(MENAFN- GlobeNewsWire - Nasdaq) itemprop="articleBody">SACRAMENTO, Calif., April 19, 2019 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (NASDAQ: BOCH) (the 'Company'), a $1.471 billion asset bank holding company and parent company of Redding Bank of Commerce (the 'Bank'), today announced financial results for the quarter ended March 31, 2019. Net income for the quarter ended March 31, 2019 was $2.3 million or $0.13 per share – diluted, compared with net income of $3.2 million or $0.20 per share – diluted for the same period of 2018.
The current quarter includes the results and related acquisition costs of $1.9 million associated with the January 31, 2019 acquisition of Merchants Holding Company in Sacramento ('Merchants').
Randall S. Eslick, President and CEO commented: 'All of our employees have worked diligently to ensure that the integration of Merchants Bank continues to progress very smoothly and we are excited to extend our banking services into downtown Sacramento.'
Financial highlights for the first quarter of 2019 compared to the same quarter a year ago:
Net income of $2.3 million was a decrease of $935 thousand (29%) from $3.2 million earned during the same period in the prior year. Earnings of $0.13 per share – diluted was a decrease of $0.07 (35%) from $0.20 per share – diluted earned during the same period in the prior year and reflects the impact of 1,834,142 shares of common stock issued during the current quarter as part of our acquisition of Merchants. Acquisition costs associated with our acquisition of Merchants totaled $1.9 million. Net interest income increased $1.7 million (15%) to $13.0 million compared to $11.3 million for the same period in the prior year. Return on average assets decreased to 0.66% compared to 1.05% for the same period in the prior year. Return on average equity decreased to 6.12% compared to 10.34% for the same period in the prior year. Average loans totaled $993.3 million, an increase of $109.4 million (12%) compared to average loans for the same period in the prior year. Average earning assets totaled $1.337 billion, an increase of $155 million (13%) compared to average earning assets for the same period in the prior year. Average deposits totaled $1.224 billion, an increase of $153 million (14%) compared to average deposits for the same period in the prior year. Average non-maturing deposits totaled $1.056 billion, an increase of $168 million (19%) compared to the same period in the prior year. Average certificates of deposit totaled $167.5 million, a decrease of $14.4 million (8%) compared to same period in the prior year. The Company's efficiency ratio was 77.7% compared to 65.2% during the same period in the prior year. Nonperforming assets at March 31, 2019 totaled $14.6 million or 0.99% of total assets, an increase of $10.3 million (241%) since March 31, 2018. The increase in nonperforming assets results from one $10.9 million commercial real estate loan which at March 31, 2019 had zero calculated impairment. Book value per common share was $8.90 at March 31, 2019 compared to $7.83 at March 31, 2018. Tangible book value per common share was $7.96 at March 31, 2019 compared to $7.71 at March 31, 2018. Financial highlights for the first quarter of 2019 compared to the prior quarter:
- Net income of $2.3 million ($0.13 per share –diluted) was a decrease of $2.5 million (52%) from $4.8 million ($0.30 per share – diluted) earned during the prior quarter.
- Acquisition costs associated with our acquisition of Merchants totaled $1.9 million compared to $802 thousand for the prior quarter.
- Net interest income increased $510 thousand (17% annualized) to $13.0 million compared to $12.5 million for the prior quarter.
- Return on average assets decreased to 0.66% compared to 1.44% for the prior quarter.
- Return on average equity decreased to 6.12% compared to 14.32% for the prior quarter.
- Average loans totaled $993.3 million, an increase of $69.9 million (31% annualized) compared to average loans for the prior quarter.
- Average earning assets totaled $1.337 billion, an increase of $77 million (25% annualized) compared the prior quarter.
- Average deposits totaled $1.224 billion, an increase of $65.9 million (23% annualized) compared the prior quarter.
- Average non-maturing deposits totaled $1.056 billion, an increase of $55 million (22% annualized) compared to the prior quarter.
- Average certificates of deposit totaled $167.5 million, an increase of $10.4 million (27% annualized) compared to the prior quarter.
- The Company's efficiency ratio was 77.7% compared to 65.1% for the prior quarter.
- Nonperforming assets at March 31, 2019 totaled $14.6 million or 0.99% of total assets, an increase of $10.4 million (1,009% annualized) compared to December 31, 2018. The increase in nonperforming assets results from one $10.9 million commercial real estate loan which at March 31, 2019 had zero calculated impairment.
- Book value per common share was $8.90 at March 31, 2019 compared to $8.47 at December 31, 2018.
- Tangible book value per common share was $7.96 at March 31, 2019 compared to $8.36 at December 31, 2018.
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, 2018 under the heading 'Risk Factors' and to 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
Net income, average assets and March 31, December 31,
average shareholders' equity 2019 2018 2018
Net income $ 2,306 $ 3,241 $ 4,839
Average total assets $ 1,425,860 $ 1,248,563 $ 1,328,817
Average total earning assets $ 1,337,006 $ 1,181,882 $ 1,259,709
Average shareholders' equity $ 152,705 $ 127,069 $ 134,033
Selected performance ratios
Return on average assets 0.66 % 1.05 % 1.44 %
Return on average equity 6.12 % 10.34 % 14.32 %
Efficiency ratio 77.7 % 65.2 % 65.1 %
Share and per share amounts
Weighted average shares - basic (1) 17,489 16,225 16,265
Weighted average shares - diluted (1) 17,552 16,310 16,345
Earnings per share - basic $ 0.13 $ 0.20 $ 0.30
Earnings per share - diluted $ 0.13 $ 0.20 $ 0.30
At March 31, At December 31,
Share and per share amounts 2019 2018 2018
Common shares outstanding (2) 18,213 16,315 16,334
Book value per common share (2) $ 8.90 $ 7.83 $ 8.47
Tangible book value per common share (2)(3) $ 7.96 $ 7.71 $ 8.36
Capital ratios (4)
Bank of Commerce Holdings
Common equity tier 1 capital ratio 12.40 % 12.35 % 12.79 %
Tier 1 capital ratio 13.25 % 13.31 % 13.71 %
Total capital ratio 15.19 % 15.52 % 15.82 %
Tier 1 leverage ratio 11.05 % 11.09 % 11.21 %
Tangible common equity ratio (5) 9.97 % 10.11 % 10.46 %
Redding Bank of Commerce
Common equity tier 1 capital ratio 13.98 % 12.62 % 13.23 %
Tier 1 capital ratio 13.98 % 12.62 % 13.23 %
Total capital ratio 15.08 % 13.87 % 14.42 %
Tier 1 leverage ratio 11.66 % 10.51 % 10.81 %
(1) Excludes unvested restricted shares issued in accordance with the Company's equity incentive plan, as they are non participative in dividends or voting rights.
