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

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8-K - FORM 8-K - Bank of Commerce Holdings	d621610d8k.htm

Exhibit 99.1

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For immediate release:

Bank of Commerce Holdings™ announces Third Quarter Results

REDDING, California, October 31, 2013 / PR Newswire— Patrick J. Moty, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ: BOCH), a $931.8 million bank holding company and parent company of Redding Bank of Commerce™ and Roseville Bank of Commerce™ (a division of Redding Bank of Commerce) (the “Bank”), today reported net income available to common shareholders of $1.8 million and diluted earnings per share (EPS) from continuing operations of $0.12 for the quarter ended September 30, 2013.

Financial highlights:

•

Net income available to common shareholders of $1.8 million compared to $1.5 million reported for the third quarter of 2012, and $2.0 million recorded for the second quarter of 2013.

•

Diluted EPS attributable to continuing operations of $0.12 compared to $0.12 reported for the third quarter of 2012 and $0.13 for the second quarter of 2013. Diluted EPS attributable to discontinued operations of $0.00 compared to $(0.03) reported for the third quarter of 2012 and $0.00 for the prior quarter ended June 30, 2013.

•

Loan loss provisions for the third quarter were $300 thousand compared to $1.9 million for the third quarter of 2012, and $1.4 million for the prior quarter ended June 30, 2013.

•

Nonperforming assets represent 3.95% of total assets in the current period versus 3.03% for the third quarter of 2012 and 3.92% for the prior quarter ended June 30, 2013.

Patrick J. Moty, President and CEO commented: “I am very pleased to report that year to date net income is up 6.5% over the same nine month period of 2012. Our core deposits continue to grow and increased by 10% over the same period. In September we also declared a special cash dividend of $0.02 per share in addition to our regular quarterly cash dividend.”

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, 2012 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.

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Table 1 below shows summary financial information for the quarters ended September 30, 2013 and 2012, and June 30, 2013.

Table 1


	SUMMARY FINANCIAL INFORMATION
(Shares and dollars in thousands)	Quarter ended			Quarter ended						Quarter ended
	September 30, 2013			September 30, 2012			Change			June 30, 2013			Change
Selective quarterly performance ratios
Return on average assets, annualized		0.76	%		0.72	%		0.04	%		0.84	%		-0.08	%
Return on average equity, annualized		6.89	%		6.15	%		0.74	%		7.40	%		-0.51	%
Efficiency ratio for quarter to date		62.69	%		52.06	%		10.63	%		55.29	%		7.40	%
Share and Per Share figures – Actual
Common shares outstanding at period end		14,462			16,121			(1,659	)		14,990			(528	)
Weighted average diluted shares		14,853			16,240			(1,387	)		15,139			(286	)
Diluted EPS attributable to continuing operations	$	0.12		$	0.12		$	0.00		$	0.13		$	(0.01	)
Diluted EPS attributable to discontinued operations	$	0.00		$	(0.03	)	$	0.03		$	0.00		$	0.00
Book value per common share	$	5.73		$	5.67		$	0.06		$	5.80		$	(0.07	)
Tangible book value per common share	$	5.73		$	5.67		$	0.06		$	5.80		$	(0.07	)

Capital Ratios
	September 30, 2013			September 30, 2012			Change			June 30, 2013			Change
Bank of Commerce Holdings
Tier 1 risk based capital ratio		15.66	%		14.67	%		0.73	%		14.27	%		1.13	%
Total risk based capital ratio		16.92	%		15.92	%		0.74	%		15.53	%		1.13	%
Leverage ratio		12.80	%		13.21	%		-0.41	%		13.02	%		-0.22	%
Redding Bank of Commerce
Tier 1 risk based capital ratio		15.19	%		14.11	%		0.86	%		14.68	%		0.29	%
Total risk based capital ratio		16.45	%		15.36	%		0.86	%		15.93	%		0.29	%
Leverage ratio		12.42	%		12.71	%		-0.27	%		12.66	%		-0.22	%

Bank of Commerce Holdings (the “Company”) remains well capitalized. At September 30, 2013, the Company’s Tier 1 and Total risk based capital ratios measured 15.66% and 16.92% respectively, while the leverage ratio was 12.80%.

Return on average assets (ROA) and return on average equity (ROE) for the current quarter was 0.76% and 6.89%, respectively, compared with 0.72% and 6.15%, 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 the following:

•

Loss from discontinued operations decreased during the three months ended September 30, 2013; the Company realized $0 in income from discontinued operations compared to a loss of $507 thousand in the three months ended September 30, 2012.

•

The provision for loan losses for the three months ended September 30, 2013 decreased by $1.6 million compared to the same period a year ago.

The increase in ROE is also attributed to the decrease in the weighted average number of dilutive common shares outstanding. During 2013 the Company repurchased 1,513,668 common shares through two separate repurchase plans resulting in a decrease in the weighted average shares outstanding of 1,135,519. All shares were retired subsequent to purchase.

The increase in the efficiency ratio compared to the prior quarter and same period a year ago is due to increases in other expenses primarily driven by the loss recognized from the termination of the forward starting interest rate swap of $503 thousand and a loss of $176 thousand related to the purchase of the remaining outstanding balance of an impaired participated commercial real estate credit.

