Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.829 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter ended March 31, 2021. Net income for the quarter ended March 31, 2021 was $4.9 million or $0.29 per share – diluted, compared with net income of $916 thousand or $0.05 per share – diluted for the same period of 2020.

Significant Items for the First Quarter of 2021:

  • The Bank continued to experience significant growth in deposits, which increased $71 million during the quarter.
  • Loans, exclusive of PPP loans increased $19 million during the quarter; a reversal of the decline that occurred throughout 2020.
  • The Company’s net interest margin was 3.46% for the quarter; unchanged from the preceding quarter.
  • COVID-19 related credit concerns have continued to moderate and no provision for loan and lease losses was required.
  • During the first quarter of 2021, our largest nonaccrual borrowing relationship totaling $3.0 million (43% of nonaccrual loans at December 31, 2020) was repaid. The repayment included all principal (including $110 thousand recovery for an amount previously charged-off) $251 thousand of previously unrecorded interest and $80 thousand of reimbursed legal, appraisal and title fees.

Randall S. Eslick, President and CEO commented: “Our first quarter financial performance is a very positive start to the year and our growth in loans and deposits reflects the increased economic activity throughout our markets. The medical response to the pandemic has been quite effective, our concerns of last year regarding asset quality have moderated and our outlook on profitability for 2021 remains upbeat.”

Financial Highlights for the First Quarter of 2021 Compared to Prior Quarter:

  • Net income of $4.9 million ($0.29 per share – diluted) was a decrease of $152 thousand ($0.01 per share – diluted) (3%) from $5.1 million ($0.30 per share – diluted) earned during the prior quarter.
  • Return on average assets decreased to 1.11% compared to 1.14% for the prior quarter.
  • Return on average equity decreased to 11.20% compared to 11.56% for the prior quarter.
  • Net interest income decreased $138 thousand (1%) to $14.4 million compared to $14.6 million for the prior quarter.
  • Net interest margin of 3.46% was unchanged compared to the prior quarter.
  • Average loans totaled $1.140 billion, a decrease of $32 million (11% annualized) compared to average loans for the prior quarter.
  • Average earning assets totaled $1.692 billion, an increase of $18 million (4% annualized) compared to average earning assets for the prior quarter.
  • Average deposits totaled $1.571 billion, an increase of $16 million (4% annualized) compared to average deposits for the prior quarter.
    • Average non-maturing deposits totaled $1.437 billion, an increase of $20 million (6% annualized) compared to the prior quarter.
    • Average certificates of deposit totaled $134.5 million, a decrease of $3.9 million (11% annualized) compared to the prior quarter.
  • The Company’s efficiency ratio was 57.1% compared to 54.8% for the prior quarter.
  • Nonperforming assets at March 31, 2021 totaled $3.9 million or 0.21% of total assets, a decrease of $3.1 million (44%) since December 31, 2020. The decrease in nonperforming assets was due to a $3.0 million nonaccrual borrowing relationship that was repaid during the first quarter of 2021.
  • Book value per common share was $10.50 at March 31, 2021 compared to $10.58 at December 31, 2020.
  • Tangible book value per common share was $9.58 at March 31, 2021 compared to $9.64 at December 31, 2020.

Financial Highlights for the First Quarter of 2021 Compared to the Same Quarter a Year Previous:

  • Net income of $4.9 million was an increase of $4.0 million (437%) from $916 thousand earned during the same period in the prior year. Earnings of $0.29 per share – diluted was an increase of $0.24 (480%) per share from $0.05 per share – diluted earned during the same period in the prior. The prior year was impacted by:
    • $2.9 million provision for loan and lease losses.
    • $1.1 million in non-recurring costs associated with the termination of a technology management services contract and a severance agreement; both previously announced.
  • Return on average assets increased to 1.11% compared to 0.25% for the same period in the prior year.
  • Return on average equity increased to 11.20% compared to 2.14% for the same period in the prior year.
  • Net interest income increased $1.4 million (11%) to $14.4 million compared to $13.0 million for the same period in the prior year.
  • Net interest margin declined to 3.46% compared to 3.86% for the same period in the prior year.
  • Average loans totaled $1.140 billion, an increase of $107 million (10%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.692 billion, an increase of $339 million (25%) compared to average earning assets for the same period in the prior year.
  • Average deposits totaled $1.571 billion, an increase of $327 million (26%) compared to average deposits for the same period in the prior year.
    • Average non-maturing deposits totaled $1.437 billion, an increase of $339 million (31%) compared to the same period in the prior year.
    • Average certificates of deposit totaled $134.5 million, a decrease of $12.7 million (9%) compared to the same period in the prior year.
  • The Company’s efficiency ratio was 57.1% compared to 70.5% for the same period in the prior year.
    • The Company’s efficiency ratio of 70.5% for the first quarter of 2020 included $1.1 million of non-recurring costs, which increased the efficiency ratio by 8.0%.
  • Nonperforming assets at March 31, 2021 totaled $3.9 million or 0.21% of total assets, a decrease of $1.3 million (25%) since March 31, 2020.
  • Book value per common share was $10.50 at March 31, 2021 compared to $9.86 at March 31, 2020.
  • Tangible book value per common share was $9.58 at March 31, 2021 compared to $8.89 at March 31, 2020.

Impact of COVID-19:

  • During 2020, we funded 606 loans totaling $163.5 million under the first Small Business Administration Paycheck Protection Program (“PPP”). We continue to process loan forgiveness applications, and at March 31, 2021, we have 228 loans totaling $79.0 million remaining compared to 487 loans totaling $130.8 million at December 31, 2020.
  • During the first quarter of 2021, we funded an additional 196 loans totaling $38.9 million under the SBA’s second PPP loan program. The application period for the second PPP loan program ends on May 31, 2021.
  • We have experienced significant increases in deposit balances during the past year. All PPP loan funds were deposited into customer accounts at our bank and customer behavior has emphasized savings during the economic slowdown.
  • During the first quarter of 2021, the SBA extended their debt relief program and resumed making principal and interest payments on all of our SBA 7(a) loans which totaled $29.8 million at March 31, 2021. Payment assistance varies by borrower, will continue for no more than eight months and is limited to a maximum $9 thousand per borrower per month.
  • At March 31, 2021, approximately 35% of our workforce is working remotely.
  • As of April 12, 2021, all of our offices have returned to a pre-pandemic operating hours.