(2) Includes unvested restricted shares issued in accordance with the Company's equity incentive plan.
(3) Tangible book value per share is computed by dividing total shareholders' equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.
(4) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject.
(5) Management believes the tangible common equity ratio is a useful measure of capital adequacy because it provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the capital of the Company and the ability of the Company to absorb potential losses. The tangible common equity ratio is calculated as total shareholders' equity less goodwill and core deposit intangible, net divided by total assets less goodwill and core deposit intangible, net.
BALANCE SHEET OVERVIEW
As of March 31, 2019, the Company had total consolidated assets of $1.471 billion, gross loans of $1.035 billion, allowance for loan and lease losses ('ALLL') of $12.2 million, total deposits of $1.248 billion, and shareholders' equity of $162.1 million.
TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
At March 31, At December 31,
% of % of Change % of
2019 Total 2018 Total Amount % 2018 Total
Commercial $ 149,575 14 % $ 137,870 15 % $ 11,705 8 % $ 135,543 14 %
Real estate - construction and land development 30,335 3 14,723 2 15,612 106 % 22,563 2
Real estate - commercial non-owner occupied 477,798 47 405,192 46 72,606 18 % 433,708 46
Real estate - commercial owner occupied 200,349 19 193,286 22 7,063 4 % 204,622 22
Real estate - residential - ITIN 36,145 3 40,425 4 (4,280 ) (11 )% 37,446 4
Real estate - residential - 1-4 family mortgage 68,092 7 30,247 3 37,845 125 % 34,366 4
Real estate - residential - equity lines 26,162 3 30,520 3 (4,358 ) (14 )% 26,958 3
Consumer and other 46,150 4 48,157 5 (2,007 ) (4 )% 51,045 5
Gross loans 1,034,606 100 % 900,420 100 % 134,186 15 % 946,251 100 %
Deferred fees and costs 1,992 1,713 279 1,927
Loans, net of deferred fees and costs 1,036,598 902,133 134,465 948,178
Allowance for loan and lease losses (12,242 ) (12,295 ) 53 (12,292 )
Net loans $ 1,024,356 $ 889,838 $ 134,518 $ 935,886
Average yield on loans during the quarter 4.91 % 4.92 % (0.01 ) 4.94 %
Average yield on loans during the year 4.91 % 4.92 % (0.01 ) 4.91 %
The Company recorded gross loan balances of $1.035 billion at March 31, 2019, compared with $900.4 million and $946.3 million at March 31, 2018 and December 31, 2018, respectively, an increase of $134.2 million and $88.4 million, respectively. During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $85.3 million of loans. At March 31, 2019, gross loans from the acquisition totaled $84.1 million as follows:
Commercial $6.0 million Real estate - construction and land development $2.4 million Real estate - commercial non-owner occupied $39.5 million Real estate - residential – 1-4 family mortgage $36.0 million Consumer and other $0.2 million Average loan balances were $993.3 million for the quarter ended March 31, 2019, compared with $883.9 million for the quarter ended March 31, 2018 and $923.4 million for the quarter ended December 31, 2018 an increase of $109.4 million or 12% and an increase of $69.9 million or 31% annualized.
The average yield on loans during the quarter was 4.91% compared to 4.92% and 4.94% for the quarters ended March 31, 2018 and December 31, 2018, respectively. During the quarter, a $10.9 million commercial real estate loan was placed on nonaccrual status. The uncollected interest on the loan was reversed which reduced our average yield on loans by 5 basis points.
TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
At March 31, At December 31,
% of % of Change % of
2019 Total 2018 Total Amount % 2018 Total
Cash and due from banks $ 32,104 9 % $ 16,247 6 % $ 15,857 98 % $ 23,692 8 %
Interest-bearing deposits in other banks 30,425 9 17,376 6 13,049 75 % 23,673 8
Total cash and cash equivalents 62,529 18 33,623 12 28,906 86 % 47,365 16
Investment securities:
U.S. government and agencies 46,451 13 41,179 14 5,272 13 % 40,087 13
Obligations of state and political subdivisions 48,935 14 59,408 21 (10,473 ) (18 )% 50,530 17
Residential mortgage backed securities and collateralized mortgage obligations 171,814 47 125,567 43 46,247 37 % 138,503 45
Corporate securities 2,958 1 3,958 1 (1,000 ) (25 )% 2,922 1
Commercial mortgage backed securities 23,864 7 25,520 9 (1,656 ) (6 )% 24,762 8
Other asset backed securities 95 — 285 0 (190 ) (67 )% 124 —
Total investment securities - AFS 294,117 82 255,917 88 38,200 15 % 256,928 84
Total cash, cash equivalents and investment securities $ 356,646 100 % $ 289,540 100 % $ 67,106 23 % $ 304,293 100 %
Average yield on interest-bearing due from banks and investment securities during the quarter - nominal 2.83 % 2.45 % 0.38 2.66 %
Average yield on interest-bearing due from banks and investment securities during the quarter - tax equivalent 2.95 % 2.62 % 0.33 2.77 %
As of March 31, 2019, we maintained noninterest-bearing cash positions of $32.1 million and interest-bearing deposits of $30.4 million at the Federal Reserve Bank and correspondent banks.
