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8-K - FORM 8-K - Bank of Commerce Holdingsboch20140730_8k.htm

Exhibit 99.1

 

 

 

 

(NASDAQ: BOCH)


For Immediate Release:

Bank of Commerce Holdings announces Second Quarter Results


 

REDDING, California, July 31, 2014 / GLOBE NEWSWIRE— Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ: BOCH), a $963.7 million bank holding company and parent company of Redding Bank of Commerce and Sacramento Bank of Commerce (a division of Redding Bank of Commerce) (the “Bank”), today reported net income available to common shareholders of $2.2 million and diluted earnings per share (EPS) of $0.16 for the second quarter 2014.

 

Financial highlights for the quarter:

 

Net income available to common shareholders was $2.2 million for the three months ended June 30, 2014, compared with $2.0 million for the same period a year ago.

Gross portfolio loans increased $12.4 million compared to the prior quarter and $2.0 million compared to the second quarter of 2013. The sequential quarter over quarter increase was centered in commercial real estate and consumer loan originations.

Total impaired loans decreased $1.2 million or 3% compared to the prior quarter and decreased $6.7 million or 16% compared to the second quarter of 2013.

Average non maturing core deposits increased $54.2 million or 12% compared to the same period a year ago.

The Company’s Tier 1 Leverage and Total Risk Based ratios are significantly above “Well Capitalized” levels at 12.10% and 16.39%, respectively.

 

Randall S. Eslick, President and CEO commented: “We are pleased with this quarter’s core performance, especially in light of solid growth in our loan portfolio which was funded exclusively with core deposits. With our well capitalized position, we look forward to continuing these positive trends for the foreseeable future.”

 

 

Forward-Looking Statements

 

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

 

Competitive pressure in the banking industry and changes in the regulatory environment

Changes in the interest rate environment and volatility of rate sensitive assets and liabilities

A decline in the health of the economy nationally or regionally which could further reduce the demand for loans or reduce the value of real estate collateral securing most of the Company’s loans

Credit quality deterioration which could cause an increase in the provision for loan 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 year ended December 31, 2013 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, which speak only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

  

 
 

 

  

 

 

 

(NASDAQ: BOCH)

 

 

Table 1 below shows summary financial information for the quarters ended June 30, 2014 and 2013, and March 31, 2014.

 

Table 1

 

QUARTER END SUMMARY FINANCIAL INFORMATION

 
                                         
(Shares and dollars in thousands)  

Q2
2014

    Q2
201
3
    Change     Q1
201
4
    Change  

Selective quarterly performance ratios

                                       

Return on average assets, annualized

    0.91 %     0.84 %     0.07 %     0.23 %     0.68 %

Return on average equity, annualized

    8.73 %     7.40 %     1.33 %     2.19 %     6.54 %

Efficiency ratio for quarter to date

    59.18 %     55.29 %     3.89 %     91.18 %     -32.00 %
                                         

Share and Per Share figures - Actual

                                       

Common shares outstanding at period end

    13,294       14,990       (1,696 )     13,552       (258 )

Weighted average diluted shares

    13,426       15,139       (1,713 )     13,987       (561 )

Diluted EPS

  $ 0.16     $ 0.13     $ 0.03     $ 0.04     $ 0.12  

Book value per common share

  $ 6.07     $ 5.80     $ 0.27     $ 5.97     $ 0.10  

Tangible book value per common share

  $ 6.07     $ 5.80     $ 0.27     $ 5.97     $ 0.10  
                                         

Capital Ratios

 

June 30, 2014

   

June 30, 2013

   

Change

   

March 31, 2014

   

Change

 

Bank of Commerce Holdings

                                       

Leverage ratio

    12.10 %     13.02 %     -0.92 %     12.11 %     -0.01 %

Tier 1 risk based capital ratio

    15.14 %     14.27 %     0.87 %     15.23 %     -0.09 %

Total risk based capital ratio

    16.39 %     15.53 %     0.86 %     16.48 %     -0.09 %
                                         
Redding Bank of Commerce                                        
Leverage ratio     12.11 %     12.66 %     -0.55 %     11.97 %     0.14 %
Tier 1 risk based capital ratio     15.15 %     14.68 %     0.47 %     15.07 %     0.08 %
Total risk based capital ratio     16.40 %     15.93 %     0.47 %     16.32 %     0.08 %

 

 

Bank of Commerce Holdings (the “Company”) and the Bank continued to meet all capital adequacy requirements to which they are subject. At June 30, 2014, the Company’s Tier 1 and Total risk based capital ratios measured 15.14% and 16.39% respectively, while the leverage ratio was 12.10%.

 

Return on average assets (ROA) and return on average equity (ROE) for the current quarter was 0.91% and 8.73%, respectively, compared with 0.84% and 7.40%, respectively, for the same period a year ago. The increase in ROA and ROE during the current quarter compared to the same period a year ago is primarily attributed to reclassification adjustments recorded in other noninterest income. The adjustments were partially offset by increased other noninterest expense and a decrease in the gains recognized on securities compared to the second quarter of 2013.

 

The increase in ROA in the current quarter compared to the same period a year ago is also partially offset by an increase in the total average assets for the quarter ending June 30, 2014 compared to the same period one year ago. The increase in ROE is partially due to a decrease in the quarterly average shareholders’ equity for the quarter ending June 30, 2014 compared to the same period a year ago due primarily to the Company’s publically announced stock buyback plans.

 

During the three months ended June 30, 2014 the Company repurchased the remaining 259,185 shares out of the 700,000 common stock shares authorized for repurchase during the first quarter of 2014. The shares were repurchased at a weighted average price of $6.52 per share and all shares repurchased were retired subsequent to purchase.

