Bank of Commerce Holdings Announces Results for the Second Quarter of 2021
07/23/2021 - 09:00 AM
SACRAMENTO, California, July 23, 2021 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.91 7 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter and six months ended June 30, 2021. Net income for the quarter ended June 30, 2021 was $4.1 million or $0.25 per share – diluted, compared with net income of $3.8 million or $0.23 per share – diluted, for the same period of 2020. Net income for the six months ended June 30, 2021 was $9.1 million or $0.54 per share – diluted, compared with net income of $4.8 million or $0.28 per share – diluted, for the same period of 2020.
Significant Items for the Second Quarter of 2021:
On June 23, 2021, we entered into a Merger Agreement with Columbia Banking Systems, Inc. with Columbia as the surviving entity; which was previously announced. The closing of the merger transaction is expected to occur during the fourth quarter of 2021. The Bank continued to experience significant growth in deposits, which increased $83 million during the current quarter and increased $71 million during the previous quarter. During the second quarter of 2021, we received $67.3 million in repayments on PPP loans. The Company’s net interest margin declined to 3.16% for the current quarter compared to 3.46% for the prior quarter. Randall S. Eslick, President and CEO commented: “The second quarter was a very exciting time for the company. In June, we announced that we entered into a merger agreement with Columbia Banking Systems, Inc. which we believe will, upon consummation, enhance financial returns to our shareholders and provide our customers with a more comprehensive range of loan and deposit products. We also continued to report very strong growth in deposits and competitive profits during a time when our industry is challenged by declining margins. I remain proud of all of our employees as they respond and adapt to the various changes facing them, our Company and our industry.”
Financial Highlights for the Second Quarter of 2021:
Net income of $4.1 million was an increase of $292 thousand (8% ) from $3.8 million earned during the same period in the prior year. Earnings of $0.25 per share – diluted was an increase of $0.02 (9% ) from $0.23 per share – diluted earned during the same period in the prior year and reflects the impact of the following: $817 thousand in costs for the second quarter of 2021 associated with the merger with Columbia Banking Systems, Inc., most of which are not tax deductible.$1.3 million provision for loan and leases losses for the second quarter of 2020. Return on average assets decreased to 0.89% compared to 0.95% for the same period in the prior year. Return on average equity was unchanged at 9.26% compared to the same period in the prior year. Net interest income increased $181 thousand (1% ) to $14.0 million compared to $13.8 million for the same period in the prior year. Net interest margin declined to 3.16% compared to 3.64% for the same period in the prior year. Average loans totaled $1.13 6 billion, a decrease of $45 million (4% ) compared to average loans for the same period in the prior year. Average earning assets totaled $1.77 5 billion, an increase of $252 million (17% ) compared to average earning assets for the same period in the prior year. Average deposits totaled $1.65 3 billion, an increase of $247 million (18% ) compared to average deposits for the same period in the prior year. Average non-maturing deposits totaled $1.51 4 billion, an increase of $251 million (20% ) compared to the same period in the prior year. Average certificates of deposit totaled $139.4 million , a decrease of $3.6 million (2% ) compared to the same period in the prior year. The Company’s efficiency ratio was 61.5% compared to 56.1% during the same period in the prior year. The Company’s efficiency ratio of 61.5% for the second quarter of 2021 included $817 thousand of merger related costs, which increased the efficiency ratio by 5.4% . Nonperforming assets at June 30, 2021 totaled $3.8 million or 0.20% of total assets, a decrease of $2.9 million (43% ) since June 30, 2020. The decrease in nonperforming assets resulted from repayment of a $3.0 million nonaccrual borrowing relationship during the first quarter of 2021. Book value per common share was $10.78 at June 30, 2021 compared to $10.13 at June 30, 2020. Tangible book value per common share was $9.87 at June 30, 2021 compared to $9.17 at June 30, 2020. Financial Highlights for the Six Months Ended June 30, 2021:
Net income of $9.1 million was an increase of $4.3 million (90% ) from $4.8 million earned during the same period in the prior year. Earnings of $0.54 per share – diluted was an increase of $0.26 (93% ) per share from $0.28 per share – diluted earned during the same period in the prior year and reflects the impact of the following: $817 thousand in costs during the first six months of 2021 associated with the merger with Columbia Banking Systems, Inc., most of which was not tax deductible.$4.2 million provision for loan and lease losses during the six months ended June 30, 2020.$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.1.0 million shares of common stock repurchased during the six months ended June 30, 2020. Return on average assets increased to 1.00% compared to 0.62% for the same period in the prior year. Return on average equity increased to 10.22% compared to 5.65% for the same period in the prior year. Net interest income increased $1.6 million (6% ) to $28.4 million compared to $26.8 million for the same period in the prior year. Net interest margin declined to 3.30% compared to 3.74% for the same period in the prior year. Average loans totaled $1.13 8 billion, an increase of $31 million (3% ) compared to average loans for the same period in the prior year. Average earning assets totaled $1.73 4 billion, an increase of $296 million (21% ) compared to average earning assets for the same period in the prior year. Average deposits totaled $1.61 3 billion, an increase of $287 million (22% ) compared to average deposits for the same period in the prior year. Average non-maturing deposits totaled $1.47 6 billion, an increase of $295 million (25% ) compared to the same period in the prior year. Average certificates of deposit totaled $137.0 million , a decrease of $8.1 million (6% ) compared to the same period in the prior year. The Company’s efficiency ratio was 59.3% compared to 63.1% for the same period in the prior year. The Company’s efficiency ratio of 59.3% for the first six months of 2021 included $817 thousand of merger related costs, which increased the efficiency ratio by 2.7% . The Company’s efficiency ratio of 63.1% for the first six months of 2020 included $1.1 million of non-recurring costs, which increased the efficiency ratio by 3.9% . Nonperforming assets at June 30, 2021 totaled $3.8 million or 0.20% of total assets, a decrease of $3.2 million (92% annualized) since December 31, 2020. The decrease in nonperforming assets resulted from repayment of a $3.0 million nonaccrual borrowing relationship during the first quarter of 2021. Book value per common share was $10.78 at June 30, 2021 compared to $10.58 at December 31, 2020. Tangible book value per common share was $9.87 at June 30, 2021 compared to $9.64 at December 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 June 30, 2021, we have 47 loans totaling $12.3 million remaining to be forgiven compared to 228 loans totaling $79.0 million at March 31, 2021. During 2021, we funded an additional 247 loans totaling $47.3 million under the second PPP. The application period for the second PPP loan program ended on May 31, 2021. We began to process loan forgiveness applications during June, and at June 30, 2021, we have 234 loans totaling $46.7 million remaining to be forgiven. 