News Column

BRIDGE BANCORP INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 8, 2014

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. For this presentation, 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; demands for loan products; demand for financial services; competition; 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, our ability to integrate the branches and operations we acquire, and the associated internal controls and regulatory functions, into our current operations which could adversely affect operating results; and other risk factors discussed in our Annual Report on Form 10-K for the year ending December 31, 2013 and elsewhere in this report. The forward-looking statements are made as of the date of this report, and the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. Overview



Who We Are and How We Generate Income

Bridge Bancorp, Inc. (the "Company"), a New York corporation, is a bank holding company formed in 1989. On a parent-only basis, the Company has had minimal results of operations. The Company is dependent on dividends from its wholly owned subsidiary, The Bridgehampton National Bank (the "Bank"), its own earnings, additional capital raised, and borrowings as sources of funds. The information in this report reflects principally the financial condition and results of operations of the Bank. The Bank's results of operations are primarily dependent on its net interest income, which is mainly the difference between interest income on loans and investments and interest expense on deposits and borrowings. The Bank also generates non interest income, such as fee income on deposit accounts, merchant credit and debit card processing programs, investment services, income from its title abstract subsidiary, and net gains on sales of securities and loans. The level of its non-interest expenses, such as salaries and benefits, occupancy and equipment costs, other general and administrative expenses, expenses from its title insurance subsidiary, and income tax expense, further affects the Bank's net income. Certain reclassifications have been made to prior year amounts and the related discussion and analysis to conform to the current year presentation. These reclassifications did not have an impact on net income or total stockholders' equity.



Principal Products and Services and Locations of Operations

The Bank operates twenty six branches in the primary market areas of Suffolk and Southern Nassau Counties, Long Island. Federally chartered in 1910, the Bank was founded by local farmers and merchants. For a century, the Bank has maintained its focus on building customer relationships in this market area. The mission of the Company is to grow through the provision of exceptional service to its customers, its employees, and the community. The Company strives to achieve excellence in financial performance and build long term shareholder value. The Bank engages in full service commercial and consumer banking business, including accepting time, savings and demand deposits from the consumers, businesses and local municipalities surrounding its branch offices. These deposits, 34 --------------------------------------------------------------------------------

Table of Contents together with funds generated from operations and borrowings, are invested primarily in: (1) commercial real estate loans; (2) home equity loans; (3) construction loans; (4) residential mortgage loans; (5) secured and unsecured commercial and consumer loans; (6) FHLB, FNMA, GNMA and FHLMC and non agency mortgage-backed securities, collateralized mortgage obligations and other asset backed securities; (7) New York State and local municipal obligations; and (8) U.S. government sponsored entity ("U.S. GSE") securities. The Bank also offers the CDARS program, providing multi-millions of FDIC insurance on CD deposits to its customers. In addition, the Bank offers merchant credit and debit card processing, automated teller machines, cash management services, lockbox processing, online banking services, remote deposit capture, safe deposit boxes, individual retirement accounts and investment services through Bridge Financial Services, offering 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. Quarterly Highlights



Net income of $4.3 million and $0.37 per diluted share, including $0.2 million in acquisition costs, net of tax, associated with the FNBNY acquisition as compared to net income of $3.3 million and $0.36 per diluted share for the second quarter of 2013.

Net interest income increased to $16.8 million for the second quarter of 2014 compared to $12.3 million in 2013.

Net interest margin was 3.36% for the second quarter of 2014 compared to 3.23% for the 2013 period.

Total assets of $2.19 billion at June 30, 2014, increased $292.2 million or 15% compared to December 31, 2013 and increased $460.3 million or 27% compared to June 30, 2013. These increases include total assets of FNBNY acquired on February 14, 2014 of $210.0 million. Loans held for investment at June 30, 2014 of $1.20 billion increased $187.6 million or 19% over December 31, 2013 and increased $299.9 million or 33% over June 30, 2013. These increases include loans acquired in connection with the FNBNY acquisition. Deposits of $1.75 billion at June 30, 2014, increased $212.0 million or 14% over December 31, 2013 and increased $296.0 million or 20% compared to June 30, 2013. These increases include deposits acquired from FNBNY. Allowance for loan losses to total loans ratio, which was calculated inclusive of $74 million of FNBNY acquired loans, was 1.39% as of June 30, 2014 compared to 1.58% at December 31, 2013 and 1.68% at June 30, 2013.



Tier 1 Capital increased by $42.3 million or 30% to $183.0 million as of June 30, 2014, compared to June 30, 2013.

A cash dividend of $0.23 per share was declared in July 2014 for the second quarter.

Current Environment On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") was signed by the President. The Act permanently raised the current standard maximum deposit insurance amount to $250,000. Section 331(b) of the Dodd-Frank Act required the FDIC to change the definition of the assessment base from which assessment fees are determined. The new definition for the assessment base is the average consolidated total assets of the insured depository institution less the average tangible equity of the insured depository institution. The financial reform legislation, among other things, created a new Consumer Financial Protection Bureau, tightened capital standards and resulted in new regulations that are expected to increase the cost of operations. In July 2013, the Federal Deposit Insurance Corporation and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain "available-for-sale" securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out is exercised. Additional constraints will also be imposed on the inclusion in regulatory capital of mortgage-servicing assets, defined tax assets and minority interests. The rule limits a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a "capital conservation buffer" consisting of 2.5% of common equity Tier 1 capital 35

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Table of Contents to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule becomes effective for the Bank on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective. Since April 2010 the Federal Reserve has maintained the federal funds target rate between 0 and 25 basis points as an effort to foster employment. In June 2013, the FOMC announced it would continue purchasing agency mortgage-backed securities and longer term Treasury securities until certain improvements in the economy are achieved. These actions have resulted in a prolonged low interest rate environment reducing yields on interest earning assets and compressing the Company's net interest margin. The FOMC anticipates maintaining the federal funds target rate until the outlook for employment and inflation are in line with the Committee's long term objectives. Growth and service strategies have the potential to offset the compression on net interest margin with volume as the customer base grows through expanding the Bank's footprint, while maintaining and developing existing relationships. Since 2008, the Bank has opened nine new branches, including the most recent branch openings in March 2013 in Rocky Point, New York, and in May 2013 in Shelter Island, New York. Most of the recent branch openings move the Bank geographically westward and demonstrate its commitment to traditional growth through branch expansion. In May 2011, the Bank acquired Hampton State Bank ("HSB") which increased the Bank's presence in an existing market with a branch located in the Village of Southampton. After careful consideration, management decided to close its existing branch on County Road 39 in Southampton, New York, effective in April 2013. Management has demonstrated its ability to successfully integrate the former HSB customers and achieve expected cost savings while continuing to execute its business strategy. Management will continue to seek opportunities to expand its reach into other contiguous markets by network expansion, or through the addition of professionals with established customer relationships.



