e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-25135
(Exact name of Registrant as specified in its charter)
|
|
|
California
|
|
94-2823865 |
(State or jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification Number) |
|
|
|
1901 Churn Creek Road |
|
|
Redding, California
|
|
96002 |
(Address of principal executive offices)
|
|
(Zip Code) |
Registrants telephone number, including area code: (530) 722-3955
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
|
|
|
Common Stock, No Par Value per share
|
|
NASDAQ Global Market |
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes o No þ
Note Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those
Sections.
Indicate by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of the
Registrants knowledge, in definitive proxy or information statements incorporated by
reference to Part III of this Form 10-K or any amendment to this Form 10-K. Yes o No
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer, and smaller reporting company in Rule
12b-(2) of the Exchange Act. (Check one).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller Reporting Company þ |
|
|
(Do not check if a smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act) Yes o No þ
State the aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was last sold,
or the average bid and asked price of such common equity, as of the last business day of
the registrants most recently completed second fiscal quarter.
As of the last day of the second fiscal quarter of 2009, the aggregate market value of the
registrants common stock held by non-affiliates of the registrant was $36,534,116 based on
the closing sale price of $5.70 as reported on the NASDAQ Global Market as of June 30,
2009.
Indicate the number of shares outstanding of each of the issuers classes of common stock,
as of the last practicable date.
The number of shares of the registrants no par value Common Stock outstanding as of March
5, 2010 was 8,711,495
DOCUMENTS INCORPORATED BY REFERENCE
None
Bank of Commerce Holdings Form 10-K
Table of Contents
2
PART I
Special Note Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of the Securities Exchange Act
of 1934 (Exchange Act) and the Private Securities Litigation Reform Act of 1995. These
statements are based on managements beliefs and assumptions, and on information available to
management as of the date of this document. Forward-looking statements include the information
concerning possible or assumed future results of operations of the Company set forth under the
heading Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking statements also include statements in which words such as expects, anticipates,
intend, plan, believes, estimate, consider or similar expressions or conditional verbs
such as will, should, would and could are intended to identify such forward looking
statements. Forward-looking statements are not guarantees of future performance. They involve
risks, uncertainties and assumptions. The Companys actual future results and shareholder values
may differ materially from those anticipated and expressed in these forward-looking statements.
Many of the factors that will determine these results and values are beyond the Companys ability
to control or predict. Investors are cautioned not to put undue reliance on any forward-looking
statements. In addition, the Company does not have any intention and assumes no obligation to
update forward-looking statements after the date of the filing of this report, even if new
information, future events or other circumstances have made such statements incorrect or
misleading. Except as specifically noted herein all references to the Company refer to Bank of
Commerce Holdings, a California corporation, and its consolidated subsidiaries.
The following factors, among others, could cause our actual results to differ materially from those
expressed in such forward-looking statements:
|
|
|
The strength of the United States economy in general and the strength of the local
economies in which we conduct operations, the duration of current financial and economic
volatility and decline and actions taken by the United States Congress and governmental
agencies, including the United States Department of the Treasury (the Treasury), to
deal with challenges to the United States financial system; |
|
|
|
|
The effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal Reserve System,
or the Federal Reserve Board; |
|
|
|
|
Inflation, interest rate, market and monetary fluctuations, the risks presented by a
continued economic recession, which could adversely affect credit quality, collateral
values, investment values and liquidity; |
|
|
|
|
Changes in the financial performance and/or condition of our borrowers; |
|
|
|
|
Changes in consumer spending, borrowing and savings habits; |
|
|
|
|
Changes in the level of our nonperforming assets and charge-offs; |
|
|
|
|
Oversupply of inventory and continued deterioration in values of real estate in
California and the United States generally, both residential and commercial; |
|
|
|
|
Changes in securities markets, public debt markets and other capital markets; |
|
|
|
|
Possible other-than-temporary impairments of securities held by us; |
|
|
|
|
The timely development of competitive new products and services and the acceptance of
these products and services by new and existing customers; |
|
|
|
|
The willingness of customers to substitute competitors products and services for our
products and services; |
|
|
|
|
The impact of changes in financial services policies, laws and regulations, including
laws, regulations and policies concerning taxes, banking, securities and insurance, and
the application thereof by regulatory bodies; |
|
|
|
|
Technological changes could expose us to new risks, including potential systems
failures or fraud; |
|
|
|
|
The timing and effect of acquisitions we may make, if any, including, without
limitation, the failure to achieve the expected revenue growth and/or expense savings
from such acquisitions; |
|
|
|
|
Possible impairment of goodwill that has been recorded in connection with acquisitions
which may have a material adverse impact on our earnings; |
|
|
|
|
The effect of changes in accounting policies and practices, as may be adopted from
time-to-time by bank regulatory agencies, the Securities and Exchange Commission (the
SEC), the Public Company Accounting Oversight Board, the Financial Accounting Standards
Board or other accounting standards setters; |
|
|
|
|
The impact of current governmental efforts to restructure the United States financial
regulatory system, including changes in the scope and cost of FDIC insurance and other
coverages and changes in the Treasurys Capital Purchase Program; |
3
|
|
|
Ability to attract deposits and other sources of liquidity at acceptable costs; |
|
|
|
|
Changes in the competitive environment among financial and bank holding companies and
other financial service providers; |
|
|
|
|
The loss of critical personnel and the challenge of hiring qualified personnel at
reasonable compensation levels; |
|
|
|
|
Geopolitical conditions, including acts or threats of war or terrorism, actions taken
by the United States or other governments in response to acts or threats of war or
terrorism and/or military conflicts, which could impact business and economic conditions
in the United States and abroad; |
|
|
|
|
Unanticipated regulatory or judicial proceedings; and |
|
|
|
|
Our ability to manage the risks involved in the foregoing. |
If our assumptions regarding one or more of the factors affecting our forward-looking information
and statements proves incorrect, then our actual results, performance or achievements could differ
materially from those expressed in, or implied by, forward-looking information and statements
contained in this prospectus and in the information incorporated by reference in this prospectus.
Therefore, we caution you not to place undue reliance on our forward-looking information and
statements. We will not update the forward-looking statements to reflect actual results or changes
in the factors affecting the forward-looking statements.
Forward-looking statements should not be viewed as predictions, and should not be the primary basis
upon which investors evaluate us. Any investor in our common stock should consider all risks and
uncertainties discussed in BUSINESS RISK FACTORS and in the MD&A.
Bank of Commerce Holdings (Company,, Holding Company, We, or Us) is a corporation organized
under the laws of California and a financial holding company (FHC) registered under the Bank
Holding Company Act of 1956, as amended (BHC Act). Our principal business is to serve as a
holding company for Redding Bank of Commercetm (Bank), which operates under
two separate names (Redding Bank of Commercetm and Roseville Bank of
Commercetm) and for Bank of Commerce Mortgagetm, our
majority-owned mortgage brokerage subsidiary. We also have two unconsolidated subsidiaries, Bank
of Commerce Holdings Trust and Bank of Commerce Holdings Trust II, which were organized in
connection with our prior issuances of trust preferred securities. Our common stock is traded on
the NASDAQ Global Market under the symbol BOCH.
The Company commenced banking operations in 1982 and currently operates four full service
facilities in two diverse markets in Northern California. We are proud of the Banks reputation as
one of Northern Californias premier banks for business. During 2007, we re-branded the Bank as
Bank of Commerce ï Bank of Choicetm reflecting a renewed commitment to
making the Bank the choice for local businesses with a fresh focus on family and personal finances.
We provide a wide range of financial services and products for business and consumer banking. The
services offered by the Bank include those traditionally offered by banks of similar size in
California, such as free checking, interest-bearing checking and savings accounts, money market
deposit accounts, sweep arrangements, commercial, construction and term loans, travelers checks,
safe deposit boxes, collection services and electronic banking activities. The Bank is an
affiliate of LPL Financial and offers wealth management services through that affiliation.
In order to enhance our noninterest income, in May 2009 we acquired 51.0% of the capital stock of
Simonich Corporation, a successful state of the art mortgage broker of residential real estate
loans headquartered in San Ramon, California, with ten offices in three different states and
licenses in California, Oregon, Washington, Idaho and Colorado. The business was formed in 1993
and funds over $1.0 billion of first mortgages annually. The acquisition allows us to penetrate
into the mortgage brokerage services market at our current bank locations and to share in the
income on mortgage transactions nationwide. On July 1, 2009 we changed the mortgage companys name
to Bank of Commerce Mortgagetm in order to enhance our name recognition
throughout Northern California. The services offered by Bank of Commerce
Mortgagetm include brokerage mortgages for single and multi-family residential
new financing, refinancing and equity lines of credit which are then sold, servicing included, on
the secondary market or to correspondent relationships.
We continuously search for both organic and external expansion opportunities, through internal
growth, strategic alliances, acquisitions, establishing a new office or the delivery of new
products and services.
4
Systematically, we will reevaluate the short and long-term profitability of all of our lines of
business, and will not hesitate to reduce or eliminate unprofitable locations or lines of business.
We remain a viable, independent bank committed to enhancing shareholder value. This commitment
has been fostered by proactive management and dedication to our staff, customers, and the markets
we serve.
Our vision is to embrace changes in the industry and develop profitable business strategies that
allow us to maintain our customer relationships and build new ones. Our competitors are no longer
just banks; we must compete with a myriad of other financial entities that compete for our core
business. The flexibility provided by our status as a financial holding company has become
increasingly important. We have developed strategic plans that evaluate additional financial
services and products that can be delivered to our customers efficiently and profitably. Producing
quality returns is, as always, a top priority.
Our governance structure enables us to manage all major aspects of our business effectively through
an integrated process that includes financial, strategic, risk and leadership planning. Our
management processes, structures and policies and procedures help to ensure compliance with laws
and regulations and provide clear lines for decision-making and accountability. Results are
important, but we are equally concerned with how we achieve those results. Our core values and
commitment to high ethical standards is material to sustaining public trust and confidence in our
Company.
Our primary business strategy is to provide comprehensive banking and related services to small and
mid-sized businesses, not-for-profit organizations, and professional service providers as well as
banking services for consumers, primarily business owners and their key employees. We emphasize
the diversity of our product lines and high levels of personal service and, through our technology,
offer convenient access typically associated with larger financial institutions, while maintaining
the local decision-making authority and market knowledge, typical of a local community bank.
Management intends to pursue our business strategy through the following initiatives:
Utilize the Strength of Our Management Team. The experience, depth and knowledge of our management
team represent one of our greatest strengths and competitive advantages. Our Senior Leadership
Committee establishes short and long-term strategies, operating plans and performance measures and
reviews our performance to plan on a monthly basis. Our Credit Round Table Committee recommends
corporate credit practices and limits, including industry concentration limits and approval
requirements and exceptions. Our Technology Steering Committee establishes technological
strategies, makes technology investment decisions, and manages the implementation process. Our
ALCO Round Table Committee establishes and monitors liquidity ranges, pricing, maturities,
investment goals, and interest spread on balance sheet accounts. Our SOX 404 Compliance Team has
established the master plan for full documentation of the Companys internal controls and
compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
Leverage Our Existing Foundation for Additional Growth. Based on our managements depth of
experience and certain infrastructure investments, we believe that we will be able to take
advantage of certain economies of scale typically enjoyed by larger organizations to expand our
operations both organically and through strategic cost-effective avenues. We believe that there
will be significant opportunities to acquire failing institutions or their assets through loss
sharing agreements with the FDIC, buy branches from struggling banks in our market areas looking to
raise capital, and acquire entire franchises for little to no premium. We also believe that the
investments we have made in our data processing, staff and branch network will be able to support a
much larger asset base. We are committed, however, to control any additional growth in a manner
designed to minimize risk and to maintain strong capital ratios. We believe that the net proceeds
raised in this offering will assist us in implementing our growth strategies by providing the
capital necessary to support future asset growth, both organically and through strategic
acquisitions.
Maintain Local Decision-Making and Accountability. We believe we have a competitive advantage over
larger national and regional financial institutions by providing superior customer service with
experienced, knowledgeable management, localized decision-making capabilities and prompt credit
decisions. We believe that our customers want to deal directly with the people who make the
ultimate credit decisions and have provided our Bank managers and loan officers with the authority
commensurate with their experience and history which we believe strikes the right balance between
local decision-making and sound banking practice.
Focus on Asset Quality and Strong Underwriting. We consider asset quality to be of primary
importance and have taken measures to ensure that, despite the turbulent economy and growth in our
loan portfolio, we consistently maintain strong asset quality. As part of our efforts, we utilize
a third party loan review service to evaluate our loan portfolio on a quarterly basis and recommend
action on certain loans if deemed appropriate. As of December 31, 2009, we had
5
$15.6 million in nonperforming assets, including other real estate owned of $2.9 million, which as
a percentage of total assets was 2.27%. We also seek to maintain a prudent allowance for loan
losses, which at December 31, 2009 was $11.2 million, representing 1.86% of our loan portfolio.
Build a Stable Core Deposit Base. We will continue to grow a stable core deposit base of business
and retail customers. In the event that our asset growth outpaces these local core deposit funding
sources, we will continue to utilize Federal Home Loan Bank borrowings and raise deposits in the
national market using deposit intermediaries. We intend to continue our practice of developing a
full deposit relationship with each of our loan customers, their business partners, and key
employees. We will continue to use hot spot consumer depositories with state of the art
technologies in highly convenient locations to enhance our core deposit base.
Our principal executive offices are located at 1951 Churn Creek Road, Redding, California and the
telephone number is (530) 722-3939.
General
Parent Bank Holding Company. As a financial holding company, the Parent is subject to regulation
under the BHC Act and to inspection, examination and supervision by its primary regulator, the
Board of Governors of the Federal Reserve System (Federal Reserve Board or FRB). The Parent is
also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, both as administered by the
Securities and Exchange Commission (SEC). As a listed Company on the NASDAQ Global Market, the
Parent is subject to the rules of the NASDAQ for listed companies.
Subsidiary Bank. The Companys subsidiary bank is subject to regulation and examination primarily
by the Federal Deposit Insurance Corporation (FDIC) and by the California Department of Financial
Institutions (CDFI).
Nonbank Subsidiary. The Companys nonbank subsidiary may be subject to the laws and regulations of
the federal government and/or the State of California.
Parent Holding Company Activities
Financial in Nature Requirement. As a bank holding company that has elected to become a
financial holding company pursuant to the Gramm-Leach-Bliley Financial Modernization Act of 1999
(GLB Act), we may affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature or incidental or complementary to activities that are
financial in nature. Financial in Nature activities include securities underwriting, dealing and
market making, sponsoring mutual funds and investment companies, insurance underwriting and agency,
merchant banking, and activities that the FRB, in consultation with the Secretary of the U.S.
Treasury, determines from time to time to be financial in nature or incidental to such financial
activity or is complementary to a financial activity and does not pose a safety and soundness risk.
FRB approval is not required for the Company to acquire a company (other than a bank holding
company, bank or savings association) engaged in activities that are financial in nature or
incidental to activities that are financial in nature, as determined by the FRB. Notice of such
acquisitions, however, must be given to the FRB within 30 days of commencing a new financial
activity or acquiring a company engaged in financial in nature activities. Prior FRB approval is
required before the Company may acquire the beneficial ownership or control of more than 5% of the
voting shares or substantially all of the assets of a bank holding company, bank or savings
association.
Because the Holding Company is a financial holding company, if the Bank receives a rating under the
Community Reinvestment Act of 1977, as amended (CRA), of less than satisfactory, the Company will
be prohibited, until the rating is raised to satisfactory or better, from engaging in new
activities or acquiring companies other than bank holding companies, banks or savings associations.
The Company could engage in new activities, or acquire companies engaged in activities that are
closely related to banking under the BHC Act.
6
In addition, if the FRB finds that the Bank is not well capitalized or well managed, the Holding
Company could be required to enter into an agreement with the FRB to comply with all applicable
capital and management requirements and which may contain additional limitations or conditions.
Until corrected, the Company would not be able to engage in any new activity or acquire companies
engaged in activities that are not closely related to banking under the BHC Act without prior FRB
approval. If the Company failed to correct any such condition within a prescribed period, the FRB
could order the Company to divest the Bank or, in the alternative, to cease engaging in activities
other than those closely related to banking under the BHC Act.
To qualify as well-capitalized, the Bank must, on a consolidated basis: (i) maintain a total
risk-based capital ratio of 10% or greater, (ii) maintain a Tier 1 risk-based capital ratio of 6%
or greater and (iii) not be subject to any order by the FRB to meet a specified capital level. To
qualify as well-managed, the Bank, as the Holding Companys only controlled financial
institution, must have received at its most recent examination or review a composite rating and
rating for management of at least satisfactory.
Regulatory Approval. In determining whether to approve a proposed bank acquisition, federal bank
regulators will consider, among other factors, the effect of the acquisition on competition,
financial condition, and future prospects including current and projected capital ratios and
levels, the competence, experience, and integrity of management and record of compliance with laws
and regulations, the convenience and needs of the communities to be served, including the acquiring
institutions record of compliance under the CRA, and the effectiveness of the acquiring
institution in combating money laundering activities.
Principal Markets
The Company operates in two distinct markets. Redding Bank of Commerce (Bank) has
historically been a leading independent commercial bank in Redding, California, and Shasta County,
California. This market has been expanding, but is still relatively small when compared to the
greater Sacramento market which is the location of Roseville Bank of Commerce.
Management believes that these two markets complement each other, with the Redding market providing
the stability and the greater Sacramento market providing growth opportunities.
Principal Products and Services
Through the Bank and its mortgage subsidiaries, the Bank provides a wide range of financial
services and products for business and consumer banking. The services offered by the Bank include
those traditionally offered by banks of similar size and character in California. Products such as
free checking, interest-bearing checking and savings accounts, money market deposit accounts, sweep
arrangements, commercial, construction, term loans, travelers checks, safe deposit boxes,
collection services and electronic banking activities. The Bank currently does not offer trust
services or international banking services.
The services offered by our mortgage subsidiary include single and multi-family residential new
financing, refinancing and equity lines of credit. All mortgage products originated through our
mortgage subsidiary are brokered and are not maintained on the Banks books as loans held for
investment purposes.
Most of the Banks customers are small to medium sized businesses, professionals and other
individuals with medium to high net worth, and most of the Banks deposits are obtained from such
customers. The primary business strategy of the Bank is to focus on its lending activities. The
Banks principal lines of lending are (i) commercial, (ii) real estate construction and (iii)
commercial real estate.
The majority of the Banks loans are direct loans made to individuals and small businesses in the
major market areas of the Bank. A relatively small portion of the loan portfolio of the Bank
consists of loans to individuals for personal, family or household purposes. The Bank accepts as
collateral for loans real estate, listed and unlisted securities, savings and time deposits,
automobiles, machinery and equipment and other general business assets such as accounts receivable
and inventory.
The commercial loan portfolio of the Bank consists of a mix of revolving credit facilities and
intermediate term loans. The loans are generally made for working capital, asset acquisition,
business-expansion purposes, and are generally secured by a lien on the borrowers assets. The
Bank also makes unsecured loans to borrowers who meet the Banks underwriting criteria for such
loans.
7
The Bank manages its commercial loan portfolio by monitoring its borrowers payment performance and
their respective financial condition, and makes periodic and appropriate adjustments, if necessary,
to the risk grade assigned to each loan in the portfolio. The primary sources of repayment of the
commercial loans of the Bank are the borrowers conversion of short-term assets to cash and
operating cash flow. The net assets of the borrower or guarantor and/or the liquidation of
collateral are usually identified as a secondary source of repayment.
The principal factors affecting the Banks risk of loss from commercial lending include each
borrowers ability to manage its business affairs and cash flows, local and general economic
conditions and real estate values in the Banks service area. The Bank manages risk through its
underwriting criteria, which includes strategies to match the borrowers cash flow to loan
repayment terms, and periodic evaluations of the borrowers operations. The Banks evaluations of
its borrowers are facilitated by managements knowledge of local market conditions and periodic
reviews by a consultant of the credit administration policies of the Bank.
The real estate construction loan portfolio of the Bank consists of a mix of commercial and
residential construction loans, which are principally secured by the underlying projects. The real
estate construction loans of the Bank are predominately made for projects, which are intended to be
owner occupied. The Bank also makes real estate construction loans for speculative projects. The
principal sources of repayment of the Banks construction loans are sale of the underlying
collateral or permanent financing provided by the Bank or another lending source.
The principal risks associated with real estate construction lending include project cost overruns
that absorb the borrowers equity in the project and deterioration of real estate values as a
result of various factors, including competitive pressures and economic downturns.
The Bank manages its credit risk associated with real estate construction lending by establishing
maximum loan-to-value ratios on projects on an as-completed basis, inspecting project status in
advance of controlled disbursements and matching maturities with expected completion dates.
Generally, the Bank requires a loan-to-value ratio of no more than 80% on single-family residential
construction loans.
The commercial and construction loan portfolio of the Bank consists of loans secured by a variety
of commercial and residential real property. The specific underwriting standards of the Bank and
methods for each of its principal lines of lending include industry-accepted analysis and modeling,
and certain proprietary techniques. The Banks underwriting criteria are designed to comply with
applicable regulatory guidelines, including required loan-to-value ratios. The credit
administration policies of the Bank contain mandatory lien position and debt service coverage
requirements, and the Bank generally requires a guarantee from the owners of its private corporate
borrowers.
Government Supervision and Regulation
The Holding Company and Bank are subject to extensive federal and state supervision and regulation.
The following discussion describes the elements of the regulatory framework applicable to
financial holding companies and banks and specific information about the Holding Company and its
subsidiaries. Federal regulation of banks, bank holding companies and financial holding companies
is intended primarily for the protection of depositors and the Deposit Insurance Fund rather than
for the protection of shareholders and creditors. The following discussion of laws and regulations
is only a summary. This discussion is qualified in its entirety by reference to such laws and
regulations.
Dividend Restrictions
The FRB generally prohibits a financial holding company from declaring or paying a cash dividend
which would impose undue pressure on the capital of subsidiary banks or would be funded only
through borrowing or other arrangements that might adversely affect a bank holding companys
financial position. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
prohibits insured depository institutions from paying management fees to any controlling persons
or, with certain limited exceptions, making capital distributions, including dividends, if, after
such transaction, the institution would be undercapitalized.
In addition to the restrictions imposed under federal law, banks chartered under California law
generally may only pay cash dividends to the extent such payments do not exceed the lesser of
retained earnings of the bank or the banks net income for its last three fiscal years (less any
distributions to shareholders during such period).
8
In the event a bank desires to pay cash dividends in excess of such amount, the bank may pay a
cash dividend with the prior approval of the Commissioner in an amount not exceeding the greater of
the banks retained earnings, the banks net income for its last fiscal year, or the banks net
income for its current fiscal year.
Regulators also have authority to prohibit a depository institution from engaging in business
practices which are considered to be unsafe or unsound, possibly including payment of dividends or
other payments under certain circumstances even if such payments are not expressly prohibited by
statute. The FRBs policy is that a bank holding company should not continue its existing rate of
cash dividends on its common stock unless its net income is sufficient to fully fund each dividend
and its prospective rate of earnings retention appears consistent with its capital needs, asset
quality and overall financial condition.
Prior to November 14, 2011, unless the Holding Company has redeemed the Series A Preferred Stock or
the Treasury Department has transferred the Series A Preferred Stock to a third party, the consent
of the Treasury Department will be required for the Holding Company to (1) declare or pay any
dividend or make any distribution on our common stock (other than regular quarterly cash dividends
of not more than $0.08 per share of common stock) or (2) redeem, purchase or acquire any shares of
the Holding Companys common stock or other equity or capital securities, other than in connection
with benefit plans consistent with past practice and certain other circumstances specified in the
Securities Purchase Agreement.
Interstate Banking
A bank holding company may acquire banks in states other than its home state without regard to the
permissibility of such acquisitions under state law, but subject to any state requirement that the
bank has been organized and operating for a minimum period of time, not to exceed five years, and
the requirement that the bank holding company, prior to or following the proposed acquisition,
controls no more than 10% of the total amount of deposits of insured depository institutions in the
United States and no more than 30% of such deposits in that state (or such lesser or greater amount
set by state law). Banks may also merge across state lines, therefore creating interstate
branches. Furthermore, a bank is now able to open new branches in a state in which it does not
already have banking operations if the laws of such state permit such de novo branching.
California law authorizes out-of-state banks to enter California by the acquisition of or merger
with a California bank that has been in existence for at least five years, unless the California
bank is in danger of failing or in certain other emergency situations, but limits interstate
branching into California to branching by acquisition of an existing bank.
Capital Standards
In the United States of America, banks, thrifts and bank holding companies are subject to minimum
regulatory capital requirements. Specifically, U.S. banking organizations must maintain a minimum
leverage ratio and two minimum risk-based ratios. The leverage ratio measures regulatory capital as
a percentage of average on-balance-sheet assets as reported in accordance with accounting
principles generally accepted in the United States of America (GAAP). The risk-based ratios
measure regulatory capital as a percentage of both on- and off-balance-sheet credit exposures with
some gross differentiation based on perceived credit risk. Under these guidelines, nominal dollar
amounts of assets and credit equivalent amounts of off-balance-sheet items are multiplied by one of
several risk adjustment percentages, which range from 0% for assets with low credit risk, such as
certain U.S. government securities, to 100% for assets with relatively higher credit risk, such as
certain loans.
The current U.S. risk-based capital requirements are based on an internationally agreed framework
for capital measurement that was developed by the Basel Committee on Banking Supervision (BSC) in
1988. The international framework (1988 Accord) accomplished several important objectives. It
strengthened capital levels at large, internationally active banks and fostered international
consistency and coordination. The 1988 Accord also reduced disincentives for banks to hold liquid,
low risk assets. By requiring banks to hold capital against off-balance-sheet exposures, the 1988
Accord represented a significant step forward for regulatory capital measurement. The federal
banking agencies require a minimum ratio of qualifying total capital to risk-adjusted assets and
off-balance-sheet items of 8%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and
off-balance-sheet items of 4%. As of December 31, 2009, the Holding Company and the Bank exceeded
the well capitalized requirements as follows:
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Actual |
|
|
Well Capitalized |
|
|
Minimum Capital |
|
|
|
Capital |
|
|
Ratio |
|
|
Requirement |
|
|
Requirement |
|
|
The Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage |
|
$ |
79,421,930 |
|
|
|
9.89 |
% |
|
|
n/a |
|
|
|
4.0 |
% |
Tier 1 Risk-Based |
|
|
79,421,930 |
|
|
|
12.06 |
% |
|
|
6.0 |
% |
|
|
4.0 |
% |
Total Risk-Based |
|
|
87,697,164 |
|
|
|
13.31 |
% |
|
|
10.0 |
% |
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redding Bank of
Commerce |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage |
|
$ |
76,262,200 |
|
|
|
9.37 |
% |
|
|
5.0 |
% |
|
|
4.0 |
% |
Tier 1 Risk-Based |
|
|
76,262,200 |
|
|
|
11.57 |
% |
|
|
6.0 |
% |
|
|
4.0 |
% |
Total Risk-Based |
|
|
84,542,883 |
|
|
|
12.83 |
% |
|
|
10.00 |
% |
|
|
8.0 |
% |
Since the adoption of the 1988 Accord, the worlds financial system has become increasingly more
complex and the BSC has been working for several years to develop a new regulatory capital
framework that recognizes new developments in financial products, incorporates advances in risk
measurement and management practices, and more precisely assesses capital charges in relation to
risk (New Accord).
The New Accord encompasses three elements: minimum regulatory capital requirements, supervisory
review, and market discipline. Under the first element, a banking organization must calculate
capital requirements to credit risk, operational risk and market risk. The New Accord does not
change the definition of what qualifies as regulatory capital, the minimum risk-based capital
ratio, or the methodology for determining capital charges for market risk. The New Accord does
provide several methodologies for determining capital requirements for both credit and operational
risk. For credit risk there are two general approaches; the standardized approach (based on the
1988 Accord) and the internal ratings-based (IRB) approach, which uses the institutions internal
estimates of key risk drivers to derive capital requirements.
The New Accord provides three methodologies for determining capital requirements for operational
risk: the basic indicator approach, the standardized approach, and the advanced measurement
approaches (AMA). Under the first two methodologies, capital requirements for operational risk
are fixed percentages of specified, objective risk measures (for example, gross income.) The AMA
provides the flexibility for an institution to develop its own individualized approach for
measuring operational risk, subject to supervisory oversight.
The second pillar of the New Accord, supervisory review, highlights the need for banking
organizations to assess their capital adequacy positions relative to overall risk (rather than to
the minimum capital requirement), and the need for supervisors to review and take appropriate
actions in response to those assessments. The third pillar of the New Accord imposes public
disclosure requirements on institutions that are intended to allow market participants to assess
key information about an institutions risk profile and its associated level of capital.
Prompt Corrective Action and Other Enforcement Mechanisms
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires each federal
banking agency to take prompt corrective action to resolve the problems of insured depository
institutions, including but not limited to those that fall below one or more prescribed minimum
capital ratios. The law required each federal banking agency to promulgate regulations defining
the following five categories in which an insured depository institution will be placed, based on
the level of its capital ratios: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. As of December 31, 2009, the Bank
was considered well capitalized under the regulatory framework for prompt corrective action.
An institution that, based upon its capital levels, is classified as well capitalized,
adequately capitalized or undercapitalized may be treated as though it were in the next lower
capital category if the appropriate federal banking agency, after notice and opportunity for
hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants
such treatment. At each successive lower capital category, an insured depository institution is
subject to more restrictions.
The federal banking agencies, however, may not treat an institution as critically
undercapitalized unless its capital ratio actually warrants such treatment. If an insured
depository institution is undercapitalized, it will be closely monitored by the appropriate federal
banking agency.
10
Undercapitalized institutions must submit an acceptable capital restoration plan with a guarantee
of performance issued by the holding company. Further restrictions and sanctions are required to
be imposed on insured depository institutions that are critically undercapitalized. Furthermore,
the appropriate federal banking agency is required to either appoint a receiver for the institution
within 90 days, or obtain the concurrence of the FDIC in another form of action.
Fiscal and Monetary Policies
The Companys business and earnings are affected significantly by the fiscal and monetary policies
of the federal government and its agencies. The Company is particularly affected by the policies of
the FRB, which regulates the supply of money and credit in the United States. Among the instruments
of monetary policy available to the FRB are (a) conducting open market operations in United States
government securities, (b) changing the discount rates of borrowings of depository institutions,
(c) imposing or changing reserve requirements against depository institutions deposits, and (d)
imposing or changing reserve requirements against certain borrowings by banks and their affiliates.
These methods are used in varying degrees and combinations to directly affect the availability of
bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. The
policies of the FRB may have a material effect on the Companys business, results of operations and
financial condition.
Privacy Provisions of the Gramm-Leach-Bliley Act
Federal banking regulators, as required under the GLB Act, have adopted rules limiting the ability
of banks and other financial institutions to disclose nonpublic information about consumers to
nonaffiliated third parties. The rules require disclosure of privacy policies to consumers and, in
some circumstances, allow consumers to prevent disclosure of certain personal information to
nonaffiliated third parties. The privacy provisions of the GLB Act affect how consumer information
is transmitted through diversified financial services companies and conveyed to outside vendors.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) implemented a broad range of corporate governance
and accounting measures to increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies, and to protect investors by
improving the accuracy and reliability of disclosures under federal securities laws. The Holding
Company is subject to Sarbanes-Oxley because it is required to file periodic reports with the
Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934. Among other
things, Sarbanes-Oxley and/or its implementing regulations have established new membership
requirements and additional responsibilities for our audit committee, imposed restrictions on the
relationship between the Holding Company and its outside auditors (including restrictions on the
types of non-audit services our auditors may provide to us), imposed additional responsibilities
for our external financial statements on our Chief Executive Officer and Chief Financial Officer,
expanded the disclosure requirements for our corporate insiders, required our management to
evaluate the Holding Companys disclosure controls and procedures and its internal control over
financial reporting, and will require our auditors to issue a report on our internal control over
financial reporting.
Patriot Act and Anti-Money Laundering
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (Patriot Act) is intended to strengthen the ability of U.S. law
enforcement agencies and intelligence communities to work together to combat terrorism on a variety
of fronts. The Patriot Act has significant implications for depository institutions, brokers,
dealers and other businesses involved in the transfer of money. The Patriot Act requires the
Company to implement new or revised policies and procedures relating to anti-money laundering,
compliance, suspicious activities, and currency transaction reporting and due diligence on
customers. The Patriot Act also requires federal bank regulators to evaluate the effectiveness of
an applicant in combating money laundering in determining whether to approve a proposed bank
acquisition.
Economic Emergency Stabilization Act of 2008
The Emergency Economic Stabilization Act of 2008 (EESA), which was signed into law on October 3,
2008, was enacted to promote liquidity in the financial markets and to minimize further economic
deterioration in the United States. The primary components of EESA are the Troubled Asset Relief
Program and increase in FDIC deposit insurance limits.
11
EESA authorized the U.S. Treasury Department (Treasury) to establish the Troubled Asset Relief
Program (TARP). Under EESA, $700 billion in total was authorized to purchase troubled assets
from financial institutions, which also includes making equity investments in such qualifying
institutions. The Treasury had until the end of 2009 to use the funds allocated for purchases
under EESA.
Using its authority under TARP, the Treasury also created the Capital Purchase Program (CPP).
The CPP immediately authorized the Treasury to purchase equity from qualifying financial
institutions, thus moving away from purchases of troubled assets as originally contemplated by
TARP. To participate, a qualifying financial institution issues to the Treasury non-voting,
redeemable preferred stock, and warrants for common stock, in an amount ranging from 1%-3% of such
institutions total risk-based assets, not to exceed $25 billion. The terms of the preferred stock
include payment of a dividend of 5% per annum for the first five years, and 9% per annum
thereafter. In addition, the financial institution must issue to the Treasury a ten-year warrant
to purchase shares of common stock, with an aggregate market price equal to 15% of the Treasurys
total investment in the financial institution. Financial institutions participating in the CPP
also must comply with the executive compensation and corporate governance requirements of EESA.
The Holding Company issued $17 million of Series A Preferred Stock under the CPP program.
EESA also provides that FDIC deposit insurance will be temporarily increased from $100,000 to
$250,000 until December 31, 2013, regardless of whether those funds are held in interest-bearing or
noninterest-bearing accounts. Deposits held at the Bank are fully insured to the extent of this
higher limit.
Temporary Liquidity Guarantee Program
On October 13, 2008, FDIC adopted the Temporary Liquidity Guarantee Program (TLGP), using the
authority contained in systemic risk exception to FDICIA. The aim of the TGLP was to strengthen
confidence and encourage liquidity in the banking system by guaranteeing newly issued senior
unsecured debt of banks, thrifts, and certain holding companies, and by providing full coverage of
non-interest bearing deposit transaction accounts, regardless of dollar amount. The two core
components of the TGLP are the Debt Guarantee Program and the Transaction Account Guarantee
Program.
Under the Debt Guarantee Program, the FDIC guarantees all newly-issued senior unsecured debt issued
by participating entities up to certain prescribed limits from October 14, 2008 through June 30,
2009. The guarantee does not extend beyond June 30, 2012. As a result of this guarantee, the
unpaid principal and interest of newly-issued senior unsecured debt would be paid by the FDIC if
the issuing insured depository institution failed or if a bankruptcy petition were filed by its
issuing holding company.
The Transaction Account Guarantee Program (TAGP) provides participating financial institutions to
offer depositors a temporary, full guarantee by the FDIC for funds held at FDIC-insured depository
institutions in noninterest-bearing transaction accounts above the existing deposit insurance
limit. This coverage became effective on October 14, 2008, and was originally scheduled to
terminate on December 31, 2009 but has now been continued through June 30, 2010. [Deposits held at
our Bank are guaranteed under the TAGP to the fullest extent permitted.
Federal Deposit Insurance Premiums
The Federal Deposit Insurance Reform Act of 2005 (Reform Act), which was signed into law in early
2006, provides for the merger of the Bank Insurance Fund and the Savings Association Insurance Fund
to form the Deposit Insurance Fund (DIF). The FDIC maintains the DIF by assessing depository
institutions an insurance premium. The FDIC uses a risk-based premium system that assesses higher
rates on those institutions that pose greater risks to the DIF. In November 2006, the FDIC adopted
new regulations to implement the Reform Act. The new rules, which become effective on January 1,
2007, create a risk differentiation system, establish a base assessment rate schedule, and set
actual assessment rates effective January 1, 2007.
On February 27, 2009, the FDIC adopted a final rule modifying its risk-based assessment system and
setting initial base assessment rates beginning April 1, 2009 at 12 to 45 basis points with
potential adjustments to each risk category. On May 22, 2009, the FDIC adopted a final rule
imposing a 5 basis point special assessment on each insured depository institutions assets minus
Tier 1 capital as of June 30, 2009, not to exceed 10 basis points times the institutions
assessment base for the second quarter of 2009. On November 12, 2009, the FDIC adopted a final
rule imposing a 13-quarter prepayment of FDIC insurance premiums payable by December 30, 2009.
12
Future Legislation
Various legislation, including proposals to change substantially the financial institution
regulatory system, is from time to time introduced in Congress. This legislation may change banking
statutes and the operating environment of the Company in substantial and unpredictable ways. If
enacted, this legislation could increase or decrease the cost of doing business, limit or expand
permissible activities or affect the competitive balance among banks, savings associations, credit
unions, and other financial institutions. The Company cannot predict whether any of this potential
legislation will be enacted and, if enacted, the effect that it, or any implementing regulations,
would have on the Companys business, results of operations or financial condition.
State Regulation and Supervision
The Bank is a California chartered bank insured by the FDIC, and as such is subject to regulation,
supervision and regular examination by the CDFI and the FDIC. As a non-member of the Federal
Reserve System, the primary federal regulator of the Bank is the FDIC. The primary federal
regulator of the Holding Company is the Federal Reserve Board. The regulations of these agencies
affect most aspects of the Banks business and prescribe permissible types of loans and
investments, the amount of required reserves, requirements for branch offices, the permissible
scope of the Banks activities and various other requirements. The Bank is also subject to
applicable provisions of California law, insofar as such provisions are not in conflict with or
preempted by federal banking law. In addition, the Bank is subject to certain regulations of the
FRB dealing primarily with check-clearing activities, establishment of banking reserves,
Truth-in-Lending (Regulation Z), Truth-in-Savings (Regulation DD), and Equal Credit Opportunity
(Regulation B).
Under California law, a state chartered bank is subject to various restrictions on, and
requirements regarding, its operations and administration including the maintenance of branch
offices and automated teller machines, capital and reserve requirements, deposits and borrowings,
shareholder rights and duties, and investment and lending activities.
Safety and Soundness Standards
FDICIA also implemented certain specific restrictions on transactions and required federal banking
regulators to adopt overall safety and soundness standards for depository institutions related to
internal control, loan underwriting, documentation, and asset growth. Among other things, FDICIA
limits the interest rates paid on deposits by undercapitalized institutions, restricts the use of
brokered deposits, limits the aggregate extensions of credit by a depository institution to an
executive officer, director, principal shareholder or related interest, and reduces deposit
insurance coverage for deposits offered by undercapitalized institutions for deposits by certain
employee benefits accounts.
The federal banking agencies may require an institution to submit to an acceptable compliance plan
as well as have the flexibility to pursue other more appropriate or effective courses of action
given the specific circumstances and severity of an institutions noncompliance with one or more
standards.
Community Reinvestment Act and Fair Lending Developments
The Bank is subject to certain fair lending requirements and reporting obligations involving home
mortgage lending operations and Community Reinvestment Act (CRA) activities. The CRA generally
requires the federal banking agencies to evaluate the record of a financial institution in meeting
the credit needs of their local communities, including low and moderate-income neighborhoods. In
addition to substantive penalties and corrective measures that may be required for a violation of
certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA
into account when regulating and supervising other activities.
Enforcement Powers
In addition to measures taken under the prompt corrective action provisions, insured banks may be
subject to potential enforcement actions by the federal regulators for unsafe or unsound practices
in conducting their businesses, or for violation of any law, rule, regulation, or condition imposed
in writing by the regulatory agency or term of a written agreement with the regulatory agency.
13
Enforcement actions may include: (i) the appointment of a conservator or receiver for the bank;
(ii) the issuance of a cease and desist order that can be judicially enforced; (iii) the
termination of the banks deposit insurance; (iv) the imposition of civil monetary penalties; (v)
the issuance of directives to increase capital; (vi) the issuance of formal and informal
agreements; (vii) the issuance of removal and prohibition orders against officers, directors and
other institution-affiliated parties; and (viii) the enforcement of such actions through
injunctions or restraining orders based upon a judicial determination that the deposit insurance
fund or the bank would be harmed if such equitable relief was not granted. The Commissioner, as
the primary regulator for state-chartered banks, also has a broad range of enforcement measures,
from cease and desist powers and the imposition of monetary penalties to the ability to take
possession of a bank, including causing its liquidation.
Competition
The Company engages in the highly competitive financial services industry. Generally, the lines of
activity and markets served involve competition with other banks, thrifts, credit unions and other
non-bank financial institutions, such as investment banking firms, investment advisory firms,
brokerage firms, investment companies and insurance entities which offer financial services,
located both domestically and through alternative delivery channels such as the Internet. Many of
these competitors enjoy fewer regulatory constraints and some may have lower cost structures. The
methods of competition center around various factors, such as customer services, interest rates on
loans and deposits, lending limits, customer convenience and technological advances.
Securities firms, insurance companies and brokerage houses that elect to become financial holding
companies may acquire banks and other financial institutions. Combinations of this type will
significantly change the competitive environment in which we conduct business.
In order to compete with major banks and other competitors in its primary service areas, the
Company relies upon the experience of its executive and senior officers in serving business
clients, and upon its specialized services, local promotional activities and the personal contacts
made by its officers, directors and employees. For customers whose loan demand exceeds the
Companys legal lending limit, the Company may arrange for such loans on a participation basis with
correspondent banks. Competitive pressures in the banking industry significantly increase changes
in the interest rate environment, and reduce net interest margins. Less than favorable economic
conditions can also result in a deterioration of credit quality and an increase in the provisions
for loan losses.
Employees
As of December 31, 2009 the Company employed 259 full-time equivalent employees. Of these
employees, 25 were employed in the Roseville market, 93 were in the Redding market, and the
remaining 141 were employed with the Companys mortgage subsidiary. None of the employees within
the Company are subject to a collective bargaining agreement. Management considers its employee
relations to be excellent.
Available Information
We will provide free of charge upon request, or through links to publicly available filings
accessed through our Internet website, the Companys annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those reports, if any, as soon as
reasonably practical after such reports have been filed with the Securities and Exchange
Commission. Our internet address is www.bankofcommerceholdings.com. Additionally, reports may be
obtained through the Securities and Exchange Commissions website at www.sec.gov.
14
Our business is subject to various economic risks that could adversely impact our results of
operations and financial condition.
There was significant disruption and volatility in the financial and capital markets during
2008 and 2009. The financial markets and the financial services industry in particular suffered
unprecedented disruption, causing a number of institutions to fail or require government
intervention to avoid failure. These conditions were largely the result of the erosion of the
United States and international credit markets, including a significant and rapid deterioration in
the mortgage lending and related real estate markets and valuation levels. Unemployment nationwide
and in California has increased significantly through this economic downturn and is anticipated to
increase or remain elevated for the foreseeable future. Continued declines in real estate values,
high unemployment and financial stress on borrowers as a result of the uncertain economic
environment could have an adverse effect on our borrowers or their customers, which could adversely
affect our financial condition and results of operations.
We conduct banking operations principally in Northern California. As a result, our business
results are dependent in large part upon the business activity, population, income levels, deposits
and real estate activity in Northern California. There can be no assurance that the economic
conditions that have adversely affected the financial services industry, and the capital, credit
and real estate markets generally, will improve in the near term, in which case we could continue
to experience losses and write-downs of assets, and could face capital and liquidity constraints or
other business challenges. In addition, the State of California is currently experiencing
significant budgetary and fiscal difficulties, which include terminating and furloughing state
employees. The businesses operating in California and Sacramento in particular depend on these
state employees for business, and reduced spending activity by these state employees could have a
material impact on the success or failure of these businesses, some of which are current or
potential future customers of the Bank. A further deterioration in economic conditions,
particularly within our geographic region, could result in the following consequences, any of which
could have a material adverse effect on our business, prospects, financial condition and results of
operations:
|
|
|
Loan delinquencies may further increase causing additional increases in our provision
and allowance for loan losses; |
|
|
|
|
Financial sector regulators may adopt more restrictive practices or interpretations of
existing regulations, or adopt new regulations; |
|
|
|
|
Collateral for loans made by the Bank, especially real estate related, may continue to
decline in value, which in turn could reduce a clients borrowing power, and reduce the
value of assets and collateral associated with our loans held for investment; |
|
|
|
|
Consumer confidence levels may decline and cause adverse changes in payment patterns,
resulting in increased delinquencies and default rates on loans and other credit facilities
and decreased demand for our products and services; and |
|
|
|
|
Performance of the underlying loans in the private label mortgage backed securities we
hold may continue to deteriorate as the recession continues, potentially causing
other-than-temporary impairment markdowns to our investment portfolio. |
Nonperforming assets take significant time to resolve and adversely affect our
results of operations and financial condition.
As of December 31, 2009, our total nonperforming assets amounted to $15.6 million, including
$2.9 million in other real estate owned, or 2.27% of our total assets, down from $23.1 million, or
2.98% of total assets a year earlier. We experienced $6.7 million in net charge-offs in 2009
compared to $6.3 million in 2008. Our provision for loan and lease losses was $9.5 million for the
twelve months ended December 31, 2009 compared to $6.5 million for the twelve months ended
December 31, 2008. Nonperforming assets adversely affect our net income in various ways. Until
economic and market conditions improve, we may expect to continue to incur losses relating to an
increase in nonperforming assets. We generally do not record interest income on nonperforming
loans or other real estate owned, thereby adversely affecting our income, and increasing our loan
administration costs. When we take collateral in foreclosures and similar proceedings, we are
required to mark the related asset to the then fair market value of the collateral, which may
ultimately result in a loss. An increase in the level of nonperforming assets increases our risk
profile and may impact the capital levels our regulators believe are appropriate in light of the
ensuing risk profile.
15
While we reduce problem assets through loan sales, workouts, restructurings and otherwise,
decreases in the value of the underlying collateral, or in these borrowers performance or
financial condition, whether or not due to economic and market conditions beyond our control, could
adversely affect our business, results of operations and financial condition. In addition, the
resolution of nonperforming assets requires significant commitments of time from management and our
directors, which can be detrimental to the performance of their other responsibilities. There can
be no assurance that we will not experience future increases in nonperforming assets.
We have a concentration risk in real estate related loans.
As of December 31, 2009, approximately 77.13% of our loan portfolio was secured by real
estate, the majority of which is commercial real estate. Of that amount, 9.90% of our total loan
portfolio consisted of construction loans, 43.23% related to commercial real estate, 16.42% related
to residential mortgage loans (including our ITIN loans) and 7.58% involved real estate related
loans not classified in the preceding definitions. As a result of increased levels of commercial
and consumer delinquencies and declining real estate values, we have experienced increasing levels
of net charge-offs. A large percentage of our loan portfolio is secured by commercial real estate
loans which generally carry larger loan balances and historically have involved a greater degree of
financial and credit risks than residential first mortgage loans. These loans are primarily made
based on the cash flow of the borrower and secondarily on the underlying collateral provided by the
borrower, and therefore repayment of these loans is often dependent on the cash flow of the
borrower which may be unpredictable. Continued increases in commercial and consumer delinquency
levels or continued declines in real estate market values would require increased net charge-offs
and increases in the allowance for loan and lease losses, which could have a material adverse
effect on our business, financial condition, results of operations and prospects.
Monitoring and servicing our Individual Tax Identification Number (ITIN) residential mortgage
loans could prove more costly and time consuming than previously modeled.
In April 2009, we completed a loan swap transaction, whereby we exchanged, without recourse,
$14.0 million in certain nonperforming assets measured at fair value and cash of approximately
$67.0 million for a pool of performing ITIN loans with an estimated fair value of $80.7 million.
These loans are residential mortgage loans made to United States residents without a social
security number and are geographically dispersed throughout the United States. This is our first
ITIN loan transaction, and as such, is serviced through a third party. Worsening economic
conditions in the United States may cause us to suffer higher default rates on our ITIN loans and
reduce the value of the assets that we hold as collateral. In addition, if we are forced to
foreclose and service these ITIN properties ourselves, we may realize additional monitoring,
servicing and appraisal costs due to the geographic dispersement of the portfolio which would
adversely affect our noninterest expense.
Future loan losses may exceed the allowance for loan losses.
We have established a reserve for possible losses expected in connection with loans in the credit
portfolio. This allowance reflects estimates of the collectability of certain identified loans, as
well as an overall risk assessment of total loans outstanding. The determination of the amount of
loan loss allowance is subjective; although the method for determining the amount of the allowance
uses criteria such as risk ratings and historical loss rates, these factors may not be adequate
predictors of future loan performance, particularly in the current economic climate. Accordingly,
we cannot offer assurances that these estimates ultimately will prove correct or that the loan loss
allowance will be sufficient to protect against losses that ultimately may occur. If the loan loss
allowance proves to be inadequate, we will need to make additional provisions to the allowance,
which is accounted for as charges to income, which would adversely impact results of operations and
financial condition. Moreover, bank regulators frequently monitor banks loan loss allowances, and
if regulators were to determine that the allowance was inadequate, they may require us to increase
the allowance, which also would adversely impact results of operations and financial condition.
Defaults may negatively impact us.
A source of risk arises from the possibility that losses will be sustained if a significant number
of borrowers, guarantors and related parties fail to perform in accordance with the terms of their
loans.
16
We have adopted underwriting and credit monitoring procedures and credit policies, including the
establishment and review of the allowance for loan losses, which management believes are
appropriate to minimize risk by assessing the likelihood of nonperformance, tracking loan
performance and diversifying the loan portfolio. These policies and procedures, however, may not
prevent unexpected losses that could materially affect our results of operations.
Interest rate fluctuations, which are out of our control, could harm profitability.
Our income is highly dependent on interest rate differentials and the resulting net interest
margins (i.e., the difference between the interest rates earned on the Banks interest-earning
assets such as loans and securities, and the interest rates paid on the Banks interest-bearing
liabilities such as deposits and borrowings). These rates are highly sensitive to many factors,
which are beyond our control, including general economic conditions, inflation, recession and the
policies of various governmental and regulatory agencies, in particular, the Federal Reserve Board.
Because of our preference for using variable rate pricing on the majority of our loan portfolio
and non-interest bearing demand deposit accounts we are asset sensitive. As a result, we are
generally adversely affected by declining interest rates. In addition, changes in monetary policy,
including changes in interest rates, influence the origination of loans, the purchase of
investments and the generation of deposits. These changes also affect the rates received on loans
and securities and paid on deposits, which could have a material adverse effect on our business,
financial condition and results of operations.
Changes in the fair value of our securities may reduce our shareholders equity and net income.
