| Require minimum stock ownership requirements for all directors and Named Executive Officers. | | | | |
| Maintain an Insider Trading Policy that establishes pre-determined window periods for trading in Company securities. | | | | |
| Double trigger on potential change in control severance payments. | | | | |
| Provide annual and long-term incentive plans with performance goals aligned with shareholder interests. | | | | |
| Provide that a substantial portion of long-term equity awards are based on corporate goals. | | | | |
| Provide that 60% of long-term incentive equity awards are performance based. | | | | |
| Actively and regularly engage with shareholders on executive compensation and corporate governance matters. | | | | |
For NEOs, compensation comparisons are based on a comprehensive reviewpeer group of banks, taking into consideration asset size, geographic location, and evaluationloan portfolio composition. However, reasonable exceptions to this market comparison methodology are considered as appropriate by the Compensation Committee. The Compensation Committee uses competitive compensation data from the annual total compensation study of peer companies to inform its decisions about overall compensation opportunities and specific compensation elements. Additionally, the Compensation Committee uses multiple reference points when establishing targeted compensation levels. The Compensation Committee does not benchmark specific compensation elements or total compensation to any specific percentile relative to the peer companies or the broader market. Instead, the Compensation Committee applies judgment and discretion in establishing targeted pay levels, taking into account not only competitive market data, but also factors such as the Company’s business and individual performance, scope of responsibility, critical needs and skill sets, leadership potential and succession planning.
The charter for the Compensation Committee provides that the Compensation Committee is responsible for reviewing the Company’s incentive plans covering all employeescompensation arrangements to ensure that they are balanced with respect to risk, have effective controls and are compatible with regulatory guidance. The Company’s compensation program is designed to mitigate risk by: (1) providing competitive non-performance-based salaries, retirement and fringe benefits, (2) incorporating cash incentives to reward current successes, in relation to forecast performance derived from the Strategic Plan, and (3) including long-term incentives in the form of stock awards and performance-based shares, as well as maintaining stock ownership and retention requirements, to sustain focus on long-term shareholder value.
In 2021, in accordance with best practices, the Compensation Committee engaged Aon to conduct a risk assessment of the
Company.Company’s incentive compensation arrangements. In performing its risk assessment, Aon considered principles of sound incentive compensation practices. The goal of the assessment was to evaluate whether the Company was in line with evolving regulatory expectations and market practices. The review included an evaluation of the design features of each plan, the governance and oversight aspects of each plan, the mix of cash and equity incentives opportunities, the use of performance metrics, the performance periods and time horizon of each plan, the various termination provisions associated with the plans, and other dimensions of the plans deemed relevant for the risk review process.
McLaganAon reviewed the results of its assessment with the Committee and with management. Based on the results of the independent assessment by
McLaganAon and the assessment of risks by the Committee, the Board
has determined that the Company’s compensation policies, practices and programs do not promote excessive risk taking or pose risks that are reasonably likely to have a material adverse effect on Bridge Bancorp, Inc.the Company. The Compensation Committee considered the independence of McLagan,determined that an external risk assessment in light of SEC rules and NASDAQ listing standards. The Committee requested and received a report from McLagan addressing the independence of McLagan and its consultants, including the following factors: (1) other services provided to us by McLagan; (2) fees paid by us2022 was not necessary as a percentage of McLagan’s total revenue; (3) policies or procedures maintained by McLagan that are designed to prevent a conflict of interest; (4) any business or personal relationships between the consultants and a member of the Committee; (5) any company stock owned by the consultants; and (6) any business or personal relationships between our executive officers and the consultants. The Committee discussed these considerations and concluded that the work performed by McLagan and its consultants involved in the engagements did not raise any conflict of interest and that McLagan has served as an independent compensation consultant.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Directors Arturi (Chairperson), Hefter, McCoy, Jr., Nielsen, and Lindenbaum. None of these directors was during 2019, or is formerly, an officer of the Company. During the year ended December 31, 2019, the Company had no “interlocking” relationships in which any executive officer of the Company is a member of the board of directors or compensation committee of another entity, one of whose executive officers is a member of the Company’s Board of Directors or Compensation Committee.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The primary goals of the Compensation Committee (“Committee”) for 2019 were consistent with its established philosophy of providing compensation arrangements for executive officers that are designed to attract and retain executives who can perform and manage the Company in the shareholders’ best interest. These compensation arrangements are designed to be aligned with the performance of the Company both on a short-term and long-term basis and are based on individual contributions and the Company’s performance.
