Bank of Commerce Holdings Announces Results for the First Quarter of 2019

Date : 04/19/2019 @ 2:00PM
Source : GlobeNewswire Inc.
Stock : Bank of Commerce Holdings (BOCH)
Quote : 10.95  -0.02 (-0.18%) @ 8:59PM

Bank of Commerce Holdings Announces Results for the First Quarter of 2019

Bank of Commerce (NASDAQ:BOCH)
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6 Months : From Apr 2019 to Oct 2019

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Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.471 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter ended March 31, 2019. Net income for the quarter ended March 31, 2019 was $2.3 million or $0.13 per share – diluted, compared with net income of $3.2 million or $0.20 per share – diluted for the same period of 2018.

The current quarter includes the results and related acquisition costs of $1.9 million associated with the January 31, 2019 acquisition of Merchants Holding Company in Sacramento (“Merchants”).

Randall S. Eslick, President and CEO commented: “All of our employees have worked diligently to ensure that the integration of Merchants Bank continues to progress very smoothly and we are excited to extend our banking services into downtown Sacramento.”

Financial highlights for the first quarter of 2019 compared to the same quarter a year ago:

  • Net income of $2.3 million was a decrease of $935 thousand (29%) from $3.2 million earned during the same period in the prior year. Earnings of $0.13 per share – diluted was a decrease of $0.07 (35%) from $0.20 per share – diluted earned during the same period in the prior year and reflects the impact of 1,834,142 shares of common stock issued during the current quarter as part of our acquisition of Merchants.
  • Acquisition costs associated with our acquisition of Merchants totaled $1.9 million.
  • Net interest income increased $1.7 million (15%) to $13.0 million compared to $11.3 million for the same period in the prior year.
  • Return on average assets decreased to 0.66% compared to 1.05% for the same period in the prior year.
  • Return on average equity decreased to 6.12% compared to 10.34% for the same period in the prior year.
  • Average loans totaled $993.3 million, an increase of $109.4 million (12%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.337 billion, an increase of $155 million (13%) compared to average earning assets for the same period in the prior year.
  • Average deposits totaled $1.224 billion, an increase of $153 million (14%) compared to average deposits for the same period in the prior year.
    • Average non-maturing deposits totaled $1.056 billion, an increase of $168 million (19%) compared to the same period in the prior year.
    • Average certificates of deposit totaled $167.5 million, a decrease of $14.4 million (8%) compared to same period in the prior year.
  • The Company’s efficiency ratio was 77.7% compared to 65.2% during the same period in the prior year.
  • Nonperforming assets at March 31, 2019 totaled $14.6 million or 0.99% of total assets, an increase of $10.3 million (241%) since March 31, 2018. The increase in nonperforming assets results from one $10.9 million commercial real estate loan which at March 31, 2019 had zero calculated impairment.
  • Book value per common share was $8.90 at March 31, 2019 compared to $7.83 at March 31, 2018.
  • Tangible book value per common share was $7.96 at March 31, 2019 compared to $7.71 at March 31, 2018.

Financial highlights for the first quarter of 2019 compared to the prior quarter:

  • Net income of $2.3 million ($0.13 per share –diluted) was a decrease of $2.5 million (52%) from $4.8 million ($0.30 per share – diluted) earned during the prior quarter.
  • Acquisition costs associated with our acquisition of Merchants totaled $1.9 million compared to $802 thousand for the prior quarter.
  • Net interest income increased $510 thousand (17% annualized) to $13.0 million compared to $12.5 million for the prior quarter.
  • Return on average assets decreased to 0.66% compared to 1.44% for the prior quarter.
  • Return on average equity decreased to 6.12% compared to 14.32% for the prior quarter.
  • Average loans totaled $993.3 million, an increase of $69.9 million (31% annualized) compared to average loans for the prior quarter.
  • Average earning assets totaled $1.337 billion, an increase of $77 million (25% annualized) compared the prior quarter.
  • Average deposits totaled $1.224 billion, an increase of $65.9 million (23% annualized) compared the prior quarter.
    • Average non-maturing deposits totaled $1.056 billion, an increase of $55 million (22% annualized) compared to the prior quarter.
    • Average certificates of deposit totaled $167.5 million, an increase of $10.4 million (27% annualized) compared to the prior quarter.
  • The Company’s efficiency ratio was 77.7% compared to 65.1% for the prior quarter.
  • Nonperforming assets at March 31, 2019 totaled $14.6 million or 0.99% of total assets, an increase of $10.4 million (1,009% annualized) compared to December 31, 2018. The increase in nonperforming assets results from one $10.9 million commercial real estate loan which at March 31, 2019 had zero calculated impairment.
  • Book value per common share was $8.90 at March 31, 2019 compared to $8.47 at December 31, 2018.
  • Tangible book value per common share was $7.96 at March 31, 2019 compared to $8.36 at December 31, 2018.

Forward-Looking Statements

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 our 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 reduce the demand for loans or reduce the value of real estate collateral securing most of our loans
  • Credit quality deterioration which could cause an increase in the provision for loan and lease 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 fiscal year ended December 31, 2018 under the heading “Risk Factors” and to 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. The Company undertakes no obligation and specifically disclaims any obligation to revise or publicly release the results of any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date the statements were made.

