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

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REDDING, Calif., Oct. 23, 2015 (GLOBE NEWSWIRE) -- Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ: BOCH) (the "Company"), a $990.7 million asset bank holding company and parent company of Redding Bank of Commerce (the "Bank"), today announced financial results for the quarter and the nine months ended September 30, 2015. Net income available to common shareholders for the quarter ended September 30, 2015 was $2.5 million or $0.18 per share – diluted, compared with $1.2 million or $0.09 per share – diluted for the same period of 2014. Net income available to common shareholders for the nine months ended September 30, 2015 was $6.6 million or $0.49 per share – diluted compared with $3.9 million or $0.29 per share – diluted for the same period of 2014.

Financial highlights for the third quarter of 2015:

  • Net income available to common shareholders of $2.5 million for the three months ended September 30, 2015 was an improvement of $1.3 million (102%) over $1.2 million net income available to common shareholders earned during the third quarter of 2014, and an improvement of $135 thousand (6%) over $2.3 million available to common shareholders earned during the previous quarter.
  • Return on average assets improved to 0.99% in the third quarter of 2015 compared to 0.49% in the same quarter of 2014.
  • Return on average equity improved to 9.12% in the third quarter of 2015 compared to 4.76% in the same quarter of 2014.
  • Nonperforming assets at September 30, 2015 totaled $17.1 million, a decrease of $7.8 million (31%) compared to September 30, 2014, and a decrease of $1.2 million (27% annualized) compared to June 30, 2015.
  • Gross loans at September 30, 2015 totaled $718.5 million, an increase of $18.7 million (11% annualized) since June 30, 2015.
  • Continuing improved asset quality resulted in no additional provision for loan and lease losses during the third quarter.
  • The Company's book value per share increased to $6.64 per common share at September 30, 2015 from $6.17 per common share at September 30, 2014 (8%) and $6.48 at June 30, 2015 (10% annualized).
  • The Company's net interest margin improved to 3.62% for the quarter ended September 30, 2015 from 3.43% for the third quarter of 2014.

Financial highlights for the nine months ended September 30, 2015:

  • Net income available to common shareholders of $6.6 million for the nine months ended September 30, 2015 was an improvement of $2.7 million (69%) over $3.9 million net income available to common shareholders earned during the nine months ended September 30, 2014.
  • Return on average assets for the nine months ended September 30, 2015 improved to 0.89% compared to 0.54% for the same period in 2014.
  • Return on average equity for the nine months ended September 30, 2015 improved to 8.27% compared to 5.10% for the same period in 2014.
  • Nonperforming assets at September 30, 2015 totaled $17.1 million, a decrease of $5.1 million (31% annualized) compared to December 31, 2014.
  • Gross loans at September 30, 2015 totaled $718.5 million, an increase of $57.6 million (12% annualized) since December 31, 2014.
  • Net loan loss recoveries of $71 thousand combined with continuing improved asset quality resulted in no additional provision for loan and lease losses during the first nine months of 2015.
  • The Company's book value per share increased to $6.64 per common share at September 30, 2015 from $6.29 per common share at December 31, 2014 (7% annualized).
  • The Company's net interest margin improved to 3.68% for the nine months ended September 30, 2015 from 3.57% for the year ended December 31, 2014.
  • The Company's efficiency ratio improved to 65.4% during the first nine months of 2015 compared to 70.1% during the same period in 2014.

Randall S. Eslick, President and CEO commented: "We are pleased with the successes our employees are achieving throughout the bank. Deposit growth, loan growth, improved asset quality and ongoing expense control are the basis of our enhanced profitability."

SBLF Series B Preferred Stock

We are actively considering various debt alternatives to fully fund the redemption of the $20 million of SBLF preferred stock and have made application to the Company's primary regulator, the Federal Reserve Bank of San Francisco for permission to do so. If the Company's Series B Preferred Stock remains outstanding beyond December 2015, the dividend rate will increase from its current 1% to 5%, and in April 2016 to 9%.

