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EX-21 - EX-21 - Bridge Capital Holdings | a14-26648_1ex21.htm |
EX-23.1 - EX-23.1 - Bridge Capital Holdings | a14-26648_1ex23d1.htm |
EXCEL - IDEA: XBRL DOCUMENT - Bridge Capital Holdings | Financial_Report.xls |
EX-32.1 - EX-32.1 - Bridge Capital Holdings | a14-26648_1ex32d1.htm |
EX-31.2 - EX-31.2 - Bridge Capital Holdings | a14-26648_1ex31d2.htm |
EX-32.2 - EX-32.2 - Bridge Capital Holdings | a14-26648_1ex32d2.htm |
EX-3.1 - EX-3.1 - Bridge Capital Holdings | a14-26648_1ex3d1.htm |
EX-31.1 - EX-31.1 - Bridge Capital Holdings | a14-26648_1ex31d1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
000-50974
(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, Zip Code)
Registrants telephone number, including area code: (408) 423-8500
Securities registered pursuant to Section 12 (b) of the Act:
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Name of each exchange |
Title of each class |
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on which registered |
Common Stock, no par value |
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Nasdaq Capital Market |
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Bridge Capital Holdings (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 website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer and 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 |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the voting stock held by non-affiliates of Bridge Capital Holdings was $238,739,725 as of June 30, 2014.
As of February 28, 2015, Bridge Capital Holdings had 15,958,281 shares of common stock outstanding.
Documents incorporated by reference: The Companys Proxy Statement for its 2015 Annual Meeting of Shareholders is incorporated herein by reference in Part III, Items 10 through 14.
Forward-looking Statements
IN ADDITION TO THE HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS CERTAIN FORWARD-LOOKING INFORMATION WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND WHICH ARE SUBJECT TO THE SAFE HARBOR CREATED BY THOSE SECTIONS. THE READER OF THIS ANNUAL REPORT SHOULD UNDERSTAND THAT ALL SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS UNCERTAINTIES AND RISKS THAT COULD AFFECT THEIR OUTCOME. THE 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 INCREASES SIGNIFICANTLY; (2) CHANGES IN THE INTEREST RATE ENVIRONMENT; (3) GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY, DETERIORATE OR FAIL TO IMPROVE, RESULTING IN, AMONG OTHER THINGS, DETERIORATION IN CREDIT QUALITY; (4) CHANGES IN THE REGULATORY ENVIRONMENT; (5) CHANGES IN BUSINESS CONDITIONS OR 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 OR TERRORIST THREATS OR ACTS, OR APPREHENSION ABOUT POSSIBLE FUTURE OCCURANCES OF ACTS OF THIS TYPE; (10) THE INVOLVEMENT OF THE UNITED STATES IN WAR OR OTHER HOSTILITIES; AND (11) THE MATTERS DISCUSSED IN THIS REPORT UNDER ITEM 1A RISK FACTORS AND ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES. THEREFORE, THE INFORMATION IN THIS ANNUAL REPORT SHOULD BE CAREFULLY CONSIDERED AGAINST THESE UNCERTAINTIES AND RISKS WHEN EVALUATING THE BUSINESS PROSPECTS OF THE COMPANY.
FORWARD-LOOKING STATEMENTS ARE GENERALLY IDENTIFIABLE BY THE USE OF TERMS SUCH AS BELIEVE, EXPECT, INTEND, ANTICIPATE, ESTIMATE, PROJECT, ASSUME, PLAN, PREDICT, FORECAST, IN MANAGEMENTS OPINION, MANAGEMENT CONSIDERS OR SIMILAR EXPRESSIONS. WHEREVER SUCH PHRASES ARE USED, SUCH STATEMENTS ARE AS OF AND BASED UPON THE KNOWLEDGE OF MANAGEMENT, AT THE TIME MADE AND ARE SUBJECT TO CHANGE BY THE PASSAGE OF TIME AND/OR SUBSEQUENT EVENTS, AND ACCORDINGLY SUCH STATEMENTS ARE SUBJECT TO THE SAME RISKS AND UNCERTAINTIES NOTED ABOVE WITH RESPECT TO FORWARD-LOOKING STATEMENTS. THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY OBLIGATION, TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT OCCURRENCES OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.
PART 1
Item 1. Business
General
Bridge Capital Holdings (the Company, we or us) is a bank holding company. The Company was incorporated in the State of California on April 6, 2004 for the purpose of becoming the holding company for its subsidiary, Bridge Bank, National Association (the Bank). As a bank holding company, the Company is supervised by the Board of Governors of the Federal Reserve System (the FRB).
The Company acquired 100% of the voting shares of the Bank effective October 1, 2004 following approval of the Banks shareholders on May 20, 2004. Prior to becoming a subsidiary of the Company, the common stock of the Bank had been registered with the Comptroller of the Currency (the Comptroller) under the Securities and Exchange Act of 1934, as amended. After becoming the Banks holding company, the Companys common stock was registered with the Securities and Exchange Commission. Filings by Bridge Capital Holdings are made with the SEC rather than the Comptroller and are available on the SECs website, www.sec.gov as well as on the Companys website, www.bridgecapitalholdings.com.
The Bank is a national banking association chartered by the Comptroller. The Bank was organized on December 6, 2000 and commenced operations on May 14, 2001. Its headquarters office is located at 55 Almaden Boulevard, San Jose, California, 95113. It maintains one branch office in the Silicon Valley region, and seven loan production offices located throughout the U.S.
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 commercial 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, courier services, and online banking. Additionally, the Banks international banking services include foreign exchange (FX payments and hedging), letters of credit, and import/export financing. The Bank is a Preferred SBA Lender and a High Plus Delegated Authority Lender for the Export-Import Bank of the United States
The Bank attracts the majority of its loans and deposits from small and middle-market companies, and emerging technology companies, located throughout the San Francisco Bay Area, where it provides banking services to businesses across various industries and sectors. Additionally, an increasingly larger portion of the Banks new business acquisition comes from its national network of loan production offices. The Bank reserves the right to change its business plan at any time, and no assurance can be given that, if the Banks proposed business plan is followed, it will prove successful.
The Bank does not offer trust services, but it will attempt to make such services available to the Banks customers through correspondent institutions. The deposits of the Bank are insured by the Federal Deposit Insurance Corporation (the FDIC) up to applicable limits, and the Bank is a member of the Federal Reserve System.
Deposits
The Bank offers a wide range of deposit accounts designed to attract small and medium size commercial businesses as well as business professionals and retail customers, including a complete line of checking and savings products, such as passbook savings, Money Market Deposit accounts which require minimum balances and frequency of withdrawal limitations, NOW accounts, and bundled accounts.
Additional deposit services include a full complement of convenience-oriented services, including remote deposit capture, direct payroll and social security deposit, post-paid bank-by-mail, and on-line banking, including on-line access to account information. Currently, the Bank does not open accounts through the Internet. Any plans to offer online account opening must be approved in advance by the Comptroller. No assurance can be given that, if applied for, such approval will be obtained.
As the Bank has no automated teller machines, the Bank may refund all or a portion of the transaction charges incurred by its customers for their use of another banks ATM. The majority of the Banks deposits are obtained from businesses located in the Banks primary service area.
Lending Activities
The Bank engages in a full range of lending products designed to meet the specialized needs of its customers, including commercial lines of credit and term loans, constructions loans, and equipment loans. Additionally, the Bank extends accounts receivable, factoring and inventory financing to qualified customers. Loans are also offered through the Small Business Administration guarantee 7(a) and 504 loan programs (described below under Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition and Earning AssetsLoan Portfolio).
The Bank finances real estate construction projects, primarily for the construction of owner occupied and 1 to 4-unit residential developments and commercial buildings.
The Bank directs its commercial lending principally toward businesses whose demands for credit fall within the Banks lending limit. In the event there are customers whose commercial loan demands exceed the Banks lending limits, the Bank seeks to arrange for such loans on a participation basis with other financial institutions.
The Bank engages, on limited occasions, in extending banking services and credit to individual borrowers.
Business Hours
In order to attract loan and deposit business, the Bank maintains lobby hours currently between 9:00 a.m. and 5:00 p.m. Monday through Friday.
For additional information concerning the Bank, see Selected Financial Data under Item 6 on page 17.
Competition
The commercial banking business in Santa Clara County, as it is elsewhere in California, is highly competitive, and each of the major branch banking institutions operating in California has one or more offices in the Banks service area. The Bank competes in the marketplace for deposits and loans, principally against these banks, independent community banks, savings and loan associations, thrift and loan companies, credit unions, mortgage banking companies, and non-bank institutions such as mutual fund companies and investment brokerage firms that claim a portion of the market.
Larger banks may have a competitive advantage because of their higher lending limits and their access to relatively large marketing resources. They also perform services, such as trust services, discount brokerage and insurance services, which the Bank is not authorized or prepared to offer currently. The Bank has made arrangements with its correspondent banks and with others to provide such services for its customers. For borrowers requiring loans in excess of the Banks legal lending limit, the Bank has offered, and intends to offer in the future, such loans on a participating basis with its correspondent banks and with other independent banks, retaining the portion of such loans which is within its lending limit. As of December 31, 2014, the Banks unsecured legal lending limit to a single borrower and such borrowers related parties was $29.5 million based on regulatory capital of $194.1 million.
The Banks business is concentrated in its service area, which primarily encompasses the general Silicon Valley/Bay Area region including Santa Clara, Alameda, San Mateo, Santa Cruz, Contra Costa and San Francisco counties. In certain lines of business the Bank has extended beyond its primary service area..
In order to compete with major financial institutions in its primary service area, the Bank uses to the fullest extent possible the flexibility that is accorded by its independent status. This includes an emphasis on specialized services, local promotional activity, and personal contacts by the Banks officers, directors and employees. The Bank also seeks to provide special services and programs for individuals in its primary service area who are employed in the professional and business fields, such as loans for equipment, furniture, and tools of the trade or expansion of practices or businesses.
Banking is a business that depends on interest rate differentials. In general, the difference between the interest rate paid by the Bank to obtain its deposits and its other borrowings and the interest rate received by the Bank on loans extended to its customers and on securities held in the Banks portfolio comprises the major portion of the Banks earnings.
Commercial banks compete with savings and loan associations, credit unions, other financial institutions and other
entities for funds. For instance, yields on corporate and government debt securities and other commercial paper affect the ability of commercial banks to attract and hold deposits. Commercial banks also compete for loans with savings and loan associations, credit unions, consumer finance companies, mortgage companies and other lending institutions.
The interest rate differentials of the Bank, and therefore its earnings, are affected not only by general economic conditions, both domestic and foreign, but also by the monetary and fiscal policies of the United States as set by statutes and as implemented by federal agencies, particularly the Federal Reserve Board. This agency can and does implement national monetary policy, such as seeking to curb inflation and combat recession, by its open market operations in United States government securities, adjustments in the amount of interest free reserves that banks and other financial institutions are required to maintain, and adjustments to the discount rates applicable to borrowing by banks from the Federal Reserve Board (the FRB). These activities influence the growth of bank loans, investments and deposits and also affect interest rates charged on loans and paid on deposits.
Supervision and Regulation
General
The Company and the Bank are subject to extensive regulation under both federal and state law. This regulation is intended primarily for the protection of depositors, the Deposit Insurance Fund, and the banking system as a whole rather than the Companys shareholders. Set forth below is a summary description of some of the significant laws and regulations applicable to the Company and the Bank. The description is qualified in its entirety by reference to the applicable laws and regulations.
Bank Holding Company Act
The Company is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the BHCA). As a bank holding company, the Company is subject to examination and supervision by the FRB and is subject to limitations on the kinds of businesses in which it can engage directly or through subsidiaries. While the Company may manage or control banks, it is generally prohibited from acquiring direct or indirect ownership or control of more than five percent of any class of voting shares of an entity engaged in non-banking activities unless the FRB finds such activities to be so closely related to banking as to be deemed a proper incident thereto within the meaning of the BHCA. As a bank holding company, the Company may not acquire more than five percent of the voting shares of any domestic bank without the prior approval of the FRB. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), a bank holding company is required to serve as a source of financial strength for its subsidiary banks.
The BHCA includes minimum capital requirements for bank holding companies. See the section titled Regulation and Supervision Regulatory Capital Requirements. The BHCA also authorizes the FRB to regulate aspects of bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem securities in certain situations. Under certain conditions, the FRB may conclude that certain actions of a bank holding company, such as the payment of a cash dividend, would constitute an unsafe and unsound banking practice.
Change in Bank Control
The BHCA and the Change in Bank Control Act of 1978, as amended, together with regulations of the FRB and the Comptroller, require that, depending on the particular circumstances, either FRB approval must be obtained or notice must be furnished to the Comptroller and not disapproved prior to any person or company acquiring control of a company that controls a bank, such as the Company, or a national bank, such as the Bank, subject to exemptions for some transactions. Control is conclusively presumed to exist if an individual or company (i) acquires 25% or more of any class of voting securities of the bank or (ii) has the direct or indirect power to direct or cause the direction of the management and policies of the Bank, whether through ownership of voting securities, by contract or otherwise; provided that no individual will be deemed to control the bank solely on account of being director, officer or employee of the Bank. Control is presumed to exist if a person acquires 10% or more but less than 25% of any class of voting securities and either the company has registered securities under Section 12 of the Exchange Act or no other person will own a greater percentage of that class of voting securities immediately after the transaction.
Securities Regulation
The Companys common stock is registered under the Securities Exchange Act of 1934, as amended (Exchange Act). The Exchange Act and the SECs rules require the Company to file periodic and current reports as well as proxy
statements with the SEC. The Company electronically files the following reports with the SEC: Form 10-K (Annual Report), Form 10-Q (Quarterly Report), Form 8-K (Current Report), and Schedule 14A (Information Required in Proxy Statement). The Company may prepare additional filings as required. The SEC maintains an Internet site, http://www.sec.gov, at which all forms filed electronically may be accessed. The Companys filings are also available on its website at http://www.bridgecapitalholdings.com, which is not part of this Annual Report. Because the Companys common stock is traded on the Nasdaq Global Select Market, it is also subject to Nasdaqs rules for listed companies.
The Company is also subject to the accounting oversight and corporate governance requirements of the Sarbanes-Oxley Act of 2002, including, among other things, required executive certification of financial presentations, requirements for board audit committees and their members, and disclosure of controls and procedures and internal control over financial reporting.
Regulation of the Bank
The Bank is regulated and supervised by the Comptroller and is subject to periodic examination by the Comptroller. Deposits of the Banks customers are insured by the FDIC up to the maximum limit of $250,000. As a national bank, the Bank is a member of the Federal Reserve System and is also subject to the regulations of the FRB. As an FDIC- insured bank, the Bank is subject to certain regulations of the FDIC.
The regulations of the Comptroller, the FDIC and the FRB govern most aspects of the Banks business and operations, including but not limited to limiting the nature and amount of investments and loans which may be made, restricting the payment of dividends and regulating bank expansion and bank activities. The Bank also is subject to the requirements and restrictions of various consumer laws and regulations.
The Comptroller can pursue an enforcement action against the Bank for unsafe and unsound practices in conducting its business, or for violations of any law, rule or regulation or provision, any consent order with any agency, any condition imposed in writing by the agency, or any written agreement with the agency. During periods of economic stress, regulatory oversight can be expected to increase and regulatory agencies become more aggressive in responding to concerns and trends identified in examinations. Enforcement actions may include the imposition of a conservator or receiver, cease-and-desist orders and written agreements, the termination of insurance of deposits, the imposition of civil money penalties and removal and prohibition orders against institution-affiliated parties. See Supervision and Regulation Potential Enforcement Actions and Supervisory Agreements.
In addition to this regulation and supervision by bank regulatory agencies, banks must be prepared for judicial scrutiny of their lending and collection practices. For example, some banks have been found liable for exercising remedies which their loan documents authorized upon the borrowers default. This has occurred in cases where the exercise of those remedies was determined to be inconsistent with the previous course of dealing between the bank and the borrower. As a result, banks must exercise caution, incur expense and face exposure to liability when dealing with delinquent loans.
Capital Adequacy Requirements
Federal regulations establish guidelines for calculating minimum risk-adjusted capital ratios. These guidelines, which apply to banks and bank holding companies, establish a systematic approach of assigning risk weights to bank assets and commitments, making capital requirements more sensitive to differences in risk profiles among banking organizations. For these purposes, Tier 1 capital consists of common equity, non-cumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries and excludes goodwill. Tier 2 capital consists of cumulative perpetual preferred stock, limited-life preferred stock, mandatory convertible securities, subordinated debt and (subject to a limit of 1.25% of risk-weighted assets) general loan loss reserves. In calculating the relevant ratio, a banks assets and off-balance sheet commitments are risk-weighted; thus, for example, generally loans are included at 100% of their book value while assets considered less risky are included at a percentage of their book value (20%, for example, for inter-bank obligations and U.S. Government Agency securities, and 0% for vault cash and U.S. Government securities). Under these regulations, to be considered adequately capitalized, banks and bank holding companies are required to maintain a risk-based capital ratio of 8%, with Tier 1 risk-based capital (primarily shareholders equity) constituting at least 50% of total qualifying capital or 4% of risk-weighted assets.
The federal banking agencies, including the Comptroller, have adopted regulations implementing a system of prompt corrective action under the Federal Deposit Insurance Corporation Improvement Act (FDICIA). The regulations establish five capital categories with the following characteristics: (1) Well capitalized, consisting of institutions with a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater and a leverage ratio
of 5.0% or greater and which are not operating under an order, written agreement, capital directive or prompt corrective action directive; (2) Adequately capitalized, consisting of institutions with a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital of 4.0% or greater and a leverage ratio of 4.0% or greater and which do not meet the definition of a well capitalized institution; (3) Undercapitalized, consisting of institutions with a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 4.0%, or a leverage ratio of less than 4.0%; (4) Significantly undercapitalized, consisting of institutions with a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 3.0%, or a leverage ratio of less than 3.0%; and (5) Critically undercapitalized, consisting of institutions with a ratio of tangible equity to total assets that is equal to or less than 2.0%. The prompt correction action standards changed when the new Basel III capital ratios became effective on January 1, 2015. Under the new standards, in order to be considered well-capitalized, the Bank is required to meet the new common equity Tier 1 ratio of 6.5%, an increased Tier 1 ratio of 8% (increased from 6%), a total capital ratio of 10% (unchanged) and a leverage ratio of 5% (changed from 4%). See Basel Accord and the New Capital Standards. Regulators generally expect banks and bank holding companies to maintain risk-based capital ratios above these minimums.
At December 31, 2014, the Company and the Bank have capital ratios that place them in the well capitalized category under the standards in effect on that date. See Note 16 to the Consolidated Financial Statements included under Item 8 of this Annual Report.
An institution that is less than well-capitalized cannot accept brokered deposits without the consent of the FDIC. At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits and prohibitions on payment of dividends. The appropriate federal banking agency, after notice and an opportunity for a hearing, is authorized to treat a well-capitalized, adequately capitalized or undercapitalized insured depository institution as if it had a lower capital-based classification if it is in an unsafe and unsound condition or engaging in an unsafe and unsound practice. Thus, an adequately capitalized institution can be subjected to the restrictions (described below) that are imposed on undercapitalized institutions (provided that a capital restoration plan cannot be required of the institution), and an undercapitalized institution can be subjected to the restrictions (also described below) applicable to significantly undercapitalized institutions.
An undercapitalized institution is required to submit an acceptable capital restoration plan to its primary federal bank regulatory agency. The banking agency may not accept a capital restoration plan unless the agency determines, among other things, that the plan is based on realistic assumptions, and is likely to succeed in restoring the institutions capital and would not appreciably increase the risk . . . to which the institution is exposed. The FDIC is required, by regulation or order, to restrict the activities of critically undercapitalized institutions.
Basel Accord and the New Capital Standards
In 2010 and 2011, the International Basel Committee on Banking Supervision (the Basel Committee), a committee of central banks and bank supervisors and regulators from the major industrialized countries, finalized proposed reforms on capital and liquidity, generally referred to as Basel III, in response to the worldwide economic downturn.
In July, 2013, the FRB and other federal banking agencies approved final rules implementing Basel III that apply to both the Company and the Bank. The final rules increased the minimum requirements for both the levels and quality of capital of banking organizations, made selected changes to the calculation of risk-weighted assets and adjusted prompt corrective action thresholds. The new standards, which became effective on January 1, 2015, impose more restrictive eligibility requirements for Tier 1 and Tier 2 capital, create a new minimum Tier 1 common equity ratio of 4.5%; increase the minimum Tier 1 capital ratio to 6.0%; retain the minimum total capital to risk-weighted assets ratio requirement of 8% and include a minimum leverage ratio of 4.0% for all banking organizations. The Company and the Bank would have met the requirements of these new capital rules as of December 31, 2014 if they were in effect on that date. The final rules also include a new additional capital conservation buffer of 2.5% of risk-weighted assets over each of the required capital ratios, to be phased in from 2016 to 2019, and which must be met to avoid limitations on the ability to pay dividends, repurchase shares or pay discretionary bonuses. The rules also introduce a countercyclical capital buffer of up to 2.5% during periods of excessive credit growth for larger and more complex institutions.
Deposit Insurance Coverage and Premiums
The FDIC insures the Banks deposits through the Deposit Insurance Fund (the DIF) up to prescribed statutory limits, currently $250,000 per depositor per institution. The DIF is funded primarily by FDIC assessments paid by each DIF member institution. A depository institutions FDIC insurance premium assessment rate is based on its asset and capital levels and is adjusted for risk, supervisory ratings and other factors. In addition, FDIC insured institutions are
required to pay a Financing Corporation assessment, in order to fund the interest on bonds issued to resolve thrift failures in the 1980s. These assessments, which may be revised based on the level of deposits, will continue until the bonds mature in the years 2017 through 2019.
The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital.
Potential Enforcement Actions and Supervisory Agreements
Under federal law, national banks, their holding companies and their respective institution-affiliated parties may be the subject of potential enforcement actions by the bank regulatory agencies for unsafe and unsound practices in conducting their businesses, or for violations of any law, rule or regulation or provision, any consent order with any agency, any condition imposed in writing by the agency or any written agreement with the agency. During periods of economic stress, regulatory oversight can be expected to increase and regulatory agencies may become more aggressive in responding to concerns and trends identified in examinations. One result of this heightened activity is an increase in the issuance of enforcement actions. Enforcement actions may include the imposition of a conservator or receiver, cease-and-desist orders and written agreements, the termination of insurance of deposits, the imposition of civil money penalties and removal and prohibition orders against institution-affiliated parties.
Payment of Dividends
The Company. Historically, the Company has not paid dividends but has retained earnings to support growth. The ability of the Company to make dividend payments is subject to statutory and regulatory restrictions. Under California law, a California corporation such as the Company may make a distribution to its shareholders if the corporations retained earnings equal at least the amount of the proposed distribution. In the event sufficient retained earnings are not available for the proposed distribution, a California corporation may nevertheless make a distribution to its shareholders if, giving effect to the distribution, the value of the corporations assets would equal or exceed the value of its liabilities plus the amount of shareholder preferences, if any. It is the FRBs policy that bank holding companies should generally pay dividends on common stock only out of income available over the past year, and only if prospective earnings retention is consistent with the organizations expected future needs and financial condition.
The primary source of funds for payment of any dividends by the Company to its shareholders will be the receipt of dividends and management fees from the Bank.
The Bank. The Board of Directors of a national bank may declare the payment of dividends depending upon the earnings, financial condition and cash needs of the bank and general business conditions. A national bank may not pay dividends from its capital. All dividends must be paid out of net profits then on hand, after deducting losses and bad debts. The approval of the Comptroller is required for the payment of dividends if the total of all dividends declared by the bank in any calendar year would exceed the total of its net profits of that year combined with its retained net profits of the two preceding years, less any required transfers to surplus or a fund for the retirement of any preferred stock.
In addition to the above requirements, guidelines adopted by the Comptroller set forth factors which are to be considered by a national bank in determining the payment of dividends. A national bank, in assessing the payment of dividends, is to evaluate the banks capital position, its maintenance of an adequate allowance for loan and lease losses, and the need to revise or develop a comprehensive capital plan.
The Comptroller also has broad authority to prohibit a national bank from engaging in banking practices which it considers to be unsafe or unsound. It is possible, depending upon the financial condition of the national bank in question and other factors, that the Comptroller may assert that the payment of dividends or other payments by a bank is considered an unsafe or unsound banking practice and therefore implement corrective action to address such a practice.
Accordingly, the future payment of cash dividends by the Company will not only depend upon the Banks earnings during any fiscal period but will also depend upon the assessment of its Board of Directors of capital requirements and other factors, including dividend guidelines and the maintenance of an adequate allowance for loan and lease losses.
Community Reinvestment Act
Under to the Community Reinvestment Act of 1977 (the CRA), the federal regulatory agencies that oversee the banking industry are required to use their authority to encourage financial institutions to help meet the credit needs of the local communities in which such institutions are chartered, consistent with safe and sound banking practices. When conducting an examination of a financial institution such as the Bank, the agencies assess the institutions record of meeting the credit needs of its entire community, including low- and moderate- income neighborhoods. This record is taken into account in an agencys evaluation of an application for creation or relocation of domestic branches or for merger with another institution. Failure to address the credit needs of a banks community may also result in the imposition of certain other regulatory sanctions, including a requirement that corrective action be taken.
Transactions with Affiliates
Sections 23A and 23B of the Federal Reserve Act and the FRBs Regulation W limit transactions between a bank and its affiliates. The statute and regulation impose quantitative and qualitative limits on the ability of a bank to extend credit to, or engage in certain other transactions with, an affiliate (and a non-affiliate if an affiliate benefits from the transaction). However, certain transactions that generally do not expose a bank to undue risk are exempted from coverage under Regulation W.
Directors, officers and principal shareholders of the Bank, and the companies with which they are associated, may have banking transactions with the Bank in the ordinary course of business. Any loans and commitments to loan included in these transactions must be made in compliance with the requirements of applicable law, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons of similar creditworthiness, and on terms not involving more than the normal risk of collectability or presenting other unfavorable features.
Tying Arrangements
A bank is prohibited from tie-in arrangements in connection with any extension of credit, sale or lease of property or furnishing of services. For example, with some exceptions, a bank may not condition an extension of credit on a promise by its customer to obtain other services provided by it, its holding company or other subsidiaries (if any), or on a promise by its customer not to obtain other services from a competitor.
Anti-Money Laundering Laws
A series of banking laws and regulations beginning with the bank Secrecy Act in 1970 requires banks to prevent, detect, and report illicit or illegal financial activities to the federal government to prevent money laundering, international drug trafficking, and terrorism. Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, financial institutions are subject to prohibitions against specified financial transactions and account relationships, requirements regarding the Customer Identification Program, as well as enhanced due diligence and know your customer standards in their dealings with high risk customers, foreign financial institutions, and foreign individuals and entities.
Privacy and Data Security.
The Gramm-Leach Bliley Act (GLBA) of 1999 imposes requirements on financial institutions with respect to consumer privacy. The GLBA generally prohibits disclosure of consumer information to non-affiliated third parties unless the consumer has been given the opportunity to object and has not objected to such disclosure. Financial institutions are further required to disclose their privacy policies to consumers annually. The GLBA also directs federal regulators, including the FDIC, to prescribe standards for the security of consumer information. The Bank is subject to such standards, as well as standards for notifying consumers in the event of a security breach. The Bank is required to have an information security program to safeguard the confidentiality and security of customer information and to ensure proper disposal of information that is no longer needed. Customers must be notified when unauthorized disclosure involves sensitive customer information that may be misused.
Consumer Laws and Regulations
The Bank must also comply with consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act and the Fair Credit Reporting Act, among others. These laws and regulations
mandate disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans. The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing regulatory compliance and customer relations efforts.
The Dodd-Frank Act created a new, independent federal agency called the Consumer Financial Protection Bureau (CFPB), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including laws governing residential mortgages. The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions are be subject to rules promulgated by the CFPB but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes.
Exposure to and Management of Risk
The federal banking agencies examine banks and bank holding companies with respect to their exposure to and management of different categories of risk. Categories of risk identified by the agencies include legal risk, operational risk, market risk, credit risk, interest rate risk, price risk, foreign exchange risk, transaction risk, compliance risk, strategic risk, liquidity risk, and reputation risk. This examination approach causes bank regulators to focus on risk management procedures, rather than simply examining every asset and transaction. This approach supplements rather than replaces existing rating systems based on the evaluation of an institutions capital, assets, management, earnings and liquidity.
