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

$      868,377

$        40,089


$    907,675

$        9,465

Average interest bearing liabilities

$      717,671

$      676,130

$        33,490


$    708,163

$        9,508










The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.95% for the three months ended December 31, 2012, a decrease of three basis points compared to the same period a year ago. The decreases in net interest margin during the three months ended December 31, 2012 compared to the same period a year ago primarily resulted from a 36 basis point decline in yield on earning assets, partially offset by a 29 basis point decline in interest expense to average earning assets. With decreasing elasticity in managing our funding costs, and historically low interest rates, maintaining net interest margins in the foreseeable future will present significant challenges. Accordingly, management will continue to pursue organic loan growth, wholesale loan purchases, and actively manage the investment securities portfolio within our accepted risk tolerance, to maximize yield on earning assets.

Noninterest income for the three months ended December 31, 2012 was $2.7 million, an increase of $2.0 million or 286% when compared to the same period a year ago. The following table presents the key components of noninterest income for the three months ended December 31, 2012 and 2011, and September 30, 2012:

Table 7










NONINTEREST INCOME





(Dollars in thousands)

Q4

Q4

Change


Q3

Change


2012

2011

Amount

%


2012

Amount

%

Service charges on deposit accounts

$       42

$       40

$          2

5%


$       49

$        (7)

-14%

Payroll and benefit processing fees

143

129

14

11%


122

21

17%

Earnings on cash surrender value - Bank owned life insurance

129

118

11

9%


114

15

13%

Gain (loss) on investment securities, net

2,085

105

1,980

1886%


550

1,535

279%

Merchant credit card service income, net

32

34

(2)

-6%


39

(7)

-18%

Other income

282

276

6

2%


545

(263)

-48%

Total noninterest income

$  2,713

$     702

$   2,011

286%


$  1,419

$   1,294

91%










Payroll and benefit processing fees increased by $14 thousand for the three months ended December 31, 2012 compared to the same period a year ago. During the fourth quarter 2012, the increase in payroll and benefit processing fees compared to the same period a year ago was primarily driven by increased customer relationships which resulted in increased volume.

Earnings on bank owned life insurance increased by $11 thousand for the three months ended December 31, 2012 compared to the same period a year ago. During the fourth quarter 2012, the Company purchased a $5.0 million dollar policy to offset certain employee benefit and compensation plan expenses.

Gains on the sale of investment securities increased by $2.0 million for the three months ended December 31, 2012 compared to the same period a year ago. 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 sales activity, the Company recorded $2.1 million in realized gains on the sales of securities. 

The major components of other income are fees earned on ATM transactions, safe deposits, online banking, gains on litigation, FHLB dividends, mortgage early purchase fees, and wealth management commissions. Changes the components of other income are a result of normal operating activities.

Noninterest expense for the three months ended December 31, 2012 was $5.0 million, a decrease of $42 thousand or 1% compared to the same period a year ago. The following table presents the key elements of noninterest expense for the three months ended December 31, 2012 and 2011, and September 30, 2012:

Table 8










NONINTEREST EXPENSE





(Dollars in thousands)

Q4

Q4

Change


Q3

Change


2012

2011

Amount

%


2012

Amount

%

Salaries and related benefits

$  2,645

$  2,847

$  (202)

-7%


$  2,732

$      (87)

-3%

Occupancy and equipment expense

535

453

82

18%


508

27

5%

Write down of other real estate owned

0

0

0

0%


0

0

0%

FDIC insurance premium

208

284

(76)

-27%


202

6

3%

Data processing fees

142

107

35

33%


94

48

51%

Professional service fees

216

168

48

29%


255

(39)

-15%

Deferred compensation expense

154

139

15

11%


150

4

3%

Other expenses

1,107

1,051

56

5%


1,543

(436)

-28%

Total noninterest expense

$  5,007

$  5,049

$    (42)

-1%


$  5,484

$    (477)

-9%










Salaries and related benefits expense for the three months ended December 31, 2012, was $2.6 million, a decrease of $202 thousand or 7% compared to the same period a year ago.  The decrease in salary and related benefits expense was primarily attributable to a decrease in the employee cash incentive program accrued at the Bank level.

