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Bank of Commerce Holdings Announces Results for the Fourth Quarter of 2016

REDDING, Calif., Jan. 20, 2017 (GLOBE NEWSWIRE) -- Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ:BOCH) (the “Company”), a $1.1 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, 2016. Net income available to common shareholders for the quarter ended December 31, 2016 was $2.3 million or $0.17 per share – diluted, compared with $1.7 million or $0.13 per share – diluted for the same period of 2015. Net income available to common shareholders for the year ended December 31, 2016 was $5.3 million or $0.39 per share –diluted compared with $8.3 million or $0.62 per share – diluted for the same period of 2015.

Financial highlights for the fourth quarter of 2016:

  • Net income available to common shareholders of $2.3 million for the three months ended December 31, 2016 was an increase of $568 thousand (33%) from $1.7 million available to common shareholders earned during the same period in the prior year.
  • Return on average assets improved to 0.81% for the fourth quarter of 2016 compared to 0.68% for the same period in the prior year.
  • Return on average equity improved to 9.69% for the fourth quarter of 2016 compared to 6.51% for the same period in the prior year.
  • Deposits at December 31, 2016 totaled $1.0 billion, an increase of $29.2 million (12% annualized) since September 30, 2016. This growth was centered in core deposits in our Sacramento marketplace.
  • Gross loans at December 31, 2016 totaled $804.2 million, an increase of $25.2 million (13% annualized) since September 30, 2016. Most of this growth occurred in our Sacramento marketplace and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.
  • Tangible book value per common share was $6.83 at December 31, 2016 compared to $6.84 at September 30, 2016.

Financial highlights for the year ended December 31, 2016:

  • Net income available to common shareholders of $5.3 million for the year ended December 31, 2016 was a decrease of $3.0 million (37%) from $8.3 million available to common shareholders earned during the prior year. Net income for 2016 is negatively impacted by $3.0 million of branch acquisition and balance sheet restructuring costs, a $546 thousand impairment of an investment security and the write-off of a $363 thousand deferred tax asset during prior quarters.
  • Return on average assets declined to 0.49% for the year ended December 31, 2016 compared to 0.84% for the prior year.
  • Return on average equity declined to 5.68% for the year ended December 31, 2016 compared to 7.83% for the prior year.
  • Deposits at December 31, 2016 totaled $1.0 billion, an increase of $200.9 million (25%) since December 31, 2015
  • Gross loans at December 31, 2016 totaled $804.2 million, an increase of $87.6 million (12%) since December 31, 2015.
  • Nonperforming assets at December 31, 2016 totaled $12.1 million, a decrease of $3.4 million (22%) compared to December 31, 2015.
  • Net loan loss recoveries of $364 thousand combined with continuing improved asset quality resulted in no provision for loan and lease losses.

Randall S. Eslick, President and CEO commented: “It has been a very productive year. As a result of the exceptional efforts of our dedicated and talented employees, we are a much improved company from 12 months ago. The acquisition of five new offices, the restructuring of our balance sheet and our significant growth in both loans and core deposits provide a solid foundation for continued success in 2017.”

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

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, 2015 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 2016 2015 2016 2016 2015
Income available to common shareholders $2,297 $1,729 $2,366 $5,259 $8,295
Average total assets $1,126,034 $1,005,870 $1,093,918 $1,079,750 $992,731
Average total earning assets $1,051,387 $940,831 $1,019,230 $1,007,793 $927,536
Average shareholders' equity $94,326 $105,417 $93,238 $92,554 $105,991
Selected performance ratios
Return on average assets 0.81% 0.68% 0.86% 0.49% 0.84%
Return on average equity 9.69% 6.51% 10.10% 5.68% 7.83%
Efficiency ratio 73.15% 73.58% 69.61% 81.88% 67.40%
Share and per share amounts
Weighted average shares - basic 13,370 13,341 13,369 13,367 13,331
Weighted average shares - diluted 13,476 13,395 13,439 13,425 13,365
Earnings per share - basic $0.17 $0.13 $0.18 $0.39 $0.62
Earnings per share - diluted $0.17 $0.13 $0.18 $0.39 $0.62
At December 31, At September 30,
Share and per share amounts 2016 2015 2016
Common shares outstanding (1) 13,440 13,385 13,439
Tangible book value per common share $6.83 $6.76 $6.84
Capital ratios
Bank of Commerce Holdings
Common equity tier 1 capital ratio (2) 9.43% 10.06% 9.60%
Tier 1 capital ratio (2) 10.42% 11.16% 10.65%
Total capital ratio (2) 12.68% 13.52% 12.96%
Tier 1 leverage ratio (2) 9.13% 10.03% 9.28%
Tangible common equity ratio 8.07% 8.91% 8.30%
Redding Bank of Commerce
Common equity tier 1 capital ratio 12.31% 13.31% 12.62%
Tier 1 capital ratio 12.31% 13.31% 12.62%
Total capital ratio 13.55% 14.56% 13.87%
Tier 1 leverage ratio 10.80% 11.98% 11.03%
(1) Includes unvested restricted shares issued in accordance with the Bank's equity incentive plan.
(2) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The capital ratios for 2016 were impacted by increased average total assets, the addition of $1.8 million of core deposit intangibles and $665 thousand of goodwill recorded in conjunction with the acquisition of five branches in March of 2016.

