Bank of Commerce Holdings Announces Results for the Second

REDDING, Calif., July 22, 2016 (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 ended June 30, 2016. Net income available to common shareholders for the quarter ended June 30, 2016 was $1.6 million or $0.11 per share – diluted, compared with net income available to common shareholders of $2.3 million or $0.18 per share – diluted for the same period of 2015.

The current quarter is the first full quarter which includes the benefits derived from the acquisition of five Bank of America branches in March 2016 and the reconfiguration of the Company’s Balance Sheet using liquidity provided by those branches. Compared against the first quarter of 2016:

Net interest income increased $913 thousand (11%)
Net interest margin increased from 3.44% to 3.74%
Average interest rate paid on all deposits decreased from 37 basis points to 30 basis points

Randall S. Eslick, President and CEO commented: “We are pleased to see that the first quarter reconfiguration of our Balance Sheet has provided the benefits we anticipated. Healthy loan growth has had a very positive impact on interest income. The elimination of most brokered and wholesale borrowings and the sizeable growth in low cost core deposits have substantially reduced interest expense. We believe our branch acquisition and financial reconfiguration have achieved the planned results.”

Unrelated to the branch acquisition, the second quarter results were negatively impacted by the $546 thousand impairment of a bond investment which is described in more detail later in this press release.

Financial highlights for the second quarter of 2016:

Net income available to common shareholders totaled $1.6 million
Return on average assets was 0.59%
Return on average equity was 6.85%
Total deposits for the quarter averaged $931.1 million, an increase of $106.9 million from the previous quarter average of $824.2 million
Term debt for the quarter averaged $19.5 million, a decrease of $71.9 million from the previous quarter average of $91.4 million
Gross loans at June 30, 2016 totaled $754.1 million, an increase of $29.9 million (17% annualized) since March 31, 2016
Nonperforming assets at June 30, 2016 totaled $11.7 million or 1.09% of total assets
Net loan loss recoveries of $369 thousand combined with continuing improved asset quality resulted in no provision for loan and lease losses
Tangible book value per common share was $6.71 at June 30, 2016

Financial highlights for the six months ended June 30, 2016:

Net income available to common shareholders totaled $596 thousand
Return on average assets was 0.11%
Return on average equity was 1.31%
Gross loans at June 30, 2016 totaled $754.1 million, an increase of $37.5 million (11% annualized) since December 31, 2015.
Nonperforming assets at June 30, 2016 totaled $11.7 million, a decrease of $3.8 million (49% annualized) compared to December 31, 2015

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 Six Months Ended
Net income, average assets and	June 30,						March 31,				June 30,
average shareholders' equity	2016			2015			2016				2016			2015
Income (loss) available to common shareholders	$	1,556		$	2,340		$	(960	)		$	596		$	4,091
Average total assets	$	1,064,186		$	993,815		$	1,034,203			$	1,049,192		$	986,406
Average shareholders' equity	$	91,317		$	106,198		$	91,307			$	91,312		$	105,412

Selected performance ratios
Return on average assets		0.59	%		0.94	%		(0.37	)	%		0.11	%		0.84	%
Return on average equity		6.85	%		8.84	%		(4.23	)	%		1.31	%		7.83	%
Efficiency ratio		79.43	%		64.61	%		108.08		%		93.45	%		68.00	%

Share and per share amounts
Weighted average shares - basic		13,367			13,338			13,360				13,364			13,320
Weighted average shares - diluted		13,425			13,370			13,360				13,408			13,353
Earnings (loss) per share - basic	$	0.11		$	0.18		$	(0.07	)		$	0.04		$	0.31
Earnings (loss) per share - diluted	$	0.11		$	0.18		$	(0.07	)		$	0.04		$	0.31

	At June 30,						At March 31,
Share and per share amounts	2016			2015			2016
Common shares outstanding ⁽¹⁾		13,439			13,364			13,442
Tangible book value per common share	$	6.71		$	6.48		$	6.57

Capital ratios
Bank of Commerce Holdings
Common equity tier 1 capital ratio		9.69	%		9.96	%		9.82		%
Tier 1 capital ratio ⁽²⁾		10.77	%		13.33	%		10.93		%
Total capital ratio ⁽²⁾		13.11	%		14.58	%		13.30		%
Tier 1 leverage ratio ⁽²⁾		9.34	%		11.76	%		9.48		%

Redding Bank of Commerce
Common equity tier 1 capital ratio		12.80	%		13.27	%		13.07		%
Tier 1 capital ratio		12.80	%		13.27	%		13.07		%
Total capital ratio		14.05	%		14.52	%		14.32		%
Tier 1 leverage ratio		11.14	%		11.75	%		11.36		%
⁽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 decline in the capital ratios of Bank of Commerce Holdings as of June 30, 2016 compared to June 30, 2015 is primarily due to the redemption of $20.0 million of preferred stock (Tier 1 capital) during the fourth quarter of 2015. The $10.0 million of subordinated debt issued during the fourth quarter of 2015 qualifies as Tier 2 capital under the applicable capital adequacy rules and regulations promulgated by the Federal Reserve. The capital ratios for 2016 were also impacted by the addition of $1.8 million of core deposit intangibles and $665 thousand of goodwill recorded in conjunction with a branch acquisition in March of 2016.

