Market Overview

Bank of Commerce Holdings Announces Results for the Second Quarter of 2015

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REDDING, Calif., July 24, 2015 (GLOBE NEWSWIRE) -- Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ: BOCH) (the "Company"), a $983.1 million asset bank holding company and parent company of Redding Bank of Commerce (the "Bank"), today announced financial results for the quarter and the six months ended June 30, 2015. Net income available to common shareholders for the quarter ended June 30, 2015 was $2.3 million or $0.18 per share – diluted, compared with $2.2 million or $0.16 per share – diluted for the same period of 2014. Net income available to common shareholders for the six months ended June 30, 2015 was $4.1 million or $0.31 per share – diluted compared with $2.7 million or $0.19 per share – diluted for the same period of 2014.

Financial highlights for the second quarter of 2015:

  • Net income available to common shareholders of $2.3 million for the three months ended June 30, 2015 was a an improvement of $184 thousand (8.5%) over $2.2 million net income available to common shareholders earned during the second quarter of 2014, and an improvement of $589 thousand (33.6%) over $1.8 million available to common shareholders earned during the previous quarter.
  • Nonperforming assets at June 30, 2015 totaled $18.4 million, a decrease of $9.9 million (35.1%) compared to June 30, 2014, and a decrease of $1.7 million (33.6% annualized) compared to March 31, 2015.
  • Average loans for the quarter increased $29.9 million to $703.0 million from $673.1 million for the first quarter of 2015.
  • Net loan loss recoveries of $106 thousand combined with continuing improved asset quality resulted in no additional provision for loan and lease losses during the second quarter.
  • The Company's book value per share increased to $6.49 per common share at June 30, 2015 from $6.07 per common share at June 30, 2014 (6.9%) and $6.41 at March 31, 2015 (5.0% annualized).
  • The Company's net interest margin improved to 3.71% for the quarter ended June 30, 2015 from 3.62% for the second quarter of 2014.

Financial highlights for the six months ended June 30, 2015:

  • Net income available to common shareholders of $4.1 million for the six months ended June 30, 2015 was an improvement of $1.4 million (53.2%) over $2.7 million net income available to common shareholders earned during the six months ended June 30, 2014.
  • Nonperforming assets at June 30, 2015 totaled $18.4 million, a decrease of $3.8 million (34.6% annualized) compared to December 31, 2014.
  • Gross loans at June 30, 2015 totaled $699.8 million, an increase of $38.9 million (12% annualized) since December 31, 2014.
  • Net loan loss recoveries of $582 thousand combined with continuing improved asset quality resulted in no additional provision for loan and lease losses during the first six months of 2015.
  • The Company's book value per share increased to $6.49 per common share at June 30, 2015 from $6.29 per common share at December 31, 2014 (6.4% annualized).
  • The Company's net interest margin improved to 3.72% for the six months ended June 30, 2015 from 3.57% for the year ended December 31, 2014.
  • The Company's efficiency ratio improved to 68.0% during the first six months of 2015 compared to 71.5% during the same period in 2014.

Randall S. Eslick, President and CEO commented: "We are pleased that the positive trends which began in 2014 have continued into the first six months of 2015. Our average loan totals continue to increase, our asset quality continues to improve and our efficiency ratio reflects the initial benefits of our cost control efforts. I applaud our employees for making these successes a reality."

Forward-Looking Statements

This quarterly press release includes forward-looking information, which is subject to the "safe harbor" created by the Securities Act of 1933, and Securities Act of 1934. These forward-looking statements (which involve the Company's plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:

  • Competitive pressure in the banking industry and changes in the regulatory environment
  • Changes in the interest rate environment and volatility of rate sensitive assets and liabilities
  • A decline in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of the Company's loans
  • Credit quality deterioration which could cause an increase in the provision for loan and lease losses
  • Asset/Liability matching risks and liquidity risks
  • Changes in the securities markets

For additional information concerning risks and uncertainties related to the Company and its operations please refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and under the heading: "Risk Factors" and subsequent reports on Form 10-Q and current reports on Form 8-K. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation and specifically disclaims any obligation, to revise or publicly release the results of any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date the statements were made.

TABLE 1
SELECTED FINANCIAL INFORMATION - UNAUDITED
(amounts in thousands except per share data)
 
  For The Three Months Ended   For The Six Months Ended
       
Net income, average assets and June 30, March 31, June 30,
average shareholders' equity 2015 2014 2015 2015 2014
Income available to common shareholders  $2,340  $2,156  $1,751  $4,091  $2,671
Average total assets  $993,815  $965,530  $978,916  $986,406  $962,861
Average shareholders' equity  $106,198  $101,194  $104,618  $105,412  $102,193
           
Selected performance ratios          
Return on average assets 0.94% 0.90% 0.73% 0.84% 0.56%
Return on average equity 8.84% 8.55% 6.79% 7.83% 5.27%
Efficiency ratio 64.61% 56.66% 71.48% 68.00% 71.52%
           
