Bank of Commerce Holdings - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - FORM 8-K - Bank of Commerce Holdings	boch20200715_8k.htm

Exhibit 99.1

For Immediate Release:

Bank of Commerce Holdings Announces Results for the Second Quarter of 2020

SACRAMENTO, California, July 17, 2020 / GLOBE NEWSWIRE—Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.712 billion asset bank holding company and parent company of Merchants Bank of Commerce (the “Bank”), today announced financial results for the quarter and six months ended June 30, 2020. Net income for the quarter ended June 30, 2020 was $3.8 million or $0.23 per share – diluted, compared with net income of $3.6 million or $0.20 per share – diluted for the same period of 2019. Net income for the six months ended June 30, 2020 was $4.8 million or $0.28 per share – diluted, compared with net income of $6.0 million or $0.33 per share – diluted for the same period of 2019.

Significant Items for the second quarter of 2020:

●	$1.3 million provision for loan and lease losses.

●	$162.2 million in loans funded through June 30, 2020 under the federal Paycheck Protection Program (“PPP”) (594 loans).

●	Through June 30, 2020 approved 244 loan modifications for loans totaling $123.3 million.

●	Ongoing impact of COVID-19.

Randall S. Eslick, President and CEO commented: “We are proud of our company’s response to recent economic and medical challenges. During the second quarter we installed physical protections for employees and customers, assigned 50% of our employees to work remotely, extended 594 PPP loans totaling $162.2 million and deferred loan payments for 10% of our loan portfolio. Until these challenges abate, we remain committed to ongoing protection and support for our employees, customers and communities.”

Financial highlights for the second quarter of 2020:

●

Net income of $3.8 million was an increase of $203 thousand (6%) from $3.6 million earned during the same period in the prior year. Earnings of $0.23 per share – diluted was an increase of $0.03 (15%) from $0.20 per share – diluted earned during the same period in the prior year and reflects the impact of the following:

1.5 million shares of common stock repurchased between October of 2019 and April of 2020.

$1.3 million provision for loan and lease losses for the current quarter.

$840 thousand in non-recurring costs recorded during the same period a year ago associated with our January 31, 2019 acquisition of Merchants Holding Company in Sacramento (“Merchants”) and the name change of our subsidiary bank.

●	Net interest income increased $288 thousand (2%) to $13.8 million compared to $13.5 million for the same period in the prior year.

●	Net interest margin declined to 3.64% compared to 4.00% for the same period in the prior year.

●	Return on average assets decreased to 0.95% compared to 1.01% for the same period in the prior year.

●	Return on average equity increased to 9.26% compared to 8.93% for the same period in the prior year.

●	Average loans totaled $1.181 billion, an increase of $153 million (15%) compared to average loans for the same period in the prior year.

●	Average earning assets totaled $1.523 billion, an increase of $170 million (13%) compared to average earning assets for the same period in the prior year.

●	Average deposits totaled $1.406 billion, an increase of $189 million (15%) compared to average deposits for the same period in the prior year.

Average non-maturing deposits totaled $1.263 billion, an increase of $210 million (20%) compared to the same period in the prior year.

Average certificates of deposit totaled $143.0 million, a decrease of $21.1 million (13%) compared to same period in the prior year.

●	The Company’s efficiency ratio was 56.1% compared to 65.9% during the same period in the prior year.

The Company’s efficiency ratio of 65.9% for the second quarter of 2019 included $840 thousand in non-recurring acquisition and the name change costs. The efficiency ratio excluding these non-recurring costs was 60.1%.

●

Nonperforming assets at June 30, 2020 totaled $6.7 million or 0.39% of total assets, a decrease of $6.8 million (51%) since June 30, 2019. The decrease in nonperforming assets results from one $10.9 million commercial real estate loan which was placed in nonaccrual status in the first quarter of 2019 and sold in the fourth quarter of 2019.

●	Book value per common share was $10.13 at June 30, 2020 compared to $9.22 at June 30, 2019.

●	Tangible book value per common share was $9.17 at June 30, 2020 compared to $8.29 at June 30, 2019.

Financial highlights for the six months ended June 30, 2020:

●

Net income of $4.8 million was a decrease of $1.2 million (20%) from $6.0 million earned during the same period in the prior year. Earnings of $0.28 per share – diluted was a decrease of $0.05 (15%) per share – diluted earned during the same period in prior year and reflects the impact of the following:

1.5 million shares of common stock repurchased between October of 2019 and April of 2020.

$4.2 million provision for loan and lease losses for the six months ended June 30, 2020.

$1.1 million in non-recurring costs for the first quarter of 2020 associated with the termination of a technology management services contract and a previously announced severance agreement.

$2.8 million in non-recurring costs recorded during six months ended June 30, 2019 associated with our January 31, 2019 acquisition of Merchants and the name change of our subsidiary bank.

●	Net interest income increased $270 thousand (1%) to $26.8 million compared to $26.5 million for the same period in the prior year.

●	Net interest margin declined to 3.74% compared to 3.97% for same period in the prior year.

●	Return on average assets decreased to 0.62% compared to 0.83% for the same period in the prior year.

●	Return on average equity decreased to 5.65% compared to 7.59% for the same period in the prior year.

●	Average loans totaled $1.107 billion, an increase of $96 million (10%) compared to average loans for the same period in the prior year.

●	Average earning assets totaled $1.438 billion, an increase of $93 million (7%) compared the same period in the prior year.

●	Average deposits totaled $1.325 billion, an increase of $105 million (9%) compared the same period in the prior year.

Average non-maturing deposits totaled $1.180 billion, an increase of $125 million (12%) compared to the same period in the prior year.

Average certificates of deposit totaled $145.1 million, a decrease of $20.7 million (12%) compared to the same period in the prior year.

●	The Company’s efficiency ratio was 63.1% compared to 71.7% for the same period in the prior year.

The Company’s efficiency ratio of 63.1% for the first six months of 2020 included $1.1 million in non-recurring costs. The efficiency ratio excluding these costs was 59.2%.

The Company’s efficiency ratio of 71.7% for the first six months of 2019 includes $2.8 million in non-recurring costs. The efficiency ratio excluding these non-recurring costs was 62.0%.

●	Nonperforming assets at June 30, 2020 totaled $6.7 million or 0.39% of total assets, an increase of $1.0 million (37% annualized) since December 31, 2019.

●	Book value per common share was $10.13 at June 30, 2020 compared to $9.62 at December 31, 2019.

●	Tangible book value per common share was $9.17 at June 30, 2020 compared to $8.71 at December 31, 2019.

Impact of COVID-19:

●

We have funded 594 loans totaling $162.2 million for the PPP through June 30, 2020. The growth in our assets resulting from the PPP has impacted our Tier 1 Leverage capital ratio as we have not utilized the liquidity available to us from the Federal Reserve’s PPP Liquidity Facility and its associated beneficial capital treatment. Substantially all of the loans were made to existing customers and were funded under the two year PPP loan program.

●	We have experienced significant increased deposit balances as all of the PPP loan funds were deposited into customer accounts at our bank and as a result of customer behavior that is focused on maintaining greater non-maturing deposit balances.

●	Organic loan growth has been slowed as we maintain credit underwriting discipline in light of the current economic environment.

●	At June 30, 2020 the Company’s goodwill was not impaired as supported by a review by an independent third party consultant.

●	At June 30, 2020, our workforce totaled 214 employees of which 114 are working remotely.

●	All of our branch offices remain open, although they are operating under a reduced schedule. Our pandemic response team is continuing to modify and enhance our workforce and customer protection as additional information or requirements are promulgated by the state of California.

