BOCH Bank of Commerce Holdings

Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.480 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter and the year ended December 31, 2019. Net income for the quarter ended December 31, 2019 was $4.4 million or $0.24 per share – diluted, compared with net income of $4.8 million or $0.30 per share – diluted for the same period of 2018. Net income for the year ended December 31, 2019 was $15.0 million or $0.83 per share – diluted, compared with net income of $15.7 million or $0.96 per share – diluted for the same period of 2018.

The current year includes the benefits of our January 31, 2019 acquisition of Merchants National Bank of Sacramento (“Merchants”). In May, we successfully converted all of Merchant’s computer records onto our core system. As previously announced, the Company’s subsidiary bank, which had been operating under multiple names, simultaneously changed the name for all locations to Merchants Bank of Commerce. During 2019 acquisition related costs totaled $2.2 million and costs related to the name change totaled $503 thousand. All significant costs for these two projects have now been absorbed.

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

Financial highlights for the year ended December 31, 2019:

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

Financial highlights for the fourth quarter of 2019:

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

Selected Tax Items:

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

Non-GAAP Financial Measures

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

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

Forward-Looking Statements

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

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

BALANCE SHEET OVERVIEW

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

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

The Company recorded gross loan balances of $1.033 billion at December 31, 2019, compared with $946 million and $1.033 billion at December 31, 2018 and September 30, 2019, respectively, an increase of $87 million and a decrease of $179 thousand, respectively. During the first quarter of 2019, the Merchants acquisition provided an additional $85.3 million of loans.

The average yield on loans during the quarter was 4.86% compared to 4.94% and 5.01% for the quarters ended December 31, 2018 and September 30, 2019, respectively.

Gross loan balances in the table above include a net fair value discount for loans acquired from Merchants during the first quarter of 2019 of $1.7 million and $1.9 million at December 31, 2019 and September 30, 2019, respectively. We recorded $193 thousand and $188 thousand in accretion of the discount for these loans during the third and fourth quarters of 2019, respectively.

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

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

Investment securities totaled $287.0 million at December 31, 2019, compared with $256.9 million and $272.3 million at December 31, 2018 and September 30, 2019, respectively. During the first quarter of 2019, the Merchants acquisition included securities with a par value of $107.4 million. Management elected to sell securities with a par value of $18.0 million and $118.0 million during the quarter and the year ended December 31, 2019, respectively. The sales resulted in net realized gains of $49 thousand and $186 thousand for the quarter and the year ended December 31, 2019, respectively.

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

At December 31, 2019, our net unrealized gains on available-for-sale investment securities were $3.7 million compared with net unrealized losses of $4.3 million and unrealized gains of $3.3 million at December 31, 2018 and September 30, 2019, respectively. The changes in net unrealized losses on the investment securities portfolio were due to changes in market interest rates.

TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
	At December 31,																				At September 30,
				% of						% of				Change										% of
	2019			Total			2018			Total			Amount				%				2019			Total
Demand - noninterest-bearing	$	432,680		34	%		$	347,199		31	%		$	85,481			25		%		$	412,410		33	%
Demand - interest-bearing		239,258		19				252,202		22				(12,944	)		(5	)	%			239,547		19
Money market		307,559		24				265,093		23				42,466			16		%			317,120		25
Total demand		979,497		77				864,494		76				115,003			13		%			969,077		77
Savings		135,888		11				114,840		10				21,048			18		%			137,441		11
Total non-maturing deposits		1,115,385		88				979,334		86				136,051			14		%			1,106,518		88
Certificates of deposit		151,786		12				152,382		14				(596	)		0		%			155,621		12
Total deposits	$	1,267,171		100	%		$	1,131,716		100	%		$	135,455			12		%		$	1,262,139		100	%

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

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

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

AVERAGE COST OF FUNDS

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

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

INCOME STATEMENT OVERVIEW

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

Fourth Quarter of 2019 Compared With Fourth Quarter of 2018

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

Net Interest Income

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

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

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

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

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

Provision for loan and lease losses

Net loan loss charge-offs were only $54 thousand for the current quarter and no provision for loan and lease losses was necessary. There was no provision for loan and lease losses in the fourth quarter of 2018.