Investment securities totaled $294.1 million at March 31, 2019, compared with $255.9 million and $256.9 million at March 31, 2018 and December 31, 2018, respectively. During the first quarter of 2019, the Merchants acquisition included securities with a par value of $107.4 million. Management elected to sell securities with a par value of $67.8 million which resulted in $92 thousand in net realized gains.
Average securities balances and weighted average tax equivalent yields for the quarters ended March 31, 2019 and 2018 were $303.5 million and 3.01% compared to $265.1 million and 2.75%, respectively.
At March 31, 2019, our net unrealized losses on available-for-sale investment securities were $701 thousand compared with net unrealized losses of $3.9 million and $4.3 million at March 31, 2018 and December 31, 2018, respectively. The changes in net unrealized losses on the investment securities portfolio are due to changes in market interest rates.
TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
At March 31, At December 31,
% of % of Change % of
2019 Total 2018 Total Amount % 2018 Total
Demand - noninterest-bearing $ 385,696 31 % $ 301,981 29 % $ 83,715 28 % $ 347,199 31 %
Demand - interest-bearing 241,292 19 229,681 22 11,611 5 % 252,202 22
Money market accounts 311,853 25 232,870 22 78,983 34 % 265,093 23
Total demand 938,841 75 764,532 73 174,309 23 % 864,494 76
Savings 139,237 11 107,986 10 31,251 29 % 114,840 10
Total non-maturing deposits 1,078,078 67 872,518 83 205,560 24 % 979,334 86
Certificates of deposit 170,216 14 176,233 17 (6,017 ) (3 )% 152,382 14
Total deposits $ 1,248,294 100 % $ 1,048,751 100 % $ 199,543 19 % $ 1,131,716 100 %
Total deposits at March 31, 2019, increased $200 million or 19% to $1.248 billion compared to March 31, 2018 and increased $117 million or 42% annualized compared to December 31, 2018. Total non-maturing deposits increased $206 million or 24% compared to the same date a year ago and increased $99 million or 41% annualized compared to December 31, 2018. Certificates of deposit decreased $6 million or 3% compared to the same date a year ago and increased $18 million or 47% annualized compared to December 31, 2018.
During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $190.2 million of deposits, which are essentially unchanged at March 31, 2019. As illustrated in the following table, legacy deposits have experienced their seasonal decline, while wholesale time deposits have matured and were not renewed.
TABLE 4a
YEAR TO DATE CHANGES IN DEPOSITS
(amounts in thousands)
Legacy Deposits Acquired Merchants
Deposits Change In Deposits
At December 31, At March 31, Legacy Deposits At March 31,
2018 2019 Deposits 2019
Demand - noninterest-bearing $ 347,199 $ 49,892 $ (11,395 ) $ 385,696
Demand - interest-bearing 252,202 28,344 (39,254 ) 241,292
Money market accounts 265,093 46,321 439 311,853
Total demand 864,494 124,557 (50,210 ) 938,841
Savings 114,840 28,386 (3,989 ) 139,237
Total non-maturing deposits 979,334 152,943 (54,199 ) 1,078,078
Certificates of deposit 152,382 36,863 (19,029 ) 170,216
Total deposits $ 1,131,716 $ 189,806 $ (73,228 ) $ 1,248,294
TABLE 5
WHOLESALE AND RECIPROCAL DEPOSITS - UNAUDITED
(amounts in thousands)
At March 31, At December 31,
2019 2018 2018
CDARS / ICS reciprocal deposits $ 65,192 $ 56,732 $ 83,666
Online listing service wholesale time deposits 1,683 29,159 22,015
Total wholesale and reciprocal deposits $ 66,875 $ 85,891 $ 105,681
For calendar quarters prior to April 1, 2018, CDARS/ ICS reciprocal deposits were considered to be brokered deposits by regulatory authorities and were reported as such on quarterly Call Reports. With passage of The Economic Growth, Regulatory Relief and Consumer Protection Act in May 2018, this is no longer so.
AVERAGE COST OF FUNDS
The following table presents the average cost of interest-bearing deposits, all deposits and all interest-bearing liabilities for the periods indicated.
