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Bank of Commerce Holdings Announces Second Quarter Results

REDDING, Calif., July 31, 2014 (GLOBE NEWSWIRE) -- Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (Nasdaq:BOCH), a $963.7 million bank holding company and parent company of Redding Bank of Commerce and Sacramento Bank of Commerce (a division of Redding Bank of Commerce) (the "Bank"), today reported net income available to common shareholders of $2.2 million and diluted earnings per share (EPS) of $0.16 for the second quarter 2014.

Financial highlights for the quarter:

  • Net income available to common shareholders was $2.2 million for the three months ended June 30, 2014, compared with $2.0 million for the same period a year ago.
  • Gross portfolio loans increased $12.4 million compared to the prior quarter and $2.0 million compared to the second quarter of 2013. The sequential quarter over quarter increase was centered in commercial real estate and consumer loan originations.
  • Total impaired loans decreased $1.2 million or 3% compared to the prior quarter and decreased $6.7 million or 16% compared to the second quarter of 2013.
  • Average non maturing core deposits increased $54.2 million or 12% compared to the same period a year ago.
  • The Company's Tier 1 Leverage and Total Risk Based ratios are significantly above "Well Capitalized" levels at 12.10% and 16.39%, respectively.

Randall S. Eslick, President and CEO commented: "We are pleased with this quarter's core performance, especially in light of solid growth in our loan portfolio which was funded exclusively with core deposits. With our well capitalized position, we look forward to continuing these positive trends for the foreseeable future."

Forward-Looking Statements

This quarterly press release includes forward-looking information, which is subject to the "safe harbor" created by the Securities Act of 1933, and Securities Act of 1934. These forward-looking statements (which involve the Company's plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:

  • Competitive pressure in the banking industry and changes in the regulatory environment
  • Changes in the interest rate environment and volatility of rate sensitive assets and liabilities
  • A decline in the health of the economy nationally or regionally which could further reduce the demand for loans or reduce the value of real estate collateral securing most of the Company's loans
  • Credit quality deterioration which could cause an increase in the provision for loan losses
  • Asset/Liability matching risks and liquidity risks
  • Changes in the securities markets

For additional information concerning risks and uncertainties related to the Company and its operations please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2013 and under the heading: "Risk Factors" and subsequent reports on Form 10-Q and current reports on Form 8-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Table 1 below shows summary financial information for the quarters ended June 30, 2014 and 2013, and March 31, 2014.

Table 1 QUARTER END SUMMARY FINANCIAL INFORMATION
(Shares and dollars in thousands) Q2 Q2 Q1
2014 2013 Change 2014 Change
Selective quarterly performance ratios
Return on average assets, annualized 0.91% 0.84% 0.07% 0.23% 0.68%
Return on average equity, annualized 8.73% 7.40% 1.33% 2.19% 6.54%
Efficiency ratio for quarter to date 59.18% 55.29% 3.89% 91.18% -32.00%
Share and Per Share figures - Actual
Common shares outstanding at period end 13,294 14,990 (1,696) 13,552 (258)
Weighted average diluted shares 13,426 15,139 (1,713) 13,987 (561)
Diluted EPS $ 0.16 $ 0.13 $ 0.03 $ 0.04 $ 0.12
Book value per common share $ 6.07 $ 5.80 $ 0.27 $ 5.97 $ 0.10
Tangible book value per common share $ 6.07 $ 5.80 $ 0.27 $ 5.97 $ 0.10
Capital Ratios June 30, 2014 June 30, 2013 Change March 31, 2014 Change
Bank of Commerce Holdings
Leverage ratio 12.10% 13.02% -0.92% 12.11% -0.01%
Tier 1 risk based capital ratio 15.14% 14.27% 0.87% 15.23% -0.09%
Total risk based capital ratio 16.39% 15.53% 0.86% 16.48% -0.09%
Redding Bank of Commerce
Leverage ratio 12.11% 12.66% -0.55% 11.97% 0.14%
Tier 1 risk based capital ratio 15.15% 14.68% 0.47% 15.07% 0.08%
Total risk based capital ratio 16.40% 15.93% 0.47% 16.32% 0.08%

Bank of Commerce Holdings (the "Company") and the Bank continued to meet all capital adequacy requirements to which they are subject. At June 30, 2014, the Company's Tier 1 and Total risk based capital ratios measured 15.14% and 16.39% respectively, while the leverage ratio was 12.10%.

Return on average assets (ROA) and return on average equity (ROE) for the current quarter was 0.91% and 8.73%, respectively, compared with 0.84% and 7.40%, respectively, for the same period a year ago. The increase in ROA and ROE during the current quarter compared to the same period a year ago is primarily attributed to reclassification adjustments recorded in other noninterest income. The adjustments were partially offset by increased other noninterest expense and a decrease in the gains recognized on securities compared to the second quarter of 2013.

