0000356171us-gaap:~~FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMembertcbk:MarketableEquitySecuritiesMember2020-09-30~~AccumulatedDefinedBenefitPlansAdjustmentNetPriorServiceCostCreditMember2020-01-012020-06-30

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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: ~~September~~June 30, ~~2020~~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: ~~29,769,389~~29,711,934 shares outstanding as of ~~November~~August 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, 2021		December 31, 2020
Assets:
Cash and due from banks	$	86,052	$	77,253
Cash at Federal Reserve and other banks	553,688		592,298
Cash and cash equivalents	639,740		669,551
Investment securities:
Marketable equity securities	2,979		3,025
Available for sale debt securities, net of allowance for credit losses of $0	1,847,568		1,414,264
Held to maturity debt securities, net of allowance for credit losses of $0	235,778		284,563
Restricted equity securities	17,250		17,250
Loans held for sale	5,723		6,268
Loans	4,944,894		4,763,127
Allowance for credit losses	(86,062)		(91,847)
Total loans, net	4,858,832		4,671,280
Premises and equipment, net	79,178		83,731
Cash value of life insurance	120,287		118,870
Accrued interest receivable	18,923		20,004
Goodwill	220,872		220,872
Other intangible assets, net	14,971		17,833
Operating leases, right-of-use	26,365		27,846
Other assets	81,899		84,172
Total assets	$	8,170,365	$	7,639,529
Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Noninterest-bearing demand	$	2,843,783	$	2,581,517
Interest-bearing	4,148,270		3,924,417
Total deposits	6,992,053		6,505,934
Accrued interest payable	1,026		1,362
Operating lease liability	26,707		27,973
Other liabilities	85,388		94,597
Other borrowings	40,559		26,914
Junior subordinated debt	57,852		57,635
Total liabilities	7,203,585		6,714,415
Commitments and contingencies (Note 7)	0		0
Shareholders’ equity:
Preferred stock, no par value: 1,000,000 shares authorized, 0 issued and outstanding at June 30, 2021 and December 31, 2020	0		0
Common stock, no par value: 50,000,000 shares authorized; 29,716,294 and 29,727,214 issued and outstanding at June 30, 2021 and December 31, 2020, respectively	531,038		530,835
Retained earnings	427,575		381,999
Accumulated other comprehensive income, net of tax	8,167		12,280
Total shareholders’ equity	966,780		925,114
Total liabilities and shareholders’ equity	$	8,170,365	$	7,639,529

September 30, 2020 December 31, 2019
Assets:
Cash and due from banks $ 71,034 $ 92,816
Cash at Federal Reserve and other banks 581,548 183,691
Cash and cash equivalents 652,582 276,507
Investment securities:
Marketable equity securities 3,032 2,960
Available for sale debt securities, net of allowance for credit losses of $0 1,142,957 950,138
Held to maturity debt securities, net of allowance for credit losses of $0 310,696 375,606
Restricted equity securities 17,250 17,250
Loans held for sale 6,570 5,265
Loans 4,826,338 4,307,366
Allowance for credit losses (87,575) (30,616)
Total loans, net 4,738,763 4,276,750
Premises and equipment, net 84,856 87,086
Cash value of life insurance 120,026 117,823
Accrued interest receivable 19,557 18,897
Goodwill 220,872 220,872
Other intangible assets, net 19,264 23,557
Operating leases, right-of-use 28,879 27,879
Other assets 84,495 70,591
Total assets $ 7,449,799 $ 6,471,181
Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Noninterest-bearing demand $ 2,517,819 $ 1,832,665
Interest-bearing 3,822,769 3,534,329
Total deposits 6,340,588 5,366,994
Accrued interest payable 1,571 2,407
Operating lease liability 28,894 27,540
Other liabilities 91,902 91,984
Other borrowings 27,055 18,454
Junior subordinated debt 57,527 57,232
Total liabilities 6,547,537 5,564,611
Commitments and contingencies (Note 7)
Shareholders’ equity:
Preferred stock, 0 par value: 1,000,000 shares authorized, 0 issued and outstanding at September 30, 2020 and December 31, 2019 0 0
Common stock, 0 par value: 50,000,000 shares authorized; 29,769,389 and 30,523,824 issued and outstanding at September 30, 2020 and December 31, 2019, respectively 531,075 543,998
Retained earnings 365,611 367,794
Accumulated other comprehensive income (loss), net of tax 5,576 (5,222)
Total shareholders’ equity 902,262 906,570
Total liabilities and shareholders’ equity $ 7,449,799 $ 6,471,181

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
September 30, Nine months ended
September 30,
2020 2019 2020 2019
Interest and dividend income:
Loans, including fees $ 58,039 $ 56,999 $ 172,706 $ 166,888
Investments:
Taxable securities 6,153 9,864 21,830 30,876
Tax exempt securities 848 961 2,704 3,095
Dividends 223 308 807 973
Interest bearing cash at Federal Reserve and other banks 175 757 1,056 2,694
Total interest and dividend income 65,438 68,889 199,103 204,526
Interest expense:
Deposits 1,412 3,050 5,776 8,768
Other borrowings 4 334 13 384
Junior subordinated debt 568 817 2,009 2,501
Total interest expense 1,984 4,201 7,798 11,653
Net interest income 63,454 64,688 191,305 192,873
Provision for (reversal of) credit losses 7,649 (329) 37,963 (1,392)
Net interest income after credit loss provision (reversal) 55,805 65,017 153,342 194,265
Non-interest income:
Service charges and fees 10,469 10,590 27,763 29,788
Gain on sale of loans 3,035 1,236 5,662 2,223
Gain on sale of investment securities 7 107 7 107
Asset management and commission income 667 721 2,244 2,102
Increase in cash value of life insurance 773 773 2,203 2,294
Other 186 681 735 2,820
Total non-interest income 15,137 14,108 38,614 39,334
Non-interest expense:
Salaries and related benefits 29,321 26,899 83,648 78,746
Other 17,393 19,445 53,365 59,747
Total non-interest expense 46,714 46,344 137,013 138,493
Income before provision for income taxes 24,228 32,781 54,943 95,106
Provision for income taxes 6,622 9,386 13,786 25,924
Net income $ 17,606 $ 23,395 $ 41,157 $ 69,182
Per share data:
Basic earnings per share $ 0.59 $ 0.77 $ 1.37 $ 2.27
Diluted earnings per share $ 0.59 $ 0.76 $ 1.37 $ 2.25
Dividends per share $ 0.22 $ 0.22 $ 0.66 $ 0.60


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Interest and dividend income:
Loans, including fees	$	60,304	$	58,409	$	120,740	$	114,667
Investments:
Taxable securities	6,934		7,466		13,111		15,677
Tax exempt securities	851		952		1,774		1,856
Dividends	255		223		472		584
Interest bearing cash at Federal Reserve and other banks	135		98		298		881
Total interest and dividend income	68,479		67,148		136,395		133,665
Interest expense:
Deposits	828		1,813		1,765		4,364
Other borrowings	5		4		9		9
Junior subordinated debt	563		672		1,098		1,441
Total interest expense	1,396		2,489		2,872		5,814
Net interest income	67,083		64,659		133,523		127,851
Provision for (reversal of) credit losses	(260)		22,244		(6,320)		30,313
Net interest income after credit loss provision (reversal)	67,343		42,415		139,843		97,538
Non-interest income:
Service charges and fees	10,930		8,168		21,406		17,294
Gain on sale of loans	2,847		1,736		6,094		2,627
Gain on sale of investment securities	0		0		0		0
Asset management and commission income	947		661		1,781		1,577
Increase in cash value of life insurance	745		710		1,418		1,430
Other	488		382		1,368		549
Total non-interest income	15,957		11,657		32,067		23,477
Non-interest expense:
Salaries and related benefits	27,081		27,055		52,411		54,327
Other	17,090		18,495		33,378		35,973
Total non-interest expense	44,171		45,550		85,789		90,300
Income before provision for income taxes	39,129		8,522		86,121		30,715
Provision for income taxes	10,767		1,092		24,110		7,164
Net income	$	28,362	$	7,430	$	62,011	$	23,551
Per share data:
Basic earnings per share	$	0.95	$	0.25	$	2.09	$	0.78
Diluted earnings per share	$	0.95	$	0.25	$	2.07	$	0.78
Dividends per share	$	0.25	$	0.22	$	0.50	$	0.44

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(In thousands; unaudited)


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net income	Net income	$	17,606	$	23,395	$	41,157	$	69,182	Net income	$	28,362	$	7,430	$	62,011	$	23,551
Other comprehensive income, net of tax:
Unrealized gains on available for sale securities arising during the period		3,266		3,697		7,069		19,378
Other comprehensive income (loss), net of tax:										Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available for sale securities arising during the period										Unrealized gains (losses) on available for sale securities arising during the period	5,206		24,625		(3,484)		3,803
Change in minimum pension liability	Change in minimum pension liability	1,691		0		2,817		0		Change in minimum pension liability	0		1,126		0		2,038
Change in joint beneficiary agreements	Change in joint beneficiary agreements	0		0		912		0		Change in joint beneficiary agreements	0		0		(629)		0
Other comprehensive income		4,957		3,697		10,798		19,378
Other comprehensive income (loss)										Other comprehensive income (loss)	5,206		25,751		(4,113)		5,841
Comprehensive income	Comprehensive income	$	22,563	$	27,092	$	51,955	$	88,560	Comprehensive income	$	33,568	$	33,181	$	57,898	$	29,392

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			Shares of Common Stock	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance at June 30, 2019		30,502,757	$	542,939	$	335,145	$	(2,198)	$	875,886
Balance at March 31, 2020											Balance at March 31, 2020	29,973,516	$	534,623	$	356,935	$	(25,132)	$	866,426
Net income	Net income				23,395				23,395		Net income				7,430				7,430
Other comprehensive income	Other comprehensive income						3,697		3,697		Other comprehensive income						25,751		25,751
Stock options exercised	Stock options exercised	9,000	146						146		Stock options exercised	8,000	140						140
RSU vesting	RSU vesting		296						296		RSU vesting		338						338
PSU vesting	PSU vesting		102						102		PSU vesting		154						154
RSUs released	RSUs released	4,250							—		RSUs released	28,727							—
PSUs released	PSUs released	—							—		PSUs released	20,265							—
Repurchase of common stock	Repurchase of common stock	(3,820)	(68)		(79)				(147)		Repurchase of common stock	(271,299)	(4,833)		(3,176)				(8,009)
Dividends paid ($0.22 per share)	Dividends paid ($0.22 per share)				(6,710)				(6,710)		Dividends paid ($0.22 per share)				(6,544)				(6,544)
Three months ended September 30, 2019		30,512,187	$	543,415	$	351,751	$	1,499	$	896,665
Three months ended June 30, 2020											Three months ended June 30, 2020	29,759,209	$	530,422	$	354,645	$	619	$	885,686

Balance at June 30, 2020		29,759,209	$	530,422	$	354,645	$	619	$	885,686
Balance at March 31, 2021											Balance at March 31, 2021	29,727,122	$	531,367	$	408,211	$	2,961	$	942,539
Net income	Net income				17,606				17,606		Net income				28,362				28,362
Other comprehensive income	Other comprehensive income						4,957		4,957		Other comprehensive income						5,206		5,206
Stock options exercised	Stock options exercised	16,000	259						259		Stock options exercised	1,675	28						28
RSU vesting	RSU vesting		383						383		RSU vesting		405						405
PSU vesting	PSU vesting		162						162		PSU vesting		221						221
RSUs released	RSUs released	2,619							—		RSUs released	42,511							—
PSUs released	PSUs released	—							—		PSUs released	0							—
Repurchase of common stock	Repurchase of common stock	(8,439)	(151)		(91)				(242)		Repurchase of common stock	(55,014)	(983)		(1,568)				(2,551)
Dividends paid ($0.22 per share)					(6,549)				(6,549)
Three months ended September 30, 2020		29,769,389	$	531,075	$	365,611	$	5,576	$	902,262
Dividends paid ($0.25 per share)											Dividends paid ($0.25 per share)				(7,430)				(7,430)
Three months ended June 30, 2021											Three months ended June 30, 2021	29,716,294	$	531,038	$	427,575	$	8,167	$	966,780

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

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY(continued)

(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, 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

Balance at January 1, 2021	29,727,214	$	530,835	$	381,999	$	12,280	$	925,114
Net income				62,011				62,011
Other comprehensive loss						(4,113)		(4,113)
Stock options exercised	1,675	28						28
RSU vesting		757						757
PSU vesting		406						406
RSUs released	42,712							—
PSUs released	—							—
Repurchase of common stock	(55,307)	(988)		(1,573)				(2,561)
Dividends paid ($0.50 per share)				(14,862)				(14,862)
Six months ended June 30, 2021	29,716,294	$	531,038	$	427,575	$	8,167	$	966,780

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 69,182 69,182
Other comprehensive income 19,378 19,378
Stock options exercised 166,000 2,646 2,646
RSU vesting 863 863
PSU vesting 350 350
RSUs released 30,461 —
PSUs released 22,237 —
Repurchase of common stock (123,734) (2,206) (2,636) (4,842)
Dividends paid ($0.60 per share) (18,285) (18,285)
Nine months ended September 30, 2019 30,512,187 $ 543,415 $ 351,751 $ 1,499 $ 896,665
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 41,157 41,157
Other comprehensive income 10,798 10,798
Stock options exercised 32,000 547 547
RSU vesting 1,018 1,018
PSU vesting 458 458
RSUs released 31,708 —
PSUs released 20,265 —
Repurchase of common stock (838,408) (14,946) (10,599) (25,545)
Dividends paid ($0.66 per share) (19,758) (19,758)
Nine months ended September 30, 2020 29,769,389 $ 531,075 $ 365,611 $ 5,576 $ 902,262

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,
	2021		2020
Operating activities:
Net income	$	62,011	$	23,551
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment, and amortization	3,357		3,193
Amortization of intangible assets	2,862		2,862
Provision for (reversal of) credit losses on loans	(6,385)		30,089
Amortization of investment securities premium, net	2,855		1,054
Gain on sale of investment securities	0		0
Originations of loans for resale	(129,684)		(84,872)
Proceeds from sale of loans originated for resale	135,353		83,867
Gain on sale of loans	(6,094)		(2,627)
Change in market value of mortgage servicing rights	459		2,494
Provision for losses on foreclosed assets	9		106
Gain on transfer of loans to foreclosed assets	(20)		0
Gain on sale of foreclosed assets	(46)		(57)
Operating lease expense payments	(2,430)		(2,480)
(Gain) loss on disposal of fixed assets	(426)		15
Increase in cash value of life insurance	(1,418)		(1,430)

Loss (gain) on marketable equity securities	45		(72)
Equity compensation vesting expense	1,163		931
Change in:
Interest receivable	1,081		(1,440)
Interest payable	(336)		(673)
Amortization of operating lease ROUA	2,645		2,720
Other assets and liabilities, net	(6,195)		6,474
Net cash from operating activities	58,806		63,705
Investing activities:
Proceeds from maturities of securities available for sale	180,046		60,637
Proceeds from maturities of securities held to maturity	48,269		37,905

Purchases of securities available for sale	(620,634)		(101,899)
Loan origination and principal collections, net	(79,803)		(493,437)
Loans purchased	(101,466)		0
Proceeds from sale of other real estate owned	756		570
Proceeds from sale of premises and equipment	2,700		0
Purchases of premises and equipment	(854)		(1,266)
Net cash used by investing activities	(570,986)		(497,490)
Financing activities:
Net change in deposits	486,119		881,264
Net change in other borrowings	13,645		20,090
Repurchase of common stock, net of option exercises	(2,561)		(25,164)
Dividends paid	(14,862)		(13,208)
Exercise of stock options	28		148
Net cash from financing activities	482,369		863,130
Net change in cash and cash equivalents	(29,811)		429,345
Cash and cash equivalents, beginning of period	669,551		276,507
Cash and cash equivalents, end of period	$	639,740	$	705,852
Supplemental disclosure of noncash activities:
Unrealized (loss) gain on securities available for sale	$	(4,945)	$	5,398
Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes	451		494
Obligations incurred in conjunction with leased assets	1,308		4,068
Loans transferred to foreclosed assets	102		0
Supplemental disclosure of cash flow activity:
Cash paid for interest expense	3,208		6,487
Cash paid for income taxes	33,300		0

For the nine months ended September 30,
2020 2019
Operating activities:
Net income $ 41,157 $ 69,182
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment, and amortization 4,778 5,273
Amortization of intangible assets 4,293 4,293
Provision for (reversal of) credit losses 37,963 (1,392)
Amortization of investment securities premium, net 1,747 2,050
Gain on sale of investment securities (7) (107)
Originations of loans for resale (152,968) (92,002)
Proceeds from sale of loans originated for resale 156,347 89,506
Gain on sale of loans (5,662) (2,223)
Change in market value of mortgage servicing rights 2,258 1,652
Provision for losses on foreclosed assets 0 56
Gain (loss) on transfer of loans to foreclosed assets 128 (151)
Gain on sale of foreclosed assets (57) (246)
Operating lease expense payments (3,716) (3,683)
Loss on disposal of fixed assets 37 82
Increase in cash value of life insurance (2,203) (2,294)
Gain on life insurance death benefit 0 (831)
Gain on marketable equity securities (72) (100)
Equity compensation vesting expense 1,476 1,213
Change in:
Interest receivable (660) 1,207
Interest payable (836) 850
Accretion (amortization) of operating lease ROUA 4,070 (463)
Other assets and liabilities, net (9,489) 4,394
Net cash from operating activities 78,584 76,266
Investing activities:
Proceeds from maturities of securities available for sale 114,122 69,278
Proceeds from maturities of securities held to maturity 64,054 50,738
Proceeds from sale of available for sale securities 229 125,247
Purchases of securities available for sale (298,018) (37,253)
Loan origination and principal collections, net (518,564) (159,991)
Proceeds from sale of other real estate owned 570 1,255
Proceeds from sale of premises and equipment 0 0
Purchases of premises and equipment (2,340) (3,070)
Net cash (used by) from investing activities (639,947) 46,204
Financing activities:
Net change in deposits 973,594 (71,059)
Net change in other borrowings 8,601 584
Repurchase of common stock, net of option exercises (24,999) (2,196)
Dividends paid (19,758) (18,285)
Exercise of stock options 0 0
Net cash (used by) from financing activities 937,438 (90,956)
Net change in cash and cash equivalents 376,075 31,514
Cash and cash equivalents, beginning of period 276,507 227,533
Cash and cash equivalents, end of period $ 652,582 $ 259,047
Supplemental disclosure of noncash activities:
Unrealized gain on securities available for sale $ 10,036 $ 27,511
Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes 736 4,842
Obligations incurred in conjunction with leased assets 4,161 32,162
Loans transferred to foreclosed assets 157 331
Supplemental disclosure of cash flow activity:
Cash paid for interest expense 8,634 10,803
Cash paid for income taxes 26,000 25,950

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 2928 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 ~~$1,727,699~~$1,737,000 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 ~~$795,000~~was considered insignificant at ~~September~~June 30, ~~2020~~2021 and is therefore 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 six month periods ended June 30, 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 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

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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 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,~~ amending existing guidance.~~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

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~~which the reporting unit’s carrying amount exceeds its fair value. There was 0 goodwill impairment recorded during the three and nine month periods ended September 30, 2020.~~

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 and simplification of 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 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, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	1,126,342	$	11,628	$	(4,554)	$	0	$	1,133,416
Obligations of states and political subdivisions	141,168		6,208		(452)		0		146,924
Corporate bonds	2,473		83		0		0		2,556
Asset backed securities	563,347		2,941		(1,616)		0		564,672
Total debt securities available for sale	$	1,833,330	$	20,860	$	(6,622)	$	0	$	1,847,568

September 30, 2020
(in thousands) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Allowance for Credit Losses Estimated
Fair
Value
Debt Securities Available for Sale
Obligations of U.S. government agencies $ 556,295 $ 17,821 $ (228) $ 0 $ 573,888
Obligations of states and political subdivisions 107,840 4,898 (13) 0 112,725
Corporate bonds 2,451 101 0 0 2,552
Asset backed securities 462,948 450 (9,606) 0 453,792
Total debt securities available for sale $ 1,129,534 $ 23,270 $ (9,847) $ 0 $ 1,142,957




Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	226,925	$	10,926	$	0	$	0	$	237,851
Obligations of states and political subdivisions	8,853		315		0		0		9,168
Total debt securities held to maturity	$	235,778	$	11,241	$	0	$	0	$	247,019


	December 31, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	795,555	$	17,710	$	(891)	$	0	$	812,374
Obligations of states and political subdivisions	123,347		5,748		0		0		129,095
Corporate bonds	2,459		85		0		0		2,544
Asset backed securities	473,720		1,682		(5,151)		0		470,251
Total debt securities available for sale	$	1,395,081	$	25,225	$	(6,042)	$	0	$	1,414,264
Debt Securities Held to Maturity
Obligations of U.S. government agencies	273,667		13,774		0		$	0	287,441
Obligations of states and political subdivisions	10,896		389		0		0		11,285
Total debt securities held to maturity	$	284,563	$	14,163	$	0	$	0	$	298,726

Debt Securities Held to Maturity
Obligations of U.S. government agencies $ 299,797 $ 14,363 $ 0 $ 314,160 $ 0
Obligations of states and political subdivisions 10,899 399 0 11,298 0
Total debt securities held to maturity $ 310,696 $ 14,762 $ 0 $ 325,458 $ 0

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December 31, 2019
(in thousands) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value
Debt Securities Available for Sale
Obligations of U.S. government agencies $ 466,139 $ 7,261 $ (420) $ 472,980
Obligations of states and political subdivisions 106,373 3,229 (1) 109,601
Corporate bonds 2,430 102 0 2,532
Asset backed securities 371,809 129 (6,913) 365,025
Total debt securities available for sale $ 946,751 $ 10,721 $ (7,334) $ 950,138
Debt Securities Held to Maturity
Obligations of U.S. government agencies 361,785 6,072 (480) 367,377
Obligations of states and political subdivisions 13,821 327 0 14,148
Total debt securities held to maturity $ 375,606 $ 6,399 $ (480) $ 381,525

Proceeds from the sale of investment securities totaled $229,000 and $125,247,000 during the nine month periods ended September 30, 2020 and 2019, respectively. Gross realized gains from the sale of investment securities totaled $7,000 during the three and nine months ended September 30, 2020, respectively. There were 0 gross realized losses on the sale of securities during 2020. Gross realized gains from the sale of investment securities totaled $335,000 during the three and nine months ended September 30, 2019, respectively. Gross realized losses from the saleno sales of investment securities during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019 totaled $228,000.~~2021 and 2020, respectively. Investment securities with an aggregate carrying value of ~~$460,317,000~~$456,446,000 and ~~$466,321,000~~$429,049,000 at ~~September~~June 30, ~~2020~~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 ~~September~~June 30, ~~2020~~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 ~~September~~June 30, ~~2020,~~2021, obligations of U.S. government corporations and agencies with a cost basis totaling ~~$856,092,000~~$1,104,406,000 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 ~~September~~June 30, ~~2020,~~2021, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately ~~2.76~~4.21 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 ~~September~~June 30, ~~2020,~~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

Due in one year	Due in one year	$	0			$	0					$	0			$	0		Due in one year	$	1,093			$	1,117			$	0	$	0
Due after one year through five years	Due after one year through five years	138,993		139,469				0		0		Due after one year through five years		181,624				181,791				1,011				1,125
Due after five years through ten years	Due after five years through ten years	142,939		143,492				20,439		21,485		Due after five years through ten years		337,145				338,985				20,641				21,363
Due after ten years	Due after ten years	847,602		859,996				290,257		303,973		Due after ten years		1,313,468				1,325,675				214,126				224,531
Totals	Totals	$	1,129,534	$	1,142,957			$	310,696	$	325,458	Totals		$	1,833,330			$	1,847,568			$	235,778			$	247,019

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:

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June 30, 2021:	Less than 12 months				12 months or more				Total
(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	566,137	$	(4,554)	$	0	$	0	$	566,137	$	(4,554)
Obligations of states and political subdivisions	24,207		(452)		0		0		24,207		(452)

Asset backed securities	103,518		(394)		152,895		(1,222)		256,413		(1,616)
Total debt securities available for sale	$	693,862	$	(5,400)	$	152,895	$	(1,222)	$	846,757	$	(6,622)

September 30, 2020: Less than 12 months 12 months or more Total
(in thousands) Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss
Debt Securities Available for Sale
Obligations of U.S. government agencies $ 152,656 $ (228) $ 0 $ 0 $ 152,656 $ (228)
Obligations of states and political subdivisions 963 (13) 0 0 963 (13)
Asset backed securities 92,463 (1,495) 296,841 (8,111) 389,304 (9,606)
Total debt securities available for sale $ 246,082 $ (1,736) $ 296,841 $ (8,111) $ 542,923 $ (9,847)


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)		0		0		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 ~~September~~June 30, ~~2020, 13~~2021, 32 debt securities representing obligations of U.S. government agencies had unrealized losses with aggregate depreciation of ~~0.15%~~0.80% 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 ~~September~~June 30, ~~2020.~~2021. At ~~September~~June 30, ~~2020, one (1)~~2021, 6 debt ~~security~~securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of ~~1.33%~~1.83% 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 ~~September~~June 30, ~~2020~~2021 has not experienced any deterioration in credit rating. At ~~September~~June 30, ~~2020, 9~~2021, 18 asset backed securities had unrealized losses with aggregate depreciation of ~~2.41%~~0.63% 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 0 impairment on these securities and there has been 0 allowance for credit losses recorded as of ~~September~~June 30, ~~2020.~~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:

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September 30, 2020 December 31, 2019
AAA/AA/A BBB/BB/B AAA/AA/A BBB/BB/B
(In thousands) (In thousands)
Debt Securities Held to Maturity
Obligations of U.S. government agencies $ 299,797 $ 0 $ 361,785 $ 0
Obligations of states and political subdivisions 10,899 0 13,136 685
Total debt securities held to maturity $ 310,696 $ 0 $ 374,921 $ 685


	June 30, 2021				December 31, 2020
	AAA/AA/A		BBB/BB/B		AAA/AA/A		BBB/BB/B
	(In thousands)				(In thousands)
Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	226,925	$	0	$	273,667	$	0
Obligations of states and political subdivisions	8,853		0		10,896		0
Total debt securities held to maturity	$	235,778	$	0	$	284,563	$	0

Note 3 – Loans

A summary of loan balances follows:

(in thousands) September 30, 2020 December 31, 2019
Commercial real estate:
CRE non-owner occupied $ 1,600,284 $ 1,609,556
CRE owner occupied 581,090 546,434
Multifamily 602,199 517,725
Farmland 152,849 145,067
Total commercial real estate loans 2,936,422 2,818,782
Consumer:
SFR 1-4 1st DT liens 511,759 509,508
SFR HELOCs and junior liens 332,820 362,886
Other 82,256 82,656
Total consumer loans 926,835 955,050
Commercial and industrial 633,897 249,791
Construction 284,933 249,827
Agriculture production 40,613 32,633
Leases 3,638 1,283
Total loans, net of deferred loan fees and discounts 4,826,338 4,307,366
Total principal balance of loans owed, net of charge-offs 4,875,675 4,351,725
Unamortized net deferred loan fees (20,767) (8,927)
Discounts to principal balance of loans owed, net of charge-offs (28,570) (35,432)
Total loans, net of unamortized deferred loan fees and discounts 4,826,338 4,307,366
Allowance for credit losses on loans $ (87,575) $ (30,616)


(in thousands)	June 30, 2021		December 31, 2020
Commercial real estate:
CRE non-owner occupied	$	1,534,256	$	1,535,555
CRE owner occupied	659,948		624,375
Multifamily	828,101		639,480
Farmland	172,031		152,492
Total commercial real estate loans	3,194,336		2,951,902
Consumer:
SFR 1-4 1st DT liens	654,373		546,592
SFR HELOCs and junior liens	325,127		327,484
Other	71,109		78,032
Total consumer loans	1,050,609		952,108
Commercial and industrial	452,069		526,327
Construction	200,714		284,842
Agriculture production	41,967		44,164
Leases	5,199		3,784
Total loans, net of deferred loan fees and discounts	$	4,944,894	$	4,763,127
Total principal balance of loans owed, net of charge-offs	$	4,984,824	$	4,805,596
Unamortized net deferred loan fees	(19,843)		(16,984)
Discounts to principal balance of loans owed, net of charge-offs	(20,087)		(25,485)
Total loans, net of unamortized deferred loan fees and discounts	$	4,944,894	$	4,763,127
Allowance for credit losses on loans	$	(86,062)	$	(91,847)

As of ~~the quarter ended September~~June 30, ~~2020,~~2021, the total gross balance outstanding of PPP loans ~~which are included in~~(included within commercial and ~~industrial loans,~~industrial) was ~~$437,793,000 (approximately 2,900 loans)~~$248,582,000 as compared to total PPP originations of $438,510,000. Included in the balance of outstanding PPP loans as of September 30, 2020 are approximately 1,420 loans with outstanding balances of less than $50,000 each and with a total balance outstanding of approximately $32,296,000.$640,410,000. In connection with the origination of these loans, the Company earned approximately ~~$15,735,000~~$25,299,000 in loan fees, offset by deferred loan costs of approximately ~~$763,000,~~$1,245,000, the net of which will be recognized over the earlier of loan maturity (between 24-60 months), repayment or receipt of forgiveness confirmation. As of ~~September~~June 30, ~~2020~~2021 there was approximately ~~$11,846,000~~$8,990,000 in net deferred fee income ~~expected~~remaining to be ~~recognized.~~recognized, as compared to $7,212,000 in remaining net deferred fee income as of December 31, 2020. During the three and ~~nine~~six months ended ~~September~~June 30, 2021, the Company recognized $2,344,000 and $7,304,000, respectively in fees on PPP loans. During the three and six months ended June 30, 2020, the Company recognized ~~$2,603,000 and $4,959,000,~~$2,356,000, respectively, in ~~interest and~~ fees on PPP loans.

