Bridgehampton National Bank sees its strongest growth where the sun sets, not where it rises.
The relatively small bank is by its own admission moving into a more challenging arena: seeking new customers — it's primarily a business lender — in the more populated, more commercialized and more competitive areas to the west of its traditional turf, the Hamptons and North Fork.
Founded in 1910, Bridgehampton National Bank, the principal unit of publicly traded Bridge Bancorp, had just 15 branches as recently as 2008. The bank, which refers to itself in shorthand as BNB, has 29 branches now, and it employs 348 full- and part-timers.
Behind the growth is chief executive Kevin O'Connor, 52.
"When I got here in '07 we were no farther west than Wading River and Westhampton," O'Connor said last month in an interview with Newsday. "So at that point in time I had no choice but to go westward."
The bank is expanding west to accelerate the growth of its main business, lending to small and midsized companies. Business is growing on the East End, O'Connor says, but expanding into Nassau and even New York City gives it more opportunity.
The bank has been making the push west mostly through acquisitions. When the third of three deals since 2011 is completed in a few months, BNB will have 40 branches — including its first in Manhattan, its first in Queens, seven in Nassau County and three additional branches in Suffolk — one in Huntington and two in Melville.
The bank's latest acquisition is the 11-branch Community National Bank, based in Melville, in a $140 million deal announced last year. When the deal closes in June, BNB will grow from $2.3 billion in total assets to $3.3 billion.
The company's executives said the bank plans to absorb most of Community National's 114 workers and keep all of its branches open. It plans to close Community National's headquarters offices in Melville.
Next stop? Maybe Brooklyn, O'Connor said.
"It's possible," he said. "We're already doing some lending in Brooklyn and Queens."
Boost for commercial loans
Banking industry analysts say the westward expansion through acquisition is the fastest strategy for increasing BNB's commercial loan portfolio.
"In general, just adding branches by itself does not quickly grow commercial loans," said Brad Smith, president of Abound Resources, an Austin-Texas-based management consulting firm devoted to community banks and credit unions.
By acquiring Community National, for example, BNB is getting a ready-made commercial loan portfolio and a staff with the background and local contacts to attract new ones, said Smith, who said most of his clients are in the New York metropolitan area.
However, the move westward brings BNB into more direct competition with other banks, including some a lot larger than BNB, such as giant Bank of America, and other locally based community banks, such as Suffolk County National and First National of Long Island.
BNB noted as much in its 2013 Securities and Exchange Commission 10-K filing — its annual report to shareholders. "As the bank's market area expands westward," it said, "competitive pressure in new markets is expected to be strong."
Its first acquisition was in 2011 — of Hamptons State Bank, a single-branch operation in Southampton. Its second, on Feb. 14, 2014, was the three-branch FNBNY Bancorp, parent of the First National Bank of New York. That provided BNB's first entree into Nassau with branches in Massapequa and Merrick.
Branches opened without acquisitions since 2008 have included Ronkonkoma, Patchogue, Rocky Point and Shelter Island, plus a branch and administrative offices in Hauppauge, plus six others.
BNB isn't the only East End bank to push westward. Suffolk County National, which is based in Riverhead and has 26 branches, mostly in Suffolk, said in January it had leased space in Long Island City for a loan production office and a small branch. Suffolk closed five Suffolk branches in 2013 and 2014 but opened one branch in Nassau in 2013 — in Garden City.
BNB's net income last year rose by just a fraction of a percent from 2013, to $13,763 million, or $1.18 per share. But core net income, without certain costs like the FNBNY acquisition, was $18.3 million, or $1.57 per share, a 40 percent increase. BNB credited loan growth, higher deposits and securities gains. Loans grew by 32 percent last year from 2013, to more than $1.3 billion at year end.
O'Connor, who was named CEO in 2008, is a 20-year veteran of North Fork Bank, which has since been acquired by Capital One Financial Corp. At North Fork, O'Connor worked for chief executive John Kanas, among the best-known Long Island bankers since the 1970s, who is now running Florida-based Bank United.
Making acquisition count
Kanas, who became North Fork's president in 1977, provided a vivid example for O'Connor of how to grow a company through acquisitions. From 1988 to 2001, North Fork had acquired 10 banks and certain branches of others, ultimately extending its reach into New York City, Westchester and Connecticut.
O'Connor downplays the significance of the tougher competition he'll face in his westward movement. He notes BNB is a commercial bank that relies on personal relationships between lending officers and business borrowers, not a mass-market consumer bank like Bank of America. On the Island, the giant bank is more interested in retail customers, and doesn't compete in lending to smaller businesses that are BNB's focus.
"Competition I can deal with, because that's me against them, and I just have to do a better job than them," he said
Smith of Abound said the toughest competition most likely will come from other community banks, which tend to focus on smaller companies to sell commercial loans. "Bridgehampton's niche is really middle-market-size companies or the larger small businesses," he said.
Christopher Marinac, managing principal and director of research at FIG Partners LLC of Atlanta, another brokerage focusing on banks, told clients in a note in December the Community National Bank takeover "should boost 2016 [net earnings] by at least $0.14 per share (but likely more)." Analysts expect the bank to earn $1.91 a share this year.
On its expansion, Marinac wrote, "We believe investors should be pleased by the increased scale of [BNB] to pursue deeper relationships with both existing and new commercial customers on Long Island as well as pursue affluent households who maintain businesses in this densely populated market."
He rates Bridge Bancorp's stock "outperform" and expects it to reach $31 a share in the next 12 to 18 months. On Friday the stock closed at $25.22, up 1 cent. Its 52-week range has been $22.83 to $27.50, and it has lost 3.3 percent in the past 12 months.
A growing East End too
O'Connor, an energetic man with a rapid-fire style of speech, said BNB has no choice but to move westward if it is to grow. But it's not, he said, because the East End market has stopped growing. In fact, more businesses in the region are larger now, he said, and have greater banking needs.
"The economy that used to be mom-and-pop companies — the landscaper with three lawn mowers — well, now you have the landscaping service with 20 trucks," he said. "I've got a customer on the East End selling $30 million a year in trees. So the industry that supports East End tourism has grown into bankable, large-scale businesses."
Most of his East End business, he said, comes from year-rounders, not part-time residents. But even part-timers are spending more time at their East End retreats, creating more work for his business clients. "The summer community used to roll up the sidewalks on Labor Day and would jump to Memorial Day," he said. But with the rising value of real estate, few houses are fully closed in winter anymore. "So, you're seeing that you still need people to take care of the houses," O'Connor said. They're plowing driveways now. The restaurants are open, the grocery stores. All of that contributes to a more robust economy."
While he sees most of his bank's growth in luring customers from competitors, he also sees the Island's economy continuing to grow with construction of more multifamily housing, to provide affordable places for young people just entering the workforce. He said about 40 percent of the multifamily loans BNB makes are in Nassau and Suffolk.
"We're involved in projects in Patchogue, Glen Cove and Riverhead," he said. "Nobody wants it in their backyard, but eventually you need it."