Bank of Commerce Holdings™ Announces Second Quarter 2012 Results

REDDING, Calif., July 27, 2012 /PRNewswire/ -- Patrick J. Moty, President & CEO of Bank of Commerce Holdings (NASDAQ: BOCH), a $962.5 million bank holding company, and parent company of Redding Bank of Commerce™, Roseville Bank of Commerce™ (a division of Redding Bank of Commerce) (the "Bank"), and Bank of Commerce Mortgage™ today reported net income available to common shareholders of $2.0 million and diluted earnings per share (EPS) of $0.12 for the second quarter 2012.

Financial Highlights

  • Net income available to common shareholders of $2.0 million reflects a 60% increase over the $1.3 million reported for the quarter ended June 30, 2011, and a slight increase over the $1.9 million recorded for the first quarter 2012.
  • Diluted EPS of $0.12 compares to $0.07 reported for the same period a year ago and $0.11 for the prior quarter ended March 31, 2012.
  • Loan loss provisions for the second quarter were $1.7 million compared to $2.6 million for the second quarter 2011 and $1.3 million for the prior quarter ended March 31, 2012.
  • Nonperforming assets represented 2.41% of total assets in the current period versus 2.49% for the quarter ended June 30, 2011, and 2.45% for the quarter ended March 31, 2012.
  • Mortgage banking revenue for the three months ended June 30, 2012 of $6.1 million reflects an increase of 141% over the $2.6 million reported for the same period a year ago; historically low interest rates continue to drive new loan originations and refinancing activities.

Patrick J. Moty, President and CEO commented:  "We are pleased with our financial results as we follow up a strong first quarter with an even stronger second quarter. Our Small Business loan portfolio grew by ten percent this quarter, reflecting our commitment to lend and assist our customers as they navigate out of this recession. Capital levels and capital generation remain strong."

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 June 30, 2012 and 2011, and March 31, 2012.

Table 1








SUMMARY FINANCIAL INFORMATION


















 (Shares and dollars in thousands)

Quarter ended

Quarter ended



Quarter ended



June 30, 2012

June 30, 2011

Change


March 31, 2012

Change

Selective quarterly performance ratios







Return on average assets, annualized

0.96%

0.65%

0.31%


0.89%

0.07%

Return on average equity, annualized

8.14%

5.53%

2.61%


7.41%

0.73%

Efficiency ratio for quarter to date

67.21%

64.68%

2.53%


68.05%

-0.84%








Share and Per Share figures - Actual







Common shares outstanding at period end

16,265

16,991

(726)


16,505

(240)

Weighted average diluted shares

16,302

16,991

(689)


16,805

(503)

Income per diluted share

$                        0.12

$                      0.07

$       0.05


$                       0.11

$            0.01

Book value per common share

$                        5.54

$                      5.23

$       0.31


$                       5.47

$            0.07

Tangible book value per common share

$                        5.22

$                      4.88

$       0.34


$                       5.11

$            0.11








Capital Ratios








June 30, 2012

June 30, 2011

Change


March 31, 2012

Change

Bank of Commerce Holdings







Tier 1 risk based capital ratio

13.64%

15.75%

-2.11%


14.15%

-0.51%

Total risk based capital ratio

14.89%

17.00%

-2.11%


15.41%

-0.52%

Leverage ratio

13.26%

12.87%

0.39%


13.36%

-0.10%








Redding Bank of Commerce







Tier 1 risk based capital ratio

13.37%

15.76%

-2.39%


13.98%

-0.61%

Total risk based capital ratio

14.62%

17.02%

-2.40%


15.23%

-0.61%

Leverage ratio

12.72%

12.16%

0.56%


12.59%

0.13%

















As indicated in Table 1 above, Bank of Commerce Holdings (the "Company") remains well capitalized. At June 30, 2012, the Company's Tier 1 and Total risk based capital ratios measured 13.64% and 14.89% respectively, while the leverage ratio was 13.26%.

Return on average assets (ROA) and return on average equity (ROE) for the three months ended June 30, 2012, was 0.96% and 8.14%, respectively, compared with 0.65% and 5.53%, respectively, for the three months ended June 30, 2011. The increase in ROA and ROE for the three months ended June 30, 2012, compared with the same period a year ago, was primarily driven by reduced provision for loan and lease losses, increased mortgage banking net income, and decreased basic and dilutive weighted average shares. The increases in the aforementioned items were partially offset by decreased yields realized from the loan portfolio. The Company continues to experience decreased yields in the loan portfolio due to the pay-off of higher yielding loans, originations and renewals at relatively lower rates, and the transfer of existing loans to nonaccrual status.

Balance Sheet Overview

As of June 30, 2012, the Company had total consolidated assets of $962.5 million, total net portfolio loans of $583.6 million, allowance for loan and lease losses of $12.5 million, total deposits of $682.5 million, and stockholders' equity of $113.6 million.