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
Net income, average assets and March 31,     December 31,
average shareholders' equity 2021     2020     2020
Net income $ 4,920     $ 916     $ 5,072  
Average total assets $ 1,790,447     $ 1,454,019     $ 1,774,937  
Average total earning assets $ 1,692,281     $ 1,353,098     $ 1,674,544  
Average shareholders' equity $ 178,162     $ 172,120     $ 174,520  
                       
Selected performance ratios                      
Return on average assets   1.11 %     0.25 %     1.14 %
Return on average equity   11.20 %     2.14 %     11.56 %
Efficiency ratio   57.1 %     70.5 %     54.8 %
                       
Share and per share amounts                      
Weighted average shares - basic (1)   16,706       17,695       16,663  
Weighted average shares - diluted (1)   16,778       17,747       16,731  
Earnings per share - basic $ 0.29     $ 0.05     $ 0.30  
Earnings per share - diluted $ 0.29     $ 0.05     $ 0.30  
                       
  At March 31,     At December 31,
Share and per share amounts 2021     2020     2020
Common shares outstanding (2)   16,876       16,796       16,801  
Book value per common share (2) $ 10.50     $ 9.86     $ 10.58  
Tangible book value per common share (2)(3) $ 9.58     $ 8.89     $ 9.64  
                       
Capital ratios (4)                    
Bank of Commerce Holdings                    
Common equity tier 1 capital ratio   12.99 %     12.02 %     13.12 %
Tier 1 capital ratio   13.81 %     12.85 %     13.97 %
Total capital ratio   15.87 %     14.93 %     16.06 %
Tier 1 leverage ratio   9.61 %     10.78 %     9.46 %
Tangible common equity ratio (5)   8.91 %     10.38 %     9.27 %
                       
Merchants Bank of Commerce                      
Common equity tier 1 capital ratio   14.41 %     13.66 %     14.58 %
Tier 1 capital ratio   14.41 %     13.66 %     14.58 %
Total capital ratio   15.66 %     14.91 %     15.83 %
Tier 1 leverage ratio   10.03 %     11.45 %     9.86 %
                       
(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 March 31, 2021, the Company had total consolidated assets of $1.829 billion, gross loans of $1.146 billion, allowance for loan and lease losses (“ALLL”) of $17 million, total deposits of $1.614 billion, and shareholders’ equity of $177 million. Certain amounts for prior periods have been reclassified to conform to the current presentation. The results of reclassifications are not considered material and have no effect on previously reported equity or net income. 

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(dollars in thousands)
                        
  At March 31,         At December 31,
      % of       % of   Change       % of
  2021     Total   2020     Total   Amount   %   2020     Total
Commercial $ 117,597     10 %   $ 138,870     13 %   $ (21,273 )   (15 ) %   $ 115,559     10 %
Paycheck Protection Program ("PPP")   117,991     10                 117,991     100   %     130,814     11  
Commercial real estate:                                              
Construction and land development   32,145     3       34,394     3       (2,249 )   (7 ) %     44,549     4  
Non-owner occupied   592,157     52       550,606     53       41,551     8   %     550,020     48  
Owner occupied   165,367     14       180,765     17       (15,398 )   (9 ) %     172,967     15  
Residential real estate:                                              
Individual Tax Identification Number ("ITIN")   27,839     2       31,998     3       (4,159 )   (13 ) %     29,035     3  
1-4 family mortgage   54,562     5       62,533     6       (7,971 )   (13 ) %     55,925     5  
Equity lines   18,600     2       23,158     2       (4,558 )   (20 ) %     18,894     2  
Consumer and other   19,685     2       29,921     3       (10,236 )   (34 ) %     21,969     2  
Gross loans   1,145,943     100 %     1,052,245     100 %     93,698     9   %     1,139,732     100 %
Deferred (fees) and costs   143             2,129             (1,986 )           229        
Loans, net of deferred fees and costs   1,146,086             1,054,374             91,712             1,139,961        
Allowance for loan and lease losses   (17,027 )           (15,067 )           (1,960 )           (16,910 )      
Net loans $ 1,129,059           $ 1,039,307           $ 89,752           $ 1,123,051        
                                               
Average loans during the quarter $ 1,140,315           $ 1,033,689           $ 106,626     10   %   $ 1,172,705        
Average loans during the quarter (excluding PPP) $ 1,017,123           $ 1,033,689           $ (16,566 )   (2 ) %   $ 1,024,324        
Average yield on loans during the quarter   4.70   %         4.80   %         (0.10 )   (2 ) %     4.59   %    
Average yield on loans during the quarter (excluding PPP)   4.60   %         4.80   %         (0.20 )   (4 ) %     4.67   %    
Average yield on loans year to date   4.70   %         4.80   %         (0.10 )   (2 ) %     4.57   %    
Average yield on loans year to date (excluding PPP)   4.60   %         4.80   %         (0.20 )   (4 ) %     4.75   %    

The Company recorded gross loan balances of $1.146 billion at March 31, 2021, compared with $1.052 billion and $1.140 billion at March 31, 2020 and December 31, 2020, respectively, an increase of $94 million and $6 million, respectively. The improving economic environment is reflected in the growth of our gross loans (excluding PPP loans) which increased $19.0 million (8% annualized) during the quarter.

Gross loan balances in the table above include a net fair value discount for loans acquired from Merchants of $810 thousand, $1.5 million and $920 thousand at March 31, 2021, March 31, 2020 and December 31, 2020, respectively. We recorded $110 thousand, $163 thousand and $141 thousand in accretion of the discount for these loans during the quarters ended March 31, 2021, March 31, 2020 and December 31, 2020, respectively.

We have funded 802 loans totaling $202.4 million under the two PPP loan programs through March 31, 2021.

First PPP Loan Program

We originated 606 loans totaling $163.5 million in the first PPP loan program. At March 31, 2021, we have 228 loans totaling $79.0 million in the program. The majority of the loans under the first program have a two-year term over which the loan fee income (net of loan origination costs) is earned. When a PPP loan is repaid prior to maturity, all unamortized fees and cost associated with the loan are accelerated into income. During the current quarter, 259 loans totaling $51.8 million were repaid and we recognized $1.0 million in accelerated net fee income compared to 119 loans repaid totaling $32.7 million and $664 thousand in accelerated net fee income in the prior quarter. At March 31, 2021, net loan fees totaling $842 thousand remain to be earned and we anticipate that most of it will be recognized during the second quarter of 2021.

Second PPP Loan Program

During the first quarter of 2021, the SBA announced a second PPP loan program. The SBA’s second PPP loan program provides first draw PPP loans to borrowers who were ineligible under the first PPP loan program (sole proprietors, ITIN business owners, small business owners with non-fraud felony convictions and small business owners who have struggled with student loan debt) and allows second draw PPP loans to qualifying businesses that received a first draw under SBA’s first PPP loan program. The loans are available until May 31, 2021, are limited to $2 million, have a five-year term and SBA has increased the lender fees for loans under $50 thousand to incentivize lenders to work with smaller borrowers. We have originated 196 loans totaling $38.9 million in the new program and we have an additional 52 applications totaling $9.3 million in process at March 31, 2021. Of the 196 loans we originated in the second program, 158 were made to borrowers receiving their second draw PPP loan.

We anticipate that the loans in the second PPP loan program will have a lower yield as loan net fee income will be recognized over a five-year term instead of the two-year term of the first program. Borrowers may submit a loan forgiveness application after using the loan proceeds and submitting an application for forgiveness of their first PPP loan. As of March 31, 2021, we have not accepted any forgiveness applications for loans funded in the second program. At March 31, 2021, loan fee income (net of loan origination costs) totaling $1.3 million remains to be earned from the loans in the second PPP loan program.

The following tables provide additional information on the PPP loans by industry and by loan balance at March 31, 2021 for loans in both PPP loan programs.

