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Table Of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2016

 

 

Commission file number 0-25135

 

Bank of Commerce Holdings

 

 

California

94-2823865

(State or jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

   

1901 Churn Creek Road Redding, California

96002

(Address of principal executive offices)

(Zip Code)

   

 

Registrant’s telephone number, including area code: (530) 722-3952

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

 Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

(Check One)

 

       

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller Reporting Company ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

 

Yes ☐ No ☒

 

Outstanding shares of Common Stock, no par value, as of October 28, 2016: 13,439,422

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Index to Form 10-Q

 

 

Part I. FINANCIAL INFORMATION

 
 

Item 1. Financial Statements

3

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

42

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

69

 

Item 4. Controls and Procedures

69

     

Part II. OTHER INFORMATION

 
 

Item 1. Legal Proceedings

70

 

Item 1a. Risk Factors

70

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

70

 

Item 3. Defaults Upon Senior Securities

70

 

Item 4. Mine Safety Disclosures

70

 

Item 5. Other Information

70

 

Item 6. Exhibits

70

     

SIGNATURES

71

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Consolidated Balance Sheets (Unaudited)

September 30, 2016 and December 31, 2015

 

   

September 30,

   

December 31,

 

(Amounts in thousands, except share information)

 

2016

   

2015

 

Assets:

               

Cash and due from banks

  $ 19,699     $ 9,730  

Interest-bearing deposits in other banks

    65,431       41,462  

Total cash and cash equivalents

    85,130       51,192  
                 

Securities available-for-sale, at fair value

    156,440       159,030  

Securities held-to-maturity, at amortized cost

    31,771       35,899  
                 

Loans, net of deferred fees and costs

    780,174       717,509  

Allowance for loan and lease losses

    (11,849 )     (11,180 )

Net loans

    768,325       706,329  
                 

Premises and equipment, net

    15,930       11,072  

Other real estate owned

    793       1,423  

Life insurance

    22,946       22,485  

Deferred tax asset, net

    8,171       9,760  

Goodwill and core deposit intangibles, net

    2,307        

Other assets

    19,205       18,251  

Total assets

  $ 1,111,018     $ 1,015,441  
                 

Liabilities and shareholders' equity:

               

Liabilities:

               

Demand - noninterest bearing

  $ 254,435     $ 169,507  

Demand - interest bearing

    394,525       315,658  

Savings

    110,201       94,503  

Certificates of deposit

    216,332       224,067  

Total deposits

    975,493       803,735  
                 

Term debt:

               

Principal

    19,317       94,917  

Less unamortized debt issuance costs

    (193 )     (223 )

Net term debt

    19,124       94,694  
                 

Junior subordinated debentures

    10,310       10,310  

Other liabilities

    11,798       16,180  

Total liabilities

    1,016,725       924,919  
                 

Commitments and contingencies (Note 11)

               

Shareholders' equity:

               

Common stock, no par value, 50,000,000 shares authorized: 17,161,096 issued; 13,439,422 outstanding as of September 30, 2016 and 13,385,154 outstanding as of December 31, 2015

    24,483       24,214  

Retained earnings

    68,321       66,562  

Accumulated other comprehensive income (loss)

    1,489       (254 )

Total shareholders' equity

    94,293       90,522  

Total liabilities and shareholders' equity

  $ 1,111,018     $ 1,015,441  

 

 

See accompanying notes to consolidated financial statements.

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

For the three and nine months ended September 30, 2016 and 2015

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

 

(Amounts in thousands, except per share information)

 

2016

   

2015

   

2016

   

2015

 

Interest income:

                               

Interest and fees on loans

  $ 9,007     $ 8,357     $ 26,254     $ 24,572  

Interest on taxable securities

    689       743       2,281       2,489  

Interest on tax-exempt securities

    552       592       1,734       1,793  

Interest on interest-bearing deposits in other banks

    82       40       222       167  

Total interest income

    10,330       9,732       30,491       29,021  

Interest expense:

                               

Interest on demand deposits

    136       116       388       339  

Interest on savings deposits

    43       53       129       162  

Interest on certificates of deposit

    524       586       1,636       1,771  

Interest on term debt

    292       475       1,369       1,187  

Interest on junior subordinated debentures

    59       47       172       143  

Total interest expense

    1,054       1,277       3,694       3,602  

Net interest income

    9,276       8,455       26,797       25,419  

Provision for loan and lease losses

                       