Share and per share amounts          
Weighted average shares - basic  13,338  13,378  13,303  13,320  13,658
Weighted average shares - diluted  13,370  13,426  13,340  13,353  13,705
Earnings per share - basic  $0.18  $0.16  $0.13  $0.31  $0.20
Earnings per share - diluted  $0.18  $0.16  $0.13  $0.31  $0.19
           
  At June 30, At March 31,    
Share and per share amounts 2015 2014 2015    
Common shares outstanding  13,339  13,294  13,337    
Book value per common share  $6.49  $6.07  $6.41    
           
Capital ratios          
Bank of Commerce Holdings          
Common equity tier 1 capital ratio (1) 9.97% n/a 9.73%    
Tier 1 capital ratio 13.35% 15.14% 13.10%    
Total capital ratio 14.60% 16.39% 14.35%    
Tier 1 leverage ratio 11.76% 12.12% 11.74%    
           
Redding Bank of Commerce          
Common equity tier 1 capital ratio (1) 13.28% n/a 13.05%    
Tier 1 capital ratio 13.28% 15.15% 13.05%    
Total capital ratio 14.53% 16.40% 14.30%    
Tier 1 leverage ratio 11.75% 12.12% 11.70%    
 
(1) As of January 1, 2015, common equity tier 1 capital ratio is a new ratio requirement under the Basel III Capital Rules and represents the sum of the common equity tier 1 elements, minus regulatory adjustments and deductions divided by risk weighted assets.

The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The change in capital ratios during the current quarter compared to the same period a year ago is primarily due to repayment of junior subordinated debentures, repurchase of common stock, and a change in the calculation of the risk-weighted average assets in accordance with Basel III.

BALANCE SHEET OVERVIEW

As of June 30, 2015, the Company had total consolidated assets of $983.1 million, gross loans of $699.8 million, allowance for loan and lease losses ("ALLL") of $11.4 million, total deposits of $760.0 million, and shareholders' equity of $106.6 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
 
  At June 30,     At March 31,
    % of   % of Change   % of  
  2015 Total 2014 Total Amount % 2015 Total
Commercial  $143,088 20%  $165,222 27%  $(22,134)  (13)%  $146,069 21%
Real estate - construction  27,858 4  20,462 3  7,396  36%  29,127 4
Real estate - commercial (investor)  237,375 34  209,324 33  28,051  13%  235,404 34
Real estate - commercial (owner occupied)  136,981 20  91,534 15  45,447  50%  134,234 19
Real estate - ITIN  51,249 7  54,611 9  (3,362)  (6)%  52,043 7
Real estate - mortgage  12,209 2  14,211 2  (2,002)  (14)%  12,304 2
Real estate - equity lines  46,463 7  43,809 8  2,654  6%  45,750 7
Consumer  44,482 6  20,195 3  24,287  120%  44,283 6
Other  69 0  50 0  19  38%  15 0
Gross loans  699,774 100%  619,418 100%  80,356  13%  699,229 100%
Deferred fees and costs  403    204    199    315  
Loans, net of deferred fees and costs  700,177    619,622    80,555    699,544  
Allowance for loan and lease losses  (11,402)    (9,882)    (1,520)    (11,296)  
Net loans  $688,775    $609,740    $79,035    $688,248  
                 
Average yield on loans during the quarter 4.74%   4.71%    0.03   4.77%  

The Company recorded gross loan balances of $699.8 million at June 30, 2015, compared with $619.4 million and $699.2 million at June 30, 2014 and March 31, 2015, respectively, an increase of $80.4 million and $545 thousand, respectively. The increase in gross loans compared to the same period a year ago was driven by strong organic loan originations and the purchase of wholesale loan pools. During the three months ended June 30, 2015, the Company purchased $6.6 million in consumer loan pools. During the twelve-month period ended June 30, 2015, the Company purchased $44.5 million, $6.4 million and $18.5 million in consumer, commercial real estate investor and SBA loan pools, respectively.

The increase in the ALLL in the current quarter compared to the prior quarter resulted from net loan loss recoveries of $106 thousand. As a result of net recoveries and continued improved asset quality, no additional provision for loan and lease losses was deemed necessary during the current quarter. See table 8 for additional detail of the ALLL.

TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
 
  At June 30,   At March 31,
    % of   % of Change   % of
  2015 Total 2014 Total Amount % 2015 Total
                 
Cash and due from banks  $25,343 11%  $50,677 18%  $(25,334) (50)%  $19,309 8%
Interest bearing due from banks  7,453 3  16,068 5  (8,615) (54)%  10,802 5
Total cash and cash equivalents  32,796 14  66,745 23  (33,949) (51)%  30,111 13
                 
