Filing summary
Entity clarification: The supplied filing is Bridge Bancorp, Inc.’s Form 10-Q, not a filing under the name Dime Commercial Bancshares, Inc. The summary below reflects the filing’s actual registrant. It covers the unaudited quarter and nine months ended September 30, 2017; amounts are in U.S. dollars.
Business context and reporting period
Bridge Bancorp is a bank holding company whose operations are principally conducted through The Bridgehampton National Bank. It serves Long Island and New York City through 44 branches and focuses on commercial and consumer banking, with lending concentrated in real estate and commercial loans.
Financial performance and condition
- Third-quarter earnings: Net income was $9.4 million, up from $8.9 million a year earlier. Diluted EPS was $0.48, down from $0.50, as the weighted-average share count increased.
- Nine-month earnings: Net income was $27.5 million versus $26.3 million; diluted EPS was $1.39 versus $1.50.
- Interest income and margins: Third-quarter net interest income rose to $32.3 million from $30.7 million, while net interest margin fell to 3.29% from 3.57%. For the nine months, net interest income was $93.6 million versus $90.7 million, and margin was 3.30% versus 3.47%. Higher funding costs, partly associated with Federal Reserve rate increases, pressured margins.
- Other income and expenses: Third-quarter non-interest income increased to $5.0 million from $4.0 million; non-interest expense rose to $21.3 million from $19.2 million. Nine-month figures were $13.6 million and $62.6 million, respectively, compared with $12.3 million and $58.6 million.
- Loans and credit: Loans held for investment were $2.92 billion at September 30, up 12.4% from year-end 2016. The allowance for loan losses was $29.3 million, or 1.00% of loans. Nonaccrual loans increased to $7.5 million from $1.2 million at year-end; impaired loans rose to $18.4 million from $3.4 million. Classified loans were $88.8 million, or 3.0% of total loans.
- Assets, deposits and equity: Total assets were $4.28 billion, deposits $3.20 billion, and stockholders’ equity $441.9 million. From December 31, 2016, assets increased $229.7 million, deposits increased $277.3 million, and equity increased $34.0 million.
- Cash flow: For the nine months, operating activities provided $36.6 million; investing activities used $257.7 million, principally reflecting loan growth; financing activities provided $194.2 million. Cash and cash equivalents declined $26.9 million to $87.0 million.
- Borrowings and liquidity: At quarter-end, federal funds purchased were $50.0 million, FHLB advances $476.7 million, repurchase agreements $0.8 million and subordinated debentures $78.6 million. Junior subordinated debentures were redeemed in January 2017. Management said liquidity was sufficient; the Bank had $349.5 million of correspondent-bank credit lines, of which $329.5 million was available unsecured. The liquidity discussion separately reports $11.9 million of cash at the Company parent level; consolidated cash was $87.0 million.
- Capital: The Bank was categorized as well capitalized. At September 30, its common equity tier 1 ratio was 12.9%, total capital ratio 13.8%, and tier 1 leverage ratio 9.9%.
Material changes versus comparable periods
- Quarterly net income improved, but diluted EPS declined; nine-month earnings also rose while EPS declined, reflecting a higher share count, including shares issued in connection with trust-preferred conversions and the prior-year common stock offering.
- Loan growth and higher average earning assets supported interest income and net interest income, but interest expense grew faster, contributing to margin compression.
- Credit indicators weakened: nonaccrual and impaired loans increased. Management attributed the increase in impaired loans in part to commercial real estate and taxi medallion troubled debt restructurings and higher nonaccrual loans.
- Deposits grew, while securities balances declined from year-end. FHLB advances were lower at quarter-end, although average FHLB borrowing was higher year over year.
Outlook, risks and unusual items
- Branch rationalization: Management planned to close or consolidate certain branches and expected a pre-tax charge of no more than $6.6 million in fourth-quarter 2017. It expected at least $3.3 million of 2018 pre-tax benefit, including anticipated cost savings and deposit runoff, with payback within 22 months.
- Charter conversion: The Bank had applied to convert from a national bank to a New York-chartered commercial bank while remaining a Federal Reserve member bank. Approval and effectiveness were expected in fourth-quarter 2017; management did not expect a material financial-statement impact.
- Interest-rate risk: The Company described itself as liability-sensitive in the near term. Its model estimated that a 200-basis-point rate increase would reduce first-year net interest income by 4.82%, with a 0.09% increase in year two. Management cautioned that the simulation depends on assumptions and is not a forecast.
- Credit and concentration risk: A substantial portion of lending is real-estate-secured and concentrated in the Long Island and New York City markets. Taxi medallion loans were a concern: $25.8 million were included in classified commercial and industrial loans, and one taxi medallion loan was nonaccrual. Management said it planned no new taxi medallion originations.
- Other matters: Management said pending or threatened ordinary-course litigation was not expected to have a material adverse effect and reported no material change to the risk factors in its 2016 Form 10-K. The filing states disclosure controls were effective and no material change in internal control occurred during the quarter.
Important facts for investors to verify
- Confirm the issuer identity: this is Bridge Bancorp, Inc., notwithstanding the request metadata naming Dime Commercial Bancshares, Inc.
- Track nonaccrual, impaired, classified and taxi medallion loans, and whether the allowance remains adequate as the portfolio grows.
- Assess whether deposit pricing and borrowing costs continue to outpace asset-yield repricing and pressure net interest margin.
- Verify the branch-closure charge, expected savings, deposit runoff and stated payback period as implementation proceeds.
- Review the charter-conversion outcome and the Company’s evolving liquidity, funding mix and interest-rate sensitivity.