Safety and Soundness Standards
Federal banking regulators have adopted guidelines prescribing standards for safety and soundness. The guidelines create standards for a wide range of operational and managerial matters including (a) internal controls, information systems, and internal audit systems; (b) loan documentation; (c) credit underwriting; (d) interest rate exposure; (e) asset growth; (f) compensation and benefits; and (g) asset quality and earnings. Although meant to be flexible, an institution that falls short of the guidelines standards may be requested to submit a compliance plan or be subjected to regulatory enforcement actions.
Impact of Government Monetary Policy
The earnings of the Bank are and will be affected by the policies of regulatory authorities, including the FRB. An important function of the FRB is to regulate the national supply of bank credit. Among the instruments used to implement these objectives are open market operations in U.S. Government securities, changes in reserve requirements against bank deposits, and changes in the discount rate which banks pay on advances from the Federal Reserve System. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect interest rates on loans or interest rates paid for deposits. The monetary policies of the FRB have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effect, if any, of such policies upon the future business earnings of the Bank cannot be predicted.
Legislation and Proposed Changes
From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress and before various bank regulatory agencies. Provisions of the Dodd-Frank Act continue to take effect and the regulatory agencies continue to adopted enacting rules and regulations that are likely to significantly impact the Companys operations and compliance costs. No prediction can be made as to the likelihood of any major changes or the impact that new laws or regulations might have on the Company or the Bank.
Conclusion
It is impossible to predict with any certainty the competitive impact the laws and regulations described above will have on commercial banking in general and on the business of the Company in particular, or to predict whether or when any of the proposed legislation and regulations described above will be adopted. It is anticipated that banking will continue to be a highly regulated industry. Additionally, there has been a continued historical decrease in the distinction between the services offered by depository institutions and other businesses offering financial services, and the trend
toward nationwide interstate banking is expected to continue. As a result of these factors, it is anticipated banks will experience increased competition for deposits and loans and, possibly, further increases in their cost of doing business.
Item 1A. Risk Factors
RISK FACTORS
Readers and prospective investors in our securities should carefully consider the following risk factors as well as the other information contained or incorporated by reference in this report.
The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors.
If any of the following risks actually occur, the Companys financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of the Companys securities could decline significantly, and you could lose all or part of your investment.
General Business Risks
We may suffer losses in our loan portfolio.
In our business as a lender, we face the risk that borrowers may fail to pay their loans when due. If borrower defaults cause large aggregate losses, it could have a material adverse impact on our business, profitability and financial condition.
We attempt to mitigate the risks inherent in extending credit by adhering to specific underwriting practices, managed by credit professionals. Although we believe that our underwriting criteria is appropriate for the various kinds of loans we fund, we may incur losses on loans that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in the Banks allowance for loan losses. If our underwriting practices prove to be ineffective, we may incur losses in our loan portfolio, which could have a material and adverse effect on our financial condition and results of operations.
Our reserves for loan losses may not be adequate.
In accordance with generally accepted accounting principles in the United States, we maintain an allowance for loan losses to provide for loan defaults and non-performance which we refer to the allowance for loan losses. Our allowance for loan losses may not be adequate to address our actual loan losses, and future provisions for loan losses could materially and adversely affect our operating results. We have established an evaluation process designed to determine the adequacy of our allowance for loan losses. While this process uses historical and other objective information, the classification of loans and the forecasts and establishment of loan losses are dependent to a great extent on our subjective assessment based upon our experience and judgment. We can provide no assurance that our allowance for loan losses will be adequate to absorb actual losses in the future or that we will not be required to increase this allowance.
In addition, bank regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan losses. While we believe that our allowance for loan losses is currently adequate to cover potential losses, we cannot guarantee that future increases to the allowance for loan losses may not be required by regulators or other third party loan review or financial audits.
Poor economic conditions in the Northern California real estate market may cause us to suffer higher default rates on our loans and decreased value of the assets we hold as collateral.
The majority of our assets and deposits were generated in Northern California. At December 31, 2014, approximately 30% of our loan portfolio was secured by real property in Northern California. During 2014, the real estate market in Northern California continued to stabilize and improve as evidenced by increasing prices, increased transaction volume and decreased foreclosure rates. These improvements follow an extended period of deterioration and there is no certainty that improvements will continue, or that the regions real estate market will not deteriorate in the future. A deterioration may result in an increase in the level of our nonperforming loans, particularly commercial real estate loans. When real estate prices decline, the value of real estate collateral securing our loans is reduced. As a result, we may experience greater charge-offs and, similarly, our ability to recover on defaulted loans by foreclosing and selling
the real estate collateral may be diminished and, as a result, we are more likely to suffer losses on defaulted loans. Therefore, if there is a downturn in the Northern California real estate market or the regions economy generally, we could experience reduced income, increased expenses and less cash available for lending and other activities, which could have a material and adverse effect on our financial condition and results of operations.
We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.
Competition for qualified employees in the banking industry is intense, and there are limited numbers of qualified persons with knowledge of, and experience in, the California community banking industry. The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy. Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing and business development and technical personnel, and upon the continued contributions of our management and personnel. If we fail to attract and retain the necessary personnel, our financial condition and results of operations may be materially and adversely affected.
We face limits on our ability to lend and the limitation may increase.
Our legal lending limit to a single borrower and such borrowers related parties as of December 31, 2014 was approximately $29.5 million. Accordingly, the size of the loans which we can offer to potential customers is less than the size of loans which many of our competitors with larger lending limits can offer. Our lending limit may affect our ability to seek relationships with larger and more established businesses. We cannot be assured of any success in attracting or retaining customers seeking larger loans or that we can engage in participations of those loans on terms favorable to us. Moreover, to the extent that we incur losses and do not obtain additional capital, our lending limit, which depends upon the amount of our capital, will decrease, which could have a material and adverse effect on our financial condition and results of operations.
Market and Interest Rate Risks
Changes in interest rates could reduce income and cash flow.
Our income and cash flow depend to a great extent on the difference between the interest earned on loans and investment securities, and the interest paid on deposits and other borrowings (the interest rate spread). We cannot control or prevent changes in the level of interest rates. Interest rates fluctuate in response to general economic conditions and the policies of various governmental and regulatory agencies, in particular, the FRB. Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of deposits and the rates received on loans and investment securities and paid on deposits and other liabilities. See Item 7a Quantitative and Qualitative Disclosures About Market Risk. Historically low market interest rates have caused our interest rate spread to decline significantly, which reduces potential revenue and net income. Sustained low levels of market interest rates will likely continue to put pressure on our profitability.
An unanticipated rapid decrease or increase in interest rates could have an adverse effect on our interest rate spread and therefore on the level of net interest income. For example, a rapid increase in interest rates in the future could result in our interest expense increasing faster than our interest income because of fixed rate loans or loans with interest rate caps and longer-term investment securities Although we take measures to limit interest rate risk, a material change in our interest rate spread could have a material adverse effect on our business, profitability and financial position.
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, capital offerings and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities, or on terms attractive to us, could be impaired by factors that impact us specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity sources include a reduction in the level of business activity due to a market downturn or adverse regulatory action against us, or a decrease in depositor or investor confidence in us. Further, as a business bank, a significant portion of our deposits are raised from companies in amounts that exceed levels covered by FDIC insurance. In addition, our ability to borrow could also be impaired by factors that are not specific to us, such as the severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole as the recent turmoil faced by banking in the domestic and worldwide credit markets deteriorates.
Because a substantial portion of our customers are small and middle-market technology companies, our earnings will be particularly sensitive to market conditions in the technology sector, particularly in the Silicon Valley region of Northern California.
A substantial portion of our customers are technology companies, including life sciences companies. Technology loans represented approximately 28% of our loan portfolio at December 31, 2014. The strength of technology sector has historically fluctuated significantly and is subject to a variety of factors that we do not control, such as the markets for initial public offerings, mergers and acquisitions and venture capital funding. A weakening in the technology sector could lead to higher loan default rates, a reduced demand for loans or both. In addition, we hold a portfolio of warrants from non-public technology and life science companies obtained when we originate loans to these companies. We record these warrants at fair value on a recurring basis. The values of the warrants and the potential to realize income from the warrants depends on the health of the technology sector, in particular the market for initial public offerings and mergers and acquisition. For all of these reasons, unfavorable market conditions in the technology sector could have a negative impact on our earnings and could cause us to incur losses.
Risks Related to the Nature and Geographical Location of our Business
Our operations are concentrated geographically in California, and poor economic conditions in California may cause us to incur losses.
A majority of our business is located in California. Our financial condition and operating results will be subject to changes in economic conditions in California. A significant and prolonged downturn in the California economy could adversely affect financial institutions doing business in California, such as the Company. Economic conditions in California are subject to various uncertainties at this time, including the California state governments budgetary difficulties and the continuing drought. The Company will be subject to changes in economic conditions. We can provide no assurance that conditions in the California economy will not deteriorate in the future and that such deterioration will not adversely affect us.
The markets in which we operate are subject to the risk of earthquakes and other natural disasters.
Most of our properties are located in California. Also, most of the real and personal properties securing our loans are located in California. California is a state which is experiencing a record drought and its prone to earthquakes, brush fires, flooding and other natural disasters. In addition to possibly sustaining damage to its own properties, if there is a major earthquake, flood or other natural disaster, we face the risk that many of our borrowers may experience uninsured property losses, or sustained job interruption and/or loss which may materially impair their ability to meet the terms of their loan obligations. Although we do not engage in agricultural lending, the drought in California could have an impact on the States economy and our customers. Therefore, the continuing drought or a major earthquake, flood or other natural disaster in California could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Substantial competition in the California banking market could adversely affect us.
Banking is a highly competitive business. We compete actively for loan, deposit, and other financial services business primarily in California. Our competitors include a large number of state and national banks, thrift institutions and credit unions, as well as many financial and non-financial firms that offer services similar to those offered by us. Other competitors include large financial institutions that have substantial capital, technology and marketing resources. Such large financial institutions may have greater access to capital at a lower cost than us, which may adversely affect our ability to compete effectively.
Regulatory Risks
Restrictions on dividends and other distributions could limit amounts that the Bank is able to pay to the Company.
Various statutory provisions restrict the amount of dividends that the Bank can pay the Company without regulatory approval. In addition, if the Bank or any other subsidiary of ours were to liquidate, its creditors will be entitled to receive distributions from the assets of that subsidiary to satisfy their claims against it before the Company, as a holder of an equity interest in the subsidiary, will be entitled to receive any of the assets of the subsidiary.
Adverse effects or changes in banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us.
We are subject to significant federal and state regulation and supervision, which is primarily for the benefit and protection of our customers and not for the benefit of investors. In the past, our business has been increasingly materially affected by these regulations. This trend is likely to continue in the future. Laws, regulations or policies, including accounting standards and interpretations currently affecting us and our subsidiaries, may change at any time. Regulatory authorities may also change their interpretation of these statutes and regulations. During periods of economic stress, regulatory oversight can be expected to increase and regulatory agencies become more aggressive in responding to concerns and trends identified in examinations. Such a regulatory response may effect, among other things, growth rates, business mix, capital levels and payment of dividends Therefore, our business may be adversely affected by any future changes in laws, regulations, policies or interpretations or regulatory approaches to compliance and enforcement, including legislative and regulatory reactions to the recent credit crisis, acts of terrorism, and major U.S. corporate bankruptcies and reports of accounting irregularities at U.S. public companies.
As noted above, the Dodd-Frank Act was enacted in July of 2010. The Dodd-Frank Act mandates significantly increased supervisory activities and many new studies and regulations. We cannot predict what form additional regulations required by the Dodd-Frank Act might take or whether and when they could become effective.
Additionally, our business is affected significantly by the fiscal and monetary policies of the federal government and its agencies. We are particularly affected by the policies of the FRB, which regulates the supply of money and credit in the U.S. Among the instruments of monetary policy available to the FRB are (a) conducting open market operations in U.S. government securities, (b) changing the discount rates of borrowings by depository institutions, and (c) imposing or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. The policies of the FRB may have a material effect on our business, results of operations and financial condition.
See Supervision and Regulation Legislation and Proposed Changes for additional discussion regarding adverse effects of, or changes in, banking or other laws and regulations and governmental fiscal or monetary policies.
Systems, Accounting and Internal Control Risks
The accuracy of our judgments and estimates about financial and accounting matters will impact operating results and financial condition.
We make certain estimates and judgments in preparing the financial statements. The quality and accuracy of those estimates and judgments will impact our operating results and financial condition. See Critical Accounting Policies and Estimates in this report and the information referred to in that discussion.
Our information systems may experience an interruption or breach in security.
We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management and systems. We cannot assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately corrected. The occurrence of any such failures, interruptions or security breaches could damage our reputation, result in a loss of customer business, subject us to heightened regulatory scrutiny, or expose us to litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
Our controls and procedures may fail or be circumvented.
Our management regularly reviews and updates our internal control over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls and procedures, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Companys principal executive office and a full service banking office are located at 55 Almaden Boulevard in San Jose, California. The office consists of approximately four floors of an eight-story office building. In September of 2013, the Company terminated two existing leases with its landlord for these premises and executed a new lease which commenced on January 1, 2014, for 120 months ending on December 31, 2023. The lease provides for an additional 20,000 square feet on an additional floor, for a total of 69,550 square feet. The initial base rent is $163,442, increasing 3% each anniversary date thereafter. The foregoing description is qualified by reference to the lease agreement dated September 10, 2013 and filed as Exhibit 10.1 to this Report.
In addition, the Company operates loan production offices in San Francisco, Palo Alto, Pleasanton and Newport Beach, California, Dallas, Texas, Reston, Virginia and Boston, Massachusetts.
Item 3. Legal Proceedings
The Company is not a defendant in any material pending legal proceedings and no such proceedings are known to be contemplated. No director, officer, affiliate, more than 5.0% 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.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Companys Common Stock trades on the Nasdaq Capital Market under the symbol BBNK. The following table summarizes those trades of which the Company has knowledge, setting forth the high and low sales prices for the periods indicated.
|
|
Sales Price of |
| ||||
|
|
Common Stock (1) |
| ||||
Three Months Ended |
|
Low |
|
High |
| ||
|
|
|
|
|
| ||
March 31, 2013 |
|
$ |
15.03 |
|
$ |
16.01 |
|
June 30, 2013 |
|
$ |
13.65 |
|
$ |
16.01 |
|
September 30, 2013 |
|
$ |
15.98 |
|
$ |
17.24 |
|
December 31, 2013 |
|
$ |
16.55 |
|
$ |
21.22 |
|
|
|
|
|
|
| ||
March 31, 2014 |
|
$ |
19.48 |
|
$ |
24.35 |
|
June 30, 2014 |
|
$ |
22.00 |
|
$ |
24.39 |
|
September 30, 2014 |
|
$ |
21.33 |
|
$ |
24.88 |
|
December 31, 2014 |
|
$ |
21.78 |
|
$ |
24.57 |
|
(1) Prices represent the actual trading history on the Nasdaq Capital Market. Additionally, since trading in the Companys common stock is limited, the range of prices stated is not necessarily representative of prices which would result from a more active market.
The Company had 1,532 common shareholders of record as of December 31, 2014.
The Companys shareholders are entitled to receive dividends, when and as declared by its Board of Directors, out of funds legally available, subject to statutory, regulatory, and contractual restrictions. See Supervision and Regulation Payment of Dividends for additional discussion regarding dividends. A California corporation such as Bridge Capital Holdings generally may make a distribution to its shareholders if the corporations retained earnings equal at least the amount of the proposed distribution, or, alternatively, to the extent that its assets exceed its liabilities plus shareholder preferences, if any.
In a policy statement, the FRB has advised bank holding companies that it believes that payment of cash dividends in excess of current earnings from operations is inappropriate and may be cause for supervisory action. Additionally, the Dodd-Frank Acts requirement that holding companies are expected to provide a source of managerial and financial strength to their subsidiary banks potentially restricts a bank holding companys ability to pay dividends.
The Company has not declared dividends on its common stock since inception of the Banks existence. In the future, the Company may consider cash and stock dividends, subject to the restrictions on the payment of cash dividends as described above, depending upon the level of earnings, managements assessment of future capital needs and other factors considered by the Board of Directors.
The following chart reflects the total return performance of the Companys common stock for the years ended December 31, 2014, 2013, 2012, 2011, and 2010.
|
|
Period Ending |
| ||||||||||
Index |
|
12/31/09 |
|
12/31/10 |
|
12/31/11 |
|
12/31/12 |
|
12/31/13 |
|
12/31/14 |
|
Bridge Capital Holdings |
|
100.00 |
|
120.02 |
|
143.48 |
|
214.67 |
|
283.37 |
|
308.75 |
|
NASDAQ Composite |
|
100.00 |
|
118.15 |
|
117.22 |
|
138.02 |
|
193.47 |
|
222.16 |
|
SNL Western Bank |
|
100.00 |
|
113.31 |
|
102.37 |
|
129.18 |
|
181.76 |
|
218.14 |
|
Item 6. Selected Financial Data
The following table presents certain consolidated financial information concerning the business of the Company. This information should be read in conjunction with the Financial Statements and the notes thereto, and Managements Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere herein.
|
|
As of and for the year ended |
| |||||||||||||
|
|
December 31, |
| |||||||||||||
(dollars in thousands, except per share data) |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
| |||||
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income |
|
$ |
78,856 |
|
$ |
70,810 |
|
$ |
62,787 |
|
$ |
50,694 |
|
$ |
45,188 |
|
Interest expense |
|
2,212 |
|
2,518 |
|
2,195 |
|
2,256 |
|
3,071 |
| |||||
Net interest income |
|
76,644 |
|
68,292 |
|
60,592 |
|
48,438 |
|
42,117 |
| |||||
Provision for credit losses |
|
3,000 |
|
6,050 |
|
3,950 |
|
2,600 |
|
4,700 |
| |||||
Net interest income after provision for credit losses |
|
73,644 |
|
62,242 |
|
56,642 |
|
45,838 |
|
37,417 |
| |||||
Other income |
|
14,117 |
|
14,280 |
|
12,984 |
|
9,930 |
|
6,849 |
| |||||
Other expenses |
|
58,057 |
|
51,884 |
|
46,212 |
|
42,424 |
|
39,720 |
| |||||
Income before income taxes |
|
29,704 |
|
24,638 |
|
23,414 |
|
13,344 |
|
4,546 |
| |||||
Income taxes |
|
12,103 |
|
9,927 |
|
9,610 |
|
5,497 |
|
1,955 |
| |||||
Net income |
|
$ |
17,601 |
|
$ |
14,711 |
|
$ |
13,804 |
|
$ |
7,847 |
|
$ |
2,591 |
|
Preferred Dividends |
|
|
|
|
|
|
|
200 |
|
1,955 |
| |||||
Net income (loss) available to common shareholders |
|
$ |
17,601 |
|
$ |
14,711 |
|
$ |
13,804 |
|
$ |
7,647 |
|
$ |
636 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Per Share Data: |
|
|
|
|
|
|
|
|
|
|
| |||||
Basic earnings (loss) per share |
|
$ |
1.19 |
|
$ |
1.02 |
|
$ |
0.96 |
|
$ |
0.54 |
|
$ |
0.06 |
|
Diluted earnings (loss) per share |
|
1.13 |
|
0.97 |
|
0.92 |
|
0.52 |
|
0.06 |
| |||||
Book value per common share |
|
11.72 |
|
10.26 |
|
9.32 |
|
8.55 |
|
8.16 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
| |||||
Balance sheet totals: |
|
|
|
|
|
|
|
|
|
|
| |||||
Assets |
|
$ |
1,814,122 |
|
$ |
1,604,112 |
|
$ |
1,343,585 |
|
$ |
1,161,033 |
|
$ |
1,029,731 |
|
Loans, net |
|
1,283,364 |
|
1,050,960 |
|
885,575 |
|
740,696 |
|
634,557 |
| |||||
Deposits |
|
1,549,545 |
|
1,406,092 |
|
1,162,548 |
|
998,675 |
|
847,946 |
| |||||
Shareholders equity |
|
187,107 |
|
162,747 |
|
146,747 |
|
129,513 |
|
142,303 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Average balance sheet amounts: |
|
|
|
|
|
|
|
|
|
|
| |||||
Assets |
|
$ |
1,648,628 |
|
$ |
1,431,331 |
|
$ |
1,206,691 |
|
$ |
1,047,141 |
|
$ |
897,140 |
|
Loans, net |
|
1,130,003 |
|
946,262 |
|
805,560 |
|
641,894 |
|
573,173 |
| |||||
Deposits |
|
1,433,383 |
|
1,240,470 |
|
1,023,625 |
|
884,683 |
|
751,119 |
| |||||
Shareholders equity |
|
174,994 |
|
155,332 |
|
138,366 |
|
128,128 |
|
114,624 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Selected Ratios: |
|
|
|
|
|
|
|
|
|
|
| |||||
Return on average equity |
|
10.06 |
% |
9.47 |
% |
9.98 |
% |
6.12 |
% |
2.26 |
% | |||||
Return on average assets |
|
1.07 |
% |
1.03 |
% |
1.14 |
% |
0.75 |
% |
0.29 |
% | |||||
Efficiency ratio |
|
63.97 |
% |
62.83 |
% |
62.81 |
% |
72.68 |
% |
81.12 |
% | |||||
Total risk based capital ratio |
|
13.91 |
% |
13.96 |
% |
15.23 |
% |
16.06 |
% |
20.87 |
% | |||||
Net chargeoffs (recoveries) to average gross loans |
|
0.23 |
% |
0.42 |
% |
0.31 |
% |
-0.06 |
% |
0.85 |
% | |||||
Allowance for loan losses to total gross loans |
|
1.71 |
% |
2.05 |
% |
2.20 |
% |
2.43 |
% |
2.39 |
% | |||||
Average equity to average assets |
|
10.61 |
% |
10.85 |
% |
11.47 |
% |
12.24 |
% |
12.78 |
% |
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
In addition to the historical information, this annual report contains certain forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and which are subject to the Safe Harbor created by those sections. The reader of this annual report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The 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 increases significantly; (2) changes in interest rate environment; (3) general economic conditions; either nationally or regionally are less favorable than expected, resulting in, among other things, a deterioration in credit quality; (4) changes in the regulatory environment; (5) changes in business conditions and inflation; (6) costs and expenses of complying with the internal control provisions of the Sarbanes-Oxley Act and our degree of success in achieving compliance; (7) changes in securities markets; (8) future credit loss experience; (9) civil disturbances of terrorist threats or acts, or apprehension about possible future occurrences of acts of this type; (10) the involvement of the United States in war or other hostilities; and (11) the matters discussed in the report under Item 1A Risk Factors. Therefore, the information in this annual report should be carefully considered when evaluating the business prospects of the Company.
Critical Accounting Policies
Our accounting policies are integral to understanding the results reported. Accounting policies are described in detail in Note 1 to the Consolidated Financial Statements. Our most complex accounting policies require managements judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable incurred 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; 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.
Sale of SBA Loans
The Company has the ability and the intent to sell all or a portion of certain SBA loans in the loan portfolio and, as such, carries the saleable portion of these loans at the lower of aggregate cost or fair value. At December 31, 2014 and December 31, 2013, the fair value of SBA loans exceeded aggregate cost and therefore SBA loans were carried at aggregate cost.
In calculating gain on the sale of SBA loans, the Bank performs an allocation based on the relative fair values of the sold portion and retained portions of the loan. The Company assumptions are validated by reference to external market information.
Investment Securities
Our securities are classified as either available-for-sale, held-to-maturity or trading securities. The fair value of most securities classified as available-for-sale or trading securities, are based on quoted market prices. If quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments. Held-to maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts.
Supplemental Employee Retirement Plan
The Company has entered into supplemental employee retirement agreements with certain executive and senior officers. The measurement of the liability under these agreements includes estimates involving life expectancy, length of time before retirement, and expected benefit levels. Should these estimates prove materially wrong, we could incur additional or reduced expense to provide the benefits.
Deferred Tax Assets
Our deferred tax assets are explained in Note 8 to the Consolidated Financial Statements. The Company has sufficient taxable income from current and prior periods to support our position that the benefit of our deferred tax assets will be realized. As such, we have provided no valuation allowance against our deferred tax assets.
Executive Summary
The Company reported net operating income of $17.6 million for the year ended December 31, 2014 representing an increase of $2.9 million, compared to net income of $14.7 million for the same period one year ago. For the year ended December 31, 2014, the Company reported earnings per diluted share of $1.13 compared to $0.97 for the year ended December 31, 2013. For the year ended December 31, 2012, the Company reported net operating income of $13.8 million and earnings per diluted share of $0.92.
For the year ended December 31, 2014, the Companys return on average assets and return on average equity were
1.07% and 10.06%, respectively, and compared to 1.03% and 9.47%, respectively, for the same period in 2013, and 1.14% and 9.98%, respectively, for the same period in 2012.
The increase in earnings during 2014 compared to 2013 resulted primarily from an increase in interest income related to loans, a decrease in provision for loan losses as a result of improved credit quality, offset in part by an increase in overall non-interest expense reflecting the Companys investment in new initiatives and personnel to support future growth. The increase in earnings during 2013 compared to 2012 resulted primarily from an increase in interest income related to loans, gains on sale of SBA loans and securities and depositor service charges, offset in part by a decrease in the gain on sale of other real estate owned and decreases in warrant income.
Additionally, an overview of the financial results for 2014 discussed in the MD&A include the following:
· Total assets grew to $1.81 billion at the end of 2014, with loans comprising 73.0% of the average earning asset mix, compared to 70.8% at prior year end. Total deposits were $1.55 billion at December 31, 2014, which included demand deposits of $1.07 billion. At December 31, 2013, total assets and total deposits were $1.60 billion and $1.41 billion, respectively.
· Gross loans were $1.31 billion at December 31, 2014, representing an increase of $233.7 million, or 21.7%, compared to gross loans of $1.08 billion at December 31, 2013. Average loan balances increased by $186.2 million, or 19.2%, to $1.16 billion for the year ended December 31, 2014, compared to $971.1 million for the year ended December 31, 2013.
· Net interest income and non-interest income comprised total revenue of $90.8 million in 2014 compared to $82.6 million for 2013, representing an increase of $8.2 million, or 9.9%.
· Net interest margin decreased to 4.83% in 2014 compared to 4.98% in 2013.
· Provision for credit losses for 2014 decreased to $3.0 million from $6.1 million in 2013. Net charge-offs were $2.6 million for the current year compared to $4.1 million in 2013.
· Allowance for credit losses represented 1.70% of total gross loans and 284.03% of nonperforming loans at December 31, 2014, compared to 2.04% of total gross loans and 145.18% of nonperforming loans at December 31, 2013.
· As of December 31, 2014, nonperforming assets decreased by $7.3 million to $7.9 million, or 0.43% of total assets, compared to $15.1 million or 0.94% of total assets at December 31, 2013.
· Capital ratios remained significantly above the minimum required for the Company to be considered well-capitalized under the current Basel regulatory framework, and continued to support the Companys growth. Total Risk-Based Capital Ratio was 13.91%, Tier I Capital Ratio was 12.66%, and Tier I Leverage Ratio was 11.24% at December 31, 2014.