 
TABLE 1
SELECTED FINANCIAL INFORMATION - UNAUDITED
(amounts in thousands except per share data)
             
  For The Three Months Ended
Net income, average assets and March 31,   December 31,
average shareholders' equity 2019 2018 2018
Net income $2,306  $3,241  $4,839 
Average total assets $1,425,860  $1,248,563  $1,328,817 
Average total earning assets $1,337,006  $1,181,882  $1,259,709 
Average shareholders' equity $152,705  $127,069  $134,033 
             
Selected performance ratios            
Return on average assets  0.66%  1.05%  1.44%
Return on average equity  6.12%  10.34%  14.32%
Efficiency ratio  77.7%  65.2%  65.1%
             
Share and per share amounts            
Weighted average shares - basic (1)  17,489   16,225   16,265 
Weighted average shares - diluted (1)  17,552   16,310   16,345 
Earnings per share - basic $0.13  $0.20  $0.30 
Earnings per share - diluted $0.13  $0.20  $0.30 
             
  At March 31,   At December 31,
Share and per share amounts 2019 2018 2018
Common shares outstanding (2)  18,213   16,315   16,334 
Book value per common share (2) $8.90  $7.83  $8.47 
Tangible book value per common share (2)(3) $7.96  $7.71  $8.36 
             
Capital ratios (4)           
Bank of Commerce Holdings           
Common equity tier 1 capital ratio  12.40%  12.35%  12.79%
Tier 1 capital ratio  13.25%  13.31%  13.71%
Total capital ratio  15.19%  15.52%  15.82%
Tier 1 leverage ratio  11.05%  11.09%  11.21%
Tangible common equity ratio (5)  9.97%  10.11%  10.46%
             
Redding Bank of Commerce            
Common equity tier 1 capital ratio  13.98%  12.62%  13.23%
Tier 1 capital ratio  13.98%  12.62%  13.23%
Total capital ratio  15.08%  13.87%  14.42%
Tier 1 leverage ratio  11.66%  10.51%  10.81%
             
(1) Excludes unvested restricted shares issued in accordance with the Company's equity incentive plan, as they are non participative in dividends or voting rights.
(2) Includes unvested restricted shares issued in accordance with the Company's equity incentive plan.
(3) Tangible book value per share is computed by dividing total shareholders’ equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.
(4) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject.
(5) Management believes the tangible common equity ratio is a useful measure of capital adequacy because it provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the capital of the Company and the ability of the Company to absorb potential losses. The tangible common equity ratio is calculated as total shareholders' equity less goodwill and core deposit intangible, net divided by total assets less goodwill and core deposit intangible, net.
 

BALANCE SHEET OVERVIEW

As of March 31, 2019, the Company had total consolidated assets of $1.471 billion, gross loans of $1.035 billion, allowance for loan and lease losses (“ALLL”) of $12.2 million, total deposits of $1.248 billion, and shareholders’ equity of $162.1 million.

                        
TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
                        
  At March 31,       At December 31,
    % of    % of  Change   % of
  2019 Total 2018 Total Amount % 2018 Total
Commercial $149,575  14% $137,870  15% $11,705  8% $135,543  14%
Real estate - construction and land development  30,335  3   14,723  2   15,612  106%  22,563  2 
Real estate - commercial non-owner occupied  477,798  47   405,192  46   72,606  18%  433,708  46 
Real estate - commercial owner occupied  200,349  19   193,286  22   7,063  4%  204,622  22 
Real estate - residential - ITIN  36,145  3   40,425  4   (4,280) (11)%  37,446  4 
Real estate - residential - 1-4 family mortgage  68,092  7   30,247  3   37,845  125%  34,366  4 
Real estate - residential - equity lines  26,162  3   30,520  3   (4,358) (14)%  26,958  3 
Consumer and other  46,150  4   48,157  5   (2,007) (4)%  51,045  5 
Gross loans  1,034,606  100%  900,420  100%  134,186  15%  946,251  100%
Deferred fees and costs  1,992      1,713      279     1,927    
Loans, net of deferred fees and costs  1,036,598      902,133      134,465     948,178    
Allowance for loan and lease losses  (12,242)     (12,295)     53     (12,292)   
Net loans $1,024,356     $889,838     $134,518    $935,886    
                        
Average yield on loans during the quarter  4.91%     4.92%     (0.01)    4.94%   
Average yield on loans during the year  4.91%     4.92%     (0.01)    4.91%   
                            

The Company recorded gross loan balances of $1.035 billion at March 31, 2019, compared with $900.4 million and $946.3 million at March 31, 2018 and December 31, 2018, respectively, an increase of $134.2 million and $88.4 million, respectively. During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $85.3 million of loans. At March 31, 2019, gross loans from the acquisition totaled $84.1 million as follows:

  • Commercial $6.0 million
  • Real estate - construction and land development $2.4 million
  • Real estate - commercial non-owner occupied $39.5 million
  • Real estate - residential – 1-4 family mortgage $36.0 million
  • Consumer and other $0.2 million

Average loan balances were $993.3 million for the quarter ended March 31, 2019, compared with $883.9 million for the quarter ended March 31, 2018 and $923.4 million for the quarter ended December 31, 2018 an increase of $109.4 million or 12% and an increase of $69.9 million or 31% annualized.

The average yield on loans during the quarter was 4.91% compared to 4.92% and 4.94% for the quarters ended March 31, 2018 and December 31, 2018, respectively. During the quarter, a $10.9 million commercial real estate loan was placed on nonaccrual status. The uncollected interest on the loan was reversed which reduced our average yield on loans by 5 basis points.

