Quarterly Report (10-q)

Date : 05/03/2019 @ 8:12PM
Source : Edgar (US Regulatory)
Stock : Bank of Commerce Holdings (BOCH)
Quote : 10.64  0.12 (1.14%) @ 9:30PM

Quarterly Report (10-q)

 

 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

 

Commission file number 0-25135

 

Bank of Commerce Holdings

 

 

California

94-2823865

(State or jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

   

555 Capitol Mall, Suite 1255

95814

(Address of principal executive offices)

(Zip Code)

   

 

Registrant’s telephone number, including area code: (800) 421-2575

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

 Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes☒ No ☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

         

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☒

Emerging growth company ☐

         

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

 

Yes ☐ No ☒

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

  Title of each class

 

 

  Trading Symbol(s)

  Name of each exchange on which registered

  Common Stock

 

 

  BOCH

  Nasdaq

 

Outstanding shares of Common Stock, no par value, as of April 25, 2019: 18,213,334

 

 

 
 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Consolidated Balance Sheets (Unaudited)

March 31, 2019 and December 31, 2018

 

   

March 31,

   

December 31,

 

(Amounts in thousands, except share information)

 

2019

   

2018

 

Assets:

               

Cash and due from banks

  $ 32,104     $ 23,692  

Interest-bearing deposits in other banks

    30,425       23,673  

Total cash and cash equivalents

    62,529       47,365  
                 

Securities available-for-sale, at fair value

    294,117       256,928  
                 

Loans, net of deferred fees and costs

    1,036,598       948,178  

Allowance for loan and lease losses

    (12,242 )     (12,292 )

Net loans

    1,024,356       935,886  
                 

Premises and equipment, net

    15,391       13,119  

Other real estate owned

    34       31  

Life insurance

    23,294       22,410  

Deferred tax asset, net

    6,072       7,039  

Goodwill and core deposit intangible, net

    17,094       1,841  

Other assets

    28,604       22,485  

Total assets

  $ 1,471,491     $ 1,307,104  
                 

Liabilities and shareholders' equity:

               

Liabilities:

               

Demand - noninterest-bearing

  $ 385,696     $ 347,199  

Demand - interest-bearing

    241,292       252,202  

Money market

    311,853       265,093  

Savings

    139,237       114,840  

Certificates of deposit

    170,216       152,382  

Total deposits

    1,248,294       1,131,716  
                 

Term debt:

               

Federal Home Loan Bank of San Francisco borrowings

    20,000        

Other borrowings

    12,596       13,496  

Less unamortized debt issuance costs

    (79 )     (91 )

Net term debt

    32,517       13,405  
                 

Junior subordinated debentures

    10,310       10,310  

Other liabilities

    18,272       13,352  

Total liabilities

    1,309,393       1,168,783  
                 

Commitments and contingencies (Note 7)

               

Shareholders' equity:

               

Common stock, no par value, 50,000,000 shares authorized: issued and outstanding - 18,213,334 as of March 31, 2019 and 16,333,502 as of December 31, 2018

    71,966       52,284  

Retained earnings

    90,626       89,045  

Accumulated other comprehensive loss, net of tax

    (494 )     (3,008 )

Total shareholders' equity

    162,098       138,321  

Total liabilities and shareholders' equity

  $ 1,471,491     $ 1,307,104  

 

See accompanying notes to consolidated financial statements.

 

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

For the three months ended March 31, 2019 and 2018

 

   

For the Three Months Ended

 
   

March 31,

 

(Amounts in thousands, except per share information)

 

2019

   

2018

 

Interest income:

               

Interest and fees on loans

  $ 12,031     $ 10,729  

Interest on taxable securities

    1,764       1,209  

Interest on tax-exempt securities

    387       463  

Interest on interest-bearing deposits in other banks

    245       129  

Total interest income

    14,427       12,530  

Interest expense:

               

Interest on demand - interest-bearing

    126       89  

Interest on money market

    289       132  

Interest on savings

    111       59  

Interest on certificates of deposit

    490       495  

Interest on Federal Home Loan Bank of San Francisco borrowings

    55       47  

Interest on other borrowings

    239       281  

Interest on junior subordinated debentures

    113       82  

Total interest expense

    1,423       1,185  

Net interest income

    13,004       11,345  

Provision for loan and lease losses

           

Net interest income after provision for loan and lease losses

    13,004       11,345  

Noninterest income:

               

