BOCH Bank of Commerce Holdings

Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.442 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter ended June 30, 2019. Net income for the quarter ended June 30, 2019 was $3.6 million or $0.20 per share – diluted, compared with net income of $3.6 million or $0.22 per share – diluted for the same period of 2018. Net income for the six months ended June 30, 2019 was $6.0 million or $0.33 per share – diluted, compared with net income of $6.9 million or $0.42 per share – diluted for the same period of 2018.

The current year includes the benefits of our January 31, 2019 acquisition of Merchants National Bank of Sacramento (“Merchants”). In May, we successfully converted all of Merchant’s computer records onto our core system. As previously announced, the Company’s subsidiary bank, which had been operating under multiple names, simultaneously changed the name for all locations to Merchants Bank of Commerce. To date, acquisition related costs have totaled $2.3 million and costs related to the name change have totaled $464 thousand. All significant costs for these two projects have now been absorbed.

Randall S. Eslick, President and CEO commented: “I am very pleased with our second quarter accomplishments which are the result of the hard work of our dedicated and talented employees. The changes made during the second quarter reflect the continued execution of our strategic plan. I am particularly excited that with the successful integration of Merchant’s data systems along with our name change, we now operate our bank under one name and one computer system. These changes will lead to greater efficiencies and reinforce a consistent message throughout our company.”

Financial highlights for the second quarter of 2019:

• Net income of $3.6 million was an increase of $26 thousand (1%) from $3.6 million earned during the same period in the prior year. Earnings of $0.20 per share – diluted was a decrease of $0.02 (9%) from $0.22 per share – diluted earned during the same period in the prior year and reflects the impact of 1,834,142 shares of common stock issued during the first quarter of 2019 as part of our acquisition of Merchants.
• Acquisition costs associated with our acquisition of Merchants totaled $376 thousand. Costs related to the name change of our subsidiary bank totaled $464 thousand.
• Net interest income increased $1.9 million (17%) to $13.5 million compared to $11.6 million for the same period in the prior year.
• Return on average assets decreased to 1.01% compared to 1.14% for the same period in the prior year.
• Return on average equity decreased to 8.93% compared to 11.32% for the same period in the prior year.
• Average loans totaled $1.028 billion, an increase of $106 million (11%) compared to average loans for the same period in the prior year.
• Average earning assets totaled $1.353 billion, an increase of $145 million (12%) compared to average earning assets for the same period in the prior year.
• Average deposits totaled $1.218 billion, an increase of $163 million (15%) compared to average deposits for the same period in the prior year.-Average non-maturing deposits totaled $1.054 billion, an increase of $170 million (19%) compared to the same period in the prior year.-Average certificates of deposit totaled $164.1 million, a decrease of $6.7 million (4%) compared to same period in the prior year.
• The Company’s efficiency ratio was 65.9% compared to 61.2% during the same period in the prior year.-The Company’s efficiency ratio of 65.9% for the second quarter of 2019 includes $376 thousand in acquisition costs and $464 thousand in name change costs. The efficiency ratio excluding these non-recurring costs was 60.1%.
• Nonperforming assets at June 30, 2019 totaled $13.5 million or 0.94% of total assets, an increase of $9.1 million since June 30, 2018. The increase in nonperforming assets results from one $10.3 million commercial real estate loan.
• Book value per common share was $9.22 at June 30, 2019 compared to $7.97 at June 30, 2018.
• Tangible book value per common share was $8.29 at June 30, 2019 compared to $7.85 at June 30, 2018.

Financial highlights for the six months ended June 30, 2019:

• Net income of $6.0 million ($0.33 per share – diluted) was a decrease of $909 thousand (13%) from $6.9 million ($0.42 per share – diluted) earned during the same period in the prior year.
• Acquisition costs associated with our acquisition of Merchants totaled $2.3 million. Costs related to the name change of our subsidiary bank totaled $464 thousand.
• Net interest income increased $3.6 million (16%) to $26.5 million compared to $22.9 million for the same period in the prior year.
• Return on average assets decreased to 0.83% compared to 1.10% for the same period in the prior year.
• Return on average equity decreased to 7.59% compared to 10.84% for the same period in the prior year.
• Average loans totaled $1.011 billion, an increase of $107 million (12%) compared to average loans for the same period in the prior year.
• Average earning assets totaled $1.345 billion, an increase of $150 million (13%) compared the same period in the prior year.
• Average deposits totaled $1.221 billion, an increase of $158 million (15%) compared the same period in the prior year.-Average non-maturing deposits totaled $1.055 billion, an increase of $169 million (19%) compared to the same period in the prior year.-Average certificates of deposit totaled $165.8 million, a decrease of $10.6 million (6%) compared to the same period in the prior year.
• The Company’s efficiency ratio was 71.7% compared to 63.1% for the same period in the prior year.-The Company’s efficiency ratio of 71.7% for the first six months of 2019 includes $2.3 million in acquisition costs and $464 thousand in name change costs. The efficiency ratio excluding these non-recurring costs was 62.0%.
• Nonperforming assets at June 30, 2019 totaled $13.5 million or 0.94% of total assets, an increase of $9.3 million since December 31, 2018. The increase in nonperforming assets results from one $10.3 million commercial real estate loan.
• Book value per common share was $9.22 at June 30, 2019 compared to $8.47 at December 31, 2018.
• Tangible book value per common share was $8.29 at June 30, 2019 compared to $8.36 at December 31, 2018.

