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Bank of Commerce Holdings Announces Results for the Fourth Quarter of 2015

REDDING, Calif., Jan. 22, 2016 (GLOBE NEWSWIRE) -- Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ:BOCH) (the “Company”), a $1.0 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter and the year ended December 31, 2015. Net income available to common shareholders for the quarter ended December 31, 2015 was $1.7 million or $0.13 per share – diluted, compared with $1.6 million or $0.12 per share – diluted for the same period of 2014. Net income available to common shareholders for the year ended December 31, 2015 was $8.3 million or $0.62 per share – diluted compared with $5.5 million or $0.41 per share – diluted for the same period of 2014.

Financial highlights for the year ended December 31, 2015:

  • Net income available to common shareholders of $8.3 million for the year ended December 31, 2015 was an improvement of $2.8 million (50%) over $5.5 million net income available to common shareholders earned during the year ended December 31, 2014.
  • Return on average assets for the year ended December 31, 2015 improved to 0.84% compared to 0.57% for the same period in 2014. Return on average equity for the year ended December 31, 2015 improved to 7.83% compared to 5.40% for the same period in 2014.
  • Nonperforming assets at December 31, 2015 totaled $15.5 million, a decrease of $6.7 million (30%) compared to December 31, 2014.
  • Gross loans at December 31, 2015 totaled $716.6 million, an increase of $55.7 million (8%) since December 31, 2014.
  • Net loan loss recoveries of $360 thousand combined with continuing improved asset quality resulted in no provision for loan and lease losses during the year ended December 31, 2015.
  • The Company’s book value per share increased to $6.76 per common share at December 31, 2015 from $6.29 per common share at December 31, 2014 (7%).
  • The Company’s net interest margin improved to 3.64% for the year ended December 31, 2015 from 3.57% for the year ended December 31, 2014.
  • The Company’s efficiency ratio improved to 67.4% during the year ended December 31, 2015 compared to 71.61% during the same period in 2014.

Financial highlights for the fourth quarter of 2015:

  • Net income available to common shareholders of $1.7 million for the three months ended December 31, 2015 was an improvement of $96 thousand (6%) over $1.6 million net income available to common shareholders earned during the fourth quarter of 2014.
  • Return on average assets improved to 0.68% in the fourth quarter of 2015 compared to 0.66% in the same quarter of 2014. Return on average equity improved to 6.51% in the fourth quarter of 2015 compared to 6.28% in the same quarter of 2014.
  • Nonperforming assets at December 31, 2015 totaled $15.5 million, a decrease of $1.6 million (37% annualized) compared to September 30, 2015.
  • Net loan loss recoveries of $289 thousand combined with continuing improved asset quality resulted in no provision for loan and lease losses during the fourth quarter.
  • The Company’s book value per share increased to $6.76 per common share at December 31, 2015 from $6.64 at September 30, 2015 (7% annualized).
  • The Company’s net interest margin was 3.52% for the fourth quarter of 2015 compared to 3.59% for the fourth quarter of 2014.

Pending Branch Acquisition

On October 28, 2015 the Company entered into a Purchase and Assumption Agreement with Bank of America to purchase certain assets of five Bank of America branches located in northern California, including $421 thousand in loans and assume approximately $258.0 million in deposit liabilities. We recently received the requisite regulatory approvals and the transaction is anticipated to close late in the first quarter of 2016.

The branches being acquired are located in Colusa, Corning, Orland, Willows, and Yreka. Both banks are working closely together to ensure a smooth transition for customers and employees. We intend to use the new deposits to reposition and improve the bank’s current funding mix by replacing certain higher cost borrowings and deposits, and to support future loan growth. The fourth quarter earnings include $347 thousand of branch acquisition costs.

Additionally, during the fourth quarter the Company issued $20 million of new term debt and used the proceeds to redeem $20 million of preferred stock. The details are as follows:

Senior Debt

In December of 2015, the Company, entered into a senior debt loan agreement to borrow $10.0 million. The loan is payable in monthly installments of $83,333.33 principal, plus accrued and unpaid interest, commencing on January 1, 2016 and continuing to and including December 10, 2020. The loan may be prepaid in whole or in part at any time without any prepayment premium or penalty. The principal amount of the loan bears interest at a variable rate, resetting monthly that is equal to the sum of the current three month LIBOR plus 400 basis points. The Company incurred senior debt issuance costs of $15 thousand which are being amortized over the life of the loan as additional interest expense.

Subordinated Debt

In December of 2015, the Company issued $10.0 million in aggregate principal amount of fixed to floating rate subordinated notes due 2025. The subordinated debt initially bear interest at 6.875% per annum for a five-year term, payable semi-annually. Thereafter, interest on the subordinated debt will be paid at a variable rate equal to three month LIBOR plus 526 basis points, payable quarterly until the maturity date. The notes qualify as Tier 2 capital under the applicable capital adequacy rules and regulations promulgated by the Federal Reserve. The Company incurred subordinated debt issuance costs of $210 thousand which are being amortized over the initial five year term as additional interest expense.

SBLF Series B Preferred Stock

During the fourth quarter of 2015, the Company redeemed all $20.0 million of its outstanding preferred stock held by the U.S. Treasury Department under the Small Business Lending Fund program. Had the Preferred Stock remained outstanding beyond December 2015, the dividend rate would have increased from 1% to 5%, and in April 2016 to 9%. During the fourth quarter of 2015 the Company recognized $102 thousand of preferred stock extinguishment costs.

