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Bank of Commerce Holdings Announces Results for the Fourth Quarter of 2018

SACRAMENTO, Calif., Jan. 18, 2019 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (BOCH) (the “Company”), a $1.307 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter and the year ended December 31, 2018. Net income for the quarter ended December 31, 2018 was $4.8 million or $0.30 per share – diluted, compared with net income of $7 thousand or $0.00 per share – diluted for the same period of 2017. Net income for the year ended December 31, 2018 was $15.7 million or $0.96 per share – diluted, compared with net income of $7.3 million or $0.48 per share – diluted for the same period of 2017.

Selected Tax Items:
Financial performance for both 2018 and 2017 includes “selected tax items” which complicate reporting period comparisons. The 2018 results include a $1.5 million decrease in our income tax provision composed of a $988 thousand reversal of our uncertain tax position and a $484 thousand benefit as a result of our cost segregation study and tangible property review. These items were previously disclosed in our form 10-Q filed November 2, 2018. The 2017 results include a $2.5 million increase in our income tax provision as a result of the Tax Cuts and Jobs Act of 2017 disclosed in our 2017 form 10-K filed on March 9, 2018. Management believes that our financial results are more comparative excluding the impact of these selected tax items.

Non-GAAP Financial Measures
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. We believe that these non-GAAP financial measures provide investors with information useful in understanding the Company’s financial performance; however, readers of this document are urged to review these non-GAAP financial measures in conjunction with the GAAP results as reported.

                                     
SELECTED NON-GAAP FINANCIAL INFORMATION - UNAUDITED  
(amounts in thousands except per share data)  
                                     
    For The Three Months Ended   For The Twelve Months Ended  
Reconciliation of Net Income (GAAP) to Net Income   December 31,     September 30,   December 31,  
Excluding Selected Tax Items (non-GAAP):   2018     2017     2018   2018     2017  
Net income (GAAP)   $ 4,839     $ 7     $ 4,032     $ 15,730     $ 7,344  
Selected tax items:                                    
Reversal of uncertain tax position (GAAP)     (988 )                 (988 )      
Benefit from cost segregation study and
tangible property review (GAAP)
    (484 )                 (484 )      
Deferred tax asset write-down (GAAP)           2,490                   2,490  
Total selected tax items     (1,472 )     2,490             (1,472 )     2,490  
Net income excluding selected tax items (non-GAAP)   $ 3,367     $ 2,497     $ 4,032     $ 14,258     $ 9,834  
                                     
Earnings per share - diluted (GAAP)   $ 0.30     $     $ 0.25     $ 0.96     $ 0.48  
Effect of selected tax items     (0.09 )     0.15             (0.09 )     0.16  
Earnings per share - diluted excluding
selected tax items (non-GAAP)
  $ 0.21     $ 0.15     $ 0.25     $ 0.87     $ 0.64  
                                     
Non-GAAP Ratios:                                    
Return on average assets excluding selected tax items     1.01 %     0.79 %     1.23 %     1.11 %     0.82 %
Return on average equity excluding selected tax items     9.97 %     7.69 %     12.16 %     10.95 %     8.48 %
Effective tax rate excluding selected tax items     29.2 %     34.5 %     25.8 %     26.3 %     31.1 %
                                     
GAAP Information:                                    
Return on average assets     1.44 %     0.00 %     1.23 %     1.22 %     0.61 %
Return on average equity     14.32 %     0.02 %     12.16 %     12.08 %     6.34 %
Effective tax rate     (1.7 )%     99.8 %     25.8 %     18.7 %     48.5 %


Financial highlights for the year ended December 31, 2018:

