Bank of Commerce Holdings Announces Results for the Third Quarter of 2018

SACRAMENTO, Calif., Oct. 19, 2018 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (BOCH) (the “Company”), a $1.3 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter and the nine months ended September 30, 2018. Net income for the quarter ended September 30, 2018 was $4.0 million or $0.25 per share – diluted, compared with net income of $2.9 million or $0.18 per share – diluted for the same period of 2017. Net income for the nine months ended September 30, 2018 was $10.9 million or $0.67 per share – diluted, compared with net income of $7.3 million or $0.49 per share – diluted for the same period of 2017.

Financial highlights for the third quarter of 2018:

  • Net income of $4.0 million ($0.25 per share –diluted) was an increase of $1.1 million (40%) from $2.9 million ($0.18 per share – diluted) earned during the same period in the prior year.

  • Net interest income increased $1.5 million (15%) to $12.1 million compared to $10.6 million for the same period in the prior year.

  • Return on average assets improved to 1.23% compared to 0.93% for the same period in the prior year.

  • Return on average equity improved to 12.16% compared to 9.01% for the same period in the prior year.

  • Average loans totaled $930.9 million, an increase of $125.7 million (16%) compared to average loans for the same period in the prior year.

  • Average earning assets totaled $1.2 billion, an increase of $83.6 million (7%) compared the same period in the prior year.

  • Average deposits totaled $1.1 billion, an increase of $55.2 million (5%) compared the same period in the prior year.

    • Average non-maturing deposits totaled $946.2 million, an increase of $96.0 million (11%) compared to the same period in the prior year.

    • Average certificates of deposit totaled $163.3 million, a decrease of $40.7 million (20%) compared to the same period in the prior year.

  • The Company’s efficiency ratio was 58.4% compared to 63.1% for the same period in the prior year.

  • Nonperforming assets at September 30, 2018 totaled $3.9 million or 0.29% of total assets, a decrease of $4.5 million (54%) compared to September 30, 2017.

  • Book value per common share was $8.14 at September 30, 2018 compared to $7.89 at September 30, 2017.

  • Tangible book value per common share was $8.03 at September 30, 2018 compared to $7.77 at September 30, 2017.

Financial highlights for the nine months ended September 30, 2018:

  • Net income of $10.9 million was an increase of $3.6 million (48%) from $7.3 million earned during the same period in the prior year. Earnings of $0.67 per share – diluted was an increase of $0.18 (37%) from $0.49 per share – diluted earned during the same period in the prior year and reflects the impact of 2,738,096 shares of common stock sold and issued in the second quarter of 2017.

  • Net interest income increased $4.6 million (15%) to $35.1 million compared to $30.5 million for the same period in the prior year.

  • Return on average assets improved to 1.14% compared to 0.83% for the same period in the prior year.

  • Return on average equity improved to 11.29% compared to 8.80% for the same period in the prior year.

  • Average loans totaled $912.6 million, an increase of $101.6 million (13%) compared to average loans for the same period in the prior year.

  • Average earning assets totaled $1.2 billion, an increase of $100.3 million (9%) compared to average earning assets for the same period in the prior year.

  • Average deposits totaled $1.1 billion, an increase of $50.1 million (5%) compared to average deposits for the same period in the prior year.

    • Average non-maturing deposits totaled $906.5 million, an increase of $88.3 million (11%) compared to average non-maturing deposits for the same period in the prior year.

    • Average certificates of deposit totaled $171.9 million, a decrease of $37.3 million (18%) compared to average certificates of deposit for the same period in the prior year.

  • The Company’s efficiency ratio was 61.5% compared to 67.8% during the same period in the prior year.

  • Nonperforming assets at September 30, 2018 totaled $3.9 million or 0.29% of total assets, a decrease of $2.0 million (45% annualized) since December 31, 2017.

  • Book value per common share was $8.14 at September 30, 2018 compared to $7.82 at December 31, 2017.

  • Tangible book value per common share was $8.03 at September 30, 2018 compared to $7.70 at December 31, 2017.

