Exhibit 99.1

 

 

 

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For Immediate Release:

Bank of Commerce Holdings Announces Results for the First Quarter of 2016

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REDDING, California, April 22, 2016 / GLOBE NEWSWIRE— Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.1 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter ended March 31, 2016. Net loss available to common shareholders for the quarter ended March 31, 2016 was $960 thousand or $0.07 per share – diluted, compared with net income available to common shareholders of $1.8 million or $0.13 per share – diluted for the same period of 2015.

 

The current quarter results were impacted by the following expenses totaling $2.8 million related to the acquisition of five Bank of America branches and the execution of our plans to reconfigure our Balance Sheet using liquidity provided by those branches:

 

 

	●	$2.3 million loss on termination of interest rate hedge.
	●	$412 thousand of branch acquisition transition costs.
	●	$57 thousand prepayment penalty on early repayment of $75.0 million Federal Home Loan Bank of San Francisco term debt.
	●	$39 thousand accelerated amortization of broker fees recorded in interest expense when $17.5 million of brokered time deposits were called and redeemed.

 

In addition, unrelated to the branch acquisition, the current quarter results include the write-off of a $363 thousand deferred tax asset.

  

Randall S. Eslick, President and CEO commented: “We are pleased with the reconfiguration of our Balance Sheet. The redemption of our SBLF preferred stock late last year combined with our current quarter acquisition of new core deposits and the elimination of most wholesale funding sources provide a strong platform for the future. While we are reporting a quarterly loss, we are focused on the long term benefit of $149.0 million of new low cost deposits, the elimination of most of our higher cost wholesale liabilities, significant reductions in our future interest expense and additional liquidity to fund organic loan growth. It is the branch acquisition that makes all of this possible. We are very proud of every employee who diligently and professionally facilitated the transaction and we are happy to welcome the 24 employees at our five new locations into the Redding Bank of Commerce family.”

  

 

Financial highlights for the first quarter of 2016:

 

●	The Company acquired $149.0 million of new deposits from Bank of America which bear an average interest cost of 0.09%.
●	The Company paid off $75.0 million of FHLB term debt and terminated the interest rate hedge associated with that debt eliminating future contractual interest payments on $75.0 million at 2.64% for the period from payoff to August 1, 2016; and at 3.22% for the period August 1, 2016 to August 1, 2017.
●	Net loss available to common shareholders of $960 thousand for the three months ended March 31, 2016 was a decrease of $2.7 million (156%) over $1.8 million net income available to common shareholders earned during the first quarter of 2015.
●	Return on average assets decreased to (0.37) % in the first quarter of 2016 compared to 0.73% in the same quarter of 2015. Return on average equity decreased to (4.23) % in the first quarter of 2016 compared to 6.79% in the same quarter of 2015.
●	Nonperforming assets at March 31, 2016 totaled $12.7 million or 1.18% of total assets, a decrease of $2.8 million from $15.5 million or 1.53% of total assets at December 31, 2015.
●	Net loan loss recoveries of $315 thousand combined with continuing improved asset quality resulted in no provision for loan and lease losses during the first quarter.
●	The Company’s tangible book value per share decreased to $6.57 per common share at March 31, 2016 from $6.76 at December 31, 2015. The Company’s net interest margin was 3.44% for the first quarter of 2016 compared to 3.52% for the fourth quarter of 2015.
●	The Company’s efficiency ratio was 108.1% during the first three months of 2016 compared to 71.5% during the same period in 2015. Excluding $2.8 million of one-time expenses related to the acquisition and reconfiguring our Balance Sheet the efficiency ratio for the first three months of 2016 would have been 77.5%.

  

 

 

Branch Acquisition

 

On March 11, 2016 we completed the purchase of five Bank of America branches located in northern California. The transaction was most attractive to us because it provided a new source of low cost core deposits and allowed us to execute our plan to reconfigure our Balance Sheet. The acquisition provided approximately $142.3 million of new liquidity ($149.0 million of new deposits less payments of $6.7 million made to Bank of America). As we previously announced on March 14, 2016, we utilized a portion of that new liquidity to reduce our reliance on wholesale funding sources repaying $75.0 million to the Federal Home Loan Bank of San Francisco and redeeming $17.5 million of brokered time deposits. We intend to use the remaining liquidity to fund future loan growth.

 

The branches acquired are located in Colusa, Willows, Orland, Corning, and Yreka. The Bank also acquired three offsite ATM locations in Williams, Orland and Corning. With the completion of the acquisition, we now operate nine branches in northern California.

 

The Bank paid cash consideration of $6.7 million and acquired $155.2 million in assets, primarily cash and premises. The Bank assumed $149.2 million in liabilities, primarily deposits. The preliminary details of the acquisition as recorded at fair value are presented in the table below.

 

 

(Amounts in thousands)
Consideration paid:
Cash paid		$	6,709
Total consideration		$	6,709
Assets acquired:
Cash and cash equivalents		$	149,068
Premises and equipment, net			4,190
Core deposit intangibles			1,772
Other assets			146
Total assets acquired		$	155,176
Liabilities assumed:
Deposits		$	148,991
Other liabilities			193
Total liabilities assumed		$	149,184
Net fair value of assets acquired over liabilities assumed		$	5,992
Goodwill		$	717

 

Intangibles

 

As part of the branch acquisition, we recorded a core deposit intangible of $1.8 million and goodwill of $717 thousand.

 

Core deposits provide value as a source of liquidity that is less expensive when compared to market rates for other funding sources on similar terms. The cost savings (core deposit intangible) is defined as the difference between the costs of newly acquired deposits (i.e., interest and net maintenance costs) and the cost of an equal amount of funds from an alternative source having a similar term as the new deposit base. The core deposit intangible will be amortized on a straight line basis over the useful life of the deposits which is estimated at 8 years.

