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

SACRAMENTO, Calif., Oct. 20, 2017 (GLOBE NEWSWIRE) — Bank of Commerce Holdings (NASDAQ:BOCH) (the “Company”), a $1.2 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter and the nine months ended September 30, 2017. Net income for the quarter ended September 30, 2017 was $2.9 million or $0.18 per share – diluted, compared with net income of $2.4 million or $0.18 per share – diluted for the same period of 2016. Net income for the nine months ended September 30, 2017 was $7.3 million or $0.49 per share – diluted compared with $3.0 million or $0.22 per share – diluted for the same period of 2016. Earnings per share (EPS) and Return on Average Equity (ROAE) calculations for 2017 reflect the Company’s issuance of 2,738,096 shares ($26.8 million) in its May 2017 public offering.

Financial highlights for the third quarter of 2017:

  • Net income of $2.9 million or $0.18 per share – diluted for the three months ended September 30, 2017 was an increase of $510 thousand (22%) from $2.4 million or $0.18 per share – diluted earned during the same period in the prior year.
  • Return on average assets improved to 0.93% for the third quarter of 2017 compared to 0.86% for the same period in the prior year.
  • Return on average equity declined to 9.01% for the third quarter of 2017 compared to 10.10% for the same period in the prior year.
  • The Company’s efficiency ratio was 62.8% for the third quarter of 2017 compared to 69.6% during the same period in 2016.
  • Net interest income increased $1.3 million (14%) to $10.6 million for the third quarter of 2017 compared to $9.3 million for the same period in the prior year.
  • Average deposits for the three months ended September 30, 2017 totaled $1.1 billion, an increase of $38.8 million (15% annualized) compared to average deposits for the prior quarter.
  • Average loans for the three months ended September 30, 2017 totaled $805.1 million, a decrease of $16.2 million (8% annualized) compared to average loans for the prior quarter.
  • Average earning assets for the three months ended September 30, 2017 totaled $1.1 billion, an increase of $48.5 million (18% annualized) compared to average earning assets for the prior quarter.
  • Nonperforming assets at September 30, 2017 totaled $8.3 million or 0.67% of total assets, a decrease of $2.4 million (89% annualized) since June 30, 2017.
  • Tangible book value per common share was $7.77 at September 30, 2017 compared to $7.61 at June 30, 2017.

Financial highlights for the nine months ended September 30, 2017:

  • Net income of $7.3 million or $0.49 per share – diluted for the nine months ended September 30, 2017 was an increase of $4.4 million (148%) from $3.0 million or $0.22 per share – diluted earned during the same period in the prior year. Net income for 2016 was negatively impacted by $3.0 million of branch acquisition and balance sheet restructuring costs, a $546 thousand other-than-temporary-impairment of an investment security and the write-off of a $363 thousand deferred tax asset.
  • Return on average assets improved to 0.83% for the nine months ended September 30, 2017 compared to 0.37% for the same period in the prior year.
  • Return on average equity improved to 8.80% for the nine months ended September 30, 2017 compared to 4.30% for the same period in the prior year.
  • The Company’s efficiency ratio was 67.8% for the nine months ended September 30, 2017 compared to 85.1% during the same period in the prior year.
  • Net interest income increased $3.7 million (14%) to $30.5 million for the nine months ended September 30, 2017 compared to $26.8 million for the same period in the prior year.
  • Average deposits for the nine months ended September 30, 2017 totaled $1.0 billion, an increase of $122.3 million (14%) compared to average deposits for the same period in the prior year.
  • Average loans for the nine months ended September 30, 2017 totaled $811.1 million, an increase of $66.7 million (9%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.1 billion for the nine months ended September 30, 2017, an increase of $113.4 million (11%) compared to average earning assets for the same period in the prior year.
  • Nonperforming assets at September 30, 2017 totaled $8.3 million or 0.67% of total assets, a decrease of $3.8 million (42% annualized) compared to December 31, 2016.

Randall S. Eslick, President and CEO commented: “We are very pleased to report that the period ended September 30, 2017 was our most profitable quarter. The hard work of our dedicated employees is reflected in our performance metrics, including the solid return on average assets, continued growth in core deposits, reduced reliance on time deposits, improved asset quality and the noticeably improved efficiency ratio.”

Forward-Looking Statements

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

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

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

                                       
TABLE 1  
SELECTED FINANCIAL INFORMATION – UNAUDITED  
(amounts in thousands except per share data)  
    For The Three Months Ended   For The Nine Months Ended  
Net income, average assets and   September 30,     June 30,   September 30,  
average shareholders’ equity   2017     2016     2017   2017   2016  
Net income   $  2,876     $  2,366     $  2,209     $  7,337   $  2,962  
Average total assets   $  1,220,900     $  1,093,918     $  1,170,447     $  1,180,150   $  1,064,210  
Average total earning assets   $  1,146,132     $  1,019,230     $  1,097,644     $  1,106,532   $  993,156  
Average shareholders’ equity   $  126,574     $  93,238     $  112,855     $  111,533   $  91,959  
                                       
Selected performance ratios                                      
Return on average assets     0.93 %     0.86 %     0.76 %     0.83 %   0.37 %
Return on average equity     9.01 %     10.10 %     7.85 %     8.80 %   4.30 %
Efficiency ratio     62.84 %     69.61 %     69.13 %     67.77 %   85.08 %
                                       
Share and per share amounts                                      
Weighted average shares – basic      16,191        13,369        15,014        14,884      13,366  
Weighted average shares – diluted      16,288        13,439        15,113        14,984      13,412  
Earnings per share – basic   $  0.18     $  0.18     $  0.15     $  0.49   $  0.22  
Earnings per share – diluted   $  0.18     $  0.18     $  0.15     $  0.49   $  0.22  
                                       