Overall, the net portfolio loan balance increased modestly during the second quarter. The Company's net loan portfolio was $583.6 million at June 30, 2012, compared with $579.4 million at March 31, 2012, an increase of $4.2 million, or 0.72%. The increase in net portfolio loans was primarily driven by net originations of commercial loans, partially offset by net payoffs of commercial real estate loans, and an increase to the allowance for loan and lease losses (ALLL). Commercial loan originations were diversified in amounts and geographic location, and were not related to any particularly large origination or concentration in either of our markets.

Table 2










PERIOD END LOANS



(Dollars in thousands)

June 30,

% of

June 30,

% of

Change

March 31,

% of


2012

Total

2011

Total

Amount

%

2012

Total










Commercial

$        151,834

25%

$        140,610

24%

$        11,224

8%

$        138,334

23%

Real estate – construction loans

29,048

5%

26,357

4%

2,691

10%

28,100

5%

Real estate – commercial (investor)

214,004

36%

218,535

37%

(4,531)

-2%

224,725

38%

Real estate – commercial (owner occupied)

69,024

12%

68,327

11%

697

1%

67,911

11%

Real estate – ITIN loans

62,189

10%

67,675

11%

(5,486)

-8%

63,759

11%

Real estate – mortgage

19,638

3%

22,116

4%

(2,478)

-11%

19,043

3%

Real estate – equity lines

45,761

8%

46,850

8%

(1,089)

-2%

44,373

8%

Consumer

4,396

1%

5,271

1%

(875)

-17%

4,426

1%

Other loans

51

0%

91

0%

(40)

-44%

84

0%

     Gross portfolio loans

595,945

100%

595,832

100%

113

0%

590,755

100%










Less:









Deferred loan fees, net

(160)


51


(211)

-414%

(29)


Allowance for loan and lease losses

12,497


13,363


(866)

-6%

11,373


     Net portfolio loans

$        583,608


$        582,418


$          1,190

0%

$        579,411











Yield on loans

5.43%


5.74%


-0.31%


5.68%
















Table 3











PERIOD END CASH EQUIVALENTS AND INVESTMENT SECURITIES




(Dollars in thousands)

June 30,

% of

June 30,

% of

Change


March 31,

% of


2012

Total

2011

Total

Amount

%


2012

Total

Cash equivalents:










Cash and due from banks

$          41,221

15%

$            19,091

9%

$          22,130

116%


$            40,564

16%

Interest bearing due from banks

24,035

9%

29,225

14%

(5,190)

-18%


24,165

9%


65,256

24%

48,316

23%

16,940

35%


64,729

25%

Investment Securities:










U.S. Treasury and agency

0

0%

21,982

10%

(21,982)

-100%


0

0%

Obligations of state and political subdivisions

76,179

28%

57,881

28%

18,298

32%


72,368

28%

Mortgage backed securities

52,842

20%

39,309

19%

13,533

34%


48,416

19%

Corporate securities

49,477

19%

23,432

11%

26,045

111%


46,221

18%

Other asset backed securities

22,850

9%

19,580

9%

3,270

17%


25,875

10%


201,348

76%

162,184

77%

39,164

24%


192,880

75%





















Total cash equivalents and investment securities

$        266,604

100%

$          210,500

100%

$          56,104

27%


$          257,609

100%











Yield on cash equivalents and investment securities

2.80%


2.68%


0.12%



2.69%



























The Company maintained a strong liquidity position during the reporting period. As of June 30, 2012, the Company maintained cash positions at the Federal Reserve Bank (FRB) and correspondent banks in the amount of $41.2 million. The Company also held certificates of deposits with other financial institutions in the amount of $24.0 million, which the Company considers highly liquid.

The Company's available-for-sale investment portfolio is primarily utilized as a source of liquidity to fund other higher yielding asset opportunities, such as commercial and mortgage loan originations when required. Investment securities totaled $201.3 million at June 30, 2012, compared with $192.9 million at March 31, 2012. During the second quarter of 2012, the Company continued to reposition the portfolio to shorten duration while maintaining marginal yields. Specifically, during the period, the Company focused on decreasing duration in the municipal portfolio, and to a lesser extent the residential mortgage backed portfolio. In addition, principal and maturity cash flows received from mortgage backed securities were not only reinvested in additional mortgage backed securities, but also relatively short term financial institution corporate bonds, and tax exempt municipal bonds. As such, decreases in the amortized cost basis of other asset backed securities were more than offset by increases in the amortized cost basis of corporate bonds, tax exempt municipal bonds, and mortgage backed securities. During the second quarter 2012, the Company purchased forty-one securities with a weighted average yield of 3.37%, and sold twenty-six securities with a weighted yield of 2.87%. The Company will continue to seek opportunities to shorten portfolio duration in the foreseeable future in accordance to the Company's overall rate view. Pursuant to the sales activity, the Company recorded $542 thousand in realized gains on the sales of securities during the three months ended June 30, 2012.

At June 30, 2012, the Company's net unrealized gain on available-for-sale securities was $2.8 million, compared with $2.1 million net unrealized gains at March 31, 2012. The favorable change in net unrealized gains was primarily a result of favorable changes in unrealized gains relating to the municipal bond portfolio, caused by changes in market interest rates or the contraction of market spreads subsequent to the initial purchase of these bonds.

Table 4











QUARTERLY AVERAGE DEPOSITS BY CATEGORY




(Dollars in thousands)

Q2  

% of

Q2   

% of

Change     


Q1  

% of


2012

Total

2011

Total

Amount

%


2012

Total

Demand deposits

$       108,940

16%

$         92,811

14%

$      16,129

17%


$     106,617

16%

Interest bearing demand

187,288

28%

147,802

23%

39,486

27%


178,386

27%

Total checking deposits

296,228

44%

240,613

37%

55,615

23%


285,003

43%

Savings

88,869

14%

93,111

15%

(4,242)

-5%


88,888

13%

Total non-time deposits

385,097

58%

333,724

52%

51,373

15%


373,891

56%

Time deposits

282,490

42%

306,668

48%

(24,178)

-8%


288,194

44%

Total deposits

$       667,587

100%

$       640,392

100%

$      27,195

4%


$     662,085

100%











Weighted average rate on total deposits

0.90%


1.25%


-0.35%



0.96%


Second quarter 2012 average total deposits of $667.6 million increased 4% or $27.2 million from the second quarter in 2011. Non maturing core deposits increased $68.0 million or 21% year over year.  Insured Cash Sweep (ICS) deposits totaling $18.2 million as of June 30, 2012 are included in interest bearing demand.  ICS deposits are brokered money market deposit accounts which are considered non core.

Operating Results for the Second 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 despite continued 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 $2.3 million for the three months ended June 30, 2012, compared with $2.1 million for the three months ended March 31, 2012, and $1.5 million for the three months ended June 30, 2011. Net income available to common shareholders was $2.0 million for the three months ended June 30, 2012, compared with $1.9 million for the three months ended March 31, 2012, and $1.3 million for the three months ended June 30, 2011. During the second quarter of 2012, diluted earnings per share increased $0.01 per share when compared to the first quarter of 2012, and increased $0.05 per share compared to the second 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)

Q2   

Q2   

Change


Q1  

Change     


2012

2011

Amount

%


2012

Amount

%

Net interest income

$    8,711

$      8,517

$       194

2%


$   8,465

$       246

3%

Provision for loan and lease losses

1,650

2,580

(930)

-36%


1,300

350

27%

Noninterest income

7,152

3,625

3,527

97%


6,052

1,100

18%

Noninterest expense

10,661

7,854

2,807

36%


9,879

782

8%

Income before income taxes

3,552

1,708

1,844

108%


3,338

214

6%

Provision for income taxes

1,128

216

912

422%


1,102

26

2%

Net income

2,424

1,492

932

62%


2,236

188

8%

Less: Net income attributable to noncontrolling interest

172

6

166

2767%


176

(4)

-2%

Net income attributable to Bank of Commerce Holdings

2,252

1,486

766

52%


2,060

192

9%

Less: preferred dividend and accretion on preferred stock

248

235

13

6%


186

62

33%

Income available to common shareholders

$    2,004

$      1,251

$       753

60%


$   1,874

$       130

7%

Basic earnings per share

$      0.12

$        0.07

$      0.05

71%


$     0.11

$      0.01

9%

Diluted earnings per share

$      0.12

$        0.07

$      0.05

71%


$     0.11

$      0.01

9%

Cash dividends declared per share

$      0.03

$        0.03

$      0.00

0%


$     0.03

$      0.00

0%















Net interest income for the three months ended June 30, 2012 was $8.7 million, an increase of $194 thousand or 2% compared to the same period in 2011, and an increase of $246 thousand compared with the three months ended March 31, 2012. The increase in net interest income during the three months ended June 30, 2012 compared to the same period a year ago was primarily driven by decreased cost of funds resulting from the re-pricing of deposits into lower rates and a lower volume of interest bearing liabilities, 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 June 30, 2012, the ITIN portfolio with a current quarterly average balance of $63.0 million yielded 3.5% compared to a yield of 5.2% during the same period a year ago.

Table 6








NET INTEREST SPREAD AND MARGIN




(Dollars in thousands)

Q2   

Q2   

Change


Q1   

Change


2012

2011

Amount


2012

Amount

Tax equivalent yield on average interest earning assets

4.86%

4.93%

-0.07%


4.94%

-0.08%

Rate on average interest bearing liabilities

1.05%

1.20%

-0.15%


1.20%

-0.15%

Net interest spread

3.81%

3.73%

0.08%


3.74%

0.07%

Net interest margin on a tax equivalent basis

4.03%

3.97%

0.06%


3.98%

0.05%








Average earning assets

$      891,529

$      881,887

$          9,642


$    877,488

$      14,041

Average interest bearing liabilities

$      704,440

$      711,513

$       (7,073)


$    700,645

$        3,795










The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 4.03% for the three months ended June 30, 2012, an increase of 6 basis points compared to the same period a year ago. The increase in net interest margin during the three months ended June 30, 2012 compared to the same period a year ago primarily resulted from a decreased cost of funds due to the re-pricing of deposits, partially offset by lower yields in the loan portfolio. During the three months ended June 30, 2012, the tax equivalent yield on earning assets decreased from 4.93% to 4.86% or 7 basis points compared to the same period a year ago. The decrease in yield on earning assets was more than offset by a decrease in interest expense to average earning assets. Interest expense as a percent of average earning assets decreased from 0.97% to 0.83% or 14 basis points on a quarter-over-quarter basis. As a result, the Company realized a moderate widening of the net interest margin during the three months ended June 30, 2012 compared to the same period a year ago.

