~~0000356171us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMember2020-06-30~~0000356171tcbk:MortgageServicingRightsMemberus-gaap:ValuationTechniqueDiscountedCashFlowMembersrt:MinimumMemberus-gaap:MeasurementInputDiscountRateMember2021-03-31

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________

FORM 10-Q

___________________


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended: ~~June 30, 2020~~March 31, 2021


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from to

Commission File Number: 000-10661

___________________

(Exact Name of Registrant as Specified in Its Charter)

___________________


CA						94-2792841
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification Number)

63 Constitution Drive

Chico, California 95973

(Address of Principal Executive Offices)(Zip Code)

(530) 898-0300

(Registrant’s Telephone Number, Including Area Code)

___________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

Common Stock

TCBK

The NASDAQ Stock Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☒

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth ~~company~~company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practical date:

Common stock, no par value: ~~29,759,209~~29,714,718 shares outstanding as of ~~August~~May 6, ~~2020.~~2021.

Table of Contents

TriCo Bancshares

FORM 10-Q

TABLE OF CONTENTS

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

TRICO BANCSHARES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data; unaudited)


		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Assets:	Assets:					Assets:
Cash and due from banks	Cash and due from banks	$	78,666	$	92,816	Cash and due from banks	$	94,157	$	77,253
Cash at Federal Reserve and other banks	Cash at Federal Reserve and other banks	627,186		183,691		Cash at Federal Reserve and other banks	515,365		592,298
Cash and cash equivalents	Cash and cash equivalents	705,852		276,507		Cash and cash equivalents	609,522		669,551
Investment securities:	Investment securities:					Investment securities:
Marketable equity securities	Marketable equity securities	3,033		2,960		Marketable equity securities	2,971		3,025
Available for sale debt securities, net of allowance for credit losses of $—		996,280		950,138
Held to maturity debt securities, net of allowance for credit losses of $—		337,165		375,606
Available for sale debt securities, net of allowance for credit losses of $0						Available for sale debt securities, net of allowance for credit losses of $0	1,682,105		1,414,264
Held to maturity debt securities, net of allowance for credit losses of $0						Held to maturity debt securities, net of allowance for credit losses of $0	260,454		284,563
Restricted equity securities	Restricted equity securities	17,250		17,250		Restricted equity securities	17,250		17,250
Loans held for sale	Loans held for sale	8,352		5,265		Loans held for sale	3,995		6,268
Loans	Loans	4,801,405		4,307,366		Loans	4,966,977		4,763,127
Allowance for credit losses	Allowance for credit losses	(79,739)		(30,616)		Allowance for credit losses	(85,941)		(91,847)
Total loans, net	Total loans, net	4,721,666		4,276,750		Total loans, net	4,881,036		4,671,280
Premises and equipment, net	Premises and equipment, net	85,292		87,086		Premises and equipment, net	82,338		83,731
Cash value of life insurance	Cash value of life insurance	119,254		117,823		Cash value of life insurance	119,543		118,870
Accrued interest receivable	Accrued interest receivable	20,337		18,897		Accrued interest receivable	19,442		20,004
Goodwill	Goodwill	220,872		220,872		Goodwill	220,872		220,872
Other intangible assets, net	Other intangible assets, net	20,694		23,557		Other intangible assets, net	16,402		17,833
Operating leases, right-of-use	Operating leases, right-of-use	29,842		27,879		Operating leases, right-of-use	27,540		27,846
Other assets	Other assets	74,182		70,591		Other assets	88,142		84,172
Total assets	Total assets	$	7,360,071	$	6,471,181	Total assets	$	8,031,612	$	7,639,529
Liabilities and Shareholders’ Equity:	Liabilities and Shareholders’ Equity:					Liabilities and Shareholders’ Equity:
Liabilities:	Liabilities:					Liabilities:
Deposits:	Deposits:					Deposits:
Noninterest-bearing demand	Noninterest-bearing demand	$	2,487,120	$	1,832,665	Noninterest-bearing demand	$	2,766,510	$	2,581,517
Interest-bearing	Interest-bearing	3,761,138		3,534,329		Interest-bearing	4,096,890		3,924,417
Total deposits	Total deposits	6,248,258		5,366,994		Total deposits	6,863,400		6,505,934
Accrued interest payable	Accrued interest payable	1,734		2,407		Accrued interest payable	970		1,362
Operating lease liability	Operating lease liability	29,743		27,540		Operating lease liability	27,780		27,973
Other liabilities	Other liabilities	98,684		91,984		Other liabilities	102,955		94,597
Other borrowings	Other borrowings	38,544		18,454		Other borrowings	36,226		26,914
Junior subordinated debt	Junior subordinated debt	57,422		57,232		Junior subordinated debt	57,742		57,635
Total liabilities	Total liabilities	6,474,385		5,564,611		Total liabilities	7,089,073		6,714,415
Commitments and contingencies (Note 7)	Commitments and contingencies (Note 7)					Commitments and contingencies (Note 7)	0		0
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Preferred stock, 0 par value: 1,000,000 shares authorized, 0 issued and outstanding at June 30, 2020 and December 31, 2019		—		—
Common stock, 0 par value: 50,000,000 shares authorized; 29,759,209 and 30,523,824 issued and outstanding at June 30, 2020 and December 31, 2019, respectively		530,422		543,998
Preferred stock, no par value: 1,000,000 shares authorized, 0 issued and outstanding at March 31, 2021 and December 31, 2020						Preferred stock, no par value: 1,000,000 shares authorized, 0 issued and outstanding at March 31, 2021 and December 31, 2020	0		0
Common stock, no par value: 50,000,000 shares authorized; 29,727,122 and 29,727,214 issued and outstanding at March 31, 2021 and December 31, 2020, respectively						Common stock, no par value: 50,000,000 shares authorized; 29,727,122 and 29,727,214 issued and outstanding at March 31, 2021 and December 31, 2020, respectively	531,367		530,835
Retained earnings	Retained earnings	354,645		367,794		Retained earnings	408,211		381,999
Accumulated other comprehensive income (loss), net of tax		619		(5,222)
Accumulated other comprehensive income, net of tax						Accumulated other comprehensive income, net of tax	2,961		12,280
Total shareholders’ equity	Total shareholders’ equity	885,686		906,570		Total shareholders’ equity	942,539		925,114
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	7,360,071	$	6,471,181	Total liabilities and shareholders’ equity	$	8,031,612	$	7,639,529

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data; unaudited)


		Three months ended June 30,						Six months ended June 30,							Three months ended March 31,
		2020		2019		2020		2019			2021		2020
Interest and dividend income:	Interest and dividend income:									Interest and dividend income:
Loans, including fees	Loans, including fees	$	58,409	$	55,491	$	114,667	$	109,889	Loans, including fees	$	60,436	$	56,258
Investments:	Investments:									Investments:
Taxable securities	Taxable securities	7,466		10,457		15,677		21,012		Taxable securities	6,177		8,211
Tax exempt securities	Tax exempt securities	952		1,061		1,856		2,134		Tax exempt securities	923		904
Dividends	Dividends	223		305		584		665		Dividends	217		361
Interest bearing cash at Federal Reserve and other banks	Interest bearing cash at Federal Reserve and other banks	98		866		881		1,937		Interest bearing cash at Federal Reserve and other banks	163		783
Total interest and dividend income	Total interest and dividend income	67,148		68,180		133,665		135,637		Total interest and dividend income	67,916		66,517
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	1,813		2,999		4,364		5,718		Deposits	937		2,551
Other borrowings	Other borrowings	4		37		9		50		Other borrowings	4		5
Junior subordinated debt	Junior subordinated debt	672		829		1,441		1,684		Junior subordinated debt	535		769
Total interest expense	Total interest expense	2,489		3,865		5,814		7,452		Total interest expense	1,476		3,325
Net interest income	Net interest income	64,659		64,315		127,851		128,185		Net interest income	66,440		63,192
Provision for (reversal of) credit losses	Provision for (reversal of) credit losses	22,089		537		30,089		(1,063)		Provision for (reversal of) credit losses	(6,060)		8,070
Net interest income after credit loss provision (reversal)	Net interest income after credit loss provision (reversal)	42,570		63,778		97,762		129,248		Net interest income after credit loss provision (reversal)	72,500		55,122
Non-interest income:	Non-interest income:									Non-interest income:
Service charges and fees	Service charges and fees	8,168		10,128		17,294		19,198		Service charges and fees	10,476		9,126
Gain on sale of loans	Gain on sale of loans	1,736		575		2,627		987		Gain on sale of loans	3,247		891
Gain on sale of investment securities	Gain on sale of investment securities	—		—		—		—		Gain on sale of investment securities	0		0
Asset management and commission income	Asset management and commission income	661		739		1,577		1,381		Asset management and commission income	834		916
Increase in cash value of life insurance	Increase in cash value of life insurance	710		746		1,430		1,521		Increase in cash value of life insurance	673		720
Other	Other	382		1,235		549		2,139		Other	880		167
Total non-interest income	Total non-interest income	11,657		13,423		23,477		25,226		Total non-interest income	16,110		11,820
Non-interest expense:	Non-interest expense:									Non-interest expense:
Salaries and related benefits	Salaries and related benefits	27,055		26,719		54,327		51,847		Salaries and related benefits	25,330		27,272
Other	Other	18,650		19,978		36,197		40,302		Other	16,288		17,477
Total non-interest expense	Total non-interest expense	45,705		46,697		90,524		92,149		Total non-interest expense	41,618		44,749
Income before provision for income taxes	Income before provision for income taxes	8,522		30,504		30,715		62,325		Income before provision for income taxes	46,992		22,193
Provision for income taxes	Provision for income taxes	1,092		7,443		7,164		16,538		Provision for income taxes	13,343		6,072
Net income	Net income	$	7,430	$	23,061	$	23,551	$	45,787	Net income	$	33,649	$	16,121
Per share data:	Per share data:									Per share data:
Basic earnings per share	Basic earnings per share	$	0.25	$	0.76	$	0.78	$	1.50	Basic earnings per share	$	1.13	$	0.53
Diluted earnings per share	Diluted earnings per share	$	0.25	$	0.75	$	0.78	$	1.49	Diluted earnings per share	$	1.13	$	0.53
Dividends per share	Dividends per share	$	0.22	$	0.19	$	0.44	$	0.38	Dividends per share	$	0.25	$	0.22

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In thousands; unaudited)


		Three months ended June 30,						Six months ended June 30,							Three months ended March 31,
		2020		2019		2020		2019			2021		2020
Net income	Net income	$	7,430	$	23,061	$	23,551	$	45,787	Net income	$	33,649	$	16,121
Other comprehensive income, net of tax:
Unrealized gains on available for sale securities arising during the period		24,625		6,729		3,803		15,681
Other comprehensive income (loss), net of tax:										Other comprehensive income (loss), net of tax:
Unrealized losses on available for sale securities arising during the period										Unrealized losses on available for sale securities arising during the period	(8,690)		(20,822)
Change in minimum pension liability	Change in minimum pension liability	1,126		—		2,038		—		Change in minimum pension liability	0		912
Other comprehensive income		25,751		6,729		5,841		15,681
Change in joint beneficiary agreements										Change in joint beneficiary agreements	(629)		0
Other comprehensive income (loss)										Other comprehensive income (loss)	(9,319)		(19,910)
Comprehensive income (loss)	Comprehensive income (loss)	$	33,181	$	29,790	$	29,392	$	61,468	Comprehensive income (loss)	$	24,330	$	(3,789)

See accompanying notes to unaudited condensed consolidated financial ~~statements~~statements.

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except share and per share data; unaudited)


		Shares of Common Stock	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total			Shares of Common Stock	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance at March 31, 2019		30,432,419	$	542,340	$	319,865	$	(8,927)	$	853,278

Balance at January 1, 2020											Balance at January 1, 2020	30,523,824	$	543,998	$	367,794	$	(5,222)	$	906,570
Cumulative change from adoption of ASU 2016-13											Cumulative change from adoption of ASU 2016-13				(12,983)				(12,983)
Balance at January 1, 2020 (as adjusted for change in accounting principle)											Balance at January 1, 2020 (as adjusted for change in accounting principle)	30,523,824	543,998		354,811		(5,222)		893,587
Net income	Net income				23,061				23,061		Net income				16,121				16,121
Other comprehensive income							6,729		6,729
Other comprehensive loss											Other comprehensive loss						(19,910)		(19,910)
Stock options exercised	Stock options exercised	116,000	1,853						1,853		Stock options exercised	8,000	148						148
RSU vesting	RSU vesting		289						289		RSU vesting		297						297
PSU vesting	PSU vesting		129						129		PSU vesting		142						142
RSUs released	RSUs released	25,856							—		RSUs released	362							—
PSUs released		22,237							—
Repurchase of common stock		(93,755)	(1,672)		(1,988)				(3,660)
Dividends paid ($0.19 per share)					(5,793)				(5,793)
Three months ended June 30, 2019		30,502,757	$	542,939	$	335,145	$	(2,198)	$	875,886

Balance at March 31, 2020		29,973,516	$	534,623	$	356,935	$	(25,132)	$	866,426
Net income					7,430				7,430
Other comprehensive income							25,751		25,751
Stock options exercised		8,000	140						140
RSU vesting			338						338
PSU vesting			154						154
RSUs released		28,727							—
PSUs released		20,265							—
Repurchase of common stock	Repurchase of common stock	(271,299)	(4,833)		(3,176)				(8,009)		Repurchase of common stock	(558,670)	(9,962)		(7,333)				(17,295)
Dividends paid ($0.22 per share)	Dividends paid ($0.22 per share)				(6,544)				(6,544)		Dividends paid ($0.22 per share)				(6,664)				(6,664)
Three months ended June 30, 2020		29,759,209	$	530,422	$	354,645	$	619	$	885,686
Three months ended March 31, 2020											Three months ended March 31, 2020	29,973,516	$	534,623	$	356,935	$	(25,132)	$	866,426


Balance at January 1, 2021	29,727,214	$	530,835	$	381,999	$	12,280	$	925,114
Net income				33,649				33,649
Other comprehensive loss						(9,319)		(9,319)
Stock options exercised	—	—						—
RSU vesting		352						352
PSU vesting		185						185
RSUs released	201							—

Repurchase of common stock	(293)	(5)		(5)				(10)
Dividends paid ($0.25 per share)				(7,432)				(7,432)
Three months ended March 31, 2021	29,727,122	$	531,367	$	408,211	$	2,961	$	942,539

See accompanying notes to unaudited condensed consolidated financial statements.

~~Table of Contents~~

~~TRICO BANCSHARES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~

~~(In thousands, except share and per share data; unaudited)~~

Shares of
Common
Stock Common
Stock Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total
Balance at January 1, 2019 30,417,223 $ 541,762 $ 303,490 $ (17,879) $ 827,373
Net income 45,787 45,787
Other comprehensive income 15,681 15,681
Stock options exercised 157,000 2,500 2,500
RSU vesting 567 567
PSU vesting 248 248
RSUs released 26,211 —
PSUs released 22,237 —
Repurchase of common stock (119,914) (2,138) (2,557) (4,695)
Dividends paid ($0.38 per share) (11,575) (11,575)
Six months ended June 30, 2019 30,502,757 $ 542,939 $ 335,145 $ (2,198) $ 875,886
Balance at January 1, 2020 30,523,824 $ 543,998 $ 367,794 $ (5,222) $ 906,570
Cumulative change from adoption of ASU 2016-13 (12,983) (12,983)
Balance at January 1, 2020 (as adjusted for change in accounting principle) 30,523.824 543,998 354,811 (5,222) 893,587
Net income 23,551 23,551
Other comprehensive income 5,841 5,841
Stock options exercised 16,000 288 288
RSU vesting 635 635
PSU vesting 296 296
RSUs released 29,089 —
PSUs released 20,265 —
Repurchase of common stock (829,969) (14,795) (10,509) (25,304)
Dividends paid ($0.44 per share) (13,208) (13,208)
Six months ended June 30, 2020 29,759,209 $ 530,422 $ 354,645 $ 619 $ 885,686

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)


		For the six months ended June 30,							For the three months ended March 31,
		2020		2019			2021		2020
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	23,551	$	45,787	Net income	$	33,649	$	16,121
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment, and amortization	Depreciation of premises and equipment, and amortization	3,193		3,582		Depreciation of premises and equipment, and amortization	1,698		1,618
Amortization of intangible assets	Amortization of intangible assets	2,862		2,862		Amortization of intangible assets	1,431		1,431
Provision for (reversal of) credit losses	Provision for (reversal of) credit losses	30,089		(1,063)		Provision for (reversal of) credit losses	(6,060)		8,070
Amortization of investment securities premium, net	Amortization of investment securities premium, net	1,054		1,186		Amortization of investment securities premium, net	1,186		509

Originations of loans for resale	Originations of loans for resale	(84,872)		(46,936)		Originations of loans for resale	(65,970)		(28,394)
Proceeds from sale of loans originated for resale	Proceeds from sale of loans originated for resale	83,867		45,407		Proceeds from sale of loans originated for resale	70,987		31,629
Gain on sale of loans	Gain on sale of loans	(2,627)		(987)		Gain on sale of loans	(3,247)		(891)
Change in market value of mortgage servicing rights	Change in market value of mortgage servicing rights	2,494		1,197		Change in market value of mortgage servicing rights	(12)		1,258
Provision for losses on foreclosed assets		106		62
Gain on transfer of loans to foreclosed assets		—		(97)

Gain on sale of foreclosed assets	Gain on sale of foreclosed assets	(57)		(198)		Gain on sale of foreclosed assets	(42)		(41)
Operating lease expense payments	Operating lease expense payments	(2,480)		(2,447)		Operating lease expense payments	(1,204)		(1,237)
Loss on disposal of fixed assets		15		80

Increase in cash value of life insurance	Increase in cash value of life insurance	(1,430)		(1,521)		Increase in cash value of life insurance	(673)		(720)
Gain on life insurance death benefit		—		(728)
Gain on marketable equity securities		(72)		(78)

Loss (gain) on marketable equity securities						Loss (gain) on marketable equity securities	53		(47)
Equity compensation vesting expense	Equity compensation vesting expense	931		815		Equity compensation vesting expense	537		439
Change in:	Change in:					Change in:
Interest receivable	Interest receivable	(1,440)		(1,578)		Interest receivable	562		322
Interest payable	Interest payable	(673)		668		Interest payable	(392)		(421)
Amortization of operating lease ROUA		2,720		2,326
Accretion of operating lease ROUA						Accretion of operating lease ROUA	1,317		1,362
Other assets and liabilities, net	Other assets and liabilities, net	6,474		(14,470)		Other assets and liabilities, net	7,376		2,609
Net cash from operating activities	Net cash from operating activities	63,705		33,869		Net cash from operating activities	41,196		33,617
Investing activities:	Investing activities:					Investing activities:
Proceeds from maturities of securities available for sale	Proceeds from maturities of securities available for sale	60,637		39,845		Proceeds from maturities of securities available for sale	91,813		20,212
Proceeds from maturities of securities held to maturity	Proceeds from maturities of securities held to maturity	37,905		31,938		Proceeds from maturities of securities held to maturity	23,850		15,592

Purchases of securities available for sale	Purchases of securities available for sale	(101,899)		(37,253)		Purchases of securities available for sale	(372,917)		(101,899)
Loan origination and principal collections, net	Loan origination and principal collections, net	(493,437)		(80,440)		Loan origination and principal collections, net	(102,230)		(70,903)
Loans purchased						Loans purchased	(101,466)		0
Proceeds from sale of other real estate owned	Proceeds from sale of other real estate owned	570		1,082		Proceeds from sale of other real estate owned	577		353
Proceeds from sale of premises and equipment		—		11

Purchases of premises and equipment	Purchases of premises and equipment	(1,266)		(2,586)		Purchases of premises and equipment	(188)		(761)
Net cash used by investing activities	Net cash used by investing activities	(497,490)		(47,403)		Net cash used by investing activities	(460,561)		(137,406)
Financing activities:	Financing activities:					Financing activities:
Net change in deposits	Net change in deposits	881,264		(24,293)		Net change in deposits	357,466		35,704
Net change in other borrowings	Net change in other borrowings	20,090		(2,547)		Net change in other borrowings	9,312		855
Repurchase of common stock, net of option exercises	Repurchase of common stock, net of option exercises	(25,164)		—		Repurchase of common stock, net of option exercises	(10)		(17,147)
Dividends paid	Dividends paid	(13,208)		(11,575)		Dividends paid	(7,432)		(6,664)
Exercise of stock options		148		—
Net cash (used by) from financing activities		863,130		(38,415)

Net cash from financing activities						Net cash from financing activities	359,336		12,748
Net change in cash and cash equivalents	Net change in cash and cash equivalents	429,345		(51,949)		Net change in cash and cash equivalents	(60,029)		(91,041)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	276,507		227,533		Cash and cash equivalents, beginning of period	669,551		276,507
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	705,852	$	175,584	Cash and cash equivalents, end of period	$	609,522	$	185,466
Supplemental disclosure of noncash activities:	Supplemental disclosure of noncash activities:					Supplemental disclosure of noncash activities:
Unrealized gain on securities available for sale		$	5,398	$	22,263
Unrealized loss on securities available for sale						Unrealized loss on securities available for sale	$	(12,337)	$	(29,561)
Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes	Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes	494		4,695		Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes	2		148
Obligations incurred in conjunction with leased assets	Obligations incurred in conjunction with leased assets	4,068		156		Obligations incurred in conjunction with leased assets	1,308		3,393
Loans transferred to foreclosed assets		—		116

Supplemental disclosure of cash flow activity:	Supplemental disclosure of cash flow activity:					Supplemental disclosure of cash flow activity:
Cash paid for interest expense	Cash paid for interest expense	6,487		6,982		Cash paid for interest expense	1,868		3,746
Cash paid for income taxes	Cash paid for income taxes	—		22,000		Cash paid for income taxes	0		0

See accompanying notes to unaudited condensed consolidated financial statements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

TriCo Bancshares (the “Company” or “we”) is a California corporation organized to act as a bank holding company for Tri Counties Bank (the “Bank”). The Company and the Bank are headquartered in Chico, California. The Bank is a California-chartered bank that is engaged in the general commercial banking business in 29 California counties. The Company has 5 capital subsidiary business trusts (collectively, the “Capital Trusts”) that issued trust preferred securities, including 2 organized by the Company and 3 acquired with the acquisition of North Valley Bancorp.

The consolidated financial statements are prepared in accordance with accounting policies generally accepted in the United States of America and general practices in the banking industry. All adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. The financial statements include the accounts of the Company. All inter-company accounts and transactions have been eliminated in consolidation. For financial reporting purposes, the Company’s investments in the Capital Trusts of ~~$1,761,000~~$1,830,000 are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet. The subordinated debentures issued and guaranteed by the Company and held by the Capital Trusts are reflected as debt on the Company’s consolidated balance sheet.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (the ~~“2019~~“2020 Annual Report”). The Company believes that the disclosures made are adequate to make the information not misleading.

Segment and Significant Group Concentration of Credit Risk

The Company grants agribusiness, commercial, consumer, and residential loans to customers located throughout northern and central California. The Company has a diversified loan portfolio within the business segments located in this geographical area. The Company currently classifies all its operation into 1 business segment that it denotes as community banking.

Geographical Descriptions

For the purpose of describing the geographical location of the Company’s operations, the Company has defined northern California as that area of California north of, and including, Stockton to the east and San Jose to the west; central California as that area of the state south of Stockton and San Jose, to and including, Bakersfield to the east and San Luis Obispo to the west; and southern California as that area of the state south of Bakersfield and San Luis Obispo.

Reclassification

Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.

Cash and Cash Equivalents

Net cash flows are reported for loan and deposit transactions and other borrowings. For purposes of the consolidated statement of cash flows, cash, due from banks with original maturities less than 90 days, interest-earning deposits in other banks, and Federal funds sold are considered to be cash equivalents.

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Allowance for Credit Losses - ~~Held to Maturity~~ Securities

The Company measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type, then further

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disaggregated by sector and bond rating. Accrued interest receivable on held-to-maturity (HTM) debt securities totaled ~~$860,000~~$668,000 at ~~June 30, 2020~~March 31, 2021 and is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current condition and reasonable and supportable forecasts based on current and expected changes in credit ratings and default rates. Based on the implied guarantees of the U. S. Government or its agencies related to certain of these investment securities, and the absence of any historical or expected losses, substantially all qualify for a zero loss assumption. Management has separately evaluated its HTM investment securities from obligations of state and political subdivisions utilizing the historical loss data represented by similar securities over a period of time spanning nearly 50 years. As a result of this evaluation, management determined that the expected credit losses associated with these securities is not significant for financial reporting purposes and therefore, no allowance for credit losses has been recognized.

The Company evaluates available for sale debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the allowance for credit losses and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers' financial condition, among other factors. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. NaN security credit losses were recognized during the three month periods ended March 31, 2021 and 2020, respectively.

Loans

Loans that management has the intent and ability to hold until maturity or payoff are reported at principle amount outstanding, net of deferred loan fees and costs. Loans are placed in nonaccrual status when reasonable doubt exists as to the full, timely collection of interest or principal, or a loan becomes contractually past due by 90 days or more with respect to interest or principal and is not well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is considered probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of Management, the loan is estimated to be fully collectible as to both principal and interest. Accrued interest receivable is not included in the calculation of the allowance for credit losses.

Allowance for Credit Losses - Loans

The allowance for credit losses (ACL) is a valuation account that is deducted from the loan's amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the recorded loan balance is confirmed as uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Regardless of the determination that a charge-off is appropriate for financial accounting purposes, the Company manages its loan portfolio by continually monitoring, where possible, a borrower's ability to pay through the collection of financial information, delinquency status, borrower discussion and the encouragement to repay in accordance with the original contract or modified terms, if appropriate.

Management estimates the allowance balance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Historical credit loss experience provides the basis for the estimation of expected credit losses, which captures loan balances as of a point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over the remaining life. The Company identified and accumulated loan cohort historical loss data beginning with the fourth quarter of 2008 and through the current period. In situations where the Company's actual loss history was not statistically relevant, the loss history of peers, defined as financial institutions with assets greater than three billion and less than ten billion, were utilized to create a minimum loss rate. Adjustments to historical loss information are made for differences in relevant current loan-specific risk characteristics, such as historical timing of losses relative to the loan origination. In its loss forecasting framework, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. These macroeconomic scenarios incorporate variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to changes in environmental conditions, such as California unemployment rates, household debt levels and U.S. gross domestic product.

A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral. The ACL on collateral dependent loans is measured using the fair value of the underlying collateral, adjusted for costs to

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sell when applicable, less the amortized cost basis of the financial asset. If the value of underlying collateral is determined to be less than the recorded amount of the loan, a charge-off will be taken. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a troubled debt restructuring (TDR). The ACL on a TDR is measured using the same method as all other portfolio loans, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the ACL is determined by discounting the expected future cash flows at the original interest rate of the loan.

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The Company has identified the following portfolio segments to evaluate and measure the allowance for credit loss:

Commercial real estate:

Commercial real estate - Non-owner occupied: These commercial properties typically consist of buildings which are leased to others for their use and rely on rents as the primary source of repayment. Property types are predominantly office, retail, or light industrial but the portfolio also has some special use properties. As such, the risk of loss associated with these properties is primarily driven by general economic changes or changes in regional economies and the impact of such on a tenant’s ability to pay. Ultimately this can affect occupancy, rental rates, or both. Additional risk of loss can come from new construction resulting in oversupply, the costs to hold or operate the property, or changes in interest rates. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years.

Commercial real estate - Owner occupied: These credits are primarily susceptible to changes in the financial condition of the business operated by the property owner. This may be driven by changes in, among other things, industry challenges, factors unique to the operating geography of the borrower, change in the individual fortunes of the business owner, general economic conditions and changes in business cycles. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven more by general economic conditions, the underlying collateral may have devalued more and thus result in larger losses in the event of default. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years.

Multifamily: These commercial properties are generally comprised of more than four rentable units, such as apartment buildings, with each unit intended to be occupied as the primary residence for one or more persons. Multifamily properties are also subject to changes in general or regional economic conditions, such as unemployment, ultimately resulting in increased vacancy rates or reduced rents or both. In addition, new construction can create an oversupply condition and market competition resulting in increased vacancy, reduced market rents, or both. Due to the nature of their use and the greater likelihood of tenant turnover, the management of these properties is more intensive and therefore is more critical to the preclusion of loss.

Farmland: While the Company has few loans that were originated for the purpose of the acquisition of these commercial properties, loans secured by farmland represent unique risks that are associated with the operation of an agricultural businesses. The valuation of farmland can vary greatly over time based on the property's access to resources including but not limited to water, crop prices, foreign exchange rates, government regulation or restrictions, and the nature of ongoing capital investment needed to maintain the quality of the property. Loans secured by farmland typically represent less risk to the Company than other agriculture loans as the real estate typically provides greater support in the event of default or need for longer term repayment.

Consumer loans:

SFR 1-4 1st DT Liens: The most significant drivers of potential loss within the Company's residential real estate portfolio relate general, regional, or individual changes in economic conditions and their effect on employment and borrowers cash flow. Risk in this portfolio is best measured by changes in borrower credit score and loan-to-value. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the value of homes and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.

SFR HELOCs and Junior Liens: Similar to residential real estate term loans, HELOCs and junior liens performance is also primarily driven by borrower cash flows based on employment status. However, HELOCs carry additional risks associated with the fact that most of these loans are secured by a deed of trust in a position that is junior to the primary lien holder. Furthermore, the risk that as the borrower's financial strength deteriorates, the outstanding balance on these credit lines may increase as they may only be canceled by the Company if certain limited criteria are met. In addition to the allowance for credit losses maintained as a percent of the outstanding loan balance, the Company maintains additional reserves for the unfunded portion of the HELOC.

Other: The majority of consumer loans are secured by automobiles, with the remainder primarily unsecured revolving debt (credit cards). These loans are susceptible to three primary risks; non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value, if any. Typically non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of those factors. Credit card loans are unsecured and while collection efforts are pursued in the event of default, there is typically limited opportunity for recovery. Loss estimates are based on the general movement in credit score, economic outlook and its

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effects on employment and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.

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Commercial and Industrial:

Repayment of these loans is primarily based on the cash flow of the borrower, and secondarily on the underlying collateral provided by the borrower. A borrower's cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Most often, collateral includes accounts receivable, inventory, or equipment. Collateral securing these loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business. Actual and forecast changes in gross domestic product are believed to be corollary to losses associated with these credits.

Construction:

While secured by real estate, construction loans represent a greater level of risk than term real estate loans due to the nature of the additional risks associated with the not only the completion of construction within an estimated time period and budget, but also the need to either sell the building or reach a level of stabilized occupancy sufficient to generate the cash flows necessary to support debt service and operating costs. The Company seeks to mitigate the additional risks associated with construction lending by requiring borrowers to comply with lower loan to value ratios and additional covenants as well as strong tertiary support of guarantors. The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset as adjusted for macroeconomic factors.

Agriculture Production:

Repayment of agricultural loans is dependent upon successful operation of the agricultural business, which is greatly impacted by factors outside the control of the borrower. These factors include adverse weather conditions, including access to water, that may impact crop yields, loss of livestock due to disease or other factors, declines in market prices for agriculture products, changes in foreign exchange, and the impact of government regulations. In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect the successful operation of the business. Consequently, agricultural production loans may involve a greater degree of risk than other types of loans.

Leases:

The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset. Leases typically represent an elevated level of credit risk as compared to loans secured by real estate as the collateral for leases is often subject to a more rapid rate of depreciation or depletion. The ultimate severity of loss is impacted by the type of collateral securing the exposure, the size of the exposure, the borrower’s industry sector, any guarantors and the geographic market. Assumptions of expected loss are conditioned to the economic outlook and the other variables discussed above.

Unfunded commitments:

The estimated credit losses associated with these unfunded lending commitments is calculated using the same models and methodologies noted above and incorporate utilization assumptions at time of default. The reserve for unfunded commitments is maintained on the consolidated balance sheet in other liabilities.

Accounting Standards Adopted in ~~2020~~2021

On January 1, ~~2020,~~2021, the Company adopted ASU ~~2016-03~~2019-12, ~~Financial Instruments — Credit Losses~~Income Taxes (Topic ~~326)~~740): ~~Measurement of Credit Losses on Financial Instruments~~Simplifying the Accounting for Income Taxes. , which replaces the incurred loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases. In addition, ASC 326 made changes toThis ASU simplified the accounting for available for sale debt securities. One such change is to require increases or decreases in credit losses be presented as an allowance rather than as a write-down on available for sale debt securities, based on management's intent to sell the security or likelihood the Company will be required to sell the security, before recovery of the amortized cost basis.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchase credit impaired (PCI) and accounted for under ASC 310-30. In accordance with ASC 326, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The remaining noncredit discount (based on the adjusted amortized costs basis) will be accreted into interest income ~~at the effective interest rate as of adoption. The Company recognized an increase in the ACL for loans totaling $18,913,000, including a~~

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~~reclassification of $481,000 from discounts on acquired loans~~taxes by removing certain exceptions to the ~~allowance~~general principles in Topic 740. The guidance also promoted consistent application and simplification of GAAP for ~~credit losses, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net~~other areas of ~~$5,449,000 in taxes of $12,983,000. Management has separately evaluated its held-to-maturity investment securities from obligations of state~~Topic 740 by clarifying and ~~political subdivisions and determined that no loss reserves were required.~~

~~On January 1, 2020 the Company adopted ASU 2017-04,~~ ~~Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment(Topic 350),~~ which eliminates step two of the goodwill impairment test (the hypothetical purchase price allocation used to determine the implied fair value of goodwill) when step one (determining if the carrying value of a reporting unit exceeds its fair value) is failed. Instead, entities simply will compare the fair value of a reporting unit to its carrying amount and record goodwill impairment for the amount by which the reporting unit’s carrying amount exceeds its fair value. There was 0 goodwill impairment recorded during the three and six month periods ended June 30, 2020.amending existing guidance.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the Coronavirus Disease 2019 (COVID-19) pandemic. The CARES Act provides optional temporary relief from troubled debt restructuring and impairment accounting requirements for loan modifications related to the COVID-19 pandemic made during the period from March 1, 2020 to the earlier of December 31, 2020 or 60 days after the national emergency concerning COVID-19 declared by the President terminates. The applicable period for this relief was extended through 2021 by way of the Consolidated Appropriations Act. Following the passage of the CARES Act legislation, the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus" was issued by federal bank regulators, which similarly offers temporary relief from troubled debt restructuring accounting for loan payment deferrals for certain customers whose businesses are experiencing economic hardship due to Coronavirus. The Interagency Statement requires the modification event to be short-term and COVID-19 related, requiring the borrower be not more than 30 days past due as of the date the modification program was implemented, and allowing Management to apply judgement as when the modification program terminates. The ability to suspend TDR accounting under either program does not apply to any adverse impact on the credit of a borrower that is not related to the COVID-19 pandemic.

