Bank of Commerce Holdings Announces First Quarter Results

Bank of Commerce Holdings Announces First Quarter Results  REDDING, Calif., May 1, 2014 (GLOBE NEWSWIRE) -- Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (Nasdaq:BOCH), a $970.0 million bank holding company and parent company of Redding Bank of Commerce and Sacramento Bank of Commerce (a division of Redding Bank of Commerce) (the "Bank"), today reported net income available to common shareholders of $515 thousand and diluted earnings per share (EPS) of $0.04 for the first quarter 2014.  Financial highlights for the quarter:    *Asset quality improved with reductions in nonperforming assets by $5.4     million from the prior quarter and by $14.5 million from the first quarter     of 2013. Nonperforming assets were 2.61% of total assets at quarter end     compared to 3.23% at the prior quarter end and 4.07% at the end of first     quarter 2013.   *The Company's Tier 1 Leverage and Total Risk Based ratios are     significantly above "Well Capitalized" levels at 12.11% and 16.48%,     respectively.   *Non maturing core deposits increased $44.3 million or 11% compared to the     same period a year ago.  Net income available to common shareholders was $515 thousand for the three months ended March 31, 2014, compared with $2.0 million for the same period a year ago. The decrease in net income in the current quarter was attributed to the following:    *The negotiated settlement of a note receivable from the former mortgage     subsidiary resulted in a loss of $1.4 million recorded in other expenses     or ($0.07) per share.   *A $290 thousand write-down on the pending sale of other real estate owned.   *Securities losses of $245 thousand due to the sale of lower yielding,     longer duration securities.  Randall S. Eslick, President and CEO commented: "While the first quarter performance was short of our expectations, it is important to recognize that the actions attributable to those results were proactive, non-recurring, and strategic in nature. When combining these actions with our strong capital position, we believe the Company is well positioned for sustainable core operating earnings for the balance of 2014 and beyond."  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 the Company's 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 further reduce the demand for loans or reduce the value of real     estate collateral securing most of the Company's loans   *Credit quality deterioration which could cause an increase in the     provision for loan 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 year ended December 31, 2013 and under the heading: "Risk Factors" and 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, which speak only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.  Table 1 below shows summary financial information for the quarters ended March 31, 2014 and 2013, and December 31, 2013.   Table 1                    QUARTER END SUMMARY FINANCIAL INFORMATION                                                                   (Shares and dollars in      Q1        Q1                Q4            thousands)                            2014      2013      Change   2013         Change Selective quarterly                                                performance ratios Return on average assets,   0.23%     0.84%     -0.61%   0.89%        -0.66% annualized Return on average equity,   2.19%     7.40%     -5.21%   8.18%        -5.99% annualized Efficiency ratio for        91.18%    58.54%    32.64%   61.79%       29.39% quarter to date                                                                   Share and Per Share figures                                        - Actual Common shares outstanding   13,552    15,309    (1,757)  13,977       (425) at period end Weighted average diluted    13,987    15,703    (1,716)  14,176       (189) shares Diluted EPS                 $0.04    $0.13    $(0.09) $0.14       $(0.10) Book value per common share $5.97    $5.80    $0.17   $5.86       $0.11 Tangible book value per     $5.97    $5.80    $0.17   $5.86       $0.11 common share                                                                   Capital Ratios              March 31, March 31, Change   December 31, Change                             2014      2013               2013 Bank of Commerce Holdings                                          Leverage ratio              12.11%    12.77%    -0.66%   12.80%       -0.69% Tier 1 risk based capital   15.23%    14.19%    1.04%    15.94%       -0.71% ratio Total risk based capital    16.48%    15.44%    1.04%    17.20%       -0.72% ratio  Redding Bank of Commerce     Leverage ratio              11.97%    12.36%    -0.39%   12.49%       -0.52% Tier 1 risk based capital   15.07%    13.72%    1.35%    16.82%       -0.49% ratio Total risk based capital    16.32%    14.97%    1.35%    15.56%       -0.50% ratio  Bank of Commerce Holdings (the "Company") remains well capitalized. At March 31, 2014, the Company's Tier 1 and Total risk based capital ratios measured 15.23% and 16.48% respectively, while the leverage ratio was 12.11%.  Return on average assets (ROA) and return on average equity (ROE) for the current quarter was 0.23% and 2.19%, respectively, compared with 0.84% and 7.40%, respectively, for the same period a year ago. The decrease in ROA and ROE during the current quarter compared to the same period a year ago is primarily attributed to the negotiated settlement of the Note from the former mortgage subsidiary (the "Note") which resulted in a loss of $1.4 million or ($0.07) per share. The decrease in net ROA and ROE in the current quarter compared to the same period a year ago is also due to a $290 thousand write-down in the current quarter on the pending sale of other real estate owned and securities losses of $245 thousand in the current quarter due to the sale of lower yielding, longer duration securities.  During 2013 the Company authorized and completed the repurchase of 2.0 million common shares through two separate repurchase plans. During the three months ended March 31, 2014 the Company authorized a new repurchase plan and repurchased 440,815 shares of common stock at a weighted average price of $6.52 per share. All shares repurchased were retired subsequent to purchase.  