ex_160295.htm

EX-99.1 2 ex_160295.htm EXHIBIT 99.1 ex_160295.htm

Exhibit 99.1

For Immediate Release:

Bank of Commerce Holdings Announces Results for the Third Quarter of 2019

SACRAMENTO, California, October 18, 2019 / GLOBE NEWSWIRE—Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.472 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter ended September 30, 2019. Net income for the quarter ended September 30, 2019 was $4.6 million or $0.26 per share – diluted, compared with net income of $4.0 million or $0.25 per share – diluted for the same period of 2018. Net income for the nine months ended September 30, 2019 was $10.6 million or $0.59 per share – diluted, compared with net income of $10.9 million or $0.67 per share – diluted for the same period of 2018.

The current year includes the benefits of our January 31, 2019 acquisition of Merchants National Bank of Sacramento (“Merchants”). In May, we successfully converted all of Merchant’s computer records onto our core system. As previously announced, the Company’s subsidiary bank, which had been operating under multiple names, simultaneously changed the name for all locations to Merchants Bank of Commerce. To date, acquisition related costs have totaled $2.2 million and costs related to the name change have totaled $501 thousand. All significant costs for these two projects have now been absorbed.

Randall S. Eslick, President and CEO commented: “The Company performed solidly during the third quarter which reflects the benefits derived from our acquisition of Merchants National Bank earlier in the year. With the successful integration of Merchants now complete, we are again wholly focused on leveraging our talented business relationship teams to meet customer needs and achieve our organic growth goals.”

Financial highlights for the third quarter of 2019:

●

Net income of $4.6 million was an increase of $610 thousand (15%) from $4.0 million earned during the same period in the prior year. Earnings of $0.26 per share – diluted was an increase of $0.01 (4%) from $0.25 per share – diluted earned during the same period in the prior year and reflects the impact of 1,834,142 shares of common stock issued during the first quarter of 2019 as part of our acquisition of Merchants.

●	Net interest income increased $1.6 million (13%) to $13.7 million compared to $12.1 million for the same period in the prior year.

●	Net interest margin improved to 4.00% compared to 3.91% for the same period in the prior year

●	Return on average assets increased to 1.26% compared to 1.23% for the same period in the prior year.

●	Return on average equity decreased to 10.86% compared to 12.16% for the same period in the prior year.

●	Average loans totaled $1.030 billion, an increase of $99 million (11%) compared to average loans for the same period in the prior year.

●	Average earning assets totaled $1.360 billion, an increase of $130 million (11%) compared to average earning assets for the same period in the prior year.

●	Average deposits totaled $1.255 billion, an increase of $145 million (13%) compared to average deposits for the same period in the prior year.

Average non-maturing deposits totaled $1.097 billion, an increase of $151 million (16%) compared to the same period in the prior year.

Average certificates of deposit totaled $157.6 million, a decrease of $5.7 million (3%) compared to same period in the prior year.

●	The Company’s efficiency ratio was 56.4% compared to 58.4% during the same period in the prior year.

●	Nonperforming assets at September 30, 2019 totaled $12.8 million or 0.87% of total assets, an increase of $9.0 million since September 30, 2018. The increase in nonperforming assets results from one $10.1 million commercial real estate loan.

●	Book value per common share was $9.42 at September 30, 2019 compared to $8.14 at September 30, 2018.

●	Tangible book value per common share was $8.51 at September 30, 2019 compared to $8.03 at September 30, 2018.

Financial highlights for the nine months ended September 30, 2019:

●

Net income of $10.6 million ($0.59 per share – diluted) was a decrease of $299 thousand (3%) from $10.9 million ($0.67 per share – diluted) earned during the same period in the prior year and reflects the impact of 1,834,142 shares of common stock issued during the first quarter of 2019 as part of our acquisition of Merchants.

●	Acquisition costs associated with our acquisition of Merchants totaled $2.2 million. Costs related to the name change of our subsidiary bank totaled $501 thousand.

●	Net interest income increased $5.2 million (15%) to $40.2 million compared to $35.1 million for the same period in the prior year.

●	Net interest margin improved to 3.98% compared to 3.88% for the same period in the prior year

●	Return on average assets decreased to 0.98% compared to 1.14% for the same period in the prior year.

●	Return on average equity decreased to 8.74% compared to 11.29% for the same period in the prior year.

●	Average loans totaled $1.017 billion, an increase of $104 million (11%) compared to average loans for the same period in the prior year.

●	Average earning assets totaled $1.350 billion, an increase of $143 million (12%) compared the same period in the prior year.

●	Average deposits totaled $1.232 billion, an increase of $154 million (14%) compared the same period in the prior year.

Average non-maturing deposits totaled $1.069 billion, an increase of $163 million (18%) compared to the same period in the prior year.

Average certificates of deposit totaled $163.0 million, a decrease of $8.9 million (5%) compared to the same period in the prior year.

●	The Company’s efficiency ratio was 66.5% compared to 61.5% for the same period in the prior year.

The Company’s efficiency ratio of 66.5% for the first nine months of 2019 includes $2.2 million in acquisition costs and $501 thousand in name change costs. The efficiency ratio excluding these non-recurring costs was 60.3%.

●	Nonperforming assets at September 30, 2019 totaled $12.8 million or 0.87% of total assets, an increase of $8.7 million since December 31, 2018. The increase in nonperforming assets results from one $10.1 million commercial real estate loan.

●	Book value per common share was $9.42 at September 30, 2019 compared to $8.47 at December 31, 2018.

●	Tangible book value per common share was $8.51 at September 30, 2019 compared to $8.36 at December 31, 2018.

Forward-Looking Statements

Bank of Commerce Holdings wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995. This news release includes statements by the Company, which describe management’s expectations and developments, which may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21B of the Securities Act of 1934, as amended. Future events are difficult to predict, and the expectations described above are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely. In addition to discussions about risks and uncertainties set forth from time to time in the Company's public filings, factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: (1) local, national and international economic conditions are less favorable than expected or have a more direct and pronounced effect on the Company than expected and adversely affect the Company's ability to continue its internal growth at historical rates and maintain the quality of its earning assets; (2) changes in interest rates reduce interest margins more than expected and negatively affect funding sources; (3) projected business increases following strategic expansion or opening or acquiring new banks and/or branches are lower than expected; (4) our concentration in lending tied to real estate exposes us to the adverse effects of material increases in interest rates, declines in the general economy, tightening credit markets or declines in real estate values; (5) competitive pressure among financial institutions increases significantly; (6) legislation or regulatory requirements or changes adversely affect the businesses in which the Company is engaged; and (7) technological changes could expose us to new risks.