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 $29.0 million at June 30, 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 June 30, 2021, approximately 30% of our workforce is working remotely. As of April 12, 2021, all of our offices have returned to 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 For The Six Months Ended Net income, average assets and June 30, March 31, June 30, average shareholders' equity 2021 2020 2021 2021 2020 Net income $ 4,139 $ 3,847 $ 4,920 $ 9,059 $ 4,763 Average total assets $ 1,869,294 $ 1,626,827 $ 1,790,447 $ 1,830,089 $ 1,540,423 Average total earning assets $ 1,775,020 $ 1,523,157 $ 1,692,281 $ 1,733,879 $ 1,438,127 Average shareholders' equity $ 179,329 $ 167,036 $ 178,162 $ 178,748 $ 169,578 Selected performance ratios Return on average assets 0.89 % 0.95 % 1.11 % 1.00 % 0.62 % Return on average equity 9.26 % 9.26 % 11.20 % 10.22 % 5.65 % Efficiency ratio 61.5 % 56.1 % 57.1 % 59.3 % 63.1 % Share and per share amounts Weighted average shares - basic (1) 16,736 16,660 16,706 16,721 17,178 Weighted average shares - diluted (1) 16,823 16,689 16,778 16,803 17,217 Earnings per share - basic $ 0.25 $ 0.23 $ 0.29 $ 0.54 $ 0.28 Earnings per share - diluted $ 0.25 $ 0.23 $ 0.29 $ 0.54 $ 0.28 At June 30, At March 31, Share and per share amounts 2021 2020 2021 Common shares outstanding (2) 16,896 16,739 16,876 Book value per common share (2) $ 10.78 $ 10.13 $ 10.50 Tangible book value per common share (2)(3) $ 9.87 $ 9.17 $ 9.58 Capital ratios (4) Bank of Commerce Holdings Common equity tier 1 capital ratio 13.04 % 12.34 % 12.99 % Tier 1 capital ratio 13.84 % 13.18 % 13.81 % Total capital ratio 15.89 % 15.27 % 15.87 % Tier 1 leverage ratio 9.37 % 9.82 % 9.61 % Tangible common equity ratio (5) 8.77 % 9.05 % 8.91 % Merchants Bank of Commerce Common equity tier 1 capital ratio 14.48 % 13.72 % 14.41 % Tier 1 capital ratio 14.48 % 13.72 % 14.41 % Total capital ratio 15.74 % 14.97 % 15.66 % Tier 1 leverage ratio 9.80 % 10.21 % 10.03 % (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 June 30, 2021, the Company had total consolidated assets of $1.91 7 billion, gross loans of $1.09 1 billion, allowance for loan and lease losses (“ALLL”) of $17 million , total deposits of $1.69 7 billion, and shareholders’ equity of $182 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 June 30, At March 31, % of % of Change % of 2021 Total 2020 Total Amount % 2021 Total Commercial $ 93,650 9 % $ 126,024 10 % $ (32,374 ) (26 ) % $ 117,597 10 % Paycheck Protection Program ("PPP") 59,058 5 162,189 13 (103,131 ) (64 ) % 117,991 10 Commercial real estate: Construction and land development 30,494 3 41,371 3 (10,877 ) (26 ) % 32,145 3 Non-owner occupied 626,819 57 557,466 47 69,353 12 % 592,157 52 Owner occupied 168,296 15 179,337 15 (11,041 ) (6 ) % 165,367 14 Residential real estate: Individual Tax Identification Number ("ITIN") 26,912 2 31,083 3 (4,171 ) (13 ) % 27,839 2 1-4 family mortgage 50,259 5 60,756 5 (10,497 ) (17 ) % 54,562 5 Equity lines 17,827 2 20,938 2 (3,111 ) (15 ) % 18,600 2 Consumer and other 17,430 2 27,176 2 (9,746 ) (36 ) % 19,685 2 Gross loans 1,090,745 100 % 1,206,340 100 % (115,595 ) (10 ) % 1,145,943 100 % Deferred (fees) and costs 551 (1,603 ) 2,154 143 Loans, net of deferred fees and costs 1,091,296 1,204,737 (113,441 ) 1,146,086 Allowance for loan and lease losses (17,194 ) (16,089 ) (1,105 ) (17,027 ) Net loans $ 1,074,102 $ 1,188,648 $ (114,546 ) $ 1,129,059 Average loans during the quarter $ 1,135,521 $ 1,180,915 $ (45,394 ) (4 ) % $ 1,140,315 Average loans during the quarter (excluding PPP) $ 1,031,484 $ 1,048,139 $ (16,655 ) (2 ) % $ 1,017,123 Average yield on loans during the quarter 4.39 % 4.50 % (0.11 ) (2 ) % 4.70 % Average yield on loans during the quarter (excluding PPP) 4.42 % 4.76 % (0.34 ) (7 ) % 4.60 % Average yield on loans year to date 4.54 % 4.64 % (0.10 ) (2 ) % 4.70 % Average yield on loans year to date (excluding PPP) 4.51 % 4.78 % (0.27 ) (6 ) % 4.60 %
The Company recorded gross loan balances of $1.09 1 billion at June 30, 2021, compared with $1.20 6 billion and $1.14 6 billion at June 30, 2020 and March 31, 2021, respectively, a decrease of $116 million and $55 million , respectively. The improving economic environment is reflected in the growth of our gross loans (excluding PPP loans) which increased $22.8 million (5% annualized) since December 31, 2020.
Gross loan balances in the table above include a net fair value discount for loans acquired from Merchants of $694 thousand , $1.3 million and $810 thousand at June 30, 2021, June 30, 2020 and March 31, 2021, respectively. We recorded $115 thousand , $216 thousand and $110 thousand in accretion of the discount for these loans during the quarters ended June 30, 2021, June 30, 2020 and March 31, 2021, respectively.
Paycheck Protection Program (PPP)
We have funded 853 loans totaling $210.8 million under the two PPP loan programs through June 30, 2021.
First PPP Loan Program - 2020
During 2020, we originated 606 loans totaling $163.5 million in the first PPP loan program. Most of the loans have subsequently been forgiven and repaid. At June 30, 2021, we have 47 loans totaling $12.3 million in the program. The majority of the first program loans 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, 181 loans totaling $66.7 million were repaid and we recognized $560 thousand in accelerated net fee income compared to 259 loans repaid totaling $51.8 million and $1.0 million in accelerated net fee income in the prior quarter. At June 30, 2021, net loan fees totaling $142 thousand remain to be earned and we anticipate that most of it will be recognized during the third quarter of 2021.
Second PPP Loan Program - 2021
During the first quarter of 2021, the SBA announced a second PPP loan program. The SBA’s second PPP loan program provided 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 allowed second draw PPP loans to qualifying businesses that received a first draw under SBA’s first PPP loan program. The loans were available until May 31, 2021, were limited to $2 million , had a five-year term and SBA increased the lender fees for loans under $50 thousand to incentivize lenders to work with smaller borrowers.
During 2021, we originated 247 loans totaling $47.3 million in the second PPP loan program. During the second quarter, we began to process loan forgiveness applications. At June 30, 2021, we have 234 loans totaling $46.7 million in the program. We anticipate that the loans in the second PPP loan program will have a lower yield as net loan 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. 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, 13 loans totaling $629 thousand were repaid and we recognized $28 thousand in accelerated net fee income. At June 30, 2021, net loan fees totaling $1.5 million remain to be earned.
The following tables provide additional information on the PPP loans by industry and by loan balance at June 30, 2021 for loans in both PPP loan programs.