The increase in the efficiency ratio to 91.18% compared to 58.54% for the same period a year ago is primarily due to the loss on the Note recorded in other expenses of $1.4 million during the three months ended March 31, 2014. Decreased gains on investment securities also contributed to the increase in the efficiency ratio.  Balance Sheet Overview  As of March 31, 2014, the Company had total consolidated assets of $970.0 million, total net portfolio loans of $597.6 million, allowance for loan and lease losses of $9.7 million, total deposits of $761.7 million, and stockholders' equity of $100.8 million.  Overall, the net portfolio loan balance decreased compared to the same period a year ago. The Company recorded net portfolio loans of $597.6 million at March 31, 2014, compared with $601.6 million at March 31, 2013, a decrease of $4.0 million, or 1%. The decrease in net portfolio loans was primarily attributable to principal paydowns on a commercial secured borrowing line held with the Bank's former mortgage subsidiary used to fund 1-4 family mortgage loan originations, partially offset by an increase in owner occupied commercial real estate loans. The decrease in volume in the commercial secured borrowing line is primarily attributable to an increase in mortgage interest rates. Net portfolio loans increased in the current quarter compared to the prior quarter, with net portfolio loans increasing by $13.5 million or 2.3%. The increase was attributable to the purchase of a pool of consumer loans during the quarter and a $4.4 million decrease in the ALLL.   Table 2        PERIOD END LOANS               Q1        % of  Q1        % of  Change          Q4        % of (Dollars in   2014      Total 2013      Total Amount       %  2013      Total thousands)                                                                   Commercial     $165,747 27%   $189,670 31%   $(23,923) -13% $170,429 28% Real estate - construction   17,500    3%    16,235    3%    1,265      8%   18,545    3% loans Real estate - commercial     205,111   34%   203,305   33%   1,806      1%   205,384   34% (investor) Real estate - commercial     86,929    14%   75,969    12%   10,960     14%  83,976    14% (owner occupied) Real estate -  55,411    9%    58,981    10%   (3,570)    -6%  56,101    9% ITIN loans Real estate -  14,973    2%    19,147    3%    (4,174)    -22% 14,590    2% mortgage Real estate -  45,519    8%    45,439    7%    80         0%   45,462    8% equity lines Consumer       15,749    3%    3,596     1%    12,153     338% 3,472     1% Other          110       0%    266       0%    (156)      -59% 36        1% Gross portfolio      607,049   100%  612,608   100%  (5,559)    -1%  597,995   100% loans                                                                   Less:                                                              Deferred loan  (320)          (308)          (12)       4%   (303)      fees, net Allowance for  9,748          11,350         (1,602)    -14% 14,172     loan losses Net portfolio  $597,621      $601,566      $(3,945)  -1%  $584,126  loans                                                                   Yield on loans 4.68%          4.82%          -0.14%         4.88%          Table 3          PERIOD END CASH EQUIVALENTS AND INVESTMENT SECURITIES (Dollars in      Q1        % of  Q1        % of  Change         Q4       % of thousands)                 2014      Total 2013      Total Amount    %    2013     Total Cash and cash                                                      equivalents: Cash and due     $54,422  17%   $44,226  14%   $10,196  23%  $38,369 13% from banks Interest bearing 20,146    6%    23,604    7%    (3,458)   -15% 20,146   6% due from banks                 74,568    23%   67,830    21%   6,738     10%  58,515   19% Investment                                                         Securities-AFS U.S. government  6,300     2%    2,930     1%    3,370     115% 6,264    2% and agencies Obligations of state and        56,454    18%   0         0%    56,454    0%   59,209   20% political subdivisions Residential mortgage backed securities and   53,105    17%   65,577    20%   (12,472)  -19% 62,991   20% collateralized mortgage obligations Corporate        49,553    16%   59,650    18%   (10,097)  -17% 48,230   15% securities Commercial mortgage backed  10,406    3%    64,857    20%   (54,451)  -84% 10,472   3% securities Other asset backed           28,192    9%    28,832    9%    (640)     -2%  29,474   9% securities Total Investment 204,010   65%   221,846   68%   (17,836)  -8%  216,640  69% Securities-AFS                                                                   Securities-HTM, at amortized                                                       cost Obligations of state and        36,985    12%   34,526    11%   2,459     7%   36,696   12% political subdivisions Total cash equivalents and  $315,563 100%  $324,202 100%  $(8,639) -3%  $        100% investment                                                      311,851 securities                                                                   Yield on cash equivalents and  2.89%          2.55%          0.34%         2.49%     investment securities   The Company continued to maintain a strong liquidity position during the reporting period. As of March 31, 2014, the Company maintained cash positions at the Federal Reserve Bank and correspondent banks in the amount of $54.4 million. The Company also held certificates of deposits with other financial institutions in the amount of $20.1 million.  The Company's available-for-sale investment portfolio is currently being utilized as a secondary source of liquidity to fund other higher yielding asset opportunities, such as commercial and commercial real estate loan originations when required. Available-for-sale investment securities totaled $204.0 million at March 31, 2014, compared with $216.6 million at December 31, 2013. During the current quarter the Company's securities purchases were centered in municipal bonds, and mortgage backed securities.  