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 Nine Months Ended
Net income, average assets and September 30, June 30, September 30,
average shareholders' equity 2015 2014 2015 2015 2014
Income available to common shareholders  $ 2,475  $ 1,223  $ 2,340  $ 6,566  $ 3,894
Average total assets  $ 992,034  $ 984,047  $ 993,815  $ 988,303  $ 970,001
Average shareholders' equity  $ 107,704  $ 101,947  $ 106,198  $ 106,186  $ 102,112
           
Selected performance ratios          
Return on average assets 0.99% 0.49% 0.94% 0.89% 0.54%
Return on average equity 9.12% 4.76% 8.84% 8.27% 5.10%
Efficiency ratio 60.17% 66.96% 64.61% 65.41% 70.09%
           
Share and per share amounts          
Weighted average shares - basic 13,340 13,294 13,338 13,327 13,536
Weighted average shares - diluted 13,377 13,339 13,370 13,358 13,582
Earnings per share - basic  $ 0.18  $ 0.09  $ 0.18  $ 0.49  $ 0.29
Earnings per share - diluted  $ 0.18  $ 0.09  $ 0.18  $ 0.49  $ 0.29
           
  At September 30, At June 30,    
Share and per share amounts 2015 2014 2015    
Common shares outstanding (1) 13,374 13,298 13,364    
Book value per common share  $ 6.64  $ 6.17  $ 6.48    
           
Capital ratios          
Bank of Commerce Holdings          
Common equity tier 1 capital ratio (2) 9.96% n/a 9.96%    
Tier 1 capital ratio 13.25% 14.74% 13.33%    
Total capital ratio 14.50% 15.99% 14.58%    
Tier 1 leverage ratio 11.98% 12.17% 11.76%    
           
Redding Bank of Commerce          
Common equity tier 1 capital ratio (2) 13.20% n/a 13.27%    
Tier 1 capital ratio 13.20% 14.68% 13.27%    
Total capital ratio 14.45% 15.93% 14.52%    
Tier 1 leverage ratio 11.95% 12.13% 11.75%    
(1) Includes unvested restricted shares issued in accordance with the Banks equity incentive plan.
(2) 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 decline in capital ratios during the current quarter as compared to the same period a year ago is primarily due to repayment of junior subordinated debentures during the fourth quarter of 2014 and a change in the calculation of the risk-weighted average assets in accordance with Basel III.

BALANCE SHEET OVERVIEW

As of September 30, 2015, the Company had total consolidated assets of $990.7 million, gross loans of $718.5 million, allowance for loan and lease losses ("ALLL") of $10.9 million, total deposits of $779.5 million, and shareholders' equity of $108.7 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
 
  At September 30,     At June 30,
    % of    % of  Change   % of 
  2015 Total 2014 Total Amount % 2015 Total
Commercial  $ 144,749 20%  $ 156,620 24%  $ (11,871) (8)%  $ 143,088 20%
Real estate - construction and land development 29,701 4 25,579 4 4,122 16% 27,858 4
Real estate - commercial non-owner occupied 237,597 34 214,970 33 22,627 11% 236,173 34
Real estate - commercial owner occupied 151,762 21 110,527 17 41,235 37% 138,183 20
Real estate - residential - ITIN 50,162 7 53,805 8 (3,643) (7)% 51,249 7
Real estate - residential - 1-4 family mortgage 12,185 2 13,779 2 (1,594) (12)% 12,209 2
Real estate - residential - equity lines 45,733 6 45,050 7 683 2% 46,463 7
Consumer and other 46,644 6 29,365 5 17,279 59% 44,551 6
Gross loans 718,533 100% 649,695 100% 68,838 11% 699,774 100%
Deferred fees and costs 718   184   534   403  
Loans, net of deferred fees and costs 719,251   649,879   69,372   700,177  
Allowance for loan and lease losses (10,891)   (10,400)   (491)   (11,402)  
Net loans  $ 708,360    $ 639,479    $ 68,881    $ 688,775  
                 
Average yield on loans during the quarter 4.70%   4.62%   0.08   4.74%  

The Company recorded gross loan balances of $718.5 million at September 30, 2015, compared with $649.7 million and $699.8 million at September 30, 2014 and June 30, 2015, respectively, an increase of $68.8 million and $18.7 million, 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 September 30, 2015, the Company purchased $7.5 million in consumer loan pools. During the twelve-month period ended September 30, 2015, the Company purchased $28.1 million and $6.5 million in consumer and commercial real estate investor loan pools, respectively. The Bank's deferred fees and costs increased during the current quarter compared to the prior quarter as a result of increased loan production and implementation of an updated loan origination cost study.