Service charges on deposit accounts

    169       176  

ATM and point of sale fees

    265       266  

Fees on payroll and benefit processing

    171       169  

Life insurance

    129       129  

Gain on sale of investment securities, net

    92       36  

Federal Home Loan Bank of San Francisco dividends

    121       80  

Gain on sale of OREO

    23       16  

Other income

    87       110  

Total noninterest income

    1,057       982  

Noninterest expense:

               

Salaries and related benefits

    5,729       4,855  

Premises and equipment

    992       1,071  

Federal Deposit Insurance Corporation insurance premium

    100       96  

Data processing fees

    559       432  

Professional service fees

    303       345  

Telecommunications

    173       216  

Acquisition costs

    1,930        

Other expenses

    1,137       1,018  

Total noninterest expense

    10,923       8,033  

Income before provision for income taxes

    3,138       4,294  

Provision for income taxes

    832       1,053  

Net income

  $ 2,306     $ 3,241  
                 

Earnings per share - basic

  $ 0.13     $ 0.20  

Weighted average shares - basic

    17,489       16,225  

Earnings per share - diluted

  $ 0.13     $ 0.20  

Weighted average shares - diluted

    17,552       16,310  

 

See accompanying notes to consolidated financial statements.

 

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

For the three months ended March 31, 2019 and 2018

 

   

For the Three Months Ended

 
   

March 31,

 

(Amounts in thousands)

 

2019

   

2018

 

Net income

  $ 2,306     $ 3,241  
                 

Available-for-sale securities:

               

Unrealized gains (losses) arising during the period

    3,661       (3,407 )

Income taxes

    (1,082 )     1,007  

Change in unrealized gains (losses), net of tax

    2,579       (2,400 )
                 

Reclassification adjustment for realized gains included in net income

    (92 )     (36 )

Income taxes

    27       10  

Realized gains, net of tax

    (65 )     (26 )

Net increase (decrease) in unrealized gains (losses) on available-for-sale securities

    2,514       (2,426 )

Other comprehensive income (loss)

    2,514       (2,426 )

Comprehensive income – Bank of Commerce Holdings

  $ 4,820     $ 815  

 

See accompanying notes to consolidated financial statements.

 

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

For the twelve months ended December 31, 2018 and three months ended March 31, 2019 (Unaudited)

 

 

                           

Accumulated

         
                           

Other

         
           

Common

           

Comprehensive

         
   

Common

   

Stock

   

Retained

   

(Loss) Income

         

(Amounts in thousands except per share information)

 

Shares

   

Amount

   

Earnings

   

Net of Tax

   

Total

 

January 1, 2018

    16,272     $ 51,830     $ 75,700     $ (266 )   $ 127,264  

Net income

                3,241             3,241  

Reclassification of accumulated other comprehensive income due to tax rate change

                52       (52 )      

Other comprehensive loss, net of tax

                      (2,426 )     (2,426 )

Comprehensive income

                            815  

Dividend declared on common stock ($0.03 per share)

                (486 )           (486 )

Stock compensation grants

    5       45                   45  

Restricted stock granted, net

    20                          

Stock options exercised

    19       113                   113  

Compensation expense associated with stock options

          3                   3  

Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes

          (32 )                 (32 )

Balance at March 31, 2018

    16,316     $ 51,959     $ 78,507     $ (2,744 )   $ 127,722  

Net income

                3,618             3,618  

Other comprehensive loss, net of tax

                      (696 )     (696 )

Comprehensive income

                            2,922  

Dividend declared on common stock ($0.04 per share)

                (650 )           (650 )

Stock options exercised

    2       10                   10  

Compensation expense associated with stock options

          2                   2  

Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes

          72                   72  

Balance at June 30, 2018

    16,318     $ 52,043     $ 81,475     $ (3,440 )   $ 130,078  

Net income

                4,032             4,032  

Other comprehensive loss, net of tax

                      (639 )     (639 )

Comprehensive income

                            3,393  

Dividend declared on common stock ($0.04 per share)

                (650 )           (650 )

Stock options exercised

    12       74                   74  

Compensation expense associated with stock options

          3                   3  

Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes

          71                   71  

Balance at September 30, 2018

    16,330     $ 52,191     $ 84,857     $ (4,079 )   $ 132,969  

Net income

                4,839             4,839  

Other comprehensive income, net of tax

                      1,071       1,071  

Comprehensive income

                            5,910  

Dividend on common stock ($0.04 per share)

                (651 )           (651 )

Stock options exercised

    4       19                   19  

Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes

          74                   74  

Balance at December 31, 2018

    16,334     $ 52,284     $ 89,045     $ (3,008 )   $ 138,321  

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

 