Noninterest Income

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

Noninterest Expense

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

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

Income Tax Provision

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

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

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

Fourth Quarter of 2019 Compared With Third Quarter of 2019

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

Net Interest Income

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

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

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

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

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

Provision for loan and lease losses

As illustrated in Table 9, the sale during the fourth quarter of a $9.9 million nonaccrual commercial real estate loan has resulted in an improvement in our asset quality metrics. As a result of these improved metrics and loan loss charge-offs totaling only $54 thousand for the current quarter, no provision for loan and lease losses was necessary during current quarter. There was no provision for loan and lease losses in the prior quarter.

Noninterest Income

Noninterest income for the three months ended December 31, 2019 increased $15 thousand, which was not concentrated in any one item.

Noninterest Expense

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

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

Income Tax Provision

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

Earnings Per Share

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

TABLE 8a
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
		For The Three Months Ended
		December 31, 2019									December 31, 2018									September 30, 2019
		Average						Yield /			Average						Yield /			Average						Yield /
		Balance			Interest(1)			Rate (5)			Balance			Interest(1)			Rate (5)			Balance			Interest(1)			Rate (5)
Interest-earning assets:
Net loans (2)		$	1,031,702		$	12,643		4.86	%		$	923,409		$	11,494		4.94	%		$	1,029,534		$	13,013		5.01	%
Taxable securities			245,487			1,567		2.53	%			218,137			1,469		2.67	%			238,601			1,609		2.68	%
Tax-exempt securities (3)			32,158			258		3.18	%			42,868			353		3.27	%			32,974			271		3.26	%
Interest-bearing deposits in other banks			81,099			340		1.66	%			75,295			434		2.29	%			58,897			308		2.07	%
Average interest- earning assets			1,390,446			14,808		4.23	%			1,259,709			13,750		4.33	%			1,360,006			15,201		4.43	%
Cash and due from banks			24,083									22,447									23,822
Premises and equipment, net			16,049									13,331									15,922
Goodwill and core deposit intangible, net			16,561									1,842									16,769
Other assets			45,504									31,488									45,925
Average total assets		$	1,492,643								$	1,328,817								$	1,462,444
Interest-bearing liabilities:
Interest-bearing demand		$	244,276			108		0.18	%		$	257,227			141		0.22	%		$	243,553			117		0.19	%
Money market			318,127			479		0.60	%			265,190			207		0.31	%			309,188			451		0.58	%
Savings			138,155			128		0.37	%			110,934			92		0.33	%			138,296			131		0.38	%
Certificates of deposit			153,223			499		1.29	%			157,035			462		1.17	%			157,620			491		1.24	%
Other borrowings net of unamortized debt issuance costs			9,952			183		7.30	%			13,785			252		7.25	%			9,942			183		7.30	%
Junior subordinated debentures			10,310			97		3.73	%			10,310			102		3.93	%			10,310			106		4.08	%
Average interest- bearing liabilities			874,043			1,494		0.68	%			814,481			1,256		0.61	%			868,909			1,479		0.68	%
Noninterest-bearing demand			428,420									367,457									405,853
Other liabilities			17,795									12,846									18,074
Shareholders’ equity			172,385									134,033									169,608
Average liabilities and shareholders’ equity		$	1,492,643								$	1,328,817								$	1,462,444
Net interest income and net interest margin (4)					$	13,314		3.80	%					$	12,494		3.93	%					$	13,722		4.00	%
(1) Interest income on loans includes deferred fees and costs of approximately $224 thousand, $109 thousand, and $161 thousand for the three months ended December 31, 2019 and 2018 and September 30, 2019, respectively.
(2) Net loans includes average nonaccrual loans of $11.4 million, $4.1 million and $13.2 million for the three months ended December 31, 2019 and 2018 and September 30, 2019, respectively.
(3) Interest income and yields on tax-exempt securities are not presented on a taxable equivalent basis.
(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Net interest income for the three months ended December 31, 2019 included $188 thousand in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by 7 basis points.
(5) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

