BRIDGE BANCORP INC

In May 2019, the Company’s shareholders approved the Bridge Bancorp, Inc. 2019 Equity Incentive Plan (the “2019 Equity Incentive Plan”), which provides for the grant of stock-based and other incentive awards to officers, employees and directors of the Company. The 2019 Equity Incentive Plan superseded the Bridge Bancorp, Inc. 2012 Stock-Based Incentive Plan (the “2012 Equity Incentive Plan”). The 2012 Equity Incentive Plan superseded the 2006 Stock-Based Incentive Plan. The maximum number of shares of stock, in the aggregate, that may be granted under the 2019 Equity Incentive Plan as stock options, restricted stock, or restricted stock units is 370,000 plus the number of shares of stock which have been reserved but not issued under the 2012 Equity Incentive Plan, and any awards that are forfeited under the 2012 Equity Incentive Plan after the effective date of the 2019 Equity Incentive Plan. No further grants will be made under the 2012 Equity Incentive Plan. Currently outstanding grants under the 2012 Equity Incentive Plan will not be affected.

As described in Note 15, Recent Accounting Pronouncements, during the first quarter of 2019 the Company adopted ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The Company has adopted the standard in 2019 with minimal impact to its financial position upon transition.

Based on our continuing review of the overall loan portfolio, the current asset quality of the portfolio, the growth in the loan portfolio and the net charge-offs, a provision for loan losses of $3.5 million and $4.1 million was recorded during the three and six months ended June 30, 2019, respectively, compared to a provision for loan losses of $0.4 million and $1.2 million, respectively, during the same periods in 2018. Net charge-offs were $4.1 million for the quarter ended June 30, 2019 compared to net charge-offs of $1.6 million for the quarter ended June 30, 2018. Net charge-offs were $4.3 million for the six months ended June 30, 2019 compared to net charge-offs of $1.3 million for the six months ended June 30, 2018. The increase in net charge-offs during the quarter ended June 30, 2019, relates primarily to the $3.7 million charge-off related to one CRE loan totaling $16.3 million which was written down to the loan’s estimated fair value of $12.6 million and moved into loans held for sale as of June 30, 2019. The ratio of the allowance for loan losses to non-accrual loans was 566%, 1,119% and 1,979%, at June 30, 2019, December 31, 2018, and June 30, 2018, respectively. The allowance for loan losses totaled $31.2 million at June 30, 2019 as compared to $31.4 million at December 31, 2018 and $31.7 million at June 30, 2018. The allowance as a percentage of total loans was 0.91% at June 30, 2019, compared to 0.96% at December 31, 2018 and 1.00% at June 30, 2018. We continue to carefully monitor the loan portfolio as well as real estate trends in Nassau and Suffolk Counties and the New York City boroughs.

In addition to the above scenarios, we consider 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. During the six months ended June 30, 2019, the yield on U.S. Treasury 10-year notes decreased 69 basis points from 2.69% to 2.00%, while the yield on 3-month Treasury bills decreased 33 basis points from 2.45% to 2.12%. The decreased gap between short-term and long-term yields resulted in a flatter yield curve at June 30, 2019 versus December 31, 2018. A continued flattening of the yield curve in 2019 may adversely affect net interest income as borrowers tend to refinance higher-rate fixed rate loans at lower rates and we may not be able to reinvest those prepayments in assets earning interest rates as high as the rates on those prepaid assets.

Multi-family real estate loans generally involve a greater risk than residential real estate loans because of legislation and government regulations involving rent control and rent stabilization, which are outside the control of the borrower or the Bank, and could impair the value of the security for the loan or the future cash flow of such properties. For example, on June 14, 2019, the State of New York enacted legislation increasing the restrictions on rent increases in a rent-regulated apartment building, including, among other provisions, (i) repealing the vacancy bonus and longevity bonus, which allowed a property owner to raise rents as much as 20% each time a rental unit became vacant, (ii) eliminating high rent vacancy deregulation and high-income deregulation, which allowed a rental unit to be removed from rent stabilization once it crossed a statutory high-rent threshold and became vacant, or the tenant’s income exceeded the statutory amount in the preceding two years, and (iii) eliminating an exception that allowed a property owner who offered preferential rents to tenants to raise the rent to the full legal rent upon renewal.  The new legislation still permits a property owner to charge up to the full legal rent once the tenant vacates. As a result of this new legislation as well as previously existing laws and regulations, it is possible that rental income might not rise sufficiently over time to satisfy increases in the loan rate at repricing or increases in overhead expenses (e.g., utilities, taxes, etc.). In addition, if the cash flow from a collateral property is reduced (e.g., if leases are not obtained or renewed), the borrower’s ability to repay the loan and the value of the security for the loan may be impaired. Therefore, impaired multi-family real estate loans may be more difficult to identify before they become problematic than residential real estate loans.