What changed in this filing

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Item 1. Financial Statements

2020-08-07 compared with 2020-05-08 · 319 added, 231 removed, 982 unchanged (36% of the section changed)

26 unchanged sentences

Repurchase agreements

Federal Home Loan Bank ("FHLB") advances

Subordinated debentures, net

3 unchanged sentences

Commitments and contingencies

Stockholders’

Stockholders’ equity

Preferred stock, par value $ .01 per share ( 2,000,000 shares authorized;

5 unchanged sentences

Accumulated other comprehensive loss, net of income taxes

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying condensed notes to the Unaudited Consolidated Financial Statements .

4 unchanged sentences

Three Months Ended

Six Months Ended

Interest income:

20 unchanged sentences

Service charges and other fees

Net securities losses

Gain on sale of Small Business Administration ("SBA") loans

Net securities gains (losses)

Change in fair value of loans held for sale

Gain on sale of Small Business Administration ("SBA") loans

Bank owned life insurance

20 unchanged sentences

Three Months Ended

Other comprehensive (loss) income:

Six Months Ended

Other comprehensive income (loss):

Change in unrealized net gains on securities available for sale, net of reclassifications and deferred income taxes

1 unchanged sentence

Unrealized losses on cash flow hedges, net of reclassifications and deferred income taxes

Total other comprehensive (loss) income

Total other comprehensive income (loss)

Comprehensive income

4 unchanged sentences

( In thousands, except per share amounts )

Three Months Ended June 30, 2020

Accumulated Other

Comprehensive

Balance at March 31, 2020

Shares issued under the dividend reinvestment plan ( 10,989 shares)

Shares issued under the Employee Stock Purchase Plan ( 5,888 shares)

Stock awards granted and distributed

Stock awards forfeited ( 5,408 shares)

Repurchase of surrendered stock from vesting of stock plans ( 1,077 shares)

Share based compensation expense

Cash dividend declared, $ 0.24 per share

Other comprehensive income, net of deferred income taxes

Balance at June 30, 2020

Three Months Ended June 30, 2019

Accumulated Other

Comprehensive

Balance at March 31, 2019

Shares issued under the dividend reinvestment plan ( 6,041 shares)

Purchase of treasury stock ( 11,400 shares)

Stock awards granted and distributed ( 3,700 shares)

Stock awards forfeited ( 12,317 shares)

Repurchase of surrendered stock from vesting of stock plans ( 1,734 shares)

Share based compensation expense

Cash dividend declared, $ 0.23 per share

Other comprehensive income, net of deferred income taxes

Balance at June 30, 2019

Six Months Ended June 30, 2020

Accumulated Other

Comprehensive

Balance at January 1, 2020

2 unchanged sentences

Shares issued under the dividend reinvestment plan ( 17,264 shares)

Shares issued under the Employee Stock Purchase Plan ( 5,888 shares)

Purchase of treasury stock ( 179,620 shares)

5 unchanged sentences

Other comprehensive loss, net of deferred income taxes

Balance at March 31, 2020

Balance at June 30, 2020

Six Months Ended June 30, 2019

Accumulated Other

Comprehensive

1 unchanged sentence

Shares issued under the dividend reinvestment plan ( 11,905 shares)

Purchase of treasury stock ( 11,400 shares)

Stock awards granted and distributed ( 79,974 shares)

Stock awards forfeited ( 12,317 shares)

Repurchase of surrendered stock from vesting of stock plans ( 25,866 shares)

2 unchanged sentences

Other comprehensive income, net of deferred income taxes

Balance at March 31, 2019

Balance at June 30, 2019

See accompanying condensed notes to the Unaudited Consolidated Financial Statements .

3 unchanged sentences

( In thousands )

Three Months Ended

Six Months Ended

Cash flows from operating activities:

7 unchanged sentences

Share based compensation expense

Net securities losses

Net securities losses (gains)

Change in fair value of loans held for sale

Increase in accrued interest receivable

13 unchanged sentences

Net increase in loans

Proceeds from sales of other real estate owned ("OREO"), net

Purchase of premises and equipment

Net cash provided by (used in) investing activities

Net cash used in investing activities

Cash flows from financing activities:

Net increase (decrease) in deposits

Net (decrease) increase in FHLB advances

Net decrease in FHLB advances

Net increase in repurchase agreements

9 unchanged sentences

Cash paid for:

Non-cash investing and financing activities:

Transfers from portfolio loans to loans held for sale

See accompanying condensed notes to the Unaudited Consolidated Financial Statements .

4 unchanged sentences

Bridge Bancorp, Inc.

(the “Holding Company”), is a bank holding company incorporated under the laws of the State of New York.

The Holding Company’s business 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”);

(the “Holding Company”), is a bank holding company incorporated under the laws of the State of New York.

The Holding Company’s business 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”).

The unaudited consolidated financial statements presented in this Quarterly Report on Form 10-Q include the collective results of the Holding Company and its wholly-owned subsidiary, the Bank, which are collectively herein referred to as “we”, “us”, “our”

and the “Company.”

(“Bridge Financial Services”).

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10‑Q and Article 10 of Regulation S-X.

generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

The unaudited consolidated financial statements included herein reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented.

2 unchanged sentences

Actual future results could differ significantly from those estimates.

The annualized results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year.

Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

The annualized results of operations for the six months ended June 30, 2020 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year.

Certain reclassifications have been made to prior year amounts, and the related discussion and analysis, to conform to the current year presentation.

2 unchanged sentences

COVID-19 Risks

In December 2019, a novel coronavirus (“COVID-19”) was reported in China, and, in March 2020, the World Health Organization declared COVID-19 a pandemic.

On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency.

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments, including New York, have ordered non-essential businesses to close and residents to shelter in place at home.

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments, including New York, ordered non-essential businesses to close and residents to shelter in place at home.

This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment.

The Company’s unaudited consolidated financial statements reflect the impact of COVID-19 on the assumptions and estimates used.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on the Company’s business.

The Company’s unaudited consolidated financial statements reflect the impact of COVID-19 on the assumptions and estimates used.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on the Company’s business.

The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and abated and when and how the economy may be reopened.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Company may be subject to the following risks, any of which could have a material, adverse effect on its business, financial condition, liquidity, and results of operations:

demand for the Company’s products and services may decline, making it difficult to grow assets and income;

● demand for the Company’s products and services may decline, making it difficult to grow assets and income;

● if the economy is unable to substantially reopen, and high levels of unemployment continue, for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

● collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

the Company’s allowance for credit losses (“ACL”) may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect the Company’s net income;

● the Company’s allowance for credit losses (“ACL”) may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect the Company’s net income;

● the Company may recognize impairment of its goodwill;

● the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to the Company;

as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on the Company’s assets may decline to a greater extent than the decline in its cost of interest-bearing liabilities, reducing net interest margin and spread and reducing net income;

a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of the Company’s quarterly cash dividend;

the Company’s cyber security risks are increased as the result of an increase in the number of employees working remotely;

● as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on the Company’s assets may decline to a greater extent than the decline in its cost of interest-bearing liabilities, reducing net interest margin and spread and reducing net income;

● a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of the Company’s quarterly cash dividend;

● the Company’s cyber security risks are increased as the result of an increase in the number of employees working remotely;

● the Company relies on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on the Company.

