Bank of Commerce Holdings Announces Results for the First Quarter of 2021

Rhea-AI Summary

Bank of Commerce Holdings (NASDAQ: BOCH) reported its financial results for Q1 2021, achieving a net income of $4.9 million ($0.29 per share), a substantial increase from $916 thousand ($0.05 per share) in Q1 2020. Key highlights include a $71 million rise in deposits and a $19 million gain in loans, reversing previous declines. Nonperforming assets dropped by 44% to $3.9 million, showing improved asset quality. Notably, net interest margin remained stable at 3.46%, though net interest income fell 1% to $14.4 million compared to the prior quarter. The company anticipates continued profitability as economic conditions improve.

Positive

• Net income for Q1 2021 was $4.9 million, a 437% increase YoY.
• Deposits increased by $71 million during the quarter.
• Nonperforming assets decreased by 44%, reflecting improved asset quality.
• Average loans increased by $107 million (10%) compared to the same quarter last year.
• Net interest margin remained stable at 3.46%.

Negative

• Net income decreased by 3% from the previous quarter.
• Return on average assets decreased to 1.11% from 1.14% in the prior quarter.
• Average loans decreased by $32 million (11% annualized) compared to the prior quarter.
• Efficiency ratio worsened compared to the previous quarter at 57.1%.

SACRAMENTO, Calif., April 16, 2021 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.829 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter ended March 31, 2021. Net income for the quarter ended March 31, 2021 was $4.9 million or $0.29 per share – diluted, compared with net income of $916 thousand or $0.05 per share – diluted for the same period of 2020.

Significant Items for the First Quarter of 2021:

• The Bank continued to experience significant growth in deposits, which increased $71 million during the quarter.
• Loans, exclusive of PPP loans increased $19 million during the quarter; a reversal of the decline that occurred throughout 2020.
• The Company’s net interest margin was 3.46% for the quarter; unchanged from the preceding quarter.
  
• COVID-19 related credit concerns have continued to moderate and no provision for loan and lease losses was required.
• During the first quarter of 2021, our largest nonaccrual borrowing relationship totaling $3.0 million (43% of nonaccrual loans at December 31, 2020) was repaid. The repayment included all principal (including $110 thousand recovery for an amount previously charged-off) $251 thousand of previously unrecorded interest and $80 thousand of reimbursed legal, appraisal and title fees.

Randall S. Eslick, President and CEO commented: “Our first quarter financial performance is a very positive start to the year and our growth in loans and deposits reflects the increased economic activity throughout our markets. The medical response to the pandemic has been quite effective, our concerns of last year regarding asset quality have moderated and our outlook on profitability for 2021 remains upbeat.”

Financial Highlights for the First Quarter of 2021 Compared to Prior Quarter:

• Net income of $4.9 million ($0.29 per share – diluted) was a decrease of $152 thousand ($0.01 per share – diluted) (3%) from $5.1 million ($0.30 per share – diluted) earned during the prior quarter.
• Return on average assets decreased to 1.11% compared to 1.14% for the prior quarter.
• Return on average equity decreased to 11.20% compared to 11.56% for the prior quarter.
• Net interest income decreased $138 thousand (1%) to $14.4 million compared to $14.6 million for the prior quarter.
• Net interest margin of 3.46% was unchanged compared to the prior quarter.
• Average loans totaled $1.140 billion, a decrease of $32 million (11% annualized) compared to average loans for the prior quarter.
• Average earning assets totaled $1.692 billion, an increase of $18 million (4% annualized) compared to average earning assets for the prior quarter.
• Average deposits totaled $1.571 billion, an increase of $16 million (4% annualized) compared to average deposits for the prior quarter.
  • Average non-maturing deposits totaled $1.437 billion, an increase of $20 million (6% annualized) compared to the prior quarter.
  • Average certificates of deposit totaled $134.5 million, a decrease of $3.9 million (11% annualized) compared to the prior quarter.
• The Company’s efficiency ratio was 57.1% compared to 54.8% for the prior quarter.
• Nonperforming assets at March 31, 2021 totaled $3.9 million or 0.21% of total assets, a decrease of $3.1 million (44%) since December 31, 2020. The decrease in nonperforming assets was due to a $3.0 million nonaccrual borrowing relationship that was repaid during the first quarter of 2021.
• Book value per common share was $10.50 at March 31, 2021 compared to $10.58 at December 31, 2020.
• Tangible book value per common share was $9.58 at March 31, 2021 compared to $9.64 at December 31, 2020.

Financial Highlights for the First Quarter of 2021 Compared to the Same Quarter a Year Previous:

• Net income of $4.9 million was an increase of $4.0 million (437%) from $916 thousand earned during the same period in the prior year. Earnings of $0.29 per share – diluted was an increase of $0.24 (480%) per share from $0.05 per share – diluted earned during the same period in the prior. The prior year was impacted by:
  • $2.9 million provision for loan and lease losses.
  • $1.1 million in non-recurring costs associated with the termination of a technology management services contract and a severance agreement; both previously announced.
    
• Return on average assets increased to 1.11% compared to 0.25% for the same period in the prior year.
• Return on average equity increased to 11.20% compared to 2.14% for the same period in the prior year.
• Net interest income increased $1.4 million (11%) to $14.4 million compared to $13.0 million for the same period in the prior year.
• Net interest margin declined to 3.46% compared to 3.86% for the same period in the prior year.
• Average loans totaled $1.140 billion, an increase of $107 million (10%) compared to average loans for the same period in the prior year.
• Average earning assets totaled $1.692 billion, an increase of $339 million (25%) compared to average earning assets for the same period in the prior year.
• Average deposits totaled $1.571 billion, an increase of $327 million (26%) compared to average deposits for the same period in the prior year.
  • Average non-maturing deposits totaled $1.437 billion, an increase of $339 million (31%) compared to the same period in the prior year.
  • Average certificates of deposit totaled $134.5 million, a decrease of $12.7 million (9%) compared to the same period in the prior year.
• The Company’s efficiency ratio was 57.1% compared to 70.5% for the same period in the prior year.
  • The Company’s efficiency ratio of 70.5% for the first quarter of 2020 included $1.1 million of non-recurring costs, which increased the efficiency ratio by 8.0%.
    
• Nonperforming assets at March 31, 2021 totaled $3.9 million or 0.21% of total assets, a decrease of $1.3 million (25%) since March 31, 2020.
• Book value per common share was $10.50 at March 31, 2021 compared to $9.86 at March 31, 2020.
• Tangible book value per common share was $9.58 at March 31, 2021 compared to $8.89 at March 31, 2020.

Impact of COVID-19:

• During 2020, we funded 606 loans totaling $163.5 million under the first Small Business Administration Paycheck Protection Program (“PPP”). We continue to process loan forgiveness applications, and at March 31, 2021, we have 228 loans totaling $79.0 million remaining compared to 487 loans totaling $130.8 million at December 31, 2020.
• During the first quarter of 2021, we funded an additional 196 loans totaling $38.9 million under the SBA’s second PPP loan program. The application period for the second PPP loan program ends on May 31, 2021.
• We have experienced significant increases in deposit balances during the past year. All PPP loan funds were deposited into customer accounts at our bank and customer behavior has emphasized savings during the economic slowdown.
• During the first quarter of 2021, the SBA extended their debt relief program and resumed making principal and interest payments on all of our SBA 7(a) loans which totaled $29.8 million at March 31, 2021. Payment assistance varies by borrower, will continue for no more than eight months and is limited to a maximum $9 thousand per borrower per month.
• At March 31, 2021, approximately 35% of our workforce is working remotely.
  