  

 
 

 

  

 

 

 

(NASDAQ: BOCH)

 

 

Balance Sheet Overview

 

As of June 30, 2014, the Company had total consolidated assets of $963.7 million, total net portfolio loans of $609.7 million, allowance for loan and lease losses of $9.9 million, total deposits of $755.0 million, and stockholders' equity of $100.7 million.

 

The Company recorded net portfolio loans of $609.7 million at June 30, 2014, compared with $604.6 million at June 30, 2013, an increase of $5.1 million. The increase in net portfolio loans during the six months ending June 30, 2014 was primarily attributable to an increase in commercial real estate loans and the purchase of consumer loan pools partially offset by principal pay downs on a commercial secured borrowing line. The $3.3 million decrease in the Allowance for Loan and Lease Losses (ALLL) compared to the same period a year ago is primarily due to charge offs in the first quarter of 2014 related to two significant borrowing relationships.

 

Table 2

 

PERIOD END LOANS

 
   

Q2

   

% of

   

Q2

   

% of

   

Change

   

Q1

   

% of

 

(Dollars in thousands)

 

2014

   

Total

   

2013

   

Total

   

Amount

   

%

   

2014

   

Total

 
                                                                 

Commercial

  $ 168,353       28 %   $ 197,084       31 %   $ (28,731 )     -15 %   $ 165,747       28 %

Real estate - construction loans

    20,462       3 %     15,875       3 %     4,587       29 %     17,500       3 %

Real estate - commercial (investor)

    205,592       33 %     201,896       33 %     3,696       2 %     205,111       34 %

Real estate - commercial (owner occupied)

    88,402       14 %     78,478       13 %     9,924       13 %     86,929       14 %

Real estate - ITIN loans

    54,611       9 %     58,271       9 %     (3,660 )     -6 %     55,411       9 %

Real estate - mortgage

    14,211       2 %     17,738       3 %     (3,527 )     -20 %     14,973       2 %

Real estate - equity lines

    47,542       8 %     44,285       7 %     3,257       7 %     45,519       8 %

Consumer

    20,195       3 %     3,581       1 %     16,614       464 %     15,749       1 %

Other

    50       0 %     190       0 %     (140 )     -74 %     110       1 %

Gross portfolio loans

    619,418       100 %     617,398       100 %     (2,020 )     0 %     607,049       100 %
                                                                 

Less:

                                                               

Deferred loan fees, net

    (204 )             (335 )             131       -39 %     (320 )        

Allowance for loan losses

    9,882               13,133               (3,251 )     -25 %     9,748          

Net portfolio loans

  $ 609,740             $ 604,600             $ 5,140       1 %   $ 597,621          
                                                                 

Yield on loans

    4.68 %             4.80 %             -0.12 %             4.68 %        
                                                                 

 

 
 

 

   

 

 

 

(NASDAQ: BOCH)

 

 

Table 3

 

PERIOD END CASH EQUIVALENTS AND INVESTMENT SECURITIES

 

(Dollars in thousands)

 

Q2

   

% of

   

Q2

   

% of

   

Change

   

Q1

   

% of

 
   

2014

   

Total

   

2013

   

Total

   

Amount

   

%

   

2014

   

Total

 

Cash and cash equivalents:

                                                               

Cash and due from banks

  $ 50,677       18 %   $ 22,426       8 %   $ 28,251       126 %   $ 54,422       18 %

Interest bearing due from banks

    16,068       5 %     20,810       7 %     (4,742 )     -23 %     20,146       6 %
      66,745       23 %     43,236       15 %     23,509       54 %     74,568       24 %

Investment Securities-AFS

                                                               

U.S. government and agencies

    7,787       3 %     886       0 %     6,901       779 %     6,300       2 %

Obligations of state and political subdivisions

    55,369       20 %     68,652       23 %     (13,283 )     -19 %     56,454       18 %

Residential mortgage backed securities and collateralized mortgage obligations

    45,798       16 %     53,538       18 %     (7,740 )     -14 %     53,105       17 %

Corporate securities

    42,166       14 %     66,924       23 %     (24,758 )     -37 %     49,553       16 %

Commercial mortgage backed securities

    9,833       3 %     7,573       3 %     2,260       30 %     10,406       3 %

Other asset backed securities

    27,733       9 %     20,922       7 %     6,811       33 %     28,192       9 %

Total Investment Securities-AFS

    188,686       65 %     218,495       74 %     (29,809 )     -14 %     204,010       65 %
                                                                 

Securities-HTM, at amortized cost

                                                               

Obligations of state and political subdivisions

    37,031       12 %     34,843       11 %     2,188       6 %     36,985       12 %

Total cash equivalents and investment securities

  $ 292,462       100 %   $ 296,574       100 %   $ (4,112 )     100 %   $ 315,563       100 %
                                                                 

Yield on cash equivalents and investment securities

    2.49 %             2.51 %             -0.02 %             2.46 %        
                                                                 

 

  

The Company continued to maintain a strong liquidity position during the reporting period. As of June 30, 2014, the Company maintained cash positions at the Federal Reserve Bank and correspondent banks in the amount of $50.7 million. The Company also held certificates of deposits with other financial institutions in the amount of $16.1 million.

