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

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REDDING, Calif., Jan. 22, 2016 (GLOBE NEWSWIRE) -- Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ: BOCH) (the "Company"), a $1.0 billion asset bank holding company and parent company of Redding Bank of Commerce (the "Bank"), today announced financial results for the quarter and the year ended December 31, 2015. Net income available to common shareholders for the quarter ended December 31, 2015 was $1.7 million or $0.13 per share – diluted, compared with $1.6 million or $0.12 per share – diluted for the same period of 2014. Net income available to common shareholders for the year ended December 31, 2015 was $8.3 million or $0.62 per share – diluted compared with $5.5 million or $0.41 per share – diluted for the same period of 2014.

Financial highlights for the year ended December 31, 2015:

  • Net income available to common shareholders of $8.3 million for the year ended December 31, 2015 was an improvement of $2.8 million (50%) over $5.5 million net income available to common shareholders earned during the year ended December 31, 2014.
  • Return on average assets for the year ended December 31, 2015 improved to 0.84% compared to 0.57% for the same period in 2014. Return on average equity for the year ended December 31, 2015 improved to 7.83% compared to 5.40% for the same period in 2014.
  • Nonperforming assets at December 31, 2015 totaled $15.5 million, a decrease of $6.7 million (30%) compared to December 31, 2014.
  • Gross loans at December 31, 2015 totaled $716.6 million, an increase of $55.7 million (8%) since December 31, 2014.
  • Net loan loss recoveries of $360 thousand combined with continuing improved asset quality resulted in no provision for loan and lease losses during the year ended December 31, 2015.
  • The Company's book value per share increased to $6.76 per common share at December 31, 2015 from $6.29 per common share at December 31, 2014 (7%).
  • The Company's net interest margin improved to 3.64% for the year ended December 31, 2015 from 3.57% for the year ended December 31, 2014.
  • The Company's efficiency ratio improved to 67.4% during the year ended December 31, 2015 compared to 71.61% during the same period in 2014.

Financial highlights for the fourth quarter of 2015:

  • Net income available to common shareholders of $1.7 million for the three months ended December 31, 2015 was an improvement of $96 thousand (6%) over $1.6 million net income available to common shareholders earned during the fourth quarter of 2014.
  • Return on average assets improved to 0.68% in the fourth quarter of 2015 compared to 0.66% in the same quarter of 2014. Return on average equity improved to 6.51% in the fourth quarter of 2015 compared to 6.28% in the same quarter of 2014.
  • Nonperforming assets at December 31, 2015 totaled $15.5 million, a decrease of $1.6 million (37% annualized) compared to September 30, 2015.
  • Net loan loss recoveries of $289 thousand combined with continuing improved asset quality resulted in no provision for loan and lease losses during the fourth quarter.
  • The Company's book value per share increased to $6.76 per common share at December 31, 2015 from $6.64 at September 30, 2015 (7% annualized).
  • The Company's net interest margin was 3.52% for the fourth quarter of 2015 compared to 3.59% for the fourth quarter of 2014.

Pending Branch Acquisition

On October 28, 2015 the Company entered into a Purchase and Assumption Agreement with Bank of America to purchase certain assets of five Bank of America branches located in northern California, including $421 thousand in loans and assume approximately $258.0 million in deposit liabilities. We recently received the requisite regulatory approvals and the transaction is anticipated to close late in the first quarter of 2016.

The branches being acquired are located in Colusa, Corning, Orland, Willows, and Yreka. Both banks are working closely together to ensure a smooth transition for customers and employees. We intend to use the new deposits to reposition and improve the bank's current funding mix by replacing certain higher cost borrowings and deposits, and to support future loan growth. The fourth quarter earnings include $347 thousand of branch acquisition costs.

Additionally, during the fourth quarter the Company issued $20 million of new term debt and used the proceeds to redeem $20 million of preferred stock. The details are as follows:

Senior Debt

In December of 2015, the Company, entered into a senior debt loan agreement to borrow $10.0 million. The loan is payable in monthly installments of $83,333.33 principal, plus accrued and unpaid interest, commencing on January 1, 2016 and continuing to and including December 10, 2020. The loan may be prepaid in whole or in part at any time without any prepayment premium or penalty. The principal amount of the loan bears interest at a variable rate, resetting monthly that is equal to the sum of the current three month LIBOR plus 400 basis points. The Company incurred senior debt issuance costs of $15 thousand which are being amortized over the life of the loan as additional interest expense.

Subordinated Debt

In December of 2015, the Company issued $10.0 million in aggregate principal amount of fixed to floating rate subordinated notes due 2025. The subordinated debt initially bear interest at 6.875% per annum for a five-year term, payable semi-annually. Thereafter, interest on the subordinated debt will be paid at a variable rate equal to three month LIBOR plus 526 basis points, payable quarterly until the maturity date. The notes qualify as Tier 2 capital under the applicable capital adequacy rules and regulations promulgated by the Federal Reserve. The Company incurred subordinated debt issuance costs of $210 thousand which are being amortized over the initial five year term as additional interest expense.