The increase in ROA in the current quarter compared to the same period a year ago is also partially offset by an increase in the total average assets for the quarter ending June 30, 2014 compared to the same period one year ago. The increase in ROE is partially due to a decrease in the quarterly average shareholders' equity for the quarter ending June 30, 2014 compared to the same period a year ago due primarily to the Company's publically announced stock buyback plans.

During the three months ended June 30, 2014 the Company repurchased the remaining 259,185 shares out of the 700,000 common stock shares authorized for repurchase during the first quarter of 2014. The shares were repurchased at a weighted average price of $6.52 per share and all shares repurchased were retired subsequent to purchase.

Balance Sheet Overview

As of June 30, 2014, the Company had total consolidated assets of $963.7 million, total net portfolio loans of $609.7 million, allowance for loan and lease losses of $9.9 million, total deposits of $755.0 million, and stockholders' equity of $100.7 million.

The Company recorded net portfolio loans of $609.7 million at June 30, 2014, compared with $604.6 million at June 30, 2013, an increase of $5.1 million. The increase in net portfolio loans during the six months ending June 30, 2014 was primarily attributable to an increase in commercial real estate loans and the purchase of consumer loan pools partially offset by principal pay downs on a commercial secured borrowing line. The $3.3 million decrease in the Allowance for Loan and Lease Losses (ALLL) compared to the same period a year ago is primarily due to charge offs in the first quarter of 2014 related to two significant borrowing relationships.

Table 2 PERIOD END LOANS
Q2 % of Q2 % of Change Q1 % of
(Dollars in thousands) 2014 Total 2013 Total Amount % 2014 Total
Commercial $ 168,353 28% $ 197,084 31% $ (28,731) -15% $ 165,747 28%
Real estate - construction loans 20,462 3% 15,875 3% 4,587 29% 17,500 3%
Real estate - commercial (investor) 205,592 33% 201,896 33% 3,696 2% 205,111 34%
Real estate - commercial (owner occupied) 88,402 14% 78,478 13% 9,924 13% 86,929 14%
Real estate - ITIN loans 54,611 9% 58,271 9% (3,660) -6% 55,411 9%
Real estate - mortgage 14,211 2% 17,738 3% (3,527) -20% 14,973 2%
Real estate - equity lines 47,542 8% 44,285 7% 3,257 7% 45,519 8%
Consumer 20,195 3% 3,581 1% 16,614 464% 15,749 1%
Other 50 0% 190 0% (140) -74% 110 1%
Gross portfolio loans 619,418 100% 617,398 100% (2,020) 0% 607,049 100%
Less:
Deferred loan fees, net (204) (335) 131 -39% (320)
Allowance for loan losses 9,882 13,133 (3,251) -25% 9,748
Net portfolio loans $ 609,740 $ 604,600 $ 5,140 1% $ 597,621
Yield on loans 4.68% 4.80% -0.12% 4.68%
Table 3 PERIOD END CASH EQUIVALENTS AND INVESTMENT SECURITIES
(Dollars in thousands) Q2 % of Q2 % of Change Q1 % of
2014 Total 2013 Total Amount % 2014 Total
Cash and cash equivalents:
Cash and due from banks $ 50,677 18% $ 22,426 8% $ 28,251 126% $ 54,422 18%
Interest bearing due from banks 16,068 5% 20,810 7% (4,742) -23% 20,146 6%
66,745 23% 43,236 15% 23,509 54% 74,568 24%
Investment Securities-AFS
U.S. government and agencies 7,787 3% 886 0% 6,901 779% 6,300 2%
Obligations of state and political subdivisions 55,369 20% 68,652 23% (13,283) -19% 56,454 18%
Residential mortgage backed securities and collateralized mortgage obligations 45,798 16% 53,538 18% (7,740) -14% 53,105 17%
Corporate securities 42,166 14% 66,924 23% (24,758) -37% 49,553 16%
Commercial mortgage backed securities 9,833 3% 7,573 3% 2,260 30% 10,406 3%
Other asset backed securities 27,733 9% 20,922 7% 6,811 33% 28,192 9%
Total Investment Securities-AFS 188,686 65% 218,495 74% (29,809) -14% 204,010 65%
Securities-HTM, at amortized cost
Obligations of state and political subdivisions 37,031 12% 34,843 11% 2,188 6% 36,985 12%
Total cash equivalents and investment securities $ 292,462 100% $ 296,574 100% $ (4,112) 100% $ 315,563 100%
Yield on cash equivalents and investment securities 2.49% 2.51% -0.02% 2.46%

The Company continued to maintain a strong liquidity position during the reporting period. As of June 30, 2014, the Company maintained cash positions at the Federal Reserve Bank and correspondent banks in the amount of $50.7 million. The Company also held certificates of deposits with other financial institutions in the amount of $16.1 million.

Available-for-sale investment securities totaled $188.7 million at June 30, 2014, compared with $204.0 million at March 31, 2014. The Company's available-for-sale investment portfolio is currently being utilized as a secondary source of liquidity to fund other higher yielding asset opportunities, such as commercial and commercial real estate loan originations when required. During the second quarter of 2014, the Company purchased seventeen securities with a par value of $21.0 million and weighted average yield of 2.82%, and sold thirty securities with a par value of $30.3 million and weighted average yield of 2.56%. The net sales activity resulted in $39 thousand realized loss.