TABLE 1

SELECTED FINANCIAL INFORMATION - UNAUDITED

(amounts in thousands except per share data)

	For The Three Months Ended									For The Nine Months Ended
Net income, average assets and	September 30,						June 30,			September 30,
average shareholders' equity	2019			2018			2019			2019			2018
Net income	$	4,642		$	4,032		$	3,644		$	10,592		$	10,891
Average total assets	$	1,462,444		$	1,300,278		$	1,450,725		$	1,446,476		$	1,275,369
Average total earning assets	$	1,360,006		$	1,229,704		$	1,353,200		$	1,350,173		$	1,206,798
Average shareholders' equity	$	169,608		$	131,499		$	163,598		$	162,032		$	128,933

Selected performance ratios
Return on average assets		1.26	%		1.23	%		1.01	%		0.98	%		1.14	%
Return on average equity		10.86	%		12.16	%		8.93	%		8.74	%		11.29	%
Efficiency ratio		56.4	%		58.4	%		65.9	%		66.5	%		61.5	%

Share and per share amounts
Weighted average shares - basic ⁽¹⁾		18,130			16,252			18,134			17,918			16,242
Weighted average shares - diluted ⁽¹⁾		18,196			16,342			18,194			17,981			16,327
Earnings per share - basic	$	0.26		$	0.25		$	0.20		$	0.59		$	0.67
Earnings per share - diluted	$	0.26		$	0.25		$	0.20		$	0.59		$	0.67

	At September 30,						At June 30,
Share and per share amounts	2019			2018			2019
Common shares outstanding ⁽²⁾		18,212			16,330			18,214
Book value per common share ⁽²⁾	$	9.42		$	8.14		$	9.22
Tangible book value per common share ⁽²⁾⁽³⁾	$	8.51		$	8.03		$	8.29

Capital ratios ⁽⁴⁾
Bank of Commerce Holdings
Common equity tier 1 capital ratio		12.85	%		12.65	%		12.56	%
Tier 1 capital ratio		13.69	%		13.59	%		13.41	%
Total capital ratio		15.62	%		15.75	%		15.35	%
Tier 1 leverage ratio		11.28	%		11.14	%		11.08	%
Tangible common equity ratio ⁽⁵⁾		10.64	%		9.98	%		10.59	%

Merchants Bank of Commerce
Common equity tier 1 capital ratio		14.25	%		13.14	%		14.06	%
Tier 1 capital ratio		14.25	%		13.14	%		14.06	%
Total capital ratio		15.34	%		14.36	%		15.16	%
Tier 1 leverage ratio		11.74	%		10.78	%		11.61	%

⁽¹⁾ Excludes unvested restricted shares issued in accordance with the Company's equity incentive plan, as they are non participative in dividends or voting rights.
⁽²⁾ Includes unvested restricted shares issued in accordance with the Company's equity incentive plan.
⁽³⁾Book value per share is computed by dividing total shareholders’ equity by shares outstanding. Tangible book value per share is computed by dividing total shareholders’ equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.
⁽⁴⁾The Company and the Bank continue to meet all capital adequacy requirements to which they are subject.
⁽⁵⁾ Management believes the tangible common equity ratio is a useful measure of capital adequacy because it provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the capital of the Company and the ability of the Company to absorb potential losses. The tangible common equity ratio is calculated as total shareholders' equity less goodwill and core deposit intangible, net divided by total assets less goodwill and core deposit intangible, net.

BALANCE SHEET OVERVIEW

As of September 30, 2019, the Company had total consolidated assets of $1.472 billion, gross loans of $1.033 billion, allowance for loan and lease losses (“ALLL”) of $12 million, total deposits of $1.262 billion, and shareholders’ equity of $172 million.

TABLE 2

LOAN BALANCES BY TYPE - UNAUDITED

(amounts in thousands)

	At September 30,																		At June 30,
				% of						% of			Change									% of
	2019			Total			2018			Total			Amount			%			2019			Total
Commercial	$	152,195			15	%	$	132,091			14	%	$	20,104			15	%	$	152,303			15	%
Real estate - construction and land development		35,606			3			20,496			2			15,110			74	%		37,685			4
Real estate - commercial non-owner occupied		475,678			47			431,246			47			44,432			10	%		468,706			45
Real estate - commercial owner occupied		210,767			20			195,608			21			15,159			8	%		210,711			21
Real estate - residential - ITIN		34,036			3			38,353			4			(4,317	)		(11	)%		35,162			3
Real estate - residential - 1-4 family mortgage		64,747			6			33,473			4			31,274			93	%		67,092			6
Real estate - residential - equity lines		22,729			2			28,713			3			(5,984	)		(21	)%		23,656			2
Consumer and other		37,324			4			47,500			5			(10,176	)		(21	)%		41,409			4
Gross loans		1,033,082			100	%		927,480			100	%		105,602			11	%		1,036,724			100	%
Deferred fees and costs		1,980						1,757						223						2,005
Loans, net of deferred fees and costs		1,035,062						929,237						105,825						1,038,729
Allowance for loan and lease losses		(12,285	)					(12,392	)					107						(12,445	)
Net loans	$	1,022,777					$	916,845					$	105,932					$	1,026,284

Average loans during the quarter	$	1,029,534					$	930,863					$	98,671			11	%	$	1,028,187
Average yield on loans during the quarter		5.01	%					4.93	%					0.08						5.01	%
Average yield on loans during the year		4.98	%					4.90	%					0.08						4.96	%

The Company recorded gross loan balances of $1.033 billion at September 30, 2019, compared with $927 million and $1.037 billion at September 30, 2018 and June 30, 2019, respectively, an increase of $106 million and a decrease of $4 million, respectively. During the first quarter of 2019,the Merchants acquisition provided an additional $85.3 million of loans.

The average yield on loans during the quarter was 5.01% compared to 4.93% and 5.01% for the quarters ended September 30, 2018 and June 30, 2019, respectively.

Gross loan balances in the table above include a net fair value discount for loans acquired from Merchants during the first quarter of 2019 of $1.9 million and $2.1 million at September 30, 2019 and June 30, 2019, respectively. We recorded $190 thousand and $193 thousand in accretion of the discount for these loans during the second and third quarters of 2019, respectively.