• As of April 12, 2021, all of our offices have returned to a pre-pandemic operating hours.

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
Net income, average assets and	March 31,								December 31,
average shareholders' equity	2021				2020				2020
Net income	$	4,920			$	916			$	5,072
Average total assets	$	1,790,447			$	1,454,019			$	1,774,937
Average total earning assets	$	1,692,281			$	1,353,098			$	1,674,544
Average shareholders' equity	$	178,162			$	172,120			$	174,520
Selected performance ratios
Return on average assets		1.11	%			0.25	%			1.14	%
Return on average equity		11.20	%			2.14	%			11.56	%
Efficiency ratio		57.1	%			70.5	%			54.8	%
Share and per share amounts
Weighted average shares - basic (1)		16,706				17,695				16,663
Weighted average shares - diluted (1)		16,778				17,747				16,731
Earnings per share - basic	$	0.29			$	0.05			$	0.30
Earnings per share - diluted	$	0.29			$	0.05			$	0.30
	At March 31,								At December 31,
Share and per share amounts	2021				2020				2020
Common shares outstanding (2)		16,876				16,796				16,801
Book value per common share (2)	$	10.50			$	9.86			$	10.58
Tangible book value per common share (2)(3)	$	9.58			$	8.89			$	9.64
Capital ratios (4)
Bank of Commerce Holdings
Common equity tier 1 capital ratio		12.99	%			12.02	%			13.12	%
Tier 1 capital ratio		13.81	%			12.85	%			13.97	%
Total capital ratio		15.87	%			14.93	%			16.06	%
Tier 1 leverage ratio		9.61	%			10.78	%			9.46	%
Tangible common equity ratio (5)		8.91	%			10.38	%			9.27	%
Merchants Bank of Commerce
Common equity tier 1 capital ratio		14.41	%			13.66	%			14.58	%
Tier 1 capital ratio		14.41	%			13.66	%			14.58	%
Total capital ratio		15.66	%			14.91	%			15.83	%
Tier 1 leverage ratio		10.03	%			11.45	%			9.86	%
(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 March 31, 2021, the Company had total consolidated assets of $1.829 billion, gross loans of $1.146 billion, allowance for loan and lease losses (“ALLL”) of $17 million, total deposits of $1.614 billion, and shareholders’ equity of $177 million. Certain amounts for prior periods have been reclassified to conform to the current presentation. The results of reclassifications are not considered material and have no effect on previously reported equity or net income. 

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(dollars in thousands)
	At March 31,																					At December 31,
					% of							% of			Change												% of
	2021				Total			2020				Total			Amount				%				2020				Total
Commercial	$	117,597			10	%		$	138,870			13	%		$	(21,273	)		(15	)	%		$	115,559			10	%
Paycheck Protection Program ("PPP")		117,991			10				—			—				117,991			100		%			130,814			11
Commercial real estate:
Construction and land development		32,145			3				34,394			3				(2,249	)		(7	)	%			44,549			4
Non-owner occupied		592,157			52				550,606			53				41,551			8		%			550,020			48
Owner occupied		165,367			14				180,765			17				(15,398	)		(9	)	%			172,967			15
Residential real estate:
Individual Tax Identification Number ("ITIN")		27,839			2				31,998			3				(4,159	)		(13	)	%			29,035			3
1-4 family mortgage		54,562			5				62,533			6				(7,971	)		(13	)	%			55,925			5
Equity lines		18,600			2				23,158			2				(4,558	)		(20	)	%			18,894			2
Consumer and other		19,685			2				29,921			3				(10,236	)		(34	)	%			21,969			2
Gross loans		1,145,943			100	%			1,052,245			100	%			93,698			9		%			1,139,732			100	%
Deferred (fees) and costs		143							2,129							(1,986	)							229
Loans, net of deferred fees and costs		1,146,086							1,054,374							91,712								1,139,961
Allowance for loan and lease losses		(17,027	)						(15,067	)						(1,960	)							(16,910	)
Net loans	$	1,129,059						$	1,039,307						$	89,752							$	1,123,051
Average loans during the quarter	$	1,140,315						$	1,033,689						$	106,626			10		%		$	1,172,705
Average loans during the quarter (excluding PPP)	$	1,017,123						$	1,033,689						$	(16,566	)		(2	)	%		$	1,024,324
Average yield on loans during the quarter		4.70		%					4.80		%					(0.10	)		(2	)	%			4.59		%
Average yield on loans during the quarter (excluding PPP)		4.60		%					4.80		%					(0.20	)		(4	)	%			4.67		%
Average yield on loans year to date		4.70		%					4.80		%					(0.10	)		(2	)	%			4.57		%
Average yield on loans year to date (excluding PPP)		4.60		%					4.80		%					(0.20	)		(4	)	%			4.75		%

The Company recorded gross loan balances of $1.146 billion at March 31, 2021, compared with $1.052 billion and $1.140 billion at March 31, 2020 and December 31, 2020, respectively, an increase of $94 million and $6 million, respectively. The improving economic environment is reflected in the growth of our gross loans (excluding PPP loans) which increased $19.0 million (8% annualized) during the quarter.

Gross loan balances in the table above include a net fair value discount for loans acquired from Merchants of $810 thousand, $1.5 million and $920 thousand at March 31, 2021, March 31, 2020 and December 31, 2020, respectively. We recorded $110 thousand, $163 thousand and $141 thousand in accretion of the discount for these loans during the quarters ended March 31, 2021, March 31, 2020 and December 31, 2020, respectively.

We have funded 802 loans totaling $202.4 million under the two PPP loan programs through March 31, 2021.

First PPP Loan Program

We originated 606 loans totaling $163.5 million in the first PPP loan program. At March 31, 2021, we have 228 loans totaling $79.0 million in the program. The majority of the loans under the first program have a two-year term over which the loan fee income (net of loan origination costs) is earned. When a PPP loan is repaid prior to maturity, all unamortized fees and cost associated with the loan are accelerated into income. During the current quarter, 259 loans totaling $51.8 million were repaid and we recognized $1.0 million in accelerated net fee income compared to 119 loans repaid totaling $32.7 million and $664 thousand in accelerated net fee income in the prior quarter. At March 31, 2021, net loan fees totaling $842 thousand remain to be earned and we anticipate that most of it will be recognized during the second quarter of 2021.

Second PPP Loan Program

During the first quarter of 2021, the SBA announced a second PPP loan program. The SBA’s second PPP loan program provides first draw PPP loans to borrowers who were ineligible under the first PPP loan program (sole proprietors, ITIN business owners, small business owners with non-fraud felony convictions and small business owners who have struggled with student loan debt) and allows second draw PPP loans to qualifying businesses that received a first draw under SBA’s first PPP loan program. The loans are available until May 31, 2021, are limited to $2 million, have a five-year term and SBA has increased the lender fees for loans under $50 thousand to incentivize lenders to work with smaller borrowers. We have originated 196 loans totaling $38.9 million in the new program and we have an additional 52 applications totaling $9.3 million in process at March 31, 2021. Of the 196 loans we originated in the second program, 158 were made to borrowers receiving their second draw PPP loan.

We anticipate that the loans in the second PPP loan program will have a lower yield as loan net fee income will be recognized over a five-year term instead of the two-year term of the first program. Borrowers may submit a loan forgiveness application after using the loan proceeds and submitting an application for forgiveness of their first PPP loan. As of March 31, 2021, we have not accepted any forgiveness applications for loans funded in the second program. At March 31, 2021, loan fee income (net of loan origination costs) totaling $1.3 million remains to be earned from the loans in the second PPP loan program.

