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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2021

 

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

 

For the transition period from to

 

 

Commission file number 0-25135

 

Bank of Commerce Holdings

 

California

94-2823865

(State or jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

   

555 Capitol Mall, Suite 1255, Sacramento, California

95814

(Address of principal executive offices)

(Zip Code)

 

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

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

BOCH

NASDAQ

 

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

 

Yes ☒  No ☐

 

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

 

Yes ☒  No ☐

 

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

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☐

 

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

 

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

 

Yes ☐ No ☒

 

Outstanding shares of Common Stock, no par value, as of April 29, 2021: 16,876,239

 

1

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Consolidated Balance Sheets (Unaudited)

 

   

March 31,

   

December 31,

 

(Amounts in thousands, except share information)

 

2021

   

2020

 

Assets:

               

Cash and due from banks

  $ 20,053     $ 19,875  

Interest-bearing deposits in other banks

    74,804       87,111  

Total cash and cash equivalents

    94,857       106,986  
                 

Securities available-for-sale, at fair value

    517,375       446,880  
                 

Loans, net of deferred fees and costs

    1,146,086       1,139,961  

Allowance for loan and lease losses

    (17,027 )     (16,910 )

Net loans

    1,129,059       1,123,051  
                 

Premises and equipment, net

    14,792       14,999  

Life insurance

    24,320       24,206  

Deferred tax asset, net

    5,929       3,954  

Goodwill

    11,671       11,671  

Other intangible assets, net

    3,852       4,044  

Other assets

    27,247       28,163  

Total assets

  $ 1,829,102     $ 1,763,954  
                 

Liabilities and shareholders' equity:

               

Liabilities:

               

Demand - noninterest-bearing

  $ 603,991     $ 541,033  

Demand - interest-bearing

    290,687       290,251  

Money market

    425,251       425,121  

Savings

    160,834       150,695  

Certificates of deposit

    133,630       135,679  

Total deposits

    1,614,393       1,542,779  
                 

Term debt:

               

Federal Home Loan Bank of San Francisco ("FHLB") borrowings

          5,000  

Other borrowings

    10,000       10,000  

Net term debt

    10,000       15,000  
                 

Junior subordinated debentures

    10,310       10,310  

Other liabilities

    17,259       18,163  

Total liabilities

    1,651,962       1,586,252  
                 

Commitments and contingencies (Note 7)

                 

Shareholders' equity:

               

Common stock, no par value, 50,000,000 shares authorized: issued and outstanding -16,876,239 as of March 31, 2021 and 16,800,662 as of December 31, 2020

    59,215       58,988  

Retained earnings

    115,142       111,226  

Accumulated other comprehensive income, net of tax

    2,783       7,488  

Total shareholders' equity

    177,140       177,702  

Total liabilities and shareholders' equity

  $ 1,829,102     $ 1,763,954  

 

See accompanying notes to consolidated financial statements.

 

3

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 

Consolidated Statements of Income (Unaudited)

 

   

For the Three Months Ended

 
   

March 31,

 

(Amounts in thousands, except per share information)

 

2021

   

2020

 

Interest income:

               

Interest and fees on loans

  $ 13,215     $ 12,338  

Interest on taxable securities

    1,485       1,582  

Interest on tax-exempt securities

    511       271  

Interest on interest-bearing deposits in other banks

    29       154  

Total interest income

    15,240       14,345  

Interest expense:

               

Interest on demand - interest-bearing

    58       100  

Interest on money market

    195       403  

Interest on savings

    48       118  

Interest on certificates of deposit

    338       464  

Interest on other borrowings

    137       184  

Interest on junior subordinated debentures

    46       90  

Total interest expenses

    822       1,359  

Net interest income

    14,418       12,986  

Provision for loan and lease losses

          2,850  

Net interest income after provision for loan and lease losses

    14,418       10,136  

Noninterest income:

               

Service charges on deposit accounts

    148       169  

ATM and point of sale fees

    318       268  

Payroll and benefit processing fees

    169       170  

Life insurance

    121       123  

Gain on sale of investment securities, net

    7       84  

FHLB dividends

    93       130  

Legal settlement

    221        

Other income (loss)

    86       (52 )

Total noninterest income

    1,163       892  

Noninterest expense:

               

Salaries and related benefits

    5,639       5,887  

Premises and equipment

    959       854  

FDIC insurance premium

    110       36  

Data processing

    548       531  

Professional services

    301       334  

Telecommunications

    170       171  

Other expenses

    1,170       1,970  

Total noninterest expense

    8,897       9,783  

Income before provision for income taxes

    6,684       1,245  

Provision for income taxes

    1,764       329  

Net income

  $ 4,920     $ 916  
                 

Earnings per share - basic

  $ 0.29     $ 0.05  

Weighted average shares - basic

    16,706       17,695  

Earnings per share - diluted

  $ 0.29     $ 0.05  

Weighted average shares - diluted

    16,778       17,747  

 

See accompanying notes to consolidated financial statements.

