Rising earnings estimates on the back of solid third quarter results - including a 38.1% earnings surprise - helped Bridge Capital Holdings (BBNK) achieve a Zacks #1 Rank (Strong Buy) on December 25. Moreover, this bank has delivered three positive earnings surprises in the last four quarters with an average beat of 19.9%.
With a solid year-to-date return of 46.2% and a trend of beating quarterly earnings estimates, this stock offers an attractive investment opportunity.
The Rank Driver
Better-than-expected third quarter earnings, decent loan growth and fundamental strength - including strong credit quality and capital ratios - are the primary rank drivers for this stock.
Bridge Capital reported its third quarter results on October 23 with earnings per share of 29 cents, beating the Zacks Consensus Estimate of 21 cents by 38.1% and prior quarter earnings of 22 cents by 31.8%. Strong results for the quarter were primarily aided by higher net interest income and non-interest income, partly offset by higher operating expenses.
Net interest income came in at $15.4 million, up nearly 6.2% from $14.5 million in the previous quarter. The marginal hike was driven by increases in average earning assets. Net interest margin came in at 5.26% compared with 5.28% in the prior quarter.
Further, non-interest income increased 27.3% sequentially to $3.8 million. The rise was facilitated by increased service charges on deposits as well as other income.
Operating expenses increased nearly 2.0% from the previous quarter to $11.6 million. The rise was mainly due to higher salaries and benefits along with premises and fixed assets expenditure.
Credit quality continued to improve. Non-performing assets were approximately $9.0 million as of September 30, 2012, down 27.4% from $12.3 million in the prior quarter. The allowance for loan losses was $19.8 million or 2.25% of total loans as of September 30, 2012, compared with $19.5 million or 2.30% of total loans as of June 30, 2012.
As of September 30, 2012, Bridge Capital's total risk-based capital ratio was 15.70%, Tier 1 risk-based capital ratio was 14.44%, and tangible common equity ratio was 11.39%. Book value per share came in at $9.02 versus $8.99 in the prior quarter.
Earnings Estimate Revisions
The Zacks Consensus Estimate for 2012 increased 2.2% to 92 cents per share as all four estimates moved north over the last 60 days. The current estimate implies year-over-year growth of 77.4%.
For 2013, 2 out of 4 estimates were revised higher over the same time frame, lifting the Zacks Consensus Estimate by 1.0% to 98 cents per share. The current estimate implies year-over-year growth of 6.0%.
Bridge Capital currently trades at a forward P/E of 17.1x, a 6% discount to the peer group average of 18.1x. On a price-to-book basis, the shares are trading at 1.7x, a 60% premium to peer group average of 1.06%. Given the company's strong fundamentals, the valuation is justified.
Bridge Capital has a trailing 12-month ROE of 9.4% compared with the peer group average of 6.6%. This implies that the company re-invests its capital more efficiently that its industry peers.
About the Company
Bridge Capital is a bank holding company for Bridge Bank, National Association that provides commercial and retail banking services primarily in California. It is headquartered in San Jose, California. The company operates two branch offices in the Silicon Valley region, as well as five loan production offices in San Francisco, Pleasanton, and Orange County, California; Dallas, Texas; and Reston, Virginia. The headcount at the company is 203 employees.
Other Zacks #1 Rank bank stocks include Preferred Bank (PFBC) and Pacific Continental Corp. (PCBK).