The following tables provide additional information on the PPP loans by industry and by loan balance at March 31, 2021 for loans in both PPP loan programs.

TABLE 3
PPP LOANS BY INDUSTRY - UNAUDITED
(dollars in thousands)
	At March 31, 2021
	Number		Balance
Construction	70		$	55,204
Healthcare and Social Assistance	65			12,166
Professional, Scientific and Tech Services	59			8,161
Accommodation and Food Services	47			8,705
Admin, Support, Waste Management and Remediation Services	14			4,855
Primary Metal Manufacturing	7			3,438
Retail Trade	31			2,232
Other	131			23,230
Total	424		$	117,991

TABLE 4
PPP LOANS BY LOAN SIZE - UNAUDITED
(dollars in thousands)
	At March 31, 2021
	Balance			Number		Average Loan Size
$50,000 or less	$	3,427		154		$	22
$50,001 to $150,000		11,205		136		$	82
$150,001 to $350,000		13,895		63		$	221
$350,001 to $1,999,999		44,464		58		$	767
$2,000,000 or greater		45,000		13		$	3,462
Total	$	117,991		424		$	278

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 March 31, 2021								At December 31, 2020
	Balance			Number		Average Loan Size			Balance			Number		Average Loan Size
Borrower has not started application	$	5,425		49		$	111		$	33,459		185		$	181
Borrower is working on application		9,345		65		$	144			31,277		136		$	230
Borrower has completed application and the bank is reviewing it		6,381		35		$	182			43,872		105		$	418
Bank has approved application and submitted it to the SBA		57,901		78		$	742			22,087		44		$	502
Remaining balance for loans partially repaid (1)		4		1		$	4			119		17		$	7
PPP loans not fully repaid		79,056		228		$	347			130,814		487		$	269
Repayments		84,437		378		$	223			32,679		119		$	275
Total PPP loans under first PPP loan program		163,493		606		$	270			163,493		606		$	270
New originations under second PPP loan program		38,935		196		$	199			—		—		$	—
Total PPP loans originated by bank	$	202,428		802		$	252		$	163,493		606		$	270
(1) Borrowers who participated in the Economic Injury Disaster Loan (“EIDL”) program had their forgiveness payment reduced by their EIDL advance. With the second PPP loan program, this reduction was repealed and the SBA remitted a reconciliation payment for the previously-deducted EIDL advance amounts, plus interest.

TABLE 6
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(dollars in thousands)
	At March 31,																				At December 31,
				% of						% of			Change											% of
	2021			Total			2020			Total			Amount				%				2020			Total
Cash and due from banks	$	20,053		3	%		$	21,127		6	%		$	(1,074	)		(5	)	%		$	19,875		4	%
Interest-bearing deposits in other banks		74,804		12				22,813		7				51,991			228		%			87,111		16
Total cash and cash equivalents		94,857		15				43,940		13				50,917			116		%			106,986		20
Investment securities:
U.S. government and agencies		31,060		5				36,043		11				(4,983	)		(14	)	%			32,994		6
Obligations of state and political subdivisions		128,841		21				63,263		19				65,578			104		%			108,366		20
Residential mortgage backed securities and collateralized mortgage obligations		277,547		46				160,439		50				117,108			73		%			240,478		42
Corporate securities		—		—				2,983		1				(2,983	)		(100	)	%			—		—
Commercial mortgage backed securities		38,582		6				17,428		5				21,154			121		%			28,074		5
Other asset backed securities		41,345		7				4,921		1				36,424			740		%			36,968		7
Total investment securities - AFS		517,375		85				285,077		87				232,298			81		%			446,880		80
Total cash, cash equivalents and investment securities	$	612,232		100	%		$	329,017		100	%		$	283,215			86		%		$	553,866		100	%
Average yield on interest-bearing due from banks during the quarter		0.11	%					1.31	%					(1.20	)							0.12	%
Average yield on investment securities during the quarter - nominal		1.84	%					2.74	%					(0.90	)							2.06	%
Average yield on investment securities during the quarter - tax equivalent		1.96	%					2.84	%					(0.88	)							2.19	%

As of March 31, 2021, we maintained noninterest-bearing cash positions of $20.1 million and interest-bearing deposits of $74.8 million at the Federal Reserve Bank and correspondent banks. During the current quarter, we successfully invested a large portion of our increased liquidity into our investment portfolio.

Unprecedented deposit growth during the last year as a result of PPP programs and customer behavior, which has placed a greater emphasis on savings since the start of the pandemic combined with the need to deploy excess cash, has led to a significant increase in the size of our investment securities portfolio. Investment securities totaled $517.4 million at March 31, 2021, compared with $285.1 million and $446.9 million at March 31, 2020 and December 31, 2020, respectively. During the first quarter of 2021, we purchased securities with a par value of $111.1 million and weighted average yield of 1.56% (1.62% tax equivalent) and sold securities with a par value of $11.6 million and weighted average yield and tax equivalent yield of (0.19)%. The sales resulted in net realized gain of $7 thousand for the quarter ended March 31, 2021. Investment purchases were comprised primarily of longer duration municipal bonds and lower coupon, moderate-term mortgage backed securities.

Average securities balances for the quarters ended March 31, 2021, March 31, 2020 and December 31, 2020 were $440.6 million, $272.3 million and $377.4 million, respectively. Weighted average yields on securities balances for those same periods were 1.84%, 2.74% and 2.06%, respectively.

At March 31, 2021, our net unrealized gains on available-for-sale investment securities were $4.0 million compared with net unrealized gains of $8.4 million and $10.6 million at March 31, 2020 and December 31, 2020, respectively. The decline in net unrealized gains were due to recent increases in market interest rates.

TABLE 7
DEPOSITS BY TYPE - UNAUDITED
(dollars in thousands)
	At March 31,																				At December 31,
				% of						% of			Change											% of
	2021			Total			2020			Total			Amount				%				2020			Total
Demand - noninterest-bearing	$	603,991		37	%		$	419,315		34	%		$	184,676			44		%		$	541,033		35	%
Demand - interest-bearing		290,687		18				231,276		19				59,411			26		%			290,251		19
Money market		425,251		26				314,687		25				110,564			35		%			425,121		28
Total demand		1,319,929		81				965,278		78				354,651			37		%			1,256,405		82
Savings		160,834		10				133,552		11				27,282			20		%			150,695		10
Total non-maturing deposits		1,480,763		91				1,098,830		89				381,933			35		%			1,407,100		92
Certificates of deposit		133,630		9				143,557		11				(9,927	)		(7	)	%			135,679		8
Total deposits	$	1,614,393		100	%		$	1,242,387		100	%		$	372,006			30		%		$	1,542,779		100	%

Total deposits at March 31, 2021, increased $372 million or 30% to $1.614 billion compared to March 31, 2020 and increased $71.6 million or 19% annualized compared to December 31, 2020. Total non-maturing deposits increased $381.9 million or 35% compared to the same date a year ago and increased $73.7 million or 21% annualized compared to December 31, 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 during the economic slowdown. Management anticipates that depositor behavior will change later in the year as economic conditions improve and depositors begin to use the cash balances that have accumulated over the past year. Certificates of deposit decreased $9.9 million or 7% compared to the same date a year ago and decreased $2.0 million or 6% annualized compared to December 31, 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
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,
	2021			2020			2020			2020			2020			2019			2019			2019
Interest-bearing deposits	0.26	%		0.29	%		0.36	%		0.43	%		0.53	%		0.56	%		0.56	%		0.54	%
Interest-bearing deposits and noninterest-bearing demand	0.16	%		0.19	%		0.23	%		0.28	%		0.35	%		0.38	%		0.38	%		0.37	%
All interest-bearing liabilities	0.32	%		0.37	%		0.44	%		0.52	%		0.65	%		0.68	%		0.68	%		0.74	%
All interest-bearing liabilities and noninterest-bearing demand	0.21	%		0.24	%		0.29	%		0.34	%		0.43	%		0.46	%		0.46	%		0.52	%

Equity

As detailed in Table 1, management believes the capital ratios remain adequate 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. 1.4 million of the common share repurchases under this plan were made during the first quarter of 2020.