 

4

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 

Consolidated Statements of Comprehensive Income (Unaudited)

 

   

For the Three Months Ended

 
   

March 31,

 

(Amounts in thousands)

 

2021

   

2020

 

Net income

  $ 4,920     $ 916  
                 

Available-for-sale securities:

               

Changes in unrealized gains arising during the period

    (6,673 )     4,833  

Income taxes

    1,973       (1,429 )

Change in unrealized gain, net of tax

    (4,700 )     3,404  
                 

Reclassification adjustment for realized gains included in net income

    (7 )     (84 )

Income taxes

    2       26  

Realized gains, net of tax

    (5 )     (58 )
                 

Net change in unrealized gains on available-for-sale securities

    (4,705 )     3,346  

Other comprehensive (loss) income

    (4,705 )     3,346  

Comprehensive income

  $ 215     $ 4,262  

 

See accompanying notes to consolidated financial statements.

 

5

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 

Consolidated Statements of ShareholdersEquity (Unaudited)

 

                           

Accumulated Other

         
           

Common

           

Comprehensive

         
   

Common

   

Stock

   

Retained

   

Income

         

(Amounts in thousands except per share information)

 

Shares

   

Amount

   

Earnings

   

Net of Tax

   

Total

 

Balance at December 31, 2019

    18,137     $ 71,311     $ 100,566     $ 2,601     $ 174,478  

Net income

                916             916  

Other comprehensive income, net of tax

                      3,346       3,346  

Dividend declared on common stock ($0.05 per share)

                (838 )           (838 )

Repurchase of common stock

    (1,352 )     (12,230 )                 (12,230 )

Restricted stock granted, net of forfeitures

    22                          

Shares surrendered for tax-withholding purposes

    (11 )     (120 )                 (120 )

Compensation expense associated with restricted stock

          106                   106  

Balance at March 31, 2020

    16,796     $ 59,067     $ 100,644     $ 5,947     $ 165,658  

Net income

                3,847             3,847  

Other comprehensive income, net of tax

                      1,201       1,201  

Dividend declared on common stock ($0.05 per share)

                (833 )           (833 )

Repurchase of common stock

    (57 )     (423 )                 (423 )

Compensation expense associated with restricted stock

          105                   105  

Balance at June 30, 2020

    16,739     $ 58,749     $ 103,658     $ 7,148     $ 169,555  

Net income

                4,329             4,329  

Other comprehensive loss, net of tax

                      176       176  

Dividend declared on common stock ($0.05 per share)

                (833 )           (833 )

Restricted stock granted, net of forfeitures

    53                          

Compensation expense associated with restricted stock

          123                   123  

Balance at September 30, 2020

    16,792     $ 58,872     $ 107,154     $ 7,324     $ 173,350  

Net income

                5,072             5,072  

Other comprehensive income, net of tax

                      164       164  

Dividend declared on common stock ($0.06 per share)

                (1,000 )           (1,000 )

Restricted stock granted, net of forfeitures

    10                          

Shares surrendered for tax-withholding purposes

    (1 )     (9 )                 (9 )

Compensation expense associated with restricted stock

          125                   125  

Balance at December 31, 2020

    16,801     $ 58,988     $ 111,226     $ 7,488     $ 177,702  

 

6

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of ShareholdersEquity (Unaudited) (Continued)

 

                           

Accumulated Other

         
           

Common

           

Comprehensive

         
   

Common

   

Stock

   

Retained

   

Income (Loss)

         

(Amounts in thousands except per share information)

 

Shares

   

Amount

   

Earnings

   

Net of Tax

   

Total

 

Balance at December 31, 2020

    16,801     $ 58,988     $ 111,226     $ 7,488     $ 177,702  

Net income

                4,920             4,920  

Other comprehensive loss, net of tax

                      (4,705 )     (4,705 )

Dividend declared on common stock ($0.06 per share)

                (1,004 )           (1,004 )

Restricted stock granted, net of forfeitures

    43                          

Stock options exercised

    41       197                   197  

Shares surrendered for tax-withholding purposes

    (9 )     (97 )                 (97 )

Compensation expense associated with restricted stock

          127                   127  

Balance at March 31, 2021

    16,876     $ 59,215     $ 115,142     $ 2,783     $ 177,140  

 

See accompanying notes to consolidated financial statements.

 

7

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 

Consolidated Statements of Cash Flows (Unaudited)

 

   

For the Three Months Ended

 
   

March 31,

 

(Amounts in thousands)

 

2021

   

2020

 

Cash flows from operating activities:

               

Net income

  $ 4,920     $ 916  

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

               

Provision for loan and lease losses

          2,850  

Provision for depreciation and amortization

    372       303  

Amortization of core deposit intangible

    192       191  

Amortization of debt issuance costs

          12  

Compensation expense associated with restricted stock

    127       106  

Tax benefits from vesting of restricted stock

          3  

Net gain on sale or call of securities

    (7 )     (84 )

Amortization of premiums and accretion of discounts on investments, net

    659       320  

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

    (229 )     (332 )

Loss on disposal of fixed assets

          232  

Write-down of other real estate owned

    8        

Loss on sale of OREO

          23  

Increase in cash surrender value of life insurance

    (121 )     (123 )

Deferred compensation and salary continuation plan payments

    (220 )     (271 )

Increase in deferred compensation and salary continuation plans

    198       214  

Net decrease in deferred loan fees and costs

    87       33  

Decrease (increase) in other assets

    1,230       (1,602 )

(Decrease) increase in other liabilities

    (886 )     976  

Net cash provided by operating activities

    6,330       3,767  
                 

Cash flows from investing activities:

               

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

    24,898       17,410  

Proceeds from sale of available-for-sale securities

    11,890       29,339  

Purchases of available-for-sale securities

    (114,758 )     (40,038 )

Investment in qualified affordable housing partnerships

    (99 )      

Loan originations, net of principal repayments

    (9,708 )     (24,900 )

Net repayment on loan pools

    3,842       5,868  

Purchase of premises and equipment

    (238 )     (85 )

Proceeds from the sale of OREO

          12  

Net cash used in investing activities

    (84,173 )     (12,394 )

 

See accompanying notes to consolidated financial statements.

