DCOM

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2003, for Bridge Bancorp, Inc. (the Company) and its wholly-owned subsidiary, The Bridgehampton National Bank (the Bank). The Company is a one-bank holding company incorporated in New York, with its primary lending area located in Suffolk County, New York. The Bank operates eleven full-service offices and focuses on commercial real estate, construction, residential mortgages, and consumer loans.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability: Net income increased by $531,000 (26.5%) to $2.54 million. This was driven by a $556,000 increase in net interest income and a $797,000 surge in other income.
• Other Income: Total other income rose 116.4% to $1.48 million. The primary driver was a one-time net gain on sales of securities of $634,000, compared to zero in the prior year. Service charges on deposit accounts also increased 30.0%.
• Expense Growth: Total other expenses increased 16.1% to $3.29 million. Increases were attributed to higher compensation costs, occupancy expenses, and furniture/fixtures due to the opening of two new branches (Hampton Bays and Greenport) in the prior year.
• Asset Quality: Nonaccrual loans decreased significantly by 85.9% to $62,000 (0.02% of net loans). Net charge-offs were $63,000 for the quarter. No provision for loan losses was recorded in Q1 2003, compared to $60,000 in Q1 2002.
• Interest Rates: The yield on average interest-earning assets decreased to 6.3% from 6.7%, while the cost of interest-bearing liabilities dropped to 1.0% from 1.7%, resulting in a slight expansion of the net interest margin.

Outlook, Risks, and Management Commentary

• Capital Adequacy: The Bank is well-capitalized under regulatory guidelines. As of March 31, 2003, the Total Capital ratio was 13.0% (minimum 8.0%) and Tier 1 Capital ratio was 12.3% (minimum 4.0%).
• Liquidity: Management maintains sufficient liquidity through cash equivalents, securities available for sale, and $37 million in lines of credit with correspondent banks. The Bank does not anticipate needing to borrow under its master repurchase agreement or issue brokered CDs in the near future.
• Market Risk: The Company utilizes simulation models to monitor interest rate sensitivity. Management believes there has been no material change in market risk from December 31, 2002, despite the low interest rate environment.
• Forward-Looking Statements: The filing includes standard safe harbor disclosures regarding uncertainties such as economic conditions, interest rate fluctuations, and regulatory changes that could cause actual results to differ from projections.
• Stock Repurchase: The Company reaffirmed its stock repurchase program in February 2003. No shares were repurchased in Q1 2003; 71,160 shares remain available for repurchase under the current plan.

Investor Verification Checklist

• One-Time Gains: Verify the sustainability of earnings given that $634,000 of the $1.48 million other income was derived from net securities gains, a non-recurring item absent in the prior year.
• Expense Run-Rate: Confirm if the 16.1% increase in operating expenses is a one-time step-up due to new branch openings or a permanent increase in the cost structure.
• Asset Concentration: Review the concentration of the loan portfolio in Suffolk County, NY, and the specific exposure to commercial real estate and construction loans, which are sensitive to local economic conditions.
• Non-Accrual Trends: Monitor the stability of the nonaccrual loan ratio, which dropped to 0.02%, to ensure it remains low as the low-interest-rate environment persists.
• Dividend Policy: Note the cash dividend of $0.17 per share declared in the quarter and assess the payout ratio relative to the reported net income.