The Company's purchases continue to focus on moderate term maturity securities, taking advantage of the steepness of the yield curve which moderates the Company's exposure to rising interest rates, while still providing an acceptable yield. Sales were focused on longer term municipal and corporate bonds, as well as mortgage-backed and asset-backed securities with extended cash flows or with a high probability of cash flows extending as interest rates increase.

Overall, management's investment strategy reflects the continuing expectation of rising rates across the yield curve. As such, management will continue to actively seek out opportunities to reduce the overall duration of the portfolio and improve cash flows. Given the current shape of the yield curve, this strategy could entail absorbing small losses within the portfolio to meet this longer term objective.

At June 30, 2014, the Company's net unrealized gain on available-for-sale securities were $1.3 million compared with $643 thousand net unrealized losses at March 31, 2014. The favorable change in net unrealized losses was primarily due to increases in the fair values of the Company's municipal bond, corporate bond, and mortgage backed securities portfolios. The increases in the fair values of the Company's investment securities portfolio were primarily driven by the narrowing of market spreads and changes in market interest rates.

Table 4 QUARTERLY AVERAGE DEPOSITS BY CATEGORY
(Dollars in thousands) Q2 %of Q2 %of Change Q1 %of
2014 Total 2013 Total Amount % 2014 Total
Demand deposits $ 132,842 17% $ 112,825 16% $ 20,017 18% $ 132,495 18%
Interest bearing demand 272,073 36% 237,113 35% 34,960 15% 267,428 36%
Total checking deposits 404,915 53% 349,938 51% 54,977 16% 399,923 54%
Savings 91,488 12% 92,266 13% (778) -1% 91,406 13%
Total non-time deposits 496,403 65% 442,204 64% 54,199 12% 491,329 67%
Time deposits 262,809 35% 247,565 36% 15,244 6% 259,523 33%
Total deposits $ 759,212 100% $ 689,769 100% $ 69,443 10% $ 750,852 100%
Average rate on total deposits 0.54% 0.57% -0.03% 0.54%

During the second quarter, average total deposits increased 10% or $69.4 million to $759.2 million compared to the same period a year ago. Average non maturing core deposits increased $54.2 million or 12% compared to the same period a year ago. Insured Cash Sweep (ICS) deposits totaling $31.8 million as of June 30, 2014 are included in interest bearing demand. The ICS deposits are locally generated funds, and as such, management considers this funding source as stable. However, the regulatory bodies consider these deposits as noncore.

Brokered certificates of deposits totaled $13.7 million at June 30, 2014, and were structured with both fixed rate terms and adjustable rate terms, and had remaining maturities ranging from less than one month to 6.00 years. Furthermore, brokered certificates of deposits with adjustable rate terms were structured with call features allowing the Company to redeem the certificates should interest rates dictate such action. These call features are generally exercisable within six to twelve months of issuance date and quarterly thereafter.

Operating Results for the Second quarter of 2014

Net income was $2.2 million for the three months ended June 30, 2014 compared with $565 thousand for the prior quarter and $2.0 million for the same period a year ago. The increase in net income in the current quarter compared to the same period a year ago was primarily driven by reclassification of gains recorded in other noninterest income. The gains were partially offset by increased other noninterest expense and a decrease in the gains recognized on securities compared to the second quarter of 2013.

Table 5 SUMMARY INCOME STATEMENT
(Dollars in thousands) Q2 Q2 Change Q1 Change
2014 2013 Amount % 2014 Amount %
Net interest income $ 8,190 $ 8,286 $ (96) -1% $ 8,173 $ 17 0%
Provision for loan and lease losses 1,450 1,400 50 4% 0 1,450 100%
Noninterest income 2,136 1,025 1,111 108% 364 1,772 487%
Noninterest expense 6,111 5,148 963 19% 7,784 (1,673) -21%
Income before income taxes 2,765 2,763 2 0% 753 2,012 267%
Provision for income tax 559 757 (198) -26% 188 371 197%
Net income 2,206 2,006 200 10% 565 1,641 290%
Less: Preferred dividend and accretion on preferred stock 50 50 0 0% 50 0 0%
Income available to common shareholders $ 2,156 $ 1,956 $ 200 10% $ 515 $ 1,641 319%
Basic earnings per share $ 0.16 $ 0.13 $ 0.03 23% $ 0.04 $ 0.12 300%
Average basic shares 13,378 15,120 (1,742) -12% 13,942 (564) -4%
Diluted earnings per share $ 0.16 $ 0.13 $ 0.03 23% $ 0.04 $ 0.12 300%
Average diluted shares 13,426 15,139 (1,713) -11% 13,987 (561) -4%

Diluted EPS was $0.16 for the three months ended June 30, 2014 compared with $0.13 for the same period a year ago, and $0.04 for the prior period. EPS increased during the three months ended June 30, 2014 compared to the same period a year ago primarily due to a decrease in the weighted average shares. The decrease in weighted average shares directly resulted from the repurchase of 2.0 million common shares through two separate repurchase plans announced and completed in 2013 and 700,000 common shares repurchased during the six months ended June 30, 2014 under the plan announced March 20, 2014. All repurchased shares were retired subsequent to purchase. As such, the weighted average number of dilutive common shares outstanding decreased by 750 thousand during the six months ended June 30, 2014.

