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Bank of Commerce Holdings Announces Results for the Fourth Quarter of 2016

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REDDING, Calif., Jan. 20, 2017 (GLOBE NEWSWIRE) -- Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ: BOCH) (the "Company"), a $1.1 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, 2016. Net income available to common shareholders for the quarter ended December 31, 2016 was $2.3 million or $0.17 per share – diluted, compared with $1.7 million or $0.13 per share – diluted for the same period of 2015. Net income available to common shareholders for the year ended December 31, 2016 was $5.3 million or $0.39 per share –diluted compared with $8.3 million or $0.62 per share – diluted for the same period of 2015.

Financial highlights for the fourth quarter of 2016:

  • Net income available to common shareholders of $2.3 million for the three months ended December 31, 2016 was an increase of $568 thousand (33%) from $1.7 million available to common shareholders earned during the same period in the prior year.
  • Return on average assets improved to 0.81% for the fourth quarter of 2016 compared to 0.68% for the same period in the prior year.
  • Return on average equity improved to 9.69% for the fourth quarter of 2016 compared to 6.51% for the same period in the prior year.
  • Deposits at December 31, 2016 totaled $1.0 billion, an increase of $29.2 million (12% annualized) since September 30, 2016. This growth was centered in core deposits in our Sacramento marketplace.
  • Gross loans at December 31, 2016 totaled $804.2 million, an increase of $25.2 million (13% annualized) since September 30, 2016. Most of this growth occurred in our Sacramento marketplace and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.
  • Tangible book value per common share was $6.83 at December 31, 2016 compared to $6.84 at September 30, 2016.

Financial highlights for the year ended December 31, 2016:

  • Net income available to common shareholders of $5.3 million for the year ended December 31, 2016 was a decrease of $3.0 million (37%) from $8.3 million available to common shareholders earned during the prior year. Net income for 2016 is negatively impacted by $3.0 million of branch acquisition and balance sheet restructuring costs, a $546 thousand impairment of an investment security and the write-off of a $363 thousand deferred tax asset during prior quarters.
  • Return on average assets declined to 0.49% for the year ended December 31, 2016 compared to 0.84% for the prior year.
  • Return on average equity declined to 5.68% for the year ended December 31, 2016 compared to 7.83% for the prior year.
  • Deposits at December 31, 2016 totaled $1.0 billion, an increase of $200.9 million (25%) since December 31, 2015
  • Gross loans at December 31, 2016 totaled $804.2 million, an increase of $87.6 million (12%) since December 31, 2015.
  • Nonperforming assets at December 31, 2016 totaled $12.1 million, a decrease of $3.4 million (22%) compared to December 31, 2015.
  • Net loan loss recoveries of $364 thousand combined with continuing improved asset quality resulted in no provision for loan and lease losses.

Randall S. Eslick, President and CEO commented: "It has been a very productive year. As a result of the exceptional efforts of our dedicated and talented employees, we are a much improved company from 12 months ago. The acquisition of five new offices, the restructuring of our balance sheet and our significant growth in both loans and core deposits provide a solid foundation for continued success in 2017."

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

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, 2015 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 2016  2015  2016 2016 2015 
Income available to common shareholders $2,297  $1,729  $2,366  $5,259 $8,295 
Average total assets $1,126,034  $1,005,870  $1,093,918  $1,079,750 $992,731 
Average total earning assets $1,051,387  $940,831  $1,019,230  $1,007,793 $927,536 
Average shareholders' equity $94,326  $105,417  $93,238  $92,554 $105,991 
                    
Selected performance ratios                   
Return on average assets  0.81%  0.68%  0.86%  0.49% 0.84%
Return on average equity  9.69%  6.51%  10.10%  5.68% 7.83%
Efficiency ratio  73.15%  73.58%  69.61%  81.88% 67.40%
                    
Share and per share amounts                   
Weighted average shares - basic  13,370   13,341   13,369   13,367  13,331 
Weighted average shares - diluted  13,476   13,395   13,439   13,425  13,365 
Earnings per share - basic $0.17  $0.13  $0.18  $0.39 $0.62 
Earnings per share - diluted $0.17  $0.13  $0.18  $0.39 $0.62 
                    
  At December 31,   At September 30,   
Share and per share amounts 2016  2015  2016     
Common shares outstanding (1)  13,440   13,385   13,439        
Tangible book value per common share $6.83  $6.76  $6.84        
                    
Capital ratios                  
Bank of Commerce Holdings                  
Common equity tier 1 capital ratio (2)  9.43%  10.06%  9.60%       
Tier 1 capital ratio (2)  10.42%  11.16%  10.65%       
Total capital ratio (2)  12.68%  13.52%  12.96%       
Tier 1 leverage ratio (2)  9.13%  10.03%  9.28%       
Tangible common equity ratio  8.07%  8.91%  8.30%       
                    
