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

SACRAMENTO, Calif., April 19, 2019 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (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  


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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   $