Bank of Commerce Holdings - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - FORM 8-K - Bank of Commerce Holdings	boch20171018_8k.htm

Exhibit 99.1

For Immediate Release:

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

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

Financial highlights for the third quarter of 2017:

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

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

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

●	Average loans for the nine months ended September 30, 2017 totaled $811.1 million, an increase of $66.7 million (9%) compared to average loans for the same period in the prior year.
●	Average earning assets totaled $1.1 billion for the nine months ended September 30, 2017, an increase of $113.4 million (11%) compared to average earning assets for the same period in the prior year.
●	Nonperforming assets at September 30, 2017 totaled $8.3 million or 0.67% of total assets, a decrease of $3.8 million (42% annualized) compared to December 31, 2016.

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

Forward-Looking Statements

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

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

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

●	A decline in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of our loans

●	Credit quality deterioration which could cause an increase in the provision for loan and lease losses

●	Asset/Liability matching risks and liquidity risks

●	Changes in the securities markets

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

TABLE 1

SELECTED FINANCIAL INFORMATION - UNAUDITED

(amounts in thousands except per share data)

	For The Three Months Ended									For The Nine Months Ended
Net income, average assets and	September 30,						June 30,			September 30,
average shareholders' equity	2017			2016			2017			2017			2016
Net income	$	2,876		$	2,366		$	2,209		$	7,337		$	2,962
Average total assets	$	1,220,900		$	1,093,918		$	1,170,447		$	1,180,150		$	1,064,210
Average total earning assets	$	1,146,132		$	1,019,230		$	1,097,644		$	1,106,532		$	993,156
Average shareholders' equity	$	126,574		$	93,238		$	112,855		$	111,533		$	91,959

Selected performance ratios
Return on average assets		0.93	%		0.86	%		0.76	%		0.83	%		0.37	%
Return on average equity		9.01	%		10.10	%		7.85	%		8.80	%		4.30	%
Efficiency ratio		62.84	%		69.61	%		69.13	%		67.77	%		85.08	%

Share and per share amounts
Weighted average shares - basic		16,191			13,369			15,014			14,884			13,366
Weighted average shares - diluted		16,288			13,439			15,113			14,984			13,412
Earnings per share - basic	$	0.18		$	0.18		$	0.15		$	0.49		$	0.22
Earnings per share - diluted	$	0.18		$	0.18		$	0.15		$	0.49		$	0.22

	At September 30,						At June 30,
Share and per share amounts	2017			2016			2017
Common shares outstanding ⁽¹⁾		16,265			13,439			16,260
Tangible book value per common share	$	7.77		$	6.84		$	7.61

Capital ratios
Bank of Commerce Holdings ⁽²⁾
Common equity tier 1 capital ratio⁽³⁾		12.66	%		9.60	%		12.55	%
Tier 1 capital ratio ⁽³⁾		13.65	%		10.65	%		13.56	%
Total capital ratio ⁽³⁾		15.91	%		12.96	%		15.83	%
Tier 1 leverage ratio ⁽³⁾		11.12	%		9.28	%		11.38	%
Tangible common equity ratio		10.27	%		8.30	%		10.23	%

Redding Bank of Commerce
Common equity tier 1 capital ratio ⁽³⁾		12.87	%		12.62	%		12.66	%
Tier 1 capital ratio ⁽³⁾		12.87	%		12.62	%		12.66	%
Total capital ratio ⁽³⁾		14.12	%		13.87	%		13.91	%
Tier 1 leverage ratio ⁽³⁾		10.50	%		11.03	%		10.64	%

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

⁽²⁾ Capital Ratios for the Company include the benefit of $26.8 million net proceeds from the sale of 2,738,096 shares of common stock in the second quarter of 2017.

⁽³⁾ The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The capital ratios for 2016 were impacted by increased average total assets, the addition of $1.8 million of core deposit intangible and $665 thousand of goodwill recorded in conjunction with the acquisition of five branches in March of 2016.