Accounting Standards Pending Adoption

~~FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.~~ This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The guidance also promotes consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU No. 2019-12 will be effective for the Company beginning January 1, 2021 and is not expected to have a significant impact on the Company’s consolidated financial statements.

FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform by providing optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging

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relationships, and other transactions affected if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The election to apply the optional relief for existing fair value and cash flow hedge accounting relationships may be made on a hedge-by-hedge basis and across multiple reporting periods. Amendments in this ASU are effective for the Company through December 31, 2022. As the ~~company~~Company has an insignificant number of instruments that are applicable to this ASU, management has determined that no impact to the valuations of these instruments are applicable for financial reporting purposes.

Note 2 - Investment Securities

The amortized cost, estimated fair values and allowance for credit losses of investments in debt securities are summarized in the following tables:


		June 30, 2020																			March 31, 2021
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
Debt Securities Available for Sale	Debt Securities Available for Sale											Debt Securities Available for Sale
Obligations of U.S. government agencies	Obligations of U.S. government agencies	$	414,494	$	20,320	$	—	$	—	$	434,814	Obligations of U.S. government agencies	$	1,029,611	$	11,056	$	(7,733)	$	0	$	1,032,934
Obligations of states and political subdivisions	Obligations of states and political subdivisions	104,811		4,835		—		—		109,646		Obligations of states and political subdivisions	136,709		5,246		(1,571)		0		140,384
Corporate bonds	Corporate bonds	2,444		126		—		—		2,570		Corporate bonds	2,466		68		0		0		2,534
Asset backed securities	Asset backed securities	465,746		37		(16,533)		—		449,250		Asset backed securities	506,473		2,645		(2,865)		0		506,253
Total debt securities available for sale	Total debt securities available for sale	$	987,495	$	25,318	$	(16,533)	$	—	$	996,280	Total debt securities available for sale	$	1,675,259	$	19,015	$	(12,169)	$	0	$	1,682,105

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Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	250,178	$	10,643	$	0	$	0	$	260,821
Obligations of states and political subdivisions	10,276		342		0		0		10,618
Total debt securities held to maturity	$	260,454	$	10,985	$	0	$	0	$	271,439

June 30, 2020
(in thousands) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value Allowance for Credit Losses
Debt Securities Held to Maturity
Obligations of U.S. government agencies $ 324,976 $ 16,596 $ — $ 341,572 $ —
Obligations of states and political subdivisions 12,189 418 — 12,607 —
Total debt securities held to maturity $ 337,165 $ 17,014 $ — $ 354,179 $ —


		December 31, 2019															December 31, 2020
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
Debt Securities Available for Sale	Debt Securities Available for Sale									Debt Securities Available for Sale
Obligations of U.S. government agencies	Obligations of U.S. government agencies	$	466,139	$	7,261	$	(420)	$	472,980	Obligations of U.S. government agencies	$	795,555	$	17,710	$	(891)	$	0	$	812,374
Obligations of states and political subdivisions	Obligations of states and political subdivisions	106,373		3,229		(1)		109,601		Obligations of states and political subdivisions	123,347		5,748		0		0		129,095
Corporate bonds	Corporate bonds	2,430		102		—		2,532		Corporate bonds	2,459		85		0		0		2,544
Asset backed securities	Asset backed securities	371,809		129		(6,913)		365,025		Asset backed securities	473,720		1,682		(5,151)		0		470,251
Total debt securities available for sale	Total debt securities available for sale	$	946,751	$	10,721	$	(7,334)	$	950,138	Total debt securities available for sale	$	1,395,081	$	25,225	$	(6,042)	$	0	$	1,414,264
Debt Securities Held to Maturity	Debt Securities Held to Maturity									Debt Securities Held to Maturity
Obligations of U.S. government agencies	Obligations of U.S. government agencies	361,785		6,072		(480)		367,377		Obligations of U.S. government agencies	273,667		13,774		0		$	0	287,441
Obligations of states and political subdivisions	Obligations of states and political subdivisions	13,821		327		—		14,148		Obligations of states and political subdivisions	10,896		389		0		0		11,285
Total debt securities held to maturity	Total debt securities held to maturity	$	375,606	$	6,399	$	(480)	$	381,525	Total debt securities held to maturity	$	284,563	$	14,163	$	0	$	0	$	298,726

There were no sales of investment securities during the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. Investment securities with an aggregate carrying value of ~~$479,242,000~~$417,528,000 and ~~$466,321,000~~$429,049,000 at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively, were pledged as collateral for specific borrowings, lines of credit or local agency deposits.

The amortized cost and estimated fair value of debt securities at ~~June 30, 2020~~March 31, 2021 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At ~~June 30, 2020,~~March 31, 2021, obligations of U.S. government corporations and agencies with a cost basis totaling ~~$739,470,000~~$1,069,850,000 consist almost entirely of residential real estate mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages. For purposes of the following table, the entire outstanding balance of these mortgage-backed securities issued by U.S. government corporations and agencies is categorized based on final maturity date. At ~~June 30, 2020,~~March 31, 2021, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately ~~3.26~~4.58 years. Average remaining life is defined as the time span after which the principal balance has been reduced by half.

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As of ~~June 30, 2020,~~March 31, 2021, the contractual final maturity for available for sale and held to maturity investment securities is as follows:


Debt Securities	Debt Securities	Available for Sale										Held to Maturity													Debt Securities	Available for Sale							Held to Maturity
(in thousands)	(in thousands)	Amortized Cost		Estimated Fair Value				Amortized Cost				Estimated Fair Value		(in thousands)		Amortized Cost					Estimated Fair Value					Amortized Cost				Estimated Fair Value
																				Amortized Cost				Estimated Fair Value								Amortized Cost			Estimated Fair Value
Due in one year	Due in one year	$	600			$	600			$	1,287				$	1,289		Due in one year	$				990					$	1,018				$	0		$	0
Due after one year through five years	Due after one year through five years	17,981		18,690				—				—		Due after one year through five years		182,664					182,915					1,003				1,118
Due after five years through ten years	Due after five years through ten years	114,403		113,718				21,156				22,231		Due after five years through ten years		262,409					262,888					21,248				21,967
Due after ten years	Due after ten years	854,511		863,272				314,722				330,659		Due after ten years		1,229,196					1,235,284					238,203				248,354
Totals	Totals	$	987,495	$	996,280			$	337,165			$	354,179	Totals		$	1,675,259				$	1,682,105				$	260,454			$	271,439

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

~~Table of Contents~~


June 30, 2020:		Less than 12 months						12 months or more								Total
March 31, 2021:														March 31, 2021:	Less than 12 months				12 months or more				Total
(in thousands)	(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Debt Securities Available for Sale	Debt Securities Available for Sale													Debt Securities Available for Sale

Obligations of U.S. government agencies														Obligations of U.S. government agencies	$	664,219	$	(7,733)	$	0	$	0	$	664,219	$	(7,733)
Obligations of states and political subdivisions														Obligations of states and political subdivisions	38,529		(1,571)		0		0		38,529		(1,571)

Asset backed securities	Asset backed securities	$	153,086	$	(2,742)	$	291,893	$	(13,791)	$	444,979	$	(16,533)	Asset backed securities	86,698		(271)		218,077		(2,594)		304,775		(2,865)
Total debt securities available for sale														Total debt securities available for sale	$	789,446	$	(9,575)	$	218,077	$	(2,594)	$	1,007,523	$	(12,169)


December 31, 2019:		Less than 12 months						12 months or more								Total
December 31, 2020:														December 31, 2020:	Less than 12 months				12 months or more				Total
(in thousands)	(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Debt Securities Available for Sale	Debt Securities Available for Sale													Debt Securities Available for Sale
Obligations of U.S. government agencies	Obligations of U.S. government agencies	$	36,709	$	(309)	$	23,852	$	(111)	$	60,561	$	(420)	Obligations of U.S. government agencies	$	160,543	$	(891)	$	0	$	0	$	160,543	$	(891)
Obligations of states and political subdivisions		778		(1)		—		—		778		(1)

Asset backed securities	Asset backed securities	237,463		(4,535)		99,981		(2,378)		337,444		(6,913)		Asset backed securities	51,544		(441)		297,020		(4,710)		348,564		(5,151)
Total debt securities available for sale	Total debt securities available for sale	$	274,950	$	(4,845)	$	123,833	$	(2,489)	$	398,783	$	(7,334)	Total debt securities available for sale	$	212,087	$	(1,332)	$	297,020	$	(4,710)	$	509,107	$	(6,042)
Debt Securities Held to Maturity
Obligations of U.S. government agencies		18,813		(142)		62,952		(338)		81,765		(480)

Obligations of U.S. government agencies: The unrealized losses on investments in obligations of U.S. government agencies are caused by interest rate increases and illiquidity. The contractual cash flows of these securities are guaranteed by U.S. Government Sponsored Entities (principally Fannie Mae and Freddie Mac). It is expected that the securities would not be settled at a price less than the amortized cost of the investment.Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is 0 impairment on these securities and there has been 0 allowance for credit losses recorded. At March 31, 2021, 29 debt securities representing obligations of U.S. government agencies had unrealized losses with aggregate depreciation of 1.15% from the Company’s amortized cost basis.

Obligations of states and political subdivisions: The unrealized losses on investments in obligations of states and political subdivisions were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is 0 impairment on these securities and there has been 0 allowance for credit losses recorded as of March 31, 2021. At March 31, 2021, 13 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of 3.92% from the Company’s amortized cost basis.

Asset backed securities: The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors for these types of securities. At the time of purchase, each of these securities was rated AA or AAA and through ~~June 30, 2020~~March 31, 2021 has not experienced any deterioration in credit rating. At ~~June 30, 2020, 13~~March 31, 2021, 27 asset backed securities had unrealized losses with aggregate depreciation of ~~3.58%~~0.93% from the Company’s amortized cost basis. The Company continues to monitor these securities for changes in credit rating or other indications of credit deterioration. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no0 impairment on these securities and there has been no0 allowance for credit losses recorded as of ~~June 30, 2020.~~March 31, 2021.

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The Company monitors credit quality of debt securities held-to-maturity through the use of credit rating. The Company monitors the credit rating on a monthly basis. The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator:


		June 30, 2020						December 31, 2019							March 31, 2021				December 31, 2020
		AAA/AA/A		BBB/BB/B		AAA/AA/A		BBB/BB/B			AAA/AA/A		BBB/BB/B		AAA/AA/A		BBB/BB/B
		(In thousands)						(In thousands)							(In thousands)				(In thousands)
Debt Securities Held to Maturity	Debt Securities Held to Maturity									Debt Securities Held to Maturity
Obligations of U.S. government agencies	Obligations of U.S. government agencies	$	324,976	$	—	$	361,785	$	—	Obligations of U.S. government agencies	$	250,178	$	0	$	273,667	$	0
Obligations of states and political subdivisions	Obligations of states and political subdivisions	11,496		693		13,136		685		Obligations of states and political subdivisions	10,276		0		10,896		0
Total debt securities held to maturity	Total debt securities held to maturity	$	336,472	$	693	$	374,921	$	685	Total debt securities held to maturity	$	260,454	$	0	$	284,563	$	0

~~Table of Contents~~

Note 3 – Loans

A summary of loan balances follows:


(in thousands)	(in thousands)	June 30, 2020		December 31, 2019		(in thousands)	March 31, 2021		December 31, 2020
Commercial real estate:	Commercial real estate:					Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	1,596,941	$	1,609,556	CRE non-owner occupied	$	1,554,927	$	1,535,555
CRE owner occupied	CRE owner occupied	579,803		546,434		CRE owner occupied	641,216		624,375
Multifamily	Multifamily	577,217		517,725		Multifamily	764,884		639,480
Farmland	Farmland	151,524		145,067		Farmland	147,597		152,492
Total commercial real estate loans	Total commercial real estate loans	2,905,485		2,818,782		Total commercial real estate loans	3,108,624		2,951,902
Consumer:	Consumer:					Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	506,069		509,508		SFR 1-4 1st DT liens	636,824		546,592
SFR HELOCs and junior liens	SFR HELOCs and junior liens	358,087		362,886		SFR HELOCs and junior liens	331,333		327,484
Other	Other	81,513		82,656		Other	73,056		78,032
Total consumer loans	Total consumer loans	945,669		955,050		Total consumer loans	1,041,213		952,108
Commercial and industrial	Commercial and industrial	634,481		249,791		Commercial and industrial	551,077		526,327
Construction	Construction	278,566		249,827		Construction	221,613		284,842
Agriculture production	Agriculture production	35,441		32,633		Agriculture production	39,753		44,164
Leases	Leases	1,763		1,283		Leases	4,697		3,784
Total loans, net of deferred loan fees and discounts	Total loans, net of deferred loan fees and discounts	4,801,405		4,307,366		Total loans, net of deferred loan fees and discounts	$	4,966,977	$	4,763,127
Total principal balance of loans owed, net of charge-offs	Total principal balance of loans owed, net of charge-offs	4,854,351		4,351,725		Total principal balance of loans owed, net of charge-offs	$	5,009,686	$	4,805,596
Unamortized net deferred loan fees	Unamortized net deferred loan fees	(22,500)		(8,927)		Unamortized net deferred loan fees	(20,108)		(16,984)
Discounts to principal balance of loans owed, net of charge-offs	Discounts to principal balance of loans owed, net of charge-offs	(30,446)		(35,432)		Discounts to principal balance of loans owed, net of charge-offs	(22,601)		(25,485)
Total loans, net of unamortized deferred loan fees and discounts	Total loans, net of unamortized deferred loan fees and discounts	4,801,405		4,307,366		Total loans, net of unamortized deferred loan fees and discounts	$	4,966,977	$	4,763,127
Allowance for credit losses on loans	Allowance for credit losses on loans	$	(79,739)	$	(30,616)	Allowance for credit losses on loans	$	(85,941)	$	(91,847)

~~During~~As of March 31, 2021 and December 31, 2021, the ~~three months ended June 30, 2020,~~total balance outstanding of PPP loans, which are included in commercial and industrial loans, was $370,274,000 (approximately 2,484 loans) and $333,982,000 (approximately 2,300 loans), respectively, as compared to total PPP originations of $614,826,000. Included in the ~~Company originated more than 2,900~~balance of outstanding PPP loans ~~under the Payment Protection Program (PPP), which~~ as of ~~quarter end had~~March 31, 2021 are approximately 1,303 loans with outstanding balances of less than $50,000 each and with a total balance outstanding of ~~$423,431,000, net of $13,300,000 in deferred loan costs, included within commercial and industrial. There were 0 PPP loans originated as of December 31, 2019.~~$26,895,000. In connection with the origination of ~~these~~the PPP loans, the Company ~~generated approximately $15,680,000~~earned $23,585,000 in loan fees, ~~that will be amortized over the two-year term of the loans,~~ offset by deferred loan costs of ~~approximately $756,000. During~~$1,163,000, the ~~three~~net of which will be recognized over the earlier of loan maturity, repayment or receipt of forgiveness confirmation. As of March 31, 2021 and ~~six months ended June 30,~~December 31, 2020, ~~interest~~there was $9,430,000 and ~~fee income recognized from PPP loans totaled $2,356,000, which was inclusive of $1,626,000~~$7,212,000, respectively, in net deferred fee ~~accretion.~~income remaining to be recognized. During the three months ended March 31, 2021 and 2020, the Company recognized $5,232,000 and 0, respectively, in fees on PPP loans.

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Note 4 – Allowance for Credit Losses ~~on Loans~~

~~The~~For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and ~~ending~~the reserve for unfunded commitments which is recorded on the balance ~~of loans, net of unearned fees for the periods indicated:~~sheet within other liabilities:


		Allowance for Loan Losses – Three Months Ended June 30, 2020																	Allowance for credit losses – Three months ended March 31, 2021
(in thousands)	(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision		Ending Balance		(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Commercial real estate:	Commercial real estate:											Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	18,034	$	—	$	5	$	8,052	$	26,091	CRE non-owner occupied	$	29,380	$	0	$	2	$	(2,948)	$	26,434
CRE owner occupied	CRE owner occupied	5,366		—		4		3,340		8,710		CRE owner occupied	10,861		0		1		(988)		9,874
Multifamily	Multifamily	5,140		—		—		3,441		8,581		Multifamily	11,472		0		0		899		12,371
Farmland	Farmland	713		—		—		755		1,468		Farmland	1,980		0		0		(256)		1,724
Total commercial real estate loans	Total commercial real estate loans	29,253		—		9		15,588		44,850		Total commercial real estate loans	53,693		0		3		(3,293)		50,403
Consumer:	Consumer:											Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	5,650		(11)		2		2,374		8,015		SFR 1-4 1st DT liens	10,117		0		10		538		10,665
SFR HELOCs and junior liens	SFR HELOCs and junior liens	11,196		(23)		92		843		12,108		SFR HELOCs and junior liens	11,771		0		285		(977)		11,079
Other	Other	2,746		(243)		72		467		3,042		Other	3,260		(193)		106		(313)		2,860
Total consumer loans	Total consumer loans	19,592		(277)		166		3,684		23,165		Total consumer loans	25,148		(193)		401		(752)		24,604
Commercial and industrial	Commercial and industrial	3,867		(214)		55		310		4,018		Commercial and industrial	4,252		(33)		136		109		4,464
Construction	Construction	4,595		—		—		2,180		6,775		Construction	7,540		0		0		(2,064)		5,476
Agriculture production	Agriculture production	593		—		—		326		919		Agriculture production	1,209		0		20		(241)		988
Leases	Leases	11		—		—		1		12		Leases	5		0		0		1		6
Allowance for credit losses on loans												Allowance for credit losses on loans	91,847		(226)		560		(6,240)		85,941
Reserve for unfunded commitments												Reserve for unfunded commitments	3,400		0		0		180		3,580
Total	Total	$	57,911	$	(491)	$	230	$	22,089	$	79,739	Total	$	95,247	$	(226)	$	560	$	(6,060)	$	89,521

Allowance for Loan Losses – Six months ended June 30, 2020
(in thousands) Beginning
Balance Impact of CECL Adoption Charge-offs Recoveries Provision Ending
Balance
Commercial real estate:
CRE non-owner occupied $ 5,948 $ 6,701 $ — $ 193 $ 13,249 $ 26,091
CRE owner occupied 2,027 2,281 — 9 4,393 8,710
Multifamily 3,352 2,281 — — 2,948 8,581
Farmland 668 585 — — 215 1,468
Total commercial real estate loans 11,995 11,848 — 202 20,805 44,850
Consumer:
SFR 1-4 1st DT liens 2,306 2,675 (11) 412 2,633 8,015
SFR HELOCs and junior liens 6,183 4,638 (23) 140 1,170 12,108
Other 1,595 971 (373) 167 682 3,042
Total consumer loans 10,084 8,284 (407) 719 4,485 23,165
Commercial and industrial 4,867 (1,961) (594) 181 1,525 4,018
Construction 3,388 933 — — 2,454 6,775
Agriculture production 261 (179) — 20 817 919
Leases 21 (12) — — 3 12
Total $ 30,616 $ 18,913 $ (1,001) $ 1,122 $ 30,089 $ 79,739

In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various econometrics, including California unemployment, gross domestic product, and corporate bond yields. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. ~~At both January 1, 2020, the adoption and implementation date of ASC Topic 326, and June 30, 2020, the~~

The Company ~~utilized~~utilizes a reasonable and supportable forecast period of approximately eight quarters and ~~obtained~~obtains the forecast data from publicly available sources. The Company also ~~considered~~considers the impact of portfolio concentrations, changes in underwriting practices, imprecision in its economic forecasts, and other risk factors that might influence its loss estimation process. During the quarter ended ~~June 30, 2020~~March 31, 2021, the majority of the ~~increase~~change in ACL ~~reflects potential future credit deterioration. Specifically,~~during the period is primarily attributed to portfolio-wide qualitative indicators ~~such as the~~

~~Table of Contents~~

~~outlook for~~related to forecasted changes in ~~California~~the US Unemployment outlook and ~~Gross Domestic Product (GDP), resulted~~concentration risk. The aggregate change in ~~a $19,143,000 increase in~~these qualitative factors during the three months ended March 31, 2021 were $5,435,000. Further, quantitative calculations decreases based on historical loss experience further reduced required credit reserves ~~on loans.~~by $471,000 as of March 31, 2021. Management ~~further~~ noted that the majority of economic forecasts ~~as of the end of the current quarter,~~ utilized in the ACL calculation have ~~shown~~recent estimates that forecast the U.S. economy rebounding to pre-pandemic levels during 2021. These forecasts remain cautious as a ~~migration~~result of; lingering supply chain interruptions caused by an imbalance in ~~the estimated timing of recovery from late 2020 as the end of the first quarter to mid-2021 or beyond.~~supply and demand, logistical and transportation issues, and resurgences in COVID variants in certain nations worldwide. Management believes that the allowance for credit losses at ~~June 30, 2020~~March 31, 2021 appropriately reflected expected credit losses inherent in the loan portfolio at that date.

Allowance for Loan Losses – Year Ended December 31, 2019
(in thousands) Beginning
Balance Charge-offs Recoveries Provision
(benefit) Ending Balance
Commercial real estate:
CRE non-owner occupied $ 7,401 $ — $ 1,486 $ (2,939) $ 5,948
CRE owner occupied 2,711 (746) 42 20 2,027
Multifamily 2,429 — — 923 3,352
Farmland 403 — — 265 668
Total commercial real estate loans 12,944 (746) 1,528 (1,731) 11,995
Consumer:
SFR 1-4 1st DT liens 2,676 (2) 54 (422) 2,306
SFR HELOCs and junior liens 7,582 (3) 935 (2,331) 6,183
Other 793 (765) 321 1,246 1,595
Total consumer loans 11,051 (770) 1,310 (1,507) 10,084
Commercial and industrial 5,610 (2,104) 513 848 4,867
Construction 2,497 — — 891 3,388
Agriculture production 480 (19) 12 (212) 261
Leases — — — 21 21
Total $ 32,582 $ (3,639) $ 3,363 $ (1,690) $ 30,616

Allowance for Loan Losses – Three Months Ended June 30, 2019
(in thousands) Beginning
Balance Charge-offs Recoveries Provision
(benefit) Ending Balance
Commercial real estate:
CRE non-owner occupied $ 6,268 $ — $ 6 $ (92) $ 6,182
CRE owner occupied 2,323 — 4 (113) 2,214
Multifamily 3,271 — — (189) 3,082
Farmland 468 — — 153 621
Total commercial real estate loans 12,330 — 10 (241) 12,099
Consumer: —
SFR 1-4 1st DT liens 2,500 (2) 3 75 2,576
SFR HELOCs and junior liens 7,301 — 354 (554) 7,101
Other 1,040 (153) 108 456 1,451
Total consumer loans 10,841 (155) 465 (23) 11,128
Commercial and industrial 5,854 (138) 84 681 6,481
Construction 2,815 — — 81 2,896
Agriculture production 224 — 1 39 264
Leases — — — — —
Total $ 32,064 $ (293) $ 560 $ 537 $ 32,868

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Table of Contents

Allowance for Loan Losses – Six months ended June 30, 2019
(in thousands) Beginning
Balance Charge-offs Recoveries Provision
(benefit) Ending Balance
Commercial real estate:
CRE non-owner occupied $ 7,401 $ — $ 1,383 $ (2,602) $ 6,182
CRE owner occupied 2,711 — 8 (505) 2,214
Multifamily 2,429 — — 653 3,082
Farmland 403 — — 218 621
Total commercial real estate loans 12,944 — 1,391 (2,236) 12,099
Consumer:
SFR 1-4 1st DT liens 2,676 (2) 5 (103) 2,576
SFR HELOCs and junior liens 7,582 — 536 (1,017) 7,101
Other 793 (360) 183 835 1,451
Total consumer loans 11,051 (362) 724 (285) 11,128
Commercial and industrial 5,610 (657) 242 1,286 6,481
Construction 2,497 — — 399 2,896
Agriculture production 480 — 11 (227) 264
Leases — — — — —
Total $ 32,582 $ (1,019) $ 2,368 $ (1,063) $ 32,868


	Allowance for credit losses – Year ended December 31, 2020
(in thousands)	Beginning Balance		Adoption of CECL		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Commercial real estate:
CRE non-owner occupied	$	5,948	$	6,701	$	0	$	198	$	16,533	$	29,380
CRE owner occupied	2,027		2,281		0		28		6,525		10,861
Multifamily	3,352		2,281		0		0		5,839		11,472
Farmland	668		585		(182)		0		909		1,980
Total commercial real estate loans	11,995		11,848		(182)		226		29,806		53,693
Consumer:
SFR 1-4 1st DT liens	2,306		2,675		(13)		416		4,733		10,117
SFR HELOCs and junior liens	6,183		4,638		(116)		304		762		11,771
Other	1,595		971		(670)		347		1,017		3,260
Total consumer loans	10,084		8,284		(799)		1,067		6,512		25,148
Commercial and industrial	4,867		(1,961)		(774)		568		1,552		4,252
Construction	3,388		933		0		0		3,219		7,540
Agriculture production	261		(179)		0		24		1,103		1,209
Leases	21		(12)		0		0		(4)		5
Allowance for credit losses on loans	30,616		18,913		(1,755)		1,885		42,188		91,847
Reserve for unfunded commitments	2,775		0		0		0		625		3,400
Total	$	33,391	$	18,913	$	(1,755)	$	1,885	$	42,813	$	95,247

On January 1, 2020, the Company adopted ASU 2016-03 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology that is referred to as the current expected credit loss (CECL) methodology. The Company recognized an increase in the ACL for loans totaling $18,913,000, including a reclassification of $481,000 from discounts on acquired loans to the allowance for credit losses, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $5,449,000 in taxes of $12,983,000.


	Allowance for loan losses – Three months ended March 31, 2020
(in thousands)	Beginning Balance		Adoption of CECL		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Commercial real estate:
CRE non-owner occupied	$	5,948	$	6,701	$	0	$	189	$	5,195	$	18,033
CRE owner occupied	2,027		2,281		0		5		1,052		5,365
Multifamily	3,352		2,281		0		0		(493)		5,140
Farmland	668		585		0		0		(541)		712
Total commercial real estate loans	11,995		11,848		0		194		5,213		29,250
Consumer:
SFR 1-4 1st DT liens	2,306		2,675		0		410		259		5,650
SFR HELOCs and junior liens	6,183		4,638		0		48		327		11,196
Other	1,595		971		(130)		94		216		2,746
Total consumer loans	10,084		8,284		(130)		552		802		19,592
Commercial and industrial	4,867		(1,961)		(380)		126		1,216		3,868
Construction	3,388		933		0		0		274		4,595
Agriculture production	261		(179)		0		20		493		595
Leases	21		(12)		0		0		2		11
Allowance for credit losses on loans	30,616		18,913		(510)		892		8,000		57,911
Reserve for unfunded commitments	2,775		0		0		0		0		2,775
Total	$	33,391	$	18,913	$	(510)	$	892	$	8,000	$	60,686

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As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including, but not limited to, trends relating to (i) the level of criticized and classified loans, (ii) net charge-offs, (iii) non-performing loans, and (iv) delinquency within the portfolio. The Company analyzes loans individually to classify the loans as to credit risk and grading. This analysis is performed annually for all outstanding balances greater than $1,000,000 and non-homogeneous loans, such as commercial real estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation. Loans below the $1,000,000 threshold and homogenous in nature are evaluated as needed for proper grading based on delinquency and borrower credit scores.

The Company utilizes a risk grading system to assign a risk grade to each of its loans. Loans are graded on a scale ranging from Pass to Loss. A description of the general characteristics of the risk grades is as follows:

•Pass– This grade represents loans ranging from acceptable to very little or no credit risk. These loans typically meet most if not all policy standards in regard to: loan amount as a percentage of collateral value, debt service coverage, profitability, leverage, and working capital.

•Special Mention– This grade represents “Other Assets Especially Mentioned” in accordance with regulatory guidelines and includes loans that display some potential weaknesses which, if left unaddressed, may result in deterioration of the repayment prospects for the asset or may inadequately protect the Company’s position in the future. These loans warrant more than normal supervision and attention.

•Substandard– This grade represents “Substandard” loans in accordance with regulatory guidelines. Loans within this rating typically exhibit weaknesses that are well defined to the point that repayment is jeopardized. Loss potential is, however, not necessarily evident. The underlying collateral supporting the credit appears to have sufficient value to protect the Company from loss of principal and accrued interest, or the loan has been written down to the point where this is true. There is a definite need for a well-defined workout/rehabilitation program.

•Doubtful– This grade represents “Doubtful” loans in accordance with regulatory guidelines. An asset classified as Doubtful has all the weaknesses inherent in a loan classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and financing plans.

•Loss– This grade represents “Loss” loans in accordance with regulatory guidelines. A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan, even though some recovery may be affected in the future. The portion of the loan that is graded loss should be charged off no later than the end of the quarter in which the loss is identified.

