Press Release BANK OF COMMERCE HOLDINGS (NASDAQ - BOCH)

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

Company Release - 7/20/2018 11:00 AM ET

SACRAMENTO, Calif., July 20, 2018 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (NASDAQ:BOCH) (the “Company”), a $1.3 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter and the six months ended June 30, 2018. Net income for the quarter ended June 30, 2018 was $3.6 million or $0.22 per share – diluted, compared with net income of $2.2 million or $0.15 per share – diluted for the same period of 2017. Net income for the six months ended June 30, 2018 was $6.9 million or $0.42 per share – diluted, compared with net income of $4.5 million or $0.31 per share – diluted for the same period of 2017.

Financial highlights for the second quarter of 2018:

  • Net income of $3.6 million was an increase of $1.4 million (64%) from $2.2 million earned during the same period in the prior year. Earnings of $0.22 per share – diluted was an increase of $0.07 (47%) from $0.15 per share – diluted earned during the same period in the prior year and reflects the impact of 2,738,096 shares of common stock sold and issued in the second quarter of 2017.
  • Net interest income increased $1.4 million (14%) to $11.6 million compared to $10.2 million for the same period in the prior year.
  • Return on average assets improved to 1.14% compared to 0.76% for the same period in the prior year.
  • Return on average equity improved to 11.32% compared to 7.85% for the same period in the prior year.
  • Average loans totaled $922.7 million, an increase of $101.4 million (12%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.2 billion, an increase of $110.6 million (10%) compared the same period in the prior year.
  • Average deposits totaled $1.1 billion, an increase of $39.3 million (4%) compared the same period in the prior year.
    o    Average non-maturing deposits totaled $884.0 million, an increase of $77.2 million (10%) compared to the same period in the prior year.
    o    Average certificates of deposit totaled $170.8 million, a decrease of $37.9 million (18%) compared to the same period in the prior year.
  • The Company’s efficiency ratio was 61.16% compared to 69.17% for the same period in the prior year.
  • Nonperforming assets at June 30, 2018 totaled $4.4 million or 0.34% of total assets, a decrease of $6.3 million (59%) compared to June 30, 2017.
  • Book value per common share was $7.97 at June 30, 2018 compared to $7.75 at June 30, 2017.
  • Tangible book value per common share was $7.85 at June 30, 2018 compared to $7.61 at June 30, 2017.

Financial highlights for the six months ended June 30, 2018:

  • Net income of $6.9 million was an increase of $2.4 million (54%) from $4.5 million earned during the same period in the prior year. Earnings of $0.42 per share – diluted was an increase of $0.11 (35%) from $0.31 per share – diluted earned during the same period in the prior year and reflects the impact of 2,738,096 shares of common stock sold and issued in the second quarter of 2017.
  • Net interest income increased $3.0 million (15%) to $22.9 million compared to $19.9 million for the same period in the prior year.
  • Return on average assets improved to 1.10% compared to 0.78% for the same period in the prior year.
  • Return on average equity improved to 10.84% compared to 8.66% for the same period in the prior year.
  • Average loans totaled $903.4 million, an increase of $89.3 million (11%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.2 billion, an increase of $108.8 million (10%) compared to average earning assets for the same period in the prior year.
  • Average deposits totaled $1.1 billion, an increase of $48.8 million (5%) compared to average deposits for the same period in the prior year.
    o    Average non-maturing deposits totaled $886.2 million, an increase of $68.3 million (11%) compared to average non-maturing deposits for the same period in the prior year.
    o    Average certificates of deposit totaled $176.3 million, a decrease of $35.6 million (17%) compared to average certificates of deposit for the same period in the prior year.
  • The Company’s efficiency ratio was 63.15% compared to 70.24% during the same period in the prior year.
  • Nonperforming assets at June 30, 2018 totaled $4.4 million or 0.34% of total assets, a decrease of $1.5 million (51% annualized) since December 31, 2017.
  • Book value per common share was $7.97 at June 30, 2018 compared to $7.82 at December 31, 2017.
  • Tangible book value per common share was $7.85 at June 30, 2018 compared to $7.70 at December 31, 2017.