 

                           

Accumulated

         
                           

Other

         
           

Common

           

Comprehensive

         
   

Common

   

Stock

   

Retained

   

(Loss) Income

         

(Amounts in thousands except per share information)

 

Shares

   

Amount

   

Earnings

   

Net of Tax

   

Total

 

Balance at January 1, 2019

    16,334     $ 52,284     $ 89,045     $ (3,008 )   $ 138,321  

Net income

                2,306             2,306  

Other comprehensive income, net of tax

                      2,514       2,514  

Comprehensive income

                            4,820  

Dividend declared on common stock ($0.04 per share)

                (725 )           (725 )

Stock issued for Merchants acquisition

    1,834       19,606                       19,606  

Stock compensation grants

    6       58                   58  

Restricted stock granted, net

    31                          

Stock options exercised

    8       40                   40  

Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes

          (22 )                 (22 )

Balance at March 31, 2019

    18,213     $ 71,966     $ 90,626     $ (494 )   $ 162,098  

 

See accompanying notes to consolidated financial statements.

 

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

 

Consolidated Statements of Cash Flows (Unaudited)

For the three months ended March 31, 2019 and March 31, 2018

 

   

For the Three Months Ended

 
   

March 31,

 

(Amounts in thousands)

 

2019

   

2018

 

Cash flows from operating activities:

               

Net income

  $ 2,306     $ 3,241  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Provision for unfunded commitments

    (100 )      

Provision for depreciation and amortization

    417       506  

Amortization of core deposit intangible

    146       55  

Amortization of debt issuance costs

    12       11  

Compensation expense associated with stock options

          3  

Compensation expense associated with restricted stock

    72       71  

Tax benefits from vesting of restricted stock

    (4 )     (31 )

Net gain on sale or call of securities

    (92 )     (36 )

Amortization of investment premiums and accretion of discounts, net

    343       511  

Amortization of premiums and accretion of discounts on acquired loans, net

    (299 )     (289 )

(Gain) on disposal of fixed assets

          (5 )

Gain on sale of OREO

    (23 )     (16 )

Increase in cash surrender value of life insurance

    (129 )     (129 )

Increase (decrease) in deferred compensation and salary continuation plans

    19       (1 )

Increase in deferred loan fees and costs

    (54 )     (3 )

Decrease in other assets

    595       488  

Increase in other liabilities

    53       682  

Net cash provided by operating activities

    3,262       5,058  
                 

Cash flows from investing activities:

               

Proceeds from maturities and payments of available-for-sale securities

    11,101       7,910  

Proceeds from sale of available-for-sale securities

    67,402       19,398  

Purchases of available-for-sale securities

    (5,204 )     (20,334 )

Investment in qualified affordable housing partnerships

          (31 )

Loan originations, net of principal repayments

    (14,973 )     (23,136 )

Net repayment on loan pools

    12,100       3,150  

Purchase of premises and equipment

    (460 )     (48 )

Proceeds from the sale of OREO

    54       51  

Acquisition of Merchants Holding Company, net of cash paid

    (2,875 )      

Net cash uprovided (used) by investing activities

    67,145       (13,040 )

 

See accompanying notes to consolidated financial statements.

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited) (Continued)

 

   

For the Three Months Ended

 
   

March 31,

 

(Amounts in thousands)

 

2019

   

2018

 

Cash flows from financing activities:

               

Net decrease in demand, money market and savings

  $ (53,469 )   $ (40,959 )

Net decrease in certificates of deposit

    (20,169 )     (13,022 )

Advances on term debt

    130,000       70,000  

Repayment of term debt

    (110,900 )     (40,900 )

Proceeds from stock options exercised

    40       113  

Cash paid for shares surrendered for tax-withholding purposes

    (94 )     (111 )

Cash dividends paid on common stock

    (651 )     (486 )

Net cash used by financing activities

    (55,243 )     (25,365 )
                 

Net increase (decrease) in cash and cash equivalents

    15,164       (33,347 )

Cash and cash equivalents at beginning of year

    47,365       66,970  

Cash and cash equivalents at end of period

  $ 62,529     $ 33,623  

 

See accompanying notes to consolidated financial statements.

