Image source: The Motley Fool.
Bridge Bancorp Inc (BDGE)
Q3Â 2019 Earnings Call
Oct 25, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the Bridge Bancorp Third Quarter 2019 Earnings Call. [Operator Instructions]. I would now like to turn the conference over to Mr. Kevin O'Connor, President and CEO. Please go ahead.
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
Good morning and welcome everybody. Thank you for joining us in the third quarter earnings call. I know we're competing with a call relating to an acquisition so I appreciate you taking the time to join us. I'm certainly pleased to be able to provide an overview of performance, discuss certain aspects of our business and give some context on the strategic challenges in the direction for BNB.
I'm also joined on our call by our CFO John McCaffery to take your questions regarding results and general market conditions.
Let me start with some several positive financial highlights. We reported record net income of $13.9 million or an EPS of $0.70 a share. This translates into return on assets of 1.17% and our ROE of 11.44%. Return on tangible common equity was approximately 15%. This strong performance is a result of many factors, including record levels of net interest income and fees generated from businesses complementary to our core mission of delivering community banking services.
Diving deeper into the results for the quarter and the reasons for the success, we see the continuation of many of the trends and the benefits of strategic initiatives we've instituted over the past several years. We continue to grow both loans and deposits, and coupling this with pricing discipline, we've delivered net growth in earning assets and an expanding net interest margin. Specifically, we've seen loans grow, despite some significant pay downs and competitive pressures, by $310 million or almost 10% on a year- over-year basis and 232 million or 9.5% on a year-to-date basis. The funding for this activity, despite the seasonality of certain public funds has been provided primarily by growth in core deposits. They've grown by 10.7% year-over-year or 8.8% year-to-date. The mix of these deposits remained strong, with almost 44% of the total being DDA. This strong mix of community banking loans funded by core deposits has delivered a net interest margin of 3.4%, an increase of 10 basis points over the prior quarter. This began in contrast to many of our competitors who experienced contracting margins.
These achievements again reflects our strong underlying franchise and prudent balance sheet management. There is an appropriate mix of fixed and floating-rate assets and we've actively managed deposit repricing coincident with the recent Fed rate cuts. We began the year with a minimal reliance on higher cost wholesale liabilities and lower than peer loan-to-deposit ratio and managed accordingly by aggressively replacing higher cost broker deposits for the core deposits. We've also refrained from chasing certain low-yielding loans and investments.
This discipline, while suppressing net growth in total assets, has resulted in quality growth across our footprint. We've originated in excess of $750 million in new loans in lines of credit across the product type and experienced core deposit growth throughout our markets. The increases in expenses reflect higher salary levels, as we compete to attract and retain talented bankers.
We've also invested in developing the next generation of banking services, recognizing the movement from traditional delivery channels to digital methods of serving and expanding our customer base.
However, we are cognizant we need to do slowly to ensure we deliver this with a personal touch that's been the hallmark of our success. The banking landscape remains difficult, as we operate the challenging interest rate environment, both because of the absolute low level of rates and the shape of the curve. However, we utilize the value of the core funding developed over the past 110 years and the strength of the partnership we forged to manage through this time.
I'll now turn this call over to John to discuss in greater detail specifics on our margin and the other income and expenses and capital. Thank you, John.
John Martin McCaffery -- Executive Vice President, Chief Financial Officer & Treasurer
Thank you, Kevin. And thank you all for joining our call this morning.
Picking up on the themes that Kevin touched on. I'll be walking through some more of the detail on this quarter results we're very proud of. The headline is our net interest margin, which expanded by 10 basis points versus second quarter. This was achieved through aggressive management of deposit rates and the Fed cut, the fed funds rate twice during the quarter. That's we were able to offset the drop in yield on our floating-rate loans. Additionally, we decreased the amount of high cost broker deposits and increased DDA balances. Quarter-over-quarter asset yields dropped one basis point, while the cost of total interest earning liabilities fell 13 basis points. Although we had been de-emphasizing the effects of purchase accounting on the margin, I wanted to point out that with our purchase accounting the margin expanded 13 basis points quarter-over-quarter.
Year-to-date, our loans grew $230 million for a 9% IPC deposits, those deposits of individuals partnerships and corporations, our customers, grew by $195 million and also 9%. Our loan-to-deposit ratio increased to 94% at the end of third quarter versus 84% at December 31st. This is mostly due to the drop in broker deposits, as well as seasonal outflows of public deposits.
As Kevin alluded to, we continue to grow our core businesses, while shedding non-core margin, assets and liabilities. All components of our non-interest income performed well this quarter. Title fees, gain on sale of SBA loans and our loan-swap program, we're firing on all cylinders. Total non-profit income increased 27% in Q3 over the same period last year. Our loan-swap program has been broken out on our income statement for the first time this quarter, as the current rate environment makes the structure increasingly attractive to our borrowers. Since 2014, we have converted $233 million in loans from fixed to floating rate, that's diversifying the rate exposure of our real estate loan book. Non-interest expense was up 1% sequentially and 13% over the same period last year, excluding the impact of the fraud loss in 2018. The majority of the increase is related to investments in people and technology. Besides salary increases and new hires, there are increases in incentive accruals, increases in medical insurance costs as well.
Technology costs related to investments and new software and systems drove 21% of the increase in Q3 expenses year-over-year. These investments are related to expanding our digital offerings, building efficiencies in our channel processes and protecting our customers' data. $1 million provision during the quarter was due in large part to our last two tax medallion loans being renewed. As in previous medallion loans, they are designated as TDRs.
The loans are currently performing as agreed. The additional provision was also the result of loan growth in certain categories. The increase in past due loans was due to two loans that has since been [Indecipherable] after 9.30. Non-accrual loans were down quarter-over-quarter due mostly to two CRE loans that we're paying off. We have no guidance on CECL at this time other than to say we are very close to having a working model and we will be compliant in 2020.
Capital continues to build the tangible common equity crossing the 8% threshold in this quarter. Tangible book value per share came in at $18.99. Our estimate for the tax rate for Q4 was 22% and for next year, we are targeting 22.5% to 23%. Thank you again for spending your time with us at this time, we'll take any questions you may have.
Questions and Answers:
Operator
[Operator Instructions] Our first question today will come from Alex Twerdahl with Sandler O'Neill. Please go ahead.
Alex Twerdahl -- Sandler O'Neill -- Analyst
Good morning, guys.
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
Good morning, Alex.
Alex Twerdahl -- Sandler O'Neill -- Analyst
First off a little housekeeping. John, do you have the amount of the FDIC credit that you would have received in the third quarter?
John Martin McCaffery -- Executive Vice President, Chief Financial Officer & Treasurer
It was about $380,000.
Alex Twerdahl -- Sandler O'Neill -- Analyst
Okay, thanks. And then, just to move over to the margin. Some really nice expansion, this quarter due to some remixing on the liability side, it looks like. Is the full impact of that remixing reflected in the margin at this point or do you think we might get a little carry-through into the fourth quarter, just from that alone before talking about the potential impact in the October recut?
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
There'll be a little bit of carryover due to the September rate cut, it was middle of the month. So, we didn't get full impact of what we are able to -- from that. There will be some carryover regardless of what happens next week.
Alex Twerdahl -- Sandler O'Neill -- Analyst
Okay. And so, margin could continue expanding into the end of the year, just given sort of the remixing the liabilities and the ability to bring down cost of deposits, etc.?
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
We think on subsequent rate cuts not going to have this much ability to lower rate this much. But, by the same token, some of our floating rate loans were [Indecipherable]. We're cautiously optimistic, but I don't know if we had same bang for the buck on the subsequent rate cuts as behalf of the first two.
Alex Twerdahl -- Sandler O'Neill -- Analyst
Got it. And then, it seems with a loan swap fee income, that you guys are now on track to hit well above your targeted fee income growth for 2019. Is that right or do you think the third quarter is just especially strong for loan swap fees and that is going to be reined in a little bit into the fourth quarter?
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
We still are getting a lot of inquiries from customers on those. Again, right now, just because that we had a yield curve shape, they can get a lower fixed rate and we can get a higher floating rate on the same transaction. So, it's beneficial for both side, but we're getting more inquiries every day from customers and lenders.
John Martin McCaffery -- Executive Vice President, Chief Financial Officer & Treasurer
It's certain to become an accepted way to get fixed rate exposure for the borrowers.
Alex Twerdahl -- Sandler O'Neill -- Analyst
Understood. Thanks for taking my questions.
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
Thank you.
Operator
Our next question will come from Erik Zwick with Boenning & Scattergood. Please go ahead.
Erik Zwick -- Boenning and Scattergood -- Analyst
Good morning, guys. John, I think you mentioned it in your prepared remarks, but I missed it. Did you have the contribution to the net interest margin from purchase accounting accretion, either in dollar terms or basis points in the third quarter?
John Martin McCaffery -- Executive Vice President, Chief Financial Officer & Treasurer
I didn't give it in remarks. But I guess, I have it, it's about in the quarter. I'd put it at about 4 to 5 basis points.
Erik Zwick -- Boenning and Scattergood -- Analyst
Okay, thanks. And then, looking at loans, obviously very strong growth in the quarter, which was great to see, particularly the investor CRE and multifamily segments were strong. How are pipelines at the end of the quarter relative to three months ago and what are your expectations for growth in the fourth quarter?
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
So, pipeline is about $360 million, which is higher than it was. The last quarter, we -- 4.5, we did get -- a lot of our loan closings in the quarter happened in the last week and some of that's led over into the beginning of the fourth quarter. So, I have to as mention, we get back on pace in the fourth quarter, which is also typically a stronger quarter for us for loan originations.
Erik Zwick -- Boenning and Scattergood -- Analyst
Okay, great. And then, obviously had great success, bringing in demand deposits. Those balances were up about $57 million. I guess, what factors contributed to that growth and how would you characterize the split between commercial and retail in that growth?
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
I think the growth in the DDA, there has been a hallmark of what we've done for the last dozen years, it's principally all commercial. We don't have a big retail network, if you will. So it is principally all commercial. A lot of them are tied to the lending relationships we have. And we see that that's really our job to continue to grow that.
John Martin McCaffery -- Executive Vice President, Chief Financial Officer & Treasurer
Lenders that we've had over the past couple of years, especially in our Western markets, are really starting to come online and that gives the branches more ability to go with those customers for additional wallet share.
Erik Zwick -- Boenning and Scattergood -- Analyst
And, with the decline of some of the higher cost deposits that ran off, the loan to deposit ratio moved up to 94%. Can you just remind me of your target range and how high you're coming that metric goal?
John Martin McCaffery -- Executive Vice President, Chief Financial Officer & Treasurer
Our internal number was 95, we've been at 95 or a little bit higher. We certainly like it below 100%, but circumstances, given where the market is, I wouldn't take the 95 is a hard for the near-term but certainly I keep it below 100.
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
And, I think as we talked the seasonality related public funds. As we head into the end of the year we start taking deposits and tax receivers. You'll see that public fund pop back again.
Erik Zwick -- Boenning and Scattergood -- Analyst
Okay, I appreciate that color. And just one more from me and I'll step aside. You referenced the acquisition in your backyard this morning. I guess, a two part question. One, did you have any opportunity to look at that deal and potentially bid? And two, does that present any opportunities to gain any new talent or customers?
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
We were not invited to participate, really did not to get involved and, with any acquisition, there is always going to be some turnover people. We obviously think that, with the bank of choice somebody is looking to come, have and take a job, so something should come up. And since, we didn't get involved in signing NDA --
Erik Zwick -- Boenning and Scattergood -- Analyst
Great, thank you so much for taking my questions.