In late 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 March 31, 2021, no shares have been repurchased under this plan.

INCOME STATEMENT OVERVIEW

TABLE 9
SUMMARY INCOME STATEMENT - UNAUDITED
(dollars in thousands, except per share data)
	For The Three Months Ended
	March 31,						Change								December 31,			Change
	2021			2020			Amount				%				2020			Amount				%
Interest income	$	15,240		$	14,345		$	895			6		%		$	15,519		$	(279	)		(2	)	%
Interest expense		822			1,359			(537	)		(40	)	%			963			(141	)		(15	)	%
Net interest income		14,418			12,986			1,432			11		%			14,556			(138	)		(1	)	%
Provision for loan and lease losses		—			2,850			(2,850	)		(100	)	%			—			—			—		%
Noninterest income		1,163			892			271			30		%			1,016			147			14		%
Noninterest expense		8,897			9,783			(886	)		(9	)	%			8,534			363			4		%
Income before provision for income taxes		6,684			1,245			5,439			437		%			7,038			(354	)		(5	)	%
Provision for income taxes		1,764			329			1,435			436		%			1,966			(202	)		(10	)	%
Net income	$	4,920		$	916		$	4,004			437		%		$	5,072		$	(152	)		(3	)	%
Earnings per share - basic	$	0.29		$	0.05		$	0.24			480		%		$	0.30		$	(0.01	)		(3	)	%
Weighted average shares - basic		16,706			17,695			(989	)		(6	)	%			16,663			43			—		%
Earnings per share - diluted	$	0.29		$	0.05		$	0.24			480		%		$	0.30		$	(0.01	)		(3	)	%
Weighted average shares - diluted		16,778			17,747			(969	)		(5	)	%			16,731			47			—		%
Dividends declared per common share	$	0.06		$	0.05		$	0.01			20		%		$	0.06		$	—			—		%

First Quarter of 2021 Compared with the First Quarter of 2020

Net income for the first quarter of 2021 increased $4.0 million compared to the first quarter of 2020. In the current quarter, net interest income was $1.4 million higher, provision for loan and lease losses was $2.9 million lower, noninterest income was $271 thousand higher and noninterest expense was $886 thousand lower. These positive changes were partially offset by a provision for income taxes that was $1.4 million higher.

Net Interest Income

Net interest income increased $1.4 million compared to the same period a year ago.

Interest income for the first quarter of 2021 increased $895 thousand or 6% to $15.2 million.

• During the first quarter of 2021, we recognized $1.0 million in accelerated net fee income on PPP loans forgiven or repaid during the quarter. These accelerated loan fees increased the average yield on loans for the first quarter of 2021 by 36 basis points.
• PPP loans had an average balance of $123.2 million and yield of 5.49% (2.20% excluding accelerated fee income).
• Excluding PPP loans, interest and fees on loans decreased $791 thousand due to a $16.6 million decrease in average loan balances and a 20 basis point decrease in average yield.
• During the first quarter of 2021, we recognized $251 thousand in nonaccrual interest income as part of the repayment of loans for our largest nonaccrual borrowing relationship. The interest income recognized as part of that repayment increased the average yield on loans for the first quarter of 2021 by 9 basis points.
• Interest on investment securities increased $143 thousand due to a $168.4 million increase in average securities balances partially offset by a 90 basis point decrease in average yield.
• Interest on interest-bearing deposits due from banks decreased $125 thousand due to a 120 basis point decrease in average yield that was partially offset by a $64.2 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 short-term interest rates by 150 to 175 basis points and has provided guidance that it expects interest rates to remain low for an extended period of time.

Interest expense for the first quarter of 2021 decreased $537 thousand or 40% to $822 thousand.

• Interest expense on interest-bearing deposits decreased $446 thousand. Average interest-bearing demand and savings deposit balances increased $198.2 million, while average certificate of deposit balances decreased $12.7 million. The average rate paid on interest-bearing deposits decreased 27 basis points.
• Average FHLB borrowings were $3.9 million in the current quarter compared to $220 thousand during the same period a year ago. The borrowings bore no interest under a program offered by the FHLB and were fully repaid at March 31, 2021.
• Interest expense on other term debt decreased $47 thousand. The average debt balance was essentially unchanged, while the average rate paid decreased 187 basis points.
• Interest expense on junior subordinated debentures decreased $44 thousand. The average debt balance was unchanged, while the average rate paid decreased 170 basis points.

Provision for Loan and Lease Losses

Many of our asset quality concerns from 2020 have moderated. No provision for loan and lease losses was necessary for the current quarter compared to a provision for loan and lease losses of $2.9 million in the same quarter a year ago. Nonaccrual loans decreased 25% since March 31, 2020 primarily due to the repayment of $3.0 million in principal from one commercial real estate loan relationship. Net loan recoveries were $117 thousand for the current quarter compared to net loan charge-offs of $14 thousand during the same period a year ago. Most COVID-19 related loan payment deferrals have ended with limited negative impact on delinquencies. We have however recognized downgrades of certain loans during the current quarter based on year-end financial data received from some borrowers. A more in depth discussion of our provision is provided below under the heading Provision for Loan and Lease Losses.

Noninterest Income

Noninterest income for the three months ended March 31, 2021 increased $271 thousand compared to the same period a year previous. The increase was primarily due to a $221 thousand legal settlement, which was a partial recovery of an investment security impairment loss recorded during the second quarter of 2016.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2021 decreased $886 thousand compared to the same period a year previous. The first quarter of 2020 included $1.1 million in non-recurring costs. Excluding the non-recurring costs, noninterest expense increased $214 thousand primarily due to accruals for incentives made in the current quarter that were not made in the same quarter one year ago.

The Company’s efficiency ratio was 57.1% for the first quarter of 2021. The ratio during the same period in 2020 was 70.5%. The Company’s efficiency ratio of 70.5% for the first quarter of 2020 included $1.1 million of non-recurring costs, which increased the efficiency ratio by 8.0%.

Income Tax Provision

For the three months ended March 31, 2021, our income tax provision of $1.8 million on pre-tax income of $6.7 million was an effective tax rate of 26.4%. The tax provision for the first quarter of the prior year was $329 thousand on pre-tax income of $1.2 million for an effective rate of 26.4%.

First Quarter of 2021 Compared with the Fourth Quarter of 2020

Net income for the first quarter of 2021 decreased $152 thousand compared to the fourth quarter of 2020. In the current quarter, net interest income was $138 thousand lower and noninterest expense was $363 thousand higher. These negative variances were partially offset by noninterest income that was $147 thousand higher and a provision for income taxes that was $202 thousand lower.