Randall S. Eslick, President and CEO commented: “The fourth quarter has been very eventful. We successfully redeemed all $20.0 million of SBLF preferred stock, we entered into an agreement with Bank of America to purchase five branch locations contiguous to our existing service area and our financial performance for the entire year exceeded expectations. I commend our employees for all that they have accomplished.”

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 our 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 reduce the demand for loans or reduce the value of real estate collateral securing most of our loans
  • Credit quality deterioration which could cause an increase in the provision for loan and lease losses
  • Asset/Liability matching risks and liquidity risks
  • Changes in the securities markets
  • We may fail to realize all of the anticipated benefits of our branch purchase.

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 fiscal year ended December 31, 2014 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. The Company undertakes no obligation and specifically disclaims any obligation, to revise or publicly release the results of any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date the statements were made.

TABLE 1
SELECTED FINANCIAL INFORMATION - UNAUDITED
(amounts in thousands except per share data)
For The Three Months Ended For The Twelve Months Ended
Net income, average assets and December 31, September 30, December 31,
average shareholders' equity 2015 2014 2015 2015 2014
Income available to common shareholders $1,729 $1,633 $2,475 $8,295 $5,527
Average total assets $1,005,870 $985,100 $992,034 $992,731 $973,807
Average shareholders' equity $105,417 $103,147 $107,704 $105,991 $102,372
Selected performance ratios
Return on average assets 0.68% 0.66% 0.99% 0.84% 0.57%
Return on average equity 6.51% 6.28% 9.12% 7.83% 5.40%
Efficiency ratio 73.58% 76.02% 60.17% 67.40% 71.61%
Share and per share amounts
Weighted average shares - basic 13,341 13,295 13,340 13,331 13,475
Weighted average shares - diluted 13,395 13,335 13,377 13,365 13,520
Earnings per share - basic $0.13 $0.12 $0.18 $0.62 $0.41
Earnings per share - diluted $0.13 $0.12 $0.18 $0.62 $0.41
At December 31, At September 30,
Share and per share amounts 2015 2014 2015
Common shares outstanding (1) 13,385 13,298 13,374
Book value per common share $6.76 $6.29 $6.64
Capital ratios
Bank of Commerce Holdings
Common equity tier 1 capital ratio (2) 10.06% n/a 9.96%
Tier 1 capital ratio (3) 11.16% 13.91% 13.25%
Total capital ratio (3) 13.52% 15.16% 14.50%
Tier 1 leverage ratio (3) 10.03% 11.59% 11.98%
Redding Bank of Commerce
Common equity tier 1 capital ratio (2) 13.31% n/a 13.20%
Tier 1 capital ratio 13.31% 13.89% 13.20%
Total capital ratio 14.56% 15.14% 14.45%
Tier 1 leverage ratio 11.98% 11.57% 11.95%
(1) Includes unvested restricted shares issued in accordance with the Banks equity incentive plan.
(2) As of January 1, 2015, common equity tier 1 capital ratio is a new ratio requirement under the Basel III Capital Rules and represents the sum of the common equity tier 1 elements, minus regulatory adjustments and deductions divided by risk weighted assets.
(3) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The decline in the capital ratios of Bank of Commerce Holdings as of December 31, 2015 compared to December 31, 2014 and September 30, 2015 is due to the redemption of $20.0 million of preferred stock (Tier 1 capital) during the fourth quarter of 2015. The $10.0 million of subordinated debt issued during the fourth quarter of 2015 qualifies as Tier 2 capital under the applicable capital adequacy rules and regulations promulgated by the Federal Reserve.


BALANCE SHEET OVERVIEW

As of December 31, 2015, the Company had total consolidated assets of $1.0 billion, gross loans of $716.6 million, allowance for loan and lease losses (“ALLL”) of $11.2 million, total deposits of $803.7 million, and shareholders’ equity of $90.5 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
At December 31, At September 30,
% of % of Change % of
2015 Total 2014 Total Amount % 2015 Total
Commercial$ 132,805 19% $ 150,253 23% $ (17,448) (12)% $ 144,749 20%
Real estate - construction and land development 28,319 4 30,099 5 (1,780) (6)% 29,701 4
Real estate - commercial non-owner occupied 243,374 33 213,883 32 29,491 14 % 237,597 34
Real estate - commercial owner occupied 156,299 22 120,324 18 35,975 30 % 151,762 21
Real estate - residential - ITIN 49,106 7 52,830 8 (3,724) (7)% 50,162 7
Real estate - residential - 1-4 family mortgage 11,390 2 13,156 2 (1,766) (13)% 12,185 2
Real estate - residential - equity lines 45,473 6 44,981 7 492 1 % 45,733 6
Consumer and other 49,873 7 35,372 5 14,501 41 % 46,644 6
Gross loans 716,639 100% 660,898 100% 55,741 8 % 718,533 100%
Deferred fees and costs 870 157 713 718
Loans, net of deferred fees and costs 717,509 661,055 56,454 719,251
Allowance for loan and lease losses (11,180) (10,820) (360) (10,891)
Net loans$ 706,329 $ 650,235 $ 56,094 $ 708,360
Average yield on loans during the quarter 4.61% 4.73% (0.12) 4.70%


The Company recorded gross loan balances of $716.6 million at December 31, 2015, compared with $660.9 million and $718.5 million at December 31, 2014 and September 30, 2015, respectively, an increase of $55.7 million and a decrease of $1.9 million, respectively. The increase in gross loans compared to the same period a year ago was driven by strong organic loan originations and the purchase of wholesale loan pools. During the year and quarter ended December 31, 2015, purchased loan balances increased $12.7 million and $2.9 million, respectively. Our deferred fees and costs increased during the current quarter compared to the same quarter in the prior year and the prior quarter in the current year as a result of increased loan production and implementation of an updated loan origination cost study.

The increase in the ALLL in the current quarter compared to the prior quarter resulted from net loan recoveries of $289 thousand. As a result of these net recoveries and continued improved asset quality, no provision for loan and lease losses was deemed necessary during the current quarter. See table 8 for additional detail of the ALLL.

TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
At December 31, At September 30,
% of % of Change % of
2015 Total 2014 Total Amount % 2015 Total
Cash and due from banks $ 9,730 4% $ 9,571 4% $ 159 2 % $ 8,564 4%
Interest-bearing deposits in other banks 41,462 17 48,851 17 (7,389) (15)% 16,745 8
Total cash and cash equivalents 51,192 21 58,422 21 (7,230) (12)% 25,309 12
Investment securities:
U.S. government and agencies 3,943 2 6,393 2 (2,450) (38)% 3,998 2
Obligations of state and political subdivisions 61,104 25 54,363 18 6,741 12 % 57,453 26
Residential mortgage backed securities and
collateralized mortgage obligations
32,137 13 47,015 17 (14,878) (32)% 34,058 16
Corporate securities 33,778 14 37,734 13 (3,956) (10)% 36,560 17
Commercial mortgage backed securities 12,769 5 10,389 4 2,380 23 % 9,266 4
Other asset backed securities 15,299 6 31,092 11 (15,793) (51)% 15,974 7
Total investment securities - AFS 159,030 65 186,986 65 (27,956) (15)% 157,309 72
Obligations of state and political
subdivisions - HTM
35,899 14 36,806 14 (907) (2)% 36,093 16
Total investment securities - AFS and HTM 194,929 79 223,792 79 (28,863) (17)% 193,402 88
Total cash, cash equivalents and investment securities $ 246,121 100% $ 282,214 100% $ (36,093) (13)% $ 218,711 100%
Average yield on interest bearing due from banks and investment securities during the quarter 2.51% 2.58% (0.07) 2.46%


As of December 31, 2015, we maintained noninterest-bearing cash positions at the Federal Reserve Bank and correspondent banks in the amount of $9.7 million. We also held interest-bearing deposits in the amount of $41.5 million.

Available-for-sale investment securities totaled $159.0 million at December 31, 2015, compared with $187.0 million and $157.3 million at December 31, 2014 and September 30, 2015, respectively. Our available-for-sale investment portfolio provides us with a secondary source of liquidity to fund other higher yielding asset opportunities, such as loan originations and wholesale loan purchases. During the fourth quarter of 2015 we purchased 13 securities with a par value of $16.6 million and weighted average yield of 2.19% and sold seven securities with a par value of $9.1 million and weighted average yield of 2.58%. The sales activity resulted in $30 thousand in net realized gains for the three months ended December 31, 2015. During the same period, we received $5.1 million in proceeds from principal payments, calls and maturities within the available-for-sale investment securities portfolio. Average securities balances and weighted average tax equivalent yields for the quarters ending December 31, 2015 and 2014 were $189.2 million and 3.57% compared to $223.5 million and 3.41%, respectively.

During the current year, our securities transactions were focused on improving credit quality and continuing to shorten the effective duration of the portfolio in anticipation of rising interest rates. Management continues to actively seek out opportunities to reduce the overall effective duration of the portfolio and accelerate cash flows, while also improving credit quality and liquidity. This strategy could entail absorbing small losses and slightly reduced yields within the portfolio to meet longer term objectives.

At December 31, 2015, our unrealized gains on available-for-sale investment securities were $1.6 million compared with $2.6 million and $1.6 million at December 31, 2014 and September 30, 2015, respectively. The decrease in net unrealized gains compared to the prior year is primarily due to sales of available-for-sale investment securities and interest rate changes during the year.

TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
At December 31, At September 30,
% of % of Change % of
2015 Total 2014 Total Amount % 2015 Total
Demand - noninterest bearing$ 169,507 21% $ 157,557 20% $ 11,950 8 % $ 162,437 21%
Demand - interest bearing 315,658 39 298,160 38 17,498 6 % 295,209 38
Total demand 485,165 60 455,717 58 29,448 6 % 457,646 59
Savings 94,503 12 88,569 11 5,934 7 % 93,367 12
Total non-maturing deposits 579,668 72 544,286 69 35,382 7 % 551,013 71
Certificates of deposit 224,067 28 244,749 31 (20,682) (8)% 228,492 29
Total deposits$ 803,735 100% $ 789,035 100% $ 14,700 2 % $ 779,505 100%
Average rate on interest bearing
deposits during the quarter
0.48% 0.50% (0.02) 0.49%


Total deposits at December 31, 2015, increased $14.7 million or 2% to $803.7 million compared to December 31, 2014, and increased $24.2 million or 3% compared to September 30, 2015. Total non-maturing deposits increased $35.4 million or 7% compared to the same date a year ago and increased $28.7 million or 5% compared to September 30, 2015. Certificates of deposit decreased $20.7 million or 8% compared to the same date a year ago and decreased $4.4 million or 2% compared to September 30, 2015. Management intends to continue to reduce reliance on certificates of deposit as a funding source.