TABLE 3

CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED

(amounts in thousands)

	At September 30,																		At June 30,
				% of						% of			Change									% of
	2019			Total			2018			Total			Amount			%			2019			Total
Cash and due from banks	$	32,505			9	%	$	21,316			6	%	$	11,189			52	%	$	21,306			7	%
Interest-bearing deposits in other banks		56,099			16			69,920			21			(13,821	)		(20	)%		19,319			6
Total cash and cash equivalents		88,604			25			91,236			27			(2,632	)		(3	)%		40,625			13

Investment securities:
U.S. government and agencies		40,467			11			35,656			11			4,811			13	%		44,837			14
Obligations of state and political subdivisions		39,004			11			51,562			16			(12,558	)		(24	)%		45,003			14
Residential mortgage backed securities and collateralized mortgage obligations		165,994			46			124,109			38			41,885			34	%		168,085			50
Corporate securities		2,992			1			3,974			1			(982	)		(25	)%		2,978			1
Commercial mortgage backed securities		22,822			6			24,167			7			(1,345	)		(6	)%		24,868			8
Other asset backed securities		1,062			—			165			—			897			544	%		48			—
Total investment securities - AFS		272,341			75			239,633			73			32,708			14	%		285,819			87

Total cash, cash equivalents and investment securities	$	360,945			100	%	$	330,869			100	%	$	30,076			9	%	$	326,444			100	%
Average yield on interest-bearing due from banks and investment securities during the quarter - nominal		2.63	%					2.47	%					0.16						2.81	%
Average yield on interest-bearing due from banks and investment securities during the quarter - tax equivalent		2.71	%					2.61	%					0.10						2.92	%

As of September 30, 2019, we maintained noninterest-bearing cash positions of $32.5 million and interest-bearing deposits of $56.1 million at the Federal Reserve Bank and correspondent banks.

Investment securities totaled $272.3 million at September 30, 2019, compared with $239.6 million and $285.8 million at September 30, 2018 and June 30, 2019, respectively. During the first quarter of 2019, the Merchants acquisition included securities with a par value of $107.4 million. Management elected to sell securities with a par value of $13.8 million and $100.1 million during the three and nine months ended September 30, 2019, respectively. The sales resulted in net realized gains of $12 thousand and $137 thousand for the three and nine months ended September 30, 2019, respectively.

Average securities balances and weighted average tax equivalent yields for the quarters ended September 30, 2019 and 2018 were $271.6 million and 2.85% compared to $248.4 million and 2.74%, respectively.

At September 30, 2019, our net unrealized gains on available-for-sale investment securities were $3.3 million compared with net unrealized losses of $5.8 million and unrealized gains of $3.4 million at September 30, 2018 and June 30, 2019, respectively. The changes in net unrealized losses on the investment securities portfolio were due to changes in market interest rates.

TABLE 4

DEPOSITS BY TYPE - UNAUDITED

(amounts in thousands)

	At September 30,																At June 30,
			% of					% of			Change								% of
	2019		Total			2018		Total			Amount			%			2019		Total
Demand - noninterest-bearing	$	412,410		33	%	$	361,516		32	%	$	50,894			14	%	$	397,349		32	%
Demand - interest-bearing		239,547		19			251,323		22			(11,776	)		(5	)%		238,175		19
Money market		317,120		25			259,230		23			57,890			22	%		300,847		24
Total demand		969,077		77			872,069		77			97,008			11	%		936,371		75

Savings		137,441		11			111,388		10			26,053			23	%		138,591		11
Total non-maturing deposits		1,106,518		88			983,457		87			123,061			13	%		1,074,962		86

Certificates of deposit		155,621		12			161,304		13			(5,683	)		(4	)%		160,556		14
Total deposits	$	1,262,139		100	%	$	1,144,761		100	%	$	117,378			10	%	$	1,235,518		100	%

Total deposits at September 30, 2019, increased $117 million or 10% to $1.262 billion compared to September 30, 2018 and increased $27 million or 9% annualized compared to June 30, 2019. Total non-maturing deposits increased $123.1 million or 13% compared to the same date a year ago and increased $31.6 million or 12% annualized compared to June 30, 2019. Certificates of deposit decreased $5.7 million or 4% compared to the same date a year ago and decreased $4.9 million or 12% annualized compared to June 30, 2019.

During the first quarter of 2019, the Merchants acquisition provided an additional $190.2 million of deposits. The decrease in the acquired deposits of $23.2 million at September 30, 2019 is not attributable to the loss of any significant relationships. As illustrated in the following table, legacy deposits have experienced their seasonal decline, while wholesale time deposits have matured and were not renewed.

TABLE 5

YEAR TO DATE CHANGES IN DEPOSITS

(amounts in thousands)

	Legacy Deposits		Acquired Merchants Deposits		Change In Acquired Deposits For The Eight Months Ended			Change In Legacy Deposits For The Nine Months Ended			Deposits At
	At December 31,		At January 31,		September 30,			September 30,			At September 30,
	2018		2019		2019			2019			2019
Demand - noninterest-bearing	$	347,199	$	51,880	$	(5,233	)	$	18,564		$	412,410
Demand - interest-bearing		252,202		28,231		(5,031	)		(35,855	)		239,547
Money market		265,093		43,316		(2,314	)		11,025			317,120
Total demand		864,494		123,427		(12,578	)		(6,266	)		969,077

Savings		114,840		28,786		(3,530	)		(2,655	)		137,441
Total non-maturing deposits		979,334		152,213		(16,108	)		(8,921	)		1,106,518

Certificates of deposit		152,382		38,003		(7,047	)		(27,717	)		155,621
Total deposits	$	1,131,716	$	190,216	$	(23,155	)	$	(36,638	)	$	1,262,139

TABLE 6
WHOLESALE AND RECIPROCAL DEPOSITS - UNAUDITED
(amounts in thousands)

	At September 30,				At June 30,
	2019		2018		2019
CDARS / ICS reciprocal deposits	$	57,897	$	78,772	$	60,492
Online listing service wholesale time deposits		248		24,397		248
Total wholesale and reciprocal deposits	$	58,145	$	103,169	$	60,740

For calendar quarters prior to April 1, 2018, CDARS/ ICS reciprocal deposits were considered to be brokered deposits by regulatory authorities and were reported as such on quarterly Call Reports. With passage of The Economic Growth, Regulatory Relief and Consumer Protection Act in May 2018, this is no longer so.

AVERAGE COST OF FUNDS

The following table presents the average cost of interest-bearing deposits, all deposits and all interest-bearing liabilities for the periods indicated.