Randall S. Eslick, President and CEO commented: “I am pleased to report another quarter of improved earnings. The diligence and hard work of our dedicated employees resulted in net income for the second quarter of $3.6 million ($0.22 per share) which was a ROAA of 1.14% and a ROAE of 11.32%. These earnings supported our decision to increase our quarterly cash dividend per share from $0.03 to $0.04.”

Forward-Looking Statements

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

  • Competitive pressure in the banking industry and changes in the regulatory environment
  • Changes in the interest rate environment and volatility of rate sensitive assets and liabilities
  • A decline in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of our loans
  • Credit quality deterioration which could cause an increase in the provision for loan and lease losses
  • Asset/Liability matching risks and liquidity risks
  • Changes in the securities markets

For additional information concerning risks and uncertainties related to the Company and its operations, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 under the heading “Risk Factors” and to subsequent reports on Form 10-Q and current reports on Form 8-K. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation and specifically disclaims any obligation to revise or publicly release the results of any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date the statements were made.

                    
TABLE 1 
SELECTED FINANCIAL INFORMATION - UNAUDITED 
(amounts in thousands except per share data) 
  For The Three Months Ended For The Six Months Ended 
Net income, average assets and June 30,   March 31, June 30,  
average shareholders' equity 2018  2017  2018 2018 2017 
Net income $3,618  $2,209  $3,241  $6,859 $4,461 
Average total assets $1,276,697  $1,170,447  $1,248,563  $1,262,710 $1,159,438 
Average total earning assets $1,208,281  $1,097,644  $1,181,857  $1,195,154 $1,086,404 
Average shareholders' equity $128,181  $112,855  $127,069  $127,628 $103,888 
                    
Selected performance ratios                   
Return on average assets  1.14%  0.76%  1.05%  1.10% 0.78%
Return on average equity  11.32%  7.85%  10.34%  10.84% 8.66%
Efficiency ratio  61.16%  69.17%  65.17%  63.15% 70.24%
                    
Share and per share amounts                   
Weighted average shares - basic (1)  16,245   15,014   16,225   16,237  14,220 
Weighted average shares - diluted  16,325   15,113   16,310   16,319  14,321 
Earnings per share - basic $0.22  $0.15  $0.20  $0.42 $0.31 
Earnings per share - diluted $0.22  $0.15  $0.20  $0.42 $0.31 
                    
  At June 30,   At March 31,   
Share and per share amounts 2018  2017  2018     
Common shares outstanding (2)  16,318   16,260   16,315        
Book value per common share $7.97  $7.75  $7.83        
Tangible book value per common share (3) $7.85  $7.61  $7.71        
                    
Capital ratios (4)                  
Bank of Commerce Holdings                  
Common equity tier 1 capital ratio  12.15%  12.55%  12.35%       
Tier 1 capital ratio  13.07%  13.56%  13.31%       
Total capital ratio  15.20%  15.83%  15.52%       
Tier 1 leverage ratio  11.11%  11.38%  11.11%       
Tangible common equity ratio (5)  10.02%  10.23%  10.11%       
                    
Redding Bank of Commerce                   
Common equity tier 1 capital ratio  12.51%  12.66%  12.62%       
Tier 1 capital ratio  12.51%  12.66%  12.62%       
Total capital ratio  13.72%  13.91%  13.87%       
Tier 1 leverage ratio  10.60%  10.64%  10.51%       
                    
(1) Excludes unvested restricted shares issued in accordance with the Company's equity incentive plan, as they are non participative in dividends or voting rights.
(2) Includes unvested restricted shares issued in accordance with the Company's equity incentive plan.
(3) Tangible book value per share is computed by dividing total shareholders’ equity less goodwill and core deposit intangible, net by shares outstanding. Management believes that tangible book value per share is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.
(4) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. Capital ratios for the Company include the benefit of $26.8 million net proceeds from the sale of 2,738,096 shares of common stock in the second quarter of 2017.
(5) Management believes the tangible common equity ratio is a useful measure of capital adequacy because it provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the capital of the Company and the ability of the Company to absorb potential losses. The tangible common equity ratio is calculated as total shareholders' equity less goodwill and core deposit intangible, net divided by total assets less goodwill and core deposit intangible, net.
 


