Bank of Commerce Holdings Announces Results for the Fourth Quarter of 2020

Friday, 22. January 2021 15:00

SACRAMENTO, Calif., Jan. 22, 2021 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.764 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter and year ended December 31, 2020. Net income for the quarter ended December 31, 2020 was $5.1 million or $0.30 per share – diluted, compared with net income of $4.4 million or $0.24 per share – diluted for the same period of 2019. Net income for the year ended December 31, 2020 was $14.2 million or $0.83 per share – diluted, compared with net income of $15.0 million or $0.83 per share – diluted for the same period of 2019.

Significant Items for the fourth quarter of 2020:

  • COVID-19 loan deferrals outstanding declined to $9.5 million at December 31, 2020 as borrowers resumed making payments compared to deferral balances of $38.6 million and $123.3 million at September 30, 2020 and June 30, 2020, respectively.
  • 119 PPP loans totaling $32.7 million (20%) have been forgiven by the SBA or repaid by the borrower, resulting in $664 thousand of accelerated fee income.
  • COVID-19 credit concerns have moderated and no provision for loan and lease losses was required during the fourth quarter.

Randall S. Eslick, President and CEO commented: “Looking back on 2020, I could not be more proud of the accomplishments of our dedicated employees.  Despite the rollercoaster that was 2020, the year was unexpectedly positive for our company.  We supported our employees, customers and communities through the pandemic; we saw substantial growth in loans and deposits; and we ended the year delivering solid returns to our investors. Our company is well positioned for future success.” 

Financial highlights for the year ended December 31, 2020:

  • Net income of $14.2 million was a decrease of $797 thousand (5%) from $15.0 million earned during the prior year. Earnings of $0.83 per share – diluted was unchanged compared to the prior year and reflects the impact of the following:
    • 1.5 million shares of common stock repurchased between October of 2019 and April of 2020.
    • $5.3 million provision for loan and lease losses for the current year.
    • $1.1 million in non-recurring costs during the first quarter of 2020 associated with the termination of a technology management services contract and a severance agreement; both previously announced.
    • $2.7 million in non-recurring costs recorded during the year ended December 31, 2019 associated with our January 31, 2019 acquisition of Merchants National Bank of Sacramento and the name change of our subsidiary bank.
  • Net interest income increased $1.9 million (4%) to $55.5 million compared to $53.5 million in the prior year.
  • Net interest margin declined to 3.60% compared to 3.94% in the prior year.
  • Return on average assets decreased to 0.86% compared to 1.03% in the prior year.
  • Return on average equity decreased to 8.27% compared to 9.09% in the prior year.
  • Average loans totaled $1.149 billion, an increase of $129 million (13%) compared to average loans in the prior year.
  • Average earning assets totaled $1.539 billion, an increase of $178 million (13%) compared to average earning assets in the prior year.
  • Average deposits totaled $1.423 billion, an increase of $179 million (14%) compared to average deposits in the prior year.
    • Average non-maturing deposits totaled $1.281 billion, an increase of $197 million (18%) compared to the prior year.
    • Average certificates of deposit totaled $142.1 million, a decrease of $18.5 million (12%) compared to the prior year.
  • The Company’s efficiency ratio was 58.8% compared to 64.5% in the prior year.
    • The Company’s efficiency ratio of 58.8% for 2020 includes $1.1 million of non-recurring costs. The efficiency ratio excluding these costs was 56.9%.
    • The Company’s efficiency ratio of 64.5% for 2019 includes $2.7 million of non-recurring costs associated with our acquisition of Merchants and name change of our subsidiary bank. The efficiency ratio excluding these non-recurring costs is 59.9%.
  • Nonperforming assets at December 31, 2020 totaled $7.0 million or 0.40% of total assets, an increase of $1.4 million (24%) since December 31, 2019. The increase in nonperforming assets results primarily from two commercial loans totaling $1.4 million and a $640 thousand commercial real estate loan, all of which are well secured, that were placed on nonaccrual status during the year ending December 31, 2020.
  • Book value per common share was $10.58 at December 31, 2020 compared to $9.62 at December 31, 2019.
  • Tangible book value per common share was $9.64 at December 31, 2020 compared to $8.71 at December 31, 2019.

Financial highlights for the fourth quarter of 2020:

  • Net income of $5.1 million was an increase of $703 thousand (16%) from $4.4 million earned during the same period in the prior year. Earnings of $0.30 per share – diluted was an increase of $0.06 (25%) per share from $0.24 per share – diluted earned during the same period in the prior year and reflects the impact of the following:
    • 1.5 million shares of common stock repurchased between October of 2019 and April of 2020.
  • Net interest income increased $1.3 million (9%) to $14.6 million compared to $13.3 million for the same period in the prior year.
  • Net interest margin declined to 3.46% compared to 3.80% for the same period in the prior year.
  • Return on average assets decreased to 1.14% compared to 1.16% for the same period in the prior year.
  • Return on average equity increased to 11.56% compared to 10.06% for the same period in the prior year.
  • Average loans totaled $1.173 billion, an increase of $141 million (14%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.675 billion, an increase of $284 million (20%) compared to the same period in the prior year.
  • Average deposits totaled $1.555 billion, an increase of $273 million (21%) compared to the same period in the prior year.
    • Average non-maturing deposits totaled $1.417 billion, an increase of $288 million (26%) compared to the same period in the prior year.
    • Average certificates of deposit totaled $138.4 million, a decrease of $14.8 million (10%) compared to the same period in the prior year.
  • The Company’s efficiency ratio was 54.8% compared to 58.7% for the same period in the prior year.
  • Nonperforming assets at December 31, 2020 totaled $7.0 million or 0.40% of total assets, a decrease of $1.1 million (53% annualized) since September 30, 2020. The decrease in nonperforming assets was due to a $1.1 million commercial real estate loan that was placed on nonaccrual status in the second quarter of 2020 and paid off during the fourth quarter of 2020.
  • Book value per common share was $10.58 at December 31, 2020 compared to $10.32 at September 30, 2020.
  • Tangible book value per common share was $9.64 at December 31, 2020 compared to $9.38 at September 30, 2020.

Impact of COVID-19:

  • At December 31, 2020, we have 487 loans totaling $130.8 million in the Small Business Administration’s Paycheck Protection Program (“PPP”) compared to 606 loans totaling $163.5 million at September 30, 2020. Substantially all of the loans were made to existing customers and were funded under the two-year PPP loan program.
  • We have experienced significant increases in deposit balances during 2020. All PPP loan funds were deposited into customer accounts at our bank and customer behavior has emphasized savings during the economic slow down.
  • Organic loan growth continues to be slow as we maintain credit underwriting discipline in the current economic environment.
  • For the six-month period, from April through September, SBA made principal and interest payments on all our SBA 7(a) loans. In October, borrowers resumed responsibility for making their payments.
  • After considering qualitative and quantitative factors, management determined that the Company’s goodwill was not impaired at December 31, 2020.
  • At December 31, 2020, our workforce totaled 212 employees of which 107 are working remotely.
  • All of our branch offices remain open, although they are operating under a reduced schedule. Our pandemic response team is continuing to modify and enhance our workforce and customer protection as additional information or requirements are promulgated by the CDC and the state of California.

Forward-Looking Statements

Bank of Commerce Holdings wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995. This news release includes statements by the Company, which describe management’s expectations and developments, which may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21B of the Securities Act of 1934, as amended. Future events are difficult to predict, and the expectations described above are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in the Company's public filings, factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) local, national and international economic conditions are less favorable than expected or have a more direct and pronounced effect on the Company than expected and adversely affect the Company's ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new banks and/or branches are lower than expected; (4) our concentration in lending tied to real estate exposes us to the adverse effects of material increases in interest rates, declines in the general economy, tightening credit markets or declines in real estate values; (5) competitive pressure among financial institutions increases significantly; (6) legislation or regulatory requirements or changes adversely affect the businesses in which the Company is engaged; and (7) technological changes could expose us to new risks.

