BDGE: Adjusting EPS Estimates and Target Price; Reiterating “Market-Perform”

PDF ATTACHEDBDGE 4Q16 EPS Review

Close $36.00 / “Market-Perform”/ $38.50 Price Target / HQ= Bridgehampton, NY/ $706 Mil. Mkt. Cap

  • Adjusting Target Price to $38.50 to Reflect Relatively Stable Forward Valuation on TBV Basis
  • Revising 2017 EPS to $2.01 (-$0.01) and 2018 to $2.17(-$0.03) to Reflect Recent TruPs Conversion Impact on Average Share Count and Slightly Lower Fee Income Estimates
  • Fourth Quarter Loan Growth Was Impacted by Loan Sales of $35 Million

We reiterate our “Market-Perform” rating on the shares of Bridge Bancorp following 4Q16 EPS of $0.50 though we peg Operating EPS of $0.48 excluding the reversal of accrued acquisition costs related to the CNB acquisition that closed last year was two cents below our expectation and a penny below consensus.  We make some modest downward adjustments to our EPS estimates to reflect the higher share count from the recent conversion of Trust Preferred Securities (which also will bolster the NIM somewhat as well as Tangible Common Equity). Our revised Target Price contemplates some upside to the shares and the Core Deposit base remains one of the more attractive franchises in the Northeast given the low reliance on CDs (though we expect this to rise) and high proportion of DDAs (39.3% of Total Deposits).  All else equal we would likely readdress our rating at a more attractive valuation entry point.

Total Revenues fell short our expectations as Spread Income was about $500,000 below our modeling while Fee Income was also below our expectations—declining 7.1%.  The reported Net Interest Margin of 3.41% compared to our estimate of 3.40% and Average Loan Yields of 4.63% compare to the 3Q16 level of 4.75% while Average Deposit costs rose three bps to 0.42%.

EOP Loan growth was only 0.5% compared to Average Loan growth of 1.8% and during our discussion with management regarding the quarterly results they noted that EOP balances were impacted by $35 Mil. of Loan sales during the quarter.  The company occasionally sells certain CRE loans to reduce not only concentration levels but to demonstrate to its primary regulator the OCC the ability to do so and monetize these Assets.  With less need for funding Loan growth we note that Total Deposits were essentially flat rising only $2.3 Mil. sequentially but management does note that it will continue to be opportunistic in generating Deposit growth and is looking to raise funding via Time Deposits in the 2-3 year duration range to lock in funding at relatively attractive rates below those on FHLB Advances.