Investment securities:                
U.S. government and agencies  5,314 2  7,787 3  (2,473) (32)%  6,422 3
Obligations of state and political subdivisions  51,324 24  55,369 19  (4,045) (7)%  53,491 23
Residential mortgage backed securities and collateralized mortgage obligations  37,776 16  45,798 16  (8,022) (18)%  41,851 18
Corporate securities  33,501 15  42,166 14  (8,665) (21)%  31,660 14
Commercial mortgage backed securities  9,467 4  9,833 3  (366) (4)%  6,799 3
Other asset backed securities  23,381 10  27,733 9  (4,352) (16)%  26,667 11
Total investment securities - AFS  160,763 71  188,686 64  (27,923) (15)%  166,890 72
                 
Obligations of state and political subdivisions - HTM  36,655 15  37,031 13  (376) (1)%  36,609 15
Total investment securities - AFS and HTM  197,418 86  225,717 77  (28,299) (16)%  203,499 87
                 
Total cash, cash equivalents and investment securities  $230,214 100%  $292,462 100%  $(62,248) (21)%  $233,610 100%
                 
Average yield on interest bearing due from banks and investment securities during the quarter 2.59%   2.55%    0.04   2.73%  

As of June 30, 2015, the Company maintained cash positions at the Federal Reserve Bank and correspondent banks in the amount of $25.3 million. The Company also held interest bearing deposits with other financial institutions in the amount of $7.5 million.

Available-for-sale investment securities totaled $160.8 million at June 30, 2015, compared with $188.7 million and $166.9 million at June 30, 2014 and March 31, 2015, respectively. The Company's available-for-sale investment portfolio provides the Company a secondary source of liquidity to fund other higher yielding asset opportunities, such as loan originations and wholesale loan purchases. During the second quarter of 2015, the Company purchased six securities with a par value of $11.1 million and weighted average yield of 2.27% and sold eleven securities with a par value of $10.0 million and weighted average yield of 2.14%. The sales activity resulted in $61 thousand in net realized gains for the three months ended June 30, 2015. During the three months ended June 30, 2015, the Company received $4.7 million in proceeds from principal payments, calls and maturities within the available-for-sale investment securities portfolio. Average quarterly securities balances and weighted average tax equivalent yields at June 30, 2015 and 2014 were $197.9 million and 3.47% compared to $235.7 million and 3.53%, respectively.

During the current quarter, the Company's securities transactions were focused on improving credit quality and continuing to shorten the effective duration of the portfolio in anticipation of rising interest rates. Management will continue to actively seek out opportunities to reduce the overall duration of the portfolio and accelerate cash flows, while also improving credit quality and liquidity. This strategy could entail absorbing small losses within the portfolio to meet longer term objectives.

At June 30, 2015, the Company's net unrealized gains on available-for-sale investment securities were $1.5 million compared with $1.3 million and $3.1 million at June 30, 2014 and March 31, 2015, respectively. The decrease in net unrealized gains during the current quarter resulted primarily from decreases in the fair value of the Company's municipal bond and corporate securities portfolios, as a result of increases in interest rates.

TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
 
  At June 30,   At March 31,
    % of   % of Change   % of
  2015 Total 2014 Total Amount % 2015 Total
Demand - noninterest bearing  $151,640 20%  $135,416 18%  $16,224 12%  $150,056 20%
Demand - interest bearing  276,103 36  269,055 36  7,048 3%  266,552 35
Total demand  427,743 56  404,471 54  23,272 6%  416,608 55
                 
Savings  93,500 12  90,416 12  3,084 3%  92,088 12
Total non-maturing deposits  521,243 68  494,887 66  26,356 5%  508,696 67
                 
Certificates of deposit  238,796 32  260,129 34  (21,333) (8)%  253,280 33
Total deposits  $760,039 100%  $755,016 100%  $5,023 1%  $761,976 100%
                 
Average rate on interest bearing
deposits during the quarter
0.50%   0.54%    (0.04)   0.50%  

Total deposits at June 30, 2015, increased $5.0 million or 0.67% to $760.0 million compared to June 30, 2014, and decreased $1.9 million or 0.25% compared to March 31, 2015. Non-maturing core deposits increased $10.2 million or 2% compared to the same date a year ago and increased $7.3 million or 2% compared to March 31, 2015. Management intends to continue to reduce reliance on certificates of deposit as a funding source.

TABLE 5
WHOLESALE AND BROKERED DEPOSITS - UNAUDITED
(amounts in thousands)
 
  At June 30, At March 31,
  2015 2014 2015
CDARS / ICS reciprocal deposits $58,628 $48,234 $52,767
Third party brokered time deposits  17,502  13,694  17,498
Brokered deposits per Call Report  76,130  61,928  70,265
Online listing service time deposits  63,328  68,095  67,453
       
Total wholesale and brokered deposits $139,458 $130,023 $137,718

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $76.1 million, $61.9 million and $70.3 million at June 30, 2015, June 30, 2014 and March 31, 2015, respectively. These amounts include reciprocal deposits obtained through the CDARS and ICS programs, which management does not consider to be brokered.

