Bank of Commerce Holdings™ Announces Fourth Quarter and Full Year 2011 Results

REDDING, Calif. , Jan. 31, 2012  /PRNewswire/ -- Patrick J. Moty, President & CEO of Bank of Commerce Holdings (NASDAQ: BOCH), a $940.7 million bank holding company, and parent company of Redding Bank of Commerce™, Roseville Bank of Commerce™

(a division of Redding Bank of Commerce), and Bank of Commerce Mortgage™ today reported net income available to common shareholders of $1.9 million and diluted earnings per share ("EPS") of $0.12 for the fourth quarter 2011, and full year income available to common shareholders of $6.3 million and diluted EPS of $0.37.

Key Financial Items for the fourth quarter 2011:

• Net Income available to common shareholders of $1.9 million reflects a 39% increase over the $1.4 million reported for the quarter ended December 31, 2010, and a 13% increase over the $1.7 million recorded for the third quarter 2011.
• Diluted EPS of $0.12 compares to $0.08 reported for the same period a year ago and $0.10 for prior quarter ended September 30, 2011.
• Loan loss provisions for the fourth quarter were $1.8 million compared to $4.6 million for the fourth quarter 2010 and $2.2 million for the prior quarter ended September 30, 2011.
• Nonperforming assets represented 2.68% of total assets in the current period versus 2.30% for the quarter ended September 30, 2011.
• Mortgage banking revenue for the three months ended December 31, 2011 decreased by 15% compared to the same period a year ago, primarily driven by decreased origination and refinancing activities.

Key Financial Items for the full year 2011:

• Net Income available to common shareholders of $6.3 million reflects a 20% increase over the $5.3 million reported for the full year 2010.
• Full year 2011 diluted EPS of $0.37 compares to $0.35 diluted EPS for full year 2010.
• Provision for loan losses declined 30% year over year to $9.0 million.
• Nonperforming assets totaled $25.2 million and represented 2.68% of total assets at year end 2011, compared to $22.8 million and 2.43% at year end 2010, respectively.
• Non-maturing core deposits increased $37.3 million or 11% from a year ago December 31, 2010.
• Mortgage banking revenue remained steady for the full year 2011 at $14.3 million compared to $14.3 million for the full year 2010.

Patrick J. Moty, President and CEO commented: "2011 was a challenging but exciting year for the bank. Our positive financial performance continues to outpace our peers as we navigate through the lingering effects of the recession.. We look forward to 2012 with great optimism as we enter our thirtieth successful year of operations. We are proud to provide high quality financial services to our local communities."

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 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, 2010 and under the heading:  "Risk factors that may affect results" and subsequent reports on Form 10-Q and current reports on Form 8-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Table 1 below shows summary financial information for the quarters ended December 31, 2011 and 2010, and September 30, 2011.

As indicated in Table 1 above, Bank of Commerce Holdings (the "Company") continues to remain well capitalized. At December 31, 2011, the Company's Tier 1 and Total risk based capital ratios measured 14.45% and 15.70% respectively, while the leverage ratio was 13.52%.

Return on average assets (ROA) and return on average equity (ROE) for the three months ended December 31, 2011, was 0.90% and 7.48%, respectively compared with 0.70% and 6.22% for the three months ended December 31, 2010. The increase in ROA and ROE for the three months ended December 31, 2011 compared with the same period a year ago, was primarily driven by lower loan loss provision expense, and decreased interest expense on deposits and borrowings, partially offset by decreased yields in the loan portfolio. The Company continues to experience decreased yields in the loan portfolio due to the combination of, downward rate adjustments of variable rate loans, pay offs of higher yielding loans, and the transfer of existing loans to nonaccrual status.

Balance Sheet Overview

As of December 31, 2011, the Company had total consolidated assets of $940.7 million, total net portfolio loans of $574.1 million, allowance for loan losses of $10.6 million, total deposits of $667.3 million, and stockholders' equity of $113.6 million.

Overall, the net portfolio loan balance decreased modestly during full year 2011 compared to 2010. The Company's net loan portfolio was $574.1 million at December 31, 2011, compared with $587.9 million at December 31, 2010, a decrease of $13.8 million, or 2%. The decrease was primarily driven by net payoffs, and specific charge offs of principal balances.

The Company continued to maintain a strong liquidity position during the reporting period. As of December 31, 2011 the Company maintained cash positions at the Federal Reserve Bank (FRB) and correspondent banks in the amount of $21.4 million. The Company also held certificates of deposits with other financial institutions in the amount of $26.7 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 mortgage loan originations when required. Investment securities totaled $203.5 million at December 31, 2011, compared with $165.7 million at September 30, 2011. The $37.8 million, or 22.8% increase reflects net purchase activity relating to the purchases of asset backed securities, municipal bonds, and corporate securities, partially offset by sales of U.S treasuries and called agencies. During the three months ended December 31, 2011, the Company purchased securities with the objective of preserving the net interest margin without extending overall portfolio duration. The Company recognized $105 thousand in gains on sales of securities for the three months ended December 31, 2011.

At December 31, 2011, the Company's net unrealized gain on available-for-sale securities was $1.5 million, compared with a $2.0 million net unrealized gain as of September 30, 2011. The unfavorable change in net unrealized gains was primarily due to decreases in the fair values of the Company's corporate bond portfolio, as yield spreads have widened subsequent to the initial purchase of these securities.  The unfavorable change was partially offset by increased unrealized gains in the municipal bond portfolio.

Fourth quarter 2011 average total deposits of $660.5 million increased 4% or $25.3 million from the fourth quarter in 2010. Non maturing core deposits increased $37.3 million or 11% year over year, while the Company experienced 4% organic growth in certificates of deposits.

Operating Results for the Fourth Quarter 2011

Through proactive and aggressive management of problem credits, and the maintenance of a relatively healthy net interest margin, the Company has remained profitable during the economic downturn. As such, the Company continues to be well positioned to take advantage of strategic growth opportunities.  Net income attributable to Bank of Commerce Holdings was $2.1 million for the three months ended December 31, 2011, compared with $2.0 million for the three months ended September 30, 2011, and $1.6 million for the three months ended December 31, 2010. Net income available to common stockholders was $1.9 million for the three months ended December 31, 2011, compared with $1.7 million for the three months ended September 30, 2011, and $1.4 million for the three months ended December 31, 2010. During the fourth quarter of 2011, diluted earnings per share increased $0.02 per share when compared to the third quarter of 2011, and increased $0.04 per share compared to the fourth quarter of 2010.

The Company continued to pay quarterly cash dividends of $0.03 per share during 2011, consistent with final three quarters of 2010.

Net interest income for the three months ended December 31, 2011 was $8.5 million, a decrease of $158 thousand or 2% compared to the same period in 2010, and an increase of $13 thousand compared with three months ended September 30, 2011. Net interest income for the three months ended December 31, 2011 compared to the same period a year ago, was negatively impacted by lower yields in the loan portfolio, partially offset by lower funding costs pertaining to repricing certificates of deposits, and to a lesser extent, demand and savings accounts.

The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.97% for the three months ended December 31, 2011, a decrease of 2 basis points as compared to the same period in 2010.

For the three months ended December 31, 2011, the Company recorded service charges on deposit accounts of $40 thousand compared to $53 thousand for the same period a year ago. The decrease in service charges was primarily attributable to the discontinuance of the Overdraft Privilege product, and decreased analysis fees charged to customers.

For the three months ended December 31, 2011, the Company recorded earnings on the cash surrender value Bank owned life insurance of $118 thousand compared to $111 thousand for the same period a year ago. The increased income was primarily attributable to the purchase of an additional policy.

For the three months ended December 31, 2011, the Company recorded securities gains of $105 thousand compared to securities gains of $738 thousand for the same period a year ago. The decreased gains during the three months ended December 31, 2011 compared to the same period a year ago, resulted from decreased sales activity.

For the three months ended December 31, 2011, the Company recorded merchant credit card income of $34 thousand compared to $53 thousand for the same period a year ago. During the first quarter of 2011, approximately 50% of the merchant credit card portfolio was sold to an independent third party, resulting in additional revenues of $225 thousand. Accordingly, merchant credit card income for the three months ended December 31, 2011 is down 36% compared to the same period a year ago.  

Mortgage banking revenue for the three months ended December 31, 2011 decreased by 15% compared to the same period a year ago, primarily driven by decreased origination and refinancing activity.

Noninterest expense includes salaries and benefits, occupancy and equipment, write down of other real estate owned (OREO), FDIC insurance assessments, director fees, and other expenses. Other expenses include overhead items such as utilities, telephone, insurance and licensing fees, and business travel. Noninterest expense for the three months ended December 31, 2011 was $8.8 million compared to $8.3 million during the same period in 2010, and $7.7 million for the third quarter 2011.

Salaries and related benefits for the three months ended December 31, 2011 increased by $948 thousand or 20%, compared to the same period a year ago, and increased by $619 thousand compared to the third quarter of 2011. During the second quarter of 2011, the mortgage subsidiary transitioned existing loan officers from a commission based compensation plan to a salary based compensation plan, which resulted in increased salary expense for the three months ended December 31, 2011 compared to the same period a year ago. Prior to the transition, commission expenses were recorded in net mortgage banking revenues. In addition, during the fourth quarter 2011, both the mortgage subsidiary and the Bank increased accrued employee cash rewards during the three months ended December 31, 2011 compared to the same period a year ago, and compared to the three months ended September 30, 2011.

Occupancy and equipment expense for the three months ended December 31, 2011 decreased by $154 thousand or 18%, compared to the same period a year ago, and decreased by $41 thousand compared to the third quarter of 2011. The decrease in occupancy and equipment expense was primarily driven by decreased net rent expense, decreased equipment repairs expenses, and decreased premises maintenance.  

Write down of the Company's OREO decreased by $196 thousand compared to the same period a year ago. The OREO charges during the periods presented were primarily associated with a commercial real estate property where management identified impairment and appropriately reduced the property's carrying value.

FDIC insurance premium expense for the three months ended December 31, 2011 increased by $23 thousand or 9%, compared to the same period a year ago. The increase is primarily due to the FDIC's revisions in deposit insurance assessments methodology for determining premiums and the associated prepayment true up adjustments.

Data processing expense for the three months ended December 31, 2011 increased by $42 thousand or 65%, compared to the same period a year ago. The increase is primarily attributable to reclassifications of certain core processing maintenance expenses, and additional maintenance expenses resulting from new software additions.

Professional service fees encompass audit, legal, and consulting fees. Professional service fee expense remained consistent during the fourth quarter 2011 compared to the same period a year ago, as decreased legal costs at the Bank were offset by increased consulting fees at the mortgage subsidiary. The increase in professional service fees in the three months ended December 31, 2011 compared to the three months ended September 30, 2011 was primarily driven by increased consulting fees at the mortgage subsidiary relating to ongoing operational efficiency objectives.

Other expenses for the three months ended December 31, 2011 decreased by $214 thousand or 15%, compared to the same period a year ago. The decrease in other expenses is primarily related to decreased loan losses recognized by the mortgage subsidiary, partially offset by increased losses on sale of OREO at the Bank. Other expenses increased by $443 thousand or 56%, compared to the three months ended September 30, 2011. The increase was primarily driven by increased losses on the sale of OREO at the Bank, and reclassification adjustments at the mortgage subsidiary.

The Company continued to conservatively manage credit quality during the period, and adjust the ALLL accordingly. As such, the Company provided $1.8 million in provisions for loan losses for the three months ended December 31, 2011, compared with $4.6 million for the same period a year ago. The Company's ALLL as a percentage of total portfolio loans were 1.82% and 2.14% as of December 31, 2011, and December 31, 2010, respectively.

Net charge offs were $1.8 million for the three months ended December 31, 2011 compared with net charge offs of $7.2 million for the same period a year ago. The charge offs were centered in commercial real estate, 1-4 family residential real estate, and home equity loans, where ongoing credit quality issues continue to linger. The continued weaknesses in the commercial loan portfolio are specifically centered on loans where the borrower's business revenue sources are tied to real estate. The commercial real estate loan portfolio and commercial loan portfolio will continue to be negatively influenced by weakness in real estate values, the effects of high unemployment levels, and general overall weakness in economic conditions.

As of December 31, 2011, impaired loans totaled $39.8 million, of which $21.4 million were in nonaccrual status. Of the total impaired loans, $13.2 million or one hundred and fifty-one were ITIN loans with an approximate average balance of $87 thousand. The ITIN loan pool represents residential mortgage loans made to legal United States residents without a social security number, and are geographically dispersed throughout the United States. The remaining impaired loans consist of one commercial loan, three construction loans, thirteen commercial real estate loans, thirteen 1-4 family residential mortgages, and eight home equity loans.

Loans are reported as Troubled Debt Restructurings (TDRs) when the Bank grants a concession(s) to borrowers 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.

TDRs are considered impaired loans, but are not necessarily placed on nonaccrual status at inception of TDR status.  Rather, if the borrower is current to original loan terms at the time of the restructuring, and continues to pay as agreed to modified terms, the loan is reported as current. As of December 31, 2011, there were $7.6 million of impaired ITINs which were classified as TDRs with $4.7 million on nonaccrual.

As of December 31, 2011 the Company had $31.3 million in TDR's compared to $29.7 million as of September 30, 2011. As of December 31, 2011, the Company had one hundred and six restructured loans that qualified as TDRs, of which eighty-one loans were performing according to their restructured terms. TDRs represented 5.35% of gross portfolio loans, compared with 5.03% of gross portfolio loans at September 30, 2011.

At December 31, 2011 the Company's recorded investment in OREO was $3.7 million. During the fourth quarter of 2011, the Company transferred eleven foreclosed properties aggregating $2.4 million to OREO, with an associated charge to the allowance for loan losses of $38.3 thousand for these foreclosed assets. During the fourth quarter 2011, the Company sold four properties aggregating $333 thousand for a net loss of $178 thousand, and did not record any additional write downs of existing OREO in other noninterest expense.  The December 31, 2011 OREO balance consists of fourteen properties, of which twelve are secured with 1-4 family residential real estate in the amount of $889 thousand. The remaining two properties consist of a commercial real estate building and improved commercial land in the amount of $2.8 million.

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

Hill, Thompson, Magid & Co. Inc / R.J. Dragani
15 Exchange Place, Suite 800
Jersey City, New Jersey 07030 (201) 369-2908

Keefe, Bruyette & Woods, Inc. /
Dave Bonaccorso
101 California Street, 37th Floor
San Francisco, CA 94105 (415) 591-5063

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