SBLF Series B Preferred Stock

During the fourth quarter of 2015, the Company redeemed all $20.0 million of its outstanding preferred stock held by the U.S. Treasury Department under the Small Business Lending Fund program. Had the Preferred Stock remained outstanding beyond December 2015, the dividend rate would have increased from 1% to 5%, and in April 2016 to 9%. During the fourth quarter of 2015 the Company recognized $102 thousand of preferred stock extinguishment costs.

Randall S. Eslick, President and CEO commented: "The fourth quarter has been very eventful. We successfully redeemed all $20.0 million of SBLF preferred stock, we entered into an agreement with Bank of America to purchase five branch locations contiguous to our existing service area and our financial performance for the entire year exceeded expectations. I commend our employees for all that they have accomplished."

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 our 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 our 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
  • We may fail to realize all of the anticipated benefits of our branch purchase.

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 Twelve Months Ended 
Net income, average assets and December 31,   September 30, December 31,  
average shareholders' equity 2015  2014  2015 2015 2014 
Income available to common shareholders $1,729  $1,633  $2,475  $8,295 $5,527 
Average total assets $1,005,870  $985,100  $992,034  $992,731 $973,807 
Average shareholders' equity $105,417  $103,147  $107,704  $105,991 $102,372 
                    
Selected performance ratios                   
Return on average assets  0.68%  0.66%  0.99%  0.84% 0.57%
Return on average equity  6.51%  6.28%  9.12%  7.83% 5.40%
Efficiency ratio  73.58%  76.02%  60.17%  67.40% 71.61%
                    
Share and per share amounts                   
Weighted average shares - basic  13,341   13,295   13,340   13,331  13,475 
Weighted average shares - diluted  13,395   13,335   13,377   13,365  13,520 
Earnings per share - basic $0.13  $0.12  $0.18  $0.62 $0.41 
Earnings per share - diluted $0.13  $0.12  $0.18  $0.62 $0.41 
                    
  At December 31,   At September 30,   
Share and per share amounts 2015  2014  2015     
Common shares outstanding (1)  13,385   13,298   13,374        
Book value per common share $6.76  $6.29  $6.64        
                    
Capital ratios                  
Bank of Commerce Holdings                  
Common equity tier 1 capital ratio (2)  10.06%  n/a   9.96%       
Tier 1 capital ratio (3)  11.16%  13.91%  13.25%       
Total capital ratio (3)  13.52%  15.16%  14.50%       
Tier 1 leverage ratio (3)  10.03%  11.59%  11.98%       
                    
Redding Bank of Commerce                   
Common equity tier 1 capital ratio (2)  13.31%  n/a   13.20%       
Tier 1 capital ratio  13.31%  13.89%  13.20%       
Total capital ratio  14.56%  15.14%  14.45%       
Tier 1 leverage ratio  11.98%  11.57%  11.95%       
(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.
(3) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The decline in the capital ratios of Bank of Commerce Holdings as of December 31, 2015 compared to December 31, 2014 and September 30, 2015 is due to the redemption of $20.0 million of preferred stock (Tier 1 capital) during the fourth quarter of 2015. The $10.0 million of subordinated debt issued during the fourth quarter of 2015 qualifies as Tier 2 capital under the applicable capital adequacy rules and regulations promulgated by the Federal Reserve.


BALANCE SHEET OVERVIEW

As of December 31, 2015, the Company had total consolidated assets of $1.0 billion, gross loans of $716.6 million, allowance for loan and lease losses ("ALLL") of $11.2 million, total deposits of $803.7 million, and shareholders' equity of $90.5 million.

                        
TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
 At December 31,       At September 30,
   % of    % of  Change   % of
 2015 Total 2014 Total Amount % 2015 Total
Commercial$ 132,805  19% $ 150,253  23% $ (17,448)  (12)% $ 144,749  20%
Real estate - construction and land development  28,319  4    30,099  5    (1,780)  (6)%   29,701  4 
Real estate - commercial non-owner occupied  243,374  33    213,883  32    29,491   14 %   237,597  34 
Real estate - commercial owner occupied  156,299  22    120,324  18    35,975   30 %   151,762  21 
Real estate - residential - ITIN  49,106  7    52,830  8    (3,724)  (7)%   50,162  7 
Real estate - residential - 1-4 family mortgage  11,390  2    13,156  2    (1,766)  (13)%   12,185  2 
Real estate - residential - equity lines  45,473  6    44,981  7    492   1 %   45,733  6 
Consumer and other  49,873  7    35,372  5    14,501   41 %   46,644  6 
Gross loans  716,639  100%   660,898  100%   55,741   8 %   718,533  100%
Deferred fees and costs  870       157       713       718    
Loans, net of deferred fees and costs  717,509       661,055       56,454       719,251    
Allowance for loan and lease losses  (11,180)      (10,820)      (360)      (10,891)   
Net loans$ 706,329     $ 650,235     $ 56,094     $ 708,360    
                        
Average yield on loans during the quarter  4.61%      4.73%      (0.12)      4.70%   


The Company recorded gross loan balances of $716.6 million at December 31, 2015, compared with $660.9 million and $718.5 million at December 31, 2014 and September 30, 2015, respectively, an increase of $55.7 million and a decrease of $1.9 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 year and quarter ended December 31, 2015, purchased loan balances increased $12.7 million and $2.9 million, respectively. Our deferred fees and costs increased during the current quarter compared to the same quarter in the prior year and the prior quarter in the current year as a result of increased loan production and implementation of an updated loan origination cost study.