Redding Bank of Commerce                   
Common equity tier 1 capital ratio  12.31%  13.31%  12.62%       
Tier 1 capital ratio  12.31%  13.31%  12.62%       
Total capital ratio  13.55%  14.56%  13.87%       
Tier 1 leverage ratio  10.80%  11.98%  11.03%       
 
(1) Includes unvested restricted shares issued in accordance with the Bank's equity incentive plan.
(2) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The capital ratios for 2016 were impacted by increased average total assets, the addition of $1.8 million of core deposit intangibles and $665 thousand of goodwill recorded in conjunction with the acquisition of five branches in March of 2016.
 

BALANCE SHEET OVERVIEW

As of December 31, 2016, the Company had total consolidated assets of $1.1 billion, gross loans of $804.2 million, allowance for loan and lease losses ("ALLL") of $11.5 million, total deposits of $1.0 billion, and shareholders' equity of $94.3 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
  At December 31,       At September 30,
    % of    % of  Change   % of
  2016  Total 2015  Total Amount % 2016  Total
Commercial $153,844  19% $132,805  19% $21,039  16 % $136,235  17%
Real estate - construction and land development  57,771  7   28,319  4   29,452  104 %  48,365  6 
Real estate - commercial non-owner occupied  287,455  36   243,374  33   44,081  18 %  281,977  36 
Real estate - commercial owner occupied  151,516  19   156,299  22   (4,783) (3)%  160,474  21 
Real estate - residential - ITIN  45,566  6   49,106  7   (3,540) (7)%  46,458  6 
Real estate - residential - 1-4 family mortgage  12,866  2   13,640  2   (774) (6)%  12,994  2 
Real estate - residential - equity lines  43,512  5   43,223  6   289  1 %  40,139  5 
Consumer and other  51,681  6   49,873  7   1,808  4 %  52,377  7 
Gross loans  804,211  100%  716,639  100%  87,572  12 %  779,019  100%
Deferred fees and costs  1,324      870      454      1,155    
Loans, net of deferred fees and costs  805,535      717,509      88,026      780,174    
Allowance for loan and lease losses  (11,544)     (11,180)     (364)     (11,849)   
Net loans $793,991     $706,329     $87,662     $768,325    
                         
Average yield on loans during the quarter  4.69%     4.61%     0.08      4.66%   
                             

The Company recorded gross loan balances of $804.2 million at December 31, 2016, compared with $716.6 million and $779.0 million at December 31, 2015 and September 30, 2016, respectively, an increase of $87.6 million and $25.2 million, respectively. The increase in gross loans compared to the same period a year ago and the prior period was driven by organic loan originations in our Sacramento marketplace and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.

The increase in the ALLL at December 31, 2016 compared to the same date a year ago resulted from net loan loss recoveries. 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 or during the prior seven consecutive quarters. See table 8 for additional details 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
  2016  Total 2015  Total Amount % 2016  Total
                         
Cash and due from banks $16,419  6% $9,730  4% $6,689  69 % $19,699  7%
Interest-bearing deposits in other banks  51,988  19   41,462  17   10,526  25 %  65,431  24 
Total cash and cash equivalents  68,407  25   51,192  21   17,215  34 %  85,130  31 
                         
Investment securities:                        
U.S. government and agencies    0   3,943  2   (3,943) (100)%    0 
Obligations of state and political subdivisions  59,428  22   61,104  25   (1,676) (3)%  59,952  22 
Residential mortgage backed securities and collateralized mortgage obligations  69,604  25   32,137  13   37,467  117 %  54,046  20 
Corporate securities  16,116  6   33,778  14   (17,662) (52)%  16,346  6 
Commercial mortgage backed securities  15,514  6   12,769  5   2,745  21 %  16,254  6 
Other asset backed securities  14,512  5   15,299  6   (787) (5)%  9,842  4 
Total investment securities - AFS  175,174  64   159,030  65   16,144  10 %  156,440  58 
                         
Obligations of state and political subdivisions - HTM  31,187  11   35,899  14   (4,712) (13)%  31,771  11 
Total investment securities - AFS and HTM  206,361  75   194,929  79   11,432  6 %  188,211  69 
Total cash, cash equivalents and investment securities $274,768  100% $246,121  100% $28,647  12 % $273,341  100%
Average yield on interest bearing due from banks and investment securities during the quarter  1.95%     2.51%     (0.56)     2.11%   
                             

As of December 31, 2016, we maintained noninterest-bearing cash positions of $16.4 million and interest-bearing deposits in the amount of $52.0 million at the Federal Reserve Bank and correspondent banks. During the fourth quarter of 2016, we deployed liquidity provided by the March 2016 branch acquisition and strong organic deposit growth into loan originations and available for sale securities. For the quarter ended December 31, 2016 compared to the prior quarter a $16.7 million decrease in total cash and cash equivalents and $29.2 million from increased total deposits was used to fund a $25.2 million increase in gross loan balances and an $18.7 million increase in available for sale securities.

