Bank of Commerce Holdings™ announces Third Quarter Results

REDDING, Calif., Oct. 31, 2013 /PRNewswire/ -- Patrick J. Moty, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ: BOCH), a $931.8 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 $1.8 million and diluted earnings per share (EPS) from continuing operations of $0.12 for the quarter ended September 30, 2013.

Financial highlights:

  • Net income available to common shareholders of $1.8 million compared to $1.5 million reported for the third quarter of 2012, and $2.0 million recorded for the second quarter of 2013.
  • Diluted EPS attributable to continuing operations of $0.12 compared to $0.12 reported for the third quarter of 2012 and $0.13 for the second quarter of 2013.  Diluted EPS attributable to discontinued operations of $0.00 compared to $(0.03) reported for the third quarter of 2012 and $0.00 for the prior quarter ended June 30, 2013.
  • Loan loss provisions for the third quarter were $300 thousand compared to $1.9 million for the third quarter of 2012, and $1.4 million for the prior quarter ended June 30, 2013.
  • Nonperforming assets represent 3.95% of total assets in the current period versus 3.03% for the third quarter of 2012 and 3.92% for the prior quarter ended June 30, 2013.

Patrick J. Moty, President and CEO commented:  "I am very pleased to report that year to date net income is up 6.5% over the same nine month period of 2012. Our core deposits continue to grow and increased by 10% over the same period. In September we also declared a special cash dividend of $0.02 per share in addition to our regular quarterly cash dividend."

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
  • A decline in the health of the economy 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 deterioration 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, 2012 and under the heading: "Risk Factors" 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 September 30, 2013 and 2012, and June 30, 2013.

Table 1








SUMMARY FINANCIAL INFORMATION


















 (Shares and dollars in thousands)

Quarter ended

Quarter ended



Quarter ended



September 30, 2013

September 30, 2012

Change


June 30, 2013

Change

Selective quarterly performance ratios







Return on average assets, annualized

0.76%

0.72%

0.04%


0.84%

-0.08%

Return on average equity, annualized

6.89%

6.15%

0.74%


7.40%

-0.51%

Efficiency ratio for quarter to date

62.69%

52.06%

10.63%


55.29%

7.40%








Share and Per Share figures – Actual







Common shares outstanding at period end

14,462

16,121

(1,659)


14,990

(528)

Weighted average diluted shares

14,853

16,240

(1,387)


15,139

(286)

Diluted EPS attributable to continuing operations

$                        0.12

$                       0.12

$      0.00


$                        0.13

$   (0.01)

Diluted EPS attributable to discontinued operations

$                        0.00

$                      (0.03)

$      0.03


$                        0.00

$    0.00

Book value per common share

$                        5.73

$                       5.67

$      0.06


$                        5.80

$   (0.07)

Tangible book value per common share

$                        5.73

$                       5.67

$      0.06


$                        5.80

$   (0.07)








Capital Ratios








September 30, 2013

September 30, 2012

Change


June 30, 2013

Change

Bank of Commerce Holdings







Tier 1 risk based capital ratio

15.66%

14.67%

0.73%


14.27%

1.13%

Total risk based capital ratio

16.92%

15.92%

0.74%


15.53%

1.13%

Leverage ratio

12.80%

13.21%

-0.41%


13.02%

-0.22%








Redding Bank of Commerce







Tier 1 risk based capital ratio

15.19%

14.11%

0.86%


14.68%

0.29%

Total risk based capital ratio

16.45%

15.36%

0.86%


15.93%

0.29%

Leverage ratio

12.42%

12.71%

-0.27%


12.66%

-0.22%

















Bank of Commerce Holdings (the "Company") remains well capitalized. At September 30, 2013, the Company's Tier 1 and Total risk based capital ratios measured 15.66% and 16.92% respectively, while the leverage ratio was 12.80%.

Return on average assets (ROA) and return on average equity (ROE) for the current quarter was 0.76% and 6.89%, respectively, compared with 0.72% and 6.15%, respectively, for the same period a year ago. The increase in ROA and ROE during the current quarter compared to the same period a year ago is primarily attributed to the following:

  • Loss from discontinued operations decreased during the three months ended September 30, 2013; the Company realized $0 in income from discontinued operations compared to a loss of $507 thousand in the three months ended September 30, 2012.
  • The provision for loan losses for the three months ended September 30, 2013 decreased by $1.6 million compared to the same period a year ago.

The increase in ROE is also attributed to the decrease in the weighted average number of dilutive common shares outstanding. During 2013 the Company repurchased 1,513,668 common shares through two separate repurchase plans resulting in a decrease in the weighted average shares outstanding of 1,135,519. All shares were retired subsequent to purchase.

The increase in the efficiency ratio compared to the prior quarter and same period a year ago is due to increases in other expenses primarily driven by the loss recognized from the termination of the forward starting interest rate swap of $503 thousand and a loss of $176 thousand related to the purchase of the remaining outstanding balance of an impaired participated commercial real estate credit.

Balance Sheet Overview

As of September 30, 2013, the Company had total consolidated assets of $931.8 million, total net portfolio loans of $581.3 million, allowance for loan and lease losses of $13.5 million, total deposits of $725.5 million, and stockholders' equity of $102.8 million.

