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%