Available-for-sale investment securities totaled $175.2 million at December 31, 2016, compared with $159.0 million and $156.4 million at December 31, 2015 and September 30, 2016, 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 2016 we purchased 24 securities with a par value of $31.3 million and weighted average yield of 2.16% and sold four securities with a par value of $4.1 million and weighted average yield of 2.64%. The sales activity on available for sale securities resulted in $52.0 thousand in net realized gains. During the same period, we received $6.0 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 ended December 31, 2016 and 2015 were $197.2 million and 3.02% compared to $189.2 million and 3.57%, respectively.

During the second quarter of 2016, we recorded an other-than-temporary impairment of $546 thousand on an investment security. We did not recognize any additional, other-than-temporary impairment losses for the year ended December 31, 2016, or the year ended December 31, 2015.

At December 31, 2016, our net unrealized losses on available-for-sale investment securities were $1.3 million compared with net unrealized gains of $1.6 million and $2.3 million at December 31, 2015 and September 30, 2016, respectively. The decrease in net unrealized gains between September 30, 2016 and December 31, 2016 is primarily due to significant changes in market interest rates over the past three months.

TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
  At December 31,        At September 30,
    % of    % of   Change   % of
  2016  Total 2015  Total Amount % 2016  Total
Demand - noninterest bearing $270,398  27% $169,507  21% $100,891  60 % $254,435  26%
Demand - interest bearing  405,569  40   315,658  39   89,911  28 %  394,525  40 
Total demand  675,967  67   485,165  60   190,802  39 %  648,960  66 
                         
Savings  113,309  11   94,503  12   18,806  20 %  110,201  11 
Total non-maturing deposits  789,276  78   579,668  72   209,608  36 %  759,161  77 
                         
Certificates of deposit  215,390  22   224,067  28   (8,677) (4)%  216,332  23 
Total deposits $1,004,666  100% $803,735  100% $200,931  25 % $975,493  100%
                         
Average rate on interest bearing deposits during the quarter  0.40%     0.48%     (0.08)     0.39%   
Average rate on all deposits during the quarter  0.29%     0.38%     (0.09)     0.29%   
                             

Total deposits at December 31, 2016, increased $200.9 million or 25% to $1.0 billion compared to December 31, 2015, and increased $29.2 thousand or 3% compared to September 30, 2016. Total non-maturing deposits increased $209.6 million or 36% compared to the same date a year ago and increased $30.1 million or 4% compared to September 30, 2016. Certificates of deposit decreased $8.7 million or 4% compared to the same date a year ago and decreased $942 thousand or 0.4% compared to September 30, 2016.

During the first quarter of 2016 the branch acquisition provided an additional $149.0 million of deposits and we called and redeemed $17.5 million of brokered certificates of deposit. At December 31, 2016, the deposits in the acquired branches totaled $145.6 million.

TABLE 5
WHOLESALE AND BROKERED DEPOSITS - UNAUDITED
(amounts in thousands)
  At December 31,  At September 30,
  2016 2015 2016
CDARS / ICS reciprocal deposits $65,212 $76,919 $59,502
Third party brokered time deposits    17,509  
Brokered deposits per Call Report  65,212  94,428  59,502
Online listing service time deposits  48,900  58,462  52,456
Total wholesale and brokered deposits $114,112 $152,890 $111,958
          

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $65.2 million, $94.4 million and $59.5 million at December 31, 2016, December 31, 2015 and September 30, 2016, respectively.

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
  2016 2015 Amount % 2016 Amount %
Interest income $10,518 $9,732 $786  8 % $10,330 $188  2 %
Interest expense  1,084  1,381  (297) (22)%  1,054  30  3 %
Net interest income  9,434  8,351  1,083  13 %  9,276  158  2 %
Provision for loan and lease losses         %       %
Noninterest income  1,250  640  610  95 %  959  291  30 %
Noninterest expense:                     
Branch acquisition and balance sheet reconfiguration costs    347  (347) (100)%       %
Other noninterest expense  7,815  6,269  1,546  25 %  7,125  690  10 %
Income before provision for income taxes  2,869  2,375  494  21 %  3,110  (241) (8)%
Provision for income taxes  572  505  67  13 %  744  (172) (23)%
Net income $2,297 $1,870 $427  23 % $2,366  (69) (3)%
Less: Preferred stock extinguishment costs    102  (102) (100)%       %
Less: Preferred dividends    39  (39) (100)%       %
Income available to common shareholders $2,297 $1,729 $568  33 % $2,366 $(69) (3)%
                      
