Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.764 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter and year ended December 31, 2020. Net income for the quarter ended December 31, 2020 was $5.1 million or $0.30 per share – diluted, compared with net income of $4.4 million or $0.24 per share – diluted for the same period of 2019. Net income for the year ended December 31, 2020 was $14.2 million or $0.83 per share – diluted, compared with net income of $15.0 million or $0.83 per share – diluted for the same period of 2019.

Significant Items for the fourth quarter of 2020:

  • COVID-19 loan deferrals outstanding declined to $9.5 million at December 31, 2020 as borrowers resumed making payments compared to deferral balances of $38.6 million and $123.3 million at September 30, 2020 and June 30, 2020, respectively.
  • 119 PPP loans totaling $32.7 million (20%) have been forgiven by the SBA or repaid by the borrower, resulting in $664 thousand of accelerated fee income.
  • COVID-19 credit concerns have moderated and no provision for loan and lease losses was required during the fourth quarter.

Randall S. Eslick, President and CEO commented: “Looking back on 2020, I could not be more proud of the accomplishments of our dedicated employees.  Despite the rollercoaster that was 2020, the year was unexpectedly positive for our company.  We supported our employees, customers and communities through the pandemic; we saw substantial growth in loans and deposits; and we ended the year delivering solid returns to our investors. Our company is well positioned for future success.” 

Financial highlights for the year ended December 31, 2020:

  • Net income of $14.2 million was a decrease of $797 thousand (5%) from $15.0 million earned during the prior year. Earnings of $0.83 per share – diluted was unchanged compared to the prior year and reflects the impact of the following:
    • 1.5 million shares of common stock repurchased between October of 2019 and April of 2020.
    • $5.3 million provision for loan and lease losses for the current year.
    • $1.1 million in non-recurring costs during the first quarter of 2020 associated with the termination of a technology management services contract and a severance agreement; both previously announced.
    • $2.7 million in non-recurring costs recorded during the year ended December 31, 2019 associated with our January 31, 2019 acquisition of Merchants National Bank of Sacramento and the name change of our subsidiary bank.
  • Net interest income increased $1.9 million (4%) to $55.5 million compared to $53.5 million in the prior year.
  • Net interest margin declined to 3.60% compared to 3.94% in the prior year.
  • Return on average assets decreased to 0.86% compared to 1.03% in the prior year.
  • Return on average equity decreased to 8.27% compared to 9.09% in the prior year.
  • Average loans totaled $1.149 billion, an increase of $129 million (13%) compared to average loans in the prior year.
  • Average earning assets totaled $1.539 billion, an increase of $178 million (13%) compared to average earning assets in the prior year.
  • Average deposits totaled $1.423 billion, an increase of $179 million (14%) compared to average deposits in the prior year.
    • Average non-maturing deposits totaled $1.281 billion, an increase of $197 million (18%) compared to the prior year.
    • Average certificates of deposit totaled $142.1 million, a decrease of $18.5 million (12%) compared to the prior year.
  • The Company’s efficiency ratio was 58.8% compared to 64.5% in the prior year.
    • The Company’s efficiency ratio of 58.8% for 2020 includes $1.1 million of non-recurring costs. The efficiency ratio excluding these costs was 56.9%.
    • The Company’s efficiency ratio of 64.5% for 2019 includes $2.7 million of non-recurring costs associated with our acquisition of Merchants and name change of our subsidiary bank. The efficiency ratio excluding these non-recurring costs is 59.9%.
  • Nonperforming assets at December 31, 2020 totaled $7.0 million or 0.40% of total assets, an increase of $1.4 million (24%) since December 31, 2019. The increase in nonperforming assets results primarily from two commercial loans totaling $1.4 million and a $640 thousand commercial real estate loan, all of which are well secured, that were placed on nonaccrual status during the year ending December 31, 2020.
  • Book value per common share was $10.58 at December 31, 2020 compared to $9.62 at December 31, 2019.
  • Tangible book value per common share was $9.64 at December 31, 2020 compared to $8.71 at December 31, 2019.

Financial highlights for the fourth quarter of 2020:

  • Net income of $5.1 million was an increase of $703 thousand (16%) from $4.4 million earned during the same period in the prior year. Earnings of $0.30 per share – diluted was an increase of $0.06 (25%) per share from $0.24 per share – diluted earned during the same period in the prior year and reflects the impact of the following:
    • 1.5 million shares of common stock repurchased between October of 2019 and April of 2020.
  • Net interest income increased $1.3 million (9%) to $14.6 million compared to $13.3 million for the same period in the prior year.
  • Net interest margin declined to 3.46% compared to 3.80% for the same period in the prior year.
  • Return on average assets decreased to 1.14% compared to 1.16% for the same period in the prior year.
  • Return on average equity increased to 11.56% compared to 10.06% for the same period in the prior year.
  • Average loans totaled $1.173 billion, an increase of $141 million (14%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.675 billion, an increase of $284 million (20%) compared to the same period in the prior year.
  • Average deposits totaled $1.555 billion, an increase of $273 million (21%) compared to the same period in the prior year.
    • Average non-maturing deposits totaled $1.417 billion, an increase of $288 million (26%) compared to the same period in the prior year.
    • Average certificates of deposit totaled $138.4 million, a decrease of $14.8 million (10%) compared to the same period in the prior year.
  • The Company’s efficiency ratio was 54.8% compared to 58.7% for the same period in the prior year.
  • Nonperforming assets at December 31, 2020 totaled $7.0 million or 0.40% of total assets, a decrease of $1.1 million (53% annualized) since September 30, 2020. The decrease in nonperforming assets was due to a $1.1 million commercial real estate loan that was placed on nonaccrual status in the second quarter of 2020 and paid off during the fourth quarter of 2020.
  • Book value per common share was $10.58 at December 31, 2020 compared to $10.32 at September 30, 2020.
  • Tangible book value per common share was $9.64 at December 31, 2020 compared to $9.38 at September 30, 2020.

Impact of COVID-19:

  • At December 31, 2020, we have 487 loans totaling $130.8 million in the Small Business Administration’s Paycheck Protection Program (“PPP”) compared to 606 loans totaling $163.5 million at September 30, 2020. Substantially all of the loans were made to existing customers and were funded under the two-year PPP loan program.
  • We have experienced significant increases in deposit balances during 2020. All PPP loan funds were deposited into customer accounts at our bank and customer behavior has emphasized savings during the economic slow down.
  • Organic loan growth continues to be slow as we maintain credit underwriting discipline in the current economic environment.
  • For the six-month period, from April through September, SBA made principal and interest payments on all our SBA 7(a) loans. In October, borrowers resumed responsibility for making their payments.
  • After considering qualitative and quantitative factors, management determined that the Company’s goodwill was not impaired at December 31, 2020.
  • At December 31, 2020, our workforce totaled 212 employees of which 107 are working remotely.
  • All of our branch offices remain open, although they are operating under a reduced schedule. Our pandemic response team is continuing to modify and enhance our workforce and customer protection as additional information or requirements are promulgated by the CDC and the state of California.

Forward-Looking Statements

Bank of Commerce Holdings wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995. This news release includes statements by the Company, which describe management’s expectations and developments, which may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21B of the Securities Act of 1934, as amended. Future events are difficult to predict, and the expectations described above are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in the Company's public filings, factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) local, national and international economic conditions are less favorable than expected or have a more direct and pronounced effect on the Company than expected and adversely affect the Company's ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new banks and/or branches are lower than expected; (4) our concentration in lending tied to real estate exposes us to the adverse effects of material increases in interest rates, declines in the general economy, tightening credit markets or declines in real estate values; (5) competitive pressure among financial institutions increases significantly; (6) legislation or regulatory requirements or changes adversely affect the businesses in which the Company is engaged; and (7) technological changes could expose us to new risks.

