment, unpaid principal balance and related allowance by class of loans at
December 31, 2018, 2017 and 2016 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, 2018, 2017 and 2016:
(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, 2018
Unpaid
Principal
Balance
Related
Allocated
Allowance
Year Ended December 31, 2018
Average
Recorded
Investment
Interest
Income
Recognized
Recorded
Investment
$
268
2,816
$
278
2,816
$
$
—
—
177
1,583
$
—
—
8,234
5,316
16,634
—
—
—
—
2,721
—
2,721
268
2,816
—
—
—
—
8,234
5,316
16,644
—
—
—
—
2,721
—
2,721
278
2,816
—
—
—
—
—
—
—
—
—
—
—
189
—
189
—
—
—
—
—
—
5,644
5,127
12,531
—
—
—
—
2,757
—
2,757
177
1,583
—
—
10,955
5,316
19,355
$
10,955
5,316
19,365
$
$
189
—
189
$
8,401
5,127
15,288 $
—
88
—
—
196
284
568
—
—
—
—
91
—
91
—
88
—
—
287
284
659
Page -67-
(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
$
—
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
—
—
—
—
$
173
7,001
$
—
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 -68-
(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
$
538
1,213
$
520
264
556
408
3,287
—
—
—
—
—
66
66
326
1,213
520
264
558
285
556
408
3,558
—
—
—
—
—
66
66
538
1,213
558
285
556
474
3,353
$
556
474
3,624
$
$
—
—
—
—
—
—
—
—
—
—
—
—
1
1
—
—
—
—
—
1
1
$
$
176
614
276
328
274
227
1,895
—
—
—
—
—
43
43
176
614
276
328
274
270
1,938 $
$
10
75
—
—
12
19
116
—
—
—
—
—
7
7
10
75
—
—
12
26
123
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’s other real estate owned at December 31, 2018 was $0.2 million, consisting of one property, compared to none
at December 31, 2017.
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 -69-
The following table presents loans by class modified as troubled debt restructurings during the years indicated:
2018
Pre-
Modifications During the Year Ended December 31,
2017
Pre-
Post-
Post-
2016
Pre-
Post-
(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
Modification Modification
Outstanding
Outstanding
Recorded
Recorded Number of
Number of
Modification Modification
Outstanding
Outstanding
Recorded
Recorded Number of
Loans
Investment Investment
Loans
Investment Investment
Loans
Modification Modification
Outstanding
Recorded
Investment Investment
Outstanding
Recorded
— $
1
— $
926
1
—
2
8
—
12 $
644
—
1,994
5,655
—
9,219 $
—
926
644
—
1,994
5,655
—
9,219
—
2
—
—
7
2
—
11
$
— $
7,764
—
7,764
— $
—
— $
—
—
—
—
—
6,828
189
—
14,781 $
6,828
189
—
14,781
$
1
1
3
1
—
6 $
252
69
459
525
—
1,305 $
—
—
252
69
459
525
—
1,305
The TDRs described in the table above did not increase the allowance for loan losses during the years ended December
31, 2018, 2017 and 2016.
There were $0.4 million, $0.4 million and $0.1 million of charge-offs related to TDRs during the years ended December
31, 2018, 2017 and 2016, respectively. During the year ended December 31, 2018 there was one loan modified as a TDR
for which there was a payment default within twelve months following the modification. There were two loans modified
as TDRs during 2017 and one loan modified as a TDR during 2016 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, 2018 and 2017, the Company had $133 thousand and $5 thousand, respectively, of non-accrual TDRs
and $16.9 million and $16.7 million, respectively, of performing TDRs. The non-accrual TDRs at December 31, 2018
were unsecured. At December 31, 2017, the non-accrual TDR was unsecured. 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, 2018 that did not meet the definition
of a TDR. These loans have a total recorded investment at December 31, 2018 of $50.9 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 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
Page -70-
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.
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, 2018, the
contractually required principal and interest payments receivable and carrying amount of the PCI loans was $1.1 million
and $0.5 million, respectively, with a remaining non-accretable difference of $0.5 million. 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 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, 2018, the contractually
required principal and interest payments receivable and carrying amount of the PCI loans was $1.2 million and $0.1
million, respectively, with a remaining non-accretable difference of $0.8 million. 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.
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
Accretable discount at end of period
Year Ended December 31,
2018
2,151 $
(1,842)
151
460 $
2017
6,915
(5,221)
457
2,151
$
$
The allowance for loan losses was not increased during the year ended December 31, 2018 for those PCI loans disclosed
above and there were no charge-offs recorded. 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.
Page -71-
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 2018 and 2017.
The following table sets forth selected information about related party loans for the year ended December 31, 2018:
(In thousands)
Balance at beginning of period
New loans
Repayments
Balance at end of period
5. ALLOWANCE FOR LOAN LOSSES
Year Ended
December 31,
2018
$
$
21,142
2,318
(2,413)
21,047
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, 2018 and
2017. 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:
Commercial
Real Estate
Mortgage Loans Loans
Multi-family Mortgage Agricultural
Loans
Loans
December 31, 2018
Residential Commercial, Real Estate
Real Estate Industrial and Construction Installment/
and Land Consumer
Loans
Loans
Total
$
$
$
$
— $
10,792
—
10,792 $
— $
2,566
—
2,566 $
— $
3,935
—
3,935 $
189 $
12,533
—
12,722 $
— $
1,297
—
1,297 $
— $
106
—
106 $
189
31,229
—
31,418
— $
3,084 $
— $
1,370,472 585,827 519,455
308
1,373,556 $ 585,827 $ 519,763 $
—
—
16,271 $
629,229
224
19,355
20,509 3,248,885
532
645,724 $ 123,393 $ 20,509 $ 3,268,772
— $
123,393
—
— $
—
Commercial
Real Estate
Mortgage Loans
December 31, 2017
Residential Commercial, Real Estate
Construction
Real Estate Industrial and
and Land
Multi-family Mortgage Agricultural
Loans
Loans
Loans
Loans
Installment/
Consumer
Loans
Total
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality
Total allowance for loan losses
$
$
— $
11,048
—
11,048 $
— $
4,521
—
4,521 $
— $
2,438
—
2,438 $
1,708 $
11,130
—
12,838 $
— $
740
—
740 $
— $
122
—
122 $
1,708
29,999
—
31,707
Loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality
Total loans
$
— $
11,162 $
— $
593,645 463,575 604,329 107,759
—
$ 1,293,906 $ 595,280 $ 464,264 $ 616,003 $ 107,759 $
1,281,837
907
11,230 $
1,635
100 $
444
589
— $
22,492
21,041 3,072,186
3,575
21,041 $ 3,098,253
—
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.
