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BBNK > SEC Filings for BBNK > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for BRIDGE CAPITAL HOLDINGS

Form 10-Q for BRIDGE CAPITAL HOLDINGS


8-Nov-2013

Quarterly Report


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

In addition to the historical information, this quarterly 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 quarterly 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; (2) changes in the interest rate environment; (3) unfavorable economic conditions, both nationally and regionally, continuing or worsening, resulting in, among other things, continued or increased deterioration in credit quality;
(4) changes in the regulatory environment, including those resulting from the Dodd-Frank legislation; (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; (10) the involvement of the United States in war or other hostilities; and (11) governmental action or inaction in response to economic and political conditions, would have unpredictable consequences for the economy and the banking industry. The reader is directed to the Company's annual report on Form 10-K for the year ended December 31, 2012, for further discussion of factors which could affect the Company's business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report. The Company undertakes no obligation to update any forward-looking statements in this report. Therefore, the information in this quarterly report should be carefully considered when evaluating the business prospects of the Company.

General

Bridge Capital Holdings (the "Company") serves as the holding company for Bridge Bank, National Association (the "Bank"). The Bank is a national banking association that is supervised by the Office of the Comptroller of the Currency. As a bank holding company, the Company is supervised by the Board of Governors of the Federal Reserve System (the "FRB").

The Bank is maintains two branch offices in the Silicon Valley region, and five loan production offices located throughout the United States. The Bank's lending solutions include working capital lines of credit, structured finance (asset-based lending and factoring), 7(a) and 504 Small Business Administration (SBA) loans, commercial real estate loans, sustainable energy project financing, growth capital loans, equipment financing, letters of credit, and corporate credit cards. The Bank's depository and corporate banking services include cash and treasury management solutions, interest-bearing term deposit accounts, checking accounts, ACH payment and wire solutions, fraud protection, remote deposit capture through its Smart Deposit Express, courier services, and online banking. Additionally, the Bank's International Banking Division serves clients operating in the global marketplace through services including foreign exchange (FX payments and hedging), letters of credit, and import/export financing.

The Company's common stock is listed on the NASDAQ Global Select Market and is a component of the Russell 2000 Index.

Critical Accounting Policies

The accompanying management's discussion and analysis of results of operations and financial condition is based upon our unaudited interim consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. Management evaluates estimates and assumptions on an ongoing basis. Management bases its estimates on historical experiences and various other factors and assumptions that are believed to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions.

There have been no significant changes during the three and nine months ended September 30, 2013 to the items that we disclosed as our critical accounting policies and estimates in "Management's Discussion and Analysis of Financial Condition and Results of Operations" under Part II, Item 7 of our 2012 Form 10-K.

Executive Summary

The Company reported net operating income of $4.4 million for the three months ended September 30, 2013 representing an increase of $63,000 or 1.4%, compared to net operating income of $4.4 million for the same period one year ago. The Company reported earnings per diluted share of $0.29 for both the current quarter and the same quarter in 2012.

For the nine months ended September 30, 2013, the Company reported net operating income of $9.7 million representing a decrease of $689,000, or 6.6%, compared to net operating income of $10.4 million for the same period one year ago. The Company reported earnings per diluted share of $0.64 for the nine months ended September 30, 2013 and $0.70 for the nine months ended September 30, 2012.

For the quarter ended September 30, 2013, the Company's return on average assets and return on average equity were 1.20% and 11.16%, respectively, and compared to 1.43% and 12.38%, respectively, for the same period in 2012. For the nine months ended September 30, 2013, the Company's return on average assets and return on average equity were 0.92% and 8.43%, respectively, and compared to 1.18% and 10.18%, respectively, for the same period in 2012.

Additionally, an overview of the financial results for the quarter and nine months ended September 30, 2013 discussed in the MD&A include the following:

Net interest income and non-interest income comprised total revenue of $20.5 million for the three months ended September 30, 2013, compared to $21.3 million for the three months ended June 30, 2013 and $19.2 million for the same period one year earlier. For the nine months ended September 30, 2013, total revenue of $60.3 million represented an increase of $6.2 million, or 11.5%, from $54.1 million for the nine months ended September 30, 2012.


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Net interest margin increased to 5.01% for the quarter ended September 30, 2013 compared to 4.87% for the second quarter of 2013 and 5.26% for the quarter ended September 30, 2012 For the nine months ended September 30, 2013, net interest margin was 4.97% down from 5.33% for the same period of 2012.

There was no provision for credit losses during the third quarter of 2013, compared to $5.3 million for the quarter ended June 30, 2013 and $200,000 for the quarter ended September 30, 2012. Net recoveries were $499,000 for the quarter ended September 30, 2013, compared to net charge-offs of $5.4 million for the quarter ended June 30, 2013 and net recoveries of $50,000 for the quarter ended September 30, 2012. For the nine months ended September 2013, the provision for credit losses was $6.1 million, compared to $2.5 million for the same period in 2012. Net charge-offs for the nine month period ended September 2013 was $5.0 million compared to $1.2 million in 2012.

Allowance for credit losses represented 2.07% of total gross loans and 135.0% of nonperforming loans at September 30, 2013, compared to 2.05% of total gross loans and 126.67% of nonperforming loans at June 30, 2013 and 2.20% of total gross loans and 200.14% of non-performing loans at December 30, 2012.

Nonperforming assets decreased by $627,000 to $15.6 million, or 1.06% of total assets, compared to $16.2 million or 1.11% of total assets at June 30, 2013. Nonperforming assets increased by $5.5 million compared to $10.1 million or 0.75% of total assets at December 31, 2012.

Total assets grew to $1.47 billion at September 30, 2013, with loans comprising 69.6% of the average earning asset mix, compared to 72.1% in the prior quarter. Total deposits were $1.28 billion at September 30, 2013, which included demand deposits of $829.0 million representing the highest level of demand deposit balances since the inception of the Company. At December 31, 2012, total assets and total deposits were $1.34 billion and $1.17 billion, respectively.

Gross loans were $1.01 billion at September 30, 2013, representing an increase of $14.1 million, or 1.4%, compared to gross loans of $999.8 million at June 30, 2013, and an increase of $105.4 million, or 11.6% compared to gross loans of $908.6 million at December 31, 2012. Average loan balances decreased by $3.9 million, or 0.4%, to $980.2 million for the quarter ended September 30, 2013, compared to $984.0 million for the quarter ended June 30, 2013, and increased $103,400 or 11.8% from $876.8 million for the quarter ended December 31, 2012.

Capital ratios remained significantly above the minimum required for the Company to be considered "well-capitalized" under the current Basel regulatory framework, and continued to support the Company's growth. Total Risk-Based Capital Ratio was 15.01%, Tier I Capital Ratio was 13.76%, and Tier I Leverage Ratio was 11.84% at September 30, 2013.


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Selected Financial Data



The following table reflects selected financial data and ratios as of and for
the quarters and nine months ended September 30, 2013 and 2012 (dollars in
thousands, except per share data):



                                                     Three months ended            Nine months ended
                                                       September 30,                 September 30,
(dollars in thousands, except per share data)       2013           2012           2013           2012

Statement of Operations Data:
Interest income                                  $    18,419    $    15,970    $    51,784    $    46,385
Interest expense                                         636            573          1,880          1,601
Net interest income                                   17,783         15,397         49,904         44,784
Provision for credit losses                                -            200          6,050          2,450
Net interest income after provision for
credit losses                                         17,783         15,197         43,854         42,334
Other income                                           2,710          3,785         10,385          9,300
Other expenses                                        13,152         11,584         37,899         34,020
Income before income taxes                             7,341          7,398         16,340         17,614
Income taxes                                           2,914          3,034          6,649          7,234
Net income                                       $     4,427    $     4,364    $     9,691    $    10,380

Per Share Data:
Basic earnings per share                         $      0.31    $      0.30    $      0.67    $      0.72
Diluted earnings per share                              0.29           0.29           0.64           0.70
Shareholders' equity per share                          9.94           9.02           9.94           9.02

Balance Sheet Data:
Balance sheet totals:
Assets                                           $ 1,473,994    $ 1,247,554    $ 1,473,994    $ 1,247,554
Loans, net                                           988,547        858,032        988,547        858,032
Deposits                                           1,281,822      1,071,207      1,281,822      1,071,207
Shareholders' equity                                 156,728        142,051        156,728        142,051

Average balance sheet amounts:
Assets                                           $ 1,465,860    $ 1,217,074    $ 1,402,566    $ 1,178,455
Loans, net                                           953,969        815,042        928,927        789,207
Deposits                                           1,274,354      1,041,394      1,213,370        994,400
Shareholders' equity                                 157,382        140,255        153,704        136,204

Selected Ratios:
Return on average assets                                1.20 %         1.43 %         0.92 %         1.18 %
Return on average equity                               11.16 %        12.38 %         8.43 %        10.18 %
Efficiency ratio                                       64.18 %        60.39 %        62.86 %        62.90 %
Risk based capital ratio                               15.01 %        15.70 %        15.01 %        15.70 %
Net chargeoffs (recoveries) to average gross
loans                                                  -0.05 %        -0.01 %         0.53 %         0.15 %
Allowance for loan losses to total loans                2.07 %         2.25 %         2.07 %         2.25 %
Average equity to average assets                       10.74 %        11.52 %        10.96 %        11.56 %


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Results of Operations:

Net Interest Income and Margin

Net interest income, the difference between interest earned on loans and investments and interest paid on deposits is the principal component of the Company's earnings. Net interest income is affected by changes in the nature and volume of earning assets held during the quarter, the rates earned on such assets and the rates paid on interest bearing liabilities.

Net interest income for the quarter ended September 30, 2013 was $17.8 million, which was comprised of $18.4 million in interest income and $636,000 in interest expense. Net interest income for the quarter ended September 30, 2012 was $15.4 million, which was comprised of $16.0 million in interest income and $573,000 in interest expense. Net interest income for the quarter ended September 30, 2013 represented an increase of $2.4 million or 15.5% from the same period one year earlier. The increase in net interest income from the same period one year ago was primarily attributable to an overall increase in average earning assets, combined with a higher level of loan related fees. Loan fee amortization for the quarter ended September 30, 2013 was $3.4 million, compared to $2.7 million for the quarter ended September 30, 2012.

Net interest income for the nine months ended September 30, 2013 was $49.9 million, which was comprised of $51.8 million in interest income and $1.9 million in interest expense. Net interest income for the nine months ended September 30, 2012 was $44.8 million, which was comprised of $46.4 million in interest income and $1.6 million in interest expense. Net interest income for the nine months ended September 30, 2013 represented an increase of $5.1 million or 11.4% from the same period one year earlier. The increase in net interest income from the same period one year ago was primarily attributable to an increase in average earning assets as a result of loan growth and excess liquidity generated from deposit growth.

The composition of the average balance sheet impacts growth in net interest income. For the quarter ended September 30, 2013 average earning assets of $1.41 billion represented an increase of $245.3 million, or 21.1%, compared to $1.16 billion for the same period in 2012. The Company's loan-to-deposit ratio, a measure of leverage, averaged 76.91% during the quarter ended September 30, 2013, which represented a decrease compared to an average of 80.43% for the same quarter of 2012 as a result of higher deposit funding relative to loan growth. For the nine months ended September 30, 2013 average earning assets of $1.34 billion represented an increase of $218.3 million, or 19.4%, compared to $1.12 billion for the same period in 2012. The Company's loan-to-deposit ratio averaged 78.56% during the nine months ended September 30, 2013, representing a decrease compared to an average of 81.58% for the same period in 2012 was also a result of higher deposit funding relative to loan growth during that period.

The Company's net interest margin (net interest income divided by average earning assets) for the quarter ended September 30, 2013 was 5.01% compared to 5.26% in the same period one year earlier. The decrease in net interest margin compared to the same period one year ago was primarily due to a less favorable mix of earning assets and decreased leverage, partially offset by increased loan fees. The impact on the net interest margin from increased loan fees for the three months ended September 30, 2013 compared to the same period last year was 3 basis points.

The Company's net interest margin for the nine months ended September 30, 2013 was 4.97% compared to 5.33% in the same period one year earlier. The decrease in net interest margin from prior year was primarily due to a less favorable mix in average earning assets, decreased leverage, and increased nonperforming loans. The positive impact on the net interest margin from increased loan fees for the nine months ended September 30, 2013 compared to the same period one year ago was 2 basis point. The negative impact of reversed or foregone interest due to nonperforming assets was 7 basis points for the nine months ended September 30, 2013 and 6 basis points for the same period one year earlier.

The following tables show the composition of average earning assets and average funding sources, average yields and rates, and the net interest margin for the quarters and nine months ended September 30, 2013 and 2012.


Table of Contents

                                               Three months ended September 30,
                                           2013                                2012
                                           Yields    Interest                  Yields    Interest
                               Average       or       Income/      Average       or       Income/
(dollars in thousands)         Balance      Rates     Expense      Balance      Rates     Expense
ASSETS
Interest earning assets
(2):
Loans (1)                    $   980,165      6.84 % $  16,906   $   837,574      6.87 % $  14,467
Federal funds sold               152,809      0.27 %       103        99,726      0.24 %        59
Investment securities            275,360      2.03 %     1,410       225,775      2.54 %     1,444
Other                                326      0.00 %         -           335      0.00 %         -
Total interest earning
assets                         1,408,660      5.19 %    18,419     1,163,410      5.46 %    15,970

Noninterest-earning
assets:
Cash and due from banks           27,024                              23,232
All other assets (3)              30,176                              30,432
TOTAL                        $ 1,465,860                         $ 1,217,074

LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing
liabilities:
Deposits:
Demand                       $     9,141      0.04 %         1   $     5,475      0.00 % $       -
Savings                          419,842      0.29 %       301       295,646      0.32 %       237
Time                              49,918      0.54 %        67        45,370      0.55 %        63
Other                             17,744      6.04 %       267        19,592      5.54 %       273
Total interest bearing
liabilities                      496,645      0.51 %       636       366,083      0.62 %       573

Noninterest-bearing
liabilities:
Demand deposits                  795,452                             694,903
Accrued expenses and other
liabilities                       16,381                              15,833
Shareholders' equity             157,382                             140,255
TOTAL                        $ 1,465,860                         $ 1,217,074
Net interest income and
margin                                        5.01 % $  17,783                    5.26 % $  15,397



(1) Loan fee amortization of $3.4 million and $2.7 million, respectively, is included in interest income. Nonperforming loans have been included in average loan balances.