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

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 the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities:


	Allowance for credit losses – Three months ended June 30, 2021
(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Commercial real estate:
CRE non-owner occupied	$	26,434	$	0	$	0	$	(406)	$	26,028
CRE owner occupied	9,874		0		0		589		10,463
Multifamily	12,371		0		0		825		13,196
Farmland	1,724		0		—		226		1,950
Total commercial real estate loans	50,403		0		0		1,234		51,637
Consumer:
SFR 1-4 1st DT liens	10,665		0		1		(37)		10,629
SFR HELOCs and junior liens	11,079		0		512		(890)		10,701
Other	2,860		(86)		59		(213)		2,620
Total consumer loans	24,604		(86)		572		(1,140)		23,950
Commercial and industrial	4,464		(301)		79		269		4,511
Construction	5,476		0		0		(525)		4,951
Agriculture production	988		0		2		17		1,007
Leases	6		0		0		0		6
Allowance for credit losses on loans	85,941		(387)		653		(145)		86,062
Reserve for unfunded commitments	3,580		0		0		(115)		3,465
Total	$	89,521	$	(387)	$	653	$	(260)	$	89,527

Allowance for Loan Losses – Three Months Ended September 30, 2020
(in thousands) Beginning
Balance Charge-offs Recoveries Provision Ending
Balance
Commercial real estate:
CRE non-owner occupied $ 26,091 $ 0 $ 23 $ 2,733 $ 28,847
CRE owner occupied 8,710 0 1 914 9,625
Multifamily 8,581 0 — 1,451 10,032
Farmland 1,468 0 0 322 1,790
Total commercial real estate loans 44,850 0 24 5,420 50,294
Consumer:
SFR 1-4 1st DT liens 8,015 (2) 2 922 8,937
SFR HELOCs and junior liens 12,108 0 126 (558) 11,676
Other 3,042 (98) 85 365 3,394
Total consumer loans 23,165 (100) 213 729 24,007
Commercial and industrial 4,018 (94) 142 468 4,534
Construction 6,775 0 0 865 7,640
Agriculture production 919 0 2 172 1,093
Leases 12 0 0 (5) 7
Allowance for credit losses on loans 79,739 (194) 381 7,649 87,575
Reserve for unfunded commitments 3,000 0 0 0 3,000
Total $ 82,739 $ (194) $ 381 $ 7,649 $ 90,575


		Allowance for Loan Losses – Nine months ended September 30, 2020													Allowance for credit losses – Six months ended June 30, 2021
(in thousands)	(in thousands)	Beginning Balance		Impact of CECL Adoption		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	$	5,948	$	6,701	$	0	$	223	$	15,975	$	28,847	CRE non-owner occupied	$	29,380	$	0	$	2	$	(3,354)	$	26,028
CRE owner occupied	CRE owner occupied	2,027		2,281		0		3		5,314		9,625		CRE owner occupied	10,861		0		1		(399)		10,463
Multifamily	Multifamily	3,352		2,281		0		0		4,399		10,032		Multifamily	11,472		0		0		1,724		13,196
Farmland	Farmland	668		585		0		0		537		1,790		Farmland	1,980		0		0		(30)		1,950
Total commercial real estate loans	Total commercial real estate loans	11,995		11,848		0		226		26,225		50,294		Total commercial real estate loans	53,693		0		3		(2,059)		51,637
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	2,306		2,675		(13)		414		3,555		8,937		SFR 1-4 1st DT liens	10,117		0		11		501		10,629
SFR HELOCs and junior liens	SFR HELOCs and junior liens	6,183		4,638		(23)		265		613		11,676		SFR HELOCs and junior liens	11,771		0		797		(1,867)		10,701
Other	Other	1,595		971		(471)		253		1,046		3,394		Other	3,260		(279)		165		(526)		2,620
Total consumer loans	Total consumer loans	10,084		8,284		(507)		932		5,214		24,007		Total consumer loans	25,148		(279)		973		(1,892)		23,950
Commercial and industrial	Commercial and industrial	4,867		(1,961)		(688)		323		1,993		4,534		Commercial and industrial	4,252		(334)		215		378		4,511
Construction	Construction	3,388		933		0		0		3,319		7,640		Construction	7,540		0		0		(2,589)		4,951
Agriculture production	Agriculture production	261		(179)		0		22		989		1,093		Agriculture production	1,209		0		22		(224)		1,007
Leases	Leases	21		(12)		0		0		(2)		7		Leases	5		0		0		1		6
Allowance for credit losses on loans	Allowance for credit losses on loans	30,616		18,913		(1,195)		1,503		37,738		87,575		Allowance for credit losses on loans	91,847		(613)		1,213		(6,385)		86,062
Reserve for unfunded commitments	Reserve for unfunded commitments	2,775		0		0		0		225		3,000		Reserve for unfunded commitments	3,400		0		0		65		3,465
Total	Total	$	33,391	$	18,913	$	(1,195)	$	1,503	$	37,963	$	90,575	Total	$	95,247	$	(613)	$	1,213	$	(6,320)	$	89,527

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 September 30, 2020, the~~

The Company ~~utilized~~

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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 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 September 30, 2020 the majoritysources as of the ~~increase~~balance sheet date. This forecast data continues to evolve and included significant shifts in ~~ACL reflects potential future credit deterioration. Specifically, portfolio-wide qualitative indicators~~the magnitude of changes for ~~changes in California Unemployment~~both the unemployment and ~~US Policy uncertainty contributed~~GDP factors leading up to the majority of the increase in credit reserves on loans as of September 30, 2020 as compared to the trailing quarter, adding approximately $9,556,000 to the required reserves. These increases were partially offset with a reduced need for reserves for concentration risks totaling $1,472,000 and reductions in specific reserves on individually evaluated loans of $321,000.balance sheet date. Management noted that the majority of economic forecasts utilized

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in the ACL calculation seem to have ~~continued to identify an expanded duration of~~rebounded slightly in the current ~~recessionary period as caused by~~quarter, coinciding with the ~~global pandemic~~widespread availability of vaccines, continued easing of occupancy and ~~partially offset by the governmental~~social distancing restrictions, and continued government stimulus ~~that has been provided to date.~~efforts. Management believes that the allowance for credit losses at ~~September~~June 30, ~~2020~~2021 appropriately reflected expected credit losses inherent in the loan portfolio at that date.


		Allowance for Loan Losses – Year Ended December 31, 2019											Allowance for credit losses – Year ended December 31, 2020
(in thousands)	(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)		Ending Balance		(in thousands)	Beginning Balance		Adoption of CECL		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Commercial real estate:	Commercial real estate:											Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	7,401	$	0	$	1,486	$	(2,939)	$	5,948	CRE non-owner occupied	$	5,948	$	6,701	$	0	$	198	$	16,533	$	29,380
CRE owner occupied	CRE owner occupied	2,711		(746)		42		20		2,027		CRE owner occupied	2,027		2,281		0		28		6,525		10,861
Multifamily	Multifamily	2,429		0		0		923		3,352		Multifamily	3,352		2,281		0		0		5,839		11,472
Farmland	Farmland	403		0		0		265		668		Farmland	668		585		(182)		0		909		1,980
Total commercial real estate loans	Total commercial real estate loans	12,944		(746)		1,528		(1,731)		11,995		Total commercial real estate loans	11,995		11,848		(182)		226		29,806		53,693
Consumer:	Consumer:											Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	2,676		(2)		54		(422)		2,306		SFR 1-4 1st DT liens	2,306		2,675		(13)		416		4,733		10,117
SFR HELOCs and junior liens	SFR HELOCs and junior liens	7,582		(3)		935		(2,331)		6,183		SFR HELOCs and junior liens	6,183		4,638		(116)		304		762		11,771
Other	Other	793		(765)		321		1,246		1,595		Other	1,595		971		(670)		347		1,017		3,260
Total consumer loans	Total consumer loans	11,051		(770)		1,310		(1,507)		10,084		Total consumer loans	10,084		8,284		(799)		1,067		6,512		25,148
Commercial and industrial	Commercial and industrial	5,610		(2,104)		513		848		4,867		Commercial and industrial	4,867		(1,961)		(774)		568		1,552		4,252
Construction	Construction	2,497		0		0		891		3,388		Construction	3,388		933		0		0		3,219		7,540
Agriculture production	Agriculture production	480		(19)		12		(212)		261		Agriculture production	261		(179)		0		24		1,103		1,209
Leases	Leases	0		0		0		21		21		Leases	21		(12)		0		0		(4)		5
Allowance for credit losses on loans												Allowance for credit losses on loans	30,616		18,913		(1,755)		1,885		42,188		91,847
Reserve for unfunded commitments												Reserve for unfunded commitments	2,775		0		0		0		625		3,400
Total	Total	$	32,582	$	(3,639)	$	3,363	$	(1,690)	$	30,616	Total	$	33,391	$	18,913	$	(1,755)	$	1,885	$	42,813	$	95,247

Allowance for Loan Losses – Three Months Ended September 30, 2019
(in thousands) Beginning
Balance Charge-offs Recoveries Provision
(benefit) Ending Balance
Commercial real estate:
CRE non-owner occupied $ 6,182 $ 0 $ 8 $ 261 $ 6,451
CRE owner occupied 2,214 (746) 118 93 1,679
Multifamily 3,082 0 0 69 3,151
Farmland 621 0 0 39 660
Total commercial real estate loans 12,099 (746) 126 462 11,941
Consumer:
SFR 1-4 1st DT liens 2,576 0 47 (217) 2,406
SFR HELOCs and junior liens 7,101 (3) 183 (286) 6,995
Other 1,451 (189) 80 213 1,555
Total consumer loans 11,128 (192) 310 (290) 10,956
Commercial and industrial 6,481 (565) 83 (528) 5,471
Construction 2,896 0 0 57 2,953
Agriculture production 264 (19) 1 (30) 216
Leases 0 0 0 0 0
Total $ 32,868 $ (1,522) $ 520 $ (329) $ 31,537
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 credit losses – Three months ended June 30, 2020
(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision		Ending Balance
Commercial real estate:
CRE non-owner occupied	$	18,034	$	0	$	5	$	8,052	$	26,091
CRE owner occupied	5,366		0		4		3,340		8,710
Multifamily	5,140		0		0		3,441		8,581
Farmland	713		0		0		755		1,468
Total commercial real estate loans	29,253		0		9		15,588		44,850
Consumer:
SFR 1-4 1st DT liens	5,650		(11)		2		2,374		8,015
SFR HELOCs and junior liens	11,196		(23)		92		843		12,108
Other	2,746		(243)		72		467		3,042
Total consumer loans	19,592		(277)		166		3,684		23,165
Commercial and industrial	3,867		(214)		55		310		4,018
Construction	4,595		0		0		2,180		6,775
Agriculture production	593		0		0		326		919
Leases	11		0		0		1		12
Allowance for credit losses on loans	$	57,911	$	(491)	$	230	$	22,089	$	79,739
Reserve for unfunded commitments	2,845		0		0		154		2,999
Total	$	60,756	$	(491)	$	230	$	22,243	$	82,738

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		Allowance for Loan Losses – Nine months ended September 30, 2019											Allowance for credit losses – Six months ended June 30, 2020
(in thousands)	(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)		Ending Balance		(in thousands)	Beginning Balance		Adoption of CECL		Charge-offs		Recoveries		Provision		Ending Balance
Commercial real estate:	Commercial real estate:											Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	7,401	$	0	$	1,397	$	(2,347)	$	6,451	CRE non-owner occupied	$	5,948	$	6,701	$	0	$	193	$	13,249	$	26,091
CRE owner occupied	CRE owner occupied	2,711		(746)		121		(407)		1,679		CRE owner occupied	2,027		2,281		0		9		4,393		8,710
Multifamily	Multifamily	2,429		0		0		722		3,151		Multifamily	3,352		2,281		0		0		2,948		8,581
Farmland	Farmland	403		0		0		257		660		Farmland	668		585		0		0		215		1,468
Total commercial real estate loans	Total commercial real estate loans	12,944		(746)		1,518		(1,775)		11,941		Total commercial real estate loans	11,995		11,848		0		202		20,805		44,850
Consumer:	Consumer:											Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	2,676		(2)		53		(321)		2,406		SFR 1-4 1st DT liens	2,306		2,675		(11)		412		2,633		8,015
SFR HELOCs and junior liens	SFR HELOCs and junior liens	7,582		(3)		719		(1,303)		6,995		SFR HELOCs and junior liens	6,183		4,638		(23)		140		1,170		12,108
Other	Other	793		(548)		263		1,047		1,555		Other	1,595		971		(373)		167		682		3,042
Total consumer loans	Total consumer loans	11,051		(553)		1,035		(577)		10,956		Total consumer loans	10,084		8,284		(407)		719		4,485		23,165
Commercial and industrial	Commercial and industrial	5,610		(1,222)		325		758		5,471		Commercial and industrial	4,867		(1,961)		(594)		181		1,525		4,018
Construction	Construction	2,497		0		0		456		2,953		Construction	3,388		933		0		0		2,454		6,775
Agriculture production	Agriculture production	480		(20)		10		(254)		216		Agriculture production	261		(179)		0		20		817		919
Leases	Leases	0		0		0		0		0		Leases	21		(12)		0		0		3		12
Allowance for credit losses on loans												Allowance for credit losses on loans	30,616		18,913		(1,001)		1,122		30,089		79,739
Reserve for unfunded commitments												Reserve for unfunded commitments	2,775		0		0		0		224		2,999
Total	Total	$	32,582	$	(2,541)	$	2,888	$	(1,392)	$	31,537	Total	$	33,391	$	18,913	$	(1,001)	$	1,122	$	30,313	$	82,738

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.

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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 September 30, 2020																			Term Loans Amortized Cost Basis by Origination Year – As of June 30, 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:
CRE non-owner occupied risk ratings	CRE non-owner occupied risk ratings																			CRE non-owner occupied risk ratings
Pass	Pass	$	97,561	$	249,707	$	157,838	$	264,223	$	196,645	$	489,900	$	71,986	$	0	$	1,527,860	Pass	$	89,643	$	120,974	$	206,093	$	137,384	$	246,584	$	596,837	$	72,393	$	0	$	1,469,908
Special Mention	Special Mention	0		7,562		11,981		8,892		11,936		12,641		12,257		0		65,269		Special Mention	0		0		6,191		11,613		3,667		17,202		10,760		0		49,433
Substandard	Substandard	0		0		1,473		593		2,147		2,942				0		7,155		Substandard	0		0		0		1,416		568		12,931		0		0		14,915
Doubtful/Loss	Doubtful/Loss	0		0		0		0		0		0		0		0		0		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total CRE non-owner occupied risk ratings	Total CRE non-owner occupied risk ratings	$	97,561	$	257,269	$	171,292	$	273,708	$	210,728	$	505,483	$	84,243	$	0	$	1,600,284	Total CRE non-owner occupied risk ratings	$	89,643	$	120,974	$	212,284	$	150,413	$	250,819	$	626,970	$	83,153	$	0	$	1,534,256




Commercial real estate:
CRE owner occupied risk ratings
Pass	$	89,094	$	99,949	$	68,668	$	55,048	$	55,684	$	248,033	$	19,755	$	0	$	636,231
Special Mention	0		0		0		288		6,797		8,447		0		0		15,532
Substandard	0		0		1,483		1,262		465		4,975		0		0		8,185
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total CRE owner occupied risk ratings	$	89,094	$	99,949	$	70,151	$	56,598	$	62,946	$	261,455	$	19,755	$	0	$	659,948


Commercial real estate:
Multifamily risk ratings
Pass	$	176,116	$	86,806	$	113,996	$	121,226	$	91,054	$	168,088	$	24,533	$	0	$	781,819
Special Mention	0		9,385		0		0		0		24,669		7,723		0		41,777
Substandard	0		0		4,334		0		0		171		0		0		4,505
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total multifamily loans	$	176,116	$	96,191	$	118,330	$	121,226	$	91,054	$	192,928	$	32,256	$	0	$	828,101


Commercial real estate:
Farmland risk ratings
Pass	$	26,440	$	18,526	$	21,676	$	18,051	$	8,397	$	21,476	$	44,775	$	0	$	159,341
Special Mention	0		0		0		0		1,197		3,316		1,775		0		6,288
Substandard	0		0		3,267		0		590		1,111		1,434		0		6,402
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total farmland loans	$	26,440	$	18,526	$	24,943	$	18,051	$	10,184	$	25,903	$	47,984	$	0	$	172,031


Consumer loans:
SFR 1-4 1st DT liens risk ratings
Pass	$	173,937	$	182,911	$	59,675	$	39,522	$	41,506	$	139,178	$	0	$	4,812	$	641,541
Special Mention	0		0		288		1,154		420		2,779		0		977		5,618
Substandard	0		0		0		1,131		273		5,440		0		370		7,214
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total SFR 1st DT liens	$	173,937	$	182,911	$	59,963	$	41,807	$	42,199	$	147,397	$	0	$	6,159	$	654,373

Commercial real estate:
CRE owner occupied risk ratings
Pass $ 67,205 $ 63,202 $ 49,719 $ 65,416 $ 55,970 $ 240,327 $ 17,662 $ 0 $ 559,501
Special Mention 0 0 0 4,090 3,749 5,488 0 0 13,327
Substandard 0 1,538 1,314 479 902 4,029 0 0 8,262
Doubtful/Loss 0 0 0 — 0 0 0 0 0
Total CRE owner occupied risk ratings $ 67,205 $ 64,740 $ 51,033 $ 69,985 $ 60,621 $ 249,844 $ 17,662 $ 0 $ 581,090

Table of Contents


	Term Loans Amortized Cost Basis by Origination Year – As of June 30, 2021
(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Consumer loans:
SFR HELOCs and Junior Liens
Pass	$	624	$	0	$	0	$	0	$	0	$	242	$	300,548	$	11,338	$	312,752
Special Mention	0		0		0		0		0		92		4,386		884		5,362
Substandard	0		0		0		0		0		17		5,460		1,536		7,013
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total SFR HELOCs and Junior Liens	$	624	$	0	$	0	$	0	$	0	$	351	$	310,394	$	13,758	$	325,127


Commercial real estate:
Multifamily risk ratings

Consumer loans:																				Consumer loans:
Other risk ratings																				Other risk ratings
Pass	Pass	$	58,058	$	96,373	$	114,385	$	72,493	$	68,891	$	123,875	$	23,315	$	0	$	557,390	Pass	$	12,077	$	19,995	$	22,680	$	10,425	$	2,749	$	1,367	$	576	$	0	$	69,869
Special Mention	Special Mention	9,443		0		0		608		24,695		779		9,284		0		44,809		Special Mention	0		52		211		243		98		67		72		0		743
Substandard	Substandard	0		0		0		0		0		0		0		0		0		Substandard	0		67		88		126		73		132		11		0		497
Doubtful/Loss	Doubtful/Loss	0		0		0		0		0		0		0		0		0		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total multifamily loans		$	67,501	$	96,373	$	114,385	$	73,101	$	93,586	$	124,654	$	32,599	$	0	$	602,199
Total other consumer loans																				Total other consumer loans	$	12,077	$	20,114	$	22,979	$	10,794	$	2,920	$	1,566	$	659	$	0	$	71,109


Commercial and industrial loans:
Commercial and industrial risk ratings
Pass	$	202,893	$	73,077	$	40,966	$	14,631	$	9,585	$	9,484	$	94,260	$	840	$	445,736
Special Mention	0		29		119		550		116		161		429		0		1,404
Substandard	0		0		166		102		1,011		684		2,887		79		4,929
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total commercial and industrial loans	$	202,893	$	73,106	$	41,251	$	15,283	$	10,712	$	10,329	$	97,576	$	919	$	452,069


Commercial real estate:
Farmland risk ratings
Construction loans:																				Construction loans:
Construction risk ratings																				Construction risk ratings
Pass	Pass	$	10,026	$	23,970	$	19,127	$	11,677	$	8,684	$	20,133	$	43,437	$	0	$	137,054	Pass	$	17,725	$	88,892	$	51,436	$	10,722	$	2,092	$	23,539	$	1	$	0	$	194,407
Special Mention	Special Mention	0		2,566		0		1,271		227		3,271		2,005		0		9,340		Special Mention	0		0		0		0		346		1,460		0		0		1,806
Substandard	Substandard	0		700		0		608		451		2,606		2,090		0		6,455		Substandard	0		0		0		0		0		4,501		0		0		4,501
Doubtful/Loss	Doubtful/Loss	0		0		0		0		0		0		0		0		0		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total farmland loans		$	10,026	$	27,236	$	19,127	$	13,556	$	9,362	$	26,010	$	47,532	$	0	$	152,849
Total construction loans																				Total construction loans	$	17,725	$	88,892	$	51,436	$	10,722	$	2,438	$	29,500	$	1	$	0	$	200,714

Consumer loans:
SFR 1-4 1st DT liens risk ratings
Pass $ 103,547 $ 88,421 $ 44,171 $ 60,223 $ 50,397 $ 146,254 $ 0 $ 5,351 $ 498,364
Special Mention 0 291 687 553 16 1,752 0 1,001 4,300
Substandard 0 0 1,203 1,224 944 4,888 0 836 9,095
Doubtful/Loss 0 0 0 0 0 0 0 0 0
Total SFR 1st DT liens $ 103,547 $ 88,712 $ 46,061 $ 62,000 $ 51,357 $ 152,894 $ 0 $ 7,188 $ 511,759


Agriculture production loans:
Agriculture production risk ratings
Pass	$	1,241	$	1,012	$	1,767	$	1,189	$	1,229	$	1,006	$	32,132	$	0	$	39,576
Special Mention	0		0		0		181		0		74		2,016		0		2,271
Substandard	0		0		0		0		0		0		120		0		120
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total agriculture production loans	$	1,241	$	1,012	$	1,767	$	1,370	$	1,229	$	1,080	$	34,268	$	0	$	41,967

Table of Contents


		Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2020																			Term Loans Amortized Cost Basis by Origination Year – As of June 30, 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:
SFR HELOCs and Junior Liens
Leases:																				Leases:
Lease risk ratings																				Lease risk ratings
Pass	Pass	$	855	$	0	$	13	$	373	$	358	$	1,618	$	299,380	$	15,585	$	318,182	Pass	$	5,199	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$5,199
Special Mention	Special Mention	0		0		17		0		0		35		5,249		761		6,062		Special Mention	0		0		0		0		0		0		0		0		0
Substandard	Substandard	0		499		0		0		124		45		6,071		1,837		8,576		Substandard	0		0		0		0		0		0		0		0		0
Doubtful/Loss	Doubtful/Loss	0		0		0		0		0		0		0		0		0		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total SFR HELOCs and Junior Liens		$	855	$	499	$	30	$	373	$	482	$	1,698	$	310,700	$	18,183	$	332,820
Total leases																				Total leases	$	5,199	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	5,199




Total loans outstanding:
Risk ratings
Pass	$	794,989	$	692,142	$	586,957	$	408,198	$	458,880	$	1,209,250	$	588,973	$	16,990	$	4,756,379
Special Mention	0		9,466		6,809		14,029		12,641		58,267		27,161		1,861		130,234
Substandard	0		67		9,338		4,037		2,980		29,962		9,912		1,985		58,281
Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total loans outstanding	$	794,989	$	701,675	$	603,104	$	426,264	$	474,501	$	1,297,479	$	626,046	$	20,836	$	4,944,894


Consumer loans:
Other 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	$	22,898	$	33,118	$	16,379	$	4,930	$	1,225	$	1,252	$	1,044	$	0	$	80,846	Pass	$	120,520	$	207,899	$	155,730	$	256,677	$	179,523	$	460,644	$	76,730	$	0	$	1,457,723
Special Mention	Special Mention	38		320		139		80		39		99		88		0		803		Special Mention	0		7,455		11,692		5,407		15,773		18,832		12,205		0		71,364
Substandard	Substandard	0		147		254		72		14		111		9		0		607		Substandard	0		0		1,449		584		2,147		2,288		0		0		6,468
Doubtful/Loss	Doubtful/Loss	0		0		0		0		0		0		0		0		0		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total other consumer loans		$	22,936	$	33,585	$	16,772	$	5,082	$	1,278	$	1,462	$	1,141	$	0	$	82,256
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 and industrial loans:
Commercial and industrial risk ratings
Pass $ 449,180 $ 54,413 $ 24,053 $ 16,445 $ 6,112 $ 10,808 $ 66,890 $ 1,062 $ 628,963
Special Mention 0 0 224 312 76 72 588 12 1,284
Substandard 0 134 57 1,477 825 143 888 126 3,650
Doubtful/Loss 0 0 0 0 0 0 0 0 0
Total commercial and industrial loans $ 449,180 $ 54,547 $ 24,334 $ 18,234 $ 7,013 $ 11,023 $ 68,366 $ 1,200 $ 633,897

Construction loans:
Construction risk ratings
Pass $ 55,041 $ 45,007 $ 103,191 $ 50,972 $ 20,978 $ 2,940 $ 0 $ 0 $ 278,129
Special Mention 0 0 0 346 0 1,803 0 0 2,149
Substandard 0 0 0 0 4,398 257 0 0 4,655
Doubtful/Loss 0 0 0 0 0 0 0 0 0
Total construction loans $ 55,041 $ 45,007 $ 103,191 $ 51,318 $ 25,376 $ 5,000 $ 0 $ 0 $ 284,933

Agriculture production loans:
Agriculture production risk ratings
Pass $ 82 $ 1,680 $ 1,001 $ 869 $ 754 $ 543 $ 35,410 $ 0 $ 40,339
Special Mention 0 0 0 0 0 0 0 0 0
Substandard 0 0 0 0 18 0 256 0 274
Doubtful/Loss 0 0 0 0 0 0 0 0 0
Total agriculture production loans $ 82 $ 1,680 $ 1,001 $ 869 $ 772 $ 543 $ 35,666 $ 0 $ 40,613


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 September 30, 2020																			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		(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Leases:
Lease risk ratings
Commercial real estate:																				Commercial real estate:
Farmland risk ratings																				Farmland risk ratings
Pass	Pass	$	3,638	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$3,638		Pass	$	17,640	$	25,003	$	19,148	$	12,834	$	7,377	$	17,129	$	39,411	$	0	$	138,542
Special Mention	Special Mention	0		0		0		0		0		0		0		0		0		Special Mention	0		2,567		0		1,271		227		3,107		2,258		0		9,430
Substandard	Substandard	0		0		0		0		0		0		0		0		0		Substandard	0		700		0		602		0		1,214		2,004		0		4,520
Doubtful/Loss	Doubtful/Loss	0		0		0		0		0		0		0		0		0		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total leases		$	3,638	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	3,638
Total farmland loans																				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