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 source of the Companys operating earnings. Net interest income is affected by changes in the nature and volume of earning assets held during the year, the rates earned on such assets and the rates paid on interest-bearing liabilities. The following table shows the composition of average earning assets and average funding sources, average yields and rates, and the net interest margin for the three years ended December 31, 2014, 2013 and 2012.
|
|
Year Ended December 31, |
| ||||||||||||||||||||||
|
|
2014 |
|
2013 |
|
2012 |
| ||||||||||||||||||
|
|
|
|
Interest |
|
|
|
|
|
Interest |
|
|
|
|
|
Interest |
|
|
| ||||||
|
|
Average |
|
Income/ |
|
Yields/ |
|
Average |
|
Income/ |
|
Yields/ |
|
Average |
|
Income/ |
|
Yields/ |
| ||||||
(dollars in thousands) |
|
Balance |
|
Expense |
|
Rates |
|
Balance |
|
Expense |
|
Rates |
|
Balance |
|
Expense |
|
Rates |
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest earning assets (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans (1) |
|
$ |
1,157,345 |
|
$ |
72,247 |
|
6.24 |
% |
$ |
971,129 |
|
$ |
64,629 |
|
6.66 |
% |
$ |
827,691 |
|
$ |
56,122 |
|
6.78 |
% |
Investment securities |
|
306,313 |
|
6,243 |
|
2.04 |
% |
278,239 |
|
5,864 |
|
2.11 |
% |
235,892 |
|
6,461 |
|
2.74 |
% | ||||||
Federal funds sold |
|
121,324 |
|
365 |
|
0.30 |
% |
121,983 |
|
316 |
|
0.26 |
% |
86,735 |
|
203 |
|
0.23 |
% | ||||||
Interest bearing deposits |
|
326 |
|
2 |
|
0.61 |
% |
323 |
|
1 |
|
0.31 |
% |
331 |
|
1 |
|
0.30 |
% | ||||||
Total earning assets |
|
1,585,308 |
|
78,857 |
|
4.97 |
% |
1,371,674 |
|
70,810 |
|
5.16 |
% |
1,150,649 |
|
62,787 |
|
5.46 |
% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Noninterest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and due from banks |
|
27,524 |
|
|
|
|
|
26,147 |
|
|
|
|
|
22,946 |
|
|
|
|
| ||||||
All other assets (3) |
|
35,796 |
|
|
|
|
|
33,510 |
|
|
|
|
|
33,096 |
|
|
|
|
| ||||||
TOTAL |
|
$ |
1,648,628 |
|
|
|
|
|
$ |
1,431,331 |
|
|
|
|
|
$ |
1,206,691 |
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Liabilities and shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Demand |
|
$ |
9,930 |
|
$ |
3 |
|
0.03 |
% |
$ |
9,849 |
|
$ |
3 |
|
0.03 |
% |
$ |
5,834 |
|
$ |
2 |
|
0.03 |
% |
Savings |
|
410,667 |
|
915 |
|
0.22 |
% |
403,906 |
|
1,179 |
|
0.29 |
% |
311,712 |
|
900 |
|
0.29 |
% | ||||||
Time |
|
37,447 |
|
214 |
|
0.57 |
% |
48,496 |
|
260 |
|
0.54 |
% |
38,933 |
|
187 |
|
0.48 |
% | ||||||
Other |
|
21,650 |
|
1,080 |
|
4.99 |
% |
19,116 |
|
1,076 |
|
5.63 |
% |
29,057 |
|
1,106 |
|
3.81 |
% | ||||||
Total interest-bearing Liabilities |
|
479,694 |
|
2,212 |
|
0.46 |
% |
481,367 |
|
2,518 |
|
0.52 |
% |
385,536 |
|
2,195 |
|
0.57 |
% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Demand deposits |
|
975,339 |
|
|
|
|
|
778,219 |
|
|
|
|
|
667,146 |
|
|
|
|
| ||||||
Accrued expenses and other liabilities |
|
18,601 |
|
|
|
|
|
16,412 |
|
|
|
|
|
15,643 |
|
|
|
|
| ||||||
Shareholders equity |
|
174,994 |
|
|
|
|
|
155,333 |
|
|
|
|
|
138,366 |
|
|
|
|
| ||||||
TOTAL |
|
$ |
1,648,628 |
|
|
|
|
|
$ |
1,431,331 |
|
|
|
|
|
$ |
1,206,691 |
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest income and margin |
|
|
|
$ |
76,645 |
|
4.83 |
% |
|
|
$ |
68,292 |
|
4.98 |
% |
|
|
$ |
60,592 |
|
5.27 |
% |
(1) |
Includes amortization of loan fees of $12.2 million for 2014, $11.9 million for 2013 and $9.4 million for 2012. Nonperforming loans have been included in average loan balances. |
|
|
(2) |
Interest income is reflected on an actual basis, not on a fully taxable equivalent basis. Yields are based on amortized cost. |
|
|
(3) |
Net of average allowance for loan losses of $22.8 million and average deferred loan fees of $4.6 million for 2014, average allowance for loan losses of $20.6 million and average deferred loan fees of $4.3 million for 2013, and average allowance for loan losses of $19.2 million and $2.9 million for 2012, respectively. |
Interest differential is affected by changes in volume, changes in rates and a combination of changes in volume and rates. Volume changes are caused by changes in the levels of average earning assets and average interest bearing deposits and borrowings. Rate changes result from changes in yields earned on assets and rates paid on liabilities. Changes not solely attributable to volume or rates have been allocated to the rate component.
The following table shows the effect on the interest differential of volume and rate changes for the years ended December 31, 2014, 2013 and 2012:
|
|
Year Ended December 31, |
| ||||||||||||||||
|
|
2014 vs. 2013 |
|
2013 vs. 2012 |
| ||||||||||||||
|
|
Increase (decrease) |
|
Increase (decrease) |
| ||||||||||||||
|
|
due to change in |
|
due to change in |
| ||||||||||||||
|
|
Average |
|
Average |
|
Total |
|
Average |
|
Average |
|
Total |
| ||||||
(dollars in thousands) |
|
Volume |
|
Rate |
|
Change |
|
Volume |
|
Rate |
|
Change |
| ||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans |
|
$ |
11,624 |
|
$ |
(4,006 |
) |
$ |
7,618 |
|
$ |
9,546 |
|
$ |
(1,039 |
) |
$ |
8,507 |
|
Investment securities |
|
572 |
|
(193 |
) |
379 |
|
892 |
|
(1,489 |
) |
(597 |
) | ||||||
Federal funds sold |
|
(2 |
) |
51 |
|
49 |
|
91 |
|
22 |
|
113 |
| ||||||
Other |
|
0 |
|
1 |
|
1 |
|
0 |
|
0 |
|
0 |
| ||||||
Total interest income |
|
12,194 |
|
(4,147 |
) |
8,046 |
|
10,530 |
|
(2,507 |
) |
8,023 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Demand |
|
0 |
|
0 |
|
0 |
|
1 |
|
0 |
|
1 |
| ||||||
Savings |
|
15 |
|
(279 |
) |
(264 |
) |
270 |
|
10 |
|
279 |
| ||||||
Time |
|
(63 |
) |
17 |
|
(46 |
) |
51 |
|
22 |
|
73 |
| ||||||
Other |
|
126 |
|
(122 |
) |
4 |
|
(560 |
) |
530 |
|
(30 |
) | ||||||
Total interest expense |
|
78 |
|
(384 |
) |
(306 |
) |
(238 |
) |
561 |
|
323 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Change in net interest income |
|
$ |
12,115 |
|
$ |
(3,762 |
) |
$ |
8,352 |
|
$ |
10,769 |
|
$ |
(3,068 |
) |
$ |
7,700 |
|
Net interest income was $76.6 million in 2014, comprised of $78.9 million in interest income and $2.2 million in interest expense. Net interest income was $68.3 million in 2013, comprised of $70.8 million in interest income and $2.5 million in interest expense. The increase of $8.4 million in net interest income in 2014, comprised of an increase in interest income of $8.0 million combined with a decrease of $306,000 in interest expense, was primarily attributable to an increase in average earning assets as a result of loan growth, combined with a decrease in non-performing loans and a slightly higher level of loan related fees.
Net interest income was $60.6 million in 2012, comprised of $62.8 million in interest income and $2.2 million in interest expense. The increase of $7.7 million in net interest income in 2013, comprised of an increase in interest income of $8.0 million offset slightly by an increase of $323,000 in interest expense, was primarily attributable to an increase in average earning assets as a result of loan growth and excess liquidity generated from deposit growth.
The net interest margin (net interest income divided by average earning assets) was 4.83% for the year ended December 31, 2014, as compared to 4.98% for the year ended December 31, 2013 and 5.27% for 2012. The decrease in net interest margin in 2014 was primarily due to a lower yield on interest earning assets, including a decrease in loan yields from 6.66% to 6.24%. Loan fees comprised 1.05% of total loan yields in 2014 compared to 1.23% in 2013. The Companys loan-to-deposit ratio, a measure of leverage, averaged 80.7% during the twelve months ended December 31, 2014, which represented an increase compared to an average of 78.3% for the same period in 2013.
The decrease in net interest margin in 2013 was primarily due to a less favorable mix in average earning assets, decreased leverage and increased nonperforming loans. The positive impact on the net interest margin from increased loan fees for the twelve months ended December 31, 2013 compared to the same period in 2012 was 5 basis points. The Companys loan-to-deposit ratio, a measure of leverage, averaged 78.3% during the twelve months ended December 31, 2013, which represented a decrease compared to an average of 80.9% for the same period in 2012.
Interest Income
For the year ended December 31, 2014, the Company reported interest income of $78.9 million, an increase of $8.0 million or 11.4% over $70.8 million reported in 2013. The increase in interest income primarily reflects an increase in average earning assets as a result of loan growth which was funded by liquidity generated by deposit growth, combined with a decrease in non-performing loans and a slightly higher level of loan related fees. Average earning assets were $1.58 billion for the year ended December 31, 2014, an increase of $213.6 million, or 15.6%, over $1.37 billion for the year ended December 31, 2013. The increase in average earning assets reflects an increase in the
average loan portfolio of $186.2 million over $971.1 million in 2013, and an increase in the average securities portfolio of $28.1 million from $278.2 million in 2013. The average yield on earning assets was 4.97% for the year ended December 31, 2014 compared to 5.16% for the year ended December 31, 2013 primarily due to a lower rate of interest earned on loans and investment securities during 2014.
For the year ended December 31, 2013, the Company reported interest income of $70.8 million, an increase of $8.0 million or 12.8% over $62.8 million reported in 2012. The increase in interest income primarily reflects an increase in average earning assets. Average earning assets were $1.37 billion for the year ended December 31, 2013 an increase of $221.0 million, or 19.2%, over $1.15 billion for the year ended December 31, 2012. The increase in average earning assets reflects an increase in the average loan portfolio of $143.4 million over $827.7 million in 2012, and an increase in the average securities portfolio of $42.3 million from $235.9 million in 2012. The average yield on earning assets was 5.16% for the year ended December 31, 2013 compared to 5.46% for the year ended December 31, 2012 due to a lower rate of interest earned on loans and investments during 2013.
Interest Expense
Interest expense was $2.2 million for the year ended December 31, 2014, which represented a decrease of $306,000 or 12.2% compared to $2.5 million for the year ended December 31, 2013. The decrease in interest expense primarily reflects a lower yield on money market and savings accounts in 2014 compared to 2013. The average yield on interest-bearing liabilities was 0.46% for the period ended December 31, 2014 compared to 0.52% for the period ended December 31, 2013. Average interest-bearing liabilities were $479.7 million for the year ended December 31, 2014, a decrease of $1.7 million or 0.3% from $481.4 million for the year ended December 31, 2013.
Average interest bearing deposits were $458.0 million for the year ended December 31, 2014, which represented 32.0% of total average deposits and was a decrease of $4.2 million, or 0.9%, from $462.3 million at December 31, 2013, representing 37.3% of total average deposits for the year.
Other (non-deposit) interest bearing liabilities are primarily comprised of junior subordinated debt securities issued by the Company and other borrowings. The junior subordinated debt is intended to supplement capital requirements of the Company at a rate of interest that is fixed for five years. Other borrowings during the year were comprised of short term borrowings. Other interest bearing liabilities averaged $21.7 million and $19.1 million in the years ended December 31, 2014 and 2013, respectively.
Interest expense was $2.5 million for the year ended December 31, 2013, which represented an increase of $323,000 or 14.7% compared to $2.2 million for the year ended December 31, 2012. The increase in interest expense primarily reflects a higher level of interest bearing liabilities in 2013 compared to 2012. The average yield on interest-bearing liabilities was 0.52% for the period ended December 31, 2013 compared to 0.57% for the period ended December 31, 2012. Average interest-bearing liabilities were $481.4 million for the year ended December 31, 2013, an increase of $95.8 million or 24.9% from $385.5 million for the year ended December 31, 2012.
Average interest bearing deposits were $462.3 million for the year ended December 31, 2013, which represented 37.3% of total average deposits and was an increase of $105.8 million, or 29.7%, from $356.5 million at December 31, 2012, representing 34.8% of total average deposits for the year.
Other (non-deposit) interest bearing liabilities are primarily comprised of junior subordinated debt securities issued by the Company and other borrowings. The junior subordinated debt is intended to supplement capital requirements of the Company at a rate of interest that is fixed for five years. Other borrowings during the year were comprised of short term borrowings. Other interest bearing liabilities averaged $19.1 million and $29.1 million in the years ended December 31, 2013 and 2012, respectively.
Credit Risk and Provision for Loan 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 loan losses charged to operating expense and recoveries of previously charged-off loans. Based on managements evaluation of such risks, the Company provided $3.0 million, $6.1 million, and $4.0 million to the allowance for loan losses in 2014, 2013 and 2012, respectively. During 2014, the Bank had $4.2 million in charge offs, and had recoveries of $1.5 million as compared to $8.3 million in charge offs and recoveries of $4.2 million in 2013. During 2012, the Bank had $3.1 million in charge offs and $0.6 million in recoveries. The allowance for loan losses was $22.3 million representing 1.70% of total loans at December 31, 2014, as compared to $21.9 million representing 2.04% of total loans at December 31, 2013, and $19.9
million representing 2.20% of total loans at December 31, 2012.
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. Additionally, the Company is seeing a consistent reduction of carrying values through continued payments by borrowers on loans that have been placed on non-accrual. Should circumstances change and management determines that the collectibility of any of these credits becomes unlikely, there could be an adverse effect on the level of the allowance for loan losses and the Companys future profitability.
See Allowance for Loan Losses for additional discussion regarding the allowance for loan losses and nonperforming assets.
Non-interest Income
The following table sets forth the components of other income and the percentage distribution of such income for the years ended December 31, 2014, 2013 and 2012:
|
|
Year Ended December 31, |
| |||||||||||||
|
|
2014 |
|
2013 |
|
2012 |
| |||||||||
(dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Service charges on deposit accounts |
|
$ |
3,847 |
|
27.3 |
% |
$ |
3,674 |
|
25.7 |
% |
$ |
3,354 |
|
25.8 |
% |
International fee income |
|
3,067 |
|
21.7 |
% |
2,703 |
|
18.9 |
% |
2,646 |
|
20.4 |
% | |||
Gain on sale of SBA loans |
|
2,572 |
|
18.2 |
% |
2,682 |
|
18.8 |
% |
1,850 |
|
14.2 |
% | |||
Visa fee income |
|
1,434 |
|
10.2 |
% |
914 |
|
6.4 |
% |
112 |
|
0.9 |
% | |||
Warrant income |
|
1,344 |
|
9.5 |
% |
1,261 |
|
8.8 |
% |
1,422 |
|
11.0 |
% | |||
SBA loan servicing fee income |
|
653 |
|
4.6 |
% |
488 |
|
3.4 |
% |
514 |
|
4.0 |
% | |||
Increase in value-bank owned life insurance |
|
576 |
|
4.1 |
% |
576 |
|
4.0 |
% |
422 |
|
3.3 |
% | |||
Net gain on sale of securities |
|
5 |
|
0.0 |
% |
804 |
|
5.6 |
% |
323 |
|
2.5 |
% | |||
Net gain on sale of OREO |
|
|
|
0.0 |
% |
470 |
|
3.3 |
% |
1,461 |
|
11.3 |
% | |||
Other non-interest income |
|
619 |
|
4.4 |
% |
708 |
|
5.0 |
% |
880 |
|
6.8 |
% | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
$ |
14,117 |
|
100.0 |
% |
$ |
14,280 |
|
100.0 |
% |
$ |
12,984 |
|
100.0 |
% |
Non-interest income totaled $14.1 million in 2014, a decrease of $163,000 or 1.1% from $14.3 million in 2013. Non-interest income of $14.3 million in 2013 represented an increase of $1.3 million or 10.0% over $13.0 million in 2012. Non-interest income generally consists primarily of service charge income on deposit accounts, international fee income, gains recognized on sales of SBA loans, Visa fee income, warrant income and gains on sales of other real estate owned (OREO) and securities. The decrease in non-interest income during the year ending December 31, 2014 was primarily attributable to a decrease in gains on sales of securities and gains from the sale of OREO, partially offset by increases in Visa fee income and international fee income.
The increase in non-interest income during the year ending December 31, 2013 was primarily attributable to an increase in gains on sale of SBA loans, gains on sale of securities and service charges of deposit accounts, partially offset by decreases in gains from the sale of OREO.
For the year ended December 31, 2014 service charge income on deposit accounts was $3.8 million, representing an increase of $173,000, or 4.7%, compared to $3.7 million for the same period one year ago. The service charge income on deposit accounts for 2013 compared to $3.4 million in 2012, represents an increase of $320,000 or 9.5%. The increase in 2014 and 2013 was 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 2014, the Company recognized $3.1 million in international fee income, representing an increase of $364,000,
or 13.5%, compared to $2.7 million for the same period one year ago. During 2013, the Company recognized $2.7 million in international fee income, representing an increase of $57,000, or 2.2%, compared to $2.6 million in 2012. The increase in international fee income in both 2014 and 2013 was primarily caused by an increase in client demand for international services.
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. During 2014, the Company recognized $2.6 million in gains on sale of SBA loans, representing a decrease of $110,000 or 4.1% from the prior year. The Company recognized $2.7 million in gains on sales of SBA loans in 2013 compared to $1.9 million in 2012, representing an increase of $832,000 or 45.0%. The decrease in gains on sale of SBA loans in 2014 is a direct result of a decrease in SBA loans sold in the current period versus the same period last year. During 2014, the Companys SBA group funded $55.4 million in new loans and sold $42.0 million, which included $11.2 million in loans funded in the previous year. This compares to $65.0 million funded and $46.3 million sold in the year ended December 31, 2013, which included $13.5 million in loans funded in the previous year. For the year ended December 31, 2012, the Companys SBA group funded $54.5 million in new loans and sold $37.3 million, which included $12.0 million in loans funded in the previous year.
Income from warrants is inherently event-driven and the contributions from warrants largely reflect the economic environment of IPOs and M&A activity. During 2014 and 2013, the Company recognized $1.3 million in warrant income which represented a decrease of $78,000 and $161,000, respectively, compared to $1.4 million in 2012.
The Company recognized modest gains on the sale of securities of $5,000 during the twelve months ended December 31, 2014 which represents a decrease of $799,000 or 99.4% compared to $804,000 during 2013. During 2012 the Company recognized $323,000 in gain on the sale of securities. Compared to 2012, the increase in gains on the sale of securities in 2013 represented $481,000 or 148.9%.
The Company earns a servicing fee on all SBA loans sold. During 2014, $653,000 in SBA loan servicing income was recognized compared to $488,000 for the prior year, reflecting an increase of $165,000 or 33.8%. The $488,000 recognized in 2013 represents a decrease of $26,000 or 5.1% from $514,000 in 2012.
For the year ended December 31, 2014, there were no gains on sale of OREO during 2014. This reflects the decreased balance of the OREO portfolio as a result of the Companys successful resolution efforts. During 2013 and 2012, the Company recognized $470,000, and $1.1 million, respectively, in gains on the sale of OREO properties.
In 2013, the Company fully implemented a Visa card program which contributed $1.4 million in non-interest income in 2014, $914,000 in 2013, and a modest $112,000 in 2012.
Net interest income and non-interest income comprised total revenue of $90.8 million for the year ended December 31, 2014, compared to $82.6 million for the same period one year earlier, and $73.6 million in 2012. This represented an increase of $8.2 million, or 9.9% in 2014, and an increase of $9.0 million, or 12.2% in 2013.
Non-interest Expenses
The components of other expense as a percentage of average assets are set forth in the following table for the years ended December 31, 2014, 2013 and 2012:
|
|
Year Ended December 31, |
| |||||||||||||
|
|
2014 |
|
2013 |
|
2012 |
| |||||||||
(dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Salaries and benefits |
|
$ |
37,473 |
|
2.3 |
% |
$ |
33,543 |
|
2.3 |
% |
$ |
30,307 |
|
2.5 |
% |
Occupancy and equipment |
|
4,939 |
|
0.3 |
% |
4,103 |
|
0.3 |
% |
3,994 |
|
0.3 |
% | |||
Data processing |
|
4,357 |
|
0.3 |
% |
3,775 |
|
0.3 |
% |
3,257 |
|
0.3 |
% | |||
Marketing |
|
2,682 |
|
0.2 |
% |
2,640 |
|
0.2 |
% |
2,060 |
|
0.2 |
% | |||
Professional services |
|
1,735 |
|
0.1 |
% |
1,726 |
|
0.1 |
% |
1,206 |
|
0.1 |
% | |||
Director/Shareholder expenses |
|
1,285 |
|
0.1 |
% |
1,548 |
|
0.1 |
% |
1,277 |
|
0.1 |
% | |||
Assessments |
|
1,253 |
|
0.1 |
% |
1,240 |
|
0.1 |
% |
879 |
|
0.1 |
% | |||
Deposit services/supplies |
|
1,109 |
|
0.1 |
% |
1,022 |
|
0.1 |
% |
989 |
|
0.1 |
% | |||
Loan/OREO expense |
|
898 |
|
0.1 |
% |
686 |
|
0.0 |
% |
850 |
|
0.1 |
% | |||
Other |
|
2,326 |
|
0.1 |
% |
1,601 |
|
0.1 |
% |
1,393 |
|
0.1 |
% | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
$ |
58,057 |
|
3.7 |
% |
$ |
51,884 |
|
3.6 |
% |
$ |
46,212 |
|
3.9 |
% |
Non-interest expenses were $58.1 million in 2014 as compared to $51.9 million in 2013 and $46.2 million in 2012. Non-interest expense increased approximately $6.2 million in 2014 compared to 2013. This increase was generally widespread across all categories. As a percentage of average earning assets, other expenses were 3.7%, 3.7%, and 3.9% for the years 2014, 2013 and 2012, respectively. Overall, trends in non-interest expenses in 2014 reflect a higher level of expense related to the Companys investment in new initiatives and personnel to support future growth.
Non-interest expense increased approximately $5.7 million in 2013 compared to 2012. This increase was generally widespread across all categories. Overall, trends in non-interest expenses in 2013 reflect higher expenses related to supporting growth and investments in new initiatives.
Salaries and related benefits was the largest component of the Banks non-interest expense. Salaries and benefits were $37.5 million for the year ended December 31, 2014 as compared to $33.5 million and $30.3 million for the years ended December 31, 2013 and 2012, respectively. The Bank had 260 full time equivalent employees (FTE) at December 31, 2014 as compared to 235 FTE at December 31, 2013 and 207 FTE at December 31, 2012. The increase in salaries and related benefits in 2014 compared to 2013 and 2012 was primarily attributable to the 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.
Occupancy expense for the year ended December 31, 2014 was $4.9 million, compared to $4.1 million during 2013, which represents an increase of $836,000 or 20.4%. The increase in occupancy expense was primarily a result of additional space leased at the San Jose office. Occupancy expense for the year ended December 31, 2013 represented an increase of approximately $110,000, or 2.8% over $4.0 million in 2012.
The Company contracts with third-party vendors for most data processing needs and to support technical infrastructure. Data processing expense in 2014 was $4.4 million which represented an increase of approximately $582,000, or 15.4% over $3.8 million one year earlier. Data processing expense in 2013 represented an increase of approximately $518,000, or 15.9% over $3.3 million one year earlier. The increase in data processing in both years was primarily due to an increase in deposit transaction volumes.
Legal and professional expenses were $1.7 million for each of the years ended December 31, 2014 and December 31, 2013. Legal and professional expenses were $1.2 million for the year ended December 31, 2012. Legal and professional expenses fluctuate depending on general corporate matters and resolution efforts pertaining to non-performing assets.
Regulatory assessments related to FDIC insurance pertaining to deposit balances, totaled $1.3 million for the year ended December 31, 2014, compared to $1.2 million for the year ended December 31, 2013 and $879,000 in 2012. Regulatory assessments fluctuate depending on asset size and other factors, including credit quality.
OREO and loan related charges were $898,000 in 2014, compared to $686,000 in 2013, representing an increase of $212,000 or 30.9%. The increase in OREO and loan related charges in 2014 is primarily related to the resolution of non-performing credits. OREO and loan related charges decreased $164,000 or 19.3% in 2013 from $850,000 in 2012.
The Companys efficiency ratio, the ratio of non-interest expenses to revenues, was 63.97% for the twelve months ended December 31, 2014, compared to 62.83% and 62.81% for the twelve months ended December 31, 2013 and December 31, 2012, respectively.
Income Taxes
The Companys effective tax rate was 40.7% for the year ended December 31, 2014, 40.3% for the year ended December 31, 2013 and 41.0% for the year ended December 31, 2012. See Note 8 to the consolidated financial statements for additional information on income taxes.
Quarterly Income
The unaudited income statement data of the Company, in the opinion of management, includes all normal and recurring adjustments necessary to state fairly the information set forth herein. The results of operations are not necessarily indicative of results for any future period. The following table shows the Companys unaudited quarterly income statement data for the years 2014 and 2013.
|
|
Three Months Ended |
| ||||||||||
(dollars in thousands, except share amounts) |
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
| ||||
Year Ended December 31, 2014: |
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
$ |
18,627 |
|
$ |
19,771 |
|
$ |
21,022 |
|
$ |
19,437 |
|
Interest expense |
|
607 |
|
544 |
|
528 |
|
534 |
| ||||
Net interest income |
|
18,020 |
|
19,227 |
|
20,494 |
|
18,903 |
| ||||
Provision for credit losses |
|
500 |
|
1,500 |
|
1,000 |
|
0 |
| ||||
Other income |
|
2,748 |
|
3,980 |
|
4,535 |
|
2,853 |
| ||||
Other expense |
|
14,047 |
|
14,712 |
|
14,796 |
|
14,502 |
| ||||
Income before income taxes |
|
6,221 |
|
6,995 |
|
9,233 |
|
7,254 |
| ||||
Income taxes |
|
2,505 |
|
2,728 |
|
3,802 |
|
3,067 |
| ||||
Net income |
|
$ |
3,716 |
|
$ |
4,267 |
|
$ |
5,431 |
|
$ |
4,187 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share - basic |
|
$ |
0.25 |
|
$ |
0.29 |
|
$ |
0.37 |
|
$ |
0.28 |
|
Earnings per share - diluted |
|
$ |
0.24 |
|
$ |
0.27 |
|
$ |
0.35 |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
| ||||
Year Ended December 31, 2013: |
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
$ |
16,148 |
|
$ |
17,216 |
|
$ |
18,419 |
|
$ |
19,027 |
|
Interest expense |
|
604 |
|
639 |
|
636 |
|
639 |
| ||||
Net interest income |
|
15,544 |
|
16,577 |
|
17,783 |
|
18,388 |
| ||||
Provision for credit losses |
|
750 |
|
5,300 |
|
0 |
|
0 |
| ||||
Other income |
|
2,918 |
|
4,756 |
|
2,710 |
|
3,896 |
| ||||
Other expense |
|
11,860 |
|
12,888 |
|
13,152 |
|
13,986 |
| ||||
Income before income taxes |
|
5,852 |
|
3,145 |
|
7,341 |
|
8,298 |
| ||||
Income taxes |
|
2,431 |
|
1,302 |
|
2,914 |
|
3,278 |
| ||||
Net income |
|
$ |
3,421 |
|
$ |
1,843 |
|
$ |
4,427 |
|
$ |
5,020 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share - basic |
|
$ |
0.24 |
|
$ |
0.13 |
|
$ |
0.31 |
|
$ |
0.35 |
|
Earnings per share - diluted |
|
$ |
0.23 |
|
$ |
0.12 |
|
$ |
0.29 |
|
$ |
0.33 |
|
Financial Condition and Earning Assets
As of December 31, 2014, total assets were $1.8 billion, gross loans were $1.3 billion and deposits were $1.5 billion. Assets increased $210.0 million, or 13.1%, from $1.6 billion at December 31, 2013. Gross loans increased $233.7 million, or 21.7%, from $1.1 billion at December 31, 2013. Deposits increased $143.5 million, or 10.2%, from $1.4 billion at December 31, 2013.
As of December 31, 2013, total assets were $1.6 billion, gross loans were $1.1 billion and deposits were $1.4 billion. Assets increased $260.5 million, or 19.4%, from $1.3 billion at December 31, 2012. Gross loans increased $169.1 million, or 18.6%, from $908.6 million at December 31, 2012. Deposits increased $243.5 million, or 20.9%, from $1.2 billion at December 31, 2012.
Federal Funds Sold
Federal funds sold were $75.4 million at December 31, 2014 as compared to $162.4 million at December 31, 2013. The Companys investment in federal funds sold reflects the Companys current strategy of deploying other earning assets primarily in federal funds sold to address the potential volatility of deposit balances and to accommodate projected loan growth.
The average balance of federal funds sold was $121.3 million in 2014 and $122.0 million in 2013. These balances represented 8.5% and 9.8% of average deposits for 2014 and 2013, respectively. They are maintained primarily for the short-term liquidity needs of the Bank.