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Balance Sheet Overview

As of September 30, 2013, the Company had total consolidated assets of $931.8 million, total net portfolio loans of $581.3 million, allowance for loan and lease losses of $13.5 million, total deposits of $725.5 million, and stockholders’ equity of $102.8 million.

Overall, the net portfolio loan balance decreased during the third quarter of 2013 compared to the same period a year ago. The Company recorded net portfolio loans of $581.3 million at September 30, 2013, compared with $594.1 million at September 30, 2012, a decrease of $12.8 million, or 2.15%. The decrease in net portfolio loans was primarily driven by the pay off of a $7.2 million commercial real estate loan.

Table 2


	PERIOD END LOANS
(Dollars in thousands)	September 30,			% of			September 30,			% of			Change						June 30,			% of
	2013			Total			2012			Total			Amount			%			2013			Total
Commercial	$	169,193			28	%	$	165,915			27	%	$	3,278			2	%	$	197,084			31	%
Real estate – construction loans		15,625			3	%		21,346			4	%		(5,721	)		-27	%		15,875			3	%
Real estate – commercial (investor)		208,530			35	%		215,836			36	%		(7,306	)		-3	%		201,896			33	%
Real estate – commercial (owner occupied)		80,101			13	%		74,667			12	%		5,434			7	%		78,478			13	%
Real estate – ITIN loans		57,232			10	%		61,020			10	%		(3,788	)		-6	%		58,271			9	%
Real estate – mortgage		15,872			3	%		17,062			3	%		(1,190	)		-7	%		17,738			3	%
Real estate – equity lines		43,989			7	%		44,041			7	%		(52	)		0	%		44,285			7	%
Consumer		3,753			1	%		4,530			1	%		(777	)		-17	%		3,581			1	%
Other loans		267			0	%		62			0	%		205			331	%		190			0	%

Gross portfolio loans		594,562			100	%		604,479			100	%		(9,917	)		-2	%		617,398			100	%
Less:
Deferred loan fees, net		(282	)					(216	)					(66	)		31	%		(335	)
Allowance for loan and lease losses		13,542						10,560						2,982			28	%		13,133

Net portfolio loans	$	581,302					$	594,135					$	(12,833	)		-2	%	$	604,600

Yield on loans		4.84	%					5.23	%					-0.39	%					4.80	%

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Table 3


	PERIOD END CASH EQUIVALENTS AND INVESTMENT SECURITIES
(Dollars in thousands)	September 30,			% of			September 30,			% of			Change						June 30,			% of
	2013			Total			2012			Total			Amount			%			2013			Total
Cash equivalents:
Cash and due from banks	$	28,616			10	%	$	40,541			14	%	$	(11,925	)		-29	%	$	22,426			7	%
Interest bearing due from banks		20,379			7	%		23,893			9	%		(3,514	)		-15	%		20,810			7	%

		48,995			17	%		64,434			23	%		(15,439	)		-24	%		43,236			14	%
Investment Securities-AFS:
U.S. government and agencies		3,718			1	%		0			0	%		3,718			100	%		886			0	%
Obligations of state and political subdivisions		61,492			20	%		68,019			24	%		(6,527	)		-10	%		68,652			23	%
Mortgage backed securities		57,934			20	%		54,353			20	%		3,581			7	%		53,538			18	%
Corporate securities		52,552			18	%		49,747			18	%		2,805			6	%		66,924			23	%
Other asset backed securities		33,946			12	%		22,809			8	%		11,137			49	%		28,495			10	%

		209,642			71	%		194,928			70	%		14,714			8	%		218,495			74	%
Investment Securities-HTM:
Obligations of state and political subdivisions		34,814			12	%		18,808			7	%		16,006			85	%		34,843			12	%

Total cash equivalents and investment securities	$	293,451			100	%	$	278,170			100	%	$	15,281			5	%	$	296,574			100	%

Yield on cash equivalents and investment securities		2.50	%					2.78	%					-0.28	%					2.51	%

The Company continued to maintain a strong liquidity position during the reporting period. As of September 30, 2013, the Company maintained cash positions at the FRB and correspondent banks in the amount of $28.6 million. The Company also held certificates of deposits with other financial institutions in the amount of $20.4 million, which the Company considers liquid.

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. Available-for-sale investment securities totaled $209.6 million at September 30, 2013, compared with $218.5 million at June 30, 2013. During the three months ended September 30, 2013 the Company’s securities purchases were centered in asset and mortgage backed securities.

The purchases of asset backed securities were characterized as short to moderate in duration, both fixed and floating, with the bonds reflecting solid performance relative to their respective collateral profile and supporting credit enhancements. The mortgage backed securities purchased during the period were centered on moderate duration bonds with relatively solid cash flows and yield. 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 duration of the portfolio and improve cash flows. Given the current shape of the yield curve, this strategy could entail absorbing low to moderate losses within the portfolio to meet this longer term objective.

During the third quarter of 2013, the Company purchased twenty-five securities with a weighted average yield of 2.91%, and sold thirty-one securities with a weighted average yield of 2.46%. The sales activity resulted in $336 thousand net realized gains.

At September 30, 2013, the Company’s net unrealized losses on available-for-sale securities were $4.3 million compared with $692 thousand net unrealized losses at June 30, 2013. The unfavorable change in net unrealized losses was primarily due to decreases in the fair values of the Company’s municipal bond and mortgaged backed security portfolios. The decreases in the fair values of these securities were primarily driven by changes in market interest rates and or widening of market spreads.

