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Bank of Commerce Holdings Announces Results for the Second Quarter of 2017

REDDING, Calif., July 21, 2017 (GLOBE NEWSWIRE) -- Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ:BOCH) (the “Company”), a $1.2 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter and the six months ended June 30, 2017. Net income for the quarter ended June 30, 2017 was $2.2 million or $0.15 per share – diluted, compared with net income of $1.6 million or $0.11 per share – diluted for the same period of 2016. Net income for the six months ended June 30, 2017 was $4.5 million or $0.31 per share – diluted compared with $596 thousand or $0.04 per share – diluted for the same period of 2016.

On May 10, 2017, the Company completed the sale of 2,738,096 shares of its common stock at a public offering price of $10.50 per share and received net proceeds of $26.8 million. Randall S. Eslick, President and CEO commented “The proceeds from our successful stock offering in May will support lending and investment activities, support or fund acquisitions of other institutions or branches as and if such transactions become available, or repay certain borrowings. In addition, as a result of the increase in our market capitalization, we are now listed on the Russell 2000 which should increase our corporate profile and generate more interest amongst institutional investors.”

Financial highlights for the second quarter of 2017:

  • Net income of $2.2 million or $0.15 per share – diluted for the three months ended June 30, 2017 was an increase of $653 thousand (42%) from $1.6 million or $0.11 per share – diluted earned during the same period in the prior year.
  • Return on average assets improved to 0.76% for the second quarter of 2017 compared to 0.59% for the same period in the prior year.
  • Return on average equity improved to 7.85% for the second quarter of 2017 compared to 6.85% for the same period in the prior year.
  • Net interest income increased $958 thousand (10%) to $10.2 million for the second quarter of 2017 compared to $9.2 million for the same period in the prior year.
  • Average deposits for the three months ended June 30, 2017 totaled $1.0 billion, an increase of $3.3 million (1% annualized) compared to average deposits for the prior quarter.
  • Average loans for the three months ended June 30, 2017 totaled $821.3 million, an increase of $14.5 million (7% annualized) compared to average loans for the prior quarter.
  • Average earning assets for the three months ended June 30, 2017 totaled $1.1 billion, an increase of $22.6 million (8% annualized) compared to average earning assets for the prior quarter.
  • Nonperforming assets at June 30, 2017 totaled $10.7 million or 0.88% of total assets, a decrease of $140 thousand (5% annualized) since March 31, 2017.
  • Tangible book value per common share was $7.61 at June 30, 2017 compared to $6.97 at March 31, 2017.

Financial highlights for the six months ended June 30, 2017:

  • Net income of $4.5 million or $0.31 per share – diluted for the six months ended June 30, 2017 was an increase of $3.9 million (648%) from $596 thousand or $0.04 per share – diluted earned during the same period in the prior year. Net income for 2016 was negatively impacted by $3.0 million of branch acquisition and balance sheet restructuring costs, a $546 thousand other-than-temporary-impairment of an investment security and the write-off of a $363 thousand deferred tax asset.
  • Return on average assets improved to 0.78% for the six months ended June 30, 2017 compared to 0.11% for the same period in the prior year.
  • Return on average equity improved to 8.66% for the six months ended June 30, 2017 compared to 1.31% for the same period in the prior year.
  • Net interest income increased $2.4 million (14%) to $19.9 million for the six months ended June 30, 2017 compared to $17.5 million for the same period in the prior year.
  • Average deposits for the six months ended June 30, 2017 totaled $1.0 billion, an increase of $136.2 million (16%) compared to average deposits for the same period in the prior year.
  • Average loans for the six months ended June 30, 2017 totaled $814.1 million, an increase of $82.4 million (11%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.1 billion for the six months ended June 30, 2017, an increase of $106.6 million (11%) compared to average earning assets for the same period in the prior year.
  • Nonperforming assets at June 30, 2017 totaled $10.7 million or 0.88% of total assets, a decrease of $1.5 million (24% annualized) compared to December 31, 2016.

Randall S. Eslick, President and CEO commented: “We are very pleased with the growth during the second quarter. All deposit growth was in core deposits and we continue to reduce our reliance on time deposits. Loan growth, combined with the improving deposit mix is reflected in the enhancement to our net interest margin and the 4.5% growth in net interest income.”

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, 2016 under the heading “Risk Factors” and to 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 Six Months Ended
Net income, average assets and June 30, March 31, June 30,
average shareholders' equity 2017 2016 2017 2017 2016
Net income $2,209 $1,556 $2,252 $4,461 $596
Average total assets $1,170,447 $1,064,186 $1,148,305 $1,159,438 $1,049,192
Average total earning assets $1,097,644 $990,132 $1,075,039 $1,086,404 $979,976
Average shareholders' equity $112,855 $91,317 $94,820 $103,888 $91,312
Selected performance ratios
Return on average assets 0.76% 0.59% 0.80% 0.78% 0.11%
Return on average equity 7.85% 6.85% 9.63% 8.66% 1.31%
Efficiency ratio 69.13% 79.43% 71.49% 70.32% 93.45%
Share and per share amounts
Weighted average shares - basic 15,014 13,367 13,416 14,220 13,364
Weighted average shares - diluted 15,113 13,425 13,521 14,321 13,408
Earnings per share - basic $0.15 $0.11 $0.17 $0.31 $0.04
Earnings per share - diluted $0.15 $0.11 $0.17 $0.31 $0.04
At June 30, At March 31,
Share and per share amounts 2017 2016 2017
Common shares outstanding (1) 16,260 13,439 13,517
Tangible book value per common share $7.61 $6.71 $6.97
Capital ratios
Bank of Commerce Holdings (2)
Common equity tier 1 capital ratio (3) 12.55% 9.69% 9.71%
Tier 1 capital ratio (3) 13.56% 10.77% 10.72%
Total capital ratio (3) 15.83% 13.11% 13.00%
Tier 1 leverage ratio (3) 11.38% 9.34% 9.09%
Tangible common equity ratio 10.23% 8.44% 8.27%
Redding Bank of Commerce
Common equity tier 1 capital ratio (3) 12.66% 12.80% 12.59%
Tier 1 capital ratio (3) 12.66% 12.80% 12.59%
Total capital ratio (3) 13.91% 14.05% 13.84%
Tier 1 leverage ratio (3) 10.64% 11.14% 10.67%
(1) Includes unvested restricted shares issued in accordance with the Company's equity incentive plan.
(2) Capital Ratios for the Company include the benefit of $26.8 million net proceeds from the sale of 2,738,096 shares of common stock in the second quarter of 2017.
(3) 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 intangible and $665 thousand of goodwill recorded in conjunction with the acquisition of five branches in March of 2016.

BALANCE SHEET OVERVIEW

As of June 30, 2017, the Company had total consolidated assets of $1.2 billion, gross loans of $815.4 million, allowance for loan and lease losses (“ALLL”) of $11.7 million, total deposits of $1.0 billion, and shareholders’ equity of $126.0 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
At June 30, At March 31,
% of % of Change % of
2017 Total 2016 Total Amount % 2017 Total
Commercial$152,204 19% $150,410 20% $1,794 1 % $145,635 19%
Real estate - construction and land development 22,275 3 31,169 4 (8,894) (29)% 25,241 3
Real estate - commercial non-owner occupied 310,995 38 246,430 33 64,565 26 % 311,203 38
Real estate - commercial owner occupied 184,868 23 169,763 23 15,105 9 % 179,752 23
Real estate - residential - ITIN 43,229 5 47,188 6 (3,959) (8)% 44,211 5
Real estate - residential - 1-4 family mortgage 18,904 2 16,806 2 2,098 12 % 19,710 2
Real estate - residential - equity lines 32,133 4 38,027 5 (5,894) (15)% 33,019 4
Consumer and other 50,780 6 54,347 7 (3,567) (7)% 51,423 6
Gross loans 815,388 100% 754,140 100% 61,248 8 % 810,194 100%
Deferred fees and costs 1,541 1,028 513 1,446
Loans, net of deferred fees and costs 816,929 755,168 61,761 811,640
Allowance for loan and lease losses (11,688) (11,864) 176 (11,641)
Net loans$805,241 $743,304 $61,937 $799,999
Average yield on loans during the quarter 4.77% 4.76% 0.01 4.72%

The Company recorded gross loan balances of $815.4 million at June 30, 2017, compared with $754.1 million and $810.2 million at June 30, 2016 and March 31, 2017, respectively, an increase of $61.2 million and $5.2 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 and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.

Average loan balances were $821.3 million for the quarter ended June 30, 2017, compared with $742.7 million and $806.8 million for the quarters ended June 30, 2016 and March 31, 2017, respectively, an increase of $78.6 million or 11% and $14.5 million or 7% annualized, respectively.

TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
At June 30, At March 31,
% of % of Change % of
2017 Total 2016 Total Amount % 2017 Total
Cash and due from banks $23,420 7% $14,695 6% $8,725 59 % $18,315 7%
Interest-bearing deposits in other banks 73,434 22 51,345 19 22,089 43 % 42,744 16
Total cash and cash equivalents 96,854 29 66,040 25 30,814 47 % 61,059 23
Investment securities:
U.S. government and agencies 24,231 7 12,209 5 12,022 98 % 12,496 5
Obligations of state and political subdivisions 58,400 17 59,015 23 (615) (1)% 55,663 20
Residential mortgage backed securities and
collateralized mortgage obligations
91,375 28 45,016 17 46,359 103 % 82,392 30
Corporate securities 8,312 2 22,313 9 (14,001) (63)% 10,448 4
Commercial mortgage backed securities 23,421 7 14,865 6 8,556 58 % 16,522 6
Other asset backed securities 3,870 1 4,488 1 (618) (14)% 4,013 1
Total investment securities - AFS 209,609 62 157,906 61 51,703 33 % 181,534 66
Obligations of state and political
subdivisions - HTM
31,329 9 35,415 14 (4,086) (12)% 31,257 11
Total investment securities - AFS
and HTM
240,938 71 193,321 75 47,617 25 % 212,791 77
Total cash, cash equivalents and
investment securities
$337,792 100% $259,361 100% $78,431 30 % $273,850 100%
Average yield on interest-bearing due
from banks and investment securities
during the quarter
2.27% 2.37% (0.10) 2.17%

As of June 30, 2017, we maintained noninterest-bearing cash positions of $23.4 million and interest-bearing deposits of $73.4 million at the Federal Reserve Bank and correspondent banks. Cash balances for the second quarter of 2017 included $26.8 million of net proceeds received from the sale of common stock. During the second quarter of 2017, we deployed liquidity provided by the sale of common stock and strong organic deposit growth primarily into available-for-sale securities and interest-bearing deposits at other banks.

Available-for-sale investment securities totaled $209.6 million at June 30, 2017, compared with $157.9 million and $181.5 million at June 30, 2016 and March 31, 2017, respectively. Our available-for-sale investment portfolio provides us with a secondary source of liquidity to fund higher yielding asset opportunities, such as loan originations. During the second quarter of 2017, we purchased 31 securities with a par value of $43.7 million and weighted average yield of 2.50% and sold eight securities with a par value of $12.6 million and weighted average yield of 1.94%. The sales activity on available-for-sale securities resulted in $35 thousand in net realized gains. During the same period, we received $5.5 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 June 30, 2017 and 2016 were $217.6 million and 3.10% compared to $201.4 million and 3.39%, respectively.

At June 30, 2017, our net unrealized gains on available-for-sale investment securities were $682 thousand compared with net unrealized gains of $2.6 million and net unrealized losses of $891 thousand at June 30, 2016 and March 31, 2017, respectively. The decrease in net unrealized gains from June 30, 2016 and June 30, 2017 is primarily due to significant changes in market interest rates.

TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
At June 30, At March 31,
% of % of Change % of
2017 Total 2016 Total Amount % 2017 Total
Demand - noninterest-bearing$303,560 29% $224,467 24% $79,093 35 % $270,412 27%
Demand - interest-bearing 426,798 41 385,609 41 41,189 11 % 407,784 41
Total demand 730,358 70 610,076 65 120,282 20 % 678,196 68
Savings 109,472 10 105,228 11 4,244 4 % 112,738 11
Total non-maturing deposits 839,830 80 715,304 76 124,526 17 % 790,934 79
Certificates of deposit 206,395 20 222,252 24 (15,857) (7)% 213,556 21
Total deposits$1,046,225 100% $937,556 100% $108,669 12 % $1,004,490 100%
Average rate on interest-bearing
deposits during the quarter
0.42% 0.39% 0.03 0.39%
Average rate on all
deposits during the quarter
0.31% 0.30% 0.01 0.29%

Total deposits at June 30, 2017, increased $108.7 million or 12% to $1.0 billion compared to June 30, 2016, and increased $41.7 million or 17% annualized compared to March 31, 2017. Total non-maturing deposits increased $124.5 million or 17% compared to the same date a year ago and increased $48.9 million or 25% annualized compared to March 31, 2017. Certificates of deposit decreased $15.9 million or 7% compared to the same date a year ago and decreased $7.2 million or 13% annualized compared to March 31, 2017.

TABLE 5
WHOLESALE AND BROKERED DEPOSITS - UNAUDITED
(amounts in thousands)
At June 30, At March 31,
2017 2016 2017
CDARS / ICS reciprocal brokered deposits$56,803 $54,783 $55,565
Online listing service wholesale time deposits 42,709 54,396 47,429
Total wholesale and brokered deposits$99,512 $109,179 $102,994

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $56.8 million, $54.8 million and $55.6 million at June 30, 2017, June 30, 2016 and March 31, 2017, respectively.

INCOME STATEMENT OVERVIEW

TABLE 6
SUMMARY INCOME STATEMENT - UNAUDITED
(amounts in thousands, except per share data)
For The Three Months Ended
June 30, Change March 31, Change
2017 2016 Amount % 2017 Amount %
Interest income$11,320 $10,257 $1,063 10 % $10,817 $503 5 %
Interest expense 1,145 1,040 105 10 % 1,083 62 6 %
Net interest income 10,175 9,217 958 10 % 9,734 441 5 %
Provision for loan
and lease losses
300 300 100 % 200 100 100 %
Noninterest income 983 437 546 125 % 1,542 (559) (36)%
Noninterest expense:
Branch acquisition and balance sheet reconfiguration costs 168 (168) (100)% %
Other noninterest expense 7,714 7,500 214 3 % 8,061 (347) (4)%
Income before provision
for income taxes
3,144 1,986 1,158 58 % 3,015 129 4 %
Provision for income taxes 935 430 505 117 % 763 172 23 %
Net income$2,209 $1,556 $653 42 % $2,252 $(43) (2)%
Basic earnings per share$0.15 $0.11 $0.04 36 % $0.17 $(0.02) (12)%
Average basic shares 15,014 13,367 1,647 12 % 13,416 1,598 12 %
Diluted earnings per share$0.15 $0.11 $0.04 36 % $0.17 $(0.02) (12)%
Average diluted shares 15,113 13,425 1,688 13 % 13,521 1,592 12 %
Dividends declared per
common share
$0.03 $0.03 $ % $0.03 $ %

Second Quarter of 2017 Compared With Second Quarter of 2016

Net income for the second quarter of 2017 increased $653 thousand compared to the second quarter of 2016. In the current quarter, net interest income was $958 thousand higher and noninterest income was $546 thousand higher. These positive changes were offset by an increase in the provision for loan and lease losses of $300 thousand, noninterest expense that was $46 thousand higher and a provision for income taxes that was $505 thousand higher.

Net Interest Income

Net interest income increased $958 thousand compared to the same period a year ago.

Interest income for the three months ended June 30, 2017 increased $1.1 million or 10% to $11.3 million. Interest and fees on loans increased $962 thousand primarily due to increased average loan balances. Interest on securities increased $10 thousand and interest on interest-bearing deposits due from banks increased $91 thousand.

Interest expense for the second quarter of 2017 increased $105 thousand or 10% to $1.1 million. The increase was primarily caused by an increase in the average rate paid on interest-bearing deposits.

Provision for loan and lease loss

During the three months ended June 30, 2017, the Company recorded a provision for loan and lease losses of $300 thousand reflecting growth in the loan portfolio. There was no provision for loan and lease losses during the second quarter of 2016. Average loans for the quarter ended June 30, 2017 totaled $821.3 million, an increase of $78.6 million (11%) compared to the same quarter a year ago.

Noninterest Income

Noninterest income for the three months ended June 30, 2017 increased $546 thousand compared to the second quarter for 2016. Noninterest income for 2016 was negatively impacted by the $546 thousand other-than-temporary-impairment of a bond investment.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2017 increased $46 thousand compared to the same period a year previous. The increase was primarily due to termination and write-off of a $137 thousand software development project and data processing fees that increased $76 thousand. In 2017, branch acquisition and balance sheet reconfiguration costs of $168 thousand recorded in the same period a year previous did not recur.

Income Tax Provision

During the three months ended June 30, 2017, the Company recorded a provision for income taxes of $935 thousand (29.7% effective tax rate) compared with a provision for income taxes of $430 thousand (21.7% effective tax rate) for the same period a year ago. The Company’s effective tax rate has increased as muni income, tax credits and permanent deductions arising from investments in low income housing partnerships comprise a smaller percentage of pre-tax income.

Second Quarter of 2017 Compared With First Quarter of 2017

Net income for the second quarter of 2017 decreased $43 thousand compared to the first quarter of 2017. Net income for the three months ended March 31, 2017 included life insurance death benefit proceeds of $502 thousand that were not subject to income tax. In the current quarter, net interest income was $441 thousand higher and noninterest expenses were $347 thousand lower. These positive changes were offset by an increase in the provision for loan and lease losses of $100 thousand, noninterest income that was $559 thousand lower (a result of the life insurance death benefit proceeds) and a provision for income taxes that was $172 thousand higher.

Net Interest Income

Net interest income increased $441 thousand over the prior quarter.

Interest income for the three months ended June 30, 2017 increased $503 thousand or 5% to $11.3 million compared to the prior quarter. Interest and fees on loans increased $374 thousand due to increased average balances and increased yields. Interest on investment securities increased $87 thousand due to increased average balances and increased yields. Interest on interest-bearing deposits due from banks increased $42 thousand due to increased yields.

Interest expense for the three months ended June 30, 2017 increased $62 thousand or 6% to $1.1 million compared to the prior quarter. Interest paid on deposits increased from 29 basis points to 31 basis points.

Provision for loan and lease loss

During the three months ended June 30, 2017, the Company recorded a provision for loan and lease losses of $300 thousand compared with a provision for loan lease losses of $200 thousand for the prior quarter. Average loans for the quarter ended June 30, 2017 totaled $821.3 million, an increase of $14.5 million (7% annualized) compared to the prior quarter.

Noninterest Income

Noninterest income for the three months ended June 30, 2017 decreased $559 thousand compared to the prior quarter. During the current quarter, dividends on Federal Home Loan Bank of San Francisco stock decreased $49 thousand. During the prior quarter, we recognized income from life insurance death benefit proceeds of $502 thousand.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2017 decreased $347 thousand compared to the prior quarter.

The decrease in noninterest expense was primarily driven by the following positive items:

  • Employee incentive payments decreased $190 thousand
  • Employee vacation accrual costs decreased $183 thousand
  • Other salaries and related benefits costs decreased $118 thousand
  • Payroll tax expenses decreased $221 thousand

These positive items were partially offset by the termination and write-off of a $137 thousand software development project and Nasdaq / transfer agent costs which increased $62 thousand.

Income Tax Provision

During the three months ended June 30, 2017, we recorded a provision for income taxes of $935 thousand (29.74% of pretax income) compared with a provision for income taxes of $763 thousand (25.31% of pretax income) for the prior quarter. Life insurance death benefits of $502 thousand recorded during the previous quarter are not subject to income tax, and if excluded from pretax income, the effective tax rate would have been 30.36%.

Earnings Per Share

Diluted earnings per share were $0.15 for the three months ended June 30, 2017 compared with diluted earnings per share of $0.11 for the same period a year ago and diluted earnings per share of $0.17 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in table 6 above.

TABLE 7a
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
For The Three Months Ended
June 30, 2017 June 30, 2016 March 31, 2017
Average Yield / Average Yield / Average Yield /
(Amounts in thousands) Balance Interest(1) Rate (5) Balance Interest(1) Rate (5) Balance Interest(1) Rate (5)
Interest-earning assets:
Net loans (2) $821,321 $9,758 4.77% $742,684 $8,796 4.76% $806,793 $9,384 4.72%
Taxable securities 143,705 872 2.43% 124,183 808 2.62% 137,582 789 2.33%
Tax-exempt securities 73,927 534 2.90% 77,168 588 3.06% 73,524 530 2.92%
Interest-bearing deposits
in other banks
58,691 156 1.07% 46,097 65 0.57% 57,140 114 0.81%
Average interest-
earning assets
1,097,644 11,320 4.14% 990,132 10,257 4.17% 1,075,039 10,817 4.08%
Cash and due from banks 17,364 17,028 16,873
Premises and equipment, net 15,809 15,632 16,165
Other assets 39,630 41,394 40,228
Average total assets $1,170,447 $1,064,186 $1,148,305
Interest-bearing liabilities:
Interest-bearing demand $421,888 184 0.17% $382,811 130 0.14% $420,416 148 0.14%
Savings deposits 109,857 47 0.17% 103,990 41 0.16% 113,647 47 0.17%
Certificates of deposit 208,703 545 1.05% 223,958 515 0.92% 215,202 529 1.00%
Net term debt 19,539 298 6.12% 19,510 295 6.08% 18,598 293 6.39%
Junior subordinated
debentures
10,310 71 2.76% 10,310 59 2.30% 10,310 66 2.60%
Average interest-
bearing liabilities
770,297 1,145 0.60% 740,579 1,040 0.56% 778,173 1,083 0.56%
Noninterest-bearing demand 275,039 220,377 262,881
Other liabilities 12,256 11,913 12,431
Shareholders’ equity 112,855 91,317 94,820
Average liabilities and
shareholders’ equity
$1,170,447 $1,064,186 $1,148,305
Net interest income and
net interest margin (4)
$10,175 3.72% $9,217 3.74% $9,734 3.67%
Tax equivalent net
interest margin (3)
3.82% 3.87% 3.78%
(1) Interest income on loans is net of deferred fees and costs of approximately $131 thousand, $352 thousand, and $197 thousand for the three months ended June 30, 2017, and 2016 and March 31, 2017, respectively.
(2) Net loans includes average nonaccrual loans of $9.8 million, $11.4 million and $10.9 million for the three months ended June 30, 2017 and 2016 and March 31, 2017, respectively.
(3) Tax-exempt income has been adjusted to tax equivalent basis at a 34% tax rate. The amount of such adjustments was an addition to recorded income of approximately $275 thousand, $303 thousand and $273 thousand for the three months ended June 30, 2017 and 2016 and March 31, 2017, respectively.
(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets.
(5) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.


TABLE 7b
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
For The Six Months Ended
June 30, 2017 June 30, 2016
Average Yield / Average Yield /
(Amounts in thousands) Balance Interest(1) Rate (5) Balance Interest(1) Rate (5)
Interest-earning assets:
Net loans (2) $814,098 $19,142 4.74% $731,740 $17,247 4.74%
Taxable securities 140,660 1,661 2.38% 122,050 1,592 2.62%
Tax-exempt securities 73,726 1,064 2.91% 77,510 1,182 3.07%
Interest-bearing deposits
in other banks
57,920 270 0.94% 48,676 140 0.58%
Average interest-
earning assets
1,086,404 22,137 4.11% 979,976 20,161 4.14%
Cash and due from banks 17,120 14,665
Premises and equipment, net 15,986 14,008
Other assets 39,928 40,543
Average total assets $1,159,438 $1,049,192
Interest-bearing liabilities:
Interest-bearing demand $421,156 332 0.16% $353,291 252 0.14%
Savings deposits 111,742 94 0.17% 100,008 86 0.17%
Certificates of deposit 211,934 1,074 1.02% 222,897 1,112 1.00%
Net term debt 19,071 591 6.25% 55,478 1,077 3.90%
Junior subordinated
debentures
10,310 137 2.68% 10,310 113 2.20%
Average interest-
bearing liabilities
774,213 2,228 0.58% 741,984 2,640 0.72%
Noninterest-bearing demand 268,994 201,457
Other liabilities 12,343 14,439
Shareholders’ equity 103,888 91,312
Average liabilities and
shareholders’ equity
$1,159,438 $1,049,192
Net interest income and
net interest margin (4)
$19,909 3.70% $17,521 3.60%
Tax equivalent net
interest margin (3)
3.80% 3.72%
(1) Interest income on loans is net of deferred fees and costs of approximately $328 thousand and $667 thousand for the six months ended June 30, 2017 and 2016, respectively.
(2) Net loans includes average nonaccrual loans of $10.3 million and $10.9 million for the six months ended June 30, 2017 and 2016, respectively.
(3) Tax-exempt income has been adjusted to tax equivalent basis at a 34% tax rate. The amount of such adjustments was an addition to recorded income of approximately $548 thousand and $609 thousand for the six months ended June 30, 2017 and 2016, respectively.
(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets.
(5) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

The current quarter net interest margin increased five basis points to 3.72% as compared to the prior quarter due to increased yields on average interest-earning assets. Increases in the average balances of interest-earning assets were funded by increased average balances in low cost demand deposits and increased average equity as a result of the sale of common stock during the quarter.

The net interest margin was 3.72% for the current quarter compared to 3.74% for the same period a year ago. The decrease was due to decreased yield on the securities portfolio and increased cost of interest-bearing liabilities. The decrease was partially offset by increased yield on loans and interest-bearing deposits at other institutions. The increase in interest income compared to the same quarter in the prior year is due to increased volume in the loan and investment portfolios. The increase in interest expense resulted primarily from an increase in the average rate paid on interest-bearing deposits.

Average deposit balances for the current quarter increased $3.3 million and $84.4 million compared to the prior quarter and the same period a year ago, respectively. The increase in average deposit balances compared to the prior quarter and the same quarter in the prior year was due to organic growth in core deposits. Our overall cost of total deposits increased to 0.31% for the quarter ended June 30, 2017 from 0.30% for the same period a year ago and 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
June 30, March 31, December 31, September 30, June 30,
2017 2017 2016 2016 2016
Beginning balance ALLL$11,641 $11,544 $11,849 $11,864 $11,495
Provision for loan and lease losses 300 200
Loans charged-off (359) (447) (386) (357) (1,734)
Loan loss recoveries 106 344 81 342 2,103
Ending balance ALLL$11,688 $11,641 $11,544 $11,849 $11,864
At June 30, At March 31, At December 31, At September 30, At June 30,
2017 2017 2016 2016 2016
Nonaccrual loans:
Commercial$2,410 $2,534 $2,749 $1,710 $2,149
Real estate - commercial non-owner occupied 1,196 1,196 1,196 1,196 1,197
Real estate - commercial owner occupied 639 654 784 800 816
Real estate - residential - ITIN 3,346 3,331 3,576 3,392 3,664
Real estate - residential - 1-4 family mortgage 653 1,337 1,914 1,798 1,824
Real estate - residential - equity lines 872 906 917 942 995
Consumer and other 38 39 250 252 266
Total nonaccrual loans 9,154 9,997 11,386 10,090 10,911
Accruing troubled debt restructured loans:
Commercial 703 741 776 726 760
Real estate - commercial non-owner occupied 806 808 808 811 816
Real estate - residential - ITIN 4,712 4,761 5,033 5,280 5,336
Real estate - residential - equity lines 445 450 454 543 548
Total accruing troubled debt restructured loans 6,666 6,760 7,071 7,360 7,460
All other accruing impaired loans 337 483 550
Total impaired loans$15,820 $16,757 $18,794 $17,933 $18,921
Gross loans outstanding at period end$815,388 $810,194 $804,211 $779,019 $754,140
Nonaccrual loans to gross loans 1.12 % 1.23 % 1.42 % 1.30 % 1.45 %
Allowance for loan and lease losses as a percent of:
Gross loans 1.43 % 1.44 % 1.44 % 1.52 % 1.57 %
Nonaccrual loans 127.68 % 116.44 % 101.39 % 117.43 % 108.73 %
Impaired loans 73.88 % 69.47 % 61.42 % 66.07 % 62.70 %

We realized net loan loss charge-offs of $253 thousand in the current quarter compared with net loan loss charge-offs of $103 thousand in the prior quarter and net loan recoveries of $369 thousand for the same period a year ago. Charge-offs during the second quarter of 2017 of $359 thousand were primarily associated with purchased consumer loans and residential real estate loans.

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. A combination of net loan losses and loan portfolio growth supported management’s decision to record a $300 thousand provision for loan and lease losses during the quarter ended June 30, 2017 and a $200 thousand provision for loan and lease losses during the quarter ended March 31, 2017. There were no provisions for loan and lease losses during the years ended December 31, 2016 or 2015. Our ALLL as a percentage of gross loans was 1.43% as of June 30, 2017 compared to 1.57% as of June 30, 2016 and 1.44% as of March 31, 2017. 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 June 30, 2017. 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 June 30, 2017, the recorded investment in loans classified as impaired totaled $15.8 million, with a corresponding specific reserve of $1.1 million compared to impaired loans of $18.9 million with a corresponding specific reserve of $903 thousand at June 30, 2016 and impaired loans of $16.8 million, with a corresponding specific reserve of $1.3 million at March 31, 2017. The decrease in loans classified as impaired and the decrease in the corresponding specific reserve compared to the prior quarter is primarily due to one nonaccrual residential real estate loan that was transferred to OREO during the quarter.

TABLE 9
TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(amounts in thousands)
At June 30, At March 31, At December 31, At September 30, At June 30,
2017 2017 2016 2016 2016
Nonaccrual $4,630 $4,570 $4,995 $3,795 $3,905
Accruing 6,666 6,760 7,071 7,360 7,460
Total troubled debt restructurings $11,296 $11,330 $12,066 $11,155 $11,365
Percentage of total gross loans 1.39% 1.40% 1.50% 1.43% 1.51%

There was one new troubled debt restructuring to grant a rate and payment deferral modification for a loan that was placed on nonaccrual status during the three months ended June 30, 2017. As of June 30, 2017, we had 118 restructured loans that qualified as troubled debt restructurings, of which 111 were performing according to their restructured terms.

TABLE 10
NONPERFORMING ASSETS - UNAUDITED
(amounts in thousands)
At June 30, At March 31, At December 31, At September 30, At June 30,
2017 2017 2016 2016 2016
Total nonaccrual loans $9,154 $9,997 $11,386 $10,090 $10,911
90 days past due and still accruing 10
Total nonperforming loans 9,154 9,997 11,386 10,090 10,921
Other real estate owned 1,517 814 759 793 765
Total nonperforming assets $10,671 $10,811 $12,145 $10,883 $11,686
Nonperforming loans to gross loans 1.12% 1.23% 1.42% 1.30% 1.45%
Nonperforming assets to total assets 0.88% 0.95% 1.06% 0.98% 1.09%

The June 30, 2017 OREO balance consists of six properties, of which three are 1-4 family residential real estate properties in the amount of $876 thousand, two are nonfarm nonresidential properties in the amount of $530 thousand and one is an undeveloped commercial property in the amount of $112 thousand. The increase the OREO balance compared to the prior quarter is due to one residential real estate loan that was transferred to OREO during the quarter.

TABLE 11
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
At June 30, At June 30, Change At March 31,
2017 2016 $ % 2017
Assets:
Cash and due from banks $23,420 $14,695 $8,725 59 % $18,315
Interest-bearing deposits in other banks 73,434 51,345 22,089 43 % 42,744
Total cash and cash equivalents 96,854 66,040 30,814 47 % 61,059
Securities available-for-sale, at fair value 209,609 157,906 51,703 33 % 181,534
Securities held-to-maturity, at amortized cost 31,329 35,415 (4,086) (12)% 31,257
Loans, net of deferred fees and costs 816,929 755,168 61,761 8 % 811,640
Allowance for loan and lease losses (11,688) (11,864) 176 (1)% (11,641)
Net loans 805,241 743,304 61,937 8 % 799,999
Premises and equipment, net 15,417 15,660 (243) (2)% 15,903
Other real estate owned 1,517 765 752 98 % 814
Life insurance 21,629 22,794 (1,165) (5)% 21,494
Deferred taxes 8,723 8,026 697 9 % 9,363
Goodwill and core deposit intangible, net 2,141 2,362 (221) (9)% 2,196
Other assets 19,634 17,920 1,714 10 % 19,132
Total assets $1,212,094 $1,070,192 $141,902 13 % $1,142,751
Liabilities and shareholders' equity:
Demand - noninterest-bearing $303,560 $224,467 $79,093 35 % $270,412
Demand - interest-bearing 426,798 385,609 41,189 11 % 407,784
Savings 109,472 105,228 4,244 4 % 112,738
Certificates of deposit 206,395 222,252 (15,857) (7)% 213,556
Total deposits 1,046,225 937,556 108,669 12 % 1,004,490
Term debt 18,300 19,577 (1,277) (7)% 18,667
Unamortized debt issuance costs (161) (201) 40 (20)% (173)
Net term debt 18,139 19,376 (1,237) (6)% 18,494
Junior subordinated debentures 10,310 10,310 0 % 10,310
Other liabilities 11,468 10,462 1,006 10 % 12,994
Total liabilities 1,086,142 977,704 108,438 11 % 1,046,288
Shareholders' equity:
Common stock 51,651 24,421 27,230 112 % 24,800
Retained earnings 73,789 66,356 7,433 11 % 72,066
Accumulated other comprehensive income (loss), net of tax 512 1,711 (1,199) (70)% (403)
Total shareholders' equity 125,952 92,488 33,464 36 % 96,463
Total liabilities and shareholders' equity $1,212,094 $1,070,192 $141,902 13 % $1,142,751
Total interest-earning assets $1,130,619 $997,211 $133,408 13 % $1,068,066
Shares outstanding 16,260 13,439 13,517
Tangible book value per share $7.61 $6.71 $6.97


TABLE 12
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
For The Three Months Ended For The Six Months Ended
June 30, Change March 31, June 30,
2017 2016 $ % 2017 2017 2016
Interest income:
Interest and fees on loans $9,758 $8,796 $962 11 % $9,384 $19,142 $17,247
Interest on securities 872 808 64 8 % 789 1,661 1,592
Interest on tax-exempt securities 534 588 (54) (9)% 530 1,064 1,182
Interest on deposits in other banks 156 65 91 140 % 114 270 140
Total interest income 11,320 10,257 1,063 10 % 10,817 22,137 20,161
Interest expense:
Interest on demand deposits 184 130 54 42 % 148 332 252
Interest on savings deposits 47 41 6 15 % 47 94 86
Interest on certificates of deposit 545 515 30 6 % 529 1,074 1,112
Interest on term debt 298 295 3 1 % 293 591 1,077
Interest on other borrowings 71 59 12 20 % 66 137 113
Total interest expense 1,145 1,040 105 10 % 1,083 2,228 2,640
Net interest income 10,175 9,217 958 10 % 9,734 19,909 17,521
Provision for loan and lease losses 300 300 100 % 200 500
Net interest income after provision
for loan and lease losses
9,875 9,217 658 7 % 9,534 19,409 17,521
Noninterest income:
Service charges on deposit accounts 142 88 54 61 % 127 269 160
ATM and point of sale 288 335 (47) (14)% 266 554 427
Payroll and benefit processing fees 147 139 8 6 % 191 338 299
Life insurance 135 153 (18) (12)% 646 781 309
Gain on investment securities, net 35 28 7 25 % 66 101 122
Impairment losses on investment securities (546) 546 100 % (546)
Federal Home Loan Bank of
San Francisco dividends
54 99 (45) (45)% 103 157 189
Other income 182 141 41 29 % 143 325 426
Total noninterest income 983 437 546 125 % 1,542 2,525 1,386


TABLE 12 - CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
For The Three Months Ended For The Six Months Ended
June 30, Change March 31, June 30,
2017 2016 $ % 2017 2017 2016
Noninterest expense:
Salaries and related benefits 4,147 4,086 61 1 % 4,858 9,005 8,315
Occupancy and equipment 1,054 987 67 7 % 1,048 2,102 1,776
Federal Deposit Insurance Corporation
insurance premium
104 181 (77) (43)% 48 152 337
Data processing fees 450 374 76 20 % 407 857 678
Professional service fees 501 470 31 7 % 393 894 906
Telecommunications 223 199 24 12 % 211 434 346
Branch acquisition costs 168 (168) (100)% 580
Loss on cancellation of interest rate swap % 2,325
Other expenses 1,235 1,203 32 3 % 1,096 2,331 2,406
Total noninterest expense 7,714 7,668 46 1 % 8,061 15,775 17,669
Income before provision for income taxes 3,144 1,986 1,158 58 % 3,015 6,159 1,238
Deferred tax asset write-off % 363
Provision for income taxes 935 430 505 117 % 763 1,698 279
Net income $2,209 $1,556 $653 42 % $2,252 $4,461 $596
Basic earnings per share $0.15 $0.11 $0.04 36 % $0.17 $0.31 $0.04
Average basic shares 15,014 13,367 1,647 12 % 13,416 14,220 13,364
Diluted earnings per share $0.15 $0.11 $0.04 36 % $0.17 $0.31 $0.04
Average diluted shares 15,113 13,425 1,688 13 % 13,521 14,321 13,408


TABLE 13
UNAUDITED CONDENSED CONSOLIDATED
YEAR TO DATE AVERAGE BALANCE SHEETS
(amounts in thousands)
For the Six Months Ended For the Twelve Months Ended
June 30, June 30, December 31, December 31, December 31,
2017 2016 2016 2015 2014
Earning assets:
Loans $814,098 $731,740 $752,938 $699,227 $625,166
Taxable securities 140,660 122,050 120,884 120,897 147,916
Tax exempt securities 73,726 77,510 75,303 77,089 83,973
Interest-bearing deposits in other banks 57,920 48,676 58,668 30,323 56,465
Total earning assets 1,086,404 979,976 1,007,793 927,536 913,520
Cash and due from banks 17,120 14,665 15,831 11,220 11,246
Premises and equipment, net 15,986 14,008 15,078 11,552 12,105
Other assets 39,928 40,543 41,048 42,423 36,936
Total assets $1,159,438 $1,049,192 $1,079,750 $992,731 $973,807
Liabilities and shareholders' equity:
Demand - noninterest-bearing $268,994 $201,457 $226,368 $156,578 $139,792
Demand - interest-bearing 421,156 353,291 374,170 283,105 272,383
Savings 111,742 100,008 104,771 92,659 91,108
Certificates of deposit 211,934 222,897 221,074 238,626 259,445
Total deposits 1,013,826 877,653 926,383 770,968 762,728
Term debt 19,071 55,478 37,286 88,874 77,534
Junior subordinated debentures 10,310 10,310 10,310 10,310 15,239
Other liabilities 12,343 14,439 13,217 16,588 15,934
Total liabilities 1,055,550 957,880 987,196 886,740 871,435
Shareholders' equity 103,888 91,312 92,554 105,991 102,372
Liabilities & shareholders' equity $1,159,438 $1,049,192 $1,079,750 $992,731 $973,807


TABLE 14
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
For The Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2017 2017 2016 2016 2016
Earning assets:
Loans $821,321 $806,793 $778,458 $769,354 $742,684
Taxable securities 143,705 137,582 124,881 114,578 124,183
Tax exempt securities 73,927 73,524 72,288 73,952 77,168
Interest-bearing deposits in other banks 58,691 57,140 75,760 61,346 46,097
Total earning assets 1,097,644 1,075,039 1,051,387 1,019,230 990,132
Cash and due from banks 17,364 16,873 16,953 17,018 17,028
Premises and equipment, net 15,809 16,165 16,331 15,941 15,632
Other assets 39,630 40,228 41,363 41,729 41,394
Total assets $1,170,447 $1,148,305 $1,126,034 $1,093,918 $1,064,186
Liabilities and shareholders' equity:
Demand - noninterest-bearing $275,039 $262,881 $261,600 $240,418 $220,377
Demand - interest-bearing 421,888 420,416 398,749 390,895 382,811
Savings 109,857 113,647 111,755 107,210 103,990
Certificates of deposit 208,703 215,202 217,463 221,078 223,958
Total deposits 1,015,487 1,012,146 989,567 959,601 931,136
Term debt 19,539 18,598 18,975 19,610 19,510
Junior subordinated debentures 10,310 10,310 10,310 10,310 10,310
Other liabilities 12,256 12,431 12,856 11,159 11,913
Total liabilities 1,057,592 1,053,485 1,031,708 1,000,680 972,869
Shareholders' equity 112,855 94,820 94,326 93,238 91,317
Liabilities & shareholders' equity $1,170,447 $1,148,305 $1,126,034 $1,093,918 $1,064,186


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 community 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”.


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