Basic earnings per share $0.17 $0.13 $0.04  31 % $0.18 $(0.01) (6)%
Average basic shares  13,370  13,341  29   %  13,369  1   %
Diluted earnings per share $0.17 $0.13 $0.04  31 % $0.18 $(0.01) (6)%
Average diluted shares  13,476  13,395  81  1 %  13,439  37   %
Dividends declared per common share $0.03 $0.03 $   % $0.03 $   %
                          

Fourth Quarter of 2016 Compared With Fourth Quarter of 2015

Net income available to common shareholders for the fourth quarter of 2016 increased $568 thousand compared to the fourth quarter of 2015. In the current quarter, net interest income was $1.1 million higher and noninterest income was $610 thousand higher. These positive changes were offset by an increase in noninterest expense of $1.2 million and a provision for income tax that was $67 thousand higher.

Net Interest Income

Net interest income increased $1.1 million over a year previous.

Interest income for the three months ended December 31, 2016 increased $786 thousand or 8% to $10.5 million. Interest and fees on loans increased $882 thousand primarily due to increased average loan balances. Interest on interest bearing deposits due from banks increased $71 thousand while interest on securities decreased $167 thousand.

Interest expense for the fourth quarter of 2016 decreased $297 thousand or 22% to $1.1 million. The net decrease was caused by the following.

  • Interest on FHLB term debt decreased $499 thousand. During the first quarter of 2016 all FHLB term debt was repaid and an interest rate hedge associated with $75.0 million of that debt was terminated
  • Interest on $20.0 million of senior and subordinated term debt increased $223 thousand. The senior and subordinated term debt was issued during the fourth quarter of 2015 to redeem $20.0 million of preferred stock
  • Interest on interest bearing deposits decreased $34 thousand. Interest bearing deposits increased $100.0 million compared to the prior year, but the rate paid on all interest bearing deposits decreased by 9 basis points
  • Interest on junior subordinated debentures and other borrowings increased $13 thousand

Noninterest Income

Noninterest income for the three months ended December 31, 2016 increased  $610 thousand compared to the same period a year ago. Our branch and offsite ATM acquisition completed in the first quarter, enhanced point of sale and ATM fees by $177 thousand and service charges on deposit accounts by $69 thousand for the quarter ended December 31, 2016 compared to the same period a year ago. Federal Home Loan Bank of San Francisco stock dividends increased $254 thousand compared to the same period a year ago primarily due to a special dividend recorded during the three months ended December 31, 2016.

Noninterest Expense

Noninterest expense for the three months ended increased $1.2 million compared to the same period a year ago. The increase was primarily driven by increased costs to operate the five newly acquired branches and three offsite ATM locations. The net increase in noninterest expenses during the current quarter compared to the same period a year ago included the following:

  • Salaries and occupancy costs directly related to the newly acquired branch and offsite ATM locations of $574 thousand
  • Salaries and occupancy costs for all other locations increased $338 thousand primarily as a result of investment in our Sacramento marketplace commercial banking group
  • Data processing fees increased $253 thousand
  • Telecommunications expense increased $92 thousand
  • ATM processing fees increased $53 thousand as a result of the additional activity at the recently acquired branch and offsite ATM locations
  • Branch acquisition costs decreased $347 thousand

Income Tax Provision

During the three months ended December 31, 2016, the Company recorded a provision for income taxes of $572 thousand (19.94% of pretax income) compared with a provision for income taxes of $505 million (21.26% of pretax income) for the same period a year ago.

Fourth Quarter of 2016 Compared With Third Quarter of 2016

Net income available to common shareholders for the fourth quarter of 2016 decreased $69 thousand over the third quarter of 2016. In the current quarter, net interest income was $158 thousand higher, noninterest income was $291 thousand higher and the provision for income taxes decreased $172 thousand. These positive changes were offset by noninterest expenses that were $690 thousand higher.

Net Interest Income

Net interest income increased $158 thousand over the prior quarter.

Interest income for the three months ended December 31, 2016 increased $188 thousand or 2% to  $10.5 million compared to the prior quarter. Interest and fees on loans increased $174 thousand due to increased average balances and increased yields. Interest on interest bearing deposits due from banks increased $28 thousand due to increased average balances and increased yields. These positive changes were partially offset by decreased interest on investment securities of $14 thousand.

Interest expense for the three months December 31, 2016 increased $30 thousand or 3% to $1.1 million compared to the prior quarter. Average total deposits for the fourth quarter of 2016 increased $30.0 million from the third quarter of 2016. The growth was in low cost core deposits.