BALANCE SHEET OVERVIEW

As of December 31, 2016, the Company had total consolidated assets of $1.1 billion, gross loans of $804.2 million, allowance for loan and lease losses (“ALLL”) of $11.5 million, total deposits of $1.0 billion, and shareholders’ equity of $94.3 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
At December 31, At September 30,
% of % of Change % of
2016 Total 2015 Total Amount % 2016 Total
Commercial $153,844 19% $132,805 19% $21,039 16 % $136,235 17%
Real estate - construction and land development 57,771 7 28,319 4 29,452 104 % 48,365 6
Real estate - commercial non-owner occupied 287,455 36 243,374 33 44,081 18 % 281,977 36
Real estate - commercial owner occupied 151,516 19 156,299 22 (4,783) (3)% 160,474 21
Real estate - residential - ITIN 45,566 6 49,106 7 (3,540) (7)% 46,458 6
Real estate - residential - 1-4 family mortgage 12,866 2 13,640 2 (774) (6)% 12,994 2
Real estate - residential - equity lines 43,512 5 43,223 6 289 1 % 40,139 5
Consumer and other 51,681 6 49,873 7 1,808 4 % 52,377 7
Gross loans 804,211 100% 716,639 100% 87,572 12 % 779,019 100%
Deferred fees and costs 1,324 870 454 1,155
Loans, net of deferred fees and costs 805,535 717,509 88,026 780,174
Allowance for loan and lease losses (11,544) (11,180) (364) (11,849)
Net loans $793,991 $706,329 $87,662 $768,325
Average yield on loans during the quarter 4.69% 4.61% 0.08 4.66%

The Company recorded gross loan balances of $804.2 million at December 31, 2016, compared with $716.6 million and $779.0 million at December 31, 2015 and September 30, 2016, respectively, an increase of $87.6 million and $25.2 million, respectively. The increase in gross loans compared to the same period a year ago and the prior period was driven by organic loan originations in our Sacramento marketplace and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.

The increase in the ALLL at December 31, 2016 compared to the same date a year ago resulted from net loan loss recoveries. 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 or during the prior seven consecutive quarters. See table 8 for additional details 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
2016 Total 2015 Total Amount % 2016 Total
Cash and due from banks $16,419 6% $9,730 4% $6,689 69 % $19,699 7%
Interest-bearing deposits in other banks 51,988 19 41,462 17 10,526 25 % 65,431 24
Total cash and cash equivalents 68,407 25 51,192 21 17,215 34 % 85,130 31
Investment securities:
U.S. government and agencies 0 3,943 2 (3,943) (100)% 0
Obligations of state and political subdivisions 59,428 22 61,104 25 (1,676) (3)% 59,952 22
Residential mortgage backed securities and collateralized mortgage obligations 69,604 25 32,137 13 37,467 117 % 54,046 20
Corporate securities 16,116 6 33,778 14 (17,662) (52)% 16,346 6
Commercial mortgage backed securities 15,514 6 12,769 5 2,745 21 % 16,254 6
Other asset backed securities 14,512 5 15,299 6 (787) (5)% 9,842 4
Total investment securities - AFS 175,174 64 159,030 65 16,144 10 % 156,440 58
Obligations of state and political subdivisions - HTM 31,187 11 35,899 14 (4,712) (13)% 31,771 11
Total investment securities - AFS and HTM 206,361 75 194,929 79 11,432 6 % 188,211 69
Total cash, cash equivalents and investment securities $274,768 100% $246,121 100% $28,647 12 % $273,341 100%
Average yield on interest bearing due from banks and investment securities during the quarter 1.95% 2.51% (0.56) 2.11%

As of December 31, 2016, we maintained noninterest-bearing cash positions of $16.4 million and interest-bearing deposits in the amount of $52.0 million at the Federal Reserve Bank and correspondent banks. During the fourth quarter of 2016, we deployed liquidity provided by the March 2016 branch acquisition and strong organic deposit growth into loan originations and available for sale securities. For the quarter ended December 31, 2016 compared to the prior quarter a $16.7 million decrease in total cash and cash equivalents and $29.2 million from increased total deposits was used to fund a $25.2 million increase in gross loan balances and an $18.7 million increase in available for sale securities.