TABLE 8b
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
		For The Twelve Months Ended
		December 31, 2019									December 31, 2018
		Average						Yield /			Average						Yield /
		Balance			Interest(1)			Rate (5)			Balance			Interest(1)			Rate (5)
Interest-earning assets:
Net loans (2)		$	1,020,801		$	50,534		4.95	%		$	915,360		$	44,955		4.91	%
Taxable securities			246,723			6,673		2.70	%			207,407			5,165		2.49	%
Tax-exempt securities (3)			38,706			1,244		3.21	%			50,330			1,629		3.24	%
Interest-bearing deposits in other banks			54,095			1,112		2.06	%			47,038			952		2.02	%
Average interest- earning assets			1,360,325			59,563		4.38	%			1,220,135			52,701		4.32	%
Cash and due from banks			22,806									20,468
Premises and equipment, net			15,598									13,952
Goodwill and core deposit intangible, net			15,565									1,917
Other assets			43,818									32,369
Average total assets		$	1,458,112								$	1,288,841
Interest-bearing liabilities:
Interest-bearing demand		$	242,516			480		0.20	%		$	238,328			414		0.17	%
Money market			304,340			1,599		0.53	%			250,685			646		0.26	%
Savings			136,733			493		0.36	%			109,025			288		0.26	%
Certificates of deposit			160,550			1,977		1.23	%			168,183			1,910		1.14	%
Federal Home Loan Bank of San Francisco borrowings			9,644			247		2.56	%			22,466			435		1.94	%
Other borrowings net of unamortized debt issuance costs			10,895			806		7.40	%			15,143			1,077		7.11	%
Junior subordinated debentures			10,310			426		4.13	%			10,310			385		3.73	%
Average interest- bearing liabilities			874,988			6,028		0.69	%			814,140			5,155		0.63	%
Noninterest-bearing demand			400,588									332,197
Other liabilities			17,894									12,286
Shareholders’ equity			164,642									130,218
Average liabilities and shareholders’ equity		$	1,458,112								$	1,288,841
Net interest income and net interest margin (4)					$	53,535		3.94	%					$	47,546		3.90	%
(1) Interest income on loans includes deferred fees and costs of approximately $657 thousand and $465 thousand for the years ended December 31, 2019 and 2018, respectively.
(2) Net loans includes average nonaccrual loans of $11.7 million and $4.2 million for the years ended December 31, 2019 and 2018, respectively.
(3) Interest income and yields on tax-exempt securities are not presented on a taxable equivalent basis.
(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Net interest income for the year ended December 31, 2019 included $620 thousand in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by 6 basis points.
(5) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

TABLE 9
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED
(amounts in thousands)
	For The Three Months Ended
	December 31,					September 30,					June 30,					March 31,					December 31,
	2019					2019					2019					2019					2018
Beginning balance ALLL	$	12,285				$	12,445				$	12,242				$	12,292				$	12,392
Provision for loan and lease losses		—					—					—					—					—
Loans charged-off		(174	)				(319	)				(659	)				(348	)				(279	)
Loan loss recoveries		120					159					862					298					179
Ending balance ALLL	$	12,231				$	12,285				$	12,445				$	12,242				$	12,292
	At December 31,					At September 30,					At June 30,					At March 31,					At December 31,
	2019					2019					2019					2019					2018
Nonaccrual loans:
Commercial	$	61				$	139				$	194				$	1,018				$	959
Real estate - commercial non-owner occupied		—					10,099					10,690					10,878					—
Real estate - commercial owner occupied		3,103					—					—					—					548
Real estate - residential - ITIN		2,221					2,339					2,389					2,392					2,388
Real estate - residential - 1-4 family mortgage		191					198					217					182					185
Real estate - residential - equity lines		—					—					—					42					43
Consumer and other		40					21					22					23					23
Total nonaccrual loans		5,616					12,796					13,512					14,535					4,146
Accruing troubled debt restructured loans:
Commercial		595					629					1,092					1,187					1,224
Real estate - commercial non-owner occupied		—					—					791					793					795
Real estate - residential - ITIN		3,957					4,072					4,300					4,342					4,484
Real estate - residential - equity lines		231					236					242					358					363
Total accruing troubled debt restructured loans		4,783					4,937					6,425					6,680					6,866
All other accruing impaired loans		—					—					—					—					—
Total impaired loans	$	10,399				$	17,733				$	19,937				$	21,215				$	11,012
Gross loans outstanding at period end	$	1,032,903				$	1,033,082				$	1,036,724				$	1,034,606				$	946,251
Impaired loans to gross loans		1.01		%			1.72		%			1.92		%			2.05		%			1.16		%
Nonaccrual loans to gross loans		0.54		%			1.24		%			1.30		%			1.40		%			0.44		%
Allowance for loan and lease losses as a percent of:
Gross loans		1.18		%			1.19		%			1.20		%			1.18		%			1.30		%
Nonaccrual loans		217.79		%			96.01		%			92.10		%			84.22		%			296.48		%
Impaired loans		117.62		%			69.28		%			62.42		%			57.70		%			111.62		%

We continue to monitor credit quality and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. The decrease in nonaccrual loans during the current quarter resulted from the sale of a $9.9 million nonaccrual commercial real estate loan. Net loan loss charge-offs totaled only $54 thousand for the quarter ended December 31, 2019 and no provision for loan and lease losses was necessary for the quarter. There was no provision for loan and lease loss during the prior quarter or during the same quarter a year ago.

The loans acquired from Merchants were recorded at fair value which included a discount for credit risk which is not a part of the ALLL. As a result, our ALLL as a percentage of gross loans declined to 1.18% as of December 31, 2019 compared to 1.30% as of December 31, 2018 and compared to 1.19% as of September 30, 2019.

Based on the Bank’s ALLL methodology, which uses criteria such as risk factors and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company’s ALLL is adequate at December 31, 2019. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

At December 31, 2019, the recorded investment in loans classified as impaired totaled $10.4 million, with a corresponding specific reserve of $324 thousand compared to impaired loans of $11.0 million with a corresponding specific reserve of $1.2 million at December 31, 2018 and impaired loans of $17.7 million, with a corresponding specific reserve of $335 thousand at September 30, 2019. The decrease in loans classified as impaired compared to the prior quarter results from the sale of one $9.9 million commercial real estate loan.

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

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

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

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

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

TABLE 13
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
	At December 31,									Change								At September 30,
		2019				2018				$				%				2019
Assets:
Cash and due from banks		$	21,338			$	23,692			$	(2,354	)		(10	)	%		$	32,505
Interest-bearing deposits in other banks			59,266				23,673				35,593			150		%			56,099
Total cash and cash equivalents			80,604				47,365				33,239			70		%			88,604
Securities available-for-sale, at fair value			286,950				256,928				30,022			12		%			272,341
Loans, net of deferred fees and costs			1,035,065				948,178				86,887			9		%			1,035,062
Allowance for loan and lease losses			(12,231	)			(12,292	)			61			—		%			(12,285	)
Net loans			1,022,834				935,886				86,948			9		%			1,022,777
Premises and equipment, net			15,906				13,119				2,787			21		%			16,084
Other real estate owned			35				31				4			13		%			58
Life insurance			23,701				22,410				1,291			6		%			23,576
Deferred tax asset, net			4,553				7,039				(2,486	)		(35	)	%			4,818
Goodwill and core deposit intangible, net			16,480				1,841				14,639			795		%			16,672
Other assets			28,553				22,485				6,068			27		%			27,497
Total assets		$	1,479,616			$	1,307,104			$	172,512			13		%		$	1,472,427
Liabilities and shareholders' equity:
Demand - noninterest-bearing		$	432,680			$	347,199			$	85,481			25		%		$	412,410
Demand - interest-bearing			239,258				252,202				(12,944	)		(5	)	%			239,547
Money market			307,559				265,093				42,466			16		%			317,120
Savings			135,888				114,840				21,048			18		%			137,441
Certificates of deposit			151,786				152,382				(596	)		—		%			155,621
Total deposits			1,267,171				1,131,716				135,455			12		%			1,262,139
Term debt:
Other borrowings			10,000				13,496				(3,496	)		(26	)	%			10,000
Unamortized debt issuance costs			(43	)			(91	)			48			(53	)	%			(55	)
Net term debt			9,957				13,405				(3,448	)		(26	)	%			9,945
Junior subordinated debentures			10,310				10,310				—			—		%			10,310
Other liabilities			17,700				13,352				4,348			33		%			18,396
Total liabilities			1,305,138				1,168,783				136,355			12		%			1,300,790
Shareholders' equity:
Common stock			71,311				52,284				19,027			36		%			72,200
Retained earnings			100,566				89,045				11,521			13		%			97,100
Accumulated other comprehensive income (loss), net of tax			2,601				(3,008	)			5,609			(186	)	%			2,337
Total shareholders' equity			174,478				138,321				36,157			26		%			171,637
Total liabilities and shareholders' equity		$	1,479,616			$	1,307,104			$	172,512			13		%		$	1,472,427
Total interest-earning assets		$	1,377,588			$	1,233,049			$	144,539			12		%		$	1,360,184
Shares outstanding			18,137				16,334				1,803			11		%			18,212
Book value per share (1)		$	9.62			$	8.47			$	1.15			14		%		$	9.42
Tangible book value per share (1)		$	8.71			$	8.36			$	0.35			4		%		$	8.51
(1)  Book value per share is computed by dividing total shareholders’ equity by shares outstanding. Tangible book value per share is computed by dividing total shareholders’ equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.

TABLE 14
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
		For The Three Months Ended																	For The Twelve Months Ended
		December 31,						Change								September 30,			December 31,
		2019			2018			$				%				2019			2019			2018
Interest income:
Interest and fees on loans		$	12,643		$	11,494		$	1,149			10		%		$	13,013		$	50,534		$	44,955
Interest on taxable securities			1,567			1,469			98			7		%			1,609			6,673			5,165
Interest on tax-exempt securities			258			353			(95	)		(27	)	%			271			1,244			1,629
Interest on interest-bearing deposits in other banks			340			434			(94	)		(22	)	%			308			1,112			952
Total interest income			14,808			13,750			1,058			8		%			15,201			59,563			52,701
Interest expense:
Interest on demand deposits			108			141			(33	)		(23	)	%			117			480			414
Interest on money market			479			207			272			131		%			451			1,599			646
Interest on savings			128			92			36			39		%			131			493			288
Interest on certificates of deposit			499			462			37			8		%			491			1,977			1,910
Interest on Federal Home Loan Bank of San Francisco borrowings			—			—			—			—		%			—			247			435
Interest on other borrowings			183			252			(69	)		(27	)	%			183			806			1,077
Interest on junior subordinated debentures			97			102			(5	)		(5	)	%			106			426			385
Total interest expense			1,494			1,256			238			19		%			1,479			6,028			5,155
Net interest income			13,314			12,494			820			7		%			13,722			53,535			47,546
Provision for loan and lease losses			—			—			—			—		%			—			—			—
Net interest income after provision for loan and lease losses			13,314			12,494			820			7		%			13,722			53,535			47,546
Noninterest income:
Service charges on deposit accounts			198			161			37			23		%			177			730			682
ATM and point of sale fees			282			283			(1	)		—		%			293			1,158			1,131
Payroll and benefit processing fees			183			178			5			3		%			158			669			652
Life insurance			126			128			(2	)		(2	)	%			126			536			512
Gain on investment securities, net			49			3			46			1,533		%			12			186			44
Federal Home Loan Bank of San Francisco dividends			131			201			(70	)		(35	)	%			131			507			480
Gain(Loss) on sale of OREO			21			64			(43	)		(67	)	%			—			62			73
Other income			31			114			(83	)		(73	)	%			109			336			445
Total noninterest income			1,021			1,132			(111	)		(10	)	%			1,006			4,184			4,019

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

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

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

About Bank of Commerce Holdings

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

Contact Information:

Randall S. Eslick, President and Chief Executive 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