~~Table of Contents~~

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the period indicated:

Term Loans Amortized Cost Basis by Origination Year – As of June 30, 2020
(in thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
Commercial real estate:
CRE non-owner occupied risk ratings
Pass $ 68,986 $ 255,297 $ 178,000 $ 273,918 $ 207,896 $ 519,597 $ 66,225 $ — $ 1,569,919
Special Mention — 1,266 — 1,712 7,374 603 11,014 — 21,969
Substandard — — 1,479 466 — 3,108 — — 5,053
Doubtful/Loss — — — — — — — — —
Total CRE non-owner occupied risk ratings $ 68,986 $ 256,563 $ 179,479 $ 276,096 $ 215,270 $ 523,308 $ 77,239 $ — $ 1,596,941

Commercial real estate:
CRE owner occupied risk ratings
Pass $ 50,412 $ 61,065 $ 52,394 $ 65,943 $ 63,286 $ 249,270 $ 17,464 $ — $ 559,834
Special Mention — — — 4,302 3,821 5,602 — — 13,725
Substandard — 1,459 — 484 693 3,608 — — 6,244
Doubtful/Loss — — — — — — — — —
Total CRE owner occupied risk ratings $ 50,412 $ 62,524 $ 52,394 $ 70,729 $ 67,800 $ 258,480 $ 17,464 $ — $ 579,803

Commercial real estate:
Multifamily risk ratings
Pass $ 47,118 $ 90,562 $ 109,562 $ 73,089 $ 94,016 $ 130,181 $ 28,518 $ — $ 573,046
Special Mention 67 — — 612 — — 1,468 — 2,147
Substandard — — — — 2,024 — — — 2,024
Doubtful/Loss — — — — — — — — —
Total multifamily loans $ 47,185 $ 90,562 $ 109,562 $ 73,701 $ 96,040 $ 130,181 $ 29,986 $ — $ 577,217


	Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2021
(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial real estate:
CRE non-owner occupied risk ratings
Pass	$	58,047	$	130,667	$	205,818	$	147,766	$	252,414	$	620,082	$	65,028	$	0	$	1,479,822
Special Mention	0		0		6,226		11,683		12,245		19,053		12,001		0		61,208
Substandard	0		0		0		1,432		577		11,888		0		0		13,897
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total CRE non-owner occupied risk ratings	$	58,047	$	130,667	$	212,044	$	160,881	$	265,236	$	651,023	$	77,029	$	0	$	1,554,927

1815

Table of Contents


		Term Loans Amortized Cost Basis by Origination Year – As of June 30, 2020																													Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2021
(in thousands)	(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial real estate:	Commercial real estate:																			Commercial real estate:
Farmland risk ratings
CRE owner occupied risk ratings																				CRE owner occupied risk ratings
Pass	Pass	$	6,510	$	27,441	$	20,217	$	11,885	$	8,930	$	21,473	$	42,694	$	—	$	139,150	Pass	$	36,465	$	104,653	$	73,669	$	52,367	$	57,770	$	270,655	$	22,402	$	0	$	617,981
Special Mention	Special Mention	—		—		—		1,271		226		3,277		1,512		—		6,286		Special Mention	0		0		0		288		7,171		8,916		0		0		16,375
Substandard	Substandard	—		699		—		614		451		2,603		1,721		—		6,088		Substandard	0		0		1,505		1,282		470		3,603		0		0		6,860
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total farmland loans		$	6,510	$	28,140	$	20,217	$	13,770	$	9,607	$	27,353	$	45,927	$	—	$	151,524
Total CRE owner occupied risk ratings																				Total CRE owner occupied risk ratings	$	36,465	$	104,653	$	75,174	$	53,937	$	65,411	$	283,174	$	22,402	$	0	$	641,216


Commercial real estate:
Multifamily risk ratings
Pass	$	121,003	$	82,738	$	118,173	$	118,297	$	68,886	$	187,843	$	20,771	$	0	$	717,711
Special Mention	0		9,383		0		0		0		24,679		8,759		0		42,821
Substandard	0		0		4,352		0		0		0		0		0		4,352
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total multifamily loans	$	121,003	$	92,121	$	122,525	$	118,297	$	68,886	$	212,522	$	29,530	$	0	$	764,884


Commercial real estate:
Farmland risk ratings
Pass	$	4,669	$	18,083	$	22,496	$	18,659	$	8,467	$	23,026	$	38,076	$	0	$	133,476
Special Mention	0		0		0		0		1,196		3,316		1,653		0		6,165
Substandard	0		0		3,266		0		596		1,144		2,950		0		7,956
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total farmland loans	$	4,669	$	18,083	$	25,762	$	18,659	$	10,259	$	27,486	$	42,679	$	0	$	147,597


Consumer loans:
SFR 1-4 1st DT liens risk ratings
Pass	$	125,704	$	186,594	$	72,632	$	33,274	$	47,410	$	152,614	$	0	$	5,039	$	623,267
Special Mention	0		0		289		682		421		2,803		0		1,073		5,268
Substandard	0		0		0		1,151		680		6,096		0		362		8,289
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total SFR 1st DT liens	$	125,704	$	186,594	$	72,921	$	35,107	$	48,511	$	161,513	$	0	$	6,474	$	636,824

Consumer loans:
SFR 1-4 1st DT liens risk ratings
Pass $ 61,920 $ 90,702 $ 51,816 $ 64,342 $ 56,167 $ 163,073 $ — $ 5,708 $ 493,728
Special Mention — 292 74 556 17 1,735 — 509 3,183
Substandard — — 564 1,839 948 4,980 — 827 9,158
Doubtful/Loss — — — — — — — — —
Total SFR 1st DT liens $ 61,920 $ 90,994 $ 52,454 $ 66,737 $ 57,132 $ 169,788 $ — $ 7,044 $ 506,069


Consumer loans:	Consumer loans:																			Consumer loans:
SFR HELOCs and Junior Liens	SFR HELOCs and Junior Liens																			SFR HELOCs and Junior Liens
Pass	Pass	$	—	$	500	$	13	$	375	$	373	$	1,716	$	324,511	$	17,075	$	344,563	Pass	$	700	$	85	$	0	$	12	$	343	$	958	$	303,290	$	12,920	$	318,308
Special Mention	Special Mention	—		—		18		—		—		37		4,828		795		5,678		Special Mention	0		0		0		16		0		139		4,254		785		5,194
Substandard	Substandard	—		—		—		—		134		66		5,818		1,828		7,846		Substandard	0		0		0		0		0		33		6,146		1,652		7,831
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total SFR HELOCs and Junior Liens	Total SFR HELOCs and Junior Liens	$	—	$	500	$	31	$	375	$	507	$	1,819	$	335,157	$	19,698	$	358,087	Total SFR HELOCs and Junior Liens	$	700	$	85	$	0	$	28	$	343	$	1,130	$	313,690	$	15,357	$	331,333

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		Term Loans Amortized Cost Basis by Origination Year – As of June 30, 2020																													Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2021
(in thousands)	(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Consumer loans:	Consumer loans:																			Consumer loans:
Other risk ratings	Other risk ratings																			Other risk ratings
Pass	Pass	$	14,687	$	37,507	$	18,556	$	5,471	$	1,555	$	1,530	$	1,148	$	—	$	80,454	Pass	$	5,880	$	21,727	$	26,153	$	12,095	$	3,472	$	1,632	$	889	$	0	$	71,848
Special Mention	Special Mention	24		104		211		93		36		118		93		—		679		Special Mention	0		55		202		249		36		78		77		0		697
Substandard	Substandard	—		133		83		73		15		54		22		—		380		Substandard	0		57		79		134		85		147		9		0		511
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total other consumer loans	Total other consumer loans	$	14,711	$	37,744	$	18,850	$	5,637	$	1,606	$	1,702	$	1,263	$	—	$	81,513	Total other consumer loans	$	5,880	$	21,839	$	26,434	$	12,478	$	3,593	$	1,857	$	975	$	0	$	73,056


Commercial and industrial loans:
Commercial and industrial risk ratings
Pass	$	177,482	$	216,547	$	44,666	$	17,226	$	11,974	$	12,802	$	61,969	$	964	$	543,630
Special Mention	0		0		96		602		169		176		2,558		10		3,611
Substandard	0		0		282		104		1,375		812		1,188		75		3,836
Doubtful/Loss	0		0		0		0		0		0		—		0		0
Total commercial and industrial loans	$	177,482	$	216,547	$	45,044	$	17,932	$	13,518	$	13,790	$	65,715	$	1,049	$	551,077


Construction loans:
Construction risk ratings
Pass	$	1,711	$	76,063	$	44,589	$	37,820	$	31,303	$	23,442	$	0	$	0	$	214,928
Special Mention	0		0		0		0		346		1,756		0		0		2,102
Substandard	0		0		0		0		0		4,583		0		0		4,583
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total construction loans	$	1,711	$	76,063	$	44,589	$	37,820	$	31,649	$	29,781	$	0	$	0	$	221,613


Agriculture production loans:
Agriculture production risk ratings
Pass	$	262	$	897	$	1,959	$	1,288	$	1,582	$	1,108	$	32,416	$	0	$	39,512
Special Mention	0		0		0		189		0		47		0		0		236
Substandard	0		0		0		0		0		5		0		0		5
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total agriculture production loans	$	262	$	897	$	1,959	$	1,477	$	1,582	$	1,160	$	32,416	$	0	$	39,753


Leases:
Lease risk ratings
Pass	$	4,697	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$4,697
Special Mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total leases	$	4,697	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	4,697

Table of Contents


	Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2021
(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Total loans outstanding:
Risk ratings
Pass	$	536,620	$	838,054	$	610,155	$	438,804	$	483,621	$	1,294,162	$	544,841	$	18,923	$	4,765,180
Special Mention	0		9,438		6,813		13,709		21,584		60,963		29,302		1,868		143,677
Substandard	0		57		9,484		4,103		3,783		28,311		10,293		2,089		58,120
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total loans outstanding	$	536,620	$	847,549	$	626,452	$	456,616	$	508,988	$	1,383,436	$	584,436	$	22,880	$	4,966,977


Commercial and industrial loans:
Commercial and industrial risk ratings
																					Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2020
(in thousands)																				(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial real estate:																				Commercial real estate:
CRE non-owner occupied risk ratings																				CRE non-owner occupied risk ratings
Pass	Pass	$	439,901	$	54,477	$	26,595	$	20,081	$	7,530	$	12,517	$	66,817	$	1,240	$	629,158	Pass	$	120,520	$	207,899	$	155,730	$	256,677	$	179,523	$	460,644	$	76,730	$	0	$	1,457,723
Special Mention	Special Mention	—		—		65		348		113		80		1,043		12		1,661		Special Mention	0		7,455		11,692		5,407		15,773		18,832		12,205		0		71,364
Substandard	Substandard	—		145		60		1,224		1,036		141		924		132		3,662		Substandard	0		0		1,449		584		2,147		2,288		0		0		6,468
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total commercial and industrial loans		$	439,901	$	54,622	$	26,720	$	21,653	$	8,679	$	12,738	$	68,784	$	1,384	$	634,481
Total CRE non-owner occupied risk ratings																				Total CRE non-owner occupied risk ratings	$	120,520	$	215,354	$	168,871	$	262,668	$	197,443	$	481,764	$	88,935	$	0	$	1,535,555


Commercial real estate:
CRE owner occupied risk ratings
Pass	$	105,896	$	75,144	$	53,816	$	58,371	$	54,541	$	227,828	$	25,508	$	0	$	601,104
Special Mention	0		0		288		7,451		2,955		6,140		0		0		16,834
Substandard	0		1,533		1,301		475		1,306		1,822		0		0		6,437
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total CRE owner occupied risk ratings	$	105,896	$	76,677	$	55,405	$	66,297	$	58,802	$	235,790	$	25,508	$	0	$	624,375


Commercial real estate:
Multifamily risk ratings
Pass	$	77,646	$	118,725	$	113,882	$	70,112	$	67,457		$	123,518	$	19,007	$	0	$	590,347
Special Mention	9,441		0		0		603		24,687			772		9,259		0		44,762
Substandard	0		4,371		0		0		0		—	0		0		0		4,371
Doubtful/Loss	0		0		0		0		0			0		0		0		0
Total multifamily loans	$	87,087	$	123,096	$	113,882	$	70,715	$	92,144		$	124,290	$	28,266	$	0	$	639,480

Table of Contents


	Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2020
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial real estate:
Farmland risk ratings
Pass	$	17,640	$	25,003	$	19,148	$	12,834	$	7,377	$	17,129	$	39,411	$	0	$	138,542
Special Mention	0		2,567		0		1,271		227		3,107		2,258		0		9,430
Substandard	0		700		0		602		0		1,214		2,004		0		4,520
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total farmland loans	$	17,640	$	28,270	$	19,148	$	14,707	$	7,604	$	21,450	$	43,673	$	0	$	152,492


Consumer loans:
SFR 1-4 1st DT liens risk ratings
Pass	$	183,719	$	80,717	$	36,342	$	53,001	$	46,467	$	126,465	$	76	$	5,507	$	532,294
Special Mention	0		290		684		110		15		2,936		0		934		4,969
Substandard	0		0		1,174		929		935		5,763		0		528		9,329
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total SFR 1st DT liens	$	183,719	$	81,007	$	38,200	$	54,040	$	47,417	$	135,164	$	76	$	6,969	$	546,592


Consumer loans:
SFR HELOCs and Junior Liens
Pass	$	793	$	0	$	13	$	360	$	300	$	910	$	297,160	$	14,051	$	313,587
Special Mention	0		0		16		0		0		83		4,504		789		5,392
Substandard	0		0		0		0		0		39		6,698		1,768		8,505
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total SFR HELOCs and Junior Liens	$	793	$	0	$	29	$	360	$	300	$	1,032	$	308,362	$	16,608	$	327,484


Construction loans:
Construction risk ratings
Consumer loans:																				Consumer loans:
Other risk ratings																				Other risk ratings
Pass	Pass	$	39,391	$	57,143	$	105,394	$	45,971	$	20,782	$	3,089	$	—	$	—	$	271,770	Pass	$	25,876	$	29,539	$	14,170	$	4,238	$	1,020	$	967	$	986	$	0	$	76,796
Special Mention	Special Mention	—		—		—		346		4,385		1,824		—		—		6,555		Special Mention	43		208		147		74		24		65		90		0		651
Substandard	Substandard	—		—		—		—		—		241		—		—		241		Substandard	58		82		210		74		12		140		9		0		585
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total construction loans		$	39,391	$	57,143	$	105,394	$	46,317	$	25,167	$	5,154	$	—	$	—	$	278,566
Total other consumer loans																				Total other consumer loans	$	25,977	$	29,829	$	14,527	$	4,386	$	1,056	$	1,172	$	1,085	$	0	$	78,032


Commercial and industrial loans:
Commercial and industrial risk ratings
Pass	$	356,701	$	48,838	$	20,463	$	13,151	$	5,185	$	9,490	$	65,938	$	1,085	$	520,851
Special Mention	0		102		698		195		20		178		207		11		1,411
Substandard	0		301		53		1,142		823		148		1,519		79		4,065
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total commercial and industrial loans	$	356,701	$	49,241	$	21,214	$	14,488	$	6,028	$	9,816	$	67,664	$	1,175	$	526,327

Table of Contents


	Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2020
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Construction loans:
Construction risk ratings
Pass	69,133		41,786		92,191		51,082		20,868		2,876		0		$	0	$	277,936
Special Mention	0		0		0		346		0		1,780		0		0		2,126
Substandard	0		0		0		0		4,529		251		0		0		4,780
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total construction loans	$	69,133	$	41,786	$	92,191	$	51,428	$	25,397	$	4,907	$	0	$	0	$	284,842


Agriculture production loans:
Agriculture production risk ratings
Pass	$	977	$	2,079	$	1,590	$	1,838	$	663	$	708	$	36,051	$	0	$	43,906
Special Mention	0		0		203		0		49		0		0		0		252
Substandard	0		0		0		0		6		0		0		0		6
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total agriculture production loans	$	977	$	2,079	$	1,793	$	1,838	$	718	$	708	$	36,051	$	0	$	44,164


Leases:
Lease risk ratings
Pass	$	3,784	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	3,784
Special Mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total leases	$	3,784	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	3,784


Total loans outstanding:
Risk ratings
Pass	$	962,685	$	629,730	$	507,345	$	521,664	$	383,401	$	970,535	$	560,867	$	20,643	$	4,556,870
Special Mention	9,484		10,622		13,728		15,457		43,750		33,893		28,523		1,734		157,191
Substandard	58		6,987		4,187		3,806		9,758		11,665		10,230		2,375		49,066
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total loans outstanding	$	972,227	$	647,339	$	525,260	$	540,927	$	436,909	$	1,016,093	$	599,620	$	24,752	$	4,763,127

~~Table of Contents~~

Term Loans Amortized Cost Basis by Origination Year – As of June 30, 2020
(in thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
Agriculture production loans:
Agriculture production risk ratings
Pass $ 59 $ 1,744 $ 1,060 $ 907 $ 787 $ 595 $ 29,856 $ — $ 35,008
Special Mention — — — — — — — — —
Substandard — — — — 19 (12) 426 — 433
Doubtful/Loss — — — — — — — — —
Total agriculture production loans $ 59 $ 1,744 $ 1,060 $ 907 $ 806 $ 583 $ 30,282 $ — $ 35,441

Leases:
Lease risk ratings
Pass $ 1,763 $ — $ — $ — $ — $ — $ — $ — $1,763
Special Mention — — — — — — — — —
Substandard — — — — — — — — —
Doubtful/Loss — — — — — — — — —
Total leases $ 1,763 $ — $ — $ — $ — $ — $ — $ — $ 1,763

Total loans outstanding:
Risk ratings
Pass $ 730,747 $ 676,438 $ 563,607 $ 561,982 $ 461,322 $ 1,103,041 $ 577,233 $ 24,023 $ 4,698,393
Special Mention 91 1,662 368 9,240 15,972 13,276 19,958 1,316 61,883
Substandard — 2,436 2,186 4,700 5,320 14,789 8,911 2,787 41,129
Doubtful/Loss — — — — — — — — —
Total loans outstanding $ 730,838 $ 680,536 $ 566,161 $ 575,922 $ 482,614 $ 1,131,106 $ 606,102 $ 28,126 $ 4,801,405

~~Table of Contents~~

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2019
(in thousands) 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
Commercial real estate:
CRE non-owner occupied risk ratings
Pass $ 253,321 $ 174,869 $ 287,183 $ 221,864 $ 578,255 $ 77,070 $ — $ 1,592,562
Special Mention — — 3,182 8,401 616 — — 12,199
Substandard — 1,183 474 — 3,138 — — 4,795
Doubtful/Loss — — — — — — — $0
Total CRE non-owner occupied risk ratings $ 253,321 $ 176,052 $ 290,839 $ 230,265 $ 582,009 $ 77,070 $ — $ 1,609,556

Commercial real estate:
CRE owner occupied risk ratings
Pass $ 57,376 $ 54,298 $ 73,019 $ 69,136 $ 263,750 $ 18,524 $ — $ 536,103
Special Mention — — 437 745 3,459 — — 4,641
Substandard 601 — 493 726 3,870 — — 5,690
Doubtful/Loss — — — — — — — —
Total CRE owner occupied risk ratings $ 57,977 $ 54,298 $ 73,949 $ 70,607 $ 271,079 $ 18,524 $ — $ 546,434

Commercial real estate:
Multifamily risk ratings
Pass $ 82,435 $ 112,739 $ 41,673 $ 99,170 $ 141,040 $ 36,061 $ — $ 513,118
Special Mention — — — — 1,103 1,480 — 2,583
Substandard — — — 2,024 — — — 2,024
Doubtful/Loss — — — — — — — —
Total multifamily loans $ 82,435 $ 112,739 $ 41,673 $ 101,194 $ 142,143 $ 37,541 $ — $ 517,725

~~Table of Contents~~

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2019
(in thousands) 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
Commercial real estate:
Farmland risk ratings
Pass $ 26,786 $ 21,212 $ 12,248 $ 9,618 $ 22,471 $ 41,783 $ — $ 134,118
Special Mention — — 1,346 226 3,289 774 — 5,635
Substandard — — 624 466 2,929 1,295 — 5,314
Doubtful/Loss — — — — — — — —
Total farmland loans $ 26,786 $ 21,212 $ 14,218 $ 10,310 $ 28,689 $ 43,852 $ — $ 145,067

Consumer loans:
SFR 1-4 1st DT liens risk ratings
Pass $ 102,612 $ 63,542 $ 73,195 $ 65,051 $ 187,972 $ — $ 6,242 $ 498,614
Special Mention — — 1,408 19 2,564 — 723 4,714
Substandard — 813 711 52 4,050 — 554 6,180
Doubtful/Loss — — — — — — — —
Total SFR 1st DT liens $ 102,612 $ 64,355 $ 75,314 $ 65,122 $ 194,586 $ — $ 7,519 $ 509,508

Consumer loans:
SFR HELOCs and Junior Liens
Pass $ 1,412 $ 14 $ 382 $ 403 $ 2,077 $ 327,589 $ 19,531 $ 351,408
Special Mention — 20 — — 4 4,189 1,169 5,382
Substandard — — — 156 14 4,208 1,718 6,096
Doubtful/Loss — — — — — — — —
Total SFR HELOCs and Junior Liens $ 1,412 $ 34 $ 382 $ 559 $ 2,095 $ 335,986 $ 22,418 $ 362,886

~~Table of Contents~~

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2019
(in thousands) 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
Consumer loans:
Other risk ratings
Pass $ 45,876 $ 23,045 $ 7,176 $ 2,245 $ 2,071 $ 1,402 $ — $ 81,815
Special Mention 56 182 176 52 161 91 — 718
Substandard 60 — 13 — 35 15 — 123
Doubtful/Loss — — — — — — — —
Total other consumer loans $ 45,992 $ 23,227 $ 7,365 $ 2,297 $ 2,267 $ 1,508 $ — $ 82,656

Commercial and industrial loans:
Commercial and industrial risk ratings
Pass $ 61,720 $ 31,149 $ 24,176 $ 10,747 $ 16,346 $ 96,654 $ 973 $ 241,765
Special Mention — 339 1,141 151 164 1,921 110 3,826
Substandard — 47 1,281 1,571 401 814 86 4,200
Doubtful/Loss — — — — — — — —
Total commercial and industrial loans $ 61,720 $ 31,535 $ 26,598 $ 12,469 $ 16,911 $ 99,389 $ 1,169 $ 249,791

Construction loans:
Construction risk ratings
Pass $ 50,275 $ 92,449 $ 76,042 $ 18,973 $ 7,322 $ — $ — $ 245,061
Special Mention — — — 4,202 317 — — 4,519
Substandard — — — — 247 — — 247
Doubtful/Loss — — — — — — — —
Total construction loans $ 50,275 $ 92,449 $ 76,042 $ 23,175 $ 7,886 $ — $ — $ 249,827

Table of Contents

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2019
(in thousands) 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
Agriculture production risk ratings
Pass $ 1,929 $ 1,201 $ 1,324 $ 1,012 $ 834 $ 26,306 $ — $ 32,606
Special Mention — — — — — — — —
Substandard — — — 27 — — — 27
Doubtful/Loss — — — — — — — —
Total agriculture production loans $ 1,929 $ 1,201 $ 1,324 $ 1,039 $ 834 $ 26,306 $ — $ 32,633

Leases:
Lease risk ratings
Pass $ 1,283 $ — $ — $ — $ — $ — $ — $ 1,283
Special Mention — — — — — — — —
Substandard — — — — — — — —
Doubtful/Loss — — — — — — — —
Total leases $ 1,283 $ — $ — $ — $ — $ — $ — $ 1,283

Total loans outstanding:
Risk ratings
Pass $ 685,025 $ 574,518 $ 596,418 $ 498,219 $ 1,222,138 $ 625,389 $ 26,746 $ 4,228,453
Special Mention 56 541 7,690 13,796 11,677 8,455 2,002 44,217
Substandard 661 2,043 3,596 5,022 14,684 6,332 2,358 34,696
Doubtful/Loss — — — — — — — —
Total loans outstanding $ 685,742 $ 577,102 $ 607,704 $ 517,037 $ 1,248,499 $ 640,176 $ 31,106 $ 4,307,366

~~Table of Contents~~

The following table shows the ending balance of current and past due originated loans by loan category as of the date indicated:


		Analysis of Past Due Loans - As of June 30, 2020																							Analysis of Past Due Loans - As of March 31, 2021
(in thousands)	(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total
Commercial real estate:	Commercial real estate:													Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	2,589	$	667	$	113	$	3,369	$	1,593,572	$	1,596,941	CRE non-owner occupied	$	55	$	354	$	4,110	$	4,519	$	1,550,408	$	1,554,927
CRE owner occupied	CRE owner occupied	954		1,188		387		2,529		577,274		579,803		CRE owner occupied	158		0		589		747		640,469		641,216
Multifamily	Multifamily	—		—		2,024		2,024		575,193		577,217		Multifamily	0		0		0		0		764,884		764,884
Farmland	Farmland	180		—		—		180		151,344		151,524		Farmland	0		0		847		847		146,750		147,597
Total commercial real estate loans	Total commercial real estate loans	3,723		1,855		2,524		8,102		2,897,383		2,905,485		Total commercial real estate loans	213		354		5,546		6,113		3,102,511		3,108,624
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—		1,046		2,270		3,316		502,753		506,069		SFR 1-4 1st DT liens	0		0		881		881		635,943		636,824
SFR HELOCs and junior liens	SFR HELOCs and junior liens	125		453		2,249		2,827		355,260		358,087		SFR HELOCs and junior liens	59		490		1,472		2,021		329,312		331,333
Other	Other	85		229		80		394		81,119		81,513		Other	66		13		31		110		72,946		73,056
Total consumer loans	Total consumer loans	210		1,728		4,599		6,537		939,132		945,669		Total consumer loans	125		503		2,384		3,012		1,038,201		1,041,213
Commercial and industrial	Commercial and industrial	751		767		181		1,699		632,782		634,481		Commercial and industrial	152		168		771		1,091		549,986		551,077
Construction	Construction	19		—		—		19		278,547		278,566		Construction	295		0		0		295		221,318		221,613
Agriculture production	Agriculture production	115		—		150		265		35,176		35,441		Agriculture production	39		0		0		39		39,714		39,753
Leases	Leases	—		—		—		—		1,763		1,763		Leases	0		0		0		0		4,697		4,697
Total	Total	$	4,818	$	4,350	$	7,454	$	16,622	$	4,784,783	$	4,801,405	Total	$	824	$	1,025	$	8,701	$	10,550	$	4,956,427	$	4,966,977

~~The following table shows the ending balance of current and past due originated loans by loan category as of the date indicated:~~


	Analysis of Past Due Loans - As of December 31, 2020
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total
Commercial real estate:
CRE non-owner occupied	$	127	$	173	$	239	$	539	$	1,535,016	$	1,535,555
CRE owner occupied	297		0		824		1,121		623,254		624,375
Multifamily	0		0		0		0		639,480		639,480
Farmland	899		0		70		969		151,523		152,492
Total commercial real estate loans	1,323		173		1,133		2,629		2,949,273		2,951,902
Consumer:
SFR 1-4 1st DT liens	37		0		960		997		545,595		546,592
SFR HELOCs and junior liens	418		212		1,671		2,301		325,183		327,484
Other	41		13		100		154		77,878		78,032
Total consumer loans	496		225		2,731		3,452		948,656		952,108
Commercial and industrial	155		426		105		686		525,641		526,327
Construction	0		0		0		0		284,842		284,842
Agriculture production	0		0		0		0		44,164		44,164
Leases	0		0		0		0		3,784		3,784
Total	$	1,974	$	824	$	3,969	$	6,767	$	4,756,360	$	4,763,127

Analysis of Past Due Loans - As of December 31, 2019
(in thousands) 30-59 days 60-89 days > 90 days Total Past
Due Loans Current Total
Commercial real estate:
CRE non-owner occupied $ 268 $ 136 $ 114 $ 518 $ 1,609,038 $ 1,609,556
CRE owner occupied — 293 293 546,141 546,434
Multifamily 283 — 2,024 2,307 515,418 517,725
Farmland 30 0 0 30 145,037 145,067
Total commercial real estate loans 581 136 2,431 3,148 2,815,634 2,818,782
Consumer:
SFR 1-4 1st DT liens 1,149 371 1,957 3,477 506,031 509,508
SFR HELOCs and junior liens 1,258 580 1,088 2,926 359,960 362,886
Other 172 1 23 196 82,460 82,656
Total consumer loans 2,579 952 3,068 6,599 948,451 955,050
Commercial and industrial 603 297 24 924 248,867 249,791
Construction — — — — 249,827 249,827
Agriculture production 49 — — 49 32,584 32,633
Leases — — — — 1,283 1,283
Total $ 3,812 $ 1,385 $ 5,523 $ 10,720 $ 4,296,646 $ 4,307,366

2621

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The following table shows the ending balance of non accrual loans by loan category as of the date indicated:


		Non Accrual Loans																							Non Accrual Loans
		As of June 30, 2020										As of December 31, 2019											As of March 31, 2021				As of December 31, 2020
(in thousands)	(in thousands)	Non accrual with no allowance for credit losses		Total non accrual		Past due 90 days or more and still accruing		Non accrual with no allowance for credit losses		Total non accrual		Past due 90 days or more and still accruing		(in thousands)	Non accrual with no allowance for credit losses		Total non accrual		Past due 90 days or more and still accruing		Non accrual with no allowance for credit losses		Total non accrual		Past due 90 days or more and still accruing
Commercial real estate:	Commercial real estate:													Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	677	$	677	$	—	$	639	$	642	$	—	CRE non-owner occupied	$	7,000	$	7,000	$	0	$	3,110	$	3,110	$	0
CRE owner occupied	CRE owner occupied	2,266		2,409		—		1,411		1,408		—		CRE owner occupied	2,833		3,762		0		3,111		4,061		0
Multifamily	Multifamily	2,024		2,024		—		2,024		2,024		—		Multifamily	0		0		0		0		0		0
Farmland	Farmland	1,819		1,819		—		1,242		1,242		—		Farmland	1,431		1,431		0		1,468		1,538		0
Total commercial real estate loans	Total commercial real estate loans	6,786		6,929		—		5,316		5,316		—		Total commercial real estate loans	11,264		12,193		0		7,689		8,709		0
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	5,737		6,719		—		5,023		5,192		—		SFR 1-4 1st DT liens	4,853		4,996		0		4,950		5,093		0
SFR HELOCs and junior liens	SFR HELOCs and junior liens	4,128		5,665		—		3,992		4,217		—		SFR HELOCs and junior liens	4,187		5,142		0		4,480		6,148		0
Other	Other	82		105		1		4		32		19		Other	52		103		0		68		167		0
Total consumer loans	Total consumer loans	9,947		12,489		1		9,019		9,441		19		Total consumer loans	9,092		10,241		0		9,498		11,408		0
Commercial and industrial	Commercial and industrial	973		1,680		30		476		2,050		—		Commercial and industrial	108		1,774		245		652		2,183		0
Construction	Construction	—		—		—		—		—		—		Construction	4,483		4,483		0		4,546		4,546		0
Agriculture production	Agriculture production	282		445		—		14		38		—		Agriculture production	5		5		0		5		18		0
Leases	Leases	—		—		—						—		Leases	0		0		0		0		0		0
Sub-total	Sub-total	17,988		21,543		31		14,825		16,845		19		Sub-total	24,952		28,696		245		22,390		26,864		0
Less: Guaranteed loans	Less: Guaranteed loans	(813)		(813)		—		(916)		(990)		—		Less: Guaranteed loans	(814)		(814)		—		(687)		(811)
Total, net	Total, net	$	17,175	$	20,730	$	31	$	13,909	$	15,855	$	19	Total, net	$	24,138	$	27,882	$	245	$	21,703	$	26,053	$	0

Interest income on non accrual loans that would have been recognized during the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ if all such loans had been current in accordance with their original terms, totaled ~~$428,000~~$536,000 and ~~$449,000,~~$431,000, respectively. Interest income actually recognized on these originated loans during the three months ended ~~June 30,~~March 31, 2021 and 2020 was $17,000 and ~~2019 was $39,000 and $164,000, respectively.~~

Interest income on non accrual loans that would have been recognized during the six months ended June 30, 2020 and 2019, if all such loans had been current in accordance with their original terms, totaled $859,000 and $849,000, respectively. Interest income actually recognized on these originated loans during the six months ended June 30, 2020 and 2019 was $86,000 and $257,000,$47,000, respectively.

2722

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The following tables present the amortized cost basis of collateral dependent loans by class of loans as of the following periods:


		As of June 30, 2020																																													As of March 31, 2021
(in thousands)	(in thousands)	Retail		Office		Warehouse		Other		Multifamily		Farmland		SFR -1st Deed		SFR -2nd Deed		Automobile/Truck		A/R and Inventory		Equipment		Total		(in thousands)	Retail		Office		Warehouse		Other		Multifamily		Farmland		SFR -1st Deed		SFR -2nd Deed		Automobile/Truck		A/R and Inventory			Equipment		Total
Commercial real estate:	Commercial real estate:																									Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	677	$	—	$	1,207	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,884	CRE non-owner occupied	$	2,630	$	427	$	0	$	3,943	$	0	$	0	$	0	$	0	$	0	$	0		$	0	$	7,000
CRE owner occupied	CRE owner occupied	833		1,023		630		451		—		—		—		—		—		—		—		2,937		CRE owner occupied	781		927		1,640		414		0		0		0		0		0		0			0		3,762
Multifamily	Multifamily	—		—		—		—		2,024		—		—		—		—		—		—		2,024		Multifamily	0		0		0		0		0		0		0		0		0		0			0		0
Farmland	Farmland	—		—		—		—		—		1,368		—		—		—		—		—		1,368		Farmland	0		0		0		0		0		1,431		0		0		0		0			0		1,431
Total commercial real estate loans	Total commercial real estate loans	1,510		1,023		1,837		451		2,024		1,368		—		—		—		—		—		8,213		Total commercial real estate loans	3,411		1,354		1,640		4,357		0		1,431		0		0		0		0			0		12,193
Consumer:	Consumer:																									Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—		—		—		—		—		—		6,055		—		—		—		—		6,055		SFR 1-4 1st DT liens	0		0		0		0		0		0		4,996		0		0		0			0		4,996
SFR HELOCs and junior liens	SFR HELOCs and junior liens	—		—		—		—		—		—		1,105		3,569		—		—		—		4,674		SFR HELOCs and junior liens	0		0		0		0		0		0		1,882		2,471		0		0			0		4,353
Other	Other	—		—		—		3		—		—		—		—		83		—		—		86		Other	0		0		0		69		0		0		0		0		25		0			0		94
Total consumer loans	Total consumer loans	—		—		—		3		—		—		7,160		3,569		83		—		—		10,815		Total consumer loans	0		0		0		69		0		0		6,878		2,471		25		0			0		9,443
Commercial and industrial	Commercial and industrial	—		—		—		9		—		—		—		—		—		1,413		212		1,634		Commercial and industrial	0		0		0		272		0		0		0		0		0		1,288			214		1,774
Construction	Construction	—		—		—		—		—		—		—		—		—		—		—		—		Construction	0		0		0		0		0		0		4,483		0		0		0			0		4,483
Agriculture production	Agriculture production	—		—		—		426		—		—		—		—		—		13		6		445		Agriculture production	0		0		0		0		0		0		0		0		0		0			5		5
Leases	Leases	—		—		—		—		—		—		—		—		—		—		—		—		Leases	0		0		0		0		0		0		0		0		0		0			0		0
Total	Total	$	1,510	$	1,023	$	1,837	$	889	$	2,024	$	1,368	$	7,160	$	3,569	$	83	$	1,426	$	218	$	21,107	Total	$	3,411	$	1,354	$	1,640	$	4,698	$	0	$	1,431	$	11,361	$	2,471	$	25	$	1,288		$	219	$	27,898


		As of December 31, 2019																																															As of December 31, 2020
(in thousands)	(in thousands)	Retail		Office		Warehouse		Other		Multifamily			Farmland		SFR -1st Deed		SFR -2nd Deed		Automobile/Truck		A/R and Inventory		Equipment		Total		(in thousands)	Retail		Office		Warehouse		Other		Multifamily			Farmland		SFR -1st Deed		SFR -2nd Deed		Automobile/Truck		A/R and Inventory			Equipment		Total
Commercial real estate:	Commercial real estate:																										Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	2,145	$	—	$	1,220	$	497	$	—		$	—	$	—	$	—	$	—	$	—	$	—	$	3,862	CRE non-owner occupied	$	2,445	$	435	$	0	$	0	$	0		$	0	$	0	$	0	$	0	$	0		$	0	$	2,880
CRE owner occupied	CRE owner occupied	361		163		420		13		—			—		—		—		—		—		1,000		1,957		CRE owner occupied	796		1,176		1,668		0		0			0		0		0		0		0			0		3,640
Multifamily	Multifamily	—		—		—		—		2,060			—		—		—		—		—		��		2,060		Multifamily	0		0		0		0		0			0		0		0		0		0			0		0
Farmland	Farmland	—		—		—		—		—		—	1,242		—		—		—		—		—		1,242		Farmland	0		0		0		0		0		—	1,538		0		0		0		0			0		1,538
Total commercial real estate loans	Total commercial real estate loans	2,506		163		1,640		510		2,060			1,242		—		—		—		—		1,000		9,121		Total commercial real estate loans	3,241		1,611		1,668		0		0			1,538		0		0		0		0			0		8,058
Consumer:	Consumer:																										Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—		—		—		—		—			—		5,341		—		—		—		—		5,341		SFR 1-4 1st DT liens	0		0		0		0		0			0		5,068		0		0		0			0		5,068
SFR HELOCs and junior liens	SFR HELOCs and junior liens	—		—		—		—		—			—		—		3,848		—		—		—		3,848		SFR HELOCs and junior liens	0		0		0		0		0			0		1,855		2,839		0		0			0		4,694
Other	Other	—		—		—		3		—			—		—		—		27		—		—		30		Other	0		0		0		42		0			0		0		0		97		0			0		139
Total consumer loans	Total consumer loans	—		—		—		3		—			—		5,341		3,848		27		—		—		9,219		Total consumer loans	0		0		0		42		0			0		6,923		2,839		97		0			0		9,901
Commercial and industrial	Commercial and industrial	—		—		—		107		—			—		—		—		—		1,926		14		2,047		Commercial and industrial	0		0		0		292		0			0		0		0		0		1,173			75		1,540
Construction	Construction	—		—		—		—		—			—		—		—		—		—		—		—		Construction	0		0		0		0		0			0		4,547		0		0		0			0		4,547
Agriculture production	Agriculture production	—		—		—		—		—			—		—		—		—		26		12		38		Agriculture production	0		0		0		0		0			0		0		0		0		13			5		18
Leases	Leases	—		—		—		—		—			—		—		—		—		—		—		—		Leases	0		0		0		0		0			0		0		0		0		0			0		0
Total	Total	$	2,506	$	163	$	1,640	$	620	$	2,060		$	1,242	$	5,341	$	3,848	$	27	$	1,952	$	1,026	$	20,425	Total	$	3,241	$	1,611	$	1,668	$	334	$	0		$	1,538	$	11,470	$	2,839	$	97	$	1,186		$	80	$	24,064

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The CARES Act, in addition to providing financial assistance to both businesses and consumers, provides financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. The banking regulatory agencies have likewise issued guidance encouraging financial institutions to work prudently with borrowers who are, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. That guidance, with concurrence of the Financial Accounting Standards Board and provisions of the CARES Act, allow modifications made on a good faith basis in response to COVID-19 to borrowers who were generally current with their payments prior to any relief, to not be treated as troubled debt restructurings. To the extent that such modifications meet the criteria previously described, such modifications are not expected to be classified as troubled debt restructurings. The following tables show certain information regarding TDRs that occurred during the periods indicated:


		TDR information for the three months ended June 30, 2020																							TDR information for the three months ended March 31, 2021
(dollars in thousands)	(dollars in thousands)	Number	Pre-mod outstanding principal balance		Post-mod outstanding principal balance		Financial impact due to TDR taken as additional provision		Number that defaulted during the period	Recorded investment of TDRs that defaulted during the period		Financial impact due to the default of previous TDR taken as charge- offs or additional provisions		(dollars in thousands)	Number	Pre-mod outstanding principal balance		Post-mod outstanding principal balance		Financial impact due to TDR taken as additional provision		Number that defaulted during the period	Recorded investment of TDRs that defaulted during the period		Financial impact due to the default of previous TDR taken as charge- offs or additional provisions
Commercial real estate:	Commercial real estate:													Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	—	$	—	$	—	$	—	—	$	—	$	—	CRE non-owner occupied	1	$	317	$	314	$	314	0	$	0	$	0
CRE owner occupied	CRE owner occupied	—	$	—	$	—	$	—	—	$	—	$	—	CRE owner occupied	1	740		742		742		0	0		0
Multifamily	Multifamily	—	$	—	$	—	$	—	—	$	—	$	—	Multifamily	0	0		0		0		0	0		0
Farmland	Farmland	—	$	—	$	—	$	—	—	$	—	$	—	Farmland	0	0		0		0		3	847		0
Total commercial real estate loans	Total commercial real estate loans	—	$	—	$	—	$	—	—	$	—	$	—	Total commercial real estate loans	2	1,057		1,056		1,056		3	847		0
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—	$	—	$	—	$	—	1	$	735	$	—	SFR 1-4 1st DT liens	0	0		0		0		0	0		0
SFR HELOCs and junior liens	SFR HELOCs and junior liens	—	$	—	$	—	$	—	—	$	—	$	—	SFR HELOCs and junior liens	0	0		0		0		0	0		0
Other	Other	—	$	—	$	—	$	—	—	$	—	$	—	Other	0	0		0		0		0	0		0
Total consumer loans	Total consumer loans	—	$	—	$	—	$	—	1	$	735	$	—	Total consumer loans	0	0		0		0		0	0		0
Commercial and industrial	Commercial and industrial	—	$	—	$	—	$	—	—	$	—	$	—	Commercial and industrial	3	316		310		310		1	247		0
Construction	Construction	—	$	—	$	—	$	—	—	$	—	$	—	Construction	0	0		0		0		0	0		0
Agriculture production	Agriculture production	—	$	—	$	—	$	—	—	$	—	$	—	Agriculture production	0	0		0		0		0	0		0
Leases	Leases	—	$	—	$	—	$	—	—	$	—	$	—	Leases	0	0		0		0		0	0		0
Total	Total	—	$	—	$	—	$	—	1	$	735	$	—	Total	5	$	1,373	$	1,366	$	1,366	4	$	1,094	$	0


		TDR information for the three months ended June 30, 2019																							TDR information for the three months ended March 31, 2020
(dollars in thousands)	(dollars in thousands)	Number	Pre-mod outstanding principal balance		Post-mod outstanding principal balance		Financial impact due to TDR taken as additional provision		Number that defaulted during the period	Recorded investment of TDRs that defaulted during the period		Financial impact due to the default of previous TDR taken as charge- offs or additional provisions		(dollars in thousands)	Number	Pre-mod outstanding principal balance		Post-mod outstanding principal balance		Financial impact due to TDR taken as additional provision		Number that defaulted during the period	Recorded investment of TDRs that defaulted during the period		Financial impact due to the default of previous TDR taken as charge- offs or additional provisions
Commercial real estate:	Commercial real estate:													Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	—	$	—	$	—	$	—	—	$	—	$	—	CRE non-owner occupied	1	$	257	$	251	$	0	0	$	0	$	0
CRE owner occupied	CRE owner occupied	—	—		—		—		—	—		—		CRE owner occupied	0	0		0		0		0	0		0
Multifamily	Multifamily	—	—		—		—		—	—		—		Multifamily	0	0		0		0		0	0		0
Farmland	Farmland	—	—		—		—		—	—		—		Farmland	2	230		298		0		0	0		0
Total commercial real estate loans	Total commercial real estate loans	—	—		—		—		—	—		—		Total commercial real estate loans	3	487		549		0		0	0		0
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—	—		—		—		—	—		—		SFR 1-4 1st DT liens	0	0		0		0		1	302		0
SFR HELOCs and junior liens	SFR HELOCs and junior liens	2	93		95		27		—	—		—		SFR HELOCs and junior liens	2	172		169		0		0	0		0
Other	Other	—	—		—		—		—	—		—		Other	0	0		0		0		0	0		0
Total consumer loans	Total consumer loans	2	93		95		27					—		Total consumer loans	2	172		169		0		1	302		0
Commercial and industrial	Commercial and industrial	4	1,754		1,722		2		—	—		—		Commercial and industrial	1	21		20		21		0	0		0
Construction	Construction	—	—		—		—		—	—		—		Construction	0	0		0		0		0	0		0
Agriculture production	Agriculture production	—	—		—		—		—	—		—		Agriculture production	0	0		0		0		0	0		0
Leases	Leases	—	—		—		—		—	—		—		Leases	0	0		0		0		0	0		0
Total	Total	6	$	1,847	$	1,817	$	29	—	$	—	$	—	Total	6	$	680	$	738	$	21	1	$	302	$	0

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TDR Information for the six months ended June 30, 2020
(dollars in thousands) Number Pre-mod
outstanding
principal
balance Post-mod
outstanding
principal
balance Financial
impact due to
TDR taken as
additional
provision Number that
defaulted during
the period Recorded
investment of
TDRs that
defaulted during
the period Financial impact
due to the
default of
previous TDR
taken as charge-
offs or additional
provisions
Commercial real estate:
CRE non-owner occupied 1 $ 257 $ 251 $ — — $ — $ —
CRE owner occupied — — — — — — —
Multifamily — — — — — — —
Farmland 2 230 298 — — — —
Total commercial real estate loans 3 487 549 — — — —
Consumer:
SFR 1-4 1st DT liens — — — — 2 1,037 —
SFR HELOCs and junior liens 2 172 169 — — — —
Other — — — — — — —
Total consumer loans 2 172 169 — 2 1,037 —
Commercial and industrial 1 21 20 21 — — —
Construction — — — — — — —
Agriculture production — — — — — — —
Leases — — — — — — —
Total 6 $ 680 $ 738 $ 21 2 $ 1,037 $ —

TDR Information for the six months ended June 30, 2019
(dollars in thousands) Number Pre-mod
outstanding
principal
balance Post-mod
outstanding
principal
balance Financial
impact due to
TDR taken as
additional
provision Number that
defaulted during
the period Recorded
investment of
TDRs that
defaulted during
the period Financial impact
due to the
default of
previous TDR
taken as charge-
offs or additional
provisions
Commercial real estate:
CRE non-owner occupied — $ — $ — $ — — $ — $ —
CRE owner occupied — — — — — — —
Multifamily — — — — — — —
Farmland — — — — — — —
Total commercial real estate loans — — — — — — —
Consumer:
SFR 1-4 1st DT liens 1 163 162 — — — —
SFR HELOCs and junior liens 3 214 215 — — — —
Other — — — — — — —
Total consumer loans 4 377 377 — — — —
Commercial and industrial 6 1,768 1,737 31 1 7 —
Construction — — — — — — —
Agriculture production — — — — — — —
Leases — — — — — — —
Total 10 $ 2,145 $ 2,114 $ 31 1 $ 7 $ —

The Company also modified the terms of select loans in an effort to assist borrowers that were not related to the COVID-19 pandemic. If the borrower was experiencing financial difficulty and a concession was granted, the Company considered such modifications as troubled debt restructurings. Modifications classified as TDRs can include one or a combination of the following: rate modifications, term extensions, interest only modifications, either temporary or long-term, payment modifications, and collateral substitutions/additions. The objective of the modifications was to increase loan repayments by customers and thereby reduce net charge-offs. The modified loans are included in impaired loans for purposes of determining the level of the allowance for credit losses.

For all new TDRs, an impairment analysis is conducted. If the loan is determined to be collateral dependent, any additional amount of impairment will be calculated based on the difference between estimated collectible value and the current carrying balance of the loan. This difference could result in an increased provision and is typically charged off. If the asset is determined

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not to be collateral dependent, the impairment is measured on the net present value difference between the expected cash flows of the restructured loan and the cash flows which would have been received under the original terms. The effect of this could result in a requirement for additional provision to the reserve. The effect of these required provisions for the period are indicated above.

Typically if a TDR defaults during the period, the loan is then considered collateral dependent and, if it was not already considered collateral dependent, an appropriate provision will be reserved or charge will be taken. The additional provisions required resulting from default of previously modified TDR’s are noted above. Loans that defaulted within the twelve month period subsequent to modification were not considered significant for financial reporting purposes.

Note 5 - Leases

The Company records a right-of-use asset (“ROUA”) on the consolidated balance sheets for those leases that convey rights to control use of identified assets for a period of time in exchange for consideration. The Company also records a lease liability on the consolidated balance sheets for the present value of future payment commitments. All of the Company’s leases are comprised of operating leases in which the Company is lessee of real estate property for branches, ATM locations, and general administration and operations. The Company elected not to include short-term leases (i.e. leases with initial terms of 12 month or less) within the ROUA and lease liability. Known or determinable adjustments to the required minimum future lease payments were included in the calculation of the Company’s ROUA and lease liability. Adjustments to the required minimum future lease payments that are variable and will not be determinable until a future period, such as changes in the consumer price index, are included as variable lease costs. Additionally, expected variable payments for common area maintenance, taxes and insurance were unknown and not determinable at lease commencement and therefore, were not included in the determination of the Company’s ROUA or lease liability.

The value of the ROUA and lease liability is impacted by the amount of the periodic payment required, length of the lease term, and the discount rate used to calculate the present value of the minimum lease payments. The Company’s lease agreements often include 1 or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a

collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. The lease liability is reduced based on the discounted present value of remaining payments as of each reporting period. The ROUA value is measured using the amount of lease liability and adjusted for prepaid or accrued lease payments, remaining lease incentives, unamortized direct costs (if any), and impairment (if any).

The following table presents the components of lease expense for the periods ended:


		Three months ended June 30,						Six months ended June 30,							Three months ended March 31,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020
Operating lease cost	Operating lease cost	$	1,291	$	1,310	$	2,586	$	2,621	Operating lease cost	$	1,258	$	1,294
Short-term lease cost	Short-term lease cost	65		58		128		129		Short-term lease cost	61		63
Variable lease cost	Variable lease cost	1		(17)		6		(22)		Variable lease cost	(2)		6
Sublease income	Sublease income	(35)		(32)		(69)		(66)		Sublease income	(13)		(34)
Total lease cost	Total lease cost	$	1,322	$	1,319	$	2,651	$	2,662	Total lease cost	$	1,304	$	1,329

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The following table presents supplemental cash flow information related to leases for the periods ended:


		Three months ended June 30,						Six months ended June 30,							Three months ended March 31,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:									Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	Operating cash flows for operating leases	$	1,243	$	1,229	$	2,480	$	2,447	Operating cash flows for operating leases	$	1,204	$	1,237
ROUA obtained in exchange for operating lease liabilities	ROUA obtained in exchange for operating lease liabilities	$	675	$	156	$	4,068	$	32,162	ROUA obtained in exchange for operating lease liabilities	$	1,308	$	3,393

The following table presents the weighted average operating lease term and discount rate as of the period ended:

~~Table of Contents~~


		As of June 30,							March 31,
		2020		2019			2021		2020
Weighted-average remaining lease term (years)	Weighted-average remaining lease term (years)	10.3		9.5		Weighted-average remaining lease term (years)	9.8		10.3
Weighted-average discount rate	Weighted-average discount rate	3.17	%	3.18	%	Weighted-average discount rate	3.03	%	3.17	%

At ~~June 30, 2020,~~March 31, 2021, future expected operating lease payments are as follows:


(in thousands)	(in thousands)			(in thousands)
Periods ending December 31,	Periods ending December 31,			Periods ending December 31,
2020		$	2,311
2021	2021	4,561		2021	$	3,505
2022	2022	4,225		2022	4,320
2023	2023	3,549		2023	3,649
2024	2024	3,273		2024	3,377
2025				2025	2,916
Thereafter	Thereafter	17,398		Thereafter	14,933
		35,317			32,700
Discount for present value of expected cash flows	Discount for present value of expected cash flows	(5,574)		Discount for present value of expected cash flows	(4,920)
Lease liability at June 30, 2020		$	29,743
Lease liability at March 31, 2021				Lease liability at March 31, 2021	$	27,780

Note 6 - Deposits

A summary of the balances of deposits follows (in thousands):


		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Noninterest-bearing demand	Noninterest-bearing demand	$	2,487,120	$	1,832,665	Noninterest-bearing demand	$	2,766,510	$	2,581,517
Interest-bearing demand	Interest-bearing demand	1,318,951		1,242,274		Interest-bearing demand	1,465,915		1,414,908
Savings	Savings	2,043,593		1,851,549		Savings	2,302,927		2,164,942
Time certificates, $250,000 or more	Time certificates, $250,000 or more	102,434		129,061		Time certificates, $250,000 or more	64,509		73,147
Other time certificates	Other time certificates	296,160		311,445		Other time certificates	263,539		271,420
Total deposits	Total deposits	$	6,248,258	$	5,366,994	Total deposits	$	6,863,400	$	6,505,934

Certificate of deposit balances of ~~$30,000,000~~$10,000,000 from the State of California were included in time certificates, over $250,000, at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. The Company participates in a deposit program offered by the State of California whereby the State may make deposits at the Company’s request subject to collateral and credit worthiness constraints. The negotiated rates on these State deposits are generally more favorable than other wholesale funding sources available to the Company. Overdrawn deposit balances of ~~$847,000~~$813,000 and ~~$1,550,000~~$985,000 were classified as consumer loans at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Note 7 - Commitments and Contingencies

The following table presents a summary of the Bank’s commitments and contingent liabilities:

(in thousands) June 30,
2020 December 31,
2019
Financial instruments whose amounts represent risk:
Commitments to extend credit:
Commercial loans $ 391,333 $ 363,793
Consumer loans 541,569 533,576
Real estate mortgage loans 208,973 188,959
Real estate construction loans 224,701 222,998
Standby letters of credit 11,034 12,014
Deposit account overdraft privilege 110,468 110,402

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(in thousands)	March 31, 2021		December 31, 2020
Financial instruments whose amounts represent risk:
Commitments to extend credit:
Commercial loans	$	473,971	$	462,422
Consumer loans	539,670		534,223
Real estate mortgage loans	231,509		202,306
Real estate construction loans	231,697		227,876
Standby letters of credit	14,543		15,056
Deposit account overdraft privilege	122,965		110,813

Note 8 - Shareholders’ Equity

Dividends Paid

The Bank paid to the Company cash dividends in the aggregate amounts of ~~$12,694,000~~$7,772,000 and ~~$10,236,000~~$26,754,000 during the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively and $39,448,000 and $18,350,000 during the six months ended June 30, 2020 and 2019,~~ respectively. The Bank is regulated by the Federal Deposit Insurance Corporation (FDIC) and the State of California Department of Business Oversight (DBO). Absent approval from the Commissioner of the DBO, California banking laws generally limit the Bank’s ability to pay dividends to the lesser of (1) retained earnings or (2) net income for the last three fiscal years, less cash distributions paid during such period.

Stock Repurchase Plan

On ~~November 12, 2019~~February 25, 2021 the Board of Directors approved the authorization to repurchase up to ~~1,525,000~~2,000,000 shares of the Company's common stock (the ~~2019~~2021 Repurchase Plan), which approximated ~~5.0%~~6.7% of the shares outstanding as of the approval date. The actual timing of any share repurchases will be determined by the Company's management and therefore the total value of the shares to be purchased under the program is subject to change. The ~~2019~~2021 Repurchase Plan has no expiration date and the Company has had 0 share repurchases during the ~~year~~quarter ended ~~December~~March 31, 2019, the Company had repurchased 0 shares. During the three and six months ended June 30, 2020, the Company repurchased 259,993 and 813,862 shares with a market value of $7,669,000 and $24,809,000, respectively.2021.

In connection with approval of the ~~2019~~2021 Repurchase Plan, the Company’s previous repurchase program adopted on ~~August 21, 2007~~November 12, 2019 (the ~~2007~~2019 Repurchase Plan) was terminated. ~~There were 0 shares of common stock repurchased under~~Under the ~~2007~~2019 Repurchase Plan, during ~~2019.~~the three months ended March 31, 2021, the Company repurchased 223 shares with a market value of approximately $8,260. The Company repurchased 858,717 shares during 2020.

Stock Repurchased Under Equity Compensation Plans

The Company's shareholder-approved equity compensation plans permit employees to tender recently vested shares in lieu of cash for the payment of exercise price, if applicable, and the tax withholding ~~taxes~~ on such shares. During the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ employees tendered 0 and ~~93,755 shares, respectively, of the Company’s common stock in connection with option exercises. During the six months ended June 30, 2020 and 2019, employees tendered~~ 4,668 ~~and 119,914~~ shares, respectively, of the Company’s common stock in connection with option exercises. Employees also tendered ~~11,306~~70 and ~~15,151~~133 shares in connection with the tax withholding requirements of other share based awards during the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and 11,439 and 15,242 shares during the six months period ended June 30, 2020 and 2019,~~ respectively. In total, shares of the Company's common stock tendered had market values of ~~$346,000~~$2,500 and ~~$3,659,000~~$153,000 during the quarter ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $494,000 and $4,695,000 year to date June 30, 2020 and 2019,~~ respectively. The tendered shares were retired. The market value of tendered shares is the last market trade price at closing on the day an option is exercised or the other share based award vests. Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the ~~2019~~2021 or ~~2007~~2019 Stock Repurchase Plans.

Note 9 - Stock Options and Other Equity-Based Incentive Instruments

On April 16, 2019, the Board of Directors adopted the 2019 Equity Incentive Plan (2019 Plan) which was approved by shareholders on May 21, 2019. The 2019 Plan allows for up to 1,500,000 shares to be issued in connection with equity-based incentives. The Company’s 2009 Equity Incentive Plan (2009 Plan) expired on March 26, 2019. While no new awards can be granted under the 2009 Plan, existing grants continue to be governed by the terms, conditions and procedures set forth in any applicable award agreement. ~~On April 16, 2019, the Board~~

Table of Directors adopted the 2019 Equity Incentive Plan (2019 Plan) which was approved by shareholders on May 21, 2019. The 2019 Plan allows for up to 1,500,000 shares to be issued in connection with equity-based incentives. All grants of equity awards made during the six months ended June 30, 2020, were made from the 2019 Plan.Contents

Stock option activity during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 is summarized in the following table:

Number
of Shares Option Price
per Share Weighted
Average
Exercise Price
Outstanding at December 31, 2019 160,500 $14.54 to $23.21 $ 17.60
Options granted — — —
Options exercised (16,000) $17.54 to $19.46 18.02
Options forfeited — — —
Outstanding at June 30, 2020 144,500 $14.54 to $23.21 $ 17.55

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	Number of Shares	Option Price per Share	Weighted Average Exercise Price
Outstanding at December 31, 2020	128,500	$14.54 to $23.21	$	17.72
Options granted	0	0	0
Options exercised	0	$0 to $0	0
Options forfeited	0	0	0
Outstanding at March 31, 2021	128,500	$14.54 to $23.21	$	17.72

The following table shows the number, weighted-average exercise price, intrinsic value, and weighted average remaining contractual life of options exercisable, options not yet exercisable and total options outstanding as of ~~June 30, 2020:~~March 31, 2021:

Currently
Exercisable Currently Not
Exercisable Total
Outstanding
Number of options 144,500 — 144,500
Weighted average exercise price $ 17.55 $ — $ 17.55
Intrinsic value (in thousands) $ 1,864 $ — $ 1,864
Weighted average remaining contractual term (yrs.) 2.4 0 2.4


	Currently Exercisable		Currently Not Exercisable		Total Outstanding
Number of options	128,500		0		128,500
Weighted average exercise price	$	17.72	$	0	$	17.72
Intrinsic value (in thousands)	$	3,810	$	0	$	3,810
Weighted average remaining contractual term (yrs.)	1.7		n/a		1.7

As of ~~June 30, 2020~~March 31, 2021 all options outstanding are fully vested and are expected to be exercised prior to expiration. The Company did not modify any option grants during ~~2019~~2020 or the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

Activity related to restricted stock unit awards during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 is summarized in the following table:


		Service Condition Vesting RSUs	Market Plus Service Condition Vesting RSUs		Service Condition Vesting RSUs	Market Plus Service Condition Vesting RSUs
Outstanding at December 31, 2019		68,597	51,312
Outstanding at December 31, 2020				Outstanding at December 31, 2020	99,809	81,615
RSUs granted	RSUs granted	64,036	46,416	RSUs granted	0	0
RSUs added through dividend and performance credits	RSUs added through dividend and performance credits	1,344	5,847	RSUs added through dividend and performance credits	504	0
RSUs released	RSUs released	(29,089)	(20,265)	RSUs released	(201)	0
RSUs forfeited/expired	RSUs forfeited/expired	(94)	(78)	RSUs forfeited/expired	(55)	0
Outstanding at June 30, 2020		104,794	83,232
Outstanding at March 31, 2021				Outstanding at March 31, 2021	100,057	81,615

During the three months ended March 30, 2021 and 2020 there were 0 restricted stock unit awards granted under the 2019 Plan.

The ~~104,794~~100,057 of service condition vesting RSUs outstanding as of ~~June 30, 2020~~March 31, 2021 include a feature whereby each RSU outstanding is credited with a dividend amount equal to any common stock cash dividend declared and paid, and the credited amount is divided by the closing price of the Company’s stock on the dividend payable date to arrive at an additional amount of RSUs outstanding under the original grant. The dividend credits follow the same vesting requirements as the RSU awards and are not considered participating securities. The ~~104,794~~100,057 of service condition vesting RSUs outstanding as of ~~June 30, 2020~~March 31, 2021 are expected to vest, and be released, on a weighted-average basis, over the next ~~1.82~~1.2 years. The Company expects to recognize ~~$3,211,517~~$2,058,000 of pre-tax compensation costs related to these service condition vesting RSUs between ~~June 30, 2020~~March 31, 2021 and their vesting dates. The Company did not modify any service condition vesting RSUs during ~~2019~~2020 or during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

The ~~83,232~~81,615 of market plus service condition vesting RSUs outstanding as of ~~June 30, 2020~~March 31, 2021 are expected to vest, and be released, on a weighted-average basis, over the next ~~2.33~~1.6 years. The Company expects to recognize ~~$1,686,594~~$1,096,000 of pre-tax compensation costs related to these RSUs between ~~June 30, 2020~~March 31, 2021 and their vesting dates. As of ~~June 30, 2020,~~March 31, 2021, the number of market plus service condition vesting RSUs outstanding that will actually vest, and be released, may be reduced to 0 or increased to ~~124,848~~122,423 depending on the total return of the Company’s common stock versus the total return of an index of bank stocks from the grant date to the vesting date. The Company did not modify any market plus service condition vesting RSUs during ~~2019~~2020 or during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

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Note 10 - Non-interest Income and Expense

The following table summarizes the Company’s non-interest income for the periods indicated:


		Three months ended June 30,						Six months ended June 30,							Three months ended March 31,
(dollars in thousands)	(dollars in thousands)	2020		2019		2020		2019		(dollars in thousands)	2021		2020
ATM and interchange fees	ATM and interchange fees	$	5,165	$	5,404	$	10,276	$	9,985	ATM and interchange fees	$	5,861	$	5,111
Service charges on deposit accounts	Service charges on deposit accounts	3,046		4,182		7,092		8,062		Service charges on deposit accounts	3,269		4,046
Other service fees	Other service fees	734		619		1,492		1,390		Other service fees	871		758
Mortgage banking service fees	Mortgage banking service fees	459		475		928		958		Mortgage banking service fees	463		469
Change in value of mortgage servicing rights	Change in value of mortgage servicing rights	(1,236)		(552)		(2,494)		(1,197)		Change in value of mortgage servicing rights	12		(1,258)
Total service charges and fees	Total service charges and fees	8,168		10,128		17,294		19,198		Total service charges and fees	10,476		9,126
Increase in cash value of life insurance	Increase in cash value of life insurance	710		746		1,430		1,521		Increase in cash value of life insurance	673		720
Asset management and commission income	Asset management and commission income	661		739		1,577		1,381		Asset management and commission income	834		916
Gain on sale of loans	Gain on sale of loans	1,736		575		2,627		987		Gain on sale of loans	3,247		891
Lease brokerage income	Lease brokerage income	127		239		320		459		Lease brokerage income	110		193
Sale of customer checks	Sale of customer checks	88		135		212		275		Sale of customer checks	119		124
Gain on sale of investment securities	Gain on sale of investment securities	—		—		—		—		Gain on sale of investment securities	0		0
Gain on marketable equity securities		25		42		72		78
(Loss) gain on marketable equity securities										(Loss) gain on marketable equity securities	(53)		47
Other	Other	142		819		(55)		1,327		Other	704		(197)
Total other non-interest income	Total other non-interest income	3,489		3,295		6,183		6,028		Total other non-interest income	5,634		2,694
Total non-interest income	Total non-interest income	$	11,657	$	13,423	$	23,477	$	25,226	Total non-interest income	$	16,110	$	11,820

The components of non-interest expense were as follows (in thousands):


		Three months ended June 30,						Six months ended June 30,							Three months ended March 31,
		2020		2019		2020		2019			2021		2020
Base salaries, net of deferred loan origination costs	Base salaries, net of deferred loan origination costs	$	17,277	$	17,211	$	34,900	$	33,968	Base salaries, net of deferred loan origination costs	$	15,511	$	17,623
Incentive compensation	Incentive compensation	2,395		3,706		5,496		6,273		Incentive compensation	3,580		3,101
Benefits and other compensation costs	Benefits and other compensation costs	7,383		5,802		13,931		11,606		Benefits and other compensation costs	6,239		6,548
Total salaries and benefits expense	Total salaries and benefits expense	27,055		26,719		54,327		51,847		Total salaries and benefits expense	25,330		27,272
Occupancy	Occupancy	3,398		3,738		7,273		7,512		Occupancy	3,726		3,875
Data processing and software	Data processing and software	3,657		3,354		7,024		6,703		Data processing and software	3,202		3,367
Equipment	Equipment	1,350		1,752		2,862		3,619		Equipment	1,517		1,512
Intangible amortization	Intangible amortization	1,431		1,431		2,862		2,862		Intangible amortization	1,431		1,431
Advertising	Advertising	531		1,533		1,196		2,864		Advertising	380		665
ATM and POS network charges	ATM and POS network charges	1,210		1,270		2,583		2,593		ATM and POS network charges	1,246		1,373
Professional fees	Professional fees	741		1,057		1,444		1,896		Professional fees	594		703
Telecommunications	Telecommunications	639		773		1,364		1,570		Telecommunications	581		725
Regulatory assessments and insurance	Regulatory assessments and insurance	360		490		455		1,001		Regulatory assessments and insurance	612		95
Postage	Postage	283		315		573		625		Postage	198		290
Operational losses	Operational losses	184		226		405		451		Operational losses	209		221
Courier service	Courier service	337		412		668		682		Courier service	294		331
Gain on sale of foreclosed assets	Gain on sale of foreclosed assets	(16)		(99)		(57)		(198)		Gain on sale of foreclosed assets	(51)		(41)
Loss on disposal of fixed assets		15		42		15		66

Other miscellaneous expense	Other miscellaneous expense	4,530		3,684		7,530		8,056		Other miscellaneous expense	2,349		2,930
Total other non-interest expense	Total other non-interest expense	18,650		19,978		36,197		40,302		Total other non-interest expense	16,288		17,477
Total non-interest expense	Total non-interest expense	$	45,705	$	46,697	$	90,524	$	92,149	Total non-interest expense	$	41,618	$	44,749

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Note 11 - Earnings Per Share

Basic earnings per share represent income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustments to income that would result from assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options and restricted stock units (RSUs), and are determined using the treasury stock method. Earnings per share have been computed based on the following:


		Three months ended June 30,							Three months ended March 31,
(in thousands)	(in thousands)	2020		2019		(in thousands)	2021		2020
Net income	Net income	$	7,430	$	23,061	Net income	$	33,649	$	16,121
Average number of common shares outstanding	Average number of common shares outstanding	29,754		30,458		Average number of common shares outstanding	29,727		30,395
Effect of dilutive stock options and restricted stock	Effect of dilutive stock options and restricted stock	129		185		Effect of dilutive stock options and restricted stock	178		128
Average number of common shares outstanding used to calculate diluted earnings per share	Average number of common shares outstanding used to calculate diluted earnings per share	29,883		30,643		Average number of common shares outstanding used to calculate diluted earnings per share	29,905		30,523
Options excluded from diluted earnings per share because the effect of these options was antidilutive		—		—
Options excluded from diluted earnings per share because of their antidilutive effect						Options excluded from diluted earnings per share because of their antidilutive effect	0		0

Six months ended June 30,
(in thousands) 2020 2019
Net income $ 23,551 $ 45,787
Average number of common shares outstanding 30,074 30,441
Effect of dilutive stock options and restricted stock 129 209
Average number of common shares outstanding used to calculate diluted earnings per share 30,203 30,650
Options excluded from diluted earnings per share because the effect of these
options was antidilutive — —

Note 12 – Comprehensive Income (Loss)

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet identified as accumulated other comprehensive income (AOCI), such items, along with net income, are components of other comprehensive ~~income.~~income (loss) (OCI).

The components of other comprehensive income ~~(loss)~~ and related tax effects are as follows:


		Three months ended June 30,						Six months ended June 30,							Three months ended March 31,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020
Unrealized holding gains on available for sale securities before reclassifications		$	34,959	$	9,553	$	5,398	$	22,263
Unrealized holding losses on available for sale securities before reclassifications										Unrealized holding losses on available for sale securities before reclassifications	$	(12,337)	$	(29,561)
Amounts reclassified out of AOCI:										Amounts reclassified out of AOCI:
Realized gain on debt securities										Realized gain on debt securities	0		0

Unrealized holding losses on available for sale securities after reclassifications										Unrealized holding losses on available for sale securities after reclassifications	(12,337)		(29,561)
Tax effect	Tax effect	(10,334)		(2,824)		(1,595)		(6,582)		Tax effect	3,647		8,739
Unrealized holding gains on available for sale securities, net of tax		24,625		6,729		3,803		15,681
Unrealized holding losses on available for sale securities, net of tax										Unrealized holding losses on available for sale securities, net of tax	(8,690)		(20,822)
Change in unfunded status of the supplemental retirement plans before reclassifications	Change in unfunded status of the supplemental retirement plans before reclassifications	661		(88)		1,109		(177)		Change in unfunded status of the supplemental retirement plans before reclassifications	(49)		448
Amounts reclassified out of accumulated other comprehensive income (loss):
Amounts reclassified out of AOCI:										Amounts reclassified out of AOCI:
Amortization of prior service cost	Amortization of prior service cost	(13)		(14)		(27)		(27)		Amortization of prior service cost	(14)		(14)
Amortization of actuarial losses	Amortization of actuarial losses	478		102		956		204		Amortization of actuarial losses	63		478

Total amounts reclassified out of accumulated other comprehensive income	Total amounts reclassified out of accumulated other comprehensive income	465		88		929		177		Total amounts reclassified out of accumulated other comprehensive income	49		464
Change in unfunded status of the supplemental retirement plans after reclassifications	Change in unfunded status of the supplemental retirement plans after reclassifications	1,126		—		2,038		—		Change in unfunded status of the supplemental retirement plans after reclassifications	0		912
Tax effect	Tax effect	—		—		—		—		Tax effect	0		0
Change in unfunded status of the supplemental retirement plans, net of tax	Change in unfunded status of the supplemental retirement plans, net of tax	1,126		—		2,038		—		Change in unfunded status of the supplemental retirement plans, net of tax	0		912
Total other comprehensive income (loss)		$	25,751	$	6,729	$	5,841	$	15,681
Change in joint beneficiary agreement liability before reclassifications										Change in joint beneficiary agreement liability before reclassifications	(629)		0
Tax effect										Tax effect	0		0
Change in joint beneficiary agreement liability before reclassifications, net of tax										Change in joint beneficiary agreement liability before reclassifications, net of tax	(629)		0
Total other comprehensive loss										Total other comprehensive loss	$	(9,319)	$	(19,910)

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The components of accumulated other comprehensive income, ~~(loss),~~ included in shareholders’ equity, are as follows:


(in thousands)	(in thousands)	June 30, 2020		December 31, 2019		(in thousands)	March 31, 2021		December 31, 2020
Net unrealized gain on available for sale securities	Net unrealized gain on available for sale securities	$	8,785	$	3,387	Net unrealized gain on available for sale securities	$	6,846	$	19,183
Tax effect	Tax effect	(2,597)		(1,001)		Tax effect	(2,024)		(5,671)
Unrealized holding gain on available for sale securities, net of tax	Unrealized holding gain on available for sale securities, net of tax	6,188		2,386		Unrealized holding gain on available for sale securities, net of tax	4,822		13,512
Unfunded status of the supplemental retirement plans	Unfunded status of the supplemental retirement plans	(9,593)		(11,193)		Unfunded status of the supplemental retirement plans	(1,294)		(1,294)
Tax effect	Tax effect	2,836		3,309		Tax effect	382		382
Unfunded status of the supplemental retirement plans, net of tax	Unfunded status of the supplemental retirement plans, net of tax	(6,757)		(7,884)		Unfunded status of the supplemental retirement plans, net of tax	(912)		(912)
Joint beneficiary agreement liability	Joint beneficiary agreement liability	1,188		276		Joint beneficiary agreement liability	(949)		(320)
Tax effect	Tax effect	—		—		Tax effect	0		0
Joint beneficiary agreement liability, net of tax	Joint beneficiary agreement liability, net of tax	1,188		276		Joint beneficiary agreement liability, net of tax	(949)		(320)
Accumulated other comprehensive income (loss)		$	619	$	(5,222)
Accumulated other comprehensive income						Accumulated other comprehensive income	$	2,961	$	12,280

Note 13 - Fair Value Measurement

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, income approach, and/or the cost approach. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Marketable equity securities, debt securities available-for-sale, loans held for sale, and mortgage servicing rights are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application impairment write-downs of individual assets.

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observable nature of the assumptions used to determine fair value. These levels are:

Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Marketable equity securities and debt securities available for sale - Marketable equity securities and debt securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. The Company had 0 securities classified as Level 3 during any of the periods covered in these financial statements.

Loans held for sale - Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what secondary markets are currently offering for loans with similar characteristics. As such, we classify those loans subjected to recurring fair value adjustments as Level 2.

Individually evaluated loans - Loans are not recorded at fair value on a recurring basis. However, from time to time, certain loans have individual risk characteristics not consistent with a pool of loans and is individually evaluated for credit reserves.

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Loans for which it is probable that payment of interest and principal will not be made in accordance with the original contractual terms of the loan agreement are typically individually evaluated. The fair value of these loans are estimated using one of several methods, including collateral value, fair value of similar debt, enterprise value, liquidation value and discounted cash flows. Those loans not requiring an allowance represent

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loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Foreclosed assets - Foreclosed assets include assets acquired through, or in lieu of, loan foreclosure. Foreclosed assets are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, management periodically performs valuations and the assets are carried at the lower of carrying amount or fair value less cost to sell. When the fair value of foreclosed assets is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3. Revenue and expenses from operations and changes in the valuation allowance are included in other non-interest expense.

Mortgage servicing rights - Mortgage servicing rights are carried at fair value. A valuation model, which utilizes a discounted cash flow analysis using a discount rate and prepayment speed assumptions is used in the computation of the fair value measurement. While the prepayment speed assumption is currently quoted for comparable instruments, the discount rate assumption currently requires a significant degree of management judgment and is therefore considered an unobservable input. As such, the Company classifies mortgage servicing rights subjected to recurring fair value adjustments as Level 3.

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands):


Fair value at June 30, 2020		Total		Level 1		Level 2		Level 3
Fair value at March 31, 2021										Fair value at March 31, 2021	Total		Level 1		Level 2		Level 3
Marketable equity securities	Marketable equity securities	$	3,033	$	3,033	$	—	$	—	Marketable equity securities	$	2,971	$	2,971	$	0	$	0
Debt securities available for sale:	Debt securities available for sale:									Debt securities available for sale:
Obligations of U.S. government corporations and agencies	Obligations of U.S. government corporations and agencies	434,814		—		434,814		—		Obligations of U.S. government corporations and agencies	1,032,934		0		1,032,934		0
Obligations of states and political subdivisions	Obligations of states and political subdivisions	109,646		—		109,646		—		Obligations of states and political subdivisions	140,384		0		140,384		0
Corporate bonds	Corporate bonds	2,570		—		2,570		—		Corporate bonds	2,534		0		2,534		0
Asset backed securities	Asset backed securities	449,250		—		449,250		—		Asset backed securities	506,253		0		506,253		0
Loans held for sale	Loans held for sale	8,352		—		8,352		—		Loans held for sale	3,995		0		3,995		0
Mortgage servicing rights	Mortgage servicing rights	4,250		—		—		4,250		Mortgage servicing rights	5,607		0		0		5,607
Total assets measured at fair value	Total assets measured at fair value	$	1,011,915	$	3,033	$	1,004,632	$	4,250	Total assets measured at fair value	$	1,694,678	$	2,971	$	1,686,100	$	5,607


Fair value at December 31, 2019		Total		Level 1		Level 2		Level 3
Fair value at December 31, 2020										Fair value at December 31, 2020	Total		Level 1		Level 2		Level 3
Marketable equity securities	Marketable equity securities	$	2,960	$	2,960	$	—	$	—	Marketable equity securities	$	3,025	$	3,025	$	0	$	0
Debt securities available for sale:	Debt securities available for sale:									Debt securities available for sale:
Obligations of U.S. government corporations and agencies	Obligations of U.S. government corporations and agencies	472,980		—		472,980		—		Obligations of U.S. government corporations and agencies	812,374		0		812,374		0
Obligations of states and political subdivisions	Obligations of states and political subdivisions	109,601		—		109,601		—		Obligations of states and political subdivisions	129,095		0		129,095		0
Corporate bonds	Corporate bonds	2,532		—		2,532		—		Corporate bonds	2,544		0		2,544		0
Asset backed securities	Asset backed securities	365,025		—		365,025		—		Asset backed securities	470,251		0		470,251		0
Loans held for sale	Loans held for sale	5,265		—		5,265		—		Loans held for sale	6,268		0		6,268		0
Mortgage servicing rights	Mortgage servicing rights	6,200		—		—		6,200		Mortgage servicing rights	5,092		0		0		5,092
Total assets measured at fair value	Total assets measured at fair value	$	964,563	$	2,960	$	955,403	$	6,200	Total assets measured at fair value	$	1,428,649	$	3,025	$	1,420,532	$	5,092

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process. There were no transfers between any levels during the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, or the year ended December 31, ~~2019.~~

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2020.

The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the time periods indicated. Had there been any transfer into or out of Level 3 during the time periods indicated, the amount included in the “Transfers into (out of) Level 3” column would represent the beginning balance of an item in the period (interim quarter) during which it was transferred (in thousands):

Three months ended June 30, Beginning
Balance Transfers
into (out of)
Level 3 Change
Included
in Earnings Issuances Ending
Balance
2020: Mortgage servicing rights $ 5,168 — $ (1,236) $ 318 $ 4,250
2019: Mortgage servicing rights $ 6,572 — $ (552) $ 209 $ 6,229

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Three months ended March 31,	Beginning Balance		Transfers into (out of) Level 3	Change Included in Earnings		Issuances		Ending Balance
2021: Mortgage servicing rights	$	5,092	0	$	12	$	503	$	5,607
2020: Mortgage servicing rights	$	6,200	0	$	(1,258)	$	226	$	5,168

Six months ended June 30, Beginning
Balance Transfers
into (out of)
Level 3 Change
Included
in Earnings Issuances Ending
Balance
2020: Mortgage servicing rights $ 6,200 — $ (2,494) $ 544 $ 4,250
2019: Mortgage servicing rights $ 7,098 — $ (1,197) $ 328 $ 6,229

The key unobservable inputs used in determining the fair value of mortgage servicing rights are mortgage prepayment speeds and the discount rate used to discount cash projected cash flows. Generally, any significant increases in the mortgage prepayment speed and discount rate utilized in the fair value measurement of the mortgage servicing rights will result in a negative fair value adjustments (and decrease in the fair value measurement). Conversely, a decrease in the mortgage prepayment speed and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement).

The following table presents quantitative information about recurring Level 3 fair value measurements at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

As of ~~June 30, 2020:~~March 31, 2021:

Fair Value
(in thousands)

Valuation
Technique

Unobservable
Inputs

Range,
Weighted
Average

Mortgage Servicing Rights

~~4,250~~5,607

Discounted cash flow

Constant prepayment rate

9%11% - ~~28%~~24%; ~~25%~~14.2%

Discount rate

10% - 14%; 12%

As of December 31, ~~2019:~~2020:

Mortgage Servicing Rights

~~6,200~~5,092

Discounted cash flow

Constant prepayment rate

6%14% - ~~42.0%~~20.0%; ~~11.0%~~17.6%

Discount rate

10% - 14%; 12%

The tables below present the recorded investment in assets and liabilities measured at fair value on a nonrecurring basis, as of the dates indicated (in thousands):


June 30, 2020		Total		Level 1	Level 2	Level 3		Total Losses
March 31, 2021										March 31, 2021	Total		Level 1		Level 2		Level 3		Total Gains (Losses)
Fair value:	Fair value:									Fair value:
Individually evaluated loans	Individually evaluated loans	$	162	—	—	$	162	$	(16)	Individually evaluated loans	$	4,557	0		0		$	4,557	$	(2,710)
Foreclosed assets										Foreclosed assets	214		0		0		214		(31)
Total assets measured at fair value										Total assets measured at fair value	$	4,771	$	0	$	0	$	4,771	$	(2,741)


December 31, 2019		Total		Level 1	Level 2	Level 3		Total Losses
December 31, 2020										December 31, 2020	Total		Level 1	Level 2	Level 3		Total Gains (Losses)
Fair value:	Fair value:									Fair value:
Individually evaluated loans	Individually evaluated loans	$	1,055	—	—	$	1,055	$	(652)	Individually evaluated loans	$	1,424	0	0	$	1,424	$	(1,489)
Foreclosed assets	Foreclosed assets	417		—	—	417		(27)		Foreclosed assets	979		0	0	979		155
Total assets measured at fair value	Total assets measured at fair value	$	1,472	—	—	$	1,472	$	(679)	Total assets measured at fair value	$	2,403	0	0	$	2,403	$	(1,334)

June 30, 2019 Total Level 1 Level 2 Level 3 Total Losses
Fair value:
Individually evaluated loans $ 1,164 — — $ 1,164 $ (808)
Foreclosed assets 454 — — 454 (63)
Total assets measured at fair value $ 1,618 — — $ 1,618 $ (871)

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March 31, 2020	Total		Level 1	Level 2	Level 3		Total Gains (Losses)
Fair value:
Individually evaluated loans	$	105	0	0	$	105	$	(107)

The individually evaluated loan amounts above represent collateral dependent loans that have been adjusted to fair value. When the Company identifies a collateral dependent loan with unique risk characteristics, the Company evaluates the need for an allowance using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals. If the Company determines that the value of the loan is less than the recorded investment in the loan, the Company recognizes this impairment and adjust the carrying value of the loan to fair value through the allowance for credit losses. The loss represents charge-offs or impairments on collateral dependent loans for fair value adjustments based on the fair value of collateral. The carrying value of loans fully charged-off is 0.

The foreclosed assets amount above represents impaired real estate that has been adjusted to fair value. Foreclosed assets represent real estate which the Company has taken control of in partial or full satisfaction of loans. At the time of foreclosure, other real estate owned is recorded at fair value less costs to sell, which becomes the property’s new basis. Any write-downs based on the asset’s fair value at the

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date of acquisition are charged to the allowance for credit losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on real estate owned for fair value adjustments based on the fair value of the real estate.

The Company’s property appraisals are primarily based on the sales comparison approach and income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at ~~June 30, 2020:~~March 31, 2021:

~~June 30, 2020~~March 31, 2021

Fair Value
(in thousands)

Valuation
Technique

Unobservable Inputs

Range,
Weighted Average

Individually evaluated loans

~~162~~4,557

Sales comparison
approach
Income approach

Adjustment for differences between
comparable sales
Capitalization rate

Not meaningful
N/A

Foreclosed assets (Residential real estate)

214

Sales comparison
approach

Adjustment for differences between
comparable sales

Not meaningful
N/A

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at December 31, ~~2019:~~2020:

December 31, ~~2019~~2020

Fair Value
(in thousands)

Valuation
Technique

Unobservable Inputs

Range,
Weighted Average

Individually evaluated loans

~~1,055~~1,424

Sales comparison
approach
Income approach

Adjustment for differences between
comparable sales
Capitalization rate

Not ~~meaningfulN/~~meaningful
N/A

Foreclosed assets (Residential real estate)

~~417~~979

Sales comparison
approach

Adjustment for differences between
comparable sales

Not ~~meaningfulN/~~meaningful
N/A

Fair values for financial instruments are management’s estimates of the values at which the instruments could be exchanged in a transaction between willing parties. The Company uses the exit price notion when measuring the fair value of financial instruments. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including, any mortgage banking operations, deferred tax assets, and premises and equipment. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of these estimates.

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		June 30, 2020						December 31, 2019							March 31, 2021				December 31, 2020
(in thousands)	(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:	Financial assets:									Financial assets:
Level 1 inputs:	Level 1 inputs:									Level 1 inputs:
Cash and due from banks	Cash and due from banks	$	78,666	$	78,666	$	92,816	$	92,816	Cash and due from banks	$	94,157	$	94,157	$	77,253	$	77,253
Cash at Federal Reserve and other banks	Cash at Federal Reserve and other banks	627,186		627,186		183,691		183,691		Cash at Federal Reserve and other banks	515,365		515,365		592,298		592,298
Level 2 inputs:	Level 2 inputs:									Level 2 inputs:
Securities held to maturity	Securities held to maturity	337,165		354,179		375,606		381,525		Securities held to maturity	260,454		271,439		284,563		298,726
Restricted equity securities	Restricted equity securities	17,250		N/A		17,250		N/A		Restricted equity securities	17,250		N/A		17,250		N/A

Level 3 inputs:	Level 3 inputs:									Level 3 inputs:
Loans, net	Loans, net	4,721,666		4,716,869		4,276,750		4,263,064		Loans, net	4,881,036		4,885,946		4,671,280		4,753,027
Financial liabilities:	Financial liabilities:									Financial liabilities:
Level 2 inputs:	Level 2 inputs:									Level 2 inputs:
Deposits	Deposits	6,248,258		6,250,757		5,366,994		5,365,921		Deposits	6,863,400		6,870,196		6,505,934		6,507,235
Other borrowings	Other borrowings	38,544		38,544		18,454		18,454		Other borrowings	36,266		36,266		26,914		26,914
Level 3 inputs:	Level 3 inputs:									Level 3 inputs:
Junior subordinated debt	Junior subordinated debt	57,422		56,388		57,232		56,297		Junior subordinated debt	57,742		57,685		57,635		56,632


(in thousands)	(in thousands)	Contract Amount		Fair Value		Contract Amount		Fair Value		(in thousands)	Contract Amount		Fair Value		Contract Amount		Fair Value
Off-balance sheet:	Off-balance sheet:									Off-balance sheet:
Level 3 inputs:	Level 3 inputs:									Level 3 inputs:
Commitments	Commitments	$	1,366,576	$	13,666	$	1,309,326	$	13,093	Commitments	$	1,476,847	$	14,768	$	1,426,827	$	14,268
Standby letters of credit	Standby letters of credit	11,034		110		12,014		120		Standby letters of credit	14,543		145		15,056		151
Overdraft privilege commitments	Overdraft privilege commitments	110,468		1,105		110,402		1,104		Overdraft privilege commitments	122,965		1,229		110,813		1,108

Note 14 - Regulatory Matters

The Company is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The following tables present actual and required capital ratios as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 for the Company and the Bank under applicable Basel III Capital Rules. The minimum capital amounts presented include the minimum required capital levels as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 based on the then phased-in provisions of the Basel III Capital Rules. ~~As of January 1, 2019, the minimum required capital levels of the Basel III Capital Rules have been fully phased-in.~~ Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

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		Actual						Required for Capital Adequacy Purposes								Required to be Considered Well Capitalized					Actual				Required for Capital Adequacy Purposes		Required to be Considered Well Capitalized
As of June 30, 2020:		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of March 31, 2021:														As of March 31, 2021:	Amount		Ratio		Amount		Ratio		Amount		Ratio
		(dollars in thousands)																							(dollars in thousands)
Total Capital (to Risk Weighted Assets):	Total Capital (to Risk Weighted Assets):													Total Capital (to Risk Weighted Assets):
Consolidated	Consolidated	$	760,120	15.13	%	$	527,598	10.50	%	N/A		N/A		Consolidated	$	825,099	15.13	%	$	572,425	10.50	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	755,481	15.04	%	$	527,409	10.50	%	$	502,294	10.00	%	Tri Counties Bank	$	812,092	14.90	%	$	572,229	10.50	%	$	544,980	10.00	%
Tier 1 Capital (to Risk Weighted Assets):	Tier 1 Capital (to Risk Weighted Assets):													Tier 1 Capital (to Risk Weighted Assets):
Consolidated	Consolidated	$	697,043	13.87	%	$	427,103	8.50	%	N/A		N/A		Consolidated	$	756,668	13.88	%	$	463,392	8.50	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	692,448	13.79	%	$	426,950	8.50	%	$	401,835	8.00	%	Tri Counties Bank	$	743,705	13.65	%	$	463,233	8.50	%	$	435,984	8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):	Common equity Tier 1 Capital (to Risk Weighted Assets):													Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	Consolidated	$	641,346	12.76	%	$	351,732	7.00	%	N/A		N/A		Consolidated	$	700,660	12.85	%	$	381,617	7.00	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	692,448	13.79	%	$	351,606	7.00	%	$	326,491	6.50	%	Tri Counties Bank	$	743,705	13.65	%	$	381,486	7.00	%	$	354,237	6.50	%
Tier 1 Capital (to Average Assets):	Tier 1 Capital (to Average Assets):													Tier 1 Capital (to Average Assets):
Consolidated	Consolidated	$	697,043	10.28	%	$	271,269	4.00	%	N/A		N/A		Consolidated	$	756,668	10.00	%	$	302,730	4.00	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	692,448	10.21	%	$	271,263	4.00	%	$	339,079	5.00	%	Tri Counties Bank	$	743,705	9.84	%	$	302,385	4.00	%	$	377,981	5.00	%


		Actual						Required for Capital Adequacy Purposes								Required to be Considered Well Capitalized			Actual					Required for Capital Adequacy Purposes				Required to be Considered Well Capitalized
As of December 31, 2019:		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2020:														As of December 31, 2020:	Amount		Ratio			Amount		Ratio		Amount		Ratio
		(dollars in thousands)																				(dollars in thousands)
Total Capital (to Risk Weighted Assets):	Total Capital (to Risk Weighted Assets):													Total Capital (to Risk Weighted Assets):
Consolidated	Consolidated	$	753,200	15.07	%	$	524,944	10.50	%	N/A		N/A		Consolidated	$	793,433	15.22	%		$	547,352	10.50	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	748,660	14.98	%	$	524,759	10.50	%	$	499,770	10.00	%	Tri Counties Bank	$	780,320	14.97	%		$	547,156	10.50	%	$	521,101	10.00	%
Tier 1 Capital (to Risk Weighted Assets):	Tier 1 Capital (to Risk Weighted Assets):													Tier 1 Capital (to Risk Weighted Assets):
Consolidated	Consolidated	$	719,809	14.40	%	$	424,955	8.50	%	N/A		N/A		Consolidated	$	727,879	13.96	%		$	443,094	8.50	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	715,269	14.31	%	$	424,805	8.50	%	$	399,816	8.00	%	Tri Counties Bank	$	714,811	13.72	%		$	442,936	8.50	%	$	416,881	8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):	Common equity Tier 1 Capital (to Risk Weighted Assets):													Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	Consolidated	$	664,296	13.29	%	$	349,963	7.00	%	N/A		N/A		Consolidated	$	671,975	12.89	%		$	364,901	7.00	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	715,269	14.31	%	$	349,839	7.00	%	$	324,851	6.50	%	Tri Counties Bank	$	714,811	13.72	%		$	364,771	7.00	%	$	338,716	6.50	%
Tier 1 Capital (to Average Assets):	Tier 1 Capital (to Average Assets):													Tier 1 Capital (to Average Assets):
Consolidated	Consolidated	$	719,809	11.55	%	$	249,343	4.00	%	N/A		N/A		Consolidated	$	727,879	9.93	%		$	293,138	4.00	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	715,269	11.47	%	$	249,337	4.00	%	$	311,672	5.00	%	Tri Counties Bank	$	714,811	9.76	%		$	292,949	4.00	%	$	366,186	5.00	%

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules. Also, at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Bank’s capital levels exceeded the minimum amounts necessary to be considered well capitalized under the current regulatory framework for prompt corrective action.

The Basel III Capital Rules require for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the risk-based capital ratios but not the leverage ratio. At ~~June 30, 2020,~~March 31, 2021, the Company and the Bank are in compliance with the capital conservation buffer requirement.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Cautionary Statements Regarding Forward-Looking Information

The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There can be no assurance that future developments affecting us will be the same as those anticipated by management. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the impact of changes in financial services policies, laws and regulations; technological changes; weather, natural disasters and other catastrophic events that may or may not be caused by climate change and their effects on economic and business environments in which the Company operates; the continuing adverse impact on the U.S. economy, including the markets in which we operate, ofdue to the ~~novel coronavirus, which caused the Coronavirus disease 2019 (“COVID-19”)~~COVID-19 global pandemic, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of sources of funding and the demand for our products; the costs or effects of mergers, acquisitions or dispositions we may make; the future operating or financial performance of the Company, including our outlook for future growth, changes in the level of our nonperforming assets and charge-offs; the appropriateness of the allowance for credit losses including the timing and effects of the implementation of the current expected credit losses model; any deterioration in values of California real estate, both residential and commercial; the effect of changes in accounting standards and practices; possible other-than-temporary impairment of securities held by us; changes in consumer spending, borrowing and savings habits; our ability to attract deposits and other sources of liquidity; changes in the financial performance and/or condition of our borrowers; our noninterest expense and the efficiency ratio; competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers including retail businesses and technology companies; the challenges of integrating and retaining key employees; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber-attacks and the cost to defend against such attacks; the effect of a fall in stock market prices on our brokerage and wealth management businesses; and our ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, which is on file with the Securities and Exchange Commission (the “SEC”) and available in the “Investor Relations” section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC. Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results.

General

As TriCo Bancshares (referred to in this report as “we”, “our” or the “Company”) has not commenced any business operations independent of Tri Counties Bank (the “Bank”), the following discussion pertains primarily to the Bank. Average balances, including such balances used in calculating certain financial ratios, are generally comprised of average daily balances for the Company. Within Management’s Discussion and Analysis of Financial Condition and Results of Operations, interest income, net interest income, net interest yield, and efficiency ratio are generally presented on a fully tax-equivalent (“FTE”) basis. The Company believes the use of these non-generally accepted accounting principles (non-GAAP) measures provides additional clarity in assessing its results, and the presentation of these measures on a FTE basis is a common practice within the banking industry. Interest income and net interest income are shown on a non-FTE basis in the Part I - Financial Information section of this Form 10-Q, and a reconciliation of the FTE and non-FTE presentations is provided below in the discussion of net interest income.

Critical Accounting Policies and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those that materially affect the financial statements and are related to the adequacy of the allowance for loan losses, investments, mortgage servicing rights, fair value

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measurements, retirement plans and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A detailed discussion related to the Company’s accounting policies including those related to estimates on the allowance for loan losses, other than temporary impairment of investments and impairment of intangible assets, can be found in Note 1 of the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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Geographical Descriptions

Financial Highlights

Performance highlights and other developments for the Company as of or for the three months ended ~~June 30, 2020~~March 31, 2021 included the following:

•For the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, the Company’s return on average assets was ~~0.43% and 0.70%, respectively,~~1.75% and the return on average equity was ~~3.39%~~14.51%.

•Organic loan growth, excluding PPP was $68.19 million (6.16% annualized) for the quarter while total loan growth, excluding PPP was $169.78 million (15.3% annualized) for the quarter.

•For the current quarter, net interest margin was 3.74% on a tax equivalent basis as compared to 4.34% in the quarter ended March 31, 2020, and ~~5.28%, respectively.~~a decrease of 5 basis points from the 3.79% in the trailing quarter.

•The efficiency ratio was 50.42% for the first quarter of 2021, as compared to 55.11% in the trailing quarter and 59.66% in the same quarter of the prior year.

•As of ~~June 30, 2020,~~March 31, 2021, the Company reported total loans, total assets and total deposits of ~~$4.80~~$4.97 billion, ~~$7.36~~$8.03 billion and ~~$6.25~~$6.86 billion, respectively.

•~~The~~ As a direct result of the considerable deposit growth experienced over the last twelve months, the loan to deposit ratio was ~~76.84%~~72.37% as of ~~June 30, 2020,~~March 31, 2021, as compared to 73.21% at December 31, 2020 and 81.05% at March 31, ~~2020 and 76.82% at June 30, 2019.~~

•~~The Company originated and funded 2,908 loans totaling $436.7 million under the Payment Protection Program (PPP).~~

•For the current quarter, net interest margin was 4.10% on a tax equivalent basis as compared to 4.50% in the quarter ended June 30, 2019, and a decrease of 24 basis points from the 4.34% in the trailing quarter.2020.

•Non-interest bearing deposits as a percentage of total deposits were ~~39.81%~~40.31% at ~~June 30, 2020,~~March 31, 2021, as compared to 39.68% at December 31, 2020 and 34.86% at March 31, ~~2020 and 33.33% at June 30, 2019.~~2020.

•The average rate of interest paid on deposits, including non-interest-bearing deposits, decreased to ~~0.12%~~0.06% for the ~~second~~first quarter of ~~2020~~2021 as compared with ~~0.19%~~0.07% for the trailing quarter, and ~~also~~ decreased by ~~ten~~13 basis points from the average rate paid of ~~0.22%~~0.19% during the same quarter of the prior year.

•~~Non-performing assets to total assets were 0.31% at June 30, 2020, as compared to 0.31%~~Total outstanding loan deferral modifications under the CARES Act legislation was $48.27 million as of March 31, ~~2020,~~2021, of which $18.0 million related to second deferrals, and ~~0.35% at June 30, 2019.~~an additional $1.9 million related to third deferrals.

•~~Credit~~The reversal of provision ~~expense~~for credit losses for loans and debt securities was ~~$22.1~~$6.1 million during the quarter ended ~~June 30, 2020,~~March 31, 2021, as compared to a provision expense of ~~$8.0~~$4.9 million during the trailing quarter ended ~~March~~December 31, 2020, and ~~$0.5~~a provision expense totaling $8.1 million for the three month period ended ~~June 30, 2019.~~March 31, 2020.

•The allowance for credit losses to total loans was 1.73% as of March 31, 2021, compared to 1.93% as of December 31, 2020, and 1.15% as January 1, 2020, following the Company's adoption of CECL. Non-performing assets to total assets were 0.39% at March 31, 2021, as compared to 0.39% as of December 31, 2020, and 0.31% at March 31, 2020.

•Gain on sale of loans for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 totaled ~~$1,736,000 and $2,627,000,~~$3.2 million, as compared to ~~$575,000~~$3.5 million during the quarter ended December 31, 2020 and ~~$987,000~~$0.9 million for the ~~equivalent periods~~quarter ended ~~June 30, 2019, respectively.~~

•~~The efficiency ratio was 59.89% for the second quarter of 2020, as compared to 59.75% in the trailing quarter and 60.07% in the same quarter of the 2019.~~March 31, 2020.

~~Table of Contents~~

SBA Paycheck Protection Program and COVID Deferrals

The United States has been operating under a state of emergency related to the COVID-19 global pandemic since March 13, 2020. The direct and indirect effects of the pandemic have resulted in a dramatic reduction in economic activity that has severely hampered the ability for businesses and consumers to meet their current repayment obligations.

In March 2020, the ~~SBA~~Small Business Administration ("SBA") Paycheck Protection Program ("PPP") was created to help small businesses keep workers employed during the COVID-19 crisis. AsThe Company originated loans under this program beginning in April, 2020 through July, 2020 (Round 1). Following the SBA's announcement of a ~~Small Business Administration (SBA) Preferred Lender, the Company was able to provide~~second round of PPP ~~loans to small business customers. During the quarter ended June 30,~~lending with streamlined requirements for both borrowers and lenders in December 2020, the Company ~~originated more than 2,900 loans under~~resumed accepting applications in January, 2021 (Round 2). The SBA has announced the PPP program ~~with a~~will end on May 31, 2021.

As of March 31, 2021, the total gross balance outstanding of ~~$423,431,000~~PPP loans (Round 1) was $193,958,000 (948 loans) as compared to total round 1 PPP originations of $438,510,000. Included in the balance of outstanding PPP loans as of ~~quarter end.~~March 31, 2021 are approximately 115 loans totaling $75,669,000 that have been submitted to and are pending forgiveness by the SBA. In connection with the origination of ~~these~~the Round 1 loans, the Company ~~generated~~earned approximately ~~$15,680,000~~$15,735,000 in loan fees, ~~that will be amortized over the two-year term of the loans,~~ offset by deferred loan costs of approximately ~~$756,000. During~~$763,000, the ~~three and six months ended June 30, 2020, interest and fee income~~net of which will be recognized ~~from PPP loans totaled $2,356,000, which~~over the earlier of loan maturity (generally 24 months), repayment or receipt of forgiveness confirmation.

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As of March 31, 2021 there was ~~inclusive of $1,626,000~~approximately $2,358,000 in net deferred fee ~~accretion.~~income remaining to be recognized. During the three months ended March 31, 2021, the Company recognized $4,854,000 in fees on round 1 PPP loans.

As of March 31, 2021, the total gross balance outstanding of PPP loans (Round 2) was $176,316,000 (1,536 loans) as compared to round 2 originations of the same amount. Through March 31, 2021 and in connection with the origination of the Round 2 loans, the Company earned approximately $7,850,000 in loan fees, offset by deferred loan costs of approximately $400,000, the net of which will be recognized over the earlier of loan maturity (generally 60 months), repayment or receipt of forgiveness confirmation. As of March 31, 2021 there was approximately $7,072,000 in net deferred fee income remaining to be recognized. During the three months ended March 31, 2021, the Company recognized $378,000 in fees on round 2 PPP loans. Based on application and approval activity occurring subsequent to March 31, 2021, management anticipates that total round 2 PPP originations will approximate 1,700 loans for $190,215,000 and which are expected generate $9,055,000 in fees from the SBA.

COVID Deferrals

Following the passage of the CARES Act legislation, the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus" was issued by federal bank regulators, which offers temporary relief from troubled debt restructuring accounting for loan payment deferrals for certain customers whose businesses are experiencing economic hardship due to Coronavirus. The applicable period for this relief, originally expected to expire on December 31, 2020, was extended through 2021 by way of the Consolidated Appropriations Act. The Company iscontinues to closely ~~monitoring~~monitor the effects of the pandemic on our loan and deposit customers. Our management team continues to be focused on assessing the risks in our loan portfolio and working with our customers to mitigate where possible, the risk of potential losses. ~~The~~Beginning in April 2020, the Company implemented loan programs to allow certain consumers and businesses impacted by the pandemic to defer loan principal and interest payments.

The following is a summary of COVID related loan customer modifications with outstanding balances as of ~~June 30, 2020:~~March 31, 2021:


					Modification Type						Deferral Term															Modification Type				Deferral Term
(dollars in thousands)	(dollars in thousands)	Balance of Modified Loans	% of Total Category of Loans		Interest Only Deferral		Principal and Interest Deferral		90 Days		180 Days		Other		(dollars in thousands)	Modified Loan Balances Outstanding		% of Total Category of Loans		Interest Only Deferral		Principal and Interest Deferral		90 Days		180 Days		Other
Commercial real estate:	Commercial real estate:														Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$213,394	13.4	%	10.1	%	89.9	%	46.7	%	53.1	%	0.2	%	CRE non-owner occupied	$	41,848	2.69	%	95.6	%	4.4	%	26.6	%	57.9	%	15.6	%
CRE owner occupied	CRE owner occupied	37,816	6.5	%	18.3	%	81.7	%	17.4	%	82.6	%	—	%	CRE owner occupied	5,148		0.80		100.0		—		—		75.1		24.9
Multifamily	Multifamily	13,776	2.4	%	—	%	100.0	%	46.0	%	54.0	%	—	%	Multifamily	—		—		—		—		—		—		—
Farmland	Farmland	2,102	1.4	%	26.1	%	73.9	%	—	%	100.0	%	—	%	Farmland	—		—		—		—		—		—		—
Total commercial real estate loans	Total commercial real estate loans	267,088	9.2	%	10.9	%	89.2	%	42.1	%	57.7	%	0.2	%	Total commercial real estate loans	46,996		1.5		96.1		3.9		23.7		59.7		16.6
Consumer:	Consumer:														Consumer:
SFR 1-4 1st lien	SFR 1-4 1st lien	34,742	6.9	%	1.3	%	98.7	%	97.2	%	2.8	%	—	%	SFR 1-4 1st lien	457		0.1		100.0		—		—		100.0		—
SFR HELOCs and junior liens	SFR HELOCs and junior liens	8,275	2.3	%	76.1	%	23.9	%	93.3	%	6.7	%	—	%	SFR HELOCs and junior liens	97		—		—		100.0		100.0		—		—
Other	Other	4,629	5.7	%	—	%	100.0	%	100.0	%	—	%	—	%	Other	—		—		—		—		—		—		—
Total consumer loans	Total consumer loans	47,646	5.0	%	14.2	%	85.8	%	96.7	%	3.3	%	—	%	Total consumer loans	554		0.1		82.6		17.4		17.4		82.6		—
Commercial and industrial	Commercial and industrial	19,831	3.1	%	24.5	%	75.5	%	23.8	%	75.9	%	0.3	%	Commercial and industrial	716		0.1		78.8		21.2		—		21.2		—
Construction	Construction	6,349	2.3	%	—	%	100.0	%	100.0	%	—	%	—	%	Construction	—		—		—		—		—		—		—
Agriculture production	Agriculture production	—	—	%	—	%	—	%	—	%	—	%	—	%	Agriculture production	—		—		—		—		—		—		—
Leases	Leases	—	—	%	—	%	—	%	—	%	—	%	—	%	Leases	—		—		—		—		—		—		—
Total modifications	Total modifications	$340,915	7.1	%	11.9	%	88.1	%	49.7	%	50.1	%	0.2	%	Total modifications	$	48,266	1.0	%	95.7	%	4.3	%	23.3	%	59.4	%	17.3	%

~~While the Company has provided~~Since inception, total loan modifications associated with CARES Act legislation totaled approximately $439,346,000, of which $48,266,000 and $48,358,000 remained outstanding under their modified terms as of March 31, 2021 and December 31, 2020, respectively. Of the remaining balance outstanding as of March 31, 2021, $18,039,000 is related to second deferrals which are expected to conclude their modification period by August, 2021 and $1,845,000 is related to third deferrals expected to conclude in ~~the form of payment deferrals to various~~October, 2021. Typically, borrowers as outlined above, ongoing discussions with borrowers remain a fluid process. More specifically, the deferral program designed by the Company did not result in the automatic approval of all customers thatwho requested ~~a deferral. Customers requesting~~and were granted a deferral were ~~evaluated~~provided a deferral period of approximately three or six months. Where deferral needs and ~~reviewed~~the impact of the pandemic on the borrower's business were more easily defined, a more tailored deferral period was granted. Such loans are included in the "Other" category in the table above. The Company has elected to forgo the CARES Act Relief guidance for ~~among~~loans totaling $2,160,000 and including all borrowers requesting third deferrals and has deemed such loans along with a limited number of other ~~things, past performance, unique impacts caused by or reasonably~~loans to be impaired under traditional TDR guidance. The remaining balance of loans with modified terms are expected to ~~be caused by~~conclude their modification period during fiscal 2021, however, as long as the current pandemic and recessionary economic conditions ~~and potential governmental restrictions~~continue, it is anticipated that additional borrowers may request an initial or ~~limitations on the operations of~~subsequent modification to their business. Based on the facts unique to each borrower, management believes that an appropriate deferral option was provided to the borrower with the goal of maximizing the likelihood of borrower's ability to return to a regularly scheduled payment structure at the conclusion of the deferral period.

loan terms.

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Management believes that its analysis of each borrower receiving a loan modification supports the ability of that borrower to return to their normal payment terms at the conclusion of the modification period. However, management determined that risk rating downgrades for each credit receiving a deferral modification was prudent until such time that the borrower's actual payment performance supported an upgrade to the pre-modification risk grade.

TRICO BANCSHARES

Financial Summary

(In thousands, except per share amounts; unaudited)


		Three months ended June 30,										Six months ended June 30,							Three months ended March 31,
		2020			2019				2020			2019				2021			2020
Net interest income	Net interest income	64,659			64,315				$	127,851		$	128,185		Net interest income	$	66,440		$	63,192
(Provision for) reversal of credit losses		(22,089)			(537)				(30,088)			1,063
Reversal of (provision for) credit losses															Reversal of (provision for) credit losses	6,060			(8,070)
Non-interest income	Non-interest income	11,657			13,423				23,477			25,226			Non-interest income	16,110			11,820
Non-interest expense	Non-interest expense	(45,705)			(46,697)				(90,525)			(92,149)			Non-interest expense	(41,618)			(44,749)
Provision for income taxes	Provision for income taxes	(1,092)			(7,443)				(7,164)			(16,538)			Provision for income taxes	(13,343)			(6,072)
Net income	Net income	$	7,430		$	23,061			$	23,551		$	45,787		Net income	$	33,649		$	16,121
Per Share Data:	Per Share Data:														Per Share Data:
Basic earnings per share	Basic earnings per share	$	0.25		$	0.76			$	0.78		$	1.50		Basic earnings per share	$	1.13		$	0.53
Diluted earnings per share	Diluted earnings per share	$	0.25		$	0.75			$	0.78		$	1.49		Diluted earnings per share	$	1.13		$	0.53
Dividends paid	Dividends paid	$	0.22		$	0.19			$	0.44		$	0.38		Dividends paid	$	0.25		$	0.22
Book value at period end	Book value at period end								$	29.76		$	28.71		Book value at period end	$	31.71		$	28.91
Average common shares outstanding	Average common shares outstanding	29,754			30,458				30,074			30,441			Average common shares outstanding	29,727			30,395
Average diluted common shares outstanding	Average diluted common shares outstanding	29,883			30,643			30657833	30,203			30,650			Average diluted common shares outstanding	29,905			30,523
Shares outstanding at period end	Shares outstanding at period end								29,759			30,503			Shares outstanding at period end	29,727			29,974
At period end:	At period end:														At period end:
Loans, net									4,721,666			4,070,819
Loans															Loans	$	4,966,977		$	4,379,062
Total investment securities	Total investment securities								1,353,728			1,566,720			Total investment securities	$	1,962,780		$	1,382,026
Total assets	Total assets								7,360,071			6,395,172			Total assets	$	8,031,612		$	6,474,309
Total deposits	Total deposits								6,248,258			5,342,173			Total deposits	$	6,863,400		$	5,402,698
Other borrowings	Other borrowings								38,544			13,292			Other borrowings	$	36,226		$	19,309
Shareholders’ equity	Shareholders’ equity								885,686			875,886			Shareholders’ equity	$	942,539		$	866,426
Financial Ratios:	Financial Ratios:														Financial Ratios:
During the period:	During the period:														During the period:
Return on average assets (annualized)	Return on average assets (annualized)	0.43		%	1.45		%		0.70		%	1.15		%	Return on average assets (annualized)	1.75		%	1.00		%
Return on average equity (annualized)	Return on average equity (annualized)	3.39		%	10.68		%		5.28		%	10.44		%	Return on average equity (annualized)	14.51		%	7.14		%
Net interest margin⁽¹⁾(annualized)	Net interest margin⁽¹⁾(annualized)	4.10		%	4.50		%		4.22		%	4.22		%	Net interest margin(1) (annualized)	3.74		%	4.34		%
Efficiency ratio	Efficiency ratio	59.89		%	60.07		%		59.82		%	65.61		%	Efficiency ratio	50.42		%	59.66		%
Average equity to average assets	Average equity to average assets	12.53		%	13.60		%		13.22		%	13.30		%	Average equity to average assets	12.05		%	13.96		%
At end of period:	At end of period:														At end of period:
Equity to assets	Equity to assets								12.03		%	13.70		%	Equity to assets	11.73		%	13.38		%
Total capital to risk-adjusted assets	Total capital to risk-adjusted assets								15.13		%	14.93		%	Total capital to risk-adjusted assets	15.10		%	15.10		%

⁽¹⁾Fully taxable equivalent (FTE)

The Company ~~reported~~announced net income of ~~$7,430,000~~$33,649,000 for the quarter ended ~~June 30, 2020,~~March 31, 2021, compared to $16,121,000 ~~and $23,061,000 for~~during the ~~quarters~~quarter ended March 31, ~~2020 and June 30, 2019, respectively.~~2020. Diluted earnings per share were ~~$0.25, $0.53 and $0.75~~$1.13 for the ~~quarters ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.~~

~~During the three months ended June 30, 2020, the Company's net income was impacted by an increase in provision for credit losses which totaled $22,089,000, as~~first quarter of 2021, compared to ~~provision expense of $8,000,000~~$0.53 for the ~~trailing~~first quarter ~~and $537,000 during the same period in 2019. The net increase in allowance for credit losses (ACL) as~~ of quarter ended June 30, 2020 totaled $21,828,000. More specifically, the changes in loan volume and changes in credit quality associated with levels of classified, past due and non-performing loans, resulted in the need for a provision for credit losses of $2,685,000. However, the majority of the increase in ACL reflects potential future credit deterioration. Specifically, portfolio-wide qualitative indicators such as the outlook for changes in California Unemployment and Gross Domestic Product (GDP), resulted in a $19,143,000 increase in credit reserves on loans as of June 30, 2020. The Company utilizes a forecast period of approximately eight quarters and obtains the forecast data from publicly available sources as of the balance sheet date. This forecast data continues to rapidly

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evolve and included significant shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date. Management noted that the majority of economic forecasts, as of the end of the current quarter, utilized in the ACL calculation have shown a migration in the estimated timing of recovery from late 2020 as the end of the first quarter to mid-2021 or beyond.

Results of Operations

~~Overview~~

The following discussion and analysis is designed to provide a better understanding of the significant changes and trends related to the Company and the Bank’s financial condition, operating results, asset and liability management, liquidity and capital resources and should be read in conjunction with the Condensed Consolidated Financial Statements of the Company and the Notes thereto located at Item 1 of this report.

Net Interest Income

The Company’s primary source of revenue is net interest income, or the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Following is a summary of the components of FTE net income for the periods indicated (dollars in thousands):


		Three months ended June 30,									Six months ended June 30,										Three months ended March 31,
		2020			2019			2020			2019
(dollars in thousands)														(dollars in thousands)	2021			2020			$ Change		% Change
Interest income	Interest income	$	67,148		$	68,180		133,665			135,637			Interest income	$	67,916		$	66,517		$	1,399	2.1	%
Interest expense	Interest expense	(2,489)			(3,865)			(5,814)			(7,452)			Interest expense	(1,476)			(3,325)			1,849		(55.6)	%
FTE adjustment		286			298			557			619
Fully tax-equivalent adjustment (FTE) (1)														Fully tax-equivalent adjustment (FTE) (1)	277			271			6		2.2	%
Net interest income (FTE)	Net interest income (FTE)	$	64,945		$	64,613		$	128,408		$	128,804		Net interest income (FTE)	$	66,717		$	63,463		$	3,254	5.1	%
Net interest margin (FTE)	Net interest margin (FTE)	4.10		%	4.50		%	4.22		%	4.51		%	Net interest margin (FTE)	3.74		%	4.34		%

Acquired loans discount accretion, net:	Acquired loans discount accretion, net:													Acquired loans discount accretion, net:
Amount (included in interest income)	Amount (included in interest income)	$	2,587		$	1,904		$	4,335		$	3,559		Amount (included in interest income)	$	1,712		$	1,748		$	(36)
Effect on average loan yield		0.24		%	0.19		%	0.20		%	0.17		%
Effect on net interest margin (FTE)		0.16		%	0.13		%	0.14		%	0.12		%
Net interest margin less effect of acquired loan discount		3.94		%	4.37		%	4.08		%	4.39		%
PPP loans yield:

Net interest margin less effect of acquired loan discount accretion(1)														Net interest margin less effect of acquired loan discount accretion(1)	3.64		%	4.22		%			(0.58)	%
PPP loans yield, net:														PPP loans yield, net:
Amount (included in interest income)	Amount (included in interest income)	$	2,356		$	—		$	2,356		$	—		Amount (included in interest income)	$	5,863		—			$	5,863
Effect on net interest margin (FTE)		(0.04)		%	—		%	(0.03)		%	—		%
Net interest margin less effect of PPP loan yield(1)	Net interest margin less effect of PPP loan yield(1)	4.14		%	—		%	4.25		%	—		%	Net interest margin less effect of PPP loan yield(1)	3.59		%	—					3.59	%
Acquired loans discount accretion and PPP loan yield, net: (1)														Acquired loans discount accretion and PPP loan yield, net: (1)
Amount (included in interest income)														Amount (included in interest income)	$	7,575		$	1,748		$	5,827
Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1)														Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1)	3.48		%	4.22		%			(0.74)	%

(1)Information is presented on a fully tax-equivalent (FTE) basis. The Company believes the use of this non-generally accepted accounting principles (non-GAAP) measure provides additional clarity in assessing its results, and the presentation of these measures on a FTE basis is a common practice within the banking industry.

Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or accreted (added to) interest income over the remaining life of the loan. Generally, as time goes on, the effects of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining (unaccreted) discount or (unamortized) premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. As a result of the ~~uncertain economic environment and corresponding rate volatility,~~uptick in interest rates, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, ~~increased~~decreased during the ~~second~~first quarter of ~~2020.~~2021. During the three months ended ~~June 30,~~March 31, 2021, December 31, 2020, and March 31, 2020, ~~December 31, 2019, and June 30, 2019,~~ purchased loan discount accretion was ~~$2,587,000,~~$1,712,000, $1,960,000, and $1,748,000, ~~$2,218,000, and $1,904,000,~~ respectively. ~~Net accretion for the six months ended June 30, 2019 was reduced by $259,000 from the early repayment of loans purchased at a premium several years ago.~~

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Summary of Average Balances, Yields/Rates and Interest Differential

Net interest income (FTE) during the three months ended ~~June 30, 2020~~March 31, 2021 increased ~~$1,482,000 or 2.3%~~by $3,254,000 to ~~$64,945,000~~$66,717,000 as compared to $63,463,000 during the three months ended March 31, 2020. Over the same period net interest margin declined 24 basis points to 4.10% as compared to 4.34% in the trailing quarter. The decline in net interest income (FTE) was due primarily to a decline in yield on interest earning assets, which was 4.26% for the quarter ended June 30, 2020, which represents a decrease of 31 basis points over the trailing quarter and a decrease of 50 basis points over the same quarter in the prior year. The ~~index utilized~~increase was driven nearly entirely by changes in loan volumes inclusive of PPP activity as well as continued decreases in the rates of all interest bearing liabilities. While changes in earning asset volumes helped to increase net interest income by $14,757,000, declining rates on earning assets caused a ~~significant portion~~$13,352,000 decrease in net interest income. Average loan yields, excluding PPP, decreased 21 basis points from 5.23% during the three months ended March 31, 2020, to 5.02% during the three months ended March 31, 2021. The 21 basis point decrease in yields on loans during the comparable three month periods ended March 31, 2021 and 2020 was entirely attributable to decreases in market rates as a result of decreases in the ~~Company’s variable rate loans,~~ Wall Street Journal Prime ~~remained unchanged during the quarter ended June 30, 2020 but decreased by 150 basis points during the prior quarter to 3.25% at March 31, 2020, continuing the downward trend~~Index as ~~compared to 4.75% at December 31, 2019 and 5.50% at June 30, 2019.~~ ~~See the~~ ~~Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid, below for additional information.~~well as competitive pricing pressures.

The following table presents, for the three month periods indicated, information regarding the Company’s consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income from average interest-earning assets and resulting yields, and the amount of interest expense paid on interest-bearing liabilities. Average loan balances include nonperforming loans. Interest income includes proceeds from loans on nonaccrual loans only to the extent cash payments have been received and applied to interest income. Yields on securities and certain loans have been adjusted upward to reflect the effect of income thereon exempt from federal income taxation at the current statutory tax rate (dollars in thousands).


		For the three months ended																							For the three months ended
		June 30, 2020										June 30, 2019											March 31, 2021				March 31, 2020
		Average Balance		Interest Income/ Expense		Rates Earned /Paid		Average Balance		Interest Income/ Expense		Rates Earned /Paid			Average Balance		Interest Income/ Expense		Rates Earned /Paid		Average Balance		Interest Income/ Expense		Rates Earned /Paid
Assets:	Assets:													Assets:
Loans, excluding PPP	Loans, excluding PPP	$	4,363,481	$	56,053	5.17	%	$	4,044,044	$	55,492	5.50	%	Loans, excluding PPP	$	4,407,150	$	54,573	5.02	%	$	4,329,357	$	56,258	5.23	%
PPP loans	PPP loans	292,569		2,356		3.24	%	—		—		—	%	PPP loans	355,875		5,863		6.68	%	—		—		—	%
Investment securities - taxable	Investment securities - taxable	1,251,873		7,689		2.47	%	1,432,550		10,762		3.01	%	Investment securities - taxable	1,649,980		6,394		1.57	%	1,235,672		8,572		2.79	%
Investment securities - nontaxable⁽¹⁾	Investment securities - nontaxable⁽¹⁾	119,860		1,238		4.15	%	140,562		1,358		3.88	%	Investment securities - nontaxable(1)	125,055		1,200		3.89	%	118,992		1,175		3.97	%
Total investments	Total investments	1,371,733		8,927		2.62	%	1,573,112		12,120		3.09	%	Total investments	1,775,035		7,594		1.74	%	1,354,664		9,747		2.89	%
Cash at Federal Reserve and other banks	Cash at Federal Reserve and other banks	338,082		98		0.12	%	147,810		866		2.35	%	Cash at Federal Reserve and other banks	701,666		163		0.09	%	199,729		783		1.58	%
Total interest-earning assets	Total interest-earning assets	6,365,865		67,434		4.26	%	5,764,966		68,478		4.76	%	Total interest-earning assets	7,239,726		68,193		3.82	%	5,883,750		66,788		4.57	%
Other assets	Other assets	661,870						620,923						Other assets	569,186						622,837
Total assets	Total assets	$	7,027,735					$	6,385,889					Total assets	$	7,808,912					$	6,506,587
Liabilities and shareholders’ equity:	Liabilities and shareholders’ equity:													Liabilities and shareholders’ equity:
Interest-bearing demand deposits	Interest-bearing demand deposits	$	1,293,007	$	64	0.02	%	$	1,276,388	$	289	0.09	%	Interest-bearing demand deposits	$	1,430,943	$	76	0.02	%	$	1,245,896	$	169	0.05	%
Savings deposits	Savings deposits	1,968,374		644		0.13	%	1,888,234		1,306		0.28	%	Savings deposits	2,228,281		329		0.06	%	1,864,967		1,062		0.23	%
Time deposits	Time deposits	409,242		1,105		1.09	%	441,116		1,404		1.28	%	Time deposits	336,605		532		0.64	%	430,064		1,320		1.23	%
Total interest-bearing deposits	Total interest-bearing deposits	3,670,623		1,813		0.20	%	3,605,738		2,999		0.33	%	Total interest-bearing deposits	3,995,829		937		0.10	%	3,540,927		2,551		0.29	%
Other borrowings	Other borrowings	26,313		4		0.06	%	17,963		37		0.83	%	Other borrowings	32,709		4		0.05	%	22,790		5		0.09	%
Junior subordinated debt	Junior subordinated debt	57,372		672		4.71	%	57,222		829		5.81	%	Junior subordinated debt	57,688		535		3.76	%	57,272		769		5.40	%
Total interest-bearing liabilities	Total interest-bearing liabilities	3,754,308		2,489		0.27	%	3,680,923		3,865		0.42	%	Total interest-bearing liabilities	4,086,226		1,476		0.15	%	3,620,989		3,325		0.37	%
Noninterest-bearing deposits	Noninterest-bearing deposits	2,266,671						1,765,141						Noninterest-bearing deposits	2,657,925						1,855,006
Other liabilities	Other liabilities	126,351						73,541						Other liabilities	123,986						121,959
Shareholders’ equity	Shareholders’ equity	880,405						866,284						Shareholders’ equity	940,775						908,633
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	7,027,735					$	6,385,889					Total liabilities and shareholders’ equity	$	7,808,912					$	6,506,587
Net interest spread⁽²⁾	Net interest spread⁽²⁾					3.99	%					4.34	%	Net interest spread(2)					3.67	%					4.20	%
Net interest income and interest margin⁽³⁾	Net interest income and interest margin⁽³⁾			$	64,945	4.10	%			$	64,613	4.50	%	Net interest income and interest margin(3)			$	66,717	3.74	%			$	63,463	4.34	%

⁽¹⁾Fully taxable equivalent (FTE)

⁽²⁾Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

⁽³⁾Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets, then annualized based on the number of days in the given period.

As compared to the trailing quarter, net interest income increased $37,000 or 0.1% to $66,717,000 compared to $66,680,000 during the three months ended December 31, 2020. Over the same period, net interest margin decreased 5 basis points to 3.74% as compared to 3.79% in the trailing quarter. The 5 basis point decrease is attributed to a 2 basis point decrease in non-PPP loan yields, and a 7 basis point decline in investment security yields, which were 1.74% during the three months ended March 31, 2021, as compared to 1.81% during the trailing quarter. Conversely, those yield declines were partially offset due to a 2 basis point improvement in the rate paid on interest-bearing liabilities, and an increase in yields on the PPP loans, which earned 6.68% during the three months ended March 31, 2021, as compared to 5.59% during the trailing quarter.

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Table of Contents

The following table presents, for the six month periods indicated, information regarding the Company’s consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income from average interest-earning assets and resulting yields, and the amount of interest expense paid on interest- bearing liabilities. Average loan balances include nonperforming loans. Interest income includes proceeds from loans on nonaccrual loans only to the extent cash payments have been received and applied to interest income. Yields on securities and certain loans have been adjusted upward to reflect the effect of income thereon exempt from federal income taxation at the current statutory tax rate (dollars in thousands).

For the six months ended
June 30, 2020 June 30, 2019
Average
Balance Income/
Expense Yield/
Rate Average
Balance Income/
Expense Yield/
Rate
Assets
Loans, excluding PPP $ 4,346,419 $ 112,311 5.20 % $ 4,033,954 $ 109,889 5.49 %
PPP loans 146,285 2,356 3.24 % — — — %
Investments-taxable 1,235,672 16,261 2.65 % 1,428,951 21,677 3.06 %
Investments-nontaxable ⁽¹⁾
118,992 2,413 4.08 % 141,397 2,753 3.93 %
Total investments 1,354,664 18,674 2.77 % 1,570,348 24,430 3.14 %
Cash at Federal Reserve and other banks 266,752 881 0.66 % 158,164 1,937 2.47 %
Total earning assets 6,114,120 134,222 4.41 % 5,762,466 136,256 4.77 %
Other assets, net 653,006 643,592
Total assets $ 6,767,126 $ 6,406,058
Liabilities and shareholders’ equity
Interest-bearing demand deposits $ 1,269,452 233 0.04 % $ 1,274,882 576 0.09 %
Savings deposits 1,918,918 1,706 0.18 % 1,907,677 2,439 0.26 %
Time deposits 419,638 2,425 1.16 % 441,447 2,703 1.23 %
Total interest-bearing deposits 3,608,008 4,364 0.24 % 3,624,006 5,718 0.32 %
Other borrowings 24,552 9 0.07 % 16,736 50 0.60 %
Junior subordinated debt 57,324 1,441 5.06 % 57,086 1,684 5.95 %
Total interest-bearing liabilities 3,689,884 5,814 0.32 % 3,697,828 7,452 0.41 %
Noninterest-bearing deposits 2,059,242 1,754,973
Other liabilities 123,481 98,570
Shareholders’ equity 894,519 854,687
Total liabilities and shareholders’ equity $ 6,767,126 $ 6,406,058
Net interest rate spread^{(1) (2)}
4.09 % 4.36 %
Net interest income and margin^{(1) (3)}
$ 128,408 4.22 % $ 128,804 4.51 %

⁽¹⁾~~Fully taxable equivalent (FTE)~~

⁽²⁾~~Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing~~

~~liabilities.~~

⁽³⁾~~Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average~~

~~balance of interest-earning assets, then annualized based on the number of days in the given period.~~

Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid

The following table sets forth, for the period identified, a summary of the changes in interest income and interest expense from changes in average asset and liability balances (volume) and changes in average interest rates for the periods indicated. Changes not solely attributable to volume or rates have been allocated in proportion to the respective volume and rate components.

~~Table of Contents~~


(in thousands)	Three months ended March 31, 2021 compared with three months ended March 31, 2020
	Volume		Rate		Total
Increase (decrease) in interest income:
Loans, including PPP	$	5,670	$	(1,492)	$	4,178
Investment securities(1)	7,104		(9,257)		(2,153)
Cash at Federal Reserve and other banks	1,983		(2,603)		(620)
Total interest-earning assets	14,757		(13,352)		1,405
Increase (decrease) in interest expense:
Interest-bearing demand deposits	23		(116)		(93)
Savings deposits	209		(942)		(733)
Time deposits	(287)		(501)		(788)
Other borrowings	2		(3)		(1)
Junior subordinated debt	6		(240)		(234)
Total interest-bearing liabilities	(47)		(1,802)		(1,849)
Increase (decrease) in net interest income	$	14,804	$	(11,550)	$	3,254

(in thousands) Three months ended June 30, 2020
compared with three months ended June 30, 2019
Volume Rate Total
Increase in interest income:
Loans, including PPP $ 8,415 $ (5,498) $ 2,917
Investment securities⁽¹⁾
(3,469) 276 (3,193)
Cash at Federal Reserve and other banks 1,118 (1,886) (768)
Total interest-earning assets 6,064 (7,108) (1,044)
Increase (decrease) in interest expense:
Interest-bearing demand deposits 4 (229) (225)
Savings deposits 56 (718) (662)
Time deposits (102) (197) (299)
Other borrowings 17 (50) (33)
Junior subordinated debt 2 (159) (157)
Total interest-bearing liabilities (23) (1,353) (1,376)
Increase in net interest income $ 6,087 $ (5,755) $ 332

⁽⁽¹⁾Fully taxable equivalent (FTE)

(in thousands) Six months ended June 30, 2020 compared with six months ended June 30, 2019
Volume Rate Total
Increase in interest income:
Loans, including PPP $ 12,593 $ (7,815) $ 4,778
Investment securities⁽¹⁾
(7,538) 1,782 (5,756)
Cash at Federal Reserve and other banks 1,341 (2,397) (1,056)
Total interest-earning assets 6,396 (8,430) (2,034)
Increase (decrease) in interest expense:
Interest-bearing demand deposits (5) (338) (343)
Savings deposits 29 (762) (733)
Time deposits (268) (10) (278)
Other borrowings 47 (88) (41)
Junior subordinated debt 14 (257) (243)
Total interest-bearing liabilities (183) (1,455) (1,638)
Decrease in net interest income $ 6,579 $ (6,975) $ (396)

The following commentary regarding net interest income, interest income and interest expense may be best understood while referencing the Summary of Average Balances, Yields/Rates and Interest Differential and the Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid shown above.

Net interest income (FTE) during the three months ended ~~June 30, 2020~~March 31, 2021 increased ~~$332,000~~$3,254,000 or ~~0.51%~~5.1% to ~~$64,945,000~~$66,717,000 compared to ~~$64,613,000~~$63,463,000 during the three months ended ~~June 30, 2019.~~March 31, 2020. The overall increase in net interest income (FTE) was due ~~most notably~~ to ~~increases in average loan balances (including PPP), which improved interest income by $8,415,000. As~~ an offset, the decrease in net interest income (FTE) was attributed to declines in the interest rates on loans (including PPP), which reduced interest income by $5,498,000. Also noteworthy was a reduction in average outstanding balance of investment securities from sales and maturities, which reduced interest income by $3,469,000.

Net interest income (FTE) during the six months ended June 30, 2020 decreased modestly by $396,000 or 0.30% to $128,408,000 compared to $128,804,000 during the six months ended June 30, 2019. The decrease in net interest income (FTE) was primarily from a reduction in average outstanding balance of investment securities from sales, calls and maturities, which reduced interest income by $7,538,000, followed by a reduction in interest rates on cash and due from banks leading to a further $2,397,000 decline in interest income. As an offset, increasesincrease in average loan volume, ~~attributed~~including PPP, and related income earned on loans, totaling $4,178,000. Declining interest rates also continue to ~~$12,593,000~~benefit the yield expense on deposits, resulting in ~~additional~~a decrease of $1,614,000 in related expense. As an offset, depressed interest ~~margin.~~

rates on investment securities continue to incentive pre-payment on existing debt and promote new debt issuances being purchased with lower coupon yields, resulting in a decline of $2,153,000 in yield during the period.

~~Table of Contents~~

Asset Quality and Loan Loss Provisioning

~~The Company adopted CECL on January 1, 2020.~~ During the three months ended ~~June 30, 2020,~~March 31, 2021, the Company recorded a ~~provision for~~reversal of credit losses of ~~$22,089,000,~~$6,060,000, as compared to a provision expense of ~~$8,000,000~~$4,850,000 for the trailing quarter, and ~~$537,000~~a provision expense of $8,070,000 during the ~~same period in 2019.~~first quarter of 2020.

The ~~net increase in~~following table presents details of the provision for credit losses for the periods indicated:


	Three months ended
(dollars in thousands)	March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020
Addition to (reversal of) allowance for credit losses	$	(6,240)	$	4,450	$	7,649	$	22,089	$	8,000
Addition to reserve for unfunded loan commitments	180		400		—		155		70
Total provision for credit losses	$	(6,060)	$	4,850	$	7,649	$	22,244	$	8,070

The allowance for credit losses (ACL) was $85,941,000 as of quarter ended ~~June 30, 2020 totaled $21,828,000.~~March 31, 2021, a net decrease of $5,906,000 over the immediately preceding quarter. More specifically, the reversal of allowance for credit losses of $6,240,000 consisted of $5,906,000 in changes inrelating to qualitative factors, loan volume and changes in credit quality associated with levels of classified, past due and non-performing loans, ~~resulted in~~plus net recoveries totaling $334,000 during the ~~need for a provision for credit losses of $2,685,000. However, the majority of the increase in ACL reflects potential future credit deterioration. Specifically,~~quarter. The portfolio-wide qualitative ~~indicators such as~~indicator associated with the ~~outlook for changes in California Unemployment~~forecast levels of US unemployment and ~~Gross Domestic Product (GDP), resulted in a $19,143,000 increase~~the qualitative factors associated with portfolio concentration risks contributed approximately $3,540,000 and $2,954,000, respectively, to the reversal in credit reserves on loans asduring the three months ended March 31, 2021.

Table of ~~June 30, 2020.~~ Contents

Reductions in the quantitative aspects of the allowance for credit losses contributed approximately $471,000 and were more specifically associated with the Company's historical loss rates which have continued to remain low despite the recent economic uncertainty.

The Company utilizes a forecast period of approximately eight quarters and obtains the forecast data from publicly available sources as of the balance sheet date. This forecast data continues to ~~rapidly~~ evolve and included significant shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date. Management noted that the majority of economic forecasts ~~as of the end of the current quarter,~~ utilized in the ACL calculation seem to have ~~shown a migration~~rebounded in the ~~estimated timing~~current quarter, coinciding with the widespread availability of ~~recovery~~vaccines, continued easing of occupancy and social distancing restrictions, and continued government stimulus efforts.

Loans past due 30 days or more increased by $3,783,000 during the quarter ended March 31, 2021 to $10,550,000, as compared to $6,767,000 at December 31, 2020. Non-performing loans were $28,941,000 at March 31, 2021, an increase of $2,077,000 and $10,986,000, respectively, from ~~late~~$26,864,000 and $17,955,000 as of December 31, 2020, ~~as the end of the first quarter to mid-2021 or beyond.~~and March 31, 2020, respectively.

The following ~~provides credit quality trend data specific to~~table illustrates the total loans by risk rating and their respective percentage of total loans for the periods presented.


	March 31,			% of Total Loans		December 31,			% of Total Loans			March 31,			% of Total Loans
(dollars in thousands)	2021					2020					2020
Risk Rating:
Pass	$	4,765,180		95.9	%	$	4,556,870		95.7	%		$	4,280,031		97.7	%
Special Mention	143,677			2.9	%	157,191			3.3	%		63,169			1.4	%
Substandard	58,120			1.2	%	49,066			1.0	%		35,862			0.9	%
Total	$	4,966,977				$	4,763,127					$	4,379,062

Classified loans to total loans	1.17		%			1.03		%				0.82		%
Loans past due 30+ days to total loans	0.21		%			0.14		%				0.67		%

The Company's loan portfolio for ~~the periods presented:~~

As of June 30, % of Total Loans As of March 31, % of Total Loans As of December 31, % of Total Loans
(in thousands) 2020 2020 2019
Risk Rating:
Pass $ 4,698,393 97.9 % $ 4,280,031 97.7 % $ 4,228,453 98.2 %
Special Mention 61,883 1.3 % 63,169 1.4 % 44,217 1.0 %
Substandard 41,129 0.8 % 35,862 0.9 % 34,696 0.8 %
Doubtful/Loss — — —
Total $ 4,801,405 $ 4,379,062 $ 4,307,366
Classified loans to total loans 0.86 % 0.82 % 0.81 %
Loans past due 30+ days to total loans 0.35 % 0.67 % 0.25 %

~~Loan grading trends within the Company's portfolio have been generally consistent for the quarter ended June 30, 2020 as compared to the trailing quarter ended March 31, 2020, with~~ non-classified loans (loans graded special mention or better) remains generally consistent for the quarter ended March 31, 2021, as compared to the trailing quarter December 31, 2020, representing ~~99.1%~~98.8% and ~~99.2%~~99.0% of total loans outstanding, respectively. Loans ~~past due 30 days or more~~risk graded special mention decreased by ~~$12,071,000~~approximately $14,564,000 during the quarter ended ~~June 30, 2020 to $16,622,000 to 0.35% of total loans,~~March 31, 2021 as compared to ~~$28,693,000 or 0.67%~~the trailing quarter, while loans risk graded substandard increased by approximately $8,388,000 during the same periods. The change in both loan risk rating categories is largely due to the migration from special mention to substandard of ~~total~~three loans ~~at March 31, 2020. The decrease in past due balances was driven primarily~~to separate borrowers, which totaled approximately $10,380,000. Only one of these loans is considered by ~~a single loan in excess of $13,000,000 that was 60 days past due~~management to be impaired as of March 31, ~~2020 but was brought current during the current quarter.~~

~~Loan grading trends within the Company's portfolio~~2021 and management believes that there is no ultimate risk of loss and therefore, no specific reserves have been consistent for the quarter ended June 30, 2020 as compared to the quarter ended December 31, 2019, with non-classified loans representing 99.1% and 99.2% of total loans outstanding, respectively, and past due 30 days or more as a percentage of total loans were 0.35% and 0.25%, respectively.

Total non-performing loans were $20,730,000 at June 30, 2020 and $17,955,000 at March 31, 2020 and have remained generally consistent with the $16,864,000 and $20,585,000 as of December 31, 2019 and June 30, 2019, respectively. Immediately following the quarter ended June 30, 2020, two non-accrual loans totaling $2,024,000 were paid in full including approximately $160,000 in past due interest and fees.recorded on this loan.

There were no additions ~~and two sales of~~to other real estate owned during the ~~three month period~~quarter ended ~~June 30, 2020. The sold properties~~March 31, 2021 and there was one sale for proceeds of approximately $577,000, which generated ~~$217,000 in proceeds and had~~ a ~~carrying value~~gain of ~~$201,000.~~$51,000. As of ~~June 30, 2020,~~March 31, 2021, other real estate owned consisted of ~~three~~six properties with a carrying value of ~~$1,922,000.~~

$2,309,000.

~~Table of Contents~~

Non-interest Income

The following table summarizes the Company’s non-interest income for the periods indicated (in thousands):


		Three months ended June 30,											Three months ended March 31,
(dollars in thousands)	(dollars in thousands)	2020		2019		$ Change		% Change		(dollars in thousands)	2021		2020		$ Change		% Change
ATM and interchange fees	ATM and interchange fees	$	5,165	$	5,404	$	(239)	(4.4)	%	ATM and interchange fees	$	5,861	$	5,111	$	750	14.7	%
Service charges on deposit accounts	Service charges on deposit accounts	3,046		4,182		(1,136)		(27.2)	%	Service charges on deposit accounts	3,269		4,046		(777)		(19.2)	%
Other service fees	Other service fees	734		619		115		18.6	%	Other service fees	871		758		113		14.9	%
Mortgage banking service fees	Mortgage banking service fees	459		475		(16)		(3.4)	%	Mortgage banking service fees	463		469		(6)		(1.3)	%
Change in value of mortgage servicing rights	Change in value of mortgage servicing rights	(1,236)		(552)		(684)		123.9	%	Change in value of mortgage servicing rights	12		(1,258)		1,270		(101.0)	%
Total service charges and fees	Total service charges and fees	8,168		10,128		(1,960)		(19.4)	%	Total service charges and fees	10,476		9,126		1,350		14.8	%
Increase in cash value of life insurance	Increase in cash value of life insurance	710		746		(36)		(4.8)	%	Increase in cash value of life insurance	673		720		(47)		(6.5)	%
Asset management and commission income	Asset management and commission income	661		739		(78)		(10.6)	%	Asset management and commission income	834		916		(82)		(9.0)	%
Gain on sale of loans	Gain on sale of loans	1,736		575		1,161		201.9	%	Gain on sale of loans	3,247		891		2,356		264.4	%
Lease brokerage income	Lease brokerage income	127		239		(112)		(46.9)	%	Lease brokerage income	110		193		(83)		(43.0)	%
Sale of customer checks	Sale of customer checks	88		135		(47)		(34.8)	%	Sale of customer checks	119		124		(5)		(4.0)	%
Gain on sale of investment securities	Gain on sale of investment securities	—		—		—		nm		Gain on sale of investment securities	—		—		—		n/a
Gain on marketable equity securities		25		42		(17)		(40.5)	%
(Loss) gain on marketable equity securities										(Loss) gain on marketable equity securities	(53)		47		(100)		(212.8)	%
Other	Other	142		819		(677)		(82.7)	%	Other	704		(197)		901		(457.4)	%
Total other non-interest income	Total other non-interest income	3,489		3,295		194		5.9	%	Total other non-interest income	5,634		2,694		2,940		109.1	%
Total non-interest income	Total non-interest income	$	11,657	$	13,423	$	(1,766)	(13.2)	%	Total non-interest income	$	16,110	$	11,820	$	4,290	36.3	%

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Non-interest income ~~decreased $1,766,000~~increased $4,290,000 or ~~13.2%~~36.3% to ~~$11,657,000~~$16,110,000 during the three months ended ~~June 30, 2020~~March 31, 2021, compared to ~~$13,423,000~~a decrease of $470,000 or 2.8% from $16,580,000 during the ~~comparable 2019 quarter. Deposit account service charges declined by $1,960,000 during~~trailing quarter ended December 31, 2020. Mortgage loan origination and sale volume was the comparable period as increases in average balances maintained by deposit customers caused a reduction in returned check fess of approximately $978,000. Other declines in service charge and fee income were directly related to the COVID-19 pandemic and depressed levels of foot traffic to various retail outlets, leading to fewer debit/credit transactions during the quarter. Changes in the value of mortgage servicing rights were consistent with the low rate environment and an increase in the mortgage refinance index, twoprimary driver of the ~~key assumptions utilized in determining their fair value. Specifically, accelerated prepayment speeds resulting from decreases in the 15 and 30~~ year mortgage rates, continued to be the largest contributor to the decline in fair value of the mortgage servicing asset which decreased by $1,236,000 during the quarter, representing an additional $684,000 decline over ~~the same period ended 2019. Conversely, mortgage loan origination~~year quarterly increase. The increased volume ~~demand increased notably during the period ended June 30, 2020 as~~was a direct result of the low interest rate environment, which also contributed to limited mortgage servicing rights valuation change in the current quarter, leading to an additional ~~$1,161,000 gain on sale of loans over the comparable quarter.~~

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~~The following table summarizes the Company’s~~$1,270,000 increase in non-interest income. Other non-interest income ~~for the periods indicated (in thousands):~~

Six months ended
June 30,
(dollars in thousands) 2020 2019 $ Change % Change
ATM and interchange fees $ 10,276 $ 9,985 $ 291 2.9 %
Service charges on deposit accounts 7,092 8,062 (970) (12.0) %
Other service fees 1,492 1,390 102 7.3 %
Mortgage banking service fees 928 958 (30) (3.1) %
Change in value of mortgage servicing rights (2,494) (1,197) (1,297) 108.4 %
Total service charges and fees 17,294 19,198 (1,904) (9.9) %
Increase in cash value of life insurance 1,430 1,521 (91) (6.0) %
Asset management and commission income 1,577 1,381 196 14.2 %
Gain on sale of loans 2,627 987 1,640 166.2 %
Lease brokerage income 320 459 (139) (30.3) %
Sale of customer checks 212 275 (63) (22.9) %
Gain on sale of investment securities — — — nm
Gain on marketable equity securities 72 78 (6) (7.7) %
Other (55) 1,327 (1,382) (104.1) %
Total other non-interest income 6,183 6,028 155 2.6 %
Total non-interest income $ 23,477 $ 25,226 $ (1,749) (6.9) %

~~Non-interest income decreased $1,749,000 or 6.9% to $23,477,000~~contributed $704,000 during the ~~six months~~quarter ended ~~June 30, 2020 compared~~March 31, 2021, an increase of $901,000 due to ~~$25,226,000 during the comparable six month period~~an $817,000 change in ~~2019. Non-interest~~valuation of deferred compensation account balances which, while net neutral to net income, ~~for the six months ended June 30, 2020 as compared~~impacted benefit costs. As an offset to ~~the same period~~these increases in ~~2019 was impacted by changes in the fair value of the Company’s mortgage servicing assets, as noted above, which contributed to a $1,297,000 decline. Deposit~~non-interest income, fee income from deposit account service charges ~~were impacted by reductions in the volume~~remain depressed from pre-pandemic levels as average account balances and savings remain elevated and consumers migrate to an elevated level of ~~returned~~card and e-banking rather than check fees. Other non-interest income declined by $1,382,000, partially from decreases in the fair value of assets used to fund acquired deferred compensation plans totaling $514,000 for the six months ended June 30, 2020 as compared to the same period 2019, as well as from an absence of one-time death benefits totaling $728,000 realized during the six months ended June 30, 2019. The declines noted above were partially offset by gains from the sale of mortgage loans, which resulted from increased volume, and contributed $1,640,000 to the overall increase in non-interest income during the six months ended June 30, 2020.

usage.

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Non-interest Expense

The following table summarizes the Company’s non-interest expense for the periods indicated (dollars in thousands):


		Three months ended June 30,											Three months ended March 31,
		2020		2019		$ Change		% Change			2021		2020		$ Change		% Change
Base salaries, net of deferred loan origination costs	Base salaries, net of deferred loan origination costs	$	17,277	$	17,211	$	66	0.4	%	Base salaries, net of deferred loan origination costs	$	15,511	$	17,623	$	(2,112)	(12.0)	%
Incentive compensation	Incentive compensation	2,395		3,706		(1,311)		(35.4)	%	Incentive compensation	3,580		3,101		479		15.4	%
Benefits and other compensation costs	Benefits and other compensation costs	7,383		5,802		1,581		27.2	%	Benefits and other compensation costs	6,239		6,548		(309)		(4.7)	%
Total salaries and benefits expense	Total salaries and benefits expense	27,055		26,719		336		1.3	%	Total salaries and benefits expense	25,330		27,272		(1,942)		(7.1)	%
Occupancy	Occupancy	3,398		3,738		(340)		(9.1)	%	Occupancy	3,726		3,875		(149)		(3.8)	%
Data processing and software	Data processing and software	3,657		3,354		303		9.0	%	Data processing and software	3,202		3,367		(165)		(4.9)	%
Equipment	Equipment	1,350		1,752		(402)		(22.9)	%	Equipment	1,517		1,512		5		0.3	%
Intangible amortization	Intangible amortization	1,431		1,431		—		—	%	Intangible amortization	1,431		1,431		—		—	%
Advertising	Advertising	531		1,533		(1,002)		(65.4)	%	Advertising	380		665		(285)		(42.9)	%
ATM and POS network charges	ATM and POS network charges	1,210		1,270		(60)		(4.7)	%	ATM and POS network charges	1,246		1,373		(127)		(9.2)	%
Professional fees	Professional fees	741		1,057		(316)		(29.9)	%	Professional fees	594		703		(109)		(15.5)	%
Telecommunications	Telecommunications	639		773		(134)		(17.3)	%	Telecommunications	581		725		(144)		(19.9)	%
Regulatory assessments and insurance	Regulatory assessments and insurance	360		490		(130)		(26.5)	%	Regulatory assessments and insurance	612		95		517		544.2	%
Postage	Postage	283		315		(32)		(10.2)	%	Postage	198		290		(92)		(31.7)	%
Operational losses	Operational losses	184		226		(42)		(18.6)	%	Operational losses	209		221		(12)		(5.4)	%
Courier service	Courier service	337		412		(75)		(18.2)	%	Courier service	294		331		(37)		(11.2)	%
Gain on sale of foreclosed assets	Gain on sale of foreclosed assets	(16)		(99)		83		(83.8)	%	Gain on sale of foreclosed assets	(51)		(41)		(10)		24.4	%
Loss on disposal of fixed assets		15		42		(27)		(64.3)	%

Other miscellaneous expense	Other miscellaneous expense	4,530		3,684		846		23.0	%	Other miscellaneous expense	2,349		2,930		(581)		(19.8)	%
Total other non-interest expense	Total other non-interest expense	18,650		19,978		(1,328)		(6.6)	%	Total other non-interest expense	16,288		17,477		(1,189)		(6.8)	%
Total non-interest expense	Total non-interest expense	$	45,705	$	46,697	$	(992)	(2.1)	%	Total non-interest expense	$	41,618	$	44,749	$	(3,131)	(7.0)	%
Average full time equivalent staff	Average full time equivalent staff	1,124		1,138		(14)		(1.2)	%	Average full time equivalent staff	1,024		1,165		(141)		(12.1)	%

Non-interest expense decreased by ~~$992,000~~$3,131,000 or ~~2.1%~~7.0% to ~~$45,705,000~~$41,618,000 during the three months ended ~~June 30, 2020~~March 31, 2021 as compared to ~~$46,697,000~~$44,749,000 for the three months ended ~~June 30, 2019.~~March 31, 2020. Salary and benefit expense ~~increased slightly~~decreased by ~~$336,000~~$1,942,000 or ~~1.3%~~7.1% to ~~$27,055,000~~$25,330,000 during the three months ended ~~June 30, 2020~~March 31, 2021 as compared to ~~$26,719,000~~$27,272,000 for the same period in ~~2019. This increase was attributed~~2020. During the three months ended March 31, 2021, the 140 decline in average full-time equivalent employees benefited employee salary expense by $1,591,000, and increased salary deferrals from loan origination reduced the expense an additional $445,000, respectively, as compared to ~~increases in benefits and other compensations costs, partially offset by decreases in incentive compensation and a decrease in full time equivalent staff.~~the quarter ended March 31, 2020. Miscellaneous expenses also ~~increased~~decreased during the period by ~~$846,000~~$581,000 or ~~23.0%~~19.8% to $4,530,000 primarily as a result of the additional non-payroll related indirect lending costs incurred with the PPP program totaling $1,479,000. Reductions in advertising expense totaled $1,002,000 or 65.4%, to $531,000 during the three months ended June 30, 2020$2,349,000 as compared to ~~$1,533,000 for~~ the same period in ~~2019. Additional~~2020, which is primarily attributed to precautionary reductions in travel and outside training expenses associated that began late in the first quarter of 2020.

Offsetting these decreases ~~in expenditures for~~were larger regulatory assessment and insurance costs, which increased to a normalized quarterly rate of $612,000 during the period, an increase of $517,000 as compared to the first quarter ~~ended June 30,~~of 2020, ~~totaling $340,000, $402,000 and $316,000 were realized within occupancy, equipment and professional fees, respectively.~~

during which the FDIC issued a regulatory assessment credit of $437,000.

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~~The following table summarizes the Company’s non-interest expense for the periods indicated (dollars in thousands):~~

Six months ended
June 30,
2020 2019 $ Change % Change
Base salaries, net of deferred loan origination costs $ 34,900 $ 33,968 $ 932 2.7 %
Incentive compensation 5,496 6,273 (777) (12.4) %
Benefits and other compensation costs 13,931 11,606 2,325 20.0 %
Total salaries and benefits expense 54,327 51,847 2,480 4.8 %
Occupancy 7,273 7,512 (239) (3.2) %
Data processing and software 7,024 6,703 321 4.8 %
Equipment 2,862 3,619 (757) (20.9) %
Intangible amortization 2,862 2,862 — — %
Advertising 1,196 2,864 (1,668) (58.2) %
ATM and POS network charges 2,583 2,593 (10) (0.4) %
Professional fees 1,444 1,896 (452) (23.8) %
Telecommunications 1,364 1,570 (206) (13.1) %
Regulatory assessments and insurance 455 1,001 (546) (54.5) %
Postage 573 625 (52) (8.3) %
Operational losses 405 451 (46) (10.2) %
Courier service 668 682 (14) (2.1) %
Gain on sale of foreclosed assets (57) (198) 141 (71.2) %
Loss on disposal of fixed assets 15 66 (51) (77.3) %
Other miscellaneous expense 7,531 8,056 (525) (6.5) %
Total other non-interest expense 36,198 40,302 (4,104) (10.2) %
Total non-interest expense $ 90,525 $ 92,149 $ (1,624) (1.8) %
Average full time equivalent staff 1,124 1,138 (14) (1.2) %

~~Non-interest expense decreased by $1,624,000 or 1.8% to $90,525,000 during the six months ended~~ June 30, 2020 as compared to $92,149,000 for the same period in 2019. Reductions in advertising expenses totaling $1,668,000 or 58.2% to $1,196,000 provided a benefit to the bottom line, as did declines in miscellaneous expenses totaling $525,000 or 6.5% attributed primarily to reduced travel and training expenses as a result of state-wide shelter-in-place restrictions which were partially offset by the loan documentation and administrative costs associated with PPP lending activity.

Income Taxes

The Company’s effective tax rate was ~~23.3%~~28.4% for the ~~six months~~year ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~27.4%~~25.8% for the year ended December 31, ~~2019.~~2020. The ~~reduction in~~reduced effective tax rate in the prior year was made possible through the provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which provided the Company with an opportunity to file amended tax returns and generate proposed refunds of approximately $805,000. Other differences between the Company's effective tax rate and applicable federal and state statutory rates are due to the proportion of non-taxable revenue and low income housing tax credits as compared to the levels of pre-tax earnings.

Financial Condition

For financial reporting purposes, the Company does not separately track the changes in assets and liabilities based on branch location or regional geography. Organic growth, inclusive of seasonal fluctuation, also contributes to the year-over-year balance sheet changes. During the most recent quarter, loan growth of ~~$422,343,000~~$169,776,000, excluding PPP, was ~~primarily~~ attributed to $101,367,000 in acquired loans, with the ~~PPP program, as total~~remainder from organic loan ~~balances, excluding PPP, were effectively unchanged. Similarly, deposit increases~~growth from origination. Investment securities increased to $1,962,780,000, a change of ~~$845,560,000 was largely credit to the PPP program as non-interest bearing deposit balances associated with PPP recipients increase by~~$243,678,000 or 56.7% from $1,719,102,000 at December 31, 2020. The Company purchased approximately ~~$412,725,000~~$372,917,000 in securities during the ~~same period. Expansion~~three months ended March 31, 2021, offset partially by an accelerated rate of Federal stimulus programs and the delay of 2019 income tax payments is also attributed to the significant deposit growth during the quarter. Investment balances declined by $28,298,000 during the quarter ended June 30, 2020 due to prepayment ~~and~~or maturity of these debt ~~securities.~~

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instruments totaling $115,663,000 correlating with the historically low interest rate environment.

The following is a comparison of the quarterly change in certain assets and liabilities:


($‘s in thousands)	($‘s in thousands)	As of June 30, 2020		As of March 31, 2020		$ Change		Annualized % Change		($‘s in thousands)	As of March 31, 2021		As of December 31, 2020		$ Change		Annualized % Change
Ending balances	Ending balances									Ending balances
Total assets	Total assets	$	7,360,071	$	6,474,309	$	885,762	54.7	%	Total assets	$	8,031,612	$	7,639,529	$	392,083	20.5	%
Total loans	Total loans	4,801,405		4,379,062		422,343		38.6	%	Total loans	4,966,977		4,763,127		203,850		17.1	%
Total investments	Total investments	1,353,728		1,382,026		(28,298)		(8.2)	%	Total investments	1,962,780		1,719,102		243,678		56.7	%
Total deposits	Total deposits	6,248,258		5,402,698		845,560		62.6	%	Total deposits	6,863,400		6,505,934		357,466		22.0	%
Total noninterest-bearing deposits	Total noninterest-bearing deposits	2,487,120		1,883,143		603,977		128.3	%	Total noninterest-bearing deposits	2,766,510		2,581,517		184,993		28.7	%
Total other borrowings	Total other borrowings	38,544		19,309		19,235		398.5	%	Total other borrowings	36,226		26,914		9,312		138.4	%

The following is a comparison of the year over year change in certain assets and liabilities:


		As of June 30,						$ Change				% Change		As of March 31,				$ Change		% Change
($‘s in thousands)	($‘s in thousands)	2020		2019									($‘s in thousands)	2021		2020
Ending balances	Ending balances									Ending balances
Total assets	Total assets	$	7,360,071	$	6,395,172	$	964,899	15.1	%	Total assets	$	8,031,612		$	6,474,309	$	1,557,303	24.1	%
Total loans	Total loans	4,801,405		4,103,687		697,718		17.0	%	Total loans	4,966,977			4,379,062		587,915		13.4	%
Total investments	Total investments	1,353,728		1,566,720		(212,992)		(13.6)	%	Total investments	1,962,780			1,382,026		580,754		42.0	%
Total deposits	Total deposits	6,248,258		5,342,173		906,085		17.0	%	Total deposits	6,863,400			5,402,698		1,460,702		27.0	%
Total noninterest-bearing deposits	Total noninterest-bearing deposits	2,487,120		1,780,339		706,781		39.7	%	Total noninterest-bearing deposits	2,766,510			1,883,143		883,367		46.9	%
Total other borrowings	Total other borrowings	38,544		13,292		25,252		190.0	%	Total other borrowings	36,226			19,309		16,917		87.6	%

As discussed in previous quarters, the PPP program generated significant increases in volume during the twelve months ended March 31, 2021 for both loan and deposit balances. Other forms of stimulus payments have further elevated deposit levels during the same period. While excess deposit proceeds are ratably being allocated to the purchase of investment securities with medium term durations to improve overall margin, we expect to maintain above average levels of liquidity through 2021, as the economic impacts of COVID-19 and amount of future stimulus both remain uncertain. Investment securities increased to $1,962,780,000 at March 31, 2021, a change of $580,754,000 or 42.0% from $1,382,026,000 at March 31, 2020.

Investment Securities

Investment securities available for sale increased ~~$46,142,000~~$267,841,000 to ~~$996,280,000~~$1,682,105,000 as of ~~June 30, 2020,~~March 31, 2021, compared to December 31, ~~2019.~~2020. This increase is primarily supported by deposit growth and available cash reserves. There were no ~~proceeds from the sale~~sales of ~~or transfers of available-for-sale~~ investment securities ~~to held-to-maturity, or vice versa,~~ during the ~~six month periods~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

The following table presents the available for sale debt securities portfolio by major type as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~

June 30, 2020 December 31, 2019
(dollars in thousands) Fair Value % Fair Value %
Debt securities available for sale:
Obligations of U.S. government agencies $ 434,814 43.6 % $ 472,980 49.8 %
Obligations of states and political subdivisions 109,646 11.0 % 109,601 11.5 %
Corporate bonds 2,570 0.3 % 2,532 0.3 %
Asset backed securities 449,250 45.1 % 365,025 38.4 %
Total debt securities available for sale $ 996,280 100.0 % $ 950,138 100.0 %

June 30, 2020 December 31, 2019
(dollars in thousands) Amortized
Cost % Amortized
Cost %
Debt securities held to maturity:
Obligations of U.S. government and agencies $ 324,976 96.4 % $ 361,785 96.3 %
Obligations of states and political subdivisions 12,189 3.6 % 13,821 3.7 %
Total debt securities held to maturity $ 337,165 100.0 % $ 375,606 100.0 %

2020:

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	March 31, 2021				December 31, 2020
(dollars in thousands)	Fair Value		%		Fair Value		%
Debt securities available for sale:
Obligations of U.S. government agencies	$	1,032,934	61.4	%	$	812,374	57.4	%
Obligations of states and political subdivisions	140,384		8.3	%	129,095		9.1	%
Corporate bonds	2,534		0.2	%	2,544		0.2	%
Asset backed securities	506,253		30.1	%	470,251		33.3	%
Total debt securities available for sale	$	1,682,105	100.0	%	$	1,414,264	100.0	%


	March 31, 2021				December 31, 2020
(dollars in thousands)	Amortized Cost		%		Amortized Cost		%
Debt securities held to maturity:
Obligations of U.S. government and agencies	$	250,178	96.1	%	$	273,667	96.2	%
Obligations of states and political subdivisions	10,276		3.9	%	10,896		3.8	%
Total debt securities held to maturity	$	260,454	100.0	%	$	284,563	100.0	%

Investment securities held to maturity decreased ~~$38,441,000~~$24,109,000 to ~~$337,165,000~~$260,454,000 as of ~~June 30, 2020,~~March 31, 2021, as compared to December 31, ~~2019.~~2020. This decrease is attributable to calls and principal repayments of ~~$37,905,000,~~$23,850,000, and amortization of net purchase premiums of ~~$536,000.~~$259,000.

Loans

The Company concentrates its lending activities in six principal areas: commercial real estate loans, consumer loans, commercial and industrial loans, construction loans, agriculture production loans and leases. The interest rates charged for the loans made by the Company vary with the degree of risk, the size and maturity of the loans, the borrower’s relationship with the Company and prevailing money market rates indicative of the Company’s cost of funds.

The majority of the Company’s loans are direct loans made to individuals, farmers and local businesses. The Company relies substantially on local promotional activity and personal contacts by bank officers, directors and employees to compete with other financial institutions. The Company makes loans to borrowers whose applications include a sound purpose, a viable repayment source and a plan of repayment established at inception and generally backed by a secondary source of repayment.

The following table shows the Company’s loan balances, net deferred loan costs and discounts, as of the dates indicated:


(dollars in thousands)	(dollars in thousands)	June 30, 2020						December 31, 2019							(dollars in thousands)	March 31, 2021				December 31, 2020
Commercial real estate	Commercial real estate	$	2,905,485	60.5	%	$	2,818,782	65.4	%	Commercial real estate	$	3,108,624	62.59	%		$	2,951,902	61.97	%
Consumer	Consumer	945,669		19.7	%	955,050		22.2	%	Consumer	1,041,213		20.96	%		952,108		19.99	%
Commercial and industrial	Commercial and industrial	634,481		13.2	%	249,791		5.8	%	Commercial and industrial	551,077		11.10	%		526,327		11.05	%
Construction	Construction	278,566		5.8	%	249,827		5.8	%	Construction	221,613		4.46	%		284,842		5.98	%
Agriculture production	Agriculture production	35,441		0.7	%	32,633		0.8	%	Agriculture production	39,753		0.80	%		44,164		0.93	%
Leases	Leases	1,763		0.01	%	1,283		0.01	%	Leases	4,697		0.09	%		3,784		0.08	%
Total loans	Total loans	$	4,801,405	100.0	%	$	4,307,366	100.0	%	Total loans	$	4,966,977	100.0	%		$	4,763,127	100.0	%

~~At June 30, 2020 loans, including net deferred loan costs and discounts, totaled $4,801,405,000 which was a $422,343,000 (38.6%) annualized increase over~~As of March 31, 2021, the ~~balances at December 31, 2019. During the quarter ended June 30, 2020, the Company originated more than 2,900 loans under the Payment Protection Program (PPP), with a~~ total gross balance outstanding of ~~$423,431,000~~PPP loans (Round 1) was $193,958,000 (948 loans) as compared to total round 1 PPP originations of $438,510,000. Included in the balance of outstanding PPP loans as of ~~quarter end.~~March 31, 2021 are approximately 115 loans totaling $75,669,000 that have been submitted to and are pending forgiveness by the SBA. In connection with the origination of these loans, the Company ~~generated approximately $15,680,000~~earned $15,735,000 in loan fees, ~~that will be amortized over the two-year term of the loans,~~ offset by deferred loan costs of ~~approximately $756,000.~~$763,000, the net of which will be recognized over the earlier of loan maturity (generally 24 months), repayment or receipt of forgiveness confirmation. As of ~~June 30, 2020 the~~March 31, 2021 there was $2,358,000 in net deferred fee income remaining to be ~~recognized by~~recognized. During the three months ended March 31, 2021, the Company ~~related to~~recognized $4,854,000 in fees on round 1 PPP loans.

As of March 31, 2021, the total gross balance outstanding of PPP loans ~~totaled $13,300,000.~~(Round 2) was $176,316,000 (1,536 loans) as compared to round 2 originations of the same amount. In connection with the origination of these loans, the Company earned $7,850,000 in loan fees, offset by

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deferred loan costs of $400,000, the net of which will be recognized over the earlier of loan maturity (generally 60 months), repayment or receipt of forgiveness confirmation. As of March 31, 2021 there was $7,072,000 in net deferred fee income remaining to be recognized. During the three months ended March 31, 2021, the Company recognized $378,000 in fees on round 2 PPP loans. Based on application and approval activity occurring subsequent to March 31, 2021, management anticipates that total round 2 PPP originations will approximate 1,700 loans for $190,215,000 and which are expected to generate $9,055,000 in fees from the SBA.

Nonperforming Assets

The following tables set forth the amount of the Company’s nonperforming assets ("NPA") as of the dates indicated. “Performing nonaccrual loans” are loans that may be current for both principal and interest payments, or are less than 90 days past due, but for which payment in full of both principal and interest is not expected, and are not well secured and in the process of collection:

(dollars in thousands) June 30,
2020 December 31,
2019
Performing nonaccrual loans $ 11,407 $ 11,266
Nonperforming nonaccrual loans 10,136 5,579
Total nonaccrual loans 21,543 16,845
Loans 90 days past due and still accruing 31 19
Total nonperforming loans 21,574 16,864
Foreclosed assets 1,922 2,541
Total nonperforming assets $ 23,496 $ 19,405
Nonperforming assets to total assets 0.32 % 0.30 %
Nonperforming loans to total loans 0.45 % 0.39 %
Allowance for credit losses to nonperforming loans 369 % 182 %

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(dollars in thousands)	March 31, 2021			December 31, 2020
Performing nonaccrual loans	$	20,185		$	22,896
Nonperforming nonaccrual loans	8,511			3,968
Total nonaccrual loans	28,696			26,864
Loans 90 days past due and still accruing	245			—
Total nonperforming loans	28,941			26,864
Foreclosed assets	2,309			2,844
Total nonperforming assets	$	31,250		$	29,708
Nonperforming assets to total assets	0.39		%	0.39		%
Nonperforming loans to total loans	0.58		%	0.56		%
Allowance for credit losses to nonperforming loans	309		%	342		%

Changes in nonperforming assets during the three months ended ~~June 30, 2020~~March 31, 2021


(in thousands)	(in thousands)	Balance at March 31, 2020		New NPA / Valuation Adjustments	Pay-downs /Sales /Upgrades		Charge-offs/ ⁽¹⁾ Write-downs	Transfers to Foreclosed Assets	Balance at June 30, 2020		(in thousands)	Balance at December 31, 2020		New NPA / Valuation Adjustments	Pay-downs /Sales /Upgrades		Charge-offs/ (1) Write-downs	Transfers to Foreclosed Assets	Balance at March 31, 2021
Commercial real estate:	Commercial real estate:										Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	687	—	(10)		—	—	$	677	CRE non-owner occupied	$	3,110	3,943	(53)		—	—	$	7,000
CRE owner occupied	CRE owner occupied	1,610		1,009	(210)		—	—	2,409		CRE owner occupied	4,061		1	(300)		—	—	3,762
Multifamily	Multifamily	2,024		—	—				2,024		Multifamily	—		—	—		—	—	—
Farmland	Farmland	1,194		765	(140)		—	—	1,819		Farmland	1,538		—	(107)		—	—	1,431
Total commercial real estate loans	Total commercial real estate loans	5,515		1,774	(360)		—	—	6,929		Total commercial real estate loans	8,709		3,944	(460)		—	—	12,193
Consumer	Consumer										Consumer
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	5,784		1,053	(107)		(11)	—	6,719		SFR 1-4 1st DT liens	5,093		21	(118)		—	—	4,996
SFR HELOCs and junior liens	SFR HELOCs and junior liens	4,864		1,118	(294)		(23)	—	5,665		SFR HELOCs and junior liens	6,148		352	(1,358)		—	—	5,142
Other	Other	139		135	(3)		(165)	—	106		Other	167		61	—		(125)	—	103
Total consumer loans	Total consumer loans	10,787		2,306	(404)		(199)	—	12,490		Total consumer loans	11,408		434	(1,476)		(125)	—	10,241
Commercial and industrial	Commercial and industrial	1,628		421	(125)		(214)	—	1,710		Commercial and industrial	2,183		463	(594)		(33)	—	2,019
Construction	Construction	—		—	—		—	—	—		Construction	4,546		—	(63)		—	—	4,483
Agriculture production	Agriculture production	25		426	(6)		—	—	445		Agriculture production	18		—	(13)		—	—	5
Leases	Leases	—		—	—		—	—	—		Leases	—		—	—		—	—	—
Total nonperforming loans	Total nonperforming loans	17,955		4,927	(895)		(413)	—	21,574		Total nonperforming loans	26,864		4,841	(2,606)		(158)	—	28,941
Foreclosed assets	Foreclosed assets	2,229		—	(201)		(106)	—	1,922		Foreclosed assets	2,844		(9)	(526)		—	—	2,309
Total nonperforming assets	Total nonperforming assets	$	20,184	4,927	(1,096)	—	(519)	—	$	23,496	Total nonperforming assets	$	29,708	4,832	(3,132)	—	(158)	—	$	31,250

⁽¹⁾The table above does not include deposit overdraft charge-offs.

Nonperforming assets increased during the three months ended ~~June 30, 2020 $3,312,000 (16.4%~~March 31, 2021 $1,542,000 (5.2%) to ~~$23,496,000~~$31,250,000 at ~~June 30, 2020~~March 31, 2021 compared to ~~$20,184,000~~$29,708,000 at December 31, ~~2019.~~2020. The increase in nonperforming assets during the ~~second~~first quarter of ~~2020~~2021 was primarily the result of new nonperforming loans of ~~$4,927,000,~~$4,841,000, which were partially offset by pay-downs of ~~$1,096,000~~$3,132,000 and write-downs of ~~$519,000.~~$158,000.

Non performing loans added during the ~~second~~first quarter of ~~2020~~2021 were primarily within ~~CRE owner~~commercial real estate, with non-owner occupied ~~and consumer SFR 1-4 1st DT and HELOC~~adding $3,943,000. Management believes these loans ~~both~~are well-secured as of which are secured by real estate. SFR non-performing added $2,171,000 and CRE owner occupied added $1,009,000 during the quarter ended June 30, 2020. The new non performing SFR consumer loans were not concentrated amongst any one borrower, with the two largest individual loans totaling $573,000 and $276,000. ManagementMarch 31, 2021. Further, management is actively engaged in

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the collection and recovery efforts for all nonperforming assets and believes that the specific loan loss reserves associated with these loans is sufficient as of ~~June 30, 2020.~~March 31, 2021.

Loan charge-offs during the three months ended ~~June 30, 2020~~March 31, 2021

In the ~~second~~first quarter of ~~2020,~~2021, the Company recorded ~~$413,000~~$158,000 in loan charge-offs and ~~$78,000~~$68,000 in deposit overdraft charge-offs less ~~$174,000~~$526,000 in loan recoveries and ~~$56,000~~$34,000 in deposit overdraft recoveries, ~~resulting~~which collectively resulted in ~~$261,000~~$334,000 of net recoveries. Loan charge-offs were not concentrated within any single loan or borrower relationship and were comprised entirely of individual charges of less than $100,000 each.

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~~Changes in nonperforming assets during the six months ended June 30, 2020~~

(in thousands) Balance at
December 31, 2019 New NPA /
Valuation
Adjustments Pay-downs
/Sales
/Upgrades
Charge-offs/ ⁽¹⁾
Write-downs
Transfers to
Foreclosed
Assets Balance at
June 30, 2020
Commercial real estate:
CRE non-owner occupied $ 642 66 (31) — — $ 677
CRE owner occupied 1,408 1,254 (253) — — 2,409
Multifamily 2,024 — — — — 2,024
Farmland 1,242 765 (188) — — 1,819
Total commercial real estate loans 5,316 2,085 (472) — — 6,929
Consumer
SFR 1-4 1st DT liens 5,191 2,038 (499) (11) — 6,719
SFR HELOCs and junior liens 4,217 2,132 (661) (23) — 5,665
Other 51 249 (6) (188) — 106
Total consumer loans 9,459 4,419 (1,166) (222) — 12,490
Commercial and industrial 2,050 876 (622) (594) — 1,710
Construction — — — — — —
Agriculture production 39 426 (20) — — 445
Leases — — — — — —
Total nonperforming loans 16,864 7,806 (2,280) (816) — 21,574
Foreclosed assets 2,229 — (201) (106) — 1,922
Total nonperforming assets $ 19,093 7,806 (2,481) — (922) — $ 23,496

Nonperforming assets increased during the first six months of 2020 by $4,403,000 (23.1%) to $23,496,000 at June 30, 2020 compared to $19,093,000 at December 31, 2019. The increase in nonperforming assets during the second quarter of 2020 was primarily the result of new nonperforming loans of $7,806,000, which were partially offset by pay-downs of $2,481,000 and write-downs of $922,000.

~~Loan charge-offs during the six months ended June 30, 2020~~

During the six months ended June 30, 2020, the Company recorded $816,000 in loan charge-offs and $185,000 in deposit overdraft charge-offs less $1,010,000 in loan recoveries and $112,000 in deposit overdraft recoveries resulting in $121,000 of net recoveries for the year to date period.

The Components of the Allowance for Credit Losses for Loans

The following table sets forth the allowance for credit losses as of the dates indicated:


(dollars in thousands)	(dollars in thousands)	June 30, 2020			March 31, 2020			January 1, 2020			December 31, 2019			(dollars in thousands)	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
Allowance for credit losses:	Allowance for credit losses:													Allowance for credit losses:
Qualitative and forecast factor allowance	Qualitative and forecast factor allowance	$	48,548		$	29,250		$	21,830		$	13,476		Qualitative and forecast factor allowance	$	56,500		$	61,935		$	56,393		$	48,548		$	29,250
Cohort model allowance reserves	Cohort model allowance reserves	30,061			27,699			26,900			16,205			Cohort model allowance reserves	27,959			28,462			30,373			30,061			27,699
Total allowance for credit losses	Total allowance for credit losses	78,609			56,949			48,730			29,681			Total allowance for credit losses	84,459			90,397			86,766			78,609			56,949
Allowance for individually evaluated loans	Allowance for individually evaluated loans	1,130			962			799			935			Allowance for individually evaluated loans	1,482			1,450			809			1,130			962
Allowance for PCD loan losses	Allowance for PCD loan losses	—			—			—			n/a			Allowance for PCD loan losses	—			—			—			—			—
Allowance for PCI loan losses		n/a			n/a			n/a			6
Total allowance for credit losses	Total allowance for credit losses	$	79,739		$	57,911		$	49,529		$	30,616		Total allowance for credit losses	$	85,941		$	91,847		$	87,575		$	79,739		$	57,911
Allowance for credit losses for loans		1.66		%	1.32		%	1.16		%	0.71		%
Allowance for credit losses for loans / Total loans														Allowance for credit losses for loans / Total loans	1.73		%	1.93		%	1.81		%	1.66		%	1.32		%

For additional information regarding the allowance for loan losses, including changes in specific, formula, and environmental factors allowance categories, see “Asset Quality and Loan Loss Provisioning” at “Results of Operations”, above. Based on the current conditions of the loan portfolio, management believes that the ~~$79,739,000~~$85,941,000 allowance for loan losses at ~~June 30, 2020~~March 31, 2021 is adequate to absorb probable losses inherent in the Bank’s loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.

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The following table summarizes the allocation of the allowance for credit losses between loan types and by percentage of the total allowance for loan losses as of the dates indicated:


		June 30, 2020					January 1, 2020								December 31, 2019				March 31, 2021				December 31, 2020		March 31, 2020
Commercial real estate	Commercial real estate	$	44,850	56.2	%	23,843	48.1	%	$	11,995	39.2	%	Commercial real estate	$	50,403	58.7	%	53,693	58.5	%	$	29,250	50.5	%
Consumer	Consumer	23,165		29.1	%	18,368	37.1	%	10,084		32.9	%	Consumer	24,604		28.6	%	25,148	27.4	%	19,592		33.8	%
Commercial and industrial	Commercial and industrial	4,018		5.0	%	2,906	5.9	%	4,867		15.9	%	Commercial and industrial	4,464		5.2	%	4,252	4.6	%	3,868		6.7	%
Construction	Construction	6,775		8.5	%	4,321	8.7	%	3,388		11.1	%	Construction	5,476		6.4	%	7,540	8.2	%	4,595		8.0	%
Agriculture production	Agriculture production	919		1.2	%	82	0.2	%	261		0.9	%	Agriculture production	988		1.1	%	1,209	1.3	%	595		1.0	%
Leases	Leases	12		0.02	%	9	0.02	%	21		0.1	%	Leases	6		—	%	5	—	%	11		—	%
Total allowance for credit losses	Total allowance for credit losses	$	79,739	100.0	%	49,529	100.0	%	$	30,616	100.0	%	Total allowance for credit losses	$	85,941	100.0	%	91,847	100.0	%	$	57,911	100.0	%

The following table summarizes the allocation of the allowance for credit losses as a percentage of the total loans for each loan category as of the dates indicated:


		June 30, 2020						January 1, 2020								December 31, 2019					March 31, 2021				December 31, 2020		March 31, 2020
Commercial real estate	Commercial real estate	$	2,905,485	1.54	%	$	2,818,782	0.85	%	$	2,818,782	0.42	%	Commercial real estate	$	3,108,624	1.62	%	$	2,951,902	1.82	%	$	2,889,183	1.01	%
Consumer	Consumer	945,669		2.45	%	955,050		1.92	%	955,050		1.05	%	Consumer	1,041,213		2.36	%	952,108		2.62	%	957,831		2.05	%
Commercial and industrial	Commercial and industrial	634,481		0.63	%	249,791		1.16	%	249,791		1.81	%	Commercial and industrial	551,077		0.81	%	526,327		0.81	%	264,986		1.46	%
Construction	Construction	278,566		2.43	%	249,827		1.73	%	249,827		1.36	%	Construction	221,613		2.47	%	284,842		2.65	%	241,714		1.90	%
Agriculture production	Agriculture production	35,441		2.59	%	32,633		0.25	%	32,633		1.82	%	Agriculture production	39,753		2.49	%	44,164		2.74	%	23,660		2.51	%
Leases	Leases	1,763		0.68	%	1,283		0.70	%	1,283		1.63	%	Leases	4,697		0.13	%	3,784		0.13	%	1,688		0.65	%
Total allowance for credit losses	Total allowance for credit losses	$	4,801,405	1.66	%	$	4,307,366	1.15	%	$	4,307,366	0.71	%	Total allowance for credit losses	$	4,966,977	1.73	%	$	4,763,127	1.93	%	$	4,379,062	1.32	%

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The following table summarizes the activity in the allowance for credit losses for the periods indicated (dollars in thousands):

Three months ended
June 30, Six months ended
June 30,
(in thousands) 2020 2019 2020 2019
Allowance for credit losses:
Balance at beginning of period $ 57,911 $ 32,064 $ 30,616 $ 32,582
Impact of adoption from ASU 2016-13 — — 18,913 —
Provision for (reversal of) loan losses 22,089 537 30,089 (1,063)
Loans charged-off:
Commercial real estate:
CRE non-owner occupied — — — —
CRE owner occupied — — — —
Multifamily — — — —
Farmland — — — —
Consumer:
SFR 1-4 1st DT liens (11) (2) (11) (2)
SFR HELOCs and junior liens (23) — (23) —
Other (243) (153) (373) (360)
Commercial and industrial (214) (138) (594) (657)
Construction — — — —
Agriculture production — — — —
Leases — — — —
Total loans charged-off (491) (293) (1,001) (1,019)
Recoveries of previously charged-off loans:
Commercial real estate:
CRE non-owner occupied 5 6 193 1,383
CRE owner occupied 4 4 9 8
Multifamily — — — —
Farmland — — — —
Consumer:
Home equity lines 2 3 412 5
Home equity loans 92 354 140 536
Other consumer 72 108 167 183
Commercial and industrial 55 84 181 242
Construction — — — —
Agriculture production — 1 20 11
Leases — — — —
Total recoveries of previously charged-off loans 230 560 1,122 2,368
Net (charge-offs) recoveries (261) 267 121 1,349
Balance at end of period $ 79,739 $ 32,868 $ 79,739 $ 32,868
Average total loans $ 4,656,050 $ 4,044,044 $ 4,492,704 $ 4,033,954
Ratios (annualized):
Net recoveries (charge-offs) during period to average loans outstanding during period (0.02) % 0.03 % 0.01 % 0.07 %
Provision for loan losses (benefit from reversal of) to average loans outstanding during period 1.90 % 0.05 % 1.34 % (0.05) %


	Three months ended March 31,
(in thousands)	2021			2020
Allowance for credit losses:
Balance at beginning of period	$	91,847		$	30,616
Impact of adoption from ASU 2016-13	—			18,913
Provision for (reversal of) loan losses	(6,240)			8,000
Loans charged-off:
Commercial real estate:
CRE non-owner occupied	—			—
CRE owner occupied	—			—
Multifamily	—			—
Farmland	—			—
Consumer:
SFR 1-4 1st DT liens	—			—
SFR HELOCs and junior liens	—			—
Other	(193)			(130)
Commercial and industrial	(33)			(380)
Construction	—			—
Agriculture production	—			—
Leases	—			—
Total loans charged-off	(226)			(510)
Recoveries of previously charged-off loans:
Commercial real estate:
CRE non-owner occupied	2			189
CRE owner occupied	1			5
Multifamily	—			—
Farmland	—			—
Consumer:
Home equity lines	10			410
Home equity loans	285			48
Other consumer	106			94
Commercial and industrial	136			126
Construction	—			—
Agriculture production	20			20
Leases	—			—
Total recoveries of previously charged-off loans	560			892
Net (charge-offs) recoveries	334			382
Balance at end of period	$	85,941		$	57,911
Average total loans	$	4,763,025		$	4,329,357
Ratios (annualized):
Net recoveries (charge-offs) during period to average loans outstanding during period	0.03		%	0.04		%
Provision for loan losses (benefit from reversal of) to average loans outstanding during period	(0.52)		%	0.74		%

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Foreclosed Assets, Net of Allowance for Losses

The following ~~tables detail~~table details the components and summarize the activity in foreclosed assets, net of allowances for losses for the ~~period indicated:~~thee months ended March 31, 2021:


(in thousands)	(in thousands)	Balance at December 31, 2019		Sales		Valuation Adjustments		Transfers from Loans		Balance at June 30, 2020		(in thousands)	Balance at December 31, 2020		Sales		Valuation Adjustments		Transfers from Loans		Balance at March 31, 2021
Land & Construction	Land & Construction	$	312	$	(312)	$	—	$	—	$	—	Land & Construction	$	154	$	—	$	—	$	—	$	154
Residential real estate	Residential real estate	1,048		(201)		(106)		—		741		Residential real estate	1,507		(526)		(9)		—		972
Commercial real estate	Commercial real estate	1,181		—		—		—		1,181		Commercial real estate	1,183		—		—		—		1,183
Total foreclosed assets	Total foreclosed assets	$	2,541	$	(513)	$	(106)	$	—	$	1,922	Total foreclosed assets	$	2,844	$	(526)	$	(9)	$	—	$	2,309

Deposits

During the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, the Company’s deposits increased ~~$845,560,000 and $881,264,000, respectively,~~$357,466,000 to ~~$6,248,258,000.~~$6,863,400,000. Included in the ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 certificate of deposit balances are ~~$30,000,000,~~$10,000,000, respectively, from the State of California. The Company participates in a deposit program offered by the State of California whereby the State may make deposits at the Company’s request subject to collateral and creditworthiness constraints. The negotiated rates on these State deposits are generally more favorable than other wholesale funding sources available to the Company.

Off-Balance Sheet Arrangements

See Note 7 to the condensed consolidated financial statements at Item 1 of Part I of this report for information about the Company’s commitments and contingencies including off-balance-sheet arrangements.

Capital Resources

The current and projected capital position of the Company and the impact of capital plans and long-term strategies are reviewed regularly by Management.

On ~~November 12, 2019~~February 25, 2021 the Board of Directors approved the authorization to repurchase up to ~~1,525,000~~2,000,000 shares of the Company's common stock (the ~~2019~~2021 Repurchase Plan), which ~~approximates 5.0%~~approximated 6.7% of the shares outstanding as of the approval date. The actual timing of any share repurchases will be determined by the Company's management and therefore the total value of the shares to be purchased under the program is subject to change. The ~~2019~~2021 Repurchase Plan has no expiration ~~date. During~~date and the Company has had no share repurchases during the quarter ended March 31, 2021.

In connection with approval of the 2021 Repurchase Plan, the Company’s previous repurchase program adopted on November 12, 2019 (the 2019 Repurchase Plan) was terminated. Under the 2019 Repurchase Plan, during the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, the Company repurchased ~~259,993 and 813,862~~223 shares with a market value of ~~$7,669,000 and $24,809,000, respectively.~~approximately $8,260. The Company repurchased 858,717 shares during 2020.

The Company’s primary capital resource is shareholders’ equity, which ~~was $885,686,000~~totaled $942,539,000 at ~~June 30, 2020.~~March 31, 2021. This amount represents an increase of ~~$19,260,000~~$17,425,000 during the quarter ended ~~June 30, 2020~~March 31, 2021 primarily as a result of ~~an improvement in unrealized gains (losses), net of tax, on investment securities totaling $25,751,000 and~~ net income for the quarter of ~~$7,430,000,~~$33,649,000 and partially offset by ~~$8,009,000~~a decrease in accumulated other comprehensive income of $9,319,000 and the payment of $7,432,000 in cash dividends on common stock ~~repurchases.~~. The Company’s ratio of equity to total assets was ~~13.4%~~11.7% and ~~14.0%~~12.1% as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. We believe that the Company and the Bank were in compliance with applicable minimum capital requirements set forth in the final Basel III Capital rules as of ~~June 30, 2020.~~March 31, 2021. The following summarizes the Company’s ratios of capital to risk-adjusted assets as of the dates indicated:


		June 30, 2020						December 31, 2019							March 31, 2021				December 31, 2020
		Ratio		Minimum Regulatory Requirement		Ratio		Minimum Regulatory Requirement			Ratio		Minimum Regulatory Requirement		Ratio		Minimum Regulatory Requirement
Total capital		15.13	%	10.50	%	15.07	%	9.25	%
Total risk based capital										Total risk based capital	15.1	%	10.5	%	15.2	%	10.5	%
Tier I capital	Tier I capital	13.87	%	8.50	%	14.40	%	7.25	%	Tier I capital	13.9	%	8.5	%	14.0	%	8.5	%
Common equity Tier 1 capital	Common equity Tier 1 capital	12.76	%	7.00	%	13.29	%	5.75	%	Common equity Tier 1 capital	12.9	%	7.0	%	12.9	%	7.0	%
Leverage	Leverage	10.28	%	4.00	%	11.55	%	4.00	%	Leverage	10.0	%	4.0	%	9.9	%	4.0	%

See Note 8 and Note 14 to the condensed consolidated financial statements at Item 1 of Part I of this report for additional information about the Company’s capital resources.

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As of ~~June 30, 2020,~~March 31, 2021, we had an effective shelf registration statement on file with the Securities and Exchange Commission that allows us to issue various types of debt securities, as well as common stock, preferred stock, warrants, depositary shares representing fractional interest in shares of preferred stock, purchase contracts and units from time to time in one or more offerings. Each issuance under the shelf registration statement will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. The registration statement does not limit the amount of securities that may be issued thereunder. Our ability to issue securities is subject to market conditions and other factors including, in the case of our debt securities, our credit ratings and compliance with ~~the~~current and prospective covenants in ~~our~~ credit ~~agreement.~~agreements.

Liquidity

The Company’s principal source of asset liquidity is cash at the Federal Reserve Bank of San Francisco (“Federal Reserve”) and other banks and marketable investment securities available for sale. As of ~~June 30, 2020,~~March 31, 2021, Federal Reserve cash reserve ratios ~~have been~~continue to be temporarily reduced to zero as a response to the COVID-19 pandemic. The Company’s profitability during the first ~~six~~three months of ~~2020~~2021 generated cash flows from operations of ~~$63,705,000~~$41,196,000 compared to ~~$33,869,000~~$33,617,000 during the first ~~six~~three months of ~~2019.~~2020. Net cash used by investing activities was ~~$497,490,000~~$460,561,000 for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to net cash ~~used by~~from investing activities of ~~$47,403,000~~$137,406,000 during the ~~six~~three months ending ~~2019.~~2020. Financing activities ~~used $863,130,000~~provided $359,336,000 during the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$38,415,000 provided~~$12,748,000 used during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. Deposit balance changes increased available liquidity by ~~$881,264,000~~$357,466,000 during the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to a decrease of ~~$24,293,000~~$35,704,000 for financing activity during the same period in 2020. Dividends paid used ~~$13,208,000~~$7,432,000 and ~~$11,575,000~~$6,664,000 of cash during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The Company’s liquidity is dependent on dividends received from the Bank. Dividends from the Bank are subject to certain regulatory restrictions.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Based on the changes in interest rates occurring subsequent to December 31, ~~2019,~~2020, the following update of the Company’s assessment of market risk as of ~~June 30, 2020~~March 31, 2021 is being provided. These updates and changes should be read in conjunction with the additional quantitative and qualitative disclosures in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

~~Subsequent to December 31, 2019, declines in~~During the first quarter of 2020, several market interest rates, including many rates that serve as reference indices for variable rate loans or the indices used to price new loan originations, declined markedly from previous levels. The prolonged retraction in rates and the limited slope in yield curve for longer maturities continued to create downward pressure on the portfolio in the first quarter of 2021. Furthermore, management believes that excess liquidity, which when combined with the federal government's continued balance sheet growth and purchase of mortgage-backed agency securities, continues to create limited opportunities for financial institutions to acquire earning assets at yields that are considered neutral or favorable to historical levels of net interest margin.

As of ~~December~~March 31, ~~2019~~2021, the Company's loan portfolio consisted of approximately ~~$4,346,723,000~~$4.97 billion in outstanding principal with a weighted average ~~rate of 4.89%. As of June 30, 2020 the Company's loan portfolio consisted of approximately $4,854,000,000 in outstanding principal balances with weighted average~~ coupon rate of ~~4.37%~~4.20%, inclusive of the PPP program loans. Excluding ~~these~~PPP loans, the Company's loan portfolio has approximately ~~$4,417,000,000~~$4.60 billion outstanding with a weighted average coupon rate of ~~4.70%~~4.46% as of ~~June 30, 2020.~~March 31, 2021. Included in ~~this June 30, 2020~~the March 31, 2021 loan total, exclusive of PPP loans, are variable rate loans totaling ~~$2,984,000,000~~$3.01 billion of which ~~86.5%~~88.3% or ~~$2,582,000,000~~$2.66 billion were at their floor rate. The remaining variable rate loans totaling ~~$402,000,000,~~$351.0 million, which carried a weighted average coupon rate of ~~5.13%~~4.91% as of ~~June 30, 2020,~~March 31, 2021, are subject to further rate adjustment. If those remaining variable rate loans were to collectively, through future rate adjustments, be reduced to their respective floors, they would have a weighted average coupon rate of approximately ~~4.37%~~4.29% which would result in the reduction of the weighted average coupon rate of the total loan portfolio, exclusive of PPP loans, from ~~4.70%~~4.46% to approximately ~~4.64%~~4.41%.

Management funds the acquisition of nearly all of its earning assets through its core deposit gathering activities. As of March 31, 2021, non-interest bearing deposits represented 40.3% of total deposits. Further, during the quarter ended March 31, 2021, the cost of interest bearing deposits were 0.10% and the cost of total deposits were 0.06%. Under the assumption that the Company will not introduce a negative rate environment to its customer base and that rates will not increase, management anticipates that future decreases in loan yields are more likely than not to decline more rapidly than decreases in deposit costs and thus continue to put downward pressures on net interest margin. With the intent of stabilizing or increasing net interest income, management intends to continue to deploy its excess liquidity and seek to migrate certain earning assets into higher yielding categories (from investment securities and into loans, for example).

As of ~~June 30, 2020~~March 31, 2021 the overnight Federal funds rate, the rate primarily used in these interest rate shock scenarios, was less than 1.00%. Based on the historical nature of these rates in the United States not falling below zero, management believes that a shock scenario that reduces interest rates below zero would not provide meaningful results and therefore, have not been modeled. These scenarios assume that 1) interest rates increase or decrease evenly (in a “ramp” fashion) over a twelve-month

period and remain at the new levels beyond twelve months or 2) that interest rates change instantaneously (“shock”). The simulation results shown below assume no changes in the structure of the Company’s balance sheet over the twelve months being measured.

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The following table summarizes the estimated effect on net interest income and market value of equity to changing interest rates as measured against a flat rate (no interest rate change) instantaneous shock scenario over a twelve month period utilizing the Company's specific mix of interest earning assets and interest bearing liabilities as of ~~June 30, 2020.~~

~~Table of Contents~~

March 31, 2021.

Interest Rate Risk Simulations:


Change in Interest Rates (Basis Points)	Change in Interest Rates (Basis Points)	Estimated Change in Net Interest Income (NII) (as % of NII)		Estimated Change in Market Value of Equity (MVE) (as % of MVE)		Change in Interest Rates (Basis Points)	Estimated Change in Net Interest Income (NII) (as % of NII)		Estimated Change in Market Value of Equity (MVE) (as % of MVE)
+200 (shock)	+200 (shock)	5.3	%	31.8	%	+200 (shock)	3.7	%	16.4	%
+100 (shock)	+100 (shock)	2.6	%	18.8	%	+100 (shock)	1.7	%	10.3	%
+ 0 (flat)	+ 0 (flat)	—		—		+ 0 (flat)	—		—
-100 (shock)	-100 (shock)	0.6	%	(38.5)	%	-100 (shock)	(3.1)	%	(27.3)	%
-200 (shock)	-200 (shock)	nm		nm		-200 (shock)	nm		nm

Item 4. Controls and Procedures

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~June 30, 2020.~~March 31, 2021. Disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are controls and procedures designed to reasonably assure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported on a timely basis. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~June 30, 2020.~~March 31, 2021.

During the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, there were no changes in our internal controls or in other factors that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

6453

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PART II – OTHER INFORMATION

Item 1 - Legal Proceedings

Due to the nature of our business, we are involved in legal proceedings that arise in the ordinary course of our business. While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

Item 1A - Risk Factors

In addition to the other information set forth in this Form 10-Q, you should carefully consider the risk factors that appeared under Item 1A, "Risk Factors" in the Company’s ~~2019~~2020 Annual Report on Form 10-K. ~~The following represents a material change in our risk~~These factors ~~from those disclosed in~~could materially and adversely affect the Company's ~~2019 Annual Report on Form 10-K.~~

~~The novel coronavirus, COVID-19, has adversely affected our~~ business, financial condition, liquidity, results of operations and ~~our liquidity~~capital position, and ~~will likely continue~~could cause its actual results to ~~for~~differ materially from its historical results or the ~~foreseeable future. The effects depend on future developments, which~~results contemplated by the forward-looking statements contained in this report. Such risk factors are ~~highly uncertain and are difficult to predict.~~incorporated herein by reference.

Global health concerns relating to the COVID-19 pandemic and related government actions taken to reduce the spread of the virus have created significant economic uncertainty and reduced economic activity, including within our market areas. On March 13, 2020, a National Emergency relating to the virus was declared. Governmental authorities, include the State of California and many of its local governments, have implemented numerous measures to try to contain the virus, such as travel bans and restrictions, “stay at home” orders and business limitations and shutdowns. These measures have negatively impacted consumer and business spending. Businesses nationwide and in the regions and communities in which we operate have laid off and furloughed significant numbers of employees, leading to record levels of unemployment. These conditions have significantly adversely affected our borrowers, including many different types of small and mid-sized businesses within our client base, particularly those in the gas station, retail, hotel, hospitality and food, beverage, and elective healthcare industries, among many others. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion.

The Federal Reserve lowered the primary credit rate by 50 and 100 basis points on March 3 and March 15, 2020, respectively, for a total of 150 basis points to 0.25% to mitigate the effects of the COVID-19 pandemic and to support the liquidity and stability of banking institutions as they serve the increased demand for credit. We expect a long duration of reduced interest rates to negatively impact our net interest income, margin, cost of borrowing and future profitability and to have a material adverse effect on our financial results for the remainder of 2020.

The outbreak has adversely impacted and is likely to further adversely impact our operations and the operations of our borrowers, customers and business partners. In particular, we may experience losses and other adverse effects due to a number of factors impacting us or our borrowers, customers or business partners, including but not limited to:

•~~increased delinquencies and subsequent credit losses resulting from the weakened financial condition of our borrowers as a result of the outbreak and related governmental actions;~~

•~~the negative effect on earnings resulting from the Bank modifying loans and agreeing to loan payment deferrals due to the COVID-19 crisis;~~

•~~declines in the value of collateral securing loans we have made;~~

•court closures and temporary foreclosure and eviction protection laws, even when a customer is in breach of its obligations to us, are likely to restrict our ability to realize on the value of collateral;

•~~disruption in the businesses of third parties upon who we rely, including outages at network providers and other service providers and suppliers;~~

•~~increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online and remote activity;~~

•~~decreased loan growth;~~

•~~decreased interest and non-interest income;~~

•~~continued decreased demand for certain bank products and services;~~

•~~declines in the value of securities we own, credit ratings downgrades, deterioration in issuers’ financial condition or a decline in the liquidity for debt securities;~~

~~Table of Contents~~

•~~operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions;~~

•reduced workforce numbers or capacity which may be caused by, but not limited to, illness, quarantine, stay at home or other government mandates, or difficulties transitioning back to an in-office environment;

•laws related to benefits and the treatment of employees, for example, mandating coverage of certain COVID-19 related testing and treatment, mandating additional paid or unpaid leave or expanding workers compensation coverage;

•~~volatile market prices of securities, including our common stock;~~

•~~unavailability of key personnel or a significant number of our employees due to the effects and restrictions of a COVID-19 outbreak within our market area;~~

•a protracted COVID-19 pandemic could further negatively affect the carrying amount of our goodwill, indefinite-lived intangibles and long-lived assets and result in realized losses on our financial assets, which would adversely impact our results of operations and the ability of certain of our bank subsidiary to pay dividends to us;

•increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the COVID-19 pandemic on market and economic conditions and actions governmental authorities take in response to those conditions; and

•~~additional costs to remedy damages, losses or disruption caused by such events~~

These factors may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided.

The spread of COVID-19 has caused us to modify our business practices (including restricting employee travel, and developing work from home and social distancing plans for our employees), and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities.

The extent to which the coronavirus outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. The longer the public health crisis lasts, and the greater its severity, the greater the likely material adverse impact on the economy, our customers and our business and financial performance. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s economic impact and any recession that has occurred or may occur in the future.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, it is not possible to predict the extent, severity or duration of these conditions or when normal economic and operating conditions will resume. However, we believe the effects will have (at least in the short term) a material impact on our results of operations and heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019.

~~Our Bank's participation in the Paycheck Protection Program could expose us to additional risks.~~

Federal and state governments have enacted laws intending to stimulate the economy in light of the business and market disruptions related to COVID-19. President Trump signed into law three economic stimulus packages, including the $2.0 trillion Coronavirus Relief and Economic Security Act on March 26, 2020, which, among other things, initiated the PPP. On April 16, 2020, the original $349.0 billion of funding under the PPP was exhausted, and on April 24, 2020, the Federal Government allocated an additional $310.0 billion to the program. Our Bank participated as a lender in both the initial and second rounds of the PPP, which was designed to help small businesses maintain their workforce during the COVID-19 pandemic. As of June 30, 2020, we have made 2,908 loans totaling $436.7 million under the Payment Protection Program.

We understand that these loans are fully guaranteed by the SBA and believe the majority of these loans will be forgiven. However, there can be no assurance that the borrowers will use or have used the funds appropriately or will have satisfied the staffing or payment requirements to qualify for forgiveness in whole or in part. Any portion of the loan that is not forgiven must be repaid by the borrower. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded or serviced by us, which may or may not be related to an ambiguity in the laws, rules or guidance regarding operation of the PPP, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if we have already been paid under the guaranty, seek recovery from us of any loss related to the deficiency.

~~Table of Contents~~

Since the opening of the PPP, several other large banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. We may be exposed to the risk of similar litigation, from both customers and non-customers that approached us regarding PPP loans, regarding its processes and procedures used in processing applications for the PPP. If any such litigation is filed against us and is not resolved in a manner favorable to the Bank, it may result in significant financial liability or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

The following table shows the repurchases made by the Company or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the periods indicated:

Period
(a) Total number of
shares purchased ⁽¹⁾
(b) Average price
paid per share (c) Total number of shares
purchased as of part
of publicly announced
plans or programs
(d) Maximum number
of shares that may
yet be purchased under
the plans or programs ⁽²⁾
April 1-30, 2020 277,001 $ 29.53 259,993 971,131
May 1-31, 2020 2,252 $ 26.24 — 711,138
June 1-30, 2020 60,250 $ 29.86 — 711,138
Total 339,503 $ 29.57 259,993


Period	(a) Total number of shares purchased (1)	(b) Average price paid per share		(c) Total number of shares purchased as of part of publicly announced plans or programs	(d) Maximum number of shares that may yet be purchased under the plans or programs at period end (2)
January 1-31, 2021	293	$	36.55	—	2,000,000
February 1-28, 2021	—	—		—	2,000,000
March 1-31, 2021	—	—		—	2,000,000
Total	293	$	36.55	—

⁽¹⁾Includes shares purchased by the Company’s Employee Stock Ownership Plan in open market purchases and shares tendered by employees pursuant to various other equity incentive plans. See Notes 8 and 9 to the condensed consolidated financial statements at Item 1 of Part I of this report, for a discussion of the Company’s stock repurchased under equity compensation plans.

⁽²⁾Does not include shares that may be purchased by the Company’s Employee Stock Ownership Plan and pursuant to various other equity incentive plans. See Note 8 to the condensed consolidated financial statements at Item 1 of Part I of this report, for a discussion of the Company’s stock repurchase plan.

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Item 6 – Exhibits

EXHIBIT INDEX


Exhibit No.						Exhibit

10.1*						~~Form of 2020 Performance Award Agreement and Grant Notice pursuant to Tri~~Co ~~Bancshares~~' ~~2019 Equity Incentive Plan.~~

31.1						Rule 13a-14(a)/15d-14(a) Certification of CEO

31.2						Rule 13a-14(a)/15d-14(a) Certification of CFO

32.1						Section 1350 Certification of CEO

32.2						Section 1350 Certification of CFO

101.INS						XBRL Instance Document

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

*Management contract or compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


			TRICO BANCSHARES
			(Registrant)

Date: ~~August 10, 2020~~May 7, 2021			/s/ Peter G. Wiese
			Peter G. Wiese
			Executive Vice President and Chief Financial Officer
			(Duly authorized officer and principal financial and chief accounting officer)

6856


			Page
PART I – FINANCIAL INFORMATION			2
Item 1 – Financial Statements (Unaudited)			2
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			4337
Item 3 – Quantitative and Qualitative Disclosures about Market Risk			6352
Item 4 – Controls and Procedures			6453
PART II – OTHER INFORMATION			6554
Item 1 – Legal Proceedings			6554
Item 1A – Risk Factors			6554
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			6754
Item 6 – Exhibits			6755
Signatures			6856


	For the six months ended
	June 30, 2020										June 30, 2019
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	4,346,419	$	112,311	5.20	%	$	4,033,954	$	109,889	5.49	%
PPP loans	146,285		2,356		3.24	%	—		—		—	%
Investments-taxable	1,235,672		16,261		2.65	%	1,428,951		21,677		3.06	%
Investments-nontaxable ⁽¹⁾	118,992		2,413		4.08	%	141,397		2,753		3.93	%
Total investments	1,354,664		18,674		2.77	%	1,570,348		24,430		3.14	%
Cash at Federal Reserve and other banks	266,752		881		0.66	%	158,164		1,937		2.47	%
Total earning assets	6,114,120		134,222		4.41	%	5,762,466		136,256		4.77	%
Other assets, net	653,006						643,592
Total assets	$	6,767,126					$	6,406,058
Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	1,269,452	233		0.04	%	$	1,274,882	576		0.09	%
Savings deposits	1,918,918		1,706		0.18	%	1,907,677		2,439		0.26	%
Time deposits	419,638		2,425		1.16	%	441,447		2,703		1.23	%
Total interest-bearing deposits	3,608,008		4,364		0.24	%	3,624,006		5,718		0.32	%
Other borrowings	24,552		9		0.07	%	16,736		50		0.60	%
Junior subordinated debt	57,324		1,441		5.06	%	57,086		1,684		5.95	%
Total interest-bearing liabilities	3,689,884		5,814		0.32	%	3,697,828		7,452		0.41	%
Noninterest-bearing deposits	2,059,242						1,754,973
Other liabilities	123,481						98,570
Shareholders’ equity	894,519						854,687
Total liabilities and shareholders’ equity	$	6,767,126					$	6,406,058
Net interest rate spread^{(1) (2)}					4.09	%					4.36	%
Net interest income and margin^{(1) (3)}			$	128,408	4.22	%			$	128,804	4.51	%


(in thousands)	Three months ended June 30, 2020 compared with three months ended June 30, 2019
	Volume		Rate		Total
Increase in interest income:
Loans, including PPP	$	8,415	$	(5,498)	$	2,917
Investment securities⁽¹⁾	(3,469)		276		(3,193)
Cash at Federal Reserve and other banks	1,118		(1,886)		(768)
Total interest-earning assets	6,064		(7,108)		(1,044)
Increase (decrease) in interest expense:
Interest-bearing demand deposits	4		(229)		(225)
Savings deposits	56		(718)		(662)
Time deposits	(102)		(197)		(299)
Other borrowings	17		(50)		(33)
Junior subordinated debt	2		(159)		(157)
Total interest-bearing liabilities	(23)		(1,353)		(1,376)
Increase in net interest income	$	6,087	$	(5,755)	$	332


(in thousands)	Six months ended June 30, 2020 compared with six months ended June 30, 2019
	Volume		Rate		Total
Increase in interest income:
Loans, including PPP	$	12,593	$	(7,815)	$	4,778
Investment securities⁽¹⁾	(7,538)		1,782		(5,756)
Cash at Federal Reserve and other banks	1,341		(2,397)		(1,056)
Total interest-earning assets	6,396		(8,430)		(2,034)
Increase (decrease) in interest expense:
Interest-bearing demand deposits	(5)		(338)		(343)
Savings deposits	29		(762)		(733)
Time deposits	(268)		(10)		(278)
Other borrowings	47		(88)		(41)
Junior subordinated debt	14		(257)		(243)
Total interest-bearing liabilities	(183)		(1,455)		(1,638)
Decrease in net interest income	$	6,579	$	(6,975)	$	(396)


(in thousands)	Balance at December 31, 2019		New NPA / Valuation Adjustments	Pay-downs /Sales /Upgrades		Charge-offs/ ⁽¹⁾ Write-downs	Transfers to Foreclosed Assets	Balance at June 30, 2020
Commercial real estate:
CRE non-owner occupied	$	642	66	(31)		—	—	$	677
CRE owner occupied	1,408		1,254	(253)		—	—	2,409
Multifamily	2,024		—	—		—	—	2,024
Farmland	1,242		765	(188)		—	—	1,819
Total commercial real estate loans	5,316		2,085	(472)		—	—	6,929
Consumer
SFR 1-4 1st DT liens	5,191		2,038	(499)		(11)	—	6,719
SFR HELOCs and junior liens	4,217		2,132	(661)		(23)	—	5,665
Other	51		249	(6)		(188)	—	106
Total consumer loans	9,459		4,419	(1,166)		(222)	—	12,490
Commercial and industrial	2,050		876	(622)		(594)	—	1,710
Construction	—		—	—		—	—	—
Agriculture production	39		426	(20)		—	—	445
Leases	—		—	—		—	—	—
Total nonperforming loans	16,864		7,806	(2,280)		(816)	—	21,574
Foreclosed assets	2,229		—	(201)		(106)	—	1,922
Total nonperforming assets	$	19,093	7,806	(2,481)	—	(922)	—	$	23,496


Period	(a) Total number of shares purchased ⁽¹⁾	(b) Average price paid per share		(c) Total number of shares purchased as of part of publicly announced plans or programs	(d) Maximum number of shares that may yet be purchased under the plans or programs ⁽²⁾
April 1-30, 2020	277,001	$	29.53	259,993	971,131
May 1-31, 2020	2,252	$	26.24	—	711,138
June 1-30, 2020	60,250	$	29.86	—	711,138
Total	339,503	$	29.57	259,993