Available-for-sale investment securities totaled $175.2 million at December 31, 2016, compared with $159.0 million and $156.4 million at December 31, 2015 and September 30, 2016, 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 2016 we purchased 24 securities with a par value of $31.3 million and weighted average yield of 2.16% and sold four securities with a par value of $4.1 million and weighted average yield of 2.64%. The sales activity on available for sale securities resulted in $52.0 thousand in net realized gains. During the same period, we received $6.0 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 ended December 31, 2016 and 2015 were $197.2 million and 3.02% compared to $189.2 million and 3.57%, respectively.

During the second quarter of 2016, we recorded an other-than-temporary impairment of $546 thousand on an investment security. We did not recognize any additional, other-than-temporary impairment losses for the year ended December 31, 2016, or the year ended December 31, 2015.

At December 31, 2016, our net unrealized losses on available-for-sale investment securities were $1.3 million compared with net unrealized gains of $1.6 million and $2.3 million at December 31, 2015 and September 30, 2016, respectively. The decrease in net unrealized gains between September 30, 2016 and December 31, 2016 is primarily due to significant changes in market interest rates over the past three months.

TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
At December 31, At September 30,
% of % of Change % of
2016 Total 2015 Total Amount % 2016 Total
Demand - noninterest bearing $270,398 27% $169,507 21% $100,891 60 % $254,435 26%
Demand - interest bearing 405,569 40 315,658 39 89,911 28 % 394,525 40
Total demand 675,967 67 485,165 60 190,802 39 % 648,960 66
Savings 113,309 11 94,503 12 18,806 20 % 110,201 11
Total non-maturing deposits 789,276 78 579,668 72 209,608 36 % 759,161 77
Certificates of deposit 215,390 22 224,067 28 (8,677) (4)% 216,332 23
Total deposits $1,004,666 100% $803,735 100% $200,931 25 % $975,493 100%
Average rate on interest bearing deposits during the quarter 0.40% 0.48% (0.08) 0.39%
Average rate on all deposits during the quarter 0.29% 0.38% (0.09) 0.29%

Total deposits at December 31, 2016, increased $200.9 million or 25% to $1.0 billion compared to December 31, 2015, and increased $29.2 thousand or 3% compared to September 30, 2016. Total non-maturing deposits increased $209.6 million or 36% compared to the same date a year ago and increased $30.1 million or 4% compared to September 30, 2016. Certificates of deposit decreased $8.7 million or 4% compared to the same date a year ago and decreased $942 thousand or 0.4% compared to September 30, 2016.

During the first quarter of 2016 the branch acquisition provided an additional $149.0 million of deposits and we called and redeemed $17.5 million of brokered certificates of deposit. At December 31, 2016, the deposits in the acquired branches totaled $145.6 million.

TABLE 5
WHOLESALE AND BROKERED DEPOSITS - UNAUDITED
(amounts in thousands)
At December 31, At September 30,
2016 2015 2016
CDARS / ICS reciprocal deposits $65,212 $76,919 $59,502
Third party brokered time deposits 17,509
Brokered deposits per Call Report 65,212 94,428 59,502
Online listing service time deposits 48,900 58,462 52,456
Total wholesale and brokered deposits $114,112 $152,890 $111,958

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $65.2 million, $94.4 million and $59.5 million at December 31, 2016, December 31, 2015 and September 30, 2016, respectively.

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
2016 2015 Amount % 2016 Amount %
Interest income $10,518 $9,732 $786 8 % $10,330 $188 2 %
Interest expense 1,084 1,381 (297) (22)% 1,054 30 3 %
Net interest income 9,434 8,351 1,083 13 % 9,276 158 2 %
Provision for loan and lease losses % %
Noninterest income 1,250 640 610 95 % 959 291 30 %
Noninterest expense:
Branch acquisition and balance sheet reconfiguration costs 347 (347) (100)% %
Other noninterest expense 7,815 6,269 1,546 25 % 7,125 690 10 %
Income before provision for income taxes 2,869 2,375 494 21 % 3,110 (241) (8)%
Provision for income taxes 572 505 67 13 % 744 (172) (23)%
Net income $2,297 $1,870 $427 23 % $2,366 (69) (3)%
Less: Preferred stock extinguishment costs 102 (102) (100)% %
Less: Preferred dividends 39 (39) (100)% %
Income available to common shareholders $2,297 $1,729 $568 33 % $2,366 $(69) (3)%
Basic earnings per share $0.17 $0.13 $0.04 31 % $0.18 $(0.01) (6)%
Average basic shares 13,370 13,341 29 % 13,369 1 %
Diluted earnings per share $0.17 $0.13 $0.04 31 % $0.18 $(0.01) (6)%
Average diluted shares 13,476 13,395 81 1 % 13,439 37 %
Dividends declared per common share $0.03 $0.03 $ % $0.03 $ %