Securities
Investment securities are classified as available for sale, held to maturity or trading securities. Any unrealized gain or loss on investment securities available for sale is reflected in the carrying value of the security and reported net of income taxes in the equity section of the balance sheet. Held-to maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Any unrealized gain or loss on trading securities is recorded in the income statement. The pre-tax unrealized gain on securities available for sale at December 31, 2014 was $1.0 million, while the pre-tax unrealized loss on securities available for sale at December 31, 2013 was $1.9 million.
The following table shows the composition of the securities portfolio at December 31, 2014 and 2013.
|
|
As of December 31, |
| ||||||||||
|
|
2014 |
|
2013 |
| ||||||||
|
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
| ||||
(dollars in thousands) |
|
Cost |
|
Value |
|
Cost |
|
Value |
| ||||
Securities available for sale |
|
|
|
|
|
|
|
|
| ||||
Debt securities: |
|
|
|
|
|
|
|
|
| ||||
U.S. government agency securities |
|
$ |
58,873 |
|
$ |
58,588 |
|
$ |
17,384 |
|
$ |
16,929 |
|
Mortgage backed securities |
|
261,931 |
|
263,226 |
|
237,593 |
|
236,387 |
| ||||
Corporate Bonds |
|
28,002 |
|
28,077 |
|
37,474 |
|
37,491 |
| ||||
Municipal Bonds |
|
2,435 |
|
2,352 |
|
2,435 |
|
2,170 |
| ||||
Total debt securities |
|
351,241 |
|
352,243 |
|
294,886 |
|
292,977 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total securities available for sale |
|
$ |
351,241 |
|
$ |
352,243 |
|
$ |
294,886 |
|
$ |
292,977 |
|
|
|
|
|
|
|
|
|
|
| ||||
Securities held to maturity |
|
|
|
|
|
|
|
|
| ||||
Debt securities: |
|
|
|
|
|
|
|
|
| ||||
Mortgage backed securities |
|
$ |
12,922 |
|
$ |
13,222 |
|
$ |
13,788 |
|
$ |
13,683 |
|
Total debt securities |
|
12,922 |
|
13,222 |
|
13,788 |
|
13,683 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total securities held to maturity |
|
$ |
12,922 |
|
$ |
13,222 |
|
$ |
13,788 |
|
$ |
13,683 |
|
|
|
|
|
|
|
|
|
|
| ||||
Trading securities |
|
$ |
|
|
$ |
|
|
$ |
613 |
|
$ |
613 |
|
|
|
|
|
|
|
|
|
|
| ||||
Total investment securities |
|
$ |
364,163 |
|
$ |
365,465 |
|
$ |
309,287 |
|
$ |
307,273 |
|
The maturities and yields of the debt securities included in the investment portfolio at December 31, 2014 and December 31, 2013 are shown in the table below.
|
|
|
|
Due in one year |
|
Due after one year |
|
Due greater than |
| ||||||||||
|
|
|
|
or less |
|
through five years |
|
five years |
| ||||||||||
|
|
|
|
|
|
Weighted |
|
|
|
Weighted |
|
|
|
Weighted |
| ||||
|
|
Amortized |
|
|
|
Average |
|
|
|
Average |
|
|
|
Average |
| ||||
(dollars in thousands) |
|
Cost |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
As of December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. government agencies |
|
$ |
58,873 |
|
$ |
|
|
0.00 |
% |
$ |
5,076 |
|
0.20 |
% |
$ |
53,797 |
|
1.29 |
% |
Mortgage backed securities |
|
274,853 |
|
10,463 |
|
2.48 |
% |
38,701 |
|
2.90 |
% |
225,689 |
|
2.45 |
% | ||||
Corporate bonds |
|
28,002 |
|
|
|
0.00 |
% |
28,002 |
|
1.01 |
% |
|
|
0.00 |
% | ||||
Municipal bonds |
|
2,435 |
|
|
|
0.00 |
% |
|
|
0.00 |
% |
2,435 |
|
2.56 |
% | ||||
Total debt securities |
|
$ |
364,163 |
|
$ |
10,463 |
|
2.48 |
% |
$ |
71,779 |
|
1.98 |
% |
$ |
281,921 |
|
2.23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
As of December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. government agencies |
|
$ |
17,384 |
|
$ |
|
|
0.00 |
% |
$ |
501 |
|
0.31 |
% |
$ |
16,883 |
|
1.45 |
% |
Mortgage backed securities |
|
251,381 |
|
946 |
|
1.46 |
% |
49,972 |
|
2.29 |
% |
200,463 |
|
2.72 |
% | ||||
Corporate bonds |
|
37,474 |
|
11,179 |
|
1.52 |
% |
20,277 |
|
1.20 |
% |
6,018 |
|
1.12 |
% | ||||
Municipal bonds |
|
2,435 |
|
|
|
0.00 |
% |
|
|
0.00 |
% |
2,435 |
|
2.56 |
% | ||||
Total debt securities |
|
$ |
308,674 |
|
$ |
12,125 |
|
1.45 |
% |
$ |
70,750 |
|
1.97 |
% |
$ |
225,799 |
|
2.56 |
% |
Loan Portfolio
The following table shows the Companys loans by type and their percentage distribution at December 31, 2014, 2013, 2012, 2011, and 2010.
|
|
As of December 31, |
| |||||||||||||
(dollars in thousands) |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
785,360 |
|
$ |
585,559 |
|
$ |
436,293 |
|
$ |
330,348 |
|
$ |
269,034 |
|
Real estate construction |
|
71,673 |
|
51,518 |
|
35,501 |
|
47,213 |
|
40,705 |
| |||||
Land loans |
|
15,890 |
|
13,572 |
|
8,973 |
|
6,772 |
|
9,072 |
| |||||
Real estate other |
|
139,624 |
|
122,063 |
|
139,931 |
|
157,446 |
|
138,633 |
| |||||
Factoring and asset based |
|
167,513 |
|
192,783 |
|
195,343 |
|
142,482 |
|
122,542 |
| |||||
SBA |
|
124,180 |
|
106,406 |
|
87,375 |
|
73,336 |
|
67,538 |
| |||||
Other |
|
7,073 |
|
5,730 |
|
5,163 |
|
4,431 |
|
4,023 |
| |||||
Total gross loans |
|
1,311,313 |
|
1,077,631 |
|
908,579 |
|
762,028 |
|
651,547 |
| |||||
Unearned fee income |
|
(5,644 |
) |
(4,727 |
) |
(3,056 |
) |
(2,792 |
) |
(1,444 |
) | |||||
Total loan portfolio |
|
$ |
1,305,669 |
|
$ |
1,072,904 |
|
$ |
905,523 |
|
$ |
759,236 |
|
$ |
650,103 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
59.9 |
% |
54.3 |
% |
48.0 |
% |
43.4 |
% |
41.3 |
% | |||||
Real estate construction |
|
5.5 |
% |
4.8 |
% |
3.9 |
% |
6.2 |
% |
6.2 |
% | |||||
Land loans |
|
1.2 |
% |
1.3 |
% |
1.0 |
% |
0.9 |
% |
1.4 |
% | |||||
Real estate other |
|
10.6 |
% |
11.3 |
% |
15.4 |
% |
20.7 |
% |
21.3 |
% | |||||
Factoring and asset based |
|
12.8 |
% |
17.9 |
% |
21.5 |
% |
18.7 |
% |
18.8 |
% | |||||
SBA |
|
9.5 |
% |
9.9 |
% |
9.6 |
% |
9.6 |
% |
10.4 |
% | |||||
Other |
|
0.5 |
% |
0.5 |
% |
0.6 |
% |
0.6 |
% |
0.6 |
% | |||||
Total gross loans |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
Gross loan balances increased to $1.3 billion at December 31, 2014, which represented an increase of $233.7 million or 21.7% as compared to $1.1 billion at December 31, 2013. The increase in total gross loans was broad-based throughout the portfolio, with the most significant growth reflected in the commercial lending portfolio, partially offset by a decrease in factoring and asset-based loans. Gross loan balances increased at December 31, 2013 represented an increase of $169.1 million or 18.6% as compared to $908.6 million at December 31, 2012. The increase in total gross loans was broad-based throughout the portfolio, with the most significant growth reflected in the commercial, SBA lending, and construction portfolios, and was a result of a concerted effort to prudently grow the balance of loans in our portfolio while managing risk.
The Companys commercial loan portfolio represents loans to small and middle-market businesses primarily in the Santa Clara county region as well as loans to technology-based emerging growth companies. Commercial loans were $785.4 million at December 31, 2014, which represented an increase of $199.8 million or 34.1% over $585.6 million at December 31, 2013. At December 31, 2014, commercial loans comprised 59.9% of total loans outstanding as compared to 54.3% at December 31, 2013. Commercial loans were $585.6 million at December 31, 2013, which represented an increase of $149.3 million or 34.2% over $436.3 million at December 31, 2012. At December 31, 2013, commercial loans comprised 54.3% of total loans outstanding as compared to 48.0% at December 31, 2012.
Approximately 68% 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 and multi-family development projects. Construction loans increased $20.2 million, or 39.1%, to $71.7 million at December 31, 2014 as compared to $51.5 million at December 31, 2013. Construction loan balances at December 31, 2014 comprised 5.5% of total loans compared to 4.8% at December 31, 2013. Construction loans increased $16.0 million, or 45.1%, to $51.5 million at December 31, 2013 as compared to $35.5 million at December 31, 2012. Construction loan balances at December 31, 2012 comprised 3.9% of total loans.
The Companys land loan portfolio consists of land and land development loans related to future construction credits. Land loans increased $2.3 million or 17.1% to $15.9 million at December 31, 2014 as compared to $13.6 million at December 31, 2013. Land loan balances at December 31, 2014 comprised 1.2% of total loans as compared to 1.3% at December 31, 2013. Land loans increased $4.6 million at December 31, 2013 from $9.0 million at December 31, 2012. Land loan balances at December 31, 2013 comprised 1.3% of total loans as compared to 1.0% at December 31, 2012.
Other real estate loans consist of commercial real estate and home equity lines of credit. Other real estate loans increased $17.6 million, or 14.4%, to $139.6 million at December 31, 2014 as compared to $122.1 million at December 31, 2013. The increase was primarily attributable to other real estate term loans. The increase in other real estate loans was evenly distributed between owner occupied and investor term loans. At December 31, 2014, other real estate term loans were comprised of loans to finance office and industrial investment properties and loans to finance buildings occupied by clients of the bank, both which were approximately 42% of the other real estate loan category. Approximately 15% of term real estate loans at December 31, 2014 were to finance retail properties. Other real estate loans decreased $17.9 million or 12.8% to $122.1 million at December 31, 2013 as compared to $139.9 million at December 31, 2012. The decrease was primarily attributable to other real estate term loans. The decrease in other real estate loans was primarily in owner occupied real estate term loans. At December 31, 2013, other real estate term loans were primarily comprised of office and industrial investment properties which represented approximately 41% of the total and approximately 42% were to finance buildings occupied by clients of the bank. Approximately 15% of term real estate loans at December 31, 2013 were to finance retail properties.
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 December 31, 2014, factoring and asset based loans totaled $167.5 million or 12.8% of total loans as compared to $192.8 million or 17.9% of total loans at December 31, 2013. This compares to $195.3 million or 21.5% of total loans at December 31, 2012.
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 December 31, 2014, SBA loans comprised $124.2 million, or 9.5%, of total loans, an increase of $17.8 million, or 16.7%, from $106.4 million or 9.9% of total loans at December 31, 2013. SBA loans increased by $19.0 million or 21.8% in 2013 from $87.4 million or 9.6% in total loans at December 31,2012. 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 December 31, 2014, 2013 and 2012 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 December 31, 2014, other loans totaled $7.1 million as compared to $5.7 million at December 31, 2013. At December 31, 2012, other loans totaled $5.2 million.
Credit Quality and Allowance for Loan Losses
A consequence of lending activities is the potential for loss. The amount of such losses will vary from time to time depending upon the risk characteristics of the loan portfolio as affected by economic conditions, rising interest rates and the financial experience of the borrowers. The allowance for loan losses, which provides for the risk of losses inherent in the credit extension process, is increased by the provision for loan losses charged to expense and decreased by the amount of charge-offs net of recoveries. There is no precise method of estimating specific losses or amounts that ultimately may be charged off on particular segments of the loan portfolio. Similarly, the adequacy of the allowance for loan losses and the level of the related provision for loan losses are determined in managements judgment based on consideration of:
· Economic conditions
· Borrowers financial condition
· Loan impairment
· Evaluation of industry trends
· Historic losses, migrations and delinquency trends
· Industry and other concentrations
· Loans which are contractually current as to payment terms but demonstrate a higher degree of risk as identified by management
· Continuing evaluation of the performing loan portfolio
· Periodic review and evaluation of problem loans
· Off balance sheet risks
· Assessments by regulators and other third parties
In addition to the internal assessment of the loan portfolio, the Company also retains a consultant who performs credit reviews on a regular basis and then provides an assessment of the adequacy of the allowance for loan losses. All such reviews have confirmed the adequacy of the allowance for loan losses. The federal banking regulators also conduct examinations of the loan portfolio periodically.
The following table summarizes the activity in the allowance for loan losses for the years ended December 31, 2014, 2013, 2012, 2011 and 2010.
|
|
Year ended December 31, |
| |||||||||||||
(dollars in thousands) |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance, beginning of period |
|
$ |
21,944 |
|
$ |
19,948 |
|
$ |
18,540 |
|
$ |
15,546 |
|
$ |
16,012 |
|
Loans charged off by category: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
1,910 |
|
4,294 |
|
311 |
|
756 |
|
1,406 |
| |||||
Real estate construction |
|
|
|
|
|
|
|
|
|
1,274 |
| |||||
Land loans |
|
|
|
|
|
17 |
|
340 |
|
748 |
| |||||
Real estate other |
|
|
|
230 |
|
|
|
1,395 |
|
4,013 |
| |||||
Factoring and asset based |
|
1,730 |
|
3,735 |
|
2,250 |
|
|
|
132 |
| |||||
SBA |
|
528 |
|
|
|
567 |
|
415 |
|
|
| |||||
Other |
|
|
|
|
|
|
|
|
|
606 |
| |||||
Total charge-offs |
|
4,168 |
|
8,259 |
|
3,145 |
|
2,906 |
|
8,179 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Recoveries by category: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
554 |
|
4,195 |
|
461 |
|
628 |
|
1,100 |
| |||||
Real estate construction |
|
|
|
4 |
|
11 |
|
712 |
|
799 |
| |||||
Land loans |
|
20 |
|
3 |
|
6 |
|
1,960 |
|
134 |
| |||||
Real estate other |
|
29 |
|
|
|
2 |
|
|
|
686 |
| |||||
Factoring and asset based |
|
506 |
|
|
|
|
|
|
|
43 |
| |||||
SBA |
|
420 |
|
3 |
|
123 |
|
|
|
|
| |||||
Other |
|
|
|
|
|
|
|
|
|
251 |
| |||||
Total recoveries |
|
1,529 |
|
4,205 |
|
603 |
|
3,300 |
|
3,013 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net charge-offs (recoveries) |
|
2,639 |
|
4,054 |
|
2,542 |
|
(394 |
) |
5,166 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Provision charged to expense by category: |
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
3,090 |
|
2,771 |
|
700 |
|
1,056 |
|
(1,391 |
) | |||||
Real estate construction |
|
410 |
|
336 |
|
(558 |
) |
(1,120 |
) |
727 |
| |||||
Land loans |
|
15 |
|
41 |
|
(269 |
) |
(1,629 |
) |
472 |
| |||||
Real estate other |
|
(755 |
) |
(2,091 |
) |
(935 |
) |
2,148 |
|
3,512 |
| |||||
Factoring and asset based |
|
273 |
|
5,519 |
|
4,220 |
|
807 |
|
603 |
| |||||
SBA |
|
(46 |
) |
(545 |
) |
782 |
|
1,312 |
|
495 |
| |||||
Other |
|
13 |
|
19 |
|
10 |
|
26 |
|
282 |
| |||||
Total provision charged to expense |
|
3,000 |
|
6,050 |
|
3,950 |
|
2,600 |
|
4,700 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance, end of year |
|
$ |
22,305 |
|
$ |
21,944 |
|
$ |
19,948 |
|
$ |
18,540 |
|
$ |
15,546 |
|
The increase in the allowance for loan losses of $361,000 from December 31, 2013 to $22.3 million at December 31, 2014 is primarily attributable to the growth of the loan portfolio and improved credit quality. The provision for loan losses for the twelve months ending December 31, 2014 and December 31, 2013 was $3.0 million and $6.1 million, respectively. The decrease in provision for credit losses for the year ending December 31, 2014 compared to the same period one year ago was a result of reduced net charge-offs in the current year.
Based on an evaluation of individual credits, historical credit loss experience by loan type, economic conditions, and the Companys reassessment of risks, management has allocated the allowance for loan losses as a percentage of total gross loans at December 31 of the previous five years as follows:
|
|
As of December 31, |
| |||||||||||||
(dollars in thousands) |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
10,800 |
|
$ |
9,066 |
|
$ |
6,394 |
|
$ |
5,544 |
|
$ |
4,616 |
|
Real estate construction |
|
1,423 |
|
1,013 |
|
673 |
|
1,220 |
|
1,628 |
| |||||
Land loans |
|
412 |
|
377 |
|
333 |
|
613 |
|
622 |
| |||||
Real estate other |
|
2,131 |
|
2,857 |
|
5,178 |
|
6,111 |
|
5,358 |
| |||||
Factoring and asset based |
|
5,185 |
|
6,136 |
|
4,352 |
|
2,382 |
|
1,575 |
| |||||
SBA |
|
2,209 |
|
2,363 |
|
2,905 |
|
2,567 |
|
1,670 |
| |||||
Other |
|
145 |
|
132 |
|
113 |
|
103 |
|
77 |
| |||||
Total allowance for loan losses |
|
$ |
22,305 |
|
$ |
21,944 |
|
$ |
19,948 |
|
$ |
18,540 |
|
$ |
15,546 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
0.8 |
% |
0.8 |
% |
0.7 |
% |
0.7 |
% |
0.7 |
% | |||||
Real estate construction |
|
0.1 |
% |
0.1 |
% |
0.1 |
% |
0.2 |
% |
0.2 |
% | |||||
Land loans |
|
0.0 |
% |
0.0 |
% |
0.0 |
% |
0.1 |
% |
0.1 |
% | |||||
Real estate other |
|
0.2 |
% |
0.3 |
% |
0.6 |
% |
0.8 |
% |
0.8 |
% | |||||
Factoring and asset based |
|
0.4 |
% |
0.6 |
% |
0.5 |
% |
0.3 |
% |
0.2 |
% | |||||
SBA |
|
0.2 |
% |
0.2 |
% |
0.3 |
% |
0.3 |
% |
0.3 |
% | |||||
Other |
|
0.0 |
% |
0.0 |
% |
0.0 |
% |
0.0 |
% |
0.0 |
% | |||||
Total allowance for loan losses |
|
1.70 |
% |
2.04 |
% |
2.20 |
% |
2.43 |
% |
2.39 |
% |
Due to positive trends in overall loan classifications during 2014, reflecting the improving condition of the loan portfolio combined with new loan production, the Company has been able to lower the level of reserves to 1.70% of total loans at December 31, 2014. The coverage ratio, the ratio of allowance for loan losses to nonperforming loans was 284.03% at December 31, 2014. Management believes that the coverage ratio reflects the conservative charge-off practice and that the allowance is adequate for losses not specifically identified in impairment analyses.
At December 31, 2014 nonperforming assets of $7.9 million, or 0.43% of total assets reflects a decrease compared to $15.1 million, or 0.94% of total assets on December 31, 2013. The decrease in nonperforming assets from December 31, 2014 was primarily due to collections of $9.8 million, $5.0 million in loans upgraded to performing status, and charge-offs of $4.2 million. These decreases were partially offset by the addition of $11.0 million in nonperforming loans. The addition was primarily comprised of five SBA credits totaling $3.0, two commercial credits totaling $3.0 million, two real estate credits totaling $2.9 million and one factoring credit of $2.1 million.
The following summarizes nonperforming assets and loans restructured and in compliance with modified terms at December 31, 2014, 2013, 2012, 2011, and 2010.
|
|
As of December 31, |
| |||||||||||||
(dollars in thousands) |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans accounted for on a non-accrual basis |
|
$ |
7,853 |
|
$ |
15,115 |
|
$ |
9,967 |
|
$ |
11,840 |
|
$ |
16,696 |
|
Loans with principal or interest contractually past due 90 days or more, and accruing |
|
|
|
|
|
|
|
|
|
|
| |||||
Nonperforming loans |
|
7,853 |
|
15,115 |
|
9,967 |
|
11,840 |
|
16,696 |
| |||||
Other real estate owned |
|
23 |
|
31 |
|
144 |
|
4,126 |
|
6,645 |
| |||||
Nonperforming assets |
|
$ |
7,876 |
|
$ |
15,146 |
|
$ |
10,111 |
|
$ |
15,966 |
|
$ |
23,341 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans restructured and in compliance with modified terms |
|
9,237 |
|
5,569 |
|
9,402 |
|
10,677 |
|
4,494 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Nonperforming assets and restructured loans |
|
$ |
17,113 |
|
$ |
20,715 |
|
$ |
19,513 |
|
$ |
26,643 |
|
$ |
27,835 |
|
The nonperforming assets at December 31, 2014 consisted of twenty-four loans on nonaccrual or 90 days or more past due and still accruing totaling $7.9 million, and other real estate owned valued at $23,000. Nonperforming loans at December 31, 2014 were comprised of loans with legal contractual balances totaling approximately $11.7 million reduced by $404,000 received in nonaccrual interest and impairment charges of $3.4 million which have been charged against the allowance for loan losses. There were sixteen non-accrual loans totaling $15.1 million at December 31, 2013 and sixteen non-accrual loans totaling $10.0 million at December 31, 2012.
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 December 31, 2014:
(dollars in thousands)
December 31, 2014
Category / Collateral |
|
Amount |
| |
|
|
|
| |
SBA: |
|
|
| |
|
|
|
| |
Single family residence in San Francisco County |
|
$ |
2,030 |
|
Single family residences in Riverside County |
|
382 |
| |
Commercial building in Santa Barbara County |
|
287 |
| |
Mixed used building in Santa Clara County |
|
278 |
| |
Single family residences in Orange County & Riverside County |
|
239 |
| |
Special purpose facilities in Orange County |
|
183 |
| |
Special purpose facilities in San Diego County |
|
113 |
| |
Lot for single family homes in Contra Costa County |
|
48 |
| |
Commercial building in San Diego County |
|
20 |
| |
Single family residences in Los Angeles County |
|
7 |
| |
Light industrial warehouse space in Stanislaus County |
|
2 |
| |
|
|
3,589 |
| |
Real estate other: |
|
|
| |
|
|
|
| |
Single family residences in Sacramento County |
|
1,516 |
| |
Single family residences in Santa Clara County |
|
1,284 |
| |
|
|
2,800 |
| |
Commercial: |
|
|
| |
|
|
|
| |
Business assets |
|
1,267 |
| |
|
|
1,267 |
| |
Factoring/asset based lending: |
|
|
| |
|
|
|
| |
Business assets |
|
197 |
| |
|
|
197 |
| |
|
|
|
| |
Total nonperforming loans |
|
$ |
7,853 |
|
Included in nonperforming loans at December 31, 2014 are loans totaling $1.5 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 December 31, 2014, previously modified loans totaling $9.2 million were considered performing due to a sustained period of timely payments and therefore were accounted for on an accrual basis.
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 at minimum, on a quarterly 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 collectibility of any of these credits becomes unlikely, there could be an adverse effect on the level of the allowance for loan losses and the Companys future profitability.
Funding
Deposits represent the Banks principal source of funds. Most of the Banks deposits are obtained from professionals, small- to medium sized businesses and individuals within the Banks market area. The Banks deposit base consists of non-interest and interest-bearing demand deposits, money market and savings accounts and certificates of deposit.
The following table summarizes the composition of deposits as of December 31, 2014, 2013 and 2012.
|
|
As of December 31, |
|
|
| |||||||||||
|
|
2014 |
|
2013 |
|
2012 |
| |||||||||
(dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Noninterest-bearing demand |
|
$ |
1,051,357 |
|
67.85 |
% |
$ |
954,727 |
|
67.90 |
% |
$ |
723,517 |
|
62.24 |
% |
Interest bearing demand |
|
15,492 |
|
1.00 |
% |
11,115 |
|
0.79 |
% |
10,582 |
|
0.91 |
% | |||
Money market and savings |
|
450,873 |
|
29.10 |
% |
391,310 |
|
27.83 |
% |
380,949 |
|
32.77 |
% | |||
Certificates of deposit: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Less than $100,000 |
|
2,193 |
|
0.14 |
% |
2,947 |
|
0.21 |
% |
3,167 |
|
0.27 |
% | |||
$100,000 and more |
|
29,630 |
|
1.91 |
% |
45,993 |
|
3.27 |
% |
44,333 |
|
3.81 |
% | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total deposit portfolio |
|
$ |
1,549,545 |
|
100.00 |
% |
$ |
1,406,092 |
|
100.00 |
% |
$ |
1,162,548 |
|
100.00 |
% |
Deposits increased $143.5 million or 10.2% from $1.4 billion at December 31, 2013 to $1.5 billion at December 31, 2014. The increase in deposits was predominately in core deposit production which was primarily used to fund new loans and increase the investment portfolio.
Leverage
Total gross loan balances at December 31, 2014 were $1.3 billion. The resulting loan to deposit ratio was 84.63%. Other earning assets at December 31, 2014 were primarily comprised of investment securities, federal funds sold and interest-bearing deposits of $440.9 million. To date, the Company has deployed other earning assets primarily in federal funds sold to address the potential volatility of deposit balances and to accommodate projected loan funding, and in short term fixed rate investments to mitigate interest rate risk associated with the Companys asset-sensitive balance sheet. 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. For discussion of capital requirements applicable to the Bank and the Company, see Supervision and Regulation Capital Adequacy Requirements and Basel Accord and the New Capital Standards above.
The Companys capital resources consist of shareholders equity, trust preferred securities and (for regulatory purposes) the allowance for loan losses (subject to limitations). At December 31, 2014, the Companys capital resources increased $26.0 million to $218.7 million from $192.8 million at December 31, 2013. Tier 1 capital increased $23.6 million to $199.0 million at December 31, 2014.
The Companys Tier 1 capital at December 31, 2014 was comprised of $112.5 million of capital stock and surplus, $69.5 million in retained earnings and trust preferred securities up to the allowable limit of $17.0 million. The Companys Tier 1 capital at December 31, 2013 was $175.4 million, which was comprised of $106.5 million of capital stock and surplus, $51.9 million in retained earnings and trust preferred securities up to the allowable limit of $17.0 million.
The Company is subject to capital adequacy guidelines issued by the FRB and the Comptroller. 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 4.0% must consist primarily of common equity including retained earnings (Tier 1 capital) and the remainder may consist of subordinated debt, cumulative preferred stock or a limited amount of allowance for loan losses. 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 December 31, 2014, the Companys and the Banks total risk-based capital ratios were 13.91% and 12.38%, respectively (13.96% for the Company and 12.25% for the Bank at December 31, 2013).
