BANK OF COMM 
By REDDING, Calif., Jan. 31, 2014 /PRNewswire/ -- Randy Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ: BOCH), a $951.5 million bank holding company and parent company of Redding Bank of Commerce and Roseville Bank of Commerce (a division of Redding Bank of Commerce) (the "Bank"), today reported net income available to common shareholders of $2.0 million and diluted earnings per share (EPS) from continuing operations of $0.14 for the fourth quarter 2013 and full year income available to common shareholders of $7.7 million and diluted EPS attributable to continuing operations of $0.52 for the year.
Financial highlights for the quarter:
-- Net income available to common shareholders of $2.0 million reflects an
11% increase over the $1.8 million recorded for the prior quarter and a
67% increase compared to $1.2 million reported for the fourth quarter of
2012.
-- Diluted EPS attributable to continuing operations of $0.14 compared to
$0.12 for the prior quarter and $0.08 reported for the fourth quarter of
2012.
-- Loan loss provisions for the fourth quarter were $0 compared to $300
thousand for the prior quarter and $4.6 million for the fourth quarter
of 2012.
-- Nonperforming assets were reduced by 17% from the prior quarter and
represent 3.23% of total assets versus 3.95% for the prior quarter and
4.25% for the fourth quarter of 2012.
Financial highlights for the full year 2013:
-- Net income available to common shareholders of $7.7 million reflects an
18% increase over the $6.5 million reported for the full year 2012.
-- Diluted EPS attributable to continuing operations of $0.52 compares to
$0.41 diluted EPS attributable to continuing operations for the prior
year. Diluted EPS attributable to discontinued operations of $0.00
compares to $(0.01) reported for the same period a year ago.
-- Provision for loan losses decreased 71% to $2.8 million compared to $9.4
million for year end 2012.
-- Nonperforming assets were reduced by 26% from the prior year to $30.7
million and represent 3.23% of total assets compared to $41.6 million
and 4.25% of total assets at year end 2012.
-- Other Real Estate Owned was reduced by 70% from $3.0 million at year end
2012 to $913 thousand at year end 2013.
-- Non-maturing core deposits increased $45.2 million or 11% from prior
year.
-- Purchased the full amount of common shares authorized under two separate
common stock repurchase plans and subsequently retired 2.0 million in
common stock shares at a weighted average cost of $5.31 per share.
Randy Eslick, President and CEO commented: "In light of the current banking environment, I am especially pleased to report net income available to common shareholders of $7.7 million, an 18% increase over last year's performance. We once again realized growth in non maturing core deposits with an 11% increase over prior year, with continuing improvement in our asset quality. While 2014 will likely present ongoing challenges, there are also opportunities which our team is excited to pursue as we continue on the path of building long-term value for our shareholders."
This quarterly press release includes forward-looking information, which is subject to the "safe harbor" created by the Securities Act of 1933, and Securities Act of 1934. These forward-looking statements (which involve the Company's plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:
-- Competitive pressure in the banking industry and changes in the
regulatory environment
-- Changes in the interest rate environment and volatility of rate
sensitive assets and liabilities
-- A decline in the health of the economy nationally or regionally which
could further reduce the demand for loans or reduce the value of real
estate collateral securing most of the Company's loans
-- Credit quality deterioration which could cause an increase in the
provision for loan 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 year ended December 31, 2013 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, which speak only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Table 1 below shows summary financial information for the quarters ended December 31, 2013 and 2012, and September 30, 2013.
Table 1
QUARTER END SUMMARY FINANCIAL
INFORMATION
(Shares
and
dollars
in
thousands) Q4 Q4 Q3
2013 2012 Change 2013 Change
---- ---- ------ ---- ------
Selective
quarterly
performance
ratios
-----------
Return
on
average
assets,
annualized 0.89% 0.57% 0.32% 0.76% 0.13%
Return
on
average
equity,
annualized 8.18% 4.97% 3.21% 6.89% 1.29%
Efficiency
ratio
for
quarter
to
date 61.79% 43.66% 18.13% 62.69% -0.90%
Share
and
Per
Share
figures
-
Actual
-------
Common
shares
outstanding
at
period
end 13,977 15,972 (1,995) 14,462 (485)
Weighted
average
diluted
shares 14,176 16,034 (1,858) 14,853 (677)
Diluted
EPS
attributable
to
continuing
operations $0.14 $0.08 $0.06 $0.12 $0.02
Book
value
per
common
share $5.86 $5.66 $0.20 $5.73 $0.13
Tangible
book
value
per
common
share $5.86 $5.66 $0.20 $5.73 $0.13
Capital
Ratios
at
Quarter
End
-------
Bank
of
Commerce
Holdings
--------
Tier
1
risk
based
capital
ratio 17.20% 14.53% 2.67% 15.66% 1.54%
Total
risk
based
capital
ratio 15.94% 15.78% 0.16% 16.92% -0.98%
Leverage
ratio 12.80% 13.13% -0.33% 12.80% 0.00%
Redding
Bank
of
Commerce
--------
Tier
1
risk
based
capital
ratio 16.82% 14.06% 2.76% 15.19% 1.63%
Total
risk
based
capital
ratio 15.56% 15.31% 0.25% 16.45% -0.89%
Leverage
ratio 12.49% 12.65% -0.16% 12.42% 0.07%
Bank of Commerce Holdings (the "Company") remains well capitalized. At December 31, 2013, the Company's Tier 1 and Total risk based capital ratios measured 17.20% and 15.94% respectively, while the leverage ratio was 12.80%.