At December 31, 2009, $80.1 million of our securities were classified as available-for-sale. At
such date, the aggregate net unrealized gain on our available-for-sale securities, net of tax, was
$658,000. We increase or decrease shareholders equity by the amount of change from the unrealized
gain or loss (the difference between the estimated fair value and the amortized cost) of our
available-for-sale securities portfolio, net of the related tax, under the category of accumulated
other comprehensive income/loss. Therefore, a decline in the estimated fair value of this
portfolio will result in a decline in reported shareholders equity, as well as book value per
common share and tangible book value per common share. This decrease will occur even though the
securities are not sold. In the case of debt securities, if these securities are never sold and
there are no credit impairments, the decrease will be recovered over the life of the securities. In
the event there are credit loss related impairments, the credit loss component is recognized in
earnings.
Our available for sale equity holdings consist of shares of the Federal Home Loan Bank of
San Francisco (FHLB). As of December 31, 2009, we held stock in the FHLB totaling $6.1 million.
The stock is carried at cost and is subject to recoverability testing under applicable accounting
standards. As of December 31, 2009, we did not recognize an impairment charge related to our FHLB
stock holdings; however, future negative changes to the financial condition of the FHLB may require
us to recognize an impairment charge with respect to such stock holdings.
Conditions in the financial markets may limit our access to additional funding to meet our
liquidity needs.
Liquidity is essential to our business, as we must maintain sufficient funds to respond to the
needs of depositors and borrowers. An inability to raise funds through deposits, repurchase
agreements, federal funds purchased, FHLB advances, the sale or pledging as collateral of loans and
other assets could have a substantial negative effect on our liquidity. Our access to funding
sources in amounts adequate to finance our activities could be impaired by factors that affect us
specifically or the financial services industry in general. Factors that could negatively affect
our access to liquidity sources include negative operating results, a decrease in the level of our
business activity due to a market downturn or negative regulatory action against us. Our ability
to borrow could also be impaired by factors that are not specific to us, such as severe disruption
of the financial markets or negative news and expectations about the prospects for the financial
services industry as a whole, as evidenced by turmoil in the domestic and worldwide credit markets
in recent years.
The condition of other financial institutions could negatively affect us.
Financial services institutions are interrelated as a result of trading, clearing, counterparty,
public perceptions and other relationships. We have exposure to many different industries and
counterparties, and we routinely execute transactions with counterparties in the financial services
industry, including commercial banks, brokers and dealers, investment banks and other institutional
clients.
17
In the event there are credit loss related impairments, the credit loss component is recognized in
earnings. Many of these transactions expose us to credit risk in the event of a default by a
counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by
us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of
the credit or derivative exposure due to us. Any such losses could have a material adverse effect
on our financial condition and results of operations.
Changes in laws, government regulation and monetary policy may have a material effect on our
results of operations.
Financial institutions have been the subject of substantial legislative and regulatory changes and
may be the subject of further legislation or regulation in the future, none of which is within our
control. Significant new laws or regulations or changes in, or repeals of, existing laws or
regulations may cause our results of operations to differ materially. In addition, the cost and
burden of compliance with applicable laws and regulations have significantly increased and could
adversely affect our ability to operate profitably. Further, federal monetary policy significantly
affects credit conditions for us, as well as for our borrowers, particularly as implemented by the
Federal Reserve Board, primarily through open market operations in United States government
securities, the discount rate for bank borrowings and reserve requirements. A material change in
any of these conditions could have a material impact on us or our borrowers, and therefore on our
results of operations.
On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (EESA) was signed into law.
Pursuant to the EESA, the Treasury was granted the authority to take a range of actions for the
purpose of stabilizing and providing liquidity to the United States financial markets and has
proposed several programs, including the purchase by the Treasury of certain troubled assets from
financial institutions and the direct purchase by the Treasury of equity of financial institutions.
There can be no assurance, however, as to the actual impact that the foregoing or any other
governmental program will have on the financial markets. The failure of the financial markets to
stabilize and a continuation or worsening of current financial market conditions could materially
and adversely affect our business, financial condition, results of operations, access to credit or
the trading price of our common stock. In addition, current initiatives of President Obamas
Administration and the possible enactment of recently proposed bankruptcy legislation may adversely
affect our financial condition and results of operations. There can be no assurance, however, as
to the actual impact that the foregoing or any other governmental program will have on the
financial markets.
The failure of the financial markets to stabilize and a continuation or worsening of current
financial market conditions could materially and adversely affect our business, financial
condition, results of operations, access to credit and the trading price of our common stock.
We expect to face increased regulation and supervision of our industry as a result of the existing
financial crisis, and there will be additional requirements and conditions imposed on us to the
extent that we participate in any of the programs established or to be established by the Treasury
or by the federal bank regulatory agencies. Such additional regulation and supervision may
increase our costs and limit our ability to pursue business opportunities. The effects of such
recently enacted, and proposed, legislation and regulatory programs on us cannot reliably be
determined at this time.
Because of our participation in the Troubled Asset Relief Program we are subject to several
restrictions including, without limitation, restrictions on our ability to declare or pay dividends
and repurchase our shares as well as restrictions on compensation paid to our executives.
On November 14, 2008, in exchange for an aggregate purchase price of $17.0 million, we issued
and sold to the Treasury pursuant to the Trouble Asset Relief Program (TARP) Capital Purchase
Program the following: (i) 17,000 shares of our newly designated Fixed Rate Cumulative Perpetual
Preferred Stock, Series A, no par value per share and liquidation preference $1,000 per share
(Series A Preferred Stock) and (ii) a warrant to purchase up to 405,405 shares of our common
stock, no par value per share, at an exercise price of $6.29 per share, subject to certain
anti-dilution and other adjustments. The warrant may be exercised for up to ten years after
issuance.
In connection with the issuance and sale of our securities, we entered into a Letter Agreement
including the Securities Purchase Agreement Standard Terms, dated November 14, 2008, with the
Treasury (Agreement). The Agreement contains limitations on the payment of quarterly cash
dividends on our common stock in excess of $0.08 per share, and on our ability to repurchase our
common stock.
18
Our Series A Preferred Stock diminishes the net income available to our common shareholders and
earnings per common share.
The dividends accrued on the Series A Preferred Stock reduce the net income available to common
shareholders and our earnings per common share. In 2009 our net income of $6.0 million was reduced
to $5.1 million after deducting approximately $942,000 in dividends to the Treasury plus accretion
on the Series A Preferred Stock. The Series A Preferred Stock is cumulative, which means that any
dividends not declared or paid will accumulate and will be payable when the payment of dividends is
resumed. The dividend rate on the Series A Preferred Stock will increase from 5% to 9% per annum
five years after its original issuance if not earlier redeemed. If we are unable to redeem the
Preferred Stock prior to the date of this increase, the cost of capital to us will increase
substantially. Depending on our financial condition at the time, this increase in the Series A
Preferred Stock annual dividend rate could have a material adverse effect on our earnings and could
also adversely affect our ability to pay dividends on our common shares. Shares of Series A
Preferred Stock will also receive preferential treatment in the event of the liquidation,
dissolution or winding up of the Company.
Finally, the terms of the Series A Preferred Stock allow the Treasury to impose additional
restrictions, including those on dividends and unilateral amendments required to comply with
changes in applicable federal law.
Our holders of the Series A Preferred Stock have certain voting rights that may adversely
affect our common shareholders, and the holders of the Series A Preferred Stock may have interests
different from our common shareholders.
In the event that we fail to pay dividends on the Series A Preferred Stock for a total of at least
six quarterly dividend periods (whether or not consecutive), the Treasury will have the right to
appoint two directors to our Board of Directors until all accrued but unpaid dividends has been
paid. Otherwise, except as required by law, holders of the Series A Preferred Stock have limited
voting rights. So long as shares of Series A Preferred Stock are outstanding, in addition to any
other vote or consent of shareholders required by law or our Articles of Incorporation, the vote or
consent of holders of at least 662/3% of the shares of Series A Preferred Stock
outstanding is required for:
|
|
|
Any authorization or issuance of shares ranking senior to the Series A Preferred Stock; |
|
|
|
|
Any amendments to the rights of the Series A Preferred Stock so as to adversely affect
the rights, preferences, privileges or voting power of the Series A Preferred Stock; or |
|
|
|
|
Consummation of any merger, share exchange or similar transaction unless the shares of
Series A Preferred Stock remain outstanding, or if we are not the surviving entity in such
transaction, are converted into or exchanged for preference securities of the surviving
entity and the shares of Series A Preferred Stock remaining outstanding or such preference
securities have the rights, preferences, privileges and voting power of the Series A
Preferred Stock. |
The holders of our Series A Preferred Stock, including the Treasury, may have different
interests from the holders of our common stock, and could vote to block the foregoing transactions,
even when considered desirable by, or in the best interests of, the holders of our common stock.
We rely heavily on our management team and the loss of key officers may adversely affect
operations.
Our success has been and will continue to be greatly influenced by the ability to retain existing
senior management and, with expansion, to attract and retain qualified additional senior and middle
management. We recently had a number of changes in our senior management team, including the
promotions of our new Chief Financial Officer and Chief Operating Officer and the appointment of a
new Chief Risk Officer. The departure of any of our senior management could have an adverse effect
on us.
Our participation in the TARP Capital Purchase Program could also have an adverse effect on our
ability to attract and retain qualified executive officers. Legislation and rules applicable to the
TARP Capital Purchase Program participants include extensive new restrictions on our ability to pay
retention awards, bonuses and other incentive compensation to our Chief Executive Officer during
the period in which the Series A Preferred Stock is outstanding. Other restrictions are not limited
to our Chief Executive Officer and cover other employees whose contributions to revenue and
performance can be significant.
The limitations may adversely affect our ability to recruit and retain these key employees in
addition to our senior executive officers, especially if we are competing for talent against
institutions that are not subject to the same restrictions.
19
The Federal Reserve, and perhaps the FDIC, is contemplating proposed rules governing the
compensation practices of financial institutions and these rules, if adopted, may adversely affect
our management retention and limit our ability to promote our objectives through our compensation
and incentive programs and, as a result, adversely affect our results of operations and financial
condition.
The full scope and impact of these limitations is uncertain and difficult to predict. The Secretary
of the Treasury has adopted standards that implement certain compensation limitations, but these
standards have not yet been broadly interpreted and remain, in many respects, ambiguous. The new
and potential future legal requirements and implementing standards under the Capital Purchase
Program may have unforeseen or unintended adverse effects on the financial services industry as a
whole, and particularly on Capital Purchase Program participants, including us. It will likely
require significant time, effort and resources on our part to interpret and apply them. If any of
our regulators believe that we are not in compliance with new and future legal requirements and
implementing standards, it could subject us to regulatory actions or otherwise adversely affect our
management retention and, as a result, our results of operations and financial condition.
Even if we redeem our Series A Preferred Stock and repurchase the warrant issued to
the Treasury, we will continue to be subject to evolving legal and regulatory requirements that
may, among other things, require increasing amounts of our time, effort and resources to ensure
compliance.
Internal control systems could fail to detect certain events.
We are subject to many operating risks, including, without limitation, data processing system
failures and errors, and customer or employee fraud. There can be no assurance that such an event
will not occur, and if such an event is not prevented or detected by our other internal controls
and does occur, and it is uninsured or is in excess of applicable insurance limits, it could have a
significant adverse impact on our reputation in the business community and our business, financial
condition and results of operations.
Our operations could be interrupted if third party service providers experience difficulty,
terminate their services or fail to comply with banking regulations.
We depend, and will continue to depend to a significant extent, on a number of relationships with
third-party service providers. Specifically, we utilize software and hardware systems for
processing, essential web hosting, debit and credit card processing, merchant processing, Internet
banking systems and other processing services from third-party service providers. If these
third-party service providers experience difficulties or terminate their services, and we are
unable to replace them with other qualified service providers, our operations could be interrupted.
If an interruption were to continue for a significant period of time, our business, financial
condition and results of operations could be materially adversely affected.
Confidential customer information transmitted through the Banks online banking service is
vulnerable to security breaches and computer viruses, which could expose the Bank to litigation and
adversely affect its reputation and ability to generate deposits.
The Bank provides its customers the ability to bank online. The secure transmission of confidential
information over the Internet is a critical element of online banking. The Banks network could be
vulnerable to unauthorized access, computer viruses, phishing schemes and other security problems.
The Bank may be required to spend significant capital and other resources to protect against the
threat of security breaches and computer viruses, or to alleviate problems caused by security
breaches or viruses. To the extent that the Banks activities or the activities of its customers
involve the storage and transmission of confidential information, security breaches and viruses
could expose us and the Bank to claims, litigation and other possible liabilities. Any inability to
prevent security breaches or computer viruses could also cause existing customers to lose
confidence in the Banks systems and could adversely affect its reputation and our ability to
generate deposits.
20
Potential acquisitions may disrupt our business and dilute shareholder value.
We continuously consider merger and acquisition opportunities and conduct due diligence activities
related to possible transactions with other financial institutions. As a result, merger or
acquisition discussions and, in some cases, negotiations may take place and future mergers or
acquisitions involving cash, debt or equity securities may occur at any time. Acquisitions
typically involve the payment of a premium over book and market values, and, therefore, some
dilution of our stocks tangible book value and net income per common share may occur in connection
with any future transaction. In addition, while loss sharing arrangements currently associated with
FDIC-assisted transactions provide some level of risk reduction; these arrangements do not
completely eliminate risk. To the extent we would participate in an FDIC-assisted transaction there
can be no assurances that any positive expected results of such a transaction would fully
materialize.
Furthermore, failure to realize the expected revenue increases, cost savings, increases in
geographic or product presence, and/or other projected benefits from an acquisition could have a
material adverse effect on our financial condition and results of operations. We may seek merger or
acquisition partners that are culturally similar, have experienced management and possess either
significant market presence or have potential for improved profitability through financial
management, economies of scale or expanded services. We do not currently have any specific plans,
arrangements or understandings regarding such expansion.
We cannot say with certainty that we will be able to consummate, or if consummated, successfully
integrate future acquisitions or that we will not incur disruptions or unexpected expenses in
integrating such acquisitions. In attempting to make such acquisitions, we anticipate competing
with other financial institutions, many of which have greater financial and operational resources
than us. Acquiring other banks, businesses, or branches involves various risks commonly associated
with acquisitions, including, among other things:
|
|
|
Potential exposure to unknown or contingent liabilities of the target company; |
|
|
|
|
Exposure to potential asset quality issues of the target company; |
|
|
|
|
Difficulty and expense of integrating the operations and personnel of the target
company; |
|
|
|
|
Potential disruption to our business; |
|
|
|
|
The possible loss of key employees and customers of the target company; |
|
|
|
|
Difficulty in estimating the value of the target company; and |
|
|
|
|
Potential changes in banking or tax laws or regulations that may affect the target
company. |
We are subject to extensive regulation which could adversely affect our business.
Our operations are subject to extensive regulation by federal, state and local governmental
authorities and are subject to various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of our operations. Given the current disruption in the
financial markets and potential new regulatory initiatives, including the Obama Administrations
recent financial regulatory reform proposal, new regulations and laws that may affect us are
increasingly likely. Because our business is highly regulated, the laws, rules and regulations
applicable to us are subject to modification and change. There are currently proposed laws, rules
and regulations that, if adopted, would impact our operations.
These proposed laws, rules and regulations, or any other laws, rules or regulations, may be adopted
in the future, which could (i) make compliance much more difficult or expensive, (ii) restrict our
ability to originate, broker or sell loans or accept certain deposits, (iii) further limit or
restrict the amount of commissions, interest or other charges earned on loans originated or sold by
us, or (iv) otherwise adversely affect our business or prospects for business. Moreover, banking
regulators have significant discretion and authority to address what regulators perceive to be
unsafe or unsound practices or violations of laws or regulations by financial institutions and
holding companies in the performance of their supervisory and enforcement duties. The exercise of
regulatory authority by banking regulators over us may have a negative impact on our financial
condition and results of operations. Additionally, in order to conduct certain activities,
including acquisitions, we are required to obtain regulatory approval. There can be no assurance
that any required approvals can be obtained, or obtained without conditions or on a timeframe
acceptable to us.
21
Higher FDIC deposit insurance premiums and assessments could adversely affect our financial
condition.
FDIC insurance premiums increased substantially in 2009, and we expect to pay significantly higher
FDIC premiums in the future. As the large number of recent bank failures continues to deplete the
Deposit Insurance Fund, the FDIC adopted a revised risk-based deposit insurance assessment schedule
in February 2009, which raised deposit insurance premiums. The FDIC also implemented a five basis
point special assessment of each insured depository institutions assets minus Tier 1 capital as of
June 30, 2009, which special assessment amount was capped at 10 basis points times the
institutions assessment base for the second quarter of 2009. In addition, the FDIC recently
approved a rule requiring financial institutions to prepay their estimated quarterly risk-based
assessments for the fourth quarter of 2009 and for all of 2010 through and including 2012 in order
to re-capitalize the Deposit Insurance Fund. Accordingly, the Bank prepaid deposit insurance
premiums in the amount of $3.3 million on December 31, 2009. The rule also provides for increasing
the FDIC assessment rates by three basis points effective January 1, 2011. There can be no
assurance that the FDIC will not increase premiums further or levy additional special assessments,
either of which could have a material adverse effect on our results of operations and financial
condition.
Shares eligible for future sale could have a dilutive effect.
Shares of our common stock eligible for future sale, including those that may be issued in
connection with our various stock option and equity compensation plans, in possible acquisitions,
and any other offering of our common stock for cash, and the issuance of 405,405 shares underlying
the warrant issued to the Treasury pursuant to the TARP Capital Purchase Program, could have a
dilutive effect on the market for our common stock and could adversely affect its market price. Our
Articles of Incorporation authorize 50,000,000 shares of which 8,711,495 shares were outstanding as
of December 31, 2009. In addition there are 282,080 shares subject to common stock options
outstanding with a weighted average exercise price of $7.06 per share.
Changes in accounting standards may impact how we report our financial condition and results of
operations.
Our accounting policies and methods are fundamental to how we record and report our financial
condition and results of operations. From time to time, the Financial Accounting Standards Board
changes the financial accounting and reporting standards that govern the preparation of our
financial statements. These changes can be difficult to predict and can materially impact how we
record and report our financial condition and results of operations. In some cases, we could be
required to apply a new or revised standard retroactively, resulting in a restatement of prior
period financial statements.
A natural disaster or recurring energy shortage, especially in California, could harm our business.
Historically, California has been vulnerable to natural disasters. Therefore, we are susceptible to
the risks of natural disasters, such as earthquakes, wildfires, floods and mudslides. Natural
disasters could harm our operations directly through interference with communications, including
the interruption or loss of our websites, which would prevent us from gathering deposits,
originating loans and processing and controlling our flow of business, as well as through the
destruction of facilities and our operational, financial and management information systems.
California has also experienced energy shortages, which, if they recur, could impair the value of
the real estate in those areas affected. Although we have implemented several back-up systems and
protections and maintain business interruption insurance, these measures may not protect us fully
from the effects of a natural disaster. The occurrence of natural disasters or energy shortages in
California could have a material adverse effect on our business, prospects, financial condition and
results of operations.
The price of our common stock may fluctuate significantly, and this may make it difficult for you
to resell shares of common stock owned by you at times or at prices you find attractive.
Stock price volatility may make it difficult for you to resell your common stock when you want and
at prices you find attractive. Our stock price can fluctuate significantly in response to a variety
of factors including, among other things:
|
|
|
Actual or anticipated variations in quarterly results of operations; |
|
|
|
|
Recommendations by securities analysts; |
|
|
|
|
Operating and stock price performance of other companies that investors deem comparable
to us; |
22
|
|
|
News reports relating to trends, concerns and other issues in the financial services
industry, including the failures of other financial institutions in the current economic
downturn; |
|
|
|
|
Perceptions in the marketplace regarding us and/or our competitors; |
|
|
|
|
Public sentiments toward the financial services and banking industry generally; |
|
|
|
|
New technology used, or services offered, by competitors; |
|
|
|
|
Significant acquisitions or business combinations, strategic partnerships, joint
ventures or capital commitments by or involving us or our competitors; |
|
|
|
|
Failure to integrate acquisitions or realize anticipated benefits from acquisitions; |
|
|
|
|
Changes in government regulations; and |
|
|
|
|
Geopolitical conditions such as acts or threats of terrorism or military conflicts. |
General market fluctuations, industry factors and general economic and political conditions and
events, such as economic slowdowns or recessions, interest rate changes or credit loss trends,
could also cause our stock price to decrease regardless of operating results as evidenced by the
current volatility and disruption of capital and credit markets.
Our profitability measures could be adversely affected if we are unable to effectively deploy the
capital raised in our latest offering.
On February 11, 2010, we filed a Form S-1 Registration Statement (the Registration
Statement) with the SEC to offer $30.0 million of shares of our common stock in an underwritten
public offering (Offering). We intend to grant the underwriters in the Offering an option to
purchase up to an additional $4.5 million of common stock to cover over-allotment, if any. In the
Registration Statement, we set out our intent to use the net proceeds of the Offering for general
corporate purposes, including contributing additional capital to the Bank, supporting our ongoing
and future anticipated growth, which may include opportunistic acquisitions of all or parts of
other financial institutions, including FDIC-assisted transactions, and positioning us for eventual
redemption of our Series A Preferred Stock issued to the Treasury. Although we are periodically
engaged in discussions with potential acquisition candidates, we are not currently party to any
purchase or merger agreement.
There can be no assurance that we will be able to negotiate future acquisitions on terms acceptable
to us. Investing the proceeds of the Offering in investment grade securities until we are able to
deploy the proceeds would provide lower margins than we generally earn on loans, potentially
adversely impacting shareholder returns, including earnings per share, net interest margin, return
on assets and return on equity.
Only a limited trading market exists for our common stock, which could lead to significant price
volatility.
Our common stock is traded on the NASDAQ Global Market under the trading symbol BOCH, but there
have historically been low trading volumes in our common stock. The limited trading market for our
common stock may cause fluctuations in the market value of our common stock to be exaggerated,
leading to price volatility in excess of that which would occur in a more active trading market of
our common stock. Future sales of substantial amounts of common stock in the public market, or the
perception that such sales may occur, could adversely affect the prevailing market price of the
common stock. In addition, even if a more active market in our common stock develops, we cannot
assure you that such a market will continue.
Anti-takeover provisions in our articles of incorporation could make a third party
acquisition of us difficult.
In order to approve a merger or similar business combination with the owner of 20% or more of
our common stock (an Interested Shareholder), our Articles of Incorporation contain provisions
that would require a supermajority vote of 662/3% of the outstanding shares of
the common stock (excluding the shares held by the Interested Shareholder or its affiliates). These
provisions further require that the per share consideration to be paid in such a transaction would
have to equal or exceed the greater of (a) the highest per share price paid by the Interested
Shareholder (i) within two years of the transaction proposal announcement date, or (ii) the date
the Interested Shareholder acquired a 20% -plus ownership interest (if the acquisition occurred
less than two years before the transaction announcement) and (b) the fair market value of the
Common Stock on (i) the transaction proposal announcement date, or (ii) the date the Interested
Shareholder acquired a 20% -plus ownership interest (if the acquisition occurred less than two
years before the transaction announcement).
The operation of these provisions could result in the Company becoming a less attractive
target for a would-be acquirer. As a consequence, it is possible that shareholder would lose an
opportunity to be paid a premium for their shares in an acquisition transaction.
23
There may be future sales or other dilutions of our equity which may adversely affect the market
price of our common stock.
We are not restricted from issuing additional shares of common stock, including securities that are
convertible into or exchangeable for, or that represent the right to receive our common stock. In
addition, we are not prohibited from issuing additional securities which are senior to our common
stock. Because our decision to issue securities in any future offering will depend in part on
market conditions and other factors beyond our control, we cannot predict or estimate the amount,
timing or nature of any future offerings other than the Offering. Thus, our shareholders bear the
risk of any future stock issuances reducing the market price of our common stock and diluting their
stock holdings in us.
The exercise of the underwriters over-allotment option to be granted in connection with the
Offering, the exercise of any options granted to our directors and employees, the exercise of the
outstanding warrants for our common stock as referenced above, the issuance of shares of common
stock in acquisitions and other issuances of our common stock could have an adverse effect on the
market price of the shares of our common stock. In addition, the existence of options and warrants
to acquire shares of our common stock may materially adversely affect the terms upon which we may
be able to obtain additional capital in the future through the sale of equity securities. Any
future issuances of shares of our common stock will be dilutive to existing shareholders.
The holders of our preferred stock and trust preferred securities have rights that are senior to
those of our holders of common stock and that may impact our ability to pay dividends on our common
stock to our common shareholders and reduce net income available to our common shareholders.
At December 31, 2009, our subsidiary trusts had outstanding $15.0 million of trust preferred
securities. These securities are effectively senior to shares of common stock due to the priority
of the underlying junior subordinated debt. As a result, we must make payments on our trust
preferred securities before any dividends can be paid on our common stock; moreover, in the event
of our bankruptcy, dissolution, or liquidation, the obligations outstanding with respect to our
trust preferred securities must be satisfied before any distributions can be made to our
shareholders. While we have the right to defer dividends on the trust preferred securities for a
period of up to five years, if any such election is made, no dividends may be paid to our common or
preferred shareholders during that time.
We are required to pay cumulative dividends on the $17.0 million in Series A Preferred Stock issued
to the Treasury in the TARP Capital Purchase Program at an annual rate of 5% for the first five
years and 9% thereafter, unless we redeem the shares earlier. We may not declare or pay dividends
on our common stock or repurchase shares of our common stock without first having paid all accrued
cumulative preferred dividends that are due. Until January 2012, we also may not increase our per
share common stock dividend rate or repurchase shares of our common shares without the Treasurys
consent, unless the Treasury has transferred to third parties all the Series A Preferred Stock
originally issued to it.
Our future ability to pay dividends and repurchase stock is subject to restrictions.
Since we are a holding company with no significant assets other than the Bank and our
majority-owned mortgage company, we have no material source of income other than dividends received
from the Bank and the mortgage company. Therefore, our ability to pay dividends to our shareholders
will depend on the Banks and mortgage companys ability to pay dividends to us. Moreover, banks
and financial holding companies are both subject to certain federal and state regulatory
restrictions on cash dividends. We are also restricted from paying dividends if we have deferred
payments of the interest on, or an event of default has occurred with respect to, our trust
preferred securities or Series A Preferred Stock. Additionally, terms and conditions of our
Series A Preferred Stock place certain restrictions and limitations on our common stock dividends
and repurchases of our common stock.
24
Potential Volatility of Deposits
The Banks depositors could choose to withdraw their deposits from the Bank and then put it into
alternative investments, causing an increase in our funding costs and reducing net interest income.
Checking, savings and money market account balances can decrease when customers perceive that
alternative investments, such as the stock market, as providing a better risk/return tradeoff. When
customers move funds out of bank deposits into other investments, the Bank will lose a relatively
low cost source of funds, increasing funding costs.
At December 31, 2009, time certificates of deposit in excess of $100,000 represented approximately
39% of the dollar value of the total deposits of the Company. As such, these deposits are
considered volatile and could be subject to withdrawal. Withdrawal of a material amount of such
deposits could adversely affect the liquidity of our profitability, business prospects, results of
operations and cash flows. The Company monitors activity of volatile liability deposits on a
quarterly basis.
Negative Publicity could Damage our Reputation
Reputation risk, or the risk to the Companys earnings and capital from negative public opinion, is
inherent in the financial services business. Negative public opinion could adversely affect our
ability to keep and attract customers and expose us to adverse legal and regulatory consequences.
Negative public opinion could result from actual or alleged conduct in any number of activities,
including lending practices, corporate governance or acquisitions, and from actions taken by
government regulators and community organizations in response to that conduct.
Mortgage banking interest rate and market risk
Changes in interest rates greatly affect the mortgage banking business. Our mortgage subsidiary
originates, funds and services mortgage loans, which subjects the Company to various risks,
including credit, liquidity and interest rate risks. Based on market conditions and other factors,
the Company reduces unwanted credit and liquidity risks by selling some or all of the long-term
fixed-rate mortgage loans and adjustable rate mortgages originated.
Notwithstanding the continued downturn in the housing sector, and the continued lack of liquidity
in the nonconforming secondary markets, our subsidiary mortgage banking revenue continued to be
strong. Interest rate and market risk can be substantial in the mortgage business. Changes in
interest rates may potentially impact total origination fees.
Interest rates impact the amount and timing of origination because consumer demand for new
mortgages and the level of refinancing activity are sensitive to changes in mortgage interest
rates. Typically, a decline in mortgage interest rates will lead to an increase in mortgage
originations and fees. Given the time it takes for consumer behavior to fully react to interest
rate changes, as well as the time required for processing a new application, providing the
commitment, and selling the loan, interest rate changes will impact origination fees with a lag.
The amount and timing of the impact on origination fees will depend on the magnitude, speed and
duration of the change in interest rates. A decline in interest rates increases the propensity for
refinancing.
As part of subsidiary mortgage banking activities, we enter into commitments to fund
residential mortgage loans at specified times in the future. A mortgage loan commitment is an
interest rate lock that binds us to lend funds to a potential borrower at a specified interest rate
and within a specified period of time, up to 60 days after inception of the rate lock. Outstanding
loan commitments expose the Company to the risk that the price of the mortgage loans underlying the
commitments might decline due to increases in mortgage interest rates from inception of the rate
lock to the funding of the loan.
Mortgage banking revenue can be volatile from quarter to quarter
The Company earns revenue from fees for originating mortgage loans. When rates rise, the demand for
mortgage loans tends to fall, reducing the revenue from loan originations. It is also possible
that, because of the recession and deteriorating housing market, even if interest rates were to
fall, mortgage originations may also fall, with a corresponding impact on origination fees.
25
|
|
|
ITEM 1B. |
|
UNRESOLVED STAFF COMMENTS |
None to report.
The Companys principal administrative offices and technology center consists of approximately
12,000 square feet of space on property adjacent to the branch office at 1901 Churn Creek Road,
Redding, California 96002. The Banks main office is housed in a two-story building with
approximately 21,000 square feet of space located at 1951 Churn Creek Road, Redding, California,
96002. The Bank owns the buildings and the 1.25 acres of land on which the buildings are situated.
The Bank also owns the land and building located at 1177 Placer Street, Redding, California,
96001, in which the Bank uses approximately 11,650 square feet of space for its banking operations.
In addition, the Company leases approximately 3,787 square feet; the lease agreement expires on
August 21, 2017.
The Companys Roseville Bank of Commerce is located on the first floor of a three-story building
with approximately 8,550 square feet of space located at 1504 Eureka Road, Roseville, California.
The Company leases the space pursuant to a triple net lease expiring on May 31, 2012.
The Companys Bank of Commerce Mortgage is located at 3130 Crow Canyon Place, San Ramon,
California. Effective January 1, 2010 Bank of Commerce Mortgage relocated within the same building
to occupy 13,613 square feet of space on the third floor of this four-story building. The office
space is leased under a non-cancelable operating lease expiring December 31, 2014.
We believe that our facilities are adequate to meet our current needs and that additional
facilities are available to meet future needs.
|
|
|
ITEM 3. |
|
LEGAL PROCEEDINGS |
The Company is subject to various pending and threatened legal actions arising in the ordinary
course of business. The Company maintains reserves for losses from legal actions that are both
probable and estimable. In the opinion of management the disposition of claims currently pending
will not have a material effect on the Companys consolidated financial position or results of
operations.
26
PART II
|
|
|
Item 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES |
The principal market on which the Companys common stock is traded is the NASDAQ Global
Market. The Companys common stock is listed under the trading symbol BOCH. The following table
sets forth the high and low closing sales prices of the Companys common stock on the NASDAQ Global
Market for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Price Per Share |
Quarter Ended: |
|
High |
|
|
Low |
|
|
Volume |
|
|
March 31, 2009 |
|
$ |
5.05 |
|
|
$ |
3.90 |
|
|
|
123,989 |
|
June 30, 2009 |
|
$ |
6.52 |
|
|
$ |
4.08 |
|
|
|
74,922 |
|
September 30, 2009 |
|
$ |
6.30 |
|
|
$ |
4.50 |
|
|
|
129,689 |
|
December 31, 2009 |
|
$ |
5.99 |
|
|
$ |
5.10 |
|
|
|
156,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
$ |
8.59 |
|
|
$ |
6.00 |
|
|
|
211,299 |
|
June 30, 2008 |
|
$ |
8.34 |
|
|
$ |
6.10 |
|
|
|
71,390 |
|
September 30, 2008 |
|
$ |
6.95 |
|
|
$ |
5.50 |
|
|
|
89,184 |
|
December 31, 2008 |
|
$ |
6.60 |
|
|
$ |
3.92 |
|
|
|
135,589 |
|
There were approximately 676 shareholders of the Companys common stock as of December 31, 2009,
including those held in street name, and the market price on that date was $5.28 per share.
Dividends
Cash dividends of $0.06 were paid on April 10, 2009, July 17, 2009, October 9, 2009, and January 15, 2010
respectively to shareholders of record as of March 31, 2009, July 24, 2009,
September 30, 2009 and December 31, 2009. Cash dividends of $0.08, $0.08, $0.08 and $0.08 were paid on January 11,
2008, April 11, 2008, July 11, 2008 and October 10, 2008, respectively, to shareholders of record
as of December 31, 2007, March 31, 2008, June 30, 2008 and September 30, 2008.
The Company currently expects to pay cash dividends at this rate in the future, but the Companys
ability to pay dividends is subject to certain regulatory requirements. The Federal Reserve Board
(FRB) generally prohibits a financial holding company from declaring or paying a cash dividend
which would impose undue pressure on the capital of subsidiary banks or would be funded only
through borrowing or other arrangements that might adversely affect a financial services holding
companys financial position. The FRBs policy is that a financial holding company should not
continue its existing rate of cash dividends on its common stock unless its net income is
sufficient to fully fund each dividend and its prospective rate of earnings retention appears
consistent with its capital needs, asset quality and overall financial condition. The power of the
board of directors of an insured depository institution to declare a cash dividend or other
distribution with respect to capital is subject to statutory and regulatory restrictions which
limit the amount available for such distribution depending upon the earnings, financial condition
and cash needs of the institution, as well as general business conditions.
In addition to the restrictions imposed under federal law, banks chartered under California law
generally may only pay cash dividends to the extent such payments do not exceed the lesser of
retained earnings of the bank or the banks net income for its last three fiscal years (less any
distributions to shareholders during such period). In the event a bank desires to pay cash
dividends in excess of such amount, the bank may pay a cash dividend with the prior approval of the
Commissioner of the Department of Financial Institutions in an amount not exceeding the greatest of
the banks retained earnings, the banks net income for its last fiscal year, or the banks net
income for its current fiscal year.
27
Securities Authorized for Issuance Under Equity Compensation Plans
We currently maintain two equity-based compensation plans that have been approved by the
shareholders the 1998 Stock Plan, which was approved by the shareholders in 1998 and the 2008
Stock Plan, which was approved by the shareholders in 2008. The following table sets forth, for
each of the Companys equity-based compensation plans, the number of shares of common stock subject
to outstanding options and rights, the weighted-average exercise price of outstanding options, and
the number of shares available for future award grants as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
|
|
|
remaining available for |
|
|
|
Number of securities to be |
|
|
Weighted average exercise |
|
|
future issuance under |
|
|
|
issued upon exercise of |
|
|
price of outstanding |
|
|
equity compensation plans |
|
|
|
outstanding options, |
|
|
options, warrants and |
|
|
(excluding securities |
|
Plan Category |
|
warrants and rights |
|
|
rights |
|
|
reflected in column (a)) |
|
|
Equity
compensation plans approved by
security holders |
|
|
282,080 |
|
|
$ |
8.46 |
|
|
|
572,500 |
|
Equity
compensation plans not approved
by security holders |
|
None |
|
|
None |
|
|
None |
|
Total |
|
|
282,080 |
|
|
$ |
8.46 |
|
|
|
572,500 |
|
28
Stock Performance Graph
The following graph compares the Companys cumulative total return to shareholders during the past
five years with that of the NASDAQ Composite Stock Index and the SNL Securities $500-$1 billion
Bank Asset-Size Index (the SNL Securities Index). The stock price performance shown on the
following graph is not necessarily indicative of future performance of the Companys Common Stock.
Bank of Commerce Holdings
Five Year Performance Graph
Stock Performance Graph (1)
|
|
|
|
|
|
SNL Securities LC (C) 2009
|
|
(888) 275-2822 |
|
|
|
(1) |
|
Assumes $100 invested on December 31, 2005, in the Companys Common Stock, the NASDAQ, and the
SNL Securities Index. The model assumes reinvestment of dividends. Source: SNL Securities (share
prices for the Companys Common Stock was furnished to SNL Securities through the NASDAQ). |
Sales of Unregistered Securities
Pursuant to a Letter Agreement dated November 14, 2008, and the Securities Purchase
Agreement Standard Terms (Securities Purchase Agreement) we issued to the United States
Department of the Treasury (Treasury) 17,000 shares of our Series A Preferred Stock for a total
price of $17.0 million. The Series A Preferred Stock pays cumulative dividends at a rate of 5% per
year for the first five years and thereafter at a rate of 9% per year. Except under limited
circumstances, the Series A Preferred Stock is non-voting.
As part of its purchase of the Series A Preferred Stock, the Treasury received a warrant
(Warrant) to purchase 405,405 shares of our common stock at an initial per share exercise price
of $6.29. The Warrant provides for the adjustment of the exercise price and the number of shares
of our common stock issuable upon exercise pursuant to customary anti-dilution provisions, such as
upon stock splits or distributions of securities or other assets to holders of our common stock,
and upon certain issuances of our common stock at or below a specified price relative to the
initial exercise price.
29
The Warrant expires ten years from the issuance date. Pursuant to the Securities Purchase
Agreement, the Treasury has agreed not to exercise voting power with respect to any shares of
common stock issued upon exercise of the Warrant.
Both the Series A Preferred Stock and Warrant will be accounted for as components of Tier 1
capital. The Series A Preferred Stock and the Warrant were issued in a private placement exempt
from registration pursuant to Section 4(2) of the Securities Act. Upon the request of the Treasury
at any time, we have agreed to promptly enter into a deposit arrangement pursuant to which the
Series A Preferred Stock may be deposited and depositary shares (Depositary Shares) may be
issued. Neither the Series A Preferred Stock nor the Warrant will be subject to any contractual
restrictions on transfer.
Prior to November 14, 2011, unless we have redeemed the Series A Preferred Stock or the Treasury
has transferred the Series A Preferred Stock to a third party, the consent of the Treasury will be
required for us to (i) declare or pay any dividend or make any distribution on our common stock
(other than regular quarterly cash dividends of not more than $0.08 per share of common stock) or
(ii) redeem, purchase or acquire any shares of the Companys common stock or other equity or
capital securities, other than in connection with benefit plans consistent with past practice and
certain other circumstances specified in the Securities Purchase Agreement.
The proceeds from the Treasury were allocated based on the relative fair value of the Warrant as
compared with the fair value of the preferred stock. The fair value of the Warrant was determined
using a valuation model which incorporates assumptions including our common stock price, dividend
yield, stock price volatility and the risk-free interest rate. The fair value is determined based
on assumptions regarding the discount rate (market rate) on our Series A Preferred Stock which was
estimated to be approximately 9% at the date of issuance. The discount will be accreted to par
value over a five-year term, which is the expected life of our Series A Preferred Stock. Capital
Purchase Program participants may opt out by repaying the capital without raising additional
capital subject to consultation with the appropriate federal regulator.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
No shares were repurchased during 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
(d) |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased As |
|
|
of Shares That May |
|
|
|
(a) |
|
|
(b) |
|
|
Part of Publicly |
|
|
Yet be Purchased |
|
|
|
Total Number of |
|
|
Average Price Paid |
|
|
Announced Plans or |
|
|
Under the Plans or |
|
Period |
|
Shares Purchased |
|
|
Per Share |
|
|
Programs |
|
|
Programs |
|
|
Total 2009 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
30
|
|
|
Item 6. |
|
SELECTED FINANCIAL DATA |
The selected consolidated financial data set forth below for the five years ended December 31,
2009, have been derived from the Companys audited consolidated financial statements and should be
read in conjunction with Managements Discussion and Analysis of Financial Condition and Results
of Operations and the Companys audited consolidated financial statements and notes thereto,
included elsewhere in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Thousands (Except Ratios and Per Share Data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Statements of Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income |
|
$ |
41,329 |
|
|
$ |
37,690 |
|
|
$ |
41,128 |
|
|
$ |
37,610 |
|
|
$ |
27,864 |
|
Net Interest Income |
|
|
28,994 |
|
|
|
21,348 |
|
|
|
22,012 |
|
|
|
22,035 |
|
|
|
20,238 |
|
Provision for Loan Losses |
|
|
9,475 |
|
|
|
6,520 |
|
|
|
3,291 |
|
|
|
226 |
|
|
|
448 |
|
Total Noninterest Income |
|
|
10,063 |
|
|
|
2,623 |
|
|
|
4,535 |
|
|
|
1,928 |
|
|
|
2,124 |
|
Total Noninterest Expense |
|
|
20,624 |
|
|
|
15,296 |
|
|
|
15,744 |
|
|
|
13,333 |
|
|
|
11,749 |
|
Total Revenues |
|
|
51,392 |
|
|
|
40,313 |
|
|
|
45,753 |
|
|
|
39,539 |
|
|
|
29,988 |
|
Net Income |
|
$ |
6,005 |
|
|
$ |
2,194 |
|
|
$ |
6,107 |
|
|
$ |
6,568 |
|
|
$ |
6,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
813,406 |
|
|
$ |
774,214 |
|
|
$ |
618,327 |
|
|
$ |
583,442 |
|
|
$ |
511,644 |
|
Total Gross Loans |
|
|
601,439 |
|
|
|
527,463 |
|
|
|
494,748 |
|
|
|
414,191 |
|
|
|
368,041 |
|
Allowance for Loan Losses |
|
|
11,207 |
|
|
|
8,429 |
|
|
|
8,233 |
|
|
|
4,904 |
|
|
|
4,316 |
|
Total Deposits |
|
|
640,464 |
|
|
|
555,282 |
|
|
|
473,631 |
|
|
|
439,407 |
|
|
|
372,116 |
|
Shareholders Equity |
|
$ |
68,807 |
|
|
$ |
62,578 |
|
|
$ |
46,164 |
|
|
$ |
43,916 |
|
|
$ |
39,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Assets 2 |
|
|
0.75 |
% |
|
|
0.33 |
% |
|
|
1.04 |
% |
|
|
1.20 |
% |
|
|
1.34 |
% |
Return on Average Shareholders Equity 3 |
|
|
9.01 |
% |
|
|
4.99 |
% |
|
|
13.39 |
% |
|
|
15.59 |
% |
|
|
18.35 |
% |
Dividend Payout |
|
|
34.81 |
% |
|
|
127.04 |
% |
|
|
46.47 |
% |
|
|
40.36 |
% |
|
|
35.74 |
% |
Average Equity to Average Assets |
|
|
8.28 |
% |
|
|
8.91 |
% |
|
|
9.43 |
% |
|
|
9.49 |
% |
|
|
9.43 |
% |
Tier 1 Risk-Based Capital Holding Company 4 |
|
|
12.06 |
% |
|
|
11.58 |
% |
|
|
9.97 |
% |
|
|
11.42 |
% |
|
|
12.08 |
% |
Total Risk-Based Capital Holding Company |
|
|
13.31 |
% |
|
|
12.84 |
% |
|
|
11.22 |
% |
|
|
12.54 |
% |
|
|
13.11 |
% |
Net Interest Margin 5 |
|
|
3.94 |
% |
|
|
3.47 |
% |
|
|
3.98 |
% |
|
|
4.26 |
% |
|
|
4.59 |
% |
Average Earning Assets to Total Average Assets |
|
|
91.42 |
% |
|
|
92.86 |
% |
|
|
93.74 |
% |
|
|
94.20 |
% |
|
|
94.04 |
% |
Nonperforming Assets to Total Assets 6 |
|
|
2.27 |
% |
|
|
2.98 |
% |
|
|
2.01 |
% |
|
|
0.00 |
% |
|
|
0.08 |
% |
Net Charge-offs to Average Loans |
|
|
1.14 |
% |
|
|
1.22 |
% |
|
|
.00 |
% |
|
|
-.09 |
% |
|
|
0.00 |
% |
Allowance for Loan Losses to Total Loans |
|
|
1.86 |
% |
|
|
1.60 |
% |
|
|
1.66 |
% |
|
|
1.18 |
% |
|
|
1.17 |
% |
Nonperforming Loans to Allowance for Loan Losses |
|
|
94.16 |
% |
|
|
239.10 |
% |
|
|
150.72 |
% |
|
|
0.00 |
% |
|
|
9.15 |
% |
Efficiency Ratio 7 |
|
|
52.80 |
% |
|
|
63.81 |
% |
|
|
59.31 |
% |
|
|
55.64 |
% |
|
|
52.54 |
% |
Share Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding basic |
|
|
8,711 |
|
|
|
8,713 |
|
|
|
8,858 |
|
|
|
8,760 |
|
|
|
8,600 |
|
Average Common Shares Outstanding diluted |
|
|
8,711 |
|
|
|
8,724 |
|
|
|
8,938 |
|
|
|
8,932 |
|
|
|
8,845 |
|
Book Value Per Common Share |
|
$ |
5.72 |
|
|
$ |
5.23 |
|
|
$ |
5.27 |
|
|
$ |
4.96 |
|
|
$ |
4.52 |
|
Basic Earnings Per Common Share |
|
$ |
0.58 |
|
|
$ |
0.25 |
|
|
$ |
0.69 |
|
|
$ |
0.75 |
|
|
$ |
0.73 |
|
Diluted Earnings Per Common Share |
|
$ |
0.58 |
|
|
$ |
0.25 |
|
|
$ |
0.68 |
|
|
$ |
0.74 |
|
|
$ |
0.71 |
|
Cash Dividends Per Common Share |
|
$ |
0.24 |
|
|
$ |
0.32 |
|
|
$ |
0.33 |
|
|
$ |
0.29 |
|
|
$ |
0.26 |
|
|
|
|
1 |
|
Regulatory Capital Ratios and Asset Quality Ratios are end of period ratios. With
the exception of end of period ratios, all ratios are based on average daily balances during the
indicated period. |
|
2 |
|
Return on average assets is net income divided by average total assets. |
|
3 |
|
Return on average equity is net income divided by average shareholders equity. |
|
4 |
|
Regulatory capital ratios are defined in detail in the table on page 54 |
|
5 |
|
Net interest margin equals net interest income as a percent of average
interest-earning assets. |
|
6 |
|
Non-performing assets includes all nonperforming loans (nonaccrual loans, loans 90
days past due and still accruing interest and restructured loans) and real estate acquired by
foreclosure. |
|
7 |
|
The efficiency ratio is calculated by dividing non-interest expense by the sum of net
interest income and noninterest income. The efficiency ratio measures how the Company spends in
order to generate each dollar of net revenue. |
31
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION |
The following discussion should be read in conjunction with the Consolidated Financial
Statements of the Company and related notes thereto appearing elsewhere in this report. This report
includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the
Exchange Act) and the Private Securities Litigation Reform Act of 1995. These statements are not
guarantees of future performance and involve certain risks. These statements are based on
managements beliefs and assumptions, and on information available to management as of the date of
this document. Forward-looking statements include the information concerning possible or assumed
future results of operations of the Company set forth under the heading Managements Discussion
and Analysis of Financial Condition and Results of Operations. Forward-looking statements also
include statements in which words such as expects, anticipates, intend, plan, believes,
estimate, consider or similar expressions or conditional verbs such as will should would
and could are intended to identify such forward looking statements. The Companys actual future
results and shareholder values may differ materially from those anticipated and expressed in these
forward-looking statements. Many of the factors that will determine these results and values,
including those discussed under the heading Risk Factors, are beyond the Companys ability to
control or predict. Investors are cautioned not to put undue reliance on any forward-looking
statements. In addition, the Company does not have any intention to and assumes no obligation to
update forward-looking statements after the date of the filing of this report, even if new
information, future events or other circumstances have made such statements incorrect or
misleading. Except as specifically noted herein all referenced to the Company refer to Bank of
Commerce Holdings, a California corporation, and its consolidated subsidiaries.
The following factors, among others, could cause our actual results to differ materially from those
expressed in such forward-looking statements:
|
|
|
The strength of the United States economy in general and the strength of the local
economies in which we conduct operations, the duration of current financial and economic
volatility and decline and actions taken by the United States Congress and governmental
agencies, including the United States Department of the Treasury (the Treasury), to
deal with challenges to the United States financial system; |
|
|
|
|
The effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal Reserve System,
or the Federal Reserve Board; |
|
|
|
|
Inflation, interest rate, market and monetary fluctuations, the risks presented by a
continued economic recession, which could adversely affect credit quality, collateral
values, investment values and liquidity; |
|
|
|
|
Changes in the financial performance and/or condition of our borrowers; |
|
|
|
|
Changes in consumer spending, borrowing and savings habits; |
|
|
|
|
Changes in the level of our nonperforming assets and charge-offs; |
|
|
|
|
Oversupply of inventory and continued deterioration in values of real estate in
California and the United States generally, both residential and commercial; |
|
|
|
|
Changes in securities markets, public debt markets and other capital markets; |
|
|
|
|
Possible other-than-temporary impairments of securities held by us; |
|
|
|
|
The timely development of competitive new products and services and the acceptance of
these products and services by new and existing customers; |
|
|
|
|
The willingness of customers to substitute competitors products and services for our
products and services; |
|
|
|
|
The impact of changes in financial services policies, laws and regulations, including
laws, regulations and policies concerning taxes, banking, securities and insurance, and
the application thereof by regulatory bodies; |
|
|
|
|
Technological changes could expose us to new risks, including potential systems
failures or fraud; |
|
|
|
|
The timing and effect of acquisitions we may make, if any, including, without
limitation, the failure to achieve the expected revenue growth and/or expense savings
from such acquisitions; |
|
|
|
|
Possible impairment of goodwill that has been recorded in connection with acquisitions
which may have a material adverse impact on our earnings; |
|
|
|
|
The effect of changes in accounting policies and practices, as may be adopted from
time-to-time by bank regulatory agencies, the Securities and Exchange Commission (the
SEC), the Public Company Accounting Oversight Board, the Financial Accounting Standards
Board or other accounting standards setters; |
|
|
|
|
The impact of current governmental efforts to restructure the United States financial
regulatory system, including changes in the scope and cost of FDIC insurance and other
coverages and changes in the Treasurys Capital Purchase Program; |
32
|
|
|
Ability to attract deposits and other sources of liquidity at acceptable costs; |
|
|
|
|
Changes in the competitive environment among financial and bank holding companies and
other financial service providers; |
|
|
|
|
The loss of critical personnel and the challenge of hiring qualified personnel at
reasonable compensation levels; |
|
|
|
|
Geopolitical conditions, including acts or threats of war or terrorism, actions taken
by the United States or other governments in response to acts or threats of war or
terrorism and/or military conflicts, which could impact business and economic conditions
in the United States and abroad; |
|
|
|
|
Unanticipated regulatory or judicial proceedings; and |
|
|
|
|
Our ability to manage the risks involved in the foregoing. |
If our assumptions regarding one or more of the factors affecting our forward-looking information
and statements proves incorrect, then our actual results, performance or achievements could differ
materially from those expressed in, or implied by, forward-looking information and statements
contained in this prospectus and in the information incorporated by reference in this prospectus.