                                         
TABLE 1  
SELECTED FINANCIAL INFORMATION - UNAUDITED  
(dollars in thousands except per share data)  
                                         
    For The Three Months Ended   For The Twelve Months Ended  
Net income, average assets and   December 31,     September 30,   December 31,  
average shareholders' equity   2020     2019     2020   2020     2019  
Net income   $ 5,072     $ 4,369     $ 4,329     $ 14,164     $ 14,961  
Average total assets   $ 1,774,937     $ 1,492,643     $ 1,704,116     $ 1,640,519     $ 1,458,112  
Average total earning assets   $ 1,674,544     $ 1,390,446     $ 1,601,436     $ 1,538,605     $ 1,360,325  
Average shareholders' equity   $ 174,520     $ 172,385     $ 171,433     $ 171,287     $ 164,642  
                                         
Selected performance ratios                                        
Return on average assets     1.14 %     1.16 %     1.01 %     0.86 %     1.03 %
Return on average equity     11.56 %     10.06 %     10.05 %     8.27 %     9.09 %
Efficiency ratio     54.8 %     58.7 %     54.8 %     58.8 %     64.5 %
                                         
Share and per share amounts                                        
Weighted average shares - basic (1)     16,663       18,068       16,660       16,918       17,956  
Weighted average shares - diluted (1)     16,731       18,150       16,696       16,963       18,024  
Earnings per share - basic   $ 0.30     $ 0.24     $ 0.26     $ 0.84     $ 0.83  
Earnings per share - diluted   $ 0.30     $ 0.24     $ 0.26     $ 0.83     $ 0.83  
                                         
    At December 31,     At September 30,      
Share and per share amounts   2020     2019     2020            
Common shares outstanding (2)     16,801       18,137       16,792                  
Book value per common share (2)   $ 10.58     $ 9.62     $ 10.32                  
Tangible book value per common share (2)(3)   $ 9.64     $ 8.71     $ 9.38                  
                                         
Capital ratios (4)                                      
Bank of Commerce Holdings                                      
Common equity tier 1 capital ratio     13.12 %     13.19 %     12.61 %                
Tier 1 capital ratio     13.97 %     14.04 %     13.44 %                
Total capital ratio     16.06 %     15.97 %     15.53 %                
Tier 1 leverage ratio     9.46 %     11.30 %     9.60 %                
Tangible common equity ratio (5)     9.27 %     10.80 %     9.13 %                
                                         
Merchants Bank of Commerce                                        
Common equity tier 1 capital ratio     14.58 %     14.39 %     14.01 %                
Tier 1 capital ratio     14.58 %     14.39 %     14.01 %                
Total capital ratio     15.83 %     15.48 %     15.26 %                
Tier 1 leverage ratio     9.86 %     11.58 %     9.99 %                
                                         
(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) Book value per share is computed by dividing total shareholders’ equity by shares outstanding. 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 December 31, 2020, the Company had total consolidated assets of $1.764 billion, gross loans of $1.140 billion, allowance for loan and lease losses (“ALLL”) of $17 million, total deposits of $1.543 billion, and shareholders’ equity of $178 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(dollars in thousands)
                                               
  At December 31,             At September 30,
      % of       % of   Change       % of
  2020     Total   2019     Total   Amount   %   2020     Total
Commercial $ 115,559     10 %   $ 141,197     14 %   $ (25,638 )   (18 ) %   $ 121,025     10 %
Paycheck protection program   130,814     11                 130,814     100   %     163,493     14  
Real estate - construction and land development   44,549     4       26,830     3       17,719     66   %     40,289     3  
Real estate - commercial non-owner occupied   512,832     45       493,920     48       18,912     4   %     538,079     45  
Real estate - commercial owner occupied   210,155     18       218,833     21       (8,678 )   (4 ) %     210,455     17  
Real estate - residential - ITIN   29,035     3       33,039     3       (4,004 )   (12 ) %     30,071     2  
Real estate - residential - 1-4 family mortgage   55,925     5       63,661     6       (7,736 )   (12 ) %     57,867     5  
Real estate - residential - equity lines   18,894     2       22,099     2       (3,205 )   (15 ) %     20,296     2  
Consumer and other   21,969     2       33,324     3       (11,355 )   (34 ) %     24,490     2  
Gross loans   1,139,732     100 %     1,032,903     100 %     106,829     10   %     1,206,065     100 %
Deferred (fees) and costs   229             2,162             (1,933 )           (1,037 )      
Loans, net of deferred fees and costs   1,139,961             1,035,065             104,896             1,205,028        
Allowance for loan and lease losses   (16,910 )           (12,231 )           (4,679 )           (16,873 )      
Net loans $ 1,123,051           $ 1,022,834           $ 100,217           $ 1,188,155        
                                               
Average loans during the quarter $ 1,172,705           $ 1,031,702           $ 141,003     14   %   $ 1,209,277        
Average loans during the quarter (excluding PPP) $ 1,024,324           $           $ 1,024,324     100   %   $ 1,046,187        
Average yield on loans during the quarter   4.59   %         4.86   %         (0.27 )   (6 ) %     4.42   %    
Average yield on loans during the quarter (excluding PPP)   4.67   %         4.86   %         (0.19 )   (4 ) %     4.75   %    
Average yield on loans year to date   4.57   %         4.95   %         (0.38 )   (8 ) %     4.56   %    
Average yield on loans year to date (excluding PPP)   4.75   %         4.95   %         (0.20 )   (4 ) %     4.77   %    

The Company recorded gross loan balances of $1.140 billion at December 31, 2020, compared with $1.033 billion and $1.206 billion at December 31, 2019 and September 30, 2020, respectively, an increase of $107 million and a decrease of $66 million, respectively.

The average yield on loans during the quarter was 4.59% compared to 4.86% and 4.42% for the quarters ended December 31, 2019 and September 30, 2020, respectively. Yields were impacted by PPP loans, which averaged $148.4 million and yielded 4.07% during the current quarter and $163.1 million and yielded 2.31% during the prior quarter.

Gross loan balances in the table above include a net fair value discount for loans acquired from Merchants of $920 thousand, $1.7 million and $1.1 million at December 31, 2020, December 31, 2019 and September 30, 2020, respectively. We recorded $141 thousand, $188 thousand and $233 thousand in accretion of the discount for these loans during the quarters ended December 31, 2020, December 31, 2019 and September 30, 2020, respectively.

We have 487 PPP loans totaling $130.8 million at December 31, 2020. During the fourth quarter of 2020, 119 PPP loans totaling $32.7 million were repaid. Loan fee income net of loan origination costs is earned over the 24-month life of the loans as a part of the loan yield. When a PPP loan is repaid prior to maturity, all unamortized fees and costs associated with the loan are accelerated into income. During the current quarter, we recognized $664 thousand in accelerated fee income. At December 31, 2020, net fees totaling $2.2 million remain to be earned in future quarters. The following tables provide additional information on the PPP loans by industry and by loan balance at December 31, 2020.

           
TABLE 3
PPP LOANS BY INDUSTRY - UNAUDITED
(dollars in thousands)
           
    At December 31, 2020
    Number   Balance
Construction   75   $ 55,644
Healthcare and Social Assistance   81     15,520
Professional, Scientific and Tech Services   58     7,708
Accommodation and Food Services   47     8,800
Admin, Support, Waste Management and Remediation Services   15     4,988
Primary Metal Manufacturing   14     5,037
Retail Trade   49     6,710
Other   148     26,407
Total   487   $ 130,814
TABLE 4
PPP LOANS BY LOAN SIZE - UNAUDITED
(dollars in thousands)
               
  At December 31, 2020
  Balance   Number   Average Loan Size
$50,000 or less $ 4,220   181   $ 23
$50,001 to $150,000   11,884   143     83
$150,001 to $350,000   19,150   85     225
$350,001 to $1,999,999   52,004   66     788
$2,000,000 or greater   43,556   12     3,630
Total $ 130,814   487   $ 269

During the third quarter of 2020, the SBA began accepting applications for PPP loan forgiveness. The bank has 60 days to review and approve an application before submitting it to SBA, and the SBA then has 90 days to process it for forgiveness. The following table presents the status of our loans in the forgiveness process.