  • Net income of $15.7 million was an increase of $8.4 million (114%) from $7.3 million earned during the same period in the prior year. Earnings of $0.96 per share – diluted was an increase of $0.48 (100%) from $0.48 per share – diluted earned during the same period in the prior year and reflects the impact of 2,738,096 shares of common stock sold and issued in the second quarter of 2017.
  • Expenses associated with our pending acquisition of Merchants Holding Company totaled $844 thousand.
  • Net interest income increased $6.2 million (15%) to $47.5 million compared to $41.4 million for the same period in the prior year.
  • Return on average assets improved to 1.22% compared to 0.61% for the same period in the prior year.
  • Return on average equity improved to 12.08% compared to 6.34% for the same period in the prior year.
  • Average loans totaled $915.4 million, an increase of $97.2 million (12%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.220 billion, an increase of $96 million (9%) compared to average earning assets for the same period in the prior year.
  • Average deposits totaled $1.098 billion, an increase of $57 million (5%) compared to average deposits for the same period in the prior year.
    • Average non-maturing deposits totaled $930.2 million, an increase of $94.4 million (11%) compared to the same period in the prior year.
    • Average certificates of deposit totaled $168.2 million, a decrease of $37.5 million (18%) compared to same period in the prior year.
  • The Company’s efficiency ratio was 62.5% compared to 67.0% during the same period in the prior year.
  • Nonperforming assets at December 31, 2018 totaled $4.2 million or 0.32% of total assets, a decrease of $1.7 million (28%) since December 31, 2017.
  • Book value per common share was $8.47 at December 31, 2018 compared to $7.82 at December 31, 2017.
  • Tangible book value per common share was $8.36 at December 31, 2018 compared to $7.70 at December 31, 2017.

Financial highlights for the fourth quarter of 2018:

  • Net income of $4.8 million ($0.30 per share –diluted) was an increase of $4.8 million (100%) from $7 thousand ($0.00 per share – diluted) earned during the same period in the prior year.
  • Expenses associated with our pending acquisition of Merchants Holding Company totaled $802 thousand.
  • Net interest income increased $1.6 million (15%) to $12.5 million compared to $10.9 million for the same period in the prior year.
  • Return on average assets improved to 1.44% compared to 0.00% for the same period in the prior year.
  • Return on average equity improved to 14.32% compared to 0.02% for the same period in the prior year.
  • Average loans totaled $923.4 million, an increase of $84.4 million (10%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.260 billion, an increase of $82 million (7%) compared the same period in the prior year.
  • Average deposits totaled $1.158 billion, an increase of $75 million (7%) compared the same period in the prior year.
    • Average non-maturing deposits totaled $1.001 billion, an increase of $113 million (13%) compared to the same period in the prior year.
    • Average certificates of deposit totaled $157.0 million, a decrease of $37.9 million (19%) compared to the same period in the prior year.
  • The Company’s efficiency ratio was 65.1% compared to 64.9% for the same period in the prior year.
  • Nonperforming assets at December 31, 2018 totaled $4.2 million or 0.32% of total assets, an increase of $324 thousand (33% annualized) compared to September 30, 2018.
  • Book value per common share was $8.47 at December 31, 2018 compared to $7.82 at December 31, 2017.
  • Tangible book value per common share was $8.36 at December 31, 2018 compared to $7.70 at December 31, 2017.

Randall S. Eslick, President and CEO commented: “We are pleased to report our financial results for 2018.  Our dedicated and hard-working employees performed at a high level as reflected in our strong core deposit and loan growth and enhanced shareholder returns. Their outstanding efforts have positioned the company well for continued success into the future.”

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, 2017 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   For The Twelve Months Ended  
Net income, average assets and   December 31,     September 30,   December 31,  
average shareholders' equity   2018     2017     2018   2018   2017  
Net income   $ 4,839     $ 7     $ 4,032     $ 15,730   $ 7,344  
Average total assets   $ 1,328,817     $ 1,251,960     $ 1,300,278     $ 1,288,841   $ 1,198,251  
Average total earning assets   $ 1,259,709     $ 1,178,037     $ 1,229,704     $ 1,220,135   $ 1,124,555  
Average shareholders' equity   $ 134,033     $ 128,862     $ 131,499     $ 130,218   $ 115,901  
                                       
Selected performance ratios                                      
Return on average assets     1.44 %     0.00 %     1.23 %     1.22 %   0.61 %
Return on average equity     14.32 %     0.02 %     12.16 %     12.08 %   6.34 %
Efficiency ratio     65.1 %     64.9 %     58.4 %     62.5 %   67.0 %
                                       
Share and per share amounts                                      
Weighted average shares - basic (1)     16,265       16,195       16,252       16,248     15,207  
Weighted average shares - diluted (2)     16,345       16,306       16,342       16,332     15,310  
Earnings per share - basic   $ 0.30     $     $ 0.25     $ 0.97   $ 0.48  
Earnings per share - diluted   $ 0.30     $     $ 0.25     $ 0.96   $ 0.48  
                                       
    At December 31,     At September 30,      
Share and per share amounts   2018     2017     2018          
Common shares outstanding (2)     16,334       16,272       16,330                
Book value per common share (2)   $ 8.47     $ 7.82     $ 8.14                
Tangible book value per common share (2)(3)   $ 8.36     $ 7.70     $ 8.03                
                                       
Capital ratios (4)                                    
Bank of Commerce Holdings                                    
Common equity tier 1 capital ratio     12.79 %     12.26 %     12.65 %              
Tier 1 capital ratio     13.71 %     13.23 %     13.59 %              
Total capital ratio     15.82 %     15.44 %     15.75 %              
Tier 1 leverage ratio     11.21 %     10.86 %     11.14 %              
Tangible common equity ratio (5)     10.46 %     9.88 %     9.98 %              
                                       
Redding Bank of Commerce                                      
Common equity tier 1 capital ratio     13.23 %     12.58 %     13.14 %              
Tier 1 capital ratio     13.23 %     12.58 %     13.14 %              
Total capital ratio     14.42 %     13.81 %     14.36 %              
Tier 1 leverage ratio     10.82 %     10.33 %     10.78 %              
                                       
(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 December 31, 2018, the Company had total consolidated assets of $1.307 billion, gross loans of $946.3 million, allowance for loan and lease losses (“ALLL”) of $12.3 million, total deposits of $1.132 billion, and shareholders’ equity of $138.3 million.

                                               
TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
                                               
  At December 31,             At September 30,
      % of       % of   Change       % of
  2018     Total   2017     Total   Amount   %   2018     Total
Commercial $ 135,543     14 %   $ 142,405     16 %   $ (6,862 )    (5 )%   $ 132,091     14 %
Real estate - construction and land development   22,563     2       15,902     2       6,661     42 %     20,496     2  
Real estate - commercial non-owner occupied   433,708     46       377,668     43       56,040     15 %     431,246     47  
Real estate - commercial owner occupied   204,622     22       192,023     22       12,599     7 %     195,608     21  
Real estate - residential - ITIN   37,446     4       41,188     5       (3,742 )   (9 )%     38,353     4  
Real estate - residential - 1-4 family mortgage   34,366     4       30,377     3       3,989     13 %     33,473     4  
Real estate - residential - equity lines   26,958     3       30,347     3       (3,389 )   (11 )%     28,713     3  
Consumer and other   51,045     5       49,925     6       1,120     2 %     47,500     5  
Gross loans   946,251     100 %     879,835     100 %     66,416     8 %     927,480     100 %
Deferred fees and costs   1,927             1,710             217             1,757        
Loans, net of deferred fees and costs   948,178             881,545             66,633             929,237        
Allowance for loan and lease losses   (12,292 )           (11,925 )           (367 )           (12,392 )      
Net loans $ 935,886           $ 869,620           $ 66,266           $ 916,845        
                                               
Average yield on loans during the quarter   4.94 %           4.77 %           0.17             4.93 %      
Average yield on loans during the year   4.91 %           4.78 %           0.13                    


The Company recorded gross loan balances of $946.3 million at December 31, 2018, compared with $879.8 million and $927.5 million at December 31, 2017 and September 30, 2018, respectively, an increase of $66.4 million and $18.8 million, respectively. Loan production during 2018 was organic and did not rely on loan pool purchases.

Average loan balances were $923.4 million for the quarter ended December 31, 2018, compared with $839.0 million for the quarter ended December 31, 2017 an increase of $84.4 million or 10%. For the year ended December 31, 2018 average loan balances were $915.4 million compared with $818.1 million for the year ended December 31, 2017 an increase of $97.2 million or 12%.

                                                 
TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
                                                 
    At December 31,               At September 30,
        % of       % of   Change       % of
    2018     Total   2017     Total   Amount   %   2018     Total
Cash and due from banks   $ 23,692     8 %   $ 17,979     5 %   $ 5,713     32 %   $ 21,316     6 %
Interest-bearing deposits in other banks     23,673     8       48,991     15       (25,318 )   (52 )%     69,920     21  
Total cash and cash equivalents     47,365     16       66,970     20       (19,605 )   (29 )%     91,236     27  
                                                 
Investment securities:                                                
U.S. government and agencies     40,087     13       40,369     12       (282 )   (1 )%     35,656     11  
Obligations of state and political subdivisions     50,530     17       78,844     24       (28,314 )   (36 %     51,562     16  
Residential mortgage backed securities and
collateralized mortgage obligations
    138,503     45       114,592     34       23,911     21 %     124,109     38  
Corporate securities     2,922     1       4,992     1       (2,070 )   (41 )%     3,974     1  
Commercial mortgage backed securities     24,762     8       26,641     8       (1,879 )   (7 )%     24,167     7  
Other asset backed securities     124           2,516     1       (2,392 )   (95 %     165      
Total investment securities - AFS     256,928     84       267,954     80       (11,026 )   (4 )%     239,633     73  
                                                 
Total cash, cash equivalents and
investment securities
  $ 304,293     100 %   $ 334,924     100 %   $ (30,631 )   (9 )%   $ 330,869     100 %
Average yield on interest-bearing due
from banks and investment securities
during the quarter - nominal
    2.66 %           2.30 %           0.36             2.47 %      
Average yield on interest-bearing due
from banks and investment securities
during the quarter - tax equivalent
    2.77 %           2.62 %           0.15             2.61 %      


As of December 31, 2018, we maintained noninterest-bearing cash positions of $23.7 million and interest-bearing deposits of $23.7 million at the Federal Reserve Bank and correspondent banks.

Investment securities totaled $256.9 million at December 31, 2018, compared with $268.0 million and $239.6 million at December 31, 2017 and September 30, 2018, respectively. Our investment securities portfolio provides us with a secondary source of liquidity to fund higher yielding asset opportunities, such as loan originations. During the fourth quarter of 2018, we purchased 19 securities with a par value of $26.6 million and weighted average yield of 3.50% and sold five securities with a par value of $2.6 million and weighted average yield of 3.10%. The sales activity on available-for-sale securities resulted in $3 thousand in net realized gains. During the same period, we received $7.6 million in proceeds from principal payments, calls and maturities within the investment securities portfolio.

Average securities balances and weighted average tax equivalent yields for the quarters ended December 31, 2018 and 2017 were $261.0 million and 2.91% compared to $272.0 million and 2.94%, respectively.

At December 31, 2018, our net unrealized losses on available-for-sale investment securities were $4.3 million compared with net unrealized losses of $452 thousand and $5.8 million at December 31, 2017 and September 30, 2018, respectively. The changes in net unrealized losses on the investment securities portfolio are due to changes in market interest rates and the reclassification of all HTM securities to AFS during the fourth quarter of 2017.

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TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
                                               
  At December 31,               At September 30,
      % of       % of     Change       % of
  2018   Total   2017   Total   Amount   %   2018   Total
Demand - noninterest-bearing $