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

SACRAMENTO, Calif., April 19, 2019 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (BOCH) (the “Company”), a $1.471 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter ended March 31, 2019. Net income for the quarter ended March 31, 2019 was $2.3 million or $0.13 per share – diluted, compared with net income of $3.2 million or $0.20 per share – diluted for the same period of 2018.

The current quarter includes the results and related acquisition costs of $1.9 million associated with the January 31, 2019 acquisition of Merchants Holding Company in Sacramento (“Merchants”).

Randall S. Eslick, President and CEO commented: “All of our employees have worked diligently to ensure that the integration of Merchants Bank continues to progress very smoothly and we are excited to extend our banking services into downtown Sacramento.”

Financial highlights for the first quarter of 2019 compared to the same quarter a year ago:

  • Net income of $2.3 million was a decrease of $935 thousand (29%) from $3.2 million earned during the same period in the prior year. Earnings of $0.13 per share – diluted was a decrease of $0.07 (35%) from $0.20 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 current quarter as part of our acquisition of Merchants.

  • Acquisition costs associated with our acquisition of Merchants totaled $1.9 million.

  • Net interest income increased $1.7 million (15%) to $13.0 million compared to $11.3 million for the same period in the prior year.

  • Return on average assets decreased to 0.66% compared to 1.05% for the same period in the prior year.

  • Return on average equity decreased to 6.12% compared to 10.34% for the same period in the prior year.

  • Average loans totaled $993.3 million, an increase of $109.4 million (12%) compared to average loans for the same period in the prior year.

  • Average earning assets totaled $1.337 billion, an increase of $155 million (13%) compared to average earning assets for the same period in the prior year.

  • Average deposits totaled $1.224 billion, an increase of $153 million (14%) compared to average deposits for the same period in the prior year.

    • Average non-maturing deposits totaled $1.056 billion, an increase of $168 million (19%) compared to the same period in the prior year.

    • Average certificates of deposit totaled $167.5 million, a decrease of $14.4 million (8%) compared to same period in the prior year.

  • The Company’s efficiency ratio was 77.7% compared to 65.2% during the same period in the prior year.

  • Nonperforming assets at March 31, 2019 totaled $14.6 million or 0.99% of total assets, an increase of $10.3 million (241%) since March 31, 2018. The increase in nonperforming assets results from one $10.9 million commercial real estate loan which at March 31, 2019 had zero calculated impairment.

  • Book value per common share was $8.90 at March 31, 2019 compared to $7.83 at March 31, 2018.

  • Tangible book value per common share was $7.96 at March 31, 2019 compared to $7.71 at March 31, 2018.

Financial highlights for the first quarter of 2019 compared to the prior quarter:

  • Net income of $2.3 million ($0.13 per share –diluted) was a decrease of $2.5 million (52%) from $4.8 million ($0.30 per share – diluted) earned during the prior quarter.

  • Acquisition costs associated with our acquisition of Merchants totaled $1.9 million compared to $802 thousand for the prior quarter.

  • Net interest income increased $510 thousand (17% annualized) to $13.0 million compared to $12.5 million for the prior quarter.

  • Return on average assets decreased to 0.66% compared to 1.44% for the prior quarter.

  • Return on average equity decreased to 6.12% compared to 14.32% for the prior quarter.

  • Average loans totaled $993.3 million, an increase of $69.9 million (31% annualized) compared to average loans for the prior quarter.

  • Average earning assets totaled $1.337 billion, an increase of $77 million (25% annualized) compared the prior quarter.

  • Average deposits totaled $1.224 billion, an increase of $65.9 million (23% annualized) compared the prior quarter.

    • Average non-maturing deposits totaled $1.056 billion, an increase of $55 million (22% annualized) compared to the prior quarter.

    • Average certificates of deposit totaled $167.5 million, an increase of $10.4 million (27% annualized) compared to the prior quarter.

  • The Company’s efficiency ratio was 77.7% compared to 65.1% for the prior quarter.

  • Nonperforming assets at March 31, 2019 totaled $14.6 million or 0.99% of total assets, an increase of $10.4 million (1,009% annualized) compared to December 31, 2018. The increase in nonperforming assets results from one $10.9 million commercial real estate loan which at March 31, 2019 had zero calculated impairment.