 

Goodwill is calculated as the amount of cash paid in excess of the fair value of the net assets acquired in the transaction. 

 

When calculating capital ratios, goodwill and a portion of core deposit intangibles are subtracted from Tier 1 capital. The deduction for core deposit intangibles is subject to a phase in period under the Basal III risk based capital rules. During 2016, 60% of the core deposit intangibles will be deducted from Tier 1 capital.

 

Core deposit intangibles and goodwill are subtracted from tangible equity as part of the calculation of tangible book value per share.  

 

 

 

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
●	We may fail to realize all of the anticipated benefits of our branch purchase.

 

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, 2015 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. 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
Net income, average assets and		March 31,								December 31,
average shareholders' equity		2016				2015				2015
(Loss) income available to common shareholders		$	(960	)		$	1,751			$	1,729
Average total assets		$	1,034,203			$	978,916			$	1,005,870
Average shareholders' equity		$	91,307			$	104,618			$	105,417
Selected performance ratios
Return on average assets			(0.37	)%			0.73	%			0.68	%
Return on average equity			(4.23	)%			6.79	%			6.51	%
Efficiency ratio			108.08	%			71.48	%			73.58	%
Share and per share amounts
Weighted average shares - basic			13,360				13,303				13,341
Weighted average shares - diluted			13,403				13,340				13,395
(Loss) earnings per share - basic		$	(0.07	)		$	0.13			$	0.13
(Loss) earnings per share - diluted		$	(0.07	)		$	0.13			$	0.13

 

		At March 31,								At December 31,
Share and per share amounts		2016				2015				2015
Common shares outstanding (1)			13,442				13,362				13,385
Tangible book value per common share		$	6.57			$	6.40			$	6.76
Capital ratios
Bank of Commerce Holdings
Common equity tier 1 capital ratio			9.82	%			9.73	%			10.06	%
Tier 1 capital ratio (2)			10.93	%			13.10	%			11.16	%
Total capital ratio (2)			13.30	%			14.35	%			13.52	%
Tier 1 leverage ratio (2)			9.48	%			11.74	%			10.03	%
Redding Bank of Commerce
Common equity tier 1 capital ratio			13.07	%			13.05	%			13.31	%
Tier 1 capital ratio			13.07	%			13.05	%			13.31	%
Total capital ratio			14.32	%			14.30	%			14.56	%
Tier 1 leverage ratio			11.36	%			11.73	%			11.98	%

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

⁽²⁾ The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The decline in the capital ratios of Bank of Commerce Holdings as of March 31, 2016 compared to March 31, 2015 is primarily due to the redemption of $20.0 million of preferred stock (Tier 1 capital) during the fourth quarter of 2015. The $10.0 million of subordinated debt issued during the fourth quarter of 2015 qualifies as Tier 2 capital under the applicable capital adequacy rules and regulations promulgated by the Federal Reserve. The capital ratios for the first quarter of 2016 were also impacted by the addition of $1.8 million of core deposit intangibles and $717 thousand of goodwill recorded in conjunction with the branch acquisition. 

 

 

 

BALANCE SHEET OVERVIEW

 

As of March 31, 2016, the Company had total consolidated assets of $1.1 billion, gross loans of $724.2 million, allowance for loan and lease losses (“ALLL”) of $11.5 million, total deposits of $937.7 million, and shareholders’ equity of $90.7 million.

 

 

 

TABLE 2

LOAN BALANCES BY TYPE - UNAUDITED

(amounts in thousands) 

		At March 31,																								At December 31,
						% of								% of				Change												% of
		2016				Total				2015				Total				Amount				%				2015				Total
Commercial		$	136,721				19	%		$	150,792				22	%		$	(14,071	)			(9	)%		$	132,805				19	%
Real estate - construction and land development			27,554				4				29,127				4				(1,573	)			(5	)%			28,319				4
Real estate - commercial non-owner occupied			247,840				34				234,198				33				13,642				6	%			243,374				33
Real estate - commercial owner occupied			154,484				21				130,717				19				23,767				18	%			156,299				22
Real estate - residential - ITIN			48,384				7				52,043				7				(3,659	)			(7	)%			49,106				7
Real estate - residential - 1-4 family mortgage			10,947				2				12,304				2				(1,357	)			(11	)%			11,390				2
Real estate - residential - equity lines			44,327				6				45,750				7				(1,423	)			(3	)%			45,473				6
Consumer and other			53,986				7				44,298				6				9,688				22	%			49,873				7
Gross loans			724,243				100	%			699,229				100	%			25,014				4	%			716,639				100	%
Deferred fees and costs			985								315								670								870
Loans, net of deferred fees and costs			725,228								699,544								25,684								717,509
Allowance for loan and lease losses			(11,495	)							(11,296	)							(199	)							(11,180	)
Net loans		$	713,733							$	688,248							$	25,485							$	706,329
Average yield on loans during the quarter			4.72	%							4.77	%							(0.05	)							4.61	%

 

 

The Company recorded gross loan balances of $724.2 million at March 31, 2016, compared with $699.2 million and $716.6 million at March 31, 2015 and December 31, 2015, respectively, an increase of $25.0 million and $7.6 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. The increase in deferred fees and costs from March 31, 2015 to March 31, 2016 was the result of increased loan production and revised loan origination costs based on an updated loan origination cost study.

 

The increase in the ALLL in the current quarter compared to the prior quarter resulted from net loan loss recoveries of $315 thousand. As a result of these net recoveries and continued improved asset quality, no provision for loan and lease losses was deemed necessary during the current quarter or the past 4 consecutive quarters. See table 8 for additional detail of the ALLL.