Fourth Quarter of 2016 Compared With Fourth Quarter of 2015

Net income available to common shareholders for the fourth quarter of 2016 increased $568 thousand compared to the fourth quarter of 2015. In the current quarter, net interest income was $1.1 million higher and noninterest income was $610 thousand higher. These positive changes were offset by an increase in noninterest expense of $1.2 million and a provision for income tax that was $67 thousand higher.

Net Interest Income

Net interest income increased $1.1 million over a year previous.

Interest income for the three months ended December 31, 2016 increased $786 thousand or 8% to $10.5 million. Interest and fees on loans increased $882 thousand primarily due to increased average loan balances. Interest on interest bearing deposits due from banks increased $71 thousand while interest on securities decreased $167 thousand.

Interest expense for the fourth quarter of 2016 decreased $297 thousand or 22% to $1.1 million. The net decrease was caused by the following.

  • Interest on FHLB term debt decreased $499 thousand. During the first quarter of 2016 all FHLB term debt was repaid and an interest rate hedge associated with $75.0 million of that debt was terminated
  • Interest on $20.0 million of senior and subordinated term debt increased $223 thousand. The senior and subordinated term debt was issued during the fourth quarter of 2015 to redeem $20.0 million of preferred stock
  • Interest on interest bearing deposits decreased $34 thousand. Interest bearing deposits increased $100.0 million compared to the prior year, but the rate paid on all interest bearing deposits decreased by 9 basis points
  • Interest on junior subordinated debentures and other borrowings increased $13 thousand

Noninterest Income

Noninterest income for the three months ended December 31, 2016 increased $610 thousand compared to the same period a year ago. Our branch and offsite ATM acquisition completed in the first quarter, enhanced point of sale and ATM fees by $177 thousand and service charges on deposit accounts by $69 thousand for the quarter ended December 31, 2016 compared to the same period a year ago. Federal Home Loan Bank of San Francisco stock dividends increased $254 thousand compared to the same period a year ago primarily due to a special dividend recorded during the three months ended December 31, 2016.

Noninterest Expense

Noninterest expense for the three months ended increased $1.2 million compared to the same period a year ago. The increase was primarily driven by increased costs to operate the five newly acquired branches and three offsite ATM locations. The net increase in noninterest expenses during the current quarter compared to the same period a year ago included the following:

  • Salaries and occupancy costs directly related to the newly acquired branch and offsite ATM locations of $574 thousand
  • Salaries and occupancy costs for all other locations increased $338 thousand primarily as a result of investment in our Sacramento marketplace commercial banking group
  • Data processing fees increased $253 thousand
  • Telecommunications expense increased $92 thousand
  • ATM processing fees increased $53 thousand as a result of the additional activity at the recently acquired branch and offsite ATM locations
  • Branch acquisition costs decreased $347 thousand

Income Tax Provision

During the three months ended December 31, 2016, the Company recorded a provision for income taxes of $572 thousand (19.94% of pretax income) compared with a provision for income taxes of $505 million (21.26% of pretax income) for the same period a year ago.

Fourth Quarter of 2016 Compared With Third Quarter of 2016

Net income available to common shareholders for the fourth quarter of 2016 decreased $69 thousand over the third quarter of 2016. In the current quarter, net interest income was $158 thousand higher, noninterest income was $291 thousand higher and the provision for income taxes decreased $172 thousand. These positive changes were offset by noninterest expenses that were $690 thousand higher.

Net Interest Income

Net interest income increased $158 thousand over the prior quarter.

Interest income for the three months ended December 31, 2016 increased $188 thousand or 2% to $10.5 million compared to the prior quarter. Interest and fees on loans increased $174 thousand due to increased average balances and increased yields. Interest on interest bearing deposits due from banks increased $28 thousand due to increased average balances and increased yields. These positive changes were partially offset by decreased interest on investment securities of $14 thousand.