Return on average assets (ROA) and return on average equity (ROE) for the current quarter was 0.89% and 8.18%, respectively, compared with 0.57% and 4.97%, respectively, for the same period a year ago. The increase in ROA and ROE during the current quarter compared to the same period a year ago is primarily attributed to the decrease in the provision for loan losses of $4.6 million, partially offset by the $2.0 million decrease in net gains on investment securities.
The increase in ROE is also attributed to the decrease in shareholders equity resulting from the repurchase of common shares. During 2013 the Company authorized and completed the repurchase of 2.0 million common shares through two separate repurchase plans which resulted in a 1.4 million decrease in the weighted average shares outstanding. All shares were retired subsequent to purchase.
The increase in the efficiency ratio compared to the same period a year ago is due to decreases in the gain on investment securities. Net gain on securities for the current period was $64 thousand compared with $2.1 million for the three months ended December 31, 2012.
Balance Sheet Overview
As of December 31, 2013, the Company had total consolidated assets of $951.5 million, total net portfolio loans of $584.1 million, allowance for loan and lease losses of $14.2 million, total deposits of $746.3 million, and stockholders' equity of $101.8 million.
Overall, the net portfolio loan balance decreased substantially compared to the same period a year ago. The Company recorded net portfolio loans of $584.1 million at December 31, 2013, compared with $653.3 million at December 31, 2012, a decrease of $69.1 million, or 11%. The decrease in net portfolio loans was primarily attributable to the $65.1 million decrease in a commercial secured borrowing line held with the Bank's former mortgage subsidiary. The commercial secured borrowing line of credit is used by the former mortgage subsidiary to fund 1-4 family mortgage loan originations which the Bank purchases an undivided participation ownership interest in the mortgage loans. The decrease in volume in the commercial secured borrowing line is primarily attributable to an increase in mortgage market interest rates, resulting in lower volume. As of December 31, 2013 the commercial secured borrowing line balance was $0.
Table 2
PERIOD END LOANS
(Dollars
in
thousands) Q4 % of Q4 % of Change Q3 % of
2013 Total 2012 Total Amount % 2013 Total
---- ----- ---- ----- ------ --- ---- -----
Commercial $170,429 29% $232,276 35% $(61,847) -27% $169,193 27%
Real
estate -
construction
loans 18,545 3% 16,863 3% 1,682 10% 15,625 3%
Real
estate -
commercial
(investor) 205,384 34% 211,318 32% (5,934) -3% 208,530 35%
Real
estate -
commercial
(owner
occupied) 83,976 14% 75,085 11% 8,891 12% 80,101 13%
Real
estate -
ITIN
loans 56,101 9% 60,105 9% (4,004) -7% 57,232 10%
Real
estate -
mortgage 14,590 2% 18,452 3% (3,862) -21% 15,872 3%
Real
estate -
equity
lines 45,462 8% 45,181 7% 281 1% 43,989 7%
Consumer 3,472 1% 4,422 1% (950) -21% 3,753 1%
Other 36 0% 349 0% (313) -90% 267 0%
--- --- --- --- ---- --- --- ---
Gross
portfolio
loans 597,995 100% 664,051 100% (66,056) -10% 594,562 100%
Less:
Deferred
loan
fees,
net (303) (312) 9 -3% (282)
Allowance
for loan
losses 14,172 11,103 3,069 28% 13,542
Net
portfolio
loans $584,126 $653,260 $(69,134) -11% $581,302
======== ======== ======= === ========
Yield on
loans 4.88% 5.16% -0.28% 4.84%
Table 3
PERIOD END CASH EQUIVALENTS AND INVESTMENT
SECURITIES
(Dollars
in
thousands) Q4 % of Q4 % of Change Q3 % of
2013 Total 2012 Total Amount % 2013 Total
---- ----- ---- ----- ------ --- ---- -----
Cash and
cash
equivalents:
Cash and
due from
banks $38,369 12% $21,756 7% $16,613 76% $28,616 10%
Interest
bearing
due from
banks 20,146 6% 23,312 9% (3,166) -14% 20,379 7%
------ --- ------ --- ------ --- ------ ---
58,515 18% 45,068 16% 13,447 30% 48,995 17%
Investment
Securities-
AFS
U.S.
government
and
agencies 6,264 2% 2,946 1% 3,318 113% 3,718 1%
Obligations
of state
and
political
subdivisions 59,209 21% 58,484 21% 725 1% 61,492 21%
Residential
mortgage
backed
securities
and
collateralized
mortgage
obligations 62,991 20% 51,530 19% 11,461 22% 57,934 20%
Corporate
securities 48,230 15% 61,556 22% (13,326) -22% 52,552 18%
Commercial
mortgage
backed
securities 10,472 3% 4,324 3% 6,148 142% 8,924 3%
Other
asset
backed
securities 29,474 9% 18,514 7% 10,960 59% 25,022 8%
------ --- ------ --- ------ --- ------ ---
216,640 70% 197,354 73% 19,286 10% 209,642 71%
Securities-
HTM, at
amortized
cost
Obligations
of state
and
political
subdivisions 36,696 12% 31,483 11% 5,213 17% 34,814 12%
Total
cash
equivalents
and
investment
securities $311,851 100% $273,905 100% $37,946 14% $293,451 100%
======== === ======== === ======= === ======== ===
Yield on
cash
equivalents
and
investment
securities 2.50% 2.70% -0.20% 2.50%
The Company continued to maintain a strong liquidity position during the reporting period. As of December 31, 2013, the Company maintained cash positions at the Federal Reserve Bank and correspondent banks in the amount of $38.4 million. The Company also held certificates of deposits with other financial institutions in the amount of $20.1 million, which the Company considers liquid.