 

 

TABLE 3

CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED

(amounts in thousands) 

		At March 31,																								At December 31,
						% of								% of				Change												% of
		2016				Total				2015				Total				Amount				%				2015				Total
Cash and due from banks		$	14,969				5	%		$	13,353				6	%		$	1,616				12	%		$	9,730				4	%
Interest-bearing deposits in other banks			70,781				24				16,758				7				54,023				322	%			41,462				17
Total cash and cash equivalents			85,750				29				30,111				13				55,639				185	%			51,192				21
Investment securities:
U.S. government and agencies			3,915				1				6,422				3				(2,507	)			(39	)%			3,943				2
Obligations of state and political subdivisions			61,288				21				53,491				23				7,797				15	%			61,104				25
Residential mortgage backed securities and collateralized mortgage obligations			51,721				18				41,851				18				9,870				24	%			32,137				13
Corporate securities			23,764				8				31,660				14				(7,896	)			(25	)%			33,778				14
Commercial mortgage backed securities			14,571				5				6,799				3				7,772				114	%			12,769				5
Other asset backed securities			18,992				6				26,667				11				(7,675	)			(29	)%			15,299				6
Total investment securities - AFS			174,251				59				166,890				72				7,361				4	%			159,030				65
Obligations of state and political subdivisions - HTM			35,357				12				36,609				15				(1,252	)			(3	)%			35,899				14
Total investment securities - AFS and HTM			209,608				71				203,499				87				6,109				3	%			194,929				79
Total cash, cash equivalents and investment securities		$	295,358				100	%		$	233,610				100	%		$	61,748				26	%		$	246,121				100	%
Average yield on interest bearing due from banks and investment securities during the quarter			2.35	%							2.73	%							(0.38	)							2.51	%

 

 

As of March 31, 2016, we maintained noninterest-bearing cash positions at the Federal Reserve Bank and correspondent banks in the amount of $15.0 million. We also held interest-bearing deposits in the amount of $70.8 million. The sizeable increase in interest-bearing deposits derives from liquidity provided by the recent branch acquisition. It is anticipated that much of this liquidity will be deployed into new loans over the remainder of the year.

 

Available-for-sale investment securities totaled $174.3 million at March 31, 2016, compared with $166.9 million and $159.0 million at March 31, 2015 and December 31, 2015, respectively. Our available-for-sale investment portfolio provides us with a secondary source of liquidity to fund other higher yielding asset opportunities, such as loan originations and wholesale loan purchases. During the first quarter of 2016 we purchased 28 securities with a par value of $39.2 million and weighted average yield of 2.24% and sold 17 securities with a par value of $18.8 million and weighted average yield of 2.38%. The sales activity resulted in $94 thousand in net realized gains for the three months ended March 31, 2016. During the same period, we received $3.0 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 ending March 31, 2016 and 2015 were $197.8 million and 3.42% compared to $213.9 million and 3.51%, respectively.

 

During the current quarter, our securities transactions were focused on deploying a portion of the cash acquired from the Bank of America branch acquisition into moderate term securities. Management continues to seek out opportunities to reduce the overall effective duration of the portfolio and accelerate cash flows, while also improving credit quality and liquidity. This strategy could entail absorbing small losses and slightly reduced yields within the portfolio to meet longer term objectives.

 

 

 

At March 31, 2016, our unrealized gains on available-for-sale investment securities were $1.7 million compared with $3.1 million and $1.6 million at March 31, 2015 and December 31, 2015, respectively. The decrease in net unrealized gains between March 31, 2015 and March 31, 2016 is primarily due to interest rate changes over the past 12 months.

 

TABLE 4

DEPOSITS BY TYPE - UNAUDITED

(amounts in thousands) 

		At March 31,																								At December 31,
						% of								% of				Change												% of
		2016				Total				2015				Total				Amount				%				2015				Total
Demand - noninterest bearing		$	212,758				23	%		$	150,056				20	%		$	62,702				42	%		$	169,507				21	%
Demand - interest bearing			392,325				42				266,552				35				125,773				47	%			315,658				39
Total demand			605,083				65				416,608				55				188,475				45	%			485,165				60
Savings			105,828				11				92,088				12				13,740				15	%			94,503				12
Total non-maturing deposits			710,911				76				508,696				67				202,215				40	%			579,668				72
Certificates of deposit			226,756				24				253,280				33				(26,524	)			(10	)%			224,067				28
Total deposits		$	937,667				100	%		$	761,976				100	%		$	175,691				23	%		$	803,735				100	%
Average rate on interest bearing deposits during the quarter			0.48	%							0.50	%							(0.02	)							0.48	%

 

 

Total deposits at March 31, 2016, increased $175.7 million or 23% to $937.7 million compared to March 31, 2015, and increased $133.9 million or 17% compared to December 31, 2015. Total non-maturing deposits increased $202.1 million or 40% compared to the same date a year ago and increased $131.2 million or 23% compared to December 31, 2015. Certificates of deposit decreased $26.5 million or 10% compared to the same date a year ago and increased $2.6 million or 1% compared to December 31, 2015.

 

During the first quarter of 2016 the branch acquisition provided an additional $149.0 million of deposits and we called $17.5 million of brokered certificates of deposit. The average interest rate paid during the quarter on all acquired deposits was 0.09% and on the acquired interest bearing deposits was 0.11%. At March 31, 2016, the deposits in the acquired branches totaled $148.3 million as follows

 

●	Demand – noninterest bearing totaling $37.9 million.	●	Savings totaling $9.6 million.
●	Demand – interest bearing totaling $77.3 million.	●	Certificates of deposit totaling $23.5 million.

