Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BBNK > SEC Filings for BBNK > Form 10-K on 12-Mar-2013All Recent SEC Filings

Show all filings for BRIDGE CAPITAL HOLDINGS | Request a Trial to NEW EDGAR Online Pro

Form 10-K for BRIDGE CAPITAL HOLDINGS


12-Mar-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

In addition to the historical information, this annual report contains certain forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and which are subject to the "Safe Harbor" created by those sections. The reader of this annual report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Company's actual results could differ materially from those suggested by such forward-looking statements. Such risks and uncertainties include, among others, (1) competitive pressure in the banking industry increases significantly; (2) changes in interest rate environment reduces margin; (3) general economic conditions, either nationally or regionally are less favorable than expected, resulting in, among other things, a deterioration in credit quality; (4) changes in the regulatory environment;
(5) changes in business conditions and inflation; (6) costs and expenses of complying with the internal control provisions of the Sarbanes-Oxley Act and our degree of success in achieving compliance; (7) changes in securities markets;
(8) future credit loss experience; (9) civil disturbances of terrorist threats or acts, or apprehension about possible future occurrences of acts of this type; and (10) the involvement of the United States in war or other hostilities. Therefore, the information in this annual report should be carefully considered when evaluating the business prospects of the Company.

Critical Accounting Policies

Our accounting policies are integral to understanding the results reported. Accounting policies are described in detail in Note 1 to the Consolidated Financial Statements. Our most complex accounting policies require management's judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred loan losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off.

The allowance generally consists of specific and general reserves. Specific reserves generally relate to loans that are individually classified as impaired, but may also relate to loans that in management's opinion exhibit negative credit characteristics or trends suggesting potential future loss exposure greater than historical loss experience would suggest. It is currently the Bank's practice to immediately charge-off any identified financial loss pertaining to impaired loans when management believes the uncollectibility of the loan is confirmed, therefore specific reserves are uncommon. A loan is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are generally considered troubled debt restructurings and classified as impaired.

Commercial and real estate loans are individually evaluated for impairment. Generally Accepted Accounting Principles specify that if a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. However, it is currently the Bank's practice to immediately charge-off any identified financial loss pertaining to impaired loans when management believes the uncollectibility of the loans has been confirmed.


Substandard loans are individually evaluated for impairment. Generally Accepted Accounting Principles specify that if a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using an appropriate discount rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. See Note 4 to the consolidated financial statements for additional information on substandard loans.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using an appropriate discount rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Bank determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses. See Note 4 to the financial statements for additional information on troubled debt restructurings.

General reserves cover non-impaired loans and are based on historical loss rates for each portfolio segment, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated loan losses as of the evaluation date to differ from the portfolio segment's historical loss experience. Qualitative factors include consideration of the following: changes in lending policies and procedures; changes in economic conditions, changes in the nature and volume of the portfolio; changes in the experience, ability and depth of lending management and other relevant staff; changes in the volume and severity of past due, nonaccrual and other adversely graded loans; changes in the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit and the effect of other external factors such as competition and legal and regulatory requirements.

Portfolio segments identified by the Bank include commercial, real estate construction, land, real estate other, factoring and asset-based lending, SBA, and consumer loans. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial performance on non-consumer loans and credit scores, debt-to income, collateral type and loan-to-value ratios for consumer loans.

Sale of SBA Loans

The Company has the ability and the intent to sell all or a portion of certain SBA loans in the loan portfolio and, as such, carries the saleable portion of these loans at the lower of aggregate cost or fair value. At December 31, 2012 and December 31, 2011, the fair value of SBA loans exceeded aggregate cost and therefore, SBA loans were carried at aggregate cost.

In calculating gain on the sale of SBA loans, the Bank performs an allocation based on the relative fair values of the sold portion and retained portions of the loan. The Company assumptions are validated by reference to external market information.

Investment Securities

Our securities are classified as either available-for-sale or held-to-maturity. The fair value of most securities classified as available-for-sale is based on quoted market prices. If quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments. Held-to maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts.

Supplemental Employee Retirement Plan

The Company has entered into supplemental employee retirement agreements with certain executive and senior officers. The measurement of the liability under these agreements includes estimates involving life expectancy, length of time before retirement, and expected benefit levels. Should these estimates prove materially wrong, we could incur additional or reduced expense to provide the benefits.

Deferred Tax Assets

Our deferred tax assets are explained in Note 8 to the Consolidated Financial Statements. The Company has sufficient taxable income from current and prior periods to support our position that the benefit of our deferred tax assets will be realized. As such, we have provided no valuation allowance against our deferred tax assets.