The Company's available-for-sale investment portfolio is currently being utilized as a secondary source of liquidity to fund other higher yielding asset opportunities, such as commercial and commercial real estate loan originations when required. Available-for-sale investment securities totaled $216.6 million at December 31, 2013, compared with $209.6 million at September 30, 2013. During the current quarter the Company's securities purchases were centered in municipal bonds, and mortgage backed securities.
The Company's purchases continue to focus on moderate term maturity securities, taking advantage of the steepness of the yield curve, particularly around the five to seven year part of the curve. This strategy limits the Company's exposure to rising interest rates, while still providing an acceptable yield. The municipal bond purchases were generally longer term than purchases of other asset classes, but also provide for higher returns due to the tax benefit received. The mortgage backed securities purchased during the period were centered on moderate duration bonds with relatively solid cash flows and yield. Overall, management's investment strategy reflects the continuing expectation of rising rates across the yield curve. As such, management will continue to actively seek out opportunities to reduce the duration of the portfolio and improve cash flows. Given the current shape of the yield curve, this strategy could entail absorbing low to moderate losses within the portfolio to meet this longer term objective.
During the fourth quarter of 2013, the Company purchased twenty-seven securities with a weighted average yield of 3.10%, and sold twenty-eight securities with a weighted average yield of 2.13%. The sales activity resulted in $64 thousand net realized gains.
At December 31, 2013, the Company's net unrealized losses on available-for-sale securities were $3.7 million compared with $4.3 million net unrealized losses at September 30, 2013. The favorable change in net unrealized losses was primarily due to increases in the fair values of the Company's municipal bond, and corporate bond portfolios. The increases in the fair values of these securities were primarily driven by changes in market interest rates and or the contraction of market spreads.
Table 4
QUARTERLY AVERAGE DEPOSITS BY
CATEGORY
(Dollars
in
thousands) Q4 % of Q4 % of Change Q3 % of
2013 Total 2012 Total Amount % 2013 Total
---- ----- ---- ----- ------ --- ---- -----
Demand
deposits $134,439 18% $123,099 17% $11,340 9% $125,133 18%
Interest
bearing
demand 261,949 36% 232,674 33% 29,275 13% 246,236 35%
------- --- ------- --- ------ --- ------- ---
Total
checking
deposits 396,388 54% 355,773 50% 40,615 11% 371,369 53%
Savings 92,949 13% 90,522 13% 2,427 3% 94,062 13%
------ --- ------ --- ----- --- ------ ---
Total
non-
time
deposits 489,337 67% 446,295 63% 43,042 10% 465,431 66%
Time
deposits 247,376 33% 257,432 37% (10,056) -4% 241,947 34%
------- --- ------- --- ------ --- ------- ---
Total
deposits $736,713 100% $703,727 100% $32,986 5% $707,378 100%
======== === ======== === ======= === ======== ===
Average
rate on
total
deposits 0.54% 0.69% -0.14% 0.56%
Average total deposits increased 5% or $33.0 million to $736.7 million compared to the fourth quarter in 2012. Non maturing core deposits increased $45.2 million or 11% year over year. Insured Cash Sweep (ICS) deposits totaling $37.0 million as of December 31, 2013 are included in interest bearing demand. The ICS deposits are locally generated funds but considered noncore for regulatory purposes. Management considers these deposits to be stable in nature.
Brokered certificates of deposits totaled $17.2 million at December 31, 2013, and were structured with both fixed rate terms and adjustable rate terms, and had remaining maturities ranging from less than one month to 6.5 years. Furthermore, brokered certificates of deposits with adjustable rate terms were structured with call features allowing the Company to call the certificate should interest rates move in a favorable direction. These call features are generally exercisable within six to twelve months of issuance date and quarterly thereafter.
Operating Results for the Fourth Quarter of 2013
Net income attributable to Bank of Commerce Holdings was $2.1 million for the three months ended December 31, 2013 compared with $1.8 million for the prior quarter and $1.4 million for the same period a year ago. The increase in net income in the current quarter compared to the same period a year ago is primarily driven by the decrease in the provision for loan losses of $4.6 million partially offset by decreased gains on sale of available for sale securities included in noninterest income of $2.0 million and an increase in the current year tax provision of $907 thousand. The increase in net income attributable to Bank of Commerce Holdings from the prior quarter was primarily due to decrease in the provision for loan loss.
Net income available to common shareholders was $2.0 million for the three months ended December 31, 2013, compared with $1.2 million for the same period a year ago. Net income available to common shareholders increased during the three months ended December 31, 2013 compared with the same period a year ago due to increased net income attributable to Bank of Commerce Holdings and a $146 thousand decrease in preferred stock dividends payable to the U.S. Treasury pursuant to the SBLF program. As a result of increased qualified lending, preferred stock dividends for the SBLF program are fixed at the current rate of 1% through January 2016.
Diluted EPS from continuing operations were $0.14 for the three months ended December 31, 2013 compared with $0.08 for the same period a year ago, and $0.12 for the prior period. EPS attributable to continuing operations increased during the three months ended December 31, 2013 compared to the same period a year ago due to a combination of the increase in net income attributable to Bank of Commerce Holdings, decreased preferred stock dividends and decreased weighted average shares. The decrease in weighted average shares directly resulted from the repurchase of 2.0 million common shares through two separate repurchase plans announced and completed in 2013. All repurchased shares were retired subsequent to purchase. As such, the weighted average number of dilutive common shares outstanding decreased by 1.4 million during the twelve months ended December 31, 2013.
The Company declared cash dividends of $0.03 per share for the fourth quarter of 2013, consistent with the quarterly dividends paid in each quarter of 2012 and the first three quarters of 2013. In addition to the Company's quarterly cash dividend, during the third quarter of 2013, the Company declared a special cash dividend of $0.02 per share.