Overall, the net portfolio loan balance decreased during the third quarter of 2013 compared to the same period a year ago. The Company recorded net portfolio loans of $581.3 million at September 30, 2013, compared with $594.1 million at September 30, 2012, a decrease of $12.8 million, or 2.15%. The decrease in net portfolio loans was primarily driven by the pay off of a $7.2 million commercial real estate loan.


 

Table 2










PERIOD END LOANS



(Dollars in thousands)

September 30,

% of

September 30,

% of

Change

June 30,

% of


2013

Total

2012

Total

Amount

%

2013

Total










Commercial

$        169,193

28%

$        165,915

27%

$    3,278

2%

$        197,084

31%

Real estate – construction loans

15,625

3%

21,346

4%

(5,721)

-27%

15,875

3%

Real estate – commercial (investor)

208,530

35%

215,836

36%

(7,306)

-3%

201,896

33%

Real estate – commercial (owner occupied)

80,101

13%

74,667

12%

5,434

7%

78,478

13%

Real estate – ITIN loans

57,232

10%

61,020

10%

(3,788)

-6%

58,271

9%

Real estate – mortgage

15,872

3%

17,062

3%

(1,190)

-7%

17,738

3%

Real estate – equity lines

43,989

7%

44,041

7%

(52)

0%

44,285

7%

Consumer

3,753

1%

4,530

1%

(777)

-17%

3,581

1%

Other loans

267

0%

62

0%

205

331%

190

0%

     Gross portfolio loans

594,562

100%

604,479

100%

(9,917)

-2%

617,398

100%










Less:









Deferred loan fees, net

(282)


(216)


(66)

31%

(335)


Allowance for loan and lease losses

13,542


10,560


2,982

28%

13,133


     Net portfolio loans

$        581,302


$        594,135


$ (12,833)

-2%

$        604,600











Yield on loans

4.84%


5.23%


-0.39%


4.80%
















 

Table 3











PERIOD END CASH EQUIVALENTS AND INVESTMENT SECURITIES




(Dollars in thousands)

September 30,

% of

September 30,

% of

Change


June 30,

% of


2013

Total

2012

Total

Amount

%


2013

Total

Cash equivalents:










Cash and due from banks

$          28,616

10%

$            40,541

14%

$       (11,925)

-29%


$            22,426

7%

Interest bearing due from banks

20,379

7%

23,893

9%

(3,514)

-15%


20,810

7%


48,995

17%

64,434

23%

(15,439)

-24%


43,236

14%

Investment Securities-AFS:










U.S. government and agencies

3,718

1%

0

0%

3,718

100%


886

0%

Obligations of state and political subdivisions

61,492

20%

68,019

24%

(6,527)

-10%


68,652

23%

Mortgage backed securities

57,934

20%

54,353

20%

3,581

7%


53,538

18%

Corporate securities

52,552

18%

49,747

18%

2,805

6%


66,924

23%

Other asset backed securities

33,946

12%

22,809

8%

11,137

49%


28,495

10%


209,642

71%

194,928

70%

14,714

8%


218,495

74%











Investment Securities-HTM:










Obligations of state and political subdivisions

34,814

12%

18,808

7%

16,006

85%


34,843

12%











Total cash equivalents and investment securities

$        293,451

100%

$          278,170

100%

$          15,281

5%


$          296,574

100%











Yield on cash equivalents and investment securities

2.50%


2.78%


-0.28%



2.51%



























The Company continued to maintain a strong liquidity position during the reporting period. As of September 30, 2013, the Company maintained cash positions at the FRB and correspondent banks in the amount of $28.6 million. The Company also held certificates of deposits with other financial institutions in the amount of $20.4 million, which the Company considers liquid.

The Company's available-for-sale investment portfolio is currently being utilized as a secondary source of liquidity to fund other higher yielding asset opportunities, such as commercial and commercial real estate loan originations when required. Available-for-sale investment securities totaled $209.6 million at September 30, 2013, compared with $218.5 million at June 30, 2013. During the three months ended September 30, 2013 the Company's securities purchases were centered in asset and mortgage backed securities.

The purchases of asset backed securities were characterized as short to moderate in duration, both fixed and floating, with the bonds reflecting solid performance relative to their respective collateral profile and supporting credit enhancements. The mortgage backed securities purchased during the period were centered on moderate duration bonds with relatively solid cash flows and yield.  Overall, management's investment strategy reflects the continuing expectation of rising rates across the yield curve. As such, management will continue to actively seek out opportunities to reduce the duration of the portfolio and improve cash flows. Given the current shape of the yield curve, this strategy could entail absorbing low to moderate losses within the portfolio to meet this longer term objective.

During the third quarter of 2013, the Company purchased twenty-five securities with a weighted average yield of 2.91%, and sold thirty-one securities with a weighted average yield of 2.46%. The sales activity resulted in $336 thousand net realized gains.

At September 30, 2013, the Company's net unrealized losses on available-for-sale securities were $4.3 million compared with $692 thousand net unrealized losses at June 30, 2013. The unfavorable change in net unrealized losses was primarily due to decreases in the fair values of the Company's municipal bond and mortgaged backed security portfolios. The decreases in the fair values of these securities were primarily driven by changes in market interest rates and or widening of market spreads.