TABLE 3
PPP LOANS BY INDUSTRY - UNAUDITED
(dollars in thousands)
      
  At March 31, 2021
  Number   Balance
Construction 70   $ 55,204
Healthcare and Social Assistance 65     12,166
Professional, Scientific and Tech Services 59     8,161
Accommodation and Food Services 47     8,705
Admin, Support, Waste Management and Remediation Services 14     4,855
Primary Metal Manufacturing 7     3,438
Retail Trade 31     2,232
Other 131     23,230
Total 424   $ 117,991
TABLE 4
PPP LOANS BY LOAN SIZE - UNAUDITED
(dollars in thousands)
  At March 31, 2021
  Balance   Number   Average Loan Size
$50,000 or less $ 3,427   154   $ 22
$50,001 to $150,000   11,205   136   $ 82
$150,001 to $350,000   13,895   63   $ 221
$350,001 to $1,999,999   44,464   58   $ 767
$2,000,000 or greater   45,000   13   $ 3,462
Total $ 117,991   424   $ 278

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 March 31, 2021   At December 31, 2020
  Balance   Number   Average Loan Size   Balance   Number   Average Loan Size
Borrower has not started application $ 5,425   49   $ 111   $ 33,459   185   $ 181
Borrower is working on application   9,345   65   $ 144     31,277   136   $ 230
Borrower has completed application and the bank is reviewing it   6,381   35   $ 182     43,872   105   $ 418
Bank has approved application and submitted it to the SBA   57,901   78   $ 742     22,087   44   $ 502
Remaining balance for loans partially repaid (1)   4   1   $ 4     119   17   $ 7
PPP loans not fully repaid   79,056   228   $ 347     130,814   487   $ 269
                               
Repayments   84,437   378   $ 223     32,679   119   $ 275
Total PPP loans under first PPP loan program   163,493   606   $ 270     163,493   606   $ 270
                               
New originations under second PPP loan program   38,935   196   $ 199         $
Total PPP loans originated by bank $ 202,428   802   $ 252   $ 163,493   606   $ 270
                               
(1) Borrowers who participated in the Economic Injury Disaster Loan (“EIDL”) program had their forgiveness payment reduced by their EIDL advance. With the second PPP loan program, this reduction was repealed and the SBA remitted a reconciliation payment for the previously-deducted EIDL advance amounts, plus interest.
TABLE 6
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(dollars in thousands)
                         
  At March 31,           At December 31,
      % of       % of   Change       % of
  2021   Total   2020   Total   Amount   %   2020   Total
Cash and due from banks $ 20,053   3 %   $ 21,127   6 %   $ (1,074 )   (5 ) %   $ 19,875   4 %
Interest-bearing deposits in other banks   74,804   12       22,813   7       51,991     228   %     87,111   16  
Total cash and cash equivalents   94,857   15       43,940   13       50,917     116   %     106,986   20  
                                               
Investment securities:                                              
U.S. government and agencies   31,060   5       36,043   11       (4,983 )   (14 ) %     32,994   6  
Obligations of state and political subdivisions   128,841   21       63,263   19       65,578     104   %     108,366   20  
Residential mortgage backed securities and collateralized mortgage obligations   277,547   46       160,439   50       117,108     73   %     240,478   42  
Corporate securities           2,983   1       (2,983 )   (100 ) %        
Commercial mortgage backed securities   38,582   6       17,428   5       21,154     121   %     28,074   5  
Other asset backed securities   41,345   7       4,921   1       36,424     740   %     36,968   7  
Total investment securities - AFS   517,375   85       285,077   87       232,298     81   %     446,880   80  
                                               
Total cash, cash equivalents and investment securities $ 612,232   100 %   $ 329,017   100 %   $ 283,215     86   %   $ 553,866   100 %
                                               
Average yield on interest-bearing due from banks during the quarter   0.11 %         1.31 %         (1.20 )           0.12 %    
Average yield on investment securities during the quarter - nominal   1.84 %         2.74 %         (0.90 )           2.06 %    
Average yield on investment securities during the quarter - tax equivalent   1.96 %         2.84 %         (0.88 )           2.19 %    

As of March 31, 2021, we maintained noninterest-bearing cash positions of $20.1 million and interest-bearing deposits of $74.8 million at the Federal Reserve Bank and correspondent banks. During the current quarter, we successfully invested a large portion of our increased liquidity into our investment portfolio.

Unprecedented deposit growth during the last year as a result of PPP programs and customer behavior, which has placed a greater emphasis on savings since the start of the pandemic combined with the need to deploy excess cash, has led to a significant increase in the size of our investment securities portfolio. Investment securities totaled $517.4 million at March 31, 2021, compared with $285.1 million and $446.9 million at March 31, 2020 and December 31, 2020, respectively. During the first quarter of 2021, we purchased securities with a par value of $111.1 million and weighted average yield of 1.56% (1.62% tax equivalent) and sold securities with a par value of $11.6 million and weighted average yield and tax equivalent yield of (0.19)%. The sales resulted in net realized gain of $7 thousand for the quarter ended March 31, 2021. Investment purchases were comprised primarily of longer duration municipal bonds and lower coupon, moderate-term mortgage backed securities.

Average securities balances for the quarters ended March 31, 2021, March 31, 2020 and December 31, 2020 were $440.6 million, $272.3 million and $377.4 million, respectively. Weighted average yields on securities balances for those same periods were 1.84%, 2.74% and 2.06%, respectively.

At March 31, 2021, our net unrealized gains on available-for-sale investment securities were $4.0 million compared with net unrealized gains of $8.4 million and $10.6 million at March 31, 2020 and December 31, 2020, respectively. The decline in net unrealized gains were due to recent increases in market interest rates.

TABLE 7
DEPOSITS BY TYPE - UNAUDITED
(dollars in thousands)
                        
  At March 31,           At December 31,
      % of       % of   Change       % of
  2021   Total   2020   Total   Amount   %   2020   Total
Demand - noninterest-bearing $ 603,991   37 %   $ 419,315   34 %   $ 184,676     44   %   $ 541,033   35 %
Demand - interest-bearing   290,687   18       231,276   19       59,411     26   %     290,251   19  
Money market   425,251   26       314,687   25       110,564     35   %     425,121   28  
Total demand   1,319,929   81       965,278   78       354,651     37   %     1,256,405   82  
                                               
Savings   160,834   10       133,552   11       27,282     20   %     150,695   10  
Total non-maturing deposits   1,480,763   91       1,098,830   89       381,933     35   %     1,407,100   92  
                                               
Certificates of deposit   133,630   9       143,557   11       (9,927 )   (7 ) %     135,679   8  
Total deposits $ 1,614,393   100 %   $ 1,242,387   100 %   $ 372,006     30   %   $ 1,542,779   100 %

Total deposits at March 31, 2021, increased $372 million or 30% to $1.614 billion compared to March 31, 2020 and increased $71.6 million or 19% annualized compared to December 31, 2020. Total non-maturing deposits increased $381.9 million or 35% compared to the same date a year ago and increased $73.7 million or 21% annualized compared to December 31, 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 during the economic slowdown. Management anticipates that depositor behavior will change later in the year as economic conditions improve and depositors begin to use the cash balances that have accumulated over the past year. Certificates of deposit decreased $9.9 million or 7% compared to the same date a year ago and decreased $2.0 million or 6% annualized compared to December 31, 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
                                
  March 31,   December 31,   September 30,   June 30,   March 31,   December 31,   September 30,   June 30,
  2021   2020   2020   2020   2020   2019   2019   2019
Interest-bearing deposits 0.26 %   0.29 %   0.36 %   0.43 %   0.53 %   0.56 %   0.56 %   0.54 %
Interest-bearing deposits and noninterest-bearing demand 0.16 %   0.19 %   0.23 %   0.28 %   0.35 %   0.38 %   0.38 %   0.37 %
All interest-bearing liabilities 0.32 %   0.37 %   0.44 %   0.52 %   0.65 %   0.68 %   0.68 %   0.74 %
All interest-bearing liabilities and noninterest-bearing demand 0.21 %   0.24 %   0.29 %   0.34 %   0.43 %   0.46 %   0.46 %   0.52 %

Equity

As detailed in Table 1, management believes the capital ratios remain adequate 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. 1.4 million of the common share repurchases under this plan were made during the first quarter of 2020.