                        
TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
                        
  At March 31,       At December 31,
    % of    % of  Change   % of
  2019 Total 2018 Total Amount % 2018 Total
Cash and due from banks $32,104  9% $16,247  6% $15,857  98% $23,692  8%
Interest-bearing deposits in other banks  30,425  9   17,376  6   13,049  75%  23,673  8 
Total cash and cash equivalents  62,529  18   33,623  12   28,906  86%  47,365  16 
                        
Investment securities:                       
U.S. government and agencies  46,451  13   41,179  14   5,272  13%  40,087  13 
Obligations of state and political subdivisions  48,935  14   59,408  21   (10,473) (18)%  50,530  17 
Residential mortgage backed securities and collateralized mortgage obligations  171,814  47   125,567  43   46,247  37%  138,503  45 
Corporate securities  2,958  1   3,958  1   (1,000) (25)%  2,922  1 
Commercial mortgage backed securities  23,864  7   25,520  9   (1,656) (6)%  24,762  8 
Other asset backed securities  95     285  0   (190) (67)%  124   
Total investment securities - AFS  294,117  82   255,917  88   38,200  15%  256,928  84 
                        
Total cash, cash equivalents and investment securities $356,646  100% $289,540  100% $67,106  23% $304,293  100%
Average yield on interest-bearing due from banks and investment securities during the quarter - nominal  2.83%     2.45%     0.38     2.66%   
Average yield on interest-bearing due from banks and investment securities during the quarter - tax equivalent  2.95%     2.62%     0.33     2.77%   
                            

As of March 31, 2019, we maintained noninterest-bearing cash positions of $32.1 million and interest-bearing deposits of $30.4 million at the Federal Reserve Bank and correspondent banks.

Investment securities totaled $294.1 million at March 31, 2019, compared with $255.9 million and $256.9 million at March 31, 2018 and December 31, 2018, respectively. During the first quarter of 2019, the Merchants acquisition included securities with a par value of $107.4 million. Management elected to sell securities with a par value of $67.8 million which resulted in $92 thousand in net realized gains.

Average securities balances and weighted average tax equivalent yields for the quarters ended March 31, 2019 and 2018 were $303.5 million and 3.01% compared to $265.1 million and 2.75%, respectively.

At March 31, 2019, our net unrealized losses on available-for-sale investment securities were $701 thousand compared with net unrealized losses of $3.9 million and $4.3 million at March 31, 2018 and December 31, 2018, respectively. The changes in net unrealized losses on the investment securities portfolio are due to changes in market interest rates.

                           
TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
                           
  At March 31,       At December 31,
    % of    % of   Change   % of
  2019 Total 2018 Total Amount % 2018 Total
Demand - noninterest-bearing $385,696  31% $301,981  29% $83,715  28% $347,199  31%
Demand - interest-bearing  241,292  19   229,681  22   11,611  5%  252,202  22 
Money market accounts  311,853  25   232,870  22   78,983  34%  265,093  23 
Total demand  938,841  75   764,532  73   174,309  23%  864,494  76 
                           
Savings  139,237  11   107,986  10   31,251  29%  114,840  10 
Total non-maturing deposits  1,078,078  67   872,518  83   205,560  24%  979,334  86 
                           
Certificates of deposit  170,216  14   176,233  17   (6,017) (3)%  152,382  14 
Total deposits $1,248,294  100% $1,048,751  100% $199,543  19% $1,131,716  100%
                           

Total deposits at March 31, 2019, increased $200 million or 19% to $1.248 billion compared to March 31, 2018 and increased $117 million or 42% annualized compared to December 31, 2018. Total non-maturing deposits increased $206 million or 24% compared to the same date a year ago and increased $99 million or 41% annualized compared to December 31, 2018. Certificates of deposit decreased $6 million or 3% compared to the same date a year ago and increased $18 million or 47% annualized compared to December 31, 2018.

During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $190.2 million of deposits, which are essentially unchanged at March 31, 2019. As illustrated in the following table, legacy deposits have experienced their seasonal decline, while wholesale time deposits have matured and were not renewed.

                
TABLE 4a
YEAR TO DATE CHANGES IN DEPOSITS
(amounts in thousands)
  Legacy Deposits Acquired MerchantsDeposits Change In Deposits
  At December 31, At March 31,  Legacy Deposits At March 31,
  2018 2019 Deposits 2019
Demand - noninterest-bearing $347,199  $49,892  $(11,395) $385,696 
Demand - interest-bearing  252,202   28,344   (39,254)  241,292 
Money market accounts  265,093   46,321   439   311,853 
Total demand  864,494   124,557   (50,210)  938,841 
                
Savings  114,840   28,386   (3,989)  139,237 
Total non-maturing deposits  979,334   152,943   (54,199)  1,078,078 
                
Certificates of deposit  152,382   36,863   (19,029)  170,216 
Total deposits $1,131,716  $189,806  $(73,228) $1,248,294 

TABLE 5
WHOLESALE AND RECIPROCAL DEPOSITS - UNAUDITED
(amounts in thousands)
             
  At March 31,  At December 31,
  2019 2018 2018
CDARS / ICS reciprocal deposits $65,192  $56,732  $83,666 
Online listing service wholesale time deposits  1,683   29,159   22,015 
Total wholesale and reciprocal deposits $66,875  $85,891  $105,681 
             

For calendar quarters prior to April 1, 2018, CDARS/ ICS reciprocal deposits were considered to be brokered deposits by regulatory authorities and were reported as such on quarterly Call Reports. With passage of The Economic Growth, Regulatory Relief and Consumer Protection Act in May 2018, this is no longer so.

AVERAGE COST OF FUNDS

The following table presents the average cost of interest-bearing deposits, all deposits and all interest-bearing liabilities for the periods indicated.