Net interest income after provision for loan and lease losses

    9,276       8,455       26,797       25,419  

Noninterest income:

                               

Service charges on deposit accounts

    133       52       293       153  
ATM and point of sale fees     287       96       714       279  

Fees on payroll and benefit processing

    133       138       432       416  

Earnings on cash surrender value - life insurance

    152       158       461       482  

Gain on sale of investment securities, net

    70       137       192       413  

Impairment losses on investment securities

                (546 )      

Other income

    184       227       799       800  

Total noninterest income

    959       808       2,345       2,543  

Noninterest expense:

                               

Salaries and related benefits

    3,873       3,208       12,188       10,693  

Premises and equipment

    1,071       714       2,847       2,157  

Federal Deposit Insurance Corporation insurance premium

    176       159       513       544  

Data processing fees

    464       243       1,142       736  

Professional service fees

    303       337       1,209       1,167  

Telecommunications

    199       116       545       335  

Branch acquisition costs

                580        

Loss on cancellation of interest rate swap

                2,325        

Other expenses

    1,039       797       3,445       2,657  

Total noninterest expense

    7,125       5,574       24,794       18,289  

Income before provision for income taxes

    3,110       3,689       4,348       9,673  

Provision for income taxes

    744       1,164       1,386       2,957  

Net income

  $ 2,366     $ 2,525     $ 2,962     $ 6,716  

Less: Preferred stock dividends

          50             150  

Income available to common shareholders

  $ 2,366     $ 2,475     $ 2,962     $ 6,566  
                                 

Earnings per share - basic

  $ 0.18     $ 0.18     $ 0.22     $ 0.49  

Weighted average shares - basic

    13,369       13,340       13,366       13,327  

Earnings per share - diluted

  $ 0.18     $ 0.18     $ 0.22     $ 0.49  

Weighted average shares - diluted

    13,439       13,377       13,412       13,358  

 

 

See accompanying notes to consolidated financial statements.

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

For the three and nine months ended September 30, 2016 and 2015

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

 

(Amounts in thousands)

 

2016

   

2015

   

2016

   

2015

 

Net income

  $ 2,366     $ 2,525     $ 2,962     $ 6,716  
                                 

Available-for-sale securities:

                               

Unrealized (losses) gains arising during the period

    (306 )     253       294       (544 )

Income taxes

    126       (104 )     (121 )     224  

Change in unrealized (losses) gains, net of tax

    (180 )     149       173       (320 )
                                 

Reclassification adjustment for realized gains included in net income

    (48 )     (137 )     (171 )     (413 )

Income taxes

    19       54       70       170  

Realized gains, net of tax

    (29 )     (83 )     (101 )     (243 )
                                 

Reclassification adjustment for other than temporary impairment included in net income

                546        

Income taxes

                (225 )      

Realized impairment, net of tax

                321        

Net change in unrealized (losses) gains on available-for-sale securities

    (209 )     66       393       (563 )
                                 
                                 

Held-to-maturity securities:

                               

Amortization of held-to-maturity fair value adjustment

    (22 )     (37 )     (79 )     (116 )

Income taxes

    9       14       33       47  

Net change in fair value adjustment on held-to-maturity securities

    (13 )     (23 )     (46 )     (69 )
                                 

Derivatives:

                               

Unrealized losses arising during the period

          (457 )     (348 )     (917 )

Income taxes

          188       143       377  

Change in unrealized losses, net of tax

          (269 )     (205 )     (540 )
                                 

Reclassification adjustments for net losses on derivatives included in net income

          418       2,721       1,005  

Income taxes

          (177 )     (1,120 )     (414 )

Reclassification adjustments for net losses included in net income, net of tax

          241       1,601       591  

Net change in unrealized losses on derivatives

          (28 )     1,396       51  

Other comprehensive income (loss)

    (222 )     15       1,743       (581 )

Comprehensive income – Bank of Commerce Holdings

  $ 2,144     $ 2,540     $ 4,705     $ 6,135  

 

 

See accompanying notes to consolidated financial statements.