Noninterest income for the three months ended June 30, 2012 was $7.2 million, an increase of $3.5 million or 97% when compared to the same period a year ago. The following table presents the key components of noninterest income for the three months ended June 30, 2012 and 2011, and March 31, 2012:

Table 7










NONINTEREST INCOME





(Dollars in thousands)

Q2   

Q2   

Change


Q1   

Change


2012

2011

Amount

%


2012

Amount

%

Service charges on deposit accounts

$       50

$       52

$        (2)

-4%


$       47

$          3

6%

Payroll and benefit processing fees

118

102

16

16%


155

(37)

-24%

Earnings on cash surrender value - Bank owned life insurance

114

119

(5)

-4%


113

1

1%

Gain (loss) on investment securities, net

542

655

(113)

-17%


645

(103)

-16%

Merchant credit card service income, net

38

33

5

15%


35

3

9%

Mortgage banking revenue, net

6,144

2,550

3,594

141%


4,932

1,212

25%

Other income

146

114

32

28%


125

21

17%

Total noninterest income

$  7,152

$  3,625

$   3,527

97%


$  6,052

$   1,100

18%










Payroll and benefit processing fees increased by $16 thousand for the three months ended June 30, 2012 compared to the same period a year ago.  In September 2011, the Bank acquired eighty payroll processing customer relationships from a local payroll processing sole proprietorship. As a result of the transaction, the Company has recognized increased payroll and benefit processing fees during the current period.

Gains on the sale of investment securities decreased by $113 thousand for the three months ended June 30, 2012 compared to the same period a year ago. During the second quarter of 2012, the Company sold twenty-six securities compared to thirty-three during the same period a year ago. The sales activity during the second quarter of 2012 resulted in gross gains of $571 thousand and gross losses of $29 thousand.

Merchant credit card service income was $38 thousand and $33 thousand for the three months ended June 30, 2012 and 2011, respectively.

Mortgage banking revenue is primarily derived from net origination fees on residential mortgage loans and net revenue derived from the sale of mortgage loans to financial institutions. Net mortgage banking revenue includes gain on sale of loans, revenue from brokers, mortgage loan origination fees, and direct mortgage loan costs. Loan origination fees and broker revenue are recorded as income when the loans are sold. Mortgage banking revenue during the three months ended June 30, 2012 increased $3.6 million or 141% compared to the same period a year ago. During second quarter of 2012 the Company benefited from increased closed loan volume as a result of the historically low interest rate environment. For the three months ended June 30, 2012, closed loan volume was $283.5 million compared to $125.0 million during the same period a year ago. During the three months ended June 30, 2012 the Company recorded $8.5 million in gains on sale of mortgage loans compared to $3.0 million during the same period a year ago.

The major components of other income are fees earned on ATM, online banking services, wire transfers, and FHLB dividends. The increases in other income were primarily driven by changes of the various components, and are a result of normal operating activities.

Noninterest expense for the three months ended June 30, 2012 was $10.7 million, an increase of $2.8 million or 36% compared to the same period a year ago. The following table presents the key elements of noninterest expense for the three months ended June 30, 2012 and 2011, and March 31, 2012:

Table 8










NONINTEREST EXPENSE





(Dollars in thousands)

Q2   

Q2   

Change


Q1   

Change


2012

2011

Amount

%


2012

Amount

%

Salaries and related benefits

$  6,478

$  4,017

$  2,461

61%


$  5,982

$       496

8%

Occupancy and equipment expense

825

800

25

3%


862

(37)

-4%

Write down of other real estate owned

425

370

55

15%


0

425

100%

FDIC insurance premium

198

363

(165)

-45%


212

(14)

-7%

Data processing fees

115

91

24

26%


70

45

64%

Professional service fees

639

595

44

7%


663

(24)

-4%

Deferred compensation expense

146

131

15

11%


144

2

1%

Other expenses

1,835

1,487

348

23%


1,946

(111)

-6%

Total noninterest expense

$10,661

$  7,854

$  2,807

36%


$  9,879

$       782

8%










Salaries and related benefits expense for the three months ended June 30, 2012 was $6.5 million, an increase of $2.5 million or 61% compared to the same period a year ago. The increase in salary and related benefit expense during the second quarter compared to the same period a year ago was primarily driven by a $2.0 million increase in salaries and bonuses paid out from our mortgage subsidiary, and a $390 thousand increase in the employee cash incentive program accrued at the Bank. The increase in salaries and bonuses paid out by the mortgage subsidiary was driven by increased volume and the commensurate increase in full time equivalents.

Although there has been an easing of velocity of declining real estate values, depressed values continue to detrimentally affect our loan portfolio and have led to a continued elevated level of foreclosures on related properties and movement of the properties into OREO. Particularly impacted by the depressed real estate market are our ITIN loans, which consist of 1-4 family mortgages. At June 30, 2012, eleven 1-4 family residential properties consisting of an aggregate principal balance of $697 thousand were held in OREO. These properties are generally sold within four months from foreclosure, and generally have not had further impairment subsequent to transferring into OREO. At June 30, 2012 two commercial real estate properties consisting of an aggregate principal balance of $2.0 million were held in OREO as well. These properties carry significantly higher appraised values than 1-4 family residential properties, and have much longer disposition times. Accordingly, all of the subsequent impairment of the Company's OREO is related to the commercial properties. During the three months ended June 30, 2012, further impairment was deemed necessary for one commercial property in the amount of $425 thousand. During the same period a year ago, impairment was deemed necessary for three commercial real estate properties in the amount of $370 thousand.

The decrease in FDIC assessments during the three months ended June 30, 2012, compared to the same period a year ago resulted from improvements in the Bank's overall deposit assessment risk profile. Additional discussion on FDIC insurance assessments is provided in our most recent 10K filed on March 9, 2012, in Item 1 under the caption Federal Deposit Insurance Premiums.

Data processing fees for the three months ended June 30, 2012, increased by $24 thousand or 26% compared to the same period a year ago. The increase in data processing fees was primarily driven by activity associated with the Bank's online banking platform. Subsequent to June 30, 2011, three new products were added to the platform, resulting in additional subscription fees paid to the third party provider. In addition, customer usage of the platform has increased during the three months ended June 30, 2012 compared to the same period a year ago. Accordingly, the increase in usage has led to additional fees paid to the third party provider.

Professional service fees encompass audit, legal and consulting fees. Professional service fees for the three months ended June 30, 2012 was $639 thousand, an increase of $44 thousand or 7% compared to the same period a year ago. The increase was primarily driven by $40 thousand of expenses incurred by the Bank for the recruitment of certain banking professionals.

Other expenses for the three months ended June 30, 2012 were $1.8 million, an increase of $348 thousand or 23% compared to the same period a year ago. The increase in other expenses was primarily driven by increased overhead and marketing expenses as a result of increased volume at the mortgage subsidiary. With the historically low interest rates driving additional refinancing and originations volume, the mortgage subsidiary has incurred increased variable costs such as utilities, telephone, office supplies, meals, travel, and marketing.

Table 9



ALLOWANCE ROLL FORWARD

(Dollars in thousands)

Q2     

Q1     

Q4     

Q3     

Q2     


2012

2012

2011

2011

2011

Beginning balance

$      11,373

$      10,622

$      10,590

$      13,363

$      13,610

Provision for loan loss charged to expense

1,650

1,300

1,800

2,211

2,580

Loans charged off

(880)

(788)

(1,996)

(5,355)

(3,166)

Loan loss recoveries

354

239

228

371

339

Ending balance

$      12,497

$      11,373

$      10,622

$      10,590

$      13,363







Gross portfolio loans outstanding at period end

$    595,945

$    590,755

$    584,688

$    589,608

$    595,832







Ratio of allowance for loan losses to total loans

2.10%

1.93%

1.82%

1.80%

2.24%

Nonaccrual loans at period end:






     Commercial 

$               0

$               0

$             49

$           228

$           901

     Construction

104

105

106

1,650

1,999

     Commercial real estate

6,160

5,943

6,104

3,034

3,282

     Residential real estate

13,943

14,544

14,806

14,010

12,741

     Home equity

298

302

353

353

0

        Total nonaccrual loans

$      20,505

$      20,894

$      21,418

$      19,275

$      18,923

Accruing troubled debt restructured loans






     Commercial

$             56

$               0

$               0

$               0

$               0

     Construction

0

0

0

0

108

     Commercial real estate

12,798

14,584

14,590

16,811

17,304

     Residential real estate

2,750

2,920

2,870

3,279

6,569

     Home equity

436

401

423

426

429

        Total accruing restructured loans

$      16,040

$      17,905

$      17,883

$      20,516

$      24,410







All other accruing impaired loans

472

472

472

908

539







Total impaired loans

$      37,017

$      39,271

$      39,773

$      40,699

$      43,872







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

60.95%

54.43%

49.59%

54.94%

70.62%

Nonaccrual loans to total loans

3.44%

3.54%

3.66%

3.27%

3.18%

Allowance for loan and lease losses to impaired loans

33.76%

28.96%

26.71%

26.02%

30.46%

The ALLL totaled $12.5 million and $11.4 million at June 30, 2012 and March 31, 2012, respectively. The increase in the ALLL as of June 30, 2012 as compared to March 31, 2012 is principally attributable to provisions for loan and lease losses exceeding net charge offs for the current period. 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 overall stabilization of our existing loan portfolio.

Net charge offs were $526 thousand for the three months ended June 30, 2012, compared with net charge offs of $549 thousand for the three months ended March 31, 2012. The second quarter charge offs were centered in commercial real estate, 1-4 family residential, and home equity loans. Overall, the loan portfolio is showing some signs of stabilization, however there are lingering weaknesses where the borrower's business revenue is tied to real estate. At June 30, 2012, the loan portfolio reflects a slight decrease in total past due loans and impaired loans, compared to March 31, 2012. However, during the second quarter of 2012, there was a net migration of loans from an internal risk rating of special mention to substandard. The commercial real estate loan portfolio and commercial loan portfolio will continue to be influenced by weakness in real estate values, the effects of high unemployment levels, and general overall weakness in economic conditions. As such, management will continue to aggressively identify and dispose of problematic assets which could lead to an 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 June 30, 2012, the recorded investment in loans classified as impaired totaled $37.0 million, with a corresponding valuation allowance (included in the ALLL) of $3.7 million. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans. At March 31, 2012, the total recorded investment in impaired loans was $39.3 million, with a corresponding valuation allowance (included in the ALLL) of $2.4 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 loan rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as 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 June 30, 2012, the Company restructured five loans, two of which were restructured to grant interest rate concessions; the three remaining restructured loans were restructured in a manner that granted a combination of either interest rate, maturity, or payment deferral concessions. During the three months ended June 30, 2011, the Company restructured sixteen loans, all of which were restructured to grant interest rate concessions.

As of June 30, 2012, the Company had $29.6 million in TDRs compared to $31.2 million as of March 31, 2012.  As of June 30, 2012, the Company had one hundred and four restructured loans that qualified as TDRs, of which seventy-six were performing according to their restructured terms. TDRs represented 4.97% of gross portfolio loans as of June 30, 2012, compared with 5.29% at March 31, 2012. 

Table 10







TROUBLED DEBT RESTRUCTURINGS

(Dollars in thousands)

June 30,

March 31,

December 31,

September 30,

June 30,


2012

2012

2011

2011

2011

Nonaccrual

$          13,607

$          13,324

$          13,418

$            9,155

$            7,959

Accruing

16,040

17,904

17,883

20,516

24,410

Total troubled debt restructurings

$          29,647

$          31,228

$          31,301

$          29,671

$          32,369

Percentage of total gross portfolio loans

4.97%

5.29%

5.35%

5.03%

5.43%

Nonperforming loans, which include nonaccrual loans and accruing loans past due 90 days or more, totaled $20.6 million or 3.45% of total portfolio loans as of June 30, 2012, as compared to $20.9 million, or 3.54% of total loans at March 31, 2012. Nonperforming assets, which include nonperforming loans and foreclosed real estate, totaled $23.2 million, or 2.41% of total assets as of June 30, 2012, compared with $22.8 million, or 2.45% of total assets as of March 31, 2012.

Table 11







NONPERFORMING ASSETS

 (Dollars in thousands)

June 30,

March 31,

December 31,

September 30,

June 30,


2012

2012

2011

2011

2011







Commercial

$                    0

$                    0

$                  49

$                228

$                901

Real estate construction






     Commercial real estate construction

0

0

0

1,543

1,973

     Residential real estate construction

104

105

106

107

26

Total real estate construction

104

105

106

1,650

1,999

Real estate mortgage






     1-4 family, closed end 1st lien

4,114

4,378

4,474

4,205

3,002

     1-4 family revolving

298

302

353

353

0

     ITIN 1-4 family loan pool

9,829

10,166

10,332

9,805

9,739

Total real estate mortgage

14,241

14,846

15,159

14,363

12,741

Commercial real estate

6,160

5,943

6,104

3,034

3,282

Total nonaccrual loans

20,505

20,894

21,418

19,275

18,923

90 days past due and still accruing

65

0

95

373

953

     Total nonperforming loans

20,570

20,894

21,513

19,648

19,876







Other real estate owned

2,647

1,913

3,731

1,665

1,793

Total nonperforming assets

$           23,217

$           22,807

$           25,244

$           21,313

$           21,669







Nonperforming loans to total loans

3.45%

3.54%

3.68%

3.33%

3.34%

Nonperforming assets to total assets

2.41%

2.45%

2.68%

2.30%

2.49%

As of June 30, 2012, nonperforming assets of $23.2 million have been written down by 34%, or $7.8 million, from their original balance of $33.2 million.

Table 12







OTHER REAL ESTATE OWNED ACTIVITY

(Dollars in thousands)

Q2   

Q1   

Q4   

Q3   

Q2   


2012

2012

2011

2011

2011

Beginning balance

$               1,913

$               3,731

$               1,665

$               1,793

$               3,868

     Additions to OREO

1,817

134

2,399

129

407

     Dispositions of OREO

(658)

(1,952)

(333)

(257)

(2,112)

     OREO valuation adjustment

(425)

0

0

0

(370)

Ending balance

$               2,647

$               1,913

$               3,731

$               1,665

$               1,793







At June 30, 2012, the recorded investment in OREO was $2.6 million compared to $1.9 million at March 31, 2012. For the three months ended June 30, 2012, the Company transferred foreclosed property from eleven loans in the amount of $2.2 million to OREO and adjusted the balances through charges to the ALLL in the amount of $394 thousand relating to the transferred foreclosed property. During this period, the Company sold nine properties with balances of $658 thousand for a net loss of $170 thousand. The June 30, 2012 OREO balance consists of thirteen properties, of which eleven are secured with 1-4 family residential real estate in the amount of $697 thousand. The remaining two properties consist of improved commercial land in the amount of $750 thousand, and a commercial building in the amount of $1.2 million.  During the three months ended June 30, 2012, further impairment was deemed necessary for the improved commercial land property in the amount of $425 thousand. During the same period a year ago, impairment was deemed necessary for three commercial real estate properties in the amount of $370 thousand.

The following table presents an income statement summary for the periods indicated below.

Table 13









INCOME STATEMENT

(Amounts in thousands, except for per share data)

Q2     

Q2     

Change     

Q1     

Full Year

Full Year


2012

2011

$

%

2012

2011

2010

Interest income:








   Interest and fees on loans

$    8,777

$    8,958

$    (181)

-2%

$    8,867

$  36,138

$  38,034

   Interest on tax-exempt securities

585

478

107

22%

580

2,014

1,692

   Interest on U.S. government securities

408

633

(225)

-36%

391

2,123

2,083

   Interest on other securities

794

577

217

38%

732

2,410

1,616

          Total interest income

10,564

10,646

(82)

-1%

10,570

42,685

43,425

Interest expense:








   Interest on demand deposits

153

204

(51)

-25%

157

787

968

   Interest on savings deposits

105

229

(124)

-54%

116

792

921

   Interest on certificates of deposit

1,005

1,272

(267)

-21%

1,065

4,912

6,151

   Interest on securities sold under repurchase agreements

7

13

(6)

-46%

6

43

52

   Interest on FHLB borrowings

(47)

148

(195)

-132%

150

579

626

   Interest on other borrowings

630

263

367

140%

611

1,485

1,684

          Total interest expense

1,853

2,129

(276)

-13%

2,105

8,598

10,402

          Net interest income

8,711

8,517

194

2%

8,465

34,087

33,023

Provision for loan and lease losses

1,650

2,580

(930)

-36%

1,300

8,991

12,850

  Net interest income after provision for loan and lease losses

7,061

5,937

1,124

19%

7,165

25,096

20,173









Noninterest income:








   Service charges on deposit accounts

50

52

(2)

-4%

47

192

260

   Payroll and benefit processing fees

118

102

16

16%

155

458

448

   Earnings on cash surrender value – Bank owned life insurance

114

119

(5)

-4%

113

465

438

   Gain (loss) on investment securities, net

542

655

(113)

-17%

645

1,550

1,981

   Gain on settlement of put reserve

0

0

0

0%

0

0

1,750

   Merchant credit card service income, net

38

33

5

15%

35

376

235

   Mortgage banking revenue, net

6,144

2,550

3,594

141%

4,932

14,255

14,328

   Other income

146

114

32

28%

125

474

351

          Total noninterest income

7,152

3,625

3,527

97%

6,052

17,770

19,791

Noninterest expense:








   Salaries and related benefits

6,478

4,017

2,461

61%

5,982

18,789

15,700

   Occupancy and equipment expense

825

800

25

3%

862

2,971

3,660

   Write down of other real estate owned

425

370

55

15%

0

557

1,571

   FDIC insurance premium

198

363

(165)

-45%

212

1,319

1,016

   Data processing fees

115

91

24

26%

70

389

270

   Professional service fees

639

595

44

7%

663

2,268

1,726

   Deferred compensation expense

146

131

15

11%

144

533

493

   Goodwill impairment

0

0

0

0%

0

0

32

   Other expenses

1,835

1,487

348

23%

1,946

5,400

5,863

          Total noninterest expense

10,661

7,854

2,807

36%

9,879

32,226

30,331

Income before provision (benefit) for income taxes

3,552

1,708

1,844

108%

3,338

10,640

9,633

   Provision (benefit) for income taxes

1,128

216

912

422%

1,102

2,836

3,159

Net Income

2,424

1,492

932

62%

2,236

7,804

6,474

   Less: Net income attributable to noncontrolling interest

172

6

166

2767%

176

549

254

Net income attributable to Bank of Commerce Holdings

$    2,252

$    1,486

$       766

52%

$    2,060

$    7,255

$    6,220

Less: Preferred dividend and accretion on preferred stock

248

235

13

6%

186

943

940

         Income available to common shareholders

$    2,004

$    1,251

$       753

60%

$    1,874

$    6,312

$    5,280

Basic earnings per share

$      0.12

$      0.07

$      0.05


$      0.11

$      0.37

$      0.35

Weighted average shares - basic

16,302

16,991

(689)