The decrease in the ALLL in the current quarter compared to the prior quarter resulted from net loan charge offs of $511 thousand. As a result of 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 September 30,     At June 30,
    % of    % of  Change   % of 
  2015 Total 2014 Total Amount % 2015 Total
                 
Cash and due from banks  $ 8,564 5%  $ 12,581 5%  $ (4,017) (32)%  $ 11,115 5%
Interest-bearing deposits in other banks 16,745 8 33,842 12 (17,097) (51)% 21,681 9
Total cash and cash equivalents 25,309 12 46,423 17 (21,114) (45)% 32,796 14
                 
Investment securities:                
U.S. government and agencies 3,998 2 7,825 3 (3,827) (49)% 5,314 2
Obligations of state and political subdivisions 57,453 26 57,161 20 292 1% 51,324 23
Residential mortgage backed securities and collateralized mortgage obligations 34,058 16 46,498 17 (12,440) (27)% 37,776 16
Corporate securities 36,560 17 39,717 15 (3,157) (8)% 33,501 15
Commercial mortgage backed securities 9,266 4 11,100 4 (1,834) (17)% 9,467 4
Other asset backed securities 15,974 7 27,078 10 (11,104) (41)% 23,381 10
Total investment securities - AFS 157,309 72 189,379 69 (32,070) (17)% 160,763 70
                 
Obligations of state and political subdivisions - HTM 36,093 16 36,888 14 (795) (2)% 36,655 16
Total investment securities - AFS and HTM 193,402 88 226,267 83 (32,865) (19)% 197,418 86
                 
Total cash, cash equivalents and investment securities  $ 218,711 100%  $ 272,690 100%  $ (53,979) (20)%  $ 230,214 100%
                 
Average yield on interest bearing due from banks and investment securities during the quarter 2.46%   2.42%   0.04   2.59%  

As of September 30, 2015, the Company maintained noninterest-bearing cash positions at the Federal Reserve Bank and correspondent banks in the amount of $8.6 million. The Company also held interest-bearing deposits in the amount of $16.7 million.

Available-for-sale investment securities totaled $157.3 million at September 30, 2015, compared with $189.4 million and $160.8 million at September 30, 2014 and June 30, 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 third quarter of 2015, the Company purchased 25 securities with a par value of $26.8 million and weighted average yield of 2.18% and sold 21 securities with a par value of $23.8 million and weighted average yield of 2.57%. The sales activity resulted in $137 thousand in net realized gains for the three months ended September 30, 2015. During the three months ended September 30, 2015, the Company received $6.1 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 September 30, 2015 and 2014 were $191.4 million and 3.40% compared to $221.9 million and 3.49%, 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 effective duration of the portfolio and accelerate cash flows, while also improving credit quality and liquidity. This strategy could entail absorbing small losses and slightly reduced yields within the portfolio to meet longer term objectives.

At September 30, 2015, the Company's net unrealized gains on available-for-sale investment securities were $1.6 million compared with $1.8 million and $1.5 million at September 30, 2014 and June 30, 2015, respectively. The increase in net unrealized gains during the current quarter resulted primarily from increases in the fair value of the Company's municipal bond portfolio, as a result of decreases in interest rates.

TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
                 
  At September 30,     At June 30,
    % of    % of  Change   % of 
  2015 Total 2014 Total Amount % 2015 Total
Demand - noninterest bearing  $ 162,437 21%  $ 151,684 20%  $ 10,753 7%  $ 151,640 20%
Demand - interest bearing 295,209 38 265,308 35 29,901 11% 276,103 36
Total demand 457,646 59 416,992 55 40,654 10% 427,743 56
                 
Savings 93,367 12 91,589 12 1,778 2% 93,500 12
Total non-maturing deposits 551,013 71 508,581 67 42,432 8% 521,243 68
                 
Certificates of deposit 228,492 29 258,939 33 (30,447) (12)% 238,796 32
Total deposits  $ 779,505 100%  $ 767,520 100%  $ 11,985 2%  $ 760,039 100%
                 
Average rate on interest bearing deposits during the quarter 0.49%   0.53%   (0.04)   0.50%  

Total deposits at September 30, 2015, increased $12.0 million or 2% to $779.5 million compared to September 30, 2014, and increased $19.5 million or 3% compared to June 30, 2015. Total non-maturing deposits increased $42.4 million or 8% compared to the same date a year ago and increased $29.8 million or 6% compared to June 30, 2015. Certificates of deposit decreased $30.4 million or 12% compared to the same date a year ago and decreased $10.3 million or 4% compared to June 30, 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 September 30, At June 30,
  2015 2014 2015
CDARS / ICS reciprocal deposits  $ 67,825  $ 66,431  $ 58,628
Third party brokered time deposits 17,505 13,550 17,502
Brokered deposits per Call Report 85,330 79,981 76,130
Online listing service time deposits 61,141 68,011 63,328
       