INCOME STATEMENT OVERVIEW

TABLE 6
SUMMARY INCOME STATEMENT - UNAUDITED
(amounts in thousands, except per share data)
 
  For The Three Months Ended
  June 30, Change March 31, Change
  2015 2014 Amount % 2015 Amount %
Interest income $9,763 $9,062 $701 8% $9,526 $237 2%
Interest expense  1,168  872  296 34%  1,157  11 1%
Net interest income  8,595  8,190  405 5%  8,369  226 3%
Provision for loan and lease losses  —  1,450  (1,450) (100)%  —  — 0%
Noninterest income  881  2,136  (1,255) (59)%  854  27 3%
Noninterest expense  6,122  5,851  271 5%  6,593  (471) (7)%
Income before provision for income taxes  3,354  3,025  329 11%  2,630  724 28%
Provision for income taxes  964  819  145 18%  829  135 16%
Net income  2,390  2,206  184 8%  1,801  589 33%
Less: Preferred dividends  50  50  — 0%  50  — 0%
Income available to
common shareholders
$2,340 $2,156 $184  9% $1,751 $589  34%
               
Basic earnings per share $0.18 $0.16 $0.02 13% $0.13 $5 38%
Average basic shares  13,338  13,378  (40) 0%  13,303  35 0%
Diluted earnings per share $0.18 $0.16 $0.02 13% $0.13 $5 38%
Average diluted shares  13,370  13,426  (56) 0%  13,340  30 0%
Dividends declared per common share $0.03 $0.03 $ — 0% $0.03 $— 0%

 Second Quarter of 2015 Compared With Second Quarter of 2014

Net income available to common shareholders for the second quarter of 2015 increased $184 thousand over the second quarter of 2014. In the current quarter, net interest income was $405 thousand higher and the provision for loan and lease losses was $1.5 million lower. These positive changes were partially offset by a decrease in noninterest income of $1.3 million, an increase in noninterest expense of $271 thousand and an increase in income tax expense of $145 thousand.

Net Interest Income

Net interest income increased $405 thousand over a year previous. Interest income for the three months ended June 30, 2015 increased $701 thousand or 8% to $9.8 million which reflects the increase in average earning assets and the reallocation of lower yielding assets into higher yielding loans. Interest expense for the three months ended June 30, 2015 increased $296 thousand or 34% to $1.2 million. Interest expense on deposits declined $92 thousand and interest expense on other borrowings decreased $44 thousand, but interest on the Bank's Federal Home Loan Bank of San Francisco borrowings increased $432 thousand due to the net settlement expense associated with the Bank's active interest rate swap.

In 2011, to mitigate interest rate and market risks, the Bank entered into four forward starting interest rate swaps to hedge interest rate risk associated with variable rate Federal Home Loan Bank Of San Francisco borrowings. The hedges converted the LIBOR based floating rate of interest on the $75.0 million Federal Home Loan Bank of San Francisco  borrowings to fixed interest rates. The fixed rates adjust each August and were/are 0.94% at August 2013, 1.84% at August 2014, 2.64% at August 2015 and 3.22% at August 2016. During the second quarter of 2014, the net cost of the Bank's Federal Home Loan Bank of San Francisco borrowings was also reduced when hedge gains from a previous set of interest rate swaps were reclassified out of other comprehensive income into earnings as a reduction of interest expense. As a result, interest expense on Federal Home Loan Bank of San Francisco borrowings for the second quarter of 2014 was a negative $69 thousand.

Interest expense on other borrowings, primarily junior subordinated debentures was $49 thousand and $93 thousand for the second quarter of 2015 and 2014, respectively. During December of 2014, the Company repaid $5.0 million of junior subordinated debentures resulting in a decrease in interest on other borrowings in 2015.

Noninterest Income

Noninterest income for the three months ended June 30, 2015 decreased $1.3 million compared to the same period a year ago. During the quarter ended June 30, 2014 the Company recorded $1.6 million in hedge gains in noninterest income. This decrease in noninterest income was partially offset by net gains on sale of available-for-sale investment securities during the current quarter of $61 thousand compared to a net loss of $39 thousand for the same period a year ago. There was also a $205 thousand special dividend on Federal Home Loan Bank of San Francisco stock included in other noninterest income during the three months ended June 30, 2015.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2015 increased $271 thousand compared to the same period a year ago. During the quarter ended June 30, 2015 the Company transferred land with a carrying value of $261 thousand previously held for construction of a new branch to OREO for disposition. The property was transferred to OREO at its fair value less expected selling costs resulting in a write down of $91 thousand. In the current period, professional services fees are $138 thousand higher than a year earlier.

Income Tax Provision

During the three months ended June 30, 2015, the Company recorded a provision for income tax expense of $964 thousand compared with $819 thousand for the same period a year ago. The increase in the current year is due to increased taxable income.

Second Quarter of 2015 Compared With First Quarter of 2015

Net income available to common shareholders for the second quarter of 2015 increased $589 thousand over the first quarter of 2015. In the current quarter, net interest income was higher by $226 thousand, noninterest income increased by $27 thousand and noninterest expense decreased $471 thousand. These positive changes were partially offset by an income tax provision that was higher by $135 thousand.