Company Performance
Our Company has experienced significant growth in assets, deposits and earnings over the past five years while maintaining very favorable credit quality.
In 2019, the management team continued to grow our Company and take advantage of opportunities available in our marketplace. The Committee views the performance in 2019 as a continuation of performance at a very high level as shown below:
| ·
| | Performance: Reported returns on average assets and equity for 2019 were 1.10% and 10.84%, respectively, and the Company’s net income was $51.7 million, or $2.59 per share compared to $39.2 million or $1.97 per share reported in 2018. The 2018 results included several one-time charges: (i) a second quarter 2018 balance
|
sheet restructure and fourth quarter office relocation and consolidation resulting in total charges of $6.8 million after tax, and (ii) a $6.9 million after tax charge related to the fraudulent conduct of a business customer through their deposit accounts at the Bank.
|
| ·
| | Growth Strategy: The Company has continued its disciplined growth strategy delivering growth in both loans and demand deposits. During 2019, the Company experienced growth in loans of $404.5 million, or 12.4% and while total deposits decreased $71.7 million or 1.8%. The decrease in total deposits is the result of a strategic decision to allow higher cost brokered deposits and 1031 exchange funds to run off. Demand deposits increased $70.4 million or 4.9%. At December 31, 2019, the Company had total assets of $4.9 billion, including $3.7 billion in loans, $3.8 billion in deposits and 39 branches from Montauk to Manhattan.
|
| ·
| | Credit Quality: The Company recognized net charge-offs of $4.3 million for 2019, compared to net charge-offs of $2.1 million for the full year 2018. The charge-offs in 2019 relate primarily to the $3.7 million charge-off related to one CRE loan totaling $16.3 million which was written down to the loan’s estimated fair value of $12.6 million and moved into loans held for sale in June 2019. The charge-offs in 2018 resulted from the charge-off of one loan which was fully reserved for and partial charge-offs recognized on eleven taxi medallion loans attributable to payoff settlements we accepted. The ratio of allowance for loan losses to non-accrual loans was 750% and 1,119% at December 31, 2019 and 2018, respectively. At December 31, 2019, the Company’s non-performing assets were $4.4 million, or 0.09% of total assets, compared to $3.0 million, or 0.06% of total assets, at December 31, 2018. Non-performing assets remain significantly better than peers.
|
| ·
| | Capital Management and Dividend Payments: The Company has attracted and retained access to the capital and debt markets, and generated capital through retained earnings, increasing stockholders’ equity $322 million since December 31, 2014. This capital was deployed to support the growth associated with the acquisition of CNB in June 2015, as well as organic growth. In 2019, the Company paid four quarterly dividends to shareholders totaling $0.92 per share. In January 2020, the Company increased its quarterly dividend by 4% to $0.24 per share. This continues the Company’s long term trend of uninterrupted dividends.
|
| ·
| | Long-Term Performance: From January 1, 2015 to December 31, 2019, the Company’s tangible book value has increased $5.39 per share, or 38%, and the Company’s assets have grown $2.6 billion, or 115%, from approximately $2.3 billion to $4.9 billion.