Therefore, we caution you not to place undue reliance on our forward-looking information and
statements. We will not update the forward-looking statements to reflect actual results or changes
in the factors affecting the forward-looking statements.
2009 Highlights
Due to conservative loan underwriting, active servicing of problem credits and maintenance of a
healthy net interest margin, we have remained profitable during the recent economic downturn and
positioned our Company to take advantage of growth opportunities in the coming years. During 2009
we recorded net income of $6.0 million, and net income to common shareholders of $5.1 million, or
$0.58 per diluted share, after deducting preferred dividend payments made to the Treasury and
accretion of preferred shares under the TARP Capital Purchase Program. This was an increase from
$2.2 million of net income, or $0.25 per share, reported in 2008. As of December 31, 2009, we had
total assets of $813.4 million, total loans of $601.4 million, an allowance for loan and lease
losses of $11.2 million, or 1.86% of total loans, deposits outstanding of $640.5 million and
shareholders equity of $68.8 million.
Overview
Our Company was established to make a profitable return while serving the financial needs of the
business and professional communities which make up our markets. We are in the financial services
business, and no line of financial services is beyond our charter so long as it serves the needs of
our customers. Our mission is to provide our shareholders with a safe and profitable return on
investment over the long term. Management will attempt to minimize risk to our shareholders by
making prudent business decisions, maintaining adequate levels of capital and reserves, and
communicating effectively with shareholders.
Our vision is to embrace changes in the industry and develop profitable business strategies that
allow us to both maintain customer relationships and build new ones. Our competitors are no longer
just banks. We must compete with financial powerhouses that want our core business. The
flexibility provided by our status as a Financial Holding Company will become increasingly
important. We have developed strategic plans that evaluate additional financial services and
products that can be delivered to our customers efficiently and profitably. Producing quality
returns is, as always, a top priority.
It is also our vision of the Company to remain independent, expanding our presence through internal
growth and the addition of strategically important full service and focused service locations. We
will pursue attractive opportunities to enter related lines of business and to acquire financial
institutions with complementary lines of business. We will strive to continue our expansion into
profitable markets in order to build franchise value. We will distinguish ourselves from the
competition by a commitment to efficient delivery of products and
services in our target markets to businesses and professionals, while maintaining personal relationships with mutual loyalty.
33
Our long term success rests on the shoulders of the leadership team and its ability to effectively
enhance the performance of the Company. As a financial services company, we are in the business of
taking and managing risks. Whether we are successful depends largely upon whether we take the
right risks and get paid appropriately for those risks. Our governance structure enables us to
manage all major aspects of the Companys business effectively through an integrated process that
includes financial, strategic, risk and leadership planning.
We define risks to include not only credit, market and liquidity risk, the traditional concerns for
financial institutions, but also operational risks, including risks related to systems, processes
or external events, as well as legal, regulatory and reputation risks. Our management processes,
structures, and policies help to ensure compliance with laws and regulations and provide clear
lines for decision-making and accountability. Results are important, but equally important is how
we achieve those results. Our core values and commitment to high ethical standards is material to
sustaining public trust and confidence in our Company.
Risk Management
Overview
Through our corporate governance structure, risk and return is evaluated to produce sustainable
revenues, reduce risks of earnings volatility and increase shareholder value. The financial
services industry is exposed to four major risks; liquidity, credit, market and operational.
Liquidity risk is the inability to meet liability maturities and withdrawals, fund asset growth and
otherwise meet contractual obligations at reasonable market rates. Credit risk is the inability of
a customer to meet its repayment obligations. Market risk is the fluctuation in asset and liability
values caused by changes in market prices and yields, and Operational risk is the potential for
losses resulting from events involving people, processes, technology, legal issues, external
events, regulation, or reputation.
Board Committees
Our corporate governance structure begins with our Board of Directors. The Board of Directors
evaluates risk through the Chief Executive Officer (CEO) and four Board Committees:
|
|
The Loan Committee reviews credit risks and the adequacy of the
allowance for loan and lease losses. |
|
|
The Asset/Liability Management Committee (ALCO) reviews liquidity
and market risks. |
|
|
The Audit and Qualified Legal Compliance Committee reviews the
scope and coverage of internal and external audit activities; and |
|
|
The Nominating and Corporate Governance Committee evaluates
corporate governance structure, charters, committee performance and acts in best interests of
the corporation and its shareholders with regard to the appointment of director nominees. |
These committees review reports from management, the Companys auditors, and other outside sources.
On the basis of materials that are available to them and on which they rely, the committees review
the performance of the Companys management and personnel, and establish policies, but neither the
committees nor their individual members (in their capacities as members of the Board of Directors)
are responsible for daily operations of the Company. In particular, risk management activities
relating to individual loans are undertaken by Company personnel in accordance with the policies
established by the committees of the Board of Directors.
Senior Leadership Committees
To ensure that our risk management goals and objectives are accomplished, oversight of our risk
taking and risk management activities are conducted through five Senior Leadership committees
comprised of members of management:
|
|
The Senior Leadership Committee establishes short and long-term strategies and operating
plans. The committee establishes performance measures and reviews performance to plan on a
monthly basis: |
|
|
The Credit Round Table Committee recommends corporate credit administration practices and
limits including industry concentration limits, approval requirements, and exceptions: |
|
|
The Technology Steering Committee establishes technological strategies, makes technology
investment decisions, and manages the implementation process: |
|
|
The ALCO Round Table Committee establishes and monitors liquidity ranges, pricing,
maturities, investment goals, and interest spread on balance sheet accounts: and |
34
|
|
The SOX 404 Compliance Committee has established the master plan for full documentation of
the Companys internal controls and compliance with Section 404 of the Sarbanes-Oxley Act of
2002. |
Risk Management Controls
We use various controls to manage risk exposure within the Company. Budgeting and planning
processes provide for early indication of unplanned results or risk levels. Models are used to
estimate market risk and net interest income sensitivity. Segmentation analysis is used to estimate
expected and unexpected credit losses. Compliance with regulatory guidelines plays a significant
role in risk management as well as corporate culture and the actions of management. Our code of
ethics provides the guidelines for all employees to conduct themselves with the highest integrity
in the delivery of service to our clients.
Liquidity Risk Management
Liquidity Risk
Liquidity risk is the inability to meet liability maturities and withdrawals, fund asset growth and
otherwise meet contractual obligations at reasonable market rates. Liquidity management involves
maintaining ample and diverse funding capacity, liquid assets and other sources of cash to
accommodate fluctuations in asset and liability levels due to business shocks or unanticipated
events. ALCO is responsible for establishing our liquidity policy and the accounting department is
responsible for planning and executing the funding activities and strategies.
Asset liquidity sources consist of the repayments and maturities of loans, selling of loans,
short-term money market investments, maturities and sales of securities from the available-for-sale
security portfolio. Increased available-for-sale security balances were responsible for the major
use of liquidity, followed by growth in the loan portfolio. The weighted-average life of the
available-for-sale security portfolio is 6.7 years.
Liquidity is generated from liabilities through deposit growth and Federal Home Loan Bank
borrowings. We emphasize preserving and maximizing customer deposits and other customer-based
funding sources. Deposit marketing strategies are reviewed for consistency with liquidity policy
objectives.
We have available correspondent banking lines of credit through correspondent relationships
totaling approximately $10.0 million and available secured borrowing lines of approximately $55.6
million with the Federal Home Loan Bank of San Francisco. In addition, we periodically obtain
secured borrowings from the Federal Reserve Bank of San Francisco (Reserve Bank) and had $55.3
million in available borrowing lines at the Reserve Bank. While these sources are expected to
continue to provide significant amounts of liquidity in the future, their mix, as well as the
possible use of other sources, will depend on future economic and market conditions. Liquidity is
also provided through cash flows generated through our operations.
Our liquid assets (cash and amounts due from banks, interest bearing deposits held at other banks,
and available-for-sale securities) totaled $148.3 million or 18.2% of total assets at December 31,
2009, $216.9 million or 28.01% of total assets at December 31, 2008 and $90.1 million or 14.5% of
total assets at December 31, 2007. In 2009, the Holding Companys primary source of funding was
cash dividends from the Bank. The Holding Company expects to receive dividends from the Bank in
2010. (See note 18 to the Consolidated Financial Statements for a discussion of the restrictions on
the Banks ability to pay dividends.)
To accommodate future growth and business needs, we develop an annual capital expenditure budget
during strategic planning sessions. We expect that our earnings, acquisition of core deposits and
wholesale borrowing arrangements will be sufficient to support liquidity needs in 2010.
Other Borrowings
We actively use Federal Home Loan Bank (FHLB) advances as a source of wholesale funding to
provide liquidity and to implement leverage strategies. At December 31, 2009, our FHLB long-term
advance was at a fixed rate. At December 31, 2009 our FHLB short-term advances were fixed term
borrowings without call or put features. At December 2009, we had $70 million in FHLB advances
outstanding compared to $120 million at December 31, 2008 and $60 million at December 31, 2007.
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Securities sold under
agreements to repurchase
with weighted average
interest rates of 0.49%,
0.62% and 2.84% at
December 31, 2009, 2008
and 2007, respectively |
|
$ |
9,620,867 |
|
|
$ |
13,853,255 |
|
|
$ |
15,513,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank
borrowings with weighted
average interest rates
of 0.85%, 2.41% and
4.30% at December 31,
2009, 2008 and 2007,
respectively |
|
|
70,000,000 |
|
|
|
120,000,000 |
|
|
|
60,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Borrowings |
|
$ |
79,620,867 |
|
|
$ |
133,853,255 |
|
|
$ |
75,513,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Securities sold under agreements to repurchase: |
|
|
|
|
|
|
|
|
|
|
|
|
Maximum outstanding at any month end |
|
$ |
12,359,119 |
|
|
$ |
14,581,881 |
|
|
$ |
46,417,358 |
|
Average balance during the year |
|
|
11,006,007 |
|
|
|
13,038,870 |
|
|
|
32,237,000 |
|
|
Weighted average interest rate during year |
|
|
0.46 |
% |
|
|
1.32 |
% |
|
|
3.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
Maximum outstanding at any month end |
|
$ |
130,000,000 |
|
|
$ |
120,000,000 |
|
|
$ |
60,000,000 |
|
Average Balance during the year |
|
|
103,317,808 |
|
|
|
83,048,645 |
|
|
|
46,630,462 |
|
Weighted average interest rate during year |
|
|
1.93 |
% |
|
|
3.40 |
% |
|
|
5.20 |
% |
Credit Risk Management
Credit risk arises from the inability of a customer to meet its repayment obligations. Credit risk
exists in our outstanding loans, letters of credit and unfunded loan commitments. We manage credit
risk based on the risk profile of the borrower, repayment sources and the nature of underlying
collateral given current events and conditions.
Commercial portfolio credit risk management
Commercial credit risk management begins with an assessment of the credit risk profile of the
individual borrower based on an analysis of the borrowers financial position in light of current
industry, economic or geopolitical trends. As part of the overall credit risk assessment of a
borrower, each commercial credit is assigned a risk grade and is subject to approval based on
existing credit approval standards. Risk grading is a substantial factor in determining the
adequacy of the allowance for loan and lease losses. Credit decisions are determined by Credit
Administration to certain limitations and approvals from the Loan Committee above certain
limitations. Credit risk is continuously monitored by Credit Administration for possible
adjustment if there has been a change in the borrowers ability to perform under its obligations.
Additionally, we manage the size of our credit exposure through loan sales and loan participation
agreements. The primary sources of repayment of our commercial loans are from the borrowers
operating cash flows and the borrowers conversion of short-term assets to cash. The net assets of
the borrower or guarantor are usually identified as a secondary source of repayment. The principal
factors affecting our risk of loss from commercial lending include each borrowers ability to
manage its business affairs and cash flows, local and general economic conditions and real estate
values in our service area. We manage our commercial loan portfolio by monitoring our borrowers
payment performance and their respective financial condition and make periodic adjustments, if
necessary, to the risk grade assigned to each loan in the portfolio. Our evaluations of our
borrowers are facilitated by managements knowledge of local market conditions and periodic
reviews by a consultant of our credit administration policies.
Real estate portfolio credit risk management
The principal source of repayment of our real estate construction loans is the sale of the
underlying collateral or the availability of permanent financing from the Company or other lending
source.
36
The principal risks associated with real estate construction lending include project cost overruns
that absorb the borrowers equity in the project and deterioration of real estate values as a
result of various factors, including competitive pressures and economic downturns.
We manage our credit risk associated with real estate construction lending by establishing a
loan-to-value ratio on projects on an as-completed basis, inspecting project status in advance of
disbursements, and matching maturities with expected completion dates. Generally, we require a
loan-to-value ratio of not more than 80% on single family residential construction loans. Our
specific underwriting standards and methods for each principal line of lending include
industry-accepted analysis and modeling and certain proprietary techniques. Our underwriting
criteria are designed to comply with applicable regulatory guidelines, including required
loan-to-value ratios. Our credit administration policies contain mandatory lien position and debt
service coverage requirements, and the Bank generally requires a guarantee from individuals owning
20% or more of the borrowing entity.
Concentrations of credit risk
Portfolio credit risk is evaluated with the goal that concentrations of credit exposure do not
result in unacceptable levels of risk. Concentrations of credit exposure can be measured in various
ways including industry, product, geography, and customer relationship. We review non-real estate
commercial loans by industry and real estate loans by geographic location and property type.
Nonperforming assets
Our practice is to place an asset on nonaccrual status when one of the following events occurs:(i)
Any installment of principal or interest is 90 days or more past due (unless in managements
opinion the loan is well-secured and in the process of collection), (ii) management determines the
ultimate collection of principal or interest to be unlikely or (iii) the terms of the loan have
been renegotiated due to a serious weakening of the borrowers financial condition. Nonperforming
loans include impaired loans which may be on non-accrual, are 90 days past due and still accruing,
or have been restructured.
Allowance for loan and lease losses (ALLL)
The allowance for loan and lease losses represents managements best estimate of probable losses in
the loans and leases portfolio. Within the allowance, reserves are allocated to segments of the
portfolio based on specific formula components. Changes to the allowance for credit losses are
reported in the Consolidated Statement of Income in the provision for loan and lease losses.
We perform periodic and systematic detailed evaluations of our lending portfolio to identify and
estimate the inherent risks and assess the overall collectability. We evaluate general conditions
such as the portfolio composition, size and maturities of various segmented portions of the
portfolio such as secured, unsecured, construction, and Small Business Administration (SBA). We
also evaluate concentrations of borrowers, industries, geographical sectors, loan product, loan
classes and collateral types, volume and trends of loan delinquencies and non-accrual; criticized
and classified assets and trends in the aggregate in significant credits identified as watch list
items.
Our allowance for loan and lease losses is the accumulation of various components that are
calculated based upon independent methodologies. All components of the allowance for loan losses
represent an estimation based on certain observable data that management believes most reflects the
underlying credit losses being estimated. Changes in the amount of each component of the allowance
for loan losses are directionally consistent with changes in the observable data, taking into
account the interaction of the components over time.
An essential element of the methodology for determining the allowance for loan and lease losses is
our credit risk evaluation process, which includes credit risk grading of individual, commercial,
construction, commercial real estate, and consumer loans. Loans are assigned credit risk grades
based on our assessment of conditions that affect the borrowers ability to meet its contractual
obligations under the loan agreement. That process includes reviewing borrowers current financial
information, historical payment experience, credit documentation, public information, and other
information specific to each individual borrower. Loans are reviewed on an annual or rotational
basis or as management become aware of information affecting the borrowers ability to fulfill its
obligations. Credit risk grades carry a dollar weighted risk percentage.
37
For individually impaired loans, we measure impairment based on the present value of expected
future principal and interest cash flows discounted at the loans effective interest rate, except
that as a practical expedient, a creditor may measure impairment based on a loans observable
market price or the fair value of collateral, if the loan is collateral dependent. When developing
the estimate of future cash flows for a loan, we consider all available information reflecting past
events and current conditions, including the effect of existing environmental factors. In addition
to the ALLL, an allowance for unfunded loan commitments and letters of credit is determined using
estimates of the probability of funding and the associated inherent credit risk. This reserve is
carried as a liability on the consolidated balance sheet.
We make provisions to the ALLL on a regular basis through charges to operations that are reflected
in our consolidated statements of income as provision expense for loan losses. When a loan is
deemed uncollectible, it is charged against the allowance. Any recoveries of previously charged-off
loans are credited back to the allowance. There is no precise method of predicting specific losses
or amounts that ultimately may be charged-off on particular categories of the loan portfolio.
Various regulatory agencies periodically review our ALLL as an integral part of their examination
process. Such agencies may require us to provide additions to the allowance based on their judgment
of information available to them at the time of their examination. There is uncertainty concerning
future economic trends. Accordingly, it is not possible to predict the effect future economic
trends may have on the level of the provisions for possible loan losses in future periods. The ALLL
should not be interpreted as an indication that charge-offs in future periods will occur in the
stated amounts or proportions.
The following table summarizes the activity in the ALLL reserves for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
(Dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Beginning Balance: |
|
$ |
8,429 |
|
|
$ |
8,233 |
|
|
$ |
4,904 |
|
|
$ |
4,316 |
|
|
$ |
3,866 |
|
|
$ |
3,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
9,475 |
|
|
|
6,520 |
|
|
|
3,291 |
|
|
|
226 |
|
|
|
448 |
|
|
|
554 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Financial |
|
|
(2,518 |
) |
|
|
(1,007 |
) |
|
|
(0 |
) |
|
|
(274 |
) |
|
|
(83 |
) |
|
|
(367 |
) |
Real Estate |
|
|
(4,339 |
) |
|
|
(5,322 |
) |
|
|
(0 |
) |
|
|
(0 |
) |
|
|
(0 |
) |
|
|
(0 |
) |
Other |
|
|
(16 |
) |
|
|
(0 |
) |
|
|
(0 |
) |
|
|
(25 |
) |
|
|
(10 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Charge-offs |
|
|
(6,873 |
) |
|
|
(6,329 |
) |
|
|
(0 |
) |
|
|
(299 |
) |
|
|
(93 |
) |
|
|
(368 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Financial |
|
|
170 |
|
|
|
0 |
|
|
|
26 |
|
|
|
655 |
|
|
|
93 |
|
|
|
2 |
|
Real Estate |
|
|
0 |
|
|
|
5 |
|
|
|
12 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Other |
|
|
4 |
|
|
|
0 |
|
|
|
0 |
|
|
|
6 |
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recoveries |
|
|
174 |
|
|
|
5 |
|
|
|
38 |
|
|
|
661 |
|
|
|
95 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Charge-offs) / Recoveries |
|
|
(6,699 |
) |
|
|
(6,324 |
) |
|
|
38 |
|
|
|
362 |
|
|
|
2 |
|
|
|
(363 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
$ |
11,207 |
|
|
$ |
8,429 |
|
|
$ |
8,233 |
|
|
$ |
4,904 |
|
|
$ |
4,316 |
|
|
$ |
3,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to
total loans |
|
|
1.86 |
% |
|
|
1.60 |
% |
|
|
1.66 |
% |
|
|
1.18 |
% |
|
|
1.17 |
% |
|
|
1.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charge-offs to average loans |
|
|
1.14 |
% |
|
|
1.22 |
% |
|
|
.00 |
% |
|
|
-.09 |
% |
|
|
.00 |
% |
|
|
.12 |
% |
Provisions for loan and lease losses increased notably during 2009; elevated provisions are
associated with continuing aggressive reclassification of loans, and managements assertive stance
in recognizing impaired loans. The provisions for loan and lease losses increased to $9,475,000 for
2009 versus $6,520,000 in 2008. Net losses were approximately $6,699,000 in 2009 compared to
approximately $6,324,000 in 2008. Our allowance for loan losses was 1.86% of total loans as of
December 31, 2009 compared to 1.60% of total loans as of December 31, 2008.
Actual and future results of the allowance provisions and charge-offs may differ materially from
trends expressed in the table and are beyond our ability to predict.
38
Allocation of Allowance for Loan and Lease Losses by product type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, 2009 |
|
|
Dec. 31, 2008 |
|
|
Dec. 31, 2007 |
|
|
Dec. 31, 2006 |
|
|
Dec. 31, 2005 |
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
of |
|
|
|
|
|
|
of |
|
|
|
|
|
|
of |
|
|
|
|
|
|
of |
|
|
|
|
|
|
of |
|
|
|
|
|
|
|
category |
|
|
|
|
|
|
category |
|
|
|
|
|
|
category |
|
|
|
|
|
|
category |
|
|
|
|
|
|
category |
|
|
|
Amount |
|
|
to total |
|
|
Amount |
|
|
to total |
|
|
Amount |
|
|
to total |
|
|
Amount |
|
|
to total |
|
|
Amount |
|
|
to total |
|
(Dollars in thousands) |
|
($) |
|
|
loans |
|
|
($) |
|
|
loans |
|
|
($) |
|
|
loans |
|
|
($) |
|
|
loans |
|
|
($) |
|
|
loans |
|
|
Balance at end of
period applicable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
Financial |
|
$ |
5,305 |
|
|
|
47.34 |
% |
|
$ |
3,415 |
|
|
|
31.11 |
% |
|
$ |
1,722 |
|
|
|
35.11 |
% |
|
$ |
2,033 |
|
|
|
30.36 |
% |
|
$ |
1,900 |
|
|
|
30.76 |
% |
Commercial Real Estate |
|
$ |
2,348 |
|
|
|
20.95 |
% |
|
$ |
2,900 |
|
|
|
41.31 |
% |
|
$ |
1,512 |
|
|
|
35.37 |
% |
|
$ |
1,364 |
|
|
|
41.62 |
% |
|
$ |
1,375 |
|
|
|
41.11 |
% |
Construction and
Development |
|
$ |
1,188 |
|
|
|
10.60 |
% |
|
$ |
1,913 |
|
|
|
15.97 |
% |
|
$ |
4,594 |
|
|
|
21.62 |
% |
|
$ |
1,244 |
|
|
|
26.73 |
% |
|
$ |
936 |
|
|
|
27.57 |
% |
Installment Loans |
|
$ |
1,158 |
|
|
|
10.33 |
% |
|
$ |
60 |
|
|
|
0.03 |
% |
|
$ |
44 |
|
|
|
0.05 |
% |
|
$ |
28 |
|
|
|
0.23 |
% |
|
$ |
28 |
|
|
|
0.53 |
% |
Other Loans |
|
$ |
936 |
|
|
|
8.35 |
% |
|
$ |
116 |
|
|
|
0.17 |
% |
|
$ |
56 |
|
|
|
0.25 |
% |
|
$ |
41 |
|
|
|
0.05 |
% |
|
$ |
0 |
|
|
|
0.00 |
% |
Unallocated |
|
$ |
272 |
|
|
|
2.43 |
% |
|
$ |
25 |
|
|
|
11.41 |
% |
|
$ |
305 |
|
|
|
7.60 |
% |
|
$ |
194 |
|
|
|
1.01 |
% |
|
$ |
77 |
|
|
|
0.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Allowance for
loan and lease losses |
|
$ |
11,207 |
|
|
|
100.00 |
% |
|
$ |
8,429 |
|
|
|
100.00 |
% |
|
$ |
8,233 |
|
|
|
100.00 |
% |
|
$ |
4,904 |
|
|
|
100.00 |
% |
|
$ |
4,316 |
|
|
|
100.00 |
% |
Market Risk Management
General
Market risk is the potential loss due to adverse changes in market prices and interest rates.
Market risk is inherent in our operating positions and activities including customers loans,
deposit accounts, securities and long-term debt. Loans and deposits generate income and expense,
respectively, and the value of cash flows changes based on general economic levels, and most
importantly, the level of interest rates.
The goal for managing our assets and liabilities is to maximize shareholder value and earnings
while maintaining a high quality balance sheet without exposing the Company to undue interest rate
risk. The absolute level and volatility of interest rates can have a significant impact on our
profitability. Market risk arises from exposure to changes in interest rates, exchange rates,
commodity prices, and other relevant market rate or price risk. We do not operate a trading
account, and do not hold a position with exposure to foreign currency exchange. We face market risk
through interest rate volatility. Net interest income or margin risk is measured based on rate
shocks over different time horizons versus a current stable interest rate environment. Assumptions
used in these calculations are similar to those used in the planning and budgeting model. The
overall interest rate risk position and strategies are reviewed on an ongoing basis with ALCO.
Securities Portfolio
The securities portfolio is central to our asset liability management strategies. The decision to
purchase or sell securities is based upon the current assessment of economic and financial
conditions, including the interest rate environment, liquidity and regulatory requirements. We
classify our securities as available-for-sale or held-to-maturity at the time of purchase. We
do not engage in trading activities. Securities held-to-maturity is carried at cost adjusted for
the accretion of discounts and amortization of premiums. Securities available-for-sale may be sold
to implement our asset liability management strategies and in response to changes in interest
rates, prepayment rates and similar factors. Securities available-for-sale are recorded at fair
value and unrealized gains or losses, net of income taxes, are reported as a component of
accumulated other comprehensive income(loss), in a separate component of shareholders equity. Gain
or loss on sale of securities is based on the specific identification method.
39
Operational Risk Management
Operational risk is the potential for loss resulting from events involving people, processes,
technology, legal or regulatory issues, external events, and reputation. In keeping with the
corporate governance structure, the Senior Leadership committee is responsible for operational risk
controls. Operational risks are managed through specific policies and procedures, controls and
monitoring tools. Examples of these include reconciliation processes, transaction monitoring and
analysis and system audits. Operational risks fall into two major categories, business specific and
company wide. The Senior Leadership committee works to ensure consistency in policies, processes
and assessments. With respect to company wide risks, the Senior Leadership committee works directly
with members of our Board of Directors to develop policies and procedures for information security,
business resumption plans, compliance and legal issues.
Critical Accounting Policies
General
Our significant accounting principles are described in Note 2 to the consolidated financial
statements and are essential to understanding Managements Discussion and Analysis of Results of
Operations and Financial Condition. Bank of Commerce Holdings consolidated financial statements
are prepared in accordance with accounting principles generally accepted in the United States of
America (GAAP). The financial information contained within our statements is, to a significant
extent, financial information that is based on measures of the financial effects of transactions
and events that have already occurred. Some of our accounting principles require significant
judgment to estimate values of assets or liabilities. In addition, certain accounting principles
require significant judgment in applying the complex accounting principles to transactions to
determine the most appropriate treatment.
Valuation of Investments and Impairment of Securities
Invested assets are exposed to various risks, such as interest rate, market and credit risks. Due
to the level of risk associated with certain invested assets and the level of uncertainty related
to changes in the fair value of these assets, it is possible that changes in risks in the near term
could have a material adverse impact on our results of operations or equity.
Our investment portfolio is subject to market declines below amortized cost that may be
other-than-temporary. A significant judgment in the valuation of investments is the determination
of when an other-than-temporary impairment has occurred. The ALCO Committee reviews the
investment portfolio on at least a quarterly basis, with ongoing analysis as new information
becomes available. Any decline that is determined to be other-than-temporary is recorded as an
other-than-temporary impairment (OTTI) loss in the results of operations in the period in which
the determination occurred.
An investment is impaired if the fair value of the investment is less than its cost adjusted for
accretion, amortization and OTTI, otherwise defined as an unrealized loss. When an investment is
impaired, the impairment is evaluated to determine whether it is temporary or
other-than-temporary. When an investment is impaired, we assess whether to sell the
security, or it is more likely than not that we will be required to sell the security before
recovery of its amortized cost basis less any current-period credit losses. For debt securities
that are considered other than temporarily impaired and that we do not intend to sell and will not
be required to sell prior to recovery of our amortized cost basis, we separate the amount of the
impairment into the amount that is credit related (credit loss component) and the amount due to all
other factors. The credit loss component is recognized in earnings and is calculated as the
difference between the investments amortized cost basis and the present value of its expected
future cash flows. The remaining differences between the investments fair value and the present
value of future expected cash flows is deemed to be due to factors that are not credit related and
is recognized in other comprehensive income. Significant judgment is required in the determination
of whether an OTTI has occurred for an investment. The Company follows a consistent and systematic
process for determining and recording an OTTI loss. The Company has designated the ALCO Committee
responsible for the OTTI process. The ALCO Committees assessment of whether an OTTI loss should be
recognized incorporates both quantitative and qualitative information.
40
The ALCO Committees assessment of whether an OTTI loss should be recognized incorporates both
quantitative and qualitative information. The ALCO Committee considers a number of factors
including, but not limited to: (a) the length of time and the extent to which the fair value has
been less than amortized cost, (b) the financial condition and near term prospects of the issuer,
(c) our intent and ability to retain the investment for a period of time sufficient to allow for an
anticipated recovery in value, (d) whether the debtor is current on interest and principal payments
and (e) general market conditions and industry or sector specific outlook.
Allowance for Loan and Lease Losses (ALLL)
The allowance for loan and lease losses is managements best estimate of the probable losses that
may be sustained in our loan portfolio. The allowance is based on two basic principles of
accounting. (1) that losses be accrued when they are probable of occurring and estimable and (2)
that losses be accrued based on the differences between that value of collateral, present value of
future cash flows or values that are observable in the secondary market and the loan balance. We
perform periodic and systematic detailed evaluations of our lending portfolio to identify and
estimate the inherent risks and assess the overall collectability. These evaluations include
general conditions such as the portfolio composition, size and maturities of various segmented
portions of the portfolio such as secured, unsecured, construction, and Small Business
Administration (SBA).
Additional factors include concentrations of borrowers, industries, geographical sectors, loan
product, loan classes and collateral types; volume and trends of loan delinquencies and
non-accrual; criticized and classified assets and trends in the aggregate in significant credits
identified as watch list items. There are several components to the determination of the adequacy
of the ALLL. Each of these components is determined based upon estimates that can and do change
when the actual events occur. For those segments that require an ALLL, we estimate loan losses on a
monthly basis based upon its ongoing loan review process and analysis of loan performance. We
follow a systematic and consistently applied approach to select the most appropriate loss
measurement methods and support our conclusions and rationale with written documentation. One
method of estimating loan losses for groups of loans is through the application of loss rates to
the groups aggregate loan balances. Such rates typically reflect historical loss experience for
each group of loans, adjusted for relevant economic factors over a defined period of time. We
evaluate and modify our loss estimation model as needed to ensure that the resulting loss estimate
is consistent with GAAP.
When a loan is individually impaired, we measure impairment based on the present value of expected
future principal and interest cash flows discounted at the loans effective interest rate, except
that as a practical expedient we may measure impairment based on a loans observable market price
or the fair value of collateral, if the loan is collateral dependent. When developing the estimate
of future cash flows for a loan, we consider all available information reflecting past events and
current conditions, including the effect of existing environmental factors.
Stock-Based Compensation
We measure the cost of employee services received in exchange for an award of equity instruments.
The cost is determined based on the fair value of the award on the grant date. That cost must be
recognized in the income statement over the service period of the award. In addition, expense must
be recognized in the income statement for unvested awards that were granted prior to the date of
adoption.
During 2009, the fair value of options granted was determined on the date of the grant using
the Black Scholes option-pricing model with the following assumptions: a current volatility rate of
67.60%, a risk-fee interest rate of 1.82% (based upon the five year Treasury coupon rate at the
time the options were issued), expected dividends of $0.24 per share per year (current dividend
payout), an annual dividend rate of 4.53%, an assumed forfeiture rate of zero and an expected life
of seven years.
41
Revenue recognition
Our primary source of revenue is net interest income, which is the difference between the interest
income it receives on interest-earning assets and the interest expense it pays on interest-bearing
liabilities. Another source of revenue is fee income, which includes fees earned on deposit
services, income from SBA lending, electronic-based cash management services, mortgage brokerage
fee income and merchant credit card processing services. Interest income is recorded on an accrual
basis. Note 2 to the Consolidated Financial Statements offers an explanation of the process for
determining when the accrual of interest income is discontinued on an impaired loan.
Income Taxes
We account for income taxes under the asset and liability method. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
currently enacted tax rates applied to such taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. If future income should prove non-existent or less than the amount of deferred tax
assets within the tax years to which they may be applied, the asset may not be realized and our net
income will be reduced.
Mortgages Held for Sale
Through our majority owned subsidiary, Bank of Commerce Mortgage, we originate residential mortgage
loans within Bank of Commerces geographic market, as well as on a nationwide basis. Mortgage loans
represent loans collateralized by one-to four family residential real estate and are made to
borrowers in good credit standing. These loans are typically sold to primary mortgage market
aggregators (Fannie Mae, Freddie Mac, and Ginnie Mae) and to third party investors including the
servicing rights. Mortgages held for sale are carried at the lower of cost of fair value. Cost
generally approximates fair value, given the short duration of these assets. Gains and losses on
loan sales are recorded in noninterest income, and direct loan origination costs and fees are
deferred at origination of the loan and are recognized in noninterest income upon sale of a loan.
We generally sell all servicing rights associated with the mortgage loans. Accordingly, there are
no separately recognized servicing assets or liabilities resulting from the sale of mortgage loans.
Derivative Loan Commitments
Through our majority owned subsidiary, Bank of Commerce Mortgage, we enter into forward delivery
contracts to sell residential mortgage loans at specific prices and dates in order to hedge the
interest rate risk in its portfolio of mortgage loans held for sale and its residential mortgage
loan commitments. Generally, the Company enters into a best efforts interest rate lock commitment
(IRLC) with borrowers and forward delivery contracts with investors associated with mortgage loans
receivable held for sale. Our derivative instruments consist primarily of IRLCs executed with
borrowers and mandatory forward purchase commitments with investor lenders. These derivative
instruments are accounted for as fair value hedges, with the changes in fair value reflected in
earnings as a component of mortgage brokerage fee income.
42
Financial Highlights Results of Operations
The following discussion and analysis provides a comparison of the results of operations for
2009 and 2008. This discussion should be read in conjunction with the consolidated financial
statements and related notes.
Key Financial Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Profitability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.75 |
% |
|
|
0.33 |
% |
|
|
1.04 |
% |
|
|
1.20 |
% |
|
|
1.34 |
% |
Return on average equity |
|
|
9.01 |
% |
|
|
4.99 |
% |
|
|
13.39 |
% |
|
|
15.59 |
% |
|
|
18.35 |
% |
Average earning assets to total average assets |
|
|
91.42 |
% |
|
|
92.86 |
% |
|
|
93.74 |
% |
|
|
94.20 |
% |
|
|
94.04 |
% |
Interest Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
3.94 |
% |
|
|
3.47 |
% |
|
|
3.98 |
% |
|
|
4.26 |
% |
|
|
4.59 |
% |
Asset Quality |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans |
|
|
1.86 |
% |
|
|
1.60 |
% |
|
|
1.66 |
% |
|
|
1.18 |
% |
|
|
1.17 |
% |
Nonperforming assets to total assets |
|
|
2.27 |
% |
|
|
2.98 |
% |
|
|
2.01 |
% |
|
|
0.00 |
% |
|
|
0.08 |
% |
Net charge-offs to average loans |
|
|
1.14 |
% |
|
|
1.22 |
% |
|
|
0.00 |
% |
|
|
-0.09 |
% |
|
|
0.00 |
% |
Liquidity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to deposits |
|
|
96.38 |
% |
|
|
93.28 |
% |
|
|
102.67 |
% |
|
|
93.08 |
% |
|
|
97.63 |
% |
Liquidity ratio |
|
|
38.84 |
% |
|
|
22.56 |
% |
|
|
18.49 |
% |
|
|
27.96 |
% |
|
|
23.57 |
% |
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based capital Bank |
|
|
11.57 |
% |
|
|
11.58 |
% |
|
|
9.97 |
% |
|
|
11.42 |
% |
|
|
12.08 |
% |
Total risk-based capital Bank |
|
|
12.83 |
% |
|
|
12.84 |
% |
|
|
11.22 |
% |
|
|
12.54 |
% |
|
|
13.11 |
% |
Efficiency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio |
|
|
52.80 |
% |
|
|
63.81 |
% |
|
|
59.31 |
% |
|
|
55.64 |
% |
|
|
52.54 |
% |
The above table represents key financial performance ratios that our Senior Leadership Team
monitors on a monthly basis in comparison with Uniform Bank Performance Report peer data. Uniform
Bank Performance Reports are available on all Federal Deposit Insurance Corporation insured
financial institutions and are used to measure quality performance to peer groupings and may be
obtained online at www.fdic.gov. Management monitors the high-performing sector of the peer
group and uses this data to examine strategies of other high-performing financial institutions and
to establish the financial performance goals of the Company on an annual basis. These goals are
then communicated through budgets, strategies, planning and projections to the Senior Leadership
Team for implementation. Results are monitored both to plan and to peer group at the Board of
Directors level on a monthly basis.
Balance Sheet
We are proud of our 2009 financial results; we achieved solid growth in loans and deposits
while continuing to strengthen our balance sheet. These efforts are evident when comparing our key
financial metrics with our industry peers. During 2009, the Company focused on strengthening its
balance sheet by providing appropriate reserves and augmenting capital through solid earnings while
maintaining significant liquidity.
Our balance sheet grew by $39.1 million or 5.06% over the prior year. The increase in the balance
sheet was due primarily to the growth in loans. Loans outstanding (including loans held for
investment and loans held for sale) represents our single largest asset class of the Company and
grew by a record $98.4 million or 18.95%. We purchased a pool of performing residential mortgage
loans with an estimated fair value of $80.7 million during the period. Deposit growth was up $85.2
million or 15.34% of which $7.7 million was centered in core checking and savings accounts.
Management has taken aggressive steps throughout the year in provisioning for loan losses, charging
down impairments, and keeping an attentive eye on expenses. 2009 was an extremely challenging year
for credit, and management took an aggressive stance in recognizing impaired loans.
43
Our loan portfolio remains strained. The Commercial and Industrial portfolio experienced
deterioration in 2009 while real estate development properties and construction related lending
remains under stress. Our loan portfolio will likely continue to be influenced by weakness in real
estate values, the effects of higher energy prices and higher unemployment levels. Net charge offs
were $6.7 million for the year ended December 31, 2009 compared to approximately $6.3 million in
2008. The charge-offs were centered in commercial and industrial loans as well as real estate
loans. Three properties were classified as other real estate owned (OREO) during 2009. During
fiscal year 2009 one of the respective properties was sold, resulting in a $20,251 gain on sale.
OREO was $2.9 million at December 31, 2009 and $2.9 million at December 31, 2008. We are committed
to working with our customers to find potential solutions when our customers experience financial
difficulties.
Elevated provisions are associated with an aggressive reclassification of loans following the
completion of a total portfolio review and managements aggressive stance in recognizing impaired
loans. We have provided $9.5 million in provisions for loan and lease losses compared to $6.5
million a year ago. Our allowance for loan losses was 1.86% of total loans at December 31, 2009
compared to 1.60% of total loans at the end of 2008.
We continue to maintain a relatively low-risk and liquid available-for-sale investment portfolio.
The portfolio provided an effective source of liquidity in funding loan growth for 2009.
Approximately $51.6 million in net investments, primarily in mortgage-backed securities, were
liquidated and greatly contributed to funding $98.4 million in loan growth.
The capital ratios of Bank of Commerce continue to be above well-capitalized guidelines established
by regulatory agencies. With our strong capital position, we will continue to evaluate acquisition
opportunities, attractive loan and asset purchases, and any other strategic opportunities.
Sources of Income
We derive our income from two principal sources: (i) net interest income, which is the
difference between the interest income we receive on interest-earning assets and the interest
expense we pay on interest-bearing liabilities, and (ii) fee income, which includes fees earned on
deposit services, income from payroll processing, electronic-based cash management services,
mortgage brokerage fee income and merchant credit card processing services. Our income depends to
a great extent on net interest income. These interest rate characteristics are highly sensitive to
many factors, which are beyond our control, including general economic conditions, inflation,
recession, and the policies of various governmental and regulatory agencies, and the Federal
Reserve Board in particular. Because of our predisposition to variable rate pricing on our assets
and level of time deposits, we are considered asset sensitive. Consequently, we benefit in a rising
rate environment and we are affected adversely by declining interest rates.
Net interest income reflects both our net interest margin, which is the difference between the
yield we earn on our assets and the interest rate we pay for deposits and our other sources of
funding, and the amount of earning assets we hold. As a result, changes in either our net interest
margin or the amount of earning assets we hold could affect our net interest income and our
earnings.
Increase or decreases in interest rates could adversely affect our net interest margin. Although
the yield we earn on our assets and our funding costs tend to move in the same direction in
response to changes in interest rates, one can rise or fall faster than the other, and cause our
net interest margin to expand or contract. Many of our assets are tied to prime rate, so they may
adjust faster in response to changes in interest rates. As a result, when interest rates fall, the
yield we earn on our assets may fall faster than the repricing opportunities of our liabilities,
causing our net interest margin to contract until the repricing of liabilities catches up.
44
Changes in the slope of the yield curve or the spread between short-term and long-term interest
rates could also reduce our net interest margin. Normally, the yield curve is upward sloping,
which means that short-term rates are lower than long-term rates. Because our liabilities tend to
be shorter in duration than our assets, when the yield curve flattens or even inverts, we could
experience pressure on our net interest margin as our cost of funds increases relative to the yield
we can earn on our assets.
We assess our interest rate risk by estimating the effect on our earnings under various scenarios
that differ based on assumptions about the direction, magnitude and speed of interest rate changes
and the slope of the yield curve.
There is always the risk that changes in interest rates could reduce our net interest income and
our earnings in material amounts, especially if actual conditions turn out to be materially
different than what we assumed. For example, if interest rates rise or fall faster than we assumed
or the slope of the yield curve changes, we may incur significant losses on debt securities we hold
as investments. To reduce our interest rate risk, we may rebalance our investment and loan
portfolios, refinance our debt and take other strategic actions which may result in losses or
expenses.
Mortgage brokerage services are performed by Bank of Commerce Mortgage subsidiary. Mortgage
brokerage services offers residential real estate loans with ten offices in three different states
and licenses in California, Oregon, Washington, Idaho and Colorado. Mortgages that are originated
are sold, servicing included, in the secondary market or directly to correspondent financial
institutions. We derive fee income from our mortgage brokerage services.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
We reported net income of $6.0 million and net income to common shareholders of $5.1 million
for the year ended December 31, 2009, representing an increase of approximately $2.87 million or
130.7%, over net income of $2.19 million for the year ended December 31, 2008. The increase can be
primarily attributed to loan growth funded with low cost deposits and repricing wholesale
borrowings with the resulting effect expanding our net interest margin and net income for the
year. Gains on the sale of securities also contributed to the year-over-year positive variance.
During 2009, we increased provisions for loan and lease losses significantly. Increased provisions
are directly attributed to deterioration in the Commercial and Industrial portfolio and continuing
weakness in our real estate portfolio. Our provision for loan and lease losses increased to $9.5
million in 2009 from $6.5 million in 2008. Ongoing credit quality reviews identified impairment
within the portfolio and greatly contributed to increased provisions in 2009.
Non performing assets as a percentage of total assets decreased to 2.27% compared to 2.98% in 2008.
The decrease in non-performing assets is primarily attributed to a bulk sale of non-performing
assets in the second quarter of 2009. On April 17, 2009, we completed a Loan Swap transaction
which included the purchase of a portfolio of Individual Tax Identification Number (ITIN)
residential mortgage loans. The ITIN portfolio was purchased from a private equity firm in exchange
for a combination of approximately $14.0 million in non-performing loans and cash of approximately
$67.0 million. The non-performing loans were transferred without recourse and were carried at fair
value, in accordance with applicable accounting standards. At the settlement date, the mortgage
loan pool contained 859 single family residential mortgages with an average principal balance of
approximately $96,596, a weighted average credit score of 647, a weighted average loan to value
ratio of 89%, a weighted average yield of 7.44% and all loans were fully documented. The ITIN
mortgage pool is geographically dispersed through out the United States.
Return on average assets (ROA) was 0.75% in 2009 and 0.33% in 2008. Return on average common equity
(ROE) was 9.01% in 2009 compared 4.99% in 2008. Diluted earnings per share for 2009 and 2008 were
$0.58 and $0.25, respectively, which was a year-over-year increase of 132.0%. Our average total
assets increased to $804.2 million in 2009 or 21.4% from $662.3 million in 2008. Total deposits
grew by $85.2 million or 15.3% over 2008; the deposit growth was centered in certificates of
deposit followed by interest-bearing checking accounts. Total loans grew by $73.9 million or 14.0%
over 2008; loan growth was centered in residential mortgage loans.
The yield on the loan portfolio decreased 39 basis points to 6.08% compared to 6.47% in 2008.
Yields on all earning assets decreased 51 basis points to 5.62% compared to 6.13% in 2008. Our
income is highly dependent on interest rate differentials and the resulting net interest margins
(i.e., the difference between the interest rates earned on the Banks interest-earning assets such
as loans and securities, and the interest rates paid on the Banks interest-bearing liabilities
such as deposits and borrowings).
45
These rates are highly sensitive to many factors, which are beyond our control, including general
economic conditions, inflation, recession and the policies of various governmental and regulatory
agencies, in particular, the Federal Reserve Board (FRB). Because of our predisposition to
variable rate pricing on our assets and level of time deposits, we are considered asset sensitive.
Consequently, we benefit in a rising rate environment and we are adversely affected by declining
interest rates.
Funding costs decreased 115 basis points to 1.87% compared with 3.02% in 2008, reflecting the
current lower cost rate environment.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
We reported net income of $2.19 million for the year ended December 31, 2008, representing a
decrease of approximately $3.91 million or 64.1%, over net income of $6.1 million for the year
ended December 31, 2007. The decrease can be primarily attributed to the build up of provisions for
loan losses of $6.52 million and a reduction of $2.4 million in revenues attributed to key life
proceeds received in 2007 due to the loss of our Chief Executive Officer.
During the fourth quarter 2008, we increased provisions for loan and lease losses significantly in
relation to two real estate development loans. Our provision for loan and lease losses increased to
$6.5 million in 2008 from $3.3 million in 2007. Credit quality deterioration through impairment
reviews on two credits within the portfolio was the principal factor for current period provisions.
Non-performing assets as a percentage of total assets increased to 2.98% compared with 2.01% in
2007.
Return on average assets (ROA) was 0.33% and return on average common equity (ROE) was 4.99% in
2008 compared with 1.04% and 13.39% respectively in 2007. Diluted earnings per share for 2008 and
2007 were $0.25 and $0.68, respectively, a decrease of 63.0% in 2008 over 2007. Our average total
assets increased to $662.3 million in 2008 or 11.2% from $595.3 million in 2007. Total deposits
grew by $81.6 million or 17.2% primarily in core savings accounts followed by certificates of
deposit. Total net loans grew by $32.6 million or 6.7%.
Yields on portfolio loans decreased 179 basis points to 6.47% compared to 8.26% in 2007. Yields on
all earning assets decreased 132 basis points to 6.13% compared to 7.45% in 2007. Our income is
highly dependent on interest rate differentials and the resulting net interest margins. These
rates are highly sensitive to many factors, which are beyond our control, including general
economic conditions, inflation, recession and the policies of various governmental and regulatory
agencies, in particular, the FRB. Because of our predisposition to variable rate pricing on our
assets and level of time deposits, we are considered asset sensitive. Consequently, we benefit in a
rising rate environment and we are adversely affected by declining interest rates.
Funding costs decreased 106 basis points to 3.02% compared with 4.08% in 2007, reflective of the
current lower cost rate environment.
Net Interest Income and Net Interest Margin
Our primary source of income is derived from net interest income. Net interest income
represents the excess of interest and fees earned on assets (loans, securities and federal funds
sold) over the interest paid on deposits and borrowed funds. Net interest margin is net interest
income expressed as a percentage of average earning assets.
Net interest income increased $7.65 million to $28.99 million in 2009 compared to $21.35 million in
2008 and $22.01 million in 2007, representing a 35.82% increase in 2009 over 2008, and a 3.02%
decrease in 2008 over 2007. The average balance of total earning assets increased to $735.2 million
in 2009 compared to $615.0 million in 2008, which reflects a 19.55% increase. $68.2 million of the
increase in average total earning assets is attributable to the purchase of the ITIN loan pool. The
ITIN loan pool contributed $3.8 million of net interest income.
46
The following table sets forth our daily average balance sheet, related interest income or expense
and yield or rate paid for the periods indicated. The yield on tax-exempt securities has not been
adjusted to a tax-equivalent yield basis.