BALANCE SHEET OVERVIEW

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

TABLE 2

LOAN BALANCES BY TYPE - UNAUDITED

(amounts in thousands)

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

Average yield on loans during the quarter		4.87	%					4.66	%					0.21						4.77	%

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

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

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

TABLE 3

CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED

(amounts in thousands)

	At September 30,																		At June 30,
				% of						% of			Change									% of
	2017			Total			2016			Total			Amount			%			2017			Total

Cash and due from banks	$	19,929			6	%	$	19,699			7	%	$	230			1	%	$	23,420			7	%
Interest-bearing deposits in other banks		65,702			19			65,431			24			271			—	%		73,434			22
Total cash and cash equivalents		85,631			25			85,130			31			501			1	%		96,854			29

Investment securities:
U.S. government and agencies		36,474			10			5,527			2			30,947			560	%		24,231			7
Obligations of state and political subdivisions		53,850			15			59,952			22			(6,102	)		(10	%)		58,400			17
Residential mortgage backed securities and collateralized mortgage obligations		105,224			31			54,046			20			51,178			95	%		91,375			28
Corporate securities		6,968			2			16,346			6			(9,378	)		(57	%)		8,312			2
Commercial mortgage backed securities		26,148			7			16,254			6			9,894			61	%		23,421			7
Other asset backed securities		3,830			1			4,315			2			(485	)		(11	%)		3,870			1
Total investment securities - AFS		232,494			66			156,440			58			76,054			49	%		209,609			62

Obligations of state and political subdivisions - HTM		30,724			9			31,771			11			(1,047	)		(3	%)		31,329			9
Total investment securities - AFS and HTM		263,218			75			188,211			69			75,007			40	%		240,938			71
Total cash, cash equivalents and investment securities	$	348,849			100	%	$	273,341			100	%	$	75,508			28	%	$	337,792			100	%
Average yield on interest-bearing due from banks and investment securities during the quarter		2.19	%					2.11	%					0.08						2.27	%

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

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

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

TABLE 4

DEPOSITS BY TYPE - UNAUDITED

(amounts in thousands)

	At September 30,																		At June 30,
				% of						% of			Change									% of
	2017			Total			2016			Total			Amount			%			2017			Total
Demand - noninterest-bearing	$	316,814			30	%	$	254,435			26	%	$	62,379			25	%	$	303,560			29	%
Demand - interest-bearing		433,466			41			394,525			40			38,941			10	%		426,798			41
Total demand		750,280			71			648,960			66			101,320			16	%		730,358			70

Savings		111,962			11			110,201			11			1,761			2	%		109,472			10
Total non-maturing deposits		862,242			82			759,161			77			103,081			14	%		839,830			80

Certificates of deposit		200,543			18			216,332			23			(15,789	)		(7	%)		206,395			20
Total deposits	$	1,062,785			100	%	$	975,493			100	%	$	87,292			9	%	$	1,046,225			100	%

Average rate on interest-bearing deposits during the quarter		0.43	%					0.39	%					0.04						0.42	%
Average rate on all deposits during the quarter		0.31	%					0.29	%					0.02						0.31	%

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

TABLE 5
WHOLESALE AND BROKERED DEPOSITS - UNAUDITED
(amounts in thousands)

	At September 30,				At June 30,
	2017		2016		2017
CDARS / ICS reciprocal brokered deposits	$	56,203	$	59,502	$	56,803
Online listing service wholesale time deposits		37,293		52,456		42,709
Total wholesale and brokered deposits	$	93,496	$	111,958	$	99,512

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

INCOME STATEMENT OVERVIEW

TABLE 6

SUMMARY INCOME STATEMENT - UNAUDITED

(amounts in thousands, except per share data)

	For The Three Months Ended
	September 30,				Change					June 30,		Change
	2017		2016		Amount		%			2017		Amount			%
Interest income	$	11,765	$	10,330	$	1,435		14	%	$	11,320	$	445			4	%
Interest expense		1,181		1,054		127		12	%		1,145		36			3	%
Net interest income		10,584		9,276		1,308		14	%		10,175		409			4	%
Provision for loan and lease losses		—		—		—		—	%		300		(300	)		(100	%)
Noninterest income		995		959		36		4	%		983		12			1	%
Noninterest expense:
Other noninterest expense		7,276		7,125		151		2	%		7,714		(438	)		(6	%)
Income before provision for income taxes		4,303		3,110		1,193		38	%		3,144		1,159			37	%
Provision for income taxes		1,427		744		683		92	%		935		492			53	%
Net income	$	2,876	$	2,366	$	510		22	%	$	2,209	$	667			30	%