 

Available-for-sale investment securities totaled $188.7 million at June 30, 2014, compared with $204.0 million at March 31, 2014. The Company’s available-for-sale investment portfolio is currently being utilized as a secondary source of liquidity to fund other higher yielding asset opportunities, such as commercial and commercial real estate loan originations when required. During the second quarter of 2014, the Company purchased seventeen securities with a par value of $21.0 million and weighted average yield of 2.82%, and sold thirty securities with a par value of $30.3 million and weighted average yield of 2.56%. The net sales activity resulted in $39 thousand realized loss.

 

The Company’s purchases continue to focus on moderate term maturity securities, taking advantage of the steepness of the yield curve which moderates the Company’s exposure to rising interest rates, while still providing an acceptable yield. Sales were focused on longer term municipal and corporate bonds, as well as mortgage-backed and asset-backed securities with extended cash flows or with a high probability of cash flows extending as interest rates increase.

 

Overall, management’s investment strategy reflects the continuing expectation of rising rates across the yield curve. As such, management will continue to actively seek out opportunities to reduce the overall duration of the portfolio and improve cash flows. Given the current shape of the yield curve, this strategy could entail absorbing small losses within the portfolio to meet this longer term objective.

 

At June 30, 2014, the Company’s net unrealized gain on available-for-sale securities were $1.3 million compared with $643 thousand net unrealized losses at March 31, 2014. The favorable change in net unrealized losses was primarily due to increases in the fair values of the Company’s municipal bond, corporate bond, and mortgage backed securities portfolios. The increases in the fair values of the Company’s investment securities portfolio were primarily driven by the narrowing of market spreads and changes in market interest rates.

  

 
 

 

   

 

 

 

(NASDAQ: BOCH)

 

 

Table 4

 

QUARTERLY AVERAGE DEPOSITS BY CATEGORY

 

(Dollars in thousands)

 

Q2

   

%of

   

Q2

   

%of

   

Change

   

Q1

   

%of

 
   

2014

   

Total

   

2013

   

Total

   

Amount

   

%

   

2014

   

Total

 

Demand deposits

  $ 132,842       17 %   $ 112,825       16 %   $ 20,017       18 %   $ 132,495       18 %

Interest bearing demand

    272,073       36 %     237,113       35 %     34,960       15 %     267,428       36 %

Total checking deposits

    404,915       53 %     349,938       51 %     54,977       16 %     399,923       54 %
                                                                 

Savings

    91,488       12 %     92,266       13 %     (778 )     -1 %     91,406       13 %

Total non-time deposits

    496,403       65 %     442,204       64 %     54,199       12 %     491,329       67 %
                                                                 

Time deposits

    262,809       35 %     247,565       36 %     15,244       6 %     259,523       33 %

Total deposits

  $ 759,212       100 %   $ 689,769       100 %   $ 69,443       10 %   $ 750,852       100 %
                                                                 

Average rate on total deposits

    0.54 %             0.57 %             -0.03 %             0.54 %        
                                                                 

 

  

During the second quarter, average total deposits increased 10% or $69.4 million to $759.2 million compared to the same period a year ago. Average non maturing core deposits increased $54.2 million or 12% compared to the same period a year ago. Insured Cash Sweep (ICS) deposits totaling $31.8 million as of June 30, 2014 are included in interest bearing demand. The ICS deposits are locally generated funds, and as such, management considers this funding source as stable. However, the regulatory bodies consider these deposits as noncore.

 

Brokered certificates of deposits totaled $13.7 million at June 30, 2014, and were structured with both fixed rate terms and adjustable rate terms, and had remaining maturities ranging from less than one month to 6.00 years. Furthermore, brokered certificates of deposits with adjustable rate terms were structured with call features allowing the Company to redeem the certificates should interest rates dictate such action. These call features are generally exercisable within six to twelve months of issuance date and quarterly thereafter.

 

Operating Results for the Second quarter of 2014

 

Net income was $2.2 million for the three months ended June 30, 2014 compared with $565 thousand for the prior quarter and $2.0 million for the same period a year ago. The increase in net income in the current quarter compared to the same period a year ago was primarily driven by reclassification of gains recorded in other noninterest income. The gains were partially offset by increased other noninterest expense and a decrease in the gains recognized on securities compared to the second quarter of 2013.

  

 
 

 

 

  

 

 

 

(NASDAQ: BOCH)

   

 

Table 5

 

SUMMARY INCOME STATEMENT

 

(Dollars in thousands)

 

Q2

   

Q2

   

Change

   

Q1

   

Change

 
   

2014

   

2013

   

Amount

   

%

   

2014

   

Amount

   

%

 

Net interest income

  $ 8,190     $ 8,286     $ (96 )     -1 %   $ 8,173     $ 17       0 %

Provision for loan and lease losses

    1,450       1,400       50       4 %     0       1,450       100 %

Noninterest income

    2,136       1,025       1,111       108 %     364       1,772       487 %

Noninterest expense

    6,111       5,148       963       19 %     7,784       (1,673 )     -21 %

Income before income taxes

    2,765       2,763       2       0 %     753       2,012       267 %

Provision for income tax

    559       757       (198 )     -26 %     188       371       197 %

Net income

    2,206       2,006       200       10 %     565       1,641       290 %

Less: Preferred dividend and accretion on preferred stock

    50       50       0       0 %     50       0       0 %

Income available to common shareholders

  $ 2,156     $ 1,956     $ 200       10 %   $ 515     $ 1,641       319 %
                                                         

Basic earnings per share

  $ 0.16     $ 0.13     $ 0.03       23 %   $ 0.04     $ 0.12       300 %

Average basic shares

    13,378       15,120       (1,742 )     -12 %     13,942       (564 )     -4 %

Diluted earnings per share

  $ 0.16     $ 0.13     $ 0.03       23 %   $ 0.04     $ 0.12       300 %

Average diluted shares

    13,426       15,139       (1,713 )     -11 %     13,987       (561 )     -4 %
                                                         

  

