BOCH Bank of Commerce Holdings

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

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

Financial highlights for the second quarter of 2017:

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

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

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

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

Forward-Looking Statements

This quarterly press release includes forward-looking information, which is subject to the “safe harbor” created by the Securities Act of 1933 and Securities Act of 1934. These forward-looking statements (which involve our plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:

• Competitive pressure in the banking industry and changes in the regulatory environment
• Changes in the interest rate environment and volatility of rate sensitive assets and liabilities
• A decline in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of our loans
• Credit quality deterioration which could cause an increase in the provision for loan and lease losses
• Asset/Liability matching risks and liquidity risks
• Changes in the securities markets

For additional information concerning risks and uncertainties related to the Company and its operations, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 under the heading “Risk Factors” and to subsequent reports on Form 10-Q and current reports on Form 8-K. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation and specifically disclaims any obligation to revise or publicly release the results of any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date the statements were made.

TABLE 1
SELECTED FINANCIAL INFORMATION - UNAUDITED
(amounts in thousands except per share data)
		For The Three Months Ended												For The Six Months Ended
Net income, average assets and		June 30,								March 31,				June 30,
average shareholders' equity		2017				2016				2017				2017			2016
Net income		$	2,209			$	1,556			$	2,252			$	4,461		$	596
Average total assets		$	1,170,447			$	1,064,186			$	1,148,305			$	1,159,438		$	1,049,192
Average total earning assets		$	1,097,644			$	990,132			$	1,075,039			$	1,086,404		$	979,976
Average shareholders' equity		$	112,855			$	91,317			$	94,820			$	103,888		$	91,312
Selected performance ratios
Return on average assets			0.76	%			0.59	%			0.80	%			0.78	%		0.11	%
Return on average equity			7.85	%			6.85	%			9.63	%			8.66	%		1.31	%
Efficiency ratio			69.13	%			79.43	%			71.49	%			70.32	%		93.45	%
Share and per share amounts
Weighted average shares - basic			15,014				13,367				13,416				14,220			13,364
Weighted average shares - diluted			15,113				13,425				13,521				14,321			13,408
Earnings per share - basic		$	0.15			$	0.11			$	0.17			$	0.31		$	0.04
Earnings per share - diluted		$	0.15			$	0.11			$	0.17			$	0.31		$	0.04
		At June 30,								At March 31,
Share and per share amounts		2017				2016				2017
Common shares outstanding (1)			16,260				13,439				13,517
Tangible book value per common share		$	7.61			$	6.71			$	6.97
Capital ratios
Bank of Commerce Holdings (2)
Common equity tier 1 capital ratio (3)			12.55	%			9.69	%			9.71	%
Tier 1 capital ratio (3)			13.56	%			10.77	%			10.72	%
Total capital ratio (3)			15.83	%			13.11	%			13.00	%
Tier 1 leverage ratio (3)			11.38	%			9.34	%			9.09	%
Tangible common equity ratio			10.23	%			8.44	%			8.27	%
Redding Bank of Commerce
Common equity tier 1 capital ratio (3)			12.66	%			12.80	%			12.59	%
Tier 1 capital ratio (3)			12.66	%			12.80	%			12.59	%
Total capital ratio (3)			13.91	%			14.05	%			13.84	%
Tier 1 leverage ratio (3)			10.64	%			11.14	%			10.67	%
(1) Includes unvested restricted shares issued in accordance with the Company's equity incentive plan.
(2) Capital Ratios for the Company include the benefit of $26.8 million net proceeds from the sale of 2,738,096 shares of common stock in the second quarter of 2017.
(3) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The capital ratios for 2016 were impacted by increased average total assets, the addition of $1.8 million of core deposit intangible and $665 thousand of goodwill recorded in conjunction with the acquisition of five branches in March of 2016.

BALANCE SHEET OVERVIEW

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

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

The Company recorded gross loan balances of $815.4 million at June 30, 2017, compared with $754.1 million and $810.2 million at June 30, 2016 and March 31, 2017, respectively, an increase of $61.2 million and $5.2 million, respectively. The increase in gross loans compared to the same period a year ago and the prior period was driven by organic loan originations and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.

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

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

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

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

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

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

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

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

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

INCOME STATEMENT OVERVIEW

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

Second Quarter of 2017 Compared With Second Quarter of 2016

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

Net Interest Income

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

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

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

Provision for loan and lease loss

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

Noninterest Income

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

Noninterest Expense

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

Income Tax Provision

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

Second Quarter of 2017 Compared With First Quarter of 2017

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

Net Interest Income

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

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

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

Provision for loan and lease loss

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

Noninterest Income

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

Noninterest Expense

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

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

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

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

Income Tax Provision

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

Earnings Per Share

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

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

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

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

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

Average deposit balances for the current quarter increased $3.3 million and $84.4 million compared to the prior quarter and the same period a year ago, respectively. The increase in average deposit balances compared to the prior quarter and the same quarter in the prior year was due to organic growth in core deposits. Our overall cost of total deposits increased to 0.31% for the quarter ended June 30, 2017 from 0.30% for the same period a year ago and from 0.29% for the prior quarter.

TABLE 8
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED
(amounts in thousands)
	For The Three Months Ended
	June 30,					March 31,					December 31,					September 30,					June 30,
	2017					2017					2016					2016					2016
Beginning balance ALLL	$	11,641				$	11,544				$	11,849				$	11,864				$	11,495
Provision for loan and lease losses		300					200					—					—					—
Loans charged-off		(359	)				(447	)				(386	)				(357	)				(1,734	)
Loan loss recoveries		106					344					81					342					2,103
Ending balance ALLL	$	11,688				$	11,641				$	11,544				$	11,849				$	11,864
	At June 30,					At March 31,					At December 31,					At September 30,					At June 30,
	2017					2017					2016					2016					2016
Nonaccrual loans:
Commercial	$	2,410				$	2,534				$	2,749				$	1,710				$	2,149
Real estate - commercial non-owner occupied		1,196					1,196					1,196					1,196					1,197
Real estate - commercial owner occupied		639					654					784					800					816
Real estate - residential - ITIN		3,346					3,331					3,576					3,392					3,664
Real estate - residential - 1-4 family mortgage		653					1,337					1,914					1,798					1,824
Real estate - residential - equity lines		872					906					917					942					995
Consumer and other		38					39					250					252					266
Total nonaccrual loans		9,154					9,997					11,386					10,090					10,911
Accruing troubled debt restructured loans:
Commercial		703					741					776					726					760
Real estate - commercial non-owner occupied		806					808					808					811					816
Real estate - residential - ITIN		4,712					4,761					5,033					5,280					5,336
Real estate - residential - equity lines		445					450					454					543					548
Total accruing troubled debt restructured loans		6,666					6,760					7,071					7,360					7,460
All other accruing impaired loans		—					—					337					483					550
Total impaired loans	$	15,820				$	16,757				$	18,794				$	17,933				$	18,921
Gross loans outstanding at period end	$	815,388				$	810,194				$	804,211				$	779,019				$	754,140
Nonaccrual loans to gross loans		1.12		%			1.23		%			1.42		%			1.30		%			1.45		%
Allowance for loan and lease losses as a percent of:
Gross loans		1.43		%			1.44		%			1.44		%			1.52		%			1.57		%
Nonaccrual loans		127.68		%			116.44		%			101.39		%			117.43		%			108.73		%
Impaired loans		73.88		%			69.47		%			61.42		%			66.07		%			62.70		%

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

We continue to monitor credit quality and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. A combination of net loan losses and loan portfolio growth supported management’s decision to record a $300 thousand provision for loan and lease losses during the quarter ended June 30, 2017 and a $200 thousand provision for loan and lease losses during the quarter ended March 31, 2017. There were no provisions for loan and lease losses during the years ended December 31, 2016 or 2015. Our ALLL as a percentage of gross loans was 1.43% as of June 30, 2017 compared to 1.57% as of June 30, 2016 and 1.44% as of March 31, 2017. Based on the Bank’s ALLL methodology, which uses criteria such as risk weighting and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company’s ALLL is adequate at June 30, 2017. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

At June 30, 2017, the recorded investment in loans classified as impaired totaled $15.8 million, with a corresponding specific reserve of $1.1 million compared to impaired loans of $18.9 million with a corresponding specific reserve of $903 thousand at June 30, 2016 and impaired loans of $16.8 million, with a corresponding specific reserve of $1.3 million at March 31, 2017. The decrease in loans classified as impaired and the decrease in the corresponding specific reserve compared to the prior quarter is primarily due to one nonaccrual residential real estate loan that was transferred to OREO during the quarter.

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

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

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

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

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

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

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

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

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

About Bank of Commerce Holdings

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

 

Contact Information:

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

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

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

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