SACRAMENTO, Calif., Jan. 18, 2019 (GLOBE NEWSWIRE) — Bank of Commerce Holdings (NASDAQ: 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.
| 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 | $ | 347,199 | 31 | % | $ | 305,650 | 28 | % | $ | 41,549 | 14 | % | $ | 361,516 | 32 | % | ||||||||
| Demand – interest-bearing | 517,295 | 46 | 496,990 | 45 | 20,305 | 4 | % | 510,553 | 45 | |||||||||||||||
| Total demand | 864,494 | 77 | 802,640 | 73 | 61,854 | 8 | % | 872,069 | 77 | |||||||||||||||
| Savings | 114,840 | 10 | 110,837 | 10 | 4,003 | 4 | % | 111,388 | 10 | |||||||||||||||
| Total non-maturing deposits | 979,334 | 87 | 913,477 | 83 | 65,857 | 7 | % | 983,457 | 87 | |||||||||||||||
| Certificates of deposit | 152,382 | 13 | 189,255 | 17 | (36,873 | ) | (19 | )% | 161,304 | 13 | ||||||||||||||
| Total deposits | $ | 1,131,716 | 100 | % | $ | 1,102,732 | 100 | % | $ | 28,984 | 3 | % | $ | 1,144,761 | 100 | % | ||||||||
Total deposits at December 31, 2018, increased $29 million or 3% to $1.132 billion compared to December 31, 2017. Total non-maturing deposits increased $65.9 million or 7% compared to the same date a year ago a while certificates of deposit decreased $36.9 million or 19%.
| TABLE 5 | ||||||||
| WHOLESALE AND RECIPROCAL DEPOSITS – UNAUDITED | ||||||||
| (amounts in thousands) | ||||||||
| At December 31, | At September 30, | |||||||
| 2018 | 2017 | 2018 | ||||||
| CDARS / ICS reciprocal deposits | $ | 83,666 | $ | 66,279 | $ | 78,772 | ||
| Online listing service wholesale time deposits | 22,015 | 36,060 | 24,397 | |||||
| Total wholesale and reciprocal deposits | $ | 105,681 | $ | 102,339 | $ | 103,169 | ||
For calendar quarters prior to June 30, 2018, CDARS/ ICS reciprocal deposits were considered to be brokered deposits by regulatory authorities and were reported as such on quarterly Call Reports. With passage of The Economic Growth, Regulatory Relief and Consumer Protection Act in May 2018, these deposits are no longer classified as brokered.
AVERAGE COST OF FUNDS
The following table presents the average cost of interest-bearing deposits, all deposits and all interest-bearing liabilities for the periods indicated.
| TABLE 6 | |||||||||||||||||||||||||||||||
| AVERAGE COST OF FUNDS – UNAUDITED | |||||||||||||||||||||||||||||||
| For The Three Months Ended | |||||||||||||||||||||||||||||||
| December 31, | September 30, | June 30, | March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||||||||||
| 2018 | 2018 | 2018 | 2018 | 2017 | 2017 | 2017 | 2017 | ||||||||||||||||||||||||
| Interest-bearing deposits | 0.45 | % | 0.42 | % | 0.41 | % | 0.41 | % | 0.42 | % | 0.43 | % | 0.42 | % | 0.39 | % | |||||||||||||||
| Interest-bearing deposits and noninterest-bearing demand |
0.31 | % | 0.29 | % | 0.29 | % | 0.29 | % | 0.30 | % | 0.31 | % | 0.31 | % | 0.29 | % | |||||||||||||||
| All interest-bearing liabilities | 0.61 | % | 0.64 | % | 0.68 | % | 0.60 | % | 0.59 | % | 0.60 | % | 0.60 | % | 0.56 | % | |||||||||||||||
| All interest-bearing liabilities and noninterest-bearing demand |
0.42 | % | 0.45 | % | 0.50 | % | 0.43 | % | 0.42 | % | 0.43 | % | 0.44 | % | 0.42 | % | |||||||||||||||
INCOME STATEMENT OVERVIEW
| TABLE 7 | |||||||||||||||||||||||
| SUMMARY INCOME STATEMENT – UNAUDITED | |||||||||||||||||||||||
| (amounts in thousands, except per share data) | |||||||||||||||||||||||
| For The Three Months Ended | |||||||||||||||||||||||
| December 31, | Change | September 30, | Change | ||||||||||||||||||||
| 2018 | 2017 | Amount | % | 2018 | Amount | % | |||||||||||||||||
| Interest income | $ | 13,750 | $ | 12,047 | $ | 1,703 | 14 | % | $ | 13,431 | $ | 319 | 2 | % | |||||||||
| Interest expense | 1,256 | 1,178 | 78 | 7 | % | 1,304 | (48 | ) | (4 | )% | |||||||||||||
| Net interest income | 12,494 | 10,869 | 1,625 | 15 | % | 12,127 | 367 | 3 | % | ||||||||||||||
| Provision for loan and lease losses |
— | 450 | (450 | ) | 100 | % | — | — | — | % | |||||||||||||
| Noninterest income | 1,132 | 1,282 | (150 | ) | (12 | )% | 943 | 189 | 20 | % | |||||||||||||
| Noninterest expense | 8,868 | 7,891 | 977 | 12 | % | 7,634 | 1,234 | 16 | % | ||||||||||||||
| Income before provision for income taxes |
4,758 | 3,810 | 948 | 25 | % | 5,436 | (678 | ) | (12 | )% | |||||||||||||
| Provision for income taxes: | |||||||||||||||||||||||
| Reversal of uncertain tax position | (988 | ) | — | (988 | ) | 100 | % | — | (988 | ) | (100 | )% | |||||||||||
| Benefit from cost segregation study and tangible property review |
(484 | ) | — | (484 | ) | 100 | % | — | (484 | ) | (100 | )% | |||||||||||
| Net deferred tax asset write-down | — | 2,490 | (2,490 | ) | (100 | )% | — | — | — | % | |||||||||||||
| Provision for income taxes from operations | 1,391 | 1,313 | 78 | 6 | % | 1,404 | (13 | ) | (1 | )% | |||||||||||||
| Total provision for income taxes | (81 | ) | 3,803 | (3,884 | ) | (102 | )% | 1,404 | (1,485 | ) | (106 | )% | |||||||||||
| Net income | $ | 4,839 | $ | 7 | $ | 4,832 | 100 | % | $ | 4,032 | $ | 807 | 20 | % | |||||||||
| Basic earnings per share | $ | 0.30 | $ | — | $ | 0.30 | 100 | % | $ | 0.25 | $ | 0.05 | 20 | % | |||||||||
| Average basic shares | 16,265 | 16,195 | 70 | — | % | 16,252 | 13 | — | % | ||||||||||||||
| Diluted earnings per share | $ | 0.30 | $ | — | $ | 0.30 | 100 | % | $ | 0.25 | $ | 0.05 | 20 | % | |||||||||
| Average diluted shares | 16,345 | 16,306 | 39 | — | % | 16,342 | 3 | — | % | ||||||||||||||
| Dividends declared per common share |
$ | 0.04 | $ | 0.03 | $ | 0.01 | 33 | % | $ | 0.04 | $ | — | — | % | |||||||||
Fourth Quarter of 2018 Compared With Fourth Quarter of 2017
Income before provision for income taxes for the fourth quarter of 2018 increased $948 thousand compared to the fourth quarter of 2017. In the current quarter, net interest income was $1.6 million higher and the provision for loan and lease loss was $450 thousand lower. These changes were offset by noninterest income that was $150 thousand lower, and noninterest expenses that were $977 thousand higher.