ASU 2016-13, Financial Instruments –

Credit Losses (Topic 326)

Effective for periods after December 31, 2019, the Company adopted Accounting Standards Update (“ASU”) No 2016-13, Financial Instruments –

Credit Losses (Topic 326), which replaced the long-standing incurred loss model used in calculating the allowance for loan and lease losses with a more forward-looking, current expected credit loss model (“CECL”

or the “CECL Standard”).

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)

Effective for periods after December 31, 2019, the Company adopted Accounting Standards Update (“ASU”) No 2016-13, Financial Instruments – Credit Losses (Topic 326), which replaced the long-standing incurred loss model used in calculating the allowance for loan and lease losses with a more forward-looking, current expected credit loss model (“CECL” or the “CECL Standard”).

Furthermore, the CECL Standard requires financial institutions to measure all expected credit losses for in-scope financial assets held at amortized cost at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts, including estimates of prepayments.

3 unchanged sentences

In addition, the CECL Standard made changes to the accounting for available for sale debt securities.

Credit losses on available for sale debt securities should be measured in a manner similar to current GAAP.

Credit losses on available for sale debt securities under the CECL Standard should be measured in a manner similar to legacy GAAP.

However, the amendments in the CECL Standard require that credit losses be presented as an allowance for credit losses rather than as a write-down.

This approach is an improvement to current GAAP because an entity will be able to record reversals of credit losses (in situations in which the estimate of credit losses declines) in current period net income, which in turn should align the income statement recognition of credit losses with the reporting period in which changes occur.

Although the Coronavirus Aid, Relief, and Economic Security Act (the “CARES”

Act) provided the option to delay the adoption of the CECL Standard until the earlier of December 31, 2020 or the termination of the current national emergency declaration related to the COVID-19 outbreak, the Company adopted the CECL Standard in the first quarter of 2020 as previously planned using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

The CECL Standard approach is an improvement because an entity is able to record reversals of credit losses (in situations in which the estimate of credit losses declines) in current period net income, which in turn should align the income statement recognition of credit losses with the reporting period in which changes occur.

Although the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act) provided the option to delay the adoption of the CECL Standard until the earlier of December 31, 2020 or the termination of the current national emergency declaration related to the COVID-19 outbreak, the Company adopted the CECL Standard in the first quarter of 2020 as previously planned using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

The adoption of the CECL Standard resulted in an initial increase of $ 1.6 million to the allowance for credit losses and $ 0.5 million to the reserve for unfunded commitments.

3 unchanged sentences

EARNINGS PER SHARE

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No.

260‑10‑45 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”).

The restricted stock awards (“RSAs”) and certain restricted stock units (“RSUs”) granted by the Company contain non-forfeitable rights to dividends and therefore are considered participating securities.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No.

260-10-45 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”).

The two-class method for calculating basic EPS excludes dividends paid to participating securities and any undistributed earnings attributable to participating securities.

The following table presents the computation of EPS for the three months ended March 31, 2020 and 2019:

The following table presents the computation of EPS for the three and six months ended June 30, 2020 and 2019:

Three Months Ended

Six Months Ended

(In thousands, except per share data)

10 unchanged sentences

Diluted earnings per common share

There were 180,020 stock options outstanding at March 31, 2020 that were not included in the computation of diluted earnings per share for the three months ended March 31, 2020 because the options' exercise prices were greater than the average market price of common stock and were, therefore, antidilutive.

There were 110,660 stock options outstanding at March 31, 2019 that were not included in the computation of diluted earnings per share for the three months ended March 31, 2019 because the options' exercise prices were greater than the average market price of common stock and were, therefore, antidilutive.

There were 26,556 and 22,305 RSUs that were antidilutive for the three months ended March 31, 2020 and 2019, respectively.

There were 180,020 stock options outstanding at June 30, 2020 that were not included in the computation of diluted earnings per share for the three and six months ended June 30, 2020 because the options' exercise prices were greater than the average market price of common stock and were, therefore, antidilutive.

There were 110,660 stock options outstanding at June 30, 2019 that were not included in the computation of diluted earnings per share for the three and six months ended June 30, 2019 because the options' exercise prices were greater than the average market price of common stock and were, therefore, antidilutive.

There were 46,010 and 32,865 RSUs that were antidilutive for the three months ended June 30, 2020 and 2019, respectively.

There were 46,010 and 22,472 RSUs that were antidilutive for the six months ended June 30, 2020 and 2019, respectively.

STOCK-BASED COMPENSATION PLANS

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.

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.

4 unchanged sentences

available for stock-based awards under the 2019 Equity Incentive Plan is 370,000 plus 162,738 shares that were remaining under the 2012 Equity Incentive Plan.

At March 31, 2020, 382,166 shares remain available for issuance, including shares that may be granted in the form of stock options, RSAs, or RSUs.

At June 30, 2020, 358,588 shares remain available for issuance, including shares that may be granted in the form of stock options, RSAs, or RSUs.

The Compensation Committee of the Board of Directors determines awards under the 2019 Equity Incentive Plan.

5 unchanged sentences

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 three months ended March 31, 2020 and 2019, in accordance with the Long Term Incentive Plan (“LTI Plan”) for Named Executive Officers (“NEOs”), the Company granted 69,360 and 63,267 stock options, respectively, with an exercise price set to equal a 10.0% premium over the grant date stock price.

During the six months ended June 30, 2020 and 2019, in accordance with the Long Term Incentive Plan (“LTI Plan”) for Named Executive Officers (“NEOs”), the Company granted 69,360 and 63,267 stock options, respectively, 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 three months ended March 31, 2020 and 2019 was $4.10 and $5.05 per stock option, respectively, using the Black-Scholes option-pricing model with assumptions as follows:

Three Months Ended

The estimated weighted-average grant-date fair value of all stock options granted in the six months ended June 30, 2020 and 2019 was $ 4.10 and $ 5.05 per stock option, respectively, using the Black-Scholes option-pricing model with assumptions as follows:

Six Months Ended

Dividend yield

2 unchanged sentences

Expected option life

Compensation expense attributable to stock options was $78 thousand and $39 thousand for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, there was $548 thousand of total unrecognized compensation cost related to unvested stock options.