Interest expense for the three months December 31, 2016 increased $30 thousand or 3% to $1.1 million compared to the prior quarter. Average total deposits for the fourth quarter of 2016 increased $30.0 million from the third quarter of 2016. The growth was in low cost core deposits.

Noninterest Income

Noninterest income for the three months ended December 31, 2016 increased $291 thousand compared to the prior quarter. During the current quarter Federal Home Loan Bank of San Francisco stock dividends increased $251 thousand primarily due to a special dividend recorded during the three months ended December 31, 2016.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2016 increased $690 thousand compared to the prior quarter.

The increase in noninterest expense was primarily driven by following items:

  • Salaries and related benefits costs increased $251 thousand
  • Professional service fees increased $178 thousand
  • Deferred loan origination costs decreased $113 thousand
  • Data processing fees increased $69 thousand
  • Advertising costs increased $73 thousand

Income Tax Provision

During the three months ended December 31, 2016, we recorded a provision for income taxes of $572 thousand (19.94% of pretax income) compared with a provision for income taxes of $744 thousand (23.92% of pretax income) for the prior quarter. Our income tax provision is composed of two main components: 1) federal and state income taxes based on our income and 2) amortization of our investments in affordable housing partnerships. The decrease in the effective tax rate during the three months ended December 31, 2016 when compared to the prior quarter is due to a decrease in the amortization of our investments in affordable housing partnerships.

Earnings Per Share

Diluted earnings per share available to common shareholders were $0.17 for the three months ended December 31, 2016 compared with diluted earnings per share available to common shareholders of $0.13 for the same period a year ago, and $0.18 for the prior period. The number of shares outstanding during these periods has not changed significantly. Changes in earnings per share are the result of changes in net income.

TABLE 7
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
For The Three Months Ended
December 31, Change September 30, Change
2016 2015 Amount 2016 Amount
Yield on average interest earning assets 3.98% 4.10% (0.12) 4.03% (0.05)
Interest expense to fund average earning assets 0.41% 0.58% (0.17) 0.41% 0.00
Net interest margin - nominal 3.57% 3.52% 0.05 3.62% (0.05)
Yield on average interest earning assets - tax equivalent basis 4.08% 4.23% (0.15) 4.14% (0.06)
Interest expense to fund average earning assets 0.41% 0.58% (0.17) 0.41% 0.00
Net interest margin - tax equivalent basis 3.67% 3.65% 0.02 3.73% (0.06)
Average earning assets $1,051,387 $940,831 $110,556 $1,019,230 $32,157
Average interest bearing liabilities $757,252 $712,807 $44,445 $749,103 $8,149

The current quarter net interest margin decreased five basis points to 3.57% as compared to the prior quarter due to decreased yields in the investment portfolio. In the current interest rate environment, cash flows from maturities and repayments are being reinvested at interest rates lower than the maturing instruments.

The net interest margin was 3.57% for the current quarter compared to 3.52% for the same period a year ago. The 12 basis point decrease in yield on average earning assets has been offset by a 17 basis point decrease in interest expense to fund average earning assets. The decrease in interest income compared to the same quarter in the prior year is due to decreased yields in the investment portfolio and partially offset by increased yields on loans. The decrease in interest expense resulted from our acquisition of low cost core deposits and our ability to restructure our balance sheet.

Deposit balances increased $29.2 million and $200.9 million compared to the prior quarter and the same period a year ago respectively. The increase in deposit balances compared to the prior quarter was centered entirely in core deposits. The increase in deposit balances compared to the same period a year ago results from both the March 2016 branch acquisition and strong organic growth. Our overall cost of total deposits decreased to 0.29% for the quarter ended December 31, 2016 from 0.38% for the same period a year ago and were unchanged from 0.29% for the prior quarter.