Forward-Looking Statements

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

TABLE 1
SELECTED FINANCIAL INFORMATION - UNAUDITED
(amounts in thousands except per share data)
		For The Three Months Ended												For The Six Months Ended
Net income, average assets and		June 30,								March 31,				June 30,
average shareholders' equity		2019				2018				2019				2019			2018
Net income		$	3,644			$	3,618			$	2,306			$	5,950		$	6,859
Average total assets		$	1,450,725			$	1,276,697			$	1,425,860			$	1,438,361		$	1,262,710
Average total earning assets		$	1,353,200			$	1,208,281			$	1,337,006			$	1,345,177		$	1,195,154
Average shareholders' equity		$	163,598			$	128,181			$	152,705			$	158,182		$	127,628
Selected performance ratios
Return on average assets			1.01	%			1.14	%			0.66	%			0.83	%		1.10	%
Return on average equity			8.93	%			11.32	%			6.12	%			7.59	%		10.84	%
Efficiency ratio			65.9	%			61.2	%			77.7	%			71.7	%		63.1	%
Share and per share amounts
Weighted average shares - basic (1)			18,134				16,245				17,489				17,816			16,237
Weighted average shares - diluted (1)			18,194				16,325				17,552				17,878			16,319
Earnings per share - basic		$	0.20			$	0.22			$	0.13			$	0.33		$	0.42
Earnings per share - diluted		$	0.20			$	0.22			$	0.13			$	0.33		$	0.42
		At June 30,								At March 31,
Share and per share amounts		2019				2018				2019
Common shares outstanding (2)			18,214				16,318				18,213
Book value per common share (2)		$	9.22			$	7.97			$	8.90
Tangible book value per common share (2)(3)		$	8.29			$	7.85			$	7.96
Capital ratios (4)
Bank of Commerce Holdings
Common equity tier 1 capital ratio			12.56	%			12.15	%			12.40	%
Tier 1 capital ratio			13.41	%			13.07	%			13.25	%
Total capital ratio			15.35	%			15.20	%			15.19	%
Tier 1 leverage ratio			11.08	%			11.07	%			11.05	%
Tangible common equity ratio (5)			10.59	%			10.02	%			9.97	%
Merchants Bank of Commerce
Common equity tier 1 capital ratio			14.06	%			12.51	%			13.98	%
Tier 1 capital ratio			14.06	%			12.51	%			13.98	%
Total capital ratio			15.16	%			13.72	%			15.08	%
Tier 1 leverage ratio			11.61	%			10.60	%			11.66	%
(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 June 30, 2019, the Company had total consolidated assets of $1.442 billion, gross loans of $1.037 billion, allowance for loan and lease losses (“ALLL”) of $12 million, total deposits of $1.236 billion, and shareholders’ equity of $168 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
	At June 30,																					At March 31,
					% of							% of			Change												% of
	2019				Total			2018				Total			Amount				%				2019				Total
Commercial	$	152,303			15	%		$	139,670			15	%		$	12,633			9		%		$	149,575			14	%
Real estate - construction and land development		37,685			4				21,292			2				16,393			77		%			30,335			3
Real estate - commercial non-owner occupied		468,706			45				427,088			46				41,618			10		%			469,048			46
Real estate - commercial owner occupied		210,711			21				199,412			21				11,299			6		%			209,099			20
Real estate - residential - ITIN		35,162			3				39,424			4				(4,262	)		(11	)	%			36,145			3
Real estate - residential - 1-4 family mortgage		67,092			6				33,391			4				33,701			101		%			68,092			7
Real estate - residential - equity lines		23,656			2				28,879			3				(5,223	)		(18	)	%			26,162			3
Consumer and other		41,409			4				47,660			5				(6,251	)		(13	)	%			46,150			4
Gross loans		1,036,724			100	%			936,816			100	%			99,908			11		%			1,034,606			100	%
Deferred fees and costs		2,005							1,763							242								1,992
Loans, net of deferred fees and costs		1,038,729							938,579							100,150								1,036,598
Allowance for loan and lease losses		(12,445	)						(12,388	)						(57	)							(12,242	)
Net loans	$	1,026,284						$	926,191						$	100,093							$	1,024,356
Average loans	$	1,028,187						$	922,687						$	105,500			11		%		$	993,261
Average yield on loans during the quarter		5.01	%						4.85	%						0.16								4.91	%
Average yield on loans during the year		4.96	%						4.89	%						0.07								4.91	%

The Company recorded gross loan balances of $1.037 billion at June 30, 2019, compared with $937 million and $1.035 billion at June 30, 2018 and March 31, 2019, respectively, an increase of $100 million and $2 million, respectively. During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $85.3 million of loans. At June 30, 2019, gross loans from the acquisition totaled $83.4 million.

The average yield on loans during the quarter was 5.01% compared to 4.85% and 4.91% for the quarters ended June 30, 2018 and March 31, 2019, respectively. During the first quarter of 2019, a $10.3 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. During the second quarter of 2019, we received a loan prepayment penalty that increased the average yield by 5 basis points.

Gross loan balances in the table above include a fair value discount for loans acquired from Merchants during the first quarter of 2019 of $2.0 million and $2.2 million at June 30, 2019 and March 31, 2019, respectively. We recorded $48 thousand and $195 thousand in accretion of the discount for these loans during the first and second quarters of 2019, respectively.

TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
		At June 30,																						At March 31,
						% of							% of			Change												% of
		2019				Total			2018				Total			Amount				%				2019				Total
Cash and due from banks		$	21,306			7	%		$	23,996			8	%		$	(2,690	)		(11	)	%		$	32,104			9	%
Interest-bearing deposits in other banks			19,319			6				15,690			5				3,629			23		%			30,425			9
Total cash and cash equivalents			40,625			13				39,686			13				939			2		%			62,529			18
Investment securities:
U.S. government and agencies			44,837			14				38,994			14				5,843			15		%			46,451			13
Obligations of state and political subdivisions			45,003			14				58,479			20				(13,476	)		(23	)	%			48,935			14
Residential mortgage backed securities and collateralized mortgage obligations			168,085			50				121,218			43				46,867			39		%			171,814			47
Corporate securities			2,978			1				3,987			1				(1,009	)		(25	)	%			2,958			1
Commercial mortgage backed securities			24,868			8				24,742			9				126			1		%			23,864			7
Other asset backed securities			48			—				219			0				(171	)		(78	)	%			95			—
Total investment securities - AFS			285,819			87				247,639			87				38,180			15		%			294,117			82
Total cash, cash equivalents and investment securities		$	326,444			100	%		$	287,325			100	%		$	39,119			14		%		$	356,646			100	%
Average yield on interest-bearing due from banks and investment securities during the quarter - nominal			2.81	%						2.56	%						0.25								2.83	%
Average yield on interest-bearing due from banks and investment securities during the quarter - tax equivalent			2.92	%						2.72	%						0.20								2.95	%

As of June 30, 2019, we maintained noninterest-bearing cash positions of $21.3 million and interest-bearing deposits of $19.3 million at the Federal Reserve Bank and correspondent banks.