The Company declared cash dividends of $0.03 per share for the second quarter of 2014, consistent with the quarterly dividends in the prior quarter and the same period a year ago.

Net interest income for the three months ended June 30, 2014 was $8.2 million compared to $8.3 million during the same period a year ago and $8.2 million for the prior quarter. Average quarterly securities balances and weighted average tax equivalent yields at June 30, 2014 and 2013 were $240.4 million and 3.51% compared to $253.4 million and 3.15%, respectively.

Table 6 NET INTEREST SPREAD AND MARGIN
(Dollars in thousands) Q2 Q2 Change Q1 Change
2014 2013 Amount 2014 Amount
Tax equivalent yield on average interest earning assets 4.14% 4.20% -0.06% 4.08% 0.06%
Rate on average interest bearing liabilities 0.49% 0.49% 0% 0.47% 0.02%
Net interest spread 3.65% 3.71% -0.06% 3.61% 0.04%
Net interest margin on a tax equivalent basis 3.75% 3.81% -0.06% 3.72% 0.03%
Average earning assets $ 908,197 $ 904,640 $ 3,557 $ 915,478 $ (7,281)
Average interest bearing liabilities $ 716,835 $ 720,681 $ (3,847) $ 708,822 $ 8,013

The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.75% for the three months ended June 30, 2014, a decrease of 6 basis points (bp) as compared to the same period a year ago. The decrease in net interest margin primarily resulted from a 7 bp decline in yield on average earning assets partially offset by a 1 bp decrease in interest expense to average earning assets. With decreasing elasticity in managing our funding costs and historically low interest rates, maintaining our net interest margin in the foreseeable future will continue to be challenging. Accordingly, management will continue to pursue organic loan growth, wholesale loan purchases, and actively manage the investment securities portfolio within our accepted risk tolerance to maximize yield on earning assets.

Noninterest income for the three months ended June 30, 2014 was $2.1 million, an increase of $1.1 million when compared to the same period a year ago. The following table presents the key components of noninterest income for the three months ended June 30, 2014 and 2013, and March 31, 2014:

Table 7 NONINTEREST INCOME
(Dollars in thousands) Q2 Q2 Change Q1 Change
2014 2013 Amount % 2014 Amount %
Service charges on deposit accounts $ 41 $ 54 $ (13) -24% $ 44 $ (3) -7%
Payroll and benefit processing fees 109 114 (5) -4% 135 (26) -19%
Earnings on cash surrender value - bank owned life insurance 162 112 50 45% 126 36 29%
Gain (loss) on investment securities, net (39) 406 (445) -110% (245) 206 -84%
Merchant credit card service income, net 29 32 (3) -9% 26 3 12%
Other income 1,834 307 1,527 497% 278 1,556 560%
Total noninterest income $ 2,136 $ 1,025 $ 1,111 108% $ 364 $ 1,772 487%

Service charges on deposit accounts decreased $13 thousand or 24% for the three months ended June 30, 2014 compared to the same period a year ago due to decreased fees on demand deposit accounts.

Bank owned life insurance earnings increased $50 thousand or 45% for the three months ended June 30, 2014 compared to the same period a year ago, and increased $36 thousand or 29% for the current quarter compared to the prior quarter. The increase was due to the purchase of additional key man policies during the three months ended June 30, 2014.

Gains on the sale of investment securities decreased $445 thousand to a net loss of $39 thousand for the three months ended June 30, 2014, compared to net gains of $406 thousand for the same period a year ago. During the three months ended June 30, 2014, the Company purchased seventeen securities with weighted average yields of 2.82%, and sold thirty securities with weighted average yields 2.56%. Generally, securities purchased had relatively short durations with solid credit quality.

Other income increased $1.6 million during the quarter ended June 30, 2014 compared to the prior quarter and increased $1.5 million compared to the same period a year ago. The increase was due to $1.6 million in hedge gains related to forecasted interest payments associated with FHLB advances which are no longer probable to occur.