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Table 4


	QUARTERLY AVERAGE DEPOSITS BY CATEGORY
(Dollars in thousands)	Q3			% of			Q3			% of			Change						Q2			% of
	2013			Total			2012			Total			Amount			%			2013			Total
Demand deposits	$	125,133			18	%	$	120,821			18	%	$	4,312			4	%	$	112,825			16	%
Interest bearing demand		246,236			35	%		213,217			31	%		33,019			15	%		237,113			35	%

Total checking deposits		371,369			53	%		334,038			49	%		37,331			11	%		349,938			51	%
Savings		94,062			13	%		90,856			13	%		3,206			4	%		92,266			13	%

Total non-time deposits		465,431			66	%		424,894			62	%		40,537			10	%		442,204			64	%
Time deposits		241,947			34	%		264,244			38	%		(22,297	)		-8	%		247,565			36	%

Total deposits	$	707,378			100	%	$	689,138			100	%	$	18,240			3	%	$	689,769			100	%

Weighted average rate on total deposits		0.56	%					0.78	%					-0.22	%					0.57	%

During the third quarter of 2013 average total deposits increased 3% or $18.2 million to $707.4 million compared to the third quarter in 2012. Non maturing core deposits increased $33.2 million or 8% year over year. Insured Cash Sweep (ICS) deposits totaling $37.9 million as of September 30, 2013 are included in interest bearing demand. The ICS deposits are locally generated funds but considered noncore for regulatory purposes. Management considers these deposits as stable in nature.

Operating Results for the Third Quarter of 2013

Net income from continuing operations was $1.8 million for the three months ended September 30, 2013 compared with $2.2 million for the same period a year ago. The decrease in net income from continuing operations was primarily due to an increase in the provision for income tax for the third quarter of 2013 which included the correction of an under-accrual of taxes that resulted from incorrectly accounting for the book tax timing differences relating to the sale of the Company’s former mortgage subsidiary. As a result, the Company recognized additional income tax, interest and penalties expense totaling $429 thousand, relating to 2012 tax year. Interest and/or penalties related to income taxes are reported as a component of income tax expense. Net income attributable to Bank of Commerce Holdings remained relatively consistent with amounts reported for the same period a year ago as a result of decreased losses reported from discontinued operations.

Net income available to common shareholders was $1.8 million for the three months ended September 30, 2013, compared with $1.5 million for the same period a year ago. Net income available to common shareholders increased during three months ended September 30, 2013 compared with the same period a year ago due to a $200 thousand decrease in preferred stock dividends payable to the U.S. Treasury pursuant to the SBLF program as a result of increased qualified lending.

Diluted earnings per share (EPS) from continuing operations and discontinued operations were $0.12 and $0.00 for the three months ended September 30, 2013 compared with $0.12 and $(0.03) for the same period a year ago, respectively. EPS attributable to continuing operations remained flat for the three months ending September 30, 2013 compared to the same period a year ago due to a combination of the decrease preferred stock dividends and decreased weighted average shares. The decrease in weighted average shares directly resulted from the repurchase of 1,513,668 common shares through two separate repurchase plans announced in 2013. All shares were retired subsequent to purchase. As such, the weighted average number of dilutive common shares outstanding decreased by 1,113,673 during the nine months ended September 30, 2013.

The Company declared cash dividends of $0.03 per share for the third quarter of 2013, consistent with the quarterly dividends paid in the first and second quarters of 2013 and 2012. The Company also declared a special cash dividend of $0.02 per share for the third quarter of 2013.

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Table 5


	SUMMARY INCOME STATEMENT
(Dollars in thousands)	Q3		Q3			Change						Q2		Change
	2013		2012			Amount			%			2013		Amount			%
Net interest income	$	8,496	$	9,115		$	(619	)		-7	%	$	8,286	$	210			3	%
Provision for loan and lease losses		300		1,900			(1,600	)		-84	%		1,400		(1,100	)		-79	%
Noninterest income		974		1,419			(445	)		-31	%		1,025		(51	)		-5	%
Noninterest expense		5,937		5,484			453			8	%		5,148		789			15	%

Income from continuing operations before income taxes		3,233		3,150			83			3	%		2,763		470			17	%
Provision for income tax		1,431		923			508			55	%		757		674			89	%

Net income from continuing operations	$	1,802	$	2,227		$	(425	)		-19	%	$	2,006	$	(204	)		-10	%

Discontinued Operations:
Income (loss) from discontinued operations	$	0	$	(746	)	$	746			100	%	$	0	$	0			0	%
Income tax expense associated with income (loss) from discontinued operations		0		(239	)		239			100	%		0		0			0	%

Net income (loss) from discontinued operations		0		(507	)		507			100	%		0		0			0	%

Net income attributable to Bank of Commerce Holdings		1,802		1,720			82			5	%		2,006		(204	)		-10	%

Less: preferred dividend and accretion on preferred stock		50		250			(200	)		-80	%		50		0			0	%
Income available to common shareholders	$	1,752	$	1,470		$	282			19	%	$	1,956	$	(204	)		-10	%

Basic EPS attributable to continuing operations	$	0.12	$	0.12		$	0.00			0	%	$	0.13	$	(0.01	)		-8	%
Basic EPS attributable to discontinued operations	$	0.00	$	(0.03	)	$	0.03			100	%	$	0.00	$	0.00			0	%
Average basic shares		14,829		16,240			(1,411	)		-9	%		15,120		(291	)		-2	%
Diluted EPS attributable to continuing operations	$	0.12	$	0.12		$	0.00			0	%	$	0.13	$	(0.01	)		-8	%
Diluted EPS attributable to discontinued operations	$	0.00	$	(0.03	)	$	0.03			100	%	$	0.00	$	0.00			0	%
Average diluted shares		14,853		16,240			(1,387	)		-9	%		15,139		(286	)		-2	%

Net interest income is the largest source of our operating income. Net interest income for the three months ended September 30, 2013 was $8.5 million compared to $9.1 million during the same period a year ago.