Total loans outstanding:
Risk ratings
Consumer loans:																				Consumer loans:
Other risk ratings																				Other risk ratings
Pass	Pass	$	868,091	$	655,891	$	529,877	$	547,621	$	410,014	$	1,037,650	$	559,124	$	21,998	$	4,630,266	Pass	$	25,876	$	29,539	$	14,170	$	4,238	$	1,020	$	967	$	986	$	0	$	76,796
Special Mention	Special Mention	9,481		10,739		13,048		16,152		40,738		25,940		29,471		1,774		147,343		Special Mention	43		208		147		74		24		65		90		0		651
Substandard	Substandard	0		3,018		4,301		4,453		9,823		15,021		9,314		2,799		48,729		Substandard	58		82		210		74		12		140		9		0		585
Doubtful/Loss	Doubtful/Loss	0		0		0		0		0		0		0		0		0		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total loans outstanding		$	877,572	$	669,648	$	547,226	$	568,226	$	460,575	$	1,078,611	$	597,909	$	26,571	$	4,826,338
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

~~The following information related to loan originations by vintage are presented for comparison purposes only.~~

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 $ 0 $ 1,592,562
Special Mention 0 0 3,182 8,401 616 0 0 12,199
Substandard 0 1,183 474 0 3,138 0 0 4,795
Doubtful/Loss 0 0 0 0 0 0 0 0
Total CRE non-owner occupied risk ratings $ 253,321 $ 176,052 $ 290,839 $ 230,265 $ 582,009 $ 77,070 $ 0 $ 1,609,556

Commercial real estate:
CRE owner occupied risk ratings
Pass $ 57,376 $ 54,298 $ 73,019 $ 69,136 $ 263,750 $ 18,524 $ 0 $ 536,103
Special Mention 0 0 437 745 3,459 0 0 4,641
Substandard 601 0 493 726 3,870 0 0 5,690
Doubtful/Loss 0 0 0 0 0 0 0 0
Total CRE owner occupied risk ratings $ 57,977 $ 54,298 $ 73,949 $ 70,607 $ 271,079 $ 18,524 $ 0 $ 546,434


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, 2019																	Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2020
(in thousands)	(in thousands)	2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial real estate:
Multifamily risk ratings
Construction loans:																		Construction loans:
Construction risk ratings																		Construction risk ratings
Pass	Pass	$	82,435	$	112,739	$	41,673	$	99,170	$	141,040	$	36,061	$	0	$	513,118	Pass	69,133		41,786		92,191		51,082		20,868		2,876		0		$	0	$	277,936
Special Mention	Special Mention	0		0		0		0		1,103		1,480		0		2,583		Special Mention	0		0		0		346		0		1,780		0		0		2,126
Substandard	Substandard	0		0		0		2,024		0		0		0		2,024		Substandard	0		0		0		0		4,529		251		0		0		4,780
Doubtful/Loss	Doubtful/Loss	0		0		0		0		0		0		0		0		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total multifamily loans		$	82,435	$	112,739	$	41,673	$	101,194	$	142,143	$	37,541	$	0	$	517,725
Total construction loans																		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


Commercial real estate:
Farmland risk ratings
Leases:																		Leases:
Lease risk ratings																		Lease risk ratings
Pass	Pass	$	26,786	$	21,212	$	12,248	$	9,618	$	22,471	$	41,783	$	0	$	134,118	Pass	$	3,784	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	3,784
Special Mention	Special Mention	0		0		1,346		226		3,289		774		0		5,635		Special Mention	0		0		0		0		0		0		0		0		0
Substandard	Substandard	0		0		624		466		2,929		1,295		0		5,314		Substandard	0		0		0		0		0		0		0		0		0
Doubtful/Loss	Doubtful/Loss	0		0		0		0		0		0		0		0		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total farmland loans		$	26,786	$	21,212	$	14,218	$	10,310	$	28,689	$	43,852	$	0	$	145,067
Total leases																		Total leases	$	3,784	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	3,784


Consumer loans:
SFR 1-4 1st DT liens risk ratings
Total loans outstanding:																		Total loans outstanding:
Risk ratings																		Risk ratings
Pass	Pass	$	102,612	$	63,542	$	73,195	$	65,051	$	187,972	$	0	$	6,242	$	498,614	Pass	$	962,685	$	629,730	$	507,345	$	521,664	$	383,401	$	970,535	$	560,867	$	20,643	$	4,556,870
Special Mention	Special Mention	0		0		1,408		19		2,564		0		723		4,714		Special Mention	9,484		10,622		13,728		15,457		43,750		33,893		28,523		1,734		157,191
Substandard	Substandard	0		813		711		52		4,050		0		554		6,180		Substandard	58		6,987		4,187		3,806		9,758		11,665		10,230		2,375		49,066
Doubtful/Loss	Doubtful/Loss	0		0		0		0		0		0		0		0		Doubtful/Loss	0		0		0		0		0		0		0		0		0
Total SFR 1st DT liens		$	102,612	$	64,355	$	75,314	$	65,122	$	194,586	$	0	$	7,519	$	509,508
Total loans outstanding																		Total loans outstanding	$	972,227	$	647,339	$	525,260	$	540,927	$	436,909	$	1,016,093	$	599,620	$	24,752	$	4,763,127

Consumer loans:
SFR HELOCs and Junior Liens
Pass $ 1,412 $ 14 $ 382 $ 403 $ 2,077 $ 327,589 $ 19,531 $ 351,408
Special Mention 0 20 0 0 4 4,189 1,169 5,382
Substandard 0 0 0 156 14 4,208 1,718 6,096
Doubtful/Loss 0 0 0 0 0 0 0 0
Total SFR HELOCs and Junior Liens $ 1,412 $ 34 $ 382 $ 559 $ 2,095 $ 335,986 $ 22,418 $ 362,886

Consumer loans:
Other risk ratings
Pass $ 45,876 $ 23,045 $ 7,176 $ 2,245 $ 2,071 $ 1,402 $ 0 $ 81,815
Special Mention 56 182 176 52 161 91 0 718
Substandard 60 0 13 0 35 15 0 123
Doubtful/Loss 0 0 0 0 0 0 0 0
Total other consumer loans $ 45,992 $ 23,227 $ 7,365 $ 2,297 $ 2,267 $ 1,508 $ 0 $ 82,656

~~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 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 0 339 1,141 151 164 1,921 110 3,826
Substandard 0 47 1,281 1,571 401 814 86 4,200
Doubtful/Loss 0 0 0 0 0 0 0 0
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 $ 0 $ 0 $ 245,061
Special Mention 0 0 0 4,202 317 0 0 4,519
Substandard 0 0 0 0 247 0 0 247
Doubtful/Loss 0 0 0 0 0 0 0 0
Total construction loans $ 50,275 $ 92,449 $ 76,042 $ 23,175 $ 7,886 $ 0 $ 0 $ 249,827

Agriculture production loans:
Agriculture production risk ratings
Pass $ 1,929 $ 1,201 $ 1,324 $ 1,012 $ 834 $ 26,306 $ 0 $ 32,606
Special Mention 0 0 0 0 0 0 0 0
Substandard 0 0 0 27 0 0 0 27
Doubtful/Loss 0 0 0 0 0 0 0 0
Total agriculture production loans $ 1,929 $ 1,201 $ 1,324 $ 1,039 $ 834 $ 26,306 $ 0 $ 32,633

Leases:
Lease risk ratings
Pass $ 1,283 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,283
Special Mention 0 0 0 0 0 0 0 0
Substandard 0 0 0 0 0 0 0 0
Doubtful/Loss 0 0 0 0 0 0 0 0
Total leases $ 1,283 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 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 0 0 0 0 0 0 0 0
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 September 30, 2020													Analysis of Past Due Loans - As of June 30, 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	$	960	$	131	$	306	$	1,397	$	1,598,887	$	1,600,284	CRE non-owner occupied	$	337	$	49	$	3,919	$	4,305	$	1,529,951	$	1,534,256
CRE owner occupied	CRE owner occupied	782		0		421		1,203		579,887		581,090		CRE owner occupied	28		62		412		502		659,446		659,948
Multifamily	Multifamily	0		0		0		0		602,199		602,199		Multifamily	0		0		0		0		828,101		828,101
Farmland	Farmland	0		0		451		451		152,398		152,849		Farmland	0		0		846		846		171,185		172,031
Total commercial real estate loans	Total commercial real estate loans	1,742		131		1,178		3,051		2,933,371		2,936,422		Total commercial real estate loans	365		111		5,177		5,653		3,188,683		3,194,336
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	434		74		2,005		2,513		509,246		511,759		SFR 1-4 1st DT liens	0		0		423		423		653,950		654,373
SFR HELOCs and junior liens	SFR HELOCs and junior liens	1,205		492		1,440		3,137		329,683		332,820		SFR HELOCs and junior liens	694		63		1,565		2,322		322,805		325,127
Other	Other	155		79		190		424		81,832		82,256		Other	13		0		52		65		71,044		71,109
Total consumer loans	Total consumer loans	1,794		645		3,635		6,074		920,761		926,835		Total consumer loans	707		63		2,040		2,810		1,047,799		1,050,609
Commercial and industrial	Commercial and industrial	365		395		105		865		633,032		633,897		Commercial and industrial	250		178		160		588		451,481		452,069
Construction	Construction	138		47		17		202		284,731		284,933		Construction	0		0		0		0		200,714		200,714
Agriculture production	Agriculture production	0		330		0		330		40,283		40,613		Agriculture production	241		0		0		241		41,726		41,967
Leases	Leases	0		0		0		0		3,638		3,638		Leases	0		0		0		0		5,199		5,199
Total	Total	$	4,039	$	1,548	$	4,935	$	10,522	$	4,815,816	$	4,826,338	Total	$	1,563	$	352	$	7,377	$	9,292	$	4,935,602	$	4,944,894

~~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 0 293 293 546,141 546,434
Multifamily 283 0 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 0 0 0 0 249,827 249,827
Agriculture production 49 0 0 49 32,584 32,633
Leases 0 0 0 0 1,283 1,283
Total $ 3,812 $ 1,385 $ 5,523 $ 10,720 $ 4,296,646 $ 4,307,366

2322

Table of Contents

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 September 30, 2020						As of December 31, 2019							As of June 30, 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	$	3,010	$	3,010	$	0	$	639	$	642	$	0	CRE non-owner occupied	$	8,515	$	8,515	$	0	$	3,110	$	3,110	$	0
CRE owner occupied	CRE owner occupied	3,778		3,778		0		1,411		1,408		0		CRE owner occupied	3,132		5,610		0		3,111		4,061		0
Multifamily	Multifamily	0		0		0		2,024		2,024		0		Multifamily	171		171		0		0		0		0
Farmland	Farmland	2,056		2,056		0		1,242		1,242		0		Farmland	1,346		1,346		0		1,468		1,538		0
Total commercial real estate loans	Total commercial real estate loans	8,844		8,844		0		5,316		5,316		0		Total commercial real estate loans	13,164		15,642		0		7,689		8,709		0
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	6,182		6,351		0		5,023		5,192		0		SFR 1-4 1st DT liens	4,185		4,328		0		4,950		5,093		0
SFR HELOCs and junior liens	SFR HELOCs and junior liens	3,974		5,184		0		3,992		4,217		0		SFR HELOCs and junior liens	3,677		4,604		0		4,480		6,148		0
Other	Other	80		257		29		4		32		19		Other	47		114		0		68		167		0
Total consumer loans	Total consumer loans	10,236		11,792		29		9,019		9,441		19		Total consumer loans	7,909		9,046		0		9,498		11,408		0
Commercial and industrial	Commercial and industrial	761		1,978		16		476		2,050		0		Commercial and industrial	86		3,615		0		652		2,183		0
Construction	Construction	0		18		0		0		0		0		Construction	4,402		4,402		0		4,546		4,546		0
Agriculture production	Agriculture production	273		286		0		14		38		0		Agriculture production	0		0		0		5		18		0
Leases	Leases	0		0		0						0		Leases	0		0		0		0		0		0
Sub-total	Sub-total	20,114		22,918		45		14,825		16,845		19		Sub-total	25,561		32,705		0		22,390		26,864		0
Less: Guaranteed loans	Less: Guaranteed loans	(814)		(814)		—		(916)		(990)		—		Less: Guaranteed loans	(608)		(865)		—		(687)		(811)
Total, net	Total, net	$	19,300	$	22,104	$	45	$	13,909	$	15,855	$	19	Total, net	$	24,953	$	31,840	$	0	$	21,703	$	26,053	$	0

Interest income on non accrual loans that would have been recognized during the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, if all such loans had been current in accordance with their original terms, totaled ~~$303,000~~$524,000 and ~~$325,000,~~$428,000, respectively. Interest income actually recognized on these originated loans during the three months ended ~~September~~June 30, 2021 and 2020 was $159,000 and ~~2019 was $187,000 and $151,000,~~$39,000, respectively.

Interest income on non accrual loans that would have been recognized during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, if all such loans had been current in accordance with their original terms, totaled ~~$1,162,000~~$1,060,000 and ~~$1,014,000,~~$859,000, respectively. Interest income actually recognized on these originated loans during the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 was $176,000 and ~~2019 was $321,000 and $297,000,~~$86,000, respectively.

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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 September 30, 2020																							As of June 30, 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	$	2,696	$	0	$	0	$	0	$	0	$	0	$	0			$	0	$	0	$	0		$	2,696	CRE non-owner occupied	$	2,853	$	416	$	0	$	3,918	$	0	$	0	$	1,328	$	0	$	0	$	0	$	0	$	8,515
CRE owner occupied	CRE owner occupied	893		950		1,935		0		0		0		0				0		0		0			3,778		CRE owner occupied	543		0		1,611		978		0		0		0		0		0		0		0		3,132
Multifamily	Multifamily	0		0		0		0		0		0		0				0		0		0			0		Multifamily	0		0		0		0		171		0		0		0		0		0		0		171
Farmland	Farmland	0		0		0		0		0		2,056		0				0		0		0			2,056		Farmland	0		0		0		0		0		1,346		0		0		0		0		0		1,346
Total commercial real estate loans	Total commercial real estate loans	3,589		950		1,935		0		0		2,056		0		0		0		0		0			8,530		Total commercial real estate loans	3,396		416		1,611		4,896		171		1,346		1,328		0		0		0		0		13,164
Consumer:	Consumer:																							Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	0		0		0		0		0		0		6,135		190		0		0		0			6,325		SFR 1-4 1st DT liens	0		0		0		0		0		0		4,185		0		0		0		0		4,185
SFR HELOCs and junior liens	SFR HELOCs and junior liens	0		0		0		0		0		0		1,187		3,024		0		0		0			4,211		SFR HELOCs and junior liens	0		0		0		0		0		0		1,753		1,924		0		0		0		3,677
Other	Other	0		0		0		8		0		0		0		0		229		0		0			237		Other	0		0		0		26		0		0		0		0		21		0		0		47
Total consumer loans	Total consumer loans	0		0		0		8		0		0		7,322		3,214		229		0		0			10,773		Total consumer loans	0		0		0		26		0		0		5,938		1,924		21		0		0		7,909
Commercial and industrial	Commercial and industrial	0		0		0		0		0		0		0		0		0		1,933		45			1,978		Commercial and industrial	0		0		0		0		0		0		0		0		0		43		43		86
Construction	Construction	0		0		0		0		0		0		0		0		0		0		0			0		Construction	0		0		0		0		0		0		4,402		0		0		0		0		4,402
Agriculture production	Agriculture production	0		0		0		268		0		0		0		0		0		13		5			286		Agriculture production	0		0		0		0		0		0		0		0		0		0		0		0
Leases	Leases	0		0				0		0		0		0		0		0		0					0		Leases	0		0		0		0		0		0		0		0		0		0		0		0
Total	Total	$	3,589	$	950	$	1,935	$	276	$	0	$	2,056	$	7,322	$	3,214	$	229	$	1,946	$	50		$	21,567	Total	$	3,396	$	416	$	1,611	$	4,922	$	171	$	1,346	$	11,668	$	1,924	$	21	$	43	$	43	$	25,561

As of December 31, 2019
(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:
CRE non-owner occupied $ 2,145 $ 0 $ 1,220 $ 497 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 3,862
CRE owner occupied 361 163 420 13 0 0 0 0 0 0 1,000 1,957
Multifamily 0 0 0 0 2,060 0 0 0 0 0 0 2,060
Farmland 0 0 0 0 0 — 1,242 0 0 0 0 0 1,242
Total commercial real estate loans 2,506 163 1,640 510 2,060 1,242 0 0 0 0 1,000 9,121
Consumer:
SFR 1-4 1st DT liens 0 0 0 0 0 0 5,341 0 0 0 0 5,341
SFR HELOCs and junior liens 0 0 0 0 0 0 0 3,848 0 0 0 3,848
Other 0 0 0 3 0 0 0 0 27 0 0 30
Total consumer loans 0 0 0 3 0 0 5,341 3,848 27 0 0 9,219
Commercial and industrial 0 0 0 107 0 0 0 0 0 1,926 14 2,047
Construction 0 0 0 0 0 0 0 0 0 0 0 0
Agriculture production 0 0 0 0 0 0 0 0 0 26 12 38
Leases 0 0 0 0 0 0 0 0 0 0 0 0
Total $ 2,506 $ 163 $ 1,640 $ 620 $ 2,060 $ 1,242 $ 5,341 $ 3,848 $ 27 $ 1,952 $ 1,026 $ 20,425


	As of December 31, 2020
(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:
CRE non-owner occupied	$	2,445	$	435	$	0	$	0	$	0		$	0	$	0	$	0	$	0	$	0	$	0	$	2,880
CRE owner occupied	796		1,176		1,668		0		0			0		0		0		0		0		0		3,640
Multifamily	0		0		0		0		0			0		0		0		0		0		0		0
Farmland	0		0		0		0		0		—	1,538		0		0		0		0		0		1,538
Total commercial real estate loans	3,241		1,611		1,668		0		0			1,538		0		0		0		0		0		8,058
Consumer:
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	0		0		0		0		0			0		1,855		2,839		0		0		0		4,694
Other	0		0		0		42		0			0		0		0		97		0		0		139
Total consumer loans	0		0		0		42		0			0		6,923		2,839		97		0		0		9,901
Commercial and industrial	0		0		0		292		0			0		0		0		0		1,173		75		1,540
Construction	0		0		0		0		0			0		4,546		0		0		0		0		4,546
Agriculture production	0		0		0		0		0			0		0		0		0		13		5		18
Leases	0		0		0		0		0			0		0		0		0		0		0		0
Total	$	3,241	$	1,611	$	1,668	$	334	$	0		$	1,538	$	11,469	$	2,839	$	97	$	1,186	$	80	$	24,063

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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 September 30, 2020													TDR information for the three months ended June 30, 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	1	$	319	$	314	$	314	1	$	141	$	0	CRE non-owner occupied	1	$	706	$	706	$	706	0	$	0	$	0
CRE owner occupied	CRE owner occupied	5	2,422		2,341		67		2	1,401		0		CRE owner occupied	0	0		0		0		0	0		0
Multifamily	Multifamily	0	0		0		0		0	0		0		Multifamily	0	0		0		0		0	0		0
Farmland	Farmland	0	0		0		0		0	0		0		Farmland	0	0		0		0		0	0		0
Total commercial real estate loans	Total commercial real estate loans	6	2,741		2,655		381		3	1,542		0		Total commercial real estate loans	1	706		706		706		0	0		0
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	0	0		0		0		0	0		0		SFR 1-4 1st DT liens	0	0		0		0		0	0		0
SFR HELOCs and junior liens	SFR HELOCs and junior liens	0	0		0		0		1	143		0		SFR HELOCs and junior liens	0	0		0		0		0	0		0
Other	Other	0	0		0		0		0	0		0		Other	0	0		0		0		0	0		0
Total consumer loans	Total consumer loans	0	0		0		0		1	143		0		Total consumer loans	0	0		0		0		0	0		0
Commercial and industrial	Commercial and industrial	0	0		0		0		0	0		0		Commercial and industrial	2	2,000		2,000		293		0	0		0
Construction	Construction	0	0		0		0		0	0		0		Construction	0	0		0		0		0	0		0
Agriculture production	Agriculture production	0	0		0		0		0	0		0		Agriculture production	0	0		0		0		0	0		0
Leases	Leases	0	0		0		0		0	0		0		Leases	0	0		0		0		0	0		0
Total	Total	6	$	2,741	$	2,655	$	381	4	$	1,685	$	0	Total	3	$	2,706	$	2,706	$	999	0	$	0	$	0

TDR information for the three months ended September 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 2 $ 60 $ 67 $ 0 0 $ 0 $ 0
CRE owner occupied 0 0 0 0 0 0 0
Multifamily 0 0 0 0 0 0 0
Farmland 0 0 0 0 0 0 0
Total commercial real estate loans 2 60 67 0 0 0 0
Consumer:
SFR 1-4 1st DT liens 2 496 500 28 0 0 0
SFR HELOCs and junior liens 0 0 0 0 0 0 0
Other 0 0 0 0 0 0 0
Total consumer loans 2 496 500 28 0
Commercial and industrial 4 150 148 0 0 0 0
Construction 0 0 0 0 0 0 0
Agriculture production 0 0 0 0 0 0 0
Leases 0 0 0 0 0 0 0
Total 8 $ 706 $ 715 $ 28 0 0 $ 0


	TDR information for the three 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	0	$	0	$	0	$	0	0	$	0	$	0
CRE owner occupied	0	0		0		0		0	0		0
Multifamily	0	0		0		0		0	0		0
Farmland	0	0		0		0		0	0		0
Total commercial real estate loans	0	0		0		0		0	0		0
Consumer:
SFR 1-4 1st DT liens	0	0		0		0		1	735		0
SFR HELOCs and junior liens	0	0		0		0		0	0		0
Other	0	0		0		0		0	0		0
Total consumer loans	0	0		0		0		1	735		0
Commercial and industrial	0	0		0		0		0	0		0
Construction	0	0		0		0		0	0		0
Agriculture production	0	0		0		0		0	0		0
Leases	0	0		0		0		0	0		0
Total	0	$	0	$	0	$	0	1	$	735	$	0

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		TDR Information for the nine months ended September 30, 2020													TDR Information for the six months ended June 30, 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	2	$	576	$	565	$	314	1	$	141	$	0	CRE non-owner occupied	2	$	1,023	$	1,018	$	1,020	0	$	0	$	0
CRE owner occupied	CRE owner occupied	5	2,422		2,341		67		2	1,401		0		CRE owner occupied	1	740		742		742		0	0		0
Multifamily	Multifamily	0	0		0		0		0	0		0		Multifamily	0	0		0		0		0	0		0
Farmland	Farmland	2	229		298		0		0	0		0		Farmland	0	0		0		0		3	847		0
Total commercial real estate loans	Total commercial real estate loans	9	3,227		3,204		381		3	1,542		0		Total commercial real estate loans	3	1,763		1,760		1,762		3	847		0
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	0	0		0		0		2	1,037		0		SFR 1-4 1st DT liens	0	0		0		0		0	0		0
SFR HELOCs and junior liens	SFR HELOCs and junior liens	2	172		169		0		0	0		0		SFR HELOCs and junior liens	0	0		0		0		0	0		0
Other	Other	0	0		0		0		0	0		0		Other	0	0		0		0		0	0		0
Total consumer loans	Total consumer loans	2	172		169		0		2	1,037		0		Total consumer loans	0	0		0		0		0	0		0
Commercial and industrial	Commercial and industrial	0	0		0		0		0	0		0		Commercial and industrial	5	2,316		2,310		603		1	247		0
Construction	Construction	1	21		20		21		0	0		0		Construction	0	0		0		0		0	0		0

Agriculture production														Agriculture production	0	0		0		0		0	0		0
Leases														Leases	0	0		0		0		0	0		0
Total	Total	12	$	3,420	$	3,393	$	402	5	$	2,579	$	0	Total	8	$	4,079	$	4,070	$	2,365	4	$	1,094	$	0


		TDR Information for the nine months ended September 30, 2019													TDR Information for the six months ended June 30, 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	2	$	60	$	67	$	0	0	$	0	$	0	CRE non-owner occupied	1	$	257	$	251	$	0	0	$	0	$	0
CRE owner occupied	CRE owner occupied	0	0		0		0		0	0		0		CRE owner occupied	0	0		0		0		0	0		0
Multifamily	Multifamily	0	0		0		0		0	0		0		Multifamily	0	0		0		0		0	0		0
Farmland	Farmland	0	0		0		0		0	0		0		Farmland	2	230		298		0		0	0		0
Total commercial real estate loans	Total commercial real estate loans	2	60		67		0		0	0		0		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	3	659		662		30		0	0		0		SFR 1-4 1st DT liens	0	0		0		0		2	1,037		0
SFR HELOCs and junior liens	SFR HELOCs and junior liens	3	214		215		29		0	0		0		SFR HELOCs and junior liens	2	172		169		0		0	0		0
Other	Other	0	0		0		0		0	0		0		Other	0	0		0		0		0	0		0
Total consumer loans	Total consumer loans	6	873		877		59		0	0		0		Total consumer loans	2	172		169		0		2	1,037		0
Commercial and industrial	Commercial and industrial	10	1,918		1,885		0		1	7		0		Commercial and industrial	1	21		20		21		0	0		0
Construction	Construction	0	0		0		0		0	0		0		Construction	0	0		0		0		0	0		0

Agriculture production														Agriculture production	0	0		0		0		0	0		0
Leases														Leases	0	0		0		0		0	0		0
Total	Total	18	$	2,851	$	2,829	$	59	1	$	7	$	0	Total	6	$	680	$	738	$	21	2	$	1,037	$	0

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 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

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reserve. The effect of these required provisions for the period are indicated above.

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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 has 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 September 30, Nine months ended September 30,
(in thousands) 2020 2019 2020 2019
Operating lease cost $ 1,284 $ 1,306 $ 3,869 $ 3,924
Short-term lease cost 67 65 195 194
Variable lease cost (1) (13) 6 (33)
Sublease income (33) (32) (102) (98)
Total lease cost $ 1,317 $ 1,326 $ 3,968 $ 3,987


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2021		2020		2021		2020
Operating lease cost	$	1,267	$	1,291	$	2,526	$	2,586
Short-term lease cost	61		65		122		128
Variable lease cost	(1)		1		(3)		6
Sublease income	(11)		(35)		(24)		(69)
Total lease cost	$	1,316	$	1,322	$	2,621	$	2,651

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

Three months ended September 30, Nine months ended September 30,
(in thousands) 2020 2019 2020 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases $ 1,236 $ 1,236 $ 3,716 $ 3,683
ROUA obtained in exchange for operating lease liabilities $ 93 $ 0 $ 4,161 $ 32,162


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2021		2020		2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	1,226	$	1,243	$	2,430	$	2,480
ROUA obtained in exchange for operating lease liabilities	$	0	$	675	$	1,308	$	4,068

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


	June 30,
	2021		2020
Weighted-average remaining lease term (years)	9.8		10.3
Weighted-average discount rate	3.03	%	3.17	%

September 30,
2020 2019
Weighted-average remaining lease term (years) 10.0 9.5
Weighted-average discount rate 3.10 % 3.18 %

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

(in thousands)
Periods ending December 31,
2020 $ 1,144
2021 4,566
2022 4,230
2023 3,554
2024 3,278
Thereafter 17,457
34,229
Discount for present value of expected cash flows (5,335)
Lease liability at September 30, 2020 $ 28,894


(in thousands)
Periods ending December 31,
2021	$	2,252
2022	4,295
2023	3,624
2024	3,352
2025	2,891
Thereafter	14,925
	31,339
Discount for present value of expected cash flows	(4,632)
Lease liability at June 30, 2021	$	26,707

Note 6 - Deposits

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

September 30,
2020 December 31,
2019
Noninterest-bearing demand $ 2,517,819 $ 1,832,665
Interest-bearing demand 1,346,716 1,242,274
Savings 2,099,780 1,851,549
Time certificates, $250,000 or more 96,377 129,061
Other time certificates 279,896 311,445
Total deposits $ 6,340,588 $ 5,366,994
follows:


(in thousands)	June 30, 2021		December 31, 2020
Noninterest-bearing demand	$	2,843,783	$	2,581,517
Interest-bearing demand	1,486,321		1,414,908
Savings	2,337,557		2,164,942
Time certificates, $250,000 or more	59,589		73,147
Other time certificates	264,803		271,420
Total deposits	$	6,992,053	$	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 ~~September~~June 30, ~~2020~~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 ~~$1,139,000~~$916,000 and ~~$1,550,000~~$985,000 were classified as consumer loans at ~~September~~June 30, ~~2020~~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) September 30,
2020 December 31,
2019
Financial instruments whose amounts represent risk:
Commitments to extend credit:
Commercial loans $ 392,779 $ 363,793
Consumer loans 534,960 533,576
Real estate mortgage loans 207,423 188,959
Real estate construction loans 185,826 222,998
Standby letters of credit 11,255 12,014
Deposit account overdraft privilege 110,271 110,402

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(in thousands)	June 30, 2021		December 31, 2020
Financial instruments whose amounts represent risk:
Commitments to extend credit:
Commercial loans	$	426,278	$	462,422
Consumer loans	566,332		534,223
Real estate mortgage loans	274,339		202,306
Real estate construction loans	207,741		227,876
Standby letters of credit	14,112		15,056
Deposit account overdraft privilege	112,993		110,813

Note 8 - Shareholders’ Equity

Dividends Paid

The Bank paid to the Company cash dividends in the aggregate amounts of ~~$6,913,000~~$8,367,000 and ~~$7,011,000~~$12,694,000 during the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$46,361,000~~$16,139,000 and ~~$25,361,000~~$39,448,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~ 2020,

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respectively. The Bank is regulated by the Federal Deposit Insurance Corporation (FDIC) and the State ~~of California~~ Department of ~~Business Oversight (DBO)~~Financial Protection and Innovation (DFPI). Absent approval from the Commissioner of the ~~DBO,~~DFPI, 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 (in accordance with applicable laws and regulations) and during the ~~year ended 2019, the Company had repurchased 0 shares. During the~~ three and ~~nine months ended September~~six month periods June 30, ~~2020,~~2021, the Company repurchased ~~0 and 813,862~~45,354 shares with a market value of ~~$0 and $24,809,000,~~$2,101,000, respectively.