Noninterest expense for the three months ended June 30, 2014 was $6.1 million, an increase of $1 million or 19% compared to the same period a year ago. The following table presents the key elements of noninterest expense for the three months ended June 30, 2014 and 2013, and March 31, 2014:

Table 8 NONINTEREST EXPENSE
Q2 Q2 Change Q1 Change
(Dollars in thousands) 2014 2013 Amount % 2014 Amount %
Salaries and related benefits $ 3,417 $ 3,074 $ 343 11% $ 3,622 $ (205) -6%
Occupancy and equipment expense 678 529 149 28% 642 36 6%
Write down of other real estate owned 0 0 0 0% 290 (290) -100%
FDIC insurance premium 189 245 (56) -23% 191 (2) -1%
Data processing fees 218 136 82 60% 194 24 12%
Professional service fees 338 294 44 15% 264 74 28%
Deferred compensation expense 115 0 115 100% 115 0 0%
Other expenses 1,156 870 131 13% 2,466 (1,310) -53%
Total noninterest expense $ 6,111 $ 5,148 $ 963 19% $ 7,784 $ (1,673) -21%

Salaries and related benefits expense for the three months ended June 30, 2014 was $3.4 million, an increase of $343 thousand or 11% compared to the same period a year ago. The increase in salaries and related benefits was primarily driven by an increase in the number of employees and the related costs related to the addition of a new SBA Lending Department.

Occupancy and equipment expenses increased $149 thousand for the three months ended June 30, 2014 compared to the same period a year ago, due to increased rent expenses and increased furniture fixture and equipment costs related to the expansion of the Sacramento Bank of Commerce office, and renovation expenses associated with the Churn Creek office.

During the three months ended March 31, 2014 management determined that further impairment was necessary for an improved commercial land property in the amount of $290 thousand. The property was transferred to OREO in 2010 and was written down to its fair value in anticipation of its pending sale.

The decrease in FDIC assessments of $56 thousand or 23% to $189 thousand during the quarter ended June 30, 2014 resulted from certain true-up adjustments to record additional premium expenses deemed necessary upon receipt of final prepaid premium reimbursement from the FDIC in June of 2013.

Data processing expense for the three months ended June 30, 2014 was $218 thousand an increase of $82 thousand or 60% compared to the same period a year ago. The increases in data processing expense compared to the same periods a year ago is primarily driven by increases in software maintenance and licensing expenses. The Bank continues to strive to make improvements in network infrastructure and systems, and expects to see continued increased costs in these expenses for the foreseeable future.

Professional service fees, which encompass audit, legal and consulting fees increased $44 thousand to $338 thousand for the three months ended June 30, 2014 compared to the same period a year ago and increased $74 thousand 28% compared to the previous quarter. The increases are due to increased fees for external audit and professional services.

Deferred compensation expense for the three months ended June 30, 2014 was $115 thousand, an increase of $115 thousand compared to the same period a year ago. The increase was due to certain true-up adjustments recorded during the same period a year ago. For disclosure purposes, in the table above and in the Company's Consolidated Statement of Operations, the prior year credit balance in deferred compensation expense is included in the line item other expenses.

Other expenses for the three months ended June 30, 2014 increased compared to the prior year as the current year includes $221 thousand of additional amortization expense for affordable housing investments purchased during 2013 compared to $0 for the prior year. Other expenses decreased $1.3 million in the current quarter compared prior quarter which reflected a $1.4 million in pretax loss from the negotiated settlement of the note from the Company's former mortgage subsidiary.

Table 9 ALLOWANCE ROLL FORWARD
(Dollars in thousands) Q2 Q1 Q4 Q3 Q2
2014 2014 2013 2013 2013
Beginning balance $ 9,748 $ 14,172 $ 13,542 $ 13,133 $ 11,350
Provision for loan loss charged to expense 1,450 0 0 300 1,400
Loans charged off (1,456) (4,903) (815) (635) (474)
Loan loss recoveries 140 479 1,445 744 857
Ending balance $ 9,882 $ 9,748 $ 14,172 $ 13,542 $ 13,133
Gross portfolio loans outstanding at period end $ 619,418 $ 607,049 $ 597,995 $ 594,562 $ 617,398
Ratio of allowance for loan and lease losses to gross portfolio loans 1.60% 1.61% 2.37% 2.28% 2.13%
Nonaccrual loans at period end:
Commercial $ 4,375 $ 4,303 $6,527 $ 7,501 $ 7,898
Commercial real estate 15,598 12,560 14,539 16,895 16,614
Residential real estate 6,939 7,360 8,217 10,953 11,165
Home equity 479 484 513 517 345
Consumer 87 -- -- -- --
Total nonaccrual loans $ 27,478 $ 24,707 $ 29,796 $ 35,866 $ 36,022
Accruing troubled debt restructured loans
Commercial $ 13 $ 62 $ 63 $ 65 $ 68
Commercial real estate 1,716 3,853 3,864 1,742 1,748
Residential real estate 5,074 4,894 4,303 2,996 3,174
Home equity 589 593 598 604 531
Total accruing restructured loans $ 7,392 $ 9,402 $ 8,828 $ 5,407 $ 5,521
All other accruing impaired loans 585 2,564 3,517 4,190 4,445
Total impaired loans $ 35,455 $ 36,673 $ 42,141 $ 45,463 $ 45,988
Allowance for loan and lease losses to nonaccrual loans at period end 35.96% 39.45% 47.56% 37.76% 36.46%
Nonaccrual loans to gross portfolio loans 4.44% 4.07% 4.98% 6.03% 5.83%
Allowance for loan and lease losses to impaired loans 27.87% 26.58% 33.63% 29.79% 28.56%

The Company realized net charge offs of $1.3 million in the current quarter compared with net charge offs of $4.4 million in the prior quarter and net recoveries of $383 thousand in the same period a year ago. Charge offs in the current quarter are primarily due to $1 million in charge offs related to one Commercial Real Estate loan relationship.