The increase in the ALLL in the current quarter compared to the prior quarter resulted from net loan recoveries of $289 thousand. As a result of these net recoveries and continued improved asset quality, no 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 December 31,        At September 30,
    % of    % of  Change   % of
  2015 Total 2014 Total Amount % 2015 Total
                         
Cash and due from banks $ 9,730  4% $ 9,571  4% $ 159   2 % $ 8,564  4%
Interest-bearing deposits in other banks   41,462  17    48,851  17    (7,389)  (15)%   16,745  8 
Total cash and cash equivalents   51,192  21    58,422  21    (7,230)  (12)%   25,309  12 
                         
Investment securities:                        
U.S. government and agencies   3,943  2    6,393  2    (2,450)  (38)%   3,998  2 
Obligations of state and political subdivisions   61,104  25    54,363  18    6,741   12 %   57,453  26 
Residential mortgage backed securities and
collateralized mortgage obligations
   32,137  13    47,015  17    (14,878)  (32)%   34,058  16 
Corporate securities   33,778  14    37,734  13    (3,956)  (10)%   36,560  17 
Commercial mortgage backed securities   12,769  5    10,389  4    2,380   23 %   9,266  4 
Other asset backed securities   15,299  6    31,092  11    (15,793)  (51)%   15,974  7 
Total investment securities - AFS   159,030  65    186,986  65    (27,956)  (15)%   157,309  72 
                         
Obligations of state and political
subdivisions - HTM
   35,899  14    36,806  14    (907)  (2)%   36,093  16 
Total investment securities - AFS and HTM   194,929  79    223,792  79    (28,863)  (17)%   193,402  88 
                         
Total cash, cash equivalents and investment securities $ 246,121  100% $ 282,214  100% $ (36,093)  (13)% $ 218,711  100%
                         
Average yield on interest bearing due from banks and investment securities during the quarter   2.51%      2.58%      (0.07)      2.46%   


As of December 31, 2015, we maintained noninterest-bearing cash positions at the Federal Reserve Bank and correspondent banks in the amount of $9.7 million. We also held interest-bearing deposits in the amount of $41.5 million.

Available-for-sale investment securities totaled $159.0 million at December 31, 2015, compared with $187.0 million and $157.3 million at December 31, 2014 and September 30, 2015, respectively. Our available-for-sale investment portfolio provides us with a secondary source of liquidity to fund other higher yielding asset opportunities, such as loan originations and wholesale loan purchases. During the fourth quarter of 2015 we purchased 13 securities with a par value of $16.6 million and weighted average yield of 2.19% and sold seven securities with a par value of $9.1 million and weighted average yield of 2.58%. The sales activity resulted in $30 thousand in net realized gains for the three months ended December 31, 2015. During the same period, we received $5.1 million in proceeds from principal payments, calls and maturities within the available-for-sale investment securities portfolio. Average securities balances and weighted average tax equivalent yields for the quarters ending December 31, 2015 and 2014 were $189.2 million and 3.57% compared to $223.5 million and 3.41%, respectively.

During the current year, our 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 continues 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 December 31, 2015, our unrealized gains on available-for-sale investment securities were $1.6 million compared with $2.6 million and $1.6 million at December 31, 2014 and September 30, 2015, respectively. The decrease in net unrealized gains compared to the prior year is primarily due to sales of available-for-sale investment securities and interest rate changes during the year.

                        
TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
 At December 31,        At September 30,
   % of    % of   Change   % of
 2015 Total 2014 Total Amount % 2015 Total
Demand - noninterest bearing$ 169,507  21% $ 157,557  20% $ 11,950   8 % $ 162,437  21%
Demand - interest bearing  315,658  39    298,160  38    17,498   6 %   295,209  38 
Total demand  485,165  60    455,717  58    29,448   6 %   457,646  59 
                        
Savings  94,503  12    88,569  11    5,934   7 %   93,367  12 
Total non-maturing deposits  579,668  72    544,286  69    35,382   7 %   551,013  71 
                        
Certificates of deposit  224,067  28    244,749  31    (20,682)  (8)%   228,492  29 
Total deposits$ 803,735  100% $ 789,035  100% $ 14,700   2 % $ 779,505  100%
                        
Average rate on interest bearing
deposits during the quarter
  0.48%      0.50%      (0.02)      0.49%   