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 $8,000. 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 ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, employees tendered ~~7,820 and 3,820~~0 shares, respectively, of the Company’s common stock in connection with option exercises. During the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, employees tendered ~~12,488~~0 and ~~108,492~~4,668 shares, respectively, of the Company’s common stock in connection with option exercises. Employees also tendered ~~619~~9,660 and 011,306 shares in connection with the tax withholding requirements of other share based awards during the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~12,058~~9,730 and ~~15,242 shares~~11,439 during the ~~nine~~six months ~~period~~ ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively. In total, shares of the Company's common stock tendered had market values of ~~$242,000~~$450,000 and ~~$147,000~~$346,000 during the ~~quarter~~quarters ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$588,000~~$452,000 and ~~$4,842,000~~$494,000 during the year to date ~~September~~periods June 30, ~~2020~~2021 and ~~2019,~~2020, 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 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 nine months ended September 30, 2020, were made from the 2019 Plan.

Stock option activity during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~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 0 0 0
Options exercised (32,000) $14.54 to $19.46 17.10
Options forfeited 0 0 0
Outstanding at September 30, 2020 128,500 $14.54 to $23.21 $ 17.72


	Number of Shares	Weighted Average Exercise Price
Outstanding at December 31, 2020	128,500	$	17.72
Options granted	0	0
Options exercised	(1,675)	16.59
Options forfeited	0	0
Outstanding at June 30, 2021	126,825	$	17.74

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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 ~~September~~June 30, ~~2020:~~2021:


		Currently Exercisable		Currently Not Exercisable		Total Outstanding			Currently Exercisable		Currently Not Exercisable		Total Outstanding
Number of options	Number of options	128,500		0		128,500		Number of options	126,825		0		126,825
Weighted average exercise price	Weighted average exercise price	$	17.72	$	0	$	17.72	Weighted average exercise price	$	17.74	$	0	$	17.74
Intrinsic value (in thousands)	Intrinsic value (in thousands)	$	870	$	0	$	870	Intrinsic value (in thousands)	$	3,763	$	0	$	3,763
Weighted average remaining contractual term (yrs.)	Weighted average remaining contractual term (yrs.)	2.2		n/a		2.2		Weighted average remaining contractual term (yrs.)	1.5		0.0		1.5

As of ~~September~~June 30, ~~2020~~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 ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

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

Service
Condition
Vesting RSUs Market Plus
Service
Condition
Vesting RSUs
Outstanding at December 31, 2019 68,597 51,312
RSUs granted 64,036 46,416
RSUs added through dividend and performance credits 2,274 5,847
RSUs released (31,708) (20,265)
RSUs forfeited/expired 1,373 (1,695)
Outstanding at September 30, 2020 104,572 81,615

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


	Service Condition Vesting RSUs	Market Plus Service Condition Vesting RSUs
Outstanding at December 31, 2020	99,809	81,615
RSUs granted	47,029	31,479
RSUs added through dividend and performance credits	1,090	0
RSUs released	(42,712)	0
RSUs forfeited/expired	(114)	(75)
Outstanding at June 30, 2021	105,102	113,019

The ~~104,572~~105,102 of service condition vesting RSUs outstanding as of ~~September~~June 30, ~~2020~~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 ~~104,572~~105,102 of service condition vesting RSUs outstanding as of ~~September~~June 30, ~~2020~~2021 are expected to vest, and be released, on a weighted-average basis, over the next ~~1.60~~2.7 years. The Company expects to recognize ~~$2,782,321~~$3,894,000 of pre-tax compensation costs related to these service condition vesting RSUs between ~~September~~June 30, ~~2020~~2021 and their vesting dates. The Company did not modify any service condition vesting RSUs during ~~2019~~2020 or during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

The ~~81,615~~113,019 of market plus service condition vesting RSUs outstanding as of ~~September~~June 30, ~~2020~~2021 are expected to vest, and be released, on a weighted-average basis, over the next ~~2.10~~2.4 years. The Company expects to recognize ~~$1,469,701~~$2,106,000 of pre-tax compensation costs related to these RSUs between ~~September~~June 30, ~~2020~~2021 and their vesting dates. As of ~~September~~June 30, ~~2020,~~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 ~~122,423~~169,529 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 ~~nine~~six months ended ~~September~~June 30, ~~2020.~~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,
(in thousands)	2021		2020		2021		2020
ATM and interchange fees	$	6,558	$	5,165	$	12,419	$	10,276
Service charges on deposit accounts	3,462		3,046		6,731		7,092
Other service fees	914		734		1,785		1,492
Mortgage banking service fees	467		459		930		928
Change in value of mortgage servicing rights	(471)		(1,236)		(459)		(2,494)
Total service charges and fees	10,930		8,168		21,406		17,294
Increase in cash value of life insurance	745		710		1,418		1,430
Asset management and commission income	947		661		1,781		1,577
Gain on sale of loans	2,847		1,736		6,094		2,627
Lease brokerage income	249		127		359		320
Sale of customer checks	116		88		235		212
Gain on sale of investment securities	0		0		0		0
Gain (loss) on marketable equity securities	8		25		(45)		72
Other	115		142		819		(55)
Total other non-interest income	5,027		3,489		10,661		6,183
Total non-interest income	$	15,957	$	11,657	$	32,067	$	23,477

Three months ended
September 30, Nine months ended
September 30,
(dollars in thousands) 2020 2019 2020 2019
ATM and interchange fees $ 5,637 $ 5,427 $ 15,913 $ 15,412
Service charges on deposit accounts 3,334 4,327 10,426 12,389
Other service fees 805 808 2,296 2,198
Mortgage banking service fees 457 483 1,386 1,441
Change in value of mortgage servicing rights 236 (455) (2,258) (1,652)
Total service charges and fees 10,469 10,590 27,763 29,788
Increase in cash value of life insurance 773 773 2,203 2,294
Asset management and commission income 667 721 2,244 2,102
Gain on sale of loans 3,035 1,236 5,662 2,223
Lease brokerage income 175 172 495 631
Sale of customer checks 91 126 303 401
Gain on sale of investment securities 7 107 7 107
Gain on marketable equity securities 0 22 72 100
Other (80) 361 (135) 1,688
Total other non-interest income 4,668 3,518 10,851 9,546
Total non-interest income $ 15,137 $ 14,108 $ 38,614 $ 39,334

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


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2021		2020		2021		2020
Base salaries, net of deferred loan origination costs	$	17,537	$	17,277	$	33,048	$	34,900
Incentive compensation	4,322		2,395		7,902		5,496
Benefits and other compensation costs	5,222		7,383		11,461		13,931
Total salaries and benefits expense	27,081		27,055		52,411		54,327
Occupancy	3,700		3,398		7,426		7,273
Data processing and software	3,201		3,657		6,403		7,024
Equipment	1,207		1,350		2,724		2,862
Intangible amortization	1,431		1,431		2,862		2,862
Advertising	734		531		1,114		1,196
ATM and POS network charges	1,551		1,210		2,797		2,583
Professional fees	1,046		741		1,640		1,444
Telecommunications	564		639		1,145		1,364
Regulatory assessments and insurance	618		360		1,230		455
Postage	124		283		322		573
Operational losses	212		184		421		405
Courier service	288		337		582		668
Gain on sale or acquisition of foreclosed assets	(15)		(16)		(66)		(57)
(Gain) loss on disposal of fixed assets	(426)		15		(426)		15
Other miscellaneous expense	2,855		4,375		5,204		7,306
Total other non-interest expense	17,090		18,495		33,378		35,973
Total non-interest expense	$	44,171	$	45,550	$	85,789	$	90,300

Three months ended
September 30, Nine months ended
September 30,
2020 2019 2020 2019
Base salaries, net of deferred loan origination costs $ 18,754 $ 17,656 $ 53,654 $ 51,624
Incentive compensation 2,184 3,791 7,680 10,064
Benefits and other compensation costs 8,383 5,452 22,314 17,058
Total salaries and benefits expense 29,321 26,899 83,648 78,746
Occupancy 3,440 3,711 10,713 11,223
Data processing and software 3,561 3,411 10,585 10,114
Equipment 1,549 1,679 4,411 5,298
Intangible amortization 1,431 1,431 4,293 4,293
Advertising 869 1,358 2,065 4,222
ATM and POS network charges 1,314 1,343 3,897 3,936
Professional fees 955 999 2,399 2,895
Telecommunications 619 867 1,983 2,437
Regulatory assessments and insurance 538 94 993 1,095
Postage 118 438 691 1,063
Operational losses 154 228 559 679
Courier service 345 357 1,013 1,039
Gain on sale of foreclosed assets 0 (50) (57) (246)
Loss on disposal of fixed assets 22 2 37 82
Other miscellaneous expense 2,478 3,577 9,783 11,617
Total other non-interest expense 17,393 19,445 53,365 59,747
Total non-interest expense $ 46,714 $ 46,344 $ 137,013 $ 138,493

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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,
(in thousands)	2021		2020
Net income	$	28,362	$	7,430
Average number of common shares outstanding	29,719		29,754
Effect of dilutive stock options and restricted stock	185		129
Average number of common shares outstanding used to calculate diluted earnings per share	29,904		29,883
Options excluded from diluted earnings per share because of their antidilutive effect	0		0


		Three months ended September 30,					Six months ended June 30,
(in thousands)	(in thousands)	2020		2019		(in thousands)	2021		2020
Net income	Net income	$	17,606	$	23,395	Net income	$	62,011	$	23,551
Average number of common shares outstanding	Average number of common shares outstanding	29,764		30,509		Average number of common shares outstanding	29,723		30,074
Effect of dilutive stock options and restricted stock	Effect of dilutive stock options and restricted stock	80		120		Effect of dilutive stock options and restricted stock	181		129
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	29,844		30,629		Average number of common shares outstanding used to calculate diluted earnings per share	29,904		30,203
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		42		Options excluded from diluted earnings per share because of their antidilutive effect	0		0

Nine months ended September 30,
(in thousands) 2020 2019
Net income $ 41,157 $ 69,182
Average number of common shares outstanding 29,971 30,464
Effect of dilutive stock options and restricted stock 112 179
Average number of common shares outstanding used to calculate diluted earnings per share 30,083 30,643
Options excluded from diluted earnings per share because of their antidilutive effect 0 42

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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 (loss) (OCI).

~~Table of Contents~~

The components of other comprehensive income and related tax effects are as follows:


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2021		2020		2021		2020
Unrealized holding losses on available for sale securities before reclassifications	$	7,392	$	34,959	$	(4,945)	$	5,398
Amounts reclassified out of AOCI:
Realized gain on debt securities	0		0		0		0



Unrealized holding losses on available for sale securities after reclassifications	7,392		34,959		(4,945)		5,398
Tax effect	(2,186)		(10,334)		1,461		(1,595)
Unrealized holding losses on available for sale securities, net of tax	5,206		24,625		(3,484)		3,803
Change in unfunded status of the supplemental retirement plans before reclassifications	(49)		661		(98)		1,109
Amounts reclassified out of AOCI:
Amortization of prior service cost	(15)		(13)		(29)		(27)
Amortization of actuarial losses	64		478		127		956

Total amounts reclassified out of accumulated other comprehensive income	49		465		98		929
Change in unfunded status of the supplemental retirement plans after reclassifications	0		1,126		0		2,038
Tax effect	0		0		0		0
Change in unfunded status of the supplemental retirement plans, net of tax	0		1,126		0		2,038
Change in joint beneficiary agreement liability before reclassifications	0		0		(629)		0
Tax effect	0		0		0		0
Change in joint beneficiary agreement liability before reclassifications, net of tax	0		0		(629)		0
Total other comprehensive income (loss)	$	5,206	$	25,751	$	(4,113)	$	5,841

Three months ended September 30, Nine months ended September 30,
(in thousands) 2020 2019 2020 2019
Unrealized holding gains on available for sale securities before reclassifications $ 4,645 $ 5,355 $ 10,043 $ 27,618
Amounts reclassified out of AOCI:
Realized gain on debt securities (7) (107) (7) (107)
Unrealized holding gains (losses) on available for sale securities after reclassifications 4,638 5,248 10,036 27,511
Tax effect (1,372) (1,551) (2,967) (8,133)
Unrealized holding gains on available for sale securities, net of tax 3,266 3,697 7,069 19,378
Change in unfunded status of the supplemental retirement plans before reclassifications 1,936 (89) 2,607 (266)
Amounts reclassified out of AOCI:
Amortization of prior service cost (14) (13) (41) (40)
Amortization of actuarial losses 478 102 1,434 306
Total amounts reclassified out of accumulated other comprehensive income 464 89 1,393 266
Change in unfunded status of the supplemental retirement plans after reclassifications 2,400 0 4,000 0
Tax effect (709) 0 (1,183) 0
Change in unfunded status of the supplemental retirement plans, net of tax 1,691 0 2,817 0
Change in joint beneficiary agreement liability before reclassifications 0 0 912 0
Tax effect 0 0 0 0
Change in joint beneficiary agreement liability before reclassifications, net of tax 0 0 912 0
Total other comprehensive income $ 4,957 $ 3,697 $ 10,798 $ 19,378

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

(in thousands) September 30,
2020 December 31,
2019
Net unrealized gain on available for sale securities $ 13,423 $ 3,387
Tax effect (3,968) (1,001)
Unrealized holding gain on available for sale securities, net of tax 9,455 2,386
Unfunded status of the supplemental retirement plans (7,193) (11,193)
Tax effect 2,126 3,309
Unfunded status of the supplemental retirement plans, net of tax (5,067) (7,884)
Joint beneficiary agreement liability 1,188 276
Tax effect 0 0
Joint beneficiary agreement liability, net of tax 1,188 276
Accumulated other comprehensive income (loss) $ 5,576 $ (5,222)


(in thousands)	June 30, 2021		December 31, 2020
Net unrealized gain on available for sale securities	$	14,238	$	19,183
Tax effect	(4,210)		(5,671)
Unrealized holding gain on available for sale securities, net of tax	10,028		13,512
Unfunded status of the supplemental retirement plans	(1,294)		(1,294)
Tax effect	382		382
Unfunded status of the supplemental retirement plans, net of tax	(912)		(912)
Joint beneficiary agreement liability	(949)		(320)
Tax effect	0		0
Joint beneficiary agreement liability, net of tax	(949)		(320)
Accumulated other comprehensive income	$	8,167	$	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

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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.

~~Table of Contents~~

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. 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 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.

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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, 2021	Total		Level 1		Level 2		Level 3
Marketable equity securities	$	2,979	$	2,979	$	0	$	0
Debt securities available for sale:
Obligations of U.S. government corporations and agencies	1,133,416		0		1,133,416		0
Obligations of states and political subdivisions	146,924		0		146,924		0
Corporate bonds	2,556		0		2,556		0
Asset backed securities	564,672		0		564,672		0
Loans held for sale	5,723		0		5,723		0
Mortgage servicing rights	5,603		0		0		5,603
Total assets measured at fair value	$	1,861,873	$	2,979	$	1,853,291	$	5,603

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Fair value at September 30, 2020 Total Level 1 Level 2 Level 3
Marketable equity securities $ 3,032 $ 3,032 $ 0 $ 0
Debt securities available for sale:
Obligations of U.S. government corporations and agencies 573,888 0 573,888 0
Obligations of states and political subdivisions 112,725 0 112,725 0
Corporate bonds 2,522 0 2,522 0
Asset backed securities 453,792 0 453,792 0
Loans held for sale 6,570 0 6,570 0
Mortgage servicing rights 4,920 0 0 4,920
Total assets measured at fair value $ 1,157,449 $ 3,032 $ 1,149,497 $ 4,920


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	$	0	$	0	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		0		472,980		0		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		0		109,601		0		Obligations of states and political subdivisions	129,095		0		129,095		0
Corporate bonds	Corporate bonds	2,532		0		2,532		0		Corporate bonds	2,544		0		2,544		0
Asset backed securities	Asset backed securities	365,025		0		365,025		0		Asset backed securities	470,251		0		470,251		0
Loans held for sale	Loans held for sale	5,265		0		5,265		0		Loans held for sale	6,268		0		6,268		0
Mortgage servicing rights	Mortgage servicing rights	6,200		0		0		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 nine~~six months ended ~~September~~June 30, ~~2020,~~2021, or the year ended December 31, ~~2019.~~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
2021: Mortgage servicing rights	$	5,607	0	$	(471)	$	467	$	5,603
2020: Mortgage servicing rights	$	5,168	0	$	(1,236)	$	318	$	4,250

Three months ended September 30, Beginning
Balance Transfers
into (out of)
Level 3 Change
Included
in Earnings Issuances Ending
Balance
2020: Mortgage servicing rights $ 4,250 0 $ 236 $ 434 $ 4,920
2019: Mortgage servicing rights $ 6,229 0 $ (455) $ 298 $ 6,072


Six months ended June 30,	Beginning Balance		Transfers into (out of) Level 3	Change Included in Earnings		Issuances		Ending Balance
2021: Mortgage servicing rights	$	5,092	0	$	(459)	$	970	$	5,603
2020: Mortgage servicing rights	$	6,200	0	$	(2,494)	$	544	$	4,250

Nine months ended September 30, 2020 Beginning
Balance Transfers
into (out of)
Level 3 Change
Included
in Earnings Issuances Ending
Balance
2020: Mortgage servicing rights $ 6,200 0 $ (2,258) $ 978 $ 4,920
2019: Mortgage servicing rights $ 7,098 0 $ (1,652) $ 626 $ 6,072

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).

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

2020:

As of ~~September~~June 30, ~~2020:~~2021:

Fair Value
(in thousands)

Valuation
Technique

Unobservable
Inputs

Range,
Weighted
Average

Mortgage Servicing Rights

~~4,920~~5,603

Discounted cash flow

Constant prepayment rate

~~15%~~12% - ~~32%~~17%; ~~19%~~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, 2021	Total		Level 1		Level 2		Level 3		Total Gains (Losses)
Fair value:
Individually evaluated loans	$	4,912	0		0		$	4,912	$	(1,604)
Foreclosed assets	123		0		0		123		21
Total assets measured at fair value	$	5,035	$	0	$	0	$	5,035	$	(1,583)


September 30, 2020		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	$	1,024	0	0	$	1,024	$	(309)	Individually evaluated loans	$	1,424	0	0	$	1,424	$	(1,489)

Foreclosed assets										Foreclosed assets	979		0	0	979		155
Total assets measured at fair value										Total assets measured at fair value	$	2,403	0	0	$	2,403	$	(1,334)

December 31, 2019 Total Level 1 Level 2 Level 3 Total Losses
Fair value:
Individually evaluated loans $ 1,055 0 0 $ 1,055 $ (652)
Foreclosed assets 417 0 0 417 (27)
Total assets measured at fair value $ 1,472 0 0 $ 1,472 $ (679)

September 30, 2019 Total Level 1 Level 2 Level 3 Total Losses
Fair value:
Individually evaluated loans $ 1,055 0 0 $ 1,055 $ (652)
Foreclosed assets 417 0 0 417 (27)
Total assets measured at fair value $ 1,472 0 0 $ 1,472 $ (679)


June 30, 2020	Total		Level 1	Level 2	Level 3		Total Losses
Fair value:
Individually evaluated loans	$	162	0	0	$	162	$	(16)

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 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.

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

2021:

~~September~~June 30, 2021

Fair Value
(in thousands)

Valuation
Technique

Unobservable Inputs

Range,
Weighted Average

Individually evaluated loans

4,912

Sales comparison
approach
Income approach

Adjustment for differences between
comparable sales
Capitalization rate

Not meaningful
N/A

Foreclosed assets (Residential real estate)

123

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, 2020:

December 31, 2020

Fair Value
(in thousands)

Valuation
Technique

Unobservable Inputs

Range,
Weighted Average

Individually evaluated loans

~~1,024~~

Sales comparison
approach
Income approach

Adjustment for differences between
comparable sales
Capitalization rate

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:~~

~~December 31, 2019~~

Fair Value
(in thousands)

Valuation
Technique

~~Unobservable Inputs~~

Range,
Weighted Average

~~Individually evaluated loans~~

~~346~~1,424

Sales comparison
approach
Income approach

Adjustment for differences between
comparable sales
Capitalization rate

Not meaningful
N/A

Foreclosed assets (Residential real estate)

~~445~~979

Sales comparison
approach

Adjustment for differences between
comparable sales

Not 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.


	June 30, 2021				December 31, 2020
(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Level 1 inputs:
Cash and due from banks	$	86,052	$	86,052	$	77,253	$	77,253
Cash at Federal Reserve and other banks	553,688		553,688		592,298		592,298
Level 2 inputs:
Securities held to maturity	235,778		247,019		284,563		298,726
Restricted equity securities	17,250		N/A		17,250		N/A

Level 3 inputs:
Loans, net	4,870,278		4,875,176		4,671,280		4,753,027
Financial liabilities:
Level 2 inputs:
Deposits	6,992,053		6,998,976		6,505,934		6,507,235
Other borrowings	40,559		40,559		26,914		26,914
Level 3 inputs:
Junior subordinated debt	57,852		57,795		57,635		56,632

September 30, 2020 December 31, 2019
(in thousands) Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Financial assets:
Level 1 inputs:
Cash and due from banks $ 71,034 $ 71,034 $ 92,816 $ 92,816
Cash at Federal Reserve and other banks 581,548 581,548 183,691 183,691
Level 2 inputs:
Securities held to maturity 310,696 377,442 375,606 381,525
Restricted equity securities 17,250 N/A 17,250 N/A
Level 3 inputs:
Loans, net 4,738,763 4,841,120 4,276,750 4,263,064
Financial liabilities:
Level 2 inputs:
Deposits 6,340,588 6,346,930 5,366,994 5,365,921
Other borrowings 27,055 27,055 18,454 18,454
Level 3 inputs:
Junior subordinated debt 57,527 55,348 57,232 56,297


(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	$	1,320,988	$	13,210	$	1,309,326	$	13,093	Commitments	$	1,474,690	$	14,747	$	1,426,827	$	14,268
Standby letters of credit	Standby letters of credit	11,255		113		12,014		120		Standby letters of credit	14,112		141		15,056		151
Overdraft privilege commitments	Overdraft privilege commitments	110,271		1,103		110,402		1,104		Overdraft privilege commitments	112,993		1,129		110,813		1,108

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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 ~~September~~June 30, ~~2020~~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 ~~September~~June 30, ~~2020~~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.


	Actual				Required for Capital Adequacy Purposes				Required to be Considered Well Capitalized
As of June 30, 2021:	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(dollars in thousands)
Total Capital (to Risk Weighted Assets):
Consolidated	$	846,617	15.31	%	$	580,463	10.50	%	N/A		N/A
Tri Counties Bank	$	835,709	15.12	%	$	580,270	10.50	%	$	552,638	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	777,241	14.06	%	$	469,899	8.50	%	N/A		N/A
Tri Counties Bank	$	766,377	13.87	%	$	469,743	8.50	%	$	442,111	8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	721,126	13.04	%	$	386,975	7.00	%	N/A		N/A
Tri Counties Bank	$	766,377	13.87	%	$	386,847	7.00	%	$	359,215	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	777,241	9.85	%	$	315,578	4.00	%	N/A		N/A
Tri Counties Bank	$	766,377	9.72	%	$	315,261	4.00	%	$	394,076	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 September 30, 2020:		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	$	774,095	15.23	%	$	533,776	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	$	769,528	15.14	%	$	533,575	10.50	%	$	508,166	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	$	710,195	13.97	%	$	432,104	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	$	705,673	13.89	%	$	431,941	8.50	%	$	406,533	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	$	654,396	12.87	%	$	355,850	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	$	705,673	13.89	%	$	355,716	7.00	%	$	330,308	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	$	710,195	9.95	%	$	285,482	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	$	705,673	9.89	%	$	285,476	4.00	%	$	356,845	5.00	%	Tri Counties Bank	$	714,811	9.76	%		$	292,949	4.00	%	$	366,186	5.00	%

Actual Required for Capital Adequacy Purposes Required to be
Considered Well
Capitalized
As of December 31, 2019: Amount Ratio Amount Ratio Amount Ratio
(dollars in thousands)
Total Capital (to Risk Weighted Assets):
Consolidated $ 753,200 15.07 % $ 524,944 10.50 % N/A N/A
Tri Counties Bank $ 748,660 14.98 % $ 524,759 10.50 % $ 499,770 10.00 %
Tier 1 Capital (to Risk Weighted Assets):
Consolidated $ 719,809 14.40 % $ 424,955 8.50 % N/A N/A
Tri Counties Bank $ 715,269 14.31 % $ 424,805 8.50 % $ 399,816 8.00 %
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated $ 664,296 13.29 % $ 349,963 7.00 % N/A N/A
Tri Counties Bank $ 715,269 14.31 % $ 349,839 7.00 % $ 324,851 6.50 %
Tier 1 Capital (to Average Assets):
Consolidated $ 719,809 11.55 % $ 249,343 4.00 % N/A N/A
Tri Counties Bank $ 715,269 11.47 % $ 249,337 4.00 % $ 311,672 5.00 %

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As of ~~September~~June 30, ~~2020~~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 ~~September~~June 30, ~~2020~~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 ~~September~~June 30, ~~2020,~~2021, the Company and the Bank are in compliance with the capital conservation buffer requirement.

Note 15 - Subsequent Events

On July 27, 2021, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Valley Republic Bancorp, a California corporation (“Valley”), providing for the merger of Valley with and into the Company, with the Company as the surviving corporation. The Merger Agreement contemplates that immediately after the Merger, Valley Republic Bank, a California state-chartered bank and wholly-owned subsidiary of Valley, will merge with and into Tri Counties Bank, a California state-chartered bank and wholly-owned subsidiary of the Company, with Tri Counties Bank as the surviving bank (the “Bank Merger”). The Merger Agreement was adopted and unanimously approved by the Board of Directors of each of the Company and Valley. As of June 30, 2021, Valley had a total asset size of approximately $1.36 billion. The transaction, subject to customary regulatory approvals, is expected to close during the fourth quarter of 2021.

