Press Release BANK OF COMMERCE HOLDINGS (NASDAQ - BOCH)

Bank of Commerce Holdings Announces Results for the First Quarter of 2019

Company Release - 4/19/2019 9:00 AM ET

SACRAMENTO, Calif., April 19, 2019 (GLOBE NEWSWIRE) -- Bank of Commerce Holdings (NASDAQ: BOCH) (the “Company”), a $1.471 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter ended March 31, 2019. Net income for the quarter ended March 31, 2019 was $2.3 million or $0.13 per share – diluted, compared with net income of $3.2 million or $0.20 per share – diluted for the same period of 2018.

The current quarter includes the results and related acquisition costs of $1.9 million associated with the January 31, 2019 acquisition of Merchants Holding Company in Sacramento (“Merchants”).

Randall S. Eslick, President and CEO commented: “All of our employees have worked diligently to ensure that the integration of Merchants Bank continues to progress very smoothly and we are excited to extend our banking services into downtown Sacramento.”

Financial highlights for the first quarter of 2019 compared to the same quarter a year ago:

  • Net income of $2.3 million was a decrease of $935 thousand (29%) from $3.2 million earned during the same period in the prior year. Earnings of $0.13 per share – diluted was a decrease of $0.07 (35%) from $0.20 per share – diluted earned during the same period in the prior year and reflects the impact of 1,834,142 shares of common stock issued during the current quarter as part of our acquisition of Merchants.
  • Acquisition costs associated with our acquisition of Merchants totaled $1.9 million.
  • Net interest income increased $1.7 million (15%) to $13.0 million compared to $11.3 million for the same period in the prior year.
  • Return on average assets decreased to 0.66% compared to 1.05% for the same period in the prior year.
  • Return on average equity decreased to 6.12% compared to 10.34% for the same period in the prior year.
  • Average loans totaled $993.3 million, an increase of $109.4 million (12%) compared to average loans for the same period in the prior year.
  • Average earning assets totaled $1.337 billion, an increase of $155 million (13%) compared to average earning assets for the same period in the prior year.
  • Average deposits totaled $1.224 billion, an increase of $153 million (14%) compared to average deposits for the same period in the prior year.
    • Average non-maturing deposits totaled $1.056 billion, an increase of $168 million (19%) compared to the same period in the prior year.
    • Average certificates of deposit totaled $167.5 million, a decrease of $14.4 million (8%) compared to same period in the prior year.
  • The Company’s efficiency ratio was 77.7% compared to 65.2% during the same period in the prior year.
  • Nonperforming assets at March 31, 2019 totaled $14.6 million or 0.99% of total assets, an increase of $10.3 million (241%) since March 31, 2018. The increase in nonperforming assets results from one $10.9 million commercial real estate loan which at March 31, 2019 had zero calculated impairment.
  • Book value per common share was $8.90 at March 31, 2019 compared to $7.83 at March 31, 2018.
  • Tangible book value per common share was $7.96 at March 31, 2019 compared to $7.71 at March 31, 2018.

Financial highlights for the first quarter of 2019 compared to the prior quarter:

  • Net income of $2.3 million ($0.13 per share –diluted) was a decrease of $2.5 million (52%) from $4.8 million ($0.30 per share – diluted) earned during the prior quarter.
  • Acquisition costs associated with our acquisition of Merchants totaled $1.9 million compared to $802 thousand for the prior quarter.
  • Net interest income increased $510 thousand (17% annualized) to $13.0 million compared to $12.5 million for the prior quarter.
  • Return on average assets decreased to 0.66% compared to 1.44% for the prior quarter.
  • Return on average equity decreased to 6.12% compared to 14.32% for the prior quarter.
  • Average loans totaled $993.3 million, an increase of $69.9 million (31% annualized) compared to average loans for the prior quarter.
  • Average earning assets totaled $1.337 billion, an increase of $77 million (25% annualized) compared the prior quarter.
  • Average deposits totaled $1.224 billion, an increase of $65.9 million (23% annualized) compared the prior quarter.
    • Average non-maturing deposits totaled $1.056 billion, an increase of $55 million (22% annualized) compared to the prior quarter.
    • Average certificates of deposit totaled $167.5 million, an increase of $10.4 million (27% annualized) compared to the prior quarter.
  • The Company’s efficiency ratio was 77.7% compared to 65.1% for the prior quarter.
  • Nonperforming assets at March 31, 2019 totaled $14.6 million or 0.99% of total assets, an increase of $10.4 million (1,009% annualized) compared to December 31, 2018. The increase in nonperforming assets results from one $10.9 million commercial real estate loan which at March 31, 2019 had zero calculated impairment.
  • Book value per common share was $8.90 at March 31, 2019 compared to $8.47 at December 31, 2018.
  • Tangible book value per common share was $7.96 at March 31, 2019 compared to $8.36 at December 31, 2018.