Net Interest Income

Net interest income decreased $138 thousand over the prior quarter.

Interest income for the three months ended March 31, 2021 decreased $279 thousand or 2% to $15.2 million.

• During the first quarter of 2021, we recognized $1.0 million in accelerated net fee income on PPP loans forgiven or repaid during the quarter compared to $664 thousand in the prior quarter. These accelerated loan fees increased the average yield on loans for the first quarter of 2021 and the fourth quarter of 2020 by 36 basis points and 23 basis points, respectively.
• PPP loans had an average balance of $123.2 million and yield of 5.49% (2.20% excluding accelerated fee income) for the first quarter of 2021 compared to an average balance of $148.4 million and yield of 4.07% (2.29% excluding accelerated fee income) for the prior quarter.
• Excluding PPP loans, interest and fees on loans decreased $467 thousand due to a $7.2 million decrease in average loan balances, a 7 basis point decrease in average yield and a quarter that was two days shorter.
• During the first quarter of 2021, we recognized $251 thousand in nonaccrual interest income as part of the repayment of loans for our largest nonaccrual borrowing relationship. The interest income recognized as part of that repayment increased the average yield on loans for the first quarter of 2021 by 9 basis points.
• Interest on investment securities increased $45 thousand due to a $63.2 million increase in average security balances partially offset by a 3 basis point decrease in average yield.
• Interest on interest-bearing deposits due from banks decreased $7 thousand due to a $13.1 million decrease in average balances and a 1 basis point decrease in average yield.

Interest expense for the three months ended March 31, 2021 decreased $141 thousand or 15% to $822 thousand.

• Interest expense on interest-bearing deposits decreased $98 thousand. Average interest-bearing demand and savings deposit balances increased $10.3 million, while average certificates of deposit decreased $3.9 million. The average rate paid on interest-bearing deposits decreased 3 basis points. The first quarter of 2021 was two days shorter than the fourth quarter of 2020.
• Average FHLB borrowings were $3.9 million in the current quarter compared to $7.1 million in the prior quarter. The borrowings bore no interest under a program offered by the FHLB and were fully repaid at March 31, 2021.
• Interest expense on other term debt decreased $42 thousand. The average debt balance was essentially unchanged, while the average rate paid decreased 156 basis points.
• Interest expense on junior subordinated debentures decreased $1 thousand. The average debt balance and average rate paid remained unchanged.

Provision for Loan and Lease Losses

During the first quarter of 2021, our largest nonaccrual borrowing relationship was fully repaid resulting in the collection of $3.0 million in principal, and a $110 thousand recovery for amount charged-off in a prior year. We have however recognized downgrades of certain loans during the current quarter based on year-end financial data from some borrowers. No provision for loan and lease losses was necessary for the current or prior quarter. A more in depth discussion of our provision is provided below under the heading Provision for Loan and Lease Losses.

Noninterest Income

Noninterest income for the three months ended March 31, 2021 increased $147 thousand compared to the prior quarter. The increase was primarily due to a $221 thousand legal settlement, which was a partial recovery of an investment security impairment loss recorded during the second quarter of 2016.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2021 increased $363 thousand compared to the prior quarter. The increase was primarily due to increased payroll tax expense and increased accruals for unused vacation offset by decreased incentive accruals.

The Company’s efficiency ratio was 57.1% for the first quarter of 2021 compared with 54.8% for the prior quarter.

Income Tax Provision

For the three months ended March 31, 2021, our income tax provision of $1.8 million on pre-tax income of $6.7 million was an effective tax rate of 26.4%. The income tax provision for the prior quarter of $2.0 million on pre-tax income of $7.0 million was an effective tax rate of 27.9%.

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

Earnings Per Share

Diluted earnings per share were $0.29 for the three months ended March 31, 2021 compared with diluted earnings per share of $0.05 for the same period a year ago and diluted earnings per share of $0.30 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
	March 31, 2021									March 31, 2020									December 31, 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)	$	1,017,123		$	11,547		4.60	%		$	1,033,689		$	12,338		4.80	%		$	1,024,324		$	12,014		4.67	%
PPP loans (3)		123,192			1,668		5.49	%			—			—		—	%			148,381			1,518		4.07	%
Taxable securities		358,291			1,485		1.68	%			237,405			1,582		2.68	%			304,242			1,484		1.94	%
Tax-exempt securities (4)		82,355			511		2.52	%			34,869			271		3.13	%			73,207			467		2.54	%
Interest-bearing deposits in other banks		111,320			29		0.11	%			47,135			154		1.31	%			124,390			36		0.12	%
Average interest-earning assets		1,692,281			15,240		3.65	%			1,353,098			14,345		4.26	%			1,674,544			15,519		3.69	%
Cash and due from banks		21,744									21,987									22,413
Premises and equipment, net		15,001									15,753									15,162
Goodwill		11,671									11,671									11,671
Other intangible assets, net		3,934									4,701									4,126
Other assets		45,816									46,809									47,021
Average total assets	$	1,790,447								$	1,454,019								$	1,774,937
Interest-bearing liabilities:
Interest-bearing demand	$	295,388			58		0.08	%		$	233,375			100		0.17	%		$	283,213			57		0.08	%
Money market		425,113			195		0.19	%			307,587			403		0.53	%			430,014			237		0.22	%
Savings		154,199			48		0.13	%			135,504			118		0.35	%			151,223			53		0.14	%
Certificates of deposit		134,520			338		1.02	%			147,241			464		1.27	%			138,380			390		1.12	%
Federal Home Loan Bank of San Francisco ("FHLB") borrowings		3,889			—		—	%			220			—		0.21	%			7,120			—		—	%
Other borrowings		10,000			137		5.56	%			9,963			184		7.43	%			9,999			179		7.12	%
Junior subordinated debentures		10,310			46		1.81	%			10,310			90		3.51	%			10,310			47		1.81	%
Average interest-bearing liabilities		1,033,419			822		0.32	%			844,200			1,359		0.65	%			1,030,259			963		0.37	%
Noninterest-bearing demand		562,155									420,847									552,601
Other liabilities		16,711									16,852									17,557
Shareholders’ equity		178,162									172,120									174,520
Average liabilities and shareholders’ equity	$	1,790,447								$	1,454,019								$	1,774,937
Net interest income and net interest margin (5)				$	14,418		3.46	%					$	12,986		3.86	%					$	14,556		3.46	%
(1) Interest income on loans, net of PPP includes net fees and costs of approximately $204 thousand, $257 thousand, and $85 thousand for the three months ended March 31, 2021 and 2020 and December 31, 2020, respectively. Interest income on PPP loans includes net fees and costs of $1.4 million and $1.1 million for the three months ended March 31, 2021 and December 31, 2020, respectively.
(2) Loans, net of PPP includes average nonaccrual loans of $6.2 million, $5.5 million and $7.2 million for the three months ended March 31, 2021 and 2020 and December 31, 2020, respectively.
(3) PPP loans represent 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 March 31, 2021 and 2020 and December 31, 2020 included $110 thousand, $163 thousand and $141 thousand in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by four, six and five basis points, respectively.
(6) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively.