Total wholesale and brokered deposits  $ 146,471  $ 147,992  $ 139,458

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $85.3 million, $80.0 million and $76.1 million at September 30, 2015, September 30, 2014 and June 30, 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
  September 30, Change June 30, Change
  2015 2014 Amount % 2015 Amount %
Interest income  $ 9,732 $ 9,102 $ 630 7% $ 9,763 $ (31) 0%
Interest expense 1,277 1,154 123 11% 1,168 109 9%
Net interest income 8,455 7,948 507 6% 8,595 (140) (2)%
Provision for loan and lease losses  — 1,050 (1,050) (100)%  —  — 0%
Noninterest income 808 671 137 20% 881 (73) (8)%
Noninterest expense 5,574 5,771 (197) (3)% 6,122 (548) (9)%
Income before provision for income taxes 3,689 1,798 1,891 105% 3,354 335 10%
Provision for income taxes 1,164 525 639 122% 964 200 21%
Net income 2,525 1,273 1,252 98% 2,390 135 6%
Less: Preferred dividends 50 50  — 0% 50  — 0%
Income available to common shareholders $ 2,475 $ 1,223 $ 1,252 102% $ 2,340 $ 135 6%
               
Basic earnings per share  $ 0.18  $ 0.09  $ 0.09 100%  $ 0.18  $ — 0%
Average basic shares 13,340 13,294 46 0% 13,338 2 0%
Diluted earnings per share  $ 0.18  $ 0.09  $ 0.09 100%  $ 0.18  $ — 0%
Average diluted shares 13,377 13,339 38 0% 13,370 7 0%
Dividends declared per common share  $ 0.03  $ 0.03  $ —  0%  $ 0.03  $ — 0%

Third Quarter of 2015 Compared With Third Quarter of 2014

Net income available to common shareholders for the third quarter of 2015 increased $1.3 million over the third quarter of 2014. In the current quarter, net interest income was $507 thousand higher, the provision for loan and lease losses was $1.1 million lower, noninterest income was $137 thousand higher and noninterest expense was $197 thousand lower. These positive changes were partially offset by an increase in income tax expense of $639 thousand.

Net Interest Income

Net interest income increased $507 thousand over a year previous. Interest income for the three months ended September 30, 2015 increased $630 thousand or 7% to $9.7 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 September 30, 2015 increased $123 thousand or 11% to $1.3 million. Interest expense on deposits declined $77 thousand and interest expense on other borrowings decreased $47 thousand, but interest on the Bank's Federal Home Loan Bank of San Francisco borrowings increased $247 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 third 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.

Interest expense on other borrowings, primarily junior subordinated debentures was $47 thousand and $94 thousand for the third quarter of 2015 and 2014, respectively. At September 30, 2014 the Company had $5.1 million of junior subordinated debentures that carried a rate of LIBOR plus 3.30% and $10.3 million of junior subordinated debentures with a rate of LIBOR plus 1.58%. During December of 2014, the Company repaid the $5.1 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 September 30, 2015 increased $137 thousand compared to the same period a year ago. During the quarter ended September 30, 2015 the Company recorded net gains on sale of available-for-sale investment securities of $137 thousand compared to a net gains of $32 thousand for the same period a year ago.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2015 decreased $197 thousand compared to the same period a year ago. During the quarter ended September 30, 2015 salaries and related benefits decreased $312 thousand as a result of increased deferred loan origination costs. In the current period, professional services fees are $54 thousand higher than a year earlier.

Income Tax Provision

During the three months ended September 30, 2015, the Company recorded a provision for income tax expense of $1.2 million compared with $525 thousand for the same period a year ago. While pre-tax income has continued to increase, the company's anticipated tax credits (from qualified low income housing investments) and tax exempt income (from municipal bonds and BOLI) have not increased. As these items comprise an ever decreasing percentage of pre-tax income, the Company's income tax provision as a percent of pre-tax income increases.

Third Quarter of 2015 Compared With Second Quarter of 2015

Net income available to common shareholders for the third quarter of 2015 increased $135 thousand over the second quarter of 2015. In the current quarter, net interest income decreased by $140 thousand, noninterest income decreased by $73 thousand and noninterest expense decreased by $548 thousand. These net positive changes were partially offset by an income tax provision that was higher by $200 thousand.