Page -72-
The following tables represent the changes in the allowance for loan losses for the years ended December 31, 2018, 2017
and 2016, 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.
Year Ended December 31, 2018
(In thousands)
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
(Credit) Provision
Ending balance
(In thousands)
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision (Credit)
Ending balance
(In thousands)
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision (Credit)
Ending balance
Commercial
Real Estate
Real Estate
Multi-family Mortgage
Mortgage Loans Loans
Loans
Residential Commercial,
Real Estate
Industrial and Construction Installment/
Consumer
and Land
Agricultural
Loans
Loans
Loans
Total
$
$
11,048 $
—
—
(256)
10,792 $
4,521
—
—
(1,955)
2,566
$
$
2,438 $
(24)
3
1,518
3,935 $
12,838 $
(2,806)
747
1,943
12,722 $
740 $
—
—
557
1,297 $
122 $ 31,707
(2,841)
(11)
752
2
1,800
(7)
106 $ 31,418
Year Ended December 31, 2017
Commercial
Real Estate
Mortgage Loans Loans
Multi-family Mortgage
Loans
Residential Commercial, Real Estate
Real Estate
Industrial and Construction Installment/
Agricultural
Consumer
Loans
Loans
Loans
and Land
Total
$
$
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 $
128 $ 25,904
(8,294)
(49)
47
3
14,050
40
122 $ 31,707
Year Ended December 31, 2016
Commercial
Real Estate
Mortgage Loans Loans
Multi-family Mortgage
Loans
Residential
Real Estate
Commercial, Real Estate
Industrial and Construction Installment/
Agricultural
Consumer
Loans
Loans
Loans
and Land
Total
$
$
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 $
136 $ 20,744
(987)
(1)
597
6
(13)
5,550
128 $ 25,904
6. PREMISES AND EQUIPMENT, NET
The following table details the components of premises and equipment:
December 31,
(In thousands)
Land
Building and improvements
Furniture, fixtures and equipment
Leasehold improvements
Accumulated depreciation and amortization
Total premises and equipment, net
$
2018
7,896 $
17,227
23,328
13,470
61,921
(26,913)
35,008
$
2017
7,980
15,368
21,464
12,271
57,083
(23,578)
33,505
$
Depreciation and amortization amounted to $3.8 million, $3.8 million and $3.5 million for the years ended December 31,
2018, 2017 and 2016, 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,
Page -73-
“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.
Goodwill
At December 31, 2018 and 2017, the carrying amount of the Company’s goodwill was $106.0 million.
The Company tested goodwill for impairment during the fourth quarter of 2018. 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.
Other Intangible Assets
The Company’s other intangible assets consist of core deposit intangibles, a trademark, and servicing assets. At December
31, 2018 and 2017, the carrying amount of the Company’s servicing assets was $1.2 million.
Acquired Intangible Assets
The following table reflects acquired intangible assets:
December 31,
2018
2017
(In thousands)
Intangible assets subject to amortization:
Core deposit intangibles
Intangible assets not subject to amortization:
Trademark
Total intangible assets
Gross
Carrying Accumulated
Amount
Gross
Carrying
Amortization Amount
Accumulated
Amortization
$
7,211 $
4,326 $
7,211 $
3,409
259
7,470
$
$
—
4,326
$
255
7,466 $
—
3,409
Aggregate amortization expense for intangible assets with finite lives for the years ended December 31, 2018, 2017, and
2016 was $0.9 million, $1.0 million, and $2.6 million, respectively.
The Company acquired a trademark related to the Bank’s name change to BNB Bank. At December 31, 2018 and 2017,
the carrying amount of the Company’s trademark was $259 thousand and $255 thousand as of December 31, 2018 and
2017, respectively.
The following table reflects estimated amortization expense for each of the next five years and thereafter:
(In thousands)
2019
2020
2021
2022
2023
Thereafter
Total
Total
787
656
531
413
281
217
2,885
$
$
Page -74-
8. DEPOSITS
Time Deposits
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2018:
(In thousands)
2019
2020
2021
2022
2023
Thereafter
Total
Total
252,482
25,409
43,857
3,336
4,029
378
329,491
$
$
The deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2018 and 2017 were $128.5
million and $93.0 million, respectively. Deposits from principal officers, directors and their affiliates at December 31,
2018 and 2017 were approximately $18.5 million and $23.2 million, respectively.
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase totaled $0.5 million at December 31, 2018 and $0.9 million at December
31, 2017. The repurchase agreements were collateralized by investment securities, of which 18% were U.S. GSE
residential collateralized mortgage obligations and 82% were U.S. GSE residential mortgage-backed securities with a
carrying amount of $2.4 million at December 31, 2018 and 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.
Securities sold under agreements to repurchase are financing arrangements with $0.5 million maturing during the first
quarter of 2019. 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
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,
2018
2017
$
$
1,078
$
0.04 %
1,610
$
0.05 %
867
0.05 %
1,300
0.05 %
Year Ended December 31,
2018
$ 324,653
2017
$ 401,258
1.76 %
1.52 %
$ 520,092
$ 563,974
2.72 %
1.57 %
Page -75-
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
2019
Total FHLB advances
(Dollars in thousands)
Contractual Maturity
Overnight
2018
2019
Total FHLB advances
December 31, 2018
Weighted
Amount Average Rate
$
—
— %
240,433
$ 240,433
2.72
2.72 %
December 31, 2017
Weighted
Amount Average Rate
1.53 %
$ 185,000
315,083
1,291
316,374
$ 501,374
1.59
0.94
1.59
1.57 %
Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were
collateralized by $1.3 billion and $1.2 billion of residential and commercial mortgage loans under a blanket lien
arrangement at December 31, 2018 and 2017, respectively. Based on this collateral and the Company’s holdings of FHLB
stock, the Company was eligible to borrow up to a total of $1.4 billion at December 31, 2018.
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 $78.8 million at December 31, 2018 and $78.6
million at December 31, 2017.
The subordinated debentures are included in tier 2 capital (with certain limitations applicable) under current regulatory
guidelines and interpretations.
Junior Subordinated Debentures
In December 2009, the Company completed the private placement of $16.0 million in aggregate liquidation amount of
8.50% cumulative convertible trust preferred securities (“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.
Page -76-
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 $240.0 million and $290.0 million as of December 31, 2018 and 2017,
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,
2018 and 2017:
(Dollars in thousands)
Notional amounts
Weighted average pay rates
Weighted average receive rates
Weighted average maturity
December 31,
2018
240,000
$
2017
$
290,000
1.84 %
2.77 %
2.03 years
1.78 %
1.61 %
2.64 years
Interest income recorded on these swap transactions totaled $1.1 million during the year ended December 31, 2018. Interest
expenses recorded on these swap transactions totaled $1.4 million and $0.9 million during the years ended December 31,
2017 and 2016, 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, 2018, the Company had $1.1 million of reclassifications as a reduction to interest expense. During the next
twelve months, the Company estimates that $2.1 million will be reclassified as a decrease in interest expense.
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,
2018, 2017 and 2016:
Amount of loss
(In thousands)
Interest rate contracts
Year ended December 31, 2018
Year ended December 31, 2017
Year ended December 31, 2016
recognized in OCI
(Effective Portion)
$
Amount of gain (loss) Amount of gain (loss) recognized in other
reclassified from OCI non-interest income
(Ineffective Portion)
—
—
—
1,068 $
(1,419)
(944)
2,493
463
1,191
to interest expense
$
Page -77-
The following table reflects the cash flow hedges included in the Consolidated Balance Sheets at the dates indicated:
(In thousands)
Included in other assets/(liabilities):
Interest rate swaps related to FHLB advances
Non-Designated Hedges
December 31,
2018
Fair
Value
Notional
Fair
Value
Notional
2017
Fair
Value
Fair
Value
Amount Asset Liability Amount Asset Liability
(410)
(4) $ 290,000 $ 3,133 $
$ 240,000 $ 4,239 $
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, 2018 and 2017:
(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,
2018
193,401
2017
147,967
$
$
4.52 %
4.52 %
12.25 years
$
—
3.96 %
3.96 %
12.37 years
—
$
As of December 31, 2018, 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 $0.2 million and the termination
value of derivatives in a net asset position was $3.7 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, 2018, the Company
did not post collateral to its counterparty under the agreements in a net liability position and received collateral of $5.2
million from its counterparty under the agreements in a net asset position. If the Company had breached any of these
provisions at December 31, 2018, it could have been required to settle its obligations under the agreements at the
termination value.
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,
2018
2017
2016
$ 5,270 $ 8,762 $
1,023
6,293
937
9,699
3,299
(451)
2,848
10,251
(1,004)
9,247
$ 9,141 $ 18,946 $
14,730
780
15,510
2,388
897
3,285
18,795
Page -78-
The following table is a reconciliation of the expected federal income tax expense at the statutory tax rate to the actual
provision:
Year Ended December 31,
(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
2018
2016
Percentage
of Pre-tax
Amount Earnings Amount Earnings Amount Earnings
2017
Percentage
of Pre-tax
Percentage
of Pre-tax
$ 10,157
(1,002)
1,999
—
(2,013)
$ 9,141
21 % $ 13,820
(1,808)
(2)
725
4
7,572
—
(4)
(1,363)
19 % $ 18,946
35 % $ 19,000
(1,661)
(5)
1,090
2
—
19
(3)
366
48 % $ 18,795
35 %
(3)
2
—
1
35 %
(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
$
December 31,
2018
2017
9,309 $
4,810
2,427
4,141
2,630
4,746
671
28,734
9,906
4,650
2,508
7,576
2,279
1,997
1,119
30,035
(4,559)
(1,163)
(2,110)
(2,206)
(1,210)
(1,468)
(353)
(13,069)
$
15,665 $
(3,915)
(808)
(2,146)
(1,406)
(792)
(1,255)
(221)
(10,543)
19,492
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.
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
Page -79-
the carryforward period. At December 31, 2018, the remaining federal NOL carryforward was $3.3 million. At December
31, 2018, the Company had New York State and New York City NOL carryforwards of $35.6 million and $14.0 million,
respectively, and recorded a deferred tax asset that it expects to recover within the carryforward period. The New York
State and New York City NOLs at December 31, 2018 included NOLs acquired in connection with the CNB and FNBNY
acquisitions.
14. PENSION AND OTHER POSTRETIREMENT PLANS
Pension Plan and Supplemental Executive Retirement Plan
The Bank maintains a noncontributory pension plan (the “Pension 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
Pension Benefits
SERP Benefits
Year Ended December 31, Year Ended December 31,
2018
2017
2018
2017
$
$
$
$
24,759 $
1,106
794
(402)
(2,646)
23,611 $
20,844 $
1,129
750
(285)
2,321
24,759 $
3,919 $
290
127
(112)
(413)
3,811 $
34,695 $
(2,079)
1,660
(402)
33,874 $
27,914 $
4,859
2,207
(285)
34,695 $
— $
—
112
(112)
— $
3,004
212
105
(112)
710
3,919
—
—
112
(112)
—
Funded status at end of year
$
10,263 $
9,936 $
(3,811) $
(3,919)
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,
2017
$ 6,987
2018
$ 8,631
2018
$
SERP Benefits
December 31,
2017
$ 1,459
— —
5
—
925 $ 1,464
925
(561)
(639)
— —
$ 8,070
$ 6,348 $
Page -80-
As of December 31, 2018, the accumulated benefit obligation was $22.3 million for the Pension Plan and $2.7 million for
the SERP. As of December 31, 2017, the accumulated benefit obligation was $23.1 million for the Pension Plan and $2.5
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 recognized in other comprehensive income:
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 (credit) cost
Net loss (gain)
Amortization of net loss
Amortization of prior service credit
Amortization of transition obligation
Total recognized in other comprehensive income
Pension Benefits
Year Ended December 31,
2017
2018
2016
2018
SERP Benefits
Year Ended December 31,
2017
2016
$
$
$
$
1,106
794
(2,547)
335
(77)
—
(389)
1,980
(335)
77
—
1,722
$
$
$
$
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 $
290 $
127
—
121
—
5
543 $
(413) $
(121)
—
(5)
(539) $
212 $
105
—
51
—
27
395 $
710 $
(51)
—
(27)
632 $
176
105
—
27
—
28
336
280
(27)
—
(28)
225
As described in Note 1. Summary of Significant Accounting Policies, during the first quarter of 2018, the Company
adopted ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost. The Company adopted the guidance in the first quarter of
2018 using the practical expedient that permits an employer to use the amounts disclosed in its pension and postretirement
benefit plan note for prior comparative periods as the estimation basis for applying retrospective presentation adjustments.
