Business context and reporting period
Entity mismatch: The supplied filing is Bridge Bancorp, Inc. (NASDAQ: BDGE), not Dime Commercial Bancshares, Inc. It is an unaudited Form 10-Q for the quarter and six months ended June 30, 2019.
Bridge Bancorp operates BNB Bank, a community bank focused on Long Island and New York City. Its lending and investment activities are concentrated in commercial and multifamily real estate, other business lending, residential mortgages, and securities.
Key financial metrics
Unless otherwise noted, amounts are in millions of dollars.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net interest income | $35.5 | $33.9 | $69.8 | $68.5 |
| Provision for loan losses | $3.5 | $0.4 | $4.1 | $1.2 |
| Non-interest income (loss) | $5.5 | $(2.6) | $10.7 | $1.5 |
| Non-interest expense | $24.0 | $22.5 | $46.6 | $45.1 |
| Net income | $10.7 | $6.7 | $23.6 | $18.8 |
| Diluted earnings per share | $0.53 | $0.34 | $1.18 | $0.95 |
| Tax-equivalent net interest margin | 3.30% | 3.31% | 3.29% | 3.36% |
- At June 30, 2019, total assets were $4.715 billion, net loans were $3.399 billion, deposits were $3.837 billion, and stockholders’ equity was $475.2 million.
- Cash and cash equivalents were $158.6 million, down $136.7 million from year-end 2018. Six-month operating cash flow was $29.0 million; investing activities used $105.9 million and financing activities used $59.8 million.
- Loans held for investment grew $154.2 million, or 4.7%, from year-end. Deposits fell $49.8 million, or 1.3%. FHLB advances were $240.0 million and subordinated debentures were $78.9 million.
- The allowance for loan losses was $31.2 million, or 0.91% of loans, compared with 0.96% at December 31, 2018. Net charge-offs for the first six months were $4.3 million.
- The Bank reported regulatory capital ratios of 12.4% CET1, 12.4% Tier 1 risk-based capital, 13.2% total risk-based capital, and 9.7% Tier 1 leverage; it was categorized as well capitalized.
Material changes versus comparable periods
- Q2 net income rose year over year, but the comparison is materially affected by a $7.9 million securities loss in Q2 2018 related to a balance-sheet restructuring. Q2 2019 recorded a $0.2 million securities gain.
- Net interest income increased, supported by loan growth and higher asset yields, while funding costs rose. Six-month tax-equivalent margin declined to 3.29% from 3.36%.
- The Q2 provision increased to $3.5 million from $0.4 million. A $3.7 million charge-off followed a $16.3 million commercial real estate loan’s transfer to loans held for sale and write-down to $12.6 million.
- Non-interest expense increased, including higher staffing, occupancy, technology, and marketing costs. Management attributed higher staffing costs in part to business development and risk-management hiring.
- Cash and securities declined from year-end, while the loan portfolio expanded. The company adopted lease accounting in 2019, recognizing operating lease right-of-use assets and liabilities; adoption increased each by about $39 million.
Outlook, risks, contingencies, and unusual items
- No formal earnings or revenue guidance is provided. Management described continued focus on loan growth, core deposits, service, automation, and prudent underwriting. It noted that funding costs can rise faster than asset yields and that a flatter yield curve may pressure net interest income.
- Management estimated an effective tax rate of approximately 22% for the remainder of 2019. It expected adoption of CECL in Q1 2020 to increase the allowance for loan losses; the financial impact was still under evaluation.
- Credit risks include regional real estate exposure: commercial and multifamily real estate represented 60.4% of loans. Non-accrual loans were $5.5 million, up from $2.8 million at year-end; classified loans were $74.2 million, or 2.2% of total loans.
- New York rent-regulation legislation enacted June 14, 2019 may constrain rent increases and property cash flows, potentially affecting multifamily borrowers’ repayment capacity and collateral values.
- Interest-rate exposure remains important. At June 30, 87.9% of securities were fixed-rate and 77.7% of loans were adjustable or floating-rate. The company also cited LIBOR transition risk for material LIBOR-indexed contracts.
- Five commercial and industrial loans totaling $4.1 million were modified as troubled debt restructurings in the first half. Management said pending or threatened litigation arising in the ordinary course was not expected to have a material adverse effect.
- The company declared a $0.23-per-share dividend in July. It repurchased 11,400 shares under its 2019 repurchase program during the first half.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for Bridge Bancorp, Inc. (BDGE), not Dime Commercial Bancshares, Inc.
- Review the source and future performance of the 2018 securities-restructuring loss when comparing earnings across periods.
- Assess the $3.7 million CRE charge-off, rising non-accrual loans, and the allowance relative to loan growth and portfolio risk.
- Monitor deposit trends, funding costs, liquidity, and the effects of interest-rate and yield-curve changes on margins.
- Evaluate the effect of New York rent regulation on multifamily borrowers and collateral, and track the expected CECL allowance increase.