 

8

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited) (Continued)

 

   

For the Three Months Ended

 
   

March 31,

 

(Amounts in thousands)

 

2021

   

2020

 

Cash flows from financing activities:

               

Net increase (decrease) in demand, money market and savings deposits

  $ 73,663     $ (16,555 )

Net decrease in certificates of deposit

    (2,049 )     (8,229 )

Advances on term debt

          10,000  

Repayment of term debt

    (5,000 )      

Proceeds from stock options exercised

    197        

Repurchase of common stock

          (12,230 )

Cash paid for restricted shares surrendered for tax-withholding purposes

    (97 )     (120 )

Cash dividends paid on common stock

    (1,000 )     (903 )

Net cash provided (used) by financing activities

    65,714       (28,037 )
                 

Net decrease in cash and cash equivalents

    (12,129 )     (36,664 )

Cash and cash equivalents at beginning of year

    106,986       80,604  

Cash and cash equivalents at end of period

  $ 94,857     $ 43,940  

 

 

   

For the Three Months Ended

 
   

March 31,

 

(Amounts in thousands)

 

2021

   

2020

 

Supplemental disclosures of cash flow activity:

               

Cash paid during the period for:

               

Income taxes

  $ 1,900     $ 350  

Interest

  $ 773     $ 1,167  

Operating leases

  $ 243     $ 246  

Supplemental disclosures of non-cash investing activities:

               

Transfer of loans to other real estate owned

  $     $ 8  

Investment in qualified affordable housing partnership

  $     $ 1,000  
                 

Unrealized (loss) gain on investment securities available-for-sale, net of gains included in net income

  $ (6,680 )   $ 4,749  

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

    1,975       (1,403 )

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

  $ (4,705 )   $ 3,346  
                 

Supplemental disclosures of non-cash financing activities:

               

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

  $ 1,004     $ 838  

 

See accompanying notes to consolidated financial statements.

 

9

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Bank of Commerce Holdings (“Company,” “Holding Company,” “we,” or “us”), is a corporation organized under the laws of California and a bank holding company (“BHC”) registered under the Bank Holding Company Act of 1956, as amended (“BHC Act”) with its principal offices in Sacramento, California. The Holding Company’s principal business is to serve as a holding company for Merchants Bank of Commerce (the “Bank” and together with the Holding Company, the “Company”) and for Bank of Commerce Mortgage (inactive). The Bank, which previously operated under three separate names, changed its name for all operations to Merchants Bank of Commerce effective May 20, 2019. We have an unconsolidated subsidiary in Bank of Commerce Holdings Trust II. The Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 are derived from the unaudited interim consolidated financial statements or the audited consolidated financial statements, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. The Company believes that all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included and the disclosures made are adequate to make the information not misleading.

 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with prevailing practices within the banking and securities industries. In preparing such consolidated financial statements, management is required to make certain estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the Consolidated Balance Sheets and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the valuation and impairment of investment securities, the determination of the allowance for loan and lease losses (“ALLL”), income taxes, the valuation of goodwill and Other Real Estate Owned (“OREO”), and fair value measurements. Certain amounts for prior periods have been reclassified to conform to the current financial statement presentation. The results of reclassifications are not considered material and have no effect on previously reported net income or shareholders' equity. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in Bank of Commerce Holdings 2020 Annual Report on Form 10-K. The consolidated results of operations and cash flows for the 2021 interim period shown in this report are not necessarily indicative of the results for any future interim period or the entire fiscal year.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Holding Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. As of March 31, 2021 and December 31, 2020, the Company had one wholly-owned trust formed in 2005 to issue trust preferred securities and related common securities. We have not consolidated the accounts of the Trust in our consolidated financial statements in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB”), Consolidation (“ASC 810”). We are not considered the primary beneficiary of the Trust (variable interest entity). As a result, the junior subordinated debentures issued by the Holding Company to the Trust are reflected on the Company’s Consolidated Balance Sheets.

 

Allowance for Loan and Lease Losses

 

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments. The ASU introduces a new impairment model based on current expected credit losses (“CECL”) in substitution for our current “incurred loss” methodology. Amendments to ASU 2016-13 permit us to delay implementation of CECL until January 1, 2023.

 

Leases

 

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

 

10

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE 2. COMMON STOCK OUTSTANDING AND EARNINGS PER SHARE

 

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

 

The following is a computation of basic and diluted earnings per share for the three months ended March 31, 2021 and 2020.