Investment securities totaled $285.8 million at June 30, 2019, compared with $247.6 million and $294.1 million at June 30, 2018 and March 31, 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 $67.8 million and $18.5 million during the first and second quarters of 2019, respectively. The sales resulted in net realized gains of $92 thousand and $33 thousand for the first and second quarters of 2019, respectively.

Average securities balances and weighted average tax equivalent yields for the quarters ended June 30, 2019 and 2018 were $289.4 million and 2.98% compared to $256.6 million and 2.82%, respectively.

At June 30, 2019, our net unrealized gains on available-for-sale investment securities were $3.4 million compared with net unrealized losses of $4.9 million and $701 thousand at June 30, 2018 and March 31, 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 June 30,																				At March 31,
				% of						% of				Change										% of
	2019			Total			2018			Total			Amount				%				2019			Total
Demand - noninterest-bearing	$	397,349		32	%		$	316,347		30	%		$	81,002			26		%		$	385,696		31	%
Demand - interest-bearing		238,175		19				217,674		21				20,501			9		%			241,292		19
Money market		300,847		24				247,413		23				53,434			22		%			311,853		25
Total demand		936,371		75				781,434		74				154,937			20		%			938,841		75
Savings		138,591		11				106,170		10				32,421			31		%			139,237		11
Total non-maturing deposits		1,074,962		86				887,604		84				187,358			21		%			1,078,078		86
Certificates of deposit		160,556		14				166,925		16				(6,369	)		(4	)	%			170,216		14
Total deposits	$	1,235,518		100	%		$	1,054,529		100	%		$	180,989			17		%		$	1,248,294		100	%

Total deposits at June 30, 2019, increased $181 million or 17% to $1.236 billion compared to June 30, 2018 and decreased $13 million or 4% annualized compared to March 31, 2019. Total non-maturing deposits increased $187.4 million or 21% compared to the same date a year ago and decreased $3.2 million or less than 1% annualized compared to March 31, 2019. Certificates of deposit decreased $6.4 million or 4% compared to the same date a year ago and decreased $9.7 million or 23% annualized compared to March 31, 2019.

During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $190.2 million of deposits. The decrease in the acquired deposits of $16.5 million at June 30, 2019 is not attributable to the loss of any significant relationships. As illustrated in the following table, legacy deposits have experienced their seasonal decline, while wholesale time deposits have matured and were not renewed.

TABLE 5
YEAR TO DATE CHANGES IN DEPOSITS
(amounts in thousands)
							Change In Acquired				Change In Legacy
				Acquired			Deposits For The Five				Deposits For The Six
	Legacy Deposits			Merchants Deposits			Months Ended				Months Ended				Deposits At
	At December 31,			At January 31,			June 30,				June 30,				At June 30,
	2018			2019			2019				2019				2019
Demand - noninterest-bearing	$	347,199		$	51,880		$	(2,777	)		$	1,047			$	397,349
Demand - interest-bearing		252,202			28,231			(5,695	)			(36,563	)			238,175
Money market		265,093			43,316			(1,805	)			(5,757	)			300,847
Total demand		864,494			123,427			(10,277	)			(41,273	)			936,371
Savings		114,840			28,786			(1,998	)			(3,037	)			138,591
Total non-maturing deposits		979,334			152,213			(12,275	)			(44,310	)			1,074,962
Certificates of deposit		152,382			38,003			(4,174	)			(25,655	)			160,556
Total deposits	$	1,131,716		$	190,216		$	(16,449	)		$	(69,965	)		$	1,235,518

TABLE 6
WHOLESALE AND RECIPROCAL DEPOSITS - UNAUDITED
(amounts in thousands)
	At June 30,						At March 31,
	2019			2018			2019
CDARS / ICS reciprocal deposits	$	60,492		$	60,538		$	65,192
Online listing service wholesale time deposits		248			25,491			1,683
Total wholesale and reciprocal deposits	$	60,740		$	86,029		$	66,875

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

AVERAGE COST OF FUNDS

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

TABLE 7
AVERAGE COST OF FUNDS - UNAUDITED
For The Three Months Ended
	June 30,				March 31,				December 31,				September 30,				June 30,				March 31,				December 31,				September 30,
	2019				2019				2018				2018				2018				2018				2017				2017
Interest-bearing deposits		0.54	%			0.49	%			0.45	%			0.42	%			0.41	%			0.41	%			0.42	%			0.43	%
Interest-bearing deposits andnoninterest-bearing demand		0.37	%			0.34	%			0.31	%			0.29	%			0.29	%			0.29	%			0.30	%			0.31	%
All interest-bearing liabilities		0.74	%			0.67	%			0.61	%			0.64	%			0.68	%			0.60	%			0.59	%			0.60	%
All interest-bearing liabilities andnoninterest-bearing demand		0.52	%			0.46	%			0.42	%			0.45	%			0.50	%			0.43	%			0.42	%			0.43	%

INCOME STATEMENT OVERVIEW

TABLE 8
SUMMARY INCOME STATEMENT - UNAUDITED
(amounts in thousands, except per share data)
For The Three Months Ended
	June 30,						Change								March 31,			Change
	2019			2018			Amount				%				2019			Amount				%
Interest income	$	15,127		$	12,990		$	2,137			16		%		$	14,427		$	700			5		%
Interest expense		1,632			1,410			222			16		%			1,423			209			15		%
Net interest income		13,495			11,580			1,915			17		%			13,004			491			4		%
Provision for loan and lease losses		—			—			—			—		%			—			—			—		%
Noninterest income		1,100			962			138			14		%			1,057			43			4		%
Noninterest expense		9,611			7,671			1,940			25		%			10,923			(1,312	)		(12	)	%
Income before provision for income taxes		4,984			4,871			113			2		%			3,138			1,846			59		%
Provision for income taxes		1,340			1,253			87			7		%			832			508			61		%
Net income	$	3,644		$	3,618		$	26			1		%		$	2,306		$	1,338			58		%
Basic earnings per share	$	0.20		$	0.22		$	(0.02	)		(9	)	%		$	0.13		$	0.07			54		%
Average basic shares		18,134			16,245			1,889			12		%			17,489			645			4		%
Diluted earnings per share	$	0.20		$	0.22		$	(0.02	)		(9	)	%		$	0.13		$	0.07			54		%
Average diluted shares		18,194			16,325			1,869			11		%			17,552			642			4		%
Dividends declared per common share	$	0.05		$	0.04		$	0.01			25		%		$	0.04		$	0.01			25		%

Second Quarter of 2019 Compared With Second Quarter of 2018

Net income for the second quarter of 2019 increased $26 thousand compared to the second quarter of 2018. In the current quarter, net interest income was $1.9 million higher and noninterest income was $138 thousand higher. These positive changes were offset by noninterest expenses that were $1.9 million higher and the provision for income taxes was $87 thousand higher.