Table 4











QUARTERLY AVERAGE DEPOSITS BY CATEGORY




(Dollars in thousands)

Q3

% of

Q3

% of

Change


Q2

% of


2013

Total

2012

Total

Amount

%


2013

Total

Demand deposits

$       125,133

18%

$       120,821

18%

$        4,312

4%


$     112,825

16%

Interest bearing demand

246,236

35%

213,217

31%

33,019

15%


237,113

35%

Total checking deposits

371,369

53%

334,038

49%

37,331

11%


349,938

51%

Savings

94,062

13%

90,856

13%

3,206

4%


92,266

13%

Total non-time deposits

465,431

66%

424,894

62%

40,537

10%


442,204

64%

Time deposits

241,947

34%

264,244

38%

(22,297)

-8%


247,565

36%

Total deposits

$       707,378

100%

$       689,138

100%

$      18,240

3%


$     689,769

100%











Weighted average rate on total deposits

0.56%


0.78%


-0.22%



0.57%


During the third quarter of 2013 average total deposits increased 3% or $18.2 million to $707.4 million compared to the third quarter in 2012. Non maturing core deposits increased $33.2 million or 8% year over year.  Insured Cash Sweep (ICS) deposits totaling $37.9 million as of September 30, 2013 are included in interest bearing demand. The ICS deposits are locally generated funds but considered noncore for regulatory purposes. Management considers these deposits as stable in nature.

Operating Results for the Third Quarter of 2013

Net income from continuing operations was $1.8 million for the three months ended September 30, 2013 compared with $2.2 million for the same period a year ago.  The decrease in net income from continuing operations was primarily due to an increase in the provision for income tax for the third quarter of 2013 which included the correction of an under-accrual of taxes that resulted from incorrectly accounting for the book tax timing differences relating to the sale of the Company's former mortgage subsidiary. As a result, the Company recognized additional income tax, interest and penalties expense totaling $429 thousand, relating to 2012 tax year. Interest and/or penalties related to income taxes are reported as a component of income tax expense. Net income attributable to Bank of Commerce Holdings remained relatively consistent with amounts reported for the same period a year ago as a result of decreased losses reported from discontinued operations.

Net income available to common shareholders was $1.8 million for the three months ended September 30, 2013, compared with $1.5 million for the same period a year ago. Net income available to common shareholders increased during three months ended September 30, 2013 compared with the same period a year ago due to a $200 thousand decrease in preferred stock dividends payable to the U.S. Treasury pursuant to the SBLF program as a result of increased qualified lending. 

Diluted earnings per share (EPS) from continuing operations and discontinued operations were $0.12 and $0.00 for the three months ended September 30, 2013 compared with $0.12 and $(0.03) for the same period a year ago, respectively. EPS attributable to continuing operations remained flat for the three months ending September 30, 2013 compared to the same period a year ago due to a combination of the decrease preferred stock dividends and decreased weighted average shares. The decrease in weighted average shares directly resulted from the repurchase of 1,513,668 common shares through two separate repurchase plans announced in 2013. All shares were retired subsequent to purchase. As such, the weighted average number of dilutive common shares outstanding decreased by 1,113,673 during the nine months ended September 30, 2013.

The Company declared cash dividends of $0.03 per share for the third quarter of 2013, consistent with the quarterly dividends paid in the first and second quarters of 2013 and 2012.  The Company also declared a special cash dividend of $0.02 per share for the third quarter of 2013.

Table 5










SUMMARY INCOME STATEMENT





(Dollars in thousands)

Q3

Q3

Change


Q2

Change


2013

2012

Amount

%


2013

Amount

%

Net interest income

$    8,496

$      9,115

$    (619)

-7%


$   8,286

$       210

3%

Provision for loan and lease losses

300

1,900

(1,600)

-84%


1,400

(1,100)

-79%

Noninterest income

974

1,419

(445)

-31%


1,025

(51)

-5%

Noninterest expense

5,937

5,484

453

8%


5,148

789

15%

Income from continuing operations before income taxes

3,233

3,150

83

3%


2,763

470

17%

Provision for income tax

1,431

923

508

55%


757

674

89%

Net income from continuing operations

$    1,802

$      2,227

$    (425)

-19%


$   2,006

$    (204)

-10%

Discontinued Operations:









Income (loss) from discontinued operations

$           0

$      (746)

$       746

100%


$          0

$           0

0%

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

0

(239)

239

100%


0

0

0%

Net income (loss) from discontinued operations

0

(507)

507

100%


0

0

0%

Net income attributable to Bank of Commerce Holdings

1,802

1,720

82

5%


2,006

(204)

-10%

Less: preferred dividend and accretion on preferred stock

50

250

(200)

-80%


50

0

0%

Income available to common shareholders

$    1,752

$      1,470

$       282

19%


$   1,956

$    (204)

-10%

   Basic EPS attributable to continuing operations

$      0.12

$        0.12

$      0.00

0%


$     0.13

$   (0.01)

-8%

   Basic EPS attributable to discontinued operations

$      0.00

$     (0.03)

$      0.03

100%


$     0.00

$      0.00

0%

   Average basic shares

14,829

16,240

(1,411)

-9%


15,120

(291)

-2%

   Diluted EPS attributable to continuing operations

$      0.12

$        0.12

$      0.00

0%


$     0.13

$   (0.01)

-8%

   Diluted EPS attributable to discontinued operations

$      0.00

$     (0.03)

$      0.03

100%


$     0.00

$      0.00

0%

   Average diluted shares

14,853

16,240

(1,387)

-9%


15,139

(286)

-2%















Net interest income is the largest source of our operating income. Net interest income for the three months ended September 30, 2013 was $8.5 million compared to $9.1 million during the same period a year ago.