Total deposits at December 31, 2015, increased $14.7 million or 2% to $803.7 million compared to December 31, 2014, and increased $24.2 million or 3% compared to September 30, 2015. Total non-maturing deposits increased $35.4 million or 7% compared to the same date a year ago and increased $28.7 million or 5% compared to September 30, 2015. Certificates of deposit decreased $20.7 million or 8% compared to the same date a year ago and decreased $4.4 million or 2% compared to September 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 December 31,  At September 30,
 2015 2014 2015
CDARS / ICS reciprocal deposits$76,919 $90,324 $67,825
Third party brokered time deposits 17,509  7,550  17,505
Brokered deposits per Call Report 94,428  97,874  85,330
Online listing service time deposits 58,462  67,449  61,141
Total wholesale and brokered deposits$152,890 $165,323 $146,471


In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $94.4 million, $97.9 million and $85.3 million at December 31, 2015, December 31, 2014 and September 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
  December 31,  Change September 30, Change
  2015 2014 Amount % 2015 Amount %
Interest income $9,732 $ 9,529  $ 203   2 % $9,732 $  0 %
Interest expense  1,381   1,239    142   11 %  1,277   104   8 %
Net interest income  8,351   8,290    61   1 %  8,455   (104)  (1)%
Provision for loan
and lease losses
     675    (675)  (100)%      0 %
Noninterest income  640   1,144    (504)  (44)%  808   (168)  (21)%
Noninterest expense  6,616   7,172    (556)  (8)%  5,574   1,042   19 %
Income before provision
for income taxes
  2,375   1,587    788   50 %  3,689   (1,314)  (36)%
Provision for income taxes  505   (96)   601   (626)%  1,164   (659)  (57)%
Net income  1,870   1,683    187   11 %  2,525   (655)  (26)%
Less: Preferred stock
extinguishment costs
  102     102   100 %     102   100 %
Less: Preferred dividends  39   50    (11)  (22)%  50   (11)  (22)%
Income available to
common shareholders
 $1,729 $ 1,633  $ 96   6 % $2,475 $ (746)  (30)%
                      
Basic earnings per share $0.13 $ 0.12  $ 0.01   8 % $0.18 $ (5)  (28)%
Average basic shares  13,341   13,295    46   0 %  13,340   1   0 %
Diluted earnings per share $0.13 $ 0.12  $ 0.01   8 % $0.18 $ (5)  (28)%
Average diluted shares  13,395   13,335    60   0 %  13,377   18   0 %
Dividends declared per
common share
 $0.03 $ 0.03  $  0 % $0.03 $  0 %


Fourth Quarter of 2015 Compared With Fourth Quarter of 2014

Net income available to common shareholders for the fourth quarter of 2015 increased $96 thousand over the fourth quarter of 2014. In the current quarter, net interest income was $61 thousand higher, the provision for loan and lease losses was $675 thousand lower, and noninterest expense was $556 thousand lower. These positive changes were partially offset by noninterest income that was $504 thousand lower and an increase in income tax expense of $601 thousand.

Net Interest Income

Net interest income increased $61 thousand over a year previous. Interest income for the three months ended December 31, 2015 increased $203 thousand or 2% 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 December 31, 2015 increased $142 thousand or 11% to $1.4 million:

  • Interest expense on deposits decreased $30 thousand as the bank reduced its reliance on time deposits.
  • Interest expense on junior subordinated debentures decreased $30 thousand from $82 thousand in the fourth quarter of 2014 to $52 thousand in the fourth quarter 2015, reflecting the decrease in outstanding debt. During most of the fourth quarter of 2014, outstanding junior subordinated debentures totaled $15.5 million. Late in that quarter, $5.2 million was repaid. During the fourth quarter of 2015, junior subordinated debentures totaled $10.3 million.
  • Interest on term debt increased $202 thousand due to the net settlement expense associated with our active interest rate swap and the issuance of $20 million of new term debt. In 2011, to mitigate interest rate and market risks, we 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 fourth quarter of 2015, the Company recognized interest expense, and amortized issuance costs on the senior debt and subordinated debt of $44 thousand and $28 thousand, respectively.

Noninterest Income

Noninterest income for the three months ended December 31, 2015 decreased $504 thousand compared to the same period a year ago. During the fourth quarter of 2014 we recorded a $406 thousand gain on discounted repayment of $5.2 million of junior subordinated debentures. During the current quarter we recorded net gains on sale of available-for-sale investment securities of $30 thousand compared to net gains of $93 thousand for the same period a year ago.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2015 decreased $556 thousand compared to the same period a year ago. The decrease is primarily due to severance costs associated with the retirement of a former executive recorded in the fourth quarter of 2014, the recording of increased deferred loan origination costs in the current quarter and, professional services fees in the current quarter that are $120 thousand lower than a year earlier. Partially offsetting these positive items are one time branch acquisition costs (Bank of America branches) of $347 thousand which were recognized during the fourth quarter of 2015.