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited) (Continued)

For the three months ended March 31, 2019 and March 31, 2018

 

   

For the Three Months Ended

 
   

March 31,

 

(Amounts in thousands)

 

2019

   

2018

 

Supplemental disclosures of cash flow activity:

               

Cash paid during the period for:

               

Income taxes

  $ 1,040     $  

Interest

  $ 1,232     $ 1,043  

Operating leases

  $ 215     $ 207  

Supplemental disclosures of non cash investing activities:

               

Transfer of loans to other real estate owned

  $ 34     $ 60  
                 

Unrealized gain (loss) on investment securities available-for-sale

  $ 3,569     $ (3,443 )

Changes in net deferred tax asset related to changes in unrealized (gain) loss on investment securities available-for-sale

    (1,055 )     1,017  

Changes in accumulated other comprehensive income due to unrealized gain (loss) on investment securities available-for-sale, net of tax

  $ 2,514     $ (2,426 )
                 

Reclassification of accumulated other comprehensive income due to tax rate change

  $     $ 52  
                 

Supplemental disclosures of non cash financing activities:

               

Stock issued under employee plans

  $ 58     $ 45  

Cash dividend declared on common shares and payable after period-end

  $ 725     $ 486  
Right-of-use lease asset recorded on adoption of ASU No. 2016-02   $ 3,998     $  

Lease liability recorded on adoption of ASU No. 2016-02

  $ 4,363     $  

Transactions related to the acquisition of Merchants Holding Company:

               

Assets acquired - fair value

  $ 215,015     $  

Goodwill

  $ 11,045     $  

Liabilities assumed - fair value

  $ 191,153     $  

 

See accompanying notes to consolidated financial statements .

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Bank of Commerce Holdings (“Company,” “Holding Company,” “we,” or “us”), is a corporation organized under the laws of California and a bank holding company (“BHC”) registered under the Bank Holding Company Act of 1956, as amended (“BHC Act”) with its principal offices in Sacramento, California. The Holding Company’s principal business is to serve as a holding company for Redding Bank of Commerce (the “Bank” and together with the Holding Company, the “Company”) which operates under three separate names (Redding Bank of Commerce, Sacramento Bank of Commerce, a division of Redding Bank of Commerce and Merchants Bank of Sacramento, a division of Redding Bank of Commerce) and for Bank of Commerce Mortgage (inactive). The Company has an unconsolidated subsidiary in Bank of Commerce Holdings Trust II. The Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 are derived from the unaudited interim consolidated financial statements and audited consolidated financial statements and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. The Company believes that all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included and the disclosures made are adequate to make the information not misleading.

 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with prevailing practices within the banking and securities industries. In preparing such consolidated financial statements, management is required to make certain estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the Balance Sheets and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the valuation and impairment of investment securities, the determination of the allowance for loan and lease losses (“ALLL”), income taxes, the valuation of goodwill and Other Real Estate Owned (“OREO”), and fair value measurements. Certain amounts for prior periods have been reclassified to conform to the current financial statement presentation. The results of reclassifications are not considered material and have no effect on previously reported net income or shareholders' equity. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in Bank of Commerce Holdings 2018 Annual Report on Form 10-K. The consolidated results of operations and cash flows for the 2019 interim period shown in this report is not necessarily indicative of the results for any future interim period or the entire fiscal year.

 

Principles of Consolidation

 

The accompanying Consolidated Financial Statements include the accounts of the Holding Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. As of March 31, 2019 and December 31, 2018, the Company had one wholly-owned trust formed in 2005 to issue trust preferred securities and related common securities. We have not consolidated the accounts of the Trust in our Consolidated Financial Statements in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB”), Consolidation (“ASC 810”). We are not considered the primary beneficiary of the Trust (variable interest entity). As a result, the junior subordinated debentures issued by the Holding Company to the Trust are reflected on the Company’s Consolidated Balance Sheets .

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

 

Leases

 

We determine if an arrangement is a lease at inception. Operating leases are included in Other Assets and Other Liabilities in our Consolidated Balance Sheets . Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an incremental borrowing rate we use the borrowing rates for terms similar to the lease terms available under our existing line of credit with the Federal Home Loan Bank of San Francisco as our incremental borrowing rate in determining the present value of future payments. Our lease terms may include options to extend or terminate the lease which we recognize when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 

Application of new accounting guidance

ASU No. 2016-02

 

Description - In February of 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . This Update was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements on a retrospective basis. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement No. 6, Elements of Financial Statements, and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases.

 

Methods and timing of adoption – For public companies, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In July of 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842) . The standard contained improvements to ASU No. 2016-02 that permited presentation on a prospective basis.

 

Financial statement impact – We implemented the new leasing standard on January 1, 2019 on a prospective basis and recorded a new lease asset and related lease liability of approximately $4.4 million related to our current operating leases. The right-of-use asset was also reduced by $458 thousand for amounts recognized previously as part of the single lease cost.