Table 5
SUMMARY INCOME
STATEMENT
(Dollars
in
thousands) Q4 Q4 Change Q3 Change
2013 2012 Amount % 2013 Amount %
---- ---- ------ --- ---- ------ ---
Net
interest
income $8,494 $8,754 $(260) -3% $8,496 $(2) 0%
Provision
for
loan
and
lease
losses 0 4,550 (4,550) -100% 300 (300) -100%
Noninterest
income 719 2,713 (1,994) -73% 974 (255) -26%
Noninterest
expense 5,693 5,007 686 14% 5,937 (244) -4%
----- ----- --- --- ----- ---- ---
Income
from
continuing
operations
before
income
taxes 3,520 1,910 1,610 84% 3,233 287 9%
Provision
for
income
tax 1,433 526 907 172% 1,431 2 0%
----- --- --- --- ----- --- ---
Net
income
from
continuing
operations 2,087 1,384 703 51% 1,802 285 16%
Less:
Preferred
dividend
and
accretion
on
preferred
stock 50 196 (146) -74% 50 0 0%
--- --- --- ---
Income
available
to
common
shareholders $2,037 $1,188 $849 71% $1,752 $285 16%
====== ====== ==== === ====== ==== ===
Basic
earnings
per
share
attributable
to
continuing
operations $0.14 $0.08 $0.06 75% $0.12 $0.02 17%
Average
basic
shares 14,143 16,034 (1,891) -12% 14,829 (686) -5%
Diluted
earnings
per
share
attributable
to
continuing
operations $0.14 $0.08 $0.06 75% $0.12 $0.02 17%
Average
diluted
shares 14,176 16,034 (1,858) -12% 14,853 (677) -5%
Net interest income is the largest source of our operating income. Net interest income for the three months ended December 31, 2013 was $8.5 million compared to $8.5 million in the prior quarter and $8.8 million during the same period a year ago.
Interest income for the three months ended December 31, 2013 was $9.3 million, a decrease of $545 thousand or 6% compared to the same period a year ago. The decrease in interest income during the fourth quarter of 2013 compared to the same period a year ago was primarily driven by decreased volume in the loan portfolio, partially offset by increased investment securities volume. Average loans decreased $53.0 million including a decrease in average nonaccruing loans at of $9.5 million at December 31, 2013 compared to the same period a year ago. The decrease in average loans is primarily attributed to the $65.1 million decrease in a commercial secured borrowing line held with the Bank's former mortgage subsidiary used to fund 1-4 family mortgage loan originations. The decrease in volume in the commercial secured borrowing line is primarily attributable to an increase in mortgage market interest rates, resulting in lower volume. As a result, during the three months ended December 31, 2013, loan interest income decreased $594 thousand or 7% compared to the same period a year ago.
Interest income recognized from the investment securities portfolio increased $49 thousand during the three months ended December 31, 2013 compared to the same period a year ago. The increase interest income derived from the investment securities portfolio was primarily attributable to increased volume. Average quarterly securities balances and weighted average tax equivalent yields at December 31, 2013 and 2012 were $252.7 million and 3.24% compared to $223.1 million and 3.51%, respectively.
Interest expense for the current quarter was $807 thousand, a decrease of $285 thousand or 26% compared to the same period a year ago. During the current quarter of 2013, the Company continued to benefit from the re-pricing of deposits, and significantly lower FHLB borrowings expense which was primarily driven by lower rate and volume.
Table 6
NET INTEREST SPREAD AND MARGIN
(Dollars
in
thousands) Q4 Q4 Change Q3 Change
2013 2012 Amount 2013 Amount
---- ---- ------ ---- ------
Tax
equivalent
yield
on
average
interest
earning
assets 4.29% 4.42% -0.13% 4.26% 0.03%
Rate
on
average
interest
bearing
liabilities 0.47% 0.61% -0.14% 0.47% 0.00%
---- ---- ----- ---- ----
Net
interest
spread 3.82% 3.81% 0.01% 3.79% 0.03%
Net
interest
margin
on
a
tax
equivalent
basis 3.93% 3.95% -0.02% 3.90% 0.03%
---- ---- ----- ---- ----
Average
earning
assets $895,101 $917,140 $(22,039) $904,022 $(8,921)
Average
interest
bearing
liabilities $692,739 $717,671 $(24,932) $709,096 $(16,357)
----------- -------- -------- ------- -------- --------
The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.93% for the three months ended December 31, 2013, a decrease of 2 basis points ("bp") as compared to the same period a year ago. The decrease in net interest margin primarily resulted from a 13 bp decline in yield on average earning assets offset by a 11 bp decrease in interest expense to average earning assets. With decreasing elasticity in managing our funding costs and historically low interest rates, maintaining our net interest margin in the foreseeable future will continue to present significant challenges. Accordingly, management will continue to pursue organic loan growth, wholesale loan purchases, and actively manage the investment securities portfolio within our accepted risk tolerance to maximize yield on earning assets.