 

 

TABLE 5

WHOLESALE AND BROKERED DEPOSITS - UNAUDITED

(amounts in thousands) 

		At March 31,								At December 31,
		2016				2015				2015
CDARS / ICS reciprocal deposits		$	61,601			$	52,767			$	76,919
Third party brokered time deposits			—				17,498				17,509
Brokered deposits per Call Report			61,601				70,265				94,428
Online listing service time deposits			55,986				67,453				58,462
Total wholesale and brokered deposits		$	117,587			$	137,718			$	152,890

 

 

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $61.6 million, $70.3 million and $94.4 million at March 31, 2016, March 31, 2015 and December 31, 2015, respectively.  

 

 

 

INCOME STATEMENT OVERVIEW

 

   

TABLE 6

SUMMARY INCOME STATEMENT - UNAUDITED

(amounts in thousands, except per share data) 

		For The Three Months Ended
		March 31,								Change								December 31,				Change
		2016				2015				Amount				%				2015				Amount				%
Interest income		$	9,904			$	9,526			$	378				4	%		$	9,732			$	172				2	%
Interest expense			1,600				1,157				443				38	%			1,381				219				16	%
Net interest income			8,304				8,369				(65	)			(1	)%			8,351				(47	)			(1	)%
Provision for loan and lease losses			—				—				—				0	%			—				—				0	%
Noninterest income			949				854				95				11	%			640				309				48	%
Noninterest expense:
Branch acquisition and balance sheet reconfiguration costs			2,795				—				2,795				100	%			347				2,448				705	%
Other noninterest expense			7,206				6,593				613				9	%			6,269				937				15	%
Income before provision for income taxes			(748	)			2,630				(3,378	)			(128	)%			2,375				(3,123	)			(131	)%
Deferred tax asset write-off			363				—				363				100	%			—				363				100	%
Provision for income taxes			(151	)			829				(980	)			(118	)%			505				(656	)			(130	)%
Net income		$	(960	)		$	1,801			$	(2,761	)			(153	)%		$	1,870				(2,830	)			(151	)%
Less: Preferred stock extinguishment costs			—				—				—				0	%			102				(102	)			(100	)%
Less: Preferred dividends			—				50				(50	)			(100	)%			39				(39	)			(100	)%
Income available to common shareholders		$	(960	)		$	1,751			$	(2,711	)			(155	)%		$	1,729			$	(2,689	)			(156	)%
Basic earnings per share		$	(0.07	)		$	0.13			$	(0.20	)			(154	)%		$	0.13			$	(0.20	)			(2	)%
Average basic shares			13,360				13,303				57				0	%			13,341				19				0	%
Diluted earnings per share		$	(0.07	)		$	0.13			$	(0.20	)			(154	)%		$	0.13			$	(0.20	)			(2	)%
Average diluted shares			13,403				13,340				63				0	%			13,395				8				0	%
Dividends declared per common share		$	0.03			$	0.03			$	—				0	%		$	0.03			$	—				0	%

 

 

First Quarter of 2016 Compared With First Quarter of 2015

 

Net income available to common shareholders for the first quarter of 2016 decreased $2.7 million over the first quarter of 2015 The difference is centered in branch acquisition and balance sheet reconfiguration costs totaling $2.8 million along with the write-off of a $363 thousand deferred tax asset.

 

Net Interest Income

 

Net interest income decreased $65 thousand over a year previous.

 

Interest income for the three months ended March 31, 2016 increased $378 thousand or 4% to $9.9 million. Income from interest and fees on loans and interest on interest bearing deposits due from banks increased $544 thousand while interest on securities decreased $166 thousand.

 

 

 

Interest expense for the first three months of 2016 increased $443 thousand or 38% to $1.6 million. Interest expense on term debt increased $433 thousand while all other interest expense on deposits and lease liabilities increased only $10 thousand. The significant increase in interest on term debt results from:

 

●	Interest expense of $296 thousand incurred on $20.0 million of new term debt issued during the fourth quarter of 2015.
●	Interest expense on Federal Home Loan Bank of San Francisco borrowings increased $137 thousand over a year previous due increased net settlement expense associated with the active interest rate swap.

  

Noninterest Income

 

Noninterest income for the three months ended March 31, 2016 increased $95 thousand compared to the same period a year ago. During the first quarter of 2016 we recorded a $176 thousand gain on payoff of a purchased impaired loan. Also, during the current quarter we recorded net gains on sale of available-for-sale investment securities of $94 thousand compared to net gains of $215 thousand for the same period a year ago.

 

Noninterest Expense

 

Aside from the branch acquisition and balance sheet reconfiguration costs ($2.8 million) noninterest expense for the three months ended March 31, 2016 increased $613 thousand compared to the same period a year ago. The increase was primarily driven by following negative items:

 

●	Staff increases and salary adjustments totaling $402 thousand, exclusive of our newly acquired offices.
●	Salaries and benefits at our newly acquired offices totaling $101 thousand.
●	Change in employee vacation utilization/carryover policy costing $203 thousand.
●	Increased office and postage of $117 thousand.

 

The increase in noninterest expense compared to the same period a year ago was partially offset by following positive items:

 

●	Salary Continuation Plan savings of $186 thousand.
●	The first quarter of 2015 included $147 thousand write-down of a fixed asset.

  

Income Tax Provision

 

During the three months ended March 31, 2016, the Company recorded an income tax benefit related to operating losses of $151 thousand and wrote-off a $363 thousand deferred tax asset; a net expense of $212 thousand. This compared with income tax expense of $829 thousand for the same period a year ago. Pre-tax income for 2016 is projected to be less than in 2015, while permanent deductions and tax credits are anticipated to remain relatively unchanged resulting in a decrease in the effective tax rate for 2016. As a result, excluding the write-off of the $363 thousand deferred tax asset, the Company’s effective tax rate decreased from 31.52% in 2015 to 20.19% during the current quarter.

 

The $363 thousand deferred tax asset written off during the first quarter was associated with our investment in affordable housing partnerships. The deferred tax asset represented the timing difference between the book amortization of the investments and the Bank’s share of the tax deductible losses incurred by the projects reported on the partnerships’ Schedule K-1. In accordance with ASU 2014-01 effective for annual periods beginning after December 15, 2014, and interim periods within annual reporting periods beginning after December 15, 2015, deferred tax treatment for these items is not permissible under the proportional amortization method of accounting.

 

First Quarter of 2016 Compared With Fourth Quarter of 2015

 

Net income available to common shareholders for the first quarter of 2016 decreased $2.7 million over the fourth quarter of 2015.

 

The difference is centered in branch acquisition and balance sheet reconfiguration costs totaling $2.8 million along with the write-off of a $363 thousand deferred tax asset.

 

 

 

Net Interest Income

 

Net interest income decreased $47 thousand over the prior quarter. Interest income for the three months ended March 31, 2016 increased $172 thousand or 2% to $9.9 million compared to the prior quarter. Income from interest and fees on loans and interest on interest bearing deposits due from banks increased $188 thousand while interest on securities decreased $16 thousand.

 

Interest expense for the first three months of 2016 increased $219 thousand or 16% to $1.6 million compared to the prior quarter. Interest expense on term debt increased $210 thousand while all other interest expense on deposits and lease liabilities increased only $9 thousand. The significant increase in interest on term debt was caused by the first full quarter of interest expense on $20.0 million of term debt issued during December of 2015.

 

Noninterest Income

 

Noninterest income for the three months ended March 31, 2016 increased $309 thousand compared to the prior quarter. In addition to the previously mentioned $176 thousand gain on full repayment of an impaired loan, net gains recognized on the sale of available-for-sale investment securities during the current quarter increased by $64 thousand to $94 thousand compared to a $30 thousand net gain in the prior quarter.

 

Noninterest Expense

 

Aside from the branch acquisition and balance sheet reconfiguration costs ($2.8 million) noninterest expense for the three months ended March 31, 2016 increased $937 thousand compared to the prior quarter. The increase was primarily driven by following:

 

●	Staff increases and salary adjustments totaling $223 thousand, exclusive of our newly acquired offices.
●	Increased payroll tax costs of $205 thousand, exclusive of our newly acquired offices.
●	Salaries and benefits at our newly acquired offices totaling $101 thousand.
●	Increased salaries for direct loan origination costs of $160 thousand.
●	Change in employee vacation utilization/carryover policy costing $113 thousand.
●	Increased office and postage of $94 thousand.

 

Income Tax Provision

 

During the three months ended March 31, 2016, the Company recorded an income tax benefit related to operating losses of $151 thousand and wrote-off a $363 thousand deferred tax asset; a net expense of $212 thousand. This compared with income tax expense of $505 thousand for the prior period. Excluding the write-off of the $363 thousand deferred tax asset, the Company’s effective tax rate decreased from 21.26% in 2015 to 20.19% during the current quarter.

  

 

Earnings Per Share

 

Net losses per share available to common shareholders were $0.07 for the three months ended March 31, 2016 compared with net income available to common shareholders per share of $0.13 for the same period a year ago, and net income available to common shareholders per share of $0.13 for the prior period. Earnings per share decreased for the three months ended March 31, 2016 compared to the same period a year ago primarily as a result of decreased net income.

 

Compared to the prior quarter, current quarter earnings per share available to common shareholders do not include preferred stock dividends and preferred stock extinguishment costs on preferred stock. All preferred stock was redeemed during the fourth quarter of 2015.

 

 

 

TABLE 7

NET INTEREST SPREAD AND MARGIN - UNAUDITED

(amounts in thousands) 

		For The Three Months Ended
		March 31,								Change				December 31,				Change
		2016				2015				Amount				2015				Amount
Tax equivalent yield on average interest earning assets			4.23	%			4.37	%			(0.14	)			4.23	%			0.00
Rate on average interest bearing liabilities			0.86	%			0.66	%			(0.20	)			0.77	%			(0.09	)
Net interest spread - tax equivalent basis			3.37	%			3.71	%			(0.34	)			3.46	%			(0.09	)
Tax equivalent yield on average interest earning assets			4.23	%			4.37	%			(0.14	)			4.23	%			0.00
Interest expense to fund average earning assets			0.66	%			0.51	%			0.15				0.58	%			0.08
Net interest margin - tax equivalent basis			3.57	%			3.86	%			(0.29	)			3.65	%			(0.08	)
Yield on average interest earning assets			4.10	%			4.23	%			(0.13	)			4.10	%			0.00
Rate on average interest bearing liabilities			0.66	%			0.51	%			0.15				0.58	%			0.08
Net interest margin - nominal			3.44	%			3.72	%			(0.28	)			3.52	%			(0.08	)
Average earning assets		$	969,818			$	912,886			$	56,932			$	940,831			$	28,987
Average interest bearing liabilities		$	743,388			$	708,234			$	35,154			$	712,807			$	30,581

  

The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.57% for the three months ended March 31, 2016, a decrease of 29 basis points as compared to the same period a year ago. The decrease in net interest margin resulted from a 14 basis point decrease in tax-equivalent yield on average earning assets and a 15 basis point increase in interest expense to fund average earning assets. The decrease in the tax equivalent yield on average earning assets was primarily due to decreased yields in the securities portfolio. The increased rate on average interest bearing liabilities resulted from the interest on $20.0 million of new term debt issued during the fourth quarter of 2015. Interest on this debt totaled $296 thousand during the first quarter of 2016 and reduced the net interest margin by 12 basis points.

 

The current quarter tax equivalent net interest margin of 3.57% decreased eight basis points as compared to the prior quarter. This was caused by the cost of new debt previously described partially offset by decreased rates paid on interest bearing deposits.

 

During the first quarter of 2016, deposit balances increased $175.7 million and $134.0 million compared to the same period a year ago and the prior quarter respectively, primarily due to our branch acquisition. Our overall cost of interest bearing deposits decreased to 0.37% for the quarter ended March 31, 2016 from 0.40% for the same period a year ago and from 0.38% for the prior quarter.

 

Our future net interest margin will be enhanced by deploying the remaining cash provided by these deposits into higher yielding assets and by the elimination of our contractual interest payments on $75.0 million Federal Home Loan Bank of San Francisco borrowings.

 

 

 

TABLE 8

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

(amounts in thousands) 

		For The Three Months Ended
		March 31,				December 31,				September 30,				June 30,				March 31,
		2016				2015				2015				2015				2015
Beginning balance		$	11,180			$	10,891			$	11,402			$	11,296			$	10,820
Provision for loan and lease losses charged to expense			—				—				—				—				—
Loans charged off			(307	)			(707	)			(779	)			(711	)			(179	)
Loan loss recoveries			622				996				268				817				655
Ending balance		$	11,495			$	11,180			$	10,891			$	11,402			$	11,296

 

		At March 31,				At December 31,				At September 30,				At June 30,				At March 31,
		2016				2015				2015				2015				2015
Nonaccrual loans:
Commercial		$	2,563			$	1,994			$	2,506			$	3,170			$	3,908
Real estate - commercial non-owner occupied			1,197				5,488				5,154				6,532				7,103
Real estate - commercial owner occupied			1,190				1,071				1,928				1,079				1,079
Real estate - residential - ITIN			3,705				3,649				4,228				4,375				4,645
Real estate - residential - 1-4 family mortgage			1,742				1,775				1,669				1,693				1,720
Real estate - residential - equity lines			1,270				—				23				24				24
Consumer and other			31				32				33				34				34
Total nonaccrual loans			11,698				14,009				15,541				16,907				18,513
Accruing troubled debt restructured loans:
Commercial			40				49				56				10				1,004
Real estate - commercial non-owner occupied			821				824				828				832				836
Real estate - commercial owner occupied			—				—				—				849				854
Real estate - residential - ITIN			5,502				5,458				5,423				5,303				5,421
Real estate - residential - equity lines			553				558				563				569				574
Total accruing troubled debt restructured loans			6,916				6,889				6,870				7,563				8,689
All other accruing impaired loans			488				492				494				530				533
Total impaired loans		$	19,102			$	21,390			$	22,905			$	25,000			$	27,735
Gross loans outstanding at period end		$	724,243			$	716,639			$	718,533			$	699,774			$	699,229
Allowance for loan and lease losses as a percent of:
Gross loans			1.59	%			1.56	%			1.52	%			1.63	%			1.62	%
Nonaccrual loans			98.26	%			79.81	%			70.08	%			67.44	%			61.02	%
Impaired loans			60.18	%			52.27	%			47.55	%			45.61	%			40.73	%
Nonaccrual loans to gross loans			1.62	%			1.95	%			2.16	%			2.42	%			2.65	%

  

We realized net loan loss recoveries of $315 thousand in the current quarter compared with net loan loss recoveries of $289 thousand in the prior quarter and net loan loss recoveries of $476 thousand for the same period a year ago.

 

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. We made no provision for loan and lease losses during the quarters ended March 31, 2016, December 31, 2015 and March 31, 2015. Our ALLL as a percentage of gross loans was 1.59% as of March 31, 2016 compared to 1.62% as of March 31, 2015 and 1.56% as of December 31, 2015. 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 March 31, 2016. 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 March 31, 2016, the recorded investment in loans classified as impaired totaled $19.1 million, with a corresponding valuation allowance of $1.1 million compared to impaired loans of $27.7 million with a corresponding valuation allowance of $1.5 million at March 31, 2015 and impaired loans of $21.4 million, with a corresponding valuation allowance of $832 thousand at December 31, 2015. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans. 

 

 

 

TABLE 9

PERIOD END TROUBLED DEBT RESTRUCTURINGS - UNAUDITED

(amounts in thousands)

 

		At March 31,				At December 31,				At September 30,				At June 30,				At March 31,
		2016				2015				2015				2015				2015
Nonaccrual		$	4,516			$	9,015			$	11,149			$	12,354			$	12,695
Accruing			6,916				6,889				6,870				7,563				8,689
Total troubled debt restructurings		$	11,432			$	15,904			$	18,019			$	19,917			$	21,384
Percentage of total gross loans			1.58	%			2.22	%			2.51	%			2.85	%			3.06	%

 

 

Loans are reported as a troubled debt restructuring when we grant a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the loan 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 we will not collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement. Impairment reserves on non-collateral dependent restructured loans are measured by calculating 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.

 

There were no new troubled debt restructurings during the three months ended March 31, 2016. As of March 31, 2016, we had 119 restructured loans that qualified as troubled debt restructurings, of which 108 were performing according to their restructured terms. 

 

 

 

TABLE 10

NONPERFORMING ASSETS - UNAUDITED

(amounts in thousands) 

		At March 31,				At December 31,				At September 30,				At June 30,				At March 31,
		2016				2015				2015				2015				2015
Total nonaccrual loans		$	11,698			$	14,009			$	15,541			$	16,907			$	18,513
90 days past due and still accruing			—				88				52				54				30
Total nonperforming loans			11,698				14,097				15,593				16,961				18,543
Other real estate owned			1,011				1,423				1,525				1,405				1,502
Total nonperforming assets		$	12,709			$	15,520			$	17,118			$	18,366			$	20,045
Nonperforming loans to gross loans			1.62	%			1.97	%			2.17	%			2.42	%			2.65	%
Nonperforming assets to total assets			1.18	%			1.53	%			1.73	%			1.87	%			2.03	%

 

 

At March 31, 2016, March 31, 2015 and December 31, 2015, the recorded investment in OREO was $1.0 million, $1.5 million and $1.4 million, respectively. The March 31, 2016 OREO balance consists of six properties, of which three are 1-4 family residential real estate in the amount of $306 thousand, two are nonfarm nonresidential properties in the amount of $557 thousand and one is an undeveloped commercial property in the amount of $147 thousand.

 

 

 

TABLE 11

UNAUDITED CONSOLIDATED

BALANCE SHEET

(amounts in thousands, except per share data) 

			At March 31,				At March 31,				Change								At December 31,
			2016				2015				$				%				2015
Assets:
Cash and due from banks		$	14,969			$	13,353			$	1,616				12	%		$	9,730
Interest-bearing deposits in other banks			70,781				16,758				54,023				322	%			41,462
Total cash and cash equivalents			85,750				30,111				55,639				185	%			51,192
Securities available-for-sale, at fair value			174,251				166,890				7,361				4	%			159,030
Securities held-to-maturity, at amortized cost			35,357				36,609				(1,252	)			(3	)%			35,899
Loans, net of deferred fees and costs			725,228				699,544				25,684				4	%			717,509
Allowance for loan and lease losses			(11,495	)			(11,296	)			(199	)			2	%			(11,180	)
Net loans			713,733				688,248				25,485				4	%			706,329
Premises and equipment, net			15,494				11,903				3,591				30	%			11,072
Other real estate owned			1,011				1,502				(491	)			(33	)%			1,423
Goodwill and core deposit intangibles, net			2,469				—				2,469				100	%			—
Life insurance			22,642				22,009				633				3	%			22,485
Deferred taxes			8,389				10,041				(1,652	)			(16	)%			9,760
Other assets			17,987				18,089				(102	)			(1	)%			18,251
Total assets		$	1,077,083			$	985,402			$	91,681				9	%		$	1,015,441
Liabilities and shareholders' equity:
Demand - noninterest bearing		$	212,758			$	150,056			$	62,702				42	%		$	169,507
Demand - interest bearing			392,325				266,552				125,773				47	%			315,658
Savings			105,828				92,088				13,740				15	%			94,503
Certificates of deposit			226,756				253,280				(26,524	)			(10	)%			224,067
Total deposits			937,667				761,976				175,691				23	%			803,735
Term debt			19,839				90,000				(70,161	)			(78	)%			94,917
Unamortized debt issuance costs			(213	)			—				(213	)			100	%			(223	)
Net term debt			19,626				90,000				(70,374	)			(78	)%			94,694
Junior subordinated debentures			10,310				10,310				—				0	%			10,310
Other liabilities			18,762				17,679				1,083				6	%			16,180
Total liabilities			986,365				879,965				106,400				12	%			924,919
Shareholders' equity:
Preferred stock			—				19,931				(19,931	)			(100	)%			—
Common stock			24,325				24,105				220				1	%			24,214
Retained earnings			65,201				61,217				3,984				7	%			66,562
Accumulated other comprehensive income (loss), net of tax			1,192				184				1,008				548	%			(254	)
Total shareholders' equity			90,718				105,437				(14,719	)			(14	)%			90,522
Total liabilities and shareholders' equity		$	1,077,083			$	985,402			$	91,681				9	%		$	1,015,441
Total interest earning assets		$	1,002,492			$	916,676			$	85,816				9	%		$	952,212
Shares outstanding			13,442				13,362												13,385
Tangible book value per share		$	6.57			$	6.40											$	6.76

  

 

 

TABLE 12

UNAUDITED

INCOME STATEMENT

(amounts in thousands, except per share data)  

			For The Three Months Ended
			March 31,								Change								December 31,
			2016				2015				$				%				2015
Interest income:
Interest and fees on loans		$	8,451			$	7,911			$	540				7	%		$	8,299
Interest on securities			784				945				(161	)			(17	)%			795
Interest on tax-exempt securities			594				599				(5	)			(1	)%			599
Interest on deposits in other banks			75				71				4				6	%			39
Total interest income			9,904				9,526				378				4	%			9,732
Interest expense:
Interest on demand deposits			122				116				6				5	%			121
Interest on savings deposits			45				54				(9	)			(17	)%			51
Interest on certificates of deposit			597				591				6				1	%			585
Interest on term debt			782				349				433				124	%			572
Interest on other borrowings			54				47				7				15	%			52
Total interest expense			1,600				1,157				443				38	%			1,381
Net interest income			8,304				8,369				(65	)			(1	)%			8,351
Provision for loan and lease losses			—				—				—				0	%			—
Net interest income after provision for loan and lease losses			8,304				8,369				(65	)			(1	)%			8,351
Noninterest income:
Service charges on deposit accounts			72				49				23				47	%			51
Payroll and benefit processing fees			160				148				12				8	%			139
Earnings on cash surrender value - life insurance			156				165				(9	)			(5	)%			159
Gain (loss) on investment securities, net			94				215				(121	)			(56	)%			30
Other income			467				277				190				69	%			261
Total noninterest income			949				854				95				11	%			640

  

 

 

TABLE 12 - CONTINUED

UNAUDITED

INCOME STATEMENT

(amounts in thousands, except per share data)  

			For The Three Months Ended
			March 31,								Change								December 31,
			2016				2015				$				%				2015
Noninterest expense:
Salaries and related benefits			4,229				3,910				319				8	%			3,610
Occupancy and equipment			789				734				55				7	%			737
Write-down of other real estate owned			55				—				55				100	%			—
Federal Deposit Insurance Corporation insurance premium			156				207				(51	)			(25	)%			173
Data processing fees			304				242				62				26	%			280
Professional service fees			436				388				48				12	%			461
Branch acquisition costs			412				—				412				100	%			347
Loss on cancellation of interest rate swap			2,325				—				2,325				100	%			—
Other expenses			1,295				1,112				183				16	%			1,008
Total noninterest expense			10,001				6,593				3,408				52	%			6,616
Income before provision for income taxes			(748	)			2,630				(3,378	)			(128	)%			2,375
Deferred tax asset write-off			363				—				363				0	%			—
Provision for income taxes			(151	)			829				(980	)			(118	)%			505
Net income		$	(960	)		$	1,801			$	(2,761	)			(153	)%		$	1,870
Less: Preferred stock extinguishment costs			—				—				—				100	%			102
Less: Preferred dividends			—				50				(50	)			(100	)%			39
Income available to common shareholders		$	(960	)		$	1,751			$	(2,711	)			(155	)%		$	1,729
Basic earnings per share		$	(0.07	)		$	0.13			$	(0.20	)			(154	)%		$	0.13
Average basic shares			13,360				13,303				57				0	%			13,341
Diluted earnings per share		$	(0.07	)		$	0.13			$	(0.20	)			(154	)%		$	0.13
Average diluted shares			13,403				13,340				63				0	%			13,395

  

 

 

TABLE 13

UNAUDITED CONDENSED CONSOLIDATED

YEAR TO DATE AVERAGE BALANCE SHEETS

(amounts in thousands)  

			For the Three Months Ended								For the Twelve Months Ended
			March 31,				March 31,				December 31,				December 31,				December 31,
			2016				2015				2015				2014				2013
Earning assets:
Loans		$	720,795			$	673,120			$	699,227			$	625,166			$	612,780
Taxable securities			119,917				136,557				120,897				147,916				157,486
Tax exempt securities			77,852				77,316				77,089				83,973				92,854
Interest-bearing deposits in other banks			51,254				25,893				30,323				56,465				43,342
Average earning assets			969,818				912,886				927,536				913,520				906,462
Cash and due from banks			12,301				10,295				11,220				11,246				10,624
Premises and equipment, net			12,384				12,195				11,552				12,105				10,337
Other assets			39,700				43,540				42,423				36,936				26,431
Average total assets		$	1,034,203			$	978,916			$	992,731			$	973,807			$	953,854
Liabilities and shareholders' equity:
Demand - noninterest bearing		$	182,539			$	148,923			$	156,578			$	139,792			$	122,011
Demand - interest bearing			323,771				275,954				283,105				272,383				244,125
Savings			96,027				91,152				92,659				91,108				92,502
Certificates of deposit			221,836				246,707				238,626				259,445				248,350
Total deposits			824,173				762,736				770,968				762,728				706,988
Repurchase agreements			—				—				—				—				5,780
Term debt			91,444				84,111				88,874				77,534				107,603
Junior subordinated debentures			10,310				10,310				10,310				15,239				15,465
Other liabilities			16,969				17,141				16,588				15,934				11,825
Average total liabilities			942,896				874,298				886,740				871,435				847,661
Shareholders' equity			91,307				104,618				105,991				102,372				106,193
Average liabilities & shareholders' equity		$	1,034,203			$	978,916			$	992,731			$	973,807			$	953,854

  

 

 

TABLE 14

UNAUDITED CONDENSED CONSOLIDATED

QUARTERLY AVERAGE BALANCE SHEETS

(amounts in thousands) 

		For The Three Months Ended
		March 31,				December 31,				September 30,				June 30,				March 31,
		2016				2015				2015				2015				2015
Earning assets:
Loans		$	720,795			$	714,494			$	705,762			$	703,008			$	673,120
Taxable securities			119,917				111,098				115,165				121,110				136,557
Tax exempt securities			77,852				78,081				76,190				76,772				77,316
Interest-bearing deposits in other banks			51,254				37,158				30,430				27,688				25,893
Average earning assets			969,818				940,831				927,547				928,578				912,886
Cash and due from banks			12,301				12,372				11,355				10,833				10,295
Premises and equipment, net			12,384				11,001				11,265				11,767				12,195
Other assets			39,700				41,666				41,867				42,637				43,540
Average total assets		$	1,034,203			$	1,005,870			$	992,034			$	993,815			$	978,916
Liabilities and shareholders' equity:
Demand - noninterest bearing		$	182,539			$	171,449			$	158,232			$	147,442			$	148,923
Demand - interest bearing			323,771				302,862				284,508				268,784				275,954
Savings			96,027				92,939				93,230				93,291				91,152
Certificates of deposit			221,836				226,924				235,551				245,573				246,707
Total deposits			824,173				794,174				771,521				755,090				762,736
Term debt			91,444				79,772				86,359				105,330				84,111
Junior subordinated debentures			10,310				10,310				10,310				10,310				10,310
Other liabilities			16,969				16,197				16,140				16,887				17,141
Average total liabilities			942,896				900,453				884,330				887,617				874,298
Shareholders' equity			91,307				105,417				107,704				106,198				104,618
Average liabilities & shareholders' equity		$	1,034,203			$	1,005,870			$	992,034			$	993,815			$	978,916

  

  

 

About Bank of Commerce Holdings

 

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

 

Investment firms making a market in BOCH stock are:

 

Raymond James Financial	Stifel Nicolaus
John T. Cavender	Perry Wright
555 Market Street	1255 East Street, Suite 100
San Francisco, CA 94105	Redding, CA 96001
(800) 346-5544	(530) 244-7199

 

 

 

Contact Information:

 

Randall S. Eslick, President and Chief Executive Officer

Telephone Direct (530) 722-3900

 

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

Telephone Direct (530) 722-3952

 

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

Telephone Direct (530) 722-3908

 

Andrea Schneck, Vice President and Senior Administrative Officer

Telephone Direct (530) 722-3959

 

 

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