Net Interest Income

Net interest income increased $1.9 million compared to the same period a year ago.

Interest income for the second quarter of 2019 increased $2.1 million or 16% to $15.1 million.

• Interest and fees on loans increased $1.7 million due to a $105.5 million increase in average loan balances and a 16 basis point increase in the average yield on the loan portfolio.
• Interest on securities increased $370 thousand due to a $32.9 million increase in average securities balances and a 21 basis point increase in average yield on the securities portfolio.
• Interest on interest-bearing deposits due from banks increased $84 thousand due to a $6.6 million increase in average interest-bearing deposit balances, and a 60 basis point increase in average yield.

Interest expense for the second quarter of 2019 increased $222 thousand or 16% to $1.6 million.

• Interest expense on interest bearing deposits increased $362 thousand. Average interest-bearing demand and savings deposit balances increased $99.7 million, while average certificate of deposit balances decreased $6.7 million. The average rate paid on interest-bearing deposits increased 13 basis points.
• Interest expense on borrowings from the Federal Home Loan Bank of San Francisco decreased $75 thousand. Average Federal Home Loan Bank of San Francisco borrowings outstanding in the current quarter were $30.0 million compared to $55.3 million in the same quarter a year ago.
• Interest expense on other term debt and junior subordinated debentures decreased $65 thousand. During the current quarter, we completed the early repayment of our variable rate senior debt.

Provision for loan and lease losses

As illustrated in Table 10, the nonaccrual status of a $10.3 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, net loan loss recoveries totaled $203 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 second quarter of 2018.

Noninterest Income

Noninterest income for the three months ended June 30, 2019 increased $138 thousand compared to the second quarter for 2018. Gains on sale of investment securities increased $29 thousand and dividends on Federal Home Loan Bank of San Francisco stock increased $29 thousand.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2019 increased $1.9 million compared to the same period a year previous, which included:

• $464 thousand in costs related to the name change.
• $376 thousand in acquisition costs.
• $739 thousand increase in operating expenses from the Merchants acquisition.

The Company’s efficiency ratio was 65.9% for the second quarter of 2019 (60.1% (non-GAAP) exclusive of non-recurring acquisition and name change costs). The ratio during the same period in 2018 was 61.2%. Management believes the efficiency ratio exclusive of non-recurring acquisition and name change cost is a useful measure because it provides more meaningful period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the Company’s performance.

Income Tax Provision

For the three months ended June 30, 2019, our income tax provision of $1.3 million on pre-tax income of $5.0 million was an effective tax rate of 26.9%. The tax provision for the second quarter of the prior year was $1.3 million on pre-tax income of $4.9 million for an effective tax rate of 25.7%. The current quarter includes $28 thousand, of acquisition costs which are not tax deductible.

Second Quarter of 2019 Compared With First Quarter of 2019

Net income for the second quarter of 2019 increased $1.3 million compared to the first quarter of 2019. In the current quarter, net interest income was $491 thousand higher, noninterest income was $43 thousand higher and noninterest expense was $1.3 million lower. These positive changes were offset by the provision for income taxes that was $508 thousand higher.

Net Interest Income

Net interest income increased $491 thousand over the prior quarter. The second quarter includes three months of income and expense associated with the January 31, 2019 acquisition of Merchants. The first quarter includes two months.

Interest income for the three months ended June 30, 2019 increased $700 thousand or 5% to $15.1 million.

• Interest and fees on loans increased $816 thousand due to a $34.9 million increase in average loan balances and a ten basis point increase in the average yield on the loan portfolio.
• Interest on investment securities decreased $90 thousand due to a $14.1 million decrease in average securities balances partially offset by a 27 basis point increase in average yield on the investment portfolio.
• Interest on interest-bearing deposits due from banks decreased $26 thousand due to a $4.6 million decrease in average balances.

Interest expense for the three months ended June 30, 2019 increased $209 thousand or 15% to $1.6 million.

• Interest expense on deposits increased $113 thousand as average interest-bearing demand and savings deposits increased $6.6 million, average certificates of deposit decreased $3.4 million and the average rate paid on these deposits increased by five basis points.
• Interest expense on borrowings from the Federal Home Loan Bank of San Francisco increased $137 thousand. Average Federal Home Loan Bank of San Francisco borrowings outstanding in the current quarter were $30.0 million, compared to $8.8 million in the prior quarter
• Interest expense on other term debt and junior subordinated debentures decreased $41 thousand. During the second quarter of 2019 we completed the early repayment and termination of our senior debt agreement.

Provision for loan and lease losses

As illustrated in Table 10, the nonaccrual status of a $10.3 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, net loan loss recoveries totaled $203 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 first quarter of 2019.

Noninterest Income

Noninterest income for the three months ended June 30, 2019 increased $43 thousand, the increase was not concentrated in any one item.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2019 decreased $1.3 million. The decrease was due to a $1.6 million decrease in acquisition costs partially offset by $464 thousand increase in name change costs.

The Company’s efficiency ratio was 65.9% for the second quarter of 2019 (60.1% (non-GAAP) exclusive of non-recurring acquisition and name change costs). The ratio during the prior quarter was 77.7% (64.0% exclusive of acquisition costs). Management believes the efficiency ratio exclusive of non-recurring acquisition and name change cost is a useful measure because it provides more meaningful period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the Company’s performance.