 

   

For the Three Months Ended

 
   

March 31,

 

(Amounts in thousands, except per share information)

 

2021

   

2020

 

Earnings Per Share:

               

Numerators:

               

Net income

  $ 4,920     $ 916  

Denominators:

               

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

    16,706       17,695  

Effect of potentially dilutive common shares (2)

    72       52  

Weighted average number of common shares outstanding - diluted

    16,778       17,747  

Earnings per common share:

               

Basic

  $ 0.29     $ 0.05  

Diluted

  $ 0.29     $ 0.05  

 

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

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

 

 

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.

 

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. Repurchases under this plan totaled 1.4 million common shares during the first quarter of 2020.

 

 

 

NOTE 3. SECURITIES

 

The following tables present the amortized costs, unrealized gains, unrealized losses and estimated fair values of our investment securities as of March 31, 2021, and December 31, 2020.

 

   

As of March 31, 2021

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Estimated

 

(Amounts in thousands)

 

Costs

   

Gains

   

Losses

   

Fair Values

 

Available-for-sale securities:

                               

U.S. government & agencies

  $ 30,460     $ 696     $ (96 )   $ 31,060  

Obligations of state and political subdivisions

    127,136       3,361       (1,657 )     128,840  

Residential mortgage-backed securities and collateralized mortgage obligations

    276,782       3,127       (2,362 )     277,547  

Commercial mortgage-backed securities

    38,538       481       (436 )     38,583  

Other asset-backed securities

    40,508       837             41,345  

Total

  $ 513,424     $ 8,502     $ (4,551 )   $ 517,375  

 

11

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

   

As of December 31, 2020

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Estimated

 

(Amounts in thousands)

 

Costs

   

Gains

   

Losses

   

Fair Values

 

Available-for-sale securities:

                               

U.S. government & agencies

  $ 32,164     $ 838     $ (8 )   $ 32,994  

Obligations of state and political subdivisions

    103,424       4,971       (29 )     108,366  

Residential mortgage-backed securities and collateralized mortgage obligations

    236,829       3,895       (246 )     240,478  

Commercial mortgage-backed securities

    27,455       637       (18 )     28,074  

Other asset-backed securities

    36,377       592       (1 )     36,968  

Total

  $ 436,249     $ 10,933     $ (302 )   $ 446,880  

 

 

The following table presents the contractual maturities of investment securities at March 31, 2021. Actual maturities may differ from contractual maturities if the issuers of the securities have the right to call or prepay obligations with or without call or prepayment penalties.

 

   

Available-For-Sale

 

(Amounts in thousands)

 

Amortized Costs

   

Fair Values

 

Amounts maturing in:

               

One year or less

  $ 11,616     $ 11,787  

After one year through five years

    119,976       122,928  

After five years through ten years

    186,265       185,830  

After ten years

    195,567       196,830  

Total

  $ 513,424     $ 517,375  

 

 

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

 

The following table presents the cash proceeds from sales of investment securities and the associated gross realized gains and gross realized losses that have been included in earnings for the three months ended March 31, 2021 and 2020.

 

   

Three Months Ended March 31,

 

(Amounts in thousands)

 

2021

   

2020

 

Investment Securities:

               

Proceeds from sales of investment securities

  $ 11,890     $ 29,339  
                 

Gross realized gains on sales of investment securities:

               

Obligations of state and political subdivisions

  $     $ 48  

Residential mortgage-backed securities and collateralized mortgage obligations

    53       84  

Commercial mortgage-backed securities

          36  

Total gross realized gains on sales of investment securities

    53       168  
                 

Gross realized losses on sales of investment securities:

               

Obligations of state and political subdivisions

          (4 )

Residential mortgage-backed securities and collateralized mortgage obligations

    (46 )     (80 )

Total gross realized losses on sales of investment securities

    (46 )     (84 )

Gain on sale of investment securities, net

  $ 7     $ 84  

 

12

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

Investment securities that were in an unrealized loss position as of March 31, 2021 and December 31, 2020 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.

 

   

As of March 31, 2021

 
   

Less Than 12 Months

   

12 Months or More

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 

(Amounts in thousands)

 

Values

   

Losses

   

Values

   

Losses

   

Values

   

Losses

 

Available-for-sale securities:

                                               

U.S. government & agencies

  $ 2,934     $ (89 )   $ 677     $ (7 )   $ 3,611     $ (96 )

Obligations of state and political subdivisions

    47,968       (1,655 )     438       (2 )     48,406       (1,657 )

Residential mortgage-backed securities and collateralized mortgage obligations

    157,530       (2,355 )     459       (7 )     157,989       (2,362 )

Commercial mortgage-backed securities

    22,150       (436 )                 22,150       (436 )

Total temporarily impaired securities

  $ 230,582     $ (4,535 )   $ 1,574     $ (16 )   $ 232,156     $ (4,551 )

 

 

   

As of December 31, 2020

 
   

Less Than 12 Months

   

12 Months or More

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 

(Amounts in thousands)

 

Values

   

Losses

   

Values

   

Losses

   

Values

   

Losses

 

Available-for-sale securities:

                                               

U.S. government & agencies

  $     $     $ 1,615     $ (8 )   $ 1,615     $ (8 )