Interest income for the three months ended September 30, 2013 was $9.3 million, a decrease of $1.0 million or 10% compared to the same period a year ago. The decrease in interest income during the second quarter of 2013 compared to the same period a year ago was primarily driven by decreased yields in the loan portfolio and the investment securities portfolio, partially offset by increased investment securities volume. The decrease in loan portfolio yield was primarily driven by net increases in nonaccruing commercial and commercial real estate loans compared to the same period a year ago. Average nonaccruing loans at September 30, 2013 increased $10.2 million compared to the same period a year ago. As a result, during the three months ended September 30, 2013, loan interest income decreased $975 thousand or 12% compared to the same period a year ago.

Interest income recognized from the investment securities portfolio decreased $45 thousand during the three months ended September 30, 2013 compared to the same period a year ago. The decrease in investment securities interest income was primarily attributable to decreased yields partially offset by increased volume. Average quarterly securities balances and weighted average tax equivalent yields at September 30, 2013 and 2012 were $249.0 million and 3.25% compared to $211.0 million and 3.84%, respectively.

Interest expense for the current quarter was $825 thousand, a decrease of $401 thousand or 33% compared to the same period a year ago. During the current quarter of 2013, the Company continued to benefit from the re-pricing of deposits, and significantly lower FHLB borrowings expense.

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Table 6


	NET INTEREST SPREAD AND MARGIN
(Dollars in thousands)	Q3			Q3			Change			Q2			Change
	2013			2012			Amount			2013			Amount
Tax equivalent yield on average interest earning assets		4.26	%		4.68	%		-0.42	%		4.19	%		0.07	%
Rate on average interest bearing liabilities		0.47	%		0.69	%		-0.22	%		0.49	%		-0.02	%

Net interest spread		3.79	%		3.99	%		-0.20	%		3.70	%		0.09	%
Net interest margin on a tax equivalent basis		3.90	%		4.14	%		-0.24	%		3.80	%		0.10	%

Average earning assets	$	904,022		$	907,675		$	(3,653	)	$	904,640		$	(618	)
Average interest bearing liabilities	$	709,096		$	708,163		$	933		$	720,681		$	(11,585	)

The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.90% for the three months ended September 30, 2013, a decrease of 24 basis points (“bp”) as compared to the same period a year ago. The decrease in net interest margin primarily resulted from a 46 bp decline in yield on average earning assets, partially offset by a 22 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 present significant challenges. 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.

Noninterest income for the three months ended September 30, 2013 was $974 thousand, a decrease of $445 thousand or 31% when compared to the same period a year ago. The following table presents the key components of noninterest income for the three months ended September 30, 2013 and 2012, and June 30, 2013:

Table 7


	NONINTEREST INCOME
(Dollars in thousands)	Q3		Q3		Change						Q2		Change
	2013		2012		Amount			%			2013		Amount			%
Service charges on deposit accounts	$	46	$	49	$	(3	)		-6	%	$	54	$	(8	)		-15	%
Payroll and benefit processing fees		113		122		(9	)		-7	%		114		(1	)		-1	%
Earnings on cash surrender value - Bank owned life insurance		133		114		19			17	%		112		21			19	%
Gain (loss) on investment securities, net		336		550		(214	)		-39	%		406		(70	)		-17	%
Merchant credit card service income, net		33		39		(6	)		-15	%		32		1			3	%
Other income		313		545		(232	)		-43	%		307		6			2	%

Total noninterest income	$	974	$	1,419	$	(445	)		-31	%	$	1,025	$	(51	)		-5	%

Gains on the sale of investment securities decreased $214 thousand to $336 thousand for the three months ended September 30, 2013, compared to $550 thousand for the same period a year ago. During the three months ended September 30, 2013, the Company purchased twenty-five securities with weighted average yields of 2.91%. During the same period the Company sold thirty-one securities with weighted average yields of 2.46%. Generally, securities purchased had relatively short durations with good credit quality.

The major components of other income are fees earned on ATM transactions, mortgage fee income, online banking services, wire transfers, and FHLB dividends. The decrease in other income in the current year is primarily driven by a $240 thousand litigation settlement with a servicer of purchased pool loans included in the 2012 other income, partially offset by a $23 thousand increase in the FHLB dividends recorded during the three months ending September 30, 2013 compared to the same period a year ago. Changes in the components of other income are a result of normal operating activities.