    At September 30,     At June 30,      
Share and per share amounts   2017   2016   2017          
Common shares outstanding (1)      16,265        13,439        16,260                
Tangible book value per common share   $  7.77     $  6.84     $  7.61                
                                       
Capital ratios                                    
Bank of Commerce Holdings (2)                                    
Common equity tier 1 capital ratio (3)     12.66 %     9.60 %     12.55 %              
Tier 1 capital ratio (3)     13.65 %     10.65 %     13.56 %              
Total capital ratio (3)     15.91 %     12.96 %     15.83 %              
Tier 1 leverage ratio (3)     11.12 %     9.28 %     11.38 %              
Tangible common equity ratio     10.27 %     8.30 %     10.23 %              
                                       
Redding Bank of Commerce                                      
Common equity tier 1 capital ratio (3)     12.87 %     12.62 %     12.66 %              
Tier 1 capital ratio (3)     12.87 %     12.62 %     12.66 %              
Total capital ratio (3)     14.12 %     13.87 %     13.91 %              
Tier 1 leverage ratio (3)     10.50 %     11.03 %     10.64 %              
(1) Includes unvested restricted shares issued in accordance with the Company’s equity incentive plan.
(2) Capital Ratios for the Company include the benefit of $26.8 million net proceeds from the sale of 2,738,096 shares of common stock in the second quarter of 2017.
(3) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The capital ratios for 2016 were impacted by increased average total assets, the addition of $1.8 million of core deposit intangible and $665 thousand of goodwill recorded in conjunction with the acquisition of five branches in March of 2016.

BALANCE SHEET OVERVIEW

As of September 30, 2017, the Company had total consolidated assets of $1.2 billion, gross loans of $824.9 million, allowance for loan and lease losses (“ALLL”) of $11.7 million, total deposits of $1.1 billion, and shareholders’ equity of $128.4 million.

                                               
TABLE 2
LOAN BALANCES BY TYPE – UNAUDITED
(amounts in thousands)
  At September 30,             At June 30,
      % of       % of   Change       % of
  2017   Total   2016   Total   Amount   %   2017   Total
Commercial $  147,212     18 %   $  136,235     17 %   $  10,977      8   %   $  152,204     19 %
Real estate – construction and land development    14,700     2        31,225     4        (16,525 )    (53 ) %      22,275     3  
Real estate – commercial non-owner occupied    333,766     40        283,668     36        50,098      18   %      310,995     38  
Real estate – commercial owner occupied    183,424     22        175,923     23        7,501      4   %      184,868     23  
Real estate – residential – ITIN    42,063     5        46,458     6        (4,395 )    (9 ) %      43,229     5  
Real estate – residential – 1-4 family mortgage    21,119     3        16,665     2        4,454      27   %      18,904     2  
Real estate – residential – equity lines    31,158     4        36,468     5        (5,310 )    (15 ) %      32,133     4  
Consumer and other    51,432     6        52,377     7        (945 )    (2 ) %      50,780     6  
Gross loans    824,874     100 %      779,019     100 %      45,855      6   %      815,388     100 %
Deferred fees and costs    1,770              1,155              615              1,541        
Loans, net of deferred fees and costs    826,644              780,174              46,470              816,929        
Allowance for loan and lease losses    (11,692 )            (11,849 )            157              (11,688 )      
Net loans $  814,952           $  768,325           $  46,627           $  805,241        
                                               
Average yield on loans during the quarter   4.87 %           4.66 %            0.21             4.77 %      

The Company recorded gross loan balances of $824.9 million at September 30, 2017, compared with $779.0 million and $815.4 million at September 30, 2016 and June 30, 2017, respectively, an increase of $45.9 million and $9.5 million, respectively. The increase in gross loans compared to the same period a year ago and the prior period was driven by organic loan originations and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.

Average loan balances were $805.1 million for the quarter ended September 30, 2017, compared with $769.4 million and $821.3 million for the quarters ended September 30, 2016 and June 30,2017, respectively, an increase of $35.8 million or 5% and a decrease of $16.2 million or 8% annualized, respectively.

The average yield on loans during the quarter was 4.87% compared to 4.66% and 4.77% for the quarters ended September 30, 2016 and June 30, 2017, respectively.  The current quarter yield includes $161 thousand of interest income related to a nonaccrual loan that was repaid during the quarter.

                                                 
TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES – UNAUDITED
(amounts in thousands)
    At September 30,               At June 30,
        % of       % of   Change       % of
    2017   Total   2016   Total   Amount   %   2017   Total
                                                 
Cash and due from banks   $  19,929     6 %   $  19,699     7 %   $  230      1   %   $  23,420     7 %
Interest-bearing deposits in other banks      65,702     19        65,431     24        271      —   %      73,434     22  
Total cash and cash equivalents      85,631     25        85,130     31        501      1   %      96,854     29  
                                                 
Investment securities:                                                
U.S. government and agencies      36,474     10        5,527     2        30,947      560   %      24,231     7  
Obligations of state and political subdivisions      53,850     15        59,952     22        (6,102 )    (10 ) %      58,400     17  
Residential mortgage backed securities and
collateralized mortgage obligations
     105,224     31        54,046     20        51,178      95   %      91,375     28  
Corporate securities      6,968     2        16,346     6        (9,378 )    (57 ) %      8,312     2  
Commercial mortgage backed securities      26,148     7        16,254     6        9,894      61   %      23,421     7  
Other asset backed securities      3,830     1        4,315     2        (485 )    (11 ) %      3,870     1  
Total investment securities – AFS      232,494     66        156,440     58        76,054      49   %      209,609     62  
                                                 