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

(dollars 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	2020			2019			2020			2020			2019
Net income	$	3,847		$	3,644		$	916		$	4,763		$	5,950
Average total assets	$	1,626,827		$	1,450,725		$	1,454,019		$	1,540,423		$	1,438,361
Average total earning assets	$	1,523,157		$	1,353,200		$	1,353,098		$	1,438,127		$	1,345,177
Average shareholders' equity	$	167,036		$	163,598		$	172,120		$	169,578		$	158,182

Selected performance ratios
Return on average assets		0.95	%		1.01	%		0.25	%		0.62	%		0.83	%
Return on average equity		9.26	%		8.93	%		2.14	%		5.65	%		7.59	%
Efficiency ratio		56.1	%		65.9	%		70.5	%		63.1	%		71.7	%

Share and per share amounts
Weighted average shares - basic ⁽¹⁾		16,660			18,134			17,695			17,178			17,816
Weighted average shares - diluted ⁽¹⁾		16,689			18,194			17,747			17,217			17,878
Earnings per share - basic	$	0.23		$	0.20		$	0.05		$	0.28		$	0.33
Earnings per share - diluted	$	0.23		$	0.20		$	0.05		$	0.28		$	0.33

	At June 30,						At March 31,
Share and per share amounts	2020			2019			2020
Common shares outstanding ⁽²⁾		16,739			18,214			16,796
Book value per common share ⁽²⁾	$	10.13		$	9.22		$	9.86
Tangible book value per common share ⁽²⁾⁽³⁾	$	9.17		$	8.29		$	8.89

Capital ratios ⁽⁴⁾
Bank of Commerce Holdings
Common equity tier 1 capital ratio		12.34	%		12.56	%		12.02	%
Tier 1 capital ratio		13.18	%		13.41	%		12.85	%
Total capital ratio		15.27	%		15.35	%		14.93	%
Tier 1 leverage ratio		9.82	%		11.08	%		10.78	%
Tangible common equity ratio ⁽⁵⁾		9.05	%		10.59	%		10.38	%

Merchants Bank of Commerce
Common equity tier 1 capital ratio		13.72	%		14.06	%		13.66	%
Tier 1 capital ratio		13.72	%		14.06	%		13.66	%
Total capital ratio		14.97	%		15.16	%		14.91	%
Tier 1 leverage ratio		10.21	%		11.61	%		11.45	%

⁽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, 2020, the Company had total consolidated assets of $1.712 billion, gross loans of $1.206 billion, allowance for loan and lease losses (“ALLL”) of $16 million, total deposits of $1.494 billion, and shareholders’ equity of $170 million.

TABLE 2

LOAN BALANCES BY TYPE - UNAUDITED

(dollars in thousands)

	At June 30,																		At March 31,
				% of						% of			Change									% of
	2020			Total			2019			Total			Amount			%			2020			Total
Commercial	$	126,024			10	%	$	152,303			15	%	$	(26,279	)		(17	%)	$	138,870			13	%
PPP		162,189			13			—			0			162,189			100	%		—			0
Real estate - construction and land development		41,371			3			37,685			4			3,686			10	%		34,394			3
Real estate - commercial non-owner occupied		521,004			44			468,706			45			52,298			11	%		514,052			49
Real estate - commercial owner occupied		215,799			18			210,711			21			5,088			2	%		217,319			21
Real estate - residential - ITIN		31,083			3			35,162			3			(4,079	)		(12	%)		31,998			3
Real estate - residential - 1-4 family mortgage		60,756			5			67,092			6			(6,336	)		(9	%)		62,533			6
Real estate - residential - equity lines		20,938			2			23,656			2			(2,718	)		(11	%)		23,158			2
Consumer and other		27,176			2			41,409			4			(14,233	)		(34	%)		29,921			3
Gross loans		1,206,340			100	%		1,036,724			100	%		169,616			16	%		1,052,245			100	%
Deferred fees and costs		(1,603	)					2,005						(3,608	)					2,129
Loans, net of deferred fees and costs		1,204,737						1,038,729						166,008						1,054,374
Allowance for loan and lease losses		(16,089	)					(12,445	)					(3,644	)					(15,067	)
Net loans	$	1,188,648					$	1,026,284					$	162,364					$	1,039,307

Average loans during the quarter	$	1,180,915					$	1,028,187					$	152,728			15	%	$	1,033,689
Average loans during the quarter (excluding PPP)	$	1,048,139					$	1,028,187					$	19,952			2	%	$	1,033,689
Average yield on loans during the quarter		4.50	%					5.01	%					(0.51	)		(10	%)		4.80	%
Average yield on all loans during the quarter (excluding PPP)		4.76	%					5.01	%					(0.25	)		(5	%)		4.80	%
Average yield on all loans during the year to date		4.64	%					4.96	%					(0.32	)		(6	%)		4.80	%
Average yield on all loans during the year to date (excluding PPP)		4.78	%					4.96	%					(0.18	)		(4	%)		4.80	%

The Company recorded gross loan balances of $1.206 billion at June 30, 2020, compared with $1.037 billion and $1.052 billion at June 30, 2019 and March 31, 2020, respectively, an increase of $170 million and $154 million, respectively.

The average yield on loans during the quarter was 4.50% compared to 5.01% and 4.80% for the quarters ended June 30, 2019 and March 31, 2020, respectively. Yields in the current quarter were negatively impacted by PPP loans which averaged $132.8 million and yielded 2.46%.

Gross loan balances in the table above include a net fair value discount for loans acquired from Merchants of $1.3 million, $1.5 million and $2.0 million at June 30, 2020, March 31, 2020 and June 30, 2019, respectively. We recorded $216 thousand, $163 thousand and $190 thousand in accretion of the discount for these loans during the quarters ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

We have funded 594 PPP loans totaling $162.2 million through June 30, 2020. Substantially all of the loans were made to existing customers and the loan proceeds were initially deposited with our institution. At origination, loan fee income net of loan origination costs totaled $4.3 million and is being earned over the 24 month duration of the loans as a part of the loan yield. At June 30, 2020 $3.8 million remains to be earned in future quarters. The following tables provide additional information on the PPP loans by industry and by loan balance at June 30, 2020.

TABLE 3
PPP LOANS BY INDUSTRY - UNAUDITED
(dollars in thousands)

	At June 30, 2020
	Balance
Construction	$	64,242
Healthcare and Social Assistance		17,530
Professional, Scientific and Tech Services		12,155
Accommodation and Food Services		10,328
Admin, Support, Waste Management and Remediation Services		7,372
Primary Metal Manufacturing		6,581
Retail Trade		8,033
Other		35,948
Total	$	162,189

TABLE 4
PPP LOANS BY LOAN SIZE - UNAUDITED
(dollars in thousands)

	At June 30, 2020
	Balance		Number		Average Loan Size
$150,000 or less	$	20,256		381	$	53
$150,001 to $350,000		25,234		109		232
$350,001 to $1,999,999		73,143		92		795
$2,000,000 or greater		43,556		12		3,630
Total	$	162,189		594	$	273

TABLE 5

CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED

(dollars in thousands)

	At June 30,																		At March 31,
				% of						% of			Change									% of
	2020			Total			2019			Total			Amount			%			2020			Total
Cash and due from banks	$	29,630			7	%	$	21,306			7	%	$	8,324			39	%	$	21,127			6	%
Interest-bearing deposits in other banks		126,132			29			19,319			6			106,813			553	%		22,813			7
Total cash and cash equivalents		155,762			36			40,625			13			115,137			283	%		43,940			13

Investment securities:
U.S. government and agencies		33,195			8			44,837			14			(11,642	)		(26	%)		36,043			11
Obligations of state and political subdivisions		76,888			18			45,003			14			31,885			71	%		63,263			19
Residential mortgage backed securities and collateralized mortgage obligations		137,120			30			168,085			50			(30,965	)		(18	%)		160,439			50
Corporate securities		1,000			0			2,978			1			(1,978	)		(66	%)		2,983			1
Commercial mortgage backed securities		16,329			4			24,868			8			(8,539	)		(34	%)		17,428			5
Other asset backed securities		15,668			4			48			—			15,620			32,542	%		4,921			1
Total investment securities - AFS		280,200			64			285,819			87			(5,619	)		(2	%)		285,077			87

Total cash, cash equivalents and investment securities	$	435,962			100	%	$	326,444			100	%	$	109,518			34	%	$	329,017			100	%
Average yield on interest-bearing due from banks during the quarter		0.12	%					2.47	%					(2.35	)					1.31	%
Average yield on investment securities during the quarter - nominal		2.61	%					2.86	%					(0.25	)					2.74	%
Average yield on investment securities during the quarter - tax equivalent		2.78	%					2.98	%					(0.20	)					2.84	%

As of June 30, 2020, we maintained noninterest-bearing cash positions of $29.6 million and interest-bearing deposits of $126.1 million at the Federal Reserve Bank and correspondent banks.