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,
2016 2016 2016 2016 2015
Beginning balance $11,849 $11,864 $11,495 $11,180 $10,891
Provision for loan and lease losses charged to expense
Loans charged off (386) (357) (1,734) (307) (707)
Loan loss recoveries 81 342 2,103 622 996
Ending balance $11,544 $11,849 $11,864 $11,495 $11,180
At December 31, At September 30, At June 30, At March 31, At December 31,
2016 2016 2016 2016 2015
Nonaccrual loans:
Commercial $2,749 $1,710 $2,149 $2,563 $1,994
Real estate - commercial non-owner occupied 1,196 1,196 1,197 1,197 5,488
Real estate - commercial owner occupied 784 800 816 1,190 1,071
Real estate - residential - ITIN 3,576 3,392 3,664 3,705 3,649
Real estate - residential - 1-4 family mortgage 1,914 1,798 1,824 1,742 1,775
Real estate - residential - equity lines 917 942 995 1,270
Consumer and other 250 252 266 31 32
Total nonaccrual loans 11,386 10,090 10,911 11,698 14,009
Accruing troubled debt restructured loans:
Commercial 776 726 760 40 49
Real estate - commercial non-owner occupied 808 811 816 821 824
Real estate - residential - ITIN 5,033 5,280 5,336 5,502 5,458
Real estate - residential - equity lines 454 543 548 553 558
Total accruing troubled debt restructured loans 7,071 7,360 7,460 6,916 6,889
All other accruing impaired loans 337 483 550 488 492
Total impaired loans $18,794 $17,933 $18,921 $19,102 $21,390
Gross loans outstanding at period end $804,211 $779,019 $754,140 $724,243 $716,639
Allowance for loan and lease losses as a percent of:
Gross loans 1.44 % 1.52 % 1.57 % 1.59 % 1.56 %
Nonaccrual loans 101.39 % 117.43 % 108.73 % 98.26 % 79.81 %
Impaired loans 61.42 % 66.07 % 62.70 % 60.18 % 52.27 %
Nonaccrual loans to gross loans 1.42 % 1.30 % 1.45 % 1.62 % 1.95 %

We realized net loan charge offs of $305 thousand in the current quarter compared with net loan loss charge offs of $15 thousand in the prior quarter and net loan recoveries of $289 thousand for the same period a year ago. Charge offs during the fourth quarter of 2016 of $386 thousand were primarily associated with purchased consumer loans, offset by recoveries totaling $81 thousand.

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 this quarter or the previous seven consecutive quarters. Our ALLL as a percentage of gross loans was 1.44% as of December 31, 2016 compared to 1.56% as of December 31, 2015 and 1.52% as of September 30, 2016. 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, 2016. 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, 2016, the recorded investment in loans classified as impaired totaled $18.8 million, with a corresponding valuation allowance of $1.5 million compared to impaired loans of $21.4 million with a corresponding valuation allowance of $832 thousand at December 31, 2015 and impaired loans of $17.9 million, with a corresponding valuation allowance of $925 thousand at September 30, 2016. The increase in loans classified as impaired and the corresponding valuation allowance compared to the prior quarter is due to two restructured loans for one commercial relationship. 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,
2016 2016 2016 2016 2015
Nonaccrual $4,995 $3,795 $3,785 $4,516 $9,015
Accruing 7,071 7,360 7,460 6,916 6,889
Total troubled debt restructurings $12,066 $11,155 $11,245 $11,432 $15,904
Percentage of total gross loans 1.50% 1.43% 1.49% 1.58% 2.22%

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, 2016, the Company restructured three loans; two to grant a maturity modification and the other to grant a maturity and rate modification. The loans were classified as troubled debt restructurings and two were placed on nonaccrual status. As of December 31, 2016, we had 121 restructured loans that qualified as troubled debt restructurings, of which 112 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,
2016 2016 2016 2016 2015
Total nonaccrual loans $11,386 $10,090 $10,911 $11,698 $14,009
90 days past due and still accruing 10 88
Total nonperforming loans 11,386 10,090 10,921 11,698 14,097
Other real estate owned 759 793 765 1,011 1,423
Total nonperforming assets $12,145 $10,883 $11,686 $12,709 $15,520
Nonperforming loans to gross loans 1.42% 1.30% 1.45% 1.62% 1.97%
Nonperforming assets to total assets 1.06% 0.98% 1.09% 1.18% 1.53%

The increase in nonaccrual loans during the fourth quarter of 2016 was associated with one commercial relationship.

At December 31, 2016, December 31, 2015 and September 30, 2016, the recorded investment in OREO was $759 thousand, $1.4 million and $793 thousand, respectively. The December 31, 2016 OREO balance consists of five properties, of which two are 1-4 family residential real estate properties in the amount of $66 thousand, two are nonfarm nonresidential properties in the amount of $581 thousand and one is an undeveloped commercial property in the amount of $112 thousand.