Operating Results

The Company reported net operating income of $13.8 million for the year ended December 31, 2012 representing an increase of $6.0 million, compared to net income of $7.8 million for the same period one year ago. For the year ended December 31, 2012, the Company reported earnings per diluted share of $0.92 compared to $0.52 for the year ended December 31, 2011, which included preferred dividend payments of $200,000. The Company retired the preferred stock issued under TARP in March of 2011 and, as a result, no longer has any preferred dividend payments. For the year ended December 31, 2010, the Company reported net operating income of $2.6 million. Net income available to common shareholders was reduced by preferred dividends of $2.0 million resulting in earnings per diluted share of $0.06 for the year ended December 31, 2010.

The increase in earnings during 2012 compared to 2011 resulted primarily from an increase in interest income related to loans and investment securities, warrant income and other non-interest income, offset in part by an increase in non-interest expense related to supporting growth and investments in new initiatives. The increase in earnings during 2011 compared to 2010 resulted primarily from an increase in interest income related to loans and investment securities, and a decrease in provision for loan losses, an increase in non-interest income related to international fee income and a gain on sale of SBA loans, offset in part by an increase in non-interest expense related to supporting growth and investments in new initiatives. See the specific sections below for details regarding these changes.


Net Interest Income and Margin

Net interest income is the principal source of the Company's operating earnings. Net interest income is affected by changes in the nature and volume of earning assets held during the year, the rates earned on such assets and the rates paid on interest-bearing liabilities. The following table shows the composition of average earning assets and average funding sources, average yields and rates, and the net interest margin for the three years ended December 31, 2012, 2011 and 2010.

                                                                   Year Ended December 31,
                                        2012                                 2011                                 2010
                                        Interest                             Interest                            Interest
                            Average      Income/    Yields/      Average      Income/    Yields/     Average      Income/    Yields/
(dollars in thousands)      Balance      Expense     Rates       Balance      Expense     Rates      Balance      Expense     Rates
Assets
Interest earning assets
(2):
Loans (1)                 $   827,691   $  56,122       6.8 %  $   660,614   $  45,352       6.9 %  $  590,334   $  42,071       7.1 %
Investment securities         235,892       6,461       2.7 %      216,870       5,068       2.3 %     134,349       2,733       2.0 %
Federal funds sold             86,735         203       0.2 %      109,134         255       0.2 %     112,940         263       0.2 %
Interest bearing
deposits                          331           1       0.3 %          998          19       1.9 %       5,775         121       2.1 %
Total earning assets        1,150,649      62,787       5.5 %      987,616      50,694       5.1 %     843,398      45,188       5.4 %

Noninterest earning
assets:
Cash and due from banks        22,946                               22,392                              18,792
All other assets (3)           33,096                               37,133                              34,950
TOTAL                     $ 1,206,691                          $ 1,047,141                          $  897,140

Liabilities and
shareholders' equity
Interest-bearing
liabilities:
Deposits:
Demand                    $     5,834           2       0.0 %  $     6,205           4       0.1 %  $    6,079           6       0.1 %
Savings                       311,712         900       0.3 %      326,546         884       0.3 %     306,461       1,223       0.4 %
Time                           38,933         187       0.5 %       36,876         208       0.6 %      58,285         736       1.3 %
Other                          29,057       1,106       3.8 %       20,217       1,160       5.7 %      17,622       1,106       6.3 %
Total interest-bearing
Liabilities                   385,536       2,195       0.6 %      389,844       2,256       0.6 %     388,447       3,071       0.8 %

Noninterest-bearing
liabilities:
Demand deposits               667,146                              515,056                             380,295
Accrued expenses and
other liabilities              15,643                               14,113                              13,775
Shareholders' equity          138,366                              128,128                             114,623
TOTAL                     $ 1,206,691                          $ 1,047,141                          $  897,140

Net interest income and
margin                                  $  60,592       5.3 %                $  48,438       4.9 %               $  42,117       5.0 %



1) Includes amortization of loan fees of $9.4 million for 2012, $5.7 million for 2011 and $4.1 million for 2010. Nonperforming loans have been included in average loan balances.

2) Interest income is reflected on an actual basis, not on a fully taxable equivalent basis. Yields are based on amortized cost.

3) Net of average allowance for loan losses of $19.2 million and average deferred loan fees of $2.9 million for 2012, average allowance for loan losses of $16.9 million and average deferred loan fees of $1.8 million for 2011, and average allowance for loan losses of $15.6 million and $1.5 million for 2010, respectively.

Interest differential is affected by changes in volume, changes in rates and a combination of changes in volume and rates. Volume changes are caused by changes in the levels of average earning assets and average interest bearing deposits and borrowings. Rate changes result from changes in yields earned on assets and rates paid on liabilities. Changes not solely attributable to volume or rates have been allocated to the rate component.