TABLE 3 PPP LOANS BY INDUSTRY - UNAUDITED (dollars in thousands) At June 30, 2021 Number Balance Construction 39 $ 15,634 Healthcare and Social Assistance 42 4,326 Professional, Scientific and Tech Services 37 5,711 Accommodation and Food Services 39 9,185 Admin, Support, Waste Management and Remediation Services 9 2,064 Primary Metal Manufacturing 7 558 Retail Trade 19 3,340 Other 89 18,240 Total 281 $ 59,058
TABLE 4 PPP LOANS BY LOAN SIZE - UNAUDITED (dollars in thousands) At June 30, 2021 Balance Number Average Loan Size $50,000 or less$ 2,232 101 $ 22 $50,001 t o $150,000 7,047 83 $ 85 $150,001 t o $350,000 10,723 51 $ 210 $350,001 t o $1,999,999 31,884 43 $ 741 $2,000,000 or greater 7,172 3 $ 2,391 Total $ 59,058 281 $ 210
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 June 30, 2021 At March 31, 2021 Balance Number Average Loan Size Balance Number Average Loan Size First PPP loan program - 2020 Borrower has not started application $ 314 7 $ 45 $ 5,425 49 $ 111 Borrower is working on application 3,348 15 $ 223 9,345 65 $ 144 Borrower has completed application and the bank is reviewing it 2,744 16 $ 172 6,381 35 $ 182 Bank has approved application and submitted it to SBA 5,804 6 $ 967 57,901 78 $ 742 Loans partially repaid (1) 137 3 $ 46 4 1 $ 4 PPP loans not fully repaid 12,347 47 $ 263 79,056 228 $ 347 Repayments 151,146 559 $ 270 84,437 378 $ 223 Total first PPP loan program - 2020 163,493 606 $ 270 163,493 606 $ 270 Second PPP loan program - 2021 Borrower has not started application 42,506 221 $ 192 38,935 196 $ 199 Borrower is working on application 2,224 6 $ 371 — — $ — Borrower has completed application and the bank is reviewing it 1,911 6 $ 319 — — $ — Bank has approved application and submitted it to SBA 70 1 $ 70 — — $ — PPP loans not fully repaid 46,711 234 $ 200 38,935 196 $ 199 Repayments 629 13 $ 48 — — $ — Total second PPP loan program - 2021 47,340 247 $ 192 38,935 196 $ 199 Total PPP loans originated by bank $ 210,833 853 $ 247 $ 202,428 802 $ 252 (1) Borrowers who participated in the Economic Injury Disaster Loan ("EIDL") program had their forgiveness payment reduced by their EIDL advance. This reduction has subsequently been repealed and the SBA has remitted a reconciliation payment for previously-deducted EIDL advance amounts, plus interest.
TABLE 6 CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED (dollars in thousands) At June 30, At March 31, % of % of Change % of 2021 Total 2020 Total Amount % 2021 Total Cash and due from banks $ 21,011 3 % $ 29,630 7 % $ (8,619 ) (29 ) % $ 20,053 3 % Interest-bearing deposits in other banks 156,107 21 126,132 29 29,975 24 % 74,804 12 Total cash and cash equivalents 177,118 24 155,762 36 21,356 14 % 94,857 15 Investment securities: U.S. government and agencies 29,691 4 33,195 8 (3,504 ) (11 ) % 31,060 5 Obligations of state and political subdivisions 136,467 18 76,888 18 59,579 77 % 128,841 21 Residential mortgage backed securities and collateralized mortgage obligations 317,842 41 137,120 30 180,722 132 % 277,547 46 Corporate securities — — 1,000 — (1,000 ) (100 ) % — — Commercial mortgage backed securities 52,718 7 16,329 4 36,389 223 % 38,582 6 Other asset backed securities 42,946 6 15,668 4 27,278 174 % 41,345 7 Total investment securities - AFS 579,664 76 280,200 64 299,464 107 % 517,375 85 Total cash, cash equivalents and investment securities $ 756,782 100 % $ 435,962 100 % $ 320,820 74 % $ 612,232 100 % Average yield on interest-bearing due from banks during the quarter 0.10 % 0.12 % (0.02 ) 0.11 % Average yield on investment securities during the quarter - nominal 1.70 % 2.61 % (0.91 ) 1.84 % Average yield on investment securities during the quarter - tax equivalent 1.82 % 2.78 % (0.96 ) 1.96 %
As of June 30, 2021, we maintained noninterest-bearing cash positions of $21.0 million and interest-bearing deposits of $156.1 million at the Federal Reserve Bank and correspondent banks. During the current quarter, we continued to invest our increased liquidity into our investment securities portfolio.
Unprecedented deposit growth during the last year as a result of PPP programs and changes in customer behavior has led to a significant increase in the size of our investment securities portfolio. Investment securities totaled $579.7 million at June 30, 2021, compared with $280.2 million and $517.4 million at June 30, 2020 and March 31, 2021, respectively.
During the second quarter of 2021, we purchased securities with a par value of $110.0 million and weighted average yield of 1.52% (1.57% tax equivalent). Investment purchases were comprised primarily of municipal bonds and mortgage backed securities. We sold securities with a par value of $26.1 million resulting in net realized gain of $64 thousand for the quarter ended June 30, 2021.
At June 30, 2021, our net unrealized gains on available-for-sale investment securities were $6.3 million compared with net unrealized gains of $10.1 million and $4.0 million at June 30, 2020 and March 31, 2021, respectively. The fluctuation in net unrealized gains was due to changes in market interest rates.
TABLE 7 DEPOSITS BY TYPE - UNAUDITED (dollars in thousands) At June 30, At March 31, % of % of Change % of 2021 Total 2020 Total Amount % 2021 Total Demand - noninterest-bearing $ 627,911 37 % $ 521,751 35 % $ 106,160 20 % $ 603,991 37 % Demand - interest-bearing 306,565 18 287,198 19 19,367 7 % 290,687 18 Money market 463,639 27 405,322 27 58,317 14 % 425,251 26 Total demand 1,398,115 82 1,214,271 81 183,844 15 % 1,319,929 81 Savings 162,325 10 142,389 10 19,936 14 % 160,834 10 Total non-maturing deposits 1,560,440 92 1,356,660 91 203,780 15 % 1,480,763 91 Certificates of deposit 136,898 8 137,647 9 (749 ) (1 ) % 133,630 9 Total deposits $ 1,697,338 100 % $ 1,494,307 100 % $ 203,031 14 % $ 1,614,393 100 %
Total deposits at June 30, 2021, increased $203 million or 14% to $1.69 7 billion compared to June 30, 2020 and increased $83 million or 21% annualized compared to March 31, 2021. Total non-maturing deposits increased $203.8 million or 15% compared to the same date a year ago and increased $79.7 million or 22% annualized compared to March 31, 2021. 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 assumes that depositor behavior will change at a later date, but is unable to predict the timing of that change. Certificates of deposit decreased $749 thousand or 1% compared to the same date a year ago and increased $3.3 million or 10% annualized compared to March 31, 2021.
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 June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, 2021 2021 2020 2020 2020 2020 2019 2019 Interest-bearing deposits 0.22 % 0.26 % 0.29 % 0.36 % 0.43 % 0.53 % 0.56 % 0.56 % Interest-bearing deposits and noninterest-bearing demand 0.14 % 0.16 % 0.19 % 0.23 % 0.28 % 0.35 % 0.38 % 0.38 % All interest-bearing liabilities 0.29 % 0.32 % 0.37 % 0.44 % 0.52 % 0.65 % 0.68 % 0.68 % All interest-bearing liabilities and noninterest-bearing demand 0.18 % 0.21 % 0.24 % 0.29 % 0.34 % 0.43 % 0.46 % 0.46 %
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.
