Watch List: Bank of Commerce Holdings (NASDAQ: BOCH)

On Wednesday, Shares of Bank of Commerce Holdings (NASDAQ: BOCH) showed the bearish trend with a lower momentum of -0.22% and ended its trading session at $11.48. The company traded total volume of 11,800 shares as contrast to its average volume of 40.70K shares. The company has a market value of $185.50M and about 16.13M shares outstanding. During the 52-week trading session, the minimum price at which share price traded was registered at $9.34 and reached the max level of $12.40.

Bank of Commerce Holdings (BOCH), a $1.30B asset bank holding company and parent company of Redding Bank of Commerce, recently declared financial results for the quarter and the year ended December 31, 2017. Net income for the quarter ended December 31, 2017 was $7 thousand or $0.00 per share – diluted, contrast with net income of $2.30M or $0.17 per share – diluted for the same period of 2016. Net income for the year ended December 31, 2017 was $7.30M or $0.48 per share – diluted contrast with $5.30M or $0.39 per share – diluted for the year ended December 31, 2016.

Noteworthy Item – Tax Cuts and Jobs Act of 2017

The 2017 results include the $2.50M negative net impact of the Tax Cuts and Jobs Act of 2017(“Act”) for both the fourth quarter ($0.15 per share – diluted) and for the year ($0.16 per share – diluted). The Act reduced the federal corporate tax rate from 35% to 21% and required the Company to revalue its deferred tax assets and liabilities.

Financial highlights for the year ended December 31, 2017:

  • Average deposits for the year ended December 31, 2017 totaled $1.00B, a boost of $115.10M (12%) contrast to average deposits for the prior year.
  • Average loans for the year ended December 31, 2017 totaled $818.10M, a boost of $65.20M (9%) contrast to average loans for the prior year.
  • Average earning assets totaled $1.10B for the year ended December 31, 2017, a boost of $116.80M (12%) contrast to average earning assets for the prior year.
  • Net income of $7.30M or $0.48 per share – diluted for the year ended December 31, 2017 was a boost of $2.10M (40%) from $5.30M or $0.39 per share – diluted earned during the same period in the prior year. Net income for 2016 was negatively influenced by $3.00M of branch acquisition and balance sheet restructuring costs, a $546 thousand other-than-temporary-impairment of an investment security and the write-off of a $363 thousand deferred tax asset.
  • Return on average assets improved to 0.61% for the year ended December 31, 2017 contrast to 0.49% for the prior year.
  • Return on average equity improved to 6.34% for the year ended December 31, 2017 contrast to 5.68% for the prior year.
  • The Company’s efficiency ratio was 67.0% for the year ended December 31, 2017 contrast to 81.9% for the prior year.
  • Net interest income increased $5.10M (14%) to $41.40M for the year ended December 31, 2017 contrast to $36.20M for the prior year.
  • Nonperforming assets at December 31, 2017 totaled $5.80M or 0.46% of total assets, a decrease of $6.30M (52%) contrast to December 31, 2016.
  • Tangible book value per common share was $7.70 at December 31, 2017 contrast to $6.83 at December 31, 2016.

Financial highlights for the fourth quarter of 2017:

  • Average deposits for the three months ended December 31, 2017 totaled $1.10B, a boost of $28.70M (11% annualized) contrast to average deposits for the prior quarter.
  • Average loans for the three months ended December 31, 2017 totaled $839.00M, a boost of $33.90M (17% annualized) contrast to average loans for the prior quarter.
  • Average earning assets for the three months ended December 31, 2017 totaled $1.20B, a boost of $31.90M (11% annualized) contrast to average earning assets for the prior quarter.
  • Net income of $7 thousand or $0.00 per share – diluted for the three months ended December 31, 2017 was a decrease of $2.30M (100%) from $2.30M or $0.17 per share – diluted earned during the same period in the prior year.
  • Return on average assets declined to 0.00% for the fourth quarter of 2017 contrast to 0.81% for the same period in the prior year.
  • Return on average equity declined to 0.02% for the fourth quarter of 2017 contrast to 9.69% for the same period in the prior year.
  • The Company’s efficiency ratio was 64.9% for the fourth quarter of 2017 contrast to 73.2% during the same period in 2016.
  • Net interest income increased $1.40M (15%) to $10.90M for the fourth quarter of 2017 contrast to $9.40M for the same period in the prior year.
  • Nonperforming assets at December 31, 2017 totaled $5.80M or 0.46% of total assets, a decrease of $2.50M since September 30, 2017.