In late 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 March 31, 2021, no shares have been repurchased under this plan.

INCOME STATEMENT OVERVIEW

TABLE 9
SUMMARY INCOME STATEMENT - UNAUDITED
(dollars in thousands, except per share data)
                     
  For The Three Months Ended
  March 31,   Change   December 31,   Change
  2021   2020   Amount   %   2020   Amount   %
Interest income $ 15,240   $ 14,345   $ 895     6   %   $ 15,519   $ (279 )   (2 ) %
Interest expense   822     1,359     (537 )   (40 ) %     963     (141 )   (15 ) %
Net interest income   14,418     12,986     1,432     11   %     14,556     (138 )   (1 ) %
Provision for loan and lease losses       2,850     (2,850 )   (100 ) %               %
Noninterest income   1,163     892     271     30   %     1,016     147     14   %
Noninterest expense   8,897     9,783     (886 )   (9 ) %     8,534     363     4   %
Income before provision for income taxes   6,684     1,245     5,439     437   %     7,038     (354 )   (5 ) %
Provision for income taxes   1,764     329     1,435     436   %     1,966     (202 )   (10 ) %
Net income $ 4,920   $ 916   $ 4,004     437   %   $ 5,072   $ (152 )   (3 ) %
                                         
Earnings per share - basic $ 0.29   $ 0.05   $ 0.24     480   %   $ 0.30   $ (0.01 )   (3 ) %
Weighted average shares - basic   16,706     17,695     (989 )   (6 ) %     16,663     43       %
Earnings per share - diluted $ 0.29   $ 0.05   $ 0.24     480   %   $ 0.30   $ (0.01 )   (3 ) %
Weighted average shares - diluted   16,778     17,747     (969 )   (5 ) %     16,731     47       %
Dividends declared per common share $ 0.06   $ 0.05   $ 0.01     20   %   $ 0.06   $       %

First Quarter of 2021 Compared with the First Quarter of 2020

Net income for the first quarter of 2021 increased $4.0 million compared to the first quarter of 2020. In the current quarter, net interest income was $1.4 million higher, provision for loan and lease losses was $2.9 million lower, noninterest income was $271 thousand higher and noninterest expense was $886 thousand lower. These positive changes were partially offset by a provision for income taxes that was $1.4 million higher.

Net Interest Income

Net interest income increased $1.4 million compared to the same period a year ago.

Interest income for the first quarter of 2021 increased $895 thousand or 6% to $15.2 million.

  • During the first quarter of 2021, we recognized $1.0 million in accelerated net fee income on PPP loans forgiven or repaid during the quarter. These accelerated loan fees increased the average yield on loans for the first quarter of 2021 by 36 basis points.
  • PPP loans had an average balance of $123.2 million and yield of 5.49% (2.20% excluding accelerated fee income).
  • Excluding PPP loans, interest and fees on loans decreased $791 thousand due to a $16.6 million decrease in average loan balances and a 20 basis point decrease in average yield.
  • During the first quarter of 2021, we recognized $251 thousand in nonaccrual interest income as part of the repayment of loans for our largest nonaccrual borrowing relationship. The interest income recognized as part of that repayment increased the average yield on loans for the first quarter of 2021 by 9 basis points.
  • Interest on investment securities increased $143 thousand due to a $168.4 million increase in average securities balances partially offset by a 90 basis point decrease in average yield.
  • Interest on interest-bearing deposits due from banks decreased $125 thousand due to a 120 basis point decrease in average yield that was partially offset by a $64.2 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 short-term interest rates by 150 to 175 basis points and has provided guidance that it expects interest rates to remain low for an extended period of time.

Interest expense for the first quarter of 2021 decreased $537 thousand or 40% to $822 thousand.

  • Interest expense on interest-bearing deposits decreased $446 thousand. Average interest-bearing demand and savings deposit balances increased $198.2 million, while average certificate of deposit balances decreased $12.7 million. The average rate paid on interest-bearing deposits decreased 27 basis points.
  • Average FHLB borrowings were $3.9 million in the current quarter compared to $220 thousand during the same period a year ago. The borrowings bore no interest under a program offered by the FHLB and were fully repaid at March 31, 2021.
  • Interest expense on other term debt decreased $47 thousand. The average debt balance was essentially unchanged, while the average rate paid decreased 187 basis points.
  • Interest expense on junior subordinated debentures decreased $44 thousand. The average debt balance was unchanged, while the average rate paid decreased 170 basis points.

Provision for Loan and Lease Losses

Many of our asset quality concerns from 2020 have moderated. No provision for loan and lease losses was necessary for the current quarter compared to a provision for loan and lease losses of $2.9 million in the same quarter a year ago. Nonaccrual loans decreased 25% since March 31, 2020 primarily due to the repayment of $3.0 million in principal from one commercial real estate loan relationship. Net loan recoveries were $117 thousand for the current quarter compared to net loan charge-offs of $14 thousand during the same period a year ago. Most COVID-19 related loan payment deferrals have ended with limited negative impact on delinquencies. We have however recognized downgrades of certain loans during the current quarter based on year-end financial data received from some borrowers. A more in depth discussion of our provision is provided below under the heading Provision for Loan and Lease Losses.

Noninterest Income

Noninterest income for the three months ended March 31, 2021 increased $271 thousand compared to the same period a year previous. The increase was primarily due to a $221 thousand legal settlement, which was a partial recovery of an investment security impairment loss recorded during the second quarter of 2016.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2021 decreased $886 thousand compared to the same period a year previous. The first quarter of 2020 included $1.1 million in non-recurring costs. Excluding the non-recurring costs, noninterest expense increased $214 thousand primarily due to accruals for incentives made in the current quarter that were not made in the same quarter one year ago.

The Company’s efficiency ratio was 57.1% for the first quarter of 2021. The ratio during the same period in 2020 was 70.5%. The Company’s efficiency ratio of 70.5% for the first quarter of 2020 included $1.1 million of non-recurring costs, which increased the efficiency ratio by 8.0%.

Income Tax Provision

For the three months ended March 31, 2021, our income tax provision of $1.8 million on pre-tax income of $6.7 million was an effective tax rate of 26.4%. The tax provision for the first quarter of the prior year was $329 thousand on pre-tax income of $1.2 million for an effective rate of 26.4%.

First Quarter of 2021 Compared with the Fourth Quarter of 2020

Net income for the first quarter of 2021 decreased $152 thousand compared to the fourth quarter of 2020. In the current quarter, net interest income was $138 thousand lower and noninterest expense was $363 thousand higher. These negative variances were partially offset by noninterest income that was $147 thousand higher and a provision for income taxes that was $202 thousand lower.

Net Interest Income

Net interest income decreased $138 thousand over the prior quarter.

Interest income for the three months ended March 31, 2021 decreased $279 thousand or 2% to $15.2 million.

