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):
October 23, 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 October 23, 2015, Bank of Commerce Holdings (the “Company”) issued a press release announcing its financial results for the quarter ended September 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 October 23, 2015 announcing financial results for the quarter ended September 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.

 

October 23, 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 Third Quarter of 2015

---

 

REDDING, California, October 23, 2015 / GLOBE NEWSWIRE— Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $990.7 million asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter and the nine months ended September 30, 2015. Net income available to common shareholders for the quarter ended September 30, 2015 was $2.5 million or $0.18 per share – diluted, compared with $1.2 million or $0.09 per share – diluted for the same period of 2014. Net income available to common shareholders for the nine months ended September 30, 2015 was $6.6 million or $0.49 per share – diluted compared with $3.9 million or $0.29 per share – diluted for the same period of 2014.

 

Financial highlights for the third quarter of 2015:

 

●

Net income available to common shareholders of $2.5 million for the three months ended September 30, 2015 was an improvement of $1.3 million (102%) over $1.2 million net income available to common shareholders earned during the third quarter of 2014, and an improvement of $135 thousand (6%) over $2.3 million available to common shareholders earned during the previous quarter.

●	Return on average assets improved to 0.99% in the third quarter of 2015 compared to 0.49% in the same quarter of 2014.

●	Return on average equity improved to 9.12% in the third quarter of 2015 compared to 4.76% in the same quarter of 2014.

●	Nonperforming assets at September 30, 2015 totaled $17.1 million, a decrease of $7.8 million (31%) compared to September 30, 2014, and a decrease of $1.2 million (27% annualized) compared to June 30, 2015.

●	Gross loans at September 30, 2015 totaled $718.5 million, an increase of $18.7 million (11% annualized) since June 30, 2015.

●	Continuing improved asset quality resulted in no additional provision for loan and lease losses during the third quarter.

●	The Company’s book value per share increased to $6.64 per common share at September 30, 2015 from $6.17 per common share at September 30, 2014 (8%) and $6.48 at June 30, 2015 (10% annualized).

●	The Company’s net interest margin improved to 3.62% for the quarter ended September 30, 2015 from 3.43% for the third quarter of 2014.

 

Financial highlights for the nine months ended September 30, 2015:

 

●	Net income available to common shareholders of $6.6 million for the nine months ended September 30, 2015 was an improvement of $2.7 million (69%) over $3.9 million net income available to common shareholders earned during the nine months ended September 30, 2014.

●	Return on average assets for the nine months ended September 30, 2015 improved to 0.89% compared to 0.54% for the same period in 2014.

●	Return on average equity for the nine months ended September 30, 2015 improved to 8.27% compared to 5.10% for the same period in 2014.

●	Nonperforming assets at September 30, 2015 totaled $17.1 million, a decrease of $5.1 million (31% annualized) compared to December 31, 2014.

●	Gross loans at September 30, 2015 totaled $718.5 million, an increase of $57.6 million (12% annualized) since December 31, 2014.

●	Net loan loss recoveries of $71 thousand combined with continuing improved asset quality resulted in no additional provision for loan and lease losses during the first nine months of 2015.

●	The Company’s book value per share increased to $6.64 per common share at September 30, 2015 from $6.29 per common share at December 31, 2014 (7% annualized).

●	The Company’s net interest margin improved to 3.68% for the nine months ended September 30, 2015 from 3.57% for the year ended December 31, 2014.

●	The Company’s efficiency ratio improved to 65.4% during the first nine months of 2015 compared to 70.1% during the same period in 2014.

 

Randall S. Eslick, President and CEO commented: “We are pleased with the successes our employees are achieving throughout the bank. Deposit growth, loan growth, improved asset quality and ongoing expense control are the basis of our enhanced profitability.”

 

 

(NASDAQ: BOCH)

 

 

SBLF Series B Preferred Stock

 

We are actively considering various debt alternatives to fully fund the redemption of the $20 million of SBLF preferred stock and have made application to the Company’s primary regulator, the Federal Reserve Bank of San Francisco for permission to do so. If the Company’s Series B Preferred Stock remains outstanding beyond December 2015, the dividend rate will increase from its current 1% to 5%, and in April 2016 to 9%.

 

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 Nine Months Ended
		September 30,								June 30,				September 30,
Net income, average assets and average shareholders' equity		2015				2014				2015				2015				2014
Income available to common shareholders		$	2,475			$	1,223			$	2,340			$	6,566			$	3,894
Average total assets		$	992,034			$	984,047			$	993,815			$	988,303			$	970,001
Average shareholders' equity		$	107,704			$	101,947			$	106,198			$	106,186			$	102,112
Selected performance ratios
Return on average assets			0.99	%			0.49	%			0.94	%			0.89	%			0.54	%
Return on average equity			9.12	%			4.76	%			8.84	%			8.27	%			5.10	%
Efficiency ratio			60.17	%			66.96	%			64.61	%			65.41	%			70.09	%
Share and per share amounts
Weighted average shares - basic			13,340				13,294				13,338				13,327				13,536
Weighted average shares - diluted			13,377				13,339				13,370				13,358				13,582
Earnings per share - basic		$	0.18			$	0.09			$	0.18			$	0.49			$	0.29
Earnings per share - diluted		$	0.18			$	0.09			$	0.18			$	0.49			$	0.29

 

		At September 30,								At June 30,
Share and per share amounts		2015				2014				2015
Common shares outstanding (1)			13,374				13,298				13,364
Book value per common share		$	6.64			$	6.17			$	6.48
Capital ratios
Bank of Commerce Holdings
Common equity tier 1 capital ratio (2)			9.96	%		n/a					9.96	%
Tier 1 capital ratio			13.25	%			14.74	%			13.33	%
Total capital ratio			14.50	%			15.99	%			14.58	%
Tier 1 leverage ratio			11.98	%			12.17	%			11.76	%
Redding Bank of Commerce
Common equity tier 1 capital ratio (2)			13.20	%			n/a				13.27	%
Tier 1 capital ratio			13.20	%			14.68	%			13.27	%
Total capital ratio			14.45	%			15.93	%			14.52	%
Tier 1 leverage ratio			11.95	%			12.13	%			11.75	%

 

(1) Includes unvested restricted shares issued in accordance with the Banks equity incentive plan.

(2) 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 decline in capital ratios during the current quarter as compared to the same period a year ago is primarily due to repayment of junior subordinated debentures during the fourth quarter of 2014 and a change in the calculation of the risk-weighted average assets in accordance with Basel III.

 

 

(NASDAQ: BOCH)

 

 

BALANCE SHEET OVERVIEW

 

As of September 30, 2015, the Company had total consolidated assets of $990.7 million, gross loans of $718.5 million, allowance for loan and lease losses (“ALLL”) of $10.9 million, total deposits of $779.5 million, and shareholders’ equity of $108.7 million.

 

 

 

TABLE 2

LOAN BALANCES BY TYPE - UNAUDITED

(amounts in thousands) 

 

		At September 30,																								At June 30,
						% of								% of				Change												% of
		2015				Total				2014				Total				Amount				%				2015				Total
Commercial		$	144,749				20	%		$	156,620				24	%		$	(11,871	)			(8	)%		$	143,088				20	%
Real estate - construction and land development			29,701				4				25,579				4				4,122				16	%			27,858				4
Real estate - commercial non-owner occupied			237,597				34				214,970				33				22,627				11	%			236,173				34
Real estate - commercial owner occupied			151,762				21				110,527				17				41,235				37	%			138,183				20
Real estate - residential - ITIN			50,162				7				53,805				8				(3,643	)			(7	)%			51,249				7
Real estate - residential - 1-4 family mortgage			12,185				2				13,779				2				(1,594	)			(12	)%			12,209				2
Real estate - residential - equity lines			45,733				6				45,050				7				683				2	%			46,463				7
Consumer and other			46,644				6				29,365				5				17,279				59	%			44,551				6
Gross loans			718,533				100	%			649,695				100	%			68,838				11	%			699,774				100	%
Deferred fees and costs			718								184								534								403
Loans, net of deferred fees and costs			719,251								649,879								69,372								700,177
Allowance for loan and lease losses			(10,891	)							(10,400	)							(491	)							(11,402	)
Net loans		$	708,360							$	639,479							$	68,881							$	688,775
Average yield on loans during the quarter			4.70	%							4.62	%							0.08								4.74	%

 

The Company recorded gross loan balances of $718.5 million at September 30, 2015, compared with $649.7 million and $699.8 million at September 30, 2014 and June 30, 2015, respectively, an increase of $68.8 million and $18.7 million, 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 September 30, 2015, the Company purchased $7.5 million in consumer loan pools. During the twelve-month period ended September 30, 2015, the Company purchased $28.1 million and $6.5 million in consumer and commercial real estate investor loan pools, respectively. The Bank’s deferred fees and costs increased during the current quarter compared to the prior quarter as a result of increased loan production and implementation of an updated loan origination cost study.