TABLE 5
PPP LOANS FORGIVENESS APPLICATION STATUS - UNAUDITED
(dollars in thousands)
                               
  At December 31, 2020   At September 30, 2020
  Balance   Number   Average Loan Size   Balance   Number   Average Loan Size
Borrower has not started application $ 33,459   185   $ 181   $ 78,930   390   $ 202
Borrower is working on application   31,277   136     230     38,624   123     314
Borrower has completed application and the bank is reviewing it   43,872   105     418     32,400   73     444
Bank has approved application and submitted it to the SBA   22,087   44     502     13,539   20     677
Remaining balance for loans partially repaid   119   17     7          
PPP loans not fully repaid   130,814   487     269     163,493   606     270
                               
Repayments (1)   32,679   119     275          
Total PPP loans originated by bank $ 163,493   606   $ 270   $ 163,493   606   $ 270
                               
(1) Includes 119 loans fully repaid by SBA or the borrower and $3.2 million of partial repayment for 17 borrowers who participated in the SBA Economic Injury Disaster Loan ("EIDL") program.
TABLE 6
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(dollars in thousands)
                                                 
    At December 31,               At September 30,
        % of       % of   Change       % of
    2020   Total   2019   Total   Amount   %   2020   Total
Cash and due from banks   $ 19,875   4 %   $ 21,338   6 %   $ (1,463 )   (7 ) %   $ 22,884   5 %
Interest-bearing deposits in other banks     87,111   16       59,266   16       27,845     47   %     104,999   23  
Total cash and cash equivalents     106,986   20       80,604   22       26,382     33   %     127,883   28  
                                                 
Investment securities:                                                
U.S. government and agencies     32,994   6       38,733   11       (5,739 )   (15 ) %     31,811   7  
Obligations of state and political subdivisions     108,366   20       42,098   11       66,268     157   %     91,863   20  
Residential mortgage backed securities and collateralized mortgage obligations     240,478   42       180,835   49       59,643     33   %     165,693   35  
Corporate securities             2,966   1       (2,966 )   (100 ) %        
Commercial mortgage backed securities     28,074   5       19,307   5       8,767     45   %     19,576   4  
Other asset backed securities     36,968   7       3,011   1       33,957     1,128   %     28,089   6  
Total investment securities - AFS     446,880   80       286,950   78       159,930     56   %     337,032   72  
                                                 
Total cash, cash equivalents and investment securities   $ 553,866   100 %   $ 367,554   100 %   $ 186,312     51   %   $ 464,915   100 %
Average yield on interest-bearing due from banks during the quarter     0.12 %         1.66 %         (1.54 )           0.12 %    
Average yield on investment securities during the quarter - nominal     2.06 %         2.61 %         (0.55 )           2.33 %    
Average yield on investment securities during the quarter - tax equivalent     2.19 %         2.71 %         (0.52 )           2.50 %    

As of December 31, 2020, we maintained noninterest-bearing cash positions of $19.9 million and interest-bearing deposits of $87.1 million at the Federal Reserve Bank and correspondent banks. Management has been challenged to invest the rapidly increasing liquidity generated by growth in deposits and loan repayments. During the fourth quarter of 2020, we continued the deployment of excess cash into our investment portfolio.

Investment securities totaled $446.9 million at December 31, 2020, compared with $287.0 million and $337.0 million at December 31, 2019 and September 30, 2020, respectively. Our investment portfolio has shortened in duration considerably over the past year, which is now allowing us to add longer-term securities with a better yield without extending the duration of the total portfolio beyond our risk appetite. During the fourth quarter of 2020, we purchased securities with a par value of $133.3 million and weighted average yield of 1.49% (1.52% tax equivalent). Investment purchases were comprised primarily of longer duration municipal bonds and lower coupon, moderate-term mortgage backed securities. No securities were sold during the fourth quarter.

Average securities balances for the quarters ended December 31, 2020, December 31, 2019 and September 30, 2020 were $377.4 million, $277.6 million and $296.8 million, respectively. Weighted average yields on securities balances for those same periods were 2.06%, 2.61% and 2.33%, respectively.

At December 31, 2020, our net unrealized gains on available-for-sale investment securities were $10.6 million compared with net unrealized gains of $3.7 million and $10.4 million at December 31, 2019 and September 30, 2020, respectively. The changes in net unrealized gains were due to changes in market interest rates.

TABLE 7
DEPOSITS BY TYPE - UNAUDITED
(dollars in thousands)
                                               
  At December 31,               At September 30,
      % of       % of     Change       % of
  2020   Total   2019   Total   Amount   %   2020   Total
Demand - noninterest-bearing $ 541,033   35 %   $ 432,680   34 %   $ 108,353     25   %   $ 542,060   36 %
Demand - interest-bearing   290,251   19       239,258   19       50,993     21   %     280,370   18  
Money market   425,121   28       307,559   24       117,562     38   %     403,785   27  
Total demand   1,256,405   82       979,497   77       276,908     28   %     1,226,215   81  
                                               
Savings   150,695   10       135,888   11       14,807     11   %     151,016   10  
Total non-maturing deposits   1,407,100   92       1,115,385   88       291,715     26   %     1,377,231   91  
                                               
Certificates of deposit   135,679   8       151,786   12       (16,107 )   (11 ) %     140,900   9  
Total deposits $ 1,542,779   100 %   $ 1,267,171   100 %   $ 275,608     22   %   $ 1,518,131   100 %
                                               

Total deposits at December 31, 2020, increased $276 million or 22% to $1.543 billion compared to December 31, 2019 and increased $24.6 million or 6% annualized compared to September 30, 2020. Total non-maturing deposits increased $291.7 million or 26% compared to the same date a year ago and increased $29.9 million or 9% annualized compared to September 30, 2020. The increase in non-maturing deposits compared to the same period one year ago was due to PPP loan program disbursements and changes in customer behavior, which is placing greater emphasis on savings. Certificates of deposit decreased $16.1 million or 11% compared to the same date a year ago and decreased $5.2 million or 15% annualized compared to September 30, 2020. These decreases reflect our decision to reduce reliance on public deposits and depositor reaction to the low interest rate environment.

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

TABLE 8
AVERAGE COST OF FUNDS - UNAUDITED
For The Three Months Ended
                                                               
  December 31,   September 30,   June 30,   March 31,   December 31,   September 30,   June 30,   March 31,
  2020   2020   2020   2020   2019   2019   2019   2019
Interest-bearing deposits   0.29 %     0.36 %     0.43 %     0.53 %     0.56 %     0.56 %     0.54 %     0.49 %
Interest-bearing deposits and noninterest-bearing demand   0.19 %     0.23 %     0.28 %     0.35 %     0.38 %     0.38 %     0.37 %     0.34 %
All interest-bearing liabilities   0.37 %     0.44 %     0.52 %     0.65 %     0.68 %     0.68 %     0.74 %     0.67 %
All interest-bearing liabilities and noninterest-bearing demand   0.24 %     0.29 %     0.34 %     0.43 %     0.46 %     0.46 %     0.52 %     0.46 %

Equity

As detailed in Table 1, capital ratios remain appropriate for the Company’s risk profile.

In late 2019, we announced a program to repurchase 1.0 million common shares which was later increased to 1.5 million common shares. Between October of 2019 and April of 2020, all 1.5 million shares were repurchased at a total cost of $13.6 million including commissions, or an average of $9.11 per share.

During the fourth quarter of 2020, we announced a new share repurchase program to repurchase up to 1.0 million shares of common stock over a period ending December 31, 2021. As of December 31, 2020, no shares have been repurchased.

INCOME STATEMENT OVERVIEW

TABLE 9
SUMMARY INCOME STATEMENT - UNAUDITED
(dollars in thousands, except per share data)
                                         
  For The Three Months Ended
  December 31,   Change   September 30,   Change
  2020   2019   Amount   %   2020   Amount   %
Interest income $ 15,519   $ 14,808   $ 711     5   %   $ 15,218   $ 301     2   %
Interest expense   963     1,494     (531 )   (36 ) %     1,088     (125 )   (11 ) %
Net interest income   14,556     13,314     1,242     9   %     14,130     426     3   %
Provision for loan and lease losses                 %     1,100     (1,100 )   (100 ) %
Noninterest income   1,016     1,021     (5 )   0   %     1,189     (173 )   (15 ) %
Noninterest expense   8,534     8,421     113     1   %     8,390     144     2   %
Income before provision for income taxes   7,038     5,914     1,124     19   %     5,829     1,209     21   %
Provision for income taxes   1,966     1,545     421     27   %     1,500     466     31   %
Net income $ 5,072   $ 4,369   $ 703     16   %   $ 4,329   $ 743     17   %
                                         
Earnings per share - basic $ 0.30   $ 0.24   $ 0.06     25   %   $ 0.26   $ 0.04     15   %
Weighted average shares - basic   16,663     18,068     (1,405 )   (8 ) %     16,660     3       %
Earnings per share - diluted $ 0.30   $ 0.24   $ 0.06     25   %   $ 0.26   $ 0.04     15   %
Weighted average shares - diluted   16,731     18,150     (1,419 )   (8 ) %     16,696     35       %
Dividends declared per common share $ 0.06   $ 0.05   $ 0.01     20   %   $ 0.05   $ 0.01     20   %

Fourth Quarter of 2020 Compared With The Fourth Quarter of 2019

Net income for the fourth quarter of 2020 increased $703 thousand compared to the fourth quarter of 2019. In the current quarter, net interest income was $1.2 million higher. This positive change was partially offset by noninterest income that was $5 thousand lower, noninterest expense that was $113 thousand higher and a provision for income taxes that was $421 thousand higher.

