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Bridge Bancorp Inc (NASDAQ:BDGE)
Q2 2020 Earnings Call
Jul 29, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Bridge Bancorp's Second Quarter 2020 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Kevin O'Connor. Please go ahead.

Kevin M. O'connor -- President and Chief Executive Officer

Good morning and thank you for joining us this morning. I'm joined on this call by our CFO, John McCaffery. Today, he and I will be discussing our quarterly performance as well as our PPP performance, and the planned merger we have with Dime Community scheduled to close sometime in early 2021.

To begin with, I'd like to share some high level metrics in the second quarter. Net income for the quarter was $10.7 million, or EPS of $0.54, with net interest income growing to $40.4 million, an increase of almost $5 million versus second quarter of last year. We experienced positive growth in total assets coming in at $6.2 billion, or a 30% increase versus last year same period. A significant increase in loan growth of $1.2 billion, or 35% compared to the second quarter in 2019, was largely fueled by our PPP loans, which accounted for nearly $950 million of the total. Many of these loans rolled into our non-public, non-brokered deposits, resulting in an $840 million increase.

This quarter's net interest income -- net interest margin was 3%, decrease of 26 basis points compared to the prior quarter. This decrease was largely due to lower rates on our loan portfolio, higher PPP loan volume and increased deposit liquidity earning a low interest rate.

Pre-tax pre-provision income for the quarter was $18.2 million, an increase of $1.2 million or 7.4% versus second quarter of 2019. As evidenced by our second quarter release, our results were materially impacted by the PPP program as it affected not only our financial statements but drove business initiatives and activities. Our strong performance in originations placed us Number 2, behind only JPMorgan Chase in Suffolk County for loans issued and effectively job saves. We're actually Number 5 on Long Island, again following only national money-center banks.

Our leadership position and long-standing reputation brought 1,000 new business customers via PPP to BNB, a validation of the Bank's importance and value to businesses across Long Island. Along these lines, BNB Bank was also named by the Banking Choice Awards as the top Long Island Bank for Overall Quality. This survey of customers and potential customers again reflects the market perception of BNB bankers.

I make these points as I try to give a bit more texture on our merger with Dime Community. As those of you who have been following the Bank know, growing our footprint has been an ongoing strategic priority for BNB. While we've achieved an incredible growth over the past 12 years, both organically and through acquisitions, the opportunity to create the largest community bank based on Long Island is very exciting. We have found an ideal partner in Dime Bank, and Ken Mahon and his team.

From a strategic perspective alone, there is a compelling case to be made based on our non-overlapping footprints and complementary business strategies. In addition to aligning on a -- in addition to aligning on a shared focus that positively impacts our communities, we are perfectly positioned to deploy what has been a highly effective strategy for BNB, leveraging their branches as sales hubs from which to -- which lend us prospects for local businesses. This practice has been hugely successful for BNB as our branch network expanded in western Nassau and Queens, and we anticipate similar success with Dime's higher branch penetration across New York City boroughs.

John will now walk you through more details around the second quarter results.

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Thank you, Kevin. Good morning, everybody. As Kevin said, our EPS numbers for the quarter were $0.54, a quarter that had more than a little noise. I'll do my best to walk you through the pertinent factors.

Needless to say, our balance sheet grew substantially during the second quarter. We began funding PPP loans during the first week of April. Every part of the Bank worked tirelessly until we funded close to $1 billion in loans. At the same time, many of our customers who had drawn down their lines in the first quarter as an abundance of caution, paid those volumes down for various reasons. Excluding PPP loans, we originated close to $200 million in loans during the quarter. Year-over-year, excluding PPP, loans outstanding grew $241 million or 7%.

Deposits had a strong showing on many fronts. First, because the PPP loans funded through DDA accounts, these accounts were up 59% year-over-year. However, all deposits are up in excess of PPP funding. We will get to the downside of this in a bit. Public funds are up over $300 million year-over-year as we've added new public fund customers over the past year.