Obligations of state and political
subdivisions – HTM
     30,724     9        31,771     11        (1,047 )    (3 ) %      31,329     9  
Total investment securities – AFS
and HTM
     263,218     75        188,211     69        75,007      40   %      240,938     71  
Total cash, cash equivalents and
investment securities
  $  348,849     100 %   $  273,341     100 %   $  75,508      28   %   $  337,792     100 %
Average yield on interest-bearing due
from banks and investment securities
during the quarter
    2.19 %           2.11 %            0.08             2.27 %      

As of September 30, 2017, we maintained noninterest-bearing cash positions of $19.9 million and interest-bearing deposits of $65.7 million at the Federal Reserve Bank and correspondent banks. During the third quarter of 2017, we deployed liquidity provided by the sale of common stock and strong organic deposit growth into organic loan originations, available-for-sale securities and interest-bearing deposits at other banks.

Available-for-sale investment securities totaled $232.5 million at September 30, 2017, compared with $156.4 million and $209.6 million at September 30, 2016 and June 30, 2017, respectively. Our available-for-sale investment portfolio provides us with a secondary source of liquidity to fund higher yielding asset opportunities, such as loan originations. During the third quarter of 2017, we purchased 31 securities with a par value of $49.3 million and weighted average yield of 2.55% and sold 19 securities with a par value of $19.8 million and weighted average yield of 2.02%. The sales activity on available-for-sale securities resulted in $38 thousand in net realized gains. During the same period, we received $6.8 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 September 30, 2017 and 2016 were $256.7 million and 2.91% compared to $188.5 million and 3.22%, respectively.

At September 30, 2017, our net unrealized gains on available-for-sale investment securities were $630 thousand compared with net unrealized gains of $2.3 million and $682 thousand at September 30, 2016 and June 30, 2017, respectively. The decrease in net unrealized gains from September 30, 2016 is primarily due to significant changes in market interest rates.

                                               
TABLE 4
DEPOSITS BY TYPE – UNAUDITED
(amounts in thousands)
  At September 30,               At June 30,
      % of       % of     Change       % of
  2017   Total   2016   Total   Amount   %   2017   Total
Demand – noninterest-bearing $  316,814     30 %   $  254,435     26 %   $  62,379     25   %   $  303,560     29 %
Demand – interest-bearing    433,466     41        394,525     40        38,941     10   %      426,798     41  
Total demand    750,280     71        648,960     66        101,320     16   %      730,358     70  
                                               
Savings    111,962     11        110,201     11        1,761     2   %      109,472     10  
Total non-maturing deposits    862,242     82        759,161     77        103,081     14   %      839,830     80  
                                               
Certificates of deposit    200,543     18        216,332     23        (15,789 )   (7 ) %      206,395     20  
Total deposits $  1,062,785     100 %   $  975,493     100 %   $  87,292     9   %   $  1,046,225     100 %
                                               
Average rate on interest-bearing
deposits during the quarter
  0.43 %           0.39 %            0.04             0.42 %      
Average rate on all
deposits during the quarter
  0.31 %           0.29 %            0.02             0.31 %      

Total deposits at September 30, 2017, increased $87.3 million or 9% to $1.1 billion compared to September 30, 2016, and increased $16.6 million or 6% annualized compared to June 30, 2017. Total non-maturing deposits increased $103.1 million or 14% compared to the same date a year ago and increased $22.4 million or 11% annualized compared to June 30, 2017. Certificates of deposit decreased $15.8 million or 7% compared to the same date a year ago and decreased $5.9 million or 11% annualized compared to June 30, 2017.

                     
TABLE 5
WHOLESALE AND BROKERED DEPOSITS – UNAUDITED
(amounts in thousands)
  At September 30,   At June 30,
  2017   2016   2017
CDARS / ICS reciprocal brokered deposits $  56,203   $  59,502   $  56,803
Online listing service wholesale time deposits                         37,293      52,456      42,709
Total wholesale and brokered deposits $  93,496   $  111,958   $  99,512

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $56.2 million, $59.5 million and $56.8 million at September 30, 2017, September 30, 2016 and June 30, 2017, respectively.

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
  2017   2016   Amount   %   2017   Amount   %
Interest income $  11,765   $  10,330   $  1,435   14 %   $  11,320   $  445     4   %
Interest expense    1,181      1,054      127   12 %      1,145      36     3   %
Net interest income    10,584      9,276      1,308   14 %      10,175      409     4   %
Provision for loan
and lease losses
   —      —      —    — %      300      (300 )    (100 ) %
Noninterest income    995      959      36   4 %      983      12     1   %
Noninterest expense:                                        
Other noninterest expense         7,276      7,125      151   2 %      7,714      (438 )   (6 ) %
Income before provision
for income taxes
   4,303      3,110      1,193   38 %      3,144      1,159     37   %
Provision for income taxes    1,427      744      683   92 %      935      492     53   %
Net income $  2,876   $  2,366   $  510   22 %   $  2,209   $  667     30   %
                                         
Basic earnings per share $  0.18   $  0.18   $  —    — %   $  0.15   $  0.03      20   %
Average basic shares    16,191      13,369      2,822    21 %      15,014      1,177      8   %
Diluted earnings per share $  0.18   $  0.18   $  —    — %   $  0.15   $  0.03      20   %
Average diluted shares    16,288      13,439      2,849    21 %      15,113      1,175      8   %
Dividends declared per
common share
$  0.03   $  0.03   $  —    — %   $  0.03   $  —      —   %

Third Quarter of 2017 Compared With Third Quarter of 2016

Net income for the third quarter of 2017 increased $510 thousand compared to the third quarter of 2016. In the current quarter, net interest income was $1.3 million higher and noninterest income was $36 thousand higher. These positive changes were offset by noninterest expense that was $151 thousand higher and a provision for income taxes that was $683 thousand higher.

