Bank of Commerce Holdings™ Reports Full Year Net Income of $6.2 million or $0.35 Diluted Earnings Per Common Share

REDDING, Calif., Jan. 28, 2011 /PRNewswire/ -- Patrick J. Moty, President & CEO of Bank of Commerce Holdings (Nasdaq: BOCH), a $939 million financial services holding company, and parent company of Redding Bank of Commerce™, Roseville Bank of Commerce™, and Bank of Commerce Mortgage™ today announced 4th quarter and full year 2010 operating results.

"We are very pleased with our Company's financial results in another difficult year for the banking industry. Despite the challenges, we have never been more optimistic about the long-term future of our Company. We have the underlying financial strength and profitability to meet our customer's needs as the economy stabilizes and begins expanding again. We look forward to 2011 with renewed enthusiasm," said Patrick J. Moty, President and CEO.

"In 2010 we increased our net interest margin, maintained solid profitability with a 3.6% increase in net income and continued to assertively attend to the credit issues in our markets. Being profitable provides our shareholders with a strong Company, with expanding opportunities to provide financial services to businesses, professionals, families and individuals in multiple markets."

2010 Full Year Highlights:

• Net income of $6.2 million up 3.6% over the prior year
• Total revenues of $62.2 million
• Pre-tax pre-provision profits of $22.2 million(1)
• Diluted earnings per common share of $0.35, reduced by $0.06 per share for CPP preferred dividends and accretion
• Average portfolio loans of $640.2 million, up 8.6% from prior year
• Allowance for loan and lease losses 2.14% of total portfolio loans
• Non-performing assets represent 2.43% of total assets
• Average checking and savings deposits (core) of $311.1 million, up 12.1% from prior year
• Net interest margin of 4.06% compared to 3.94% at 12-31-2009
• Return on average assets of 0.69% and return on average equity of 6.50%
• Cash dividends paid to common shareholders in 2010 totaled $2.6 million

Fourth Quarter 2010 Highlights:

• Net income of $1.6 million
• Total revenues of $17.6 million
• Diluted earnings per common share of $0.08, reduced by $0.01 per share for CPP preferred stock dividends
• Pre-tax pre-provision profits of $6.9 million
• Reduction in non-performing assets of $4.4 million, or non-performing assets of 2.43% of total assets compared to 3.03% of total assets in prior quarter

Financial Performance

While our current economic environment remains challenging, our Company provided solid value to our shareholders in 2010. During the first quarter 2010 the Company successfully completed a capital raise, increasing our equity by approximately $33.1 million after deducting expenses related to the raise. Our Company earned $6.2 million or $0.35 per diluted share. We declared common stock cash dividends totaling $0.18 per share in 2010, representing a yield of 2.77%.

As of December 31, 2010, the Company had total consolidated assets of $939.1 million, total gross portfolio loans of $600.7 million, and allowance for loan and leases of $12.8 million or 2.14% of total portfolio loans, deposits outstanding of $648.7 million and shareholders equity of $103.7 million.

Net Interest Income

Net interest income was $33.0 million compared with $29.0 million a year ago. A combination of reduced funding costs and an increase in the volume of earning assets significantly improved the Company's net interest margin. The increased volume of earning assets contributed an additional $5.0 million in interest income. The Company benefited from the continued decline in interest expense relating to retail and wholesale funding. As a result of the decline in interest rates, the Company realized a decrease in interest expense of $1.0 million. The net effect of volume increases and reduced expenses added $4.0 million to the margin increasing the net interest margin to 4.06% compared to 3.94% a year ago.

Noninterest income

Noninterest income for the year ended December 31, 2010, was $19.8 million or 96.9% greater than the same period a year ago. Noninterest income includes the following items:

The significant increase is primarily derived from increased mortgage origination volume, gains from the settlement of the put reserve, and a consolidation of twelve months of mortgage brokerage fee income compared to seven months for the year ended December 31, 2009.

Mortgage brokerage fee income is primarily derived from origination fees on residential mortgage loans and from the sale of mortgage loans to financial institutions. Loan origination fees and sales fees earned on brokered loans are recorded as income when the loans are sold. Mortgage brokerage fee income increased substantially as a result of increased origination volume, due to the current historically low interest rate environment.

During 2010, the Company received a written release to the put reserve provided on the ITIN loan pool purchase. The "put reserve" was part of the April 17, 2009 loan "swap" transaction in which the Company purchased a pool of Individual Tax Identification Number ("ITIN") residential mortgages in exchange for a combination of certain nonperforming loans and cash. The put reserve or credit enhancement originally totaled $3.5 million; the Company had the right but not the obligation to "put back" the outstanding principal balance of any ITIN loan that became sixty days or more delinquent over a period not to exceed three years from the transaction date.

Prior to the release, the put reserve carried a balance of $2.1 million; approximately $398,627 of the reserve was paid to the private equity firm as consideration. As a result, the Company recorded a $1.7 million gain on settlement.

Our investment strategy requires that we periodically reposition our investment portfolio within certain parameters to minimize risks to comprehensive income, and to mitigate interest rate risk. The Company continued to reposition the portfolio during the current period. As a result, the Company realized less gain on sales of securities compared to the prior year. Accordingly, net gains on available for sale securities decreased by $457,000 compared to the prior year end.  