Net interest income was close -- was up close to $4 million quarter-over-quarter. This did not translate into higher NIM owing to the increase in the size of the balance sheet. The PPP loans yielded 2.91% in the quarter, including the amortization of the $30 million in fees we collected. We also had $365 million in overnight cash earning only 12 basis points. These two factors depressed the margin by 6 basis points and 20 basis points, respectively.

As market rates came down, we continued to manage our deposit rates [Indecipherable]. We trimmed our cost of interest-bearing deposits by 40 basis points over or under the first quarter. We will continue to assess our deposits for opportunities to lower rates as we move forward in this environment.

On non-interest income, we get the negative out of the way first. We did take an additional writedown to our one loan held for sale. We felt this was prudent given serial discussions with prospective buyers, as well as the situation on the ground negotiating with the borrower. Additionally, the downside to higher customer deposits is lower fees, especially NSF fees. During the quarter, May seemed to be the low point for service charges, so we look for that trend to continue back to normal levels as we move forward. Other lines of business below the margin, including title, swaps, and SBA gain on sale showed quarter-over-quarter growth.

Non-interest expense held flat versus previous quarters. Compensation expense was a driver to this. And there was a decline in compensation expenses. There was a combination of lower incentive accruals, payroll taxes and medical insurance along with slightly higher deferrals of origination expenses. All these contributed to the drop in compensation expense.

Addressing credit, provision for the quarter was $4.5 million, $4 million related to the economic impact of the ongoing [Technical Issues]. Offsetting this was a release of $1 million related to the aforementioned pay down of C&I lines of credit during the quarter. The increase in non-performing loans during the quarter was attributed [Phonetic] to one relationship that was previously performing TDR.

I'd like to also point out that our past due loans are down $1.7 million since the first quarter and classified loans are flat. As mentioned in the release, we have granted payment moratoriums on 500 loans totaling $630 million during the current crisis. Of these loans, $400 million have reached their 90-day maturities, $230 million are now paying in accordance with the original loans' agreement and $141 million have asked for an extension.

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Overall, approximately 90% of our moratorium loans are backed by real estate. Of the higher risk industries that we're certainly keeping an eye on such as hotel, retail, office, etc., the weighted average LTV is 53% with only $500,000 in loans with greater than 75% LTV. We are targeting for the rest of the year a tax rate of 22.7%.

I will now turn the call back over to Brandon to start the Q&A.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Alex Twerdahl with Piper Sandler. Please go ahead.

Alex Twerdahl -- Piper Sandler -- Analyst

Good morning, guys.

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Hey, Alex.

Alex Twerdahl -- Piper Sandler -- Analyst

I'm just wondering -- I appreciate the statistics you gave on loans that were returning to paying versus the ones that were getting the extensions on the deferrals. Can you -- have you noticed any consistencies just in terms of the types of loans that are kind of going in each direction? And is it possible to apply that to kind of the remainder of the deferral portfolio in terms of what the expectation should be for when those ones roll, I guess, probably in August?

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Sure. So, actually we -- for the loans that haven't yet matured, some of those have actually come in and already asked for extensions. By and large, the portfolio of that -- parts of the portfolio that are asking for extensions are the ones that have the greatest concentrations, which is -- are multi-family and non-owner unoccupied real estate.

Also in the C&I space, Taxi Medallions that we still have, have also asked for extension. So, of the loans that have asked for additional extensions, some portion of them are from loans that haven't -- $60 million are from those that haven't even reached their maturity date yet. So, we expect -- given just applying that kind of percentage across the board of an additional $20 million to $25 million in moratoriums, that would be asked to be extended. [Indecipherable] have come through till now. And that's really most of the portfolio we've heard from.