Basic earnings per share	$	0.18	$	0.18	$	—		—	%	$	0.15	$	0.03			20	%
Average basic shares		16,191		13,369		2,822		21	%		15,014		1,177			8	%
Diluted earnings per share	$	0.18	$	0.18	$	—		—	%	$	0.15	$	0.03			20	%
Average diluted shares		16,288		13,439		2,849		21	%		15,113		1,175			8	%
Dividends declared per common share	$	0.03	$	0.03	$	—		—	%	$	0.03	$	—			—	%

Third Quarter of 2017 Compared With Third Quarter of 2016

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

Net Interest Income

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

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

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

Provision for loan and lease loss

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

Noninterest Income

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

Noninterest Expense

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

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

These increases were partially offset by the following positive items:

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

Income Tax Provision

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

Third Quarter of 2017 Compared With Second Quarter of 2017

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

Net Interest Income

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

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

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

Provision for loan and lease loss

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

Noninterest Income

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

Noninterest Expense

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

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

Income Tax Provision

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

Earnings Per Share

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

TABLE 7a

NET INTEREST MARGIN - UNAUDITED

(amounts in thousands)

	For The Three Months Ended
	September 30, 2017							September 30, 2016							June 30, 2017
	Average				Yield /			Average				Yield /			Average				Yield /
(Amounts in thousands)	Balance		Interest⁽¹⁾		Rate ⁽⁵⁾			Balance		Interest⁽¹⁾		Rate ⁽⁵⁾			Balance		Interest⁽¹⁾		Rate ⁽⁵⁾
Interest-earning assets:
Net loans ⁽²⁾	$	805,144	$	9,887		4.87	%	$	769,354	$	9,007		4.66	%	$	821,321	$	9,758		4.77	%
Taxable securities		179,362		1,049		2.32	%		114,578		689		2.39	%		143,705		872		2.43	%
Tax-exempt securities		77,303		551		2.83	%		73,952		552		2.97	%		73,927		534		2.90	%
Interest-bearing deposits in other banks		84,323		278		1.31	%		61,346		82		0.53	%		58,691		156		1.07	%
Average interest-earning assets		1,146,132		11,765		4.07	%		1,019,230		10,330		4.03	%		1,097,644		11,320		4.14	%
Cash and due from banks		19,143							17,018							17,364
Premises and equipment, net		15,362							15,941							15,809
Other assets		40,263							41,729							39,630
Average total assets	$	1,220,900						$	1,093,918						$	1,170,447

Interest-bearing liabilities:
Interest-bearing demand	$	436,614		196		0.18	%	$	390,895		136		0.14	%	$	421,888		184		0.17	%
Savings deposits		110,305		52		0.19	%		107,210		43		0.16	%		109,857		47		0.17	%
Certificates of deposit		204,044		567		1.10	%		221,078		524		0.94	%		208,703		545		1.05	%
Net term debt		17,804		292		6.51	%		19,610		292		5.92	%		19,539		298		6.12	%
Junior subordinated debentures		10,310		74		2.85	%		10,310		59		2.28	%		10,310		71		2.76	%
Average interest-bearing liabilities		779,077		1,181		0.60	%		749,103		1,054		0.56	%		770,297		1,145		0.60	%
Noninterest-bearing demand		303,314							240,418							275,039
Other liabilities		11,935							11,159							12,256
Shareholders’ equity		126,574							93,238							112,855
Average liabilities and shareholders’ equity	$	1,220,900						$	1,093,918						$	1,170,447
Net interest income and net interest margin⁽⁴⁾			$	10,584		3.66	%			$	9,276		3.62	%			$	10,175		3.72	%
Tax equivalent net interest margin ⁽³⁾						3.76	%						3.73	%						3.82	%

⁽¹⁾ Interest income on loans is net of deferred fees and costs of approximately $95 thousand, $289 thousand, and $131 thousand for the three months ended September 30, 2017, and 2016 and June 30, 2017, respectively.