Interest income for the three months ended September 30, 2013 was $9.3 million, a decrease of $1.0 million or 10% compared to the same period a year ago. The decrease in interest income during the second quarter of 2013 compared to the same period a year ago was primarily driven by decreased yields in the loan portfolio and the investment securities portfolio, partially offset by increased investment securities volume. The decrease in loan portfolio yield was primarily driven by net increases in nonaccruing commercial and commercial real estate loans compared to the same period a year ago. Average nonaccruing loans at September 30, 2013 increased $10.2 million compared to the same period a year ago. As a result, during the three months ended September 30, 2013, loan interest income decreased $975 thousand or 12% compared to the same period a year ago.

Interest income recognized from the investment securities portfolio decreased $45 thousand during the three months ended September 30, 2013 compared to the same period a year ago. The decrease in investment securities interest income was primarily attributable to decreased yields partially offset by increased volume. Average quarterly securities balances and weighted average tax equivalent yields at September 30, 2013 and 2012 were $249.0 million and 3.25% compared to $211.0 million and 3.84%, respectively.

Interest expense for the current quarter was $825 thousand, a decrease of $401 thousand or 33% compared to the same period a year ago. During the current quarter of 2013, the Company continued to benefit from the re-pricing of deposits, and significantly lower FHLB borrowings expense.

Table 6








NET INTEREST SPREAD AND MARGIN




(Dollars in thousands)

Q3

Q3

Change


Q2

Change


2013

2012

Amount


2013

Amount

Tax equivalent yield on average interest earning assets

4.26%

4.68%

-0.42%


4.19%

0.07%

Rate on average interest bearing liabilities

0.47%

0.69%

-0.22%


0.49%

-0.02%

Net interest spread

3.79%

3.99%

-0.20%


3.70%

0.09%

Net interest margin on a tax equivalent basis

3.90%

4.14%

-0.24%


3.80%

0.10%








Average earning assets

$      904,022

$      907,675

$       (3,653)


$      904,640

$        (618)

Average interest bearing liabilities

$      709,096

$      708,163

$             933


$      720,681

$   (11,585)










The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.90% for the three months ended September 30, 2013, a decrease of 24 basis points ("bp") as compared to the same period a year ago. The decrease in net interest margin primarily resulted from a 46 bp decline in yield on average earning assets, partially offset by a 22 bp decrease in interest expense to average earning assets. With decreasing elasticity in managing our funding costs and historically low interest rates, maintaining our net interest margin 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 September 30, 2013 was $974 thousand, a decrease of $445 thousand or 31% when compared to the same period a year ago. The following table presents the key components of noninterest income for the three months ended September 30, 2013 and 2012, and June 30, 2013:

Table 7










NONINTEREST INCOME





(Dollars in thousands)

Q3

Q3

Change


Q2

Change


2013

2012

Amount

%


2013

Amount

%

Service charges on deposit accounts

$       46

$       49

$        (3)

-6%


$       54

$        (8)

-15%

Payroll and benefit processing fees

113

122

(9)

-7%


114

(1)

-1%

Earnings on cash surrender value - Bank owned life insurance

133

114

19

17%


112

21

19%

Gain (loss) on investment securities, net

336

550

(214)

-39%


406

(70)

-17%

Merchant credit card service income, net

33

39

(6)

-15%


32

1

3%

Other income

313

545

(232)

-43%


307

6

2%

Total noninterest income

$     974

$  1,419

$    (445)

-31%


$  1,025

$      (51)

-5%










Gains on the sale of investment securities decreased $214 thousand to $336 thousand for the three months ended September 30, 2013, compared to $550 thousand for the same period a year ago. During the three months ended September 30, 2013, the Company purchased twenty-five securities with weighted average yields of 2.91%. During the same period the Company sold thirty-one securities with weighted average yields of 2.46%. Generally, securities purchased had relatively short durations with good credit quality.

The major components of other income are fees earned on ATM transactions, mortgage fee income, online banking services, wire transfers, and FHLB dividends. The decrease in other income in the current year is primarily driven by a $240 thousand litigation settlement with a servicer of purchased pool loans included in the 2012 other income, partially offset by a $23 thousand increase in the FHLB dividends recorded during the three months ending September 30, 2013 compared to the same period a year ago. Changes in the components of other income are a result of normal operating activities.