Compensation expense attributable to stock options was $ 64 thousand and $ 142 thousand for the three and six months ended June 30, 2020, respectively.

Compensation expense attributable to stock options was $ 52 thousand and $ 91 thousand for the three and six months ended June 30, 2019, respectively As of June 30, 2020, there was $ 484 thousand of total unrecognized compensation cost related to unvested stock options.

The cost is expected to be recognized over a weighted-average period of 2.0 years.

The following table summarizes the status of the Company's stock options as of and for the three months ended March 31, 2020:

The following table summarizes the status of the Company's stock options as of and for the six months ended June 30, 2020:

(Dollars in thousands, except per share amounts)

Outstanding, January 1, 2020

Outstanding, March 31, 2020

Vested and Exercisable, March 31, 2020

Range of Exercise Prices

Outstanding, June 30, 2020

Vested and Exercisable, June 30, 2020

Restricted Stock Awards

5 unchanged sentences

The Company's performance-based RSAs vest subject to the achievement of the Company's corporate goals.

The following table summarizes the unvested RSA activity for the three months ended March 31, 2020:

The following table summarizes the unvested RSA activity for the six months ended June 30, 2020:

Average Grant-Date

Unvested, January 1, 2020

Unvested, March 31, 2020

During the three months ended March 31, 2020, the Company granted a total of 86,428 RSAs.

Unvested, June 30, 2020

During the six months ended June 30, 2020, the Company granted a total of 86,428 RSAs.

Of the 86,428 RSAs granted, 57,850 time-vested RSAs vest ratably over five years and 27,578 time-vested RSAs vest ratably over three years .

During the three months ended March 31, 2019, the Company granted a total of 74,252 RSAs.

During the six months ended June 30, 2019, the Company granted a total of 77,952 RSAs.

Of the 77,952 RSAs granted, 49,925 time-vested RSAs vest ratably over five years , 28,027 time-vested RSAs vest ratably over three years .

As of March 31, 2020, there were 279,540 unvested RSAs, all of which were time-vested RSAs and there were no unvested performance-based RSAs.

Compensation expense attributable to RSAs was $606 thousand and $602 thousand for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, there was $6.8 million of total unrecognized compensation cost related to non-vested RSAs.

As of June 30, 2020, there were 270,850 unvested RSAs, all of which were time-vested RSAs and there were no unvested performance-based RSAs.

Compensation expense attributable to RSAs was $ 596 thousand and $ 1.2 million for the three and six months ended June 30, 2020, respectively, and $ 527 thousand and $ 1.1 million for the three and six months ended June 30, 2019, respectively.

As of June 30, 2020, there was $ 6.0 million of total unrecognized compensation cost related to non-vested RSAs.

The cost is expected to be recognized over a weighted-average period of 3.2 years.

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RSUs do not provide voting rights and RSUs may provide dividend equivalent rights from the date of grant.

The following table summarizes the unvested NEO RSU activity for the three months ended March 31, 2020:

The following table summarizes the unvested NEO RSU activity for the six months ended June 30, 2020:

Average Grant-Date

1 unchanged sentence

Reinvested dividends

Unvested, March 31, 2020

During the three months ended March 31, 2020, in accordance with the LTI Plan for NEOs, the Company granted 26,556 RSUs.

Unvested, June 30, 2020

During the six months ended June 30, 2020, in accordance with the LTI Plan for NEOs, the Company granted 26,556 RSUs.

Of the 26,556 RSUs granted, 17,943 time-vested RSUs vest ratably over three years and 8,613 performance-based RSUs vest subject to the achievement of the Company's three-year corporate goal for the three-year period ending December 31, 2022.

Compensation expense attributable to LTI Plan RSUs was $196 thousand and $170 thousand for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, there was $2.0 million of total unrecognized compensation cost related to non-vested RSUs.

Compensation expense attributable to LTI Plan RSUs was $ 222 thousand and $ 418 thousand for the three and six months ended June 30, 2020, respectively, and $ 173 thousand and $ 343 thousand for the three and six months ended June 30, 2019, respectively.

As of June 30, 2020, there was $ 1.8 million of total unrecognized compensation cost related to non-vested RSUs.

The cost is expected to be recognized over a weighted-average period of 2.4 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.

1 unchanged sentence

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 $142 thousand and $143 thousand for the three months ended March 31, 2020 and 2019, respectively.

In connection with the Directors Plan, the Company recorded expense of $ 100 thousand and $ 242 thousand for the three and six months ended June 30, 2020, respectively, and $ 142 thousand and $ 285 thousand for the three and six months ended June 30, 2019, 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 current offering period is from January 1, 2020 through June 15, 2020.

During the three months ended March 31, 2020, no shares of common stock were purchased, and no expense was recorded related to the ESPP.

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 current offering period is from July 1, 2020 through December 31, 2020.

During the six months ended June 30, 2020, 5,888 shares of common stock were purchased, and no expense was recorded related to the ESPP.

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.

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Accrued interest for a security placed on non-accrual is reversed against interest income.

There were no non-accrual debt securities at March 31, 2020 and there was no accrued interest related to debt securities reversed against interest income for the three months ended March 31, 2020.

There were no non-accrual debt securities at June 30, 2020 and there was no accrued interest related to debt securities reversed against interest income for the three and six months ended June 30, 2020.

Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

On January 1, 2020, the Company adopted the CECL Standard, which requires that debt securities held to maturity be accounted for under the current expected credit losses model, including historical loss experience and impact of current conditions and reasonable and supportable forecasts, with an associated allowance for credit losses.

In addition, while credit losses on debt securities available for sale should be measured in accordance with the other-than-temporary impairment (“OTTI”) framework under current GAAP, the amendments in the CECL Standard require that these credit losses be presented as an allowance for credit losses.

For AFS debt securities, a decline in fair value due to credit loss results in recording an allowance for credit losses to the extent the fair value is less than the amortized cost basis.

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That is, for pools of such debt securities with common risk characteristics, the historical lifetime probability of default and severity of loss in the event of default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the securities.

the discounted value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized cost basis of the security.

Expected credit loss on each debt security in the held-to-maturity portfolio that do not share common risk characteristics with any of the pools of debt securities is individually measured based on net realizable value, or the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized cost basis of the security.

With respect to certain classes of debt securities, primarily U.S.

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If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount the fair value is less than amortized cost basis.

Declines in fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are excluded from earnings and reported, net of tax, in other comprehensive income (“OCI”).

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.

1 unchanged sentence

Accrued interest receivable is excluded from the estimate of credit losses.

The following table summarizes the amortized cost and estimated fair value of the available for sale and held to maturity investment securities portfolio at March 31, 2020 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses, respectively:

March 31, 2020

The following table summarizes the amortized cost and estimated fair value of the available for sale and held to maturity investment securities portfolio at June 30, 2020 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses, respectively:

June 30, 2020

(In thousands)

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Total securities

As of March 31, 2020, none of the Company’s available for sale debt securities were in an unrealized loss position due to credit and therefore no allowance for credit losses on available for sale debt securities was required.