                     
TABLE 1 
SELECTED FINANCIAL INFORMATION - UNAUDITED 
(dollars 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 2020  2019  2020 2020  2019 
Net income $5,072  $4,369  $4,329  $14,164  $14,961 
Average total assets $1,774,937  $1,492,643  $1,704,116  $1,640,519  $1,458,112 
Average total earning assets $1,674,544  $1,390,446  $1,601,436  $1,538,605  $1,360,325 
Average shareholders' equity $174,520  $172,385  $171,433  $171,287  $164,642 
                     
Selected performance ratios                    
Return on average assets  1.14%  1.16%  1.01%  0.86%  1.03%
Return on average equity  11.56%  10.06%  10.05%  8.27%  9.09%
Efficiency ratio  54.8%  58.7%  54.8%  58.8%  64.5%
                     
Share and per share amounts                    
Weighted average shares - basic (1)  16,663   18,068   16,660   16,918   17,956 
Weighted average shares - diluted (1)  16,731   18,150   16,696   16,963   18,024 
Earnings per share - basic $0.30  $0.24  $0.26  $0.84  $0.83 
Earnings per share - diluted $0.30  $0.24  $0.26  $0.83  $0.83 
                     
  At December 31,   At September 30,   
Share and per share amounts 2020  2019  2020      
Common shares outstanding (2)  16,801   18,137   16,792         
Book value per common share (2) $10.58  $9.62  $10.32         
Tangible book value per common share (2)(3) $9.64  $8.71  $9.38         
                     
Capital ratios (4)                   
Bank of Commerce Holdings                   
Common equity tier 1 capital ratio  13.12%  13.19%  12.61%        
Tier 1 capital ratio  13.97%  14.04%  13.44%        
Total capital ratio  16.06%  15.97%  15.53%        
Tier 1 leverage ratio  9.46%  11.30%  9.60%        
Tangible common equity ratio (5)  9.27%  10.80%  9.13%        
                     
Merchants Bank of Commerce                    
Common equity tier 1 capital ratio  14.58%  14.39%  14.01%        
Tier 1 capital ratio  14.58%  14.39%  14.01%        
Total capital ratio  15.83%  15.48%  15.26%        
Tier 1 leverage ratio  9.86%  11.58%  9.99%        
                     
(1) Excludes unvested restricted shares issued in accordance with the Company's equity incentive plan, as they are non-participative in dividends or voting rights.
(2) Includes unvested restricted shares issued in accordance with the Company's equity incentive plan.
(3) Book value per share is computed by dividing total shareholders’ equity by shares outstanding. Tangible book value per share is computed by dividing total shareholders’ equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.
(4) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject.
(5) Management believes the tangible common equity ratio is a useful measure of capital adequacy because it provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the capital of the Company and the ability of the Company to absorb potential losses. The tangible common equity ratio is calculated as total shareholders' equity less goodwill and core deposit intangible, net divided by total assets less goodwill and core deposit intangible, net.


BALANCE SHEET OVERVIEW

As of December 31, 2020, the Company had total consolidated assets of $1.764 billion, gross loans of $1.140 billion, allowance for loan and lease losses (“ALLL”) of $17 million, total deposits of $1.543 billion, and shareholders’ equity of $178 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(dollars in thousands)
                        
 At December 31,       At September 30,
   % of    % of  Change   % of
 2020  Total 2019  Total Amount % 2020  Total
Commercial$115,559  10% $141,197  14% $(25,638) (18)% $121,025  10%
Paycheck protection program 130,814  11        130,814  100 %  163,493  14 
Real estate - construction and land development 44,549  4   26,830  3   17,719  66 %  40,289  3 
Real estate - commercial non-owner occupied 512,832  45   493,920  48   18,912  4 %  538,079  45 
Real estate - commercial owner occupied 210,155  18   218,833  21   (8,678) (4)%  210,455  17 
Real estate - residential - ITIN 29,035  3   33,039  3   (4,004) (12)%  30,071  2 
Real estate - residential - 1-4 family mortgage 55,925  5   63,661  6   (7,736) (12)%  57,867  5 
Real estate - residential - equity lines 18,894  2   22,099  2   (3,205) (15)%  20,296  2 
Consumer and other 21,969  2   33,324  3   (11,355) (34)%  24,490  2 
Gross loans 1,139,732  100%  1,032,903  100%  106,829  10 %  1,206,065  100%
Deferred (fees) and costs 229      2,162      (1,933)     (1,037)   
Loans, net of deferred fees and costs 1,139,961      1,035,065      104,896      1,205,028    
Allowance for loan and lease losses (16,910)     (12,231)     (4,679)     (16,873)   
Net loans$1,123,051     $1,022,834     $100,217     $1,188,155    
                        
Average loans during the quarter$1,172,705     $1,031,702     $141,003  14 % $1,209,277    
Average loans during the quarter (excluding PPP)$1,024,324     $     $1,024,324  100 % $1,046,187    
Average yield on loans during the quarter 4.59 %    4.86 %    (0.27) (6)%  4.42 %  
Average yield on loans during the quarter (excluding PPP) 4.67 %    4.86 %    (0.19) (4)%  4.75 %  
Average yield on loans year to date 4.57 %    4.95 %    (0.38) (8)%  4.56 %  
Average yield on loans year to date (excluding PPP) 4.75 %    4.95 %    (0.20) (4)%  4.77 %  

The Company recorded gross loan balances of $1.140 billion at December 31, 2020, compared with $1.033 billion and $1.206 billion at December 31, 2019 and September 30, 2020, respectively, an increase of $107 million and a decrease of $66 million, respectively.

The average yield on loans during the quarter was 4.59% compared to 4.86% and 4.42% for the quarters ended December 31, 2019 and September 30, 2020, respectively. Yields were impacted by PPP loans, which averaged $148.4 million and yielded 4.07% during the current quarter and $163.1 million and yielded 2.31% during the prior quarter.

Gross loan balances in the table above include a net fair value discount for loans acquired from Merchants of $920 thousand, $1.7 million and $1.1 million at December 31, 2020, December 31, 2019 and September 30, 2020, respectively. We recorded $141 thousand, $188 thousand and $233 thousand in accretion of the discount for these loans during the quarters ended December 31, 2020, December 31, 2019 and September 30, 2020, respectively.

We have 487 PPP loans totaling $130.8 million at December 31, 2020. During the fourth quarter of 2020, 119 PPP loans totaling $32.7 million were repaid. Loan fee income net of loan origination costs is earned over the 24-month life of the loans as a part of the loan yield. When a PPP loan is repaid prior to maturity, all unamortized fees and costs associated with the loan are accelerated into income. During the current quarter, we recognized $664 thousand in accelerated fee income. At December 31, 2020, net fees totaling $2.2 million remain to be earned in future quarters. The following tables provide additional information on the PPP loans by industry and by loan balance at December 31, 2020.

      
TABLE 3
PPP LOANS BY INDUSTRY - UNAUDITED
(dollars in thousands)
      
  At December 31, 2020
  Number Balance
Construction 75 $55,644
Healthcare and Social Assistance 81  15,520
Professional, Scientific and Tech Services 58  7,708
Accommodation and Food Services 47  8,800
Admin, Support, Waste Management and Remediation Services 15  4,988
Primary Metal Manufacturing 14  5,037
Retail Trade 49  6,710
Other 148  26,407
Total 487 $130,814


TABLE 4
PPP LOANS BY LOAN SIZE - UNAUDITED
(dollars in thousands)
        
 At December 31, 2020
 Balance Number Average Loan Size
$50,000 or less$4,220 181 $23
$50,001 to $150,000 11,884 143  83
$150,001 to $350,000 19,150 85  225
$350,001 to $1,999,999 52,004 66  788
$2,000,000 or greater 43,556 12  3,630
Total$130,814 487 $269

During the third quarter of 2020, the SBA began accepting applications for PPP loan forgiveness. The bank has 60 days to review and approve an application before submitting it to SBA, and the SBA then has 90 days to process it for forgiveness. The following table presents the status of our loans in the forgiveness process.