Net Interest Income

Net interest income increased $1.3 million compared to the same period a year ago.

Interest income for the three months ended September 30, 2017 increased $1.4 million or 14% to $11.8 million. Interest and fees on loans increased $880 thousand due to increased average loan balances and increased yield on the loan portfolio. Interest on securities increased $359 thousand and interest on interest-bearing deposits due from banks increased $196 thousand.

Interest expense for the third quarter of 2017 increased $127 thousand or 12% to $1.2 million. The increase was primarily caused by an increase in the average rate paid on interest-bearing deposits.

Provision for loan and lease loss

During the three months ended September 30, 2017 and the same period a year ago, the Company did not record a provision for loan and lease losses.

Noninterest Income

Noninterest income for the three months ended September 30, 2017 increased $36 thousand compared to the third quarter for 2016. Increased fee income of $86 thousand was offset by decreases in gain on sale of securities of $32 thousand and FHLB dividends of $22 thousand.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2017 increased $151 thousand compared to the same period a year previous. The increase in noninterest expense included the following negative items:

  • Employee incentive costs increased $139 thousand
  • Other compensation-related costs increased $175 thousand
  • Loan origination cost deferrals decreased $105 thousand

These increases were partially offset by the following positive items:

  • FDIC insurance costs decreased $97 thousand
  • Recruiting costs decreased $80 thousand

Income Tax Provision

During the three months ended September 30, 2017, the Company recorded a provision for income taxes of $1.4 million (33.2% effective tax rate) compared with a provision for income taxes of $744 thousand (23.92% effective tax rate) for the same period a year ago. The Company’s effective tax rate has increased as muni income, tax credits and permanent deductions arising from investments in low income housing partnerships in 2017 comprise a smaller percentage of pre-tax income.

Third Quarter of 2017 Compared With Second Quarter of 2017

Net income for the third quarter of 2017 increased $667 thousand compared to the second quarter of 2017. In the current quarter, net interest income was $409 thousand higher, provision for loan and lease losses was $300 thousand lower, noninterest income was $12 thousand higher and noninterest expenses were $438 thousand lower. These positive changes were offset by a provision for income taxes that was $492 thousand higher.

Net Interest Income

Net interest income increased $409 thousand over the prior quarter.

Interest income for the three months ended September 30, 2017 increased $445 thousand or 4% to $11.8 million. Interest and fees on loans increased $129 thousand due to increased yields. Interest on investment securities increased $194 thousand due to increased average balances. Interest on interest-bearing deposits due from banks increased $122 thousand due to increased average balances and increased yields.

Interest expense for the three months ended September 30, 2017 increased $36 thousand or 3% to $1.2 million. The average rate paid on interest-bearing deposits increased from 42 basis points to 43 basis points. The average rate paid on all liabilities was 60 basis points for both the current quarter and the prior quarter.

Provision for loan and lease loss

As a result of continued improved asset quality, no provision for loan and lease losses was deemed necessary during the current quarter compared with a provision for loan and lease losses of $300 thousand for the prior quarter.

Noninterest Income

Noninterest income for the three months ended September 30, 2017 increased $12 thousand. During the current quarter, dividends on Federal Home Loan Bank of San Francisco stock increased $26 thousand.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2017 decreased $438 thousand compared to the second quarter of 2017. The decrease in noninterest expense included the following items:

  • Termination and write-off of a software development project – $97 thousand
  • Holding costs and write-downs for other real estate owned – $86 thousand
  • Legal fees – $57 thousand
  • Recruiting costs – $34 thousand

Income Tax Provision

During the three months ended September 30, 2017, we recorded a provision for income taxes of $1.4 million (33.16% of pretax income) compared with a provision for income taxes of $935 thousand (29.74% of pretax income) for the prior quarter. Tax benefits from vesting of restricted stock were $2 thousand in the current quarter compared to $45 thousand in the prior quarter. Excluding those benefits, the Company’s effective tax rates would have been 33.21% and 31.17%, respectively.

Earnings Per Share

Diluted earnings per share were $0.18 for the three months ended September 30, 2017 compared with diluted earnings per share of $0.18 for the same period a year ago and diluted earnings per share of $0.15 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in table 6 above.

                                                       
TABLE 7a
NET INTEREST MARGIN – UNAUDITED
(amounts in thousands)
    For The Three Months Ended
    September 30, 2017   September 30, 2016   June 30, 2017
    Average         Yield /   Average         Yield /   Average         Yield /
(Amounts in thousands)   Balance   Interest(1)   Rate (5)   Balance   Interest(1)   Rate (5)   Balance   Interest(1)   Rate (5)
Interest-earning assets:                                                      
Net loans (2)   $  805,144   $  9,887    4.87 %   $  769,354   $  9,007    4.66 %   $  821,321   $  9,758    4.77 %
Taxable securities      179,362      1,049    2.32 %      114,578      689    2.39 %      143,705      872    2.43 %
Tax-exempt securities      77,303      551    2.83 %      73,952      552    2.97 %      73,927      534    2.90 %
Interest-bearing deposits
in other banks
     84,323      278    1.31 %      61,346      82    0.53 %      58,691      156    1.07 %
Average interest-
earning assets
     1,146,132      11,765    4.07 %      1,019,230      10,330    4.03 %      1,097,644      11,320    4.14 %
Cash and due from banks      19,143                  17,018                  17,364            
Premises and equipment, net      15,362                  15,941                  15,809            
Other assets      40,263                  41,729                  39,630            
Average total assets   $  1,220,900               $  1,093,918               $  1,170,447            
                                                       