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

For the twelve months ended December 31, 2015 and nine months ended September 30, 2016 (Unaudited)

 

(Amounts in thousands except per share information)

 

Preferred

Stock

Amount

   

Common

Shares

   

Common

Stock 

Amount

   

Retained

Earnings

   

Accumulated

Other Comp-

Income (Loss)

Net of Tax

   

Total

 

Balance at January 1, 2015

  $ 19,931       13,294     $ 23,891     $ 59,867     $ (87 )   $ 103,602  

Net income

                      8,586             8,586  

Other comprehensive loss, net of tax

                            (167 )     (167 )

Comprehensive income

                                  8,419  

Dividend on preferred stock

                      (189 )           (189 )

Dividend on common stock ($0.12 per share)

                      (1,600 )           (1,600 )

Common stock issued under employee plans

          9       36                   36  

Stock options exercised

          39       156                   156  

Compensation expense associated with stock options

                42                   42  

Compensation expense associated with restricted stock

                89                   89  

Preferred stock redemption

    (20,000 )                 (33 )           (20,033 )

Preferred stock accretion

    69                   (69 )            

Balance at December 31, 2015 (1)

  $       13,342     $ 24,214     $ 66,562     $ (254 )   $ 90,522  

(1) Excludes 43 unvested restricted shares

                     

   

 

                           

Accumulated

         
           

Common

           

Other Comp-

         
   

Common

   

Stock

   

Retained

   

Income (Loss)

         

(Amounts in thousands except per share information)

 

Shares

   

Amount

   

Earnings

   

Net of Tax

   

Total

 

Balance at January 1, 2016

    13,342     $ 24,214     $ 66,562     $ (254 )   $ 90,522  

Net income

                2,962             2,962  

Other comprehensive income, net of tax

                      1,743       1,743  

Comprehensive income

                            4,705  

Dividend on common stock ($0.09 per share)

                (1,203 )           (1,203 )

Common stock issued under employee plans

    26       84                   84  

Stock options exercised

    1       4                   4  

Compensation expense associated with stock options

          18                   18  

Compensation expense associated with restricted stock

          163                   163  

Balance at September 30, 2016 (1)

    13,369     $ 24,483     $ 68,321     $ 1,489     $ 94,293  

(1) Excludes 70 unvested restricted shares

                 

  

 

See accompanying notes to consolidated financial statements.

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

For the nine months ended September 30, 2016 and September 30, 2015

   

For the Nine Months Ended

 
   

September 30,

 

(Amounts in thousands)

 

2016

   

2015

 

Cash flows from operating activities:

               

Net income

  $ 2,962     $ 6,716  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Provision for depreciation and amortization

    1,397       1,126  

Amortization of core deposit intangibles

    130        

Amortization of debt issuance costs

    30        

Compensation expense associated with stock options

    18       33  

Compensation expense associated with restricted stock

    163       68  

Net gain on sale or call of securities

    (192 )     (413 )

Other than temporary impairment on investment securities

    546        

Amortization of investment premiums and accretion of discounts, net

    1,256       1,424  

Amortization of held-to-maturity fair value adjustments

    (79 )     (116 )

Loss on cancellation of interest rate swap

    2,325        

Loss (gain) on disposal of fixed assets

    2       (4 )

Write-down of fixed assets

          238  

Write-down of other real estate owned

    76        

Loss on sale of other real estate owned

    119       4  

Decrease in deferred income taxes

    363        

Increase in cash surrender value of life insurance

    (461 )     (482 )

(Decrease) increase in deferred compensation and salary continuation plans

    (26 )     28  

Increase in deferred loan fees and costs

    (285 )     (561 )

(Increase) decrease in other assets

    (796 )     669  

Decrease in other liabilities

    (1,059 )     (1,165 )

Net cash provided by operating activities

    6,489       7,565  
                 

Cash flows from investing activities:

               

Proceeds from maturities of and payments on available-for-sale securities

    25,660       18,328  

Proceeds from sale of available-for-sale securities

    46,699       61,255  

Purchases of available-for-sale securities

    (70,892 )     (52,015 )

Proceeds from maturities of and payments on held-to-maturity securities

    4,310       849  

Investment in qualified affordable housing partnerships

    (688 )     (863 )

Net redemption of Federal Home Loan Bank of San Francisco stock

          1,263  

Loan originations, net of principal repayments

    (74,008 )     (51,452 )

Net repayment on (purchase of) loan pools

    12,316       (9,833 )

Purchase of premises and equipment

    (2,067 )     (347 )

Proceeds from the sale of other real estate owned

    545       2,864  

Payments to derivative counterparties for the termination of interest rate swaps

    (2,578 )      

Acquisition of branches, net of cash paid

    142,411        

Net cash provided (used) by investing activities

    81,708       (29,951 )

 

 

See accompanying notes to consolidated financial statements.