TABLE 5
WHOLESALE AND BROKERED DEPOSITS - UNAUDITED
(amounts in thousands)
At December 31, At September 30,
2015 2014 2015
CDARS / ICS reciprocal deposits$76,919 $90,324 $67,825
Third party brokered time deposits 17,509 7,550 17,505
Brokered deposits per Call Report 94,428 97,874 85,330
Online listing service time deposits 58,462 67,449 61,141
Total wholesale and brokered deposits$152,890 $165,323 $146,471


In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $94.4 million, $97.9 million and $85.3 million at December 31, 2015, December 31, 2014 and September 30, 2015, respectively. These amounts include reciprocal deposits obtained through the CDARS and ICS programs, which management does not consider to be brokered.

INCOME STATEMENT OVERVIEW

TABLE 6
SUMMARY INCOME STATEMENT - UNAUDITED
(amounts in thousands, except per share data)
For The Three Months Ended
December 31, Change September 30, Change
2015 2014 Amount % 2015 Amount %
Interest income $9,732 $ 9,529 $ 203 2 % $9,732 $ 0 %
Interest expense 1,381 1,239 142 11 % 1,277 104 8 %
Net interest income 8,351 8,290 61 1 % 8,455 (104) (1)%
Provision for loan
and lease losses
675 (675) (100)% 0 %
Noninterest income 640 1,144 (504) (44)% 808 (168) (21)%
Noninterest expense 6,616 7,172 (556) (8)% 5,574 1,042 19 %
Income before provision
for income taxes
2,375 1,587 788 50 % 3,689 (1,314) (36)%
Provision for income taxes 505 (96) 601 (626)% 1,164 (659) (57)%
Net income 1,870 1,683 187 11 % 2,525 (655) (26)%
Less: Preferred stock
extinguishment costs
102 102 100 % 102 100 %
Less: Preferred dividends 39 50 (11) (22)% 50 (11) (22)%
Income available to
common shareholders
$1,729 $ 1,633 $ 96 6 % $2,475 $ (746) (30)%
Basic earnings per share $0.13 $ 0.12 $ 0.01 8 % $0.18 $ (5) (28)%
Average basic shares 13,341 13,295 46 0 % 13,340 1 0 %
Diluted earnings per share $0.13 $ 0.12 $ 0.01 8 % $0.18 $ (5) (28)%
Average diluted shares 13,395 13,335 60 0 % 13,377 18 0 %
Dividends declared per
common share
$0.03 $ 0.03 $ 0 % $0.03 $ 0 %


Fourth Quarter of 2015 Compared With Fourth Quarter of 2014

Net income available to common shareholders for the fourth quarter of 2015 increased $96 thousand over the fourth quarter of 2014. In the current quarter, net interest income was $61 thousand higher, the provision for loan and lease losses was $675 thousand lower, and noninterest expense was $556 thousand lower. These positive changes were partially offset by noninterest income that was $504 thousand lower and an increase in income tax expense of $601 thousand.

Net Interest Income

Net interest income increased $61 thousand over a year previous. Interest income for the three months ended December 31, 2015 increased $203 thousand or 2% to $9.7 million, which reflects the increase in average earning assets and the reallocation of lower yielding assets into higher yielding loans. Interest expense for the three months ended December 31, 2015 increased $142 thousand or 11% to $1.4 million:

  • Interest expense on deposits decreased $30 thousand as the bank reduced its reliance on time deposits.
  • Interest expense on junior subordinated debentures decreased $30 thousand from $82 thousand in the fourth quarter of 2014 to $52 thousand in the fourth quarter 2015, reflecting the decrease in outstanding debt. During most of the fourth quarter of 2014, outstanding junior subordinated debentures totaled $15.5 million. Late in that quarter, $5.2 million was repaid. During the fourth quarter of 2015, junior subordinated debentures totaled $10.3 million.
  • Interest on term debt increased $202 thousand due to the net settlement expense associated with our active interest rate swap and the issuance of $20 million of new term debt. In 2011, to mitigate interest rate and market risks, we entered into four forward starting interest rate swaps to hedge interest rate risk associated with variable rate Federal Home Loan Bank of San Francisco borrowings. The hedges converted the LIBOR based floating rate of interest on the $75.0 million Federal Home Loan Bank of San Francisco borrowings to fixed interest rates. The fixed rates adjust each August and were/are 0.94% at August 2013, 1.84% at August 2014, 2.64% at August 2015 and 3.22% at August 2016. During the fourth quarter of 2015, the Company recognized interest expense, and amortized issuance costs on the senior debt and subordinated debt of $44 thousand and $28 thousand, respectively.