TABLE 5
PPP LOANS FORGIVENESS APPLICATION STATUS - UNAUDITED
(dollars in thousands)
                
 At December 31, 2020 At September 30, 2020
 Balance Number Average Loan Size Balance Number Average Loan Size
Borrower has not started application$33,459 185 $181 $78,930 390 $202
Borrower is working on application 31,277 136  230  38,624 123  314
Borrower has completed application and the bank is reviewing it 43,872 105  418  32,400 73  444
Bank has approved application and submitted it to the SBA 22,087 44  502  13,539 20  677
Remaining balance for loans partially repaid 119 17  7     
PPP loans not fully repaid 130,814 487  269  163,493 606  270
                
Repayments (1) 32,679 119  275     
Total PPP loans originated by bank$163,493 606 $270 $163,493 606 $270
                
(1) Includes 119 loans fully repaid by SBA or the borrower and $3.2 million of partial repayment for 17 borrowers who participated in the SBA Economic Injury Disaster Loan ("EIDL") program.


TABLE 6
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(dollars in thousands)
                         
  At December 31,        At September 30,
    % of    % of  Change   % of
  2020 Total 2019 Total Amount % 2020 Total
Cash and due from banks $19,875 4% $21,338 6% $(1,463) (7)% $22,884 5%
Interest-bearing deposits in other banks  87,111 16   59,266 16   27,845  47 %  104,999 23 
Total cash and cash equivalents  106,986 20   80,604 22   26,382  33 %  127,883 28 
                         
Investment securities:                        
U.S. government and agencies  32,994 6   38,733 11   (5,739) (15)%  31,811 7 
Obligations of state and political subdivisions  108,366 20   42,098 11   66,268  157 %  91,863 20 
Residential mortgage backed securities and collateralized mortgage obligations  240,478 42   180,835 49   59,643  33 %  165,693 35 
Corporate securities      2,966 1   (2,966) (100)%    
Commercial mortgage backed securities  28,074 5   19,307 5   8,767  45 %  19,576 4 
Other asset backed securities  36,968 7   3,011 1   33,957  1,128 %  28,089 6 
Total investment securities - AFS  446,880 80   286,950 78   159,930  56 %  337,032 72 
                         
Total cash, cash equivalents and investment securities $553,866 100% $367,554 100% $186,312  51 % $464,915 100%
Average yield on interest-bearing due from banks during the quarter  0.12%    1.66%    (1.54)     0.12%  
Average yield on investment securities during the quarter - nominal  2.06%    2.61%    (0.55)     2.33%  
Average yield on investment securities during the quarter - tax equivalent  2.19%    2.71%    (0.52)     2.50%  

As of December 31, 2020, we maintained noninterest-bearing cash positions of $19.9 million and interest-bearing deposits of $87.1 million at the Federal Reserve Bank and correspondent banks. Management has been challenged to invest the rapidly increasing liquidity generated by growth in deposits and loan repayments. During the fourth quarter of 2020, we continued the deployment of excess cash into our investment portfolio.

Investment securities totaled $446.9 million at December 31, 2020, compared with $287.0 million and $337.0 million at December 31, 2019 and September 30, 2020, respectively. Our investment portfolio has shortened in duration considerably over the past year, which is now allowing us to add longer-term securities with a better yield without extending the duration of the total portfolio beyond our risk appetite. During the fourth quarter of 2020, we purchased securities with a par value of $133.3 million and weighted average yield of 1.49% (1.52% tax equivalent). Investment purchases were comprised primarily of longer duration municipal bonds and lower coupon, moderate-term mortgage backed securities. No securities were sold during the fourth quarter.

Average securities balances for the quarters ended December 31, 2020, December 31, 2019 and September 30, 2020 were $377.4 million, $277.6 million and $296.8 million, respectively. Weighted average yields on securities balances for those same periods were 2.06%, 2.61% and 2.33%, respectively.

At December 31, 2020, our net unrealized gains on available-for-sale investment securities were $10.6 million compared with net unrealized gains of $3.7 million and $10.4 million at December 31, 2019 and September 30, 2020, respectively. The changes in net unrealized gains were due to changes in market interest rates.

TABLE 7
DEPOSITS BY TYPE - UNAUDITED
(dollars in thousands)
                        
 At December 31,        At September 30,
   % of    % of   Change   % of
 2020 Total 2019 Total Amount % 2020 Total
Demand - noninterest-bearing$541,033 35% $432,680 34% $108,353  25 % $542,060 36%
Demand - interest-bearing 290,251 19   239,258 19   50,993  21 %  280,370 18 
Money market 425,121 28   307,559 24   117,562  38 %  403,785 27 
Total demand 1,256,405 82   979,497 77   276,908  28 %  1,226,215 81 
                        
Savings 150,695 10   135,888 11   14,807  11 %  151,016 10 
Total non-maturing deposits 1,407,100 92   1,115,385 88   291,715  26 %  1,377,231 91 
                        
Certificates of deposit 135,679 8   151,786 12   (16,107) (11)%  140,900 9 
Total deposits$1,542,779 100% $1,267,171 100% $275,608  22 % $1,518,131 100%
                        

Total deposits at December 31, 2020, increased $276 million or 22% to $1.543 billion compared to December 31, 2019 and increased $24.6 million or 6% annualized compared to September 30, 2020. Total non-maturing deposits increased $291.7 million or 26% compared to the same date a year ago and increased $29.9 million or 9% annualized compared to September 30, 2020. The increase in non-maturing deposits compared to the same period one year ago was due to PPP loan program disbursements and changes in customer behavior, which is placing greater emphasis on savings. Certificates of deposit decreased $16.1 million or 11% compared to the same date a year ago and decreased $5.2 million or 15% annualized compared to September 30, 2020. These decreases reflect our decision to reduce reliance on public deposits and depositor reaction to the low interest rate environment.

The following table presents the average cost of interest-bearing deposits, all deposits and all interest-bearing liabilities for the periods indicated.

TABLE 8
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,
 2020 2020 2020 2020 2019 2019 2019 2019
Interest-bearing deposits 0.29%  0.36%  0.43%  0.53%  0.56%  0.56%  0.54%  0.49%
Interest-bearing deposits and noninterest-bearing demand 0.19%  0.23%  0.28%  0.35%  0.38%  0.38%  0.37%  0.34%
All interest-bearing liabilities 0.37%  0.44%  0.52%  0.65%  0.68%  0.68%  0.74%  0.67%
All interest-bearing liabilities and noninterest-bearing demand 0.24%  0.29%  0.34%  0.43%  0.46%  0.46%  0.52%  0.46%

Equity

As detailed in Table 1, capital ratios remain appropriate for the Company’s risk profile.

In late 2019, we announced a program to repurchase 1.0 million common shares which was later increased to 1.5 million common shares. Between October of 2019 and April of 2020, all 1.5 million shares were repurchased at a total cost of $13.6 million including commissions, or an average of $9.11 per share.

During the fourth quarter of 2020, we announced a new share repurchase program to repurchase up to 1.0 million shares of common stock over a period ending December 31, 2021. As of December 31, 2020, no shares have been repurchased.