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, 2018 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
Net income, average assets and March 31,   December 31,
average shareholders' equity 2019 2018 2018
Net income $2,306  $3,241  $4,839 
Average total assets $1,425,860  $1,248,563  $1,328,817 
Average total earning assets $1,337,006  $1,181,882  $1,259,709 
Average shareholders' equity $152,705  $127,069  $134,033 
             
Selected performance ratios            
Return on average assets  0.66%  1.05%  1.44%
Return on average equity  6.12%  10.34%  14.32%
Efficiency ratio  77.7%  65.2%  65.1%
             
Share and per share amounts            
Weighted average shares - basic (1)  17,489   16,225   16,265 
Weighted average shares - diluted (1)  17,552   16,310   16,345 
Earnings per share - basic $0.13  $0.20  $0.30 
Earnings per share - diluted $0.13  $0.20  $0.30 
             
  At March 31,   At December 31,
Share and per share amounts 2019 2018 2018
Common shares outstanding (2)  18,213   16,315   16,334 
Book value per common share (2) $8.90  $7.83  $8.47 
Tangible book value per common share (2)(3) $7.96  $7.71  $8.36 
             
Capital ratios (4)           
Bank of Commerce Holdings           
Common equity tier 1 capital ratio  12.40%  12.35%  12.79%
Tier 1 capital ratio  13.25%  13.31%  13.71%
Total capital ratio  15.19%  15.52%  15.82%
Tier 1 leverage ratio  11.05%  11.09%  11.21%
Tangible common equity ratio (5)  9.97%  10.11%  10.46%
             
Redding Bank of Commerce            
Common equity tier 1 capital ratio  13.98%  12.62%  13.23%
Tier 1 capital ratio  13.98%  12.62%  13.23%
Total capital ratio  15.08%  13.87%  14.42%
Tier 1 leverage ratio  11.66%  10.51%  10.81%
             
(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.
(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 March 31, 2019, the Company had total consolidated assets of $1.471 billion, gross loans of $1.035 billion, allowance for loan and lease losses (“ALLL”) of $12.2 million, total deposits of $1.248 billion, and shareholders’ equity of $162.1 million.

                        
TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
                        
  At March 31,       At December 31,
    % of    % of  Change   % of
  2019 Total 2018 Total Amount % 2018 Total
Commercial $149,575  14% $137,870  15% $11,705  8% $135,543  14%
Real estate - construction and land development  30,335  3   14,723  2   15,612  106%  22,563  2 
Real estate - commercial non-owner occupied  477,798  47   405,192  46   72,606  18%  433,708  46 
Real estate - commercial owner occupied  200,349  19   193,286  22   7,063  4%  204,622  22 
Real estate - residential - ITIN  36,145  3   40,425  4   (4,280) (11)%  37,446  4 
Real estate - residential - 1-4 family mortgage  68,092  7   30,247  3   37,845  125%  34,366  4 
Real estate - residential - equity lines  26,162  3   30,520  3   (4,358) (14)%  26,958  3 
Consumer and other  46,150  4   48,157  5   (2,007) (4)%  51,045  5 
Gross loans  1,034,606  100%  900,420  100%  134,186  15%  946,251  100%
Deferred fees and costs  1,992      1,713      279     1,927    
Loans, net of deferred fees and costs  1,036,598      902,133      134,465     948,178    
Allowance for loan and lease losses  (12,242)     (12,295)     53     (12,292)   
Net loans $1,024,356     $889,838     $134,518    $935,886    
                        