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 June 30, 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 June 30, Change March 31, Change 2021 2020 Amount % 2021 Amount % Interest income $ 14,728 $ 14,997 $ (269 ) (2 ) % $ 15,240 $ (512 ) (3 ) % Interest expense 764 1,214 (450 ) (37 ) % 822 (58 ) (7 ) % Net interest income 13,964 13,783 181 1 % 14,418 (454 ) (3 ) % Provision for loan and lease losses — 1,300 (1,300 ) (100 ) % — — — % Noninterest income 1,131 955 176 18 % 1,163 (32 ) (3 ) % Noninterest expense 9,279 8,270 1,009 12 % 8,897 382 4 % Income before provision for income taxes 5,816 5,168 648 13 % 6,684 (868 ) (13 ) % Provision for income taxes 1,677 1,321 356 27 % 1,764 (87 ) (5 ) % Net income $ 4,139 $ 3,847 $ 292 8 % $ 4,920 $ (781 ) (16 ) % Earnings per share - basic $ 0.25 $ 0.23 $ 0.02 9 % $ 0.29 $ (0.04 ) (14 ) % Weighted average shares - basic 16,736 16,660 76 — % 16,706 30 — % Earnings per share - diluted $ 0.25 $ 0.23 $ 0.02 9 % $ 0.29 $ (0.04 ) (14 ) % Weighted average shares - diluted 16,823 16,689 134 1 % 16,778 45 — % Dividends declared per common share $ 0.06 $ 0.05 $ 0.01 20 % $ 0.06 $ — — %
Second Quarter of 2021 Compared with the Second Quarter of 2020
Net income for the second quarter of 2021 increased $292 thousand compared to the second quarter of 2020. In the current quarter, net interest income was $181 thousand higher, provision for loan and lease losses was $1.3 million lower and noninterest income was $176 thousand higher. These positive changes were partially offset by noninterest expense that was $1.0 million higher and a provision for income taxes that was $356 thousand higher.
Net Interest Income
Net interest income increased $181 thousand compared to the same period a year ago.
Interest income for the second quarter of 2021 decreased $269 thousand or 2% to $14.7 million .
During the second quarter of 2021, we recognized $588 thousand 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 second quarter of 2021 by 21 basis points and increased the net interest margin for the second quarter of 2021 by 13 basis points. PPP loans had an average balance of $104.0 million and yield of 4.10% (1.83% excluding accelerated fee income) for the second quarter of 2021 compared to an average balance of $132.8 million and yield of 2.46% for the same period a year ago. Excluding PPP loans, interest and fees on loans decreased $1.0 million due to a $16.7 million decrease in average loan balances and a 34 basis point decrease in average yield. Interest on investment securities increased $520 thousand due to a $265.6 million increase in average investment securities balances partially offset by a 91 basis point decrease in average yield. Interest on interest-bearing deposits due from banks increased $6 thousand due to a $31.6 million increase in average interest-bearing deposit balances partially offset by a 1 basis point decrease in average yield. 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 second quarter of 2021 decreased $450 thousand or 37% to $764 thousand .
Interest expense on interest-bearing deposits decreased $385 thousand . Average interest-bearing demand and savings deposit balances increased $141.6 million , while average certificate of deposit balances decreased $3.6 million . The average rate paid on interest-bearing deposits decreased 21 basis points from 0.43% to 0.22% . Interest expense on FHLB borrowings decreased $5 thousand . There were no FHLB borrowings during the current quarter. Average FHLB borrowings were $16.0 million during the same period a year ago. During the second quarter of 2020, we took advantage of a program offered by the FHLB that bore no interest. The average rate paid on FHLB borrowings was 0.13% during the second quarter of 2020. Interest expense on other term debt decreased $46 thousand . The average debt balance was essentially unchanged, while the average rate paid decreased 188 basis points. Interest expense on junior subordinated debentures decreased $14 thousand . The average debt balance was unchanged, while the average rate paid decreased 55 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 $1.3 million in the same quarter a year ago. Nonaccrual loans decreased 43% since June 30, 2020 primarily due to repayment of two commercial real estate loans totaling $4.1 million . Net loan recoveries were $167 thousand during the current quarter compared to net loan charge-offs of $278 thousand during the same period a year ago. Most COVID-19 related loan payment deferrals have ended with limited negative impact on delinquencies. 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 June 30, 2021 increased $176 thousand compared to the same period a year previous. The increase was primarily due to $138 thousand increase in ATM and point of sales fees and a $90 thousand increase in FHLB dividends partially offset by a $76 thousand decrease in gain on sale of investment securities.
Noninterest Expense
Noninterest expense for the three months ended June 30, 2021 increased $1.0 million compared to the same period a year previous, mostly resulting from $817 thousand of merger related costs.
The Company’s efficiency ratio was 61.5% for the second quarter of 2021. The ratio during the same period in 2020 was 56.1% . The Company’s efficiency ratio of 61.5% for the second quarter of 2021 included $817 thousand of merger related costs, which increased the efficiency ratio by 5.4% .
Income Tax Provision
For the three months ended June 30, 2021, our income tax provision of $1.7 million on pre-tax income of $5.8 million was an effective tax rate of 28.8% . The tax provision for the second quarter of the prior year was $1.3 million on pre-tax income of $5.2 million for an effective rate of 25.6% .
The current quarter income tax calculation included the impact of $772 thousand of non-deductible merger related costs, which increased the effective tax rate by 2.4% .
Second Quarter of 2021 Compared with the First Quarter of 2021
Net income for the second quarter of 2021 decreased $781 thousand compared to the first quarter of 2021. In the current quarter, net interest income was $454 thousand lower, noninterest income was $32 thousand lower and noninterest expense was $382 thousand higher. These negative variances were partially offset by a provision for income taxes that was $87 thousand lower.
Net Interest Income
Net interest income decreased $454 thousand over the prior quarter.
Interest income for the three months ended June 30, 2021 decreased $512 thousand or 3% to $14.7 million .
During the second quarter of 2021, we recognized $588 thousand in accelerated net fee income on PPP loans forgiven or repaid during the quarter compared to $1.0 million in the prior quarter. These accelerated loan fees increased the average yield on loans for the second and first quarter of 2021 by 21 basis points and 36 basis points, respectively. The accelerated loan fees increased the net interest margin for the second and first quarter of 2021 by 13 basis points and 24 basis points, respectively. PPP loans had an average balance of $104.0 million and yield of 4.10% (1.83% excluding accelerated fee income) for the second quarter of 2021 compared to an average balance of $123.2 million and yield of 5.49% (2.20% excluding accelerated fee income) for the prior quarter. Excluding PPP loans, interest and fees on loans decreased $181 thousand due to a 15 basis point decrease in average yield partially offset by a $14.4 million increase in average loan balances. During the first quarter of 2021, we recognized $251 thousand in interest income from the repayment of a nonaccrual loan. The interest income recognized from that repayment increased the average yield on loans for the first quarter of 2021 by 9 basis points. Interest on investment securities increased $276 thousand due to a $94.7 million increase in average investment security balances partially offset by a 13 basis point decrease in average yield. Interest on interest-bearing deposits due from banks decreased $2 thousand due to a $7.2 million decrease in average balances and a 1 basis point decrease in average yield. Interest expense for the three months ended June 30, 2021 decreased $58 thousand or 7% to $764 thousand .
