14. PENSION AND OTHER POSTRETIREMENT PLANS

Pension Plan and Supplemental Executive Retirement Plan

The Bank maintains a noncontributory pension plan (the “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 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. 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.

The following table provides information about changes in obligations and plan assets of the defined benefit pension plan and the defined benefit plan component of the SERP:

	Pension Benefits						SERP Benefits
	Year Ended December 31,						Year Ended December 31,
(In thousands)	2017			2016			2017			2016
Change in benefit obligation:
Benefit obligation at beginning of year	$	20,844		$	18,515		$	3,004		$	2,555
Service cost		1,129			1,153			212			176
Interest cost		750			794			105			105
Benefits paid and expected expenses		(285	)		(279	)		(112	)		(112	)
Assumption changes and other		2,321			661			710			280
Benefit obligation at end of year	$	24,759		$	20,844		$	3,919		$	3,004

Change in plan assets:
Fair value of plan assets at beginning of year	$	27,914		$	24,562		$	—		$	—
Actual return on plan assets		4,859			1,416			—			—
Employer contribution		2,207			2,215			112			112
Benefits paid and actual expenses		(285	)		(279	)		(112	)		(112	)
Fair value of plan assets at end of year	$	34,695		$	27,914		$	—		$	—

Funded status at end of year	$	9,936		$	7,070		$	(3,919	)	$	(3,004	)

The following table presents amounts recognized in accumulated other comprehensive income at December 31:

	Pension Benefits						SERP Benefits
	December 31,						December 31,
(In thousands)	2017			2016			2017		2016
Net actuarial loss	$	6,987		$	7,874		$	1,459	$	800
Prior service cost		(639	)		(715	)		—		—
Transition obligation		—			—			5		32
Net amount recognized	$	6,348		$	7,159		$	1,464	$	832

The accumulated benefit obligation was $23.1 million for the pension plan and $2.5 million for the SERP as of December 31, 2017. As of December 31, 2016, the accumulated benefit obligation was $19.4 million for the pension plan and $2.2 million for the SERP.

The following table summarizes the components of net periodic benefit cost and other amounts recognized in other comprehensive income:

	Pension Benefits									SERP Benefits
	Year Ended December 31,									Year Ended December 31,
(In thousands)	2017			2016			2015			2017			2016			2015
Components of net periodic benefit cost and other amounts recognized in other comprehensive income:
Service cost	$	1,129		$	1,153		$	1,134		$	212		$	176		$	168
Interest cost		750			794			706			105			105			91
Expected return on plan assets		(2,129	)		(1,927	)		(1,838	)		—			—			—
Amortization of net loss		479			406			376			51			27			32
Amortization of prior service credit		(77	)		(77	)		(77	)		—			—			—
Amortization of transition obligation		—			—			—			27			28			28
Net periodic benefit cost	$	152		$	349		$	301		$	395		$	336		$	319

Net loss (gain)	$	(409	)	$	1,172		$	(123	)	$	710		$	280		$	(48	)
Amortization of net loss		(479	)		(406	)		(376	)		(51	)		(27	)		(32	)
Amortization of prior service credit		77			77			77			—			—			—
Amortization of transition obligation		—			—			—			(27	)		(28	)		(27	)
Total recognized in other comprehensive income	$	(811	)	$	843		$	(422	)	$	632		$	225		$	(107	)

The estimated net loss 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 $330 thousand and $77 thousand, respectively. The estimated net loss and transition obligation for the SERP that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $121 thousand and $5 thousand, 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
	December 31,									December 31,
	2017			2016			2015			2017			2016			2015
Weighted average assumptions used to determine benefit obligations:
Discount rate		3.52	%		4.05	%		4.30	%		3.50	%		4.01	%		4.20	%
Rate of compensation increase		3.00			3.00			3.00			5.00			5.00			5.00
Weighted average assumptions used to determine net periodic benefit cost:
Discount rate		4.05	%		4.30	%		3.90	%		4.01	%		4.20	%		3.80	%
Rate of compensation increase		3.00			3.00			3.00			5.00			5.00			5.00
Expected long-term rate of return		7.25			7.50			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 semi-annually, and sets 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 Actuarial Standard of Practice No. 27 for the real and nominal rate of investment return for a specific mix of asset classes. The long-term rate of return considers historical returns for the S&P 500 index and corporate bonds from 1926 to 2015 representing cumulative returns of approximately 10% and 5%, respectively. These returns were considered along with the target allocations of asset categories.

