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 March 31, 2017. Net income for the quarter ended March 31, 2017 was $2.3 million or $0.17 per share – diluted, compared with a net loss of $960 thousand or $0.07 per share – diluted for the same period of 2016.

Financial highlights for the first quarter of 2017 compared to the same quarter a year ago:

• Net income of $2.3 million for the three months ended March 31, 2017 was an increase of $3.2 million (338%) from $960 thousand net loss recorded during the same period in the prior year. Net loss for the quarter ended March 31, 2016 included expenses totaling $2.8 million related to the acquisition of five Bank of America branches and the execution of our plans to reconfigure our balance sheet using liquidity provided by those branches.
• Return on average assets improved to 0.80% for the first quarter of 2017 compared to (0.37)% for the same period in the prior year.
• Return on average equity improved to 9.63% for the first quarter of 2017 compared to (4.23)% for the same period in the prior year.
• Deposits at March 31, 2017 totaled $1.0 billion, an increase of $66.8 million (7%) since March 31, 2016. This growth was centered in core deposits in our Sacramento marketplace.
• Gross loans at March 31, 2017 totaled $810.2 million, an increase of $86.0 million (12%) since March 31, 2016. Most of this growth occurred in our Sacramento marketplace and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.
• Tangible book value per common share was $6.97 at March 31, 2017 compared to $6.57 at March 31, 2016.

Financial highlights for the first quarter of 2017 compared to the prior quarter:

• Net income of $2.3 million for the three months ended March 31, 2017 was a decrease of $45 thousand (8% annualized) from $2.3 million net income earned during the prior quarter. Net income for the three months ended March 31, 2017 included life insurance death benefit proceeds of $502 thousand and a $200 thousand provision for loan and lease losses.
• Return on average assets was 0.80% for the first quarter of 2017 compared to 0.81% for the prior quarter.
• Return on average equity decreased to 9.63% for the first quarter of 2017 compared to 9.69% for the prior quarter.
• Deposits at March 31, 2017 totaled $1.0 billion, a decrease of $176 thousand (0.07% annualized) since December 31, 2016.
• Gross loans at March 31, 2017 totaled $810.2 million, an increase of $6.0 million (3% annualized) since December 31, 2016.
• Tangible book value per common share was $6.97 at March 31, 2017 compared to $6.83 at December 31, 2016.

Randall S. Eslick, President and CEO commented: “It is hard to believe that a full year has already passed since we acquired five new offices from Bank of America. During that time, the buildings have been remodeled and the new staff and customers have been fully integrated into the Redding Bank of Commerce family. Throughout the bank, deposits and loans have continued to increase handsomely which we anticipate will lead to increasing profitability. We applaud the hard work of our employees and acknowledge their accomplishments.”

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 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
Net income (loss), average assets and		March 31,									December 31,
average shareholders' equity		2017				2016					2016
Net income (loss)		$	2,252			$	(960	)			$	2,297
Average total assets		$	1,148,305			$	1,034,203				$	1,126,034
Average total earning assets		$	1,075,039			$	969,818				$	1,051,387
Average shareholders' equity		$	94,820			$	91,307				$	94,326
Selected performance ratios
Return on average assets			0.80	%			(0.37	)	%			0.81	%
Return on average equity			9.63	%			(4.23	)	%			9.69	%
Efficiency ratio			71.49	%			108.08		%			73.15	%
Share and per share amounts
Weighted average shares - basic			13,416				13,360					13,370
Weighted average shares - diluted			13,521				13,403					13,476
Earnings (loss) per share - basic		$	0.17			$	(0.07	)			$	0.17
Earnings (loss) per share - diluted		$	0.17			$	(0.07	)			$	0.17
		At March 31,									At December 31,
Share and per share amounts		2017				2016					2016
Common shares outstanding (1)			13,517				13,442					13,440
Tangible book value per common share		$	6.97			$	6.57				$	6.83
Capital ratios
Bank of Commerce Holdings
Common equity tier 1 capital ratio (2)			9.71	%			9.82		%			9.43	%
Tier 1 capital ratio (2)			10.72	%			10.93		%			10.42	%
Total capital ratio (2)			13.00	%			13.30		%			12.68	%
Tier 1 leverage ratio (2)			9.09	%			9.48		%			9.13	%
Tangible common equity ratio			8.27	%			8.21		%			8.07	%
Redding Bank of Commerce
Common equity tier 1 capital ratio (2)			12.59	%			13.07		%			12.31	%
Tier 1 capital ratio (2)			12.59	%			13.07		%			12.31	%
Total capital ratio (2)			13.84	%			14.32		%			13.55	%
Tier 1 leverage ratio (2)			10.67	%			11.36		%			10.80	%
(1) Includes unvested restricted shares issued in accordance with the Company's equity incentive plan.
(2) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The capital ratios for 2016 were impacted by increased average total assets, the addition of $1.8 million of core deposit intangible and $665 thousand of goodwill recorded in conjunction with the acquisition of five branches in March of 2016.

BALANCE SHEET OVERVIEW

As of March 31, 2017, the Company had total consolidated assets of $1.1 billion, gross loans of $810.2 million, allowance for loan and lease losses (“ALLL”) of $11.6 million, total deposits of $1.0 billion, and shareholders’ equity of $96.5 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
	At March 31,																					At December 31,
					% of							% of			Change												% of
	2017				Total			2016				Total			Amount				%				2016				Total
Commercial	$	145,635			19	%		$	136,721			19	%		$	8,914			7		%		$	153,844			19	%
Real estate - construction and land development		46,228			6				27,554			4				18,674			68		%			57,771			7
Real estate - commercial non-owner occupied		305,802			38				247,840			34				57,962			23		%			287,455			36
Real estate - commercial owner occupied		164,166			20				154,484			21				9,682			6		%			151,516			19
Real estate - residential - ITIN		44,211			5				48,384			7				(4,173	)		(9	)	%			45,566			6
Real estate - residential - 1-4 family mortgage		19,710			2				16,746			2				2,964			18		%			20,425			3
Real estate - residential - equity lines		33,019			4				38,528			5				(5,509	)		(14	)	%			35,953			4
Consumer and other		51,423			6				53,986			7				(2,563	)		(5	)	%			51,681			6
Gross loans		810,194			100	%			724,243			99	%			85,951			12		%			804,211			100	%
Deferred fees and costs		1,446							985							461								1,324
Loans, net of deferred fees and costs		811,640							725,228							86,412								805,535
Allowance for loan and lease losses		(11,641	)						(11,495	)						(146	)							(11,544	)
Net loans	$	799,999						$	713,733						$	86,266							$	793,991
Average yield on loans during the quarter		4.72	%						4.72	%						-								4.69	%

The Company recorded gross loan balances of $810.2 million at March 31, 2017, compared with $724.2 million and $804.2 million at March 31, 2016 and December 31, 2016, respectively, an increase of $86.0 million and $6.0 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.

TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
		At March 31,																						At December 31,
						% of							% of			Change												% of
		2017				Total			2016				Total			Amount				%				2016				Total
Cash and due from banks		$	18,315			7	%		$	14,969			5	%		$	3,346			22		%		$	16,419			6	%
Interest-bearing deposits in other banks			42,744			16				70,781			24				(28,037	)		(40	)	%			51,988			19
Total cash and cash equivalents			61,059			23				85,750			29				(24,691	)		(29	)	%			68,407			25
Investment securities:
U.S. government and agencies			12,496			5				15,645			5				(3,149	)		(20	)	%			10,354			4
Obligations of state and political subdivisions			55,663			20				61,288			21				(5,625	)		(9	)	%			59,428			22
Residential mortgage backed securities and collateralized mortgage obligations			82,392			30				51,721			18				30,671			59		%			69,604			24
Corporate securities			10,448			4				23,764			8				(13,316	)		(56	)	%			16,116			6
Commercial mortgage backed securities			16,522			6				14,571			5				1,951			13		%			15,514			6
Other asset backed securities			4,013			1				7,262			2				(3,249	)		(45	)	%			4,158			2
Total investment securities - AFS			181,534			66				174,251			59				7,283			4		%			175,174			64
Obligations of state and political subdivisions - HTM			31,257			11				35,357			12				(4,100	)		(12	)	%			31,187			11
Total investment securities - AFS and HTM			212,791			77				209,608			71				3,183			2		%			206,361			75
Total cash, cash equivalents and investment securities		$	273,850			100	%		$	295,358			100	%		$	(21,508	)		(7	)	%		$	274,768			100	%
Average yield on interest bearing due from banks and investment securities during the quarter			2.17	%						2.35	%						(0.18	)							1.95	%

As of March 31, 2017, we maintained noninterest-bearing cash positions of $18.3 million and interest-bearing deposits in the amount of $42.7 million at the Federal Reserve Bank and correspondent banks. During the first quarter of 2017, we continued to deploy liquidity provided by the March 2016 branch acquisition and by strong organic deposit growth into loan originations and available for sale securities.

Available-for-sale investment securities totaled $181.5 million at March 31, 2017, compared with $174.3 million and $175.2 million at March 31, 2016 and December 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 first quarter of 2017 we purchased 18 securities with a par value of $23.7 million and weighted average yield of 2.52% and sold 14 securities with a par value of $13.5 million and weighted average yield of 2.06%. The sales activity on available for sale securities resulted in $66 thousand in net realized gains. During the same period, we received $4.3 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 March 31, 2017 and 2016 were $211.1 million and 3.06% compared to $197.8 million and 3.42%, respectively.

At March 31, 2017, our net unrealized losses on available-for-sale investment securities were $891 thousand compared with net unrealized gains of $1.7 million and net unrealized losses of $1.3 million at March 31, 2016 and December 31, 2016, respectively. The decrease in net unrealized losses between December 31, 2016 and March 31, 2017 is primarily due to significant changes in market interest rates over the past three months.

TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
	At March 31,																						At December 31,
					% of							% of				Change											% of
	2017				Total			2016				Total			Amount				%				2016				Total
Demand - noninterest bearing	$	270,412			27	%		$	212,758			23	%		$	57,654			27		%		$	270,398			27	%
Demand - interest bearing		407,784			41				392,325			42				15,459			4		%			405,569			40
Total demand		678,196			68				605,083			65				73,113			12		%			675,967			67
Savings		112,738			11				105,828			11				6,910			7		%			113,309			11
Total non-maturing deposits		790,934			79				710,911			76				80,023			11		%			789,276			78
Certificates of deposit		213,556			21				226,756			24				(13,200	)		(6	)	%			215,390			22
Total deposits	$	1,004,490			100	%		$	937,667			100	%		$	66,823			7		%		$	1,004,666			100	%
Average rate on interest bearing deposits during the quarter		0.39	%						0.48	%						(0.09	)							0.40	%
Average rate on all deposits during the quarter		0.29	%						0.37	%						(0.08	)							0.29	%

Total deposits at March 31, 2017, increased $66.8 million or 7% to $1.0 billion compared to March 31, 2016, and decreased $176 thousand or 0.07% annualized compared to December 31, 2016. Total non-maturing deposits increased $80.0 million or 11% compared to the same date a year ago and increased $1.7 million or 1% annualized compared to December 31, 2016. Certificates of deposit decreased $13.2 million or 6% compared to the same date a year ago and decreased $ 1.8 million or 3% annualized compared to December 31, 2016.

During the first quarter of 2016 the branch acquisition provided new deposits totaling $149.0 million and we called and redeemed $17.5 million of brokered certificates of deposit. At March 31, 2017, the deposits in the acquired branches totaled $153.0 million.

TABLE 5
WHOLESALE AND BROKERED DEPOSITS - UNAUDITED
(amounts in thousands)
	At March 31,						At December 31,
	2017			2016			2016
CDARS / ICS reciprocal brokered deposits	$	55,565		$	61,601		$	65,212
Online listing service wholesale time deposits		47,429			55,986			48,900
Total wholesale and brokered deposits	$	102,994		$	117,587		$	114,112

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $55.6 million, $61.6 million and $65.2 million at March 31, 2017, March 31, 2016 and December 31, 2016, respectively.

INCOME STATEMENT OVERVIEW

TABLE 6
SUMMARY INCOME STATEMENT - UNAUDITED
(amounts in thousands, except per share data)
		For The Three Months Ended
		March 31,							Change								December 31,			Change
		2017			2016				Amount				%				2016			Amount				%
Interest income		$	10,817		$	9,904			$	913			9		%		$	10,518		$	299			3		%
Interest expense			1,083			1,600				(517	)		(32	)	%			1,084			(1	)		0		%
Net interest income			9,734			8,304				1,430			17		%			9,434			300			3		%
Provision for loan and lease losses			200			—				200			100		%			—			200			100		%
Noninterest income			1,542			949				593			62		%			1,250			292			23		%
Noninterest expense:
Branch acquisition and balance sheet reconfiguration costs			—			2,795				(2,795	)		(100	)	%			—			—			—		%
Other noninterest expense			8,061			7,206				855			12		%			7,815			246			3		%
Income (loss) before provision for income taxes			3,015			(748	)			3,763			503		%			2,869			146			5		%
Deferred tax asset write-off			—			363				(363	)		100		%			—			—			—		%
Provision (benefit) for income taxes			763			(151	)			914			605		%			572			191			33		%
Net income (loss)		$	2,252		$	(960	)		$	3,212			335		%		$	2,297			(45	)		(2	)	%
Basic earnings (loss) per share		$	0.17		$	(0.07	)		$	0.24			343		%		$	0.17		$	—			—		%
Average basic shares			13,416			13,360				56			—		%			13,370			46			—		%
Diluted earnings (loss) per share		$	0.17		$	(0.07	)		$	0.24			343		%		$	0.17		$	—			—		%
Average diluted shares			13,521			13,403				118			1		%			13,476			45			—		%
Dividends declared per common share		$	0.03		$	0.03			$	—			—		%		$	0.03		$	—			—		%

First Quarter of 2017 Compared With First Quarter of 2016

Net income for the first quarter of 2017 increased $3.2 million compared to the first quarter of 2016. In the current quarter, net interest income was $1.4 million higher, noninterest income was $593 thousand higher, and noninterest expense was $1.9 million lower. These positive changes were offset by a provision for loan and lease losses that was $200 thousand higher and a provision for income tax that was $551 thousand higher.

Net Interest Income

Net interest income increased $1.4 million compared to the same period a year ago.

Interest income for the three months ended March 31, 2017 increased $913 thousand or 9% to $10.8 million. Interest and fees on loans increased $933 thousand due to increased average loan balances. Interest on interest-bearing deposits due from banks increased $39 thousand while interest on securities decreased $59 thousand.

Interest expense for the first quarter of 2017 decreased $517 thousand or 32% to $1.1 million. The net decrease was primarily caused by a $484 thousand decrease in interest on FHLB term debt. 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.

Noninterest Income

Noninterest income for the three months ended March 31, 2017 increased $593 thousand compared to the same period a year previous. Our branch and offsite ATM acquisition completed in the first quarter of 2016, enhanced point of sale and ATM fees by $174 thousand and enhanced service charges on deposit accounts by $55 thousand. During the current quarter we also recognized life insurance death benefit proceeds of $502 thousand.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2017 decreased $1.9 million compared to the same period a year previous. The primary components of the net decrease were:

• Branch acquisition and balance sheet reconfiguration costs decreased $2.8 million
• Salaries and related benefits costs increased $433 thousand
• Sales incentives and commissions increased $196 thousand
• Occupancy costs increased $259 thousand

Income Tax Provision.

During the three months ended March 31, 2017, the Company recorded a provision for income taxes of $763 thousand (25.31% of pretax income of $3.0 million). Life insurance death benefits of $502 thousand recorded during the current quarter are not subject to income tax and if excluded from pretax income the effective tax rate would have been 30.36%.

During the three months ended March 31, 2016, the Company recorded an income tax benefit of $151 thousand (20.19% of pretax operating losses of $748) The write-off of a $363 thousand deferred tax asset during the quarter resulted in a net expense of $212 thousand.

First Quarter of 2017 Compared With Fourth Quarter of 2016

Net income for the first quarter of 2017 decreased $45 thousand compared to the fourth quarter of 2016. In the current quarter, net interest income was $300 thousand higher and noninterest income was $292 thousand higher. These positive changes were offset by an increase in the provision for loan and lease losses of $200 thousand, noninterest expenses that were $246 thousand higher and a provision for income taxes that were $191 thousand higher.

Net Interest Income

Net interest income increased $300 thousand over the prior quarter.

Interest income for the three months ended March 31, 2017 increased $299 thousand or 12% annualized to $10.8 million compared to the prior quarter. Interest and fees on loans increased $203 thousand due to increased average balances and increased yields. Interest on interest bearing deposits due from banks increased $4 thousand due to increased yields. Interest on investment securities increased $92 thousand due to increased average balances and increased yields.

Interest expense for the three months ended March 31, 2017 decreased $1 thousand or 4% annualized to $1.1 million compared to the prior quarter. Average total deposits for the first quarter of 2017 increased $22.6 million from the fourth quarter of 2016. The growth was in low cost core deposits.

Noninterest Income

Noninterest income for the three months ended March 31, 2017 increased $292 thousand compared to the prior quarter. During the current quarter we recognized income from life insurance death benefit proceeds of $502 thousand. Dividends on Federal Home Loan Bank of San Francisco stock decreased $250 thousand primarily due to a special dividend recorded in the prior quarter.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2017 increased $246 thousand compared to the prior quarter. The primary components of the net increase were:

• Salaries and related benefits costs increased $269 thousand
• Employee vacation accrual costs increased $236 thousand
• Deferred loan origination costs decreased $116 thousand
• Professional service fees decreased $88 thousand
• Data processing fees decreased $126 thousand
• Advertising costs decreased $77 thousand

Income Tax Provision

During the three months ended March 31, 2017, we recorded a provision for income taxes of $763 thousand (25.31% of pretax income) compared with a provision for income taxes of $572 thousand (19.94% of pretax income) for the prior quarter. Our income tax provision is composed of two main components: 1) federal and state income taxes based on our income and 2) amortization of our investments in affordable housing partnerships. The increase in the effective tax rate during the three months ended March 31, 2017 when compared to the prior quarter is due to an adjustment we made to the amortization of our investments in affordable housing partnerships during the prior quarter.

Earnings Per Share

Diluted earnings per share were $0.17 for the three months ended March 31, 2017 compared with diluted loss per share of $0.07 for the same period a year ago, and diluted earnings of $0.17 for the prior period. The number of shares outstanding during these periods has not changed significantly. Changes in earnings per share are the result of changes in net income.

TABLE 7
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
		For The Three Months Ended
		March 31, 2017									March 31, 2016									December 31, 2016
		Average						Yield /			Average						Yield /			Average						Yield /
(Amounts in thousands)		Balance			Interest(1)			Rate			Balance			Interest(1)			Rate			Balance			Interest(1)			Rate
Interest-earning assets:
Net loans (2)		$	806,793		$	9,384		4.72	%		$	720,795		$	8,451		4.72	%		$	778,458		$	9,181		4.69	%
Taxable securities			137,582			789		2.33	%			119,917			784		2.63	%			124,881			705		2.25	%
Tax-exempt securities			73,524			530		2.92	%			77,852			594		3.07	%			72,288			522		2.87	%
Interest-bearing deposits in other banks			57,140			114		0.81	%			51,254			75		0.59	%			75,760			110		0.58	%
Average interest-earning assets			1,075,039			10,817		4.08	%			969,818			9,904		4.11	%			1,051,387			10,518		3.98	%
Cash and due from banks			16,873									12,301									16,953
Premises and equipment, net			16,165									12,384									16,331
Other assets			40,228									39,700									41,363
Average total assets		$	1,148,305								$	1,034,203								$	1,126,034
Interest-bearing liabilities:
Interest-bearing demand		$	420,416			148		0.14	%		$	323,771			122		0.15	%		$	398,749			135		0.13	%
Savings deposits			113,647			47		0.17	%			96,027			45		0.19	%			111,755			45		0.16	%
Certificates of deposit			215,202			529		1.00	%			221,836			597		1.08	%			217,463			543		0.99	%
Net term debt			18,598			293		6.39	%			91,444			782		3.44	%			18,975			298		6.25	%
Junior subordinated debentures			10,310			66		2.60	%			10,310			54		2.11	%			10,310			63		2.43	%
Average interest-bearing liabilities			778,173			1,083		0.56	%			743,388			1,600		0.87	%			757,252			1,084		0.57	%
Noninterest-bearing demand			262,881									182,539									261,600
Other liabilities			12,431									16,969									12,856
Shareholders’ equity			94,820									91,307									94,326
Average liabilities and shareholders’ equity		$	1,148,305								$	1,034,203								$	1,126,034
Net interest income and net interest margin (4)					$	9,734		3.67	%					$	8,304		3.44	%					$	9,434		3.57	%
Tax equivalent net interest margin (3)								3.78	%								3.57	%								3.67	%
(1) Interest income on loans is net of deferred fees and costs of approximately $197 thousand, $315 thousand, and $139 thousand for the three months ended March 31, 2017, and 2016 and December 31, 2016, respectively.
(2) Net loans includes average nonaccrual loans of $10.9 million, $10.4 million and $10.0 million for the three months ended March 31, 2017 and 2016 and December 31, 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 $273 thousand, $306 thousand and $269 thousand for the three months ended March 31, 2017 and 2016 and December 31, 2016, respectively.
(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets.

The current quarter net interest margin increased ten basis points to 3.67% as compared to the prior quarter due to increased yields on average interest earning assets. Increases in the average balances of the loan and investment portfolios were funded by increased average balances in low cost deposits and decreased average balances in interest-bearing deposits in other banks.

The net interest margin was 3.67% for the current quarter compared to 3.44% for the same period a year ago. The 3 basis point decrease in yield on average earning assets was offset by a 26 basis point decrease in interest expense to fund average earning assets. The increase in interest income compared to the same quarter in the prior year is due to increased volume in the loan and investment portfolios. The decrease in interest expense resulted from our acquisition of low cost core deposits and our ability to restructure our balance sheet.

Average deposit balances increased $22.6 million and $188.0 million compared to the prior quarter and the same period a year ago respectively. The increase in average deposit balances compared to the prior quarter was organic growth in core deposits. The increase in average deposit balances compared to the same period a year ago results from both the March 2016 branch acquisition and strong organic growth in core deposits. Our overall cost of total deposits decreased to 0.29% for the quarter ended March 31, 2017 from 0.37% for the same period a year ago and were unchanged from 0.29% for the prior quarter.

TABLE 8
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED
(amounts in thousands)
	For The Three Months Ended
	March 31,					December 31,					September 30,					June 30,					March 31,
	2017					2016					2016					2016					2016
Beginning balance	$	11,544				$	11,849				$	11,864				$	11,495				$	11,180
Provision for loan and lease losses		200					—					—					—					—
Loans charged-off		(447	)				(386	)				(357	)				(1,734	)				(307	)
Loan loss recoveries		344					81					342					2,103					622
Ending balance	$	11,641				$	11,544				$	11,849				$	11,864				$	11,495
	At March 31,					At December 31,					At September 30,					At June 30,					At March 31,
	2017					2016					2016					2016					2016
Nonaccrual loans:
Commercial	$	2,534				$	2,749				$	1,710				$	2,149				$	2,563
Real estate - commercial non-owner occupied		1,196					1,196					1,196					1,197					1,197
Real estate - commercial owner occupied		654					784					800					816					1,190
Real estate - residential - ITIN		3,331					3,576					3,392					3,664					3,705
Real estate - residential - 1-4 family mortgage		1,337					1,914					1,798					1,824					1,742
Real estate - residential - equity lines		906					917					942					995					1,270
Consumer and other		39					250					252					266					31
Total nonaccrual loans		9,997					11,386					10,090					10,911					11,698
Accruing troubled debt restructured loans:
Commercial		741					776					726					760					40
Real estate - commercial non-owner occupied		808					808					811					816					821
Real estate - residential - ITIN		4,761					5,033					5,280					5,336					5,502
Real estate - residential - equity lines		450					454					543					548					553
Total accruing troubled debt restructured loans		6,760					7,071					7,360					7,460					6,916
All other accruing impaired loans		—					337					483					550					488
Total impaired loans	$	16,757				$	18,794				$	17,933				$	18,921				$	19,102
Gross loans outstanding at period end	$	810,194				$	804,211				$	779,019				$	754,140				$	724,243
Allowance for loan and lease losses as a percent of:
Gross loans		1.44		%			1.44		%			1.52		%			1.57		%			1.59		%
Nonaccrual loans		116.44		%			101.39		%			117.43		%			108.73		%			98.26		%
Impaired loans		69.47		%			61.42		%			66.07		%			62.70		%			60.18		%
Nonaccrual loans to gross loans		1.23		%			1.42		%			1.30		%			1.45		%			1.62		%

We realized net loan charge-offs of $103 thousand in the current quarter compared with net loan loss charge-offs of $305 thousand in the prior quarter and net loan recoveries of $315 thousand for the same period a year ago. Charge-offs during the first quarter of 2017 of $447 thousand were primarily associated with purchased consumer loans and residential real estate loans.

We continue to monitor credit quality, and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. A combination of net loan losses and loan portfolio growth supported management’s decision to record a $200 thousand provision for loan and lease losses during the quarter ended March 31, 2017. There were no provisions for loan and lease losses during the previous eight consecutive quarters. Our ALLL as a percentage of gross loans was 1.44% as of March 31, 2017 compared to 1.59% as of March 31, 2016 and 1.44% as of December 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 March 31, 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 March 31, 2017, the recorded investment in loans classified as impaired totaled $16.8 million, with a corresponding specific reserve of $1.3 million compared to impaired loans of $19.1 million with a corresponding specific reserve of $1.1 million at March 31, 2016 and impaired loans of $18.8 million, with a corresponding specific reserve of $1.5 million at December 31, 2016. The decrease in loans classified as impaired and the decrease in the corresponding specific reserve compared to the prior quarter is primarily due to two commercial real estate relationships and one residential real estate relationship.

TABLE 9
PERIOD END TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(amounts in thousands)
		At March 31,				At December 31,				At September 30,				At June 30,				At March 31,
		2017				2016				2016				2016				2016
Nonaccrual		$	4,570			$	4,995			$	3,795			$	3,785			$	4,516
Accruing			6,760				7,071				7,360				7,460				6,916
Total troubled debt restructurings		$	11,330			$	12,066			$	11,155			$	11,245			$	11,432
Percentage of total gross loans			1.40	%			1.50	%			1.43	%			1.49	%			1.58	%

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. Specific 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 specific reserves are recognized as a specific component to be provided for in the ALLL.

There were no new troubled debt restructurings during the three months ended March 31, 2017. As of March 31, 2017, we had 118 restructured loans that qualified as troubled debt restructurings, of which 110 were performing according to their restructured terms.

TABLE 10
NONPERFORMING ASSETS - UNAUDITED
(amounts in thousands)
		At March 31,				At December 31,				At September 30,				At June 30,				At March 31,
		2017				2016				2016				2016				2016
Total nonaccrual loans		$	9,997			$	11,386			$	10,090			$	10,911			$	11,698
90 days past due and still accruing			—				—				—				10				—
Total nonperforming loans			9,997				11,386				10,090				10,921				11,698
Other real estate owned			814				759				793				765				1,011
Total nonperforming assets		$	10,811			$	12,145			$	10,883			$	11,686			$	12,709
Nonperforming loans to gross loans			1.23	%			1.42	%			1.30	%			1.45	%			1.62	%
Nonperforming assets to total assets			0.95	%			1.06	%			0.98	%			1.09	%			1.18	%

The decrease in nonaccrual loans during the first quarter of 2017 was associated with loans paid off for one commercial real estate relationship, one residential real estate relationship and one consumer relationship.

The March 31, 2017 OREO balance consists of seven properties, of which four are 1-4 family residential real estate properties in the amount of $121 thousand, two are nonfarm nonresidential properties in the amount of $581 thousand and one is an undeveloped commercial property in the amount of $112 thousand.

TABLE 11
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
		At March 31,				At March 31,				Change								At December 31,
		2017				2016				$				%				2016
Assets:
Cash and due from banks		$	18,315			$	14,969			$	3,346			22		%		$	16,419
Interest-bearing deposits in other banks			42,744				70,781				(28,037	)		(40	)	%			51,988
Total cash and cash equivalents			61,059				85,750				(24,691	)		(29	)	%			68,407
Securities available-for-sale, at fair value			181,534				174,251				7,283			4		%			175,174
Securities held-to-maturity, at amortized cost			31,257				35,357				(4,100	)		(12	)	%			31,187
Loans, net of deferred fees and costs			811,640				725,228				86,412			12		%			805,535
Allowance for loan and lease losses			(11,641	)			(11,495	)			(146	)		1		%			(11,544	)
Net loans			799,999				713,733				86,266			12		%			793,991
Premises and equipment, net			15,903				15,494				409			3		%			16,226
Other real estate owned			814				1,011				(197	)		(19	)	%			759
Life insurance			21,494				22,642				(1,148	)		(5	)	%			23,098
Deferred taxes			9,363				8,389				974			12		%			9,542
Goodwill and core deposit intangible, net			2,196				2,469				(273	)		(11	)	%			2,252
Other assets			19,132				17,987				1,145			6		%			20,356
Total assets		$	1,142,751			$	1,077,083			$	65,668			6		%		$	1,140,992
Liabilities and shareholders' equity:
Demand - noninterest bearing		$	270,412			$	212,758			$	57,654			27		%		$	270,398
Demand - interest bearing			407,784				392,325				15,459			4		%			405,569
Savings			112,738				105,828				6,910			7		%			113,309
Certificates of deposit			213,556				226,756				(13,200	)		(6	)	%			215,390
Total deposits			1,004,490				937,667				66,823			7		%			1,004,666
Term debt			18,667				19,839				(1,172	)		(6	)	%			18,917
Unamortized debt issuance costs			(173	)			(213	)			40			(19	)	%			(184	)
Net term debt			18,494				19,626				(1,132	)		(6	)	%			18,733
Junior subordinated debentures			10,310				10,310				—			0		%			10,310
Other liabilities			12,994				18,762				(5,768	)		(31	)	%			13,177
Total liabilities			1,046,288				986,365				59,923			6		%			1,046,886
Shareholders' equity:
Common stock			24,800				24,325				475			2		%			24,547
Retained earnings			72,066				65,201				6,865			11		%			70,218
Accumulated other comprehensive (loss) income, net of tax			(403	)			1,192				(1,595	)		(134	)	%			(659	)
Total shareholders' equity			96,463				90,718				5,745			6		%			94,106
Total liabilities and shareholders' equity		$	1,142,751			$	1,077,083			$	65,668			6		%		$	1,140,992
Total interest earning assets		$	1,068,066			$	1,002,492			$	65,574			7		%		$	1,065,228
Shares outstanding			13,517				13,442												13,440
Tangible book value per share		$	6.97			$	6.57											$	6.83

TABLE 12
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
		For The Three Months Ended
		March 31,						Change								December 31,
		2017			2016			$				%				2016
Interest income:
Interest and fees on loans		$	9,384		$	8,451		$	933			11		%		$	9,181
Interest on securities			789			784			5			1		%			705
Interest on tax-exempt securities			530			594			(64	)		(11	)	%			522
Interest on deposits in other banks			114			75			39			52		%			110
Total interest income			10,817			9,904			913			9		%			10,518
Interest expense:
Interest on demand deposits			148			122			26			21		%			135
Interest on savings deposits			47			45			2			4		%			45
Interest on certificates of deposit			529			597			(68	)		(11	)	%			543
Interest on term debt			293			782			(489	)		(63	)	%			298
Interest on other borrowings			66			54			12			22		%			63
Total interest expense			1,083			1,600			(517	)		(32	)	%			1,084
Net interest income			9,734			8,304			1,430			17		%			9,434
Provision for loan and lease losses			200			—			200			100		%			—
Net interest income after provision for loan and lease losses			9,534			8,304			1,230			15		%			9,434
Noninterest income:
Service charges on deposit accounts			127			72			55			76		%			120
ATM and point of sale			266			92			174			189		%			281
Payroll and benefit processing fees			191			160			31			19		%			161
Life insurance			646			156			490			314		%			152
Gain on investment securities, net			66			94			(28	)		(30	)	%			52
Federal Home Loan Bank of San Francisco dividends			103			90			13			14		%			353
Other income			143			285			(142	)		(50	)	%			131
Total noninterest income			1,542			949			593			62		%			1,250

TABLE 12 - CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
		For The Three Months Ended
		March 31,							Change								December 31,
		2017			2016				$				%				2016
Noninterest expense:
Salaries and related benefits			4,858			4,229				629			15		%			4,237
Occupancy and equipment			1,048			789				259			33		%			1,022
Federal Deposit Insurance Corporation insurance premium			48			156				(108	)		(69	)	%			102
Data processing fees			407			304				103			34		%			533
Professional service fees			393			436				(43	)		(10	)	%			481
Telecommunications			211			147				64			44		%			206
Branch acquisition costs			—			412				(412	)		(100	)	%			—
Loss on cancellation of interest rate swap			—			2,325				(2,325	)		(100	)	%			—
Other expenses			1,096			1,203				(107	)		(9	)	%			1,234
Total noninterest expense			8,061			10,001				(1,940	)		(19	)	%			7,815
Income (loss) before provision for income (loss) taxes			3,015			(748	)			3,763			(503	)	%			2,869
Deferred tax asset write-off			—			363				(363	)		(100	)	%			—
Provision (benefit) for income taxes			763			(151	)			914			(605	)	%			572
Net income (loss)		$	2,252		$	(960	)		$	3,212			(335	)	%		$	2,297
Basic earnings (loss) per share		$	0.17		$	(0.07	)		$	0.24			(343	)	%		$	0.17
Average basic shares			13,416			13,360				56			—		%			13,370
Diluted earnings (loss) per share		$	0.17		$	(0.07	)		$	0.24			(343	)	%		$	0.17
Average diluted shares			13,521			13,403				118			1		%			13,476

TABLE 13
UNAUDITED CONDENSED CONSOLIDATED
YEAR TO DATE AVERAGE BALANCE SHEETS
(amounts in thousands)
	For the Three Months Ended							For the Twelve Months Ended
		March 31,			March 31,			December 31,			December 31,			December 31,
		2017			2016			2016			2015			2014
Earning assets:
Loans		$	806,793		$	720,795		$	752,938		$	699,227		$	625,166
Taxable securities			137,582			119,917			120,884			120,897			147,916
Tax exempt securities			73,524			77,852			75,303			77,089			83,973
Interest-bearing deposits in other banks			57,140			51,254			58,668			30,323			56,465
Average earning assets			1,075,039			969,818			1,007,793			927,536			913,520
Cash and due from banks			16,873			12,301			15,831			11,220			11,246
Premises and equipment, net			16,165			12,384			15,078			11,552			12,105
Other assets			40,228			39,700			41,048			42,423			36,936
Average total assets		$	1,148,305		$	1,034,203		$	1,079,750		$	992,731		$	973,807
Liabilities and shareholders' equity:
Demand - noninterest bearing		$	262,881		$	182,539		$	226,368		$	156,578		$	139,792
Demand - interest bearing			420,416			323,771			374,170			283,105			272,383
Savings			113,647			96,027			104,771			92,659			91,108
Certificates of deposit			215,202			221,836			221,074			238,626			259,445
Total deposits			1,012,146			824,173			926,383			770,968			762,728
Term debt			18,598			91,444			37,286			88,874			77,534
Junior subordinated debentures			10,310			10,310			10,310			10,310			15,239
Other liabilities			12,431			16,969			13,217			16,588			15,934
Average total liabilities			1,053,485			942,896			987,196			886,740			871,435
Shareholders' equity			94,820			91,307			92,554			105,991			102,372
Average liabilities & shareholders' equity		$	1,148,305		$	1,034,203		$	1,079,750		$	992,731		$	973,807

TABLE 14
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
		For The Three Months Ended
		March 31,			December 31,			September 30,			June 30,			March 31,
		2017			2016			2016			2016			2016
Earning assets:
Loans		$	806,793		$	778,458		$	769,354		$	742,684		$	720,795
Taxable securities			137,582			124,881			114,578			124,183			119,917
Tax exempt securities			73,524			72,288			73,952			77,168			77,852
Interest-bearing deposits in other banks			57,140			75,760			61,346			46,097			51,254
Average earning assets			1,075,039			1,051,387			1,019,230			990,132			969,818
Cash and due from banks			16,873			16,953			17,018			17,028			12,301
Premises and equipment, net			16,165			16,331			15,941			15,632			12,384
Other assets			40,228			41,363			41,729			41,394			39,700
Average total assets		$	1,148,305		$	1,126,034		$	1,093,918		$	1,064,186		$	1,034,203
Liabilities and shareholders' equity:
Demand - noninterest bearing		$	262,881		$	261,600		$	240,418		$	220,377		$	182,539
Demand - interest bearing			420,416			398,749			390,895			382,811			323,771
Savings			113,647			111,755			107,210			103,990			96,027
Certificates of deposit			215,202			217,463			221,078			223,958			221,836
Total deposits			1,012,146			989,567			959,601			931,136			824,173
Term debt			18,598			18,975			19,610			19,510			91,444
Junior subordinated debentures			10,310			10,310			10,310			10,310			10,310
Other liabilities			12,431			12,856			11,159			11,913			16,969
Average total liabilities			1,053,485			1,031,708			1,000,680			972,869			942,896
Shareholders' equity			94,820			94,326			93,238			91,317			91,307
Average liabilities & shareholders' equity		$	1,148,305		$	1,126,034		$	1,093,918		$	1,064,186		$	1,034,203

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Redding, California and is the parent company for Redding Bank of Commerce which operates under two separate names (Redding Bank of Commerce and Sacramento Bank of Commerce, a division of Redding Bank of Commerce). The Bank is an FDIC-insured California banking corporation providing community banking and financial services through nine offices located in northern California. The Bank opened on October 22, 1982. The Company’s common stock is listed on the NASDAQ Global Market and trades under the symbol “BOCH”.

Contact Information:

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

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

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

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