Randall S. Eslick, President and CEO commented: “We are pleased to report very strong growth in deposits for the quarter. Total deposits increased $90 million, but more importantly core deposits increased $96 million. This growth reflects the benefits of a very vibrant economy for our customers and the results of the continued commitment by our dedicated employees. The added liquidity allowed us to repay short term borrowings advanced earlier in the year, was beneficial to our net interest margin and will support future loan growth.”

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, 2017 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

For The Nine Months Ended

Net income, average assets and

September 30,

June 30,

September 30,

average shareholders' equity

2018

2017

2018

2018

2017

Net income

$

4,032

$

2,876

$

3,618

$

10,891

$

7,337

Average total assets

$

1,300,278

$

1,220,900

$

1,276,697

$

1,275,369

$

1,180,150

Average total earning assets

$

1,229,704

$

1,146,132

$

1,208,281

$

1,206,798

$

1,106,532

Average shareholders' equity

$

131,499

$

126,574

$

128,181

$

128,933

$

111,533

Selected performance ratios

Return on average assets

1.23

%

0.93

%

1.14

%

1.14

%

0.83

%

Return on average equity

12.16

%

9.01

%

11.32

%

11.29

%

8.80

%

Efficiency ratio

58.4

%

63.1

%

61.2

%

61.5

%

67.8

%

Share and per share amounts

Weighted average shares - basic (1)

16,252

16,191

16,245

16,242

14,884

Weighted average shares - diluted (2)

16,342

16,288

16,325

16,327

14,984

Earnings per share - basic

$

0.25

$

0.18

$

0.22

$

0.67

$

0.49

Earnings per share - diluted

$

0.25

$

0.18

$

0.22

$

0.67

$

0.49

At September 30,

At June 30,

Share and per share amounts

2018

2017

2018

Common shares outstanding (2)

16,330

16,265

16,318

Book value per common share (2)

$

8.14

$

7.89

$

7.97

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

$

8.03

$

7.77

$

7.85

Capital ratios (4)

Bank of Commerce Holdings

Common equity tier 1 capital ratio

12.65

%

12.66

%

12.15

%

Tier 1 capital ratio

13.59

%

13.65

%

13.07

%

Total capital ratio

15.75

%

15.91

%

15.20

%

Tier 1 leverage ratio

11.18

%

11.12

%

11.11

%

Tangible common equity ratio (5)

9.98

%

10.27

%

10.02

%

Redding Bank of Commerce

Common equity tier 1 capital ratio

13.14

%

12.87

%

12.51

%

Tier 1 capital ratio

13.14

%

12.87

%

12.51

%

Total capital ratio

14.36

%

14.12

%

13.72

%

Tier 1 leverage ratio

10.78

%

10.50

%

10.60

%

(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. Capital ratios for the Company include the benefit of $26.8 million net proceeds from the sale of 2,738,096 shares of common stock in the second quarter of 2017.

(5) Management believes the tangible common equity ratio is a useful measure of capital adequacy because it provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the capital of the Company and the ability of the Company to absorb potential losses. The tangible common equity ratio is calculated as total shareholders' equity less goodwill and core deposit intangible, net divided by total assets less goodwill and core deposit intangible, net.

BALANCE SHEET OVERVIEW

As of September 30, 2018, the Company had total consolidated assets of $1.3 billion, gross loans of $927.5 million, allowance for loan and lease losses (“ALLL”) of $12.4 million, total deposits of $1.1 billion, and shareholders’ equity of $133.0 million.