The following table indicates the target allocations for Plan assets:

	Target Allocation		Percentage of Plan Assets At December 31,						Weighted-Average Expected Long- term Rate of
Asset Category	2018		2017			2016			Return
Cash Equivalents		0 – 5 %		8.1	%		3.0	%		—
Equity Securities		45 - 65 %		58.7	%		64.0	%		10.0	%
Fixed income securities		35 - 55 %		33.2	%		33.0	%		5.0	%
Total				100.0	%		100.0	%

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: letter stock, private placements, or direct payments; securities not readily marketable; Bridge Bancorp, Inc. stock.; pledging or hypothecating securities, except for loans of securities that are fully collateralized; purchasing or selling derivative securities for speculation or leverage; and investments by the investment managers in their own securities, their affiliates or subsidiaries (excluding money market funds).

Fair value is defined under FASB 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. These levels are described in Note 3.

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 Plan can redeem its investment with the investee at the NAV at the measurement date. If the Plan can never redeem the investment with the investee at the NAV, it is considered as level 3. If the Plan can redeem the investment at the NAV at a future date, the Plan'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, 2017 and 2016:

	December 31, 2017:
			Fair Value Measurements Using:
(Dollars in thousands)	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Cash	$	—	$	—	$	—
Short term investment funds		2,821		—		2,821
Total cash and cash equivalents		2,821		—		2,821
Equities:
U.S. large cap		9,587		9,587		—
U.S. mid cap/small cap		3,131		3,131		—
International		7,283		7,283		—
Equities blend		367		367		—
Total equities		20,368		20,368		—
Fixed income securities:
Government issues		1,634		1,507		127
Corporate bonds		2,837		—		2,837
Mortgage backed		1,007		—		1,007
High yield bonds and bond funds		6,028		—		6,028
Total fixed income securities		11,506		1,507		9,999
Total plan assets	$	34,695	$	21,875	$	12,820

			December 31, 2016
			Fair Value Measurements Using:
(Dollars in thousands)	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Cash	$	—	$	—	$	—
Short term investment funds		822		—		822
Total cash and cash equivalents		822		—		822
Equities:
U.S. large cap		8,950		8,950		—
U.S. mid cap/small cap		3,038		3,038		—
International		5,770		5,770		—
Equities blend		124		124		—
Total equities		17,882		17,882		—
Fixed income securities:
Government issues		1,948		1,706		242
Corporate bonds		1,795		—		1,795
Mortgage backed		960		—		960
High yield bonds and bond funds		4,507		—		4,507
Total fixed income securities		9,210		1,706		7,504
Total plan assets	$	27,914	$	19,588	$	8,326

The Company has no minimum required pension contribution due to the overfunded status of the plan.

Estimated Future Payments

The following table summarizes benefits expected to be paid under the pension plan and SERP as of December 31, 2017, which reflect expected future service:

	Pension and SERP Payments
Year	(in thousands)
2018	$	667
2019		743
2020		915
2021		1,030
2022		1,113
2023-2027		7,256

401(k) Plan

The Company provides a 401(k) plan, which covers substantially all current employees. Newly hired employees are automatically enrolled in the plan on the 60^th day of employment, unless they elect not to participate. Participants may contribute a portion of their pre-tax base salary, generally not to exceed $18,000 for the calendar year ended December 31, 2017. Under the provisions of the 401(k) plan, employee contributions are partially matched by the Bank as follows: 100% of each employee’s contributions up to 1% of each employee’s compensation plus 50% of each employee’s contributions over 1% but not in excess of 6% of each employee’s compensation for a maximum contribution of 3.5% of a participating employee’s compensation. Participants can invest their account balances into several investment alternatives. The 401(k) plan does not allow for investment in the Company’s common stock. During the years ended December 31, 2017, 2016 and 2015 the Bank made cash contributions of $1.0 million, $786 thousand, and $623 thousand, respectively. The 401(k) plan also includes a discretionary profit-sharing component. The Company made discretionary profit sharing contributions of $550 thousand in 2017, $424 thousand in 2016 and $276 thousand in 2015.