                                 
TABLE 6
AVERAGE COST OF FUNDS - UNAUDITED
For The Three Months Ended
                                 
  March 31,  December 31, September 30, June 30,  March 31, December 31, September 30, June 30,
  2019 2018 2018 2018 2018 2017 2017 2017
Interest-bearing deposits  0.49%  0.45%  0.42%  0.41%  0.41%  0.42%  0.43%  0.42%
Interest-bearing deposits and noninterest-bearing demand  0.34%  0.31%  0.29%  0.29%  0.29%  0.30%  0.31%  0.31%
All interest-bearing liabilities  0.67%  0.61%  0.64%  0.68%  0.60%  0.59%  0.60%  0.60%
All interest-bearing liabilities and noninterest-bearing demand  0.46%  0.42%  0.45%  0.50%  0.43%  0.42%  0.43%  0.44%
                                 

INCOME STATEMENT OVERVIEW

                      
TABLE 7
SUMMARY INCOME STATEMENT - UNAUDITED
(amounts in thousands, except per share data)
                      
For The Three Months Ended
  March 31,  Change December 31, Change
  2019 2018 Amount % 2018 Amount %
Interest income $14,427  $12,530  $1,897  15% $13,750  $677  5%
Interest expense  1,423   1,185   238  20%  1,256   167  13%
Net interest income  13,004   11,345   1,659  15%  12,494   510  4%
Provision for loan and lease losses          %       %
Noninterest income  1,057   982   75  8%  1,132   (75) (7)%
Noninterest expense  10,923   8,033   2,890  36%  8,868   2,055  23%
Income before provision for income taxes  3,138   4,294   (1,156) (27)%  4,758   (1,620) (34)%
Provision for income taxes:                     
Reversal of uncertain tax position          %  (988)  988  100%
Benefit from cost segregation study and tangible property review          %  (484)  484  100%
Provision for income taxes from operations  832   1,053   (221) (21)%  1,391   (559) (40)%
Total provision for income taxes  832   1,053   (221) (21)%  (81)  913  (1,127)%
Net income $2,306  $3,241  $(935) (29)% $4,839  $(2,533) (52)%
                      
Basic earnings per share $0.13  $0.20  $(0.07) (35)% $0.30  $(0.17) (57)%
Average basic shares  17,489   16,225   1,264  8%  16,265   1,224  8%
Diluted earnings per share $0.13  $0.20  $(0.07) (35)% $0.30  $(0.17) (57)%
Average diluted shares  17,552   16,310   1,242  8%  16,345   1,207  7%
Dividends declared per common share $0.04  $0.03  $0.01  33% $0.04  $  %
                           

First Quarter of 2019 Compared With First Quarter of 2018

Net income for the first quarter of 2019 decreased $935 thousand compared to the first quarter of 2018. In the current quarter, net interest income was $1.7 million higher, noninterest income was $75 thousand higher and the provision for income taxes was $221 thousand lower. These positive changes were offset by noninterest expenses that were $2.9 million higher.

Net Interest Income

Net interest income increased $1.7 million compared to the same period a year ago.

Interest income for the first quarter of 2019 increased $1.9 million or 15% to $14.4 million:

  • Interest and fees on loans increased $1.3 million due to a $109.4 million increase in average loan balances partially offset by a one basis point decrease in the average yield on the loan portfolio.
  • Interest on securities increased $479 thousand due to a $38.4 million increase in average securities balances and a 32 basis point increase in average yield on the securities portfolio.
  • Interest on interest-bearing deposits due from banks increased $116 thousand due to a $7.3 million increase in average interest-bearing deposit balances, and an 88 basis point increase in average yield.

Interest expense for the first quarter of 2019 increased $238 thousand or 20% to $1.4 million:

  • Interest expense on interest bearing deposits increased $241 thousand. Average interest-bearing demand and savings deposit balances increased $86.7 million, while average certificate of deposit balances decreased $14.4 million. The average rate paid on interest-bearing deposits increased eight basis points.
  • Interest expense on borrowings from the Federal Home Loan Bank of San Francisco increased $8 thousand. Average Federal Home Loan Bank of San Francisco borrowings outstanding in the current quarter were $8.8 million compared to $12.4 million in the same quarter a year ago.
  • Interest expense on other term debt and junior subordinated debentures decreased $11 thousand.

Provision for loan and lease losses

As illustrated in Table 9, the nonaccrual status of a $10.9 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, no calculated impairment reserve on this loan is indicated and no provision for loan and lease losses was necessary for the quarter.

Noninterest Income

Noninterest income for the three months ended March 31, 2019 increased $75 thousand compared to the first quarter for 2018. Gains on sale of investment securities increased $56 thousand and dividends on Federal Home Loan Bank of San Francisco stock increased $41 thousand.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2019 increased $2.9 million compared to the same period a year previous which included:

  • $1.9 million in acquisition costs
  • $0.6 million increase in operating expenses from the Merchants acquisition

The Company’s efficiency ratio was 77.7% for the first quarter of 2019 (64.0% exclusive of acquisition costs). The ratio during the same period in 2018 was 65.2%.

Income Tax Provision

For the three months ended March 31, 2019, our income tax provision of $832 thousand on pre-tax income of $3.1 million was an effective tax rate of 26.5%. The tax provision for the first quarter of the prior year was $1.1 million on pre-tax income of $4.3 million for an effective tax rate of 24.5%. The current quarter includes $135 thousand, of acquisition costs which are not tax deductible.

First Quarter of 2019 Compared With Fourth Quarter of 2018

Net income for the first quarter of 2019 decreased $2.5 million compared to the fourth quarter of 2018. In the current quarter, net interest income was $510 thousand higher. This positive change was offset by noninterest income that was $75 thousand lower, noninterest expense that was $2.1 million higher and provision for income taxes that was $913 thousand higher.

Net Interest Income

Net interest income increased $510 thousand over the prior quarter.

Interest income for the three months ended March 31, 2019 increased $677 thousand or 5% to $14.4 million.

  • Interest and fees on loans increased $537 thousand due to a $69.9 million increase in average loan balances partially offset by a three basis point decrease in the average yield on the loan portfolio.
  • Interest on investment securities increased $329 thousand due to a $42.5 million increase in average securities balances and a 10 basis point increase in average yield on the investment portfolio.
  • Interest on interest-bearing deposits due from banks decreased $189 thousand due to a $35.1 million decrease in average balances partially offset by an 18 basis point increase in average yield.