Occupancy and equipment expense for the three months ended December 31, 2012, was $535 thousand, an increase of $82 thousand or 18% compared to the same period a year ago.  The increase in occupancy and equipment expense is primarily attributable to a decrease in net rent expense received on OREO properties and increases in depreciation expense as a result of increased depreciable assets.

The decrease in FDIC assessments during the three months ended December 31, 2012, compared to the same period a year ago resulted from improvements in the Bank's overall deposit assessment risk profile.

Data processing fees for the three months ended December 31, 2012, was $142 thousand, an increase of $35 thousand or 33% compared to the same period a year ago.  The increase in data processing fees is attributable to reclassifications of certain core processing maintenance expenses, increases in ongoing software licensing fees as a result of additional staffing requirements, and licensing fees for new software products.

Professional service fees encompass audit, legal and consulting fees. Increases in professional service fees for the three months ended December 31, 2012, compared to the same period a year ago were primarily driven by commissions paid pursuant to the Company's stock repurchase plan and an increase in legal expense associated with SEC filings.

Other expenses for the three months ended December 31, 2012, were $1.1 million, an increase of $56 thousand or 5% compared to the same period a year ago. The increase in other expenses was primarily driven by increased operating expenses on OREO properties and increased amortization of the California Affordable Housing credits.

Table 9



ALLOWANCE ROLL FORWARD

(Dollars in thousands)

Q4

Q3

Q2

Q1

Q4


2012

2012

2012

2012

2011

Beginning balance

$      10,560

$      12,497

$      11,373

$      10,622

$      10,590

Provision for loan loss charged to expense

4,550

1,900

1,650

1,300

1,800

Loans charged off

(4,183)

(4,011)

(880)

(788)

(1,996)

Loan loss recoveries

176

174

354

239

228

Ending balance

$      11,103

$      10,560

$      12,497

$      11,373

$      10,622







Gross portfolio loans outstanding at period end

$    598,924

$    604,479

$    595,945

$    590,811

$    594,372







Ratio of allowance for loan losses to total loans

1.85%

1.75%

2.10%

1.92%

1.79%

Nonaccrual loans at period end:






     Commercial 

$        2,935

$        3,330

$               0

$               0

$             49

     Construction

0

77

104

105

106

     Commercial real estate

24,008

10,393

6,160

5,943

6,104

     Residential real estate

11,630

11,733

13,943

14,544

14,806

     Home equity

0

95

298

302

353

        Total nonaccrual loans

$      38,573

$      25,628

$      20,505

$      20,894

$      21,418

Accruing troubled debt restructured loans






     Commercial

$           523

$             72

$             56

$               0

$               0

     Construction

0

0

0

0

0

     Commercial real estate

4,598

9,790

12,798

14,584

14,590

     Residential real estate

2,934

3,117

2,750

2,920

2,870

     Home equity

561

501

436

401

423

        Total accruing restructured loans

$        8,616

$      13,480

$      16,040

$      17,905

$      17,883







All other accruing impaired loans

471

7,281

472

472

472







Total impaired loans

$      47,660

$      46,389

$      37,017

$      39,271

$      39,773







Allowance for loan and lease losses to nonaccrual loans at period end

28.78%

41.20%

60.95%

54.43%

49.59%

Nonaccrual loans to total loans

6.44%

4.24%

3.44%

3.54%

3.60%

Allowance for loan and lease losses to impaired loans

23.30%

22.76%

33.76%

28.96%

26.71%

The ALLL allocation remained consistent with amounts reported as of December 31, 2011. The ALLL totaled $11.1 million and $10.6 million at December 31, 2012, and December 31, 2011, respectively. During 2012, the provisions for loan and lease losses were $9.4 million which approximated net charge-offs for the year. Net charge-offs of $8.9 million for the year ended December 31, 2012, decreased by $2.3 million compared to the same period a year ago. There were a number of factors that contributed to the decrease in net charge offs, including less impairment charges on both existing impaired loans and newly classified impaired loans, and a stabilizing real estate market within our footprints.

The ALLL totaled $11.1 million and $10.6 million at December 31, 2012 and September 31, 2012, respectively. The increase in the ALLL as of December 31, 2012 compared to September 31, 2012 is principally attributable to increased provisions for loan and lease losses. During the fourth quarter, charge offs resulted from impairment evaluations of loans newly classified as nonaccrual, and existing loans already classified as nonaccrual. As a result, additional provisions were needed to fund the allowance for loan and lease losses to reflect the perceived increase in credit risk inherent in the loan portfolio.

Net charge offs were $4.0 million for the three months ended December 31, 2012, compared with net charge offs of $3.8 million for the three months ended September 30, 2012. The fourth quarter charge offs were centered in commercial real estate, 1-4 family residential, and home equity loans.

Overall, the loan portfolio showed some signs of stabilization during 2012, however there continues to be lingering weaknesses where the borrower's business revenue is tied to real estate. Accordingly, during December of 2012, the Company reclassified certain loans in the amount of $7.3 million to nonaccrual status. The majority of the amounts reclassified during December were associated with two large commercial real estate borrowers whose loans were rated as substandard prior to the reclassification.

At December 31, 2012, the loan portfolio reflects a modest increase in total past due loans and net migrations to greater than 90 days past due, compared to December 31, 2011. Consequently, as of December 31, 2012 loans classified as substandard increased by $3.9 million to $51.3 million compared to the same period a year ago. The commercial real estate and commercial loan portfolios continue to be influenced by depressed real estate values, the effects of relatively high unemployment levels, and sluggish economic conditions. As such, management will continue to aggressively identify and dispose of problematic assets which could lead to a continuing elevated level of charge offs. Despite the current level of charge offs, management believes the Company's ALLL is adequately funded given the current level of credit risk.

At December 31, 2012, the recorded investment in loans classified as impaired totaled $47.7 million, with a corresponding valuation allowance (included in the ALLL) of $2.4 million. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans. At September 30, 2012, the total recorded investment in impaired loans was $46.4 million, with a corresponding valuation allowance (included in the ALLL) of $2.8 million.

Loans are reported as troubled debt restructurings (TDR) when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the note rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as the Bank will not collect all amounts due, both principal and interest, in accordance with the terms of the original loan agreement. Impairment reserves on non-collateral dependent restructured loans are measured by comparing the present value of expected future cash flows of the restructured loans, discounted at the effective interest rate of the original loan agreement. These impairment reserves are recognized as a specific component to be provided for in the ALLL.

During the three months ended December 31, 2012, the Company restructured eleven loans, six of which were restructured to grant interest rate concessions, one loan was restructured to grant an interest rate and maturity modification, one loan was restructured to provide a maturity modification, and three loans were restructured to provide payment deferral modifications. Five loans reclassified as TDR's during the three months ended December 31, 2012 were on nonaccrual status, and the remaining reclassifications were accruing.

As of December 31, 2012, the Company had $24.7 million in TDRs compared to $27.7 million as of September 30, 2012.  As of December 31, 2012, the Company had one hundred and six loans that qualified as TDRs, of which eighty-six were performing according to their restructured terms. TDRs represented 4.12% of gross portfolio loans as of December 31, 2012 compared with 4.59% at September 30, 2012. 

Table 10







TROUBLED DEBT RESTRUCTURINGS

(Dollars in thousands)

December 31,

September 30,

June 30,

March 31,

December 31,


2012

2012

2012

2012

2011

Nonaccrual

$          16,050

$          14,259

$          13,607

$          13,324

$          13,418

Accruing

8,616

13,480

16,040

17,904

17,883

Total troubled debt restructurings

$          24,666

$          27,739

$          29,647

$          31,228

$          31,301

Percentage of total gross portfolio loans

4.12%

4.59%

4.97%

5.29%

5.27%

Nonperforming loans, which include nonaccrual loans and accruing loans past due 90 days or more, totaled $38.6 million or 6.44% of total portfolio loans as of December 31, 2012, as compared to $25.6 million, or 4.24% of total loans at September 30, 2012. Nonperforming assets, which include nonperforming loans and foreclosed real estate, totaled $41.6 million, or 4.25% of total assets as of December 31, 2012, compared with $28.7 million, or 3.03% of total assets as of September 30, 2012.

