In order for the Compensation Committee
considered the independence of McLagan, in light of SEC rulesto make decisions regarding base salary, annual and
NASDAQ listing standards. The Committee requestedlong-term incentives, 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 us as a percentage of Aon’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, Nielsen, and Yegen. None of these directors was during 2015, or is formerly, an officer of the Company. During the year ended December 31, 2015, 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 memberaspects of the Company’s Boardbenefit programs, the CEO, the President and the director of Directors orhuman resources are asked to provide input on corporate objectives and individual performance. Input from these individuals is considered to be suggestions and recommendations for the Compensation Committee.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Committee’s consideration. The primary goalsNEOs do not attend portions of the Compensation Committee (“Committee”) for 2015 were consistent with its established philosophy of providingmeetings during which their individual performance is being evaluated or their 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 contributionsis being determined. The CEO and the Company’s performance.
Company Performance
Our Company, although certainly impacted by the economic downturn over the past number of years, has experienced significant growth in assets and earnings while maintaining very favorable credit quality.
In 2015, the management team continued to grow our Company and take advantage of opportunities available in this turbulent banking environment. Considering the environment, the Committee views the performance in 2015 as a continuation of performance at a very high level as shown below:
| · | Performance: Returns on average assets and equity for 2015 were 0.71% and 7.91%, respectively, and the Company’s net income was $21.1 million, 53% higher than the $13.8 million reported in 2014. The 2015 results include $9.8 million in costs associated with the acquisition of CNB in June 2015. |
| · | Credit Quality: The Company continues to maintain outstanding credit quality with nonperforming assets of $1.6 million or 0.04% of total assets at December 31, 2015, significantly better than peers. |
| · | Capital Management and Dividend Payments: The Company has attracted and retained access to the capital and debt markets, increasing stockholder’s equity $234 million since December 2011 and raising over $80 million in subordinated debentures in September 2015. This capital was deployed to support the growth associated with the acquisitions of FNBNY Bancorp Inc. and its wholly owned subsidiary First National Bank of New York (collectively “FNBNY”) in February 2014 and CNB in June 2015, as well as organic growth. In 2015, the Company paid four quarterly dividends to shareholders totaling $0.92 per share. This continues the Company’s long term trend of uninterrupted dividends. |
| · | Growth Strategy: The Company has continued its disciplined growth strategy delivering strong growth in both loans and deposits organically and via acquisition. During 2015, the Company experienced loan growth of $1.07 billion, or 80%, with 41% representing organic growth. Deposits increased $1.0 billion, or 55%, with 17% representing organic growth. As noted above, the Company acquired CNB in June 2015. CNB had total acquired assets on a fair value basis of $899.9 million, with loans of $734.0 million, investment securities of $90.1 million and deposits of $786.9 million, with eleven full-service branches, including seven in Nassau County, two in Suffolk and the Company’s first two branches in New York City: one in Manhattan and one in Bayside, Queens. At December 31, 2015, the Company had total assets of $3.8 billion, including $2.4 billion in loans, $2.8 billion in deposits and 40 branches from Montauk to Manhattan. |
| · | Long-Term Performance: From January 1, 2011 to December 31, 2015, the Company’s tangible book value has increased $3.14 per share or 30% and the Company’s assets have grown $2.8 billion or 280% from approximately $1.0 billion to $3.8 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 the Company’s performance, the Committee and Board increased salaries for 2015 for the NEOs as follows: |
| | | 2015 | | | 2014 | |
| Kevin M. O’Connor | | $ | 515,000 | | | $ | 440,000 | |
| Howard H. Nolan | | $ | 305,000 | | | $ | 280,000 | |
| Kevin Santacroce | | $ | 300,000 | | | $ | 260,000 | |
| James Manseau | | $ | 285,000 | | | $ | 260,000 | |
| John M. McCaffery | | $ | 285,000 | | | $ | 250,000 | |
| · | 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 40% upon peer relative measures, 40% on absolute measures and 20% on board discretion. The peer relative measures require the Bank to achieve the 25th percentile for a threshold, or minimum payout, to occur. The target is the median or 50th percentile of peer performance and maximum is at the 75th percentile. For 2015, the Board determined STIP was awarded at 80% achievement which is between target and maximum performance compared to 79% achievement in 2014. The Plan awards are paid 50% in cash and 50% in restricted stock. Please see “Short Term Incentive Program” under the section “2015 Executive Compensation Components” for more details. |
Long Term Incentive Plan: During 2015, in accordance with the Long Term Incentive Plan (“LTI Plan”), the Board granted long term stock awards including performance based awards. The LTI Plan includes 60% performance vested awards based on 3-year relative Total Shareholder Return (“TSR”) to the proxy peer group and 40% time vested awards. The awards are in the form of restricted stock units (“RSUs”) and cliff vest after five years and require an additional two year holding period before the RSUs are delivered in shares of common stock. Please see “Long Term Stock Incentive Program” under the section “2015 Executive Compensation Components” for more details.