Average yield on loans during the quarter  4.91%     4.92%     (0.01)    4.94%   
Average yield on loans during the year  4.91%     4.92%     (0.01)    4.91%   
                            

The Company recorded gross loan balances of $1.035 billion at March 31, 2019, compared with $900.4 million and $946.3 million at March 31, 2018 and December 31, 2018, respectively, an increase of $134.2 million and $88.4 million, respectively. During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $85.3 million of loans. At March 31, 2019, gross loans from the acquisition totaled $84.1 million as follows:

  • Commercial $6.0 million
  • Real estate - construction and land development $2.4 million
  • Real estate - commercial non-owner occupied $39.5 million
  • Real estate - residential – 1-4 family mortgage $36.0 million
  • Consumer and other $0.2 million

Average loan balances were $993.3 million for the quarter ended March 31, 2019, compared with $883.9 million for the quarter ended March 31, 2018 and $923.4 million for the quarter ended December 31, 2018 an increase of $109.4 million or 12% and an increase of $69.9 million or 31% annualized.

The average yield on loans during the quarter was 4.91% compared to 4.92% and 4.94% for the quarters ended March 31, 2018 and December 31, 2018, respectively. During the quarter, a $10.9 million commercial real estate loan was placed on nonaccrual status. The uncollected interest on the loan was reversed which reduced our average yield on loans by 5 basis points.

                        
TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
                        
  At March 31,       At December 31,
    % of    % of  Change   % of
  2019 Total 2018 Total Amount % 2018 Total
Cash and due from banks $32,104  9% $16,247  6% $15,857  98% $23,692  8%
Interest-bearing deposits in other banks  30,425  9   17,376  6   13,049  75%  23,673  8 
Total cash and cash equivalents  62,529  18   33,623  12   28,906  86%  47,365  16 
                        
Investment securities:                       
U.S. government and agencies  46,451  13   41,179  14   5,272  13%  40,087  13 
Obligations of state and political subdivisions  48,935  14   59,408  21   (10,473) (18)%  50,530  17 
Residential mortgage backed securities and collateralized mortgage obligations  171,814  47   125,567  43   46,247  37%  138,503  45 
Corporate securities  2,958  1   3,958  1   (1,000) (25)%  2,922  1 
Commercial mortgage backed securities  23,864  7   25,520  9   (1,656) (6)%  24,762  8 
Other asset backed securities  95     285  0   (190) (67)%  124   
Total investment securities - AFS  294,117  82   255,917  88   38,200  15%  256,928  84 
                        
Total cash, cash equivalents and investment securities $356,646  100% $289,540  100% $67,106  23% $304,293  100%
Average yield on interest-bearing due from banks and investment securities during the quarter - nominal  2.83%     2.45%     0.38     2.66%   
Average yield on interest-bearing due from banks and investment securities during the quarter - tax equivalent  2.95%     2.62%     0.33     2.77%   
                            

As of March 31, 2019, we maintained noninterest-bearing cash positions of $32.1 million and interest-bearing deposits of $30.4 million at the Federal Reserve Bank and correspondent banks.

Investment securities totaled $294.1 million at March 31, 2019, compared with $255.9 million and $256.9 million at March 31, 2018 and December 31, 2018, respectively. During the first quarter of 2019, the Merchants acquisition included securities with a par value of $107.4 million. Management elected to sell securities with a par value of $67.8 million which resulted in $92 thousand in net realized gains.

Average securities balances and weighted average tax equivalent yields for the quarters ended March 31, 2019 and 2018 were $303.5 million and 3.01% compared to $265.1 million and 2.75%, respectively.

At March 31, 2019, our net unrealized losses on available-for-sale investment securities were $701 thousand compared with net unrealized losses of $3.9 million and $4.3 million at March 31, 2018 and December 31, 2018, respectively. The changes in net unrealized losses on the investment securities portfolio are due to changes in market interest rates.