TABLE 7

AVERAGE COST OF FUNDS - UNAUDITED

For The Three Months Ended

	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,
	2019			2019			2019			2018			2018			2018			2018			2017
Interest-bearing deposits		0.56	%		0.54	%		0.49	%		0.45	%		0.42	%		0.41	%		0.41	%		0.42	%
Interest-bearing deposits and noninterest-bearing demand		0.38	%		0.37	%		0.34	%		0.31	%		0.29	%		0.29	%		0.29	%		0.30	%
All interest-bearing liabilities		0.68	%		0.74	%		0.67	%		0.61	%		0.64	%		0.68	%		0.60	%		0.59	%
All interest-bearing liabilities and noninterest-bearing demand		0.46	%		0.52	%		0.46	%		0.42	%		0.45	%		0.50	%		0.43	%		0.42	%

INCOME STATEMENT OVERVIEW

TABLE 8

SUMMARY INCOME STATEMENT - UNAUDITED

(amounts in thousands, except per share data)

	For The Three Months Ended
	September 30,				Change					June 30,		Change
	2019		2018		Amount		%			2019		Amount			%
Interest income	$	15,201	$	13,431	$	1,770		13	%	$	15,127	$	74			0	%
Interest expense		1,479		1,304		175		13	%		1,632		(153	)		(9	)%
Net interest income		13,722		12,127		1,595		13	%		13,495		227			2	%
Provision for loan and lease losses		—		—		—		—	%		—		—			—	%
Noninterest income		1,006		943		63		7	%		1,100		(94	)		(9	)%
Noninterest expense		8,300		7,634		666		9	%		9,611		(1,311	)		(14	)%
Income before provision for income taxes		6,428		5,436		992		18	%		4,984		1,444			29	%
Provision for income taxes		1,786		1,404		382		27	%		1,340		446			33	%
Net income	$	4,642	$	4,032	$	610		15	%	$	3,644	$	998			27	%

Basic earnings per share	$	0.26	$	0.25	$	0.01		4	%	$	0.20	$	0.06			30	%
Average basic shares		18,130		16,252		1,878		12	%		18,134		(4	)		—	%
Diluted earnings per share	$	0.26	$	0.25	$	0.01		4	%	$	0.20	$	0.06			30	%
Average diluted shares		18,196		16,342		1,854		11	%		18,194		2			—	%
Dividends declared per common share	$	0.05	$	0.04	$	0.01		25	%	$	0.05	$	—			—	%

Third Quarter of 2019 Compared With Third Quarter of 2018

Net income for the third quarter of 2019 increased $610 thousand compared to the third quarter of 2018. In the current quarter, net interest income was $1.6 million higher and noninterest income was $63 thousand higher. These positive changes were offset by noninterest expenses that were $666 thousand higher and the provision for income taxes was $382 thousand higher.

Net Interest Income

Net interest income increased $1.6 million compared to the same period a year ago.

Interest income for the third quarter of 2019 increased $1.8 million or 13% to $15.2 million.

●	Interest and fees on loans increased $1.4 million due to an $11.6 million increase in average loan balances and an 8 basis point increase in the average yield on the loan portfolio.

●	Interest on investment securities increased $271 thousand due to a $23.1 million increase in average securities balances and an 18 basis point increase in average yield on the securities portfolio.

●	Interest on interest-bearing deposits due from banks increased $54 thousand due to an $8.5 million increase in average interest-bearing deposit balances, and an 8 basis point increase in average yield.

Interest expense for the third quarter of 2019 increased $175 thousand or 13% to $1.5 million.

●

Interest expense on interest-bearing deposits increased $350 thousand. Average interest-bearing demand and savings deposit balances increased $88.8 million, while average certificate of deposit balances decreased $5.7 million. The average rate paid on interest-bearing deposits increased 14 basis points.

●	Interest expense on borrowings from the Federal Home Loan Bank of San Francisco decreased $121 thousand. There were no Federal Home Loan Bank of San Francisco borrowings in the current quarter compared to average borrowings of $22.3 million in the same quarter a year ago.

●	Interest expense on other term debt and junior subordinated debentures decreased $80 thousand. During the second quarter of 2019, we completed the early repayment of our variable rate senior debt.

Provision for loan and lease losses

As illustrated in Table 10, the nonaccrual status of a $10.1 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. The loan is current and management believes it is adequately collateralized. Net loan loss charge-offs were only $160 thousand for the current quarter and no provision for loan and lease losses was necessary. There was no provision for loan and lease losses in the third quarter of 2018.

Noninterest Income

Noninterest income for the three months ended September 30, 2019 increased $63 thousand compared to the third quarter for 2018. The change was not concentrated in any one item.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2019 increased $666 thousand compared to the same period a year previous. The increase was primarily due to increased operating costs from our Merchants acquisition and $191 thousand in amortization of the core deposit intangible for the deposits acquired from Merchants. The increases were partially offset by $193 thousand in Small Bank Assessment Credits from the FDIC.

The Company’s efficiency ratio was 56.4% for the third quarter of 2019; the ratio during the same period in 2018 was 58.4%.

Income Tax Provision

For the three months ended September 30, 2019, our income tax provision of $1.8 million on pre-tax income of $6.4 million was an effective tax rate of 27.8%. The tax provision for the third quarter of the prior year was $1.4 million on pre-tax income of $5.4 million for an effective tax rate of 25.8%. The Company’s effective tax rate has increased as muni income, tax credits and permanent deductions arising from investments in low income housing partnerships comprise a smaller percentage of pre-tax income. The increase during the current quarter was also due to the write-off of a $41 thousand deferred tax asset resulting from expiration of a capital loss carryforward.

Third Quarter of 2019 Compared With Second Quarter of 2019

Net income for the third quarter of 2019 increased $998 thousand compared to the second quarter of 2019. In the current quarter net interest income was $227 thousand higher and noninterest expense was $1.3 million lower. These positive changes were partially offset by noninterest income that was $94 thousand lower and the provision for income taxes that was $446 thousand higher.

Net Interest Income

Net interest income increased $227 thousand over the prior quarter.

Interest income for the three months ended September 30, 2019 increased $74 thousand or less than one percent to $15.2 million.

●	Interest and fees on loans increased $166 thousand due to a $1.3 million increase in average loan balances and a ten basis point increase in the average yield on the loan portfolio.

●	Interest on investment securities decreased $181 thousand due to a $17.8 million decrease in average securities balances partially offset by an 11 basis point increase in average yield on the investment portfolio.

●	Interest on interest-bearing deposits due from banks increased $89 thousand due to a $23.3 million increase in average balances.

●	The third quarter of 2019 was one day longer than the second quarter of 2019.

Interest expense for the three months ended September 30, 2019 decreased $153 thousand or 9% to $1.5 million.

●	Interest expense on interest-bearing deposits increased $61 thousand. Average interest-bearing demand and savings deposit balances increased $16.6 million, while average certificates of deposit decreased $6.5 million. The average rate paid on interest-bearing deposits increased by two basis points.

●	Interest expense on borrowings from the Federal Home Loan Bank of San Francisco decreased $192 thousand. There were no Federal Home Loan Bank of San Francisco borrowings outstanding in the current quarter, compared to average borrowings of $30.0 million in the prior quarter

●	Interest expense on other term debt and junior subordinated debentures decreased $22 thousand. During the second quarter of 2019, we completed the early repayment and termination of our senior debt agreement.

Provision for loan and lease losses

As a result of improvements in our asset quality metrics and loan loss charge-offs totaling only $160 thousand for the current quarter, no provision for loan and lease losses was necessary during current quarter. There was no provision for loan and lease losses in the prior quarter.