Income Tax Provision

For the three months ended June 30, 2019, our income tax provision of $1.3 million on pre-tax income of $5.0 million was an effective tax rate of 26.9%. The income tax provision for the prior quarter of $832 thousand on pre-tax income of $3.1 million was an effective tax rate of 26.5%. The current and prior quarter include $28 thousand and $150 thousand, respectively, of acquisition costs which are not tax deductible.

Earnings Per Share

Diluted earnings per share were $0.20 for the three months ended June 30, 2019 compared with diluted earnings per share of $0.22 for the same period a year ago and diluted earnings per share of $0.13 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in Table 8 presented earlier in this press release.

TABLE 9a
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
		For The Three Months Ended
		June 30, 2019									June 30, 2018									March 31, 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)		$	1,028,187		$	12,847		5.01	%		$	922,687		$	11,164		4.85	%		$	993,261		$	12,031		4.91	%
Taxable securities			249,907			1,733		2.78	%			206,247			1,278		2.49	%			253,068			1,764		2.83	%
Tax-exempt securities			39,501			328		3.33	%			50,306			413		3.29	%			50,454			387		3.11	%
Interest-bearing deposits in other banks			35,605			219		2.47	%			29,041			135		1.86	%			40,223			245		2.47	%
Average interest- earning assets			1,353,200			15,127		4.48	%			1,208,281			12,990		4.31	%			1,337,006			14,427		4.38	%
Cash and due from banks			21,942									19,880									21,392
Premises and equipment, net			15,819									14,167									14,581
Goodwill and core deposit intangible, net			16,995									1,943									11,872
Other assets			42,769									32,426									41,009
Average total assets		$	1,450,725								$	1,276,697								$	1,425,860
Interest-bearing liabilities:
Interest-bearing demand		$	238,840			129		0.22	%		$	225,927			80		0.14	%		$	243,376			126		0.21	%
Money market			296,326			380		0.51	%			241,724			135		0.22	%			293,396			289		0.40	%
Savings			139,307			123		0.35	%			107,108			64		0.24	%			131,081			111		0.34	%
Certificates of deposit			164,084			497		1.21	%			170,824			488		1.15	%			167,463			490		1.19	%
Federal Home Loan Bank of San Francisco borrowings			30,000			192		2.57	%			55,275			267		1.94	%			8,778			55		2.54	%
Other borrowings net of unamortized debt issuance costs			10,841			201		7.44	%			15,614			279		7.17	%			12,889			239		7.52	%
Junior subordinated debentures			10,310			110		4.28	%			10,310			97		3.77	%			10,310			113		4.44	%
Average interest- bearing liabilities			889,708			1,632		0.74	%			826,782			1,410		0.68	%			867,293			1,423		0.67	%
Noninterest-bearing demand			379,173									309,199									388,410
Other liabilities			18,246									12,535									17,452
Shareholders’ equity			163,598									128,181									152,705
Average liabilities and shareholders’ equity		$	1,450,725								$	1,276,697								$	1,425,860
Net interest income and net interest margin (4)					$	13,495		4.00	%					$	11,580		3.84	%					$	13,004		3.94	%
Tax equivalent net   interest margin (3)								4.03	%								3.88	%								3.98	%
(1) Interest income on loans includes deferred fees and costs of approximately $91 thousand, $145 thousand and $181 thousand for the three months ended June 30, 2019 and 2018 and March 31, 2019, respectively.
(2) Net loans includes average nonaccrual loans of $13.7 million, $4.2 million and $8.5 million for the three months ended June 30, 2019 and 2018 and March 31, 2019, respectively.
(3) Tax-exempt income has been adjusted to tax equivalent basis at a 21% tax rate for 2019 and 2018. The amount of such adjustments was an addition to recorded income of approximately $87 thousand, $110 thousand and $103 thousand for the three months ended June 30, 2019 and 2018 and March 31, 2019, 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 9b
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
		For The Six Months Ended
		June 30, 2019									June 30, 2018
		Average						Yield /			Average						Yield /
		Balance			Interest(1)			Rate (5)			Balance			Interest(1)			Rate (5)
Interest-earning assets:
Net loans (2)		$	1,010,821		$	24,878		4.96	%		$	903,389		$	21,893		4.89	%
Taxable securities			251,479			3,497		2.80	%			205,777			2,487		2.44	%
Tax-exempt securities			44,947			715		3.21	%			55,021			876		3.21	%
Interest-bearing deposits in other banks			37,930			464		2.47	%			30,967			264		1.72	%
Average interest- earning assets			1,345,177			29,554		4.43	%			1,195,154			25,520		4.31	%
Cash and due from banks			21,640									18,767
Premises and equipment, net			15,203									14,361
Goodwill and core deposit intangible, net			14,447									1,971
Other assets			41,894									32,457
Average total assets		$	1,438,361								$	1,262,710
Interest-bearing liabilities:
Interest-bearing demand		$	241,095			255		0.21	%		$	230,075			169		0.15	%
Money market			294,869			669		0.46	%			238,963			267		0.23	%
Savings			135,217			234		0.35	%			108,907			123		0.23	%
Certificates of deposit			165,764			987		1.20	%			176,332			983		1.12	%
Federal Home Loan Bank of San Francisco borrowings			19,448			247		2.56	%			33,978			314		1.86	%
Other borrowings net of unamortized debt issuance costs			11,859			440		7.48	%			16,069			560		7.03	%
Junior subordinated debentures			10,310			223		4.36	%			10,310			179		3.50	%
Average interest- bearing liabilities			878,562			3,055		0.70	%			814,634			2,595		0.64	%
Noninterest-bearing demand			383,766									308,304
Other liabilities			17,851									12,144
Shareholders’ equity			158,182									127,628
Average liabilities and shareholders’ equity		$	1,438,361								$	1,262,710
Net interest income and net interest margin (4)					$	26,499		3.97	%					$	22,925		3.87	%
Tax equivalent net   interest margin (3)								4.00	%								3.91	%
(1) Interest income on loans includes deferred fees and costs of approximately $272 thousand and $282 thousand for the six months ended June 30, 2019 and 2018, respectively.
(2) Net loans includes average nonaccrual loans of $11.1 million and $4.5 million for the six months ended June 30, 2019 and 2018, respectively.
(3) Tax-exempt income has been adjusted to tax equivalent basis at a 21% tax rate for 2019 and 2018. The amount of such adjustments was an addition to recorded income of approximately $190 thousand and $233 thousand for the six months ended June 30, 2019 and 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 10
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED
(amounts in thousands)
	For The Three Months Ended
	June 30,				March 31,				December 31,				September 30,				June 30,
	2019				2019				2018				2018				2018
Beginning balance ALLL	$	12,242			$	12,292			$	12,392			$	12,388			$	12,295
Provision for loan and lease losses		—				—				—				—				—
Loans charged-off		(659	)			(348	)			(279	)			(198	)			(382	)
Loan loss recoveries		862				298				179				202				475
Ending balance ALLL	$	12,445			$	12,242			$	12,292			$	12,392			$	12,388
	At June 30,				At March 31,				At December 31,				At September 30,				At June 30,
	2019				2019				2018				2018				2018
Nonaccrual loans:
Commercial	$	194			$	1,018			$	959			$	899			$	1,358
Real estate - construction and land development		—				—				—				—				—
Real estate - commercial non-owner occupied		10,690				10,878				—				—				—
Real estate - commercial owner occupied		—				—				548				—				—
Real estate - residential - ITIN		2,389				2,392				2,388				2,571				2,613
Real estate - residential - 1-4 family mortgage		217				182				185				179				184
Real estate - residential - equity lines		—				42				43				44				44
Consumer and other		22				23				23				24				33
Total nonaccrual loans		13,512				14,535				4,146				3,717				4,232
Accruing troubled debt restructured loans:
Commercial		1,092				1,187				1,224				1,291				1,420
Real estate - commercial non-owner occupied		791				793				795				797				799
Real estate - residential - ITIN		4,300				4,342				4,484				4,535				4,592
Real estate - residential - equity lines		242				358				363				367				372
Total accruing troubled debt restructured loans		6,425				6,680				6,866				6,990				7,183
All other accruing impaired loans		—				—				—				—				—
Total impaired loans	$	19,937			$	21,215			$	11,012			$	10,707			$	11,415
Gross loans outstanding at period end	$	1,036,724			$	1,034,606			$	946,251			$	927,480			$	936,816
Impaired loans to gross loans		1.92	%			2.05	%			1.16	%			1.15	%			1.22	%
Nonaccrual loans to gross loans		1.30	%			1.40	%			0.44	%			0.40	%			0.45	%
Allowance for loan and lease losses as a percent of:
Gross loans		1.20	%			1.18	%			1.30	%			1.34	%			1.32	%
Nonaccrual loans		92.10	%			84.22	%			296.48	%			333.39	%			292.72	%
Impaired loans		62.42	%			57.70	%			111.62	%			115.74	%			108.52	%