BALANCE SHEET OVERVIEW:

As of December 31, 2017, the Company had total consolidated assets of $1.30B, gross loans of $879.80M, allowance for loan and lease losses (“ALLL”) of $11.90M, total deposits of $1.10B, and shareholders’ equity of $127.30M.

The Company recorded gross loan balances of $879.80M at December 31, 2017, contrast with $804.20M and $824.90M at December 31, 2016 and September 30, 2017, respectively, a boost of $75.60M and $55.00M, respectively. The increase in gross loans contrast to the same period a year ago and the prior period was driven by organic loan originations and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.

Average loan balances were $839.00M for the quarter ended December 31, 2017, contrast with $778.5 for the quarter ended December 31, 2016 and $805.10M for the quarter ended September 30, 2017, a boost of $60.50M or 8% and a boost of $33.90M or 17% annualized, respectively.

As of December 31, 2017, we maintained noninterest-bearing cash positions of $18.00M and interest-bearing deposits of $49.00M at the Federal Reserve Bank and correspondent banks. During the fourth quarter of 2017, we deployed liquidity offered by the sale of common stock and strong organic deposit growth into organic loan originations, and AFS securities.

Investment securities totaled $268.00M at December 31, 2017, contrast with $206.40M and $263.20M at December 31, 2016 and September 30, 2017, respectively. Our investment securities portfolio provides us with a secondary source of liquidity to fund higher yielding asset opportunities, such as loan originations. During the fourth quarter of 2017, we purchased 20 securities with a par value of $29.60M and weighted average yield of 2.71% and sold 19 securities with a par value of $16.00M and weighted average yield of 2.33%. The sales activity on available-for-sale securities resulted in $2 thousand in net realized losses. There were no purchases or sales of held-to-maturity securities during the fourth quarter of 2017. During the same period, we received $7.40M in proceeds from principal payments, calls and maturities within the investment securities portfolio. Average securities balances and weighted average tax equivalent yields for the quarters ended December 31, 2017 and 2016 were $272.00M and 2.94% contrast to $197.20M and 3.02%, respectively.

At December 31, 2017, our net unrealized losses on available-for-sale investment securities were $452 thousand contrast with net unrealized losses of $1.30M and net unrealized gains of $630 thousand at December 31, 2016 and September 30, 2017, respectively. The changes in the net unrealized gain or loss on the investment securities portfolio are mainly because of changes in market interest rates and the reclassification of all HTM securities to AFS during the fourth quarter of 2017.

Total deposits at December 31, 2017, increased $98.10M or 10% to $1.10B contrast to December 31, 2016, and increased $39.90M or 15% annualized contrast to September 30, 2017. Total non-maturing deposits increased $124.20M or 16% contrast to the same date a year ago and increased $51.20M or 24% annualized contrast to September 30, 2017. Certificates of deposit reduced $26.10M or 12% contrast to the same date a year ago and reduced $11.20M or 23% annualized contrast to September 30, 2017.

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $66.30M, $65.20M and $56.20M at December 31, 2017, December 31, 2016 and September 30, 2017, respectively.

INCOME STATEMENT OVERVIEW:

Fourth Quarter of 2017 Contrast with Fourth Quarter of 2016:

Income before provision for income taxes for the fourth quarter of 2017 increased $941 thousand contrast to the fourth quarter of 2016. In the current quarter, net interest income was $1.40M higher and noninterest income was $22 thousand higher. These positive changes were offset by provision for loan and lease losses that was $450 thousand higher and noninterest expense that was $66 thousand higher.

Net Interest Income:

Net interest income increased $1.40M contrast to the same period a year ago.

Interest income for the three months ended December 31, 2017 increased $1.50M or 15% to $12.00M. Interest and fees on loans increased $902 thousand because of a $60.50M increase in average loan balances and an eight basis point increase in the average yield on the loan portfolio. Interest on securities increased $513 thousand because of a $74.80M increase in average securities balances and a six basis point increase in the average yield on the securities portfolio. Interest on interest-bearing deposits due from banks increased $114 thousand mainly because of a 75 basis point increase in average yield resulting from increased fed funds rates.

Interest expense for the fourth quarter of 2017 increased $94 thousand or 9% to $1.20M. The increase was mainly caused by a two basis point increase in the average rate paid on interest-bearing deposits and a $60.70M increase in average interest-bearing demand deposits.

Provision for loan and lease loss:

During the three months ended December 31, 2017 the company recorded a provision for loan and lease losses of $450 thousand reflecting growth in the loan portfolio. There was no provision for loan and lease losses during the fourth quarter of 2016.

Noninterest Income:

Noninterest income for the three months ended December 31, 2017 increased $22 thousand contrast to the fourth quarter for 2016. Net Gains on sale of OREO properties increased $336 thousand while FHLB dividends reduced $272 thousand (a special dividend was recorded during the prior year).

Noninterest Expense:

Noninterest expense for the three months ended December 31, 2017 increased $66 thousand contrast to the same period a year previous. The increase in noninterest expense was mainly because of the following negative items:

  • Compensation costs increased $286 thousand
  • Premises and equipment costs increased $51 thousand

These increases were partially offset by the following positive items:

  • Professional service fees reduced $202 thousand
  • Data processing fees reduced $78 thousand

The Company’s efficiency ratio was 64.9% for the fourth quarter of 2017 contrast to 73.2% during the same period in 2016.

Income Tax Provision:

For the three months ended December 31, 2017, our income tax provision of $3.80M on pre-tax income of $3.80M was an effective tax rate of 99.8%. The income tax provision was composed of a $2.50M write-down of our deferred tax assets and a $1.30M tax provision on pre-tax net operating income of $3.80M (34.5%). The $2.50M write-down occurred when we revalued our deferred tax assets and liabilities to account for the future impact of lower corporate tax rates resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017.

This compares with a provision for income taxes of $572 thousand (19.9% effective tax rate) for the three months ended December 31, 2016. This effective tax rate benefited from a decrease in the amortization of our investments in affordable housing partnerships.

Fourth Quarter of 2017 Contrast with Third Quarter of 2017:

Income before provision for income taxes for the fourth quarter of 2017 reduced $493 thousand contrast to the third quarter of 2017. In the current quarter, net interest income was $285 thousand higher and noninterest income was $206 thousand higher. These positive changes were offset by a provision for loan and lease losses that was $450 thousand higher and noninterest expenses that were $534 thousand higher.

Net Interest Income:

Net interest income increased $285 thousand over the prior quarter.

Interest income for the three months ended December 31, 2017 increased $282 thousand or 2% to $12.00M. Interest and fees on loans increased $196 thousand because of a $33.90M increase in average loan balances. Interest on investment securities increased $140 thousand because of a $15.30M increase in average securities balances and a seven basis point increase in average yield on the securities portfolio. Interest on interest-bearing deposits due from banks reduced $54 thousand because of a $17.30M decrease in average balances.

Interest expense for the three months ended December 31, 2017 reduced $3 thousand or less than 1% to $1.20M. The average rate paid on interest-bearing deposits reduced 1 basis point to 42 basis points. Average interest-bearing demand deposit balances increased $24.30M while average certificate of deposit balances reduced $9.20M.

Provision for loan and lease loss:

During the three months ended December 31, 2017 the company recorded a provision for loan and lease losses of $450 thousand reflecting growth in the loan portfolio. There was no provision for loan and lease losses during the prior quarter.

Noninterest Income:

Noninterest income for the three months ended December 31, 2017 increased $206 thousand. During the current quarter gains on sale of OREO increased $265 thousand.

Noninterest Expense:

Noninterest expense for the three months ended December 31, 2017 increased $534 thousand contrast to the third quarter of 2017. The increase in noninterest expense included the following items:

  • Loan origination cost deferrals reduced $110 thousand
  • Employee incentive and other compensation-related costs increased $122 thousand
  • Postage and supplies increased $80 thousand because of costs associated with the annual deposit account disclosures
  • Recruiting costs increased $82 thousand

The Company’s efficiency ratio was 64.9% for the fourth quarter of 2017 contrast to 63.1% during the prior quarter.

Income Tax Provision:

For the three months ended December 31, 2017, our income tax provision of $3.80M on pre-tax income of $3.80M was an effective tax rate of 99.8%. The income tax provision was composed of a $2.50M write-down of our deferred tax assets and a $1.30M tax provision on pre-tax net operating income of $3.80M (34.5%). The $2.50M write-down occurred when we revalued our deferred tax assets and liabilities to account for the future impact of lower corporate tax rates resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017. This compares with a provision for income taxes of $1.40M (33.2% effective tax rate) for the prior quarter.

The Company offered net profit margin of 20.50%. ROE was recorded as 8.20% while beta factor was 0.39.

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Hot Stocks Point Staff

Hot Stocks Point Staff includes Robert Ebelling, Rene P. Todd, Robert McCormick, Patricia Myles and Frank Redding.Hot Stocks Point Staff believes that there are emerging and growing companies across various industry sectors with sizeable hidden value. Market disruptive discovery and innovation often occurs in small to mid-size companies that are either misunderstood or underrepresented. So they focus on identifying these companies and uncovering their stories before the rest of the market to ensure that you receive the full story – every single day.

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