Additionally, the calculated allowance for credit losses on held to maturity securities was inconsequential given the high quality composition of the Company’s held to maturity portfolio and therefore no allowance for credit losses was recorded.

Accrued interest receivable on securities totaling $2.1 million at March 31, 2020 was included in other assets in the consolidated balance sheet and excluded from the amortized cost and estimated fair value totals in the table above.

As of June 30, 2020, none of the Company’s available for sale debt securities were in an unrealized loss position due to credit and therefore no allowance for credit losses on available for sale debt securities was required.

Accrued interest receivable on securities totaling $ 1.9 million at June 30, 2020 was included in other assets in the consolidated balance sheet and excluded from the amortized cost and estimated fair value totals in the table above.

The following table summarizes the amortized cost and estimated fair value of the available for sale and held to maturity investment securities portfolio at December 31, 2019 and the corresponding amounts of gross unrealized gains and losses therein:

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Total securities

The following table summarizes available for sale debt securities with gross unrealized losses for which an allowance for credit losses has not been recorded at March 31, 2020, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position:

March 31, 2020

The following table summarizes available for sale debt securities with gross unrealized losses for which an allowance for credit losses has not been recorded at June 30, 2020, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position:

June 30, 2020

Less than 12 months

2 unchanged sentences

Available for sale:

Treasury securities

GSE securities

State and municipal obligations

GSE residential mortgage-backed securities

GSE residential collateralized mortgage obligations

GSE commercial mortgage-backed securities

GSE commercial collateralized mortgage obligations

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Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

At March 31, 2020, substantially all of the securities in an unrealized loss position had a variable interest rate and the cause of the temporary impairment was directly related to changes in interest rates.

At June 30, 2020, substantially all of the securities in an unrealized loss position had a variable 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.

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The fair value is expected to recover as the securities approach maturity.

Therefore, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2020.

Therefore, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2020.

Sales and Calls of Securities

There were $74.6 million of proceeds from sale of securities for the three months ended March 31, 2020 with gross gains of approximately $0.8 million realized in 2020 and gross losses of approximately $0.8 million realized in 2020.

There were no proceeds from sales of securities for the three months ended March 31, 2019.

There were $5.3 million and $7.9 million of proceeds from calls of securities for the three months ended March 31, 2020 and 2019, respectively.

There were no proceeds from sale of securities for the three months ended June 30, 2020.

There were $ 74.6 million of proceeds from sales of securities for the six months ended June 30, 2020 with gross gains of $ 0.8 million realized in 2020 and gross losses of $ 0.8 million realized in 2020.

There were $ 46.5 million proceeds from sales of securities with gross gain of $ 0.2 million realized for the three and six months ended June 30, 2019.

There were $ 6.9 million and $ 12.2 million of proceeds from calls of securities for the three and six months ended June 30, 2020, respectively.

There were $ 2.4 million and $ 10.3 million of proceeds from calls of securities for the three and six months ended June 30, 2019, respectively.

Pledged Securities

Securities having a fair value of $402.6 million and $402.2 million at March 31, 2020 and December 31, 2019 , respectively, were pledged to secure public deposits and Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) overnight borrowings.

Securities having a fair value of $ 576.2 million and $ 402.2 million at June 30, 2020 and December 31, 2019, respectively, were pledged to secure public deposits and Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) overnight borrowings.

Trading Securities

The Company did not hold any trading securities during the three months ended March 31, 2020 or the year ended December 31, 2019.

The Company did not hold any trading securities during the six months ended June 30, 2020 or the year ended December 31, 2019.

Restricted Securities

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Members are required to own a particular amount of stock based on the level of borrowings and other factors and may invest in additional amounts.

The Bank is a member of the Atlantic Central Banker's Bank (“ACBB”) and is required to own ACBB stock.

The Bank is also a member of the FRB system and required to own FRB stock.

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Both cash and stock dividends are reported as income.

The Bank owned $26.4 million and $32.9 million in FHLB, ACBB and FRB stock at March 31, 2020 and December 31, 2019, respectively.

The Bank owned $ 29.0 million and $ 32.9 million in FHLB, ACBB and FRB stock at June 30, 2020 and December 31, 2019, respectively.

These amounts were reported as restricted securities in the consolidated balance sheets.

As of March 31, 2020 and 2019, 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’

The following table summarizes the amortized cost and estimated fair value by contractual maturity of the available for sale and held to maturity investment securities portfolio at March 31, 2020.

As of June 30, 2020 and 2019, 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.

The following table summarizes the amortized cost and estimated fair value by contractual maturity of the available for sale and held to maturity investment securities portfolio at June 30, 2020.

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.

March 31, 2020

June 30, 2020

(In thousands)

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Beyond ten years

The Company adopted ASU 2016-01, Financial Instruments –

Overall (Subtopic 825-10):

The Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities during the first quarter of 2018 .

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The following tables summarize assets and liabilities measured at fair value on a recurring basis:

March 31, 2020

June 30, 2020

Fair Value Measurements Using:

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The following tables summarize assets measured at fair value on a non-recurring basis:

March 31, 2020

June 30, 2020

Fair Value Measurements Using:

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Impaired loans

Loans held for sale at March 31, 2020 and December 31, 2019 had a carrying amount of $12.6 million with no valuation allowance recorded.

Collateral dependent loans with an allowance for credit losses at March 31, 2020 had a carrying amount of $2.9 million, which is made up of the outstanding balance of $7.3 million, net of a valuation allowance of $4.4 million.

Loans held for sale at June 30, 2020 had a carrying amount of $ 10.0 million which is net of a $ 2.6 million valuation allowance.

Loans held for sale at December 31, 2019 had a carrying amount of $ 12.6 million with no valuation allowance recorded.

Collateral dependent commercial and industrial loans with an allowance for credit losses at June 30, 2020 had a carrying amount of $ 4.9 million, which is made up of the outstanding balance of $ 12.3 million, net of a valuation allowance of $ 7.4 million.

This resulted in an additional provision for credit losses of $ 3.0 million that is included in the amount reported on the consolidated statements of income for the six months ended June 30, 2020.

Impaired loans (prior to the adoption of CECL standard) with an allowance for credit losses at December 31, 2019 had a carrying amount of $ 7.0 million, which is made up of the outstanding balance of $ 11.7 million, net of a valuation allowance of $ 4.7 million.

There was no other real estate owned at March 31, 2020 and December 31, 2019.

There was no other real estate owned at June 30, 2020 and December 31, 2019.