⁽²⁾ Net loans includes average nonaccrual loans of $8.6 million, $10.5 million and $9.8 million for the three months ended September 30, 2017 and 2016 and June 30, 2017, respectively.

⁽³⁾ Tax-exempt income has been adjusted to tax equivalent basis at a 34% tax rate. The amount of such adjustments was an addition to recorded income of approximately $284 thousand, $284 thousand and $275 thousand for the three months ended September 30, 2017 and 2016 and June 30, 2017, respectively.

⁽⁴⁾ Net interest margin is net interest income expressed as a percentage of average interest-earning assets.

⁽⁵⁾ Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

TABLE 7b

NET INTEREST MARGIN - UNAUDITED

(amounts in thousands)

	For The Nine Months Ended
	September 30, 2017							September 30, 2016
	Average				Yield /			Average				Yield /
(Amounts in thousands)	Balance		Interest⁽¹⁾		Rate ⁽⁵⁾			Balance		Interest⁽¹⁾		Rate ⁽⁵⁾
Interest-earning assets:
Net loans ⁽²⁾	$	811,080	$	29,029		4.79	%	$	744,370	$	26,254		4.71	%
Taxable securities		153,702		2,710		2.36	%		119,541		2,281		2.55	%
Tax-exempt securities		74,932		1,615		2.88	%		76,315		1,734		3.04	%
Interest-bearing deposits in other banks		66,818		548		1.10	%		52,930		222		0.56	%
Average interest-earning assets		1,106,532		33,902		4.10	%		993,156		30,491		4.10	%
Cash and due from banks		17,802							15,455
Premises and equipment, net		15,776							14,657
Other assets		40,040							40,942
Average total assets	$	1,180,150						$	1,064,210

Interest-bearing liabilities:
Interest-bearing demand	$	426,365		528		0.17	%	$	365,917		388		0.14	%
Savings deposits		111,258		146		0.18	%		102,427		129		0.17	%
Certificates of deposit		209,275		1,641		1.05	%		222,286		1,636		0.98	%
Net term debt		18,644		883		6.33	%		43,435		1,369		4.21	%
Junior subordinated debentures		10,310		211		2.74	%		10,310		172		2.23	%
Average interest-bearing liabilities		775,852		3,409		0.59	%		744,375		3,694		0.66	%
Noninterest-bearing demand		280,559							214,540
Other liabilities		12,206							13,336
Shareholders’ equity		111,533							91,959
Average liabilities and shareholders’ equity	$	1,180,150						$	1,064,210
Net interest income and net interest margin⁽⁴⁾			$	30,493		3.68	%			$	26,797		3.60	%
Tax equivalent net interest margin ⁽³⁾						3.78	%						3.72	%

⁽¹⁾ Interest income on loans is net of deferred fees and costs of approximately $423 thousand and $956 thousand for the nine months ended September 30, 2017 and 2016, respectively.

⁽²⁾ Net loans includes average nonaccrual loans of $9.7 million and $10.7 million for the nine months ended September 30, 2017 and 2016, respectively.

⁽³⁾ Tax-exempt income has been adjusted to tax equivalent basis at a 34% tax rate. The amount of such adjustments was an addition to recorded income of approximately $832 thousand and $893 thousand for the nine months ended September 30, 2017 and 2016, respectively.

⁽⁴⁾ Net interest margin is net interest income expressed as a percentage of average interest-earning assets.

⁽⁵⁾ Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

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

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

Average deposit balances for the current quarter increased $38.8 million and $94.7 million compared to the prior quarter and the same period a year ago, respectively. The increase in average deposits was due to organic growth in core deposits. Our overall cost of total deposits was 0.31% for the quarter ended September 30, 2017 compared to 0.29% for the same period a year ago and 0.31% for the prior quarter.