The following table shows the effect on the interest differential of volume and rate changes for the years ended December 31, 2012, 2011 and 2010:

                                                    Year Ended December 31,
                                         2012 vs. 2011                    2011 vs. 2010
                                      Increase (decrease)              Increase (decrease)
                                       due to change in                 due to change in
                                Average     Average     Total     Average    Average     Total
(dollars in thousands)           Volume      Rate       Change     Volume      Rate     Change
Interest income:
Loans                           $ 11,329   $    (559 ) $ 10,770   $  4,825   $ (1,544 ) $ 3,281
Investment securities                521         872      1,393      1,928        407     2,335
Federal funds sold                   (52 )         0        (52 )       (9 )        1        (8 )
Other                                 (2 )       (16 )      (18 )      (91 )      (11 )    (102 )
Total interest income             11,795         298     12,093      6,654     (1,148 )   5,506

Interest expense:
Demand                                (0 )        (2 )       (2 )        0         (2 )      (2 )
Savings                              (43 )        59         16         55       (394 )    (339 )
Time                                  10         (31 )      (21 )     (121 )     (407 )    (528 )
Other                                336        (390 )      (54 )      149        (95 )      54
Total interest expense               303        (364 )      (61 )       84       (898 )    (815 )

Change in net interest income   $ 11,492   $     662   $ 12,154   $  6,570   $   (250 ) $ 6,321

Net interest income was $60.6 million in 2012, comprised of $62.8 million in interest income and $2.2 million in interest expense. Net interest income was $48.4 million in 2011, comprised of $50.7 million in interest income and $2.3 million in interest expense. The increase of $12.2 million in net interest income in 2012, comprised of an increase in interest income of $12.1 million combined with a decrease of $61,000 in interest expense, was primarily attributable to an increase in average earning assets as a result of loan growth.

Net interest income was $42.1 million in 2010, comprised of $45.2 million in interest income and $3.1 million in interest expense. The increase of $6.3 million in net interest income in 2011, comprised of an increase in interest income of $5.5 million combined with a decrease of $815,000 in interest expense, was primarily attributable to an increase in average earning assets combined with a decrease in average non-performing loans and a lower cost of funds.

The net interest margin (net interest income divided by average earning assets) was 5.27% for the year ended December 31, 2012, as compared to 4.90% for the year ended December 31, 2011 and 4.99% for 2010. The increase in net interest margin in 2012 was primarily due to increased balance sheet leverage, a more favorable mix in average earning assets, and increased recurring loan fees related to overall growth of the loan portfolio. The positive impact on the net interest margin from increased loan fees for the twelve months ended December 31, 2012 compared to the same period one year ago was 24 basis points. The Company's loan-to-deposit ratio, a measure of leverage, averaged 80.9% during the twelve months ended December 31, 2012, which represented an increase compared to an average of 74.7% for the same period in 2011.

The decrease in net interest margin in 2011 was primarily due to decreased balance sheet leverage and a less favorable mix in average earning assets, partially offset by increased loan fees related to growth in the factoring and asset-based lending portfolio. The positive impact on the net interest margin from increased loan fees for the twelve months ended December 31, 2011 compared to the same period in 2010 was 9 basis points. The Company's loan-to-deposit ratio averaged 74.7% during the twelve months ended December 31, 2011 compared to 78.6% for the same period in 2010.

Interest Income

For the year ended December 31, 2012, the Company reported interest income of $62.8 million, an increase of $12.1 million or 23.9% over $50.7 million reported in 2011. The increase in interest income primarily reflects an increase in average earning assets in addition to an increase in the average yield on investment securities. Average earning assets were $1.151 billion for the year ended December 31, 2012, an increase of $163.0 million, or 16.5%, over $987.6 million for the year ended December 31, 2011. The increase in average earning assets reflects an increase in the average loan portfolio of $167.1 million over $660.6 million in 2011, and an increase in the average securities portfolio


of $19.0 million from $216.9 million in 2011. The average yield on earning assets was 5.46% for the year ended December 31, 2012 compared to 5.13% for the year ended December 31, 2011 primarily due to a higher rate of interest earned on investment securities during 2012, more favorable mix of average earning assets, as well as a higher yield on investment securities. This was partially offset by lower rates of interest earned on all other earning assets.

For the year ended December 31, 2011, the Company reported interest income of $50.7 million, an increase of $5.5 million or 12.2% over $45.2 million reported in 2010. The increase in interest income primarily reflects an increase in average earning assets. Average earning assets were $987.6 million for the year ended December 31, 2011 an increase of $144.2 million, or 17.1%, over $843.4 million for the year ended December 31, 2010. The increase in average earning assets reflects an increase in the average loan portfolio of $70.3 million over $590.3 million in 2010, and an increase in the average securities portfolio of $82.5 million from $134.3 million in 2010. The average yield on earning assets was 5.13% for the year ended December 31, 2011 compared to 5.36% for the year ended December 31, 2010 due to a higher rate of interest earned on securities instruments during 2011, and a decrease in the rate of interest earned on the loan portfolio during 2011. The decrease in the rate of interest earned on the loan portfolio was partially offset by a decrease in average non-performing loans during the year, as well as increased loan fees related to loan recoveries and growth in the factoring and asset based lending portfolio.