Investment securities totaled $280.2 million at June 30, 2020, compared with $285.8 million and $285.1 million at June 30, 2019 and March 31, 2020, respectively. During the second quarter of 2020, we continued to reposition a portion of the Bank’s investment securities portfolio to take advantage of longer durations and widening credit spreads on municipal securities. During the second quarter of 2020, we purchased securities with a par value of $32.4 million and weighted average yield of 2.13% (2.53% tax equivalent) and sold securities with a par value of $19.8 million and weighted average yield of 2.03%. The sales resulted in net realized gains of $140 thousand and $224 thousand for the quarter and six months ended June 30, 2020, respectively.

Average securities balances for the quarters ended June 30, 2020, March 31, 2020 and June 30, 2019 were $269.7 million, $272.3 million and $289.4 million, respectively. Weighted average yields on securities balances for those same periods were 2.61%, 2.74% and 2.86%, respectively.

At June 30, 2020, our net unrealized gains on available-for-sale investment securities were $10.1 million compared with net unrealized gains of $3.4 million and $8.4 million at June 30, 2019 and March 31, 2020, respectively. The changes in net unrealized gains on the investment securities portfolio were due to changes in market interest rates and do not reflect changes in credit quality.

TABLE 6

DEPOSITS BY TYPE - UNAUDITED

(dollars in thousands)

	At June 30,																At March 31,
			% of					% of			Change								% of
	2020		Total			2019		Total			Amount			%			2020		Total
Demand - noninterest-bearing	$	521,751		35	%	$	397,349		32	%	$	124,402			31	%	$	419,315		34	%
Demand - interest-bearing		287,198		19			238,175		19			49,023			21	%		231,276		19
Money market		405,322		27			300,847		24			104,475			35	%		314,687		25
Total demand		1,214,271		81			936,371		75			277,900			30	%		965,278		78

Savings		142,389		10			138,591		11			3,798			3	%		133,552		11
Total non-maturing deposits		1,356,660		91			1,074,962		86			281,698			26	%		1,098,830		89

Certificates of deposit		137,647		9			160,556		14			(22,909	)		(14	%)		143,557		11
Total deposits	$	1,494,307		100	%	$	1,235,518		100	%	$	258,789			21	%	$	1,242,387		100	%

Total deposits at June 30, 2020, increased $259 million or 21% to $1.494 billion compared to June 30, 2019 and increased $252 million or 82% annualized compared to March 31, 2020. Total non-maturing deposits increased $281.7 million or 26% compared to the same date a year ago and increased $257.8 million or 94% annualized compared to March 31, 2020. The increase in non-maturing deposits from March 31, 2020 to June 30, 2020 was due to PPP loan program disbursements and changes in customer behavior which is placing greater emphasis on increasing non-maturing deposit balances. Certificates of deposit decreased $22.9 million or 14% compared to the same date a year ago and decreased $5.9 million or 16% annualized compared to March 31, 2020. The decrease in certificates of deposits from March 31, 2020 to June 30, 2020 reflects our decision to reduce reliance on public deposits.

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,
	2020			2020			2019			2019			2019			2019			2018			2018
Interest-bearing deposits		0.43	%		0.53	%		0.56	%		0.56	%		0.54	%		0.49	%		0.45	%		0.42	%
Interest-bearing deposits and noninterest-bearing demand		0.28	%		0.35	%		0.38	%		0.38	%		0.37	%		0.34	%		0.31	%		0.29	%
All interest-bearing liabilities		0.52	%		0.65	%		0.68	%		0.68	%		0.74	%		0.67	%		0.61	%		0.64	%
All interest-bearing liabilities and noninterest-bearing demand		0.34	%		0.43	%		0.46	%		0.46	%		0.52	%		0.46	%		0.42	%		0.45	%

Stock Repurchase Program

We previously announced a program to repurchase 1.5 million common shares. Between October of 2019 and April of 2020 all 1.5 million shares were repurchased at a total cost of $13.6 million including commissions, or an average of $9.11 per share.

INCOME STATEMENT OVERVIEW

TABLE 8

SUMMARY INCOME STATEMENT - UNAUDITED

(dollars in thousands, except per share data)

	For The Three Months Ended
	June 30,				Change						March 31,		Change
	2020		2019		Amount			%			2020		Amount			%
Interest income	$	14,997	$	15,127	$	(130	)		(1	%)	$	14,345	$	652			5	%
Interest expense		1,214		1,632		(418	)		(26	%)		1,359		(145	)		(11	%)
Net interest income		13,783		13,495		288			2	%		12,986		797			6	%
Provision for loan and lease losses		1,300		—		1,300			100	%		2,850		(1,550	)		(54	%)
Noninterest income		955		1,100		(145	)		(13	%)		892		63			7	%
Noninterest expense		8,270		9,611		(1,341	)		(14	%)		9,783		(1,513	)		(15	%)
Income before provision for income taxes		5,168		4,984		184			4	%		1,245		3,923			315	%
Provision for income taxes		1,321		1,340		(19	)		(1	%)		329		992			302	%
Net income	$	3,847	$	3,644	$	203			6	%	$	916	$	2,931			320	%

Earnings per share - basic	$	0.23	$	0.20	$	0.03			15	%	$	0.05	$	0.18			360	%
Weighted average shares - basic		16,660		18,134		(1,474	)		(8	%)		17,695		(1,035	)		(6	%)
Earnings per share - diluted	$	0.23	$	0.20	$	0.03			15	%	$	0.05	$	0.18			360	%
Weighted average shares - diluted		16,689		18,194		(1,505	)		(8	%)		17,747		(1,058	)		(6	%)
Dividends declared per common share	$	0.05	$	0.05	$	—			—	%	$	0.05	$	—			—	%

Second Quarter of 2020 Compared With The Second Quarter of 2019

Net income for the second quarter of 2020 increased $203 thousand compared to the second quarter of 2019. In the current quarter, net interest income was $288 thousand higher, noninterest expense was $1.3 million lower and income taxes were $19 thousand lower. These changes were partially offset by a provision for loan and lease losses that was $1.3 million higher and noninterest income that was $145 thousand lower.

Net Interest Income

Net interest income increased $288 thousand compared to the same period a year ago.

Interest income for the second quarter of 2020 decreased $130 thousand or 1% to $15.0 million.

●

Interest and fees on loans increased $377 thousand due to a $152.7 million increase in average loan balances partially offset by a 51 basis point decrease in the average yield on the loan portfolio. Much of the 51 basis point decrease was caused by PPP loans which yielded only 2.46%. The yield on loans exclusive of PPP loans declined 25 basis points.

●	Interest on investment securities decreased $309 thousand due to a $19.7 million decrease in average securities balances and a 24 basis point decrease in average yield on the securities portfolio.

●	Interest on interest-bearing deposits due from banks decreased $198 thousand due to a 235 basis point decrease in average yield that was partially offset by a $36.9 million increase in average interest-bearing deposit balances.