INCOME STATEMENT OVERVIEW

TABLE 9
SUMMARY INCOME STATEMENT - UNAUDITED
(dollars in thousands, except per share data)
                     
 For The Three Months Ended
 December 31,  Change September 30, Change
 2020 2019 Amount % 2020 Amount %
Interest income$15,519 $14,808 $711  5 % $15,218 $301  2 %
Interest expense 963  1,494  (531) (36)%  1,088  (125) (11)%
Net interest income 14,556  13,314  1,242  9 %  14,130  426  3 %
Provision for loan and lease losses        %  1,100  (1,100) (100)%
Noninterest income 1,016  1,021  (5) 0 %  1,189  (173) (15)%
Noninterest expense 8,534  8,421  113  1 %  8,390  144  2 %
Income before provision for income taxes 7,038  5,914  1,124  19 %  5,829  1,209  21 %
Provision for income taxes 1,966  1,545  421  27 %  1,500  466  31 %
Net income$5,072 $4,369 $703  16 % $4,329 $743  17 %
                     
Earnings per share - basic$0.30 $0.24 $0.06  25 % $0.26 $0.04  15 %
Weighted average shares - basic 16,663  18,068  (1,405) (8)%  16,660  3   %
Earnings per share - diluted$0.30 $0.24 $0.06  25 % $0.26 $0.04  15 %
Weighted average shares - diluted 16,731  18,150  (1,419) (8)%  16,696  35   %
Dividends declared per common share$0.06 $0.05 $0.01  20 % $0.05 $0.01  20 %


Fourth Quarter of 2020 Compared With The Fourth Quarter of 2019

Net income for the fourth quarter of 2020 increased $703 thousand compared to the fourth quarter of 2019. In the current quarter, net interest income was $1.2 million higher. This positive change was partially offset by noninterest income that was $5 thousand lower, noninterest expense that was $113 thousand higher and a provision for income taxes that was $421 thousand higher.

Net Interest Income

Net interest income increased $1.2 million compared to the same period a year ago.

Interest income for the fourth quarter of 2020 increased $711 thousand or 5% to $15.5 million.

  • During the fourth quarter of 2020, we recognized $664 thousand in accelerated fee income on PPP loans forgiven or repaid during the quarter. These accelerated loan fees increased the average yield on loans for the fourth quarter of 2020 by 23 basis points.
  • PPP loans had an average balance of $148.4 million and yield of 4.07% (2.29% excluding accelerated fee income).
  • Excluding PPP loans, interest and fees on loans decreased $629 thousand due to a $7.4 million decrease in average loan balances and a 19 basis point decrease in average yield.
  • Interest on investment securities increased $126 thousand due to a $99.8 million increase in average securities balances partially offset by a 55 basis point decrease in average yield.
  • Interest on interest-bearing deposits due from banks decreased $304 thousand due to a 155 basis point decrease in average yield that was partially offset by a $43.3 million increase in average interest-bearing deposit balances. During 2020, in response to the economic effects of the COVID-19 pandemic, the Federal Reserve cut interest rates by 150 to 175 basis points.

Interest expense for the fourth quarter of 2020 decreased $531 thousand or 36% to $963 thousand.

  • Interest expense on interest-bearing deposits decreased $477 thousand. Average interest-bearing demand and savings deposit balances increased $163.9 million, while average certificate of deposit balances decreased $14.8 million. The average rate paid on interest-bearing deposits decreased 27 basis points.
  • Average FHLB borrowings were $7.1 million in the current quarter. The borrowings bear no interest under a program offered by the FHLB during the second quarter of 2020 in response to COVID-19 liquidity concerns. There were no borrowings during the same period a year ago.
  • Interest expense on other term debt decreased $4 thousand. The average debt balance was essentially unchanged, while the average rate paid decreased 18 basis points.
  • Interest expense on junior subordinated debentures decreased $50 thousand. The average debt balance was unchanged, while the average rate paid decreased 192 basis points.

Provision for Loan and Lease Losses

Most asset quality concerns from earlier in 2020 have moderated. Net loan recoveries were $36 thousand for the current quarter compared to net loan charge-offs of $54 thousand during the same period a year ago. Most COVID-19 loan payment deferrals have ended with no negative impact on delinquencies. Classified assets actually decreased during the current quarter due to a repayment of $7.2 million from one commercial real estate borrower. As a result, no provision for loan and lease losses was necessary during the current quarter. There was no provision for loan and lease losses in the fourth quarter of 2019. A more in depth discussion of our provision is provided following Table 11.

Noninterest Income

Noninterest income for the three months ended December 31, 2020 decreased $5 thousand compared to the same period a year previous.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2020 increased $113 thousand compared to the same period a year previous. Increases in noninterest expense included the following items:

  • $360 thousand increase in salaries and related benefits.
    • During the current quarter, we recognized increased incentive accruals and we hired three relationship managers to open a loan production office in Santa Rosa.
  • $105 thousand increase in FDIC insurance premiums.
    • During 2019, we benefited from a Small Bank Assessment Credit from the FDIC.

These increases were partially offset by $231 thousand savings in network infrastructure costs and a broad array of pandemic induced savings in areas such as travel, conferences and business development.

The Company’s efficiency ratio was 54.8% for the fourth quarter of 2020. The ratio during the same period in 2019 was 58.7%.

Income Tax Provision

For the three months ended December 31, 2020, our income tax provision of $2.0 million on pre-tax income of $7.0 million was an effective tax rate of 27.9%. The tax provision for the fourth quarter of the prior year was $1.5 million on pre-tax income of $5.9 million for an effective rate of 26.1%.

  • The tax provision of $2.0 million included $132 thousand applicable to earlier quarters, as deductible operating losses and tax credits from our low-income housing partnerships were lower than we anticipated. The effective tax rate excluding this $132 thousand was 26.1%.

Fourth Quarter of 2020 Compared With The Third Quarter of 2020

Net income for the fourth quarter of 2020 increased $743 thousand compared to the third quarter of 2020. In the current quarter, net interest income was $426 thousand higher and the provision for loan and lease losses was $1.1 million lower. These positive changes were partially offset by noninterest income that was $173 thousand lower, noninterest expense that was $144 thousand higher and a provision for income taxes that was $466 thousand higher.

Net Interest Income

Net interest income increased $426 thousand over the prior quarter.

Interest income for the three months ended December 31, 2020 increased $301 thousand or 2% to $15.5 million.

  • During the fourth quarter of 2020, we recognized $664 thousand in accelerated fee income on PPP loans forgiven or repaid during the quarter. These accelerated loan fees increased the average yield on loans for the fourth quarter of 2020 by 23 basis points.
  • PPP loans had an average balance of $148.4 million and yield of 4.07% (2.29% excluding accelerated fee income).
  • Excluding PPP loans, interest and fees on loans decreased $485 thousand due to a $21.9 million decrease in average loan balances and an 8 basis point decrease in average yield.
  • Interest on investment securities increased $210 thousand due to an $80.6 million increase in average security balances partially offset by a 28 basis point decrease in average yield.
  • Interest on interest-bearing deposits due from banks increased $7 thousand due to a $29.0 million increase in average balances partially offset by a 1 basis point decrease in average yield.

Interest expense for the three months ended December 31, 2020 decreased $125 thousand or 11% to $963 thousand.

  • Interest expense on interest-bearing deposits decreased $117 thousand. Average interest-bearing demand and savings deposit balances increased $50.6 million, while average certificates of deposit decreased $1.4 million. The average rate paid on interest-bearing deposits decreased 7 basis points.
  • Average FHLB borrowings were $7.1 million in the current quarter compared to $10.0 million in the prior quarter. The borrowings bear no interest under a program offered by the FHLB during the second quarter of 2020 in response to COVID-19 liquidity concerns.
  • Interest expense on other term debt decreased $5 thousand. The average debt balance was essentially unchanged, while the average rate paid decreased 21 basis points.
  • Interest expense on junior subordinated debentures decreased $3 thousand. The average debt balance was unchanged, while average rate paid decreased 12 basis points.

Provision for Loan and Lease Losses

Most asset quality concerns from earlier in 2020 have moderated. Net loan recoveries were $36 thousand in the current quarter compared to net loan charge-offs of $316 thousand in the prior quarter. Most COVID-19 loan deferrals ended with no negative impact on delinquencies. Classified assets actually decreased during the current quarter due to a repayment of $7.2 million on two loans from one commercial real estate borrower. Nonaccrual loans decreased by $1.1 million during the current quarter when compared to the previous quarter due to the repayment of a $1.1 million commercial real estate loan. As a result, management determined that no provision for loan and lease losses was necessary during the current quarter compared with a provision for loan and lease losses of $1.1 million in the prior quarter. A more in depth discussion of our provision is provided following Table 11.