Noninterest Income

Noninterest income for the three months ended December 31, 2015 decreased $504 thousand compared to the same period a year ago. During the fourth quarter of 2014 we recorded a $406 thousand gain on discounted repayment of $5.2 million of junior subordinated debentures. During the current quarter we recorded net gains on sale of available-for-sale investment securities of $30 thousand compared to net gains of $93 thousand for the same period a year ago.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2015 decreased $556 thousand compared to the same period a year ago. The decrease is primarily due to severance costs associated with the retirement of a former executive recorded in the fourth quarter of 2014, the recording of increased deferred loan origination costs in the current quarter and, professional services fees in the current quarter that are $120 thousand lower than a year earlier. Partially offsetting these positive items are one time branch acquisition costs (Bank of America branches) of $347 thousand which were recognized during the fourth quarter of 2015.

Income Tax Provision

During the three months ended December 31, 2015, the Company recorded a provision for income tax expense of $505 thousand compared with income tax benefit of $96 thousand for the same period a year ago. The tax benefit recorded a year ago was driven by a fourth quarter reduction in the Company’s 2014 estimated annual effective tax rate and a reversal of certain 2013 tax accruals.

Fourth Quarter of 2015 Compared With Third Quarter of 2015

Net income available to common shareholders for the fourth quarter of 2015 decreased $746 thousand over the third quarter of 2015. In the current quarter, net interest income decreased by $104 thousand, noninterest income decreased by $168 thousand and noninterest expense increased by $1.0 million. These net changes were partially offset by an income tax provision that was lower by $659 thousand.

Net Interest Income

Net interest income decreased $104 thousand over the prior quarter. Interest income for the three months ended December 31, 2015 was unchanged compared to the prior quarter as decreased interest and fees on loans were offset by increased interest on securities. Interest expense for the three months ended December 31, 2015 increased $104 thousand or 8% to $1.4 million compared to the prior quarter. This increase was primarily due to $72 thousand of interest expense on $20.0 million of new term debt.

Noninterest Income

Noninterest income for the three months ended December 31, 2015 decreased $168 thousand compared to the prior quarter. Net gains recognized on the sale of available-for-sale investment securities during the current quarter decreased by $107 thousand to $30 thousand compared to a $137 thousand net gain in the prior quarter. During the current quarter the Bank recognized $23 thousand in loss on sale of other real estate owned compared to a gain of $31 thousand in the prior quarter.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2015 increased $1.0 million compared to the prior quarter. During the quarter ended December 31, 2015, salaries and related benefits increased $402 thousand, branch acquisition costs of $347 thousand were recognized and professional services fees increased $124 thousand.

Income Tax Provision

During the three months ended December 31, 2015, the Company recorded a provision for income tax expense of $505 thousand compared with provision for income tax expense of $1.2 million for the prior quarter. The decrease in the current quarter is due to decreased taxable income, retroactive reclassification of certain loan interest income to tax exempt and an increase in hiring tax credits.

Earnings Per Share

Diluted earnings per share were $0.13 for the three months ended December 31, 2015 compared with $0.12 for the same period a year ago, and $0.18 for the prior period. Earnings per share increased for the three months ended December 31, 2015 compared to the same period a year ago primarily as a result of increased net income. Earnings per share decreased when compared to the prior quarter primarily as a result of decreased net income. During the fourth quarter of 2015 the Company recognized $102 thousand of preferred stock extinguishment costs which also reduced earnings per share.

TABLE 7
NET INTEREST SPREAD AND MARGIN - UNAUDITED
(amounts in thousands)
For The Three Months Ended
December 31, Change September 30, Change
2015 2014 Amount 2015 Amount
Tax equivalent yield on average interest earning assets 4.23% 4.26% (0.03) 4.29% (0.06)
Rate on average interest bearing liabilities 0.77% 0.69% (0.08) 0.71% (0.06)
Net interest spread - tax equivalent basis 3.46% 3.57% (0.11) 3.58% (0.12)
Net interest margin - nominal 3.52% 3.59% (0.07) 3.62% (0.10)
Net interest margin - tax equivalent basis 3.65% 3.72% (0.07) 3.75% (0.10)
Average earning assets$940,831 $917,301 $ 23,530 $927,547 $ 13,284
Average interest bearing liabilities$712,807 $712,195 $ 612 $709,958 $ 2,849


The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.65% for the three months ended December 31, 2015, a decrease of seven basis points as compared to the same period a year ago. The decrease in net interest margin resulted from a three basis point decrease in tax-equivalent yield on average earning assets and a four basis point increase in interest expense to fund average earning assets. The tax equivalent net interest margin decreased 10 basis points as compared to the prior quarter. The decrease in net interest margin resulted from a six basis point decrease in tax-equivalent yield on average earning assets and a four basis point increase in interest expense to fund average earning assets. Maintaining our net interest margin in a historically low interest rate environment and while confronted with known increased borrowing costs will be challenging in the foreseeable future. During the first quarter of 2016, we expect to experience a significant increase in deposits through our branch acquisition. Maintaining our net interest margin will be dependent on our ability to invest the cash provided by these deposits into higher yielding assets while not subjecting the Bank to undue interest rate risk.