  • During the first quarter of 2021, we recognized $1.0 million in accelerated net fee income on PPP loans forgiven or repaid during the quarter compared to $664 thousand in the prior quarter. These accelerated loan fees increased the average yield on loans for the first quarter of 2021 and the fourth quarter of 2020 by 36 basis points and 23 basis points, respectively.
  • PPP loans had an average balance of $123.2 million and yield of 5.49% (2.20% excluding accelerated fee income) for the first quarter of 2021 compared to an average balance of $148.4 million and yield of 4.07% (2.29% excluding accelerated fee income) for the prior quarter.
  • Excluding PPP loans, interest and fees on loans decreased $467 thousand due to a $7.2 million decrease in average loan balances, a 7 basis point decrease in average yield and a quarter that was two days shorter.
  • During the first quarter of 2021, we recognized $251 thousand in nonaccrual interest income as part of the repayment of loans for our largest nonaccrual borrowing relationship. The interest income recognized as part of that repayment increased the average yield on loans for the first quarter of 2021 by 9 basis points.
  • Interest on investment securities increased $45 thousand due to a $63.2 million increase in average security balances partially offset by a 3 basis point decrease in average yield.
  • Interest on interest-bearing deposits due from banks decreased $7 thousand due to a $13.1 million decrease in average balances and a 1 basis point decrease in average yield.

Interest expense for the three months ended March 31, 2021 decreased $141 thousand or 15% to $822 thousand.

  • Interest expense on interest-bearing deposits decreased $98 thousand. Average interest-bearing demand and savings deposit balances increased $10.3 million, while average certificates of deposit decreased $3.9 million. The average rate paid on interest-bearing deposits decreased 3 basis points. The first quarter of 2021 was two days shorter than the fourth quarter of 2020.
  • Average FHLB borrowings were $3.9 million in the current quarter compared to $7.1 million in the prior quarter. The borrowings bore no interest under a program offered by the FHLB and were fully repaid at March 31, 2021.
  • Interest expense on other term debt decreased $42 thousand. The average debt balance was essentially unchanged, while the average rate paid decreased 156 basis points.
  • Interest expense on junior subordinated debentures decreased $1 thousand. The average debt balance and average rate paid remained unchanged.

Provision for Loan and Lease Losses

During the first quarter of 2021, our largest nonaccrual borrowing relationship was fully repaid resulting in the collection of $3.0 million in principal, and a $110 thousand recovery for amount charged-off in a prior year. We have however recognized downgrades of certain loans during the current quarter based on year-end financial data from some borrowers. No provision for loan and lease losses was necessary for the current or prior quarter. A more in depth discussion of our provision is provided below under the heading Provision for Loan and Lease Losses.

Noninterest Income

Noninterest income for the three months ended March 31, 2021 increased $147 thousand compared to the prior quarter. The increase was primarily due to a $221 thousand legal settlement, which was a partial recovery of an investment security impairment loss recorded during the second quarter of 2016.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2021 increased $363 thousand compared to the prior quarter. The increase was primarily due to increased payroll tax expense and increased accruals for unused vacation offset by decreased incentive accruals.

The Company’s efficiency ratio was 57.1% for the first quarter of 2021 compared with 54.8% for the prior quarter.

Income Tax Provision

For the three months ended March 31, 2021, our income tax provision of $1.8 million on pre-tax income of $6.7 million was an effective tax rate of 26.4%. The income tax provision for the prior quarter of $2.0 million on pre-tax income of $7.0 million was an effective tax rate of 27.9%.

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

Earnings Per Share

Diluted earnings per share were $0.29 for the three months ended March 31, 2021 compared with diluted earnings per share of $0.05 for the same period a year ago and diluted earnings per share of $0.30 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in Table 9 presented earlier in this press release.

TABLE 10a
NET INTEREST MARGIN - UNAUDITED
(dollars in thousands)
                            
  For The Three Months Ended
  March 31, 2021   March 31, 2020   December 31, 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) $ 1,017,123   $ 11,547   4.60 %   $ 1,033,689   $ 12,338   4.80 %   $ 1,024,324   $ 12,014   4.67 %
PPP loans (3)   123,192     1,668   5.49 %           %     148,381     1,518   4.07 %
Taxable securities   358,291     1,485   1.68 %     237,405     1,582   2.68 %     304,242     1,484   1.94 %
Tax-exempt securities (4)   82,355     511   2.52 %     34,869     271   3.13 %     73,207     467   2.54 %
Interest-bearing deposits in other banks   111,320     29   0.11 %     47,135     154   1.31 %     124,390     36   0.12 %
Average interest-earning assets   1,692,281     15,240   3.65 %     1,353,098     14,345   4.26 %     1,674,544     15,519   3.69 %
Cash and due from banks   21,744                 21,987                 22,413            
Premises and equipment, net   15,001                 15,753                 15,162            
Goodwill   11,671                 11,671                 11,671            
Other intangible assets, net   3,934                 4,701                 4,126            
Other assets   45,816                 46,809                 47,021            
Average total assets $ 1,790,447               $ 1,454,019               $ 1,774,937            
                                                     
Interest-bearing liabilities:                                                    
Interest-bearing demand $ 295,388     58   0.08 %   $ 233,375     100   0.17 %   $ 283,213     57   0.08 %
Money market   425,113     195   0.19 %     307,587     403   0.53 %     430,014     237   0.22 %
Savings   154,199     48   0.13 %     135,504     118   0.35 %     151,223     53   0.14 %
Certificates of deposit   134,520     338   1.02 %     147,241     464   1.27 %     138,380     390   1.12 %
Federal Home Loan Bank of San Francisco ("FHLB") borrowings   3,889       %     220       0.21 %     7,120       %
Other borrowings   10,000     137   5.56 %     9,963     184   7.43 %     9,999     179   7.12 %
Junior subordinated debentures   10,310     46   1.81 %     10,310     90   3.51 %     10,310     47   1.81 %
Average interest-bearing liabilities   1,033,419     822   0.32 %     844,200     1,359   0.65 %     1,030,259     963   0.37 %
Noninterest-bearing demand   562,155                 420,847                 552,601            
Other liabilities   16,711                 16,852                 17,557            
Shareholders’ equity   178,162                 172,120                 174,520            
Average liabilities and shareholders’ equity $ 1,790,447               $ 1,454,019               $ 1,774,937            
Net interest income and net interest margin (5)       $ 14,418   3.46 %         $ 12,986   3.86 %         $ 14,556   3.46 %
                                                     
(1) Interest income on loans, net of PPP includes net fees and costs of approximately $204 thousand, $257 thousand, and $85 thousand for the three months ended March 31, 2021 and 2020 and December 31, 2020, respectively. Interest income on PPP loans includes net fees and costs of $1.4 million and $1.1 million for the three months ended March 31, 2021 and December 31, 2020, respectively.
(2) Loans, net of PPP includes average nonaccrual loans of $6.2 million, $5.5 million and $7.2 million for the three months ended March 31, 2021 and 2020 and December 31, 2020, respectively.
(3) PPP loans represent 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 March 31, 2021 and 2020 and December 31, 2020 included $110 thousand, $163 thousand and $141 thousand in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by four, six and five basis points, respectively.
(6) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively.
TABLE 11
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED
(dollars in thousands)
                    
  For The Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
  2021   2020   2020   2020   2020
ALLL beginning balance $ 16,910       $ 16,873       $ 16,089       $ 15,067       $ 12,231    
Provision for loan and lease losses charged to expense                   1,100         1,300         2,850    
Loans charged-off   (90 )       (86 )       (502 )       (356 )       (169 )  
Loan and lease loss recoveries   207         123         186         78         155    
ALLL ending balance $ 17,027       $ 16,910       $ 16,873       $ 16,089       $ 15,067    
                                       