Noninterest Income

Noninterest income for the three months ended December 31, 2020 decreased $173 thousand compared to the prior quarter. The prior quarter included a $258 thousand gain on sale of investment securities that did not recur in the current quarter.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2020 increased $144 thousand compared to the prior quarter. The increase was primarily due to an increase in accrual for incentives that was partially offset by a broad array of pandemic induced savings in areas such as travel, sponsorships, conferences and business development.

The Company’s efficiency ratio was 54.8% for both the fourth quarter of 2020 and the prior quarter.

Income Tax Provision

For the three months ended December 31, 2020, our income tax provision of $2.0 million on pre-tax income of $7.0 million was an effective tax rate of 27.9%. The income tax provision for the prior quarter of $1.5 million on pre-tax income of $5.8 million was an effective tax rate of 25.7%.

  • The tax provision of $2.0 million included $132 thousand applicable to earlier quarters, as deductible operating losses and tax credits from our low-income housing partnerships were lower than we anticipated. The effective tax rate excluding this $132 thousand was 26.1%.

Earnings Per Share

Diluted earnings per share were $0.30 for the three months ended December 31, 2020 compared with diluted earnings per share of $0.24 for the same period a year ago and diluted earnings per share of $0.26 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in Table 9 presented earlier in this press release.

TABLE 10a
NET INTEREST MARGIN - UNAUDITED
(dollars in thousands)
                            
  For The Three Months Ended
  December 31, 2020 December 31, 2019 September 30, 2020
  Average    Yield / Average    Yield / Average    Yield /
  Balance Interest(1) Rate (6) Balance Interest(1) Rate (6) Balance Interest(1) Rate (6)
Interest-earning assets:                           
Loans net of PPP (2) $1,024,324 $12,014 4.67% $1,031,702 $12,643 4.86% $1,046,187 $12,499 4.75%
PPP loans (3)  148,381  1,518 4.07%     %  163,090  949 2.31%
Taxable securities  304,242  1,484 1.94%  245,487  1,567 2.53%  228,045  1,284 2.24%
Tax-exempt securities (4)  73,207  467 2.54%  32,158  258 3.18%  68,766  457 2.64%
Interest-bearing deposits in other banks  124,390  36 0.12%  81,099  340 1.66%  95,348  29 0.12%
Average interest-earning assets  1,674,544  15,519 3.69%  1,390,446  14,808 4.23%  1,601,436  15,218 3.78%
Cash and due from banks  22,413        24,083        23,381      
Premises and equipment, net  15,162        16,049        15,365      
Goodwill  11,671        11,671        11,671      
Other intangible assets, net  4,126        4,890        4,318      
Other assets  20,128        17,121        21,408      
Average total assets $1,748,044       $1,464,260       $1,677,579      
                            
Interest-bearing liabilities:                           
Interest-bearing demand $283,213  57 0.08% $244,276  108 0.18% $279,744  71 0.10%
Money market  430,014  237 0.22%  318,127  479 0.60%  387,995  289 0.30%
Savings  151,223  53 0.14%  138,155  128 0.37%  146,074  74 0.20%
Certificates of deposit  138,380  390 1.12%  153,223  499 1.29%  139,757  420 1.20%
Federal Home Loan Bank of San Francisco borrowings  7,120   %     %  10,000   %
Other borrowings net of unamortized debt issuance costs  9,999  179 7.12%  9,952  183 7.30%  9,988  184 7.33%
Junior subordinated debentures  10,310  47 1.81%  10,310  97 3.73%  10,310  50 1.93%
Average interest-bearing liabilities  1,030,259  963 0.37%  874,043  1,494 0.68%  983,868  1,088 0.44%
Noninterest-bearing demand  552,601        428,420        531,459      
Other liabilities  17,557        17,795        17,356      
Shareholders’ equity  174,520        172,385        171,433      
Average liabilities and shareholders’ equity $1,774,937       $1,492,643       $1,704,116      
Net interest income and net interest margin (5)    $14,556 3.46%    $13,314 3.80%    $14,130 3.51%
                            
(1) Interest income on loans includes deferred fees and costs of approximately $85 thousand, $224 thousand, and $240 thousand for the three months ended December 31, 2020 and 2019 and September 30, 2020, respectively. Interest income on PPP loans includes $1.1 million and $538 thousand of fee income for the three months ended December 31, 2020 and September 30, 2020, respectively.
(2) Loans net of PPP includes average nonaccrual loans of $7.2 million, $11.4 million and $6.6 million for the three months ended December 31, 2020 and 2019 and September 30, 2020, respectively.
(3) PPP loans represents average gross loans and excludes deferred fees and costs.
(4) Interest income and yields on tax-exempt securities are not presented on a taxable equivalent basis.
(5) Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Net interest income for the three months ended December 31, 2020 and 2019 and September 30, 2020 included $141 thousand, $188 thousand and $233 thousand in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by five, seven and seven basis points, respectively. Net interest income for the three months ended December 31, 2020 included $1.5 million in interest and fee income from PPP loans with an average balance of $148.4 million for the quarter, which increased the net interest margin by six basis points.
(6) 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 10b
NET INTEREST MARGIN - UNAUDITED
(dollars in thousands)
                   
  For The Twelve Months Ended
  December 31, 2020 December 31, 2019
  Average    Yield / Average    Yield /
  Balance Interest(1) Rate (6) Balance Interest(1) Rate (6)
Interest-earning assets:                  
Loans net of PPP (2) $1,038,069 $49,262 4.75% $1,020,801 $50,534 4.95%
PPP loans (3)  111,306  3,280 2.95%     %
Taxable securities  245,336  5,679 2.31%  246,723  6,673 2.70%
Tax-exempt securities (4)  58,912  1,618 2.75%  38,706  1,244 3.21%
Interest-bearing deposits in other banks  84,982  240 0.28%  54,095  1,112 2.06%
Average interest-earning assets  1,538,605  60,079 3.90%  1,360,325  59,563 4.38%
Cash and due from banks  22,339        22,806      
Premises and equipment, net  15,426        15,598      
Goodwill  11,671        10,758      
Other intangible assets, net  4,412        4,807      
Other assets  20,966        14,982      
Average total assets $1,613,419       $1,429,276      
                   
Interest-bearing liabilities:                  
Interest-bearing demand $264,652  313 0.12% $242,516  480 0.20%
Money market  372,939  1,246 0.33%  304,340  1,599 0.53%
Savings  142,857  340 0.24%  136,733  493 0.36%
Certificates of deposit  142,067  1,741 1.23%  160,550  1,977 1.23%
Federal Home Loan Bank of San Francisco borrowings  8,347  5 0.06%  9,644  247 2.56%
Other borrowings net of unamortized debt issuance costs  9,981  731 7.32%  10,895  806 7.40%
Junior subordinated debentures  10,310  248 2.41%  10,310  426 4.13%
Average interest-bearing liabilities  951,153  4,624 0.49%  874,988  6,028 0.69%
Noninterest-bearing demand  500,862        400,588      
Other liabilities  17,217        17,894      
Shareholders’ equity  171,287        164,642      
Average liabilities and shareholders’ equity $1,640,519       $1,458,112      
Net interest income and net interest margin (5)    $55,455 3.60%    $53,535 3.94%
                   
(1) Interest income on loans includes deferred fees and costs of approximately $720 thousand and $657 thousand for the years ended December 31, 2020 and 2019, respectively. Interest income on PPP loans includes $2.2 million of fee income for the year ended December 31, 2020.
(2) Loans net of PPP includes average nonaccrual loans of $6.2 million and $11.7 million for the years ended December 31, 2020 and 2019, respectively.
(3) PPP loans represents average gross loans and excludes deferred fees and costs.
(4) Interest income and yields on tax-exempt securities are not presented on a taxable equivalent basis.
(5) Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Net interest income for the years ended December 31, 2020 and 2019 included $753 thousand and $620 thousand, respectively, in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by six basis points. Net interest income for the year ended December 31, 2020 included $3.3 million in interest and fee income from PPP loans with an average balance of $111.3 million for the year ended December 31, 2020, which decreased the net interest margin by five basis points.
(6) 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 11 
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED 
(dollars in thousands) 
                    
 For The Three Months Ended
 December 31,  September 30, June 30, March 31, December 31,
 2020 2020 2020 2020 2019
ALLL beginning balance$16,873   $16,089   $15,067   $12,231   $12,285  
Provision for loan and lease losses     1,100    1,300    2,850      
Loans charged-off (86)   (502)   (356)   (169)   (174) 
Loan loss recoveries 123    186    78    155    120  
ALLL ending balance$16,910   $16,873   $16,089   $15,067   $12,231  
                    
 At December 31,  At September 30, At June 30, At March 31, At December 31,
 2020 2020 2020 2020 2019
Nonaccrual loans:                   
Commercial$1,535   $1,549   $7   $39   $61  
Real estate - commercial non-owner occupied     1,062    1,062          
Real estate - commercial owner occupied 3,734    3,750    3,647    3,103    3,103  
Real estate - residential - ITIN 1,585    1,574    1,738    1,878    2,221  
Real estate - residential - 1-4 family mortgage 141    145    180    184    191  
Consumer and other 18    18    37    39    40  
Total nonaccrual loans 7,013    8,098    6,671    5,243    5,616  
Accruing troubled debt restructured loans:                   
Commercial 498    531    592    592    595  
Real estate - residential - ITIN 3,466    3,597    3,642    3,891    3,957  
Real estate - residential - equity lines 126    131    221    226    231  
Total accruing troubled debt restructured loans 4,090    4,259    4,455    4,709    4,783  
                    
All other accruing impaired loans                   
                    
Total impaired loans$11,103   $12,357   $11,126   $9,952   $10,399  
                    
Gross loans outstanding at period end$1,139,732   $1,206,065   $1,206,340   $1,052,245   $1,032,903  
                    
Impaired loans to gross loans 0.97 %  1.02 %  0.92 %  0.95 %  1.01 %
Nonaccrual loans to gross loans 0.62 %  0.67 %  0.55 %  0.50 %  0.54 %
                    
Allowance for loan and lease losses as a percent of:             
Gross loans 1.48 %  1.40 %  1.33 %  1.43 %  1.18 %
Nonaccrual loans 241.12 %  208.36 %  241.18 %  287.37 %  217.79 %
Impaired loans 152.30 %  136.55 %  144.61 %  151.40 %  117.62 %


TABLE 12 
ALLOWANCE, RESERVE AND DISCOUNT - UNAUDITED 
(dollars in thousands) 
                    
 At December 31,  At September 30, At June 30, At March 31, At December 31,
 2020 2020 2020 2020 2019
ALLL$16,910  $16,873  $16,089  $15,067  $12,231 
Reserve for unfunded commitments 800   800   800   695   695 
Discount on acquired loans (1) 919   1,060   1,293   1,509   1,672 
Total allowance, reserve and discount$18,629  $18,733  $18,182  $17,271  $14,598 
                    
Gross loans$1,139,732  $1,206,065  $1,206,340  $1,052,245  $1,032,903 
PPP loans (2) 130,814   163,493   162,189       
Total gross loans net of PPP loans$1,008,918  $1,042,572  $1,044,151  $1,052,245  $1,032,903 
                    
Total allowance, reserve and discount as a percentage of total gross loans net of PPP loans (2) 1.85%  1.80%  1.74%  1.64%  1.41%
(1) Discount on acquired loans includes fair value discount for loans acquired from Merchants in January of 2019.
(2) PPP loans are fully guaranteed by SBA and no allowance, reserve or discount is provided for them.


Provision for Loan and Lease Losses

We monitor credit quality and the general economic environment to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. Our review of ALLL adequacy utilizes both quantitative and qualitative factors. The quantitative analysis relies on historical loss rates which, unfortunately, may not be indicative of potential losses related to a pandemic such as we are currently experiencing with COVID-19. In response to quantitative data deficiencies, we have placed greater reliance on qualitative factors (Q-Factors).

During the current quarter, most of our COVID-19 loan deferrals have resumed payments: nonaccrual loans decreased due to the repayment of a $1.1 million commercial real estate loan and classified assets decreased due to repayment of $7.2 million from one commercial real estate borrower. As a result of improvement in our asset quality metrics, management determined that no provision for loan and lease losses was necessary during the current quarter. We recorded $1.1 million in provision for loan and lease losses in the prior quarter and there was no provision for loan and lease loss during the same quarter a year ago. Our ALLL as a percentage of gross loans was 1.48% as of December 31, 2020 compared to 1.18% as of December 31, 2019 and 1.40% as of September 30, 2020. Excluding SBA guaranteed PPP loans our ALLL as a percentage of gross loans was 1.68% as of December 31, 2020 compared to 1.62% as of September 30, 2020.

Our ALLL methodology, adjusted for the revised Q-Factors in prior quarters and the improvements in loan quality metrics discussed above necessitated an ALLL of $16.9 million at December 31, 2020, an increase of 38% compared to our ALLL of $12.2 million at December 31, 2019. Management believes the Company’s ALLL is adequate at December 31, 2020. 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, 2020, the recorded investment in loans classified as impaired totaled $11.1 million, with a corresponding specific reserve of $192 thousand compared to impaired loans of $10.4 million with a corresponding specific reserve of $324 thousand at December 31, 2019 and impaired loans of $12.4 million, with a corresponding specific reserve of $204 thousand at September 30, 2020. The decrease in impaired loans during the current quarter was due to the repayment of a nonaccrual commercial real estate loan totaling $1.1 million during the fourth quarter of 2020.

TABLE 13
TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(dollars in thousands)
                     
  At December 31,  At September 30, At June 30, At March 31, At December 31,
  2020 2020 2020 2020 2019
Nonaccrual $2,007  $2,063  $2,194  $1,611  $1,680 
Accruing  4,090   4,259   4,455   4,709   4,783 
Total troubled debt restructurings $6,097  $6,322  $6,649  $6,320  $6,463 
                     
Troubled debt restructurings as a percentage of total gross loans  0.53%  0.52%  0.55%  0.60%  0.63%


There were no new troubled debt restructurings during the current quarter. As of December 31, 2020, we had 91 loans that were classified as troubled debt restructurings, of which 89 were performing according to their restructured terms.

Troubled Debt Restructuring Guidance

Financial institution regulators and the CARES Act have changed the treatment of short-term loan modifications for borrowers impacted by COVID-19. The change provides that modifications made in response to COVID-19, to borrowers under certain circumstances, should not be considered a troubled debt restructuring.

We have responded to the needs of our borrowers in accordance with the CARES Act and regulatory guidance to grant short-term COVID-19 related loan modifications. These modified loans are not troubled debt restructurings and are not considered to be past due or non-performing. We have granted deferrals ranging from one to six months determined on a case-by-case basis considering the nature of the business and the impact of COVID-19. For some borrowers that where initially granted a deferral of less than six months, we have granted an additional deferral period on a case-by-case basis.

Since March of 2020, we have granted 278 payment deferrals totaling $127.3 million. As of December 31, 2020 previously deferred loans totaling $115.6 million have resumed making payments or have paid off. Three loans that were previously deferred totaling $2.1 million were past due at December 31, 2020 and have been moved to nonaccrual status. Two of those loans totaling $1.4 million were made to one commercial borrower and are guaranteed under the California Capital Access Program for Small Business. The third loan for $640 thousand is a commercial real estate loan that was changed to a troubled debt restructured loan in the second quarter of 2020.

We maintain close contact with our borrowers to update our understanding of the impact of the pandemic on them, their businesses and the underlying collateral for our loans. For borrowers who continue to have been granted a loan payment deferral, we have evaluated their credit quality position and the potential for loss of principal.

The following tables present approved loan deferrals that are in effect at December 31, 2020. For the loans with payment deferrals at December 31, 2020, one borrower none of these loans received a PPP loan through our U.S. Small Business Administration (“SBA”) department.

TABLE 14a
COVID-19 LOAN DEFERRALS - UNAUDITED
(dollars in thousands)
      
  Payments Scheduled to Resume In The Three Months Ended
  March 31, 2021
  # Amount
Length of 1st deferral granted:     
3 months 4 $1,304
6 months 3  484
Length of 2nd deferral granted:     
2 months 2  714
3 months 2  3,053
Loans serviced by others (1) 71  3,959
Total 82 $9,514
(1) Loans serviced by others are small residential mortgages and consumer home improvement loans which are deferred on a short-term basis up to a maximum of six months. These loans are geographically disbursed throughout the United States and serviced by a third party.


TABLE 14b
COVID-19 LOAN DEFERRALS BY INDUSTRY - UNAUDITED
(dollars in thousands)
      
  Payments Scheduled to Resume In The Three Months Ended
  March 31, 2021
Industry: # Amount
Health care and social assistance 1 $12
Other services 1  2,032
Restaurants, bars and caterers 2  1,695
Other industries 7  1,816
Loans serviced by others (1) 71  3,959
Total 82 $9,514
(1) Loans serviced by others are small residential mortgages and consumer home improvement loans which are deferred on a short-term basis up to a maximum of six months. These loans are geographically disbursed throughout the United States and serviced by a third party.
 

The following table presents nonperforming assets at the dates indicated.

TABLE 15
NONPERFORMING ASSETS - UNAUDITED
(dollars in thousands)
                     
  At December 31,  At September 30, At June 30, At March 31, At December 31,
  2020 2020 2020 2020 2019
Total nonaccrual loans $7,013  $8,098  $6,671  $5,243  $5,616 
90 days past due and still accruing           2    
Total nonperforming loans  7,013   8,098   6,671   5,245   5,616 
                     
Other real estate owned ("OREO")  8   8   8   8   35 
Total nonperforming assets $7,021  $8,106  $6,679  $5,253  $5,651 
                     
Nonperforming loans to gross loans  0.62%  0.67%  0.55%  0.50%  0.54%
Nonperforming assets to total assets  0.40%  0.47%  0.39%  0.36%  0.38%
                     

The following table summarizes when loans are projected to reprice by year and rate index as of December 31, 2020.

TABLE 16
LOANS BY RATE INDEX AND PROJECTED REPRICING PERIOD - UNAUDITED
(dollars in thousands)
                         
 At December 31, 2020
                 Years 6      
                 Through Beyond    
Rate Index: Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Year 10 Total
Fixed $87,179 $140,831 $58,748 $29,769 $28,706 $164,817 $21,693 $531,743
Variable:                        
Prime  77,139  6,390  3,408  6,882  9,595  1,232    104,646
5 Year Treasury  51,142  65,555  58,578  75,057  109,165  54,938    414,435
7 Year Treasury  3,242  4,866  479  5,601  13,839      28,027
1 Year LIBOR  22,509              22,509
Other Indexes  5,166  277  1,775  5,566  7,000  10,632  1,172  31,588
Total variable  159,198  77,088  64,240  93,106  139,599  66,802  1,172  601,205
                         
Nonaccrual  1,047  1,030  987  694  496  2,018  741  7,013
Total $247,424 $218,949 $123,975 $123,569 $168,801 $233,637 $23,606 $1,139,961


For variable rate loans, the following table summarizes those that are at or above their floor rate, and those that do not possess a contractual floor rate.

TABLE 17
LOAN FLOORS - UNAUDITED
(dollars in thousands)
          
  At December 31, 2020
  Loans At Loans Above   
  Floor Rate Floor Rate Total
Variable rate loans with floors:         
Prime $54,833 $5,914 $60,747
5 year Treasury  342,105  46,964  389,069
7 Year Treasury  28,027    28,027
1 Year LIBOR    717  717
Other Indexes  18,290  833  19,123
  $443,255 $54,428  497,683
          
Variable rate loans without floors:         
Prime        43,899
5 year Treasury        25,366
1 Year LIBOR        21,792
Other Indexes        12,465
         103,522
          
Total accruing variable rate loans       $601,205
          
Nonaccrual        7,013
Total variable rate loans       $608,218


TABLE 18
UNAUDITED
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share data)
                
 At December 31,  Change At September 30,
  2020  2019  $ % 2020 
Assets:               
Cash and due from banks $19,875  $21,338  $(1,463) (7)% $22,884 
Interest-bearing deposits in other banks  87,111   59,266   27,845  47 %  104,999 
Total cash and cash equivalents  106,986   80,604   26,382  33 %  127,883 
                
Securities available-for-sale, at fair value  446,880   286,950   159,930  56 %  337,032 
Loans, net of deferred fees and costs  1,139,961   1,035,065   104,896  10 %  1,205,028 
Allowance for loan and lease losses  (16,910)  (12,231)  (4,679) (38)%  (16,873)
Net loans  1,123,051   1,022,834   100,217  10 %  1,188,155 
                
Premises and equipment, net  14,999   15,906   (907) (6)%  15,210 
Other real estate owned  8   35   (27) (77)%  8 
Life insurance  24,206   23,701   505  2 %  24,086 
Deferred tax asset, net  3,954   4,553   (599) (13)%  2,571 
Goodwill  11,671   11,671      %  11,671 
Other intangible assets, net  4,044   4,809   (765) (16)%  4,235 
Other assets  28,155   28,553   (398) (1)%  29,037 
Total assets $1,763,954  $1,479,616  $284,338  19 % $1,739,888 
                
Liabilities and shareholders' equity:               
Demand - noninterest-bearing $541,033  $432,680  $108,353  25 % $542,060 
Demand - interest-bearing  290,251   239,258   50,993  21 %  280,370 
Money market  425,121   307,559   117,562  38 %  403,785 
Savings  150,695   135,888   14,807  11 %  151,016 
Certificates of deposit  135,679   151,786   (16,107) (11)%  140,900 
Total deposits  1,542,779   1,267,171   275,608  22 %  1,518,131 
                
Term debt:               
Federal Home Loan Bank of San Francisco borrowings  5,000      5,000  100 %  10,000 
Other borrowings  10,000   10,000      %  10,000 
Unamortized debt issuance costs     (43)  43  100 %  (7)
Net term debt  15,000   9,957   5,043  51 %  19,993 
                
Junior subordinated debentures  10,310   10,310      %  10,310 
Other liabilities  18,163   17,700   463  3 %  18,104 
Total liabilities  1,586,252   1,305,138   281,114  22 %  1,566,538 
                
Shareholders' equity:               
Common stock  58,988   71,311   (12,323) (17)%  58,872 
Retained earnings  111,226   100,566   10,660  11 %  107,154 
Accumulated other comprehensive income, net of tax  7,488   2,601   4,887  188 %  7,324 
Total shareholders' equity  177,702   174,478   3,224  2 %  173,350 
                
Total liabilities and shareholders' equity $1,763,954  $1,479,616  $284,338  19 % $1,739,888 
                
Total interest-earning assets $1,663,321  $1,377,588  $285,733  21 % $1,636,661 
Shares outstanding  16,801   18,137   (1,336) (7)%  16,792 
Book value per share (1) $10.58  $9.62  $0.96  10 % $10.32 
Tangible book value per share (1) $9.64  $8.71  $0.93  11 % $9.38 
                
(1) Book value per share is computed by dividing total shareholders’ equity by shares outstanding. Tangible book value per share is computed by dividing total shareholders’ equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.


TABLE 19
UNAUDITED
INCOME STATEMENT
(dollars in thousands, except per share data)
  For The Three Months Ended For The Twelve Months Ended
  December 31,  Change September 30, December 31,
  2020 2019 $ % 2020 2020  2019
Interest income:                     
Interest and fees on loans $13,532 $12,643 $889  7 % $13,448 $52,542  $50,534
Interest on taxable securities  1,484  1,567  (83) (5)%  1,284  5,679   6,673
Interest on tax-exempt securities  467  258  209  81 %  457  1,618   1,244
Interest on interest-bearing deposits in other banks  36  340  (304) (89)%  29  240   1,112
Total interest income  15,519  14,808  711  5 %  15,218  60,079   59,563
Interest expense:                     
Interest on demand deposits  57  108  (51) (47)%  71  313   480
Interest on money market  237  479  (242) (51)%  289  1,246   1,599
Interest on savings  53  128  (75) (59)%  74  340   493
Interest on certificates of deposit  390  499  (109) (22)%  420  1,741   1,977
Interest on Federal Home Loan Bank of San Francisco borrowings         %    5   247
Interest on other borrowings  179  183  (4) (2)%  184  731   806
Interest on junior subordinated debentures  47  97  (50) (52)%  50  248   426
Total interest expense  963  1,494  (531) (36)%  1,088  4,624   6,028
Net interest income  14,556  13,314  1,242  9 %  14,130  55,455   53,535
Provision for loan and lease losses         %  1,100  5,250   
Net interest income after provision for loan and lease losses  14,556  13,314  1,242  9 %  13,030  50,205   53,535
Noninterest income:                     
Service charges on deposit accounts  173  198  (25) (13)%  142  636   730
ATM and point of sale fees  306  282  24  9 %  297  1,134   1,158
Payroll and benefit processing fees  182  183  (1) (1)%  152  647   669
Life insurance  125  126  (1) (1)%  125  521   536
Gain on investment securities, net    49  (49) (100)%  258  482   186
Federal Home Loan Bank of San Francisco dividends  94  131  (37) (28)%  109  369   507
(Loss) gain on sale of OREO    21  (21) (100)%    (23)  62
Other income  136  31  105  339 %  106  286   336
Total noninterest income  1,016  1,021  (5)  %  1,189  4,052   4,184


TABLE 19 - CONTINUED
UNAUDITED
INCOME STATEMENT
(dollars in thousands, except per share data)
                      
  For The Three Months Ended For The Twelve Months Ended
  December 31,  Change September 30, December 31,
  2020 2019 $ % 2020 2020 2019
Noninterest expense:                     
Salaries and related benefits  5,284  4,924  360  7 %  5,126  21,262  20,804
Premises and equipment  966  916  50  5 %  951  3,597  3,752
Federal Deposit Insurance Corporation insurance premium  105    105   %  101  332  91
Data processing  584  739  (155) (21)%  581  2,281  2,535
Professional services  292  309  (17) (6)%  342  1,437  1,539
Telecommunications  174  190  (16) (8)%  157  658  737
Acquisition and merger         %      2,193
Other expenses  1,129  1,343  (214) (16)%  1,132  5,410  5,604
Total noninterest expense  8,534  8,421  113  1 %  8,390  34,977  37,255
Income before provision for income taxes  7,038  5,914  1,124  19 %  5,829  19,280  20,464
Provision for income taxes  1,966  1,545  421  27 %  1,500  5,116  5,503
Net income $5,072 $4,369 $703  16 % $4,329 $14,164 $14,961
                      
Earnings per share - basic $0.30 $0.24 $0.06  25 % $0.26 $0.84 $0.83
Weighted average shares - basic  16,663  18,068  (1,405) (8)%  16,660  16,918  17,956
Earnings per share - diluted $0.30 $0.24 $0.06  25 % $0.26 $0.83 $0.83
Weighted average shares - diluted  16,731  18,150  (1,419) (8)%  16,696  16,963  18,024


TABLE 20
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(dollars in thousands)
                
  For The Three Months Ended
  December 31,  September 30, June 30, March 31, December 31,
  2020 2020 2020 2020 2019
Earning assets:               
Loans $1,172,705 $1,209,277 $1,180,915 $1,033,689 $1,031,702
Taxable securities  304,242  228,045  211,195  237,405  245,487
Tax-exempt securities  73,207  68,766  58,540  34,869  32,158
Interest-bearing deposits in other banks  124,390  95,348  72,507  47,135  81,099
Total earning assets  1,674,544  1,601,436  1,523,157  1,353,098  1,390,446
                
Cash and due from banks  22,413  23,381  21,564  21,987  24,083
Premises and equipment, net  15,162  15,365  15,428  15,753  16,049
Other real estate owned  8  8  8  33  54
Life insurance  24,147  24,028  23,899  23,762  23,638
Deferred tax asset, net  2,738  2,501  3,016  4,259  4,691
Goodwill  11,671  11,671  11,671  11,671  11,671
Other intangible assets, net  4,126  4,318  4,508  4,701  4,890
Other assets  20,128  21,408  23,576  18,755  17,121
Total assets $1,774,937 $1,704,116 $1,626,827 $1,454,019 $1,492,643
                
Liabilities and shareholders' equity:               
Demand - noninterest-bearing $552,601 $531,459 $497,636 $420,847 $428,420
Demand - interest-bearing  283,213  279,744  261,907  233,375  244,276
Money market  430,014  387,995  365,368  307,587  318,127
Savings  151,223  146,074  138,500  135,504  138,155
Certificates of deposit  138,380  139,757  142,955  147,241  153,223
Total deposits  1,555,431  1,485,029  1,406,366  1,244,554  1,282,201
                
Federal Home Loan Bank of San Francisco borrowings  7,120  10,000  16,044  220  
Other borrowings net of unamortized debt issuance costs  9,999  9,988  9,976  9,963  9,952
Junior subordinated debentures  10,310  10,310  10,310  10,310  10,310
Other liabilities  17,557  17,356  17,095  16,852  17,795
Total liabilities  1,600,417  1,532,683  1,459,791  1,281,899  1,320,258
                
Shareholders' equity  174,520  171,433  167,036  172,120  172,385
Liabilities & shareholders' equity $1,774,937 $1,704,116 $1,626,827 $1,454,019 $1,492,643


TABLE 21
UNAUDITED CONDENSED CONSOLIDATED
ANNUAL AVERAGE BALANCE SHEETS
(dollars in thousands)
             
  For The Year Ended
  December 31,  December 31, December 31, December 31,
  2020 2019 2018 2017
Earning assets:            
Loans $1,149,375 $1,020,801 $915,360 $818,119
Taxable securities  245,336  246,723  207,407  165,333
Tax-exempt securities  58,912  38,706  50,330  74,231
Interest-bearing deposits in other banks  84,982  54,095  47,038  66,872
Total earning assets  1,538,605  1,360,325  1,220,135  1,124,555
             
Cash and due from banks  22,339  22,806  20,468  18,301
Premises and equipment, net  15,426  15,598  13,952  15,567
Other real estate owned  14  35  93  664
Life insurance  23,960  23,371  22,148  21,905
Deferred tax asset, net  3,126  5,430  7,567  8,919
Goodwill  11,671  10,758  665  665
Other intangible assets, net  4,412  4,807  1,252  1,471
Other assets  20,966  14,982  2,561  6,204
Total assets $1,640,519 $1,458,112 $1,288,841 $1,198,251
             
Liabilities and shareholders' equity:            
Demand - noninterest-bearing $500,862 $400,588 $332,197 $289,735
Demand - interest-bearing  264,652  242,516  238,328  209,792
Money market  372,939  304,340  250,685  224,913
Savings  142,857  136,733  109,025  111,376
Certificates of deposit  142,067  160,550  168,183  205,648
Total deposits  1,423,377  1,244,727  1,098,418  1,041,464
             
Federal Home Loan Bank of San Francisco borrowings  8,347  9,644  22,466  302
Other borrowings net of unamortized debt issuance costs  9,981  10,895  15,143  17,981
Junior subordinated debentures  10,310  10,310  10,310  10,310
Other liabilities  17,217  17,894  12,286  12,293
Total liabilities  1,469,232  1,293,470  1,158,623  1,082,350
             
Shareholders' equity  171,287  164,642  130,218  115,901
Liabilities & shareholders' equity $1,640,519 $1,458,112 $1,288,841 $1,198,251


About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Sacramento, California and is the parent company for Merchants Bank of Commerce. The Bank is an FDIC-insured California banking corporation providing community banking and financial services in northern California along the Interstate 5 corridor from Sacramento to Yreka and in the North Bay wine region. 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

Andrea M. Newburn, Vice President and Senior Administrative Officer / Corporate Secretary
Telephone Direct (530) 722-3959 


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