TABLE 8

ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED

(amounts in thousands)

	For The Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2017			2017			2017			2016			2016
Beginning balance ALLL	$	11,688		$	11,641		$	11,544		$	11,849		$	11,864
Provision for loan and lease losses		—			300			200			—			—
Loans charged-off		(245	)		(359	)		(447	)		(386	)		(357	)
Loan loss recoveries		249			106			344			81			342
Ending balance ALLL	$	11,692		$	11,688		$	11,641		$	11,544		$	11,849

	At September 30,			At June 30,			At March 31,			At December 31,			At September 30,
	2017			2017			2017			2016			2016
Nonaccrual loans:
Commercial	$	2,309		$	2,410		$	2,534		$	2,749		$	1,710
Real estate - commercial non-owner occupied		—			1,196			1,196			1,196			1,196
Real estate - commercial owner occupied		617			639			654			784			800
Real estate - residential - ITIN		3,201			3,346			3,331			3,576			3,392
Real estate - residential - 1-4 family mortgage		626			653			1,337			1,914			1,798
Real estate - residential - equity lines		815			872			906			917			942
Consumer and other		37			38			39			250			252
Total nonaccrual loans		7,605			9,154			9,997			11,386			10,090
Accruing troubled debt restructured loans:
Commercial		671			703			741			776			726
Real estate - commercial non-owner occupied		805			806			808			808			811
Real estate - residential - ITIN		4,655			4,712			4,761			5,033			5,280
Real estate - residential - equity lines		441			445			450			454			543
Total accruing troubled debt restructured loans		6,572			6,666			6,760			7,071			7,360

All other accruing impaired loans		—			—			—			337			483

Total impaired loans	$	14,177		$	15,820		$	16,757		$	18,794		$	17,933

Gross loans outstanding at period end	$	824,874		$	815,388		$	810,194		$	804,211		$	779,019

Nonaccrual loans to gross loans		0.92	%		1.12	%		1.23	%		1.42	%		1.30	%

Allowance for loan and lease losses as a percent of:
Gross loans		1.42	%		1.43	%		1.44	%		1.44	%		1.52	%
Nonaccrual loans		153.74	%		127.68	%		116.44	%		101.39	%		117.43	%
Impaired loans		82.47	%		73.88	%		69.47	%		61.42	%		66.07	%

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

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

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

TABLE 9

TROUBLED DEBT RESTRUCTURINGS - UNAUDITED

(amounts in thousands)

	At September 30,			At June 30,			At March 31,			At December 31,			At September 30,
	2017			2017			2017			2016			2016
Nonaccrual	$	4,403		$	4,630		$	4,570		$	4,995		$	3,795
Accruing		6,572			6,666			6,760			7,071			7,360
Total troubled debt restructurings	$	10,975		$	11,296		$	11,330		$	12,066		$	11,155

Percentage of total gross loans		1.33	%		1.39	%		1.40	%		1.50	%		1.43	%

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

TABLE 10

NONPERFORMING ASSETS - UNAUDITED

(amounts in thousands)

	At September 30,			At June 30,			At March 31,			At December 31,			At September 30,
	2017			2017			2017			2016			2016
Total nonaccrual loans	$	7,605		$	9,154		$	9,997		$	11,386		$	10,090
90 days past due and still accruing		—			—			—			—			—
Total nonperforming loans		7,605			9,154			9,997			11,386			10,090

Other real estate owned		699			1,517			814			759			793
Total nonperforming assets	$	8,304		$	10,671		$	10,811		$	12,145		$	10,883

Nonperforming loans to gross loans		0.92	%		1.12	%		1.23	%		1.42	%		1.30	%
Nonperforming assets to total assets		0.67	%		0.88	%		0.95	%		1.06	%		0.98	%

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

TABLE 11

UNAUDITED CONSOLIDATED

BALANCE SHEET

(amounts in thousands, except per share data)

	At September 30,			At September 30,			Change						At June 30,
	2017			2016			$			%			2017
Assets:
Cash and due from banks	$	19,929		$	19,699		$	230			1	%	$	23,420
Interest-bearing deposits in other banks		65,702			65,431			271			—	%		73,434
Total cash and cash equivalents		85,631			85,130			501			1	%		96,854

Securities available-for-sale, at fair value		232,494			156,440			76,054			49	%		209,609
Securities held-to-maturity, at amortized cost		30,724			31,771			(1,047	)		(3	%)		31,329

Loans, net of deferred fees and costs		826,644			780,174			46,470			6	%		816,929
Allowance for loan and lease losses		(11,692	)		(11,849	)		157			(1	%)		(11,688	)
Net loans		814,952			768,325			46,627			6	%		805,241