Noninterest Income

Noninterest income for the three months ended September 30, 2019 decreased $94 thousand, the decrease was not concentrated in any one item.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2019 decreased $1.3 million. The decrease was due to:

●	$803 thousand in costs related to the acquisition and name change in the prior quarter that did not recur.

●	$263 thousand in decreased salaries and benefit cost.

●	$193 thousand in Small Bank Assessment Credits from the FDIC.

The Company’s efficiency ratio was 56.4% for the third quarter of 2019; the ratio during the prior quarter was 65.9%.

Income Tax Provision

For the three months ended September 30, 2019, our income tax provision of $1.8 million on pre-tax income of $6.4 million was an effective tax rate of 27.8%. The income tax provision for the prior quarter of $1.3 million on pre-tax income of $5.0 million was an effective tax rate of 26.9%. The Company’s effective tax rate has increased as credits and deductions comprised a smaller percentage of pre-tax income. The increase during the current quarter was also due to the write-off of a $41 thousand deferred tax asset resulting from expiration of a capital loss carryforward.

Earnings Per Share

Diluted earnings per share were $0.26 for the three months ended September 30, 2019 compared with diluted earnings per share of $0.25 for the same period a year ago and diluted earnings per share of $0.20 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in Table 8 presented earlier in this press release. During the third quarter of 2019, we adopted a share repurchase program that authorizes the Company to purchase up to one million shares of its common stock over a period ending March 31, 2020. As of October 18, 2019 no shares have been repurchased under the program.

TABLE 9a

NET INTEREST MARGIN - UNAUDITED

(amounts in thousands)

	For The Three Months Ended
	September 30, 2019							September 30, 2018							June 30, 2019
	Average				Yield /			Average				Yield /			Average				Yield /
	Balance		Interest⁽¹⁾		Rate ⁽⁵⁾			Balance		Interest⁽¹⁾		Rate ⁽⁵⁾			Balance		Interest⁽¹⁾		Rate ⁽⁵⁾
Interest-earning assets:
Net loans ⁽²⁾	$	1,029,534	$	13,013		5.01	%	$	930,863	$	11,568		4.93	%	$	1,028,187	$	12,847		5.01	%
Taxable securities		238,601		1,609		2.68	%		199,883		1,209		2.40	%		249,907		1,733		2.78	%
Tax-exempt securities ⁽³⁾		32,974		271		3.26	%		48,561		400		3.27	%		39,501		328		3.33	%
Interest-bearing deposits in other banks		58,897		308		2.07	%		50,397		254		2.00	%		35,605		219		2.47	%
Average interest-earning assets		1,360,006		15,201		4.43	%		1,229,704		13,431		4.33	%		1,353,200		15,127		4.48	%
Cash and due from banks		23,822							21,834							21,942
Premises and equipment, net		15,922							13,768							15,819
Goodwill and core deposit intangible, net		16,769							1,888							16,995
Other assets		45,925							33,084							42,769
Average total assets	$	1,462,444						$	1,300,278						$	1,450,725

Interest-bearing liabilities:
Interest-bearing demand	$	243,553		117		0.19	%	$	235,664		104		0.18	%	$	238,840		129		0.22	%
Money market		309,188		451		0.58	%		259,242		172		0.26	%		296,326		380		0.51	%
Savings		138,296		131		0.38	%		107,349		73		0.27	%		139,307		123		0.35	%
Certificates of deposit		157,620		491		1.24	%		163,302		465		1.13	%		164,084		497		1.21	%
Federal Home Loan Bank of San Francisco borrowings		—		—		—	%		22,283		121		2.15	%		30,000		192		2.57	%
Other borrowings net of unamortized debt issuance costs		9,942		183		7.30	%		14,681		265		7.16	%		10,841		201		7.44	%
Junior subordinated debentures		10,310		106		4.08	%		10,310		104		4.00	%		10,310		110		4.28	%
Average interest-bearing liabilities		868,909		1,479		0.68	%		812,831		1,304		0.64	%		889,708		1,632		0.74	%
Noninterest-bearing demand		405,853							343,948							379,173
Other liabilities		18,074							12,000							18,246
Shareholders’ equity		169,608							131,499							163,598
Average liabilities and shareholders’ equity	$	1,462,444						$	1,300,278						$	1,450,725
Net interest income and net interest margin⁽⁴⁾			$	13,722		4.00	%			$	12,127		3.91	%			$	13,495		4.00	%

⁽¹⁾ Interest income on loans includes deferred fees and costs of approximately $161 thousand, $74 thousand, and $91 thousand for the three months ended September 30, 2019, and 2018 and June 30, 2019, respectively.

⁽²⁾ Net loans includes average nonaccrual loans of $13.2 million, $3.8 million and $13.7 million for the three months ended September 30, 2019 and 2018 and June 30, 2019, respectively.

⁽³⁾ Interest income and yields on tax-exempt securities are not presented on a taxable equivalent basis.

⁽⁴⁾ Net interest margin is net interest income expressed as a percentage of average interest-earning assets.

⁽⁵⁾ Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

TABLE 9b

NET INTEREST MARGIN - UNAUDITED

(amounts in thousands)

	For The Nine Months Ended
	September 30, 2019							September 30, 2018
	Average				Yield /			Average				Yield /
	Balance		Interest⁽¹⁾		Rate ⁽⁵⁾			Balance		Interest⁽¹⁾		Rate ⁽⁵⁾
Interest-earning assets:
Net loans ⁽²⁾	$	1,017,127	$	37,891		4.98	%	$	912,648	$	33,461		4.90	%
Taxable securities		247,139		5,106		2.76	%		203,791		3,696		2.42	%
Tax-exempt securities ⁽³⁾		40,912		986		3.22	%		52,844		1,276		3.23	%
Interest-bearing deposits in other banks		44,995		772		2.29	%		37,515		518		1.85	%
Average interest-earning assets		1,350,173		44,755		4.43	%		1,206,798		38,951		4.32	%
Cash and due from banks		22,375							19,801
Premises and equipment, net		15,445							14,161
Goodwill and core deposit intangible, net		15,230							1,943
Other assets		43,253							32,666
Average total assets	$	1,446,476						$	1,275,369

Interest-bearing liabilities:
Interest-bearing demand	$	241,924		372		0.21	%	$	231,958		273		0.16	%
Money market		299,694		1,120		0.50	%		245,797		439		0.24	%
Savings		136,254		365		0.36	%		108,382		196		0.24	%
Certificates of deposit		163,020		1,478		1.21	%		171,941		1,448		1.13	%
Federal Home Loan Bank of San Francisco borrowings		12,894		247		2.56	%		30,037		435		1.94	%
Other borrowings net of unamortized debt issuance costs		11,213		623		7.43	%		15,601		825		7.07	%
Junior subordinated debentures		10,310		329		4.27	%		10,310		283		3.67	%
Average interest-bearing liabilities		875,309		4,534		0.69	%		814,026		3,899		0.64	%
Noninterest-bearing demand		391,208							320,316
Other liabilities		17,927							12,094
Shareholders’ equity		162,032							128,933
Average liabilities and shareholders’ equity	$	1,446,476						$	1,275,369
Net interest income and net interest margin⁽⁴⁾			$	40,221		3.98	%			$	35,052		3.88	%

⁽¹⁾ Interest income on loans includes deferred fees and costs of approximately $433 thousand and $356 thousand for the nine months ended September 30, 2019 and 2018, respectively.

⁽²⁾ Net loans includes average nonaccrual loans of $11.8 million and $4.3 million for the nine months ended September 30, 2019 and 2018, respectively.

⁽³⁾ Interest income and yields on tax-exempt securities are not presented on a taxable equivalent basis.

⁽⁴⁾ Net interest margin is net interest income expressed as a percentage of average interest-earning assets.

⁽⁵⁾ Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

TABLE 10

ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED

(amounts in thousands)

	For The Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2019			2019			2019			2018			2018
Beginning balance ALLL	$	12,445		$	12,242		$	12,292		$	12,392		$	12,388
Provision for loan and lease losses		—			—			—			—			—
Loans charged-off		(319	)		(659	)		(348	)		(279	)		(198	)
Loan loss recoveries		159			862			298			179			202
Ending balance ALLL	$	12,285		$	12,445		$	12,242		$	12,292		$	12,392

	At September 30,			At June 30,			At March 31,			At December 31,			At September 30,
	2019			2019			2019			2018			2018
Nonaccrual loans:
Commercial	$	139		$	194		$	1,018		$	959		$	899
Real estate - commercial non-owner occupied		10,099			10,690			10,878			—			—
Real estate - commercial owner occupied		—			—			—			548			—
Real estate - residential - ITIN		2,339			2,389			2,392			2,388			2,571
Real estate - residential - 1-4 family mortgage		198			217			182			185			179
Real estate - residential - equity lines		—			—			42			43			44
Consumer and other		21			22			23			23			24
Total nonaccrual loans		12,796			13,512			14,535			4,146			3,717
Accruing troubled debt restructured loans:
Commercial		629			1,092			1,187			1,224			1,291
Real estate - commercial non-owner occupied		—			791			793			795			797
Real estate - residential - ITIN		4,072			4,300			4,342			4,484			4,535
Real estate - residential - equity lines		236			242			358			363			367
Total accruing troubled debt restructured loans		4,937			6,425			6,680			6,866			6,990

All other accruing impaired loans		—			—			—			—			—

Total impaired loans	$	17,733		$	19,937		$	21,215		$	11,012		$	10,707

Gross loans outstanding at period end	$	1,033,082		$	1,036,724		$	1,034,606		$	946,251		$	927,480

Impaired loans to gross loans		1.72	%		1.92	%		2.05	%		1.16	%		1.15	%
Nonaccrual loans to gross loans		1.24	%		1.30	%		1.40	%		0.44	%		0.40	%

Allowance for loan and lease losses as a percent of:
Gross loans		1.19	%		1.20	%		1.18	%		1.30	%		1.34	%
Nonaccrual loans		96.01	%		92.10	%		84.22	%		296.48	%		333.39	%
Impaired loans		69.28	%		62.42	%		57.70	%		111.62	%		115.74	%

We continue to monitor credit quality and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. As illustrated in Table 10, the nonaccrual status of a $10.1 million commercial real estate loan has resulted in a deterioration in our asset quality metrics for the first three quarters of 2019 however, the loan is current and management believes it is adequately collateralized. Net loan loss charge-offs totaled only $160 thousand for the quarter ended September 30, 2019 and no provision for loan and lease losses was necessary for the quarter. There was no provision for loan and lease loss during the prior quarter or during the same quarter a year ago.

The loans acquired from Merchants were recorded at fair value which included a discount for credit risk which is not a part of the ALLL. As a result, our ALLL as a percentage of gross loans declined to 1.19% as of September 30, 2019 compared to 1.34% as of September 30, 2018 and decreased compared to 1.20% as of June 30, 2019.

Based on the Bank’s ALLL methodology, which uses criteria such as risk factors and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company’s ALLL is adequate at September 30, 2019. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

At September 30, 2019, the recorded investment in loans classified as impaired totaled $17.7 million, with a corresponding specific reserve of $335 thousand compared to impaired loans of $10.7 million with a corresponding specific reserve of $1.1 million at September 30, 2018 and impaired loans of $19.9 million, with a corresponding specific reserve of $727 thousand at June 30, 2019. The increase in loans classified as impaired compared to the same period a year ago results from one $10.1 million commercial real estate loan.

TABLE 11

TROUBLED DEBT RESTRUCTURINGS - UNAUDITED

(amounts in thousands)

	At September 30,			At June 30,			At March 31,			At December 31,			At September 30,
	2019			2019			2019			2018			2018
Nonaccrual	$	1,746		$	1,828		$	2,725		$	2,693		$	2,720
Accruing		4,937			6,425			6,680			6,866			6,990
Total troubled debt restructurings	$	6,683		$	8,253		$	9,405		$	9,559		$	9,710

Troubled debt restructurings as a percentage of total gross loans		0.65	%		0.80	%		0.91	%		1.01	%		1.05	%

There were no new troubled debt restructurings during the three months ended September 30, 2019. As of September 30, 2019, we had 99 restructured loans that qualified as troubled debt restructurings, of which 97 were performing according to their restructured terms.

TABLE 12

NONPERFORMING ASSETS - UNAUDITED

(amounts in thousands)

	At September 30,			At June 30,			At March 31,			At December 31,			At September 30,
	2019			2019			2019			2018			2018
Total nonaccrual loans	$	12,796		$	13,512		$	14,535		$	4,146		$	3,717
90 days past due and still accruing		—			—			—			—			—
Total nonperforming loans		12,796			13,512			14,535			4,146			3,717

Other real estate owned ("OREO")		58			—			34			31			136
Total nonperforming assets	$	12,854		$	13,512		$	14,569		$	4,177		$	3,853

Nonperforming loans to gross loans		1.24	%		1.30	%		1.40	%		0.44	%		0.40	%
Nonperforming assets to total assets		0.87	%		0.94	%		0.99	%		0.32	%		0.29	%

The following table summarizes when loans are projected to reprice by year and rate index as of September 30, 2019.

TABLE 13

LOANS BY RATE INDEX AND PROJECTED REPAYMENT - UNAUDITED

(amounts in thousands)

At September 30, 2019

											Years 6
											Through		Beyond
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 10		Year 10		Total
Rate Index:
Fixed	$	46,963	$	51,876	$	43,148	$	76,813	$	33,417	$	154,808	$	35,385	$	442,410
Variable:
Prime		99,652		4,827		5,729		8,198		7,667		1,644		—		127,717
5 Year Treasury		20,669		53,077		70,058		88,475		73,234		53,514		—		359,027
7 Year Treasury		904		3,556		8,698		4,762		5,629		13,919		—		37,468
1 Year LIBOR		21,615		—		—		—		—		—		—		21,615
Other Indexes		4,518		2,655		1,676		2,121		1,451		21,370		238		34,029
Nonaccrual		1,080		9,800		292		275		257		814		278		12,796
Total	$	195,401	$	125,791	$	129,601	$	180,644	$	121,655	$	246,069	$	35,901	$	1,035,062

TABLE 14

UNAUDITED CONSOLIDATED

BALANCE SHEET

(amounts in thousands, except per share data)

	At September 30,						Change						At June 30,
	2019			2018			$			%			2019
Assets:
Cash and due from banks	$	32,505		$	21,316		$	11,189			52	%	$	21,306
Interest-bearing deposits in other banks		56,099			69,920			(13,821	)		(20	)%		19,319
Total cash and cash equivalents		88,604			91,236			(2,632	)		(3	)%		40,625

Securities available-for-sale, at fair value		272,341			239,633			32,708			14	%		285,819
Loans, net of deferred fees and costs		1,035,062			929,237			105,825			11	%		1,038,729
Allowance for loan and lease losses		(12,285	)		(12,392	)		107			(1	)%		(12,445	)
Net loans		1,022,777			916,845			105,932			12	%		1,026,284

Premises and equipment, net		16,084			13,495			2,589			19	%		15,836
Other real estate owned		58			136			(78	)		(57	)%		—
Life insurance		23,576			22,282			1,294			6	%		23,449
Deferred tax asset, net		4,818			8,084			(3,266	)		(40	)%		4,791
Goodwill and core deposit intangible, net		16,672			1,864			14,808			794	%		16,900
Other assets		27,497			21,894			5,603			26	%		28,282
Total assets	$	1,472,427		$	1,315,469		$	156,958			12	%	$	1,441,986

Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	412,410		$	361,516		$	50,894			14	%	$	397,349
Demand - interest-bearing		239,547			251,323			(11,776	)		(5	)%		238,175
Money market		317,120			259,230			57,890			22	%		300,847
Savings		137,441			111,388			26,053			23	%		138,591
Certificates of deposit		155,621			161,304			(5,683	)		(4	)%		160,556
Total deposits		1,262,139			1,144,761			117,378			10	%		1,235,518

Term debt:
Other borrowings		10,000			14,396			(4,396	)		(31	)%		10,000
Unamortized debt issuance costs		(55	)		(103	)		48			(47	)%		(67	)
Net term debt		9,945			14,293			(4,348	)		(30	)%		9,933

Junior subordinated debentures		10,310			10,310			—			—	%		10,310
Other liabilities		18,396			13,136			5,260			40	%		18,372
Total liabilities		1,300,790			1,182,500			118,290			10	%		1,274,133

Shareholders' equity:
Common stock		72,200			52,191			20,009			38	%		72,087
Retained earnings		97,100			84,857			12,243			14	%		93,363
Accumulated other comprehensive income (loss), net of tax		2,337			(4,079	)		6,416			(157	)%		2,403
Total shareholders' equity		171,637			132,969			38,668			29	%		167,853

Total liabilities and shareholders' equity	$	1,472,427		$	1,315,469		$	156,958			12	%	$	1,441,986

Total interest-earning assets	$	1,360,184		$	1,244,581		$	115,603			9	%	$	1,340,456
Shares outstanding		18,212			16,330			1,882			12	%		18,214
Book value per share	$	9.42		$	8.14		$	1.28			16	%	$	9.22
Tangible book value per share ⁽¹⁾	$	8.51		$	8.03		$	0.48			6	%	$	8.29

⁽¹⁾ Book value per share is computed by dividing total shareholders’ equity by shares outstanding. Tangible book value per share is computed by dividing total shareholders’ equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.

TABLE 15

UNAUDITED

INCOME STATEMENT

(amounts in thousands, except per share data)

	For The Three Months Ended													For The Nine Months Ended
	September 30,					Change						June 30,		September 30,
	2019		2018			$			%			2019		2019		2018
Interest income:
Interest and fees on loans	$	13,013	$	11,568		$	1,445			12	%	$	12,847	$	37,891	$	33,461
Interest on taxable securities		1,609		1,209			400			33	%		1,733		5,106		3,696
Interest on tax-exempt securities		271		400			(129	)		(32	)%		328		986		1,276
Interest on interest-bearing deposits in other banks		308		254			54			21	%		219		772		518
Total interest income		15,201		13,431			1,770			13	%		15,127		44,755		38,951
Interest expense:
Interest on demand deposits		117		104			13			13	%		129		372		273
Interest on money market		451		172			279			162	%		380		1,120		439
Interest on savings		131		73			58			79	%		123		365		196
Interest on certificates of deposit		491		465			26			6	%		497		1,478		1,448
Interest on Federal Home Loan Bank of San Francisco borrowings		—		121			(121	)		(100	)%		192		247		435
Interest on other borrowings		183		265			(82	)		(31	)%		201		623		825
Interest on junior subordinated debentures		106		104			2			2	%		110		329		283
Total interest expense		1,479		1,304			175			13	%		1,632		4,534		3,899
Net interest income		13,722		12,127			1,595			13	%		13,495		40,221		35,052
Provision for loan and lease losses		—		—			—			—	%		—		—		—
Net interest income after provision for loan and lease losses		13,722		12,127			1,595			13	%		13,495		40,221		35,052
Noninterest income:
Service charges on deposit accounts		177		170			7			4	%		187		532		521
ATM and point of sale fees		293		282			11			4	%		318		876		848
Fees on payroll and benefit processing		158		159			(1	)		(1	)%		157		486		474
Life insurance		126		128			(2	)		(2	)%		155		410		384
Gain on investment securities, net		12		1			11			1,100	%		33		137		41
Federal Home Loan Bank of San Francisco dividends		131		104			27			26	%		124		376		279
Gain(Loss) on sale of OREO		—		(7	)		7			100	%		18		41		9
Other income		109		106			3			3	%		108		305		331
Total noninterest income		1,006		943			63			7	%		1,100		3,163		2,887

TABLE 15 - CONTINUED

UNAUDITED

INCOME STATEMENT

(amounts in thousands, except per share data)

	For The Three Months Ended													For The Nine Months Ended
	September 30,					Change						June 30,		September 30,
	2019			2018		$			%			2019		2019		2018
Noninterest expense:
Salaries and related benefits		5,005			4,529		476			11	%		5,146		15,880		13,897
Premises and equipment		950			1,017		(67	)		(7	)%		945		2,887		3,104
Federal Deposit Insurance Corporation insurance premium		(104	)		94		(198	)		(211	)%		95		91		283
Data processing fees		565			518		47			9	%		621		1,745		1,421
Professional service fees		392			336		56			17	%		535		1,230		995
Telecommunications		194			55		139			253	%		180		547		449
Acquisition		(113	)		42		(155	)		(369	)%		376		2,193		42
Other expenses		1,411			1,043		368			35	%		1,713		4,261		3,147
Total noninterest expense		8,300			7,634		666			9	%		9,611		28,834		23,338
Income before provision for income taxes		6,428			5,436		992			18	%		4,984		14,550		14,601
Provision for income taxes		1,786			1,404		382			27	%		1,340		3,958		3,710
Net income	$	4,642		$	4,032	$	610			15	%	$	3,644	$	10,592	$	10,891

Basic earnings per share	$	0.26		$	0.25	$	0.01			4	%	$	0.20	$	0.59	$	0.67
Average basic shares		18,130			16,252		1,878			12	%		18,134		17,918		16,242
Diluted earnings per share	$	0.26		$	0.25	$	0.01			4	%	$	0.20	$	0.59	$	0.67
Average diluted shares		18,196			16,342		1,854			11	%		18,194		17,981		16,327

TABLE 16

UNAUDITED CONDENSED CONSOLIDATED

QUARTERLY AVERAGE BALANCE SHEETS

(amounts in thousands)

	For The Three Months Ended
	September 30,		June 30,		March 31,		December 31,		September 30,
	2019		2019		2019		2018		2018
Earning assets:
Loans	$	1,029,534	$	1,028,187	$	993,261	$	923,409	$	930,863
Taxable securities		238,601		249,907		253,068		218,137		199,883
Tax-exempt securities		32,974		39,501		50,454		42,868		48,561
Interest-bearing deposits in other banks		58,897		35,605		40,223		75,295		50,397
Total earning assets		1,360,006		1,353,200		1,337,006		1,259,709		1,229,704

Cash and due from banks		23,822		21,942		21,392		22,447		21,834
Premises and equipment, net		15,922		15,819		14,581		13,331		13,768
Goodwill and core deposit intangible, net		16,769		16,995		11,872		1,842		1,888
Other assets		45,925		42,769		41,009		31,488		33,084
Total assets	$	1,462,444	$	1,450,725	$	1,425,860	$	1,328,817	$	1,300,278

Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	405,853	$	379,173	$	388,410	$	367,457	$	343,948
Demand - interest-bearing		243,553		238,840		243,376		257,227		235,664
Money market		309,188		296,326		293,396		265,190		259,242
Savings		138,296		139,307		131,081		110,934		107,349
Certificates of deposit		157,620		164,084		167,463		157,035		163,302
Total deposits		1,254,510		1,217,730		1,223,726		1,157,843		1,109,505

Federal Home Loan Bank of San Francisco borrowings		—		30,000		8,778		—		22,283
Other borrowings net of unamortized debt issuance costs		9,942		10,841		12,889		13,785		14,681
Junior subordinated debentures		10,310		10,310		10,310		10,310		10,310
Other liabilities		18,074		18,246		17,452		12,846		12,000
Total liabilities		1,292,836		1,287,127		1,273,155		1,194,784		1,168,779

Shareholders' equity		169,608		163,598		152,705		134,033		131,499
Liabilities & shareholders' equity	$	1,462,444	$	1,450,725	$	1,425,860	$	1,328,817	$	1,300,278

TABLE 17

UNAUDITED CONDENSED CONSOLIDATED

YEAR TO DATE AVERAGE BALANCE SHEETS

(amounts in thousands)

	For the Nine Months Ended				For the Twelve Months Ended
	September 30,		September 30,		December 31,		December 31,		December 31,
	2019		2018		2018		2017		2016
Earning assets:
Loans	$	1,017,127	$	912,648	$	915,360	$	818,119	$	752,938
Taxable securities		247,139		203,791		207,407		165,333		120,884
Tax-exempt securities		40,912		52,844		50,330		74,231		75,303
Interest-bearing deposits in other banks		44,995		37,515		47,038		66,872		58,668
Total earning assets		1,350,173		1,206,798		1,220,135		1,124,555		1,007,793

Cash and due from banks		22,375		19,801		20,468		18,301		15,831
Premises and equipment, net		15,445		14,161		13,952		15,567		15,078
Goodwill and core deposit intangible, net		15,230		1,943		1,917		2,136		1,888
Other assets		43,253		32,666		32,369		37,692		39,160
Total assets	$	1,446,476	$	1,275,369	$	1,288,841	$	1,198,251	$	1,079,750

Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	391,208	$	320,316	$	332,197	$	289,735	$	226,368
Demand - interest-bearing		241,924		231,958		238,328		209,792		172,011
Money market		299,694		245,797		250,685		224,913		202,159
Savings		136,254		108,382		109,025		111,376		104,771
Certificates of deposit		163,020		171,941		168,183		205,648		221,074
Total deposits		1,232,100		1,078,394		1,098,418		1,041,464		926,383

Federal Home Loan Bank of San Francisco borrowings		12,894		30,037		22,466		302		17,856
Other borrowings net of unamortized debt issuance costs		11,213		15,601		15,143		17,981		19,430
Junior subordinated debentures		10,310		10,310		10,310		10,310		10,310
Other liabilities		17,927		12,094		12,286		12,293		13,217
Total liabilities		1,284,444		1,146,436		1,158,623		1,082,350		987,196

Shareholders' equity		162,032		128,933		130,218		115,901		92,554
Liabilities & shareholders' equity	$	1,446,476	$	1,275,369	$	1,288,841	$	1,198,251	$	1,079,750

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Sacramento, California and is the parent company for Merchants Bank of Commerce. The Bank is an FDIC-insured California banking corporation providing community banking and financial services in northern California from Sacramento to Yreka along the Interstate 5 corridor. The Bank was incorporated as a California banking corporation on November 25, 1981 and opened for business on October 22, 1982. The Company’s common stock is listed on the NASDAQ Global Market and trades under the symbol “BOCH”.

Contact Information:

Randall S. Eslick, President and Chief Executive Officer

Telephone Direct (916) 677-5800

James A. Sundquist, Executive Vice President and Chief Financial Officer

Telephone Direct (916) 677-5825

Samuel D. Jimenez, Executive Vice President and Chief Operating Officer

Telephone Direct (530) 722-3952

Andrea M. Newburn, Vice President and Senior Administrative Officer / Corporate Secretary

Telephone Direct (530) 722-3959