The Company's purchases continue to focus on moderate term maturity securities, taking advantage of the steepness of the yield curve. This strategy moderates the Company's exposure to rising interest rates, while still providing a relatively acceptable yield. The municipal bond purchases were generally longer term than purchases of other asset classes, but also provide for higher returns due to the tax benefit received. The mortgage backed securities purchased during the period were centered on moderate duration bonds with relatively solid cash flows and yield. Overall, management's investment strategy reflects the continuing expectation of rising rates across the yield curve. As such, management will continue to actively seek out opportunities to reduce the overall duration of the portfolio and improve cash flows. Given the current shape of the yield curve, this strategy could entail absorbing low to moderate losses within the portfolio to meet this longer term objective. During the first quarter of 2014, the Company purchased twenty-two securities with a weighted average yield of 3.08%, and sold thirty-two securities with a weighted average yield of 2.01%. The sales activity resulted in $245 thousand net realized loss.  At March 31, 2014, the Company's net unrealized losses on available-for-sale securities were $643 thousand compared with $3.7 million net unrealized losses at December 31, 2013. The favorable change in net unrealized losses was primarily due to increases in the fair values of the Company's municipal bond, corporate bond, and mortgage backed securities portfolios. The increases in the fair values of the Company's investment securities portfolio were primarily driven by the narrowing of market spreads and changes in market interest rates.   Table 4           QUARTERLY AVERAGE DEPOSITS BY CATEGORY (Dollars in       Q1        %of   Q1        %of   Change       Q4        %of thousands)                  2014      Total 2013      Total Amount   %   2013      Total Demand deposits   $132,495 18%   $114,476 16%   $18,019 16% $134,439 18% Interest bearing  267,428   36%   234,445   34%   32,983   14% 261,949   36% demand Total checking    399,923   54%   348,921   50%   51,002   15% 396,388   54% deposits                                                                   Savings           91,406    12%   90,689    13%   717      1%  92,949    13% Total non-time    491,329   66%   439,610   63%   51,719   12% 489,337   67% deposits Time deposits     259,523   34%   257,131   37%   2,392    1%  247,376   33% Total deposits    $750,852 100%  $696,741 100%  $54,111 8%  $736,713 100%                                                                   Average rate on   0.54%          0.62%          -0.08%      0.54%      total deposits   During the first quarter, average total deposits increased 8% or $54.1 million to $750.9 million compared to the same period a year ago. Non maturing core deposits increased $44.3 million or 11% compared to the same period a year ago. Insured Cash Sweep (ICS) deposits totaling $44.5 million as of March 31, 2014 are included in interest bearing demand. The ICS deposits are locally generated funds, and as such, management considers this funding source as stable. However, the regulatory bodies consider these deposits as noncore.  Brokered certificates of deposits totaled $13.9 million at March 31, 2014, and were structured with both fixed rate terms and adjustable rate terms, and had remaining maturities ranging from less than one month to 6.25 years. Furthermore, brokered certificates of deposits with adjustable rate terms were structured with call features allowing the Company to call the certificate should interest rates move in a favorable direction. These call features are generally exercisable within six to twelve months of issuance date and quarterly thereafter.  Operating Results for the First Quarter of 2014  Net income attributable to Bank of Commerce Holdings was $565 thousand for the three months ended March 31, 2014 compared with $2.1 million for the prior quarter and $2.0 million for the same period a year ago. The decrease in net income in the current quarter compared to the same period a year ago is primarily driven by the negotiated settlement of the Note from the former mortgage subsidiary resulting in a loss of $1.4 million. The decrease in net income in the current quarter compared to the same period a year ago is also due to a $290 thousand write-down on the pending sale of other real estate owned in the current quarter and securities losses of $245 thousand in the current quarter due to the sale of lower yielding, longer duration securities.  Net income available to common shareholders was $515 thousand for the three months ended March 31, 2014, compared with $2.0 million for the same period a year ago. Net income available to common shareholders decreased during the three months ended March 31, 2014 compared with the same period a year ago due to decreased net income attributable to Bank of Commerce Holdings as discussed in the preceding paragraph. Preferred stock dividends payable to the U.S. Treasury pursuant to the SBLF program were unchanged at $50 thousand. As a result of increased qualified lending over the measurement period, preferred stock dividends for the SBLF program are fixed at the current rate of 1% through January 2016.   Table 5                 SUMMARY INCOME STATEMENT (Dollars in thousands)  Q1      Q1      Change          Q4      Change                        2014    2013    Amount    %     2013    Amount    % Net interest income     $8,173 $8,506 $(333)   -4%   $8,494 $(321)   -4% Provision for loan and  0       1,050   (1,050)   -100% 0       0         0% lease losses Noninterest income      364     824     (460)     -56%  719     (355)     -49% Noninterest expense     7,784   5,462   2,322     43%   5,693   2,091     37% Income before income    753     2,818   (2,065)   -73%  3,520   (2,767)   -79% taxes Provision for income    188     778     (590)     -76%  1,433   (1,245)   -87% tax Net income              565     2,040   (1,475)   -72%  2,087   (1,522)   -73% Less: Preferred dividend and accretion  50      50      0         0%    50      0         0% on preferred stock Income available to     $515   $1,990 $(1,475) -74%  $2,037 $(1,522) -75% common shareholders                                                                     Basic earnings per      $0.04  $0.13  $(0.09)  -69%  $0.14  $(0.10)  -71% share Average basic shares    13,942  15,686  (1,744)   -11%  14,143  (201)     -1% Diluted earnings per    $0.04  $0.13  $(0.09)  -69%  $0.14  $(0.10)  -71% share Average diluted shares  13,987  15,703  (1,716)   -11%  14,176  (189)     -1%   Diluted EPS were $0.04 for the three months ended March 31, 2014 compared with $0.13 for the same period a year ago, and $0.14 for the prior period. EPS decreased during the three months ended March 31, 2014 compared to the same period a year ago due to a combination of the decrease in net income, partially offset by decreased weighted average shares. The decrease in weighted average shares directly resulted from the repurchase of 2.0 million common shares through two separate repurchase plans announced and completed in 2013 and 441,815 common shares repurchased during the three months ended March 31, 2014 under the plan announced March 30, 2014. All repurchased shares were retired subsequent to purchase. As such, the weighted average number of dilutive common shares outstanding decreased by 1.4 million during the twelve months ended December 31, 2013.  