The Company used the following methods and assumptions in estimating the fair value of its financial instruments:

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The fair value of loans held for sale is initially determined using the price we expect to receive for the loans based on commitments received from third-party investors.

Thereafter, loans held for sale are re-evaluated quarterly to determine if a valuation allowance is required to adjust for a decline in fair value below the carrying amount, resulting in a Level 3 classification.

Thereafter, loans held for sale are re-evaluated quarterly to determine if a valuation allowance is required to adjust for a decline in fair value below the carrying amount.

Subsequent fair value determinations are based on commitments received from third party investors and/or through appraisals using a single valuation approach or a combination of approaches including comparable sales and the income approach.

Appraisals may be discounted for changes in market conditions.

These valuation methods result in a Level 3 classification.

Collateral Dependent Loans with an ACL (Impaired Loans with and ACL prior to the adoption of the CECL Standard) and Other Real Estate Owned:

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All appraisals undergo a second review process to ensure that the methodology employed and the values derived are reasonable.

Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the borrower and its business.

Non-real estate collateral, which includes inventory and taxi medallions, may be valued using an appraisal, net book value per the borrower’s financial statements, aging reports, or by reference to market activity, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the borrower and its business.

These valuation methods result in a Level 3 classification.

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Adjustments made in the appraisal process are not deemed material to the overall consolidated financial statements given the level of collateral dependent loans measured at fair value on a non-recurring basis.

The following tables summarize the estimated fair values and recorded carrying amounts of the Company's financial instruments at March 31, 2020 and December 31, 2019:

March 31, 2020

The following tables summarize the estimated fair values and recorded carrying amounts of the Company's financial instruments at June 30, 2020 and December 31, 2019:

June 30, 2020

Fair Value Measurements Using:

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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 (“TDR”) loan is non-accrual, the payment is applied to the principal balance.

A TDR loan performing in accordance with its modified terms is maintained on accrual status.

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Some of the loans at the time of acquisition showed evidence of credit deterioration since origination.

These loans were considered purchased credit impaired (“PCI”) loans.

As of December 31, 2019, the remaining balance of PCI loans was immaterial to the Company’s financial condition and results of operations.

These loans were considered purchased credit impaired (“PCI”) loans.

As of December 31, 2019, the remaining balance of PCI loans was immaterial to the Company’s financial condition and results of operations.

Unless otherwise noted, the above policy is applied consistently to all loan segments.

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On January 1, 2020, the Company adopted the CECL Standard, which requires that loans held for investment be accounted for under the current expected credit losses model.

The allowance for credit losses is established and maintained through a provision for credit losses based on expected losses inherent in the Company’s loan portfolio.

Management evaluates the adequacy of the allowance on a quarterly basis.

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Additions to the allowance are charged to expense and realized losses, net of recoveries, are charged against the allowance.

The loan loss estimation process involves procedures to appropriately consider the unique characteristics of the Company’s loan portfolio segments.

These segments are further disaggregated into loan risk ratings, the level at which credit risk is monitored.

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Generally, collateral values for real estate loans for which measurement of expected losses is dependent on collateral values are updated every twelve months.

Once the expected credit loss amount is determined, an allowance is provided for equal to the calculated expected credit loss and included in the allowance for credit losses.

Pursuant to the Company’s policy, credit losses must be charged-off in the period the loans, or portions thereof, are deemed uncollectable.

Loans that share similar credit risk characteristics

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Management believes that this transition approach to the Probability of Default/Loss Given Default is a relevant calculation of expected credit losses as there is sufficient volume as well as movement in the risk ratings due to the initial grading system as well as timely updates to risk ratings when necessary.

Credit risk ratings are based on management’s evaluation of a credit’s cash flow, collateral, guarantor support, financial disclosures, industry trends and strength of borrowers’

Credit risk ratings are based on management’s evaluation of a credit’s cash flow, collateral, guarantor support, financial disclosures, industry trends and strength of borrowers’ management.

Future additions or reductions to the allowance may be necessary based on changes in economic, market or other conditions.

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No credit loss estimate is reported for off-balance sheet credit exposures that are unconditionally cancellable by the Company.

At March 31, 2020, the reserve for off-balance sheet credit exposures was immaterial to the Company’s consolidated statements of financial condition and results of operations.

At June 30, 2020, the reserve for off-balance sheet credit exposures was immaterial to the Company’s consolidated statements of financial condition and results of operations.

The following table sets forth the major classifications of loans:

(In thousands)

March 31, 2020

June 30, 2020

December 31, 2019

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Installment/consumer loans

Net deferred loan costs and fees

Net deferred loan (fees) costs

Total loans held for investment

Allowance for credit losses

Accrued interest receivable on loans totaling $9.0 million at March 31, 2020 and $8.7 million at December 31, 2019 was included in other assets in the consolidated balance sheet and excluded from the table above.

As of March 31, 2020 and December 31, 2019, one commercial real estate (“CRE”) mortgage loan totaling $12.6 million was classified as held for sale.

The loan was reclassified from loans held for investment to loans held for sale and written down from $16.3 million to the loan’s estimated fair value of $12.6 million, through a $3.7 million charge-off during the 2019 second quarter.

Included in commercial, industrial and agricultural loans at June 30, 2020 was $ 949.7 million of Paycheck Protection Program (“PPP”) loans.

The shift from net deferred loan costs at December 31, 2019 to net deferred loan fees at June 30, 2020 was the result of the net deferred loan fees associated with the PPP loans.

Accrued interest receivable on loans totaling $ 13.5 million at June 30, 2020 and $ 8.7 million at December 31, 2019 was included in other assets in the consolidated balance sheet and excluded from the table above.

The increase in accrued interest receivable from December 31, 2019 relates to accrued interest on moratorium loans which are currently in their payment deferral period and accrued interest on PPP loans.

As of June 30, 2020 and December 31, 2019, one commercial real estate (“CRE”) mortgage loan totaling $ 10.0 million and $ 12.6 million, respectively, was classified as held for sale.

The loan was reclassified from loans held for investment to loans held for sale and written down from $ 16.3 million to the loan’s estimated fair value of $ 12.6 million, as of June 30, 2019, through a $ 3.7 million charge-off during the 2019 second quarter.

During the 2020 second quarter, an additional write-down was recognized for the decrease in the estimated fair value of the loan by $ 2.6 million to $ 10.0 million through a valuation allowance which was charged against non-interest income in the consolidated statements of income.

The principal business of the Bank is lending in CRE 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.

A substantial portion of the Bank's loans are 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.

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Loans are secured by a first mortgage lien on the subject property with a loan to value ratio generally not exceeding 75 %.

Repayment is derived generally from the rental income generated from the property and may be supplemented by the owners' personal cash flow.

Repayment is derived

generally from the rental income generated from the property and may be supplemented by the owners' personal cash flow.