Table 11







NONPERFORMING ASSETS

 (Dollars in thousands)

December 31,

September 30,

June 30,

March 31,

December 31,


2012

2012

2012

2012

2011







Commercial

$             2,935

$             3,330

$                    0

$                    0

$                  49

Real estate construction






     Commercial real estate construction

0

0

0

0

0

     Residential real estate construction

0

77

104

105

106

Total real estate construction

0

77

104

105

106

Real estate mortgage






     1-4 family, closed end 1st lien

1,805

2,315

4,114

4,378

4,474

     1-4 family revolving

0

95

298

302

353

     ITIN 1-4 family loan pool

9,825

9,418

9,829

10,166

10,332

Total real estate mortgage

11,630

11,828

14,241

14,846

15,159

Commercial real estate

24,008

10,393

6,160

5,943

6,104

Total nonaccrual loans

38,573

25,628

20,505

20,894

21,418

90 days past due and still accruing

0

0

65

0

95

     Total nonperforming loans

38,573

25,628

20,570

20,894

21,513







Other real estate owned

3,061

3,052

2,647

1,913

3,731

Total nonperforming assets

$          41,634

$           28,680

$           23,217

$           22,807

$           25,244







Nonperforming loans to total loans

6.44%

4.24%

3.45%

3.54%

3.62%

Nonperforming assets to total assets

4.25%

3.03%

2.41%

2.45%

2.68%

As of December 31, 2012, nonperforming assets of $41.6 million have been written down by 22%, or $9.1 million, from their original balance of $55.6 million.

Table 12







OTHER REAL ESTATE OWNED ACTIVITY

(Dollars in thousands)

Q4

Q3

Q2

Q1

Q4


2012

2012

2012

2012

2011

Beginning balance

$               3,052

$               2,647

$               1,913

$               3,731

$               1,665

     Additions to OREO

242

4,046

1,817

134

2,399

     Dispositions of OREO

(233)

(3,641)

(658)

(1,952)

(333)

     OREO valuation adjustment

0

0

(425)

0

0

Ending balance

$               3,061

$               3,052

$               2,647

$               1,913

$               3,731







At December 31, 2012, the recorded investment in OREO was $3.1 million compared to $3.1 million at September 30, 2012. For the three months ended December 31, 2012, the Company transferred foreclosed property from three loans in the amount of $242 thousand to OREO, and no adjustments to the ALLL were necessary. During this period, the Company sold four properties with balances of $234 thousand for a net loss of $222 thousand. The December 31, 2012 OREO balance consists of sixteen properties, of which twelve are secured with 1-4 family residential real estate in the amount of $947 thousand. The remaining four properties consist of improved commercial land in the amount of $750 thousand, a vacant residential lot in the amount of $24 thousand, and two commercial real estate properties in the amount of $1.3 million


Table 13

INCOME STATEMENT

(Amounts in thousands, except for per share data)

Q4

Q4

Change

Q3

Full Year

Full Year


2012

2011

$

%

2012

2012

2011

Interest income:








     Interest and fees on loans

$ 8,026

$ 8,583

$ (557)

-6%

$ 8,462

$ 33,148

$ 35,084

     Interest on tax-exempt securities

622

534

88

16%

612

2,399

2,014

     Interest on U.S. government securities

390

375

15

4%

426

1,615

2,123

     Interest on other securities

808

634

174

27%

841

3,175

2,410

          Total interest income

9,846

10,126

(280)

-3%

10,341

40,337

41,631

Interest expense:








     Interest on demand deposits

153

166

(13)

-8%

147

610

787

     Interest on savings deposits

83

145

(62)

-43%

90

394

792

     Interest on certificates of deposit

761

1,123

(362)

-32%

866

3,697

4,912

     Interest on securities sold under repurchase agreements

5

7

(2)

-29%

6

24

43

     Interest on FHLB borrowings

(14)

132

(146)

-111%

(4)

85

579

     Interest on other borrowings

104

67

37

55%

121

419

363

          Total interest expense

1,092

1,640

(548)

-33%

1,226

5,229

7,476

          Net interest income

8,754

8,486

268

3%

9,115

35,108

34,155

Provision for loan and lease losses

4,550

1,800

2,750

153%

1,900

9,400

8,991

     Net interest income after provision for loan and lease losses

4,204

6,686

(2,482)

-37%

7,215

25,708

25,164

Noninterest income:








     Service charges on deposit accounts

42

40

2

5%

49

188

192

     Payroll and benefit processing fees

143

129

14

11%

122

538

458

     Earnings on cash surrender value – Bank owned life insurance

129

118

11

9%

114

470

465

     Gain on investment securities, net

2,085

105

1,980

1886%

550

3,822

1,550

     Merchant credit card service income, net

32

34

(2)

-6%

39

144

376

     Other income

282

276

6

2%

545

1,431

850

          Total noninterest income

2,713

702

2,011

286%

1,419

6,593

3,891

Noninterest expense:








     Salaries and related benefits

2,645

2,847

(202)

-7%

2,732

11,030

9,957

     Occupancy and equipment expense

535

453

82

18%

508

2,058

2,009

     Write down of other real estate owned

0

0

0

0%

0

425

557

     FDIC insurance premium

208

284

(76)

-27%

202

820

1,319

     Data processing fees

142

107

35

33%

94

421

389

     Professional service fees

216

168

48

29%

255

1,078

1,016

     Deferred compensation expense

154

139

15

11%

150

594

533

     Other expenses

1,107

1,051

56

5%

1,543

5,206

4,147

          Total noninterest expense

5,007

5,049

(42)

-1%

5,484

21,632

19,927

Income from continuing operations before provision for income taxes

1,910

2,339

(429)

-18%

3,150

10,669

9,128

Provision for income taxes

526

505

21

4%

923

3,109

2,444

     Net Income from continuing operations

$ 1,384

$ 1,834

$ (450)

-25%

$ 2,227

$ 7,560

$ 6,684

Discontinued Operations:








     Income (loss) from discontinued operations

$ 0

$ 728

$ (728)

-100%

$ (746)

$ 535

$ 1,512

     Income tax expense associated with income (loss) from

discontinued operations

0

281

(281)

-100%

(239)

331

392

          Net income (loss) from discontinued operations

0

447

(447)

-100%

(507)

204

1,120

     Less: Net income (loss) from discontinued operations

attributable to noncontrolling interest

0

219

(219)

-100%

0

348

549

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

0

228

(228)

-100%

(507)

(144)

571

Net income attributable to Bank of Commerce Holdings

1,384

2,062

(678)

-33%

1,720

7,416

7,255

Less: preferred dividend and accretion on preferred stock

196

139

57

41%

250

880

943

     Income available to common shareholders

1,188

1,923

(735)

-38%

1,470

6,536

6,312

     Basic EPS attributable to continuing operations

$ 0.08

$ 0.11

$ (0.03)

-27%

$ 0.12

$ 0.41

$ 0.34

     Basic EPS attributable to discontinued operations

$ 0.00

$ 0.01

$ (0.01)

-100%

$ (0.03)

$ (0.01)

$ 0.03

     Average basic shares

16,034

16,991

(957)

-6%

16,240

16,344

16,991

     Diluted EPS attributable to continuing operations

$ 0.08

$ 0.11

$ (0.03)

-27%

$ 0.12

$ 0.41

$ 0.34

     Diluted EPS attributable to discontinued operations

$ 0.00

$ 0.01

$ (0.01)

-100%

$ (0.03)

$ (0.01)

$ 0.03

     Average diluted shares

16,034

16,991

(957)

-6%

16,240

16,344

16,991

 

Table 14



BALANCE SHEET

(Dollars in thousands)

December 31,

December 31,

Change

September 30,

ASSETS

2012

2011

$

%

2012

Cash and due from banks

$ 21,870

$ 20,639

$ 1,231

6%

$ 40,541

Interest bearing due from banks

23,312

26,676

(3,364)

-13%

23,893

     Total cash and cash equivalents

45,182

47,315

(2,133)

-5%

64,434

Securities available-for-sale, at fair value

197,354

203,524

(6,170)

-3%

194,928

Securities held-to-maturity, at amortized cost

31,483

0

31,483

100%

18,808

Portfolio loans

599,236

594,409

4,827

1%

604,695

Allowance for loan losses

(11,103)

(10,622)

(481)

5%

(10,560)

     Net loans

588,133

583,787

4,346

1%

594,135

Mortgage loans held for sale

65,127

44,517

20,610

46%

27,875

Total interest earning assets

938,382

889,765

48,617

5%

910,740

Bank premises and equipment, net

9,736

9,306

430

5%

9,617

Goodwill and other intangibles

55

138

(83)

-60%

63

Other real estate owned

3,061

3,731

(670)

-18%

3,052

Assets attributable to discontinued operations

0

16,453

(16,453)

-100%

0

Other assets

39,407

31,920

7,487

23%

33,538

TOTAL ASSETS

$ 979,538

$ 940,691

$ 38,847

4%

$ 946,450







LIABILITIES AND STOCKHOLDERS' EQUITY






Demand – noninterest bearing

$ 117,588

$ 116,877

$ 711

1%

$ 114,856

Demand – interest bearing

239,592

179,597

59,995

33%

223,687

Savings accounts

89,364

89,012

352

0%

91,666

Certificates of deposit

254,622

282,818

(28,196)

-10%

261,410

     Total deposits

701,166

668,304

32,862

5%

691,619

Securities sold under agreements to repurchase

13,095

13,779

(684)

-5%

13,964

Federal Home Loan Bank borrowings

125,000

109,000

16,000

15%

100,000

Junior subordinated debentures

15,465

15,465

0

0%

15,465

Liabilities attributable to discontinued operations

0

9,280

(9,280)

-100%

0

Other liabilities

14,491

11,273

3,218

29%

14,049

     Total Liabilities

869,217

827,101

42,116

5%

835,097







Total Equity – Bank of Commerce Holdings

110,321

110,462

(141)

0%

111,353

Noncontrolling interest in subsidiary

0

3,128

(3,128)

-100%

0

     Total Stockholders' Equity

110,321

113,590

(3,269)

-3%

111,353







TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$ 979,538

$ 940,691

$ 38,847

4%

$ 946,450













 

Table 15




AVERAGE BALANCE SHEET (Year to Date)

(Dollars in thousands)

December 31,

December 31,

December 31,



2012

2011

2010


Earning assets:





  Loans

$          642,200

$          634,949

$        640,213


  Tax exempt securities

81,714

52,467

42,172


  US government securities

209

19,182

27,423


  Mortgage backed securities

61,434

67,052

48,972


  Other securities

73,972

44,664

15,702


  Interest bearing due from banks

48,712

64,399

70,911


  Fed funds sold

0

0

995


     Average earning assets

908,241

882,713

846,388







Cash and DFB

10,125

2,251

1,781


Bank premises

9,567

9,489

9,814


Other assets

24,249

25,116

48,116


     Average total assets

$          952,182

$         919,569

$       906,099







Interest bearing liabilities:





  Demand - interest bearing

$          203,342

$         157,696

$       141,983


  Savings deposits

89,789

91,876

76,718


  CDs

285,574

296,034

321,051


  Repurchase agreements

14,246

14,805

12,274


  Other borrowings

125,839

139,331

134,255



718,790

699,742

686,281


Demand - noninterest bearing

115,091

100,722

92,433


Other liabilities

7,033

10,997

31,748


Shareholders' equity

111,268

108,108

95,637


     Average liabilities & equity

$          952,182

$         919,569

$       906,099


 

BOCH is a NASDAQ National Market listed stock.  Please contact your local investment advisor for purchases and sales.  Investment firms making a market in BOCH stock are:

Raymond James Financial / Howe Barnes
John T. Cavender
555 Market Street
San Francisco, CA 94105 (800) 346-5544

Sandler & O'Neil
Bryan Sullivan
919 Third Avenue, 6th Floor
New York, NY 10022 (888) 383-3112

McAdams Wright Ragen, Inc.
Joey Warmenhoven
1121 SW Fifth Avenue
Suite 1400
Portland, OR 97204 (866) 662-0351

Stifel Nicolaus
Perry Wright
1255 East Street #100
Redding, CA 96001 (530) 244-7199

FIG Partners
Mike Hedrei
1175 Peachtree Street NE #100
Colony Square Suite 2250
Atlanta, GA 30361 (212) 899-5217

SOURCE Bank of Commerce Holdings



RELATED LINKS
http://reddingbankofcommerce.com

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