Net Interest Income

Net interest income decreased $140 thousand over a quarter previous. Interest income for the three months ended September 30, 2015 decreased $31 thousand to $9.7 million. The decrease in interest income was due to a decrease of $1.0 million in average interest earning assets and a decrease of six basis points on the tax equivalent yield of those assets partially offset by the benefit of a quarter that was one day longer than the second quarter of 2015. Interest expense for the three months ended September 30, 2015 increased $109 thousand or 9% to $1.3 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 September 30, 2015 decreased $73 thousand compared to the prior quarter. Net gains recognized on the sale of available-for-sale investment securities during the current quarter increased by $76 thousand to $137 thousand compared to a $61 thousand net gain in the prior quarter. During the current quarter the Bank recognized $31 thousand in gain on sale of other real estate owned compared to a loss of $9 thousand in the prior quarter. 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 September 30, 2015 decreased $548 thousand compared to the prior quarter. During the quarter ended September 30, 2015 salaries and related benefits decreased $367 thousand as a result of increased deferred loan origination costs. In the current period, professional services fees are $105 thousand lower than in the prior quarter.

Income Tax Provision

During the three months ended September 30, 2015, the Company recorded a provision for income tax expense of $1.2 million compared with provision for income tax expense of $964 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 September 30, 2015 compared with $0.09 for the same period a year ago, and $0.18 for the prior period. Earnings per share increased during the three months ended September 30, 2015 compared to the same period a year ago as a result of increased net income.

TABLE 7
NET INTEREST SPREAD AND MARGIN - UNAUDITED
(amounts in thousands)
           
  For the Three Months Ended
  September 30, Change June 30, Change
  2015 2014 Amount 2015 Amount
Tax equivalent yield on average interest earning assets 4.29% 4.07% 0.22 4.35% (0.06)
Rate on average interest bearing liabilities 0.71% 0.63% (0.08) 0.65% (0.06)
Net interest spread - tax equivalent basis 3.58% 3.44% 0.14 3.70% (0.12)
           
Net interest margin - nominal 3.62% 3.43% 0.19 3.71% (0.09)
Net interest margin - tax equivalent basis 3.75% 3.57% 0.18 3.85% (0.10)
           
Average earning assets  $ 927,547  $ 918,361  $ 9,186  $ 928,578  $ (1,031)
Average interest bearing liabilities  $ 709,958  $ 723,062  $ (13,104)  $ 723,288  $ (13,330)

The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.75% for the three months ended September 30, 2015, an increase of 18 basis points as compared to the same period a year ago. The increase in net interest margin resulted from a 22 basis point increase in tax-equivalent yield on average earning assets offset by a four basis point increase in interest expense to fund average earning assets. The tax equivalent net interest margin decreased 10 basis points as compared to the prior quarter. The decrease in net interest margin resulted from a six basis point decrease in tax-equivalent yield on average earning assets and a four 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
  September 30, June 30, March 31, December 31, September 30,
  2015 2015 2015 2014 2014
Beginning balance  $ 11,402  $ 11,296  $ 10,820  $ 10,400  $ 9,882
Provision for loan and lease losses charged to expense  —  —  — 675 1,050
Loans charged off (779) (711) (179) (374) (585)
Loan loss recoveries 268 817 655 119 53
Ending balance  $ 10,891  $ 11,402  $ 11,296  $ 10,820  $ 10,400
           
  At September 30, At June 30, At March 31, At December 31, At September 30,
  2015 2015 2015 2014 2014
Nonaccrual loans:          
Commercial   $ 2,506  $ 3,170  $ 3,908  $ 5,112  $ 7,065
Real estate - commercial non-owner occupied 5,154 6,532 7,103 8,318 8,518
Real estate - commercial owner occupied 1,928 1,079 1,079 1,378 1,378
Real estate - residential - ITIN 4,228 4,375 4,645 4,647 5,281
Real estate - residential - 1-4 family mortgage 1,669 1,693 1,720 2,135 2,157
Real estate - residential - equity lines 23 24 24 24 89
Consumer and other 33 34 34 35  —
Total nonaccrual loans 15,541 16,907 18,513 21,649 24,488
Accruing troubled debt restructured loans:          
Commercial  56 10 1,004 1,485 1,585
Real estate - commercial non-owner occupied 828 832 836 839 844
Real estate - commercial owner occupied  — 849 854 859 863
Real estate - residential - ITIN 5,423 5,303 5,421 5,462 5,222
Real estate - residential - equity lines 563 569 574 579 584
Total accruing troubled debt restructured loans 6,870 7,563 8,689 9,224 9,098
           
All other accruing impaired loans 494 530 533 535 757
           
Total impaired loans  $ 22,905  $ 25,000  $ 27,735  $ 31,408  $ 34,343
           
Gross loans outstanding at period end  $ 718,533  $ 699,774  $ 699,229  $ 660,898  $ 649,695
           