Income Tax Provision

During the three months ended December 31, 2015, the Company recorded a provision for income tax expense of $505 thousand compared with income tax benefit of $96 thousand for the same period a year ago. The tax benefit recorded a year ago was driven by a fourth quarter reduction in the Company's 2014 estimated annual effective tax rate and a reversal of certain 2013 tax accruals.

Fourth Quarter of 2015 Compared With Third Quarter of 2015

Net income available to common shareholders for the fourth quarter of 2015 decreased $746 thousand over the third quarter of 2015. In the current quarter, net interest income decreased by $104 thousand, noninterest income decreased by $168 thousand and noninterest expense increased by $1.0 million. These net changes were partially offset by an income tax provision that was lower by $659 thousand.

Net Interest Income

Net interest income decreased $104 thousand over the prior quarter. Interest income for the three months ended December 31, 2015 was unchanged compared to the prior quarter as decreased interest and fees on loans were offset by increased interest on securities. Interest expense for the three months ended December 31, 2015 increased $104 thousand or 8% to $1.4 million compared to the prior quarter. This increase was primarily due to $72 thousand of interest expense on $20.0 million of new term debt.

Noninterest Income

Noninterest income for the three months ended December 31, 2015 decreased $168 thousand compared to the prior quarter. Net gains recognized on the sale of available-for-sale investment securities during the current quarter decreased by $107 thousand to $30 thousand compared to a $137 thousand net gain in the prior quarter. During the current quarter the Bank recognized $23 thousand in loss on sale of other real estate owned compared to a gain of $31 thousand in the prior quarter.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2015 increased $1.0 million compared to the prior quarter. During the quarter ended December 31, 2015, salaries and related benefits increased $402 thousand, branch acquisition costs of $347 thousand were recognized and professional services fees increased $124 thousand.

Income Tax Provision

During the three months ended December 31, 2015, the Company recorded a provision for income tax expense of $505 thousand compared with provision for income tax expense of $1.2 million for the prior quarter. The decrease in the current quarter is due to decreased taxable income, retroactive reclassification of certain loan interest income to tax exempt and an increase in hiring tax credits.

Earnings Per Share

Diluted earnings per share were $0.13 for the three months ended December 31, 2015 compared with $0.12 for the same period a year ago, and $0.18 for the prior period. Earnings per share increased for the three months ended December 31, 2015 compared to the same period a year ago primarily as a result of increased net income. Earnings per share decreased when compared to the prior quarter primarily as a result of decreased net income. During the fourth quarter of 2015 the Company recognized $102 thousand of preferred stock extinguishment costs which also reduced earnings per share.

                  
TABLE 7
NET INTEREST SPREAD AND MARGIN - UNAUDITED
(amounts in thousands)
 For The Three Months Ended
 December 31,  Change September 30, Change
 2015 2014 Amount 2015 Amount
Tax equivalent yield on average interest earning assets 4.23%  4.26%   (0.03)  4.29%   (0.06)
Rate on average interest bearing liabilities 0.77%  0.69%   (0.08)  0.71%   (0.06)
Net interest spread - tax equivalent basis 3.46%  3.57%   (0.11)  3.58%   (0.12)
                  
Net interest margin - nominal 3.52%  3.59%   (0.07)  3.62%   (0.10)
Net interest margin - tax equivalent basis 3.65%  3.72%   (0.07)  3.75%   (0.10)
                  
Average earning assets$940,831  $917,301  $ 23,530  $927,547  $ 13,284 
Average interest bearing liabilities$712,807  $712,195  $ 612  $709,958  $ 2,849 


The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.65% for the three months ended December 31, 2015, a decrease of seven basis points as compared to the same period a year ago. The decrease in net interest margin resulted from a three 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. 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 borrowing costs will be challenging in the foreseeable future. During the first quarter of 2016, we expect to experience a significant increase in deposits through our branch acquisition. Maintaining our net interest margin will be dependent on our ability to invest the cash provided by these deposits into higher yielding assets while not subjecting the Bank to undue interest rate risk.

                    
TABLE 8 
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED 
(amounts in thousands) 
 For The Three Months Ended 
 December 31,  September 30, June 30, March 31, December 31,
 2015 2015 2015 2015 2014
Beginning balance$ 10,891   $ 11,402   $ 11,296   $ 10,820   $ 10,400  
Provision for loan and lease losses
charged to expense
              675  
Loans charged off  (707)    (779)    (711)    (179)    (374) 
Loan loss recoveries  996     268     817     655     119  
Ending balance$ 11,180   $ 10,891   $ 11,402   $ 11,296   $ 10,820  
                    
