10. EMPLOYEE BENEFITS

a) Pension Plan and Supplemental Executive Retirement Plan

The Bank maintains a noncontributory pension plan covering all eligible employees. The Bank uses a December 31st measurement date for this plan in accordance with FASB ASC 715-30 “Compensation – Retirement Benefits – Defined Benefit Plans – Pension”. In September 2011, the Bank transferred all of the Plan assets out of the New York State Bankers Association Retirement System to the new Trustee, Bank of America, N.A. During 2012, the Company amended the pension plan 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”). The SERP provides benefits to certain employees, as recommended by the Compensation Committee of the Board of Directors and approved by the full Board of Directors, whose benefits under the pension plan are limited by the applicable provisions of the Internal Revenue Code. The benefit under the SERP is equal to the additional amount the employee would be entitled to under the Pension Plan and the 401(k) Plan in the absence of such Internal Revenue Code limitations. 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 trust are reflected on the Consolidated Balance Sheets of the Company.

Information about changes in obligations and plan assets of the defined benefit pension plan and the defined benefit plan component of the SERP are as follows:

	Pension Benefits						SERP Benefits
At December 31,	2012			2011			2012			2011
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	11,584		$	8,761		$	1,731		$	1,542
Service cost	1,131			919			120			109
Interest cost	508			483			52			57
Benefits paid and expected expenses	(366		)	(234		)	(112		)	(112		)
Assumption changes and other	1,345			1,655			208			135
Plan amendment	(1,095		)	—			—			—
Benefit obligation at end of year	$	13,107		$	11,584		$	1,999		$	1,731

Change in plan assets, at fair value:
Plan assets at beginning of year	$	13,403		$	11,023		$	—		$	—
Actual return on plan assets	1,600			20			—			—
Employer contribution	2,500			2,727			112			112
Benefits paid and actual expenses	(378		)	(367		)	(112		)	(112		)
Plan assets at end of year	$	17,125		$	13,403		$	—		$	—

Funded status (plan assets less benefit obligations)	$	4,018		$	1,819		$	(1,999	)	$	(1,731	)

Amounts recognized in accumulated other comprehensive income at December 31, consist of:

	Pension Benefits					SERP Benefits
At December 31,	2012			2011		2012		2011
(In thousands)
Net actuarial loss	$	5,561		$	5,060	$	406	$	200
Prior service cost	71			81		—		—
Transition obligation	—			—		142		170
Plan amendment	(1,094		)	—		—		—
Net amount recognized	$	4,538		$	5,141	$	548	$	370

The accumulated benefit obligation was $11.6 million and $1.6 million for the pension plan and the SERP, respectively, as of December 31, 2012. As of December 31, 2011, the accumulated benefit obligation was $9.4 million and $1.5 million for the pension plan and the SERP, respectively.

Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income

	Pension Benefits									SERP Benefits

At December 31,	2012			2011			2010			2012			2011			2010
(In thousands)
Components of net periodic benefit cost and other amounts recognized in Other Comprehensive Income
Service cost	$	1,131		$	919		$	769		$	120		$	109		$	96
Interest cost	508			483			434			52			57			62
Expected return on plan assets	(993		)	(761		)	(681		)	—			—			—
Amortization of net loss	248			102			104			—			—			—
Amortization of unrecognized prior service cost	10			9			9			—			—			—
Amortization of unrecognized transition (asset) obligation	—			—			—			30			28			28
Net periodic benefit cost	$	904		$	752		$	635		$	202		$	194		$	186

Net (gain) loss	$	(345	)	$	2,529		$	254		$	208		$	136		$	(22	)
Prior service cost	—			—			—			—			—			—
Transition obligation	—			—			—			—			—			—
Amortization of net gain	(248		)	(102		)	(104		)	—			—			—
Amortization of prior service cost	(10		)	(9		)	(9		)	—			—			—
Amortization of transition obligation	—			—			—			(30		)	(28		)	(28		)
	(603		)	2,418			141			178			108			(50		)
Deferred taxes	240			(960		)	(56		)	(71		)	(43		)	20
Total recognized in other comprehensive income	(363		)	1,458			85			107			65			(30		)
Total recognized in net periodic benefit cost and other comprehensive income	$	541		$	2,210		$	720		$	309		$	259		$	156

The estimated net loss, transition obligation and prior service credit for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $288,000, $0 and $77,000, respectively. The estimated net loss and unrecognized net transition obligation for the SERP that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $15,000 and $28,000, respectively.

Expected Long-Term Rate-of-Return

The expected long-term rate-of-return on plan assets reflects long-term earnings expectations on existing plan assets and those contributions expected to be received during the current plan year. In estimating that rate, appropriate consideration was given to historical returns earned by plan assets in the fund and the rates of return expected to be available for reinvestment. Average rates of return over the past 1, 3, 5 and 10-year periods were determined and subsequently adjusted to reflect current capital market assumptions and changes in investment allocations.

	Pension Benefits						SERP Benefits
At December 31,	2012		2011		2010		2012		2011		2010
Weighted Average Assumptions Used to Determine Benefit Obligations
Discount rate	4.20	%	4.53	%	5.58	%	3.90	%	3.13	%	3.87	%
Rate of compensation increase	3.00		3.00		3.50		5.00		5.00		5.00
Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost
Discount rate	4.53	%	5.58	%	5.89	%	3.13	%	3.87	%	4.31	%
Rate of compensation increase	3.00		3.50		4.00		5.00		5.00		5.00
Expected long-term rate of return	7.50		7.00		7.50		—		—		—

Plan Assets

The Plan seeks to provide retirement benefits to the employees of the Bank who are entitled to receive benefits under the Plan. The Plan Assets are overseen by a Committee comprised of management, who meet quarterly, and set the investment policy guidelines.

The Plan’s overall investment strategy is to achieve a mix of approximately 97% of investments for long-term growth and 3% for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers.

Cash equivalents consist primarily of short term investment funds.

Equity securities primarily include investments in common stock, mutual funds, depository receipts and exchange traded funds.

Fixed income securities include corporate bonds, government issues, mortgage backed securities, high yield securities and mutual funds.

The weighted average expected long term rate-of-return is estimated based on current trends in Plan assets as well as projected future rates of return on those assets and reasonable actuarial assumptions based on the guidance provided by ASOP No. 27 for the real and nominal rate of investment return for a specific mix of asset classes. The following assumptions were used in determining the long-term rate-of-return:

The long term rate of return considers historical returns for the S&P 500 index and long term U.S. government bonds from 1926 to 2012 representing cumulative returns of approximately 9.8% and 5.7%, respectively. These returns were considered along with the target allocations of asset categories.

Effective August 30, 2011, the Plan revised its investment guidelines. Except for pooled vehicles and mutual funds, which are governed by the prospectus and unless expressly authorized by management, the Plan and its investment managers are prohibited from purchasing the following investments:

· Purchases of letter stock, private placements, or direct payments

· Purchases of securities not readily marketable

· Pledging or hypothecating securities, except for loans of securities that are fully collateralized

· Purchasing or selling derivative securities for speculation or leverage

· Investments by the investment managers in their own securities, their affiliates or subsidiaries (excluding money market funds)

· Purchases of Bridge Bancorp stock

The target allocations for Plan assets are shown in the table below:

			Percentage of Plan Assets At December 31,				Weighted- Average
	Target Allocation						Expected Long-term Rate of
	2013		2012		2011		Return

Asset Category
Cash Equivalents	0 – 5	%	9.4	%	21.6	%	—
Equity Securities	45 - 65	%	54.2	%	43.1	%	4.7	%
Fixed income securities	35 - 55	%	36.4	%	35.3	%	2.8	%

Total			100.0	%	100.0	%	7.5	%

Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments valued using the Net Asset Value (“NAV”) are classified as level 2 if the System can redeem its investment with the investee at the NAV at the measurement date. If the System can never redeem the investment with the investee at the NAV, it is considered a level 3. If the System can redeem the investment at the NAV at a future date, the System’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset.

In accordance with FASB ASC 715-20, the following table represents the Plan’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2012 and 2011:

Fair Value Measurements at

December 31, 2012 Using:

Carrying
Value

Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

(Dollars in thousands)

Cash and Cash Equivalents

Cash

Short term investment funds

1,591

—

1,591

Total cash equivalents

1,615

1,591

Equities:

U.S. Large cap

8,075

U.S. Mid cap

596

International

601

Total equities

9,272

Fixed income securities:

Government issues

1,717

Corporate bonds

1,396

High yield bonds and bond funds

3,125

Total fixed income securities

6,238

Total Plan Assets

17,125

9,296

7,829

			Fair Value Measurements at
			December 31, 2011 Using:

	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)
Cash and Cash Equivalents
Cash	$	2,563	$	2,563
Short term investment funds	336		—		$	336
Total cash equivalents	2,899		2,563		336
Equities:
U.S. Large cap	3,388		3,388
U.S. Mid cap	326		326
U.S. Small cap	326		326
International	1,739		1,739
Total equities	5,779		5,779
Fixed income securities:
Government issues	1,589				1,589
Corporate bonds	1,078				1,078
High yield bonds and bond funds	2,058				2,058
Total fixed income securities	4,725				4,725
Total Plan Assets	$	13,403	$	8,342	$	5,061

The Company expects to contribute $2.0 million to the pension plan during 2013.

Estimated Future Payments

The following benefit payments, which reflect expected future service, are expected to be paid as follows:

Year	Pension and SERP Payments
(In thousands)
2013	$	560,186
2014	606,708
2015	657,058
2016	740,152
2017	900,932
Following 5 years	7,103,618

b) 401(k) Plan

The Company provides a 401(k) plan which covers substantially all current employees. Newly hired employees can elect to participate in the savings plan after completing six months of service. Under the provisions of the savings plan, employee contributions are partially matched by the Bank with cash contributions. Participants can invest their account balances into several investment alternatives. The savings plan does not allow for investment in the Company’s common stock. During the years ended December 31, 2012, 2011 and 2010 the Bank made cash contributions of $263,000, $253,000, and $243,000 respectively.

c) Equity Incentive Plan

On May 4, 2012 the Bridge Bancorp, Inc. 2012 Stock-Based Incentive Plan (the “2012 Plan”) was approved by the shareholders to provide for the grant of stock-based and other incentive awards to officers, employees and directors of the Company. The plan supersedes the Bridge Bancorp, Inc. Equity Incentive Plan that was approved in 2006 (the “2006 Plan”). The number of shares of Common Stock of Bridge Bancorp, Inc. available for stock-based awards under the 2012 Plan is 525,000 plus 278,385 shares that were remaining under the 2006 Plan. Of the total 803,385 shares of common stock approved for issuance under the Plan, 800,809 shares remain available for issuance at December 31, 2012.

The Compensation Committee of the Board of Directors determines awards under the Plan. The Company accounts for this Plan under FASB ASC No. 718 and 505.

Stock Options

The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option-pricing model. No new grants of stock options were awarded during the years ended December 31, 2012, 2011, and 2010.

A summary of the status of the Company’s stock options as of December 31, 2012 follows:

(Dollars in thousands, except per share amounts)	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, December 31, 2011	54,223		$	25.05
Granted	—		—
Exercised	(1,500	)	$	15.47
Forfeited	(2,761	)	$	25.28
Expired	—		—
Outstanding, December 31, 2012	49,962		$	25.32	3.44 years	$	3
Vested and Exercisable, December 31, 2012	49,962		$	25.32	3.44 years	$	3

Range of Exercise Prices	Number of Options		Exercise Price
	600		$	15.47
	4,572		$	24.00
	39,659		$	25.25
	3,000		$	26.55
	2,131		$	30.60
	49,962

The aggregate intrinsic value for options outstanding and exercisable as of December 31, 2012 is the same because all options are currently vested.

A summary of activity related to the stock options follows:

December 31,	2012		2011		2010
(In thousands)
Intrinsic value of options exercised	$	7	$	—	$	16
Cash received from options exercised	—		—		17
Tax benefit realized from option exercises	—		—		6
Weighted average fair value of options granted	—		—		—

There was no compensation expense attributable to stock options in 2012 because all stock options were vested. Compensation expense attributable to stock options was $0 and $41,000 for the years ended December 31, 2011 and 2010, respectively.

Restricted Stock Awards

A summary of the status of the Company’s shares of unvested restricted stock for the year ended December 31, 2012 follows:

	Shares		Weighted Average Grant-Date Fair Value
Unvested, December 31, 2011	211,371		$	21.56
Granted	21,993		$	19.82
Vested	(55,207	)	$	21.46
Forfeited	(230	)	$	22.06
Unvested, December 31, 2012	177,927		$	21.38

The 2012 Plan provides for issuance of restricted stock awards. During the year ended December 31, 2012, the Company granted restricted stock awards of 21,993 shares. These shares vest over approximately five years with a third vesting after years three, four and five. During the year ended December 31, 2011, the Company granted restricted stock awards of 68,588 shares. Of the 68,588 shares granted, 5,000 shares vest ratably over three years, 44,588 shares vest over approximately five years with a third vesting after years three, four and five and 19,000 shares vest over approximately 7 years with a third vesting after years five, six and seven. During the year ended December 31, 2010, the Company granted restricted stock awards of 43,850 shares. Of the 43,850 shares granted, 29,420 shares vest over five years with a third vesting after years three, four and five and 10,000 shares vest over approximately 7 years with a third vesting after years five, six and seven. The remaining 4,430 vest ratably over approximately five years. Such shares are subject to restrictions based on continued service as employees of the Company or its subsidiaries. Compensation expense attributable to these awards was approximately $1,185,000, $909,000 and $728,000 for the years ended December 31, 2012, 2011, and 2010, respectively. The total fair value of shares vested during the years ended December 31, 2012, 2011 and 2010 was $1,140,000, $774,000 and $280,000, respectively. As of December 31, 2012, there was $2,466,000 of total unrecognized compensation costs related to nonvested restricted stock awards granted under the Plan. The cost is expected to be recognized over a weighted-average period of 3.5 years.

Restricted Stock Units

In April 2009, the Company adopted a Directors Deferred Compensation Plan. Under the Plan, independent directors may elect to defer all or a portion of their annual retainer fee in the form of restricted stock units. In addition, Directors receive a non-election retainer in the form of restricted stock units. These restricted stock units vest ratably over one year and have dividend rights but no voting rights. In connection with this Plan, the Company recorded expenses of approximately $158,000, $138,000 and $112,000 for the years ended December 31, 2012, 2011 and 2010, respectively.