  • Book value per common share was $8.90 at March 31, 2019 compared to $8.47 at December 31, 2018.

  • Tangible book value per common share was $7.96 at March 31, 2019 compared to $8.36 at December 31, 2018.

Forward-Looking Statements

This quarterly press release includes forward-looking information, which is subject to the “safe harbor” created by the Securities Act of 1933 and Securities Act of 1934. These forward-looking statements (which involve our plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:

  • Competitive pressure in the banking industry and changes in the regulatory environment

  • Changes in the interest rate environment and volatility of rate sensitive assets and liabilities

  • A decline in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of our loans

  • Credit quality deterioration which could cause an increase in the provision for loan and lease losses

  • Asset/Liability matching risks and liquidity risks

  • Changes in the securities markets

For additional information concerning risks and uncertainties related to the Company and its operations, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 under the heading “Risk Factors” and to subsequent reports on Form 10-Q and current reports on Form 8-K. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation and specifically disclaims any obligation to revise or publicly release the results of any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date the statements were made.

TABLE 1

SELECTED FINANCIAL INFORMATION - UNAUDITED

(amounts in thousands except per share data)

For The Three Months Ended

Net income, average assets and

March 31,

December 31,

average shareholders' equity

2019

2018

2018

Net income

$

2,306

$

3,241

$

4,839

Average total assets

$

1,425,860

$

1,248,563

$

1,328,817

Average total earning assets

$

1,337,006

$

1,181,882

$

1,259,709

Average shareholders' equity

$

152,705

$

127,069

$

134,033

Selected performance ratios

Return on average assets

0.66

%

1.05

%

1.44

%

Return on average equity

6.12

%

10.34

%

14.32

%

Efficiency ratio

77.7

%

65.2

%

65.1

%

Share and per share amounts

Weighted average shares - basic (1)

17,489

16,225

16,265

Weighted average shares - diluted (1)

17,552

16,310

16,345

Earnings per share - basic

$

0.13

$

0.20

$

0.30

Earnings per share - diluted

$

0.13

$

0.20

$

0.30

At March 31,

At December 31,

Share and per share amounts

2019

2018

2018

Common shares outstanding (2)

18,213

16,315

16,334

Book value per common share (2)

$

8.90

$

7.83

$

8.47

Tangible book value per common share (2)(3)

$

7.96

$

7.71

$

8.36

Capital ratios (4)

Bank of Commerce Holdings

Common equity tier 1 capital ratio

12.40

%

12.35

%

12.79

%

Tier 1 capital ratio

13.25

%

13.31

%

13.71

%

Total capital ratio

15.19

%

15.52

%

15.82

%

Tier 1 leverage ratio

11.05

%

11.09

%

11.21

%

Tangible common equity ratio (5)

9.97

%

10.11

%

10.46

%

Redding Bank of Commerce

Common equity tier 1 capital ratio

13.98

%

12.62

%

13.23

%

Tier 1 capital ratio

13.98

%

12.62

%

13.23

%

Total capital ratio

15.08

%

13.87

%

14.42

%

Tier 1 leverage ratio

11.66

%

10.51

%

10.81

%

(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) 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 March 31, 2019, the Company had total consolidated assets of $1.471 billion, gross loans of $1.035 billion, allowance for loan and lease losses (“ALLL”) of $12.2 million, total deposits of $1.248 billion, and shareholders’ equity of $162.1 million.

TABLE 2

LOAN BALANCES BY TYPE - UNAUDITED

(amounts in thousands)

At March 31,

At December 31,

% of

% of

Change

% of

2019

Total

2018

Total

Amount

%

2018

Total

Commercial

$

149,575

14

%

$

137,870

15

%

$

11,705

8

%

$

135,543

14

%

Real estate - construction and land development

30,335

3

14,723

2

15,612

106

%

22,563

2

Real estate - commercial non-owner occupied

477,798

47

405,192

46

72,606

18

%

433,708

46

Real estate - commercial owner occupied

200,349

19

193,286

22

7,063

4

%

204,622

22

Real estate - residential - ITIN

36,145

3

40,425

4

(4,280

)