The Company continues to monitor credit quality, and adjust the ALLL accordingly to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolios. As such, the Company made $1.5 million additional provisions for loan losses during the second quarter of 2014, compared with $1.4 million during the same period a year ago. The Company's ALLL as a percentage of gross portfolio loans was 1.60% at June 30, 2014 compared to 1.61% as of June 30, 2013.

During the first six months of 2014, the Bank's loan portfolio reflected higher charge off rates relative to the previous quarters. The charge offs in during the first six months of 2014 were centered in three borrowing relationships previously identified as impaired. Management is cautiously optimistic that given continuing improvement in local and national economic conditions, the Company's impaired assets will continue to trend down. However, the commercial real estate and commercial loan portfolios continue to be influenced by weak real estate values, the effects of relatively high unemployment levels, and less than robust economic conditions. At June 30, 2014, management believes the Company's ALLL is adequately funded given the current level of credit risk.

At June 30, 2014, the recorded investment in loans classified as impaired totaled $35.5 million, with a corresponding valuation allowance (included in the ALLL) of $1.0 million compared to impaired loans of $36.7 million, with a corresponding valuation allowance (included in the ALLL) of $1.8 million at March 31, 2014. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans. The decrease in classified loans during the three months ended June 30, 2014 is primarily due to the aforementioned borrowing relationship.

Loans are reported as troubled debt restructurings (TDR) when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the note rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as the Bank will not collect all amounts due, both principal and interest, in accordance with the terms of the original loan agreement. Impairment reserves on non collateral dependent restructured loans are measured by comparing the present value of expected future cash flows of the restructured loans, discounted at the effective interest rate of the original loan agreement. These impairment reserves are recognized as a specific component to be provided for in the ALLL.

During the current quarter, the Company restructured two loans to grant a rate concession. The loans were classified as TDR and placed on nonaccrual status. As of June 30, 2014, the Company had $27.9 million in TDRs compared to $29.2 million as of March 31, 2014. As of June 30, 2014, the Company had one hundred and eighteen restructured loans that qualified as TDRs, of which one hundred three were performing according to their restructured terms. TDRs represented 4.50% of gross portfolio loans as of June 30, 2014 compared with 4.81% at March 31, 2014.

Table 10 PERIOD END TROUBLED DEBT RESTRUCTURINGS
(Dollars in thousands) Q2 Q1 Q4 Q3 Q2
2014 2014 2013 2013 2013
Nonaccrual $ 20,504 $ 19,779 $ 24,596 $ 21,511 $ 15,552
Accruing 7,392 9,402 8,828 5,407 5,521
Total troubled debt restructurings $ 27,896 $ 29,181 $ 33,424 $ 26,918 $ 21,073
Percentage of total gross portfolio loans 4.50% 4.81% 5.59% 4.53% 3.41%

Nonperforming loans, which include nonaccrual loans and accruing loans past due over 90 days, totaled $27.5 million or 4.43% of portfolio loans as of June 30, 2014, compared to $24.7 million, or 3.99% of portfolio loans at March 31, 2014. The increase in nonperforming loans in the current quarter is primarily due to $ 3.0 million in loans for one relationship moved to nonaccrual during the quarter ending June 30, 2014. Nonperforming assets, which include nonperforming loans and other real estate owned ("OREO"), totaled $28.3 million, or 2.94% of total assets as of June 30, 2014, compared with $25.3 million, or 2.63% of total assets as of March 31, 2014. As of June 30, 2014, nonperforming assets of $28.3 million have been written down by 36%, or $10.2 million, from their original balance of $42.8 million.