We continue to monitor credit quality and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. As illustrated in Table 10, the nonaccrual status of a $10.3 million commercial real estate loan has resulted in a deterioration in our asset quality metrics for the first two quarters of 2019. Net loan loss recoveries totaled $203 thousand for the quarter ended June 30, 2019 and no provision for loan and lease losses was necessary for the quarter. There was no provision for loan and lease loss during the prior quarter or during the same quarter a year ago.

The loans acquired from Merchants were recorded at fair value which included a discount for credit risk which is not a part of the ALLL. As a result, our ALLL as a percentage of gross loans declined to 1.20% as of June 30, 2019 compared to 1.32% as of June 30, 2018 and increased compared to 1.18% as of March 31, 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 June 30, 2019. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

At June 30, 2019, the recorded investment in loans classified as impaired totaled $19.9 million, with a corresponding specific reserve of $727 thousand compared to impaired loans of $11.4 million with a corresponding specific reserve of $1.2 million at June 30, 2018 and impaired loans of $21.2 million, with a corresponding specific reserve of $1.4 million at March 31, 2019. The increase in loans classified as impaired compared to the same period a year ago results from one $10.3 million commercial real estate loan.

TABLE 11
TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(amounts in thousands)
		At June 30,				At March 31,				At December 31,				At September 30,				At June 30,
		2019				2019				2018				2018				2018
Nonaccrual		$	1,828			$	2,725			$	2,693			$	2,720			$	3,218
Accruing			6,425				6,680				6,866				6,990				7,183
Total troubled debt restructurings		$	8,253			$	9,405			$	9,559			$	9,710			$	10,401
Troubled debt restructurings as a percentage of total gross loans			0.80	%			0.91	%			1.01	%			1.05	%			1.11	%

There were two new troubled debt restructurings to grant a payment deferral modification and a maturity modification during the three months ended June 30, 2019. As of June 30, 2019, we had 103 restructured loans that qualified as troubled debt restructurings, of which 101 were performing according to their restructured terms.

TABLE 12
NONPERFORMING ASSETS - UNAUDITED
(amounts in thousands)
		At June 30,				At March 31,				At December 31,				At September 30,				At June 30,
		2019				2019				2018				2018				2018
Total nonaccrual loans		$	13,512			$	14,535			$	4,146			$	3,717			$	4,232
90 days past due and still accruing			—				—				—				—				—
Total nonperforming loans			13,512				14,535				4,146				3,717				4,232
Other real estate owned ("OREO")			—				34				31				136				140
Total nonperforming assets		$	13,512			$	14,569			$	4,177			$	3,853			$	4,372
Nonperforming loans to gross loans			1.30	%			1.40	%			0.44	%			0.40	%			0.45	%
Nonperforming assets to total assets			0.94	%			0.99	%			0.32	%			0.29	%			0.34	%

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

TABLE 13
LOANS BY RATE INDEX AND PROJECTED REPAYMENT - UNAUDITED
(amounts in thousands)
At June 30, 2019
																	Years 6
																	Through			Beyond
		Year 1			Year 2			Year 3			Year 4			Year 5			Year 10			Year 10			Total
Rate Index:
Fixed		$	48,588		$	56,475		$	47,676		$	62,631		$	41,420		$	160,327		$	35,466		$	452,583
Variable:
Prime			107,931			2,634			6,032			7,495			9,420			1,737			—			135,249
5 Year Treasury			29,766			29,299			81,885			89,985			67,317			38,093			—			336,345
7 Year Treasury			892			943			11,370			4,855			5,671			14,005			—			37,736
1 Year LIBOR			23,347			—			—			—			—			—			—			23,347
Other Indexes			8,328			1,943			4,503			2,082			1,496			19,682			1,923			39,957
Nonaccrual			1,515			10,019			292			277			256			826			327			13,512
Total		$	220,367		$	101,313		$	151,758		$	167,325		$	125,580		$	234,670		$	37,716		$	1,038,729

TABLE 14
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
	At June 30,									Change								At March 31,
		2019				2018				$				%				2019
Assets:
Cash and due from banks		$	21,306			$	23,996			$	(2,690	)		(11	)	%		$	32,104
Interest-bearing deposits in other banks			19,319				15,690				3,629			23		%			30,425
Total cash and cash equivalents			40,625				39,686				939			2		%			62,529
Securities available-for-sale, at fair value			285,819				247,639				38,180			15		%			294,117
Loans, net of deferred fees and costs			1,038,729				938,579				100,150			11		%			1,036,598
Allowance for loan and lease losses			(12,445	)			(12,388	)			(57	)		—		%			(12,242	)
Net loans			1,026,284				926,191				100,093			11		%			1,024,356
Premises and equipment, net			15,836				13,908				1,928			14		%			15,391
Other real estate owned			—				140				(140	)		(100	)	%			34
Life insurance			23,449				22,155				1,294			6		%			23,294
Deferred tax asset, net			4,791				7,815				(3,024	)		(39	)	%			6,072
Goodwill and core deposit intangible, net			16,900				1,920				14,980			780		%			17,094
Other assets			28,282				22,050				6,232			28		%			28,604
Total assets		$	1,441,986			$	1,281,504			$	160,482			13		%		$	1,471,491
Liabilities and shareholders' equity:
Demand - noninterest-bearing		$	397,349			$	316,347			$	81,002			26		%		$	385,696
Demand - interest-bearing			238,175				217,674				20,501			9		%			241,292
Money market			300,847				247,413				53,434			22		%			311,853
Savings			138,591				106,170				32,421			31		%			139,237
Certificates of deposit			160,556				166,925				(6,369	)		(4	)	%			170,216
Total deposits			1,235,518				1,054,529				180,989			17		%			1,248,294
Term debt:
Federal Home Loan Bank of San Francisco borrowings			—				60,000				(60,000	)		(100	)	%			20,000
Other borrowings			10,000				15,296				(5,296	)		(35	)	%			12,596
Unamortized debt issuance costs			(67	)			(115	)			48			(42	)	%			(79	)
Net term debt			9,933				75,181				(65,248	)		(87	)	%			32,517
Junior subordinated debentures			10,310				10,310				—			—		%			10,310
Other liabilities			18,372				11,406				6,966			61		%			18,272
Total liabilities			1,274,133				1,151,426				122,707			11		%			1,309,393
Shareholders' equity:
Common stock			72,087				52,043				20,044			39		%			71,966
Retained earnings			93,363				81,475				11,888			15		%			90,626
Accumulated other comprehensive income (loss), net of tax			2,403				(3,440	)			5,843			(170	)	%			(494	)
Total shareholders' equity			167,853				130,078				37,775			29		%			162,098
Total liabilities and shareholders' equity		$	1,441,986			$	1,281,504			$	160,482			13		%		$	1,471,491
Total interest-earning assets		$	1,340,456			$	1,206,791			$	133,665			11		%		$	1,361,841
Shares outstanding			18,214				16,318				1,896			12		%			18,213
Book value per share		$	9.22			$	7.97			$	1.25			16		%		$	8.90
Tangible book value per share (1)		$	8.29			$	7.85			$	0.44			6		%		$	7.96
(1)  Book value per share is computed by dividing total shareholders’ equity by shares outstanding. Tangible book value per share is computed by dividing total shareholders’ equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.

TABLE 15
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
		For The Three Months Ended																	For The Six Months Ended
		June 30,						Change								March 31,			June 30,
		2019			2018			$				%				2019			2019			2018
Interest income:
Interest and fees on loans		$	12,847		$	11,164		$	1,683			15		%		$	12,031		$	24,878		$	21,893
Interest on taxable securities			1,733			1,278			455			36		%			1,764			3,497			2,487
Interest on tax-exempt securities			328			413			(85	)		(21	)	%			387			715			876
Interest on interest-bearing deposits in other banks			219			135			84			62		%			245			464			264
Total interest income			15,127			12,990			2,137			16		%			14,427			29,554			25,520
Interest expense:
Interest on demand deposits			129			80			49			61		%			126			255			169
Interest on money market			380			135			245			181		%			289			669			267
Interest on savings			123			64			59			92		%			111			234			123
Interest on certificates of deposit			497			488			9			2		%			490			987			983
Interest on Federal Home Loan Bank of San Francisco borrowings			192			267			(75	)		(28	)	%			55			247			314
Interest on other borrowings			201			279			(78	)		(28	)	%			239			440			560
Interest on junior subordinated debentures			110			97			13			13		%			113			223			179
Total interest expense			1,632			1,410			222			16		%			1,423			3,055			2,595
Net interest income			13,495			11,580			1,915			17		%			13,004			26,499			22,925
Provision for loan and lease losses			—			—			—			—		%			—			—			—
Net interest income after provision for loan and lease losses			13,495			11,580			1,915			17		%			13,004			26,499			22,925
Noninterest income:
Service charges on deposit accounts			187			175			12			7		%			168			355			351
ATM and point of sale fees			318			300			18			6		%			265			583			566
Fees on payroll and benefit processing			157			146			11			8		%			171			328			315
Life insurance			155			127			28			22		%			129			284			256
Gain on investment securities, net			33			4			29			725		%			92			125			40
Federal Home Loan Bank of San Francisco dividends			124			95			29			31		%			121			245			175
Gain on sale of OREO			18			—			18			100		%			23			41			16
Other income			108			115			(7	)		(6	)	%			88			196			225
Total noninterest income			1,100			962			138			14		%			1,057			2,157			1,944

TABLE 15 - CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
		For The Three Months Ended																	For The Six Months Ended
		June 30,						Change								March 31,			June 30,
		2019			2018			$				%				2019			2019			2018
Noninterest expense:
Salaries and related benefits			5,146			4,513			633			14		%			5,729			10,875			9,368
Premises and equipment			945			1,016			(71	)		(7	)	%			992			1,937			2,087
Federal Deposit Insurance Corporation insurance premium			95			93			2			2		%			100			195			189
Data processing fees			621			471			150			32		%			559			1,180			903
Professional service fees			535			314			221			70		%			303			838			659
Telecommunications			180			178			2			1		%			173			353			394
Acquisition			376			—			376			100		%			1,930			2,306			—
Other expenses			1,713			1,086			627			58		%			1,137			2,850			2,104
Total noninterest expense			9,611			7,671			1,940			25		%			10,923			20,534			15,704
Income before provision for income taxes			4,984			4,871			113			2		%			3,138			8,122			9,165
Provision for income taxes			1,340			1,253			87			7		%			832			2,172			2,306
Net income		$	3,644		$	3,618		$	26			1		%		$	2,306		$	5,950		$	6,859
Basic earnings per share		$	0.20		$	0.22		$	(0.02	)		(9	)	%		$	0.13		$	0.33		$	0.42
Average basic shares			18,134			16,245			1,889			12		%			17,489			17,816			16,237
Diluted earnings per share		$	0.20		$	0.22		$	(0.02	)		(9	)	%		$	0.13		$	0.33		$	0.42
Average diluted shares			18,194			16,325			1,869			11		%			17,552			17,878			16,319

TABLE 16
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
		For The Three Months Ended
		June 30,			March 31,			December 31,			September 30,			June 30,
		2019			2019			2018			2018			2018
Earning assets:
Loans		$	1,028,187		$	993,261		$	923,409		$	930,863		$	922,687
Taxable securities			249,907			253,068			218,137			199,883			206,247
Tax-exempt securities			39,501			50,454			42,868			48,561			50,306
Interest-bearing deposits in other banks			35,605			40,223			75,295			50,397			29,041
Total earning assets			1,353,200			1,337,006			1,259,709			1,229,704			1,208,281
Cash and due from banks			21,942			21,392			22,447			21,834			19,880
Premises and equipment, net			15,819			14,581			13,331			13,768			14,167
Goodwill and core deposit intangible, net			16,995			11,872			1,842			1,888			1,943
Other assets			42,769			41,009			31,488			33,084			32,426
Total assets		$	1,450,725		$	1,425,860		$	1,328,817		$	1,300,278		$	1,276,697
Liabilities and shareholders' equity:
Demand - noninterest-bearing		$	379,173		$	388,410		$	367,457		$	343,948		$	309,199
Demand - interest-bearing			238,840			243,376			257,227			235,664			225,927
Money market			296,326			293,396			265,190			259,242			241,724
Savings			139,307			131,081			110,934			107,349			107,108
Certificates of deposit			164,084			167,463			157,035			163,302			170,824
Total deposits			1,217,730			1,223,726			1,157,843			1,109,505			1,054,782
Federal Home Loan Bank of San Francisco borrowings			30,000			8,778			—			22,283			55,275
Other borrowings net of unamortized debt issuance costs			10,841			12,889			13,785			14,681			15,614
Junior subordinated debentures			10,310			10,310			10,310			10,310			10,310
Other liabilities			18,246			17,452			12,846			12,000			12,535
Total liabilities			1,287,127			1,273,155			1,194,784			1,168,779			1,148,516
Shareholders' equity			163,598			152,705			134,033			131,499			128,181
Liabilities & shareholders' equity		$	1,450,725		$	1,425,860		$	1,328,817		$	1,300,278		$	1,276,697

TABLE 17
UNAUDITED CONDENSED CONSOLIDATED
YEAR TO DATE AVERAGE BALANCE SHEETS
(amounts in thousands)
	For the Six Months Ended							For the Twelve Months Ended
		June 30,			June 30,			December 31,			December 31,			December 31,
		2019			2018			2018			2017			2016
Earning assets:
Loans		$	1,010,821		$	903,389		$	915,360		$	818,119		$	752,938
Taxable securities			251,479			205,777			207,407			165,333			120,884
Tax-exempt securities			44,947			55,021			50,330			74,231			75,303
Interest-bearing deposits in other banks			37,930			30,967			47,038			66,872			58,668
Total earning assets			1,345,177			1,195,154			1,220,135			1,124,555			1,007,793
Cash and due from banks			21,640			18,767			20,468			18,301			15,831
Premises and equipment, net			15,203			14,361			13,952			15,567			15,078
Goodwill and core deposit intangible, net			14,447			1,971			1,917			2,136			1,888
Other assets			41,894			32,457			32,369			37,692			39,160
Total assets		$	1,438,361		$	1,262,710		$	1,288,841		$	1,198,251		$	1,079,750
Liabilities and shareholders' equity:
Demand - noninterest-bearing		$	383,766		$	308,304		$	332,197		$	289,735		$	226,368
Demand - interest-bearing			241,095			230,075			238,328			209,792			172,011
Money market			294,869			238,963			250,685			224,913			202,159
Savings			135,217			108,907			109,025			111,376			104,771
Certificates of deposit			165,764			176,332			168,183			205,648			221,074
Total deposits			1,220,711			1,062,581			1,098,418			1,041,464			926,383
Federal Home Loan Bank of San Francisco borrowings			19,448			33,978			22,466			302			17,856
Other borrowings net of unamortized debt issuance costs			11,859			16,069			15,143			17,981			19,430
Junior subordinated debentures			10,310			10,310			10,310			10,310			10,310
Other liabilities			17,851			12,144			12,286			12,293			13,217
Total liabilities			1,280,179			1,135,082			1,158,623			1,082,350			987,196
Shareholders' equity			158,182			127,628			130,218			115,901			92,554
Liabilities & shareholders' equity		$	1,438,361		$	1,262,710		$	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 through twelve locations in northern California. 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 OfficerTelephone Direct (916) 677-5800

James A. Sundquist, Executive Vice President and Chief Financial OfficerTelephone Direct (916) 677-5825

Samuel D. Jimenez, Executive Vice President and Chief Operating OfficerTelephone Direct (530) 722-3952

Andrea M. Newburn, Vice President and Senior Administrative Officer / Corporate SecretaryTelephone Direct (530) 722-3959