Net Interest Income
Net interest income increased $1.6 million compared to the same period a year ago.
Interest income for the fourth quarter of 2018 increased $1.7 million or 14% to $13.8 million:
- Interest and fees on loans increased $1.4 million due to an $84.4 million increase in average loan balances and a 17 basis point increase in the average yield on the loan portfolio.
- Interest on securities increased $82 thousand due to a 23 basis point increase in average yield on the securities portfolio partially offset by an $11.0 million decrease in average securities balances.
- Interest on interest-bearing deposits due from banks increased $210 thousand due to an $8.3 million increase in average interest-bearing deposit balances, and a 96 basis point increase in average yield.
Interest expense for the fourth quarter of 2018 increased $78 thousand or 7% to $1.3 million:
- Interest expense on interest bearing deposits increased $85 thousand. Average interest-bearing demand and savings deposit balances increased $62.2 million, while average certificate of deposit balances decreased $37.9 million. The average rate paid on interest-bearing deposits increased three basis points.
- Interest expense on other interest bearing liabilities decreased $7 thousand due to decreased average term debt balances.
Provision for loan and lease loss
As a result of continued improved asset quality, no provision for loan and lease losses was necessary during the current quarter. A provision for loan and lease losses of $450 thousand was recorded during the same quarter a year ago.
Noninterest Income
Noninterest income for the three months ended December 31, 2018 decreased $150 thousand compared to the fourth quarter for 2017. The decrease was due to gains on sale of investment securities and OREO properties in the prior year totaling $282 thousand that did not recur in the current year. The decrease was offset by a $96 thousand special dividend on Federal Home Loan Bank of San Francisco stock.
Noninterest Expense
Noninterest expense for the three months ended December 31, 2018 increased $977 thousand compared to the same period a year previous primarily due to $802 thousand in acquisition costs.
The Company’s efficiency ratio of 65.1% for the fourth quarter of 2018 was inflated by acquisition costs. The ratio during the same period in 2017 was 64.9%.
Income Tax Provision
For the three months ended December 31, 2018, our negative income tax provision of $81 thousand on pre-tax income of $4.8 million included:
- $(988) thousand benefit due to the reversal of our uncertain tax position.
- $(484) thousand benefit as a result of our cost segregation study and tangible property review.
- $1.4 million tax provision on pre-tax net operating income of $4.8 million (29.2%).
- The current quarter includes $765 thousand of acquisition costs which are not tax deductible.
This compares with a provision for income taxes for the fourth quarter of the prior year of $3.8 million on pre-tax income of $3.8 million which included:
- $2.5 million write-down of our deferred tax assets resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017
- $1.3 million tax provision on pre-tax net operating income of $3.8 million (34.5%).
Fourth Quarter of 2018 Compared With Third Quarter of 2018
Income before provision for income taxes for the fourth quarter of 2018 decreased $678 thousand compared to the third quarter of 2018. In the current quarter, net interest income was $367 thousand higher and noninterest income was $189 thousand higher. These positive changes were offset by noninterest expense that was $1.2 million higher.
Net Interest Income
Net interest income increased $367 thousand over the prior quarter.
Interest income for the three months ended December 31, 2018 increased $319 thousand or 2% to $13.8 million.
- Interest and fees on loans decreased $74 thousand due to a $7.5 million decrease in average loan balances.
- Interest on investment securities increased $213 thousand due to a $12.6 million increase in average securities balances and a 20 basis point increase in average yield on the investment portfolio.
- Interest on interest-bearing deposits due from banks increased $180 thousand due to a $24.9 million increase in average balances and a 29 basis point increase in average yield.
Interest expense for the three months ended December 31, 2018 decreased $48 thousand or 4% to $1.3 million.
- Interest expense on deposits increased $88 thousand as average interest-bearing demand and savings deposits increased $31.1 million, average certificates of deposit decreased $6.3 million and the average rate paid on these deposits increased by one basis point.
- Interest expense on borrowings from the Federal Home Loan Bank of San Francisco decreased $121 thousand. There were no Federal Home Loan Bank of San Francisco borrowings outstanding in the current quarter compared to an average balance of $22.3 million for the prior quarter.
- Interest expense on other term debt decreased $15 thousand.
Provision for loan and lease loss
As a result of continued improved asset quality, no provision for loan and lease losses was necessary during the current or previous quarter.
Noninterest Income
Noninterest income for the three months ended December 31, 2018 increased $189 thousand, the increase was due to an increase in gains on sale of OREO properties $71 thousand and a $96 thousand special dividend on Federal Home Loan Bank of San Francisco stock.
Noninterest Expense
Noninterest expense for the three months ended December 31, 2018 increased $1.2 million. The increase was due to $802 thousand in acquisition costs and $293 thousand of expense incurred for our cost segregation study and tangible property review.
The Company’s efficiency ratio of 65.1% for the fourth quarter of 2018 was inflated by acquisition costs. The ratio during the prior quarter was 58.4%.