The following table reflects the Companys and the Banks capital ratios for the period ended December 31, 2014 and 2013 as well as the minimum capital ratios required to be deemed well capitalized under the regulatory framework as of the dates indicated.
|
|
As of December 31, |
| ||||||||
|
|
2014 |
|
2013 |
| ||||||
(dollars in thousands) |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
| ||
Company Capital Ratios |
|
|
|
|
|
|
|
|
| ||
Tier 1 Capital |
|
$ |
199,037 |
|
12.66 |
% |
$ |
175,432 |
|
12.70 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Tier 1 capital minimum requirement |
|
$ |
94,356 |
|
6.00 |
% |
$ |
82,875 |
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Total Capital |
|
$ |
218,727 |
|
13.91 |
% |
$ |
192,755 |
|
13.96 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Total capital minimum requirement |
|
$ |
157,260 |
|
10.00 |
% |
$ |
138,125 |
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Company leverage |
|
|
|
|
|
|
|
|
| ||
Tier 1 Capital |
|
$ |
199,037 |
|
11.24 |
% |
$ |
175,432 |
|
11.61 |
% |
(to Average Assets) |
|
|
|
|
|
|
|
|
| ||
Total capital minimum requirement |
|
$ |
88,523 |
|
5.00 |
% |
$ |
75,523 |
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Bank Risk Based Capital Ratios |
|
|
|
|
|
|
|
|
| ||
Tier 1 Capital |
|
$ |
174,493 |
|
11.13 |
% |
$ |
151,700 |
|
11.00 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Tier 1 capital minimum requirement |
|
$ |
94,072 |
|
6.00 |
% |
$ |
82,755 |
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Total Capital |
|
$ |
194,125 |
|
12.38 |
% |
$ |
168,999 |
|
12.25 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Total capital minimum requirement |
|
$ |
156,787 |
|
10.00 |
% |
$ |
137,925 |
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Bank leverage |
|
|
|
|
|
|
|
|
| ||
Tier 1 Capital |
|
$ |
174,493 |
|
9.89 |
% |
$ |
151,700 |
|
10.06 |
% |
(to Average Assets) |
|
|
|
|
|
|
|
|
| ||
Total capital minimum requirement |
|
$ |
88,176 |
|
5.00 |
% |
$ |
75,408 |
|
5.00 |
% |
The federal banking agencies, including the FRB and the Comptroller, have adopted regulations implementing a system of prompt corrective action under FDICIA. The regulations establish five capital categories with the following characteristics: (1) Well capitalized, consisting of institutions with a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater and a leverage ratio of 5.0% or greater and which are not operating under an order, written agreement, capital directive or prompt corrective action directive; (2) Adequately capitalized, consisting of institutions with a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital of 4.0% or greater and a leverage ratio of 4.0% or greater and which do not meet the definition of a well capitalized institution; (3) Undercapitalized, consisting of institutions with a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 4.0%, or a leverage ratio of less than 4.0%; (4) Significantly undercapitalized, consisting of institutions with a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 3.0%, or a leverage ratio of less than 3.0%; and (5) Critically undercapitalized, consisting of institutions with a ratio of tangible equity to total assets that is equal to or less than 2.0%. New capital categories are in effect as of January 1, 2015. See Supervision and Regulation Capital Adequacy Requirements and Basel Accord and the New Capital Standards.
Financial institutions classified as undercapitalized or below are subject to various limitations including, among other matters, certain supervisory actions by bank regulatory authorities and restrictions related to (i) growth of assets, (ii) payment of interest on subordinated indebtedness, (iii) payment of dividends or other capital distributions, and (iv) payment of management fees to a parent holding company. The FDICIA requires the bank regulatory authorities to initiate corrective action regarding financial institutions that fail to meet minimum capital requirements. Such action
may result in orders to, among other matters, augment capital and reduce total assets. Critically undercapitalized financial institutions may also be subject to appointment of a receiver or implementation of a capitalization plan.
In response to increasing risk perceived in the economic environment, during the fourth quarter of 2008 the Company raised $53.9 million of additional capital. Additionally, to support tangible common equity as a component of Tier 1 capital and to ensure resources for the eventual TARP repayment, the Company completed the sale of $30.0 million in common stock to a group of institutional investors in a private placement transaction during the fourth quarter of 2010. The following is a summary of these issuances:
On December 17, 2008, The Company sold $30.0 million of its Series B and B-1 Convertible Preferred Stock to the Carpenter Community BancFunds (the Carpenter Funds) in a private placement or approximately 31.3% of the Companys common stock on an as-converted basis. In connection with this sale, the Company granted certain participation and investor rights to the Carpenter Funds. On March 31, 2010, the Company and the Carpenter Funds agreed to the early conversion of the preferred stock and, a result of the conversion, the Company issued a total of 3,710,289 shares of its common stock and convertible promissory notes in the aggregate principal amount of $789,860 (the Notes). On June 17, 2010, the Notes converted into 93,364 shares of common stock.
On December 23, 2008, the Company sold 23,864 shares of its Series C Preferred Stock and a warrant to purchase up to 396,412 shares of common stock to the U.S. Department of the Treasury on the TARP Capital Purchase Program for proceeds of $23.9 million. On March 16, 2011, the Company fully redeemed its Series C Preferred Stock for $23.9 million. On April 20, 2011, the Company repurchased the warrant for $1.4 million, which was recorded as a reduction to shareholders equity.
On November 23, 2010, the Company sold investors 3,508,771 shares of its common stock in a private placement for an aggregate purchase price of $30.0 million. The investors included the Carpenter Funds, which purchased 1,103,275 common shares. Upon the completion of the private placement, the Carpenter Funds held a total of 4,906,928 shares of the Companys common stock or approximately 33.9% of the Companys outstanding shares of common stock.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Liquidity/Interest Rate Sensitivity
The Company strives to manage its liquidity to provide adequate funds at an acceptable cost to support the 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 December 31, 2014, liquid assets as a percentage of deposits were 29.0% as compared to 34.2% in 2013. In addition to cash and due from banks, liquid assets include interest-bearing deposits with other banks, federal funds sold, and unpledged securities available for sale. The Company has $47.0 million in Federal funds lines of credit available with correspondent banks to meet liquidity needs. At December 31, 2014, there were no balances outstanding on these lines. Additionally, as of December 31, 2014, the Company had a total borrowing capacity with the Federal Home Loan Bank of San Francisco of approximately $439.0 million for which the Company had collateral in place to borrow $97.0 million. As of December 31, 2014, $10.0 million of this borrowing capacity was pledged to secure a letter of credit, and $40.0 million was pledged to secure a short term borrowing.
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 Bank 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 December 31, 2014, 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 gap divided by interest rate sensitive assets) and the cumulative interest rate sensitivity gap ratio.
|
|
As of December 31, 2014 |
| ||||||||||||||||
|
|
|
|
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 |
|
$ |
75,420 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
75,420 |
|
Interest bearing deposits in other banks |
|
326 |
|
|
|
|
|
|
|
|
|
326 |
| ||||||
U.S. treasury and Investment securities |
|
9,737 |
|
7,060 |
|
12,561 |
|
134,611 |
|
201,196 |
|
365,165 |
| ||||||
Loans |
|
308,683 |
|
113,167 |
|
197,211 |
|
438,172 |
|
254,080 |
|
sec |
| ||||||
Total earning assets |
|
$ |
394,166 |
|
$ |
120,227 |
|
$ |
209,772 |
|
$ |
572,783 |
|
$ |
455,276 |
|
$ |
440,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest checking, money market and savings deposits |
|
466,365 |
|
|
|
|
|
|
|
|
|
466,365 |
| ||||||
Certificates of deposit: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less than $250,000 |
|
2,898 |
|
4,076 |
|
2,691 |
|
9,593 |
|
|
|
19,258 |
| ||||||
$250,000 or more |
|
5,674 |
|
3,515 |
|
3,115 |
|
261 |
|
|
|
12,565 |
| ||||||
Total interest-bearing liabilities |
|
474,937 |
|
7,591 |
|
5,806 |
|
9,854 |
|
|
|
498,188 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest rate gap |
|
$ |
(80,771 |
) |
$ |
112,636 |
|
$ |
203,966 |
|
$ |
562,929 |
|
$ |
455,276 |
|
$ |
(57,277 |
) |
Cumulative interest rate gap |
|
$ |
(80,771 |
) |
$ |
31,865 |
|
$ |
235,831 |
|
$ |
798,760 |
|
$ |
1,254,036 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest rate gap ratio |
|
$ |
(0.20 |
) |
$ |
0.94 |
|
$ |
0.97 |
|
$ |
0.98 |
|
$ |
1.00 |
|
|
| |
Cumulative interest rate gap ratio |
|
$ |
(0.20 |
) |
$ |
0.06 |
|
$ |
0.33 |
|
$ |
0.62 |
|
$ |
0.72 |
|
|
|
Based on the contractual terms of its assets and liabilities, the Banks balance sheet at December 31, 2014 was asset sensitive in terms of its short-term exposure to interest rates. That is, at December 31, 2014 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, the majority of variable rate loans made by the Bank have been written with a minimum floor rate.
The following table shows maturities of the loan portfolio at December 31, 2014 and 2013. At December 31, 2014, approximately 75.3% of the loan portfolio is priced with floating interest rates which limit the exposure to interest rate risk on long-term loans.
|
|
As of December 31, 2014 |
| ||||||||||
|
|
|
|
|
|
Due after one |
|
|
| ||||
|
|
|
|
Due one year |
|
year through |
|
Due after |
| ||||
(dollars in thousands) |
|
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 |
|
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 |
|
|
|
|
|
|
|
|
|
|
| ||||
Variable rate loans |
|
$ |
1,065,592 |
|
$ |
427,737 |
|
$ |
426,310 |
|
$ |
211,545 |
|
Fixed rate loans |
|
245,721 |
|
58,692 |
|
106,117 |
|
80,912 |
| ||||
Total loans |
|
$ |
1,311,313 |
|
$ |
486,429 |
|
$ |
532,427 |
|
$ |
292,457 |
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
As of December 31, 2013 |
| ||||||||||
|
|
|
|
|
|
Due after one |
|
|
| ||||
|
|
|
|
Due one year |
|
year through |
|
Due after |
| ||||
|
|
Amount |
|
or less |
|
five years |
|
five years |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
585,559 |
|
$ |
241,009 |
|
$ |
311,567 |
|
$ |
32,983 |
|
Real estate construction |
|
51,518 |
|
18,001 |
|
11,973 |
|
21,544 |
| ||||
Real estate land |
|
13,572 |
|
11,395 |
|
2,177 |
|
|
| ||||
Real estate other |
|
122,063 |
|
11,644 |
|
43,666 |
|
66,753 |
| ||||
Factoring and asset based |
|
192,783 |
|
88,508 |
|
104,275 |
|
|
| ||||
SBA |
|
106,406 |
|
(1,607 |
) |
1,489 |
|
106,524 |
| ||||
Other |
|
5,730 |
|
5,476 |
|
254 |
|
|
| ||||
Total loans |
|
$ |
1,077,631 |
|
$ |
374,426 |
|
$ |
475,401 |
|
$ |
227,804 |
|
|
|
|
|
|
|
|
|
|
| ||||
Variable rate loans |
|
$ |
906,828 |
|
$ |
329,303 |
|
$ |
391,535 |
|
$ |
185,990 |
|
Fixed rate loans |
|
170,803 |
|
45,124 |
|
83,866 |
|
41,813 |
| ||||
Total loans |
|
$ |
1,077,631 |
|
$ |
374,427 |
|
$ |
475,401 |
|
$ |
227,803 |
|
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 Guarantee 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 December 31, 2014 those guarantees include the following:
· Financial Letters of Credit in the amount of $21.9 million.
The table below summarizes the Banks off-balance sheet contractual obligations:
|
|
As of December 31, 2014 |
| |||||||||||||
|
|
Payments due by period |
| |||||||||||||
(dollars in thousands) |
|
|
|
Less Than |
|
1 - 3 |
|
3 - 5 |
|
More than |
| |||||
Contractural Obligations |
|
Total |
|
1 year |
|
years |
|
years |
|
5 years |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term contracts |
|
$ |
1,334 |
|
$ |
522 |
|
$ |
812 |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating leases |
|
25,080 |
|
4,424 |
|
5,886 |
|
5,280 |
|
9,490 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
|
$ |
26,414 |
|
$ |
4,946 |
|
$ |
6,698 |
|
$ |
5,280 |
|
$ |
9,490 |
|
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
All schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the Financial Statements or notes thereto.
* * * * *
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Bridge Capital Holdings
We have audited the accompanying consolidated balance sheets of Bridge Capital Holdings and Subsidiary as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, changes in shareholders equity and cash flows for each of the years in the three year period ended December 31, 2014. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinions.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bridge Capital Holdings and Subsidiary as of December 31, 2014 and 2013 and the consolidated results of their operations and their cash flows for each of the years in the three year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Bridge Capital Holdings and Subsidiarys internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 4, 2015, expressed an unqualified opinion.
Rancho Cucamonga, California
March 4, 2015
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Bridge Capital Holdings and Subsidiary
San Jose, California
We have audited Bridge Capital Holdings and Subsidiarys (the Company) internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying managements report on internal control over financial reporting. Our responsibility is to express an opinion on the effectiveness of the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in conformity with U.S. generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that (1) in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or 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. Also, 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.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheets of the Company as of December 31, 2014 and 2013 and the related consolidated statements of operations, comprehensive income, shareholders equity and cash flows for the three years in the period ended December 31, 2014, and our report dated March 4, 2015 expressed an unqualified opinion on those financial statements.
Rancho Cucamonga, California
March 4, 2015
Bridge Capital Holdings and Subsidiary
(dollars in thousands)
|
|
As of December 31, |
| ||||
|
|
2014 |
|
2013 |
| ||
Assets: |
|
|
|
|
| ||
Cash and due from banks |
|
$ |
21,950 |
|
$ |
23,958 |
|
Federal funds sold |
|
75,420 |
|
162,379 |
| ||
Total cash and equivalents |
|
97,370 |
|
186,337 |
| ||
|
|
|
|
|
| ||
Interest bearing deposits in other banks |
|
326 |
|
326 |
| ||
Investment securities: |
|
|
|
|
| ||
Available for sale |
|
352,243 |
|
292,977 |
| ||
Held to maturity |
|
12,922 |
|
13,788 |
| ||
Trading securities |
|
|
|
613 |
| ||
Total investment securities |
|
365,165 |
|
307,378 |
| ||
Loans, net of allowance for credit losses of $22,305 at December 31, 2014 and $21,944 at December 31, 2013 |
|
1,283,364 |
|
1,050,960 |
| ||
Premises and equipment, net |
|
2,504 |
|
2,081 |
| ||
Other real estate owned |
|
23 |
|
31 |
| ||
Accrued interest receivable |
|
4,989 |
|
4,323 |
| ||
Other assets |
|
60,381 |
|
52,676 |
| ||
Total assets |
|
$ |
1,814,122 |
|
$ |
1,604,112 |
|
|
|
|
|
|
| ||
Liabilities and Shareholders Equity: |
|
|
|
|
| ||
Deposits: |
|
|
|
|
| ||
Demand noninterest-bearing |
|
$ |
1,051,357 |
|
$ |
954,727 |
|
Demand interest-bearing |
|
15,492 |
|
11,115 |
| ||
Money Market and savings |
|
450,873 |
|
391,310 |
| ||
Time |
|
31,823 |
|
48,940 |
| ||
Total deposits |
|
1,549,545 |
|
1,406,092 |
| ||
|
|
|
|
|
| ||
Junior subordinated debt securities |
|
17,527 |
|
17,527 |
| ||
Other borrowings |
|
40,000 |
|
|
| ||
Accrued interest payable |
|
8 |
|
10 |
| ||
Other liabilities |
|
19,935 |
|
17,736 |
| ||
Total liabilities |
|
1,627,015 |
|
1,441,365 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
Shareholders Equity: |
|
|
|
|
| ||
Preferred stock, no par value; 10,000,000 shares authorized; no shares outstanding at December 31, 2014 and December 31, 2013 |
|
|
|
|
| ||
Common stock, no par value; 30,000,000 shares authorized; 15,970,506 shares issued and outstanding at December 31, 2014; 15,859,098 shares issued and outstanding at December 31, 2013; |
|
117,321 |
|
112,714 |
| ||
Retained earnings |
|
69,547 |
|
51,946 |
| ||
Accumulated other comprehensive income/(loss) |
|
239 |
|
(1,913 |
) | ||
Total shareholders equity |
|
187,107 |
|
162,747 |
| ||
Total liabilities and shareholders equity |
|
$ |
1,814,122 |
|
$ |
1,604,112 |
|
The accompanying notes are an integral part of the financial statements.
Bridge Capital Holdings and Subsidiary
Consolidated Statements of Operations
(dollars in thousands, except share data)
|
|
Year Ended December 31, |
| |||||||
|
|
2014 |
|
2013 |
|
2012 |
| |||
Interest Income: |
|
|
|
|
|
|
| |||
Loans |
|
$ |
72,247 |
|
$ |
64,629 |
|
$ |
56,122 |
|
Investment securities |
|
6,243 |
|
5,864 |
|
6,461 |
| |||
Federal funds sold |
|
365 |
|
317 |
|
203 |
| |||
Interest bearing deposits in other banks |
|
1 |
|
|
|
1 |
| |||
Total interest income |
|
78,856 |
|
70,810 |
|
62,787 |
| |||
|
|
|
|
|
|
|
| |||
Interest Expense: |
|
|
|
|
|
|
| |||
Deposits |
|
1,131 |
|
1,443 |
|
1,089 |
| |||
Other |
|
1,081 |
|
1,075 |
|
1,106 |
| |||
Total interest expense |
|
2,212 |
|
2,518 |
|
2,195 |
| |||
|
|
|
|
|
|
|
| |||
Net interest income |
|
76,644 |
|
68,292 |
|
60,592 |
| |||
Provision for credit losses |
|
3,000 |
|
6,050 |
|
3,950 |
| |||
Net interest income after provision for credit losses |
|
73,644 |
|
62,242 |
|
56,642 |
| |||
|
|
|
|
|
|
|
| |||
Non-Interest Income: |
|
|
|
|
|
|
| |||
Service charges on deposit accounts |
|
3,847 |
|
3,674 |
|
3,353 |
| |||
International fee income |
|
3,067 |
|
2,703 |
|
2,646 |
| |||
Gain on sale of SBA loans |
|
2,572 |
|
2,682 |
|
1,850 |
| |||
Warrant Income |
|
1,344 |
|
1,261 |
|
1,422 |
| |||
Gain on sale - OREO |
|
|
|
470 |
|
1,056 |
| |||
SBA loan servicing fee income |
|
653 |
|
488 |
|
514 |
| |||
Gain on sale of securities |
|
5 |
|
804 |
|
323 |
| |||
Other non-interest income |
|
2,629 |
|
2,198 |
|
1,820 |
| |||
Total non-interest income |
|
14,117 |
|
14,280 |
|
12,984 |
| |||
|
|
|
|
|
|
|
| |||
Operating Expenses: |
|
|
|
|
|
|
| |||
Salaries and benefits |
|
37,473 |
|
33,543 |
|
30,307 |
| |||
Occupancy and equipment |
|
4,939 |
|
4,103 |
|
3,994 |
| |||
Data processing |
|
4,357 |
|
3,776 |
|
3,257 |
| |||
Marketing |
|
2,682 |
|
2,641 |
|
2,060 |
| |||
Director/Shareholder expenses |
|
1,285 |
|
1,550 |
|
1,277 |
| |||
Professional services |
|
1,735 |
|
1,726 |
|
1,206 |
| |||
Deposit services/supplies |
|
1,109 |
|
1,023 |
|
989 |
| |||
Assessments |
|
1,253 |
|
1,241 |
|
879 |
| |||
Loan origination expense |
|
1,558 |
|
931 |
|
821 |
| |||
OREO expense |
|
44 |
|
115 |
|
134 |
| |||
Other |
|
1,622 |
|
1,235 |
|
1,288 |
| |||
Total operating expenses |
|
58,057 |
|
51,884 |
|
46,212 |
| |||
|
|
|
|
|
|
|
| |||
Income before income taxes |
|
29,704 |
|
24,638 |
|
23,414 |
| |||
Income taxes |
|
12,103 |
|
9,927 |
|
9,610 |
| |||
Net income |
|
$ |
17,601 |
|
$ |
14,711 |
|
$ |
13,804 |
|
|
|
|
|
|
|
|
| |||
Basic earnings per share |
|
$ |
1.19 |
|
$ |
1.02 |
|
$ |
0.96 |
|
Diluted earnings per share |
|
$ |
1.13 |
|
$ |
0.97 |
|
$ |
0.92 |
|
Average common shares outstanding |
|
14,769,452 |
|
14,444,246 |
|
14,385,629 |
| |||
Average common and equivalent shares outstanding |
|
15,556,573 |
|
15,196,220 |
|
14,927,837 |
|
The accompanying notes are an integral part of the financial statements.
BRIDGE CAPITAL HOLDINGS AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(dollars in thousands)
|
|
Year Ended December 31, |
| |||||||
|
|
2014 |
|
2013 |
|
2012 |
| |||
|
|
|
|
|
|
|
| |||
NET INCOME |
|
$ |
17,601 |
|
$ |
14,711 |
|
$ |
13,804 |
|
|
|
|
|
|
|
|
| |||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: |
|
|
|
|
|
|
| |||
Unrealized gains (losses) on securities available-for-sale |
|
2,770 |
|
(4,113 |
) |
1,643 |
| |||
Related tax benefit (expense) |
|
(1,136 |
) |
1,692 |
|
(674 |
) | |||
Reclassification adjustment for realized (gains) on securities (1) |
|
(5 |
) |
(804 |
) |
(323 |
) | |||
Related tax expense |
|
2 |
|
324 |
|
133 |
| |||
Unrealized gains/(losses) on supplemental executive retirement plan |
|
181 |
|
50 |
|
250 |
| |||
Related tax benefit (expense) |
|
(72 |
) |
(20 |
) |
(100 |
) | |||
Unrealized gains/(losses) on cash flow hedges |
|
686 |
|
682 |
|
352 |
| |||
Related tax benefit (expense) |
|
(274 |
) |
(273 |
) |
(141 |
) | |||
Other comprehensive income (loss), net of tax |
|
2,152 |
|
(2,462 |
) |
1,140 |
| |||
|
|
|
|
|
|
|
| |||
COMPREHENSIVE INCOME |
|
$ |
19,753 |
|
$ |
12,249 |
|
$ |
14,944 |
|
(1) Amounts are included in net gains on sale of securities on the Consolidated Statement of Operations in total non-interest income.
The accompanying notes are an integral part of the financial statements.
Bridge Capital Holdings and Subsidiary
Consolidated Statements of Shareholders Equity
For the three Years Ended December 31, 2014
(dollars in thousands, except share data)
|
|
|
|
|
|
|
|
Accumulated |
|
|
| ||||
|
|
|
|
|
|
|
|
Other |
|
Total |
| ||||
|
|
Common Stock |
|
Retained |
|
Comprehensive |
|
Shareholders |
| ||||||
|
|
Shares |
|
Amount |
|
Earnings |
|
Income (loss) |
|
Equity |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at December 31, 2011 |
|
15,145,181 |
|
$ |
106,673 |
|
$ |
23,431 |
|
$ |
(591 |
) |
$ |
129,513 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Restricted stock issued, net |
|
566,649 |
|
|
|
|
|
|
|
|
| ||||
Stock options exercised and related tendered shares |
|
34,848 |
|
222 |
|
|
|
|
|
222 |
| ||||
Restricted stock vesting - shares tendered for taxes |
|
(8,255 |
) |
(125 |
) |
|
|
|
|
(125 |
) | ||||
Tax benefit from exercise/vesting of stock based awards |
|
|
|
33 |
|
|
|
|
|
33 |
| ||||
Stock based compensation |
|
|
|
2,160 |
|
|
|
|
|
2,160 |
| ||||
Other comprehensive income |
|
|
|
|
|
|
|
1,140 |
|
1,140 |
| ||||
Net income for the year |
|
|
|
|
|
13,804 |
|
|
|
13,804 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at December 31, 2012 |
|
15,738,423 |
|
$ |
108,963 |
|
$ |
37,235 |
|
$ |
549 |
|
$ |
146,747 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Restricted stock issued, net |
|
152,670 |
|
|
|
|
|
|
|
|
| ||||
Stock options exercised and related surrendered shares |
|
78,137 |
|
860 |
|
|
|
|
|
860 |
| ||||
Restricted stock vesting - shares tendered for taxes |
|
(97,510 |
) |
(1,949 |
) |
|
|
|
|
(1,949 |
) | ||||
Tax benefit from exercise/vesting of stock based awards |
|
|
|
1,511 |
|
|
|
|
|
1,511 |
| ||||
Stock based compensation |
|
|
|
3,560 |
|
|
|
|
|
3,560 |
| ||||
Other comprehensive income |
|
|
|
|
|
|
|
(2,462 |
) |
(2,462 |
) | ||||
Net income for the year |
|
|
|
|
|
14,711 |
|
|
|
14,711 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at December 31, 2013 |
|
15,859,098 |
|
$ |
112,714 |
|
$ |
51,946 |
|
$ |
(1,913 |
) |
$ |
162,747 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Restricted stock issued, net |
|
105,223 |
|
|
|
|
|
|
|
|
| ||||
Stock options exercised and related tendered/surrendered shares |
|
114,424 |
|
1,278 |
|
|
|
|
|
1,278 |
| ||||
Restricted stock vesting - shares tendered for taxes |
|
(84,044 |
) |
(1,986 |
) |
|
|
|
|
(1,986 |
) | ||||
Tax benefit from exercise/vesting of stock based awards |
|
|
|
2,166 |
|
|
|
|
|
2,166 |
| ||||
Stock based compensation |
|
|
|
3,690 |
|
|
|
|
|
3,690 |
| ||||
Other comprehensive income |
|
|
|
|
|
|
|
2,152 |
|
2,152 |
| ||||
Net income for the year |
|
|
|
|
|
17,601 |
|
|
|
17,601 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at December 31, 2014 |
|
15,970,506 |
|
$ |
117,321 |
|
$ |
69,547 |
|
$ |
239 |
|
$ |
187,107 |
|
The accompanying notes are an integral part of the financial statements.
Bridge Capital Holdings and Subsidiary
Consolidated Statements of Cash Flows
(dollars in thousands)
|
|
Year Ended December 31, |
| |||||||
|
|
2014 |
|
2013 |
|
2012 |
| |||
|
|
|
|
|
|
|
| |||
Cash Flows From Operating Activities: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Net income |
|
$ |
17,601 |
|
$ |
14,711 |
|
$ |
13,804 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
| |||
Provision for credit losses |
|
3,000 |
|
6,050 |
|
3,950 |
| |||
Depreciation and amortization |
|
1,156 |
|
1,166 |
|
1,148 |
| |||
Net (gain) on sale of loans |
|
(2,572 |
) |
(2,682 |
) |
(1,850 |
) | |||
Net (gain) on sale of other real estate owned |
|
|
|
(470 |
) |
(1,056 |
) | |||
Write down of other real estate owned |
|
8 |
|
10 |
|
39 |
| |||
Deferred income tax (credit) |
|
(2,255 |
) |
(4,183 |
) |
(2,107 |
) | |||
Stock based compensation |
|
3,690 |
|
3,560 |
|
2,160 |
| |||
Proceeds from loan sales |
|
44,620 |
|
49,003 |
|
39,191 |
| |||
Loans originated for sale |
|
(55,429 |
) |
(65,006 |
) |
(54,528 |
) | |||
Net (gain) on sale of securities |
|
(5 |
) |
(804 |
) |
(323 |
) | |||
Decrease (Increase) in accrued interest receivable and other assets |
|
(5,430 |
) |
7,662 |
|
(6,472 |
) | |||
Increase in accrued interest payable and other liabilities |
|
3,064 |
|
1,715 |
|
2,081 |
| |||
Net cash provided by (used in) operating activities |
|
7,448 |
|
10,732 |
|
(3,963 |
) | |||
|
|
|
|
|
|
|
| |||
Cash Flows From Investing Activities: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Proceeds from sale of securities available for sale |
|
22,195 |
|
27,735 |
|
22,743 |
| |||
Purchase of securities available for sale |
|
(133,737 |
) |
(148,782 |
) |
(109,479 |
) | |||
Proceeds from paydowns/maturities of securities available for sale |
|
56,525 |
|
76,760 |
|
61,442 |
| |||
Proceeds from sale of other real estate owned |
|
|
|
573 |
|
5,031 |
| |||
Proceeds from maturities of interest bearing deposits |
|
|
|
9 |
|
|
| |||
Net (increase) in loans |
|
(222,023 |
) |
(152,750 |
) |
(131,675 |
) | |||
Purchase of premises and equipment |
|
(1,579 |
) |
(1,205 |
) |
(853 |
) | |||
Net cash used in investing activities |
|
(278,619 |
) |
(197,660 |
) |
(152,791 |
) | |||
|
|
|
|
|
|
|
| |||
Cash Flows From Financing Activities: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Net increase in deposits |
|
143,453 |
|
243,544 |
|
163,873 |
| |||
Proceeds from issuance of common stock |
|
1,278 |
|
860 |
|
222 |
| |||
Purchase of treasury stock |
|
(2,527 |
) |
(2,180 |
) |
(125 |
) | |||
Increase (decrease) in other borrowings |
|
40,000 |
|
|
|
|
| |||
Net cash provided by financing activities |
|
182,204 |
|
242,224 |
|
163,970 |
| |||
|
|
|
|
|
|
|
| |||
Net Increase in Cash and Equivalents: |
|
(88,967 |
) |
55,296 |
|
7,216 |
| |||
Cash and equivalents at beginning of period |
|
186,337 |
|
131,041 |
|
123,825 |
| |||
Cash and equivalents at end of period |
|
$ |
97,370 |
|
$ |
186,337 |
|
$ |
131,041 |
|
|
|
|
|
|
|
|
| |||
Other Cash Flow Information: |
|
|
|
|
|
|
| |||
Cash paid for interest |
|
$ |
2,248 |
|
$ |
2,559 |
|
$ |
2,196 |
|
Cash paid for income taxes |
|
$ |
13,300 |
|
$ |
12,500 |
|
$ |
10,920 |
|
Transfer of loans to OREO |
|
$ |
|
|
$ |
|
|
$ |
33 |
|
The accompanying notes are an integral part of the financial statements.