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Noninterest expense for the three months ended September 30, 2013 was $5.9 million, an increase of $453 thousand or 8% compared to the same period a year ago. The following table presents the key elements of noninterest expense for the three months ended September 30, 2013 and 2012, and June 30, 2013:

Table 8


	NONINTEREST EXPENSE
(Dollars in thousands)	Q3		Q3		Change						Q2		Change
	2013		2012		Amount			%			2013		Amount			%
Salaries and related benefits	$	2,865	$	2,732	$	133			5	%	$	3,074	$	(209	)		-7	%
Occupancy and equipment expense		549		508		41			8	%		529		20			4	%
FDIC insurance premium		202		202		0			0	%		245		(43	)		-18	%
Data processing fees		127		94		33			35	%		136		(9	)		-7	%
Professional service fees		364		255		109			43	%		294		70			24	%
Deferred compensation expense		58		150		(92	)		-61	%		0		58			0	%
Other expenses		1,772		1,543		229			15	%		870		902			104	%

Total noninterest expense	$	5,937	$	5,484	$	453			8	%	$	5,148	$	789			15	%

The decrease in FDIC assessments of $43 thousand or 18% compared to the prior quarter resulted from true-up adjustments to reverse prior period over accruals and a decrease in the overall assessment rate.

Data processing expense for the three months ended September 30, 2013 was $127 thousand, an increase of $33 thousand or 35% 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 encompass audit, legal and consulting fees. Professional service fees for the three months ended September 30, 2013 was $364 thousand, an increase of $109 thousand or 43% compared to the same period a year ago. The increase in professional fees was primarily driven by increased fees and usage of external audit and professional services.

Deferred compensation expense for the three months ended September 30, 2013 was $58 thousand, a decrease of $92 thousand compared to the same period a year ago. During the second quarter of 2013, the Company revised the Supplemental Executive Retirement Plan (SERP) resulting in a reversal of current year and prior years accrued deferred compensation expenses of $357 thousand. For disclosure purposes, in the table above and in the Company’s Consolidated Statement of Operations, the current year credit balance in deferred compensation expense is netted in the line item other expenses.

Other expenses for the three months ended September 30, 2013 were $1.8 million, an increase of $229 thousand or 15% compared to the same period a year ago. The increase in other expenses was primarily driven by the loss recognized from the termination of an interest rate hedge using a forward starting interest rate swap of $503 thousand partially offset by a decrease in losses on sale of OREO of $196 thousand. In addition to the loss recognized on the forward starting interest rate swap hedge, the increase in other expenses over the prior quarter of $902 thousand was primarily driven by a FHLB prepayment penalty of $194 thousand and a loss of $176 thousand related to the purchase of the remaining outstanding balance of an impaired participated commercial real estate credit.

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Table 9


	ALLOWANCE ROLL FORWARD
(Dollars in thousands)	Q3			Q2			Q1			Q4			Q3
	2013			2013			2013			2012			2012
Beginning balance	$	13,133		$	11,350		$	11,103		$	10,560		$	12,497
Provision for loan loss charged to expense		300			1,400			1,050			4,550			1,900
Loans charged off		(635	)		(474	)		(845	)		(4,183	)		(4,011	)
Loan loss recoveries		744			857			42			176			174

Ending balance	$	13,542		$	13,133		$	11,350		$	11,103		$	10,560
Gross portfolio loans outstanding at period end	$	594,562		$	617,398		$	612,608		$	664,051		$	604,479
Ratio of allowance for loan losses to total loans		2.28	%		2.13	%		1.85	%		1.67	%		1.75	%
Nonaccrual loans at period end:
Commercial	$	7,501		$	7,898		$	3,420		$	2,935		$	3,330
Construction		0			0			0			0			77
Commercial real estate		16,895			16,614			23,363			24,008			10,393
Residential real estate		10,953			11,165			11,302			11,630			11,733
Home equity		517			345			0			0			95

Total nonaccrual loans	$	35,866		$	36,022		$	38,085		$	38,573		$	25,628
Accruing troubled debt restructured loans
Commercial	$	65		$	68		$	70		$	523		$	72
Commercial real estate		1,742			1,748			4,593			4,598			9,790
Residential real estate		2,996			3,174			2,954			2,934			3,117
Home equity		604			531			536			561			501

Total accruing restructured loans	$	5,407		$	5,521		$	8,153		$	8,616		$	13,480
All other accruing impaired loans		4,190			4,445			1,426			471			7,281

Total impaired loans	$	45,463		$	45,988		$	47,664		$	47,660		$	46,389

Allowance for loan and lease losses to nonaccrual loans at period end		37.76	%		36.46	%		29.80	%		28.78	%		41.20	%
Nonaccrual loans to total loans		6.03	%		5.83	%		6.22	%		5.81	%		4.24	%
Allowance for loan and lease losses to impaired loans		29.79	%		28.56	%		23.81	%		23.30	%		22.76	%

During October of 2013 the Company received full principal payment on an impaired commercial real estate loan that had a carrying amount of $2.1 million. As a result, the Company recovered $1.3 million in previously charged off principal, and interest of $53 thousand. The Company considers this transaction to be a subsequent event, which decreased the Company’s recorded investment in impaired loans compared to amounts reported as of September 30, 2013.

The ALLL allocation increased compared to amounts reported as of December 31, 2012. The ALLL at September 30, 2013 totaled $13.5 million compared to $13.1 million at June 30, 2013.