Interest expense for the three months ended March 31, 2019 increased $167 thousand or 13% to $1.4 million.

  • Interest expense on deposits increased $114 thousand as average interest-bearing demand and savings deposits increased $34.5 million, average certificates of deposit increased $10.4 million and the average rate paid on these deposits increased by eight basis points.
  • Interest expense on borrowings from the Federal Home Loan Bank of San Francisco increased $55 thousand. Average Federal Home Loan Bank of San Francisco borrowings outstanding in the current quarter were $8.8 million, there were no borrowings in the prior quarter
  • Interest expense on other term debt and junior subordinated debentures decreased $2 thousand.

Provision for loan and lease losses

As illustrated in Table 9, the nonaccrual status of a $10.9 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, no calculated impairment reserve on this loan is indicated and no provision for loan and lease losses was necessary for the quarter.

Noninterest Income

Noninterest income for the three months ended March 31, 2019 decreased $75 thousand, the decrease was due to a $96 thousand special dividend on Federal Home Loan Bank of San Francisco stock in the prior quarter that did not recur and a decrease in gains on sale of OREO properties of $41 thousand. These decreases were partially offset by an increase in the gain on sale of investment securities of $89 thousand.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2019 increased $2.1 million. The increase was due to:

  • $1.1 million increase in acquisition costs
  • $0.6 million increase in operating expenses from the Merchants acquisition

The Company’s efficiency ratio was 77.7% for the first quarter of 2019 (64% exclusive of acquisition costs). The ratio during the prior quarter was 65.1%.

Income Tax Provision

For the three months ended March 31, 2019, our income tax provision of $832 thousand on pre-tax income of $3.1 million was an effective tax rate of 26.5%. The negative tax provision for the prior quarter of $81 thousand on pre-tax income of $4.8 million included:

  • $(988) thousand benefit due to the reversal of our uncertain tax position.
  • $(484) thousand benefit as a result to our cost segregation study and tangible property review.
  • $1.4 million tax provision on pre-tax net operating income of $4.8 million (29.2%).

The current and prior quarter include $135 thousand and $765 thousand, respectively, of acquisition costs which are not tax deductible.

Earnings Per Share

Diluted earnings per share were $0.13 for the three months ended March 31, 2019 compared with diluted earnings per share of $0.20 for the same period a year ago and diluted earnings per share of $0.30 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in table 7 presented earlier in this press release.

                                  
TABLE 8a
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
                                  
  For The Three Months Ended
  March 31, 2019 March 31, 2018 December 31, 2018
  Average     Yield / Average     Yield / Average     Yield /
(Amounts in thousands) Balance Interest(1) Rate (5) Balance Interest(1) Rate (5) Balance Interest(1) Rate (5)
Interest-earning assets:                                 
Net loans (2) $993,261  $12,031  4.91% $883,876  $10,729  4.92% $923,409  $11,494  4.94%
Taxable securities  253,068   1,764  2.83%  205,302   1,209  2.39%  218,137   1,469  2.67%
Tax-exempt securities  50,454   387  3.11%  59,789   463  3.14%  42,868   353  3.27%
Interest-bearing deposits in other banks  40,223   245  2.47%  32,915   129  1.59%  75,295   434  2.29%
Average interest-earning assets  1,337,006   14,427  4.38%  1,181,882   12,530  4.30%  1,259,709   13,750  4.33%
Cash and due from banks  21,392          17,641          22,447        
Premises and equipment, net  14,581          14,557          13,331        
Goodwill and core deposit intangible, net  11,872          1,998          1,842        
Other assets  41,009          32,485          31,488        
Average total assets $1,425,860         $1,248,563         $1,328,817        
                                  
Interest-bearing liabilities:                                 
Interest-bearing demand $243,376   126  0.21% $234,269   89  0.15% $257,227   141  0.22%
Money market accounts  293,396   289  0.40%  236,171   132  0.23%  265,190   207  0.31%
Savings deposits  131,081   111  0.34%  110,725   59  0.22%  110,934   92  0.33%
Certificates of deposit  167,463   490  1.19%  181,901   495  1.10%  157,035   462  1.17%
Federal Home Loan Bank of San Francisco borrowings  8,778   55  2.54%  12,444   47  1.53%       %
Other borrowings net of unamortized debt issuance costs  12,889   239  7.52%  16,528   281  6.90%  13,785   252  7.25%
Junior subordinated debentures  10,310   113  4.44%  10,310   82  3.23%  10,310   102  3.93%
Average interest-bearing liabilities  867,293   1,423  0.67%  802,348   1,185  0.60%  814,481   1,256  0.61%
Noninterest-bearing demand  388,410          307,397          367,457        
Other liabilities  17,452          11,749          12,846        
Shareholders’ equity  152,705          127,069          134,033        
Average liabilities and shareholders’ equity $1,425,860         $1,248,563         $1,328,817        
Net interest income and net interest margin (4)     $13,004  3.94%     $11,345  3.89%     $12,494  3.93%
Tax equivalent net interest margin (3)         3.98%         3.94%         3.96%
                                  
(1) Interest income on loans includes deferred fees and costs of approximately $181 thousand, $137 thousand, and $109 thousand for the three months ended March 31, 2019, and 2018 and December 31, 2018, respectively.
(2) Net loans includes average nonaccrual loans of $8.5 million, $4.8 million and $4.1 million for the three months ended March 31, 2019 and 2018 and December 31, 2018, respectively.
(3) Tax-exempt income has been adjusted to tax equivalent basis at a 21% for 2019 and 2018. The amount of such adjustments was an addition to recorded income of approximately $103 thousand, $123 thousand and $94 thousand for the three months ended March 31, 2019 and 2018 and December 31, 2018, respectively.
(4) Net interest margin is annualized net interest income expressed as a percentage of average interest-earning assets.
(5) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

