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

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8-K - FORM 8-K - Bank of Commerce Holdings	boch20210120_8k.htm

Exhibit 99.1

For Immediate Release:

Bank of Commerce Holdings Announces Results for the Fourth Quarter of 2020

SACRAMENTO, California, January 22, 2021 / GLOBE NEWSWIRE—Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.764 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter and year ended December 31, 2020. Net income for the quarter ended December 31, 2020 was $5.1 million or $0.30 per share – diluted, compared with net income of $4.4 million or $0.24 per share – diluted for the same period of 2019. Net income for the year ended December 31, 2020 was $14.2 million or $0.83 per share – diluted, compared with net income of $15.0 million or $0.83 per share – diluted for the same period of 2019.

Significant Items for the fourth quarter of 2020:

●	COVID-19 loan deferrals outstanding declined to $9.5 million at December 31, 2020 as borrowers resumed making payments compared to deferral balances of $38.6 million and $123.3 million at September 30, 2020 and June 30, 2020, respectively.

●	119 PPP loans totaling $32.7 million (20%) have been forgiven by the SBA or repaid by the borrower, resulting in $664 thousand of accelerated fee income.

●	COVID-19 credit concerns have moderated and no provision for loan and lease losses was required during the fourth quarter.

Randall S. Eslick, President and CEO commented: “Looking back on 2020, I could not be more proud of the accomplishments of our dedicated employees. Despite the rollercoaster that was 2020, the year was unexpectedly positive for our company. We supported our employees, customers and communities though the pandemic; we saw substantial growth in loans and deposits; and we ended the year delivering solid returns to our investors. Our company is well positioned for future success.”

Financial highlights for the year ended December 31, 2020:

●	Net income of $14.2 million was a decrease of $797 thousand (5%) from $15.0 million earned during the prior year. Earnings of $0.83 per share – diluted was unchanged compared to the prior year and reflects the impact of the following:

1.5 million shares of common stock repurchased between October of 2019 and April of 2020.

$5.3 million provision for loan and lease losses for the current year.

$1.1 million in non-recurring costs during the first quarter of 2020 associated with the termination of a technology management services contract and a severance agreement; both previously announced.

$2.7 million in non-recurring costs recorded during the year ended December 31, 2019 associated with our January 31, 2019 acquisition of Merchants National Bank of Sacramento and the name change of our subsidiary bank.

●	Net interest income increased $1.9 million (4%) to $55.5 million compared to $53.5 million in the prior year.

●	Net interest margin declined to 3.60% compared to 3.94% in the prior year.

●	Return on average assets decreased to 0.86% compared to 1.03% in the prior year.

●	Return on average equity decreased to 8.27% compared to 9.09% in the prior year.

●	Average loans totaled $1.149 billion, an increase of $129 million (13%) compared to average loans in the prior year.

●	Average earning assets totaled $1.539 billion, an increase of $178 million (13%) compared to average earning assets in the prior year.

●	Average deposits totaled $1.423 billion, an increase of $179 million (14%) compared to average deposits in the prior year.

Average non-maturing deposits totaled $1.281 billion, an increase of $197 million (18%) compared to the prior year.

Average certificates of deposit totaled $142.1 million, a decrease of $18.5 million (12%) compared to the prior year.

●	The Company’s efficiency ratio was 58.8% compared to 64.5% in the prior year.

The Company’s efficiency ratio of 58.8% for 2020 includes $1.1 million of non-recurring costs. The efficiency ratio excluding these costs was 56.9%.

The Company’s efficiency ratio of 64.5% for 2019 includes $2.7 million of non-recurring costs associated with our acquisition of Merchants and name change of our subsidiary bank. The efficiency ratio excluding these non-recurring costs is 59.9%.

●

Nonperforming assets at December 31, 2020 totaled $7.0 million or 0.40% of total assets, an increase of $1.4 million (24%) since December 31, 2019. The increase in nonperforming assets results primarily from two commercial loans totaling $1.4 million and a $640 thousand commercial real estate loan, all of which are well secured, that were placed on nonaccrual status during the year ending December 31, 2020.

●	Book value per common share was $10.58 at December 31, 2020 compared to $9.62 at December 31, 2019.

●	Tangible book value per common share was $9.64 at December 31, 2020 compared to $8.71 at December 31, 2019.

Financial highlights for the fourth quarter of 2020:

●

Net income of $5.1 million was an increase of $703 thousand (16%) from $4.4 million earned during the same period in the prior year. Earnings of $0.30 per share – diluted was an increase of $0.06 (25%) per share from $0.24 per share – diluted earned during the same period in the prior year and reflects the impact of the following:

1.5 million shares of common stock repurchased between October of 2019 and April of 2020.

●	Net interest income increased $1.3 million (9%) to $14.6 million compared to $13.3 million for the same period in the prior year.

●	Net interest margin declined to 3.46% compared to 3.80% for the same period in the prior year.

●	Return on average assets decreased to 1.14% compared to 1.16% for the same period in the prior year.

●	Return on average equity increased to 11.56% compared to 10.06% for the same period in the prior year.

●	Average loans totaled $1.173 billion, an increase of $141 million (14%) compared to average loans for the same period in the prior year.

●	Average earning assets totaled $1.675 billion, an increase of $284 million (20%) compared to the same period in the prior year.

●	Average deposits totaled $1.555 billion, an increase of $273 million (21%) compared to the same period in the prior year.

Average non-maturing deposits totaled $1.417 billion, an increase of $288 million (26%) compared to the same period in the prior year.

Average certificates of deposit totaled $138.4 million, a decrease of $14.8 million (10%) compared to the same period in the prior year.

●	The Company’s efficiency ratio was 54.8% compared to 58.7% for the same period in the prior year.

●

Nonperforming assets at December 31, 2020 totaled $7.0 million or 0.40% of total assets, a decrease of $1.1 million (53% annualized) since September 30, 2020. The decrease in nonperforming assets was due to a $1.1 million commercial real estate loan that was placed on nonaccrual status in the second quarter of 2020 and paid off during the fourth quarter of 2020.

●	Book value per common share was $10.58 at December 31, 2020 compared to $10.32 at September 30, 2020.

●	Tangible book value per common share was $9.64 at December 31, 2020 compared to $9.38 at September 30, 2020.

Impact of COVID-19:

●

At December 31, 2020, we have 487 loans totaling $130.8 million in the Small Business Administration’s Paycheck Protection Program (“PPP”) compared to 606 loans totaling $163.5 million at September 30, 2020. Substantially all of the loans were made to existing customers and were funded under the two-year PPP loan program.

●	We have experienced significant increases in deposit balances during 2020. All PPP loan funds were deposited into customer accounts at our bank and customer behavior has emphasized savings during the economic slow down.

●	Organic loan growth continues to be slow as we maintain credit underwriting discipline in the current economic environment.

●	For the six-month period, from April through September, SBA made principal and interest payments on all our SBA 7(a) loans. In October, borrowers resumed responsibility for making their payments.

●	After considering qualitative and quantitative factors, management determined that the Company’s goodwill was not impaired at December 31, 2020.

●	At December 31, 2020, our workforce totaled 212 employees of which 107 are working remotely.

●	All of our branch offices remain open, although they are operating under a reduced schedule. Our pandemic response team is continuing to modify and enhance our workforce and customer protection as additional information or requirements are promulgated by the CDC and the state of California.

Forward-Looking Statements

Bank of Commerce Holdings wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995. This news release includes statements by the Company, which describe management’s expectations and developments, which may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21B of the Securities Act of 1934, as amended. Future events are difficult to predict, and the expectations described above are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in the Company's public filings, factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) local, national and international economic conditions are less favorable than expected or have a more direct and pronounced effect on the Company than expected and adversely affect the Company's ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new banks and/or branches are lower than expected; (4) our concentration in lending tied to real estate exposes us to the adverse effects of material increases in interest rates, declines in the general economy, tightening credit markets or declines in real estate values; (5) competitive pressure among financial institutions increases significantly; (6) legislation or regulatory requirements or changes adversely affect the businesses in which the Company is engaged; and (7) technological changes could expose us to new risks.

TABLE 1

SELECTED FINANCIAL INFORMATION - UNAUDITED

(dollars in thousands except per share data)

	For The Three Months Ended									For The Twelve Months Ended
Net income, average assets and average	December 31,						September 30,			December 31,
shareholders' equity	2020			2019			2020			2020			2019
Net income	$	5,072		$	4,369		$	4,329		$	14,164		$	14,961
Average total assets	$	1,774,937		$	1,492,643		$	1,704,116		$	1,640,519		$	1,458,112
Average total earning assets	$	1,674,544		$	1,390,446		$	1,601,436		$	1,538,605		$	1,360,325
Average shareholders' equity	$	174,520		$	172,385		$	171,433		$	171,287		$	164,642

Selected performance ratios
Return on average assets		1.14	%		1.16	%		1.01	%		0.86	%		1.03	%
Return on average equity		11.56	%		10.06	%		10.05	%		8.27	%		9.09	%
Efficiency ratio		54.8	%		58.7	%		54.8	%		58.8	%		64.5	%

Share and per share amounts
Weighted average shares - basic ⁽¹⁾		16,663			18,068			16,660			16,918			17,956
Weighted average shares - diluted ⁽¹⁾		16,731			18,150			16,696			16,963			18,024
Earnings per share - basic	$	0.30		$	0.24		$	0.26		$	0.84		$	0.83
Earnings per share - diluted	$	0.30		$	0.24		$	0.26		$	0.83		$	0.83

	At December 31,						At September 30,
Share and per share amounts	2020			2019			2020
Common shares outstanding ⁽²⁾		16,801			18,137			16,792
Book value per common share ⁽²⁾	$	10.58		$	9.62		$	10.32
Tangible book value per common share ⁽²⁾⁽³⁾	$	9.64		$	8.71		$	9.38

Capital ratios ⁽⁴⁾
Bank of Commerce Holdings
Common equity tier 1 capital ratio		13.12	%		13.19	%		12.61	%
Tier 1 capital ratio		13.97	%		14.04	%		13.44	%
Total capital ratio		16.06	%		15.97	%		15.53	%
Tier 1 leverage ratio		9.46	%		11.30	%		9.60	%
Tangible common equity ratio ⁽⁵⁾		9.27	%		10.80	%		9.13	%

Merchants Bank of Commerce
Common equity tier 1 capital ratio		14.58	%		14.39	%		14.01	%
Tier 1 capital ratio		14.58	%		14.39	%		14.01	%
Total capital ratio		15.83	%		15.48	%		15.26	%
Tier 1 leverage ratio		9.86	%		11.58	%		9.99	%

⁽¹⁾ Excludes unvested restricted shares issued in accordance with the Company's equity incentive plan, as they are non-participative in dividends or voting rights.
⁽²⁾ Includes unvested restricted shares issued in accordance with the Company's equity incentive plan.
⁽³⁾Book value per share is computed by dividing total shareholders’ equity by shares outstanding. Tangible book value per share is computed by dividing total shareholders’ equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.
⁽⁴⁾The Company and the Bank continue to meet all capital adequacy requirements to which they are subject.
⁽⁵⁾ Management believes the tangible common equity ratio is a useful measure of capital adequacy because it provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the capital of the Company and the ability of the Company to absorb potential losses. The tangible common equity ratio is calculated as total shareholders' equity less goodwill and core deposit intangible, net divided by total assets less goodwill and core deposit intangible, net.

BALANCE SHEET OVERVIEW

As of December 31, 2020, the Company had total consolidated assets of $1.764 billion, gross loans of $1.140 billion, allowance for loan and lease losses (“ALLL”) of $17 million, total deposits of $1.543 billion, and shareholders’ equity of $178 million.

TABLE 2

LOAN BALANCES BY TYPE - UNAUDITED

(dollars in thousands)

	At December 31,																		At September 30,
				% of						% of			Change									% of
	2020			Total			2019			Total			Amount			%			2020			Total
Commercial	$	115,559			10	%	$	141,197			14	%	$	(25,638	)		(18	)%	$	121,025			10	%
Paycheck protection program		130,814			11			—			—			130,814			100	%		163,493			14
Real estate - construction and land development		44,549			4			26,830			3			17,719			66	%		40,289			3
Real estate - commercial non-owner occupied		512,832			45			493,920			48			18,912			4	%		538,079			45
Real estate - commercial owner occupied		210,155			18			218,833			21			(8,678	)		(4	)%		210,455			17
Real estate - residential - ITIN		29,035			3			33,039			3			(4,004	)		(12	)%		30,071			2
Real estate - residential - 1-4 family mortgage		55,925			5			63,661			6			(7,736	)		(12	)%		57,867			5
Real estate - residential - equity lines		18,894			2			22,099			2			(3,205	)		(15	)%		20,296			2
Consumer and other		21,969			2			33,324			3			(11,355	)		(34	)%		24,490			2
Gross loans		1,139,732			100	%		1,032,903			100	%		106,829			10	%		1,206,065			100	%
Deferred (fees) and costs		229						2,162						(1,933	)					(1,037	)
Loans, net of deferred fees and costs		1,139,961						1,035,065						104,896						1,205,028
Allowance for loan and lease losses		(16,910	)					(12,231	)					(4,679	)					(16,873	)
Net loans	$	1,123,051					$	1,022,834					$	100,217					$	1,188,155

Average loans during the quarter	$	1,172,705					$	1,031,702					$	141,003			14	%	$	1,209,277
Average loans during the quarter (excluding PPP)	$	1,024,324					$	—					$	1,024,324			100	%	$	1,046,187
Average yield on loans during the quarter		4.59	%					4.86	%					(0.27	)		(6	)%		4.42	%
Average yield on loans during the quarter (excluding PPP)		4.67	%					4.86	%					(0.19	)		(4	)%		4.75	%
Average yield on loans year to date		4.57	%					4.95	%					(0.38	)		(8	)%		4.56	%
Average yield on loans year to date (excluding PPP)		4.75	%					4.95	%					(0.20	)		(4	)%		4.77	%

The Company recorded gross loan balances of $1.140 billion at December 31, 2020, compared with $1.033 billion and $1.206 billion at December 31, 2019 and September 30, 2020, respectively, an increase of $107 million and a decrease of $66 million, respectively.

The average yield on loans during the quarter was 4.59% compared to 4.86% and 4.42% for the quarters ended December 31, 2019 and September 30, 2020, respectively. Yields were impacted by PPP loans, which averaged $148.4 million and yielded 4.07% during the current quarter and $163.1 million and yielded 2.31% during the prior quarter.

Gross loan balances in the table above include a net fair value discount for loans acquired from Merchants of $920 thousand, $1.7 million and $1.1 million at December 31, 2020, December 31, 2019 and September 30, 2020, respectively. We recorded $141 thousand, $188 thousand and $233 thousand in accretion of the discount for these loans during the quarters ended December 31, 2020, December 31, 2019 and September 30, 2020, respectively.

We have 487 PPP loans totaling $130.8 million at December 31, 2020. During the fourth quarter of 2020, 119 PPP loans totaling $32.7 million were repaid. Loan fee income net of loan origination costs is earned over the 24-month life of the loans as a part of the loan yield. When a PPP loan is repaid prior to maturity, all unamortized fees and costs associated with the loan are accelerated into income. During the current quarter, we recognized $664 thousand in accelerated fee income. At December 31, 2020, net fees totaling $2.2 million remain to be earned in future quarters. The following tables provide additional information on the PPP loans by industry and by loan balance at December 31, 2020.

TABLE 3
PPP LOANS BY INDUSTRY - UNAUDITED
(dollars in thousands)

	At December 31, 2020
	Number		Balance
Construction		75	$	55,644
Healthcare and Social Assistance		81		15,520
Professional, Scientific and Tech Services		58		7,708
Accommodation and Food Services		47		8,800
Admin, Support, Waste Management and Remediation Services		15		4,988
Primary Metal Manufacturing		14		5,037
Retail Trade		49		6,710
Other		148		26,407
Total		487	$	130,814

TABLE 4
PPP LOANS BY LOAN SIZE - UNAUDITED
(dollars in thousands)

	At December 31, 2020
	Balance		Number		Average Loan Size
$50,000 or less	$	4,220		181	$	23
$50,001 to $150,000		11,884		143		83
$150,001 to $350,000		19,150		85		225
$350,001 to $1,999,999		52,004		66		788
$2,000,000 or greater		43,556		12		3,630
Total	$	130,814		487	$	269

During the third quarter of 2020, the SBA began accepting applications for PPP loan forgiveness. The bank has 60 days to review and approve an application before submitting it to SBA, and the SBA then has 90 days to process it for forgiveness. The following table presents the status of our loans in the forgiveness process.

TABLE 5

PPP LOANS FORGIVENESS APPLICATION STATUS - UNAUDITED

(dollars in thousands)

	At December 31, 2020						At September 30, 2020
	Balance		Number		Average Loan Size		Balance		Number		Average Loan Size
Borrower has not started application	$	33,459		185	$	181	$	78,930		390	$	202
Borrower is working on application		31,277		136		230		38,624		123		314
Borrower has completed application and the bank is reviewing it		43,872		105		418		32,400		73		444
Bank has approved application and submitted it to the SBA		22,087		44		502		13,539		20		677
Remaining balance for loans partially repaid		119		17		7		—		—		—
PPP loans not fully repaid		130,814		487		269		163,493		606		270

Repayments ⁽¹⁾		32,679		119		275		—		—		—
Total PPP loans originated by bank	$	163,493		606	$	270	$	163,493		606	$	270

⁽¹⁾ Includes 119 loans fully repaid by SBA or the borrower and $3.2 million of partial repayment for 17 borrowers who participated in the SBA Economic Injury Disaster Loan ("EIDL") program.

TABLE 6

CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED

(dollars in thousands)

	At December 31,																		At September 30,
				% of						% of			Change									% of
	2020			Total			2019			Total			Amount			%			2020			Total
Cash and due from banks	$	19,875			4	%	$	21,338			6	%	$	(1,463	)		(7	)%	$	22,884			5	%
Interest-bearing deposits in other banks		87,111			16			59,266			16			27,845			47	%		104,999			23
Total cash and cash equivalents		106,986			20			80,604			22			26,382			33	%		127,883			28

Investment securities:
U.S. government and agencies		32,994			6			38,733			11			(5,739	)		(15	)%		31,811			7
Obligations of state and political subdivisions		108,366			20			42,098			11			66,268			157	%		91,863			20
Residential mortgage backed securities and collateralized mortgage obligations		240,478			42			180,835			49			59,643			33	%		165,693			35
Corporate securities		—			—			2,966			1			(2,966	)		(100	)%		—			—
Commercial mortgage backed securities		28,074			5			19,307			5			8,767			45	%		19,576			4
Other asset backed securities		36,968			7			3,011			1			33,957			1,128	%		28,089			6
Total investment securities - AFS		446,880			80			286,950			78			159,930			56	%		337,032			72

Total cash, cash equivalents and investment securities	$	553,866			100	%	$	367,554			100	%	$	186,312			51	%	$	464,915			100	%
Average yield on interest-bearing due from banks during the quarter		0.12	%					1.66	%					(1.54	)					0.12	%
Average yield on investment securities during the quarter -nominal		2.06	%					2.61	%					(0.55	)					2.33	%
Average yield on investment securities during the quarter - tax equivalent		2.19	%					2.71	%					(0.52	)					2.50	%

As of December 31, 2020, we maintained noninterest-bearing cash positions of $19.9 million and interest-bearing deposits of $87.1 million at the Federal Reserve Bank and correspondent banks. Management has been challenged to invest the rapidly increasing liquidity generated by growth in deposits and loan repayments.

During the fourth quarter of 2020, we continued the deployment of excess cash into our investment portfolio. Investment securities totaled $446.9 million at December 31, 2020, compared with $287.0 million and $337.0 million at December 31, 2019 and September 30, 2020, respectively. Our investment portfolio has shortened in duration considerably over the past year, which is now allowing us to add longer-term securities with a better yield without extending the duration of the total portfolio beyond our risk appetite. During the fourth quarter of 2020, we purchased securities with a par value of $133.3 million and weighted average yield of 1.49% (1.52% tax equivalent). Investment purchases were comprised primarily of longer duration municipal bonds and lower coupon, moderate-term mortgage backed securities. No securities were sold during the fourth quarter.

Average securities balances for the quarters ended December 31, 2020, December 31, 2019 and September 30, 2020 were $377.4 million, $277.6 million and $296.8 million, respectively. Weighted average yields on securities balances for those same periods were 2.06%, 2.61% and 2.33%, respectively.

At December 31, 2020, our net unrealized gains on available-for-sale investment securities were $10.6 million compared with net unrealized gains of $3.7 million and $10.4 million at December 31, 2019 and September 30, 2020, respectively. The changes in net unrealized gains were due to changes in market interest rates.

TABLE 7

DEPOSITS BY TYPE - UNAUDITED

(dollars in thousands)

	At December 31,																At September 30,
			% of					% of			Change								% of
	2020		Total			2019		Total			Amount			%			2020		Total
Demand - noninterest-bearing	$	541,033		35	%	$	432,680		34	%	$	108,353			25	%	$	542,060		36	%
Demand - interest-bearing		290,251		19			239,258		19			50,993			21	%		280,370		18
Money market		425,121		28			307,559		24			117,562			38	%		403,785		27
Total demand		1,256,405		82			979,497		77			276,908			28	%		1,226,215		81

Savings		150,695		10			135,888		11			14,807			11	%		151,016		10
Total non-maturing deposits		1,407,100		92			1,115,385		88			291,715			26	%		1,377,231		91

Certificates of deposit		135,679		8			151,786		12			(16,107	)		(11	)%		140,900		9
Total deposits	$	1,542,779		100	%	$	1,267,171		100	%	$	275,608			22	%	$	1,518,131		100	%

Total deposits at December 31, 2020, increased $276 million or 22% to $1.543 billion compared to December 31, 2019 and increased $24.6 million or 6% annualized compared to September 30, 2020. Total non-maturing deposits increased $291.7 million or 26% compared to the same date a year ago and increased $29.9 million or 9% annualized compared to September 30, 2020. The increase in non-maturing deposits compared to the same period one year ago was due to PPP loan program disbursements and changes in customer behavior, which is placing greater emphasis on savings. Certificates of deposit decreased $16.1 million or 11% compared to the same date a year ago and decreased $5.2 million or 15% annualized compared to September 30, 2020. These decreases reflect our decision to reduce reliance on public deposits and depositor reaction to the low interest rate environment.

The following table presents the average cost of interest-bearing deposits, all deposits and all interest-bearing liabilities for the periods indicated.

TABLE 8

AVERAGE COST OF FUNDS - UNAUDITED

For The Three Months Ended

	December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2020			2020			2020			2020			2019			2019			2019			2019
Interest-bearing deposits		0.29	%		0.36	%		0.43	%		0.53	%		0.56	%		0.56	%		0.54	%		0.49	%
Interest-bearing deposits and noninterest-bearing demand		0.19	%		0.23	%		0.28	%		0.35	%		0.38	%		0.38	%		0.37	%		0.34	%
All interest-bearing liabilities		0.37	%		0.44	%		0.52	%		0.65	%		0.68	%		0.68	%		0.74	%		0.67	%
All interest-bearing liabilities and noninterest-bearing demand		0.24	%		0.29	%		0.34	%		0.43	%		0.46	%		0.46	%		0.52	%		0.46	%

Equity

As detailed in Table 1, capital ratios remain appropriate for the Company’s risk profile.

In late 2019, we announced a program to repurchase 1.0 million common shares which was later increased to 1.5 million common shares. Between October of 2019 and April of 2020, all 1.5 million shares were repurchased at a total cost of $13.6 million including commissions, or an average of $9.11 per share.

During the fourth quarter of 2020, we announced a new share repurchase program to repurchase up to 1.0 million shares of common stock over a period ending December 31, 2021. As of December 31, 2020, no shares have been repurchased.

INCOME STATEMENT OVERVIEW

TABLE 9

SUMMARY INCOME STATEMENT - UNAUDITED

(dollars in thousands, except per share data)

	For The Three Months Ended
	December 31,				Change						September 30,		Change
	2020		2019		Amount			%			2020		Amount			%
Interest income	$	15,519	$	14,808	$	711			5	%	$	15,218	$	301			2	%
Interest expense		963		1,494		(531	)		(36	)%		1,088		(125	)		(11	)%
Net interest income		14,556		13,314		1,242			9	%		14,130		426			3	%
Provision for loan and lease losses		—		—		—			—	%		1,100		(1,100	)		(100	)%
Noninterest income		1,016		1,021		(5	)		0	%		1,189		(173	)		(15	)%
Noninterest expense		8,534		8,421		113			1	%		8,390		144			2	%
Income before provision for income taxes		7,038		5,914		1,124			19	%		5,829		1,209			21	%
Provision for income taxes		1,966		1,545		421			27	%		1,500		466			31	%
Net income	$	5,072	$	4,369	$	703			16	%	$	4,329	$	743			17	%

Earnings per share - basic	$	0.30	$	0.24	$	0.06			25	%	$	0.26	$	0.04			15	%
Weighted average shares - basic		16,663		18,068		(1,405	)		(8	)%		16,660		3			—	%
Earnings per share - diluted	$	0.30	$	0.24	$	0.06			25	%	$	0.26	$	0.04			15	%
Weighted average shares - diluted		16,731		18,150		(1,419	)		(8	)%		16,696		35			—	%
Dividends declared per common share	$	0.06	$	0.05	$	0.01			20	%	$	0.05	$	0.01			20	%

Fourth Quarter of 2020 Compared With The Fourth Quarter of 2019

Net income for the fourth quarter of 2020 increased $703 thousand compared to the fourth quarter of 2019. In the current quarter, net interest income was $1.2 million higher. This positive change was partially offset by noninterest income that was $5 thousand lower, noninterest expense that was $113 thousand higher and a provision for income taxes that was $421 thousand higher.

Net Interest Income

Net interest income increased $1.2 million compared to the same period a year ago.

Interest income for the fourth quarter of 2020 increased $711 thousand or 5% to $15.5 million.

●	During the fourth quarter of 2020, we recognized $664 thousand in accelerated fee income on PPP loans forgiven or repaid during the quarter. These accelerated loan fees increased the average yield on loans for the fourth quarter of 2020 by 23 basis points.

●	PPP loans had an average balance of $148.4 million and yield of 4.07% (2.29% excluding accelerated fee income).

●	Excluding PPP loans, interest and fees on loans decreased $629 thousand due to a $7.4 million decrease in average loan balances and a 19 basis point decrease in average yield.

●	Interest on investment securities increased $126 thousand due to a $99.8 million increase in average securities balances partially offset by a 55 basis point decrease in average yield.

●

Interest on interest-bearing deposits due from banks decreased $304 thousand due to a 155 basis point decrease in average yield that was partially offset by a $43.3 million increase in average interest-bearing deposit balances. During 2020, in response to the economic effects of the COVID-19 pandemic, the Federal Reserve cut interest rates by 150 to 175 basis points.

Interest expense for the fourth quarter of 2020 decreased $531 thousand or 36% to $963 thousand.

●

Interest expense on interest-bearing deposits decreased $477 thousand. Average interest-bearing demand and savings deposit balances increased $163.9 million, while average certificate of deposit balances decreased $14.8 million. The average rate paid on interest-bearing deposits decreased 27 basis points.

●	Average FHLB borrowings were $7.1 million in the current quarter. The borrowings bear no interest under a program offered by the FHLB during the second quarter of 2020 in response to COVID-19 liquidity concerns. There were no borrowings during the same period a year ago.

●	Interest expense on other term debt decreased $4 thousand. The average debt balance was essentially unchanged, while the average rate paid decreased 18 basis points.

●	Interest expense on junior subordinated debentures decreased $50 thousand. The average debt balance was unchanged, while the average rate paid decreased 192 basis points.

Provision for Loan and Lease Losses

Most asset quality concerns from earlier in 2020 have moderated. Net loan recoveries were $36 thousand for the current quarter compared to net loan charge-offs of $54 thousand during the same period a year ago. Most COVID-19 loan payment deferrals have ended with no negative impact on delinquencies. Classified assets actually decreased during the current quarter due to a repayment of $7.2 million from one commercial real estate borrower. As a result, no provision for loan and lease losses was necessary during the current quarter. There was no provision for loan and lease losses in the fourth quarter of 2019. A more in depth discussion of our provision is provided following Table 11.

Noninterest Income

Noninterest income for the three months ended December 31, 2020 decreased $5 thousand compared to the same period a year previous.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2020 increased $113 thousand compared to the same period a year previous. Increases in noninterest expense included the following items:

●	$360 thousand increase in salaries and related benefits.

During the current quarter, we recognized increased incentive accruals and we hired three relationship managers to open a loan production office in Santa Rosa.

●	$105 thousand increase in FDIC insurance premiums.

During 2019, we benefited from a Small Bank Assessment Credit from the FDIC.

These increases were partially offset by $231 thousand savings in network infrastructure costs and a broad array of pandemic induced savings in areas such as travel, conferences and business development.

The Company’s efficiency ratio was 54.8% for the fourth quarter of 2020. The ratio during the same period in 2019 was 58.7%.

Income Tax Provision

For the three months ended December 31, 2020, our income tax provision of $2.0 million on pre-tax income of $7.0 million was an effective tax rate of 27.9%. The tax provision for the fourth quarter of the prior year was $1.5 million on pre-tax income of $5.9 million for an effective rate of 26.1%.

●

The tax provision of $2.0 million included $132 thousand applicable to earlier quarters, as deductible operating losses and tax credits from our low-income housing partnerships were lower than we anticipated. The effective tax rate excluding this $132 thousand was 26.1%.

Fourth Quarter of 2020 Compared With The Third Quarter of 2020

Net income for the fourth quarter of 2020 increased $743 thousand compared to the third quarter of 2020. In the current quarter, net interest income was $426 thousand higher and the provision for loan and lease losses was $1.1 million lower. These positive changes were partially offset by noninterest income that was $173 thousand lower, noninterest expense that was $144 thousand higher and a provision for income taxes that was $466 thousand higher.

Net Interest Income

Net interest income increased $426 thousand over the prior quarter.

Interest income for the three months ended December 31, 2020 increased $301 thousand or 2% to $15.5 million.

●	During the fourth quarter of 2020, we recognized $664 thousand in accelerated fee income on PPP loans forgiven or repaid during the quarter. These accelerated loan fees increased the average yield on loans for the fourth quarter of 2020 by 23 basis points.

●	PPP loans had an average balance of $148.4 million and yield of 4.07% (2.29% excluding accelerated fee income).

●	Excluding PPP loans, interest and fees on loans decreased $485 thousand due to a $21.9 million decrease in average loan balances and an 8 basis point decrease in average yield.

●	Interest on investment securities increased $210 thousand due to an $80.6 million increase in average security balances partially offset by a 28 basis point decrease in average yield.

●	Interest on interest-bearing deposits due from banks increased $7 thousand due to a $29.0 million increase in average balances partially offset by a 1 basis point decrease in average yield.

Interest expense for the three months ended December 31, 2020 decreased $125 thousand or 11% to $963 thousand.

●	Interest expense on interest-bearing deposits decreased $117 thousand. Average interest-bearing demand and savings deposit balances increased $50.6 million, while average certificates of deposit decreased $1.4 million. The average rate paid on interest-bearing deposits decreased 7 basis points.

●	Average FHLB borrowings were $7.1 million in the current quarter compared to $10.0 million in the prior quarter. The borrowings bear no interest under a program offered by the FHLB during the second quarter of 2020 in response to COVID-19 liquidity concerns.

●	Interest expense on other term debt decreased $5 thousand. The average debt balance was essentially unchanged, while the average rate paid decreased 21 basis points.

●	Interest expense on junior subordinated debentures decreased $3 thousand. The average debt balance was unchanged, while average rate paid decreased 12 basis points.

Provision for Loan and Lease Losses

Most asset quality concerns from earlier in 2020 have moderated. Net loan recoveries were $36 thousand in the current quarter compared to net loan charge-offs of $316 thousand in the prior quarter. Most COVID-19 loan deferrals ended with no negative impact on delinquencies. Classified assets actually decreased during the current quarter due to a repayment of $7.2 million on two loans from one commercial real estate borrower. Nonaccrual loans decreased by $1.1 million during the current quarter when compared to the previous quarter due to the repayment of a $1.1 million commercial real estate loan. As a result, management determined that no provision for loan and lease losses was necessary during the current quarter compared with a provision for loan and lease losses of $1.1 million in the prior quarter. A more in depth discussion of our provision is provided following Table 11.

Noninterest Income

Noninterest income for the three months ended December 31, 2020 decreased $173 thousand compared to the prior quarter. The prior quarter included a $258 thousand gain on sale of investment securities that did not recur in the current quarter.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2020 increased $144 thousand compared to the prior quarter. The increase was primarily due to an increase in accrual for incentives that was partially offset by a broad array of pandemic induced savings in areas such as travel, sponsorships, conferences and business development.

The Company’s efficiency ratio was 54.8% for both the fourth quarter of 2020 and the prior quarter.

Income Tax Provision

For the three months ended December 31, 2020, our income tax provision of $2.0 million on pre-tax income of $7.0 million was an effective tax rate of 27.9%. The income tax provision for the prior quarter of $1.5 million on pre-tax income of $5.8 million was an effective tax rate of 25.7%.

●

Earnings Per Share

Diluted earnings per share were $0.30 for the three months ended December 31, 2020 compared with diluted earnings per share of $0.24 for the same period a year ago and diluted earnings per share of $0.26 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in Table 9 presented earlier in this press release.

TABLE 10a

NET INTEREST MARGIN - UNAUDITED

(dollars in thousands)

	For The Three Months Ended
	December 31, 2020							December 31, 2019							September 30, 2020
	Average				Yield /			Average				Yield /			Average				Yield /
	Balance		Interest⁽¹⁾		Rate ⁽⁶⁾			Balance		Interest⁽¹⁾		Rate ⁽⁶⁾			Balance		Interest⁽¹⁾		Rate ⁽⁶⁾
Interest-earning assets:
Loans net of PPP ⁽²⁾	$	1,024,324	$	12,014		4.67	%	$	1,031,702	$	12,643		4.86	%	$	1,046,187	$	12,499		4.75	%
PPP loans ⁽³⁾		148,381		1,518		4.07	%		—		—		—	%		163,090		949		2.31	%
Taxable securities		304,242		1,484		1.94	%		245,487		1,567		2.53	%		228,045		1,284		2.24	%
Tax-exempt securities ⁽⁴⁾		73,207		467		2.54	%		32,158		258		3.18	%		68,766		457		2.64	%
Interest-bearing deposits in other banks		124,390		36		0.12	%		81,099		340		1.66	%		95,348		29		0.12	%
Average interest-earning assets		1,674,544		15,519		3.69	%		1,390,446		14,808		4.23	%		1,601,436		15,218		3.78	%
Cash and due from banks		22,413							24,083							23,381
Premises and equipment, net		15,162							16,049							15,365
Goodwill		11,671							11,671							11,671
Other intangible assets, net		4,126							4,890							4,318
Other assets		20,128							17,121							21,408
Average total assets	$	1,748,044						$	1,464,260						$	1,677,579

Interest-bearing liabilities:
Interest-bearing demand	$	283,213		57		0.08	%	$	244,276		108		0.18	%	$	279,744		71		0.10	%
Money market		430,014		237		0.22	%		318,127		479		0.60	%		387,995		289		0.30	%
Savings		151,223		53		0.14	%		138,155		128		0.37	%		146,074		74		0.20	%
Certificates of deposit		138,380		390		1.12	%		153,223		499		1.29	%		139,757		420		1.20	%
Federal Home Loan Bank of San Francisco borrowings		7,120		—		—	%		—		—		—	%		10,000		—		—	%
Other borrowings net of unamortized debt issuance costs		9,999		179		7.12	%		9,952		183		7.30	%		9,988		184		7.33	%
Junior subordinated debentures		10,310		47		1.81	%		10,310		97		3.73	%		10,310		50		1.93	%
Average interest-bearing liabilities		1,030,259		963		0.37	%		874,043		1,494		0.68	%		983,868		1,088		0.44	%
Noninterest-bearing demand		552,601							428,420							531,459
Other liabilities		17,557							17,795							17,356
Shareholders’ equity		174,520							172,385							171,433
Average liabilities and shareholders’ equity	$	1,774,937						$	1,492,643						$	1,704,116
Net interest income and net interest margin⁽⁵⁾			$	14,556		3.46	%			$	13,314		3.80	%			$	14,130		3.51	%

⁽¹⁾ Interest income on loans includes deferred fees and costs of approximately $85 thousand, $224 thousand, and $240 thousand for the three months ended December 31, 2020 and 2019 and September 30, 2020, respectively. Interest income on PPP loans includes $1.1 million and $538 thousand of fee income for the three months ended December 31, 2020 and September 30, 2020, respectively.

⁽²⁾ Loans net of PPP includes average nonaccrual loans of $7.2 million, $11.4 million and $6.6 million for the three months ended December 31, 2020 and 2019 and September 30, 2020, respectively.

⁽³⁾ PPP loans represents average gross loans and excludes deferred fees and costs.

⁽⁴⁾ Interest income and yields on tax-exempt securities are not presented on a taxable equivalent basis.

⁽⁵⁾ Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Net interest income for the three months ended December 31, 2020 and 2019 and September 30, 2020 included $141 thousand, $188 thousand and $233 thousand in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by five, seven and seven basis points, respectively. Net interest income for the three months ended December 31, 2020 included $1.5 million in interest and fee income from PPP loans with an average balance of $148.4 million for the quarter, which increased the net interest margin by six basis points.

⁽⁶⁾ Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

TABLE 10b

NET INTEREST MARGIN - UNAUDITED

(dollars in thousands)

	For The Twelve Months Ended
	December 31, 2020							December 31, 2019
	Average				Yield /			Average				Yield /
	Balance		Interest⁽¹⁾		Rate ⁽⁶⁾			Balance		Interest⁽¹⁾		Rate ⁽⁶⁾
Interest-earning assets:
Loans net of PPP ⁽²⁾	$	1,038,069	$	49,262		4.75	%	$	1,020,801	$	50,534		4.95	%
PPP loans⁽³⁾		111,306		3,280		2.95	%		—		—		—	%
Taxable securities		245,336		5,679		2.31	%		246,723		6,673		2.70	%
Tax-exempt securities ⁽⁴⁾		58,912		1,618		2.75	%		38,706		1,244		3.21	%
Interest-bearing deposits in other banks		84,982		240		0.28	%		54,095		1,112		2.06	%
Average interest-earning assets		1,538,605		60,079		3.90	%		1,360,325		59,563		4.38	%
Cash and due from banks		22,339							22,806
Premises and equipment, net		15,426							15,598
Goodwill		11,671							10,758
Other intangible assets, net		4,412							4,807
Other assets		20,966							14,982
Average total assets	$	1,613,419						$	1,429,276

Interest-bearing liabilities:
Interest-bearing demand	$	264,652		313		0.12	%	$	242,516		480		0.20	%
Money market		372,939		1,246		0.33	%		304,340		1,599		0.53	%
Savings		142,857		340		0.24	%		136,733		493		0.36	%
Certificates of deposit		142,067		1,741		1.23	%		160,550		1,977		1.23	%
Federal Home Loan Bank of San Francisco borrowings		8,347		5		0.06	%		9,644		247		2.56	%
Other borrowings net of unamortized debt issuance costs		9,981		731		7.32	%		10,895		806		7.40	%
Junior subordinated debentures		10,310		248		2.41	%		10,310		426		4.13	%
Average interest-bearing liabilities		951,153		4,624		0.49	%		874,988		6,028		0.69	%
Noninterest-bearing demand		500,862							400,588
Other liabilities		17,217							17,894
Shareholders’ equity		171,287							164,642
Average liabilities and shareholders’ equity	$	1,640,519						$	1,458,112
Net interest income and net interest margin⁽⁵⁾			$	55,455		3.60	%			$	53,535		3.94	%

⁽¹⁾ Interest income on loans includes deferred fees and costs of approximately $720 thousand and $657 thousand for the years ended December 31, 2020 and 2019, respectively. Interest income on PPP loans includes $2.2 million of fee income for the year ended December 31, 2020.

⁽²⁾ Loans net of PPP includes average nonaccrual loans of $6.2 million and $11.7 million for the years ended December 31, 2020 and 2019, respectively.

⁽³⁾ PPP loans represents average gross loans and excludes deferred fees and costs.

⁽⁴⁾ Interest income and yields on tax-exempt securities are not presented on a taxable equivalent basis.

⁽⁵⁾ Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Net interest income for the years ended December 31, 2020 and 2019 included $753 thousand and $620 thousand, respectively, in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by six basis points. Net interest income for the year ended December 31, 2020 included $3.3 million in interest and fee income from PPP loans with an average balance of $111.3 million for the year ended December 31, 2020, which decreased the net interest margin by five basis points.

⁽⁶⁾ Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

TABLE 11

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

(dollars in thousands)

	For The Three Months Ended
	December 31,			September 30,			June 30,			March 31,			December 31,
	2020			2020			2020			2020			2019
ALLL beginning balance	$	16,873		$	16,089		$	15,067		$	12,231		$	12,285
Provision for loan and lease losses		—			1,100			1,300			2,850			—
Loans charged-off		(86	)		(502	)		(356	)		(169	)		(174	)
Loan loss recoveries		123			186			78			155			120
ALLL ending balance	$	16,910		$	16,873		$	16,089		$	15,067		$	12,231

	At December 31,			At September 30,			At June 30,			At March 31,			At December 31,
	2020			2020			2020			2020			2019
Nonaccrual loans:
Commercial	$	1,535		$	1,549		$	7		$	39		$	61
Real estate - commercial non-owner occupied		—			1,062			1,062			—			—
Real estate - commercial owner occupied		3,734			3,750			3,647			3,103			3,103
Real estate - residential - ITIN		1,585			1,574			1,738			1,878			2,221
Real estate - residential - 1-4 family mortgage		141			145			180			184			191
Consumer and other		18			18			37			39			40
Total nonaccrual loans		7,013			8,098			6,671			5,243			5,616
Accruing troubled debt restructured loans:
Commercial		498			531			592			592			595
Real estate - residential - ITIN		3,466			3,597			3,642			3,891			3,957
Real estate - residential - equity lines		126			131			221			226			231
Total accruing troubled debt restructured loans		4,090			4,259			4,455			4,709			4,783

All other accruing impaired loans		—			—			—			—			—

Total impaired loans	$	11,103		$	12,357		$	11,126		$	9,952		$	10,399

Gross loans outstanding at period end	$	1,139,732		$	1,206,065		$	1,206,340		$	1,052,245		$	1,032,903

Impaired loans to gross loans		0.97	%		1.02	%		0.92	%		0.95	%		1.01	%
Nonaccrual loans to gross loans		0.62	%		0.67	%		0.55	%		0.50	%		0.54	%

Allowance for loan and lease losses as a percent of:
Gross loans		1.48	%		1.40	%		1.33	%		1.43	%		1.18	%
Nonaccrual loans		241.12	%		208.36	%		241.18	%		287.37	%		217.79	%
Impaired loans		152.30	%		136.55	%		144.61	%		151.40	%		117.62	%

TABLE 12

ALLOWANCE, RESERVE AND DISCOUNT - UNAUDITED

(dollars in thousands)

	At December 31,			At September 30,			At June 30,			At March 31,			At December 31,
	2020			2020			2020			2020			2019
ALLL	$	16,910		$	16,873		$	16,089		$	15,067		$	12,231
Reserve for unfunded commitments		800			800			800			695			695
Discount on acquired loans ⁽¹⁾		919			1,060			1,293			1,509			1,672
Total allowance, reserve and discount	$	18,629		$	18,733		$	18,182		$	17,271		$	14,598

Gross loans	$	1,139,732		$	1,206,065		$	1,206,340		$	1,052,245		$	1,032,903
PPP loans ⁽²⁾		130,814			163,493			162,189			—			—
Total gross loans net of PPP loans	$	1,008,918		$	1,042,572		$	1,044,151		$	1,052,245		$	1,032,903

Total allowance, reserve and discount as a percentage of total gross loans net of PPP loans⁽²⁾		1.85	%		1.80	%		1.74	%		1.64	%		1.41	%

⁽¹⁾ Discount on acquired loans includes fair value discount for loans acquired from Merchants in January of 2019.

⁽²⁾ PPP loans are fully guaranteed by SBA and no allowance, reserve or discount is provided for them.

Provision for Loan and Lease Losses

We monitor credit quality and the general economic environment to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. Our review of ALLL adequacy utilizes both quantitative and qualitative factors. The quantitative analysis relies on historical loss rates which, unfortunately, may not be indicative of potential losses related to a pandemic such as we are currently experiencing with COVID-19. In response to quantitative data deficiencies, we have placed greater reliance on qualitative factors (Q-Factors).

During the current quarter, most of our COVID-19 loan deferrals have resumed payments: nonaccrual loans decreased due to the repayment of a $1.1 million commercial real estate loan and classified assets decreased due to repayment of $7.2 million from one commercial real estate borrower. As a result of improvement in our asset quality metrics, management determined that no provision for loan and lease losses was necessary during the current quarter. We recorded $1.1 million in provision for loan and lease losses in the prior quarter and there was no provision for loan and lease loss during the same quarter a year ago. Our ALLL as a percentage of gross loans was 1.48% as of December 31, 2020 compared to 1.18% as of December 31, 2019 and 1.40% as of September 30, 2020. Excluding SBA guaranteed PPP loans our ALLL as a percentage of gross loans was 1.68% as of December 31, 2020 compared to 1.62% as of September 30, 2020.

Our ALLL methodology, adjusted for the revised Q-Factors in prior quarters and the improvements in loan quality metrics discussed above necessitated an ALLL of $16.9 million at December 31, 2020, an increase of 38% compared to our ALLL of $12.2 million at December 31, 2019. Management believes the Company’s ALLL is adequate at December 31, 2020. 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 December 31, 2020, the recorded investment in loans classified as impaired totaled $11.1 million, with a corresponding specific reserve of $192 thousand compared to impaired loans of $10.4 million with a corresponding specific reserve of $324 thousand at December 31, 2019 and impaired loans of $12.4 million, with a corresponding specific reserve of $204 thousand at September 30, 2020. The decrease in impaired loans during the current quarter was due to the repayment of a nonaccrual commercial real estate loan totaling $1.1 million during the fourth quarter of 2020.

TABLE 13

TROUBLED DEBT RESTRUCTURINGS - UNAUDITED

(dollars in thousands)

	At December 31,			At September 30,			At June 30,			At March 31,			At December 31,
	2020			2020			2020			2020			2019
Nonaccrual	$	2,007		$	2,063		$	2,194		$	1,611		$	1,680
Accruing		4,090			4,259			4,455			4,709			4,783
Total troubled debt restructurings	$	6,097		$	6,322		$	6,649		$	6,320		$	6,463

Troubled debt restructurings as a percentage of total gross loans		0.53	%		0.52	%		0.55	%		0.60	%		0.63	%

There were no new troubled debt restructurings during the current quarter. As of December 31, 2020, we had 91 loans that were classified as troubled debt restructurings, of which 89 were performing according to their restructured terms.

Troubled Debt Restructuring Guidance

Financial institution regulators and the CARES Act have changed the treatment of short-term loan modifications for borrowers impacted by COVID-19. The change provides that modifications made in response to COVID-19, to borrowers under certain circumstances, should not be considered a troubled debt restructuring.

We have responded to the needs of our borrowers in accordance with the CARES Act and regulatory guidance to grant short-term COVID-19 related loan modifications. These modified loans are not troubled debt restructurings and are not considered to be past due or non-performing. We have granted deferrals ranging from one to six months determined on a case-by-case basis considering the nature of the business and the impact of COVID-19. For some borrowers that where initially granted a deferral of less than six months, we have granted an additional deferral period on a case-by-case basis.

Since March of 2020, we have granted 278 payment deferrals totaling $127.3 million. As of December 31, 2020 previously deferred loans totaling $115.6 million have resumed making payments or have paid off. Three loans that were previously deferred totaling $2.1 million were past due at December 31, 2020 and have been moved to nonaccrual status. Two of those loans totaling $1.4 million were made to one commercial borrower and are guaranteed under the California Capital Access Program for Small Business. The third loan for $640 thousand is a commercial real estate loan that was changed to a troubled debt restructured loan in the second quarter of 2020.

We maintain close contact with our borrowers to update our understanding of the impact of the pandemic on them, their businesses and the underlying collateral for our loans. For borrowers who continue to have been granted a loan payment deferral, we have evaluated their credit quality position and the potential for loss of principal.

The following tables present approved loan deferrals that are in effect at December 31, 2020. For the loans with payment deferrals at December 31, 2020, one borrower none of these loans received a PPP loan through our U.S. Small Business Administration (“SBA”) department.

TABLE 14a
COVID-19 LOAN DEFERRALS - UNAUDITED
(dollars in thousands)

	Payments Scheduled to Resume In The Three Months Ended
	March 31, 2021
	#		Amount
Length of 1st deferral granted:
3 months		4	$	1,304
6 months		3		484
Length of 2nd deferral granted:
2 months		2		714
3 months		2		3,053
Loans serviced by others ⁽¹⁾		71		3,959
Total		82	$	9,514

⁽¹⁾Loans serviced by others are small residential mortgages and consumer home improvement loans which are deferred on a short-term basis up to a maximum of six months. These loans are geographically disbursed throughout the United States and serviced by a third party.

TABLE 14b
COVID-19 LOAN DEFERRALS BY INDUSTRY - UNAUDITED
(dollars in thousands)

	Payments Scheduled to Resume In The Three Months Ended
	March 31, 2021
Industry:	#		Amount
Health care and social assistance		1	$	12
Other services		1		2,032
Restaurants, bars and caterers		2		1,695
Other industries		7		1,816
Loans serviced by others ⁽¹⁾		71		3,959
Total		82	$	9,514

The following table presents nonperforming assets at the dates indicated.

TABLE 15

NONPERFORMING ASSETS - UNAUDITED

(dollars in thousands)

	At December 31,			At September 30,			At June 30,			At March 31,			At December 31,
	2020			2020			2020			2020			2019
Total nonaccrual loans	$	7,013		$	8,098		$	6,671		$	5,243		$	5,616
90 days past due and still accruing		—			—			—			2			—
Total nonperforming loans		7,013			8,098			6,671			5,245			5,616

Other real estate owned ("OREO")		8			8			8			8			35
Total nonperforming assets	$	7,021		$	8,106		$	6,679		$	5,253		$	5,651

Nonperforming loans to gross loans		0.62	%		0.67	%		0.55	%		0.50	%		0.54	%
Nonperforming assets to total assets		0.40	%		0.47	%		0.39	%		0.36	%		0.38	%

The following table summarizes when loans are projected to reprice by year and rate index as of December 31, 2020.

TABLE 16

LOANS BY RATE INDEX AND PROJECTED REPRICING PERIOD - UNAUDITED

(dollars in thousands)

	At December 31, 2020
											Years 6
											Through		Beyond
Rate Index:	Year 1		Year 2		Year 3		Year 4		Year 5		Year 10		Year 10		Total
Fixed	$	189,331	$	39,766	$	58,323	$	29,333	$	28,480	$	164,817	$	21,694	$	531,744
Variable:
Prime		77,139		6,390		3,408		6,882		9,595		1,232		—		104,646
5 Year Treasury		51,142		65,555		58,578		75,057		109,165		54,938		—		414,435
7 Year Treasury		3,242		4,866		479		5,601		13,839		—		—		28,027
1 Year LIBOR		22,509		—		—		—		—		—		—		22,509
Other Indexes		2,996		2,404		1,775		5,567		7,041		10,632		1,172		31,587
Total variable		157,028		79,215		64,240		93,107		139,640		66,802		1,172		601,204

Nonaccrual		1,047		1,030		987		694		496		2,018		741		7,013
Total	$	347,406	$	120,011	$	123,550	$	123,134	$	168,616	$	233,637	$	23,607	$	1,139,961

For variable rate loans, the following table summarizes those that are at or above their floor rate, and those that do not possess a contractual floor rate.

TABLE 17
LOAN FLOORS - UNAUDITED
(dollars in thousands)

	At December 31, 2020
	Loans At		Loans Above
	Floor Rate		Floor Rate		Total
Variable rate loans with floors:
Prime	$	54,833	$	5,914	$	60,747
5 year Treasury		342,105		46,964		389,069
7 Year Treasury		28,027		—		28,027
1 Year LIBOR		—		717		717
Other Indexes		18,290		833		19,123
	$	443,255	$	54,428		497,683

Variable rate loans without floors:
Prime						43,899
5 year Treasury						25,366
1 Year LIBOR						21,792
Other Indexes						12,464
						103,521

Total accruing variable rate loans					$	601,204

Nonaccrual						7,013
Total variable rate loans					$	608,217

TABLE 18

UNAUDITED

CONSOLIDATED BALANCE SHEET

(dollars in thousands, except per share data)

	At December 31,						Change						At September 30,
	2020			2019			$			%			2020
Assets:
Cash and due from banks	$	19,875		$	21,338		$	(1,463	)		(7	)%	$	22,884
Interest-bearing deposits in other banks		87,111			59,266			27,845			47	%		104,999
Total cash and cash equivalents		106,986			80,604			26,382			33	%		127,883
Securities available-for-sale, at fair value		446,880			286,950			159,930			56	%		337,032
Loans, net of deferred fees and costs		1,139,961			1,035,065			104,896			10	%		1,205,028
Allowance for loan and lease losses		(16,910	)		(12,231	)		(4,679	)		(38	)%		(16,873	)
Net loans		1,123,051			1,022,834			100,217			10	%		1,188,155
Premises and equipment, net		14,999			15,906			(907	)		(6	)%		15,210
Other real estate owned		8			35			(27	)		(77	)%		8
Life insurance		24,206			23,701			505			2	%		24,086
Deferred tax asset, net		3,954			4,553			(599	)		(13	)%		2,571
Goodwill		11,671			11,671			—			—	%		11,671
Other intangible assets, net		4,044			4,809			(765	)		(16	)%		4,235
Other assets		28,155			28,553			(398	)		(1	)%		29,037
Total assets	$	1,763,954		$	1,479,616		$	284,338			19	%	$	1,739,888

Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	541,033		$	432,680		$	108,353			25	%	$	542,060
Demand - interest-bearing		290,251			239,258			50,993			21	%		280,370
Money market		425,121			307,559			117,562			38	%		403,785
Savings		150,695			135,888			14,807			11	%		151,016
Certificates of deposit		135,679			151,786			(16,107	)		(11	)%		140,900
Total deposits		1,542,779			1,267,171			275,608			22	%		1,518,131

Term debt:
Federal Home Loan Bank of San Francisco borrowings		5,000			—			5,000			100	%		10,000
Other borrowings		10,000			10,000			—			—	%		10,000
Unamortized debt issuance costs		—			(43	)		43			100	%		(7	)
Net term debt		15,000			9,957			5,043			51	%		19,993

Junior subordinated debentures		10,310			10,310			—			—	%		10,310
Other liabilities		18,163			17,700			463			3	%		18,104
Total liabilities		1,586,252			1,305,138			281,114			22	%		1,566,538

Shareholders' equity:
Common stock		58,988			71,311			(12,323	)		(17	)%		58,872
Retained earnings		111,226			100,566			10,660			11	%		107,154
Accumulated other comprehensive income, net of tax		7,488			2,601			4,887			188	%		7,324
Total shareholders' equity		177,702			174,478			3,224			2	%		173,350

Total liabilities and shareholders' equity	$	1,763,954		$	1,479,616		$	284,338			19	%	$	1,739,888
Total interest-earning assets	$	1,663,321		$	1,377,588		$	285,733			21	%	$	1,636,661
Shares outstanding		16,801			18,137			(1,336	)		(7	)%		16,792
Book value per share ⁽¹⁾	$	10.58		$	9.62		$	0.96			10	%	$	10.32
Tangible book value per share ⁽¹⁾	$	9.64		$	8.71		$	0.93			11	%	$	9.38

⁽¹⁾ Book value per share is computed by dividing total shareholders’ equity by shares outstanding. Tangible book value per share is computed by dividing total shareholders’ equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.

TABLE 19

UNAUDITED

INCOME STATEMENT

(dollars in thousands, except per share data)

	For The Three Months Ended												For The Twelve Months Ended
	December 31,				Change						September 30,		December 31,
	2020		2019		$			%			2020		2020			2019
Interest income:
Interest and fees on loans	$	13,532	$	12,643	$	889			7	%	$	13,448	$	52,542		$	50,534
Interest on taxable securities		1,484		1,567		(83	)		(5	)%		1,284		5,679			6,673
Interest on tax-exempt securities		467		258		209			81	%		457		1,618			1,244
Interest on interest-bearing deposits in other banks		36		340		(304	)		(89	)%		29		240			1,112
Total interest income		15,519		14,808		711			5	%		15,218		60,079			59,563
Interest expense:
Interest on demand deposits		57		108		(51	)		(47	)%		71		313			480
Interest on money market		237		479		(242	)		(51	)%		289		1,246			1,599
Interest on savings		53		128		(75	)		(59	)%		74		340			493
Interest on certificates of deposit		390		499		(109	)		(22	)%		420		1,741			1,977
Interest on Federal Home Loan Bank of San Francisco borrowings		—		—		—			—	%		—		5			247
Interest on other borrowings		179		183		(4	)		(2	)%		184		731			806
Interest on junior subordinated debentures		47		97		(50	)		(52	)%		50		248			426
Total interest expense		963		1,494		(531	)		(36	)%		1,088		4,624			6,028
Net interest income		14,556		13,314		1,242			9	%		14,130		55,455			53,535
Provision for loan and lease losses		—		—		—			—	%		1,100		5,250			—
Net interest income after provision for loan and lease losses		14,556		13,314		1,242			9	%		13,030		50,205			53,535
Noninterest income:
Service charges on deposit accounts		173		198		(25	)		(13	)%		142		636			730
ATM and point of sale fees		306		282		24			9	%		297		1,134			1,158
Payroll and benefit processing fees		182		183		(1	)		(1	)%		152		647			669
Life insurance		125		126		(1	)		(1	)%		125		521			536
Gain on investment securities, net		—		49		(49	)		(100	)%		258		482			186
Federal Home Loan Bank of San Francisco dividends		94		131		(37	)		(28	)%		109		369			507
(Loss) gain on sale of OREO		—		21		(21	)		(100	)%		—		(23	)		62
Other income		136		31		105			339	%		106		286			336
Total noninterest income		1,016		1,021		(5	)		—	%		1,189		4,052			4,184

TABLE 19 - CONTINUED

UNAUDITED

INCOME STATEMENT

(dollars in thousands, except per share data)

	For The Three Months Ended												For The Twelve Months Ended
	December 31,				Change						September 30,		December 31,
	2020		2019		$			%			2020		2020		2019
Noninterest expense:
Salaries and related benefits		5,284		4,924		360			7	%		5,126		21,262		20,804
Premises and equipment		966		916		50			5	%		951		3,597		3,752
Federal Deposit Insurance Corporation insurance premium		105		—		105			100	%		101		332		91
Data processing		584		739		(155	)		(21	)%		581		2,281		2,535
Professional services		292		309		(17	)		(6	)%		342		1,437		1,539
Telecommunications		174		190		(16	)		(8	)%		157		658		737
Acquisition and merger		—		—		—			—	%		—		—		2,193
Other expenses		1,129		1,343		(214	)		(16	)%		1,132		5,410		5,604
Total noninterest expense		8,534		8,421		113			1	%		8,390		34,977		37,255
Income before provision for income taxes		7,038		5,914		1,124			19	%		5,829		19,280		20,464
Provision for income taxes		1,966		1,545		421			27	%		1,500		5,116		5,503
Net income	$	5,072	$	4,369	$	703			16	%	$	4,329	$	14,164	$	14,961

Earnings per share - basic	$	0.30	$	0.24	$	0.06			25	%	$	0.26	$	0.84	$	0.83
Weighted average shares - basic		16,663		18,068		(1,405	)		(8	)%		16,660		16,918		17,956
Earnings per share - diluted	$	0.30	$	0.24	$	0.06			25	%	$	0.26	$	0.83	$	0.83
Weighted average shares - diluted		16,731		18,150		(1,419	)		(8	)%		16,696		16,963		18,024

TABLE 20

UNAUDITED CONDENSED CONSOLIDATED

QUARTERLY AVERAGE BALANCE SHEETS

(dollars in thousands)

	For The Three Months Ended
	December 31,		September 30,		June 30,		March 31,		December 31,
	2020		2020		2020		2020		2019
Earning assets:
Loans	$	1,172,705	$	1,209,277	$	1,180,915	$	1,033,689	$	1,031,702
Taxable securities		304,242		228,045		211,195		237,405		245,487
Tax-exempt securities		73,207		68,766		58,540		34,869		32,158
Interest-bearing deposits in other banks		124,390		95,348		72,507		47,135		81,099
Total earning assets		1,674,544		1,601,436		1,523,157		1,353,098		1,390,446

Cash and due from banks		22,413		23,381		21,564		21,987		24,083
Premises and equipment, net		15,162		15,365		15,428		15,753		16,049
Other real estate owned		8		8		8		33		54
Life insurance		24,147		24,028		23,899		23,762		23,638
Deferred tax asset, net		2,738		2,501		3,016		4,259		4,691
Goodwill		11,671		11,671		11,671		11,671		11,671
Other intangible assets, net		4,126		4,318		4,508		4,701		4,890
Other assets		20,128		21,408		23,576		18,755		17,121
Total assets	$	1,774,937	$	1,704,116	$	1,626,827	$	1,454,019	$	1,492,643

Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	552,601	$	531,459	$	497,636	$	420,847	$	428,420
Demand - interest-bearing		283,213		279,744		261,907		233,375		244,276
Money market		430,014		387,995		365,368		307,587		318,127
Savings		151,223		146,074		138,500		135,504		138,155
Certificates of deposit		138,380		139,757		142,955		147,241		153,223
Total deposits		1,555,431		1,485,029		1,406,366		1,244,554		1,282,201

Federal Home Loan Bank of San Francisco borrowings		7,120		10,000		16,044		220		—
Other borrowings net of unamortized debt issuance costs		9,999		9,988		9,976		9,963		9,952
Junior subordinated debentures		10,310		10,310		10,310		10,310		10,310
Other liabilities		17,557		17,356		17,095		16,852		17,795
Total liabilities		1,600,417		1,532,683		1,459,791		1,281,899		1,320,258

Shareholders' equity		174,520		171,433		167,036		172,120		172,385
Liabilities & shareholders' equity	$	1,774,937	$	1,704,116	$	1,626,827	$	1,454,019	$	1,492,643

TABLE 21

UNAUDITED CONDENSED CONSOLIDATED

ANNUAL AVERAGE BALANCE SHEETS

(dollars in thousands)

	For The Year Ended
	December 31,		December 31,		December 31,		December 31,
	2020		2019		2018		2017
Earning assets:
Loans	$	1,149,375	$	1,020,801	$	915,360	$	818,119
Taxable securities		245,336		246,723		207,407		165,333
Tax-exempt securities		58,912		38,706		50,330		74,231
Interest-bearing deposits in other banks		84,982		54,095		47,038		66,872
Total earning assets		1,538,605		1,360,325		1,220,135		1,124,555

Cash and due from banks		22,339		22,806		20,468		18,301
Premises and equipment, net		15,426		15,598		13,952		15,567
Other real estate owned		14		35		93		664
Life insurance		23,960		23,371		22,148		21,905
Deferred tax asset, net		3,126		5,430		7,567		8,919
Goodwill		11,671		10,758		665		665
Other intangible assets, net		4,412		4,807		1,252		1,471
Other assets		20,966		14,982		2,561		6,204
Total assets	$	1,640,519	$	1,458,112	$	1,288,841	$	1,198,251

Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	500,862	$	400,588	$	332,197	$	289,735
Demand - interest-bearing		264,652		242,516		238,328		209,792
Money market		372,939		304,340		250,685		224,913
Savings		142,857		136,733		109,025		111,376
Certificates of deposit		142,067		160,550		168,183		205,648
Total deposits		1,423,377		1,244,727		1,098,418		1,041,464

Federal Home Loan Bank of San Francisco borrowings		8,347		9,644		22,466		302
Other borrowings net of unamortized debt issuance costs		9,981		10,895		15,143		17,981
Junior subordinated debentures		10,310		10,310		10,310		10,310
Other liabilities		17,217		17,894		12,286		12,293
Total liabilities		1,469,232		1,293,470		1,158,623		1,082,350

Shareholders' equity		171,287		164,642		130,218		115,901
Liabilities & shareholders' equity	$	1,640,519	$	1,458,112	$	1,288,841	$	1,198,251

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Sacramento, California and is the parent company for Merchants Bank of Commerce. The Bank is an FDIC-insured California banking corporation providing community banking and financial services in northern California along the Interstate 5 corridor from Sacramento to Yreka and in the North Bay wine region. The Bank was incorporated as a California banking corporation on November 25, 1981 and opened for business on October 22, 1982. The Company’s common stock is listed on the NASDAQ Global Market and trades under the symbol “BOCH”.

Contact Information:

Randall S. Eslick, President and Chief Executive Officer

Telephone Direct (916) 677-5800

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

Telephone Direct (916) 677-5825

Andrea M. Newburn, Vice President and Senior Administrative Officer / Corporate Secretary

Telephone Direct (530) 722-3959

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