Net Interest Income

Net interest income increased $226 thousand over a quarter previous. Interest income for the three months ended June 30, 2015 increased $237 thousand to $9.8 million. The increase in interest income was due to increased average loan balances and the effect of a quarter that was one day longer than the first quarter of 2015 partially offset by decreased interest on securities due to decreased average securities balances. Interest expense for the three months ended June 30, 2015 increased $11 thousand or 1% to $1.2 million compared to the prior quarter. This increase was primarily due to increased interest expense on Federal Home Loan Bank of San Francisco borrowings.

Noninterest Income

Noninterest income for the three months ended June 30, 2015 increased $27 thousand compared to the prior quarter. The Company recognized a $205 thousand special dividend on Federal Home Loan Bank of San Francisco stock included in other income during the three months ended June 30, 2015. Net gains recognized on the sale of available-for-sale investment securities during the current quarter decreased by $154 thousand to $61 thousand compared to a $215 thousand net gain in the prior quarter.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2015 decreased $471 thousand compared to the prior quarter. The decrease is driven by decreased salary costs and a decrease in the cost of the Bank's supplemental executive retirement plans.

Income Tax Provision

During the three months ended June 30, 2015, the Company recorded a provision for income tax expense of $964 thousand compared with provision for income tax expense of $829 thousand for the prior quarter. The increase in the current quarter is due to increased taxable income.

Earnings Per Share

Diluted earnings per share were $0.18 for the three months ended June 30, 2015 compared with $0.16 for the same period a year ago, and $0.13 for the prior period. Earnings per share increased during the three months ended June 30, 2015 compared to the same period a year ago as a result of increased net income and decreased weighted average shares. The decrease in weighted average shares resulted from the repurchase of 700,000 common shares from a repurchase plan announced and completed during the six months ended June 30, 2014. All repurchased shares were retired subsequent to purchase.

TABLE 7
NET INTEREST SPREAD AND MARGIN - UNAUDITED
(amounts in thousands)
 
  For the Three Months Ended
  June 30, Change March 31, Change
  2015 2014 Amount 2015 Amount
Tax equivalent yield on average interest earning assets 4.35% 4.16% 0.19 4.37% (0.02)
Rate on average interest bearing liabilities 0.65% 0.49% (0.16) 0.66% 0.01
Net interest spread - tax equivalent basis 3.70% 3.67% 0.03 3.71% (0.01)
           
Net interest margin - nominal 3.71% 3.62% 0.09 3.72% (0.01)
Net interest margin - tax equivalent basis 3.85% 3.77% 0.08 3.86% (0.01)
           
Average earning assets $928,578 $906,298 $22,280 $912,886 $15,692
Average interest bearing liabilities $723,288 $717,219 $6,069 $708,234 $15,054

The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.85% for the three months ended June 30, 2015, an increase of eight basis points as compared to the same period a year ago. The increase in net interest margin resulted from a 19 basis point increase in tax-equivalent yield on average earning assets offset by an 11 basis point increase in interest expense to fund average earning assets. Maintaining our net interest margin in a historically low interest rate environment and while confronted with known increased Federal Home Loan Bank of San Francisco borrowing costs will be challenging in the foreseeable future. Management will continue to reallocate the asset mix into higher yielding assets by pursuing organic loan growth, and actively managing the investment securities portfolio within our accepted risk tolerance.

TABLE 8
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED
(amounts in thousands)
 
  For The Three Months Ended
  June 30, March 31, December 31, September 30, June 30,
  2015 2015 2014 2014 2014
Beginning balance $11,296 $10,820 $10,400 $9,882 $9,748
Provision for loan and lease losses charged to expense  —  —  675  1,050  1,450
Loans charged off  (711)  (179)  (374)  (585)  (1,457)
Loan loss recoveries  817  655  119  53  141
Ending balance $11,402 $11,296 $10,820 $10,400 $9,882
           
  At June 30, At March 31, At December 31, At September 30, At June 30,
  2015 2015 2014 2014 2014
Nonaccrual loans:          
Commercial $3,170 $3,908 $5,112 $7,065 $4,375
Commercial real estate  7,611  8,182  9,696  9,896  15,598
Residential real estate 1-4 family  6,068  6,365  6,782  7,438  6,939
Home equity  24  24  24  89  479
Consumer  34  34  35  —  87
Total nonaccrual loans  16,907  18,513  21,649  24,488  27,478
Accruing troubled debt restructured loans:          
Commercial  10  1,004  1,485  1,585  13
Commercial real estate  1,681  1,690  1,698  1,707  1,716
Residential real estate 1-4 family  5,303  5,421  5,462  5,222  5,074
Home equity  569  574  579  584  589
Total accruing troubled debt restructured loans  7,563  8,689  9,224  9,098  7,392
           
All other accruing impaired loans  530  533  535  757  585
           
Total impaired loans $25,000 $27,735 $31,408 $34,343 $35,455
           
Gross loans outstanding at period end $699,774 $699,229 $660,898 $649,695 $619,418
           
Allowance for loan and lease losses as a percent of:          
Gross loans 1.63% 1.62% 1.64% 1.60% 1.59%
Nonaccrual loans 67.44% 61.02% 49.98% 42.47% 35.96%
Impaired loans 45.61% 40.73% 34.45% 30.28% 27.87%
           
Nonaccrual loans to gross loans 2.42% 2.65% 3.28% 3.77% 4.43%

The Company realized net loan loss recoveries of $106 thousand in the current quarter compared with net loan loss recoveries of $476 thousand in the prior quarter and net loan charge offs of $1.3 million for the same period a year ago.