Obligations of state and political subdivisions

    7,291       (29 )                 7,291       (29 )

Residential mortgage-backed securities and collateralized mortgage obligations

    68,512       (241 )     249       (5 )     68,761       (246 )

Commercial mortgage-backed securities

    5,400       (18 )                 5,400       (18 )

Other asset-backed securities

    2,106             930       (1 )     3,036       (1 )

Total temporarily impaired securities

  $ 83,309     $ (288 )   $ 2,794     $ (14 )   $ 86,103     $ (302 )

 

 

At March 31, 2021 and December 31, 2020, the number of securities in an unrealized loss position was 115 and 47, respectively. In the opinion of management, these securities are considered only temporarily impaired due to changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the underlying credit of the issuers or the underlying collateral. Our investment policy requires securities at the time of purchase to be rated A3/A- or higher by Moody’s, S&P and Fitch rating agencies. Management monitors the published credit ratings of our investment portfolio for material rating or outlook changes. For all private-label securities collateralized by mortgages, management also monitors the credit characteristics of the underlying mortgages to identify potential credit losses, if any, in the portfolio. Because the decline in fair value is not due to credit quality concerns, and because we have no plans to sell the securities before the recovery of their amortized cost, and because the Bank has the ability to hold the securities to maturity these investments are not considered other-than-temporarily impaired.

 

13

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

The following table presents the characteristics of our securities that were in unrealized loss positions at March 31, 2021 and December 31, 2020.

 

   

Characteristics of securities in unrealized loss positions at

Available-for-sale securities:

 

March 31, 2021 and December 31, 2020

U.S. government & agencies

 

Direct obligations of the U.S. government or obligations guaranteed by U.S. government agencies such as the SBA.

Obligations of state and political subdivisions

 

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

Residential mortgage-backed securities and collateralized mortgage obligations

 

Obligations issued by U.S. government sponsored entities or non-governmental entities collateralized by high quality mortgages on residential properties. Issuances by non-governmental entities usually include good credit enhancements. Of the residential mortgage-backed securities and collateralized mortgage obligations that we owned at March 31, 2021 and December 31, 2020, 87% and 86%, respectively, were issued or guaranteed by U.S. government sponsored entities.

Corporate securities

 

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

Commercial mortgage-backed securities

 

Obligations issued by U.S. government sponsored entities or non-governmental entities collateralized by high quality mortgages on commercial properties. Issuances by non-governmental entities usually include good credit enhancements. Of the commercial mortgage-backed securities that we owned at March 31, 2021 and December 31, 2020, 100% were issued or guaranteed by U.S. government sponsored entities.

Other asset-backed securities

 

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

 

 

Pledged Securities

 

At March 31, 2021 and December 31, 2020, securities with a fair value of $89.6 million and $67.8 million, respectively, were pledged as collateral to secure public fund deposits, FHLB borrowings and for other purposes as required by law.

 

 

 

NOTE 4. LOANS

 

Outstanding loan balances consisted of the following at March 31, 2021, and December 31, 2020.

 

   

March 31,

   

December 31,

 

(Amounts in thousands)

 

2021

   

2020

 

Loan Portfolio:

               

Commercial

  $ 117,597     $ 115,559  

Paycheck Protection Program ("PPP")

    117,991       130,814  

Commercial real estate:

               

Construction and land development

    32,145       44,549  

Non-owner occupied

    592,157       550,020  

Owner occupied

    165,367       172,967  

Residential real estate:

               

Individual Tax Identification Number (“ITIN”)

    27,839       29,035  

1-4 family mortgage

    54,562       55,925  

Equity lines

    18,600       18,894  

Consumer and other

    19,685       21,969  

Gross loans

    1,145,943       1,139,732  

Deferred fees and costs

    143       229  

Loans, net of deferred fees and costs

    1,146,086       1,139,961  

Allowance for loan and lease losses

    (17,027 )     (16,910 )

Net loans

  $ 1,129,059     $ 1,123,051  

 

14

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

Gross loan balances in the table above include discounts on purchased loans and fair value adjustments made to acquired loans using the acquisition method of accounting.

 

Discounts on purchased loans - Gross loan balances include net purchase discounts of $761 thousand and $879 thousand as of March 31, 2021, and December 31, 2020, respectively. When we purchase loans, they are typically purchased at a discount to enhance yield and compensate for credit risk. We have no purchased credit impaired loans as of March 31, 2021, and December 31, 2020.

 

Fair value adjustment - Gross loan balances include a net fair value discount of $810 thousand and $920 thousand at March 31, 2021 and December 31, 2020, respectively, for loans acquired in conjunction with our acquisition of Merchants National Bank of Sacramento during the first quarter of 2019. We recorded $110 thousand and $163 thousand in accretion of the discount for these loans during the three months ended March 31, 2021 and 2020, respectively. 

 

Pledged Loans

 

Certain loans are pledged as collateral for lines of credit with the FHLB and the Federal Reserve Bank. Pledged loans totaled $557.3 million and $523.5 million at March 31, 2021 and December 31, 2020, respectively.