Noninterest expense for the three months ended September 30, 2013 was $5.9 million, an increase of $453 thousand or 8% compared to the same period a year ago. The following table presents the key elements of noninterest expense for the three months ended September 30, 2013 and 2012, and June 30, 2013:

Table 8










NONINTEREST EXPENSE





(Dollars in thousands)

Q3

Q3

Change


Q2

Change


2013

2012

Amount

%


2013

Amount

%

Salaries and related benefits

$  2,865

$  2,732

$     133

5%


$  3,074

$    (209)

-7%

Occupancy and equipment expense

549

508

41

8%


529

20

4%

FDIC insurance premium

202

202

0

0%


245

(43)

-18%

Data processing fees

127

94

33

35%


136

(9)

-7%

Professional service fees

364

255

109

43%


294

70

24%

Deferred compensation expense

58

150

(92)

-61%


0

58

0%

Other expenses

1,772

1,543

229

15%


870

902

104%

Total noninterest expense

$  5,937

$  5,484

$     453

8%


$  5,148

$       789

15%










The decrease in FDIC assessments of $43 thousand or 18% compared to the prior quarter resulted from true-up adjustments to reverse prior period over accruals and a decrease in the overall assessment rate.

Data processing expense for the three months ended September 30, 2013 was $127 thousand, an increase of $33 thousand or 35% compared to the same period a year ago. The increases in data processing expense compared to the same periods a year ago is primarily driven by increases in software maintenance and licensing expenses. The Bank continues to strive to make improvements in network infrastructure and systems, and expects to see continued increased costs in these expenses for the foreseeable future.

Professional service fees encompass audit, legal and consulting fees. Professional service fees for the three months ended September 30, 2013 was $364 thousand, an increase of $109 thousand or 43% compared to the same period a year ago. The increase in professional fees was primarily driven by increased fees and usage of external audit and professional services.

Deferred compensation expense for the three months ended September 30, 2013 was $58 thousand, a decrease of $92 thousand compared to the same period a year ago. During the second quarter of 2013, the Company revised the Supplemental Executive Retirement Plan (SERP) resulting in a reversal of current year and prior years accrued deferred compensation expenses of $357 thousand. For disclosure purposes, in the table above and in the Company's Consolidated Statement of Operations, the current year credit balance in deferred compensation expense is netted in the line item other expenses.

Other expenses for the three months ended September 30, 2013 were $1.8 million, an increase of $229 thousand or 15% compared to the same period a year ago. The increase in other expenses was primarily driven by the loss recognized from the termination of an interest rate hedge using a forward starting interest rate swap of $503 thousand partially offset by a decrease in losses on sale of OREO of $196 thousand. In addition to the loss recognized on the forward starting interest rate swap hedge, the increase in other expenses over the prior quarter of $902 thousand was primarily driven by a FHLB prepayment penalty of $194 thousand and a loss of $176 thousand related to the purchase of the remaining outstanding balance of an impaired participated commercial real estate credit.

Table 9



ALLOWANCE ROLL FORWARD

(Dollars in thousands)

Q3

Q2

Q1

Q4

Q3


2013

2013

2013

2012

2012

Beginning balance

$      13,133

$      11,350

$      11,103

$      10,560

$      12,497

Provision for loan loss charged to expense

300

1,400

1,050

4,550

1,900

Loans charged off

(635)

(474)

(845)

(4,183)

(4,011)

Loan loss recoveries

744

857

42

176

174

Ending balance

$      13,542

$      13,133

$      11,350

$      11,103

$      10,560







Gross portfolio loans outstanding at period end

$    594,562

$    617,398

$    612,608

$    664,051

$    604,479







Ratio of allowance for loan losses to total loans

2.28%

2.13%

1.85%

1.67%

1.75%

Nonaccrual loans at period end:






     Commercial 

$        7,501

$        7,898

$        3,420

$        2,935

$        3,330

     Construction

0

0

0

0

77

     Commercial real estate

16,895

16,614

23,363

24,008

10,393

     Residential real estate

10,953

11,165

11,302

11,630

11,733

     Home equity

517

345

0

0

95

        Total nonaccrual loans

$      35,866

$      36,022

$      38,085

$      38,573

$      25,628

Accruing troubled debt restructured loans






     Commercial

$             65

$             68

$             70

$           523

$             72

     Commercial real estate

1,742

1,748

4,593

4,598

9,790

     Residential real estate

2,996

3,174

2,954

2,934

3,117

     Home equity

604

531

536

561

501

        Total accruing restructured loans

$        5,407

$        5,521

$        8,153

$        8,616

$      13,480







All other accruing impaired loans

4,190

4,445

1,426

471

7,281







Total impaired loans

$      45,463

$      45,988

$      47,664

$      47,660

$      46,389







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

37.76%

36.46%

29.80%

28.78%

41.20%

Nonaccrual loans to total loans

6.03%

5.83%

6.22%

5.81%

4.24%

Allowance for loan and lease losses to impaired loans

29.79%

28.56%

23.81%

23.30%

22.76%

During October of 2013 the Company received full principal payment on an impaired commercial real estate loan that had a carrying amount of $2.1 million. As a result, the Company recovered $1.3 million in previously charged off principal, and interest of $53 thousand. The Company considers this transaction to be a subsequent event, which decreased the Company's recorded investment in impaired loans compared to amounts reported as of September 30, 2013.

The ALLL allocation increased compared to amounts reported as of December 31, 2012.  The ALLL at September 30, 2013 totaled $13.5 million compared to $13.1 million at June 30, 2013.

