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

SACRAMENTO, Calif., Oct. 18, 2019 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (BOCH) (the “Company”), a $1.472 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter ended September 30, 2019. Net income for the quarter ended September 30, 2019 was $4.6 million or $0.26 per share – diluted, compared with net income of $4.0 million or $0.25 per share – diluted for the same period of 2018. Net income for the nine months ended September 30, 2019 was $10.6 million or $0.59 per share – diluted, compared with net income of $10.9 million or $0.67 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 $2.2 million and costs related to the name change have totaled $501 thousand. All significant costs for these two projects have now been absorbed.

Randall S. Eslick, President and CEO commented: “The Company performed solidly during the third quarter which reflects the benefits derived from our acquisition of Merchants National Bank earlier in the year. With the successful integration of Merchants now complete, we are again wholly focused on leveraging our talented business relationship teams to meet customer needs and achieve our organic growth goals.”

Financial highlights for the third quarter of 2019:

  • Net income of $4.6 million was an increase of $610 thousand (15%) from $4.0 million earned during the same period in the prior year. Earnings of $0.26 per share – diluted was an increase of $0.01 (4%) from $0.25 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.
  • Net interest income increased $1.6 million (13%) to $13.7 million compared to $12.1 million for the same period in the prior year.
  • Net interest margin improved to 4.00% compared to 3.91% for the same period in the prior year
  • Return on average assets increased to 1.26% compared to 1.23% for the same period in the prior year.
  • Return on average equity decreased to 10.86% compared to 12.16% for the same period in the prior year.
  • Average loans totaled $1.030 billion, an increase of $99 million (11%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.360 billion, an increase of $130 million (11%) compared to average earning assets for the same period in the prior year.
  • Average deposits totaled $1.255 billion, an increase of $145 million (13%) compared to average deposits for the same period in the prior year.
    º  Average non-maturing deposits totaled $1.097 billion, an increase of $151 million (16%) compared to the same period in the prior year.
    º  Average certificates of deposit totaled $157.6 million, a decrease of $5.7 million (3%) compared to same period in the prior year.
  • The Company’s efficiency ratio was 56.4% compared to 58.4% during the same period in the prior year.
  • Nonperforming assets at September 30, 2019 totaled $12.8 million or 0.87% of total assets, an increase of $9.0 million since September 30, 2018. The increase in nonperforming assets results from one $10.1 million commercial real estate loan.
  • Book value per common share was $9.42 at September 30, 2019 compared to $8.14 at September 30, 2018.
  • Tangible book value per common share was $8.51 at September 30, 2019 compared to $8.03 at September 30, 2018.

Financial highlights for the nine months ended September 30, 2019:

  • Net income of $10.6 million ($0.59 per share – diluted) was a decrease of $299 thousand (3%) from $10.9 million ($0.67 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 $2.2 million. Costs related to the name change of our subsidiary bank totaled $501 thousand.
  • Net interest income increased $5.2 million (15%) to $40.2 million compared to $35.1 million for the same period in the prior year.
  • Net interest margin improved to 3.98% compared to 3.88% for the same period in the prior year.
  • Return on average assets decreased to 0.98% compared to 1.14% for the same period in the prior year.
  • Return on average equity decreased to 8.74% compared to 11.29% for the same period in the prior year.
  • Average loans totaled $1.017 billion, an increase of $104 million (11%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.350 billion, an increase of $143 million (12%) compared the same period in the prior year.
  • Average deposits totaled $1.232 billion, an increase of $154 million (14%) compared the same period in the prior year.
    º  Average non-maturing deposits totaled $1.069 billion, an increase of $163 million (18%) compared to the same period in the prior year.
    º  Average certificates of deposit totaled $163.0 million, a decrease of $8.9 million (5%) compared to the same period in the prior year.
  • The Company’s efficiency ratio was 66.5% compared to 61.5% for the same period in the prior year.
    º  The Company’s efficiency ratio of 66.5% for the first nine months of 2019 includes $2.2 million in acquisition costs and $501 thousand in name change costs. The efficiency ratio excluding these non-recurring costs was 60.3%.
  • Nonperforming assets at September 30, 2019 totaled $12.8 million or 0.87% of total assets, an increase of $8.7 million since December 31, 2018. The increase in nonperforming assets results from one $10.1 million commercial real estate loan.
  • Book value per common share was $9.42 at September 30, 2019 compared to $8.47 at December 31, 2018.
  • Tangible book value per common share was $8.51 at September 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 Nine Months Ended  
Net income, average assets and   September 30,
  June 30,   September 30,  
average shareholders' equity   2019
  2018
  2019   2019   2018  
Net income   $ 4,642     $ 4,032     $ 3,644     $ 10,592   $ 10,891  
Average total assets   $ 1,462,444     $ 1,300,278     $ 1,450,725     $ 1,446,476   $ 1,275,369  
Average total earning assets   $ 1,360,006     $ 1,229,704     $ 1,353,200     $ 1,350,173   $ 1,206,798  
Average shareholders' equity   $ 169,608     $ 131,499     $ 163,598     $ 162,032   $ 128,933  
                                       
Selected performance ratios                                      
Return on average assets     1.26 %     1.23 %     1.01 %     0.98 %   1.14 %
Return on average equity     10.86 %     12.16 %     8.93 %     8.74 %   11.29 %
Efficiency ratio     56.4 %     58.4 %     65.9 %     66.5 %   61.5 %
                                       
Share and per share amounts                                      
Weighted average shares - basic (1)     18,130       16,252       18,134       17,918     16,242  
Weighted average shares - diluted (1)     18,196       16,342       18,194       17,981     16,327  
Earnings per share - basic   $ 0.26     $ 0.25     $ 0.20     $ 0.59   $ 0.67  
Earnings per share - diluted   $ 0.26     $ 0.25     $ 0.20     $ 0.59   $ 0.67  
                                       
    At September 30,     At June 30,      
Share and per share amounts   2019
  2018
  2019          
Common shares outstanding (2)     18,212       16,330       18,214                
Book value per common share (2)   $ 9.42     $ 8.14     $ 9.22                
Tangible book value per common share (2)(3)   $ 8.51     $ 8.03     $ 8.29                
                                       
Capital ratios (4)                                    
Bank of Commerce Holdings                                    
Common equity tier 1 capital ratio     12.85 %     12.65 %     12.56 %              
Tier 1 capital ratio     13.69 %     13.59 %     13.41 %              
Total capital ratio     15.62 %     15.75 %     15.35 %              
Tier 1 leverage ratio     11.28 %     11.14 %     11.08 %              
Tangible common equity ratio (5)     10.64 %     9.98 %     10.59 %              
                                       
Merchants Bank of Commerce                                      
Common equity tier 1 capital ratio     14.25 %     13.14 %     14.06 %              
Tier 1 capital ratio     14.25 %     13.14 %     14.06 %              
Total capital ratio     15.34 %     14.36 %     15.16 %              
Tier 1 leverage ratio     11.74 %     10.78 %     11.61 %              
                                       
(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 September 30, 2019, the Company had total consolidated assets of $1.472 billion, gross loans of $1.033 billion, allowance for loan and lease losses (“ALLL”) of $12 million, total deposits of $1.262 billion, and shareholders’ equity of $172 million.

                                               
TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
                                               
  At September 30,             At June 30,
      % of       % of   Change       % of
  2019
  Total   2018
  Total   Amount   %   2019
  Total
Commercial $ 152,195     15 %   $ 132,091     14 %   $ 20,104     15   %   $ 152,303     15 %
Real estate - construction and land development   35,606     3       20,496     2       15,110     74   %     37,685     4  
Real estate - commercial non-owner occupied   475,678     47       431,246     47       44,432     10   %     468,706     45  
Real estate - commercial owner occupied   210,767     20       195,608     21       15,159     8   %     210,711     21  
Real estate - residential - ITIN   34,036     3       38,353     4       (4,317 )   (11 ) %     35,162     3  
Real estate - residential - 1-4 family mortgage   64,747     6       33,473     4       31,274     93   %     67,092     6  
Real estate - residential - equity lines   22,729     2       28,713     3       (5,984 )   (21 ) %     23,656     2  
Consumer and other   37,324     4       47,500     5       (10,176 )   (21 ) %     41,409     4  
Gross loans   1,033,082     100 %     927,480     100 %     105,602     11   %     1,036,724     100 %
Deferred fees and costs   1,980             1,757             223             2,005        
Loans, net of deferred fees and costs   1,035,062             929,237             105,825             1,038,729        
Allowance for loan and lease losses   (12,285 )           (12,392 )           107             (12,445 )      
Net loans $ 1,022,777           $ 916,845           $ 105,932           $ 1,026,284        
                                               
Average loans during the quarter $ 1,029,534           $ 930,863           $ 98,671     11   %   $ 1,028,187        
Average yield on loans during the quarter   5.01   %         4.93   %         0.08             5.01   %    
Average yield on loans during the year   4.98   %         4.90   %         0.08             4.96   %    
                                                       

The Company recorded gross loan balances of $1.033 billion at September 30, 2019, compared with $927 million and $1.037 billion at September 30, 2018 and June 30, 2019, respectively, an increase of $106 million and a decrease of $4 million, respectively. During the first quarter of 2019,     the Merchants acquisition provided an additional $85.3 million of loans.

The average yield on loans during the quarter was 5.01% compared to 4.93% and 5.01% for the quarters ended September 30, 2018 and June 30, 2019, respectively.

Gross loan balances in the table above include a net fair value discount for loans acquired from Merchants during the first quarter of 2019 of $1.9 million and $2.1 million at September 30, 2019 and June 30, 2019, respectively. We recorded $190 thousand and $193 thousand in accretion of the discount for these loans during the second and third quarters of 2019, respectively.

                                                 
TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
                                                 
    At September 30,               At June 30,
        % of       % of   Change       % of
    2019   Total   2018   Total   Amount   %   2019   Total
Cash and due from banks   $ 32,505   9 %   $ 21,316   6 %   $ 11,189     52   %   $ 21,306   7 %
Interest-bearing deposits in other banks     56,099   16       69,920   21       (13,821 )   (20 ) %     19,319   6  
Total cash and cash equivalents     88,604   25       91,236   27       (2,632 )   (3 ) %     40,625   13  
                                                 
Investment securities:                                                
U.S. government and agencies     40,467   11       35,656   11       4,811     13   %     44,837   14  
Obligations of state and political subdivisions     39,004   11       51,562   16       (12,558 )   (24 ) %     45,003   14  
Residential mortgage backed securities and
collateralized mortgage obligations
    165,994   46       124,109   38       41,885     34   %     168,085   50  
Corporate securities     2,992   1       3,974   1       (982 )   (25 ) %     2,978   1  
Commercial mortgage backed securities     22,822   6       24,167   7       (1,345 )   (6 ) %     24,868   8  
Other asset backed securities     1,062         165         897     544   %     48    
Total investment securities - AFS     272,341   75       239,633   73       32,708     14   %     285,819   87  
                                                 
Total cash, cash equivalents and
investment securities
  $ 360,945   100 %   $ 330,869   100 %   $ 30,076     9   %   $ 326,444   100 %
Average yield on interest-bearing due
from banks and investment securities
during the quarter - nominal
    2.63 %         2.47 %         0.16             2.81 %    
Average yield on interest-bearing due
from banks and investment securities
during the quarter - tax equivalent
    2.71 %         2.61 %         0.10             2.92 %    
                                                   

As of September 30, 2019, we maintained noninterest-bearing cash positions of $32.5 million and interest-bearing deposits of $56.1 million at the Federal Reserve Bank and correspondent banks.

Investment securities totaled $272.3 million at September 30, 2019, compared with $239.6 million and $285.8 million at September 30, 2018 and June 30, 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 $13.8 million and $100.1 million during the three and nine months ended September 30, 2019, respectively. The sales resulted in net realized gains of $12 thousand and $137 thousand for the three and nine months ended September 30, 2019, respectively.

Average securities balances and weighted average tax equivalent yields for the quarters ended September 30, 2019 and 2018 were $271.6 million and 2.85% compared to $248.4 million and 2.74%, respectively.

At September 30, 2019, our net unrealized gains on available-for-sale investment securities were $3.3 million compared with net unrealized losses of $5.8 million and unrealized gains of $3.4 million at September 30, 2018 and June 30, 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 September 30,               At June 30,
      % of       % of     Change       % of
  2019   Total   2018   Total   Amount   %   2019   Total
Demand - noninterest-bearing $ 412,410   33 %   $ 361,516   32 %   $ 50,894     14   %   $ 397,349   32 %
Demand - interest-bearing   239,547   19       251,323   22       (11,776 )   (5 ) %     238,175   19  
Money market   317,120   25       259,230   23       57,890     22   %     300,847   24  
Total demand   969,077   77       872,069   77       97,008     11   %     936,371   75  
                                               
Savings   137,441   11       111,388   10       26,053     23   %     138,591   11  
Total non-maturing deposits   1,106,518   88       983,457   87       123,061     13   %     1,074,962   86  
                                               
Certificates of deposit   155,621   12       161,304   13       (5,683 )   (4 ) %     160,556   14  
Total deposits $ 1,262,139   100 %   $ 1,144,761   100 %   $ 117,378     10   %   $ 1,235,518   100 %
                                               

Total deposits at September 30, 2019, increased $117 million or 10% to $1.262 billion compared to September 30, 2018 and increased $27 million or 9% annualized compared to June 30, 2019. Total non-maturing deposits increased $123.1 million or 13% compared to the same date a year ago and increased $31.6 million or 12% annualized compared to June 30, 2019. Certificates of deposit decreased $5.7 million or 4% compared to the same date a year ago and decreased $4.9 million or 12% annualized compared to June 30, 2019.

During the first quarter of 2019, the Merchants acquisition provided an additional $190.2 million of deposits. The decrease in the acquired deposits of $23.2 million at September 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)
  Legacy Deposits   Acquired
Merchants Deposits
  Change In Acquired
Deposits For The Eight
Months Ended
  Change In Legacy
Deposits For The Nine
Months Ended
  Deposits At
  At December 31,   At January 31,   September 30,   September 30,   At September 30,
  2018   2019   2019
  2019   2019
Demand - noninterest-bearing $ 347,199   $ 51,880   $ (5,233 )   $ 18,564     $ 412,410
Demand - interest-bearing   252,202     28,231     (5,031 )     (35,855 )     239,547
Money market   265,093     43,316     (2,314 )     11,025       317,120
Total demand   864,494     123,427     (12,578 )     (6,266 )     969,077
                             
Savings   114,840     28,786     (3,530 )     (2,655 )     137,441
Total non-maturing deposits   979,334     152,213     (16,108 )     (8,921 )     1,106,518
                             
Certificates of deposit   152,382     38,003     (7,047 )     (27,717 )     155,621
Total deposits $ 1,131,716   $ 190,216   $ (23,155 )   $ (36,638 )   $ 1,262,139
                                 


null
                 
TABLE 6
WHOLESALE AND RECIPROCAL DEPOSITS - UNAUDITED
(amounts in thousands)
                 
  At September 30,   At June 30,
  2019   2018   2019
CDARS / ICS reciprocal deposits $ 57,897   $ 78,772   $ 60,492
Online listing service wholesale time deposits   248