The Company declared cash dividends of $0.03 per share for the first quarter of 2014, consistent with the quarterly dividends in the prior quarter and for the same period a year ago  Net interest income is the largest source of our operating income. Net interest income for the three months ended March 31, 2014 was $8.2 million compared to $8.5 million during the same period a year ago and $8.5 million for the prior quarter.  Interest income for the three months ended March 31, 2014 was $9.0 million, a decrease of $477 thousand or 5% compared to the same period a year ago. The decrease in interest income during the first quarter of 2014 compared to the same period a year ago was primarily driven by decreased yields and volume in the loan portfolio, decreased volume in the investment securities portfolio, partially offset by increased yield of investment securities. Average loans decreased $28.9 million including a decrease in average nonaccruing loans of $7.9 million at March 31, 2014 compared to the same period a year ago. The decrease in average loans is primarily attributed to a decrease in usage under a commercial secured borrowing line held with the Bank's former mortgage subsidiary used to fund 1-4 family mortgage loan originations. The decrease in volume in the commercial secured borrowing line is primarily attributable to an increase in mortgage market interest rates, resulting in lower volume. As a result, during the three months ended March 31, 2014, loan interest income decreased $553 thousand or 7% compared to the same period a year ago.  Interest income recognized from the investment securities portfolio increased $77 thousand during the three months ended March 31, 2014 compared to the same period a year ago. The increase interest income derived from the investment securities portfolio was primarily attributable to increased yield. Average quarterly securities balances and weighted average tax equivalent yields at March 31, 2014 and 2013 were $244.6 million and 3.44% compared to $248.0 million and 3.24%, respectively.  Interest expense for the current quarter was $827 thousand, a decrease of $144 thousand or 15% compared to the same period a year ago. During the current quarter of 2014, the Company continued to benefit from the re-pricing of deposits, and significantly lower FHLB borrowings expense which was primarily driven by lower rate and volume.   Table 6                      NET INTEREST SPREAD AND MARGIN (Dollars in thousands)       Q1        Q1        Change     Q4        Change                             2014      2013      Amount     2013      Amount Tax equivalent yield on average interest earning     4.08%     4.24%     -0.16%     4.29%     -0.21% assets Rate on average interest     0.47%     0.52%     -0.05%     0.47%     0.00% bearing liabilities Net interest spread          3.61%     3.72%     -0.11%     3.82%     -0.21% Net interest margin on a tax 3.72%     3.82%     -0.10%     3.93%     -0.21% equivalent basis                                                                   Average earning assets       $915,478 $924,644 $(9,166)  $895,101 $20,377 Average interest bearing     $708,822 $748,222 $(39,400) $692,739 $16,083 liabilities  The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.72% for the three months ended March 31, 2014, a decrease of 10 basis points (bp) as compared to the same period a year ago. The decrease in net interest margin primarily resulted from a 16 bp decline in yield on average earning assets partially offset by a 6 bp decrease in interest expense to average earning assets. With decreasing elasticity in managing our funding costs and historically low interest rates, maintaining our net interest margin in the foreseeable future will continue to be challenging. Accordingly, management will continue to pursue organic loan growth, wholesale loan purchases, and actively manage the investment securities portfolio within our accepted risk tolerance to maximize yield on earning assets.  Noninterest income for the three months ended March 31, 2014 was $364 thousand, a decrease of $460 thousand or 56% when compared to the same period a year ago. The following table presents the key components of noninterest income for the three months ended March 31, 2014 and 2013, and December 31, 2013:   Table 7                         NONINTEREST INCOME (Dollars in thousands)           Q1    Q1    Change        Q4    Change                                 2014  2013  Amount  %     2013  Amount  % Service charges on deposit       $44  $46  $(2)   -4%   $45  $(1)   -2% accounts Payroll and benefit processing   135   128   7       5%    129   6       5% fees Earnings on cash surrender value 126   156   (30)    -19%  133   (7)     -5% - bank owned life insurance Gain (loss) on investment        (245) 189   (434)   -230% 64    (309)   -483% securities, net Merchant credit card service     26    33    (7)     -21%  31    (5)     -16% income, net Other income                     278   272   6       2%    317   (39)    -12% Total noninterest income         $364 $824 $(460) -56%  $719 $(355) -49%   Bank owned life insurance earnings decreased $30 thousand for the three and three months ended March 31, 2014 compared to the same periods a year ago. The decrease was due to true-up adjustments recorded during the three months ended March 31, 2013.  Gains on the sale of investment securities decreased $434 thousand to a net loss of $245 thousand for the three months ended March 31, 2014, compared to net gains of $189 thousand for the same period a year ago. During the three months ended March 31, 2014, the Company purchased twenty-two securities with weighted average yields of 3.08%. During the same period the Company sold thirty-two securities with weighted average yields 2.01%. Generally, securities purchased had relatively short durations with good credit quality.  Merchant credit card service income decreased $7 thousand for the three and three months ended March 31, 2014 compared to the same period a year ago due to increased customer utilization of a third party to provide some account services.  Noninterest expense for the three months ended March 31, 2014 was $7.8 million, an increase of $2.3 million or 43% compared to the same period a year ago. The following table presents the key elements of noninterest expense for the three months ended March 31, 2014 and 2013, and December 31, 2013:   Table 8                      NONINTEREST EXPENSE                             Q1      Q1      Change       Q4      Change (Dollars in thousands)       2014    2013    Amount  %    2014    Amount  % Salaries and related         $3,622 $2,924 $698   24%  $3,172 $450   14% benefits Occupancy and equipment      642     574     68      12%  554     88      16% expense Write down of other real     290     0       290     100% 0       290     100% estate owned FDIC insurance premium       191     88      103     117% 190     1       1% Data processing fees         194     134     60      45%  150     44      29% Professional service fees    264     269     (5)     -2%  315     (51)    -16% Deferred compensation        115     155     (40)    -26% 121     (6)     -5% expense Other expenses               2,466   1,318   1,148   87%  1,191   1,275   107% Total noninterest expense    $7,784 $5,462 $2,322 43%  $5,693 $2,091 37%   Salaries and related benefits expense for the three months ended March 31, 2014 was $3.6 million, an increase of $698 thousand or 24% compared to the same period a year ago. The increase in salaries and related benefits was primarily driven by an increase in the number of employees, increased Supplemental Executive Retirement Plan (SERP) costs, increased health benefit costs and an increase in contributions to the Company's employee profit sharing plan.  Occupancy and equipment expenses increased $68 thousand for the three months ended March 31, 2014 compared to the same period a year ago, due to increased rent expenses and furniture fixture and equipment costs related to the expansion of theSacramento Bank of Commerce branch and remodel of the Churn Creek branch.  During the three months ended March 31, 2014 management determined that further impairment necessary for an improved commercial land property in the amount of $290 thousand. The property was transferred to OREO in 2010 and was written down to its fair value in anticipation of its pending sale.  The increase in FDIC assessments of $103 thousand or 117% to $191 thousand during the quarter ended March 31, 2014 resulted from true-up adjustments to reverse prior period over accruals recorded in March of 2013.  Data processing expense for the three months ended March 31, 2014 was $194 thousand, an increase of $60 thousand or 45% compared to the same period a year ago. The increases in data processing expense compared to the same periods a year ago is primarily driven by increases in software maintenance and licensing expenses. The Bank continues to strive to make improvements in network infrastructure and systems, and expects to see continued increased costs in these expenses for the foreseeable future.  Deferred compensation expense for the three months ended March 31, 2014 was $115 thousand, a decrease of $40 thousand or 26% compared to the same period a year ago. During June of 2013, the Company's board of directors approved a revision to the SERP resulting in a reduction in accrual rate for deferred compensation expenses.  Other expenses for the three months ended March 31, 2014 were $2.5 million, an increase of $1.1 million or 87% compared to the same period a year ago. The increase in other expenses was primarily driven by the negotiated settlement of the Note from the former mortgage subsidiary which resulted in a loss of $1.4 million. Other expenses for the three months ended March 31, 2014 also include $74 thousand of amortization expense for affordable housing investments purchased during 2013. The increase is partially offset by a decrease in the amount of off balance sheet provision of $200 thousand and a decrease in OREO expenses of $168 thousand compared to the same period a year ago.   Table 9                      ALLOWANCE ROLL FORWARD (Dollars in thousands)       Q1        Q4        Q3        Q2        Q1                             2014      2013      2013      2013      2013 Beginning balance            $14,172  $13,542  $13,133  $11,350  $11,103 Provision for loan loss      0         0         300       1,400     1,050 charged to expense Loans charged off            (4,903)   (815)     (635)     (474)     (845) Loan loss recoveries         479       1,445     744       857       42 Ending balance               $9,748   $14,172  $13,542  $13,133  $11,350                                                                  Gross portfolio loans        $607,049 $597,995 $594,562 $617,398 $612,608 outstanding at period end                                                                  Ratio of allowance for loan and lease losses to gross    1.61%     2.37%     2.28%     2.13%     1.85% portfolio loans Nonaccrual loans at period                                        end: Commercial                   $4,303   $6,527    $7,501   $7,898   $3,420 Commercial real estate       12,560    14,539    16,895    16,614    23,363 Residential real estate      7,360     8,217     10,953    11,165    11,302 Home equity                  484       513       517       345       -- Total nonaccrual loans       $24,707  $29,796  $35,866  $36,022  $38,085 Accruing troubled debt                                            restructured loans Commercial                   $62      $63      $65      $68      $70 Commercial real estate       3,853     3,864     1,742     1,748     4,593 Residential real estate      4,894     4,303     2,996     3,174     2,954 Home equity                  593       598       604       531       536 Total accruing restructured  $9,402   $8,828   $5,407   $5,521   $8,153 loans                                                                  All other accruing impaired  2,564     3,517     4,190     4,445     1,426 loans                                                                  Total impaired loans         $36,673  $42,141  $45,463  $45,988  $47,664                                                                  Allowance for loan and lease losses to nonaccrual loans   39.45%    47.56%    37.76%    36.46%    29.80% at period end Nonaccrual loans to gross    4.07%     4.98%     6.03%     5.83%     6.22% portfolio loans Allowance for loan and lease 26.58%    33.63%    29.79%    28.56%    23.81% losses to impaired loans   The ALLL allocation decreased to $9.7 million compared to $14.2 million in the prior quarter and $11.4 million reported for the same period a year ago. The Company realized net charge offs of $4.4 million in the current quarter compared with net recoveries of $630 thousand in the prior quarter and net charge offs of $803 thousand in the same period a year ago. The increase in net charge offs in the current quarter and the decrease in the ALLL allocation is primarily due to chargeoffs related to two significant borrowing relationships; the first included $3.4 million in chargeoffs of Commercial and Industrial loans and the second included $1.4 million in chargeoffs of Commercial Real Estate and Farmland loans. Allocations for the amounts charged off were included in the ALLL balance as of December 31, 2013.  The Company continues to monitor credit quality, and adjust the ALLL accordingly to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease porfolios. As such, the Company made no additional provisions for loan losses during the first quarter of 2014 or the fourth quarter of 2013, compared with $1.1 million during the same period a year ago. The Company's ALLL as a percentage of gross portfolio loans was 1.61% at March 31, 2014 compared to 1.85% as of March 31, 2013.  The charge offs in the current quarter were primarily in the Commercial, Commercial Real Estate and Farmland loan portfolios. During the first quarter of 2014, the Bank's loan portfolio reflected higher charge off rates relative to the previous four quarters. The charge offs in the current quarter were centered in two borrowing relationships previously identified as impaired and for which allocations were included in the ALLL balance as of December 31, 2013. Management is cautiously optimistic that given continuing improvement in local and national economic conditions, the Company's impaired assets will continue to trend down. However, the commercial real estate and commercial loan portfolios continue to be influenced by weak real estate values, the effects of relatively high unemployment levels, and less than robust economic conditions. At March 31, 2014, management believes the Company's ALLL is adequately funded given the current level of credit risk.  At March 31, 2014, the recorded investment in loans classified as impaired totaled $36.7 million, with a corresponding valuation allowance (included in the ALLL) of $1.8 million. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans. At December 31, 2013, the total recorded investment in impaired loans was $42.1 million, with a corresponding valuation allowance (included in the ALLL) of $4.8 million. The decrease in classified loans during the period ended March 31, 2014 is primarily due to the aforementioned two borrowing relationships.  Loans are reported as troubled debt restructurings (TDR) when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the note rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as the Bank will not collect all amounts due, both principal and interest, in accordance with the terms of the original loan agreement. Impairment reserves on non collateral dependent restructured loans are measured by comparing the present value of expected future cash flows of the restructured loans, discounted at the effective interest rate of the original loan agreement. These impairment reserves are recognized as a specific component to be provided for in the ALLL.  During the current quarter, the Company restructured one loan to grant a maturity concession. The loan was classified as TDR and placed on nonaccrual status. As of March 31, 2014, the Company had $29.2 million in TDRs compared to $33.4 million as of December 31, 2013. As of March 31, 2014, the Company had one hundred and seventeen restructured loans that qualified as TDRs, of which ninety-three were performing according to their restructured terms. TDRs represented 4.81% of gross portfolio loans as of March 31, 2014 compared with 5.59% at December 31, 2013.   Table 10                          PERIOD END TROUBLED DEBT RESTRUCTURINGS (Dollars in thousands)            Q1       Q4       Q3       Q2       Q1                                  2014     2013     2013     2013     2013 Nonaccrual                        $19,779 $24,596 $21,511 $15,552 $15,811 Accruing                          9,402    8,828    5,407    5,521    8,153 Total troubled debt               $29,181 $33,424 $26,918 $21,073 $23,964 restructurings                                                                   Percentage of total gross         4.81%    5.59%    4.53%    3.41%    3.91% portfolio loans   Nonperforming loans, which include nonaccrual loans and accruing loans past due over 90 days, totaled $24.7 million or 4.07% of portfolio loans as of March 31, 2014, compared to $29.8 million, or 4.98% of portfolio loans at December 31, 2013. Nonperforming assets, which include nonperforming loans and other real estate owned ("OREO"), totaled $25.3 million, or 2.61% of total assets as of March 31, 2014, compared with $30.7 million, or 3.23% of total assets as of December 31, 2013. As of March 31, 2014, nonperforming assets of $25.3 million have been written down by 36%, or $9.2 million, from their original balance of $38.4 million. The decrease in nonperforming loans in the current quarter is primarily due to $3.4 million in chargeoffs of Commercial and Industrial loans for one borrowing relationship and $1.4 million in chargeoffs of Commercial Real Estate and Farmland loans for one borrowing relationship.   Table 11                          PERIOD END NONPERFORMING ASSETS (Dollars in thousands)            Q1       Q4       Q3       Q2       Q1                                  2014     2013     2013     2013     2013 Commercial                        $4,303  $6,527  $7,501  $7,898  $3,420                                                                   Real estate mortgage                                               1-4 family, closed end 1st lien   1,286    1,322    1,740    1,797    1,846 1-4 family revolving              484      513      517      345      -- ITIN 1-4 family loan pool         6,074    6,895    9,213    9,368    9,456 Total real estate mortgage        7,844    8,730    11,470   11,510   11,302                                                                   Commercial real estate            12,560   14,539   16,895   16,614   23,363 Total nonaccrual loans            24,707   29,796   35,866   36,022   38,085 90 days past due not on           --       --       --       --       -- nonaccrual Total nonperforming loans         24,707   29,796   35,866   36,022   38,085                                                                   Other real estate owned           623      913      959      1,360    1,785 Total nonperforming assets        $25,330 $30,709 $36,825 $37,382 $39,870                                                                   Nonperforming loans to portfolio  4.07%    4.98%    6.03%    5.83%    6.21% loans Nonperforming assets to total     2.61%    3.23%    3.95%    3.91%    4.07% assets     Table 12               OTHER REAL ESTATE OWNED ACTIVITY (Dollars in thousands) Q1    Q4    Q3      Q2      Q1                       2014  2013  2013    2013    2013 Beginning balance      $913 $959 $1,360 $1,785 $3,061 Write-down             (290) 0     0       0       0 Additions to OREO      0     98    146     184     1,157 Dispositions of OREO   0     (144) (547)   (609)   (2,433) Ending balance         $623 $913 $959   $1,360 $1,785   At March 31, 2014, and December 31, 2013, the recorded investment in OREO was $623 thousand and $913 thousand, respectively. During the three months ended March 31, 2014, further impairment was deemed necessary for an improved commercial land property in the amount of $290 thousand. The property was transferred to OREO in 2010 and was written down to its fair value in anticipation of its pending sale. The March 31, 2014 OREO balance consists of three properties, of which two are secured by 1-4 family residential real estate in the amount of $163 thousand. The remaining property consists of improved commercial land in the amount of $460 thousand.   Table 13                     INCOME STATEMENT (Amounts in thousands,       Q1      Q1      Change          Q4      Full Year except for per share data)                             2014    2013    $         %     2013    2013 Interest income:                                                 Interest and fees on loans   $7,094 $7,647 $(553)   -7%   $7,432 $29,918 Interest on tax-exempt       652     623     29        5%    658     2,610 securities Interest on U.S. government  1,114   1,066   48        5%    492     1,702 securities Interest on other securities 140     141     (1)       -1%   719     3,031 Total interest income        9,000   9,477   (477)     -5%   9,301   37,261 Interest expense:                                                Interest on demand deposits  121     139     (18)      -13%  121     485 Interest on savings deposits 57      71      (14)      -20%  60      254 Interest on certificates of  662     697     (35)      -5%   635     2,625 deposit Interest on securities sold  0       4       (4)       -100% --      6 under repurchase agreements Interest on FHLB borrowings  0       0       0         0%    (104)   (267) Interest on other borrowings (13)    60      (73)      -122% 95      375 Total interest expense       827     971     (144)     -15%  807     3,478 Net interest income          8,173   8,506   (333)     -4%   8,494   33,783 Provision for loan and lease 0       1,050   (1,050)   -100% --      2,750 losses Net interest income after provision for loan and lease 8,173   7,456   717       10%   8,494   31,033 losses Noninterest income:                                              Service charges on deposit   44      46      (2)       -4%   45      191 accounts Payroll and benefit          135     128     7         5%    129     484 processing fees Earnings on cash surrender value - bank owned life      126     156     (30)      -19%  133     534 insurance (Loss) Gain on investment    (245)   189     (434)     -230% 64      995 securities, net Merchant credit card service 26      33      (7)       -21%  31      129 income, net Other income                 278     272     6         2%    317     1,209 Total noninterest income     364     824     (460)     -56%  719     3,542 Noninterest expense:                                             Salaries and related         3,622   2,924   698       24%   3,172   12,035 benefits Occupancy and equipment      642     574     68        12%   554     2,205 expense Write down of other real     290     0       290       100%  --      -- estate owned FDIC insurance premium       191     88      103       117%  190     725 Data processing fees         194     134     60        45%   150     547 Professional service fees    264     269     (5)       -2%   315     1,241 Deferred compensation        115     155     (40)      -26%  121     179 expense Other expenses               2,466   1,318   1,148     87%   1,191   5,309 Total noninterest expense    7,784   5,462   2,322     43%   5,693   22,241 Income before provision      753     2,818   (2,065)   -73%  3,520   12,334 (benefit) for income taxes Provision (benefit) for      188     778     (590)     -76%  1,433   4,399 income taxes Net Income                   $565   $2,040 $(1,475) -72%  $2,087 $7,935 Less: Preferred dividend and 50      50      0         0%    50      200 accretion on preferred stock Income available to common   $515   $1,990 $(1,475) -74%  $2,037 $7,735 shareholders Basic earnings per share     $0.04  $0.13  $(0.09)  -69%  $0.14  $0.52 Average basic shares         13,942  15,686  (1,744)   -11%  14,143  14,940 Diluted earnings per share   $0.04  $0.13  $(0.09)  -69%  $0.14  $0.52 Average diluted shares       13,987  15,703  (1,716)   -11%  14,176  14,964    Table 14                      BALANCE SHEET (Dollars in thousands)        March 31, March 31, Change          December 31, ASSETS                        2014      2013      $         %     2013 Cash and due from banks       $54,422  $44,226  $10,196  23%   $38,369 Interest bearing due from     20,146    23,604    (3,458)   -15%  20,146 banks Total cash and cash           74,568    67,830    6,738     10%   58,515 equivalents                                                               Securities available-for-sale, at fair   204,010   221,846   (17,836)  -8%   216,640 value Securities held-to-maturity,  36,985    34,526    2,459     7%    36,696 at amortized cost                                                               Portfolio loans               607,369   612,916   (5,547)   -1%   598,298 Allowance for loan losses     (9,748)   (11,350)  1,602     -14%  (14,172) Net loans                     597,621   601,566   (3,945)   -1%   584,126                                                               Total interest earning assets 922,932   937,118   (14,186)  -2%   910,149                                                               Bank premises and equipment,  11,763    10,004    1,759     18%   10,893 net Other intangibles             0         47        (47)      -100% -- Other real estate owned       623       1,785     (1,162)   -65%  913 Other assets                  44,427    40,911    3,516     9%    43,763 TOTAL ASSETS                  $969,997 $978,515 $(8,518) -1%   $951,546                                                               LIABILITIES AND STOCKHOLDERS'                                  EQUITY Demand - noninterest bearing  $131,290 $112,501 $18,789  17%   $133,984 Demand - interest bearing     269,634   237,542   32,092    14%   273,390 Savings accounts              93,279    91,434    1,845     2%    90,442 Certificates of deposit       267,508   256,916   10,592    4%    248,477 Total deposits                761,711   698,393   63,318    9%    746,293                                                               Securities sold under         0         15,625    (15,625)  -100% 0 agreements to repurchase Federal Home Loan Bank        75,000    125,000   (50,000)  -40%  75,000 borrowings Junior subordinated           15,465    15,465    0         0%    15,465 debentures Other liabilities             17,034    15,251    1,783     12%   13,001 TOTAL LIABILITIES             869,210   869,734   (524)     0%    849,759                                                               TOTAL STOCKHOLDERS' EQUITY    100,787   108,781   (7,994)   -7%   101,787                                                               TOTAL LIABILITIES AND         $969,997 $978,515 $(8,518) -1%   $951,546 STOCKHOLDERS' EQUITY     Table 15                            YEAR TO DATE AVERAGE BALANCE SHEET (Dollars in thousands)     March 31, March 31,  December December December 31,                                                 31,      31,                           2014      2013       2013     2012     2011 Earning assets:                                                Loans                      $605,682 $634,620 $612,819 $642,200  $626,275 Tax exempt securities      86,681    88,714    92,854    81,714     52,467 Taxable securities         157,936   155,727   157,486   135,615    130,898 Interest bearing due from  65,179    42,672    43,397    48,712     64,399 banks Average earning assets     915,478   921,733   906,556   908,241    874,039                                                                 Cash and DFB               10,212    9,397     10,570    10,125     2,251 Bank premises              11,197    9,951     10,338    9,567      9,489 Other assets               30,426    33,961    26,838    24,249     21,421 Average total assets       $967,313 $975,042 $954,302 $952,182  $907,200                                                                 Interest bearing                                                 liabilities: Demand - interest bearing  $267,428 $234,445 $244,125 $203,342  $157,696 Savings deposits           91,406    90,689    92,502    89,789     91,876 Certificates of deposit    259,523   257,131   249,500   285,574    296,381 Repurchase Agreements      0         13,993    5,780     14,246     14,805 Other Borrowings           90,465    151,964   125,144   125,839    130,933 Average interest bearing   708,822   748,222   717,051   718,790    691,691 liabilities                                                                 Demand - noninterest       132,495   114,476   126,017   115,091    100,722 bearing Other liabilities          23,013    2,051     5,041     7,033      6,679                                                                 Shareholders' equity       102,983   110,293   106,193   111,268    108,108 Average liabilities &      $967,313 $975,042 $954,302 $952,182  $907,200 equity   About Bank of Commerce Holdings  Bank of Commerce Holdings is a bank holding company headquartered in Redding, 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 commercial banking and financial services through four offices located in Northern California. The Bank opened on October 22, 1982. The Company's common stock is listed on the NASDAQ Global Market and trades under the symbol "BOCH".  Investment firms making a market in BOCH       stock are:                                               Raymond James Financial                      Sandler O'Neill + Partners, L.P. John T. Cavender                             Brian Sullivan 555 Market Street                             1251 Avenue of the Americas, 6th                                               Floor San Francisco, CA 94105                      New York, NY 10022 (800) 346-5544                                (212) 466-8022                                                                                             McAdams Wright Ragen, Inc.                    Stifel Nicolaus Joey Warmenhoven                              Perry Wright 1211 SW Fifth Avenue                          1255 East Street #100 Suite 1400                                    Redding, CA 96001 Portland, OR 97204                           (530) 244-7199 (866) 662-0351                                                                                                                             FIG Partners                                   Mike Hedrei                                    1175 Peachtree Street NE #100                  Colony Square Suite 2250                       Atlanta, GA 30361                             (212) 899-5217                                  CONTACT: Randall S. Eslick, President          and Chief Executive Officer          Telephone Direct (530) 722-3900          Samuel D. Jimenez, Executive Vice President          and Chief Operating Officer and Chief Financial Officer          Telephone Direct (530) 722-3952          Andrea Schneck, Vice President          and Senior Administrative Officer          Telephone Direct (530) 722-3959  
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