|
Key Compensation Decisions – Executive Summary
Increased Base Salaries – Based upon a review of compensation paid to executives in the proxy peer group and in light of Company and individual performance for 2019, the Committee and Board adjusted salaries for 2020 for the NEOs as follows:
| | | | | | | | | |
| | 2020 | | 2019 | | % Increase | |
Kevin M. O’Connor | | $ | 750,000 | | $ | 700,000 | | 7% | |
John M. McCaffery | | $ | 390,000 | | $ | 375,000 | | 4% | |
Howard H. Nolan | | $ | 375,000 | | $ | 365,000 | | 3% | |
Kevin L. Santacroce | | $ | 380,000 | | $ | 365,000 | | 4% | |
James J. Manseau | | $ | 345,000 | | $ | 330,000 | | 5% | |
Payments Under the Short Term Incentive Plan: The primary performance vehicle for the Bank is the Short Term Incentive Program (“STIP”). The STIP is based 100% on absolute measures established by the Compensation Committee and Board. The board retains 20% discretion. The STIP establishes threshold, target and maximum performance criteria for each performance goal. The Company must achieve threshold performance level in order for a minimum payout to occur. For 2019, the Company’s performance achievement was 72% of maximum based on reported results. After consideration of the impact of certain strategic decisions on the reported results, including the intentional run-off of higher cost broker and 1031 deposits and the sale and runoff of lower yielding investments, the Board determined STIP was awarded at 92% achievement inclusive of 20% board discretion, as provided in the plan. This achievement is between target and maximum performance compared to 62% achievement in 2018. No discretion was awarded by the Board in 2018. The Plan awards for 2019 were paid 100% in cash for all NEOs except for Mr. O’Connor who received 80% in cash and 20% in restricted
stock. Please see “Short Term Incentive Program” under the section “2019 Executive Compensation Components” for more details.
Long Term Incentive Plan: During 2019, in accordance with the Long Term Incentive Plan (“LTI Plan”), the Board granted long term stock awards including performance based awards. The awards are determined by the Committee and Board within a specified target range of between 30‑60% of salary. The LTI Plan includes 60% performance based awards and 40% time vested awards. The performance based awards are in the form of 30% Performance Share Units (“PSUs”) and 30% premium priced stock options. The PSUs cliff vest after three years contingent upon the achievement of the Board established 3 year EPS goals, subject to adjustment up or down based upon the Company’s 3 year total shareholder return (“TSR”) relative to peer banks. The stock options reflect an exercise price at a 10% premium to the closing price at the date of grant. The time vested awards are in the form of restricted stock units (“RSUs”) and vest ratably over five years. Please see “Long Term Stock Incentive Program” and “Realizable Compensation” under the section “2019 Executive Compensation Components” for more details.
Chief Executive Officer Compensation:
| ·
| | Base Salary – In order to align his compensation with CEOs in the peer group and based on his individual performance and the performance of the Company for 2019, Mr. O’Connor received an increase in base salary for 2020. The Board increased Mr. O’Connor’s 2020 base salary 7% to $750,000 from $700,000 in 2019. Mr. O’Connor did not receive an increase in salary in 2018.
|
| ·
| | STIP Award – For 2019, Mr. O’Connor earned an STIP award of 83% of base salary. This reflects personal achievement of 100% based on board determined performance achievement of 92%. This also represents 92% of the overall maximum payout opportunity of 90% of base salary. The STIP Award of $579,600 is paid 80% in cash, and 20% in restricted stock that was granted in February 2020 and vests ratably over three years. Mr. O’Connor’s 2019 payout opportunities as a percentage of base salary under the STIP remained the same as 2018.
|
| ·
| | LTI Plan – As noted above, the Board approved the grant of equity in 2019. Mr. O’Connor’s 2019 grant was based on a target amount of 60% of his salary. Under the LTI Plan, the awards are granted in the form of 30% PSUs, 30% premium priced stock options, and 40% in time vested RSUs. The PSUs cliff vest after three years and upon achievement of the performance goals, and the options vest ratably over three years, while time vested RSUs vest ratably over 5 years.
|
Other Named Executive Officer Compensation:
| ·
| | Base Salaries – As noted above, the Board increased base salaries between 3% and 5% for the other executives during 2020.
|
| ·
| | STIP Award – Each of the officers listed below received an STIP award of 55% of base salary. This reflects personal achievement of 100% based on board determined performance achievement of 92%. This also represents 92% of the overall maximum payout opportunity of 60% of base salary. All STIP Awards are paid 100% in cash.