(11

)%

37,446

4

Real estate - residential - 1-4 family mortgage

68,092

7

30,247

3

37,845

125

%

34,366

4

Real estate - residential - equity lines

26,162

3

30,520

3

(4,358

)

(14

)%

26,958

3

Consumer and other

46,150

4

48,157

5

(2,007

)

(4

)%

51,045

5

Gross loans

1,034,606

100

%

900,420

100

%

134,186

15

%

946,251

100

%

Deferred fees and costs

1,992

1,713

279

1,927

Loans, net of deferred fees and costs

1,036,598

902,133

134,465

948,178

Allowance for loan and lease losses

(12,242

)

(12,295

)

53

(12,292

)

Net loans

$

1,024,356

$

889,838

$

134,518

$

935,886

Average yield on loans during the quarter

4.91

%

4.92

%

(0.01

)

4.94

%

Average yield on loans during the year

4.91

%

4.92

%

(0.01

)

4.91

%

The Company recorded gross loan balances of $1.035 billion at March 31, 2019, compared with $900.4 million and $946.3 million at March 31, 2018 and December 31, 2018, respectively, an increase of $134.2 million and $88.4 million, respectively. During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $85.3 million of loans. At March 31, 2019, gross loans from the acquisition totaled $84.1 million as follows:

  • Commercial $6.0 million

  • Real estate - construction and land development $2.4 million

  • Real estate - commercial non-owner occupied $39.5 million

  • Real estate - residential – 1-4 family mortgage $36.0 million

  • Consumer and other $0.2 million

Average loan balances were $993.3 million for the quarter ended March 31, 2019, compared with $883.9 million for the quarter ended March 31, 2018 and $923.4 million for the quarter ended December 31, 2018 an increase of $109.4 million or 12% and an increase of $69.9 million or 31% annualized.

The average yield on loans during the quarter was 4.91% compared to 4.92% and 4.94% for the quarters ended March 31, 2018 and December 31, 2018, respectively. During the quarter, a $10.9 million commercial real estate loan was placed on nonaccrual status. The uncollected interest on the loan was reversed which reduced our average yield on loans by 5 basis points.

TABLE 3

CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED

(amounts in thousands)

At March 31,

At December 31,

% of

% of

Change

% of

2019

Total

2018

Total

Amount

%

2018

Total

Cash and due from banks

$

32,104

9

%

$

16,247

6

%

$

15,857

98

%

$

23,692

8

%

Interest-bearing deposits in other banks

30,425

9

17,376

6

13,049

75

%

23,673

8

Total cash and cash equivalents

62,529

18

33,623

12

28,906

86

%

47,365

16

Investment securities:

U.S. government and agencies

46,451

13

41,179

14

5,272

13

%

40,087

13

Obligations of state and political subdivisions

48,935

14

59,408

21

(10,473

)

(18

)%

50,530

17

Residential mortgage backed securities and collateralized mortgage obligations

171,814

47

125,567

43

46,247

37

%

138,503

45

Corporate securities

2,958

1

3,958

1

(1,000

)

(25

)%

2,922

1

Commercial mortgage backed securities

23,864

7

25,520

9

(1,656

)

(6

)%

24,762

8

Other asset backed securities

95

285

0

(190

)

(67

)%

124

Total investment securities - AFS

294,117

82

255,917

88

38,200

15

%

256,928

84

Total cash, cash equivalents and investment securities

$

356,646

100

%

$

289,540

100

%

$

67,106

23

%

$

304,293

100

%

Average yield on interest-bearing due from banks and investment securities during the quarter - nominal

2.83

%

2.45

%

0.38

2.66

%

Average yield on interest-bearing due from banks and investment securities during the quarter - tax equivalent

2.95

%

2.62

%

0.33

2.77

%

As of March 31, 2019, we maintained noninterest-bearing cash positions of $32.1 million and interest-bearing deposits of $30.4 million at the Federal Reserve Bank and correspondent banks.

Investment securities totaled $294.1 million at March 31, 2019, compared with $255.9 million and $256.9 million at March 31, 2018 and December 31, 2018, 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 $67.8 million which resulted in $92 thousand in net realized gains.