 

Short-Term Loan Modifications

 

At March 31, 2021, there were 26 loans totaling $4.1 million with a COVID-19 related loan payment deferral compared to 82 loans totaling $9.5 million at December 31, 2020. In accordance with the CARES Act and regulatory guidance, 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 who were initially granted a payment deferral of less than six months, we have granted an additional payment deferral period on a case-by-case basis. Without these deferrals, past due loan totals might have been higher at March 31, 2021. We cannot predict the impact to past due loan totals once the deferral periods end.

 

Past Due Loans

 

Past due loans (gross), segregated by loan portfolio were as follows, as of March 31, 2021, and December 31, 2020.

 

                                                   

Recorded

 
    30-59     60-89    

90 or Greater

                           

Investment >

 
   

Days Past

   

Days Past

   

Days Past

   

Total Past

                   

90 Days and

 

(Amounts in thousands)

 

Due

   

Due

   

Due

   

Due

   

Current

   

Total

   

Accruing

 

Past Due Loans at March 31, 2021

                                                       

Commercial

  $ 101     $     $ 1,413     $ 1,514     $ 116,083     $ 117,597     $  

PPP

                            117,991       117,991        

Commercial real estate:

                                                       

Construction and land development

                            32,145       32,145        

Non-owner occupied

    1,693                   1,693       590,464       592,157        

Owner occupied

                            165,367       165,367        

Residential real estate:

                                                       

ITIN

    274       50       123       447       27,392       27,839        

1-4 family mortgage

                            54,562       54,562        

Equity lines

    19                   19       18,581       18,600        

Consumer and other

    80       10             90       19,595       19,685        

Total

  $ 2,167     $ 60     $ 1,536     $ 3,763     $ 1,142,180     $ 1,145,943     $  

 

15

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

                                                   

Recorded

 
   

30-59

   

60-89

   

90 or Greater

                           

Investment >

 
   

Days Past

   

Days Past

   

Days Past

   

Total Past

                   

90 Days and

 

(Amounts in thousands)

 

Due

   

Due

   

Due

   

Due

   

Current

   

Total

   

Accruing

 

Past Due Loans at December 31, 2020

                                                       

Commercial

  $     $     $ 1,413     $ 1,413     $ 114,146     $ 115,559     $  

PPP

                            130,814       130,814        

Commercial real estate:

                                                       

Construction and land development

                            44,549       44,549        

Non-owner occupied

    640                   640       549,380       550,020        

Owner occupied

                2,993       2,993       169,974       172,967        

Residential real estate:

                                                       

ITIN

    40             169       209       28,826       29,035        

1-4 family mortgage

                            55,925       55,925        

Equity lines

    60                   60       18,834       18,894        

Consumer and other

    82       17             99       21,870       21,969        

Total

  $ 822     $ 17     $ 4,575     $ 5,414     $ 1,134,318     $ 1,139,732     $  

 

 

Nonaccrual Loans

 

Nonaccrual loans, segregated by loan portfolio, were as follows as of March 31, 2021 and December 31, 2020.

 

   

March 31,

   

December 31,

 

(Amounts in thousands)

 

2021

   

2020

 

Nonaccrual Loans:

               

Commercial

  $ 1,520     $ 1,535  

Commercial real estate:

               

Non-owner occupied

    626       640  

Owner occupied

    95       3,094  

Residential real estate:

               

ITIN

    1,529       1,585  

1-4 family mortgage

    137       141  

Consumer and other

    17       18  

Total

  $ 3,924     $ 7,013  

 

 

Had nonaccrual loans performed in accordance with their contractual terms, we would have recognized additional interest income, net of tax, of approximately $44 thousand and $58 thousand for the three months ended March 31, 2021 and 2020, respectively.

 

16

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

Impaired Loans

 

A loan is considered impaired when, based on current information and events, we determine it is probable that we will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. The following tables summarize impaired loans by loan portfolio as of March 31, 2021 and December 31, 2020.

 

   

As of March 31, 2021

 
           

Unpaid

         
   

Recorded

   

Principal

   

Related

 

(Amounts in thousands)

 

Investment

   

Balance

   

Allowance

 

Impaired Loans:

                       

With no related allowance recorded:

                       

Commercial

  $ 1,558     $ 1,915     $  

Commercial real estate:

                       

Non-owner occupied

    626       654        

Owner occupied

    95       98        

Residential real estate:

                       

ITIN

    4,775       6,309        

1-4 family mortgage

    137       200        

Total with no related allowance recorded

  $ 7,191     $ 9,176     $  
                         

With an allowance recorded:

                       

Commercial

  $ 456     $ 456     $ 114  

Residential real estate:

                       

ITIN

    174       174       9  

Equity lines

    121       121       61  

Consumer and other

    17       17       4  

Total with an allowance recorded

  $ 768     $ 768     $ 188  
                         

By loan portfolio:

                       

Commercial

  $ 2,014     $ 2,371     $ 114  

Commercial real estate

    721       752        

Residential real estate

    5,207       6,804       70  

Consumer and other

    17       17       4  

Total impaired loans

  $ 7,959     $ 9,944     $ 188  

 

17

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

   

As of December 31, 2020

 
           

Unpaid

         
   

Recorded

   

Principal

   

Related

 

(Amounts in thousands)

 

Investment

   

Balance

   

Allowance

 

Impaired Loans:

                       

With no related allowance recorded:

                       

Commercial

  $ 1,577     $ 1,932     $  

Commercial real estate:

                       

Non-owner occupied

    640       654        

Owner occupied

    3,094       3,206        

Residential real estate:

                       

ITIN

    4,876       6,500        

1-4 family mortgage

    141       202        

Total with no related allowance recorded

  $ 10,328     $ 12,494     $  
                         

With an allowance recorded:

                       

Commercial

  $ 456     $ 456     $ 114  

Residential real estate:

                       

ITIN

    175       175       11  

Equity lines

    126       126       63  

Consumer and other

    18       18       4  

Total with an allowance recorded

  $ 775     $ 775     $ 192  
                         

By loan portfolio:

                       

Commercial

  $ 2,033     $ 2,388     $ 114  

Commercial real estate

    3,734       3,860        

Residential real estate

    5,318       7,003       74  

Consumer and other

    18       18       4  

Total impaired loans

  $ 11,103     $ 13,269     $ 192  

 

 

The following table summarizes average recorded investment and interest income recognized on impaired loans by loan portfolio for the three months ended March 31, 2021 and 2020.

 

   

Three Months Ended

   

Three Months Ended

 
   

March 31, 2021

   

March 31, 2020

 
   

Average

   

Interest

   

Average

   

Interest

 
   

Recorded

   

Income

   

Recorded

   

Income

 

(Amounts in thousands)

 

Investment

   

Recognized

   

Investment

   

Recognized

 

Average Recorded Investment and Interest Income:

                               

Commercial

  $ 2,020     $ 7     $ 640     $ 9  

Commercial real estate:

                               

Non-owner occupied

    632                    

Owner occupied

    2,092             3,103        

Residential real estate:

                               

ITIN

    4,983       32       5,957       37  

1-4 family mortgage

    139             186        

Equity lines

    123       2       228       4  

Consumer and other

    17             39        

Total

  $ 10,006     $ 41     $ 10,153     $ 50  

 

18

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

The impaired loans on which these interest income amounts were recognized are primarily accruing troubled debt restructured loans. Loans are reported as troubled debt restructurings when we grant a concession(s) to a borrower experiencing financial difficulties that we would not otherwise consider. Examples of such concessions include a reduction in the loan rate, forgiveness of principal or accrued interest, extending the maturity date(s), or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as we will not collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement.

 

The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was $109 thousand and $80 thousand at March 31, 2021 and December 31, 2020, respectively.

 

Troubled Debt Restructurings

 

As of March 31, 2021, we had $6.0 million in troubled debt restructurings compared to $6.1 million as of December 31, 2020. 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 restructurings represented 0.52% of gross loans as of March 31, 2021, compared to 0.53% of gross loans at December 31, 2020.

 

At March 31, 2021 and December 31, 2020, impaired loans of $4.0 million and $4.1 million, respectively, were classified as performing troubled debt restructured loans.

 

For a troubled debt restructured loan to be on accrual status, the loan’s collateral coverage must generally be greater than or equal to 100% of the loan balance, the loan payments must be current, and the borrower must demonstrate the ability to make payments from a verified source of cash flow. As of March 31, 2021 and December 31, 2020, we had no obligations to lend additional funds on any troubled debt restructured loans. We do not have any new troubled debt restructurings for the three months ended March 31, 2021 and 2020. There was one $626 thousand commercial real estate loan modified as troubled debt restructuring within the previous twelve months for which there were a payment default (after restructuring) during the three months ended March 31, 2021.

 

Performing and Nonperforming Loans

 

We define a performing loan as a loan where any installment of principal or interest is not 90 days or more past due, and management believes the ultimate collection of original contractual principal and interest is likely. We define a nonperforming loan as an impaired loan, which may be on nonaccrual, or is 90 days past due and still accruing, or has been restructured and does not comply with its modified terms, and our ultimate collection of original contractual principal and interest is uncertain.

 

Performing and nonperforming loans, segregated by loan portfolio, were as follows at March 31, 2021 and December 31, 2020.

 

   

March 31, 2021

 

(Amounts in thousands)

 

Performing

   

Nonperforming

   

Total

 

Performing and Nonperforming Loans:

                       

Commercial

  $ 116,077     $ 1,520     $ 117,597  

PPP

    117,991             117,991  

Commercial real estate:

                       

Construction and land development

    32,145             32,145  

Non-owner occupied

    591,531       626       592,157  

Owner occupied

    165,272       95       165,367  

Residential real estate:

                       

ITIN

    26,310       1,529       27,839  

1-4 family mortgage

    54,425       137       54,562  

Equity lines

    18,600             18,600  

Consumer and other

    19,668       17       19,685  

Total

  $ 1,142,019     $ 3,924     $ 1,145,943  

 

19

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

   

December 31, 2020

 

(Amounts in thousands)

 

Performing

   

Nonperforming

   

Total

 

Performing and Nonperforming Loans:

                       

Commercial

  $ 114,024     $ 1,535     $ 115,559  

PPP

    130,814             130,814  

Commercial real estate:

                       

Construction and land development

    44,549             44,549  

Non-owner occupied

    549,380       640       550,020  

Owner occupied

    169,873       3,094       172,967  

Residential real estate:

                       

ITIN

    27,450       1,585       29,035  

1-4 family mortgage

    55,784       141       55,925  

Equity lines

    18,894             18,894  

Consumer and other

    21,951       18       21,969  

Total

  $ 1,132,719     $ 7,013     $ 1,139,732  

 

 

Credit Quality Ratings

 

Management assigns a credit quality rating (risk grade) to each loan. The foundation or primary factor in determining the appropriate credit quality rating is the degree of a debtor’s willingness and ability to perform as agreed. In conjunction with evaluating the performing versus nonperforming nature of our loan portfolio, management evaluates the following credit risk and other relevant factors in determining the appropriate credit quality indicator (rating) for each loan portfolio:

 

Pass Grade: A Pass loan is a strong credit with no existing or known weaknesses that may require management’s close attention. Some pass loans require short-term enhanced monitoring to determine when the credit relationship would merit either an upgrade or a downgrade. Loans classified as Pass Grade specifically demonstrate:

 

Strong Cash Flows – borrower’s cash flows must meet or exceed our minimum debt service coverage ratio.

Collateral Margin – generally, the borrower must have pledged an acceptable collateral class with an adequate collateral margin.

Qualitative Factors – in addition to meeting our minimum cash flow and collateral requirements, a number of other qualitative factors are also factored into assigning a Pass Grade including the borrower’s level of leverage (debt to equity), prospects, history and experience in their industry, credit history, and any other relevant factors including a borrower’s character.

 

Those borrowers who qualify for unsecured loans must fully demonstrate above average cash flows and strong secondary sources of repayment to mitigate the lack of unpledged collateral.

 

Watch Grade: The credit is acceptable but the borrower has experienced a temporary setback or adverse information has been received, and may exhibit one or more of the characteristics shown in the list below. This risk grade could apply to credits on a temporary basis pending a full review. Credits with this risk grade will require more handling time and increased management. The list below contains characteristics of this risk grade, but individually do not automatically cause the loan to be assigned a Watch Grade.

 

The primary source of repayment may be weakening causing greater reliance on the secondary source of repayment or

The primary source of repayment is adequate, but the secondary source of repayment is insufficient

In-depth financial analysis would compare to the lower quartile in two or more of the major components of the Risk Management Association Annual Statement Studies

Volatile or deteriorating collateral

Management decisions may be called into question

Delinquencies in bank credits or other financial/trade creditors

Frequent overdrafts

Significant change in management/ownership

 

Special Mention Grade: Credits in this grade are potentially weak and deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects of the credit. Special Mention credits are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. The list below exhibits the characteristics of this grade, but individually do not automatically cause the borrower to be assigned a grade of Special Mention:

 

Inadequate or incomplete loan documentation or perfection of collateral, or any other deviation from prudent lending practices

 

20

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

Credit is structured in a manner in which the timing of the repayment source does not match the payment schedule or maturity, materially jeopardizing repayment

Current economic or market conditions exist which may affect the borrower's ability to perform or affect the Bank's collateral position

Adverse trends in the borrower's operations or continued deterioration in the borrower’s financial condition that has not yet reached a point where the retirement of debt is jeopardized. A credit in this grade should have favorable prospects of the deteriorating financial trends reversing within a reasonable timeframe.

The borrower is less than cooperative or unable to produce current and adequate financial information

 

Substandard Grade: A Substandard credit is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard credits have a well-defined weakness or weaknesses that jeopardize the liquidation or timely collection of the debt. Substandard credits are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. However, a potential loss does not have to be recognizable in an individual credit for it to be considered a substandard credit. As such, substandard credits may or may not be graded as impaired.

 

The following represents, but is not limited to, the potential characteristics of a Substandard Grade and do not necessarily generate automatic reclassification into this loan grade:

 

Sustained or substantial deteriorating financial trends,

Unresolved management problems,

Collateral is insufficient to repay debt; collateral is not sufficiently supported by independent sources, such as asset-based financial audits, appraisals, or equipment evaluations,

Improper perfection of lien position, which is not readily correctable,

Unanticipated and severe decline in market values,

High reliance on secondary source of repayment,

Legal proceedings, such as bankruptcy or a divorce, which has substantially decreased the borrower’s capacity to repay the debt,

Fraud committed by the borrower,

IRS liens that take precedence,

Forfeiture statutes for assets involved in criminal activities,

Protracted repayment terms outside of policy that are for longer than the same type of credit in our portfolio,

Any other relevant quantitative or qualitative factor that negatively affects the current net worth and paying capacity of the borrower or of the collateral pledged, if any.

 

Doubtful Grade: A Doubtful loan has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain pending factors that may work to the advantage and strengthening of the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include, but are not limited to:

 

Proposed merger(s),

Acquisition or liquidation procedures,

Capital injection,

Perfecting liens on additional collateral,

Refinancing plans.

 

Generally, a Doubtful Grade does not remain outstanding for a period greater than six months. Within six months, the pending events should have been resolved. Based on resolution of the pending events, the credit grade should have improved or the principal balance charged against the ALLL.

 

21

 
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

The following tables summarize loans by internal risk grades and by loan class as of March 31, 2021 and December 31, 2020.

 

   

As of March 31, 2021