 

 

 

NOTE 2. COMMON STOCK OUTSTANDING AND EARNINGS PER SHARE

 

On January 31, 2019 we issued 1,834,142 shares of common stock, and paid $15.3 million in cash as part of our acquisition of Merchants Holding Company (“Merchants”). Merchants shareholders now hold, in the aggregate, approximately 10% of our outstanding common stock. The acquisition, after fair value adjustments added $85.3 million in loans, $190.2 million in deposits and $107.4 million in investment securities to our bank as of January 31, 2019. See Note 10 Acquisition in these Notes to Consolidated Financial Statements for additional information on the acquisition

 

Basic earnings per share excludes dilution and is computed by dividing income by the weighted-average number of common shares outstanding for the period, excluding unvested restricted stock awards which do not have voting rights or share in dividends. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Holding Company. The computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share.

 

The following is a computation of basic and diluted earnings per share for the three months ended March 31, 2019 and 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

For the Three Months Ended

 

(Amounts in thousands, except per share information)

 

March 31,

 

Earnings Per Share

 

2019

   

2018

 

Numerators:

               

Net income

  $ 2,306     $ 3,241  

Denominators:

               

Weighted average number of common shares outstanding - basic (1)

    17,489       16,225  

Effect of potentially dilutive common shares (2)

    63       85  

Weighted average number of common shares outstanding - diluted

    17,552       16,310  

Earnings per common share:

               

Basic

  $ 0.13     $ 0.20  

Diluted

  $ 0.13     $ 0.20  

Anti-dilutive options not included in diluted earnings per share calculation

           

Anti-dilutive restricted shares not included in diluted earnings per share calculation

          42  

(1) Excludes unvested restricted shares because they do not have dividend or voting rights

(2) Represents the effects of the assumed exercise of stock options and vesting of non-participating restricted shares.

 

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE 3. SECURITIES

 

The following tables present the amortized costs, unrealized gains, unrealized losses and estimated fair values of our investment securities as of March 31, 2019, and December 31, 2018.

 

   

As of March 31, 2019

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Estimated

 

(Amounts in thousands)

 

Cost

   

Gain

   

Loss

   

Fair Value

 

Available-for-sale securities:

                               

U.S. government & agencies

  $ 46,264     $ 316     $ (129 )   $ 46,451  

Obligations of state and political subdivisions

    48,066       1,146       (277 )     48,935  

Residential mortgage-backed securities and collateralized mortgage obligations

    173,098       950       (2,234 )     171,814  

Corporate securities

    3,018             (60 )     2,958  

Commercial mortgage-backed securities

    24,277       32       (445 )     23,864  

Other asset-backed securities

    95                   95  

Total

  $ 294,818     $ 2,444     $ (3,145 )   $ 294,117  

 

 

   

As of December 31, 2018

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Estimated

 

(Amounts in thousands)

 

Cost

   

Gain

   

Loss

   

Fair Value

 

Available-for-sale securities:

                               

U.S. government & agencies

  $ 40,215     $ 202     $ (330 )   $ 40,087  

Obligations of state and political subdivisions

    50,037       1,082       (589 )     50,530  

Residential mortgage-backed securities and collateralized mortgage obligations

    142,355       129       (3,981 )     138,503  

Corporate securities

    3,022             (100 )     2,922  

Commercial mortgage-backed securities

    25,446       17       (701 )     24,762  

Other asset-backed securities

    123       1             124  

Total

  $ 261,198     $ 1,431     $ (5,701 )   $ 256,928  

 

 

The following table presents the expected maturities of investment securities at March 31, 2019.

 

 

   

Available-For-Sale

 

(Amounts in thousands)

 

Amortized Cost

   

Fair Value

 

Amounts maturing in:

               

One year or less

  $ 1,379     $ 1,384  

After one year through five years

    102,007       102,065  

After five years through ten years

    110,636       110,180  

After ten years

    80,796       80,488  

Total

  $ 294,818     $ 294,117  

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

 

The amortized cost and fair value of residential mortgage-backed securities, collateralized mortgage obligations and commercial mortgage securities are presented by their expected average life, rather than contractual maturity, because the underlying loans may be repaid without prepayment penalties.

 

At March 31, 2019 and December 31, 2018 securities with a fair value of $75.2 million and $68.8 million, respectively, were pledged as collateral to secure public fund deposits, Federal Home Loan Bank of San Francisco borrowings and for other purposes as required by law.