Average securities balances and weighted average tax equivalent yields for the quarters ended March 31, 2019 and 2018 were $303.5 million and 3.01% compared to $265.1 million and 2.75%, respectively.

At March 31, 2019, our net unrealized losses on available-for-sale investment securities were $701 thousand compared with net unrealized losses of $3.9 million and $4.3 million at March 31, 2018 and December 31, 2018, respectively. The changes in net unrealized losses on the investment securities portfolio are due to changes in market interest rates.

TABLE 4

DEPOSITS BY TYPE - UNAUDITED

(amounts in thousands)

At March 31,

At December 31,

% of

% of

Change

% of

2019

Total

2018

Total

Amount

%

2018

Total

Demand - noninterest-bearing

$

385,696

31

%

$

301,981

29

%

$

83,715

28

%

$

347,199

31

%

Demand - interest-bearing

241,292

19

229,681

22

11,611

5

%

252,202

22

Money market accounts

311,853

25

232,870

22

78,983

34

%

265,093

23

Total demand

938,841

75

764,532

73

174,309

23

%

864,494

76

Savings

139,237

11

107,986

10

31,251

29

%

114,840

10

Total non-maturing deposits

1,078,078

67

872,518

83

205,560

24

%

979,334

86

Certificates of deposit

170,216

14

176,233

17

(6,017

)

(3

)%

152,382

14

Total deposits

$

1,248,294

100

%

$

1,048,751

100

%

$

199,543

19

%

$

1,131,716

100

%

Total deposits at March 31, 2019, increased $200 million or 19% to $1.248 billion compared to March 31, 2018 and increased $117 million or 42% annualized compared to December 31, 2018. Total non-maturing deposits increased $206 million or 24% compared to the same date a year ago and increased $99 million or 41% annualized compared to December 31, 2018. Certificates of deposit decreased $6 million or 3% compared to the same date a year ago and increased $18 million or 47% annualized compared to December 31, 2018.

During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $190.2 million of deposits, which are essentially unchanged at March 31, 2019. As illustrated in the following table, legacy deposits have experienced their seasonal decline, while wholesale time deposits have matured and were not renewed.

TABLE 4a

YEAR TO DATE CHANGES IN DEPOSITS

(amounts in thousands)

Legacy Deposits

Acquired Merchants
Deposits

Change In

Deposits

At December 31,

At March 31,

Legacy Deposits

At March 31,

2018

2019

Deposits

2019

Demand - noninterest-bearing

$

347,199

$

49,892

$

(11,395

)

$

385,696

Demand - interest-bearing

252,202

28,344

(39,254

)

241,292

Money market accounts

265,093

46,321

439

311,853

Total demand

864,494

124,557

(50,210

)

938,841

Savings

114,840

28,386

(3,989

)

139,237

Total non-maturing deposits

979,334

152,943

(54,199

)

1,078,078

Certificates of deposit

152,382

36,863

(19,029

)

170,216

Total deposits

$

1,131,716

$

189,806

$

(73,228

)

$

1,248,294


TABLE 5

WHOLESALE AND RECIPROCAL DEPOSITS - UNAUDITED

(amounts in thousands)

At March 31,

At December 31,

2019

2018

2018

CDARS / ICS reciprocal deposits

$

65,192

$

56,732

$

83,666

Online listing service wholesale time deposits

1,683

29,159

22,015

Total wholesale and reciprocal deposits

$

66,875

$

85,891

$

105,681

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

March 31,

December 31,

September 30,

June 30,

March 31,

December 31,

September 30,

June 30,

2019

2018

2018

2018

2018

2017

2017

2017

Interest-bearing deposits

0.49

%

0.45

%

0.42

%

0.41

%

0.41

%

0.42

%

0.43

%

0.42

%

Interest-bearing deposits and noninterest-bearing demand

0.34

%

0.31

%

0.29

%

0.29

%

0.29

%

0.30

%

0.31

%

0.31

%

All interest-bearing liabilities

0.67

%

0.61

%

0.64

%

0.68

%

0.60

%

0.59

%

0.60

%

0.60

%

All interest-bearing liabilities and noninterest-bearing demand

0.46

%

0.42

%

0.45

%

0.50

%

0.43

%

0.42

%

0.43

%

0.44

%

INCOME STATEMENT OVERVIEW

TABLE 7

SUMMARY INCOME STATEMENT - UNAUDITED

(amounts in thousands, except per share data)