TABLE 6
AVERAGE COST OF FUNDS - UNAUDITED
For The Three Months Ended
March 31, December 31, September 30, June 30, March 31, December 31, September 30, June 30,
2019 2018 2018 2018 2018 2017 2017 2017
Interest-bearing deposits 0.49 % 0.45 % 0.42 % 0.41 % 0.41 % 0.42 % 0.43 % 0.42 %
Interest-bearing deposits and noninterest-bearing demand 0.34 % 0.31 % 0.29 % 0.29 % 0.29 % 0.30 % 0.31 % 0.31 %
All interest-bearing liabilities 0.67 % 0.61 % 0.64 % 0.68 % 0.60 % 0.59 % 0.60 % 0.60 %
All interest-bearing liabilities and noninterest-bearing demand 0.46 % 0.42 % 0.45 % 0.50 % 0.43 % 0.42 % 0.43 % 0.44 %
INCOME STATEMENT OVERVIEW
TABLE 7
SUMMARY INCOME STATEMENT - UNAUDITED
(amounts in thousands, except per share data)
For The Three Months Ended
March 31, Change December 31, Change
2019 2018 Amount % 2018
Amount %
Interest income $ 14,427 $ 12,530 $ 1,897 15 % $ 13,750 $ 677 5 %
Interest expense 1,423 1,185 238 20 % 1,256 167 13 %
Net interest income 13,004 11,345 1,659 15 % 12,494 510 4 %
Provision for loan and lease losses — — — — % — — — %
Noninterest income 1,057 982 75 8 % 1,132 (75 ) (7 )%
Noninterest expense 10,923 8,033 2,890 36 % 8,868 2,055 23 %
Income before provision for income taxes 3,138 4,294 (1,156 ) (27 )% 4,758 (1,620 ) (34 )%
Provision for income taxes:
Reversal of uncertain tax position — — — — % (988 ) 988 100 %
Benefit from cost segregation study and tangible property review — — — — % (484 ) 484 100 %
Provision for income taxes from operations 832 1,053 (221 ) (21 )% 1,391 (559 ) (40 )%
Total provision for income taxes 832 1,053 (221 ) (21 )% (81 ) 913 (1,127 )%
Net income $ 2,306 $ 3,241 $ (935 ) (29 )% $ 4,839 $ (2,533 ) (52 )%
Basic earnings per share $ 0.13 $ 0.20 $ (0.07 ) (35 )% $ 0.30 $ (0.17 ) (57 )%
Average basic shares 17,489 16,225 1,264 8 % 16,265 1,224 8 %
Diluted earnings per share $ 0.13 $ 0.20 $ (0.07 ) (35 )% $ 0.30 $ (0.17 ) (57 )%
Average diluted shares 17,552 16,310 1,242 8 % 16,345 1,207 7 %
Dividends declared per common share $ 0.04 $ 0.03 $ 0.01 33 % $ 0.04 $ — — %
First Quarter of 2019 Compared With First Quarter of 2018
Net income for the first quarter of 2019 decreased $935 thousand compared to the first quarter of 2018. In the current quarter, net interest income was $1.7 million higher, noninterest income was $75 thousand higher and the provision for income taxes was $221 thousand lower. These positive changes were offset by noninterest expenses that were $2.9 million higher.
Net Interest Income
Net interest income increased $1.7 million compared to the same period a year ago.
Interest income for the first quarter of 2019 increased $1.9 million or 15% to $14.4 million:
Interest and fees on loans increased $1.3 million due to a $109.4 million increase in average loan balances partially offset by a one basis point decrease in the average yield on the loan portfolio. Interest on securities increased $479 thousand due to a $38.4 million increase in average securities balances and a 32 basis point increase in average yield on the securities portfolio. Interest on interest-bearing deposits due from banks increased $116 thousand due to a $7.3 million increase in average interest-bearing deposit balances, and an 88 basis point increase in average yield. Interest expense for the first quarter of 2019 increased $238 thousand or 20% to $1.4 million:
Interest expense on interest bearing deposits increased $241 thousand. Average interest-bearing demand and savings deposit balances increased $86.7 million, while average certificate of deposit balances decreased $14.4 million. The average rate paid on interest-bearing deposits increased eight basis points. Interest expense on borrowings from the Federal Home Loan Bank of San Francisco increased $8 thousand. Average Federal Home Loan Bank of San Francisco borrowings outstanding in the current quarter were $8.8 million compared to $12.4 million in the same quarter a year ago. Interest expense on other term debt and junior subordinated debentures decreased $11 thousand. Provision for loan and lease losses
As illustrated in Table 9, the nonaccrual status of a $10.9 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, no calculated impairment reserve on this loan is indicated and no provision for loan and lease losses was necessary for the quarter.
Noninterest Income
Noninterest income for the three months ended March 31, 2019 increased $75 thousand compared to the first quarter for 2018. Gains on sale of investment securities increased $56 thousand and dividends on Federal Home Loan Bank of San Francisco stock increased $41 thousand.
Noninterest Expense
Noninterest expense for the three months ended March 31, 2019 increased $2.9 million compared to the same period a year previous which included:
$1.9 million in acquisition costs $0.6 million increase in operating expenses from the Merchants acquisition The Company's efficiency ratio was 77.7% for the first quarter of 2019 (64.0% exclusive of acquisition costs). The ratio during the same period in 2018 was 65.2%.
Income Tax Provision
For the three months ended March 31, 2019, our income tax provision of $832 thousand on pre-tax income of $3.1 million was an effective tax rate of 26.5%. The tax provision for the first quarter of the prior year was $1.1 million on pre-tax income of $4.3 million for an effective tax rate of 24.5%. The current quarter includes $135 thousand, of acquisition costs which are not tax deductible.
First Quarter of 2019 Compared With Fourth Quarter of 2018
Net income for the first quarter of 2019 decreased $2.5 million compared to the fourth quarter of 2018. In the current quarter, net interest income was $510 thousand higher. This positive change was offset by noninterest income that was $75 thousand lower, noninterest expense that was $2.1 million higher and provision for income taxes that was $913 thousand higher.
Net Interest Income
Net interest income increased $510 thousand over the prior quarter.
Interest income for the three months ended March 31, 2019 increased $677 thousand or 5% to $14.4 million.
Interest and fees on loans increased $537 thousand due to a $69.9 million increase in average loan balances partially offset by a three basis point decrease in the average yield on the loan portfolio. Interest on investment securities increased $329 thousand due to a $42.5 million increase in average securities balances and a 10 basis point increase in average yield on the investment portfolio. Interest on interest-bearing deposits due from banks decreased $189 thousand due to a $35.1 million decrease in average balances partially offset by an 18 basis point increase in average yield. Interest expense for the three months ended March 31, 2019 increased $167 thousand or 13% to $1.4 million.