Premises and equipment, net		15,039			15,930			(891	)		(6	%)		15,417
Other real estate owned		699			793			(94	)		(12	%)		1,517
Life insurance		21,764			22,946			(1,182	)		(5	%)		21,629
Deferred taxes		8,751			8,171			580			7	%		8,723
Goodwill and core deposit intangible, net		2,086			2,307			(221	)		(10	%)		2,141
Other assets		19,741			19,205			536			3	%		19,634
Total assets	$	1,231,881		$	1,111,018		$	120,863			11	%	$	1,212,094

Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	316,814		$	254,435		$	62,379			25	%	$	303,560
Demand - interest-bearing		433,466			394,525			38,941			10	%		426,798
Savings		111,962			110,201			1,761			2	%		109,472
Certificates of deposit		200,543			216,332			(15,789	)		(7	%)		206,395
Total deposits		1,062,785			975,493			87,292			9	%		1,046,225

Term debt		17,700			19,317			(1,617	)		(8	%)		18,300
Unamortized debt issuance costs		(150	)		(193	)		43			(22	%)		(161	)
Net term debt		17,550			19,124			(1,574	)		(8	%)		18,139

Junior subordinated debentures		10,310			10,310			—			—	%		10,310
Other liabilities		12,831			11,798			1,033			9	%		11,468
Total liabilities		1,103,476			1,016,725			86,751			9	%		1,086,142

Shareholders' equity:
Common stock		51,755			24,483			27,272			111	%		51,651
Retained earnings		76,179			68,321			7,858			12	%		73,789
Accumulated other comprehensive income, net of tax		471			1,489			(1,018	)		(68	%)		512
Total shareholders' equity		128,405			94,293			34,112			36	%		125,952

Total liabilities and shareholders' equity	$	1,231,881		$	1,111,018		$	120,863			11	%	$	1,212,094

Total interest-earning assets	$	1,154,934		$	1,031,527		$	123,407			12	%	$	1,130,619
Shares outstanding		16,265			13,439									16,260
Tangible book value per share	$	7.77		$	6.84								$	7.61

TABLE 12

UNAUDITED

INCOME STATEMENT

(amounts in thousands, except per share data)

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

TABLE 12 - CONTINUED

UNAUDITED

INCOME STATEMENT

(amounts in thousands, except per share data)

	For The Three Months Ended												For The Nine Months Ended
	September 30,				Change						June 30,		September 30,
	2017		2016		$			%			2017		2017		2016
Noninterest expense:
Salaries and related benefits		4,291		3,873		418			11	%		4,147		13,296		12,188
Occupancy and equipment		1,067		1,071		(4	)		—	%		1,054		3,169		2,847
Federal Deposit Insurance Corporation insurance premium		78		176		(98	)		(56	%)		104		230		513
Data processing fees		437		464		(27	)		(6	%)		450		1,294		1,142
Professional service fees		276		293		(17	)		(6	%)		459		1,119		1,174
Telecommunications		219		199		20			10	%		223		653		545
Branch acquisition costs		—		—		—			—	%		—		—		580
Loss on cancellation of interest rate swap		—		—		—			—	%		—		—		2,325
Other expenses		908		1,049		(141	)		(13	%)		1,277		3,290		3,480
Total noninterest expense		7,276		7,125		151			2	%		7,714		23,051		24,794
Income before provision for income taxes		4,303		3,110		1,193			38	%		3,144		10,462		4,348
Deferred tax asset write-off		—		—		—			—	%		—		—		363
Provision for income taxes		1,427		744		683			92	%		935		3,125		1,023
Net income	$	2,876	$	2,366	$	510			22	%	$	2,209	$	7,337	$	2,962

Basic earnings per share	$	0.18	$	0.18	$	—			—	%	$	0.15	$	0.49	$	0.22
Average basic shares		16,191		13,369		2,822			21	%		15,014		14,884		13,366
Diluted earnings per share	$	0.18	$	0.18	$	—			—	%	$	0.15	$	0.49	$	0.22
Average diluted shares		16,288		13,439		2,849			21	%		15,113		14,984		13,412

