GlobeNewswire Inc | Jul 17, 2020 06:00PM EDT

July 17, 2020

SACRAMENTO, Calif., 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 companys 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 Companys efficiency ratio was 56.1% compared to 65.9% during the same period in the prior year. The Companys 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 Companys efficiency ratio was 63.1% compared to 71.7% for the same period in the prior year. The Companys 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 Companys 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 Reserves 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 Companys 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 managements 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 June 30, March 31, June 30, assets andaverageshareholders' 2020 2019 2020 2020 2019 equityNet income $ 3,847 $ 3,644 $ 916 $ 4,763 $ 5,950 Average total $ 1,626,827 $ 1,450,725 $ 1,454,019 $ 1,540,423 $ 1,438,361 assetsAverage totalearning $ 1,523,157 $ 1,353,200 $ 1,353,098 $ 1,438,127 $ 1,345,177 assetsAverageshareholders' $ 167,036 $ 163,598 $ 172,120 $ 169,578 $ 158,182 equity Selectedperformance ratiosReturn onaverage 0.95 % 1.01 % 0.25 % 0.62 % 0.83 %assetsReturn onaverage 9.26 % 8.93 % 2.14 % 5.65 % 7.59 %equityEfficiency 56.1 % 65.9 % 70.5 % 63.1 % 71.7 %ratio Share and per share amountsWeightedaverage 16,660 18,134 17,695 17,178 17,816 shares -basic ^(1)Weightedaverage 16,689 18,194 17,747 17,217 17,878 shares -diluted ^(1)Earnings per $ 0.23 $ 0.20 $ 0.05 $ 0.28 $ 0.33 share - basicEarnings pershare - $ 0.23 $ 0.20 $ 0.05 $ 0.28 $ 0.33 diluted At June 30, At March 31, Share and per 2020 2019 2020 share amountsCommon sharesoutstanding ^ 16,739 18,214 16,796 (2)Book valueper common $ 10.13 $ 9.22 $ 9.86 share ^(2)Tangible bookvalue per $ 9.17 $ 8.29 $ 8.89 common share^(2)(3) Capital ratios ^(4)Bank ofCommerce HoldingsCommon equitytier 1 12.34 % 12.56 % 12.02 % capital ratioTier 1 13.18 % 13.41 % 12.85 % capital ratioTotal capital 15.27 % 15.35 % 14.93 % ratioTier 1leverage 9.82 % 11.08 % 10.78 % ratioTangiblecommon equity 9.05 % 10.59 % 10.38 % ratio ^(5) MerchantsBank of CommerceCommon equitytier 1 13.72 % 14.06 % 13.66 % capital ratioTier 1 13.72 % 14.06 % 13.66 % capital ratioTotal capital 14.97 % 15.16 % 14.91 % ratioTier 1leverage 10.21 % 11.61 % 11.45 % ratio ^(1) Excludes unvested restricted shares issued in accordance with theCompany's equity incentive plan, as they are non-participative in dividends orvoting rights.^(2) Includes unvested restricted shares issued in accordance with theCompany's equity incentive plan.^(3) Book value per share is computed by dividing total shareholders? equity byshares outstanding. Tangible book value per share is computed by dividing totalshareholders? equity less goodwill and core deposit intangible, net by sharesoutstanding. Management believes that tangible book value per share ismeaningful because it is a measure that the Company and investors commonly useto assess capital adequacy.^(4) The Company and the Bank continue to meet all capital adequacyrequirements to which they are subject.^(5) Management believes the tangible common equity ratio is a useful measureof capital adequacy because it provides a meaningful base for period-to-periodand company-to-company comparisons, which management believes will assistinvestors in assessing the capital of the Company and the ability of theCompany to absorb potential losses. The tangible common equity ratio iscalculated as total shareholders' equity less goodwill and core depositintangible, net divided by total assets less goodwill and core depositintangible, 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 2LOAN BALANCES BY TYPE - UNAUDITED(dollars in thousands) At June 30, At March 31, % of % of Change % of 2020 Total 2019 Total Amount % 2020 TotalCommercial $ 126,024 10 % $ 152,303 15 % $ (26,279 ) (17 ) % $ 138,870 13 %PPP 162,189 13 ? 0 162,189 100 % ? 0 Real estate-construction 41,371 3 37,685 4 3,686 10 % 34,394 3 and landdevelopmentReal estate- commercial 521,004 44 468,706 45 52,298 11 % 514,052 49 non-owneroccupiedReal estate- commercial 215,799 18 210,711 21 5,088 2 % 217,319 21 owneroccupiedReal estate- 31,083 3 35,162 3 (4,079 ) (12 ) % 31,998 3 residential- ITINReal estate-residential 60,756 5 67,092 6 (6,336 ) (9 ) % 62,533 6 - 1-4 familymortgageReal estate-residential 20,938 2 23,656 2 (2,718 ) (11 ) % 23,158 2 - equitylinesConsumer and 27,176 2 41,409 4 (14,233 ) (34 ) % 29,921 3 otherGross loans 1,206,340 100 % 1,036,724 100 % 169,616 16 % 1,052,245 100 %Deferredfees and (1,603 ) 2,005 (3,608 ) 2,129 costsLoans, netof deferred 1,204,737 1,038,729 166,008 1,054,374 fees andcostsAllowancefor loan and (16,089 ) (12,445 ) (3,644 ) (15,067 ) lease lossesNet loans $ 1,188,648 $ 1,026,284 $ 162,364 $ 1,039,307 Averageloans during $ 1,180,915 $ 1,028,187 $ 152,728 15 % $ 1,033,689 the quarterAverageloans duringthe quarter $ 1,048,139 $ 1,028,187 $ 19,952 2 % $ 1,033,689 (excludingPPP)Averageyield on 4.50 % 5.01 % (0.51 ) (10 ) % 4.80 % loans duringthe quarterAverageyield on allloans during 4.76 % 5.01 % (0.25 ) (5 ) % 4.80 % the quarter(excludingPPP)Averageyield on allloans during 4.64 % 4.96 % (0.32 ) (6 ) % 4.80 % the year todateAverageyield on allloans duringthe year to 4.78 % 4.96 % (0.18 ) (4 ) % 4.80 % date(excludingPPP)

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 3PPP LOANS BY INDUSTRY - UNAUDITED(dollars in thousands) At June 30, 2020 BalanceConstruction $ 64,242Healthcare and Social Assistance 17,530Professional, Scientific and Tech Services 12,155Accommodation and Food Services 10,328Admin, Support, Waste Management and Remediation Services 7,372Primary Metal Manufacturing 6,581Retail Trade 8,033Other 35,948Total $ 162,189

TABLE 4PPP 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 3,630Total $ 162,189 594 $ 273

TABLE 5CASH, 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 TotalCash and due $ 29,630 7 % $ 21,306 7 % $ 8,324 39 % $ 21,127 6 %from banksInterest-bearingdeposits in 126,132 29 19,319 6 106,813 553 % 22,813 7 other banksTotal cash and 155,762 36 40,625 13 115,137 283 % 43,940 13 cash equivalents Investment securities:U.S. government 33,195 8 44,837 14 (11,642 ) (26 ) % 36,043 11 and agenciesObligations ofstate and 76,888 18 45,003 14 31,885 71 % 63,263 19 politicalsubdivisionsResidentialmortgage backedsecurities and 137,120 30 168,085 50 (30,965 ) (18 ) % 160,439 50 collateralizedmortgageobligationsCorporate 1,000 0 2,978 1 (1,978 ) (66 ) % 2,983 1 securitiesCommercialmortgage backed 16,329 4 24,868 8 (8,539 ) (34 ) % 17,428 5 securitiesOther assetbacked 15,668 4 48 ? 15,620 32,542 % 4,921 1 securitiesTotal investment 280,200 64 285,819 87 (5,619 ) (2 ) % 285,077 87 securities - AFS Total cash, cashequivalents and $ 435,962 100 % $ 326,444 100 % $ 109,518 34 % $ 329,017 100 %investmentsecuritiesAverage yield oninterest-bearingdue 0.12 % 2.47 % (2.35 ) 1.31 % from banksduring thequarterAverage yield oninvestmentsecurities 2.61 % 2.86 % (0.25 ) 2.74 % during thequarter -nominalAverage yield oninvestmentsecurities 2.78 % 2.98 % (0.20 ) 2.84 % during thequarter - taxequivalent

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 Banks 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 6DEPOSITS BY TYPE - UNAUDITED(dollars in thousands) At June 30, At March 31, % of % of Change % of 2020 Total 2019 Total Amount % 2020 TotalDemand - $ 521,751 35 % $ 397,349 32 % $ 124,402 31 % $ 419,315 34 %noninterest-bearingDemand - 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 1,356,660 91 1,074,962 86 281,698 26 % 1,098,830 89 deposits 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 7AVERAGE COST OF FUNDS - UNAUDITEDFor The Three Months Ended June 30, March 31, December September June 30, March 31, December September 31, 30, 31, 30, 2020 2020 2019 2019 2019 2019 2018 2018Interest-bearing 0.43 % 0.53 % 0.56 % 0.56 % 0.54 % 0.49 % 0.45 % 0.42 %depositsInterest-bearingdeposits and 0.28 % 0.35 % 0.38 % 0.38 % 0.37 % 0.34 % 0.31 % 0.29 %noninterest-bearingdemandAllinterest-bearing 0.52 % 0.65 % 0.68 % 0.68 % 0.74 % 0.67 % 0.61 % 0.64 %liabilitiesAllinterest-bearingliabilities and 0.34 % 0.43 % 0.46 % 0.46 % 0.52 % 0.46 % 0.42 % 0.45 %noninterest-bearingdemand

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 8SUMMARY INCOME STATEMENT - UNAUDITED(dollars in thousands, except per share data) For The Three Months Ended June 30, Change March Change 31, 2020 2019 Amount % 2020 Amount %Interest $ 14,997 $ 15,127 $ (130 ) (1 ) % $ 14,345 $ 652 5 %incomeInterest 1,214 1,632 (418 ) (26 ) % 1,359 (145 ) (11 ) %expenseNetinterest 13,783 13,495 288 2 % 12,986 797 6 %incomeProvisionfor loan 1,300 ? 1,300 100 % 2,850 (1,550 ) (54 ) %and leaselossesNoninterest 955 1,100 (145 ) (13 ) % 892 63 7 %incomeNoninterest 8,270 9,611 (1,341 ) (14 ) % 9,783 (1,513 ) (15 ) %expenseIncomebeforeprovision 5,168 4,984 184 4 % 1,245 3,923 315 %for incometaxesProvisionfor income 1,321 1,340 (19 ) (1 ) % 329 992 302 %taxesNet income $ 3,847 $ 3,644 $ 203 6 % $ 916 $ 2,931 320 % Earningsper share - $ 0.23 $ 0.20 $ 0.03 15 % $ 0.05 $ 0.18 360 %basicWeightedaverage 16,660 18,134 (1,474 ) (8 ) % 17,695 (1,035 ) (6 ) %shares -basicEarningsper share - $ 0.23 $ 0.20 $ 0.03 15 % $ 0.05 $ 0.18 360 %dilutedWeightedaverage 16,689 18,194 (1,505 ) (8 ) % 17,747 (1,058 ) (6 ) %shares -dilutedDividendsdeclaredper $ 0.05 $ 0.05 $ ? ? % $ 0.05 $ ? ? %commonshare

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 Companys 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 Companys 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 9aNET 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^ Rate ^ Balance Interest^ Rate ^ Balance Interest^ Rate ^ (1) (5) (1) (5) (1) (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 58,540 423 2.91 % 39,501 328 3.33 % 34,869 271 3.13 %^(3)Interest-bearingdeposits 72,507 21 0.12 % 35,605 219 2.47 % 47,135 154 1.31 %in other banksAverage interest- 1,523,157 14,997 3.96 % 1,353,200 15,127 4.48 % 1,353,098 14,345 4.26 %earning assetsCash and due from 21,564 21,942 21,987 banksPremises and 15,428 15,819 15,753 equipment, netGoodwill 11,671 11,720 11,671 Other intangible 4,508 5,275 4,701 assets, netOther assets 50,499 42,769 46,809 Average total assets $ 1,626,827 $ 1,450,725 $ 1,454,019 Interest-bearing liabilities:Interest-bearing $ 261,907 85 0.13 % $ 238,840 129 0.22 % $ 233,375 100 0.17 %demandMoney 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 142,955 467 1.31 % 164,084 497 1.21 % 147,241 464 1.27 %depositFederal Home LoanBank of San Francisco 16,044 5 0.13 % 30,000 192 2.57 % 220 ? 0.21 %borrowingsOther borrowings netof unamortized debt 9,976 184 7.42 % 10,841 201 7.44 % 9,963 184 7.43 %issuance costsJunior subordinated 10,310 61 2.38 % 10,310 110 4.28 % 10,310 90 3.51 %debenturesAverage interest- 945,060 1,214 0.52 % 889,708 1,632 0.74 % 844,200 1,359 0.65 %bearing liabilitiesNoninterest-bearing 497,636 379,173 420,847 demandOther liabilities 17,095 18,246 16,852 Shareholders? equity 167,036 163,598 172,120 Average liabilitiesand $ 1,626,827 $ 1,450,725 $ 1,454,019 shareholders? equityNet interest incomeand $ 13,783 3.64 % $ 13,495 4.00 % $ 12,986 3.86 %net interest margin^(4) ^(1) Interest income on loans includes deferred fees and costs of approximately$138 thousand, $91 thousand, and $257 thousand for the three months ended June30, 2020 and 2019 and March 31, 2020, respectively. Interest income on PPPloans 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, $13.7million and $5.5 million for the three months ended June 30, 2020 and 2019 andMarch 31, 2020, respectively.^(3) Interest income and yields on tax-exempt securities are not presented on ataxable equivalent basis.^(4) Net interest margin is net interest income expressed as a percentage ofaverage interest-earning assets. Net interest income for the three months endedJune 30, 2020 and 2019 and March 31, 2020 included $216 thousand, $190 thousandand $163 thousand in accretion of the discount on the loans acquired fromMerchants Holding Company, which improved the net interest margin by 7, 7 and 6basis points, respectively. Net interest income for the three months ended June30, 2020 included $813 thousand in interest and fee income from PPP loans withan average balance of $132.8 million for the quarter which decreased the netinterest margin by11 basis points.^(5) Yields and rates are calculated by dividing the income or expense by theaverage balance of the assets or liabilities, respectively, and annualizing theresult.

TABLE 9bNET INTEREST MARGIN - UNAUDITED(dollars in thousands) For The Six Months Ended June 30, 2020 June 30, 2019 Average Yield / Average Yield / Balance Interest^ Rate ^ Balance Interest^ Rate ^ (1) (5) (1) (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 59,820 175 0.59 % 37,930 464 2.47 %in other banksAverage interest- 1,438,127 29,342 4.10 % 1,345,177 29,554 4.43 %earning assetsCash and due from banks 21,775 21,640 Premises and equipment, 15,591 15,203 netGoodwill 11,671 9,822 Other intangible assets, 4,604 4,625 netOther 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 8,132 5 0.12 % 19,448 247 2.56 %San Francisco borrowingsOther borrowings net ofunamortized debt issuance 9,970 368 7.42 % 11,859 440 7.48 %costsJunior subordinated 10,310 151 2.95 % 10,310 223 4.36 %debenturesAverage interest- 894,630 2,573 0.58 % 878,562 3,055 0.70 %bearing liabilitiesNoninterest-bearing demand 459,241 383,766 Other liabilities 16,974 17,851 Shareholders? equity 169,578 158,182 Average liabilities and $ 1,540,423 $ 1,438,361 shareholders? equityNet interest income and $ 26,769 3.74 % $ 26,499 3.97 %net interest margin^ (4) ^(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 and2019, respectively. Interest income on PPP loans includes $476 thousand of feeincome 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 ataxable equivalent basis.^(4) Net interest margin is net interest income expressed as a percentage ofaverage interest-earning assets. Net interest income for the six months endedJune 30, 2020 and 2019 included $379 thousand and $238 thousand in accretion ofthe discount on the loans acquired from Merchants Holding Company, whichimproved the net interest margin by 7 and 4 basis points, respectively. Netinterest income for the six months ended June 30, 2020 included $813 thousandin interest and fee income from PPP loans with an average balance of $66.4million for the six months ended June 30, 2020 which decreased the net interestmargin by 6 basis points.^(5) Yields and rates are calculated by dividing the income or expense by theaverage balance of the assets or liabilities, respectively, and annualizing theresult.

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 2019Beginning $ 15,067 $ 12,231 $ 12,285 $ 12,445 $ 12,242 balance ALLLProvisionfor loan and 1,300 2,850 ? ? ? lease lossesLoans (356 ) (169 ) (174 ) (319 ) (659 ) charged-offLoan loss 78 155 120 159 862 recoveriesEnding $ 16,089 $ 15,067 $ 12,231 $ 12,285 $ 12,445 balance ALLL At June 30, At March 31, At December 31, At September At June 30, 30, 2020 2020 2019 2019 2019Nonaccrual loans:Commercial $ 7 $ 39 $ 61 $ 139 $ 194 Real estate- commercial 1,062 ? ? 10,099 10,690 non-owneroccupiedReal estate- commercial 3,647 3,103 3,103 ? ? owneroccupiedReal estate- 1,738 1,878 2,221 2,339 2,389 residential- ITINReal estate-residential 180 184 191 198 217 - 1-4 familymortgageConsumer and 37 39 40 21 22 otherTotalnonaccrual 6,671 5,243 5,616 12,796 13,512 loansAccruingtroubleddebt restructuredloans:Commercial 592 592 595 629 1,092 Real estate- commercial ? ? ? ? 791 non-owneroccupiedReal estate- 3,642 3,891 3,957 4,072 4,300 residential- ITINReal estate-residential 221 226 231 236 242 - equitylinesTotalaccruingtroubled 4,455 4,709 4,783 4,937 6,425 debtrestructuredloans All otheraccruing ? ? ? ? ? impairedloans Totalimpaired $ 11,126 $ 9,952 $ 10,399 $ 17,733 $ 19,937 loans Gross loansoutstanding $ 1,206,340 $ 1,052,245 $ 1,032,903 $ 1,033,082 $ 1,036,724 at periodend Impairedloans to 0.92 % 0.95 % 1.01 % 1.72 % 1.92 %gross loansNonaccrualloans to 0.55 % 0.50 % 0.54 % 1.24 % 1.30 %gross loans Allowance for loan and lease losses as a percent of:Gross loans 1.33 % 1.43 % 1.18 % 1.19 % 1.20 %Nonaccrual 241.18 % 287.37 % 217.79 % 96.01 % 92.10 %loansImpaired 144.61 % 151.40 % 117.62 % 69.28 % 62.42 %loans

TABLE 11 ALLOWANCE, RESERVE AND DISCOUNT - UNAUDITED (dollars in thousands) At June 30, At March 31, At December 31, At September At June 30, 30, 2020 2020 2019 2019 2019ALLL $ 16,089 $ 15,067 $ 12,231 $ 12,285 $ 12,445 Reserve forunfunded 800 695 695 695 695 commitmentsDiscount onacquired 1,293 1,509 1,672 1,860 2,053 loans ^(1)Totalallowance, $ 18,182 $ 17,271 $ 14,598 $ 14,840 $ 15,193 reserve anddiscount Gross loans $ 1,206,340 $ 1,052,245 $ 1,032,903 $ 1,033,082 $ 1,036,724 PPP loans 162,189 ? ? ? ? Total grossloans net $ 1,044,151 $ 1,052,245 $ 1,032,903 $ 1,033,082 $ 1,036,724 of PPPloans Totalallowance,reserve anddiscount asapercentage 1.74 % 1.64 % 1.41 % 1.44 % 1.47 %oftotal grossloans netof PPPloans^(1) Discount on acquired loans includes fair value discount for loans acquiredfrom Merchants in January of 2019.

COVID19 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 12COVID-19 LOAN ANALYSIS - UNAUDITED(dollars in thousands) At June 30, 2020 Individually Analyzed Loans With Loan Modifications a COVID-19 Risk Of Low and Low and High Moderate PPP Total High Moderate # Amount Amount Amount Amount # Amount # AmountCRE and C&I Industries highlyimpacted by COVID-19:Retail trade 13 $ 13,716 $ 25,555 $ 8,033 $ 47,304 4 $ 3,838 6 $ 4,156Health care and 47 14,650 12,305 17,530 44,485 14 7,281 8 4,741social assistanceHotels, motelsand 17 34,790 ? 1,402 36,192 12 29,466 ? ?bed-and-breakfastinnsOther services 7 6,438 18,492 2,874 27,804 3 4,972 5 2,737Restaurants, bars 20 10,951 ? 6,370 17,321 10 7,587 ? ?and caterersEducational 3 6,796 ? 2,693 9,489 ? ? ? ?servicesArts,entertainment and 21 4,362 ? 4,573 8,935 11 2,989 ? ?recreationOther industries 23 18,853 733,732 118,714 871,299 11 12,698 43 37,801Residential,Consumer and AllOther not ? ? 143,511 ? 143,511 ? ? 117 5,007individuallyanalyzedTotal 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 Companys 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 13TROUBLED DEBT RESTRUCTURINGS - UNAUDITED(dollars in thousands) At June 30, At March 31, At December 31, At September At June 30, 30, 2020 2020 2019 2019 2019Nonaccrual $ 2,194 $ 1,611 $ 1,680 $ 1,746 $ 1,828 Accruing 4,455 4,709 4,783 4,937 6,425 Total troubleddebt $ 6,649 $ 6,320 $ 6,463 $ 6,683 $ 8,253 restructurings Troubled debtrestructuringsas a 0.55 % 0.60 % 0.63 % 0.65 % 0.80 %percentage oftotal grossloans

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 14COVID-19 LOAN MODIFICATIONS - UNAUDITED(dollars in thousands) At June 30, 2020 Commercial Residential Commercial Real Estate Real Estate Consumer TotalApproved $ 14,033 $ 102,061 $ 6,623 $ 556 $ 123,273Total $ 14,033 $ 102,061 $ 6,623 $ 556 $ 123,273 Number ofcontracts 44 81 58 61 244approvedTotal 44 81 58 61 244

The following table presents nonperforming assets at the dates indicated.

TABLE 15NONPERFORMING ASSETS - UNAUDITED(dollars in thousands) At June 30, At March At December At September At June 30, 31, 31, 30, 2020 2020 2019 2019 2019Totalnonaccrual $ 6,671 $ 5,243 $ 5,616 $ 12,796 $ 13,512 loans90 days pastdue and still ? 2 ? ? ? accruingTotalnonperforming 6,671 5,245 5,616 12,796 13,512 loans Other realestate owned 8 8 35 58 ? ("OREO")Totalnonperforming $ 6,679 $ 5,253 $ 5,651 $ 12,854 $ 13,512 assets Nonperformingloans to 0.55 % 0.50 % 0.54 % 1.24 % 1.30 %gross loansNonperformingassets to 0.39 % 0.36 % 0.38 % 0.87 % 0.94 %total assets

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

TABLE 16LOANS 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 TotalRate Index: Fixed $ 54,472 $ 216,930 $ 68,744 $ 39,618 $ 32,010 $ 177,452 $ 30,599 $ 619,825Variable: Prime 80,588 6,026 7,379 7,416 8,321 1,264 ? 110,9945 Year 28,754 68,980 87,110 65,206 86,679 50,943 ? 387,672Treasury7 Year 643 3,221 4,798 5,661 365 13,648 ? 28,336Treasury1 Year LIBOR 22,373 ? ? ? ? ? ? 22,373Other Indexes 4,821 1,569 1,156 550 9,682 10,390 698 28,866Nonaccrual 1,645 557 545 523 499 2,085 817 6,671Total $ 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 17LOAN FLOORS - UNAUDITED(dollars in thousands) At June 30, 2020 Loans At Loans Above Floor Rate Floor Rate TotalVariable rate loans with floors: Prime $ 58,041 $ 5,532 $ 63,5735 year Treasury 309,033 48,569 357,6027 Year Treasury 28,336 ? 28,3361 Year LIBOR ? 734 734Other Indexes 15,137 1,274 16,411 $ 410,547 $ 56,109 466,656 Variable rate loans without floors: Prime 47,4215 year Treasury 30,0701 Year LIBOR 21,639Other Indexes 12,455 111,585Total variable rate loans $ 578,241

TABLE 18UNAUDITED CONSOLIDATEDBALANCE SHEET(dollars in thousands, except per share data) At June 30, Change At March 31, 2020 2019 $ % 2020 Assets: Cash and due from $ 29,630 $ 21,306 $ 8,324 39 % $ 21,127 banksInterest-bearingdeposits in other 126,132 19,319 106,813 553 % 22,813 banksTotal cash and cash 155,762 40,625 115,137 283 % 43,940 equivalentsSecuritiesavailable-for-sale, 280,200 285,819 (5,619 ) (2 ) % 285,077 at fair valueLoans, net ofdeferred fees and 1,204,737 1,038,729 166,008 16 % 1,054,374 costsAllowance for loan (16,089 ) (12,445 ) (3,644 ) (29 ) % (15,067 )and lease lossesNet loans 1,188,648 1,026,284 162,364 16 % 1,039,307 Premises and 15,466 15,836 (370 ) (2 ) % 15,452 equipment, netOther real estate 8 ? 8 ? % 8 ownedLife insurance 23,968 23,449 519 2 % 23,824 Deferred tax asset, 2,645 4,791 (2,146 ) (45 ) % 3,149 netGoodwill 11,671 11,708 (37 ) ? % 11,671 Other intangible 4,426 5,192 (766 ) (15 ) % 4,618 assets, netOther assets 29,102 28,282 820 3 % 28,834 Total assets $ 1,711,896 $ 1,441,986 $ 269,910 19 % $ 1,455,880 Liabilities andshareholders' equity:Demand - $ 521,751 $ 397,349 $ 124,402 31 % $ 419,315 noninterest-bearingDemand - 287,198 238,175 49,023 21 % 231,276 interest-bearingMoney market 405,322 300,847 104,475 35 % 314,687 Savings 142,389 138,591 3,798 3 % 133,552 Certificates of 137,647 160,556 (22,909 ) (14 ) % 143,557 depositTotal deposits 1,494,307 1,235,518 258,789 21 % 1,242,387 Term debt: Federal Home LoanBank of San 10,000 ? 10,000 100 % 10,000 FranciscoborrowingsOther borrowings 10,000 10,000 ? ? % 10,000 Unamortized debt (19 ) (67 ) 48 72 % (31 )issuance costsNet term debt 19,981 9,933 10,048 101 % 19,969 Junior subordinated 10,310 10,310 ? ? % 10,310 debenturesOther 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 othercomprehensive 7,148 2,403 4,745 197 % 5,947 income, net of taxTotal shareholders' 169,555 167,853 1,702 1 % 165,658 equityTotal liabilitiesand shareholders' $ 1,711,896 $ 1,441,986 $ 269,910 19 % $ 1,455,880 equityTotalinterest-earning $ 1,600,922 $ 1,340,456 $ 260,466 19 % $ 1,353,822 assetsShares outstanding 16,739 18,214 (1,475 ) (8 ) % 16,796 Book value per $ 10.13 $ 9.22 $ 0.91 10 % $ 9.86 share ^(1)Tangible book value $ 9.17 $ 8.29 $ 0.88 11 % $ 8.89 per share ^(1) 9 ^(1) Book value per share is computed by dividing total shareholders? equityby shares outstanding. Tangible book value per share is computed by dividingtotal shareholders? equity less goodwill and core deposit intangible, net byshares outstanding. Management believes that tangible book value per share ismeaningful because it is a measure that the Company and investors commonly useto assess capital adequacy.

TABLE 19UNAUDITEDINCOME 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 2019Interest income: Interest and $ 13,224 $ 12,847 $ 377 3 % $ 12,338 $ 25,562 $ 24,878fees on loansInterest ontaxable 1,329 1,733 (404 ) (23 ) % 1,582 2,911 3,497securitiesInterest ontax-exempt 423 328 95 29 % 271 694 715securitiesInterest oninterest-bearing 21 219 (198 ) (90 ) % 154 175 464deposits inother banksTotal interest 14,997 15,127 (130 ) (1 ) % 14,345 29,342 29,554incomeInterest expense:Interest on 85 129 (44 ) (34 ) % 100 185 255demand depositsInterest on 317 380 (63 ) (17 ) % 403 720 669money marketInterest on 95 123 (28 ) (23 ) % 118 213 234savingsInterest oncertificates of 467 497 (30 ) (6 ) % 464 931 987depositInterest onFederal HomeLoan Bank of 5 192 (187 ) (97 ) % ? 5 247San FranciscoborrowingsInterest on 184 201 (17 ) (8 ) % 184 368 440other borrowingsInterest onjunior 61 110 (49 ) (45 ) % 90 151 223subordinateddebenturesTotal interest 1,214 1,632 (418 ) (26 ) % 1,359 2,573 3,055expenseNet interest 13,783 13,495 288 2 % 12,986 26,769 26,499incomeProvision forloan and lease 1,300 ? 1,300 100 % 2,850 4,150 ?lossesNet interestincome afterprovision 12,483 13,495 (1,012 ) (7 ) % 10,136 22,619 26,499for loan andlease lossesNoninterest income:Service chargeson deposit 152 187 (35 ) (19 ) % 169 321 355accountsATM and point of 263 318 (55 ) (17 ) % 268 531 583sale feesPayroll andbenefit 143 157 (14 ) (9 ) % 170 313 328processing feesLife insurance 148 155 (7 ) (5 ) % 123 271 284Gain oninvestment 140 33 107 324 % 84 224 125securities, netFederal HomeLoan Bank of 36 124 (88 ) (71 ) % 130 166 245San FranciscodividendsGain (loss) on ? 18 (18 ) (100 ) % (23 ) (23 ) 41sale of OREOOther income 73 108 (35 ) (32 ) % (29 ) 44 196(loss)Totalnoninterest 955 1,100 (145 ) (13 ) % 892 1,847 2,157income

TABLE 19 - CONTINUEDUNAUDITEDINCOME STATEMENT(dollars in thousands, except per share data) For The Three Months Ended For The Six Months Ended June 30, Change March June 30, 31, 2020 2019 $ % 2020 2020 2019Noninterest expense:Salaries and 4,965 5,146 (181 ) (4 ) % 5,887 10,852 10,875related benefitsPremises and 826 928 (102 ) (11 ) % 854 1,680 1,903equipmentFederal DepositInsurance 90 95 (5 ) (5 ) % 36 126 195Corporationinsurance premiumData processing 585 638 (53 ) (8 ) % 531 1,116 1,214Professional 469 535 (66 ) (12 ) % 334 803 838servicesTelecommunications 156 180 (24 ) (13 ) % 171 327 353Acquisition and ? 376 (376 ) (100 ) % ? ? 2,306mergerOther expenses 1,179 1,713 (534 ) (31 ) % 1,970 3,149 2,850Total noninterest 8,270 9,611 (1,341 ) (14 ) % 9,783 18,053 20,534expenseIncome beforeprovision for 5,168 4,984 184 4 % 1,245 6,413 8,122income taxesProvision for 1,321 1,340 (19 ) (1 ) % 329 1,650 2,172income taxesNet income $ 3,847 $ 3,644 $ 203 6 % $ 916 $ 4,763 $ 5,950 Earnings per share $ 0.23 $ 0.20 $ 0.03 15 % $ 0.05 $ 0.28 $ 0.33- basicWeighted average 16,660 18,134 (1,474 ) (8 ) % 17,695 17,178 17,816shares - basicEarnings per share $ 0.23 $ 0.20 $ 0.03 15 % $ 0.05 $ 0.28 $ 0.33- dilutedWeighted average 16,689 18,194 (1,505 ) (8 ) % 17,747 17,217 17,878shares - diluted

TABLE 20UNAUDITED CONDENSED CONSOLIDATEDQUARTERLY 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 2019Earning assets: Loans $ 1,180,915 $ 1,033,689 $ 1,031,702 $ 1,029,534 $ 1,028,187Taxable securities 211,195 237,405 245,487 238,601 249,907Tax-exempt 58,540 34,869 32,158 32,974 39,501securitiesInterest-bearingdeposits in other 72,507 47,135 81,099 58,897 35,605banksTotal earning 1,523,157 1,353,098 1,390,446 1,360,006 1,353,200assets Cash and due from 21,564 21,987 24,083 23,822 21,942banksPremises and 15,428 15,753 16,049 15,922 15,819equipment, netGoodwill 11,671 11,671 11,671 11,686 11,720Other intangible 4,508 4,701 4,890 5,083 5,275assets, netOther assets 50,499 46,809 45,504 45,925 42,769Total assets $ 1,626,827 $ 1,454,019 $ 1,492,643 $ 1,462,444 $ 1,450,725 Liabilities andshareholders' equity:Demand - $ 497,636 $ 420,847 $ 428,420 $ 405,853 $ 379,173noninterest-bearingDemand - 261,907 233,375 244,276 243,553 238,840interest-bearingMoney market 365,368 307,587 318,127 309,188 296,326Savings 138,500 135,504 138,155 138,296 139,307Certificates of 142,955 147,241 153,223 157,620 164,084depositTotal deposits 1,406,366 1,244,554 1,282,201 1,254,510 1,217,730 Federal Home LoanBank of San 16,044 220 ? ? 30,000FranciscoborrowingsOther borrowingsnet of unamortized 9,976 9,963 9,952 9,942 10,841debt issuance costsJunior subordinated 10,310 10,310 10,310 10,310 10,310debenturesOther liabilities 17,095 16,852 17,795 18,074 18,246Total liabilities 1,459,791 1,281,899 1,320,258 1,292,836 1,287,127 Shareholders' 167,036 172,120 172,385 169,608 163,598equityLiabilities &shareholders' $ 1,626,827 $ 1,454,019 $ 1,492,643 $ 1,462,444 $ 1,450,725equity

TABLE 21UNAUDITED CONDENSED CONSOLIDATEDYEAR 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 2017Earning assets: Loans $ 1,107,302 $ 1,010,821 $ 1,020,801 $ 915,360 $ 818,119Taxable securities 224,300 251,479 246,723 207,407 165,333Tax-exempt 46,705 44,947 38,706 50,330 74,231securitiesInterest-bearingdeposits in other 59,820 37,930 54,095 47,038 66,872banksTotal earning 1,438,127 1,345,177 1,360,325 1,220,135 1,124,555assets Cash and due from 21,775 21,640 22,806 20,468 18,301banksPremises and 15,591 15,203 15,598 13,952 15,567equipment, netGoodwill 11,671 9,822 10,758 665 665Other intangible 4,604 4,625 4,807 1,252 1,471assets, netOther assets 48,655 41,894 43,818 32,369 37,692Total assets $ 1,540,423 $ 1,438,361 $ 1,458,112 $ 1,288,841 $ 1,198,251 Liabilities andshareholders' equity:Demand - $ 459,241 $ 383,766 $ 400,588 $ 332,197 $ 289,735noninterest-bearingDemand - 247,641 241,095 242,516 238,328 209,792interest-bearingMoney market 336,477 294,869 304,340 250,685 224,913Savings 137,002 135,217 136,733 109,025 111,376Certificates of 145,098 165,764 160,550 168,183 205,648depositTotal deposits 1,325,459 1,220,711 1,244,727 1,098,418 1,041,464 Federal Home LoanBank of San 8,132 19,448 9,644 22,466 302FranciscoborrowingsOther borrowingsnet of unamortized 9,970 11,859 10,895 15,143 17,981debt issuance costsJunior subordinated 10,310 10,310 10,310 10,310 10,310debenturesOther liabilities 16,974 17,851 17,894 12,286 12,293Total liabilities 1,370,845 1,280,179 1,293,470 1,158,623 1,082,350 Shareholders' 169,578 158,182 164,642 130,218 115,901equityLiabilities &shareholders' $ 1,540,423 $ 1,438,361 $ 1,458,112 $ 1,288,841 $ 1,198,251equity

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 Companys common stock is listed on the NASDAQ Global Market and trades under the symbol BOCH.

Contact Information:

Randall S. Eslick, President and Chief Executive OfficerTelephone Direct (916) 677-5800

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

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