Average Balances, Interest Income/Expense and Yields/Rates Paid
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Balance |
|
|
Interest |
|
|
Yield/Rate |
|
|
Balance |
|
|
Interest |
|
|
Yield/Rate |
|
|
Balance |
|
|
Interest |
|
|
Yield/Rate |
|
|
Interest Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans |
|
$ |
589,336 |
|
|
$ |
35,860 |
|
|
|
6.08 |
% |
|
$ |
518,759 |
|
|
$ |
33,582 |
|
|
|
6.47 |
% |
|
$ |
437,217 |
|
|
$ |
36,134 |
|
|
|
8.26 |
% |
Tax-exempt securities |
|
|
28,384 |
|
|
|
1,164 |
|
|
|
4.10 |
% |
|
|
24,399 |
|
|
|
1,197 |
|
|
|
4.91 |
% |
|
|
30,727 |
|
|
|
1,229 |
|
|
|
4.00 |
% |
US government securities |
|
|
8,606 |
|
|
|
343 |
|
|
|
3.99 |
% |
|
|
13,637 |
|
|
|
553 |
|
|
|
4.06 |
% |
|
|
26,782 |
|
|
|
1,112 |
|
|
|
4.15 |
% |
Mortgage backed securities |
|
|
53,722 |
|
|
|
3,107 |
|
|
|
5.78 |
% |
|
|
37,328 |
|
|
|
1,916 |
|
|
|
5.13 |
% |
|
|
43,122 |
|
|
|
1,973 |
|
|
|
4.58 |
% |
Federal funds sold |
|
|
13,438 |
|
|
|
32 |
|
|
|
0.24 |
% |
|
|
17,987 |
|
|
|
303 |
|
|
|
1.68 |
% |
|
|
13,099 |
|
|
|
681 |
|
|
|
5.20 |
% |
Other securities |
|
|
41,305 |
|
|
|
823 |
|
|
|
1.99 |
% |
|
|
2,918 |
|
|
|
139 |
|
|
|
4.76 |
% |
|
|
2,000 |
|
|
|
90 |
|
|
|
4.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Earning Assets |
|
$ |
735,241 |
|
|
$ |
41,329 |
|
|
|
5.62 |
% |
|
$ |
615,028 |
|
|
$ |
37,690 |
|
|
|
6.13 |
% |
|
$ |
552,947 |
|
|
$ |
41,219 |
|
|
|
7.45 |
% |
Cash & due from banks |
|
|
26,841 |
|
|
|
|
|
|
|
|
|
|
|
16,298 |
|
|
|
|
|
|
|
|
|
|
|
14,273 |
|
|
|
|
|
|
|
|
|
Bank premises and fixed assets |
|
|
10,322 |
|
|
|
|
|
|
|
|
|
|
|
11,097 |
|
|
|
|
|
|
|
|
|
|
|
10,155 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
40,639 |
|
|
|
|
|
|
|
|
|
|
|
19,866 |
|
|
|
|
|
|
|
|
|
|
|
17,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Total Assets |
|
$ |
804,211 |
|
|
|
|
|
|
|
|
|
|
$ |
662,289 |
|
|
|
|
|
|
|
|
|
|
$ |
595,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand |
|
$ |
145,542 |
|
|
$ |
1,015 |
|
|
|
0.70 |
% |
|
$ |
138,743 |
|
|
$ |
2,173 |
|
|
|
1.57 |
% |
|
$ |
121,281 |
|
|
$ |
2,735 |
|
|
|
2.26 |
% |
Savings deposits |
|
|
62,846 |
|
|
|
963 |
|
|
|
1.53 |
% |
|
|
56,914 |
|
|
|
1,576 |
|
|
|
2.77 |
% |
|
|
39,565 |
|
|
|
1,216 |
|
|
|
3.07 |
% |
Certificates of deposit |
|
|
317,417 |
|
|
|
7,628 |
|
|
|
2.40 |
% |
|
|
234,493 |
|
|
|
8,552 |
|
|
|
3.65 |
% |
|
|
215,511 |
|
|
|
10,571 |
|
|
|
4.91 |
% |
Repurchase Agreements |
|
|
11,006 |
|
|
|
51 |
|
|
|
0.46 |
% |
|
|
13,043 |
|
|
|
173 |
|
|
|
1.33 |
% |
|
|
32,237 |
|
|
|
1,177 |
|
|
|
3.65 |
% |
Other borrowings |
|
|
122,057 |
|
|
|
2,678 |
|
|
|
2.19 |
% |
|
|
98,518 |
|
|
|
3,868 |
|
|
|
3.93 |
% |
|
|
62,095 |
|
|
|
3,507 |
|
|
|
5.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest Liabilities |
|
$ |
658,868 |
|
|
|
12,335 |
|
|
|
1.87 |
% |
|
$ |
541,711 |
|
|
$ |
16,342 |
|
|
|
3.02 |
% |
|
$ |
470,689 |
|
|
$ |
19,206 |
|
|
|
4.08 |
% |
Noninterest bearing Demand |
|
|
69,250 |
|
|
|
|
|
|
|
|
|
|
|
70,933 |
|
|
|
|
|
|
|
|
|
|
|
72,545 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
9,467 |
|
|
|
|
|
|
|
|
|
|
|
5,660 |
|
|
|
|
|
|
|
|
|
|
|
6,502 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
66,626 |
|
|
|
|
|
|
|
|
|
|
|
43,985 |
|
|
|
|
|
|
|
|
|
|
|
45,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Liabilities and Shareholders equity |
|
$ |
804,211 |
|
|
|
|
|
|
|
|
|
|
$ |
662,289 |
|
|
|
|
|
|
|
|
|
|
$ |
595,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income and Net Interest Margin |
|
|
|
|
|
$ |
28,994 |
|
|
|
3.94 |
% |
|
|
|
|
|
$ |
21,348 |
|
|
|
3.47 |
% |
|
|
|
|
|
$ |
22,013 |
|
|
|
3.98 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on loans includes fee income (expense) of approximately ($22), $77 and $241
for the years ended December 31, 2009, 2008, and 2007 respectively.
47
The following tables set forth changes in interest income and expense for each major category of
interest earning assets and interest-bearing liabilities, and the amount of change attributable to
volume and rate changes for the periods indicated. Changes not solely attributable to rate or
volume has been allocated to volume. The yield on tax-exempt securities has not been adjusted to a
tax-equivalent yield basis.
Analysis of Changes in Net Interest Income
Years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 over 2008 |
|
|
2008 over 2007 |
|
|
|
Variance |
|
|
Variance |
|
|
|
|
|
|
Variance |
|
|
Variance |
|
|
|
|
|
|
due to |
|
|
due to |
|
|
|
|
|
|
due to |
|
|
due to |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
(Dollars in thousands) |
|
Volume |
|
|
Rate |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
Increase (Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans |
|
$ |
3,791 |
|
|
|
(1,512 |
) |
|
$ |
2,279 |
|
|
$ |
5,279 |
|
|
|
(7,831 |
) |
|
|
($2,552 |
) |
Tax-exempt securities |
|
|
115 |
|
|
|
(147 |
) |
|
|
(32 |
) |
|
|
(310 |
) |
|
|
278 |
|
|
|
(32 |
) |
US government securities |
|
|
(203 |
) |
|
|
(7 |
) |
|
|
(210 |
) |
|
|
(533 |
) |
|
|
(26 |
) |
|
|
(559 |
) |
Mortgage backed securities |
|
|
1,009 |
|
|
|
182 |
|
|
|
1,191 |
|
|
|
(297 |
) |
|
|
240 |
|
|
|
(57 |
) |
Federal funds sold |
|
|
(8 |
) |
|
|
(99 |
) |
|
|
(107 |
) |
|
|
82 |
|
|
|
(460 |
) |
|
|
(378 |
) |
Other securities |
|
|
480 |
|
|
|
38 |
|
|
|
518 |
|
|
|
44 |
|
|
|
5 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Increase (Decrease) |
|
|
5,184 |
|
|
|
(1,545 |
) |
|
|
3,639 |
|
|
|
4,265 |
|
|
|
(7,794 |
) |
|
|
(3,529 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand |
|
|
(254 |
) |
|
|
(904 |
) |
|
|
(1,158 |
) |
|
|
273 |
|
|
|
(835 |
) |
|
|
(562 |
) |
Savings accounts |
|
|
(85 |
) |
|
|
(528 |
) |
|
|
(613 |
) |
|
|
480 |
|
|
|
(120 |
) |
|
|
360 |
|
Certificates of deposit |
|
|
1,263 |
|
|
|
(2,188 |
) |
|
|
(925 |
) |
|
|
692 |
|
|
|
(2,711 |
) |
|
|
(2,019 |
) |
Repurchase agreements |
|
|
(37 |
) |
|
|
(84 |
) |
|
|
(121 |
) |
|
|
(255 |
) |
|
|
(749 |
) |
|
|
(1,004 |
) |
Other borrowings |
|
|
5 |
|
|
|
(1,195 |
) |
|
|
(1,190 |
) |
|
|
1,228 |
|
|
|
(867 |
) |
|
|
361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Increase (Decrease) |
|
|
892 |
|
|
|
(4,899 |
) |
|
|
(4,007 |
) |
|
|
2,418 |
|
|
|
(5,282 |
) |
|
|
(2,864 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) |
|
$ |
4,292 |
|
|
$ |
3,354 |
|
|
$ |
7,646 |
|
|
$ |
1,847 |
|
|
$ |
(2,512 |
) |
|
$ |
(665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Noninterest Income
The following table sets forth a summary of noninterest income for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
(Dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
$ |
390 |
|
|
$ |
311 |
|
|
$ |
278 |
|
Payroll and benefit processing fees |
|
|
452 |
|
|
|
453 |
|
|
|
383 |
|
Earnings on cash surrender-
Bank owned life insurance |
|
|
418 |
|
|
|
340 |
|
|
|
331 |
|
Life Insurance policy benefits |
|
|
0 |
|
|
|
0 |
|
|
|
2,400 |
|
Net realized gain on sale of securities
available-for-sale |
|
|
2,438 |
|
|
|
628 |
|
|
|
46 |
|
Net loss on sale of derivative swap transaction |
|
|
0 |
|
|
|
(225 |
) |
|
|
0 |
|
Net gain on sale of loans |
|
|
341 |
|
|
|
0 |
|
|
|
0 |
|
Merchant credit card service income, net |
|
|
297 |
|
|
|
364 |
|
|
|
388 |
|
Mortgage brokerage fee income |
|
|
5,327 |
|
|
|
21 |
|
|
|
50 |
|
Other income |
|
|
400 |
|
|
|
731 |
|
|
|
659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest income |
|
$ |
10,063 |
|
|
$ |
2,623 |
|
|
$ |
4.535 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest income includes service charges on deposit accounts, payroll processing fees, earnings
on key life investments, gains on the sale of securities investments, and Mortgage brokerage fee
income. Noninterest income for 2009 was $10.1 million or 19.6% of our total gross revenues as
compared to $2.6 million and 6.5% of total gross revenues in 2008. The $7.5 million increase is
primarily due to an increase in mortgage brokerage fee income associated with our purchase of an
equity interest in the Simonich Corporation (See Acquisition below). Mortgage brokerage fee income
is primarily derived from origination fees on residential mortgage loans and from the sale of
mortgage loans to financial institutions. Loan origination fees and sales fees earned on brokered
loans are recorded as income when the loans are sold. We also had a $1.8 million increase in
securities gains over 2008.
Noninterest Expense
The following table sets forth a summary of noninterest expense for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
(Dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Salaries & related benefits |
|
$ |
10,882 |
|
|
$ |
7,751 |
|
|
$ |
8,666 |
|
Occupancy & equipment expense |
|
|
3,405 |
|
|
|
2,501 |
|
|
|
2,373 |
|
OREO expense |
|
|
164 |
|
|
|
735 |
|
|
|
0 |
|
FDIC insurance premium |
|
|
1,274 |
|
|
|
383 |
|
|
|
51 |
|
Data processing fees |
|
|
282 |
|
|
|
276 |
|
|
|
395 |
|
Professional service fees |
|
|
820 |
|
|
|
667 |
|
|
|
1,027 |
|
Payroll and benefit fees |
|
|
114 |
|
|
|
116 |
|
|
|
108 |
|
Deferred compensation expense |
|
|
478 |
|
|
|
461 |
|
|
|
411 |
|
Stationery & supplies |
|
|
185 |
|
|
|
262 |
|
|
|
257 |
|
Postage |
|
|
147 |
|
|
|
134 |
|
|
|
138 |
|
Directors expenses |
|
|
299 |
|
|
|
294 |
|
|
|
312 |
|
Other expenses |
|
|
2,574 |
|
|
|
1,716 |
|
|
|
2,006 |
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest expense |
|
$ |
20,624 |
|
|
$ |
15,296 |
|
|
$ |
15,744 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense increased $5.3 million or 35% to $20.6 million in 2009. The increase is
associated with our purchase of an equity interest in the Simonich Corporation, and is centered in
salaries and related benefits and other general operating expenses. In addition, FDIC insurance
assessments increased $891,000 or 233% over 2008.
49
Income Taxes
Our provision for income taxes includes both federal and state income taxes and reflects the
application of federal and state statutory rates to our income before taxes. The principal
difference between statutory tax rates and our effective tax rate is the benefit derived investing
in tax-exempt securities and preferential state tax treatment for qualified enterprise zone loans.
We continue to participate in a California Affordable Housing project which affords federal and
state tax credits. Increases and decreases in the provision for taxes reflect changes in our income
before taxes.
The following table reflects the Companys tax provision and the related effective tax
rate for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
(Dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Income tax provision (benefit) |
|
$ |
2,690 |
|
|
|
($40 |
) |
|
$ |
1,405 |
|
Effective tax rate |
|
|
30.02 |
% |
|
|
-1.83 |
% |
|
|
18.7 |
% |
Non-controlling interests are presented in the income statement such that the consolidated income
statement includes income and income tax expense from both the Company and non-controlling
interests. The effective tax rate is calculated by dividing income tax expense by income before tax
expense for the consolidated entity.
Asset Quality
We concentrate our lending activities primarily within El Dorado, Placer, Sacramento, Shasta,
and Tehama counties in California, and the location of the Banks four full services branches,
specifically identified as Northern California. We manage our credit risk through diversification
of our loan portfolio and the application of underwriting policies and procedures and credit
monitoring practices. Although we have a diversified loan portfolio, a significant portion of our
borrowers ability to repay the loans is dependent upon the professional services and investor
commercial real estate sectors. Generally, the loans are secured by real estate or other assets
located in California and are expected to be repaid from cash flows of the borrowers business or
cash flows from real estate investments. The following table sets forth the amounts of loans
outstanding by category as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
(Dollars in thousands) |
|
2009 |
|
|
% |
|
|
2008 |
|
|
% |
|
|
2007 |
|
|
% |
|
|
2006 |
|
|
% |
|
|
2005 |
|
|
% |
|
|
Commercial & industrial |
|
$ |
133,080 |
|
|
|
23.13 |
% |
|
$ |
164,083 |
|
|
|
31.11 |
% |
|
$ |
173,704 |
|
|
|
35.11 |
% |
|
$ |
125,725 |
|
|
|
30.36 |
% |
|
$ |
115,401 |
|
|
|
31.36 |
% |
Real Estate-construction |
|
|
59,524 |
|
|
|
9.90 |
% |
|
|
84,218 |
|
|
|
15.97 |
% |
|
|
106,977 |
|
|
|
21.62 |
% |
|
|
110,693 |
|
|
|
26.73 |
% |
|
|
105,094 |
|
|
|
28.56 |
% |
Real Estate-commercial |
|
|
260,024 |
|
|
|
42.23 |
% |
|
|
217,914 |
|
|
|
41.31 |
% |
|
|
175,013 |
|
|
|
35.37 |
% |
|
|
159,370 |
|
|
|
38.48 |
% |
|
|
129,202 |
|
|
|
35.11 |
% |
Real Estate- mortgage |
|
|
98,775 |
|
|
|
16.42 |
% |
|
|
20,285 |
|
|
|
3.85 |
% |
|
|
10,787 |
|
|
|
2.18 |
% |
|
|
4,278 |
|
|
|
1.04 |
% |
|
|
3,669 |
|
|
|
1.00 |
% |
Real Estate other |
|
|
45,601 |
|
|
|
7.58 |
% |
|
|
39,915 |
|
|
|
7.57 |
% |
|
|
26,818 |
|
|
|
5.42 |
% |
|
|
12,986 |
|
|
|
3.14 |
% |
|
|
13,790 |
|
|
|
3.75 |
% |
Installment |
|
|
2,223 |
|
|
|
0.37 |
% |
|
|
145 |
|
|
|
0.03 |
% |
|
|
226 |
|
|
|
0.05 |
% |
|
|
202 |
|
|
|
0.05 |
% |
|
|
439 |
|
|
|
0.12 |
% |
Other loans |
|
|
2,212 |
|
|
|
0.37 |
% |
|
|
903 |
|
|
|
0.16 |
% |
|
|
1,223 |
|
|
|
0.25 |
% |
|
|
937 |
|
|
|
0.20 |
% |
|
|
446 |
|
|
|
0.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans |
|
|
601,439 |
|
|
|
100.00 |
|
|
|
527,463 |
|
|
|
100.00 |
% |
|
|
494,748 |
|
|
|
100.00 |
% |
|
$ |
414,191 |
|
|
|
100.00 |
% |
|
$ |
368,041 |
|
|
|
100.00 |
% |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees and
costs |
|
|
209 |
|
|
|
|
|
|
|
87 |
|
|
|
|
|
|
|
232 |
|
|
|
|
|
|
|
298 |
|
|
|
|
|
|
|
420 |
|
|
|
|
|
Allowance for Loan losses |
|
|
11,207 |
|
|
|
|
|
|
|
8,429 |
|
|
|
|
|
|
|
8,233 |
|
|
|
|
|
|
|
4,904 |
|
|
|
|
|
|
|
4,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans |
|
$ |
590,023 |
|
|
|
|
|
|
$ |
518,947 |
|
|
|
|
|
|
$ |
486,283 |
|
|
|
|
|
|
$ |
408,989 |
|
|
|
|
|
|
$ |
363,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net portfolio loans increased $71.1 million or 13.7%, to $590.0 million at December 31, 2009
over $518.9 million at December 31, 2008. The increase is primarily due to the purchase of the ITIN
loan pool and increased activities in commercial real estate categories. Residential mortgage loans
increased $78.5 million and commercial real estate increased 42.1 million. Other real estate
reflects an increased investment in home equity lines of credit. The portfolio mix reflected a
substantial increase real estate mortgages to 16.42% of the portfolio in 2009 as compared to 3.85%
of the portfolio in 2008. The other considerable changes are reflected in the commercial and
industrial, and real estate construction portfolios; the commercial and industrial portfolio
represents 23.13% as compared to 31.11% in 2008 while the real estate construction portfolio
reflects 9.90% of the loan mix versus 15.97% at year-end 2008.
50
The following table provides a breakdown of our real estate construction portfolio as of December
31, 2009:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
% of Total loan |
|
Loan Type |
|
Balance |
|
|
portfolio |
|
Commercial lots and entitled commercial land |
|
$ |
22,100 |
|
|
|
3.67 |
% |
Commercial real estate construction |
|
|
25,897 |
|
|
|
4.31 |
% |
1-4 family subdivision loans |
|
|
8,938 |
|
|
|
1.49 |
% |
1-4 family individual residential lots |
|
|
1,458 |
|
|
|
0.24 |
% |
1-4 family construction speculative |
|
|
1,131 |
|
|
|
0.19 |
% |
|
|
|
|
|
|
|
Total real estate- construction |
|
$ |
59,524 |
|
|
|
9.90 |
% |
Our practice, with the exception of ITIN loans, is to place an asset on non-accrual status when one
of the following events occurs:(i) Any installment of principal or interest is 90 days or more past
due (unless in managements opinion the loan is well-secured and in the process of collection),
(ii) management determines the ultimate collection of principal or interest to be unlikely or (iii)
the terms of the loan have been renegotiated due to a serious weakening of the borrowers financial
condition. Nonperforming or impaired loans may be on non-accrual, are 90 days past due and still
accruing, or have been restructured. Accruals are resumed on loans only when they are brought fully
current with respect to interest and principal and when the loan is estimated to be fully
collectible. Restructured loans are those loans on which concessions in terms have been granted due
to the borrowers financial or legal difficulties. We evaluate our ITIN loan portfolio somewhat
differently than our other credits in determining whether a loan should be placed on nonaccrual
status. Our current policy in regards to our ITIN portfolio, due to our put back rights and the
underlying private mortgage insurance associated with these credits has been to monitor the credits
closely in conjunction with third party servicers to determine the appropriate action to take.
Nonperforming Assets
The following table sets forth a summary of our nonperforming and impaired loans and other
assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
(Dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Non-accrual loans |
|
$ |
7,667 |
|
|
$ |
20,154 |
|
|
$ |
12,409 |
|
|
$ |
0 |
|
|
$ |
372 |
|
90 days past due and
still accruing interest |
|
|
5,052 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
12,719 |
|
|
|
20,154 |
|
|
|
12,409 |
|
|
|
0 |
|
|
|
372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
|
2,880 |
|
|
|
2,934 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
15,599 |
|
|
$ |
23,088 |
|
|
$ |
12,409 |
|
|
$ |
0 |
|
|
$ |
372 |
|
Nonaccrual loans consisted of fourteen credits at year end 2009. Loans 90 days past due and still
accruing interest consisted of forty-five ITIN loans with total principal balances of $4.6 million.
In addition, loans 90 days past due and still accruing interest also consisted of two commercial
loans with total principal balances of $421,406.
The gross interest income that would have been recorded during the period had the loans been
current in accordance with their original terms was approximately $319,485. Interest collected
prior to non-accrual status was approximately $162,510. Our OREO as of year-end 2009 consisted of
one mixed-use development property and two 1-4 family real estate properties valued at $2.7
million, $32,900 and $74,000 respectively; 2008 reflected OREO of one mixed-use development
property valued at $2.9 million, and $0 for 2007.
51
Loan Maturity Schedule
The following table sets forth the maturity and repricing distribution of our commercial, real
estate and other loans outstanding as of December 31, 2009, which, based on remaining scheduled
repayments of principal, were due within the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After One through |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Within One Year |
|
|
Five Years |
|
|
After Five Years |
|
|
Total |
|
|
Commercial & industrial |
|
$ |
58,622 |
|
|
$ |
43,255 |
|
|
$ |
31,203 |
|
|
$ |
133,080 |
|
Real Estate construction |
|
|
33,992 |
|
|
|
23,788 |
|
|
|
1,744 |
|
|
|
59,524 |
|
Real Estate commercial |
|
|
8,940 |
|
|
|
69,012 |
|
|
|
182,072 |
|
|
|
260,024 |
|
Real Estate mortgage |
|
|
0 |
|
|
|
5,860 |
|
|
|
92,915 |
|
|
|
98,775 |
|
Real Estate other |
|
|
10,031 |
|
|
|
5,252 |
|
|
|
30,318 |
|
|
|
45,601 |
|
Installment loans |
|
|
1,000 |
|
|
|
1,223 |
|
|
|
0 |
|
|
|
2,223 |
|
Other loans |
|
|
1,184 |
|
|
|
1,028 |
|
|
|
0 |
|
|
|
2,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans |
|
$ |
113,769 |
|
|
$ |
149,418 |
|
|
$ |
338,252 |
|
|
$ |
601,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans due after one year
with: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rates |
|
|
|
|
|
$ |
48,979 |
|
|
$ |
111,842 |
|
|
$ |
160,821 |
|
Variable Rates |
|
|
|
|
|
|
100,439 |
|
|
|
226,410 |
|
|
|
326,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
149,418 |
|
|
$ |
338,252 |
|
|
$ |
487,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
The following table summarizes the contractual maturities of our securities held as
available-for-sale at their amortized cost basis and their weighted-average yields at December 31,
2009. The yield on tax-exempt securities has not been adjusted to a tax-equivalent yield basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over One through |
|
|
Over Five through |
|
|
|
|
|
|
|
|
|
Within One Year |
|
|
Five Years |
|
|
Ten Years |
|
|
Over Ten Years |
|
|
Total |
|
(Dollars in thousands) |
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
U.S. government & agencies |
|
|
0 |
|
|
|
0.00 |
% |
|
$ |
1.003 |
|
|
|
1.22 |
% |
|
$ |
14,497 |
|
|
|
2.69 |
% |
|
$ |
3,000 |
|
|
|
5.50 |
% |
|
$ |
18,500 |
|
|
|
3.06 |
% |
Obligations of state and
political subdivisions |
|
|
0 |
|
|
|
0.00 |
% |
|
|
2,218 |
|
|
|
4.27 |
% |
|
|
4,814 |
|
|
|
3.88 |
% |
|
|
25,152 |
|
|
|
4.24 |
% |
|
|
32,184 |
|
|
|
4.19 |
% |
Mortgage backed securities |
|
|
0 |
|
|
|
0.00 |
% |
|
|
0 |
|
|
|
0.00 |
% |
|
|
0 |
|
|
|
0.00 |
% |
|
|
28,278 |
|
|
|
5.44 |
% |
|
|
28,278 |
|
|
|
5.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
0 |
|
|
|
0.00 |
% |
|
$ |
3,221 |
|
|
|
3.32 |
% |
|
$ |
19,311 |
|
|
|
2.98 |
% |
|
$ |
56,430 |
|
|
|
4.91 |
% |
|
$ |
78,962 |
|
|
|
4.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit Structure
We obtain deposits primarily from local businesses and professionals as well as through
certificates of deposits, savings and checking accounts. The following table sets forth the
distribution of our average daily balances for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
2007 |
|
|
|
|
(Dollars in thousands) |
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
NOW accounts |
|
$ |
58,437 |
|
|
|
0.51 |
% |
|
$ |
51,215 |
|
|
|
0.88 |
% |
|
$ |
61,391 |
|
|
|
1.58 |
% |
Savings |
|
|
62,846 |
|
|
|
1.53 |
% |
|
|
56,914 |
|
|
|
2.77 |
% |
|
|
39,518 |
|
|
|
3.08 |
% |
Money market accounts |
|
|
87,105 |
|
|
|
0.84 |
% |
|
|
87,528 |
|
|
|
1.97 |
% |
|
|
59,814 |
|
|
|
2.95 |
% |
Certificates of deposit |
|
|
317,417 |
|
|
|
2.40 |
% |
|
|
234,493 |
|
|
|
3.65 |
% |
|
|
215,498 |
|
|
|
4.94 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
|
525,805 |
|
|
|
1.83 |
% |
|
|
430,150 |
|
|
|
2.87 |
% |
|
|
376,221 |
|
|
|
4.00 |
% |
Noninterest bearing deposits |
|
|
69,250 |
|
|
|
|
|
|
|
70,933 |
|
|
|
|
|
|
|
72,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Total Deposits |
|
$ |
595,055 |
|
|
|
|
|
|
$ |
501,083 |
|
|
|
|
|
|
$ |
448,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Other borrowings |
|
$ |
133,063 |
|
|
|
2.06 |
% |
|
$ |
111,561 |
|
|
|
3.62 |
% |
|
$ |
78,852 |
|
|
|
4.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
The following table sets forth the remaining maturities of certificates of deposit in amounts of
$100,000 or more as of December 31, 2009:
Deposit Maturity Schedule
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
|
Three months or less |
|
$ |
63,350 |
|
Three through six months |
|
|
59,275 |
|
Six through twelve months |
|
|
72,688 |
|
Over twelve months |
|
|
55,466 |
|
|
|
|
|
Total |
|
$ |
250,779 |
|
|
|
|
|
Capital Management and Adequacy
We use capital to fund organic growth, pay dividends and repurchase our shares. The objective
of effective capital management is to produce above market long-term returns by using capital when
returns are perceived to be high and issuing capital when costs are perceived to be low. Our
potential sources of capital include retained earnings, common and preferred stock issuance, and
issuance of subordinated debt and trust preferred securities.
Overall capital adequacy is monitored on a day-to-day basis by our management and reported to our
Board of Directors on a monthly basis. The regulators of the Bank measure capital adequacy by
using a risk-based capital framework and by monitoring compliance with minimum leverage ratio
guidelines. Under the risk-based capital standard, assets reported on our balance sheet and certain
off-balance sheet items are assigned to risk categories, each of which is assigned a risk weight.
This standard characterizes an institutions capital as being Tier 1 capital (defined as
principally comprising shareholders equity) and Tier 2 capital (defined as principally
comprising the qualifying portion of the ALLL). The minimum ratio of total risk-based capital to
risk-adjusted assets, including certain off-balance sheet items, is 8%. At least one-half (4%) of
the total risk-based capital is to be comprised of common equity; the balance may consist of debt
securities and a limited portion of the ALLL.
Quantitative measures established by regulation to ensure capital adequacy require us and the Bank
to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets and of Tier 1 capital to average
assets. Management believes as of December 31, 2009 and 2008, that we and the Bank met all capital
adequacy requirements to which they are subject.
As of December 31, 2009, the most recent notification from the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, an institution must maintain minimum
Total Risk-Based, Tier 1 Risk-Based and Tier 1 Leverage ratios as set forth in the following table.
There are no conditions or events since the notification that management believes have changed the
Banks category. Our and the Banks actual capital amounts and ratios are presented in the table.
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
|
Well Capitalized |
|
|
Minimum Capital |
|
December 31, 2009 |
|
Capital |
|
|
Ratio |
|
|
Requirement |
|
|
Requirement |
|
|
The Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage |
|
$ |
79,421,930 |
|
|
|
9.89 |
% |
|
|
n/a |
|
|
|
4.0 |
% |
Tier 1 Risk-Based |
|
|
79,421,930 |
|
|
|
12.06 |
% |
|
|
n/a |
|
|
|
4.0 |
% |
Total Risk-Based |
|
|
87,697,164 |
|
|
|
13.31 |
% |
|
|
n/a |
|
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redding Bank of
Commerce |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage |
|
$ |
76,262,200 |
|
|
|
9.37 |
% |
|
|
5.0 |
% |
|
|
4.0 |
% |
Tier 1 Risk-Based |
|
|
76,262,200 |
|
|
|
11.57 |
% |
|
|
6.0 |
% |
|
|
4.0 |
% |
Total Risk-Based |
|
|
84,542,883 |
|
|
|
12.83 |
% |
|
|
10.00 |
% |
|
|
8.0 |
% |
Cash dividends of $0.06 were paid on January 10, 2009, April 10, 2009, July 17, 2009 and October 9,
2009, respectively, to shareholders of record as of December 31, 2008, March 31, 2008, July 24,
2009 and September 30, 2009.
The United States Department of Treasury (Treasury) introduced the Capital Purchase Program on
October 14, 2008, under which the Treasury was authorized make up to $250 billion in equity capital
available to qualifying healthy financial institutions. Bank of Commerce Holdings qualified for
this highly selective program and received capital investment in November of 2008.
This capital investment enabled us to leverage into both investments and residential loans intended
to support the housing markets, as well as to increase local lending limits to support our
communities.
With our strong capital position, we find significantly more opportunities now for loan growth,
investment portfolio purchases and attractive loan and asset purchases.
Lending Transactions with Related Parties
The business we conduct with directors, officers, significant shareholders and other related
parties (collectively, Related Parties) is restricted and governed by various laws and
regulations, including Regulation O as promulgated and enforced by the Federal Reserve.
Furthermore, it is our policy to conduct business with Related Parties on an arms length basis at
current market prices with terms and conditions no more favorable than we provide in the normal
course of business.
Some of our directors, officers and principal shareholders of the Company and their associates were
customers of and had banking transactions with the Bank in the ordinary course of business during
2009 and the Bank expects to have such transactions in the future. All loans and commitments to
loans included in such transactions were made in compliance with the applicable laws on
substantially the same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons of similar creditworthiness, and in our opinion
did not involve more than a normal risk of collectability or present other unfavorable features.
An analysis of the activity in related party loans consists of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
As of December 31, |
|
|
|
2009 |
|
|
2008 |
|
Balance at beginning of year |
|
$ |
4,174,424 |
|
|
$ |
3,600,342 |
|
New loan additions |
|
|
1,200,611 |
|
|
|
153,737 |
|
Advances on existing lines of credit |
|
|
10,861,095 |
|
|
|
826,080 |
|
Principal repayments |
|
|
(11,387,376 |
) |
|
|
(405,735 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
4,848,754 |
|
|
$ |
4,174,424 |
|
|
|
|
|
|
|
|
54
Impact of Inflation
Inflation affects our financial position as well as operating results. It is our opinion that
the effects of inflation for the three years ended December 31, 2009 on the financial statements
have not been material.
Commitments
Off-Balance Sheet Financial Instruments - In the ordinary course of business, we enter into
various types of transactions which involve financial instruments with off-balance sheet risk.
These instruments include commitments to extend credit and stand-by letters of credit, which are
not reflected in the consolidated balance sheets. These transactions may involve, to varying
degrees, credit and interest rate risk more than the amount, if any recognized in the consolidated
balance sheets.
Our off-balance sheet credit risk exposure is the contractual amount of commitments to extend
credit and stand-by letters of credit. We apply the same credit standards to these contracts we
use for loans recorded on the balance sheet.
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
As of December 31, |
|
|
|
2009 |
|
|
2008 |
|
Off-balance sheet commitments: |
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
$ |
122,871,909 |
|
|
$ |
156,707,887 |
|
Standby letters of credit |
|
|
4,844,167 |
|
|
|
8,556,547 |
|
Guaranteed commitments outstanding |
|
|
1,324,799 |
|
|
|
1,350,399 |
|
|
|
|
|
|
|
|
|
|
$ |
129,040,875 |
|
|
$ |
166,614,833 |
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to customers. These commitments have specified
interest rates and generally have fixed expiration dates but may be terminated by us if certain
conditions of the contract are violated.
Although currently subject to draw down, many of the commitments do not necessarily represent
future cash requirements. Collateral held relating to these commitments varies, but generally
includes real estate, securities, and cash.
Standby letters of credit are conditional commitments issued by us to guarantee the performance of
a customer to a third party. Credit risk arises in these transactions from the possibility that a
customer may not be able to repay us upon default of performance. Collateral held for standby
letters of credit is based on an individual evaluation of each customers creditworthiness, but may
include cash and securities. Commitments to extend credit and standby letters of credit
bear similar credit risk characteristics as outstanding loans.
We have mortgage loan purchase agreements with various mortgage bankers. We are obligated to
perform certain procedures in accordance with these agreements. The agreements provide for
conditions whereby we may be required to repurchase mortgage loans for various reasons among which
are either (1) a mortgage loan is originated in violation of the mortgage bankers requirement, (2)
we breach any term of the agreement and (3) an early payment default occurs from a mortgage
originated by us. The mortgage loan repurchase agreements are consistent with the standard
representations and warranties of the loan sales agreements and the impact is considered immaterial
to the consolidated financial statements.
We entered into a mandatory forward loan volume commitment agreement with a purchaser of mortgage
loans. Under the agreement, we are committed to deliver $270,000,000 in loan volume over the period
from March 1, 2009 through May 31, 2010. Upon failure to deliver minimum loan volume quarterly, we
are responsible to pay a non-delivery fee to the purchaser. As of December 31, 2009, we met the
volume commitments. We are currently in the process of renegotiating and amending this agreement.
The new agreement would extend the term until January 31, 2011 and require us to commit to deliver
a loan volume of $264,000,000 over the new period.
55
Commitments and Contingent Liabilities
We have certain financial commitments. Future financial commitments are outlined below:
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than 5 |
|
|
Indeterminate |
|
(Dollars in thousands) |
|
Total |
|
|
One Year |
|
|
1 -3 Years |
|
|
3 - 5 Years |
|
|
years |
|
|
Maturity (1) |
|
Preferred Stock and
Warrants |
|
$ |
17,000 |
|
|
|
|
|
|
|
|
|
|
$ |
17,000 |
|
|
|
|
|
|
|
|
|
Junior Subordinated
Debentures |
|
$ |
15,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,465 |
|
|
|
|
|
FHLB Borrowings |
|
$ |
70,000 |
|
|
$ |
55,000 |
|
|
$ |
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease
obligations |
|
$ |
3,681 |
|
|
$ |
867 |
|
|
$ |
1,381 |
|
|
$ |
986 |
|
|
$ |
447 |
|
|
|
|
|
Repurchase Agreements |
|
$ |
9,621 |
|
|
$ |
9,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits (1) |
|
$ |
640,465 |
|
|
$ |
251,285 |
|
|
$ |
83,029 |
|
|
$ |
7,475 |
|
|
|
|
|
|
$ |
298,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
756,232 |
|
|
$ |
316,773 |
|
|
$ |
99,410 |
|
|
$ |
25,461 |
|
|
$ |
15,912 |
|
|
$ |
298,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents interest-bearing and non-interest bearing checking, money market, savings
and time accounts. |
56
|
|
|
ITEM 7-A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market risk is the risk that values of assets and liabilities or revenues will be adversely
affected by changes in market conditions such as interest rates. The risk is inherent in the
financial instruments associated with our operations and activities including loans, deposits,
securities, short-term borrowings, long-term debt and derivatives. Market-sensitive assets and
liabilities are generated through loans and deposits associated with our banking business, our
Asset Liability Management (ALM) process, and credit risk mitigation activities. Traditional loan
and deposit products are reported at amortized cost for assets or the amount owed for liabilities.
These positions are subject to changes in economic value based on varying market conditions.
Interest rate risk is the effect of changes in economic value of our loans and deposits, as well as
our other interest rate sensitive instruments and is reflected in the levels of future income and
expense produced by these positions versus levels that would be generated by current levels of
interest rates. We seek to mitigate interest rate risk as part of the ALM process.
Interest rate risk represents the most significant market risk exposure to our financial
instruments. Our overall goal is to manage interest rate sensitivity so that movements in interest
rates do not adversely affect net interest income. Interest rates risk is measured as the potential
volatility in our net interest income caused by changes in market interest rates. Lending and
deposit gathering creates interest rate sensitive positions on our balance sheet. Interest rate
risk from these activities as well as the impact of ever changing market conditions is mitigated
using the ALM process. We do not operate a trading account and do not hold a position with exposure
to foreign currency exchange or commodities. We face market risk through interest rate volatility.
The Board of Directors has overall responsibility for our interest rate risk management policies.
We have an Asset/Liability Management Committee (ALCO) which establishes and monitors guidelines
to control the sensitivity of earnings to changes in interest rates. The internal ALCO Roundtable
group maintains a net interest income forecast using different rate scenarios via a simulation
model. This group updates the net interest income forecast for changing assumptions and differing
outlooks based on economic and market conditions.
The simulation model used includes measures of the expected repricing characteristics of
administered rate (NOW, savings and money market accounts) and non-related products (demand deposit
accounts, other assets and other liabilities). These measures recognize the relative sensitivity of
these accounts to changes in market interest rates, as demonstrated through current and historical
experience, recognizing the timing differences of rate changes. In the simulation of net interest
margin and net income the forecast balance sheet is processed against five rate scenarios. These
five rate scenarios include a flat rate environment, which assumes interest rates are unchanged in
the future and four additional rate ramp scenarios ranging for + 300 to 300 basis points in 100
basis point increments, unless the rate environment cannot move in these basis point increments
before reaching zero.
The formal policies and practices we adopted to monitor and manage interest rate risk exposure
measure risk in two ways: (i) repricing opportunities for earning assets and interest-bearing
liabilities and (ii) changes in net interest income for declining interest rate shocks of 100 to
300 basis points. Because of our predisposition to variable rate pricing and noninterest bearing
demand deposit accounts, we are asset sensitive. As a result, management anticipates that, in a
declining interest rate environment, our net interest income and margin would be expected to
decline, and, in an increasing interest rate environment, our net interest income and margin would
be expected to increase. However, no assurance can be given that under such circumstances we would
experience the described relationships to declining or increasing interest rates. Because we are
asset sensitive, we are adversely affected by declining rates rather than rising rates.
57
To estimate the effect of interest rate shocks on our net interest income, management uses a model
to prepare an analysis of interest rate risk exposure. Such analysis calculates the change in net
interest income given a change in the federal funds rate of 100, 200, or 300 basis points up or
down. All changes are measured in dollars and are compared to projected net interest income. The
most recent model results indicate the estimated annualized reduction in net interest income
attributable to a 100, 200, and 300 basis point decline in the federal funds rate was $1,239,230,
$1,901,994, and $2,458,129, respectively. At December 31, 2008, the estimated annualized reduction
in net interest income attributable to a 100 and 200 basis point decline in the federal funds rate
was $741,121, and $1,036,979 respectively, with a similar and opposite results attributable to a
100 or 200 basis point increase in the federal funds rate.
The ALCO has established a policy limitation to interest rate risk of -21% of the net interest
margin and -30% of the present value of equity. The securities portfolio is integral to our asset
liability management process. The decision to purchase or sell securities is based upon the current
assessment of economic and financial conditions, including the interest rate environment,
liquidity, regulatory requirements and the relative mix of our cash positions.
Our approach to managing interest rate risk may include the use of derivatives. This helps to
minimize significant, unplanned fluctuations in earnings, fair values of assets and liabilities and
cash flows caused by interest rate volatility. This approach involves an off-balance sheet
instrument with the same characteristics of certain assets and liabilities so that changes in
interest rates do not have a significant adverse effect on the net interest margin and cash flows.
As a result of interest rate fluctuations, hedged assets and liabilities will gain or lose market
value. In a fair value hedging strategy, the effect of this unrealized gain or loss will generally
be offset by income or loss on the derivatives linked to the hedged assets and liabilities. For a
cash flow hedge, the change in the fair value of the derivative to the extent that it is effective
is recorded through other comprehensive income.
We may use derivatives as part of our interest rate risk management, including interest rate swaps,
caps and floors. At inception, the relationship between hedging instruments and hedged items is
formally documented with our risk management objective, strategy and our evaluation of
effectiveness of the hedge transactions. This includes linking all derivatives designated as fair
value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific
transactions. Periodically, as required, we formally assess whether the derivative we designated
in the hedging relationship is expected to be and has been highly effective in offsetting changes
in fair values or cash flows of the hedged item.
The following table sets forth the most recent model results relating to the distribution of
repricing opportunities for the Banks earning assets and interest-bearing liabilities. It also
reports the GAP (different volumes of rate sensitive assets and liabilities) repricing interest
earning assets and interest-bearing liabilities at different time intervals, the cumulative GAP,
the ratio of rate sensitive assets to rate sensitive liabilities for each repricing interval, and
the cumulative GAP to total assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 3 |
|
|
3 Months to |
|
|
One Year to |
|
|
Over Five |
|
|
|
|
(Dollars in thousands) |
|
Months |
|
|
One Year |
|
|
Five Years |
|
|
Years |
|
|
Total |
|
|
Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
$ |
6,126 |
|
|
$ |
8,793 |
|
|
$ |
30,825 |
|
|
$ |
34,318 |
|
|
$ |
80,062 |
|
Other investments |
|
|
31,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,338 |
|
Loans, gross |
|
|
219,736 |
|
|
|
216,227 |
|
|
|
135,927 |
|
|
|
29,340 |
|
|
|
601,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-earning Assets |
|
$ |
257,200 |
|
|
$ |
225,020 |
|
|
$ |
166,752 |
|
|
$ |
63,658 |
|
|
$ |
712,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand interest bearing |
|
$ |
2,732 |
|
|
$ |
35,287 |
|
|
$ |
104,153 |
|
|
$ |
21,642 |
|
|
$ |
163,814 |
|
Savings accounts |
|
|
|
|
|
|
|
|
|
|
50,895 |
|
|
|
14,519 |
|
|
|
65,414 |
|
Certificates of deposit |
|
|
76,475 |
|
|
|
174,357 |
|
|
|
90,957 |
|
|
|
|
|
|
|
341,789 |
|
Other borrowings |
|
|
35,000 |
|
|
|
20,000 |
|
|
|
15,000 |
|
|
|
|
|
|
|
70,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-bearing Liabilities |
|
|
114,207 |
|
|
$ |
229,644 |
|
|
|
261,005 |
|
|
$ |
36,161 |
|
|
$ |
641,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAP in dollars |
|
$ |
142,993 |
|
|
$ |
(4,624 |
) |
|
$ |
(94,253 |
) |
|
$ |
27,497 |
|
|
$ |
71,613 |
|
Cumulative GAP in dollars |
|
$ |
142,993 |
|
|
$ |
138,369 |
|
|
$ |
44,116 |
|
|
$ |
71,613 |
|
|
$ |
71,613 |
|
As a percentage of earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAP Ratio |
|
|
2.25 |
|
|
|
0.98 |
|
|
|
0.64 |
|
|
|
1.76 |
|
|
|
1.11 |
|
|
Cumulative GAP Ratio |
|
|
2.25 |
|
|
|
1.40 |
|
|
|
1.07 |
|
|
|
1.11 |
|
|
|
1.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gap as % of Earning Assets |
|
|
20.07 |
% |
|
|
-0.65 |
% |
|
|
-13.23 |
% |
|
|
3.86 |
% |
|
|
10.05 |
% |
|
Cumulative Gap as % of Earning
Assets |
|
|
20.07 |
% |
|
|
19.42 |
% |
|
|
6.19 |
% |
|
|
10.05 |
% |
|
|
10.05 |
% |
58
The model utilized by management to create the analysis described in the preceding paragraph
uses balance sheet simulation to estimate the impact of changing rates on our projected annual net
interest income Actual results will differ from simulated results due to timing, magnitude, and
frequency of interest rate changes as well as changes in market conditions and management
strategies. Management believes that the short duration of its rate-sensitive assets and
liabilities contributes to its ability to reprice a significant amount of its rate-sensitive assets
and liabilities and mitigate the impact of rate changes in excess of 100, 200, or 300 basis points.
The models primary benefit to management is its assistance in evaluating the impact that future
strategies with respect to our mix and level of rate-sensitive assets and liabilities will have on
our net interest income.
59
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Index to Consolidated Financial Statements
60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Directors
Bank of Commerce Holdings
We have audited the accompanying consolidated balance sheets of Bank of Commerce Holdings and
subsidiaries (the Company) as of December 31, 2009 and 2008 and the related consolidated
statements of income, shareholders equity, and cash flows for each of the three years in the
period ended December 31, 2009. These consolidated financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Bank of Commerce Holdings and
subsidiaries as of December 31, 2009 and 2008, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31, 2009, 2008 and 2007,
in conformity with accounting principles generally accepted in the United States of America.
/s/ Moss Adams LLP
Stockton, California
March 05, 2010
61
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
36,902,278 |
|
|
$ |
10,216,062 |
|
Interest bearing due from banks |
|
|
31,337,615 |
|
|
|
23,500,000 |
|
Federal funds sold and securities purchased under agreements to resell |
|
|
|
|
|
|
51,475,000 |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
68,239,893 |
|
|
|
85,191,062 |
|
Securities available-for-sale (including pledged collateral of
$55,672,267 at December 31, 2009 and $68,735,000 at December 31,
2008) |
|
|
80,062,136 |
|
|
|
131,686,600 |
|
Mortgage loans held for sale |
|
|
27,288,423 |
|
|
|
|
|
Loans, net of the allowance for loan and lease losses of $11,207,213
at December 31, 2009 and $8,429,383 at December 31, 2008 |
|
|
590,022,710 |
|
|
|
518,946,461 |
|
Bank premises and equipment, net |
|
|
9,979,565 |
|
|
|
10,672,210 |
|
Goodwill |
|
|
3,727,052 |
|
|
|
|
|
Other real estate owned |
|
|
2,879,956 |
|
|
|
2,934,151 |
|
Other assets |
|
|
31,206,411 |
|
|
|
24,783,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
813,406,146 |
|
|
$ |
774,213,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Demand noninterest bearing |
|
$ |
69,447,731 |
|
|
$ |
79,988,122 |
|
Demand interest bearing |
|
|
163,813,660 |
|
|
|
143,871,441 |
|
Savings accounts |
|
|
65,413,991 |
|
|
|
67,135,736 |
|
Certificates of deposit |
|
|
341,788,698 |
|
|
|
264,286,604 |
|
|
|
|
|
|
|
|
Total Deposits |
|
|
640,464,080 |
|
|
|
555,281,903 |
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
|
|
9,620,867 |
|
|
|
13,853,255 |
|
Federal Home Loan Bank borrowings |
|
|
70,000,000 |
|
|
|
120,000,000 |
|
Other liabilities |
|
|
9,049,555 |
|
|
|
7,036,161 |
|
Junior subordinated debt payable to unconsolidated subsidiary grantor
trust |
|
|
15,465,000 |
|
|
|
15,465,000 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
744,599,502 |
|
|
|
711,636,319 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 21) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Preferred stock (liquidation preference of $1,000 per share; issued
2008); 2,000,000 shares authorized; 17,000 shares issued and
outstanding in 2009 and 2008 |
|
|
16,641,016 |
|
|
|
16,551,268 |
|
|
|
|
|
|
|
|
|
|
Common stock, no par value; 50,000,000 shares authorized; 8,711,495
shares issued and outstanding in 2009 and 2008 |
|
|
9,730,284 |
|
|
|
9,649,673 |
|
Common stock warrant |
|
|
448,732 |
|
|
|
448,732 |
|
Retained earnings |
|
|
39,003,734 |
|
|
|
36,008,865 |
|
Accumulated other comprehensive income (loss), net of tax |
|
|
657,662 |
|
|
|
(80,897 |
) |
|
|
|
|
|
|
|
Total Equity Bank of Commerce Holdings |
|
|
66,481,428 |
|
|
|
62,577,641 |
|
Non controlling interest in subsidiary |
|
|
2,325,216 |
|
|
|
|
|
Total shareholders equity |
|
|
68,806,644 |
|
|
|
62,577,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
813,406,146 |
|
|
$ |
774,213,960 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
62
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
35,860,336 |
|
|
$ |
33,582,112 |
|
|
$ |
36,134,170 |
|
Interest on tax-exempt securities |
|
|
1,164,344 |
|
|
|
1,196,662 |
|
|
|
1,228,944 |
|
Interest on U.S. government securities |
|
|
3,449,909 |
|
|
|
2,468,749 |
|
|
|
3,084,672 |
|
Interest on federal funds sold and securities purchased
under agreement to resell |
|
|
31,737 |
|
|
|
303,227 |
|
|
|
680,578 |
|
Interest on other securities |
|
|
822,673 |
|
|
|
138,645 |
|
|
|
89,686 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
41,328,999 |
|
|
|
37,689,395 |
|
|
|
41,218,050 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits |
|
|
1,014,554 |
|
|
|
2,172,704 |
|
|
|
2,735,170 |
|
Interest on savings deposits |
|
|
962,774 |
|
|
|
1,576,351 |
|
|
|
1,215,920 |
|
Interest on certificates of deposit |
|
|
7,628,282 |
|
|
|
8,552,217 |
|
|
|
10,570,776 |
|
Interest on securities sold under repurchase agreements |
|
|
50,503 |
|
|
|
172,743 |
|
|
|
1,177,417 |
|
Interest on FHLB borrowings |
|
|
1,833,181 |
|
|
|
2,811,982 |
|
|
|
2,421,636 |
|
Interest on junior subordinated debt payable to
unconsolidated subsidiary grantor trusts |
|
|
846,072 |
|
|
|
1,056,284 |
|
|
|
1,084,990 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
12,335,366 |
|
|
|
16,342,281 |
|
|
|
19,205,909 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
28,993,633 |
|
|
|
21,347,114 |
|
|
|
22,012,141 |
|
Provision for loan and lease losses |
|
|
9,475,000 |
|
|
|
6,520,000 |
|
|
|
3,291,250 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan and lease losses |
|
|
19,518,633 |
|
|
|
14,827,114 |
|
|
|
18,720,891 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
390,263 |
|
|
|
311,266 |
|
|
|
277,769 |
|
Payroll and benefit processing fees |
|
|
452,037 |
|
|
|
452,852 |
|
|
|
382,738 |
|
Earnings on cash surrender value -
Bank owned life insurance |
|
|
418,265 |
|
|
|
340,220 |
|
|
|
331,251 |
|
Life insurance policy benefits |
|
|
|
|
|
|
|
|
|
|
2,400,000 |
|
Net gain on sale of securities available-for-sale |
|
|
2,437,575 |
|
|
|
627,879 |
|
|
|
45,670 |
|
Net loss on sale of derivative swap transaction |
|
|
|
|
|
|
(225,442 |
) |
|
|
|
|
Net gain on sale of loans |
|
|
340,621 |
|
|
|
|
|
|
|
|
|
Merchant credit card service income, net |
|
|
296,551 |
|
|
|
364,391 |
|
|
|
388,438 |
|
Mortgage brokerage fee income |
|
|
5,327,256 |
|
|
|
21,019 |
|
|
|
49,995 |
|
Other income |
|
|
400,866 |
|
|
|
731,233 |
|
|
|
658,893 |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
10,063,434 |
|
|
|
2,623,418 |
|
|
|
4,534,754 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related benefits |
|
|
10,881,865 |
|
|
|
7,750,980 |
|
|
|
8,665,679 |
|
Occupancy and equipment expense |
|
|
3,405,173 |
|
|
|
2,500,557 |
|
|
|
2,372,617 |
|
OREO expense |
|
|
163,724 |
|
|
|
735,000 |
|
|
|
|
|
FDIC insurance premium |
|
|
1,274,416 |
|
|
|
382,722 |
|
|
|
51,077 |
|
Data processing fees |
|
|
282,429 |
|
|
|
276,165 |
|
|
|
395,558 |
|
Professional service fees |
|
|
819,960 |
|
|
|
667,015 |
|
|
|
1,027,671 |
|
Payroll processing fees |
|
|
114,393 |
|
|
|
115,932 |
|
|
|
107,856 |
|
Deferred compensation expense |
|
|
478,175 |
|
|
|
461,640 |
|
|
|
411,191 |
|
Stationery and supplies |
|
|
185,206 |
|
|
|
262,087 |
|
|
|
256,799 |
|
Postage |
|
|
146,719 |
|
|
|
133,909 |
|
|
|
137,740 |
|
Directors expenses |
|
|
298,596 |
|
|
|
293,918 |
|
|
|
311,777 |
|
Other expenses |
|
|
2,573,008 |
|
|
|
1,715,747 |
|
|
|
2,005,729 |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
20,623,664 |
|
|
|
15,295,672 |
|
|
|
15,743,694 |
|
|
|
|
|
|
|
|
|
|
|
Income before provision (benefit) for income taxes |
|
|
8,958,403 |
|
|
|
2,154,860 |
|
|
|
7,511,951 |
|
Provision (benefit) for income taxes |
|
|
2,689,698 |
|
|
|
(39,526 |
) |
|
|
1,405,053 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
6,268,705 |
|
|
|
2,194,386 |
|
|
|
6,106,898 |
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to non-controlling interest |
|
|
263,405 |
|
|
|
|
|
|
|
|
|
Net income attributable to Bank of Commerce Holdings |
|
$ |
6,005,300 |
|
|
$ |
2,194,386 |
|
|
$ |
6,106,898 |
|
|
|
|
|
|
|
|
|
|
|
Less: preferred dividend and accretion on preferred stock |
|
|
942,109 |
|
|
|
|
|
|
|
|
|
Income available to common shareholders |
|
|
5,063,191 |
|
|
|
2,194,386 |
|
|
|
6,106,898 |
|
Basic earnings per share |
|
$ |
0.58 |
|
|
$ |
0.25 |
|
|
$ |
0.69 |
|
Weighted average shares basic |
|
|
8,711,495 |
|
|
|
8,712,873 |
|
|
|
8,857,627 |
|
Diluted earnings per share |
|
$ |
0.58 |
|
|
$ |
0.25 |
|
|
$ |
0.68 |
|
Weighted average shares diluted |
|
|
8,711,495 |
|
|
|
8,724,550 |
|
|
|
8,937,736 |
|
Cash dividends declared |
|
$ |
0.24 |
|
|
$ |
0.29 |
|
|
$ |
0.33 |
|
See accompanying notes to consolidated financial statements.
63
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
Non |
|
|
|
|
|
|
Comprehe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
Bank of |
|
|
Controlling |
|
|
|
|
|
|
nsive |
|
|
Preferred |
|
|
|
|
|
|
Common |
|
|
Stock |
|
|
Retained |
|
|
Comp- Income (Loss), |
|
|
Commerce |
|
|
Interest in |
|
|
|
|
Dollars in Thousands |
|
Income |
|
|
Amount |
|
|
Warrant |
|
|
Shares |
|
|
Amount |
|
|
Earnings |
|
|
net of tax |
|
|
Holdings |
|
|
Subsidiary |
|
|
Total |
|
Balance at
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,847,042 |
|
|
$ |
11,517,368 |
|
|
$ |
33,336,032 |
|
|
$ |
(937,150 |
) |
|
$ |
43,916,250 |
|
|
$ |
0 |
|
|
$ |
43,916,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
6,106,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,106,898 |
|
|
|
|
|
|
|
6,106,898 |
|
|
|
0 |
|
|
|
6,106,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on
securities and
derivatives |
|
|
527,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: reclassification
adjustment for
gains included
in net income,
net of tax |
|
|
(26,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive
Income |
|
$ |
6,607,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,579 |
|
|
|
500,579 |
|
|
|
0 |
|
|
|
500,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Issued
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common cash dividends
($0.33 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,838,028 |
) |
|
|
|
|
|
|
(2,838,028 |
) |
|
|
0 |
|
|
|
(2,838,028 |
) |
Compensation expense
associated with stock
options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,880 |
|
|
|
|
|
|
|
|
|
|
|
116,880 |
|
|
|
0 |
|
|
|
116,880 |
|
Share Repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200,000 |
) |
|
|
(2,270,242 |
) |
|
|
|
|
|
|
|
|
|
|
(2,270,242 |
) |
|
|
0 |
|
|
|
(2,270,242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,403 |
|
|
|
486,881 |
|
|
|
|
|
|
|
|
|
|
|
486,881 |
|
|
|
0 |
|
|
|
486,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit on stock
options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,630 |
|
|
|
|
|
|
|
|
|
|
|
144,630 |
|
|
|
0 |
|
|
|
144,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,757,445 |
|
|
$ |
9,995,517 |
|
|
$ |
36,604,902 |
|
|
$ |
(436,571 |
) |
|
$ |
46,163,848 |
|
|
$ |
0 |
|
|
$ |
46,163,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1,
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,755,455 |
|
|
$ |
9,995,517 |
|
|
$ |
36,004,902 |
|
|
$ |
(436,571 |
) |
|
$ |
46,163,848 |
|
|
$ |
0 |
|
|
$ |
46,163,848 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
2,194,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,194,386 |
|
|
|
|
|
|
|
2,194,386 |
|
|
|
0 |
|
|
|
2,194,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on
securities and
derivatives |
|
|
711,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: reclassification
adjustment for
gains included
in net income,
net of tax |
|
|
(355,806 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive
Income |
|
|
2,550,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
355,674 |
|
|
|
355,674 |
|
|
|
0 |
|
|
|
355,674 |
|
Preferred Stock Issued |
|
|
|
|
|
|
16,551,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,551,268 |
|
|
|
0 |
|
|
|
16,551,268 |
|
|
Warrants |
|
|
|
|
|
|
|
|
|
|
448,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448,732 |
|
|
|
0 |
|
|
|
448,732 |
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
Non |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
Bank of |
|
|
Controlling |
|
|
|
|
|
|
Preferred |
|
|
|
|
|
|
Common |
|
|
Stock |
|
|
Retained |
|
|
Comp- Income (Loss), |
|
|
Commerce |
|
|
Interest in |
|
|
|
|
Dollars in Thousands |
|
Amount |
|
|
Warrant |
|
|
Shares |
|
|
Amount |
|
|
Earnings |
|
|
net of tax |
|
|
Holdings |
|
|
Subsidiary |
|
|
Total |
|
Common cash dividends
($0.29 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,790,423 |
) |
|
|
|
|
|
|
(2,790,423 |
) |
|
|
0 |
|
|
|
(2,790,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
associated with stock
options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,446 |
|
|
|
|
|
|
|
|
|
|
|
116,446 |
|
|
|
0 |
|
|
|
116,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Repurchase |
|
|
|
|
|
|
|
|
|
|
(58,800 |
) |
|
|
(503,796 |
) |
|
|
|
|
|
|
|
|
|
|
(503,796 |
) |
|
|
0 |
|
|
|
(503,796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercised |
|
|
|
|
|
|
|
|
|
|
12,850 |
|
|
|
41,506 |
|
|
|
|
|
|
|
|
|
|
|
41,506 |
|
|
|
0 |
|
|
|
41,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2008 |
|
$ |
16,551,268 |
|
|
$ |
448,732 |
|
|
|
8,711,495 |
|
|
$ |
9,649,673 |
|
|
$ |
36,008,865 |
|
|
$ |
(80,897 |
) |
|
$ |
62,577,641 |
|
|
$ |
0 |
|
|
$ |
62,577,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comp- |
|
|
Bank of |
|
|
Non Controlling |
|
|
|
|
Dollars in |
|
Comprehensive |
|
|
Preferred |
|
|
|
|
|
|
Common |
|
|
Stock |
|
|
Retained |
|
|
Income (Loss), |
|
|
Commerce |
|
|
Interest in |
|
|
|
|
Thousands |
|
Income |
|
|
Amount |
|
|
Warrant |
|
|
Shares |
|
|
Amount |
|
|
Earnings |
|
|
net of tax |
|
|
Holdings |
|
|
Subsidiary |
|
|
Total |
|
Balance at January 1,
2009 |
|
|
|
|
|
$ |
16,551,268 |
|
|
$ |
448,732 |
|
|
|
8,711,495 |
|
|
$ |
9,649,673 |
|
|
$ |
36,008,865 |
|
|
$ |
(80,897 |
) |
|
$ |
62,577,641 |
|
|
$ |
0 |
|
|
$ |
62,577,641 |
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
6,268,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,005,300 |
|
|
|
|
|
|
|
6,005,300 |
|
|
|
263,405 |
|
|
|
6,268,705 |
|
Other
Comprehensive
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains
on securities
and derivatives |
|
|
2,172,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: reclassification
adjustment for
gains included
in net income,
net of tax |
|
|
(1,434,054 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
Comprehensive Income |
|
|
7,007,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Other
Comprehensive Income
non-controlling
interest |
|
|
(263,405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive
Income BOCH |
|
$ |
6,743,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
738,559 |
|
|
|
738,559 |
|
|
|
0 |
|
|
|
738,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion on Preferred
Stock |
|
|
|
|
|
|
89,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67,311 |
) |
|
|
|
|
|
|
22,437 |
|
|
|
0 |
|
|
|
22,437 |
|
Common cash dividends
($0.24 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,090,760 |
) |
|
|
|
|
|
|
(2,090,760 |
) |
|
|
0 |
|
|
|
(2,090,760 |
) |
Preferred Stock
Dividend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(852,361 |
) |
|
|
|
|
|
|
(852,361 |
) |
|
|
0 |
|
|
|
(852,361 |
) |
Compensation expense
associated with stock
options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,611 |
|
|
|
|
|
|
|
|
|
|
|
80,611 |
|
|
|
0 |
|
|
|
80,611 |
|
Fair value of
non-controlling
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,061,811 |
|
|
|
2,061,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2009 |
|
|
|
|
|
$ |
16,641,016 |
|
|
$ |
448,732 |
|
|
|
8,711,495 |
|
|
$ |
9,730,284 |
|
|
$ |
39,003,734 |
|
|
$ |
657,662 |
|
|
$ |
66,481,428 |
|
|
$ |
2,325,216 |
|
|
$ |
68,806,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
65
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,268,705 |
|
|
$ |
2,194,386 |
|
|
$ |
6,106,898 |
|
Adjustments to reconcile net income to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
9,475,000 |
|
|
|
6,520,000 |
|
|
|
3,291,250 |
|
Provision for depreciation and amortization |
|
|
1,221,545 |
|
|
|
1,145,000 |
|
|
|
1,035,660 |
|
Compensation expense associated with stock options |
|
|
80,611 |
|
|
|
116,446 |
|
|
|
116,880 |
|
Write down of Other Real Estate Owned |
|
|
161,153 |
|
|
|
735,000 |
|
|
|
|
|
Tax benefits from the exercise of stock options |
|
|
|
|
|
|
|
|
|
|
(144,630 |
) |
Gross Proceeds from sales of loans held for sale |
|
|
449,279,623 |
|
|
|
|
|
|
|
|
|
Gross originations of loans held for sale |
|
|
(445,269,382 |
) |
|
|
|
|
|
|
|
|
Gain on sale of securities available-for-sale |
|
|
(2,437,575 |
) |
|
|
(627,879 |
) |
|
|
(45,670 |
) |
Gain on sale of other real estate owned |
|
|
(20,251 |
) |
|
|
|
|
|
|
|
|
Amortization of securities premiums and accretion of
discounts, net |
|
|
(227,206 |
) |
|
|
97,783 |
|
|
|
(3,687 |
) |
Loss (gain) on sale of derivative |
|
|
|
|
|
|
225,442 |
|
|
|
(41,000 |
) |
Gain on sale of loans |
|
|
(340,621 |
) |
|
|
|
|
|
|
|
|
Loss (gain) on sale of fixed assets |
|
|
1,009 |
|
|
|
3,125 |
|
|
|
(48,398 |
) |
(Increase) decrease in deferred income taxes |
|
|
(1,159,007 |
) |
|
|
29,120 |
|
|
|
(1,646,563 |
) |
(Increase) in cash surrender value of bank owned life
policies |
|
|
(1,563,523 |
) |
|
|
(285,786 |
) |
|
|
(1,256,708 |
) |
Increase in other assets |
|
|
(4,249,840 |
) |
|
|
(9,606,976 |
) |
|
|
(514,427 |
) |
Increase in deferred compensation |
|
|
448,972 |
|
|
|
391,707 |
|
|
|
505,386 |
|
Increase (decrease) in deferred loan fees |
|
|
122,168 |
|
|
|
(127,999 |
) |
|
|
(65,385 |
) |
Decrease in other liabilities |
|
|
(486,397 |
) |
|
|
(1,064,976 |
) |
|
|
(138,198 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
11,305,023 |
|
|
|
(255,607 |
) |
|
|
7,151,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of available-for-sale securities |
|
|
32,699,034 |
|
|
|
9,125,749 |
|
|
|
6,313,987 |
|
Proceeds from sale of available-for-sale securities |
|
|
78,773,342 |
|
|
|
44,828,323 |
|
|
|
47,072,143 |
|
Purchases of available-for-sale securities |
|
|
(55,927,954 |
) |
|
|
(105,861,274 |
) |
|
|
(24,486,679 |
) |
Purchases of ITIN loan portfolio |
|
|
(66,693,801 |
) |
|
|
|
|
|
|
|
|
Loan originations, net of principal repayments |
|
|
(33,334,280 |
) |
|
|
(39,055,891 |
) |
|
|
(80,519,208 |
) |
Maturities of held-to-maturity securities |
|
|
|
|
|
|
97,786 |
|
|
|
248,569 |
|
Key life benefit proceeds |
|
|
|
|
|
|
|
|
|
|
2,400,000 |
|
Purchase of Bank premises and equipment |
|
|
(375,110 |
) |
|
|
(865,084 |
) |
|
|
(3,439,403 |
) |
Proceeds from the sale of other real estate owned |
|
|
315,332 |
|
|
|
1,200,000 |
|
|
|
|
|
Cash acquired in acquisition, net of cash consideration
paid |
|
|
264,691 |
|
|
|
|
|
|
|
|
|
Proceeds on sale of fixed assets |
|
|
350 |
|
|
|
5,000 |
|
|
|
83,210 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(44,278,396 |
) |
|
|
(90,525,391 |
) |
|
|
(52,327,381 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in demand deposits and savings accounts |
|
|
7,680,083 |
|
|
|
31,080,488 |
|
|
|
32,949,640 |
|
Net increase in certificates of deposit |
|
|
77,502,094 |
|
|
|
50,570,118 |
|
|
|
1,274,228 |
|
Net decrease in securities sold under agreements to
repurchase |
|
|
(4,232,388 |
) |
|
|
(1,659,956 |
) |
|
|
(21,603,399 |
) |
Net change in FHLB advances |
|
|
(50,000,000 |
) |
|
|
60,000,000 |
|
|
|
20,000,000 |
|
Net change in other short term borrowings |
|
|
(11,810,238 |
) |
|
|
|
|
|
|
|
|
Proceeds from issuance of preferred stock and warrants |
|
|
|
|
|
|
17,000,000 |
|
|
|
|
|
Cash dividends paid on common stock |
|
|
(2,264,986 |
) |
|
|
(2,790,423 |
) |
|
|
(2,838,028 |
) |
Cash dividends paid on preferred stock |
|
|
(852,361 |
) |
|
|
|
|
|
|
|
|
Proceeds from stock options exercised |
|
|
|
|
|
|
41,506 |
|
|
|
486,881 |
|
Common Stock Repurchased |
|
|
|
|
|
|
(503,796 |
) |
|
|
(2,270,242 |
) |
Excess tax benefits from the exercise of stock options |
|
|
|
|
|
|
|
|
|
|
144,630 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
16,022,204 |
|
|
|
153,737,937 |
|
|
|
28,143,710 |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(16,951,169 |
) |
|
|
62,956,939 |
|
|
|
(17,032,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
85,191,062 |
|
|
|
22,234,123 |
|
|
|
39,266,386 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
68,239,893 |
|
|
$ |
85,191,062 |
|
|
$ |
22,234,123 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements
66
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
Supplemental disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
3,496,131 |
|
|
$ |
316,000 |
|
|
$ |
2,752,860 |
|
Interest |
|
$ |
12,414,822 |
|
|
$ |
16,510,235 |
|
|
$ |
19,279,879 |
|
Transfer of loans to OREO |
|
$ |
402,038 |
|
|
$ |
4,869,151 |
|
|
|
|
|
Reclassification of
held-to-maturity securities to
available-for-sale |
|
|
|
|
|
$ |
8,804,998 |
|
|
|
|
|
Acquisition at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
Assets Acquired |
|
$ |
14,857,000 |
|
|
|
|
|
|
|
|
|
Liabilities Assumed |
|
$ |
14,057,000 |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
67
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE BUSINESS OF THE COMPANY
Bank of Commerce Holdings (the Holding Company), is a financial holding company
(FHC) with its principal offices in Redding, California. A financial holding company may
engage in commercial banking, insurance, investment services, and offer other financial
products to customers. The Holding Company received notification from the Federal Reserve
Board approving the election to change to a financial holding company on April 22, 2001. The
election to change to a financial holding company has had no impact to date on the
operations of the Company. As a financial holding company, Bank of Commerce Holdings is
subject to the Financial Holding Company Act and to supervision by the Board of Governors of
the Federal Reserve System (the FRB). The Holding Companys wholly-owned subsidiaries are
Redding Bank of Commerce and Roseville Bank of Commerce (the Bank). The Holding Companys
majority owned subsidiary is Bank of Commerce Mortgage (the Mortgage Company)
(collectively the Company). The Company has an unconsolidated subsidiary in Bank of
Commerce Holdings Trust and Bank of Commerce Holdings Trust II. Bank of Commerce Mortgage
offers mortgage brokerage services through an affiliate agreement with BWC Mortgage
Services. The Bank is principally supervised and regulated by the California Department of
Financial Institutions (DFI) and the Federal Deposit Insurance Corporation (FDIC).
Substantially all of the Companys activities are carried out through the Bank and the
Mortgage Company. The Bank was incorporated as a California banking corporation on November
25, 1981. The Bank operates four full service branches in Redding, and Roseville,
California.
The Bank conducts a general commercial banking business in the counties of El Dorado,
Placer, Shasta, Sacramento, and Tehama, California. The Company considers Northern
California to be the major market area of the Bank. The services offered by the Bank include
those traditionally offered by commercial banks of similar size and character in California,
including checking, interest-bearing (NOW) and savings accounts, money market deposit
accounts; commercial, real estate, and construction loans; travelers checks, safe deposit
boxes, collection services and electronic banking activities. The primary focus of the Bank
is to provide services to the business and professional community of its major market area,
including Small Business Administration loans, payroll and accounting packages, benefit
administration and billing programs. The Bank does not offer trust services or international
banking services and does not plan to do so in the near future. Most of the customers of the
Bank are small to medium sized businesses and individuals with medium to high net worth.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The accounting and reporting policies of the Company conform to accounting principles
generally accepted in the United States of America. Additionally, where applicable, the
policies conform to the accounting and reporting guidelines prescribed by bank regulatory
authorities. In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting
period. Material estimates that are particularly susceptible to significant change including
the determination of the allowance for loan and lease losses, the valuation of goodwill,
other than temporary impairment of investment securities, share based payments, accounting
for income taxes, and fair value measurements discussed in the notes to consolidated
financial statements. Actual results could differ from those estimates. Certain amounts for
prior periods have been reclassified to conform to the current financial statement
presentation. The results of reclassifications are not considered material and have no
effect on previously reported net income and earnings per share.
68
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation The consolidated financial statements include the
accounts of the Holding Company, the Bank and Bank of Commerce Mortgage. All significant
intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents
include amounts due from correspondent banks and the Federal Reserve Bank, federal funds
sold and securities purchased under agreements to resell. Generally, federal funds sold are
for a one-day period and securities purchased under agreements to resell are for no more
than a 90-day period. Balances held in federal funds sold may exceed FDIC insurance limits.
Securities purchased under agreements to resell The Company enters into purchases of
securities under agreements to resell substantially identical securities. Securities
purchased under agreements to resell consist primarily of U.S. Treasury, Agency and
Municipal Securities. The amounts advanced under these agreements are reflected as assets in
the consolidated balance sheet. It is the Companys policy to take possession of securities
purchased under agreements to resell. Agreements with third parties specify the Companys
rights to request additional collateral, based on its monitoring of the fair value of the
underlying securities on a daily basis. The securities are delivered by appropriate entry
into the Companys account maintained at the Federal Reserve Bank or into a third-party
custodians account designated by the Company under a written custodial agreement that
explicitly recognizes the Companys interest in the securities.
Securities At the time of purchase, the Company designates the security as
held-to-maturity or available-for-sale, based on its investment objectives, operational
needs and intent to hold. The Company does not engage in trading activity. Securities
designated as held-to-maturity are carried at cost adjusted for the accretion of discounts
and amortization of premiums. The Company has the ability and intent to hold these
securities to maturity. Securities designated as available-for-sale may be sold to implement
the Companys asset/liability management strategies and in response to changes in interest
rates, prepayment rates and similar factors. Securities designated as available-for-sale are
recorded at fair value and unrealized gains or losses, net of income taxes, are reported as
part of accumulated other comprehensive income(loss), a separate component of shareholders
equity. Gains or losses on sale of securities are based on the specific identification
method. The market value and underlying rating of the security is monitored for quality.
Securities may be adjusted to reflect changes in valuation as a result of
other-than-temporary declines in value. Investments with fair values that are less than
amortized cost are considered impaired. Impairment may result from either a decline in the
financial condition of the issuing entity or, in the case of fixed rate investments, from
changes in interest rates. At each financial statement date, management assesses each
investment to determine if impaired investments are temporarily impaired or if the
impairment is other than temporary based upon the positive and negative evidence available.
Evidence evaluated includes, but is not limited to, industry analyst reports, credit market
conditions, and interest rate trends.
When an investment is impaired, we assess whether to sell the security, or it is more likely
than not that we will be required to sell the security before recovery of its amortized cost
basis less any current-period credit losses. For debt securities, that are considered other
than temporarily impaired and that we do not intend to sell and will not be required to sell
prior to recovery of our amortized cost basis, we separate the amount of the impairment into
the amount that is credit related (credit loss component) and the amount due to all other
factors. The credit loss component is recognized in earnings and is calculated as the
difference between the investments amortized cost basis and the present value of its
expected future cash flows.
69
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The remaining differences between the investments fair value and the present value of
future expected cash flows is deemed to be due to factors that are not credit related and is
recognized in other comprehensive income. Significant judgment is required in the
determination of whether an OTTI has occurred for an investment. The Company follows a
consistent and systematic process for determining and recording an OTTI loss. The Company
has designated the ALCO Committee responsible for the OTTI process.
The ALCO Committees assessment of whether an OTTI loss should be recognized incorporates
both quantitative and qualitative information.
Loans Loans are stated at the principal amounts outstanding less deferred loan fees and
costs and the allowance for loan losses. Interest on commercial, installment and real
estate loans is accrued daily based on the principal outstanding. Loan origination and
commitment fees and certain origination costs are deferred and the net amount is amortized
over the contractual life of the loans as an adjustment of their yield. A loan is impaired
when, based on current information and events, management believes it is probable that the
Company will not be able to collect all amounts due according to the contractual terms of
the loan agreement.
Impairment is measured based upon the present value of future cash flows discounted at the
loans effective rate, the loans observable market price, or the fair value of collateral
if the loan is collateral dependent. Interest on impaired loans is recognized on a cash
basis, and only when the principal is not considered impaired.
The Companys practice is to place an asset on nonaccrual status when one of the following
events occurs: (i) Any installment of principal or interest is 90 days or more past due
(unless in managements opinion the loan is well-secured and in the process of collection),
(ii) management determines the ultimate collection of principal or interest to be unlikely
or (iii) the terms of the loan have been renegotiated due to a serious weakening of the
borrowers financial condition. Nonperforming loans may be on nonaccrual, are 90 days past
due and still accruing, or have been restructured. Accruals are resumed on loans only when
they are brought fully current with respect to interest and principal and when the loan is
estimated to be fully collectible. Restructured loans are those loans on which concessions
in terms have been granted because of the borrowers financial or legal difficulties.
Interest is generally accrued on such loans in accordance with the new terms, after a period
of sustained performance by the borrower.
Allowance for Loan and Lease Losses The allowance for loan and lease losses are
established through a provision charged to expense. Loans are charged off against the
allowance for loan losses when management believes that the collectability of the principal
is unlikely. The allowance is an amount that management believes will be adequate to absorb
losses inherent in existing loans and overdrafts based on evaluations of collectability and
prior loss experience. The evaluations take into consideration such factors as changes in
the nature and volume of the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, and current economic conditions that may affect the borrowers
ability to pay. Material estimates relating to the determination of the allowance for loan
losses are particularly susceptible to significant change in the near term. While management
uses available information to recognize losses on loans, future additions to the allowance
may be necessary based on changes in economic conditions. In addition, the Federal Deposit
Insurance Corporation (FDIC) and California Department of Financial Institutions (DFI),
as an integral part of their examination process, periodically review the Banks allowance
for loan losses. The FDIC or DFI may require the Bank to recognize additions to the
allowance based on their judgment about information available to them at the time of their
examination.
70
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bank Premises and Equipment Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the related assets. Expenditures for major renewals and
improvements are capitalized and those for maintenance and repairs are charged to expense as
incurred.
Securities Sold under Agreements to Repurchase At December 31, 2009 and 2008, securities
sold under agreements to repurchase consist of commercial repurchase agreements, where the
Company has an agreement with the depositor to sell and repurchase, on a daily basis, a
proportionate interest in municipal securities. These securities are held as collateral for
non-FDIC insured deposits.
Federal Home Loan Bank Borrowings As part of its asset/liability management strategy the
Company has obtained advances from the Federal Home Loan Bank. The Company has pledged
collateral of commercial real estate loans and specific securities to support the
borrowings.
Goodwill and Other Intangibles Goodwill is recorded in business combinations under the
acquisition method of accounting when the purchase prices are higher than the fair value of
net assets acquired, including identifiable intangible assets. The Company will access
goodwill for impairment annually, and more frequently in certain circumstances. Impairment
exists when the carrying amount of the goodwill exceeds its fair value. The Company will
recognize impairment losses as a charge to noninterest expense and an adjustment to the
carrying value of the goodwill assets. Goodwill will be tested for impairment annually in
June.
Earnings Per Share The table below illustrates basic earnings per share
excluding dilution and is computed by dividing net income available to common shareholders
by the weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that subsequently shared in the earnings of the entity. The
following table reconciles the numerator and denominator used in computing both basic
earnings per share and diluted earnings per share for the years ended December 31.
71
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Earnings Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS Calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income attributable to Bank of Commerce Holdings |
|
$ |
6,005,300 |
|
|
$ |
2,194,386 |
|
|
$ |
6,106,898 |
|
Less: preferred dividend |
|
|
942,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: Earnings available to common shareholders |
|
$ |
5,063,191 |
|
|
$ |
2,194,386 |
|
|
$ |
6,106,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator (average common shares outstanding) |
|
|
8,711,495 |
|
|
|
8,712,873 |
|
|
|
8,857,627 |
|
Basic earnings per Share |
|
$ |
0.58 |
|
|
$ |
0.25 |
|
|
$ |
0.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS Calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
6,005,300 |
|
|
$ |
2,194,386 |
|
|
$ |
6,106,898 |
|
Less: preferred dividend |
|
|
942,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: Earnings available to common shareholders |
|
$ |
5,063,191 |
|
|
$ |
2,194,386 |
|
|
$ |
6,106,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
|
|
8,711,495 |
|
|
|
8,712,873 |
|
|
|
8,857,627 |
|
Plus incremental shares from assumed conversions |
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
11,677 |
|
|
|
80,109 |
|
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,711,495 |
|
|
|
8,724,550 |
|
|
|
8,937,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per Share |
|
$ |
0.58 |
|
|
$ |
0.25 |
|
|
$ |
0.68 |
|
Anti-dilutive options not included in EPS Calculation |
|
|
282,080 |
|
|
|
185,666 |
|
|
|
120,884 |
|
Anti-dilutive warrants not included in EPS Calculation |
|
|
405,405 |
|
|
|
405,405 |
|
|
|
|
|
Other Real Estate Owned Real estate acquired by foreclosure, is carried at the lower
of the recorded investment in the property or its fair value less estimated selling costs.
Prior to foreclosure, the value of the underlying loan is written down to the fair value of
the real estate to be acquired, less costs to sell, by a charge to the allowance for loan
losses, if necessary. Fair value of other real estate is generally determined based on an
appraisal of the property. Any subsequent write-downs are charged against noninterest
expenses. Operating expenses of such properties, net of related income, and gains and
losses on their disposition are included in other expenses.
Gain recognition on the disposition of real estate is dependent upon the transaction meeting
certain criteria relating to the nature of the property sold and the terms of the sale. This
includes the buyers initial and continuing investment, the degree of continuing involvement
by the Company with the property after the sale, and other matters. Under certain
circumstances, revenue recognition may be deferred until these criteria are met.
Segment Reporting Reportable operating segments are generally defined as components of an
enterprise for which discrete financial information is available, whose operating results
are regularly reviewed by the organizations management and whose revenue is 10 percent or
more of total revenue. Under this definition the Company reports on two operating segments,
commercial banking and mortgage banking. In the years 2008 and 2007, the Company accounted
for its operations as one operating segment.
Income Taxes The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
72
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities are measured using currently enacted tax rates
applied to such taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date.
Stock Option Plan In accordance with FASB ASC 718, Stock Compensation, the Company
recognizes in the income statement the grant-date fair value of stock options and other
equity-based forms of compensation issued to employees over the employees requisite service
period (generally the vesting period.) The fair value of options granted was determined on
the date of the grant using a Black Scholes option-pricing model.
Description of stock-based compensation plan
The 2008 Stock Option Plan (the Plan) which was approved by the Companys shareholders on
May 15, 2007. A total of 620,000 shares of the Companys common stock are reserved for grant
under the plan. At December 31, 2009, 572,500 shares were available for future grants under
the plan.
The Plan provides for awards in the form of options, which may constitute incentive stock
options (Incentive Options) under Section 422(a) of the Internal Revenue Code of 1986, as
amended (the Code), or non-statutory stock options (NSOs) to key personnel of the
Company, including directors. The Plan provides that Incentive Options under the Plan may
not be granted at less than 100% of fair market value of the Companys common stock on the
date of the grant. The strike price of NSOs may not be granted at less than 85% of the fair
market value of the common stock on the date of the grant.
The Companys stock option plans provide for awards of incentive and nonqualified stock
options. Incentive options must have an exercise price at or above fair market value of the
stock at the date of the grant and a term of no more than 10 years. Options generally become
exercisable over five years from the date of the grant. Nonqualified stock options must have
an exercise price of no less than 85% of the fair market value of the stock at the date of
the grant and for a term of no more than 10 years. Nonqualified stock options generally
become exercisable over five years from the date of the grant.
The total intrinsic value, which is the amount by which the stock price exceeded the
exercise price, of options exercised during the year ended December 31, 2009, 2008 and 2007
was $0, $40,863, and $27,913, respectively.
Comprehensive Income (Loss) Comprehensive income (loss) represents net earnings and any
revenues, expenses, gains and losses that, under accounting principles generally accepted in
the United States of America, are excluded from net earnings and recognized directly as a
component of shareholders equity. The Companys sources of other comprehensive income
(loss) include unrealized gains and losses on securities available-for-sale and unrealized
gains and losses on derivative activities. Reclassification adjustments result from gains
or losses on securities that were realized and included in net income of the current period
that also had been included in other comprehensive income (loss) as unrealized holding gains
or losses in the period in which they arose.
73
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transfer of Financial Assets Transfers of financial assets are accounted for as
sales, when control over the assets has been surrendered. Control over transferred assets is
deemed surrendered when (1) the assets have been isolated from the Corporation, (2) the
transferee obtains the right (free of conditions that constrain it from taking advantage of
that right) to pledge or exchange the transferred assets, and (3) the Corporation does not
maintain effective control over the transferred assets through an agreement to repurchase
them before their maturity.
The Company services, for others, SBA loans that are sold with a principal balance of
$622,077 and $4,635,027 as of December 31, 2009 and 2008 respectively.
On April 17, 2009, the Company completed a loan swap transaction accounted for as a
transfer of financial assets, which included the purchase of a pool of Individual Tax
Identification Number (ITIN) residential mortgage loans with an estimated fair value of
$80,671,104. The ITIN portfolio (portfolio) was purchased from a private equity firm in
exchange for a combination of approximately $14.0 million in carry value of certain
non-performing loans and cash of approximately $67.0 million. The non-performing loans were
transferred without recourse and were carried at fair value prior to the exchange, in
accordance with accounting standards.
The Company has recognized the financial and servicing assets it controls and the
liabilities it has incurred as proceeds of the transfer, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished. The Company
has initially recognized all assets obtained at fair value. The difference between the fair
value and the outstanding balance of the assets received is amortized or accreted over the
life of the asset as an adjustment to the yield. Additionally, the transferee is to
recognize a gain or loss from the transfer in the statement of income as a result of this
transfer of financial assets. The Company recorded a gain of $340,000 for the year ended
December 31, 2009 as a result of the transfer of financial assets, which is included as a
component of non-interest income.
The current market for ITIN loans is illiquid. Given the lack of level 1 and 2 fair value
indications, a level 3 valuation approach was adopted. The Company engaged an independent
third party to assist management of the Company in estimating the value of the portfolio
utilizing observable market rates and credit characteristics for similar instruments. In its
analysis, the Company used characteristics market participants considered factors specific
to (a) the asset, (b) the principal (or most advantageous) market for the asset, and (c)
market participants with whom the Company would transact in the market. The net estimated
discount rate utilized in the discounted cash flow was 7.39% in conjunction with a constant
prepayment rate (CPR) of 6.0%. The non-recurring fair value of the portfolio was determined
to be 100.37% of par or $80.7 million as of April 17, 2009.
Preferred Stock The Company is authorized to issue up to 2,000,000 shares of preferred
stock no par value. Preferred shares outstanding rank senior to common shares both as to
dividends and liquidation preference, but have no voting rights. The Emergency Economic
Stabilization Act (EESA) authorizes the United States Department of the Treasury to use
appropriated funds to restore liquidity and stability to the U.S. financial system. As part
of this authority, and pursuant to a Letter Agreement dated November 14, 2008, and the
Securities Purchase Agreement Standard Terms, the Company issued to the United States
Department of the Treasury (Treasury) 17,000 shares of Bank of Commerce Holdings Series A
Fixed Rate Perpetual Preferred Stock, no par value (Series A Preferred Stock), having a
liquidation amount per share equal to $1,000 for a total price of $17 million.
74
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warrants As part of its purchase of the Series A Preferred Stock, the Treasury
received a warrant (Warrant) to purchase 405,405 shares of the Companys common stock at
an initial per share exercise price of $6.29. The Warrant provides for the adjustment of the
exercise price and the number of shares of our common stock issuable upon exercise pursuant
to customary anti-dilution provisions, such as upon stock splits or distributions of
securities or other assets to holders of our common stock, and upon certain issuances of our
common stock at or below a specified price relative to the initial exercise price. The
Warrant expires ten years from the issuance date.
Mortgages Loans Held for Sale The Company, through its majority owned subsidiary, Bank of
Commerce Mortgage, originates residential mortgage loans within Bank of Commerces footprint
and on a nationwide basis. Mortgage loans represent loans collateralized by one-to four
family residential real estate and are made to borrowers in good credit standing. These
loans are typically sold to primary mortgage market aggregators (Fannie Mae, Freddie
Mac, and Ginnie Mae) and to third party investors including the servicing rights.
Mortgages held for sale are carried at the lower of cost of fair value. Cost generally
approximates market value, given the short duration of these assets. Gains and losses on
loan sales are recorded in noninterest income, and direct loan origination costs and fees
are deferred at origination of the loan and are recognized in noninterest income upon sale
of a loan. The Company generally sells all servicing rights associated with the mortgage
loans. Accordingly, there are no separately recognized servicing assets or liabilities
resulting from the sale of mortgage loans.
Derivative Loan Commitments The Company, through its majority owned subsidiary, Bank of
Commerce Mortgage, enters into forward delivery contracts to sell residential mortgage loans
at specific prices and dates in order to hedge the interest rate risk in its portfolio of
mortgage loans held for sale and its residential mortgage loan commitments. Generally, the
Company enters into a best efforts interest rate lock commitment (IRLC) with borrowers and
forward delivery contracts with investors associated with mortgage loans receivable held for
sale. The Companys derivative instruments consist primarily of IRLCs executed with
borrowers and mandatory forward purchase commitments with investor lenders. These derivative
instruments are accounted for as fair value hedges, with the changes in fair value
reflected in earnings as a component of mortgage brokerage fee income. At December 31, 2009,
the Company did not maintain any open positions or any other outstanding derivative loan
commitments.
Advertising Costs Advertising costs are expensed as incurred.
Recent Accounting Pronouncements
On February 24, 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain
Recognition and Disclosure Requirements. The amendments in the ASU remove the requirement
for a Securities and Exchange Commission (SEC) filer to disclose a date through which
subsequent events have been evaluated in both issued and revised financial statements.
Revised financial statements include financial statements revised as a result of either
correction of an error or retrospective application of U.S. generally accepted accounting
principals (U.S. GAAP). The FASB also clarified that if the financial statements have been
revised, then an entity that is not an SEC filer should disclose both the date that the
financial statements were issued or available to be issued and the date the revised
financial statements were issued or available to be issued. The FASB believes these
amendments remove potential conflicts with the SECs literature. All of the amendments in
the ASU were effective upon issuance, except for the use of the issued date for conduit debt
obligors, which will be effective for interim or annual periods ending after June 15, 2010.
75
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2010-06 Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements. This ASU requires: (1) disclosure of
the significant amount transferred in and out of Level 1 and Level 2 fair value measurements
and the reasons for the transfers; and (2) separate presentation of purchases, sales,
issuances and settlements in the reconciliation for fair value measurements using
significant unobservable inputs (Level 3). In addition, ASU 2010-06 clarifies the
requirements of the following existing disclosures set forth in FASB Accounting Standards
Codification (The Codification or ASC) Subtopic 820-10: (1) For purposes of reporting
fair value measurement for each class of assets and liabilities, a reporting entity needs to
use judgment in determining the appropriate classes of assets and liabilities; and (2) A
reporting entity should provide disclosures about the valuation techniques and inputs used
to measure fair value for both recurring and nonrecurring fair value measurements.
ASU 2010-06 is effective for interim and annual reporting periods beginning January 1, 2010,
except for the disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements, which are effective for fiscal years
beginning January 1, 2011, and for interim periods within those fiscal years. As A
SU 2010-06 is disclosure related only, we expect its adoption in the first quarter of
2010 to have no impact on our financial condition or results of operations.
In January 2010, ASU No. 2010-01, Equity (Topic 505): Accounting for Distributions to
Shareholders with Components of Stock and Cash was issued to clarify the stock portion of a
distribution to shareholders that allows them to elect to receive cash or stock with a
potential limitation on the total amount of cash that all shareholders can elect to receive
in the aggregate is considered a share issuance that is reflected in earnings per share
prospectively and is not a stock dividend. ASU 2010-01 is effective for interim and annual
periods beginning January 1, 2010. We currently do not make distributions to shareholders
with a stock component.
In August 2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update 2009-05, Fair Value Measurements and Disclosures (Topic 820) Measuring
Liabilities at Fair Value. This update provides clarification for circumstances in which a
quoted price in an active market for the identical liability is not available. In such
circumstances a reporting entity is required to measure fair value using one or more of the
following techniques: (1) A valuation technique that uses: (a) the quoted price of the
identical liability when traded as an asset; or (b) quoted prices for similar liabilities or
similar liabilities when traded as assets; or (2) another valuation technique that is
consistent with the principles of Topic 820 such as an income approach or a market approach.
The guidance in this update was effective for the quarter beginning October 1, 2009 and did
not have a significant impact on our financial condition or results of operations.
In June 2009, the FASB issued guidance that establishes the FASB Accounting Standards
Codification (the Codification or ASC) as the source of authoritative U.S. generally
accepted accounting principles (U.S. GAAP) recognized by the FASB for nongovernmental
entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC)
under authority of federal securities laws are also included in the Codification as sources
of authoritative U.S. GAAP for SEC registrants. SFAS No. 168 and the Codification are
effective for financial statements issued for interim and annual periods ending after
September 15, 2009. The Codification supersedes all existing non-SEC accounting and
reporting standards.
76
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following Statement 168, instead of issuing new standards in the form of Statements,
FASB Staff Positions, or Emerging Issues Task Force Abstracts, the FASB issues Accounting
Standards Updates, which serves only to: (a) update the Codification; (b) provide background
information about the guidance; and (c) provide the bases for conclusions on the change(s)
in the Codification. We started following the guidelines in the Codification on July 1,
2009.
In June 2009, the FASB issued amendments to ASC Topic 860, Transfers and Servicing. It
contains revisions to accounting for transfers of loans, participating interests in loans
and other financial assets. It reinforced the determination whether a transferor have
surrendered control over transferred financial assets. That determination must consider the
transferors continuing involvements in the transferred financial asset, including all
arrangements or agreements made contemporaneously with, or in contemplation of, the
transfer, even if they were not entered into at the time of the transfer. It added the term
participating interest to establish specific conditions for reporting a transfer of a
portion of a financial asset as a sale. A qualifying participating interest requires each
of the following: (1) Conveys proportionate ownership rights with equal priority to each
participating interest holder; (2) Involves no recourse (other than standard representations
and warranties) to, or subordination by, any participating interest holder; and (3) does not
entitle any participating interest holder to receive cash before any other participating
interest holder.
If the transfer does not meet those conditions, a transferor should account for the transfer
as a sale only if it transfers and entire financial asset or a group of entire financial
assets and surrenders control over the entire transferred assets in accordance with the
conditions in ASC 860-10-40, as amended. Given our current practice related to loan
participations, the new accounting treatment for transfers of financial assets is not
expected to have a significant impact on our financial condition or results of operations
upon adoption on January 1, 2010.
In May 2009, the FASB issued guidance (ASC 855) that establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. In particular, it sets forth:
a) the period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements; b) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its financial
statements; and c) the disclosures that an entity should make about events or transactions
that occurred after the balance sheet date. We adopted the subsequent event guidance in the
quarter ended June 30, 2009, which did not have a significant impact on our financial
condition or results of operations.
On April 9, 2009, FASB issued the following application guidance to enhance disclosures
regarding fair value measurements and impairments of securities:
1. The first guidance relates to interim disclosures about fair value of financial
instruments (ASC 825-10-50), which requires an entity to provide quantitative and
qualitative disclosures about fair value of any financial instruments for interim reporting
periods as well as in annual financial statements. Prior to issuing this guidance, fair
values for these assets and liabilities were only disclosed annually. We adopted the interim
fair value disclosure guidance in the quarter ended June 30, 2009 and the adoption did not
have a significant impact on our financial condition or results of operations.
77
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. The second guidance relates to recognition and presentation of other-than-temporary
impairments (ASC 320-10-35), which is intended to bring greater consistency to the timing of
impairment recognition, and provide greater clarity to investors about the credit and
non-credit components of impaired debt securities that are not expected to be sold. Further,
it replaces the existing requirement that the entitys management assert it has both the
intent and ability to hold an impaired security until recovery with a requirement that
management assert: (a) it does not have the intent to sell the security; and (b) it is more
likely than not it will not have to sell the security before recovery of its cost basis. It
also requires increased and timelier disclosures sought by investors regarding expected cash
flows, credit losses, and an aging of securities with unrealized losses. We adopted ASC
320-10-35 for the quarter ended June 30, 2009 and the adoption did not have a significant
impact on our financial condition or results of operations. See Note 4 for further
information.
3. The third guidance relates to determining fair value when the volume and level of
activity for the asset or liability have significantly decreased and identifying
transactions that are not orderly (ASC 820-10-35-15A). It reaffirms the objective of fair
value measurement to reflect how much an asset would be sold for in an orderly transaction
(as opposed to a distressed or forced transaction) at the date of the financial statements
under current market conditions. Specifically, it reaffirms the need to use judgment to
ascertain if a formerly active market has become inactive and in determining fair values
when markets have become inactive. It also requires an entity to base its conclusion about
whether a transaction was not orderly on the weight of the evidence. Adoption of this
guidance did not have a significant impact on our financial condition or results of
operations.
78
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. |
|
BUSINESS COMBINATIONS |
|
|
|
A business combination occurs when an entity acquires net assets that constitute a business,
or acquires equity interests in one or more other entities that are businesses and obtains
control over those entities. Business combinations may be effected through the transfer of
consideration such as cash, other financial or non-financial assets, debt, or common or
preferred shares. The assets
and liabilities of an acquired entity or business are recorded at their respective fair values as
of the closing date of the transaction. |
|
|
|
The results of operations of an acquired entity are included in our consolidated results
from the closing date of the transaction, and prior periods are not restated. All business
combinations are accounted for using the acquisition method. |
|
|
|
The Company will regularly explore opportunities to acquire financial services companies and
businesses. Public announcements about an acquisition opportunity are not made until a
definitive agreement has been signed. In the second quarter 2009, the Company entered into a
stock purchase agreement with Simonich Corporation d.b.a. BWC Mortgage Services to acquire
51% of the capital stock of Simonich Corporation. Simonich Corporation d.b.a. BWC Mortgage
Services is a successful state of the art mortgage broker of residential real estate loans
with ten offices in three different states and licenses in California, Oregon, Idaho and
Nevada. The business was formed in 1993 and the corporate offices are located in San Ramon,
California. The Corporate offices are located in San Ramon, California. |
|
|
|
The agreement was dated May 15, 2009. The total consideration paid by the Company was
$2.5 million, with $1.5 million paid at closing and the additional $1.0 million to be
earned-out over a period of three years. The earn-out is based upon the mortgage companys
profits and will be paid in annual installments over the three year period. The measurement
date for the earn out payments is December 31. The Company has accounted for the business
combination using the acquisition method. The Companys acquisition of 51% majority
ownership interest was measured at fair value based on the total consideration transferred. |
|
|
|
The market and income approaches were used to value the business. The total estimated fair
value of the non controlling interest was estimated to be $2.06 million and was based on the
following multiples: 13.27 times trailing twelve months earnings, 29.21% price to trailing
twelve months gross revenues and 436.70% of total shareholders equity. |
|
|
|
The agreement allows the Company to penetrate into the Mortgage Brokerage Services market
through our retail outlets and to share in the income on transactions produced from other
locations. Effective July 1, 2009 the Company changed its name to Bank of Commerce
Mortgage. |
79
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Purchase Price and Goodwill
The following table summarizes the purchase and resulting goodwill:
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
Cash paid at fair value |
|
$ |
1,500 |
|
Earn out payable at fair value |
|
|
965 |
|
|
|
|
|
Total consideration at fair value |
|
|
2,465 |
|
Fair value of non-controlling interest |
|
|
2,062 |
|
|
|
|
|
|
|
$ |
4,527 |
|
|
|
|
|
|
Net acquisition date fair value of assets acquired |
|
$ |
(800 |
) |
|
|
|
|
|
|
Goodwill |
|
$ |
3,727 |
|
|
No assets or liabilities arose out of contingencies. Goodwill totaling $3.7 million is not being
amortized for book purposes under current accounting guidelines. Goodwill is not deductible for tax
purposes. Goodwill will be reviewed for impairment on an annual basis. No intangible assets, other
than goodwill were identified or recorded as a result of the business combination.
The following balance sheet summarizes the amount assigned for each major asset category of
Simonich Corporation d.b.a. BWC Mortgage Services at the date of acquisition, May 15, 2009. The
carrying amount of the acquired assets and liabilities approximated fair value. Accordingly, no
fair value adjustments to the acquired assets and liabilities were recorded.
|
|
|
|
|
(In Thousands) |
|
|
|
|
Cash and Cash Equivalents |
|
$ |
1,765 |
|
Accounts Receivable |
|
|
10 |
|
Other Receivables |
|
|
437 |
|
Loans held for sale |
|
|
12,006 |
|
Prepaid Expenses |
|
|
57 |
|
Notes Receivable |
|
|
414 |
|
|
|
|
|
Total Current Assets: |
|
|
14,689 |
|
Fixed Assets |
|
|
155 |
|
Other Assets |
|
|
13 |
|
|
|
|
|
TOTAL ASSETS |
|
$ |
14,857 |
|
|
|
|
|
Accounts Payable |
|
|
99 |
|
Accrued Expenses |
|
|
232 |
|
Branch Payables |
|
|
191 |
|
|
|
|
|
Total Payables: |
|
|
522 |
|
Current portion Capital Lease |
|
|
39 |
|
Impounds payable |
|
|
67 |
|
Mortgage warehouse lines of credit |
|
|
11,810 |
|
|
|
|
|
Total Other Current Liabilities: |
|
|
11,916 |
|
Total Current Liabilities: |
|
$ |
12,438 |
|
Long Term Capital Lease Payable |
|
|
15 |
|
Due to shareholder |
|
|
224 |
|
Notes Payable |
|
|
1,380 |
|
|
|
|
|
Total Long Term Liabilities: |
|
|
1,619 |
|
TOTAL LIABILITIES |
|
|
14,057 |
|
Net Assets |
|
$ |
800 |
|
|
|
|
|
80
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amount of revenue and net earnings of Bank of Commerce Mortgage since the acquisition date
through December 31, 2009, included in the consolidated statements of income, totaled $5.3 million
and $538 thousand, respectively.
The following unaudited pro forma consolidated results of operations for the years ended December
31, 2009 and 2008 have been prepared as if the acquisition had occurred at January 1, 2009 and
2008, respectively, for each year (unaudited):
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Net interest income |
|
$ |
28,965 |
|
|
$ |
21,283 |
|
Provision for loan and lease losses |
|
|
9,475 |
|
|
|
6,520 |
|
Noninterest income |
|
|
12,776 |
|
|
|
7,523 |
|
Noninterest expense |
|
|
22,863 |
|
|
|
20,030 |
|
|
|
|
|
|
|
|
Income before income tax |
|
|
9,403 |
|
|
|
2,256 |
|
Provision (benefit) for income tax |
|
|
2,691 |
|
|
|
(60 |
) |
|
|
|
|
|
|
|
Net Income |
|
|
6,712 |
|
|
|
2,196 |
|
Less: income attributable to non-controlling interest |
|
|
(481 |
) |
|
|
(58 |
) |
|
|
|
|
|
|
|
Net Income attributable to Bank of Commerce Holdings |
|
$ |
6,231 |
|
|
$ |
2,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share Basic |
|
$ |
0.60 |
|
|
$ |
0.26 |
|
Net income per common share Diluted |
|
$ |
0.60 |
|
|
$ |
0.25 |
|
4. |
|
RESTRICTIONS ON CASH AND DUE FROM BANKS
|
|
|
|
The Bank maintains compensating balances with its primary correspondent, which totaled $0 at
December 31, 2009 and $2,000,000 at December 31, 2008 respectively. |
5. |
|
SECURITIES
|
|
|
|
The amortized cost and estimated fair value of securities available-for-sale are
summarized as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
U.S. Treasury securities
and obligations of U.S.
agencies |
|
$ |
18,499,710 |
|
|
$ |
101,015 |
|
|
|
($102 |
) |
|
$ |
18,600,623 |
|
Obligations of state and
political subdivisions |
|
|
32,184,322 |
|
|
|
547,480 |
|
|
|
(85,544 |
) |
|
|
32,646,258 |
|
Mortgage-backed securities |
|
|
28,277,791 |
|
|
|
868,744 |
|
|
|
(331,280 |
) |
|
|
28,815,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
78,961,823 |
|
|
$ |
1,517,239 |
|
|
|
($416,926 |
) |
|
$ |
80,062,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
U.S. Treasury securities
and obligations of U.S.
agencies |
|
$ |
16,006,571 |
|
|
$ |
69,080 |
|
|
$ |
0 |
|
|
$ |
16,075,651 |
|
Obligations of state and
political subdivisions |
|
|
32,177,891 |
|
|
|
145,647 |
|
|
|
(1,302,628 |
) |
|
|
31,020,910 |
|
Mortgage-backed securities |
|
|
83,657,023 |
|
|
|
1,278,263 |
|
|
|
(345,247 |
) |
|
|
84,590,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
131,841,485 |
|
|
$ |
1,492,990 |
|
|
$ |
(1,647,875 |
) |
|
$ |
131,686,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of securities at December 31, 2009 by
contractual maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or repay obligations with or without
call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
|
|
Amortized |
|
|
Estimated |
|
|
|
Cost |
|
|
Fair Value |
|
Due in one year or less |
|
$ |
0 |
|
|
$ |
0 |
|
Due after one year through five years |
|
|
3,221,435 |
|
|
|
3,304,584 |
|
Due after five years through ten years |
|
|
19,310,157 |
|
|
|
19,450,372 |
|
Due after ten years |
|
|
56,430,231 |
|
|
|
57,307,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
78,961,823 |
|
|
$ |
80,062,136 |
|
|
|
|
|
|
|
|
|
|
The following tables present the current fair value and associated unrealized losses on
investments with unrealized losses at December 31, 2009 and December 31, 2008. The tables
also illustrate whether these securities have had unrealized losses for less than 12 months
or for 12 months or longer. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
U.S. Treasury
securities and
Obligations of U.
S. Agencies |
|
$ |
3,993,500 |
|
|
$ |
(102 |
) |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
3,993,500 |
|
|
$ |
(102 |
) |
Obligations of
state and political
subdivisions |
|
|
8,516,376 |
|
|
|
(84,460 |
) |
|
|
500,255 |
|
|
|
(1,084 |
) |
|
|
9,016,631 |
|
|
|
(85,544 |
) |
Mortgage-backed
securities |
|
|
7,516,495 |
|
|
|
(331,280 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
7,516,495 |
|
|
|
(331,280 |
) |
Total temporarily
impaired securities |
|
$ |
20,026,371 |
|
|
$ |
(415,842 |
) |
|
$ |
500,255 |
|
|
$ |
(1,084 |
) |
|
$ |
20,526,626 |
|
|
$ |
(416,926 |
) |
82
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
U.S. Treasury
securities and
Obligations of U.
S. Agencies |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Obligations of
state and political
subdivisions |
|
|
21,125,047 |
|
|
|
(1,140,217 |
) |
|
|
843,658 |
|
|
|
(162,412 |
) |
|
|
21,968,705 |
|
|
|
(1,302,628 |
) |
Mortgage-backed
securities |
|
|
16,666,493 |
|
|
|
(105,783 |
) |
|
|
5,375,203 |
|
|
|
(239,463 |
) |
|
|
22,041,696 |
|
|
|
(345,247 |
) |
Total temporarily
impaired securities |
|
$ |
37,791,540 |
|
|
$ |
(1,246,000 |
) |
|
$ |
6,218,861 |
|
|
$ |
(401,875 |
) |
|
$ |
44,010,401 |
|
|
$ |
(1,647,875 |
) |
Invested assets are exposed to various risks, such as interest rate, market and credit
risks. Due to the level of risk associated with certain invested assets and the level of
uncertainty related to changes in the fair value of these assets, it is possible that
changes in risks in the near term could have an adverse material impact on our results of
operations or equity. Our investment portfolio is subject to market declines below amortized
cost that may be other-than-temporary. A significant judgment in the valuation of
investments is the determination of when an other-than-temporary impairment (OTTI) has
occurred.
When an investment is impaired, we assess whether to sell the security, or it is more likely
than not that we will be required to sell the security before recovery of its amortized cost
basis less any current-period credit losses. For debt securities, that are considered other
than temporarily impaired and that we do not intend to sell and will not be required to sell
prior to recovery of our amortized cost basis, we separate the amount of the impairment into
the amount that is credit related (credit loss component) and the amount due to all other
factors. The credit loss component is recognized in earnings and is calculated as the
difference between the investments amortized cost basis and the present value of its
expected future cash flows. The remaining differences between the investments fair value
and the present value of future expected cash flows is deemed to be due to factors that are
not credit related and is recognized in other comprehensive income. Significant judgment is
required in the determination of whether an OTTI has occurred for an investment. The Company
follows a consistent and systematic process for determining and recording an OTTI loss. The
Company has designated the ALCO Committee responsible for the OTTI process. The ALCO
Committees assessment of whether an OTTI loss should be recognized incorporates both
quantitative and qualitative information.
The ALCO committee considers a number of factors including, but not limited to: (a) the
length of time and the extent of which the fair value has been less than amortized cost, (b)
the financial condition and near term prospects of the issuer, (c) the intent and ability of
the Company to retain its investment for a period of time sufficient to allow for an
anticipated recovery in value, (d) whether the debtor is current on interest and principal
payments and (e) general market conditions and industry or sector specific outlook.
83
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
At December 31, 2009 nineteen securities were in a loss position. Management has
evaluated each security in an unrealized loss position to determine if the impairment is
other-than-temporary. We do not have the intent to sell the investments that are temporarily
impaired, and it is more likely than not that we will not have to sell those investments
before recovery of the amortized cost basis. Additionally, we have evaluated the credit
ratings of our investment securities and their issuers and or insurers, if applicable. Based
upon our evaluation, management has determined that no investment security in our portfolio
is other than temporarily impaired. |
|
|
|
At December 31, 2009, the Company has pledged book values of $1,003,057 in securities for
treasury, tax and loan accounts, $18,029,596 for deposits of public funds, $9,620,867 for
collateralized repurchase agreements, and $27,018,747 for Federal Home Loan borrowings. |
|
|
|
At December 31, 2008, the Company has pledged book values of $1,000,000 in securities for
treasury, tax and loan accounts, $17,218,434 for deposits of public funds, $12,453,000 for
collateralized repurchase agreements, and $38,063,566 for Federal Home Loan borrowings. |
|
|
|
Gross realized gains and gross realized losses, respectively, on available-for-sale
securities were $2,697,177 and $259,602 in 2009, $632,639 and $4,760 in 2008, and $268,078
and $222,408 in 2007. |
6. |
|
LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES
|
|
|
|
Outstanding loan balances consist of the following at: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Commercial and industrial loans |
|
$ |
133,078,497 |
|
|
$ |
164,082,996 |
|
Real estate construction loans |
|
|
59,524,479 |
|
|
|
84,217,532 |
|
Real estate commercial (investor) |
|
|
197,023,000 |
|
|
|
147,068,475 |
|
Real estate commercial (owner occupied) |
|
|
63,001,474 |
|
|
|
70,046,475 |
|
Real estate ITIN loans |
|
|
78,250,000 |
|
|
|
|
|
Real estate mortgage |
|
|
20,525,647 |
|
|
|
20,285,225 |
|
Real estate equity lines |
|
|
45,601,366 |
|
|
|
39,915,224 |
|
Installment loans |
|
|
2,222,766 |
|
|
|
144,634 |
|
Other |
|
|
2,211,688 |
|
|
|
902,584 |
|
|
|
|
|
|
|
|
|
|
|
601,438,917 |
|
|
|
527,462,670 |
|
Less: |
|
|
|
|
|
|
|
|
Deferred loan fees, net |
|
|
208,994 |
|
|
|
86,826 |
|
Allowance for loan and lease losses |
|
|
11,207,213 |
|
|
|
8,429,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
590,022,710 |
|
|
$ |
518,946,461 |
|
|
|
|
|
|
|
|
|
|
Included in total loans are nonaccrual loans of $7,666,909 and $20,153,737 at December 31,
2009 and 2008, respectively. A loan is impaired when, based on current information and
events, management believes it is probable that the Bank will not be able to collect all
amounts due according to the contractual terms of the loan agreement. If interest on
nonaccrual loans at December 31, 2009 and 2008 had been accrued, such interest income would
have approximated $319,485 and $147,100, respectively. At December 31, 2009 and 2008 there
were $5,052,164 and $0 in loans ninety days past due and still accruing respectively. |
84
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
The average outstanding balances of impaired loans were $10,948,485, $23,078,874 and
$13,001,847, for the years ended December 31, 2009, 2008 and 2007 respectively. There was
interest of $162,510, $627,000, and $0 recognized on impaired loans during the year ended
December 31, 2009, 2008 and 2007, respectively. The recorded investment in impaired loans at December 31, 2009, and 2008 was $12,546,628
and, $12,192,187 respectively. The recorded investment in impaired loans for which there is
a specific reserve at December 31, 2009 and 2008 was $3,162,275 and $7,459,295 respectively.
Impairment allowances held against impaired loans at December 31, 2009 and 2008 were
$245,000 and $1,522,829 respectively. The recorded investment in impaired loans for which
there is no specific reserve was $9,384,353 and $4,732,892 at December 2009, and 2008
respectively. |
|
|
|
The Company concentrates its lending activities primarily within Shasta, El Dorado, Placer,
Sacramento and Tehama counties, in California, and the location of the four full service
offices of the Bank. Although the Company has a diversified loan portfolio, a significant
portion of its customers ability to repay the loans is dependent upon the professional
services and investor commercial real estate sectors. Generally, the loans are secured by
real estate or other assets and are expected to be repaid from cash flows of the borrowers
business or cash flows from real estate investments. In the event the borrowers cash flows
are insufficient to repay the loans and the loans are considered collateral dependent,
repayment is expected to come from the liquidation of collateral. |
|
|
|
The Companys exposure to credit loss, if any, is the difference between the fair value of
the collateral, and the outstanding balance of the loan. |
|
|
|
At December 31, 2009 and 2008, the Company had pledged $101,271,858 and $96,721,113,
respectively, in loans as available collateral for Federal Home Loan Bank borrowings. |
|
|
|
In the ordinary course of business, the Company enters various types of transactions,
which involve financial instruments with off-balance sheet risk. These instruments include
commitments to extend credit and stand-by letters of credit, which are not reflected in the
consolidated balance sheets. These transactions may involve, to varying degrees, credit and interest rate risk more than
the amount, if any recognized in the consolidated balance sheets. Commitments to extend
credit and standby letters of credit bear similar credit risk characteristics as outstanding
loans. An allowance for unfunded loan commitments and letters of credit is determined using
estimates of the probability of funding. This reserve is carried as a liability on the
consolidated balance sheet. |
|
|
|
Changes in the allowance for loan losses consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Balance at beginning of year |
|
$ |
8,429,383 |
|
|
$ |
8,232,970 |
|
|
$ |
4,904,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
9,475,000 |
|
|
|
6,520,000 |
|
|
|
3,291,250 |
|
Loans charged off |
|
|
(6,871,316 |
) |
|
|
(6,329,176 |
) |
|
|
0 |
|
Recoveries of loans
previously charged off |
|
|
174,146 |
|
|
|
5,589 |
|
|
|
37,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
11,207,213 |
|
|
$ |
8,429,383 |
|
|
$ |
8,232,970 |
|
|
|
|
|
|
|
|
|
|
|
85
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. |
|
OTHER REAL ESTATE OWNED
|
|
|
|
The following table presents the changes in other real estate owned (OREO), net of
valuation allowance, for the years ended December 31, 2009, 2008 and 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Balance at beginning of year |
|
$ |
2,934,151 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to OREO |
|
|
402,038 |
|
|
|
4,869,151 |
|
|
|
0 |
|
Dispositions of OREO |
|
|
(295,080 |
) |
|
|
(1,200,000 |
) |
|
|
0 |
|
Valuation adjustments in the period |
|
|
(161,153 |
) |
|
|
(735,000 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
2,879,956 |
|
|
$ |
2,934,151 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO properties are recorded at the lower of the recorded investment in the loan (prior to
foreclosure) or the fair value of the property less selling costs. The Company recognized
valuation allowances of $161,153 and $1,935,000 as of December 31, 2009 and 2008. No OREO
was outstanding at December 31, 2007. Valuation allowances on OREO balances are based on
updated appraisals of the underlying properties as received during a period or managements
authorization to reduce a selling price of a property during a period. |
8. |
|
BANK PREMISES AND EQUIPMENT
|
|
|
|
Bank premises and equipment consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
December 31, |
|
|
|
Lives |
|
|
2009 |
|
|
2008 |
|
Land |
|
|
|
|
|
$ |
1,507,628 |
|
|
$ |
1,507,628 |
|
Land Improvements |
|
|
|
|
|
|
188,845 |
|
|
|
188,845 |
|
Bank buildings |
|
39.0 years |
|
|
8,317,583 |
|
|
|
8,138,044 |
|
Furniture, fixtures and
equipment |
|
3 - 7 years |
|
|
6,767,540 |
|
|
|
6,703,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,781,596 |
|
|
|
16,538,382 |
|
Less accumulated depreciation |
|
|
|
|
|
|
(6,805,073 |
) |
|
|
(5,933,372 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,976,523 |
|
|
|
10,605,010 |
|
Construction in progress |
|
|
|
|
|
|
3,042 |
|
|
|
67,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,979,565 |
|
|
$ |
10,672,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense, included in net occupancy and equipment expense, is $1,221,545,
$1,145,000, and $1,035,660 for the years ended December 31, 2009, 2008 and 2007,
respectively. |
86
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. |
|
OTHER ASSETS
|
|
|
|
Other assets consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Cash surrender value of bank owned life insurance policies |
|
$ |
8,978,926 |
|
|
$ |
7,415,413 |
|
Deferred tax asset, net |
|
|
5,574,418 |
|
|
|
4,932,051 |
|
Accrued interest on loans |
|
|
2,428,172 |
|
|
|
2,051,386 |
|
Accrued interest on investment securities |
|
|
623,533 |
|
|
|
1,079,110 |
|
California Affordable Housing Credits |
|
|
2,288,828 |
|
|
|
2,414,517 |
|
Prepaid FDIC Deposit Insurance Assessments |
|
|
3,331,057 |
|
|
|
0 |
|
Taxes receivable |
|
|
489,746 |
|
|
|
447,865 |
|
Federal Home Loan Bank Stock |
|
|
6,110,000 |
|
|
|
5,640,000 |
|
Investment in junior subordinated debt payable to
subsidiary grantor trust |
|
|
465,000 |
|
|
|
465,000 |
|
Other |
|
|
916,731 |
|
|
|
338,134 |
|
|
|
|
|
|
|
|
|
|
$ |
31,206,411 |
|
|
$ |
24,783,476 |
|
|
|
|
|
|
|
|
10. |
|
DEPOSITS
|
|
|
|
Time certificates of deposit equal to or greater than $100,000 totaled $250,779,452 and
$168,810,092 at December 31, 2009 and 2008, respectively. Interest expense on such deposits
was $5,166,385, $5,785,386 and $6,062,259 during 2009, 2008 and 2007, respectively. |
|
|
|
At December 31, 2009, the scheduled maturities for all time deposits are as follows: |
|
|
|
|
|
Time Deposit Maturity Schedule |
|
|
|
|
One year or less |
|
$ |
251,284,710 |
|
One to three years |
|
|
83,029,052 |
|
Three to five years |
|
|
7,474,936 |
|
Over five years |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
341,788,698 |
|
|
|
|
|
87
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. |
|
OTHER LIABILITIES
|
|
|
|
Other liabilities consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Deferred compensation retired officers |
|
$ |
817,616 |
|
|
$ |
931,777 |
|
Deferred compensation directors fees |
|
|
2,803,310 |
|
|
|
2,600,231 |
|
Deferred compensation salary continuation |
|
|
1,595,661 |
|
|
|
1,235,605 |
|
Employee incentive payable |
|
|
188,000 |
|
|
|
0 |
|
FHLB accrued interest payable |
|
|
2,389 |
|
|
|
154,396 |
|
Accrued 401(k) match payable |
|
|
72,859 |
|
|
|
66,365 |
|
Accrued interest payable |
|
|
458,347 |
|
|
|
618,890 |
|
Reserve for off-balance sheet commitments |
|
|
421,877 |
|
|
|
421,877 |
|
Interest payable Junior Subordinated Debentures |
|
|
102,722 |
|
|
|
158,621 |
|
Dividend payable |
|
|
522,690 |
|
|
|
696,920 |
|
Note payable fair value of earn-out agreement |
|
|
965,240 |
|
|
|
0 |
|
Other |
|
|
1,098,844 |
|
|
|
151,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,049,555 |
|
|
$ |
7,036,161 |
|
|
|
|
|
|
|
|
12. |
|
WHOLESALE ADVANCES
|
|
|
|
FHLB Advances - Included in other borrowings are advances from the Federal Home Loan Bank of
San Francisco (FHLB) totaling $70,000,000 as of December 31, 2009 and $120,000,000 as of
December 31, 2008. The FHLB advances bear fixed rates of interest ranging from 0.13% to
3.41%. |
|
|
|
|
|
|
|
|
|
Amount |
|
Interest Rate |
|
Maturity |
|
$15,000,000 |
|
|
0.13 |
% |
|
|
01/19/2010 |
|
$40,000,000 |
|
|
0.16 |
% |
|
|
01/25/2010 |
|
$15,000,000 |
|
|
3.41 |
% |
|
|
04/29/2011 |
|
|
|
|
|
|
|
|
|
|
|
$70,000,000 |
|
|
|
|
|
|
|
|
|
|
|
These borrowings are secured by an investment in FHLB stock and certain real estate
mortgage loans which have been specifically pledged to the FHLB pursuant to their collateral
requirements. Based upon the level of FHLB advances, the Company was required to hold a
minimum investment in FHLB stock of $6,110,000 at December 31, 2009 and has pledged
$101,271,858 and $96,721,113 of its real estate mortgage loans to the FHLB as collateral as
of December 31, 2009 and 2008, respectively. At December 31, 2009 the Bank had available
borrowing lines at the FHLB of $55,641,301 and additional federal fund borrowing lines at a
correspondent banks totaling $10,000,000. |
|
|
|
FRB Term Auction Facility Advances The Company periodically obtains secured
borrowings from the Federal Reserve Bank of San Francisco (FRB). FRB borrowings outstanding
were $0 as of December 31, 2009 and $0 as of December 31, 2008. The FRBs TAF credit facility
is an auction based borrowing with terms limited to a 28 day maturity. The Company has
pledged $97,003,004 in commercial and industrial loans as collateral as of December 31, 2009,
and had available borrowing lines at the FRB of $55,320,283. |
88
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. |
|
PREFERRED STOCK AND WARRANTS
|
|
|
|
Pursuant to a Letter Agreement dated November 14, 2008, and the Securities Purchase
Agreement Standard Terms the Company issued to the United States Department of the
Treasury (Treasury Department) 17,000 shares of Bank of Commerce Holdings Series A Fixed
Rate Perpetual Preferred Stock, without par value (the Series A Preferred Stock), having a
liquidation amount per share equal to $1,000 for a total price of $17 million. The Series A
Preferred Stock pays cumulative dividends at a rate of 5% per year for the first five years
and thereafter at a rate of 9% per year. The Company may not redeem the Series A Preferred
Stock during the first three years except with the proceeds from a qualified equity
offering. After three years, the Company may, at our option, redeem the Series A Preferred
Stock at par value plus accrued and unpaid dividends. The Series A Preferred Stock is
generally non-voting. Prior to November 14, 2011, unless the Company has redeemed the Series
A Preferred Stock or the Treasury Department has transferred the Series A Preferred Stock to
a third party, the consent of the Treasury Department will be required for the Company to
increase our common stock dividend or repurchase our common stock or other equity or capital
securities, other than in connection with benefit plans consistent with past practice and
certain other circumstances specified in the Securities Purchase Agreement. A consequence of
the Series A Preferred Stock purchase includes certain restrictions on executive
compensation that could limit the tax deductibility of compensation we pay to executive
management. |
|
|
|
As part of its purchase of the Series A Preferred Stock, the Treasury Department
received a warrant (the Warrant) to purchase 405,405 shares of the Companys common stock
at an initial per share exercise price of $6.29. The Warrant provides for the adjustment of
the exercise price and the number of shares of our common stock issuable upon exercise
pursuant to customary anti-dilution provisions, such as upon stock splits or distributions
of securities or other assets to holders of our common stock, and upon certain issuances of
our common stock at or below a specified price relative to the initial exercise price. The
Warrant expires ten years from the issuance date. If, on or prior to December 31, 2009, the
Company receives aggregate gross cash proceeds of not less than $17 million from qualified
equity offerings announced after November 14, 2008, the number of shares of common stock
issuable pursuant to the Treasury Departments exercise of the Warrant will be reduced by
one-half of the original number of shares, taking into account all adjustments, underlying
the Warrant. Pursuant to the Securities Purchase Agreement, the Treasury Department has
agreed not to exercise voting power with respect to any shares of common stock issued upon
exercise of the Warrant. |
|
|
|
The preferred stock proceeds from the Treasury Department was allocated based upon the
relative fair value of the warrant as compared with the fair value of the preferred stock.
The fair value of the warrant was determined using a Black-Sholes pricing model
incorporating assumptions including our common stock price, dividend yield, stock price
volatility and risk-free interest rate. We determined the fair value of the preferred stock
based on assumptions regarding the discount rate (market rate) on the preferred stock which
was estimated to be approximately 9.0% at the date of issuance. The discount on the
preferred stock is being accreted to par value over a five-year term which is the expected
life of the preferred stock. The proceeds of $17.0 million were allocated between the
preferred stock and warrant with $16.6 million allocated to preferred stock and $449,000
allocated to the warrant based on their relative fair value at the time of issuance. |
89
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Both the Series A Preferred Stock and Warrant will be accounted for as components of
Tier 1 capital. The Series A Preferred Stock and the Warrant were issued in a private
placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended. Upon the request of the Treasury Department at any time, we have agreed to
promptly enter into a deposit arrangement pursuant to which the Series A Preferred Stock may
be deposited and depositary shares (Depositary Shares) may be issued. Neither the Series A
Preferred Stock nor the Warrant will be subject to any contractual restrictions on transfer,
except that the Treasury Department may only transfer or exercise an aggregate of one-half
of the Warrant Shares prior to the earlier of the redemption of 100% of the shares of
Series A Preferred Stock and December 31, 2009. |
|
|
|
In the Securities Purchase Agreement, the Company agreed that, until such time as the
Treasury Department ceases to own any securities acquired from us pursuant to the Securities
Purchase Agreement, the Company will take all necessary action to ensure that our benefit
plans with respect to our senior executive officers comply with Section 111(b) of the
Emergency Economic Stabilization Act of 2008 (EESA) as implemented by any guidance or
regulation under Section 111(b) of EESA that has been issued and is in effect as of the date
of issuance of the Series A Preferred Stock and the Warrant and not adopt any benefit plans
with respect to, or which cover, our senior executive officers that do not comply with EESA.
The applicable executives have consented to the foregoing. |
|
|
|
Prior to November 14, 2011, unless the Company has redeemed the Series A Preferred Stock or
the Treasury Department has transferred the Series A Preferred Stock to a third party, the
consent of the Treasury Department will be required for us to (1) declare or pay any
dividend or make any distribution on our common stock (other than regular quarterly cash
dividends of not more than $0.08 per share of common stock) or (2) redeem, purchase or
acquire any shares of the Companys common stock or other equity or capital securities,
other than in connection with benefit plans consistent with past practice and certain other
circumstances specified in the Securities Purchase Agreement. |
|
|
|
The Company may opt out by repaying the capital without raising additional capital subject
to consultation with the appropriate Federal regulator. |
14. |
|
JUNIOR SUBORDINATED DEBT PAYABLE TO UNCONSOLIDATED SUBSIDIARY GRANTOR TRUSTS
|
|
|
|
During the first quarter 2003, Bank of Commerce Holdings formed a wholly-owned Delaware
statutory business trust, Bank of Commerce Holdings Trust (the grantor trust), which issued
$5.0 million of guaranteed preferred beneficial interests in Bank of Commerce Holdings
junior subordinated debentures (the trust notes) to the public and $155,000 common
securities to the Company. These debentures qualify as Tier 1 capital under Federal Reserve
Board guidelines. The proceeds from the issuance of the trust notes were transferred from the
grantor trust to the Holding Company and from the Holding Company to the Bank as surplus
capital. The trust notes accrue and pay distributions on a quarterly basis at three month
London Interbank Offered Rate (LIBOR) plus 3.30%. The rate at December 31, 2009 was 3.58%.
The rate increase is capped at 2.75% annually and the lifetime cap is 12.5%. The final
maturity on the trust notes is March 18, 2033, and the debt allows for prepayment after five
years on the quarterly payment date. |
90
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 29, 2005, Bank of Commerce Holdings (the Company) participated in a private
placement to an institutional investor of $10 million of fixed rate trust preferred
securities (the Trust Preferred Securities); through a newly formed Delaware trust
affiliate, Bank of Commerce Holdings Trust II (the Trust). The Trust Preferred Securities
mature on September 15, 2035, and are redeemable at the Companys option on any March 15,
June 15, September 15 or December 15 on or after September 15, 2010. In addition, the Trust
Preferred Securities require quarterly distributions by the Trust to the holder of the Trust
Preferred Securities at a rate of 6.115%, until September 10, 2010 after which the rate will
reset quarterly to equal three month LIBOR plus 1.58%. The Trust simultaneously issued
$310,000 common securities to the Company.
The proceeds from the sale of the Trust Preferred Securities were used by the Trust to
purchase from the Company the aggregate principal amount of $10,310,000 of the Companys
floating rate junior subordinate notes (the Notes). The net proceeds to the Company from
the sale of the Notes to the Trust were used by the Company for general corporate purposes,
including funding the growth of the Companys various financial services.
The Notes were issued pursuant to a Junior Subordinated Indenture (the Indenture), dated
July 29, 2005, by and between the Company and J.P. Morgan Chase Bank, National Association,
as trustee. Like the Trust Preferred Securities, the Notes bear interest at a floating
rate, at 6.115% until September 10, 2010, after which the rate will reset on a quarterly
basis to equal three month LIBOR plus 1.58%. The interest payments by the Company will be
used to pay the quarterly distributions payable by the Trust to the holder of the Trust
Preferred Securities. However, so long as no event of default, as described below, has
occurred under the Notes, the Company may, at any time and from time to time, defer interest
payments on the Notes (in which case the Trust will be entitled to defer distributions
otherwise due on the Trust Preferred Securities) for up to twenty (20) consecutive quarters.
The Notes are subordinated to the prior payment of other indebtedness of the Company that,
by its terms, is not similarly subordinated. Although the Notes will be recorded as a long
term liability on the Companys balance sheet, for regulatory purposes, the Notes are
expected to be treated as Tier 1 or Tier 2 capital under rulings of the Federal Reserve
Board, the Companys primary federal regulatory agency.
The Notes mature on September 15, 2035, but may be redeemed at the Companys option at any
time on or after September 15, 2010 or at any time upon certain events, such as a change in
the regulatory capital treatment of the Notes, the Trust being deemed to be an investment
company or the occurrence of certain adverse tax events. In each case, the Company may
redeem the Notes for their aggregate principal amount, plus accrued interest, if any.
The Company has two reportable segments at December 31, 2009: Commercial banking and mortgage
brokerage services. The Company conducts a general commercial banking business in the
counties of El Dorado, Placer, Shasta, Tehama and Sacramento, California. The principal
commercial banking activities include a full array of deposit accounts and related services
and commercial lending for businesses, professionals and their interests.
91
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Mortgage brokerage services are performed by Bank of Commerce Mortgage subsidiary.
Mortgage brokerage services offers residential real estate loans with ten offices in three
different states and licenses in California, Oregon, Washington, Idaho and Colorado.
Mortgages that are originated are sold, servicing included, in the secondary market or
directly to correspondent financial institutions. |
|
|
|
For the years ended December 31, 2008 and 2007, the Company maintained only one operating
segment, commercial banking. |
The following table represents financial information about the Companys reportable segments for
the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
Mortgage |
|
|
Parent |
|
|
Consolidated |
|
Net interest income |
|
$ |
29,552 |
|
|
$ |
(13 |
) |
|
$ |
(545 |
) |
|
$ |
28,994 |
|
Provision for loan and lease losses |
|
|
9,475 |
|
|
|
|
|
|
|
|
|
|
|
9,475 |
|
Total noninterest income |
|
|
4,770 |
|
|
|
5,293 |
|
|
|
|
|
|
|
10,063 |
|
Total noninterest expense |
|
|
15,908 |
|
|
|
4,415 |
|
|
|
301 |
|
|
|
20,624 |
|
Income before provision for income taxes |
|
|
8,939 |
|
|
|
865 |
|
|
|
(846 |
) |
|
|
8,958 |
|
Provision for income taxes |
|
|
2,363 |
|
|
|
326 |
|
|
|
1 |
|
|
|
2,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
6,576 |
|
|
|
539 |
|
|
|
(847 |
) |
|
|
6,268 |
|
Less: Net income attributable to
non-controlling interest |
|
|
|
|
|
|
263 |
|
|
|
|
|
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income attributable to Bank of
Commerce Holdings |
|
$ |
6,576 |
|
|
$ |
276 |
|
|
$ |
(847 |
) |
|
$ |
6,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table represents financial information about the Companys reportable segments
at December 31, 2009:
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
Bank |
|
|
Mortgage |
|
|
Parent |
|
|
Intercompany |
|
|
Consolidated |
|
Cash and due from banks, non interest bearing |
|
$ |
36,531 |
|
|
$ |
2,512 |
|
|
$ |
977 |
|
|
$ |
(3,118 |
) |
|
$ |
36,902 |
|
Interest bearing due from banks |
|
|
31,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,338 |
|
Federal funds sold and securities purchased
under agreements to resell |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
67,869 |
|
|
|
2,512 |
|
|
|
977 |
|
|
|
(3,118 |
) |
|
|
68,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale at fair value
(including pledged collateral of $61,345 at
September 30, 2009) |
|
|
80,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,062 |
|
Portfolio loans |
|
|
606,472 |
|
|
|
|
|
|
|
2,470 |
|
|
|
(7,712 |
) |
|
|
601,230 |
|
Allowance for loan and lease losses |
|
|
(11,168 |
) |
|
|
|
|
|
|
(39 |
) |
|
|
|
|
|
|
(11,207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio loans net of allowance |
|
|
595,304 |
|
|
|
|
|
|
|
2,431 |
|
|
|
(7,712 |
) |
|
|
590,023 |
|
Mortgage loans held for sale |
|
|
19,229 |
|
|
|
8,059 |
|
|
|
|
|
|
|
|
|
|
|
27,288 |
|
Premises and equipment, net |
|
|
9,868 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
9,980 |
|
Investment in Bank of Commerce Mortgage |
|
|
|
|
|
|
|
|
|
|
2,739 |
|
|
|
(2,739 |
) |
|
|
|
|
Investment in Trust |
|
|
|
|
|
|
|
|
|
|
465 |
|
|
|
|
|
|
|
465 |
|
Investment in Bank |
|
|
|
|
|
|
|
|
|
|
76,920 |
|
|
|
(76,920 |
) |
|
|
|
|
Goodwill |
|
|
|
|
|
|
3,727 |
|
|
|
|
|
|
|
|
|
|
|
3,727 |
|
Other real estate owned |
|
|
2,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,880 |
|
Other assets |
|
|
32,004 |
|
|
|
591 |
|
|
|
|
|
|
|
(1,854 |
) |
|
|
30,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
807,216 |
|
|
$ |
15,001 |
|
|
$ |
83,532 |
|
|
$ |
(92,343 |
) |
|
$ |
813,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
Mortgage |
|
|
Parent |
|
|
Intercompany |
|
|
Consolidated |
|
Demand noninterest bearing |
|
$ |
72,565 |
|
|
|
|
|
|
|
|
|
|
$ |
(3,118 |
) |
|
$ |
69,447 |
|
Demand interest bearing |
|
|
163,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,814 |
|
Savings accounts |
|
|
65,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,414 |
|
Certificates of deposit |
|
|
341,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
643,582 |
|
|
|
|
|
|
|
|
|
|
|
(3,118 |
) |
|
|
640,464 |
|
Securities sold under agreements to repurchase |
|
|
9,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,621 |
|
Federal Home Loan Bank borrowings |
|
|
70,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,000 |
|
Mortgage warehouse lines of credit |
|
|
|
|
|
|
7,712 |
|
|
|
|
|
|
|
(7,712 |
) |
|
|
0 |
|
Other liabilities |
|
|
7,093 |
|
|
|
2,225 |
|
|
|
1,585 |
|
|
|
(1,854 |
) |
|
|
9,049 |
|
Junior subordinated debt payable to unconsolidated |
|
|
|
|
|
|
|
|
|
|
15,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiary grantor trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
730,296 |
|
|
|
9,937 |
|
|
|
17,050 |
|
|
|
(12,684 |
) |
|
|
744,599 |
|
Commitments and contingencies
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock (liquidation preference of $1,000 per share; issued 2008)
2,000,000 authorized; 17,000 shares issued and outstanding in 2009, and
December 31, 2008, none outstanding at September 30, 2008 |
|
|
13,000 |
|
|
|
|
|
|
|
16,641 |
|
|
$ |
(13,000 |
) |
|
|
16,641 |
|
Common stock , no par value, 50,000,000 shares authorized; 8,711,495 shares
issued and outstanding at September 30, 2009 |
|
|
2,341 |
|
|
|
1 |
|
|
|
9,730 |
|
|
|
(2,342 |
) |
|
|
9,730 |
|
Common Stock Warrant |
|
|
|
|
|
|
|
|
|
|
449 |
|
|
|
|
|
|
|
449 |
|
Additional Paid in Capital |
|
|
28,096 |
|
|
|
2,738 |
|
|
|
|
|
|
|
(30,834 |
) |
|
|
|
|
Retained Earnings |
|
|
32,825 |
|
|
|
|
|
|
|
39,004 |
|
|
|
(32,825 |
) |
|
|
39,004 |
|
Accumulated other comprehensive income, net of tax |
|
|
658 |
|
|
|
|
|
|
|
658 |
|
|
|
(658 |
) |
|
|
658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Bank of Commerce Holdings |
|
|
76,920 |
|
|
|
2,739 |
|
|
|
66,482 |
|
|
|
(79,659 |
) |
|
|
66,482 |
|
Non controlling interest in subsidiary |
|
|
|
|
|
|
2,325 |
|
|
|
|
|
|
|
|
|
|
|
2,325 |
|
Total shareholders equity |
|
|
76,920 |
|
|
|
5,064 |
|
|
|
66,482 |
|
|
|
(79,659 |
) |
|
|
68,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
807,216 |
|
|
$ |
15,001 |
|
|
$ |
83,532 |
|
|
$ |
(92,343 |
) |
|
$ |
813,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. |
|
INCOME TAXES
|
|
|
|
Provision (benefit) for income taxes consists of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
3,069,967 |
|
|
$ |
158,421 |
|
|
$ |
2,448,140 |
|
State |
|
|
778,738 |
|
|
|
(227,067 |
) |
|
|
603,476 |
|
|
|
|
|
|
|
|
|
|
|
Total current provision (benefit) |
|
|
3,848,205 |
|
|
|
(68,646 |
) |
|
|
3,051,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(783,750 |
) |
|
|
102,507 |
|
|
|
(1,167,545 |
) |
State |
|
|
(375,257 |
) |
|
|
(73,387 |
) |
|
|
(479,018 |
) |
|
|
|
|
|
|
|
|
|
|
Total deferred (benefit) provision |
|
|
(1,159,007 |
) |
|
|
29,120 |
|
|
|
(1,646,563 |
) |
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for
income taxes |
|
$ |
2,689,698 |
|
|
$ |
(39,526 |
) |
|
$ |
1,405,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
In October 2006, the Company invested in the California Affordable Housing Fund -2006 I,
LLC. The investment provides funding for low income housing projects in our local markets
in return for federal and state tax credits. As of December 31, 2009 the original
commitment of $2.5 million should be fully disbursed during 2010. The tax benefit summary
provided by the California Affordable Housing Fund 2006 I, LLC was $158,054 for federal
and $158,214 for state as of December 31, 2009. |
|
|
|
Income tax expense attributable to income before income taxes differed from the amounts
computed by applying the U.S. federal income tax rate of 34 percent to income before
income taxes because of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Pretax Income |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Income tax at the Federal statutory rate |
|
|
34.00 |
% |
|
|
34.00 |
% |
|
|
34.00 |
% |
State franchise tax, net of Federal tax benefit |
|
|
2.98 |
|
|
|
(12.16 |
) |
|
|
1.09 |
|
Tax-exempt interest |
|
|
(4.07 |
) |
|
|
(15.79 |
) |
|
|
(4.48 |
) |
Key life benefit proceeds |
|
|
0.00 |
|
|
|
0.00 |
|
|
|
(8.84 |
) |
Officer life insurance |
|
|
(1.53 |
) |
|
|
(4.51 |
) |
|
|
(1.54 |
) |
Affordable housing credits |
|
|
(1.95 |
) |
|
|
(7.39 |
) |
|
|
(2.51 |
) |
Other |
|
|
0.59 |
|
|
|
4.02 |
|
|
|
.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate |
|
|
30.02 |
% |
|
|
(1.83 |
%) |
|
|
18.70 |
% |
|
|
|
|
|
|
|
|
|
|
94
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities consist of the following as of December
31: |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
State franchise taxes |
|
$ |
79,055 |
|
|
|
|
|
Deferred compensation |
|
|
2,339,118 |
|
|
|
2,137,799 |
|
Loan loss reserves |
|
|
5,130,478 |
|
|
|
3,779,735 |
|
Net
unrealized losses on securities available-for-sale |
|
|
(460,050 |
) |
|
|
56,590 |
|
Other |
|
|
270,239 |
|
|
|
24,767 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
7,358,840 |
|
|
|
5,998,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
State franchise taxes |
|
|
|
|
|
|
($72,046 |
) |
Depreciation |
|
|
(591,235 |
) |
|
|
(68,095 |
) |
Deferred loan origination costs |
|
|
(466,094 |
) |
|
|
(426,715 |
) |
Deferred state taxes |
|
|
(571,579 |
) |
|
|
(443,992 |
) |
Other California Affordable Housing |
|
|
(155,514 |
) |
|
|
(55,992 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(1,784,422 |
) |
|
|
(1,066,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
5,574,418 |
|
|
$ |
4,932,051 |
|
|
|
|
|
|
|
|
|
|
The Company had no unrecognized tax benefits which would have required an adjustment to
the January 1, 2007 beginning balance of retained earnings. Additionally, the Company has
no unrecognized tax benefits at December 31, 2009 and 2008. The Company recognizes
interest accrued and penalties related to unrecognized tax benefits in tax expense. The
Company does not anticipate providing a reserve for uncertain tax positions in the next
twelve months. During the years ended December 31, 2009, 2008 and 2007 the Company
recognized no interest and penalties associated with uncertain tax positions. |
|
|
|
The Company or one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction, and the State of California. With few exceptions, the Company is no longer
subject to U.S. federal or State and local income tax examinations by tax authorities for
the years before 2006. |
17. |
|
STOCK OPTION PLAN
|
|
|
|
On May 1, 2008 the 1998 Stock Option Plan which was approved by the Companys shareholders
on April 21, 1998 expired and was replaced by the 2008 Stock Option Plan (the Plan) which
was approved by the Companys shareholders on May 15, 2007. The Plan provides for awards
in the form of options, which may constitute incentive stock options (Incentive Options)
under Section 422(a) of the Internal Revenue Code of 1986, as amended (the Code), or
non-statutory stock options (NSOs) to key personnel of the Company, including directors.
The Plan provides that Incentive Options under the Plan may not be granted at less than
100% of fair market value of the Companys common stock on the date of the grant. NSOs may
not be granted at less than 85% of the fair market value of the common stock on the date of
the grant. |
95
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Generally, all options under the plan will vest at 20% per year from the date of the
grant. Vesting may be accelerated in case of an optionees death, disability, and
retirement or in case of a change of control.
For the years ended December 31, 2009, 2008 and 2007 stock option compensation expense was
$80,611 ($47,416 net of tax), $116,446 ($68,500 net of tax), and $116,880 ($82,206, net of
tax), respectively. At December 31, 2009, 2008 and 2007 there was $91,457, $271,723, and
$331,993, respectively, of total unrecognized compensation costs related to non-vested
share based payments which is expected to be recognized over a weighted average period of
three years.
Activity in stock-based compensation plan
The following table presents the changes in outstanding stock options for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Aggregate |
|
|
|
Number of |
|
|
Exercise |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Value |
|
|
Options outstanding December 31, 2007 |
|
|
279,430 |
|
|
$ |
8.65 |
|
|
$ |
27,943 |
|
|
Granted |
|
|
31,500 |
|
|
$ |
6.50 |
|
|
|
|
|
Exercised |
|
|
(12,850 |
) |
|
$ |
3.23 |
|
|
$ |
40,863 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2008 |
|
|
298,080 |
|
|
$ |
8.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
4,000 |
|
|
$ |
5.00 |
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(20,000 |
) |
|
$ |
10.40 |
|
|
|
|
|
Options outstanding December 31, 2009 |
|
|
282,080 |
|
|
$ |
8.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009 |
|
|
221,960 |
|
|
$ |
7.06 |
|
|
|
|
|
|
At December 31, 2009, 572,500 shares were available for future grants under the Plan.
As of December 31, 2009, 2008 and 2007, respectively, 221,960, 209,485 and 200,993 shares
respectively were available to be exercised.
The fair value of the options granted is estimated on the date of grant using a Black
Scholes option-pricing model and includes the following assumptions: volatility of 67.60%,
32.10% and 29.98%, respectively, risk-free interest rate of 1.82%, 2.97% and 3.40%,
respectively, expected dividends of $0.30 per share per year for 2009 and $0.32 per share
in 2008, annual dividend rate of 4.53% 4.56% and 2.89%, assumed forfeiture rate of zero and
an expected life of seven years. The grant date fair value per share of the 2009, 2008 and
2007 awards was $1.91, $1.38 and $2.82, respectively.
96
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. |
|
CAPITAL STOCK
|
|
|
|
The Company paid a quarterly cash dividend of $0.08, $0.06, $0.06 and $0.06 on January
9, 2009, April 10, 2009, July 31, 2009 and October 9, 2009, respectively, to shareholders
of record as of December 31, 2008, March 31, 2009, July 24, 2009 and September 30, 2009,
respectively. On April 20, 1999, the Board of Directors authorized 2,000,000 shares of
preferred stock. As of December 31, 2008, Pursuant to a Letter Agreement dated November 14,
2008, and the Securities Purchase Agreement Standard Terms the Company issued to the
United States Department of the Treasury (Treasury Department) 17,000 shares of Bank of
Commerce Holdings Series A Fixed Rate Perpetual Preferred Stock, without par value (the
Series A Preferred Stock), having a liquidation amount per share equal to $1,000 for a
total price of $17 million. The Company paid preferred cash dividends of $852,361 during
2009. |
19. |
|
RETIREMENT BENEFITS
|
|
|
|
Profit Sharing Plan In 1985, the Company adopted a profit sharing 401(k) plan for
eligible employees to be funded out of the earnings of the Company. The employees
contributions are limited to the maximum amount allowable under IRS Section 402(G). The
Companys contributions include a matching contribution of 100% of the first 3% of salary
deferred and 50% of the next 2% of salary deferred. Discretionary contributions are also
permitted. The Company made matching contributions aggregating $240,000, $233,922 and
$247,500 for the years ended December 31, 2009, 2008 and 2007, respectively. No
discretionary contributions were made in 2009, 2008 or 2007. |
|
|
|
Salary Continuation Plan In April 2001, the Board of Directors approved the
implementation of the Supplemental Executive Retirement Plan (SERP), which is a
non-qualified executive benefit plan in which the Bank agrees to pay the executives covered
by the SERP plan additional benefits in the future in return for continued satisfactory
performance by the executives. Benefits under the salary continuation plan include a
benefit generally payable commencing upon a designated retirement date for a fixed period
of ten to twenty years; disability or termination of employment, and a death benefit for
the participants designated beneficiaries. Key-man life insurance policies were purchased
as an investment to provide for the Banks contractual obligation to pay pre-retirement
death benefits and to recover the Banks cost of providing benefits. The executive is the
insured under the policy, while the Bank is the owner and beneficiary. The assets of the
SERP, under Internal Revenue Service Regulations, are the property of the Company and are
available to the Companys general creditors. The insured executive has no claim on the
insurance policy, its cash value or the proceeds thereof. |
|
|
|
The retirement benefit is derived from accruals to a benefit account during the
participants employment. Accrued compensation expense under the salary continuation plan
totaled $324,148, $179,063 and $240,745 for 2009, 2008 and 2007, respectively. As of
December 31, 2009, 2008 and 2007, the vested benefit payable was $1,595,661, $1,235,605,
and $1,030,020 respectively. |
97
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Retired employees deferred compensation Effective April 1, 1990, the Board of
Directors approved an Employee Deferred Compensation plan for two executives, which is a
non-qualified plan in which the selected employees may elect to defer all or any part of
their compensation to be payable to the employee upon retirement over a period not to
exceed fifteen years. Interest on Retired Employees deferred compensation is fixed at ten
percent (10%) per the plan. Participants in this plan have since retired and funds are
being disbursed. As of December 31, 2009, 2008 and 2007, the vested benefit payable was
$817,615, $931,777 and $1,035,064, respectively. |
|
|
|
Directors deferred fee compensation Effective January 1, 1993, the Board of Directors
approved the implementation of the Directors Deferred Fee Compensation Plan, which is a
non-qualified plan in which a Director may elect to defer the payment of all or any part of
the fee compensation to which such director would otherwise be entitled to as directors
fees or committee fees to be payable upon retirement of the director in a lump sum
distribution or over a period not to exceed fifteen years. Interest on Directors deferred
compensation is floating at prime plus 2%. Deferred compensation expense totaled $478,175,
$461,640 and $411,191 at December 31, 2009, 2008, and 2007 respectively. As of December 31,
2009, 2008 and 2007, the vested benefit payable was $2,803,310, $2,600,231 and $2,310,824,
respectively. |
20. |
|
RELATED PARTY TRANSACTIONS
|
|
|
|
Some of the directors, officers and principal shareholders of the Company and their
associates were customers of and had banking transactions with the Bank in the ordinary
course of the Banks business during 2009 and the Bank expects to have such transactions in
the future. All deposits, loans and commitments to loans included in such transactions
were made in compliance with the applicable laws on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable transactions
with other persons of similar creditworthiness, and in the opinion of the Company, did not
involve more than a normal risk of collectability or present other unfavorable features. |
|
|
|
An analysis of the activity in related party loans consists of the following: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Balance at beginning of year |
|
$ |
4,174,424 |
|
|
$ |
3,600,342 |
|
New loan additions |
|
|
1,200,611 |
|
|
|
153,737 |
|
Advances on existing lines of credit |
|
|
10,861,095 |
|
|
|
826,080 |
|
Principal repayments |
|
|
(11,252,462 |
) |
|
|
(405,735 |
) |
Reclassifications (1) |
|
|
(134,914 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
4,848,754 |
|
|
$ |
4,174,424 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents loans that were once considered related party but are no longer
considered related party. |
|
|
At December 31, 2009 and 2008, deposits of related parties amounted to $16.2 million and
$12.5 million, respectively. |
98
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
As of December 31, 2009 and 2008 there were no related party loans, which were past due
or classified. At December 31, 2009 there was $3,171,260 available in commitments to related
party loans. |
21. |
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
Lease Commitments The Company leases certain facilities where it conducts its operations.
Future minimum lease commitments under all non-cancelable operating leases as of December
31, 2009 are below: |
|
|
|
|
|
(Dollars in thousands) |
|
|
2010 |
|
$ |
867 |
|
2011 |
|
|
775 |
|
2012 |
|
|
606 |
|
2013 |
|
|
488 |
|
2014 |
|
|
498 |
|
Thereafter |
|
|
447 |
|
|
|
|
|
Total |
|
$ |
3,681 |
|
|
|
|
|
|
|
Rental expense for the years ended December 31, 2009, 2008 and 2007 was $529,700,
$588,866 and $482,994, respectively. |
|
|
|
Off-Balance Sheet Financial Instruments In the ordinary course of business, the Company
enters various types of transactions, which involve financial instruments with off-balance
sheet risk. These instruments include commitments to extend credit and standby letter of
credits, which are not reflected in the accompanying consolidated balance sheets. These
transactions may involve, to varying degrees, credit and interest rate risk more than the
amount, if any recognized in the consolidated balance sheets. |
|
|
|
The off-balance sheet credit risk exposure of the Company is the contractual amount of
commitments to extend credit and stand-by letters of credit. The Company applies the same
credit standards to these contracts as it uses for loans recorded on the balance sheet. |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Off-balance sheet commitments: |
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
$ |
122,871,909 |
|
|
$ |
156,707,887 |
|
Standby letters of credit |
|
|
4,844,167 |
|
|
|
8,556,547 |
|
Guaranteed commitments outstanding |
|
|
1,324,799 |
|
|
|
1,350,399 |
|
|
|
|
|
|
|
|
|
|
$ |
129,040,875 |
|
|
$ |
166,614,833 |
|
99
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Commitments to extend credit are agreements to lend to customers. These commitments
have specified interest rates and generally have fixed expiration dates but may be
terminated by the Company if certain conditions of the contract are violated. Although
currently subject to draw down, many of the commitments do not necessarily represent future
cash requirements. Collateral held relating to these commitments varies, but generally
includes real estate, securities and cash. |
|
|
|
Standby letters of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Credit risk arises in these transactions from
the possibility that a customer may not be able to repay the Bank upon default of
performance. Collateral held for standby letters of credit is based on an individual
evaluation of each customers creditworthiness, but may include cash and securities. |
|
|
|
Commitments to extend credit and standby letters of credit bear similar credit risk
characteristics as outstanding loans. |
|
|
|
The Company has mortgage loan purchase agreements with various mortgage bankers. The
Company is obligated to perform certain procedures in accordance with these agreements. The
agreements provide for conditions whereby the Company may be required to repurchase
mortgage loans for various reasons among which are either (1) a mortgage loan is originated
in violation of the mortgage bankers requirement, (2) the Company breaches any term of the
agreement and (3) an early payment default occurs from a mortgage originated by the
Company. The mortgage loan repurchase agreements are consistent with the standard
representations and warranties of the loan sales agreements and the impact is considered
immaterial to the consolidated financial statements. |
|
|
|
The Company entered into a mandatory forward loan volume commitment agreement with a
purchaser of mortgage loans. Under the agreement, the Company is committed to deliver
$270,000,000 loan volume over the period from March 1, 2009 through May 31, 2010. Upon
failure to deliver minimum loan volume quarterly, the Company is responsible to pay a
non-delivery fee to the purchaser. As of December 31, 2009, the Company met the volume
commitments. The Company is currently in the process of renegotiating and amending this
agreement. Although the basic term would remain the same, the new agreement would extend
the term until January 31, 2011 and require the Company to commit to deliver a loan volume
of $264,000,000 over a new period. |
|
|
|
Litigation The Company is subject to various pending and threatened legal actions arising
in the ordinary course of business. The Company maintains reserves for losses from legal
actions that are both probable and estimable. In the opinion of management the disposition
of claims currently pending will not have a material effect on the Companys consolidated
financial position or results of operations. |
100
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. |
|
REGULATORY MATTERS |
|
|
|
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary actions
by regulators that if undertaken, could have a direct material effect on the Companys and
Consolidated Financial Statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. |
|
|
|
The capital amounts and the Banks prompt corrective action classifications are also
subject to qualitative judgments by the regulators about components, risk weightings and
other factors. |
|
|
|
Prompt corrective action provisions are not applicable to Bank Holding Companies.
Quantitative measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the following
table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets
and of Tier 1 capital to average assets. Management believes as of December 31, 2009 that
the Company and the Bank met all capital adequacy requirements to which they are subject. |
|
|
|
As of December 31, 2009, the most recent notification from the FDIC categorized the Bank as
well capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, an institution must maintain minimum total risk-based,
Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There
are no conditions or events since that notification that management believes have changed
the Banks category. The Companys and the Banks actual capital amounts and ratios as of
December 31, 2009 and 2008 are also presented in the table. |
101
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Categorized as |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well Capitalized |
|
|
|
|
|
|
|
|
|
|
For Capital |
|
Under Prompt |
|
|
Actual |
|
Adequacy Purposes |
|
Corrective Action |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
At December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage capital (to average assets) |
|
$ |
79,421,930 |
|
|
|
9.89 |
% |
|
$ |
32,168,421 |
|
|
|
4.00 |
% |
|
|
n/a |
|
|
|
n/a |
|
Tier 1 capital (to risk-weighted assets) |
|
|
79,421,930 |
|
|
|
12.06 |
% |
|
|
26,346,630 |
|
|
|
4.00 |
% |
|
|
n/a |
|
|
|
n/a |
|
Total capital (to risk-weighted assets) |
|
|
87,697,164 |
|
|
|
13.31 |
% |
|
|
52,693,261 |
|
|
|
8.00 |
% |
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage capital (to average assets) |
|
$ |
76,262,200 |
|
|
|
9.37 |
% |
|
$ |
32,602,946 |
|
|
|
4.00 |
% |
|
$ |
40,753,682 |
|
|
|
5.00 |
% |
Tier 1 capital (to risk-weighted assets) |
|
|
76,262,200 |
|
|
|
11.57 |
% |
|
|
26,365,839 |
|
|
|
4.00 |
% |
|
|
39,548,758 |
|
|
|
6.00 |
% |
Total capital (to risk-weighted assets) |
|
|
84,542,883 |
|
|
|
12.83 |
% |
|
|
52,731,677 |
|
|
|
8.00 |
% |
|
|
65,914,959 |
|
|
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage capital (to average assets) |
|
$ |
73,983,019 |
|
|
|
10.66 |
% |
|
$ |
19,800,000 |
|
|
|
4.00 |
% |
|
|
n/a |
|
|
|
n/a |
|
Tier 1 capital (to risk-weighted assets) |
|
|
73,983,019 |
|
|
|
11.87 |
% |
|
|
16,734,380 |
|
|
|
4.00 |
% |
|
|
n/a |
|
|
|
n/a |
|
Total capital (to risk-weighted assets) |
|
|
81,787,582 |
|
|
|
13.12 |
% |
|
|
33,468,760 |
|
|
|
8.00 |
% |
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage capital (to average assets) |
|
$ |
72,204,835 |
|
|
|
10.45 |
% |
|
$ |
19,783,694 |
|
|
|
4.00 |
% |
|
$ |
24,729,617 |
|
|
|
5.00 |
% |
Tier 1 capital (to risk-weighted assets) |
|
|
72,204,835 |
|
|
|
11.58 |
% |
|
|
16,734,380 |
|
|
|
4.00 |
% |
|
|
25,101,570 |
|
|
|
6.00 |
% |
Total capital (to risk-weighted assets) |
|
|
80,009,398 |
|
|
|
12.84 |
% |
|
|
33,468,760 |
|
|
|
8.00 |
% |
|
|
41,835,950 |
|
|
|
10.00 |
% |
|
|
The principal sources of cash for the Holding Company are dividends from the Bank.
Dividends from the Bank to the Holding Company are restricted under California law to the
lesser of the Banks retained earnings or the Banks net income for the latest three fiscal
years, less dividends previously declared during that period, or, with the approval of
California Superintendent of Banks, to the greater of the retained earnings of the Bank,
the net income of the Bank for its last fiscal year, or the net income of the Bank for its
current fiscal year. As of December 31, 2009, the maximum amount available for dividend
distribution under this restriction was approximately $10,723,366. |
|
|
|
The Bank is subject to certain restrictions under the Federal Reserve Act, including
restrictions on the extension of credit to affiliates. In particular, it is prohibited from
lending to an affiliated company unless the loans are secured by specific types of
collateral. Such secured loans and other advances from the subsidiaries are limited to 10
percent of the subsidiarys equity. No such loans or advances were outstanding during 2009
or 2008. |
102
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. |
|
FAIR VALUES OF FINANCIAL INSTRUMENTS |
|
|
|
In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities that the Company has the ability to
access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in
active markets, and inputs other than quoted prices that are observable for the asset or
liability, such as interest rates and yield curves that are observable at commonly quoted
intervals. Level 3
inputs are unobservable inputs for the asset or liability, and include situations where
there is little, if any, market activity for the asset or liability. |
|
|
|
In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, the level in the fair value hierarchy within which
the fair value measurement in its entirety falls has been determined based on the lowest
level input that is significant to the fair value measurement in its entirety. |
|
|
|
The Companys assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to the asset
or liability. The following table presents information about the Companys assets and
liabilities measured at fair value on a recurring basis as of December 31, 2009, and
indicate the fair value hierarchy of the valuation techniques utilized by the Company to
determine such fair value. |
103
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
Active Markets For |
|
|
Observable |
|
|
Unobservable |
|
|
|
Fair Value |
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
Description |
|
December 31, 2009 |
|
|
Level (1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Available for sale securities |
|
$ |
80,062,136 |
|
|
$ |
|
|
|
$ |
80,062,136 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Measured at fair value |
|
$ |
80,062,136 |
|
|
$ |
|
|
|
$ |
80,062,136 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities Measured at fair value |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
Active Markets For |
|
|
Observable |
|
|
Unobservable |
|
|
|
Fair Value |
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
Description |
|
December 31, 2008 |
|
|
Level (1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Available for sale securities |
|
$ |
131,686,600 |
|
|
$ |
|
|
|
$ |
131,686,600 |
|
|
$ |
|
|
Total Assets Measured at fair value |
|
$ |
131,686,600 |
|
|
$ |
|
|
|
$ |
131,686,600 |
|
|
$ |
|
|
Total Liabilities Measured at fair value |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
The following methods were used to estimate the fair value of each class of financial
instrument above: |
|
|
|
Securities available-for-sale Securities classified as available-for-sale are reported at
fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value
measurements from an independent pricing service. The fair value measurements consider
observable data that may include dealer quotes, market spreads, cash flows, the U.S.
Treasury yield curve, live trading levels, trade execution data, market consensus
prepayment speeds, credit information and the bonds terms and conditions among other
things. |
104
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis |
|
|
|
The Company may be required, from time to time, to measure certain assets at fair value on
a nonrecurring basis in accordance with U.S. generally accepted accounting principles.
These include assets that are measured at the lower of cost or market that were recognized
at fair value below cost at the end of the period. Assets measured at fair value on a
nonrecurring basis are included in the table below. |
(Dollars in thousands)
Non Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
Active Markets For |
|
|
Observable |
|
|
Unobservable |
|
|
|
Fair Value |
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
Description |
|
December 31, 2009 |
|
|
Level (1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Impaired Loans |
|
$ |
5,278,493 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,278,493 |
|
Other real estate owned |
|
|
2,879,956 |
|
|
|
|
|
|
|
|
|
|
|
2,879,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Measured
at fair value |
|
$ |
8,158,449 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,158,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
Measured at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Non Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
Active Markets For |
|
|
Observable |
|
|
Unobservable |
|
|
|
Fair Value |
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
Description |
|
December 31, 2008 |
|
|
Level (1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Impaired Loans |
|
$ |
23,078,874 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,078,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Measured at fair value |
|
$ |
23,078,874 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,078,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities Measured at fair
value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
105
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Impaired loans When available, we use observable market data including pricing on
recent closed market transactions, to value loans. The Company does not record loans at
fair value on a recurring basis. However, from time to time, a loan is considered impaired
and an allowance for loan losses is established. Loans for which it is probable that
payment of interest and principal will not be made in accordance with the contractual terms
of the loan agreement are considered impaired. |
|
|
|
The fair value of impaired loans is estimated using one of several methods, including
collateral value, market value of similar debt, enterprise value, liquidation value, and
discounted cash flows. Those impaired loans not requiring an allowance represent loans for
which the fair value of the expected repayments or collateral exceed the recorded
investments in such loans. At December 31, 2009, substantially all of the total impaired
loans were evaluated based on the fair value of the collateral. Impaired loans where an
allowance is established based on the fair value of collateral require classification in
the fair value hierarchy. When the fair value of the collateral is based on a current
appraised value, or management determines the fair value of the collateral is further
impaired below the appraised value and there is no observable market price, the Company
records the impaired loan as nonrecurring Level 3. |
|
|
|
The Company had outstanding balances of $12.5 million and $12.2 million in impaired loans
as of December 31, 2009 and December 31, 2008, respectively. Impairment allowances totaled
$245,000 and $1.1 million at December 31, 2009 and December 31, 2008, respectively. |
|
|
|
Other Real Estate Owned The fair value of other real estate owned is estimated using one
of several methods, including collateral value, market value of similar debt, enterprise
value, liquidation value, and discounted cash flows. At December 31, 2009, the estimated
fair value was based on the fair value of the other real estate owned, supported by current
appraisals. The Company records other real estate owned as a nonrecurring, level 3. |
|
|
|
Method for determining fair values |
|
|
|
The following methods and assumptions were used by the Company in estimating its fair value
disclosures for financial instruments: |
|
|
|
Cash and cash equivalents The carrying amounts reported in the consolidated balance
sheets for cash and cash equivalents are a reasonable estimate of fair value. |
|
|
|
Securities Securities classified as available-for-sale are reported at fair value
utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements
from an independent pricing service. The fair value measurements consider observable data
that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve,
live trading levels, trade execution data, market consensus prepayment speeds, credit
information and the bonds terms and conditions among other things. |
106
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Loans receivable For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The fair
values for fixed rate loans are estimated using discounted cash flow analysis, using
interest rates currently being offered for loans with similar terms to borrowers of similar
credit quality. The carrying amount of accrued interest approximates its fair value. |
|
|
|
Mortgage Loans held for sale Mortgage loans held for sale are carried at the lower of cost
or fair value. Cost generally approximates fair value, given the short duration of these
assets. |
|
|
|
Commitments to extend credit and standby letters of credit The fair value of commitments
is the off-balance sheet amount of loan commitments and outstanding letters of credit. |
|
|
|
Federal Home Loan Bank borrowings- The fair value of borrowed funds is based on carrying
amounts due to the short term nature of the borrowing. |
|
|
|
Junior subordinated debt payable to unconsolidated subsidiary grantor trust The fair
value of variable rate junior subordinated debt payable to subsidiary grantor trust is
based on carrying amounts. |
|
|
|
Deposit liabilities The fair values disclosed for demand deposits (e.g., interest and
noninterest checking, passbook savings, and money market accounts) are, by definition,
equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).
The fair values for fixed-rate certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits. The carrying
amount of accrued interest approximates its fair value. |
|
|
|
Securities purchased under agreements to resell The fair value of securities purchased
under agreements to resell is estimated by discounting the contractual cash flows under
outstanding borrowings at rates prevailing in the marketplace today for similar borrowings,
rates and collateral. |
|
|
|
Earn out payable The fair value of the earn out payable is estimated by discounting the
contractual cash flows expected to be paid out, under the assumption the mortgage
subsidiary meets the targeted results. |
|
|
|
Limitations Fair value estimates are made at a specific point in time, based on relevant
market information and other information about the financial instrument. These estimates
do not reflect any premium or discount that could result from offering for sale at one time
the Companys entire holdings of a particular financial instrument. |
|
|
|
Because no market exists for a significant portion of the Companys financial instruments,
fair value estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial instruments, and
other factors. |
107
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
These estimates are subjective in nature, involve uncertainties and matters of
significant judgment, and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates. |
|
|
|
Fair value estimates are based on current on and off-balance sheet financial instruments
without attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments. Other significant
assets and liabilities that are not considered financial assets or liabilities include
deferred tax assets and liabilities, and property, plant and equipment. In addition, the
tax ramifications related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in any of the
estimates. |
108
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
The estimated fair values of the Companys financial instruments are approximately as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
Contract |
|
Carrying |
|
|
|
|
Amount |
|
Amount |
|
Fair Value |
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
$ |
68,240 |
|
|
$ |
68,240 |
|
Securities |
|
|
|
|
|
|
80,062 |
|
|
|
80,062 |
|
Loans, net |
|
|
|
|
|
|
590,023 |
|
|
|
611,099 |
|
Mortgages held for sale |
|
|
|
|
|
|
27,288 |
|
|
|
27,288 |
|
Accrued interest on loans |
|
|
|
|
|
|
2,463 |
|
|
|
2,463 |
|
Accrued interest on securities |
|
|
|
|
|
|
624 |
|
|
|
624 |
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand and savings |
|
|
|
|
|
|
298,676 |
|
|
|
298,676 |
|
Fixed rate certificates |
|
|
|
|
|
|
330,920 |
|
|
|
333,372 |
|
Variable certificates |
|
|
|
|
|
|
10,869 |
|
|
|
10,869 |
|
Accrued interest payable |
|
|
|
|
|
|
495 |
|
|
|
495 |
|
Securities sold under agreements to
repurchase |
|
|
|
|
|
|
9,621 |
|
|
|
9,621 |
|
Federal Home Loan Borrowings |
|
|
|
|
|
|
70,000 |
|
|
|
70,000 |
|
Junior subordinated debt payable to
unconsolidated subsidiary grantor trust |
|
|
|
|
|
|
15,465 |
|
|
|
15,465 |
|
Earn out payable |
|
|
|
|
|
|
965,240 |
|
|
|
965,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off balance sheet financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
$ |
122,871,909 |
|
|
|
|
|
|
$ |
122,871,909 |
|
Standby letters of credit |
|
|
4,844,167 |
|
|
|
|
|
|
|
4,844,167 |
|
Guaranteed commitments outstanding |
|
|
1,324,799 |
|
|
|
|
|
|
|
1,324,799 |
|
109
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
Contract |
|
Carrying |
|
|
|
|
Amount |
|
Amount |
|
Fair Value |
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
$ |
85,191,062 |
|
|
$ |
85,191,062 |
|
Securities |
|
|
|
|
|
|
131,686,600 |
|
|
|
131,686,600 |
|
Loans, net |
|
|
|
|
|
|
518,946,461 |
|
|
|
522,674,555 |
|
Accrued interest on loans |
|
|
|
|
|
|
2,051,386 |
|
|
|
2,051,386 |
|
Accrued interest on securities |
|
|
|
|
|
|
1,079,110 |
|
|
|
1,079,110 |
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand and savings |
|
|
|
|
|
$ |
290,995,299 |
|
|
$ |
290,995,299 |
|
Fixed rate certificates |
|
|
|
|
|
|
256,084,780 |
|
|
|
258,684,915 |
|
Variable certificates |
|
|
|
|
|
|
8,201,824 |
|
|
|
8,201,824 |
|
Accrued interest payable |
|
|
|
|
|
|
618,890 |
|
|
|
618,890 |
|
Securities sold under agreements to repurchase |
|
|
|
|
|
|
13,853,255 |
|
|
|
13,853,255 |
|
Federal Home Loan Borrowings |
|
|
|
|
|
|
120,000,000 |
|
|
|
120,000,000 |
|
Junior subordinated debt payable to
unconsolidated subsidiary grantor trust |
|
|
|
|
|
|
15,465,000 |
|
|
|
15,465,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off balance sheet financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
$ |
156,707,887 |
|
|
|
|
|
|
$ |
156,707,887 |
|
Standby letters of credit |
|
|
8,556,547 |
|
|
|
|
|
|
|
8,556,547 |
|
Guaranteed commitments outstanding |
|
|
1,350,399 |
|
|
|
|
|
|
|
1,350,399 |
|
110
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
24. |
|
BANK OF COMMERCE HOLDINGS (PARENT COMPANY ONLY) FINANCIAL INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Condensed Balance Sheets |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
976,974 |
|
|
$ |
1,663,934 |
|
Participation loans, net of allowance for loan and lease losses of $38,850 in 2009 and 2008 |
|
|
2,430,575 |
|
|
|
4,640,017 |
|
Investment in subsidiaries |
|
|
80,124,258 |
|
|
|
72,519,180 |
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
0 |
|
|
|
86,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
83,531,807 |
|
|
$ |
78,909,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debt payable to unconsolidated subsidiary grantor trust |
|
$ |
15,465,000 |
|
|
$ |
15,465,000 |
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
1,585,379 |
|
|
|
866,490 |
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
66,481,428 |
|
|
|
62,577,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
83,531,807 |
|
|
$ |
78,909,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Condensed Statements of Income |
|
|
|
|
|
|
|
|
|
|
|
|
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
300,157 |
|
|
$ |
1,097,452 |
|
|
$ |
53,488 |
|
Dividends from subsidiaries |
|
|
2,503,259 |
|
|
|
1,496,583 |
|
|
|
6,738,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,803,416 |
|
|
|
2,594,035 |
|
|
|
6,791,517 |
|
Expenses: |
|
|
1,145,910 |
|
|
|
1,010,641 |
|
|
|
1,809,492 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity in undistributed net income of subsidiaries |
|
|
1,657,506 |
|
|
|
1,583,394 |
|
|
|
4,982,025 |
|
Provision for income taxes |
|
|
800 |
|
|
|
800 |
|
|
|
800 |
|
|
|
|
|
|
|
|
|
|
|
Income before equity in undistributed net income of subsidiaries |
|
|
1,656,706 |
|
|
|
1,582,594 |
|
|
|
4,981,225 |
|
Equity in undistributed net income of subsidiaries |
|
|
4,611,999 |
|
|
|
611,792 |
|
|
|
1,125,673 |
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
6,268,705 |
|
|
|
|
|
|
|
|
|
Less: Net income attributable to non-controlling interest |
|
|
263,405 |
|
|
|
|
|
|
|
|
|
Net income attributable to Bank of Commerce Holdings |
|
$ |
6,005,300 |
|
|
$ |
2,194,386 |
|
|
$ |
6,106,898 |
|
|
|
|
|
|
|
|
|
|
|
111
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,268,705 |
|
|
$ |
2,194,386 |
|
|
$ |
6,106,898 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
0 |
|
|
|
0 |
|
|
|
19,950 |
|
Compensation associated with stock options |
|
|
34,140 |
|
|
|
33,116 |
|
|
|
32,637 |
|
Effect of changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
79,787 |
|
|
|
78,500 |
|
|
|
30,000 |
|
Other Liabilities |
|
|
(72,126 |
) |
|
|
45,249 |
|
|
|
(97,439 |
) |
Equity in undistributed net income of subsidiaries |
|
|
(4,611,999 |
) |
|
|
(611,793 |
) |
|
|
(1,125,673 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,698,507 |
|
|
|
1,739,458 |
|
|
|
4,966,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiary trust |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution to Bank |
|
|
0 |
|
|
|
(14,200,000 |
) |
|
|
0 |
|
Participation loan payments |
|
|
631,661 |
|
|
|
2,934,519 |
|
|
|
272,058 |
|
Participation loan purchased |
|
|
1,577,781 |
|
|
|
(2,400,000 |
) |
|
|
(1,861,603 |
) |
Cash paid in acquisition of mortgage subsidiary |
|
|
(1,500,000 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by investing activities |
|
|
709,442 |
|
|
|
(13,665,481 |
) |
|
|
(1,589,545 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity transactions, net |
|
|
22,438 |
|
|
|
15,183,459 |
|
|
|
(1,758,656 |
) |
Cash dividends paid on common stock |
|
|
(2,264,986 |
) |
|
|
(2,790,423 |
) |
|
|
(2,838,029 |
) |
Cash dividends paid on preferred stock |
|
|
(852,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
(3,094,909 |
) |
|
|
12,393,036 |
|
|
|
(4,596,685 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in cash and cash equivalents |
|
|
(686,960 |
) |
|
|
467,013 |
|
|
|
(1,219,857 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
1,663,934 |
|
|
|
1,196,921 |
|
|
|
2,416,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
976,974 |
|
|
$ |
1,663,934 |
|
|
$ |
1,196,921 |
|
|
|
|
|
|
|
|
|
|
|
112
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25. |
|
UNAUDITED QUARTERLY RESULTS |
UNAUDITED QUARTERLY STATEMENTS OF INCOME DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
(Dollars in thousands, except per share data) |
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
Net interest income |
|
$ |
6,400 |
|
|
$ |
7,498 |
|
|
$ |
7,406 |
|
|
$ |
7,690 |
|
Provision for loan losses |
|
|
(1,425 |
) |
|
|
(3,056 |
) |
|
|
(1,844 |
) |
|
|
(3,150 |
) |
Noninterest income |
|
|
865 |
|
|
|
3,195 |
|
|
|
2,944 |
|
|
|
3,059 |
|
Noninterest expense |
|
|
(3,960 |
) |
|
|
(4,893 |
) |
|
|
(5,654 |
) |
|
|
(6,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
1,880 |
|
|
|
2,744 |
|
|
|
2,852 |
|
|
|
1,482 |
|
Provision for income tax |
|
|
(610 |
) |
|
|
(1,027 |
) |
|
|
(1,010 |
) |
|
|
(43 |
) |
(Less) Income non-controlling interest |
|
|
|
|
|
|
(101 |
) |
|
|
(129 |
) |
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
1,270 |
|
|
|
1,616 |
|
|
|
1,713 |
|
|
|
1,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Less) Preferred dividend and accretion on preferred stock |
|
|
237 |
|
|
|
235 |
|
|
|
235 |
|
|
|
235 |
|
Income available to common shareholders |
|
$ |
1,033 |
|
|
$ |
1,381 |
|
|
$ |
1,478 |
|
|
$ |
1,171 |
|
Per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.12 |
|
|
$ |
0.16 |
|
|
$ |
0.17 |
|
|
$ |
0.13 |
|
Diluted earnings per share |
|
$ |
0.12 |
|
|
$ |
0.16 |
|
|
$ |
0.17 |
|
|
$ |
0.13 |
|
Dividends paid per share |
|
$ |
0.08 |
|
|
$ |
0.00 |
|
|
$ |
0.12 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
(Dollars in thousands, except per share data) |
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
Net interest income |
|
$ |
5,420 |
|
|
$ |
5,046 |
|
|
$ |
5,240 |
|
|
$ |
5,642 |
|
Provision for loan losses |
|
|
(600 |
) |
|
|
(1,000 |
) |
|
|
(1,300 |
) |
|
|
(3,620 |
) |
Noninterest income |
|
|
565 |
|
|
|
717 |
|
|
|
751 |
|
|
|
590 |
|
Noninterest expense |
|
|
(3,565 |
) |
|
|
(3,613 |
) |
|
|
(3,612 |
) |
|
|
(4,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
1,820 |
|
|
|
1,150 |
|
|
|
1,079 |
|
|
|
1,895 |
|
Provision for income tax |
|
|
(591 |
) |
|
|
(244 |
) |
|
|
(362 |
) |
|
|
1,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
1,229 |
|
|
$ |
906 |
|
|
$ |
717 |
|
|
|
($658 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.14 |
|
|
$ |
0.10 |
|
|
$ |
0.08 |
|
|
|
($0.07 |
) |
Diluted earnings per share |
|
$ |
0.14 |
|
|
$ |
0.10 |
|
|
$ |
0.08 |
|
|
|
($0.07 |
) |
Dividends paid per share |
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
113
BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 11, 2010, we filed a Form S-1 Registration Statement (the Registration Statement)
with the SEC to offer $30.0 million of shares of our common stock in an underwritten public
offering (Offering). We intend to grant the underwriters in the Offering an option to purchase up
to an additional $4.5 million of common stock to cover over-allotment, if any. In the Registration
Statement, we set out our intent to use the net proceeds of the Offering for general
corporate purposes, including contributing additional capital to the Bank, supporting our ongoing
and future anticipated growth, which may include opportunistic acquisitions of all or parts of
other financial institutions, including FDIC-assisted transactions, and positioning us for eventual
redemption of our Series A Preferred Stock issued to the Treasury. Although we are periodically
engaged in discussions with potential acquisition candidates, we are not currently party to any
purchase or merger agreement.
There can be no assurance that we will be able to negotiate future acquisitions on terms acceptable
to us. Investing the proceeds of the Offering in investment grade securities until we are able to
deploy the proceeds would provide lower margins than we generally earn on loans, potentially
adversely impacting shareholder returns, including earnings per share, net interest margin, return
on assets and return on equity.
114
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants or auditors on accounting and
financial disclosure.
ITEM 9A(T). CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out under the
supervision and with the participation of the Companys management, including its President and
Chief Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934).
Based on that evaluation, the President and Chief Executive Officer and the Chief Financial Officer
concluded that these disclosure controls and procedures were effective.
Disclosure controls and procedures, no matter how well designed and implemented, can provide only
reasonable assurance of achieving an entitys disclosure objectives. The likelihood of achieving
such objectives is affected by limitations inherent in disclosure controls and procedures. These
include the fact that human judgment in decision-making can be faulty and that breakdowns in
internal controls can occur because of human failures such as simple errors, mistakes or
intentional circumvention of the established processes.
Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a process designed by, or under the
supervision of, the Companys Chief Executive Officer and the Chief Financial Officer and
implemented by the Companys Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles in the United States of America.
The Companys internal control over financial reporting includes those policies and procedures
that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles in the United States of America, and
that receipts and expenditures of the Company are being made only in accordance with authorizations
of management and directors of the Company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the Companys
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
115
Under the supervision and with the participation from management, including our Chief Executive
Officer and the Chief Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework and criteria established in
Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). This evaluation included review of the documentation of controls,
testing of operating effectiveness of controls and a conclusion on this evaluation. Based on this
evaluation, management concluded that the Companys internal control over financial reporting was
effective as of December 31, 2009.
This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to provide only
managements report in this annual report.
Changes in Internal Control over Financial Reporting
Changes have been implemented in our internal control over financial reporting for the period
ended December 31, 2009 to remediate the previously identified material weakness. Subsequent to
filing the September 30, 2009 10Q report, and in connection with preparing for the 2009 audit, we
concluded that the accounting for cash flows associated with the mortgage loans held for sale and
goodwill related to stock purchase agreement with Simonich Corporation was inappropriate. This
instance is considered to be a material weakness in our disclosure controls and procedures
particularly as it relates to the selection and application of accounting principles and
specifically accounting for non recurring transactions.
During the first quarter of 2010, in conjunction with preparing our annual financial statements,
we took the necessary steps to identify, rectify and prevent the recurrence of the circumstances
that resulted in our determination to restate the June 30, 2009 and September 30, 2009
consolidated financial statements, including a review of accounting literature and related
disclosure requirements relating to non-recurring transactions.
As part of this undertaking, we have increased emphasis on continuing education for our accounting
personnel and increased emphasis on reviewing applicable accounting literature, all relating to
the selection and application of accounting principles relating to these areas.
ITEM 9B. OTHER INFORMATION
The registrant must disclose under this item any information required to be disclosed in a
report on Form 8-K during the fourth quarter of the year covered by this Form 10-K, but not
reported.
None to report.
116
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers of the Company
The named executive officers of the Company and their ages as of December 31, 2009, are as follows:
|
|
|
|
|
|
|
Name |
|
Age |
|
Position(s) |
| | |
Patrick J. Moty
|
|
|
52 |
|
|
President, Chief Executive Officer and Director
Bank of Commerce Holdings
and Redding Bank of Commerce |
|
|
|
|
|
|
|
Samuel D. Jimenez
|
|
|
45 |
|
|
Senior Vice President and Chief Financial
Officer |
|
|
|
|
|
|
|
Linda J. Miles
|
|
|
56 |
|
|
Executive Vice President and Chief Operating
Officer |
|
|
|
|
|
|
|
Theodore Cumming
|
|
|
52 |
|
|
Senior Vice President & Chief Credit Officer |
|
|
|
|
|
|
|
Randall S. Eslick
|
|
|
52 |
|
|
Regional President Roseville Division |
Patrick J. Moty was born in 1957 and has been with the Company since 1985. Mr. Moty has served as
President and Chief Executive Officer of the Company since his election in September 2007. Prior
to becoming CEO, he served as Executive Vice President and Chief Credit Officer of the Company
beginning in December 2005; as Senior Vice President and Chief Credit Officer of the Company
beginning in 2000; as Senior Vice President and Senior Loan Officer beginning in 1998; as Vice
President and Senior Loan Officer beginning in 1993; as Vice President and Loan Officer beginning
in 1988; as Assistant Vice President and Loan Officer beginning in 1987; and as Loan Officer
beginning in 1985. Prior to joining the Company in 1985, Mr. Moty spent four years in lending at a
large regional financial institution. Mr. Moty has served as a director of Bank of Commerce
Mortgage since 2009 and Bank of Commerce Holdings since 2007.
Samuel D. Jimenez was born in 1964 and has been Senior Vice President and Chief Financial Officer
since September 2009. Prior to becoming CFO, he served beginning in September 2003 as Senior Vice
President and Director of Risk Management of Redding Bank of Commerce. Prior to that, he was a
Federal Deposit Insurance Examiner from 1992 2003. Mr. Jimenez is a Certified Public Accountant.
Linda J. Miles was born in 1953 and has been the Executive Vice President and Chief Operating
Officer of Bank of Commerce Holdings, Redding Bank of Commerce and Bank of Commerce Mortgage since
May 2009. From October 1989 to May 2009, she served as Executive Vice President and Chief Financial
Officer of the Company. Before joining the Company, Ms. Miles was Senior Vice President and Chief
Financial Officer at another California independent financial institution. Ms. Miles has served as
a director of Bank of Commerce Mortgage since 2009.
Theodore Cumming was born in 1957 and has been Senior Vice President & Chief Credit Officer since
October 2007. From 2001 until October 2007, Mr. Cumming served as Senior Vice President and Lending
Group Manager of Redding Bank of Commerce Placer Division. Prior to joining the company Mr. Cumming
served as Vice President of Commercial Lending for a large regional bank.
117
Randall S. Eslick was born in 1957 and has been Regional President of Roseville Bank of Commerce
since December 2005. From 2002 until December 2005, Mr. Eslick served as Senior Vice President and
Regional Manager of the Roseville Bank of Commerce. Prior to joining the company, Mr. Eslick served
as Vice President and Commercial Loan Officer at another California independent financial
institution. Mr. Eslick joined the Company in March 2001 as Senior Vice President and Commercial
Loan Officer.
Directors of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Age |
|
Positions Held |
|
Term |
|
Served Since |
Orin N. Bennett
|
|
|
61 |
|
|
Director
|
|
1 year
|
|
|
2005 |
|
|
Dave Bonuccelli
|
|
|
55 |
|
|
Director
|
|
1 year
|
|
|
2008 |
|
|
Gary Burks
|
|
|
55 |
|
|
Director
|
|
1 year
|
|
|
2007 |
|
|
Russell L. Duclos
|
|
|
70 |
|
|
Director
|
|
1 year
|
|
|
1997 |
|
|
Joseph Gibson
|
|
|
62 |
|
|
Director
|
|
1 year
|
|
|
2009 |
|
|
Kenneth Gifford, Jr.
|
|
|
64 |
|
|
Chairman, Director
|
|
1 year
|
|
|
1998 |
|
|
Jon Halfhide
|
|
|
52 |
|
|
Director
|
|
1 year
|
|
|
2005 |
|
|
Patrick J. Moty
|
|
|
52 |
|
|
Director
|
|
1 year
|
|
|
2007 |
|
|
David H. Scott, CPA
|
|
|
65 |
|
|
Director
|
|
1 year
|
|
|
1997 |
|
|
Lyle L. Tullis
|
|
|
59 |
|
|
Director
|
|
1 year
|
|
|
2003 |
|
Orin N. Bennett was born in 1948 and has been a director of Redding Bank of Commerce since
September 2005, and a director of the Company since May 2006.
Business Experience: Mr. Bennett is a registered Civil Engineer in California and Oregon. He owns
MHM Engineers & Surveyors in Sacramento, California which provides engineering services to cities,
counties and special districts primarily in Northern California. Mr. Bennett owns West Roseville
LLC and Bennett Engineering Services. He is also a partner in BD Properties and Portola 192 LLC,
both real estate investment companies. Mr. Bennett was previously employed by the international
engineering firm of CH2M Hill prior to forming his own business.
Other Public Company Directorships: None.
Committees: Mr. Bennett serves on the Loan, Executive, Nominating and Corporate Governance,
Executive Compensation and Long-Range Planning committees of the Board of Directors.
Dave Bonuccelli was born in 1954 and has been a director of Redding Bank of Commerce since
January 2008, and a director of the Company since May 2009.
Business Experience: Mr. Bonuccelli is the owner of David L. Bonuccelli & Associates, Inc., a real
estate investment consulting and advisory firm located in Sacramento, California. Mr. Bonuccellis
company provides services to tax exempt public and private institutional investors, corporations,
trusts and individual investors.
Other Public Company Directorships: None.
118
Committees: Mr. Bonuccelli serves on the ALCO and Long-Range planning committees of the Board of
Directors.
Gary Burks was born in 1954 and has been a director of Redding Bank of Commerce since June 2007,
and a director of the Company since May 2008.
Business Experience: Mr. Burks is Vice President and General Manager of Foothill Distributing
Company, Inc. in Redding. He has nineteen years of experience on the board of Foothill
Distributing Company, Inc. a private firm.
Other Public Company Directorships: None.
Committees: Mr. Burks serves on the Audit and Qualified Legal Compliance, Executive Compensation
and Long-Range Planning committees of the Board of Directors.
Russell L. Duclos was born in 1939 and has served as a director of the Company since July 1997.
Business Experience: Mr. Duclos has served as the founding Chief Credit Officer of the Company from
1982 through 1997. From July 1997 through December 2000 he served as President and Chief Executive
Officer of the Company and the Bank. From January 2001 through April 2001 he served as President
and Chief Executive Officer of the Company. He has served on multiple private and non-profit boards
throughout Northern California.
Other Public Company Directorships: Mr. Duclos has served as a director of Bank of Commerce Mortgage since June 2009.
Committees: Mr. Duclos prior banking experience qualifies him as an expert and he serves as
Chairman of both the Asset Liability Management Committee (ALCO), the Loan Committee. Mr. Duclos
presently serves on the Audit & Qualified Legal Compliance and Long-Range Planning committees of
the Board of Directors.
Joseph Gibson was born in 1947 and has been a director of Redding Bank of Commerce since November
2009.
Business Experience: Mr. Gibson has thirty-six years of experience in business management. He was a
teacher and administrator for Anderson Union High School from 1973-2003, and has been an owner of
SFI Insurance, Inc. since 1992. He currently serves on the Anderson Union High School Board, Shasta
College Foundation Board, Riverview Golf and Country Club and was president of the Anderson Rotary
from 2002-2003.
Other Public Company Directorships: Anderson Union High School, YMCA.
Kenneth R. Gifford, Jr. was born in 1945 and has served as a director of the Company since January
1998.
Business Experience: Mr. Gifford serves as the Chairman of the Board of Directors. Mr. Gifford has
been a director and the President and Chief Executive Officer of Gifford Construction, Inc., since
1972. Mr. Gifford also serves as a director for the non-profit Shasta County Economic Development
Corporation.
Other Public Company Directorships: None
Committees: Mr. Gifford is a member of the Executive, Loan, ALCO and Long-Range Planning committees
of the Board of Directors.
119
Jon Halfhide, CPA was born in 1957 and has been a director of the Company since May 2006.
Business Experience: Since 2000, he has served as president of Catholic Healthcare West North State
Service Area (Catholic Healthcare West) and St. Elizabeth Community Hospital. He has over twenty
years of management experience with Catholic Healthcare West and has served in the capacity of
Controller and Chief Financial Officer. Mr. Halfhide is a certified public accountant. Mr. Halfhide
also serves on the non-profit board of directors of Mercy Foundation North and Catholic Healthcare
West North State and the non-profit board of directors of the Tehama County Economic Development Corporation.
Other Public Company Directorships: None.
Committees: Mr. Halfhide meets the criteria to serve as financial expert on the Audit and Qualified
Legal Compliance Committee. Mr. Halfhide serves as Chairman of the Executive Compensation Committee
and serves on the Audit and Qualified Legal Compliance, Nominating and Corporate Governance and
Long-Range Planning committees of the Board of Directors.
Patrick J. Moty was born in 1957 and has been with the Company since 1985. Mr. Moty has served as a
director of the Company since October 2007 and as a director of Bank of Commerce Mortgage since
June 2009.
Business Experience: Mr. Moty has served as President and Chief Executive Officer of the Company
since his election in September 2007. Prior to becoming CEO, he served as Executive Vice President
and Chief Credit Officer of the Company beginning in December 2005; as Senior Vice President and
Chief Credit Officer of the Company beginning in 2000; as Senior Vice President and Senior Loan
Officer beginning in 1998; as Vice President and Senior Loan Officer beginning in 1993; as Vice
President and Loan Officer beginning in 1988; as Assistant Vice President and Loan Officer
beginning in 1987; and as Loan Officer beginning in 1985. Prior to joining the Company in 1985, Mr.
Moty spent four years in lending at a large regional financial institution. Mr. Moty also serves as
a member of the board of directors of the non-profit Shasta County Economic Development Corporation.
Other Public Company Directorships: Mr. Moty has served as a director of Bank of Commerce Mortgage
since 2009 and Bank of Commerce Holdings since 2007.
Committees: Mr. Moty serves on the Loan, ALCO, and Long-Range Planning committees of the Board of
Directors.
David H. Scott, CPA was born in 1944 and has been a director of the Company since April 1997.
Business Experience: He is a partner of D. H. Scott & Company, LLP, a public accounting firm, a
position he has held since 1986. He also serves on the private Native American board of directors
for the Redding Rancheria Development Corporation and the non-profit Shasta County Economic
Development Corporation.
Other Public Company Directorships: None.
Committees: Mr. Scott serves as Chairman of the Audit and Qualified Legal Compliance Committee and
is a member of the Executive, ALCO, Loan and Long-Range Planning committees of the Board of
Directors. The Board of Directors has determined that Mr. Scott meets the criteria to serve as
financial expert on the Audit Committee. Mr. Scott also serves as the Corporate Secretary of the
Company.
120
Lyle L. Tullis was born in 1950 and has been a director of the Company since May 2003.
Business Experience: Since 1976, he has served as president of Tullis Inc. a general engineering
construction company. His company specializes in public works projects that include grading and
paving. Mr. Tullis is the past District Chairman of the Eureka and Shasta Districts of the
Associated General Contractors of California. Mr. Tullis also serves as a director for the private
Riverview Golf and Country Club.
Other Public Company Directorships: None.
Committees: Mr. Tullis serves as Chairman of the Nominating and Corporate Governance committees,
and is a member of the Executive, Audit & Qualified Legal Compliance and Long-Range Planning
committees of the Board of Directors.
Family Relationships
No current directors have family members who are employed by the Company or a subsidiary. There
are no family relationships among executive officers, directors and director nominees.
Involvement in Certain Legal Proceedings
The Companys executive officers or directors have not been involved in any judicial or
administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection
with any business entity, violations of Federal or State securities, commodities, banking or
insurance laws and regulations, or any settlement to such actions; or any disciplinary sanctions or
orders imposed by a stock, commodities or derivatives exchange or other self-regulatory
organization.
121
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (Exchange Act), requires the
Companys directors and executive officers and persons who own more than ten percent of a
registered class of the Companys equity securities to file with the SEC initial reports of
ownership and reports of changes of ownership of Common Stock and other equity securities of the
Company. To the Companys knowledge, based solely upon a review of such reports and written
representations, the Company believes that all reports required by Section 16(a) of the Exchange
Act to be filed by its executive officers and directors during the last fiscal year were filed in a
timely manner.
Code of Ethics and Business Conduct
The Company has adopted a Code of Ethics that applies to all of its directors, officers (including
its Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Director of Risk
Management, Controller and any person performing similar functions) and employees. The Company has
made the Code of Ethics available on its website at http://www.bankofcommerceholdings.com.
The Company will file a Form 8-K with the SEC, disclosing any material amendment to the Code of
Ethics or waiver of a provision of the Code of Ethics, including the name of the officer to whom
the waiver was granted, within four business days after such amendment or waiver.
Audit Committee Information
The Audit and Qualified Legal Compliance Committee is a standing committee of the Board of
Directors established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Committee has
five members: Chairman David H. Scott, Gary Burks, Russell L. Duclos, Lyle Tullis and Jon Halfhide,
CPA. The Board of Directors of the Company has determined that each member of this committee is
independent within the meaning of the independent director standards of the NASDAQ Global Market.
In addition, the Board of Directors has determined David H. Scott, CPA and Jon Halfhide, CPA of
this committee are audit committee financial experts as defined in the SEC rules.
122
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis describes our executive compensation philosophy and
objectives. The tables that follow present the compensation paid for 2009 to our named executive
officers. When we refer to the named executive officers, we mean the following five individuals:
1. |
|
Patrick J. Moty, President and Chief Executive Officer (our Principal Executive Officer) |
|
2. |
|
Samuel D. Jimenez, Senior Vice President and Chief Financial Officer (our Principal Financial
and Accounting Officer) |
|
3. |
|
Linda J. Miles, Executive Vice President and Chief Operating Officer |
|
4. |
|
Randall S. Eslick, Regional President Roseville Bank of Commerce |
|
5. |
|
Theodore Cumming, Senior Vice President and Chief Credit Officer |
Strategic Role of Executive Compensation
The Board of Directors of Bank of Commerce Holdings strives to ensure that its compensation plan is
consistent with the strategic goals and objectives of the Company and maintains the standards of
good corporate governance. The Board of Directors has appointed the Executive Compensation
Committee (Compensation Committee) to play a central role in formulating our compensation
philosophy and programs and in making pay decisions for our named executive officers. The Companys
executive compensation philosophy and programs play an important role in achieving the objective of
long-term growth in shareholder value. As a guiding principle, we design our compensation programs
to reward our named executive officers for recent performance and to motivate them to achieve
strong future performance for the Company and long-term value for our shareholders. All actions
taken by the Compensation Committee are ratified by the full Board of Directors.
In connection with the Companys participation in the United States Department of Treasury
(Treasury) Troubled Asset Relief Program (TARP) Capital Purchase Program, the Compensation
Committee must meet every six months with the Companys Chief Risk Officer or other senior risk
officers to discuss and review the relationship between the Companys risk management policies and
practices and its executive incentive compensation arrangements, identifying and making reasonable
efforts to limit any features in such compensation arrangements that might lead to the named
executive officers taking unnecessary or excessive risks that could threaten the value of the
Company. Other effects of the TARP rules include:
|
|
|
The Company cannot pay or accrue cash bonuses to the Chief Executive Officer; |
|
|
|
|
The Company cannot give the Chief Executive Officer equity except in the form of
long-term restricted stock; |
|
|
|
|
There are restrictions on severance pay for the named executive officers plus the next
five highest ranking officers; |
|
|
|
|
There are claw-back restrictions on bonuses paid to the named executive officers plus
the next twenty highest ranking officers; |
|
|
|
|
The Company has adopted a Luxury Expenditures Policy limiting certain expenditures; |
|
|
|
|
The Company cannot gross up salaries to compensate for taxes paid to the named
executive officers plus the next twenty highest ranking officers. |
Executive Compensation Objectives
To attract and retain talented management with proven skills and experience, the Company must offer
a compensation program that compares favorably with those offered by other peer financial and
non-financial companies with which we compete for a limited pool of highly qualified executive
talent.
123
To sustain our financial performance, the Company believes that we should closely link compensation
to our long-term performance and, for those named executives responsible for business divisions, to
the performance of their division.
Given the Company philosophy to link compensation to Company, business, and individual performance,
our compensation programs for our named executives are built upon three objectives:
|
1. |
|
To compete favorably with our peers in attracting and retaining qualified
individuals as named executives by offering competitive pay; |
|
|
2. |
|
To pay for performance by compensating our named executives based upon: |
|
a) |
|
The Companys performance compared to peer group performance, |
|
|
b) |
|
The Division performance for those named executives who
manage divisions, and |
|
3. |
|
To align our named executives interest with our shareholders interest in
increased share value by generally using stock options for long-term compensation, so
our executives benefit only if our stock price rises and our shareholders are
similarly rewarded. |
Executive Compensation Components
Named executive officer compensation includes the following elements:
|
|
|
Base salary; |
|
|
|
|
Long-term compensation (generally in the form of stock options); |
|
|
|
|
Participation in the same benefit plans provided to all employees, including
qualified defined contribution (401(k)), health, life insurance, and other benefit
plans; |
|
|
|
|
Supplemental executive retirement plans (SERP) and elective participation in a
non-qualified Deferred Compensation Plan (funded by the executive); and |
|
|
|
|
Limited perquisites. |
Overview of Compensation and Process
Base salaries are set for our named executive officers annually at the regularly scheduled meetings
of the Compensation Committee between the months of December and April. At this meeting, the
Compensation Committee also reviews and recommends the Annual Cash Incentive Award opportunities
for the new fiscal year and recommends stock option awards for the Companys named executive
officers and certain other eligible employees.
It is the practice of the Compensation Committee to review the history of all the elements of each
named executive officers total compensation over previous years and compare the compensation of
the named executive officers with that of the executive officers in an appropriate market place and
industry peer group. During 2008, an outside benefits consultant (AMALFI Consulting, LLC) was
engaged to review our Company compensation plans, recommend changes to those plans with regard to
best practices concerning the structure and implementation of those plans, and to provide the
Compensation Committee with an appropriate peer group comparison report. As a result of the
report, the 2008 Peer Group for compensation and performance purposes consist of the following 20
financial services companies:
Farmers & Merchants Bancorp,
Heritage Commerce Corporation,
Sierra Bancorp,
Premier West Bancorp,
Columbia Bancorp,
North Valley Bancorp,
Bank of Marin Bancorp,
San Joaquin Bancorp,
Bridge Capital Holdings,
124
United Security Bancshares,
Heritage Oaks Bancorp,
First Northern Community Bancorp,
1st Centennial Bancorp,
FNB Bancorp,
Community Valley Bancorp,
American River Bank Shares,
Epic Bancorp,
Central Valley Community Bancorp,
Plumas Bancorp, and
Greater Sacramento Bancorp.
Compensation Objectives
In order to set competitive benchmarks for 2009 annual and long-term compensation for the named
executives, the Compensation Committee reviewed data compiled by AMALFI Consulting, LLC. This data
presented Peer Group annual cash, long-term incentive, and total compensation amounts as reported
in 2008 proxy statements for those companies named executive officers whose positions and
responsibilities most closely match those of our named executive officers. For each proxy statement
position, this compensation data was examined for the 25th, 50th and 75th percentile. The
Compensation Committee used this information to help determine competitive benchmarks for the 2009
salary and annual cash incentive awards and long-term compensation awards for the named executive
officers.
Typically, the Chief Executive Officer makes compensation recommendations to the Compensation
Committee with respect to the executive officers who report to him. Such executive officers are not
present at the time of these deliberations. The Chairman of the Board then makes compensation
recommendations to the Compensation Committee with respect to the Chief Executive Officer, who is
absent from that meeting. The Compensation Committee may accept or adjust such recommendations.
Company and Division Performance
At the end of the fiscal year, the Compensation Committee reviews the Companys and each divisions
financial performance by comparing financial results to the Peer Group using the quantitative
performance measures listed below (all or in part), as part of its evaluation of the Companys
annual performance and its determination of the annual incentive awards to our named executives:
|
|
|
EPS Growth; |
|
|
|
|
Return on Average Assets; |
|
|
|
|
Return on Average Equity; |
|
|
|
|
Revenue Growth; |
|
|
|
|
Core Deposit Growth; |
|
|
|
|
Deposit Market Share Growth; |
|
|
|
|
Loan Growth; |
|
|
|
|
Loan loss reserves as a percentage of total loans; |
|
|
|
|
Efficiency Ratio; and |
|
|
|
|
Investment Portfolio. |
Individual Objectives
In addition to the Company financial goals, the Compensation Committee establishes individual
objectives for our named executive officers. These objectives include compliance with Company
policies on information security, regulatory compliance, risk management and team building, or
other directives mandated by the Board of Directors.
125
The Compensation Committee may adjust or eliminate incentive compensation awards, regardless of
achieving financial performance goals, if the Compensation Committee determines that a named
executive officer has failed to comply with our Code of Ethics or policies on information security,
regulatory compliance and risk management.
Named Executive Officer Compensation
The components are intended to work together to compensate the executive officer fairly for
services, reward the executive officer based upon the Companys overall performance and, depending
on the position, their own performance during the year. In assessing the executive officers total
rewards, the Compensation Committee reviews each component of an executives compensation and
considers and evaluates pay mix, the competitive market, the value of total pay, benefits and
perquisites.
Base Salary
It is the goal of the Companys Compensation Committee to establish salary compensation for its
named executive officers based on the Companys operating performance relative to the comparable
Peer Group over a three-year to five-year period, along with compensation recommendations from the
Chief Executive Officer.
Base salary is generally established by an individuals performance, competent and effective
execution of strategic objectives, potential, level of responsibilities, promotions, other
compensation targeting total cash compensation at or above the 50th percentile when
performance goals are achieved and at a higher level (75th or above) when maximum
performance results are achieved.
Cash Incentive Compensation
The Companys Annual Cash Incentive Plan allows the Company to provide cash incentives to named
executive officers based on the Companys overall financial performance, and, in some cases,
individual performance and personal goals. The Annual Cash Incentive Plan is designed to reward the
Companys executives for the achievement of short-term financial goals, including increases in
performance against peer banks, the achievement of short-term and long-term strategic goals, and
overall financial performance of the Company.
Cash incentive percentages for executive officers were initially proposed by a compensation
consultant based on an analysis of peer banks and industry sector considerations. Those percentages
are as follows: for executive officers other than the Chief Executive
Officer, the range is 10% 40% of base salary; and for the Chief Executive Officer, the range is 20% 55% of base salary.
Use of Long-Term Compensation to align the interest of our Named Executives and Shareholders
The Compensation Committee believes that stock options are the most effective form of equity-based
compensation to reward our named executive officers for their contributions to the Companys
long-term performance. Because a primary interest of our shareholders is increased share value,
stock options which produce value as compensation only if the Companys stock price increases most
directly aligns our named executive officers interests with our shareholders interests to increase
value over the long-term.
Executive officers are eligible for discretionary incentive stock option awards based on the
following percentages: for executive officers other than the Chief Executive Officer, the range is
0% 5% of base salary as the number of options considered for award. For the Chief Executive
Officer, the range is 0% 6% of base salary as the number of options considered for award.
126
Although each executive officer is eligible to receive an award at the discretion of the
Compensation Committee, the granting of the award as to any individual, officer or as a group, is
first at the discretion of the Chief Executive Officer and then, based on his recommendation, at
the discretion of the Compensation Committee and the entire Board of Directors. The Compensation
Committee may choose whether to award a bonus and decides on the actual level of the award in light
of all relevant factors after completion of the applicable fiscal year.
Perquisites
The Compensation Committee believes that offering certain perquisites helps in the operation of the
business as well as assists the Company to recruit and retain key executives. The Companys named
executive officers may participate in the same benefit programs available to all employees. This
includes health, life and disability insurance, participation in non-qualified 401(k) plans, and in
some cases, automobile allowance and country club memberships to our executive management.
Post-Retirement Arrangements
The Company maintains a Supplemental Executive Retirement Plan (SERP) and a change in control
severance provision in employment agreements for the named executive officers, providing for
certain payments following the termination of employment for nine executive officers. The payments
are fixed by contract and do not depend on years of credited service. The Company makes
contributions to segregated accounts for the benefit of the plan beneficiaries.
The SERP agreements provide for five general classes of benefits for executive officers, which
benefits vest over a period of six (6) to nineteen (19) years with credit for prior service or as
determined by the Chief Executive Officer and the Board of Directors:
|
1. |
|
Normal Retirement Benefits. The normal retirement benefit is calculated to provide a
target benefit of up to seventy-five percent (75%) of the executives compensation at the
time of retirement (age 65) or a lesser amount as determined by the Chief Executive
Officer and the Board of Directors; |
|
|
2. |
|
Early Termination Benefit. The early termination benefit is the vested portion of the
target retirement benefit; |
|
|
3. |
|
Disability Benefit. The disability benefit is a Disability Lump Sum Benefit specified
in the agreement for the plan year immediately preceding the disability, payable only upon
total disability as defined in the agreement; |
|
|
4. |
|
Death Benefit. The death benefit is an amount determined by a formula that takes into
account the number of years of service and the anticipated compensation level at the age
of retirement; and |
|
|
5. |
|
Change of Control Benefit. The change of control benefit is an amount determined as
follows: Executive officers Fully Vested Present Value Benefit of the Supplemental
Executive Retirement Plan payable at age 65 for the current plan year plus one times the
executive officers current Plan Year Compensation (except with respect to the Chief
Executive Officer and Chief Operating Officer, which is two times plan year compensation).
This benefit is payable only in the event of a change in control as defined in the Salary
Continuation Agreement and is limited by the provisions of Internal Revenue Code section
280(g). |
In consulting with its benefit plan consultant (Clark Consulting), the Company determined that it
would be more cost effective for the Company to acquire prepaid policies of insurance to fund these
anticipated future obligations than to pay annual premiums. The Company, as a result of acquiring
the prepaid policies, will have cash values in the policies in excess of the amount paid for those
policies.
127
Commitment to Quality Governance
The Compensation Committee has adopted the following procedures intended to ensure quality
governance of the Companys pay for performance philosophy:
|
|
|
Only independent members of the Board of Directors may serve on the Compensation
Committee; |
|
|
|
|
The Compensation Committee meets on a regular basis as needed throughout the year.
Generally the Compensation Committee will review year-to-date financial performance
versus budget; year-to-date and multi year performance versus competitor group
performance (Uniform Bank Performance Report); executive officer stock ownership
levels; each executive officers target total compensation for the year; and other
topics as appropriate; |
|
|
|
|
At least once a year, the Compensation Committee reviews each executive officers
total compensation package, including base salary, cash and stock incentive awards,
qualified and non-qualified retirement and deferred compensation benefit packages and
compares to the Peer Group; |
|
|
|
|
The committee utilizes independent compensation reports to assist in the analysis
of compensation packages; |
|
|
|
|
At least once a year, the Compensation Committee reviews and reassesses its charter
and recommends any proposed changes to the Board of Directors for approval. The
Compensation Committee also conducts an annual review of its own performance; and |
|
|
|
|
The Compensation Committee reports on its meetings to the full Board of Directors.
The independent members of the Board of Directors, after a review of the Companys
performance, ratify each year the total compensation awards for the named executive
officers. |
Limitations on Executive Compensation
The Company is required as a participant in the TARP Capital Purchase Program to place limits on
compensation of its senior executive officers (SEO), review SEO compensation for incentives
that would promote undue risk, and to provide shareholders the opportunity to vote on a non-binding
advisory approval of executive compensation.
Summary Compensation Table
The following table sets forth certain summary information concerning compensation paid to the
Companys named executive officers as of December 31, 2009, and whose aggregate salary and bonus
exceeded $100,000 in fiscal year 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
Option |
|
|
Compensation |
|
|
All Other |
|
|
Total |
|
Name and Principal |
|
|
|
|
|
Salary |
|
|
Compensation |
|
|
Awards |
|
|
Earnings |
|
|
Compensation |
|
|
Compensation |
|
Position |
|
Year |
|
|
(1) ($) |
|
|
(2) ($) |
|
|
(3) ($) |
|
|
(4) ($) |
|
|
(5) ($) |
|
|
($) |
|
|
Patrick J. Moty |
|
|
2009 |
|
|
$ |
250,865 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
21,967 |
|
|
$ |
92,616 |
|
|
$ |
365,448 |
|
President & Chief |
|
|
2008 |
|
|
$ |
229,327 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
12,592 |
|
|
$ |
85,597 |
|
|
$ |
327,516 |
|
Executive Officer |
|
|
2007 |
|
|
$ |
192,788 |
|
|
$ |
66,098 |
|
|
$ |
56,400 |
|
|
$ |
2,282 |
|
|
$ |
83,591 |
|
|
$ |
401,159 |
|
(Principal Executive
Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel D. Jimenez |
|
|
2009 |
|
|
$ |
160,970 |
|
|
$ |
59,356 |
|
|
$ |
0 |
|
|
$ |
686 |
|
|
$ |
27,225 |
|
|
$ |
248,237 |
|
Senior VP & Chief |
|
|
2008 |
|
|
$ |
152,884 |
|
|
$ |
2,378 |
|
|
$ |
4,830 |
|
|
$ |
0 |
|
|
$ |
3,660 |
|
|
$ |
163,752 |
|
Financial Officer |
|
|
2007 |
|
|
$ |
138,808 |
|
|
$ |
29,250 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
3,040 |
|
|
$ |
171,098 |
|
(Principal Accounting
and Financial
Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
Option |
|
|
Compensation |
|
|
All Other |
|
|
Total |
|
Name and Principal |
|
|
|
|
|
Salary |
|
|
Compensation |
|
|
Awards |
|
|
Earnings |
|
|
Compensation |
|
|
Compensation |
|
Position |
|
Year |
|
|
(1) ($) |
|
|
(2) ($) |
|
|
(3) ($) |
|
|
(4) ($) |
|
|
(5) ($) |
|
|
($) |
|
|
Linda J. Miles |
|
|
2009 |
|
|
$ |
200,000 |
|
|
$ |
70,000 |
|
|
$ |
0 |
|
|
$ |
62,189 |
|
|
$ |
24,843 |
|
|
$ |
357,032 |
|
EVP & Chief |
|
|
2008 |
|
|
$ |
203,846 |
|
|
$ |
8,000 |
|
|
$ |
0 |
|
|
$ |
50,395 |
|
|
$ |
45,264 |
|
|
$ |
307,505 |
|
Operating Officer |
|
|
2007 |
|
|
$ |
200,000 |
|
|
$ |
60,780 |
|
|
$ |
28,200 |
|
|
$ |
41,514 |
|
|
$ |
24,843 |
|
|
$ |
355,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall S. Eslick |
|
|
2009 |
|
|
$ |
175,020 |
|
|
$ |
35,000 |
|
|
$ |
0 |
|
|
$ |
6,658 |
|
|
$ |
46,373 |
|
|
$ |
263,051 |
|
Regional President |
|
|
2008 |
|
|
$ |
177,039 |
|
|
$ |
0 |
|
|
$ |
2,760 |
|
|
$ |
3,694 |
|
|
$ |
14,150 |
|
|
$ |
197,643 |
|
Roseville Bank of |
|
|
2007 |
|
|
$ |
160,005 |
|
|
$ |
44,110 |
|
|
$ |
0 |
|
|
$ |
1,304 |
|
|
$ |
9,720 |
|
|
$ |
215,139 |
|
Commerce |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ted Cumming |
|
|
2009 |
|
|
$ |
152,038 |
|
|
$ |
37,380 |
|
|
$ |
0 |
|
|
$ |
900 |
|
|
$ |
22,372 |
|
|
$ |
212,690 |
|
Senior VP & |
|
|
2008 |
|
|
$ |
142,692 |
|
|
$ |
0 |
|
|
$ |
4,140 |
|
|
$ |
0 |
|
|
$ |
3,660 |
|
|
$ |
150,492 |
|
Chief Credit Officer |
|
|
2007 |
|
|
$ |
125,400 |
|
|
$ |
43,984 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
3,660 |
|
|
$ |
173,044 |
|
|
|
|
1) |
|
Base salaries include 401(K) contributions made by the named executive officers
of approximately $53,776 during 2009. Patrick J. Motys base salary was increased to
$305,000 effective October 1, 2009. |
|
2) |
|
The Companys Annual Cash Incentive Plan (the Annual Cash Incentive
Plan) provides cash incentives to executive officers based on the Companys overall
financial performance, and, in some cases, individual performance and personal
goals. This income item includes bonus amounts in the year earned rather than in the
year paid. Cash incentive awards are accrued in a range of 10-40% of the
individuals salary. The maximum value payable under each performance award assuming
the highest level of performance is as follows: Patrick J. Moty, $123,750, Samuel D.
Jimenez, $49,800, Linda J. Miles, $66,000, Randall S. Eslick, $43,750 and Ted
Cumming, $44,240. |
|
3) |
|
The value of the stock option award is computed based upon the grant date
fair value, consistent with FASB ASC Topic 718. No options were granted during 2009.
Four options were granted in 2008. Two options were granted during 2007. |
|
4) |
|
The Company pays interest on segregated accounts for the benefit of SERP
beneficiaries. |
|
5) |
|
Other Compensation consists of perquisites and contributions to the SERP. |
|
|
Perquisite expenses represent an automobile for business use or car allowance, and
membership expenses in connection with the use of a private club for business purposes,
particularly for the purpose of entertaining the Banks customers. The officers may have
derived some personal benefit from the use of such automobiles and membership. |
|
|
The Company, after reasonable inquiry, believes that the value of any personal benefit
not directly related to job performance which is derived from the personal use of such
automobile and country club membership does not exceed $10,000 per year in the aggregate
for any single executive officer. Perquisite (automobile and country club membership)
amounts were $11,400, $11,400 and $4,750 for Patrick J. Moty in 2009, 2008 and 2007,
respectively; $8,460 for Samuel D. Jimenez in 2009; $3,468 for Linda Miles in each of
2009, 2008 and 2007; $9,720 for Randall Eslick in each of 2009, 2008 and 2007; and $3,660
for Ted Cumming in 2009. The remaining balance represents contributions made in each year
in connection with the SERP. |
|
|
|
Grants of Plan-Based Awards |
The following table provides information regarding grants of stock options and other plan-based
awards to each of the Companys named executive officers during the fiscal year ended December 31,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential |
|
|
Potential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realizable |
|
|
Realizable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value at |
|
|
Value at |
|
|
|
Number of |
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Assumed |
|
|
Assumed |
|
|
|
Securities |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Annual Rates of |
|
|
Annual Rates of |
|
|
|
Underlying |
|
|
Options |
|
|
|
|
|
|
|
|
|
|
Stock Price |
|
|
Stock Price |
|
|
|
Options |
|
|
Granted to |
|
|
|
|
|
|
|
|
|
|
Appreciation for |
|
|
Appreciation for |
|
|
|
Granted (#) |
|
|
Employees in |
|
|
Exercise Price |
|
|
Expiration |
|
|
Option Term 5 |
|
|
Option Term 10 |
|
Name |
|
(1) |
|
|
Fiscal Year |
|
|
($/Share)(2) |
|
|
Date (3) |
|
|
%($) |
|
|
%($) |
|
|
Patrick J. Moty |
|
|
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Samuel D. Jimenez |
|
|
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Linda J. Miles |
|
|
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Randall Eslick |
|
|
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Ted Cumming |
|
|
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
1) |
|
The right to exercise these stock options vests on an annual basis over a
five-year period from the date of the grant. Under the terms of the Companys stock
plans, the committee designated by the Board of Directors to administer such plans
retains the discretion, subject to certain limitations, to modify, extend or renew
outstanding options and to reprice outstanding options. |
129
|
|
Options may be re-priced by canceling outstanding options and reissuing new options
with an exercise price equal to the fair market value on the date of reissue, which may be
lower than the original exercise price of such canceled options. Repricing options result
in a compensation penalty. |
|
2) |
|
The exercise price is equal to 100% of the fair market value on the date of
grant as determined by the NASDAQ Global Market close the date of the grant. |
|
|
3) |
|
The options have a term of ten years, subject to earlier termination in
certain events related to termination of employment. |
|
|
4) |
|
The five percent and ten percent assumed rates of appreciation are suggested
by the rules of the Securities and Exchange Commission and do not represent the
Companys estimate or projection of the future price of the Common Stock. No assurance
can be given that any of the values reflected in the table will be achieved. |
Outstanding Equity Awards at Fiscal Year End
The following table presents certain information concerning the outstanding stock option awards
held as of December 31, 2009 by each named executive officer of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Awards: |
|
|
|
|
|
|
|
|
|
Number of |
|
|
Securities |
|
|
Number of |
|
|
|
|
|
|
|
|
|
Securities |
|
|
Underlying |
|
|
Securities |
|
|
|
|
|
|
|
|
|
Underlying |
|
|
Unexercised |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
Unexercised |
|
|
Options (#) |
|
|
Unexercised |
|
|
Option |
|
|
Option |
|
|
|
Options (#) |
|
|
Un- |
|
|
Unearned |
|
|
Exercise |
|
|
Expiration |
|
Name |
|
Exercisable |
|
|
exercisable |
|
|
Options (#) |
|
|
Price ($) |
|
|
Date |
|
|
Patrick J. Moty |
|
|
15,600 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
6.67 |
|
|
|
8/1/2011 |
|
Patrick J. Moty |
|
|
1,800 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
7.30 |
|
|
|
7/16/2012 |
|
Patrick J. Moty |
|
|
3,900 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
10.60 |
|
|
|
6/15/2014 |
|
Patrick J. Moty |
|
|
8,000 |
|
|
|
12,000 |
|
|
|
0 |
|
|
$ |
10.49 |
|
|
|
10/16/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel Jimenez |
|
|
7,500 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
10.72 |
|
|
|
1/1/2013 |
|
Samuel Jimenez |
|
|
700 |
|
|
|
2,800 |
|
|
|
0 |
|
|
$ |
6.50 |
|
|
|
10/14/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Linda J. Miles |
|
|
6,000 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
6.75 |
|
|
|
1/1/2013 |
|
Linda J. Miles |
|
|
6,000 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
10.60 |
|
|
|
6/15/2014 |
|
|
Linda J. Miles |
|
|
4,000 |
|
|
|
6,000 |
|
|
|
0 |
|
|
$ |
10.49 |
|
|
|
10/16/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randy Eslick |
|
|
13,500 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
5.42 |
|
|
|
6/1/2011 |
|
Randy Eslick |
|
|
2,250 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
7.30 |
|
|
|
7/16/2012 |
|
Randy Eslick |
|
|
4,500 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
10.60 |
|
|
|
6/15/2014 |
|
Randy Eslick |
|
|
400 |
|
|
|
1,600 |
|
|
|
0 |
|
|
$ |
6.50 |
|
|
|
10/14/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ted Cumming |
|
|
8,100 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
6.67 |
|
|
|
8/1/2011 |
|
Ted Cumming |
|
|
1,350 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
7.30 |
|
|
|
7/16/2012 |
|
Ted Cumming |
|
|
4,500 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
10.60 |
|
|
|
6/15/2014 |
|
Ted Cumming |
|
|
600 |
|
|
|
2,400 |
|
|
|
0 |
|
|
$ |
6.50 |
|
|
|
10/14/2018 |
|
130
Option Exercises and Stock Vested
The following table presents certain information concerning the exercise of options and vesting of
stock awards by each of our named executive officers during the fiscal year ended December 31,
2009, including the value of gains on exercise and the value of the stock awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Vested |
|
|
Options Exercised |
|
|
Value Realized |
|
Name |
|
during 2009 |
|
|
during 2009 |
|
|
($)(1)(2) |
|
|
Patrick J. Moty |
|
|
4,000 |
|
|
|
0 |
|
|
|
0 |
|
Samuel D. Jimenez |
|
|
700 |
|
|
|
0 |
|
|
|
0 |
|
Linda J. Miles |
|
|
2,000 |
|
|
|
0 |
|
|
|
0 |
|
Randall S. Eslick |
|
|
400 |
|
|
|
0 |
|
|
|
0 |
|
Ted Cumming |
|
|
600 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
1) |
|
Based on the fair market value of the Companys Common Stock at December 31, 2009 of
$5.28 per share less the applicable exercise price per share. The fair market value
of the Companys Common Stock at December 31, 2009 was determined based on the last
reported sale of the Companys common stock in 2009 as reported on the NASDAQ Global
Market. |
|
2) |
|
The realized value represents the market value at exercise less the exercise
price. |
Nonqualified Deferred Compensation- Supplemental Executive Retirement Plan
In April 2001, amended December 31, 2006, September 30, 2007, and October 14, 2008, the Board of
Directors approved the implementation of the Supplemental Executive Retirement Plan (SERP), which
is a non-qualified executive benefit plan in which the Company agrees to pay the executive
additional benefits in the future in return for continued satisfactory performance by the
executive.
The payments are fixed by contract and do not depend on years of credited service. The Company
makes contributions to segregated accounts for the benefit of the Salary Continuation Plan
beneficiaries. Benefits under the supplemental executive retirement plan include income generally
payable commencing upon a designated retirement date for the employees life, disability, or
termination of employment, and a death benefit for the participants designated beneficiaries.
Key-man life insurance policies were purchased as an investment to offset the Companys contractual
obligation to pay pre-retirement death benefits and to recover the Companys cost of providing
benefits. The executive is the insured under the policy, while the Company is the owner and
beneficiary. The insured executive has no claim on the insurance policy, its cash value or the
proceeds thereof. A termination resulting from a reason other than specific cause or change of
control will be deemed an early retirement. In the event of an early retirement, the vested balance
will be paid as a lump sum or over a period of five years. In the event of a change in control, the
payment terms are fixed (see discussion below), and would be paid in addition to amounts owned
under the executives employment agreement. In the event of a termination for cause, no payments
will be made to the terminated executive.
The following table illustrates the approximate annual retirement income that may become payable to
a named executive officer assuming benefits commence at age 65, and age 61 in the case of Mrs.
Miles. Mr. Motys and Mrs. Miles benefits are payable over twenty years or life. Mr. Eslick and
Mr. Cumming benefits are payable over a period of ten years.
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Present Value of |
|
Payments |
|
Annual |
|
Vested Balance |
|
|
Years Credited |
|
Accumulated |
|
During Last |
|
Retirement |
|
at Last Fiscal |
Name |
|
Service (#) |
|
Benefit ($) |
|
Fiscal Year ($) |
|
Benefit |
|
Year |
|
Patrick J. Moty |
|
|
4 |
|
|
$ |
275,765 |
|
|
$ |
0 |
|
|
$ |
150,000 |
|
|
$ |
275,865 |
|
Samuel D. Jimenez |
|
|
1 |
|
|
$ |
19,450 |
|
|
$ |
0 |
|
|
$ |
100,000 |
|
|
$ |
19,450 |
|
Linda J. Miles |
|
|
9 |
|
|
$ |
698,554 |
|
|
$ |
0 |
|
|
$ |
125,000 |
|
|
$ |
698,554 |
|
Randall S. Eslick |
|
|
4 |
|
|
$ |
89,996 |
|
|
$ |
0 |
|
|
$ |
100,000 |
|
|
$ |
89,966 |
|
Ted Cumming |
|
|
1 |
|
|
$ |
19,609 |
|
|
$ |
0 |
|
|
$ |
50,000 |
|
|
$ |
19,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registrant |
|
|
|
|
|
|
|
|
|
|
Contributions in |
|
Aggregate |
|
Aggregate |
|
Aggregate |
|
Vested Balance |
|
|
Last Fiscal Year |
|
Earnings in Last |
|
Withdrawals/ |
|
Balance at Last |
|
at Last Fiscal |
Name |
|
($) |
|
Fiscal Year ($) |
|
Distributions ($) |
|
Fiscal Year ($) |
|
Year |
|
Patrick J. Moty |
|
$ |
81,217 |
|
|
$ |
21,967 |
|
|
$ |
0 |
|
|
$ |
275,865 |
|
|
$ |
275,865 |
|
Samuel D. Jimenez |
|
$ |
18,765 |
|
|
$ |
686 |
|
|
$ |
0 |
|
|
$ |
19,450 |
|
|
$ |
19,450 |
|
Linda J. Miles |
|
$ |
78,032 |
|
|
$ |
62,189 |
|
|
$ |
0 |
|
|
$ |
698,554 |
|
|
$ |
698,554 |
|
Randall S. Eslick |
|
$ |
35,223 |
|
|
$ |
6,658 |
|
|
$ |
0 |
|
|
$ |
89,966 |
|
|
$ |
89,966 |
|
Ted Cumming |
|
$ |
18,712 |
|
|
$ |
900 |
|
|
$ |
0 |
|
|
$ |
19,609 |
|
|
$ |
19,609 |
|
The retirement benefit is derived from accruals to a benefit account during the participants
employment. At the end of the executives period of service, the aggregate amount accrued should
equal the then present value of the benefits expected to be paid to the executive. The participant
is entitled to all vested benefits in the case of termination without cause; however, if a
participant voluntarily resigns prior to reaching normal retirement age, his or her retirement
benefits are reduced by accrual amounts not yet funded. Upon a change of control, the participant
is entitled to the full retirement benefit.
Potential Payments Upon Termination or Change in Control
No payments under employment agreements would have been payable at December 31, 2009 due to TARP
restrictions. The following table sets out the amounts that would have been payable to the named
executive officers at December 31, 2009 if the TARP rules did not apply: (a) upon a change of
control, and (b) as a result of termination other than termination arising from a change of
control, assuming in each case that the payments were made as a lump sum.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Upon a |
|
Termination Other Than |
|
|
Change in Control |
|
Change in Control |
|
|
|
|
|
|
|
|
|
|
Payments under |
|
|
|
|
Payments under |
|
Salary |
|
employment |
|
Salary |
|
|
employment |
|
Continuation Plan |
|
agreements |
|
Continuation Plan |
Name |
|
agreements ($)(1) |
|
Payments ($)(2) |
|
($)(3) |
|
Payments ($)(4) |
|
Patrick J. Moty |
|
$ |
730,896 |
|
|
$ |
1,094,123 |
|
|
$ |
365,448 |
|
|
$ |
275,865 |
|
Samuel D. Jimenez |
|
$ |
248,237 |
|
|
$ |
583,087 |
|
|
$ |
248,237 |
|
|
$ |
19,450 |
|
Linda J. Miles |
|
$ |
714,604 |
|
|
$ |
1,019,874 |
|
|
$ |
357,032 |
|
|
$ |
698,554 |
|
Randall S. Eslick |
|
$ |
263,051 |
|
|
$ |
675,833 |
|
|
$ |
263,051 |
|
|
$ |
89,996 |
|
Ted Cumming |
|
$ |
212,690 |
|
|
$ |
536,226 |
|
|
$ |
212,690 |
|
|
$ |
19,609 |
|
|
|
|
1) |
|
Under employment agreements at a change of control, severance pay for the Chief
Executive Officer and Executive Vice President is equal to two years of most recent
total compensation package as of the date of such executives termination. Change of
control, severance pay is equal to one year of most recent total compensation package
as of the date of such executives termination. |
|
2) |
|
SERP payments are limited under IRS Section 280-G to three times the average
total compensation package. |
|
3) |
|
In the event employment is terminated determined for cause, the executive
shall only be paid any accrued salary calculated as of the date of the executives
termination. In the event employment is terminated for any other reason, the executive
shall be entitled to twelve months of such executives then total compensation package
to be paid in a lump sum. |
|
4) |
|
Vested portion of salary continuation plan. |
132
Director Compensation
The following is a summary of the compensation earned by the Companys Board of Directors during
the fiscal year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Non-Equity |
|
|
Deferred |
|
|
All Other |
|
|
|
|
|
|
Fees earned |
|
|
Stock |
|
|
Option |
|
|
Incentive |
|
|
Compensation |
|
|
Compensation |
|
|
|
|
|
|
or paid in |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Earnings |
|
|
(Deferred) |
|
|
Total |
|
Director |
|
cash ($) |
|
|
($) |
|
|
($)(1) |
|
|
($) |
|
|
($)(2) |
|
|
($) |
|
|
($) |
|
|
Gary Burks |
|
|
$18,900 |
|
|
|
$0 |
|
|
|
$0 |
|
|
|
$0 |
|
|
$ |
0 |
|
|
|
$0 |
|
|
|
$18,900 |
|
Orin N. Bennett |
|
|
$26,153 |
|
|
|
$0 |
|
|
|
$0 |
|
|
|
$0 |
|
|
$ |
5,562 |
|
|
|
$0 |
|
|
|
$31,695 |
|
Dave Bonuccelli |
|
|
$17,050 |
|
|
|
$0 |
|
|
|
$0 |
|
|
|
$0 |
|
|
$ |
1,815 |
|
|
|
$0 |
|
|
|
$18,865 |
|
Welton Carrel (3) |
|
|
$11,050 |
|
|
|
$0 |
|
|
|
$0 |
|
|
|
$0 |
|
|
$ |
31,570 |
|
|
|
$0 |
|
|
|
$42,620 |
|
Russell L. Duclos |
|
|
$31,350 |
|
|
|
$0 |
|
|
|
$0 |
|
|
|
$0 |
|
|
$ |
26,479 |
|
|
|
$0 |
|
|
|
$57,829 |
|
Kenneth R. Gifford, Jr. |
|
|
$38,750 |
|
|
|
$0 |
|
|
|
$0 |
|
|
|
$0 |
|
|
$ |
35,335 |
|
|
|
$0 |
|
|
|
$74,085 |
|
Jon Halfhide |
|
|
$18,850 |
|
|
|
$0 |
|
|
|
$0 |
|
|
|
$0 |
|
|
$ |
3,840 |
|
|
|
$0 |
|
|
|
$22,690 |
|
David H. Scott |
|
|
$35,150 |
|
|
|
$0 |
|
|
|
$0 |
|
|
|
$0 |
|
|
$ |
17,634 |
|
|
|
$0 |
|
|
|
$52,784 |
|
Lyle L. Tullis |
|
|
$20,650 |
|
|
|
$0 |
|
|
|
$0 |
|
|
|
$0 |
|
|
$ |
12,613 |
|
|
|
$0 |
|
|
|
$33,263 |
|
|
|
|
1) |
|
The value of the stock option award is computed based upon the grant date fair
value, consistent with FASB ASC Topic 718. |
|
2) |
|
Long term directors have had the opportunity to defer fee income as of
January 1, 1993. Item (2) represents the interest paid on such balances. Differences
in earnings are based upon the balances in the deferred accounts. |
|
3) |
|
Mr. Carrel retired from the Companys Board of Directors effective May 31,
2009. |
Annual Compensation
Compensation paid to non-employee directors consists of cash (in the form of a monthly retainer and
meeting fees) and equity (in the form of stock option grants) and participation in the Directors
Deferred Compensation Plan. The Compensation Committee is responsible for all matters related to
directors compensation in connection with reviewing and establishing or recommending to the Board
of Directors non-employee director compensation. Generally, the Compensation Committee will review
the amount of director compensation at least annually. For purposes of establishing director
compensation, the Compensation Committee evaluated directors compensation as compared to detailed
public company information provided by Equilar®, a leading marketer for benchmarking executive
compensation and a trusted data provider to NASDAQ. As a result of the benchmarking, our director
compensation fell in the 53rd percentile.
A director who is an officer/employee of the Company or of a subsidiary is not compensated for his
or her membership on the Board of Directors.
Monthly Retainer and Meeting Fees
Each independent director of the Company receives a $500 monthly retainer. Independent Directors
are paid $800 for each Board of Directors meeting attended and $250 for each committee meeting
attended. Committee chairpersons are paid an additional $50 per meeting. The Chairman of the Board
is paid an additional $750 per month and the Chairman of the Audit Committee is paid an additional
$375 per month.
133
Equity Compensation
Independent directors are also eligible to participate in the 2008 Stock Option Plan, as determined
by the Compensation Committee. A non-employee director may receive a stock option at a discounted
exercise price per share equal to 85% of the closing price of one share of common stock as reported
on NASDAQ on the date of the meeting when the option is granted.
Compensation Committee Interlocks and Insider Participation
Almost all of our directors and some of their respective family members and or affiliated entities
had certain relationships and/or transactions with the Company, as described below.
Family Relationships
No current directors have family members who are employed by the Company or a subsidiary.
Lending and Other Ordinary Business Transactions
Almost all of our directors as well as some of their respective family members and/or
affiliated entities engaged in loan transactions and/or had other extensions of credit in the
ordinary course of business with our banking and mortgage subsidiaries. All of these transactions
were on substantially the same terms, including interest rates, collateral and repayment and other
terms, as those available at the time for similar transactions with unrelated parties. None of
these loans or credit transactions involves more than the normal risk of collectability or presents
other unfavorable features.
Policy and Procedures on Related Person Transactions
The Company adopted its Code of Ethics to promote a tone at the top of highest ethical standards
within the Company. The Code of Ethics requires all Company personnel to make immediate disclosure
of situations that might create a conflict of interest, or the perception of a conflict of
interest, which includes transactions involving entities with which such personnel are associated.
The Board of Directors recognizes that related party transactions present a heightened risk of
conflicts of interest and/or improper valuation (or the perception thereof). Such transactions,
after full disclosure of the material terms to the Board, must be approved by the members of the
Board who are not parties to the specific transaction and to determine that the transactions are
just and reasonable to the Company at the time of such approval, with those members of the Board
(if any) who have an interest in the transaction abstaining. Such procedures are consistent with
the terms of California corporate law but the Company does not presently have a written policy
evidencing such terms.
No member of the Executive Compensation Committee of the Board of Directors serves or has served as
a bank officer or employee of Bank of Commerce Holdings or its subsidiaries.
134
Compensation Committee Report
The Executive Compensation Committee is appointed by the Board of Directors to discharge its
responsibilities relating to compensation for the Companys directors and officers. The Executive
Compensation Committee has overall responsibility for approving and evaluating the director and
officer compensation plans, policies and programs of the Company. All actions taken by the
Executive Compensation Committee are ratified by the full Board of Directors of the Company. The
Executive Compensation Committee has the sole authority to retain and terminate any legal counsel
or compensation or other consultant to be used to assist in the evaluation of directors or
executive compensation and has sole authority to approve the consultants fees and other retention
terms. We have reviewed and discussed the foregoing Compensation Discussion and Analysis with
management. Based on our review and discussion with management, we have recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form
10-K for the year ended December 31, 2009.
In addition, in connection with its participation in the United States Department of Treasurys
Troubled Asset Relief Program Capital Purchase Program, the Executive Compensation Committee is
required to meet every six months with the Companys Chief Risk Officer or other senior risk
officers to discuss and review the relationship between the Companys risk management policies and
practices and its senior executive officer (SEO) incentive compensation arrangements, identifying
and making reasonable efforts to limit any features in such compensation arrangements that might
lead to the SEOs taking unnecessary or excessive risks that could threaten the value of the
Company. The Executive Compensation Committee, on behalf of the Company, must certify that it has
completed the review and taken any necessary actions. In addition, Treasury Guidance (TG-15),
issued February 4, 2009, requires that companies participating in a generally available capital
program explain why compensation arrangements do not encourage excessive and unnecessary
risk-taking.
In response to this requirement, during the first quarter 2010 the Compensation Committee met with
Robert Oberg, who has been identified by the Board as the Companys Chief acting Risk Officer. The
Chief Risk Officer presented the Executive Compensation Committee with an overview of the Companys
overall risk structure and the top risks identified within the Company, and discussed the process
by which he had analyzed the risks associated with the executive compensation program. This process
included, among other things, a comprehensive review of the program and discussions with senior
Human Resources personnel of the Company. Incentive compensation is measured and paid to each SEO
based on both the Companys performance and individual performance. In assessing the officers
total awards, the Executive Compensation Committee reviews each component of an officers
compensation and considers and evaluates pay mix, the competitive market, the value of total pay,
benefits and perquisites. These reviews are recorded in a survey format. The Companys Chief Risk
Officer has reviewed the Executive Compensation Committee surveys and concluded that the Companys
incentive compensation plan does not significantly incent SEOs to take excessive or unnecessary
risk that may significantly result in a material devaluation of the Company. In general, the
committees responses suggest that the Companys overall executive compensation incentives pose a
low risk to the devaluation of the Company. The responses also suggest that, in the committees
opinion, the Companys long-term incentives tend to results in a medium level of credit risk. A
medium level of risk, particularly credit risk, is to be expected as typical of all financial
institutions whose value is dependent upon the taking of risk.
The Executive Compensation Committee reviewed with the Chief Risk Officer the structure of the
Companys overall executive compensation program. This review included, without limitation, the
upside and downside compensation potential under the Companys annual incentive plans; the
long-term view encouraged by the design and vesting features of the Companys long-term incentive
arrangements; and the extent to which the Executive Compensation Committee and the Companys
management monitor the program. Based on its analysis of these and other factors, the Executive
Compensation Committee determined that the Companys executive compensation program does not
encourage the SEOs to take unnecessary and excessive risks that threaten the value of the Company,
and that no changes to the program were required for this purpose.
135
The required certification of the Executive Compensation Committee is provided in the Compensation
and Human Resources Committee Report set forth following this Compensation Discussion and Analysis.
March 5, 2010
Respectfully submitted by the members of the Executive Compensation Committee,
Jon Halfhide, Chairman of the Executive Compensation Committee
Orin Bennett
Gary Burks
136
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information regarding beneficial ownership of the Companys
Common Stock as of March 05, 2010 by:
|
|
|
each person who is known by the Company to beneficially own more than five percent of
the Companys Common Stock, |
|
|
|
|
each of the Companys directors and nominees, |
|
|
|
|
each of the named executive officers, and |
|
|
|
|
all directors and executive officers of the Company as a group. |
Unless otherwise noted below, the address of each beneficial owner listed on the tables is c/o Bank
of Commerce Holdings, 1951 Churn Creek Road, Redding, California 96002. We have determined
beneficial ownership in accordance with the rules of the Securities and Exchange Commission. Except
as indicated by the footnotes below, we believe, based on the information furnished to us, that the
persons and entities named in the tables below have sole voting and investment power with respect
to all shares of Common Stock that they beneficially own, subject to applicable community property
laws. We have based our calculation of the percentage of beneficial ownership on 8,711,495 shares
of Common Stock outstanding on March 5, 2010.
In computing the number of shares of Common Stock beneficially owned by person and the percentage
ownership of that person, we deemed outstanding shares of Common Stock subject to options held by
that person that are currently exercisable or exercisable within 60 days of March 5, 2010. We did
not deem these shares outstanding, however, for the purpose of computing the percentage ownership
of any other person.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares of Common |
|
Percentage |
Name and Address of Beneficial Owner |
|
Stock Beneficially Owned |
|
of Class |
Robert C. Anderson (1) |
|
|
537,210 |
|
|
|
6.17 |
% |
Harry L. Grashoff, Jr. (2) |
|
|
497,395 |
|
|
|
5.71 |
% |
Kenneth R. Gifford, Jr. (3) |
|
|
256,560 |
|
|
|
2.95 |
% |
Patrick J. Moty (4) |
|
|
164,924 |
|
|
|
1.89 |
% |
Russell L. Duclos (5) |
|
|
150,000 |
|
|
|
1.72 |
% |
Lyle L. Tullis (6) |
|
|
133,620 |
|
|
|
1.53 |
% |
David H. Scott (7) |
|
|
99,211 |
|
|
|
1.14 |
% |
Orin Bennett (8) |
|
|
47,600 |
|
|
|
0.55 |
% |
Linda J. Miles (9) |
|
|
35,750 |
|
|
|
0.41 |
% |
Randall S. Eslick (10) |
|
|
25,109 |
|
|
|
0.29 |
% |
Jon Halfhide (11) |
|
|
18,880 |
|
|
|
0.22 |
% |
Ted Cumming (12) |
|
|
14,550 |
|
|
|
0.17 |
% |
Joe Gibson (13) |
|
|
9,500 |
|
|
|
0.11 |
% |
Sam Jimenez (14) |
|
|
8,200 |
|
|
|
0.09 |
% |
Dave Bonuccelli (15) |
|
|
7,495 |
|
|
|
0.09 |
% |
Gary Burks (16) |
|
|
1,760 |
|
|
|
0.02 |
% |
|
|
|
|
|
|
|
|
|
All directors, executive officers and
beneficial owners as a group (16
persons) |
|
|
2,007,764 |
|
|
|
23.05 |
% |
|
|
|
|
|
|
|
|
|
137
1) |
|
The address of Mr. Anderson is 1960 Bechelli Lane, Redding, California 96002.
Includes 537,210 shares held by the Anderson Family Revocable Living Trust, of which
Mr. Anderson is a co-trustee and shares voting and investment power with respect to
such shares. Mr. Anderson is retired as Founding Chairman of the Board of the Company. |
|
2) |
|
The address of Mr. Grashoff is 3162 Pinot Path, Redding, California 96001.
Includes 456,145 shares held by the Grashoff Family Revocable Trust of which Mr.
Grashoff and his spouse are co-trustees, 18,612 shares held separately in his spouses
IRA account, 22,638 held individually in an IRA account. Mr. Grashoff is the Founding
President & CEO and Retired Chairman of the Company. |
|
3) |
|
Includes 236,760 shares held jointly with Mr. Giffords spouse and 19,800
shares held by Gifford Construction, Inc. |
|
4) |
|
Includes 50,100 shares jointly with Mr. Motys spouse, 85,524 shares in the
Bank of Commerce 401(k) Plan to which Mr. Moty has voting powers as Trustee and 29,300
shares issuable to Mr. Moty upon the exercise of options exercisable within 60 days of
March 31, 2010. |
|
5) |
|
Includes 150,000 shares held by the Duclos Family Trust of whom Mr. Duclos
and his spouse are co-trustees. |
|
6) |
|
Includes 125,583 shares held jointly with Mr. Tullis spouse and 7,000 shares
held separately in his spouses name and 1,037 shares issuable to Mr. Tullis upon the
exercise of options exercisable within 60 days of March 31, 2010. |
|
7) |
|
Includes 75,991 shares held jointly with Mr. Scotts spouse, 204 shares held
individually by his spouse, 6,991 shares in 401(k) retirement plan, 16,025 shares in
his spouses individual retirement account. |
|
8) |
|
Includes 2,000 shares held jointly with Mr. Bennetts spouse, 36,000 shares
held by the Bennett Family Revocable Trust and 9,600 shares issuable to Mr. Bennett
upon the exercise of options exercisable within 60 days of March 31, 2010. |
|
9) |
|
Includes 19,750 shares held by the Miles Family Trust of whom Mrs. Miles and
her spouse are co-trustees, and 16,000 shares issuable to Ms. Miles upon the exercise
of options exercisable within 60 days of March 31, 2010. |
|
10) |
|
Includes 5,109 shares held individually in an IRA account and 18,000 shares
issuable to Mr. Eslick upon the exercise of options exercisable within 60 days of
March 31, 2010. |
|
11) |
|
Includes 10,700 shares held by the Halfhide Family Trust of which Mr.
Halfhide is co-trustee with his spouse Teresa, 500 shares held jointly with his
spouse, and 7,680 shares issuable to Mr. Halfhide upon the exercise of options
exercisable within 60 days of March 31, 2010. |
|
12) |
|
Includes 14,550 shares issuable to Mr. Cumming upon the exercise of options
exercisable within 60 days of March 31, 2010. |
|
13) |
|
Includes 9,500 shares held individually by Mr. Gibson. |
|
14) |
|
Includes 8,200 shares issuable to Mr. Jimenez upon the exercise of options
exercisable within 60 days of March 31, 2010. |
|
15) |
|
Includes 7,495 shares held in two retirement plan trusts of which Mr.
Bonuccelli is trustee. |
|
16) |
|
Includes 1,760 shares held jointly by Mr. Burks and his spouse Ramona. |
138
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Some of the directors, officers and principal shareholders of the Company and their associates were
customers of and had banking transactions with the Company in the ordinary course of the Companys
business during 2009 and the Company expects to have such transactions in the future.
All loans and commitments included in such transactions were made in compliance with the applicable
laws on substantially the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with other persons of similar creditworthiness, and in the
opinion of the Company, did not involve more than a normal risk of collectability or present other
unfavorable features.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed by Moss Adams LLP, for professional services rendered for the audit of
the Companys annual financial statements for the fiscal years ended December 31, 2009 and 2008 and
for the reviews of the financial statements included in the Companys Quarterly Reports on Form
10-Q for those fiscal years were $197,636 and $166,426, respectively.
Audit-Related Fees
Moss Adams LLP, did not render any professional services for information technology services
relating to financial information systems design and implementation for the fiscal years ended
December 31, 2009 and December 31, 2008.
Tax Fees
Moss Adams LLP did not render any professional services for tax compliance, tax advice, or tax
planning during 2009. Tax fees paid in 2009 was approximately $9,500 and paid in 2008 was
approximately $7,500.
All Other Fees
The aggregate fees billed by Moss Adams LLP for services rendered to the Company, other that the
services described under Audit Fees and Audit-Related Fees and tax fees amount to $0 and $0 for
the fiscal years December 31, 2009 and 2008, respectively.
In discharging its oversight responsibility with respect to the audit process, the Audit Committee
of the Board of Directors obtained from the independent auditors a formal written statement
describing all relationships between the auditors and the Company that might bear on the auditors
independence consistent with Independence Standards Board Standard No. 1, Independence Discussions
with Audit Committees, discussed with the auditors any relationships that may impact their
objectivity and independence and satisfied itself as to the auditors independence. The Committee
also discussed with management and the independent auditors the quality and adequacy of Bank of
Commerce Holdings internal controls and the outsourced audit functions, responsibilities,
budgeting and staffing. The Committee reviewed with the independent auditors their audit plans,
audit scope and identification of audit risks.
139
The Committee discussed and reviewed with the independent auditors all communications required by
auditing standards generally accepted in the United States of America, including those described in
Statement on Auditing Standards No. 61, as amended, Communication with Audit Committees, and
discussed and reviewed the results of the independent auditors audit of the financial statements.
The Committee also discussed the results of the internal audit examinations.
140
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) |
|
The following documents are filed as a part of this Form 10-K: |
|
(1) |
|
Financial Statements: |
|
|
|
|
Reference is made to the Index to Consolidated Financial Statements under Item 8 in Part II of this Form 10-K. |
|
|
(2) |
|
Financial Statement Schedules: |
|
|
|
|
All schedules are omitted because they are not applicable or the required information
is shown in the financial statements or notes thereto. |
|
|
(3) |
|
Exhibits: |
|
|
|
Exhibit |
|
|
Number |
|
Description of Document |
3.1
|
|
Articles of Incorporation, as amended, incorporated by reference to EX-3.1 of the Form 10-12G
filed 12/4/1998. |
|
|
|
3.2
|
|
Bylaws, as amended, incorporated by reference to EX-3.1 of the Form 8-K filed 05/15/2007. |
|
|
|
4.1
|
|
Specimen Common Stock Certificate, incorporated by reference to EX-4.1 of the Form 10-12G filed 12/4/1998. |
|
|
|
4.2
|
|
Certificate of determination for the Series A Preferred Stock, incorporated by reference to EX-4.1 of the
Form 8-K filed 11/19/2008. |
|
|
|
4.3
|
|
Form of Certificate for the Series A Preferred Stock, incorporated by reference to EX-4.2 of the Form 8-K
filed 11/19/2008. |
|
|
|
4.4
|
|
Warrant for purchase of shares of Common stock, incorporated by reference to EX-4.3 of the Form 8-K filed
11/19/2008. |
|
|
|
10.1
|
|
Letter Agreement, dated November 14, 2008, between Bank of Commerce Holdings and the United States
Department of the Treasury, which includes the Securities Purchase Agreement Standard terms attached
thereto, with respect to the issuance of the Series A Preferred Stock and Warrant, incorporated by
reference to EX-10.1 of the Form 8-K filed 11/19/2008. |
|
|
|
10.2
|
|
Office Building Lease between Gairn Partnership/First Avenue Square and Redding Bank of Commerce dated
July 16, 1998, incorporated by reference to EX-10.2 of the Form 10-12G filed 12/4/1998. |
|
|
|
10.3
|
|
1998 Stock Option Plan, incorporated by reference to EX-10.3 of the Form 10-12G filed 12/4/1998. |
|
|
|
10.4
|
|
Form of Incentive Stock Option Agreement used in connection with 1998 Stock Option Plan, incorporated by
reference to EX-10.4 of the Form 10-12G filed 12/4/1998. |
|
|
|
10.5
|
|
Form of Non-statutory Stock Option Agreement used in connection with 1998 Stock Option Plan, incorporated
by reference to EX-10.5 of the Form 10-12G filed 12/4/1998. |
|
|
|
10.7
|
|
Directors Deferred Compensation Plan, incorporated by reference to EX-10.7 of the Form 10-12G filed
12/4/1998. |
|
|
|
10.8
|
|
Form of Deferred Compensation Agreement Used In Connection With Directors Deferred Compensation Plan,
incorporated by reference to EX-10.8 of the Form 10-12G filed 12/4/1998. |
|
|
|
10.10
|
|
Employment contracts dated April 2001, incorporated by reference to EX-10.10 of the Form 8-K filed
9/27/2001. |
|
|
|
10.11
|
|
Affiliated Business Arrangement Agreement, incorporated by reference to EX-10.11 of the Form 8-K filed
8/20/2004. |
|
|
|
10.12
|
|
Office building lease by and between Waybright #3 Partners and Redding Bank of Commerce dated
9/23/2005 incorporated by reference to EX-99.1 of the Form 8-K filed 9/26/2005. |
|
|
|
10.13
|
|
Amendment to Employment contracts dated April 2001, incorporated by reference to EX-99.1 &99.2 of the
Form 8-K filed 12/21/2005. |
|
|
|
10.14
|
|
Change in Control Agreements, incorporated by reference to EX-99.1-99.4 of the Form 8-K filed 12/21/2005. |
|
|
|
10.15
|
|
Salary Continuation Blais, incorporated by reference to EX-10.15 of the Form 8-K filed 12/19/2006. |
|
|
|
10.16
|
|
Salary Continuation Moty, incorporated by reference to EX-10.16 of the Form 8-K filed 12/19/2006. |
|
|
|
10.17
|
|
Salary Continuation Eslick, incorporated by reference to EX-10.17 of the Form 8-K filed 12/19/2006. |
141
|
|
|
Exhibit |
|
|
Number |
|
Description of Document |
10.19
|
|
Employment Agreement Miles, incorporated by reference to EX-10.19 of the Form 8-K filed 1/03/2007. |
|
|
|
10.21
|
|
Salary Continuation Miles, incorporated by reference to EX-10.21 of the Form 8-K filed 1/03/2007. |
|
|
|
10.22
|
|
Employment Agreement Moty, incorporated by reference to EX-10.22 of the Form 8-K filed 9/27/2007. |
|
|
|
10.23
|
|
Salary Continuation Moty, incorporated by reference to EX-10.23 of the Form 8-K filed 9/28/2007. |
|
|
|
10.24
|
|
Employment contracts dated October 14, 2008, incorporated by reference to EX-10.22 of the Form 8-K filed
10/17/2008. |
|
|
|
10.25
|
|
Employment Agreement Matranga, incorporated by reference to EX-10.22 of the Form 8-K filed 11/26/2008. |
|
|
|
14.0
|
|
Bank of Commerce Code of Ethics, incorporated by reference to EX-10.12 of the Form 8-K filed 2/26/2003. |
|
|
|
21.1
|
|
Subsidiaries of the Company, incorporated by reference to EX-21.1 of the Form 10-12G filed 12/4/1998. |
|
|
|
23.1
|
|
Consent of Moss Adams LLP |
|
|
|
24.1
|
|
Power of Attorney see page 144. |
|
|
|
31.1
|
|
Certification of Patrick J. Moty pursuant to Exchange Act Rule 13a-14(a) or 15d 14(a) as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2
|
|
Certification of Samuel D. Jimenez pursuant to Exchange Act Rule 13a-14(a) or 15d 14(a) as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1
|
|
Certification pursuant to Section 1350. |
|
|
|
99.1
|
|
Certification of Chief Executive Officer Pursuant to Section 111(b)(4) of the Emergency Economic
Stabilization Act of 2008 |
|
|
|
99.2
|
|
Certification of Chief Financial Officer Pursuant to Section 111(b)(4) of the Emergency Economic
Stabilization Act of 2008 |
142
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on March 05, 2010.
|
|
|
|
|
|
BANK OF COMMERCE HOLDINGS
|
|
|
By |
/s/ Patrick J. Moty
|
|
|
|
Patrick J. Moty |
|
|
|
President, Chief Executive
Officer and Director of Redding Bank of
Commerce |
|
|
143
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Patrick J. Moty and Samuel D. Jimenez, and each of them, his true and lawful
attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign
any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying
and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Company and in the capacities and on the dates
indicated:
|
|
|
|
|
Name |
|
Title |
|
Date |
/s/ Patrick J. Moty
|
|
President, Chief Executive Officer and
|
|
March 05, 2010 |
|
|
|
|
|
/s/ Samuel D. Jimenez
|
|
Senior Vice President and Chief
Financial Officer (Principal
Financial
and Accounting Officer)
|
|
March 05, 2010 |
|
|
|
|
|
/s/ Kenneth R. Gifford, Jr.
|
|
Chairman of the Board
|
|
March 05, 2010 |
|
|
|
|
|
/s/ Russell L. Duclos
|
|
Director
|
|
March 05, 2010 |
|
|
|
|
|
/s/ David H. Scott
|
|
Director
|
|
March 05, 2010 |
|
|
|
|
|
/s/ Lyle L. Tullis
|
|
Director
|
|
March 05, 2010 |
|
|
|
|
|
/s/ Jon Halfhide
|
|
Director
|
|
March 05, 2010 |
|
|
|
|
|
/s/ Orin Bennett
|
|
Director
|
|
March 05, 2010 |
|
|
|
|
|
/s/ Gary Burks
|
|
Director
|
|
March 05, 2010 |
|
|
|
|
|
/s/ Dave Bonuccelli
|
|
Director
|
|
March 05, 2010 |
|
|
|
|
|
/s/ Joseph Gibson
|
|
Director
|
|
March 05, 2010 |
144