TABLE 9
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED
(amounts in thousands)
                
  For The Three Months Ended
  March 31,  December 31, September 30, June 30,  March 31,
  2019 2018 2018 2018 2018
Beginning balance ALLL $12,292  $12,392  $12,388  $12,295  $11,925 
Provision for loan and lease losses               
Loans charged-off  (348)  (279)  (198)  (382)  (390)
Loan loss recoveries  298   179   202   475   760 
Ending balance ALLL $12,242  $12,292  $12,392  $12,388  $12,295 
                
  At March 31,  At December 31, At September 30, At June 30,  At March 31,
  2019 2018 2018 2018 2018
Nonaccrual loans:               
Commercial $1,018  $959  $899  $1,358  $1,109 
Real estate - construction and land development               
Real estate - commercial non-owner occupied  10,878             
Real estate - commercial owner occupied     548          
Real estate - residential - ITIN  2,392   2,388   2,571   2,613   2,839 
Real estate - residential - 1-4 family mortgage  182   185   179   184   188 
Real estate - residential - equity lines  42   43   44   44   45 
Consumer and other  23   23   24   33   35 
Total nonaccrual loans  14,535   4,146   3,717   4,232   4,216 
Accruing troubled debt restructured loans:               
Commercial  1,187   1,224   1,291   1,420   1,516 
Real estate - commercial non-owner occupied  793   795   797   799   800 
Real estate - residential - ITIN  4,342   4,484   4,535   4,592   4,554 
Real estate - residential - equity lines  358   363   367   372   376 
Total accruing troubled debt restructured loans  6,680   6,866   6,990   7,183   7,246 
                
All other accruing impaired loans               
                
Total impaired loans $21,215  $11,012  $10,707  $11,415  $11,462 
                
Gross loans outstanding at period end $1,034,606  $946,251  $927,480  $936,816  $900,420 
                
Impaired loans to gross loans  2.05%  1.16%  1.15%  1.22%  1.27%
Nonaccrual loans to gross loans  1.40%  0.44%  0.40%  0.45%  0.47%
                
Allowance for loan and lease losses as a percent of:         
Gross loans  1.18%  1.30%  1.34%  1.32%  1.37%
Nonaccrual loans  84.22%  296.48%  333.39%  292.72%  291.63%
Impaired loans  57.70%  111.62%  115.74%  108.52%  107.27%
                     

We continue to monitor credit quality and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. As illustrated in Table 9, the nonaccrual status of a $10.9 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, no calculated impairment reserve on this loan is indicated and no provision for loan and lease losses was necessary for the quarter. There was no provision for loan and lease loss during the prior quarter or during the same quarter a year ago. The loans acquired from Merchants were recorded at fair value which included a discount for credit risk which is not a part of the ALLL. As a result, our ALLL as a percentage of gross loans was declined to 1.18% as of March 31, 2019 compared to 1.37% as of March 31, 2018 and 1.30% as of December 31, 2018. Based on the Bank’s ALLL methodology, which uses criteria such as risk factors and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company’s ALLL is adequate at March 31, 2019. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

At March 31, 2019, the recorded investment in loans classified as impaired totaled $21.2 million, with a corresponding specific reserve of $1.4 million compared to impaired loans of $11.5 million with a corresponding specific reserve of $1.1 million at March 31, 2018 and impaired loans of $11.0 million, with a corresponding specific reserve of $1.2 million at December 31, 2018. The increase in loans classified as impaired results from one $10.9 million commercial real estate loan which at March 31, 2019 had zero calculated impairment.

                     
TABLE 10
TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(amounts in thousands)
                     
  At March 31,  At December 31, At September 30, At June 30,  At March 31,
  2019 2018 2018 2018 2018
Nonaccrual $2,725  $2,693  $2,720  $3,218  $3,237 
Accruing  6,680   6,866   6,990   7,183   7,246 
Total troubled debt restructurings $9,405  $9,559  $9,710  $10,401  $10,483 
                     
Troubled debt restructurings as a percentage of total gross loans  0.91%  1.01%  1.05%  1.11%  1.16%
                     

There were no new troubled debt restructurings during the three months ended March 31, 2019. As of March 31, 2019, we had 105 restructured loans that qualified as troubled debt restructurings, of which 104 were performing according to their restructured terms.

                     
TABLE 11
NONPERFORMING ASSETS - UNAUDITED
(amounts in thousands)
                     
  At March 31,  At December 31, At September 30, At June 30,  At March 31,
  2019 2018 2018 2018 2018
Total nonaccrual loans $ 14,535   $ 4,146   $ 3,717   $ 4,232   $ 4,216  
90 days past due and still accruing   —    —    —    —    — 
Total nonperforming loans   14,535     4,146     3,717     4,232     4,216  
                     
Other real estate owned ("OREO")   34     31     136     140     60  
Total nonperforming assets $ 14,569   $ 4,177   $ 3,853   $ 4,372   $ 4,276  
                     
Nonperforming loans to gross loans  1.40%  0.44%  0.40%  0.45%  0.47%
Nonperforming assets to total assets  0.99%  0.32%  0.29%  0.34%  0.34%

TABLE 12
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
               
  At March 31, Change At December 31,
  2019 2018 $ % 2018
Assets:              
Cash and due from banks $32,104  $16,247  $15,857  98% $23,692 
Interest-bearing deposits in other banks  30,425   17,376   13,049  75%  23,673 
Total cash and cash equivalents  62,529   33,623   28,906  86%  47,365 
               
Securities available-for-sale, at fair value  294,117   255,917   38,200  15%  256,928 
Loans, net of deferred fees and costs  1,036,598   902,133   134,465  15%  948,178 
Allowance for loan and lease losses  (12,242)  (12,295)  53  %  (12,292)
Net loans  1,024,356   889,838   134,518  15%  935,886 
               