 At December 31,  At September 30, At June 30, At March 31, At December 31,
 2015 2015 2015 2015 2014
Nonaccrual loans:                   
Commercial$ 1,994   $ 2,506   $ 3,170   $ 3,908   $ 5,112  
Real estate - commercial non-owner occupied  5,488     5,154     6,532     7,103     8,318  
Real estate - commercial owner occupied  1,071     1,928     1,079     1,079     1,378  
Real estate - residential - ITIN  3,649     4,228     4,375     4,645     4,647  
Real estate - residential - 1-4 family mortgage  1,775     1,669     1,693     1,720     2,135  
Real estate - residential -
equity lines
     23     24     24     24  
Consumer and other  32     33     34     34     35  
Total nonaccrual loans  14,009     15,541     16,907     18,513     21,649  
Accruing troubled debt restructured loans:                   
Commercial  49     56     10     1,004     1,485  
Real estate - commercial non-owner occupied  824     828     832     836     839  
Real estate - commercial owner occupied        849     854     859  
Real estate - residential - ITIN  5,458     5,423     5,303     5,421     5,462  
Real estate - residential - equity lines  558     563     569     574     579  
Total accruing troubled debt restructured loans  6,889     6,870     7,563     8,689     9,224  
                    
All other accruing impaired loans  492     494     530     533     535  
                    
Total impaired loans$ 21,390   $ 22,905   $ 25,000   $ 27,735   $ 31,408  
                    
Gross loans outstanding at period end$ 716,639   $ 718,533   $ 699,774   $ 699,229   $ 660,898  
                    
Allowance for loan and lease losses as a percent of:             
Gross loans  1.56 %   1.52 %   1.63 %   1.62 %   1.64 %
Nonaccrual loans  79.81 %   70.08 %   67.44 %   61.02 %   49.98 %
Impaired loans  52.27 %   47.55 %   45.61 %   40.73 %   34.45 %
                    
Nonaccrual loans to gross loans  1.95 %   2.16 %   2.42 %   2.65 %   3.28 %


We realized net loan loss recoveries of $289 thousand in the current quarter compared with net loan charge offs of $511 thousand in the prior quarter and net loan charge offs of $255 thousand for the same period a year ago.

We continue 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. We made no provision for loan and lease losses during the year ended December 31, 2015 compared to a provision of $3.2 million during the year ended December 31, 2014. Our ALLL as a percentage of gross loans was 1.56% as of December 31, 2015 compared to 1.64% as of December 31, 2014 and 1.52% as of September 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 December 31, 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 future charges to the provision for loan and lease losses.

At December 31, 2015, the recorded investment in loans classified as impaired totaled $21.4 million, with a corresponding valuation allowance of $832 thousand compared to impaired loans of $31.4 million with a corresponding valuation allowance of $1.6 million at December 31, 2014 and impaired loans of $22.9 million, with a corresponding valuation allowance of $789 thousand at September 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 December 31,  At September 30, At June 30, At March 31, At December 31,
  2015 2015 2015 2015 2014
Nonaccrual $9,015  $11,149  $12,354  $12,695  $14,230 
Accruing  6,889   6,870   7,563   8,689   9,224 
Total troubled debt restructurings $15,904  $18,019  $19,917  $21,384  $23,454 
                     
Percentage of total gross loans  2.22%  2.51%  2.85%  3.06%  3.55%


Loans are reported as a troubled debt restructuring when we grant 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 we 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 December 31, 2015, we restructured one loan to grant payment deferral modifications. The loan was classified as troubled debt restructurings and placed on nonaccrual status. As of December 31, 2015, we had 120 restructured loans that qualified as troubled debt restructurings, of which 107 were performing according to their restructured terms.

                     
TABLE 10
NONPERFORMING ASSETS - UNAUDITED
(amounts in thousands)
  At December 31,  At September 30, At June 30, At March 31, At December 31,
  2015 2015 2015 2015 2014
Total nonaccrual loans $14,009  $15,541  $16,907  $18,513  $21,649 
90 days past due and still accruing  88   52   54   30   23 
Total nonperforming loans  14,097   15,593   16,961   18,543   21,672 
                     
Other real estate owned  1,423   1,525   1,405   1,502   502 
Total nonperforming assets $15,520  $17,118  $18,366  $20,045  $22,174 
                     
Nonperforming loans to gross loans  1.97%  2.17%  2.42%  2.65%  3.28%
Nonperforming assets to total assets  1.53%  1.73%  1.87%  2.03%  2.22%


At December 31, 2015, December 31, 2014 and September 30, 2015, the recorded investment in OREO was $1.4 million, $502 thousand and $1.5 million, respectively. The December 31, 2015 OREO balance consists of 11 properties, of which six are 1-4 family residential real estate in the amount of $513 thousand, four are nonfarm nonresidential properties in the amount of $740 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 December 31,  At December 31,  Change At September 30,
  2015 2014 $ % 2015
Assets:               
Cash and due from banks $  9,730  $  9,571  $  159   2 % $  8,564 
Interest-bearing deposits in other banks    41,462     48,851     (7,389)  (15)%    16,745 
Total cash and cash equivalents    51,192     58,422     (7,230)  (12)%    25,309 
                
Securities available-for-sale, at fair value    159,030     186,986     (27,956)  (15)%    157,309 
Securities held-to-maturity, at amortized cost    35,899     36,806     (907)  (2)%    36,093 
                