Interest Expense

Interest expense was $2.2 million for the year ended December 31, 2012, which represented a decrease of $61,000 or 2.7% compared to $2.3 million for the year ended December 31, 2011. The decrease in interest expense primarily reflects a lower level of interest bearing liabilities combined with a lower interest rates paid on deposits in 2012 compared to 2011. The average yield on interest-bearing liabilities was 0.57% for the period ended December 31, 2012 compared to 0.58% for the period ended December 31, 2011. Average interest-bearing liabilities were $385.5 million for the year ended December 31, 2012, a decrease of $4.3 million or 1.1% from $389.8 million for the year ended December 31, 2011.

Average interest bearing deposits were $356.5 million for the year ended December 31, 2012, which represented 34.8% of total average deposits and was a decrease of $13.1 million, or 3.6%, from $369.6 million at December 31, 2011, representing 41.8% of total average deposits for the year.

Other (non-deposit) interest bearing liabilities are primarily comprised of junior subordinated debt securities issued by the Company and other borrowings. The junior subordinated debt is intended to supplement capital requirements of the Company at a rate of interest that is fixed for five years. Other borrowings during the year was comprised of short borrowings. Other interest bearing liabilities averaged $29.1 million and $20.2 million in the years ended December 31, 2012 and 2011, respectively.

Interest expense was $2.3 million for the year ended December 31, 2011, which represented a decrease of $815,000 or 26.5% compared to $3.1 million for the year ended December 31, 2010. The decrease in interest expense primarily reflects the lower interest rates paid on deposits in 2011 compared to 2010. The average yield on interest-bearing liabilities was 0.58% for the period ended December 31, 2011 compared to 0.78% for the period ended December 31, 2010. Average interest-bearing liabilities were $389.8 million for the year ended December 31, 2011, an increase of $1.4 million or 0.4% from $388.4 million for the year ended December 31, 2010.

Average interest bearing deposits were $369.6 million for the year ended December 31, 2011, which represented 41.8% of total average deposits and was a decrease of $1.2 million, or 0.3%, from $370.8 million at December 31, 2010, representing 49.4% of total average deposits for the year.

Other (non-deposit) interest bearing liabilities are primarily comprised of junior subordinated debt securities issued by the Company and other borrowings. The junior subordinated debt is intended to supplement capital requirements of the Company at a rate of interest that is fixed for five years. Other interest bearing liabilities averaged $20.2 million and $17.6 million in the years ended December 31, 2011 and 2010, respectively.

Credit Risk and Provision for Loan losses

The Company maintains an allowance for loan losses which is based, in part, on the Company's loss experience, the impact of economic conditions within the Company's market area and, as applicable, the State of California and/or national macroeconomic conditions, the value of underlying collateral, loan performance, and inherent risks in the loan portfolio. The allowance is reduced by charge-offs and increased by provisions for loan losses charged to operating expense and recoveries of previously charged-off loans. Based on management's evaluation of such risks, the Company provided $4.0 million, $2.6 million, and $4.7 million to the allowance for loan losses in 2012, 2011 and 2010,


respectively. During 2012, the Bank had $3.1 million in charge offs, and had recoveries of $0.6 million as compared to $2.9 million in charge offs and recoveries of $3.3 million in 2011. During 2010, the Bank had $8.2 million in charge offs and $3.0 million in recoveries. The allowance for loan losses was $19.9 million representing 2.20% of total loans at December 31, 2012, as compared to $18.5 million representing 2.43% of total loans at December 31, 2011, and $15.5 million representing 2.39% of total loans at December 31, 2010.

Management is of the opinion that the allowance for loan losses is maintained at a level adequate for known and unidentified losses inherent in the portfolio. However, although the Company is seeing a lower incidence of new problem assets, as well as a consistent reduction of carrying values through continued payments by borrowers on loans that have been placed on non-accrual, should circumstances change and management determines that the collectibility of any of these credits becomes unlikely, there could be an adverse effect on the level of the allowance for loan losses and the Company's future profitability.

See "Allowance for Loan Losses" for additional discussion regarding the allowance for loan losses and nonperforming assets.

Non-interest Income



The following table sets forth the components of other income and the percentage
distribution of such income for the years ended December 31, 2012, 2011 and
2010:


. . .
  Add BBNK to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BBNK - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.