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited) (Continued)

 

   

For the Nine Months Ended

 
   

September 30,

 

(Amounts in thousands)

 

2016

   

2015

 

Cash flows from financing activities:

               

Net increase in demand deposits and savings accounts

  $ 54,607     $ 6,727  

Net decrease in certificates of deposit

    (31,896 )     (16,257 )

Advances on term debt

    55,000       240,000  

Repayment of term debt

    (130,772 )     (240,000 )

Proceeds from stock options exercised

    4       152  

Cash dividends paid on preferred stock

          (150 )

Cash dividends paid on common stock

    (1,202 )     (1,199 )

Net cash used in financing activities

    (54,259 )     (10,727 )

Net increase (decrease) in cash and cash equivalents

    33,938       (33,113 )

Cash and cash equivalents at beginning of year

    51,192       58,422  

Cash and cash equivalents at end of period

  $ 85,130     $ 25,309  

 

See accompanying notes to consolidated financial statements.

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited) (Continued)

For the nine months ended September 30, 2016 and September 30, 2015

 

   

For the Nine Months Ended

 
   

September 30,

 

(Amounts in thousands)

 

2016

   

2015

 

Supplemental disclosures of cash flow activity:

               

Cash paid during the period for:

               

Income taxes

  $ 3,444     $ 3,650  

Interest

  $ 3,884     $ 3,486  

Supplemental disclosures of non cash investing activities:

               

Transfer of loans to other real estate owned

  $ 110     $ 3,721  

Transfer of fixed asset to other real estate owned

  $     $ 170  
                 

Changes in unrealized gain (loss) on investment securities available-for-sale

  $ 669     $ (957 )

Changes in net deferred tax asset related to changes in unrealized gain (loss) on investment securities available-for-sale

    (276 )     394  

Changes in accumulated other comprehensive income due to changes in unrealized gain on investment securities available-for-sale

  $ 393     $ (563 )
                 

Accretion of held-to-maturity investment securities from other comprehensive income to interest income

  $ (79 )   $ (116 )

Changes in deferred tax related to accretion of held-to-maturity investment securities

    33       47  

Changes in accumulated other comprehensive income due to accretion of held-to-maturity investment securities

  $ (46 )   $ (69 )
                 

Changes in unrealized loss on derivatives

  $ (348 )   $ (917 )

Changes in net deferred tax asset related to changes in unrealized loss on derivatives

    143       377  

Changes in accumulated other comprehensive income due to changes in unrealized loss on derivatives

  $ (205 )   $ (540 )
                 

Reclassification of losses on derivatives

  $ 2,721     $ 1,005  

Changes in net deferred tax asset related to reclassification of losses on derivatives

    (1,120 )     (414 )

Changes in accumulated other comprehensive income due to reclassification of losses on derivatives

  $ 1,601     $ 591  

Supplemental disclosures of non cash financing activities:

               

Vested restricted stock issued under employee plans

  $ 84     $ 36  

Cash dividend declared on common shares and payable after period-end

  $ 401     $ 400  

Cash dividend declared on preferred shares and payable after period-end

  $     $ 50  

Transactions Related to Acquisition:

               

Assets acquired - fair value

  $ 155,230     $  

Goodwill

  $ 665     $  

Liabilities assumed - fair value

  $ 149,239     $  

 

 

See accompanying notes to consolidated financial statements.

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Bank of Commerce Holdings (“Company,” “Holding Company,” “we,” or “us”), is a bank holding company (“BHC”) with its principal offices in Redding, California. The Holding Company’s principal business is to serve as a holding company for Redding Bank of Commerce (the “Bank” and together with the Holding Company, the “Company”) which operates under two separate names (Redding Bank of Commerce and Sacramento Bank of Commerce, a division of Redding Bank of Commerce). The Company has an unconsolidated subsidiary in Bank of Commerce Holdings Trust II. The consolidated Balance Sheets as of September 30, 2016 and December 31, 2015, which have been derived from the unaudited interim consolidated financial statements and audited consolidated financial statements, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included and the disclosures made are adequate to make the information not misleading.

 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with prevailing practices within the banking and securities industries. In preparing such consolidated financial statements, management is required to make certain estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the Balance Sheets and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan and lease losses (“ALLL”), the valuation of goodwill and Other Real Estate Owned (“OREO”), and fair value measurements. Certain amounts for prior periods have been reclassified to conform to the current financial statement presentation. The results of reclassifications are not considered material and have no effect on previously reported net income or shareholders' equity. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in Bank of Commerce Holdings 2015 Annual Report on Form 10-K. The consolidated results of operations and cash flows for the 2016 interim periods shown in this report are not necessarily indicative of the results for any future interim period or the entire fiscal year.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Holding Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. As of September 30, 2016 and December 31, 2015, the Company had one wholly-owned trust (“Trust”) formed in 2005 to issue trust preferred securities and related common securities. The Company has not consolidated the accounts of the Trust in its Consolidated Financial Statements in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB”) ASC 810, Consolidation (“ASC 810”). As a result, the junior subordinated debentures issued by the Company to the Trust are reflected in our Consolidated Balance Sheets.

 

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

 

In June of 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments are intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

 

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.

 

The ASU requires enhanced disclosures to help investors and other financial statement users to better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting guidance for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

 

The amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are currently evaluating the provisions of the ASU to determine the potential impact the new standard will have on our consolidated financial statements.

 


BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

In March of 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. We are currently evaluating the impacts of this ASU on our consolidated financial statements.

 

In February of 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 812). This Update was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement No. 6, Elements of Financial Statements, and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. For public companies, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

 

In May of 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which creates Topic 606 and supersedes Topic 605, Revenue Recognition. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new guidance requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

 

The standard is effective for public entities for interim and annual periods beginning after December 15, 2017 as deferred by ASU No. 2015-14; early adoption is not permitted. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. We are currently evaluating the provisions of the ASU to determine the potential impact the new standard will have on our consolidated financial statements.

 

NOTE 3. EARNINGS PER SHARE

 

Basic earnings per share excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period, excluding unvested restricted stock awards which do not have voting rights or share in dividends. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that subsequently shared in the earnings of the Holding Company. The computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share.

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

The following is a computation of basic and diluted earnings per share for the three and nine months ended September 30, 2016 and 2015.

 

 

   

For the Three Months Ended

   

For the Nine Months Ended

 

(Amounts in thousands, except per share information)

 

September 30,

   

September 30,

 

Earnings Per Share

 

2016

   

2015

   

2016

   

2015

 

Numerators:

                               

Net income

  $ 2,366     $ 2,525     $ 2,962     $ 6,716  

Less:

                               

Preferred stock dividends

          50             150  

Net income available to common shareholders

  $ 2,366     $ 2,475     $ 2,962     $ 6,566  

Denominators:

                               

Weighted average number of common shares outstanding - basic

    13,369       13,340       13,366       13,327  

Potentially dilutive common shares (1)

    70       37       46       31  

Weighted average number of common shares outstanding - diluted

    13,439       13,377       13,412       13,358  

Earnings per common share:

                               

Basic

  $ 0.18     $ 0.18     $ 0.22     $ 0.49  

Diluted

  $ 0.18     $ 0.18     $ 0.22     $ 0.49  

Anti-dilutive options not included in diluted earnings per share calculation

    74       121       111       121  

Anti-dilutive restricted shares not included in diluted earnings per share calculation

                41       30  

(1) Represents the effects of the assumed exercise of stock options and vesting of non-participating restricted shares.

           

 

 

 

 

 

 

 

 

 

 

NOTE 4. SECURITIES

 

The following table presents the amortized costs, unrealized gains, unrealized losses and approximate fair values of investment securities as of September 30, 2016, and December 31, 2015.

 

   

As of September 30, 2016

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Estimated

 

(Amounts in thousands)

 

Cost

   

Gain

   

Loss

   

Fair Value

 

Available-for-sale securities:

                               

Obligations of state and political subdivisions

  $ 57,937     $ 2,059     $ (44 )   $ 59,952  

Residential mortgage backed securities and collateralized mortgage obligations

    53,907       369       (230 )     54,046  

Corporate securities

    16,190       238       (82 )     16,346  

Commercial mortgage backed securities

    16,291       24       (61 )     16,254  

Other asset backed securities

    9,826       87       (71 )     9,842  

Total

  $ 154,151     $ 2,777     $ (488 )   $ 156,440  

Held-to-maturity securities:

                               

Obligations of state and political subdivisions

  $ 31,771     $ 1,628     $ (11 )   $ 33,388  

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

   

As of December 31, 2015

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Estimated

 