During the three months ended September 30, 2013, the provisions for loan losses exceeded charge offs for the same period. During the three months ended September 30, 2013 the Company realized net recoveries of $109 thousand compared to net recoveries of $383 thousand in the three months ended June 30, 2013, and net charge offs of $3.8 million the three months ended September 30, 2012. There were a number of factors that contributed to the decrease in net charge offs in the quarter ended September 30, 2013 over the same period a year ago, including, less impairment charges on both existing impaired loans, newly classified impaired loans, and higher recovery rates on previously charged off loans.

The Company continues to monitor credit quality, and adjust the ALLL accordingly. As such, the Company provided $300 thousand in provisions for loan losses during the third quarter of 2013, compared with $1.9 million during the same period a year ago. The decrease in current period provision is supported by the decrease in net charge offs in the first 3 quarters of the current year compared to the last two quarters of 2012 and the decrease in gross portfolio loans outstanding. The Company’s ALLL as a percentage of gross portfolio loans was 2.28% and 2.13% as of September 30, 2013, and June 30, 2013, respectively.

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The charge offs in the current quarter were primarily in 1-4 family home equity loans and commercial real estate. During the third quarter of 2013, the Bank’s loan portfolio reflected higher recovery rates relative to the third and fourth quarter of 2012. 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 September 30, 2013, management believes the Company’s ALLL is adequately funded given the current level of credit risk.

At September 30, 2013, the recorded investment in loans classified as impaired totaled $45.5 million, with a corresponding valuation allowance (included in the ALLL) of $4.3 million. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans. At June 30, 2013, the total recorded investment in impaired loans was $46.0 million, with a corresponding valuation allowance (included in the ALLL) of $4.0 million.

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 rate and payment deferral concessions, one loan to grant a rate concession and three loans to grant rate and maturity concessions. The loans were classified as TDR’s and four of the six loans were placed on nonaccrual status.

As of September 30, 2013, the Company had $26.9 million in TDRs compared to $21.1 million as of June 30, 2013. As of September 30, 2013, the Company had one hundred and eleven restructured loans that qualified as TDRs, of which ninety-three were performing according to their restructured terms. TDRs represented 4.53% of gross portfolio loans as of September 30, 2013 compared with 3.41% at June 30, 2013.

Table 10


	TROUBLED DEBT RESTRUCTURINGS
(Dollars in thousands)	September 30,			June 30,			March 31,			December 31,			September 30,
	2013			2013			2013			2012			2012
Nonaccrual	$	21,511		$	15,552		$	15,811		$	16,050		$	14,259
Accruing		5,407			5,521			8,153			8,616			13,480

Total troubled debt restructurings	$	26,918		$	21,073		$	23,964		$	24,666		$	27,739
Percentage of total gross portfolio loans		4.53	%		3.41	%		3.91	%		3.71	%		4.59	%

Nonperforming loans, which include nonaccrual loans and accruing loans past due over 90 days, totaled $35.9 million or 6.03% of total portfolio loans as of September 30, 2013, compared to $36.0 million, or 5.83% of total loans at June 30, 2013. Nonperforming assets, which include nonperforming loans and other real estate owned (“OREO”), totaled $36.8 million, or 3.95% of total assets as of September 30, 2013, compared with $37.4 million, or 3.91% of total assets as of June 30, 2013. As of September 30, 2013, nonperforming assets of $36.8 million have been written down by 16%, or $6.0 million, from their original balance of $45.5 million.

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Table 11


	NONPERFORMING ASSETS
(Dollars in thousands)	September 30,			June 30,			March 31,			December 31,			September 30,
	2013			2013			2013			2012			2012
Commercial	$	7,501		$	7,898		$	3,420		$	2,935		$	3,330
Real estate construction
Residential real estate construction		0			0			0			0			77

Total real estate construction		0			0			0			0			77
Real estate mortgage
1-4 family, closed end 1st lien		1,740			1,797			1,846			1,805			2,315
1-4 family revolving		517			345			0			0			95
ITIN 1-4 family loan pool		9,213			9,368			9,456			9,825			9,418

Total real estate mortgage		11,470			11,510			11,302			11,630			11,828
Commercial real estate		16,895			16,614			23,363			24,008			10,393

Total nonaccrual loans		35,866			36,022			38,085			38,573			25,628
90 days past due and still accruing		0			0			0			0			0

Total nonperforming loans		35,866			36,022			38,085			38,573			25,628
Other real estate owned		959			1,360			1,785			3,061			3,052

Total nonperforming assets	$	36,825		$	37,382		$	39,870		$	41,634		$	28,680
Nonperforming loans to total loans		6.03	%		5.83	%		6.21	%		5.81	%		4.24	%
Nonperforming assets to total assets		3.95	%		3.91	%		4.07	%		4.25	%		3.03	%

Table 12


	OTHER REAL ESTATE OWNED ACTIVITY
(Dollars in thousands)	Q3			Q2			Q1			Q4			Q3
	2013			2013			2013			2012			2012
Beginning balance	$	1,360		$	1,785		$	3,061		$	3,052		$	2,647
Additions to OREO		146			184			1,157			242			4,046
Dispositions of OREO		(547	)		(609	)		(2,433	)		(233	)		(3,641	)
OREO valuation adjustment		0			0			0			0			0

Ending balance	$	959		$	1,360		$	1,785		$	3,061		$	3,052

At September 30, 2013, and June 30, 2013, the recorded investment in OREO was $959 thousand and $1.4 million, respectively. For the three months ended September 30, 2013, the Company transferred foreclosed property from two loans in the amount of $146 thousand to OREO and no adjustments to the ALLL were necessary. During the three months ended September 30, 2013, no further impairment was identified on the foreclosed properties. During this period, the Company sold seven existing properties with balances of $547 thousand for a net loss of $139 thousand. The September 30, 2013 OREO balance consists of four properties, of which three are secured by 1-4 family residential real estate in the amount of $209 thousand. The remaining property consists of improved commercial land in the amount of $750 thousand.

