BOCH Bank of Commerce Holdings

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

Current Report

 

Pursuant to Section 13 or 15(D)

of the Securities Exchange Act Of 1934

 

Date of report (Date of earliest event reported):
July 24, 2015

 

 

Bank of Commerce Holdings

(Exact name of registrant as specified in its charter)

 

 

California

(State or other jurisdiction of incorporation)

 

 

 

	000-25135			94-2823865
	(Commission File Number)			IRS Employer Identification No.

 

 

1901 Churn Creek Road
Redding, California 96002
(Address of principal executive offices) (zip code)

 

 

Registrant's telephone number, including area code: (530) 722-3939

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions (see General Instruction A.2 below):

 

 

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act of (17 CFR 240.14d-2(b))

[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act of (17 CFR 240.13e-4(c))

 

 

Item 2.02 – Results of Operations and Financial Condition

 

On July 24, 2015, Bank of Commerce Holdings (the “Company”) issued a press release announcing its financial results for the quarter ended June 30, 2015. A copy of the press release is attached as Exhibit 99.1 and is incorporated herein in its entirety by reference.

 

The information in this Item 2.02 and Exhibit 99.1 attached hereto is furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such document or filing.

 

 

Item 9.01 - Financial Statements and Exhibits

 

(d) Exhibits:

 

99.1 Press Release dated July 24, 2015 announcing financial results for the quarter ended June 30, 2015.

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

July 24, 2015
	/s/ James A. Sundquist
	By: James A. Sundquist
	Executive Vice President - Chief Financial Officer

 

 

Exhibit 99.1

 

(NASDAQ: BOCH)

 

---

For Immediate Release:

Bank of Commerce Holdings Announces Results for the Second Quarter of 2015

---

 

REDDING, California, July 24, 2015 / GLOBE NEWSWIRE— Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $983.1 million 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, 2015. Net income available to common shareholders for the quarter ended June 30, 2015 was $2.3 million or $0.18 per share – diluted, compared with $2.2 million or $0.16 per share – diluted for the same period of 2014. Net income available to common shareholders for the six months ended June 30, 2015 was $4.1 million or $0.31 per share – diluted compared with $2.7 million or $0.19 per share – diluted for the same period of 2014.

 

Financial highlights for the second quarter of 2015:

 

●

Net income available to common shareholders of $2.3 million for the three months ended June 30, 2015 was a an improvement of $184 thousand (8.5%) over $2.2 million net income available to common shareholders earned during the second quarter of 2014, and an improvement of $589 thousand (33.6%) over $1.8 million available to common shareholders earned during the previous quarter.

●	Nonperforming assets at June 30, 2015 totaled $18.4 million, a decrease of $9.9 million (35.1%) compared to June 30, 2014, and a decrease of $1.7 million (33.6% annualized) compared to March 31, 2015.

●	Average loans for the quarter increased $29.9 million to $703.0 million from $673.1 million for the first quarter of 2015.

●	Net loan loss recoveries of $106 thousand combined with continuing improved asset quality resulted in no additional provision for loan and lease losses during the second quarter.

●	The Company’s book value per share increased to $6.49 per common share at June 30, 2015 from $6.07 per common share at June 30, 2014 (6.9%) and $6.41 at March 31, 2015 (5.0% annualized).

●	The Company’s net interest margin improved to 3.71% for the quarter ended June 30, 2015 from 3.62% for the second quarter of 2014.

 

Financial highlights for the six months ended June 30, 2015:

 

●	Net income available to common shareholders of $4.1 million for the six months ended June 30, 2015 was an improvement of $1.4 million (53.2%) over $2.7 million net income available to common shareholders earned during the six months ended June 30, 2014.

●	Nonperforming assets at June 30, 2015 totaled $18.4 million, a decrease of $3.8 million (34.6% annualized) compared to December 31, 2014.

●	Gross loans at June 30, 2015 totaled $699.8 million, an increase of $38.9 million (12% annualized) since December 31, 2014.

●	Net loan loss recoveries of $582 thousand combined with continuing improved asset quality resulted in no additional provision for loan and lease losses during the first six months of 2015.

●	The Company’s book value per share increased to $6.49 per common share at June 30, 2015 from $6.29 per common share at December 31, 2014 (6.4% annualized).

●	The Company’s net interest margin improved to 3.72% for the six months ended June 30, 2015 from 3.57% for the year ended December 31, 2014.

●	The Company’s efficiency ratio improved to 68.0% during the first six months of 2015 compared to 71.5% during the same period in 2014.

 

 

Randall S. Eslick, President and CEO commented: “We are pleased that the positive trends which began in 2014 have continued into the first six months of 2015. Our average loan totals continue to increase, our asset quality continues to improve and our efficiency ratio reflects the initial benefits of our cost control efforts. I applaud our employees for making these successes a reality.”

 

  

(NASDAQ: BOCH)

 

 

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 the Company’s 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 the Company’s 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, 2014 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.

 

 

(NASDAQ: BOCH)

 

 

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		2015				2014				2015				2015				2014
Income available to common shareholders		$	2,340			$	2,156			$	1,751			$	4,091			$	2,671
Average total assets		$	993,815			$	965,530			$	978,916			$	986,406			$	962,861
Average shareholders' equity		$	106,198			$	101,194			$	104,618			$	105,412			$	102,193
Selected performance ratios
Return on average assets			0.94	%			0.90	%			0.73	%			0.84	%			0.56	%
Return on average equity			8.84	%			8.55	%			6.79	%			7.83	%			5.27	%
Efficiency ratio			64.61	%			56.66	%			71.48	%			68.00	%			71.52	%
Share and per share amounts
Weighted average shares - basic			13,338				13,378				13,303				13,320				13,658
Weighted average shares - diluted			13,370				13,426				13,340				13,353				13,705
Earnings per share - basic		$	0.18			$	0.16			$	0.13			$	0.31			$	0.20
Earnings per share - diluted		$	0.18			$	0.16			$	0.13			$	0.31			$	0.19

 

		At June 30,								At March 31,
Share and per share amounts		2015				2014				2015
Common shares outstanding			13,339				13,294				13,337
Book value per common share		$	6.49			$	6.07			$	6.41
Capital ratios
Bank of Commerce Holdings
Common equity tier 1 capital ratio (1)			9.97	%		n/a					9.73	%
Tier 1 capital ratio			13.35	%			15.14	%			13.10	%
Total capital ratio			14.60	%			16.39	%			14.35	%
Tier 1 leverage ratio			11.76	%			12.12	%			11.74	%
Redding Bank of Commerce
Common equity tier 1 capital ratio (1)			13.28	%		n/a					13.05	%
Tier 1 capital ratio			13.28	%			15.15	%			13.05	%
Total capital ratio			14.53	%			16.40	%			14.30	%
Tier 1 leverage ratio			11.75	%			12.12	%			11.70	%

 

(1) As of January 1, 2015, common equity tier 1 capital ratio is a new ratio requirement under the Basel III Capital Rules and represents the sum of the common equity tier 1 elements, minus regulatory adjustments and deductions divided by risk weighted assets.

 

 

The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The change in capital ratios during the current quarter compared to the same period a year ago is primarily due to repayment of junior subordinated debentures, repurchase of common stock, and a change in the calculation of the risk-weighted average assets in accordance with Basel III.

 

  

(NASDAQ: BOCH)

 

 

BALANCE SHEET OVERVIEW

 

As of June 30, 2015, the Company had total consolidated assets of $983.1 million, gross loans of $699.8 million, allowance for loan and lease losses (“ALLL”) of $11.4 million, total deposits of $760.0 million, and shareholders’ equity of $106.6 million.

 

 

TABLE 2

LOAN BALANCES BY TYPE - UNAUDITED

(amounts in thousands)

 

		At June 30,																								At March 31,
						% of								% of				Change												% of
		2015				Total				2014				Total				Amount				%				2015				Total
Commercial		$	143,088				20	%		$	165,222				27	%		$	(22,134	)			(13	)%		$	146,069				21	%
Real estate - construction			27,858				4				20,462				3				7,396				36	%			29,127				4
Real estate - commercial (investor)			237,375				34				209,324				33				28,051				13	%			235,404				34
Real estate - commercial (owner occupied)			136,981				20				91,534				15				45,447				50	%			134,234				19
Real estate - ITIN			51,249				7				54,611				9				(3,362	)			(6	)%			52,043				7
Real estate - mortgage			12,209				2				14,211				2				(2,002	)			(14	)%			12,304				2
Real estate - equity lines			46,463				7				43,809				8				2,654				6	%			45,750				7
Consumer			44,482				6				20,195				3				24,287				120	%			44,283				6
Other			69				0				50				0				19				38	%			15				0
Gross loans			699,774				100	%			619,418				100	%			80,356				13	%			699,229				100	%
Deferred fees and costs			403								204								199								315
Loans, net of deferred fees and costs			700,177								619,622								80,555								699,544
Allowance for loan and lease losses			(11,402	)							(9,882	)							(1,520	)							(11,296	)
Net loans		$	688,775							$	609,740							$	79,035							$	688,248
Average yield on loans during the quarter			4.74	%							4.71	%							0.03								4.77	%

 

 

The Company recorded gross loan balances of $699.8 million at June 30, 2015, compared with $619.4 million and $699.2 million at June 30, 2014 and March 31, 2015, respectively, an increase of $80.4 million and $545 thousand, respectively. The increase in gross loans compared to the same period a year ago was driven by strong organic loan originations and the purchase of wholesale loan pools. During the three months ended June 30, 2015, the Company purchased $6.6 million in consumer loan pools. During the twelve-month period ended June 30, 2015, the Company purchased $44.5 million, $6.4 million and $18.5 million in consumer, commercial real estate investor and SBA loan pools, respectively.

 

The increase in the ALLL in the current quarter compared to the prior quarter resulted from net loan loss recoveries of $106 thousand. As a result of net recoveries and continued improved asset quality, no additional provision for loan and lease losses was deemed necessary during the current quarter. See table 8 for additional detail of the ALLL.

 

  

(NASDAQ: BOCH)

 

 

TABLE 3

CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED

(amounts in thousands)

 

		At June 30,																								At March 31,
						% of								% of				Change												% of
		2015				Total				2014				Total				Amount				%				2015				Total
Cash and due from banks		$	25,343				11	%		$	50,677				18	%		$	(25,334	)			(50	)%		$	19,309				8	%
Interest bearing due from banks			7,453				3				16,068				5				(8,615	)			(54	)%			10,802				5
Total cash and cash equivalents			32,796				14				66,745				23				(33,949	)			(51	)%			30,111				13
Investment securities:
U.S. government and agencies			5,314				2				7,787				3				(2,473	)			(32	)%			6,422				3
Obligations of state and political subdivisions			51,324				24				55,369				19				(4,045	)			(7	)%			53,491				23
Residential mortgage backed securities and collateralized mortgage obligations			37,776				16				45,798				16				(8,022	)			(18	)%			41,851				18
Corporate securities			33,501				15				42,166				14				(8,665	)			(21	)%			31,660				14
Commercial mortgage backed securities			9,467				4				9,833				3				(366	)			(4	)%			6,799				3
Other asset backed securities			23,381				10				27,733				9				(4,352	)			(16	)%			26,667				11
Total investment securities - AFS			160,763				71				188,686				64				(27,923	)			(15	)%			166,890				72
Obligations of state and political subdivisions - HTM			36,655				15				37,031				13				(376	)			(1	)%			36,609				15
Total investment securities - AFS and HTM			197,418				86				225,717				77				(28,299	)			(16	)%			203,499				87
Total cash, cash equivalents and investment securities		$	230,214				100	%		$	292,462				100	%		$	(62,248	)			(21	)%		$	233,610				100	%
Average yield on interest bearing due from banks and investment securities during the quarter			2.59	%							2.55	%							0.04								2.73	%

 

 

As of June 30, 2015, the Company maintained cash positions at the Federal Reserve Bank and correspondent banks in the amount of $25.3 million. The Company also held interest bearing deposits with other financial institutions in the amount of $7.5 million.

 

Available-for-sale investment securities totaled $160.8 million at June 30, 2015, compared with $188.7 million and $166.9 million at June 30, 2014 and March 31, 2015, respectively. The Company’s available-for-sale investment portfolio provides the Company a secondary source of liquidity to fund other higher yielding asset opportunities, such as loan originations and wholesale loan purchases. During the second quarter of 2015, the Company purchased six securities with a par value of $11.1 million and weighted average yield of 2.27% and sold eleven securities with a par value of $10.0 million and weighted average yield of 2.14%. The sales activity resulted in $61 thousand in net realized gains for the three months ended June 30, 2015. During the three months ended June 30, 2015, the Company received $4.7 million in proceeds from principal payments, calls and maturities within the available-for-sale investment securities portfolio. Average quarterly securities balances and weighted average tax equivalent yields at June 30, 2015 and 2014 were $197.9 million and 3.47% compared to $235.7 million and 3.53%, respectively.

 

During the current quarter, the Company’s securities transactions were focused on improving credit quality and continuing to shorten the effective duration of the portfolio in anticipation of rising interest rates. Management will continue to actively seek out opportunities to reduce the overall duration of the portfolio and accelerate cash flows, while also improving credit quality and liquidity. This strategy could entail absorbing small losses within the portfolio to meet longer term objectives.

 

At June 30, 2015, the Company’s net unrealized gains on available-for-sale investment securities were $1.5 million compared with $1.3 million and $3.1 million at June 30, 2014 and March 31, 2015, respectively. The decrease in net unrealized gains during the current quarter resulted primarily from decreases in the fair value of the Company’s municipal bond and corporate securities portfolios, as a result of increases in interest rates.

 

  

(NASDAQ: BOCH)

 

 

TABLE 4

DEPOSITS BY TYPE - UNAUDITED

(amounts in thousands)

 

		At June 30,																								At March 31,
						% of								% of				Change												% of
		2015				Total				2014				Total				Amount				%				2015				Total
Demand - noninterest bearing		$	151,640				20	%		$	135,416				18	%		$	16,224				12	%		$	150,056				20	%
Demand - interest bearing			276,103				36				269,055				36				7,048				3	%			266,552				35
Total demand			427,743				56				404,471				54				23,272				6	%			416,608				55
Savings			93,500				12				90,416				12				3,084				3	%			92,088				12
Total non-maturing deposits			521,243				68				494,887				66				26,356				5	%			508,696				67
Certificates of deposit			238,796				32				260,129				34				(21,333	)			(8	)%			253,280				33
Total deposits		$	760,039				100	%		$	755,016				100	%		$	5,023				1	%		$	761,976				100	%
Average rate on interest bearing deposits during the quarter			0.50	%							0.54	%							(0.04	)							0.50	%

 

 

Total deposits at June 30, 2015, increased $5.0 million or 0.67% to $760.0 million compared to June 30, 2014, and decreased $1.9 million or 0.25% compared to March 31, 2015. Non-maturing core deposits increased $10.2 million or 2% compared to the same date a year ago and increased $7.3 million or 2% compared to March 31, 2015. Management intends to continue to reduce reliance on certificates of deposit as a funding source.