  At March 31,   At December 31,   At September 30,   At June 30,   At March 31,
  2021   2020   2020   2020   2020
Nonaccrual loans:                                      
Commercial $ 1,520       $ 1,535       $ 1,549       $ 7       $ 39    
Commercial real estate:                                      
Non-owner occupied   626         640         1,712         1,717            
Owner occupied   95         3,094         3,100         2,992         3,103    
Residential real estate:                                      
ITIN   1,529         1,585         1,574         1,738         1,878    
1-4 family mortgage   137         141         145         180         184    
Consumer and other   17         18         18         37         39    
Total nonaccrual loans   3,924         7,013         8,098         6,671         5,243    
Accruing troubled debt restructured loans:                                      
Commercial   494         498         531         592         592    
Residential real estate:                                      
ITIN   3,420         3,466         3,597         3,642         3,891    
Equity lines   121         126         131         221         226    
Total accruing restructured loans   4,035         4,090         4,259         4,455         4,709    
Total impaired loans $ 7,959       $ 11,103       $ 12,357       $ 11,126       $ 9,952    
                                       
Gross loans at period end $ 1,145,943       $ 1,139,732       $ 1,206,065       $ 1,206,340       $ 1,052,245    
                                       
Impaired loans to gross loans   0.69   %     0.97   %     1.02   %     0.92   %     0.95   %
Impaired loans to gross loans (excluding PPP) (1)   0.77   %     1.10   %     1.19   %     1.07   %     0.95   %
Nonaccrual loans to gross loans   0.34   %     0.62   %     0.67   %     0.55   %     0.50   %
Nonaccrual loans to gross loans (excluding PPP) (2)   0.38   %     0.70   %     0.78   %     0.64   %     0.50   %
                                       
Allowance for loan and lease losses as a percent of:                          
Gross loans   1.49   %     1.48   %     1.40   %     1.33   %     1.43   %
Gross loans (excluding PPP) (3)   1.66   %     1.68   %     1.62   %     1.54   %     1.43   %
Nonaccrual loans   433.92   %     241.12   %     208.36   %     241.18   %     287.37   %
Impaired loans   213.93   %     152.30   %     136.55   %     144.61   %     151.40   %
                                       
(1) Impaired loans to gross loans (excluding PPP) is computed by dividing the impaired loans by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.
(2) Nonaccrual loans to gross loans (excluding PPP) is computed by dividing the nonaccrual loans by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.
(3) ALLL to gross loans (excluding PPP) is computed by dividing the ALLL by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.

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).

Many of our COVID-19 related credit concerns have moderated and no provision for loan and lease losses was required during the first quarter of 2021. Nonaccrual loans decreased 43% since December 31, 2020 due to the repayment of $3.0 million in principal from one commercial real estate loan relationship. Net loan loss recoveries were $117 thousand during the first quarter of 2021 and most of our borrowers who received a COVID-19 related loan payment deferral have resumed making their payments. We have however recognized downgrades of certain loans during the current quarter based on year-end financial data received by some borrowers.  Approximately half of the loan balance for the loans downgraded are from SBA 504 loans. No provision for loan and lease losses was necessary for the current quarter or the prior quarter compared to a provision for loan and lease losses of $2.9 million in the same quarter a year ago.

During the current quarter, we adjusted our Q-Factor for economic conditions to reflect our more positive outlook on the economy. Our ALLL methodology, adjusted for the revised Q-Factor and the changes in loan quality metrics discussed above supported an ALLL of $17.0 million at March 31, 2021, an increase of 1% compared to our ALLL of $16.9 million at December 31, 2020 and an increase of 13% compared to our ALLL of $15.1 million at March 31, 2020. Management believes the Company’s ALLL is adequate at March 31, 2021. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

At March 31, 2021, the recorded investment in loans classified as impaired totaled $8.0 million, with a corresponding specific reserve of $188 thousand compared to impaired loans of $11.1 million, with a corresponding specific reserve of $192 thousand at December 31, 2020 and impaired loans of $10.0 million with a corresponding specific reserve of $318 thousand at March 31, 2020. The decrease in impaired loans during the current quarter resulted from the repayment of a $3.0 million nonaccrual borrowing relationship.

TABLE 12
TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(dollars in thousands)
                     
  At March 31,   At December 31,   At September 30,   At June 30,   At March 31,
  2021   2020   2020   2020   2020
Nonaccrual $ 1,947     $ 2,007     $ 2,063     $ 2,194     $ 1,611  
Accruing   4,035       4,090       4,259       4,455       4,709  
Total troubled debt restructurings $ 5,982     $ 6,097     $ 6,322     $ 6,649     $ 6,320  
                                       
Troubled debt restructurings as a percent of:                                      
Gross loans   0.52 %     0.53 %     0.52 %     0.55 %     0.60 %
Gross loans (excluding PPP) (1)   0.58 %     0.60 %     0.61 %     0.64 %     0.60 %
                                       
(1) Troubled debt restructuring to gross loans (excluding PPP) is computed by dividing troubled debt restructurings by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.

There were no new troubled debt restructurings during the three months ended March 31, 2021. As of March 31, 2021, we had 90 loans that were classified as troubled debt restructurings, of which 88 were performing according to their restructured terms. Of the 90 troubled debt restructurings, 82 were ITIN loans totaling $4.7 million which are serviced by a third party.

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 payment 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 payment deferral of less than six months, we have granted an additional payment deferral period on a case-by-case basis.

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.

Most of the loan payment deferrals have ended and borrowers have resumed making payments. At March 31, 2021, there were 26 loans totaling $4.1 million with a payment deferral compared to 82 loans totaling $9.5 million at December 31, 2020.

Loans with a payment deferral at March 31, 2021 consisted of two SBA 504 commercial real estate loans totaling $2.9 million, a $2 thousand consumer loan, and 23 loans totaling $1.2 million that are serviced by others. The loans serviced by others are small residential mortgages and consumer home improvement loans that are geographically disbursed throughout the United States and serviced by third parties.

Past Due Loans

Past due loans as of March 31, 2021 decreased $2.7 million to $3.8 million, compared to $6.5 million as of March 31, 2020 and decreased $1.6 million compared to $5.4 million as of December 31, 2020. The decreases in past due loans was primarily due to collection of our largest nonaccrual borrowing relationship totaling $3.0 million that was repaid in the current quarter and a $1.1 million commercial real estate loan that was repaid in the prior quarter.

Past due loans included seven loans totaling $3.3 million at March 31, 2021, that were previously granted payment deferrals:

  • Three loans that are guaranteed under the California Capital Access Program for Small Business;
    • $1.4 million for two commercial loans on nonaccrual status made to one borrower and
    • $101 thousand for one commercial loan secured by residential real estate.
  • $626 thousand for one commercial real estate loan on nonaccrual status that is a troubled debt restructured loan.
  • $1.1 million for one commercial real estate loan that was fully repaid on April 1, 2021.
  • $72 thousand for two ITIN loans.

The following table presents nonperforming assets at the dates indicated.