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Table 13


	INCOME STATEMENT
(Amounts in thousands, except for per share data)	Q3			Q3			Change						Q2			Full Year			Full Year
	2013			2012			$			%			2013			2012			2011
Interest income:
Interest and fees on loans	$	7,487		$	8,462		$	(975	)		-12	%	$	7,352		$	33,148		$	35,084
Interest on tax exempt securities		673			612			61			10	%		656			2,399			2,014
Interest on U.S. government securities		445			426			19			4	%		381			1,615			2,123
Interest on other securities		716			841			(125	)		-15	%		772			3,175			2,410

Total interest income		9,321			10,341			(1,020	)		-10	%		9,161			40,337			41,631
Interest expense:
Interest on demand deposits		113			147			(34	)		-23	%		112			610			787
Interest on savings deposits		61			90			(29	)		-32	%		62			394			792
Interest on certificates of deposit		639			866			(227	)		-26	%		654			3,697			4,912
Interest on securities sold under repurchase agreements		0			6			(6	)		-100	%		2			24			43
Interest on FHLB borrowings		(84	)		(4	)		(80	)		+100	%		(48	)		85			579
Interest on other borrowings		96			121			(25	)		-21	%		93			419			363

Total interest expense		825			1,226			(401	)		-33	%		875			5,229			7,476

Net interest income		8,496			9,115			(619	)		-7	%		8,286			35,108			34,155
Provision for loan and lease losses		300			1,900			(1,600	)		-84	%		1,400			9,400			8,991

Net interest income after provision for loan and lease losses		8,196			7,215			981			14	%		6,886			25,708			25,164
Noninterest income:
Service charges on deposit accounts		46			49			(3	)		-6	%		54			188			192
Payroll and benefit processing fees		113			122			(9	)		-7	%		114			538			458
Earnings on cash surrender value – Bank owned life insurance		133			114			19			17	%		112			470			465
Gain on investment securities, net		336			550			(214	)		-39	%		406			3,822			1,550
Merchant credit card service income, net		33			39			(6	)		-15	%		32			144			376
Other income		313			545			(232	)		-43	%		307			1,431			850

Total noninterest income		974			1,419			(445	)		-31	%		1,025			6,593			3,891
Noninterest expense:
Salaries and related benefits		2,865			2,732			133			5	%		3,074			11,030			9,957
Occupancy and equipment expense		549			508			41			8	%		529			2,058			2,009
Write down of other real estate owned		0			0			0			0	%		0			425			557
FDIC insurance premium		202			202			0			0	%		245			820			1,319
Data processing fees		127			94			33			35	%		136			421			389
Professional service fees		364			255			109			43	%		294			1,078			1,016
Deferred compensation expense		58			150			(92	)		-61	%		0			594			533
Other expenses		1,772			1,543			229			15	%		870			5,206			4,147

Total noninterest expense		5,937			5,484			453			8	%		5,148			21,632			19,927

Income from continuing operations before provision for income taxes		3,233			3,150			83			3	%		2,763			10,669			9,128
Provision for income taxes		1,431			923			508			55	%		757			3,109			2,444

Net Income from continuing operations	$	1,802		$	2,227		$	(425	)		-19	%	$	2,006		$	7,560		$	6,684

Discontinued Operations:
Income (loss) from discontinued operations	$	0		$	(746	)	$	746			100	%	$	0		$	535		$	1,512
Income tax expense associated with income (loss) from discontinued operations		0			(239	)		239			100	%		0			331			392

Net income (loss) from discontinued operations		0			(507	)		507			100	%		0			204			1,120

Less: Net income (loss) from discontinued operations attributable to noncontrolling interest		0			0			0			0	%		0			348			549

Net income (loss) from discontinued operations attributable to controlling interest		0			(507	)		507			100	%		0			(144	)		571

Net income attributable to Bank of Commerce Holdings		1,802			1,720			82			5	%		2,006			7,416			7,255

Less: preferred dividend and accretion on preferred stock		50			250			(200	)		-80	%		50			880			943
Income available to common shareholders	$	1,752		$	1,470		$	282			19	%	$	1,956		$	6,536		$	6,312

Basic EPS attributable to continuing operations	$	0.12		$	0.12		$	0.00			0	%	$	0.13		$	0.41		$	0.34
Basic EPS attributable to discontinued operations	$	0.00		$	(0.03	)	$	0.03			100	%	$	0.00		$	(0.01	)	$	0.03
Average basic shares		14,829			16,240			(1,411	)		-9	%		15,120			16,344			16,991
Diluted EPS attributable to continuing operations	$	0.12		$	0.12		$	0.00			0	%	$	0.13		$	0.41		$	0.34
Diluted EPS attributable to discontinued operations	$	0.00		$	(0.03	)	$	0.03			100	%	$	0.00		$	(0.01	)	$	0.03
Average diluted shares		14,853			16,240			(1,387	)		-9	%		15,139			16,344			16,991