Credit risk arises with an increase in vacancy rates, property mismanagement and the predominance of non-recourse loans that are customary in the industry.

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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 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.

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Credit Quality Indicators

The Company categorizes loans into risk categories of pass, watch, 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.

The Company categorizes loans into risk categories of pass, watch, special mention, substandard and doubtful based on relevant information about the ability of borrowers to service their debt including repayment patterns, 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.

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Loans classified as doubtful have all the weaknesses inherent in a substandard loan, may also be in delinquency status and have defined weaknesses based on currently existing facts, conditions and values making collection or liquidation in full highly questionable and improbable.

The following tables represent loans categorized by internally assigned risk grades as of March 31, 2020 and December 31, 2019:

March 31, 2020

The following tables represent loans categorized by internally assigned risk grades as of June 30, 2020 and December 31, 2019.

In the June 30, 2020 table, the years noted represent the year of origination for non-revolving loans.

June 30, 2020

(In thousands)

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Past Due and Non-accrual Loans

The following tables represents the aging of past due loans as of March 31, 2020 and December 31, 2019 :

March 31, 2020

The following tables represents the aging of past due loans as of June 30, 2020 and December 31, 2019:

June 30, 2020

(In thousands)

6 unchanged sentences

Installment/consumer loans

During the three months ended March 31, 2020, there was no interest earned on non-accrual loans and $15 thousand in accrued interest on non-accrual loans was reversed through interest income.

In the absence of other intervening factors, loans granted payment deferrals related to COVID-19 are not reported as past due or placed on non-accrual status provided the borrowers have met the criteria in the CARES Act or otherwise have met the criteria included in an interagency statement issued by bank regulatory agencies.

During the six months ended June 30, 2020, there was no interest earned on non-accrual loans and $ 85 thousand in accrued interest on non-accrual loans was reversed through interest income.

December 31, 2019

7 unchanged sentences

Installment/consumer loans

There was no other real estate owned at March 31, 2020 and December 31, 2019.

There was no other real estate owned at June 30, 2020 and December 31, 2019.

Troubled Debt Restructurings

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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.

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.

1 unchanged sentence

The following table presents loans modified as TDRs during the periods indicated:

Modifications During the Three Months Ended March 31,

Modifications During the Three Months Ended June 30,

(Dollars in thousands)

5 unchanged sentences

Installment/consumer loans

During the three months ended March 31, 2020, there were no charge-offs relating to TDRs and there were no loans modified as TDRs for which there was a payment default within twelve months following the modification.

During the three months ended March 31, 2019, there was one charge-off totaling $6 thousand relating to TDRs and there was one loan modified as a TDR for which there was a payment default within twelve months following the modification.

Modifications During the Six Months Ended June 30,

(Dollars in thousands)

Commercial real estate:

Owner occupied

Non-owner occupied

Residential real estate

Commercial, industrial and agricultural

Installment/consumer loans

During the six months ended June 30, 2020, there was one charge-off totaling $ 243 thousand relating to TDRs and there was one loan modified as a TDR for which there was a payment default within twelve months following the modification.

During the six months ended June 30, 2019, there were three charge-offs totaling $ 84 thousand relating to TDRs and there were two loans modified as a TDR 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.

As of March 31, 2020 and December 31, 2019, the Company had $635 thousand and $405 thousand, respectively, of non-accrual TDRs and $26.9 million and $26.3 million, respectively, of performing TDRs.

At March 31, 2020 and December 31, 2019, non-accrual TDRs were unsecured.

As of June 30, 2020 and December 31, 2019, the Company had $ 3.1 million and $ 405 thousand, respectively, of non-accrual TDRs and $ 23.9 million and $ 26.3 million, respectively, of performing TDRs.

The increase in non-accrual TDRs and decrease in performing TDRs is primarily due to one TDR relationship totaling $ 2.7 million at June 30, 2020 becoming non-accrual during the 2020 second quarter.

The loans in that relationship are secured by inventory.

At June 30, 2020, the remaining non-accrual TDRs were unsecured and at December 31, 2019, the non-accrual TDRs were unsecured.

The Bank has no commitment to lend additional funds to these debtors.

The terms of certain other loans were modified during the three months ended March 31, 2020 that did not meet the definition of a TDR.

These loans have a total recorded investment at March 31, 2020 of $26.8 million.

The terms of certain other loans were modified during the six months ended June 30, 2020 that did not meet the definition of a TDR.

These loans have a total recorded investment at June 30, 2020 of $ 57.4 million.

These loans were to borrowers who were not experiencing financial difficulties.

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The Company began offering 90-day payment modifications on a case-by-case basis to those customers whose income was adversely impacted by COVID-19.

The loan modifications in this program primarily consist of three-month deferrals of interest and principal payments, which subsequent to March 31, 2020, resulted in loan modifications to approximately 10% of the loan portfolio.

These deferrals are not considered TDRs based on interagency guidance issued in March 2020.

The loan modifications in this program primarily consist of three-month deferrals of interest and principal payments.

As of June 30, 2020, approximately 500 loans totaling $ 625 million were granted payment moratoriums.

T hese deferrals are not considered TDRs based on interagency guidance issued in March 2020.

20, 2020, approximately $ 400 million of these loans have reached the end of their three month deferral period.

Of these loans, 54 % have returned to making their agreed on payments, 36 % have requested an extension and 10 % are pending.

Extensions are being granted on a case-by-case basis.

Collateral Dependent Loans

At March 31, 2020, the Company had collateral dependent commercial, industrial and agricultural loans which were individually evaluated to determine expected credit losses.

These loans totaled $7.3 million and had a related allowance for credit losses totaling $4.4 million at March 31, 2020.

At June 30, 2020, the Company had collateral dependent commercial, industrial and agricultural loans which were individually evaluated to determine expected credit losses.

These loans totaled $ 12.3 million and had a related allowance for credit losses totaling $ 7.4 million at June 30, 2020.

The loans were secured by inventory and other assets.

Impaired Loans (prior to the adoption of the CECL Standard)

At December 31, 2019 the Company had individually impaired loans as defined by FASB ASC 310, “Receivables”

of $27.0 million.

At December 31, 2019 the Company had individually impaired loans as defined by FASB ASC 310, “Receivables” of $ 27.0 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.

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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.

2 unchanged sentences

The following table sets forth the recorded investment, unpaid principal balance and related allowance for individually impaired loans at December 31, 2019.

The table also sets forth the average recorded investment of individually impaired loans and interest income recognized while the loans were impaired during the period ended March 31, 2019:

The table also sets forth the average recorded investment of individually impaired loans and interest income recognized while the loans were impaired during the period ended June 30, 2019:

Three Months Ended

Six Months Ended

December 31, 2019

March 31, 2019

June 30, 2019

(In thousands)

21 unchanged sentences

Commercial, industrial and agricultural:

The following tables represent the changes in the allowance for credit losses for the three months ended March 31, 2020 and 2019.