TABLE 2

LOAN BALANCES BY TYPE - UNAUDITED

(amounts in thousands)

At September 30,

At June 30,

% of

% of

Change

% of

2018

Total

2017

Total

Amount

%

2018

Total

Commercial

$

132,091

14

%

$

140,433

17

%

$

(8,342

)

(6

)

%

$

139,670

15

%

Real estate - construction and land development

20,496

2

14,700

2

5,796

39

%

21,292

2

Real estate - commercial non-owner occupied

431,246

47

333,766

40

97,480

29

%

427,088

46

Real estate - commercial owner occupied

195,608

21

190,203

23

5,405

3

%

199,412

21

Real estate - residential - ITIN

38,353

4

42,063

5

(3,710

)

(9

)

%

39,424

4

Real estate - residential - 1-4 family mortgage

33,473

4

21,119

3

12,354

58

%

33,391

4

Real estate - residential - equity lines

28,713

3

31,158

4

(2,445

)

(8

)

%

28,879

3

Consumer and other

47,500

5

51,432

6

(3,932

)

(8

)

%

47,660

5

Gross loans

927,480

100

%

824,874

100

%

102,606

12

%

936,816

100

%

Deferred fees and costs

1,757

1,770

(13

)

1,763

Loans, net of deferred fees and costs

929,237

826,644

102,593

938,579

Allowance for loan and lease losses

(12,392

)

(11,692

)

(700

)

(12,388

)

Net loans

$

916,845

$

814,952

$

101,893

$

926,191

Average yield on loans during the quarter

4.93

%

4.87

%

0.06

4.85

%

The Company recorded gross loan balances of $927.5 million at September 30, 2018, compared with $824.9 million and $936.8 million at September 30, 2017 and June 30, 2018, respectively, an increase of $102.6 million and a decrease of $9.3 million, respectively. The increase in gross loans compared to the same period a year ago was organic and did not rely on loan pool purchases.

Average loan balances were $930.9 million for the quarter ended September 30, 2018, compared with $805.1 million for the quarter ended September 30, 2017 and $922.7 million for the quarter ended June 30, 2018, an increase of $125.7 million or 16% and an increase of $8.2 million or 4% annualized, respectively.

The average yield on loans during the current quarter was 4.93% compared to 4.87% and 4.85% for the quarters ended September 30, 2017 and June 30, 2018, respectively.

TABLE 3

CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED

(amounts in thousands)

At September 30,

At June 30,

% of

% of

Change

% of

2018

Total

2017

Total

Amount

%

2018

Total

Cash and due from banks

$

21,316

6

%

$

19,929

6

%

$

1,387

7

%

$

23,996

9

%

Interest-bearing deposits in other banks

69,920

21

65,702

19

4,218

6

%

15,690

5

Total cash and cash equivalents

91,236

27

85,631

25

5,605

7

%

39,686

14

Investment securities:

U.S. government and agencies

35,656

11

36,474

10

(818

)

(2

)

%

38,994

14

Obligations of state and political subdivisions

51,562

16

53,850

15

(2,288

)

(4

)

%

58,479

20

Residential mortgage backed securities and
collateralized mortgage obligations

124,109

38

105,224

31

18,885

18

%

121,218

42

Corporate securities

3,974

1

6,968

2

(2,994

)

(43

)

%

3,987

1

Commercial mortgage backed securities

24,167

7

26,148

7

(1,981

)

(8

)

%

24,742

9

Other asset backed securities

165

3,830

1

(3,665

)

(96

)

%

219

Total investment securities - AFS

239,633

73

232,494

66

7,139

3

%

247,639

86

Obligations of state and political
subdivisions - HTM

30,724

9

(30,724

)

(100

)

%

Total investment securities - AFS
and HTM

239,633

73

263,218

75

(23,585

)

(9

)

%

247,639

86

Total cash, cash equivalents and
investment securities

$

330,869

100

%

$

348,849

100

%

$

(17,980

)

(5

)

%

$

287,325

100

%

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

2.47

%

2.19

%

0.28

2.56

%

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

2.61

%

2.52

%

0.09

2.72

%

As of September 30, 2018, we maintained noninterest-bearing cash positions of $21.3 million and interest-bearing deposits of $69.9 million at the Federal Reserve Bank and correspondent banks. The increase in cash and cash equivalents compared to the previous quarter reflects organic core deposit growth as a result of improved economic conditions and the seasonal change in deposits which was greater in 2018, than in the prior two years.