Interest expense for the second quarter of 2020 decreased $418 thousand or 26% to $1.2 million.

●

Interest expense on interest-bearing deposits decreased $165 thousand. Average interest-bearing demand and savings deposit balances increased $91.3 million, while average certificate of deposit balances decreased $21.1 million. The average rate paid on interest-bearing deposits decreased 11 basis points.

●	Interest expense on FHLB borrowings decreased $187 thousand. Average FHLB borrowings were $16.0 million in the current quarter compared to $30.0 million for the same period a year ago. The average rate paid on FHLB borrowings decreased 244 basis points.

●	Interest expense on other term debt decreased $17 thousand. During the second quarter of 2019, we completed the early repayment of our variable rate senior debt.

●	Interest expense on junior subordinated debentures decreased $49 thousand. The average rate paid on junior subordinated debentures decreased 190 basis points.

Provision for Loan and Lease Losses

Net loan loss charge-offs were $278 thousand for the current quarter compared to net loan recoveries of $203 thousand for the same period a year ago. As illustrated in Table 10 asset quality metrics are improved for the three months ended June 30, 2020 when compared to the same period a year ago. We recognize the deteriorating credit environment due to the economic effects of COVID-19 and have made changes to our qualitative factors (Q-Factors) in calculating our ALLL. As a result, we recorded a provision for loan and lease losses of $1.3 million for the second quarter of 2020. There was no provision for loan and lease losses in the second quarter of 2019. A discussion of our provision is provided following Table 10.

Noninterest Income

Noninterest income for the three months ended June 30, 2020 decreased $145 thousand including an $88 thousand decrease in Federal Home Loan Bank of San Francisco dividends.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2020 decreased $1.3 million compared to the same period a year previous. Decreases in noninterest expense included the following items:

●	$697 thousand deferred loan origination cost benefit in the second quarter of 2020 as a result of loans originated under the PPP.

●	$840 thousand in non-recurring costs recorded during the second quarter of 2019 associated acquisition of Merchants and the name change of our subsidiary bank.

The Company’s efficiency ratio was 56.1% for the second quarter of 2020. The ratio during the same period in 2019 was 65.9% (60.1% excluding $840 thousand of non-recurring costs).

Income Tax Provision

For the three months ended June 30, 2020, our income tax provision of $1.3 million on pre-tax income of $5.2 million was an effective tax rate of 25.6%. The tax provision for the second quarter of the prior year was $1.3 million on pre-tax income of $5.0 million for an effective rate of 26.9%. The 2019 tax rate reflects the non-deductibility of certain acquisition-related expenses.

Second Quarter of 2020 Compared With The First Quarter of 2020

Net income for the second quarter of 2020 increased $2.9 million compared to the first quarter of 2020. In the current quarter, net interest income was $797 thousand higher, provision for loan and lease losses was $1.6 million lower, noninterest income was $63 thousand higher and noninterest expense was $1.5 million lower. These changes were partially offset by a provision for income taxes that was $ 992 thousand higher.

Net Interest Income

Net interest income increased $797 thousand over the prior quarter.

Interest income for the three months ended June 30, 2020 increased $652 thousand or 5% to $15.0 million.

●

Interest and fees on loans increased $886 thousand due to a $147.2 million increase in average loan balances partially offset by a 30 basis point decrease in the average yield on the loan portfolio. Much of the 30 basis point decrease was caused by PPP loans which yielded only 2.46%. The yield on loans exclusive of PPP loans declined only 4 basis points.

●	Interest on investment securities decreased $101 thousand due to a 12 basis point decrease in average yield on the investment portfolio and a $2.5 million decrease in average securities balances.

●	Interest on interest-bearing deposits due from banks decreased $133 thousand due to a 120 basis point decrease in the average yield on interest-bearing deposits due from banks partially offset by a $25.4 million increase in average balances.

Interest expense for the three months ended June 30, 2020 decreased $145 thousand or 11% to $1.2 million.

●

Interest expense on interest-bearing deposits decreased $121 thousand. Average interest-bearing demand and savings deposit balances increased $89.3 million, while average certificates of deposit decreased $4.3 million. The average rate paid on interest-bearing deposits decreased by ten basis points.

●

Interest expense on FHLB borrowings increased to $5 thousand. Average FHLB borrowings were $16.0 million in the current quarter compared to $220 thousand in the prior quarter. During the second quarter, we took an advance under our FHLB line of credit for $10.0 million at 0% interest with $5.0 million due in 6 months and $5.0 million due in one year. The average rate paid on FHLB borrowings was 0.13% during the second quarter of 2020.

●	Interest expense on other term debt was unchanged at $184 thousand for both quarters.

●	Interest expense on other junior subordinated debentures decreased $29 thousand due to a 113 basis point decrease in the average rate paid.

Provision for Loan and Lease Losses

Net loan charge-offs were $278 thousand in the current quarter compared to $14 thousand in the prior quarter. As illustrated in Table 10 total nonaccrual loans increased by $1.4 million during the three months ended June 30, 2020 when compared to the previous quarter. The increase was primarily due to one commercial real estate loan that was moved to nonaccrual status during the quarter. We recorded a provision for loan and lease losses of $2.9 million and $1.3 million for the first and second quarters of 2020, respectively. A discussion of our provision is provided following Table 10.

Noninterest Income

Noninterest income for the three months ended June 30, 2020 increased $63 thousand and was not concentrated in any one item.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2020 decreased $1.5 million compared to the prior quarter. Decreases in noninterest expense included:

●	$748 thousand deferred loan origination cost benefit as a result of loans originated under the PPP during the current quarter.

●	$700 thousand in non-recurring costs related to the termination of a technology management services contract in the prior quarter.

●	$414 thousand non-recurring costs related to a previously disclosed severance agreement in the prior quarter.

The Company’s efficiency ratio was 56.1% for the second quarter of 2020 compared with 70.5% for the prior quarter (62.5% excluding $1.1 million in non-recurring costs.).

Income Tax Provision

For the three months ended June 30, 2020, our income tax provision of $1.3 million on pre-tax income of $5.2 million was an effective tax rate of 25.6%. The income tax provision for the prior quarter of $329 thousand on pre-tax income of $1.2 million was an effective tax rate of 26.4%.

Earnings Per Share

Diluted earnings per share were $0.23 for the three months ended June 30, 2020 compared with diluted earnings per share of $0.20 for the same period a year ago and diluted earnings per share of $0.05 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

(dollars in thousands)

	For The Three Months Ended
	June 30, 2020							June 30, 2019							March 31, 2020
	Average				Yield /			Average				Yield /			Average				Yield /
	Balance		Interest⁽¹⁾		Rate ⁽⁵⁾			Balance		Interest⁽¹⁾		Rate ⁽⁵⁾			Balance		Interest⁽¹⁾		Rate ⁽⁵⁾
Interest-earning assets:
Loans net of PPP ⁽²⁾	$	1,048,139	$	12,411		4.76	%	$	1,028,187	$	12,847		5.01	%	$	1,033,689	$	12,338		4.80	%
PPP loans		132,776		813		2.46	%		—		—		—	%		—		—		—	%
Taxable securities		211,195		1,329		2.53	%		249,907		1,733		2.78	%		237,405		1,582		2.68	%
Tax-exempt securities ⁽³⁾		58,540		423		2.91	%		39,501		328		3.33	%		34,869		271		3.13	%
Interest-bearing deposits in other banks		72,507		21		0.12	%		35,605		219		2.47	%		47,135		154		1.31	%
Average interest-earning assets		1,523,157		14,997		3.96	%		1,353,200		15,127		4.48	%		1,353,098		14,345		4.26	%
Cash and due from banks		21,564							21,942							21,987
Premises and equipment, net		15,428							15,819							15,753
Goodwill		11,671							11,720							11,671
Other intangible assets, net		4,508							5,275							4,701
Other assets		50,499							42,769							46,809
Average total assets	$	1,626,827						$	1,450,725						$	1,454,019

Interest-bearing liabilities:
Interest-bearing demand	$	261,907		85		0.13	%	$	238,840		129		0.22	%	$	233,375		100		0.17	%
Money market		365,368		317		0.35	%		296,326		380		0.51	%		307,587		403		0.53	%
Savings		138,500		95		0.28	%		139,307		123		0.35	%		135,504		118		0.35	%
Certificates of deposit		142,955		467		1.31	%		164,084		497		1.21	%		147,241		464		1.27	%
Federal Home Loan Bank of San Francisco borrowings		16,044		5		0.13	%		30,000		192		2.57	%		220		—		0.21	%
Other borrowings net of unamortized debt issuance costs		9,976		184		7.42	%		10,841		201		7.44	%		9,963		184		7.43	%
Junior subordinated debentures		10,310		61		2.38	%		10,310		110		4.28	%		10,310		90		3.51	%
Average interest-bearing liabilities		945,060		1,214		0.52	%		889,708		1,632		0.74	%		844,200		1,359		0.65	%
Noninterest-bearing demand		497,636							379,173							420,847
Other liabilities		17,095							18,246							16,852
Shareholders’ equity		167,036							163,598							172,120
Average liabilities and shareholders’ equity	$	1,626,827						$	1,450,725						$	1,454,019
Net interest income and net interest margin⁽⁴⁾			$	13,783		3.64	%			$	13,495		4.00	%			$	12,986		3.86	%

⁽¹⁾ Interest income on loans includes deferred fees and costs of approximately $138 thousand, $91 thousand, and $257 thousand for the three months ended June 30, 2020 and 2019 and March 31, 2020, respectively. Interest income on PPP loans includes $476 thousand of fee income for the three months ended June 30, 2020.

⁽²⁾ Loans net of PPP includes average nonaccrual loans of $5.6 million, $13.7 million and $5.5 million for the three months ended June 30, 2020 and 2019 and March 31, 2020, 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 June 30, 2020 and 2019 and March 31, 2020 included $216 thousand, $190 thousand and $163 thousand in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by 7, 7 and 6 basis points, respectively. Net interest income for the three months ended June 30, 2020 included $813 thousand in interest and fee income from PPP loans with an average balance of $132.8 million for the quarter which decreased the net interest margin by11 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 9b

NET INTEREST MARGIN - UNAUDITED

(dollars in thousands)

	For The Six Months Ended
	June 30, 2020							June 30, 2019
	Average				Yield /			Average				Yield /
	Balance		Interest⁽¹⁾		Rate ⁽⁵⁾			Balance		Interest⁽¹⁾		Rate ⁽⁵⁾
Interest-earning assets:
Loans net of PPP ⁽²⁾	$	1,040,914	$	24,749		4.78	%	$	1,010,821	$	24,878		4.96	%
PPP loans		66,388		813		2.46	%		—		—		—	%
Taxable securities		224,300		2,911		2.61	%		251,479		3,497		2.80	%
Tax-exempt securities ⁽³⁾		46,705		694		2.99	%		44,947		715		3.21	%
Interest-bearing deposits in other banks		59,820		175		0.59	%		37,930		464		2.47	%
Average interest-earning assets		1,438,127		29,342		4.10	%		1,345,177		29,554		4.43	%
Cash and due from banks		21,775							21,640
Premises and equipment, net		15,591							15,203
Goodwill		11,671							9,822
Other intangible assets, net		4,604							4,625
Other assets		48,655							41,894
Average total assets	$	1,540,423						$	1,438,361

Interest-bearing liabilities:
Interest-bearing demand	$	247,641		185		0.15	%	$	241,095		255		0.21	%
Money market		336,477		720		0.43	%		294,869		669		0.46	%
Savings		137,002		213		0.31	%		135,217		234		0.35	%
Certificates of deposit		145,098		931		1.29	%		165,764		987		1.20	%
Federal Home Loan Bank of San Francisco borrowings		8,132		5		0.12	%		19,448		247		2.56	%
Other borrowings net of unamortized debt issuance costs		9,970		368		7.42	%		11,859		440		7.48	%
Junior subordinated debentures		10,310		151		2.95	%		10,310		223		4.36	%
Average interest-bearing liabilities		894,630		2,573		0.58	%		878,562		3,055		0.70	%
Noninterest-bearing demand		459,241							383,766
Other liabilities		16,974							17,851
Shareholders’ equity		169,578							158,182
Average liabilities and shareholders’ equity	$	1,540,423						$	1,438,361
Net interest income and net interest margin⁽⁴⁾			$	26,769		3.74	%			$	26,499		3.97	%

⁽¹⁾ Interest income on loans includes deferred fees and costs of approximately $395 thousand and $272 thousand for the six months ended June 30, 2020 and 2019, respectively. Interest income on PPP loans includes $476 thousand of fee income for the three months ended June 30, 2020.

⁽²⁾ Loans net of PPP includes average nonaccrual loans of $5.5 million and $11.1 million for the six months ended June 30, 2020 and 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 six months ended June 30, 2020 and 2019 included $379 thousand and $238 thousand in accretion of the discount on the loans acquired from Merchants Holding Company, which improved the net interest margin by 7 and 4 basis points, respectively. Net interest income for the six months ended June 30, 2020 included $813 thousand in interest and fee income from PPP loans with an average balance of $66.4 million for the six months ended June 30, 2020 which decreased 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 10

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

(dollars in thousands)

	For The Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2020			2020			2019			2019			2019
Beginning balance ALLL	$	15,067		$	12,231		$	12,285		$	12,445		$	12,242
Provision for loan and lease losses		1,300			2,850			—			—			—
Loans charged-off		(356	)		(169	)		(174	)		(319	)		(659	)
Loan loss recoveries		78			155			120			159			862
Ending balance ALLL	$	16,089		$	15,067		$	12,231		$	12,285		$	12,445

	At June 30,			At March 31,			At December 31,			At September 30,			At June 30,
	2020			2020			2019			2019			2019
Nonaccrual loans:
Commercial	$	7		$	39		$	61		$	139		$	194
Real estate - commercial non-owner occupied		1,062			—			—			10,099			10,690
Real estate - commercial owner occupied		3,647			3,103			3,103			—			—
Real estate - residential - ITIN		1,738			1,878			2,221			2,339			2,389
Real estate - residential - 1-4 family mortgage		180			184			191			198			217
Consumer and other		37			39			40			21			22
Total nonaccrual loans		6,671			5,243			5,616			12,796			13,512
Accruing troubled debt restructured loans:
Commercial		592			592			595			629			1,092
Real estate - commercial non-owner occupied		—			—			—			—			791
Real estate - residential - ITIN		3,642			3,891			3,957			4,072			4,300
Real estate - residential - equity lines		221			226			231			236			242
Total accruing troubled debt restructured loans		4,455			4,709			4,783			4,937			6,425

All other accruing impaired loans		—			—			—			—			—

Total impaired loans	$	11,126		$	9,952		$	10,399		$	17,733		$	19,937

Gross loans outstanding at period end	$	1,206,340		$	1,052,245		$	1,032,903		$	1,033,082		$	1,036,724

Impaired loans to gross loans		0.92	%		0.95	%		1.01	%		1.72	%		1.92	%
Nonaccrual loans to gross loans		0.55	%		0.50	%		0.54	%		1.24	%		1.30	%

Allowance for loan and lease losses as a percent of:
Gross loans		1.33	%		1.43	%		1.18	%		1.19	%		1.20	%
Nonaccrual loans		241.18	%		287.37	%		217.79	%		96.01	%		92.10	%
Impaired loans		144.61	%		151.40	%		117.62	%		69.28	%		62.42	%

TABLE 11

ALLOWANCE, RESERVE AND DISCOUNT - UNAUDITED

(dollars in thousands)

	At June 30,			At March 31,			At December 31,			At September 30,			At June 30,
	2020			2020			2019			2019			2019
ALLL	$	16,089		$	15,067		$	12,231		$	12,285		$	12,445
Reserve for unfunded commitments		800			695			695			695			695
Discount on acquired loans ⁽¹⁾		1,293			1,509			1,672			1,860			2,053
Total allowance, reserve and discount	$	18,182		$	17,271		$	14,598		$	14,840		$	15,193

Gross loans	$	1,206,340		$	1,052,245		$	1,032,903		$	1,033,082		$	1,036,724
PPP loans		162,189			—			—			—			—
Total gross loans net of PPP loans	$	1,044,151		$	1,052,245		$	1,032,903		$	1,033,082		$	1,036,724

Total allowance, reserve and discount as a percentage of total gross loans net of PPP loans		1.74	%		1.64	%		1.41	%		1.44	%		1.47	%

⁽¹⁾ Discount on acquired loans includes fair value discount for loans acquired from Merchants in January of 2019.

COVID‐19 Loan Analysis

During the second quarter of 2020, we worked to proactively monitor our loan portfolio by contacting many of our borrowers to evaluate the impact of the pandemic on them, their businesses and the underlying collateral for our loans. For borrowers who received a loan payment deferral we are working with the borrowers to evaluate the potential for further deterioration of credit quality at the end of the deferral period.

We evaluated our commercial loan and commercial real estate loan portfolios (86% of gross loans excluding PPP loans) to identify those loans in industries that are most at risk or where other information indicates the borrower may be significantly impacted by the effects of COVID-19. The following table presents loans by industry that are most at risk or where other information indicates the loan or borrower may be highly impacted by COVID-19 and the related loan modifications. The table below includes $10.1 million and $22.4 million of SBA 7(a) (generally 75% guaranteed) loans in the high risk and low to moderate risk categories, respectively.

TABLE 12

COVID-19 LOAN ANALYSIS - UNAUDITED

(dollars in thousands)

	At June 30, 2020
	Individually Analyzed Loans With a COVID-19 Risk Of										Loan Modifications
					Low and										Low and
	High				Moderate		PPP		Total		High				Moderate
	#		Amount		Amount		Amount		Amount		#		Amount		#		Amount
CRE and C&I
Industries highly impacted by COVID-19:
Retail trade		13	$	13,716	$	25,555	$	8,033	$	47,304		4	$	3,838		6	$	4,156
Health care and social assistance		47		14,650		12,305		17,530		44,485		14		7,281		8		4,741
Hotels, motels and bed-and-breakfast inns		17		34,790		—		1,402		36,192		12		29,466		—		—
Other services		7		6,438		18,492		2,874		27,804		3		4,972		5		2,737
Restaurants, bars and caterers		20		10,951		—		6,370		17,321		10		7,587		—		—
Educational services		3		6,796		—		2,693		9,489		—		—		—		—
Arts, entertainment and recreation		21		4,362		—		4,573		8,935		11		2,989		—		—
Other industries		23		18,853		733,732		118,714		871,299		11		12,698		43		37,801
Residential, Consumer and All Other not individually analyzed		—		—		143,511		—		143,511		—		—		117		5,007
Total		151	$	110,556	$	933,595	$	162,189	$	1,206,340		65	$	68,831		179	$	54,442

Provision for Loan and Lease Losses

We monitor credit quality and the general economic environment to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. Our review of ALLL adequacy utilizes both quantitative and qualitative factors. The quantitative analysis relies on historical loss rates which, unfortunately, are not indicative of potential losses related to a pandemic such as we are currently experiencing with COVID-19. In response to quantitative data deficiencies, we have placed greater reliance on qualitative factors (Q-Factors).

At June 30, 2020, our review of the adequacy of our allowance for loan and lease losses (ALLL) focused on our Q-Factor for “changes in the volume and severity of past due loans and other similar conditions”. We considered concentrations of credit in industries that are more likely to be significantly impacted by the effects of COVID-19. We evaluated our C&I portfolio by NAICS code and our CRE portfolio for concentrations of tenants and businesses in higher risk industries or for loans with higher LTVs. We also completed analyses on individual borrowers who may be higher risk. After completing this work, we significantly increased our Q-Factor for “changes in the volume and severity of past due loans and other similar conditions”. Our ALLL methodology, adjusted for the revised Q-Factor discussed above necessitated an ALLL of $16.1 million at June 30, 2020, an increase of 32% compared to our ALLL of $12.2 million at December 31, 2019. A provision for loan and lease losses of $1.3 million was recorded during the current quarter compared to $2.9 million in the prior quarter. There was no provision for loan and lease loss during the same quarter a year ago. Our ALLL as a percentage of gross loans was 1.33% as of June 30, 2020 compared to 1.20% as of June 30, 2019 and 1.43% as of March 31, 2020. Excluding PPP loans our ALLL as a percentage of gross loans was 1.54% as of June 30, 2020.

Management believes the Company’s ALLL is adequate at June 30, 2020. 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, 2020, the recorded investment in loans classified as impaired totaled $11.1 million, with a corresponding specific reserve of $270 thousand compared to impaired loans of $19.9 million with a corresponding specific reserve of $727 thousand at June 30, 2019 and impaired loans of $10.0 million, with a corresponding specific reserve of $318 thousand at March 31, 2020. The increase in impaired loans during the current quarter was due to one commercial real estate loan for $1.1 million which was placed on nonaccrual status during the second quarter of 2020.

TABLE 13

TROUBLED DEBT RESTRUCTURINGS - UNAUDITED

(dollars in thousands)

	At June 30,			At March 31,			At December 31,			At September 30,			At June 30,
	2020			2020			2019			2019			2019
Nonaccrual	$	2,194		$	1,611		$	1,680		$	1,746		$	1,828
Accruing		4,455			4,709			4,783			4,937			6,425
Total troubled debt restructurings	$	6,649		$	6,320		$	6,463		$	6,683		$	8,253

Troubled debt restructurings as a percentage of total gross loans		0.55	%		0.60	%		0.63	%		0.65	%		0.80	%

There was one new troubled debt restructuring of a $654 thousand commercial real estate loan during the three months ended June 30, 2020. The borrower was impacted by COVID-19 but the loan did not qualify under the new troubled debt restructuring guidance issued by the financial institution regulators or under the CARES act. As of June 30, 2020, we had 97 restructured loans that qualified as troubled debt restructurings, of which 95 were performing according to their restructured terms.

Troubled Debt Restructuring Guidance

Financial institution regulators and the CARES Act have changed the treatment of short term loan modifications for borrowers impacted by COVID-19. The change provides that modifications made in response to COVID-19, to borrowers under certain circumstances, should not be considered a troubled debt restructuring.

We have responded to the needs of our borrowers in accordance with the CARES Act and regulatory guidance to grant short term COVID-19 related loan modifications. Deferral periods are either 3 or 6 months determined on a case-by-case basis considering the nature of the business and the impact of COVID-19. The following table presents approved loan modification requests at June 30, 2020, only one of which meet the definition of a troubled debt restructuring. For the loans that were modified, 26 borrowers also received a PPP loan through our SBA department. The table also includes 59 consumer loan modifications on loans totaling $525 thousand and 51 residential real estate loan modifications totaling $3.5 million which are serviced by third parties as part of our purchased loan portfolios.

TABLE 14

COVID-19 LOAN MODIFICATIONS - UNAUDITED

(dollars in thousands)

	At June 30, 2020
			Commercial		Residential
	Commercial		Real Estate		Real Estate		Consumer		Total
Approved	$	14,033	$	102,061	$	6,623	$	556	$	123,273
Total	$	14,033	$	102,061	$	6,623	$	556	$	123,273

Number of contracts approved		44		81		58		61		244
Total		44		81		58		61		244

The following table presents nonperforming assets at the dates indicated.

TABLE 15

NONPERFORMING ASSETS - UNAUDITED

(dollars in thousands)

	At June 30,			At March 31,			At December 31,			At September 30,			At June 30,
	2020			2020			2019			2019			2019
Total nonaccrual loans	$	6,671		$	5,243		$	5,616		$	12,796		$	13,512
90 days past due and still accruing		—			2			—			—			—
Total nonperforming loans		6,671			5,245			5,616			12,796			13,512

Other real estate owned ("OREO")		8			8			35			58			—
Total nonperforming assets	$	6,679		$	5,253		$	5,651		$	12,854		$	13,512

Nonperforming loans to gross loans		0.55	%		0.50	%		0.54	%		1.24	%		1.30	%
Nonperforming assets to total assets		0.39	%		0.36	%		0.38	%		0.87	%		0.94	%

The following table summarizes when loans are projected to reprice by year and rate index as of June 30, 2020.

TABLE 16

LOANS BY RATE INDEX AND PROJECTED REPAYMENT - UNAUDITED

(dollars in thousands)

	At June 30, 2020
											Years 6
											Through		Beyond
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 10		Year 10		Total
Rate Index:
Fixed	$	54,472	$	216,930	$	68,744	$	39,618	$	32,010	$	177,452	$	30,599	$	619,825
Variable:
Prime		80,588		6,026		7,379		7,416		8,321		1,264		—		110,994
5 Year Treasury		28,754		68,980		87,110		65,206		86,679		50,943		—		387,672
7 Year Treasury		643		3,221		4,798		5,661		365		13,648		—		28,336
1 Year LIBOR		22,373		—		—		—		—		—		—		22,373
Other Indexes		4,821		1,569		1,156		550		9,682		10,390		698		28,866
Nonaccrual		1,645		557		545		523		499		2,085		817		6,671
Total	$	193,296	$	297,283	$	169,732	$	118,974	$	137,556	$	255,782	$	32,114	$	1,204,737

For variable rate loans, the following table summarizes those that are at or above their floor rate, and those that do not possess a contractual floor rate.

TABLE 17
LOAN FLOORS - UNAUDITED
(dollars in thousands)

	At June 30, 2020
	Loans At		Loans Above
	Floor Rate		Floor Rate		Total
Variable rate loans with floors:
Prime	$	58,041	$	5,532	$	63,573
5 year Treasury		309,033		48,569		357,602
7 Year Treasury		28,336		—		28,336
1 Year LIBOR		—		734		734
Other Indexes		15,137		1,274		16,411
	$	410,547	$	56,109		466,656

Variable rate loans without floors:
Prime						47,421
5 year Treasury						30,070
1 Year LIBOR						21,639
Other Indexes						12,455
						111,585
Total variable rate loans					$	578,241

TABLE 18

UNAUDITED CONSOLIDATED

BALANCE SHEET

(dollars in thousands, except per share data)

	At June 30,						Change						At March 31,
	2020			2019			$			%			2020
Assets:
Cash and due from banks	$	29,630		$	21,306		$	8,324			39	%	$	21,127
Interest-bearing deposits in other banks		126,132			19,319			106,813			553	%		22,813
Total cash and cash equivalents		155,762			40,625			115,137			283	%		43,940

Securities available-for-sale, at fair value		280,200			285,819			(5,619	)		(2	%)		285,077
Loans, net of deferred fees and costs		1,204,737			1,038,729			166,008			16	%		1,054,374
Allowance for loan and lease losses		(16,089	)		(12,445	)		(3,644	)		(29	%)		(15,067	)
Net loans		1,188,648			1,026,284			162,364			16	%		1,039,307

Premises and equipment, net		15,466			15,836			(370	)		(2	%)		15,452
Other real estate owned		8			—			8			—	%		8
Life insurance		23,968			23,449			519			2	%		23,824
Deferred tax asset, net		2,645			4,791			(2,146	)		(45	%)		3,149
Goodwill		11,671			11,708			(37	)		—	%		11,671
Other intangible assets, net		4,426			5,192			(766	)		(15	%)		4,618
Other assets		29,102			28,282			820			3	%		28,834
Total assets	$	1,711,896		$	1,441,986		$	269,910			19	%	$	1,455,880

Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	521,751		$	397,349		$	124,402			31	%	$	419,315
Demand - interest-bearing		287,198			238,175			49,023			21	%		231,276
Money market		405,322			300,847			104,475			35	%		314,687
Savings		142,389			138,591			3,798			3	%		133,552
Certificates of deposit		137,647			160,556			(22,909	)		(14	%)		143,557
Total deposits		1,494,307			1,235,518			258,789			21	%		1,242,387

Term debt:
Federal Home Loan Bank of San Francisco borrowings		10,000			—			10,000			100	%		10,000
Other borrowings		10,000			10,000			—			—	%		10,000
Unamortized debt issuance costs		(19	)		(67	)		48			72	%		(31	)
Net term debt		19,981			9,933			10,048			101	%		19,969

Junior subordinated debentures		10,310			10,310			—			—	%		10,310
Other liabilities		17,743			18,372			(629	)		(3	%)		17,556
Total liabilities		1,542,341			1,274,133			268,208			21	%		1,290,222

Shareholders' equity:
Common stock		58,749			72,087			(13,338	)		(19	%)		59,067
Retained earnings		103,658			93,363			10,295			11	%		100,644
Accumulated other comprehensive income, net of tax		7,148			2,403			4,745			197	%		5,947
Total shareholders' equity		169,555			167,853			1,702			1	%		165,658

Total liabilities and shareholders' equity	$	1,711,896		$	1,441,986		$	269,910			19	%	$	1,455,880

Total interest-earning assets	$	1,600,922		$	1,340,456		$	260,466			19	%	$	1,353,822
Shares outstanding		16,739			18,214			(1,475	)		(8	%)		16,796
Book value per share ⁽¹⁾	$	10.13		$	9.22		$	0.91			10	%	$	9.86
Tangible book value per share ⁽¹⁾	$	9.17		$	8.29		$	0.88			11	%	$	8.89
					9

⁽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 19

UNAUDITED

INCOME STATEMENT

(dollars in thousands, except per share data)

	For The Three Months Ended													For The Six Months Ended
	June 30,				Change						March 31,			June 30,
	2020		2019		$			%			2020			2020			2019
Interest income:
Interest and fees on loans	$	13,224	$	12,847	$	377			3	%	$	12,338		$	25,562		$	24,878
Interest on taxable securities		1,329		1,733		(404	)		(23	%)		1,582			2,911			3,497
Interest on tax-exempt securities		423		328		95			29	%		271			694			715
Interest on interest-bearing deposits in other banks		21		219		(198	)		(90	%)		154			175			464
Total interest income		14,997		15,127		(130	)		(1	%)		14,345			29,342			29,554
Interest expense:
Interest on demand deposits		85		129		(44	)		(34	%)		100			185			255
Interest on money market		317		380		(63	)		(17	%)		403			720			669
Interest on savings		95		123		(28	)		(23	%)		118			213			234
Interest on certificates of deposit		467		497		(30	)		(6	%)		464			931			987
Interest on Federal Home Loan Bank of San Francisco borrowings		5		192		(187	)		(97	%)		—			5			247
Interest on other borrowings		184		201		(17	)		(8	%)		184			368			440
Interest on junior subordinated debentures		61		110		(49	)		(45	%)		90			151			223
Total interest expense		1,214		1,632		(418	)		(26	%)		1,359			2,573			3,055
Net interest income		13,783		13,495		288			2	%		12,986			26,769			26,499
Provision for loan and lease losses		1,300		—		1,300			100	%		2,850			4,150			—
Net interest income after provision for loan and lease losses		12,483		13,495		(1,012	)		(7	%)		10,136			22,619			26,499
Noninterest income:
Service charges on deposit accounts		152		187		(35	)		(19	%)		169			321			355
ATM and point of sale fees		263		318		(55	)		(17	%)		268			531			583
Payroll and benefit processing fees		143		157		(14	)		(9	%)		170			313			328
Life insurance		148		155		(7	)		(5	%)		123			271			284
Gain on investment securities, net		140		33		107			324	%		84			224			125
Federal Home Loan Bank of San Francisco dividends		36		124		(88	)		(71	%)		130			166			245
Gain (loss) on sale of OREO		—		18		(18	)		(100	%)		(23	)		(23	)		41
Other income (loss)		73		108		(35	)		(32	%)		(29	)		44			196
Total noninterest income		955		1,100		(145	)		(13	%)		892			1,847			2,157

TABLE 19 - CONTINUED

UNAUDITED

INCOME STATEMENT

(dollars in thousands, except per share data)

	For The Three Months Ended												For The Six Months Ended
	June 30,				Change						March 31,		June 30,
	2020		2019		$			%			2020		2020		2019
Noninterest expense:
Salaries and related benefits		4,965		5,146		(181	)		(4	%)		5,887		10,852		10,875
Premises and equipment		826		928		(102	)		(11	%)		854		1,680		1,903
Federal Deposit Insurance Corporation insurance premium		90		95		(5	)		(5	%)		36		126		195
Data processing		585		638		(53	)		(8	%)		531		1,116		1,214
Professional services		469		535		(66	)		(12	%)		334		803		838
Telecommunications		156		180		(24	)		(13	%)		171		327		353
Acquisition and merger		—		376		(376	)		(100	%)		—		—		2,306
Other expenses		1,179		1,713		(534	)		(31	%)		1,970		3,149		2,850
Total noninterest expense		8,270		9,611		(1,341	)		(14	%)		9,783		18,053		20,534
Income before provision for income taxes		5,168		4,984		184			4	%		1,245		6,413		8,122
Provision for income taxes		1,321		1,340		(19	)		(1	%)		329		1,650		2,172
Net income	$	3,847	$	3,644	$	203			6	%	$	916	$	4,763	$	5,950

Earnings per share - basic	$	0.23	$	0.20	$	0.03			15	%	$	0.05	$	0.28	$	0.33
Weighted average shares - basic		16,660		18,134		(1,474	)		(8	%)		17,695		17,178		17,816
Earnings per share - diluted	$	0.23	$	0.20	$	0.03			15	%	$	0.05	$	0.28	$	0.33
Weighted average shares - diluted		16,689		18,194		(1,505	)		(8	%)		17,747		17,217		17,878

TABLE 20

UNAUDITED CONDENSED CONSOLIDATED

QUARTERLY AVERAGE BALANCE SHEETS

(dollars in thousands)

	For The Three Months Ended
	June 30,		March 31,		December 31,		September 30,		June 30,
	2020		2020		2019		2019		2019
Earning assets:
Loans	$	1,180,915	$	1,033,689	$	1,031,702	$	1,029,534	$	1,028,187
Taxable securities		211,195		237,405		245,487		238,601		249,907
Tax-exempt securities		58,540		34,869		32,158		32,974		39,501
Interest-bearing deposits in other banks		72,507		47,135		81,099		58,897		35,605
Total earning assets		1,523,157		1,353,098		1,390,446		1,360,006		1,353,200

Cash and due from banks		21,564		21,987		24,083		23,822		21,942
Premises and equipment, net		15,428		15,753		16,049		15,922		15,819
Goodwill		11,671		11,671		11,671		11,686		11,720
Other intangible assets, net		4,508		4,701		4,890		5,083		5,275
Other assets		50,499		46,809		45,504		45,925		42,769
Total assets	$	1,626,827	$	1,454,019	$	1,492,643	$	1,462,444	$	1,450,725

Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	497,636	$	420,847	$	428,420	$	405,853	$	379,173
Demand - interest-bearing		261,907		233,375		244,276		243,553		238,840
Money market		365,368		307,587		318,127		309,188		296,326
Savings		138,500		135,504		138,155		138,296		139,307
Certificates of deposit		142,955		147,241		153,223		157,620		164,084
Total deposits		1,406,366		1,244,554		1,282,201		1,254,510		1,217,730

Federal Home Loan Bank of San Francisco borrowings		16,044		220		—		—		30,000
Other borrowings net of unamortized debt issuance costs		9,976		9,963		9,952		9,942		10,841
Junior subordinated debentures		10,310		10,310		10,310		10,310		10,310
Other liabilities		17,095		16,852		17,795		18,074		18,246
Total liabilities		1,459,791		1,281,899		1,320,258		1,292,836		1,287,127

Shareholders' equity		167,036		172,120		172,385		169,608		163,598
Liabilities & shareholders' equity	$	1,626,827	$	1,454,019	$	1,492,643	$	1,462,444	$	1,450,725

TABLE 21

UNAUDITED CONDENSED CONSOLIDATED

YEAR TO DATE AVERAGE BALANCE SHEETS

(dollars in thousands)

	For the Six Months Ended				For the Twelve Months Ended
	June 30,		June 30,		December 31,		December 31,		December 31,
	2020		2019		2019		2018		2017
Earning assets:
Loans	$	1,107,302	$	1,010,821	$	1,020,801	$	915,360	$	818,119
Taxable securities		224,300		251,479		246,723		207,407		165,333
Tax-exempt securities		46,705		44,947		38,706		50,330		74,231
Interest-bearing deposits in other banks		59,820		37,930		54,095		47,038		66,872
Total earning assets		1,438,127		1,345,177		1,360,325		1,220,135		1,124,555

Cash and due from banks		21,775		21,640		22,806		20,468		18,301
Premises and equipment, net		15,591		15,203		15,598		13,952		15,567
Goodwill		11,671		9,822		10,758		665		665
Other intangible assets, net		4,604		4,625		4,807		1,252		1,471
Other assets		48,655		41,894		43,818		32,369		37,692
Total assets	$	1,540,423	$	1,438,361	$	1,458,112	$	1,288,841	$	1,198,251

Liabilities and shareholders' equity:
Demand - noninterest-bearing	$	459,241	$	383,766	$	400,588	$	332,197	$	289,735
Demand - interest-bearing		247,641		241,095		242,516		238,328		209,792
Money market		336,477		294,869		304,340		250,685		224,913
Savings		137,002		135,217		136,733		109,025		111,376
Certificates of deposit		145,098		165,764		160,550		168,183		205,648
Total deposits		1,325,459		1,220,711		1,244,727		1,098,418		1,041,464

Federal Home Loan Bank of San Francisco borrowings		8,132		19,448		9,644		22,466		302
Other borrowings net of unamortized debt issuance costs		9,970		11,859		10,895		15,143		17,981
Junior subordinated debentures		10,310		10,310		10,310		10,310		10,310
Other liabilities		16,974		17,851		17,894		12,286		12,293
Total liabilities		1,370,845		1,280,179		1,293,470		1,158,623		1,082,350

Shareholders' equity		169,578		158,182		164,642		130,218		115,901
Liabilities & shareholders' equity	$	1,540,423	$	1,438,361	$	1,458,112	$	1,288,841	$	1,198,251

About Bank of Commerce Holdings

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

Contact Information:

Randall S. Eslick, President and Chief Executive Officer

Telephone Direct (916) 677-5800

James A. Sundquist, Executive Vice President and Chief Financial Officer

Telephone Direct (916) 677-5825

Andrea M. Newburn, Vice President and Senior Administrative Officer / Corporate Secretary

Telephone Direct (530) 722-3959

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