BRIDGE CAPITAL HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 and 2012
1. SIGNIFICANT ACCOUNTING POLICIES
Business Bridge Bank, National Association (the Bank) commenced business in Santa Clara, California on May 14, 2001. Its main office is located at 55 Almaden Boulevard, San Jose, California, 95113. The Bank conducts commercial and retail banking business, which includes accepting demand, savings and time deposits and making commercial, real estate and consumer loans. It also issues cashiers checks, sells travelers checks and provides other customary banking services.
On October 1, 2004, the Bank announced completion of a bank holding company structure which was approved by shareholders at the Banks annual shareholders meeting held on May 20, 2004. The bank holding company, formed as a California corporation, is named Bridge Capital Holdings. Information in this report dated prior to September 30, 2004 is for Bridge Bank, National Association.
Bridge Capital Holdings (the Company) was formed for the purpose of serving as the holding company for Bridge Bank, National Association and is supervised by the Board of Governors of the Federal Reserve System. Effective October 1, 2004, Bridge Capital Holdings acquired 100% of the voting shares of Bridge Bank, National Association. As a result of the transaction, the former shareholders of Bridge Bank, National Association received one share of common stock of Bridge Capital Holdings for every one share of common stock of Bridge Bank, National Association owned.
Prior to the share exchange, the common stock of the Bank had been registered with the Office of Comptroller of the Currency. As a result of the share exchange, common stock of Bridge Capital Holdings is now registered with the Securities and Exchange Commission (SEC). Filings under the federal securities laws are made with the SEC rather than the Office of the Comptroller of the Currency and are available on the SECs website, http://www.sec.gov as well as on the Companys website http://www.bridgecapitalholdings.com.
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 provides clients operating in the global marketplace a range of services including foreign exchange (FX payments and hedging), letters of credit, and import/export financing.
The Bank attracts the majority of its loan and deposit business from the numerous small and middle market companies located in the Silicon Valley, though with an increasingly larger portion of new business from its national loan production offices.
The Bank reserves the right to change its business plan at any time, and no assurance can be given that, if the Banks proposed business plan is followed, it will prove successful.
The Bank does not offer trust services, but it will attempt to make such services available to the Banks customers through correspondent institutions. The deposits of the Bank are insured by the Federal Deposit Insurance Corporation (the FDIC) up to applicable limits, and the Bank is a member of the Federal Reserve System.
Principles of Consolidation - The financial statements include the accounts of Bridge Capital Holdings and its subsidiary, Bridge Bank, N.A. collectively referred to herein as the Company. Intercompany transactions and balances are eliminated in consolidation.
Basis of Presentation The accounting and reporting policies of Bridge Capital Holdings and Bridge Bank, N.A. conform to generally accepted accounting principles and prevailing practices within the banking industry.
Reclassifications - Certain reclassifications were made to prior years presentations to conform to the current year. These reclassifications had no effect on net income or earnings per share.
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 During 2014, the Financial Accounting Standards Board (FASB) issued guidance regarding the following new accounting standard applicable to financial institutions:
Financial Accounting Standards Board Accounting Standards Update (FASB ASU) 2014-14, Receivables Troubled Debt Restructuring by Creditors (Topic 310-40), The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: 1) The loan has a government guarantee that is not separable from the loan before foreclosure, 2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, 3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. ASU No. 2014-14 is effective for the first interim or annual period beginning after December 15, 2014. 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) 2014-11, Transfers & Servicing (Topic 860) Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, require that repurchase-to-maturity transactions be accounted for as secured borrowings consistent with the accounting for other repurchase agreements. In addition, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty (a repurchase financing), which will result in secured borrowing accounting for the repurchase agreement. The amendments require an entity to disclose information about transfers accounted for as sales in transactions that are economically similar to repurchase agreements, in which the transferor retains substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. In addition the amendments require disclosure of the types of collateral pledged in repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions and the tenor of those transactions. ASU No. 2014-11 is effective for the first interim or annual period beginning after December 15, 2014. 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) 2014-09, Revenue from Contracts with Customers (Topic 606), requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. 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) 2014-04, Receivables Troubled Debt Restructurings by Creditors (Sub-topic 310-40) Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for annual and interim period beginning after December 15, 2014. 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) 2014-01, Investments Equity Method and Joint Ventures (Topic 323) Accounting for Investments in Qualified Affordable Housing Projects amends an existing guidance to permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions
are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognized the net investment performance in the income statement as a component of income tax expense or benefit. For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment should be accounted for as an equity method of investment or a cost method of investment in accordance with Subtopic 970-323. ASU No. 2014-01 is effective for annual and interim period beginning after December 15, 2014. The adoption of this ASU is not expected to have a material impact on the Companys financial position, results of operations, or cash flows.
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 13 to the financial statements for more information and disclosures relating to the Companys fair value measurements.
Earnings Per Share - Basic earnings 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 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 or warrants and vesting of restricted stock. Common stock equivalents are included in the diluted earnings per share calculation to the extent these shares are dilutive. See Note 2 to the financial statements for additional information on earnings per share.
Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, Federal Funds sold and highly liquid debt instruments purchased with an original maturity of three months or less. The Company is required to maintain non-interest earning cash reserves against certain of the deposit accounts. As of December 31, 2014, aggregate reserves (in the form of deposits with the Federal Reserve Bank) of $729,000 were maintained.
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. Trading securities are reported at fair value with any unrealized gain or loss recorded in the income statement.
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.
Loans - Loans are stated at the principal amount outstanding less the allowance for loan losses and net deferred loan fees. Interest on loans is credited to income as earned. Loans are generally placed on nonaccrual status and any accrued and unpaid interest is reversed when the payment of principal or interest is 90 days past due unless the loan is both well secured and in the process of collection. Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.
Loan origination fees and costs are deferred and amortized to income at the instrument level using the effective interest method based on the contractual lives adjusted for prepayments.
Loans Held For Sale The company has the ability and the intent to sell all or a portion of certain Small Business Administration (SBA) loans in the loan portfolio and, as such, carries the saleable portion of these loans at the lower of aggregate cost of fair value. At December 31, 2014 and December 31, 2013, the fair value of SBA loans exceeded aggregate cost and therefore, SBA loans were carried at aggregate cost.
In calculating gains on the sale of SBA loans, the Company performs an allocation based on the relative fair values of the sold portion and retained portion of the loan. The Companys assumptions are validated by reference to the external market information.
Servicing Rights - Servicing rights are recognized separately when they are acquired through sales of loans. The Company has adopted guidance issued by the FASB that clarifies the accounting for servicing rights. Servicing rights are initially recorded at fair value with the income statement effect recorded in gain on sale of loans. Fair value is based on a valuation model that calculates the present value of estimated future cash flows from the servicing assets. The valuation model uses assumptions that market participants would use in estimating cash flows from servicing assets, such as the cost to service, discount rates and prepayment speeds. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.
Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. For purposes of measuring impairment, the Company has identified each servicing asset with the underlying loan being serviced. A valuation allowance is recorded where the fair value is below the carrying amount of the asset. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and changes in the discount rates.
Servicing fee income which is reported on the income statement as servicing income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal and recorded as income when earned. The amortization of servicing rights and changes in the valuation allowance are netted against loan servicing income.
As of December 31, 2014 and December 31, 2013, the amount of loans serviced for others was $123.0 million and $106.3 million, respectively.
Allowance for Loan losses - The allowance for loan losses is a valuation allowance for probable incurred loan losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in managements judgment, should be charged off.
The allowance consists of specific and general reserves. Specific reserves generally relate to loans that are individually classified as impaired, but may also relate to loans that in managements opinion exhibit negative credit characteristics or trends suggesting potential future loss exposure greater than historical loss experience would suggest. It is currently the Banks practice to immediately charge-off any identified financial loss pertaining to impaired loans when management believes the uncollectibility of the loan is confirmed, therefore specific reserves are uncommon. A loan is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the
terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are generally considered troubled debt restructurings and classified as impaired.
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 Banks 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 Bank determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses. See Note 4 to the financial statements for additional information on troubled debt restructurings.
General reserves cover non-impaired loans and are based on historical loss rates for each portfolio segment, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated loan losses as of the evaluation date to differ from the portfolio 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.
Portfolio segments identified by the Bank include commercial, real estate construction, land, real estate other, factoring and asset-based lending, SBA, and consumer loans. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial performance on non-consumer loans and credit scores, debt-to income, collateral type and loan-to-value ratios for consumer loans.
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 or the estimated useful lives of the assets, which are generally three years for computer equipment, three to five years for furniture, fixtures and equipment and five to ten years for leasehold improvements.
Other Real Estate Owned - Other real estate owned (OREO) consist of properties acquired through foreclosure. The Company values these properties at fair value less estimated costs to sell at the time it acquires them, which establishes the new cost basis. The Company charges against the allowance for loan losses any losses arising at the time of acquisition of such properties. After it acquires them, the Company carries such properties at the lower of cost or fair value less estimated selling costs. If the Company records any write-downs or losses from disposition of such properties after acquiring them, it includes this amount in other non-interest expense. Development and improvement costs relating to OREO are capitalized (assuming they are recoverable). At December 31, 2014 there was one land development property valued at $14,000 and one SBA real estate property valued at $9,000 owned by the Bank that were acquired through the foreclosure process. At December 31, 2013 there was one land development properties valued at $14,000 and one SBA real estate property valued at $17,000 owned by the Bank that were acquired through the foreclosure process.
Income Taxes - Deferred income taxes are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the financial statements. A valuation allowance is established to reduce the
deferred tax asset to the level at which it is more likely than not that the tax asset or benefits will be realized. Realization of tax benefits of deductible temporary differences and operating loss carry-forwards depends on having sufficient taxable income of an appropriate character within the carry-forward periods.
The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in tax positions taken or expected to be taken on a tax return and provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.
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 has recorded an incremental $3.7 million ($2.3 million net of tax), $3.6 million ($2.2 million net of tax), and $2.2 million ($1.4 million net of tax) of stock-based compensation expense during the years ended December 31, 2014, 2013, and 2012, respectively 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 December 31, 2014. As of December 31, 2014, $11.7 million of total unrecognized compensation cost related to stock options and restricted stock units are expected to be recognized over a weighted-average period of 3.2 years.
Stock-based compensation expense reduced basic earnings per share by $0.16, $0.16, and $0.10 and diluted earnings per share by $0.04, $0.05, and $0.03 for the years ended December 31, 2014, 2013, and 2012, respectively.
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. The guidance 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 $239,000, net of tax, at December 31, 2014, an accumulated other comprehensive loss totaling $(1.9) million, net of tax, at December 31, 2013 and accumulated other comprehensive income of $549,000, net of tax, at December 31, 2012.
Segments of an Enterprise and Related Information The Company has adopted 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 14 to the financial statements for additional information on derivative instruments and hedging activities.
2. EARNINGS PER SHARE
Basic earnings 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 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 or warrants and vesting of restricted stock. Common stock equivalents are included in the diluted 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 earnings per share available to common shareholders is as follows (in thousands, except for per share amounts):
(dollars in thousands, except share data) |
|
Year ended December 31, |
| |||||||
|
|
2014 |
|
2013 |
|
2012 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
|
$ |
17,601 |
|
$ |
14,711 |
|
$ |
13,804 |
|
Less: |
|
|
|
|
|
|
| |||
Dividends on preferred shares |
|
|
|
|
|
|
| |||
Net income available to common shareholders |
|
$ |
17,601 |
|
$ |
14,711 |
|
$ |
13,804 |
|
|
|
|
|
|
|
|
| |||
Weighted average shares used in computing: |
|
|
|
|
|
|
| |||
Basic common shares |
|
14,769,452 |
|
14,444,246 |
|
14,385,629 |
| |||
Dilutive potential common shares related to stock options, restricted stock, warrants, and preferred shares using the treasury stock method |
|
787,121 |
|
751,974 |
|
542,208 |
| |||
Total average common shares and equivalents |
|
15,556,573 |
|
15,196,220 |
|
14,927,837 |
| |||
|
|
|
|
|
|
|
| |||
Basic earnings (loss) per share |
|
$ |
1.19 |
|
$ |
1.02 |
|
$ |
0.96 |
|
Diluted earnings (loss) per share |
|
$ |
1.13 |
|
$ |
0.97 |
|
$ |
0.92 |
|
There were 167,250 options to acquire common stock (including those issuable pursuant to contingent stock agreements) and 8,950 shares of issued and outstanding restricted common stock that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for year ended December 31, 2014.
3. SECURITIES
As of December 31, 2014 and December 31, 2013, the Company had securities available for sale of $352.2 million and $293.0 million, respectively, and securities held to maturity of $12.9 million and $13.8 million. At December 31, 2013 the Company had trading securities of $613,000, while there were no trading securities in 2014. The securities classified as held to maturity were being held for purposes of the Community Reinvestment Act.
The amortized cost and estimated fair values of securities as of December 31, 2014 and December 31, 2013 are reflected in the following table.
(dollars in thousands) |
|
As of December 31, 2014 |
| ||||||||||
|
|
Amortized |
|
Gross Unrealized |
|
Fair |
| ||||||
|
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Securities available for sale |
|
|
|
|
|
|
|
|
| ||||
Debt securities: |
|
|
|
|
|
|
|
|
| ||||
U.S. government agency securities |
|
$ |
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 debt 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 |
|
(dollars in thousands) |
|
As of December 31, 2013 |
| ||||||||||
|
|
Amortized |
|
Gross Unrealized |
|
Fair |
| ||||||
|
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Securities available for sale |
|
|
|
|
|
|
|
|
| ||||
Debt securities: |
|
|
|
|
|
|
|
|
| ||||
U.S. government agency securities |
|
$ |
17,384 |
|
$ |
116 |
|
$ |
(571 |
) |
$ |
16,929 |
|
Mortgage backed securities |
|
237,593 |
|
3,246 |
|
(4,452 |
) |
236,387 |
| ||||
Corporate Bonds |
|
37,474 |
|
116 |
|
(99 |
) |
37,491 |
| ||||
Municipal Bonds |
|
2,435 |
|
|
|
(265 |
) |
2,170 |
| ||||
Total debt securities |
|
294,886 |
|
3,478 |
|
(5,387 |
) |
292,977 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total securities available for sale |
|
$ |
294,886 |
|
$ |
3,478 |
|
$ |
(5,387 |
) |
$ |
292,977 |
|
|
|
|
|
|
|
|
|
|
| ||||
Securities held to maturity |
|
|
|
|
|
|
|
|
| ||||
Debt securities: |
|
|
|
|
|
|
|
|
| ||||
Mortgage backed securities |
|
$ |
13,788 |
|
$ |
136 |
|
$ |
(240 |
) |
$ |
13,683 |
|
Total debt securities |
|
13,788 |
|
136 |
|
(240 |
) |
13,683 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total securities held to maturity |
|
$ |
13,788 |
|
$ |
136 |
|
$ |
(240 |
) |
$ |
13,683 |
|
|
|
|
|
|
|
|
|
|
| ||||
Trading securities |
|
$ |
613 |
|
$ |
|
|
$ |
|
|
$ |
613 |
|
|
|
|
|
|
|
|
|
|
| ||||
Total investment securities |
|
$ |
309,287 |
|
$ |
3,614 |
|
$ |
(5,627 |
) |
$ |
307,273 |
|
The scheduled maturities of investment securities available for sale at December 31, 2014 were as follows:
|
|
December 31, 2014 |
| ||||
|
|
Amortized |
|
Fair |
| ||
(dollars in thousands) |
|
Cost |
|
Value |
| ||
|
|
|
|
|
| ||
Due in one year or less |
|
$ |
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 |
| ||
|
|
|
|
|
| ||
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 |
|
|
|
December 31, 2013 |
| ||||
|
|
Amortized |
|
Fair |
| ||
(dollars in thousands) |
|
Cost |
|
Value |
| ||
|
|
|
|
|
| ||
Due in one year or less |
|
$ |
12,124 |
|
$ |
12,200 |
|
Due after one year through five years |
|
63,699 |
|
64,617 |
| ||
Due after five years through ten years |
|
75,466 |
|
74,769 |
| ||
Due after ten years |
|
143,597 |
|
141,391 |
| ||
Total securities available for sale |
|
294,886 |
|
292,977 |
| ||
|
|
|
|
|
| ||
Due in one year or less |
|
$ |
|
|
$ |
|
|
Due after one year through five years |
|
7,052 |
|
7,060 |
| ||
Due after five years through ten years |
|
|
|
|
| ||
Due after ten years |
|
6,736 |
|
6,623 |
| ||
Total securities held to maturity |
|
13,788 |
|
13,683 |
| ||
|
|
|
|
|
| ||
Due in one year or less |
|
$ |
613 |
|
$ |
613 |
|
Due after one year through five years |
|
|
|
|
| ||
Due after five years through ten years |
|
|
|
|
| ||
Due after ten years |
|
|
|
|
| ||
Total trading securities |
|
613 |
|
613 |
| ||
|
|
|
|
|
| ||
Total investment securities |
|
$ |
309,287 |
|
$ |
307,273 |
|
As of December 31, 2014 and December 31, 2013, no investment securities were pledged as collateral. As of December 31, 2014, $1.6 million in unrealized losses was attributable to 64 securities that had been in an unrealized loss position for less than 12 months. As of December 31, 2013, $5.3 in unrealized losses was attributable to 78 securities that had been in an unrealized loss position for less than 12 months. Because the Bank had the ability to hold 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 December 31, 2014 and December 31, 2013, respectively.
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. As of December 31, 2013, $300,000 in unrealized losses was attributable to 5 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 December 31, 2014 and December 31, 2013, 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 until a recovery in fair value, which may be maturity, these investments was not considered to be other-than-temporarily impaired as of December 31, 2014 and December 31, 2013, respectively.
4. LOANS AND ALLOWANCES FOR LOAN LOSSES
The following summarizes the characteristics of the loan portfolio for the years ended December 31, 2014 and 2013:
|
|
As of December 31, |
| ||||
(dollars in thousands) |
|
2014 |
|
2013 |
| ||
|
|
|
|
|
| ||
Commercial |
|
$ |
785,360 |
|
$ |
585,559 |
|
Real estate construction |
|
71,673 |
|
51,518 |
| ||
Land loans |
|
15,890 |
|
13,572 |
| ||
Real estate other |
|
139,624 |
|
122,063 |
| ||
Factoring and asset based |
|
167,513 |
|
192,783 |
| ||
SBA |
|
124,180 |
|
106,406 |
| ||
Other |
|
7,073 |
|
5,730 |
| ||
Total gross loans |
|
1,311,313 |
|
1,077,631 |
| ||
Unearned fee income |
|
(5,644 |
) |
(4,727 |
) | ||
Total loan portfolio |
|
1,305,669 |
|
1,072,904 |
| ||
Less allowance for credit losses |
|
(22,305 |
) |
(21,944 |
) | ||
Total loan portfolio, net |
|
$ |
1,283,364 |
|
$ |
1,050,960 |
|
The Bank 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 Bank 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 December 31, 2014 and December 31, 2013:
|
|
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 |
|
|
|
As of December 31, 2013 |
| |||||||||||||
|
|
|
|
Special |
|
|
|
Substandard |
|
|
| |||||
(dollars in thousands) |
|
Pass |
|
Mention |
|
Substandard |
|
(Nonaccrual) |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
|
$ |
564,576 |
|
$ |
9,822 |
|
$ |
10,709 |
|
$ |
452 |
|
$ |
585,559 |
|
Real estate construction |
|
51,518 |
|
|
|
|
|
|
|
51,518 |
| |||||
Land loans |
|
13,568 |
|
|
|
|
|
4 |
|
13,572 |
| |||||
Real estate other |
|
102,654 |
|
335 |
|
11,784 |
|
7,290 |
|
122,063 |
| |||||
Factoring and asset based |
|
181,526 |
|
2,317 |
|
3,309 |
|
5,631 |
|
192,783 |
| |||||
SBA |
|
97,940 |
|
216 |
|
6,512 |
|
1,738 |
|
106,406 |
| |||||
Other |
|
5,730 |
|
|
|
|
|
|
|
5,730 |
| |||||
Total gross loans |
|
$ |
1,017,512 |
|
$ |
12,690 |
|
$ |
32,314 |
|
$ |
15,115 |
|
$ |
1,077,631 |
|
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 Banks 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 December 31, 2014 and December 31, 2013.
|
|
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 |
|
$ |
784,093 |
|
$ |
|
|
$ |
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 |
|
$ |
1,297,996 |
|
$ |
5,464 |
|
$ |
178 |
|
$ |
|
|
$ |
7,853 |
|
$ |
1,311,313 |
|
|
|
As of December 31, 2013 |
| ||||||||||||||||
|
|
|
|
Still Accruing |
|
|
|
|
| ||||||||||
|
|
|
|
30-59 Days |
|
60-89 Days |
|
Over 90 Days |
|
|
|
|
| ||||||
(dollars in thousands) |
|
Current |
|
Past Due |
|
Past Due |
|
Past Due |
|
Nonaccrual |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
585,107 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
452 |
|
$ |
585,559 |
|
Real estate construction |
|
51,518 |
|
|
|
|
|
|
|
|
|
51,518 |
| ||||||
Land loans |
|
13,568 |
|
|
|
|
|
|
|
4 |
|
13,572 |
| ||||||
Real estate other |
|
114,773 |
|
|
|
|
|
|
|
7,290 |
|
122,063 |
| ||||||
Factoring and asset based |
|
187,152 |
|
|
|
|
|
|
|
5,631 |
|
192,783 |
| ||||||
SBA |
|
104,668 |
|
|
|
|
|
|
|
1,738 |
|
106,406 |
| ||||||
Other |
|
5,679 |
|
20 |
|
31 |
|
|
|
|
|
5,730 |
| ||||||
Total gross loans |
|
$ |
1,062,465 |
|
$ |
20 |
|
$ |
31 |
|
$ |
|
|
$ |
15,115 |
|
$ |
1,077,631 |
|
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 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. As of December 31, 2013, the Company had twenty loans totaling $12.9 million classified as troubled debt restructurings. The twenty loans were comprised of one commercial loan, sixteen real estate other loans and three SBA loans.
As of December 31, 2014 and December 31, 2013, the Company had no unfunded commitments for loans classified as troubled debt restructurings.
During the year ended December 31, 2014 and December 31, 2013, there were no additional loans modified and designated as troubled debt restructurings.
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 year ended December 31, 2014.
The following table summarizes the loans categorized as troubled debt restructurings at December 31, 2014 and December 30, 2013. 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 December 31, 2014 |
| ||||||||||||||||
|
|
Performing |
|
Nonaccrual |
|
Total |
| ||||||||||||
|
|
Pre- |
|
Post- |
|
Pre- |
|
Post- |
|
Pre- |
|
Post- |
| ||||||
|
|
Modification |
|
Modification |
|
Modification |
|
Modification |
|
Modification |
|
Modification |
| ||||||
|
|
Recorded |
|
Recorded |
|
Recorded |
|
Recorded |
|
Recorded |
|
Recorded |
| ||||||
(dollars in thousands) |
|
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 |
|
|
|
As of December 31, 2013 |
| ||||||||||||||||
|
|
Performing |
|
Nonaccrual |
|
Total |
| ||||||||||||
|
|
Pre- |
|
Post- |
|
Pre- |
|
Post- |
|
Pre- |
|
Post- |
| ||||||
|
|
Modification |
|
Modification |
|
Modification |
|
Modification |
|
Modification |
|
Modification |
| ||||||
|
|
Recorded |
|
Recorded |
|
Recorded |
|
Recorded |
|
Recorded |
|
Recorded |
| ||||||
(dollars in thousands) |
|
Investment |
|
Investment |
|
Investment |
|
Investment |
|
Investment |
|
Investment |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
|
|
$ |
|
|
$ |
114 |
|
$ |
77 |
|
$ |
114 |
|
$ |
77 |
|
Real estate construction |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Land loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Real estate other |
|
6,443 |
|
5,088 |
|
7,564 |
|
7,290 |
|
14,007 |
|
12,378 |
| ||||||
Factoring and asset based |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
SBA |
|
480 |
|
481 |
|
|
|
|
|
480 |
|
481 |
| ||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total gross loans |
|
$ |
6,923 |
|
$ |
5,569 |
|
$ |
7,678 |
|
$ |
7,367 |
|
$ |
14,601 |
|
$ |
12,936 |
|
Loans are designated as impaired, when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. As of December 31, 2014 and December 31, 2013 loans designated as impaired consisted only of nonaccrual loans and troubled debt restructurings. There were no loans outstanding that were less than or greater than 90 days or more past due and accruing interest that were considered impaired at December 31, 2014 and December 31, 2013.
The following table summarizes the loans categorized as impaired at December 31, 2014 and December 31, 2013:
|
|
December 31, |
|
December 31, |
| ||
(dollars in thousands) |
|
2014 |
|
2013 |
| ||
|
|
|
|
|
| ||
Nonaccrual loans (1) |
|
$ |
7,853 |
|
$ |
15,115 |
|
Trouble debt restructurings - performing |
|
9,237 |
|
5,569 |
| ||
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 |
|
$ |
17,090 |
|
$ |
20,684 |
|
(1) Nonaccrual loans include troubled debt restructurings of $1.5 million and $7.4 million at December 31, 2014 and December 31, 2013, respectively.
Impaired loans at December 31, 2014 were comprised of loans with legal contractual balances totaling approximately $20.9 million reduced by approximately $404,000 received in non-accrual interest and impairment charges of $3.4 million which have been charged against the allowance for loan losses.
Impaired loans at December 31, 2013 were comprised of loans with legal contractual balances totaling approximately $30.0 million reduced by approximately $2.1 million received in non-accrual interest and impairment charges of $7.2 million which have been charged against the allowance for loan losses.
