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

Rhea-AI Summary

Bank of Commerce Holdings (NASDAQ: BOCH) reported its financial results for Q4 and the year ended December 31, 2020. Q4 net income rose to $5.1 million ($0.30 per share) from $4.4 million ($0.24 per share) in Q4 2019. However, annual net income decreased by 5% to $14.2 million, unchanged per share at $0.83. Average loans grew by 13% to $1.149 billion, while average deposits increased by 14% to $1.423 billion. Nonperforming assets totaled $7 million (0.40% of total assets). The efficiency ratio improved to 58.8%, and book value per share rose to $10.58. Management expressed confidence in future growth.

Positive

• Q4 net income increased 16% to $5.1 million ($0.30 per share).
• Average loans rose by 13% to $1.149 billion.
• Average deposits grew by 14% to $1.423 billion.
• Nonperforming assets decreased by 53% since September 30, 2020.
• Efficiency ratio improved to 58.8% from 64.5%.

Negative

• Annual net income decreased 5% from $15 million to $14.2 million.
• Net interest margin declined from 3.94% to 3.60%.
• Nonperforming assets increased by 24% from December 31, 2019.

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 

FAQ

What were the financial results for Bank of Commerce Holdings (NASDAQ: BOCH) in Q4 2020?

In Q4 2020, BOCH reported a net income of $5.1 million, or $0.30 per share, marking a 16% increase from the previous year.

How did Bank of Commerce Holdings (NASDAQ: BOCH) perform in 2020 compared to 2019?

For the full year 2020, BOCH's net income decreased by 5% to $14.2 million, while earnings per share remained unchanged at $0.83.

What was the efficiency ratio for Bank of Commerce Holdings (NASDAQ: BOCH) in 2020?

The efficiency ratio for BOCH in 2020 improved to 58.8%, compared to 64.5% in 2019.

Did Bank of Commerce Holdings (NASDAQ: BOCH) experience growth in loans and deposits in 2020?

Yes, average loans increased by 13% to $1.149 billion and average deposits grew by 14% to $1.423 billion.

What were the nonperforming assets for Bank of Commerce Holdings (NASDAQ: BOCH) at the end of 2020?

Nonperforming assets totaled $7.0 million, or 0.40% of total assets, at the end of 2020, which was an increase of 24% since December 31, 2019.