For The Three Months Ended

March 31,

Change

December 31,

Change

2019

2018

Amount

%

2018

Amount

%

Interest income

$

14,427

$

12,530

$

1,897

15

%

$

13,750

$

677

5

%

Interest expense

1,423

1,185

238

20

%

1,256

167

13

%

Net interest income

13,004

11,345

1,659

15

%

12,494

510

4

%

Provision for loan and lease losses

%

%

Noninterest income

1,057

982

75

8

%

1,132

(75

)

(7

)%

Noninterest expense

10,923

8,033

2,890

36

%

8,868

2,055

23

%

Income before provision for income taxes

3,138

4,294

(1,156

)

(27

)%

4,758

(1,620

)

(34

)%

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 from operations

832

1,053

(221

)

(21

)%

1,391

(559

)

(40

)%

Total provision for income taxes

832

1,053

(221

)

(21

)%

(81

)

913

(1,127

)%

Net income

$

2,306

$

3,241

$

(935

)

(29

)%

$

4,839

$

(2,533

)

(52

)%

Basic earnings per share

$

0.13

$

0.20

$

(0.07

)

(35

)%

$

0.30

$

(0.17

)

(57

)%

Average basic shares

17,489

16,225

1,264

8

%

16,265

1,224

8

%

Diluted earnings per share

$

0.13

$

0.20

$

(0.07

)

(35

)%

$

0.30

$

(0.17

)

(57

)%

Average diluted shares

17,552

16,310

1,242

8

%

16,345

1,207

7

%

Dividends declared per common share

$

0.04

$

0.03

$

0.01

33

%

$

0.04

$

%

First Quarter of 2019 Compared With First Quarter of 2018

Net income for the first quarter of 2019 decreased $935 thousand compared to the first quarter of 2018. In the current quarter, net interest income was $1.7 million higher, noninterest income was $75 thousand higher and the provision for income taxes was $221 thousand lower. These positive changes were offset by noninterest expenses that were $2.9 million higher.

Net Interest Income

Net interest income increased $1.7 million compared to the same period a year ago.

Interest income for the first quarter of 2019 increased $1.9 million or 15% to $14.4 million:

  • Interest and fees on loans increased $1.3 million due to a $109.4 million increase in average loan balances partially offset by a one basis point decrease in the average yield on the loan portfolio.

  • Interest on securities increased $479 thousand due to a $38.4 million increase in average securities balances and a 32 basis point increase in average yield on the securities portfolio.

  • Interest on interest-bearing deposits due from banks increased $116 thousand due to a $7.3 million increase in average interest-bearing deposit balances, and an 88 basis point increase in average yield.

Interest expense for the first quarter of 2019 increased $238 thousand or 20% to $1.4 million:

  • Interest expense on interest bearing deposits increased $241 thousand. Average interest-bearing demand and savings deposit balances increased $86.7 million, while average certificate of deposit balances decreased $14.4 million. The average rate paid on interest-bearing deposits increased eight basis points.

  • Interest expense on borrowings from the Federal Home Loan Bank of San Francisco increased $8 thousand. Average Federal Home Loan Bank of San Francisco borrowings outstanding in the current quarter were $8.8 million compared to $12.4 million in the same quarter a year ago.

  • Interest expense on other term debt and junior subordinated debentures decreased $11 thousand.

Provision for loan and lease losses

As illustrated in Table 9, the nonaccrual status of a $10.9 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, no calculated impairment reserve on this loan is indicated and no provision for loan and lease losses was necessary for the quarter.

Noninterest Income

Noninterest income for the three months ended March 31, 2019 increased $75 thousand compared to the first quarter for 2018. Gains on sale of investment securities increased $56 thousand and dividends on Federal Home Loan Bank of San Francisco stock increased $41 thousand.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2019 increased $2.9 million compared to the same period a year previous which included:

  • $1.9 million in acquisition costs

  • $0.6 million increase in operating expenses from the Merchants acquisition

The Company’s efficiency ratio was 77.7% for the first quarter of 2019 (64.0% exclusive of acquisition costs). The ratio during the same period in 2018 was 65.2%.

Income Tax Provision

For the three months ended March 31, 2019, our income tax provision of $832 thousand on pre-tax income of $3.1 million was an effective tax rate of 26.5%. The tax provision for the first quarter of the prior year was $1.1 million on pre-tax income of $4.3 million for an effective tax rate of 24.5%. The current quarter includes $135 thousand, of acquisition costs which are not tax deductible.

First Quarter of 2019 Compared With Fourth Quarter of 2018

Net income for the first quarter of 2019 decreased $2.5 million compared to the fourth quarter of 2018. In the current quarter, net interest income was $510 thousand higher. This positive change was offset by noninterest income that was $75 thousand lower, noninterest expense that was $2.1 million higher and provision for income taxes that was $913 thousand higher.

Net Interest Income

Net interest income increased $510 thousand over the prior quarter.

Interest income for the three months ended March 31, 2019 increased $677 thousand or 5% to $14.4 million.

  • Interest and fees on loans increased $537 thousand due to a $69.9 million increase in average loan balances partially offset by a three basis point decrease in the average yield on the loan portfolio.

  • Interest on investment securities increased $329 thousand due to a $42.5 million increase in average securities balances and a 10 basis point increase in average yield on the investment portfolio.

  • Interest on interest-bearing deposits due from banks decreased $189 thousand due to a $35.1 million decrease in average balances partially offset by an 18 basis point increase in average yield.

Interest expense for the three months ended March 31, 2019 increased $167 thousand or 13% to $1.4 million.

  • Interest expense on deposits increased $114 thousand as average interest-bearing demand and savings deposits increased $34.5 million, average certificates of deposit increased $10.4 million and the average rate paid on these deposits increased by eight basis points.

  • Interest expense on borrowings from the Federal Home Loan Bank of San Francisco increased $55 thousand. Average Federal Home Loan Bank of San Francisco borrowings outstanding in the current quarter were $8.8 million, there were no borrowings in the prior quarter

  • Interest expense on other term debt and junior subordinated debentures decreased $2 thousand.

Provision for loan and lease losses

As illustrated in Table 9, the nonaccrual status of a $10.9 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, no calculated impairment reserve on this loan is indicated and no provision for loan and lease losses was necessary for the quarter.

Noninterest Income

Noninterest income for the three months ended March 31, 2019 decreased $75 thousand, the decrease was due to a $96 thousand special dividend on Federal Home Loan Bank of San Francisco stock in the prior quarter that did not recur and a decrease in gains on sale of OREO properties of $41 thousand. These decreases were partially offset by an increase in the gain on sale of investment securities of $89 thousand.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2019 increased $2.1 million. The increase was due to:

  • $1.1 million increase in acquisition costs

  • $0.6 million increase in operating expenses from the Merchants acquisition

The Company’s efficiency ratio was 77.7% for the first quarter of 2019 (64% exclusive of acquisition costs). The ratio during the prior quarter was 65.1%.

Income Tax Provision

For the three months ended March 31, 2019, our income tax provision of $832 thousand on pre-tax income of $3.1 million was an effective tax rate of 26.5%. The negative tax provision for the prior quarter 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 to 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%).

The current and prior quarter include $135 thousand and $765 thousand, respectively, of acquisition costs which are not tax deductible.

Earnings Per Share

Diluted earnings per share were $0.13 for the three months ended March 31, 2019 compared with diluted earnings per share of $0.20 for the same period a year ago and diluted earnings per share of $0.30 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

March 31, 2019

March 31, 2018

December 31, 2018

Average

Yield /

Average

Yield /

Average

Yield /

(Amounts in thousands)

Balance

Interest(1)

Rate (5)

Balance

Interest(1)

Rate (5)

Balance

Interest(1)

Rate (5)

Interest-earning assets:

Net loans (2)

$

993,261

$

12,031

4.91

%

$

883,876

$

10,729

4.92

%

$

923,409

$

11,494

4.94

%

Taxable securities

253,068

1,764

2.83

%

205,302

1,209

2.39

%

218,137

1,469

2.67

%

Tax-exempt securities

50,454

387

3.11

%

59,789

463

3.14

%

42,868

353

3.27

%

Interest-bearing deposits in other banks

40,223

245

2.47

%

32,915

129

1.59

%

75,295

434

2.29

%

Average interest-earning assets

1,337,006

14,427

4.38

%

1,181,882

12,530

4.30

%

1,259,709

13,750

4.33

%

Cash and due from banks

21,392

17,641

22,447

Premises and equipment, net

14,581

14,557

13,331

Goodwill and core deposit intangible, net

11,872

1,998

1,842

Other assets

41,009

32,485

31,488

Average total assets

$

1,425,860

$

1,248,563

$

1,328,817

Interest-bearing liabilities:

Interest-bearing demand

$

243,376

126

0.21

%

$

234,269

89

0.15

%

$

257,227

141

0.22

%

Money market accounts

293,396

289

0.40

%

236,171

132

0.23

%

265,190

207

0.31

%

Savings deposits

131,081

111

0.34

%

110,725

59

0.22

%

110,934

92

0.33

%

Certificates of deposit

167,463

490

1.19

%

181,901

495

1.10

%

157,035

462

1.17

%

Federal Home Loan Bank of San Francisco borrowings

8,778

55

2.54

%

12,444

47

1.53

%

%

Other borrowings net of unamortized debt issuance costs

12,889

239

7.52

%

16,528

281

6.90

%

13,785

252

7.25

%

Junior subordinated debentures

10,310

113

4.44

%

10,310

82

3.23

%

10,310

102

3.93

%

Average interest-bearing liabilities

867,293

1,423

0.67

%

802,348

1,185

0.60

%

814,481

1,256

0.61

%

Noninterest-bearing demand

388,410

307,397

367,457

Other liabilities

17,452

11,749

12,846

Shareholders’ equity

152,705

127,069

134,033

Average liabilities and shareholders’ equity

$

1,425,860

$

1,248,563

$

1,328,817

Net interest income and net interest margin (4)

$

13,004

3.94

%

$

11,345

3.89

%

$

12,494

3.93

%

Tax equivalent net interest margin (3)

3.98

%

3.94

%

3.96

%

(1) Interest income on loans includes deferred fees and costs of approximately $181 thousand, $137 thousand, and $109 thousand for the three months ended
March 31, 2019, and 2018 and December 31, 2018, respectively.

(2) Net loans includes average nonaccrual loans of $8.5 million, $4.8 million and $4.1 million for the three months ended March 31, 2019 and 2018 and
December 31, 2018, respectively.

(3) Tax-exempt income has been adjusted to tax equivalent basis at a 21% for 2019 and 2018. The amount of such adjustments was an addition to recorded income of approximately $103 thousand, $123 thousand and $94 thousand for the three months ended March 31, 2019 and 2018 and December 31, 2018, respectively.

(4) Net interest margin is annualized 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 9

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

(amounts in thousands)

For The Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2019

2018

2018

2018

2018

Beginning balance ALLL

$

12,292

$

12,392

$

12,388

$

12,295

$

11,925

Provision for loan and lease losses

Loans charged-off

(348

)

(279

)

(198

)

(382

)

(390

)

Loan loss recoveries

298

179

202

475

760

Ending balance ALLL

$

12,242

$

12,292

$

12,392

$

12,388

$

12,295

At March 31,

At December 31,

At September 30,

At June 30,

At March 31,

2019

2018

2018

2018

2018

Nonaccrual loans:

Commercial

$

1,018

$

959

$

899

$

1,358

$

1,109

Real estate - construction and land development

Real estate - commercial non-owner occupied

10,878

Real estate - commercial owner occupied

548

Real estate - residential - ITIN

2,392

2,388

2,571

2,613

2,839

Real estate - residential - 1-4 family mortgage

182

185

179

184

188

Real estate - residential - equity lines

42

43

44

44

45

Consumer and other

23

23

24

33

35

Total nonaccrual loans

14,535

4,146

3,717

4,232

4,216

Accruing troubled debt restructured loans: