Home / Top News / Bank of Commerce Holdings Announces Results for the Fourth Quarter of 2019

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

SACRAMENTO, Calif., Jan. 17, 2020 (GLOBE NEWSWIRE) — Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.480 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter and the year ended December 31, 2019. Net income for the quarter ended December 31, 2019 was $4.4 million or $0.24 per share – diluted, compared with net income of $4.8 million or $0.30 per share – diluted for the same period of 2018. Net income for the year ended December 31, 2019 was $15.0 million or $0.83 per share – diluted, compared with net income of $15.7 million or $0.96 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. During 2019 acquisition related costs totaled $2.2 million and costs related to the name change totaled $503 thousand. All significant costs for these two projects have now been absorbed.

Randall S. Eslick, President and CEO commented: “We are pleased to report that 2019 was another solid year for the company. We are proud of our high quality assets, the successful acquisition and integration of Merchants National Bank and the widespread acceptance of our new name, Merchants Bank of Commerce. Thanks to the hard work of our dedicated employees our company remains well positioned for continued success.”

Financial highlights for the year ended December 31, 2019:

  • Net income of $15.0 million was a decrease of $769 thousand (5%) from $15.7 million earned during the same period in the prior year. Earnings of $0.83 per share – diluted was an decrease of $0.13 (14%) from $0.96 per share – diluted earned during the same period in the prior year and reflects the impact of the following:
    • 1,834,142 shares of common stock issued during the first quarter of 2019 as part of our acquisition of Merchants and
    • 90,501 shares of common stock repurchased during the fourth quarter of 2019 as part of our previously announced share repurchase program.
  • Net interest income increased $6.0 million (13%) to $53.5 million compared to $47.5 million for the same period in the prior year.
  • Net interest margin improved to 3.94% compared to 3.90% for the same period in the prior year.
  • Return on average assets decreased to 1.03% compared to 1.22% for the same period in the prior year.
  • Return on average equity decreased to 9.09% compared to 12.08% for the same period in the prior year.
  • Average loans totaled $1.021 billion, an increase of $105 million (12%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.360 billion, an increase of $140 million (11%) compared to average earning assets for the same period in the prior year.
  • Average deposits totaled $1.245 billion, an increase of $146 million (13%) compared to average deposits for the same period in the prior year.
    • Average non-maturing deposits totaled $1.084 billion, an increase of $154 million (17%) compared to the same period in the prior year.
    • Average certificates of deposit totaled $160.6 million, a decrease of $7.6 million (5%) compared to same period in the prior year.
  • The Company’s efficiency ratio was 64.5% compared to 62.5% during the same period in the prior year.
    • The Company’s efficiency ratio of 64.5% for 2019 includes $2.2 million in acquisition costs and $503 thousand in name change costs. The efficiency ratio excluding these non-recurring costs is 59.9%.
    • The Company’s efficiency ratio of 62.5% for 2018 includes $844 thousand in acquisition costs. The efficiency ratio excluding these non-recurring costs is 60.8%.
  • Nonperforming assets at December 31, 2019 totaled $5.7 million or 0.38% of total assets, an increase of $1.5 million since December 31, 2018. The increase was primarily caused by loans to one commercial real estate borrower that were moved to nonaccrual and had zero calculated impairment at December 31, 2019.
  • Book value per common share was $9.62 at December 31, 2019 compared to $8.47 at December 31, 2018.
  • Tangible book value per common share was $8.71 at December 31, 2019 compared to $8.36 at December 31, 2018.

Financial highlights for the fourth quarter of 2019:

  • Net income of $4.4 million ($0.24 per share – diluted) was a decrease of $470 thousand (10%) from $4.8 million ($0.30 per share – diluted) earned during the same period in the prior year and reflects the impact of the following:
    • 1,834,142 shares of common stock issued during the first quarter of 2019 as part of our acquisition of Merchants and
    • 90,501 shares of common stock repurchased during the fourth quarter of 2019 as part of our previously announced share repurchase program.
  • Net interest income increased $820 thousand (7%) to $13.3 million compared to $12.5 million for the same period in the prior year.
  • Net interest margin decreased to 3.80% compared to 3.93% for the same period in the prior year.
  • Return on average assets decreased to 1.16% compared to 1.44% for the same period in the prior year.
  • Return on average equity decreased to 10.06% compared to 14.32% for the same period in the prior year.
  • Average loans totaled $1.032 billion, an increase of $108 million (12%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.390 billion, an increase of $131 million (10%) compared the same period in the prior year.
  • Average deposits totaled $1.282 billion, an increase of $124 million (11%) compared the same period in the prior year.
    • Average non-maturing deposits totaled $1.129 billion, an increase of $128 million (13%) compared to the same period in the prior year.
    • Average certificates of deposit totaled $153.2 million, a decrease of $3.8 million (2%) compared to the same period in the prior year.
  • The Company’s efficiency ratio was 58.7% compared to 65.1% for the same period in the prior year.
    • The Company’s efficiency ratio of 65.1% for the fourth quarter of 2018 includes $802 thousand in acquisition costs. The efficiency ratio excluding these non-recurring costs is 59.2%.
  • Nonperforming assets at December 31, 2019 totaled $5.7 million or 0.38% of total assets, a decrease of $7.2 million since September 30, 2019. The decrease was due to a sale of a $9.9 million nonaccrual commercial real estate loan.
  • Book value per common share was $9.62 at December 31, 2019 compared to $9.42 at September 30, 2019.
  • Tangible book value per common share was $8.71 at December 31, 2019 compared to $8.51 at September 30, 2019.

Selected Tax Items:

Financial performance for 2018 includes “selected tax items” which complicate reporting period comparisons. The 2018 results include a $1.5 million decrease in our income tax provision composed of a $988 thousand reversal of our uncertain tax position and a $484 thousand benefit as a result of our cost segregation study and tangible property review. These items were previously disclosed in our form 10-K filed March 12, 2019. Management believes that our financial results are more comparative excluding the impact of these selected tax items.

Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. We believe that these non-GAAP financial measures provide investors with information useful in understanding the Company’s financial performance; however, readers of this document are urged to review these non-GAAP financial measures in conjunction with the GAAP results as reported.

   
SELECTED NON-GAAP FINANCIAL INFORMATION – UNAUDITED  
(amounts in thousands except per share data)  
                                       
    For The Three Months Ended   For The Twelve Months Ended  
Reconciliation of Net Income (GAAP) to Net Income   December 31,     September 30,   December 31,  
Excluding Selected Tax Items (non-GAAP):   2019     2018       2019   2019   2018    
Net income (GAAP)   $  4,369      $  4,839        $  4,642      $  14,961    $  15,730     
Selected tax items:                                      
Reversal of uncertain tax position (GAAP)      —        (988 )        —        —      (988 )  
Benefit from cost segregation study and
tangible property review (GAAP)
     —        (484 )        —        —      (484 )  
Total selected tax items      —        (1,472 )        —        —      (1,472 )  
Net income excluding selected tax items (non-GAAP)   $  4,369      $  3,367        $  4,642      $  14,961    $  14,258     
                                       
Earnings per share – diluted (GAAP)   $  0.24      $  0.30        $  0.26      $  0.83    $  0.96     
Effect of selected tax items      —        (0.09 )        —        —      (0.09 )  
Earnings per share – diluted excluding
selected tax items (non-GAAP)
  $  0.24      $  0.21        $  0.26      $  0.83    $  0.87     
                                       
GAAP Information:                                      
Return on average assets     1.16 %     1.44   %     1.26 %     1.03 %   1.22   %
Return on average equity     10.06 %     14.32   %     10.86 %     9.09 %   12.08   %
Effective tax rate     26.1 %     (1.7 ) %     27.8 %     26.9 %   18.7   %
                                       
Non-GAAP Ratios:                                      
Return on average assets excluding selected tax items     1.16 %     1.01   %     1.26 %     1.03 %   1.11   %
Return on average equity excluding selected tax items     10.06 %     9.97   %     10.86 %     9.09 %   10.95   %
Effective tax rate excluding selected tax items     26.1 %     29.2   %     27.8 %     26.9 %   26.3   %

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 Twelve Months Ended  
Net income, average assets and   December 31,     September 30,   December 31,  
average shareholders’ equity   2019     2018     2019   2019   2018  
Net income   $  4,369      $  4,839      $  4,642      $  14,961    $  15,730   
Average total assets   $  1,492,643      $  1,328,817      $  1,462,444      $  1,458,112    $  1,288,841   
Average total earning assets   $  1,390,446      $  1,259,709      $  1,360,006      $  1,360,325    $  1,220,135   
Average shareholders’ equity   $  172,385      $  134,033      $  169,608      $  164,642    $  130,218   
                                       
Selected performance ratios                                      
Return on average assets     1.16 %     1.44 %     1.26 %     1.03 %   1.22 %
Return on average equity     10.06 %     14.32 %     10.86 %     9.09 %   12.08 %
Efficiency ratio     58.7 %     65.1 %     56.4 %     64.5 %   62.5 %
                                       
Share and per share amounts                                      
Weighted average shares – basic (1)      18,068         16,265         18,130         17,956       16,248   
Weighted average shares – diluted (1)      18,150         16,345         18,196         18,024       16,332   
Earnings per share – basic   $  0.24      $  0.30      $  0.26      $  0.83    $  0.97   
Earnings per share – diluted   $  0.24      $  0.30      $  0.26      $  0.83    $  0.96   
                                       
    At December 31,     At September 30,      
Share and per share amounts   2019     2018     2019          
Common shares outstanding (2)      18,137         16,334         18,212                 
Book value per common share (2)   $  9.62      $  8.47      $  9.42                 
Tangible book value per common share (2)(3)   $  8.71      $  8.36      $  8.51                 
                                       
Capital ratios (4)                                    
Bank of Commerce Holdings                                    
Common equity tier 1 capital ratio     13.19 %     12.79 %     12.85 %              
Tier 1 capital ratio     14.04 %     13.71 %     13.69 %              
Total capital ratio     15.97 %     15.82 %     15.62 %              
Tier 1 leverage ratio     11.30 %     11.21 %     11.28 %              
Tangible common equity ratio (5)     10.80 %     10.46 %     10.64 %              
                                       
Merchants Bank of Commerce                                      
Common equity tier 1 capital ratio     14.39 %     13.23 %     14.25 %              
Tier 1 capital ratio     14.39 %     13.23 %     14.25 %              
Total capital ratio     15.48 %     14.42 %     15.34 %              
Tier 1 leverage ratio     11.58 %     10.81 %     11.74 %              
                                       
(1) Excludes unvested restricted shares issued in accordance with the Company’s equity incentive plan, as they are non-participative in dividends or voting rights.
(2) Includes unvested restricted shares issued in accordance with the Company’s equity incentive plan.
(3) Book value per share is computed by dividing total shareholders’ equity by shares outstanding. Tangible book value per share is computed by dividing total shareholders’ equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.
(4) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject.
(5) Management believes the tangible common equity ratio is a useful measure of capital adequacy because it provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the capital of the Company and the ability of the Company to absorb potential losses. The tangible common equity ratio is calculated as total shareholders’ equity less goodwill and core deposit intangible, net divided by total assets less goodwill and core deposit intangible, net.


BALANCE SHEET OVERVIEW

As of December 31, 2019, the Company had total consolidated assets of $1.480 billion, gross loans of $1.033 billion, allowance for loan and lease losses (“ALLL”) of $12 million, total deposits of $1.267 billion, and shareholders’ equity of $174 million.

   
TABLE 2
LOAN BALANCES BY TYPE – UNAUDITED
(amounts in thousands)
                                               
  At December 31,             At September 30,
      % of       % of   Change       % of
  2019     Total   2018     Total   Amount   %   2019     Total
Commercial $  141,197      14 %   $  135,543      14 %   $  5,654       4    %   $  152,195      15 %
Real estate – construction and land development    26,830      3        22,563      2        4,267       19    %      35,606      3  
Real estate – commercial non-owner occupied    493,920      48        433,708      46        60,212       14    %      475,678      47  
Real estate – commercial owner occupied    218,833      21        204,622      22        14,211       7    %      210,767      20  
Real estate – residential – ITIN    33,039      3        37,446      4        (4,407 )    (12 ) %      34,036      3  
Real estate – residential – 1-4 family mortgage    63,661      6        34,366      4        29,295       85    %      64,747      6  
Real estate – residential – equity lines    22,099      2        26,958      3        (4,859 )    (18 ) %      22,729      2  
Consumer and other    33,324      3        51,045      5        (17,721 )    (35 ) %      37,324      4  
Gross loans    1,032,903      100 %      946,251      100 %      86,652       9    %      1,033,082      100 %
Deferred fees and costs    2,162               1,927               235               1,980         
Loans, net of deferred fees and costs    1,035,065               948,178               86,887               1,035,062         
Allowance for loan and lease losses    (12,231 )            (12,292 )            61               (12,285 )      
Net loans $  1,022,834            $  935,886            $  86,948            $  1,022,777         
                                               
Average loans during the quarter $  1,031,702            $  923,409            $  108,293       12    %   $  1,029,534         
Average yield on loans during the quarter   4.86   %         4.94   %          (0.08 )           5.01   %    
Average yield on loans during the year   4.95   %         4.91   %          0.04              4.98   %    

The Company recorded gross loan balances of $1.033 billion at December 31, 2019, compared with $946 million and $1.033 billion at December 31, 2018 and September 30, 2019, respectively, an increase of $87 million and a decrease of $179 thousand, 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 4.86% compared to 4.94% and 5.01% for the quarters ended December 31, 2018 and September 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 $1.7 million and $1.9 million at December 31, 2019 and September 30, 2019, respectively. We recorded $193 thousand and $188 thousand in accretion of the discount for these loans during the third and fourth quarters of 2019, respectively.

   
TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES – UNAUDITED
(amounts in thousands)
                                                 
    At December 31,               At September 30,
        % of       % of   Change       % of
    2019   Total   2018   Total   Amount   %   2019   Total
Cash and due from banks   $  21,338    6 %   $  23,692    8 %   $  (2,354 )    (10 ) %   $  32,505    9 %
Interest-bearing deposits in other banks      59,266    16        23,673    8        35,593       150    %      56,099    16  
Total cash and cash equivalents      80,604    22        47,365    16        33,239       70    %      88,604    25  
                                                 
Investment securities:                                                
U.S. government and agencies      38,733    11        40,087    13        (1,354 )    (3 ) %      40,467    11  
Obligations of state and political subdivisions      42,098    11        50,530    17        (8,432 )    (17 ) %      39,004    11  
Residential mortgage backed securities and
collateralized mortgage obligations
     180,835    49        138,503    45        42,332       31    %      165,994    46  
Corporate securities      2,966    1        2,922    1        44       2    %      2,992    1  
Commercial mortgage backed securities      19,307    5        24,762    8        (5,455 )    (22 ) %      22,822    6  
Other asset backed securities      3,011    1        124     —        2,887       2,328    %      1,062     —  
Total investment securities – AFS      286,950    78        256,928    84        30,022       12    %      272,341    75  
                                                 
Total cash, cash equivalents and
investment securities
  $  367,554    100 %   $  304,293    100 %   $  63,261       21    %   $  360,945    100 %
Average yield on interest-bearing due
from banks and investment securities
during the quarter – nominal
    2.39 %         2.66 %          (0.27 )           2.63 %    
Average yield on interest-bearing due
from banks and investment securities
during the quarter – tax equivalent
    2.47 %         2.77 %          (0.30 )           2.71 %    

As of December 31, 2019, we maintained noninterest-bearing cash positions of $21.3 million and interest-bearing deposits of $59.3 million at the Federal Reserve Bank and correspondent banks.

Investment securities totaled $287.0 million at December 31, 2019, compared with $256.9 million and $272.3 million at December 31, 2018 and September 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 $18.0 million and $118.0 million during the quarter and the year ended December 31, 2019, respectively. The sales resulted in net realized gains of $49 thousand and $186 thousand for the quarter and the year ended December 31, 2019, respectively.

Average securities balances and weighted average tax equivalent yields for the quarters ended December 31, 2019 and 2018 were $277.6 million and 2.71% compared to $261.0 million and 2.91%, respectively.

At December 31, 2019, our net unrealized gains on available-for-sale investment securities were $3.7 million compared with net unrealized losses of $4.3 million and unrealized gains of $3.3 million at December 31, 2018 and September 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 December 31,               At September 30,
      % of       % of     Change       % of
  2019   Total   2018   Total   Amount   %   2019   Total
Demand – noninterest-bearing $  432,680    34 %   $  347,199    31 %   $  85,481      25   %   $  412,410    33 %
Demand – interest-bearing    239,258    19        252,202    22        (12,944 )   (5 ) %      239,547    19  
Money market    307,559    24        265,093    23        42,466      16   %      317,120    25  
Total demand    979,497    77        864,494    76        115,003      13   %      969,077    77  
                                               
Savings    135,888    11        114,840    10        21,048      18   %      137,441    11  
Total non-maturing deposits    1,115,385    88        979,334    86        136,051      14   %      1,106,518    88  
                                               
Certificates of deposit    151,786    12        152,382    14        (596 )   0   %      155,621    12  
Total deposits $  1,267,171    100 %   $  1,131,716    100 %   $  135,455      12   %   $  1,262,139    100 %
                                               

Total deposits at December 31, 2019, increased $135 million or 12% to $1.267 billion compared to December 31, 2018 and increased $5 million or 2% annualized compared to September 30, 2019. Total non-maturing deposits increased $136.1 million or 14% compared to the same date a year ago and increased $8.9 million or 3% annualized compared to September 30, 2019. Certificates of deposit decreased $596 thousand or less than 1% compared to the same date a year ago and decreased $3.8 million or 10% annualized compared to September 30, 2019.

                 
TABLE 5
WHOLESALE AND RECIPROCAL DEPOSITS – UNAUDITED
(amounts in thousands)
                 
  At December 31,   At September 30,
  2019   2018   2019
CDARS / ICS reciprocal deposits $  64,030    $  83,666    $  57,897 
Online listing service wholesale time deposits    248       22,015       248 
Total wholesale and reciprocal deposits $  64,278    $  105,681    $  58,145 

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 6
AVERAGE COST OF FUNDS – UNAUDITED
For The Three Months Ended
                                                               
  December 31,   September 30,   June 30,   March 31,   December 31,   September 30,   June 30,   March 31,
  2019   2019   2019   2019   2018   2018   2018   2018
Interest-bearing deposits   0.56 %     0.56 %     0.54 %     0.49 %     0.45 %     0.42 %     0.41 %     0.41 %
Interest-bearing deposits and noninterest-bearing demand   0.38 %     0.38 %     0.37 %     0.34 %     0.31 %     0.29 %     0.29 %     0.29 %
All interest-bearing liabilities   0.68 %     0.68 %     0.74 %     0.67 %     0.61 %     0.64 %     0.68 %     0.60 %
All interest-bearing liabilities and noninterest-bearing demand   0.46 %     0.46 %     0.52 %     0.46 %     0.42 %     0.45 %     0.50 %     0.43 %

INCOME STATEMENT OVERVIEW

                                         
                                         
TABLE 7
SUMMARY INCOME STATEMENT – UNAUDITED
(amounts in thousands, except per share data)
                                         
  For The Three Months Ended
  December 31,   Change   September 30,   Change
  2019   2018     Amount   %   2019   Amount   %
Interest income $  14,808    $  13,750      $  1,058      8   %   $  15,201    $  (393 )   (3 ) %
Interest expense    1,494       1,256         238      19   %      1,479       15      1   %
Net interest income    13,314       12,494         820      7   %      13,722       (408 )   (3 ) %
Provision for loan
and lease losses
   —      —        —      —   %      —      —      —   %
Noninterest income    1,021       1,132         (111 )   (10 ) %      1,006       15      1   %
Noninterest expense    8,421       8,868         (447 )   (5 ) %      8,300       121      1   %
Income before provision
for income taxes
   5,914       4,758         1,156      24   %      6,428       (514 )   (8 ) %
Provision for income taxes:                                        
Reversal of uncertain tax position    —      (988 )      988       (100 ) %      —      —      —   %
Benefit from cost segregation study and
tangible property review
   —      (484 )      484       (100 ) %      —      —      —   %
Provision for income taxes    1,545       1,391         154      11   %      1,786       (241 )   (13 ) %
Total provision for income taxes    1,545       (81 )      1,626      (2,007 ) %      1,786       (241 )   (13 ) %
Net income $  4,369    $  4,839      $  (470 )   (10 ) %   $  4,642    $  (273 )   (6 ) %
                                         
Basic earnings per share $  0.24    $  0.30      $  (0.06 )    (20 ) %   $  0.26    $  (0.02 )    (8 ) %
Average basic shares    18,068       16,265         1,803       11    %      18,130       (62 )    —   %
Diluted earnings per share $  0.24    $  0.30      $  (0.06 )    (20 ) %   $  0.26    $  (0.02 )    (8 ) %
Average diluted shares    18,150       16,345         1,805       11    %      18,196       (46 )    —   %
Dividends declared per
common share
$  0.05    $  0.04      $  0.01       25    %   $  0.05    $  —      —   %

Fourth Quarter of 2019 Compared With Fourth Quarter of 2018

Income before provision for income taxes for the fourth quarter of 2019 increased $1.2 million compared to the fourth quarter of 2018. In the current quarter, net interest income was $820 thousand higher and noninterest expenses were $447 thousand lower. These positive changes were partially offset by noninterest income that was $111 thousand lower.

Net Interest Income

Net interest income increased $820 thousand compared to the same period a year ago.

Interest income for the fourth quarter of 2019 increased $1.1 million or 8% to $14.8 million.

  • Interest and fees on loans increased $1.1 million due to a $108.3 million increase in average loan balances partially offset by an 8 basis point decrease in the average yield on the loan portfolio.
  • Interest on investment securities increased $4 thousand due to a $16.6 million increase in average securities balances partially offset by a 16 basis point decrease in average yield on the securities portfolio.
  • Interest on interest-bearing deposits due from banks decreased $95 thousand due to a 63 basis point decrease in average yield that was partially offset by a $5.8 million increase in average interest-bearing deposit balances.

Interest expense for the fourth quarter of 2019 increased $238 thousand or 19% to $1.5 million.

  • Interest expense on interest-bearing deposits increased $312 thousand. Average interest-bearing demand and savings deposit balances increased $67.2 million, while average certificate of deposit balances decreased $3.8 million. The average rate paid on interest-bearing deposits increased 11 basis points.
  • Interest expense on other term debt and junior subordinated debentures decreased $74 thousand. During the second quarter of 2019, we completed the early repayment of our variable rate senior debt.

Provision for loan and lease losses

Net loan loss charge-offs were only $54 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 fourth quarter of 2018.

Noninterest Income

Noninterest income for the three months ended December 31, 2019 decreased $111 thousand compared to the fourth quarter for 2018. Noninterest income for the fourth quarter of 2018 included a $96 thousand special dividend on Federal Home Loan Bank of San Francisco stock.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2019 decreased $447 thousand compared to the same period a year previous. The decrease was primarily due to $802 of acquisition and merger costs recorded during the same period a year ago that did not recur and $93 thousand in Small Bank Assessment Credits from the FDIC in the current quarter. These decreases were partially offset by $136 thousand in amortization of the core deposit intangible for the deposits acquired from Merchants and $112 thousand in increased salaries and related benefit costs.

The Company’s efficiency ratio was 58.7% for the fourth quarter of 2019; the ratio during the same period in 2018 was 65.1%. The Company’s efficiency ratio of 65.1% for the fourth quarter of 2018 includes $802 thousand in acquisition costs. The efficiency ratio excluding these non-recurring costs was 59.2%.

Income Tax Provision

For the three months ended December 31, 2019, our income tax provision of $1.5 million on pre-tax income of $5.9 million was an effective tax rate of 26.1%.

For the three months ended December 31, 2018, our negative income tax provision of $81 thousand on pre-tax income of $4.8 million included:

  • $(988) thousand benefit due to the reversal of our uncertain tax position.
  • $(484) thousand benefit as a result of our cost segregation study and tangible property review.
  • $1.4 million tax provision on pre-tax net operating income of $4.8 million (29.2%).
    • $765 thousand in acquisition costs were not tax deductible for the three months ended December 31, 2018.

Fourth Quarter of 2019 Compared With Third Quarter of 2019

Net income for the fourth quarter of 2019 decreased $273 thousand compared to the third quarter of 2019. In the current quarter, net interest income was $408 thousand lower and noninterest expense was $121 thousand higher. These changes were partially offset by noninterest income that was $15 thousand higher and a provision for income taxes that was $241 thousand lower.

Net Interest Income

Net interest income decreased $408 thousand over the prior quarter.

Interest income for the three months ended December 31, 2019 decreased $393 thousand or 3% to $14.8 million.

  • Interest and fees on loans decreased $370 thousand due to a 15 basis point decrease in the average yield on the loan portfolio partially offset by a $2.2 million increase in average loan balances.
  • Interest on investment securities decreased $54 thousand due to a 14 basis point decrease in average yield on the investment portfolio partially offset by a $6.1 million increase in average securities balances partially.
  • Interest on interest-bearing deposits due from banks increased $31 thousand due to a $22.2 million increase in average balances partially offset by a 42 basis point decrease in the average yield on interest-bearing deposits due from banks.

Interest expense for the three months ended December 31, 2019 increased $15 thousand or 1% to $1.5 million.

  • Interest expense on interest-bearing deposits increased $24 thousand. Average interest-bearing demand and savings deposit balances increased $9.5 million, while average certificates of deposit decreased $4.4 million. The average rate paid on interest-bearing deposits increased by less than one basis point.
  • Interest expense on other term debt and junior subordinated debentures decreased $9 thousand.

Provision for loan and lease losses

As illustrated in Table 9, the sale during the fourth quarter of a $9.9 million nonaccrual commercial real estate loan has resulted in an improvement in our asset quality metrics. As a result of these improved metrics and loan loss charge-offs totaling only $54 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 December 31, 2019 increased $15 thousand, which was not concentrated in any one item.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2019 increased $121 thousand, which was not concentrated in any one item.

The Company’s efficiency ratio was 58.7% for the fourth quarter of 2019 compared with 56.4% for the prior quarter.

Income Tax Provision

For the three months ended December 31, 2019, our income tax provision of $1.5 million on pre-tax income of $5.9 million was an effective tax rate of 26.1%. The income tax provision for the prior quarter of $1.8 million on pre-tax income of $6.4 million was an effective tax rate of 27.8%. The effective tax rate for the prior quarter was increased by the write-off of a $41 thousand deferred tax asset.

Earnings Per Share

Diluted earnings per share were $0.24 for the three months ended December 31, 2019 compared with diluted earnings per share of $0.30 for the same period a year ago and diluted earnings per share of $0.26 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in Table 7 presented earlier in this press release.

                                                       
TABLE 8a
NET INTEREST MARGIN – UNAUDITED
(amounts in thousands)
                                                       
    For The Three Months Ended
    December 31, 2019   December 31, 2018   September 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)   $  1,031,702    $  12,643     4.86  %   $  923,409    $  11,494     4.94  %   $  1,029,534    $  13,013     5.01  %
Taxable securities      245,487       1,567     2.53  %      218,137       1,469     2.67  %      238,601       1,609     2.68  %
Tax-exempt securities (3)      32,158       258     3.18  %      42,868       353     3.27  %      32,974       271     3.26  %
Interest-bearing deposits
in other banks
     81,099       340     1.66  %      75,295       434     2.29  %      58,897       308     2.07  %
Average interest-
earning assets
     1,390,446       14,808     4.23  %      1,259,709       13,750     4.33  %      1,360,006       15,201     4.43  %
Cash and due from banks      24,083                   22,447                   23,822             
Premises and equipment, net      16,049                   13,331                   15,922             
Goodwill and core deposit intangible, net      16,561                   1,842                   16,769             
Other assets      45,504                   31,488                   45,925             
Average total assets   $  1,492,643                $  1,328,817                $  1,462,444             
                                                       
Interest-bearing liabilities:                                                      
Interest-bearing demand   $  244,276       108     0.18  %   $  257,227       141     0.22  %   $  243,553       117     0.19  %
Money market      318,127       479     0.60  %      265,190       207     0.31  %      309,188       451     0.58  %
Savings      138,155       128     0.37  %      110,934       92     0.33  %      138,296       131     0.38  %
Certificates of deposit      153,223       499     1.29  %      157,035       462     1.17  %      157,620       491     1.24  %
Other borrowings net of unamortized debt issuance costs      9,952       183     7.30  %      13,785       252     7.25  %      9,942       183     7.30  %
Junior subordinated
debentures
     10,310       97     3.73  %      10,310       102     3.93  %      10,310       106     4.08  %
Average interest-
bearing liabilities
     874,043       1,494     0.68  %      814,481       1,256     0.61  %      868,909       1,479     0.68  %
Noninterest-bearing demand      428,420                   367,457                   405,853             
Other liabilities      17,795                   12,846                   18,074             
Shareholders’ equity      172,385                   134,033                   169,608             
Average liabilities and
shareholders’ equity
  $  1,492,643                $  1,328,817                $  1,462,444             
Net interest income and
net interest margin (4)
        $  13,314     3.80  %         $  12,494     3.93  %         $  13,722     4.00  %
                                                       
(1) Interest income on loans includes deferred fees and costs of approximately $224 thousand, $109 thousand, and $161 thousand for the three months ended December 31, 2019 and 2018 and September 30, 2019, respectively.
(2) Net loans includes average nonaccrual loans of $11.4 million, $4.1 million and $13.2 million for the three months ended December 31, 2019 and 2018 and September 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. Net interest income for the three months ended December 31, 2019 included $188 thousand in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by 7 basis points.
(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 8b
NET INTEREST MARGIN – UNAUDITED
(amounts in thousands)
                                     
    For The Twelve Months Ended
    December 31, 2019   December 31, 2018
    Average         Yield /   Average         Yield /
    Balance   Interest(1)   Rate (5)   Balance   Interest(1)   Rate (5)
Interest-earning assets:                                    
Net loans (2)   $  1,020,801    $  50,534     4.95  %   $  915,360    $  44,955     4.91  %
Taxable securities      246,723       6,673     2.70  %      207,407       5,165     2.49  %
Tax-exempt securities (3)      38,706       1,244     3.21  %      50,330       1,629     3.24  %
Interest-bearing deposits
in other banks
     54,095       1,112     2.06  %      47,038       952     2.02  %
Average interest-
earning assets
     1,360,325       59,563     4.38  %      1,220,135       52,701     4.32  %
Cash and due from banks      22,806                   20,468             
Premises and equipment, net      15,598                   13,952             
Goodwill and core deposit intangible, net      15,565                   1,917             
Other assets      43,818                   32,369             
Average total assets   $  1,458,112                $  1,288,841             
                                     
Interest-bearing liabilities:                                    
Interest-bearing demand   $  242,516       480     0.20  %   $  238,328       414     0.17  %
Money market      304,340       1,599     0.53  %      250,685       646     0.26  %
Savings      136,733       493     0.36  %      109,025       288     0.26  %
Certificates of deposit      160,550       1,977     1.23  %      168,183       1,910     1.14  %
Federal Home Loan Bank of San Francisco borrowings      9,644       247     2.56  %      22,466       435     1.94  %
Other borrowings net of unamortized debt issuance costs      10,895       806     7.40  %      15,143       1,077     7.11  %
Junior subordinated
debentures
     10,310       426     4.13  %      10,310       385     3.73  %
Average interest-
bearing liabilities
     874,988       6,028     0.69  %      814,140       5,155     0.63  %
Noninterest-bearing demand      400,588                   332,197             
Other liabilities      17,894                   12,286             
Shareholders’ equity      164,642                   130,218             
Average liabilities and shareholders’ equity   $  1,458,112                $  1,288,841             
Net interest income and
net interest margin (4)
        $  53,535     3.94  %         $  47,546     3.90  %
                                     
(1) Interest income on loans includes deferred fees and costs of approximately $657 thousand and $465 thousand for the years ended December 31, 2019 and 2018, respectively.
(2) Net loans includes average nonaccrual loans of $11.7 million and $4.2 million for the years ended December 31, 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. Net interest income for the year ended December 31, 2019 included $620 thousand in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by 6 basis points.
(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 9  
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS – UNAUDITED  
(amounts in thousands)  
                                       
  For The Three Months Ended
  December 31,   September 30,   June 30,   March 31,   December 31,
  2019   2019   2019   2019   2018
Beginning balance ALLL $  12,285        $  12,445        $  12,242        $  12,292        $  12,392     
Provision for loan and lease losses    —          —          —          —          —    
Loans charged-off    (174 )        (319 )        (659 )        (348 )        (279 )  
Loan loss recoveries    120           159           862           298           179     
Ending balance ALLL $  12,231        $  12,285        $  12,445        $  12,242        $  12,292     
                                       
  At December 31,   At September 30,   At June 30,   At March 31,   At December 31,
  2019   2019   2019   2019   2018
Nonaccrual loans:                                      
Commercial $  61        $  139        $  194        $  1,018        $  959     
Real estate – commercial non-owner occupied    —          10,099           10,690           10,878           —    
Real estate – commercial owner occupied    3,103           —          —          —          548     
Real estate – residential – ITIN    2,221           2,339           2,389           2,392           2,388     
Real estate – residential – 1-4 family mortgage    191           198           217           182           185     
Real estate – residential – equity lines    —          —          —          42           43     
Consumer and other    40           21           22           23           23     
Total nonaccrual loans    5,616           12,796           13,512           14,535           4,146     
Accruing troubled debt restructured loans:                                      
Commercial    595           629           1,092           1,187           1,224     
Real estate – commercial non-owner occupied    —          —          791           793           795     
Real estate – residential – ITIN    3,957           4,072           4,300           4,342           4,484     
Real estate – residential – equity lines    231           236           242           358           363     
Total accruing troubled debt restructured loans    4,783           4,937           6,425           6,680           6,866     
                                       
All other accruing impaired loans    —          —          —          —          —    
                                       
Total impaired loans $  10,399        $  17,733        $  19,937        $  21,215        $  11,012     
                                       
Gross loans outstanding at period end $  1,032,903        $  1,033,082        $  1,036,724        $  1,034,606        $  946,251     
                                       
Impaired loans to gross loans   1.01   %     1.72   %     1.92   %     2.05   %     1.16   %
Nonaccrual loans to gross loans   0.54   %     1.24   %     1.30   %     1.40   %     0.44   %
                                       
Allowance for loan and lease losses as a percent of:                          
Gross loans   1.18   %     1.19   %     1.20   %     1.18   %     1.30   %
Nonaccrual loans   217.79   %     96.01   %     92.10   %     84.22   %     296.48   %
Impaired loans   117.62   %     69.28   %     62.42   %     57.70   %     111.62   %

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. The decrease in nonaccrual loans during the current quarter resulted from the sale of a $9.9 million nonaccrual commercial real estate loan. Net loan loss charge-offs totaled only $54 thousand for the quarter ended December 31, 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 1.18% as of December 31, 2019 compared to 1.30% as of December 31, 2018 and compared to 1.19% as of September 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 December 31, 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 December 31, 2019, the recorded investment in loans classified as impaired totaled $10.4 million, with a corresponding specific reserve of $324 thousand compared to impaired loans of $11.0 million with a corresponding specific reserve of $1.2 million at December 31, 2018 and impaired loans of $17.7 million, with a corresponding specific reserve of $335 thousand at September 30, 2019. The decrease in loans classified as impaired compared to the prior quarter results from the sale of one $9.9 million commercial real estate loan.

                                         
TABLE 10
TROUBLED DEBT RESTRUCTURINGS – UNAUDITED
(amounts in thousands)
                                         
    At December 31,   At September 30,   At June 30,   At March 31,   At December 31,
    2019   2019   2019   2019   2018
Nonaccrual   $  1,680      $  1,746      $  1,828      $  2,725      $  2,693   
Accruing      4,783         4,937         6,425         6,680         6,866   
Total troubled debt restructurings   $  6,463      $  6,683      $  8,253      $  9,405      $  9,559   
                                         
Troubled debt restructurings as a percentage of total gross loans     0.63 %     0.65 %     0.80 %     0.91 %     1.01 %

There was one new troubled debt restructuring to grant a rate and maturity modification during the three months ended December 31, 2019. As of December 31, 2019, we had 98 restructured loans that qualified as troubled debt restructurings, of which 94 were performing according to their restructured terms.

                                         
                                         
TABLE 11
NONPERFORMING ASSETS – UNAUDITED
(amounts in thousands)
                                         
    At December 31,   At September 30,   At June 30,   At March 31,   At December 31,
    2019   2019   2019   2019   2018
Total nonaccrual loans   $  5,616      $  12,796      $  13,512      $  14,535      $  4,146   
90 days past due and still accruing      —        —        —        —        —  
Total nonperforming loans      5,616         12,796         13,512         14,535         4,146   
                                         
Other real estate owned (“OREO”)      35         58         34         31         31   
Total nonperforming assets   $  5,651      $  12,854      $  13,546      $  14,566      $  4,177   
                                         
Nonperforming loans to gross loans     0.54 %     1.24 %     1.30 %     1.40 %     0.44 %
Nonperforming assets to total assets     0.38 %     0.87 %     0.94 %     0.99 %     0.32 %

The following table summarizes when loans are projected to reprice by year and rate index as of December 31, 2019.

                                                 
                                                 
TABLE 12
LOANS BY RATE INDEX AND PROJECTED REPAYMENT – UNAUDITED
(amounts in thousands)
At December 31, 2019
                                                 
                                  Years 6            
                                  Through   Beyond      
    Year 1   Year 2   Year 3   Year 4   Year 5   Year 10   Year 10   Total
Rate Index:                                                
Fixed   $  49,959    $  52,191    $  33,501    $  72,871    $  32,308    $  166,641    $  32,514    $  439,985 
Variable:                                                
Prime      92,508       5,534       9,682       4,616       6,759       4,752       —      123,851 
5 Year Treasury      24,733       66,548       83,684       66,329       77,812       54,490       —      373,596 
7 Year Treasury      858       7,024       9,292       480       5,597       13,828       —      37,079 
1 Year LIBOR      20,988       —      —      —      —      —      —      20,988 
Other Indexes      4,146       2,946       2,062       1,733       5,716       16,730       617       33,950 
Nonaccrual      625       551       529       513       492       1,988       918       5,616 
Total   $  193,817    $  134,794    $  138,750    $  146,542    $  128,684    $  258,429    $  34,049    $  1,035,065 

                               
TABLE 13
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
                               
  At December 31,   Change   At September 30,
    2019     2018     $   %   2019  
Assets:                              
Cash and due from banks   $  21,338      $  23,692      $  (2,354 )    (10 ) %   $  32,505   
Interest-bearing deposits in other banks      59,266         23,673         35,593       150    %      56,099   
Total cash and cash equivalents      80,604         47,365         33,239       70    %      88,604   
                               
Securities available-for-sale, at fair value      286,950         256,928         30,022       12    %      272,341   
Loans, net of deferred fees and costs      1,035,065         948,178         86,887       9    %      1,035,062   
Allowance for loan and lease losses      (12,231 )      (12,292 )      61       —   %      (12,285 )
Net loans      1,022,834         935,886         86,948       9    %      1,022,777   
                               
Premises and equipment, net      15,906         13,119         2,787       21    %      16,084   
Other real estate owned      35         31         4       13    %      58   
Life insurance      23,701         22,410         1,291       6    %      23,576   
Deferred tax asset, net      4,553         7,039         (2,486 )    (35 ) %      4,818   
Goodwill and core deposit intangible, net      16,480         1,841         14,639       795    %      16,672   
Other assets      28,553         22,485         6,068       27    %      27,497   
Total assets   $  1,479,616      $  1,307,104      $  172,512       13    %   $  1,472,427   
                               
Liabilities and shareholders’ equity:                              
Demand – noninterest-bearing   $  432,680      $  347,199      $  85,481       25    %   $  412,410   
Demand – interest-bearing      239,258         252,202         (12,944 )    (5 ) %      239,547   
Money market      307,559         265,093         42,466       16    %      317,120   
Savings      135,888         114,840         21,048       18    %      137,441   
Certificates of deposit      151,786         152,382         (596 )    —   %      155,621   
Total deposits      1,267,171         1,131,716         135,455       12    %      1,262,139   
                               
Term debt:                              
Other borrowings      10,000         13,496         (3,496 )    (26 ) %      10,000   
Unamortized debt issuance costs      (43 )      (91 )      48       (53 ) %      (55 )
Net term debt      9,957         13,405         (3,448 )    (26 ) %      9,945   
                               
Junior subordinated debentures      10,310         10,310         —      —   %      10,310   
Other liabilities      17,700         13,352         4,348       33    %      18,396   
Total liabilities      1,305,138         1,168,783         136,355       12    %      1,300,790   
                               
Shareholders’ equity:                              
Common stock      71,311         52,284         19,027       36    %      72,200   
Retained earnings      100,566         89,045         11,521       13    %      97,100   
Accumulated other comprehensive income (loss), net of tax      2,601         (3,008 )      5,609       (186 ) %      2,337   
Total shareholders’ equity      174,478         138,321         36,157       26    %      171,637   
                               
Total liabilities and shareholders’ equity   $  1,479,616      $  1,307,104      $  172,512       13    %   $  1,472,427   
                               
Total interest-earning assets   $  1,377,588      $  1,233,049      $  144,539       12    %   $  1,360,184   
Shares outstanding      18,137         16,334         1,803       11    %      18,212   
Book value per share (1)   $  9.62      $  8.47      $  1.15       14    %   $  9.42   
Tangible book value per share (1)   $  8.71      $  8.36      $  0.35       4    %   $  8.51   
                               
(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 14
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
    For The Three Months Ended   For The Twelve Months Ended
    December 31,   Change   September 30,   December 31,
    2019   2018   $   %   2019   2019   2018
Interest income:                                          
Interest and fees on loans   $  12,643    $  11,494    $  1,149       10    %   $  13,013    $  50,534    $  44,955 
Interest on taxable securities      1,567       1,469       98       7    %      1,609       6,673       5,165 
Interest on tax-exempt securities      258       353       (95 )    (27 ) %      271       1,244       1,629 
Interest on interest-bearing deposits in other banks      340       434       (94 )    (22 ) %      308       1,112       952 
Total interest income      14,808       13,750       1,058       8    %      15,201       59,563       52,701 
Interest expense:                                          
Interest on demand deposits      108       141       (33 )    (23 ) %      117       480       414 
Interest on money market      479       207       272       131    %      451       1,599       646 
Interest on savings      128       92       36       39    %      131       493       288 
Interest on certificates of deposit      499       462       37       8    %      491       1,977       1,910 
Interest on Federal Home Loan Bank of
San Francisco borrowings
     —      —      —      —   %      —      247       435 
Interest on other borrowings      183       252       (69 )    (27 ) %      183       806       1,077 
Interest on junior subordinated debentures      97       102       (5 )    (5 ) %      106       426       385 
Total interest expense      1,494       1,256       238       19    %      1,479       6,028       5,155 
Net interest income      13,314       12,494       820       7    %      13,722       53,535       47,546 
Provision for loan and lease losses      —      —      —      —   %      —      —      —
Net interest income after provision
for loan and lease losses
     13,314       12,494       820       7    %      13,722       53,535       47,546 
Noninterest income:                                          
Service charges on deposit accounts      198       161       37       23    %      177       730       682 
ATM and point of sale fees      282       283       (1 )    —   %      293       1,158       1,131 
Payroll and benefit processing fees      183       178       5       3    %      158       669       652 
Life insurance      126       128       (2 )    (2 ) %      126       536       512 
Gain on investment securities, net      49       3       46       1,533    %      12       186       44 
Federal Home Loan Bank of
San Francisco dividends
     131       201       (70 )    (35 ) %      131       507       480 
Gain(Loss) on sale of OREO      21       64       (43 )    (67 ) %      —      62       73 
Other income      31       114       (83 )    (73 ) %      109       336       445 
Total noninterest income      1,021       1,132       (111 )    (10 ) %      1,006       4,184       4,019 

                                           
TABLE 14 – CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
                                           
    For The Three Months Ended   For The Twelve Months Ended
    December 31,   Change   September 30,   December 31,
    2019   2018     $   %   2019     2019   2018  
Noninterest expense:                                          
Salaries and related benefits      4,924       4,812         112       2    %      5,005         20,804       18,709   
Premises and equipment      916       927         (11 )    (1 ) %      933         3,752       3,983   
Federal Deposit Insurance Corporation
insurance premium
     —      93         (93 )    (100 ) %      (104 )      91       376   
Data processing      739       528         211       40    %      582         2,535       1,997   
Professional services      309       436         (127 )    (29 ) %      392         1,539       1,431   
Telecommunications      190       145         45       31    %      194         737       594   
Acquisition and merger      —      802         (802 )    (100 ) %      (113 )      2,193       844   
Other expenses      1,343       1,125         218       19    %      1,411         5,604       4,272   
Total noninterest expense      8,421       8,868         (447 )    (5 ) %      8,300         37,255       32,206   
Income before provision for income taxes      5,914       4,758         1,156       24    %      6,428         20,464       19,359   
Provision for income taxes:                                          
Reversal of uncertain tax position      —      (988 )      988       (100 ) %      —        —      (988 )
Benefit from cost segregation study and
tangible property review
     —      (484 )      484       (100 ) %      —        —      (484 )
Provision for income taxes      1,545       1,391         154       11    %      1,786         5,503       5,101   
Total provision for income taxes      1,545       (81 )      1,626       (2,007 ) %      1,786         5,503       3,629   
Net income   $  4,369    $  4,839      $  (470 )    (10 ) %   $  4,642      $  14,961    $  15,730   
                                           
Basic earnings per share   $  0.24    $  0.30      $  (0.06 )    (20 ) %   $  0.26      $  0.83    $  0.97   
Average basic shares      18,068       16,265         1,803       11    %      18,130         17,956       16,248   
Diluted earnings per share   $  0.24    $  0.30      $  (0.06 )    (20 ) %   $  0.26      $  0.83    $  0.96   
Average diluted shares      18,150       16,345         1,805       11    %      18,196         18,024       16,332   

                               
TABLE 15
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
                               
    For The Three Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,
    2019   2019   2019   2019   2018
Earning assets:                              
Loans   $  1,031,702    $  1,029,534    $  1,028,187    $  993,261    $  923,409 
Taxable securities      245,487       238,601       249,907       253,068       218,137 
Tax-exempt securities      32,158       32,974       39,501       50,454       42,868 
Interest-bearing deposits in other banks      81,099       58,897       35,605       40,223       75,295 
Total earning assets      1,390,446       1,360,006       1,353,200       1,337,006       1,259,709 
                               
Cash and due from banks      24,083       23,822       21,942       21,392       22,447 
Premises and equipment, net      16,049       15,922       15,819       14,581       13,331 
Goodwill and core deposit intangible, net      16,561       16,769       16,995       11,872       1,842 
Other assets      45,504       45,925       42,769       41,009       31,488 
Total assets   $  1,492,643    $  1,462,444    $  1,450,725    $  1,425,860    $  1,328,817 
                               
Liabilities and shareholders’ equity:                              
Demand – noninterest-bearing   $  428,420    $  405,853    $  379,173    $  388,410    $  367,457 
Demand – interest-bearing      244,276       243,553       238,840       243,376       257,227 
Money market      318,127       309,188       296,326       293,396       265,190 
Savings      138,155       138,296       139,307       131,081       110,934 
Certificates of deposit      153,223       157,620       164,084       167,463       157,035 
Total deposits      1,282,201       1,254,510       1,217,730       1,223,726       1,157,843 
                               
Federal Home Loan Bank of San Francisco borrowings      —      —      30,000       8,778       —
Other borrowings net of unamortized debt issuance costs      9,952       9,942       10,841       12,889       13,785 
Junior subordinated debentures      10,310       10,310       10,310       10,310       10,310 
Other liabilities      17,795       18,074       18,246       17,452       12,846 
Total liabilities      1,320,258       1,292,836       1,287,127       1,273,155       1,194,784 
                               
Shareholders’ equity      172,385       169,608       163,598       152,705       134,033 
Liabilities & shareholders’ equity   $  1,492,643    $  1,462,444    $  1,450,725    $  1,425,860    $  1,328,817 

                         
TABLE 16
UNAUDITED CONDENSED CONSOLIDATED
ANNUAL AVERAGE BALANCE SHEETS
(amounts in thousands)
                         
    For The Year Ended
    December 31,   December 31,   December 31,   December 31,
    2019   2018   2017   2016
Earning assets:                        
Loans   $  1,020,801    $  915,360    $  818,119    $  752,938 
Taxable securities      246,723       207,407       165,333       120,884 
Tax-exempt securities      38,706       50,330       74,231       75,303 
Interest-bearing deposits in other banks      54,095       47,038       66,872       58,668 
Total earning assets      1,360,325       1,220,135       1,124,555       1,007,793 
                         
Cash and due from banks      22,806       20,468       18,301       15,831 
Premises and equipment, net      15,598       13,952       15,567       15,078 
Goodwill and core deposit intangible, net      15,565       1,917       2,136       1,888 
Other assets      43,818       32,369       37,692       39,160 
Total assets   $  1,458,112    $  1,288,841    $  1,198,251    $  1,079,750 
                         
Liabilities and shareholders’ equity:                        
Demand – noninterest-bearing   $  400,588    $  332,197    $  289,735    $  226,368 
Demand – interest-bearing      242,516       238,328       209,792       172,011 
Money market      304,340       250,685       224,913       202,159 
Savings      136,733       109,025       111,376       104,771 
Certificates of deposit      160,550       168,183       205,648       221,074 
Total deposits      1,244,727       1,098,418       1,041,464       926,383 
                         
Federal Home Loan Bank of San Francisco borrowings      9,644       22,466       302       17,856 
Other borrowings net of unamortized debt issuance costs      10,895       15,143       17,981       19,430 
Junior subordinated debentures      10,310       10,310       10,310       10,310 
Other liabilities      17,894       12,286       12,293       13,217 
Total liabilities      1,293,470       1,158,623       1,082,350       987,196 
                         
Shareholders’ equity      164,642       130,218       115,901       92,554 
Liabilities & shareholders’ equity   $  1,458,112    $  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

GlobeNewswire