TABLE 13

UNAUDITED CONDENSED CONSOLIDATED

YEAR TO DATE AVERAGE BALANCE SHEETS

(amounts in thousands)

	For the Nine Months Ended				For the Twelve Months Ended
	September 30,		September 30,		December 31,		December 31,		December 31,
	2017		2016		2016		2015		2014
Earning assets:
Loans	$	811,080	$	744,370	$	752,938	$	699,227	$	625,166
Taxable securities		153,702		119,541		120,884		120,897		147,916
Tax exempt securities		74,932		76,315		75,303		77,089		83,973
Interest-bearing deposits in other banks		66,818		52,930		58,668		30,323		56,465
Total earning assets		1,106,532		993,156		1,007,793		927,536		913,520

Cash and due from banks		17,802		15,455		15,831		11,220		11,246
Premises and equipment, net		15,776		14,657		15,078		11,552		12,105
Other assets		40,040		40,942		41,048		42,423		36,936
Total assets	$	1,180,150	$	1,064,210	$	1,079,750	$	992,731	$	973,807

Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	280,559	$	214,540	$	226,368	$	156,578	$	139,792
Demand - interest-bearing		426,365		365,917		374,170		283,105		272,383
Savings		111,258		102,427		104,771		92,659		91,108
Certificates of deposit		209,275		222,286		221,074		238,626		259,445
Total deposits		1,027,457		905,170		926,383		770,968		762,728

Term debt		18,644		43,435		37,286		88,874		77,534
Junior subordinated debentures		10,310		10,310		10,310		10,310		15,239
Other liabilities		12,206		13,336		13,217		16,588		15,934
Total liabilities		1,068,617		972,251		987,196		886,740		871,435

Shareholders' equity		111,533		91,959		92,554		105,991		102,372
Liabilities & shareholders' equity	$	1,180,150	$	1,064,210	$	1,079,750	$	992,731	$	973,807

TABLE 14

UNAUDITED CONDENSED CONSOLIDATED

QUARTERLY AVERAGE BALANCE SHEETS

(amounts in thousands)

	For The Three Months Ended
	September 30,		June 30,		March 31,		December 31,		September 30,
	2017		2017		2017		2016		2016
Earning assets:
Loans	$	805,144	$	821,321	$	806,793	$	778,458	$	769,354
Taxable securities		179,362		143,705		137,582		124,881		114,578
Tax exempt securities		77,303		73,927		73,524		72,288		73,952
Interest-bearing deposits in other banks		84,323		58,691		57,140		75,760		61,346
Total earning assets		1,146,132		1,097,644		1,075,039		1,051,387		1,019,230

Cash and due from banks		19,143		17,364		16,873		16,953		17,018
Premises and equipment, net		15,362		15,809		16,165		16,331		15,941
Other assets		40,263		39,630		40,228		41,363		41,729
Total assets	$	1,220,900	$	1,170,447	$	1,148,305	$	1,126,034	$	1,093,918

Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	303,314	$	275,039	$	262,881	$	261,600	$	240,418
Demand - interest-bearing		436,614		421,888		420,416		398,749		390,895
Savings		110,305		109,857		113,647		111,755		107,210
Certificates of deposit		204,044		208,703		215,202		217,463		221,078
Total deposits		1,054,277		1,015,487		1,012,146		989,567		959,601

Term debt		17,804		19,539		18,598		18,975		19,610
Junior subordinated debentures		10,310		10,310		10,310		10,310		10,310
Other liabilities		11,935		12,256		12,431		12,856		11,159
Total liabilities		1,094,326		1,057,592		1,053,485		1,031,708		1,000,680

Shareholders' equity		126,574		112,855		94,820		94,326		93,238
Liabilities & shareholders' equity	$	1,220,900	$	1,170,447	$	1,148,305	$	1,126,034	$	1,093,918

About Bank of Commerce Holdings

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

Contact Information:

Randall S. Eslick, President and Chief Executive Officer

Telephone Direct (916) 677-5800

James A. Sundquist, Executive Vice President and Chief Financial Officer

Telephone Direct (916) 677-5825

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

Telephone Direct (530) 722-3952

Andrea Schneck, Vice President and Senior Administrative Officer

Telephone Direct (530) 722-3959

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