 

The decrease in the ALLL in the current quarter compared to the prior quarter resulted from net loan charge offs of $511 thousand. As a result of 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 September 30,																								At June 30,
						% of								% of				Change												% of
		2015				Total				2014				Total				Amount				%				2015				Total
Cash and due from banks		$	8,564				5	%		$	12,581				5	%		$	(4,017	)			(32	)%		$	11,115				5	%
Interest-bearing deposits in other banks			16,745				8				33,842				12				(17,097	)			(51	)%			21,681				9
Total cash and cash equivalents			25,309				12				46,423				17				(21,114	)			(45	)%			32,796				14
Investment securities:
U.S. government and agencies			3,998				2				7,825				3				(3,827	)			(49	)%			5,314				2
Obligations of state and political subdivisions			57,453				26				57,161				20				292				1	%			51,324				23
Residential mortgage backed securities and collateralized mortgage obligations			34,058				16				46,498				17				(12,440	)			(27	)%			37,776				16
Corporate securities			36,560				17				39,717				15				(3,157	)			(8	)%			33,501				15
Commercial mortgage backed securities			9,266				4				11,100				4				(1,834	)			(17	)%			9,467				4
Other asset backed securities			15,974				7				27,078				10				(11,104	)			(41	)%			23,381				10
Total investment securities - AFS			157,309				72				189,379				69				(32,070	)			(17	)%			160,763				70
Obligations of state and political subdivisions - HTM			36,093				16				36,888				14				(795	)			(2	)%			36,655				16
Total investment securities - AFS and HTM			193,402				88				226,267				83				(32,865	)			(19	)%			197,418				86
Total cash, cash equivalents and investment securities		$	218,711				100	%		$	272,690				100	%		$	(53,979	)			(20	)%		$	230,214				100	%
Average yield on interest bearing due from banks and investment securities during the quarter			2.46	%							2.42	%							0.04								2.59	%

 

 

As of September 30, 2015, the Company maintained noninterest-bearing cash positions at the Federal Reserve Bank and correspondent banks in the amount of $8.6 million. The Company also held interest-bearing deposits in the amount of $16.7 million.

 

Available-for-sale investment securities totaled $157.3 million at September 30, 2015, compared with $189.4 million and $160.8 million at September 30, 2014 and June 30, 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 third quarter of 2015, the Company purchased 25 securities with a par value of $26.8 million and weighted average yield of 2.18% and sold 21 securities with a par value of $23.8 million and weighted average yield of 2.57%. The sales activity resulted in $137 thousand in net realized gains for the three months ended September 30, 2015. During the three months ended September 30, 2015, the Company received $6.1 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 September 30, 2015 and 2014 were $191.4 million and 3.40% compared to $221.9 million and 3.49%, 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 effective duration of the portfolio and accelerate cash flows, while also improving credit quality and liquidity. This strategy could entail absorbing small losses and slightly reduced yields within the portfolio to meet longer term objectives.

 

At September 30, 2015, the Company’s net unrealized gains on available-for-sale investment securities were $1.6 million compared with $1.8 million and $1.5 million at September 30, 2014 and June 30, 2015, respectively. The increase in net unrealized gains during the current quarter resulted primarily from increases in the fair value of the Company’s municipal bond portfolio, as a result of decreases in interest rates.

 

 

(NASDAQ: BOCH)

 

 

TABLE 4

DEPOSITS BY TYPE - UNAUDITED

(amounts in thousands) 

 

		At September 30,																								At June 30,
						% of								% of				Change												% of
		2015				Total				2014				Total				Amount				%				2015				Total
Demand - noninterest bearing		$	162,437				21	%		$	151,684				20	%		$	10,753				7	%		$	151,640				20	%
Demand - interest bearing			295,209				38				265,308				35				29,901				11	%			276,103				36
Total demand			457,646				59				416,992				55				40,654				10	%			427,743				56
Savings			93,367				12				91,589				12				1,778				2	%			93,500				12
Total non-maturing deposits			551,013				71				508,581				67				42,432				8	%			521,243				68
Certificates of deposit			228,492				29				258,939				33				(30,447	)			(12	)%			238,796				32
Total deposits		$	779,505				100	%		$	767,520				100	%		$	11,985				2	%		$	760,039				100	%
Average rate on interest bearing deposits during the quarter			0.49	%							0.53	%							(0.04	)							0.50	%

 

 

Total deposits at September 30, 2015, increased $12.0 million or 2% to $779.5 million compared to September 30, 2014, and increased $19.5 million or 3% compared to June 30, 2015. Total non-maturing deposits increased $42.4 million or 8% compared to the same date a year ago and increased $29.8 million or 6% compared to June 30, 2015. Certificates of deposit decreased $30.4 million or 12% compared to the same date a year ago and decreased $10.3 million or 4% compared to June 30, 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 September 30,								At June 30,
		2015				2014				2015
CDARS / ICS reciprocal deposits		$	67,825			$	66,431			$	58,628
Third party brokered time deposits			17,505				13,550				17,502
Brokered deposits per Call Report			85,330				79,981				76,130
Online listing service time deposits			61,141				68,011				63,328
Total wholesale and brokered deposits		$	146,471			$	147,992			$	139,458

 

 

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $85.3 million, $80.0 million and $76.1 million at September 30, 2015, September 30, 2014 and June 30, 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
		September 30,								Change								June 30,				Change
		2015				2014				Amount				%				2015				Amount				%
Interest income		$	9,732			$	9,102			$	630				7	%		$	9,763			$	(31	)			0	%
Interest expense			1,277				1,154				123				11	%			1,168				109				9	%
Net interest income			8,455				7,948				507				6	%			8,595				(140	)			(2	)%
Provision for loan and lease losses			—				1,050				(1,050	)			(100	)%			—				—				0	%
Noninterest income			808				671				137				20	%			881				(73	)			(8	)%
Noninterest expense			5,574				5,771				(197	)			(3	)%			6,122				(548	)			(9	)%
Income before provision for income taxes			3,689				1,798				1,891				105	%			3,354				335				10	%
Provision for income taxes			1,164				525				639				122	%			964				200				21	%
Net income			2,525				1,273				1,252				98	%			2,390				135				6	%
Less: Preferred dividends			50				50				—				0	%			50				—				0	%
Income available to common shareholders		$	2,475			$	1,223			$	1,252				102	%		$	2,340			$	135				6	%
Basic earnings per share		$	0.18			$	0.09			$	0.09				100	%		$	0.18			$	—				0	%
Average basic shares			13,340				13,294				46				0	%			13,338				2				0	%
Diluted earnings per share		$	0.18			$	0.09			$	0.09				100	%		$	0.18			$	—				0	%
Average diluted shares			13,377				13,339				38				0	%			13,370				7				0	%
Dividends declared per common share		$	0.03			$	0.03			$	—				0	%		$	0.03			$	—				0	%

 

 

Third Quarter of 2015 Compared With Third Quarter of 2014

 

Net income available to common shareholders for the third quarter of 2015 increased $1.3 million over the third quarter of 2014. In the current quarter, net interest income was $507 thousand higher, the provision for loan and lease losses was $1.1 million lower, noninterest income was $137 thousand higher and noninterest expense was $197 thousand lower. These positive changes were partially offset by an increase in income tax expense of $639 thousand.

 

Net Interest Income

 

Net interest income increased $507 thousand over a year previous. Interest income for the three months ended September 30, 2015 increased $630 thousand or 7% to $9.7 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 September 30, 2015 increased $123 thousand or 11% to $1.3 million. Interest expense on deposits declined $77 thousand and interest expense on other borrowings decreased $47 thousand, but interest on the Bank’s Federal Home Loan Bank of San Francisco borrowings increased $247 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 third 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.

 

 

(NASDAQ: BOCH)

 

 

Interest expense on other borrowings, primarily junior subordinated debentures was $47 thousand and $94 thousand for the third quarter of 2015 and 2014, respectively. At September 30, 2014 the Company had $5.1 million of junior subordinated debentures that carried a rate of LIBOR plus 3.30% and $10.3 million of junior subordinated debentures with a rate of LIBOR plus 1.58%. During December of 2014, the Company repaid the $5.1 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 September 30, 2015 increased $137 thousand compared to the same period a year ago. During the quarter ended September 30, 2015 the Company recorded net gains on sale of available-for-sale investment securities of $137 thousand compared to a net gains of $32 thousand for the same period a year ago.

 

Noninterest Expense

 

Noninterest expense for the three months ended September 30, 2015 decreased $197 thousand compared to the same period a year ago. During the quarter ended September 30, 2015 salaries and related benefits decreased $312 thousand as a result of increased deferred loan origination costs. In the current period, professional services fees are $54 thousand higher than a year earlier.

 

Income Tax Provision

 

During the three months ended September 30, 2015, the Company recorded a provision for income tax expense of $1.2 million compared with $525 thousand for the same period a year ago. While pre-tax income has continued to increase, the company’s anticipated tax credits (from qualified low income housing investments) and tax exempt income (from municipal bonds and BOLI) have not increased. As these items comprise an ever decreasing percentage of pre-tax income, the Company’s income tax provision as a percent of pre-tax income increases.

 

 

Third Quarter of 2015 Compared With Second Quarter of 2015

 

Net income available to common shareholders for the third quarter of 2015 increased $135 thousand over the second quarter of 2015. In the current quarter, net interest income decreased by $140 thousand, noninterest income decreased by $73 thousand and noninterest expense decreased by $548 thousand. These net positive changes were partially offset by an income tax provision that was higher by $200 thousand.

 

Net Interest Income

 

Net interest income decreased $140 thousand over a quarter previous. Interest income for the three months ended September 30, 2015 decreased $31 thousand to $9.7 million. The decrease in interest income was due to a decrease of $1.0 million in average interest earning assets and a decrease of six basis points on the tax equivalent yield of those assets partially offset by the benefit of a quarter that was one day longer than the second quarter of 2015. Interest expense for the three months ended September 30, 2015 increased $109 thousand or 9% to $1.3 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 September 30, 2015 decreased $73 thousand compared to the prior quarter. Net gains recognized on the sale of available-for-sale investment securities during the current quarter increased by $76 thousand to $137 thousand compared to a $61 thousand net gain in the prior quarter. During the current quarter the Bank recognized $31 thousand in gain on sale of other real estate owned compared to a loss of $9 thousand in the prior quarter. 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 September 30, 2015 decreased $548 thousand compared to the prior quarter. During the quarter ended September 30, 2015 salaries and related benefits decreased $367 thousand as a result of increased deferred loan origination costs. In the current period, professional services fees are $105 thousand lower than in the prior quarter.

 

Income Tax Provision

 

During the three months ended September 30, 2015, the Company recorded a provision for income tax expense of $1.2 million compared with provision for income tax expense of $964 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 September 30, 2015 compared with $0.09 for the same period a year ago, and $0.18 for the prior period. Earnings per share increased during the three months ended September 30, 2015 compared to the same period a year ago as a result of increased net income.

 

 

 

TABLE 7

NET INTEREST SPREAD AND MARGIN - UNAUDITED

 (amounts in thousands) 

			For the Three Months Ended
			September 30,								Change				June 30,				Change
			2015				2014				Amount				2015				Amount
Tax equivalent yield on average interest earning assets			4.29	%			4.07	%			0.22				4.35	%			(0.06	)
Rate on average interest bearing liabilities			0.71	%			0.63	%			(0.08	)			0.65	%			(0.06	)
Net interest spread - tax equivalent basis			3.58	%			3.44	%			0.14				3.70	%			(0.12	)
Net interest margin - nominal			3.62	%			3.43	%			0.19				3.71	%			(0.09	)
Net interest margin - tax equivalent basis			3.75	%			3.57	%			0.18				3.85	%			(0.10	)
Average earning assets		$	927,547			$	918,361				9,186			$	928,578			$	(1,031	)
Average interest bearing liabilities		$	709,958			$	723,062				(13,104	)		$	723,288			$	(13,330	)

 

The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.75% for the three months ended September 30, 2015, an increase of 18 basis points as compared to the same period a year ago. The increase in net interest margin resulted from a 22 basis point increase in tax-equivalent yield on average earning assets offset by a four basis point increase in interest expense to fund average earning assets. The tax equivalent net interest margin decreased 10 basis points as compared to the prior quarter. The decrease in net interest margin resulted from a six basis point decrease in tax-equivalent yield on average earning assets and a four 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
		September 30,				June 30,				March 31,				December 31,				September 30,
		2015				2015				2015				2014				2014
Beginning balance		$	11,402			$	11,296			$	10,820			$	10,400			$	9,882
Provision for loan and lease losses charged to expense			—				—				—				675				1,050
Loans charged off			(779	)			(711	)			(179	)			(374	)			(585	)
Loan loss recoveries			268				817				655				119				53
Ending balance		$	10,891			$	11,402			$	11,296			$	10,820			$	10,400

 

		At September 30,				At June 30,				At March 31,				At December 31,				At September 30,
		2015				2015				2015				2014				2014
Nonaccrual loans:
Commercial		$	2,506			$	3,170			$	3,908			$	5,112			$	7,065
Real estate - commercial non-owner occupied			5,154				6,532				7,103				8,318				8,518
Real estate - commercial owner occupied			1,928				1,079				1,079				1,378				1,378
Real estate - residential - ITIN			4,228				4,375				4,645				4,647				5,281
Real estate - residential - 1-4 family mortgage			1,669				1,693				1,720				2,135				2,157
Real estate - residential - equity lines			23				24				24				24				89
Consumer and other			33				34				34				35				—
Total nonaccrual loans			15,541				16,907				18,513				21,649				24,488
Accruing troubled debt restructured loans:
Commercial			56				10				1,004				1,485				1,585
Real estate - commercial non-owner occupied			828				832				836				839				844
Real estate - commercial owner occupied			—				849				854				859				863
Real estate - residential - ITIN			5,423				5,303				5,421				5,462				5,222
Real estate - residential - equity lines			563				569				574				579				584
Total accruing troubled debt restructured loans			6,870				7,563				8,689				9,224				9,098
All other accruing impaired loans			494				530				533				535				757
Total impaired loans		$	22,905			$	25,000			$	27,735			$	31,408			$	34,343
Gross loans outstanding at period end		$	718,533			$	699,774			$	699,229			$	660,898			$	649,695
Allowance for loan and lease losses as a percent of:
Gross loans			1.52	%			1.63	%			1.62	%			1.64	%			1.60	%
Nonaccrual loans			70.08	%			67.44	%			61.02	%			49.98	%			42.47	%
Impaired loans			47.55	%			45.61	%			40.73	%			34.45	%			30.28	%
Nonaccrual loans to gross loans			2.16	%			2.42	%			2.65	%			3.28	%			3.77	%

 

 

(NASDAQ: BOCH)

 

 

The Company realized net loan charge offs of $511 thousand in the current quarter compared with net loan loss recoveries of $106 thousand in the prior quarter and net loan charge offs of $532 thousand for the same period a year ago.

 

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 three quarters of 2015 compared to a provision of $2.5 million during the first three quarters of 2014. The Company’s ALLL as a percentage of gross loans was 1.52% as of September 30, 2015 compared to 1.60% as of September 30, 2014 and 1.63% as of June 30, 2015. Based on the Bank’s ALLL methodology, which uses criteria such as risk weighting and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company’s ALLL is adequate at September 30, 2015. 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 September 30, 2015, the recorded investment in loans classified as impaired totaled $22.9 million, with a corresponding valuation allowance of $789 thousand compared to impaired loans of $34.3 million with a corresponding valuation allowance of $1.2 million at September 30, 2014 and impaired loans of $25.0 million, with a corresponding valuation allowance of $1.3 million at June 30, 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 September 30,				At June 30,				At March 31,				At December 31,				At September 30,
		2015				2015				2015				2014				2014
Nonaccrual		$	11,149			$	12,354			$	12,695			$	14,230			$	16,556
Accruing			6,870				7,563				8,689				9,224				9,098
Total troubled debt restructurings		$	18,019			$	19,917			$	21,384			$	23,454			$	25,654
Percentage of total gross loans			2.51	%			2.85	%			3.06	%			3.55	%			3.95	%

 

 

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 loan rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as 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 to be provided for in the ALLL.

 

During the three months ended September 30, 2015, the Company restructured two loans to grant payment deferrals and one loan to grant rate and maturity modifications. The loans were classified as troubled debt restructurings and placed on nonaccrual status. As of September 30, 2015, the Company had 121 restructured loans that qualified as troubled debt restructurings, of which 102 were performing according to their restructured terms.

 

 

(NASDAQ: BOCH)

 

 

TABLE 10

NONPERFORMING ASSETS - UNAUDITED

(amounts in thousands)

 

		At September 30,				At June 30,				At March 31,				At December 31,				At September 30,
		2015				2015				2015				2014				2014
Total nonaccrual loans		$	15,541			$	16,907			$	18,513			$	21,649			$	24,488
90 days past due and still accruing			52				54				30				23				—
Total nonperforming loans			15,593				16,961				18,543				21,672				24,488
Other real estate owned			1,525				1,405				1,502				502				393
Total nonperforming assets		$	17,118			$	18,366			$	20,045			$	22,174			$	24,881
Nonperforming loans to gross loans			2.17	%			2.42	%			2.65	%			3.28	%			3.77	%
Nonperforming assets to total assets			1.73	%			1.87	%			2.03	%			2.22	%			2.54	%

 

 

At September 30, 2015, September 30, 2014 and June 30, 2015, the recorded investment in OREO was $1.5 million, $393 thousand and $1.4 million, respectively. The September 30, 2015 OREO balance consists of 11 properties, of which four are 1-4 family residential real estate in the amount of $361 thousand, six are nonfarm nonresidential properties in the amount of $993 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 September 30,				At September 30,				Change								At June 30,
			2015				2014				$				%				2015
Assets:
Cash and due from banks		$	8,564			$	12,581			$	(4,017	)			(32	)%		$	11,115
Interest-bearing deposits in other banks			16,745				33,842				(17,097	)			(51	)%			21,681
Total cash and cash equivalents			25,309				46,423				(21,114	)			(45	)%			32,796
Securities available-for-sale, at fair value			157,309				189,379				(32,070	)			(17	)%			160,763
Securities held-to-maturity, at amortized cost			36,093				36,888				(795	)			(2	)%			36,655
Loans, net of deferred fees and costs			719,251				649,879				69,372				11	%			700,177
Allowance for loan and lease losses			(10,891	)			(10,400	)			(491	)			5	%			(11,402	)
Net loans			708,360				639,479				68,881				11	%			688,775
Premises and equipment, net			11,112				12,510				(1,398	)			(11	)%			11,342
Other real estate owned			1,525				393				1,132				288	%			1,405
Life insurance			22,326				21,675				651				3	%			22,168
Deferred taxes			10,638				10,314				324				3	%			10,648
Other assets			18,057				20,696				(2,639	)			(13	)%			18,503
Total assets		$	990,729			$	977,757			$	12,972				1	%		$	983,055
Liabilities and shareholders' equity:
Demand - noninterest bearing		$	162,437			$	151,684			$	10,753				7	%		$	151,640
Demand - interest bearing			295,209				265,308				29,901				11	%			276,103
Savings			93,367				91,589				1,778				2	%			93,500
Certificates of deposit			228,492				258,939				(30,447	)			(12	)%			238,796
Total deposits			779,505				767,520				11,985				2	%			760,039
Federal Home Loan Bank of San Francisco borrowings			75,000				75,000				—				0	%			90,000
Junior subordinated debentures			10,310				15,465				(5,155	)			(33	)%			10,310
Other liabilities			17,239				17,812				(573	)			(3	)%			16,156
Total liabilities			882,054				875,797				6,257				1	%			876,505
Shareholders' equity:
Preferred stock			19,931				19,931				—				0	%			19,931
Common stock			24,180				23,874				306				1	%			24,144
Retained earnings			65,232				58,633				6,599				11	%			63,158
Accumulated other comprehensive loss, net of tax			(668	)			(478	)			(190	)			40	%			(683	)
Total shareholders' equity			108,675				101,960				6,715				7	%			106,550
Total liabilities and shareholders' equity		$	990,729			$	977,757			$	12,972				1	%		$	983,055
Total interest earning assets		$	927,773			$	908,204			$	19,569				2	%		$	917,756
Shares outstanding			13,374				13,298												13,364
Book value per share		$	6.64			$	6.17											$	6.48

 

 

(NASDAQ: BOCH)

 

 

TABLE 12

UNAUDITED

INCOME STATEMENT

(amounts in thousands, except per share data)

 

			For The Three Months Ended																				For The Nine Months Ended
			September 30,								Change								June 30,				September 30,
			2015				2014				$				%				2015				2015				2014
Interest income:
Interest and fees on loans		$	8,357			$	7,350			$	1,007				14	%		$	8,304			$	24,572			$	21,632
Interest on securities			743				1,001				(258	)			(26	)%			801				2,489				3,230
Interest on tax-exempt securities			592				629				(37	)			(6	)%			602				1,793				1,916
Interest on deposits in other banks			40				122				(82	)			(67	)%			56				167				386
Total interest income			9,732				9,102				630				7	%			9,763				29,021				27,164
Interest expense:
Interest on demand deposits			116				123				(7	)			(6	)%			107				339				362
Interest on savings deposits			53				59				(6	)			(10	)%			55				162				173
Interest on certificates of deposit			586				650				(64	)			(10	)%			594				1,771				1,985
Interest on Federal Home Loan Bank of San Francisco borrowings			475				228				247				108	%			363				1,187				52
Interest on other borrowings			47				94				(47	)			(50	)%			49				143				281
Total interest expense			1,277				1,154				123				11	%			1,168				3,602				2,853
Net interest income			8,455				7,948				507				6	%			8,595				25,419				24,311
Provision for loan and lease losses			—				1,050				(1,050	)			(100	)%			—				—				2,500
Net interest income after provision for loan and lease losses			8,455				6,898				1,557				23	%			8,595				25,419				21,811
Noninterest income:
Service charges on deposit accounts			52				50				2				4	%			52				153				135
Payroll and benefit processing fees			138				127				11				9	%			130				416				371
Earnings on cash surrender value - life insurance			158				171				(13	)			(8	)%			159				482				459
Gain (loss) on investment securities, net			137				32				105				328	%			61				413				(252	)
Other income			323				291				32				11	%			479				1,079				2,458
Total noninterest income			808				671				137				20	%			881				2,543				3,171

 

 

(NASDAQ: BOCH)

 

 

TABLE 12 - CONTINUED

UNAUDITED

INCOME STATEMENT

(amounts in thousands, except per share data)

 

			For The Three Months Ended																				For The Nine Months Ended
			September 30,								Change								June 30,				September 30,
			2015				2014				$				%				2015				2015				2014
Noninterest expense:
Salaries and related benefits			3,208				3,520				(312	)			(9	)%			3,575				10,693				10,664
Occupancy and equipment			714				749				(35	)			(5	)%			709				2,157				2,069
Write down of other real estate owned			—				—				—				0	%			—				—				290
Federal Deposit Insurance Corporation insurance premium			159				204				(45	)			(22	)%			178				544				584
Data processing fees			243				226				17				8	%			251				736				656
Professional service fees			337				283				54				19	%			442				1,167				817
Other expenses			913				789				124				16	%			967				2,992				4,182
Total noninterest expense			5,574				5,771				(197	)			(3	)%			6,122				18,289				19,262
Income before provision for income taxes			3,689				1,798				1,891				105	%			3,354				9,673				5,720
Provision for income taxes			1,164				525				639				122	%			964				2,957				1,676
Net income		$	2,525			$	1,273			$	1,252				98	%		$	2,390			$	6,716			$	4,044
Less: Preferred dividends			50				50				—				0	%			50				150				150
Income available to common shareholders		$	2,475			$	1,223			$	1,252				102	%		$	2,340			$	6,566			$	3,894
Basic earnings per share		$	0.18			$	0.09			$	0.09				100	%		$	0.18			$	0.49			$	0.29
Average basic shares			13,340				13,294				46				0	%			13,338				13,327				13,536
Diluted earnings per share		$	0.18			$	0.09			$	0.09				100	%		$	0.18			$	0.49			$	0.29
Average diluted shares			13,377				13,339				38				0	%			13,370				13,358				13,582

 

 

(NASDAQ: BOCH)

 

 

TABLE 13

UNAUDITED CONDENSED CONSOLIDATED

YEAR TO DATE AVERAGE BALANCE SHEETS

(amounts in thousands)

  

		For the Nine Months Ended								For the Twelve Months Ended
		September 30,				September 30,				December 31,				December 31,				December 31,
		2015				2014				2014				2013				2012
Earning assets:
Loans		$	694,082			$	614,494			$	625,166			$	612,780			$	642,200
Taxable securities			124,199				150,157				147,916				157,486				135,615
Tax exempt securities			76,755				84,560				83,973				92,854				81,714
Interest-bearing deposits in other banks			28,021				63,034				56,465				43,342				48,712
Average earning assets			923,057				912,245				913,520				906,462				908,241
Cash and due from banks			10,832				10,903				11,246				10,624				10,125
Premises and equipment, net			11,738				11,984				12,105				10,337				9,567
Other assets			42,676				34,869				36,936				26,431				24,249
Average total assets		$	988,303			$	970,001			$	973,807			$	953,854			$	952,182
Liabilities and shareholders' equity:
Demand - noninterest bearing		$	151,567			$	135,338			$	139,792			$	122,011			$	115,091
Demand - interest bearing			276,446				270,594				272,383				244,125				203,342
Savings			92,565				91,484				91,108				92,502				89,789
Certificates of deposit			242,569				260,962				259,445				248,350				285,574
Total deposits			763,147				758,378				762,728				706,988				693,796
Repurchase agreements			—				—				—				5,780				14,246
Federal Home Loan Bank of San Francisco borrowings			91,941				78,388				77,534				107,603				110,374
Junior subordinated debentures			10,310				15,465				15,239				15,465				15,465
Other liabilities			16,719				15,658				15,934				11,825				7,033
Average total liabilities			882,117				867,889				871,435				847,661				840,914
Shareholders' equity			106,186				102,112				102,372				106,193				111,268
Average liabilities & shareholders' equity		$	988,303			$	970,001			$	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
		September 30,				June 30,				March 31,				December 31,				September 30,
		2015				2015				2015				2014				2014
Earning assets:
Loans		$	705,762			$	703,008			$	673,120			$	656,834			$	631,674
Taxable securities			115,165				121,110				136,557				141,265				138,355
Tax exempt securities			76,190				76,772				77,316				82,231				83,503
Interest-bearing deposits in other banks			30,430				27,688				25,893				36,971				64,829
Average earning assets			927,547				928,578				912,886				917,301				918,361
Cash and due from banks			11,355				10,833				10,295				12,263				12,320
Premises and equipment, net			11,265				11,767				12,195				12,464				12,551
Other assets			41,867				42,637				43,540				43,072				40,815
Average total assets		$	992,034			$	993,815			$	978,916			$	985,100			$	984,047
Liabilities and shareholders' equity:
Demand - noninterest bearing		$	158,232			$	147,442			$	148,923			$	153,007			$	142,426
Demand - interest bearing			284,508				268,784				275,954				277,692				270,395
Savings			93,230				93,291				91,152				89,992				91,556
Certificates of deposit			235,551				245,573				246,707				254,943				260,592
Total deposits			771,521				755,090				762,736				775,634				764,969
Federal Home Loan Bank of San Francisco borrowings			86,359				105,330				84,111				75,000				85,054
Junior subordinated debentures			10,310				10,310				10,310				14,568				15,465
Other liabilities			16,140				16,887				17,141				16,751				16,612
Average total liabilities			884,330				887,617				874,298				881,953				882,100
Shareholders' equity			107,704				106,198				104,618				103,147				101,947
Average liabilities & shareholders' equity		$	992,034			$	993,815			$	978,916			$	985,100			$	984,047

 

 

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