Income Tax Provision
For the three months ended December 31, 2018, our negative income tax provision of $81 thousand on pre-tax income of $4.8 million included:
- $(988) thousand benefit due to the reversal of our uncertain tax position.
- $(484) thousand benefit as a result to our cost segregation study and tangible property review.
- $1.4 million tax provision on pre-tax net operating income of $4.8 million (29.2%).
- The current quarter includes $765 thousand of acquisition costs which are not tax deductible.
This compares with a provision for income taxes for the prior quarter of $1.4 million on pre-tax income of $5.4 million (25.8%).
Earnings Per Share
Diluted earnings per share were $0.30 for the three months ended December 31, 2018 compared with diluted earnings per share of $0.00 for the same period a year ago and diluted earnings per share of $0.25 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in table 7 presented earlier in this press release.
| TABLE 8a | |||||||||||||||||||||||||||
| NET INTEREST MARGIN – UNAUDITED | |||||||||||||||||||||||||||
| (amounts in thousands) | |||||||||||||||||||||||||||
| For The Three Months Ended | |||||||||||||||||||||||||||
| December 31, 2018 | December 31, 2017 | September 30, 2018 | |||||||||||||||||||||||||
| Average | Yield / | Average | Yield / | Average | Yield / | ||||||||||||||||||||||
| (Amounts in thousands) | Balance | Interest(1) | Rate (5) | Balance | Interest(1) | Rate (5) | Balance | Interest(1) | Rate (5) | ||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||
| Net loans (2) | $ | 923,409 | $ | 11,494 | 4.94 | % | $ | 839,004 | $ | 10,083 | 4.77 | % | $ | 930,863 | $ | 11,568 | 4.93 | % | |||||||||
| Taxable securities | 218,137 | 1,469 | 2.67 | % | 199,849 | 1,211 | 2.40 | % | 199,883 | 1,209 | 2.40 | % | |||||||||||||||
| Tax-exempt securities | 42,868 | 353 | 3.27 | % | 72,152 | 529 | 2.91 | % | 48,561 | 400 | 3.27 | % | |||||||||||||||
| Interest-bearing deposits in other banks |
75,295 | 434 | 2.29 | % | 67,032 | 224 | 1.33 | % | 50,397 | 254 | 2.00 | % | |||||||||||||||
| Average interest- earning assets |
1,259,709 | 13,750 | 4.33 | % | 1,178,037 | 12,047 | 4.06 | % | 1,229,704 | 13,431 | 4.33 | % | |||||||||||||||
| Cash and due from banks | 22,447 | 19,783 | 21,834 | ||||||||||||||||||||||||
| Premises and equipment, net | 13,331 | 14,948 | 13,768 | ||||||||||||||||||||||||
| Goodwill and core deposit intangible, net | 1,842 | 2,054 | 1,888 | ||||||||||||||||||||||||
| Other assets | 31,488 | 37,138 | 33,084 | ||||||||||||||||||||||||
| Average total assets | $ | 1,328,817 | $ | 1,251,960 | $ | 1,300,278 | |||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||
| Interest-bearing demand | $ | 522,417 | 348 | 0.26 | % | $ | 459,451 | 216 | 0.19 | % | $ | 494,906 | 276 | 0.22 | % | ||||||||||||
| Savings deposits | 110,934 | 92 | 0.33 | % | 111,725 | 54 | 0.19 | % | 107,349 | 73 | 0.27 | % | |||||||||||||||
| Certificates of deposit | 157,035 | 462 | 1.17 | % | 194,886 | 547 | 1.11 | % | 163,302 | 465 | 1.13 | % | |||||||||||||||
| Federal Home Loan Bank of San Francisco borrowings | — | — | — | % | — | — | — | % | 22,283 | 121 | 2.15 | % | |||||||||||||||
| Other borrowings net of unamortized debt issuance costs | 13,785 | 252 | 7.25 | % | 17,211 | 285 | 6.57 | % | 14,681 | 265 | 7.16 | % | |||||||||||||||
| Junior subordinated debentures |
10,310 | 102 | 3.93 | % | 10,310 | 76 | 2.92 | % | 10,310 | 104 | 4.00 | % | |||||||||||||||
| Average interest- bearing liabilities |
814,481 | 1,256 | 0.61 | % | 793,583 | 1,178 | 0.59 | % | 812,831 | 1,304 | 0.64 | % | |||||||||||||||
| Noninterest-bearing demand | 367,457 | 316,961 | 343,948 | ||||||||||||||||||||||||
| Other liabilities | 12,846 | 12,554 | 12,000 | ||||||||||||||||||||||||
| Shareholders’ equity | 134,033 | 128,862 | 131,499 | ||||||||||||||||||||||||
| Average liabilities and shareholders’ equity |
$ | 1,328,817 | $ | 1,251,960 | $ | 1,300,278 | |||||||||||||||||||||
| Net interest income and net interest margin (4) |
$ | 12,494 | 3.93 | % | $ | 10,869 | 3.66 | % | $ | 12,127 | 3.91 | % | |||||||||||||||
| Tax equivalent net interest margin (3) |
3.96 | % | 3.75 | % | 3.95 | % | |||||||||||||||||||||
| (1) Interest income on loans includes deferred fees and costs of approximately $109 thousand, $123 thousand, and $75 thousand for the three months ended December 31, 2018, and 2017 and September 30, 2018, respectively. | |||||||||||||||||||||||||||
| (2) Net loans includes average nonaccrual loans of $4.1 million, $6.5 million and $3.8 million for the three months ended December 31, 2018 and 2017 and September 30, 2018, respectively. | |||||||||||||||||||||||||||
| (3) Tax-exempt income has been adjusted to tax equivalent basis at a 21% for 2018 and at a 34% tax rate for 2017. The amount of such adjustments was an addition to recorded income of approximately $94 thousand, $273 thousand and $106 thousand for the three months ended December 31, 2018 and 2017 and September 30, 2018, respectively. | |||||||||||||||||||||||||||
| (4) Net interest margin is annualized net interest income expressed as a percentage of average interest-earning assets. | |||||||||||||||||||||||||||
| (5) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result. | |||||||||||||||||||||||||||
| TABLE 8b | |||||||||||||||||||
| NET INTEREST MARGIN – UNAUDITED | |||||||||||||||||||
| (amounts in thousands) | |||||||||||||||||||
| For The Twelve Months Ended | |||||||||||||||||||
| December 31, 2018 | December 31, 2017 | ||||||||||||||||||
| Average | Yield / | Average | Yield / | ||||||||||||||||
| (Amounts in thousands) | Balance | Interest(1) | Rate (5) | Balance | Interest(1) | Rate (5) | |||||||||||||
| Interest-earning assets: | |||||||||||||||||||
| Net loans (2) | $ | 915,360 | $ | 44,955 | 4.91 | % | $ | 818,119 | $ | 39,112 | 4.78 | % | |||||||
| Taxable securities | 207,407 | 5,165 | 2.49 | % | 165,333 | 3,921 | 2.37 | % | |||||||||||
| Tax-exempt securities | 50,330 | 1,629 | 3.24 | % | 74,231 | 2,144 | 2.89 | % | |||||||||||
| Interest-bearing deposits in other banks |
47,038 | 952 | 2.02 | % | 66,872 | 772 | 1.15 | % | |||||||||||
| Average interest- earning assets |
1,220,135 | 52,701 | 4.32 | % | 1,124,555 | 45,949 | 4.09 | % | |||||||||||
| Cash and due from banks | 20,468 | 18,301 | |||||||||||||||||
| Premises and equipment, net | 13,952 | 15,567 | |||||||||||||||||
| Goodwill and core deposit intangible, net | 1,917 | 2,136 | |||||||||||||||||
| Other assets | 32,369 | 37,692 | |||||||||||||||||
| Average total assets | $ | 1,288,841 | $ | 1,198,251 | |||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||
| Interest-bearing demand | $ | 489,013 | 1,060 | 0.22 | % | $ | 434,705 | 744 | 0.17 | % | |||||||||
| Savings deposits | 109,025 | 288 | 0.26 | % | 111,376 | 200 | 0.18 | % | |||||||||||
| Certificates of deposit | 168,183 | 1,910 | 1.14 | % | 205,648 | 2,188 | 1.06 | % | |||||||||||
| Federal Home Loan Bank of San Francisco borrowings | 22,466 | 435 | 1.94 | % | 302 | 3 | 0.99 | % | |||||||||||
| Other borrowings net of unamortized debt issuance costs | 15,143 | 1,077 | 7.11 | % | 17,981 | 1,165 | 6.48 | % | |||||||||||
| Junior subordinated debentures |
10,310 | 385 | 3.73 | % | 10,310 | 287 | 2.78 | % | |||||||||||
| Average interest- bearing liabilities |
814,140 | 5,155 | 0.63 | % | 780,322 | 4,587 | 0.59 | % | |||||||||||
| Noninterest-bearing demand | 332,197 | 289,735 | |||||||||||||||||
| Other liabilities | 12,286 | 12,293 | |||||||||||||||||
| Shareholders’ equity | 130,218 | 115,901 | |||||||||||||||||
| Average liabilities and shareholders’ equity | $ | 1,288,841 | $ | 1,198,251 | |||||||||||||||
| Net interest income and net interest margin (4) |
$ | 47,546 | 3.90 | % | $ | 41,362 | 3.68 | % | |||||||||||
| Tax equivalent net interest margin (3) |
3.93 | % | 3.78 | % | |||||||||||||||
| (1) Interest income on loans includes deferred fees and costs of approximately $465 thousand and $546 thousand for the years December 31, 2018 and 2017, respectively. | |||||||||||||||||||
| (2) Net loans includes average nonaccrual loans of $4.2 million and $8.9 million for the years December 31, 2018 and 2017, respectively. | |||||||||||||||||||
| (3) Tax-exempt income has been adjusted to tax equivalent basis at a 21% tax rate for 2018 and at a 34% tax rate for 2017. The amount of such adjustments was an addition to recorded income of approximately $433 thousand and $1.1 million for the years December 31, 2018 and 2017, respectively. | |||||||||||||||||||
| (4) Net interest margin is annualized net interest income expressed as a percentage of average interest-earning assets. | |||||||||||||||||||
| (5) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result. | |||||||||||||||||||
| TABLE 9 | ||||||||||||||||||||||||
| ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS – UNAUDITED | ||||||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||||||
| For The Three Months Ended | ||||||||||||||||||||||||
| December 31, | September 30, | June 30, | March 31, | December 31, | ||||||||||||||||||||
| 2018 | 2018 | 2018 | 2018 | 2017 | ||||||||||||||||||||
| Beginning balance ALLL | $ | 12,392 | $ | 12,388 | $ | 12,295 | $ | 11,925 | $ | 11,692 | ||||||||||||||
| Provision for loan and lease losses | — | — | — | — | 450 | |||||||||||||||||||
| Loans charged-off | (279 | ) | (198 | ) | (382 | ) | (390 | ) | (451 | ) | ||||||||||||||
| Loan loss recoveries | 179 | 202 | 475 | 760 | 234 | |||||||||||||||||||
| Ending balance ALLL | $ | 12,292 | $ | 12,392 | $ | 12,388 | $ | 12,295 | $ | 11,925 | ||||||||||||||
| At December 31, | At September 30, | At June 30, | At March 31, | At December 31, | ||||||||||||||||||||
| 2018 | 2018 | 2018 | 2018 | 2017 | ||||||||||||||||||||
| Nonaccrual loans: | ||||||||||||||||||||||||
| Commercial | $ | 959 | $ | 899 | $ | 1,358 | $ | 1,109 | $ | 1,603 | ||||||||||||||
| Real estate – commercial owner occupied | 548 | — | — | — | 600 | |||||||||||||||||||
| Real estate – residential – ITIN | 2,388 | 2,571 | 2,613 | 2,839 | 2,909 | |||||||||||||||||||
| Real estate – residential – 1-4 family mortgage | 185 | 179 | 184 | 188 | 606 | |||||||||||||||||||
| Real estate – residential – equity lines | 43 | 44 | 44 | 45 | 45 | |||||||||||||||||||
| Consumer and other | 23 | 24 | 33 | 35 | 36 | |||||||||||||||||||
| Total nonaccrual loans | 4,146 | 3,717 | 4,232 | 4,216 | 5,799 | |||||||||||||||||||
| Accruing troubled debt restructured loans: | ||||||||||||||||||||||||
| Commercial | 1,224 | 1,291 | 1,420 | 1,516 | 1,551 | |||||||||||||||||||
| Real estate – commercial non-owner occupied | 795 | 797 | 799 | 800 | 803 | |||||||||||||||||||
| Real estate – residential – ITIN | 4,484 | 4,535 | 4,592 | 4,554 | 4,614 | |||||||||||||||||||
| Real estate – residential – equity lines | 363 | 367 | 372 | 376 | 380 | |||||||||||||||||||
| Total accruing troubled debt restructured loans | 6,866 | 6,990 | 7,183 | 7,246 | 7,348 | |||||||||||||||||||
| All other accruing impaired loans | — | — | — | — | — | |||||||||||||||||||
| Total impaired loans | $ | 11,012 | $ | 10,707 | $ | 11,415 | $ | 11,462 | $ | 13,147 | ||||||||||||||
| Gross loans outstanding at period end | $ | 946,251 | $ | 927,480 | $ | 936,816 | $ | 900,420 | $ | 879,835 | ||||||||||||||
| Impaired loans to gross loans | 1.16 | % | 1.15 | % | 1.22 | % | 1.27 | % | 1.49 | % | ||||||||||||||
| Nonaccrual loans to gross loans | 0.44 | % | 0.40 | % | 0.45 | % | 0.47 | % | 0.66 | % | ||||||||||||||
| Allowance for loan and lease losses as a percent of: | ||||||||||||||||||||||||
| Gross loans | 1.30 | % | 1.34 | % | 1.32 | % | 1.37 | % | 1.36 | % | ||||||||||||||
| Nonaccrual loans | 296.48 | % | 333.39 | % | 292.72 | % | 291.63 | % | 205.64 | % | ||||||||||||||
| Impaired loans | 111.62 | % | 115.74 | % | 108.52 | % | 107.27 | % | 90.71 | % | ||||||||||||||
We continue to monitor credit quality and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. As a result of continued improved asset quality, no provision for loan and lease losses was necessary during the current quarter and the prior quarter. A provision for loan and lease losses of $450 thousand was recorded during the same quarter a year ago. Our ALLL as a percentage of gross loans was 1.30% as of December 31, 2018 compared to 1.36% as of December 31, 2017 and 1.34% as of September 30, 2018. Based on the Bank’s ALLL methodology, which uses criteria such as risk factors and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company’s ALLL is adequate at December 31, 2018. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.
At December 31, 2018, the recorded investment in loans classified as impaired totaled $11.0 million, with a corresponding specific reserve of $1.2 million compared to impaired loans of $13.1 million with a corresponding specific reserve of $1.2 million at December 31, 2017 and impaired loans of $10.7 million, with a corresponding specific reserve of $1.1 million at September 30, 2018.
| TABLE 10 | ||||||||||||||||||||
| TROUBLED DEBT RESTRUCTURINGS – UNAUDITED | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| At December 31, | At September 30, | At June 30, | At March 31, | At December 31, | ||||||||||||||||
| 2018 | 2018 | 2018 | 2018 | 2017 | ||||||||||||||||
| Nonaccrual | $ | 2,693 | $ | 2,720 | $ | 3,218 | $ | 3,237 | $ | 3,581 | ||||||||||
| Accruing | 6,866 | 6,990 | 7,183 | 7,246 | 7,348 | |||||||||||||||
| Total troubled debt restructurings | $ | 9,559 | $ | 9,710 | $ | 10,401 | $ | 10,483 | $ | 10,929 | ||||||||||
| Troubled debt restructurings as a percentage of total gross loans | 1.01 | % | 1.05 | % | 1.11 | % | 1.16 | % | 1.24 | % | ||||||||||
There were no new troubled debt restructurings during the three months ended December 31, 2018. As of December 31, 2018, we had 106 restructured loans that qualified as troubled debt restructurings, of which all were performing according to their restructured terms.
| TABLE 11 | ||||||||||||||||||||
| NONPERFORMING ASSETS – UNAUDITED | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| At December 31, | At September 30, | At June 30, | At March 31, | At December 31, | ||||||||||||||||
| 2018 | 2018 | 2018 | 2018 | 2017 | ||||||||||||||||
| Total nonaccrual loans | $ | 4,146 | $ | 3,717 | $ | 4,232 | $ | 4,216 | $ | 5,799 | ||||||||||
| 90 days past due and still accruing | — | — | — | — | — | |||||||||||||||
| Total nonperforming loans | 4,146 | 3,717 | 4,232 | 4,216 | 5,799 | |||||||||||||||
| Other real estate owned (“OREO”) | 31 | 136 | 140 | 60 | 35 | |||||||||||||||
| Total nonperforming assets | $ | 4,177 | $ | 3,853 | $ | 4,372 | $ | 4,276 | $ | 5,834 | ||||||||||
| Nonperforming loans to gross loans | 0.44 | % | 0.40 | % | 0.45 | % | 0.47 | % | 0.66 | % | ||||||||||
| Nonperforming assets to total assets | 0.32 | % | 0.29 | % | 0.34 | % | 0.34 | % | 0.46 | % | ||||||||||
| TABLE 12 | |||||||||||||||||||
| UNAUDITED CONSOLIDATED | |||||||||||||||||||
| BALANCE SHEET | |||||||||||||||||||
| (amounts in thousands, except per share data) | |||||||||||||||||||
| At December 31, | Change | At September 30, | |||||||||||||||||
| 2018 | 2017 | $ | % | 2018 |
|||||||||||||||
| Assets: | |||||||||||||||||||
| Cash and due from banks | $ | 23,692 | $ | 17,979 | $ | 5,713 | 32 | % | $ | 21,316 | |||||||||
| Interest-bearing deposits in other banks | 23,673 | 48,991 | (25,318 | ) | (52 | )% | 69,920 | ||||||||||||
| Total cash and cash equivalents | 47,365 | 66,970 | (19,605 | ) | (29 | )% | 91,236 | ||||||||||||
| Securities available-for-sale, at fair value | 256,928 | 267,954 | (11,026 | ) | (4 | )% | 239,633 | ||||||||||||
| Loans, net of deferred fees and costs | 948,178 | 881,545 | 66,633 | 8 | % | 929,237 | |||||||||||||
| Allowance for loan and lease losses | (12,292 | ) | (11,925 | ) | (367 | ) | 3 | % | (12,392 | ) | |||||||||
| Net loans | 935,886 | 869,620 | 66,266 | 8 | % | 916,845 | |||||||||||||
| Premises and equipment, net | 13,119 | 14,748 | (1,629 | ) | (11 | )% | 13,495 | ||||||||||||
| Other real estate owned | 31 | 35 | (4 | ) | (11 | )% | 136 | ||||||||||||
| Life insurance | 22,410 | 21,898 | 512 | 2 | % | 22,282 | |||||||||||||
| Deferred tax asset, net | 7,039 | 6,505 | 534 | 8 | % | 8,084 | |||||||||||||
| Goodwill and core deposit intangible, net | 1,841 | 2,030 | (189 | ) | (9 | )% | 1,864 | ||||||||||||
| Other assets | 22,485 | 19,661 | 2,824 | 14 | % | 21,894 | |||||||||||||
| Total assets | $ | 1,307,104 | $ | 1,269,421 | $ | 37,683 | 3 | % | $ | 1,315,469 | |||||||||
| Liabilities and shareholders’ equity: | |||||||||||||||||||
| Demand – noninterest-bearing | $ | 347,199 | $ | 305,650 | $ | 41,549 | 14 | % | $ | 361,516 | |||||||||
| Demand – interest-bearing | 517,295 | 496,990 | 20,305 | 4 | % | 510,553 | |||||||||||||
| Savings | 114,840 | 110,837 | 4,003 | 4 | % | 111,388 | |||||||||||||
| Certificates of deposit | 152,382 | 189,255 | (36,873 | ) | (19 | )% | 161,304 | ||||||||||||
| Total deposits | 1,131,716 | 1,102,732 | 28,984 | 3 | % | 1,144,761 | |||||||||||||
| Term debt: | |||||||||||||||||||
| Other borrowings | 13,496 | 17,096 | (3,600 | ) | (21 | )% | 14,396 | ||||||||||||
| Unamortized debt issuance costs | (91 | ) | (138 | ) | 47 | (34 | )% | (103 | ) | ||||||||||
| Net term debt | 13,405 | 16,958 | (3,553 | ) | (21 | )% | 14,293 | ||||||||||||
| Junior subordinated debentures | 10,310 | 10,310 | — | — | % | 10,310 | |||||||||||||
| Other liabilities | 13,352 | 12,157 | 1,195 | 10 | % | 13,136 | |||||||||||||
| Total liabilities | 1,168,783 | 1,142,157 | 26,626 | 2 | % | 1,182,500 | |||||||||||||
| Shareholders’ equity: | |||||||||||||||||||
| Common stock | 52,284 | 51,830 | 454 | 1 | % | 52,191 | |||||||||||||
| Retained earnings | 89,045 | 75,700 | 13,345 | 18 | % | 84,857 | |||||||||||||
| Accumulated other comprehensive loss, net of tax | (3,008 | ) | (266 | ) | (2,742 | ) | 1,031 | % | (4,079 | ) | |||||||||
| Total shareholders’ equity | 138,321 | 127,264 | 11,057 | 9 | % | 132,969 | |||||||||||||
| Total liabilities and shareholders’ equity | $ | 1,307,104 | $ | 1,269,421 | $ | 37,683 | 3 | % | $ | 1,315,469 | |||||||||
| Total interest-earning assets | $ | 1,233,049 | $ | 1,198,942 | $ | 34,107 | 3 | % | $ | 1,244,581 | |||||||||
| Shares outstanding | 16,334 | 16,272 | 62 | — | % | 16,330 | |||||||||||||
| Book value per share | $ | 8.47 | $ | 7.82 | $ | 0.65 | 8 | % | $ | 8.14 | |||||||||
| Tangible book value per share (1) | $ | 8.36 | $ | 7.70 | $ | 0.66 | 9 | % | $ | 8.03 | |||||||||
| (1) 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. | |||||||||||||||||||
| TABLE 13 | ||||||||||||||||||||||||
| UNAUDITED | ||||||||||||||||||||||||
| INCOME STATEMENT | ||||||||||||||||||||||||
| (amounts in thousands, except per share data) | ||||||||||||||||||||||||
| For The Three Months Ended | For The Twelve Months Ended | |||||||||||||||||||||||
| December 31, | Change | September 30, | December 31, | |||||||||||||||||||||
| 2018 | 2017 | $ | % | 2018 |
2018 | 2017 | ||||||||||||||||||
| Interest income: | ||||||||||||||||||||||||
| Interest and fees on loans | $ | 11,494 | $ | 10,083 | $ | 1,411 | 14 | % | $ | 11,568 | $ | 44,955 | $ | 39,112 | ||||||||||
| Interest on taxable securities | 1,469 | 1,211 | 258 | 21 | % | 1,209 | 5,165 | 3,921 | ||||||||||||||||
| Interest on tax-exempt securities | 353 | 529 | (176 | ) | (33 | )% | 400 | 1,629 | 2,144 | |||||||||||||||
| Interest on interest-bearing deposits in other banks | 434 | 224 | 210 | 94 | % | 254 | 952 | 772 | ||||||||||||||||
| Total interest income | 13,750 | 12,047 | 1,703 | 14 | % | 13,431 | 52,701 | 45,949 | ||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||
| Interest on demand deposits | 348 | 216 | 132 | 61 | % | 276 | 1,060 | 744 | ||||||||||||||||
| Interest on savings deposits | 92 | 54 | 38 | 70 | % | 73 | 288 | 200 | ||||||||||||||||
| Interest on certificates of deposit | 462 | 547 | (85 | ) | (16 | )% | 465 | 1,910 | 2,188 | |||||||||||||||
| Interest on Federal Home Loan Bank of San Francisco borrowings |
— | — | — | — | % | 121 | 435 | 3 | ||||||||||||||||
| Interest on other borrowings | 252 | 285 | (33 | ) | (12 | )% | 265 | 1,077 | 1,165 | |||||||||||||||
| Interest on junior subordinated debentures | 102 | 76 | 26 | 34 | % | 104 | 385 | 287 | ||||||||||||||||
| Total interest expense | 1,256 | 1,178 | 78 | 7 | % | 1,304 | 5,155 | 4,587 | ||||||||||||||||
| Net interest income | 12,494 | 10,869 | 1,625 | 15 | % | 12,127 | 47,546 | 41,362 | ||||||||||||||||
| Provision for loan and lease losses | — | 450 | (450 | ) | (100 | )% | — | — | 950 | |||||||||||||||
| Net interest income after provision for loan and lease losses |
12,494 | 10,419 | 2,075 | 20 | % | 12,127 | 47,546 | 40,412 | ||||||||||||||||
| Noninterest income: | ||||||||||||||||||||||||
| Service charges on deposit accounts | 161 | 141 | 20 | 14 | % | 170 | 682 | 542 | ||||||||||||||||
| ATM and point of sale fees | 283 | 266 | 17 | 6 | % | 282 | 1,131 | 1,093 | ||||||||||||||||
| Fees on payroll and benefit processing | 178 | 173 | 5 | 3 | % | 159 | 652 | 658 | ||||||||||||||||
| Life insurance | 128 | 135 | (7 | ) | (5 | )% | 128 | 512 | 1,050 | |||||||||||||||
| Gain (loss) on investment securities, net | 3 | (2 | ) | 5 | 250 | % | 1 | 44 | 137 | |||||||||||||||
| Federal Home Loan Bank of San Francisco dividends |
201 | 81 | 120 | 148 | % | 104 | 480 | 318 | ||||||||||||||||
| Gain (loss) on sale of OREO | 64 | 346 | (282 | ) | (82 | )% | (7 | ) | 73 | 368 | ||||||||||||||
| Insured cash sweep fees | — | 4 | (4 | ) | (100 | )% | — | — | 197 | |||||||||||||||
| Other income | 114 | 138 | (24 | ) | (17 | )% | 106 | 445 | 461 | |||||||||||||||
| Total noninterest income | 1,132 | 1,282 | (150 | ) | (12 | )% | 943 | 4,019 | 4,824 | |||||||||||||||
| TABLE 13 – CONTINUED | ||||||||||||||||||||||||
| UNAUDITED | ||||||||||||||||||||||||
| INCOME STATEMENT | ||||||||||||||||||||||||
| (amounts in thousands, except per share data) | ||||||||||||||||||||||||
| For The Three Months Ended | For The Twelve Months Ended | |||||||||||||||||||||||
| December 31, | Change | September 30, | December 31, | |||||||||||||||||||||
| 2018 | 2017 | $ | % | 2018 | 2018 | 2017 | ||||||||||||||||||
| Noninterest expense: | ||||||||||||||||||||||||
| Salaries and related benefits | 4,812 | 4,523 | 289 | 6 | % | 4,529 | 18,709 | 17,819 | ||||||||||||||||
| Premises and equipment | 943 | 1,073 | (130 | ) | (12 | )% | 1,017 | 4,047 | 4,242 | |||||||||||||||
| Federal Deposit Insurance Corporation insurance premium |
93 | 88 | 5 | 6 | % | 94 | 376 | 318 | ||||||||||||||||
| Data processing fees | 512 | 455 | 57 | 13 | % | 518 | 1,933 | 1,749 | ||||||||||||||||
| Professional service fees | 436 | 279 | 157 | 56 | % | 336 | 1,431 | 1,398 | ||||||||||||||||
| Telecommunications | 145 | 226 | (81 | ) | (36 | )% | 55 | 594 | 879 | |||||||||||||||
| Acquisition | 802 | — | 802 | 100 | % | 42 | 844 | — | ||||||||||||||||
| Other expenses | 1,125 | 1,247 | (122 | ) | (10 | )% | 1,043 | 4,272 | 4,559 | |||||||||||||||
| Total noninterest expense | 8,868 | 7,891 | 977 | 12 | % | 7,634 | 32,206 | 30,964 | ||||||||||||||||
| Income before provision for income taxes | 4,758 | 3,810 | 948 | 25 | % | 5,436 | 19,359 | 14,272 | ||||||||||||||||
| Provision for income taxes: | ||||||||||||||||||||||||
| Reversal of uncertain tax position | (988 | ) | — | (988 | ) | 100 | % | — | (988 | ) | — | |||||||||||||
| Benefit from cost segregation study and tangible property review |
(484 | ) | — | (484 | ) | 100 | % | — | (484 | ) | — | |||||||||||||
| Net deferred tax asset write-down | — | 2,490 | (2,490 | ) | (100 | )% | — | — | 2,490 | |||||||||||||||
| Provision for income taxes from operations | 1,391 | 1,313 | 78 | 6 | % | 1,404 | 5,101 | 4,438 | ||||||||||||||||
| Total provision for income taxes | (81 | ) | 3,803 | (3,884 | ) | (102 | )% | 1,404 | 3,629 | 6,928 | ||||||||||||||
| Net income | $ | 4,839 | $ | 7 | $ | 4,832 | 100 | % | $ | 4,032 | $ | 15,730 | $ | 7,344 | ||||||||||
| Basic earnings per share | $ | 0.30 | $ | — | $ | 0.30 | 100 | % | $ | 0.25 | $ | 0.97 | $ | 0.48 | ||||||||||
| Average basic shares | 16,265 | 16,195 | 70 | — | % | 16,252 | 16,248 | 15,207 | ||||||||||||||||
| Diluted earnings per share | $ | 0.30 | $ | — | $ | 0.30 | 100 | % | $ | 0.25 | $ | 0.96 | $ | 0.48 | ||||||||||
| Average diluted shares | 16,345 | 16,306 | 39 | — | % | 16,342 | 16,332 | 15,310 | ||||||||||||||||
| TABLE 14 | |||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED | |||||||||||||||
| QUARTERLY AVERAGE BALANCE SHEETS | |||||||||||||||
| (amounts in thousands) | |||||||||||||||
| For The Three Months Ended | |||||||||||||||
| December 31, | September 30, | June 30, | March 31, | December 31, | |||||||||||
| 2018 | 2018 | 2018 | 2018 | 2017 | |||||||||||
| Earning assets: | |||||||||||||||
| Loans | $ | 923,409 | $ | 930,863 | $ | 922,687 | $ | 883,876 | $ | 839,004 | |||||
| Taxable securities | 218,137 | 199,883 | 206,247 | 205,302 | 199,849 | ||||||||||
| Tax exempt securities | 42,868 | 48,561 | 50,306 | 59,789 | 72,152 | ||||||||||
| Interest-bearing deposits in other banks | 75,295 | 50,397 | 29,041 | 32,915 | 67,032 | ||||||||||
| Total earning assets | 1,259,709 | 1,229,704 | 1,208,281 | 1,181,882 | 1,178,037 | ||||||||||
| Cash and due from banks | 22,447 | 21,834 | 19,880 | 17,641 | 19,783 | ||||||||||
| Premises and equipment, net | 13,331 | 13,768 | 14,167 | 14,557 | 14,948 | ||||||||||
| Goodwill and core deposit intangible, net | 1,842 | 1,888 | 1,943 | 1,998 | 2,054 | ||||||||||
| Other assets | 31,488 | 33,084 | 32,426 | 32,485 | 37,138 | ||||||||||
| Total assets | $ | 1,328,817 | $ | 1,300,278 | $ | 1,276,697 | $ | 1,248,563 | $ | 1,251,960 | |||||
| Liabilities and shareholders’ equity: | |||||||||||||||
| Demand – noninterest-bearing | $ | 367,457 | $ | 343,948 | $ | 309,199 | $ | 307,397 | $ | 316,961 | |||||
| Demand – interest-bearing | 522,417 | 494,906 | 467,651 | 470,440 | 459,451 | ||||||||||
| Savings | 110,934 | 107,349 | 107,108 | 110,725 | 111,725 | ||||||||||
| Certificates of deposit | 157,035 | 163,302 | 170,824 | 181,901 | 194,886 | ||||||||||
| Total deposits | 1,157,843 | 1,109,505 | 1,054,782 | 1,070,463 | 1,083,023 | ||||||||||
| Federal Home Loan Bank of San Francisco borrowings | — | 22,283 | 55,275 | 12,444 | — | ||||||||||
| Other borrowings net of unamortized debt issuance costs | 13,785 | 14,681 | 15,614 | 16,528 | 17,211 | ||||||||||
| Junior subordinated debentures | 10,310 | 10,310 | 10,310 | 10,310 | 10,310 | ||||||||||
| Other liabilities | 12,846 | 12,000 | 12,535 | 11,749 | 12,554 | ||||||||||
| Total liabilities | 1,194,784 | 1,168,779 | 1,148,516 | 1,121,494 | 1,123,098 | ||||||||||
| Shareholders’ equity | 134,033 | 131,499 | 128,181 | 127,069 | 128,862 | ||||||||||
| Liabilities & shareholders’ equity | $ | 1,328,817 | $ | 1,300,278 | $ | 1,276,697 | $ | 1,248,563 | $ | 1,251,960 | |||||
| TABLE 15 | ||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED | ||||||||||||
| ANNUAL AVERAGE BALANCE SHEETS | ||||||||||||
| (amounts in thousands) | ||||||||||||
| For The Twelve Months Ended | ||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||
| 2018 | 2017 | 2016 | 2015 | |||||||||
| Earning assets: | ||||||||||||
| Loans | $ | 915,360 | $ | 818,119 | $ | 752,938 | $ | 699,227 | ||||
| Taxable securities | 207,407 | 165,333 | 120,884 | 120,897 | ||||||||
| Tax exempt securities | 50,330 | 74,231 | 75,303 | 77,089 | ||||||||
| Interest-bearing deposits in other banks | 47,038 | 66,872 | 58,668 | 30,323 | ||||||||
| Total earning assets | 1,220,135 | 1,124,555 | 1,007,793 | 927,536 | ||||||||
| Cash and due from banks | 20,468 | 18,301 | 15,831 | 11,220 | ||||||||
| Premises and equipment, net | 13,952 | 15,567 | 15,078 | 11,552 | ||||||||
| Goodwill and core deposit intangible, net | 1,917 | 2,136 | 1,888 | — | ||||||||
| Other assets | 32,369 | 37,692 | 39,160 | 42,423 | ||||||||
| Total assets | $ | 1,288,841 | $ | 1,198,251 | $ | 1,079,750 | $ | 992,731 | ||||
| Liabilities and shareholders’ equity: | ||||||||||||
| Demand – noninterest-bearing | $ | 332,197 | $ | 289,735 | $ | 226,368 | $ | 156,578 | ||||
| Demand – interest-bearing | 489,013 | 434,705 | 374,170 | 283,105 | ||||||||
| Savings | 109,025 | 111,376 | 104,771 | 92,659 | ||||||||
| Certificates of deposit | 168,183 | 205,648 | 221,074 | 238,626 | ||||||||
| Total deposits | 1,098,418 | 1,041,464 | 926,383 | 770,968 | ||||||||
| Federal Home Loan Bank of San Francisco borrowings | 22,466 | 302 | 17,856 | 87,548 | ||||||||
| Other borrowings net of unamortized debt issuance costs | 15,143 | 17,981 | 19,430 | 1,326 | ||||||||
| Junior subordinated debentures | 10,310 | 10,310 | 10,310 | 10,310 | ||||||||
| Other liabilities | 12,286 | 12,293 | 13,217 | 16,588 | ||||||||
| Total liabilities | 1,158,623 | 1,082,350 | 987,196 | 886,740 | ||||||||
| Shareholders’ equity | 130,218 | 115,901 | 92,554 | 105,991 | ||||||||
| Liabilities & shareholders’ equity | $ | 1,288,841 | $ | 1,198,251 | $ | 1,079,750 | $ | 992,731 | ||||
About Bank of Commerce Holdings
Bank of Commerce Holdings is a bank holding company headquartered in Sacramento, California and is the parent company for Redding Bank of Commerce which operates under two separate names (Redding Bank of Commerce and Sacramento Bank of Commerce, a division of Redding Bank of Commerce). The Bank is an FDIC-insured California banking corporation providing community banking and financial services through nine offices located in northern California. The Bank was incorporated as a California banking corporation on November 25, 1981 and opened for business on October 22, 1982. The Company’s common stock is listed on the NASDAQ Global Market and trades under the symbol “BOCH”.
Contact Information:
Randall S. Eslick, President and Chief Executive Officer
Telephone Direct (916) 677-5800
James A. Sundquist, Executive Vice President and Chief Financial Officer
Telephone Direct (916) 677-5825
Samuel D. Jimenez, Executive Vice President and Chief Operating Officer
Telephone Direct (530) 722-3952
Andrea M. Newburn, Vice President and Senior Administrative Officer / Corporate Secretary
Telephone Direct (530) 722-3959