Press Release BANK OF COMMERCE HOLDINGS (NASDAQ - BOCH)

Bank of Commerce Holdings Announces Results for the Second Quarter of 2019

Company Release - 7/19/2019 9:00 AM ET

SACRAMENTO, Calif., July 19, 2019 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.442 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter ended June 30, 2019. Net income for the quarter ended June 30, 2019 was $3.6 million or $0.20 per share – diluted, compared with net income of $3.6 million or $0.22 per share – diluted for the same period of 2018. Net income for the six months ended June 30, 2019 was $6.0 million or $0.33 per share – diluted, compared with net income of $6.9 million or $0.42 per share – diluted for the same period of 2018.

The current year includes the benefits of our January 31, 2019 acquisition of Merchants National Bank of Sacramento (“Merchants”). In May, we successfully converted all of Merchant’s computer records onto our core system. As previously announced, the Company’s subsidiary bank, which had been operating under multiple names, simultaneously changed the name for all locations to Merchants Bank of Commerce. To date, acquisition related costs have totaled $2.3 million and costs related to the name change have totaled $464 thousand. All significant costs for these two projects have now been absorbed.

Randall S. Eslick, President and CEO commented: “I am very pleased with our second quarter accomplishments which are the result of the hard work of our dedicated and talented employees. The changes made during the second quarter reflect the continued execution of our strategic plan. I am particularly excited that with the successful integration of Merchant’s data systems along with our name change, we now operate our bank under one name and one computer system. These changes will lead to greater efficiencies and reinforce a consistent message throughout our company.”

Financial highlights for the second quarter of 2019:

  • Net income of $3.6 million was an increase of $26 thousand (1%) from $3.6 million earned during the same period in the prior year. Earnings of $0.20 per share – diluted was a decrease of $0.02 (9%) from $0.22 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 first quarter of 2019 as part of our acquisition of Merchants.
  • Acquisition costs associated with our acquisition of Merchants totaled $376 thousand. Costs related to the name change of our subsidiary bank totaled $464 thousand.
  • Net interest income increased $1.9 million (17%) to $13.5 million compared to $11.6 million for the same period in the prior year.
  • Return on average assets decreased to 1.01% compared to 1.14% for the same period in the prior year.
  • Return on average equity decreased to 8.93% compared to 11.32% for the same period in the prior year.
  • Average loans totaled $1.028 billion, an increase of $106 million (11%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.353 billion, an increase of $145 million (12%) compared to average earning assets for the same period in the prior year.
  • Average deposits totaled $1.218 billion, an increase of $163 million (15%) compared to average deposits for the same period in the prior year.
    -Average non-maturing deposits totaled $1.054 billion, an increase of $170 million (19%) compared to the same period in the prior year.
    -Average certificates of deposit totaled $164.1 million, a decrease of $6.7 million (4%) compared to same period in the prior year.
  • The Company’s efficiency ratio was 65.9% compared to 61.2% during the same period in the prior year.
    -The Company’s efficiency ratio of 65.9% for the second quarter of 2019 includes $376 thousand in acquisition costs and $464 thousand in name change costs. The efficiency ratio excluding these non-recurring costs was 60.1%.
  • Nonperforming assets at June 30, 2019 totaled $13.5 million or 0.94% of total assets, an increase of $9.1 million since June 30, 2018. The increase in nonperforming assets results from one $10.3 million commercial real estate loan.
  • Book value per common share was $9.22 at June 30, 2019 compared to $7.97 at June 30, 2018.
  • Tangible book value per common share was $8.29 at June 30, 2019 compared to $7.85 at June 30, 2018.

Financial highlights for the six months ended June 30, 2019:

  • Net income of $6.0 million ($0.33 per share – diluted) was a decrease of $909 thousand (13%) from $6.9 million ($0.42 per share – diluted) earned during the same period in the prior year.
  • Acquisition costs associated with our acquisition of Merchants totaled $2.3 million. Costs related to the name change of our subsidiary bank totaled $464 thousand.
  • Net interest income increased $3.6 million (16%) to $26.5 million compared to $22.9 million for the same period in the prior year.
  • Return on average assets decreased to 0.83% compared to 1.10% for the same period in the prior year.
  • Return on average equity decreased to 7.59% compared to 10.84% for the same period in the prior year.
  • Average loans totaled $1.011 billion, an increase of $107 million (12%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.345 billion, an increase of $150 million (13%) compared the same period in the prior year.
  • Average deposits totaled $1.221 billion, an increase of $158 million (15%) compared the same period in the prior year.
    -Average non-maturing deposits totaled $1.055 billion, an increase of $169 million (19%) compared to the same period in the prior year.
    -Average certificates of deposit totaled $165.8 million, a decrease of $10.6 million (6%) compared to the same period in the prior year.
  • The Company’s efficiency ratio was 71.7% compared to 63.1% for the same period in the prior year.
    -The Company’s efficiency ratio of 71.7% for the first six months of 2019 includes $2.3 million in acquisition costs and $464 thousand in name change costs. The efficiency ratio excluding these non-recurring costs was 62.0%.
  • Nonperforming assets at June 30, 2019 totaled $13.5 million or 0.94% of total assets, an increase of $9.3 million since December 31, 2018. The increase in nonperforming assets results from one $10.3 million commercial real estate loan.
  • Book value per common share was $9.22 at June 30, 2019 compared to $8.47 at December 31, 2018.
  • Tangible book value per common share was $8.29 at June 30, 2019 compared to $8.36 at December 31, 2018.

Forward-Looking Statements

Bank of Commerce Holdings wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995. This news release includes statements by the Company, which describe management’s expectations and developments, which may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21B of the Securities Act of 1934, as amended. Future events are difficult to predict, and the expectations described above are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in the Company's public filings, factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) local, national and international economic conditions are less favorable than expected or have a more direct and pronounced effect on the Company than expected and adversely affect the Company's ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new banks and/or branches are lower than expected; (4) our concentration in lending tied to real estate exposes us to the adverse effects of material increases in interest rates, declines in the general economy, tightening credit markets or declines in real estate values; (5) competitive pressure among financial institutions increases significantly; (6) legislation or regulatory requirements or changes adversely affect the businesses in which the Company is engaged; and (7) technological changes could expose us to new risks.

                    
                    
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 2019  2018  2019 2019 2018 
Net income $3,644  $3,618  $2,306  $5,950 $6,859 
Average total assets $1,450,725  $1,276,697  $1,425,860  $1,438,361 $1,262,710 
Average total earning assets $1,353,200  $1,208,281  $1,337,006  $1,345,177 $1,195,154 
Average shareholders' equity $163,598  $128,181  $152,705  $158,182 $127,628 
                    
Selected performance ratios                   
Return on average assets  1.01%  1.14%  0.66%  0.83% 1.10%
Return on average equity  8.93%  11.32%  6.12%  7.59% 10.84%
Efficiency ratio  65.9%  61.2%  77.7%  71.7% 63.1%
                    
Share and per share amounts                   
Weighted average shares - basic (1)  18,134   16,245   17,489   17,816  16,237 
Weighted average shares - diluted (1)  18,194   16,325   17,552   17,878  16,319 
Earnings per share - basic $0.20  $0.22  $0.13  $0.33 $0.42 
Earnings per share - diluted $0.20  $0.22  $0.13  $0.33 $0.42 
                    
  At June 30,   At March 31,   
Share and per share amounts 2019  2018  2019     
Common shares outstanding (2)  18,214   16,318   18,213        
Book value per common share (2) $9.22  $7.97  $8.90        
Tangible book value per common share (2)(3) $8.29  $7.85  $7.96        
                    
Capital ratios (4)                  
Bank of Commerce Holdings                  
Common equity tier 1 capital ratio  12.56%  12.15%  12.40%       
Tier 1 capital ratio  13.41%  13.07%  13.25%       
Total capital ratio  15.35%  15.20%  15.19%       
Tier 1 leverage ratio  11.08%  11.07%  11.05%       
Tangible common equity ratio (5)  10.59%  10.02%  9.97%       
                    
Merchants Bank of Commerce                   
Common equity tier 1 capital ratio  14.06%  12.51%  13.98%       
Tier 1 capital ratio  14.06%  12.51%  13.98%       
Total capital ratio  15.16%  13.72%  15.08%       
Tier 1 leverage ratio  11.61%  10.60%  11.66%       
                    
(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) Book value per share is computed by dividing total shareholders’ equity by shares outstanding. 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 June 30, 2019, the Company had total consolidated assets of $1.442 billion, gross loans of $1.037 billion, allowance for loan and lease losses (“ALLL”) of $12 million, total deposits of $1.236 billion, and shareholders’ equity of $168 million.

                        
                        
TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
                        
 At June 30,       At March 31,
   % of    % of  Change   % of
 2019  Total 2018  Total Amount % 2019  Total
Commercial$152,303  15% $139,670  15% $12,633  9 % $149,575  14%
Real estate - construction and land development 37,685  4   21,292  2   16,393  77 %  30,335  3 
Real estate - commercial non-owner occupied 468,706  45   427,088  46   41,618  10 %  469,048  46 
Real estate - commercial owner occupied 210,711  21   199,412  21   11,299  6 %  209,099  20 
Real estate - residential - ITIN 35,162  3   39,424  4   (4,262) (11)%  36,145  3 
Real estate - residential - 1-4 family mortgage 67,092  6   33,391  4   33,701  101 %  68,092  7 
Real estate - residential - equity lines 23,656  2   28,879  3   (5,223) (18)%  26,162  3 
Consumer and other 41,409  4   47,660  5   (6,251) (13)%  46,150  4 
Gross loans 1,036,724  100%  936,816  100%  99,908  11 %  1,034,606  100%
Deferred fees and costs 2,005      1,763      242      1,992    
Loans, net of deferred fees and costs 1,038,729      938,579      100,150      1,036,598    
Allowance for loan and lease losses (12,445)     (12,388)     (57)     (12,242)   
Net loans$1,026,284     $926,191     $100,093     $1,024,356    
                        
Average loans$1,028,187     $922,687     $105,500  11 % $993,261    
Average yield on loans during the quarter 5.01%     4.85%     0.16      4.91%   
Average yield on loans during the year 4.96%     4.89%     0.07      4.91%   

The Company recorded gross loan balances of $1.037 billion at June 30, 2019, compared with $937 million and $1.035 billion at June 30, 2018 and March 31, 2019, respectively, an increase of $100 million and $2 million, respectively. During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $85.3 million of loans. At June 30, 2019, gross loans from the acquisition totaled $83.4 million.

The average yield on loans during the quarter was 5.01% compared to 4.85% and 4.91% for the quarters ended June 30, 2018 and March 31, 2019, respectively. During the first quarter of 2019, a $10.3 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. During the second quarter of 2019, we received a loan prepayment penalty that increased the average yield by 5 basis points.

Gross loan balances in the table above include a fair value discount for loans acquired from Merchants during the first quarter of 2019 of $2.0 million and $2.2 million at June 30, 2019 and March 31, 2019, respectively. We recorded $48 thousand and $195 thousand in accretion of the discount for these loans during the first and second quarters of 2019, respectively.

                         
                         
TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
                         
  At June 30,        At March 31,
    % of    % of  Change   % of
  2019  Total 2018  Total Amount % 2019  Total
Cash and due from banks $21,306  7% $23,996  8% $(2,690) (11)% $32,104  9%
Interest-bearing deposits in other banks  19,319  6   15,690  5   3,629  23 %  30,425  9 
Total cash and cash equivalents  40,625  13   39,686  13   939  2 %  62,529  18 
                         
Investment securities:                        
U.S. government and agencies  44,837  14   38,994  14   5,843  15 %  46,451  13 
Obligations of state and political subdivisions  45,003  14   58,479  20   (13,476) (23)%  48,935  14 
Residential mortgage backed securities and
collateralized mortgage obligations
  168,085  50   121,218  43   46,867  39 %  171,814  47 
Corporate securities  2,978  1   3,987  1   (1,009) (25)%  2,958  1 
Commercial mortgage backed securities  24,868  8   24,742  9   126  1 %  23,864  7 
Other asset backed securities  48     219  0   (171) (78)%  95   
Total investment securities - AFS  285,819  87   247,639  87   38,180  15 %  294,117  82 
                         
Total cash, cash equivalents and
investment securities
 $326,444  100% $287,325  100% $39,119  14 % $356,646  100%
Average yield on interest-bearing due
from banks and investment securities
during the quarter - nominal
  2.81%     2.56%     0.25      2.83%   
Average yield on interest-bearing due
from banks and investment securities
during the quarter - tax equivalent
  2.92%     2.72%     0.20      2.95%   

As of June 30, 2019, we maintained noninterest-bearing cash positions of $21.3 million and interest-bearing deposits of $19.3 million at the Federal Reserve Bank and correspondent banks.

Investment securities totaled $285.8 million at June 30, 2019, compared with $247.6 million and $294.1 million at June 30, 2018 and March 31, 2019, 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 and $18.5 million during the first and second quarters of 2019, respectively. The sales resulted in net realized gains of $92 thousand and $33 thousand for the first and second quarters of 2019, respectively.

Average securities balances and weighted average tax equivalent yields for the quarters ended June 30, 2019 and 2018 were $289.4 million and 2.98% compared to $256.6 million and 2.82%, respectively.

At June 30, 2019, our net unrealized gains on available-for-sale investment securities were $3.4 million compared with net unrealized losses of $4.9 million and $701 thousand at June 30, 2018 and March 31, 2019, respectively. The changes in net unrealized losses on the investment securities portfolio were due to changes in market interest rates.

                        
                        
TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
                        
 At June 30,        At March 31,
   % of    % of   Change   % of
 2019 Total 2018 Total Amount % 2019 Total
Demand - noninterest-bearing$397,349 32% $316,347 30% $81,002  26 % $385,696 31%
Demand - interest-bearing 238,175 19   217,674 21   20,501  9 %  241,292 19 
Money market 300,847 24   247,413 23   53,434  22 %  311,853 25 
Total demand 936,371 75   781,434 74   154,937  20 %  938,841 75 
                        
Savings 138,591 11   106,170 10   32,421  31 %  139,237 11 
Total non-maturing deposits 1,074,962 86   887,604 84   187,358  21 %  1,078,078 86 
                        
Certificates of deposit 160,556 14   166,925 16   (6,369) (4)%  170,216 14 
Total deposits$1,235,518 100% $1,054,529 100% $180,989  17 % $1,248,294 100%
                        

Total deposits at June 30, 2019, increased $181 million or 17% to $1.236 billion compared to June 30, 2018 and decreased $13 million or 4% annualized compared to March 31, 2019. Total non-maturing deposits increased $187.4 million or 21% compared to the same date a year ago and decreased $3.2 million or less than 1% annualized compared to March 31, 2019. Certificates of deposit decreased $6.4 million or 4% compared to the same date a year ago and decreased $9.7 million or 23% annualized compared to March 31, 2019.

During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $190.2 million of deposits. The decrease in the acquired deposits of $16.5 million at June 30, 2019 is not attributable to the loss of any significant relationships. As illustrated in the following table, legacy deposits have experienced their seasonal decline, while wholesale time deposits have matured and were not renewed.

               
               
TABLE 5
YEAR TO DATE CHANGES IN DEPOSITS
(amounts in thousands)
     Change In Acquired Change In Legacy  
   Acquired Deposits For The Five Deposits For The Six  
 Legacy Deposits Merchants Deposits Months Ended Months Ended Deposits At
 At December 31, At January 31, June 30,  June 30,  At June 30,
 2018 2019 2019
 2019
 2019
Demand - noninterest-bearing$347,199 $51,880 $(2,777) $1,047  $397,349
Demand - interest-bearing 252,202  28,231  (5,695)  (36,563)  238,175
Money market 265,093  43,316  (1,805)  (5,757)  300,847
Total demand 864,494  123,427  (10,277)  (41,273)  936,371
               
Savings 114,840  28,786  (1,998)  (3,037)  138,591
Total non-maturing deposits 979,334  152,213  (12,275)  (44,310)  1,074,962
               
Certificates of deposit 152,382  38,003  (4,174)  (25,655)  160,556
Total deposits$1,131,716 $190,216 $(16,449) $(69,965) $1,235,518


         
         
TABLE 6
WHOLESALE AND RECIPROCAL DEPOSITS - UNAUDITED
(amounts in thousands)