Premises and equipment, net  15,391   14,214   1,177  8%  13,119 
Other real estate owned  34   60   (26) (43)%  31 
Life insurance  23,294   22,027   1,267  6%  22,410 
Deferred tax asset, net  6,072   7,523   (1,451) (19)%  7,039 
Goodwill and core deposit intangible, net  17,094   1,975   15,119  766%  1,841 
Other assets  28,604   20,398   8,206  40%  22,485 
Total assets $1,471,491  $1,245,575  $225,916  18% $1,307,104 
               
Liabilities and shareholders' equity:              
Demand - noninterest-bearing $385,696  $301,981  $83,715  28% $347,199 
Demand - interest-bearing  241,292   229,681   11,611  5%  252,202 
Money market  311,853   232,870   78,983  34%  265,093 
Savings  139,237   107,986   31,251  29%  114,840 
Certificates of deposit  170,216   176,233   (6,017) (3)%  152,382 
Total deposits  1,248,294   1,048,751   199,543  19%  1,131,716 
               
Term debt:              
Federal Home Loan Bank of San Francisco borrowings  20,000   30,000   (10,000) (33)%   
Other borrowings  12,596   16,196   (3,600) (22)%  13,496 
Unamortized debt issuance costs  (79)  (127)  48  (38)%  (91)
Net term debt  32,517   46,069   (13,552) (29)%  13,405 
               
Junior subordinated debentures  10,310   10,310     %  10,310 
Other liabilities  18,272   12,723   5,549  44%  13,352 
Total liabilities  1,309,393   1,117,853   191,540  17%  1,168,783 
               
Shareholders' equity:              
Common stock  71,966   51,959   20,007  39%  52,284 
Retained earnings  90,626   78,507   12,119  15%  89,045 
Accumulated other comprehensive loss, net of tax  (494)  (2,744)  2,250  (82)%  (3,008)
Total shareholders' equity  162,098   127,722   34,376  27%  138,321 
               
Total liabilities and shareholders' equity $1,471,491  $1,245,575  $225,916  18% $1,307,104 
               
Total interest-earning assets $1,361,841  $1,179,321  $182,520  15% $1,233,049 
Shares outstanding  18,213   16,315   1,898  12%  16,334 
Book value per share $8.90  $7.83  $1.07  14% $8.47 
Tangible book value per share (1) $7.96  $7.71  $0.25  3% $8.36 
               
(1) Tangible book value per share is computed by dividing total shareholders’ equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.

TABLE 13
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
 
  For The Three Months Ended
  March 31,  Change December 31,
  2019 2018 $ % 2018
Interest income:                 
Interest and fees on loans $12,031  $10,729  $1,302  12% $11,494 
Interest on taxable securities  1,764   1,209   555  46%  1,469 
Interest on tax-exempt securities  387   463   (76) (16)%  353 
Interest on interest-bearing deposits in other banks  245   129   116  90%  434 
Total interest income  14,427   12,530   1,897  15%  13,750 
Interest expense:                 
Interest on demand deposits  126   89   37  42%  141 
Interest on money market accounts  289   132   157  119%  207 
Interest on savings deposits  111   59   52  88%  92 
Interest on certificates of deposit  490   495   (5) (1)%  462 
Interest on Federal Home Loan Bank of San Francisco borrowings  55   47   8  17%   
Interest on other borrowings  239   281   (42) (15)%  252 
Interest on junior subordinated debentures  113   82   31  38%  102 
Total interest expense  1,423   1,185   238  20%  1,256 
Net interest income  13,004   11,345   1,659  15%  12,494 
Provision for loan and lease losses          %   
Net interest income after provision for loan and lease losses  13,004   11,345   1,659  15%  12,494 
Noninterest income:                 
Service charges on deposit accounts  168   176   (8) (5)%  161 
ATM and point of sale fees  265   266   (1) %  283 
Fees on payroll and benefit processing  171   169   2  1%  178 
Life insurance  129   129     %  128 
Gain on investment securities, net  92   36   56  156%  3 
Federal Home Loan Bank of San Francisco dividends  121   80   41  51%  201 
Gain on sale of OREO  23   16   7  44%  64 
Other income  88   110   (22) (20)%  114 
Total noninterest income  1,057   982   75  8%  1,132 

TABLE 13 - CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
                 
  For The Three Months Ended
  March 31,  Change December 31,
  2019 2018 $ % 2018
Noninterest expense:                
Salaries and related benefits  5,729   4,855   874  18%  4,812 
Premises and equipment  992   1,071   (79) (7)%  943 
Federal Deposit Insurance Corporation insurance premium  100   96   4  4%  93 
Data processing fees  559   432   127  29%  512 
Professional service fees  303   345   (42) (12)%  436 
Telecommunications  173   216   (43) (20)%  145 
Acquisition  1,930      1,930  100%  802 
Other expenses  1,137   1,018   119  12%  1,125 
Total noninterest expense  10,923   8,033   2,890  36%  8,868 
Income before provision for income taxes  3,138   4,294   (1,156) (27)%  4,758 
Provision for income taxes:                
Reversal of uncertain tax position          %  (988)
Benefit from cost segregation study and tangible property review          %  (484)
Provision for income taxes from operations  832   1,053   (221) (21)%  1,391 
Total provision for income taxes  832   1,053   (221) (21)%  (81)
Net income $2,306  $3,241  $(935) (29)% $4,839 
                 
Basic earnings per share $0.13  $0.20  $(0.07) (35)% $0.30 
Average basic shares  17,489   16,225   1,264  8%  16,265 
Diluted earnings per share $0.13  $0.20  $(0.07) (35)% $0.30 
Average diluted shares  17,552   16,310   1,242  8%  16,345 

