Press Release BANK OF COMMERCE HOLDINGS (NASDAQ - BOCH)

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

Company Release - 7/17/2020 9:00 AM ET

SACRAMENTO, Calif., July 17, 2020 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.712 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter and six months ended June 30, 2020. Net income for the quarter ended June 30, 2020 was $3.8 million or $0.23 per share – diluted, compared with net income of $3.6 million or $0.20 per share – diluted for the same period of 2019.  Net income for the six months ended June 30, 2020 was $4.8 million or $0.28 per share – diluted, compared with net income of $6.0 million or $0.33 per share – diluted for the same period of 2019.

Significant Items for the second quarter of 2020:

  • $1.3 million provision for loan and lease losses.
  • $162.2 million in loans funded through June 30, 2020 under the federal Paycheck Protection Program (“PPP”) (594 loans).
  • Through June 30, 2020 approved 244 loan modifications for loans totaling $123.3 million.
  • Ongoing impact of COVID-19.

Randall S. Eslick, President and CEO commented: “We are proud of our company’s response to recent economic and medical challenges. During the second quarter we installed physical protections for employees and customers, assigned 50% of our employees to work remotely, extended 594 PPP loans totaling $162.2 million and deferred loan payments for 10% of our loan portfolio. Until these challenges abate, we remain committed to ongoing protection and support for our employees, customers and communities.”

Financial highlights for the second quarter of 2020:

  • Net income of $3.8 million was an increase of $203 thousand (6%) from $3.6 million earned during the same period in the prior year. Earnings of $0.23 per share – diluted was an increase of $0.03 (15%) from $0.20 per share – diluted earned during the same period in the prior year and reflects the impact of the following:
    • 1.5 million shares of common stock repurchased between October of 2019 and April of 2020.
    • $1.3 million provision for loan and lease losses for the current quarter.
    • $840 thousand 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”) and the name change of our subsidiary bank.
  • Net interest income increased $288 thousand (2%) to $13.8 million compared to $13.5 million for the same period in the prior year.
  • Net interest margin declined to 3.64% compared to 4.00% for the same period in the prior year.
  • Return on average assets decreased to 0.95% compared to 1.01% for the same period in the prior year.
  • Return on average equity increased to 9.26% compared to 8.93% for the same period in the prior year.
  • Average loans totaled $1.181 billion, an increase of $153 million (15%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.523 billion, an increase of $170 million (13%) compared to average earning assets for the same period in the prior year.
  • Average deposits totaled $1.406 billion, an increase of $189 million (15%) compared to average deposits for the same period in the prior year.
    • Average non-maturing deposits totaled $1.263 billion, an increase of $210 million (20%) compared to the same period in the prior year.
    • Average certificates of deposit totaled $143.0 million, a decrease of $21.1 million (13%) compared to same period in the prior year.
  • The Company’s efficiency ratio was 56.1% compared to 65.9% during the same period in the prior year.
    • The Company’s efficiency ratio of 65.9% for the second quarter of 2019 included $840 thousand in non-recurring acquisition and the name change costs. The efficiency ratio excluding these non-recurring costs was 60.1%.
  • Nonperforming assets at June 30, 2020 totaled $6.7 million or 0.39% of total assets, a decrease of $6.8 million (51%) since June 30, 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 of 2019 and sold in the fourth quarter of 2019.
  • Book value per common share was $10.13 at June 30, 2020 compared to $9.22 at June 30, 2019.
  • Tangible book value per common share was $9.17 at June 30, 2020 compared to $8.29 at June 30, 2019.

Financial highlights for the six months ended June 30, 2020:

  • Net income of $4.8 million was a decrease of $1.2 million (20%) from $6.0 million earned during the same period in the prior year. Earnings of $0.28 per share – diluted was a decrease of $0.05 (15%) per share – diluted earned during the same period in prior year and reflects the impact of the following:
    • 1.5 million shares of common stock repurchased between October of 2019 and April of 2020.
    • $4.2 million provision for loan and lease losses for the six months ended June 30, 2020.
    • $1.1 million in non-recurring costs for the first quarter of 2020 associated with the termination of a technology management services contract and a previously announced severance agreement.
    • $2.8 million in non-recurring costs recorded during six months ended June 30, 2019 associated with our January 31, 2019 acquisition of Merchants and the name change of our subsidiary bank.
  • Net interest income increased $270 thousand (1%) to $26.8 million compared to $26.5 million for the same period in the prior year.
  • Net interest margin declined to 3.74% compared to 3.97% for same period in the prior year.
  • Return on average assets decreased to 0.62% compared to 0.83% for the same period in the prior year.
  • Return on average equity decreased to 5.65% compared to 7.59% for the same period in the prior year.
  • Average loans totaled $1.107 billion, an increase of $96 million (10%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.438 billion, an increase of $93 million (7%) compared the same period in the prior year.
  • Average deposits totaled $1.325 billion, an increase of $105 million (9%) compared the same period in the prior year.
    • Average non-maturing deposits totaled $1.180 billion, an increase of $125 million (12%) compared to the same period in the prior year.
    • Average certificates of deposit totaled $145.1 million, a decrease of $20.7 million (12%) compared to the same period in the prior year.
  • The Company’s efficiency ratio was 63.1% compared to 71.7% for the same period in the prior year.
    • The Company’s efficiency ratio of 63.1% for the first six months of 2020 included $1.1 million in non-recurring costs. The efficiency ratio excluding these costs was 59.2%.
    • The Company’s efficiency ratio of 71.7% for the first six months of 2019 includes $2.8 million in non-recurring costs. The efficiency ratio excluding these non-recurring costs was 62.0%.
  • Nonperforming assets at June 30, 2020 totaled $6.7 million or 0.39% of total assets, an increase of $1.0 million (37% annualized) since December 31, 2019.
  • Book value per common share was $10.13 at June 30, 2020 compared to $9.62 at December 31, 2019.
  • Tangible book value per common share was $9.17 at June 30, 2020 compared to $8.71 at December 31, 2019.

Impact of COVID-19:

  • We have funded 594 loans totaling $162.2 million for the PPP through June 30, 2020. The growth in our assets resulting from the PPP has impacted our Tier 1 Leverage capital ratio as we have not utilized the liquidity available to us from the Federal Reserve’s PPP Liquidity Facility and its associated beneficial capital treatment. Substantially all of the loans were made to existing customers and were funded under the two year PPP loan program.
  • We have experienced significant increased deposit balances as all of the PPP loan funds were deposited into customer accounts at our bank and as a result of customer behavior that is focused on maintaining greater non-maturing deposit balances.
  • Organic loan growth has been slowed as we maintain credit underwriting discipline in light of the current economic environment.
  • At June 30, 2020 the Company’s goodwill was not impaired as supported by a review by an independent third party consultant.
  • At June 30, 2020, our workforce totaled 214 employees of which 114 are working remotely.
  • All of our branch offices remain open, although they are operating under a reduced schedule. Our pandemic response team is continuing to modify and enhance our workforce and customer protection as additional information or requirements are promulgated by the state of California.

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 
(dollars 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 2020  2019  2020 2020  2019 
Net income $3,847  $3,644  $916  $4,763  $5,950 
Average total assets $1,626,827  $1,450,725  $1,454,019  $1,540,423  $1,438,361 
Average total earning assets $1,523,157  $1,353,200  $1,353,098  $1,438,127  $1,345,177 
Average shareholders' equity $167,036  $163,598  $172,120  $169,578  $158,182 
                     
Selected performance ratios                    
Return on average assets  0.95%  1.01%  0.25%  0.62%  0.83%
Return on average equity  9.26%  8.93%  2.14%  5.65%  7.59%
Efficiency ratio  56.1%  65.9%  70.5%  63.1%  71.7%
                     
Share and per share amounts                    
Weighted average shares - basic (1)  16,660   18,134   17,695   17,178   17,816 
Weighted average shares - diluted (1)  16,689   18,194   17,747   17,217   17,878 
Earnings per share - basic $0.23  $0.20  $0.05  $0.28  $0.33 
Earnings per share - diluted $0.23  $0.20  $0.05  $0.28  $0.33 
                     
  At June 30,   At March 31,   
Share and per share amounts 2020  2019  2020      
Common shares outstanding (2)  16,739   18,214   16,796         
Book value per common share (2) $10.13  $9.22  $9.86         
Tangible book value per common share (2)(3) $9.17  $8.29  $8.89         
                     
Capital ratios (4)                   
Bank of Commerce Holdings                   
Common equity tier 1 capital ratio  12.34%  12.56%  12.02%        
Tier 1 capital ratio  13.18%  13.41%  12.85%        
Total capital ratio  15.27%  15.35%  14.93%        
Tier 1 leverage ratio  9.82%  11.08%  10.78%        
Tangible common equity ratio (5)  9.05%  10.59%  10.38%        
                     
Merchants Bank of Commerce                    
Common equity tier 1 capital ratio  13.72%  14.06%  13.66%        
Tier 1 capital ratio  13.72%  14.06%  13.66%        
Total capital ratio  14.97%  15.16%  14.91%        
Tier 1 leverage ratio  10.21%  11.61%  11.45%        
                     
(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, 2020, the Company had total consolidated assets of $1.712 billion, gross loans of $1.206 billion, allowance for loan and lease losses (“ALLL”) of $16 million, total deposits of $1.494 billion, and shareholders’ equity of $170 million.

                        
                        
TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(dollars in thousands)
                        
 At June 30,       At March 31,
   % of    % of  Change   % of
 2020  Total 2019  Total Amount % 2020  Total
Commercial$126,024  10% $152,303  15% $(26,279) (17)% $138,870  13%
PPP 162,189  13     0   162,189  100 %    0 
Real estate - construction and land development 41,371  3   37,685  4   3,686  10 %  34,394  3 
Real estate - commercial non-owner occupied 521,004  44   468,706  45   52,298  11 %  514,052  49 
Real estate - commercial owner occupied 215,799  18   210,711  21   5,088  2 %  217,319  21 
Real estate - residential - ITIN 31,083  3   35,162  3   (4,079) (12)%  31,998  3 
Real estate - residential - 1-4 family mortgage 60,756  5   67,092  6   (6,336) (9)%  62,533  6 
Real estate - residential - equity lines 20,938  2   23,656  2   (2,718) (11)%  23,158  2 
Consumer and other 27,176  2   41,409  4   (14,233) (34)%  29,921  3 
Gross loans 1,206,340  100%  1,036,724  100%  169,616  16 %  1,052,245  100%
Deferred fees and costs (1,603)     2,005      (3,608)     2,129    
Loans, net of deferred fees and costs 1,204,737      1,038,729      166,008      1,054,374    
Allowance for loan and lease losses (16,089)     (12,445)     (3,644)     (15,067)   
Net loans$1,188,648     $1,026,284     $162,364     $1,039,307    
                        
Average loans during the quarter$1,180,915     $1,028,187     $152,728  15 % $1,033,689    
Average loans during the quarter (excluding PPP)$1,048,139     $1,028,187     $19,952  2 % $1,033,689    
Average yield on loans during the quarter 4.50 %    5.01 %    (0.51) (10)%  4.80 %  
Average yield on all loans during the quarter (excluding PPP) 4.76 %    5.01 %    (0.25) (5)%  4.80 %  
Average yield on all loans during the year to date 4.64 %    4.96 %    (0.32) (6)%  4.80 %  
Average yield on all loans during the year to date (excluding PPP) 4.78 %    4.96 %    (0.18) (4)%  4.80 %  

The Company recorded gross loan balances of $1.206 billion at June 30, 2020, compared with $1.037 billion and $1.052 billion at June 30, 2019 and March 31, 2020, respectively, an increase of $170 million and $154 million, respectively.

The average yield on loans during the quarter was 4.50% compared to 5.01% and 4.80% for the quarters ended June 30, 2019 and March 31, 2020, respectively. Yields in the current quarter were negatively impacted by PPP loans which averaged $132.8 million and yielded 2.46%.

Gross loan balances in the table above include a net fair value discount for loans acquired from Merchants of $1.3 million, $1.5 million and $2.0 million at June 30, 2020, March 31, 2020 and June 30, 2019, respectively. We recorded $216 thousand, $163 thousand and $190 thousand in accretion of the discount for these loans during the quarters ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

We have funded 594 PPP loans totaling $162.2 million through June 30, 2020. Substantially all of the loans were made to existing customers and the loan proceeds were initially deposited with our institution. At origination, loan fee income net of loan origination costs totaled $4.3 million and is being earned over the 24 month duration of the loans as a part of the loan yield. At June 30, 2020$3.8 million remains to be earned in future quarters. The following tables provide additional information on the PPP loans by industry and by loan balance at June 30, 2020.

   
TABLE 3
PPP LOANS BY INDUSTRY - UNAUDITED
(dollars in thousands)
   
 At June 30, 2020
 Balance
Construction$ 64,242 
Healthcare and Social Assistance  17,530 
Professional, Scientific and Tech Services  12,155 
Accommodation and Food Services  10,328 
Admin, Support, Waste Management and Remediation Services  7,372 
Primary Metal Manufacturing  6,581 
Retail Trade  8,033 
Other  35,948 
Total$ 162,189 


        
        
TABLE 4
PPP LOANS BY LOAN SIZE - UNAUDITED
(dollars in thousands)
        
 At June 30, 2020
 Balance Number Average Loan Size
$150,000 or less$ 20,256   381  $ 53 
$150,001 to $350,000  25,234   109    232 
$350,001 to $1,999,999  73,143   92    795 
$2,000,000 or greater  43,556   12    3,630 
Total$ 162,189   594  $ 273 


                         
                         
TABLE 5
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(dollars in thousands)
                         
  At June 30,        At March 31,
    % of    % of  Change   % of
  2020 Total 2019 Total Amount % 2020 Total
Cash and due from banks $29,630 7% $21,306 7% $8,324  39 % $21,127 6%
Interest-bearing deposits in other banks  126,132 29   19,319 6   106,813  553 %  22,813 7 
Total cash and cash equivalents  155,762 36   40,625 13   115,137  283 %  43,940 13 
                         
Investment securities:                        
U.S. government and agencies  33,195 8   44,837 14   (11,642) (26)%  36,043 11 
Obligations of state and political subdivisions  76,888 18   45,003 14   31,885  71 %  63,263 19 
Residential mortgage backed securities and
collateralized mortgage obligations
  137,120 30   168,085 50   (30,965) (18)%  160,439 50 
Corporate securities  1,000 0   2,978 1   (1,978) (66)%  2,983 1 
Commercial mortgage backed securities  16,329 4   24,868 8   (8,539) (34)%  17,428 5 
Other asset backed securities  15,668 4   48    15,620  32,542 %  4,921 1 
Total investment securities - AFS  280,200 64   285,819 87   (5,619) (2)%  285,077 87 
                         
Total cash, cash equivalents and
investment securities
 $435,962 100% $326,444 100% $109,518  34 % $329,017 100%
Average yield on interest-bearing due
from banks during the quarter
  0.12%    2.47%    (2.35)     1.31%  
Average yield on investment securities during the quarter - nominal  2.61%    2.86%    (0.25)     2.74%  
Average yield on investment securities
during the quarter - tax equivalent
  2.78%    2.98%    (0.20)     2.84%  

As of June 30, 2020, we maintained noninterest-bearing cash positions of $29.6 million and interest-bearing deposits of $126.1 million at the Federal Reserve Bank and correspondent banks.

Investment securities totaled $280.2 million at June 30, 2020, compared with $285.8 million and $285.1 million at June 30, 2019 and March 31, 2020, respectively. During the second quarter of 2020, we continued to reposition a portion of the Bank’s investment securities portfolio to take advantage of longer durations and widening credit spreads on municipal securities. During the second quarter of 2020, we purchased securities with a par value of $32.4 million and weighted average yield of 2.13% (2.53% tax equivalent) and sold securities with a par value of $19.8 million and weighted average yield of 2.03%. The sales resulted in net realized gains of $140 thousand and $224 thousand for the quarter and six months ended June 30, 2020, respectively.

Average securities balances for the quarters ended June 30, 2020, March 31, 2020 and June 30, 2019 were $269.7 million, $272.3 million and $289.4 million, respectively. Weighted average yields on securities balances for those same periods were 2.61%, 2.74% and 2.86%, respectively.