TABLE 11
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
At December 31, At December 31, Change At September 30,
2016 2015 $ % 2016
Assets:
Cash and due from banks $16,419 $9,730 $6,689 69 % $19,699
Interest-bearing deposits in other banks 51,988 41,462 10,526 25 % 65,431
Total cash and cash equivalents 68,407 51,192 17,215 34 % 85,130
Securities available-for-sale, at fair value 175,174 159,030 16,144 10 % 156,440
Securities held-to-maturity, at amortized cost 31,187 35,899 (4,712) (13)% 31,771
Loans, net of deferred fees and costs 805,535 717,509 88,026 12 % 780,174
Allowance for loan and lease losses (11,544) (11,180) (364) 3 % (11,849)
Net loans 793,991 706,329 87,662 12 % 768,325
Premises and equipment, net 16,226 11,072 5,154 47 % 15,930
Other real estate owned 759 1,423 (664) (47)% 793
Life insurance 23,098 22,485 613 3 % 22,946
Deferred taxes 9,542 9,760 (218) (2)% 8,171
Goodwill and core deposit intangibles, net 2,252 2,252 100 % 2,307
Other assets 20,356 18,251 2,105 12 % 19,205
Total assets $1,140,992 $1,015,441 $125,551 12 % $1,111,018
Liabilities and shareholders' equity:
Demand - noninterest bearing $270,398 $169,507 $100,891 60 % $254,435
Demand - interest bearing 405,569 315,658 89,911 28 % 394,525
Savings 113,309 94,503 18,806 20 % 110,201
Certificates of deposit 215,390 224,067 (8,677) (4)% 216,332
Total deposits 1,004,666 803,735 200,931 25 % 975,493
Term debt 18,917 94,917 (76,000) (80)% 19,317
Unamortized debt issuance costs (184) (223) 39 (17)% (193)
Net term debt 18,733 94,694 (75,961) (80)% 19,124
Junior subordinated debentures 10,310 10,310 0 % 10,310
Other liabilities 13,177 16,180 (3,003) (19)% 11,798
Total liabilities 1,046,886 924,919 121,967 13 % 1,016,725
Shareholders' equity:
Common stock 24,547 24,214 333 1 % 24,483
Retained earnings 70,218 66,562 3,656 5 % 68,321
Accumulated other comprehensive (loss) income, net of tax (659) (254) (405) 159 % 1,489
Total shareholders' equity 94,106 90,522 3,584 4 % 94,293
Total liabilities and shareholders' equity $1,140,992 $1,015,441 $125,551 12 % $1,111,018
Total interest earning assets $1,065,228 $952,302 $112,926 12 % $1,031,527
Shares outstanding 13,440 13,385 13,439
Tangible book value per share $6.83 $6.76 $6.84


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,
2016 2015 $ % 2016 2016 2015
Interest income:
Interest and fees on loans $9,181 $8,299 $882 11 % $9,007 $35,435 $32,871
Interest on securities 705 795 (90) (11)% 689 2,986 3,284
Interest on tax-exempt securities 522 599 (77) (13)% 552 2,256 2,392
Interest on deposits in other banks 110 39 71 182 % 82 332 206
Total interest income 10,518 9,732 786 8 % 10,330 41,009 38,753
Interest expense:
Interest on demand deposits 135 121 14 12 % 136 523 460
Interest on savings deposits 45 51 (6) (12)% 43 174 213
Interest on certificates of deposit 543 585 (42) (7)% 524 2,179 2,356
Interest on term debt 298 572 (274) (48)% 292 1,667 1,759
Interest on other borrowings 63 52 11 21 % 59 235 195
Total interest expense 1,084 1,381 (297) (22)% 1,054 4,778 4,983
Net interest income 9,434 8,351 1,083 13 % 9,276 36,231 33,770
Provision for loan and lease losses %
Net interest income after provision for loan and lease losses 9,434 8,351 1,083 13 % 9,276 36,231 33,770
Noninterest income:
Service charges on deposit accounts 120 51 69 135 % 133 413 204
Payroll and benefit processing fees 161 139 22 16 % 133 593 555
Earnings on cash surrender value - life insurance 152 159 (7) (4)% 152 613 641
Gain on investment securities, net 52 30 22 73 % 70 244 443
Impairment losses on investment securities % (546)
ATM and point of sale 281 104 177 170 % 287 995 383
Federal Home Loan Bank of San Francisco dividends 353 99 254 257 % 102 644 630
Other income 131 58 73 126 % 82 639 327
Total noninterest income 1,250 640 610 95 % 959 3,595 3,183