During the three months ended September 30, 2013, the provisions for loan losses exceeded charge offs for the same period. During the three months ended September 30, 2013 the Company realized net recoveries of $109 thousand compared to net recoveries of $383 thousand in the three months ended June 30, 2013, and net charge offs of $3.8 million the three months ended September 30, 2012. There were a number of factors that contributed to the decrease in net charge offs in the quarter ended September 30, 2013 over the same period a year ago, including, less impairment charges on both existing impaired loans, newly classified impaired loans, and higher recovery rates on previously charged off loans. 

The Company continues to monitor credit quality, and adjust the ALLL accordingly. As such, the Company provided $300 thousand in provisions for loan losses during the third quarter of 2013, compared with $1.9 million during the same period a year ago.  The decrease in current period provision is supported by the decrease in net charge offs in the first 3 quarters of the current year compared to the last two quarters of 2012 and the decrease in  gross portfolio loans outstanding.  The Company's ALLL as a percentage of gross portfolio loans was 2.28% and 2.13% as of September 30, 2013, and June 30, 2013, respectively.

The charge offs in the current quarter were primarily in 1-4 family home equity loans and commercial real estate. During the third quarter of 2013, the Bank's loan portfolio reflected higher recovery rates relative to the third and fourth quarter of 2012. Management is cautiously optimistic that given continuing improvement in local and national economic conditions, the Company's impaired assets will continue to trend down. However, the commercial real estate and commercial loan portfolios continue to be influenced by weak real estate values, the effects of relatively high unemployment levels, and less than robust economic conditions. At September 30, 2013, management believes the Company's ALLL is adequately funded given the current level of credit risk.

At September 30, 2013, the recorded investment in loans classified as impaired totaled $45.5 million, with a corresponding valuation allowance (included in the ALLL) of $4.3 million. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans. At June 30, 2013, the total recorded investment in impaired loans was $46.0 million, with a corresponding valuation allowance (included in the ALLL) of $4.0 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 current quarter, the Company restructured two loans to grant rate and payment deferral concessions, one loan to grant a rate concession and three loans to grant rate and maturity concessions. The loans were classified as TDR's and four of the six loans were placed on nonaccrual status.

As of September 30, 2013, the Company had $26.9 million in TDRs compared to $21.1 million as of June 30, 2013.  As of September 30, 2013, the Company had one hundred and eleven restructured loans that qualified as TDRs, of which ninety-three were performing according to their restructured terms. TDRs represented 4.53% of gross portfolio loans as of September 30, 2013 compared with 3.41% at June 30, 2013. 

Table 10







TROUBLED DEBT RESTRUCTURINGS

(Dollars in thousands)

September 30,

June 30,

March 31,

December 31,

September 30,


2013

2013

2013

2012

2012

Nonaccrual

$          21,511

$          15,552

$          15,811

$          16,050

$          14,259

Accruing

5,407

5,521

8,153

8,616

13,480

Total troubled debt restructurings

$          26,918

$          21,073

$          23,964

$          24,666

$          27,739

Percentage of total gross portfolio loans

4.53%

3.41%

3.91%

3.71%

4.59%

Nonperforming loans, which include nonaccrual loans and accruing loans past due over 90 days, totaled $35.9 million or 6.03% of total portfolio loans as of September 30, 2013, compared to $36.0 million, or 5.83% of total loans at June 30, 2013. Nonperforming assets, which include nonperforming loans and other real estate owned ("OREO"), totaled $36.8 million, or 3.95% of total assets as of September 30, 2013, compared with $37.4 million, or 3.91% of total assets as of June 30, 2013. As of September 30, 2013, nonperforming assets of $36.8 million have been written down by 16%, or $6.0 million, from their original balance of $45.5 million.

Table 11







NONPERFORMING ASSETS

 (Dollars in thousands)

September 30,

June 30,

March 31,

December 31,

September 30,


2013

2013

2013

2012

2012







Commercial

$             7,501

$             7,898

$             3,420

$             2,935

$             3,330

Real estate construction






     Residential real estate construction

0

0

0

0

77

Total real estate construction

0

0

0

0

77

Real estate mortgage






     1-4 family, closed end 1st lien

1,740

1,797

1,846

1,805

2,315

     1-4 family revolving

517

345

0

0

95

     ITIN 1-4 family loan pool

9,213

9,368

9,456

9,825

9,418

Total real estate mortgage

11,470

11,510

11,302

11,630

11,828

Commercial real estate

16,895

16,614

23,363

24,008

10,393

Total nonaccrual loans

35,866

36,022

38,085

38,573

25,628

90 days past due and still accruing

0

0

0

0

0

     Total nonperforming loans

35,866

36,022

38,085

38,573

25,628







Other real estate owned

959

1,360

1,785

3,061

3,052

Total nonperforming assets

$          36,825

$          37,382

$          39,870

$          41,634

$           28,680







Nonperforming loans to total loans

6.03%

5.83%

6.21%

5.81%

4.24%

Nonperforming assets to total assets

3.95%

3.91%

4.07%

4.25%

3.03%

 

Table 12







OTHER REAL ESTATE OWNED ACTIVITY

(Dollars in thousands)

Q3

Q2

Q1

Q4

Q3


2013

2013

2013

2012

2012

Beginning balance

$               1,360

$               1,785

$               3,061

$               3,052

$               2,647

     Additions to OREO

146

184

1,157

242

4,046

     Dispositions of OREO

(547)

(609)

(2,433)

(233)

(3,641)

     OREO valuation adjustment

0

0

0

0

0

Ending balance

$                  959

$               1,360

$               1,785

$               3,061

$               3,052







At September 30, 2013, and June 30, 2013, the recorded investment in OREO was $959 thousand and $1.4 million, respectively. For the three months ended September 30, 2013, the Company transferred foreclosed property from two loans in the amount of $146 thousand to OREO and no adjustments to the ALLL were necessary. During the three months ended September 30, 2013, no further impairment was identified on the foreclosed properties. During this period, the Company sold seven existing properties with balances of $547 thousand for a net loss of $139 thousand. The September 30, 2013 OREO balance consists of four properties, of which three are secured by 1-4 family residential real estate in the amount of $209 thousand.  The remaining property consists of improved commercial land in the amount of $750 thousand

Table 13

INCOME STATEMENT

(Amounts in thousands, except for per share data)

Q3

Q3

Change

Q2

Full Year

Full Year


2013

2012

$

%

2013

2012

2011

Interest income:








   Interest and fees on loans

$      7,487

$      8,462

$      (975)

-12%

$      7,352

$    33,148

$    35,084

   Interest on tax exempt securities

673

612

61

10%

656

2,399

2,014

   Interest on U.S. government securities

445

426

19

4%

381

1,615

2,123

   Interest on other securities

716

841

(125)

-15%

772

3,175

2,410

        Total interest income

9,321

10,341

(1,020)

-10%

9,161

40,337

41,631

Interest expense:








   Interest on demand deposits

113

147

(34)

-23%

112

610

787

   Interest on savings deposits

61

90

(29)

-32%

62

394

792

   Interest on certificates of deposit

639

866

(227)

-26%

654

3,697

4,912

   Interest on securities sold under repurchase agreements

0

6

(6)

-100%

2

24

43

   Interest on FHLB borrowings

(84)

(4)

(80)

+100%

(48)

85

579

   Interest on other borrowings

96

121

(25)

-21%

93

419

363

        Total interest expense

825

1,226

(401)

-33%

875

5,229

7,476

        Net interest income

8,496

9,115

(619)

-7%

8,286

35,108

34,155

Provision for loan and lease losses

300

1,900

(1,600)

-84%

1,400

9,400

8,991

   Net interest income after provision for loan and lease losses

8,196

7,215

981

14%

6,886

25,708

25,164

Noninterest income:








   Service charges on deposit accounts

46

49

(3)

-6%

54

188

192

   Payroll and benefit processing fees

113

122

(9)

-7%

114

538

458

   Earnings on cash surrender value – Bank owned life insurance

133

114

19

17%

112

470

465

   Gain on investment securities, net

336

550

(214)

-39%

406

3,822

1,550

   Merchant credit card service income, net

33

39

(6)

-15%

32

144

376

   Other income

313

545

(232)

-43%

307

1,431

850

        Total noninterest income

974

1,419

(445)

-31%

1,025

6,593

3,891

Noninterest expense:








   Salaries and related benefits

2,865

2,732

133

5%

3,074

11,030

9,957

   Occupancy and equipment expense

549

508

41

8%

529

2,058

2,009

   Write down of other real estate owned

0

0

0

0%

0

425

557

   FDIC insurance premium

202

202

0

0%

245

820

1,319

   Data processing fees

127

94

33

35%

136

421

389

   Professional service fees

364

255

109

43%

294

1,078

1,016

   Deferred compensation expense

58

150

(92)

-61%

0

594

533

   Other expenses

1,772

1,543

229

15%

870

5,206

4,147

        Total noninterest expense

5,937

5,484

453

8%

5,148

21,632

19,927

Income from continuing operations before provision for income taxes

3,233

3,150

83

3%

2,763

10,669

9,128

Provision for income taxes

1,431

923

508

55%

757

3,109

2,444

   Net Income from continuing operations

$      1,802

$      2,227

$      (425)

-19%

$      2,006

$      7,560

$      6,684

Discontinued Operations:








   Income (loss) from discontinued operations

$             0

$      (746)

$         746

100%

$             0

$         535

$      1,512

   Income tax expense associated with income (loss) from

   discontinued operations

0

(239)

239

100%

0

331

392

        Net income (loss) from discontinued operations

0

(507)

507

100%

0

204

1,120

   Less: Net income (loss) from discontinued operations

   attributable to noncontrolling interest

0

0

0

0%

0

348

549

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

0

(507)

507

100%

0

(144)

571

Net income attributable to Bank of Commerce Holdings

1,802

1,720

82

5%

2,006

7,416

7,255

Less: preferred dividend and accretion on preferred stock

50

250

(200)

-80%

50

880

943

   Income available to common shareholders

$      1,752

$      1,470

$         282

19%

$      1,956

$      6,536

$      6,312

   Basic EPS attributable to continuing operations

$        0.12

$        0.12

$        0.00

0%

$        0.13

$        0.41

$        0.34

   Basic EPS attributable to discontinued operations

$        0.00

$     (0.03)

$        0.03

100%

$        0.00

$     (0.01)

$        0.03

   Average basic shares

14,829

16,240

(1,411)

-9%

15,120

16,344

16,991

   Diluted EPS attributable to continuing operations

$        0.12

$        0.12

$        0.00

0%

$        0.13

$        0.41

$        0.34

   Diluted EPS attributable to discontinued operations

$        0.00

$     (0.03)

$        0.03

100%

$        0.00

$     (0.01)

$        0.03

   Average diluted shares

14,853

16,240

(1,387)

-9%

15,139

16,344

16,991

 


Table 14



BALANCE SHEET

(Dollars in thousands)

September 30,

September 30,

Change

June 30,

ASSETS

2013

2012

$

%

2013

Cash and due from banks

$          28,616

$          40,541

$   (11,925)

-29%

$          22,426

Interest bearing due from banks

20,379

23,893

(3,514)

-15%

20,810

      Total cash and cash equivalents

48,995

64,434

(15,439)

-24%

43,236

Securities available-for-sale, at fair value

209,642

194,928

14,714

8%

218,495

Securities held-to-maturity, at amortized cost

34,814

18,808

16,006

85%

34,843

Portfolio loans

594,844

604,695

(9,851)

-2%

617,733

Allowance for loan losses

(13,542)

(10,560)

(2,982)

28%

(13,133)

      Net loans

581,302

594,135

(12,833)

-2%

604,600

Mortgage loans held for sale

0

27,875

(27,875)

-100%

0

Total interest earning assets

888,295

910,740

(22,445)

-2%

914,307

Bank premises and equipment, net

10,533

9,617

916

10%

10,275

Goodwill and other intangibles

31

63

(32)

-51%

39

Other real estate owned

959

3,052

(2,093)

-69%

1,360

Other assets

45,541

33,538

12,003

36%

43,764

TOTAL ASSETS

$        931,817

$        946,450

$   (14,633)

-2%

$        956,612







LIABILITIES AND STOCKHOLDERS' EQUITY






Demand – noninterest bearing

$        128,299

$        114,856

$      13,443

12%

$        113,615

Demand – interest bearing

257,390

223,687

33,703

15%

243,087

Savings accounts

92,043

91,666

377

0%

93,791

Certificates of deposit

247,791

261,410

(13,619)

-5%

244,408

      Total deposits

725,523

691,619

33,904

5%

694,901

Securities sold under agreements to repurchase

0

13,964

(13,964)

-100%

1,758

Federal Home Loan Bank borrowings

75,000

100,000

(25,000)

-25%

125,000

Junior subordinated debentures

15,465

15,465

0

0%

15,465

Other liabilities

13,061

14,049

(987)

-7%

12,618

      Total Liabilities

829,049

835,097

(6,047)

-1%

849,742







      Total Stockholders' Equity

102,768

111,353

(8,586)

-8%

106,870







TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$        931,817

$        946,450

$   (14,633)

-2%

$        956,612













 


Table 15



AVERAGE BALANCE SHEET (Year to Date)

(Dollars in thousands)

September 30,

September 30,

December 31,

December 31,

December 31,


2013

2012

2012

2011

2010

Earning assets:






  Loans

$        619,188

$        640,122

$        642,200

$       626,275

$       635,074

  Tax exempt securities

93,388

76,151

81,714

52,467

42,172

  US government securities

1,877

0

209

19,182

27,423

  Mortgage backed securities

64,953

63,255

61,434

67,052

48,972

  Other securities

89,313

68,962

73,972

44,664

15,702

  Interest bearing due from banks

41,991

49,389

48,712

64,399

70,911

  Fed funds sold

0

0

0

0

995

     Average earning assets

910,710

897,879

908,241

874,039

841,249







Cash and DFB

10,330

9,926

10,125

2,251

1,781

Bank premises

10,175

9,529

9,567

9,489

9,814

Other assets

28,431

32,696

24,249

21,421

48,116

     Average total assets

$        959,646

$        950,030

$        952,182

$       907,200

$       900,960







Interest bearing liabilities:






  Demand - interest bearing

$        239,308

$        193,687

$        203,342

$       157,696

$       141,983

  Savings deposits

92,351

89,543

89,789

91,876

76,718

  CDs

248,825

297,445

285,574

296,381

321,051

  Repurchase agreements

7,728

13,955

14,246

14,805

12,274

  Other borrowings

137,886

127,151

125,839

130,933

128,249


726,098

721,781

718,790

691,691

680,275

Demand - noninterest bearing

117,830

112,403

115,091

100,722

92,433

Other liabilities

8,140

4,609

7,033

6,679

32,615

Shareholders' equity

107,578

111,237

111,268

108,108

95,637

     Average liabilities & equity

$        959,646

$        950,030

$        952,182

$       907,200

$       900,960

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Redding, California and is the parent company for Redding Bank of Commerce™ which operates under two separate names (Redding Bank of CommerceTM and Roseville Bank of CommerceTM, a division of Redding Bank of Commerce). The Bank is an FDIC insured California banking corporation providing commercial banking and financial services through four offices located in Northern California. The Bank opened on October 22, 1982. The Company's common stock is listed on the NASDAQ Global Market and trades under the symbol "BOCH".

Investment firms making a market in BOCH stock are:

Raymond James Financial
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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