TABLE 8
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED
(amounts in thousands)
For The Three Months Ended
December 31, September 30, June 30, March 31, December 31,
2015 2015 2015 2015 2014
Beginning balance$ 10,891 $ 11,402 $ 11,296 $ 10,820 $ 10,400
Provision for loan and lease losses
charged to expense
675
Loans charged off (707) (779) (711) (179) (374)
Loan loss recoveries 996 268 817 655 119
Ending balance$ 11,180 $ 10,891 $ 11,402 $ 11,296 $ 10,820
At December 31, At September 30, At June 30, At March 31, At December 31,
2015 2015 2015 2015 2014
Nonaccrual loans:
Commercial$ 1,994 $ 2,506 $ 3,170 $ 3,908 $ 5,112
Real estate - commercial non-owner occupied 5,488 5,154 6,532 7,103 8,318
Real estate - commercial owner occupied 1,071 1,928 1,079 1,079 1,378
Real estate - residential - ITIN 3,649 4,228 4,375 4,645 4,647
Real estate - residential - 1-4 family mortgage 1,775 1,669 1,693 1,720 2,135
Real estate - residential -
equity lines
23 24 24 24
Consumer and other 32 33 34 34 35
Total nonaccrual loans 14,009 15,541 16,907 18,513 21,649
Accruing troubled debt restructured loans:
Commercial 49 56 10 1,004 1,485
Real estate - commercial non-owner occupied 824 828 832 836 839
Real estate - commercial owner occupied 849 854 859
Real estate - residential - ITIN 5,458 5,423 5,303 5,421 5,462
Real estate - residential - equity lines 558 563 569 574 579
Total accruing troubled debt restructured loans 6,889 6,870 7,563 8,689 9,224
All other accruing impaired loans 492 494 530 533 535
Total impaired loans$ 21,390 $ 22,905 $ 25,000 $ 27,735 $ 31,408
Gross loans outstanding at period end$ 716,639 $ 718,533 $ 699,774 $ 699,229 $ 660,898
Allowance for loan and lease losses as a percent of:
Gross loans 1.56 % 1.52 % 1.63 % 1.62 % 1.64 %
Nonaccrual loans 79.81 % 70.08 % 67.44 % 61.02 % 49.98 %
Impaired loans 52.27 % 47.55 % 45.61 % 40.73 % 34.45 %
Nonaccrual loans to gross loans 1.95 % 2.16 % 2.42 % 2.65 % 3.28 %


We realized net loan loss recoveries of $289 thousand in the current quarter compared with net loan charge offs of $511 thousand in the prior quarter and net loan charge offs of $255 thousand for the same period a year ago.

We continue to monitor credit quality, and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. We made no provision for loan and lease losses during the year ended December 31, 2015 compared to a provision of $3.2 million during the year ended December 31, 2014. Our ALLL as a percentage of gross loans was 1.56% as of December 31, 2015 compared to 1.64% as of December 31, 2014 and 1.52% as of September 30, 2015. Based on the Bank’s ALLL methodology, which uses criteria such as risk weighting and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company’s ALLL is adequate at December 31, 2015. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

At December 31, 2015, the recorded investment in loans classified as impaired totaled $21.4 million, with a corresponding valuation allowance of $832 thousand compared to impaired loans of $31.4 million with a corresponding valuation allowance of $1.6 million at December 31, 2014 and impaired loans of $22.9 million, with a corresponding valuation allowance of $789 thousand at September 30, 2015. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans.

TABLE 9
PERIOD END TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(amounts in thousands)
At December 31, At September 30, At June 30, At March 31, At December 31,
2015 2015 2015 2015 2014
Nonaccrual $9,015 $11,149 $12,354 $12,695 $14,230
Accruing 6,889 6,870 7,563 8,689 9,224
Total troubled debt restructurings $15,904 $18,019 $19,917 $21,384 $23,454
Percentage of total gross loans 2.22% 2.51% 2.85% 3.06% 3.55%


Loans are reported as a troubled debt restructuring when we grant a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the loan 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 we will not collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement. Impairment reserves on non-collateral dependent restructured loans are measured by calculating 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 three months ended December 31, 2015, we restructured one loan to grant payment deferral modifications. The loan was classified as troubled debt restructurings and placed on nonaccrual status. As of December 31, 2015, we had 120 restructured loans that qualified as troubled debt restructurings, of which 107 were performing according to their restructured terms.

TABLE 10
NONPERFORMING ASSETS - UNAUDITED
(amounts in thousands)
At December 31, At September 30, At June 30, At March 31, At December 31,
2015 2015 2015 2015 2014
Total nonaccrual loans $14,009 $15,541 $16,907 $18,513 $21,649
90 days past due and still accruing 88 52 54 30 23
Total nonperforming loans 14,097 15,593 16,961 18,543 21,672
Other real estate owned 1,423 1,525 1,405 1,502 502
Total nonperforming assets $15,520 $17,118 $18,366 $20,045 $22,174
Nonperforming loans to gross loans 1.97% 2.17% 2.42% 2.65% 3.28%
Nonperforming assets to total assets 1.53% 1.73% 1.87% 2.03% 2.22%


At December 31, 2015, December 31, 2014 and September 30, 2015, the recorded investment in OREO was $1.4 million, $502 thousand and $1.5 million, respectively. The December 31, 2015 OREO balance consists of 11 properties, of which six are 1-4 family residential real estate in the amount of $513 thousand, four are nonfarm nonresidential properties in the amount of $740 thousand and one is an undeveloped commercial property in the amount of $170 thousand.

