Daniel P. Myers, the president and chief executive officer of Bridge Capital Holdings, says he is not rattled by the economic trouble hurting so many others in the industry these days.
With good reason.
Though fewer than half of banking companies nationwide reported higher profits last year, the $775 million-asset Bridge in San Jose, Calif., continued to post double-digit earnings growth.
Mr. Myers said a focus on lucrative commercial and industrial loans — which allows for more diversity among types of borrowers than other lending categories — has helped.
"In tough times like these, you really appreciate the true value of diversification," he said.
Last year Bridge's net income jumped 24% from the previous year, to $10.9 million. Its fourth-quarter earnings rose 13% from the year earlier, to $2.7 million.
Aaron J. Deer, an analyst at Sandler O'Neill & Partners LP in San Francisco, said that Bridge benefits from operating mainly in Silicon Valley, which has not been hit as hard by the real estate slowdown as many other parts of California.
"The Silicon Valley region continues to enjoy a very strong economy," Mr. Deer said. "The technology and venture markets have continued to fare well and are supported by a lot of new businesses."
Bridge also lacks much exposure to residential real estate.
Commercial and industrial loans make up the largest chunk of its overall portfolio — 42%. Commercial real estate loans, its second-largest category, makes up 26.2%. Residential construction and development is only 7%.
But Mr. Myers said Bridge's success is driven mostly by its ability to attract noninterest-bearing business deposits through online cash management services and remote deposit capture.
Demand deposits make up 30% of its total, and they are almost entirely interest-free.
Coupling that with the relatively higher rates charged on C&I loans, Bridge has maintained one of the highest margins in the industry. In the fourth quarter, its net interest margin grew by 47 basis points from the previous quarter, to 6.93%.
Likewise, Bridge's return on assets of 1.45% and return on equity of 19.34% remained well above the average for commercial banks with assets of $500 million to $1 billion, according to the Federal Deposit Insurance Corp. (Its peers averaged an ROA of 0.74% and ROE of 7.39% in the quarter, the FDIC data indicates.)
Jeffrey Ruis, an analyst at D.A. Davidson & Co. in Portland, Ore., cited Bridge's plump margin as one of its main advantages.
Bridge has been able to build both deposit and loan relationships with many of its business customers, helping it to maintain the margin, he said.
But even so, Mr. Ruis said, he expects the company's growth to slow this year as the Federal Reserve's rate cuts exert margin pressure.
"They are not totally immune to what's happening in the bank space," Mr. Ruis said.
Mr. Myers said competition for commercial and industrial loans should increase this year as more banking companies move into the business line to offset the slowdown in residential construction lending.
However, Bridge still has room to grow, he said. The company holds just 1.45% of the deposit market share in three counties around San Francisco Bay — Santa Clara, Alameda, and San Mateo. Mr. Myers said he expects this to work to Bridge's advantage for continued growth, despite the stiffer competition.
Mr. Ruis said that Bridge also should be able to recruit more bankers because of recent consolidation in the area. In October Wells Fargo & Co. completed its purchase of the $7.3 billion-asset Greater Bay Bancorp in Palo Alto, Calif.
Additions to Bridge's staff would increase expenses, but the bankers should be able to bring their books of business with them, Mr. Ruis said.
About 12% of Bridge's total loan portfolio comprises loans made to technology customers. The rest are made to other types of companies that either support technology companies, provide general services in the area, or manufacture products.
"The Silicon Valley is very diversified, and not as concentrated as many people believe," Mr. Myers said. "We have professional services, a service sector, and there's still a vibrant manufacturing community here in the region."
Bridge also has loan offices targeting technology companies in Irvine, Calif.; Reston, Va.; and Dallas.
It has a construction loan production office in Redwood City, Calif., and Small Business Administration loan offices or field representatives in San Francisco's East Bay, Sacramento, San Diego, and Orange County.
In addition to these types of business loans, Bridge makes asset-based loans and offers international trade finance, through letters of credit and foreign exchange services, to import and export businesses.
All this adds up to more diversification — across loan types, borrowers, and geography — Mr. Myers said.
So far, another advantage for Bridge has been a lack of significant credit-quality problems.
The company had an elevenfold increase in nonperforming assets in the fourth quarter, due mainly to four problem land development loans made in the state's San Joaquin Valley.
But analysts said that the rise was from a low baseline and that Bridge's asset quality remains better than the industry average for its peers.
At Dec. 31, its nonperforming assets totaled $5.3 million, or 0.69% of total assets, compared to $437,000, or 0.06% of total assets, a year earlier. Bridge had no chargeoffs in the fourth quarter.
Investors also appear to be sticking with Bridge. Its stock price has escaped the dramatic drop that some other banking companies have experienced in the past year.
The shares were trading at $21.42 Thursday afternoon, roughly unchanged from 52 weeks earlier.