Table 11 PERIOD END NONPERFORMING ASSETS
(Dollars in thousands) Q2 Q1 Q4 Q3 Q2
2014 2014 2013 2013 2013
Commercial $ 4,375 $ 4,303 $ 6,527 $ 7,501 $ 7,898
Real estate mortgage
1-4 family, closed end 1st lien 1,249 1,286 1,322 1,740 1,797
1-4 family revolving 479 484 513 517 345
ITIN 1-4 family loan pool 5,690 6,074 6,895 9,213 9,368
Consumer 87 -- -- -- --
Total real estate mortgage 7,505 7,844 8,730 11,470 11,510
Commercial real estate 15,598 12,560 14,539 16,895 16,614
Total nonaccrual loans 27,478 24,707 29,796 35,866 36,022
90 days past due not on nonaccrual -- -- -- -- --
Total nonperforming loans 27,478 24,707 29,796 35,866 36,022
Other real estate owned 826 623 913 959 1,360
Total nonperforming assets $ 28,304 $ 25,330 $ 30,709 $ 36,825 $ 37,382
Nonperforming loans to portfolio loans 4.43% 3.99% 4.98% 6.03% 5.83%
Nonperforming assets to total assets 2.94% 2.63% 3.23% 3.95% 3.91%
Table 12 OTHER REAL ESTATE OWNED ACTIVITY
(Dollars in thousands) Q2 Q1 Q4 Q3 Q2
2014 2014 2013 2013 2013
Beginning balance $ 623 $ 913 $ 959 $ 1,360 $ 1,785
Write-down 0 (290) -- -- --
Additions to OREO 268 -- 98 146 184
Dispositions of OREO (65) -- (144) (547) (609)
Ending balance $ 826 $ 623 $ 913 $ 959 $ 1,360

At June 30, 2014, and March 31, 2014, the recorded investment in OREO was $826 thousand and $623 thousand, respectively. The June 30, 2014 OREO balance consists of five properties, of which three are secured by 1-4 family residential real estate in the amount of $204 thousand, one commercial nonfarm residential property in the amount of $162 thousand and one piece of improved commercial land in the amount of $460 thousand.

Table 13 INCOME STATEMENT
(Amounts in thousands, except for per share data) Q2 Q2 Change Q1 Full Year
2014 2013 $ % 2014 2013
Interest income:
Interest and fees on loans $ 7,188 $ 7,352 $ (164) -2% $ 7,094 $ 29,918
Interest on tax-exempt securities 1,111 656 455 69% 652 2,610
Interest on U.S. government securities 635 772 (137) -18% 1,114 1,702
Interest on other securities 128 381 (253) -66% 140 3,031
Total interest income 9,062 9,161 (99) -1% 9,000 37,261
Interest expense:
Interest on demand deposits 118 112 6 5% 121 485
Interest on savings deposits 57 62 (5) -8% 57 254
Interest on certificates of deposit 673 654 19 3% 662 2,625
Interest on securities sold under repurchase agreements -- 2 (2) -100% 0 6
Interest on FHLB borrowings 33 (48) 81 -169% 0 (267)
Interest on other borrowings (9) 93 (102) -110% (13) 375
Total interest expense 872 875 (3) 0% 827 3,478
Net interest income 8,190 8,286 (96) -1% 8,173 33,783
Provision for loan and lease losses 1,450 1,400 50 4% 0 2,750
Net interest income after provision for loan and lease losses 6,740 6,886 (146) -2% 8,173 31,033
Noninterest income:
Service charges on deposit accounts 41 54 (13) -24% 44 191
Payroll and benefit processing fees 109 114 (5) -4% 135 484
Earnings on cash surrender value - bank owned life insurance 162 112 50 45% 126 534
(Loss) Gain on investment securities, net (39) 406 (445) -110% (245) 995
Merchant credit card service income, net 29 32 (3) -9% 26 129
Other income 1,834 307 1,527 497% 278 1,209
Total noninterest income 2,136 1,025 1,111 108% 364 3,542
Noninterest expense:
Salaries and related benefits 3,417 3,074 343 11% 3,622 12,035
Occupancy and equipment expense 678 529 149 28% 642 2,205
Write down of other real estate owned 0 0 0 0% 290 --
FDIC insurance premium 189 245 (56) -23% 191 725
Data processing fees 218 136 82 60% 194 547
Professional service fees 338 294 45 15% 264 1,241
Deferred compensation expense 115 (155) 270 -174% 115 179
Other expenses 1,156 1,025 131 13% 2,466 5,309
Total noninterest expense 6,111 5,148 963 19% 7,784 22,241
Income before provision (benefit) for income taxes 2,765 2,763 2 0% 753 12,334
Provision (benefit) for income taxes 559 757 (198) -26% 188 4,399
Net Income $ 2,206 $ 2,006 $ 200 10% $ 565 $ 7,935
Less: Preferred dividend and accretion on preferred stock 50 50 0 0% 50 200
Income available to common shareholders $ 2,156 $ 1,956 $ 200 10% $ 515 $ 7,735
Basic earnings per share $ 0.16 $ 0.13 $ 0.03 23% $ 0.04 $ 0.52
Average basic shares 13,378 15,120 (1,742) -12% 13,942 14,940
Diluted earnings per share $ 0.16 $ 0.13 $ 0.03 23% $ 0.04 $ 0.52
Average diluted shares 13,426 15,139 (1,713) -11% 13,987 14,964
Table 14 BALANCE SHEET
(Dollars in thousands) June 30, June 30, Change December 31,
ASSETS 2014 2013 $ % 2013
Cash and due from banks $ 50,677 $ 22,426 $ 28,251 126% $ 38,369
Interest bearing due from banks 16,068 20,810 (4,742) -23% 20,146
Total cash and cash equivalents 66,745 43,236 23,509 54% 58,515
Securities available-for-sale, at fair value 188,686 218,495 (29,809) -14% 216,640
Securities held-to-maturity, at amortized cost 37,031 34,843 2,188 6% 36,696
Portfolio loans 619,622 617,733 1,889 0% 598,298
Allowance for loan losses (9,882) (13,133) 3,251 -25% (14,172)
Net loans 609,740 604,600 5,140 1% 584,126
Total interest earning assets 912,084 914,307 (2,223) 0% 910,149
Bank premises and equipment, net 12,415 10,275 2,140 21% 10,893
Other intangibles -- 39 (39) -100% --
Other real estate owned 826 1,360 (534) -39% 913
Other assets 48,273 43,764 4,509 10% 43,763
TOTAL ASSETS $ 963,716 $ 956,612 $ 7,104 1% $ 951,546
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand - noninterest bearing $ 135,416 $ 113,615 $ 21,801 19% $ 133,984
Demand - interest bearing 269,055 243,087 25,968 11% 273,390
Savings accounts 90,416 93,791 (3,375) -4% 90,442
Certificates of deposit 260,129 244,408 15,721 6% 248,477
Total deposits 755,016 694,901 60,115 9% 746,293
Securities sold under agreements to repurchase 0 1,758 (1,758) -100% 0
Federal Home Loan Bank borrowings 75,000 125,000 (50,000) -40% 75,000
Junior subordinated debentures 15,465 15,465 0 0% 15,465
Other liabilities 17,545 12,618 4,927 39% 13,001
TOTAL LIABILITIES 863,026 849,742 13,284 2% 849,759
TOTAL STOCKHOLDERS' EQUITY 100,690 106,870 (6,180) -6% 101,787
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 963,716 $ 956,612 $ 7,104 1% $ 951,546
Table 15 YEAR TO DATE AVERAGE BALANCE SHEET
(Dollars in thousands) June 30, June 30, December 31, December 31, December 31,
2014 2013 2013 2012 2011
Earning assets:
Loans $ 610,033 $ 624,444 $ 612,819 $ 642,200 $ 626,275
Tax exempt securities 85,097 91,833 92,854 81,714 52,467
Taxable securities 155,343 157,961 157,486 135,615 130,898
Interest bearing due from banks 62,126 40,306 43,397 48,712 64,399
Average earning assets 912,599 914,544 906,556 908,241 874,039
Cash and DFB 10,187 9,920 10,570 10,125 2,251
Bank premises 11,696 10,081 10,338 9,567 9,489
Other assets 32,684 30,106 26,838 24,249 21,421
Average total assets $ 967,166 $ 964,651 $ 954,302 $ 952,182 $ 907,200
Interest bearing liabilities:
Demand - interest bearing $ 270,311 $ 235,786 $ 244,125 $ 203,342 $ 157,696
Savings deposits 91,447 91,482 92,502 89,789 91,876
Certificates of deposit 261,184 252,322 249,500 285,574 296,381
Repurchase Agreements -- 11,476 5,780 14,246 14,805
Other Borrowings 90,465 143,688 125,144 125,839 130,933
Average interest bearing liabilities 713,407 734,754 717,051 718,790 691,691
Demand - noninterest bearing 132,669 114,119 126,017 115,091 100,722
Other liabilities 19,213 6,422 5,041 7,033 6,679
Shareholders' equity 101,877 109,356 106,193 111,268 108,108
Average liabilities & equity $ 967,166 $ 964,651 $ 954,302 $ 952,182 $ 907,200