TABLE 14
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
                     
  For The Three Months Ended
  March 31,  December 31, September 30, June 30,  March 31,
  2019 2018 2018 2018 2018
Earning assets:                    
Loans $993,261  $923,409  $930,863  $922,687  $883,876 
Taxable securities  253,068   218,137   199,883   206,247   205,302 
Tax exempt securities  50,454   42,868   48,561   50,306   59,789 
Interest-bearing deposits in other banks  40,223   75,295   50,397   29,041   32,915 
Total earning assets  1,337,006   1,259,709   1,229,704   1,208,281   1,181,882 
                     
Cash and due from banks  21,392   22,447   21,834   19,880   17,641 
Premises and equipment, net  14,581   13,331   13,768   14,167   14,557 
Goodwill and core deposit intangible, net  11,872   1,842   1,888   1,943   1,998 
Other assets  41,009   31,488   33,084   32,426   32,485 
Total assets $1,425,860  $1,328,817  $1,300,278  $1,276,697  $1,248,563 
                     
Liabilities and shareholders' equity:                    
Demand - noninterest-bearing $388,410  $367,457  $343,948  $309,199  $307,397 
Demand - interest-bearing  243,376   257,227   235,664   225,927   234,269 
Money market accounts  293,396   265,190   259,242   241,724   236,171 
Savings  131,081   110,934   107,349   107,108   110,725 
Certificates of deposit  167,463   157,035   163,302   170,824   181,901 
Total deposits  1,223,726   1,157,843   1,109,505   1,054,782   1,070,463 
                     
Federal Home Loan Bank of San Francisco borrowings  8,778      22,283   55,275   12,444 
Other borrowings net of unamortized debt issuance costs  12,889   13,785   14,681   15,614   16,528 
Junior subordinated debentures  10,310   10,310   10,310   10,310   10,310 
Other liabilities  17,452   12,846   12,000   12,535   11,749 
Total liabilities  1,273,155   1,194,784   1,168,779   1,148,516   1,121,494 
                     
Shareholders' equity  152,705   134,033   131,499   128,181   127,069 
Liabilities & shareholders' equity $1,425,860  $1,328,817  $1,300,278  $1,276,697  $1,248,563 

TABLE 15
UNAUDITED CONDENSED CONSOLIDATED
YEAR TO DATE AVERAGE BALANCE SHEETS
(amounts in thousands)
                     
  For the Three Months Ended For the Twelve Months Ended
  March 31,  March 31,  December 31, December 31, December 31,
  2019 2018 2018 2017 2016
Earning assets:                  
Loans $993,261  $883,876  $915,360  $818,119  $752,938 
Taxable securities  253,068   205,302   207,407   165,333   120,884 
Tax exempt securities  50,454   59,789   50,330   74,231   75,303 
Interest-bearing deposits in other banks  40,223   32,915   47,038   66,872   58,668 
Total earning assets  1,337,006   1,181,882   1,220,135   1,124,555   1,007,793 
                     
Cash and due from banks  21,392   17,641   20,468   18,301   15,831 
Premises and equipment, net  14,581   14,557   13,952   15,567   15,078 
Goodwill and core deposit intangible, net  11,872   1,998   1,917   2,136   1,888 
Other assets  41,009   32,485   32,369   37,692   39,160 
Total assets $1,425,860  $1,248,563  $1,288,841  $1,198,251  $1,079,750 
                     
Liabilities and shareholders' equity:                    
Demand - noninterest-bearing $388,410  $307,397  $332,197  $289,735  $226,368 
Demand - interest-bearing  243,376   234,269   238,328   209,792   172,011 
Money market accounts  293,396   236,171   250,685   224,913   202,159 
Savings  131,081   110,725   109,025   111,376   104,771 
Certificates of deposit  167,463   181,901   168,183   205,648   221,074 
Total deposits  1,223,726   1,070,463   1,098,418   1,041,464   926,383 
                     
Federal Home Loan Bank of San Francisco borrowings  8,778   12,444   22,466   302   17,856 
Other borrowings net of unamortized debt issuance costs  12,889   16,528   15,143   17,981   19,430 
Junior subordinated debentures  10,310   10,310   10,310   10,310   10,310 
Other liabilities  17,452   11,749   12,286   12,293   13,217 
Total liabilities  1,273,155   1,121,494   1,158,623   1,082,350   987,196 
                     
Shareholders' equity  152,705   127,069   130,218   115,901   92,554 
Liabilities & shareholders' equity $1,425,860  $1,248,563  $1,288,841  $1,198,251  $1,079,750 
                     

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Sacramento, California and is the parent company for Redding Bank of Commerce which operates under three separate names (Redding Bank of Commerce; Sacramento Bank of Commerce, a division of Redding Bank of Commerce; and The Merchants Bank of Sacramento, a division of Redding Bank of Commerce). As previously announced, the Bank will change its name for all operations to Merchants Bank of Commerce effective May 20, 2019. The Bank is an FDIC-insured California banking corporation providing community banking and financial services through twelve locations in northern California. The Bank was incorporated as a California banking corporation on November 25, 1981 and opened for business on October 22, 1982. The Company’s common stock is listed on the NASDAQ Global Market and trades under the symbol “BOCH”.

Contact Information:

Randall S. Eslick, President and Chief Executive OfficerTelephone Direct (916) 677-5800

James A. Sundquist, Executive Vice President and Chief Financial OfficerTelephone Direct (916) 677-5825

Samuel D. Jimenez, Executive Vice President and Chief Operating OfficerTelephone Direct (530) 722-3952

Andrea M. Newburn, Vice President and Senior Administrative Officer / Corporate SecretaryTelephone Direct (530) 722-3959

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