Three Months Ended March 31, 2020

The following tables represent the changes in the allowance for credit losses for the three and six months ended June 30, 2020 and 2019.

Three Months Ended June 30, 2020

Industrial and

2 unchanged sentences

Allowance for credit losses:

Beginning balance

Provision (credit) for credit losses

Ending balance

Three Months Ended June 30, 2019

Industrial and

(In thousands)

Mortgage Loans

Allowance for credit losses:

Beginning balance

Provision (credit) for credit losses

Ending balance

Six Months Ended June 30, 2020

Industrial and

(In thousands)

Mortgage Loans

Allowance for credit losses:

Beginning balance, prior to adoption of CECL

2 unchanged sentences

Ending balance

Three Months Ended March 31, 2019

Six Months Ended June 30, 2019

Industrial and

5 unchanged sentences

Ending balance

The increase in the first-quarter ACL in 2020 is primarily related to the reasonable and supportable forecast component of the newly adopted CECL Standard.

Management believes, based on all of the evidence gathered to date, that COVID-19 will continue to have a meaningful negative impact on economic conditions in 2020, but will be shorter-term in nature, and expects to see an economic recovery begin in 2021 during the second year of the Company’s CECL forecast time horizon.

The increase in the second quarter 2020 allowance for credit losses is primarily related to the reasonable and supportable forecast component of the newly adopted CECL standard which includes the impact of COVID-19, coupled with an increase in the specific reserves and reserves on PPP loans, partially offset by decreases in the outstanding balances of C&I lines of credit and changes in other qualitative factors resulting from changes in the loan portfolio.

We believe, based on all of the evidence gathered to date, that COVID-19 has had a more profound impact on economic activity in the first half of 2020 than anticipated during the first quarter analysis and will continue to have a material impact on economic conditions in 2020.

Evidence also suggests that the recovery may be more gradual than previously expected.

The following table represents the balance in the allowance for loan losses and the recorded investment in loans, as defined under FASB ASC 310-10 (prior to adoption of the CECL Standard), and based on impairment method as of December 31, 2019.

12 unchanged sentences

PENSION AND POSTRETIREMENT PLANS

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 by revising the formula for determining benefits effective January 1, 2013, except for certain grandfathered employees.

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 by 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.

1 unchanged sentence

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 rabbi trust are reflected on the Company’s consolidated balance sheets.

There were no contributions to the Pension Plan during the three months ended March 31, 2020 and 2019, respectively.

There were no contributions to the SERP during the three months ended March 31, 2020 and 2019, respectively.

In accordance with the SERP, a retired executive received a distribution totaling $28 thousand during each of the three months ended March 31, 2020 and 2019, respectively.

As a result, the assets of the rabbi trust are reflected on the Company’s consolidated balance sheets.

There were $ 1.2 million of contributions to the Pension Plan during the six months ended June 30, 2020.

There were no contributions to the Pension Plan during the six months ended June 30, 2019.

There were no contributions to the SERP during the six months ended June 30, 2020 and 2019, respectively.

In accordance with the SERP, a retired executive received a distribution totaling $ 56 thousand during each of the six months ended June 30, 2020 and 2019, respectively.

The Company's funding policy with respect to its benefit plans is to contribute at least the minimum amounts required by applicable laws and regulations.

The following table presents the components of net periodic benefit (credit) cost:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Pension Benefits

SERP Benefits

Pension Benefits

SERP Benefits

(In thousands)

6 unchanged sentences

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase totaled $1.2 million at March 31, 2020 and $1.0 million at December 31, 2019.

Securities sold under agreements to repurchase totaled $ 1.7 million at June 30, 2020 and $ 1.0 million at December 31, 2019.

The repurchase agreements were collateralized by investment securities, of which 12 % were U.S.

GSE residential collateralized mortgage obligations and 88 % were U.S.

GSE residential mortgage-backed securities with a carrying amount of $2.1 million at March 31, 2020 and 17% were U.S.

GSE residential mortgage-backed securities with a carrying amount of $ 2.7 million at June 30, 2020 and 17 % were U.S.

GSE residential collateralized mortgage obligations and 83 % were U.S.

GSE residential mortgage-backed securities with a carrying amount of $ 2.1 million at December 31, 2019.

Securities sold under agreements to repurchase are financing arrangements with $1.2 million maturing during the second quarter of 2020.

Securities sold under agreements to repurchase are financing arrangements with $ 1.7 million maturing during the third quarter of 2020.

At maturity, the securities underlying the agreements are returned to the Company.

6 unchanged sentences

There are no FHLB advances with contractual maturities after 2020.

March 31, 2020

June 30, 2020

(Dollars in thousands)

6 unchanged sentences

Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances.

The advances were collateralized by $1.4 billion of residential and commercial mortgage loans under a blanket lien arrangement at March 31, 2020 and December 31, 2019.

Based on this collateral and the Company's holdings of FHLB stock, the Company is eligible to borrow up to a total of $1.5 billion at March 31, 2020 .

The advances were collateralized by $ 1.4 billion of residential and commercial mortgage loans under a blanket lien arrangement at June 30, 2020 and December 31, 2019.

Based on this collateral and the Company's holdings of FHLB stock, the Company is eligible to borrow up to a total of $ 1.8 billion at June 30, 2020.

SUBORDINATED DEBENTURES

4 unchanged sentences

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 $79.0 million at March 31, 2020 and $78.9 million at December 31, 2019.

The subordinated debentures totaled $ 79.0 million at June 30, 2020 and $ 78.9 million at December 31, 2019.

The subordinated debentures are included in tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

1 unchanged sentence

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.

1 unchanged sentence

The Company has adopted the standard in 2019 with minimal impact to its financial position upon transition.

The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Funding Rate ("SOFR") replace USD-LIBOR.

ARRC has proposed that the transition to SOFR from USD-LIBOR will take place by the end of 2021.

6 unchanged sentences

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 $305.0 million and $290.0 million at March 31, 2020 and December 31, 2019, respectively, were designated as cash flow hedges of certain FHLB advances.

Interest rate swaps with notional amounts totaling $ 405.0 million and $ 290.0 million at June 30, 2020 and December 31, 2019, respectively, were designated as cash flow hedges of certain FHLB advances.

The swaps were determined to be fully effective during the periods presented.

2 unchanged sentences

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 March 31, 2020 and December 31, 2019:

The following table summarizes information about the interest rate swaps designated as cash flow hedges at June 30, 2020 and December 31, 2019:

(Dollars in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

Weighted average maturity

Interest income recorded on these swap transactions totaled $110 thousand and $556 thousand for the three months ended March 31, 2020 and 2019, respectively, which is reported as a component of interest expense on FHLB advances.