The following summarizes the breakdown of impaired loans by category as of December 31, 2014 and December 31, 2013:
|
|
As of December 31, 2014 |
|
As of December 31, 2013 |
| ||||||||
|
|
Upaid |
|
|
|
Upaid |
|
|
| ||||
|
|
Principal |
|
Recorded |
|
Principal |
|
Recorded |
| ||||
(dollars in thousands) |
|
Balance |
|
Investment |
|
Balance |
|
Investment |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
2,640 |
|
$ |
1,267 |
|
$ |
856 |
|
$ |
452 |
|
Real estate construction |
|
|
|
|
|
|
|
|
| ||||
Land loans |
|
|
|
|
|
32 |
|
4 |
| ||||
Real estate other |
|
11,752 |
|
11,603 |
|
14,863 |
|
12,378 |
| ||||
Factoring and asset based |
|
1,469 |
|
197 |
|
11,079 |
|
5,631 |
| ||||
SBA |
|
5,028 |
|
4,023 |
|
3,200 |
|
2,219 |
| ||||
Other |
|
|
|
|
|
|
|
|
| ||||
Total gross loans |
|
$ |
20,889 |
|
$ |
17,090 |
|
$ |
30,030 |
|
$ |
20,684 |
|
Consistent with the Banks method of income recognition for loans, interest on impaired loans, except those classified as nonaccrual, is recognized using the accrual method. The Bank did not record income from the receipt of cash payments related to nonaccrual loans during the years ended December 31, 2014 and 2013. Interest income recognized on impaired loans represents interest the Bank 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 years ended December 31, 2014 and December 31, 2013:
|
|
As of December 31, |
| ||||||||||
|
|
2014 |
|
2013 |
| ||||||||
|
|
Average |
|
Interest |
|
Average |
|
Interest |
| ||||
|
|
Recorded |
|
Income |
|
Recorded |
|
Income |
| ||||
(dollars in thousands) |
|
Investment |
|
Recognized |
|
Investment |
|
Recognized |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
860 |
|
$ |
18 |
|
$ |
564 |
|
$ |
11 |
|
Real estate construction |
|
|
|
|
|
|
|
|
| ||||
Land loans |
|
2 |
|
|
|
8 |
|
2 |
| ||||
Real estate other |
|
11,991 |
|
99 |
|
13,532 |
|
449 |
| ||||
Factoring and asset based |
|
2,915 |
|
|
|
3,541 |
|
323 |
| ||||
SBA |
|
3,121 |
|
79 |
|
2,383 |
|
101 |
| ||||
Other |
|
|
|
|
|
|
|
|
| ||||
Total gross loans |
|
$ |
18,887 |
|
$ |
196 |
|
$ |
20,027 |
|
$ |
886 |
|
The allowance for loan losses is a valuation allowance for probable incurred loan losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. 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 Banks 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 loan 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 $22.3 million and $21.9 million as of December 31, 2014 and December 31, 2013, respectively. The following table summarizes the loans individually and collectively evaluated for impairment and the corresponding allowance for loan losses as of December 31, 2014 and December 31, 2013.
|
|
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 |
|
|
|
As of December 31, 2013 |
| ||||||||||||||||
|
|
Individually Evaluated |
|
Collectively Evaluated |
|
Total Evaluated |
| ||||||||||||
|
|
For Impairment |
|
For Impairment |
|
For Impairment |
| ||||||||||||
(dollars in thousands) |
|
Loans |
|
Allowance |
|
Loans |
|
Allowance |
|
Loans |
|
Allowance |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
|
$ |
452 |
|
$ |
|
|
$ |
585,107 |
|
$ |
9,066 |
|
$ |
585,559 |
|
$ |
9,066 |
|
Real estate construction |
|
|
|
|
|
51,518 |
|
1,013 |
|
51,518 |
|
1,013 |
| ||||||
Land loans |
|
4 |
|
|
|
13,568 |
|
377 |
|
13,572 |
|
377 |
| ||||||
Real estate other |
|
12,378 |
|
588 |
|
109,685 |
|
2,269 |
|
122,063 |
|
2,857 |
| ||||||
Factoring and asset based |
|
5,631 |
|
|
|
187,152 |
|
6,136 |
|
192,783 |
|
6,136 |
| ||||||
SBA |
|
2,219 |
|
|
|
104,187 |
|
2,363 |
|
106,406 |
|
2,363 |
| ||||||
Other |
|
|
|
|
|
5,730 |
|
132 |
|
5,730 |
|
132 |
| ||||||
Total |
|
$ |
20,684 |
|
$ |
588 |
|
$ |
1,056,947 |
|
$ |
21,356 |
|
$ |
1,077,631 |
|
$ |
21,944 |
|
The following table summarizes the activity in the allowance for loan losses for the years ended December 31, 2014, 2013, and 2012:
|
|
|
|
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 |
|
3,090 |
|
410 |
|
15 |
|
(755 |
) |
273 |
|
(46 |
) |
13 |
|
3,000 |
| ||||||||
Charge-offs |
|
(1,910 |
) |
|
|
|
|
|
|
(1,730 |
) |
(528 |
) |
|
|
(4,168 |
) | ||||||||
Recoveries |
|
554 |
|
|
|
20 |
|
29 |
|
506 |
|
420 |
|
|
|
1,529 |
| ||||||||
As of December 31, 2014 |
|
$ |
10,800 |
|
$ |
1,423 |
|
$ |
412 |
|
$ |
2,131 |
|
$ |
5,185 |
|
$ |
2,209 |
|
$ |
145 |
|
$ |
22,305 |
|
|
|
|
|
Real |
|
|
|
Real |
|
Factoring |
|
|
|
|
|
|
| ||||||||
|
|
|
|
estate |
|
Land |
|
estate |
|
and asset |
|
|
|
|
|
|
| ||||||||
(dollars in thousands) |
|
Commercial |
|
construction |
|
loans |
|
other |
|
based |
|
SBA |
|
Other |
|
Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
As of December 31, 2012 |
|
$ |
6,394 |
|
$ |
673 |
|
$ |
333 |
|
$ |
5,178 |
|
$ |
4,352 |
|
$ |
2,905 |
|
$ |
113 |
|
$ |
19,948 |
|
Provision charged to expense |
|
2,771 |
|
336 |
|
41 |
|
(2,091 |
) |
5,519 |
|
(545 |
) |
19 |
|
6,050 |
| ||||||||
Charge-offs |
|
(4,294 |
) |
|
|
|
|
(230 |
) |
(3,735 |
) |
|
|
|
|
(8,259 |
) | ||||||||
Recoveries |
|
4,195 |
|
4 |
|
3 |
|
|
|
|
|
3 |
|
|
|
4,205 |
| ||||||||
As of December 31, 2013 |
|
$ |
9,066 |
|
$ |
1,013 |
|
$ |
377 |
|
$ |
2,857 |
|
$ |
6,136 |
|
$ |
2,363 |
|
$ |
132 |
|
$ |
21,944 |
|
|
|
|
|
Real |
|
|
|
Real |
|
Factoring |
|
|
|
|
|
|
| ||||||||
|
|
|
|
estate |
|
Land |
|
estate |
|
and asset |
|
|
|
|
|
|
| ||||||||
(dollars in thousands) |
|
Commercial |
|
construction |
|
loans |
|
other |
|
based |
|
SBA |
|
Other |
|
Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
As of December 31, 2011 |
|
$ |
5,544 |
|
$ |
1,220 |
|
$ |
613 |
|
$ |
6,111 |
|
$ |
2,382 |
|
$ |
2,567 |
|
$ |
103 |
|
$ |
18,540 |
|
Provision charged to expense |
|
700 |
|
(558 |
) |
(269 |
) |
(935 |
) |
4,220 |
|
782 |
|
10 |
|
3,950 |
| ||||||||
Charge-offs |
|
(311 |
) |
|
|
(17 |
) |
|
|
(2,250 |
) |
(567 |
) |
|
|
(3,145 |
) | ||||||||
Recoveries |
|
461 |
|
11 |
|
6 |
|
2 |
|
|
|
123 |
|
|
|
603 |
| ||||||||
As of December 31, 2012 |
|
$ |
6,394 |
|
$ |
673 |
|
$ |
333 |
|
$ |
5,178 |
|
$ |
4,352 |
|
$ |
2,905 |
|
$ |
113 |
|
$ |
19,948 |
|
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 December 31, 2014 and December 31, 2013 are comprised of the following:
|
|
As of December 31, |
| ||||
(dollars in thousands) |
|
2014 |
|
2013 |
| ||
|
|
|
|
|
| ||
Leasehold improvements |
|
$ |
7,103 |
|
$ |
6,378 |
|
Furniture and equipment |
|
4,880 |
|
4,285 |
| ||
Capitalized software |
|
4,628 |
|
4,369 |
| ||
Premises and equipment |
|
16,611 |
|
15,032 |
| ||
Less accumulated depreciation and amortization |
|
(14,107 |
) |
(12,951 |
) | ||
Premises and equipment, net |
|
$ |
2,504 |
|
$ |
2,081 |
|
Depreciation and amortization amounted to $1.2 million, $1.2 million, and $1.1 million for the years ended December 31, 2014, 2013 and 2012, 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. DEPOSITS
The Banks 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 December 31, 2014, 2013 and 2012.
|
|
As of December 31, |
| ||||||||
|
|
2014 |
|
2013 |
| ||||||
(dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
| ||
|
|
|
|
|
|
|
|
|
| ||
Noninterest-bearing demand |
|
$ |
1,051,357 |
|
67.85 |
% |
$ |
954,727 |
|
67.90 |
% |
Interest-bearing demand |
|
15,492 |
|
1.00 |
% |
11,115 |
|
0.79 |
% | ||
Money market and savings |
|
450,873 |
|
29.10 |
% |
391,310 |
|
27.83 |
% | ||
Certificates of depoosit: |
|
|
|
|
|
|
|
|
| ||
Less than $250 |
|
19,258 |
|
1.24 |
% |
29,002 |
|
2.06 |
% | ||
$250 and more |
|
12,565 |
|
0.81 |
% |
19,938 |
|
1.42 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Total deposit portfolio |
|
$ |
1,549,545 |
|
100.00 |
% |
$ |
1,406,092 |
|
100.00 |
% |
At December 31, 2014, time deposits of $250,000 or more have remaining maturities as follows:
|
|
As of December 31, |
| |
(dollars in thousands) |
|
2014 |
| |
|
|
|
| |
3 months or less |
|
$ |
5,674 |
|
Over 3 months to 6 months |
|
3,515 |
| |
Over 6 months to 12 months |
|
3,115 |
| |
Over 1 year to 5 years |
|
261 |
| |
Total time deposits of $250,000 or more |
|
$ |
12,565 |
|
At December 31, 2014, the scheduled maturities of all time deposits are as follows:
|
|
As of December 31, |
| |
(dollars in thousands) |
|
2014 |
| |
|
|
|
| |
2015 |
|
$ |
21,968 |
|
2016 |
|
5,078 |
| |
2017 |
|
4,712 |
| |
2018 |
|
65 |
| |
Total time deposits |
|
$ |
31,823 |
|
7. 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 Note 14 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 September 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 Note 14 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
The Company had other borrowings of $40.0 million at December 31, 2014. The Company had no other borrowings at December 31, 2013.
As of December 31, 2014, the Company had a total borrowing capacity with the Federal Home Loan Bank of approximately $439.0 million for which the Company had collateral in place to borrow $97.0 million. As of December 31, 2014, $10.0 of this borrowing capacity was pledged to secure a letter of credit, and $40.0 million was pledged to secure a short term borrowing.
The Company also has unsecured borrowing lines with correspondent banks totaling $47.0 million. At December 31, 2014, there were no balances outstanding on these lines.
8. INCOME TAXES
Income tax expense (benefit) consists of the following for the years ended December 31, 2014, 2013 and 2012:
|
|
Year ended December 31, |
| |||||||
(dollars in thousands) |
|
2014 |
|
2013 |
|
2012 |
| |||
Current: |
|
|
|
|
|
|
| |||
Federal |
|
$ |
10,708 |
|
$ |
10,798 |
|
$ |
9,319 |
|
State |
|
3,650 |
|
3,312 |
|
2,399 |
| |||
Total current |
|
$ |
14,358 |
|
$ |
14,110 |
|
$ |
11,718 |
|
|
|
|
|
|
|
|
| |||
Deferred: |
|
|
|
|
|
|
| |||
Federal |
|
(1,698 |
) |
(3,153 |
) |
(2,158 |
) | |||
State |
|
(557 |
) |
(1,030 |
) |
50 |
| |||
Total deferred |
|
(2,255 |
) |
(4,183 |
) |
(2,108 |
) | |||
Income tax provision |
|
$ |
12,103 |
|
$ |
9,927 |
|
$ |
9,610 |
|
Deferred income taxes reflect the net tax effect of temporary differences between carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. The tax effects of temporary differences that gave rise to significant portions of deferred tax assets at December 31, 2014, 2013 and 2012 are as follows:
|
|
As of ended December 31, |
| |||||||
(dollars in thousands) |
|
2014 |
|
2013 |
|
2012 |
| |||
Deferred tax assets (liability): |
|
|
|
|
|
|
| |||
Deferred loan fee |
|
$ |
1,975 |
|
$ |
1,654 |
|
$ |
1,049 |
|
Allowance for credit losses |
|
7,807 |
|
7,681 |
|
6,994 |
| |||
State income taxes |
|
5,184 |
|
4,769 |
|
3,870 |
| |||
Fixed assets |
|
955 |
|
776 |
|
783 |
| |||
Accrued expenses |
|
9,036 |
|
7,976 |
|
5,990 |
| |||
Other |
|
255 |
|
101 |
|
88 |
| |||
Net deferred tax asset |
|
$ |
25,212 |
|
$ |
22,957 |
|
$ |
18,774 |
|
In addition to the above net deferred tax asset, the Company has additional deferred tax assets / (liabilities) arising from adjustments to other comprehensive income aggregating $(176,000), $1.3 million and $(419,000), as of December 31, 2014, 2013 and 2012, respectively.
Income tax returns for the years ended December 31, 2013, 2012 and 2011 are open to audit by the federal authorities and income tax returns for the years ended December 31, 2013, 2012, 2011 and 2010 are open to audit by California authorities.
As of December 31, 2014, the Company is under examination by income tax authorities in the state of California for income tax returns for the years ended December 31, 2012, 2011, 2010, 2009 and 2008, and has recorded an unrecognized tax benefit of $526,000. The interest and penalties included in the unrecognized tax benefits are not material. The unrecognized tax benefit is expected to be settled within the next twelve months.
The effective tax rate differs from the federal statutory rate as follows:
|
|
Year ended December 31, |
| ||||
|
|
2014 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
Federal statutory rate |
|
35.00 |
% |
35.00 |
% |
35.00 |
% |
State income tax, net of federal effect |
|
6.77 |
% |
6.01 |
% |
6.80 |
% |
BOLI income |
|
-0.68 |
% |
-0.82 |
% |
-0.63 |
% |
Low income housing credits |
|
-1.30 |
% |
-0.72 |
% |
-0.76 |
% |
Stock-based compensation |
|
0.30 |
% |
0.35 |
% |
0.19 |
% |
Other, net |
|
0.66 |
% |
0.46 |
% |
0.44 |
% |
Income taxes |
|
40.75 |
% |
40.28 |
% |
41.04 |
% |
9. STOCK BASED COMPENSATION
On May 18, 2006, the Companys shareholders approved the 2006 Equity Incentive Plan (the Plan) which supersedes the Stock Option Plan that was established in 2001. The Plan provides for the following types of stock-based awards: incentive stock options; nonqualified stock options; stock appreciation rights; restricted stock awards; restricted stock units; performance units; and stock grants. As of December 31, 2014, the Company has issued incentive stock options, nonqualified stock options, and restricted stock awards under the Plan.
Options issued under the Plan may be granted to employees and non-employee directors and may be either incentive or nonqualified stock options as defined under current tax laws. The exercise price of each option must equal the market price of the Companys stock on the date of the grant. The term of the option may not exceed 10 years and generally vests over a 4 year period.
Restricted stock awards issued under the Plan may be granted to employees and non-employee directors. The grant price of each award equals the market price of the Companys stock on the date of the grant. The awards generally vest after a 5 year period. During the period of restriction, participants holding restricted stock awards have full voting and dividend rights on the shares.
The vesting of any award granted under the plan may be accelerated in the event of a merger or sale of the Company if the acquiring entity does not assume or replace the awards with comparable awards.
At the time the 2006 Equity Incentive Plan was adopted, the total authorized shares available for issuance under the 2001 Stock Option Plan was 1,813,225 shares and the number of shares available for future grant was 253,577 shares. As the 2006 Equity Incentive Plan supersedes the 2001 Stock Option Plan, no further grants may be made under the 2001 plan and as such, the 253,577 shares that were available for future grant under the 2001 plan may no longer be awarded. The total shares that have been authorized for issuance under the 2006 Equity Incentive Plan are 2,903,283 shares.
As of December 31, 2014, there were 1,864,228 shares underlying outstanding stock option and restricted stock awards under the Companys stock-based compensation plans and 785,984 shares available for future grants under the 2006 Equity Incentive Plan.
A summary of the Companys non-vested shares of restricted stock awards as of December 31, 2014 and changes during the period ended on that date is presented below:
|
|
Non-Vested Restricted Stock Awards |
| |||
|
|
|
|
Weighted |
| |
|
|
Number |
|
Average Grant |
| |
|
|
of Shares |
|
Date Fair Value |
| |
|
|
|
|
|
| |
Balances, December 31, 2011 |
|
792,414 |
|
$ |
7.49 |
|
|
|
|
|
|
| |
Granted |
|
611,519 |
|
$ |
15.22 |
|
Vested |
|
(27,099 |
) |
$ |
21.50 |
|
Forfeited |
|
(44,870 |
) |
$ |
9.19 |
|
|
|
|
|
|
| |
Balances, December 31, 2012 |
|
1,331,964 |
|
$ |
10.70 |
|
|
|
|
|
|
| |
Granted |
|
190,895 |
|
$ |
17.36 |
|
Vested |
|
(219,274 |
) |
$ |
4.55 |
|
Forfeited |
|
(38,225 |
) |
$ |
12.52 |
|
|
|
|
|
|
| |
Balances, December 31, 2013 |
|
1,265,360 |
|
$ |
12.71 |
|
|
|
|
|
|
| |
Granted |
|
193,443 |
|
$ |
22.51 |
|
Vested |
|
(290,629 |
) |
$ |
7.48 |
|
Forfeited |
|
(88,220 |
) |
$ |
13.86 |
|
|
|
|
|
|
| |
Balances, December 31, 2014 |
|
1,079,954 |
|
$ |
15.78 |
|
A summary of the Companys stock option awards as of December 31, 2014 and changes during the period ended on that date are presented below:
|
|
Stock Option Awards Outstanding |
| |||
|
|
|
|
Weighted |
| |
|
|
Number |
|
Average |
| |
|
|
of Shares |
|
Exercise Price |
| |
|
|
|
|
|
| |
Balances, December 31, 2011 |
|
815,980 |
|
$ |
12.45 |
|
|
|
|
|
|
| |
Granted |
|
78,879 |
|
$ |
13.87 |
|
Exercised (aggregate intrinsic value of $236,081) |
|
(34,848 |
) |
$ |
6.39 |
|
Cancelled |
|
(25,977 |
) |
$ |
10.87 |
|
Expired |
|
(1,812 |
) |
$ |
12.86 |
|
|
|
|
|
|
| |
Balances, December 31, 2012 |
|
832,222 |
|
$ |
12.89 |
|
|
|
|
|
|
| |
Granted |
|
79,950 |
|
$ |
17.29 |
|
Exercised (aggregate intrinsic value of $429,423) |
|
(78,137 |
) |
$ |
11.02 |
|
Cancelled |
|
(3,413 |
) |
$ |
11.88 |
|
Expired |
|
(2,374 |
) |
$ |
11.22 |
|
|
|
|
|
|
| |
Balances, December 31, 2013 |
|
828,248 |
|
$ |
13.50 |
|
|
|
|
|
|
| |
Granted |
|
153,250 |
|
$ |
23.24 |
|
Exercised (aggregate intrinsic value of $1,297,220) |
|
(114,424 |
) |
$ |
11.17 |
|
Cancelled |
|
(63,625 |
) |
$ |
16.08 |
|
Expired |
|
(19,175 |
) |
$ |
17.54 |
|
|
|
|
|
|
| |
Balances, December 31, 2014 |
|
784,274 |
|
$ |
15.43 |
|
The following table summarizes information about stock options outstanding at December 31, 2014. Of the stock option awards outstanding as of December 31, 2014, 515,155 shares were fully vested with a weighted average exercise price of $13.69.
|
|
Stock Option Awards Outstanding |
|
Stock Option Awards Exercisable |
| ||||||||||||||
|
|
|
|
Weighted |
|
Weighted |
|
|
|
Weighted |
|
Weighted |
| ||||||
|
|
|
|
Remaining |
|
Exercise |
|
|
|
Remaining |
|
Exercise |
| ||||||
Exercise Price range |
|
Shares |
|
Life (Years) |
|
Price |
|
Shares |
|
Life (Years) |
|
Price |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$ |
4.80 |
- |
$ |
8.52 |
|
64,733 |
|
4.6 |
|
$ |
5.96 |
|
64,733 |
|
4.6 |
|
$ |
5.96 |
|
$ |
8.56 |
- |
$ |
13.05 |
|
321,496 |
|
6.3 |
|
10.57 |
|
244,289 |
|
6.1 |
|
10.50 |
| ||
$ |
14.21 |
- |
$ |
21.75 |
|
126,195 |
|
5.1 |
|
16.60 |
|
77,933 |
|
2.9 |
|
15.74 |
| ||
$ |
22.49 |
- |
$ |
24.35 |
|
271,850 |
|
6.1 |
|
22.90 |
|
128,600 |
|
2.3 |
|
22.40 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
784,274 |
|
5.9 |
|
$ |
15.43 |
|
515,555 |
|
4.5 |
|
$ |
13.69 |
|
The aggregate intrinsic value of stock option awards outstanding and stock option awards exercisable at December 31, 2014 was $5.6 million and $4.5 million, respectively. The aggregate intrinsic value of stock option awards outstanding and stock option awards exercisable at December 31, 2013 was $6.1 million and $3.9 million, respectively. At December 31, 2012, the aggregate intrinsic value of stock option awards outstanding and stock option awards exercisable was $3.2 million and $1.5 million, respectively.
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 interest rate used is a risk free rate represented by the US Treasury Rate Yield Curve associated with the expected life of the award.
The weighted average assumptions used for 2014, 2013, and 2012 and the resulting estimates of weighted-average fair value per share of stock options granted during those periods are as follows:
|
|
Year ended December 31, |
| |||||||
|
|
2014 |
|
2013 |
|
2012 |
| |||
|
|
|
|
|
|
|
| |||
Expected life |
|
75 months |
|
75 months |
|
75 months |
| |||
|
|
|
|
|
|
|
| |||
Stock volatility |
|
35.0 |
% |
35.0 |
% |
40.0 |
% | |||
|
|
|
|
|
|
|
| |||
Risk free interest rate |
|
1.9 |
% |
1.6 |
% |
1.1 |
% | |||
|
|
|
|
|
|
|
| |||
Dividend yield |
|
0.0 |
% |
0.0 |
% |
0.0 |
% | |||
|
|
|
|
|
|
|
| |||
Fair value per share |
|
$ |
8.81 |
|
$ |
6.45 |
|
$ |
5.60 |
|
10. PENSION BENEFIT PLANS
The Bank has a Supplemental Executive Retirement Plan (SERP), an unfunded noncontributory defined benefit pension plan. The SERP provides retirement benefits to a select group of key executives and senior officers based on years of service and final average salary. The Bank uses a December 31st measurement date for this plan.
The following table reflects the accumulated benefit obligation and funded status of the SERP for the years ended December 31, 2014, 2013 and 2012:
|
|
Year ended December 31, |
| |||||||
(dollars in thousands) |
|
2014 |
|
2013 |
|
2012 |
| |||
Change in benefit obligation |
|
|
|
|
|
|
| |||
Benefit obligation at beginning of year |
|
$ |
6,071 |
|
$ |
5,411 |
|
$ |
4,808 |
|
Service cost |
|
688 |
|
611 |
|
590 |
| |||
Interest cost |
|
352 |
|
299 |
|
264 |
| |||
Plan participants contributions |
|
|
|
|
|
|
| |||
Amendments |
|
|
|
|
|
|
| |||
Actuarial (gains)/losses |
|
39 |
|
(183 |
) |
(184 |
) | |||
Acquisitions/(divestitures) |
|
|
|
|
|
|
| |||
Expected benefits paid |
|
(67 |
) |
(67 |
) |
(67 |
) | |||
Projected benefit obligation at end of year |
|
$ |
7,083 |
|
$ |
6,071 |
|
$ |
5,411 |
|
Unfunded projected/accumulated benefit obligation |
|
(7,083 |
) |
(6,071 |
) |
(5,411 |
) | |||
Additional liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
| |||
Weighted average assumptions to determine benefit obligation as of December 31: |
|
|
|
|
|
|
| |||
Discount rate |
|
5.75 |
% |
5.75 |
% |
5.75 |
% | |||
Rate of compensation increase |
|
5.00 |
% |
5.00 |
% |
5.00 |
% |
The components of net periodic benefit cost recognized for the years ended December 31, 2014 and 2013 and the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost during the year ended December 31, 2015 are as follows:
|
|
Year ended December 31, |
| |||||||
(dollars in thousands) |
|
2015 |
|
2014 |
|
2013 |
| |||
Components of net periodic benefit cost |
|
|
|
|
|
|
| |||
Service cost |
|
$ |
708 |
|
$ |
646 |
|
$ |
611 |
|
Interest cost |
|
405 |
|
347 |
|
299 |
| |||
Expected return on plan assets |
|
|
|
|
|
|
| |||
Amortization of transition obligation (asset) |
|
|
|
|
|
|
| |||
Amortization of prior service cost |
|
96 |
|
95 |
|
95 |
| |||
Amortization of actuarial (gains)/losses |
|
(46 |
) |
(50 |
) |
(50 |
) | |||
Net periodic benefit cost |
|
$ |
1,163 |
|
$ |
1,038 |
|
$ |
955 |
|
|
|
|
|
|
|
|
| |||
Other comprehensive income (cost) |
|
$ |
(50 |
) |
$ |
(45 |
) |
$ |
(45 |
) |
11. RELATED PARTY TRANSACTIONS
There are no existing or proposed material interests or transactions between the Bank and/or any of its officers or directors outside the ordinary course of the Banks business.
12. COMMITMENTS AND CONTINGENT LIABILITIES
Lease Commitments
The Banks San Jose and Palo Alto locations are leased under non-cancelable operating leases that expire in 2023 and 2017, respectively. The Bank has renewal options with adjustments to the lease payments based on changes in the consumer price index.
Future minimum annual lease payments are as follows (dollars in thousands):
|
|
Yers Ended |
| |
|
|
December 31, |
| |
|
|
|
| |
2015 |
|
$ |
2,936 |
|
2016 |
|
2,980 |
| |
2017 |
|
2,906 |
| |
2018 |
|
2,704 |
| |
2019 |
|
2,203 |
| |
Thereafter |
|
9,490 |
| |
|
|
$ |
23,219 |
|
Rental expense under operating leases was $2.8 million in 2014, $2.1 million in 2013 and $2.0 million in 2012.
Other Commitments
In the normal course of business, there are outstanding commitments to extend credit, which are not reflected in the consolidated financial statements. These commitments involve, to varying degrees, credit risk in excess of the amount recognized as either an asset or a liability in the balance sheet. The Bank controls the credit risk through its credit approval process. The same credit policies are used when entering into such commitments.
The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments of $588.0 million, $568.7
million and $457.1 million at December 31, 2014, 2013 and 2012, respectively. The Banks exposure to credit loss is limited to amounts funded or drawn; however, at December 31, 2014, no losses are anticipated as a result of these commitments. We have also issued certain guarantees which include financial letters of credit in the amounts of $21.9 million, $18.4 million, and $24.6 at December 31, 2014, 2013 and 2012, respectively.
Loan commitments are typically contingent upon the borrowers meeting certain financial and other covenants and such commitments typically have fixed expiration dates and require payment of a fee. As many of these commitments are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. The Bank evaluates each potential borrower and the necessary collateral on an individual basis. Collateral varies, and may include real property, bank deposits, or business or personal assets.
Undisbursed loan commitments were comprised of the following at December 31, 2014 (dollars in thousands):
Loan Category |
|
Amount |
| |
|
|
|
| |
Commercial |
|
$ |
413,881 |
|
SBA |
|
|
| |
Real estate construction |
|
50,217 |
| |
Land loans |
|
|
| |
Real estate other |
|
9,207 |
| |
Fatoring/ABL |
|
95,587 |
| |
Other |
|
19,105 |
| |
Total |
|
$ |
587,997 |
|
13. DISCLOSURE OF 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 December 31, 2014 and 2013:
Cash and Cash Equivalents, Federal Funds Sold and Interest bearing deposits in other banks
The carrying amount 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.
Bank Owned Life Insurance
Cash surrender values are provided by the carrier on a periodic basis and approximate fair value of the life insurance policies. These values are considered within Level 3 of the valuation hierarchy.
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.
Trust preferred securities
The fair value of the trust preferred securities approximates the pricing of a preferred security at current market prices and are classified as Level 3.
Other Borrowings
The carrying amount of other borrowings approximate the fair value and are classified as Level 1 in the fair value hierarchy.
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 December 31, 2014 and December 31, 2013, 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.