Noninterest expense

Noninterest expense for the year ended December 31, 2010, was $30.3 million or 47.0% greater than the same period a year ago. Noninterest expense includes the following items:

The $9.7 million increase in noninterest expense is primarily due to increased salaries and related benefits pertaining to the Mortgage Services subsidiary. The Mortgage Services subsidiary transitioned existing independent contractors to FTE's, resulting in an increase in salaries and related benefits. Furthermore, due to continued growth in Mortgage Services operations, there was additional staff added to payroll. The increase in salaries and related benefits is primarily due to the timing of the purchase of an equity interest in our Mortgage Services subsidiary. The Company consolidated an additional $4.6 million in related salaries and benefits of the Mortgage Services for the year ended December 31, 2010, compared to a consolidation of only seven months of expense for the year ended December 31, 2009.

During 2010, the Company determined that a valuation adjustment to the carrying value of the Company's other real estate owned was necessary. The values were adjusted downward, reflecting the continued deterioration in local real estate market conditions. As a result, the Company recognized a $1.6 million impairment charge to earnings.

Other expenses increased by approximately $2.1 million during 2010. The increase is primarily due to increased credit administration expenses including appraisal expenses associated with the Company's real estate loan portfolio and overall increased activities associated with the Mortgage Services general operations.

For the year ended December 31, 2010, professional fess increased approximately $1.0 million. During the reporting period, the Company increased the solicitation of outside professionals to conduct credit quality reviews pertaining to the Company's loan portfolio. In addition, during the reporting period, the Company increased the engagements of legal counsel. The increase in these services coincides with the continued monitoring of the Company's nonperforming loans.

Income Taxes

Our provision for income taxes includes both federal and state income taxes and reflects the application of federal and state statutory rates to our income before taxes. Our Company's effective tax rate at December 31, 2010, was 32.79%, compared to 30.02% at December 31, 2009. The difference between statutory tax rates and our effective tax rate is the benefit derived from investing in tax-exempt securities and preferential state tax treatment for qualified enterprise zone loans.

Loans

Average portfolio loans were $640.2 million at December 31, 2010, compared with $589.3 million at December 31, 2009. The increase is directly related to the increased loan originations coupled with the purchase of one Home Equity pool of loans with an outstanding balance of $17.8 million at year-end 2010.

Deposits

Average checking and savings accounts (core deposits) increased 12.1% percent to $311.1 million from $277.6 million a year ago. During the year approximately $28.0 million in brokered time deposits were repaid.

Capital

As of December 31, 2010, the Bank is categorized as "well capitalized" under the current regulatory framework.

Credit Quality

Fourth quarter credit results were in line with management expectations, while losses were elevated during the quarter as expected, management actions were designed to position the Company to take advantage of a more favorable economic outlook in 2011. While we continue to advance loans to credit-worthy borrowers, segments of the Company's loan portfolio remained strained. The Commercial and Industrial portfolio experienced deterioration in 2010, while our real estate development properties and construction related lending are showing some signs of stabilization. Nevertheless, our loan portfolio remains susceptible to additional weakening in commercial real estate values and ongoing deterioration in the general economy.

Credit Losses

Net charge-offs were $11.2 million for the year ending December 31, 2010, or 1.75% of average loans compared with net charge-offs of $6.7 million of 1.14% of average loans at December 31, 2009. The most significant increase in charge-offs were in the Commercial & Industrial and Commercial Real Estate portfolios.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses totaled $12.8 million at December 31, 2010, compared to $11.2 million at December 31, 2009. The allowance represents management's estimate of inherent losses in the loan portfolio at December 31, 2010. The allowance coverage to total loans was 2.14% at December 31, 2010 compared to 1.86% at December 31, 2009.

Nonperforming Assets

Total nonperforming assets were $22.8 million at December 31, 2010, compared to $15.6 million at December 31, 2009, representing 2.43% of total assets and include $20.5 million of non-accrual loans and $2.3 million of other real estate owned.

The Company periodically restructures loans and grants concessions to borrowers due to economic or legal reasons relating to the borrower's financial condition that it would not otherwise consider. Loans restructured under these situations are classified as troubled debt restructurings. As of December 31, 2010, the Company has 93 restructured loans that qualified as troubled debt restructurings, of which 50 were performing according to their restructured loans and are considered performing loans.

Bank of Commerce Mortgage™

Our Company is especially pleased with the results attributable to our mortgage banking subsidiary, Bank of Commerce Mortgage™ for 2010. We believe that our Company has played a significant part in making credit available to help the economic recovery in our markets. The outstanding balance of this portfolio at December 31, 2010 was $43.0 million.

• Total Home Mortgage applications processed during 2010 of $1.4 billion
• Home Mortgage originations (purchases) funded during 2010 of $315.6 million
• Home Mortgage refinances funded during 2010 of $462.3 million  
• Home Mortgage pipeline of $96.7 million at December 31, 2010

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.
• Losses in the Company's merchant credit card processing business.
• 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, 2009 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.

About Bank of Commerce Holdings

Bank of Commerce Holdings, with administrative offices in Redding, California is a financial service holding company that owns Redding Bank of Commerce™, Roseville Bank of Commerce™, and Bank of Commerce Mortgage™.  The bank is a federally insured California banking corporation and opened on October 22, 1982.  BOCH is a NASDAQ Global Market listed stock. Please contact your local investment advisor for purchases and sales. Investment firms making a market in BOCH stock are:

(1) Pre-tax pre-provision profit is net income before provision for loan and lease losses and provision for income taxes. Management believes that this measurement is a useful financial measure because it enables investors and others to determine the Company's ability to generate capital to cover credit losses.

(2) Core deposits are the total of checking and savings accounts

(3) Average nonaccrual loans and average loans held for sale of $20.5 and $30.6 million are included, respectively

SOURCE Bank of Commerce Holdings