TABLE 11
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
At December 31, At December 31, Change At September 30,
2015 2014 $ % 2015
Assets:
Cash and due from banks $ 9,730 $ 9,571 $ 159 2 % $ 8,564
Interest-bearing deposits in other banks 41,462 48,851 (7,389) (15)% 16,745
Total cash and cash equivalents 51,192 58,422 (7,230) (12)% 25,309
Securities available-for-sale, at fair value 159,030 186,986 (27,956) (15)% 157,309
Securities held-to-maturity, at amortized cost 35,899 36,806 (907) (2)% 36,093
Loans, net of deferred fees and costs 717,509 661,055 56,454 9 % 719,251
Allowance for loan and lease losses (11,180) (10,820) (360) 3 % (10,891)
Net loans 706,329 650,235 56,094 9 % 708,360
Premises and equipment, net 11,072 12,295 (1,223) (10)% 11,112
Other real estate owned 1,423 502 921 183 % 1,525
Life insurance 22,485 21,844 641 3 % 22,326
Deferred taxes 9,760 10,231 (471) (5)% 10,638
Other assets 18,251 19,871 (1,620) (8)% 18,057
Total assets $ 1,015,441 $ 997,192 $ 18,249 2 % $ 990,729
Liabilities and shareholders' equity:
Demand - noninterest bearing $ 169,507 $ 157,557 $ 11,950 8 % $ 162,437
Demand - interest bearing 315,658 298,160 17,498 6 % 295,209
Savings 94,503 88,569 5,934 7 % 93,367
Certificates of deposit 224,067 244,749 (20,682) (8)% 228,492
Total deposits 803,735 789,035 14,700 2 % 779,505
Term debt 94,917 75,000 19,917 27 % 75,000
Unamortized debt issuance costs (223) (223) 100 %
Net term debt 94,694 75,000 19,694 26 % 75,000
Junior subordinated debentures 10,310 10,310 0 % 10,310
Other liabilities 16,180 19,245 (3,065) (16)% 17,239
Total liabilities 924,919 893,590 31,329 4 % 882,054
Shareholders' equity:
Preferred stock - 19,931 (19,931) (100)% 19,931
Common stock 24,214 23,891 323 1 % 24,180
Retained earnings 66,562 59,867 6,695 11 % 65,232
Accumulated other comprehensive loss, net of tax (254) (87) (167) 192 % (668)
Total shareholders' equity 90,522 103,602 (13,080) (13)% 108,675
Total liabilities and shareholders' equity $ 1,015,441 $ 997,192 $ 18,249 2 % $ 990,729
Total interest earning assets $ 952,212 $ 931,109 $ 21,103 2 % $ 927,773
Shares outstanding 13,385 13,298 13,374
Book value per share $ 6.76 $ 6.29 $ 6.64


TABLE 12
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
For The Three Months Ended For The Twelve Months Ended
December 31, Change September 30, December 31,
2015 2014 $ % 2015 2015 2014
Interest income:
Interest and fees on loans $8,299 $7,832 $ 467 6 % $8,357 $32,871 $ 29,464
Interest on securities 795 984 (189) (19)% 743 3,284 4,214
Interest on tax-exempt securities 599 620 (21) (3)% 592 2,392 2,536
Interest on deposits in other banks 39 93 (54) (58)% 40 206 479
Total interest income 9,732 9,529 203 2 % 9,732 38,753 36,693
Interest expense:
Interest on demand deposits 121 109 12 11 % 116 460 471
Interest on savings deposits 51 55 (4) (7)% 53 213 228
Interest on certificates of deposit 585 623 (38) (6)% 586 2,356 2,608
Interest on term debt 572 370 202 55 % 475 1,759 422
Interest on other borrowings 52 82 (30) (37)% 47 195 363
Total interest expense 1,381 1,239 142 11 % 1,277 4,983 4,092
Net interest income 8,351 8,290 61 1 % 8,455 33,770 32,601
Provision for loan and lease losses 675 (675) (100)% 3,175
Net interest income after provision
for loan and lease losses
8,351 7,615 736 10 % 8,455 33,770 29,426
Noninterest income:
Service charges on deposit accounts 51 51 0 % 52 204 186
Payroll and benefit processing fees 139 137 2 1 % 138 555 508
Earnings on cash surrender value - life insurance 159 169 (10) (6)% 158 641 628
Gain (loss) on investment securities, net 30 93 (63) (68)% 137 443 (159)
Other income 261 694 (433) (62)% 323 1,340 3,152
Total noninterest income 640 1,144 (504) (44)% 808 3,183 4,315