Interest expense on deposits increased $114 thousand as average interest-bearing demand and savings deposits increased $34.5 million, average certificates of deposit increased $10.4 million and the average rate paid on these deposits increased by eight basis points. Interest expense on borrowings from the Federal Home Loan Bank of San Francisco increased $55 thousand. Average Federal Home Loan Bank of San Francisco borrowings outstanding in the current quarter were $8.8 million, there were no borrowings in the prior quarter Interest expense on other term debt and junior subordinated debentures decreased $2 thousand. Provision for loan and lease losses
As illustrated in Table 9, the nonaccrual status of a $10.9 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, no calculated impairment reserve on this loan is indicated and no provision for loan and lease losses was necessary for the quarter.
Noninterest Income
Noninterest income for the three months ended March 31, 2019 decreased $75 thousand, the decrease was due to a $96 thousand special dividend on Federal Home Loan Bank of San Francisco stock in the prior quarter that did not recur and a decrease in gains on sale of OREO properties of $41 thousand. These decreases were partially offset by an increase in the gain on sale of investment securities of $89 thousand.
Noninterest Expense
Noninterest expense for the three months ended March 31, 2019 increased $2.1 million. The increase was due to:
$1.1 million increase in acquisition costs $0.6 million increase in operating expenses from the Merchants acquisition The Company's efficiency ratio was 77.7% for the first quarter of 2019 (64% exclusive of acquisition costs). The ratio during the prior quarter was 65.1%.
Income Tax Provision
For the three months ended March 31, 2019, our income tax provision of $832 thousand on pre-tax income of $3.1 million was an effective tax rate of 26.5%. The negative tax provision for the prior quarter of $81 thousand on pre-tax income of $4.8 million included:
$(988) thousand benefit due to the reversal of our uncertain tax position. $(484) thousand benefit as a result to our cost segregation study and tangible property review. $1.4 million tax provision on pre-tax net operating income of $4.8 million (29.2%). The current and prior quarter include $135 thousand and $765 thousand, respectively, of acquisition costs which are not tax deductible.
Earnings Per Share
Diluted earnings per share were $0.13 for the three months ended March 31, 2019 compared with diluted earnings per share of $0.20 for the same period a year ago and diluted earnings per share of $0.30 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in table 7 presented earlier in this press release.
TABLE 8a
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
For The Three Months Ended
March 31, 2019 March 31, 2018 December 31, 2018
Average Yield / Average Yield / Average Yield /
(Amounts in thousands) Balance Interest(1) Rate (5) Balance Interest(1) Rate (5) Balance Interest(1) Rate (5)
Interest-earning assets:
Net loans (2) $ 993,261 $ 12,031 4.91 % $ 883,876 $ 10,729 4.92 % $ 923,409 $ 11,494 4.94 %
Taxable securities 253,068 1,764 2.83 % 205,302 1,209 2.39 % 218,137 1,469 2.67 %
Tax-exempt securities 50,454 387 3.11 % 59,789 463 3.14 % 42,868 353 3.27 %
Interest-bearing deposits in other banks 40,223 245 2.47 % 32,915 129 1.59 % 75,295 434 2.29 %
Average interest-earning assets 1,337,006 14,427 4.38 % 1,181,882 12,530 4.30 % 1,259,709 13,750 4.33 %
Cash and due from banks 21,392 17,641 22,447
Premises and equipment, net 14,581 14,557 13,331
Goodwill and core deposit intangible, net 11,872 1,998 1,842
Other assets 41,009 32,485 31,488
Average total assets $ 1,425,860 $ 1,248,563 $ 1,328,817
Interest-bearing liabilities:
Interest-bearing demand $ 243,376 126 0.21 % $ 234,269 89 0.15 % $ 257,227 141 0.22 %
Money market accounts 293,396 289 0.40 % 236,171 132 0.23 % 265,190 207 0.31 %
Savings deposits 131,081 111 0.34 % 110,725 59 0.22 % 110,934 92 0.33 %
Certificates of deposit 167,463 490 1.19 % 181,901 495 1.10 % 157,035 462 1.17 %
Federal Home Loan Bank of San Francisco borrowings 8,778 55 2.54 % 12,444 47 1.53 % — — — %
Other borrowings net of unamortized debt issuance costs 12,889 239 7.52 % 16,528 281 6.90 % 13,785 252 7.25 %
Junior subordinated debentures 10,310 113 4.44 % 10,310 82 3.23 % 10,310 102 3.93 %
Average interest-bearing liabilities 867,293 1,423 0.67 % 802,348 1,185 0.60 % 814,481 1,256 0.61 %
Noninterest-bearing demand 388,410 307,397 367,457
Other liabilities 17,452 11,749 12,846
Shareholders' equity 152,705 127,069 134,033
Average liabilities and shareholders' equity $ 1,425,860 $ 1,248,563 $ 1,328,817
Net interest income and net interest margin (4) $ 13,004 3.94 % $ 11,345 3.89 % $ 12,494 3.93 %
Tax equivalent net interest margin (3) 3.98 % 3.94 % 3.96 %
(1) Interest income on loans includes deferred fees and costs of approximately $181 thousand, $137 thousand, and $109 thousand for the three months ended
March 31, 2019, and 2018 and December 31, 2018, respectively.
(2) Net loans includes average nonaccrual loans of $8.5 million, $4.8 million and $4.1 million for the three months ended March 31, 2019 and 2018 and
December 31, 2018, respectively.
(3) Tax-exempt income has been adjusted to tax equivalent basis at a 21% for 2019 and 2018. The amount of such adjustments was an addition to recorded income of approximately $103 thousand, $123 thousand and $94 thousand for the three months ended March 31, 2019 and 2018 and December 31, 2018, respectively.
(4) Net interest margin is annualized net interest income expressed as a percentage of average interest-earning assets.
(5) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.
TABLE 9
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED
(amounts in thousands)
For The Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2019 2018 2018 2018 2018
Beginning balance ALLL $ 12,292 $ 12,392 $ 12,388 $ 12,295 $ 11,925
Provision for loan and lease losses — — — — —
Loans charged-off (348 ) (279 ) (198 ) (382 ) (390 )
Loan loss recoveries 298 179 202 475 760
Ending balance ALLL $ 12,242 $ 12,292 $ 12,392 $ 12,388 $ 12,295
At March 31, At December 31, At September 30, At June 30, At March 31,
2019 2018 2018 2018 2018
Nonaccrual loans:
Commercial $ 1,018 $ 959 $ 899 $ 1,358 $ 1,109
Real estate - construction and land development
Real estate - commercial non-owner occupied 10,878 — — — —
Real estate - commercial owner occupied — 548 — — —
Real estate - residential - ITIN 2,392 2,388 2,571 2,613 2,839
Real estate - residential - 1-4 family mortgage 182 185 179 184 188
Real estate - residential - equity lines 42 43 44 44 45
Consumer and other 23 23 24 33 35
Total nonaccrual loans 14,535 4,146 3,717 4,232 4,216
Accruing troubled debt restructured loans:
Commercial 1,187 1,224 1,291 1,420 1,516
Real estate - commercial non-owner occupied 793 795 797 799 800
Real estate - residential - ITIN 4,342 4,484 4,535 4,592 4,554
Real estate - residential - equity lines 358 363 367 372 376
Total accruing troubled debt restructured loans 6,680 6,866 6,990 7,183 7,246
All other accruing impaired loans — — — — —
Total impaired loans $ 21,215 $ 11,012 $ 10,707 $ 11,415 $ 11,462
Gross loans outstanding at period end $ 1,034,606 $ 946,251 $ 927,480 $ 936,816 $ 900,420
Impaired loans to gross loans 2.05 % 1.16 % 1.15 % 1.22 % 1.27 %
Nonaccrual loans to gross loans 1.40 % 0.44 % 0.40 % 0.45 % 0.47 %
Allowance for loan and lease losses as a percent of:
Gross loans 1.18 % 1.30 % 1.34 % 1.32 % 1.37 %
Nonaccrual loans 84.22 % 296.48 % 333.39 % 292.72 % 291.63 %
Impaired loans 57.70 % 111.62 % 115.74 % 108.52 % 107.27 %
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. As illustrated in Table 9, the nonaccrual status of a $10.9 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, no calculated impairment reserve on this loan is indicated and no provision for loan and lease losses was necessary for the quarter. There was no provision for loan and lease loss during the prior quarter or during the same quarter a year ago. The loans acquired from Merchants were recorded at fair value which included a discount for credit risk which is not a part of the ALLL. As a result, our ALLL as a percentage of gross loans was declined to 1.18% as of March 31, 2019 compared to 1.37% as of March 31, 2018 and 1.30% as of December 31, 2018. Based on the Bank's ALLL methodology, which uses criteria such as risk factors and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company's ALLL is adequate at March 31, 2019. 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 March 31, 2019, the recorded investment in loans classified as impaired totaled $21.2 million, with a corresponding specific reserve of $1.4 million compared to impaired loans of $11.5 million with a corresponding specific reserve of $1.1 million at March 31, 2018 and impaired loans of $11.0 million, with a corresponding specific reserve of $1.2 million at December 31, 2018. The increase in loans classified as impaired results from one $10.9 million commercial real estate loan which at March 31, 2019 had zero calculated impairment.
TABLE 10
TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(amounts in thousands)
At March 31, At December 31, At September 30, At June 30, At March 31,
2019 2018 2018 2018 2018
Nonaccrual $ 2,725 $ 2,693 $ 2,720 $ 3,218 $ 3,237
Accruing 6,680 6,866 6,990 7,183 7,246
Total troubled debt restructurings $ 9,405 $ 9,559 $ 9,710 $ 10,401 $ 10,483
Troubled debt restructurings as a percentage of total gross loans 0.91 % 1.01 % 1.05 % 1.11 % 1.16 %
There were no new troubled debt restructurings during the three months ended March 31, 2019. As of March 31, 2019, we had 105 restructured loans that qualified as troubled debt restructurings, of which 104 were performing according to their restructured terms.
TABLE 11
NONPERFORMING ASSETS - UNAUDITED
(amounts in thousands)
At March 31, At December 31, At September 30, At June 30, At March 31,
2019 2018 2018 2018 2018
Total nonaccrual loans $ 14,535 $ 4,146 $ 3,717 $ 4,232 $ 4,216
90 days past due and still accruing — — — — —
Total nonperforming loans 14,535 4,146 3,717 4,232 4,216
Other real estate owned ("OREO") 34 31 136 140 60
Total nonperforming assets $ 14,569 $ 4,177 $ 3,853 $ 4,372 $ 4,276
Nonperforming loans to gross loans 1.40 % 0.44 % 0.40 % 0.45 % 0.47 %
Nonperforming assets to total assets 0.99 % 0.32 % 0.29 % 0.34 % 0.34 %
TABLE 12
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
At March 31, Change At December 31,
2019 2018 $ % 2018
Assets:
Cash and due from banks $ 32,104 $ 16,247 $ 15,857 98 % $ 23,692
Interest-bearing deposits in other banks 30,425 17,376 13,049 75 % 23,673
Total cash and cash equivalents 62,529 33,623 28,906 86 % 47,365
Securities available-for-sale, at fair value 294,117 255,917 38,200 15 % 256,928
Loans, net of deferred fees and costs 1,036,598 902,133 134,465 15 % 948,178
Allowance for loan and lease losses (12,242 ) (12,295 ) 53 — % (12,292 )
Net loans 1,024,356 889,838 134,518 15 % 935,886
Premises and equipment, net 15,391 14,214 1,177 8 % 13,119
Other real estate owned 34 60 (26 ) (43 )% 31
Life insurance 23,294 22,027 1,267 6 % 22,410
Deferred tax asset, net 6,072 7,523 (1,451 ) (19 )% 7,039
Goodwill and core deposit intangible, net 17,094 1,975 15,119 766 % 1,841
Other assets 28,604 20,398 8,206 40 % 22,485
Total assets $ 1,471,491 $ 1,245,575 $ 225,916 18 % $ 1,307,104
Liabilities and shareholders' equity:
Demand - noninterest-bearing $ 385,696 $ 301,981 $ 83,715 28 % $ 347,199
Demand - interest-bearing 241,292 229,681 11,611 5 % 252,202
Money market 311,853 232,870 78,983 34 % 265,093
Savings 139,237 107,986 31,251 29 % 114,840
Certificates of deposit 170,216 176,233 (6,017 ) (3 )% 152,382
Total deposits 1,248,294 1,048,751 199,543 19 % 1,131,716
Term debt:
Federal Home Loan Bank of San Francisco borrowings 20,000 30,000 (10,000 ) (33 )% —
Other borrowings 12,596 16,196 (3,600 ) (22 )% 13,496
Unamortized debt issuance costs (79 ) (127 ) 48 (38 )% (91 )
Net term debt 32,517 46,069 (13,552 ) (29 )% 13,405
Junior subordinated debentures 10,310 10,310 — — % 10,310
Other liabilities 18,272 12,723 5,549 44 % 13,352
Total liabilities 1,309,393 1,117,853 191,540 17 % 1,168,783
Shareholders' equity:
Common stock 71,966 51,959 20,007 39 % 52,284
Retained earnings 90,626 78,507 12,119 15 % 89,045
Accumulated other comprehensive loss, net of tax (494 ) (2,744 ) 2,250 (82 )% (3,008 )
Total shareholders' equity 162,098 127,722 34,376 27 % 138,321
Total liabilities and shareholders' equity $ 1,471,491 $ 1,245,575 $ 225,916 18 % $ 1,307,104
Total interest-earning assets $ 1,361,841 $ 1,179,321 $ 182,520 15 % $ 1,233,049
Shares outstanding 18,213 16,315 1,898 12 % 16,334
Book value per share $ 8.90 $ 7.83 $ 1.07 14 % $ 8.47
Tangible book value per share (1) $ 7.96 $ 7.71 $ 0.25 3 % $ 8.36
(1) Tangible book value per share is computed by dividing total shareholders' equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.
TABLE 13
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
For The Three Months Ended
March 31, Change December 31,
2019 2018 $ % 2018
Interest income:
Interest and fees on loans $ 12,031 $ 10,729 $ 1,302 12 % $ 11,494
Interest on taxable securities 1,764 1,209 555 46 % 1,469
Interest on tax-exempt securities 387 463 (76 ) (16 )% 353
Interest on interest-bearing deposits in other banks 245 129 116 90 % 434
Total interest income 14,427 12,530 1,897 15 % 13,750
Interest expense:
Interest on demand deposits 126 89 37 42 % 141
Interest on money market accounts 289 132 157 119 % 207
Interest on savings deposits 111 59 52 88 % 92
Interest on certificates of deposit 490 495 (5 ) (1 )% 462
Interest on Federal Home Loan Bank of San Francisco borrowings 55 47 8 17 % —
Interest on other borrowings 239 281 (42 ) (15 )% 252
Interest on junior subordinated debentures 113 82 31 38 % 102
Total interest expense 1,423 1,185 238 20 % 1,256
Net interest income 13,004 11,345 1,659 15 % 12,494
Provision for loan and lease losses — — — — % —
Net interest income after provision for loan and lease losses 13,004 11,345 1,659 15 % 12,494
Noninterest income:
Service charges on deposit accounts 168 176 (8 ) (5 )% 161
ATM and point of sale fees 265 266 (1 ) — % 283
Fees on payroll and benefit processing 171 169 2 1 % 178
Life insurance 129 129 — — % 128
Gain on investment securities, net 92 36 56 156 % 3
Federal Home Loan Bank of San Francisco dividends 121 80 41 51 % 201
Gain on sale of OREO 23 16 7 44 % 64
Other income 88 110 (22 ) (20 )% 114
Total noninterest income 1,057 982 75 8 % 1,132
TABLE 13 - CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
For The Three Months Ended
March 31, Change December 31,
2019 2018 $ % 2018
Noninterest expense:
Salaries and related benefits 5,729 4,855 874 18 % 4,812
Premises and equipment 992 1,071 (79 ) (7 )% 943
Federal Deposit Insurance Corporation insurance premium 100 96 4 4 % 93
Data processing fees 559 432 127 29 % 512
Professional service fees 303 345 (42 ) (12 )% 436
Telecommunications 173 216 (43 ) (20 )% 145
Acquisition 1,930 — 1,930 100 % 802
Other expenses 1,137 1,018 119 12 % 1,125
Total noninterest expense 10,923 8,033 2,890 36 % 8,868
Income before provision for income taxes 3,138 4,294 (1,156 ) (27 )% 4,758
Provision for income taxes:
Reversal of uncertain tax position — — — — % (988 )
Benefit from cost segregation study and tangible property review — — — — % (484 )
Provision for income taxes from operations 832 1,053 (221 ) (21 )% 1,391
Total provision for income taxes 832 1,053 (221 ) (21 )% (81 )
Net income $ 2,306 $ 3,241 $ (935 ) (29 )% $ 4,839
Basic earnings per share $ 0.13 $ 0.20 $ (0.07 ) (35 )% $ 0.30
Average basic shares 17,489 16,225 1,264 8 % 16,265
Diluted earnings per share $ 0.13 $ 0.20 $ (0.07 ) (35 )% $ 0.30
Average diluted shares 17,552 16,310 1,242 8 % 16,345
TABLE 14
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
For The Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2019 2018 2018 2018 2018
Earning assets:
Loans $ 993,261 $ 923,409 $ 930,863 $ 922,687 $ 883,876
Taxable securities 253,068 218,137 199,883 206,247 205,302
Tax exempt securities 50,454 42,868 48,561 50,306 59,789
Interest-bearing deposits in other banks 40,223 75,295 50,397 29,041 32,915
Total earning assets 1,337,006 1,259,709 1,229,704 1,208,281 1,181,882
Cash and due from banks 21,392 22,447 21,834 19,880 17,641
Premises and equipment, net 14,581 13,331 13,768 14,167 14,557
Goodwill and core deposit intangible, net 11,872 1,842 1,888 1,943 1,998
Other assets 41,009 31,488 33,084 32,426 32,485
Total assets $ 1,425,860 $ 1,328,817 $ 1,300,278 $ 1,276,697 $ 1,248,563
Liabilities and shareholders' equity:
Demand - noninterest-bearing $ 388,410 $ 367,457 $ 343,948 $ 309,199 $ 307,397
Demand - interest-bearing 243,376 257,227 235,664 225,927 234,269
Money market accounts 293,396 265,190 259,242 241,724 236,171
Savings 131,081 110,934 107,349 107,108 110,725
Certificates of deposit 167,463 157,035 163,302 170,824 181,901
Total deposits 1,223,726 1,157,843 1,109,505 1,054,782 1,070,463
Federal Home Loan Bank of San Francisco borrowings 8,778 — 22,283 55,275 12,444
Other borrowings net of unamortized debt issuance costs 12,889 13,785 14,681 15,614 16,528
Junior subordinated debentures 10,310 10,310 10,310 10,310 10,310
Other liabilities 17,452 12,846 12,000 12,535 11,749
Total liabilities 1,273,155 1,194,784 1,168,779 1,148,516 1,121,494
Shareholders' equity 152,705 134,033 131,499 128,181 127,069
Liabilities & shareholders' equity $ 1,425,860 $ 1,328,817 $ 1,300,278 $ 1,276,697 $ 1,248,563
TABLE 15
UNAUDITED CONDENSED CONSOLIDATED
YEAR TO DATE AVERAGE BALANCE SHEETS
(amounts in thousands)
For the Three Months Ended For the Twelve Months Ended
March 31, March 31, December 31, December 31, December 31,
2019 2018 2018 2017 2016
Earning assets:
Loans $ 993,261 $ 883,876 $ 915,360 $ 818,119 $ 752,938
Taxable securities 253,068 205,302 207,407 165,333 120,884
Tax exempt securities 50,454 59,789 50,330 74,231 75,303
Interest-bearing deposits in other banks 40,223 32,915 47,038 66,872 58,668
Total earning assets 1,337,006 1,181,882 1,220,135 1,124,555 1,007,793
Cash and due from banks 21,392 17,641 20,468 18,301 15,831
Premises and equipment, net 14,581 14,557 13,952 15,567 15,078
Goodwill and core deposit intangible, net 11,872 1,998 1,917 2,136 1,888
Other assets 41,009 32,485 32,369 37,692 39,160
Total assets $ 1,425,860 $ 1,248,563 $ 1,288,841 $ 1,198,251 $ 1,079,750
Liabilities and shareholders' equity:
Demand - noninterest-bearing $ 388,410 $ 307,397 $ 332,197 $ 289,735 $ 226,368
Demand - interest-bearing 243,376 234,269 238,328 209,792 172,011
Money market accounts 293,396 236,171 250,685 224,913 202,159
Savings 131,081 110,725 109,025 111,376 104,771
Certificates of deposit 167,463 181,901 168,183 205,648 221,074
Total deposits 1,223,726 1,070,463 1,098,418 1,041,464 926,383
Federal Home Loan Bank of San Francisco borrowings 8,778 12,444 22,466 302 17,856
Other borrowings net of unamortized debt issuance costs 12,889 16,528 15,143 17,981 19,430
Junior subordinated debentures 10,310 10,310 10,310 10,310 10,310
Other liabilities 17,452 11,749 12,286 12,293 13,217
Total liabilities 1,273,155 1,121,494 1,158,623 1,082,350 987,196
Shareholders' equity 152,705 127,069 130,218 115,901 92,554
Liabilities & shareholders' equity $ 1,425,860 $ 1,248,563 $ 1,288,841 $ 1,198,251 $ 1,079,750
About Bank of Commerce Holdings
Bank of Commerce Holdings is a bank holding company headquartered in Sacramento, California and is the parent company for Redding Bank of Commerce which operates under three separate names (Redding Bank of Commerce; Sacramento Bank of Commerce, a division of Redding Bank of Commerce; and The Merchants Bank of Sacramento, a division of Redding Bank of Commerce). As previously announced, the Bank will change its name for all operations to Merchants Bank of Commerce effective May 20, 2019. The Bank is an FDIC-insured California banking corporation providing community banking and financial services through twelve locations in northern California. The Bank was incorporated as a California banking corporation on November 25, 1981 and opened for business on October 22, 1982. The Company's common stock is listed on the NASDAQ Global Market and trades under the symbol 'BOCH'.
Contact Information:
Randall S. Eslick, President and Chief Executive Officer
Telephone Direct (916) 677-5800
James A. Sundquist, Executive Vice President and Chief Financial Officer
Telephone Direct (916) 677-5825
Samuel D. Jimenez, Executive Vice President and Chief Operating Officer
Telephone Direct (530) 722-3952
Andrea M. Newburn, Vice President and Senior Administrative Officer / Corporate Secretary
Telephone Direct (530) 722-3959
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