The Company continues to monitor credit quality, and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. The Company made no provision for loan and lease losses during the first two quarters of 2015 compared to a provision of $1.5 million during quarter ended June 30, 2014. The Company's ALLL as a percentage of gross loans was 1.63% as of June 30, 2015 compared to 1.59% as of June 30, 2014 and 1.62% as of March 31, 2015. At June 30, 2015, the Bank's ALLL methodology, which uses criteria such as risk weighting and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company's ALLL is adequate. 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 additional charges to the provision for loan and lease losses.

At June 30, 2015, the recorded investment in loans classified as impaired totaled $25.0 million, with a corresponding valuation allowance of $1.3 million compared to impaired loans of $35.5 million with a corresponding valuation allowance of $1.0 million at June 30, 2014 and impaired loans of $27.7 million, with a corresponding valuation allowance of $1.5 million at March 31, 2015. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans.

TABLE 9
PERIOD END TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(amounts in thousands)
 
  At June 30, At March 31, At December 31, At September 30, At June 30,
  2015 2015 2014 2014 2014
Nonaccrual $12,354 $12,695 $14,230 $16,556 $20,504
Accruing  7,563  8,689  9,224  9,098  7,392
Total troubled debt restructurings $19,917 $21,384 $23,454 $25,654 $27,896
           
Percentage of total gross loans 2.85% 3.06% 3.55% 3.95% 4.50%

Loans are reported as a troubled debt restructuring when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the note rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, 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 the Bank will not collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement. Impairment reserves on non-collateral dependent restructured loans are measured by calculating the present value of expected future cash flows of the restructured loans, discounted at the effective interest rate of the original loan agreement. These impairment reserves are recognized as a specific component of the ALLL.

During the three months ended June 30, 2015, the Company restructured three loans to grant rate and payment deferrals. The loans were classified as troubled debt restructurings and placed on nonaccrual status. As of June 30, 2015, the Company had 121 restructured loans that qualified as troubled debt restructurings, of which 103 were performing according to their restructured terms.

TABLE 10
NONPERFORMING ASSETS - UNAUDITED
(amounts in thousands)
 
  At June 30, At March 31, At December 31, At September 30, At June 30,
  2015 2015 2014 2014 2014
Total nonaccrual loans $16,907 $18,513 $21,649 $24,488 $27,478
90 days past due and still accruing  54  30  23  —  —
Total nonperforming loans  16,961  18,543  21,672  24,488  27,478
           
Other real estate owned  1,405  1,502  502  393  826
Total nonperforming assets $18,366 $20,045 $22,174 $24,881 $28,304
           
Nonperforming loans to gross loans 2.42% 2.65% 3.28% 3.77% 4.43%
Nonperforming assets to total assets 1.87% 2.03% 2.22% 2.54% 2.94%

At June 30, 2015, June 30, 2014 and March 31, 2015, the recorded investment in OREO was $1.4 million, $826 thousand and $1.5 million, respectively. The June 30, 2015 OREO balance consists of eight properties, of which four are 1-4 family residential real estate in the amount of $283 thousand, three are nonfarm nonresidential properties in the amount of $953 thousand and one is an undeveloped commercial property in the amount of $170 thousand.

TABLE 11
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
 
  At June 30, At June 30, Change At March 31,
  2015 2014 $ % 2015
Assets:          
Cash and due from banks  $25,343  $50,677  $(25,334) (50)%  $19,309
Interest bearing due from banks  7,453  16,068  (8,615) (54)%  10,802
Total cash and cash equivalents  32,796  66,745  (33,949) (51)%  30,111
           
Securities available-for-sale, at fair value  160,763  188,686  (27,923) (15)%  166,890
Securities held-to-maturity, at amortized cost  36,655  37,031  (376) (1)%  36,609
           
Loans, net of deferred fees and costs  700,177  619,622  80,555 13%  699,544
Allowance for loan and lease losses  (11,402)  (9,882)  (1,520) 15%  (11,296)
Net loans  688,775  609,740  79,035 13%  688,248
           
Premises and equipment, net  11,342  12,415  (1,073) (9)%  11,903
Other real estate owned  1,405  826  579 70%  1,502
Life insurance  22,168  21,504  664 3%  22,009
Deferred taxes  10,648  10,613  35 0%  10,041
Other assets  18,503  16,156  2,347 15%  18,089
Total assets  $983,055  $963,716  $19,339 2%  $985,402
           