Challenges and Opportunities

As noted earlier, on February 14, 2014, the Company acquired FNBNY. This acquisition increases the Company's scale and continues the westward expansion into three new markets including Melville (Suffolk County), and two branches in Nassau County; Massapequa and Merrick. To support this acquisition and future growth, the Company completed a public offering on October 8, 2013, with $37.5 million in net proceeds. While these proceeds provided capital to support the acquisition, the additional common shares outstanding negatively impacted earnings per share during the first and second quarter of 2014 and fourth quarter of 2013, respectively. The Bank continues to face challenges associated with a fragile economic recovery, ever increasing regulations, and the current historically low interest rate environment. Over time, increases in rates should provide some relief to net interest margin compression as new loans are funded and securities are reinvested at higher rates. However, in the short term, the fair value of our available for sale securities declines when rates increase, resulting in net unrealized losses and a reduction in stockholders' equity. Strategies for managing for the eventuality of higher rates have a cost. Extending liability maturities or shortening the tenor of assets increases interest expense and reduces interest income. An additional method for managing in a higher rate environment is to grow stable core deposits, requiring continued investment in people, technology and branches. Over time, the costs of these strategies should provide long term benefits. New regulations required under Dodd-Frank continue to be issued and in July 2013, the regulatory agencies issued final capital rules under Basel III which become effective for our Company in January 2015. The final rules, while more favorable to community banks, require that all banks maintain higher levels of capital. Management believes the Bank's current capital levels will meet these new requirements. These factors taken together present formidable challenges to the banking industry. The key to delivering on the Company's mission is combining its expanding branch network, improving technology, and experienced professionals with the critical element of local decision making. The successful expansion of the franchise's geographic reach continues to deliver the desired results: increasing core deposits and loans, and generating higher levels of revenue and income. Corporate objectives for 2014 include: successful integration of the operations of FNBNY; leveraging our expanding branch network to build customer relationships and grow loans and deposits; focusing on opportunities and processes that continue to enhance the customer experience at the Bank; improving operational efficiencies and prudent management of non-interest expense; and maximizing non-interest income through Bridge Abstract as well as other lines of business. Management believes there remain opportunities to grow the franchise and continued investments to generate core funding, quality loans and new sources of revenue, remain keys to continue creating long term shareholder value. Management remains committed to branch based banking and during 2014, the Company expects to open two new branches, one in Bay Shore, New York, and one in Smithtown, New York. In addition, the Bank has filed an application with the OCC to open a branch in Port Jefferson. During the first quarter of 2014, we completed the acquisition of FNBNY and converted their core systems in mid-February 2014. This adds three branches in new markets; Melville, in Suffolk County and Massapequa and Merrick, our first two branches in Nassau County, along with a loan production office in 36 --------------------------------------------------------------------------------

Table of Contents Manhattan. Additionally, the Bank also opened a loan production office in Riverhead, New York. The ability to attract, retain, train and cultivate employees at all levels of the Company remains significant to meeting corporate objectives. The Company has made great progress toward the achievement of these objectives, and avoided many of the problems facing other financial institutions as a result of maintaining discipline in its underwriting, expansion strategies, investing and general business practices. The Company has capitalized on opportunities presented by the market and diligently seeks opportunities for growth and to strengthen the franchise. The Company recognizes the potential risks of the current economic environment and will monitor the impact of market events as we consider growth initiatives and evaluate loans and investments. Management and the Board have built a solid foundation for growth and the Company is positioned to adapt to anticipated changes in the industry resulting from new regulations and legislative initiatives. Critical Accounting Policies Allowance for Loan Losses Management considers the accounting policy on the allowance for loan losses to be the most critical and requires complex management judgment as discussed below. The judgments made regarding the allowance for loan losses can have a material effect on the results of operations of the Company. The allowance for loan losses is established and maintained through a provision for loan losses based on probable incurred losses inherent in the Bank's loan portfolio. Management evaluates the adequacy of the allowance on a quarterly basis. The allowance is comprised of both individual valuation allowances and loan pool valuation allowances.



The Bank monitors its entire loan portfolio on a regular basis, with consideration given to detailed analysis of classified loans, repayment patterns, probable incurred losses, past loss experience, current economic conditions, and various types of concentrations of credit. Additions to the allowance are charged to expense and realized losses, net of recoveries, are charged to the allowance.

Individual valuation allowances are established in connection with specific loan reviews and the asset classification process including the procedures for impairment testing under FASB Accounting Standard Codification ("ASC") No. 310, "Receivables." Such valuation, which includes a review of loans for which full collectibility in accordance with contractual terms is not reasonably assured, considers the estimated fair value of the underlying collateral less the costs to sell, if any, or the present value of expected future cash flows, or the loan's observable market value. Any shortfall that exists from this analysis results in a specific allowance for the loan. Pursuant to our policy, loan losses must be charged-off in the period the loans, or portions thereof, are deemed uncollectible. Assumptions and judgments by management, in conjunction with outside sources, are used to determine whether full collectibility of a loan is not reasonably assured. These assumptions and judgments are also used to determine the estimates of the fair value of the underlying collateral or the present value of expected future cash flows or the loan's observable market value. Individual valuation allowances could differ materially as a result of changes in these assumptions and judgments. Individual loan analyses are periodically performed on specific loans considered impaired. The results of the individual valuation allowances are aggregated and included in the overall allowance for loan losses. Loan pool valuation allowances represent loss allowances that have been established to recognize the inherent risks associated with our lending activities, but which, unlike individual allowances, have not been allocated to particular problem assets. Pool evaluations are broken down into loans with homogenous characteristics by loan type and include commercial real estate mortgages, multi-family mortgage loans, home equity loans, residential real estate mortgages, commercial and industrial loans, real estate construction and land loans and consumer loans. The determination of the adequacy of the valuation allowance is a process that takes into consideration a variety of factors. The Bank has developed a range of valuation allowances necessary to adequately provide for probable incurred losses inherent in each pool of loans. We consider our own charge-off history along with the growth in the portfolio as well as the Bank's credit administration and asset management philosophies and procedures when determining the allowances for each pool. In addition, we evaluate and consider the credit's risk rating which includes management's evaluation of: cash flow, collateral, guarantor support, financial disclosures, industry trends and strength of borrowers' management, the impact that economic and market conditions may have on the portfolio as well as known and inherent risks in the portfolio. Finally, we evaluate and consider the allowance ratios and coverage percentages of 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 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 purchased credit impaired loans reflect a decrease in those estimates. 37 --------------------------------------------------------------------------------

