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BBNK > SEC Filings for BBNK > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for BRIDGE CAPITAL HOLDINGS

Form 10-Q for BRIDGE CAPITAL HOLDINGS


9-May-2014

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, 2013, 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 maintains one branch office in the Silicon Valley region, and seven 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 months ended March 31, 2014 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 2013 Form 10-K.


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Executive Summary

The Company reported net operating income of $3.7 million for the three months ended March 31, 2014 representing an increase of $295,000 or 8.6%, compared to net operating income of $3.4 million for the same period one year ago. The Company reported earnings per diluted share of $0.24 and $0.23 for the quarters ended March 31, 2014 and 2013, respectively.

For the quarter ended March 31, 2014, the Company's return on average assets and return on average equity were 0.97% and 9.09%, respectively, and compared to 1.06% and 9.29%, respectively, for the same period in 2013.

Additionally, an overview of the financial results for the quarter ended March 31, 2014 discussed in the MD&A include the following:

Net interest income and non-interest income comprised total revenue of $20.8 million for the three months ended March 31, 2014, compared to $22.3 million for the three months ended December 31, 2013 and $18.5 million for the same period one year earlier.

Net interest margin was 4.91% for the quarter ended March 31, 2014 compared to 4.99% for the fourth quarter of 2013 and 5.05% for the quarter ended March 31, 2013.

Total assets grew to $1.62 billion at March 31, 2014, with loans comprising 72.7% of the average earning asset mix, compared to 70.1% in the prior quarter. Total deposits were $1.42 billion at March 31, 2014, which included demand deposits of $989.8 million representing the highest level of demand deposit balances since the inception of the Company. At December 31, 2013, total assets and total deposits were $1.60 billion and $1.41 billion, respectively.

Gross loans were $1.14 billion at March 31, 2014, representing an increase of $67.1 million, or 6.2%, compared to gross loans of $1.08 billion at December 31, 2013. Average loan balances increased by $58.8 million, or 5.7%, to $1.08 billion for the quarter ended March 31, 2014, compared to $1.02 billion for the quarter ended December 31, 2013.

There was a $500,000 provision for credit losses during the first quarter of 2014, compared to $750,000 for the quarter ended March 31, 2013. There was no provision for credit losses for the quarter ended December 31, 2013. Net recoveries were $221,000 for the quarter ended March 31, 2014, compared to net recoveries of $975,000 for the quarter ended December 31, 2013 and net charge-offs of $155,000 for the quarter ended March 31, 2013.

Allowance for credit losses represented 1.98% of total gross loans and 191.51% of nonperforming loans at March 31, 2014, compared to 2.04% of total gross loans and 145.18% of nonperforming loans at December 31, 2013.

Nonperforming assets decreased by $3.3 million to $11.9 million, or 0.73% of total assets, compared to $15.1 million or 0.94% of total assets at December 31, 2013.

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 13.76%, Tier I Capital Ratio was 12.51%, and Tier I Leverage Ratio was 11.71% at March 31, 2014.


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Selected Financial Data



The following table reflects selected financial data and ratios as of and for
the quarters ended March 31, 2014 and 2013 (dollars in thousands, except per
share data):



                                                           Three months ended
                                                                March 31,
                                                           2014          2013
Statement of Operations Data:

Interest income                                         $    18,627   $    16,148
Interest expense                                                607           604
Net interest income                                          18,020        15,544
Provision for credit losses                                     500           750
Net interest income after provision for credit losses        17,520        14,794
Other income                                                  2,748         2,918
Other expenses                                               14,047        11,860
Income before income taxes                                    6,221         5,852
Income taxes                                                  2,505         2,431
Net income                                              $     3,716   $     3,421

Per Share Data:
Basic earnings per share                                $      0.25   $      0.24
Diluted earnings per share                                     0.24          0.23
Shareholders' equity per share                                10.58          9.61

Balance Sheet Data:
Balance sheet totals:
Assets                                                  $ 1,616,438   $ 1,347,141
Loans, net                                                1,117,394       929,919
Deposits                                                  1,415,956     1,166,280
Shareholders' equity                                        167,757       151,400

Average balance sheet amounts:
Assets                                                  $ 1,547,028   $ 1,311,171
Loans, net                                                1,055,698       871,228
Deposits                                                  1,335,973     1,125,309
Shareholders' equity                                        165,812       149,388

Selected Ratios:
Return on average assets                                       0.97 %        1.06 %
Return on average equity                                       9.09 %        9.29 %
Efficiency ratio                                              67.64 %       64.24 %
Risk based capital ratio                                      13.76 %       15.19 %
Net chargeoffs (recoveries) to average gross loans            -0.02 %        0.02 %
Allowance for loan losses to total loans                       1.98 %        2.15 %
Average equity to average assets                              10.72 %       11.39 %


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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 March 31, 2014 was $18.0 million, which was comprised of $18.6 million in interest income and $607,000 in interest expense. Net interest income for the quarter ended March 31, 2013 was $15.5 million, which was comprised of $16.1 million in interest income and $604,000 in interest expense. Net interest income for the quarter ended March 31, 2014 represented an increase of $2.5 million or 15.9% 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 March 31, 2014 was $2.8 million, compared to $2.1 million for the quarter ended March 31, 2013.

The composition of the average balance sheet impacts growth in net interest income. For the quarter ended March 31, 2014 average earning assets of $1.49 billion represented an increase of $239.8 million, or 19.2%, compared to $1.25 billion for the same period in 2013. The Company's loan-to-deposit ratio, a measure of leverage, averaged 81.06% during the quarter ended March 31, 2014, which represented an increase compared to an average of 79.50% for the same quarter of 2013 as a result of higher loan funding relative to deposit growth.

The Company's net interest margin (net interest income divided by average earning assets) for the quarter ended March 31, 2014 was 4.91% compared to 5.05% 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, partially offset by increased loan fees. The impact on the net interest margin from increased loan fees for the three months ended March 31, 2014 compared to the same period last year was 7 basis points.

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 ended March 31, 2014 and 2013.


Table of Contents

                                               Three months ended March 30,
                                        2014                                  2013
                                         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)                $  1,082,993       6.38 % $  17,047   $    894,570       6.56 % $  14,471
Federal funds sold            113,062       0.28 %        78         73,817       0.24 %        43
Investment securities         292,594       2.08 %     1,502        280,447       2.36 %     1,634
Other                             326       0.00 %         -            329       0.00 %         -
Total interest earning
assets                      1,488,975       5.07 %    18,627      1,249,163       5.24 %    16,148

Noninterest-earning
assets:
Cash and due from
banks                          26,549                                25,499
All other assets (3)           31,504                                36,509
TOTAL                    $  1,547,028                          $  1,311,171

LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing
liabilities:
Deposits:
Demand                   $      8,568       0.05 %         1   $      9,502       0.04 % $       1
Savings                       388,723       0.29 %       278        360,675       0.31 %       273
Time                           43,416       0.56 %        60         47,612       0.55 %        64
Other                          27,805       3.91 %       268         20,416       5.28 %       266
Total interest bearing
liabilities                   468,512       0.53 %       607        438,205       0.56 %       604

Noninterest-bearing
liabilities:
Demand deposits               895,265                               707,520
Accrued expenses and
other liabilities              17,439                                16,058
Shareholders' equity          165,812                               149,388
TOTAL                    $  1,547,028                          $  1,311,171

Net interest income
and margin                                  4.91 % $  18,020                      5.05 % $  15,544



(1) Loan fee amortization of $2.8 million and $2.1 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 $22.5 million and $19.9 million, respectively.


Table of Contents

The following tables show the effect of the interest differential of volume and rate changes for the quarters ended March 31, 2014 and 2013. 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 March 31,
                                           2014 vs. 2013
                                        Increase (decrease)
                                         due to change in
                                  Average       Average      Total
(dollars in thousands)            Volume         Rate       Change
Interest income:
Loans                           $     2,966    $    (390 )  $ 2,576
Federal funds sold                       27            8         35
Investment securities                    62         (194 )     (132 )
Total interest income                 3,055         (576 )    2,479

Interest expense:
Demand                                    -            -          -
Savings                                  20          (15 )        5
Time                                     (6 )          2         (4 )
Other                                    71          (69 )        2
Total interest expense                   85          (82 )        3

Change in net interest income   $     2,970    $    (494 )  $ 2,476

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.

Interest Income

Interest income of $18.6 million in the quarter ended March 31, 2014 represented an increase of $2.5 million, or 15.4%, from $16.1 million in the same quarter one year earlier. The average yield on earning assets was 5.07% for the quarter ended March 31, 2014 compared to 5.24% for the quarter ended March 31, 2013. The decrease in the average yield on interest earning assets was primarily due to a less favorable mix of earning assets and a lower yield on loans and investments, partially offset by increased recurring loan fees.

Average gross loans were $1.08 billion for three months ended March 31, 2014, an increase of $188.4 million or 21.1% from $894.6 million for the same period one year earlier. Average loans comprised 72.7% of average earning assets in the three months ended March 31, 2014 compared to 71.6% in the first quarter of 2013.

Other earning assets, consisting of investment securities, federal funds sold and interest-bearing deposits, averaged $406.0 million for the quarter ended March 31, 2014, an increase of $51.4 million or 14.5% from $354.6 million for the three months ended March 31, 2013.