Liabilities and shareholders' equity:          
Demand - noninterest bearing  $151,640  $135,416  $16,224 12%  $150,056
Demand - interest bearing  276,103  269,055  7,048 3%  266,552
Savings  93,500  90,416  3,084 3%  92,088
Certificates of deposit  238,796  260,129  (21,333) (8)%  253,280
Total deposits  760,039  755,016  5,023 1%  761,976
           
Federal Home Loan Bank of San Francisco borrowings  90,000  75,000  15,000 20%  90,000
Junior subordinated debentures  10,310  15,465  (5,155) (33)%  10,310
Other liabilities  16,156  17,545  (1,389) (8)%  17,679
Total liabilities  876,505  863,026  13,479 2%  879,965
           
Shareholders' equity:          
Preferred stock  19,931  19,931  — 0%  19,931
Common stock  24,144  23,858  286 1%  24,105
Retained earnings  63,158  57,808  5,350 9%  61,217
Accumulated other comprehensive (loss) income, net of tax  (683)  (907)  224 (25)%  184
Total shareholders' equity  106,550  100,690  5,860 6%  105,437
           
Total liabilities and shareholders' equity  $983,055  $963,716  $19,339 2%  $985,402
           
Total interest earning assets  $921,418  $894,724  26,694 3%  $919,227
Shares outstanding  13,339  13,294      13,337
Book value per share  $6.49  $6.07      $6.41
 
TABLE 12
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
 
  For The Three Months Ended For The Six Months Ended
  June 30, Change March 31, June 30, 
  2015 2014 $ %  2015 2015 2014
Interest income:              
Interest and fees on loans $8,304 $7,188 $1,116 16% $7,911 $16,215 $14,282
Interest on securities  801  1,112  (311) (28)%  945  1,746  2,229
Interest on tax-exempt securities  602  635  (33) (5)%  599  1,201  1,287
Interest on deposits  56  127  (71) (56)%  71  127  264
Total interest income  9,763  9,062  701 8%  9,526  19,289  18,062
Interest expense:              
Interest on demand deposits  107  118  (11) (9)%  116  223  239
Interest on savings deposits  55  57  (2) (4)%  54  109  114
Interest on certificates of deposit  594  673  (79) (12)%  591  1,185  1,335
Interest on Federal Home Loan Bank of
San Francisco borrowings
 363  (69)  432 626%  349  712  (176)
Interest on other borrowings  49  93  (44) (47)%  47  96  187
Total interest expense  1,168  872  296 34%  1,157  2,325  1,699
Net interest income  8,595  8,190  405 5%  8,369  16,964  16,363
Provision for loan and lease losses  —  1,450  (1,450) (100)%  —  —  1,450
Net interest income after provision
for loan and lease losses
 8,595  6,740  1,855 28%  8,369  16,964  14,913
Noninterest income:              
Service charges on deposit accounts  52  41  11 27%  49  101  85
Payroll and benefit processing fees  130  109  21 19%  148  278  244
Earnings on cash surrender value - life insurance  159  162  (3) (2)%  165  324  288
Gain (loss) on investment securities, net  61  (39)  100 256%  215  276  (284)
Other income  479  1,863  (1,384) (74)%  277  756  2,167
Total noninterest income  881  2,136  (1,255) (59)%  854  1,735  2,500
TABLE 12 - CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
 
  For The Three Months Ended For The Six Months Ended
  June 30, Change March 31, June 30,
  2015 2014 $ %  2015 2015 2014
Noninterest expense:              
Salaries and related benefits  3,575  3,464  111 3%  3,910  7,485  7,144
Occupancy and equipment  709  678  31 5%  734  1,443  1,320
Write down of other real estate owned  —  —  — 0%  —  —  290
Federal Deposit Insurance Corporation
insurance premium
 178  189  (11) (6)%  207  385  380
Data processing fees  251  227  24 11%  242  493  430
Professional service fees  442  304  138 45%  388  830  534
Deferred compensation  71  68  3 4%  71  142  125
Other expenses  896  921  (25) (3)%  1,041  1,937  3,268
Total noninterest expense  6,122  5,851  271 5%  6,593  12,715  13,491
Income before provision for income taxes  3,354  3,025  329 11%  2,630  5,984  3,922
Provision for income taxes  964  819  145 18%  829  1,793  1,151
Net income $2,390 $2,206 $184 8% $1,801 $4,191 $2,771
Less: Preferred dividends  50  50  — 0%  50  100  100
Income available to common shareholders $2,340 $2,156 $184 9% $1,751 $4,091 $2,671
               
Basic earnings per share $0.18 $0.16 $0.02 13% $0.13 $0.31 $0.20
Average basic shares  13,338  13,378  (40) 0%  13,303  13,320  13,658
Diluted earnings per share $0.18 $0.16 $0.02 13% $0.13 $0.31 $0.19
Average diluted shares  13,370  13,426  (56) 0%  13,340  13,353  13,705
 