BALANCE SHEET OVERVIEW

As of June 30, 2016, the Company had total consolidated assets of $1.1 billion, gross loans of $754.1 million, allowance for loan and lease losses (“ALLL”) of $11.9 million, total deposits of $937.6 million, and shareholders’ equity of $92.5 million.


TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
	At June 30,																	At March 31,
				% of					% of		Change											% of
	2016			Total		2015			Total		Amount			%					2016			Total
Commercial	$	150,410		20	%	$	143,088		20	%	$	7,322			5		%		$	136,721		19	%
Real estate - construction and land development		39,009		5			27,858		4			11,151			40		%			27,554		4
Real estate - commercial non-owner occupied		253,873		35			236,173		34			17,700			7		%			247,840		34
Real estate - commercial owner occupied		154,480		20			138,183		20			16,297			12		%			154,484		21
Real estate - residential - ITIN		47,188		6			51,249		7			(4,061	)		(8	)	%			48,384		7
Real estate - residential - 1-4 family mortgage		10,862		1			12,209		2			(1,347	)		(11	)	%			10,947		2
Real estate - residential - equity lines		43,971		6			46,463		7			(2,492	)		(5	)	%			44,327		6
Consumer and other		54,347		7			44,551		6			9,796			22		%			53,986		7
Gross loans		754,140		100	%		699,774		100	%		54,366			8		%			724,243		100	%
Deferred fees and costs		1,028					403					625								985
Loans, net of deferred fees and costs		755,168					700,177					54,991								725,228
Allowance for loan and lease losses		(11,864	)				(11,402	)				(462	)							(11,495	)
Net loans	$	743,304				$	688,775				$	54,529							$	713,733

Average yield on loans during the quarter		4.76	%				4.74	%				0.02								4.72	%

The Company recorded gross loan balances of $754.1 million at June 30, 2016, compared with $699.8 million and $724.2 million at June 30, 2015 and March 31, 2016, respectively, an increase of $54.4 million and $29.9 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. The increase in deferred fees and costs from June 30, 2015 to June 30, 2016 was the result of increased loan production and revised loan origination costs based on an updated loan origination cost study.

The increase in the ALLL in the current quarter compared to the prior quarter resulted from net loan loss recoveries of $369 thousand. As a result of these net recoveries and continued improved asset quality, no provision for loan and lease losses was deemed necessary during the current quarter or during the prior five consecutive quarters. See table 8 for additional details of the ALLL.


TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
	At June 30,																	At March 31,
				% of					% of		Change										% of
	2016			Total		2015			Total		Amount			%				2016			Total

Cash and due from banks	$	14,695		5	%	$	11,115		5	%	$	3,580			32		%	$	14,969		5	%
Interest-bearing deposits in other banks		51,345		20			21,681		9			29,664			137		%		70,781		24
Total cash and cash equivalents		66,040		25			32,796		14			33,244			101		%		85,750		29

Investment securities:
U.S. government and agencies		3,262		1			5,314		2			(2,052	)		(39	)	%		3,915		1
Obligations of state and political subdivisions		59,015		23			51,324		24			7,691			15		%		61,288		21
Residential mortgage backed securities and collateralized mortgage obligations		45,015		17			37,776		16			7,239			19		%		51,721		18
Corporate securities		22,313		9			33,501		15			(11,188	)		(33	)	%		23,764		8
Commercial mortgage backed securities		14,865		6			9,467		4			5,398			57		%		14,571		5
Other asset backed securities		13,436		5			23,381		10			(9,945	)		(43	)	%		18,992		6
Total investment securities - AFS		157,906		61			160,763		71			(2,857	)		(2	)	%		174,251		59

Obligations of state and political subdivisions - HTM		35,415		14			36,655		15			(1,240	)		(3	)	%		35,357		12
Total investment securities - AFS and HTM		193,321		75			197,418		86			(4,097	)		(2	)	%		209,608		71
Total cash, cash equivalents and investment securities	$	259,361		100	%	$	230,214		100	%	$	29,147			13		%	$	295,358		100	%
Average yield on interest bearing due from banks and investment securities during the quarter		2.37	%				2.59	%				(0.22	)						2.35	%

As of June 30, 2016, we maintained noninterest-bearing cash positions at the Federal Reserve Bank and correspondent banks in the amount of $14.7 million. We also held interest-bearing deposits in the amount of $51.3 million. The sizeable increase in interest-bearing deposits compared to the same period a year ago derives from liquidity provided by the recent branch acquisition. It is anticipated that much of this liquidity will continue to be deployed into new loans over the remainder of the year.

Available-for-sale investment securities totaled $157.9 million at June 30, 2016, compared with $160.8 million and $174.3 million at June 30, 2015 and March 31, 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 second quarter of 2016 we purchased 2 securities with a par value of $4.1 million and weighted average yield of 2.10% and sold 13 securities with a par value of $13.5 million and weighted average yield of 3.39%. The sales activity resulted in $28 thousand in net realized gains. During the same period, we received $5.9 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 June 30, 2016 and 2015 were $201.4 million and 3.39% compared to $197.9 million and 3.47%, respectively.