Operator
[Operator Instructions] Our next question will come from David Bishop with D.A Davidson. Please go ahead.
David Bishop -- D.A Davidson -- Analyst
Hey, good morning, gentlemen. Question for you in terms of the loan-swap program. I think you mentioned $233 million in 2013, I believe. Just curious if you have the dollar amount converted this quarter and, the fees on that, is that separately just driven by the dollar amounts of loans converted? Just curious on that, how that's calculated on a quarter-to-quarter basis?
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
It's a combination of the size of the loan and the term of the loan. The longer the term, the more we get as well. I would say, in the quarter -- yes -- it was a strong quarter. There were some longer term loans this quarter. Even though the dollar amounts were up, there were some that were 20 year, they had bigger premiums on them.
David Bishop -- D.A Davidson -- Analyst
Got it. And then, in the terms of the -- the Company. The seasonal inflows on the public side, does that tend to have the inflationary pressure on the NIM? Just curious, does this flow back and will that have any offset to the improvement in terms of average deposit?
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
The tax we keep in mind that comes into the end of the year, DDA money.
David Bishop -- D.A Davidson -- Analyst
Okay.
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
And it comes in the last week, so from an average balance standpoint that was much of a factor to see typically the ending balances.
David Bishop -- D.A Davidson -- Analyst
Got it. Also, as noted the growth multifamily market, obviously, there's been a lot of headlines in terms of the New York, more the NYC rent control market. But, any commentary in terms of the health of that market, opportunities that you see growing there out of that regulation or just the health market in general [Phonetic]?
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
I think we've -- it hasn't really flowed through yet in the appraisals that we're seeing. I think there's some an uptick in some cap rates, if you will. But, it's still a highly competitive market. There's still a lot of people chasing those assets, some of our paydowns -- issuer loans that went away. The insurance companies are backed in this marketplace, too. So, it is something that we think will be part of our growth going forward, but it has certainly declined year-over-year. We actually had some growth -- quite significant growth on alimony family [Phonetic] quarter as well, not just in the boroughs.
David Bishop -- D.A Davidson -- Analyst
Got it. And then, you mentioned the loans hitting floors. You know, the dollar amount of loans that would be hitting floors maybe within the next 25 to 50 basis point rate cut?
John Martin McCaffery -- Executive Vice President, Chief Financial Officer & Treasurer
The next 25 would be about 15 million in an asset that about 40 million.
David Bishop -- D.A Davidson -- Analyst
I'm sorry, 15 million and 40 million?
John Martin McCaffery -- Executive Vice President, Chief Financial Officer & Treasurer
15 for the first one and 40 for the next one.
David Bishop -- D.A Davidson -- Analyst
Got it, got it. And then one final housekeeping -- broke up a little bit, the FDIC credit this quarter was at 80,000 or 380,000?
John Martin McCaffery -- Executive Vice President, Chief Financial Officer & Treasurer
380.
David Bishop -- D.A Davidson -- Analyst
Got it. Great, thank you. Thanks, David.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Kevin O'Connor for any closing remarks.
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
I'm going to thank everybody participating. We feel that this was a strong quarter, reflects a lot of the hard work. I know a number of our employees are on this call. I want to thank them for what they've done and contributed to this. Again, I appreciate you all taking the time. If there is any further questions or specifics, you can give John a call. Thanks.
Operator
[Operator Closing Remarks]
Duration: 19 minutes
Call participants:
Kevin M. O'Connor -- President, Cheif Executive Officer & Director
John Martin McCaffery -- Executive Vice President, Chief Financial Officer & Treasurer
Alex Twerdahl -- Sandler O'Neill -- Analyst
Erik Zwick -- Boenning and Scattergood -- Analyst
David Bishop -- D.A Davidson -- Analyst
