Bridge Capital Proves Banks Can Grow Without Cutting Rates

Bridge Capital Holdings (BBNK) is a commercial lender that has no plans of going commercial.

A true business bank, the San Jose, Calif., company does not offer retail products or services. Still, it produced record revenue during the fourth quarter, fueled by loan growth and a net interest margin that has remained above the industry median.

The $1.3 billion-asset company has remained disciplined with pricing, while watching other banks slice interest rates to reel in loans, says Dan Myers, Bridge's president and chief executive.

"We're not the Walmart of banking," he says. "We provide real solutions, and our customers are willing to pay up for that unique experience."

Based in the Silicon Valley, Bridge focuses on areas such as factoring and asset-based loans that smaller banks are just starting to pursue. It should come as no surprise that the company also lends heavily to the technology sector.

Gross loans at Dec. 31 rose 3% from Sept. 30 and 19% from a year earlier, to $908 million. Fourth-quarter revenue rose 2% from the third quarter and 25% from a year earlier, to $19.5 million.

Geography certainly helps, says Tom O'Brien, a managing partner at Sandler O'Neill & Partners.

"The Bay Area economy arguably seems like one of the most improving in the country," O'Brien says. "Bridge has benefited from improvements there and also from the strength of the tech sector."

Venture capital investment in the tech sector has been healthy, Myers says. There could be 25 to 40 privately held Silicon Valley high-tech startups with valuations of at least $1 billion, according to a recent New York Times article.

To be sure, there are growing concerns about another tech bubble. Myers concedes that the technology sector, like other industries, is prone to business cycles. Still, current valuations reflect a desire by investors to stake claims in firms that could become big players in their fields.

"These technology companies have to justify these valuations," says Dan Pistone, group manager of Bridge's technology banking division. "It's not surprising to see some of the valuations."

The well-documented nosedive in Facebook's stock price has been viewed as a negative by those who invested in its initial public offing. But Myers says that some people view the decline favorably because the "valuation was higher than it should have been, and that showed within hours."

Bridge is relying on lessons learned from the dot-com bubble in the late 1990s to make sure it avoids getting tripped up by any hype. Bridge, founded in 2001, initially benefited from the end of the last tech bubble as other banks struggled to regain their footing after the collapse of once-promising clients.

"Bridge had the talent in place to fill the breach," O'Brien says. "It was very fortunate from a timing standpoint to start their business when they did."

The dot-com bust proved that focusing on fundamentals is critical, Myers says. Though lending to tech firms requires added expertise, it still shares many of the underlying principles of broader commercial lending. Bridge looks at each applicant's balance sheet, stage of development and quality of management. Bridge reviews a borrower's investor base and whether it is reaching certain milestones.

"We look at it from a holistic approach," Myers says. "It's similar to our view of C&I borrowers."

The company's technology banking division tries to diversify its loan book based on lines of business and stages of development, Pistone says. Bridge is also open to lending to firms that have funding other than private equity or venture capital.