BALANCE SHEET OVERVIEW

As of June 30, 2018, the Company had total consolidated assets of $1.3 billion, gross loans of $936.8 million, allowance for loan and lease losses (“ALLL”) of $12.4 million, total deposits of $1.1 billion, and shareholders’ equity of $130.1 million.

                        
TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
 At June 30,       At March 31,
   % of    % of  Change   % of
 2018  Total 2017  Total Amount % 2018  Total
Commercial$139,670  15% $145,335  18% $(5,665) (4)% $137,870  15%
Real estate - construction and land development 21,292  2   22,275  3   (983) (4)%  14,723  2 
Real estate - commercial non-owner occupied 427,088  46   310,995  38   116,093  37%  405,192  46 
Real estate - commercial owner occupied 199,412  21   191,737  24   7,675  4%  193,286  22 
Real estate - residential - ITIN 39,424  4   43,229  5   (3,805) (9)%  40,425  4 
Real estate - residential - 1-4 family mortgage 33,391  4   18,904  2   14,487  77%  30,247  3 
Real estate - residential - equity lines 28,879  3   32,133  4   (3,254) (10)%  30,520  3 
Consumer and other 47,660  5   50,780  6   (3,120) (6)%  48,157  5 
Gross loans 936,816  100%  815,388  100%  121,428  15%  900,420  100%
Deferred fees and costs 1,763      1,541      222      1,713    
Loans, net of deferred fees and costs 938,579      816,929      121,650      902,133    
Allowance for loan and lease losses (12,388)     (11,688)     (700)     (12,295)   
Net loans$926,191     $805,241     $120,950     $889,838    
                        
Average yield on loans during the quarter 4.85%     4.77%     0.08      4.92%   
                            

The Company recorded gross loan balances of $936.8 million at June 30, 2018, compared with $815.4 million and $900.4 million at June 30, 2017 and March 31, 2018, respectively, an increase of $121.4 million and $36.4 million, respectively. The increase in gross loans compared to the same period a year ago and the prior period was organic and did not rely on loan pool purchases.

Average loan balances were $922.7 million for the quarter ended June 30, 2018, compared with $821.3 million for the quarter ended June 30, 2017 and $883.9 million for the quarter ended March 31, 2018, an increase of $101.4 million or 12% and an increase of $38.8 million or 18% annualized, respectively.

The average yield on loans during the current quarter was 4.85% compared to 4.77% and 4.92% for the quarters ended June 30, 2017 and March 31, 2018, respectively. The previous quarter income on loans of $10.7 million included $229 thousand from prepayment penalties and interest income from nonaccrual loans that were sold or repaid during the quarter which enhanced the average yield on a non-recurring basis by ten basis points.

                         
TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
  At June 30,        At March 31,
    % of    % of  Change   % of
  2018  Total 2017  Total Amount % 2018  Total
                         
Cash and due from banks $23,996  9% $23,420  7% $576  2% $16,247  6%
Interest-bearing deposits in other banks  15,690  5   73,434  22   (57,744) (79)%  17,376  6 
Total cash and cash equivalents  39,686  14   96,854  29   (57,168) (59)%  33,623  12 
                         
Investment securities:                        
U.S. government and agencies  38,994  14   24,231  7   14,763  61%  41,179  14 
Obligations of state and political subdivisions  58,479  20   58,400  17   79  %  59,408  21 
Residential mortgage backed securities and collateralized mortgage obligations  121,218  42   91,375  28   29,843  33%  125,567  43 
Corporate securities  3,987  1   8,312  2   (4,325) (52)%  3,958  1 
Commercial mortgage backed securities  24,742  9   23,421  7   1,321  6%  25,520  9 
Other asset backed securities  219     3,870  1   (3,651) (94)%  285   
Total investment securities - AFS  247,639  86   209,609  62   38,030  18%  255,917  88 
                         