Net Interest Income

Net interest income increased $1.2 million compared to the same period a year ago.

Interest income for the fourth quarter of 2020 increased $711 thousand or 5% to $15.5 million.

  • During the fourth quarter of 2020, we recognized $664 thousand in accelerated fee income on PPP loans forgiven or repaid during the quarter. These accelerated loan fees increased the average yield on loans for the fourth quarter of 2020 by 23 basis points.
  • PPP loans had an average balance of $148.4 million and yield of 4.07% (2.29% excluding accelerated fee income).
  • Excluding PPP loans, interest and fees on loans decreased $629 thousand due to a $7.4 million decrease in average loan balances and a 19 basis point decrease in average yield.
  • Interest on investment securities increased $126 thousand due to a $99.8 million increase in average securities balances partially offset by a 55 basis point decrease in average yield.
  • Interest on interest-bearing deposits due from banks decreased $304 thousand due to a 155 basis point decrease in average yield that was partially offset by a $43.3 million increase in average interest-bearing deposit balances. During 2020, in response to the economic effects of the COVID-19 pandemic, the Federal Reserve cut interest rates by 150 to 175 basis points.

Interest expense for the fourth quarter of 2020 decreased $531 thousand or 36% to $963 thousand.

  • Interest expense on interest-bearing deposits decreased $477 thousand. Average interest-bearing demand and savings deposit balances increased $163.9 million, while average certificate of deposit balances decreased $14.8 million. The average rate paid on interest-bearing deposits decreased 27 basis points.
  • Average FHLB borrowings were $7.1 million in the current quarter. The borrowings bear no interest under a program offered by the FHLB during the second quarter of 2020 in response to COVID-19 liquidity concerns. There were no borrowings during the same period a year ago.
  • Interest expense on other term debt decreased $4 thousand. The average debt balance was essentially unchanged, while the average rate paid decreased 18 basis points.
  • Interest expense on junior subordinated debentures decreased $50 thousand. The average debt balance was unchanged, while the average rate paid decreased 192 basis points.

Provision for Loan and Lease Losses

Most asset quality concerns from earlier in 2020 have moderated. Net loan recoveries were $36 thousand for the current quarter compared to net loan charge-offs of $54 thousand during the same period a year ago. Most COVID-19 loan payment deferrals have ended with no negative impact on delinquencies. Classified assets actually decreased during the current quarter due to a repayment of $7.2 million from one commercial real estate borrower. As a result, no provision for loan and lease losses was necessary during the current quarter. There was no provision for loan and lease losses in the fourth quarter of 2019. A more in depth discussion of our provision is provided following Table 11.

Noninterest Income

Noninterest income for the three months ended December 31, 2020 decreased $5 thousand compared to the same period a year previous.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2020 increased $113 thousand compared to the same period a year previous. Increases in noninterest expense included the following items:

  • $360 thousand increase in salaries and related benefits.
    • During the current quarter, we recognized increased incentive accruals and we hired three relationship managers to open a loan production office in Santa Rosa.
  • $105 thousand increase in FDIC insurance premiums.
    • During 2019, we benefited from a Small Bank Assessment Credit from the FDIC.

These increases were partially offset by $231 thousand savings in network infrastructure costs and a broad array of pandemic induced savings in areas such as travel, conferences and business development.

The Company’s efficiency ratio was 54.8% for the fourth quarter of 2020. The ratio during the same period in 2019 was 58.7%.

Income Tax Provision

For the three months ended December 31, 2020, our income tax provision of $2.0 million on pre-tax income of $7.0 million was an effective tax rate of 27.9%. The tax provision for the fourth quarter of the prior year was $1.5 million on pre-tax income of $5.9 million for an effective rate of 26.1%.

  • The tax provision of $2.0 million included $132 thousand applicable to earlier quarters, as deductible operating losses and tax credits from our low-income housing partnerships were lower than we anticipated. The effective tax rate excluding this $132 thousand was 26.1%.

Fourth Quarter of 2020 Compared With The Third Quarter of 2020

Net income for the fourth quarter of 2020 increased $743 thousand compared to the third quarter of 2020. In the current quarter, net interest income was $426 thousand higher and the provision for loan and lease losses was $1.1 million lower. These positive changes were partially offset by noninterest income that was $173 thousand lower, noninterest expense that was $144 thousand higher and a provision for income taxes that was $466 thousand higher.

Net Interest Income

Net interest income increased $426 thousand over the prior quarter.

Interest income for the three months ended December 31, 2020 increased $301 thousand or 2% to $15.5 million.

  • During the fourth quarter of 2020, we recognized $664 thousand in accelerated fee income on PPP loans forgiven or repaid during the quarter. These accelerated loan fees increased the average yield on loans for the fourth quarter of 2020 by 23 basis points.
  • PPP loans had an average balance of $148.4 million and yield of 4.07% (2.29% excluding accelerated fee income).
  • Excluding PPP loans, interest and fees on loans decreased $485 thousand due to a $21.9 million decrease in average loan balances and an 8 basis point decrease in average yield.
  • Interest on investment securities increased $210 thousand due to an $80.6 million increase in average security balances partially offset by a 28 basis point decrease in average yield.
  • Interest on interest-bearing deposits due from banks increased $7 thousand due to a $29.0 million increase in average balances partially offset by a 1 basis point decrease in average yield.

Interest expense for the three months ended December 31, 2020 decreased $125 thousand or 11% to $963 thousand.

  • Interest expense on interest-bearing deposits decreased $117 thousand. Average interest-bearing demand and savings deposit balances increased $50.6 million, while average certificates of deposit decreased $1.4 million. The average rate paid on interest-bearing deposits decreased 7 basis points.
  • Average FHLB borrowings were $7.1 million in the current quarter compared to $10.0 million in the prior quarter. The borrowings bear no interest under a program offered by the FHLB during the second quarter of 2020 in response to COVID-19 liquidity concerns.
  • Interest expense on other term debt decreased $5 thousand. The average debt balance was essentially unchanged, while the average rate paid decreased 21 basis points.
  • Interest expense on junior subordinated debentures decreased $3 thousand. The average debt balance was unchanged, while average rate paid decreased 12 basis points.

Provision for Loan and Lease Losses

Most asset quality concerns from earlier in 2020 have moderated. Net loan recoveries were $36 thousand in the current quarter compared to net loan charge-offs of $316 thousand in the prior quarter. Most COVID-19 loan deferrals ended with no negative impact on delinquencies. Classified assets actually decreased during the current quarter due to a repayment of $7.2 million on two loans from one commercial real estate borrower. Nonaccrual loans decreased by $1.1 million during the current quarter when compared to the previous quarter due to the repayment of a $1.1 million commercial real estate loan. As a result, management determined that no provision for loan and lease losses was necessary during the current quarter compared with a provision for loan and lease losses of $1.1 million in the prior quarter. A more in depth discussion of our provision is provided following Table 11.

Noninterest Income

Noninterest income for the three months ended December 31, 2020 decreased $173 thousand compared to the prior quarter. The prior quarter included a $258 thousand gain on sale of investment securities that did not recur in the current quarter.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2020 increased $144 thousand compared to the prior quarter. The increase was primarily due to an increase in accrual for incentives that was partially offset by a broad array of pandemic induced savings in areas such as travel, sponsorships, conferences and business development.

The Company’s efficiency ratio was 54.8% for both the fourth quarter of 2020 and the prior quarter.

Income Tax Provision

For the three months ended December 31, 2020, our income tax provision of $2.0 million on pre-tax income of $7.0 million was an effective tax rate of 27.9%. The income tax provision for the prior quarter of $1.5 million on pre-tax income of $5.8 million was an effective tax rate of 25.7%.