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,
2016 2015 $ % 2016 2016 2015
Noninterest expense:
Salaries and related benefits 4,237 3,610 627 17 % 3,873 16,425 14,303
Occupancy and equipment 1,022 737 285 39 % 1,071 3,869 2,894
Federal Deposit Insurance Corporation insurance premium 102 173 (71) (41)% 176 615 717
Data processing fees 533 280 253 90 % 464 1,675 1,016
Professional service fees 481 461 20 4 % 303 1,690 1,628
Telecommunications 206 114 92 81 % 199 751 449
Branch acquisition costs 347 (347) (100)% 580 347
Loss on cancellation of interest rate swap % 2,325
Other expenses 1,234 894 340 38 % 1,039 4,679 3,551
Total noninterest expense 7,815 6,616 1,199 18 % 7,125 32,609 24,905
Income before provision for income taxes 2,869 2,375 494 21 % 3,110 7,217 12,048
Deferred tax asset write-off % 363
Provision for income taxes 572 505 67 13 % 744 1,595 3,462
Net income $ 2,297 $ 1,870 $ 427 23 % $ 2,366 $ 5,259 $ 8,586
Less: Preferred stock extinguishment costs 102 (102) (100)% 102
Less: Preferred dividends 39 (39) (100)% 189
Income available to common shareholders $ 2,297 $ 1,729 $ 568 33 % $ 2,366 $ 5,259 $ 8,295
Basic earnings per share $ 0.17 $ 0.13 $ 0.04 31 % $ 0.18 $ 0.39 $ 0.62
Average basic shares 13,370 13,341 29 % 13,369 13,367 13,331
Diluted earnings per share $ 0.17 $ 0.13 $ 0.04 31 % $ 0.18 $ 0.39 $ 0.62
Average diluted shares 13,476 13,395 81 1 % 13,439 13,425 13,365


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,
2016 2015 2014 2013
Earning assets:
Loans $752,938 $699,227 $625,166 $612,780
Taxable securities 120,884 120,897 147,916 157,486
Tax exempt securities 75,303 77,089 83,973 92,854
Interest-bearing deposits in other banks 58,668 30,323 56,465 43,342
Average earning assets 1,007,793 927,536 913,520 906,462
Cash and due from banks 15,831 11,220 11,246 10,624
Premises and equipment, net 15,078 11,552 12,105 10,337
Other assets 41,048 42,423 36,936 26,431
Average total assets $1,079,750 $992,731 $973,807 $953,854
Liabilities and shareholders' equity:
Demand - noninterest bearing $226,368 $156,578 $139,792 $122,011
Demand - interest bearing 374,170 283,105 272,383 244,125
Savings 104,771 92,659 91,108 92,502
Certificates of deposit 221,074 238,626 259,445 248,350
Total deposits 926,383 770,968 762,728 706,988
Repurchase agreements 5,780
Term debt, net 37,286 88,874 77,534 107,603
Junior subordinated debentures 10,310 10,310 15,239 15,465
Other liabilities 13,217 16,588 15,934 11,825
Average total liabilities 987,196 886,740 871,435 847,661
Shareholders' equity 92,554 105,991 102,372 106,193
Average liabilities & shareholders' equity $1,079,750 $992,731 $973,807 $953,854


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,
2016 2016 2016 2016 2015
Earning assets:
Loans $778,458 $769,354 $742,684 $720,795 $714,494
Taxable securities 124,881 114,578 124,183 119,917 111,098
Tax exempt securities 72,288 73,952 77,168 77,852 78,081
Interest-bearing deposits in other banks 75,760 61,346 46,097 51,254 37,158
Average earning assets 1,051,387 1,019,230 990,132 969,818 940,831
Cash and due from banks 16,953 17,018 17,028 12,301 12,372
Premises and equipment, net 16,331 15,941 15,632 12,384 11,001
Other assets 41,363 41,729 41,394 39,700 41,666
Average total assets $1,126,034 $1,093,918 $1,064,186 $1,034,203 $1,005,870
Liabilities and shareholders' equity:
Demand - noninterest bearing $261,600 $240,418 $220,377 $182,539 $171,449
Demand - interest bearing 398,749 390,895 382,811 323,771 302,862
Savings 111,755 107,210 103,990 96,027 92,939
Certificates of deposit 217,463 221,078 223,958 221,836 226,924
Total deposits 989,567 959,601 931,136 824,173 794,174
Term debt 18,975 19,610 19,510 91,444 79,772
Junior subordinated debentures 10,310 10,310 10,310 10,310 10,310
Other liabilities 12,856 11,159 11,913 16,969 16,197
Average total liabilities 1,031,708 1,000,680 972,869 942,896 900,453
Shareholders' equity 94,326 93,238 91,317 91,307 105,417
Average liabilities & shareholders' equity $1,126,034 $1,093,918 $1,064,186 $1,034,203 $1,005,870

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 banking and financial services through nine 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
John T. Cavender Stifel Nicolaus
One Embarcadero Center Perry Wright
Suite 650 1255 East Street, Suite 100
San Francisco, California 94111 Redding, CA 96001
(415) 616-8935 (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