Interest expense on interest-bearing deposits decreased $60 thousand . Average interest-bearing demand and savings deposit balances increased $32.6 million and average certificates of deposit increased $4.9 million . The average rate paid on interest-bearing deposits decreased 4 basis points from 0.26% to 0.22% . There were no FHLB borrowings during the current quarter. Average FHLB borrowings were $3.9 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 $1 thousand . The average debt balance remained unchanged, while the average rate paid decreased 2 basis points. Interest expense on junior subordinated debentures decreased $1 thousand . The average debt balance remained unchanged, while the average rate paid decreased 2 basis points. Provision for Loan and Lease Losses
Many of our asset quality concerns from 2020 have moderated. Net loan recoveries were $167 thousand for the current quarter compared to net loan recoveries of $117 thousand for the prior quarter. 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 June 30, 2021 decreased $32 thousand compared to the prior quarter. The first quarter of 2021 included a $221 thousand legal settlement, which was partial recovery of an investment security impairment loss recorded during the second quarter of 2016. The decrease was partially offset by an $83 thousand increase in ATM and point of sale fees, $57 thousand gain on sale of investment securities and $33 thousand increase in FHLB dividends.
Noninterest Expense
Noninterest expense for the three months ended June 30, 2021 increased $382 thousand compared to the prior quarter. The increase included $817 thousand of merger related costs in the current quarter. This increase was partially offset by a decrease in accrued vacation, salaries and related benefit costs of $434.
The Company’s efficiency ratio was 61.5% for the second quarter of 2021 compared with 57.1% for the prior quarter. The Company’s efficiency ratio of 61.5% for the second quarter of 2021 included $817 thousand of merger related costs, which increased the efficiency ratio by 5.4% .
Income Tax Provision
For the three months ended June 30, 2021, our income tax provision of $1.7 million on pre-tax income of $5.8 million was an effective tax rate of 28.8% . The income tax provision for the prior quarter of $1.8 million on pre-tax income of $6.7 million was an effective tax rate of 26.4% .
The current quarter income tax calculation included the impact of $772 thousand of non-deductible merger related costs, which increased the effective tax rate by 2.4% .
Earnings Per Share
Diluted earnings per share were $0.25 for the three months ended June 30, 2021 compared with diluted earnings per share of $0.23 for the same period a year ago and diluted earnings per share of $0.29 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 June 30, 2021 June 30, 2020 March 31, 2021 Average Yield / Average Yield / Average Yield / Balance Interest (1) Rate (5) Balance Interest (1) Rate (5) Balance Interest (1) Rate (5) Interest-earning assets: Loans net of PPP (2) $ 1,031,484 $ 11,366 4.42 % $ 1,048,139 $ 12,411 4.76 % $ 1,017,123 $ 11,547 4.60 % PPP loans 104,037 1,063 4.10 % 132,776 813 2.46 % 123,192 1,668 5.49 % Taxable securities 437,710 1,697 1.56 % 211,195 1,329 2.53 % 358,291 1,485 1.68 % Tax-exempt securities (3) 97,637 575 2.36 % 58,540 423 2.91 % 82,355 511 2.52 % Interest-bearing deposits in other banks 104,152 27 0.10 % 72,507 21 0.12 % 111,320 29 0.11 % Average interest- earning assets 1,775,020 14,728 3.33 % 1,523,157 14,997 3.96 % 1,692,281 15,240 3.65 % Cash and due from banks 21,819 21,564 21,744 Premises and equipment, net 14,715 15,428 15,001 Goodwill 11,671 11,671 11,671 Other intangible assets, net 3,743 4,508 3,934 Other assets 42,326 50,499 45,816 Average total assets $ 1,869,294 $ 1,626,827 $ 1,790,447 Interest-bearing liabilities: Interest-bearing demand $ 301,052 55 0.07 % $ 261,907 85 0.13 % $ 295,388 58 0.08 % Money market 443,067 180 0.16 % 365,368 317 0.35 % 425,113 195 0.19 % Savings 163,227 41 0.10 % 138,500 95 0.28 % 154,199 48 0.13 % Certificates of deposit 139,391 303 0.87 % 142,955 467 1.31 % 134,520 338 1.02 % Federal Home Loan Bank of San Francisco ("FHLB") borrowings — — — % 16,044 5 0.13 % 3,889 — — % Other borrowings 10,000 138 5.54 % 9,976 184 7.42 % 10,000 137 5.56 % Junior subordinated debentures 10,310 47 1.83 % 10,310 61 2.38 % 10,310 46 1.81 % Average interest- bearing liabilities 1,067,047 764 0.29 % 945,060 1,214 0.52 % 1,033,419 822 0.32 % Noninterest-bearing demand 606,625 497,636 562,155 Other liabilities 16,293 17,095 16,711 Shareholders’ equity 179,329 167,036 178,162 Average liabilities and shareholders’ equity $ 1,869,294 $ 1,626,827 $ 1,790,447 Net interest income and net interest margin (4) $ 13,964 3.16 % $ 13,783 3.64 % $ 14,418 3.46 % (1) Interest income on loans, net of PPP includes net fees and costs of approximately $249 thousand , $138 thousand , and $204 thousand for the three months ended June 30, 2021 and 2020 and March 31, 2021, respectively. Interest income on PPP loans includes $806 thousand , $476 thousand and $1.4 million of net fees and costs for the three months ended June 30, 2021 and 2020 and March 31, 2021, respectively.(2) Loans, net of PPP includes average nonaccrual loans of $3.9 million , $5.6 million and $6.2 million for the three months ended June 30, 2021 and 2020 and March 31, 2021, respectively.(3) Interest income and yields on tax-exempt securities are presented on a nominal basis, not on a tax equivalent basis.(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Net interest income for the three months ended June 30, 2021 and 2020 and March 31, 2021 included $115 thousand , $216 thousand and $110 thousand , respectively, in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by 4, 7 and 4 basis points, respectively.(5) Yields and rates are calculated by dividing income or expense by the average balance of assets or liabilities, respectively.
TABLE 10b NET INTEREST MARGIN - UNAUDITED (dollars in thousands) For The Six Months Ended June 30, 2021 June 30, 2020 Average Yield / Average Yield / Balance Interest (1) Rate (5) Balance Interest (1) Rate (5) Interest-earning assets: Loans net of PPP (2) $ 1,024,343 $ 22,913 4.51 % $ 1,040,914 $ 24,749 4.78 % PPP loans 113,562 2,731 4.85 % 66,388 813 2.46 % Taxable securities 398,220 3,182 1.61 % 224,300 2,911 2.61 % Tax-exempt securities (3) 90,038 1,086 2.43 % 46,705 694 2.99 % Interest-bearing deposits in other banks 107,716 56 0.10 % 59,820 175 0.59 % Average interest- earning assets 1,733,879 29,968 3.49 % 1,438,127 29,342 4.10 % Cash and due from banks 21,781 21,775 Premises and equipment, net 14,858 15,591 Goodwill 11,671 11,671 Other intangible assets, net 3,838 4,604 Other assets 44,062 48,655 Average total assets $ 1,830,089 $ 1,540,423 Interest-bearing liabilities: Interest-bearing demand $ 298,236 113 0.08 % $ 247,641 185 0.15 % Money market 434,140 375 0.17 % 336,477 720 0.43 % Savings 158,738 89 0.11 % 137,002 213 0.31 % Certificates of deposit 136,969 641 0.94 % 145,098 931 1.29 % Federal Home Loan Bank of San Francisco ("FHLB") borrowings 1,934 — — % 8,132 5 0.12 % Other borrowings 10,000 275 5.55 % 9,970 368 7.42 % Junior subordinated debentures 10,310 93 1.82 % 10,310 151 2.95 % Average interest- bearing liabilities 1,050,327 1,586 0.30 % 894,630 2,573 0.58 % Noninterest-bearing demand 584,513 459,241 Other liabilities 16,501 16,974 Shareholders’ equity 178,748 169,578 Average liabilities and shareholders’ equity $ 1,830,089 $ 1,540,423 Net interest income and net interest margin (4) $ 28,382 3.30 % $ 26,769 3.74 % (1) Interest income on loans, net of PPP includes net fees and costs of approximately $453 thousand and $395 thousand for the six months ended June 30, 2021 and 2020, respectively. Interest income on PPP loans includes $2.2 million and $476 thousand of net fees and costs for the six months ended June 30, 2021 and 2020, respectively.(2) Loans, net of PPP includes average nonaccrual loans of $5.0 million and $5.5 million for the six months ended June 30, 2021 and 2020, respectively.(3) Interest income and yields on tax-exempt securities are presented on a nominal basis, not on a tax equivalent basis.(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Net interest income for the six months ended June 30, 2021 and 2020 included $225 thousand and $379 thousand , respectively, in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by 4 and 7 basis points, respectively.(5) Yields and rates are calculated by dividing 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 June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 ALLL beginning balance $ 17,027 $ 16,910 $ 16,873 $ 16,089 $ 15,067 Provision for loan and lease losses charged to expense — — — 1,100 1,300 Loans charged-off (72 ) (90 ) (86 ) (502 ) (356 ) Loan and lease loss recoveries 239 207 123 186 78 ALLL ending balance $ 17,194 $ 17,027 $ 16,910 $ 16,873 $ 16,089 At June 30, At March 31, At December 31, At September 30, At June 30, 2021 2021 2020 2020 2020 Nonaccrual loans: Commercial $ 1,506 $ 1,520 $ 1,535 $ 1,549 $ 7 Commercial real estate: Non-owner occupied 606 626 640 1,712 1,717 Owner occupied 89 95 3,094 3,100 2,992 Residential real estate: ITIN 1,463 1,529 1,585 1,574 1,738 1-4 family mortgage 133 137 141 145 180 Consumer and other 16 17 18 18 37 Total nonaccrual loans 3,813 3,924 7,013 8,098 6,671 Accruing troubled debt restructured loans: Commercial 430 494 498 531 592 Residential real estate: ITIN 3,374 3,420 3,466 3,597 3,642 Equity lines 112 121 126 131 221 Total accruing restructured loans 3,916 4,035 4,090 4,259 4,455 Total impaired loans $ 7,729 $ 7,959 $ 11,103 $ 12,357 $ 11,126 Gross loans at period end $ 1,090,745 $ 1,145,943 $ 1,139,732 $ 1,206,065 $ 1,206,340 Impaired loans to gross loans 0.71 % 0.69 % 0.97 % 1.02 % 0.92 % Impaired loans to gross loans (excluding PPP) (1) 0.75 % 0.77 % 1.10 % 1.19 % 1.07 % Nonaccrual loans to gross loans 0.35 % 0.34 % 0.62 % 0.67 % 0.55 % Nonaccrual loans to gross loans (excluding PPP) (2) 0.37 % 0.38 % 0.70 % 0.78 % 0.64 % Allowance for loan and lease losses as a percent of: Gross loans 1.58 % 1.49 % 1.48 % 1.40 % 1.33 % Gross loans (excluding PPP) (3) 1.67 % 1.66 % 1.68 % 1.62 % 1.54 % Nonaccrual loans 450.93 % 433.92 % 241.12 % 208.36 % 241.18 % Impaired loans 222.46 % 213.93 % 152.30 % 136.55 % 144.61 % (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 future losses. 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 or second quarter of 2021. Net loan loss recoveries were $167 thousand during the second quarter of 2021, $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. This compares with the second quarter of 2020 when concerns over COVID-19 necessitated a provision for loan and lease losses of $1.3 million .
Our ALLL methodology supported an ALLL of $17.2 million at June 30, 2021, an increase of 2% compared to our ALLL of $16.9 million at December 31, 2020 and an increase of 7% compared to our ALLL of $16.1 million at June 30, 2020. Management believes the Company’s ALLL is adequate at June 30, 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 June 30, 2021, the recorded investment in loans classified as impaired totaled $7.7 million , with a corresponding specific reserve of $159 thousand compared to impaired loans of $8.0 million , with a corresponding specific reserve of $188 thousand at March 31, 2021 and impaired loans of $11.1 million with a corresponding specific reserve of $270 thousand at June 30, 2020.
TABLE 12 TROUBLED DEBT RESTRUCTURINGS - UNAUDITED (dollars in thousands) At June 30, At March 31, At December 31, At September 30, At June 30, 2021 2021 2020 2020 2020 Nonaccrual $ 1,869 $ 1,947 $ 2,007 $ 2,063 $ 2,194 Accruing 3,916 4,035 4,090 4,259 4,455 Total troubled debt restructurings $ 5,785 $ 5,982 $ 6,097 $ 6,322 $ 6,649 Troubled debt restructurings as a percent of: Gross loans 0.53 % 0.52 % 0.53 % 0.52 % 0.55 % Gross loans (excluding PPP) (1) 0.56 % 0.58 % 0.60 % 0.61 % 0.64 % (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 June 30, 2021. As of June 30, 2021, 89 loans were classified as troubled debt restructurings, of which 88 were performing according to their restructured terms. Of the 89 troubled debt restructurings, 81 were ITIN loans totaling $4.6 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 who were 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 loan payment deferrals have ended and borrowers have resumed making payments. At June 30, 2021, payment deferrals were extant for 16 loans totaling $4.1 million compared to 26 loans totaling $4.1 million at March 31, 2021. Loans with a payment deferral at June 30, 2021 consisted of two SBA 504 commercial real estate loans totaling $3.2 million and 14 first trust deed residential mortgage loans totaling $827 thousand .
Past Due Loans
Past due loans as of June 30, 2021 decreased $3.3 million to $1.9 million , compared to $5.2 million as of June 30, 2020 and decreased $1.9 million compared to $3.8 million as of March 31, 2021. 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 first quarter of 2021, a $1.1 million commercial real estate loan that was repaid in the current quarter and a $626 thousand nonaccrual commercial real estate loan that was brought current in the current quarter.
The following table presents nonperforming assets at the dates indicated.
TABLE 13 NONPERFORMING ASSETS - UNAUDITED (dollars in thousands) At June 30, At March 31, At December 31, At September 30, At June 30, 2021 2021 2020 2020 2020 Total nonaccrual loans $ 3,813 $ 3,924 $ 7,013 $ 8,098 $ 6,671 90 days past due and still accruing — — — — — Total nonperforming loans 3,813 3,924 7,013 8,098 6,671 Other real estate owned ("OREO") — — 8 8 8 Total nonperforming assets $ 3,813 $ 3,924 $ 7,021 $ 8,106 $ 6,679 Gross loans $ 1,090,745 $ 1,145,943 $ 1,139,732 $ 1,206,065 $ 1,206,340 PPP loans (1) 59,058 117,991 130,814 163,493 162,189 Total gross loans, net of PPP loans $ 1,031,687 $ 1,027,952 $ 1,008,918 $ 1,042,572 $ 1,044,151 Nonperforming loans to gross loans 0.35 % 0.34 % 0.62 % 0.67 % 0.55 % Nonperforming loans to gross loans (excluding PPP) (2) 0.37 % 0.38 % 0.70 % 0.78 % 0.64 % Nonperforming assets to total assets 0.20 % 0.21 % 0.40 % 0.47 % 0.39 % (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 June 30, 2021.
TABLE 14 LOANS BY RATE INDEX AND PROJECTED REPRICING PERIOD - UNAUDITED (dollars in thousands) At June 30, 2021 Years 6 Through Beyond Rate Index: Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Year 10 Total Fixed $ 59,225 $ 67,622 $ 46,869 $ 44,062 $ 39,279 $ 217,043 $ 39,971 $ 514,071 Variable: Prime 61,925 4,939 6,593 5,116 8,584 329 — 87,486 5 Year Treasury 51,583 70,562 54,639 95,601 100,033 50,097 — 422,515 7 Year Treasury 2,901 4,465 5,315 — — — — 12,681 1 Year LIBOR 16,772 — — — — — — 16,772 Other Indexes 3,432 2,206 2,063 10,427 2,183 12,284 1,363 33,958 Total accruing variable rate loans 136,613 82,172 68,610 111,144 110,800 62,710 1,363 573,412 Nonaccrual 796 770 721 434 234 747 111 3,813 Total $ 196,634 $ 150,564 $ 116,200 $ 155,640 $ 150,313 $ 280,500 $ 41,445 $ 1,091,296
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 June 30, 2021 With Floors Without At Floor Rate Above Floor Rate Total Floors Total Prime $ 43,035 $ 6,055 $ 49,090 $ 38,396 $ 87,486 5 year Treasury 356,362 43,826 400,188 22,327 422,515 7 Year Treasury 12,681 — 12,681 — 12,681 1 Year LIBOR — 701 701 16,071 16,772 Other Indexes 16,639 815 17,454 16,504 33,958 Total accruing variable rate loans $ 428,717 $ 51,397 $ 480,114 $ 93,298 573,412 Nonaccrual 3,813 Total variable rate loans $ 577,225
TABLE 16 UNAUDITED CONSOLIDATED BALANCE SHEET (dollars in thousands, except per share data) At June 30, Change At March 31, 2021 2020 $ % 2021 Assets: Cash and due from banks $ 21,011 $ 29,630 $ (8,619 ) (29 ) % $ 20,053 Interest-bearing deposits in other banks 156,107 126,132 29,975 24 % 74,804 Total cash and cash equivalents 177,118 155,762 21,356 14 % 94,857 Securities available-for-sale, at fair value 579,664 280,200 299,464 107 % 517,375 Loans, net of deferred fees and costs 1,091,296 1,204,737 (113,441 ) (9 ) % 1,146,086 Allowance for loan and lease losses (17,194 ) (16,089 ) (1,105 ) (7 ) % (17,027 ) Net loans 1,074,102 1,188,648 (114,546 ) (10 ) % 1,129,059 Premises and equipment, net 14,514 15,466 (952 ) (6 ) % 14,792 Life insurance 24,462 23,968 494 2 % 24,320 Deferred tax asset, net 5,234 2,645 2,589 98 % 5,929 Goodwill 11,671 11,671 — — % 11,671 Other intangible assets, net 3,661 4,426 (765 ) (17 ) % 3,852 Other assets 26,727 29,110 (2,383 ) (8 ) % 27,247 Total assets $ 1,917,153 $ 1,711,896 $ 205,257 12 % $ 1,829,102 Liabilities and shareholders' equity: Demand - noninterest-bearing $ 627,911 $ 521,751 $ 106,160 20 % $ 603,991 Demand - interest-bearing 306,565 287,198 19,367 7 % 290,687 Money market 463,639 405,322 58,317 14 % 425,251 Savings 162,325 142,389 19,936 14 % 160,834 Certificates of deposit 136,898 137,647 (749 ) (1 ) % 133,630 Total deposits 1,697,338 1,494,307 203,031 14 % 1,614,393 Term debt: Federal Home Loan Bank of San Francisco ("FHLB") borrowings — 10,000 (10,000 ) (100 ) % — Other borrowings 10,000 10,000 — — % 10,000 Unamortized debt issuance costs — (19 ) 19 100 % — Net term debt 10,000 19,981 (9,981 ) (50 ) % 10,000 Junior subordinated debentures 10,310 10,310 — — % 10,310 Other liabilities 17,368 17,743 (375 ) (2 ) % 17,259 Total liabilities 1,735,016 1,542,341 192,675 12 % 1,651,962 Shareholders' equity: Common stock 59,422 58,749 673 1 % 59,215 Retained earnings 118,276 103,658 14,618 14 % 115,142 Accumulated other comprehensive income, net of tax 4,439 7,148 (2,709 ) (38 ) % 2,783 Total shareholders' equity 182,137 169,555 12,582 7 % 177,140 Total liabilities and shareholders' equity $ 1,917,153 $ 1,711,896 $ 205,257 12 % $ 1,829,102 Total interest-earning assets $ 1,820,765 $ 1,600,922 $ 219,843 14 % $ 1,734,314 Shares outstanding 16,896 16,739 157 1 % 16,876 Book value per share (1) $ 10.78 $ 10.13 $ 0.65 6 % $ 10.50 Tangible book value per share (1) $ 9.87 $ 9.17 $ 0.70 8 % $ 9.58 (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 For The Six Months Ended June 30, Change March 31, June 30, 2021 2020 $ % 2021 2021 2020 Interest income: Interest and fees on loans $ 12,429 $ 13,224 $ (795 ) (6 ) % $ 13,215 $ 25,644 $ 25,562 Interest on taxable securities 1,697 1,329 368 28 % 1,485 3,182 2,911 Interest on tax-exempt securities 575 423 152 36 % 511 1,086 694 Interest on interest-bearing deposits in other banks 27 21 6 29 % 29 56 175 Total interest income 14,728 14,997 (269 ) (2 ) % 15,240 29,968 29,342 Interest expense: Interest on demand deposits 55 85 (30 ) (35 ) % 58 113 185 Interest on money market 180 317 (137 ) (43 ) % 195 375 720 Interest on savings 41 95 (54 ) (57 ) % 48 89 213 Interest on certificates of deposit 303 467 (164 ) (35 ) % 338 641 931 Interest on FHLB borrowings — 5 (5 ) (100 ) % — — 5 Interest on other borrowings 138 184 (46 ) (25 ) % 137 275 368 Interest on junior subordinated debentures 47 61 (14 ) (23 ) % 46 93 151 Total interest expense 764 1,214 (450 ) (37 ) % 822 1,586 2,573 Net interest income 13,964 13,783 181 1 % 14,418 28,382 26,769 Provision for loan and lease losses — 1,300 (1,300 ) (100 ) % — — 4,150 Net interest income after provision for loan and lease losses 13,964 12,483 1,481 12 % 14,418 28,382 22,619 Noninterest income: Service charges on deposit accounts 160 152 8 5 % 148 308 321 ATM and point of sale fees 401 263 138 52 % 318 719 531 Payroll and benefit processing fees 160 143 17 12 % 169 329 313 Life insurance 123 148 (25 ) (17 ) % 121 244 271 Gain on investment securities, net 64 140 (76 ) (54 ) % 7 71 224 FHLB dividends 126 36 90 250 % 93 219 166 Legal settlement — — — — % 221 221 — Other income 97 73 24 33 % 86 183 21 Total noninterest income 1,131 955 176 18 % 1,163 2,294 1,847
TABLE 17 - CONTINUED UNAUDITED INCOME STATEMENT (dollars in thousands, except per share data) For The Three Months Ended For The Six Months Ended June 30, Change March 31, June 30, 2021 2020 $ % 2021 2021 2020 Noninterest expense: Salaries and related benefits 5,205 4,965 240 5 % 5,639 10,844 10,852 Premises and equipment 973 826 147 18 % 959 1,932 1,680 FDIC insurance premium 124 90 34 38 % 110 234 126 Data processing 546 585 (39 ) (7 ) % 548 1,094 1,116 Professional services 278 469 (191 ) (41 ) % 301 579 803 Telecommunications 145 156 (11 ) (7 ) % 170 315 327 Merger costs 817 — 817 100 % — 817 — Other expenses 1,191 1,179 12 1 % 1,170 2,361 3,149 Total noninterest expense 9,279 8,270 1,009 12 % 8,897 18,176 18,053 Income before provision for income taxes 5,816 5,168 648 13 % 6,684 12,500 6,413 Provision for income taxes 1,677 1,321 356 27 % 1,764 3,441 1,650 Net income $ 4,139 $ 3,847 $ 292 8 % $ 4,920 $ 9,059 $ 4,763 Earnings per share - basic $ 0.25 $ 0.23 $ 0.02 9 % $ 0.29 $ 0.54 $ 0.28 Weighted average shares - basic 16,736 16,660 76 — % 16,706 16,721 17,178 Earnings per share - diluted $ 0.25 $ 0.23 $ 0.02 9 % $ 0.29 $ 0.54 $ 0.28 Weighted average shares - diluted 16,823 16,689 134 1 % 16,778 16,803 17,217
TABLE 18 UNAUDITED CONDENSED CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEETS (dollars in thousands) For The Three Months Ended June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Earning assets: Loans $ 1,135,521 $ 1,140,315 $ 1,172,705 $ 1,209,277 $ 1,180,915 Taxable securities 437,710 358,291 304,242 228,045 211,195 Tax-exempt securities 97,637 82,355 73,207 68,766 58,540 Interest-bearing deposits in other banks 104,152 111,320 124,390 95,348 72,507 Total earning assets 1,775,020 1,692,281 1,674,544 1,601,436 1,523,157 Cash and due from banks 21,819 21,744 22,413 23,381 21,564 Premises and equipment, net 14,715 15,001 15,162 15,365 15,428 Life insurance 24,395 24,265 24,147 24,028 23,899 Deferred tax asset, net 5,599 4,287 2,738 2,501 3,016 Goodwill 11,671 11,671 11,671 11,671 11,671 Other intangible assets, net 3,743 3,934 4,126 4,318 4,508 Other assets 12,332 17,264 20,136 21,416 23,584 Total assets $ 1,869,294 $ 1,790,447 $ 1,774,937 $ 1,704,116 $ 1,626,827 Liabilities and shareholders' equity: Demand - noninterest-bearing $ 606,625 $ 562,155 $ 552,601 $ 531,459 $ 497,636 Demand - interest-bearing 301,052 295,388 283,213 279,744 261,907 Money market 443,067 425,113 430,014 387,995 365,368 Savings 163,227 154,199 151,223 146,074 138,500 Certificates of deposit 139,391 134,520 138,380 139,757 142,955 Total deposits 1,653,362 1,571,375 1,555,431 1,485,029 1,406,366 Federal Home Loan Bank of San Francisco ("FHLB") borrowings — 3,889 7,120 10,000 16,044 Other borrowings 10,000 10,000 9,999 9,988 9,976 Junior subordinated debentures 10,310 10,310 10,310 10,310 10,310 Other liabilities 16,293 16,711 17,557 17,356 17,095 Total liabilities 1,689,965 1,612,285 1,600,417 1,532,683 1,459,791 Shareholders' equity 179,329 178,162 174,520 171,433 167,036 Liabilities & shareholders' equity $ 1,869,294 $ 1,790,447 $ 1,774,937 $ 1,704,116 $ 1,626,827
TABLE 19 UNAUDITED CONDENSED CONSOLIDATED YEAR TO DATE AVERAGE BALANCE SHEETS (dollars in thousands) For The Six Months Ended For The Twelve Months Ended June 30, June 30, December 31, December 31, December 31, 2021 2020 2020 2019 2018 Earning assets: Loans $ 1,137,905 $ 1,107,302 $ 1,149,375 $ 1,020,801 $ 915,360 Taxable securities 398,220 224,300 245,336 246,723 207,407 Tax-exempt securities 90,038 46,705 58,912 38,706 50,330 Interest-bearing deposits in other banks 107,716 59,820 84,982 54,095 47,038 Total earning assets 1,733,879 1,438,127 1,538,605 1,360,325 1,220,135 Cash and due from banks 21,781 21,775 22,339 22,806 20,468 Premises and equipment, net 14,858 15,591 15,426 15,598 13,952 Life insurance 24,330 23,968 23,960 23,371 22,148 Deferred tax asset, net 4,947 2,645 3,126 5,430 7,567 Goodwill 11,671 11,671 11,671 10,758 665 Other intangible assets, net 3,838 4,604 4,412 4,807 1,252 Other assets 14,785 22,042 20,980 15,017 2,654 Total assets $ 1,830,089 $ 1,540,423 $ 1,640,519 $ 1,458,112 $ 1,288,841 Liabilities and shareholders' equity: Demand - noninterest-bearing $ 584,513 $ 459,241 $ 500,862 $ 400,588 $ 332,197 Demand - interest-bearing 298,236 247,641 264,652 242,516 238,328 Money market 434,140 336,477 372,939 304,340 250,685 Savings 158,738 137,002 142,857 136,733 109,025 Certificates of deposit 136,969 145,098 142,067 160,550 168,183 Total deposits 1,612,596 1,325,459 1,423,377 1,244,727 1,098,418 Federal Home Loan Bank of San Francisco ("FHLB") borrowings 1,934 8,132 8,347 9,644 22,466 Other borrowings 10,000 9,970 9,981 10,895 15,143 Junior subordinated debentures 10,310 10,310 10,310 10,310 10,310 Other liabilities 16,501 16,974 17,217 17,894 12,286 Total liabilities 1,651,341 1,370,845 1,469,232 1,293,470 1,158,623 Shareholders' equity 178,748 169,578 171,287 164,642 130,218 Liabilities & shareholders' equity $ 1,830,089 $ 1,540,423 $ 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