Interest-bearing liabilities:                                                      
Interest-bearing demand   $  436,614      196    0.18 %   $  390,895      136    0.14 %   $  421,888      184    0.17 %
Savings deposits      110,305      52    0.19 %      107,210      43    0.16 %      109,857      47    0.17 %
Certificates of deposit      204,044      567    1.10 %      221,078      524    0.94 %      208,703      545    1.05 %
Net term debt      17,804      292    6.51 %      19,610      292    5.92 %      19,539      298    6.12 %
Junior subordinated
debentures
     10,310      74    2.85 %      10,310      59    2.28 %      10,310      71    2.76 %
Average interest-
bearing liabilities
     779,077      1,181    0.60 %      749,103      1,054    0.56 %      770,297      1,145    0.60 %
Noninterest-bearing demand      303,314                  240,418                  275,039            
Other liabilities      11,935                  11,159                  12,256            
Shareholders’ equity      126,574                  93,238                  112,855            
Average liabilities and
shareholders’ equity
  $  1,220,900               $  1,093,918               $  1,170,447            
Net interest income and
net interest margin (4)
        $  10,584    3.66 %         $  9,276    3.62 %         $  10,175    3.72 %
Tax equivalent net
  interest margin (3)
               3.76 %                3.73 %                3.82 %
(1) Interest income on loans is net of deferred fees and costs of approximately $95 thousand, $289 thousand, and $131 thousand for the three months ended September 30, 2017, and 2016 and June 30, 2017, respectively.
(2) Net loans includes average nonaccrual loans of $8.6 million, $10.5 million and $9.8 million for the three months ended September 30, 2017 and 2016 and June 30, 2017, respectively.
(3) Tax-exempt income has been adjusted to tax equivalent basis at a 34% tax rate. The amount of such adjustments was an addition to recorded income of approximately $284 thousand, $284 thousand and $275 thousand for the three months ended September 30, 2017 and 2016 and June 30, 2017, respectively.
(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets.
(5) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

                                       
TABLE 7b  
NET INTEREST MARGIN – UNAUDITED  
(amounts in thousands)  
    For The Nine Months Ended  
    September 30, 2017   September 30, 2016  
    Average         Yield /   Average         Yield /  
(Amounts in thousands)   Balance   Interest(1)   Rate (5)   Balance   Interest(1)   Rate (5)  
Interest-earning assets:                                      
Net loans (2)   $  811,080   $  29,029    4.79 %   $  744,370   $  26,254    4.71 %  
Taxable securities      153,702      2,710    2.36 %      119,541      2,281    2.55 %  
Tax-exempt securities      74,932      1,615    2.88 %      76,315      1,734    3.04 %  
Interest-bearing deposits
in other banks
     66,818      548    1.10 %      52,930      222    0.56 %  
Average interest-
earning assets
     1,106,532      33,902    4.10 %      993,156      30,491    4.10 %  
Cash and due from banks      17,802                  15,455              
Premises and equipment, net      15,776                  14,657              
Other assets      40,040                  40,942              
Average total assets   $  1,180,150               $  1,064,210              
                                       
Interest-bearing liabilities:                                      
Interest-bearing demand   $  426,365      528    0.17 %   $  365,917      388    0.14 %  
Savings deposits      111,258      146    0.18 %      102,427      129    0.17 %  
Certificates of deposit      209,275      1,641    1.05 %      222,286      1,636    0.98 %  
Net term debt      18,644      883    6.33 %      43,435      1,369    4.21 %  
Junior subordinated
debentures
     10,310      211    2.74 %      10,310      172    2.23 %  
Average interest-
bearing liabilities
     775,852      3,409    0.59 %      744,375      3,694    0.66 %  
Noninterest-bearing demand      280,559                  214,540              
Other liabilities      12,206                  13,336              
Shareholders’ equity      111,533                  91,959              
Average liabilities and
shareholders’ equity
  $  1,180,150               $  1,064,210              
Net interest income and
net interest margin (4)
        $  30,493    3.68 %         $  26,797    3.60 %  
Tax equivalent net
  interest margin (3)
               3.78 %                3.72 %  
(1) Interest income on loans is net of deferred fees and costs of approximately $423 thousand and $956 thousand for the nine months ended September 30, 2017 and 2016, respectively.
(2) Net loans includes average nonaccrual loans of $9.7 million and $10.7 million for the nine months ended September 30, 2017 and 2016, respectively.
(3) Tax-exempt income has been adjusted to tax equivalent basis at a 34% tax rate. The amount of such adjustments was an addition to recorded income of approximately $832 thousand and $893 thousand for the nine months ended September 30, 2017 and 2016, respectively.
(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets.
(5) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

The current quarter net interest margin decreased six basis points to 3.66% as compared to the prior quarter due to decreased yields on average interest-earning assets. The decreased yields on average interest-earning assets was due to maturities and repayments on loans being invested at lower rates in the securities portfolio and interest-bearing deposits in other banks.  Increases in average interest-earning assets were funded by increases in low cost demand deposits and increases in equity from the sale of common stock during the previous quarter.

The net interest margin was 3.66% for the current quarter compared to 3.62% for the same period a year ago. The increase was due to increased yield on the loan portfolio and increased yield on interest-bearing deposits in other banks. The increase was partially offset by decreased yield in the investment portfolio and an increase in the average rate paid on interest-bearing deposits.