Noninterest Income

Noninterest income for the three months ended December 31, 2016 increased $291 thousand compared to the prior quarter. During the current quarter Federal Home Loan Bank of San Francisco stock dividends increased $251 thousand primarily due to a special dividend recorded during the three months ended December 31, 2016.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2016 increased $690 thousand compared to the prior quarter.

The increase in noninterest expense was primarily driven by following items:

  • Salaries and related benefits costs increased $251 thousand
  • Professional service fees increased $178 thousand
  • Deferred loan origination costs decreased $113 thousand
  • Data processing fees increased $69 thousand
  • Advertising costs increased $73 thousand

Income Tax Provision

During the three months ended December 31, 2016, we recorded a provision for income taxes of $572 thousand (19.94% of pretax income) compared with a provision for income taxes of $744 thousand (23.92% of pretax income) for the prior quarter. Our income tax provision is composed of two main components: 1) federal and state income taxes based on our income and 2) amortization of our investments in affordable housing partnerships. The decrease in the effective tax rate during the three months ended December 31, 2016 when compared to the prior quarter is due to a decrease in the amortization of our investments in affordable housing partnerships.

Earnings Per Share

Diluted earnings per share available to common shareholders were $0.17 for the three months ended December 31, 2016 compared with diluted earnings per share available to common shareholders of $0.13 for the same period a year ago, and $0.18 for the prior period. The number of shares outstanding during these periods has not changed significantly. Changes in earnings per share are the result of changes in net income.

TABLE 7
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
  For The Three Months Ended
  December 31,  Change September 30, Change
  2016 2015 Amount 2016 Amount
Yield on average interest earning assets  3.98%  4.10%  (0.12)  4.03%  (0.05)
Interest expense to fund average earning assets  0.41%  0.58%  (0.17)  0.41%  0.00 
Net interest margin - nominal  3.57%  3.52%  0.05   3.62%  (0.05)
                   
Yield on average interest earning assets - tax equivalent basis  4.08%  4.23%  (0.15)  4.14%  (0.06)
Interest expense to fund average earning assets  0.41%  0.58%  (0.17)  0.41%  0.00 
Net interest margin - tax equivalent basis  3.67%  3.65%  0.02   3.73%  (0.06)
                   
Average earning assets $1,051,387  $940,831  $110,556  $1,019,230  $32,157 
Average interest bearing liabilities $757,252  $712,807  $44,445  $749,103  $8,149 
                     

The current quarter net interest margin decreased five basis points to 3.57% as compared to the prior quarter due to decreased yields in the investment portfolio. In the current interest rate environment, cash flows from maturities and repayments are being reinvested at interest rates lower than the maturing instruments.

The net interest margin was 3.57% for the current quarter compared to 3.52% for the same period a year ago. The 12 basis point decrease in yield on average earning assets has been offset by a 17 basis point decrease in interest expense to fund average earning assets. The decrease in interest income compared to the same quarter in the prior year is due to decreased yields in the investment portfolio and partially offset by increased yields on loans. The decrease in interest expense resulted from our acquisition of low cost core deposits and our ability to restructure our balance sheet.

Deposit balances increased $29.2 million and $200.9 million compared to the prior quarter and the same period a year ago respectively. The increase in deposit balances compared to the prior quarter was centered entirely in core deposits. The increase in deposit balances compared to the same period a year ago results from both the March 2016 branch acquisition and strong organic growth. Our overall cost of total deposits decreased to 0.29% for the quarter ended December 31, 2016 from 0.38% for the same period a year ago and were unchanged from 0.29% for the prior quarter.

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,
  2016 2016 2016 2016 2015
Beginning balance $11,849   $11,864   $11,495   $11,180   $10,891  
Provision for loan and lease losses charged to expense                    
Loans charged off  (386)   (357)   (1,734)   (307)   (707) 
Loan loss recoveries  81    342    2,103    622    996  
Ending balance $11,544   $11,849   $11,864   $11,495   $11,180  
                     
  At December 31,  At September 30, At June 30, At March 31, At December 31,
  2016 2016 2016 2016 2015
Nonaccrual loans:                    
Commercial $2,749   $1,710   $2,149   $2,563   $1,994  
Real estate - commercial non-owner occupied  1,196    1,196    1,197    1,197    5,488  
Real estate - commercial owner occupied  784    800    816    1,190    1,071  
Real estate - residential - ITIN  3,576    3,392    3,664    3,705    3,649  
Real estate - residential - 1-4 family mortgage  1,914    1,798    1,824    1,742    1,775  
Real estate - residential - equity lines  917    942    995    1,270      
Consumer and other  250    252    266    31    32  
Total nonaccrual loans  11,386    10,090    10,911    11,698    14,009  
Accruing troubled debt restructured loans:                    
Commercial  776    726    760    40    49  
Real estate - commercial non-owner occupied  808    811    816    821    824  
Real estate - residential - ITIN  5,033    5,280    5,336    5,502    5,458  
Real estate - residential - equity lines  454    543    548    553    558  
Total accruing troubled debt restructured loans  7,071    7,360    7,460    6,916    6,889  
                     
All other accruing impaired loans  337    483    550    488    492  
                     
Total impaired loans $18,794   $17,933   $18,921   $19,102   $21,390  
                     
Gross loans outstanding at period end $804,211   $779,019   $754,140   $724,243   $716,639  
                     
Allowance for loan and lease losses as a percent of:             
Gross loans  1.44 %  1.52 %  1.57 %  1.59 %  1.56 %
Nonaccrual loans  101.39 %  117.43 %  108.73 %  98.26 %  79.81 %
Impaired loans  61.42 %  66.07 %  62.70 %  60.18 %  52.27 %
                     
Nonaccrual loans to gross loans  1.42 %  1.30 %  1.45 %  1.62 %  1.95 %
                          

We realized net loan charge offs of $305 thousand in the current quarter compared with net loan loss charge offs of $15 thousand in the prior quarter and net loan recoveries of $289 thousand for the same period a year ago. Charge offs during the fourth quarter of 2016 of $386 thousand were primarily associated with purchased consumer loans, offset by recoveries totaling $81 thousand.

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 this quarter or the previous seven consecutive quarters. Our ALLL as a percentage of gross loans was 1.44% as of December 31, 2016 compared to 1.56% as of December 31, 2015 and 1.52% as of September 30, 2016. 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, 2016. 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, 2016, the recorded investment in loans classified as impaired totaled $18.8 million, with a corresponding valuation allowance of $1.5 million compared to impaired loans of $21.4 million with a corresponding valuation allowance of $832 thousand at December 31, 2015 and impaired loans of $17.9 million, with a corresponding valuation allowance of $925 thousand at September 30, 2016. The increase in loans classified as impaired and the corresponding valuation allowance compared to the prior quarter is due to two restructured loans for one commercial relationship. 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,
  2016 2016 2016 2016 2015
Nonaccrual $4,995  $3,795  $3,785  $4,516  $9,015 
Accruing  7,071   7,360   7,460   6,916   6,889 
Total troubled debt restructurings $12,066  $11,155  $11,245  $11,432  $15,904 
                     
Percentage of total gross loans  1.50%  1.43%  1.49%  1.58%  2.22%
                     

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, 2016, the Company restructured three loans; two to grant a maturity modification and the other to grant a maturity and rate modification. The loans were classified as troubled debt restructurings and two were placed on nonaccrual status. As of December 31, 2016, we had 121 restructured loans that qualified as troubled debt restructurings, of which 112 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,
  2016 2016 2016 2016 2015
Total nonaccrual loans $11,386  $10,090  $10,911  $11,698  $14,009 
90 days past due and still accruing        10      88 
Total nonperforming loans  11,386   10,090   10,921   11,698   14,097 
                     
Other real estate owned  759   793   765   1,011   1,423 
Total nonperforming assets $12,145  $10,883  $11,686  $12,709  $15,520 
                     
Nonperforming loans to gross loans  1.42%  1.30%  1.45%  1.62%  1.97%
Nonperforming assets to total assets  1.06%  0.98%  1.09%  1.18%  1.53%
                     

The increase in nonaccrual loans during the fourth quarter of 2016 was associated with one commercial relationship.

At December 31, 2016, December 31, 2015 and September 30, 2016, the recorded investment in OREO was $759 thousand, $1.4 million and $793 thousand, respectively. The December 31, 2016 OREO balance consists of five properties, of which two are 1-4 family residential real estate properties in the amount of $66 thousand, two are nonfarm nonresidential properties in the amount of $581 thousand and one is an undeveloped commercial property in the amount of $112 thousand.

TABLE 11
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
  At December 31,  At December 31,  Change At September 30,
  2016  2015  $ % 2016 
Assets:               
Cash and due from banks $16,419  $9,730  $6,689  69 % $19,699 
Interest-bearing deposits in other banks  51,988   41,462   10,526  25 %  65,431 
Total cash and cash equivalents  68,407   51,192   17,215  34 %  85,130 
                
Securities available-for-sale, at fair value  175,174   159,030   16,144  10 %  156,440 
Securities held-to-maturity, at amortized cost  31,187   35,899   (4,712) (13)%  31,771 
                
Loans, net of deferred fees and costs  805,535   717,509   88,026  12 %  780,174 
Allowance for loan and lease losses  (11,544)  (11,180)  (364) 3 %  (11,849)
Net loans  793,991   706,329   87,662  12 %  768,325 
                
Premises and equipment, net  16,226   11,072   5,154  47 %  15,930 
Other real estate owned  759   1,423   (664) (47)%  793 
Life insurance  23,098   22,485   613  3 %  22,946 
Deferred taxes  9,542   9,760   (218) (2)%  8,171 
Goodwill and core deposit intangibles, net  2,252      2,252  100 %  2,307 
Other assets  20,356   18,251   2,105  12 %  19,205 
Total assets $1,140,992  $1,015,441  $125,551  12 % $1,111,018 
                
Liabilities and shareholders' equity:               
Demand - noninterest bearing $270,398  $169,507  $100,891  60 % $254,435 
Demand - interest bearing  405,569   315,658   89,911  28 %  394,525 
Savings  113,309   94,503   18,806  20 %  110,201 
Certificates of deposit  215,390   224,067   (8,677) (4)%  216,332 
Total deposits  1,004,666   803,735   200,931  25 %  975,493 
                
Term debt  18,917   94,917   (76,000) (80)%  19,317 
Unamortized debt issuance costs  (184)  (223)  39  (17)%  (193)
Net term debt  18,733   94,694   (75,961) (80)%  19,124 
                
Junior subordinated debentures  10,310   10,310     0 %  10,310 
Other liabilities  13,177   16,180   (3,003) (19)%  11,798 
Total liabilities  1,046,886   924,919   121,967  13 %  1,016,725 
                
Shareholders' equity:               
Common stock  24,547   24,214   333  1 %  24,483 
Retained earnings  70,218   66,562   3,656  5 %  68,321 
Accumulated other comprehensive (loss) income, net of tax  (659)  (254)  (405) 159 %  1,489 
Total shareholders' equity  94,106   90,522   3,584  4 %  94,293 
                
Total liabilities and shareholders' equity $1,140,992  $1,015,441  $125,551  12 % $1,111,018 
                
Total interest earning assets $1,065,228  $952,302  $112,926  12 % $1,031,527 
Shares outstanding  13,440   13,385         13,439 
Tangible book value per share $6.83  $6.76        $6.84 
                   


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,
  2016 2015 $ % 2016 2016  2015
Interest income:                     
Interest and fees on loans $9,181 $8,299 $882  11 % $9,007 $35,435  $32,871
Interest on securities  705  795  (90) (11)%  689  2,986   3,284
Interest on tax-exempt securities  522  599  (77) (13)%  552  2,256   2,392
Interest on deposits in other banks  110  39  71  182 %  82  332   206
Total interest income  10,518  9,732  786  8 %  10,330  41,009   38,753
Interest expense:                     
Interest on demand deposits  135  121  14  12 %  136  523   460
Interest on savings deposits  45  51  (6) (12)%  43  174   213
Interest on certificates of deposit  543  585  (42) (7)%  524  2,179   2,356
Interest on term debt  298  572  (274) (48)%  292  1,667   1,759
Interest on other borrowings  63  52  11  21 %  59  235   195
Total interest expense  1,084  1,381  (297) (22)%  1,054  4,778   4,983
Net interest income  9,434  8,351  1,083  13 %  9,276  36,231   33,770
Provision for loan and lease losses         %       
Net interest income after provision for loan and lease losses  9,434  8,351  1,083  13 %  9,276  36,231   33,770
Noninterest income:                     
Service charges on deposit accounts  120  51  69  135 %  133  413   204
Payroll and benefit processing fees  161  139  22  16 %  133  593   555
Earnings on cash surrender value - life insurance  152  159  (7) (4)%  152  613   641
Gain on investment securities, net  52  30  22  73 %  70  244   443
Impairment losses on investment securities         %    (546)  
ATM and point of sale  281  104  177  170 %  287  995   383
Federal Home Loan Bank of San Francisco dividends  353  99  254  257 %  102  644   630
Other income  131  58  73  126 %  82  639   327
Total noninterest income  1,250  640  610  95 %  959  3,595   3,183
                         


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,
  2016 2015 $ % 2016 2016 2015
Noninterest expense:                     
Salaries and related benefits   4,237   3,610   627   17 %   3,873   16,425   14,303
Occupancy and equipment   1,022   737   285   39 %   1,071   3,869   2,894
Federal Deposit Insurance Corporation insurance premium   102   173   (71)  (41)%   176   615   717
Data processing fees   533   280   253   90 %   464   1,675   1,016
Professional service fees   481   461   20   4 %   303   1,690   1,628
Telecommunications   206   114   92   81 %   199   751   449
Branch acquisition costs   —   347   (347)  (100)%   —   580   347
Loss on cancellation of interest rate swap   —   —   —   — %   —   2,325   —
Other expenses   1,234   894   340   38 %   1,039   4,679   3,551
Total noninterest expense   7,815   6,616   1,199   18 %   7,125   32,609   24,905
Income before provision for income taxes   2,869   2,375   494   21 %   3,110   7,217   12,048
Deferred tax asset write-off   —   —   —   — %   —   363   —
Provision for income taxes   572   505   67   13 %   744   1,595   3,462
Net income $ 2,297 $ 1,870 $ 427   23 % $ 2,366 $ 5,259 $ 8,586
Less: Preferred stock extinguishment costs   —   102   (102)  (100)%   —   —   102
Less: Preferred dividends   —   39   (39)  (100)%   —   —   189
Income available to common shareholders $ 2,297 $ 1,729 $ 568   33 % $ 2,366 $ 5,259 $ 8,295
                      
Basic earnings per share $ 0.17 $ 0.13 $ 0.04   31 % $ 0.18 $ 0.39 $ 0.62
Average basic shares   13,370   13,341   29   — %   13,369   13,367   13,331
Diluted earnings per share $ 0.17 $ 0.13 $ 0.04   31 % $ 0.18 $ 0.39 $ 0.62
Average diluted shares   13,476   13,395   81   1 %   13,439   13,425   13,365
                        


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,
  2016 2015 2014 2013
Earning assets:            
Loans $752,938 $699,227 $625,166 $612,780
Taxable securities  120,884  120,897  147,916  157,486
Tax exempt securities  75,303  77,089  83,973  92,854
Interest-bearing deposits in other banks  58,668  30,323  56,465  43,342
Average earning assets  1,007,793  927,536  913,520  906,462
             
Cash and due from banks  15,831  11,220  11,246  10,624
Premises and equipment, net  15,078  11,552  12,105  10,337
Other assets  41,048  42,423  36,936  26,431
Average total assets $1,079,750 $992,731 $973,807 $953,854
             
Liabilities and shareholders' equity:            
Demand - noninterest bearing $226,368 $156,578 $139,792 $122,011
Demand - interest bearing  374,170  283,105  272,383  244,125
Savings  104,771  92,659  91,108  92,502
Certificates of deposit  221,074  238,626  259,445  248,350
Total deposits  926,383  770,968  762,728  706,988
             
Repurchase agreements        5,780
Term debt, net  37,286  88,874  77,534  107,603
Junior subordinated debentures  10,310  10,310  15,239  15,465
Other liabilities  13,217  16,588  15,934  11,825
Average total liabilities  987,196  886,740  871,435  847,661
             
Shareholders' equity  92,554  105,991  102,372  106,193
Average liabilities & shareholders' equity $1,079,750 $992,731 $973,807 $953,854
             


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,
  2016 2016 2016 2016 2015
Earning assets:               
Loans $778,458 $769,354 $742,684 $720,795 $714,494
Taxable securities  124,881  114,578  124,183  119,917  111,098
Tax exempt securities  72,288  73,952  77,168  77,852  78,081
Interest-bearing deposits in other banks  75,760  61,346  46,097  51,254  37,158
Average earning assets  1,051,387  1,019,230  990,132  969,818  940,831
                
Cash and due from banks  16,953  17,018  17,028  12,301  12,372
Premises and equipment, net  16,331  15,941  15,632  12,384  11,001
Other assets  41,363  41,729  41,394  39,700  41,666
Average total assets $1,126,034 $1,093,918 $1,064,186 $1,034,203 $1,005,870
                
Liabilities and shareholders' equity:               
Demand - noninterest bearing $261,600 $240,418 $220,377 $182,539 $171,449
Demand - interest bearing  398,749  390,895  382,811  323,771  302,862
Savings  111,755  107,210  103,990  96,027  92,939
Certificates of deposit  217,463  221,078  223,958  221,836  226,924
Total deposits  989,567  959,601  931,136  824,173  794,174
                
Term debt  18,975  19,610  19,510  91,444  79,772
Junior subordinated debentures  10,310  10,310  10,310  10,310  10,310
Other liabilities  12,856  11,159  11,913  16,969  16,197
Average total liabilities  1,031,708  1,000,680  972,869  942,896  900,453
                
Shareholders' equity  94,326  93,238  91,317  91,307  105,417
Average liabilities & shareholders' equity $1,126,034 $1,093,918 $1,064,186 $1,034,203 $1,005,870
                

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 banking and financial services through nine 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     
John T. Cavender  Stifel Nicolaus 
One Embarcadero Center  Perry Wright 
Suite 650  1255 East Street, Suite 100
San Francisco, California 94111  Redding, CA 96001 
(415) 616-8935  (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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