Allowance for loan and lease losses as a percent of:          
Gross loans 1.52% 1.63% 1.62% 1.64% 1.60%
Nonaccrual loans 70.08% 67.44% 61.02% 49.98% 42.47%
Impaired loans 47.55% 45.61% 40.73% 34.45% 30.28%
           
Nonaccrual loans to gross loans 2.16% 2.42% 2.65% 3.28% 3.77%

The Company realized net loan charge offs of $511 thousand in the current quarter compared with net loan loss recoveries of $106 thousand in the prior quarter and net loan charge offs of $532 thousand 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 three quarters of 2015 compared to a provision of $2.5 million during the first three quarters of 2014. The Company's ALLL as a percentage of gross loans was 1.52% as of September 30, 2015 compared to 1.60% as of September 30, 2014 and 1.63% as of June 30, 2015. Based on 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 at September 30, 2015. 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 September 30, 2015, the recorded investment in loans classified as impaired totaled $22.9 million, with a corresponding valuation allowance of $789 thousand compared to impaired loans of $34.3 million with a corresponding valuation allowance of $1.2 million at September 30, 2014 and impaired loans of $25.0 million, with a corresponding valuation allowance of $1.3 million at June 30, 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 September 30, At June 30, At March 31, At December 31, At September 30,
  2015 2015 2015 2014 2014
Nonaccrual  $ 11,149  $ 12,354  $ 12,695  $ 14,230  $ 16,556
Accruing 6,870 7,563 8,689 9,224 9,098
Total troubled debt restructurings  $ 18,019  $ 19,917  $ 21,384  $ 23,454  $ 25,654
           
Percentage of total gross loans 2.51% 2.85% 3.06% 3.55% 3.95%

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 loan 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 to be provided for in the ALLL.

During the three months ended September 30, 2015, the Company restructured two loans to grant payment deferrals and one loan to grant rate and maturity modifications. The loans were classified as troubled debt restructurings and placed on nonaccrual status. As of September 30, 2015, the Company had 121 restructured loans that qualified as troubled debt restructurings, of which 102 were performing according to their restructured terms.

TABLE 10
NONPERFORMING ASSETS - UNAUDITED
(amounts in thousands)
           
  At September 30, At June 30, At March 31, At December 31, At September 30,
  2015 2015 2015 2014 2014
Total nonaccrual loans  $ 15,541  $ 16,907  $ 18,513  $ 21,649  $ 24,488
90 days past due and still accruing 52 54 30 23  —
Total nonperforming loans 15,593 16,961 18,543 21,672 24,488
           
Other real estate owned 1,525 1,405 1,502 502 393
Total nonperforming assets  $ 17,118  $ 18,366  $ 20,045  $ 22,174  $ 24,881
           
Nonperforming loans to gross loans 2.17% 2.42% 2.65% 3.28% 3.77%
Nonperforming assets to total assets 1.73% 1.87% 2.03% 2.22% 2.54%

At September 30, 2015, September 30, 2014 and June 30, 2015, the recorded investment in OREO was $1.5 million, $393 thousand and $1.4 million, respectively. The September 30, 2015 OREO balance consists of 11 properties, of which four are 1-4 family residential real estate in the amount of $361 thousand, six are nonfarm nonresidential properties in the amount of $993 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 September 30, At September 30, Change At June 30,
  2015 2014 $ % 2015
Assets:          
Cash and due from banks  $ 8,564  $ 12,581  $ (4,017) (32)%  $ 11,115
Interest-bearing deposits in other banks 16,745 33,842 (17,097) (51)% 21,681
Total cash and cash equivalents 25,309 46,423 (21,114) (45)% 32,796
           
Securities available-for-sale, at fair value 157,309 189,379 (32,070) (17)% 160,763
Securities held-to-maturity, at amortized cost 36,093 36,888 (795) (2)% 36,655
           
Loans, net of deferred fees and costs 719,251 649,879 69,372 11% 700,177
Allowance for loan and lease losses (10,891) (10,400) (491) 5% (11,402)
Net loans 708,360 639,479 68,881 11% 688,775
           
Premises and equipment, net 11,112 12,510 (1,398) (11)% 11,342
Other real estate owned 1,525 393 1,132 288% 1,405
Life insurance 22,326 21,675 651 3% 22,168
Deferred taxes 10,638 10,314 324 3% 10,648
Other assets 18,057 20,696 (2,639) (13)% 18,503
Total assets  $ 990,729  $ 977,757  $ 12,972 1%  $ 983,055
           