TABLE 12 - CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
For The Three Months Ended For The Twelve Months Ended
December 31, Change September 30, December 31,
2015 2014 $ % 2015 2015 2014
Noninterest expense:
Salaries and related benefits 3,610 4,301 (691) (16)% 3,208 14,303 14,965
Occupancy and equipment 737 715 22 3 % 714 2,894 2,784
Write down of other real estate owned 0 % 290
Federal Deposit Insurance Corporation
insurance premium
173 214 (41) (19)% 159 717 798
Data processing fees 280 270 10 4 % 243 1,016 926
Professional service fees 461 581 (120) (21)% 337 1,628 1,398
Branch acquisition costs 347 347 100 % 347
Other expenses 1,008 1,091 (83) (8)% 913 4,000 5,273
Total noninterest expense 6,616 7,172 (556) (8)% 5,574 24,905 26,434
Income before provision for income taxes 2,375 1,587 788 50 % 3,689 12,048 7,307
Provision for income taxes 505 (96) 601 (626)% 1,164 3,462 1,580
Net income $ 1,870 $ 1,683 $ 187 11 % $ 2,525 $ 8,586 $ 5,727
Less: Preferred stock extinguishment costs 102 102 100 % 102
Less: Preferred dividends 39 50 (11) (22)% 50 189 200
Income available to common shareholders $ 1,729 $ 1,633 $ 96 6 % $ 2,475 $ 8,295 $ 5,527
Basic earnings per share $ 0.13 $ 0.12 $ 0.01 8 % $ 0.18 $ 0.62 $ 0.41
Average basic shares 13,341 13,295 46 0 % 13,340 13,331 13,475
Diluted earnings per share $ 0.13 $ 0.12 $ 0.01 8 % $ 0.18 $ 0.62 $ 0.41
Average diluted shares 13,395 13,335 60 0 % 13,377 13,365 13,520


TABLE 13
UNAUDITED CONDENSED CONSOLIDATED
ANNUAL AVERAGE BALANCE SHEETS
(amounts in thousands)
For The Twelve Months Ended
December 31, December 31, December 31, December 31,
2015 2014 2013 2012
Earning assets:
Loans $699,227 $625,166 $612,780 $642,200
Taxable securities 120,897 147,916 157,486 135,615
Tax exempt securities 77,089 83,973 92,854 81,714
Interest-bearing deposits in other banks 30,323 56,465 43,342 48,712
Average earning assets 927,536 913,520 906,462 908,241
Cash and due from banks 11,220 11,246 10,624 10,125
Premises and equipment, net 11,552 12,105 10,337 9,567
Other assets 42,423 36,936 26,431 24,249
Average total assets $992,731 $973,807 $953,854 $952,182
Liabilities and shareholders' equity:
Demand - noninterest bearing $156,578 $139,792 $122,011 $115,091
Demand - interest bearing 283,105 272,383 244,125 203,342
Savings 92,659 91,108 92,502 89,789
Certificates of deposit 238,626 259,445 248,350 285,574
Total deposits 770,968 762,728 706,988 693,796
Repurchase agreements 5,780 14,246
Term debt, net 88,874 77,534 107,603 110,374
Junior subordinated debentures 10,310 15,239 15,465 15,465
Other liabilities 16,588 15,934 11,825 7,033
Average total liabilities 886,740 871,435 847,661 840,914
Shareholders' equity 105,991 102,372 106,193 111,268
Average liabilities & shareholders' equity $992,731 $973,807 $953,854 $952,182


TABLE 14
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
For The Three Months Ended
December 31, September 30, June 30, March 31, December 31,
2015 2015 2015 2015 2014
Earning assets:
Loans $714,494 $705,762 $703,008 $673,120 $656,834
Taxable securities 111,098 115,165 121,110 136,557 141,265
Tax exempt securities 78,081 76,190 76,772 77,316 82,231
Interest-bearing deposits in other banks 37,158 30,430 27,688 25,893 36,971
Average earning assets 940,831 927,547 928,578 912,886 917,301
Cash and due from banks 12,372 11,355 10,833 10,295 12,263
Premises and equipment, net 11,001 11,265 11,767 12,195 12,464
Other assets 41,666 41,867 42,637 43,540 43,072
Average total assets $1,005,870 $992,034 $993,815 $978,916 $985,100
Liabilities and shareholders' equity:
Demand - noninterest bearing $171,449 $158,232 $147,442 $148,923 $153,007
Demand - interest bearing 302,862 284,508 268,784 275,954 277,692
Savings 92,939 93,230 93,291 91,152 89,992
Certificates of deposit 226,924 235,551 245,573 246,707 254,943
Total deposits 794,174 771,521 755,090 762,736 775,634
Term debt 79,772 86,359 105,330 84,111 75,000
Junior subordinated debentures 10,310 10,310 10,310 10,310 14,568
Other liabilities 16,197 16,140 16,887 17,141 16,751
Average total liabilities 900,453 884,330 887,617 874,298 881,953
Shareholders' equity 105,417 107,704 106,198 104,618 103,147
Average liabilities & shareholders' equity $ 1,005,870 $ 992,034 $ 993,815 $ 978,916 $ 985,100


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 Street1211 SW Fifth Avenue, Suite 1400
San Francisco, CA 94105Portland, OR 97204
(800) 346-5544(866) 662-0351
Sandler O’Neill + Partners, L.P.Stifel Nicolaus
Brian SullivanPerry Wright
1251 Avenue of the Americas, 6th Floor1255 East Street, Suite 100
New York, NY 10022Redding, CA 96001
(212) 466-8022(530) 244-7199

Contact Information:

Randall S. Eslick, President and Chief Executive Officer
Telephone Direct (530) 722-3900

Samuel D. Jimenez, Executive Vice President and Chief Operating Officer
Telephone Direct (530) 722-3952

James A. Sundquist, Executive Vice President and Chief Financial Officer
Telephone Direct (530) 722-3908

Andrea Schneck, Vice President and Senior Administrative Officer
Telephone Direct (530) 722-3959

Source:Bank of Commerce Holdings