Average deposit balances for the current quarter increased $38.8 million and $94.7 million compared to the prior quarter and the same period a year ago, respectively. The increase in average deposits was due to organic growth in core deposits. Our overall cost of total deposits was 0.31% for the quarter ended September 30, 2017 compared to 0.29% for the same period a year ago and 0.31% 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  
  September 30,   June 30,   March 31,   December 31,   September 30,
  2017   2017   2017   2016   2016
Beginning balance ALLL $  11,688       $  11,641       $  11,544       $  11,849       $  11,864    
Provision for loan and lease losses    —          300          200          —          —    
Loans charged-off    (245 )        (359 )        (447 )        (386 )        (357 )  
Loan loss recoveries    249          106          344          81          342    
Ending balance ALLL $  11,692       $  11,688       $  11,641       $  11,544       $  11,849    
                                       
  At September 30,   At June 30,   At March 31,   At December 31,   At September 30,
  2017   2017   2017   2016   2016
Nonaccrual loans:                                      
Commercial $  2,309       $  2,410       $  2,534       $  2,749       $  1,710    
Real estate – commercial non-owner occupied    —          1,196          1,196          1,196          1,196    
Real estate – commercial owner occupied    617          639          654          784          800    
Real estate – residential – ITIN    3,201          3,346          3,331          3,576          3,392    
Real estate – residential – 1-4 family mortgage    626          653          1,337          1,914          1,798    
Real estate – residential – equity lines    815          872          906          917          942    
Consumer and other    37          38          39          250          252    
Total nonaccrual loans    7,605          9,154          9,997          11,386          10,090    
Accruing troubled debt restructured loans:                                      
Commercial    671          703          741          776          726    
Real estate – commercial non-owner occupied    805          806          808          808          811    
Real estate – residential – ITIN    4,655          4,712          4,761          5,033          5,280    
Real estate – residential – equity lines    441          445          450          454          543    
Total accruing troubled debt restructured loans    6,572          6,666          6,760          7,071          7,360    
                                       
All other accruing impaired loans    —          —          —          337          483    
                                       
Total impaired loans $  14,177       $  15,820       $  16,757       $  18,794       $  17,933    
                                       
Gross loans outstanding at period end $  824,874       $  815,388       $  810,194       $  804,211       $  779,019    
                                       
Nonaccrual loans to gross loans   0.92   %     1.12   %     1.23   %     1.42   %     1.30   %
                                       
Allowance for loan and lease losses as a percent of:                          
Gross loans   1.42   %     1.43   %     1.44   %     1.44   %     1.52   %
Nonaccrual loans   153.74   %     127.68   %     116.44   %     101.39   %     117.43   %
Impaired loans   82.47   %     73.88   %     69.47   %     61.42   %     66.07   %

We realized net loan loss recoveries of $4 thousand in the current quarter compared with net loan loss charge-offs of $253 thousand in the prior quarter and net loan loss charge-offs of $15 thousand for the same period a year ago. Recoveries during the third quarter of 2017 of $250 thousand were primarily associated with purchased consumer loans and one commercial loan.

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. There were no provisions for loan and lease losses during the quarter ended September 30, 2017 or the year ended December 31, 2016. A combination of net loan losses and loan portfolio growth supported management’s decision to record a $300 thousand provision for loan and lease losses during the quarter ended June 30, 2017 and a $200 thousand provision for loan and lease losses during the quarter ended March 31, 2017. Our ALLL as a percentage of gross loans was 1.42% as of September 30, 2017 compared to 1.52% as of September 30, 2016 and 1.43% as of June 30, 2017. Based on the Bank’s ALLL methodology, which uses criteria such as risk weighting and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company’s ALLL is adequate at September 30, 2017. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

At September 30, 2017, the recorded investment in loans classified as impaired totaled $14.2 million, with a corresponding specific reserve of $918 thousand compared to impaired loans of $17.9 million with a corresponding specific reserve of $925 thousand at September 30, 2016 and impaired loans of $15.8 million, with a corresponding specific reserve of $1.1 million at June 30, 2017. The decrease in loans classified as impaired and the decrease in the corresponding specific reserve compared to the prior quarter is primarily due to one nonaccrual commercial real estate loan that was paid off during the quarter.

                                         
TABLE 9
TROUBLED DEBT RESTRUCTURINGS – UNAUDITED
(amounts in thousands)
    At September 30,   At June 30,   At March 31,   At December 31,   At September 30,
    2017   2017   2017   2016   2016
Nonaccrual   $  4,403     $  4,630     $  4,570     $  4,995     $  3,795  
Accruing      6,572        6,666        6,760        7,071        7,360  
Total troubled debt restructurings      $  10,975     $  11,296     $  11,330     $  12,066     $  11,155  
                                         
Percentage of total gross loans     1.33 %     1.39 %     1.40 %     1.50 %     1.43 %

There were no new troubled debt restructurings during the three months ended September 30, 2017. As of September 30, 2017, we had 118 restructured loans that qualified as troubled debt restructurings, of which 111 were performing according to their restructured terms.

                                         
TABLE 10
NONPERFORMING ASSETS – UNAUDITED
(amounts in thousands)
    At September 30,   At June 30,   At March 31,   At December 31,   At September 30,
    2017   2017   2017   2016   2016
Total nonaccrual loans   $  7,605     $  9,154     $  9,997     $  11,386     $  10,090  
90 days past due and still accruing      —        —        —        —        —  
Total nonperforming loans      7,605        9,154        9,997        11,386        10,090  
                                         
Other real estate owned      699        1,517        814        759        793  
Total nonperforming assets   $  8,304     $  10,671     $  10,811     $  12,145     $  10,883  
                                         
Nonperforming loans to gross loans     0.92 %     1.12 %     1.23 %     1.42 %     1.30 %
Nonperforming assets to total assets     0.67 %     0.88 %     0.95 %     1.06 %     0.98 %

The September 30, 2017 OREO balance consists of three properties, of which one is a 1-4 family residential real estate property in the amount of $22 thousand, one is a nonfarm nonresidential property in the amount of $565 thousand and one is an undeveloped commercial property in the amount of $112 thousand. The decrease in the OREO balance compared to the prior quarter is due to one residential real estate property that was sold during the quarter. On October 6, 2017, the nonfarm nonresidential property that was included in the September 30, 2017 OREO balance for $565 thousand sold for $923 thousand resulting in a gain in the fourth quarter of $358 thousand.

                               
TABLE 11
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
    At September 30,   At September 30,   Change   At June 30,
    2017   2016   $   %   2017
Assets:                              
Cash and due from banks   $  19,929     $  19,699     $  230      1   %   $  23,420  
Interest-bearing deposits in other banks      65,702        65,431        271      —   %      73,434  
Total cash and cash equivalents      85,631        85,130        501      1   %      96,854  
                               
Securities available-for-sale, at fair value      232,494        156,440        76,054      49   %      209,609  
Securities held-to-maturity, at amortized cost      30,724        31,771        (1,047 )    (3 ) %      31,329  
                               
Loans, net of deferred fees and costs      826,644        780,174        46,470      6   %      816,929  
Allowance for loan and lease losses      (11,692 )      (11,849 )      157      (1 ) %      (11,688 )
Net loans      814,952        768,325        46,627      6   %      805,241  
                               
Premises and equipment, net      15,039        15,930        (891 )    (6 ) %      15,417  
Other real estate owned      699        793        (94 )    (12 ) %      1,517  
Life insurance      21,764        22,946        (1,182 )    (5 ) %      21,629  
Deferred taxes      8,751        8,171        580      7   %      8,723  
Goodwill and core deposit intangible, net      2,086        2,307        (221 )    (10 ) %      2,141  
Other assets      19,741        19,205        536      3   %      19,634  
Total assets   $  1,231,881     $  1,111,018     $  120,863      11   %   $  1,212,094  
                               
Liabilities and shareholders’ equity:                              
Demand – noninterest-bearing   $  316,814     $  254,435     $  62,379      25   %   $  303,560  
Demand – interest-bearing      433,466        394,525        38,941      10   %      426,798  
Savings      111,962        110,201        1,761      2   %      109,472  
Certificates of deposit      200,543        216,332        (15,789 )    (7 ) %      206,395  
Total deposits      1,062,785        975,493        87,292      9   %      1,046,225  
                               
Term debt      17,700        19,317        (1,617 )    (8 ) %      18,300  
Unamortized debt issuance costs      (150 )      (193 )      43      (22 ) %      (161 )
Net term debt      17,550        19,124        (1,574 )    (8 ) %      18,139  
                               
Junior subordinated debentures      10,310        10,310        —      —   %      10,310  
Other liabilities      12,831        11,798        1,033      9   %      11,468  
Total liabilities      1,103,476        1,016,725        86,751      9   %      1,086,142  
                               
Shareholders’ equity:                              
Common stock      51,755        24,483        27,272      111   %      51,651  
Retained earnings      76,179        68,321        7,858      12   %      73,789  
Accumulated other comprehensive income, net of tax      471        1,489        (1,018 )    (68 ) %      512  
Total shareholders’ equity      128,405        94,293        34,112      36   %      125,952  
                               
Total liabilities and shareholders’ equity   $  1,231,881     $  1,111,018     $  120,863      11   %   $  1,212,094  
                               
Total interest-earning assets   $  1,154,934     $  1,031,527     $  123,407      12   %   $  1,130,619  
Shares outstanding      16,265        13,439                    16,260  
Tangible book value per share   $  7.77     $  6.84                 $  7.61  

                                           
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,
    2017   2016   $   %   2017   2017   2016
Interest income:                                          
Interest and fees on loans   $  9,887   $  9,007   $  880      10   %   $  9,758   $  29,029   $  26,254  
Interest on securities      1,049      689      360      52   %      872      2,710      2,281  
Interest on tax-exempt securities      551      552      (1 )    —   %      534      1,615      1,734  
Interest on deposits in other banks      278      82      196      239   %      156      548      222  
Total interest income      11,765      10,330      1,435      14   %      11,320      33,902      30,491  
Interest expense:                                          
Interest on demand deposits      196      136      60      44   %      184      528      388  
Interest on savings deposits      52      43      9      21   %      47      146      129  
Interest on certificates of deposit      567      524      43      8   %      545      1,641      1,636  
Interest on term debt      292      292      —      —   %      298      883      1,369  
Interest on other borrowings      74      59      15      25   %      71      211      172  
Total interest expense      1,181      1,054      127      12   %      1,145      3,409      3,694  
Net interest income      10,584      9,276      1,308      14   %      10,175      30,493      26,797  
Provision for loan and lease losses      —      —      —      —   %      300      500      —  
Net interest income after provision
for loan and lease losses
     10,584      9,276      1,308      14   %      9,875      29,993      26,797  
Noninterest income:                                          
Service charges on deposit accounts      132      133      (1 )    (1 ) %      142      401      293  
ATM and point of sale      273      287      (14 )    (5 ) %      288      827      714  
Payroll and benefit processing fees      147      133      14      11   %      147      485      432  
Life insurance      134      152      (18 )    (12 ) %      135      915      461  
Gain on investment securities, net      38      70      (32 )    (46 ) %      35      139      192  
Impairment losses on investment securities      —      —      —      —   %      —      —      (546 )
Federal Home Loan Bank of
San Francisco dividends
     80      102      (22 )    (22 ) %      54      237      291  
Other income      191      82      109      133   %      182      516      508  
Total noninterest income      995      959      36      4   %      983      3,520      2,345  

                                           
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,
    2017   2016   $   %   2017   2017   2016
Noninterest expense:                                          
Salaries and related benefits      4,291      3,873      418      11   %      4,147      13,296      12,188
Occupancy and equipment      1,067      1,071      (4 )    —   %      1,054      3,169      2,847
Federal Deposit Insurance Corporation
insurance premium
     78      176      (98 )    (56 ) %      104      230      513
Data processing fees      437      464      (27 )    (6 ) %      450      1,294      1,142
Professional service fees      276      293      (17 )    (6 ) %      459      1,119      1,174
Telecommunications      219      199      20      10   %      223      653      545
Branch acquisition costs      —      —      —      —   %      —      —      580
Loss on cancellation of interest rate swap      —      —      —      —   %      —      —      2,325
Other expenses      908      1,049      (141 )    (13 ) %      1,277      3,290      3,480
Total noninterest expense      7,276      7,125      151      2   %      7,714      23,051      24,794
Income before provision for income taxes      4,303      3,110      1,193      38   %      3,144      10,462      4,348
Deferred tax asset write-off      —      —      —      —   %      —      —      363
Provision for income taxes      1,427      744      683      92   %      935      3,125      1,023
Net income   $  2,876   $  2,366   $  510      22   %   $  2,209   $  7,337   $  2,962
                                           
Basic earnings per share   $  0.18   $  0.18   $  —      —   %   $  0.15   $  0.49   $  0.22
Average basic shares      16,191      13,369      2,822      21   %      15,014      14,884      13,366
Diluted earnings per share   $  0.18   $  0.18   $  —      —   %   $  0.15   $  0.49   $  0.22
Average diluted shares      16,288      13,439      2,849      21   %      15,113      14,984      13,412

                               
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,
    2017   2016   2016   2015   2014
Earning assets:                            
Loans   $  811,080   $  744,370   $  752,938   $  699,227   $  625,166
Taxable securities      153,702      119,541      120,884      120,897      147,916
Tax exempt securities      74,932      76,315      75,303      77,089      83,973
Interest-bearing deposits in other banks      66,818      52,930      58,668      30,323      56,465
Total earning assets      1,106,532      993,156      1,007,793      927,536      913,520
                               
Cash and due from banks      17,802      15,455      15,831      11,220      11,246
Premises and equipment, net      15,776      14,657      15,078      11,552      12,105
Other assets      40,040      40,942      41,048      42,423      36,936
Total assets   $  1,180,150   $  1,064,210   $  1,079,750   $  992,731   $  973,807
                               
Liabilities and shareholders’ equity:                              
Demand – noninterest-bearing   $  280,559   $  214,540   $  226,368   $  156,578   $  139,792
Demand – interest-bearing      426,365      365,917      374,170      283,105      272,383
Savings      111,258      102,427      104,771      92,659      91,108
Certificates of deposit      209,275      222,286      221,074      238,626      259,445
Total deposits      1,027,457      905,170      926,383      770,968      762,728
                               
Term debt      18,644      43,435      37,286      88,874      77,534
Junior subordinated debentures      10,310      10,310      10,310      10,310      15,239
Other liabilities      12,206      13,336      13,217      16,588      15,934
Total liabilities      1,068,617      972,251      987,196      886,740      871,435
                               
Shareholders’ equity      111,533      91,959      92,554      105,991      102,372
Liabilities & shareholders’ equity   $  1,180,150   $  1,064,210   $  1,079,750   $  992,731   $  973,807

                               
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,
    2017   2017   2017   2016   2016
Earning assets:                              
Loans   $  805,144   $  821,321   $  806,793   $  778,458   $  769,354
Taxable securities      179,362      143,705      137,582      124,881      114,578
Tax exempt securities      77,303      73,927      73,524      72,288      73,952
Interest-bearing deposits in other banks      84,323      58,691      57,140      75,760      61,346
Total earning assets      1,146,132      1,097,644      1,075,039      1,051,387      1,019,230
                               
Cash and due from banks      19,143      17,364      16,873      16,953      17,018
Premises and equipment, net      15,362      15,809      16,165      16,331      15,941
Other assets      40,263      39,630      40,228      41,363      41,729
Total assets   $  1,220,900   $  1,170,447   $  1,148,305   $  1,126,034   $  1,093,918
                               
Liabilities and shareholders’ equity:                              
Demand – noninterest-bearing   $  303,314   $  275,039   $  262,881   $  261,600   $  240,418
Demand – interest-bearing      436,614      421,888      420,416      398,749      390,895
Savings      110,305      109,857      113,647      111,755      107,210
Certificates of deposit      204,044      208,703      215,202      217,463      221,078
Total deposits      1,054,277      1,015,487      1,012,146      989,567      959,601
                               
Term debt      17,804      19,539      18,598      18,975      19,610
Junior subordinated debentures      10,310      10,310      10,310      10,310      10,310
Other liabilities      11,935      12,256      12,431      12,856      11,159
Total liabilities      1,094,326      1,057,592      1,053,485      1,031,708      1,000,680
                               
Shareholders’ equity      126,574      112,855      94,820      94,326      93,238
Liabilities & shareholders’ equity   $  1,220,900   $  1,170,447   $  1,148,305   $  1,126,034   $  1,093,918
 

About Bank of Commerce Holdings

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

Contact Information:

Randall S. Eslick, President and Chief Executive Officer
Telephone Direct (916) 677-5800

James A. Sundquist, Executive Vice President and Chief Financial Officer
Telephone Direct (916) 677-5825

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

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