Obligations of state and political subdivisions - HTM       31,329  9   (31,329) (100)%     
Total investment securities - AFS and HTM  247,639  86   240,938  71   6,701  3%  255,917  88 
Total cash, cash equivalents and investment securities $287,325  100% $337,792  100% $(50,467) (15)% $289,540  100%
Average yield on interest-bearing due from banks and investment securities during the quarter - (nominal)  2.56%     2.27%     0.29      2.45%   
                             

As of June 30, 2018, we maintained noninterest-bearing cash positions of $24.0 million and interest-bearing deposits of $15.7 million at the Federal Reserve Bank and correspondent banks. The reduction in cash and cash equivalents compared to a year previous reflects the seasonal decline in deposits which, in 2018, has been greater than it was in the prior two years.

Investment securities totaled $247.6 million at June 30, 2018, compared with $240.9 million and $255.9 million at June 30, 2017 and March 31, 2018, respectively. Our investment securities portfolio provides us with a secondary source of liquidity to fund higher yielding asset opportunities, such as loan originations. During the second quarter of 2018, we purchased one security with a par value of $1.2 million and weighted average yield of 3.0% and sold two securities with a par value of $1.1 million and weighted average yield of 3.04%. The sales activity on available-for-sale securities resulted in $4 thousand in net realized gains. During the same period, we received $6.8 million in proceeds from principal payments, calls and maturities within the investment securities portfolio.

Average securities balances and weighted average tax equivalent yields for the quarters ended June 30, 2018 and 2017 were $256.6 million and 2.82% compared to $217.6 million and 3.10%, respectively. The current quarter tax equivalent yields were reduced by 16 basis points as a result of the Tax Cuts and Jobs Act of 2017 which reduced the federal corporate tax rate from a graduated rate of 35% to a flat rate of 21%.

At June 30, 2018, our net unrealized losses on available-for-sale investment securities were $4.9 million compared with net unrealized gains of $682 thousand and net unrealized losses of $3.9 million at June 30, 2017 and March 31, 2018, respectively. The changes in the net unrealized loss on the investment securities portfolio are due to changes in market interest rates and the reclassification of all HTM securities to AFS during the fourth quarter of 2017.

                        
TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
 At June 30,        At March 31,
   % of    % of   Change   % of
 2018 Total 2017 Total Amount % 2018 Total
Demand - noninterest-bearing$316,347 30% $303,560 29% $12,787  4% $301,981 29%
Demand - interest-bearing 465,087 44   426,798 41   38,289  9%  462,551 44 
Total demand 781,434 74   730,358 70   51,076  7%  764,532 73 
                        
Savings 106,170 10   109,472 10   (3,302) (3)%  107,986 10 
Total non-maturing deposits 887,604 84   839,830 80   47,774  6%  872,518 83 
                        
Certificates of deposit 166,925 16   206,395 20   (39,470) (19)%  176,233 17 
Total deposits$1,054,529 100% $1,046,225 100% $8,304  1% $1,048,751 100%
                        

Total deposits at June 30, 2018, increased $8.3 million or 1% to $1.1 billion compared to June 30, 2017, and increased $5.8 million or 2% annualized compared to March 31, 2018. Total non-maturing deposits increased $47.8 million or 6% compared to the same date a year ago and increased $15.1 million or 7% annualized compared to March 31, 2018. Certificates of deposit decreased $39.5 million or 19% compared to the same date a year ago and decreased $9.3 million or 21% annualized compared to March 31, 2018.

         
TABLE 5
WHOLESALE AND RECIPROCAL DEPOSITS - UNAUDITED
(amounts in thousands)
 At June 30,  At March 31,
 2018 2017 2018
CDARS / ICS reciprocal deposits$60,538 $56,803 $56,732
Online listing service wholesale time deposits 25,491  42,709  29,159
Total wholesale and reciprocal deposits$86,029 $99,512 $85,891
         

For calendar quarters prior to June 30, 2018, CDARS/ ICS reciprocal deposits were considered to be brokered deposits by regulatory authorities and were reported as such on quarterly Call Reports. With passage of The Economic Growth, Regulatory Relief and Consumer Protection Act in May 2018, this is no longer so.

AVERAGE COST OF FUNDS

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

                                
TABLE 6
AVERAGE COST OF FUNDS - UNAUDITED
 For The Three Months Ended
 June 30,  March 31, December 31,  September 30, June 30, March 31, December 31,  September 30,
 2018 2018 2017 2017 2017 2017 2016 2016
Interest-bearing deposits 0.41%  0.41%  0.42%  0.43%  0.42%  0.39%  0.40%  0.39%
Interest-bearing deposits and noninterest-bearing demand 0.29%  0.29%  0.30%  0.31%  0.31%  0.29%  0.29%  0.29%
All interest-bearing liabilities 0.68%  0.60%  0.59%  0.60%  0.60%  0.56%  0.57%  0.56%
All interest-bearing liabilities and noninterest-bearing demand 0.50%  0.43%  0.42%  0.43%  0.44%  0.42%  0.42%  0.42%
                                



INCOME STATEMENT OVERVIEW

                     
TABLE 7
SUMMARY INCOME STATEMENT - UNAUDITED
(amounts in thousands, except per share data)
 For The Three Months Ended          
 June 30,  Change March 31, Change
 2018 2017 Amount % 2018 Amount %
Interest income$12,990 $11,320 $1,670  15% $12,530 $460  4%
Interest expense 1,410  1,145  265  23%  1,185  225  19%
Net interest income 11,580  10,175  1,405  14%  11,345  235  2%
Provision for loan and lease losses   300  (300) (100)%      %
Noninterest income 962  995  (33) (3)%  982  (20) (2)%
Noninterest expense 7,671  7,726  (55) (1)%  8,033  (362) (5)%
Income before provision for income taxes 4,871  3,144  1,727  55%  4,294  577  13%
Provision for income taxes 1,253  935  318  34%  1,053  200  19%
Net income$3,618 $2,209 $1,409  64% $3,241 $377  12%
                     
Basic earnings per share$0.22 $0.15 $0.07  47% $0.20 $0.02  10%
Average basic shares 16,245  15,014  1,231  8%  16,225  20  %
Diluted earnings per share$0.22 $0.15 $0.07  47% $0.20 $0.02  10%
Average diluted shares 16,325  15,113  1,212  8%  16,310  15  %
Dividends declared per common share$0.04 $0.03 $0.01  33% $0.03 $0.01  33%
                       

Second Quarter of 2018 Compared With Second Quarter of 2017

Net income for the second quarter of 2018 increased $1.4 million compared to the second quarter of 2017. In the current quarter, net interest income was $1.4 million higher, provision for loan and lease losses was $300 thousand lower and noninterest expense was $55 thousand lower. These positive changes were offset by noninterest income that was $33 thousand lower, and a provision for income taxes that was $318 thousand higher.

Net Interest Income

Net interest income increased $1.4 million compared to the same period a year ago.

Interest income for the three months ended June 30, 2018 increased $1.7 million or 15% to $13.0 million:

  • Interest and fees on loans increased $1.4 million due to a $101.4 million increase in average loan balances and an eight basis point increase in the average yield on the loan portfolio.

  • Interest on securities increased $285 thousand due to a $38.9 million increase in average securities balances and a five basis point increase in the average yield on the securities portfolio.

  • Interest on interest-bearing deposits due from banks decreased $21 thousand primarily due to a $29.7 million decrease in average interest-bearing deposit balances, partially offset by an 80 basis point increase in average yield resulting from increased fed funds rates.

Interest expense for the second quarter of 2018 increased $265 thousand or 23% to $1.4 million:

  • Interest expense on interest bearing deposits decreased $9 thousand. Average interest-bearing demand and savings deposit balances increased $43.0 million, while average certificate of deposit balances decreased $37.9 million. The average rate paid on interest-bearing deposits decreased one basis point.

  • Interest expense on other interest bearing liabilities increased $274 thousand primarily due to increased borrowing from the Federal Home Loan Bank of San Francisco.

Provision for loan and lease loss

As a result of continued improved asset quality and net loan loss recoveries, no provision for loan and lease losses was necessary during the current quarter compared with a provision for loan and lease losses of $300 thousand for the same quarter a year ago.

Noninterest Income

Noninterest income for the three months ended June 30, 2018 decreased $33 thousand compared to the second quarter for 2017, a variance not concentrated in any one item.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2018 decreased $55 thousand compared to the same period a year previous. The net decrease was due to the following:

  • $145 thousand in decreased professional fees.
  • $137 thousand decrease related to software development project costs that were written off in the same period a year previous.
  • $87 thousand decrease in telecommunications and occupancy costs.
  • $366 thousand increase in salaries and related benefit costs that increased primarily as a result of additional employees hired in our Sacramento market.

The Company’s efficiency ratio was 61.16% for the second quarter of 2018 compared to 69.17% during the same period in 2017.

Income Tax Provision

For the three months ended June 30, 2018, our income tax provision of $1.3 million on pre-tax income of $4.9 million was an effective tax rate of 25.7%. The current quarter effective tax rate reflects the benefits of the Tax Cuts and Jobs Act of 2017 which reduced the federal corporate tax rate from a graduated rate of 35% to a flat rate of 21%. This compares with a provision for income taxes for the second quarter of the prior year of $935 thousand on pre-tax income of $3.1 million (29.7% effective tax rate).

Second Quarter of 2018 Compared With First Quarter of 2018

Net income for the second quarter of 2018 increased $377 thousand compared to the first quarter of 2018. In the current quarter, net interest income was $235 thousand higher and noninterest expense was $362 thousand lower. These positive changes were offset by noninterest income that was $20 thousand lower and a provision for income taxes that was $200 thousand higher.

Net Interest Income

Net interest income increased $235 thousand over the prior quarter.

Interest income for the three months ended June 30, 2018 increased $460 thousand or 4% to $13.0 million.

  • Interest and fees on loans increased $435 thousand due to a $38.8 million increase in average loan balances and a seven basis point decrease in the average yield on the loan portfolio.
  • Interest on investment securities increased $19 thousand due to an eight basis point increase in average yield partially offset by an $8.5 million decrease in average securities balances.
  • Interest on interest-bearing deposits due from banks increased $6 thousand due to a 27 basis point increase average yields partially offset by a $3.8 million decrease in average balances.

Interest expense for the three months ended June 30, 2018 increased $225 thousand or 19% to $1.4 million.

  • Interest expense on deposits declined $8 thousand as average interest-bearing demand and savings deposits decreased $6.4 million, average certificates of deposit declined $11.1 million and the average rate paid on these deposits was unchanged.
  • Interest expense on borrowings from the Federal Home loan Bank of San Francisco increased $220 thousand. Federal Home loan Bank of San Francisco borrowings averaged $55.3 million compared to an average balance of $12.4 million for the prior quarter.
  • Interest expense on other term debt increased $13 thousand.

Provision for loan and lease loss

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

Noninterest Income

Noninterest income for the three months ended June 30, 2018 decreased $20 thousand, a variance not concentrated in any one item.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2018 decreased $362 thousand compared to the first quarter of 2018. The decrease was primarily related to employee compensation.

The Company’s efficiency ratio was 61.16% for the second quarter of 2018 compared to 65.17% during the prior quarter.

Income Tax Provision

For the three months ended June 30, 2018, our income tax provision of $1.3 million on pre-tax income of $4.9 million with an effective tax rate of 25.72%. This compares with a provision for income taxes for the prior quarter of $1.1 million on pretax income of $4.3 million (24.5% effective tax rate).

Earnings Per Share

Diluted earnings per share were $0.22 for the three months ended June 30, 2018 compared with diluted earnings per share of $0.15 for the same period a year ago and diluted earnings per share of $0.20 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in table 6 presented earlier in this press release.

                            
TABLE 8a
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
  For The Three Months Ended
  June 30, 2018 June 30, 2017 March 31, 2018
  Average    Yield / Average    Yield / Average    Yield /
(Amounts in thousands) Balance Interest(1) Rate (5) Balance Interest(1) Rate (5) Balance Interest(1) Rate (5)
Interest-earning assets:                           
Net loans (2) $922,687 $11,164 4.85% $821,321 $9,758 4.77% $883,876 $10,729 4.92%
Taxable securities  206,247  1,278 2.49%  143,705  872 2.43%  205,302  1,209 2.39%
Tax-exempt securities  50,306  413 3.29%  73,927  534 2.90%  59,789  463 3.14%
Interest-bearing deposits in other banks  29,041  135 1.86%  58,691  156 1.07%  32,890  129 1.59%
Average interest- earning assets  1,208,281  12,990 4.31%  1,097,644  11,320 4.14%  1,181,857  12,530 4.30%
Cash and due from banks  19,880        17,364        17,666      
Premises and equipment, net  14,167        15,809        14,557      
Other assets  34,369        39,630        34,483      
Average total assets $1,276,697       $1,170,447       $1,248,563      
                            
Interest-bearing liabilities:                           
Interest-bearing demand $467,651  215 0.18% $421,888  184 0.17% $470,440  221 0.19%
Savings deposits  107,108  64 0.24%  109,857  47 0.17%  110,725  59 0.22%
Certificates of deposit  170,824  488 1.15%  208,703  545 1.05%  181,901  495 1.10%
Federal Home Loan Bank of San Francisco borrowings  55,275  267 1.94%  1,209  3 1.00%  12,444  47 1.53%
Other borrowings net of unamortized debt issuance costs  15,614  279 7.17%  18,330  295 6.46%  16,528  281 6.90%
Junior subordinated
debentures
  10,310  97 3.77%  10,310  71 2.76%  10,310  82 3.23%
Average interest-bearing liabilities  826,782  1,410 0.68%  770,297  1,145 0.60%  802,348  1,185 0.60%
Noninterest-bearing demand  309,199        275,039        307,397      
Other liabilities  12,535        12,256        11,749      
Shareholders’ equity  128,181        112,855        127,069      
Average liabilities and shareholders’ equity $1,276,697       $1,170,447       $1,248,563      
Net interest income and net interest margin (4)    $11,580 3.84%    $10,175 3.72%    $11,345 3.89%
Tax equivalent net interest margin (3)       3.88%       3.82%       3.94%
                            
(1) Interest income on loans is net of deferred fees and costs of approximately $145 thousand, $131 thousand, and $137 thousand for the three months ended June 30, 2018, and 2017 and March 31, 2018, respectively.
(2) Net loans includes average nonaccrual loans of $4.2 million, $9.8 million and $4.8 million for the three months ended June 30, 2018 and 2017 and March 31, 2018, respectively.
(3) Tax-exempt income has been adjusted to tax equivalent basis at a 21% for 2018 and at a 34% tax rate for 2017. The amount of such adjustments was an addition to recorded income of approximately $110 thousand, $275 thousand and $123 thousand for the three months ended June 30, 2018 and 2017 and March 31, 2018, respectively.
(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets.
(5) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.
 



                    
TABLE 8b 
NET INTEREST MARGIN - UNAUDITED 
(amounts in thousands) 
  For The Six Months Ended 
  June 30, 2018 June 30, 2017 
  Average    Yield / Average    Yield / 
(Amounts in thousands) Balance Interest(1) Rate (5) Balance Interest(1) Rate (5) 
Interest-earning assets:                   
Net loans (2) $903,389 $21,893 4.89% $814,098 $19,142 4.74% 
Taxable securities  205,777  2,487 2.44%  140,660  1,661 2.38% 
Tax-exempt securities  55,021  876 3.21%  73,726  1,064 2.91% 
Interest-bearing deposits in other banks  30,967  264 1.72%  57,920  270 0.94% 
Average interest-earning assets  1,195,154  25,520 4.31%  1,086,404  22,137 4.11% 
Cash and due from banks  18,767        17,120       
Premises and equipment, net  14,361        15,986       
Other assets  34,428        39,928       
Average total assets $1,262,710       $1,159,438       
                    
Interest-bearing liabilities:                   
Interest-bearing demand $469,038  436 0.19% $421,156  332 0.16% 
Savings deposits  108,907  123 0.23%  111,742  94 0.17% 
Certificates of deposit  176,332  983 1.12%  211,934  1,074 1.02% 
Federal Home Loan Bank of San Francisco borrowings  33,978  314 1.86%  608  3 1.00% 
Other borrowings net of unamortized debt issuance costs  16,069  560 7.03%  18,463  588 6.42% 
Junior subordinated debentures  10,310  179 3.50%  10,310  137 2.68% 
Average interest-bearing liabilities  814,634  2,595 0.64%  774,213  2,228 0.58% 
Noninterest-bearing demand  308,304        268,994       
Other liabilities  12,144        12,343       
Shareholders’ equity  127,628        103,888       
Average liabilities and shareholders’ equity $1,262,710       $1,159,438       
Net interest income and net interest margin (4)    $22,925 3.87%    $19,909 3.70% 
Tax equivalent net interest margin (3)       3.91%       3.80% 
                    
(1) Interest income on loans is net of deferred fees and costs of approximately $282 thousand and $328 thousand for the six months ended June 30, 2018 and 2017, respectively.
(2) Net loans includes average nonaccrual loans of $4.5 million and $10.3 million for the six months ended June 30, 2018 and 2017, respectively.
(3) Tax-exempt income has been adjusted to tax equivalent basis at a 21% tax rate for 2018 and at a 34% tax rate for 2017. The amount of such adjustments was an addition to recorded income of approximately $233 thousand and $548 thousand for the six months ended June 30, 2018 and 2017, respectively.
(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets.
(5) Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.
 


                    
TABLE 9 
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED 
(amounts in thousands) 
 For The Three Months Ended
 June 30,  March 31, December 31,  September 30, June 30,
 2018 2018 2017 2017 2017
Beginning balance ALLL$12,295  $11,925  $11,692  $11,688  $11,641 
Provision for loan and lease losses       450      300 
Loans charged-off (382)   (390)   (451)   (245)   (359) 
Loan loss recoveries 475   760   234   249   106 
Ending balance ALLL$12,388  $12,295  $11,925  $11,692  $11,688 
                    
 At June 30,  At March 31, At December 31,  At September 30, At June 30,
 2018 2018 2017 2017 2017
Nonaccrual loans:                   
Commercial$1,358  $1,109  $1,603  $2,309  $2,410 
Real estate - commercial non-owner occupied             1,196 
Real estate - commercial owner occupied       600   617   639 
Real estate - residential - ITIN 2,613   2,839   2,909   3,201   3,346 
Real estate - residential - 1-4 family mortgage 184   188   606   626   653 
Real estate - residential - equity lines 44   45   45   815   872 
Consumer and other 33   35   36   37   38 
Total nonaccrual loans 4,232   4,216   5,799   7,605   9,154 
Accruing troubled debt restructured loans:                   
Commercial 1,420   1,516   1,551   671   703 
Real estate - commercial non-owner occupied 799   800   803   805   806 
Real estate - residential - ITIN 4,592   4,554   4,614   4,655   4,712 
Real estate - residential - equity lines 372   376   380   441   445 
Total accruing troubled debt restructured loans 7,183   7,246   7,348   6,572   6,666 
                    
Al