Chief Executive Officer Compensation:
| · | Base Salary –The Board increased Mr. O’Connor’s 2015 base salary to $515,000 from $440,000 in 2014, in order to align his compensation with CEOs in the peer group and based on the performance of the Company. |
| · | STIP Award - Mr. O’Connor earned a STIP award of 60% of base salary, which represents 80% of the overall maximum payout opportunity. The STIP Award of $309,000 is paid 50% in cash, and 50% in restricted stock that was granted in February 2016 and vests over five years. |
| · | LTI Plan– As noted above, the Board approved the grant of equity in 2016 for 2015 performance. Under the LTI Plan, the awards are granted in the form of restricted stock units (RSUs) with 60% performance vested (“PSUs”) based upon the achievement of target performance (50th percentile of peer banks) measured on the 3 Year Total Shareholder Return, and 40% time vested. Both vest on February 15, 2021 and require an additional two year holding period before the RSUs are delivered in shares of common stock. |
Other Named Executive Officer Compensation:
| · | Base Salaries – As noted above, the Board increased base salaries for the other executives during 2015. |
| · | STIP Award– Each of the officers listed below earned a STIP award at the same 80% achievement as for Mr. O’Connor. In a similar fashion, all STIP Awards are paid 50% in cash and 50% in restricted stock that vest over five years. |
| · | LTI Plan - The other executives also participated in the LTI Plan described above with grants of equity in 2016 for 2015 performance. |
The Summary Compensation Table includes the cash portion of the STIP award earned in 2015, based on 2015 performance and paid in 2016, and restricted stock awards and restricted stock units granted on February 2, 2015 based on 2014 performance as presented below:
| | | | | | | | | 2015 Stock / RSU Awards | | | | |
| | | | | | | | | STIP | | Long Term | | | | |
| | | | | | | 2015 Cash | | | | | | | | | | | | | | Total Stock | | |
| | | | | 2015 Cash | | Incentive % | | | | | | | | | | | | | | / RSU | | |
| NEO | | 2015 Base Salary | | Incentive | | Salary | | Shares | | $ | | PSUs | | $ | | RSUs | | $ | | Awards | | $ |
| | | | | | | | | | | | | | | | | | | | | | | |
| Kevin M. O'Connor | | $515,000 | | $154,500 | | 30.0% | | 5,070 | | $130,350 | | 4,485 | | $98,013 | | 3,081 | | $65,350 | | 12,636 | | $293,713 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Howard H. Nolan | | $305,000 | | $67,100 | | 22.0% | | 2,367 | | $60,850 | | 1,925 | | $42,068 | | 1,322 | | $28,041 | | 5,614 | | $130,959 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Kevin L. Santacroce | | $300,000 | | $60,000 | | 20.0% | | 1,997 | | $51,350 | | 1,925 | | $42,068 | | 1,322 | | $28,041 | | 5,244 | | $121,459 |
| | | | | | | | | | | | | | | | | | | | | | | |
| James J. Manseau | | $285,000 | | $57,000 | | 20.0% | | 1,997 | | $51,350 | | 1,925 | | $42,068 | | 1,322 | | $28,041 | | 5,244 | | $121,459 |
| | | | | | | | | | | | | | | | | | | | | | | |
| John McCaffery | | $285,000 | | $57,000 | | 20.0% | | 1,921 | | $49,400 | | 1,925 | | $42,068 | | 1,322 | | $28,041 | | 5,168 | | $119,509 |
Shareholder Vote
At our 2015 annual meeting, 94% 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 named executive officers and “covered employees” to be fair, reasonable and competitive and to comply with the regulatory guidance on Sound Incentive Compensation Policies (“SICP”). Our Named Executive Officers (referred to as NEOs) are Kevin M. O’Connor, President and Chief Executive Officer, Howard H. Nolan, Senior Executive Vice President, Chief Administrative and Chief Financial Officer, Kevin L. Santacroce, Executive Vice President and Chief Lending Officer, James J. Manseau, Executive Vice President and Chief Retail Banking Officer, and John M. McCaffery, Executive Vice President and Treasurer. 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.
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:
| (1) | 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; |
| (2) | These arrangements should be compatible with effective controls and risk management; and |
| (3) | These arrangements should be supported by strong corporate governance, including active and effective oversight by the Company’s Board of Directors. |
The Company’s policies and procedures related to incentive plans have been reviewed by an independent compensation consultant, McLagan, to determine the Company’s and Bank’s compliance with the SICP. 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 compensation philosophy are considered as appropriate by the Compensation Committee.
Specifically, 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 Bridge Bancorp, Inc. and The Bridgehampton National 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 through increasing equity compensation relative to total incentive compensation; and |
In addition, the Company’s compensation philosophy is to provide retirement benefits that are competitive with market practice. The Compensation Committee of the Board annually reviews the administration of the compensation plans.
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 compensation program.
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 Compensation Committee and Board. In addition, the Compensation 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 performance of the incentive compensation arrangements are consistent with the Company’s and Bank’s safety and soundness.
Role of Executive Officers in Compensation Decisions
The CEO provides recommendations to the Committee and Board on the other NEOs compensation. The Committee recommends and the Board approves all compensation decisions for the CEO as well as the other NEOs and approves recommendations regarding equity awards to certain officers of the Company. The NEOs annually review the performance and recommenddetermine the compensation for senior management of the Company who are not NEOs.