The following table presents the carrying amount and estimated fair value for the Companys financial instruments at December 31, 2014 and 2013:
|
|
Year ended 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 |
| |||||
Bank owned life insurance |
|
17,106 |
|
|
|
|
|
17,106 |
|
17,106 |
| |||||
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 |
|
|
|
|
|
|
| |||||
Cash flow hedge |
|
416 |
|
|
|
416 |
|
|
|
416 |
| |||||
|
|
Year ended December 31, 2013 |
| |||||||||||||
|
|
Carrying |
|
|
|
|
|
|
|
Fair |
| |||||
|
|
Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Value |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and due from banks |
|
$ |
23,958 |
|
$ |
23,958 |
|
$ |
|
|
$ |
|
|
$ |
23,958 |
|
Federal funds sold |
|
162,379 |
|
162,379 |
|
|
|
|
|
162,379 |
| |||||
Interest bearing Deposits in other Banks |
|
326 |
|
326 |
|
|
|
|
|
326 |
| |||||
Investments securities |
|
307,378 |
|
|
|
307,274 |
|
|
|
307,274 |
| |||||
Loans and leases, net of unearned fees |
|
1,072,904 |
|
|
|
|
|
1,069,534 |
|
1,069,534 |
| |||||
Bank owned life insurance |
|
16,530 |
|
|
|
|
|
16,530 |
|
16,530 |
| |||||
Warrant portfolio |
|
340 |
|
|
|
|
|
340 |
|
340 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
1,406,092 |
|
973,493 |
|
429,619 |
|
|
|
1,403,112 |
| |||||
Trust preferred securities |
|
17,527 |
|
|
|
|
|
15,709 |
|
15,709 |
| |||||
Cash flow hedge |
|
1,102 |
|
|
|
1,102 |
|
|
|
1,102 |
| |||||
The balances of assets and liabilities measured at fair value on a recurring basis are as follows:
|
|
As of December 31, 2014 |
| ||||||||||
(dollars in thousands) |
|
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 |
|
|
|
As of December 31, 2013 |
| ||||||||||
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Securities available for sale |
|
|
|
|
|
|
|
|
| ||||
U.S. government agencies |
|
$ |
16,929 |
|
$ |
|
|
$ |
16,929 |
|
$ |
|
|
Mortgage backed securities |
|
236,386 |
|
|
|
236,386 |
|
|
| ||||
Corporate bonds |
|
37,491 |
|
|
|
37,491 |
|
|
| ||||
Municipal bonds |
|
2,170 |
|
|
|
2,170 |
|
|
| ||||
Warrant portfolio |
|
340 |
|
|
|
|
|
340 |
| ||||
Cash flow hedge |
|
(1,102 |
) |
|
|
(1,102 |
) |
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
|
$ |
292,214 |
|
$ |
|
|
$ |
291,874 |
|
$ |
340 |
|
There were no transfers between Level 1 and Level 2 during the period for assets and liabilities 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 year ended December 31, 2014.
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 years ended December 31, 2014 and 2013 included impaired loans and other real estate owned as follows:
|
|
Year Ended 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 |
|
|
|
Year Ended December 31, 2013 |
| ||||||||||
|
|
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 |
|
$ |
|
|
$ |
|
|
$ |
452 |
|
$ |
452 |
|
Real estate construction |
|
|
|
|
|
|
|
|
| ||||
Land loans |
|
|
|
|
|
4 |
|
4 |
| ||||
Real estate other |
|
|
|
|
|
12,378 |
|
12,378 |
| ||||
Factoring and asset based |
|
|
|
|
|
5,631 |
|
5,631 |
| ||||
SBA |
|
|
|
|
|
2,219 |
|
2,219 |
| ||||
Other |
|
|
|
|
|
|
|
|
| ||||
Total impaired loans |
|
$ |
|
|
$ |
|
|
$ |
20,684 |
|
$ |
20,684 |
|
|
|
|
|
|
|
|
|
|
| ||||
Other real estate owned: |
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Real estate construction |
|
|
|
|
|
|
|
|
| ||||
Land loans |
|
|
|
14 |
|
|
|
14 |
| ||||
Real estate other |
|
|
|
|
|
|
|
|
| ||||
Factoring and asset based |
|
|
|
|
|
|
|
|
| ||||
SBA |
|
|
|
17 |
|
|
|
17 |
| ||||
Other |
|
|
|
|
|
|
|
|
| ||||
Total other real estate owned |
|
$ |
|
|
$ |
31 |
|
$ |
|
|
$ |
31 |
|
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 $4.2 million and $8.3 million during the years ended December 31, 2014 and 2013, 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 $8,000 and $10,000 during the years ended December 31, 2014 and 2013, respectively, as a result of declines in the OREO property values.
The following table presents quantitative information about level 3 of fair value measurements for financial instruments measured at fair value on a non-recurring basis:
|
|
Year Ended December 31, 2014 |
| |||||||
|
|
|
|
|
|
|
|
Range |
| |
|
|
Fair |
|
Valuation |
|
Unobservable |
|
(Weighted |
| |
|
|
Value |
|
Techniques |
|
Inputs |
|
Average) |
| |
Impaired loans: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
Commercial |
|
$ |
1,267 |
|
Collateral valuation / 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 esate owned |
|
$ |
23 |
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013 |
| |||||||
|
|
|
|
|
|
|
|
Range |
| |
|
|
Fair |
|
Valuation |
|
Unobservable |
|
(Weighted |
| |
|
|
Value |
|
Techniques |
|
Inputs |
|
Average) |
| |
Impaired loans: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
Commercial |
|
$ |
452 |
|
Discounted cash flow analysis |
|
Management adjustment to reflect current conditions and selling costs |
|
15-25% |
|
Land loans |
|
4 |
|
Third party appraisal |
|
Management adjustment to reflect current conditions and selling costs |
|
30% |
| |
Real estate other |
|
12,378 |
|
Third party appraisal / property evaluation |
|
Management adjustment to reflect current conditions and selling costs |
|
5-20% |
| |
Factoring and asset based |
|
5,631 |
|
Collateral valuation |
|
Management adjustment to reflect current conditions and selling costs |
|
50% |
| |
SBA |
|
2,219 |
|
Third party appraisal / property evaluation |
|
Management adjustment to reflect current conditions and selling costs |
|
15-25% |
| |
|
|
|
|
|
|
|
|
|
| |
Total impaired loans |
|
$ |
20,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other real estate owned: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
Land loans |
|
14 |
|
Third party appraisal |
|
Management adjustment to reflect current conditions and selling costs |
|
15-25% |
| |
SBA |
|
17 |
|
Third party appraisal |
|
Management adjustment to reflect current conditions and selling costs |
|
15-25% |
| |
|
|
|
|
|
|
|
|
|
| |
Total other real estate owned |
|
$ |
31 |
|
|
|
|
|
|
|
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.
14. DERIVATIVE INSTRUMENTS 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 December 31, 2014 and December 31, 2013. The Company did not have any derivative instruments that were assets as of December 31, 2014 and December 31, 2013:
Derivatives Designated as Hedging |
|
Balance Sheet |
|
December 31, |
|
December 31, |
| ||
Instruments Under SFAS 133 |
|
Location |
|
2014 |
|
2013 |
| ||
|
|
|
|
|
|
|
| ||
Interest rate contracts |
|
Other assets |
|
$ |
|
|
$ |
|
|
Interest rate contracts |
|
Other liabilities |
|
415 |
|
1,102 |
| ||
|
|
|
|
|
|
|
| ||
Total hedged derivatives |
|
|
|
$ |
415 |
|
$ |
1,102 |
|
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 December 31, 2014, the Company had two interest rate swaps with an aggregate notional amount of $17.5 million that were designated as cash flow hedges 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 years ended December 31, 2014 and 2013.
During the years ended December 31, 2014 and 2013, such derivatives were used to hedge the forecasted variable cash outflows associated with subordinated debt related to trust preferred securities. During the years ended December 31, 2014 and 2013, 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 $(37,000) and $(34,000), 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 $322,000 will be reclassified 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 years ended December 31, 2014 and 2013. 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 years ended December 31, 2014 and 2013, and as such there were no amounts included in derivative income or expense during these periods:
|
|
Amount of gain/(loss) reclassified from AOCI |
| ||||
|
|
into earnings - effective portion |
| ||||
|
|
Year ended December 31, |
| ||||
(dollars in thousands) |
|
2014 |
|
2013 |
| ||
|
|
|
|
|
| ||
Net interest income |
|
$ |
(723 |
) |
$ |
(715 |
) |
Non-interest income |
|
|
|
|
| ||
|
|
|
|
|
| ||
Total derivative income |
|
$ |
(723 |
) |
$ |
(715 |
) |
Credit Risk Related Contingent Features
The Company has an agreement with one of its derivative counterparties that contains 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 contains 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 December 31, 2014, 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 $440,000. As of December 31, 2014, 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 December 31, 2014, it could have been required to settle its obligations under the agreements at the termination value.
15. BRIDGE CAPITAL HOLDINGS
The following are the financial statements of Bridge Capital Holdings (parent company only):
BALANCE SHEET
|
|
As of December 31, |
| ||||
(dollars in thousands) |
|
2014 |
|
2013 |
| ||
Assets: |
|
|
|
|
| ||
Cash and due from banks |
|
$ |
16,932 |
|
$ |
19,127 |
|
Investments |
|
|
|
613 |
| ||
Investment in bank & subsidiaries |
|
182,934 |
|
159,463 |
| ||
Other assets |
|
5,379 |
|
2,554 |
| ||
Total Assets |
|
$ |
205,245 |
|
$ |
181,757 |
|
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Junior Subordinated Debt |
|
$ |
17,527 |
|
$ |
17,527 |
|
Other liabilities |
|
611 |
|
1,483 |
| ||
Total Liabilities |
|
18,138 |
|
19,010 |
| ||
|
|
|
|
|
| ||
Capital: |
|
|
|
|
| ||
Common stock and additional paid in capital |
|
117,321 |
|
112,714 |
| ||
Retained earnings |
|
51,946 |
|
37,235 |
| ||
Current year net income |
|
17,601 |
|
14,711 |
| ||
Other Comprehensive income |
|
239 |
|
(1,913 |
) | ||
Total Capital |
|
187,107 |
|
162,747 |
| ||
|
|
|
|
|
| ||
Total Liabilities and Capital |
|
$ |
205,245 |
|
$ |
181,757 |
|
STATEMENT OF OPERATIONS
|
|
Year ended December 31, |
| |||||||
(dollars in thousands) |
|
2014 |
|
2013 |
|
2012 |
| |||
|
|
|
|
|
|
|
| |||
Interest income |
|
$ |
28 |
|
$ |
27 |
|
$ |
7 |
|
Interest expense |
|
1,074 |
|
1,073 |
|
1,076 |
| |||
Noninterest income |
|
1,344 |
|
1,262 |
|
1,422 |
| |||
Noninterest expense |
|
1,035 |
|
1,246 |
|
1,143 |
| |||
|
|
|
|
|
|
|
| |||
Loss before income taxes |
|
(738 |
) |
(1,031 |
) |
(790 |
) | |||
Income tax benefit |
|
298 |
|
426 |
|
327 |
| |||
Loss before undistributed income of the bank |
|
(440 |
) |
(605 |
) |
(463 |
) | |||
Equity in undistributed income of the bank |
|
18,041 |
|
15,316 |
|
14,267 |
| |||
Net income |
|
$ |
17,601 |
|
$ |
14,711 |
|
$ |
13,804 |
|
STATEMENT OF COMPREHENSIVE INCOME
|
|
Year Ended December 31, |
| |||||||
(dollars in thousands) |
|
2014 |
|
2013 |
|
2012 |
| |||
|
|
|
|
|
|
|
| |||
Net Income |
|
$ |
17,601 |
|
$ |
14,711 |
|
$ |
13,804 |
|
|
|
|
|
|
|
|
| |||
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
| |||
Unrealized gains/(losses) on cash flow hedges |
|
686 |
|
682 |
|
352 |
| |||
Other comprehensive income (loss), before income taxes |
|
$ |
686 |
|
$ |
682 |
|
$ |
352 |
|
Income tax (expense) benefit |
|
(274 |
) |
(273 |
) |
(141 |
) | |||
Other comprehensive income (loss), net of tax |
|
$ |
412 |
|
$ |
409 |
|
$ |
211 |
|
|
|
|
|
|
|
|
| |||
Comprehensive Income |
|
$ |
18,013 |
|
$ |
15,120 |
|
$ |
14,015 |
|
STATEMENT OF CASH FLOWS
|
|
Year ended December 31, |
| |||||||
(dollars in thousands) |
|
2014 |
|
2013 |
|
2012 |
| |||
|
|
|
|
|
|
|
| |||
Cash Flow From Operating Activities: |
|
|
|
|
|
|
| |||
Net income |
|
$ |
17,601 |
|
$ |
14,711 |
|
$ |
13,804 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
| |||
Equity in undistributed earnings (loss) of subsidiaries |
|
(18,041 |
) |
(15,316 |
) |
(14,267 |
) | |||
Stock option expense |
|
3,690 |
|
3,560 |
|
2,160 |
| |||
Net change in other assets |
|
(4,804 |
) |
(8,044 |
) |
(781 |
) | |||
Net change in other liabilities |
|
(5 |
) |
3,020 |
|
(159 |
) | |||
Net cash (used in) provided by operating activities |
|
(1,559 |
) |
(2,069 |
) |
756 |
| |||
|
|
|
|
|
|
|
| |||
Cash Flow From Investing Activities: |
|
|
|
|
|
|
| |||
Purchase and sale of investment securities |
|
613 |
|
(613 |
) |
|
| |||
Investment in subsidiary |
|
|
|
1,270 |
|
|
| |||
Net cash provided by investing activities |
|
613 |
|
657 |
|
|
| |||
|
|
|
|
|
|
|
| |||
Cash Flow From Financing Activities: |
|
|
|
|
|
|
| |||
Proceeds from issuance of common stock |
|
1,278 |
|
860 |
|
222 |
| |||
Purchase of treasury stock |
|
(2,527 |
) |
(2,180 |
) |
(125 |
) | |||
Proceeds from investment in subsididary |
|
|
|
16,200 |
|
|
| |||
Payment of cash dividends |
|
|
|
|
|
|
| |||
Net cash (used in) provided by financing activities |
|
(1,249 |
) |
14,880 |
|
97 |
| |||
|
|
|
|
|
|
|
| |||
Net increase (decrease) in cash and equivalents |
|
(2,195 |
) |
13,468 |
|
853 |
| |||
Cash and equivalents at beginning of period |
|
19,127 |
|
5,659 |
|
4,806 |
| |||
Cash and equivalents at end of period |
|
$ |
16,932 |
|
$ |
19,127 |
|
$ |
5,659 |
|
16. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional, discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Companys assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Companys capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations), and of Tier I capital (as defined in the regulations) to average assets (as defined in the regulations). Management believes, as of December 31, 2014, that the Bank and the Company meets all capital adequacy requirements to which they are subject.
The following table shows the Companys capital ratios at December 31, 2014 and 2013 as well as the minimum capital ratios required to be deemed well capitalized under the regulatory framework.
|
|
As of December 31, |
| ||||||||
|
|
2014 |
|
2013 |
| ||||||
(dollars in thousands) |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
| ||
Company Capital Ratios |
|
|
|
|
|
|
|
|
| ||
Tier 1 Capital |
|
$ |
199,037 |
|
12.66 |
% |
$ |
175,432 |
|
12.70 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Tier 1 capital minimum requirement |
|
$ |
94,356 |
|
6.00 |
% |
$ |
82,875 |
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Total Capital |
|
$ |
218,727 |
|
13.91 |
% |
$ |
192,755 |
|
13.96 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Total capital minimum requirement |
|
$ |
157,260 |
|
10.00 |
% |
$ |
138,125 |
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Company leverage |
|
|
|
|
|
|
|
|
| ||
Tier 1 Capital |
|
$ |
199,037 |
|
11.24 |
% |
$ |
175,432 |
|
11.61 |
% |
(to Average Assets) |
|
|
|
|
|
|
|
|
| ||
Total capital minimum requirement |
|
$ |
88,523 |
|
5.00 |
% |
$ |
75,523 |
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Bank Risk Based Capital Ratios |
|
|
|
|
|
|
|
|
| ||
Tier 1 Capital |
|
$ |
174,493 |
|
11.13 |
% |
$ |
151,700 |
|
11.00 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Tier 1 capital minimum requirement |
|
$ |
94,072 |
|
6.00 |
% |
$ |
82,755 |
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Total Capital |
|
$ |
194,125 |
|
12.38 |
% |
$ |
168,999 |
|
12.25 |
% |
(to Risk Weighted Assets) |
|
|
|
|
|
|
|
|
| ||
Total capital minimum requirement |
|
$ |
156,787 |
|
10.00 |
% |
$ |
137,925 |
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
| ||
Bank leverage |
|
|
|
|
|
|
|
|
| ||
Tier 1 Capital |
|
$ |
174,493 |
|
9.89 |
% |
$ |
151,700 |
|
10.06 |
% |
(to Average Assets) |
|
|
|
|
|
|
|
|
| ||
Total capital minimum requirement |
|
$ |
88,176 |
|
5.00 |
% |
$ |
75,408 |
|
5.00 |
% |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There are no current or anticipated changes in, or disagreements with, accountants on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.
Item 9a. Controls and Procedures
Disclosure Controls and Procedures
As required by SEC rules, the Companys management evaluated the effectiveness, as of December 31, 2014, 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 December 31, 2014 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to its management, including its principal executive and principal officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
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 or 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 fourth quarter of 2014 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting. Managements report on internal control over financial reporting is set forth below, and should be read with these limitations in mind.
Managements Report on Internal Control over Financial Reporting
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2014, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework. Based on this assessment, management concluded that as of December 31, 2014, the Companys internal control over financial reporting was effective.
Vavrinek, Trine, Day & Co., LLP, the independent registered public accounting firm that audited the Companys financial statements included in the Annual Report, issued an audit report on the Companys internal control over financial reporting as of, and for the year ended December 31, 2014. Vavrinek, Trine, Day & Co., LLPs audit report appears on Page 44.
Item 9b. Other Information
Not applicable
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required hereunder is incorporated by reference from the Companys definitive proxy statement for the Companys 2015 Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A).
Item 11. Executive Compensation
The information required hereunder is incorporated by reference from the Companys definitive proxy statement for the Companys 2015 Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A).
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following chart provides information as of December 31, 2014 concerning the Companys equity compensation plans:
|
|
(A) |
|
(B) |
|
(C) |
| |
|
|
|
|
|
|
Number of Securities |
| |
|
|
Number of Securities |
|
|
|
Remaining Available |
| |
|
|
To Be Issued Upon |
|
Weighted Average |
|
For Future Issuance |
| |
|
|
Exercise of |
|
Grant Price of |
|
Under Equity |
| |
|
|
Outstanding Options, |
|
Outstanding Options, |
|
Compensation Plans |
| |
|
|
Restricted Stock, |
|
Restricted Stock, |
|
(Excluding Securities |
| |
|
|
Warrants, and Rights |
|
Warrants, and Rights |
|
Reflected in Column (A) |
| |
|
|
|
|
|
|
|
| |
Equity compensation plans approved by security holders |
|
1,864,228 |
|
$ |
15.64 |
|
785,984 |
|
|
|
|
|
|
|
|
| |
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Total |
|
1,864,228 |
|
$ |
15.64 |
|
785,984 |
|
The additional information required hereunder is incorporated by reference from the Companys definitive proxy statement for the Companys 2015 Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A).
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required hereunder is incorporated by reference from the Companys definitive proxy statement for the Companys 2015 Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A).
Item 14. Principal Accounting Fees and Services
The information required hereunder is incorporated by reference from the Companys definitive proxy statement for the Companys 2015 Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A).
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) (1) |
Financial Statements. This information is included in Part II, Item 8. |
|
|
(a) (2) |
Financial Statement Schedules. All schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in Consolidated Financial Statements or notes thereto. |
|
|
(a) (3) |
Exhibits. The exhibit list required by this item is incorporated by reference to the accompanying Exhibit Index filed as part of this report. |
|
|
(b) |
See (a) (3). |
|
|
(c) |
See (a) (2). |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: |
March 4, 2015 |
|
By: |
/s/ Daniel P. Myers |
|
|
|
|
|
Daniel P. Myers, President |
|
|
|
|
|
and Chief Executive Officer |
|
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: |
March 4, 2015 |
|
By: |
/s/ Thomas A. Sa |
|
|
|
|
|
Thomas A. Sa, Executive Vice President |
|
|
|
|
|
and Chief Financial Officer |
|
|
|
|
|
(Principal Financial & Accounting Officer) |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name |
|
Title |
|
Date |
|
|
|
|
|
|
|
|
|
|
/s/Lawrence Owen Brown |
|
Director |
|
March 4, 2015 |
Lawrence Owen Brown |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/Howard N. Gould |
|
Director |
|
March 4, 2015 |
Howard Gould |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/Dr. Francis J. Harvey |
|
Director |
|
March 4, 2015 |
Dr. Francis J. Harvey |
|
|
|
|
|
|
|
|
|
|
|
Chairman |
|
|
/s/Allan C. Kramer, M.D. |
|
Director |
|
March 4, 2015 |
Allan C. Kramer, M.D. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/Robert P. Latta |
|
Director |
|
March 4, 2015 |
Robert Latta |
|
|
|
|
|
|
|
|
|
|
|
President |
|
|
|
|
Chief Executive Officer |
|
|
/s/Daniel P. Myers |
|
Director |
|
March 4, 2015 |
Daniel P. Myers |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
/s/Christopher B. Paisley |
|
Director |
|
March 4, 2015 |
Christopher B. Paisley |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/Terry S. Schwakopf |
|
Director |
|
March 4, 2015 |
Terry S. Schwakopf |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/Barry A. Turkus |
|
Director |
|
March 4, 2015 |
Barry A. Turkus |
|
|
|
|
|
|
Executive Vice President |
|
|
|
|
Chief Financial Officer |
|
|
/s/Thomas A. Sa |
|
Director |
|
March 4, 2015 |
Thomas A. Sa |
|
(Principal Financial |
|
|
|
|
and Accounting Officer) |
|
|
INDEX TO EXHIBITS
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
(3.1) |
|
Articles of Incorporation of the Company and Certificate of Amendment as filed with the Secretary of State of the State of California on April 6, 2004 and August 27, 2004, respectively. |
|
|
|
(3.2) |
|
Amendment to the Companys Articles of Incorporation dated August 27, 2004 (incorporated by reference to Exhibit 3(I)(b) to the Companys Current Report on Form 8-K dated 10/1/04) |
|
|
|
(3.3) |
|
Certificate of Determination specifying the terms of the Series A Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 3.1 of the Companys Current Report on Form 8-K, filed with the Securities Exchange Commission on August 22, 2008. |
|
|
|
(3.4) |
|
Certificate of Determination of Preferences and Rights of Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock and Series B-1 Mandatorily Convertible Cumulative Perpetual Preferred Stock (incorporated by reference to Exhibit 3.1 of the Companys Current Report on Form 8-K dated 12/19/08) |
|
|
|
(3.5) |
|
Certificates of Amendment of Certificates of Determination filed with the California Secretary of State on December 18, 2008 (incorporated by reference to Exhibits 3.2 and 3.3 of the Companys Current Report on Form 8-K dated 12/24/08) |
|
|
|
(3.6) |
|
The Companys Certificate of Determination of Preferences and Rights of Fixed Rate Cumulative Perpetual Preferred Stock, Series C, (incorporated by reference to Exhibit 3.2 of the Companys Current Report on Form 8-K dated 12/19/08) |
|
|
|
(3.7) |
|
Bylaws as amended through May 21, 2009 (incorporated by reference to Exhibit 3.6 of the Companys Quarterly Report on Form 10-Q dated 11/15/10) |
|
|
|
(4.1) |
|
Indenture dated as of December 21, 2004 between Bridge Capital Holdings and JP Morgan Chase Bank as Trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K dated 12/31/04) |
|
|
|
(4.2) |
|
Amended and Restated Declaration of trust of Bridge Capital Holdings Trust I dated December 21, 2004 Trustee (incorporated by reference to Exhibit 4.2 to the Companys Annual Report on Form 10-K dated 12/31/04) |
|
|
|
(4.3) |
|
Rights Agreement between the Company and American Stock Transfer & Trust Company, LLC dated as of August 21, 2008, which includes as Exhibit A the form of Certificate of Determination for the Series A Junior Participating Preferred Stock, as Exhibit B the Form of Rights Certificate and as Exhibit C a Summary of Rights to Purchase Shares of Preferred Stock (incorporated herein by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 22, 2008) |
|
|
|
(10.1) |
|
Amendment to lease for Principal Executive Office and full service banking office located at 55 Almaden Boulevard, Suite 200, City of San Jose, County of Santa Clara, State of California (incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q dated 09/30/13) |
(10.2) |
|
Wire Transfer Service Agreement with BankServ, Inc dated 6/25/02 California (incorporated by reference to Exhibit 10.8 to the Companys Annual Report on Form 10-K dated 12/31/04) |
|
|
|
(10.3) |
|
Bridge Bank Amended and Restated 2001 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Companys Annual Report on Form 10-K dated 12/31/04)** |
|
|
|
(10.4) |
|
Bridge Bank, National Association Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.2 to the Companys Annual Report on Form 10-K dated 12/31/04)** |
|
|
|
(10.5) |
|
Bridge Capital Holdings 2006 Equity Incentive Plan (incorporated by reference to Annex A to the Companys Proxy Statement dated 04/07/06)** |
|
|
|
(10.6) |
|
Form of Restricted Stock Purchase Award Agreement under the Bridge Capital Holdings 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated 11/16/06)** |
|
|
|
(10.7) |
|
Form of Stock Option Award Agreement under the Bridge Capital Holdings 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K dated 11/16/06)** |
|
|
|
(10.8) |
|
Amendment to the Companys 2001 Stock Option Plan to permit the net exercise of nonstatutory options (incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K dated 11/16/06)** |
|
|
|
(10.9) |
|
Employment Agreement between Daniel P. Myers, Bridge Capital Holdings and Bridge Bank, National Association dated May 21, 2014 (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed May 21, 2014)** |
|
|
|
(10.10) |
|
Employment Agreement between Thomas A. Sa, Bridge Capital Holdings and Bridge Bank, National Association dated May 21, 2014 (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed May 21, 2014)** |
|
|
|
(10.11) |
|
Employment Agreement between Timothy W. Boothe, Bridge Capital Holdings and Bridge Bank, National Association dated May 21, 2014 (incorporated by reference to Exhibit 10.3to the Companys Current Report on Form 8-K filed May 21, 2014)** |
|
|
|
(10.12) |
|
Employment Agreement between Margaret M. Bradshaw, Bridge Capital Holdings and Bridge Bank, National Association dated May 21, 2014 (incorporated by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K filed May 21, 2014)** |
|
|
|
(10.13) |
|
Employment Agreement between Allen G. Williams, Bridge Capital Holdings and Bridge Bank, National Association dated May 21, 2014 (incorporated by reference to Exhibit 10.5to the Companys Current Report on Form 8-K filed May 21, 2014) ** |
|
|
|
(10.14) |
|
Bridge Bank Deferred Compensation Plan dated June 15, 2010 (incorporated by reference to Exhibit 10.8 to the Companys Current Report on Form 8-K filed June 21, 2010)** |
(10.15) |
|
Form of Deferred Compensation Non-elective Employer Contribution Participation Agreement dated June 15 2010 with Margaret M. Bradshaw and Allen G. Williams (incorporated by reference to Exhibit 10.7 to the Companys Current Report on Form 8-K filed June 21, 2010)** |
|
|
|
(10.23) |
|
Stock Purchase Agreement dated December 4, 2008 between the Company and Carpenter Fund Manager GP, LLC on behalf of Carpenter Community BancFund, L.P., Carpenter Community BancFund-A, L.P. and Carpenter Community BancFund-CA, L.P. (incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K dated 12/05/08) |
|
|
|
(10.24) |
|
Amendment No. 1 to Stock Purchase Agreement dated December 17, 2008 between the Company and Carpenter Fund Manager GP, LLC on behalf of Carpenter Community BancFund, L.P., Carpenter Community BancFund-A, L.P. and Carpenter Community BancFund-CA, L.P. (incorporated by reference to Exhibit 10.2 of the Companys Current Report on Form 8-K dated 12/19/08) |
|
|
|
(10.25) |
|
Management Rights Letter dated as of December 17, 2008 by and between the Company and Carpenter Fund Manager GP, LLC. (incorporated by reference to Exhibit 10.3 of the Companys Current Report on Form 8-K dated 12/19/08) |
|
|
|
(10.26) |
|
Registration Rights Agreement dated as of December 17, 2008 by and between the Company and Carpenter Fund Manager GP, LLC on behalf of Carpenter Community BancFund, L.P., Carpenter Community BancFund-A, L.P. and Carpenter Community BancFund-CA, L.P. (incorporated by reference to Exhibit 10.4 of the Companys Current Report on Form 8-K dated 12/19/08) |
|
|
|
(10.27) |
|
Registration Rights Agreement dated November 18, 2011 by and among the Company and the investors party thereto (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K dated 11/23/10) |
|
|
|
(21) |
|
Subsidiaries |
|
|
|
(23.1) |
|
Consent of Independent Registered Public Accounting Firm Vavrinek, Trine, Day & Co., LLP |
|
|
|
(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 Annual Report on Form 10-K for the period ended December 31, 2014, filed with the SEC on March 4, 2015, formatted in Extensible Business Reporting Language (XBRL): (I) the Consolidated Balance Sheet at December 31, 2014, (ii) the Consolidated Statement of Operations for the period ended December 31, 2014, (iii) the Consolidated Statement of Comprehensive Income, (iv) the Consolidated Statement of Shareholders Equity, (v) the Consolidated Statement of Cash Flows for the period ended December 31, 2014, and (vi) Notes to Consolidated Financial Statements. |
**Management contract or compensatory plan or arrangement