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Redding, California and is the parent company for Redding Bank of Commerce which operates under two separate names (Redding Bank of Commerce and Sacramento Bank of Commerce, a division of Redding Bank of Commerce). The Bank is an FDIC insured California banking corporation providing commercial banking and financial services through four offices located in Northern California. The Bank opened on October 22, 1982. The Company's common stock is listed on the NASDAQ Global Market and trades under the symbol "BOCH".

Investment firms making a market in BOCH stock are:

Raymond James Financial McAdams Wright Ragen, Inc.
John T. Cavender Joey Warmenhoven
555 Market Street 1211 SW Fifth Avenue, Suite 1400
San Francisco, CA 94105 Portland, OR 97204
(800) 346-5544 (866) 662-0351
Sandler O'Neill + Partners, L.P. Stifel Nicolaus
Brian Sullivan Perry Wright
1251 Avenue of the Americas, 6th Floor 1255 East Street, Suite 100
New York, NY 10022 Redding, CA 96001
(212) 466-8022 (530) 244-7199

CONTACT: Randall S. Eslick President and Chief Executive Officer Telephone Direct (530) 722-3900 Samuel D. Jimenez Executive Vice President and Chief Operating Officer / Chief Financial Officer Telephone Direct (530) 722-3952 Andrea Schneck Vice President and Senior Administrative Officer Telephone Direct (530) 722-3959Source:Bank of Commerce Holdings