Interest expense recorded on these swap transactions totaled $ 176 thousand and $ 66 thousand for the three and six months ended June 30, 2020, and interest income recorded on these swap transactions totaled $ 466 thousand and $ 1.0 million for the three and six months ended June 30, 2019, which 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 three months ended March 31, 2020, the Company had $110 thousand of reclassifications as a reduction to interest expense.

During the six months ended June 30, 2020, the Company had $ 176 thousand of reclassifications as an increase to interest expense.

During the next twelve months, the Company estimates that an additional $ 4.0 million will be reclassified as an increase to 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 three months ended March 31, 2020 and 2019:

Amount of gain (loss)

14 unchanged sentences

excluded component

Three months ended March 31, 2020

Three months ended March 31, 2019

Three months ended June 30, 2020

Six months ended June 30, 2020

Three months ended June 30, 2019

Six months ended June 30, 2019

The following table reflects the cash flow hedges included in the consolidated balance sheets at the dates indicated:

March 31, 2020

June 30, 2020

December 31, 2019

8 unchanged sentences

These interest-rate swap agreements do not qualify for hedge accounting treatment, and therefore changes in fair value are reported in current period earnings.

Interest rate swaps with notional amounts totaled $918.8 million at March 31, 2020.

Of the $918.8 million notional amounts, $459.4 million were from loan customers and $459.4 million were from bank counterparties.

Interest rate swaps with notional amounts totaled $ 1.0 billion at June 30, 2020.

Of the $ 1.0 billion notional amounts, $ 512.5 million were from loan customers and $ 512.5 million were from bank counterparties.

Interest rate swaps with notional amounts totaled $ 823.9 million at December 31, 2019.

Of the $ 823.9 million notional amounts, $ 411.9 million were from loan customers and $ 411.9 million were from bank counterparties.

The following table presents summary information about the interest rate swaps at March 31, 2020 and December 31, 2019:

The following table presents summary information about the interest rate swaps at June 30, 2020 and December 31, 2019:

(Dollars in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

4 unchanged sentences

Fair value of combined interest rate swaps

Loan swap fees recorded on these swap transactions, which is reported as a component of non-interest income, totaled $1.2 million and $1.1 million for the three months ended March 31, 2020 and 2019.

Loan swap fees recorded on these swap transactions, which is reported as a component of non-interest income, totaled $ 1.3 million and $ 2.6 million for the three and six months ended June 30, 2020 and $ 0.5 million and $ 1.6 million for the three and six months ended June 30, 2019.

Credit-Risk-Related Contingent Features

As of March 31, 2020, 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 $69.2 million, while there were no derivatives in a net asset position.

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 its obligations to the Company under the agreements.

However, if the termination value of derivatives is a net liability position, the Company is required to post collateral to the counterparty.

At March 31, 2020, the Company posted collateral of $70.8 million to its counterparties under the agreements in a net liability position and received no collateral from its counterparties under the agreements in a net asset position.

If the Company had breached any of these provisions at March 31, 2020, it could have been required to settle its obligations under the agreements at the termination value.

As of June 30, 2020, 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 $ 75.8 million, while there were no derivatives in a net asset position.

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 June 30, 2020, the Company posted collateral of $ 76.4 million to its counterparties under the agreements in a net liability position and received no collateral from its counterparties under the agreements in a net asset position.

If the Company had breached any of these provisions at June 30, 2020, it could have been required to settle its obligations under the agreements at the termination value.

The Company has operating leases for certain branch locations, corporate offices and equipment.

Certain leases contain rent escalation clauses, which are reflected in the Company’s operating lease liabilities.

The Company’s lease agreements do not contain any material residual value guarantees, restrictions or covenants.

Certain leases contain rent escalation clauses, which are reflected in the Company’s operating lease liabilities.

The Company’s lease agreements do not contain any material residual value guarantees, restrictions or covenants.

The components of lease cost were as follows:

Three Months Ended

Six Months Ended

(In thousands)

March 31, 2020

March 31, 2019

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Operating lease cost

5 unchanged sentences

Supplemental cash flow and balance sheet information related to operating leases were as follows:

Three Months Ended

Six Months Ended

(Dollars in thousands)

March 31, 2020

March 31, 2019

June 30, 2020

June 30, 2019

Cash paid for amounts included in the measurement of lease liabilities

1 unchanged sentence

Operating right-of-use assets obtained in exchange for lease liabilities

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

Certain leases contain renewal options which are not reflected in the tables below.

The exercise of renewal options, which extend the lease term from five to ten years, is at the Company’s discretion.

The exercise of renewal options, which extend the lease term from five to ten years , is at the Company’s discretion.

The maturities of operating lease liabilities were as follows:

(In thousands)

March 31, 2020

June 30, 2020

December 31, 2019

4 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands)

Unrealized holding gains on available for sale securities

Reclassification adjustments for losses realized in income

Reclassification adjustments for (gains) losses realized in income

Income tax effect

4 unchanged sentences

Change in fair value of derivatives used for cash flow hedges

Reclassification adjustments for gains realized in income

Reclassification adjustments for losses (gains) realized in income

Income tax effect

Net change in unrealized losses on cash flow hedges

Other comprehensive (loss) income

Other comprehensive income (loss)

The following is a summary of the accumulated other comprehensive loss balances, net of income taxes, at the dates indicated:

5 unchanged sentences

Accumulated other comprehensive loss, net of income taxes

The following represents the reclassifications out of accumulated other comprehensive (loss) income for the three months ended March 31, 2020 and 2019:

The following represents the reclassifications out of accumulated other comprehensive (loss) income for the three and six months ended June 30, 2020 and 2019:

Three Months Ended

Six Months Ended

Affected Line Item

2 unchanged sentences

Statements of Income

Realized losses on sale of available for sale securities

Realized gains (losses) on sale of available for sale securities

Net securities gains (losses)

4 unchanged sentences

Other operating expenses

Realized gains on cash flow hedges

Realized (losses) gains on cash flow hedges

Interest expense

5 unchanged sentences

Standards Effective in 2020

ASU 2016‑13, Financial Instruments –

Credit Losses (Topic 326)

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)

Effective for periods after December 31, 2019, the Company adopted the CECL Standard.

Refer to Note 1.

“Basis of Presentation”

for further details of the recent accounting pronouncement and its effect on the Company’s consolidated financial statements.

ASU 2017‑04, Intangibles –

Goodwill and Other (Topic 350):

“Basis of Presentation” for further details of the recent accounting pronouncement and its effect on the Company’s consolidated financial statements.

ASU 2017-04, Intangibles – Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment

7 unchanged sentences

The adoption of ASU 2017-04 did not have an 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

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).

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements