Bank of Commerce Holdings™ announces Fourth Quarter and Full Year 2012 Results

REDDING, Calif., Jan. 31, 2013 /PRNewswire/ -- Patrick J. Moty, President & CEO of Bank of Commerce Holdings (NASDAQ: BOCH), a $979.4 million bank holding company, and parent company of Redding Bank of Commerce™, and Roseville Bank of Commerce™ (a division of Redding Bank of Commerce) (the "Bank"), today reported net income available to common shareholders of $1.2 million and diluted earnings per share (EPS) attributable to continuing and discontinuing operations of $0.08 and $0.00, respectively, for the fourth quarter 2012, and full year income available to common shareholders of $6.5 million and diluted EPS attributable to continuing and discontinuing operations of $0.41 and $(0.01), respectively.

Financial highlights for the full year 2012:

  • Net income available to common shareholders of $6.5 million reflects a 4% increase over the $6.3 million reported for the full year 2011.
  • Full year 2012 diluted EPS attributable to continuing operations of $0.41 compares to $0.34 diluted EPS attributable to continuing operations for full year 2011.
  • Provision for loan losses increased 5% year over year to $9.4 million.
  • Nonperforming assets totaled $41.6 million and represented 4.25% of total assets at year end 2012, compared to $25.2 million and 2.68% at year end 2011, respectively.
  • Non-maturing core deposits increased $40.8 million or 11% from a year ago December 31, 2011.
  • Repurchased 1,019,490 in common stock shares at a weighted average cost of $4.22 per share.

Financial highlights for the fourth quarter 2012:

  • Net income available to common shareholders of $1.2 million reflects a 38% decrease over the $1.9 million reported for the quarter ended December 31, 2011, and a 19% decrease over the $1.5 million recorded for the third quarter 2012.
  • Diluted EPS attributable to continuing operations of $0.08 compares to $0.11 reported for the same period a year ago and $0.12 for the prior quarter ended September 30, 2012.  Diluted EPS attributable to discontinued operations of $0.00 compares to $0.01 reported for the same period a year ago and $(0.03) for the prior quarter ended September 30, 2012.
  • Loan loss provisions for the fourth quarter were $4.6 million compared to $1.8 million for the fourth quarter 2011, and $1.9 million for the prior quarter ended September 30, 2012. During the fourth quarter, management determined that further impairment was deemed necessary on several large credit relationships, resulting in additional charge offs of $4.2 million. As a result, additional provisions were needed to fund the allowance for loan and lease losses.

Patrick J. Moty, President and CEO commented:  "In 2012, we experienced both positive results along with a few challenges.  On the positive side we saw a 4% increase in net profits, a 32% increase in share price, and an 11% increase in core deposits.  The challenges continue to be in the lingering effects from assets and the less than robust loan demand.  But more importantly, in 2012 we celebrated our thirtieth year in business.  Throughout these last three decades, it has been our privilege assisting businesses and individuals in achieving their financial goals."

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

  • Competitive pressure in the banking industry and changes in the regulatory environment.
  • Changes in the interest rate environment and volatility of rate sensitive assets and liabilities.
  • The health of the economy declines nationally or regionally which could further reduce the demand for loans or reduce the value of real estate collateral securing most of the Company's loans.
  • Credit quality deteriorates which could cause an increase in the provision for loan losses.
  • Asset/Liability matching risks and liquidity risks.
  • Changes in the securities markets.

For additional information concerning risks and uncertainties related to the Company and its operations please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2011 and under the heading:  "Risk factors that may affect results" and subsequent reports on Form 10-Q and current reports on Form 8-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Table 1 below shows summary financial information for the quarters ended December 31, 2012 and 2011, and September 30, 2012.

Table 1








SUMMARY FINANCIAL INFORMATION


















 (Shares and dollars in thousands)

Quarter ended

Quarter ended



Quarter ended



December 31, 2012

December 31, 2011

Change


September 30, 2012

Change

Selective quarterly performance ratios







Return on average assets, annualized

0.57%

0.90%

-0.33%


0.72%

-0.15%

Return on average equity, annualized

4.97%

7.48%

-2.51%


6.15%

-1.18%

Efficiency ratio for quarter to date

43.66%

54.95%

-11.29%


52.06%

-8.40%








Share and Per Share figures - Actual







Common shares outstanding at period end

15,972

16,991

(1,019)


16,121

(149)

Weighted average diluted shares

16,034

16,991

(957)


16,240

(206)

Diluted EPS attributable to continuing operations

$                        0.08

$                        0.11

$    (0.03)


$                        0.12

$ (0.04)

Diluted EPS attributable to discontinued operations

$                        0.00

$                        0.01

$    (0.01)


$                     (0.03)

$    0.03

Book value per common share

$                        5.66

$                        5.51

$      0.15


$                        5.67

$ (0.01)

Tangible book value per common share

$                        5.58

$                        5.40

$      0.18


$                        5.52

$    0.06








Capital Ratios








December 31, 2012

December 31, 2011

Change


September 30, 2012

Change

Bank of Commerce Holdings







Tier 1 risk based capital ratio

14.53%

14.45%

0.08%


14.67%

-0.14%

Total risk based capital ratio

15.78%

15.70%

0.08%


15.92%

-0.14%

Leverage ratio

13.13%

13.52%

-0.39%


13.21%

-0.08%








Redding Bank of Commerce







Tier 1 risk based capital ratio

14.06%

14.46%

-0.40%


14.11%

-0.05%

Total risk based capital ratio

15.31%

15.71%

-0.40%


15.36%

-0.05%

Leverage ratio

12.65%

12.96%

-0.31%


12.71%

-0.06%

















Bank of Commerce Holdings (the "Company") remains well capitalized. At December 31, 2012, the Company's Tier 1 and Total risk based capital ratios measured 14.53% and 15.78% respectively, while the leverage ratio was 13.13%.

Return on average assets (ROA) and return on average equity (ROE) for the three months ended December 31, 2012, was 0.57% and 4.97%, respectively, compared with 0.90% and 7.48%, respectively, for the three months ended December 31, 2011. The decrease in ROA and ROE for the three months ended December 31, 2012, compared with the same period a year ago, was primarily driven by increased provisions for loan and lease losses, partially offset by gains on sales of investment securities. During the fourth quarter, the Company identified additional impairment on certain loans and moved $13.0 million in loans to nonaccrual status, resulting in increased provisions to the allowance for loan and lease losses.

During the fourth quarter, the Company sold investment securities resulting in realized gains of $2.1 million which are recorded in noninterest income in the Consolidated Statement of Operations. The Company considers the volume of such securities sold during the fourth to be a nonrecurring event; however the gains realized as a result of this event primarily attributed to driving the Company's fourth quarter efficiency ratio down 10 basis points to 43.66%. Excluding this nonrecurring event, the efficiency ratio would have been 53.37%, a decrease of 1.58% compared to the same period a year ago.

Balance Sheet Overview

As of December 31, 2012, the Company had total consolidated assets of $979.5 million, total net portfolio loans of $588.1 million, allowance for loan and lease losses of $11.1 million, total deposits of $701.2 million, and stockholders' equity of $110.3 million.

Overall, the net portfolio loan balance increased modestly during the fourth quarter compared to the same period a year ago. The Company's net loan portfolio was $588.1 million at December 31, 2012, compared with $594.1 million at September 30, 2012, a decrease of $6.0 million, or 1%. The decrease in net portfolio loans was primarily driven by net pay-offs of commercial real estate loans, and increases in the allowance for loan and lease losses (ALLL). During the fourth quarter 2012, the decrease in construction loans, when compared to the third quarter 2012, primarily resulted from a project build out, subsequently refinanced into an investor commercial real estate loan.

Table 2










PERIOD END LOANS



(Dollars in thousands)

December 31,

% of

December 31,

% of

Change

September 30,

% of


2012

Total

2011

Total

Amount

%

2012

Total










Commercial

$        167,149

27%

$        148,095

25%

$    19,054

13%

$        165,915

27%

Real estate – construction loans

16,863

3%

26,064

4%

(9,201)

-35%

21,346

4%

Real estate – commercial (investor)

211,318

35%

219,864

38%

(8,546)

-4%

215,836

36%

Real estate – commercial (owner occupied)

75,085

13%

65,885

11%

9,200

14%

74,667

12%

Real estate – ITIN loans

60,105

10%

64,833

11%

(4,728)

-7%

61,020

10%

Real estate – mortgage

18,452

3%

19,679

3%

(1,227)

-6%

17,062

3%

Real estate – equity lines

45,181

8%

44,445

7%

736

2%

44,041

7%

Consumer

4,422

1%

5,283

1%

(861)

-16%

4,530

1%

Other loans

349

0%

224

0%

125

56%

62

0%

     Gross portfolio loans

598,924

100%

594,372

100%

4,552

1%

604,479

100%










Less:









Deferred loan fees, net

(312)


(37)


(275)

743%

(216)


Allowance for loan and lease losses

11,103


10,622


481

5%

10,560


     Net portfolio loans

$        588,133


$        583,787


$      4,346

1%

$        594,135











Yield on loans

5.16%


5.60%


-0.44%


5.23%
















 

Table 3











PERIOD END CASH EQUIVALENTS AND INVESTMENT SECURITIES




(Dollars in thousands)

December 31,

% of

December 31,

% of

Change


September 30,

% of


2012

Total

2011

Total

Amount

%


2012

Total

Cash equivalents:










Cash and due from banks

$ 21,870

8%

$ 20,639

8%

$ 1,231

6%


$ 40,541

14%

Interest bearing due from banks

23,312

9%

26,676

11%

(3,364)

-13%


23,893

9%


45,182

17%

47,315

19%

(2,133)

-5%


64,434

23%

Investment Securities-AFS:










U.S. Treasury and agency

2,946

1%

0

0%

2,946

100%


0

0%

Obligations of state and political subdivisions

58,484

21%

77,326

31%

(18,842)

-24%


68,019

24%

Mortgage backed securities

51,530

19%

60,610

24%

(9,080)

-15%


54,353

20%

Corporate securities

61,556

23%

40,820

16%

20,736

51%


49,747

18%

Other asset backed securities

22,838

8%

24,768

10%

(1,930)

-8%


22,809

8%


197,354

72%

203,524

81%

(6,170)

-3%


194,928

70%











Investment Securities-HTM:










Obligations of state and political subdivisions

31,483

11%

0

0%

31,483

100%


18,808

7%











Total cash equivalents and investment securities

$ 274,019

100%

$ 250,839

100%

$ 23,180

9%


$ 278,170

100%











Yield on cash equivalents and investment securities

2.70%


2.64%


0.06%



2.78%



























The Company maintained a strong liquidity position during the reporting period. As of December 31, 2012, the Company maintained cash positions at the Federal Reserve Bank (FRB) and correspondent banks in the amount of $21.9 million. The Company also held certificates of deposits with other financial institutions in the amount of $23.3 million, which management considers liquid.

The Company's available-for-sale investment portfolio is generally utilized as a source of liquidity to fund other higher yielding asset opportunities, such as commercial and mortgage loan originations when required. Available-for-sale securities totaled $197.4 million at December 31, 2012, compared with $194.9 million at September 30, 2012. During the period, the Company focused on investing excess cash, and reinvesting principal and interest received from mortgage backed securities and collateralized mortgage obligations, into bank qualified municipal bonds and corporate bonds.

Purchases of corporate bonds were focused on relatively moderate term (maturities ranging between four to six years), high quality debt instruments issued by large financial institutions. Management believes the risk adjusted yield spreads of these securities compared to what is currently offered in the treasury markets or mortgage backed securities markets provides some mitigation of ongoing net interest margin compression  without extending too long on the yield curve.

Purchases of municipal bonds focused on bank qualified general obligation and revenue bonds where the debt proceeds are used to fund the operations of state and local essential services. The municipal bonds purchased generally had maturities ranging from five to twenty with maturities more heavily weighted towards the shorter end of the range. In addition, many of these bonds have relatively short call dates and relatively high coupons.  Management monitors the financial performance of the municipal bond portfolio on an ongoing basis. Should the outcome of these reviews indicate significant decline in credit quality, inadequate debt service coverage, or if the bonds have fallen outside of our accepted risk tolerance, the bonds are sold in the open market.

During the fourth quarter 2012, the Company purchased sixty-three securities with a weighted average yield of 2.33%, and sold thirty-six securities with a weighted average yield of 2.48%. Pursuant to the securities sales activity, the Company recorded $2.1 million in realized gains.  

At December 31, 2012, the Company's net unrealized gain on available-for-sale securities was $2.9 million, compared with $4.6 million net unrealized gains at September 30, 2012. The unfavorable change in net unrealized gains was primarily due to the sale of securities and the realization of $2.1 million in gains during the fourth quarter of 2012. The decrease in unrealized gains was partially offset by increases in the fair value of the Company's variable rate corporate bond portfolio, primarily driven by contraction of market spreads and changes in market interest rates.

Table 4











QUARTERLY AVERAGE DEPOSITS BY CATEGORY




(Dollars in thousands)

Q4

% of

Q4

% of

Change


Q3

% of


2012

Total

2011

Total

Amount

%


2012

Total

Demand deposits

$       123,099

17%

$       112,355

17%

$      10,744

10%


$     120,821

18%

Interest bearing demand

232,674

33%

175,904

27%

56,770

32%


213,217

31%

Total checking deposits

355,773

50%

288,259

44%

67,514

23%


334,038

49%

Savings

90,522

13%

91,750

14%

(1,228)

-1%


90,856

13%

Total non-time deposits

446,295

63%

380,009

58%

66,286

17%


424,894

62%

Time deposits

257,432

37%

280,872

42%

(23,440)

-8%


264,244

38%

Total deposits

$       703,727

100%

$       660,881

100%

$      42,846

6%


$     689,138

100%











Weighted average rate on total deposits

0.69%


1.05%


-0.36%



0.78%


During the fourth quarter 2012 average total deposits increased 6% or $42.8 million to $703.7 million from the fourth quarter in 2011. Non maturing core deposits increased $40.8 million or 11% year over year.  Insured Cash Sweep (ICS) deposits totaling $30.8 million as of December 31, 2012 are included in interest bearing demand. ICS deposits are brokered money market deposit accounts which are considered non core for regulatory purposes.

Operating Results for the Fourth Quarter 2012

Due to conservative underwriting, active servicing of problem credits, and maintenance of a relatively solid net interest margin, the Company has remained profitable over an extended period of weak economic conditions. Accordingly, the Company continues to be well positioned to take advantage of strategic growth opportunities.

Net income attributable to Bank of Commerce Holdings was $1.4 million for the three months ended December 31, 2012, compared with $1.7 million for the three months ended September 30, 2012, and $2.1 million for the three months ended December 30, 2011. Net income available to common shareholders was $1.2 million for the three months ended December 31, 2012, compared with $1.5 million for the three months ended September 30, 2012, and $1.9 million for the three months ended December 31, 2011. During the fourth quarter of 2012, diluted earnings per share attributable to continuing operations decreased $0.04 per share when compared to the third quarter of 2012, and decreased $0.03 per share compared to the fourth quarter of 2011. 

The Company continued to pay quarterly cash dividends of $0.03 per share during 2012, consistent with the quarterly dividends paid in 2011.

Table 5










SUMMARY INCOME STATEMENT





(Dollars in thousands)

Q4

Q4

Change


Q3

Change


2012

2011

Amount

%


2012

Amount

%

Net interest income

$    8,754

$      8,486

$       268

3%


$   9,115

$    (361)

-4%

Provision for loan and lease losses

4,550

1,800

2,750

153%


1,900

2,650

139%

Noninterest income

2,713

702

2,011

286%


1,419

1,294

91%

Noninterest expense

5,007

5,049

(42)

-1%


5,484

(477)

-9%

Income from continuing operations before income taxes

1,910

2,339

(429)

-18%


3,150

(1,240)

-39%

Provision for income tax

526

505

21

4%


923

(397)

-43%

Net income from continuing operations

$    1,384

$      1,834

$    (450)

-25%


$   2,227

$    (843)

-38%

Discontinued Operations:









Income (loss) from discontinued operations

$           0

$         728

$    (728)

-100%


$    (746)

$       746

-100%

Income tax expense associated with income (loss) from discontinued operations

0

281

(281)

-100%


(239)

239

-100%

Net income (loss) from discontinued operations

0

447

(447)

-100%


(507)

507

-100%

Less: Net income (loss) from discontinued operations attributable to noncontrolling interest

0

219

(219)

-100%


0

0

0%

Net income (loss) from discontinued operations attributable to controlling interest

0

228

(228)

-100%


(507)

507

-100%

Net income attributable to Bank of Commerce Holdings

1,384

2,062

(678)

-33%


1,720

(336)

-20%

Less: preferred dividend and accretion on preferred stock

196

139

57

41%


250

(54)

-22%

Income available to common shareholders

$    1,188

$      1,923

$    (735)

-38%


$   1,470

$    (282)

-19%

   Basic EPS attributable to continuing operations

$      0.08

$        0.11

$   (0.03)

-27%


$     0.12

$   (0.04)

-33%

   Basic EPS attributable to discontinued operations

$      0.00

$        0.01

$   (0.01)

-100%


$   (0.03)

$      0.03

-100%

   Average basic shares

16,034

16,991

(957)

-6%


16,240

(206)

-1%

   Diluted EPS attributable to continuing operations

$      0.08

$        0.11

$   (0.03)

-27%


$     0.12

$   (0.04)

-33%

   Diluted EPS attributable to discontinued operations

$      0.00

$        0.01

$   (0.01)

-100%


$   (0.03)

$      0.03

-100%

   Average diluted shares

16,034

16,991

(957)

-6%


16,240

(206)

-1%















Net interest income for the three months ended December 31, 2012 was $8.8 million, an increase of $268 thousand or 3% compared to the same period in 2011, and a decrease of $361 thousand compared with the three months ended September 30, 2012. The increase in net interest income during the three months ended December 31, 2012 compared to the same period a year ago was primarily driven by increased volume in the investment securities portfolio, decreased cost of funds resulting from the re-pricing of deposits, and lower average balances in time deposits. The decrease in our cost of funds was partially offset by decreased interest income realized from the loan portfolio.

The decrease in loan interest income was primarily driven by the downward re-pricing of the ITIN variable rate 1-4 family mortgage loans. During the three months ended December 31, 2012, the ITIN portfolio with an average balance of $60.6 million yielded 3.42% compared to an average balance of $65.6 million and a yield of 3.64% during the same period a year ago.

Interest income recognized from the investment securities portfolio increased $296 thousand during the three months ended December 31, 2012, compared with the same period a year ago. During the latter half of 2011, the entire pool of U.S Agencies with yields averaging 2%, were either sold or called away, with the majority of the cash flows reinvested into higher yielding corporate bonds, municipal bonds, and asset backed securities. While net purchases of municipal bonds and corporate bonds were made at relatively lower yields when compared to like kind bonds in our existing portfolio, only a modest decrease in the portfolio's yield is reflected as compared to in the fourth quarter 2011. The tax equivalent yield from the investment securities portfolio for the three months ended December 31, 2012 was 3.51% compared with 3.66% during the same period a year ago.

During the fourth quarter 2012, the Company realized increased provisions for loan and lease losses primarily attributable to impairment charges incurred on portfolio loans. The increased loan and lease loss provisions were the primary driver in the decrease in income available to common shareholders.

Table 6








NET INTEREST SPREAD AND MARGIN




(Dollars in thousands)

Q4

Q4

Change


Q3

Change


2012

2011

Amount


2012

Amount

Tax equivalent yield on average interest earning assets

4.42%

4.78%

-0.31%


4.68%

-0.26%

Rate on average interest bearing liabilities

0.61%

0.97%

-0.35%


0.69%

-0.08%

Net interest spread

3.81%

3.81%

0.04%


3.99%

-0.18%

Net interest margin on a tax equivalent basis

3.95%

4.02%

-0.03%


4.14%

-0.19%








Average earning assets

$      917,140