                           
TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
                           
  At March 31,       At December 31,
    % of    % of   Change   % of
  2019 Total 2018 Total Amount % 2018 Total
Demand - noninterest-bearing $385,696  31% $301,981  29% $83,715  28% $347,199  31%
Demand - interest-bearing  241,292  19   229,681  22   11,611  5%  252,202  22 
Money market accounts  311,853  25   232,870  22   78,983  34%  265,093  23 
Total demand  938,841  75   764,532  73   174,309  23%  864,494  76 
                           
Savings  139,237  11   107,986  10   31,251  29%  114,840  10 
Total non-maturing deposits  1,078,078  67   872,518  83   205,560  24%  979,334  86 
                           
Certificates of deposit  170,216  14   176,233  17   (6,017) (3)%  152,382  14 
Total deposits $1,248,294  100% $1,048,751  100% $199,543  19% $1,131,716  100%
                           

Total deposits at March 31, 2019, increased $200 million or 19% to $1.248 billion compared to March 31, 2018 and increased $117 million or 42% annualized compared to December 31, 2018. Total non-maturing deposits increased $206 million or 24% compared to the same date a year ago and increased $99 million or 41% annualized compared to December 31, 2018. Certificates of deposit decreased $6 million or 3% compared to the same date a year ago and increased $18 million or 47% annualized compared to December 31, 2018.

During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $190.2 million of deposits, which are essentially unchanged at March 31, 2019. As illustrated in the following table, legacy deposits have experienced their seasonal decline, while wholesale time deposits have matured and were not renewed.

                
TABLE 4a
YEAR TO DATE CHANGES IN DEPOSITS
(amounts in thousands)
  Legacy Deposits Acquired Merchants
Deposits
 Change In Deposits
  At December 31, At March 31,  Legacy Deposits At March 31,
  2018 2019 Deposits 2019
Demand - noninterest-bearing $347,199  $49,892  $(11,395) $385,696 
Demand - interest-bearing  252,202   28,344   (39,254)  241,292 
Money market accounts  265,093   46,321   439   311,853 
Total demand  864,494   124,557   (50,210)  938,841 
                
Savings  114,840   28,386   (3,989)  139,237 
Total non-maturing deposits  979,334   152,943   (54,199)  1,078,078 
                
Certificates of deposit  152,382   36,863   (19,029)  170,216 
Total deposits $1,131,716  $189,806  $(73,228) $1,248,294 


TABLE 5
WHOLESALE AND RECIPROCAL DEPOSITS - UNAUDITED
(amounts in thousands)
             
  At March 31,  At December 31,
  2019 2018 2018
CDARS / ICS reciprocal deposits $65,192  $56,732  $83,666 
Online listing service wholesale time deposits  1,683   29,159   22,015 
Total wholesale and reciprocal deposits $66,875  $85,891  $105,681 
             

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

AVERAGE COST OF FUNDS

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

                                 
TABLE 6
AVERAGE COST OF FUNDS - UNAUDITED
For The Three Months Ended
                                 
  March 31,  December 31, September 30, June 30,  March 31, December 31, September 30, June 30,
  2019 2018 2018 2018 2018 2017 2017 2017
Interest-bearing deposits  0.49%  0.45%  0.42%  0.41%  0.41%  0.42%  0.43%  0.42%
Interest-bearing deposits and noninterest-bearing demand  0.34%  0.31%  0.29%  0.29%  0.29%  0.30%  0.31%  0.31%
All interest-bearing liabilities  0.67%  0.61%  0.64%  0.68%  0.60%  0.59%  0.60%  0.60%
All interest-bearing liabilities and noninterest-bearing demand  0.46%  0.42%  0.45%  0.50%  0.43%  0.42%  0.43%  0.44%
                                 

INCOME STATEMENT OVERVIEW

                      
TABLE 7
SUMMARY INCOME STATEMENT - UNAUDITED
(amounts in thousands, except per share data)
                      
For The Three Months Ended
  March 31,  Change December 31, Change
  2019 2018 Amount % 2018
 Amount %
Interest income $14,427  $12,530  $1,897  15% $13,750  $677  5%
Interest expense  1,423   1,185   238  20%  1,256   167  13%
Net interest income  13,004   11,345   1,659  15%  12,494   510  4%
Provision for loan and lease losses          %       %
Noninterest income  1,057   982   75  8%  1,132   (75) (7)%
Noninterest expense  10,923   8,033   2,890  36%  8,868   2,055  23%
Income before provision for income taxes  3,138   4,294   (1,156) (27)%  4,758   (1,620) (34)%
Provision for income taxes:                     
Reversal of uncertain tax position          %  (988)  988  100%
Benefit from cost segregation study and tangible property review          %  (484)  484  100%
Provision for income taxes from operations  832   1,053   (221) (21)%  1,391   (559) (40)%
Total provision for income taxes  832   1,053   (221) (21)%  (81)  913  (1,127)%
Net income $2,306  $3,241  $(935) (29)% $4,839  $(2,533) (52)%
                      