 

The following table presents the cash proceeds from sales of investment securities and the associated gross realized gains and gross realized losses that have been included in earnings for the three months ended March 31, 2019 and 2018.

 

   

Three Months Ended March 31,

 

(Amounts in thousands)

 

2019

   

2018

 

Proceeds from sales of investment securities

  $ 67,402     $ 19,398  
                 

Gross realized gains on sales of investment securities:

               

U.S. government & agencies

  $ 33     $  

Obligations of state and political subdivisions

    181       152  

Residential mortgage-backed securities and collateralized mortgage obligations

    47        

Total gross realized gains on sales of investment securities

    261       152  
                 

Gross realized losses on sales of investment securities:

               

U.S. government & agencies

    (4 )      

Obligations of state and political subdivisions

    (77 )     (71 )

Residential mortgage-backed securities and collateralized mortgage obligations

    (86 )      

Commercial mortgage-backed securities

    (2 )      

Other asset-backed securities

          (45 )

Total gross realized losses on sales of investment securities

    (169 )     (116 )

Gain on sales of investment securities, net

  $ 92     $ 36  

 

 

Investment securities that were in an unrealized loss position as of March 31, 2019 and December 31, 2018 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.

 

   

As of March 31, 2019

 
   

Less Than 12 Months

   

12 Months or More

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 

(Amounts in thousands)

 

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 

Available-for-sale securities:

                                               

U.S. government & agencies

  $ 2,846     $ (21 )   $ 13,045     $ (108 )   $ 15,891     $ (129 )

Obligations of states and political subdivisions

    1,718       (18 )     10,347       (259 )     12,065       (277 )

Residential mortgage-backed securities and collateralized mortgage obligations

    2,918       (12 )     95,998       (2,222 )     98,916       (2,234 )

Corporate securities

                2,958       (60 )     2,958       (60 )

Commercial mortgage-backed securities

    896       (8 )     20,012       (437 )     20,908       (445 )

Total temporarily impaired securities

  $ 8,378     $ (59 )   $ 142,360     $ (3,086 )   $ 150,738     $ (3,145 )

 

 

   

As of December 31, 2018

 
   

Less Than 12 Months

   

12 Months or More

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 

(Amounts in thousands)

 

Value

   

Loss

   

Value

   

Loss

   

Value

   

Loss

 

Available-for-sale securities:

                                               

U.S. government & agencies

  $ 7,223     $ (39 )   $ 12,274     $ (291 )   $ 19,497     $ (330 )

Obligations of states and political subdivisions

    5,545       (40 )     16,320       (549 )     21,865       (589 )

Residential mortgage-backed securities and collateralized mortgage obligations

    21,791       (183 )     93,038       (3,798 )     114,829       (3,981 )

Corporate securities

                2,922       (100 )     2,922       (100 )

Commercial mortgage-backed securities

    1,548       (7 )     20,176       (694 )     21,724       (701 )

Total temporarily impaired securities

  $ 36,107     $ (269 )   $ 144,730     $ (5,432 )   $ 180,837     $ (5,701 )

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

 

At March 31, 2019 and December 31, 2018, the number of securities that were in an unrealized loss position was 138 and 163, respectively. In the opinion of management, these securities are considered only temporarily impaired due to changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the underlying credit of the issuers or the underlying collateral. Our Investment Policy requires securities at the time of purchase to be rated A3/A- or higher by Moody’s, S&P and Fitch rating agencies. Management monitors the published credit ratings of our investment portfolio for material rating or outlook changes. For all private-label securities collateralized by mortgages, management also monitors the credit characteristics of the underlying mortgages to identify potential credit losses, if any, in the portfolio. Because the decline in fair value is not due to credit quality concerns, we have no plans to sell the securities before the recovery of their amortized cost, and the Bank has the ability to hold the securities to maturity these investments are not considered other-than-temporarily impaired.

 

The following table presents the characteristics of our securities that are in unrealized loss positions at March 31, 2019 and December 31, 2018.

 

     

Characteristics of securities in unrealized loss positions at

Available-for-sale securities:

   

March 31, 2019 and December 31, 2018

U.S. government & agencies

   

Direct obligations of the U.S. Government or obligations guaranteed by U.S. Government agencies.

Obligations of states and political subdivisions

   

General obligation issuances or revenue securities secured by revenues from specific sources issued by municipalities and political subdivisions located within the U.S.