At June 30, 2016, we held $3.2 million par value of AgriBank subordinated notes due July 15, 2019. On April 28, 2016 AgriBank announced that, on July 15, 2016 it would redeem all of the outstanding principal amount of these notes at 100% of the principal amount together with all accrued and unpaid interest. During the second quarter of 2016, we determined that the present value of the expected cash flows on our AgriBank investment was $546 thousand less than our amortized cost basis and recorded an other-than-temporary impairment for that amount. We did not recognize any additional, other-than-temporary impairment losses for the six months ended June 30, 2016, or the year ended December 31, 2015.

At June 30, 2016, our net unrealized gains on available-for-sale investment securities were $2.6 million compared with $1.5 million and $1.7 million at June 30, 2015 and March 31, 2016, respectively. The increase in net unrealized gains between March 31, 2016 and June 30, 2016 is primarily due to interest rate declines over the past three months.


TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
	At June 30,																		At March 31,
				% of					% of			Change										% of
	2016			Total		2015			Total		Amount				%				2016			Total
Demand - noninterest bearing	$	224,467		24	%	$	151,640		20	%	$		72,827			48		%	$	212,758		23	%
Demand - interest bearing		385,609		41			276,103		36				109,506			40		%		392,325		42
Total demand		610,076		65			427,743		56				182,333			43		%		605,083		65

Savings		105,228		11			93,500		12				11,728			13		%		105,828		11
Total non-maturing deposits		715,304		76			521,243		68				194,061			37		%		710,911		76

Certificates of deposit		222,252		24			238,796		32				(16,544	)		(7	)	%		226,756		24
Total deposits	$	937,556		100	%	$	760,039		100	%	$		177,517			23		%	$	937,667		100	%

Average rate on interest bearing deposits during the quarter		0.39	%				0.50	%					(0.11	)						0.48	%
Average rate on all deposits during the quarter		0.30	%				0.40	%					(0.10	)						0.37	%

Total deposits at June 30, 2016, increased $177.5 million or 23% to $937.6 million compared to June 30, 2015, and decreased $111 thousand or 0.01% compared to March 31, 2016. Total non-maturing deposits increased $194.1 million or 37% compared to the same date a year ago and increased $4.4 million or 1% compared to March 31, 2016. Certificates of deposit decreased $16.5 million or 7% compared to the same date a year ago and decreased $4.5 million or 2% compared to March 31, 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 June 30, 2016, the deposits in the acquired branches totaled $139.0 million.


TABLE 5
WHOLESALE AND BROKERED DEPOSITS - UNAUDITED
(amounts in thousands)
	At June 30,				At March 31,
	2016		2015		2016
CDARS / ICS reciprocal deposits	$	54,783	$	58,628	$	61,601
Third party brokered time deposits		—		17,502		—
Brokered deposits per Call Report		54,783		76,130		61,601
Online listing service time deposits		54,396		63,328		55,986
Total wholesale and brokered deposits	$	109,179	$	139,458	$	117,587

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $54.8 million, $76.1 million and $61.6 million at June 30, 2016, June 30, 2015 and March 31, 2016, respectively.

INCOME STATEMENT OVERVIEW



TABLE 6
SUMMARY INCOME STATEMENT - UNAUDITED
(amounts in thousands, except per share data)
	For The Three Months Ended
	June 30,				Change								March 31,				Change
	2016		2015		Amount				%				2016				Amount				%
Interest income	$	10,257	$	9,763	$		494			5		%	$		9,904		$		353			4		%
Interest expense		1,040		1,168			(128	)		(11	)	%			1,600				(560	)		(35	)	%
Net interest income		9,217		8,595			622			7		%			8,304				913			11		%
Provision for loan and lease losses		—		—		—				0		%		—				—				0		%
Noninterest income		437		881			(444	)		(50	)	%			949				(512	)		(54	)	%
Noninterest expense:
Branch acquisition and balance sheet reconfiguration costs		168		—			168			100		%			2,795				(2,627	)		(94	)	%
Other noninterest expense		7,500		6,122			1,378			23		%			7,206				294			4		%
Income (loss) before provision for income taxes		1,986		3,354			(1,368	)		(41	)	%			(748	)			2,734			(366	)	%
Deferred tax asset write-off		—		—		—				0		%			363				(363	)		(100	)	%
Provision for income taxes		430		964			(534	)		(55	)	%			(151	)			581			(385	)	%
Net income (loss)	$	1,556	$	2,390	$		(834	)		(35	)	%	$		(960	)			2,516			(262	)	%
Less: Preferred dividends		—		50			(50	)		(100	)	%		—				—				0		%
Income (loss) available to common shareholders	$	1,556	$	2,340	$		(784	)		(34	)	%	$		(960	)	$		2,516			(262	)	%

Basic earnings (loss) per share	$	0.11	$	0.18	$		(0.07	)		(39	)	%	$		(0.07	)	$		0.18			(3	)	%
Average basic shares		13,367		13,338			29			0		%			13,360				7			0		%
Diluted earnings (loss) per share	$	0.11	$	0.18	$		(0.07	)		(39	)	%	$		(0.07	)	$		0.18			(3	)	%
Average diluted shares		13,425		13,370			55			0		%			13,360				65			0		%
Dividends declared per common share	$	0.03	$	0.03	$	—				0		%	$		0.03		$	—				0		%

Second Quarter of 2016 Compared With Second Quarter of 2015

Net income available to common shareholders for the second quarter of 2016 decreased $784 thousand over the second quarter of 2015. In the current quarter, net interest income was $622 thousand higher, and the provision for income tax was $534 lower. These positive changes were offset by a decrease in noninterest income of $444 thousand and an increase in noninterest expense of $1.5 million.

Net Interest Income

Net interest income increased $622 thousand over a year previous.

Interest income for the three months ended June 30, 2016 increased $494 thousand or 5% to $10.3 million. Interest and fees on loans increased $492 thousand due to increased average loan balances. Interest on interest bearing deposits due from banks increased $9 thousand while interest on securities decreased $7 thousand.

Interest expense for the second quarter of 2016 decreased $128 thousand or 11% to $1.0 million. The net decrease was caused by the following.

Interest on FHLB term debt decreased $364 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 $294 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 $70 thousand. Interest bearing deposits increased $103.0 million compared to the prior year, but the rate paid on all interest bearing deposits decreased by 11 basis points.
Interest on junior subordinated debentures and other borrowings increased $12 thousand.

Noninterest Income

Noninterest income for the three months ended June 30, 2016 decreased $444 thousand compared to the same period a year ago. During the second quarter of 2016 we recorded a $546 thousand other-than-temporary impairment on an investment security as described in Note 4 to our March 31, 2016 Form 10-Q. Our branch and offsite ATM acquisition completed in the first quarter, enhanced point of sale and ATM fees by $241 thousand for the quarter ended June 30, 2016 compared to the same period a year ago. Additionally, a $205 thousand special dividend on Federal Home Loan Bank of San Francisco stock was included in other noninterest income during the three months ended June 30, 2015.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2016 increased $1.5 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. Noninterest expenses that increased 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 $601 thousand
Data processing fees increased $122 thousand
ATM processing fees increased $84 thousand as a result of the additional activity at the recently acquired branch and offsite ATM locations
Telecommunications expense increased $90 thousand
Branch acquisition costs of $168 thousand

Income Tax Provision

During the three months ended June 30, 2016, the Company recorded a provision for income taxes of $430 thousand compared with a provision for income taxes of $964 thousand for the same period a year ago. The decrease in the current quarter is due to decreased taxable income. Pre-tax income for 2016 is less than in 2015, while permanent deductions and tax credits are essentially unchanged resulting in a decrease in the effective tax rate for 2016. As a result, the Company’s effective tax rate decreased from 28.74% for the second quarter of 2015 to 21.65% during the current quarter.

Second Quarter of 2016 Compared With First Quarter of 2016

Net income available to common shareholders for the second quarter of 2016 increased $2.5 million over the first quarter of 2016. In the current quarter, net interest income was $913 thousand higher and noninterest expenses were $2.3 million lower. These positive changes were offset by a decrease in noninterest income of $512 thousand and an increase in the provision for income taxes of $218 thousand.

Net Interest Income

Net interest income increased $913 thousand over the prior quarter.

Interest income for the three months ended June 30, 2016 increased $353 thousand or 4% to $10.3 million compared to the prior quarter. Interest and fees on loans increased $345 thousand and interest on securities increased $18 thousand due to increased average loan and securities balances. Interest on interest bearing deposits due from banks decreased $10 thousand due to decreased average interest bearing deposit balances.

Interest expense for the three months ended June 30, 2016 decreased $560 thousand or 35% to $1.0 million compared to the prior quarter. Interest expense on term debt decreased $487 thousand due to the repayment of $75.0 million of FHLB term debt and the termination of the interest rate hedge associated with that debt during the first quarter of 2016. Average total deposits for the second quarter of 2016 increased $106.9 million from the first quarter of 2016 however, interest expense on those deposits declined $78 thousand due to a nine basis point decline in the average rate paid on interest bearing deposits.

Noninterest Income

Noninterest income for the three months ended June 30, 2016 decreased $512 thousand compared to the prior quarter. In addition to the previously mentioned $546 thousand other-than-temporary impairment of an investment security, net gains recognized on the sale of available-for-sale investment securities during the current quarter decreased by $66 thousand to $28 thousand compared to a $94 thousand net gain in the prior quarter. Point of sale and ATM fees increased $244 thousand primarily as a result of the acquisition of five branch and three offsite ATM locations during March of 2016. Noninterest income during the first quarter of 2016 included a $176 thousand gain on payoff of a purchased impaired loan.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2016 decreased $2.3 million compared to the prior quarter.

The decrease in noninterest expense was primarily driven by following positive items:

Branch acquisition and balance sheet reconfiguration costs decreased $2.6 million
Incentive and payroll tax costs decreased $224 thousand
Direct loan origination deferred costs increased $100 thousand

The decrease in noninterest expense compared to the prior period was partially offset by following negative items:

Salaries and occupancy costs related to the newly acquired branches increased $476 thousand
ATM processing fees increased $84 thousand as a result of the recently acquired branch and offsite ATM locations
Data processing fees increased $73 thousand
Telecommunications expense increased $52 thousand

Income Tax Provision

During the three months ended June 30, 2016, we recorded a provision for income taxes of $430 thousand. During the three months ended March 31, 2016, we recorded an income tax benefit related to operating losses of $151 thousand and wrote-off a $363 thousand deferred tax asset; a net expense of $212 thousand. Our effective tax rate increased slightly to 21.65% in the second quarter from 20.19% (excluding the write-off of deferred tax asset) in the first quarter of 2016.

Earnings Per Share

Diluted earnings per share available to common shareholders were $0.11 for the three months ended June 30, 2016 compared with diluted earnings per share available to common shareholders of $0.18 for the same period a year ago, and net losses per share available to common shareholders of $0.07 for the prior period. Earnings per share for the three months ended June 30, 2016 declined $0.07 compared to the same period a year ago as a result of a $784 thousand decrease in net income, and increased $0.18 compared to the prior quarter as a result of a $2.5 million increase in net income. The causes of these increases and decreases in earnings have been previously detailed in this press release.


TABLE 7
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
	For The Three Months Ended
	June 30,						Change			March 31,			Change
	2016			2015			Amount			2016			Amount
Yield on average interest earning assets		4.16	%		4.21	%		(0.05	)		4.10	%		0.06
Interest expense to fund average earning assets		0.42	%		0.50	%		(0.08	)		0.66	%		(0.24	)
Net interest margin - nominal		3.74	%		3.71	%		0.03			3.44	%		0.30

Yield on average interest earning assets - tax equivalent basis		4.29	%		4.35	%		(0.06	)		4.23	%		0.06
Interest expense to fund average earning assets		0.42	%		0.50	%		(0.08	)		0.66	%		(0.24	)
Net interest margin - tax equivalent basis		3.87	%		3.85	%		0.02			3.57	%		0.30

Average earning assets	$	990,132		$	928,578		$	61,554		$	969,818		$	20,314
Average interest bearing liabilities	$	740,579		$	723,288		$	17,291		$	743,388		$	(2,809	)

The current quarter net interest margin increased 30 basis points to 3.74% as compared to the prior quarter. This was caused by increased yield on the loan portfolio, a decrease in the overall cost of interest bearing deposits, and by the elimination of our contractual interest payments on $75.0 million Federal Home Loan Bank of San Francisco borrowings. These positive changes were partially offset by interest on $20.0 million of new term debt issued during the fourth quarter of 2015.

The current quarter net interest margin increased 3 basis points to 3.74% as compared to the same period a year ago. The increase resulted from an eight basis point decrease in interest expense to fund average earning assets offset by a five basis point decrease in yield on average earning assets. During the second quarter of 2016, interest on the $20.0 million of new term debt issued during the fourth quarter of 2015 totaled $295 thousand and reduced the net interest margin by 10 basis points.

During the second quarter of 2016, deposit balances increased $177.5 million and decreased $111 thousand compared to the same period a year ago and the prior quarter respectively. The increase in deposit balances results from the recent branch acquisition and strong organic growth. Our overall cost of total deposits decreased to 0.30% for the quarter ended June 30, 2016 from 0.40% for the same period a year ago and from 0.37% 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
	June 30,					March 31,					December 31,					September 30,					June 30,
	2016					2016					2015					2015					2015
Beginning balance	$		11,495			$		11,180			$		10,891			$		11,402			$		11,296
Provision for loan and lease losses charged to expense		—					—					—					—					—
Loans charged off			(1,734	)				(307	)				(707	)				(779	)				(711	)
Loan loss recoveries			2,103					622					996					268					817
Ending balance	$		11,864			$		11,495			$		11,180			$		10,891			$		11,402

	At June 30,					At March 31,					At December 31,					At September 30,					At June 30,
	2016					2016					2015					2015					2015
Nonaccrual loans:
Commercial	$		2,149			$		2,563			$		1,994			$		2,506			$		3,170
Real estate - commercial non-owner occupied			1,197					1,197					5,488					5,154					6,532
Real estate - commercial owner occupied			816					1,190					1,071					1,928					1,079
Real estate - residential - ITIN			3,664					3,705					3,649					4,228					4,375
Real estate - residential - 1-4 family mortgage			1,824					1,742					1,775					1,669					1,693
Real estate - residential - equity lines			995					1,270				—						23					24
Consumer and other			266					31					32					33					34
Total nonaccrual loans			10,911					11,698					14,009					15,541					16,907
Accruing troubled debt restructured loans:
Commercial			760					40					49					56					10
Real estate - commercial non-owner occupied			816					821					824					828					832
Real estate - commercial owner occupied		—					—					—					—						849
Real estate - residential - ITIN			5,336					5,502					5,458					5,423					5,303
Real estate - residential - equity lines			548					553					558					563					569
Total accruing troubled debt restructured loans			7,460					6,916					6,889					6,870					7,563

All other accruing impaired loans			550					488					492					494					530

Total impaired loans	$		18,921			$		19,102			$		21,390			$		22,905			$		25,000

Gross loans outstanding at period end	$		754,140			$		724,243			$		716,639			$		718,533			$		699,774

Allowance for loan and lease losses as a percent of:
Gross loans			1.57		%			1.59		%			1.56		%			1.52		%			1.63		%
Nonaccrual loans			108.73		%			98.26		%			79.81		%			70.08		%			67.44		%
Impaired loans			62.70		%			60.18		%			52.27		%			47.55		%			45.61		%

Nonaccrual loans to gross loans			1.45		%			1.62		%			1.95		%			2.16		%			2.42		%

We realized net loan loss recoveries of $369 thousand in the current quarter compared with net loan loss recoveries of $315 thousand in the prior quarter and net loan loss recoveries of $106 thousand for the same period a year ago. Recoveries during the second quarter of 2016 of $1.9 million were primarily associated with one commercial real estate relationship, offset by $1.4 million in charge-offs related to two commercial loan relationships and one residential real estate loan.

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 five consecutive quarters. Our ALLL as a percentage of gross loans was 1.57% as of June 30, 2016 compared to 1.63% as of June 30, 2015 and 1.59% as of March 31, 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 June 30, 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 June 30, 2016, the recorded investment in loans classified as impaired totaled $18.9 million, with a corresponding valuation allowance of $903 thousand compared to impaired loans of $25.0 million with a corresponding valuation allowance of $1.3 million at June 30, 2015 and impaired loans of $19.1 million, with a corresponding valuation allowance of $1.1 million at March 31, 2016. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans.


TABLE 9
PERIOD END TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(amounts in thousands)
	At June 30,			At March 31,			At December 31,			At September 30,			At June 30,
	2016			2016			2015			2015			2015
Nonaccrual	$	3,785		$	4,516		$	9,015		$	11,149		$	12,354
Accruing		7,460			6,916			6,889			6,870			7,563
Total troubled debt restructurings	$	11,245		$	11,432		$	15,904		$	18,019		$	19,917

Percentage of total gross loans		1.49	%		1.58	%		2.22	%		2.51	%		2.85	%

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 June 30, 2016, the Company restructured one loan to grant a rate and maturity modification. The loan was classified as troubled debt restructurings and placed on nonaccrual status. As of June 30, 2016, we had 118 restructured loans that qualified as troubled debt restructurings, of which 108 were performing according to their restructured terms.


TABLE 10
NONPERFORMING ASSETS - UNAUDITED
(amounts in thousands)
	At June 30,			At March 31,			At December 31,			At September 30,			At June 30,
	2016			2016			2015			2015			2015
Total nonaccrual loans	$	10,911		$	11,698		$	14,009		$	15,541		$	16,907
90 days past due and still accruing		10			—			88			52			54
Total nonperforming loans		10,921			11,698			14,097			15,593			16,961

Other real estate owned		765			1,011			1,423			1,525			1,405
Total nonperforming assets	$	11,686		$	12,709		$	15,520		$	17,118		$	18,366

Nonperforming loans to gross loans		1.45	%		1.62	%		1.97	%		2.17	%		2.42	%
Nonperforming assets to total assets		1.09	%		1.18	%		1.53	%		1.73	%		1.87	%

At June 30, 2016, June 30, 2015 and March 31, 2016, the recorded investment in OREO was $765 thousand, $1.4 million and $1.0 million, respectively. The June 30, 2016 OREO balance consists of four properties, of which one is a 1-4 family residential real estate property in the amount of $81 thousand, two are nonfarm nonresidential properties in the amount of $558 thousand and one is an undeveloped commercial property in the amount of $126 thousand.


TABLE 11
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
	At June 30,				At June 30,				Change								At March 31,
	2016				2015				$				%				2016
Assets:
Cash and due from banks	$		14,695		$		11,115		$		3,580			32		%	$		14,969
Interest-bearing deposits in other banks			51,345				21,681				29,664			137		%			70,781
Total cash and cash equivalents			66,040				32,796				33,244			101		%			85,750

Securities available-for-sale, at fair value			157,906				160,763				(2,857	)		(2	)	%			174,251
Securities held-to-maturity, at amortized cost			35,415				36,655				(1,240	)		(3	)	%			35,357

Loans, net of deferred fees and costs			755,168				700,177				54,991			8		%			725,228
Allowance for loan and lease losses			(11,864	)			(11,402	)			(462	)		4		%			(11,495	)
Net loans			743,304				688,775				54,529			8		%			713,733

Premises and equipment, net			15,660				11,342				4,318			38		%			15,494
Other real estate owned			765				1,405				(640	)		(46	)	%			1,011
Goodwill and core deposit intangibles, net			2,362			—					2,362			100		%			2,469
Life insurance			22,794				22,168				626			3		%			22,642
Deferred taxes			8,026				10,648				(2,622	)		(25	)	%			8,389
Other assets			17,920				18,503				(583	)		(3	)	%			17,987
Total assets	$		1,070,192		$		983,055		$		87,137			9		%	$		1,077,083

Liabilities and shareholders' equity:
Demand - noninterest bearing	$		224,467		$		151,640		$		72,827			48		%	$		212,758
Demand - interest bearing			385,609				276,103				109,506			40		%			392,325
Savings			105,228				93,500				11,728			13		%			105,828
Certificates of deposit			222,252				238,796				(16,544	)		(7	)	%			226,756
Total deposits			937,556				760,039				177,517			23		%			937,667

Term debt			19,577				90,000				(70,423	)		(78	)	%			19,839
Unamortized debt issuance costs			(201	)		—					(201	)		100		%			(213	)
Net term debt			19,376				90,000				(70,624	)		(78	)	%			19,626

Junior subordinated debentures			10,310				10,310			—				0		%			10,310
Other liabilities			10,462				16,156				(5,694	)		(35	)	%			18,762
Total liabilities			977,704				876,505				101,199			12		%			986,365

Shareholders' equity:
Preferred stock		—					19,931				(19,931	)		(100	)	%		—
Common stock			24,421				24,144				277			1		%			24,325
Retained earnings			66,356				63,158				3,198			5		%			65,201
Accumulated other comprehensive income (loss), net of tax			1,711				(683	)			2,394			(351	)	%			1,192
Total shareholders' equity			92,488				106,550				(14,062	)		(13	)	%			90,718

Total liabilities and shareholders' equity	$		1,070,192		$		983,055		$		87,137			9		%	$		1,077,083

Total interest earning assets	$		997,211		$		917,756		$		79,455			9		%	$		1,002,492
Shares outstanding			13,439				13,364												13,442
Tangible book value per share	$		6.71		$		6.48										$		6.57


TABLE 12
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
	For The Three Months Ended																For The Six Months Ended
	June 30,						Change								March 31,		June 30,
	2016				2015		$				%				2016		2016				2015
Interest income:
Interest and fees on loans	$		8,796		$	8,304	$		492			6		%	$	8,451	$		17,247		$	16,215
Interest on securities			808			801			7			1		%		784			1,592			1,746
Interest on tax-exempt securities			588			602			(14	)		(2	)	%		594			1,182			1,201
Interest on deposits in other banks			65			56			9			16		%		75			140			127
Total interest income			10,257			9,763			494			5		%		9,904			20,161			19,289
Interest expense:
Interest on demand deposits			130			107			23			21		%		122			252			223
Interest on savings deposits			41			55			(14	)		(25	)	%		45			86			109
Interest on certificates of deposit			515			594			(79	)		(13	)	%		597			1,112			1,185
Interest on term debt			295			363			(68	)		(19	)	%		782			1,077			712
Interest on other borrowings			59			49			10			20		%		54			113			96
Total interest expense			1,040			1,168			(128	)		(11	)	%		1,600			2,640			2,325
Net interest income			9,217			8,595			622			7		%		8,304			17,521			16,964
Provision for loan and lease losses		—				—		—				0		%		—		—				—
Net interest income after provision for loan and lease losses			9,217			8,595			622			7		%		8,304			17,521			16,964
Noninterest income:
Service charges on deposit accounts			88			52			36			69		%		72			160			101
Payroll and benefit processing fees			139			130			9			7		%		160			299			278
Earnings on cash surrender value - life insurance			153			159			(6	)		(4	)	%		156			309			324
Gain on investment securities, net			28			61			(33	)		(54	)	%		94			122			276
Impairment losses on investment securities			(546	)		—			(546	)		100		%		—			(546	)		—
ATM and point of sale			335			92			243			264		%		92			427			183
Other income			240			387			(147	)		(38	)	%		375			615			573
Total noninterest income			437			881			(444	)		(50	)	%		949			1,386			1,735


TABLE 12 - CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
	For The Three Months Ended																For The Six Months Ended
	June 30,				Change								March 31,				June 30,
	2016		2015		$				%				2016				2016		2015
Noninterest expense:
Salaries and related benefits		4,086		3,575			511			14		%			4,229			8,315		7,485
Occupancy and equipment		987		709			278			39		%			789			1,776		1,443
Federal Deposit Insurance Corporation insurance premium		181		178			3			2		%			156			337		385
Data processing fees		374		251			123			49		%			304			678		493
Professional service fees		470		442			28			6		%			436			906		830
Telecommunications		199		109			90			83		%			147			346		219
Branch acquisition costs		168		—			168			100		%			412			580		—
Loss on cancellation of interest rate swap		—		—		—				100		%			2,325			2,325		—
Other expenses		1,203		858			345			40		%			1,203			2,406		1,860
Total noninterest expense		7,668		6,122			1,546			25		%			10,001			17,669		12,715
Income before provision for income taxes		1,986		3,354			(1,368	)		(41	)	%			(748	)		1,238		5,984
Deferred tax asset write-off		—		—		—				0		%			363			363		—
Provision for income taxes		430		964			(534	)		(55	)	%			(151	)		279		1,793
Net income	$	1,556	$	2,390	$		(834	)		(35	)	%	$		(960	)	$	596	$	4,191
Less: Preferred dividends		—		50			(50	)		(100	)	%		—				—		100
Income available to common shareholders	$	1,556	$	2,340	$		(784	)		(34	)	%	$		(960	)	$	596	$	4,091

Basic earnings per share	$	0.11	$	0.18	$		(0.07	)		(39	)	%	$		(0.07	)	$	0.04	$	0.31
Average basic shares		13,367		13,338			29			0		%			13,360			13,364		13,320
Diluted earnings per share	$	0.11	$	0.18	$		(0.07	)		(39	)	%	$		(0.07	)	$	0.04	$	0.31
Average diluted shares		13,425		13,370			55			0		%			13,360			13,408		13,353



TABLE 13
UNAUDITED CONDENSED CONSOLIDATED
YEAR TO DATE AVERAGE BALANCE SHEETS
(amounts in thousands)
	For the Six Months Ended					For the Twelve Months Ended
		June 30,		June 30,		December 31,		December 31,		December 31,
		2016		2015		2015		2014		2013
Earning assets:
Loans		$	731,740	$	688,146	$	699,227	$	625,166	$	612,780
Taxable securities			122,050		128,791		120,897		147,916		157,486
Tax exempt securities			77,510		77,043		77,089		83,973		92,854
Interest-bearing deposits in other banks			48,676		26,795		30,323		56,465		43,342
Average earning assets			979,976		920,775		927,536		913,520		906,462

Cash and due from banks			14,665		10,566		11,220		11,246		10,624
Premises and equipment, net			14,008		11,980		11,552		12,105		10,337
Other assets			40,543		43,085		42,423		36,936		26,431
Average total assets		$	1,049,192	$	986,406	$	992,731	$	973,807	$	953,854

Liabilities and shareholders' equity:
Demand - noninterest bearing		$	201,457	$	148,179	$	156,578	$	139,792	$	122,011
Demand - interest bearing			353,291		272,349		283,105		272,383		244,125
Savings			100,008		92,227		92,659		91,108		92,502
Certificates of deposit			222,897		246,137		238,626		259,445		248,350
Total deposits			877,653		758,892		770,968		762,728		706,988

Repurchase agreements			—		—		—		—		5,780
Term debt			55,478		94,779		88,874		77,534		107,603
Junior subordinated debentures			10,310		10,310		10,310		15,239		15,465
Other liabilities			14,439		17,013		16,588		15,934		11,825
Average total liabilities			957,880		880,994		886,740		871,435		847,661

Shareholders' equity			91,312		105,412		105,991		102,372		106,193
Average liabilities & shareholders' equity		$	1,049,192	$	986,406	$	992,731	$	973,807	$	953,854



TABLE 14
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
	For The Three Months Ended
	June 30,		March 31,		December 31,		September 30,		June 30,
	2016		2016		2015		2015		2015
Earning assets:
Loans	$	742,684	$	720,795	$	714,494	$	705,762	$	703,008
Taxable securities		124,183		119,917		111,098		115,165		121,110
Tax exempt securities		77,168		77,852		78,081		76,190		76,772
Interest-bearing deposits in other banks		46,097		51,254		37,158		30,430		27,688
Average earning assets		990,132		969,818		940,831		927,547		928,578

Cash and due from banks		17,028		12,301		12,372		11,355		10,833
Premises and equipment, net		15,632		12,384		11,001		11,265		11,767
Other assets		41,394		39,700		41,666		41,867		42,637
Average total assets	$	1,064,186	$	1,034,203	$	1,005,870	$	992,034	$	993,815

Liabilities and shareholders' equity:
Demand - noninterest bearing	$	220,377	$	182,539	$	171,449	$	158,232	$	147,442
Demand - interest bearing		382,811		323,771		302,862		284,508		268,784
Savings		103,990		96,027		92,939		93,230		93,291
Certificates of deposit		223,958		221,836		226,924		235,551		245,573
Total deposits		931,136		824,173		794,174		771,521		755,090

Term debt		19,510		91,444		79,772		86,359		105,330
Junior subordinated debentures		10,310		10,310		10,310		10,310		10,310
Other liabilities		11,913		16,969		16,197		16,140		16,887
Average total liabilities		972,869		942,896		900,453		884,330		887,617

Shareholders' equity		91,317		91,307		105,417		107,704		106,198
Average liabilities & shareholders' equity	$	1,064,186	$	1,034,203	$	1,005,870	$	992,034	$	993,815

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Redding, California and is the parent company for Redding Bank of Commerce which operates under two separate names: Redding Bank of Commerce and Sacramento Bank of Commerce, a division of Redding Bank of Commerce. The Bank is an FDIC insured California banking corporation providing commercial banking and financial services through 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	Stifel Nicolaus
John T. Cavender	Perry Wright
555 Market Street	1255 East Street, Suite 100
San Francisco, CA 94105	Redding, CA 96001
(800) 346-5544	(530) 244-7199

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

Contact Data