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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, due to the length, severity, magnitude and duration of the 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;~~make, such as our pending acquisition of Valley Republic Bancorp, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations; the possibility that the merger between us and Valley will not close when expected or at all because required regulatory, shareholder, or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all, or are obtained subject to conditions that are not anticipated (and the risk that required regulatory approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the proposed transaction); the occurrence of any event, change, or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between the Company and Valley; the risk that any announcements relating to the merger could have adverse effects on the market price of the common stock of either or both parties to the transaction; changes in the economy, which could materially impact credit quality trends and the ability to generate loans and gather deposits, including the pace of the recovery following the COVID-19 pandemic; the ability of us to execute our business plan in new lending markets; 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

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manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found under "Risk Factors" 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 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

Recent Developments

On July 22, 2021, the Company entered into a definitive agreement with Valley Republic Bancorp (“Valley”) to acquire Valley and its wholly-owned subsidiary, Valley Republic Bank. Under the terms of the agreement, Valley shareholders will receive 0.95 of a share of TriCo’s common stock in exchange for each share of Valley’s common stock, subject to certain potential adjustments. The aggregate merger consideration of $165.6 million includes $164.7 million in TriCo stock to be issued to Valley shareholders and $0.9 million to be paid in cash to Valley option holders. The value of the merger consideration will fluctuate until closing based on the value of TriCo’s stock. The merger is expected to qualify as a tax-free reorganization.

The proposed transaction is expected to close in the fourth quarter of 2021, subject to satisfaction of customary closing conditions, including regulatory approvals and shareholder approval from Valley’s shareholders. The transaction is expected to be 5.5% accretive to TriCo’s earnings per share in 2022, with 1.6% dilution to tangible book value per share, and a tangible book value earnback of 2.0 years. The earnings per share accretion estimates are based on anticipated cost savings of approximately 17% of Valley’s non-interest expense and does not include any benefits from potential revenue synergies which may result, although opportunities have been identified.

For additional information about the proposed acquisition of Valley, see the Company’s Current Report on Form 8-K filed with the SEC on July 27, 2021 and the definitive agreement filed therewith.

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Financial Highlights

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

•For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company’s return on average assets was ~~0.95%~~1.40% and ~~0.79%~~1.57%, respectively, and the return on average equity was ~~7.79%~~11.85% and ~~6.13%~~13.16%, respectively.

•Organic loan growth, excluding PPP, totaled $99.2 million (8.6% annualized) for the current quarter and $327.3.million (7.5%) for the trailing twelve month period.

•For the current quarter, net interest margin was 3.58% on a tax equivalent basis as compared to 4.10% in the quarter ended June 30, 2020, and a decrease of 16 basis points from 3.74% in the trailing quarter.

•The efficiency ratio was 53.19% as of June 30, 2021, as compared to 50.42% in the trailing quarter and 59.69% in the same quarter of the prior year.

•As of ~~September~~June 30, ~~2020,~~2021, the Company reported total loans, total assets and total deposits of ~~$4.83~~$4.94 billion, ~~$7.45~~$8.17 billion and ~~$6.34~~$6.99 billion, respectively.

•~~The~~ As a direct result of the considerable deposit growth experienced over the last 6 quarters, the loan to deposit ratio was ~~76.12%~~70.72% as of ~~September~~June 30, ~~2020,~~2021, as compared to 73.21% at December 31, 2020 and 76.84% at June 30, ~~2020 and 78.98% at September 30, 2019.~~

•For the current quarter, net interest margin was 3.72% on a tax equivalent basis as compared to 4.44% in the quarter ended September 30, 2019, and a decrease of 38 basis points from the 4.10% in the trailing quarter.2020.

•Non-interest bearing deposits as a percentage of total deposits were ~~39.71%~~40.67% at ~~September~~June 30, ~~2020,~~2021, as compared to 39.68% at December 31, 2020 and 39.81% at June 30, ~~2020 and 33.56% at September 30, 2019.~~2020.

•The average rate of interest paid on deposits, including non-interest-bearing deposits, decreased to ~~0.09%~~0.05% for the ~~third~~second quarter of ~~2020~~2021 as compared with ~~0.12%~~0.06% for the trailing quarter, and ~~also~~ decreased by 147 basis points from the average rate paid of ~~0.23%~~0.12% during the same quarter of the prior year.

•~~Non-performing assets to total assets were 0.34%~~The balance of PPP loans outstanding at ~~September 30, 2020, as compared to 0.31% as of~~ June 30, 2020 totaled $248.6 million and ~~0.31% at September 30, 2019.~~the balance of SBA fees remaining to be accreted totaled $9.0 million. In addition, nearly 90% of all round one PPP loans have been forgiven and repaid.

•~~Credit~~The reversal of provision ~~expense~~for credit losses for loans and debt securities was ~~$7.6~~$0.3 million during the quarter ended ~~September~~June 30, ~~2020,~~2021, as compared to a reversal of provision expense of ~~$22.2~~$6.1 million during the trailing quarter ended ~~June 30, 2020,~~March 31, 2021, and a ~~reversal of~~ provision expense totaling ~~($0.3)~~$22.2 million for the three month period ended ~~September~~June 30, ~~2019.~~2020.

•The allowance for credit losses to total loans was 1.74% as of June 30, 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 0.43% at June 30, 2021, as compared to 0.39% as of March 31, 2021, and 0.31% at June 30, 2020.

•Gain on sale of loans for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 totaled ~~$3.0~~$2.8 million and ~~$5.7~~$6.1 million, respectively, as compared to ~~$1.2~~$3.2 million during the quarter ended March 31, 2021 and ~~$2.2~~$1.7 million for the ~~equivalent periods~~quarter ended ~~September~~June 30, ~~2019, respectively.~~

•~~The efficiency ratio was 59.44% for the third quarter of 2020, as compared to 59.69% in the trailing quarter and 58.82% in the same quarter of the 2019 year.~~2020.

SBA Paycheck Protection Program and COVID Deferrals

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,~~second round of PPP lending with streamlined requirements for both borrowers and lenders in December 2020, the Company ~~was able to provide~~resumed accepting applications in January, 2021 (Round 2). The SBA ended PPP ~~loans to small business customers.~~ and did not accept new borrowing applications, effective May 31, 2021.

As of ~~the quarter ended September~~June 30, ~~2020,~~2021, the total gross balance outstanding of PPP loans ~~totaled $437,793,000~~was $248,582,000 as compared to total PPP originations of ~~$438,510,000.~~$640,410,000. In connection with the origination of these loans, the Company earned approximately ~~$15,735,000~~$25,299,000 in loan fees, offset by deferred loan costs of approximately ~~$763,000,~~$1,245,000, the net of which will be recognized over the earlier of loan maturity (between 24-60 months), repayment or receipt of forgiveness confirmation. As of ~~September~~June 30, ~~2020~~2021 there was approximately ~~$11,846,000~~$8,990,000 in net deferred fee income ~~expected~~remaining to be recognized. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company recognized ~~$2,603,000~~$2,344,000 and ~~$4,959,000,~~$7,304,000, respectively in ~~interest and~~ fees on PPP loans.

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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 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 ~~September~~June 30, ~~2020:~~2021:


					Modification Type				Deferral Term
(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:
CRE non-owner occupied	$	23,811	1.6	%	94.4	%	5.6	%	—	%	81.5	%	18.5	%
CRE owner occupied	2,943		0.5		100.0		—		—		57.1		42.9
Multifamily	26,311		3.2		100.0		—		—		100.0		—
Farmland	—		—		—		—		—		—		—
Total commercial real estate loans	53,065		1.7		97.5		2.5		23.7		89.3		16.6
Consumer loans	—		—		—		—		—		—		—
Commercial and industrial	557		0.1		100.0		—		—		—		100.0
Construction	—		—		—		—		—		—		—
Agriculture production	—		—		—		—		—		—		—
Leases	—		—		—		—		—		—		—
Total modifications	$	53,622	1.1	%	95.7	%	2.5	%	—	%	88.4	%	11.6	%

Modification Type Deferral Term
(dollars in thousands) Balance of Modified Loans % of Total Category of Loans Interest Only Deferral Principal and Interest Deferral 90 Days 180 Days
Commercial real estate:
CRE non-owner occupied $ 80,314 5.0 % 96.0 % 4.0 % — % 100.0 %
CRE owner occupied 12,959 2.2 64.3 35.7 10.2 89.8
Multifamily 8,996 1.5 75.7 24.3 24.3 75.7
Farmland — — — — — —
Total commercial real estate loans 102,269 3.5 90.2 9.8 3.4 96.6
Consumer:
SFR 1-4 1st lien — — — — — —
SFR HELOCs and junior liens — — — — — —
Other — — — — — —
Total consumer loans — — — — — —
Commercial and industrial 4,493 0.7 98.8 1.2 1.4 98.6
Construction 24,176 8.5 100.0 — — 100.0
Agriculture production — — — — — —
Leases — — — — — —
Total modifications $ 130,938 2.71 % 92.32 % 7.68 % 2.73 % 97.27 %

~~Total loan modifications associated with CARES Act legislation made during~~Of the ~~nine months ended September 30, 2020 total approximately $422.53 million of which $130.94 million remained~~remaining balance outstanding ~~under their modified terms~~ as of ~~September~~June 30, ~~2020. Approximately $95.33 million~~2021, $33,350,000 is related to second deferrals which are expected to conclude their modification period by November, 2021 and ~~$35.61 million of the~~$2,525,595 is related to third deferrals expected to conclude in October, 2021. The remaining balance of loans with modified terms are ~~expected~~scheduled to conclude their modification period during ~~the quarters ended December 31, 2020 and March 31, 2021, respectively.~~fiscal 2021. However, as long as the current pandemic and recessionary economic conditions continue, it is ~~likely~~possible that additional borrowers may request an initial or subsequent modification to their loan terms.

The total loan modifications made under the CARES Act during the 2020 year are inclusive of seven borrowers with loan balances totaling approximately $26.52 million who requested and were granted a second modification and deferral. Six of these second modification and deferrals were for a period of three additional months and as of September 30, 2020 had concluded the second deferral period and returned to their regular payment terms. The remaining borrower whom received a second loan modification was granted a six month deferral on an outstanding loan balance of $597,000 and is scheduled to return to payment status in January 2021.

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, due to the fluidity of the current economic environment and the potential impact on borrowers no guarantees of that ability can be provided. As such management determined that a risk downgrade to each credit receiving a deferral modification was prudent until such time that the borrower's actual payment performance supports an upgrade to the pre-modification risk grade.

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TRICO BANCSHARES

Financial Summary

(In thousands, except per share amounts; unaudited)

Three months ended
September 30, Nine months ended
September 30,
2020 2019 2020 2019
Net interest income 63,454 64,688 $ 191,305 $ 192,873
(Provision for) reversal of credit losses (7,649) 329 (37,963) 1,392
Non-interest income 15,137 14,108 38,614 39,334
Non-interest expense (46,714) (46,344) (137,013) (138,493)
Provision for income taxes (6,622) (9,386) (13,786) (25,924)
Net income $ 17,606 $ 23,395 $ 41,157 $ 69,182
Per Share Data:
Basic earnings per share $ 0.59 $ 0.77 $ 1.37 $ 2.27
Diluted earnings per share $ 0.59 $ 0.76 $ 1.37 $ 2.25
Dividends paid $ 0.22 $ 0.22 $ 0.66 $ 0.60
Book value at period end $ 30.31 $ 29.39
Average common shares outstanding 29,764 30,509 29,971 30,464
Average diluted common shares outstanding 29,844 30,629 30,083 30,643
Shares outstanding at period end 29,769 30,512
At period end:
Loans, net 4,738,763 4,150,811
Total investment securities 1,473,935 1,397,753
Total assets 7,449,799 6,384,883
Total deposits 6,340,588 5,295,407
Other borrowings 27,055 16,423
Shareholders’ equity 902,262 896,665
Financial Ratios:
During the period:
Return on average assets (annualized) 0.95 % 1.44 % 0.79 % 1.44 %
Return on average equity (annualized) 7.79 % 10.42 % 6.13 % 10.67 %
Net interest margin(1) (annualized)
3.72 % 4.44 % 4.02 % 4.48 %
Efficiency ratio 59.44 % 58.82 % 59.59 % 59.64 %
Average equity to average assets 12.18 % 13.80 % 12.86 % 13.50 %
At end of period:
Equity to assets 12.11 % 14.04 %
Total capital to risk-adjusted assets 15.23 % 15.20 %


	Three months ended June 30,						Six months ended June 30,
	2021			2020			2021			2020
Net interest income	$	67,083		$	64,659		$	133,523		$	127,851
Reversal of (provision for) credit losses	260			(22,244)			6,320			(30,313)
Non-interest income	15,957			11,657			32,067			23,477
Non-interest expense	(44,171)			(45,550)			(85,789)			(90,300)
Provision for income taxes	(10,767)			(1,092)			(24,110)			(7,164)
Net income	$	28,362		$	7,430		$	62,011		$	23,551
Per Share Data:
Basic earnings per share	$	0.95		$	0.25		$	2.09		$	0.78
Diluted earnings per share	$	0.95		$	0.25		$	2.07		$	0.78
Dividends paid	$	0.25		$	0.22		$	0.50		$	0.44
Book value at period end
Average common shares outstanding	29,719			29,754			29,723			30,074
Average diluted common shares outstanding	29,904			29,883			29,904			30,203
Shares outstanding at period end							29,716			29,759
At period end:
Loans							4,944,894			4,801,405
Total investment securities							2,103,575			1,353,728
Total assets							8,170,365			7,360,071
Total deposits							6,992,053			6,248,258
Other borrowings							40,559			38,544
Shareholders’ equity							966,780			885,686
Financial Ratios:
During the period:
Return on average assets (annualized)	1.40		%	0.43		%	1.57		%	0.70		%
Return on average equity (annualized)	11.85		%	3.39		%	13.16		%	5.28		%
Net interest margin(1) (annualized)	3.58		%	4.10		%	3.66		%	4.22		%
Efficiency ratio	53.19		%	59.69		%	51.81		%	59.82		%
Average equity to average assets	11.81		%	12.53		%	11.93		%	13.22		%
At end of period:
Equity to assets							11.83		%	12.03		%
Total capital to risk-adjusted assets							15.31		%	15.13		%

(1) Fully taxable equivalent (FTE)

The Company ~~reported~~announced net income of ~~$17,606,000~~$28,362,000 for the quarter ended ~~September~~June 30, 2021, compared to $33,649,000 and $7,430,000 during the quarters ended March 31, 2021 and June 30, 2020, ~~compared to $7,430,000~~respectively. Diluted earnings per share were $0.95, $1.13 and ~~$23,395,000~~$0.25 for the quarters ended June 30, ~~2020~~2021, March 31, 2021 and ~~September 30, 2019, respectively. Diluted earnings per share were $0.59, $0.25 and $0.76 for the quarters ended September 30, 2020,~~ June 30, 2020, ~~and September 30, 2019,~~ respectively.

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Results of Operations

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.

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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
(in thousands)	June 30, 2021			March 31, 2021			$ Change		% Change
Interest income	$	68,479		$	67,916		$	563	0.8	%
Interest expense	(1,396)			(1,476)			80		(5.4)	%
Fully tax-equivalent adjustment (FTE) (1)	255			277			(22)		(7.9)	%
Net interest income (FTE)	$	67,338		$	66,717		$	621	0.9	%
Net interest margin (FTE)	3.58		%	3.74		%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	2,566		$	1,712		$	854
Net interest margin less effect of acquired loan discount accretion(1)	3.44		%	3.64		%			(0.20)	%
PPP loans yield, net:
Amount (included in interest income)	$	3,179		$	5,863		$	(2,684)
Net interest margin less effect of PPP loan yield (1)	3.61		%	3.59		%			0.02	%
Acquired loans discount accretion and PPP loan yield, net: (1)
Amount (included in interest income)	$	5,745		$	7,575		$	(1,830)
Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1)	3.47		%	3.49		%			(0.02)	%


		Three months ended September 30,						Nine months ended September 30,							Three months ended June 30,
		2020			2019			2020			2019
(in thousands)														(in thousands)	2021			2020			$ Change		% Change
Interest income	Interest income	$	65,438		$	68,889		199,103			204,526			Interest income	$	68,479		$	67,148		$	1,331	2.0	%
Interest expense	Interest expense	(1,984)			(4,201)			(7,798)			(11,653)			Interest expense	(1,396)			(2,489)			1,093		(43.9)	%
FTE adjustment		254			289			811			929
Fully tax-equivalent adjustment (FTE) (1)														Fully tax-equivalent adjustment (FTE) (1)	255			286			(31)		(10.8)	%
Net interest income (FTE)	Net interest income (FTE)	$	63,708		$	64,977		$	192,116		$	193,802		Net interest income (FTE)	$	67,338		$	64,945		$	2,393	3.7	%
Net interest margin (FTE)	Net interest margin (FTE)	3.72		%	4.44		%	4.02		%	4.48		%	Net interest margin (FTE)	3.58		%	4.10		%

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)	$	1,876		$	2,360		$	6,211		$	5,919		Amount (included in interest income)	$	2,566		$	2,587		$	(21)
Net interest margin less effect of acquired loan discount accretion(1)	Net interest margin less effect of acquired loan discount accretion(1)	3.61		%	4.28		%	3.89		%	4.34		%	Net interest margin less effect of acquired loan discount accretion(1)	3.44		%	3.94		%			(0.50)	%

PPP loans yield:
PPP loans yield, net:														PPP loans yield, net:
Amount (included in interest income)	Amount (included in interest income)	$	2,603		$	—		$	4,959		$	—		Amount (included in interest income)	$	3,179		$	2,356		$	823
Net interest margin less effect of PPP loan yield		3.81		%	—		%	4.08		%	—		%

Acquired loan discount accretion and PPP loan yield, net:
Net interest margin less effect of PPP loan yield (1)														Net interest margin less effect of PPP loan yield (1)	3.61		%	4.14		%			(0.53)	%
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)	$	4,479		$	2,360		$	11,170		$	5,919		Amount (included in interest income)	$	5,745		$	4,943		$	802
Net interest margin less effect of acquired loan discount accretion and PPP yields		3.69		%	4.28		%	3.88		%	4.40		%
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)	3.47		%	3.98		%			(0.51)	%

Table of Contents


	Six months ended June 30,
(in thousands)	2021			2020			$ Change		% Change
Interest income	$	136,395		$	133,665		$	2,730	2.0	%
Interest expense	(2,872)			(5,814)			2,942		(50.6)	%
Fully tax-equivalent adjustment (FTE) (1)	532			557			(25)		(4.5)	%
Net interest income (FTE)	$	134,055		$	128,408		$	5,647	4.4	%
Net interest margin (FTE)	3.66		%	4.22		%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	4,278		$	4,335		$	(57)


Net interest margin less effect of acquired loan discount accretion(1)	3.54		%	4.08		%			(0.54)	%

PPP loans yield, net:
Amount (included in interest income)	$	9,042		$	2,356		$	6,686

Net interest margin less effect of PPP loan yield (1)	3.59		%	4.25		%			(0.66)	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	13,320		$	6,691		$	6,629
Net interest margin less effect of acquired loans discount and PPP loan yield (1)	3.46		%	4.11		%			(0.65)	%

(1)Certain information included herein is presented on a fully tax-equivalent (FTE) basis and/or to present additional financial details which may be desired by users of this financial information. 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 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)~~unaccreted discount or ~~(unamortized)~~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,~~decrease in interest rates, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, increased during the ~~third~~second quarter of ~~2020.~~2021. During the three months ended ~~September~~June 30, ~~2020,~~2021, March 31, 2021, and June 30, 2020, ~~March 31, 2020, and December 31, 2019,~~ purchased loan discount accretion was ~~$1,876,000,~~$2,566,000, $1,712,000, and $2,587,000, ~~$1,748,000, and $2,218,000,~~ respectively.

Table of Contents

Summary of Average Balances, Yields/Rates and Interest Differential

Net interest income (FTE) during the three months ended September 30, 2020 decreased $1,237,000 or 1.9% to $63,708,000 compared to $64,945,000 during the three months ended June 30, 2020. Over the same period net interest margin declined 38 basis points to 3.72% as compared to 4.10% 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 3.83% for the quarter ended September 30, 2020, which represents a decrease of 43 basis points over the trailing quarter and a decrease of 89 basis points over the same quarter in the prior year. The index utilized in a significant portion of the Company’s variable rate loans, Wall Street Journal Prime, remained unchanged at 3.25% during the quarter ended September 30, 2020 as it has remained at 3.25% since the quarter ended March 31, 2020, but decreased from 4.75% at December 31, 2019 and 5.00% at September 30, 2019.

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
September 30, 2020 September 30, 2019
Average
Balance Interest
Income/
Expense Rates
Earned
/Paid Average
Balance Interest
Income/
Expense Rates
Earned
/Paid
Assets:
Loans, excluding PPP $ 4,389,672 $ 55,436 5.02 % $ 4,142,602 $ 56,999 5.46 %
PPP loans 437,892 2,603 2.36 % — — — %
Investment securities - taxable 1,261,793 6,376 2.01 % 1,403,653 10,172 2.88 %
Investment securities - nontaxable(1)
114,419 1,102 3.83 % 133,038 1,250 3.73 %
Total investments 1,376,212 7,478 2.16 % 1,536,691 11,422 2.95 %
Cash at Federal Reserve and other banks 611,719 175 0.11 % 130,955 757 2.29 %
Total interest-earning assets 6,815,495 65,692 3.83 % 5,810,248 69,178 4.72 %
Other assets 565,466 642,222
Total assets $ 7,380,961 $ 6,452,470
Liabilities and shareholders’ equity:
Interest-bearing demand deposits $ 1,339,797 $ 56 0.02 % $ 1,240,548 $ 284 0.09 %
Savings deposits 2,075,077 484 0.09 % 1,861,166 1,192 0.25 %
Time deposits 387,922 872 0.89 % 447,669 1,574 1.39 %
Total interest-bearing deposits 3,802,796 1,412 0.15 % 3,549,383 3,050 0.34 %
Other borrowings 33,750 4 0.05 % 73,350 334 1.81 %
Junior subordinated debt 57,475 568 3.93 % 57,156 817 5.67 %
Total interest-bearing liabilities 3,894,021 1,984 0.20 % 3,679,889 4,201 0.45 %
Noninterest-bearing deposits 2,475,842 1,777,852
Other liabilities 112,112 104,062
Shareholders’ equity 898,986 890,667
Total liabilities and shareholders’ equity $ 7,380,961 $ 6,452,470
Net interest spread(2)
3.63 % 4.27 %
Net interest income and interest margin(3)
$ 63,708 3.72 % $ 64,977 4.44 %


	For the three months ended
	June 30, 2021						June 30, 2020
	Average Balance		Interest Income/ Expense		Rates Earned /Paid		Average Balance		Interest Income/ Expense		Rates Earned /Paid
Assets:
Loans, excluding PPP	$	4,646,188	$	57,125	4.93	%	$	4,363,481	$	56,053	5.23	%
PPP loans	332,277		3,179		3.84	%	292,569		2,356		3.24	%
Investment securities - taxable	1,875,056		7,189		1.54	%	1,251,873		7,689		2.47	%
Investment securities - nontaxable(1)	132,034		1,106		3.36	%	119,860		1,238		4.15	%
Total investments	2,007,090		8,295		1.66	%	1,371,733		8,927		2.62	%
Cash at Federal Reserve and other banks	559,026		135		0.10	%	338,082		98		0.12	%
Total interest-earning assets	7,544,581		68,734		3.65	%	6,365,865		67,434		4.26	%
Other assets	584,093						661,870
Total assets	$	8,128,674					$	7,027,735
Liabilities and shareholders’ equity:
Interest-bearing demand deposits	$	1,490,247	$	77	0.02	%	$	1,293,007	$	64	0.02	%
Savings deposits	2,316,889		308		0.05	%	1,968,374		644		0.13	%
Time deposits	324,867		443		0.55	%	409,242		1,105		1.09	%
Total interest-bearing deposits	4,132,003		828		0.08	%	3,670,623		1,813		0.20	%
Other borrowings	40,986		5		0.05	%	26,313		4		0.06	%
Junior subordinated debt	57,788		563		3.91	%	57,372		672		4.71	%
Total interest-bearing liabilities	4,230,777		1,396		0.13	%	3,754,308		2,489		0.27	%
Noninterest-bearing deposits	2,811,078						2,266,671
Other liabilities	126,674						126,351
Shareholders’ equity	960,145						880,405
Total liabilities and shareholders’ equity	$	8,128,674					$	7,027,735
Net interest spread(2)					3.52	%					3.99	%
Net interest income and interest margin(3)			$	67,338	3.58	%			$	64,945	4.10	%

(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.

~~Table~~Net interest income (FTE) during the three months ended June 30, 2021 increased $2,393,000 or 3.7% to $67,338,000 compared to $64,945,000 for the quarter ended June 30, 2020. Over the same period, net interest margin decreased 52 basis points to 3.58% as compared to 4.10% in the comparative 2020 period. The 52 basis point decrease is primarily attributed to a 30 basis point decrease in non-PPP loan yields, which yielded 4.93% as of ~~Contents~~

June 30, 2021 as compared to 5.23% for the quarter ended June 30, 2020.

The following table presents, for the ~~nine~~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~~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).

Nine months ended
September 30, 2020 September 30, 2019
Average
Balance Income/
Expense Yield/
Rate Average
Balance Income/
Expense Yield/
Rate
Assets:
Loans, excluding PPP $ 4,360,942 $ 167,747 5.14 % $ 4,070,568 $ 166,888 5.48 %
PPP loans 244,196 4,959 2.71 % — — — %
Investment securities - taxable 1,249,823 22,637 2.42 % 1,420,426 31,849 3.00 %
Investment securities - nontaxable(1)
117,745 3,515 3.99 % 138,580 4,024 3.88 %
Total investments 1,367,568 26,152 2.55 % 1,559,006 35,873 3.08 %
Cash at Federal Reserve and other banks 403,252 1,056 0.35 % 148,995 2,694 2.42 %
Total interest-earning assets 6,375,958 199,914 4.19 % 5,778,569 205,455 4.75 %
Other assets 595,617 643,130
Total assets $ 6,971,575 $ 6,421,699
Liabilities and shareholders’ equity:
Interest-bearing demand deposits $ 1,293,071 289 0.03 % $ 1,263,312 860 0.09 %
Savings deposits 1,971,348 2,190 0.15 % 1,892,122 3,631 0.26 %
Time deposits 409,005 3,297 1.08 % 443,546 4,277 1.29 %
Total interest-bearing deposits 3,673,424 5,776 0.21 % 3,598,980 8,768 0.33 %
Other borrowings 26,223 13 0.07 % 35,814 384 1.43 %
Junior subordinated debt 57,374 2,009 4.68 % 57,109 2,501 5.86 %
Total interest-bearing liabilities 3,757,021 7,798 0.28 % 3,691,903 11,653 0.42 %
Noninterest-bearing deposits 2,197,315 1,761,037
Other liabilities 120,486 101,947
Shareholders’ equity 896,753 866,812
Total liabilities and shareholders’ equity $ 6,971,575 $ 6,421,699
Net interest spread(2)
3.91 % 4.33 %
Net interest income and interest margin(3)
$ 192,116 4.02 % $ 193,802 4.48 %

Table of Contents

ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS

(unaudited, dollars in thousands)


	Six months ended June 30, 2021						Six months ended June 30, 2020
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	4,527,329	$	111,698	4.98	%	$	4,346,419	$	112,311	5.20	%
PPP loans	344,011		9,042		5.30	%	146,285		2,356		3.24	%
Investments-taxable	1,763,140		13,583		1.55	%	1,235,672		16,261		2.65	%
Investments-nontaxable (1)	128,564		2,306		3.62	%	118,992		2,413		4.08	%
Total investments	1,891,704		15,889		1.69	%	1,354,664		18,674		2.77	%
Cash at Federal Reserve and other banks	629,952		298		0.10	%	266,752		881		0.66	%
Total earning assets	7,392,996		136,927		3.73	%	6,114,120		134,222		4.41	%
Other assets, net	575,138						653,006
Total assets	$	7,968,134					$	6,767,126
Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	1,461,377	$	153	0.02	%	$	1,269,452	$	233	0.04	%
Savings deposits	2,272,830		637		0.06	%	1,918,918		1,706		0.18	%
Time deposits	330,703		975		0.59	%	419,638		2,425		1.16	%
Total interest-bearing deposits	4,064,910		1,765		0.09	%	3,608,008		4,364		0.24	%
Other borrowings	36,870		9		0.05	%	24,552		9		0.07	%
Junior subordinated debt	57,739		1,098		3.83	%	57,324		1,441		5.06	%
Total interest-bearing liabilities	4,159,519		2,872		0.14	%	3,689,884		5,814		0.32	%
Noninterest-bearing deposits	2,734,922						2,059,242
Other liabilities	123,233						123,481
Shareholders’ equity	950,460						894,519
Total liabilities and shareholders’ equity	$	7,968,134					$	6,767,126
Net interest rate spread (1) (2)					3.59	%					4.09	%
Net interest income and margin (1) (3)			$	134,055	3.66	%			$	128,408	4.22	%

(1)Fully taxable equivalent (FTE). All yields and rates are calculated using specific day counts for the period and year as applicable.

(2)Net interest spread ~~represents~~is 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 i~~nterest-earning assets, then annualized based on the number of days in the given period.~~interest-earning assets.

~~Table of Contents~~

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.

(in thousands) Three months ended September 30, 2020
compared with three months ended September 30, 2019
Volume Rate Total
Increase (decrease) in interest income:
Loans, including PPP $ 9,350 $ (8,310) $ 1,040
Investment securities(1)
(2,652) (1,292) (3,944)
Cash at Federal Reserve and other banks 2,752 (3,334) (582)
Total interest-earning assets 9,450 (12,936) (3,486)
Increase (decrease) in interest expense:
Interest-bearing demand deposits 22 (250) (228)
Savings deposits 134 (842) (708)
Time deposits (208) (494) (702)
Other borrowings (179) (151) (330)
Junior subordinated debt 5 (254) (249)
Total interest-bearing liabilities (226) (1,991) (2,217)
Increase (decrease) in net interest income $ 9,676 $ (10,945) $ (1,269)


	Three months ended June 30, 2021 compared with three months ended June 30, 2020
(in thousands)	Volume		Rate		Total
Increase (decrease) in interest income:
Loans, including PPP	$	6,780	$	(4,885)	$	1,895
Investment securities(1)	10,515		(11,147)		(632)
Cash at Federal Reserve and other banks	66		(29)		37
Total interest-earning assets	17,361		(16,061)		1,300
Increase (decrease) in interest expense:
Interest-bearing demand deposits	10		3		13
Savings deposits	113		(449)		(336)
Time deposits	(230)		(432)		(662)
Other borrowings	2		(1)		1
Junior subordinated debt	5		(114)		(109)
Total interest-bearing liabilities	(100)		(993)		(1,093)
Increase (decrease) in net interest income	$	17,461	$	(15,068)	$	2,393

(in thousands) Nine months ended September 30, 2020 compared with nine months ended September 30, 2019
Volume Rate Total
Increase (decrease) in interest income:
Loans, including PPP $ 14,647 $ (8,829) $ 5,818
Investment securities(1)
(6,585) (3,136) (9,721)
Cash at Federal Reserve and other banks 3,077 (4,715) (1,638)
Total interest-earning assets 11,139 (16,680) (5,541)
Increase (decrease) in interest expense:
Interest-bearing demand deposits 27 (598) (571)
Savings deposits 206 (1,647) (1,441)
Time deposits (446) (534) (980)
Other borrowings (137) (234) (371)
Junior subordinated debt 16 (508) (492)
Total interest-bearing liabilities (334) (3,521) (3,855)
Increase (decrease) in net interest income $ 11,473 $ (13,159) $ (1,686)


	Six months ended June 30, 2021 compared with six months ended June 30, 2020
(in thousands)	Volume		Rate		Total
Increase (decrease) in interest income:
Loans, including PPP	$	9,845	$	(3,772)	$	6,073
Investment securities(1)	18,071		(20,856)		(2,785)
Cash at Federal Reserve and other banks	1,199		(1,782)		(583)
Total interest-earning assets	29,115		(26,410)		2,705
Increase (decrease) in interest expense:
Interest-bearing demand deposits	77		(157)		(80)
Savings deposits	637		(1,706)		(1,069)
Time deposits	(1,032)		(418)		(1,450)
Other borrowings	9		(9)		—
Junior subordinated debt	21		(364)		(343)
Total interest-bearing liabilities	(288)		(2,654)		(2,942)
Increase (decrease) in net interest income	$	29,403	$	(23,756)	$	5,647

((1) Fully taxable equivalent (FTE)

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 ~~September~~June 30, ~~2020 decreased $1,269,000~~2021 increased $2,393,000 or ~~1.95%~~3.7% to ~~$63,708,000~~$67,338,000 compared to ~~$64,977,000~~$64,945,000 during the three months ended ~~September~~June 30, ~~2019.~~2020. The overall ~~decrease~~increase in net interest income (FTE) was due to an increase in average loan volume, including PPP, and related income earned on loans, which net of the impact of declining yields resulted in a ~~reduction~~change totaling $1,895,000. Declining interest rates also continued to benefit the interest expense on deposits, resulting in ~~the average outstanding balance, and yields earned~~a decrease of $985,000 in related costs. As an offset, depressed interest rates on investment securities ~~totaling $3,944,000 during the period. Declining interest rates~~ continue to ~~escalate~~incentive pre-payment ~~speeds~~ on existing debt ~~securities~~ and promote new debt issuances ~~at historically low~~being purchased with lower coupon ~~rates. As an offset, increases in average loan balances (including PPP) improved interest income by $9,350,000, however, loan~~ yields, ~~were similarly hampered by low interest rates,~~ resulting in ~~declines~~a decline of $632,000 in ~~interest income of $8,310,000.~~yield during the period.

~~Table of Contents~~

Net interest income (FTE) during the ~~nine~~six months ended ~~September~~June 30, ~~2020 decreased by $1,686,000~~2021 increased $5,647,000 or ~~0.87%~~4.4% to ~~$192,116,000~~$134,055,000 compared to ~~$193,802,000~~$128,408,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2019. Similar to the three month period noted above, the decrease~~2020. The overall increase in net interest income (FTE) ~~is attributed primarily~~was due to declines in both the average outstanding balance, and yields earned on investment securities, totaling $9,721,000 for the nine month period ended 2020. Additionally, a reduction in loan interest rates caused a $8,829,000 decline in interest income, and declines in interest rates on cash and due from banks led to a $4,715,000 decline in interest income. As an ~~offset, increases~~increase in average loan volume, ~~attributed~~including PPP, and related income earned on loans, totaling $6,073,000. Declining interest rates also continued to ~~$14,647,000~~benefit the yield expense on deposits, resulting in ~~additional~~a decrease of $2,559,000 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 $2,785,000 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 ~~September~~June 30, ~~2020,~~2021, the Company recorded a reversal of provision for credit losses of ~~$7,649,000,~~$260,000, as compared to ~~$22,244,000~~a reversal of provision for credit losses of $6,060,000 during the trailing quarter, and a ~~reversal of~~ provision expense of ~~($329,000)~~$22,244,000 during the ~~third~~second quarter of ~~2019.~~2020.

The following table presents details of the provision for credit losses for the periods indicated:


	Three months ended
(in thousands)	June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020
Addition to (reversal of) allowance for credit losses	$	(145)	$	(6,240)	$	4,450	$	7,649	$	22,089
Addition to (reversal of) unfunded loan commitments	(115)		180		400		—		155
Total provision for credit losses	$	(260)	$	(6,060)	$	4,850	$	7,649	$	22,244

Three months ended Nine months ended
(dollars in thousands) September 30, 2020 June 30, 2020 March 31, 2020 September 30, 2020
Addition to allowance for credit losses $ 7,649 $ 22,089 $ 8,000 $ 37,738
Addition to reserve for unfunded loan commitments — 155 70 225
Total provision for credit losses $ 7,649 $ 22,244 $ 8,070 $ 37,963


	Six months ended
(in thousands)	June 30, 2021		June 30, 2020
Addition to (reversal of) allowance for credit losses	$	(6,385)	$	30,089
Addition to (reversal of) unfunded loan commitments	65		224
Total provision for credit losses	$	(6,320)	$	30,313

Prior to January 1, 2020 the Company accounted for the allowance for credit losses (ACL), formerly known as the allowance for loan losses under the incurred loan loss methodology. As of December 31, 2019 the allowance for loan losses was $30,616,000. Upon adoption of CECL on January 1, 2020, 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.

The allowance for credit losses (ACL) was ~~$87,575,000~~$86,062,000 as of ~~quarter ended September~~June 30, ~~2020,~~2021, a net increase of ~~$7,836,000~~$121,000 over the immediately preceding quarter. The reversal of allowance for credit losses of $145,000 was necessary as the net recoveries totaling $266,000 during the quarter were in excess of the required changes in quantitative and qualitative reserve components. More specifically, the portfolio-wide qualitative indicator associated with the forecast levels of US unemployment reduced the required credit reserves by $2,294,000, while the qualitative factors associated with portfolio concentration risks, stemming from second quarter loan growth, added approximately $1,708,000 to the credit expense on loans as of June 30, 2021.

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 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 utilized in the ACL calculation seem to have ~~continued to identify an expanded duration of~~rebounded slightly in the current ~~recessionary period as caused by~~quarter, coinciding with the ~~global pandemic~~widespread availability of vaccines, continued easing of occupancy and ~~partially offset by the governmental~~social distancing restrictions, and continued government stimulus ~~that has been provided to date.~~

The changes in loan volume and changes in credit quality associated with levels of classified, past due and non-performing loans, in addition to changes in qualitative factors, resulted in the need for a provision for credit losses of $7,649,000 and net recoveries totaled $187,000 during the current quarter. The portfolio-wide qualitative indicators for changes in California Unemployment and US Policy uncertainty contributed to the majority of the increase in credit reserves on loans as of September 30, 2020 as compared to the trailing quarter, adding approximately $9,556,000 to the required reserves. These increases were partially offset with a reduced need for reserves for concentration risks totaling $1,472,000 and reductions in specific reserves on individually evaluated loans of $321,000.

During the nine months ended September 30, 2020 the ACL has increased by $38,046,000 or 76.8% to $87,575,000. Of that year-to-date increase, $308,000 is attributable to net recoveries; $3,175,000 is attributable to the net change in loan portfolio composition, risk grade migration and growth; while $34,563,000 is attributable to the net change in qualitative factors.efforts.

Loans past due 30 days or more decreased by ~~$6,100,000~~$1,258,000 during the quarter ended ~~September~~June 30, ~~2020~~2021 to ~~$10,522,000,~~$9,292,000, as compared to ~~$16,622,000~~$10,550,000 at March 31, 2021. Non-performing loans were $32,705,000 at June 30, ~~2020. Non-performing loans were $22,963,000 at September 30, 2020~~2021, an increase of $3,764,000 and $11,975,000, respectively, from $28,941,000 and $20,730,000 atas of March 31, 2021, and June 30, 2020, ~~a slight increase compared to the $16,864,000 and $18,565,000 as of December 31, 2019 and September 30, 2019,~~ respectively.

September 30, % of Total Loans June 30, % of Total Loans December 31, % of Total Loans
(in thousands) 2020 2020 2019
Risk Rating:
Pass $ 4,630,266 95.9 % $ 4,698,393 97.9 % $ 4,228,453 98.2 %
Special Mention 147,343 3.1 % 61,883 1.3 % 44,217 1.0 %
Substandard 48,729 1.0 % 41,129 0.8 % 34,696 0.8 %
Total $ 4,826,338 $ 4,801,405 $ 4,307,366
Classified loans to total loans 1.01 % 0.86 % 0.81 %
Loans past due 30+ days to total loans 0.22 % 0.35 % 0.25 %

~~Table~~The following table illustrates the total loans by risk rating and their respective percentage of ~~Contents~~

total loans for the periods presented.


	June 30,			% of Total Loans		March 31,			% of Total Loans			December 31,			% of Total Loans
(in thousands)	2021					2021					2020
Risk Rating:
Pass	$	4,756,379		96.2	%	$	4,765,180		95.9	%		$	4,556,870		95.7	%
Special Mention	130,234			2.6	%	143,677			2.9	%		157,191			3.3	%
Substandard	58,281			1.2	%	58,120			1.2	%		49,066			1.0	%
Total	$	4,944,894				$	4,966,977					$	4,763,127

Classified loans to total loans	1.18		%			1.17		%				1.03		%
Loans past due 30+ days to total loans	0.19		%			0.19		%				0.14		%

The Company's loan portfolio for non-classified loans (loans graded special mention or better) remains ~~generally~~ consistent for the quarter ended ~~September~~June 30, ~~2020,~~2021, as compared to the trailing quarter ~~June 30, 2020,~~March 31, 2021, representing ~~99.0% and 99.1%~~98.8% of total loans outstanding, respectively. Loans risk graded special mention ~~increased~~decreased by approximately ~~$89,918,000~~$13,445,000 during the quarter ended ~~September~~June 30, ~~2020~~2021 as compared to the trailing ~~quarter. These downgrades to~~quarter, while loans risk graded substandard increased modestly by $161,000 over the same period. The reduction in special mention ~~were~~risk graded credits was largely ~~focused in one relationship~~the result of ~~eight loans~~two relationships being upgraded, totaling ~~approximately $56,600,000, secured by several commercial real estate properties which remain current~~$9,747,000. The total balance of substandard risk graded credits remained consistent as ~~to payment status and are believed to have more than sufficient collateral support. The downgrade is related to recent management and oversight changes within the borrowing entity. Other components~~ of the ~~loan population~~current and trailing quarters; although, the Company did benefit from the payoff of one credit, which was subsequently offset by a separate credit that was downgraded to special mention during the quarter includes approximately $7,900,000 in COVID-19 related restructured loans, shared between two relationships. Total loans greater than 30 days past due downgraded to special mention during the quarter equaled approximately $501,000.substandard.

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There was one ~~insignificant~~ addition ~~and no sales of~~to other real estate owned totaling approximately $101,000 during the ~~three month period~~quarter ended ~~September~~June 30, ~~2020.~~2021 and there was one sale for proceeds of approximately $184,000, which generated a net gain of $15,000 for the quarter. As of ~~September~~June 30, ~~2020,~~2021, other real estate owned ~~which is included in other assets on the consolidated balance sheet,~~ consisted of ~~four~~six properties with a carrying value of ~~$2,057,000.~~approximately $2,248,000.

Non-interest Income

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

Three months ended
September 30,
(dollars in thousands) 2020 2019 $ Change % Change
ATM and interchange fees $ 5,637 $ 5,427 $ 210 3.9 %
Service charges on deposit accounts 3,334 4,327 (993) (22.9) %
Other service fees 805 808 (3) (0.4) %
Mortgage banking service fees 457 483 (26) (5.4) %
Change in value of mortgage servicing rights 236 (455) 691 (151.9) %
Total service charges and fees 10,469 10,590 (121) (1.1) %
Increase in cash value of life insurance 773 773 — — %
Asset management and commission income 667 721 (54) (7.5) %
Gain on sale of loans 3,035 1,236 1,799 145.6 %
Lease brokerage income 175 172 3 1.7 %
Sale of customer checks 91 126 (35) (27.8) %
Gain on sale of investment securities 7 107 (100) (93.5) %
Gain on marketable equity securities — 22 (22) (100.0) %
Other (80) 361 (441) (122.2) %
Total other non-interest income 4,668 3,518 1,150 32.7 %
Total non-interest income $ 15,137 $ 14,108 $ 1,029 7.3 %


	Three months ended June 30,
(in thousands)	2021		2020		$ Change		% Change
ATM and interchange fees	$	6,558	$	5,165	$	1,393	27.0	%
Service charges on deposit accounts	3,462		3,046		416		13.7	%
Other service fees	914		734		180		24.5	%
Mortgage banking service fees	467		459		8		1.7	%
Change in value of mortgage servicing rights	(471)		(1,236)		765		(61.9)	%
Total service charges and fees	10,930		8,168		2,762		33.8	%
Increase in cash value of life insurance	745		710		35		4.9	%
Asset management and commission income	947		661		286		43.3	%
Gain on sale of loans	2,847		1,736		1,111		64.0	%
Lease brokerage income	249		127		122		96.1	%
Sale of customer checks	116		88		28		31.8	%
Gain on sale of investment securities	—		—		—		n/a
Gain on marketable equity securities	8		25		(17)		(68.0)	%
Other	115		142		(27)		(19.0)	%
Total other non-interest income	5,027		3,489		1,538		44.1	%
Total non-interest income	$	15,957	$	11,657	$	4,300	36.9	%

Non-interest income increased ~~$1,029,000~~$4,300,000 or ~~7.3%~~36.9% to ~~$15,137,000~~$15,957,000 during the three months ended ~~September~~June 30, ~~2020~~2021, compared to ~~$14,108,000~~$11,657,000 during the comparable ~~2019~~2020 quarter. ~~Mortgage loan origination volume demand~~Following the relaxed social distancing guidelines, increased debit card usage benefited ATM and interchange fees, increasing by $1,393,000, during the ~~period ended September 30, 2020 as a result~~recent quarter ended. Additionally, changes in the value of ~~the continued favorable interest rate environment, leading to an increase in~~ mortgage ~~loan originations sold into the secondary market which generated an additional $1,799,000~~servicing rights and gain on sale of mortgage loans ~~as compared to the same quarter of 2019. As a partial offset, fee generating deposit account activity remains depressed as a result of the COVID-19 pandemic, declining $993,000~~improved by $765,000 and $1,111,000, respectively, during the three months ended ~~September~~June 30, ~~2020~~2021 as compared to the ~~same~~equivalent period in ~~2019.~~2020.

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The following table ~~summarizes~~presents the ~~Company’s~~key components of non-interest income for the current and prior year periods ~~indicated (in thousands):~~

Nine months ended
September 30,
(dollars in thousands) 2020 2019 $ Change % Change
ATM and interchange fees $ 15,913 $ 15,412 $ 501 3.3 %
Service charges on deposit accounts 10,426 12,389 (1,963) (15.8) %
Other service fees 2,296 2,198 98 4.5 %
Mortgage banking service fees 1,386 1,441 (55) (3.8) %
Change in value of mortgage servicing rights (2,258) (1,652) (606) 36.7 %
Total service charges and fees 27,763 29,788 (2,025) (6.8) %
Increase in cash value of life insurance 2,203 2,294 (91) (4.0) %
Asset management and commission income 2,244 2,102 142 6.8 %
Gain on sale of loans 5,662 2,223 3,439 154.7 %
Lease brokerage income 495 631 (136) (21.6) %
Sale of customer checks 303 401 (98) (24.4) %
Gain on sale of investment securities 7 107 (100) (93.5) %
Gain on marketable equity securities 72 100 (28) (28.0) %
Other (135) 1,688 (1,823) (108.0) %
Total other non-interest income 10,851 9,546 1,305 13.7 %
Total non-interest income $ 38,614 $ 39,334 $ (720) (1.8) %
indicated:


	Six months ended June 30,
(in thousands)	2021		2020		$ Change		% Change
ATM and interchange fees	$	12,419	$	10,276	$	2,143	20.9	%
Service charges on deposit accounts	6,731		7,092		(361)		(5.1)	%
Other service fees	1,785		1,492		293		19.6	%
Mortgage banking service fees	930		928		2		0.2	%
Change in value of mortgage servicing rights	(459)		(2,494)		2,035		(81.6)	%
Total service charges and fees	21,406		17,294		4,112		23.8	%
Increase in cash value of life insurance	1,418		1,430		(12)		(0.8)	%
Asset management and commission income	1,781		1,577		204		12.9	%
Gain on sale of loans	6,094		2,627		3,467		132.0	%
Lease brokerage income	359		320		39		12.2	%
Sale of customer checks	235		212		23		10.8	%
Gain on sale of investment securities	—		—		—		n/m
Gain (loss) on marketable equity securities	(45)		72		(117)		(162.5)	%
Other	819		(55)		874		(1,589.1)	%
Total other non-interest income	10,661		6,183		4,478		72.4	%
Total non-interest income	$	32,067	$	23,477	$	8,590	36.6	%

Non-interest income ~~decreased $720,000~~increased $8,590,000 or ~~1.8%~~36.6% to ~~$38,614,000~~$32,067,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021, compared to ~~$39,334,000~~$23,477,000 during the comparable ~~nine month~~ period in ~~2019. Non-interest income for~~2020. Following the ~~nine~~relaxed social distancing guidelines, increased debit card usage benefited ATM and interchange fees, increasing by $2,143,000, during the most recent six months period ended. Additionally, changes in the value of mortgage servicing rights and gain on sale of mortgage loans improved by $2,035,000 and $3,467,000, respectively, during the six months ended ~~September~~June 30, ~~2020~~2021 as compared to the ~~same~~equivalent period in 2019 was negatively impacted by changes in deposit customer behaviors which have led to a reduction in fee generating account activity which is down $1,963,000 during the nine month period in 2020 as compared to the same period in 2019, has been partially offset by $501,000 in favorable card related activities and interchange income. In addition, the change in the fair value of the Company’s mortgage servicing assets, contributed to a $606,000 decline. Other non-interest income declined by $1,823,000, partially from decreases in the fair value of assets used to fund acquired deferred compensation plans totaling $718,000 for the nine months ended September 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 nine months ended September 30, 2019. The declines noted above were partially offset by $3,439,000 in gains from the sale of mortgage loans, which resulted from both increased volume and profit margins during the nine months ended September 30, 2020.

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Non-interest Expense

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


	Three months ended June 30,
(in thousands)	2021		2020		$ Change		% Change
Base salaries, net of deferred loan origination costs	$	17,537	$	17,277	$	260	1.5	%
Incentive compensation	4,322		2,395		1,927		80.5	%
Benefits and other compensation costs	5,222		7,383		(2,161)		(29.3)	%
Total salaries and benefits expense	27,081		27,055		26		0.1	%
Occupancy	3,700		3,398		302		8.9	%
Data processing and software	3,201		3,657		(456)		(12.5)	%
Equipment	1,207		1,350		(143)		(10.6)	%
Intangible amortization	1,431		1,431		—		—	%
Advertising	734		531		203		38.2	%
ATM and POS network charges	1,551		1,210		341		28.2	%
Professional fees	1,046		741		305		41.2	%
Telecommunications	564		639		(75)		(11.7)	%
Regulatory assessments and insurance	618		360		258		71.7	%
Postage	124		283		(159)		(56.2)	%
Operational losses	212		184		28		15.2	%
Courier service	288		337		(49)		(14.5)	%
Gain on sale or acquisition of foreclosed assets	(15)		(16)		1		(6.3)	%
(Gain) loss on disposal of fixed assets	(426)		15		(441)		(2,940.0)	%
Other miscellaneous expense	2,855		4,375		(1,520)		(34.7)	%
Total other non-interest expense	17,090		18,495		(1,405)		(7.6)	%
Total non-interest expense	$	44,171	$	45,550	$	(1,379)	(3.0)	%
Average full time equivalent staff	1,020		1,140		(120)		(10.5)	%

Three months ended
September 30,
2020 2019 $ Change % Change
Base salaries, net of deferred loan origination costs $ 18,754 $ 17,656 $ 1,098 6.2 %
Incentive compensation 2,184 3,791 (1,607) (42.4) %
Benefits and other compensation costs 8,383 5,452 2,931 53.8 %
Total salaries and benefits expense 29,321 26,899 2,422 9.0 %
Occupancy 3,440 3,711 (271) (7.3) %
Data processing and software 3,561 3,411 150 4.4 %
Equipment 1,549 1,679 (130) (7.7) %
Intangible amortization 1,431 1,431 — — %
Advertising 869 1,358 (489) (36.0) %
ATM and POS network charges 1,314 1,343 (29) (2.2) %
Professional fees 955 999 (44) (4.4) %
Telecommunications 619 867 (248) (28.6) %
Regulatory assessments and insurance 538 94 444 472.3 %
Postage 118 438 (320) (73.1) %
Operational losses 154 228 (74) (32.5) %
Courier service 345 357 (12) (3.4) %
Gain on sale of foreclosed assets — (50) 50 (100.0) %
Loss on disposal of fixed assets 22 2 20 1,000.0 %
Other miscellaneous expense 2,478 3,577 (1,099) (30.7) %
Total other non-interest expense 17,393 19,445 (2,052) (10.6) %
Total non-interest expense $ 46,714 $ 46,344 $ 370 0.8 %
Average full time equivalent staff 1,105 1,160 (55) (4.7) %

Non-interest expense ~~increased~~decreased by ~~$370,000~~$1,379,000 or ~~0.8%~~3.0% to ~~$46,714,000~~$44,171,000 during the three months ended ~~September~~June 30, ~~2020~~2021 as compared to ~~$46,344,000~~$45,550,000 for the three months ended ~~September~~June 30, ~~2019. Total salary~~2020. Benefits and ~~benefit~~other compensation expense ~~increased~~decreased by ~~$2,422,000 or 9.0% to $29,321,000~~$2,161,000 during the three months ended ~~September~~June 30, ~~2020 as compared to $26,899,000 for the same period in 2019. Salaries, net of deferred loan origination costs increased by $1,098,000 to $18,754,000 for the three-months ended September 30, 2020~~2021, primarily due to a decrease in loan origination activity and therefore a reduction in deferred loan origination costs of $165,000 as well as employee severance costs of $400,000 associated with reductions in personnel.~~Benefits related expenses increased by $2,931,000 to $8,383,000 during the quarter primarily as a result of increases in expenses associated with retirement obligations and insurance~~improved long-term benefit obligation costs. ~~Partially offsetting this increase were declines in~~Other miscellaneous expenses ~~which~~ decreased ~~during the period~~ by $1,099,000 or 30.7% to $2,478,000, and were specifically attributed to a $614,000 reduction in travel and outside training expenses as associated with the precautionary and restricted travel environment associated with the pandemic. Further, reductions in advertising expense totaled $489,000 or 36.0%, to $869,000$1,520,000 during the three months ended ~~September~~June 30, ~~2020~~2021, due specifically to the absence of indirect loan documentation and administrative costs incurred in conjunction with the PPP loan program incurred during the three months ended June 30, 2020. A gain on disposal of fixed assets was recorded during the quarter totaling $426,000 related to the sale of a former retail branch building. Conversely, incentive compensation increased by $1,927,000 or 80.5% to $4,322,000 during the quarter ended June 30, 2021 as compared to ~~$1,358,000 for~~ the same period in ~~2019.~~

2020, due to the organic loan growth and strong overall Company performance during the quarter.

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The following table ~~summarizes~~presents the ~~Company’s~~key components of non-interest ~~expense~~income for the current and prior year periods ~~indicated (dollars in thousands):~~indicated:

Nine months ended
September 30,
2020 2019 $ Change % Change
Base salaries, net of deferred loan origination costs $ 53,654 $ 51,624 $ 2,030 3.9 %
Incentive compensation 7,680 10,064 (2,384) (23.7) %
Benefits and other compensation costs 22,314 17,058 5,256 30.8 %
Total salaries and benefits expense 83,648 78,746 4,902 6.2 %
Occupancy 10,713 11,223 (510) (4.5) %
Data processing and software 10,585 10,114 471 4.7 %
Equipment 4,411 5,298 (887) (16.7) %
Intangible amortization 4,293 4,293 — — %
Advertising 2,065 4,222 (2,157) (51.1) %
ATM and POS network charges 3,897 3,936 (39) (1.0) %
Professional fees 2,399 2,895 (496) (17.1) %
Telecommunications 1,983 2,437 (454) (18.6) %
Regulatory assessments and insurance 993 1,095 (102) (9.3) %
Postage 691 1,063 (372) (35.0) %
Operational losses 559 679 (120) (17.7) %
Courier service 1,013 1,039 (26) (2.5) %
Gain on sale of foreclosed assets (57) (246) 189 (76.8) %
Loss on disposal of fixed assets 37 82 (45) (54.9) %
Other miscellaneous expense 9,783 11,617 (1,834) (15.8) %
Total other non-interest expense 53,365 59,747 (6,382) (10.7) %
Total non-interest expense $ 137,013 $ 138,493 $ (1,480) (1.1) %
Average full time equivalent staff 1,093 1,145 (52) (4.5) %

~~Non-interest expense decreased by $1,480,000 or 1.1% to $137,013,000 during the nine months ended~~ September 30, 2020 as compared to $138,493,000 for the same period in 2019. Reductions in advertising expenses totaling $2,157,000 or 51.1% to $2,065,000 contributed to this beneficial change, as did declines in miscellaneous expenses totaling $1,834,000 or 15.8% attributed primarily to a $1,681,000 reduction in travel and training expenses as a result of state-wide shelter-in-place restrictions and a reduction of $418,000 in third party services, which were partially offset by the indirect loan documentation and administrative costs associated with PPP lending activity. These declines were also offset by a net increase in salaries and benefits expense by $4,902,000 or 6.2% to $83,648,000 during the ~~nine~~ months ended September 30, 2020 as compared to $78,746,000 for the same period in 2019. While the increase in salaries was more than offset by the reductions in incentive compensation costs, increases in benefits and other compensation costs of $5,256,000 were caused by expenses associated with retirement obligations.


	Six months ended June 30,
(in thousands)	2021		2020		$ Change		% Change
Base salaries, net of deferred loan origination costs	$	33,048	$	34,900	$	(1,852)	(5.3)	%
Incentive compensation	7,902		5,496		2,406		43.8	%
Benefits and other compensation costs	11,461		13,931		(2,470)		(17.7)	%
Total salaries and benefits expense	52,411		54,327		(1,916)		(3.5)	%
Occupancy	7,426		7,273		153		2.1	%
Data processing and software	6,403		7,024		(621)		(8.8)	%
Equipment	2,724		2,862		(138)		(4.8)	%
Intangible amortization	2,862		2,862		—		—	%
Advertising	1,114		1,196		(82)		(6.9)	%
ATM and POS network charges	2,797		2,583		214		8.3	%
Professional fees	1,640		1,444		196		13.6	%
Telecommunications	1,145		1,364		(219)		(16.1)	%
Regulatory assessments and insurance	1,230		455		775		170.3	%

Postage	322		573		(251)		(43.8)	%
Operational losses	421		405		16		4.0	%
Courier service	582		668		(86)		(12.9)	%
Gain on sale or acquisition of foreclosed assets	(66)		(57)		(9)		15.8	%
(Gain) loss on disposal of fixed assets	(426)		15		(441)		(2940.0)	%
Other miscellaneous expense	5,204		7,306		(2,102)		(28.8)	%
Total other non-interest expense	33,378		35,973		(2,595)		(7.2)	%
Total non-interest expense	$	85,789	$	90,300	$	(4,511)	(5.0)	%
Average full-time equivalent staff	1,022		1,141		(119)		(10.4)	%

Income Taxes

The Company’s effective tax rate was ~~25.1%~~28.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~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 $24,933,000 was~~ ~~primarily attributed to organic non-PPP loan originations of $22,416,000 or 2.0% of loan balances, excluding PPP, during the quarter ended September 30, 2020.~~ ~~Investment securities increased to $1,473,935,000, a change of $120,207,000 or 35.5% from $1,353,728,000 at June 30, 2020.~~ ~~The Company purchased approximately $196,118,000 in~~

~~Table of Contents~~

securities during the three months ended September 30, 2020, offset largely by an accelerated rate of prepayment or maturity of these debt instruments totaling $79,621,000 correlating with the historically low interest rate environment.

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


(in thousands)	As of June 30, 2021		As of December 31, 2020		$ Change		Annualized % Change
Ending balances
Total assets	$	8,170,365	$	7,639,529	$	530,836	13.9	%
Total loans	4,944,894		4,763,127		181,767		7.6	%
Total PPP loans	239,592		326,770		(87,178)		(53.4)	%
Total investments	2,103,575		1,719,102		384,473		44.7	%
Total deposits	6,992,053		6,505,934		486,119		14.9	%
Total noninterest-bearing deposits	2,843,783		2,581,517		262,266		20.3	%
Total other borrowings	40,559		26,914		13,645		101.4	%

($‘s in thousands) As of September 30, 2020 As of June 30, 2020 $ Change Annualized
% Change
Ending balances
Total assets $ 7,449,799 $ 7,360,071 $ 89,728 4.9 %
Total loans 4,826,338 4,801,405 24,933 2.1 %
Total investments 1,473,935 1,353,728 120,207 35.5 %
Total deposits 6,340,588 6,248,258 92,330 5.9 %
Total noninterest-bearing deposits 2,517,819 2,487,120 30,699 4.9 %
Total other borrowings 27,055 38,544 (11,489) (119.2) %
Organic loan growth, excluding PPP, of $99,169,000 or 8.6% on an annualized basis was realized during the quarter ended June 30, 2021, primarily within commercial real estate. In addition, investment security growth was $140,795,000 or 28.7% on an annualized basis as excess liquidity continued to be put to use in higher yielding earning assets. Earning asset growth was funded by the continued growth of deposit balances which increased during the second quarter of 2021 by $128,653,000 or 7.5% annualized. SBA forgiveness outpaced new loan origination activity, resulting in a $22,083,000 or 1.8% annualized decrease in total loans during the second quarter as compared to the trailing quarter.

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


	As of June 30,				$ Change		% Change
(in thousands)	2021		2020
Ending balances
Total assets	$	8,170,365	$	7,360,071	$	810,294	11.0	%
Total loans	4,944,894		4,801,405		143,489		3.0	%
Total PPP loans	239,592		423,431		(183,839)		(43.4)	%
Total investments	2,103,575		1,353,728		749,847		55.4	%
Total deposits	6,992,053		6,248,258		743,795		11.9	%
Total noninterest-bearing deposits	2,843,783		2,487,120		356,663		14.3	%
Total other borrowings	40,559		38,544		2,015		5.2	%

As of September 30, $ Change % Change
($‘s in thousands) 2020 2019
Ending balances
Total assets $ 7,449,799 $ 6,384,883 $ 1,064,916 16.7 %
Total loans 4,826,338 4,182,348 643,990 15.4 %
Total investments 1,473,935 1,397,753 76,182 5.5 %
Total deposits 6,340,588 5,295,407 1,045,181 19.7 %
Total noninterest-bearing deposits 2,517,819 1,777,357 740,462 41.7 %
Total other borrowings 27,055 16,423 10,632 64.7 %

~~Loan growth of $643,990,000 or 15.4%~~The PPP program generated significant increases in volume during the twelve ~~month period ending September~~months ended June 30, ~~2020 consisted~~2021 for both loan and deposit balances. Other forms of ~~approximately $425,947,000 from the PPP program, with the remainder of approximately $218,043,000 attributed to organic loan growth. Growth of~~stimulus payments have further elevated deposit ~~balances totaled $1,045,181,000 or 19.7%~~levels during the same ~~comparative~~ period. ~~Expansion~~While excess deposit proceeds are ratably being allocated to the purchase of ~~Federal stimulus programs and the trends in consumer spending including reduced~~investment securities with medium term durations to improve overall margin, we expect to maintain above average levels of ~~business~~liquidity through 2021, as the economic impacts of COVID-19 and ~~personal travel likely attributed to the significant deposit growth during the quarter. Excess deposit proceeds have been temporarily allocated to cash and due from banks, which~~amount of future stimulus both remain uncertain. Investment securities increased to ~~$652,582,000~~$2,103,575,000 at ~~September~~June 30, ~~2020~~2021, a change of $749,847,000 or 55.4% from ~~$259,047,000 as of September~~$1,353,728,000 at June 30, ~~2019.~~2020.

Investment Securities

Investment securities available for sale increased ~~$192,819,000~~$433,304,000 to ~~$1,142,957,000~~$1,847,568,000 as of ~~September~~June 30, ~~2020,~~2021, compared to December 31, ~~2019.~~2020. This increase is primarily supported by deposit growth and available cash reserves. Proceeds from the sale of investment securities totaled $229,000 and $125,247,000 during the nine month periods ended September 30, 2020 and 2019, respectively. Gross realized gains from the sale of investment securities totaled $7,000 during the three and nine months ended September 30, 2020, respectively. There were no gross realized losses on the sale of securities during 2020. Gross realized gains from the sale of investment securities totaled $335,000 during the three and nine months ended September 30, 2019, respectively. Gross realized losses from the salesales of investment securities during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019 totaled $228,000. Sale activity in the~~2021 and 2020, ~~and 2019 periods related to the repositioning of the investment securities portfolio which was necessitated by changes in the broader rate environment.~~respectively.

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


	June 30, 2021				December 31, 2020
(in thousands)	Fair Value		%		Fair Value		%
Debt securities available for sale:
Obligations of U.S. government agencies	$	1,133,416	61.3	%	$	812,374	57.4	%
Obligations of states and political subdivisions	146,924		8.0	%	129,095		9.1	%
Corporate bonds	2,556		0.1	%	2,544		0.2	%
Asset backed securities	564,672		30.6	%	470,251		33.3	%
Total debt securities available for sale	$	1,847,568	100.0	%	$	1,414,264	100.0	%

September 30, 2020 December 31, 2019
(dollars in thousands) Fair Value % Fair Value %
Debt securities available for sale:
Obligations of U.S. government agencies $ 573,888 50.2 % $ 472,980 49.8 %
Obligations of states and political subdivisions 112,725 9.9 % 109,601 11.5 %
Corporate bonds 2,552 0.2 % 2,532 0.3 %
Asset backed securities 453,792 39.7 % 365,025 38.4 %
Total debt securities available for sale $ 1,142,957 100.0 % $ 950,138 100.0 %

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September 30, 2020 December 31, 2019
(dollars in thousands) Amortized
Cost % Amortized
Cost %
Debt securities held to maturity:
Obligations of U.S. government and agencies $ 299,797 96.5 % $ 361,785 96.3 %
Obligations of states and political subdivisions 10,899 3.5 % 13,821 3.7 %
Total debt securities held to maturity $ 310,696 100.0 % $ 375,606 100.0 %


	June 30, 2021				December 31, 2020
(in thousands)	Amortized Cost		%		Amortized Cost		%
Debt securities held to maturity:
Obligations of U.S. government and agencies	$	226,925	96.2	%	$	273,667	96.2	%
Obligations of states and political subdivisions	8,853		3.8	%	10,896		3.8	%
Total debt securities held to maturity	$	235,778	100.0	%	$	284,563	100.0	%

Investment securities held to maturity decreased ~~$64,910,000~~$48,785,000 to ~~$310,696,000~~$235,778,000 as of ~~September~~June 30, ~~2020,~~2021, as compared to December 31, ~~2019.~~2020. This decrease is attributable to calls and principal repayments of ~~$26,136,000,~~$48,269,000, and amortization of net purchase premiums of ~~$332,000.~~$2,855,000.

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.

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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) September 30, 2020 December 31, 2019
Commercial real estate $ 2,936,422 60.8 % $ 2,818,782 65.4 %
Consumer 926,835 19.2 % 955,050 22.2 %
Commercial and industrial 633,897 13.1 % 249,791 5.8 %
Construction 284,933 5.9 % 249,827 5.8 %
Agriculture production 40,613 0.8 % 32,633 0.79 %
Leases 3,638 0.2 % 1,283 0.01 %
Total loans $ 4,826,338 100.0 % $ 4,307,366 100.0 %


(in thousands)	June 30, 2021				December 31, 2020
Commercial real estate	$	3,194,336	64.60	%	$	2,951,902	61.97	%
Consumer	1,050,609		21.25	%	952,108		19.99	%
Commercial and industrial	452,069		9.14	%	526,327		11.05	%
Construction	200,714		4.06	%	284,842		5.98	%
Agriculture production	41,967		0.85	%	44,164		0.93	%
Leases	5,199		0.11	%	3,784		0.08	%
Total loans	$	4,944,894	100.0	%	$	4,763,127	100.0	%

At September 30, 2020 loans, including net deferred loan costs and discounts, totaled $4,826,338,000 which was a $422,343,000 (38.6%) annualized increase over the balances at December 31, 2019. As a Small Business Administration (SBA) Preferred Lender, the Company was able to provide PPP loans to small business customers. As of ~~the quarter ended September~~June 30, ~~2020,~~2021, the total gross balance outstanding of PPP loans was ~~$437,793,000 (approximately 2,900 loans)~~$248,582,000 as compared to total PPP originations of ~~$438,510,000.~~$640,410,000. In connection with the origination of these loans, the Company earned approximately ~~$15,735,000~~$25,299,000 in loan fees, offset by deferred loan costs of approximately ~~$763,000,~~$1,245,000, the net of which will be recognized over the earlier of loan maturity (between 24-60 months), repayment or receipt of forgiveness confirmation. As of ~~September~~June 30, ~~2020~~2021 there was approximately ~~$11,846,000~~$8,990,000 in net deferred fee income ~~expected~~remaining to be recognized. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company recognized ~~$2,603,000~~$2,344,000 and ~~$4,959,000,~~$7,304,000, respectively in ~~interest and~~ fees on PPP loans.

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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) September 30,
2020 December 31,
2019
Performing nonaccrual loans $ 17,932 $ 11,266
Nonperforming nonaccrual loans 4,986 5,579
Total nonaccrual loans 22,918 16,845
Loans 90 days past due and still accruing 45 19
Total nonperforming loans 22,963 16,864
Foreclosed assets 2,057 2,541
Total nonperforming assets $ 25,020 $ 19,405
Nonperforming assets to total assets 0.34 % 0.30 %
Nonperforming loans to total loans 0.48 % 0.39 %
Allowance for credit losses to nonperforming loans 381 % 182 %


(in thousands)	June 30, 2021			December 31, 2020
Performing nonaccrual loans	$	25,307		$	22,896
Nonperforming nonaccrual loans	7,398			3,968
Total nonaccrual loans	32,705			26,864
Loans 90 days past due and still accruing	—			—
Total nonperforming loans	32,705			26,864
Foreclosed assets	2,247			2,844
Total nonperforming assets	$	34,952		$	29,708
Nonperforming assets to total assets	0.44		%	0.39		%
Nonperforming loans to total loans	0.66		%	0.56		%
Allowance for credit losses to nonperforming loans	274		%	342		%

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


(in thousands)	(in thousands)	Balance at June 30, 2020		New NPA / Valuation Adjustments	Pay-downs /Sales /Upgrades		Charge-offs/ (1) Write-downs	Transfers to Foreclosed Assets	Balance at September 30, 2020		(in thousands)	Balance at March 31, 2021		New NPA / Valuation Adjustments	Pay-downs /Sales /Upgrades		Charge-offs/ (1) Write-downs	Transfers to Foreclosed Assets	Balance at June 30, 2021
Commercial real estate:	Commercial real estate:										Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	677	2,461	(128)		—	—	$	3,010	CRE non-owner occupied	$	7,000	1,833	(318)		—	—	$	8,515
CRE owner occupied	CRE owner occupied	2,409		1,397	(28)		—	—	3,778		CRE owner occupied	3,762		2,134	(286)		—	—	5,610
Multifamily	Multifamily	2,024		—	(2,024)				—		Multifamily	—		171	—		—	—	171
Farmland	Farmland	1,819		238	(1)		—	—	2,056		Farmland	1,431		—	(85)		—	—	1,346
Total commercial real estate loans	Total commercial real estate loans	6,929		4,096	(2,181)		—	—	8,844		Total commercial real estate loans	12,193		4,138	(689)		—	—	15,642
Consumer	Consumer										Consumer
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	6,719		1,144	(1,330)		(2)	(158)	6,373		SFR 1-4 1st DT liens	4,996		23	(793)		—	102	4,328
SFR HELOCs and junior liens	SFR HELOCs and junior liens	5,665		385	(865)		—	—	5,185		SFR HELOCs and junior liens	5,142		292	(830)		—	—	4,604
Other	Other	106		454	(183)		(98)	—	279		Other	103		30	(8)		(12)	—	113
Total consumer loans	Total consumer loans	12,490		1,983	(2,378)		(100)	(158)	11,837		Total consumer loans	10,241		345	(1,631)		(12)	102	9,045
Commercial and industrial	Commercial and industrial	1,710		851	(489)		(94)	—	1,978		Commercial and industrial	2,019		1,985	(88)		(301)		3,615
Construction	Construction	—		18	—		—	—	18		Construction	4,483		—	(81)		—	—	4,402
Agriculture production	Agriculture production	445		—	(159)		—	—	286		Agriculture production	5		—	(5)		—	—	—
Leases	Leases	—		—	—		—	—	—		Leases	—		—	—		—	—	—
Total nonperforming loans	Total nonperforming loans	21,574		6,948	(5,207)		(194)	(158)	22,963		Total nonperforming loans	28,941		6,468	(2,494)		(313)	102	32,704
Foreclosed assets	Foreclosed assets	1,922		—	—		(23)	158	2,057		Foreclosed assets	2,309		—	(61)		—	—	2,248
Total nonperforming assets	Total nonperforming assets	$	23,496	6,948	(5,207)	—	(217)	—	$	25,020	Total nonperforming assets	$	31,250	6,468	(2,555)	—	(313)	102	$	34,952

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

Nonperforming assets increased during the three months ended ~~September~~June 30, ~~2020 $1,524,000 (6.5%~~2021 by $3,702,000 (11.8%) to ~~$25,020,000 at September 30, 2020 compared to $23,496,000~~$34,952,000 at June 30, ~~2020.~~2021 compared to $31,250,000 at March 31, 2021. The increase in nonperforming assets during the ~~third~~second quarter of ~~2020~~2021 was primarily the result of new nonperforming loans of ~~$6,948,000,~~$6,468,000, which were partially offset by pay-downs of ~~$5,207,000~~$2,555,000 and write-downs of ~~$217,000.~~$313,000.

Non performing loans added during the ~~third~~second quarter of ~~2020~~2021 were primarily within commercial real estate, with non-owner occupied adding ~~$2,461,000~~$1,833,000 and owner occupied ~~additions totaling $1,397,000.~~contributing $2,134,000 . Management believes these loans are well-secured as of ~~September~~June 30, ~~2020.~~2021. Further, management is actively engaged in 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 ~~September~~June 30, ~~2020.~~2021.

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

In the ~~third~~second quarter of ~~2020,~~2021, the Company recorded ~~$136,000~~$313,000 in loan charge-offs and ~~$58,000~~$74,000 in deposit overdraft charge-offs less ~~$334,000~~$623,000 in loan recoveries and ~~$47,000~~$30,000 in deposit overdraft recoveries, ~~resulting~~which collectively resulted in ~~$187,000~~$266,000 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 ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021

(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
September 30, 2020
Commercial real estate:
CRE non-owner occupied $ 642 2,527 (159) — — $ 3,010
CRE owner occupied 1,408 2,651 (281) — — 3,778
Multifamily 2,024 — (2,024) — — —
Farmland 1,242 1,003 (189) — — 2,056
Total commercial real estate loans 5,316 6,181 (2,653) — — 8,844
Consumer
SFR 1-4 1st DT liens 5,191 3,181 (1,828) (13) (158) 6,373
SFR HELOCs and junior liens 4,217 2,517 (1,526) (23) — 5,185
Other 51 702 (3) (471) — 279
Total consumer loans 9,459 6,400 (3,357) (507) (158) 11,837
Commercial and industrial 2,050 1,727 (1,111) (688) — 1,978
Construction — 18 — — — 18
Agriculture production 39 426 (179) — — 286
Leases — — — — — —
Total nonperforming loans 16,864 14,752 (7,300) (1,195) (158) 22,963
Foreclosed assets 2,541 — (534) (108) 158 2,057
Total nonperforming assets $ 19,405 14,752 (7,834) — (1,303) — $ 25,020


(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 June 30, 2021
Commercial real estate:
CRE non-owner occupied	$	3,110	5,776	(371)		—	—	$	8,515
CRE owner occupied	4,061		2,135	(586)		—	—	5,610
Multifamily	—		171	—		—	—	171
Farmland	1,538		—	(192)		—	—	1,346
Total commercial real estate loans	8,709		8,082	(1,149)		—	—	15,642
Consumer
SFR 1-4 1st DT liens	5,093		44	(911)		—	102	4,328
SFR HELOCs and junior liens	6,148		644	(2,188)		—	—	4,604
Other	167		91	(8)		(137)	—	113
Total consumer loans	11,408		779	(3,107)		(137)	102	9,045
Commercial and industrial	2,183		2,448	(682)		(334)	—	3,615
Construction	4,546		—	(144)		—	—	4,402
Agriculture production	18		—	(18)		—	—	—
Leases	—		—	—		—	—	—
Total nonperforming loans	26,864		11,309	(5,100)		(471)	102	32,704
Foreclosed assets	2,844		—	(596)		—	—	2,248
Total nonperforming assets	$	29,708	11,309	(5,696)	—	(471)	102	$	34,952

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

Nonperforming assets increased during the ~~first nine~~six months ~~of 2020~~ended June 30, 2021 by ~~$5,615,000 (28.9%~~$5,244,000 (17.7%) to ~~$25,020,000~~$34,952,000 at ~~September~~June 30, ~~2020~~2021 compared to ~~$19,405,000~~$29,708,000 at December 31, ~~2019.~~2020. The increase in nonperforming assets during the ~~third quarter~~first half of ~~2020~~2021 was primarily the result of new nonperforming loans of ~~$14,752,000,~~$11,309,000, which were partially offset by pay-downs of ~~$7,834,000~~$5,696,000 and write-downs of ~~$1,303,000.~~$471,000.

Loan charge-offs during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company recorded ~~$952,000~~$471,000 in loan charge-offs and ~~$243,000~~$142,000 in deposit overdraft charge-offs less ~~$1,344,000~~$1,149,000 in loan recoveries and ~~$159,000~~$64,000 in deposit overdraft recoveries, ~~resulting~~which collectively resulted in ~~$308,000~~$600,000 of net ~~recoveries for the year to date period.~~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.

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) September 30,
2020 June 30,
2020 March 31, 2020 January 1, 2020 December 31,
2019
Allowance for credit losses:
Qualitative and forecast factor allowance $ 56,393 $ 48,548 $ 29,250 $ 21,830 $ 13,476
Cohort model allowance reserves 30,373 30,061 27,699 26,900 16,205
Total allowance for credit losses 86,766 78,609 56,949 48,730 29,681
Allowance for individually evaluated loans 809 1,130 962 799 935
Allowance for PCD loan losses — — — — n/a
Allowance for PCI loan losses n/a n/a n/a n/a 6
Total allowance for credit losses $ 87,575 $ 79,739 $ 57,911 $ 49,529 $ 30,616
Allowance for credit losses for loans 1.81 % 1.66 % 1.32 % 1.16 % 0.71 %


(in thousands)	June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020
Allowance for credit losses:
Qualitative and forecast factor allowance	$	58,118		$	56,500		$	61,935		$	56,393		$	48,548
Cohort model allowance reserves	26,237			27,959			28,462			30,373			30,061
Total allowance for credit losses	84,355			84,459			90,397			86,766			78,609
Allowance for individually evaluated loans	1,707			1,482			1,450			809			1,130
Allowance for PCD loan losses	—			—			—			—			—
Total allowance for credit losses	$	86,062		$	85,941		$	91,847		$	87,575		$	79,739
Allowance for credit losses for loans / Total loans	1.74		%	1.73		%	1.93		%	1.81		%	1.66		%

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 ~~$87,575,000~~$86,062,000 allowance for loan losses at ~~September~~June 30, ~~2020~~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

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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:

September 30, 2020 January 1, 2020 December 31, 2019
Commercial real estate $ 50,294 57.4 % 23,843 48.1 % $ 11,995 39.2 %
Consumer 24,007 27.4 % 18,368 37.1 % 10,084 32.9 %
Commercial and industrial 4,534 5.2 % 2,906 5.9 % 4,867 15.9 %
Construction 7,640 8.7 % 4,321 8.7 % 3,388 11.1 %
Agriculture production 1,093 1.2 % 82 0.2 % 261 0.9 %
Leases 7 0.0 % 9 0.0 % 21 0.1 %
Total allowance for credit losses $ 87,575 100.0 % 49,529 100.0 % $ 30,616 100.0 %


	June 30, 2021				December 31, 2020			June 30, 2020
Commercial real estate	$	51,637	60.0	%	53,693	58.5	%	$	44,850	56.2	%
Consumer	23,950		27.8	%	25,148	27.4	%	23,165		29.1	%
Commercial and industrial	4,511		5.2	%	4,252	4.6	%	4,018		5.0	%
Construction	4,951		5.8	%	7,540	8.2	%	6,775		8.5	%
Agriculture production	1,007		1.2	%	1,209	1.3	%	919		1.2	%
Leases	6		—	%	5	—	%	12		0.02	%
Total allowance for credit losses	$	86,062	100.0	%	91,847	100.0	%	$	79,739	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:


		September 30, 2020				January 1, 2020				December 31, 2019					June 30, 2021				December 31, 2020				June 30, 2020
Commercial real estate	Commercial real estate	$	2,936,422	1.71	%	$	2,818,782	0.85	%	$	2,818,782	0.42	%	Commercial real estate	$	3,194,336	1.62	%	$	2,951,902	1.82	%	$	2,905,485	1.54	%
Consumer	Consumer	926,835		2.57	%	955,050		1.92	%	955,050		1.05	%	Consumer	1,050,609		2.27	%	952,108		2.62	%	945,669		2.45	%
Commercial and industrial	Commercial and industrial	633,897		0.72	%	249,791		1.16	%	249,791		1.81	%	Commercial and industrial	452,069		1.00	%	526,327		0.81	%	634,481		0.63	%
Construction	Construction	284,933		2.68	%	249,827		1.73	%	249,827		1.36	%	Construction	200,714		2.47	%	284,842		2.65	%	278,566		2.43	%
Agriculture production	Agriculture production	40,613		2.69	%	32,633		0.25	%	32,633		1.82	%	Agriculture production	41,967		2.40	%	44,164		2.74	%	35,441		0.26	%
Leases	Leases	3,638		0.19	%	1,283		0.70	%	1,283		1.63	%	Leases	5,199		0.12	%	3,784		0.13	%	1,763		0.68	%
Total allowance for credit losses		$	4,826,338	1.88	%	$	4,307,366	1.15	%	$	4,307,366	0.71	%
Total loans														Total loans	$	4,944,894	1.74	%	$	4,763,127	1.93	%	$	4,801,405	1.66	%

5856

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


		Three months ended September 30,						Nine months ended September 30,							Three months ended June 30,						Six months ended June 30,
(in thousands)	(in thousands)	2020			2019			2020			2019			(in thousands)	2021			2020			2021			2020
Allowance for credit losses:	Allowance for credit losses:													Allowance for credit losses:
Balance at beginning of period	Balance at beginning of period	$	79,739		$	32,868		$	30,616		$	32,582		Balance at beginning of period	$	85,941		$	57,911		$	91,847		$	30,616
Impact of adoption from ASU 2016-13	Impact of adoption from ASU 2016-13	—			—			18,913			—			Impact of adoption from ASU 2016-13	—			—			—			18,913
Provision for (reversal of) loan losses	Provision for (reversal of) loan losses	7,649			(329)			37,738			(1,392)			Provision for (reversal of) loan losses	(145)			22,089			(6,385)			30,089
Loans charged-off:	Loans charged-off:													Loans charged-off:
Commercial real estate:	Commercial real estate:													Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	—			—			—			—			CRE non-owner occupied	—			—			—			—
CRE owner occupied	CRE owner occupied	—			(746)			—			(746)			CRE owner occupied	—			—			—			—
Multifamily	Multifamily	—			—			—			—			Multifamily	—			—			—			—
Farmland	Farmland	—			—			—			—			Farmland	—			—			—			—
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	(2)			—			(13)			(2)			SFR 1-4 1st DT liens	—			(11)			—			(11)
SFR HELOCs and junior liens	SFR HELOCs and junior liens	—			(3)			(23)			(3)			SFR HELOCs and junior liens	—			(23)			—			(23)
Other	Other	(98)			(189)			(471)			(548)			Other	(86)			(243)			(279)			(373)
Commercial and industrial	Commercial and industrial	(94)			(565)			(688)			(1,222)			Commercial and industrial	(301)			(214)			(334)			(594)
Construction	Construction	—			—			—			—			Construction	—			—			—			—
Agriculture production	Agriculture production	—			(20)			—			(20)			Agriculture production	—			—			—			—
Leases	Leases	—			—			—			—			Leases	—			—			—			—
Total loans charged-off	Total loans charged-off	(194)			(1,523)			(1,195)			(2,541)			Total loans charged-off	(387)			(491)			(613)			(1,001)
Recoveries of previously charged-off loans:	Recoveries of previously charged-off loans:													Recoveries of previously charged-off loans:
Commercial real estate:	Commercial real estate:													Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	23			9			223			1,397			CRE non-owner occupied	—			5			2			193
CRE owner occupied	CRE owner occupied	1			118			3			121			CRE owner occupied	—			4			1			9
Multifamily	Multifamily	—			—			—			—			Multifamily	—			—			—			—
Farmland	Farmland	—			—			—			—			Farmland	—			—			—			—
Consumer:	Consumer:													Consumer:
Home equity lines	Home equity lines	2			47			414			53			Home equity lines	1			2			11			412
Home equity loans	Home equity loans	126			182			265			719			Home equity loans	512			92			797			140
Other consumer	Other consumer	85			80			253			263			Other consumer	59			72			165			167
Commercial and industrial	Commercial and industrial	142			83			323			325			Commercial and industrial	79			55			215			181
Construction	Construction	—			—			—			—			Construction	—			—			—			—
Agriculture production	Agriculture production	2			1			22			10			Agriculture production	2			—			22			20
Leases	Leases	—			—			—			—			Leases	—			—			—			—
Total recoveries of previously charged-off loans	Total recoveries of previously charged-off loans	381			520			1,503			2,888			Total recoveries of previously charged-off loans	653			230			1,213			1,122
Net (charge-offs) recoveries	Net (charge-offs) recoveries	187			(1,003)			308			347			Net (charge-offs) recoveries	266			(261)			600			121
Balance at end of period	Balance at end of period	$	87,575		$	31,536		$	87,575		$	31,537		Balance at end of period	$	86,062		$	79,739		$	86,062		$	79,739
Average total loans	Average total loans	$	4,827,564		$	4,142,602		$	4,605,138		$	4,070,568		Average total loans	$	4,646,188		$	4,656,050		$	4,527,329		$	4,492,704
Ratios (annualized):	Ratios (annualized):													Ratios (annualized):
Net recoveries (charge-offs) during period to average loans outstanding during period	Net recoveries (charge-offs) during period to average loans outstanding during period	0.02		%	(0.10)		%	0.01		%	0.02		%	Net recoveries (charge-offs) during period to average loans outstanding during period	0.02		%	(0.02)		%	0.03		%	0.01		%
Provision for loan losses (benefit from reversal of) to average loans outstanding during period		0.63		%	(0.03)		%	1.64		%	(0.07)		%
Provision for credit losses (benefit from reversal of) to average loans outstanding during period														Provision for credit losses (benefit from reversal of) to average loans outstanding during period	(0.01)		%	1.90		%	(0.28)		%	1.34		%

5957

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Foreclosed Assets, Net of Allowance for Losses

The following table details the components and summarize the activity in foreclosed assets, net of allowances for losses, for the ~~nine~~six months ended ~~September~~June 30, ~~2020:~~

(in thousands) Balance at
December 31,
2019 Sales Valuation
Adjustments Transfers
from Loans Balance at
September 30,
2020
Land & Construction $ 312 $ (312) $ — $ — $ —
Residential real estate 1,048 (201) (129) 158 876
Commercial real estate 1,181 — — — 1,181
Total foreclosed assets $ 2,541 $ (513) $ (129) $ 158 $ 2,057
2021:


(in thousands)	Balance at December 31, 2020		Sales		Valuation Adjustments		Transfers from Loans		Balance at June 30, 2021
Land & construction	$	154	$	—	$	—	$	—	$	154
Residential real estate	1,507		(710)		11		102		910
Commercial real estate	1,183		—		—		—		1,183
Total foreclosed assets	$	2,844	$	(710)	$	11	$	102	$	2,247

Deposits

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company’s deposits increased ~~$92,330,000~~by $128,653,000 and ~~$973,594,000,~~$486,119,000, respectively, to ~~$6,340,588,000.~~$6,992,053,000 at quarter ended. Included in the ~~September~~June 30, ~~2020~~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 (in accordance with applicable laws and regulations) and during the three and ~~nine months ended September~~six month periods June 30, ~~2020,~~2021, the Company repurchased ~~zero and 813,862~~45,354 shares with a market value of ~~$0 and $7,669,000, respectively, under~~$2,101,000, respectively.

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.~~Plan, during the six months ended June 30, 2021, the Company repurchased 223 shares with a market value of approximately $8,000. The Company repurchased 858,717 shares during 2020.

The Company’s primary capital resource is shareholders’ equity, which ~~was $902,262,000~~totaled $966,780,000 at ~~September~~June 30, ~~2020.~~2021. This amount represents an increase of ~~$16,576,000~~$24,241,000 during the quarter ended ~~September~~June 30, ~~2020~~2021, primarily as a result of net income of $28,362,000, plus an increase in accumulated other comprehensive income of ~~$4,957,000, partially~~$5,206,000, offset by ~~$6,549,000~~$7,430,000 in cash dividends paid on common stock. The Company’s ratio of equity to total assets was ~~12.1%~~11.8% and ~~14.0%~~12.1% as of ~~September~~June 30, ~~2020~~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 ~~September~~June 30, ~~2020.~~2021. The following summarizes the Company’s ratios of capital to risk-adjusted assets as of the dates indicated:


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
		Ratio		Minimum Regulatory Requirement		Ratio		Minimum Regulatory Requirement			Ratio		Minimum Regulatory Requirement		Ratio		Minimum Regulatory Requirement
Total capital		15.2	%	10.5	%	15.1	%	9.3	%
Total risk based capital										Total risk based capital	15.3	%	10.5	%	15.2	%	10.5	%
Tier I capital	Tier I capital	14.0	%	8.5	%	14.4	%	7.3	%	Tier I capital	14.1	%	8.5	%	14.0	%	8.5	%
Common equity Tier 1 capital	Common equity Tier 1 capital	12.9	%	7.0	%	13.3	%	5.8	%	Common equity Tier 1 capital	13.0	%	7.0	%	12.9	%	7.0	%
Leverage	Leverage	10.0	%	4.0	%	11.6	%	4.0	%	Leverage	9.9	%	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

Table of Contents

about the Company’s capital resources.

~~Table of Contents~~

As of ~~September~~June 30, ~~2020,~~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 ~~September~~June 30, ~~2020,~~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 ~~nine~~six months of ~~2020~~2021 generated cash flows from operations of ~~$78,584,000~~$58,806,000 compared to ~~$76,266,000~~$63,705,000 during the first ~~nine~~six months of ~~2019.~~2020. Net cash used by investing activities was ~~$639,947,000~~$570,986,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to net cash from investing activities of ~~$46,204,000~~$497,490,000 during the ~~nine~~six months ending ~~2019.~~2020. Financing activities provided ~~$937,438,000~~$482,369,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to ~~$90,956,000~~$863,130,000 used during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. Deposit balance changes increased available liquidity by ~~$973,594,000~~$486,119,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to a decrease of ~~$71,059,000~~$881,264,000 for financing activity during the same period in ~~2019.~~2020. Dividends paid used ~~$19,758,000~~$14,862,000 and ~~$18,285,000~~$13,208,000 of cash during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, 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 ~~September~~June 30, ~~2020~~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 several~~During the quarter ended June 30, 2021, market interest rates, including many rates that serve as reference indices for variable rate loans, ~~declined markedly from previous levels.~~ showed signs of upward improvement during April and May before ultimately retreating in June of 2021. This prolonged retraction in rates continues to apply downward pressure on the portfolio. 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 31, 2019~~June 30, 2021, the Company's loan portfolio consisted of approximately ~~$4,346,723,000 in outstanding principal with a weighted average rate of 4.89%. As of September 30, 2020 the Company's loan portfolio consisted of approximately $4,869,000,000~~$4.94 billion in outstanding principal with a weighted average coupon rate of ~~4.34%~~4.25%, inclusive of the PPP program loans. Excluding ~~these~~PPP loans, the Company's loan portfolio has approximately ~~$4,431,000,000~~$4.70 billion outstanding with a weighted average coupon rate of ~~4.66%~~4.42% as of ~~September~~June 30, ~~2020.~~2021. Included in ~~this September~~the June 30, ~~2020~~2021 loan total, exclusive of PPP loans, are variable rate loans totaling ~~$2,991,000,000~~$3.06 billion of which ~~87.7%~~88.9% or ~~$2,622,000,000~~$2.72 billion were at their floor rate. The remaining variable rate loans totaling ~~$369,000,000,~~$340.0 million, which carried a weighted average coupon rate of ~~5.07%~~4.89% as of ~~September~~June 30, ~~2020,~~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 ~~4.36%~~4.29% which would result in the reduction of the weighted average coupon rate of the total loan portfolio, exclusive of PPP loans, from ~~4.66%~~4.42% to approximately ~~4.61%~~4.38%.

Management funds the acquisition of nearly all of its earning assets through its core deposit gathering activities. As of June 30, 2021, non-interest bearing deposits represented 40.7% of total deposits. Further, during the quarter ended June 30, 2021, the cost of interest bearing deposits were 0.08% and the cost of total deposits were 0.05%. 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 ~~September~~June 30, ~~2020~~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.

Table of Contents

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 ~~September~~June 30, ~~2020.~~2021.

~~Table of Contents~~

Interest Rate Risk Simulations:

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) 5.5 % 34.1 %
+100 (shock) 2.8 % 20.0 %
+ 0 (flat) — —
-100 (shock) (1.0) % (38.2) %
-200 (shock) nm nm


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)	3.4	%	18.7	%
+100 (shock)	1.6	%	11.9	%
+ 0 (flat)	—		—
-100 (shock)	3.8	%	31.5	%
-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 ~~September~~June 30, ~~2020.~~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 ~~September~~June 30, ~~2020.~~2021.

During the three ~~and nine~~ months ended ~~September~~June 30, ~~2020,~~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.

6260

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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 Annual Report on Form 10-K. The following represents a material change in our risk factors from those disclosed in the Company's 2019~~2020 Annual Report on Form 10-K.

The ~~novel coronavirus, COVID-19, has and will likely continue to adversely affect~~risk factors set forth in our ~~business, financial condition, results of operations and our liquidity for~~2020 Form 10-K are updated by the ~~foreseeable future. The effects depend on future developments, which are highly uncertain and are difficult to predict.~~following risks:

~~Global health concerns relating~~Risks Related to our Pending Acquisition

Our ability to complete the proposed acquisition of Valley is subject to the ~~COVID-19 pandemic~~receipt of approval from various regulatory agencies.

Prior to the transactions contemplated in the Valley acquisition agreement being consummated, the Company and ~~related government actions taken to reduce the spread~~Valley must obtain certain regulatory approvals, including approvals of the ~~virus have created significant economic uncertainty~~Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and ~~reduced economic activity, including within our market areas. On March 13, 2020, a National Emergency relating~~the California Department of Investor Protection and Innovation. The terms and conditions of the approvals that are granted may impose conditions, limitations, obligations or costs, or place restrictions on the conduct of the Company or its business following the acquisition, or require changes 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 someterms of the ~~more severe anticipated economic effects of~~transactions completed by the ~~virus, including the passage of the CARES Act, but there~~Valley acquisition agreement. There can be no assurance that the regulators will not impose any such ~~steps~~conditions, obligations or restrictions; and that such conditions, limitations, obligations or restrictions will not have the effect of delaying or preventing completion of any of the transactions contemplated by the Valley acquisition agreement, imposing additional material costs on or materially limiting the revenues of the Company following the acquisition or otherwise reduce the anticipated benefits of the acquisition if the acquisition was consummated successfully within the expected timeframe, any of which might have an adverse effect on the Company following the acquisition.

We face risks and uncertainties related to our proposed acquisitions of Valley.

Uncertainty about the effect of the proposed acquisition on personnel and customers may have an adverse effect on us. These uncertainties may impair our ability to attract, retain, and motivate key personnel until the acquisition is consummated and for a period of time thereafter, and could cause customers and others that deal with us to seek to change their existing business relationships with us. Employee retention may be ~~effective or achieve~~particularly challenging during the pendency of the acquisition, as employees may experience uncertainty about their ~~desired results~~roles with the Company following the acquisition. The Valley branches to be acquired by the Company have operated and, until the completion of the acquisition, will continue to operate independently. The ultimate success of the acquisition, including anticipated benefits and cost savings, among other things, will depend, in part, on our ability to successfully combine and integrate our and Valley’s businesses in a ~~timely fashion.~~manner that facilitates growth opportunities and realizes anticipated cost savings. It is possible that the integration process could result in the loss of key employees, the loss of customers, the disruption of the companies' ongoing business, unexpected integration issues, higher than expected integration costs, and an integration process that takes longer than originally anticipated. Also, if the Company experiences difficulties or delays with the integration process, the anticipated benefits of the acquisition may not be realized fully, or at all.

The ~~Federal Reserve lowered~~definitive agreement between the ~~primary credit rate by 50~~Company 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.Valley may be terminated in accordance with its terms.

The ~~outbreak has adversely impacted and~~Valley acquisition agreement 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~~subject to a number of ~~factors impacting us~~conditions which need to be fulfilled in order to consummate the proposed acquisition. These conditions include, among other things, the approval of Valley’s stockholders, the receipt of all required regulatory approvals, the absence of any order, injunction, or other legal restraint, subject to certain exceptions, the accuracy of representations and warranties under the Valley acquisition agreement, our ~~borrowers, customers~~and Valley’s performance of our and their respective obligations under the Valley acquisition agreement in all material aspects, and each of our and Valley’ receipt of a tax opinion to the effect that the acquisition will be treated as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

The conditions to the closing of the acquisition may not be fulfilled in a timely manner or ~~business partners, including but~~at all, and accordingly, the acquisition may be delayed or may not ~~limited to:~~be completed. We and Valley may opt to terminate the Valley acquisition agreement under certain circumstances. Among other situations, if the acquisition is not completed by April 30, 2022, either we or Valley may choose not to proceed with the acquisition. We and Valley can also mutually decide to terminate the Valley acquisition agreement at any time.

•~~increased loan deferrals, loan 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 as a result of diminished demand or increased levels of prepayment;~~

•~~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;~~

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

6361

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•~~reduced workforce numbers~~Shareholder litigation could prevent or ~~capacity which may be caused by, but not limited to, illness, quarantine, stay at home~~delay the closing of the proposed acquisition of Valley or ~~other government mandates, or difficulties transitioning back to an in-office environment;~~

•continued high levels of unemployment due to decreased operations or closures of businesses could have a negative impact on our customer’s ability to repay their loans as well as a decrease in the customer deposit base as they use their savings to pay current expenses;

•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 investment securities, including the valuation of 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~~otherwise 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~~business 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~~operations.

~~These factors~~Lawsuits 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.

In addition, the United States Government and its related entities are incurring unprecedented debt levels to support the United States Economy. This level of debt may not be sustainable, may cause inflationary pressures and increases risks to fund the balance sheet if international investors no longer purchase United States Securities.

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 September 30, 2020, we have $425.9 million of loans outstanding 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

~~Table of Contents~~

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.

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, Valley, or the directors and ~~is not resolved in a manner favorable~~officers of either company relating to the ~~Bank, it may~~proposed acquisition. Litigation filed against us, our Board of Directors, or Valley and its Board of Directors could prevent or delay the completion of the acquisition, cause us to incur additional costs, or result in ~~significant financial liability~~the payment of damages following completion of the acquisition. The defense or settlement of any lawsuit or claim that remains unresolved at the effective time of the acquisition may 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 ourthe combined company's business, financial condition, ~~and~~ results of ~~operations.~~operation, cash flows, and market price.

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)
July 1-31, 2020 9,158 $ 28.89 — 711,138
August 1-31, 2020 8,439 $ 28.31 — 711,138
September 1-30, 2020 5,877 $ 26.09 — 711,138
Total 23,474 $ 27.98 —


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)
April 1-30, 2021	19,058	$	46.53	11,900	1,988,100
May 1-31, 2021	17,035	46.79		15,700	1,972,400
June 1-30, 2021	25,396	46.06		17,754	1,954,646
Total	61,489	$	46.41	45,354

(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.

Item 6 – Exhibits

EXHIBIT INDEX


Exhibit No.						Exhibit

2.1						Agreement and Plan of Reorganization dated as of July 27, 2021, by and between TriCo Bancshares and Valley Republic Bancorp (incorporated by reference to Exhibit in TriCo's current report on Form 8-K filed on July 28, 2021).

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

6562

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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: ~~November~~August 6, ~~2020~~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)

6663


			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			4139
Item 3 – Quantitative and Qualitative Disclosures about Market Risk			6160
Item 4 – Controls and Procedures			6261
PART II – OTHER INFORMATION			6362
Item 1 – Legal Proceedings			6362
Item 1A – Risk Factors			6362
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			6563
Item 6 – Exhibits			6563
Signatures			6664


	For the nine months ended September 30,
	2020		2019
Operating activities:
Net income	$	41,157	$	69,182
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment, and amortization	4,778		5,273
Amortization of intangible assets	4,293		4,293
Provision for (reversal of) credit losses	37,963		(1,392)
Amortization of investment securities premium, net	1,747		2,050
Gain on sale of investment securities	(7)		(107)
Originations of loans for resale	(152,968)		(92,002)
Proceeds from sale of loans originated for resale	156,347		89,506
Gain on sale of loans	(5,662)		(2,223)
Change in market value of mortgage servicing rights	2,258		1,652
Provision for losses on foreclosed assets	0		56
Gain (loss) on transfer of loans to foreclosed assets	128		(151)
Gain on sale of foreclosed assets	(57)		(246)
Operating lease expense payments	(3,716)		(3,683)
Loss on disposal of fixed assets	37		82
Increase in cash value of life insurance	(2,203)		(2,294)
Gain on life insurance death benefit	0		(831)
Gain on marketable equity securities	(72)		(100)
Equity compensation vesting expense	1,476		1,213
Change in:
Interest receivable	(660)		1,207
Interest payable	(836)		850
Accretion (amortization) of operating lease ROUA	4,070		(463)
Other assets and liabilities, net	(9,489)		4,394
Net cash from operating activities	78,584		76,266
Investing activities:
Proceeds from maturities of securities available for sale	114,122		69,278
Proceeds from maturities of securities held to maturity	64,054		50,738
Proceeds from sale of available for sale securities	229		125,247
Purchases of securities available for sale	(298,018)		(37,253)
Loan origination and principal collections, net	(518,564)		(159,991)
Proceeds from sale of other real estate owned	570		1,255
Proceeds from sale of premises and equipment	0		0
Purchases of premises and equipment	(2,340)		(3,070)
Net cash (used by) from investing activities	(639,947)		46,204
Financing activities:
Net change in deposits	973,594		(71,059)
Net change in other borrowings	8,601		584
Repurchase of common stock, net of option exercises	(24,999)		(2,196)
Dividends paid	(19,758)		(18,285)
Exercise of stock options	0		0
Net cash (used by) from financing activities	937,438		(90,956)
Net change in cash and cash equivalents	376,075		31,514
Cash and cash equivalents, beginning of period	276,507		227,533
Cash and cash equivalents, end of period	$	652,582	$	259,047
Supplemental disclosure of noncash activities:
Unrealized gain on securities available for sale	$	10,036	$	27,511
Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes	736		4,842
Obligations incurred in conjunction with leased assets	4,161		32,162
Loans transferred to foreclosed assets	157		331
Supplemental disclosure of cash flow activity:
Cash paid for interest expense	8,634		10,803
Cash paid for income taxes	26,000		25,950




Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	299,797	$	14,363	$	0	$	314,160	$	0
Obligations of states and political subdivisions	10,899		399		0		11,298		0
Total debt securities held to maturity	$	310,696	$	14,762	$	0	$	325,458	$	0


September 30, 2020:	Less than 12 months				12 months or more				Total
(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	152,656	$	(228)	$	0	$	0	$	152,656	$	(228)
Obligations of states and political subdivisions	963		(13)		0		0		963		(13)

Asset backed securities	92,463		(1,495)		296,841		(8,111)		389,304		(9,606)
Total debt securities available for sale	$	246,082	$	(1,736)	$	296,841	$	(8,111)	$	542,923	$	(9,847)


	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2020		2019		2020		2019
Operating lease cost	$	1,284	$	1,306	$	3,869	$	3,924
Short-term lease cost	67		65		195		194
Variable lease cost	(1)		(13)		6		(33)
Sublease income	(33)		(32)		(102)		(98)
Total lease cost	$	1,317	$	1,326	$	3,968	$	3,987


	September 30,
	2020		2019
Weighted-average remaining lease term (years)	10.0		9.5
Weighted-average discount rate	3.10	%	3.18	%


	September 30, 2020		December 31, 2019
Noninterest-bearing demand	$	2,517,819	$	1,832,665
Interest-bearing demand	1,346,716		1,242,274
Savings	2,099,780		1,851,549
Time certificates, $250,000 or more	96,377		129,061
Other time certificates	279,896		311,445
Total deposits	$	6,340,588	$	5,366,994


	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	0	0	0
Options exercised	(32,000)	$14.54 to $19.46	17.10
Options forfeited	0	0	0
Outstanding at September 30, 2020	128,500	$14.54 to $23.21	$	17.72


Fair value at September 30, 2020	Total		Level 1		Level 2		Level 3
Marketable equity securities	$	3,032	$	3,032	$	0	$	0
Debt securities available for sale:
Obligations of U.S. government corporations and agencies	573,888		0		573,888		0
Obligations of states and political subdivisions	112,725		0		112,725		0
Corporate bonds	2,522		0		2,522		0
Asset backed securities	453,792		0		453,792		0
Loans held for sale	6,570		0		6,570		0
Mortgage servicing rights	4,920		0		0		4,920
Total assets measured at fair value	$	1,157,449	$	3,032	$	1,149,497	$	4,920


Nine months ended September 30, 2020	Beginning Balance		Transfers into (out of) Level 3	Change Included in Earnings		Issuances		Ending Balance
2020: Mortgage servicing rights	$	6,200	0	$	(2,258)	$	978	$	4,920
2019: Mortgage servicing rights	$	7,098	0	$	(1,652)	$	626	$	6,072


September 30, 2019	Total		Level 1	Level 2	Level 3		Total Losses
Fair value:
Individually evaluated loans	$	1,055	0	0	$	1,055	$	(652)
Foreclosed assets	417		0	0	417		(27)
Total assets measured at fair value	$	1,472	0	0	$	1,472	$	(679)


	Nine months ended
	September 30, 2020						September 30, 2019
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets:
Loans, excluding PPP	$	4,360,942	$	167,747	5.14	%	$	4,070,568	$	166,888	5.48	%
PPP loans	244,196		4,959		2.71	%	—		—		—	%
Investment securities - taxable	1,249,823		22,637		2.42	%	1,420,426		31,849		3.00	%
Investment securities - nontaxable(1)	117,745		3,515		3.99	%	138,580		4,024		3.88	%
Total investments	1,367,568		26,152		2.55	%	1,559,006		35,873		3.08	%
Cash at Federal Reserve and other banks	403,252		1,056		0.35	%	148,995		2,694		2.42	%
Total interest-earning assets	6,375,958		199,914		4.19	%	5,778,569		205,455		4.75	%
Other assets	595,617						643,130
Total assets	$	6,971,575					$	6,421,699
Liabilities and shareholders’ equity:
Interest-bearing demand deposits	$	1,293,071	289		0.03	%	$	1,263,312	860		0.09	%
Savings deposits	1,971,348		2,190		0.15	%	1,892,122		3,631		0.26	%
Time deposits	409,005		3,297		1.08	%	443,546		4,277		1.29	%
Total interest-bearing deposits	3,673,424		5,776		0.21	%	3,598,980		8,768		0.33	%
Other borrowings	26,223		13		0.07	%	35,814		384		1.43	%
Junior subordinated debt	57,374		2,009		4.68	%	57,109		2,501		5.86	%
Total interest-bearing liabilities	3,757,021		7,798		0.28	%	3,691,903		11,653		0.42	%
Noninterest-bearing deposits	2,197,315						1,761,037
Other liabilities	120,486						101,947
Shareholders’ equity	896,753						866,812
Total liabilities and shareholders’ equity	$	6,971,575					$	6,421,699
Net interest spread(2)					3.91	%					4.33	%
Net interest income and interest margin(3)			$	192,116	4.02	%			$	193,802	4.48	%


(in thousands)	Three months ended September 30, 2020 compared with three months ended September 30, 2019
	Volume		Rate		Total
Increase (decrease) in interest income:
Loans, including PPP	$	9,350	$	(8,310)	$	1,040
Investment securities(1)	(2,652)		(1,292)		(3,944)
Cash at Federal Reserve and other banks	2,752		(3,334)		(582)
Total interest-earning assets	9,450		(12,936)		(3,486)
Increase (decrease) in interest expense:
Interest-bearing demand deposits	22		(250)		(228)
Savings deposits	134		(842)		(708)
Time deposits	(208)		(494)		(702)
Other borrowings	(179)		(151)		(330)
Junior subordinated debt	5		(254)		(249)
Total interest-bearing liabilities	(226)		(1,991)		(2,217)
Increase (decrease) in net interest income	$	9,676	$	(10,945)	$	(1,269)


(in thousands)	Nine months ended September 30, 2020 compared with nine months ended September 30, 2019
	Volume		Rate		Total
Increase (decrease) in interest income:
Loans, including PPP	$	14,647	$	(8,829)	$	5,818
Investment securities(1)	(6,585)		(3,136)		(9,721)
Cash at Federal Reserve and other banks	3,077		(4,715)		(1,638)
Total interest-earning assets	11,139		(16,680)		(5,541)
Increase (decrease) in interest expense:
Interest-bearing demand deposits	27		(598)		(571)
Savings deposits	206		(1,647)		(1,441)
Time deposits	(446)		(534)		(980)
Other borrowings	(137)		(234)		(371)
Junior subordinated debt	16		(508)		(492)
Total interest-bearing liabilities	(334)		(3,521)		(3,855)
Increase (decrease) in net interest income	$	11,473	$	(13,159)	$	(1,686)


($‘s in thousands)	As of September 30, 2020		As of June 30, 2020		$ Change		Annualized % Change
Ending balances
Total assets	$	7,449,799	$	7,360,071	$	89,728	4.9	%
Total loans	4,826,338		4,801,405		24,933		2.1	%
Total investments	1,473,935		1,353,728		120,207		35.5	%
Total deposits	6,340,588		6,248,258		92,330		5.9	%
Total noninterest-bearing deposits	2,517,819		2,487,120		30,699		4.9	%
Total other borrowings	27,055		38,544		(11,489)		(119.2)	%


	As of September 30,				$ Change		% Change
($‘s in thousands)	2020		2019
Ending balances
Total assets	$	7,449,799	$	6,384,883	$	1,064,916	16.7	%
Total loans	4,826,338		4,182,348		643,990		15.4	%
Total investments	1,473,935		1,397,753		76,182		5.5	%
Total deposits	6,340,588		5,295,407		1,045,181		19.7	%
Total noninterest-bearing deposits	2,517,819		1,777,357		740,462		41.7	%
Total other borrowings	27,055		16,423		10,632		64.7	%


(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 September 30, 2020
Commercial real estate:
CRE non-owner occupied	$	642	2,527	(159)		—	—	$	3,010
CRE owner occupied	1,408		2,651	(281)		—	—	3,778
Multifamily	2,024		—	(2,024)		—	—	—
Farmland	1,242		1,003	(189)		—	—	2,056
Total commercial real estate loans	5,316		6,181	(2,653)		—	—	8,844
Consumer
SFR 1-4 1st DT liens	5,191		3,181	(1,828)		(13)	(158)	6,373
SFR HELOCs and junior liens	4,217		2,517	(1,526)		(23)	—	5,185
Other	51		702	(3)		(471)	—	279
Total consumer loans	9,459		6,400	(3,357)		(507)	(158)	11,837
Commercial and industrial	2,050		1,727	(1,111)		(688)	—	1,978
Construction	—		18	—		—	—	18
Agriculture production	39		426	(179)		—	—	286
Leases	—		—	—		—	—	—
Total nonperforming loans	16,864		14,752	(7,300)		(1,195)	(158)	22,963
Foreclosed assets	2,541		—	(534)		(108)	158	2,057
Total nonperforming assets	$	19,405	14,752	(7,834)	—	(1,303)	—	$	25,020


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


(in thousands)	Balance at December 31, 2019		Sales		Valuation Adjustments		Transfers from Loans		Balance at September 30, 2020
Land & Construction	$	312	$	(312)	$	—	$	—	$	—
Residential real estate	1,048		(201)		(129)		158		876
Commercial real estate	1,181		—		—		—		1,181
Total foreclosed assets	$	2,541	$	(513)	$	(129)	$	158	$	2,057