Noninterest income for the three months ended December 31, 2013 was $719 thousand, a decrease of $1.9 million or 73% when compared to the same period a year ago. The following table presents the key components of noninterest income for the three months ended December 31, 2013 and 2012, and September 30, 2013:
Table 7
NONINTEREST INCOME
(Dollars
in
thousands) Q4 Q4 Change Q3 Change
2013 2012 Amount % 2013 Amount %
---- ---- ------ --- ---- ------ ---
Service
charges
on
deposit
accounts $45 $42 $3 7% $46 $(1) -2%
Payroll
and
benefit
processing
fees 129 143 (14) -10% 113 16 14%
Earnings
on
cash
surrender
value
-
bank
owned
life
insurance 133 129 4 3% 133 - 0%
Gain
(loss)
on
investment
securities,
net 64 2,085 (2,021) -97% 336 (272) -81%
Merchant
credit
card
service
income,
net 31 32 (1) -3% 33 (2) -6%
Other
income 317 282 35 12% 313 4 1%
--- --- --- --- --- --- ---
Total
noninterest
income $719 $2,713 $(1,994) -73% $974 $(255) -26%
==== ====== ======= === ==== ===== ===
Gains on the sale of investment securities decreased $2.0 million to $64 thousand during the current quarter, compared to $2.1 million for the same period a year ago. During the three months ended December 31, 2013, the Company purchased twenty-seven securities with weighted average yields of 3.10%. During the same period the Company sold twenty-eight securities with weighted average yields of 2.13%. Generally, securities purchased had relatively moderate duration with relatively solid cash flows and yield.
The major components of other income are fees earned on ATM transactions, mortgage fee income, online banking services, wire transfers, and FHLB dividends. The increase in other income in the current quarter compared to the same period a year ago is primarily driven by $47 thousand increase in the FHLB dividends received during the three months ended December 31, 2013 compared to the same period a year ago. Changes in the components of other income are a result of normal operating activities.
Noninterest expense for the three months ended December 31, 2013 was $5.7 million, an increase of $686 thousand or 14% compared to the same period a year ago. The following table presents the key elements of noninterest expense for the three months ended December 31, 2013 and 2012, and September 30, 2013:
Table 8
NONINTEREST EXPENSE
(Dollars in thousands) Q4 Q4 Change Q3 Change
2013 2012 Amount % 2013 Amount %
---- ---- ------ --- ---- ------ ---
Salaries and related benefits $3,172 $2,645 $527 20% $2,865 $307 11%
Occupancy and equipment expense 554 535 19 4% 549 5 1%
FDIC insurance premium 190 208 (18) -9% 202 (12) -6%
Data processing fees 150 142 8 6% 127 23 18%
Professional service fees 315 216 99 46% 364 (49) -13%
Deferred compensation expense 121 154 (33) -21% 110 11 10%
Other expenses 1,191 1,107 84 8% 1,720 (529) -31%
----- ----- --- ----- ---- ---
Total noninterest expense $5,693 $5,007 $686 14% $5,937 $(244) -4%
====== ====== ==== === ====== ===== ===
Salaries and related benefits increased $527 thousand or 20% and $307 thousand or 11% compared to the same period a year ago and the prior quarter respectively. The increases in salaries and related benefits expense was primarily driven by increased FTE and employment severance payments made to certain senior officers.
Data processing expense for the three months ended December 31, 2013 was $150 thousand, an increase of $23 thousand or 18% compared to the prior quarter. The increase in data processing expense is primarily driven by increases in software maintenance and licensing expenses. The Bank continues to strive to make improvements in network infrastructure and systems, and expects to see continued increased costs in these expenses for the foreseeable future.
Professional service fees encompass audit, legal and consulting fees. Professional service fees for the three months ended December 31, 2013 was $315 thousand, an increase of $99 thousand or 46% compared to the same period a year ago. The increase in professional fees was primarily driven by increased fees and usage of external audit and professional services.
Deferred compensation expense for the three months ended December 31, 2013 was $121 thousand, a decrease of $33 thousand compared to the same period a year ago. During the second quarter of 2013, the Company revised the Supplemental Executive Retirement Plan (SERP) resulting in a reversal of current year and prior years accrued deferred compensation expenses. Deferred compensation expense for the three months ended December 31, 2013 increased $11 thousand or 10% compared to amounts recorded during the three months ended September 30, 2013. The increase in deferred compensation expense during the current quarter compared to the prior quarter was primarily driven by an interest rate revision to the participant's plans, which resulted in the reversal of previously accrued interest expense in the prior quarter.
Other expenses for the three months ended December 31, 2013 were $1.2 million, a decrease of $529 thousand or 31% compared to the prior quarter. The decrease in other expenses during the three months ended December 31, 2013 compared to the prior quarter was primarily driven by the $503 thousand loss recognized from the termination of an interest rate hedge using a forward starting interest rate swap.
Table 9
ALLOWANCE ROLL FORWARD
(Dollars in thousands) Q4 Q3 Q2 Q1 Q4
2013 2013 2013 2013 2012
---- ---- ---- ---- ----
Beginning balance $13,542 $13,133 $11,350 $11,103 $10,560
Provision for loan loss charged to expense - 300 1,400 1,050 4,550
Loans charged off (815) (635) (474) (845) (4,183)
Loan loss recoveries 1,445 744 857 42 176
----- --- --- --- ---
Ending balance $14,172 $13,542 $13,133 $11,350 $11,103
Gross portfolio loans outstanding at period end $597,995 $594,562 $617,398 $612,608 $664,051
Ratio of allowance for loan and lease losses to total loans 2.37% 2.28% 2.13% 1.85% 1.67%
Nonaccrual loans at period end:
Commercial $6,527 $7,501 $7,898 $3,420 $2,935
Construction - - - - -
Commercial real estate 14,539 16,895 16,614 23,363 24,008
Residential real estate 8,217 10,953 11,165 11,302 11,630
Home equity 513 517 345 - -
--- --- --- --- ---
Total nonaccrual loans $29,796 $35,866 $36,022 $38,085 $38,573
Accruing troubled debt restructured loans
Commercial $63 $65 $68 $70 $523
Construction - - - - -
Commercial real estate 3,864 1,742 1,748 4,593 4,598
Residential real estate 4,303 2,996 3,174 2,954 2,934
Home equity 598 604 531 536 561
--- --- --- --- ---
Total accruing restructured loans $8,828 $5,407 $5,521 $8,153 $8,616
All other accruing impaired loans 3,517 4,190 4,445 1,426 471
Total impaired loans $42,141 $45,463 $45,988 $47,664 $47,660
======= ======= ======= ======= =======
Allowance for loan and lease losses to nonaccrual loans at period end 47.56% 37.76% 36.46% 29.80% 28.78%
Nonaccrual loans to total loans 4.98% 6.03% 5.83% 6.22% 5.81%
Allowance for loan and lease losses to impaired loans 33.63% 29.79% 28.56% 23.81% 23.30%
The ALLL allocation increased to $14.2 million compared to $13.5 million in the prior quarter and $11.1 million reported as of December 31, 2012
During the current quarter, the Company made no additional provisions for loan losses compared to provision expense of $300 thousand in the prior quarter and $4.5 million during the same period a year ago. The Company realized net recoveries of $630 thousand in the current quarter compared to net recoveries of $109 thousand for the prior quarter and net charge offs of $4.0 million in the same period a year ago. The increase in net recoveries in the current quarter is primarily due to the receipt of full principal payment on an impaired commercial real estate that had a carrying amount of $2.1 million, and previously charged off principal of $1.3 million.
The Company continues to monitor credit quality, and adjust the ALLL accordingly. As such, the Company made no additional provisions for loan losses during the fourth quarter of 2013, compared with $4.6 million during the same period a year ago. The decrease in current period provision is supported by the decrease in net charge offs in the current year compared to the last two quarters of 2012. The Company's ALLL as a percentage of gross portfolio loans was 2.37% and 2.28% as of December 31, 2013, and September 30, 2013, respectively.
The charge offs in the current quarter were in the Real estate - ITIN and Commercial loan portfolios. During the fourth quarter of 2013, the Bank's loan portfolio reflected higher recovery rates relative to the previous four quarters. Management is cautiously optimistic that given continuing improvement in local and national economic conditions, the Company's impaired assets will continue to trend down. However, the commercial real estate and commercial loan portfolios continue to be influenced by weak real estate values, the effects of relatively high unemployment levels, and less than robust economic conditions. At December 31, 2013, management believes the Company's ALLL is adequately funded given the current level of credit risk.
At December 31, 2013, the recorded investment in loans classified as impaired totaled $42.1 million, with a corresponding valuation allowance (included in the ALLL) of $4.8 million. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans. At September 30, 2013, the total recorded investment in impaired loans was $45.5 million, with a corresponding valuation allowance (included in the ALLL) of $4.3 million.
Loans are reported as troubled debt restructurings (TDR) when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the note rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as the Bank will not collect all amounts due, both principal and interest, in accordance with the terms of the original loan agreement. Impairment reserves on non collateral dependent restructured loans are measured by comparing 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 current quarter, the Company restructured two loans to grant rate and payment deferral concessions, four loans were restructured to grant maturity concessions and one loan was granted a payment deferral concession. The loans were classified as TDR's and five of the seven loans were placed on nonaccrual status.
As of December 31, 2013, the Company had $33.4 million in TDRs compared to $26.9 million as of September 30, 2013. As of December 31, 2013, the Company had one hundred and eighteen restructured loans that qualified as TDRs, of which one hundred and two were performing according to their restructured terms. TDRs represented 5.59% of gross portfolio loans as of December 31, 2013 compared with 4.53% at September 30, 2013.
Table 10
PERIOD END TROUBLED DEBT
RESTRUCTURINGS
(Dollars
in
thousands) Q4 Q3 Q2 Q1 Q4
2013 2013 2013 2013 2012
---- ---- ---- ---- ----
Nonaccrual $24,596 $21,511 $15,552 $15,811 $16,050
Accruing 8,828 5,407 5,521 8,153 8,616
----- ----- ----- ----- -----
Total
troubled
debt
restructurings $33,424 $26,918 $21,073 $23,964 $24,666
------- ------- ------- ------- -------
Percentage
of total
gross
portfolio
loans 5.59% 4.53% 3.41% 3.91% 3.71%
Nonperforming loans, which include nonaccrual loans and accruing loans past due over 90 days, totaled $29.8 million or 4.98% of total portfolio loans as of December 31, 2013, compared to $35.9 million, or 6.03% of total loans at September 30, 2013. Nonperforming assets, which include nonperforming loans and other real estate owned ("OREO"), totaled $30.7 million, or 3.23% of total assets as of December 31, 2013, compared with $36.8 million, or 3.95% of total assets as of September 30, 2013. As of December 31, 2013, nonperforming assets of $30.7 million have been written down by 15%, or $4.6 million, from their original balance of $39.1 million.
Table 11
PERIOD END
NONPERFORMING
ASSETS
(Dollars in
thousands) Q4 Q3 Q2 Q1 Q4
2013 2013 2013 2013 2012
---- ---- ---- ---- ----
Commercial $6,527 $7,501 $7,898 $3,420 $2,935
Real estate
mortgage
1-4 family,
closed end 1st
lien 1,322 1,740 1,797 1,846 1,805
1-4 family
revolving 513 517 345 - -
ITIN 1-4 family
loan pool 6,895 9,213 9,368 9,456 9,825
Total real estate
mortgage 8,730 11,470 11,510 11,302 11,630
Commercial real
estate 14,539 16,895 16,614 23,363 24,008
---- ------ ------ ---- ------
Total nonaccrual
loans 29,796 35,866 36,022 38,085 38,573
90 days past due
not on
nonaccrual - - - - -
--- --- --- --- ---
Total
nonperforming
loans 29,796 35,866 36,022 38,085 38,573
Other real estate
owned 913 959 1,360 1,785 3,061
--- --- ----- ----- -----
Total
nonperforming
assets $30,709 $36,825 $37,382 $39,870 $41,634
Nonperforming
loans to total
loans 4.98% 6.03% 5.83% 6.21% 5.81%
Nonperforming
assets to total
assets 3.23% 3.95% 3.91% 4.07% 4.25%
---------------- ---- ---- ---- ---- ----
Table 12
OTHER REAL ESTATE
OWNED ACTIVITY
(Dollars in thousands) Q4 Q3 Q2 Q1 Q4
2013 2013 2013 2013 2012
---- ---- ---- ---- ----
Beginning balance $959 $1,360 $1,785 $3,061 $3,052
Additions to OREO 98 146 184 1,157 242
Dispositions of OREO (144) (547) (609) (2,433) (233)
---- ---- ---- ----- ----
Ending balance $913 $959 $1,360 $1,785 $3,061
-------------- ---- ---- ---- ------ ----
At December 31, 2013, and September 30, 2013, the recorded investment in OREO was $913 thousand and $959 thousand, respectively. For the three months ended December 31, 2013, the Company transferred foreclosed property from one loan in the amount of $98 thousand to OREO and no adjustments to the ALLL were necessary. During the three months ended December 31, 2013, no further impairment was identified on the foreclosed properties. During this period, the Company sold two existing properties with balances of $144 thousand for a net loss of $30 thousand. The December 31, 2013 OREO balance consists of three properties, of which two are secured by 1-4 family residential real estate in the amount of $163 thousand. The remaining property consists of improved commercial land in the amount of $750 thousand.
Table 13 INCOME STATEMENT
(Amounts in thousands, except for per share data) Q4 Q4 Change Q3 Full Year Full Year
2013 2012 $ % 2013 2013 2012
---- ---- --- --- ---- ---- ----
Interest income:
Interest and fees on loans $7,432 $8,026 $(594) -7% $7,487 $29,918 $33,148
Interest on tax-exempt securities 658 622 36 6% 673 2,610 2,399
Interest on U.S. government securities 492 390 102 26% 445 1,702 1,615
Interest on other securities 719 808 (89) -11% 716 3,031 3,175
--- --- --- --- --- ----- -----
Total interest income 9,301 9,846 (545) -6% 9,321 37,261 40,337
Interest expense:
Interest on demand deposits 121 153 (32) -21% 113 485 610
Interest on savings deposits 60 83 (23) -28% 61 254 394
Interest on certificates of deposit 635 761 (126) -17% 639 2,625 3,697
Interest on securities sold under repurchase agreements - 5 (5) -100% - 6 24
Interest on FHLB borrowings (104) (14) (90) 643% (84) (267) 85
Interest on other borrowings 95 104 (9) -9% 96 375 419
--- --- --- --- ---
Total interest expense 807 1,092 (285) -26% 825 3,478 5,229
--- ----- ---- --- --- ----- -----
Net interest income 8,494 8,754 (260) -3% 8,496 33,783 35,108
Provision for loan and lease losses - 4,550 (4,550) -100% 300 2,750 9,400
--- ----- ------ ---- --- ----- -----
Net interest income after provision for loan and lease losses 8,494 4,204 4,290 102% 8,196 31,033 25,708
Noninterest income:
Service charges on deposit accounts 45 42 3 7% 46 191 188
Payroll and benefit processing fees 129 143 (14) -10% 113 484 538
Earnings on cash surrender value - bank owned life insurance 133 129 4 3% 133 534 470
Gain (loss) on investment securities, net 64 2,085 (2,021) -97% 336 995 3,822
Merchant credit card service income, net 31 32 (1) -3% 33 129 144
Other income 317 282 35 12% 313 1,209 1,431
--- --- --- --- --- ----- -----
Total noninterest income 719 2,713 (1,994) -73% 974 3,542 6,593
Noninterest expense:
Salaries and related benefits 3,172 2,645 527 20% 2,865 12,035 11,030
Occupancy and equipment expense 554 535 19 4% 549 2,205 2,058
Write down of other real estate owned - - - - - - 425
FDIC insurance premium 190 208 (18) -9% 202 725 820
Data processing fees 150 142 8 6% 127 547 421
Professional service fees 315 216 99 46% 364 1,241 1,078
Deferred compensation expense 121 154 (33) -21% 58 179 594
Other expenses 1,191 1,107 84 8% 1,772 5,309 5,206
----- --- --- ----- ----- -----
Total noninterest expense 5,693 5,007 686 14% 5,937 22,241 21,632
----- ----- --- --- ----- ------ ------
Income before provision (benefit) for income taxes 3,520 1,910 1,610 84% 3,233 12,334 10,669
Provision (benefit) for income taxes 1,433 526 907 172% 1,431 4,399 3,109
----- --- --- --- ----- ----- -----
Net Income from continuing operations $2,087 $1,384 $703 51% $1,802 $7,935 $7,560
Discontinued Operations:
Income (loss) from discontinued operations - - - - - - 535
Income tax expense associated with income (loss) from discontinued operations - - - - - - 331
Net income (loss) from discontinued operations - - - - - - 204
=== === === === === === ===
Less: Net income (loss) from discontinued operations attributable to noncontrolling
interest - - - - - - 348
Net income (loss) from discontinued operations attributable to controlling interest - - - - - - (144)
Net income attributable to Bank of Commerce Holdings 2,087 1,384 703 51% 1,802 7,935 7,416
===== ===== === === ===== ===== =====
Less: Preferred dividend and accretion on preferred stock 50 196 (146) -74% 50 200 880
Income available to common shareholders $2,037 $1,188 $849 71% $1,752 $7,735 $6,536
====== ====== ==== === ====== ====== ======
Basic earnings per share attributable to continuing operations $0.14 $0.08 $0.06 75% $0.12 $0.52 $0.41
Basic earnings per share attributable to discontinued operations - - - - - - $(0.01)
Average basic shares 14,143 16,034 (1,891) -12% $14,829 $14,940 $16,344
Diluted earnings per share attributable to continuing operations $0.14 $0.08 $0.06 75% $0.12 $0.52 $0.41
Diluted earnings per share attributable to discontinued operations - - - - - - $(0.01)
Average diluted shares 14,176 16,034 (1,858) -12% 14,853 14,964 16,344
---------------------- ------ ------ ------ --- ------ ------ ------
Table 14 BALANCE SHEET
(Dollars in thousands) December 31, December 31, Change September 30,
ASSETS 2013 2012 $ % 2013
---- ---- --- --- ----
Cash and due from
banks $38,369 $21,756 $16,613 76% $28,616
Interest bearing due
from banks 20,146 23,312 (3,166) -14% 20,379
------ ------ ------ --- ------
Total cash and cash
equivalents 58,515 45,068 13,447 30% 48,995
Securities available-
for-sale, at fair
value 216,640 197,354 19,286 10% 209,642
Securities held-to-
maturity, at
amortized cost 36,696 31,483 5,213 17% 34,814
Portfolio loans 598,298 664,363 (66,065) -10% 594,844
Allowance for loan
losses (14,172) (11,103) (3,069) 28% (13,542)
------- ------- ------ --- -------
Net loans 584,126 653,260 (69,134) -11% 581,302
Mortgage loans held
for sale - - - - -
Total interest earning
assets 910,149 938,268 (28,119) -3% 888,295
Bank premises and
equipment, net 10,893 9,736 1,157 12% 10,533
Other intangibles - 55 (55) -100% 31
Other real estate
owned 913 3,061 (2,148) -70% 959
Other assets 43,763 39,407 4,356 11% 45,541
------ ------ ----- --- ------
TOTAL ASSETS $951,546 $979,424 $(27,878) -3% $931,817
======== ======== ======= === ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Demand -noninterest
bearing $133,984 $117,474 $16,510 14% $128,299
Demand -interest
bearing 273,390 239,592 33,798 14% 257,390
Savings accounts 90,442 89,364 1,078 1% 92,043
Certificates of
deposit 248,477 254,622 (6,145) -2% 247,791
------- ------- ------ --- -------
Total deposits 746,293 701,052 45,241 6% 725,523
Securities sold under
agreements to
repurchase - 13,095 (13,095) -100% -
Federal Home Loan Bank
Bank borrowings 75,000 125,000 (50,000) -40% 75,000
Junior subordinated
debentures 15,465 15,465 - 0% 15,465
Other liabilities 13,001 14,491 (1,490) -10% 13,062
------ ------ ------ --- ------
Total Liabilities 849,759 869,103 (19,344) -2% 829,050
Total Stockholders'
Equity 101,787 110,321 (8,534) -8% 102,767
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $951,546 $979,424 $(27,878) -3% $931,817
======== ======== ======= === ========
Table YEAR TO DATE AVERAGE BALANCE
15 SHEET
(Dollars
in
thousands) December 31, December 31, December 31, December 31,
2013 2012 2011 2010
---- ---- ---- ----
Earning
assets:
Loans $612,819 $642,200 $626,275 $635,074
Tax
exempt
securities 92,854 81,714 52,467 42,172
US
government
securities 3,015 209 19,182 27,423
Mortgage
Backed
securities 66,426 61,434 67,052 48,972
Other
securities 88,045 73,972 44,664 15,702
Interest
bearing
due
from
banks 43,397 48,712 64,399 70,911
Fed
funds
sold - - - 995
--- --- --- ---
Average
earning
assets 906,556 908,241 874,039 841,249
Cash
and
DFB 10,570 10,125 2,251 1,781
Bank
premises 10,338 9,567 9,489 9,814
Other
assets 26,838 24,249 21,421 48,116
Average
total
assets $954,302 $952,182 $907,200 $900,960
======== ======== ======== ========
Interest
bearing
liabilities:
Demand
-
interest
bearing $244,125 $203,342 $157,696 $141,983
Savings
deposits 92,502 89,789 91,876 76,718
Certificates
of
deposit 249,500 285,574 296,381 321,051
Repurchase
Agreements 5,780 14,246 14,805 12,274
Other
Borrowings 125,144 125,839 130,933 128,249
------- ------- ------- -------
717,051 718,790 691,691 680,275
Demand
-
noninterest
bearing 126,017 115,091 100,722 92,433
Other
liabilities 5,041 7,033 6,679 32,615
Shareholders'
equity 106,193 111,268 108,108 95,637
Average
liabilities
&
equity $954,302 $952,182 $907,200 $900,960
======== ======== ======== ========
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(TM) which operates under two separate names (Redding Bank of Commerce(TM) and Roseville Bank of Commerce(TM), 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
John T. Cavender
555 Market Street
San Francisco, CA 94105
(800) 346-5544
Sandler & O'Neil
Bryan Sullivan
919 Third Avenue, 6(th) Floor
New York, NY 10022
(888) 383-3112
McAdams Wright Ragen, Inc.
Joey Warmenhoven
1121 SW Fifth Avenue
Suite 1400
Portland, OR 97204
(866) 662-0351
Stifel Nicolaus
Perry Wright
1255 East Street #100
Redding, CA 96001
(530) 244-7199
FIG Partners
Mike Hedrei
1175 Peachtree Street NE #100
Colony Square Suite 2250
Atlanta, GA 30361
(212) 899-5217
SOURCE Bank of Commerce Holdings