Basic earnings per share $0.13  $0.20  $(0.07) (35)% $0.30  $(0.17) (57)%
Average basic shares  17,489   16,225   1,264  8%  16,265   1,224  8%
Diluted earnings per share $0.13  $0.20  $(0.07) (35)% $0.30  $(0.17) (57)%
Average diluted shares  17,552   16,310   1,242  8%  16,345   1,207  7%
Dividends declared per common share $0.04  $0.03  $0.01  33% $0.04  $  %
                           

First Quarter of 2019 Compared With First Quarter of 2018

Net income for the first quarter of 2019 decreased $935 thousand compared to the first quarter of 2018. In the current quarter, net interest income was $1.7 million higher, noninterest income was $75 thousand higher and the provision for income taxes was $221 thousand lower. These positive changes were offset by noninterest expenses that were $2.9 million higher.

Net Interest Income

Net interest income increased $1.7 million compared to the same period a year ago.

Interest income for the first quarter of 2019 increased $1.9 million or 15% to $14.4 million:

  • Interest and fees on loans increased $1.3 million due to a $109.4 million increase in average loan balances partially offset by a one basis point decrease in the average yield on the loan portfolio.
  • Interest on securities increased $479 thousand due to a $38.4 million increase in average securities balances and a 32 basis point increase in average yield on the securities portfolio.
  • Interest on interest-bearing deposits due from banks increased $116 thousand due to a $7.3 million increase in average interest-bearing deposit balances, and an 88 basis point increase in average yield.

Interest expense for the first quarter of 2019 increased $238 thousand or 20% to $1.4 million:

  • Interest expense on interest bearing deposits increased $241 thousand. Average interest-bearing demand and savings deposit balances increased $86.7 million, while average certificate of deposit balances decreased $14.4 million. The average rate paid on interest-bearing deposits increased eight basis points.
  • Interest expense on borrowings from the Federal Home Loan Bank of San Francisco increased $8 thousand. Average Federal Home Loan Bank of San Francisco borrowings outstanding in the current quarter were $8.8 million compared to $12.4 million in the same quarter a year ago.
  • Interest expense on other term debt and junior subordinated debentures decreased $11 thousand.

Provision for loan and lease losses

As illustrated in Table 9, the nonaccrual status of a $10.9 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, no calculated impairment reserve on this loan is indicated and no provision for loan and lease losses was necessary for the quarter.

Noninterest Income

Noninterest income for the three months ended March 31, 2019 increased $75 thousand compared to the first quarter for 2018. Gains on sale of investment securities increased $56 thousand and dividends on Federal Home Loan Bank of San Francisco stock increased $41 thousand.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2019 increased $2.9 million compared to the same period a year previous which included:

  • $1.9 million in acquisition costs
  • $0.6 million increase in operating expenses from the Merchants acquisition

The Company’s efficiency ratio was 77.7% for the first quarter of 2019 (64.0% exclusive of acquisition costs). The ratio during the same period in 2018 was 65.2%.

Income Tax Provision

For the three months ended March 31, 2019, our income tax provision of $832 thousand on pre-tax income of $3.1 million was an effective tax rate of 26.5%. The tax provision for the first quarter of the prior year was $1.1 million on pre-tax income of $4.3 million for an effective tax rate of 24.5%. The current quarter includes $135 thousand, of acquisition costs which are not tax deductible.

First Quarter of 2019 Compared With Fourth Quarter of 2018

Net income for the first quarter of 2019 decreased $2.5 million compared to the fourth quarter of 2018. In the current quarter, net interest income was $510 thousand higher. This positive change was offset by noninterest income that was $75 thousand lower, noninterest expense that was $2.1 million higher and provision for income taxes that was $913 thousand higher.