Table of Contents 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 purchased credit impaired loans would result in a reduction of the required specific allowance with a corresponding credit to the provision. The Credit Risk Management Committee is comprised of Bank management. The adequacy of the allowance is analyzed quarterly, with any adjustment to a level deemed appropriate by the Credit Risk Management Committee, based on its risk assessment of the entire portfolio. Each quarter, members of the Credit Risk Management Committee meet with the Credit Risk Committee of the Board to review credit risk trends and the adequacy of the allowance for loan losses. Based on the Credit Risk Management Committee's review of the classified loans and the overall allowance levels as they relate to the loan portfolio at June 30, 2014, management believes the allowance for loan losses has been established at levels sufficient to cover the probable incurred losses in the Bank's loan portfolio. Future additions or reductions to the allowance may be necessary based on changes in economic, market or other conditions. Changes in estimates could result in a material change in the allowance. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the allowance for loan losses. Such agencies may require the Bank to recognize adjustments to the allowance based on their judgments of the information available to them at the time of their examination. Net Income Net income for the three months ended June 30, 2014 was $4.3 million and $0.37 per diluted share as compared to $3.3 million and $0.36 per diluted share for the same period in 2013. The increase in net income reflects growth in net interest income, a decrease in provision for loan losses, partially offset by lower non interest income and increased operating expenses. Changes for the three months ended June 30, 2014 compared to June 30, 2013 include: (i) a $4.5 million or 36.6% increase in net interest income as a result of growth in interest earning assets primarily related to loans and investments; (ii) a $0.1 million or 16.7% decrease in the provision for loan losses; (iii) a $0.2 million or 7.1% decrease in total non interest income primarily as a result of decreased net securities gains of $0.3 million; and (iv) a $2.8 million or 29.6% increase in total non interest expense primarily related to an increase of $1.1 million in salary and employee benefits, due to the acquisition of FNBNY and the new Internet banking platform. Additionally there was an increase in occupancy and equipment of $0.5 million, acquisition costs of $0.3 million, and other operating expenses of $0.3 million. The effective income tax rate was 33.4% for the quarter ended June 30, 2014 and compared to 32.5% for the same period last year. Net income for the six months ended June 30, 2014 was $4.7 million and $0.41 per diluted share and included (i) $3.1 million in acquisition costs, net of tax, associated with the FNBNY acquisition and branch restructuring charges related to a branch relocation and; (ii) $0.7 million of losses, net of tax, on the sales of securities resulting from repositioning of the securities portfolio to mitigate interest rate risk as compared to $6.4 million and $0.70 per diluted share for the same period in 2013. Other changes for the six months ended June 30, 2014 compared to June 30, 2013 include: (i) a $8.1 million or 33.5% increase in net interest income as a result of growth in interest earning assets primarily related to loans and investments; (ii) a $0.1 million or 4.3% increase in the provision for loan losses; (iii) a $1.5 million or 32.3% decrease in total non-interest income related to higher securities losses of $1.8 million, partially offset by a $0.2 million increase in other income and a $0.1 million increase in title fee income. The effective income tax rate was 33.5% for the six months ended June 30, 2014 compared to 32.2% for the same period last year.



Analysis of Net Interest Income

Net interest income, the primary contributor to earnings, represents the difference between income on interest earning assets and expenses on interest bearing liabilities. Net interest income depends upon the volume of interest earning assets and interest bearing liabilities and the interest rates earned or paid on them. The following tables set forth certain information relating to the Company's average consolidated balance sheets and its consolidated statements of income for the periods indicated and reflect the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are derived from daily average balances and include nonaccrual loans. The yields and costs include fees, which are considered adjustments to yields. Interest on nonaccrual loans has been included only to the extent reflected in the consolidated statements of income. For purposes of this table, the average balances for investments in debt and equity securities exclude unrealized appreciation/depreciation due to the application of FASB ASC 320, "Investments - Debt and Equity Securities." 38 --------------------------------------------------------------------------------

Table of Contents Three months ended June 30, 2014 2013 Average Average Average Yield/ Average Yield/ (In thousands) Balance Interest Cost Balance Interest Cost Interest earning assets: Loans, net (1)(2) $ 1,156,025$ 14,070 4.88 % $ 864,353$ 11,190 5.19 % Mortgage-backed securities, CMOs and other asset-backed securities 547,236 2,948 2.16 373,957 1,469 1.58 Tax exempt securities (2) 98,521 791 3.22 124,134 848 2.74 Taxable securities 228,201 1,192 2.10 194,437 897 1.85 Deposits with banks 11,364 7 0.25 11,076 8 0.29

Total interest earning assets 2,041,347 19,008 3.73 1,567,957 14,412 3.69 Non interest earning assets: Cash and due from banks 40,922 38,786 Other assets 86,597 51,125 Total assets $ 2,168,866$ 1,657,868 Interest bearing liabilities: Savings, NOW and money market deposits $ 998,553$ 801 0.32 % $ 815,145$ 859 0.42 % Certificates of deposit of $100,000 or more 103,948 209 0.81 119,615 341 1.14 Other time deposits 64,639 121 0.75 38,693 86 0.89 Federal funds purchased and repurchase agreements 74,738 140 0.75 62,541 126 0.81 Federal Home Loan Bank advances 163,880 302 0.74 23,260 48 0.83 Junior Subordinated Debentures 16,002 342 8.57 16,002 342 8.57 Total interest bearing liabilities 1,421,760 1,915 0.54 1,075,256 1,802 0.67 Non interest bearing liabilities: Demand deposits 556,655 454,283 Other liabilities 14,478 6,923 Total liabilities 1,992,893 1,536,462 Stockholders' equity 175,973 121,406 Total liabilities and stockholders' equity $ 2,168,866$ 1,657,868 Net interest income/interest rate spread (3) 17,093 3.19 % 12,610 3.02 % Net interest earning assets/net interest margin (4) $ 619,587 3.36 % $ 492,701 3.23 % Ratio of interest earning assets to interest bearing liabilities 143.58 % 145.82 % Less: Tax equivalent adjustment (278 ) (304 ) Net interest income $ 16,815$ 12,306



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(1) Amounts are net of deferred origination costs/ (fees) and the allowance for

loan loss. (2) The above table is presented on a tax equivalent basis. (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. 39

