Bank of Commerce Holdings Announces Results for the First Quarter of 2017

REDDING, Calif., April 20, 2017 (GLOBE NEWSWIRE) — Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ:BOCH) (the “Company”), a $1.1 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter ended March 31, 2017. Net income for the quarter ended March 31, 2017 was $2.3 million or $0.17 per share – diluted, compared with a net loss of $960 thousand or $0.07 per share – diluted for the same period of 2016.

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

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

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

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

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

Forward-Looking Statements

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

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

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

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

BALANCE SHEET OVERVIEW

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

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

The Company recorded gross loan balances of $810.2 million at March 31, 2017, compared with $724.2 million and $804.2 million at March 31, 2016 and December 31, 2016, respectively, an increase of $86.0 million and $6.0 million, respectively. The increase in gross loans compared to the same period a year ago and the prior period was driven by organic loan originations and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.

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

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

Available-for-sale investment securities totaled $181.5 million at March 31, 2017, compared with $174.3 million and $175.2 million at March 31, 2016 and December 31, 2016, respectively. Our available-for-sale investment portfolio provides us with a secondary source of liquidity to fund other higher yielding asset opportunities, such as loan originations and wholesale loan purchases. During the first quarter of 2017 we purchased 18 securities with a par value of $23.7 million and weighted average yield of 2.52% and sold 14 securities with a par value of $13.5 million and weighted average yield of 2.06%. The sales activity on available for sale securities resulted in $66 thousand in net realized gains. During the same period, we received $4.3 million in proceeds from principal payments, calls and maturities within the available-for-sale investment securities portfolio. Average securities balances and weighted average tax equivalent yields for the quarters ended March 31, 2017 and 2016 were $211.1 million and 3.06% compared to $197.8 million and 3.42%, respectively.

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

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

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

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

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

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

INCOME STATEMENT OVERVIEW

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

First Quarter of 2017 Compared With First Quarter of 2016

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

Net Interest Income

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

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

Interest expense for the first quarter of 2017 decreased $517 thousand or 32% to $1.1 million. The net decrease was primarily caused by a $484 thousand decrease in interest on FHLB term debt. During the first quarter of 2016 all FHLB term debt was repaid and an interest rate hedge associated with $75.0 million of that debt was terminated.

Noninterest Income

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

Noninterest Expense

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

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

Income Tax Provision.

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

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

First Quarter of 2017 Compared With Fourth Quarter of 2016

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

Net Interest Income

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

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

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

Noninterest Income

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

Noninterest Expense

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

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

Income Tax Provision

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

Earnings Per Share

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

TABLE 7
NET INTEREST MARGIN – UNAUDITED
(amounts in thousands)
    For The Three Months Ended
    March 31, 2017   March 31, 2016   December 31, 2016
    Average         Yield /   Average         Yield /   Average         Yield /
(Amounts in thousands)   Balance   Interest(1)   Rate   Balance   Interest(1)   Rate   Balance   Interest(1)   Rate
Interest-earning assets:                                                      
Net loans (2)   $ 806,793   $ 9,384   4.72 %   $ 720,795   $ 8,451   4.72 %   $ 778,458   $ 9,181   4.69 %
Taxable securities     137,582     789   2.33 %     119,917     784   2.63 %     124,881     705   2.25 %
Tax-exempt securities     73,524     530   2.92 %     77,852     594   3.07 %     72,288     522   2.87 %
Interest-bearing deposits in other banks     57,140     114   0.81 %     51,254     75   0.59 %     75,760     110   0.58 %
Average interest-earning assets     1,075,039     10,817   4.08 %     969,818     9,904   4.11 %     1,051,387     10,518   3.98 %
Cash and due from banks     16,873                 12,301                 16,953            
Premises and equipment, net     16,165                 12,384                 16,331            
Other assets     40,228                 39,700                 41,363            
Average total assets   $ 1,148,305               $ 1,034,203               $ 1,126,034            
                                                       
Interest-bearing liabilities:                                                      
Interest-bearing demand   $ 420,416     148   0.14 %   $ 323,771     122   0.15 %   $ 398,749     135   0.13 %
Savings deposits     113,647     47   0.17 %     96,027     45   0.19 %     111,755     45   0.16 %
Certificates of deposit     215,202     529   1.00 %     221,836     597   1.08 %     217,463     543   0.99 %
Net term debt     18,598     293   6.39 %     91,444     782   3.44 %     18,975     298   6.25 %
Junior subordinated debentures     10,310     66   2.60 %     10,310     54   2.11 %     10,310     63   2.43 %
Average interest-bearing liabilities     778,173     1,083   0.56 %     743,388     1,600   0.87 %     757,252     1,084   0.57 %
Noninterest-bearing demand     262,881                 182,539                 261,600            
Other liabilities     12,431                 16,969                 12,856            
Shareholders’ equity     94,820                 91,307                 94,326            
Average liabilities and shareholders’ equity   $ 1,148,305               $ 1,034,203               $ 1,126,034            
Net interest income and net interest margin (4)         $ 9,734   3.67 %         $ 8,304   3.44 %         $ 9,434   3.57 %
Tax equivalent net interest margin (3)               3.78 %               3.57 %               3.67 %
(1) Interest income on loans is net of deferred fees and costs of approximately $197 thousand, $315 thousand, and $139 thousand for the three months ended March 31, 2017, and 2016 and December 31, 2016, respectively.
(2) Net loans includes average nonaccrual loans of $10.9 million, $10.4 million and $10.0 million for the three months ended March 31, 2017 and 2016 and December 31, 2016 respectively.
(3) Tax-exempt income has been adjusted to tax equivalent basis at a 34% tax rate. The amount of such adjustments was an addition to recorded income of approximately $273 thousand, $306 thousand and $269 thousand for the three months ended March 31, 2017 and 2016 and December 31, 2016, respectively.
(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets.

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

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

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

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

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

We continue to monitor credit quality, and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. A combination of net loan losses and loan portfolio growth supported management’s decision to record a $200 thousand provision for loan and lease losses during the quarter ended March 31, 2017. There were no provisions for loan and lease losses during the previous eight consecutive quarters. Our ALLL as a percentage of gross loans was 1.44% as of March 31, 2017 compared to 1.59% as of March 31, 2016 and 1.44% as of December 31, 2016. Based on the Bank’s ALLL methodology, which uses criteria such as risk weighting and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company’s ALLL is adequate at March 31, 2017. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

At March 31, 2017, the recorded investment in loans classified as impaired totaled $16.8 million, with a corresponding specific reserve of $1.3 million compared to impaired loans of $19.1 million with a corresponding specific reserve of $1.1 million at March 31, 2016 and impaired loans of $18.8 million, with a corresponding specific reserve of $1.5 million at December 31, 2016. The decrease in loans classified as impaired and the decrease in the corresponding specific reserve compared to the prior quarter is primarily due to two commercial real estate relationships and one residential real estate relationship.

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

Loans are reported as a troubled debt restructuring when we grant a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the loan rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as we will not collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement. Specific reserves on non-collateral dependent restructured loans are measured by calculating the present value of expected future cash flows of the restructured loans, discounted at the effective interest rate of the original loan agreement. These specific reserves are recognized as a specific component to be provided for in the ALLL.

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

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

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

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

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

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

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

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

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

About Bank of Commerce Holdings

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

CONTACT: 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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