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

SACRAMENTO, Calif., Oct. 20, 2017 (GLOBE NEWSWIRE) -- 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 nine months ended September 30, 2017. Net income for the quarter ended September 30, 2017 was $2.9 million or $0.18 per share – diluted, compared with net income of $2.4 million or $0.18 per share – diluted for the same period of 2016. Net income for the nine months ended September 30, 2017 was $7.3 million or $0.49 per share – diluted compared with $3.0 million or $0.22 per share – diluted for the same period of 2016. Earnings per share (EPS) and Return on Average Equity (ROAE) calculations for 2017 reflect the Company’s issuance of 2,738,096 shares ($26.8 million) in its May 2017 public offering.

Financial highlights for the third quarter of 2017:

  • Net income of $2.9 million or $0.18 per share – diluted for the three months ended September 30, 2017 was an increase of $510 thousand (22%) from $2.4 million or $0.18 per share – diluted earned during the same period in the prior year.
  • Return on average assets improved to 0.93% for the third quarter of 2017 compared to 0.86% for the same period in the prior year.
  • Return on average equity declined to 9.01% for the third quarter of 2017 compared to 10.10% for the same period in the prior year.
  • The Company’s efficiency ratio was 62.8% for the third quarter of 2017 compared to 69.6% during the same period in 2016.
  • Net interest income increased $1.3 million (14%) to $10.6 million for the third quarter of 2017 compared to $9.3 million for the same period in the prior year.
  • Average deposits for the three months ended September 30, 2017 totaled $1.1 billion, an increase of $38.8 million (15% annualized) compared to average deposits for the prior quarter.
  • Average loans for the three months ended September 30, 2017 totaled $805.1 million, a decrease of $16.2 million (8% annualized) compared to average loans for the prior quarter.
  • Average earning assets for the three months ended September 30, 2017 totaled $1.1 billion, an increase of $48.5 million (18% annualized) compared to average earning assets for the prior quarter.
  • Nonperforming assets at September 30, 2017 totaled $8.3 million or 0.67% of total assets, a decrease of $2.4 million (89% annualized) since June 30, 2017.
  • Tangible book value per common share was $7.77 at September 30, 2017 compared to $7.61 at June 30, 2017.

Financial highlights for the nine months ended September 30, 2017:

  • Net income of $7.3 million or $0.49 per share – diluted for the nine months ended September 30, 2017 was an increase of $4.4 million (148%) from $3.0 million or $0.22 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 0.83% for the nine months ended September 30, 2017 compared to 0.37% for the same period in the prior year.
  • Return on average equity improved to 8.80% for the nine months ended September 30, 2017 compared to 4.30% for the same period in the prior year.
  • The Company’s efficiency ratio was 67.8% for the nine months ended September 30, 2017 compared to 85.1% during the same period in the prior year.
  • Net interest income increased $3.7 million (14%) to $30.5 million for the nine months ended September 30, 2017 compared to $26.8 million for the same period in the prior year.
  • Average deposits for the nine months ended September 30, 2017 totaled $1.0 billion, an increase of $122.3 million (14%) compared to average deposits for the same period in the prior year.
  • Average loans for the nine months ended September 30, 2017 totaled $811.1 million, an increase of $66.7 million (9%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.1 billion for the nine months ended September 30, 2017, an increase of $113.4 million (11%) compared to average earning assets for the same period in the prior year.
  • Nonperforming assets at September 30, 2017 totaled $8.3 million or 0.67% of total assets, a decrease of $3.8 million (42% annualized) compared to December 31, 2016.

Randall S. Eslick, President and CEO commented: “We are very pleased to report that the period ended September 30, 2017 was our most profitable quarter. The hard work of our dedicated employees is reflected in our performance metrics, including the solid return on average assets, continued growth in core deposits, reduced reliance on time deposits, improved asset quality and the noticeably improved efficiency ratio.”

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 Nine Months Ended
Net income, average assets and September 30, June 30, September 30,
average shareholders' equity 2017 2016 2017 2017 2016
Net income $ 2,876 $ 2,366 $ 2,209 $ 7,337 $ 2,962
Average total assets $ 1,220,900 $ 1,093,918 $ 1,170,447 $ 1,180,150 $ 1,064,210
Average total earning assets $ 1,146,132 $ 1,019,230 $ 1,097,644 $ 1,106,532 $ 993,156
Average shareholders' equity $ 126,574 $ 93,238 $ 112,855 $ 111,533 $ 91,959
Selected performance ratios
Return on average assets 0.93% 0.86% 0.76% 0.83% 0.37%
Return on average equity 9.01% 10.10% 7.85% 8.80% 4.30%
Efficiency ratio 62.84% 69.61% 69.13% 67.77% 85.08%
Share and per share amounts
Weighted average shares - basic 16,191 13,369 15,014 14,884 13,366
Weighted average shares - diluted 16,288 13,439 15,113 14,984 13,412
Earnings per share - basic $ 0.18 $ 0.18 $ 0.15 $ 0.49 $ 0.22
Earnings per share - diluted $ 0.18 $ 0.18 $ 0.15 $ 0.49 $ 0.22
At September 30, At June 30,
Share and per share amounts 2017 2016 2017
Common shares outstanding (1) 16,265 13,439 16,260
Tangible book value per common share $ 7.77 $ 6.84 $ 7.61
Capital ratios
Bank of Commerce Holdings (2)
Common equity tier 1 capital ratio (3) 12.66% 9.60% 12.55%
Tier 1 capital ratio (3) 13.65% 10.65% 13.56%
Total capital ratio (3) 15.91% 12.96% 15.83%
Tier 1 leverage ratio (3) 11.12% 9.28% 11.38%
Tangible common equity ratio 10.27% 8.30% 10.23%
Redding Bank of Commerce
Common equity tier 1 capital ratio (3) 12.87% 12.62% 12.66%
Tier 1 capital ratio (3) 12.87% 12.62% 12.66%
Total capital ratio (3) 14.12% 13.87% 13.91%
Tier 1 leverage ratio (3) 10.50% 11.03% 10.64%
(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 September 30, 2017, the Company had total consolidated assets of $1.2 billion, gross loans of $824.9 million, allowance for loan and lease losses (“ALLL”) of $11.7 million, total deposits of $1.1 billion, and shareholders’ equity of $128.4 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
At September 30, At June 30,
% of % of Change % of
2017 Total 2016 Total Amount % 2017 Total
Commercial$ 147,212 18% $ 136,235 17% $ 10,977 8 % $ 152,204 19%
Real estate - construction and land development 14,700 2 31,225 4 (16,525) (53)% 22,275 3
Real estate - commercial non-owner occupied 333,766 40 283,668 36 50,098 18 % 310,995 38
Real estate - commercial owner occupied 183,424 22 175,923 23 7,501 4 % 184,868 23
Real estate - residential - ITIN 42,063 5 46,458 6 (4,395) (9)% 43,229 5
Real estate - residential - 1-4 family mortgage 21,119 3 16,665 2 4,454 27 % 18,904 2
Real estate - residential - equity lines 31,158 4 36,468 5 (5,310) (15)% 32,133 4
Consumer and other 51,432 6 52,377 7 (945) (2)% 50,780 6
Gross loans 824,874 100% 779,019 100% 45,855 6 % 815,388 100%
Deferred fees and costs 1,770 1,155 615 1,541
Loans, net of deferred fees and costs 826,644 780,174 46,470 816,929
Allowance for loan and lease losses (11,692) (11,849) 157 (11,688)
Net loans$ 814,952 $ 768,325 $ 46,627 $ 805,241
Average yield on loans during the quarter 4.87% 4.66% 0.21 4.77%

The Company recorded gross loan balances of $824.9 million at September 30, 2017, compared with $779.0 million and $815.4 million at September 30, 2016 and June 30, 2017, respectively, an increase of $45.9 million and $9.5 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 $805.1 million for the quarter ended September 30, 2017, compared with $769.4 million and $821.3 million for the quarters ended September 30, 2016 and June 30,2017, respectively, an increase of $35.8 million or 5% and a decrease of $16.2 million or 8% annualized, respectively.

The average yield on loans during the quarter was 4.87% compared to 4.66% and 4.77% for the quarters ended September 30, 2016 and June 30, 2017, respectively. The current quarter yield includes $161 thousand of interest income related to a nonaccrual loan that was repaid during the quarter.

TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
At September 30, At June 30,
% of % of Change % of
2017 Total 2016 Total Amount % 2017 Total
Cash and due from banks $ 19,929 6% $ 19,699 7% $ 230 1 % $ 23,420 7%
Interest-bearing deposits in other banks 65,702 19 65,431 24 271 % 73,434 22
Total cash and cash equivalents 85,631 25 85,130 31 501 1 % 96,854 29
Investment securities:
U.S. government and agencies 36,474 10 5,527 2 30,947 560 % 24,231 7
Obligations of state and political subdivisions 53,850 15 59,952 22 (6,102) (10)% 58,400 17
Residential mortgage backed securities and
collateralized mortgage obligations
105,224 31 54,046 20 51,178 95 % 91,375 28
Corporate securities 6,968 2 16,346 6 (9,378) (57)% 8,312 2
Commercial mortgage backed securities 26,148 7 16,254 6 9,894 61 % 23,421 7
Other asset backed securities 3,830 1 4,315 2 (485) (11)% 3,870 1
Total investment securities - AFS 232,494 66 156,440 58 76,054 49 % 209,609 62
Obligations of state and political
subdivisions - HTM
30,724 9 31,771 11 (1,047) (3)% 31,329 9
Total investment securities - AFS
and HTM
263,218�� 75 188,211 69 75,007 40 % 240,938 71
Total cash, cash equivalents and
investment securities
$ 348,849 100% $ 273,341 100% $ 75,508 28 % $ 337,792 100%
Average yield on interest-bearing due
from banks and investment securities
during the quarter
2.19% 2.11% 0.08 2.27%

As of September 30, 2017, we maintained noninterest-bearing cash positions of $19.9 million and interest-bearing deposits of $65.7 million at the Federal Reserve Bank and correspondent banks. During the third quarter of 2017, we deployed liquidity provided by the sale of common stock and strong organic deposit growth into organic loan originations, available-for-sale securities and interest-bearing deposits at other banks.

Available-for-sale investment securities totaled $232.5 million at September 30, 2017, compared with $156.4 million and $209.6 million at September 30, 2016 and June 30, 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 third quarter of 2017, we purchased 31 securities with a par value of $49.3 million and weighted average yield of 2.55% and sold 19 securities with a par value of $19.8 million and weighted average yield of 2.02%. The sales activity on available-for-sale securities resulted in $38 thousand in net realized gains. During the same period, we received $6.8 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 September 30, 2017 and 2016 were $256.7 million and 2.91% compared to $188.5 million and 3.22%, respectively.

At September 30, 2017, our net unrealized gains on available-for-sale investment securities were $630 thousand compared with net unrealized gains of $2.3 million and $682 thousand at September 30, 2016 and June 30, 2017, respectively. The decrease in net unrealized gains from September 30, 2016 is primarily due to significant changes in market interest rates.

TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
At September 30, At June 30,
% of % of Change % of
2017 Total 2016 Total Amount % 2017 Total
Demand - noninterest-bearing$ 316,814 30% $ 254,435 26% $ 62,379 25 % $ 303,560 29%
Demand - interest-bearing 433,466 41 394,525 40 38,941 10 % 426,798 41
Total demand 750,280 71 648,960 66 101,320 16 % 730,358 70
Savings 111,962 11 110,201 11 1,761 2 % 109,472 10
Total non-maturing deposits 862,242 82 759,161 77 103,081 14 % 839,830 80
Certificates of deposit 200,543 18 216,332 23 (15,789) (7)% 206,395 20
Total deposits$ 1,062,785 100% $ 975,493 100% $ 87,292 9 % $ 1,046,225 100%
Average rate on interest-bearing
deposits during the quarter
0.43% 0.39% 0.04 0.42%
Average rate on all
deposits during the quarter
0.31% 0.29% 0.02 0.31%

Total deposits at September 30, 2017, increased $87.3 million or 9% to $1.1 billion compared to September 30, 2016, and increased $16.6 million or 6% annualized compared to June 30, 2017. Total non-maturing deposits increased $103.1 million or 14% compared to the same date a year ago and increased $22.4 million or 11% annualized compared to June 30, 2017. Certificates of deposit decreased $15.8 million or 7% compared to the same date a year ago and decreased $5.9 million or 11% annualized compared to June 30, 2017.

TABLE 5
WHOLESALE AND BROKERED DEPOSITS - UNAUDITED
(amounts in thousands)
At September 30, At June 30,
2017 2016 2017
CDARS / ICS reciprocal brokered deposits$ 56,203 $ 59,502 $ 56,803
Online listing service wholesale time deposits 37,293 52,456 42,709
Total wholesale and brokered deposits$ 93,496 $ 111,958 $ 99,512

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $56.2 million, $59.5 million and $56.8 million at September 30, 2017, September 30, 2016 and June 30, 2017, respectively.

INCOME STATEMENT OVERVIEW

TABLE 6
SUMMARY INCOME STATEMENT - UNAUDITED
(amounts in thousands, except per share data)
For The Three Months Ended
September 30, Change June 30, Change
2017 2016 Amount % 2017 Amount %
Interest income$ 11,765 $ 10,330 $ 1,435 14% $ 11,320 $ 445 4 %
Interest expense 1,181 1,054 127 12% 1,145 36 3 %
Net interest income 10,584 9,276 1,308 14% 10,175 409 4 %
Provision for loan
and lease losses
% 300 (300) (100)%
Noninterest income 995 959 36 4% 983 12 1 %
Noninterest expense:
Other noninterest expense 7,276 7,125 151 2% 7,714 (438) (6)%
Income before provision
for income taxes
4,303 3,110 1,193 38% 3,144 1,159 37 %
Provision for income taxes 1,427 744 683 92% 935 492 53 %
Net income$ 2,876 $ 2,366 $ 510 22% $ 2,209 $ 667 30 %
Basic earnings per share$ 0.18 $ 0.18 $ % $ 0.15 $ 0.03 20 %
Average basic shares 16,191 13,369 2,822 21% 15,014 1,177 8 %
Diluted earnings per share$ 0.18 $ 0.18 $ % $ 0.15 $ 0.03 20 %
Average diluted shares 16,288 13,439 2,849 21% 15,113 1,175 8 %
Dividends declared per
common share
$ 0.03 $ 0.03 $ % $ 0.03 $ %

Third Quarter of 2017 Compared With Third Quarter of 2016

Net income for the third quarter of 2017 increased $510 thousand compared to the third quarter of 2016. In the current quarter, net interest income was $1.3 million higher and noninterest income was $36 thousand higher. These positive changes were offset by noninterest expense that was $151 thousand higher and a provision for income taxes that was $683 thousand higher.

Net Interest Income

Net interest income increased $1.3 million compared to the same period a year ago.

Interest income for the three months ended September 30, 2017 increased $1.4 million or 14% to $11.8 million. Interest and fees on loans increased $880 thousand due to increased average loan balances and increased yield on the loan portfolio. Interest on securities increased $359 thousand and interest on interest-bearing deposits due from banks increased $196 thousand.

Interest expense for the third quarter of 2017 increased $127 thousand or 12% to $1.2 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 September 30, 2017 and the same period a year ago, the Company did not record a provision for loan and lease losses.

Noninterest Income

Noninterest income for the three months ended September 30, 2017 increased $36 thousand compared to the third quarter for 2016. Increased fee income of $86 thousand was offset by decreases in gain on sale of securities of $32 thousand and FHLB dividends of $22 thousand.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2017 increased $151 thousand compared to the same period a year previous. The increase in noninterest expense included the following negative items:

  • Employee incentive costs increased $139 thousand
  • Other compensation-related costs increased $175 thousand
  • Loan origination cost deferrals decreased $105 thousand

These increases were partially offset by the following positive items:

  • FDIC insurance costs decreased $97 thousand
  • Recruiting costs decreased $80 thousand

Income Tax Provision

During the three months ended September 30, 2017, the Company recorded a provision for income taxes of $1.4 million (33.2% effective tax rate) compared with a provision for income taxes of $744 thousand (23.92% 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 in 2017 comprise a smaller percentage of pre-tax income.

Third Quarter of 2017 Compared With Second Quarter of 2017

Net income for the third quarter of 2017 increased $667 thousand compared to the second quarter of 2017. In the current quarter, net interest income was $409 thousand higher, provision for loan and lease losses was $300 thousand lower, noninterest income was $12 thousand higher and noninterest expenses were $438 thousand lower. These positive changes were offset by a provision for income taxes that was $492 thousand higher.

Net Interest Income

Net interest income increased $409 thousand over the prior quarter.

Interest income for the three months ended September 30, 2017 increased $445 thousand or 4% to $11.8 million. Interest and fees on loans increased $129 thousand due to increased yields. Interest on investment securities increased $194 thousand due to increased average balances. Interest on interest-bearing deposits due from banks increased $122 thousand due to increased average balances and increased yields.

Interest expense for the three months ended September 30, 2017 increased $36 thousand or 3% to $1.2 million. The average rate paid on interest-bearing deposits increased from 42 basis points to 43 basis points. The average rate paid on all liabilities was 60 basis points for both the current quarter and the prior quarter.

Provision for loan and lease loss

As a result of continued improved asset quality, no provision for loan and lease losses was deemed necessary during the current quarter compared with a provision for loan and lease losses of $300 thousand for the prior quarter.

Noninterest Income

Noninterest income for the three months ended September 30, 2017 increased $12 thousand. During the current quarter, dividends on Federal Home Loan Bank of San Francisco stock increased $26 thousand.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2017 decreased $438 thousand compared to the second quarter of 2017. The decrease in noninterest expense included the following items:

  • Termination and write-off of a software development project - $97 thousand
  • Holding costs and write-downs for other real estate owned - $86 thousand
  • Legal fees - $57 thousand
  • Recruiting costs - $34 thousand

Income Tax Provision

During the three months ended September 30, 2017, we recorded a provision for income taxes of $1.4 million (33.16% of pretax income) compared with a provision for income taxes of $935 thousand (29.74% of pretax income) for the prior quarter. Tax benefits from vesting of restricted stock were $2 thousand in the current quarter compared to $45 thousand in the prior quarter. Excluding those benefits, the Company’s effective tax rates would have been 33.21% and 31.17%, respectively.

Earnings Per Share

Diluted earnings per share were $0.18 for the three months ended September 30, 2017 compared with diluted earnings per share of $0.18 for the same period a year ago and diluted earnings per share of $0.15 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
September 30, 2017 September 30, 2016 June 30, 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) $ 805,144 $ 9,887 4.87% $ 769,354 $ 9,007 4.66% $ 821,321 $ 9,758 4.77%
Taxable securities 179,362 1,049 2.32% 114,578 689 2.39% 143,705 872 2.43%
Tax-exempt securities 77,303 551 2.83% 73,952 552 2.97% 73,927 534 2.90%
Interest-bearing deposits
in other banks
84,323 278 1.31% 61,346 82 0.53% 58,691 156 1.07%
Average interest-
earning assets
1,146,132 11,765 4.07% 1,019,230 10,330 4.03% 1,097,644 11,320 4.14%
Cash and due from banks 19,143 17,018 17,364
Premises and equipment, net 15,362 15,941 15,809
Other assets 40,263 41,729 39,630
Average total assets $ 1,220,900 $ 1,093,918 $ 1,170,447
Interest-bearing liabilities:
Interest-bearing demand $ 436,614 196 0.18% $ 390,895 136 0.14% $ 421,888 184 0.17%
Savings deposits 110,305 52 0.19% 107,210 43 0.16% 109,857 47 0.17%
Certificates of deposit 204,044 567 1.10% 221,078 524 0.94% 208,703 545 1.05%
Net term debt 17,804 292 6.51% 19,610 292 5.92% 19,539 298 6.12%
Junior subordinated
debentures
10,310 74 2.85% 10,310 59 2.28% 10,310 71 2.76%
Average interest-
bearing liabilities
779,077 1,181 0.60% 749,103 1,054 0.56% 770,297 1,145 0.60%
Noninterest-bearing demand 303,314 240,418 275,039
Other liabilities 11,935 11,159 12,256
Shareholders’ equity 126,574 93,238 112,855
Average liabilities and
shareholders’ equity
$ 1,220,900 $ 1,093,918 $ 1,170,447
Net interest income and
net interest margin (4)
$ 10,584 3.66% $ 9,276 3.62% $ 10,175 3.72%
Tax equivalent net
interest margin (3)
3.76% 3.73% 3.82%
(1) Interest income on loans is net of deferred fees and costs of approximately $95 thousand, $289 thousand, and $131 thousand for the three months ended September 30, 2017, and 2016 and June 30, 2017, respectively.
(2) Net loans includes average nonaccrual loans of $8.6 million, $10.5 million and $9.8 million for the three months ended September 30, 2017 and 2016 and June 30, 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 $284 thousand, $284 thousand and $275 thousand for the three months ended September 30, 2017 and 2016 and June 30, 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 Nine Months Ended
September 30, 2017 September 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) $ 811,080 $ 29,029 4.79% $ 744,370 $ 26,254 4.71%
Taxable securities 153,702 2,710 2.36% 119,541 2,281 2.55%
Tax-exempt securities 74,932 1,615 2.88% 76,315 1,734 3.04%
Interest-bearing deposits
in other banks
66,818 548 1.10% 52,930 222 0.56%
Average interest-
earning assets
1,106,532 33,902 4.10% 993,156 30,491 4.10%
Cash and due from banks 17,802 15,455
Premises and equipment, net 15,776 14,657
Other assets 40,040 40,942
Average total assets $ 1,180,150 $ 1,064,210
Interest-bearing liabilities:
Interest-bearing demand $ 426,365 528 0.17% $ 365,917 388 0.14%
Savings deposits 111,258 146 0.18% 102,427 129 0.17%
Certificates of deposit 209,275 1,641 1.05% 222,286 1,636 0.98%
Net term debt 18,644 883 6.33% 43,435 1,369 4.21%
Junior subordinated
debentures
10,310 211 2.74% 10,310 172 2.23%
Average interest-
bearing liabilities
775,852 3,409 0.59% 744,375 3,694 0.66%
Noninterest-bearing demand 280,559 214,540
Other liabilities 12,206 13,336
Shareholders’ equity 111,533 91,959
Average liabilities and
shareholders’ equity
$ 1,180,150 $ 1,064,210
Net interest income and
net interest margin (4)
$ 30,493 3.68% $ 26,797 3.60%
Tax equivalent net
interest margin (3)
3.78% 3.72%
(1) Interest income on loans is net of deferred fees and costs of approximately $423 thousand and $956 thousand for the nine months ended September 30, 2017 and 2016, respectively.
(2) Net loans includes average nonaccrual loans of $9.7 million and $10.7 million for the nine months ended September 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 $832 thousand and $893 thousand for the nine months ended September 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 decreased six basis points to 3.66% as compared to the prior quarter due to decreased yields on average interest-earning assets. The decreased yields on average interest-earning assets was due to maturities and repayments on loans being invested at lower rates in the securities portfolio and interest-bearing deposits in other banks. Increases in average interest-earning assets were funded by increases in low cost demand deposits and increases in equity from the sale of common stock during the previous quarter.

The net interest margin was 3.66% for the current quarter compared to 3.62% for the same period a year ago. The increase was due to increased yield on the loan portfolio and increased yield on interest-bearing deposits in other banks. The increase was partially offset by decreased yield in the investment portfolio and an increase in the average rate paid on interest-bearing deposits.

Average deposit balances for the current quarter increased $38.8 million and $94.7 million compared to the prior quarter and the same period a year ago, respectively. The increase in average deposits was due to organic growth in core deposits. Our overall cost of total deposits was 0.31% for the quarter ended September 30, 2017 compared to 0.29% for the same period a year ago and 0.31% 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
September 30, June 30, March 31, December 31, September 30,
2017 2017 2017 2016 2016
Beginning balance ALLL$ 11,688 $ 11,641 $ 11,544 $ 11,849 $ 11,864
Provision for loan and lease losses 300 200
Loans charged-off (245) (359) (447) (386) (357)
Loan loss recoveries 249 106 344 81 342
Ending balance ALLL$ 11,692 $ 11,688 $ 11,641 $ 11,544 $ 11,849
At September 30, At June 30, At March 31, At December 31, At September 30,
2017 2017 2017 2016 2016
Nonaccrual loans:
Commercial$ 2,309 $ 2,410 $ 2,534 $ 2,749 $ 1,710
Real estate - commercial non-owner occupied 1,196 1,196 1,196 1,196
Real estate - commercial owner occupied 617 639 654 784 800
Real estate - residential - ITIN 3,201 3,346 3,331 3,576 3,392
Real estate - residential - 1-4 family mortgage 626 653 1,337 1,914 1,798
Real estate - residential - equity lines 815 872 906 917 942
Consumer and other 37 38 39 250 252
Total nonaccrual loans 7,605 9,154 9,997 11,386 10,090
Accruing troubled debt restructured loans:
Commercial 671 703 741 776 726
Real estate - commercial non-owner occupied 805 806 808 808 811
Real estate - residential - ITIN 4,655 4,712 4,761 5,033 5,280
Real estate - residential - equity lines 441 445 450 454 543
Total accruing troubled debt restructured loans 6,572 6,666 6,760 7,071 7,360
All other accruing impaired loans 337 483
Total impaired loans$ 14,177 $ 15,820 $ 16,757 $ 18,794 $ 17,933
Gross loans outstanding at period end$ 824,874 $ 815,388 $ 810,194 $ 804,211 $ 779,019
Nonaccrual loans to gross loans 0.92 % 1.12 % 1.23 % 1.42 % 1.30 %
Allowance for loan and lease losses as a percent of:
Gross loans 1.42 % 1.43 % 1.44 % 1.44 % 1.52 %
Nonaccrual loans 153.74 % 127.68 % 116.44 % 101.39 % 117.43 %
Impaired loans 82.47 % 73.88 % 69.47 % 61.42 % 66.07 %

We realized net loan loss recoveries of $4 thousand in the current quarter compared with net loan loss charge-offs of $253 thousand in the prior quarter and net loan loss charge-offs of $15 thousand for the same period a year ago. Recoveries during the third quarter of 2017 of $250 thousand were primarily associated with purchased consumer loans and one commercial loan.

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. There were no provisions for loan and lease losses during the quarter ended September 30, 2017 or the year ended December 31, 2016. 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. Our ALLL as a percentage of gross loans was 1.42% as of September 30, 2017 compared to 1.52% as of September 30, 2016 and 1.43% as of June 30, 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 September 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 September 30, 2017, the recorded investment in loans classified as impaired totaled $14.2 million, with a corresponding specific reserve of $918 thousand compared to impaired loans of $17.9 million with a corresponding specific reserve of $925 thousand at September 30, 2016 and impaired loans of $15.8 million, with a corresponding specific reserve of $1.1 million at June 30, 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 commercial real estate loan that was paid off during the quarter.

TABLE 9
TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(amounts in thousands)
At September 30, At June 30, At March 31, At December 31, At September 30,
2017 2017 2017 2016 2016
Nonaccrual $ 4,403 $ 4,630 $ 4,570 $ 4,995 $ 3,795
Accruing 6,572 6,666 6,760 7,071 7,360
Total troubled debt restructurings $ 10,975 $ 11,296 $ 11,330 $ 12,066 $ 11,155
Percentage of total gross loans 1.33% 1.39% 1.40% 1.50% 1.43%

There were no new troubled debt restructurings during the three months ended September 30, 2017. As of September 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 September 30, At June 30, At March 31, At December 31, At September 30,
2017 2017 2017 2016 2016
Total nonaccrual loans $ 7,605 $ 9,154 $ 9,997 $ 11,386 $ 10,090
90 days past due and still accruing
Total nonperforming loans 7,605 9,154 9,997 11,386 10,090
Other real estate owned 699 1,517 814 759 793
Total nonperforming assets $ 8,304 $ 10,671 $ 10,811 $ 12,145 $ 10,883
Nonperforming loans to gross loans 0.92% 1.12% 1.23% 1.42% 1.30%
Nonperforming assets to total assets 0.67% 0.88% 0.95% 1.06% 0.98%

The September 30, 2017 OREO balance consists of three properties, of which one is a 1-4 family residential real estate property in the amount of $22 thousand, one is a nonfarm nonresidential property in the amount of $565 thousand and one is an undeveloped commercial property in the amount of $112 thousand. The decrease in the OREO balance compared to the prior quarter is due to one residential real estate property that was sold during the quarter. On October 6, 2017, the nonfarm nonresidential property that was included in the September 30, 2017 OREO balance for $565 thousand sold for $923 thousand resulting in a gain in the fourth quarter of $358 thousand.

TABLE 11
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
At September 30, At September 30, Change At June 30,
2017 2016 $ % 2017
Assets:
Cash and due from banks $ 19,929 $ 19,699 $ 230 1 % $ 23,420
Interest-bearing deposits in other banks 65,702 65,431 271 % 73,434
Total cash and cash equivalents 85,631 85,130 501 1 % 96,854
Securities available-for-sale, at fair value 232,494 156,440 76,054 49 % 209,609
Securities held-to-maturity, at amortized cost 30,724 31,771 (1,047) (3)% 31,329
Loans, net of deferred fees and costs 826,644 780,174 46,470 6 % 816,929
Allowance for loan and lease losses (11,692) (11,849) 157 (1)% (11,688)
Net loans 814,952 768,325 46,627 6 % 805,241
Premises and equipment, net 15,039 15,930 (891) (6)% 15,417
Other real estate owned 699 793 (94) (12)% 1,517
Life insurance 21,764 22,946 (1,182) (5)% 21,629
Deferred taxes 8,751 8,171 580 7 % 8,723
Goodwill and core deposit intangible, net 2,086 2,307 (221) (10)% 2,141
Other assets 19,741 19,205 536 3 % 19,634
Total assets $ 1,231,881 $ 1,111,018 $ 120,863 11 % $ 1,212,094
Liabilities and shareholders' equity:
Demand - noninterest-bearing $ 316,814 $ 254,435 $ 62,379 25 % $ 303,560
Demand - interest-bearing 433,466 394,525 38,941 10 % 426,798
Savings 111,962 110,201 1,761 2 % 109,472
Certificates of deposit 200,543 216,332 (15,789) (7)% 206,395
Total deposits 1,062,785 975,493 87,292 9 % 1,046,225
Term debt 17,700 19,317 (1,617) (8)% 18,300
Unamortized debt issuance costs (150) (193) 43 (22)% (161)
Net term debt 17,550 19,124 (1,574) (8)% 18,139
Junior subordinated debentures 10,310 10,310 % 10,310
Other liabilities 12,831 11,798 1,033 9 % 11,468
Total liabilities 1,103,476 1,016,725 86,751 9 % 1,086,142
Shareholders' equity:
Common stock 51,755 24,483 27,272 111 % 51,651
Retained earnings 76,179 68,321 7,858 12 % 73,789
Accumulated other comprehensive income, net of tax 471 1,489 (1,018) (68)% 512
Total shareholders' equity 128,405 94,293 34,112 36 % 125,952
Total liabilities and shareholders' equity $ 1,231,881 $ 1,111,018 $ 120,863 11 % $ 1,212,094
Total interest-earning assets $ 1,154,934 $ 1,031,527 $ 123,407 12 % $ 1,130,619
Shares outstanding 16,265 13,439 16,260
Tangible book value per share $ 7.77 $ 6.84 $ 7.61


TABLE 12
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
For The Three Months Ended For The Nine Months Ended
September 30, Change June 30, September 30,
2017 2016 $ % 2017 2017 2016
Interest income:
Interest and fees on loans $ 9,887 $ 9,007 $ 880 10 % $ 9,758 $ 29,029 $ 26,254
Interest on securities 1,049 689 360 52 % 872 2,710 2,281
Interest on tax-exempt securities 551 552 (1) % 534 1,615 1,734
Interest on deposits in other banks 278 82 196 239 % 156 548 222
Total interest income 11,765 10,330 1,435 14 % 11,320 33,902 30,491
Interest expense:
Interest on demand deposits 196 136 60 44 % 184 528 388
Interest on savings deposits 52 43 9 21 % 47 146 129
Interest on certificates of deposit 567 524 43 8 % 545 1,641 1,636
Interest on term debt 292 292 % 298 883 1,369
Interest on other borrowings 74 59 15 25 % 71 211 172
Total interest expense 1,181 1,054 127 12 % 1,145 3,409 3,694
Net interest income 10,584 9,276 1,308 14 % 10,175 30,493 26,797
Provision for loan and lease losses % 300 500
Net interest income after provision
for loan and lease losses
10,584 9,276 1,308 14 % 9,875 29,993 26,797
Noninterest income:
Service charges on deposit accounts 132 133 (1) (1)% 142 401 293
ATM and point of sale 273 287 (14) (5)% 288 827 714
Payroll and benefit processing fees 147 133 14 11 % 147 485 432
Life insurance 134 152 (18) (12)% 135 915 461
Gain on investment securities, net 38 70 (32) (46)% 35 139 192
Impairment losses on investment securities % (546)
Federal Home Loan Bank of
San Francisco dividends
80 102 (22) (22)% 54 237 291
Other income 191 82 109 133 % 182 516 508
Total noninterest income 995 959 36 4 % 983 3,520 2,345


TABLE 12 - CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
For The Three Months Ended For The Nine Months Ended
September 30, Change June 30, September 30,
2017 2016 $ % 2017 2017 2016
Noninterest expense:
Salaries and related benefits 4,291 3,873 418 11 % 4,147 13,296 12,188
Occupancy and equipment 1,067 1,071 (4) % 1,054 3,169 2,847
Federal Deposit Insurance Corporation
insurance premium
78 176 (98) (56)% 104 230 513
Data processing fees 437 464 (27) (6)% 450 1,294 1,142
Professional service fees 276 293 (17) (6)% 459 1,119 1,174
Telecommunications 219 199 20 10 % 223 653 545
Branch acquisition costs % 580
Loss on cancellation of interest rate swap % 2,325
Other expenses 908 1,049 (141) (13)% 1,277 3,290 3,480
Total noninterest expense 7,276 7,125 151 2 % 7,714 23,051 24,794
Income before provision for income taxes 4,303 3,110 1,193 38 % 3,144 10,462 4,348
Deferred tax asset write-off % 363
Provision for income taxes 1,427 744 683 92 % 935 3,125 1,023
Net income $ 2,876 $ 2,366 $ 510 22 % $ 2,209 $ 7,337 $ 2,962
Basic earnings per share $ 0.18 $ 0.18 $ % $ 0.15 $ 0.49 $ 0.22
Average basic shares 16,191 13,369 2,822 21 % 15,014 14,884 13,366
Diluted earnings per share $ 0.18 $ 0.18 $ % $ 0.15 $ 0.49 $ 0.22
Average diluted shares 16,288 13,439 2,849 21 % 15,113 14,984 13,412


TABLE 13
UNAUDITED CONDENSED CONSOLIDATED
YEAR TO DATE AVERAGE BALANCE SHEETS
(amounts in thousands)
For the Nine Months Ended For the Twelve Months Ended
September 30, September 30, December 31, December 31, December 31,
2017 2016 2016 2015 2014
Earning assets:
Loans $ 811,080 $ 744,370 $ 752,938 $ 699,227 $ 625,166
Taxable securities 153,702 119,541 120,884 120,897 147,916
Tax exempt securities 74,932 76,315 75,303 77,089 83,973
Interest-bearing deposits in other banks 66,818 52,930 58,668 30,323 56,465
Total earning assets 1,106,532 993,156 1,007,793 927,536 913,520
Cash and due from banks 17,802 15,455 15,831 11,220 11,246
Premises and equipment, net 15,776 14,657 15,078 11,552 12,105
Other assets 40,040 40,942 41,048 42,423 36,936
Total assets $ 1,180,150 $ 1,064,210 $ 1,079,750 $ 992,731 $ 973,807
Liabilities and shareholders' equity:
Demand - noninterest-bearing $ 280,559 $ 214,540 $ 226,368 $ 156,578 $ 139,792
Demand - interest-bearing 426,365 365,917 374,170 283,105 272,383
Savings 111,258 102,427 104,771 92,659 91,108
Certificates of deposit 209,275 222,286 221,074 238,626 259,445
Total deposits 1,027,457 905,170 926,383 770,968 762,728
Term debt 18,644 43,435 37,286 88,874 77,534
Junior subordinated debentures 10,310 10,310 10,310 10,310 15,239
Other liabilities 12,206 13,336 13,217 16,588 15,934
Total liabilities 1,068,617 972,251 987,196 886,740 871,435
Shareholders' equity 111,533 91,959 92,554 105,991 102,372
Liabilities & shareholders' equity $ 1,180,150 $ 1,064,210 $ 1,079,750 $ 992,731 $ 973,807


TABLE 14
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
For The Three Months Ended
September 30, June 30, March 31, December 31, September 30,
2017 2017 2017 2016 2016
Earning assets:
Loans $ 805,144 $ 821,321 $ 806,793 $ 778,458 $ 769,354
Taxable securities 179,362 143,705 137,582 124,881 114,578
Tax exempt securities 77,303 73,927 73,524 72,288 73,952
Interest-bearing deposits in other banks 84,323 58,691 57,140 75,760 61,346
Total earning assets 1,146,132 1,097,644 1,075,039 1,051,387 1,019,230
Cash and due from banks 19,143 17,364 16,873 16,953 17,018
Premises and equipment, net 15,362 15,809 16,165 16,331 15,941
Other assets 40,263 39,630 40,228 41,363 41,729
Total assets $ 1,220,900 $ 1,170,447 $ 1,148,305 $ 1,126,034 $ 1,093,918
Liabilities and shareholders' equity:
Demand - noninterest-bearing $ 303,314 $ 275,039 $ 262,881 $ 261,600 $ 240,418
Demand - interest-bearing 436,614 421,888 420,416 398,749 390,895
Savings 110,305 109,857 113,647 111,755 107,210
Certificates of deposit 204,044 208,703 215,202 217,463 221,078
Total deposits 1,054,277 1,015,487 1,012,146 989,567 959,601
Term debt 17,804 19,539 18,598 18,975 19,610
Junior subordinated debentures 10,310 10,310 10,310 10,310 10,310
Other liabilities 11,935 12,256 12,431 12,856 11,159
Total liabilities 1,094,326 1,057,592 1,053,485 1,031,708 1,000,680
Shareholders' equity 126,574 112,855 94,820 94,326 93,238
Liabilities & shareholders' equity $ 1,220,900 $ 1,170,447 $ 1,148,305 $ 1,126,034 $ 1,093,918

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Sacramento, 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 (916) 677-5800

James A. Sundquist, Executive Vice President and Chief Financial Officer
Telephone Direct (916) 677-5825

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

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

Source:Bank of Commerce Holdings