TABLE 11
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED
(dollars in thousands)
	For The Three Months Ended
	March 31,					December 31,					September 30,					June 30,					March 31,
	2021					2020					2020					2020					2020
ALLL beginning balance	$	16,910				$	16,873				$	16,089				$	15,067				$	12,231
Provision for loan and lease losses charged to expense		—					—					1,100					1,300					2,850
Loans charged-off		(90	)				(86	)				(502	)				(356	)				(169	)
Loan and lease loss recoveries		207					123					186					78					155
ALLL ending balance	$	17,027				$	16,910				$	16,873				$	16,089				$	15,067
	At March 31,					At December 31,					At September 30,					At June 30,					At March 31,
	2021					2020					2020					2020					2020
Nonaccrual loans:
Commercial	$	1,520				$	1,535				$	1,549				$	7				$	39
Commercial real estate:
Non-owner occupied		626					640					1,712					1,717					—
Owner occupied		95					3,094					3,100					2,992					3,103
Residential real estate:
ITIN		1,529					1,585					1,574					1,738					1,878
1-4 family mortgage		137					141					145					180					184
Consumer and other		17					18					18					37					39
Total nonaccrual loans		3,924					7,013					8,098					6,671					5,243
Accruing troubled debt restructured loans:
Commercial		494					498					531					592					592
Residential real estate:
ITIN		3,420					3,466					3,597					3,642					3,891
Equity lines		121					126					131					221					226
Total accruing restructured loans		4,035					4,090					4,259					4,455					4,709
Total impaired loans	$	7,959				$	11,103				$	12,357				$	11,126				$	9,952
Gross loans at period end	$	1,145,943				$	1,139,732				$	1,206,065				$	1,206,340				$	1,052,245
Impaired loans to gross loans		0.69		%			0.97		%			1.02		%			0.92		%			0.95		%
Impaired loans to gross loans (excluding PPP) (1)		0.77		%			1.10		%			1.19		%			1.07		%			0.95		%
Nonaccrual loans to gross loans		0.34		%			0.62		%			0.67		%			0.55		%			0.50		%
Nonaccrual loans to gross loans (excluding PPP) (2)		0.38		%			0.70		%			0.78		%			0.64		%			0.50		%
Allowance for loan and lease losses as a percent of:
Gross loans		1.49		%			1.48		%			1.40		%			1.33		%			1.43		%
Gross loans (excluding PPP) (3)		1.66		%			1.68		%			1.62		%			1.54		%			1.43		%
Nonaccrual loans		433.92		%			241.12		%			208.36		%			241.18		%			287.37		%
Impaired loans		213.93		%			152.30		%			136.55		%			144.61		%			151.40		%
(1) Impaired loans to gross loans (excluding PPP) is computed by dividing the impaired loans by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.
(2) Nonaccrual loans to gross loans (excluding PPP) is computed by dividing the nonaccrual loans by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.
(3) ALLL to gross loans (excluding PPP) is computed by dividing the ALLL by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.

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).

Many of our COVID-19 related credit concerns have moderated and no provision for loan and lease losses was required during the first quarter of 2021. Nonaccrual loans decreased 43% since December 31, 2020 due to the repayment of $3.0 million in principal from one commercial real estate loan relationship. Net loan loss recoveries were $117 thousand during the first quarter of 2021 and most of our borrowers who received a COVID-19 related loan payment deferral have resumed making their payments. We have however recognized downgrades of certain loans during the current quarter based on year-end financial data received by some borrowers.  Approximately half of the loan balance for the loans downgraded are from SBA 504 loans. No provision for loan and lease losses was necessary for the current quarter or the prior quarter compared to a provision for loan and lease losses of $2.9 million in the same quarter a year ago.

During the current quarter, we adjusted our Q-Factor for economic conditions to reflect our more positive outlook on the economy. Our ALLL methodology, adjusted for the revised Q-Factor and the changes in loan quality metrics discussed above supported an ALLL of $17.0 million at March 31, 2021, an increase of 1% compared to our ALLL of $16.9 million at December 31, 2020 and an increase of 13% compared to our ALLL of $15.1 million at March 31, 2020. Management believes the Company’s ALLL is adequate at March 31, 2021. 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 March 31, 2021, the recorded investment in loans classified as impaired totaled $8.0 million, with a corresponding specific reserve of $188 thousand compared to impaired loans of $11.1 million, with a corresponding specific reserve of $192 thousand at December 31, 2020 and impaired loans of $10.0 million with a corresponding specific reserve of $318 thousand at March 31, 2020. The decrease in impaired loans during the current quarter resulted from the repayment of a $3.0 million nonaccrual borrowing relationship.

TABLE 12
TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(dollars in thousands)
	At March 31,				At December 31,				At September 30,				At June 30,				At March 31,
	2021				2020				2020				2020				2020
Nonaccrual	$	1,947			$	2,007			$	2,063			$	2,194			$	1,611
Accruing		4,035				4,090				4,259				4,455				4,709
Total troubled debt restructurings	$	5,982			$	6,097			$	6,322			$	6,649			$	6,320
Troubled debt restructurings as a percent of:
Gross loans		0.52	%			0.53	%			0.52	%			0.55	%			0.60	%
Gross loans (excluding PPP) (1)		0.58	%			0.60	%			0.61	%			0.64	%			0.60	%
(1) Troubled debt restructuring to gross loans (excluding PPP) is computed by dividing troubled debt restructurings by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.

There were no new troubled debt restructurings during the three months ended March 31, 2021. As of March 31, 2021, we had 90 loans that were classified as troubled debt restructurings, of which 88 were performing according to their restructured terms. Of the 90 troubled debt restructurings, 82 were ITIN loans totaling $4.7 million which are serviced by a third party.

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 payment 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 payment deferral of less than six months, we have granted an additional payment deferral period on a case-by-case basis.

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.

Most of the loan payment deferrals have ended and borrowers have resumed making payments. At March 31, 2021, there were 26 loans totaling $4.1 million with a payment deferral compared to 82 loans totaling $9.5 million at December 31, 2020.

Loans with a payment deferral at March 31, 2021 consisted of two SBA 504 commercial real estate loans totaling $2.9 million, a $2 thousand consumer loan, and 23 loans totaling $1.2 million that are serviced by others. The loans serviced by others are small residential mortgages and consumer home improvement loans that are geographically disbursed throughout the United States and serviced by third parties.

Past Due Loans

Past due loans as of March 31, 2021 decreased $2.7 million to $3.8 million, compared to $6.5 million as of March 31, 2020 and decreased $1.6 million compared to $5.4 million as of December 31, 2020. The decreases in past due loans was primarily due to collection of our largest nonaccrual borrowing relationship totaling $3.0 million that was repaid in the current quarter and a $1.1 million commercial real estate loan that was repaid in the prior quarter.

Past due loans included seven loans totaling $3.3 million at March 31, 2021, that were previously granted payment deferrals:

• Three loans that are guaranteed under the California Capital Access Program for Small Business;
  • $1.4 million for two commercial loans on nonaccrual status made to one borrower and
  • $101 thousand for one commercial loan secured by residential real estate.
• $626 thousand for one commercial real estate loan on nonaccrual status that is a troubled debt restructured loan.
• $1.1 million for one commercial real estate loan that was fully repaid on April 1, 2021.
• $72 thousand for two ITIN loans.

The following table presents nonperforming assets at the dates indicated.

TABLE 13
NONPERFORMING ASSETS - UNAUDITED
(dollars in thousands)
	At March 31,				At December 31,				At September 30,				At June 30,				At March 31,
	2021				2020				2020				2020				2020
Total nonaccrual loans	$	3,924			$	7,013			$	8,098			$	6,671			$	5,243
90 days past due and still accruing		—				—				—				—				2
Total nonperforming loans		3,924				7,013				8,098				6,671				5,245
Other real estate owned ("OREO")		—				8				8				8				8
Total nonperforming assets	$	3,924			$	7,021			$	8,106			$	6,679			$	5,253
Gross loans	$	1,145,943			$	1,139,732			$	1,206,065			$	1,206,340			$	1,052,245
PPP loans (1)		117,991				130,814				163,493				162,189				—
Total gross loans, net of PPP loans	$	1,027,952			$	1,008,918			$	1,042,572			$	1,044,151			$	1,052,245
Nonperforming loans to gross loans		0.34	%			0.62	%			0.67	%			0.55	%			0.50	%
Nonperforming loans to gross loans (excluding PPP) (2)		0.38	%			0.70	%			0.78	%			0.64	%			0.50	%
Nonperforming assets to total assets		0.21	%			0.40	%			0.47	%			0.39	%			0.36	%
(1) PPP loans are fully guaranteed by SBA and no allowance is provided for them.
(2) Nonperforming loans to gross loans (excluding PPP) is computed by dividing nonperforming loans by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.

The following table summarizes when loans are projected to reprice by year and rate index as of March 31, 2021.

TABLE 14
LOANS BY RATE INDEX AND PROJECTED REPRICING PERIOD - UNAUDITED
(dollars in thousands)
	At March 31, 2021
																Years 6
																Through			Beyond
Rate Index:	Year 1			Year 2			Year 3			Year 4			Year 5			Year 10			Year 10			Total
Fixed	$	78,882		$	106,343		$	57,826		$	45,797		$	41,390		$	187,744		$	38,332		$	556,314
Variable:
Prime		70,560			5,540			5,402			6,957			6,722			954			—			96,135
5 Year Treasury		47,993			66,128			60,511			94,813			102,025			55,762			—			427,232
7 Year Treasury		2,914			4,502			5,347			—			—			—			—			12,763
1 Year LIBOR		17,418			—			—			—			—			—			—			17,418
Other Indexes		3,373			1,961			1,801			9,831			2,504			11,386			1,444			32,300
Total accruing variable rate loans		142,258			78,131			73,061			111,601			111,251			68,102			1,444			585,848
Nonaccrual		800			784			728			444			244			780			144			3,924
Total	$	221,940		$	185,258		$	131,615		$	157,842		$	152,885		$	256,626		$	39,920		$	1,146,086

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 15
LOAN FLOORS - UNAUDITED
(dollars in thousands)
	Variable Rate Loans at March 31, 2021
	With Floors									Without
	At Floor Rate			Above Floor Rate			Total			Floors			Total
Prime	$	41,635		$	6,145		$	47,780		$	48,355		$	96,135
5 year Treasury		355,530			44,466			399,996			27,236			427,232
7 Year Treasury		12,763			—			12,763			—			12,763
1 Year LIBOR		—			709			709			16,709			17,418
Other Indexes		15,041			824			15,865			16,435			32,300
Total accruing variable rate loans	$	424,969		$	52,144		$	477,113		$	108,735			585,848
Nonaccrual														3,924
Total variable rate loans													$	589,772

TABLE 16
UNAUDITED
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share data)
	At March 31,								Change								At December 31,
	2021				2020				$				%				2020
Assets:
Cash and due from banks	$	20,053			$	21,127			$	(1,074	)		(5	)	%		$	19,875
Interest-bearing deposits in other banks		74,804				22,813				51,991			228		%			87,111
Total cash and cash equivalents		94,857				43,940				50,917			116		%			106,986
Securities available-for-sale, at fair value		517,375				285,077				232,298			81		%			446,880
Loans, net of deferred fees and costs		1,146,086				1,054,374				91,712			9		%			1,139,961
Allowance for loan and lease losses		(17,027	)			(15,067	)			(1,960	)		(13	)	%			(16,910	)
Net loans		1,129,059				1,039,307				89,752			9		%			1,123,051
Premises and equipment, net		14,792				15,452				(660	)		(4	)	%			14,999
Life insurance		24,320				23,824				496			2		%			24,206
Deferred tax asset, net		5,929				3,149				2,780			88		%			3,954
Goodwill		11,671				11,671				—			—		%			11,671
Other intangible assets, net		3,852				4,618				(766	)		(17	)	%			4,044
Other assets		27,247				28,842				(1,595	)		(6	)	%			28,163
Total assets	$	1,829,102			$	1,455,880			$	373,222			26		%		$	1,763,954
Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	603,991			$	419,315			$	184,676			44		%		$	541,033
Demand - interest-bearing		290,687				231,276				59,411			26		%			290,251
Money market		425,251				314,687				110,564			35		%			425,121
Savings		160,834				133,552				27,282			20		%			150,695
Certificates of deposit		133,630				143,557				(9,927	)		(7	)	%			135,679
Total deposits		1,614,393				1,242,387				372,006			30		%			1,542,779
Term debt:
Federal Home Loan Bank of San Francisco ("FHLB") borrowings		—				10,000				(10,000	)		(100	)	%			5,000
Other borrowings		10,000				10,000				—			—		%			10,000
Unamortized debt issuance costs		—				(31	)			31			100		%			—
Net term debt		10,000				19,969				(9,969	)		(50	)	%			15,000
Junior subordinated debentures		10,310				10,310				—			—		%			10,310
Other liabilities		17,259				17,556				(297	)		(2	)	%			18,163
Total liabilities		1,651,962				1,290,222				361,740			28		%			1,586,252
Shareholders' equity:
Common stock		59,215				59,067				148			—		%			58,988
Retained earnings		115,142				100,644				14,498			14		%			111,226
Accumulated other comprehensive income, net of tax		2,783				5,947				(3,164	)		(53	)	%			7,488
Total shareholders' equity		177,140				165,658				11,482			7		%			177,702
Total liabilities and shareholders' equity	$	1,829,102			$	1,455,880			$	373,222			26		%		$	1,763,954
Total interest-earning assets	$	1,734,314			$	1,353,822			$	380,492			28		%		$	1,663,321
Shares outstanding		16,876				16,796				80			—		%			16,801
Book value per share (1)	$	10.50			$	9.86			$	0.64			6		%		$	10.58
Tangible book value per share (1)	$	9.58			$	8.89			$	0.69			8		%		$	9.64
(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 17
UNAUDITED
INCOME STATEMENT
(dollars in thousands, except per share data)
	For The Three Months Ended
	March 31,							Change								December 31,
	2021			2020				$				%				2020
Interest income:
Interest and fees on loans	$	13,215		$	12,338			$	877			7		%		$	13,532
Interest on taxable securities		1,485			1,582				(97	)		(6	)	%			1,484
Interest on tax-exempt securities		511			271				240			89		%			467
Interest on interest-bearing deposits in other banks		29			154				(125	)		(81	)	%			36
Total interest income		15,240			14,345				895			6		%			15,519
Interest expense:
Interest on demand deposits		58			100				(42	)		(42	)	%			57
Interest on money market		195			403				(208	)		(52	)	%			237
Interest on savings		48			118				(70	)		(59	)	%			53
Interest on certificates of deposit		338			464				(126	)		(27	)	%			390
Interest on other borrowings		137			184				(47	)		(26	)	%			179
Interest on junior subordinated debentures		46			90				(44	)		(49	)	%			47
Total interest expense		822			1,359				(537	)		(40	)	%			963
Net interest income		14,418			12,986				1,432			11		%			14,556
Provision for loan and lease losses		—			2,850				(2,850	)		(100	)	%			—
Net interest income after provision for loan and lease losses		14,418			10,136				4,282			42		%			14,556
Noninterest income:
Service charges on deposit accounts		148			169				(21	)		(12	)	%			173
ATM and point of sale fees		318			268				50			19		%			306
Payroll and benefit processing fees		169			170				(1	)		(1	)	%			182
Life insurance		121			123				(2	)		(2	)	%			125
Gain on investment securities, net		7			84				(77	)		(92	)	%			—
FHLB dividends		93			130				(37	)		(28	)	%			94
Legal settlement		221			—				221			100		%			—
Other income (loss)		86			(52	)			138			265		%			136
Total noninterest income		1,163			892				271			30		%			1,016

TABLE 17 - CONTINUED
UNAUDITED
INCOME STATEMENT
(dollars in thousands, except per share data)
	For The Three Months Ended
	March 31,						Change								December 31,
	2021			2020			$				%				2020
Noninterest expense:
Salaries and related benefits		5,639			5,887			(248	)		(4	)	%			5,284
Premises and equipment		959			854			105			12		%			966
FDIC insurance premium		110			36			74			206		%			105
Data processing		548			531			17			3		%			584
Professional services		301			334			(33	)		(10	)	%			292
Telecommunications		170			171			(1	)		(1	)	%			174
Other expenses		1,170			1,970			(800	)		(41	)	%			1,129
Total noninterest expense		8,897			9,783			(886	)		(9	)	%			8,534
Income before provision for income taxes		6,684			1,245			5,439			437		%			7,038
Provision for income taxes		1,764			329			1,435			436		%			1,966
Total provision for income taxes		1,764			329			1,435			436		%			1,966
Net income	$	4,920		$	916		$	4,004			437		%		$	5,072
Earnings per share - basic	$	0.29		$	0.05		$	0.24			480		%		$	0.30
Weighted average shares - basic		16,706			17,695			(989	)		(6	)	%			16,663
Earnings per share - diluted	$	0.29		$	0.05		$	0.24			480		%		$	0.30
Weighted average shares - diluted		16,778			17,747			(969	)		(5	)	%			16,731

TABLE 18
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(dollars in thousands)
	For The Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2021			2020			2020			2020			2020
Earning assets:
Loans	$	1,140,315		$	1,172,705		$	1,209,277		$	1,180,915		$	1,033,689
Taxable securities		358,291			304,242			228,045			211,195			237,405
Tax-exempt securities		82,355			73,207			68,766			58,540			34,869
Interest-bearing deposits in other banks		111,320			124,390			95,348			72,507			47,135
Total earning assets		1,692,281			1,674,544			1,601,436			1,523,157			1,353,098
Cash and due from banks		21,744			22,413			23,381			21,564			21,987
Premises and equipment, net		15,001			15,162			15,365			15,428			15,753
Life insurance		24,265			24,147			24,028			23,899			23,762
Deferred tax asset, net		4,287			2,738			2,501			3,016			4,259
Goodwill		11,671			11,671			11,671			11,671			11,671
Other intangible assets, net		3,934			4,126			4,318			4,508			4,701
Other assets		17,264			20,136			21,416			23,584			18,788
Total assets	$	1,790,447		$	1,774,937		$	1,704,116		$	1,626,827		$	1,454,019
Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	562,155		$	552,601		$	531,459		$	497,636		$	420,847
Demand - interest-bearing		295,388			283,213			279,744			261,907			233,375
Money market		425,113			430,014			387,995			365,368			307,587
Savings		154,199			151,223			146,074			138,500			135,504
Certificates of deposit		134,520			138,380			139,757			142,955			147,241
Total deposits		1,571,375			1,555,431			1,485,029			1,406,366			1,244,554
Federal Home Loan Bank of San Francisco ("FHLB") borrowings		3,889			7,120			10,000			16,044			220
Other borrowings		10,000			9,999			9,988			9,976			9,963
Junior subordinated debentures		10,310			10,310			10,310			10,310			10,310
Other liabilities		16,711			17,557			17,356			17,095			16,852
Total liabilities		1,612,285			1,600,417			1,532,683			1,459,791			1,281,899
Shareholders' equity		178,162			174,520			171,433			167,036			172,120
Liabilities & shareholders' equity	$	1,790,447		$	1,774,937		$	1,704,116		$	1,626,827		$	1,454,019

TABLE 19
UNAUDITED CONDENSED CONSOLIDATED
YEAR TO DATE AVERAGE BALANCE SHEETS
(dollars in thousands)
	For the Three Months Ended						For the Twelve Months Ended
	March 31,			March 31,			December 31,			December 31,			December 31,
	2021			2020			2020			2019			2018
Earning assets:
Loans	$	1,140,315		$	1,033,689		$	1,149,375		$	1,020,801		$	915,360
Taxable securities		358,291			237,405			245,336			246,723			207,407
Tax-exempt securities		82,355			34,869			58,912			38,706			50,330
Interest-bearing deposits in other banks		111,320			47,135			84,982			54,095			47,038
Total earning assets		1,692,281			1,353,098			1,538,605			1,360,325			1,220,135
Cash and due from banks		21,744			21,987			22,339			22,806			20,468
Premises and equipment, net		15,001			15,753			15,426			15,598			13,952
Life insurance		24,265			23,762			23,960			23,371			22,148
Deferred tax asset, net		4,287			4,259			3,126			5,430			7,567
Goodwill		11,671			11,671			11,671			10,758			665
Other intangible assets, net		3,934			4,701			4,412			4,807			1,252
Other assets		17,264			18,788			20,980			15,017			2,654
Total assets	$	1,790,447		$	1,454,019		$	1,640,519		$	1,458,112		$	1,288,841
Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	562,155		$	420,847		$	500,862		$	400,588		$	332,197
Demand - interest-bearing		295,388			233,375			264,652			242,516			238,328
Money market		425,113			307,587			372,939			304,340			250,685
Savings		154,199			135,504			142,857			136,733			109,025
Certificates of deposit		134,520			147,241			142,067			160,550			168,183
Total deposits		1,571,375			1,244,554			1,423,377			1,244,727			1,098,418
Federal Home Loan Bank of San Francisco ("FHLB") borrowings		3,889			220			8,347			9,644			22,466
Other borrowings		10,000			9,963			9,981			10,895			15,143
Junior subordinated debentures		10,310			10,310			10,310			10,310			10,310
Other liabilities		16,711			16,852			17,217			17,894			12,286
Total liabilities		1,612,285			1,281,899			1,469,232			1,293,470			1,158,623
Shareholders' equity		178,162			172,120			171,287			164,642			130,218
Liabilities & shareholders' equity	$	1,790,447		$	1,454,019		$	1,640,519		$	1,458,112		$	1,288,841

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 wine region north of San Francisco. 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

FAQ

What were Bank of Commerce Holdings' financial results for Q1 2021?

Bank of Commerce Holdings reported a net income of $4.9 million for Q1 2021, a significant increase from $916 thousand in Q1 2020.

How much did deposits increase for Bank of Commerce Holdings in Q1 2021?

Deposits increased by $71 million during the first quarter of 2021.

What was the change in nonperforming assets for Bank of Commerce Holdings in Q1 2021?

Nonperforming assets decreased by 44% to $3.9 million as of March 31, 2021.

What is the current share price of Bank of Commerce Holdings (BOCH)?

The share price fluctuates; please check a financial news website for the current price.

What factors contributed to Bank of Commerce Holdings' loan growth in Q1 2021?

Loan growth was driven by a $19 million increase in loans, reversing the decline seen throughout 2020, indicating increased economic activity.