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Table 14


	BALANCE SHEET
(Dollars in thousands)	September 30,			September 30,			Change						June 30,
	2013			2012			$			%			2013
ASSETS
Cash and due from banks	$	28,616		$	40,541		$	(11,925	)		-29	%	$	22,426
Interest bearing due from banks		20,379			23,893			(3,514	)		-15	%		20,810

Total cash and cash equivalents		48,995			64,434			(15,439	)		-24	%		43,236
Securities available-for-sale, at fair value		209,642			194,928			14,714			8	%		218,495
Securities held-to-maturity, at amortized cost		34,814			18,808			16,006			85	%		34,843
Portfolio loans		594,844			604,695			(9,851	)		-2	%		617,733
Allowance for loan losses		(13,542	)		(10,560	)		(2,982	)		28	%		(13,133	)

Net loans		581,302			594,135			(12,833	)		-2	%		604,600
Mortgage loans held for sale		0			27,875			(27,875	)		-100	%		0
Total interest earning assets		888,295			910,740			(22,445	)		-2	%		914,307
Bank premises and equipment, net		10,533			9,617			916			10	%		10,275
Goodwill and other intangibles		31			63			(32	)		-51	%		39
Other real estate owned		959			3,052			(2,093	)		-69	%		1,360
Other assets		45,541			33,538			12,003			36	%		43,764

TOTAL ASSETS	$	931,817		$	946,450		$	(14,633	)		-2	%	$	956,612

LIABILITIES AND STOCKHOLDERS’ EQUITY
Demand – noninterest bearing	$	128,299		$	114,856		$	13,443			12	%	$	113,615
Demand – interest bearing		257,390			223,687			33,703			15	%		243,087
Savings accounts		92,043			91,666			377			0	%		93,791
Certificates of deposit		247,791			261,410			(13,619	)		-5	%		244,408

Total deposits		725,523			691,619			33,904			5	%		694,901
Securities sold under agreements to repurchase		0			13,964			(13,964	)		-100	%		1,758
Federal Home Loan Bank borrowings		75,000			100,000			(25,000	)		-25	%		125,000
Junior subordinated debentures		15,465			15,465			0			0	%		15,465
Other liabilities		13,061			14,049			(987	)		-7	%		12,618

Total Liabilities		829,049			835,097			(6,047	)		-1	%		849,742
Total Stockholders’ Equity		102,768			111,353			(8,586	)		-8	%		106,870

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	931,817		$	946,450		$	(14,633	)		-2	%	$	956,612

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Table 15


	AVERAGE BALANCE SHEET (Year to Date)
(Dollars in thousands)	September 30,		September 30,		December 31,		December 31,		December 31,
	2013		2012		2012		2011		2010
Earning assets:
Loans	$	619,188	$	640,122	$	642,200	$	626,275	$	635,074
Tax exempt securities		93,388		76,151		81,714		52,467		42,172
US government securities		1,877		0		209		19,182		27,423
Mortgage backed securities		64,953		63,255		61,434		67,052		48,972
Other securities		89,313		68,962		73,972		44,664		15,702
Interest bearing due from banks		41,991		49,389		48,712		64,399		70,911
Fed funds sold		0		0		0		0		995

Average earning assets		910,710		897,879		908,241		874,039		841,249
Cash and DFB		10,330		9,926		10,125		2,251		1,781
Bank premises		10,175		9,529		9,567		9,489		9,814
Other assets		28,431		32,696		24,249		21,421		48,116

Average total assets	$	959,646	$	950,030	$	952,182	$	907,200	$	900,960

Interest bearing liabilities:
Demand - interest bearing	$	239,308	$	193,687	$	203,342	$	157,696	$	141,983
Savings deposits		92,351		89,543		89,789		91,876		76,718
CDs		248,825		297,445		285,574		296,381		321,051
Repurchase agreements		7,728		13,955		14,246		14,805		12,274
Other borrowings		137,886		127,151		125,839		130,933		128,249

		726,098		721,781		718,790		691,691		680,275
Demand - noninterest bearing		117,830		112,403		115,091		100,722		92,433
Other liabilities		8,140		4,609		7,033		6,679		32,615
Shareholders’ equity		107,578		111,237		111,268		108,108		95,637

Average liabilities & equity	$	959,646	$	950,030	$	952,182	$	907,200	$	900,960

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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^TM and Roseville Bank of Commerce^TM, 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’Neil

Bryan Sullivan

919 Third Avenue, 6^th Floor

New York, NY 10022

(888) 383-3112

McAdams Wright Ragen, Inc.

Joey Warmenhoven

1121 SW Fifth Avenue

Suite 1400

Portland, OR 97204

(866) 662-0351

Stifel Nicolaus

Perry Wright

1255 East Street #100

Redding, CA 96001

(530) 244-7199

FIG Partners

Mike Hedrei

1175 Peachtree Street NE #100

Colony Square Suite 2250

Atlanta, GA 30361

(212) 899-5217

Contact Information:

Patrick J. Moty, President and Chief Executive Officer

Telephone Direct (530) 722-3953

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

Telephone Direct (530) 722-3952

Andrea Schneck, Vice President and Senior Administrative Officer

Telephone Direct (530) 722-3959

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