(Amounts in thousands)

 

Cost

   

Gain

   

Loss

   

Fair Value

 

Available-for-sale securities:

                               

U.S. government & agencies

  $ 3,886     $ 57     $     $ 3,943  

Obligations of state and political subdivisions

    59,332       1,811       (39 )     61,104  

Residential mortgage backed securities and collateralized mortgage obligations

    32,215       192       (270 )     32,137  

Corporate securities

    33,775       194       (191 )     33,778  

Commercial mortgage backed securities

    12,893       10       (134 )     12,769  

Other asset backed securities

    15,331       82       (114 )     15,299  

Total

  $ 157,432     $ 2,346     $ (748 )   $ 159,030  

Held-to-maturity securities:

                               

Obligations of state and political subdivisions

  $ 35,899     $ 966     $ (220 )   $ 36,645  

 

 

The following table presents the expected maturities of investment securities at September 30, 2016.

 

   

Available-For-Sale

   

Held-To-Maturity

 

(Amounts in thousands)

 

Amortized Cost

   

Fair Value

   

Amortized Cost

   

Fair Value

 

Amounts maturing in:

                               

One year or less

  $ 4,946     $ 4,991     $     $  

One year through five years

    62,910       63,417       4,575       4,830  

Five years through ten years

    33,575       34,693       13,435       14,087  

After ten years

    52,720       53,339       13,761       14,471  

Total

  $ 154,151     $ 156,440     $ 31,771     $ 33,388  

 

The amortized cost and fair value of residential mortgage backed, collateralized mortgage obligations and commercial mortgage securities are presented by their expected average life, rather than contractual maturity, because the underlying loans may be repaid without prepayment penalties.

 

The following table presents the fair value of the securities held for pledging, segregated by purpose, as of September 30, 2016.

 

(Amounts in thousands)

 

Pledged

   

Available To Be

Pledged

   

Total Held For

Pledging Purposes

 

Public funds collateral

  $ 17,687     $ 7,921     $ 25,608  

Federal Home Loan Bank of San Francisco borrowings

          18,616       18,616  

Total

  $ 17,687     $ 26,537     $ 44,224  

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

The following table presents the cash proceeds from sales of securities and the associated gross realized gains and gross realized losses that have been included in earnings for the three and nine months ended September 30, 2016 and 2015.

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 

(Amounts in thousands)

 

2016

   

2015

   

2016

   

2015

 

Proceeds from sales of securities

  $ 12,310     $ 25,340     $ 46,699     $ 61,255  
                                 

Gross realized gains on sales of securities:

                               

Obligations of state and political subdivisions

  $ 25     $ 16     $ 136     $ 86  

Residential mortgage backed securities and collateralized mortgage obligations

    12       49       14       111  

Corporate securities

    29       52       105       134  

Commercial mortgage backed securities

          10       4       14  

Other asset backed securities

    10       50       31       142  

Total gross realized gains on sales of securities

    76       177       290       487  

Gross realized losses on sales of securities:

                               

U.S. government & agencies

          (4 )           (5 )

Obligations of state and political subdivisions

    (3 )     (4 )     (3 )     (4 )

Residential mortgage backed securities and collateralized mortgage obligations

          (2 )     (64 )     (12 )

Corporate securities

    (2 )           (27 )      

Commercial mortgage backed securities

    (1 )           (1 )      

Other asset backed securities

          (30 )     (3 )     (53 )

Total gross realized losses on sales of securities

    (6 )     (40 )     (98 )     (74 )

Gain on investment securities, net

  $ 70     $ 137     $ 192     $ 413  

 

 

Investment securities that were in an unrealized loss position as of September 30, 2016 and December 31, 2015 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position. In the opinion of management, these securities are considered only temporarily impaired due to changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the underlying credit of the issuers or underlying collateral.

 

   

As of September 30, 2016

 
   

Less Than 12 Months

   

12 Months or More

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 

(Amounts in thousands)

 

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 

Available-for-sale securities:

                                               

Obligations of states and political subdivisions

  $ 4,793     $ (44 )   $     $     $ 4,793     $ (44 )

Residential mortgage backed securities and collateralized mortgage obligations

    18,276       (109 )     5,283       (121 )     23,559       (230 )

Corporate securities

    5,014       (55 )     2,648       (27 )     7,662       (82 )

Commercial mortgage backed securities

    8,155       (43 )     2,944       (18 )     11,099