Residential mortgage-backed securities and collateralized mortgage obligations

   

Obligations of U.S. government sponsored entities or non-governmental entities collateralized by high quality mortgages on residential properties. Issuances by non-governmental entities usually include good credit enhancements. Of the residential mortgage-backed securities and collateralized mortgage obligations that we owned at March 31, 2019 and December 31, 2018, 92% and 66% were issued or guaranteed by U.S. government sponsored entities, respectively.

Corporate securities

   

Debt obligations generally issued or guaranteed by large U.S. corporate institutions.

Commercial mortgage-backed securities

   

Obligations of U.S. government sponsored entities or non-governmental entities collateralized by high quality mortgages on commercial properties. Issuances by non-governmental entities usually include good credit enhancements. Of the commercial mortgage-backed securities that we owned at March 31, 2019 and December 31, 2018, 95% and 90% were issued or guaranteed by U.S. government sponsored entities, respectively.

Other asset-backed securities

   

Obligations secured by high quality loans with good credit enhancements issued by non-governmental issuers.

 

 

 

 

 

 

 

 

 

 

 

NOTE 4. LOANS

 

Outstanding loan balances consisted of the following at March 31, 2019, and December 31, 2018.

 

(Amounts in thousands)

 

March 31,

   

December 31,

 

Loan Portfolio

 

2019

   

2018

 

Commercial

  $ 149,575     $ 135,543  

Commercial real estate:

               

Real estate - construction and land development

    30,335       22,563  

Real estate - commercial non-owner occupied

    469,048       433,708  

Real estate - commercial owner occupied

    209,099       204,622  

Residential real estate:

               

Real estate - residential - Individual Tax Identification Number (“ITIN”)

    36,145       37,446  

Real estate - residential - 1-4 family mortgage

    68,092       34,366  

Real estate - residential - equity lines

    26,162       26,958  

Consumer and other

    46,150       51,045  

Gross loans

    1,034,606       946,251  

Deferred fees and costs

    1,992       1,927  

Loans, net of deferred fees and costs

    1,036,598       948,178  

Allowance for loan and lease losses

    (12,242 )     (12,292 )

Net loans

  $ 1,024,356     $ 935,886  

 

 

Certain loans are pledged as collateral for lines of credit with the Federal Home Loan Bank of San Francisco and the Federal Reserve Bank. Pledged loans totaled $480.0 million and $490.2 million at March 31, 2019 and December 31, 2018, respectively.

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

 

When we purchase loans, they are typically purchased at a discount to enhance yield and compensate for credit risk. Gross loan balances in the table above include net purchase discounts of $2.2 million and $2.5 million as of March 31, 2019, and December 31, 2018.

 

Gross loan balances in the table above include a fair value discount of $2.2 million for loans acquired from Merchants during the first quarter of 2019. We recorded $48 thousand in accretion of the discount for these loans during the three months ended March 31, 2019.

 

Past Due Loans

 

Past due loans (gross), segregated by loan portfolio were as follows, as of March 31, 2019, and December 31, 2018.

 

(Amounts in thousands)

  30-59     60-89    

90 or Greater

                           

Recorded

Investment >

 

Past Due Loans at

 

Days Past

   

Days Past

   

Days Past

   

Total Past

                   

90 Days and

 

March 31, 2019

 

Due

   

Due

   

Due

   

Due

   

Current

   

Total

   

Accruing

 

Commercial

  $ 190     $ 47     $     $ 237     $ 149,338     $ 149,575     $  

Commercial real estate:

                                                       

Real estate - construction and land development

                            30,335       30,335        

Real estate - commercial non-owner occupied

                10,878       10,878       458,170       469,048        

Real estate - commercial owner occupied

                            209,099       209,099        

Residential real estate:

                                                       

Real estate - residential - ITIN

    465       191       170       826       35,319       36,145        

Real estate - residential - 1-4 family mortgage

                            68,092       68,092        

Real estate - residential - equity lines

    78                   78       26,084       26,162        

Consumer and other

    152       102             254       45,896       46,150        

Total

  $ 885     $ 340     $ 11,048     $ 12,273     $ 1,022,333     $ 1,034,606     $  

 

 

(Amounts in thousands)

  30-59     60-89    

90 or Greater

                           

Recorded

Investment >

 

Past Due Loans at

 

Days Past

   

Days Past

   

Days Past

   

Total Past

                   

90 Days and

 

December 31, 2018

 

Due

   

Due

   

Due

   

Due

   

Current

   

Total

   

Accruing

 

Commercial

  $     $     $     $     $ 135,543     $ 135,543     $  

Commercial real estate:

                                                       