 

 

TABLE 5

WHOLESALE AND BROKERED DEPOSITS - UNAUDITED

(amounts in thousands)

 

		At June 30,								At March 31,
		2015				2014				2015
CDARS / ICS reciprocal deposits		$	58,628			$	48,234			$	52,767
Third party brokered time deposits			17,502				13,694				17,498
Brokered deposits per Call Report			76,130				61,928				70,265
Online listing service time deposits			63,328				68,095				67,453
Total wholesale and brokered deposits		$	139,458			$	130,023			$	137,718

 

 

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $76.1 million, $61.9 million and $70.3 million at June 30, 2015, June 30, 2014 and March 31, 2015, respectively. These amounts include reciprocal deposits obtained through the CDARS and ICS programs, which management does not consider to be brokered.

 

 

(NASDAQ: BOCH)

 

 

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
		2015				2014				Amount				%				2015				Amount				%
Interest income		$	9,763			$	9,062			$	701				8	%		$	9,526			$	237				2	%
Interest expense			1,168				872				296				34	%			1,157				11				1	%
Net interest income			8,595				8,190				405				5	%			8,369				226				3	%
Provision for loan and lease losses			—				1,450				(1,450	)			(100	)%			—				—				0	%
Noninterest income			881				2,136				(1,255	)			(59	)%			854				27				3	%
Noninterest expense			6,122				5,851				271				5	%			6,593				(471	)			(7	)%
Income before provision for income taxes			3,354				3,025				329				11	%			2,630				724				28	%
Provision for income taxes			964				819				145				18	%			829				135				16	%
Net income			2,390				2,206				184				8	%			1,801				589				33	%
Less: Preferred dividends			50				50				—				0	%			50				—				0	%
Income available to common shareholders		$	2,340			$	2,156			$	184				9	%		$	1,751			$	589				34	%
Basic earnings per share		$	0.18			$	0.16			$	0.02				13	%		$	0.13			$	5				38	%
Average basic shares			13,338				13,378				(40	)			0	%			13,303				35				0	%
Diluted earnings per share		$	0.18			$	0.16			$	0.02				13	%		$	0.13			$	5				38	%
Average diluted shares			13,370				13,426				(56	)			0	%			13,340				30				0	%
Dividends declared per common share		$	0.03			$	0.03			$	—				0	%		$	0.03			$	—				0	%

 

 

Second Quarter of 2015 Compared With Second Quarter of 2014

 

Net income available to common shareholders for the second quarter of 2015 increased $184 thousand over the second quarter of 2014. In the current quarter, net interest income was $405 thousand higher and the provision for loan and lease losses was $1.5 million lower. These positive changes were partially offset by a decrease in noninterest income of $1.3 million, an increase in noninterest expense of $271 thousand and an increase in income tax expense of $145 thousand.

 

Net Interest Income

 

Net interest income increased $405 thousand over a year previous. Interest income for the three months ended June 30, 2015 increased $701 thousand or 8% to $9.8 million which reflects the increase in average earning assets and the reallocation of lower yielding assets into higher yielding loans. Interest expense for the three months ended June 30, 2015 increased $296 thousand or 34% to $1.2 million. Interest expense on deposits declined $92 thousand and interest expense on other borrowings decreased $44 thousand, but interest on the Bank’s Federal Home Loan Bank of San Francisco borrowings increased $432 thousand due to the net settlement expense associated with the Bank’s active interest rate swap.

 

In 2011, to mitigate interest rate and market risks, the Bank entered into four forward starting interest rate swaps to hedge interest rate risk associated with variable rate Federal Home Loan Bank Of San Francisco borrowings. The hedges converted the LIBOR based floating rate of interest on the $75.0 million Federal Home Loan Bank of San Francisco borrowings to fixed interest rates. The fixed rates adjust each August and were/are 0.94% at August 2013, 1.84% at August 2014, 2.64% at August 2015 and 3.22% at August 2016. During the second quarter of 2014, the net cost of the Bank’s Federal Home Loan Bank of San Francisco borrowings was also reduced when hedge gains from a previous set of interest rate swaps were reclassified out of other comprehensive income into earnings as a reduction of interest expense. As a result, interest expense on Federal Home Loan Bank of San Francisco borrowings for the second quarter of 2014 was a negative $69 thousand.

 

  

(NASDAQ: BOCH)

 

 

Interest expense on other borrowings, primarily junior subordinated debentures was $49 thousand and $93 thousand for the second quarter of 2015 and 2014, respectively. During December of 2014, the Company repaid $5.0 million of junior subordinated debentures resulting in a decrease in interest on other borrowings in 2015.

 

Noninterest Income

 

Noninterest income for the three months ended June 30, 2015 decreased $1.3 million compared to the same period a year ago. During the quarter ended June 30, 2014 the Company recorded $1.6 million in hedge gains in noninterest income. This decrease in noninterest income was partially offset by net gains on sale of available-for-sale investment securities during the current quarter of $61 thousand compared to a net loss of $39 thousand for the same period a year ago. There was also a $205 thousand special dividend on Federal Home Loan Bank of San Francisco stock included in other noninterest income during the three months ended June 30, 2015.

 

Noninterest Expense

 

Noninterest expense for the three months ended June 30, 2015 increased $271 thousand compared to the same period a year ago. During the quarter ended June 30, 2015 the Company transferred land with a carrying value of $261 thousand previously held for construction of a new branch to OREO for disposition. The property was transferred to OREO at its fair value less expected selling costs resulting in a write down of $91 thousand. In the current period, professional services fees are $138 thousand higher than a year earlier.

 

Income Tax Provision

 

During the three months ended June 30, 2015, the Company recorded a provision for income tax expense of $964 thousand compared with $819 thousand for the same period a year ago. The increase in the current year is due to increased taxable income.

 

 

Second Quarter of 2015 Compared With First Quarter of 2015

 

Net income available to common shareholders for the second quarter of 2015 increased $589 thousand over the first quarter of 2015. In the current quarter, net interest income was higher by $226 thousand, noninterest income increased by $27 thousand and noninterest expense decreased $471 thousand. These positive changes were partially offset by an income tax provision that was higher by $135 thousand.

 

Net Interest Income

 

Net interest income increased $226 thousand over a quarter previous. Interest income for the three months ended June 30, 2015 increased $237 thousand to $9.8 million. The increase in interest income was due to increased average loan balances and the effect of a quarter that was one day longer than the first quarter of 2015 partially offset by decreased interest on securities due to decreased average securities balances. Interest expense for the three months ended June 30, 2015 increased $11 thousand or 1% to $1.2 million compared to the prior quarter. This increase was primarily due to increased interest expense on Federal Home Loan Bank of San Francisco borrowings.

 

Noninterest Income

 

Noninterest income for the three months ended June 30, 2015 increased $27 thousand compared to the prior quarter. The Company recognized a $205 thousand special dividend on Federal Home Loan Bank of San Francisco stock included in other income during the three months ended June 30, 2015. Net gains recognized on the sale of available-for-sale investment securities during the current quarter decreased by $154 thousand to $61 thousand compared to a $215 thousand net gain in the prior quarter.

 

Noninterest Expense

 

Noninterest expense for the three months ended June 30, 2015 decreased $471 thousand compared to the prior quarter. The decrease is driven by decreased salary costs and a decrease in the cost of the Bank’s supplemental executive retirement plans.

 

Income Tax Provision

 

During the three months ended June 30, 2015, the Company recorded a provision for income tax expense of $964 thousand compared with provision for income tax expense of $829 thousand for the prior quarter. The increase in the current quarter is due to increased taxable income.

 

 

(NASDAQ: BOCH)

 

 

Earnings Per Share

 

Diluted earnings per share were $0.18 for the three months ended June 30, 2015 compared with $0.16 for the same period a year ago, and $0.13 for the prior period. Earnings per share increased during the three months ended June 30, 2015 compared to the same period a year ago as a result of increased net income and decreased weighted average shares. The decrease in weighted average shares resulted from the repurchase of 700,000 common shares from a repurchase plan announced and completed during the six months ended June 30, 2014. All repurchased shares were retired subsequent to purchase.

 

 

TABLE 7

NET INTEREST SPREAD AND MARGIN - UNAUDITED

(amounts in thousands)

 

		For the Three Months Ended
		June 30,								Change				March 31,				Change
		2015				2014				Amount				2015				Amount
Tax equivalent yield on average interest earning assets			4.35	%			4.16	%			0.19				4.37	%			(0.02	)
Rate on average interest bearing liabilities			0.65	%			0.49	%			(0.16	)			0.66	%			0.01
Net interest spread - tax equivalent basis			3.70	%			3.67	%			0.03				3.71	%			(0.01	)
Net interest margin - nominal			3.71	%			3.62	%			0.09				3.72	%			(0.01	)
Net interest margin - tax equivalent basis			3.85	%			3.77	%			0.08				3.86	%			(0.01	)
Average earning assets		$	928,578			$	906,298			$	22,280			$	912,886			$	15,692
Average interest bearing liabilities		$	723,288			$	717,219			$	6,069			$	708,234			$	15,054

 

 

The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.85% for the three months ended June 30, 2015, an increase of eight basis points as compared to the same period a year ago. The increase in net interest margin resulted from a 19 basis point increase in tax-equivalent yield on average earning assets offset by an 11 basis point increase in interest expense to fund average earning assets. Maintaining our net interest margin in a historically low interest rate environment and while confronted with known increased Federal Home Loan Bank of San Francisco borrowing costs will be challenging in the foreseeable future. Management will continue to reallocate the asset mix into higher yielding assets by pursuing organic loan growth, and actively managing the investment securities portfolio within our accepted risk tolerance.

 

  

(NASDAQ: BOCH)

 

 

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,
		2015				2015				2014				2014				2014
Beginning balance		$	11,296			$	10,820			$	10,400			$	9,882			$	9,748
Provision for loan and lease losses charged to expense			—				—				675				1,050				1,450
Loans charged off			(711	)			(179	)			(374	)			(585	)			(1,457	)
Loan loss recoveries			817				655				119				53				141
Ending balance		$	11,402			$	11,296			$	10,820			$	10,400			$	9,882

 

		At June 30,				At March 31,				At December 31,				At September 30,				At June 30,
		2015				2015				2014				2014				2014
Nonaccrual loans:
Commercial		$	3,170			$	3,908			$	5,112			$	7,065			$	4,375
Commercial real estate			7,611				8,182				9,696				9,896				15,598
Residential real estate 1-4 family			6,068				6,365				6,782				7,438				6,939
Home equity			24				24				24				89				479
Consumer			34				34				35				—				87
Total nonaccrual loans			16,907				18,513				21,649				24,488				27,478
Accruing troubled debt restructured loans:
Commercial			10				1,004				1,485				1,585				13
Commercial real estate			1,681				1,690				1,698				1,707				1,716
Residential real estate 1-4 family			5,303				5,421				5,462				5,222				5,074
Home equity			569				574				579				584				589
Total accruing troubled debt restructured loans			7,563				8,689				9,224				9,098				7,392
All other accruing impaired loans			530				533				535				757				585
Total impaired loans		$	25,000			$	27,735			$	31,408			$	34,343			$	35,455
Gross loans outstanding at period end		$	699,774			$	699,229			$	660,898			$	649,695			$	619,418
Allowance for loan and lease losses as a percent of:
Gross loans			1.63	%			1.62	%			1.64	%			1.60	%			1.59	%
Nonaccrual loans			67.44	%			61.02	%			49.98	%			42.47	%			35.96	%
Impaired loans			45.61	%			40.73	%			34.45	%			30.28	%			27.87	%
Nonaccrual loans to gross loans			2.42	%			2.65	%			3.28	%			3.77	%			4.43	%

 

 

The Company realized net loan loss recoveries of $106 thousand in the current quarter compared with net loan loss recoveries of $476 thousand in the prior quarter and net loan charge offs of $1.3 million for the same period a year ago.

 

 

(NASDAQ: BOCH)

 

 

The Company continues 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. The Company made no provision for loan and lease losses during the first two quarters of 2015 compared to a provision of $1.5 million during quarter ended June 30, 2014. The Company’s ALLL as a percentage of gross loans was 1.63% as of June 30, 2015 compared to 1.59% as of June 30, 2014 and 1.62% as of March 31, 2015. At June 30, 2015, 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. 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 additional charges to the provision for loan and lease losses.

 

At June 30, 2015, the recorded investment in loans classified as impaired totaled $25.0 million, with a corresponding valuation allowance of $1.3 million compared to impaired loans of $35.5 million with a corresponding valuation allowance of $1.0 million at June 30, 2014 and impaired loans of $27.7 million, with a corresponding valuation allowance of $1.5 million at March 31, 2015. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans.

 

 

TABLE 9

PERIOD END TROUBLED DEBT RESTRUCTURINGS - UNAUDITED

(amounts in thousands)

 

		At June 30,				At March 31,				At December 31,				At September 30,				At June 30,
		2015				2015				2014				2014				2014
Nonaccrual		$	12,354			$	12,695			$	14,230			$	16,556			$	20,504
Accruing			7,563				8,689				9,224				9,098				7,392
Total troubled debt restructurings		$	19,917			$	21,384			$	23,454			$	25,654			$	27,896
Percentage of total gross loans			2.85	%			3.06	%			3.55	%			3.95	%			4.50	%

 

 

Loans are reported as a troubled debt restructuring when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the note 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 the Bank will not collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement. Impairment reserves on non-collateral dependent restructured loans are measured by calculating the present value of expected future cash flows of the restructured loans, discounted at the effective interest rate of the original loan agreement. These impairment reserves are recognized as a specific component of the ALLL.

 

During the three months ended June 30, 2015, the Company restructured three loans to grant rate and payment deferrals. The loans were classified as troubled debt restructurings and placed on nonaccrual status. As of June 30, 2015, the Company had 121 restructured loans that qualified as troubled debt restructurings, of which 103 were performing according to their restructured terms.

 

  

(NASDAQ: BOCH)

 

 

TABLE 10

NONPERFORMING ASSETS - UNAUDITED

(amounts in thousands)

 

		At June 30,				At March 31,				At December 31,				At September 30,				At June 30,
		2015				2015				2014				2014				2014
Total nonaccrual loans		$	16,907			$	18,513			$	21,649			$	24,488			$	27,478
90 days past due and still accruing			54				30				23				—				—
Total nonperforming loans			16,961				18,543				21,672				24,488				27,478
Other real estate owned			1,405				1,502				502				393				826
Total nonperforming assets		$	18,366			$	20,045			$	22,174			$	24,881			$	28,304
Nonperforming loans to gross loans			2.42	%			2.65	%			3.28	%			3.77	%			4.43	%
Nonperforming assets to total assets			1.87	%			2.03	%			2.22	%			2.54	%			2.94	%

 

 

At June 30, 2015, June 30, 2014 and March 31, 2015, the recorded investment in OREO was $1.4 million, $826 thousand and $1.5 million, respectively. The June 30, 2015 OREO balance consists of eight properties, of which four are 1-4 family residential real estate in the amount of $283 thousand, three are nonfarm nonresidential properties in the amount of $953 thousand and one is an undeveloped commercial property in the amount of $170 thousand.

 

  

(NASDAQ: BOCH)

 

 

TABLE 11

UNAUDITED CONSOLIDATED

BALANCE SHEET

(amounts in thousands, except per share data)

 

			At June 30,				At June 30,				Change								At March 31,
			2015				2014				$				%				2015
Assets:
Cash and due from banks		$	25,343			$	50,677			$	(25,334	)			(50	)%		$	19,309
Interest bearing due from banks			7,453				16,068				(8,615	)			(54	)%			10,802
Total cash and cash equivalents			32,796				66,745				(33,949	)			(51	)%			30,111
Securities available-for-sale, at fair value			160,763				188,686				(27,923	)			(15	)%			166,890
Securities held-to-maturity, at amortized cost			36,655				37,031				(376	)			(1	)%			36,609
Loans, net of deferred fees and costs			700,177				619,622				80,555				13	%			699,544
Allowance for loan and lease losses			(11,402	)			(9,882	)			(1,520	)			15	%			(11,296	)
Net loans			688,775				609,740				79,035				13	%			688,248
Premises and equipment, net			11,342				12,415				(1,073	)			(9	)%			11,903
Other real estate owned			1,405				826				579				70	%			1,502
Life insurance			22,168				21,504				664				3	%			22,009
Deferred taxes			10,648				10,613				35				0	%			10,041
Other assets			18,503				16,156				2,347				15	%			18,089
Total assets		$	983,055			$	963,716			$	19,339				2	%		$	985,402
Liabilities and shareholders' equity:
Demand - noninterest bearing		$	151,640			$	135,416			$	16,224				12	%		$	150,056
Demand - interest bearing			276,103				269,055				7,048				3	%			266,552
Savings			93,500				90,416				3,084				3	%			92,088
Certificates of deposit			238,796				260,129				(21,333	)			(8	)%			253,280
Total deposits			760,039				755,016				5,023				1	%			761,976
Federal Home Loan Bank of San Francisco borrowings			90,000				75,000				15,000				20	%			90,000
Junior subordinated debentures			10,310				15,465				(5,155	)			(33	)%			10,310
Other liabilities			16,156				17,545				(1,389	)			(8	)%			17,679
Total liabilities			876,505				863,026				13,479				2	%			879,965
Shareholders' equity:
Preferred stock			19,931				19,931				—				0	%			19,931
Common stock			24,144				23,858				286				1	%			24,105
Retained earnings			63,158				57,808				5,350				9	%			61,217
Accumulated other comprehensive (loss) income, net of tax			(683	)			(907	)			224				(25	)%			184
Total shareholders' equity			106,550				100,690				5,860				6	%			105,437
Total liabilities and shareholders' equity		$	983,055			$	963,716			$	19,339				2	%		$	985,402
Total interest earning assets		$	921,418			$	894,724			$	26,694				3	%		$	919,227
Shares outstanding			13,339				13,294												13,337
Book value per share		$	6.49			$	6.07											$	6.41

 

 

(NASDAQ: BOCH)

 

 

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,
		2015				2014				$				%				2015				2015				2014
Interest income:
Interest and fees on loans		$	8,304			$	7,188			$	1,116				16	%		$	7,911			$	16,215			$	14,282
Interest on securities			801				1,112				(311	)			(28	)%			945				1,746				2,229
Interest on tax-exempt securities			602				635				(33	)			(5	)%			599				1,201				1,287
Interest on deposits			56				127				(71	)			(56	)%			71				127				264
Total interest income			9,763				9,062				701				8	%			9,526				19,289				18,062
Interest expense:
Interest on demand deposits			107				118				(11	)			(9	)%			116				223				239
Interest on savings deposits			55				57				(2	)			(4	)%			54				109				114
Interest on certificates of deposit			594				673				(79	)			(12	)%			591				1,185				1,335
Interest on Federal Home Loan Bank of San Francisco borrowings			363				(69	)			432				626	%			349				712				(176	)
Interest on other borrowings			49				93				(44	)			(47	)%			47				96				187
Total interest expense			1,168				872				296				34	%			1,157				2,325				1,699
Net interest income			8,595				8,190				405				5	%			8,369				16,964				16,363
Provision for loan and lease losses			—				1,450				(1,450	)			(100	)%			—				—				1,450
Net interest income after provision for loan and lease losses			8,595				6,740				1,855				28	%			8,369				16,964				14,913
Noninterest income:
Service charges on deposit accounts			52				41				11				27	%			49				101				85
Payroll and benefit processing fees			130				109				21				19	%			148				278				244
Earnings on cash surrender value - life insurance			159				162				(3	)			(2	)%			165				324				288
Gain (loss) on investment securities, net			61				(39	)			100				256	%			215				276				(284	)
Other income			479				1,863				(1,384	)			(74	)%			277				756				2,167
Total noninterest income			881				2,136				(1,255	)			(59	)%			854				1,735				2,500

 

  

(NASDAQ: BOCH)

 

 

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,
		2015				2014				$				%				2015				2015				2014
Noninterest expense:
Salaries and related benefits			3,575				3,464				111				3	%			3,910				7,485				7,144
Occupancy and equipment			709				678				31				5	%			734				1,443				1,320
Write down of other real estate owned			—				—				—				0	%			—				—				290
Federal Deposit Insurance Corporation insurance premium			178				189				(11	)			(6	)%			207				385				380
Data processing fees			251				227				24				11	%			242				493				430
Professional service fees			442				304				138				45	%			388				830				534
Deferred compensation			71				68				3				4	%			71				142				125
Other expenses			896				921				(25	)			(3	)%			1,041				1,937				3,268
Total noninterest expense			6,122				5,851				271				5	%			6,593				12,715				13,491
Income before provision for income taxes			3,354				3,025				329				11	%			2,630				5,984				3,922
Provision for income taxes			964				819				145				18	%			829				1,793				1,151
Net income		$	2,390			$	2,206			$	184				8	%		$	1,801			$	4,191			$	2,771
Less: Preferred dividends			50				50				—				0	%			50				100				100
Income available to common shareholders		$	2,340			$	2,156			$	184				9	%		$	1,751			$	4,091			$	2,671
Basic earnings per share		$	0.18			$	0.16			$	0.02				13	%		$	0.13			$	0.31			$	0.20
Average basic shares			13,338				13,378				(40	)			0	%			13,303				13,320				13,658
Diluted earnings per share		$	0.18			$	0.16			$	0.02				13	%		$	0.13			$	0.31			$	0.19
Average diluted shares			13,370				13,426				(56	)			0	%			13,340				13,353				13,705

 

  

(NASDAQ: BOCH)

 

 

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,
		2015				2014				2014				2013				2012
Earning assets:
Loans		$	688,146			$	605,761			$	625,166			$	612,780			$	642,200
Taxable securities			128,791				156,156				147,916				157,486				135,615
Tax exempt securities			77,043				85,097				83,973				92,854				81,714
Interest bearing due from banks			26,795				62,123				56,465				43,342				48,712
Average earning assets			920,775				909,137				913,520				906,462				908,241
Cash and due from banks			10,566				10,183				11,246				10,624				10,125
Premises and equipment, net			11,980				11,696				12,105				10,338				9,567
Other assets			43,085				31,845				36,936				26,430				24,249
Average total assets		$	986,406			$	962,861			$	973,807			$	953,854			$	952,182
Interest bearing liabilities:
Demand - interest bearing		$	272,349			$	270,695			$	272,383			$	244,125			$	203,342
Savings			92,227				91,447				91,108				92,502				89,789
Certificates of deposit			246,137				261,151				259,445				248,350				285,574
Repurchase agreements			—				—				—				5,780				14,246
Federal Home Loan Bank of San Francisco borrowings			94,724				75,000				77,534				107,484				110,374
Other borrowings			10,365				15,465				15,239				15,584				15,465
Average interest bearing liabilities			715,802				713,758				715,709				713,825				718,790
Demand - noninterest bearing			148,179				131,736				139,792				122,011				115,091
Other liabilities			17,013				15,174				15,934				11,825				7,033
Shareholders' equity			105,412				102,193				102,372				106,193				111,268
Average liabilities & shareholders' equity		$	986,406			$	962,861			$	973,807			$	953,854			$	952,182

 

  

(NASDAQ: BOCH)

 

 

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,
		2015				2015				2014				2014				2014
Earning assets:
Loans		$	703,008			$	673,120			$	656,834			$	631,674			$	611,494
Taxable securities			121,110				136,557				141,265				138,355				152,175
Tax exempt securities			76,772				77,316				82,231				83,503				83,530
Interest bearing due from banks			27,688				25,893				36,971				64,829				59,099
Average earning assets			928,578				912,886				917,301				918,361				906,298
Cash and due from banks			10,833				10,295				12,263				12,320				10,155
Premises and equipment, net			11,767				12,195				12,464				12,551				12,190
Other assets			42,637				43,540				43,072				40,815				36,887
Average total assets		$	993,815			$	978,916			$	985,100			$	984,047			$	965,530
Interest bearing liabilities:
Demand - interest bearing		$	268,784			$	275,954			$	277,692			$	270,395			$	272,457
Savings			93,291				91,152				89,992				91,556				91,488
Certificates of deposit			245,573				246,707				254,943				260,592				262,809
Federal Home Loan Bank of San Francisco borrowings			105,330				84,000				75,000				85,054				75,000
Other borrowings			10,310				10,421				14,568				15,465				15,465
Average interest bearing liabilities			723,288				708,234				712,195				723,062				717,219
Demand - noninterest bearing			147,442				148,923				153,007				142,426				131,901
Other liabilities			16,887				17,141				16,751				16,612				15,216
Shareholders' equity			106,198				104,618				103,147				101,947				101,194
Average liabilities & shareholders' equity		$	993,815			$	978,916			$	985,100			$	984,047			$	965,530

 

(NASDAQ: BOCH)

 

 

About Bank of Commerce Holdings

 

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

 

Investment firms making a market in BOCH stock are:

 

Raymond James Financial	McAdams Wright Ragen, Inc.
John T. Cavender	Joey Warmenhoven
555 Market Street	1211 SW Fifth Avenue, Suite 1400
San Francisco, CA 94105	Portland, OR 97204
(800) 346-5544	(866) 662-0351
Sandler O’Neill + Partners, L.P.	Stifel Nicolaus
Brian Sullivan	Perry Wright
1251 Avenue of the Americas, 6th Floor	1255 East Street, Suite 100
New York, NY 10022	Redding, CA 96001
(212) 466-8022	(530) 244-7199

 

 

Contact Information:

 

Randall S. Eslick, President and Chief Executive Officer

Telephone Direct (530) 722-3900

 

Samuel D. Jimenez, Executive Vice President and Chief Operating Officer

Telephone Direct (530) 722-3952

 

James A. Sundquist, Executive Vice President and Chief Financial Officer

Telephone Direct (530) 722-3908

 

Andrea Schneck, Vice President and Senior Administrative Officer

Telephone Direct (530) 722-3959

 

 

 

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