Interest Expense

Interest expense was $607,000 for the quarter ended March 31, 2014, which represented an increase of $3,000, or 0.5% from $604,000 for the comparable period of 2013. Average interest-bearing liabilities were $468.5 million for the three months ended March 31, 2014, an increase of $30.3 million, or 6.9%, from $438.2 million for the same period one year earlier. The increase in interest expense was primarily due to an increase in average interest bearing deposit accounts.

Average interest bearing deposits were $440.7 million for the quarter ended March 31, 2014, which represented 33.0% of total average deposits and was an increase of $22.9 million, or 5.5%, from $417.8 million representing 37.1% of total average deposits in the first quarter of 2013.


Table of Contents

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 $27.8 million in the three months ended March 31, 2014 and $20.4 million for the comparable period of 2013.

The average rate paid on interest-bearing liabilities was 0.53% and 0.56% for the quarters ended March 31, 2014 and 2013, respectively.

Credit Risk and Provision for Credit 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 credit losses charged to operating expense and recoveries of previously charged-off loans.

The Company charged-off $465,000 during the three months ended March 31, 2014 compared to $350,000 during the three months ended March 31, 2013. Loan recoveries of $686,000 were recognized during the first quarter of 2014 compared to $195,000 for the three months ended March 31, 2013.

The following schedule provides an analysis of the allowance for loan losses for the quarters ended March 31, 2014 and 2013, respectively:

                                 Three months ended
                                     March 31,
(dollars in thousands)            2014         2013

Balance, beginning of period   $    21,944   $ 19,948
Provision for credit losses            500        750
Charge-offs                           (465 )     (350 )
Recoveries                             686        195
Balance, end of period         $    22,665   $ 20,543

The allowance for loan losses was $22.7 million, or 1.98% of total loans, at March 31, 2014, compared to $20.5 million, or 2.15% of total loans, at March 31, 2013. The increase in the allowance for loan losses from March 31, 2013 to March 31, 2014 was primarily attributable to the growth of the loan portfolio.

The Company recorded a provision for credit losses of $500,000 for the three months ended March 31, 2014, compared to $750,000 recorded for the quarter ending March 31, 2013.


Table of Contents

Based on an evaluation of individual credits, historical credit loss experience by loan type, economic conditions, and the Company's reassessment of risks noted above, management has allocated the allowance for loan losses as follows for the periods ending March 31, 2014 and December 31, 2013:

                                March 31, 2014           December 31, 2013
                                        Percent of                Percent of
                                       ALLL in each              ALLL in each
                                       category to               category to
(dollars in thousands)       Amount    gross loans     Amount    gross loans

Commercial                  $  9,321            0.8 % $  9,066            0.8 %
Real estate construction       1,445            0.1 %    1,013            0.1 %
Land loans                       354            0.0 %      377            0.0 %
Real estate other              2,695            0.2 %    2,857            0.3 %
Factoring and asset based      6,335            0.6 %    6,136            0.6 %
SBA                            2,378            0.2 %    2,363            0.2 %
Other                            137            0.0 %      132            0.0 %
                            $ 22,665            1.9 % $ 21,944            2.0 %

At March 31, 2014 nonperforming assets of $11.9 million, or 0.73% of total assets, compared to $15.1 million, or 0.94% of total assets, on December 31, 2013. The decrease in nonperforming assets from December 31, 2013 was primarily due to collections of $2.9 million and $465,000 in charge-offs, partially offset by additions of $75,000. The addition was comprised of one SBA credit. The following summarizes nonperforming assets at March 31, 2014 and December 31, 2013.

                                                             March 31,      December 31,
(dollars in thousands)                                         2014             2013

Loans accounted for on a non-accrual basis                  $    11,835    $       15,115
Other loans with principal or interest contractually
past due 90 days or more and still accruing                           -                 -
Nonperforming loans                                              11,835            15,115
Other real estate owned                                              23                31
Nonperforming assets                                        $    11,858    $       15,146

Loans restructured and in compliance with modified terms          5,535             5,569

Nonperforming assets and restructured loans                 $    17,393    $       20,715

The nonperforming assets at March 31, 2014 consisted of loans on nonaccrual or 90 days or more past due and still accruing totaling $11.8 million, and other real estate owned valued at $23,000. Nonperforming loans at March 31, 2014 were comprised of loans with legal contractual balances totaling approximately $19.4 million reduced by $2.2 million received in nonaccrual interest and impairment charges of $5.4 million which have been charged against the allowance for loan losses. In addition, as of March 31, 2014, there were 16 loans with legal contractual balances totaling $6.5 million that have been fully charged off, for which the Company continues to pursue collection remedies.

The accrual of interest on loans is discontinued and any accrued and unpaid interest is reversed when, in the opinion of Management, there is significant doubt as to the collectability of interest or principal or when the payment of principal or interest is ninety days past due, unless the amount is well-secured and in the process of collection.


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The following table sets forth the components of nonperforming loans as of March 31, 2014 (dollars in thousands).

(dollars in thousands)

. . .

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