The adoption of this ASU resulted in the reclassification of $794 thousand and $644 thousand of net periodic benefit credit
components other than service cost from salaries and employee benefits expense to other operating expense for the years
ended December 31, 2017 and 2016 respectively. The Company's service cost component is reported in the Company's
income statement in salaries and employee benefits, which is the same line item as other compensation costs arising from
services rendered by the pertinent employees during the period. All other components of net periodic benefit credit are
reported in the other operating expenses income statement line. The change in presentation did not impact the Company's
operating results or financial condition.
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 $520 thousand and $77 thousand,
respectively. The estimated net loss for the SERP that will be amortized from accumulated other comprehensive income
into net periodic benefit cost over the next fiscal year is $70 thousand.
Page -81-
Expected Long-Term Rate of Return
The Company’s expected long-term rate of return on Pension Plan assets is a long-term rate based on anticipated Pension
Plan asset returns over an extended period of time, taking into account market conditions and broad asset mix
considerations. The expected rate of return is a long-term assumption and generally does not change annually.
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 Plan Assets
Pension Benefits
December 31,
SERP Benefits
December 31,
2018 2017 2016 2018 2017 2016
4.14 %
3.00
3.52 %
3.00
4.05 %
3.00
4.13 %
5.00
3.50 %
5.00
4.01 %
5.00
3.52 %
3.00
7.25
4.05 %
3.00
7.25
4.30 %
3.00
7.50
3.50 %
5.00
—
4.01 %
5.00
—
4.20 %
5.00
—
The Pension Plan seeks to provide retirement benefits to the employees of the Bank who are entitled to receive benefits
under the Pension Plan. The Pension Plan assets are overseen by a committee comprised of management, who meet semi-
annually, and sets the investment policy guidelines.
The Pension 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 Pension 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 representing
cumulative returns of approximately 9.5% 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:
Weighted-Average-
Asset Category
Cash equivalents
Equity securities
Fixed income securities
Total
Target
Allocation
2019
Percentage of Plan Assets Expected Long-
At December 31,
2017
2018
term Rate of
Return
0 - 5 %
45 - 65
35 - 55
3.0 %
54.8
42.2
100.0
8.1 %
58.7
33.2
100.0
— %
9.5
5.0
Except for pooled vehicles and mutual funds, which are governed by the prospectus, and unless expressly authorized by
management, the Pension 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
Page -82-
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 Pension Plan can
redeem its investment with the investee at the NAV at the measurement date. If the Pension Plan can never redeem the
investment with the investee at the NAV, it is considered as level 3. If the Pension Plan can redeem the investment at the
NAV at a future date, the Pension Plan’s assessment of the significance of a particular item to the fair value measurement
in its entirety requires judgment, including the consideration of inputs specific to the asset.
In accordance with FASB ASC 715-20, the following table represents the Pension Plan’s fair value hierarchy for its
financial assets measured at fair value on a recurring basis as of December 31, 2018 and 2017:
December 31, 2018:
Fair Value Measurements Using:
Quoted Prices Significant
(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
In Active
Markets for
Identical Assets
(Level 1)
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
$
$
— $
1,063
1,063
9,173
2,760
6,480
155
18,568
2,341
2,098
1,132
8,672
14,243
33,874 $
— $
—
—
— $
1,063
1,063
9,173
2,760
6,480
155
18,568
2,341
—
—
—
2,341
20,909 $
—
—
—
—
—
—
2,098
1,132
8,672
11,902
12,965 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Page -83-
(Dollars in thousands)
Cash and cash equivalents:
Cash
Short term investment funds
Total cash and cash equivalents
Equities:
U.S. large cap
U.S. mid cap/small cap
International
Equities blend
Total equities
Fixed income securities:
Government issues
Corporate bonds
Mortgage-backed
High yield bonds and bond funds
Total fixed income securities
Total plan assets
December 31, 2017
Fair Value Measurements Using:
Quoted Prices In Significant
Active Markets
for Identical
Assets
(Level 1)
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
$
$
— $
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 $
— $
—
—
— $
2,821
2,821
9,587
3,131
7,283
367
20,368
1,507
—
—
—
1,507
21,875 $
—
—
—
—
—
127
2,837
1,007
6,028
9,999
12,820 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The Company has no minimum required pension contribution due to the overfunded status of the plan.
Estimated Future Payments
The following table summarizes benefits expected to be paid under the Pension Plan and the SERP as of December 31,
2018, which reflect expected future service:
Year
2019
2020
2021
2022
2023
2024-2028
401(k) Plan
Pension and SERP
Payments
(in thousands)
$
699
739
949
1,071
1,146
7,826
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 $18,500 for the calendar year ended December
31, 2018. 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, 2018, 2017 and 2016 the Company made cash contributions of $1.0 million, $1.0 million, and $786
thousand, respectively. The 401(k) plan also includes a discretionary profit-sharing component. During the years ended
December 31, 2018, 2017 and 2016, the Company made discretionary profit-sharing contributions of $497 thousand, $550
thousand, and $424 thousand, respectively.
15. STOCK-BASED COMPENSATION PLANS
The Bridge Bancorp, Inc. 2012 Stock-Based Incentive Plan (the “2012 SBIP”) provides for the grant of stock-based and
other incentive awards to officers, employees and directors of the Company. The 2012 SBIP plan superseded the Bridge
Page -84-
Bancorp, Inc. 2006 Stock-Based Incentive Plan. The number of shares of common stock of Bridge Bancorp, Inc. available
for stock-based awards under the 2012 SBIP is 525,000 plus 278,385 shares that were remaining under the 2006 Stock-
Based Incentive Plan. Of the total 803,385 shares of common stock approved for issuance under the 2012 SBIP, 282,737
shares remain available for issuance at December 31, 2018, including shares that may be granted in the form of stock
options, RSAs or restricted stock units (“RSUs”).
The Compensation Committee of the Board of Directors determines awards under the 2012 SBIP. The Company accounts
for the 2012 SBIP under FASB ASC No. 718.
Stock Options
Stock options may be either incentive stock options, which bestow certain tax benefits on the optionee, or non-qualified
stock options, not qualifying for such benefits. All options have an exercise price that is not less than the market value of
the Company's common stock on the date of the grant.
The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option-pricing model.
The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market
price of the Company's common stock as of the exercise or reporting date.
During the year ended December 31, 2018, in accordance with the Long Term Incentive Plan (“LTI Plan”) for Named
Executive Officers (“NEOs”), the Company granted 47,393 stock options with an exercise price set to equal a 10.0%
premium over the grant date stock price. All of the stock options granted vest ratably over three years. The estimated
weighted-average grant-date fair value of all stock options granted in the year ended December 31, 2018 was $6.52 per
stock option, using the Black-Scholes option-pricing model with assumptions as follows: dividend yield of 2.80%;
expected volatility rate of 27.53%; risk-free interest rate of 2.67%; and expected option life of 6.5 years. No new grants of
stock options were awarded during the years ended December 31, 2017 and 2016. There were no stock options outstanding
as of December 31, 2017 and 2016.
Compensation expense attributable to stock options was $91 thousand for the year ended December 31, 2018. There was
no compensation expense attributable to stock options for the years ended December 31, 2017 and 2016 because all stock
options were vested. As of December 31, 2018, there was $218 thousand of total unrecognized compensation cost related
to unvested stock options. The cost is expected to be recognized over a weighted-average period of 2.1 years.
The following table summarizes the status of the Company's stock options:
(Dollars in thousands, except per share amounts)
Outstanding, January 1, 2018
Granted
Outstanding, December 31, 2018
Vested and Exercisable, December 31, 2018
Range of Exercise Prices
$36.19
The following table summarizes stock option exercise activity:
(In thousands)
Intrinsic value of options exercised
Cash received from options exercised
Tax benefit realized from options exercised
Weighted
Average
Exercise
Number
of
Options
— $
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
9.1 years $
—
—
—
Price
—
36.19
36.19
—
47,393
47,393
—
Weighted
Average
Number of
Options
Exercise Price
36.19
36.19
47,393 $
47,393
Year Ended December 31,
2017
2016
2018
$
— $
__
—
__ $
__
—
115
62
—
Page -85-
Restricted Stock Awards
The Company's RSAs are shares of the Company's common stock that are forfeitable and are subject to restrictions on
transfer prior to the vesting date. RSAs are forfeited if the award holder departs the Company before vesting. RSAs carry
dividend and voting rights from the date of grant. The vesting of time-vested RSAs depends upon the award holder
continuing to render services to the Company. The Company's performance-based RSAs vest subject to the achievement
of the Company's 2018 corporate goals.
The following table summarizes the unvested RSA activity for the year ended December 31, 2018:
Unvested, January 1, 2018
Granted
Vested
Forfeited
Unvested, December 31, 2018
Weighted
Average Grant-Date
Fair Value
Shares
317,692 $
83,782
(61,367)
(15,225)
324,882
27.16
32.99
24.15
29.43
29.13
During the year ended December 31, 2018, the Company granted a total of 83,782 RSAs. Of the 83,782 RSAs granted,
44,750 time-vested RSAs vest ratably over five years, 13,915 time-vested RSAs vest ratably over three years and 25,117
performance-based RSAs vest ratably over two years, subject to the achievement of the Company’s 2018 corporate goals.
During the year ended December 31, 2017, the Company granted RSAs of 71,781 shares. 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, and 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 RSAs 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, 5,600 shares vest ratably over three years. As of
December 31, 2018, there were 324,882 unvested RSAs consisting of 301,250 time-vested RSAs and 23,632 performance-
based RSAs.
Compensation expense attributable to RSAs was $2.4 million, $1.7 million and $1.5 million for the years ended December
31, 2018, 2017 and 2016, respectively. The total fair value of shares vested during the years ended December 31, 2018,
2017 and 2016, was $1.5 million, $1.1 million and $935 thousand, respectively. As of December 31, 2018, there was $5.0
million of total unrecognized compensation costs related to non-vested restricted stock awards granted under the 2012
SBIP and the 2006 Equity Incentive Plan. The cost is expected to be recognized over a weighted-average period of
3.3 years.
Restricted Stock Units
Long Term Incentive Plan
RSUs represent an obligation to deliver shares to an employee at a future date if certain vesting conditions are met. RSUs
are subject to a time-based vesting schedule, or the satisfaction of performance conditions, and are settled in shares of the
Company's common stock. RSUs do not provide voting rights and RSUs may provide dividend equivalent rights from the
date of grant.
During the year ended December 31, 2018 in accordance with the LTI plan for NEOs, the Company granted 21,693 RSUs.
Of the 21,693 RSUs granted, 12,522 time-vested RSUs vest ratably over five years and 9,171 performance-based RSUs
vest subject to the achievement of the Company’s three-year corporate goal for the three-year period ending December 31,
2020.
Page -86-
The following table summarizes the unvested NEO RSU activity for the year ended December 31, 2018:
Unvested, January 1, 2018
Granted
Reinvested dividends
Forfeited
Unvested, December 31, 2018
Weighted
Average Grant-Date
Fair Value
Shares
68,776 $
21,693
2,103
(13,334)
79,238
24.46
33.23
26.73
21.85
27.36
Compensation expense attributable to LTI plan RSUs was $462 thousand, $309 thousand and $193 thousand in connection
with these awards for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, there
was $1.3 million of total unrecognized compensation cost related to non-vested RSUs. The cost is expected to be
recognized over a weighted-average period of 3.0 years.
Directors Plan
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 RSUs. In addition,
directors receive a non-election retainer in the form of RSUs. These RSUs vest ratably over one year and have dividend
rights but no voting rights. In connection with the Directors Plan, the Company recorded expense of $560 thousand, $530
thousand and $493 thousand for the years ended December 31, 2018, 2017 and 2016 respectively.
Employee Stock Purchase Plan
In May 2018, the Board of Directors adopted, and stockholders approved the Employee Stock Purchase Plan (“ESPP”). A
total of 1,000,000 shares of the Company’s common stock have been initially authorized for issuance under the ESPP.
Subject to any plan limitations, the ESPP allows eligible employees to contribute, normally through payroll deductions,
up to $25 thousand for the purchase of the Company’s common stock at a discounted price per share for any calendar year.
The initial offering period was from July 1, 2018 through December 15, 2018.
During the year ended December 31, 2018, 3,758 shares of common stock were purchased under the ESPP. No expense
was recorded related to ESPP for year ended December 31, 2018.
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 EPS. The RSAs and certain RSUs 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 -87-
The following table presents the computation of EPS for the years ended December 31, 2018, 2017 and 2016:
(In thousands, except per share data)
Net income
Dividends paid on and earnings allocated to participating securities
Income attributable to common stock
Weighted average common shares outstanding, including participating securities
Weighted average participating securities
Weighted average common shares outstanding
Basic earnings per common share
Income attributable to common stock
Impact of assumed conversions - interest on 8.5% trust preferred securities
Income attributable to common stock including assumed conversions
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
Year Ended December 31,
2017
20,539 $
(415)
20,124 $
2018
39,227 $
(853)
38,374 $
2016
35,491
(732)
34,759
19,875
(434)
19,441
1.97 $
19,759
(404)
19,355
1.04 $
17,670
(366)
17,304
2.01
38,374 $
—
38,374 $
20,124 $
—
20,124 $
19,441
27
—
19,468
1.97 $
19,355
24
—
19,379
1.04 $
34,759
878
35,637
17,304
13
534
17,851
2.00
$
$
$
$
$
$
There were 47,393 stock options outstanding at December 31, 2018 that were not included in the computation of diluted
earnings per share for the year ended December 31, 2018 because the options’ exercise prices were greater than the average
market price of common stock and were, therefore, antidilutive. 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.
There were 3,156 RSUs that were antidilutive for the year ended December 31, 2018 and no RSUs that were antidilutive
for the years ended December 31, 2017 and 2016.
The assumed conversion of the TPS was antidilutive for the year ended December 31, 2017, and therefore was not included
in the computation of diluted earnings per share during that year. 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, 2018, 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
2019
2020
2021
2022
2023
Thereafter
Total
Amount
(In thousands)
7,248
$
6,504
6,185
5,903
4,695
18,687
49,222
$
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
Page -88-
options, which are not reflected in the table. Rent expense under operating leases for the years ended December 31, 2018,
2017 and 2016 totaled $6.9 million, $7.3 million, and $6.8 million, respectively, net of subleases.
Loan commitments
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued
to meet customer-financing needs. These are agreements to provide credit or to support the credit of others, as long as
conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being
used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are
not anticipated. The same credit policies are used to make such commitments as are used for loans, often including
obtaining collateral at exercise of the commitment.
The following represents commitments outstanding:
(In thousands)
Standby letters of credit
Loan commitments outstanding (1)
Unused lines of credit
Total commitments outstanding
December 31,
2018
26,047 $
65,796
636,772
728,615 $
2017
26,913
124,284
576,698
727,895
$
$
(1) Of the $65.8 million of loan commitments outstanding at December 31, 2018, $20.5 million are fixed rate
commitments and $45.3 million are variable rate commitments. 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.
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 2018, the Bank was required to maintain certain cash balances with the FRB for reserve and clearing requirements.
The required cash balance at December 31, 2018 was $12.7 million. During 2018, the Bank invested overnight with the
FRB and the average balance maintained during 2018 was $50.9 million.
During 2018, 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,
2018, the Bank had aggregate lines of credit of $373.0 million with unaffiliated correspondent banks to provide short-term
credit for liquidity requirements. Of these aggregate lines of credit, $353.0 million is available on an unsecured basis. As
of December 31, 2018, the Bank had no 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, 2018, there was up to $1.4
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
Page -89-
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, 2018 and 2017.
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. The Basel III Capital Rules 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 was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increased by 0.625% each
subsequent January 1, until fully implemented at 2.5% on January 1, 2019. Including the capital conservation buffer, the
Company and the Bank 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, 2018, 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, 2018 and 2017:
(Dollars in thousands)
Common equity tier 1 capital to risk-weighted
assets:
Consolidated
Bank
Total capital to risk-weighted assets:
Consolidated
Bank
Tier 1 capital to risk-weighted assets:
Consolidated
Bank
Tier 1 capital to average assets:
Consolidated
Bank
Actual Capital Adequacy Requirement
Amount Ratio Amount Ratio
Minimum Capital
Minimum Capital
Adequacy Requirement with
Capital Conservation Buffer Corrective Action Provisions
Minimum To Be Well
Capitalized Under Prompt
Amount
Ratio
Amount
Ratio
December 31, 2018
$ 360,688
438,963
10.4 % $ 155,836
155,831
12.7
4.5 % $
4.5
220,767
220,761
6.375 %
6.375 $
n/a
225,089
n/a
6.5 %
472,382
470,657
13.6
13.6
277,041
277,033
360,688
438,963
10.4
12.7
207,781
207,775
360,688
438,963
8.1
9.9
177,782
177,776
8.0
8.0
6.0
6.0
4.0
4.0
341,973
341,963
272,712
272,704
9.875
9.875
n/a
346,291
7.875
7.875
n/a
277,033
n/a
n/a
n/a
n/a
n/a
222,220
n/a
10.0
n/a
8.0
n/a
5.0
Page -90-
(Dollars in thousands)
Common equity tier 1 capital to risk-weighted
assets:
Consolidated
Bank
Total capital to risk-weighted assets:
Consolidated
Bank
Tier 1 capital to risk-weighted assets:
Consolidated
Bank
Tier 1 capital to average assets:
Consolidated
Bank
Actual Capital
Amount Ratio
Minimum Capital
Minimum To Be Well
Capitalized Under Prompt
Adequacy Requirement Capital Conservation Buffer Corrective Action Provisions
Amount Ratio
Adequacy Requirement with
Minimum Capital
Amount
Amount
Ratio
Ratio
December 31, 2017
$ 336,393
408,089
10.0 % $ 152,011
152,002
12.1
4.5 % $
4.5
194,237
194,224
5.75 %
$
5.75
n/a
219,558
n/a
6.5 %
448,376
440,072
13.3
13.0
270,242
270,225
336,393
408,089
10.0
12.1
202,682
202,669
336,393
408,089
7.9
9.6
170,440
170,441
8.0
8.0
6.0
6.0
4.0
4.0
312,468
312,448
244,907
244,892
n/a
n/a
9.25
9.25
7.25
7.25
n/a
n/a
n/a
337,781
n/a
270,225
n/a
213,051
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
Other liabilities
Total liabilities
Total stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Statements of Income
December 31,
2018
2017
$
1,537 $
103
532,105
7,858
210
500,896
$ 533,745 $ 508,964
$ 78,781 $
1,134
79,915
78,641
1,123
79,764
453,830
429,200
$ 533,745 $ 508,964
Year Ended December 31,
2017
2018
15,000
4,539
135
10,326
(1,005)
11,331
27,896
39,227
$
$
—
4,588
147
(4,735)
(1,774)
(2,961)
23,500
20,539
$
$
2016
14,800
5,903
260
8,637
(2,126)
10,763
24,728
35,491
(In thousands)
Dividends from the Bank
Interest expense
Non-interest expense
Income (loss) before income taxes and equity in undistributed earnings of the Bank
Income tax benefit
Income (loss) before equity in undistributed earnings of the Bank
Equity in undistributed earnings of the Bank
Net income
$
$
Page -91-
Condensed Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Year Ended December 31,
2017
2016
2018
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in undistributed earnings of the Bank
Amortization
Decrease (increase) in other assets
Increase (decrease) in other liabilities
Net cash provided by (used in) operating activities
$
39,227
$
20,539
$
35,491
(27,896)
140
108
11
11,590
(23,500)
139
18
(398)
(3,202)
(24,728)
152
(212)
351
11,054
Cash flows from investing activities:
Investment in the Bank
Net cash used in investing activities
Cash flows from financing activities:
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
Cash dividends paid
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
—
—
—
—
(39,500)
(39,500)
—
1,017
—
(586)
(18,342)
(17,911)
(352)
951
—
(350)
(18,238)
(17,989)
—
48,442
62
(344)
(16,140)
32,020
(6,321)
7,858
1,537
$
(21,191)
29,049
7,858
$
3,574
25,475
29,049
$
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 losses (gains) realized in income
Income tax effect
Net change in unrealized losses on available for sale securities
Unrealized net loss arising during the period
Reclassification adjustment for amortization realized in income
Income tax effect
Net change in post-retirement obligation
Change in fair value of derivatives used for cash flow hedges
Reclassification adjustment for (gains) losses realized in income
Income tax effect
Net change in unrealized gain on cash flow hedges
$
Year Ended December 31,
2017
(1,107) $
(38)
640
(505)
2018
(8,429) $
7,921
160
(348)
2016
(6,428)
(449)
2,795
(4,082)
(1,567)
384
351
(832)
2,493
(1,068)
(418)
1,007
(302)
480
15
193
463
1,419
(793)
1,089
(1,452)
384
438
(630)
1,191
944
(865)
1,270
Other comprehensive (loss) income
$
(173) $
777 $
(3,442)
Page -92-
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 on pension benefits
Unrealized gains on cash flow hedges
Accumulated other comprehensive loss, net of income taxes
2017
(11,337) $
(5,533)
1,931
(14,939) $
$
$
December 31, Comprehensive
Other
Income
December 31,
2018
(11,685)
(6,365)
2,938
(15,112)
(348) $
(832)
1,007
(173) $
The following represents the reclassifications out of accumulated other comprehensive (loss) income:
(In thousands)
Realized (losses) gains 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 gains (losses) on cash flow hedges
Total reclassifications, before income tax
Income tax benefit
Total reclassifications, net of income tax
Year Ended December 31,
2017
2018
2016
Affected Line Item in the
Consolidated Statements of Income
$
(7,921) $
38 $
449 Net securities (losses) gains
77
(5)
(456)
1,068
(7,237)
2,105
$
(5,132) $
77
(27)
(530)
(1,419)
(1,861)
762
(1,099) $
77 Other operating expenses
(28) Other operating expenses
(433) Other operating expenses
(944) Interest expense
(879)
356 Income tax expense
(523)
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected Consolidated Quarterly Financial Data follows:
2018 Quarter Ended
March 31, June 30,
$
41,551
7,622
33,929
400
33,529
(2,578)(1)
22,507
8,444
1,701
6,743 $
0.34 $
0.34 $
41,364 $
6,825
34,539
800
33,739
4,113
22,598
15,254
3,181
12,073 $
0.61 $
0.61 $
September 30, December 31,
43,480
$
9,382
34,098
400
33,698
5,115
22,071 (3)
16,742
2,878
13,864
0.70
0.70
42,589 $
8,375
34,214
200
34,014
4,918
31,004 (2)
7,928
1,381
6,547 $
0.33 $
0.33 $
$
$
$
(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 (loss)
Non-interest expense
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
Page -93-
(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
March 31, June 30,
$
2017 Quarter Ended
September 30, December 31,
39,960
6,399
33,561
10,400 (4)
23,161
4,499
29,154 (5)
(1,494)
5,422 (6)
(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 $
36,234 $
5,441
30,793
950
29,843
4,509
21,006
13,346
4,505
8,841 $
0.45 $
0.45 $
35,217 $
4,756
30,461
800
29,661
4,122
20,296
13,487
4,316
9,171 $
0.47 $
0.47 $
$
$
$
(1) 2018 amount includes a pre-tax net securities loss of $7.9 million.
(2) 2018 amount includes a pre-tax charge related to the fraudulent conduct of a business customer of $9.5 million.
(3) 2018 amount includes a pre-tax charge of $0.8 million related to office relocation costs and a pre-tax recovery of $0.6
million related to fraud loss.
(4) 2017 amount includes net charge-offs primarily from loans and specific reserves associated with two relationships of
$8.0 million.
(5) 2017 amount includes restructuring costs associated with branch restructuring and charter conversion of $8.0 million.
(6) 2017 amount includes a charge to write-down deferred tax assets due to the enactment of the Tax Act of $7.6 million.
22. NET FRAUD LOSS
The Company incurred a pre-tax charge of $8.9 million in the year ended December 31, 2018 relating to the fraudulent
conduct of a business customer through its deposit accounts at the Bank. The Company is working with the appropriate
law enforcement authorities in connection with this matter. The customer has filed a petition pursuant to Chapter 11 of the
bankruptcy code.
In January 2019, the Company filed a claim for the loss with its insurance carrier, but the extent and amount of coverage
is not yet certain.
Page -94-
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, 2018 and 2017, 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, 2018, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018 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, 2018, 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 11, 2019
Crowe LLP
Page -95-
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, 2018. 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, 2018. 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, 2018, 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 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, 2018, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
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 3, 2019 and is incorporated herein by reference
thereto.
Page -96-
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 3, 2019 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 3,
2019 and is incorporated herein by reference thereto.
Set forth below is certain information as of December 31, 2018, 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 stockholders.
Equity compensation
plan approved by
stockholders
2006 Stock-Based Incentive Plan
2012 Stock-Based Incentive Plan
Employee Stock Purchase Plan
Total
and awards
Number of securities to Weighted average
be issued upon exercise
exercise price with
of outstanding options respect to outstanding remaining available for
issuance under the plan
stock options
—
282,737
996,242
1,278,979
19,928
209,867
—
229,795
—
$ 36.19
—
$ 36.19
Number of securities
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 3, 2019 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 3, 2019 and is
incorporated herein by reference thereto.
Page -97-
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a) The following Consolidated Financial Statements, including notes thereto, and financial schedules of the Company,
required in response to this item are included in Part II, Item 8, “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.
41
42
43
44
45
46
95
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 99.
Item 16. Form 10-K Summary
Not applicable.
Page -98-
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)
10.1(iii)
10.2
10.3
10.4
10.5
10.6
10.7
10.8
21.1
23.1
31.1
31.2
32.1
101
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 (incorporated by reference to Registrant’s Form 10-K, File No. 001-34096,
filed March 9, 2018)
*
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)
*
Third Amendment to the Amended and Restated Employment Contract – Howard H. Nolan (incorporated by
reference to Registrant’s Form 10-K, File No. 001-34096, filed March 9, 2018)
*
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 (incorporated by reference to Registrant’s Form 10-K, File No. 001-34096, filed March 9, 2018)
*
Bridge Bancorp, Inc. Employee Stock Purchase Plan (incorporated by reference to the Registrant’s Definitive
Proxy Statement, File No. 001-34096, filed April 2, 2018)
*
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, 2018, filed on March 11, 2019, formatted in XBRL: (i) Consolidated Balance Sheets as of
December 31, 2018 and 2017, (ii) Consolidated Statements of Income for the Years Ended December 31, 2018,
2017 and 2016, (iii) Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2018,
2017 and 2016, (iv) Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2018,
2017 and 2016, (v) Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and
2016, and (vi) the Notes to Consolidated Financial Statements.
Page -99-
Exhibit Number
Description of Exhibit
Exhibit
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Labels Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definitions Linkbase Document
* Denotes incorporated by reference.
Page -100-
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 11, 2019
March 11, 2019
March 11, 2019
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 11, 2019
March 11, 2019
March 11, 2019
March 11, 2019
March 11, 2019
March 11, 2019
March 11, 2019
March 11, 2019
March 11, 2019
March 11, 2019
March 11, 2019
March 11, 2019
Director
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
Thomas J. Tobin
/s/ Raymond A. Nielsen
Raymond A. Nielsen
/s/ Daniel Rubin
Daniel Rubin
/s/ Christian C. Yegen
Christian C. Yegen
/s/ Matthew Lindenbaum
Matthew Lindenbaum
Page -101-
C OR PORAT E I NFORM ATIO N
BRIDGE BANCORP, INC.
Board of Directors
Marcia Z. Hefter
Chairperson
Dennis A. Suskind
Vice Chairperson
Kevin M. O’Connor
Emanuel Arturi
Matthew Lindenbaum
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
John M. McCaffery
Executive Vice President,
Chief Financial Officer &
Treasurer
BNB BANK
Executive Officers
Kevin M. O’Connor
President and
Chief Executive Officer
Howard H. Nolan
Sr. Executive Vice President,
Chief Operating Officer &
Corporate Secretary
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
JoAnn Bello
Eric C. Bukowski
Lance P. Burke
m
o
c
.
s
r
o
n
n
o
c
-
n
a
r
r
u
c
.
w
w
w
/
.
c
n
I
,
s
r
o
n
n
o
C
&
n
a
r
r
u
C
y
b
n
g
i
s
e
D
t
r
o
p
e
R
l
a
u
n
n
A
n
o
n
n
e
L
m
J
i
y
b
y
h
p
a
r
g
o
t
o
h
P
Kimberly Cioch
Stephanie Clancy
Daniel P. Delehanty
Seamus J. Doyle
Nancy A. Foster
Laura B. Gorman
Patricia Horan
Steven J. Karaman
Monica E. LaCroix-Rubin
Theresa Mackey
Deborah A. McGrory
Ralph G. Meyer Jr.
William J. Newham
Eileen E. O’Brien
Michael D. Ogus
Enrico Panno
Thomas M. Pfundstein
Arthur R. Phidd
Bruce A. Salmon
Stephen Sheridan
Stephen J. Sipola
Austin Stonitsch
James B. Thompson
John M. Tuohy
John P. Vivona
Joseph F. Walsh
Aidan P. Wood
Vice Presidents
Noman Arshad
Sabrina Aucello
David C. Barczak
Cynthia M. Berner
Steven Bodziner
Maria Bozzella
Agim B. Bracovic
Jayne Buck
Michael J. Caldwell
Andrew D. Cameron
Diane Y. Caputi
Maria L. Cawley
Christina Cinotti
LuAnn Commisso
Matthew A. Crennan
John Daly
Keti Dervishi
Jamie M. Desmond
Daniel Doody
Elizabeth Drury
Maria Elkin
Anthony V. Errera
John Farina
Stuart M. Fliegelman
Tara M. Fordham
Christopher Fragnito
Steven J. Frascatore
Peter M. Gajda
Ann M. Garcia Afkham
Lisa Garraputa
Stanley J. Glinka
Theresa E. Going
Sean M. Granholm
Michael V. Hadix
Beth Flanagan Hard
Vaughn Henry
Peter K. Hillick
Maureen Hines
Susan L. Hughes
Chanbir Kaur
Kerrie E. Kemerson
Craig Kittilsen
Michael Lanzisera
Brian E. Lawn
Krisanthi Lilaj
Donna M. Lillie
Judith A. Limpert
Patricia Liotta
Vincent M. LoPreto
David D. Luce
John B. MacCulley
Thomas J. Malley
Marie A. McAlary
Michelle McAteer
Jenna M. McCarrick
Theresa V. McCarthy
Scott McGrath
Margaret Meighan
Nancy L. Messer
Stephen Molfetta
Roger W. Morris
Corrinne E. Newman
Hayley Orientale
Deborah L. Orlowski
Nicholas Parrinelli
William F. Penteck III
Claudia Pilato
Mohammad N. Qamar
John J. Quinlivan
Jill M. Ramundo
Emily Reeve
Philip G. Rinaldi
Beverly Ringhoff
Keith E. Robertson
Ricardo Rodriguez
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
Katherine O’Brien
Thomas J. Sullivan
Kathleen M. Taveira
Frank C. Trifaro
Dawn M. Turnbull
Gerald W. Veryzer
Alice E. Wattley
Gregory Young
Jacqueline K. Yu
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 informa-
tion 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 505000
Louisville, KY 40233-5000
800.368.5948
www.computershare.com
Shareholders who would like
to make changes to the name,
address or ownership of their
stock, consolidate accounts,
eliminate duplicate mailings,
or replace lost certificates or
dividend checks, should con-
tact 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 3, 2019 in the Com-
munity Room, BNB Bank,
2200 Montauk Highway,
Bridgehampton, NY 11932.
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
LENDING OFFICE
Woodbury
Manhattan
B
r
i
d
g
e
B
a
n
c
o
r
p
,
I
n
c
.
|
2
0
1
8
A
n
n
u
a
l
R
e
p
o
r
t
BRIDGE
BANCORP, INC.
2200 Montauk Highway
P.O. Box 3005
Bridgehampton, New York 11932
631.537.1000
www.bnbbank.com