TABLE 13
NONPERFORMING ASSETS - UNAUDITED
(dollars in thousands)
                     
  At March 31,   At December 31,   At September 30,   At June 30,   At March 31,
  2021   2020   2020   2020   2020
Total nonaccrual loans $ 3,924     $ 7,013     $ 8,098     $ 6,671     $ 5,243  
90 days past due and still accruing                           2  
Total nonperforming loans   3,924       7,013       8,098       6,671       5,245  
                                       
Other real estate owned ("OREO")         8       8       8       8  
Total nonperforming assets $ 3,924     $ 7,021     $ 8,106     $ 6,679     $ 5,253  
                                       
Gross loans $ 1,145,943     $ 1,139,732     $ 1,206,065     $ 1,206,340     $ 1,052,245  
PPP loans (1)   117,991       130,814       163,493       162,189        
Total gross loans, net of PPP loans $ 1,027,952     $ 1,008,918     $ 1,042,572     $ 1,044,151     $ 1,052,245  
                                       
Nonperforming loans to gross loans   0.34 %     0.62 %     0.67 %     0.55 %     0.50 %
Nonperforming loans to gross loans (excluding PPP) (2)   0.38 %     0.70 %     0.78 %     0.64 %     0.50 %
Nonperforming assets to total assets   0.21 %     0.40 %     0.47 %     0.39 %     0.36 %
                                       
(1) PPP loans are fully guaranteed by SBA and no allowance is provided for them.
(2) Nonperforming loans to gross loans (excluding PPP) is computed by dividing nonperforming loans by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.

The following table summarizes when loans are projected to reprice by year and rate index as of March 31, 2021.

TABLE 14
LOANS BY RATE INDEX AND PROJECTED REPRICING PERIOD - UNAUDITED
(dollars in thousands)
                        
  At March 31, 2021
                                Years 6            
                                Through   Beyond      
Rate Index: Year 1   Year 2   Year 3   Year 4   Year 5   Year 10   Year 10   Total
Fixed $ 78,882   $ 106,343   $ 57,826   $ 45,797   $ 41,390   $ 187,744   $ 38,332   $ 556,314
Variable:                                              
Prime   70,560     5,540     5,402     6,957     6,722     954         96,135
5 Year Treasury   47,993     66,128     60,511     94,813     102,025     55,762         427,232
7 Year Treasury   2,914     4,502     5,347                     12,763
1 Year LIBOR   17,418                             17,418
Other Indexes   3,373     1,961     1,801     9,831     2,504     11,386     1,444     32,300
Total accruing variable rate loans   142,258     78,131     73,061     111,601     111,251     68,102     1,444     585,848
                                               
Nonaccrual   800     784     728     444     244     780     144     3,924
Total $ 221,940   $ 185,258   $ 131,615   $ 157,842   $ 152,885   $ 256,626   $ 39,920   $ 1,146,086

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 15
LOAN FLOORS - UNAUDITED
(dollars in thousands)
               
  Variable Rate Loans at March 31, 2021
  With Floors   Without      
  At Floor Rate   Above Floor Rate   Total   Floors   Total
Prime $ 41,635   $ 6,145   $ 47,780   $ 48,355   $ 96,135
5 year Treasury   355,530     44,466     399,996     27,236     427,232
7 Year Treasury   12,763         12,763         12,763
1 Year LIBOR       709     709     16,709     17,418
Other Indexes   15,041     824     15,865     16,435     32,300
Total accruing variable rate loans $ 424,969   $ 52,144   $ 477,113   $ 108,735     585,848
                             
Nonaccrual                           3,924
Total variable rate loans                         $ 589,772
TABLE 16
UNAUDITED
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share data)
                
  At March 31,   Change   At December 31,
  2021     2020     $   %   2020  
Assets:                            
Cash and due from banks $ 20,053     $ 21,127     $ (1,074 )   (5 ) %   $ 19,875  
Interest-bearing deposits in other banks   74,804       22,813       51,991     228   %     87,111  
Total cash and cash equivalents   94,857       43,940       50,917     116   %     106,986  
                             
Securities available-for-sale, at fair value   517,375       285,077       232,298     81   %     446,880  
Loans, net of deferred fees and costs   1,146,086       1,054,374       91,712     9   %     1,139,961  
Allowance for loan and lease losses   (17,027 )     (15,067 )     (1,960 )   (13 ) %     (16,910 )
Net loans   1,129,059       1,039,307       89,752     9   %     1,123,051  
                             
Premises and equipment, net   14,792       15,452       (660 )   (4 ) %     14,999  
Life insurance   24,320       23,824       496     2   %     24,206  
Deferred tax asset, net   5,929       3,149       2,780     88   %     3,954  
Goodwill   11,671       11,671             %     11,671  
Other intangible assets, net   3,852       4,618       (766 )   (17 ) %     4,044  
Other assets   27,247       28,842       (1,595 )   (6 ) %     28,163  
Total assets $ 1,829,102     $ 1,455,880     $ 373,222     26   %   $ 1,763,954  
                             
Liabilities and shareholders' equity:                            
Demand - noninterest-bearing $ 603,991     $ 419,315     $ 184,676     44   %   $ 541,033  
Demand - interest-bearing   290,687       231,276       59,411     26   %     290,251  
Money market   425,251       314,687       110,564     35   %     425,121  
Savings   160,834       133,552       27,282     20   %     150,695  
Certificates of deposit   133,630       143,557       (9,927 )   (7 ) %     135,679  
Total deposits   1,614,393       1,242,387       372,006     30   %     1,542,779  
                             
Term debt:                            
Federal Home Loan Bank of San Francisco ("FHLB") borrowings         10,000       (10,000 )   (100 ) %     5,000  
Other borrowings   10,000       10,000             %     10,000  
Unamortized debt issuance costs         (31 )     31     100   %      
Net term debt   10,000       19,969       (9,969 )   (50 ) %     15,000  
                             
Junior subordinated debentures   10,310       10,310             %     10,310  
Other liabilities   17,259       17,556       (297 )   (2 ) %     18,163  
Total liabilities   1,651,962       1,290,222       361,740     28   %     1,586,252  
                             
Shareholders' equity:                            
Common stock   59,215       59,067       148       %     58,988  
Retained earnings   115,142       100,644       14,498     14   %     111,226  
Accumulated other comprehensive income, net of tax   2,783       5,947       (3,164 )   (53 ) %     7,488  
Total shareholders' equity   177,140       165,658       11,482     7   %     177,702  
                             
Total liabilities and shareholders' equity $ 1,829,102     $ 1,455,880     $ 373,222     26   %   $ 1,763,954  
                             
Total interest-earning assets $ 1,734,314     $ 1,353,822     $ 380,492     28   %   $ 1,663,321  
Shares outstanding   16,876       16,796       80       %     16,801  
Book value per share (1) $ 10.50     $ 9.86     $ 0.64     6   %   $ 10.58  
Tangible book value per share (1) $ 9.58     $ 8.89     $ 0.69     8   %   $ 9.64  
                             
(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 17
UNAUDITED
INCOME STATEMENT
(dollars in thousands, except per share data)
  For The Three Months Ended
  March 31,   Change   December 31,
  2021   2020     $   %   2020
Interest income:                            
Interest and fees on loans $ 13,215   $ 12,338     $ 877     7   %   $ 13,532
Interest on taxable securities   1,485     1,582       (97 )   (6 ) %     1,484
Interest on tax-exempt securities   511     271       240     89   %     467
Interest on interest-bearing deposits in other banks   29     154       (125 )   (81 ) %     36
Total interest income   15,240     14,345       895     6   %     15,519
Interest expense:                            
Interest on demand deposits   58     100       (42 )   (42 ) %     57
Interest on money market   195     403       (208 )   (52 ) %     237
Interest on savings   48     118       (70 )   (59 ) %     53
Interest on certificates of deposit   338     464       (126 )   (27 ) %     390
Interest on other borrowings   137     184       (47 )   (26 ) %     179
Interest on junior subordinated debentures   46     90       (44 )   (49 ) %     47
Total interest expense   822     1,359       (537 )   (40 ) %     963
Net interest income   14,418     12,986       1,432     11   %     14,556
Provision for loan and lease losses       2,850       (2,850 )   (100 ) %    
Net interest income after provision for loan and lease losses   14,418     10,136       4,282     42   %     14,556
Noninterest income:                            
Service charges on deposit accounts   148     169       (21 )   (12 ) %     173
ATM and point of sale fees   318     268       50     19   %     306
Payroll and benefit processing fees   169     170       (1 )   (1 ) %     182
Life insurance   121     123       (2 )   (2 ) %     125
Gain on investment securities, net   7     84       (77 )   (92 ) %    
FHLB dividends   93     130       (37 )   (28 ) %     94
Legal settlement   221           221     100   %    
Other income (loss)   86     (52 )     138     265   %     136
Total noninterest income   1,163     892       271     30   %     1,016
TABLE 17 - CONTINUED
UNAUDITED
INCOME STATEMENT
(dollars in thousands, except per share data)
                