Liabilities and shareholders' equity:          
Demand - noninterest bearing  $ 162,437  $ 151,684  $ 10,753 7%  $ 151,640
Demand - interest bearing 295,209 265,308 29,901 11% 276,103
Savings 93,367 91,589 1,778 2% 93,500
Certificates of deposit 228,492 258,939 (30,447) (12)% 238,796
Total deposits 779,505 767,520 11,985 2% 760,039
           
Federal Home Loan Bank of San Francisco borrowings 75,000 75,000  — 0% 90,000
Junior subordinated debentures 10,310 15,465 (5,155) (33)% 10,310
Other liabilities 17,239 17,812 (573) (3)% 16,156
Total liabilities 882,054 875,797 6,257 1% 876,505
           
Shareholders' equity:          
Preferred stock 19,931 19,931  — 0% 19,931
Common stock 24,180 23,874 306 1% 24,144
Retained earnings 65,232 58,633 6,599 11% 63,158
Accumulated other comprehensive loss, net of tax (668) (478) (190) 40% (683)
Total shareholders' equity 108,675 101,960 6,715 7% 106,550
           
Total liabilities and shareholders' equity  $ 990,729  $ 977,757  $ 12,972 1%  $ 983,055
           
Total interest earning assets  $ 927,773  $ 908,204  $ 19,569 2%  $ 917,756
Shares outstanding 13,374 13,298     13,364
Book value per share  $ 6.64  $ 6.17      $ 6.48
 
 
TABLE 12
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
               
  For The Three Months Ended For The Nine Months Ended
  September 30, Change June 30, September 30,
  2015 2014 $ % 2015 2015 2014
Interest income:              
Interest and fees on loans  $ 8,357  $ 7,350  $ 1,007  14%  $ 8,304  $ 24,572  $ 21,632
Interest on securities 743 1,001 (258) (26)% 801 2,489 3,230
Interest on tax-exempt securities 592 629 (37) (6)% 602 1,793 1,916
Interest on deposits in other banks 40 122 (82) (67)% 56 167 386
Total interest income 9,732 9,102 630 7% 9,763 29,021 27,164
Interest expense:              
Interest on demand deposits 116 123 (7) (6)% 107 339 362
Interest on savings deposits 53 59 (6) (10)% 55 162 173
Interest on certificates of deposit 586 650 (64) (10)% 594 1,771 1,985
Interest on Federal Home Loan Bank of 475 228 247 108% 363 1,187 52
San Francisco borrowings              
Interest on other borrowings 47 94 (47) (50)% 49 143 281
Total interest expense 1,277 1,154 123 11% 1,168 3,602 2,853
Net interest income 8,455 7,948 507 6% 8,595 25,419 24,311
Provision for loan and lease losses  — 1,050 (1,050) (100)%  —  — 2,500
Net interest income after provision for loan and lease losses 8,455 6,898 1,557 23% 8,595 25,419 21,811
Noninterest income:              
Service charges on deposit accounts 52 50 2 4% 52 153 135
Payroll and benefit processing fees 138 127 11 9% 130 416 371
Earnings on cash surrender value - life insurance 158 171 (13) (8)% 159 482 459
Gain (loss) on investment securities, net 137 32 105 328% 61 413 (252)
Other income 323 291 32 11% 479 1,079 2,458
Total noninterest income 808 671 137 20% 881 2,543 3,171
 
 
TABLE 12 - CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
               
  For The Three Months Ended For The Nine Months Ended
  September 30, Change June 30, September 30,
  2015 2014 $ % 2015 2015 2014
Noninterest expense:              
Salaries and related benefits 3,208 3,520 (312) (9)% 3,575 10,693 10,664
Occupancy and equipment 714 749 (35) (5)% 709 2,157 2,069
Write down of other real estate owned  —  —  — 0%  —  — 290
Federal Deposit Insurance Corporation insurance premium 159 204 (45) (22)% 178 544 584
Data processing fees 243 226 17 8% 251 736 656
Professional service fees 337 283 54 19% 442 1,167 817
Other expenses 913 789 124 16% 967 2,992 4,182
Total noninterest expense 5,574 5,771 (197) (3)% 6,122 18,289 19,262
Income before provision for income taxes 3,689 1,798 1,891 105% 3,354 9,673 5,720
Provision for income taxes 1,164 525 639 122% 964 2,957 1,676
Net income  $ 2,525  $ 1,273  $ 1,252  98%  $ 2,390  $ 6,716  $ 4,044
Less: Preferred dividends 50 50  — 0% 50 150 150
Income available to common shareholders  $ 2,475  $ 1,223  $ 1,252  102%  $ 2,340  $ 6,566  $ 3,894
               