Loans, net of deferred fees and costs    717,509     661,055     56,454   9 %    719,251 
Allowance for loan and lease losses    (11,180)    (10,820)    (360)  3 %    (10,891)
Net loans    706,329     650,235     56,094   9 %    708,360 
                
Premises and equipment, net    11,072     12,295     (1,223)  (10)%    11,112 
Other real estate owned    1,423     502     921   183 %    1,525 
Life insurance    22,485     21,844     641   3 %    22,326 
Deferred taxes    9,760     10,231     (471)  (5)%    10,638 
Other assets    18,251     19,871     (1,620)  (8)%    18,057 
Total assets $  1,015,441  $  997,192  $  18,249   2 % $  990,729 
                
Liabilities and shareholders' equity:               
Demand - noninterest bearing $  169,507  $  157,557  $  11,950   8 % $  162,437 
Demand - interest bearing    315,658     298,160     17,498   6 %    295,209 
Savings    94,503     88,569     5,934   7 %    93,367 
Certificates of deposit    224,067     244,749     (20,682)  (8)%    228,492 
Total deposits    803,735     789,035     14,700   2 %    779,505 
                
Term debt    94,917     75,000     19,917   27 %    75,000 
Unamortized debt issuance costs    (223)   —    (223)  100 %   —
Net term debt    94,694     75,000     19,694   26 %    75,000 
                
Junior subordinated debentures    10,310     10,310    —  0 %    10,310 
Other liabilities    16,180     19,245     (3,065)  (16)%    17,239 
Total liabilities    924,919     893,590     31,329   4 %    882,054 
                
Shareholders' equity:               
Preferred stock    -     19,931     (19,931)  (100)%    19,931 
Common stock    24,214     23,891     323   1 %    24,180 
Retained earnings    66,562     59,867     6,695   11 %    65,232 
Accumulated other comprehensive loss, net of tax    (254)    (87)    (167)  192 %    (668)
Total shareholders' equity    90,522     103,602     (13,080)  (13)%    108,675 
                
Total liabilities and shareholders' equity $  1,015,441  $  997,192  $  18,249   2 % $  990,729 
                
Total interest earning assets $  952,212  $  931,109  $  21,103   2 % $  927,773 
Shares outstanding    13,385     13,298           13,374 
Book value per share $  6.76  $  6.29        $  6.64 


                      
TABLE 12
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
  For The Three Months Ended For The Twelve Months Ended
  December 31,  Change September 30, December 31,
  2015 2014 $ % 2015 2015 2014
Interest income:                     
Interest and fees on loans $8,299 $7,832 $ 467   6 % $8,357 $32,871 $ 29,464 
Interest on securities  795  984   (189)  (19)%  743  3,284   4,214 
Interest on tax-exempt securities  599  620   (21)  (3)%  592  2,392   2,536 
Interest on deposits in other banks  39  93   (54)  (58)%  40  206   479 
Total interest income  9,732  9,529   203   2 %  9,732  38,753   36,693 
Interest expense:                     
Interest on demand deposits  121  109   12   11 %  116  460   471 
Interest on savings deposits  51  55   (4)  (7)%  53  213   228 
Interest on certificates of deposit  585  623   (38)  (6)%  586  2,356   2,608 
Interest on term debt  572  370   202   55 %  475  1,759   422 
Interest on other borrowings  52  82   (30)  (37)%  47  195   363 
Total interest expense  1,381  1,239   142   11 %  1,277  4,983   4,092 
Net interest income  8,351  8,290   61   1 %  8,455  33,770   32,601 
Provision for loan and lease losses    675   (675)  (100)%       3,175 
Net interest income after provision
for loan and lease losses
  8,351  7,615   736   10 %  8,455  33,770   29,426 
Noninterest income:                     
Service charges on deposit accounts  51  51    0 %  52  204   186 
Payroll and benefit processing fees  139  137   2   1 %  138  555   508 
Earnings on cash surrender value - life insurance  159  169   (10)  (6)%  158  641   628 
Gain (loss) on investment securities, net  30  93   (63)  (68)%  137  443   (159)
Other income  261  694   (433)  (62)%  323  1,340   3,152 
Total noninterest income  640  1,144   (504)  (44)%  808  3,183   4,315 


                      
TABLE 12 - CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
  For The Three Months Ended For The Twelve Months Ended
  December 31,  Change September 30, December 31,
  2015 2014 $ % 2015 2015 2014
Noninterest expense:                     
Salaries and related benefits   3,610    4,301     (691)  (16)%   3,208   14,303   14,965
Occupancy and equipment   737    715     22   3 %   714   2,894   2,784
Write down of other real estate owned   —   —   —  0 %   —   —   290
Federal Deposit Insurance Corporation
insurance premium
   173    214     (41)  (19)%   159   717   798
Data processing fees   280    270     10   4 %   243   1,016   926
Professional service fees   461    581     (120)  (21)%   337   1,628   1,398
Branch acquisition costs   347   —    347   100 %   —   347   —
Other expenses   1,008    1,091     (83)  (8)%   913   4,000   5,273
Total noninterest expense   6,616    7,172     (556)  (8)%   5,574   24,905   26,434
Income before provision for income taxes   2,375    1,587     788   50 %   3,689   12,048   7,307
Provision for income taxes   505    (96)    601   (626)%   1,164   3,462   1,580
Net income $ 1,870 $  1,683  $  187   11 % $ 2,525 $ 8,586 $ 5,727
Less: Preferred stock extinguishment costs   102   —    102    100 %   —   102   —
Less: Preferred dividends   39    50     (11)   (22)%   50   189   200
Income available to common shareholders $ 1,729 $  1,633  $  96   6 % $ 2,475 $ 8,295 $ 5,527
                      
Basic earnings per share $ 0.13 $  0.12  $  0.01   8 % $ 0.18 $ 0.62 $ 0.41
Average basic shares   13,341    13,295     46   0 %   13,340   13,331   13,475
Diluted earnings per share $ 0.13 $  0.12  $  0.01   8 % $ 0.18 $ 0.62 $ 0.41
Average diluted shares   13,395    13,335     60   0 %   13,377   13,365   13,520


             
TABLE 13
UNAUDITED CONDENSED CONSOLIDATED
ANNUAL AVERAGE BALANCE SHEETS
(amounts in thousands)
  For The Twelve Months Ended
  December 31,  December 31, December 31, December 31,
  2015 2014 2013 2012
Earning assets:            
Loans $699,227 $625,166 $612,780 $642,200
Taxable securities  120,897  147,916  157,486  135,615
Tax exempt securities  77,089  83,973  92,854  81,714
Interest-bearing deposits in other banks  30,323  56,465  43,342  48,712
Average earning assets  927,536  913,520  906,462  908,241
             
Cash and due from banks  11,220  11,246  10,624  10,125
Premises and equipment, net  11,552  12,105  10,337  9,567
Other assets  42,423  36,936  26,431  24,249
Average total assets $992,731 $973,807 $953,854 $952,182
             
Liabilities and shareholders' equity:            
Demand - noninterest bearing $156,578 $139,792 $122,011 $115,091
Demand - interest bearing  283,105  272,383  244,125  203,342
Savings  92,659  91,108  92,502  89,789
Certificates of deposit  238,626  259,445  248,350  285,574
Total deposits  770,968  762,728  706,988  693,796
             
Repurchase agreements      5,780  14,246
Term debt, net  88,874  77,534  107,603  110,374
Junior subordinated debentures  10,310  15,239  15,465  15,465
Other liabilities  16,588  15,934  11,825  7,033
Average total liabilities  886,740  871,435  847,661  840,914
             
Shareholders' equity  105,991  102,372  106,193  111,268
Average liabilities & shareholders' equity $992,731 $973,807 $953,854 $952,182


                
TABLE 14
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
  For The Three Months Ended
  December 31,  September 30, June 30, March 31, December 31,
  2015 2015 2015 2015 2014
Earning assets:               
Loans $714,494 $705,762 $703,008 $673,120 $656,834
Taxable securities  111,098  115,165  121,110  136,557  141,265
Tax exempt securities  78,081  76,190  76,772  77,316  82,231
Interest-bearing deposits in other banks  37,158  30,430  27,688  25,893  36,971
Average earning assets  940,831  927,547  928,578  912,886  917,301
                
Cash and due from banks  12,372  11,355  10,833  10,295  12,263
Premises and equipment, net  11,001  11,265  11,767  12,195  12,464
Other assets  41,666  41,867  42,637  43,540  43,072
Average total assets $1,005,870 $992,034 $993,815 $978,916 $985,100
                
Liabilities and shareholders' equity:               
Demand - noninterest bearing $171,449 $158,232 $147,442 $148,923 $153,007
Demand - interest bearing  302,862  284,508  268,784  275,954  277,692
Savings  92,939  93,230  93,291  91,152  89,992
Certificates of deposit  226,924  235,551  245,573  246,707  254,943
Total deposits  794,174  771,521  755,090  762,736  775,634
                
Term debt  79,772  86,359  105,330  84,111  75,000
Junior subordinated debentures  10,310  10,310  10,310  10,310  14,568
Other liabilities  16,197  16,140  16,887  17,141  16,751
Average total liabilities  900,453  884,330  887,617  874,298  881,953
                
Shareholders' equity   105,417   107,704   106,198   104,618   103,147
Average liabilities & shareholders' equity $ 1,005,870 $ 992,034 $ 993,815 $ 978,916 $ 985,100


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 Street1211 SW Fifth Avenue, Suite 1400
San Francisco, CA 94105Portland, OR 97204 
(800) 346-5544(866) 662-0351
  
Sandler O'Neill + Partners, L.P.Stifel Nicolaus
Brian SullivanPerry Wright
1251 Avenue of the Americas, 6th Floor1255 East Street, Suite 100
New York, NY 10022Redding, CA 96001 
(212) 466-8022(530) 244-7199

Contact Information:

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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