  For The Three Months Ended
  March 31,   Change   December 31,
  2021   2020   $   %   2020
Noninterest expense:                            
Salaries and related benefits   5,639     5,887     (248 )   (4 ) %     5,284
Premises and equipment   959     854     105     12   %     966
FDIC insurance premium   110     36     74     206   %     105
Data processing   548     531     17     3   %     584
Professional services   301     334     (33 )   (10 ) %     292
Telecommunications   170     171     (1 )   (1 ) %     174
Other expenses   1,170     1,970     (800 )   (41 ) %     1,129
Total noninterest expense   8,897     9,783     (886 )   (9 ) %     8,534
Income before provision for income taxes   6,684     1,245     5,439     437   %     7,038
Provision for income taxes   1,764     329     1,435     436   %     1,966
Total provision for income taxes   1,764     329     1,435     436   %     1,966
Net income $ 4,920   $ 916   $ 4,004     437   %   $ 5,072
                             
Earnings per share - basic $ 0.29   $ 0.05   $ 0.24     480   %   $ 0.30
Weighted average shares - basic   16,706     17,695     (989 )   (6 ) %     16,663
Earnings per share - diluted $ 0.29   $ 0.05   $ 0.24     480   %   $ 0.30
Weighted average shares - diluted   16,778     17,747     (969 )   (5 ) %     16,731
TABLE 18
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(dollars in thousands)
               
  For The Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
  2021   2020   2020   2020   2020
Earning assets:                            
Loans $ 1,140,315   $ 1,172,705   $ 1,209,277   $ 1,180,915   $ 1,033,689
Taxable securities   358,291     304,242     228,045     211,195     237,405
Tax-exempt securities   82,355     73,207     68,766     58,540     34,869
Interest-bearing deposits in other banks   111,320     124,390     95,348     72,507     47,135
Total earning assets   1,692,281     1,674,544     1,601,436     1,523,157     1,353,098
                             
Cash and due from banks   21,744     22,413     23,381     21,564     21,987
Premises and equipment, net   15,001     15,162     15,365     15,428     15,753
Life insurance   24,265     24,147     24,028     23,899     23,762
Deferred tax asset, net   4,287     2,738     2,501     3,016     4,259
Goodwill   11,671     11,671     11,671     11,671     11,671
Other intangible assets, net   3,934     4,126     4,318     4,508     4,701
Other assets   17,264     20,136     21,416     23,584     18,788
Total assets $ 1,790,447   $ 1,774,937   $ 1,704,116   $ 1,626,827   $ 1,454,019
                             
Liabilities and shareholders' equity:                            
Demand - noninterest-bearing $ 562,155   $ 552,601   $ 531,459   $ 497,636   $ 420,847
Demand - interest-bearing   295,388     283,213     279,744     261,907     233,375
Money market   425,113     430,014     387,995     365,368     307,587
Savings   154,199     151,223     146,074     138,500     135,504
Certificates of deposit   134,520     138,380     139,757     142,955     147,241
Total deposits   1,571,375     1,555,431     1,485,029     1,406,366     1,244,554
                             
Federal Home Loan Bank of San Francisco ("FHLB") borrowings   3,889     7,120     10,000     16,044     220
Other borrowings   10,000     9,999     9,988     9,976     9,963
Junior subordinated debentures   10,310     10,310     10,310     10,310     10,310
Other liabilities   16,711     17,557     17,356     17,095     16,852
Total liabilities   1,612,285     1,600,417     1,532,683     1,459,791     1,281,899
                             
Shareholders' equity   178,162     174,520     171,433     167,036     172,120
Liabilities & shareholders' equity $ 1,790,447   $ 1,774,937   $ 1,704,116   $ 1,626,827   $ 1,454,019
TABLE 19
UNAUDITED CONDENSED CONSOLIDATED
YEAR TO DATE AVERAGE BALANCE SHEETS
(dollars in thousands)
                
  For the Three Months Ended   For the Twelve Months Ended
  March 31,   March 31,   December 31,   December 31,   December 31,
  2021   2020   2020   2019   2018
Earning assets:                          
Loans $ 1,140,315   $ 1,033,689   $ 1,149,375   $ 1,020,801   $ 915,360
Taxable securities   358,291     237,405     245,336     246,723     207,407
Tax-exempt securities   82,355     34,869     58,912     38,706     50,330
Interest-bearing deposits in other banks   111,320     47,135     84,982     54,095     47,038
Total earning assets   1,692,281     1,353,098     1,538,605     1,360,325     1,220,135
                             
Cash and due from banks   21,744     21,987     22,339     22,806     20,468
Premises and equipment, net   15,001     15,753     15,426     15,598     13,952
Life insurance   24,265     23,762     23,960     23,371     22,148
Deferred tax asset, net   4,287     4,259     3,126     5,430     7,567
Goodwill   11,671     11,671     11,671     10,758     665
Other intangible assets, net   3,934     4,701     4,412     4,807     1,252
Other assets   17,264     18,788     20,980     15,017     2,654
Total assets $ 1,790,447   $ 1,454,019   $ 1,640,519   $ 1,458,112   $ 1,288,841
                             
Liabilities and shareholders' equity:                            
Demand - noninterest-bearing $ 562,155   $ 420,847   $ 500,862   $ 400,588   $ 332,197
Demand - interest-bearing   295,388     233,375     264,652     242,516     238,328
Money market   425,113     307,587     372,939     304,340     250,685
Savings   154,199     135,504     142,857     136,733     109,025
Certificates of deposit   134,520     147,241     142,067     160,550     168,183
Total deposits   1,571,375     1,244,554     1,423,377     1,244,727     1,098,418
                             
Federal Home Loan Bank of San Francisco ("FHLB") borrowings   3,889     220     8,347     9,644     22,466
Other borrowings   10,000     9,963     9,981     10,895     15,143
Junior subordinated debentures   10,310     10,310     10,310     10,310     10,310
Other liabilities   16,711     16,852     17,217     17,894     12,286
Total liabilities   1,612,285     1,281,899     1,469,232     1,293,470     1,158,623
                             
Shareholders' equity   178,162     172,120     171,287     164,642     130,218
Liabilities & shareholders' equity $ 1,790,447   $ 1,454,019   $ 1,640,519   $ 1,458,112   $ 1,288,841

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 wine region north of San Francisco. The Bank was incorporated as a California banking corporation on November 25, 1981 and opened for business on October 22, 1982. The Company’s common stock is listed on the NASDAQ Global Market and trades under the symbol “BOCH”.

Contact Information:

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

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

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