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

(3) Net of average allowance for loan losses of $21.6 million and $19.6 million, respectively.


Table of Contents

                                                Nine months ended September 30,
                                           2013                                2012
                                           Yields    Interest                  Yields    Interest
                               Average       or       Income/      Average       or       Income/
                               Balance      Rates     Expense      Balance      Rates     Expense
ASSETS
Interest earning assets
(2):
Loans (1)                    $   953,235      6.63 % $  47,303   $   811,214      6.82 % $  41,400
Federal funds sold               114,876      0.25 %       215        78,000      0.23 %       137
Investment securities            273,048      2.09 %     4,265       233,621      2.77 %     4,847
Other                                323      0.41 %         1           329      0.41 %         1
Total interest earning
assets                         1,341,482      5.16 %    51,784     1,123,164      5.52 %    46,385

Noninterest-earning
assets:
Cash and due from banks           25,833                              22,295
All other assets (3)              35,251                              32,996
TOTAL                        $ 1,402,566                         $ 1,178,455

LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing
liabilities:
Deposits:
Demand                       $     9,943      0.03 %         2   $     5,315      0.03 % $       1
Savings                          403,523      0.29 %       875       296,456      0.29 %       643
Time                              48,993      0.53 %       196        36,539      0.44 %       121
Other                             19,652      5.49 %       807        32,929      3.39 %       836
Total interest bearing
liabilities                      482,111      0.52 %     1,880       371,239      0.58 %     1,601

Noninterest-bearing
liabilities:
Demand deposits                  750,911                             656,090
Accrued expenses and other
liabilities                       15,840                              14,922
Shareholders' equity             153,704                             136,204
TOTAL                        $ 1,402,566                         $ 1,178,455
Net interest income and
margin                                        4.97 % $  49,904                    5.33 % $  44,784



(1) Loan fee amortization of $8.2 million and $6.7 million, respectively, is included in interest income. Nonperforming loans have been included in average loan balances.

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

(3) Net of average allowance for credit losses of $20.3 million and $19.1 million, respectively.


Table of Contents

The following tables show the effect of the interest differential of volume and rate changes for the quarters and nine months ended September 30, 2013 and 2012. The change in interest due to both rate and volume has been allocated in proportion to the relationship of absolute dollar amounts of change in each.

                                     Three months ended September 30,
                                              2013 vs. 2012
                                           Increase (decrease)
                                             due to change in
                                  Average        Average         Total
(dollars in thousands)             Volume          Rate          Change
Interest income:
Loans                           $      2,499    $      (60 )  $      2,439
Federal funds sold                        36             8              44
Investment securities                    258          (292 )           (34 )
Other                                      -             -               -
Total interest income                  2,793          (344 )         2,449

Interest expense:
Demand                                     -             1               1
Savings                                   87           (23 )            64
Time                                       5            (2 )             4
Other                                    (30 )          24              (6 )
Total interest expense                    62             -              63

Change in net interest income   $      2,731    $     (344 )  $      2,386




                                   Nine months ended September 30,
                                            2013 vs. 2012
                                         Increase (decrease)
                                           due to change in
                                  Average        Average        Total
(dollars in thousands)            Volume           Rate        Change
Interest income:
Loans                           $     7,010    $     (1,107 )  $ 5,903
Federal funds sold                       69               9         78
Investment securities                   612          (1,193 )     (582 )
Other                                     -               -          -
Total interest income                 7,690          (2,291 )    5,399

Interest expense:
Demand                                    1               -          1
Savings                                 231               -        231
Time                                     50              25         75
Other                                  (546 )           517        (29 )
Total interest expense                 (264 )           543        278

Change in net interest income   $     7,955    $     (2,834 )  $ 5,121

Significant factors affecting net interest income are: rates, volumes and mix of the loan, investment and deposit portfolios. Due to the nature of the Company's lending markets, in which the majority of loans are generally tied to prime rate, it is believed that an increase in interest rates should positively affect the Company's future earnings, while a decline should have a negative impact. However, it is not feasible to provide an accurate measure of such a change because of the many factors (many of them uncontrollable) influencing the result.


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