16,805

16,991

14,951

Diluted earnings per share

$      0.12

$      0.07

$      0.05


$      0.11

$      0.37

$      0.35

Weighted average shares - diluted

16,302

16,991

(689)


16,805

16,991

14,951






















Table 14



BALANCE SHEET

(Dollars in thousands)

June 30,

June 30,

Change

March 31,

ASSETS

2012

2011

$

%

2012

Cash and due from banks

$          41,221

$          19,091

$      22,130

116%

$          40,564

Interest bearing due from banks

24,035

29,225

(5,190)

-18%

24,165

      Total cash and cash equivalents

65,256

48,316

16,940

35%

64,729

Securities available-for-sale, at fair value

201,348

162,184

39,164

24%

192,880

Portfolio loans

596,105

595,781

324

0%

590,784

Allowance for loan losses

(12,497)

(13,363)

866

-6%

(11,373)

      Net loans

583,608

582,418

1,190

0%

579,411

Mortgage loans held for sale

62,544

26,067

36,477

140%

45,467

Total interest earning assets

925,253

832,348

92,905

11%

893,860

Bank premises and equipment, net

10,328

9,691

637

7%

9,965

Goodwill and other intangibles

3,808

3,695

113

3%

3,820

Other real estate owned

2,647

1,793

854

48%

1,913

Other assets

33,006

34,358

(1,352)

-4%

32,399

TOTAL ASSETS

$        962,545

$        868,522

$      94,023

11%

$        930,584







LIABILITIES AND STOCKHOLDERS' EQUITY






Demand – noninterest bearing

$        117,649

$          87,643

$      30,006

34%

$        101,436

Demand – interest bearing

207,307

149,917

57,390

38%

178,332

Savings accounts

89,405

93,698

(4,293)

-5%

90,834

Certificates of deposit

268,102

294,173

(26,071)

-9%

293,137

      Total deposits

682,463

625,431

57,032

9%

663,739

Securities sold under agreements to repurchase

14,378

15,353

(975)

-6%

13,478

Federal Home Loan Bank borrowings

100,000

91,000

9,000

10%

110,000

Mortgage warehouse line of credit

22,110

4,236

17,874

422%

217

Junior subordinated debentures

15,465

15,465

0

0%

15,465

Other liabilities

14,538

8,843

5,694

64%

14,105

      Total Liabilities

848,954

760,328

88,625

12%

817,004







Total Equity – Bank of Commerce Holdings

110,115

105,633

4,482

4%

110,276

Noncontrolling interest in subsidiary

3,476

2,561

916

36%

3,304

      Total Stockholders' Equity

113,591

108,194

5,398

5%

113,580







TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$        962,545

$        868,522

$      94,023

11%

$        930,584




Table 15





AVERAGE BALANCE SHEET (Year to Date)

(Dollars in thousands)

June 30,

June 30,

December 31,

December 31,

December 31,


2012

2011

2011

2010

2009

Earning assets:






  Loans

$          649,998

$         626,685

$         634,949

$       640,213

$        589,336

  Tax exempt securities

66,043

50,899

52,467

42,172

28,384

  US government securities

0

29,480

19,182

27,423

8,606

  Mortgage backed securities

64,408

73,500

67,052

48,972

53,722

  Other securities

67,664

42,256

44,664

15,702

17,313

  Interest bearing due from banks

51,166

69,205

64,399

70,911

50,790

  Fed funds sold

0

0

0

995

13,438

     Average earning assets

899,279

892,025

882,713

846,388

761,589







Cash and DFB

9,467

1,985

2,251

1,781

3,638

Bank premises

9,465

9,576

9,489

9,814

10,322

Other assets

26,850

21,114

25,116

48,116

28,662

     Average total assets

$          945,061

$         924,700

$         919,569

$       906,099

$        804,211







Interest bearing liabilities:






  Demand - interest bearing

$          183,078

$         148,473

$         157,696

$       141,983

$        145,542

  Savings deposits

88,879

90,714

91,876

76,718

62,846

  CDs

282,904

307,094

296,034

321,051

317,417

  Repurchase agreements

13,685

14,224

14,805

12,274

11,006

  Other borrowings

136,208

156,756

139,331

134,255

122,057


704,754

717,261

699,742

686,281

658,868

Demand - noninterest bearing

107,410

95,641

100,722

92,433

69,250

Other liabilities

21,944

5,617

10,997

31,748

9,467

Shareholders' equity

110,953

106,181

108,108

95,637

66,626

     Average liabilities & equity

$          945,061

$         924,700

$         919,569

$       906,099

$        804,211

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 (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, Oregon 97204 (866) 662-0351

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

SOURCE Bank of Commerce Holdings



RELATED LINKS
http://reddingbankofcommerce.com

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