Net Interest Income

Net interest income increased $510 thousand over the prior quarter.

Interest income for the three months ended March 31, 2019 increased $677 thousand or 5% to $14.4 million.

  • Interest and fees on loans increased $537 thousand due to a $69.9 million increase in average loan balances partially offset by a three basis point decrease in the average yield on the loan portfolio.
  • Interest on investment securities increased $329 thousand due to a $42.5 million increase in average securities balances and a 10 basis point increase in average yield on the investment portfolio.
  • Interest on interest-bearing deposits due from banks decreased $189 thousand due to a $35.1 million decrease in average balances partially offset by an 18 basis point increase in average yield.

Interest expense for the three months ended March 31, 2019 increased $167 thousand or 13% to $1.4 million.

  • Interest expense on deposits increased $114 thousand as average interest-bearing demand and savings deposits increased $34.5 million, average certificates of deposit increased $10.4 million and the average rate paid on these deposits increased by eight basis points.
  • Interest expense on borrowings from the Federal Home Loan Bank of San Francisco increased $55 thousand. Average Federal Home Loan Bank of San Francisco borrowings outstanding in the current quarter were $8.8 million, there were no borrowings in the prior quarter
  • Interest expense on other term debt and junior subordinated debentures decreased $2 thousand.

Provision for loan and lease losses

As illustrated in Table 9, the nonaccrual status of a $10.9 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, no calculated impairment reserve on this loan is indicated and no provision for loan and lease losses was necessary for the quarter.

Noninterest Income

Noninterest income for the three months ended March 31, 2019 decreased $75 thousand, the decrease was due to a $96 thousand special dividend on Federal Home Loan Bank of San Francisco stock in the prior quarter that did not recur and a decrease in gains on sale of OREO properties of $41 thousand. These decreases were partially offset by an increase in the gain on sale of investment securities of $89 thousand.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2019 increased $2.1 million. The increase was due to:

  • $1.1 million increase in acquisition costs
  • $0.6 million increase in operating expenses from the Merchants acquisition

The Company’s efficiency ratio was 77.7% for the first quarter of 2019 (64% exclusive of acquisition costs). The ratio during the prior quarter was 65.1%.

Income Tax Provision

For the three months ended March 31, 2019, our income tax provision of $832 thousand on pre-tax income of $3.1 million was an effective tax rate of 26.5%. The negative tax provision for the prior quarter of $81 thousand on pre-tax income of $4.8 million included:

  • $(988) thousand benefit due to the reversal of our uncertain tax position.
  • $(484) thousand benefit as a result to our cost segregation study and tangible property review.
  • $1.4 million tax provision on pre-tax net operating income of $4.8 million (29.2%).

The current and prior quarter include $135 thousand and $765 thousand, respectively, of acquisition costs which are not tax deductible.

Earnings Per Share

Diluted earnings per share were $0.13 for the three months ended March 31, 2019 compared with diluted earnings per share of $0.20 for the same period a year ago and diluted earnings per share of $0.30 for the prior period. Net income and weighted average shares used to calculate earnings per share – diluted are summarized in table 7 presented earlier in this press release.

                                  
TABLE 8a
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
                                  
  For The Three Months Ended
  March 31, 2019 March 31, 2018 December 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) $993,261  $12,031  4.91% $883,876  $10,729  4.92% $923,409  $11,494  4.94%
Taxable securities  253,068   1,764  2.83%  205,302   1,209  2.39%  218,137   1,469  2.67%
Tax-exempt securities  50,454   387  3.11%  59,789   463  3.14%  42,868   353  3.27%
Interest-bearing deposits in other banks  40,223   245  2.47%  32,915   129  1.59%  75,295   434  2.29%
Average interest-earning assets  1,337,006   14,427  4.38%  1,181,882   12,530  4.30%  1,259,709   13,750  4.33%
Cash and due from banks  21,392          17,641          22,447        
Premises and equipment, net  14,581          14,557          13,331        
Goodwill and core deposit intangible, net  11,872          1,998          1,842        
Other assets  41,009          32,485          31,488        
Average total assets $1,425,860         $1,248,563         $1,328,817        
                                  
Interest-bearing liabilities: