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EXCEL - IDEA: XBRL DOCUMENT - Bridge Capital Holdings | Financial_Report.xls |
EX-32.1 - EX-32.1 - Bridge Capital Holdings | a15-7380_1ex32d1.htm |
EX-31.2 - EX-31.2 - Bridge Capital Holdings | a15-7380_1ex31d2.htm |
EX-31.1 - EX-31.1 - Bridge Capital Holdings | a15-7380_1ex31d1.htm |
EX-32.2 - EX-32.2 - Bridge Capital Holdings | a15-7380_1ex32d2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 2015
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
001-34165
(Commission File Number)
Bridge Capital Holdings
(Exact name of registrant as specified in its charter)
California |
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80-0123855 |
(State or other jurisdiction of |
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(I.R.S. Employer Identification Number) |
incorporation or organization) |
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55 Almaden Boulevard, San Jose, CA 95113
(Address of principal executive offices, including zip code)
Registrants telephone number, including area code: (408) 423-8500
Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by checkmark whether registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller |
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reporting company) |
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Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The number of shares of Common Stock outstanding as of May 1, 2015: 15,947,284
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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PART I - FINANCIAL INFORMATION
BRIDGE CAPITAL HOLDINGS AND SUBSIDIARY
Interim Consolidated Balance Sheets
(dollars in thousands)
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(unaudited) |
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March 31, |
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December 31, |
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2015 |
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2014 |
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ASSETS |
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Cash and due from banks |
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$ |
29,969 |
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$ |
21,950 |
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Federal funds sold |
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121,028 |
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75,420 |
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Total cash and equivalents |
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150,997 |
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97,370 |
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Interest bearing deposits in other banks |
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326 |
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326 |
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Investment securities: |
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Available for sale |
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320,024 |
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352,243 |
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Held to maturity |
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12,563 |
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12,922 |
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Total investment securities |
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332,587 |
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365,165 |
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Loans, net of allowance for credit losses of $22,565 at March 31, 2015 and $22,305 at December 31, 2014 |
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1,329,888 |
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1,283,364 |
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Premises and equipment, net |
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2,362 |
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2,504 |
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Other real estate owned |
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22 |
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23 |
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Accrued interest receivable |
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5,178 |
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4,989 |
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Other assets |
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60,839 |
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60,381 |
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Total assets |
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$ |
1,882,199 |
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$ |
1,814,122 |
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LIABILITIES |
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Deposits: |
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Demand noninterest-bearing |
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$ |
1,132,231 |
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$ |
1,051,357 |
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Demand interest-bearing |
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14,362 |
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15,492 |
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Money market and savings |
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472,475 |
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450,873 |
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Time |
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36,777 |
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31,823 |
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Total deposits |
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1,655,845 |
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1,549,545 |
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Junior subordinated debt securities |
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17,527 |
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17,527 |
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Other borrowings |
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40,000 |
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Accrued interest payable |
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9 |
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8 |
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Other liabilities |
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16,194 |
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19,935 |
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Total liabilities |
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1,689,575 |
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1,627,015 |
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SHAREHOLDERS EQUITY |
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Preferred stock, no par value; 10,000,000 shares authorized; no shares issued and outstanding at March 31, 2015 and December 31, 2014 |
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Common stock, no par value; 30,000,000 shares authorized; 15,940,819 shares issued and outstanding at March 31, 2015; 15,970,506 shares issued and outstanding at December 31, 2014; |
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117,731 |
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117,321 |
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Retained earnings |
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73,461 |
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69,547 |
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Accumulated other comprehensive income (loss) |
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1,432 |
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239 |
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Total shareholders equity |
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192,624 |
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187,107 |
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Total liabilities and shareholders equity |
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$ |
1,882,199 |
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$ |
1,814,122 |
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The accompanying notes are an integral part of the financial statements.
BRIDGE CAPITAL HOLDINGS AND SUBSIDIARY
Interim Consolidated Statements of Operations (unaudited)
(dollars in thousands, except per share data)
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Three months ended |
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March 31, |
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2015 |
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2014 |
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INTEREST INCOME: |
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Loans |
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$ |
19,596 |
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$ |
17,047 |
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Federal funds sold |
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73 |
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78 |
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Investment securities |
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1,792 |
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1,502 |
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Total interest income |
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21,461 |
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18,627 |
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INTEREST EXPENSE: |
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Deposits: |
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Interest-bearing demand |
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1 |
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1 |
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Money market and savings |
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208 |
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277 |
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Certificates of deposit |
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50 |
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60 |
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Other |
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255 |
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269 |
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Total interest expense |
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514 |
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607 |
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Net interest income |
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20,947 |
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18,020 |
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Provision for credit losses |
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500 |
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Net interest income after provision for credit losses |
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20,947 |
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17,520 |
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NON-INTEREST INCOME: |
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Service charges on deposit accounts |
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995 |
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916 |
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International fee income |
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841 |
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761 |
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Gain on sale of SBA loans |
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195 |
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213 |
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Gain on sale of securities |
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306 |
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5 |
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Other non interest income |
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936 |
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853 |
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Total non-interest income |
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3,273 |
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2,748 |
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OPERATING EXPENSES: |
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Salaries and benefits |
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10,620 |
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9,015 |
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Premises and fixed assets |
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1,272 |
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1,238 |
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Merger related expenses |
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1,191 |
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Other operating expenses |
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4,261 |
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3,794 |
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Total operating expenses |
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17,344 |
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14,047 |
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Income before income taxes |
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6,876 |
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6,221 |
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Income taxes |
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2,962 |
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2,505 |
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Net income |
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$ |
3,914 |
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$ |
3,716 |
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Basic income per share |
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$ |
0.26 |
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$ |
0.25 |
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Diluted income per share |
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$ |
0.25 |
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$ |
0.24 |
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Average common shares outstanding |
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14,900,669 |
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14,646,573 |
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Average common and equivalent shares outstanding |
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15,643,440 |
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15,462,649 |
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The accompanying notes are an integral part of the financial statements.
BRIDGE CAPITAL HOLDINGS AND SUBSIDIARY
Interim Consolidated Statements of Comprehensive Income (unaudited)
(dollars in thousands)
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Three months ended |
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March 31, |
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2015 |
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2014 |
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NET INCOME |
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$ |
3,914 |
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$ |
3,716 |
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OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: |
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Unrealized gains (losses) on securities available-for-sale |
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2,170 |
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1,400 |
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Related tax benefit (expense) |
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(897 |
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(574 |
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Reclassification adjustment for realized (gains) on securities (1) |
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(306 |
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(5 |
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Related tax expense |
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132 |
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2 |
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Unrealized gains on supplemental executive retirement plan |
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13 |
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13 |
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Related tax (expense) |
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(5 |
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(5 |
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Unrealized gains on cash flow hedges |
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143 |
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160 |
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Related tax (expense) |
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(57 |
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(64 |
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Other comprehensive income (loss), net of tax |
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$ |
1,193 |
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$ |
927 |
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COMPREHENSIVE INCOME |
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$ |
5,107 |
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$ |
4,643 |
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(1) Amounts are included in net gains on sale of securities on the Consolidated Statements of Operations in total non-interest income.
The accompanying notes are an integral part of the financial statements.
BRIDGE CAPITAL HOLDINGS AND SUBSIDIARY
Interim Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
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Three months ended March 31, |
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2015 |
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2014 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
3,914 |
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$ |
3,716 |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Provision for credit losses |
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500 |
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Depreciation and amortization |
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247 |
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305 |
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Write down of other real estate owned |
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1 |
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8 |
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Net (gain) on sale of loans |
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(195 |
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(213 |
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Deferred income tax (credit) |
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(827 |
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(654 |
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Stock based compensation |
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1,028 |
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903 |
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Loans originated for sale |
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(8,663 |
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(10,080 |
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Proceeds from loan sales |
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2,859 |
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3,158 |
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Net (gain) on sale of securities |
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(306 |
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(5 |
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(Increase) decrease in accrued interest receivable and other assets |
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(647 |
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(2,782 |
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Increase in accrued interest payable and other liabilities |
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(3,584 |
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(2,376 |
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Net cash provided by used in operating activities |
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(6,173 |
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(7,520 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of securities available for sale |
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(8,794 |
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Proceeds from sale of available for sale and trading securities |
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22,681 |
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22,193 |
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Proceeds from maturity of securities available for sale |
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12,067 |
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13,852 |
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Net increase in loans |
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(40,525 |
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(59,799 |
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Purchase of fixed assets |
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(105 |
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(1,074 |
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Net cash used in investing activities |
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(5,882 |
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(33,622 |
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CASH FLOW FROM FINANCING ACTIVITIES: |
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Net increase in deposits |
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106,300 |
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9,864 |
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Proceeds from issuance of common stock |
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99 |
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626 |
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Purchase of treasury stock |
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(717 |
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(1,162 |
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Increase (decrease) in other borrowings |
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(40,000 |
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Net cash provided by financing activities |
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65,682 |
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9,328 |
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NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS: |
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53,627 |
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(31,814 |
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Cash and equivalents at beginning of period |
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97,370 |
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186,337 |
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Cash and equivalents at end of period |
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$ |
150,996 |
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$ |
154,523 |
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OTHER CASH FLOW INFORMATION: |
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Cash paid for interest |
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$ |
534 |
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$ |
615 |
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Cash paid for income taxes |
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$ |
3,600 |
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$ |
5,700 |
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The accompanying notes are an integral part of the financial statements.
BRIDGE CAPITAL HOLDINGS AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements (Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements of Bridge Capital Holdings and Bridge Bank, N.A. (the Company) have been prepared in accordance with generally accepted accounting principles and pursuant to the rules and regulations of the SEC. The interim financial data as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 is unaudited; however, in the opinion of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. Certain information and note disclosures normally included in annual financial statements have been omitted pursuant to SEC rules and regulations; however, the Company believes the disclosures made are adequate to ensure that the information presented is not misleading. Results of operations for the quarters ended March 31, 2015 and 2014, respectively, are not necessarily indicative of full year results.
The comparative balance sheet information as of December 31, 2014 is derived from the audited financial statements; however, it does not include all disclosures required by accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities as of the dates and for the periods presented. A significant estimate included in the accompanying financial statements is the allowance for loan losses. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Financial Accounting Standards Board Accounting Standards Update (FASB ASU) 2015-04, Compensation Retirement Benefits (Topic 715), The amendments in this Update would provide a practical expedient for employers with fiscal year-ends that do not fall on a month-end by permitting those employers to measure defined benefit plan assets and obligations as of the month-end that is closest to the entitys fiscal year-end. ASU No. 2015-04 is effective for the first interim or annual period beginning after December 15, 2015. The adoption of this ASU is not expected to have a material impact on the Companys financial position, results of operations, or cash flows.
Financial Accounting Standards Board Accounting Standards Update (FASB ASU) 2015-01, Income Statement Extraordinary and Unusual Items (Subtopic 225-20) The objective of this Update is to simplify the income statement presentation requirements in Subtopic 225-20 by eliminating the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. ASU No. 2015-01 is effective for the first interim or annual period beginning after December 15, 2015. The adoption of this ASU is not expected to have a material impact on the Companys financial position, results of operations, or cash flows.
Earnings Per Share
Basic net income per share is computed by dividing net income applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is determined using the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and vesting of restricted stock. Common stock equivalents are included in the diluted net income per share calculation to the extent these shares are dilutive. See Note 2 to the financial statements for additional information on earnings per share.
Stock-Based Compensation
The Company has adopted guidance issued by the FASB that clarifies the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such equity instruments. The Company uses the Black-Scholes-Merton (BSM) option-pricing model to determine the fair-value of stock-based awards. The Company recorded $1.0 million ($641,000 net of tax) of stock-based compensation expense during the three months ended March 31, 2015, and recorded $903,000 ($570,000 net of tax) of stock-based compensation expense during the three months ended March 31, 2014, as a result of the adoption of the guidance issued by the FASB.
No stock-based compensation costs were capitalized as part of the cost of an asset as of March 31, 2015 and December 31, 2014. As of March 31, 2015, $10.8 million of total unrecognized compensation cost related to stock options and restricted stock units is expected to be recognized over a weighted-average period of 3.1 years.
Comprehensive Income
The Company has adopted accounting guidance issued by the FASB that requires all items recognized under accounting standards as components of comprehensive earnings be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This Statement also requires that an entity classify items of other comprehensive earnings by their nature in an annual financial statement. Other comprehensive earnings include an adjustment to fully recognize the liability associated with the supplemental executive retirement plan, unrealized gains and losses, net of tax, on cash flow hedges, and unrealized gains and losses, net of tax, on marketable securities classified as available-for-sale. The Company had accumulated other comprehensive income totaling $1.4 million, net of tax, as of March 31, 2015 and accumulated other comprehensive income totaling $239,000, net of tax, as of December 31, 2014.
Fair Value Measurement
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There is a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable and the significance of those inputs in the fair value measurement. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect our estimates about market data and views of market participants. The three levels for measuring fair value are based on the reliability of inputs.
See Note 8 to the financial statements for more information and disclosures relating to the Companys fair value measurements.
Securities
The Company classifies its investment securities into three categories, available for sale, held to maturity, or trading securities, at the time of purchase. Securities available for sale are reported at fair value with unrealized holding gains and/or losses, net of tax, recorded as a separate component of shareholders equity. Securities held to maturity are measured at amortized cost based on the Companys positive intent and ability to hold the securities to maturity.
Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Dividend and interest income is recognized when earned. Gains and losses on sales of securities are computed on a specific identification basis.
Management evaluates securities for other-than-temporary impairment (OTTI) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: OTTI related to credit loss, which must be recognized in the income statement and; OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of OTTI is recognized through earnings.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable incurred credit 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 managements judgment, should be charged off.
The allowance consists of specific and general reserves. Specific reserves primarily relate to loans that are individually classified as impaired, but may also relate to loans that in managements opinion exhibit negative credit characteristics or trends suggesting potential future loss exposure greater than historical loss experience would suggest. It is currently the Companys 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 Company 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.
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 loans 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 Companys practice to immediately charge-off any identified financial loss pertaining to impaired loans when management believes the uncollectibility of the loans has been confirmed. See Note 4 to the financial statements for additional information on impaired 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 Company 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 credit losses as of the evaluation date to differ from the portfolio segments 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 Company 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.
Segment Information
The Company has adopted accounting guidance issued by the FASB that requires certain information about the operating segments of the Company. The objective of requiring disclosures about segments of an enterprise and related information is to provide information about the different types of business activities in which an enterprise engages and the different economic environment in which it operates to help users of financial statements better understand its performance, better assess its prospects for future cash flows and make more informed judgments about the enterprise as a whole. The Company has determined that it has one segment, general commercial banking, and therefore, it is appropriate to aggregate the Companys operations into a single operating segment.
Derivative Instruments and Hedging Activities
The Company has adopted guidance issued by the FASB that clarifies the disclosure requirements for derivative instruments and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. The guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by the guidance, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualified as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and that qualify as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting under current accounting guidance. See Note 9 to the financial statements for additional information on derivative instruments and hedging activities.
2. Earnings Per Share
Basic net earnings per share is computed by dividing net earnings applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net earnings per share is determined using the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and vesting of restricted stock. Common stock equivalents are included in the diluted net earnings per share calculation to the extent these shares are dilutive. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net earnings per share available to common shareholders is as follows:
|
|
Three months ended |
| ||||
(dollars in thousands, |
|
March 31, |
| ||||
except per share amounts) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Net income |
|
$ |
3,914 |
|
$ |
3,716 |
|
|
|
|
|
|
| ||
Weighted average shares: |
|
|
|
|
| ||
Basic common shares |
|
14,900,669 |
|
14,646,573 |
| ||
Diluted potential common shares related to stock options and restricted stock |
|
742,771 |
|
816,076 |
| ||
Total average common equivalent shares |
|
15,643,440 |
|
15,462,649 |
| ||
|
|
|
|
|
| ||
Basic earnings per share |
|
$ |
0.26 |
|
$ |
0.25 |
|
Diluted earnings per share |
|
$ |
0.25 |
|
$ |
0.24 |
|
There were 199,000 and 240,446 options to acquire common stock (including those issuable pursuant to contingent stock agreements) that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share for the three months ended March 31, 2015 and March 31, 2014, respectively, because to do so would have been anti-dilutive.
3. Securities
As of March 31, 2015 and December 31, 2014, the Company had securities available for sale of $320.0 million and $352.2 million, respectively, and securities held to maturity of $12.6 million and $12.9 million, respectively. The securities classified as held to maturity were being held for purposes of the Community Reinvestment Act.
The amortized cost and approximate fair values of securities as of March 31, 2015 and December 31, 2014 are as follows:
|
|
As of March 31, 2015 |
| ||||||||||
|
|
|
|
Gross Unrealized |
|
Fair |
| ||||||
(dollars in thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
Securities available for sale |
|
|
|
|
|
|
|
|
| ||||
Debt securities: |
|
|
|
|
|
|
|
|
| ||||
U.S. government agencies |
|
$ |
51,410 |
|
$ |
574 |
|
$ |
(133 |
) |
$ |
51,851 |
|
Mortgage backed securities |
|
235,216 |
|
3,642 |
|
(1,112 |
) |
237,746 |
| ||||
Corporate bonds |
|
27,974 |
|
117 |
|
(9 |
) |
28,082 |
| ||||
Municipal bonds |
|
2,434 |
|
|
|
(89 |
) |
2,345 |
| ||||
Total debt securities |
|
317,034 |
|
4,333 |
|
(1,343 |
) |
320,024 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total securities available for sale |
|
$ |
317,034 |
|
$ |
4,333 |
|
$ |
(1,343 |
) |
$ |
320,024 |
|
|
|
|
|
|
|
|
|
|
| ||||
Securities held to maturity |
|
|
|
|
|
|
|
|
| ||||
Debt securities: |
|
|
|
|
|
|
|
|
| ||||
Mortgage backed securities |
|
$ |
12,563 |
|
$ |
270 |
|
$ |
|
|
$ |
12,833 |
|
Total debt securities |
|
12,563 |
|
270 |
|
|
|
12,833 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total securities held to maturity |
|
$ |
12,563 |
|
$ |
270 |
|
$ |
|
|
$ |
12,833 |
|
|
|
|
|
|
|
|
|
|
| ||||
Trading securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total investment securities |
|
$ |
329,597 |
|
$ |
4,603 |
|
$ |
(1,343 |
) |
$ |
332,857 |
|
|
|
|
| ||||||||||
|
|
As of December 31, 2014 |
| ||||||||||
|
|
|
|
Gross Unrealized |
|
Fair |
| ||||||
|
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
Securities available for sale |
|
|
|
|
|
|
|
|
| ||||
Debt securities: |
|
|
|
|
|
|
|
|
| ||||
U.S. government agencies |
|
$ |
58,873 |
|
$ |
304 |
|
$ |
(589 |
) |
$ |
58,588 |
|
Mortgage backed securities |
|
261,931 |
|
3,375 |
|
(2,081 |
) |
263,225 |
| ||||
Corporate bonds |
|
28,002 |
|
88 |
|
(13 |
) |
28,077 |
| ||||
Municipal bonds |
|
2,435 |
|
|
|
(83 |
) |
2,353 |
| ||||
Total debt securities |
|
351,241 |
|
3,767 |
|
(2,766 |
) |
352,243 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total securities available for sale |
|
$ |
351,241 |
|
$ |
3,767 |
|
$ |
(2,766 |
) |
$ |
352,243 |
|
|
|
|
|
|
|
|
|
|
| ||||
Securities held to maturity |
|
|
|
|
|
|
|
|
| ||||
Debt securities: |
|
|
|
|
|
|
|
|
| ||||
Mortgage backed securities |
|
$ |
12,922 |
|
$ |
301 |
|
$ |
|
|
$ |
13,222 |
|
|
|
|
|
|
|
|
|
|
| ||||
Total securities held to maturity |
|
$ |
12,922 |
|
$ |
301 |
|
$ |
|
|
$ |
13,222 |
|
|
|
|
|
|
|
|
|
|
| ||||
Total investment securities |
|
$ |
364,163 |
|
$ |
4,068 |
|
$ |
(2,766 |
) |
$ |
365,465 |
|
The scheduled maturities of investment securities at March 31, 2015 and December 31, 2014 were as follows:
Maturity of investment securities portfolio
|
|
March 31, 2015 |
| ||||
|
|
Amortized |
|
Fair |
| ||
(dollars in thousands) |
|
Cost |
|
Value |
| ||
Securities available for sale |
|
|
|
|
| ||
Due in one year or less |
|
$ |
4,865 |
|
$ |
4,858 |
|
Due after one year through five years |
|
59,699 |
|
60,443 |
| ||
Due after five years through ten years |
|
95,836 |
|
97,112 |
| ||
Due after ten years |
|
156,634 |
|
157,611 |
| ||
Total securities available for sale |
|
317,034 |
|
320,024 |
| ||
|
|
|
|
|
| ||
Securities held to maturity |
|
|
|
|
| ||
Due in one year or less |
|
$ |
6,623 |
|
$ |
6,632 |
|
Due after one year through five years |
|
|
|
|
| ||
Due after five years through ten years |
|
|
|
|
| ||
Due after ten years |
|
5,940 |
|
6,201 |
| ||
Total securities held to maturity |
|
12,563 |
|
12,833 |
| ||
|
|
|
|
|
| ||
Total investment securities |
|
$ |
329,597 |
|
$ |
332,857 |
|
|
|
December 31, 2014 |
| ||||
|
|
Amortized |
|
Fair |
| ||
(dollars in thousands) |
|
Cost |
|
Value |
| ||
|
|
|
|
|
| ||
Securities available for sale |
|
$ |
3,752 |
|
$ |
3,753 |
|
Due after one year through five years |
|
71,779 |
|
72,591 |
| ||
Due after five years through ten years |
|
110,893 |
|
110,894 |
| ||
Due after ten years |
|
164,817 |
|
165,005 |
| ||
Total securities available for sale |
|
351,241 |
|
352,243 |
| ||
|
|
|
|
|
| ||
Securities held to maturity |
|
|
|
|
| ||
Due in one year or less |
|
$ |
6,711 |
|
$ |
6,716 |
|
Due after one year through five years |
|
|
|
|
| ||
Due after five years through ten years |
|
|
|
|
| ||
Due after ten years |
|
6,211 |
|
6,506 |
| ||
Total securities held to maturity |
|
12,922 |
|
13,222 |
| ||
|
|
|
|
|
| ||
Total investment securities |
|
$ |
364,163 |
|
$ |
365,465 |
|
As of March 31, 2015 and December 31, 2014, no investment securities were pledged as collateral. As of March 31, 2015, $733,000 in unrealized losses was attributable to forty-four securities that had been in an unrealized loss position for less than 12 months. As of December 31, 2014, $1.6 million in unrealized losses was attributable to sixty-four securities that had been in an unrealized loss position for less than 12 months. The unrealized losses were primarily due to the impact of long-term interest rates on the value of the mortgage-based investment securities. Because the Company had the ability to hold these investments and doesnt intend to sell these investments until a recovery in fair value, which may be maturity, these investments were not considered to be other-than-temporarily impaired as of March 31, 2015 and December 31, 2014, respectively.
As of March 31, 2015, $610,000 in unrealized losses was attributable to twenty-one securities that had been in an unrealized loss position for greater than 12 months. As of December 31, 2014, $1.2 million in unrealized losses was attributable to twenty-nine securities that had been in an unrealized loss position for greater than 12 months. These unrealized losses, which had been in an unrealized loss position for one year or longer as of March 31, 2015 and December 31, 2014, were caused by market interest rate increases subsequent to the purchase of the securities or price fluctuations driven by volatility of the housing market conditions. Because the Company had the ability to hold these investments and doesnt intend to sell these investments until a recovery in fair value, which may be maturity, these investments were not considered to be other-than-temporarily impaired as of March 31, 2015 and December 31, 2014, respectively.
4. Loans
The balances in the various loan categories are as follows as of March 31, 2015 and December 31, 2014:
|
|
March 31, |
|
December 31, |
| ||
(dollars in thousands) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Commercial |
|
$ |
843,096 |
|
$ |
785,360 |
|
Real estate construction |
|
65,380 |
|
71,673 |
| ||
Land loans |
|
14,536 |
|
15,890 |
| ||
Real estate other |
|
146,597 |
|
139,624 |
| ||
Factoring and asset based |
|
156,806 |
|
167,513 |
| ||
SBA |
|
125,075 |
|
124,180 |
| ||
Other |
|
6,625 |
|
7,073 |
| ||
Total gross loans |
|
1,358,115 |
|
1,311,313 |
| ||
Unearned fee income |
|
(5,662 |
) |
(5,644 |
) | ||
Total loan portfolio |
|
1,352,453 |
|
1,305,669 |
| ||
Less allowance for credit losses |
|
(22,565 |
) |
(22,305 |
) | ||
Loans, net |
|
$ |
1,329,888 |
|
$ |
1,283,364 |
|
The Company individually categorizes larger, non-homogenous loans into credit risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for loan risk ratings:
Pass Loans classified as pass include larger non-homogenous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.
Special Mention Loans classified as special mention have a potential weakness that deserves managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institutions credit position at some future date.
Substandard Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt by the borrower. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Substandard loans for which payments have ceased and are 90 days or more past due, or for which the likelihood of full collection of interest and principal is doubtful, are placed on nonaccrual. Loans that have been placed on nonaccrual status are also considered impaired.
The following table summarizes the credit quality of the loan portfolio, based upon internally assigned risk ratings, as of March 31, 2015 and December 31, 2014.
|
|
March 31, 2015 |
| |||||||||||||
|
|
|
|
Special |
|
|
|
Substandard |
|
|
| |||||
(dollars in thousands) |
|
Pass |
|
Mention |
|
Substandard |
|
(Nonaccrual) |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
828,034 |
|
$ |
9,204 |
|
$ |
2,861 |
|
$ |
2,997 |
|
$ |
843,096 |
|
Real estate construction |
|
65,380 |
|
|
|
|
|
|
|
65,380 |
| |||||
Land loans |
|
14,536 |
|
|
|
|
|
|
|
14,536 |
| |||||
Real estate other |
|
139,170 |
|
2,848 |
|
1,985 |
|
2,594 |
|
146,597 |
| |||||
Factoring and asset based |
|
143,412 |
|
6,929 |
|
1,730 |
|
4,735 |
|
156,806 |
| |||||
SBA |
|
116,634 |
|
2,231 |
|
2,840 |
|
3,370 |
|
125,075 |
| |||||
Other |
|
6,625 |
|
|
|
|
|
|
|
6,625 |
| |||||
Total gross loans |
|
$ |
1,313,791 |
|
$ |
21,212 |
|
$ |
9,416 |
|
$ |
13,696 |
|
$ |
1,358,115 |
|
|
|
|
| |||||||||||||
|
|
As of December 31, 2014 |
| |||||||||||||
|
|
|
|
Special |
|
|
|
Substandard |
|
|
| |||||
(dollars in thousands) |
|
Pass |
|
Mention |
|
Substandard |
|
(Nonaccrual) |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
774,162 |
|
$ |
3,844 |
|
$ |
6,087 |
|
$ |
1,267 |
|
$ |
785,360 |
|
Real estate construction |
|
71,673 |
|
|
|
|
|
|
|
71,673 |
| |||||
Land loans |
|
15,890 |
|
|
|
|
|
|
|
15,890 |
| |||||
Real estate other |
|
125,087 |
|
1,693 |
|
10,044 |
|
2,800 |
|
139,624 |
| |||||
Factoring and asset based |
|
159,907 |
|
367 |
|
7,042 |
|
197 |
|
167,513 |
| |||||
SBA |
|
112,568 |
|
1,176 |
|
6,847 |
|
3,589 |
|
124,180 |
| |||||
Other |
|
7,073 |
|
|
|
|
|
|
|
7,073 |
| |||||
Total gross loans |
|
$ |
1,266,360 |
|
$ |
7,080 |
|
$ |
30,020 |
|
$ |
7,853 |
|
$ |
1,311,313 |
|
For all loan classes, past due loans are reviewed on a monthly basis to identify loans for nonaccrual status. Loans are generally placed on non-accrual when payments have ceased and are 90 days or more past due, or when the likelihood of full collection of interest and principal is doubtful. However, if a loan is fully secured and in the process of collection and resolution of collection (generally within 90 days), then the loan will generally not be placed on nonaccrual, regardless of its delinquency status. Nonaccrual loans will not normally be returned to accrual status, although consideration will be given to situations where all past due principal and interest has been paid and the borrower has evidenced their ability to meet the contractual provisions of the note. When interest accruals are discontinued, all unpaid interest is reversed against current year income. The Companys method of income recognition for loans classified as nonaccrual is to apply cash received to principal when the ultimate collectability of principal is in doubt or recognize interest income on a cash basis.
The following table summarizes the payment status of the loan portfolio as of March 31, 2015 and December 31, 2014.
|
|
As of March 31, 2015 |
| ||||||||||||||||
|
|
|
|
Still Accruing |
|
|
|
|
| ||||||||||
|
|
|
|
30-59 Days |
|
60-89 Days |
|
Over 90 Days |
|
|
|
|
| ||||||
(dollars in thousands) |
|
Current |
|
Past Due |
|
Past Due |
|
Past Due |
|
Nonaccrual |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
840,099 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
2,997 |
|
$ |
843,096 |
|
Real estate construction |
|
65,380 |
|
|
|
|
|
|
|
|
|
65,380 |
| ||||||
Land loans |
|
14,536 |
|
|
|
|
|
|
|
|
|
14,536 |
| ||||||
Real estate other |
|
144,003 |
|
|
|
|
|
|
|
2,594 |
|
146,597 |
| ||||||
Factoring and asset based |
|
152,071 |
|
|
|
|
|
|
|
4,735 |
|
156,806 |
| ||||||
SBA |
|
121,705 |
|
|
|
|
|
|
|
3,370 |
|
125,075 |
| ||||||
Other |
|
6,608 |
|
15 |
|
2 |
|
|
|
|
|
6,625 |
| ||||||
Total gross loans |
|
$ |
1,344,402 |
|
$ |
15 |
|
$ |
2 |
|
$ |
|
|
$ |
13,696 |
|
$ |
1,358,115 |
|
|
|
|
| ||||||||||||||||
|
|
As of December 31, 2014 |
| ||||||||||||||||
|
|
|
|
Still Accruing |
|
|
|
|
| ||||||||||
|
|
|
|
30-59 Days |
|
60-89 Days |
|
Over 90 Days |
|
|
|
|
| ||||||
(dollars in thousands) |
|
Current |
|
Past Due |
|
Past Due |
|
Past Due |
|
Nonaccrual |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
783,915 |
|
$ |
|
|
$ |
178 |
|
$ |
|
|
$ |
1,267 |
|
$ |
785,360 |
|
Real estate construction |
|
71,673 |
|
|
|
|
|
|
|
|
|
71,673 |
| ||||||
Land loans |
|
15,890 |
|
|
|
|
|
|
|
|
|
15,890 |
| ||||||
Real estate other |
|
136,824 |
|
|
|
|
|
|
|
2,800 |
|
139,624 |
| ||||||
Factoring and asset based |
|
161,854 |
|
5,462 |
|
|
|
|
|
197 |
|
167,513 |
| ||||||
SBA |
|
120,591 |
|
|
|
|
|
|
|
3,589 |
|
124,180 |
| ||||||
Other |
|
7,071 |
|
2 |
|
|
|
|
|
|
|
7,073 |
| ||||||
Total gross loans |
|
$ |
1,297,818 |
|
$ |
5,464 |
|
$ |
178 |
|
$ |
|
|
$ |
7,853 |
|
$ |
1,311,313 |
|
A loan is categorized as a troubled debt restructuring if a significant concession is granted to provide for a reduction of either interest or principal due to deterioration in the financial condition of the borrower. Troubled debt restructurings can take the form of a reduction of the stated interest rate, splitting a loan into separate loans with market terms on one loan and concessionary terms on the other loan, receipts of assets from a debtor in partial or full satisfaction of a loan, the extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk, the reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement, the reduction of accrued interest, or any other concessionary type of renegotiated debt. Depending on the payment history of the loan, a troubled debt restructuring can be considered performing and accruing interest or be placed on nonaccrual. However, all troubled debt restructurings are considered impaired.
As of March 31, 2015, the Company had twelve loans totaling $5.6 million classified as troubled debt restructurings. The twelve loans were comprised of ten other real estate loans and two SBA loans. Troubled debt restructurings represented 0.4% of total gross loans as of March 31, 2015. As of December 31, 2014, the Company had fourteen loans totaling $10.8 million classified as troubled debt restructurings. The fourteen loans were comprised of twelve other real estate loans and two SBA loans. Troubled debt restructurings represented 1.2% of total gross loans as of December 31, 2014.
The Company did not have any commitments to lend additional funds for loans classified as troubled debt restructurings at March 31, 2015 and December 31, 2014.
During the three months ended March 31, 2015 and March 31, 2014, there were no additional loans modified and designated as troubled debt restructurings. However, during the period ended March 31, 2015, there was one loan previously designated as a performing troubled debt restructuring that has been upgraded and is no longer designated as a troubled debt restructured loan.
A loan is considered to be in payment default when it is 90 days contractually past due under the modified terms. There were no loans modified within the last twelve months that defaulted during the three months ended March 31, 2015.
The following table summarizes the loans categorized as troubled debt restructurings at March 31, 2015 and December 31, 2014. The troubled debt restructurings considered performing and nonaccrual are included in the Substandard and Substandard (Nonaccrual) categories, respectively, in the preceding credit quality table, and included in the Current and Nonaccrual categories, respectively, in the preceding payment status table.
|
|
As of March 31, 2015 |
| ||||||||||||||||
|
|
Performing |
|
Nonaccrual |
|
Total |
| ||||||||||||
|
|
Pre- |
|
Post- |
|
Pre- |
|
Post- |
|
Pre- |
|
Post- |
| ||||||
|
|
Modification |
|
Modification |
|
Modification |
|
Modification |
|
Modification |
|
Modification |
| ||||||
(dollars in thousands) |
|
Investment |
|
Investment |
|
Investment |
|
Investment |
|
Investment |
|
Investment |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Real estate construction |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Land loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Real estate other |
|
4,502 |
|
3,882 |
|
1,515 |
|
1,310 |
|
6,017 |
|
5,192 |
| ||||||
Factoring and asset based |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
SBA |
|
442 |
|
429 |
|
|
|
|
|
442 |
|
429 |
| ||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total gross loans |
|
$ |
4,944 |
|
$ |
4,311 |
|
$ |
1,515 |
|
$ |
1,310 |
|
$ |
6,459 |
|
$ |
5,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
As of December 31, 2014 |
| ||||||||||||||||
|
|
Performing |
|
Nonaccrual |
|
Total |
| ||||||||||||
|
|
Pre- |
|
Post- |
|
Pre- |
|
Post- |
|
Pre- |
|
Post- |
| ||||||
|
|
Modification |
|
Modification |
|
Modification |
|
Modification |
|
Modification |
|
Modification |
| ||||||
|
|
Investment |
|
Investment |
|
Investment |
|
Investment |
|
Investment |
|
Investment |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Real estate construction |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Land loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Real estate other |
|
9,479 |
|
8,803 |
|
1,715 |
|
1,516 |
|
11,194 |
|
10,319 |
| ||||||
Factoring and asset based |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
SBA |
|
442 |
|
434 |
|
|
|
|
|
442 |
|
434 |
| ||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total gross loans |
|
$ |
9,921 |
|
$ |
9,237 |
|
$ |
1,715 |
|
$ |
1,516 |
|
$ |
11,636 |
|
$ |
10,753 |
|
Loans are designated as impaired, when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. As of March 31, 2015 and December 31, 2014 loans designated as impaired consisted of nonaccrual loans and troubled debt restructurings.
The following table summarizes the loans categorized as impaired at March 31, 2015 and December 31, 2014.
|
|
March 31, |
|
December 31, |
| ||
(dollars in thousands) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Nonaccrual loans (1) |
|
$ |
13,696 |
|
$ |
7,853 |
|
Trouble debt restructurings - performing |
|
4,311 |
|
9,237 |
| ||
Loans past due 90 days or more and accruing interest |
|
|
|
|
| ||
Loans current or past due less than 90 days and accruing interest |
|
|
|
|
| ||
Total impaired loans |
|
$ |
18,007 |
|
$ |
17,090 |
|
(1) Nonaccrual loans include troubled debt restructurings of $1.3 million and $1.5 million at March 31, 2015 and December 31, 2014, respectively.
Impaired loans at March 31, 2015 were comprised of loans with legal contractual balances totaling approximately $20.6 million reduced by approximately $422,000 received in non-accrual interest and impairment charges of $2.2 million which have been charged against the allowance for loan losses. As of March 31, 2015, there was an additional 21 loans with legal contractual balances totaling $15.0 million that have been fully charged off, for which the Company continues to pursue collection remedies.
Impaired loans at December 31, 2014 were comprised of loans with legal contractual balances totaling approximately $20.9 million reduced by $404,000 received in non-accrual interest and impairment charges of $3.4 million which have been charged against the allowance for loan losses.
The following summarizes the breakdown of impaired loans by category as of March 31, 2015 and December 31, 2014:
|
|
As of March 31, 2015 |
|
As of December 31, 2014 |
| ||||||||
|
|
Unpaid |
|
|
|
Unpaid |
|
|
| ||||
|
|
Principal |
|
Recorded |
|
Principal |
|
Recorded |
| ||||
(dollars in thousands) |
|
Balance |
|
Investment |
|
Balance |
|
Investment |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
4,463 |
|
$ |
2,997 |
|
$ |
2,640 |
|
$ |
1,267 |
|
Real estate construction |
|
|
|
|
|
|
|
|
| ||||
Land loans |
|
|
|
|
|
|
|
|
| ||||
Real estate other |
|
6,632 |
|
6,476 |
|
11,752 |
|
11,603 |
| ||||
Factoring and asset based |
|
4,735 |
|
4,735 |
|
1,469 |
|
197 |
| ||||
SBA |
|
4,815 |
|
3,799 |
|
5,028 |
|
4,023 |
| ||||
Other |
|
|
|
|
|
|
|
|
| ||||
Total gross loans |
|
$ |
20,645 |
|
$ |
18,007 |
|
$ |
20,889 |
|
$ |
17,090 |
|
Consistent with the Companys method of income recognition for loans, interest on impaired loans, except those classified as nonaccrual, is recognized using the accrual method. The Company did not record income from the receipt of cash payments related to nonaccrual loans during the three months and ended March 31, 2015 and 2014. Interest income recognized on impaired loans represents interest the Company recognized on performing troubled debt restructurings and loans greater than 90 days past due and still accruing interest.
The following table summarizes the average recorded investment in impaired loans and related interest income recognized for the three months ended March 31, 2015 and 2014:
|
|
Three months ended March 31, |
| ||||||||||
|
|
2015 |
|
2014 |
| ||||||||
|
|
Average |
|
Interest |
|
Average |
|
Interest |
| ||||
|
|
Recorded |
|
Income |
|
Recorded |
|
Income |
| ||||
(dollars in thousands) |
|
Investment |
|
Recognized |
|
Investment |
|
Recognized |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
2,865 |
|
$ |
|
|
$ |
256 |
|
$ |
2 |
|
Real estate construction |
|
|
|
|
|
|
|
|
| ||||
Land loans |
|
|
|
|
|
2 |
|
|
| ||||
Real estate other |
|
9,118 |
|
24 |
|
12,298 |
|
122 |
| ||||
Factoring and asset based |
|
2,467 |
|
|
|
4,251 |
|
87 |
| ||||
SBA |
|
4,419 |
|
10 |
|
2,221 |
|
17 |
| ||||
Other |
|
|
|
|
|
|
|
|
| ||||
Total gross loans |
|
$ |
18,868 |
|
$ |
34 |
|
$ |
19,027 |
|
$ |
228 |
|
The allowance for loan losses is a valuation allowance for probable incurred credit 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. The entire allowance is available for any loan that, in managements judgment should be charged-off.
The allowance consists of specific and general reserves. Specific reserves relate to loans that are individually classified as impaired or are otherwise exhibiting negative credit characteristics suggesting potential loss exposure greater than historical loss experience would suggest. Specific reserves are calculated by evaluating the present value of expected future cash flows pertaining to the loan, the fair value of the collateral supporting the loan, less selling costs, or the loans observable market price. It is currently the Companys practice to immediately charge-off any identified financial loss pertaining to impaired loans when management believes the uncollectibility of the loan is confirmed; therefore, as seen in the table below, there are typically only a small number of individual loans for which a specific reserve exists. General reserves 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 credit losses as of the evaluation date to differ from the portfolio segments 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; concentrations of credit and the effect of other external factors such as competition and legal and regulatory requirements.
The allowance for loan losses totaled $22.6 million and $22.3 million as of March 31, 2015 and December 31, 2014, respectively. The following table summarizes the loans individually and collectively evaluated for impairment and the corresponding allowance for loan losses as of March 31, 2015 and December 31, 2014.
|
|
As of March 31, 2015 |
| ||||||||||||||||
|
|
Individually Evaluated |
|
Collectively Evaluated |
|
Total Evaluated |
| ||||||||||||
|
|
For Impairment |
|
For Impairment |
|
For Impairment |
| ||||||||||||
(dollars in thousands) |
|
Loans |
|
Allowance |
|
Loans |
|
Allowance |
|
Loans |
|
Allowance |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
2,997 |
|
$ |
306 |
|
$ |
840,099 |
|
$ |
10,950 |
|
$ |
843,096 |
|
$ |
11,256 |
|
Real estate construction |
|
|
|
|
|
65,380 |
|
1,258 |
|
65,380 |
|
1,258 |
| ||||||
Land loans |
|
|
|
|
|
14,536 |
|
376 |
|
14,536 |
|
376 |
| ||||||
Real estate other |
|
6,476 |
|
268 |
|
140,121 |
|
1,943 |
|
146,597 |
|
2,211 |
| ||||||
Factoring and asset based |
|
4,735 |
|
863 |
|
152,071 |
|
4,629 |
|
156,806 |
|
5,492 |
| ||||||
SBA |
|
3,799 |
|
|
|
121,276 |
|
1,848 |
|
125,075 |
|
1,848 |
| ||||||
Other |
|
|
|
|
|
6,625 |
|
124 |
|
6,625 |
|
124 |
| ||||||
Total |
|
$ |
18,007 |
|
$ |
1,437 |
|
$ |
1,340,108 |
|
$ |
21,128 |
|
$ |
1,358,115 |
|
$ |
22,565 |
|
|
|
As of December 31, 2014 |
| ||||||||||||||||
|
|
Individually Evaluated |
|
Collectively Evaluated |
|
Total Evaluated |
| ||||||||||||
|
|
For Impairment |
|
For Impairment |
|
For Impairment |
| ||||||||||||
(dollars in thousands) |
|
Loans |
|
Allowance |
|
Loans |
|
Allowance |
|
Loans |
|
Allowance |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
1,267 |
|
$ |
350 |
|
$ |
784,093 |
|
$ |
10,450 |
|
$ |
785,360 |
|
$ |
10,800 |
|
Real estate construction |
|
|
|
|
|
71,673 |
|
1,423 |
|
71,673 |
|
1,423 |
| ||||||
Land loans |
|
|
|
|
|
15,890 |
|
412 |
|
15,890 |
|
412 |
| ||||||
Real estate other |
|
11,603 |
|
126 |
|
128,021 |
|
2,005 |
|
139,624 |
|
2,131 |
| ||||||
Factoring and asset based |
|
197 |
|
|
|
167,316 |
|
5,185 |
|
167,513 |
|
5,185 |
| ||||||
SBA |
|
4,023 |
|
|
|
120,157 |
|
2,209 |
|
124,180 |
|
2,209 |
| ||||||
Other |
|
|
|
|
|
7,073 |
|
145 |
|
7,073 |
|
145 |
| ||||||
Total |
|
$ |
17,090 |
|
$ |
476 |
|
$ |
1,294,223 |
|
$ |
21,829 |
|
$ |
1,311,313 |
|
$ |
22,305 |
|
Of the loans individually evaluated for impairment, ten real estate other loans, with an aggregate balance of $5.2 million, and three commercial loans, with an aggregate balance of $1.2 million, had an associated allowance for the period ending March 31, 2015. For the period ended December 31, 2014, of the loans individually evaluated for impairment, there were ten real estate other loans, with an aggregate balance of $3.5 million, and one commercial loan, with a current balance of $422,000, that had an associated allowance.
The following table summarizes the activity in the allowance for loan losses for the quarters ended March 31, 2015 and 2014.
|
|
Three months ended March 31, 2015 |
| ||||||||||||||||||||||
|
|
|
|
Real |
|
|
|
Real |
|
Factoring |
|
|
|
|
|
|
| ||||||||
|
|
|
|
estate |
|
Land |
|
estate |
|
and asset |
|
|
|
|
|
|
| ||||||||
(dollars in thousands) |
|
Commercial |
|
construction |
|
loans |
|
other |
|
based |
|
SBA |
|
Other |
|
Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
As of December 31, 2014 |
|
$ |
10,800 |
|
$ |
1,423 |
|
$ |
412 |
|
$ |
2,131 |
|
$ |
5,185 |
|
$ |
2,209 |
|
$ |
145 |
|
$ |
22,305 |
|
Provision charged to expense |
|
518 |
|
(165 |
) |
(36 |
) |
60 |
|
42 |
|
(398 |
) |
(21 |
) |
|
| ||||||||
Charge-offs |
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(93 |
) | ||||||||
Recoveries |
|
31 |
|
|
|
|
|
20 |
|
265 |
|
37 |
|
|
|
353 |
| ||||||||
As of March 31, 2015 |
|
$ |
11,256 |
|
$ |
1,258 |
|
$ |
376 |
|
$ |
2,211 |
|
$ |
5,492 |
|
$ |
1,848 |
|
$ |
124 |
|
$ |
22,565 |
|
|
|
Three months ended March 31, 2014 |
| ||||||||||||||||||||||
|
|
|
|
Real |
|
|
|
Real |
|
Factoring |
|
|
|
|
|
|
| ||||||||
|
|
|
|
estate |
|
Land |
|
estate |
|
and asset |
|
|
|
|
|
|
| ||||||||
(dollars in thousands) |
|
Commercial |
|
construction |
|
loans |
|
other |
|
based |
|
SBA |
|
Other |
|
Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
As of December 31, 2013 |
|
$ |
9,066 |
|
$ |
1,013 |
|
$ |
377 |
|
$ |
2,857 |
|
$ |
6,136 |
|
$ |
2,363 |
|
$ |
132 |
|
$ |
21,944 |
|
Provision charged |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
to expense |
|
(203 |
) |
432 |
|
(43 |
) |
(162 |
) |
477 |
|
(6 |
) |
5 |
|
500 |
| ||||||||
Charge-offs |
|
|
|
|
|
|
|
|
|
(430 |
) |
(35 |
) |
|
|
(465 |
) | ||||||||
Recoveries |
|
458 |
|
|
|
20 |
|
|
|
152 |
|
56 |
|
|
|
686 |
| ||||||||
As of March 31, 2014 |
|
$ |
9,321 |
|
$ |
1,445 |
|
$ |
354 |
|
$ |
2,695 |
|
$ |
6,335 |
|
$ |
2,378 |
|
$ |
137 |
|
$ |
22,665 |
|
5. Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the shorter of the lease term, generally three to fifteen years, or the estimated useful lives of the assets, generally three to five years.
Premises and equipment at March 31, 2015 and December 31, 2014 were comprised of the following:
|
|
March 31, 2015 |
| |||||||
|
|
|
|
Accumulated |
|
Net Book |
| |||
(dollars in thousands) |
|
Cost |
|
Depreciation |
|
Value |
| |||
|
|
|
|
|
|
|
| |||
Leasehold improvements |
|
$ |
7,116 |
|
$ |
(5,833 |
) |
$ |
1,283 |
|
Furniture and fixtures |
|
1,356 |
|
(1,114 |
) |
242 |
| |||
Capitalized software |
|
4,638 |
|
(4,282 |
) |
356 |
| |||
Equipment |
|
3,606 |
|
(3,125 |
) |
481 |
| |||
Total premises and equipment |
|
$ |
16,716 |
|
$ |
(14,354 |
) |
$ |
2,362 |
|
|
|
December 31, 2014 |
| |||||||
|
|
|
|
Accumulated |
|
Net book |
| |||
(dollars in thousands) |
|
Cost |
|
Depreciation |
|
Value |
| |||
|
|
|
|
|
|
|
| |||
Leasehold improvements |
|
$ |
7,103 |
|
$ |
(5,753 |
) |
$ |
1,350 |
|
Furniture and fixtures |
|
1,331 |
|
(1,097 |
) |
234 |
| |||
Capitalized software |
|
4,628 |
|
(4,219 |
) |
409 |
| |||
Equipment |
|
3,549 |
|
(3,038 |
) |
511 |
| |||
Total premises and equipment |
|
$ |
16,611 |
|
$ |
(14,107 |
) |
$ |
2,504 |
|
Depreciation and amortization amounted to $247,000 and $305,000 for the three months ended March 31, 2015 and March 31, 2014, respectively, and has been included in occupancy and/or furniture and equipment expense, depending on the nature of the expense, in the accompanying statements of operations.
6. Junior Subordinated Debt Securities and Other Borrowings
Junior Subordinated Debt Securities
On December 21, 2004, the Company issued $12,372,000 of junior subordinated debt securities (the debt securities) to Bridge Capital Trust I, a statutory trust created under the laws of the State of Delaware. These debt securities are subordinated to effectively all borrowings of the Company and are due and payable in March 2035. Interest was payable quarterly on these debt securities at a fixed rate of 5.90% for the first five years, and thereafter interest accrues at LIBOR plus 1.98%. In April of 2008, the Company entered into an interest rate swap agreement to fix the variable cash outflows associated with the debt securities to Bridge Capital Trust I for an additional five years at 6.11%. See Footnote 9 - Derivatives and Hedging Activities for further discussion. The debt securities can be redeemed at par at the Companys option beginning in March 2010; they can also be redeemed at par if certain events occur that impact the tax treatment or the capital treatment of the issuance.
The Company also purchased a 3% minority interest in the Trust. The balance of the equity of the Trust is comprised of mandatorily redeemable preferred securities.
On March 30, 2006 the Company issued $5,155,000 of junior subordinated debt securities (the debt securities) to Bridge Capital Trust II, a statutory trust created under the laws of the State of Delaware. These debt securities are subordinated to effectively all borrowings of the Company and are due and payable in March 2037. Interest was payable quarterly on these debt securities at a fixed rate of 6.60% for the first five years, and thereafter interest accrues at LIBOR plus 1.38%. In September of 2008, the Company entered into an interest rate swap agreement to fix the variable cash outflows associated with the debt securities to Bridge Capital Trust II for an additional five years at 6.09%. See Footnote 9 - Derivatives and Hedging Activities for further discussion. The debt securities can be redeemed at par at the Companys option beginning in April 2011; they can also be redeemed at par if certain events occur that impact the tax treatment or the capital treatment of the issuance.
The Company also purchased a 3% minority interest in the Trust. The balance of the equity of the Trust is comprised of mandatorily redeemable preferred securities.
Based upon accounting guidance, these Trusts are not consolidated into the companys financial statements. The Federal Reserve Board has ruled that subordinated notes payable to unconsolidated special purpose entities (SPEs) such as these Trusts, net of the bank holding companys investment in the SPE, qualify as Tier 1 Capital, subject to certain limits.
Other Borrowings
There were no other borrowings at March 31, 2015. At December 31, 2014, the Company had $40.0 million in other borrowings.
As of March 31, 2015, the Company had a total borrowing capacity with the Federal Home Loan Bank of San Francisco of approximately $443.0 million for which the Company had collateral in place to borrow $136.0 million. As of March 31, 2015, $10.0 million of this borrowing capacity was pledged to secure a letter of credit.
The Company also has unsecured borrowing lines with correspondent banks totaling $47.0 million. At March 31, 2015, there were no balances outstanding on these lines.
7. Stock-Based Compensation
The Company has elected to use the BSM option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rates. The expected volatility is based on the historical volatility of the Companys common stock over the most recent period commensurate with the estimated expected life of the Companys stock options, adjusted for the impact of unusual fluctuations not reasonably expected to recur and other relevant factors including implied volatility in market traded options on the Companys common stock. The expected life of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees.
The weighted average assumptions used for the three month periods ended March 31, 2015 and 2014 and the resulting estimates of weighted-average fair value per share of stock options granted during those periods are as follows:
|
|
Three months ended March 31, |
| ||||
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Expected life |
|
75 months |
|
75 months |
| ||
|
|
|
|
|
| ||
Stock volatility |
|
35.00 |
% |
35.00 |
% | ||
|
|
|
|
|
| ||
Risk free interest rate |
|
1.96 |
% |
2.00 |
% | ||
|
|
|
|
|
| ||
Dividend yield |
|
0.00 |
% |
0.00 |
% | ||
|
|
|
|
|
| ||
Fair value per share |
|
$ |
8.78 |
|
$ |
9.17 |
|
8. Fair Value of Financial Instruments
In accordance with accounting guidance, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1 Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S. government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.
Level 3 Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.
Because no market exists for a significant portion of the Companys financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. The following methods and assumptions were used by the Company to estimate the fair values of its financial instruments at March 31, 2015 and December 31, 2014:
Cash and Cash Equivalents, Fed Funds Sold and Interest bearing deposits in other banks
The carrying amounts of these instruments approximate the fair value and are classified as Level 1 in the fair value hierarchy.
Investment Securities
For investment securities, fair values are estimated using quoted market prices for similar securities and indications of value provided by brokers and are classified as Level 2.
Loans
The fair value of variable rate loans that reprice frequently and with no significant change in credit risk is based on the carrying value and results in a classification of Level 3 within the fair value hierarchy. Fair value for other loans are estimated using discounted cash flow analysis using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification in the fair value hierarchy. The methods used to estimate the fair value of loans do not necessarily represent an exit price.
Warrant Portfolio
Warrants are recorded at fair value on a recurring basis using a Black-Scholes valuation model. The Black-Scholes valuation model utilizes five inputs: exercise price, expected life, volatility, risk free rate and dividends. The Corporation holds a portfolio of warrants for generally nonmarketable equity securities. These warrants are primarily from non-public technology and life science companies obtained as part of the loan origination process. The Company classifies warrants as Level 3 of the valuation hierarchy.
Deposits
The fair value of demand deposits (e.g. interest and non-interest bearing, savings and certain types of money market accounts) are, by definition, equal to the amount payable in demand at the reporting date (i.e. carrying value) resulting in a Level 1 classification in the fair value hierarchy. The carrying amounts of variable rate, fixed-term money market accounts and certificate of deposits approximates their fair value at the reporting date in a Level 2 classification in the fair value hierarchy. Fair values for fixed rate certificate of deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.
Junior Subordinated Debt Securities
Represents the fair value of the trust preferred securities, and approximates the pricing of a preferred security at current market prices and are classified as Level 3.
Cash Flow Hedge
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs model-derived credit spreads. The level in the fair value hierarchy within which the fair value measurement in their entirety fall shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. Because the inputs used to measure the fair value of the Companys derivatives fall into different levels of the fair value hierarchy, as of March 31, 2015 and December 31, 2014, the Company has assessed the significance of the impact of the credit valuations adjustment on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivative portfolios. As a result, the Company classifies its derivative valuations in Level 2 of the fair value hierarchy.
|
|
As of March 31, 2015 |
| |||||||||||||
|
|
Carrying |
|
|
|
|
|
|
|
Fair |
| |||||
(dollars in thousands) |
|
Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Value |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and due from banks |
|
$ |
29,969 |
|
$ |
29,969 |
|
$ |
|
|
$ |
|
|
$ |
29,969 |
|
Federal funds sold |
|
121,028 |
|
121,028 |
|
|
|
|
|
121,028 |
| |||||
Interest bearing deposits in other banks |
|
326 |
|
326 |
|
|
|
|
|
326 |
| |||||
Investments securities |
|
332,587 |
|
|
|
332,857 |
|
|
|
332,857 |
| |||||
Loans and leases, net of unearned fees |
|
1,352,453 |
|
|
|
|
|
1,349,880 |
|
1,349,880 |
| |||||
Warrant portfolio |
|
377 |
|
|
|
|
|
377 |
|
377 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
1,655,845 |
|
1,150,911 |
|
501,449 |
|
|
|
1,652,360 |
| |||||
Junior subordinated debt securities |
|
17,527 |
|
|
|
|
|
17,430 |
|
17,430 |
| |||||
Cash flow hedge |
|
272 |
|
|
|
272 |
|
|
|
272 |
| |||||
|
|
As of December 31, 2014 |
| |||||||||||||
|
|
Carrying |
|
|
|
|
|
|
|
Fair |
| |||||
(dollars in thousands) |
|
Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Value |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and due from banks |
|
$ |
21,950 |
|
$ |
21,950 |
|
$ |
|
|
$ |
|
|
$ |
21,950 |
|
Federal funds sold |
|
75,420 |
|
75,420 |
|
|
|
|
|
75,420 |
| |||||
Interest bearing deposits in other banks |
|
326 |
|
326 |
|
|
|
|
|
326 |
| |||||
Investments securities |
|
365,165 |
|
|
|
365,465 |
|
|
|
365,465 |
| |||||
Loans and leases, net of unearned fees |
|
1,305,669 |
|
|
|
|
|
1,303,629 |
|
1,303,629 |
| |||||
Warrant portfolio |
|
375 |
|
|
|
|
|
375 |
|
375 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
1,549,545 |
|
1,070,293 |
|
476,078 |
|
|
|
1,546,371 |
| |||||
Trust preferred securities |
|
17,527 |
|
|
|
|
|
17,431 |
|
17,431 |
| |||||
Other borrowings |
|
40,000 |
|
40,000 |
|
|
|
|
|
40,000 |
| |||||
Cash flow hedge |
|
416 |
|
|
|
416 |
|
|
|
416 |
| |||||
The balances of assets and liabilities measured at fair value on a recurring basis are as follows:
|
|
As of March 31, 2015 |
| ||||||||||
(dollars in thousands) |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Securities available for sale |
|
|
|
|
|
|
|
|
| ||||
U.S. government agencies |
|
$ |
51,851 |
|
$ |
|
|
$ |
51,851 |
|
$ |
|
|
Mortgage backed securities |
|
237,746 |
|
|
|
237,746 |
|
|
| ||||
Corporate bonds |
|
28,082 |
|
|
|
28,082 |
|
|
| ||||
Municipal bonds |
|
2,345 |
|
|
|
2,345 |
|
|
| ||||
Warrant portfolio |
|
377 |
|
|
|
|
|
377 |
| ||||
Cash flow hedge |
|
(272 |
) |
|
|
(272 |
) |
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
|
$ |
320,129 |
|
$ |
|
|
$ |
319,752 |
|
$ |
377 |
|
|
|
As of December 31, 2014 |
| ||||||||||
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Securities available for sale |
|
|
|
|
|
|
|
|
| ||||
U.S. government agencies |
|
$ |
58,588 |
|
$ |
|
|
$ |
58,588 |
|
$ |
|
|
Mortgage backed securities |
|
263,225 |
|
|
|
263,225 |
|
|
| ||||
Corporate bonds |
|
28,077 |
|
|
|
28,077 |
|
|
| ||||
Municipal bonds |
|
2,352 |
|
|
|
2,352 |
|
|
| ||||
Warrant portfolio |
|
375 |
|
|
|
|
|
375 |
| ||||
Cash flow hedge |
|
(416 |
) |
|
|
(416 |
) |
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
|
$ |
352,201 |
|
$ |
|
|
$ |
351,826 |
|
$ |
375 |
|
There were no transfers between Level 1 and Level 2 during the period for assets measured at fair value on a recurring basis.
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis were not material for the quarter ended March 31, 2015.
The Company may be required, from time to time, to measure certain other financial assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.
Assets measured at fair value on a non-recurring basis for the quarters ended March 31, 2015 and December 31, 2014, included impaired loans and other real estate owned as follows:
|
|
As of March 31, 2015 |
| ||||||||||
|
|
Quoted Prices In |
|
Significant |
|
Significant |
|
|
| ||||
|
|
Active Markets |
|
Observable |
|
Unobservable |
|
|
| ||||
|
|
for Identical Assets |
|
Inputs |
|
Inputs |
|
|
| ||||
(dollar in thousands) |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
| ||||
Impaired loans: |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
|
|
$ |
|
|
$ |
2,997 |
|
$ |
2,997 |
|
Real estate construction |
|
|
|
|
|
|
|
|
| ||||
Land loans |
|
|
|
|
|
|
|
|
| ||||
Real estate other |
|
|
|
|
|
6,476 |
|
6,476 |
| ||||
Factoring and asset based |
|
|
|
|
|
4,735 |
|
4,735 |
| ||||
SBA |
|
|
|
|
|
3,799 |
|
3,799 |
| ||||
Other |
|
|
|
|
|
|
|
|
| ||||
Total impaired loans |
|
$ |
|
|
$ |
|
|
$ |
18,007 |
|
$ |
18,007 |
|
|
|
|
|
|
|
|
|
|
| ||||
Other real estate owned: |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Real estate construction |
|
|
|
|
|
|
|
|
| ||||
Land loans |
|
|
|
14 |
|
|
|
14 |
| ||||
Real estate other |
|
|
|
|
|
|
|
|
| ||||
Factoring and asset based |
|
|
|
|
|
|
|
|
| ||||
SBA |
|
|
|
8 |
|
|
|
8 |
| ||||
Other |
|
|
|
|
|
|
|
|
| ||||
Total other real estate owned |
|
$ |
|
|
$ |
22 |
|
$ |
|
|
$ |
22 |
|
|
|
As of December 31, 2014 |
| ||||||||||
|
|
Quoted Prices In |
|
Significant |
|
Significant |
|
|
| ||||
|
|
Active Markets |
|
Observable |
|
Unobservable |
|
|
| ||||
|
|
for Identical Assets |
|
Inputs |
|
Inputs |
|
|
| ||||
(dollar in thousands) |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
| ||||
Impaired loans: |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
|
|
$ |
|
|
$ |
1,267 |
|
$ |
1,267 |
|
Real estate construction |
|
|
|
|
|
|
|
|
| ||||
Land loans |
|
|
|
|
|
|
|
|
| ||||
Real estate other |
|
|
|
|
|
11,603 |
|
11,603 |
| ||||
Factoring and asset based |
|
|
|
|
|
198 |
|
198 |
| ||||
SBA |
|
|
|
|
|
4,022 |
|
4,022 |
| ||||
Other |
|
|
|
|
|
|
|
|
| ||||
Total impaired loans |
|
$ |
|
|
$ |
|
|
$ |
17,090 |
|
$ |
17,090 |
|
|
|
|
|
|
|
|
|
|
| ||||
Other real estate owned: |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Real estate construction |
|
|
|
|
|
|
|
|
| ||||
Land loans |
|
|
|
14 |
|
|
|
14 |
| ||||
Real estate other |
|
|
|
|
|
|
|
|
| ||||
Factoring and asset based |
|
|
|
|
|
|
|
|
| ||||
SBA |
|
|
|
9 |
|
|
|
9 |
| ||||
Other |
|
|
|
|
|
|
|
|
| ||||
Total other real estate owned |
|
$ |
|
|
$ |
23 |
|
$ |
|
|
$ |
23 |
|
The fair value of impaired loans was determined using Level 3 assumptions, and represents impaired loan balances for which a specific reserve has been established or on which a write down has been taken. The Company charged-off $93,000 and $465,000 during the quarters ended March 31, 2015 and 2014, respectively, as a result of impaired loans.
Generally, the Company obtains third party appraisals (or property evaluations) and/or collateral audits in conjunction with internal analyses based on historical experience on its impaired loans and other real estate owned to determine fair value. In determining the net realizable value of the underlying collateral for impaired loans, the Company will then discount the valuation (with additional discounts depending on the age of the appraisal) to cover both market price fluctuations and selling costs the Company expected would be incurred in the event of foreclosure. In addition to the discounts taken, the Companys calculation of net realizable value considered any other senior liens in place on the underlying collateral. Information on the Companys total impaired loan balances, and specific loss reserves associated with those balances, is included in Note 4, and in Managements Discussion and Analysis of Financial Condition and Results of Operations in the Allowance for Loan Losses section.
The fair value of OREO was determined using Level 2 assumptions. The Company charged off $1,000 and $7,000 during the quarters ended March 31, 2015 and March 31, 2014, respectively, as a result of declines in the OREO property values.
The following table presents quantitative information about fair value measurements for assets measured at fair value on a non-recurring basis:
|
|
As of March 31, 2015 |
| |||||||
|
|
|
|
|
|
|
|
Range |
| |
|
|
Fair |
|
Valuation |
|
Unobservable |
|
(Weighted |
| |
|
|
Value |
|
Techniques |
|
Inputs |
|
Average) |
| |
Impaired loans: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
Commercial |
|
$ |
2,997 |
|
Collateral valuation |
|
Management adjustment to reflect current conditions and selling costs |
|
25-70% |
|
Real estate other |
|
6,476 |
|
Third party appraisal / property evaluation |
|
Management adjustment to reflect current conditions and selling costs |
|
10-20% |
| |
Factoring and asset based |
|
4,735 |
|
Collateral valuation |
|
Management adjustment to reflect current conditions and selling costs |
|
30% |
| |
SBA |
|
3,799 |
|
Third party appraisal / property evaluation |
|
Management adjustment to reflect current conditions and selling costs |
|
15-70% |
| |
|
|
|
|
|
|
|
|
|
| |
Total impaired loans |
|
$ |
18,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other real estate owned: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
Commercial |
|
$ |
|
|
|
|
|
|
|
|
Real estate construction |
|
|
|
|
|
|
|
|
| |
Land loans |
|
14 |
|
Third party appraisal |
|
Management adjustment to reflect current conditions and selling costs |
|
15-25% |
| |
Real estate other |
|
|
|
|
|
|
|
|
| |
Factoring and asset based |
|
|
|
|
|
|
|
|
| |
SBA |
|
8 |
|
Third party appraisal |
|
Management adjustment to reflect current conditions and selling costs |
|
15-25% |
| |
Other |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
Total other real esate owned |
|
$ |
22 |
|
|
|
|
|
|
|
|
|
As of December 31, 2014 |
| |||||||
|
|
|
|
|
|
|
|
Range |
| |
|
|
Fair |
|
Valuation |
|
Unobservable |
|
(Weighted- |
| |
|
|
Value |
|
Techniques |
|
Inputs |
|
Average) |
| |
Impaired loans: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
Commercial |
|
$ |
1,267 |
|
Discounted cash flow analysis |
|
Management adjustment to reflect current conditions and selling costs |
|
25% |
|
Real estate other |
|
11,603 |
|
Third party appraisal / property evaluation |
|
Management adjustment to reflect current conditions and selling costs |
|
10-25% |
| |
Factoring and asset based |
|
198 |
|
Collateral valuation |
|
Management adjustment to reflect current conditions and selling costs |
|
50% |
| |
SBA |
|
4,022 |
|
Third party appraisal / property evaluation |
|
Management adjustment to reflect current conditions and selling costs |
|
15-35% |
| |
|
|
|
|
|
|
|
|
|
| |
Total impaired loans |
|
$ |
17,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other real estate owned: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
Land loans |
|
$ |
14 |
|
Third party appraisal |
|
Management adjustment to reflect current conditions and selling costs |
|
15-25% |
|
SBA |
|
9 |
|
Third party appraisal |
|
Management adjustment to reflect current conditions and selling costs |
|
15-25% |
| |
|
|
|
|
|
|
|
|
|
| |
Total other real estate owned |
|
$ |
23 |
|
|
|
|
|
|
|
The unobservable inputs are based on managements best estimates of appropriate discounts in arriving at fair market value. Increases or decreases in any of those inputs could result in a significantly lower or higher fair value measurement. For example, a change in either direction of actual loss rates would have directionally opposite change in the calculation of the fair value of impaired loans.
9. Derivatives and Hedging Activities
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Companys derivative financial instruments are used to manage differences in the amount, timing, and duration of the Companys known or expected cash receipts and its known or expected cash payments principally related to certain variable rate loan assets and variable rate borrowings. The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated in qualifying hedging relationships.
Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the fair value of the Companys derivative instruments that were liabilities, as well as their classification on the balance sheet, as of March 31, 2015 and December 31, 2014. The Company did not have any derivative instruments that were assets as of March 31, 2015 and December 31, 2014.
|
|
|
|
Fair Value |
| ||||
Derivatives Designated as |
|
Balance Sheet |
|
March 31, |
|
December 31, |
| ||
Hedging Instruments |
|
Location |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
|
| ||
Interest rate contracts |
|
Other assets |
|
$ |
|
|
$ |
|
|
Interest rate contracts |
|
Other liabilities |
|
272 |
|
415 |
| ||
|
|
|
|
|
|
|
| ||
Total hedged derivatives |
|
|
|
$ |
272 |
|
$ |
415 |
|
Cash Flow Hedges of Interest Rate Risk
The Companys objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. For hedges of the Companys variable-rate loan assets, interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. For hedges of the Companys variable-rate borrowings, interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments. As of March 31, 2015, the Company had one interest rate swap with an aggregate notional amount of $5.2 million that was designated as a cash flow hedge of interest rate risk associated with the Companys variable-rate borrowings.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (AOCI) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. No hedge ineffectiveness was recognized during the three months ended March 31, 2015 and 2014.
During the three months ended March 31, 2015 and 2014, such derivatives were used to hedge the forecasted variable cash outflows associated with subordinated debt related to trust preferred securities. During the three months ended March 31, 2015 and March 31, 2014, the amount of pre-tax gain/(loss) recorded in AOCI due to the effective portion of changes in fair value of derivatives designated as cash flow hedges was ($13,000) and $(17,000), respectively.
Amounts reported in AOCI related to derivatives will be reclassified to interest income or expense, as applicable, as interest payments are received / made on the Companys variable-rate assets/liabilities. During the next twelve months, the Company estimates that ($223,000) will be reclassified into net interest income as an increase to interest expense.
The table below summarizes the impact of the Companys derivative financial instruments (interest rate contracts) on earnings for the three months ended March 31, 2015 and 2014. All derivative income or expense recognized during these periods was a result of the effective portion of cash flow hedges. There was no ineffective portion of cash flow hedges during the three months ended March 31, 2015 and 2014, respectively, and as such there were no amounts included in derivative income or expense during these periods.
|
|
|
|
Fair Value |
| ||||
Derivatives Designated as |
|
Balance Sheet |
|
March 31, |
|
December 31, |
| ||
Hedging Instruments |
|
Location |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
|
| ||
Interest rate contracts |
|
Other assets |
|
$ |
|
|
$ |
|
|
Interest rate contracts |
|
Other liabilities |
|
272 |
|
416 |
| ||
|
|
|
|
|
|
|
| ||
Total hedged derivatives |
|
|
|
$ |
272 |
|
$ |
416 |
|
Credit Risk Related Contingent Features
The Company has an agreement with one of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.
The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well / adequate capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.
As of March 31, 2015 the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $274,000. As of March 31, 2015, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $1.2 million against its obligations under these agreements. If the Company had breached any of these provisions at March 31, 2015, it would have been required to settle its obligations under the agreements at the termination value.
ITEM 2 MANAGEMENTS 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 Companys 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 Companys annual report on Form 10-K for the year ended December 31, 2014, for further discussion of factors which could affect the Companys 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 Banks 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 Banks 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 Banks 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 Companys common stock is listed on the NASDAQ Global Select Market and is a component of the Russell 2000 Index.
Critical Accounting Policies
The accompanying managements 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, 2015 to the items that we disclosed as our critical accounting policies and estimates in Managements Discussion and Analysis of Financial Condition and Results of Operations under Part II, Item 7 of our 2014 Form 10-K.
Executive Summary
The Company reported net operating income of $3.9 million for the three months ended March 31, 2015 representing an increase of $198,000 or 5.3% compared to net operating income of $3.7 million for the same period one year ago. The Company reported earnings per diluted share of $0.25 and $0.24 for the quarters ended March 31, 2015 and 2014, respectively.
For the quarter ended March 31, 2015, the Companys return on average assets and return on average equity were 0.86% and 8.28%, respectively, and compared to 0.97% and 9.09%, respectively, for the same period in 2014.
Additionally, an overview of the financial results for the quarter ended March 31, 2015 discussed in the MD&A include the following:
· Net interest income and non-interest income comprised total revenue of $24.2 million for the three months ended March 31, 2015, compared to $21.8 million for the three months ended December 31, 2014 and $20.8 million for the same period one year earlier.
· Net interest margin was 4.79% for the quarter ended March 31, 2015 compared to 4.39% for the fourth quarter of 2014 and 4.91% for the quarter ended March 31, 2014.
· Total assets grew to $1.89 billion at March 31, 2015, with loans comprising 74.9% of the average earning asset mix, compared to 71.7% in the prior quarter. Total deposits were $1.65 billion at March 31, 2015, which included demand deposits of $1.15 billion. At December 31, 2014, total assets and total deposits were $1.81 billion and $1.55 billion, respectively.
· Gross loans were $1.36 billion at March 31, 2015, representing an increase of $46.8 million, or 3.6%, compared to gross loans of $1.31 billion at December 31, 2014, and an increase of $213.4 million, or 18.6% compared to gross loans of $1.14 billion at March 31, 2014. Average loan balances increased by $105.7 million, or 8.6%, to $1.33 billion for the quarter ended March 31, 2015, compared to $1.22 billion for the quarter ended December 31, 2014, and increased $246.9 million, or 22.8% compared to gross loans of $1.08 billion at March 31, 2014.
· There was no provision for credit losses during the first quarter of 2015 and the fourth quarter of 2014, compared to $500,000 for the quarter ended March 31, 2014. Net recoveries were $260,000 for the quarter ended March 31, 2015, compared to net charge-offs of $134,000 for the quarter ended December 31, 2014 and net recoveries of $221,000 for the quarter ended March 31, 2014.
· Allowance for credit losses represented 1.66% of total gross loans and 164.76% of nonperforming loans at March 31, 2015, compared to 1.70% of total gross loans and 284.03% of nonperforming loans at December 31, 2014 and 1.98% of total gross loans and 191.51% of nonperforming loans at March 31, 2014.
· Nonperforming assets increased by $5.8 million to $13.7 million, or 0.73% of total assets, compared to $7.9 million or 0.43% of total assets at December 31, 2014. Nonperforming assets increased by $1.9 million compared to $11.9 million or 0.73% of total assets at March 31, 2014.
· Capital ratios remained significantly above the minimum required for the Company to be considered well-capitalized under the current Basel III regulatory framework, and continued to support the Companys growth. Total Risk-Based Capital Ratio was 13.02%, Tier I Capital Ratio was 11.81%, and Tier I Leverage Ratio was 11.14% at March 31, 2015.
Selected Financial Data
The following table reflects selected financial data and ratios as of and for the quarters ended March 31, 2015 and 2014 (dollars in thousands, except per share data):
|
|
Three months ended |
| ||||
|
|
March 31, |
| ||||
(dollars in thousands, except per share data) |
|
2015 |
|
2014 |
| ||
Statement of Operations Data: |
|
|
|
|
| ||
Interest income |
|
$ |
21,461 |
|
$ |
18,627 |
|
Interest expense |
|
514 |
|
607 |
| ||
Net interest income |
|
20,947 |
|
18,020 |
| ||
Provision for credit losses |
|
|
|
500 |
| ||
Net interest income after provision for credit losses |
|
20,947 |
|
17,520 |
| ||
Other income |
|
3,273 |
|
2,748 |
| ||
Other expenses |
|
17,344 |
|
14,047 |
| ||
Income before income taxes |
|
6,876 |
|
6,221 |
| ||
Income taxes |
|
2,962 |
|
2,505 |
| ||
Net income |
|
$ |
3,914 |
|
$ |
3,716 |
|
|
|
|
|
|
| ||
Per Share Data: |
|
|
|
|
| ||
Basic earnings per share |
|
$ |
0.26 |
|
$ |
0.25 |
|
Diluted earnings per share |
|
0.25 |
|
0.24 |
| ||
Shareholders equity per share |
|
12.08 |
|
10.58 |
| ||
|
|
|
|
|
| ||
Balance Sheet Data: |
|
|
|
|
| ||
Balance sheet totals: |
|
|
|
|
| ||
Assets |
|
$ |
1,882,199 |
|
$ |
1,616,438 |
|
Loans, net |
|
1,329,888 |
|
1,117,394 |
| ||
Deposits |
|
1,655,845 |
|
1,415,956 |
| ||
Shareholders equity |
|
192,624 |
|
167,757 |
| ||
|
|
|
|
|
| ||
Average balance sheet amounts: |
|
|
|
|
| ||
Assets |
|
$ |
1,841,110 |
|
$ |
1,547,028 |
|
Loans, net |
|
1,301,657 |
|
1,055,698 |
| ||
Deposits |
|
1,590,896 |
|
1,335,973 |
| ||
Shareholders equity |
|
191,673 |
|
165,812 |
| ||
|
|
|
|
|
| ||
Selected Ratios: |
|
|
|
|
| ||
Return on average assets |
|
0.86 |
% |
0.97 |
% | ||
Return on average equity |
|
8.28 |
% |
9.09 |
% | ||
Efficiency ratio |
|
71.61 |
% |
67.64 |
% | ||
Risk based capital ratio |
|
12.78 |
% |
13.76 |
% | ||
Net chargeoffs (recoveries) to average gross loans |
|
-0.02 |
% |
-0.02 |
% | ||
Allowance for loan losses to total loans |
|
1.66 |
% |
1.98 |
% | ||
Average equity to average assets |
|
10.41 |
% |
10.72 |
% |
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 Companys 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, 2015 was $20.9 million, which was comprised of $21.5 million in interest income and $514,000 in interest expense. 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, 2015 represented an increase of $2.9 million, or 16.2% from the same period one year earlier. The increase in net interest income from the same period in the prior year was primarily attributable to an increase in average earning assets as a result of loan growth, partially offset by a slightly lower level of loan related fees. Loan fee amortization for the quarter ended March 31, 2015 was $2.7 million, compared to $2.8 million for the quarter ended March 31, 2014.
Total loan yields for the quarters ended March 31, 2015 and March 31, 2014 were 5.98% and 6.38%, respectively. The weighted average contractual rate on loans, excluding fees, was 5.15% for the first quarter of 2015 compared to 5.34% for the same period one year ago. Loan fees comprised 83 basis points of the total loan yield for the first quarter of 2015, compared to 104 basis points for the first quarter of 2014.
The composition of the average balance sheet impacts growth in net interest income. For the quarter ended March 31, 2015 average earning assets of $1.77 billion represented an increase of $285.8 million, or 19.2%, compared to $1.49 billion, for the same period in 2014. The Companys loan-to-deposit ratio, a measure of leverage, averaged 83.59% during the quarter ended March 31, 2015, which represented an increase compared to an average of 78.96% for the same quarter of 2014 as a result of higher loan funding relative to deposit growth.
The Companys net interest margin (net interest income divided by average earning assets) for the quarter ended March 31, 2015 was 4.79% compared to 4.91% in the same period one year earlier. The decrease in net interest margin compared to the quarter ended March 31, 2014 was primarily due to a lower level of loan related fees, offset in part by an increase in average earning assets.
The negative impact on the net interest margin from decreased loan fees for the three months ended March 31, 2015 compared to the same period one year earlier was 14 basis points. The negative impact on the net interest margin from compression of contractual rates experienced in the loan portfolio for the three months ended March 31, 2015 compared to the same period one year earlier was 3 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, 2015 and 2014.
|
|
Three months ended March 31, |
| ||||||||||||||
|
|
2015 |
|
2014 |
| ||||||||||||
|
|
|
|
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) |
|
$ |
1,329,896 |
|
5.98 |
% |
$ |
19,596 |
|
$ |
1,082,993 |
|
6.38 |
% |
$ |
17,047 |
|
Federal funds sold |
|
86,095 |
|
0.34 |
% |
73 |
|
113,062 |
|
0.28 |
% |
78 |
| ||||
Investment securities |
|
358,411 |
|
2.03 |
% |
1,792 |
|
292,594 |
|
2.08 |
% |
1,502 |
| ||||
Other |
|
325 |
|
0.00 |
% |
|
|
326 |
|
0.00 |
% |
|
| ||||
Total interest earning assets |
|
1,774,727 |
|
4.90 |
% |
21,461 |
|
1,488,975 |
|
5.07 |
% |
18,627 |
| ||||
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and due from banks |
|
27,394 |
|
|
|
|
|
26,549 |
|
|
|
|
| ||||
All other assets (3) |
|
38,989 |
|
|
|
|
|
31,504 |
|
|
|
|
| ||||
TOTAL |
|
$ |
1,841,110 |
|
|
|
|
|
$ |
1,547,028 |
|
|
|
|
| ||
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand |
|
$ |
16,110 |
|
0.03 |
% |
1 |
|
$ |
8,568 |
|
0.05 |
% |
$ |
1 |
| |
Savings |
|
456,899 |
|
0.18 |
% |
208 |
|
388,723 |
|
0.29 |
% |
278 |
| ||||
Time |
|
35,279 |
|
0.57 |
% |
50 |
|
43,416 |
|
0.56 |
% |
60 |
| ||||
Other |
|
40,082 |
|
2.58 |
% |
255 |
|
27,805 |
|
3.91 |
% |
268 |
| ||||
Total interest bearing liabilities |
|
548,370 |
|
0.38 |
% |
514 |
|
468,512 |
|
0.53 |
% |
607 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposits |
|
1,082,608 |
|
|
|
|
|
895,265 |
|
|
|
|
| ||||
Accrued expenses and other liabilities |
|
18,459 |
|
|
|
|
|
17,439 |
|
|
|
|
| ||||
Shareholders equity |
|
191,673 |
|
|
|
|
|
165,812 |
|
|
|
|
| ||||
TOTAL |
|
$ |
1,841,110 |
|
|
|
|
|
$ |
1,547,028 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest income and margin |
|
|
|
4.79 |
% |
$ |
20,947 |
|
|
|
4.91 |
% |
$ |
18,020 |
|
(1) Loan fee amortization of $2.7 million and $2.8 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 $22.4 million and $22.5 million, respectively.
The following tables show the effect of the interest differential of volume and rate changes for the quarters ended March 31, 2015 and 2014. 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, |
| |||||||
|
|
2015 vs. 2014 |
| |||||||
|
|
Increase (decrease) |
| |||||||
|
|
due to change in |
| |||||||
|
|
Average |
|
Average |
|
Total |
| |||
(dollars in thousands) |
|
Volume |
|
Rate |
|
Change |
| |||
Interest income: |
|
|
|
|
|
|
| |||
Loans |
|
$ |
3,638 |
|
$ |
(1,089 |
) |
$ |
2,549 |
|
Federal funds sold |
|
(23 |
) |
18 |
|
(5 |
) | |||
Investment securities |
|
329 |
|
(39 |
) |
290 |
| |||
Other |
|
|
|
|
|
|
| |||
Total interest income |
|
3,944 |
|
(1,110 |
) |
2,834 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense: |
|
|
|
|
|
|
| |||
Demand |
|
$ |
|
|
$ |
|
|
$ |
|
|
Savings |
|
31 |
|
(101 |
) |
(70 |
) | |||
Time |
|
(12 |
) |
2 |
|
(10 |
) | |||
Other |
|
78 |
|
(91 |
) |
(13 |
) | |||
Total interest expense |
|
98 |
|
(191 |
) |
(93 |
) | |||
|
|
|
|
|
|
|
| |||
Change in net interest income |
|
$ |
3,846 |
|
$ |
(921 |
) |
$ |
2,927 |
|
Significant factors affecting net interest income are: rates, volumes and mix of the loan, investment and deposit portfolios. Due to the nature of the Companys 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 Companys 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 $21.5 million in the quarter ended March 31, 2015 represented an increase of $2.8 million, or 15.2%, from $18.6 million in the same quarter one year earlier. The average yield on earning assets was 4.90% for the quarter ended March 31, 2015 compared to 5.07% for the quarter ended March 31, 2014. The decrease in the average yield on interest earning assets was primarily due to lower yields on loans and investments and a lower level of loan related fees.
Average gross loans were $1.33 billion for three months ended March 31, 2015, an increase of $246.9 million or 22.8% from $1.08 billion for the same period one year earlier. Average loans comprised 74.9% of average earning assets in the three months ended March 31, 2015 compared to 72.7% in the first quarter of 2014.
Other earning assets, consisting of investment securities, federal funds sold and interest-bearing deposits, averaged $444.8 million for the quarter ended March 31, 2015, an increase of $38.8 million or 9.6% from $406.0 million for the three months ended March 31, 2014.
Interest Expense
Interest expense was $514,000 for the quarter ended March 31, 2015, which represented a decrease of $93,000, or 15.3% from $607,000 for the comparable period of 2014. Average interest-bearing liabilities were $548.4 million for the three months ended March 31, 2015, an increase of $79.9 million, or 17.0%, from $468.5 million for the same period one year earlier. The decrease in interest expense was primarily due to a lower rate paid on savings deposits.
Average interest bearing deposits were $508.3 million for the quarter ended March 31, 2015, which represented 31.2% of total average deposits and was an increase of $67.6 million, or 15.3%, from $440.7 million representing 32.3% of total average deposits in the first quarter of 2014.
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 $40.1 million in the three months ended March 31, 2015 and $27.8 million for the comparable period of 2014.
The average rate paid on interest-bearing liabilities was 0.38% and 0.53% for the quarters ended March 31, 2015 and 2014, respectively.
Credit Risk and Provision for Credit Losses
The Company maintains an allowance for loan losses which is based, in part, on the Companys loss experience, the impact of economic conditions within the Companys 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 $93,000 during the three months ended March 31, 2015 compared to $465,000 during the three months ended March 31, 2014. Loan recoveries of $353,000 were recognized during the first quarter of 2015 compared to $686,000 for the three months ended March 31, 2014.
The following schedule provides an analysis of the allowance for loan losses for the quarters ended March 31, 2015 and 2014, respectively:
|
|
Three months ended |
| ||||
|
|
March 31, |
| ||||
(dollars in thousands) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Balance, beginning of period |
|
$ |
22,305 |
|
$ |
21,944 |
|
Provision for credit losses |
|
|
|
500 |
| ||
Charge-offs |
|
(93 |
) |
(465 |
) | ||
Recoveries |
|
353 |
|
686 |
| ||
Balance, end of period |
|
$ |
22,565 |
|
$ |
22,665 |
|
The allowance for loan losses was $22.6 million, or 1.66% of total loans, at March 31, 2015, compared to $22.7 million, or 1.98% of total loans, at March 31, 2014. The increase in the allowance for loan losses from March 31, 2014 to March 31, 2015 was primarily attributable to the growth of the loan portfolio.
The Company did not record a provision for credit losses for the three months ended March 31, 2015, compared to $500,000 in provision for credit losses recorded for the quarter ending March 31, 2014.
Based on an evaluation of individual credits, historical credit loss experience by loan type, economic conditions, and the Companys reassessment of risks noted above, management has allocated the allowance for loan losses as follows for the periods ending March 31, 2015 and December 31, 2014:
|
|
March 31, 2015 |
|
December 31, 2014 |
| ||||||
|
|
|
|
Percent of |
|
|
|
Percent of |
| ||
|
|
|
|
ALLL in each |
|
|
|
ALLL in each |
| ||
|
|
|
|
category to |
|
|
|
category to |
| ||
(dollars in thousands) |
|
Amount |
|
gross loans |
|
Amount |
|
gross loans |
| ||
|
|
|
|
|
|
|
|
|
| ||
Commercial |
|
$ |
11,256 |
|
0.8 |
% |
$ |
10,800 |
|
0.8 |
% |
Real estate construction |
|
1,258 |
|
0.1 |
% |
1,423 |
|
0.1 |
% | ||
Land loans |
|
376 |
|
0.0 |
% |
412 |
|
0.0 |
% | ||
Real estate other |
|
2,211 |
|
0.2 |
% |
2,131 |
|
0.2 |
% | ||
Factoring and asset based |
|
5,492 |
|
0.4 |
% |
5,185 |
|
0.4 |
% | ||
SBA |
|
1,848 |
|
0.1 |
% |
2,209 |
|
0.2 |
% | ||
Other |
|
124 |
|
0.0 |
% |
145 |
|
0.0 |
% | ||
|
|
$ |
22,565 |
|
1.6 |
% |
$ |
22,305 |
|
1.7 |
% |
At March 31, 2015 nonperforming assets of $13.7 million, or 0.73% of total assets, compared to $7.9 million, or 0.43% of total assets, on December 31, 2014. The increase in nonperforming assets from December 31, 2014 was primarily due to additions of $10.0 million. The additions were comprised of one relationship consisting of two commercial credits and one asset based credit for a total of $6.7 million. The following summarizes nonperforming assets at March 31, 2015 and December 31, 2014.
|
|
March 31, |
|
December 31, |
| ||
(dollars in thousands) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Loans accounted for on a non-accrual basis |
|
$ |
13,696 |
|
$ |
7,853 |
|
Other loans with principal or interest contractually past due 90 days or more and still accruing |
|
|
|
|
| ||
Nonperforming loans |
|
13,696 |
|
7,853 |
| ||
Other real estate owned |
|
22 |
|
23 |
| ||
Nonperforming assets |
|
$ |
13,718 |
|
$ |
7,876 |
|
|
|
|
|
|
| ||
Loans restructured and in compliance with modified terms |
|
4,311 |
|
9,237 |
| ||
|
|
|
|
|
| ||
Nonperforming assets and restructured loans |
|
$ |
18,029 |
|
$ |
17,113 |
|
The nonperforming assets at March 31, 2015 consisted of loans on nonaccrual or 90 days or more past due and still accruing totaling $13.7 million, and other real estate owned valued at $22,000. Nonperforming loans at March 31, 2015 were comprised of loans with legal contractual balances totaling approximately $16.3 million reduced by $422,000 received in nonaccrual interest and impairment charges of $2.2 million which have been charged against the allowance for loan losses. In addition, as of March 31, 2015, there was an additional 21 loans with legal contractual balances totaling $15.0 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.
The following table sets forth the components of nonperforming loans as of March 31, 2015 (dollars in thousands).
(dollars in thousands)
March 31, 2015
Category / Collateral |
|
Amount |
| |
|
|
|
| |
SBA: |
|
|
| |
|
|
|
| |
Single family residence in San Francisco County |
|
$ |
2,027 |
|
Single family residences in Riverside County |
|
380 |
| |
Commercial building in Santa Barbara County |
|
287 |
| |
Mixed used building in Santa Clara County |
|
270 |
| |
Special purpose facilities in Orange County |
|
178 |
| |
Special purpose facilities in San Diego County |
|
113 |
| |
Lot for single family homes in Contra Costa County |
|
46 |
| |
Single family residences in Orange County & Riverside County |
|
43 |
| |
Commercial building in San Diego County |
|
20 |
| |
Single family residences in Los Angeles County |
|
4 |
| |
Light industrial warehouse space in Stanislaus County |
|
2 |
| |
|
|
3,370 |
| |
Commercial: |
|
|
| |
|
|
|
| |
Business assets |
|
2,997 |
| |
|
|
2,997 |
| |
Real estate other: |
|
|
| |
|
|
|
| |
Single family residences in Sacramento County |
|
1,310 |
| |
Single family residences in Santa Clara County |
|
1,284 |
| |
|
|
2,594 |
| |
Factoring/asset based lending: |
|
|
| |
|
|
|
| |
Business assets |
|
4,735 |
| |
|
|
4,735 |
| |
|
|
|
| |
Total nonperforming loans |
|
$ |
13,696 |
|
Included in nonperforming loans at March 31, 2015 are loans totaling $1.3 million that have been modified in trouble debt restructurings, where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on a loan, payment extensions, forgiveness of principal, or other actions intended to maximize collection. In order for these loans to return to accrual status, the borrower must demonstrate a sustained period of timely payments. As of March 31, 2015, previously modified loans totaling $4.3 million were considered performing due to a sustained period of timely payments and therefore were accounted for on an accrual basis. There were no downgrades of trouble debt restructurings during the quarter ended March 31, 2015.
Management undertakes significant processes in order to identify potential problem loans in a timely manner. In addition to regular interaction with the Companys borrowers, the relationship managers review the credit ratings for each loan on a monthly basis and identify any potential downgrades. For commercial and factoring/asset-based loans, the Company receives quarterly financial statements and other pertinent reporting, such as borrowing bases for asset-based facilities, so as to identify any deteriorating financial trends. Covenant compliance for these loans is also monitored on a quarterly basis. For real estate construction and land loans, the development, construction and lease up or sell out status of each project is monitored on a monthly basis. For SBA loans and loans secured by standing commercial or residential property, the Company receives updated rent rolls, operating statements, and/or tax returns on an annual basis. In addition, home equity loans are reviewed annually for deterioration in either the underlying property value or the borrowers payment history. Management also engages a third party loan review firm that reviews the loan portfolio periodically to further identify potential problem loans. The loan review includes assessment of underwriting, quality of legal documents, management of the loan relationship, and adherence to the credit policy along with acceptable risk mitigation and rationale for exceptions to the policy.
As part of the loan approval process, management identifies the nature and type of underlying collateral supporting individual loans. Prior to or at the time of initial advances, any required lien positions are verified using UCC lien searches for personal property collateral, or title insurance for real property collateral. The Company engages a third party loan review firm to conduct an annual review of its loan documentation and the related policies and procedures regarding the loan documentation process.
The Company primarily relies on fair market appraisals to determine the value of underlying real estate collateral. Appraisals are required for real property secured loans of $250,000 or more, including increases to existing loans of $250,000 or more. In the event there is evidence of deterioration in values, an evaluation of the collateral value and/or a full new appraisal is required for an extension of the loan maturity. Potential problem loans are typically reappraised every 12 months depending size, nature, current economic conditions and the borrowers current financial performance and repayment history. The appraisals are performed by Board approved appraisers that have appropriate licensing and experience. Generally, when a prospective loan amount exceeds $3.0 million, the completed appraisal is further reviewed by a qualified third party review appraiser. To determine the value of underlying collateral for formula lines of credit that are predicated on a borrowing base of eligible assets, the Company typically requires a pre loan funding field audit of the borrowers financial records to verify the accounts receivable, their eligibility for inclusion in the borrowing base, performance of the collateral and any asset concentrations.
On a monthly basis, relationship managers assess the collateral position of individual loans and identify any potential collateral shortfalls which, if left uncorrected, could result in deterioration of the repayment prospects for the loan at some future date. Any potential collateral shortfalls are incorporated into a written corrective action plan. The status of the corrective action plans are reviewed by executive management. Review of ability to acquire additional collateral and the related timeframes are addressed on an individual loan basis.
At the time a loan is classified as substandard (which includes any loan on non-accrual), the Company performs an impairment analysis of the collateral based on appraisals, field audits, other market value indicators, and Managements judgment. Any shortfall between the collaterals realization value and the loan balance is charged-off at that time when management believes the uncollectibility of the loan is confirmed. Impairment analyses are updated on a monthly basis. Additionally, as underlying collateral is reappraised the value of the collateral is reassessed and any additional charge-off is taken at that time. A similar practice is followed for downward adjustments to the Companys OREO carrying value.
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 rate of inflow into problem assets generally, 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 collectability of any of these credits becomes unlikely, there could be an adverse effect on the level of the allowance for loan losses and the Companys future profitability.
Non-interest Income
The following tables set forth the components of other income and the percentage distribution of such income for the three months ended March 31, 2015 and 2014:
|
|
Three months ended March 31, |
| ||||||||
|
|
2015 |
|
2014 |
| ||||||
(dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
| ||
|
|
|
|
|
|
|
|
|
| ||
Depositor service charges |
|
$ |
995 |
|
30.4 |
% |
$ |
916 |
|
33.3 |
% |
International fee income |
|
841 |
|
25.7 |
% |
761 |
|
27.7 |
% | ||
Visa fee income |
|
401 |
|
12.3 |
% |
299 |
|
10.9 |
% | ||
Net gain (loss) on sale of securities |
|
306 |
|
9.3 |
% |
5 |
|
0.2 |
% | ||
Gain on sale of SBA loans |
|
195 |
|
6.0 |
% |
213 |
|
7.8 |
% | ||
SBA loan servicing income |
|
189 |
|
5.8 |
% |
142 |
|
5.2 |
% | ||
Increase in value of life insurance |
|
144 |
|
4.4 |
% |
144 |
|
5.2 |
% | ||
Warrant income |
|
|
|
0.0 |
% |
121 |
|
4.4 |
% | ||
Other operating income |
|
202 |
|
6.1 |
% |
147 |
|
5.3 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
|
|
$ |
3,273 |
|
100.0 |
% |
$ |
2,748 |
|
100.0 |
% |
Non-interest income totaled $3.3 million in the first quarter of 2015, an increase of $525,000 or 19.1% from $2.7 million in the first quarter of 2014. The increase in non-interest income during the quarter ended March 31, 2015 compared to the same period in the prior year was primarily attributable to an increase in gains on sale of securities and visa fee income, partially offset by a decrease in warrant income.
For the quarter ended March 31, 2015, service charge income on deposit accounts was $995,000, representing an increase of $79,000, or 8.6%, compared to $916,000 for the same period one year ago. The increases are primarily attributable to an increase in the deposit portfolio and deposit related analysis charges.
The Company generates international fee income on spot contracts (binding agreements for the purchase or sale of currency for immediate delivery and settlement) and forward contracts (a contractual commitment for a fixed amount of foreign currency on a future date at an agreed upon exchange rate) in connection with clients cross-border activities. The transactions incurred are during the ordinary course of business and are not speculative in nature. The Company recognizes income on a cash basis at the time of contract settlement in an amount equal to the spread created by the exchange rate charged to the client versus the actual exchange rate negotiated by the Company in the open market. During the first quarter of 2015, the Company recognized $841,000 in international fee income, representing an increase of $80,000, or 10.5%, compared to $761,000 for the same period one year ago. The increase in international fee income was primarily caused by an increase in client demand for international services.
The Visa card program contributed $401,000 and $299,000 in non-interest income during the three months ended March 31, 2015 and 2014, respectively. Visa income represents both interchange and annual fees.
The Company recognized net gains on sale of securities of $306,000 during the three months ended March 31, 2015, representing an increase of $301,000,compared to $5,000 for the same period one year ago, which resulted from sales the Company made to support the strong loan funding and to adjust the risk profile of the investment portfolio.
Revenue from sales of SBA loans is dependent on consistent origination and funding of new loan volumes, the timing of which may be impacted, from time to time, by (1) increased competition from other lenders; (2) the relative attractiveness of SBA borrowing to other financing options; (3) adjustments to programs by the SBA; (4) changes in activities of secondary market participants and; (5) other factors. The company recognized $195,000 in gains on the sale of SBA loans sold during the three months ended March 31, 2015 compared to $213,000 in gains on the sale of SBA loans sold during the three months ended March 31, 2014 representing a decrease of $18,000 or 8.5%. During the quarter ended March 31, 2015, the Companys SBA group funded $8.7 million in new loans and sold $2.7 million, which included $323,000 in loans funded in the previous year. This compares to $10.1 million funded and $2.9 million sold in the quarter ended March 31, 2014, which included $2.5 million in loans funded in the previous year.
During the first quarter of 2015, the Company did not recognize any warrant income compared to $121,000 recognized during the first quarter of 2014. Income from warrants is inherently event-driven and the contributions from warrants largely reflect the economic environment of IPOs and M&A activity.
Net interest income and non-interest income comprised total revenue of $24.2 million for the three months ended March 31, 2015, compared to $20.8 million for the same period one year earlier.
Non-interest Expense
The components of other expense as a percentage of average earnings assets are set forth in the following tables for the three months ended March 31, 2015 and 2014.
|
|
Three months ended March 31, |
| ||||||||
|
|
2015 |
|
2014 |
| ||||||
(dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
| ||
|
|
|
|
|
|
|
|
|
| ||
Salaries and benefits |
|
$ |
10,620 |
|
2.4 |
% |
$ |
9,015 |
|
2.4 |
% |
Data processing |
|
1,294 |
|
0.3 |
% |
1,019 |
|
0.3 |
% | ||
Merger related expense |
|
1,191 |
|
0.3 |
% |
|
|
0.0 |
% | ||
Occupancy |
|
1,105 |
|
0.2 |
% |
1,059 |
|
0.3 |
% | ||
Marketing/Advertising |
|
567 |
|
0.1 |
% |
619 |
|
0.2 |
% | ||
Legal and professional |
|
488 |
|
0.1 |
% |
482 |
|
0.1 |
% | ||
Assessments |
|
333 |
|
0.1 |
% |
351 |
|
0.1 |
% | ||
Loan/OREO |
|
384 |
|
0.1 |
% |
194 |
|
0.1 |
% | ||
Deposit services |
|
283 |
|
0.1 |
% |
261 |
|
0.1 |
% | ||
Furniture and equipment |
|
167 |
|
0.0 |
% |
179 |
|
0.0 |
% | ||
Other |
|
912 |
|
0.2 |
% |
868 |
|
0.2 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
|
|
$ |
17,344 |
|
3.9 |
% |
$ |
14,047 |
|
3.8 |
% |
Operating expenses were $17.3 million for the three months ended March 31, 2015, an increase of $3.3 million or 23.5% from $14.0 million at March 31, 2014. As a percentage of average earning assets, other expenses for the three months ended March 31, 2015 and 2014 were 3.9% and 3.8%, on an annualized basis. Overall, the trend in non-interest expense (excluding merger related costs) continues to reflect the Companys investments in new initiatives and personnel to support growth.
Salaries and benefits expense of $10.6 million for the quarter ended March 31, 2015, compared to $9.0 million for the quarter ended March 31, 2014. The increase in salary and benefits expense for the current periods compared to the same periods in the prior year is primarily related to an increase in headcount to support growth and new initiatives, combined with annual salary increases necessary to remain competitive in the Companys core markets and increased stock-based compensation due to long-term retention awards. As of March 31, 2015, the Company employed 262 full-time equivalents (FTE) compared to 235 FTE at March 31, 2014.
Occupancy and equipment expense is comprised primarily of rent, leasehold improvements and depreciation expense for furniture, fixtures and equipment. For the current quarter, the Company recognized $1.3 million in occupancy and equipment expense compared to $1.2 million for the same period in 2014.
The Company contracts with third-party vendors for most data processing needs and to support technical infrastructure. Data processing expense for the first quarter of 2015 was $1.3 million which represented an increase of approximately $275,000 over $1.0 million for the same period one year earlier. The increase in data processing was primarily due to an increase in deposit transaction volumes.
Marketing expense of $567,000 for the period ended March 31, 2015 represented a decrease of $52,000 compared to $619,000 during the same period one year earlier. Over the past several years, the Company increased marketing investments to raise the level of its brand visibility, and the rising trend of these expenses has leveled off in the current quarter. To leverage the increased brand visibility, the Company will continue to fund marketing and sales initiatives to accelerate demand for its customized banking solutions.
Legal and professional charges were $488,000 for the quarter ended March 31, 2015 compared to $482,000 for the quarter ended March 31, 2014.
Regulatory assessments related to FDIC insurance pertaining to deposit balances, totaled $333,000 for the quarter ended March 31, 2015, compared to $351,000 for the quarter ended March 31, 2014. Regulatory assessments fluctuate depending on asset size and other factors, including credit quality.
Other real estate owned (OREO) and loan related charges were $384,000 for the quarter ended March 31, 2015 compared to $194,000 for the quarter ended March 31, 2014. The increase in charges from prior quarter and prior year is primarily related to the ongoing resolution of the increased non-performing credit portfolio during the current quarter.
The Companys efficiency ratio, the ratio of non-interest expense to revenues, was 71.61% and 67.64% for the quarters ended March 31, 2015 and March 31, 2014, respectively.
Balance Sheet
Total assets of the Company at March 31, 2015 were $1.88 billion compared to $1.81 billion at December 31, 2014. The increase was driven by an increase in both the loan portfolio and fed funds sold. Gross loans increased to 74.9% of the earning asset mix from 74.8% at December 31, 2014.
Gross loan balances were $1.36 billion at March 31, 2015, which represented an increase of $46.8 million, or 3.6%, as compared to $1.31 billion at December 31, 2014. The increase in total gross loans from December 31, 2014 was primarily in the commercial loan portfolio, slightly offset by reductions in factoring and asset-based loans.
The following table shows the Companys loans by type and their percentage distribution as of March 31, 2015 and December 31, 2014.
|
|
March 31, |
|
December 31, |
| ||
(dollars in thousands) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Commercial |
|
$ |
843,096 |
|
$ |
785,360 |
|
Real estate construction |
|
65,380 |
|
71,673 |
| ||
Land loans |
|
14,536 |
|
15,890 |
| ||
Real estate other |
|
146,597 |
|
139,624 |
| ||
Factoring and asset based lending |
|
156,806 |
|
167,513 |
| ||
SBA |
|
125,075 |
|
124,180 |
| ||
Other |
|
6,625 |
|
7,073 |
| ||
Total gross loans |
|
1,358,115 |
|
1,311,313 |
| ||
Unearned fee income |
|
(5,662 |
) |
(5,644 |
) | ||
Total loans |
|
1,352,453 |
|
1,305,669 |
| ||
Less allowance for credit losses |
|
(22,565 |
) |
(22,305 |
) | ||
Total loans, net |
|
$ |
1,329,888 |
|
$ |
1,283,364 |
|
|
|
|
|
|
| ||
Commercial |
|
62.1 |
% |
59.9 |
% | ||
Real estate construction |
|
4.8 |
% |
5.5 |
% | ||
Land loans |
|
1.1 |
% |
1.2 |
% | ||
Real estate other |
|
10.8 |
% |
10.6 |
% | ||
Factoring and asset based lending |
|
11.5 |
% |
12.8 |
% | ||
SBA |
|
9.2 |
% |
9.5 |
% | ||
Other |
|
0.5 |
% |
0.5 |
% | ||
Total gross loans |
|
100.0 |
% |
100.0 |
% |
The Companys commercial loan portfolio represents loans to small and middle-market businesses in the Santa Clara County region. Commercial loans were $843.1 million at March 31, 2015, which represented an increase of $57.7 million, or 7.4%, compared to $785.4 million at December 31, 2014. At March 31, 2015, commercial loans comprised 62.1% of total loans outstanding compared to 59.9% at December 31, 2014.
Approximately 86% of the Companys construction loan portfolio consists of loans to finance individual single-family residential homes in markets in the Peninsula and South Bay region of Silicon Valley. The remainder is comprised of commercial development projects. The Companys land loan portfolio consists of land and land development loans related to future construction credits. The Companys construction and land loan portfolio together totaled approximately $79.9 million as of March 31, 2015 compared to $87.6 million as of December 31, 2014, representing a decrease of $7.6 million or 8.7%. Construction and land loan balances at March 31, 2015 and December 31, 2014 comprised 5.9% and 6.7% of total loans, respectively.
Other real estate loans consist of commercial real estate and home equity lines of credit. Other real estate loans increased $7.0 million or 5.0% to $146.6 million at March 31, 2015 from $139.6 million at December 31, 2014. The increase in other real estate loans was primarily in owner occupied real estate loans. Other real estate loans represented 10.8% of total loans at March 31, 2015, and 10.6% at December 31, 2014.
Factoring and asset-based lending represents purchased accounts receivable (factoring) and a structured accounts receivable lending program where the Company receives client specific payment for client invoices. Under the factoring program, the Company purchases accounts receivable invoices from its clients and then receives payment directly from the party obligated for the receivable. In most cases the Company purchases the receivables subject to recourse from the Companys factoring client. The asset-based lending program requires a security interest in all of a clients accounts receivable. At March 31, 2015, factoring/asset-based loans totaled $156.8 million or 11.5% of total loans, representing a decrease of $10.7 million or 6.4%, as compared to $167.5 million or 12.8% of total loans at December 31, 2014.
The SBA line of business operates primarily in Santa Clara County. The Company, as a Preferred Lender, originates SBA loans and participates in the SBA 7A and 504 SBA lending programs. Under the 7A program, a loan is made for commercial or real estate purposes. The SBA guarantees these loans and the guarantee may range from 75% to 90% of the total loan. In addition, the loan could be collateralized by a deed of trust on real estate. Under the 504 program, the Company lends directly to the borrower and takes a first deed of trust to the subject property. In addition the SBA, through a Certified Development Corporation, makes an additional loan to the borrower and takes a deed of trust subject to the Companys position. At March 31, 2015, SBA loans comprised $125.1 million, or 9.2%, of total loans, an increase of $895,000, or 0.7%, from $124.2 million or 9.5% of total loans at December 31, 2014. The Company has the ability and the intent to sell all or a portion of the SBA loans and, as such, carries the saleable portion of SBA loans at the lower of aggregate cost or fair value. At March 31, 2015 and December 31, 2014, the fair value of SBA loans exceeded aggregate cost and therefore, SBA loans were carried at aggregate cost.
Other loans consist primarily of loans to individuals for personal uses, such as installment purchases, overdraft protection loans and a variety of other consumer purposes. At March 31, 2015, other loans totaled $6.6 million as compared to $7.1 million at December 31, 2014.
Deposits represent the Companys principal source of funds. Most of the Companys deposits are obtained from professionals, small-to-medium sized businesses, and individuals within the Companys market area. The Companys deposit base consists of non-interest and interest-bearing demand deposits, savings and money market accounts and certificates of deposit.
The following table summarizes the composition of deposits as of March 31, 2015 and December 31, 2014:
|
|
As of March 31, |
|
As of December 31, |
| ||||||
|
|
2015 |
|
2014 |
| ||||||
|
|
Total |
|
Percent |
|
Total |
|
Percent |
| ||
(dollars in thousands) |
|
Amount |
|
of Total |
|
Amount |
|
of Total |
| ||
|
|
|
|
|
|
|
|
|
| ||
Noninterest-bearing demand |
|
$ |
1,132,231 |
|
68.38 |
% |
$ |
1,051,357 |
|
67.85 |
% |
Interest-bearing demand |
|
14,362 |
|
0.87 |
% |
15,492 |
|
1.00 |
% | ||
Money market and savings |
|
472,475 |
|
28.53 |
% |
450,873 |
|
29.10 |
% | ||
Certificates of deposit: |
|
|
|
|
|
|
|
|
| ||
Less than $100K |
|
2,033 |
|
0.12 |
% |
2,193 |
|
0.14 |
% | ||
$100K and more |
|
34,744 |
|
2.10 |
% |
29,630 |
|
1.91 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Total deposits |
|
$ |
1,655,845 |
|
100.00 |
% |
$ |
1,549,545 |
|
100.00 |
% |
Deposits increased $106.3 million or 6.9% from $1.55 billion at December 31, 2014 to $1.65 billion at March 31, 2015, as a result of an increase in generally all deposit categories. As of March 31, 2015, demand deposits and core deposits represented 69.3% and 97.8% of total deposits, compared to 68.9% and 97.9% at December 31, 2014.
Leverage
Total gross loan balances at March 31, 2015 were $1.36 billion. The resulting loan to deposit ratio was 82.0%. Other earning assets at March 31, 2015 were primarily comprised of investment securities, federal funds sold and interest-bearing deposits of $453.9 million. To date, the Company has deployed other earning assets primarily in short term fixed rate investments to mitigate interest rate risk associated with the Companys asset-sensitive balance sheet, and in federal funds sold to address the potential volatility of deposit balances and to accommodate projected loan funding. When deploying other earning assets, the Company implements strategic decisions that may have a beneficial or adverse impact on net interest income and on the net interest margin to manage the business through a variety of economic cycles.
Capital Resources
The Company and the Bank are subject to the capital guidelines and regulations governing capital adequacy for bank holding companies and national banks. Additional capital requirements may be imposed on banks based on market risk.