|
| ·
| | LTI Plan - The other executives also participated in the LTI Plan described above with grants of equity in 2019.
|
The Summary Compensation Table includes the cash portion of the STIP award earned in 2019, based on 2019 performance and paid in 2020, and restricted stock awards, restricted stock units, performance share units and stock options granted on February 12, 2019 based on 2018 performance as presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 2019 Cash | | 2019 Stock / RSU Awards | | | | | | | Total Stock | | Total Stock |
| | | | | 2019 Cash | | Incentive % | | STIP | | Long Term | | | | | | | RSU / Options | | RSU / Options |
NEO | | 2019 Base Salary | | Incentive | | Salary | | Shares | | $ | | PSUs | | $ | | RSUs | | $ | | Stock Options | | $ | | Awards # | | Awards $ |
Kevin M. O’Connor | | $ | 700,000 | | $ | 463,680 | | 66.2 | % | 1,628 | | $ | 52,320 | | 3,187 | | $ | 112,500 | | 4,667 | | $ | 150,000 | | 22,277 | | $ | 112,500 | | 31,759 | | $ | 427,320 |
John M. McCaffery | | $ | 375,000 | | $ | 207,000 | | 55.2 | % | 810 | | $ | 26,040 | | 1,487 | | $ | 52,500 | | 2,178 | | $ | 70,000 | | 10,396 | | $ | 52,500 | | 14,871 | | $ | 201,040 |
Howard H. Nolan | | $ | 365,000 | | $ | 201,500 | | 55.2 | % | 810 | | $ | 26,040 | | 1,487 | | $ | 52,500 | | 2,178 | | $ | 70,000 | | 10,396 | | $ | 52,500 | | 14,871 | | $ | 201,040 |
Kevin L. Santacroce | | $ | 365,000 | | $ | 201,500 | | 55.2 | % | 810 | | $ | 26,040 | | 1,487 | | $ | 52,500 | | 2,178 | | $ | 70,000 | | 10,396 | | $ | 52,500 | | 14,871 | | $ | 201,040 |
James J. Manseau | | $ | 330,000 | | $ | 182,200 | | 55.2 | % | 382 | | $ | 12,280 | | 1,402 | | $ | 49,500 | | 2,054 | | $ | 66,000 | | 9,802 | | $ | 49,500 | | 13,640 | | $ | 177,280 |
Shareholder Vote
At our 2019 annual meeting, 94.3% of our shareholders approved our “say-on-pay” resolution as to the executive compensation disclosed in last year’s proxy statement. The Company considered the shareholder advisory vote from the most recent annual meeting to be a positive endorsement of its current pay practices and believes the vote result is evidence that its compensation policies and decisions have been in the best interests of shareholders. As a result, the Compensation Committee retained its overall approach to executive compensation. The Company will continue to monitor the level of support for each say-on-pay proposal in the future and will consider this alongside other factors as it makes future executive compensation decisions.
Overview of the Compensation Plan
The Committee has responsibility for establishing, implementing and continually monitoring adherence with the Company’s compensation philosophy. The goal of the Committee is for the total compensation awarded to, earned by, and paid to our NEOs and “covered employees” to be fair, reasonable and competitive and to comply with the regulatory guidance on Sound Incentive Compensation Policies (“SICP”). Covered employees included senior executives as well as other employees who, either individually or as part of a group, have the ability to expose the Company or Bank to material amounts of risk. The Committee annually reviews the administration of the compensation plans.
Compensation Philosophy and Objectives
The compensation philosophy, established by the Committee, provides broad guidance on executive compensation and, more specifically, the compensation of the NEOs and other covered employees. The incentive compensation plans are designed to be consistent with safety and soundness standards and the regulatory guidance on SICP. The Plans include consideration of the following key principles:
| ·
| | Incentive compensation arrangements should provide employees with incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose the Company or Bank to imprudent risk;
|
| ·
| | These arrangements should be compatible with effective controls and risk management; and
|
| ·
| | These arrangements should be supported by strong corporate governance, including active and effective oversight by the Company’s Board of Directors.
|
The Committee engaged McLagan, which is part of the Rewards Solutions practice at AON plc, as its independent compensation consultant to review the design of the Company’s compensation plans and associated policies and procedures in light of the compliance requirements of the SICP.