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Table of Contents Six months ended June 30, 2014 2013 Average Average Average Yield/ Average Yield/ (In thousands) Balance Interest Cost Balance Interest Cost Interest earning assets: Loans, net (1) (2) $ 1,110,494$ 27,386 4.97 % $ 837,505$ 21,858 5.26 % Mortgage-backed securities, CMOs and other asset-backed securities 498,902 5,240 2.12 361,693 2,912 1.62 Tax exempt securities (2) 101,751 1,649 3.27 131,287 1,779 2.73 Taxable securities 226,013 2,377 2.12 199,939 1,906 1.92 Deposits with banks 11,498 15 0.26 9,682 13 0.27

Total interest earning assets 1,948,658 36,667 3.79 1,540,106 28,468 3.73 Non interest earning assets: Cash and due from banks 38,634 31,078 Other assets 78,448 49,026 Total assets $ 2,065,740$ 1,620,210 Interest bearing liabilities: Savings, NOW and money market deposits $ 971,228$ 1,638 0.34 % $ 795,623$ 1,743 0.44 % Certificates of deposit of $100,000 or more 94,187 384 0.82 118,934 670 1.14 Other time deposits 58,452 216 0.75 38,974 171 0.88 Federal funds purchased and repurchase agreements 69,196 269 0.78 60,012 250 0.84 Federal Home Loan Bank advances 123,974 547 0.89 19,153 88 0.93 Junior Subordinated Debentures 16,002 683 8.61 16,002 683 8.61 Total interest bearing liabilities 1,333,039 3,737 0.57 1,048,698 3,605 0.69 Non interest bearing liabilities: Demand deposits 545,188 445,205 Other liabilities 12,213 6,661 Total liabilities 1,890,440 1,500,564 Stockholders' equity 175,300 119,646 Total liabilities and stockholders' equity $ 2,065,740$ 1,620,210 Net interest income/interest rate spread (3) 32,930 3.22 % 24,863 3.04 % Net interest earning assets/net interest margin (4) $ 615,619 3.41 % $ 491,408 3.26 % Ratio of interest earning assets to interest bearing liabilities 146.18 % 146.86 % Less: Tax equivalent adjustment (579 ) (629 ) Net interest income $ 32,351$ 24,234



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(1) Amounts are net of deferred origination costs/ (fees) and the allowance for

loan loss. (2) The above table is presented on a tax equivalent basis. (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. 40

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Table of Contents 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 which are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate. Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates. In addition, average earning assets include nonaccrual loans. Three months ended June 30, Six months ended June 30, 2014 Over 2013 2014 Over 2013 Changes Due To Changes Due To (In thousands) Volume Rate Net Change Volume Rate Net Change Interest income on interest earning assets: Loans, net (1) (2) $ 7,000$ (4,120 )$ 2,880$ 8,883$ (3,355 )$ 5,528 Mortgage-backed securities, CMOs and other asset-backed securities 825 654 1,479 1,284 1,044 2,328 Tax exempt securities (2) (675 ) 618 (57 ) (824 ) 694 (130 ) Taxable securities 166 129 295 262 209 471 Deposits with banks 1 (2 ) (1 ) 3 (1 ) 2 Total interest earning assets 7,317 (2,721 ) 4,596 9,608 (1,409 ) 8,199 Interest expense on interest bearing liabilities: Savings, NOW and money market deposits 764 (822 ) (58 ) 732 (837 ) (105 ) Certificates of deposit of $100,000 or more (41 ) (91 ) (132 ) (87 ) (199 ) (286 ) Other time deposits 116 (81 ) 35 113 (68 ) 45 Federal funds purchased and repurchase agreements 65 (51 ) 14 62 (43 ) 19 Federal Home Loan Bank advances 331 (77 ) 254 474 (15 ) 459 Junior subordinated debentures - - - - - - Total interest bearing liabilities 1,235 (1,122 ) 113 1,294 (1,162 ) 132 Net interest income $ 6,082$ (1,599 )$ 4,483$ 8,314$ (247 )$ 8,067



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(1) Amounts are net of deferred origination costs/ (fees) and the allowance for loan loss.

(2) The above table is presented on a tax equivalent basis.

Analysis of Net Interest Income for the Three Months ended June 30, 2014 and June 30, 2013

Net interest income was $16.8 million for the three months ended June 30, 2014 compared to $12.3 million for the same period in 2013, an increase of $4.5 million or 36.6%. Net interest margin increased to 3.36% for the quarter ended June 30, 2014, compared to 3.23% for the quarter ended June 30, 2013 as a result of higher yielding investments and lower cost of interest bearing liabilities. The total average interest earning assets increased $473.4 million or 30.2%, yielding 3.73% and the overall funding cost was 0.39%, including demand deposits. The yield on interest earning assets increased approximately 4 basis points from 3.69% to 3.73%. The cost of interest bearing liabilities decreased approximately 13 basis points during the second quarter of 2014 compared to 2013. The increase in average total deposits of $296.1 million and average total borrowings of $152.8 million funded higher yielding securities, which grew $181.4 million, and average net loans increased $291.7 million from the comparable 2013 quarter. For the three months ended June 30, 2014, average net loans grew by $291.7 million or 33.7% to $1.16 billion as compared to $864.4 million for the same period in 2013, driven by growth in commercial real estate mortgage loans, commercial, financial and agricultural loans, and multi-family mortgage loans. The Bank remains committed to growing loans with prudent underwriting, sensible pricing and limited credit and extension risk. For the three months ended June 30, 2014, average total securities increased by $181.4 million or 26.2% to $874.0 million as compared to $692.5 million for the three months ended June 30, 2013. There were no federal funds sold for the three months ended June 30, 2014 and 2013. The average interest earning cash increased by $0.3 million to $11.4 million for the three months ended June 30, 2014 as compared to $11.1 million for the same period in 2013. 41 --------------------------------------------------------------------------------

Table of Contents Average total interest bearing liabilities were $1.4 billion for the three months ended June 30, 2014 compared to $1.1 billion for the same period in 2013. The Bank grew deposits as a result of the acquisition of FNBNY, opening two new branches during 2013 as well as building new relationships in existing markets. The Bank continues to reduce interest rates on deposit products through prudent management of deposit pricing. The reduction in deposit rates, resulted in a decrease in the cost of interest bearing liabilities to 0.54% for the three months ended June 30, 2014 from 0.67% for the same period in 2013. Since the Company's interest bearing liabilities generally reprice or mature more quickly than its interest earning assets, an increase in short term interest rates would initially result in a decrease in net interest income. Additionally, the large percentages of deposits in money market accounts reprice at short term market rates making the balance sheet more liability sensitive. For the three months ended June 30, 2014, average total deposits increased by $296.1 million or 20.7% to $1.7 billion from $1.4 billion from the same period in 2013. Components of this increase include an increase in average balances in savings, NOW and money market accounts of $183.4 million or 22.5% to $998.6 million for the three months ended June 30, 2014 compared to $815.1 million for the same period last year. Average balances in certificates of deposit of $100,000 or more and other time deposits increased $10.3 million or 6.5% to $168.6 million for 2014 as compared to $158.3 million for the same period last year. Average balances in demand deposits increased $102.4 million or 22.5% to $556.7 million for 2014 as compared to $454.3 million for the same period last year. Average public fund deposits comprised 18.2% of total average deposits during the three months ended June 30, 2014 and 18.0% of total average deposits for the same period in 2013. Average federal funds purchased and repurchase agreements increased $12.2 million or 19.5% to $74.7 million for the three months ended June 30, 2014 compared to $62.5 million for the same period in the prior year. Average FHLB advances increased $140.6 million to $163.9 million for the three months ended June 30, 2014 compared to $23.3 million for the same period 2013. Total interest income increased $4.6 million or 32.8% to $18.7 million, net of the tax equivalent adjustment on tax exempt securities interest income, for the three months ended June 30, 2014 from $14.1 million for the same period in 2013. Interest income on loans increased $2.9 million or 25.8% to $14.1 million for the three months ended June 30, 2014 from $11.2 million for the same period in 2013. The yield on average loans was 4.88% for 2014 as compared to 5.19 % in 2013. Interest income on investments in mortgage-backed, taxable and tax exempt securities increased $1.7 million to $4.6 million for the three months ended June 30, 2014 compared to $2.9 million for the same period in 2013. Interest income on securities included net amortization of premium of $0.8 million and a tax equivalent adjustment of $0.3 million in the second quarter of 2014 compared to net amortization of premium of $1.5 million and tax equivalent adjustment of $0.3 million for the same period in 2013. The tax adjusted average yield on total securities was 2.26% for 2014 as compared to 1.86% in 2013.



Interest expense was $1.9 million for the three months ended June 30, 2014 compared to $1.8 million for the same period in 2013.

Analysis of Net Interest Income for the Six Months ended June 30, 2014 and June 30, 2013

Net interest income was $32.4 million for the six months ended June 30, 2014 compared to $24.2 million for the same period in 2013, an increase of $8.1 million or 33.5%. Net interest margin increased to 3.41% for the six months ended June 30, 2014, compared to 3.26% for the six months ended June 30, 2013 as a result of higher yielding investments and lower cost of interest bearing liabilities. The total average interest earning assets increased $408.6 million or 26.5%, yielding 3.79% and the overall funding cost was 0.40%, including demand deposits. The yield on interest earning assets increased approximately 6 basis points from 3.73% to 3.79%. The cost of interest bearing liabilities decreased approximately 12 basis points during the six months ended June 30, 2014 compared to the same period in 2013. The increase in average total deposits of $270.3 million and average total borrowings of $114.0 million funded higher yielding securities, which grew $133.7 million, and average net loans increased $273.0 million from the comparable 2013 quarter. For the six months ended June 30, 2014, average net loans grew by $273.0 million or 32.6% to $1.11 billion as compared to $837.5 million for the same period in 2013, driven by growth in commercial real estate mortgage loans, commercial, financial and agricultural loans, multi-family mortgage loans and loans acquired in the FNBNY acquisition. The Bank remains committed to growing loans with prudent underwriting, sensible pricing and limited credit and extension risk. For the six months ended June 30, 2014, average total securities increased by $133.7 million or 19.3% to $826.7 million as compared to $692.9 million for the six months ended June 30, 2013. There were no federal funds sold for the six months ended June 30, 2014 and 2013. Average interest earning cash increased by $1.8 million to $11.5 million for the six months ended June 30, 2014 as compared to $9.7 million for the same period in 2013. Average total interest bearing liabilities were $1.3 billion for the six months ended June 30, 2014 compared to $1.0 billion for the same period in 2013. The Bank grew deposits as a result of the acquisition of FNBNY, opening two new branches during 2013 as well as building new relationships in existing markets. The Bank continues to reduce interest rates on deposit products through 42 --------------------------------------------------------------------------------

Table of Contents prudent management of deposit pricing. The reduction in deposit rates and the lower average balance of higher cost CDs, resulted in a decrease in the cost of interest bearing liabilities to 0.57% for the six months ended June 30, 2014 from 0.69% for the same period in 2013. Since the Company's interest bearing liabilities generally reprice or mature more quickly than its interest earning assets, an increase in short term interest rates would initially result in a decrease in net interest income. Additionally, the large percentages of deposits in money market accounts reprice at short term market rates making the balance sheet more liability sensitive. For the six months ended June 30, 2014, average total deposits increased by $270.3 million or 19.3% to $1.7 billion from $1.4 billion from the same period in 2013. Components of this increase include an increase in average balances in savings, NOW and money market accounts of $175.6 million or 22.1% to $971.2 million for the six months ended June 30, 2014 compared to $795.6 million for the same period last year. Average balances in certificates of deposit of $100,000 or more and other time deposits decreased $5.3 million or 3.3% to $152.6 million for 2014 as compared to $157.9 million for the same period last year. Average balances in demand deposits increased $100.0 million or 22.5% to $545.2 million for 2014 as compared to $445.2 million for the same period last year. Average public fund deposits comprised 19.3% of total average deposits during the six months ended June 30, 2014 and 18.9% of total average deposits for the same period in 2013. Average federal funds purchased and repurchase agreements increased $9.2 million or 15.3% to $69.2 million for the six months ended June 30, 2014 compared to $60.0 million for the same period in the prior year. Average FHLB advances increased $104.8 million to $124.0 million for the six months ended June 30, 2014 compared to $19.2 million for the same period 2013. Total interest income increased $8.2 million or 29.6% to $36.1 million, net of the tax equivalent adjustment on tax exempt securities interest income, for the six months ended June 30, 2014 from $27.8 million for the same period in 2013. Interest income on loans increased $5.5 million or 25.3% to $27.4 million for the six months ended June 30, 2014 from $21.9 million for the same period in 2013. The yield on average loans was 4.97% for 2014 as compared to 5.26 % in 2013. Interest income on investments in mortgage-backed, taxable and tax exempt securities increased $2.7 million to $8.7 million for the six months ended June 30, 2014 compared to $6.0 million for the same period in 2013. Interest income on securities included net amortization of premium of $1.7 million and a tax equivalent adjustment of $0.6 million in the 2014 compared to net amortization of premium of $3.0 million and tax equivalent adjustment of $0.6 million for the same period in 2013. The tax adjusted average yield on total securities was 2.26% for 2014 as compared to 1.92% in 2013.