 

Diluted EPS was $0.16 for the three months ended June 30, 2014 compared with $0.13 for the same period a year ago, and $0.04 for the prior period. EPS increased during the three months ended June 30, 2014 compared to the same period a year ago primarily due to a decrease in the weighted average shares. The decrease in weighted average shares directly resulted from the repurchase of 2.0 million common shares through two separate repurchase plans announced and completed in 2013 and 700,000 common shares repurchased during the six months ended June 30, 2014 under the plan announced March 20, 2014. All repurchased shares were retired subsequent to purchase. As such, the weighted average number of dilutive common shares outstanding decreased by 750 thousand during the six months ended June 30, 2014.

 

The Company declared cash dividends of $0.03 per share for the second quarter of 2014, consistent with the quarterly dividends in the prior quarter and the same period a year ago.

 

Net interest income for the three months ended June 30, 2014 was $8.2 million compared to $8.3 million during the same period a year ago and $8.2 million for the prior quarter. Average quarterly securities balances and weighted average tax equivalent yields at June 30, 2014 and 2013 were $240.4 million and 3.51% compared to $253.4 million and 3.15%, respectively.

 

Table 6

 

NET INTEREST SPREAD AND MARGIN

 

(Dollars in thousands)

 

Q2

   

Q2

   

Change

   

Q1

   

Change

 
   

2014

   

2013

   

Amount

   

2014

   

Amount

 

Tax equivalent yield on average interest earning assets

    4.14 %     4.20 %     -0.06 %     4.08 %     0.06 %

Rate on average interest bearing liabilities

    0.49 %     0.49 %     0 %     0.47 %     0.02 %

Net interest spread

    3.65 %     3.71 %     -0.06 %     3.61 %     0.04 %

Net interest margin on a tax equivalent basis

    3.75 %     3.81 %     -0.06 %     3.72 %     0.03 %
                                         

Average earning assets

  $ 908,197     $ 904,640     $ 3,557     $ 915,478     $ (7,281 )

Average interest bearing liabilities

  $ 716,835     $ 720,681     $ (3,847 )   $ 708,822     $ 8,013  

  

 

The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.75% for the three months ended June 30, 2014, a decrease of 6 basis points (bp) as compared to the same period a year ago. The decrease in net interest margin primarily resulted from a 7 bp decline in yield on average earning assets partially offset by a 1 bp decrease in interest expense to average earning assets. With decreasing elasticity in managing our funding costs and historically low interest rates, maintaining our net interest margin in the foreseeable future will continue to be challenging. Accordingly, management will continue to pursue organic loan growth, wholesale loan purchases, and actively manage the investment securities portfolio within our accepted risk tolerance to maximize yield on earning assets.

  

 
 

 

   

 

 

 

(NASDAQ: BOCH)

 

 

Noninterest income for the three months ended June 30, 2014 was $2.1 million, an increase of $1.1 million when compared to the same period a year ago. The following table presents the key components of noninterest income for the three months ended June 30, 2014 and 2013, and March 31, 2014:

 

Table 7

 

NONINTEREST INCOME

 

(Dollars in thousands)

 

Q2

   

Q2

   

Change

   

Q1

   

Change

 
   

2014

   

2013

   

Amount

   

%

   

2014

   

Amount

   

%

 

Service charges on deposit accounts

  $ 41     $ 54     $ (13 )     -24 %   $ 44     $ (3 )     -7 %

Payroll and benefit processing fees

    109       114       (5 )     -4 %     135       (26 )     -19 %

Earnings on cash surrender value - bank owned life insurance

    162       112       50       45 %     126       36       29 %

Gain (loss) on investment securities, net

    (39 )     406       (445 )     -110 %     (245 )     206       -84 %

Merchant credit card service income, net

    29       32       (3 )     -9 %     26       3       12 %

Other income

    1,834       307       1,527       497 %     278       1,556       560 %

Total noninterest income

  $ 2,136     $ 1,025     $ 1,111       108 %   $ 364     $ 1,772       487 %
                                                         

  

 

Service charges on deposit accounts decreased $13 thousand or 24% for the three months ended June 30, 2014 compared to the same period a year ago due to decreased fees on demand deposit accounts.

 

Bank owned life insurance earnings increased $50 thousand or 45% for the three months ended June 30, 2014 compared to the same period a year ago, and increased $36 thousand or 29% for the current quarter compared to the prior quarter. The increase was due to the purchase of additional key man policies during the three months ended June 30, 2014.

 

Gains on the sale of investment securities decreased $445 thousand to a net loss of $39 thousand for the three months ended June 30, 2014, compared to net gains of $406 thousand for the same period a year ago. During the three months ended June 30, 2014, the Company purchased seventeen securities with weighted average yields of 2.82%, and sold thirty securities with weighted average yields 2.56%. Generally, securities purchased had relatively short durations with solid credit quality.

 

Other income increased $1.6 million during the quarter ended June 30, 2014 compared to the prior quarter and increased $1.5 million compared to the same period a year ago. The increase was due to $1.6 million in hedge gains related to forecasted interest payments associated with FHLB advances which are no longer probable to occur.

 

Noninterest expense for the three months ended June 30, 2014 was $6.1 million, an increase of $1 million or 19% compared to the same period a year ago. The following table presents the key elements of noninterest expense for the three months ended June 30, 2014 and 2013, and March 31, 2014:

 

Table 8

 

NONINTEREST EXPENSE

 
   

Q2

   

Q2

   

Change

   

Q1

   

Change

 

(Dollars in thousands)

 

2014

   

2013

   

Amount

   

%

   

2014

   

Amount

   

%

 

Salaries and related benefits

  $ 3,417     $ 3,074     $ 343       11 %   $ 3,622     $ (205 )     -6 %

Occupancy and equipment expense

    678       529       149       28 %     642       36       6 %

Write down of other real estate owned

    0       0       0       0 %     290       (290 )     -100 %

FDIC insurance premium

    189       245       (56 )     -23 %     191       (2 )     -1 %

Data processing fees

    218       136       82       60 %     194       24       12 %

Professional service fees

    338       294       44       15 %     264       74       28 %

Deferred compensation expense

    115       0       115       100 %     115       0       0 %

Other expenses

    1,156       870       131       13 %     2,466       (1,310 )     -53 %

Total noninterest expense

  $ 6,111     $ 5,148     $ 963       19 %   $ 7,784     $ (1,673 )     -21 %
                                                         

 

  

Salaries and related benefits expense for the three months ended June 30, 2014 was $3.4 million, an increase of $343 thousand or 11% compared to the same period a year ago. The increase in salaries and related benefits was primarily driven by an increase in the number of employees and the related costs related to the addition of a new SBA Lending Department

  

 
 

 

   

 

 

 

(NASDAQ: BOCH)

 

 

Occupancy and equipment expenses increased $149 thousand for the three months ended June 30, 2014 compared to the same period a year ago, due to increased rent expenses and increased furniture fixture and equipment costs related to the expansion of the Sacramento Bank of Commerce office, and renovation expenses associated with the Churn Creek office.

 

During the three months ended March 31, 2014 management determined that further impairment was necessary for an improved commercial land property in the amount of $290 thousand. The property was transferred to OREO in 2010 and was written down to its fair value in anticipation of its pending sale.

 

The decrease in FDIC assessments of $56 thousand or 23% to $189 thousand during the quarter ended June 30, 2014 resulted from certain true-up adjustments to record additional premium expenses deemed necessary upon receipt of final prepaid premium reimbursement from the FDIC in June of 2013.

 

Data processing expense for the three months ended June 30, 2014 was $218 thousand an increase of $82 thousand or 60% compared to the same period a year ago. The increases in data processing expense compared to the same periods a year ago is primarily driven by increases in software maintenance and licensing expenses. The Bank continues to strive to make improvements in network infrastructure and systems, and expects to see continued increased costs in these expenses for the foreseeable future.

 

Professional service fees, which encompass audit, legal and consulting fees increased $44 thousand to $338 thousand for the three months ended June 30, 2014 compared to the same period a year ago and increased $74 thousand 28% compared to the previous quarter. The increases are due to increased fees for external audit and professional services.

 

Deferred compensation expense for the three months ended June 30, 2014 was $115 thousand, an increase of $115 thousand compared to the same period a year ago. The increase was due to certain true-up adjustments recorded during the same period a year ago. For disclosure purposes, in the table above and in the Company’s Consolidated Statement of Operations, the prior year credit balance in deferred compensation expense is included in the line item other expenses.

 

Other expenses for the three months ended June 30, 2014 increased compared to the prior year as the current year includes $221 thousand of additional amortization expense for affordable housing investments purchased during 2013 compared to $0 for the prior year. Other expenses decreased $1.3 million in the current quarter compared prior quarter which reflected a $1.4 million in pretax loss from the negotiated settlement of the note from the Company’s former mortgage subsidiary.

  

 
 

 

   

 

 

 

(NASDAQ: BOCH)

  

 

Table 9

 

ALLOWANCE ROLL FORWARD

 

(Dollars in thousands)

 

Q2

   

Q1

   

Q4

   

Q3

   

Q2

 
   

2014

   

2014

   

2013

   

2013

   

2013

 

Beginning balance

  $ 9,748     $ 14,172     $ 13,542     $ 13,133     $ 11,350  

Provision for loan loss charged to expense

    1,450       0       0       300       1,400  

Loans charged off

    (1,456 )     (4,903 )     (815 )     (635 )     (474 )

Loan loss recoveries

    140       479       1,445       744       857  

Ending balance

  $ 9,882     $ 9,748     $ 14,172     $ 13,542     $ 13,133  
                                         

Gross portfolio loans outstanding at period end

  $ 619,418     $ 607,049     $ 597,995     $ 594,562     $ 617,398  
                                         

Ratio of allowance for loan and lease losses to gross portfolio loans

    1.60 %     1.61 %     2.37 %     2.28 %     2.13 %

Nonaccrual loans at period end:

                                       

Commercial

  $ 4,375     $ 4,303     $ 6,527     $ 7,501     $ 7,898  

Commercial real estate

    15,598       12,560       14,539       16,895       16,614  

Residential real estate

    6,939       7,360       8,217       10,953       11,165  

Home equity

    479       484       513       517       345  

Consumer

    87       -       -       -       -  

Total nonaccrual loans

  $ 27,478     $ 24,707     $ 29,796     $ 35,866     $ 36,022  

Accruing troubled debt restructured loans

                                       

Commercial

  $ 13     $ 62     $ 63     $ 65     $ 68  

Commercial real estate

    1,716       3,853       3,864       1,742       1,748  

Residential real estate

    5,074       4,894       4,303       2,996       3,174  

Home equity

    589       593       598       604       531  

Total accruing restructured loans

  $ 7,392     $ 9,402     $ 8,828     $ 5,407     $ 5,521  
                                         

All other accruing impaired loans

    585       2,564       3,517       4,190       4,445  
                                         

Total impaired loans

  $ 35,455     $ 36,673     $ 42,141     $ 45,463     $ 45,988  
                                         

Allowance for loan and lease losses to nonaccrual loans at period end

    35.96 %     39.45 %     47.56 %     37.76 %     36.46 %

Nonaccrual loans to gross portfolio loans

    4.44 %     4.07 %     4.98 %     6.03 %     5.83 %

Allowance for loan and lease losses to impaired loans

    27.87 %     26.58 %     33.63 %     29.79 %     28.56 %
                                         

 

  

The Company realized net charge offs of $1.3 million in the current quarter compared with net charge offs of $4.4 million in the prior quarter and net recoveries of $383 thousand in the same period a year ago. Charge offs in the current quarter are primarily due to $1 million in charge offs related to one Commercial Real Estate loan relationship.

 

The Company continues to monitor credit quality, and adjust the ALLL accordingly to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolios. As such, the Company made $1.5 million additional provisions for loan losses during the second quarter of 2014, compared with $1.4 million during the same period a year ago. The Company’s ALLL as a percentage of gross portfolio loans was 1.60% at June 30, 2014 compared to 1.61% as of June 30, 2013.

  

 
 

 

   

 

 

 

(NASDAQ: BOCH)

 

 

During the first six months of 2014, the Bank’s loan portfolio reflected higher charge off rates relative to the previous quarters. The charge offs in during the first six months of 2014 were centered in three borrowing relationships previously identified as impaired. Management is cautiously optimistic that given continuing improvement in local and national economic conditions, the Company’s impaired assets will continue to trend down. However, the commercial real estate and commercial loan portfolios continue to be influenced by weak real estate values, the effects of relatively high unemployment levels, and less than robust economic conditions. At June 30, 2014, management believes the Company’s ALLL is adequately funded given the current level of credit risk.

 

At June 30, 2014, the recorded investment in loans classified as impaired totaled $35.5 million, with a corresponding valuation allowance (included in the ALLL) of $1.0 million compared to impaired loans of $36.7 million, with a corresponding valuation allowance (included in the ALLL) of $1.8 million at March 31, 2014. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans. The decrease in classified loans during the three months ended June 30, 2014 is primarily due to the aforementioned borrowing relationship.

 

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

 

During the current quarter, the Company restructured two loans to grant a rate concession. The loans were classified as TDR and placed on nonaccrual status. As of June 30, 2014, the Company had $27.9 million in TDRs compared to $29.2 million as of March 31, 2014. As of June 30, 2014, the Company had one hundred and eighteen restructured loans that qualified as TDRs, of which one hundred three were performing according to their restructured terms. TDRs represented 4.50% of gross portfolio loans as of June 30, 2014 compared with 4.81% at March 31, 2014.

 

Table 10

 

PERIOD END TROUBLED DEBT RESTRUCTURINGS

 

(Dollars in thousands)

 

Q2

   

Q1

   

Q4

   

Q3

   

Q2

 
   

2014

   

2014

   

2013

   

2013

   

2013

 

Nonaccrual

  $ 20,504     $ 19,779     $ 24,596     $ 21,511     $ 15,552  

Accruing

    7,392       9,402       8,828       5,407       5,521  

Total troubled debt restructurings

  $ 27,896     $ 29,181     $ 33,424     $ 26,918     $ 21,073  
                                         

Percentage of total gross portfolio loans

    4.50 %     4.81 %     5.59 %     4.53 %     3.41 %
                                         

  

 

Nonperforming loans, which include nonaccrual loans and accruing loans past due over 90 days, totaled $27.5 million or 4.43% of portfolio loans as of June 30, 2014, compared to $24.7 million, or 3.99% of portfolio loans at March 31, 2014. The increase in nonperforming loans in the current quarter is primarily due to $ 3.0 million in loans for one relationship moved to nonaccrual during the quarter ending June 30, 2014. Nonperforming assets, which include nonperforming loans and other real estate owned (“OREO”), totaled $28.3 million, or 2.94% of total assets as of June 30, 2014, compared with $25.3 million, or 2.63% of total assets as of March 31, 2014. As of June 30, 2014, nonperforming assets of $28.3 million have been written down by 36%, or $10.2 million, from their original balance of $42.8 million.

  

 
 

 

   

 

 

 

(NASDAQ: BOCH)

 

 

Table 11

         

PERIOD END NONPERFORMING ASSETS

 

(Dollars in thousands)

 

Q2

   

Q1

   

Q4

   

Q3

   

Q2

 
   

2014

   

2014

   

2013

   

2013

   

2013

 

Commercial

  $ 4,375     $ 4,303     $ 6,527     $ 7,501     $ 7,898  
                                         

Real estate mortgage

                                       

1-4 family, closed end 1st lien

    1,249       1,286       1,322       1,740       1,797  

1-4 family revolving

    479       484       513       517       345  

ITIN 1-4 family loan pool

    5,690       6,074       6,895       9,213       9,368  

Consumer

    87       -       -       -       -  

Total real estate mortgage

    7,505       7,844       8,730       11,470       11,510  
                                         

Commercial real estate

    15,598       12,560       14,539       16,895       16,614  

Total nonaccrual loans

    27,478       24,707       29,796       35,866       36,022  

90 days past due not on nonaccrual

    -       -       -       -       -  

Total nonperforming loans

    27,478       24,707       29,796       35,866       36,022  
                                         

Other real estate owned

    826       623       913       959       1,360  

Total nonperforming assets

  $ 28,304     $ 25,330     $ 30,709     $ 36,825     $ 37,382  
                                         

Nonperforming loans to portfolio loans

    4.43 %     3.99 %     4.98 %     6.03 %     5.83 %

Nonperforming assets to total assets

    2.94 %     2.63 %     3.23 %     3.95 %     3.91 %
                                         

  

 

Table 12

 

OTHER REAL ESTATE OWNED ACTIVITY

 

(Dollars in thousands)

 

Q2

   

Q1

   

Q4

   

Q3

   

Q2

 
   

2014

   

2014

   

2013

   

2013

   

2013

 

Beginning balance

  $ 623     $ 913     $ 959     $ 1,360     $ 1,785  

Write-down

    0       (290 )     -       -       -  

Additions to OREO

    268       -       98       146       184  

Dispositions of OREO

    (65 )     -       (144 )     (547 )     (609 )

Ending balance

  $ 826     $ 623     $ 913     $ 959     $ 1,360  
                                         

  

 

At June 30, 2014, and March 31, 2014, the recorded investment in OREO was $826 thousand and $623 thousand, respectively. The June 30, 2014 OREO balance consists of five properties, of which three are secured by 1-4 family residential real estate in the amount of $204 thousand, one commercial nonfarm residential property in the amount of $162 thousand and one piece of improved commercial land in the amount of $460 thousand.

  

 
 

 

   

 

 

 

(NASDAQ: BOCH)

  

 

Table 13

 

INCOME STATEMENT

 
(Amounts in thousands, except for per share data)   Q2     Q2     Change       Q1     Full Year  
    2014     2014     $     %     2014     2013  

Interest income:

                                               

Interest and fees on loans

  $ 7,188     $ 7,352     $ (164 )     -2 %   $ 7,094     $ 29,918  

Interest on tax-exempt securities

    1,111       656       455       69 %     652       2,610  

Interest on U.S. government securities

    635       772       (137 )     -18 %     1,114       1,702  

Interest on other securities

    128       381       (253 )     -66 %     140       3,031  

Total interest income

    9,062       9,161       (99 )     -1 %     9,000       37,261  

Interest expense:

                                               

Interest on demand deposits

    118       112       6       5 %     121       485  

Interest on savings deposits

    57       62       (5 )     -8 %     57       254  

Interest on certificates of deposit

    673       654       19       3 %     662       2,625  

Interest on securities sold under repurchase agreements

    -       2       (2 )     -100 %     0       6  

Interest on FHLB borrowings

    33       (48 )     81       -169 %     0       (267 )

Interest on other borrowings

    (9 )     93       (102 )     -110 %     (13 )     375  

Total interest expense

    872       875       (3 )     0 %     827       3,478  

Net interest income

    8,190       8,286       (96 )     -1 %     8,173       33,783  

Provision for loan and lease losses

    1,450       1,400       50       4 %     0       2,750  

Net interest income after provision for loan and lease losses

    6,740       6,886       (146 )     -2 %     8,173       31,033  

Noninterest income:

                                               

Service charges on deposit accounts

    41       54       (13 )     -24 %     44       191  

Payroll and benefit processing fees

    109       114       (5 )     -4 %     135       484  

Earnings on cash surrender value - bank owned life insurance

    162       112       50       45 %     126       534  

(Loss) Gain on investment securities, net

    (39 )     406       (445 )     -110 %     (245 )     995  

Merchant credit card service income, net

    29       32       (3 )     -9 %     26       129  

Other income

    1,834       307       1,527       497 %     278       1,209  

Total noninterest income

    2,136       1,025       1,111       108 %     364       3,542  

Noninterest expense:

                                               

Salaries and related benefits

    3,417       3,074       343       11 %     3,622       12,035  

Occupancy and equipment expense

    678       529       149       28 %     642       2,205  

Write down of other real estate owned

    0       0       0       0 %     290       -  

FDIC insurance premium

    189       245       (56 )     -23 %     191       725  

Data processing fees

    218       136       82       60 %     194       547  

Professional service fees

    338       294       45       15 %     264       1,241  

Deferred compensation expense

    115       (155 )     270       -174 %     115       179  

Other expenses

    1,156       1,025       131       13 %     2,466       5,309  

Total noninterest expense

    6,111       5,148       963       19 %     7,784       22,241  

Income before provision (benefit) for income taxes

    2,765       2,763       2       0 %     753       12,334  

Provision (benefit) for income taxes

    559       757       (198 )     -26 %     188       4,399  

Net Income

  $ 2,206     $ 2,006     $ 200       10 %   $ 565     $ 7,935  

Less: Preferred dividend and accretion on preferred stock

    50       50       0       0 %     50       200  

Income available to common shareholders

  $ 2,156     $ 1,956     $ 200       10 %   $ 515     $ 7,735  

Basic earnings per share

  $ 0.16     $ 0.13     $ 0.03       23 %   $ 0.04     $ 0.52  

Average basic shares

    13,378       15,120       (1,742 )     -12 %     13,942       14,940  

Diluted earnings per share

  $ 0.16     $ 0.13     $ 0.03       23 %   $ 0.04     $ 0.52  

Average diluted shares

    13,426       15,139       (1,713 )     -11 %     13,987       14,964  

 

 
 

 

    

 

 

 

(NASDAQ: BOCH)

   

 

Table 14

 

BALANCE SHEET

 

(Dollars in thousands)

 

June 30,

   

June 30,

   

Change

   

December 31,

 

ASSETS

 

2014

   

2013

    $     %     2013  

Cash and due from banks

  $ 50,677     $ 22,426     $ 28,251       126 %   $ 38,369  

Interest bearing due from banks

    16,068       20,810       (4,742 )     -23 %     20,146  

Total cash and cash equivalents

    66,745       43,236       23,509       54 %     58,515  
                                         

Securities available-for-sale, at fair value

    188,686       218,495       (29,809 )     -14 %     216,640  

Securities held-to-maturity, at amortized cost

    37,031       34,843       2,188       6 %     36,696  
                                         

Portfolio loans

    619,622       617,733       1,889       0 %     598,298  

Allowance for loan losses

    (9,882 )     (13,133 )     3,251       -25 %     (14,172 )

Net loans

    609,740       604,600       5,140       1 %     584,126  
                                         

Total interest earning assets

    912,084       914,307       (2,223 )     0 %     910,149  
                                         

Bank premises and equipment, net

    12,415       10,275       2,140       21 %     10,893  

Other intangibles

    -       39       (39 )     -100 %     -  

Other real estate owned

    826       1,360       (534 )     -39 %     913  

Other assets

    48,273       43,764       4,509       10 %     43,763  

TOTAL ASSETS

  $ 963,716     $ 956,612     $ 7,104       1 %   $ 951,546  
                                         

LIABILITIES AND STOCKHOLDERS' EQUITY

                                       

Demand - noninterest bearing

  $ 135,416     $ 113,615     $ 21,801       19 %   $ 133,984  

Demand - interest bearing

    269,055       243,087       25,968       11 %     273,390  

Savings accounts

    90,416       93,791       (3,375 )     -4 %     90,442  

Certificates of deposit

    260,129       244,408       15,721       6 %     248,477  

Total deposits

    755,016       694,901       60,115       9 %     746,293  
                                         

Securities sold under agreements to repurchase

    0       1,758       (1,758 )     -100 %     0  

Federal Home Loan Bank borrowings

    75,000       125,000       (50,000 )     -40 %     75,000  

Junior subordinated debentures

    15,465       15,465       0       0 %     15,465  

Other liabilities

    17,545       12,618       4,927       39 %     13,001  

TOTAL LIABILITIES

    863,026       849,742       13,284       2 %     849,759  
                                         

TOTAL STOCKHOLDERS' EQUITY

    100,690       106,870       (6,180 )     -6 %     101,787  
                                         

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

  $ 963,716     $ 956,612     $ 7,104       1 %   $ 951,546  
                                         

 

 
 

 

 

 

 

 

(NASDAQ: BOCH)

   

 

Table 15   YEAR TO DATE AVERAGE BALANCE SHEET  
(Dollars in thousands)   June 30,     June 30,     December 31,     December 31,     December 31,  
    2014     2013     2013     2012     2011  
Earning assets:                                        

Loans

  $ 610,033     $ 624,444     $ 612,819     $ 642,200     $ 626,275  

Tax exempt securities

    85,097       91,833       92,854       81,714       52,467  

Taxable securities

    155,343       157,961       157,486       135,615       130,898  

Interest bearing due from banks

    62,126       40,306       43,397       48,712       64,399  

Average earning assets

    912,599       914,544       906,556       908,241       874,039  
                                         

Cash and DFB

    10,187       9,920       10,570       10,125       2,251  

Bank premises

    11,696       10,081       10,338       9,567       9,489  

Other assets

    32,684       30,106       26,838       24,249       21,421  

Average total assets

  $ 967,166     $ 964,651     $ 954,302     $ 952,182     $ 907,200  
                                         

Interest bearing liabilities:

                                       

Demand - interest bearing

  $ 270,311     $ 235,786     $ 244,125     $ 203,342     $ 157,696  

Savings deposits

    91,447       91,482       92,502       89,789       91,876  

Certificates of deposit

    261,184       252,322       249,500       285,574       296,381  

Repurchase Agreements

    -       11,476       5,780       14,246       14,805  

Other Borrowings

    90,465       143,688       125,144       125,839       130,933  

Average interest bearing liabilities

    713,407       734,754       717,051       718,790       691,691  
                                         

Demand - noninterest bearing

    132,669       114,119       126,017       115,091       100,722  

Other liabilities

    19,213       6,422       5,041       7,033       6,679  
                                         

Shareholders' equity

    101,877       109,356       106,193       111,268       108,108  

Average liabilities & equity

  $ 967,166     $ 964,651     $ 954,302     $ 952,182     $ 907,200  
                                         

 

 
 

 

  

 

 

 

(NASDAQ: BOCH)

    

 

About Bank of Commerce Holdings

 

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

 

Investment firms making a market in BOCH stock are:

 

Raymond James Financial

John T. Cavender

555 Market Street

San Francisco, CA 94105

(800) 346-5544

 

Sandler O’Neill + Partners, L.P.

Brian Sullivan

1251 Avenue of the Americas, 6th Floor

New York, NY 10022

(212) 466-8022

McAdams Wright Ragen, Inc.

Joey Warmenhoven

1211 SW Fifth Avenue, Suite 1400

Portland, OR 97204

(866) 662-0351

 

Stifel Nicolaus

Perry Wright

1255 East Street, Suite 100

Redding, CA 96001

(530) 244-7199

 

 

Contact Information:

 

Randall S. Eslick, President and Chief Executive Officer

Telephone Direct (530) 722-3900

 

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

Telephone Direct (530) 722-3952

 

Andrea Schneck, Vice President and Senior Administrative Officer

Telephone Direct (530) 722-3959