  • The tax provision of $2.0 million included $132 thousand applicable to earlier quarters, as deductible operating losses and tax credits from our low-income housing partnerships were lower than we anticipated. The effective tax rate excluding this $132 thousand was 26.1%.

Earnings Per Share

Diluted earnings per share were $0.30 for the three months ended December 31, 2020 compared with diluted earnings per share of $0.24 for the same period a year ago and diluted earnings per share of $0.26 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in Table 9 presented earlier in this press release.

TABLE 10a
NET INTEREST MARGIN - UNAUDITED
(dollars in thousands)
                                                       
    For The Three Months Ended
    December 31, 2020   December 31, 2019   September 30, 2020
    Average         Yield /   Average         Yield /   Average         Yield /
    Balance   Interest(1)   Rate (6)   Balance   Interest(1)   Rate (6)   Balance   Interest(1)   Rate (6)
Interest-earning assets:                                                      
Loans net of PPP (2)   $ 1,024,324   $ 12,014   4.67 %   $ 1,031,702   $ 12,643   4.86 %   $ 1,046,187   $ 12,499   4.75 %
PPP loans (3)     148,381     1,518   4.07 %           %     163,090     949   2.31 %
Taxable securities     304,242     1,484   1.94 %     245,487     1,567   2.53 %     228,045     1,284   2.24 %
Tax-exempt securities (4)     73,207     467   2.54 %     32,158     258   3.18 %     68,766     457   2.64 %
Interest-bearing deposits in other banks     124,390     36   0.12 %     81,099     340   1.66 %     95,348     29   0.12 %
Average interest-earning assets     1,674,544     15,519   3.69 %     1,390,446     14,808   4.23 %     1,601,436     15,218   3.78 %
Cash and due from banks     22,413                 24,083                 23,381            
Premises and equipment, net     15,162                 16,049                 15,365            
Goodwill     11,671                 11,671                 11,671            
Other intangible assets, net     4,126                 4,890                 4,318            
Other assets     20,128                 17,121                 21,408            
Average total assets   $ 1,748,044               $ 1,464,260               $ 1,677,579            
                                                       
Interest-bearing liabilities:                                                      
Interest-bearing demand   $ 283,213     57   0.08 %   $ 244,276     108   0.18 %   $ 279,744     71   0.10 %
Money market     430,014     237   0.22 %     318,127     479   0.60 %     387,995     289   0.30 %
Savings     151,223     53   0.14 %     138,155     128   0.37 %     146,074     74   0.20 %
Certificates of deposit     138,380     390   1.12 %     153,223     499   1.29 %     139,757     420   1.20 %
Federal Home Loan Bank of San Francisco borrowings     7,120       %           %     10,000       %
Other borrowings net of unamortized debt issuance costs     9,999     179   7.12 %     9,952     183   7.30 %     9,988     184   7.33 %
Junior subordinated debentures     10,310     47   1.81 %     10,310     97   3.73 %     10,310     50   1.93 %
Average interest-bearing liabilities     1,030,259     963   0.37 %     874,043     1,494   0.68 %     983,868     1,088   0.44 %
Noninterest-bearing demand     552,601                 428,420                 531,459            
Other liabilities     17,557                 17,795                 17,356            
Shareholders’ equity     174,520                 172,385                 171,433            
Average liabilities and shareholders’ equity   $ 1,774,937               $ 1,492,643               $ 1,704,116            
Net interest income and net interest margin (5)         $ 14,556   3.46 %         $ 13,314   3.80 %         $ 14,130   3.51 %
                                                       
(1) Interest income on loans includes deferred fees and costs of approximately $85 thousand, $224 thousand, and $240 thousand for the three months ended December 31, 2020 and 2019 and September 30, 2020, respectively. Interest income on PPP loans includes $1.1 million and $538 thousand of fee income for the three months ended December 31, 2020 and September 30, 2020, respectively.
(2) Loans net of PPP includes average nonaccrual loans of $7.2 million, $11.4 million and $6.6 million for the three months ended December 31, 2020 and 2019 and September 30, 2020, respectively.
(3) PPP loans represents average gross loans and excludes deferred fees and costs.
(4) Interest income and yields on tax-exempt securities are not presented on a taxable equivalent basis.
(5) Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Net interest income for the three months ended December 31, 2020 and 2019 and September 30, 2020 included $141 thousand, $188 thousand and $233 thousand in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by five, seven and seven basis points, respectively. Net interest income for the three months ended December 31, 2020 included $1.5 million in interest and fee income from PPP loans with an average balance of $148.4 million for the quarter, which increased the net interest margin by six basis points.
(6) 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 10b
NET INTEREST MARGIN - UNAUDITED
(dollars in thousands)
                                     
    For The Twelve Months Ended
    December 31, 2020   December 31, 2019
    Average         Yield /   Average         Yield /
    Balance   Interest(1)   Rate (6)   Balance   Interest(1)   Rate (6)
Interest-earning assets:                                    
Loans net of PPP (2)   $ 1,038,069   $ 49,262   4.75 %   $ 1,020,801   $ 50,534   4.95 %
PPP loans (3)     111,306     3,280   2.95 %           %
Taxable securities     245,336     5,679   2.31 %     246,723     6,673   2.70 %
Tax-exempt securities (4)     58,912     1,618   2.75 %     38,706     1,244   3.21 %
Interest-bearing deposits in other banks     84,982     240   0.28 %     54,095     1,112   2.06 %
Average interest-earning assets     1,538,605     60,079   3.90 %     1,360,325     59,563   4.38 %
Cash and due from banks     22,339                 22,806            
Premises and equipment, net     15,426                 15,598            
Goodwill     11,671                 10,758            
Other intangible assets, net     4,412                 4,807            
Other assets     20,966                 14,982            
Average total assets   $ 1,613,419               $ 1,429,276            
                                     
Interest-bearing liabilities:                                    
Interest-bearing demand   $ 264,652     313   0.12 %   $ 242,516     480   0.20 %
Money market     372,939     1,246   0.33 %     304,340     1,599   0.53 %
Savings     142,857     340   0.24 %     136,733     493   0.36 %
Certificates of deposit     142,067     1,741   1.23 %     160,550     1,977   1.23 %
Federal Home Loan Bank of San Francisco borrowings     8,347     5   0.06 %     9,644     247   2.56 %
Other borrowings net of unamortized debt issuance costs     9,981     731   7.32 %     10,895     806   7.40 %
Junior subordinated debentures     10,310     248   2.41 %     10,310     426   4.13 %
Average interest-bearing liabilities     951,153     4,624   0.49 %     874,988     6,028   0.69 %
Noninterest-bearing demand     500,862                 400,588            
Other liabilities     17,217                 17,894            
Shareholders’ equity     171,287                 164,642            
Average liabilities and shareholders’ equity   $ 1,640,519               $ 1,458,112            
Net interest income and net interest margin (5)         $ 55,455   3.60 %         $ 53,535   3.94 %
                                     
(1) Interest income on loans includes deferred fees and costs of approximately $720 thousand and $657 thousand for the years ended December 31, 2020 and 2019, respectively. Interest income on PPP loans includes $2.2 million of fee income for the year ended December 31, 2020.
(2) Loans net of PPP includes average nonaccrual loans of $6.2 million and $11.7 million for the years ended December 31, 2020 and 2019, respectively.
(3) PPP loans represents average gross loans and excludes deferred fees and costs.
(4) Interest income and yields on tax-exempt securities are not presented on a taxable equivalent basis.
(5) Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Net interest income for the years ended December 31, 2020 and 2019 included $753 thousand and $620 thousand, respectively, in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by six basis points. Net interest income for the year ended December 31, 2020 included $3.3 million in interest and fee income from PPP loans with an average balance of $111.3 million for the year ended December 31, 2020, which decreased the net interest margin by five basis points.
(6) 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 11  
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED  
(dollars in thousands)  
                                       
  For The Three Months Ended
  December 31,   September 30,   June 30,   March 31,   December 31,
  2020   2020   2020   2020   2019
ALLL beginning balance $ 16,873       $ 16,089       $ 15,067       $ 12,231       $ 12,285    
Provision for loan and lease losses           1,100         1,300         2,850            
Loans charged-off   (86 )       (502 )       (356 )       (169 )       (174 )  
Loan loss recoveries   123         186         78         155         120    
ALLL ending balance $ 16,910       $ 16,873       $ 16,089       $ 15,067       $ 12,231    
                                       