The Companys capital resources consist of shareholders equity, trust preferred securities and (for regulatory purposes) the allowance for loan losses (subject to limitations). At March 31, 2015, the Companys capital resources increased $7.9 million to $225.9 million from $218.0 million at December 31, 2014. Tier 1 capital increased $7.3 million to $204.8 million at March 31, 2015. The Companys Tier 1 capital at March 31, 2015 was comprised of $117.7 million of capital stock and surplus, $73.5 million in retained earnings and trust preferred securities up to the allowable limit of $17.0 million, offset by $3.4 million in disallowed deferred tax assets.
The Company is subject to capital adequacy guidelines issued by the Board of Governors and the OCC, which have established new rules effective January 1, 2015. The Company is required to maintain total capital equal to at least 8.0% of assets and commitments to extend credit, weighted by risk, of which at least 6.0% must consist primarily of common equity including retained earnings (Tier 1 capital) and qualified preferred stock, and the remainder may consist of subordinated debt and a limited amount of allowance for loan losses. The new rule also introduced a new Common Equity Tier 1 capital requirement of 4.5%. Preferred stocks are excluded from the Common Equity Tier 1 capital. Certain assets and commitments to extend credit present less risk than others and will be assigned to lower risk-weighted categories requiring less capital allocation than the 8.0% total ratio. For example, cash and government securities are assigned to a 0.0% risk-weighted category, most home mortgage loans are assigned to a 50.0% risk-weighted category requiring a 4.0% capital allocation and commercial loans are assigned to a 100.0% risk-weighted category requiring an 8.0% capital allocation. As of March 31, 2015, the Company's and the Bank's total risk-based capital ratios were 13.02% and 11.76%, respectively (13.91% for the Company and 12.38% for the Bank at December 31,2014).
Regulatory Capital Ratios
The following table shows the Companys capital ratios at March 31, 2015 and December 31, 2014 as well as the minimum capital ratios required to be deemed well capitalized under the regulatory framework.
|
|
As of March 31, |
|
As of December 31, |
| ||||||
|
|
2015 |
|
2014 |
| ||||||
(dollars in thousands) |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
| ||
|
|
|
|
|
|
|
|
|
| ||
Company Capital Ratios |
|
|
|
|
|
|
|
|
| ||
Tier 1 Capital |
|
$ |
204,803 |
|
11.81 |
% |
$ |
199,037 |
|
12.66 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Tier 1 capital minimum requirement |
|
$ |
138,785 |
|
8.00 |
% |
$ |
94,356 |
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Total Capital |
|
$ |
225,941 |
|
13.02 |
% |
$ |
218,727 |
|
13.91 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Total capital minimum requirement |
|
$ |
173,482 |
|
10.00 |
% |
$ |
157,260 |
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Company Leverage |
|
|
|
|
|
|
|
|
| ||
Tier 1 Capital |
|
$ |
204,803 |
|
11.14 |
% |
$ |
199,037 |
|
11.24 |
% |
(to Average Assets) |
|
|
|
|
|
|
|
|
| ||
Tier 1 capital minimum requirement |
|
$ |
91,886 |
|
5.00 |
% |
$ |
88,523 |
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Common Equity Tier 1 |
|
$ |
187,640 |
|
10.82 |
% |
$ |
182,037 |
|
11.58 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Common Equity Tier 1 well capitalized requirement |
|
$ |
112,763 |
|
6.50 |
% |
$ |
102,219 |
|
6.50 |
% |
|
|
|
|
|
|
|
|
|
| ||
Bank Capital Ratios |
|
|
|
|
|
|
|
|
| ||
Tier 1 Capital |
|
$ |
181,871 |
|
10.53 |
% |
$ |
174,493 |
|
11.13 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Tier 1 capital minimum requirement |
|
$ |
138,148 |
|
8.00 |
% |
$ |
94,072 |
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Total Capital |
|
$ |
203,009 |
|
11.78 |
% |
$ |
194,125 |
|
12.38 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Total capital minimum requirement |
|
$ |
172,685 |
|
10.00 |
% |
$ |
156,787 |
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Bank Leverage |
|
|
|
|
|
|
|
|
| ||
Tier 1 Capital |
|
$ |
181,871 |
|
9.94 |
% |
$ |
174,493 |
|
9.89 |
% |
(to Average Assets) |
|
|
|
|
|
|
|
|
| ||
Tier 1 capital minimum requirement |
|
$ |
91,520 |
|
5.00 |
% |
$ |
88,176 |
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Common Equity Tier 1 |
|
$ |
181,871 |
|
10.53 |
% |
$ |
174,493 |
|
11.13 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Common Equity Tier 1 well capitalized requirement |
|
$ |
112,245 |
|
6.50 |
% |
$ |
101,911 |
|
6.50 |
% |
The Company and the Bank were considered well capitalized at March 31, 2015 and December 31, 2014.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Liquidity/Interest Rate Sensitivity
The Company manages its liquidity to provide adequate funds at an acceptable cost to support borrowing requirements and deposit flows of its customers. Liquidity requirements are evaluated by taking into consideration factors such as deposit concentrations, seasonality and maturities, loan and lease demand, capital expenditures and prevailing and anticipated economic conditions. The Companys business is generated primarily through customer referrals and employee business development efforts. The Company is primarily a business and professional bank and, as such, its deposit base is more susceptible to economic fluctuations. The Company strives to maintain a balanced position of liquid assets to volatile and cyclical deposits. At March 31, 2015 and December 31, 2014, liquid assets as a percentage of deposits were 28.5% and 29.0%, respectively. In addition to cash and due from banks, liquid assets include interest-bearing deposits in other banks, Federal funds sold, securities available for sale and trading securities. The Company has $47.0 million in unsecured lines of credit available with correspondent banks to meet liquidity needs. At March 31, 2015, there were no balances outstanding on these lines. Additionally, as of March 31, 2015, the Company had a total borrowing capacity with the Federal Home Loan Bank of San Francisco of approximately $443.0 million for which the Company had collateral in place to borrow $136.0 million. As of March 31, 2015, $10.0 million of this borrowing capacity was pledged to secure a letter of credit.
The Companys balance sheet position is asset-sensitive (based upon the significant amount of variable rate loans and the repricing characteristics of its deposit accounts). This balance sheet position generally provides a hedge against rising interest rates, but has a detrimental effect during times of interest rate decreases. Net interest income is generally negatively impacted in the short term by a decline in interest rates. Conversely, an increase in interest rates should have a short-term positive impact on net interest income.
Management regularly reviews general economic and financial conditions, both external and internal, and determines whether the positions taken with respect to liquidity and interest rate sensitivity continue to be appropriate. The Company utilizes a monthly Gap report as well as a quarterly simulation model to identify interest rate sensitivity over the short- and long-term. Management considers the results of these analyses when implementing its interest rate risk management activities, including the utilization of certain interest rate hedges.
The following table sets forth the distribution of repricing opportunities, based on contractual terms of the Companys earning assets and interest-bearing liabilities at March 31, 2015, the interest rate sensitivity gap (i.e. interest rate sensitive assets less interest rate sensitive liabilities), the cumulative interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e. interest rate sensitive assets divided by interest rate sensitive liabilities) and the cumulative interest rate sensitivity gap ratio.
|
|
As of March 31, 2015 |
| ||||||||||||||||
|
|
|
|
After three |
|
After six |
|
After one |
|
|
|
|
| ||||||
|
|
Within |
|
months but |
|
months but |
|
year but |
|
After |
|
|
| ||||||
|
|
three |
|
within six |
|
within one |
|
within |
|
five |
|
|
| ||||||
(dollars in thousands) |
|
months |
|
months |
|
year |
|
five years |
|
years |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Federal funds sold |
|
$ |
121,028 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
121,028 |
|
Interest bearing deposits in other banks |
|
326 |
|
|
|
|
|
|
|
|
|
326 |
| ||||||
Investment securities |
|
11,420 |
|
589 |
|
16,817 |
|
122,883 |
|
180,878 |
|
332,587 |
| ||||||
Loans |
|
409,931 |
|
84,008 |
|
183,644 |
|
479,202 |
|
201,330 |
|
1,358,115 |
| ||||||
Total earning assets |
|
$ |
542,705 |
|
$ |
84,597 |
|
$ |
200,461 |
|
$ |
602,085 |
|
$ |
382,208 |
|
$ |
1,812,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest checking, money market and savings |
|
486,837 |
|
|
|
|
|
|
|
|
|
486,837 |
| ||||||
Certificates of deposit: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less than $100,000 |
|
1,161 |
|
325 |
|
337 |
|
210 |
|
|
|
2,033 |
| ||||||
$100,000 or more |
|
10,497 |
|
6,425 |
|
8,263 |
|
9,559 |
|
|
|
34,744 |
| ||||||
Total interest-bearing liabilities |
|
$ |
498,495 |
|
$ |
6,750 |
|
$ |
8,600 |
|
$ |
9,769 |
|
$ |
|
|
$ |
523,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest rate gap |
|
$ |
44,210 |
|
$ |
77,847 |
|
$ |
191,861 |
|
$ |
592,316 |
|
$ |
382,208 |
|
$ |
1,288,442 |
|
Cumulative interest rate gap |
|
$ |
44,210 |
|
$ |
122,057 |
|
$ |
313,918 |
|
$ |
906,234 |
|
$ |
1,288,442 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest rate gap ratio |
|
0.08 |
|
0.92 |
|
0.96 |
|
0.98 |
|
1.00 |
|
|
| ||||||
Cumulative interest rate gap ratio |
|
0.08 |
|
0.19 |
|
0.38 |
|
0.63 |
|
0.71 |
|
|
|
Based on the contractual terms of its assets and liabilities, the Companys balance sheet at March 31, 2015 was asset sensitive in terms of its short-term exposure to interest rates. That is, at March 31, 2015 the volume of assets that might reprice within the next year exceeded the volume of liabilities that might reprice. This position provides a hedge against rising interest rates, but has a detrimental effect during times of rate decreases. Net interest income is negatively impacted by a decline in interest rates and positively impacted by an increase in interest rates. To partially mitigate the adverse impact of declining rates, a significant portion of variable rate loans made by the Company have been written with a minimum floor rate.
The following table shows the scheduled maturities of the loan portfolio at March 31, 2015 and December 31, 2014. Approximately 78.6% and 81.2% of the loan portfolio was priced with floating interest rates which limit the exposure to interest rate risk on long-term loans, as of March 31, 2015 and 2014, respectively.
|
|
As of March 31, 2015 |
| ||||||||||
|
|
|
|
|
|
Due after one |
|
|
| ||||
|
|
|
|
Due one year |
|
year through |
|
Due after |
| ||||
(dollars in thousands) |
|
Amount |
|
or less |
|
five years |
|
five years |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
843,096 |
|
$ |
368,029 |
|
$ |
391,434 |
|
$ |
83,632 |
|
Real estate construction |
|
65,380 |
|
48,966 |
|
11,271 |
|
5,143 |
| ||||
Real estate land |
|
14,536 |
|
12,670 |
|
1,867 |
|
|
| ||||
Real estate other |
|
146,597 |
|
10,277 |
|
37,687 |
|
98,632 |
| ||||
Factoring and asset based lending |
|
156,806 |
|
99,488 |
|
57,318 |
|
|
| ||||
SBA |
|
125,075 |
|
1,003 |
|
1,657 |
|
122,415 |
| ||||
Other |
|
6,625 |
|
6,180 |
|
445 |
|
|
| ||||
Total loans |
|
$ |
1,358,115 |
|
$ |
546,613 |
|
$ |
501,679 |
|
$ |
309,822 |
|
|
|
As of December 31, 2014 |
| ||||||||||
|
|
|
|
|
|
Due after one |
|
|
| ||||
|
|
|
|
Due one year |
|
year through |
|
Due after |
| ||||
|
|
Amount |
|
or less |
|
five years |
|
five years |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
785,360 |
|
$ |
301,574 |
|
$ |
413,675 |
|
$ |
70,111 |
|
Real estate construction |
|
71,673 |
|
32,713 |
|
19,486 |
|
19,474 |
| ||||
Real estate land |
|
15,890 |
|
14,011 |
|
1,879 |
|
|
| ||||
Real estate other |
|
139,624 |
|
12,124 |
|
47,051 |
|
80,449 |
| ||||
Factoring and asset based lending |
|
167,513 |
|
119,874 |
|
47,639 |
|
|
| ||||
SBA |
|
124,180 |
|
(174 |
) |
1,931 |
|
122,423 |
| ||||
Other |
|
7,073 |
|
6,307 |
|
766 |
|
|
| ||||
Total loans |
|
$ |
1,311,313 |
|
$ |
486,429 |
|
$ |
532,427 |
|
$ |
292,457 |
|
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
The definition of off-balance sheet arrangements includes any transaction, agreement or other contractual arrangement to which an entity is a party under which we have:
· Any obligation under a guarantee contract that has the characteristics as defined in accounting guidance related to Guarantors Accounting and Disclosure Requirements for Guarantee including Indirect Guarantees of Indebtedness to Others;
· A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets, such as a subordinated retained interest in a pool of receivables transferred to an unconsolidated entity;
· Any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, except that it is both indexed to the registrants own stock and classified in stockholders equity; or
· Any obligation, including contingent obligations, arising out of a material variable interest, as defined in accounting guidance, in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or research and development services with the registrant.
In the ordinary course of business, we have issued certain guarantees which qualify as off-balance sheet arrangements, as of March 31, 2015 those guarantees include the following:
· Standby Letters of Credit in the amount of $21.5 million.
The table below summarizes the Companys off-balance sheet contractual obligations:
|
|
As of March 31, 2015 |
| |||||||||||||
|
|
Payments due by period |
| |||||||||||||
|
|
|
|
Less than |
|
1 - 3 |
|
3 - 5 |
|
More than |
| |||||
(dollars in thousands) |
|
Total |
|
1 year |
|
years |
|
years |
|
5 years |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term contracts |
|
$ |
1,160 |
|
$ |
696 |
|
$ |
464 |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating leases |
|
24,266 |
|
4,352 |
|
6,100 |
|
4,892 |
|
8,922 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
|
$ |
25,426 |
|
$ |
5,048 |
|
$ |
6,564 |
|
$ |
4,892 |
|
$ |
8,922 |
|
ITEM 4 CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by SEC rules, the Companys management evaluated the effectiveness, as of March 31, 2015, of the Companys disclosure controls and procedures. The Companys chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Companys chief executive officer and chief financial officer concluded that the Companys disclosure controls and procedures were effective as of March 31, 2015.
Internal Control over Financial Reporting
Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the companys principal executive and principal financial officers and effected by the companys board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No change occurred during the first quarter of 2015 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
The Company is not a defendant in any pending material legal proceedings and no such proceedings are known to be contemplated. No director, officer, affiliate, more than 5% shareholder of the Company, or any associate of these persons is a party adverse to the Company or has a material interest adverse to the Company in any material legal proceeding.
There were no material changes in the risk factors that were disclosed in Item 1A, under the caption Risk Factors in Part I of our Annual Report on Form 10-K for our fiscal year ended December 31, 2014.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable
Not applicable
(a) Exhibits
See Index to Exhibits at page 55 of this Quarterly Report on Form 10-Q.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
BRIDGE CAPITAL HOLDINGS |
|
|
|
|
|
|
Dated: May 11, 2015 |
By: |
/s/ Daniel P. Myers |
|
|
Daniel P. Myers |
|
|
President and Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
Dated: May 11, 2015 |
By: |
/s/ Thomas A. Sa |
|
|
|
|
|
Thomas A. Sa |
|
|
Executive Vice President |
|
|
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
(31.1) |
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
(31.2) |
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
(32.1) |
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 |
|
|
|
(32.2) |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 |
|
|
|
(101) |
|
The following financial information from Bridge Capital Holdings Quarterly Report on Form 10-Q for the period ended March 31, 2015, filed with the SEC on May 11, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheet at March 31, 2015 and December 31, 2014, (ii) the Consolidated Statement of Income for the three and nine month periods ended March 31, 2015 and 2014, (iii) the Consolidated Statement of Comprehensive Income for the three and nine month periods ended March 31, 2015 and 2014, (iv) the Consolidated Statement of Cash Flows for the three and nine month periods ended March 31, 2015 and 2014, and (v) Notes to Consolidated Financial Statements. |