TABLE 13
UNAUDITED CONDENSED CONSOLIDATED
YEAR TO DATE AVERAGE BALANCE SHEETS
(amounts in thousands)
 
  For the Six Months Ended For the Twelve Months Ended
  June 30, June 30, December 31, December 31, December 31,
  2015 2014 2014 2013 2012
Earning assets:          
Loans  $688,146  $605,761  $625,166  $612,780  $642,200
Taxable securities  128,791  156,156  147,916  157,486  135,615
Tax exempt securities  77,043  85,097  83,973  92,854  81,714
Interest bearing due from banks  26,795  62,123  56,465  43,342  48,712
Average earning assets  920,775  909,137  913,520  906,462  908,241
           
Cash and due from banks  10,566  10,183  11,246  10,624  10,125
Premises and equipment, net  11,980  11,696  12,105  10,338  9,567
Other assets  43,085  31,845  36,936  26,430  24,249
Average total assets  $986,406  $962,861  $973,807  $953,854  $952,182
           
Interest bearing liabilities:          
Demand - interest bearing  $272,349  $270,695  $272,383  $244,125  $203,342
Savings  92,227  91,447  91,108  92,502  89,789
Certificates of deposit  246,137  261,151  259,445  248,350  285,574
Repurchase agreements  —  —  —  5,780  14,246
Federal Home Loan Bank of
San Francisco borrowings
 94,724  75,000  77,534  107,484  110,374
Other borrowings  10,365  15,465  15,239  15,584  15,465
Average interest bearing liabilities  715,802  713,758  715,709  713,825  718,790
           
Demand - noninterest bearing  148,179  131,736  139,792  122,011  115,091
Other liabilities  17,013  15,174  15,934  11,825  7,033
Shareholders' equity  105,412  102,193  102,372  106,193  111,268
Average liabilities & shareholders' equity  $986,406  $962,861  $973,807  $953,854  $952,182
 
 
TABLE 14
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
 
  For the Three Months Ended
  June 30, March 31, December 31, September 30, June 30,
  2015 2015 2014 2014 2014
Earning assets:          
Loans  $703,008  $673,120  $656,834  $631,674  $611,494
Taxable securities  121,110  136,557  141,265  138,355  152,175
Tax exempt securities  76,772  77,316  82,231  83,503  83,530
Interest bearing due from banks  27,688  25,893  36,971  64,829  59,099
Average earning assets  928,578  912,886  917,301  918,361  906,298
           
Cash and due from banks  10,833  10,295  12,263  12,320  10,155
Premises and equipment, net  11,767  12,195  12,464  12,551  12,190
Other assets  42,637  43,540  43,072  40,815  36,887
Average total assets  $993,815  $978,916  $985,100  $984,047  $965,530
           
Interest bearing liabilities:          
Demand - interest bearing  $268,784  $275,954  $277,692  $270,395  $272,457
Savings  93,291  91,152  89,992  91,556  91,488
Certificates of deposit  245,573  246,707  254,943  260,592  262,809
Federal Home Loan Bank of
San Francisco borrowings
 105,330  84,000  75,000  85,054  75,000
Other borrowings  10,310  10,421  14,568  15,465  15,465
Average interest bearing liabilities  723,288  708,234  712,195  723,062  717,219
           
Demand - noninterest bearing  147,442  148,923  153,007  142,426  131,901
Other liabilities  16,887  17,141  16,751  16,612  15,216
Shareholders' equity  106,198  104,618  103,147  101,947  101,194
Average liabilities & shareholders' equity  $993,815  $978,916  $985,100  $984,047  $965,530

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Redding, California and is the parent company for Redding Bank of Commerce which operates under two separate names: Redding Bank of Commerce and Sacramento Bank of Commerce, a division of Redding Bank of Commerce. The Bank is an FDIC insured California banking corporation providing commercial banking and financial services through four offices located in Northern California. The Bank opened on October 22, 1982. The Company's common stock is listed on the NASDAQ Global Market and trades under the symbol "BOCH".

Investment firms making a market in BOCH stock are: 
   
Raymond James Financial  McAdams Wright Ragen, Inc. 
John T. Cavender  Joey Warmenhoven
555 Market Street 1211 SW Fifth Avenue, Suite 1400
San Francisco, CA 94105 Portland, OR 97204 
(800) 346-5544 (866) 662-0351
   
Sandler O'Neill + Partners, L.P. Stifel Nicolaus
Brian Sullivan Perry Wright
1251 Avenue of the Americas, 6th Floor 1255 East Street, Suite 100
New York, NY 10022 Redding, CA 96001 
(212) 466-8022 (530) 244-7199
CONTACT: Randall S. Eslick, President and Chief Executive Officer Telephone Direct (530) 722-3900 Samuel D. Jimenez, Executive Vice President and Chief Operating Officer Telephone Direct (530) 722-3952 James A. Sundquist, Executive Vice President and Chief Financial Officer Telephone Direct (530) 722-3908 Andrea Schneck, Vice President and Senior Administrative Officer Telephone Direct (530) 722-3959
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