  At December 31,   At September 30,   At June 30,   At March 31,   At December 31,
  2020   2020   2020   2020   2019
Nonaccrual loans:                                      
Commercial $ 1,535       $ 1,549       $ 7       $ 39       $ 61    
Real estate - commercial non-owner occupied           1,062         1,062                    
Real estate - commercial owner occupied   3,734         3,750         3,647         3,103         3,103    
Real estate - residential - ITIN   1,585         1,574         1,738         1,878         2,221    
Real estate - residential - 1-4 family mortgage   141         145         180         184         191    
Consumer and other   18         18         37         39         40    
Total nonaccrual loans   7,013         8,098         6,671         5,243         5,616    
Accruing troubled debt restructured loans:                                      
Commercial   498         531         592         592         595    
Real estate - residential - ITIN   3,466         3,597         3,642         3,891         3,957    
Real estate - residential - equity lines   126         131         221         226         231    
Total accruing troubled debt restructured loans   4,090         4,259         4,455         4,709         4,783    
                                       
All other accruing impaired loans                                      
                                       
Total impaired loans $ 11,103       $ 12,357       $ 11,126       $ 9,952       $ 10,399    
                                       
Gross loans outstanding at period end $ 1,139,732       $ 1,206,065       $ 1,206,340       $ 1,052,245       $ 1,032,903    
                                       
Impaired loans to gross loans   0.97   %     1.02   %     0.92   %     0.95   %     1.01   %
Nonaccrual loans to gross loans   0.62   %     0.67   %     0.55   %     0.50   %     0.54   %
                                       
Allowance for loan and lease losses as a percent of:                          
Gross loans   1.48   %     1.40   %     1.33   %     1.43   %     1.18   %
Nonaccrual loans   241.12   %     208.36   %     241.18   %     287.37   %     217.79   %
Impaired loans   152.30   %     136.55   %     144.61   %     151.40   %     117.62   %
TABLE 12  
ALLOWANCE, RESERVE AND DISCOUNT - UNAUDITED  
(dollars in thousands)  
                                       
  At December 31,   At September 30,   At June 30,   At March 31,   At December 31,
  2020   2020   2020   2020   2019
ALLL $ 16,910     $ 16,873     $ 16,089     $ 15,067     $ 12,231  
Reserve for unfunded commitments   800       800       800       695       695  
Discount on acquired loans (1)   919       1,060       1,293       1,509       1,672  
Total allowance, reserve and discount $ 18,629     $ 18,733     $ 18,182     $ 17,271     $ 14,598  
                                       
Gross loans $ 1,139,732     $ 1,206,065     $ 1,206,340     $ 1,052,245     $ 1,032,903  
PPP loans (2)   130,814       163,493       162,189              
Total gross loans net of PPP loans $ 1,008,918     $ 1,042,572     $ 1,044,151     $ 1,052,245     $ 1,032,903  
                                       
Total allowance, reserve and discount as a percentage of total gross loans net of PPP loans (2)   1.85 %     1.80 %     1.74 %     1.64 %     1.41 %
(1) Discount on acquired loans includes fair value discount for loans acquired from Merchants in January of 2019.
(2) PPP loans are fully guaranteed by SBA and no allowance, reserve or discount is provided for them.

Provision for Loan and Lease Losses

We monitor credit quality and the general economic environment to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. Our review of ALLL adequacy utilizes both quantitative and qualitative factors. The quantitative analysis relies on historical loss rates which, unfortunately, may not be indicative of potential losses related to a pandemic such as we are currently experiencing with COVID-19. In response to quantitative data deficiencies, we have placed greater reliance on qualitative factors (Q-Factors).

During the current quarter, most of our COVID-19 loan deferrals have resumed payments: nonaccrual loans decreased due to the repayment of a $1.1 million commercial real estate loan and classified assets decreased due to repayment of $7.2 million from one commercial real estate borrower. As a result of improvement in our asset quality metrics, management determined that no provision for loan and lease losses was necessary during the current quarter. We recorded $1.1 million in provision for loan and lease losses in the prior quarter and there was no provision for loan and lease loss during the same quarter a year ago. Our ALLL as a percentage of gross loans was 1.48% as of December 31, 2020 compared to 1.18% as of December 31, 2019 and 1.40% as of September 30, 2020. Excluding SBA guaranteed PPP loans our ALLL as a percentage of gross loans was 1.68% as of December 31, 2020 compared to 1.62% as of September 30, 2020.

Our ALLL methodology, adjusted for the revised Q-Factors in prior quarters and the improvements in loan quality metrics discussed above necessitated an ALLL of $16.9 million at December 31, 2020, an increase of 38% compared to our ALLL of $12.2 million at December 31, 2019. Management believes the Company’s ALLL is adequate at December 31, 2020. 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 December 31, 2020, the recorded investment in loans classified as impaired totaled $11.1 million, with a corresponding specific reserve of $192 thousand compared to impaired loans of $10.4 million with a corresponding specific reserve of $324 thousand at December 31, 2019 and impaired loans of $12.4 million, with a corresponding specific reserve of $204 thousand at September 30, 2020. The decrease in impaired loans during the current quarter was due to the repayment of a nonaccrual commercial real estate loan totaling $1.1 million during the fourth quarter of 2020.

TABLE 13
TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(dollars in thousands)
                                         
    At December 31,   At September 30,   At June 30,   At March 31,   At December 31,
    2020   2020   2020   2020   2019
Nonaccrual   $ 2,007     $ 2,063     $ 2,194     $ 1,611     $ 1,680  
Accruing     4,090       4,259       4,455       4,709       4,783  
Total troubled debt restructurings   $ 6,097     $ 6,322     $ 6,649     $ 6,320     $ 6,463  
                                         
Troubled debt restructurings as a percentage of total gross loans     0.53 %     0.52 %     0.55 %     0.60 %     0.63 %

There were no new troubled debt restructurings during the current quarter. As of December 31, 2020, we had 91 loans that were classified as troubled debt restructurings, of which 89 were performing according to their restructured terms.

Troubled Debt Restructuring Guidance

Financial institution regulators and the CARES Act have changed the treatment of short-term loan modifications for borrowers impacted by COVID-19. The change provides that modifications made in response to COVID-19, to borrowers under certain circumstances, should not be considered a troubled debt restructuring.

We have responded to the needs of our borrowers in accordance with the CARES Act and regulatory guidance to grant short-term COVID-19 related loan modifications. These modified loans are not troubled debt restructurings and are not considered to be past due or non-performing. We have granted deferrals ranging from one to six months determined on a case-by-case basis considering the nature of the business and the impact of COVID-19. For some borrowers that where initially granted a deferral of less than six months, we have granted an additional deferral period on a case-by-case basis.

Since March of 2020, we have granted 278 payment deferrals totaling $127.3 million. As of December 31, 2020 previously deferred loans totaling $115.6 million have resumed making payments or have paid off. Three loans that were previously deferred totaling $2.1 million were past due at December 31, 2020 and have been moved to nonaccrual status. Two of those loans totaling $1.4 million were made to one commercial borrower and are guaranteed under the California Capital Access Program for Small Business. The third loan for $640 thousand is a commercial real estate loan that was changed to a troubled debt restructured loan in the second quarter of 2020.

We maintain close contact with our borrowers to update our understanding of the impact of the pandemic on them, their businesses and the underlying collateral for our loans. For borrowers who continue to have been granted a loan payment deferral, we have evaluated their credit quality position and the potential for loss of principal.

The following tables present approved loan deferrals that are in effect at December 31, 2020. For the loans with payment deferrals at December 31, 2020, one borrower none of these loans received a PPP loan through our U.S. Small Business Administration (“SBA”) department.

TABLE 14a
COVID-19 LOAN DEFERRALS - UNAUDITED
(dollars in thousands)
           
    Payments Scheduled to Resume In The Three Months Ended
    March 31, 2021
    #   Amount
Length of 1st deferral granted:          
3 months   4   $ 1,304
6 months   3     484
Length of 2nd deferral granted:          
2 months   2     714
3 months   2     3,053
Loans serviced by others (1)   71     3,959
Total   82   $ 9,514
(1) Loans serviced by others are small residential mortgages and consumer home improvement loans which are deferred on a short-term basis up to a maximum of six months. These loans are geographically disbursed throughout the United States and serviced by a third party.
TABLE 14b
COVID-19 LOAN DEFERRALS BY INDUSTRY - UNAUDITED
(dollars in thousands)
           
    Payments Scheduled to Resume In The Three Months Ended
    March 31, 2021
Industry:   #   Amount
Health care and social assistance   1   $ 12
Other services   1     2,032
Restaurants, bars and caterers   2     1,695
Other industries   7     1,816
Loans serviced by others (1)   71     3,959
Total   82   $ 9,514
(1) Loans serviced by others are small residential mortgages and consumer home improvement loans which are deferred on a short-term basis up to a maximum of six months. These loans are geographically disbursed throughout the United States and serviced by a third party.
 

The following table presents nonperforming assets at the dates indicated.

TABLE 15
NONPERFORMING ASSETS - UNAUDITED
(dollars in thousands)
                                         
    At December 31,   At September 30,   At June 30,   At March 31,   At December 31,
    2020   2020   2020   2020   2019
Total nonaccrual loans   $ 7,013     $ 8,098     $ 6,671     $ 5,243     $ 5,616  
90 days past due and still accruing                       2        
Total nonperforming loans     7,013       8,098       6,671       5,245       5,616  
                                         
Other real estate owned ("OREO")     8       8       8       8       35  
Total nonperforming assets   $ 7,021     $ 8,106     $ 6,679     $ 5,253     $ 5,651  
                                         
Nonperforming loans to gross loans     0.62 %     0.67 %     0.55 %     0.50 %     0.54 %
Nonperforming assets to total assets     0.40 %     0.47 %     0.39 %     0.36 %     0.38 %
                                         

The following table summarizes when loans are projected to reprice by year and rate index as of December 31, 2020.

TABLE 16
LOANS BY RATE INDEX AND PROJECTED REPRICING PERIOD - UNAUDITED
(dollars in thousands)
                                                 
  At December 31, 2020
                                  Years 6            
                                  Through   Beyond      
Rate Index:   Year 1   Year 2   Year 3   Year 4   Year 5   Year 10   Year 10   Total
Fixed   $ 87,179   $ 140,831   $ 58,748   $ 29,769   $ 28,706   $ 164,817   $ 21,693   $ 531,743
Variable:                                                
Prime     77,139     6,390     3,408     6,882     9,595     1,232         104,646
5 Year Treasury     51,142     65,555     58,578     75,057     109,165     54,938         414,435
7 Year Treasury     3,242     4,866     479     5,601     13,839             28,027
1 Year LIBOR     22,509                             22,509
Other Indexes     5,166     277     1,775     5,566     7,000     10,632     1,172     31,588
Total variable     159,198     77,088     64,240     93,106     139,599     66,802     1,172     601,205
                                                 
Nonaccrual     1,047     1,030     987     694     496     2,018     741     7,013
Total   $ 247,424   $ 218,949   $ 123,975   $ 123,569   $ 168,801   $ 233,637   $ 23,606   $ 1,139,961

For variable rate loans, the following table summarizes those that are at or above their floor rate, and those that do not possess a contractual floor rate.

TABLE 17
LOAN FLOORS - UNAUDITED
(dollars in thousands)
                   
    At December 31, 2020
    Loans At   Loans Above      
    Floor Rate   Floor Rate   Total
Variable rate loans with floors:                  
Prime   $ 54,833   $ 5,914   $ 60,747
5 year Treasury     342,105     46,964     389,069
7 Year Treasury     28,027         28,027
1 Year LIBOR         717     717
Other Indexes     18,290     833     19,123
    $ 443,255   $ 54,428     497,683
                   
Variable rate loans without floors:                  
Prime                 43,899
5 year Treasury                 25,366
1 Year LIBOR                 21,792
Other Indexes                 12,465
                  103,522
                   
Total accruing variable rate loans               $ 601,205
                   
Nonaccrual                 7,013
Total variable rate loans               $ 608,218
TABLE 18
UNAUDITED
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share data)
                               
  At December 31,   Change   At September 30,
    2020     2019     $   %   2020  
Assets:                              
Cash and due from banks   $ 19,875     $ 21,338     $ (1,463 )   (7 ) %   $ 22,884  
Interest-bearing deposits in other banks     87,111       59,266       27,845     47   %     104,999  
Total cash and cash equivalents     106,986       80,604       26,382     33   %     127,883  
                               
Securities available-for-sale, at fair value     446,880       286,950       159,930     56   %     337,032  
Loans, net of deferred fees and costs     1,139,961       1,035,065       104,896     10   %     1,205,028  
Allowance for loan and lease losses     (16,910 )     (12,231 )     (4,679 )   (38 ) %     (16,873 )
Net loans     1,123,051       1,022,834       100,217     10   %     1,188,155  
                               
Premises and equipment, net     14,999       15,906       (907 )   (6 ) %     15,210  
Other real estate owned     8       35       (27 )   (77 ) %     8  
Life insurance     24,206       23,701       505     2   %     24,086  
Deferred tax asset, net     3,954       4,553       (599 )   (13 ) %     2,571  
Goodwill     11,671       11,671             %     11,671  
Other intangible assets, net     4,044       4,809       (765 )   (16 ) %     4,235  
Other assets     28,155       28,553       (398 )   (1 ) %     29,037  
Total assets   $ 1,763,954     $ 1,479,616     $ 284,338     19   %   $ 1,739,888  
                               
Liabilities and shareholders' equity:                              
Demand - noninterest-bearing   $ 541,033     $ 432,680     $ 108,353     25   %   $ 542,060  
Demand - interest-bearing     290,251       239,258       50,993     21   %     280,370  
Money market     425,121       307,559       117,562     38   %     403,785  
Savings     150,695       135,888       14,807     11   %     151,016  
Certificates of deposit     135,679       151,786       (16,107 )   (11 ) %     140,900  
Total deposits     1,542,779       1,267,171       275,608     22   %     1,518,131  
                               
Term debt:                              
Federal Home Loan Bank of San Francisco borrowings     5,000             5,000     100   %     10,000  
Other borrowings     10,000       10,000             %     10,000  
Unamortized debt issuance costs           (43 )     43     100   %     (7 )
Net term debt     15,000       9,957       5,043     51   %     19,993  
                               
Junior subordinated debentures     10,310       10,310             %     10,310  
Other liabilities     18,163       17,700       463     3   %     18,104  
Total liabilities     1,586,252       1,305,138       281,114     22   %     1,566,538  
                               
Shareholders' equity:                              
Common stock     58,988       71,311       (12,323 )   (17 ) %     58,872  
Retained earnings     111,226       100,566       10,660     11   %     107,154  
Accumulated other comprehensive income, net of tax     7,488       2,601       4,887     188   %     7,324  
Total shareholders' equity     177,702       174,478       3,224     2   %     173,350  
                               
Total liabilities and shareholders' equity   $ 1,763,954     $ 1,479,616     $ 284,338     19   %   $ 1,739,888  
                               
Total interest-earning assets   $ 1,663,321     $ 1,377,588     $ 285,733     21   %   $ 1,636,661  
Shares outstanding     16,801       18,137       (1,336 )   (7 ) %     16,792  
Book value per share (1)   $ 10.58     $ 9.62     $ 0.96     10   %   $ 10.32  
Tangible book value per share (1)   $ 9.64     $ 8.71     $ 0.93     11   %   $ 9.38  
                               
(1) Book value per share is computed by dividing total shareholders’ equity by shares outstanding. 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 19
UNAUDITED
INCOME STATEMENT
(dollars in thousands, except per share data)
    For The Three Months Ended   For The Twelve Months Ended
    December 31,   Change   September 30,   December 31,
    2020   2019   $   %   2020   2020     2019
Interest income:                                          
Interest and fees on loans   $ 13,532   $ 12,643   $ 889     7   %   $ 13,448   $ 52,542     $ 50,534
Interest on taxable securities     1,484     1,567     (83 )   (5 ) %     1,284     5,679       6,673
Interest on tax-exempt securities     467     258     209     81   %     457     1,618       1,244
Interest on interest-bearing deposits in other banks     36     340     (304 )   (89 ) %     29     240       1,112
Total interest income     15,519     14,808     711     5   %     15,218     60,079       59,563
Interest expense:                                          
Interest on demand deposits     57     108     (51 )   (47 ) %     71     313       480
Interest on money market     237     479     (242 )   (51 ) %     289     1,246       1,599
Interest on savings     53     128     (75 )   (59 ) %     74     340       493
Interest on certificates of deposit     390     499     (109 )   (22 ) %     420     1,741       1,977
Interest on Federal Home Loan Bank of San Francisco borrowings                   %         5       247
Interest on other borrowings     179     183     (4 )   (2 ) %     184     731       806
Interest on junior subordinated debentures     47     97     (50 )   (52 ) %     50     248       426
Total interest expense     963     1,494     (531 )   (36 ) %     1,088     4,624       6,028
Net interest income     14,556     13,314     1,242     9   %     14,130     55,455       53,535
Provision for loan and lease losses                   %     1,100     5,250      
Net interest income after provision for loan and lease losses     14,556     13,314     1,242     9   %     13,030     50,205       53,535
Noninterest income:                                          
Service charges on deposit accounts     173     198     (25 )   (13 ) %     142     636       730
ATM and point of sale fees     306     282     24     9   %     297     1,134       1,158
Payroll and benefit processing fees     182     183     (1 )   (1 ) %     152     647       669
Life insurance     125     126     (1 )   (1 ) %     125     521       536
Gain on investment securities, net         49     (49 )   (100 ) %     258     482       186
Federal Home Loan Bank of San Francisco dividends     94     131     (37 )   (28 ) %     109     369       507
(Loss) gain on sale of OREO         21     (21 )   (100 ) %         (23 )     62
Other income     136     31     105     339   %     106     286       336
Total noninterest income     1,016     1,021     (5 )     %     1,189     4,052       4,184
TABLE 19 - CONTINUED
UNAUDITED
INCOME STATEMENT
(dollars in thousands, except per share data)
                                           
    For The Three Months Ended   For The Twelve Months Ended
    December 31,   Change   September 30,   December 31,
    2020   2019   $   %   2020   2020   2019
Noninterest expense:                                          
Salaries and related benefits     5,284     4,924     360     7   %     5,126     21,262     20,804
Premises and equipment     966     916     50     5   %     951     3,597     3,752
Federal Deposit Insurance Corporation insurance premium     105         105       %     101     332     91
Data processing     584     739     (155 )   (21 ) %     581     2,281     2,535
Professional services     292     309     (17 )   (6 ) %     342     1,437     1,539
Telecommunications     174     190     (16 )   (8 ) %     157     658     737
Acquisition and merger                   %             2,193
Other expenses     1,129     1,343     (214 )   (16 ) %     1,132     5,410     5,604
Total noninterest expense     8,534     8,421     113     1   %     8,390     34,977     37,255
Income before provision for income taxes     7,038     5,914     1,124     19   %     5,829     19,280     20,464
Provision for income taxes     1,966     1,545     421     27   %     1,500     5,116     5,503
Net income   $ 5,072   $ 4,369   $ 703     16   %   $ 4,329   $ 14,164   $ 14,961
                                           
Earnings per share - basic   $ 0.30   $ 0.24   $ 0.06     25   %   $ 0.26   $ 0.84   $ 0.83
Weighted average shares - basic     16,663     18,068     (1,405 )   (8 ) %     16,660     16,918     17,956
Earnings per share - diluted   $ 0.30   $ 0.24   $ 0.06     25   %   $ 0.26   $ 0.83   $ 0.83
Weighted average shares - diluted     16,731     18,150     (1,419 )   (8 ) %     16,696     16,963     18,024
TABLE 20
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(dollars in thousands)
                               
    For The Three Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,
    2020   2020   2020   2020   2019
Earning assets:                              
Loans   $ 1,172,705   $ 1,209,277   $ 1,180,915   $ 1,033,689   $ 1,031,702
Taxable securities     304,242     228,045     211,195     237,405     245,487
Tax-exempt securities     73,207     68,766     58,540     34,869     32,158
Interest-bearing deposits in other banks     124,390     95,348     72,507     47,135     81,099
Total earning assets     1,674,544     1,601,436     1,523,157     1,353,098     1,390,446
                               
Cash and due from banks     22,413     23,381     21,564     21,987     24,083
Premises and equipment, net     15,162     15,365     15,428     15,753     16,049
Other real estate owned     8     8     8     33     54
Life insurance     24,147     24,028     23,899     23,762     23,638
Deferred tax asset, net     2,738     2,501     3,016     4,259     4,691
Goodwill     11,671     11,671     11,671     11,671     11,671
Other intangible assets, net     4,126     4,318     4,508     4,701     4,890
Other assets     20,128     21,408     23,576     18,755     17,121
Total assets   $ 1,774,937   $ 1,704,116   $ 1,626,827   $ 1,454,019   $ 1,492,643
                               
Liabilities and shareholders' equity:                              
Demand - noninterest-bearing   $ 552,601   $ 531,459   $ 497,636   $ 420,847   $ 428,420
Demand - interest-bearing     283,213     279,744     261,907     233,375     244,276
Money market     430,014     387,995     365,368     307,587     318,127
Savings     151,223     146,074     138,500     135,504     138,155
Certificates of deposit     138,380     139,757     142,955     147,241     153,223
Total deposits     1,555,431     1,485,029     1,406,366     1,244,554     1,282,201
                               
Federal Home Loan Bank of San Francisco borrowings     7,120     10,000     16,044     220    
Other borrowings net of unamortized debt issuance costs     9,999     9,988     9,976     9,963     9,952
Junior subordinated debentures     10,310     10,310     10,310     10,310     10,310
Other liabilities     17,557     17,356     17,095     16,852     17,795
Total liabilities     1,600,417     1,532,683     1,459,791     1,281,899     1,320,258
                               
Shareholders' equity     174,520     171,433     167,036     172,120     172,385
Liabilities & shareholders' equity   $ 1,774,937   $ 1,704,116   $ 1,626,827   $ 1,454,019   $ 1,492,643
TABLE 21
UNAUDITED CONDENSED CONSOLIDATED
ANNUAL AVERAGE BALANCE SHEETS
(dollars in thousands)
                         
    For The Year Ended
    December 31,   December 31,   December 31,   December 31,
    2020   2019   2018   2017
Earning assets:                        
Loans   $ 1,149,375   $ 1,020,801   $ 915,360   $ 818,119
Taxable securities     245,336     246,723     207,407     165,333
Tax-exempt securities     58,912     38,706     50,330     74,231
Interest-bearing deposits in other banks     84,982     54,095     47,038     66,872
Total earning assets     1,538,605     1,360,325     1,220,135     1,124,555
                         
Cash and due from banks     22,339     22,806     20,468     18,301
Premises and equipment, net     15,426     15,598     13,952     15,567
Other real estate owned     14     35     93     664
Life insurance     23,960     23,371     22,148     21,905
Deferred tax asset, net     3,126     5,430     7,567     8,919
Goodwill     11,671     10,758     665     665
Other intangible assets, net     4,412     4,807     1,252     1,471
Other assets     20,966     14,982     2,561     6,204
Total assets   $ 1,640,519   $ 1,458,112   $ 1,288,841   $ 1,198,251
                         
Liabilities and shareholders' equity:                        
Demand - noninterest-bearing   $ 500,862   $ 400,588   $ 332,197   $ 289,735
Demand - interest-bearing     264,652     242,516     238,328     209,792
Money market     372,939     304,340     250,685     224,913
Savings     142,857     136,733     109,025     111,376
Certificates of deposit     142,067     160,550     168,183     205,648
Total deposits     1,423,377     1,244,727     1,098,418     1,041,464
                         
Federal Home Loan Bank of San Francisco borrowings     8,347     9,644     22,466     302
Other borrowings net of unamortized debt issuance costs     9,981     10,895     15,143     17,981
Junior subordinated debentures     10,310     10,310     10,310     10,310
Other liabilities     17,217     17,894     12,286     12,293
Total liabilities     1,469,232     1,293,470     1,158,623     1,082,350
                         
Shareholders' equity     171,287     164,642     130,218     115,901
Liabilities & shareholders' equity   $ 1,640,519   $ 1,458,112   $ 1,288,841   $ 1,198,251

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Sacramento, California and is the parent company for Merchants Bank of Commerce. The Bank is an FDIC-insured California banking corporation providing community banking and financial services in northern California along the Interstate 5 corridor from Sacramento to Yreka and in the North Bay wine region. 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 Officer Telephone Direct (916) 677-5800

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

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