Real estate - construction and land development

                            22,563       22,563        

Real estate - commercial non-owner occupied

    10,878             548       11,426       422,282       433,708        

Real estate - commercial owner occupied

    688                   688       203,934       204,622        

Residential real estate:

                                                       

Real estate - residential - ITIN

    184       279       259       722       36,724       37,446        

Real estate - residential - 1-4 family mortgage

                185       185       34,181       34,366        

Real estate - residential - equity lines

    90                   90       26,868       26,958        

Consumer and other

    534       263             797       50,248       51,045        

Total

  $ 12,374     $ 542     $ 992     $ 13,908     $ 932,343     $ 946,251     $  

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

 

Nonaccrual Loans

 

Nonaccrual loans, segregated by loan portfolio, were as follows as of March 31, 2019 and December 31, 2018.

 

 

 

(Amounts in thousands)

 

March 31,

   

December 31,

 

Nonaccrual Loans

 

2019

   

2018

 

Commercial

  $ 1,018     $ 959  

Commercial real estate:

               

Real estate - commercial non-owner occupied

    10,878       548  

Residential real estate:

               

Real estate - residential - ITIN

    2,392       2,388  

Real estate - residential - 1-4 family mortgage

    182       185  

Real estate - residential - equity lines

    42       43  

Consumer and other

    23       23  

Total

  $ 14,535     $ 4,146  

 

 

Had nonaccrual loans performed in accordance with their contractual terms, we would have recognized additional interest income, net of tax, of approximately $158 thousand and $43 thousand for the three months ended March 31, 2019 and 2018, respectively.

 

Impaired Loans

 

A loan is considered impaired when, based on current information and events, we determine it is probable that we will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. The following tables summarize impaired loans by loan portfolio as of March 31, 2019, and December 31, 2018.

 

   

As of March 31, 2019

 
           

Unpaid

         

(Amounts in thousands)

 

Recorded

   

Principal

   

Related

 

Impaired Loans

 

Investment

   

Balance

   

Allowance

 

With no related allowance recorded:

                       

Commercial

  $ 47     $ 65     $  

Commercial real estate:

                       

Real estate - commercial non-owner occupied

    10,878       10,878        

Residential real estate:

                       

Real estate - residential - ITIN

    5,962       7,534        

Real estate - residential - 1-4 family mortgage

    182       221        

Real estate - residential - equity lines

    42       48        

Total with no related allowance recorded

  $ 17,111     $ 18,746     $  
                         

With an allowance recorded:

                       

Commercial

  $ 2,158     $ 2,299     $ 923  

Commercial real estate:

                       

Real estate - commercial non-owner occupied

    793       793       169  

Residential real estate:

                       

Real estate - residential - ITIN

    772       810       88  

Real estate - residential - equity lines

    358       358       179  

Consumer and other

    23       23       7  

Total with an allowance recorded

  $ 4,104     $ 4,283     $ 1,366  
                         

By loan portfolio:

                       

Commercial

  $ 2,205     $ 2,364     $ 923  

Commercial real estate

    11,671       11,671       169  

Residential real estate

    7,316       8,971       267  

Consumer and other

    23       23       7  

Total impaired loans

  $ 21,215     $ 23,029     $ 1,366  

 

 

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

 

   

As of December 31, 2018

 

(Amounts in thousands)

 

Recorded

   

Principal

   

Related

 

Impaired Loans

 

Investment

   

Balance

   

Allowance

 

With no related allowance recorded:

                       

Commercial

  $ 51     $ 69     $  

Commercial real estate:

                       

Real estate - commercial non-owner occupied

    548       548        

Residential real estate:

                       

Real estate - residential - ITIN

    6,138       7,676        

Real estate - residential - 1-4 family mortgage

    185       223        

Real estate - residential - equity lines

    43       48        

Total with no related allowance recorded

  $ 6,965     $ 8,564     $  
                         

With an allowance recorded:

                       

Commercial

  $ 2,132     $ 2,256     $ 748  

Commercial real estate:

                       

Real estate - commercial non-owner occupied

    795       795       209  

Residential real estate:

                       

Real estate - residential - ITIN

    734       772       91  

Real estate - residential - equity lines

    363       363       182  

Consumer and other

    23       23       7  

Total with an allowance recorded

  $ 4,047     $ 4,209     $ 1,237  
                         

By loan portfolio:

                       

Commercial

  $ 2,183     $ 2,325     $ 748  

Commercial real estate

    1,343       1,343       209  

Residential real estate

    7,463       9,082       273  

Consumer and other

    23