Press Release BANK OF COMMERCE HOLDINGS (NASDAQ - BOCH)

Bank of Commerce Holdings Announces Results for the First Quarter of 2020

Company Release - 4/17/2020 9:00 AM ET

SACRAMENTO, Calif., April 17, 2020 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.456 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter ended March 31, 2020. Net income for the quarter ended March 31, 2020 was $916 thousand or $0.05 per share – diluted, compared with net income of $2.3 million or $0.13 per share – diluted for the same period of 2019.

Significant Items for the first quarter of 2020:

  • $2.9 million provision for loan and lease losses.
  • $1.1 million in non-recurring costs.
  • 1,351,922 shares of common stock repurchased.
  • Initial impact of COVID-19.

Randall S. Eslick, President and CEO commented: “The current health crisis has changed our world and is impacting our company in many ways. Our employees need physical protection and work schedule flexibility, our borrowers need credit accommodation and everyone needs a little compassion. In response, we have taken many varied actions to assist borrowers, depositors, employees and our communities. Our company is stronger for these efforts and over the coming weeks and months we will continue to respond to needs and challenges as they arise.”

Financial highlights for the first quarter of 2020 compared to the same quarter a year ago:

  • Net income of $916 thousand was a decrease of $1.4 million (60%) from $2.3 million earned during the same period in the prior year. Earnings of $0.05 per share – diluted was a decrease of $0.08 (62%) from $0.13 per share – diluted earned during the same period in the prior year and reflects the impact of the following:
    • $2.9 million provision for loan and lease losses for the current quarter.
    • $1.1 million in non-recurring costs for the current quarter associated with the termination of a technology management services contract and a previously announced severance agreement.
    • $1.9 million in non-recurring costs recorded during the same period a year ago associated with our January 31, 2019 acquisition of Merchants Holding Company in Sacramento (“Merchants”).
  • Net interest income decreased $18 thousand (less than 1%) to $13.0 million compared to $13.0 million for the same period in the prior year.
  • Net interest margin declined to 3.86% compared to 3.94% for the same period in the prior year.
  • Return on average assets decreased to 0.25% compared to 0.66% for the same period in the prior year.
  • Return on average equity decreased to 2.14% compared to 6.12% for the same period in the prior year.
  • Average loans totaled $1.034 billion, an increase of $40 million (4%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.353 billion, an increase of $16 million (1%) compared to average earning assets for the same period in the prior year.
  • Average deposits totaled $1.245 billion, an increase of $21 million (2%) compared to average deposits for the same period in the prior year.
    • Average non-maturing deposits totaled $1.097 billion, an increase of $41 million (4%) compared to the same period in the prior year.
    • Average certificates of deposit totaled $147.2 million, a decrease of $20.2 million (12%) compared to same period in the prior year.
  • The Company’s efficiency ratio was 70.5% compared to 77.7% during the same period in the prior year.
    • The Company’s efficiency ratio of 70.5% for the first quarter of 2020 included $1.1 million in non-recurring costs. The efficiency ratio excluding these costs was 62.5%.
    • The Company’s efficiency ratio of 77.7% for the first quarter of 2019 included $1.9 million in non-recurring acquisition costs. The efficiency ratio excluding these non-recurring costs was 64.0%
  • Nonperforming assets at March 31, 2020 totaled $5.3 million or 0.36% of total assets, a decrease of $9.3 million (64%) since March 31, 2019. The decrease in nonperforming assets results from one $10.9 million commercial real estate loan which was placed in nonaccrual status in the first quarter and sold in the fourth quarter of 2019.
  • Book value per common share was $9.86 at March 31, 2020 compared to $8.90 at March 31, 2019.
  • Tangible book value per common share was $8.89 at March 31, 2020 compared to $7.96 at March 31, 2019.

Financial highlights for the first quarter of 2020 compared to prior quarter:

  • Net income of $916 thousand ($0.05 per share – diluted) was a decrease of $3.5 million (79%) from $4.4 million ($0.24 per share – diluted) earned during the prior quarter and reflects the impact of the following:
    • $2.9 million provision for loan and lease losses for the current quarter.
    • $1.1 million in non-recurring costs for the current quarter associated with the termination of a technology management services contract and a previously announced severance agreement.
  • Net interest income decreased $328 thousand (2%) to $13.0 million compared to $13.3 million for the prior quarter.
  • Net interest margin improved to 3.86% compared to 3.80% for the prior quarter.
  • Return on average assets decreased to 0.25% compared to 1.16% for the prior quarter.
  • Return on average equity decreased to 2.14% compared to 10.06% for the prior quarter.
  • Average loans totaled $1.034 billion, an increase of $2 million (1% annualized) compared to average loans for the prior quarter.
  • Average earning assets totaled $1.353 billion, a decrease of $37 million (11% annualized) compared the prior quarter.
  • Average deposits totaled $1.245 billion, a decrease of $38 million (12% annualized) compared the prior quarter.
    • Average non-maturing deposits totaled $1.097 billion, a decrease of $32 million (11% annualized) compared to the prior quarter.
    • Average certificates of deposit totaled $147.2 million, a decrease of $6.0 million (16% annualized) compared to the prior quarter.
  • The Company’s efficiency ratio was 70.5% compared to 58.7% for the prior quarter.
    • The Company’s efficiency ratio of 70.5% for the first quarter of 2020 included $1.1 million in non-recurring costs. The efficiency ratio excluding these costs was 62.5%.
  • Nonperforming assets at March 31, 2020 totaled $5.3 million or 0.36% of total assets, a decrease of $400 thousand (28% annualized) since December 31, 2019.
  • Book value per common share was $9.86 at March 31, 2020 compared to $9.62 at December 31, 2019.
  • Tangible book value per common share was $8.89 at March 31, 2020 compared to $8.71 at December 31, 2019.

Subsequent impacts of COVID-19:

  • We are participating in the federal Paycheck Protection Program (“PPP”) administered through the Small Business Administration (“SBA”). We expect to utilize liquidity provided by the Federal Reserve to fund the program. Through April 13, 2020, we had received approximately 580 loan applications for approximately $186 million and we have now stopped accepting applications. We do not expect that the growth in our assets resulting from the PPP will impact our regulatory capital ratios.
  • We have not experienced any unusual pressure on our deposit balances or on our liquidity position as a result of COVID-19. Should this change, in addition to our primary sources of liquidity, the Bank has credit arrangements as disclosed in our 2019 Form 10-K that provide secondary funding sources that totaled $517.8 million.
  • At March 31, 2019 our workforce totaled 216 employees of which 105 are working remotely.
  • All of our branch offices remain open, although they are operating under a reduced schedule.

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
Net income, average assets and March 31,   December 31,
average shareholders' equity 2020  2019  2019
Net income $916  $2,306  $4,369 
Average total assets $1,454,019  $1,425,860  $1,492,643 
Average total earning assets $1,353,098  $1,337,006  $1,390,446 
Average shareholders' equity $172,120  $152,705  $172,385 
             
Selected performance ratios            
Return on average assets  0.25%  0.66%  1.16%
Return on average equity  2.14%  6.12%  10.06%
Efficiency ratio  70.5%  77.7%  58.7%
             
Share and per share amounts            
Weighted average shares - basic (1)  17,695   17,489   18,068 
Weighted average shares - diluted (1)  17,747   17,552   18,150 
Earnings per share - basic $0.05  $0.13  $0.24 
Earnings per share - diluted $0.05  $0.13  $0.24 
             
  At March 31,   At December 31,
Share and per share amounts 2020  2019  2019
Common shares outstanding (2)  16,796   18,213   18,137 
Book value per common share (2) $9.86  $8.90  $9.62 
Tangible book value per common share (2)(3) $8.89  $7.96  $8.71 
             
Capital ratios (4)           
Bank of Commerce Holdings           
Common equity tier 1 capital ratio  12.02%  12.40%  13.19%
Tier 1 capital ratio  12.85%  13.25%  14.04%
Total capital ratio  14.93%  15.19%  15.97%
Tier 1 leverage ratio  10.78%  11.05%  11.30%
Tangible common equity ratio (5)  10.38%  9.97%  10.80%
             
Merchants Bank of Commerce            
Common equity tier 1 capital ratio  13.66%  13.98%  14.39%
Tier 1 capital ratio  13.66%  13.98%  14.39%
Total capital ratio  14.91%  15.08%  15.48%
Tier 1 leverage ratio  11.45%  11.66%  11.58%
             
(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 March 31, 2020, the Company had total consolidated assets of $1.456 billion, gross loans of $1.052 billion, allowance for loan and lease losses (“ALLL”) of $15 million, total deposits of $1.242 billion, and shareholders’ equity of $166 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
                        
 At March 31,       At December 31,
   % of    % of  Change   % of
 2020 Total 2019 Total Amount % 2019 Total
Commercial$138,870  13% $149,575  14% $(10,705) (7)% $141,197  14%
Real estate - construction and land development 34,394  3   30,335  3   4,059  13%  26,830  3 
Real estate - commercial non-owner occupied 514,052  49   477,798  47   36,254  8%  493,920  48 
Real estate - commercial owner occupied 217,319  21   200,349  19   16,970  8%  218,833  21 
Real estate - residential - ITIN 31,998  3   36,145  3   (4,147) (11)%  33,039  3 
Real estate - residential - 1-4 family mortgage 62,533  6   68,092  7   (5,559) (8%  63,661  6 
Real estate - residential - equity lines 23,158  2   26,162  3   (3,004) (11)%  22,099  2 
Consumer and other 29,921  3   46,150  4   (16,229) (35)%  33,324  3 
Gross loans 1,052,245  100%  1,034,606  100%  17,639  2%  1,032,903  100%
Deferred fees and costs 2,129      1,992      137      2,162    
Loans, net of deferred fees and costs 1,054,374      1,036,598      17,776      1,035,065    
Allowance for loan and lease losses (15,067)     (12,242)     (2,825)     (12,231)   
Net loans$1,039,307     $1,024,356     $14,951     $1,022,834    
                        
Average loans during the quarter$1,033,689     $993,261     $40,428  4% $1,031,702    
Average yield on loans during the quarter 4.80%
     4.91%     (0.11)     4.86%   
Average yield on loans during the year 4.80%     4.91%     (0.11)     4.95%   

The Company recorded gross loan balances of $1.052 billion at March 31, 2020, compared with $1.035 billion and $1.033 billion at March 31, 2019 and December 31, 2019, respectively, an increase of $18 million and $19 million, respectively.

The average yield on loans during the quarter was 4.80% compared to 4.91% and 4.86% for the quarters ended March 31, 2019 and December 31, 2019, respectively.

Gross loan balances in the table above include a net fair value discount for loans acquired from Merchants of $1.5 million, $1.7 million and $2.3 million at March 31, 2020, December 31, 2019 and March 31, 2019, respectively. We recorded $163 thousand$188 thousand and $48 thousand in accretion of the discount for these loans during the quarters ended March 31, 2020, December 31, 2019 and March 31, 2019, respectively.


                         
                         
TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
                         
  At March 31,        At December 31,
    % of    % of  Change   % of
  2020 Total 2019 Total Amount % 2019 Total
Cash and due from banks $21,127 6% $32,104 9% $(10,977) (34)% $21,338 6%
Interest-bearing deposits in other banks  22,813 7   30,425 9   (7,612) (25)%  59,266 16 
Total cash and cash equivalents  43,940 13   62,529 18   (18,589) (30)%  80,604 22 
                         
Investment securities:                        
U.S. government and agencies  36,043 11   46,451 13   (10,408) (22)%  38,733 11 
Obligations of state and political subdivisions  63,263 19   48,935 14   14,328  29%  42,098 11 
Residential mortgage backed securities and
collateralized mortgage obligations
  160,439 50   171,814 47   (11,375) (7)%  180,835 49 
Corporate securities  2,983 1   2,958 1   25  1%  2,966 1 
Commercial mortgage backed securities  17,428 5   23,864 7   (6,436) (27)%  19,307 5 
Other asset backed securities  4,921 1   95    4,826  5,080%  3,011 1 
Total investment securities - AFS  285,077 87   294,117 82   (9,040) (3)%  286,950 78 
                         
Total cash, cash equivalents and
investment securities
 $329,017 100% $356,646 100% $(27,629) (8)% $367,554 100%
Average yield on interest-bearing due
from banks and investment securities
during the quarter - nominal
  2.53%    2.83%    (0.30)     2.39%  
Average yield on interest-bearing due
from banks and investment securities
during the quarter - tax equivalent
  2.62%    2.95%    (0.33)     2.47%  

As of March 31, 2020, we maintained noninterest-bearing cash positions of $21.1 million and interest-bearing deposits of $22.8 million at the Federal Reserve Bank and correspondent banks.

Investment securities totaled $285.1 million at March 31, 2020, compared with $294.1 million and $287.0 million at March 31, 2019 and December 31, 2019, respectively. During the first quarter of 2020, we repositioned a portion of the Bank’s investment securities portfolio to take advantage of widening credit spreads on municipal securities. We purchased securities with a par value of $37.9 million and weighted average yield of 2.85% and sold securities with a par value of $28.6 million and weighted average yield of 2.24%. The sales resulted in net realized gains of $84 thousand for the quarter ended March 31, 2020.

Average securities balances for the quarters ended March 31, 2020, December 31, 219 and March 31, 2019 were $272.3 million, $277.6 million and $303.5 million, respectively. Weighted average yields on securities balances for those same periods were 2.74%, 2.61% and 2.87%, respectively.

At March 31, 2020, our net unrealized gains on available-for-sale investment securities were $8.4 million compared with net unrealized losses of $701 thousand and net unrealized gains of $3.7 million at March 31, 2019 and December 31, 2019, respectively. The changes in net unrealized gains / losses on the investment securities portfolio were 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
 2020 Total 2019 Total Amount % 2019 Total
Demand - noninterest-bearing$419,315 34% $385,696 31% $33,619  9% $432,680 34%
Demand - interest-bearing 231,276 19   241,292 19   (10,016) (4)%  239,258 19 
Money market 314,687 25   311,853 25   2,834  1%  307,559 24 
Total demand 965,278