Basic earnings per share  $ 0.18  $ 0.09  $ 0.09 100%  $ 0.18  $ 0.49  $ 0.29
Average basic shares 13,340 13,294 46 0% 13,338 13,327 13,536
Diluted earnings per share  $ 0.18  $ 0.09  $ 0.09 100%  $ 0.18  $ 0.49  $ 0.29
Average diluted shares 13,377 13,339 38 0% 13,370 13,358 13,582
 
 
TABLE 13
UNAUDITED CONDENSED CONSOLIDATED
YEAR TO DATE AVERAGE BALANCE SHEETS
(amounts in thousands)
           
  For the Nine Months Ended For the Twelve Months Ended
  September 30, September 30, December 31, December 31, December 31,
  2015 2014 2014 2013 2012
Earning assets:          
Loans  $ 694,082  $ 614,494  $ 625,166  $ 612,780  $ 642,200
Taxable securities 124,199 150,157 147,916 157,486 135,615
Tax exempt securities 76,755 84,560 83,973 92,854 81,714
Interest-bearing deposits in other banks 28,021 63,034 56,465 43,342 48,712
Average earning assets 923,057 912,245 913,520 906,462 908,241
           
Cash and due from banks 10,832 10,903 11,246 10,624 10,125
Premises and equipment, net 11,738 11,984 12,105 10,337 9,567
Other assets 42,676 34,869 36,936 26,431 24,249
Average total assets  $ 988,303  $ 970,001  $ 973,807  $ 953,854  $ 952,182
           
Liabilities and shareholders' equity:          
Demand - noninterest bearing  $ 151,567  $ 135,338  $ 139,792  $ 122,011  $ 115,091
Demand - interest bearing 276,446 270,594 272,383 244,125 203,342
Savings 92,565 91,484 91,108 92,502 89,789
Certificates of deposit 242,569 260,962 259,445 248,350 285,574
Total deposits 763,147 758,378 762,728 706,988 693,796
           
Repurchase agreements  —  —  — 5,780 14,246
Federal Home Loan Bank of San Francisco borrowings 91,941 78,388 77,534 107,603 110,374
Junior subordinated debentures 10,310 15,465 15,239 15,465 15,465
Other liabilities 16,719 15,658 15,934 11,825 7,033
Average total liabilities 882,117 867,889 871,435 847,661 840,914
           
Shareholders' equity 106,186 102,112 102,372 106,193 111,268
Average liabilities & shareholders' equity  $ 988,303  $ 970,001  $ 973,807  $ 953,854  $ 952,182
 
 
TABLE 14
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
           
  For the Three Months Ended
  September 30, June 30, March 31, December 31, September 30,
  2015 2015 2015 2014 2014
Earning assets:          
Loans  $ 705,762  $ 703,008  $ 673,120  $ 656,834  $ 631,674
Taxable securities 115,165 121,110 136,557 141,265 138,355
Tax exempt securities 76,190 76,772 77,316 82,231 83,503
Interest-bearing deposits in other banks 30,430 27,688 25,893 36,971 64,829
Average earning assets 927,547 928,578 912,886 917,301 918,361
           
Cash and due from banks 11,355 10,833 10,295 12,263 12,320
Premises and equipment, net 11,265 11,767 12,195 12,464 12,551
Other assets 41,867 42,637 43,540 43,072 40,815
Average total assets  $ 992,034  $ 993,815  $ 978,916  $ 985,100  $ 984,047
           
Liabilities and shareholders' equity:          
Demand - noninterest bearing  $ 158,232  $ 147,442  $ 148,923  $ 153,007  $ 142,426
Demand - interest bearing 284,508 268,784 275,954 277,692 270,395
Savings 93,230 93,291 91,152 89,992 91,556
Certificates of deposit 235,551 245,573 246,707 254,943 260,592
Total deposits 771,521 755,090 762,736 775,634 764,969
           
Federal Home Loan Bank of San Francisco borrowings 86,359 105,330 84,111 75,000 85,054
Junior subordinated debentures 10,310 10,310 10,310 14,568 15,465
Other liabilities 16,140 16,887 17,141 16,751 16,612
Average total liabilities 884,330 887,617 874,298 881,953 882,100
           
Shareholders' equity 107,704 106,198 104,618 103,147 101,947
Average liabilities & shareholders' equity  $ 992,034  $ 993,815  $ 978,916  $ 985,100  $ 984,047

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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