Alex Twerdahl -- Piper Sandler -- Analyst

Okay, great. Thanks for that. And then I noticed a couple of categories of loans actually grew during the quarter, multi-family, CRE. Was that -- can you maybe just elaborate on that? Is it just sort of a pipeline that is built into the quarter that was closing? And maybe kind of what we should expect for the core non-PPP loan trends as we continue through the rest of the year?

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Sure. So, those were what I just said, they were in pipeline loans that still had recently closed. We got them done during the quarter. There has been a big focus from our lenders on the PPP program for the last quarter. The pipeline is strong. A lot of the customers who weren't customers before but became customers through the PPP program are now coming in and looking to move over their lines of credit and other kinds of business from their -- the banks that they do business with before us. So we do -- we are kind of targeting 7% to 8% overall loan growth for the rest of the year, but this quarter was really a bit of [Phonetic] distraction. So, the pipeline is still strong. Obviously, we're going to have a different look at credit, as we assess these loans going forward. But as you know, mid to maybe a little bit above mid-single digits for the rest of the year.

Alex Twerdahl -- Piper Sandler -- Analyst

Okay. And that's exclusive of what happens with the PPP forgiveness programs?

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah. I mean, who knows what's going to happen. I don't think if we -- right now we can't actually apply for forgiveness on one of these loans yet. I just suppose there will be some guidance coming out soon. People are talking about a blanket forgiveness below $150,000. It should only be about $150 million of other [Phonetic]. Numerically -- it's a high percentage of the loans numerically but dollar wise it's about $150 million.

Alex Twerdahl -- Piper Sandler -- Analyst

Okay, great. And then just a final question as it relates to the margin, which seemed to be flat exclusive of the liquidity and the PPP. As you kind of look forward, and the ability to reduce deposit costs and funding costs, is it enough to offset continued repricing on the loan side or do you anticipate some core margin compression over the rest of the year?

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

I think it will be under pressure. I think on the floating-rate loans prime and LIBOR are kind of down where they are. But if you have the five-year treasury to 25 basis points and as our real estate portfolio goes in that could put some pressure on the repricing there. And coming along with that, typically those loans don't necessarily reprice to whatever the state of repricing as they come in, they are going to refinance the deal. So that will also have an impact, maybe a positive one. We haven't really kind of been holding pricing and you are competitively holding pricing near the mid-3s on multi-family and CRE, so let's see what happens.

Alex Twerdahl -- Piper Sandler -- Analyst

Great. Thanks for taking my questions.

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Great. Thank you, Alex.

Operator

Our next question comes from Collyn Gilbert with KBW. Please go ahead.

Collyn Gilbert -- KBW -- Analyst

Thanks. Good morning, guys.

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Good morning, Collyn.

Collyn Gilbert -- KBW -- Analyst

Good morning. John, my first question for you. Just on the PPP loans, what are you anticipating the overall income contribution to be from the program?

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

The overall income contribution?

Collyn Gilbert -- KBW -- Analyst

Yeah.

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

So we have -- so, right now I guess the program is split up. I think it's about $2 million per month based up on amortization, and ballpark is at like $1.3 million in amortization fees and $700,000 of interest income.

Collyn Gilbert -- KBW -- Analyst

Okay, all right, that's helpful. And I know a lot of uncertainty, but just for modeling purposes for what you guys are doing internally and maybe we should be doing here. What should we assume on a -- the forgiveness schedule on those do you think?

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

On the forgiveness itself, I think -- I don't think we're going to get much in the way of forgiveness until the first quarter next year. I see maybe kind of blanket forgiveness on lower balances, which I said, is only about $150 million of our $950 million. So that's kind of what I'm thinking about given we're really kind nowhere on that.

Collyn Gilbert -- KBW -- Analyst

Okay.

Kevin M. O'connor -- President and Chief Executive Officer

There is a -- there are proposals out there that actually do a second round of this for certain of these customers, so it's going to have that played out too. So, I would not expect any forgiveness in this year. I think most of the forgiveness will happen in 2021.

Collyn Gilbert -- KBW -- Analyst

Okay, got it. And then, sorry, if you just covered it, John, I apologize. But just in terms of the outlook on lowering deposit costs, can you just remind us sort of what your strategy is there and how much lower you think you can go based on what's kind of maturing and just what your appetite is for liquidity right now?

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Right. So well, liquidity wise we got a lot.

Collyn Gilbert -- KBW -- Analyst

Right.

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

So it's interesting, DDA is still high. We're trying to figure out how much PPP money is still in the portfolio. I mean, obviously, everything is fungible, people have put that into money markets and people have put into existing accounts. So we think there's still a substantial amount of that money still sitting there. We did lower. I think, quarter-over-quarter it was 40 basis points. Unfortunately, we can't lower our DDA anymore than we already have. But we don't have a big CD book, so repricing is not much of an issue. We kind of look at individual -- really tranches of accounts that have between -- they were paying between 10 basis points and 15 basis points or 25 basis points and 35 basis points, and we kind of track it up and then we target, some times of step down from that. That's how we've done it all the way through. We do let all the branch managers know ahead of time in case some of our customers may push back on it. But there is still room to lower some. We do have a couple of large relationships that we may let go because they are kind of costing us more money, but it will be 40 basis points on -- we can do 10 basis points, 15 basis points on that.

Collyn Gilbert -- KBW -- Analyst

Okay, all right. Got it. And one other housekeeping item before moving to credit. The -- you had indicated, John, about the benefit to expenses on the loan deferral -- sorry, loan origination costs. What was that actual dollar amount in the quarter?

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

What was -- how much did it drop by or what was the...

Collyn Gilbert -- KBW -- Analyst

Yes. What was the...

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Quarter-over-quarter, it dropped about $400,000. First quarter versus the second quarter.

Collyn Gilbert -- KBW -- Analyst

Okay.

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

It was $400,000 larger deferrals to start.

Collyn Gilbert -- KBW -- Analyst

Yeah, OK. Do you happen to have the actual number? I don't know if you gave it in the first quarter [Speech Overlap]

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

I don't have the actual [Indecipherable].

Collyn Gilbert -- KBW -- Analyst

Okay, all right. And then just shifting to credit. So, how are you thinking about the trajectory of the reserve from here? Kind of what will be the drivers of increasing that reserve ratio or subsequently decreasing it or just sort of how you're thinking about the qualitative and quantitative parts of the reserve and provisioning from here?

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

I guess, it's going to depend upon additional shutdown. New York seems to have to be kind of doing better than the rest of the country. And since most of our loan book is in New York, we are -- again, I think we -- I wouldn't say at this point we would think we are going ratchet down the economy another notch, Next or in the coming quarter, it's going to be more about I think individual problems that are going to bubble up at the moratoriums, coming for their-asking a second round, who is going to be able to start paying again. So, it would be more individual names than overall factors going forward.

Collyn Gilbert -- KBW -- Analyst

Okay. And what you see now? I know it's hard to determine this, but just based on what you're looking at within the deferred book and just borrower outreach, etc., etc. Do you have a sense of what you think the charge-offs will do in the next few quarters?

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

I would think I would be Pollyanna if I were to say they were going to pick up. There is some -- there is such conversations around like individual names of people who are looking for relief. And -- but I couldn't give you a dollar amount. But we have been pretty low, all the way up until this point. And I think we'd be comparatively lower than some of our peers. But one loan could kind of shake that out, but I know nothing right now is kind of -- would be significant as far as charge off goes.

Collyn Gilbert -- KBW -- Analyst

Okay, great. I will leave it there. Thanks.

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

All right. Thanks, Collyn.

Operator

[Operator Instructions] Our next question comes from Erik Zwick with Boenning & Scattergood. Please go ahead.

Erik Zwick -- Boenning & Scattergood -- Analyst

Good morning, guys.

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Good morning, Erik.

Kevin M. O'connor -- President and Chief Executive Officer

Good morning.

Erik Zwick -- Boenning & Scattergood -- Analyst

First, just wanted to -- let me take the discussion on your outlook for loan growth in the back half of the year a little bit further. I'm curious what industries you're seeing kind of the pipeline building. The outlook for mid- to high-single digit growth would be, I think a very healthy and positive result at this point, especially, just as I think about some of the comments other banks have made kind of looking for maybe something more flattish at this point. So I'm curious, one, again kind of where that strength is coming from? And two, just how you're thinking about underwriting today given the unknowns in the economic environment at this point?

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Sure. I mean, unfortunately I don't think our pipeline reports are reports by industry codes. I think that there'll be -- certainly, there will be some real estate in there. That's still kind of individual properties that are performing in the cash flow, and especially out here in Long Island where certainly the multi-family space here is pretty strong. It was pretty strong based upon the traffic -- I hate coming in this morning to work. Things are kind of really getting back to normal. So I think we're going to be careful. I mean, I think the credit people are all kind of talking about what to look at as far as our cap rates, and [indecipherable].

So yeah, OK. So in our pipeline, we got about $140 million of C&I new money. There is also multi-family and CRE non-owner kind of follow-up on the heels of that with [indecipherable] construction. I think -- and C&I, I'd say the $137 million is exposure, not necessarily outstanding. So there will be some kind of haircut on that, but I guess the -- and as we -- we set a strong SBA portfolio as well. The SBA I think was kind of -- the SBA pipeline is kind of overtaken by PPP, now that is coming back online.

Erik Zwick -- Boenning & Scattergood -- Analyst

Okay, thanks for the color there. I appreciate that. And then looking at the decline in service charges and fees in 2Q, I am curious how much of that was due to fee waivers versus the lower customer activity and higher balances you mentioned? And how much would you expect that to potentially rebound in 3Q or into 4Q?

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

The fee waivers -- actually, if you look at the fee waivers versus the fees, it was a lower percentage of waivers versus what we said. I think it's really -- it's almost entirely due to higher balances, the NSF fees were down by 80%, I think, in one of the months. So that's really what it -- what's driving it. Again, it's going to be driven by activity going forward, as people may begin to spend money and balance checks. And additionally our customers who are -- have their accounts on analysis when their balances are higher, they earn higher earnings credits and less shortage fees assessed there as well. So I guess as you see, our liquidity dry -- liquidity go down and our balances decline somewhat, then we should see an uptick in the efforts. It hasn't been necessarily on fee waivers.

Erik Zwick -- Boenning & Scattergood -- Analyst

Got it. And then just one last one from me, a bit of a follow-up on Collyn's question about expenses. The $24.4 million run rate in 2Q was kind of lower than the first and the mix was different as well with lower salaries and benefits and then higher in that other category. Just curious about your expectation for the run rate going forward at this point.

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah. I think we are going to probably drift back up toward $25 million range going forward [Indecipherable] anyway around $25 million a quarter.

Erik Zwick -- Boenning & Scattergood -- Analyst

Great. Thank you for taking my questions.

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

All right. Thank you, Erik.

Kevin M. O'connor -- President and Chief Executive Officer

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Kevin O'Connor for any closing remarks.

Kevin M. O'connor -- President and Chief Executive Officer

Thank you. I appreciate this opportunity to talk about the quarter. Obviously, the PPP has been a driver for a lot of what we've done here. And if there's any further questions or specific things, please reach out to us afterwards. If not, everybody have a great day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 26 minutes

Call participants:

Kevin M. O'connor -- President and Chief Executive Officer

John Martin Mccaffery Jr. -- Executive Vice President, Chief Financial Officer and Treasurer

Alex Twerdahl -- Piper Sandler -- Analyst

Collyn Gilbert -- KBW -- Analyst

Erik Zwick -- Boenning & Scattergood -- Analyst

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