Investment securities totaled $239.6 million at September 30, 2018, compared with $263.2 million and $247.6 million at September 30, 2017 and June 30, 2018, respectively. Our investment securities portfolio provides us with a secondary source of liquidity to fund higher yielding asset opportunities, such as loan originations. During the third quarter of 2018, we purchased five securities with a par value of $9.8 million and weighted average yield of 3.73% and sold nine securities with a par value of $7.2 million and weighted average yield of 2.83%. The sales activity on available-for-sale securities resulted in $1 thousand in net realized gains. During the same period, we received $9.3 million in proceeds from principal payments, calls and maturities within the investment securities portfolio.

Average securities balances and weighted average tax equivalent yields for the quarters ended September 30, 2018 and 2017 were $248.4 million and 2.74% compared to $256.7 million and 2.91%, respectively. The current quarter tax equivalent yields were reduced by 16 basis points as a result of the Tax Cuts and Jobs Act of 2017 which reduced the federal corporate tax rate from a graduated rate of 35% to a flat rate of 21%.

At September 30, 2018, our net unrealized losses on available-for-sale investment securities were $5.8 million compared with net unrealized gains of $630 thousand and net unrealized losses of $4.9 million at September 30, 2017 and June 30, 2018, respectively. The changes in the net unrealized loss on the investment securities portfolio are due to changes in market interest rates and the reclassification of all HTM securities to AFS during the fourth quarter of 2017.

TABLE 4

DEPOSITS BY TYPE - UNAUDITED

(amounts in thousands)

At September 30,

At June 30,

% of

% of

Change

% of

2018

Total

2017

Total

Amount

%

2018

Total

Demand - noninterest-bearing

$

361,516

32

%

$

316,814

30

%

$

44,702

14

%

$

316,347

30

%

Demand - interest-bearing

510,553

45

433,466

41

77,087

18

%

465,087

44

Total demand

872,069

77

750,280

71

121,789

16

%

781,434

74

Savings

111,388

10

111,962

11

(574

)

(1

)

%

106,170

10

Total non-maturing deposits

983,457

87

862,242

82

121,215

14

%

887,604

84

Certificates of deposit

161,304

13

200,543

18

(39,239

)

(20

)

%

166,925

16

Total deposits

$

1,144,761

100

%

$

1,062,785

100

%

$

81,976

8

%

$

1,054,529

100

%

Total deposits at September 30, 2018, increased $82.0 million or 8% to $1.1 billion compared to September 30, 2017, and increased $90.2 million or 34% annualized compared to June 30, 2018. Total non-maturing deposits increased $121.2 million or 14% compared to the same date a year ago and increased $95.9 million or 43% annualized compared to June 30, 2018. Certificates of deposit decreased $39.2 million or 20% compared to the same date a year ago and decreased $5.6 million or 13% annualized compared to June 30, 2018.

TABLE 5

WHOLESALE AND RECIPROCAL DEPOSITS - UNAUDITED

(amounts in thousands)

At September 30,

At June 30,

2018

2017

2018

CDARS / ICS reciprocal deposits

$

78,772

$

56,203

$

60,538

Online listing service wholesale time deposits

24,397

37,293

25,491

Total wholesale and reciprocal deposits

$

103,169

$

93,496

$

86,029

For calendar quarters prior to June 30, 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

September 30,

June 30,

March 31,

December 31,

September 30,

June 30,

March 31,

December 31,

2018

2018

2018

2017

2017

2017

2017

2016

Interest-bearing deposits

0.42

%

0.41

%

0.41

%

0.42

%

0.43

%

0.42

%

0.39

%

0.40

%

Interest-bearing deposits and noninterest-bearing demand

0.29

%

0.29

%

0.29

%

0.30

%

0.31

%

0.31

%

0.30

%

0.30

%

All interest-bearing liabilities

0.64

%

0.68

%

0.60

%

0.59

%

0.60

%

0.60

%

0.56

%

0.57

%

All interest-bearing liabilities and noninterest-bearing demand

0.45

%

0.50

%

0.43

%

0.42

%

0.43

%

0.44

%

0.42

%

0.42

%

INCOME STATEMENT OVERVIEW

TABLE 7

SUMMARY INCOME STATEMENT - UNAUDITED

(amounts in thousands, except per share data)

For The Three Months Ended

September 30,

Change

June 30,

Change

2018

2017

Amount

%

2018

Amount

%

Interest income

$

13,431

$

11,765

$

1,666

14

%

$

12,990

$

441

3

%

Interest expense

1,304

1,181

123

10

%

1,410

(106

)

(8

)

%

Net interest income

12,127

10,584

1,543

15

%

11,580

547

5

%

Provision for loan
and lease losses

%

%

Noninterest income

943

1,076

(133

)

(12

)

%

962

(19

)

(2

)

%

Noninterest expense

7,634

7,357

277

4

%

7,671

(37

)

0

%

Income before provision
for income taxes

5,436

4,303

1,133

26

%

4,871

565

12

%

Provision for income taxes

1,404

1,427

(23

)

(2

)

%

1,253

151

12

%

Net income

$

4,032

$

2,876

$

1,156

40

%

$

3,618

$

414

11

%

Basic earnings per share

$

0.25

$

0.18

$

0.07

39

%

$

0.22

$

0.03

14

%

Average basic shares

16,252

16,191

61

%

16,245

7

%

Diluted earnings per share

$

0.25

$

0.18

$

0.07

39

%

$

0.22

$

0.03

14

%

Average diluted shares

16,342

16,288

54

%

16,325

17

%

Dividends declared per
common share

$

0.04

$

0.03

$

0.01

33

%

$

0.04

$

%

Third Quarter of 2018 Compared With Third Quarter of 2017

Net income for the third quarter of 2018 increased $1.2 million compared to the third quarter of 2017. In the current quarter, net interest income was $1.5 million higher and the provision for income taxes was $23 thousand lower. These positive changes were offset by noninterest income that was $133 thousand lower, and noninterest expenses that were $277 thousand higher.

Net Interest Income

Net interest income increased $1.5 million compared to the same period a year ago.

Interest income for the third quarter of 2018 increased $1.7 million or 14% to $13.4 million:

  • Interest and fees on loans increased $1.7 million due to a $125.7 million increase in average loan balances and a six basis point increase in the average yield on the loan portfolio.

  • Interest on securities increased $9 thousand due to a 10 basis point increase in average yield on the securities portfolio partially offset by an $8.2 million decrease in average securities balances.

  • Interest on interest-bearing deposits due from banks decreased $24 thousand due to a $33.9 million decrease in average interest-bearing deposit balances, partially offset by a 69 basis point increase in average yield.

Interest expense for the third quarter of 2018 increased $123 thousand or 10% to $1.3 million:

  • Interest expense on interest bearing deposits decreased $1 thousand. Average interest-bearing demand and savings deposit balances increased $55.3 million, while average certificate of deposit balances decreased $40.7 million. The average rate paid on interest-bearing deposits decreased one basis point.

  • Interest expense on other interest bearing liabilities increased $124 thousand due to increased borrowing from the Federal Home Loan Bank of San Francisco.

Provision for loan and lease loss

As a result of continued improved asset quality and net loan loss recoveries, no provision for loan and lease losses was necessary during the current quarter or during the same quarter a year ago.

Noninterest Income

Noninterest income for the three months ended September 30, 2018 decreased $133 thousand compared to the third quarter for 2017. The decrease was due to gains on sale of investment securities and OREO properties in the prior year totaling $119 thousand that did not recur in the current year.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2018 increased $277 thousand compared to the same period a year previous. The net increase was due to a $238 thousand increase in salaries and related benefit costs that increased primarily as a result of additional employees hired in our Sacramento market and decreased deferrals of direct loan origination costs.

The Company’s efficiency ratio was 58.4% for the third quarter of 2018 compared to 63.1% during the same period in 2017.

Income Tax Provision

For the three months ended September 30, 2018, our income tax provision of $1.4 million on pre-tax income of $5.4 million was an effective tax rate of 25.8%. The current quarter effective tax rate reflects the benefits of the Tax Cuts and Jobs Act of 2017 which reduced the federal corporate tax rate from a graduated rate of 35% to a flat rate of 21%. This compares with a provision for income taxes for the third quarter of the prior year of $1.4 million on pre-tax income of $4.3 million which was an effective tax rate of 33.2%.

Third Quarter of 2018 Compared With Second Quarter of 2018

Net income for the third quarter of 2018 increased $414 thousand compared to the second quarter of 2018. In the current quarter, net interest income was $547 thousand higher and noninterest expense was $37 thousand lower. These positive changes were offset by noninterest income that was $19 thousand lower and a provision for income taxes that was $151 thousand higher.

Net Interest Income

Net interest income increased $547 thousand over the prior quarter.

Interest income for the three months ended September 30, 2018 increased $441 thousand or 3% to $13.4 million.

  • Interest and fees on loans increased $404 thousand due to the following:

    • Average loan balances increased $8.2 million and average yield on the loan portfolio increased eight basis points.

    • The third quarter of 2018 was one day longer than the second quarter of 2018.

  • Interest on investment securities decreased $82 thousand due to an $8.1 million decrease in average securities balances and a seven basis point decrease in average yield on the investment portfolio.

  • Interest on interest-bearing deposits due from banks increased $119 thousand due to a $21.4 million increase in average balances and a 14 basis point increase in average yield.

Interest expense for the three months ended September 30, 2018 decreased $106 thousand or 8% to $1.3 million.

  • Interest expense on deposits increased $47 thousand as average interest-bearing demand and savings deposits increased $27.5 million, average certificates of deposit decreased $7.5 million and the average rate paid on these deposits increased by one basis point.

  • Interest expense on borrowings from the Federal Home Loan Bank of San Francisco decreased $146 thousand. Federal Home Loan Bank of San Francisco borrowings averaged $22.3 million compared to an average balance of $55.3 million for the prior quarter.

  • Interest expense on other term debt decreased $7 thousand.

Provision for loan and lease loss

As a result of continued improved asset quality and net loan loss recoveries, no provision for loan and lease losses was necessary during the current or previous quarter.

Noninterest Income

Noninterest income for the three months ended September 30, 2018 decreased $19 thousand, a variance not concentrated in any one item.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2018 decreased $37 thousand a variance not concentrated in any one item.

The Company’s efficiency ratio was 58.4% for the third quarter of 2018 compared to 61.2% during the prior quarter.

Income Tax Provision

For the three months ended September 30, 2018, our income tax provision of $1.4 million on pre-tax income of $5.4 million with an effective tax rate of 25.8%. This compares with a provision for income taxes for the prior quarter of $1.3 million on pretax income of $4.9 million which was an effective tax rate of 25.7%.

Earnings Per Share

Diluted earnings per share were $0.25 for the three months ended September 30, 2018 compared with diluted earnings per share of $0.18 for the same period a year ago and diluted earnings per share of $0.22 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

September 30, 2018

September 30, 2017

June 30, 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)

$

930,863

$

11,568

4.93

%

$

805,144

$

9,887

4.87

%

$

922,687

$

11,164

4.85

%

Taxable securities

199,883

1,209

2.40

%

179,362

1,049

2.32

%

206,247

1,278

2.49

%

Tax-exempt securities

48,561

400

3.27

%

77,303

551

2.83

%

50,306

413

3.29

%

Interest-bearing deposits
in other banks

50,397

254

2.00

%

84,323

278

1.31

%

29,041

135

1.86

%

Average interest-
earning assets

1,229,704

13,431

4.33

%

1,146,132

11,765

4.07

%

1,208,281

12,990

4.31

%

Cash and due from banks

21,834

19,143

19,880

Premises and equipment, net

13,768

15,362

14,167

Goodwill and core deposit intangible, net

1,888

2,109

1,943

Other assets

33,084

38,154

32,426

Average total assets

$

1,300,278

$

1,220,900

$

1,276,697

Interest-bearing liabilities:

Interest-bearing demand

$

494,906

276

0.22

%

$

436,614

196

0.18

%

$

467,651

215

0.18

%

Savings deposits

107,349

73

0.27

%

110,305

52

0.19

%

107,108

64

0.24

%

Certificates of deposit

163,302

465

1.13

%

204,044

567

1.10

%

170,824

488

1.15

%

Federal Home Loan Bank of San Francisco borrowings

22,283

121

2.15

%

%

55,275

267

1.94

%

Other borrowings net of unamortized debt issuance costs

14,681

265

7.16

%

17,804

292

6.51

%

15,614

279

7.17

%

Junior subordinated
debentures

10,310

104

4.00

%

10,310

74

2.85

%

10,310

97

3.77

%

Average interest-
bearing liabilities

812,831

1,304

0.64

%

779,077

1,181

0.60

%

826,782

1,410

0.68

%

Noninterest-bearing demand

343,948

303,314

309,199

Other liabilities

12,000

11,935

12,535

Shareholders’ equity

131,499

126,574

128,181

Average liabilities and
shareholders’ equity

$

1,300,278

$

1,220,900

$

1,276,697

Net interest income and
net interest margin (4)

$

12,127

3.91

%

$

10,584

3.66

%

$

11,580

3.84

%

Tax equivalent net
interest margin (3)

3.95

%

3.76

%

3.88

%

(1) Interest income on loans includes deferred fees and costs of approximately $75 thousand, $95 thousand, and $145 thousand for the three months ended September 30, 2018, and 2017 and June 30, 2018, respectively.

(2) Net loans includes average nonaccrual loans of $3.8 million, $8.6 million and $4.2 million for the three months ended September 30, 2018 and 2017 and June 30, 2018, respectively.

(3) Tax-exempt income has been adjusted to tax equivalent basis at a 21% for 2018 and at a 34% tax rate for 2017. The amount of such adjustments was an addition to recorded income of approximately $106 thousand, $284 thousand and $110 thousand for the three months ended September 30, 2018 and 2017 and June 30, 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 8b

NET INTEREST MARGIN - UNAUDITED

(amounts in thousands)

For The Nine Months Ended

September 30, 2018

September 30, 2017

Average

Yield /

Average

Yield /

(Amounts in thousands)

Balance

Interest(1)

Rate (5)

Balance

Interest(1)

Rate (5)

Interest-earning assets:

Net loans (2)

$

912,648

$

33,461

4.90

%

$

811,080

$

29,029

4.79

%

Taxable securities

203,791

3,696

2.42

%

153,702

2,710

2.36

%

Tax-exempt securities

52,844

1,276

3.23

%

74,932

1,615

2.88

%

Interest-bearing deposits
in other banks

37,515

518

1.85

%

66,818

548

1.10

%

Average interest-
earning assets

1,206,798

38,951

4.32

%

1,106,532

33,902

4.10

%

Cash and due from banks

19,801

17,802

Premises and equipment, net

14,161

15,776

Goodwill and core deposit intangible, net

1,943

2,164

Other assets

32,666

37,876

Average total assets

$

1,275,369

$

1,180,150

Interest-bearing liabilities:

Interest-bearing demand

$

477,755

712

0.20

%

$

426,365

528

0.17

%

Savings deposits

108,382

196

0.24

%

111,258

146

0.18

%

Certificates of deposit

171,941

1,448

1.13

%

209,275

1,641

1.05

%

Federal Home Loan Bank of San Francisco borrowings

30,037

435

1.94

%

403

3

1.00

%

Other borrowings net of unamortized debt issuance costs

15,601

825

7.07

%

18,241

880

6.45

%

Junior subordinated
debentures

10,310

283

3.67

%

10,310

211

2.74

%

Average interest-
bearing liabilities

814,026

3,899

0.64

%

775,852

3,409

0.59

%

Noninterest-bearing demand

320,316

280,559

Other liabilities

12,094

12,206

Shareholders’ equity

128,933

111,533

Average liabilities and shareholders’ equity

$

1,275,369

$

1,180,150

Net interest income and
net interest margin (4)

$

35,052

3.88

%

$

30,493

3.68

%

Tax equivalent net
interest margin (3)

3.92

%

3.78

%

(1) Interest income on loans includes deferred fees and costs of approximately $356 thousand and $423 thousand for the nine months ended September 30, 2018 and 2017, respectively.

(2) Net loans includes average nonaccrual loans of $4.3 million and $9.7 million for the nine months ended September 30, 2018 and 2017, respectively.

(3) Tax-exempt income has been adjusted to tax equivalent basis at a 21% tax rate for 2018 and at a 34% tax rate for 2017. The amount of such adjustments was an addition to recorded income of approximately $339 thousand and $832 thousand for the nine months ended September 30, 2018 and 2017, 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

September 30,

June 30,

March 31,

December 31,

September 30,

2018

2018

2018

2017

2017

Beginning balance ALLL

$

12,388

$

12,295

$

11,925

$

11,692

$

11,688

Provision for loan and lease losses

450

Loans charged-off

(198

)

(382

)

(390

)

(451

)

(245

)

Loan loss recoveries

202

475

760

234

249

Ending balance ALLL

$

12,392

$

12,388

$

12,295

$

11,925

$

11,692

At September 30,

At June 30,

At March 31,

At December 31,

At September 30,

2018

2018

2018

2017

2017

Nonaccrual loans:

Commercial

$

899

$

1,358

$

1,109

$

1,603

$

2,309

Real estate - commercial owner occupied

600

617

Real estate - residential - ITIN

2,571

2,613

2,839

2,909

3,201

Real estate - residential - 1-4 family mortgage

179

184

188

606

626

Real estate - residential - equity lines

44

44

45

45

815

Consumer and other

24

33

35

36

37

Total nonaccrual loans

3,717

4,232

4,216

5,799

7,605

Accruing troubled debt restructured loans:

Commercial

1,291

1,420

1,516

1,551

671

Real estate - commercial non-owner occupied

797

799

800

803

805

Real estate - residential - ITIN

4,535

4,592

4,554

4,614

4,655

Real estate - residential - equity lines

367

372

376

380

441

Total accruing troubled debt restructured loans

6,990

7,183

7,246

7,348

6,572

All other accruing impaired loans

Total impaired loans

$

10,707

$

11,415

$

11,462

$

13,147

$

14,177

Gross loans outstanding at period end

$

927,480

$

936,816

$

900,420

$

879,835

$

824,874

Impaired loans to gross loans

1.15

%

1.22

%

1.27

%

1.49

%

1.72

%

Nonaccrual loans to gross loans

0.40

%

0.45

%

0.47

%

0.66

%

0.92

%

Allowance for loan and lease losses as a percent of:

Gross loans

1.34

%

1.32

%

1.37

%

1.36

%

1.42

%

Nonaccrual loans

333.39

%

292.72

%

291.63

%

205.64

%

153.74

%

Impaired loans

115.74

%

108.52

%

107.27

%

90.71

%

82.47

%


TABLE 9

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

(amounts in thousands)

For The Three Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2018

2018

2018

2017

2017

Beginning balance ALLL

$

12,388

$

12,295

$

11,925

$

11,692

$

11,688

Provision for loan and lease losses

450

Loans charged-off

(198

)

(382

)

(390

)

(451

)

(245

)

Loan loss recoveries

202

475

760

234

249

Ending balance ALLL

$

12,392

$

12,388

$

12,295

$

11,925

$

11,692

At September 30,

At June 30,

At March 31,

At December 31,

At September 30,

2018

2018

2018

2017

2017

Nonaccrual loans:

Commercial

$

899

$

1,358

$

1,109

$

1,603

$

2,309

Real estate - commercial owner occupied

600

617

Real estate - residential - ITIN

2,571

2,613

2,839

2,909

3,201

Real estate - residential - 1-4 family mortgage

179

184

188

606

626

Real estate - residential - equity lines

44

44

45

45

815

Consumer and other

24

33

35

36

37

Total nonaccrual loans

3,717

4,232