BOCH Bank of Commerce Holdings

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 ended June 30, 2016. Net income available to common shareholders for the quarter ended June 30, 2016 was $1.6 million or $0.11 per share – diluted, compared with net income available to common shareholders of $2.3 million or $0.18 per share – diluted for the same period of 2015.

The current quarter is the first full quarter which includes the benefits derived from the acquisition of five Bank of America branches in March 2016 and the reconfiguration of the Company’s Balance Sheet using liquidity provided by those branches. Compared against the first quarter of 2016:

• Net interest income increased $913 thousand (11%)
• Net interest margin increased from 3.44% to 3.74%
• Average interest rate paid on all deposits decreased from 37 basis points to 30 basis points

Randall S. Eslick, President and CEO commented: “We are pleased to see that the first quarter reconfiguration of our Balance Sheet has provided the benefits we anticipated. Healthy loan growth has had a very positive impact on interest income.   The elimination of most brokered and wholesale borrowings and the sizeable growth in low cost core deposits have substantially reduced interest expense. We believe our branch acquisition and financial reconfiguration have achieved the planned results.”

Unrelated to the branch acquisition, the second quarter results were negatively impacted by the $546 thousand impairment of a bond investment which is described in more detail later in this press release.

Financial highlights for the second quarter of 2016:

• Net income available to common shareholders totaled $1.6 million
• Return on average assets was 0.59%
• Return on average equity was 6.85%
• Total deposits for the quarter averaged $931.1 million, an increase of $106.9 million from the previous quarter average of $824.2 million
• Term debt for the quarter averaged $19.5 million, a decrease of $71.9 million from the previous quarter average of $91.4 million
• Gross loans at June 30, 2016 totaled $754.1 million, an increase of $29.9 million (17% annualized) since March 31, 2016
• Nonperforming assets at June 30, 2016 totaled $11.7 million or 1.09% of total assets
• Net loan loss recoveries of $369 thousand combined with continuing improved asset quality resulted in no provision for loan and lease losses
• Tangible book value per common share was $6.71 at June 30, 2016

Financial highlights for the six months ended June 30, 2016:

• Net income available to common shareholders totaled $596 thousand
• Return on average assets was 0.11%
• Return on average equity was 1.31%
• Gross loans at June 30, 2016 totaled $754.1 million, an increase of $37.5 million (11% annualized) since December 31, 2015.
• Nonperforming assets at June 30, 2016 totaled $11.7 million, a decrease of $3.8 million (49% annualized) compared to December 31, 2015

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 Six Months Ended
Net income, average assets and		June 30,								March 31,						June 30,
average shareholders' equity		2016				2015				2016						2016			2015
Income (loss) available to common shareholders		$	1,556			$	2,340			$		(960	)			$	596		$	4,091
Average total assets		$	1,064,186			$	993,815			$		1,034,203				$	1,049,192		$	986,406
Average shareholders' equity		$	91,317			$	106,198			$		91,307				$	91,312		$	105,412
Selected performance ratios
Return on average assets			0.59	%			0.94	%				(0.37	)	%			0.11	%		0.84	%
Return on average equity			6.85	%			8.84	%				(4.23	)	%			1.31	%		7.83	%
Efficiency ratio			79.43	%			64.61	%				108.08		%			93.45	%		68.00	%
Share and per share amounts
Weighted average shares - basic			13,367				13,338					13,360					13,364			13,320
Weighted average shares - diluted			13,425				13,370					13,360					13,408			13,353
Earnings (loss) per share - basic		$	0.11			$	0.18			$		(0.07	)			$	0.04		$	0.31
Earnings (loss) per share - diluted		$	0.11			$	0.18			$		(0.07	)			$	0.04		$	0.31
		At June 30,								At March 31,
Share and per share amounts		2016				2015				2016
Common shares outstanding (1)			13,439				13,364					13,442
Tangible book value per common share		$	6.71			$	6.48			$		6.57
Capital ratios
Bank of Commerce Holdings
Common equity tier 1 capital ratio			9.69	%			9.96	%				9.82		%
Tier 1 capital ratio (2)			10.77	%			13.33	%				10.93		%
Total capital ratio (2)			13.11	%			14.58	%				13.30		%
Tier 1 leverage ratio (2)			9.34	%			11.76	%				9.48		%
Redding Bank of Commerce
Common equity tier 1 capital ratio			12.80	%			13.27	%				13.07		%
Tier 1 capital ratio			12.80	%			13.27	%				13.07		%
Total capital ratio			14.05	%			14.52	%				14.32		%
Tier 1 leverage ratio			11.14	%			11.75	%				11.36		%
(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 decline in the capital ratios of Bank of Commerce Holdings as of June 30, 2016 compared to June 30, 2015 is primarily due to the redemption of $20.0 million of preferred stock (Tier 1 capital) during the fourth quarter of 2015. The $10.0 million of subordinated debt issued during the fourth quarter of 2015 qualifies as Tier 2 capital under the applicable capital adequacy rules and regulations promulgated by the Federal Reserve. The capital ratios for 2016 were also impacted by the addition of $1.8 million of core deposit intangibles and $665 thousand of goodwill recorded in conjunction with a branch acquisition in March of 2016.

BALANCE SHEET OVERVIEW

As of June 30, 2016, the Company had total consolidated assets of $1.1 billion, gross loans of $754.1 million, allowance for loan and lease losses (“ALLL”) of $11.9 million, total deposits of $937.6 million, and shareholders’ equity of $92.5 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
	At June 30,																									At March 31,
						% of								% of			Change															% of
	2016					Total			2015					Total			Amount					%					2016					Total
Commercial	$		150,410			20	%		$		143,088			20	%		$		7,322				5		%		$		136,721			19	%
Real estate - construction and land development			39,009			5					27,858			4					11,151				40		%				27,554			4
Real estate - commercial non-owner occupied			253,873			35					236,173			34					17,700				7		%				247,840			34
Real estate - commercial owner occupied			154,480			20					138,183			20					16,297				12		%				154,484			21
Real estate - residential - ITIN			47,188			6					51,249			7					(4,061	)			(8	)	%				48,384			7
Real estate - residential - 1-4 family mortgage			10,862			1					12,209			2					(1,347	)			(11	)	%				10,947			2
Real estate - residential - equity lines			43,971			6					46,463			7					(2,492	)			(5	)	%				44,327			6
Consumer and other			54,347			7					44,551			6					9,796				22		%				53,986			7
Gross loans			754,140			100	%				699,774			100	%				54,366				8		%				724,243			100	%
Deferred fees and costs			1,028								403								625										985
Loans, net of deferred fees and costs			755,168								700,177								54,991										725,228
Allowance for loan and lease losses			(11,864	)							(11,402	)							(462	)									(11,495	)
Net loans	$		743,304						$		688,775						$		54,529								$		713,733
Average yield on loans during the quarter			4.76	%							4.74	%							0.02										4.72	%

The Company recorded gross loan balances of $754.1 million at June 30, 2016, compared with $699.8 million and $724.2 million at June 30, 2015 and March 31, 2016, respectively, an increase of $54.4 million and $29.9 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. The increase in deferred fees and costs from June 30, 2015 to June 30, 2016 was the result of increased loan production and revised loan origination costs based on an updated loan origination cost study.

The increase in the ALLL in the current quarter compared to the prior quarter resulted from net loan loss recoveries of $369 thousand. As a result of these net recoveries and continued improved asset quality, no provision for loan and lease losses was deemed necessary during the current quarter or during the prior five consecutive quarters. See table 8 for additional details of the ALLL.

TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
		At June 30,																										At March 31,
							% of								% of			Change															% of
		2016					Total			2015					Total			Amount					%					2016					Total
Cash and due from banks		$		14,695			5	%		$		11,115			5	%		$		3,580				32		%		$		14,969			5	%
Interest-bearing deposits in other banks				51,345			20					21,681			9					29,664				137		%				70,781			24
Total cash and cash equivalents				66,040			25					32,796			14					33,244				101		%				85,750			29
Investment securities:
U.S. government and agencies				3,262			1					5,314			2					(2,052	)			(39	)	%				3,915			1
Obligations of state and political subdivisions				59,015			23					51,324			24					7,691				15		%				61,288			21
Residential mortgage backed securities and collateralized mortgage obligations				45,015			17					37,776			16					7,239				19		%				51,721			18
Corporate securities				22,313			9					33,501			15					(11,188	)			(33	)	%				23,764			8
Commercial mortgage backed securities				14,865			6					9,467			4					5,398				57		%				14,571			5
Other asset backed securities				13,436			5					23,381			10					(9,945	)			(43	)	%				18,992			6
Total investment securities - AFS				157,906			61					160,763			71					(2,857	)			(2	)	%				174,251			59
Obligations of state and political subdivisions - HTM				35,415			14					36,655			15					(1,240	)			(3	)	%				35,357			12
Total investment securities - AFS and HTM				193,321			75					197,418			86					(4,097	)			(2	)	%				209,608			71
Total cash, cash equivalents and investment securities		$		259,361			100	%		$		230,214			100	%		$		29,147				13		%		$		295,358			100	%
Average yield on interest bearing due  from banks and investment securities during the quarter				2.37	%							2.59	%							(0.22	)									2.35	%

As of June 30, 2016, we maintained noninterest-bearing cash positions at the Federal Reserve Bank and correspondent banks in the amount of $14.7 million. We also held interest-bearing deposits in the amount of $51.3 million. The sizeable increase in interest-bearing deposits compared to the same period a year ago derives from liquidity provided by the recent branch acquisition. It is anticipated that much of this liquidity will continue to be deployed into new loans over the remainder of the year.

Available-for-sale investment securities totaled $157.9 million at June 30, 2016, compared with $160.8 million and $174.3 million at June 30, 2015 and March 31, 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 second quarter of 2016 we purchased 2 securities with a par value of $4.1 million and weighted average yield of 2.10% and sold 13 securities with a par value of $13.5 million and weighted average yield of 3.39%. The sales activity resulted in $28 thousand in net realized gains. During the same period, we received $5.9 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, 2016 and 2015 were $201.4 million and 3.39% compared to $197.9 million and 3.47%, respectively.

At June 30, 2016, we held $3.2 million par value of AgriBank subordinated notes due July 15, 2019. On April 28, 2016 AgriBank announced that, on July 15, 2016 it would redeem all of the outstanding principal amount of these notes at 100% of the principal amount together with all accrued and unpaid interest. During the second quarter of 2016, we determined that the present value of the expected cash flows on our AgriBank investment was $546 thousand less than our amortized cost basis and recorded an other-than-temporary impairment for that amount. We did not recognize any additional, other-than-temporary impairment losses for the six months ended June 30, 2016, or the year ended December 31, 2015.

At June 30, 2016, our net unrealized gains on available-for-sale investment securities were $2.6 million compared with $1.5 million and $1.7 million at June 30, 2015 and March 31, 2016, respectively. The increase in net unrealized gains between March 31, 2016 and June 30, 2016 is primarily due to interest rate declines over the past three months.

TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
	At June 30,																										At March 31,
						% of								% of				Change														% of
	2016					Total			2015					Total			Amount					%					2016					Total
Demand - noninterest bearing	$		224,467			24	%		$		151,640			20	%		$		72,827				48		%		$		212,758			23	%
Demand - interest bearing			385,609			41					276,103			36					109,506				40		%				392,325			42
Total demand			610,076			65					427,743			56					182,333				43		%				605,083			65
Savings			105,228			11					93,500			12					11,728				13		%				105,828			11
Total non-maturing deposits			715,304			76					521,243			68					194,061				37		%				710,911			76
Certificates of deposit			222,252			24					238,796			32					(16,544	)			(7	)	%				226,756			24
Total deposits	$		937,556			100	%		$		760,039			100	%		$		177,517				23		%		$		937,667			100	%
Average rate on interest bearing deposits during the quarter			0.39	%							0.50	%							(0.11	)									0.48	%
Average rate on all deposits during the quarter			0.30	%							0.40	%							(0.10	)									0.37	%

Total deposits at June 30, 2016, increased $177.5 million or 23% to $937.6 million compared to June 30, 2015, and decreased $111 thousand or 0.01% compared to March 31, 2016. Total non-maturing deposits increased $194.1 million or 37% compared to the same date a year ago and increased $4.4 million or 1% compared to March 31, 2016. Certificates of deposit decreased $16.5 million or 7% compared to the same date a year ago and decreased $4.5 million or 2% compared to March 31, 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 June 30, 2016, the deposits in the acquired branches totaled $139.0 million.

TABLE 5
WHOLESALE AND BROKERED DEPOSITS - UNAUDITED
(amounts in thousands)
	At June 30,						At March 31,
	2016			2015			2016
CDARS / ICS reciprocal deposits	$	54,783		$	58,628		$	61,601
Third party brokered time deposits		—			17,502			—
Brokered deposits per Call Report		54,783			76,130			61,601
Online listing service time deposits		54,396			63,328			55,986
Total wholesale and brokered deposits	$	109,179		$	139,458		$	117,587

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $54.8 million, $76.1 million and $61.6 million at June 30, 2016, June 30, 2015 and March 31, 2016, 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
		2016			2015			Amount					%					2016					Amount					%
Interest income		$	10,257		$	9,763		$		494				5		%		$		9,904			$		353				4		%
Interest expense			1,040			1,168				(128	)			(11	)	%				1,600					(560	)			(35	)	%
Net interest income			9,217			8,595				622				7		%				8,304					913				11		%
Provision for loan and lease losses			—			—			—					0		%			—					—					0		%
Noninterest income			437			881				(444	)			(50	)	%				949					(512	)			(54	)	%
Noninterest expense:
Branch acquisition and balance sheet reconfiguration costs			168			—				168				100		%				2,795					(2,627	)			(94	)	%
Other noninterest expense			7,500			6,122				1,378				23		%				7,206					294				4		%
Income (loss) before provision for income taxes			1,986			3,354				(1,368	)			(41	)	%				(748	)				2,734				(366	)	%
Deferred tax asset write-off			—			—			—					0		%				363					(363	)			(100	)	%
Provision for income taxes			430			964				(534	)			(55	)	%				(151	)				581				(385	)	%
Net income (loss)		$	1,556		$	2,390		$		(834	)			(35	)	%		$		(960	)				2,516				(262	)	%
Less: Preferred dividends			—			50				(50	)			(100	)	%			—					—					0		%
Income (loss) available to common shareholders		$	1,556		$	2,340		$		(784	)			(34	)	%		$		(960	)		$		2,516				(262	)	%
Basic earnings (loss) per share		$	0.11		$	0.18		$		(0.07	)			(39	)	%		$		(0.07	)		$		0.18				(3	)	%
Average basic shares			13,367			13,338				29				0		%				13,360					7				0		%
Diluted earnings (loss) per share		$	0.11		$	0.18		$		(0.07	)			(39	)	%		$		(0.07	)		$		0.18				(3	)	%
Average diluted shares			13,425			13,370				55				0		%				13,360					65				0		%
Dividends declared per common share		$	0.03		$	0.03		$	—					0		%		$		0.03			$	—					0		%

Second Quarter of 2016 Compared With Second Quarter of 2015

Net income available to common shareholders for the second quarter of 2016 decreased $784 thousand over the second quarter of 2015. In the current quarter, net interest income was $622 thousand higher, and the provision for income tax was $534 lower. These positive changes were offset by a decrease in noninterest income of $444 thousand and an increase in noninterest expense of $1.5 million.

Net Interest Income

Net interest income increased $622 thousand over a year previous.

Interest income for the three months ended June 30, 2016 increased $494 thousand or 5% to $10.3 million. Interest and fees on loans increased $492 thousand due to increased average loan balances. Interest on interest bearing deposits due from banks increased $9 thousand while interest on securities decreased $7 thousand.

Interest expense for the second quarter of 2016 decreased $128 thousand or 11% to $1.0 million. The net decrease was caused by the following.

• Interest on FHLB term debt decreased $364 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 $294 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 $70 thousand. Interest bearing deposits increased $103.0 million compared to the prior year, but the rate paid on all interest bearing deposits decreased by 11 basis points.
• Interest on junior subordinated debentures and other borrowings increased $12 thousand.

Noninterest Income

Noninterest income for the three months ended June 30, 2016 decreased $444 thousand compared to the same period a year ago. During the second quarter of 2016 we recorded a $546 thousand other-than-temporary impairment on an investment security as described in Note 4 to our March 31, 2016 Form 10-Q. Our branch and offsite ATM acquisition completed in the first quarter, enhanced point of sale and ATM fees by $241 thousand for the quarter ended June 30, 2016 compared to the same period a year ago. Additionally, a $205 thousand special dividend on Federal Home Loan Bank of San Francisco stock was included in other noninterest income during the three months ended June 30, 2015.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2016 increased $1.5 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. Noninterest expenses that increased 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 $601 thousand
• Data processing fees increased $122 thousand
• ATM processing fees increased $84 thousand as a result of the additional activity at the recently acquired branch and offsite ATM locations
• Telecommunications expense increased $90 thousand
• Branch acquisition costs of $168 thousand

Income Tax Provision

During the three months ended June 30, 2016, the Company recorded a provision for income taxes of $430 thousand compared with a provision for income taxes of $964 thousand for the same period a year ago. The decrease in the current quarter is due to decreased taxable income. Pre-tax income for 2016 is less than in 2015, while permanent deductions and tax credits are essentially unchanged resulting in a decrease in the effective tax rate for 2016. As a result, the Company’s effective tax rate decreased from 28.74% for the second quarter of 2015 to 21.65% during the current quarter.

Second Quarter of 2016 Compared With First Quarter of 2016

Net income available to common shareholders for the second quarter of 2016 increased $2.5 million over the first quarter of 2016. In the current quarter, net interest income was $913 thousand higher and noninterest expenses were $2.3 million lower. These positive changes were offset by a decrease in noninterest income of $512 thousand and an increase in the provision for income taxes of $218 thousand.

Net Interest Income

Net interest income increased $913 thousand over the prior quarter.

Interest income for the three months ended June 30, 2016 increased $353 thousand or 4% to $10.3 million compared to the prior quarter. Interest and fees on loans increased $345 thousand and interest on securities increased $18 thousand due to increased average loan and securities balances. Interest on interest bearing deposits due from banks decreased $10 thousand due to decreased average interest bearing deposit balances.

Interest expense for the three months ended June 30, 2016 decreased $560 thousand or 35% to $1.0 million compared to the prior quarter. Interest expense on term debt decreased $487 thousand due to the repayment of $75.0 million of FHLB term debt and the termination of the interest rate hedge associated with that debt during the first quarter of 2016. Average total deposits for the second quarter of 2016 increased $106.9 million from the first quarter of 2016 however, interest expense on those deposits declined $78 thousand due to a nine basis point decline in the average rate paid on interest bearing deposits.

Noninterest Income

Noninterest income for the three months ended June 30, 2016 decreased $512 thousand compared to the prior quarter. In addition to the previously mentioned $546 thousand other-than-temporary impairment of an investment security, net gains recognized on the sale of available-for-sale investment securities during the current quarter decreased by $66 thousand to $28 thousand compared to a $94 thousand net gain in the prior quarter. Point of sale and ATM fees increased $244 thousand primarily as a result of the acquisition of five branch and three offsite ATM locations during March of 2016. Noninterest income during the first quarter of 2016 included a $176 thousand gain on payoff of a purchased impaired loan.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2016 decreased $2.3 million compared to the prior quarter.

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

• Branch acquisition and balance sheet reconfiguration costs decreased $2.6 million
• Incentive and payroll tax costs decreased $224 thousand
• Direct loan origination deferred costs increased $100 thousand

The decrease in noninterest expense compared to the prior period was partially offset by following negative items:

• Salaries and occupancy costs related to the newly acquired branches increased $476 thousand
• ATM processing fees increased $84 thousand as a result of the recently acquired branch and offsite ATM locations
• Data processing fees increased $73 thousand
• Telecommunications expense increased $52 thousand

Income Tax Provision

During the three months ended June 30, 2016, we recorded a provision for income taxes of $430 thousand. During the three months ended March 31, 2016, we recorded an income tax benefit related to operating losses of $151 thousand and wrote-off a $363 thousand deferred tax asset; a net expense of $212 thousand. Our effective tax rate increased slightly to 21.65% in the second quarter from 20.19% (excluding the write-off of deferred tax asset) in the first quarter of 2016.

Earnings Per Share

Diluted earnings per share available to common shareholders were $0.11 for the three months ended June 30, 2016 compared with diluted earnings per share available to common shareholders of $0.18 for the same period a year ago, and net losses per share available to common shareholders of $0.07 for the prior period. Earnings per share for the three months ended June 30, 2016 declined $0.07 compared to the same period a year ago as a result of a $784 thousand decrease in net income, and increased $0.18 compared to the prior quarter as a result of a $2.5 million increase in net income. The causes of these increases and decreases in earnings have been previously detailed in this press release.

TABLE 7
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
	For The Three Months Ended
	June 30,								Change					March 31,				Change
	2016				2015				Amount					2016				Amount
Yield on average interest earning assets		4.16	%			4.21	%				(0.05	)			4.10	%				0.06
Interest expense to fund average earning assets		0.42	%			0.50	%				(0.08	)			0.66	%				(0.24	)
Net interest margin - nominal		3.74	%			3.71	%				0.03				3.44	%				0.30
Yield on average interest earning assets - tax equivalent basis		4.29	%			4.35	%				(0.06	)			4.23	%				0.06
Interest expense to fund average earning assets		0.42	%			0.50	%				(0.08	)			0.66	%				(0.24	)
Net interest margin - tax equivalent basis		3.87	%			3.85	%				0.02				3.57	%				0.30
Average earning assets	$	990,132			$	928,578			$		61,554			$	969,818			$		20,314
Average interest bearing liabilities	$	740,579			$	723,288			$		17,291			$	743,388			$		(2,809	)

The current quarter net interest margin increased 30 basis points to 3.74% as compared to the prior quarter. This was caused by increased yield on the loan portfolio, a decrease in the overall cost of interest bearing deposits, and by the elimination of our contractual interest payments on $75.0 million Federal Home Loan Bank of San Francisco borrowings. These positive changes were partially offset by interest on $20.0 million of new term debt issued during the fourth quarter of 2015.

The current quarter net interest margin increased 3 basis points to 3.74% as compared to the same period a year ago. The increase resulted from an eight basis point decrease in interest expense to fund average earning assets offset by a five basis point decrease in yield on average earning assets. During the second quarter of 2016, interest on the $20.0 million of new term debt issued during the fourth quarter of 2015 totaled $295 thousand and reduced the net interest margin by 10 basis points.

During the second quarter of 2016, deposit balances increased $177.5 million and decreased $111 thousand compared to the same period a year ago and the prior quarter respectively. The increase in deposit balances results from the recent branch acquisition and strong organic growth. Our overall cost of total deposits decreased to 0.30% for the quarter ended June 30, 2016 from 0.40% for the same period a year ago and from 0.37% 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,
	2016						2016						2015						2015						2015
Beginning balance	$		11,495				$		11,180				$		10,891				$		11,402				$		11,296
Provision for loan and lease losses charged to expense		—						—						—						—						—
Loans charged off			(1,734	)					(307	)					(707	)					(779	)					(711	)
Loan loss recoveries			2,103						622						996						268						817
Ending balance	$		11,864				$		11,495				$		11,180				$		10,891				$		11,402
	At June 30,						At March 31,						At December 31,						At September 30,						At June 30,
	2016						2016						2015						2015						2015
Nonaccrual loans:
Commercial	$		2,149				$		2,563				$		1,994				$		2,506				$		3,170
Real estate - commercial non-owner occupied			1,197						1,197						5,488						5,154						6,532
Real estate - commercial owner occupied			816						1,190						1,071						1,928						1,079
Real estate - residential - ITIN			3,664						3,705						3,649						4,228						4,375
Real estate - residential - 1-4 family mortgage			1,824						1,742						1,775						1,669						1,693
Real estate - residential - equity lines			995						1,270					—							23						24
Consumer and other			266						31						32						33						34
Total nonaccrual loans			10,911						11,698						14,009						15,541						16,907
Accruing troubled debt restructured loans:
Commercial			760						40						49						56						10
Real estate - commercial non-owner occupied			816						821						824						828						832
Real estate - commercial owner occupied		—						—						—						—							849
Real estate - residential - ITIN			5,336						5,502						5,458						5,423						5,303
Real estate - residential - equity lines			548						553						558						563						569
Total accruing troubled debt restructured loans			7,460						6,916						6,889						6,870						7,563
All other accruing impaired loans			550						488						492						494						530
Total impaired loans	$		18,921				$		19,102				$		21,390				$		22,905				$		25,000
Gross loans outstanding at period end	$		754,140				$		724,243				$		716,639				$		718,533				$		699,774
Allowance for loan and lease losses as a percent of:
Gross loans			1.57		%				1.59		%				1.56		%				1.52		%				1.63		%
Nonaccrual loans			108.73		%				98.26		%				79.81		%				70.08		%				67.44		%
Impaired loans			62.70		%				60.18		%				52.27		%				47.55		%				45.61		%
Nonaccrual loans to gross loans			1.45		%				1.62		%				1.95		%				2.16		%				2.42		%

We realized net loan loss recoveries of $369 thousand in the current quarter compared with net loan loss recoveries of $315 thousand in the prior quarter and net loan loss recoveries of $106 thousand for the same period a year ago. Recoveries during the second quarter of 2016 of $1.9 million were primarily associated with one commercial real estate relationship, offset by $1.4 million in charge-offs related to two commercial loan relationships and one residential real estate 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. We made no provision for loan and lease losses during this quarter or the previous five consecutive quarters. Our ALLL as a percentage of gross loans was 1.57% as of June 30, 2016 compared to 1.63% as of June 30, 2015 and 1.59% as of March 31, 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 June 30, 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 June 30, 2016, the recorded investment in loans classified as impaired totaled $18.9 million, with a corresponding valuation allowance of $903 thousand compared to impaired loans of $25.0 million with a corresponding valuation allowance of $1.3 million at June 30, 2015 and impaired loans of $19.1 million, with a corresponding valuation allowance of $1.1 million at March 31, 2016. 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 June 30,				At March 31,				At December 31,				At September 30,				At June 30,
		2016				2016				2015				2015				2015
Nonaccrual		$	3,785			$	4,516			$	9,015			$	11,149			$	12,354
Accruing			7,460				6,916				6,889				6,870				7,563
Total troubled debt restructurings		$	11,245			$	11,432			$	15,904			$	18,019			$	19,917
Percentage of total gross loans			1.49	%			1.58	%			2.22	%			2.51	%			2.85	%

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 June 30, 2016, the Company restructured one loan to grant a rate and maturity modification. The loan was classified as troubled debt restructurings and placed on nonaccrual status. As of June 30, 2016, we had 118 restructured loans that qualified as troubled debt restructurings, of which 108 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,
		2016				2016				2015				2015				2015
Total nonaccrual loans		$	10,911			$	11,698			$	14,009			$	15,541			$	16,907
90 days past due and still accruing			10				—				88				52				54
Total nonperforming loans			10,921				11,698				14,097				15,593				16,961
Other real estate owned			765				1,011				1,423				1,525				1,405
Total nonperforming assets		$	11,686			$	12,709			$	15,520			$	17,118			$	18,366
Nonperforming loans to gross loans			1.45	%			1.62	%			1.97	%			2.17	%			2.42	%
Nonperforming assets to total assets			1.09	%			1.18	%			1.53	%			1.73	%			1.87	%

At June 30, 2016, June 30, 2015 and March 31, 2016, the recorded investment in OREO was $765 thousand, $1.4 million and $1.0 million, respectively. The June 30, 2016 OREO balance consists of four properties, of which one is a 1-4 family residential real estate property in the amount of $81 thousand, two are nonfarm nonresidential properties in the amount of $558 thousand and one is an undeveloped commercial property in the amount of $126 thousand.

TABLE 11
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
		At June 30,					At June 30,					Change										At March 31,
		2016					2015					$					%					2016
Assets:
Cash and due from banks		$		14,695			$		11,115			$		3,580				32		%		$		14,969
Interest-bearing deposits in other banks				51,345					21,681					29,664				137		%				70,781
Total cash and cash equivalents				66,040					32,796					33,244				101		%				85,750
Securities available-for-sale, at fair value				157,906					160,763					(2,857	)			(2	)	%				174,251
Securities held-to-maturity, at amortized cost				35,415					36,655					(1,240	)			(3	)	%				35,357
Loans, net of deferred fees and costs				755,168					700,177					54,991				8		%				725,228
Allowance for loan and lease losses				(11,864	)				(11,402	)				(462	)			4		%				(11,495	)
Net loans				743,304					688,775					54,529				8		%				713,733
Premises and equipment, net				15,660					11,342					4,318				38		%				15,494
Other real estate owned				765					1,405					(640	)			(46	)	%				1,011
Goodwill and core deposit intangibles, net				2,362				—						2,362				100		%				2,469
Life insurance				22,794					22,168					626				3		%				22,642
Deferred taxes				8,026					10,648					(2,622	)			(25	)	%				8,389
Other assets				17,920					18,503					(583	)			(3	)	%				17,987
Total assets		$		1,070,192			$		983,055			$		87,137				9		%		$		1,077,083
Liabilities and shareholders' equity:
Demand - noninterest bearing		$		224,467			$		151,640			$		72,827				48		%		$		212,758
Demand - interest bearing				385,609					276,103					109,506				40		%				392,325
Savings				105,228					93,500					11,728				13		%				105,828
Certificates of deposit				222,252					238,796					(16,544	)			(7	)	%				226,756
Total deposits				937,556					760,039					177,517				23		%				937,667
Term debt				19,577					90,000					(70,423	)			(78	)	%				19,839
Unamortized debt issuance costs				(201	)			—						(201	)			100		%				(213	)
Net term debt				19,376					90,000					(70,624	)			(78	)	%				19,626
Junior subordinated debentures				10,310					10,310				—					0		%				10,310
Other liabilities				10,462					16,156					(5,694	)			(35	)	%				18,762
Total liabilities				977,704					876,505					101,199				12		%				986,365
Shareholders' equity:
Preferred stock			—						19,931					(19,931	)			(100	)	%			—
Common stock				24,421					24,144					277				1		%				24,325
Retained earnings				66,356					63,158					3,198				5		%				65,201
Accumulated other comprehensive income (loss), net of tax				1,711					(683	)				2,394				(351	)	%				1,192
Total shareholders' equity				92,488					106,550					(14,062	)			(13	)	%				90,718
Total liabilities and shareholders' equity		$		1,070,192			$		983,055			$		87,137				9		%		$		1,077,083
Total interest earning assets		$		997,211			$		917,756			$		79,455				9		%		$		1,002,492
Shares outstanding				13,439					13,364															13,442
Tangible book value per share		$		6.71			$		6.48													$		6.57

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,
		2016					2015			$					%					2016			2016					2015
Interest income:
Interest and fees on loans		$		8,796			$	8,304		$		492				6		%		$	8,451		$		17,247			$	16,215
Interest on securities				808				801				7				1		%			784				1,592				1,746
Interest on tax-exempt securities				588				602				(14	)			(2	)	%			594				1,182				1,201
Interest on deposits in other banks				65				56				9				16		%			75				140				127
Total interest income				10,257				9,763				494				5		%			9,904				20,161				19,289
Interest expense:
Interest on demand deposits				130				107				23				21		%			122				252				223
Interest on savings deposits				41				55				(14	)			(25	)	%			45				86				109
Interest on certificates of deposit				515				594				(79	)			(13	)	%			597				1,112				1,185
Interest on term debt				295				363				(68	)			(19	)	%			782				1,077				712
Interest on other borrowings				59				49				10				20		%			54				113				96
Total interest expense				1,040				1,168				(128	)			(11	)	%			1,600				2,640				2,325
Net interest income				9,217				8,595				622				7		%			8,304				17,521				16,964
Provision for loan and lease losses			—					—			—					0		%			—			—					—
Net interest income after provision for loan and lease losses				9,217				8,595				622				7		%			8,304				17,521				16,964
Noninterest income:
Service charges on deposit accounts				88				52				36				69		%			72				160				101
Payroll and benefit processing fees				139				130				9				7		%			160				299				278
Earnings on cash surrender value - life insurance				153				159				(6	)			(4	)	%			156				309				324
Gain on investment securities, net				28				61				(33	)			(54	)	%			94				122				276
Impairment losses on investment securities				(546	)			—				(546	)			100		%			—				(546	)			—
ATM and point of sale				335				92				243				264		%			92				427				183
Other income				240				387				(147	)			(38	)	%			375				615				573
Total noninterest income				437				881				(444	)			(50	)	%			949				1,386				1,735

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,
		2016			2015			$					%					2016					2016			2015
Noninterest expense:
Salaries and related benefits			4,086			3,575				511				14		%				4,229				8,315			7,485
Occupancy and equipment			987			709				278				39		%				789				1,776			1,443
Federal Deposit Insurance Corporation insurance premium			181			178				3				2		%				156				337			385
Data processing fees			374			251				123				49		%				304				678			493
Professional service fees			470			442				28				6		%				436				906			830
Telecommunications			199			109				90				83		%				147				346			219
Branch acquisition costs			168			—				168				100		%				412				580			—
Loss on cancellation of interest rate swap			—			—			—					100		%				2,325				2,325			—
Other expenses			1,203			858				345				40		%				1,203				2,406			1,860
Total noninterest expense			7,668			6,122				1,546				25		%				10,001				17,669			12,715
Income before provision for income taxes			1,986			3,354				(1,368	)			(41	)	%				(748	)			1,238			5,984
Deferred tax asset write-off			—			—			—					0		%				363				363			—
Provision for income taxes			430			964				(534	)			(55	)	%				(151	)			279			1,793
Net income		$	1,556		$	2,390		$		(834	)			(35	)	%		$		(960	)		$	596		$	4,191
Less: Preferred dividends			—			50				(50	)			(100	)	%			—					—			100
Income available to common shareholders		$	1,556		$	2,340		$		(784	)			(34	)	%		$		(960	)		$	596		$	4,091
Basic earnings per share		$	0.11		$	0.18		$		(0.07	)			(39	)	%		$		(0.07	)		$	0.04		$	0.31
Average basic shares			13,367			13,338				29				0		%				13,360				13,364			13,320
Diluted earnings per share		$	0.11		$	0.18		$		(0.07	)			(39	)	%		$		(0.07	)		$	0.04		$	0.31
Average diluted shares			13,425			13,370				55				0		%				13,360				13,408			13,353

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,
		2016			2015			2015			2014			2013
Earning assets:
Loans		$	731,740		$	688,146		$	699,227		$	625,166		$	612,780
Taxable securities			122,050			128,791			120,897			147,916			157,486
Tax exempt securities			77,510			77,043			77,089			83,973			92,854
Interest-bearing deposits in other banks			48,676			26,795			30,323			56,465			43,342
Average earning assets			979,976			920,775			927,536			913,520			906,462
Cash and due from banks			14,665			10,566			11,220			11,246			10,624
Premises and equipment, net			14,008			11,980			11,552			12,105			10,337
Other assets			40,543			43,085			42,423			36,936			26,431
Average total assets		$	1,049,192		$	986,406		$	992,731		$	973,807		$	953,854
Liabilities and shareholders' equity:
Demand - noninterest bearing		$	201,457		$	148,179		$	156,578		$	139,792		$	122,011
Demand - interest bearing			353,291			272,349			283,105			272,383			244,125
Savings			100,008			92,227			92,659			91,108			92,502
Certificates of deposit			222,897			246,137			238,626			259,445			248,350
Total deposits			877,653			758,892			770,968			762,728			706,988
Repurchase agreements			—			—			—			—			5,780
Term debt			55,478			94,779			88,874			77,534			107,603
Junior subordinated debentures			10,310			10,310			10,310			15,239			15,465
Other liabilities			14,439			17,013			16,588			15,934			11,825
Average total liabilities			957,880			880,994			886,740			871,435			847,661
Shareholders' equity			91,312			105,412			105,991			102,372			106,193
Average liabilities & shareholders' equity		$	1,049,192		$	986,406		$	992,731		$	973,807		$	953,854

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,
		2016			2016			2015			2015			2015
Earning assets:
Loans		$	742,684		$	720,795		$	714,494		$	705,762		$	703,008
Taxable securities			124,183			119,917			111,098			115,165			121,110
Tax exempt securities			77,168			77,852			78,081			76,190			76,772
Interest-bearing deposits in other banks			46,097			51,254			37,158			30,430			27,688
Average earning assets			990,132			969,818			940,831			927,547			928,578
Cash and due from banks			17,028			12,301			12,372			11,355			10,833
Premises and equipment, net			15,632			12,384			11,001			11,265			11,767
Other assets			41,394			39,700			41,666			41,867			42,637
Average total assets		$	1,064,186		$	1,034,203		$	1,005,870		$	992,034		$	993,815
Liabilities and shareholders' equity:
Demand - noninterest bearing		$	220,377		$	182,539		$	171,449		$	158,232		$	147,442
Demand - interest bearing			382,811			323,771			302,862			284,508			268,784
Savings			103,990			96,027			92,939			93,230			93,291
Certificates of deposit			223,958			221,836			226,924			235,551			245,573
Total deposits			931,136			824,173			794,174			771,521			755,090
Term debt			19,510			91,444			79,772			86,359			105,330
Junior subordinated debentures			10,310			10,310			10,310			10,310			10,310
Other liabilities			11,913			16,969			16,197			16,140			16,887
Average total liabilities			972,869			942,896			900,453			884,330			887,617
Shareholders' equity			91,317			91,307			105,417			107,704			106,198
Average liabilities & shareholders' equity		$	1,064,186		$	1,034,203		$	1,005,870		$	992,034		$	993,815

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Redding, California and is the parent company for Redding Bank of Commerce which operates under two separate names: Redding Bank of Commerce and Sacramento Bank of Commerce, a division of Redding Bank of Commerce. The Bank is an FDIC insured California banking corporation providing commercial banking and financial services through 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	Stifel Nicolaus
John T. Cavender	Perry Wright
555 Market Street	1255 East Street, Suite 100
San Francisco, CA 94105	Redding, CA 96001
(800) 346-5544	(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