The compensation philosophy includes:
| ·
| | Aligning shareholder value with compensation;
|
| ·
| | Providing a direct and transparent link between our performance and pay for the NEOs;
|
| ·
| | Aligning the interests of the Company’s senior executive officers with that of the shareholders through performance based incentive plans;
|
| ·
| | Making wise use of the Company’s equity resources to ensure compatibility between management and shareholder interests; and
|
| ·
| | Awarding total compensation that is both reasonable and effective in attracting, motivating, and retaining key executives.
|
The compensation objectives of the Company and Bank, subject to experience and achieving plan performance, are to:
| ·
| | Pay base salaries to the Company’s senior executives at a level consistent with the Company’s performance related to the Company’s selected peer group (the market);
|
| ·
| | Provide total cash compensation (salary and cash incentive compensation) to the Company’s senior executives at a level consistent with performance related to market;
|
| ·
| | Provide total direct compensation (the sum of salary, cash incentives and equity incentives) at a level consistent with performance related to market, based on planned and cumulative performance;
|
| ·
| | Align senior management’s interest with that of shareholders by ensuring equity is a meaningful part of total incentive compensation; and
|
For NEOs, compensation comparisons are based on a peer group of banks, taking into consideration asset size, geographic location, and performance as well as internally developed goals. However, reasonable exceptions to this market comparison methodology are considered as appropriate by the Committee.
In addition, the Company’s compensation philosophy is to provide retirement benefits that are competitive with market practice.
We have considered the most recent shareholder say-on-pay advisory vote in determining compensation policies and decisions. In light of strong stockholder support, the Committee concluded that no material revisions were necessary to our executive officer 2019 compensation program. The Committee annually assesses the Company’s compensation program to ensure alignment with the strategic plan and overall risk profile.
Risk Assessment Process to Determine Covered Employees
Our management has reviewed all job positions to determine which positions have the ability to expose us to material risks. In determining whether an employee, or group of employees, may expose us to material risk, management considered the full range of inherent risks arising from or generated by, the employees’ activities, including Credit/Asset Quality, Asset Liability/Interest Rate Risk, Liquidity, Operational/Transactional, Compliance/Legal, Reputation and Strategic risks.
Risks are considered to be material if they are material to the Company or Bank, or a business line or operating unit of the Bank that is itself material to the Company or Bank.
Principle 1: Balanced Risk Taking Incentives
All covered employees’ incentive plans were evaluated to determine if the plans appropriately balance risk and financial results in a manner that does not encourage imprudent risks.
Principle 2: Compatibility with Effective Controls and Risk Management
The Bank’s risk management processes and internal controls reinforce and support the development and maintenance of balanced incentive compensation arrangements. These processes and controls include documentation to permit an audit of the effectiveness of the Bank’s process for establishing, modifying and monitoring incentive compensation arrangements.
Principle 3: Strong Corporate Governance
Our incentive compensation plans are supported by strong corporate governance, including active and effective oversight by the Committee and Board. In addition, the Committee reviews all incentive plans and has hired an independent compensation consultant, McLagan, to assess the incentive compensation arrangements for compliance with SICP. The Committee receives information and analysis from McLagan and management to allow the Committee and Board to assess
whether the overall design and performancefeatures of the incentive compensation arrangements are consistent withand the governance and oversight aspects of the plans were unchanged from 2021.
Role of Management in Compensation Decisions In order for the Compensation Committee to make decisions regarding base salary, annual and long-term incentives, and other aspects of the Company’s benefit programs, the CEO, the President and Bank’s safetythe Director of Human Resources are asked to provide input on corporate objectives and soundness.individual performance. Input from these individuals is considered to be suggestions and recommendations