Interest expense was $3.7 million for the six months ended June 30, 2014 compared to $3.6 million for the same period in 2013.

Provision and Allowance for Loan Losses

The Bank's loan portfolio consists primarily of real estate loans secured by commercial and residential real estate properties located in the Bank's principal lending area of Suffolk County which is located on the eastern portion of Long Island. The interest rates charged by the Bank on loans are affected primarily by the demand for such loans, the supply of money available for lending purposes, the rates offered by its competitors, the Bank's relationship with the customer, and the related credit risks of the transaction. These factors are affected by general and economic conditions including, but not limited to, monetary policies of the federal government, including the Federal Reserve Board, legislative policies and governmental budgetary matters 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 $0.5 million and $1.2 million was recorded during the three and six months ended June 30, 2014 compared to a provision for loan loss of $0.6 million and $1.2 million that was recorded during the same period in 2013. Net charge-offs were $0.2 million for the quarter ended June 30, 2014 compared to $0.8 million for the year ended December 31, 2013 and $0.4 million for the quarter ended June 30, 2013. The ratio of allowance for loan losses to nonaccrual loans was 717% and 419% at June 30, 2014 and December 31, 2013, respectively. The allowance for loan losses increased to $16.7 million at June 30, 2014 as compared to $16.0 million at December 31, 2013 and $15.1 million at June 30, 2013. As a percentage of total loans, (excluding $74 million of FNBNY acquired loans), the allowance was 1.48% at June 30, 2014 compared to 1.58% at December 31, 2013 and 1.68% at June 30, 2013. In accordance with current accounting guidance, the acquired FNBNY loans were recorded at fair value, effectively netting estimated future losses against the loan balances. Management continues to carefully monitor the loan portfolio as well as real estate trends in Suffolk County and eastern Long Island. Loans of approximately $44.5 million or 3.7% of total loans at June 30, 2014 were categorized as classified loans compared to $46.6 million or 4.6% at December 31, 2013 and $51.2 million or 5.7% at June 30, 2013. 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 on at least a quarterly basis. At June 30, 2014, classified loans included $6.3 million of acquired FNBNY loans. 43 --------------------------------------------------------------------------------

Table of Contents At June 30, 2014, approximately $29.9 million of classified loans were commercial real estate ("CRE") loans, including multi-family loans and were well secured with real estate as collateral. Of the $29.9 million of CRE loans, $27.9 million were current and $2.0 million were past due. In addition, all but $2.1 million of the CRE loans have personal guarantees. At June 30, 2014, approximately $5.2 million of classified loans were residential real estate loans with $3.2 million current and $2.0 million past due. Commercial, financial, and agricultural loans represented $8.7 million of classified loans with $8.4 million current and $0.3 million past due. Approximately $0.4 million of classified loans represented real estate construction and land loans, which were all current. All real estate construction and land loans are well secured with collateral. The remaining $0.2 million in classified loans are consumer loans that are unsecured and demonstrate sufficient cash flow to pay the loans. There were no multi-family loans that were categorized as classified loans as of December 31, 2013. CRE loans, including multi-family loans, represented $719.9 million or 60.1% of the total loan portfolio at June 30, 2014 compared to $592.4 million or 58.6% at December 31, 2013 and $485.8 million or 54.0% at June 30, 2013. The Bank's underwriting standards for CRE loans requires an evaluation of the cash flow of the property, the overall cash flow of the borrower and related guarantors as well as the value of the real estate securing the loan. In addition, the Bank's underwriting standards for CRE loans are consistent with regulatory requirements with original loan to value ratios generally less than or equal to 75%. The Bank considers charge-off history, delinquency trends, cash flow analysis, and the impact of the local economy on commercial real estate values when evaluating the appropriate level of the allowance for loan losses. Real estate values in our geographic markets increased significantly from 2000 through 2007. Commencing in 2008, following the financial crisis and significant downturn in the economy, real estate values declined. This decline continued into 2009 and stabilized in 2010. The estimated decline in residential and commercial real estate values during this period ranged from 15-20% from the 2007 levels, depending on the nature and location of the real estate. Real estate values began to improve in 2012 and have continued into 2014. As of June 30, 2014 and December 31, 2013, the Company had impaired loans as defined by FASB ASC No. 310, "Receivables" of $7.0 million and $8.9 million, respectively. For a loan to be considered impaired, management determines after review whether it is probable that the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified nonaccrual loans and troubled debt restructured ("TDR") loans. For impaired loans, the Bank evaluates the impairment of the loan in accordance with FASB ASC 310-10-35-22. Impairment is determined based on the present value of expected future cash flows discounted at the loan's effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based upon recent appraised values. The fair value of the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss allowance allocation is required. These methods of fair value measurement for impaired loans are considered level 3 within the fair value hierarchy described in FASB ASC 820-10-50-5. Nonaccrual loans were $2.3 million or 0.19% of total loans at June 30, 2014 and $3.8 million or 0.38% of total loans at December 31, 2013. Approximately $1.0 million of the nonaccrual loans at June 30, 2014 and $2.0 million at December 31, 2013, represent troubled debt restructured loans.



The Bank had $0.6 million other real estate owned at June 30, 2014 and $2.2 million at December 31, 2013 and $0.3 million at June 30, 2013, respectively.

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The following table sets forth changes in the allowance for loan losses:

For the Six Months Ended For the Year Ended (Dollars in thousands) June 30, 2014 December 31, 2013 Allowance for loan losses balance at beginning of period $ 16,001 $



14,439

Charge-offs:

Commercial real estate mortgage loans 410 - Multi-family mortgage loans - - Residential real estate mortgage loans 50



420

Commercial, financial and agricultural loans 98



420

Real estate construction and land loans - 23 Installment/consumer loans 1 53 Total 559 916 Recoveries: Commercial real estate mortgage loans - - Multi-family mortgage loans - - Residential real estate mortgage loans 20 34 Commercial, financial and agricultural loans 17 87 Real estate construction and land loans - 2 Installment/consumer loans 1 5 Total 38 128 Net charge-offs (521 ) (788 ) Provision for loan losses charged to operations 1,200 2,350 Balance at end of period $ 16,680 $ 16,001 Ratio of annualized net charge-offs during the period to average loans outstanding (0.09 )% (0.09 )% The following table sets forth the allocation of the total allowance for loan losses by loan type: June 30, 2014 December 31, 2013 Percentage Percentage of Loans of Loans to Total to Total (Dollars in thousands) Amount Loans Amount Loans Commercial real estate mortgage loans $ 6,675 45.6 % $ 6,279 47.9 % Multi-family loans 2,097 14.4 1,597



10.6

Residential real estate mortgage loans 2,525 13.4 2,712 15.2 Commercial, financial & agricultural loans 4,190 21.8 4,006 20.7 Real estate construction and land loans 1,035 3.9 1,206 4.7 Installment/consumer loans 158 0.9 201 0.9 Total $ 16,680 100.0 % $ 16,001 100.0 % 45

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Table of Contents Non Interest Income Total non-interest income decreased $0.2 million or 7.1% to $2.3 million for the three months ended June 30, 2014 compared to $2.5 million for the same period in 2013. The decrease was primarily related to an increase in net securities losses of $0.3 million, and was offset by an increase in other operating income of $0.1 million primarily associated with Bank Owned Life Insurance ("BOLI") compared to the prior year. Total non-interest income decreased $1.5 million or 32.3% to $3.1 million for the six months ended June 30, 2014 compared to $4.6 million for the same period in 2013. The decrease was primarily the result of net securities losses of $1.1 million compared to net securities gains in 2013 of $0.6 million, and was offset by an increase in other operating income of $0.2 million primarily associated with BOLI compared to the prior year. Non Interest Expense Total non-interest expense increased $2.7 million or 29.6% to $12.1 million during the three months ended June 30, 2014 compared to $9.4 million over the same period in 2013. The increase in non-interest expense is primarily attributed to an increase in salaries and benefits of $1.1 million. This increase reflects additional staff associated with the FNBNY acquisition, additional positions to support the Company's expanding infrastructure, new branches and a larger loan portfolio. Occupancy and equipment increased $0.5 million to $1.9 million compared to $1.4 million in June 2013. Additionally, there was $0.3 million of FNBNY acquisition costs, $0.3 million in higher costs associated with technology and communication and marketing and advertising and an increase of $0.3 million in other operating expenses. Total non-interest expense increased $8.8 million or 48.6% to $27.1 million during the six months ended June 30, 2014 compared to $18.3 million over the same period in 2013. The increase in non-interest expense is primarily attributed to $4.7 million of FNBNY acquisition costs and a branch restructuring charge related to a branch relocation. Additionally, salaries and employee benefits increased $1.9 million or 17.7% to $12.6 million for the six months ended June 30, 2014 from $10.7 million for the same period in 2013. The increase reflects additional staff associated with the FNBNY acquisition, additional positions to support the Company's expanding infrastructure, new branches and a larger loan portfolio. Occupancy and equipment expense increased $0.9 million to $3.5 million as of June 30, 2014 as compared to $2.6 million for the same period last year. Technology and communications increased $0.3 million as of June 30, 2014 to $1.5 million as compared to $1.2 million for the same period last year. Other operating expenses increased $0.3 million for the six months ended June 30, 2014 to $2.1 million as compared to $1.8 million for the six months ended June 30, 2013. Income Taxes The provision for income taxes increased $0.6 million or 38.2% to $2.2 million for the three months ended June 30, 2014 compared to $1.6 million for the three months ended June 30, 2013 primarily due to higher pretax income. The effective tax rate was 33.4% for the three months ended June 30, 2014 and 32.5% for the three months ended June 30, 2013. The provision for income taxes decreased $0.6 million or 21.3% to $2.4 million for the six months ended June 30, 2014 compared to $3.0 million for the six months ended June 30, 2013 primarily due to lower pretax income. The effective tax rate for the six months ended June 30, 2014 increased to 33.5% from 32.2% for the same period last year. The increase in the effective rate was a result of certain non-deductible acquisition costs and a lower percentage of interest income from tax exempt securities. Financial Condition Total assets grew $460.3 million to $2.19 billion, a 26.6% increase over the June 30, 2013 level of $1.73 billion, and increased 15.4% over the December 31, 2013 level of $1.90 billion. This increase reflects strong organic growth in new and existing markets as well as $210 million in acquired assets from FNBNY on February 14, 2014. Cash and due from banks increased $8.4 million and interest earning deposits with banks increased $9.2 million compared to December 31, 2013. Total securities increased $57.6 million or 7.4% to $834.1 million and net loans increased $186.9 million or 18.7% to $1.18 billion compared to December 31, 2013 levels. The ability to grow the loan portfolio, while minimizing interest rate risk sensitivity and maintaining credit quality, remains a strong focus of management. Goodwill and Other Intangible assets increased $10.4 million compared to December 31, 2013. Goodwill of $8.6 million and $1.9 million core deposit intangible was recorded in connection with the FNBNY acquisition. Total deposits increased $212.0 million to $1.75 billion at June 30, 2014 compared to $1.54 billion at December 31, 2013. Deposit growth includes deposits acquired from FNBNY. Demand deposits decreased $16.4 million to $566.5 million as of June 30, 2014 compared to $582.9 million at December 31, 2013. Savings, NOW and money market deposits increased $161.6 million to $1.02 billion at June 30, 2014 from $855.2 million at December 31, 2013. Certificates of deposit of 46 --------------------------------------------------------------------------------

Table of Contents $100,000 or more increased $40.5 million to $104.9 million at June 30, 2014, from $64.4 million at December 31, 2013. Other time deposits increased $26.3 million to $62.8 million at June 30, 2014, from $36.5 million at December 31, 2013. Federal funds purchased were $70.0 million as of June 30, 2014 compared to $64.0 million at December 31, 2013. Federal Home Loan Bank advances were $146.1 million as of June 30, 2014, inclusive of advances acquired from FNBNY, and $98.0 million for December 31, 2013. Repurchase agreements were $11.4 million at June 30, 2014 and December 31, 2013. Junior subordinated debentures remained at $16.0 million as of June 30, 2014 compared to December 31, 2013. Other liabilities and accrued expenses increased $12.8 million to $21.6 million as of June 30, 2014 from $8.8 million as of December 31, 2013. Stockholders' equity was $172.9 million at June 30, 2014, an increase of $13.4 million or 8.4% from December 31, 2013, reflecting net income of $4.7 million and $0.5 million related to stock based compensation plans, the issuance of $5.9 million in common equity in connection with the acquisition of FNBNY, a decrease in the unrealized loss on available for sale securities of $7.6 million, partially offset by $5.3 million paid in dividends. In July 2014, the Company declared a quarterly dividend of $0.23 per share and continues its long term trend of uninterrupted dividends. Liquidity 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 earnings enhancement opportunities for Company growth. Liquidity management addresses the ability of the Company to meet financial obligations that arise in the normal course of business. Liquidity is primarily needed to meet customer borrowing commitments, deposit withdrawals either on demand or contractual maturity, to repay other borrowings as they mature, to fund current and planned expenditures and to make new loans and investments as opportunities arise. The Holding Company's principal sources of liquidity included cash and cash equivalents of $6.2 million as of June 30, 2014, and dividends from the Bank. Cash available for distribution of dividends to shareholders of the Company is primarily derived from dividends paid by the Bank to the Company. For the six months ended June 30, 2014, the Bank did not pay a cash dividend to the Company. Prior regulatory approval is required if the total of all dividends declared by the Bank in any calendar year exceeds the total of the Bank's net income of that year combined with its retained net income of the preceding two years. As of July 1, 2014, the Bank has $33.0 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 Bank's most liquid assets are cash and cash equivalents, securities available for sale and securities held to maturity due within one year. The levels of these assets are dependent upon the Bank's operating, financing, lending and investing activities during any given period. Other sources of liquidity include loan and investment securities principal repayments and maturities, lines of credit with other financial institutions including the Federal Home Loan Bank and Federal Reserve Bank, growth in core deposits and sources of wholesale funding such as brokered certificates of deposit. While scheduled loan amortization, maturing securities and short term investments are a relatively predictable source of funds, deposit flows and loan and mortgage-backed securities prepayments are greatly influenced by general interest rates, economic conditions and competition. The Bank adjusts its liquidity levels as appropriate to meet funding needs such as seasonal deposit outflows, loans, and asset and liability management objectives. Historically, the Bank has relied on its deposit base, drawn through its full-service branches that serve its market area and local municipal deposits, as its principal source of funding. The Bank seeks to retain existing deposits and loans and maintain customer relationships by offering quality service and competitive interest rates to its customers, while managing the overall cost of funds needed to finance its strategies. The Bank's Asset/Liability and Funds Management Policy allows for wholesale borrowings of up to 25% of total assets. At June 30, 2014, the Bank had aggregate lines of credit of $295.0 million with unaffiliated correspondent banks to provide short term credit for liquidity requirements. Of these aggregate lines of credit, $275.0 million is available on an unsecured basis. As of June 30, 2014, the Bank had $70.0 million in overnight borrowings outstanding under these lines. The Bank also has the ability, as a member of the Federal Home Loan Bank ("FHLB") system, to borrow against unencumbered residential and commercial mortgages owned by the Bank. The Bank also has a master repurchase agreement with the FHLB, which increases its borrowing capacity. As of June 30, 2014, the Bank had $72.0 million outstanding in FHLB overnight borrowings and an additional $74.1 million outstanding in FHLB term borrowings. The Bank had $10.0 million of securities sold under agreements to repurchase outstanding as of June 30, 2014 with brokers and $1.4 million outstanding with customers. As of December 31, 2013, the Bank had $10.0 million of securities sold under agreements to repurchase outstanding with brokers and $1.4 million outstanding with customers. In addition, the Bank has approved broker relationships for the purpose of issuing brokered deposits. As of June 30, 2014, the Bank had $11.0 million outstanding in brokered certificates of deposits and $3.0 million outstanding in brokered money market accounts. As of December 31, 2013 the Bank had did not have any brokered deposits. Management continually monitors the liquidity position and believes that sufficient liquidity exists to meet all of our operating requirements. Based on the objectives determined by the Asset and Liability Committee, the Bank's liquidity levels may be affected by the use of short term and wholesale borrowings, and the amount of public funds in the deposit mix. The Asset and Liability 47

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Committee is comprised of members of senior management and the Board. Excess short-term liquidity is invested in overnight federal funds sold or in an interest earning account at the Federal Reserve.

Capital Resources The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital requirements that involve quantitative measures of the Company's and Bank's assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The Company's and Bank's capital amounts and classifications also are subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes as of June 30, 2014, the Company and the Bank met all capital adequacy requirements.



The Company has the ability to issue additional common stock and/or preferred stock should the need arise.

At June 30, 2014 and December 31, 2013, actual capital levels and minimum required levels for the Company and the Bank were as follows:

Bridge Bancorp, Inc. (Consolidated)

As of June 30, 2014 (Dollars in thousands) To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio Total Capital (to risk weighted assets) $ 199,871 13.6 % $ 117,215 8.0 % n/a n/a Tier 1 Capital (to risk weighted assets) 183,015 12.5 % 58,607 4.0 % n/a n/a Tier 1 Capital (to average assets) 183,015 8.5 % 86,287 4.0 % n/a n/a As of December 31, 2013 (Dollars in thousands) To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio Total Capital (to risk weighted assets) $ 202,039 16.3 % $ 99,108 8.0 % n/a n/a Tier 1 Capital (to risk weighted assets) 186,547 15.1 % 49,554 4.0 % n/a n/a Tier 1 Capital (to average assets) 186,547 10.3 % 72,476 4.0 % n/a n/a 48

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Table of Contents Bridgehampton National Bank As of June 30, 2014 (Dollars in thousands) To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio Total Capital (to risk weighted assets) $ 193,631 13.2 % $ 117,199 8.0 % $ 146,499 10.0 % Tier 1 Capital (to risk weighted assets) 176,775 12.1 % 58,600 4.0 % 87,899 6.0 % Tier 1 Capital (to average assets) 176,775 8.2 % 86,286 4.0 % 107,857 5.0 % As of December 31, 2013 (Dollars in thousands) To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio Total Capital (to risk weighted assets) $ 164,494 13.3 % $ 99,084 8.0 % $ 123,855 10.0 % Tier 1 Capital (to risk weighted assets) 149,005 12.0 % 49,542 4.0 % 74,313 6.0 % Tier 1 Capital (to average assets) 149,005 8.2 % 72,464 4.0 % 90,580 5.0 %



Impact of Inflation and Changing Prices

The Unaudited Consolidated Financial Statements and notes thereto have been prepared in accordance with U.S. generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary effect of inflation on the operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more significant effect on the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices. Changes in interest rates could adversely affect our results of operations and financial condition. Interest rates do not necessarily move in the same direction, or in the same magnitude, as the prices of goods and services. Interest rates are highly sensitive to many factors, which are beyond the control of the Company, including the influence of domestic and foreign economic conditions and the monetary and fiscal policies of the United States government and federal agencies, particularly the Federal Reserve Bank.



Recent Regulatory and Accounting Developments

Refer to Note 15. "Recent Accounting Pronouncements," of the Condensed Notes to the Consolidated Financial Statements for details related to recent regulatory and accounting developments.


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Source: Edgar Glimpses


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