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, ~~2018~~

2019

☐	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

TriCo Bancshares

(Exact Name of Registrant as Specified in Its Charter)


CALIFORNIA		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~~(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	NASDAQ Global Select

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

☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

☒

Yes

☐

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 Rule12b-2 of the Exchange Act.


~~Large accelerated filer~~☒		☒Large accelerated filer	☐	Accelerated filer
	☐
☐
Non-accelerated filer		☐	Smaller reporting company
	☐
☐
Emerging growth company			~~Emerging growth 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 inRule

12b-2

of the Exchange Act).

☐

Yes

☒

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: ~~30,417,818~~30,509,637 shares outstanding as of ~~November 6, 2018~~

August 5, 2019

Table of Contents

TriCo Bancshares

FORM10-Q

TABLE OF CONTENTS


	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		3839

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		5558

Item 4 – Controls and Procedures		5558

PART II – OTHER INFORMATION		5658

Item 1 – Legal Proceedings		5658

Item 1A – Risk Factors		5658

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		56

~~Item 6 – Exhibits~~		57

~~Signatures~~		58

Item 6 – Exhibits		59

Signatures		60

Exhibits

Table of Contents

PART I – FINANCIAL INFORMATION

~~Item 1. Financial Statements (unaudited)~~

Item 1.

Financial Statements (unaudited)

TRICO BANCSHARES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data; unaudited)

   At September 30,
2018 At December 31,
2017
Assets:

Cash and due from banks
   $ 109,363 $ 105,968
Cash at Federal Reserve and other banks
   117,180 99,460


Cash and cash equivalents
   226,543 205,428
Investment securities:

Marketable equity securities
   2,846 2,938
Available for sale debt securities
   1,055,960 727,945
Held to maturity debt securities
   459,897 514,844
Restricted equity securities
   17,250 16,956
Loans held for sale
   3,824 4,616
Loans
   4,027,436 3,015,165
Allowance for loan losses
   (31,603 ) (30,323 )


Total loans, net
   3,995,833 2,984,842
Foreclosed assets, net
   1,832 3,226
Premises and equipment, net
   89,290 57,742
Cash value of life insurance
   116,596 97,783
Accrued interest receivable
   19,592 13,772
Goodwill
   220,972 64,311
Other intangible assets, net
   30,711 5,174
Mortgage servicing rights
   7,122 6,687
Other assets
   70,597 55,051


Total assets
   $ 6,318,865 $ 4,761,315


Liabilities and Shareholders’ Equity:

Liabilities:

Deposits:

Noninterest-bearing demand
   $ 1,710,505 $ 1,368,218
Interest-bearing
   3,382,612 2,640,913


Total deposits
   5,093,117 4,009,131
Accrued interest payable
   1,729 930
Other liabilities
   82,077 66,422
Other borrowings
   282,831 122,166
Junior subordinated debt
   56,996 56,858


Total liabilities
   5,516,750 4,255,507


Commitments and contingencies (Note 12)

Shareholders’ equity:

Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at September 30, 2018 and December 31, 2017
   —   —
Common stock, no par value: 50,000,000 shares authorized; issued and outstanding:

30,417,818 at September 30, 2018

22,955,963 at December 31, 2017
   541,519 255,836
Retained earnings
   287,555 255,200
Accumulated other comprehensive loss, net of tax
   (26,959 ) (5,228 )


Total shareholders’ equity
   802,115 505,808


Total liabilities and shareholders’ equity
   $ 6,318,865 $ 4,761,315


	At June 30, 2019			At December 31, 2018
Assets:
Cash and due from banks	$	106,939		$	119,781
Cash at Federal Reserve and other banks		68,643			107,752

Cash and cash equivalents		175,582			227,533
Investment securities:
Marketable equity securities		2,952			2,874
Available for sale debt securities		1,133,994			1,115,036
Held to maturity debt securities		412,524			444,936
Restricted equity securities		17,250			17,250
Loans held for sale		5,875			3,687
Loans		4,103,687			4,022,014
Allowance for loan losses		(32,868	)		(32,582	)

Total loans, net		4,070,819			3,989,432
Premises and equipment, net		88,534			89,347
Cash value of life insurance		116,606			117,318
Accrued interest receivable		20,990			19,412
Goodwill		220,972			220,972
Other intangible assets, net		26,418			29,280
Operating leases, right-of-use		30,030			—
Other assets		72,626			75,364

Total assets	$	6,395,172		$	6,352,441

Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Noninterest-bearing demand	$	1,780,339		$	1,760,580
Interest-bearing		3,561,834			3,605,886

Total deposits		5,342,173			5,366,466
Accrued interest payable		2,665			1,997
Operating lease liability		29,434			—
Other liabilities		74,590			83,724
Other borrowings		13,292			15,839
Junior subordinated debt		57,132			57,042

Total liabilities		5,519,286			5,525,068

Commitments and contingencies (Note 8)
Shareholders’ equity:
Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at June 30, 2019 and December 31, 2018		—			—
Common stock, no par value: 50,000,000 shares authorized; 30,502,757 and 30,417,223 issued and outstanding at June 30, 2019 and December 31, 2018, respectively		542,939			541,762
Retained earnings		335,145			303,490
Accumulated other comprehensive loss, net of tax		(2,198	)		(17,879	)

Total shareholders’ equity		875,886			827,373

Total liabilities and shareholders’ equity	$	6,395,172		$	6,352,441

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,
   2018    2017    2018    2017
Interest and dividend income:

Loans, including fees
   $ 53,102    $ 37,268    $ 130,455    $ 108,600
Investments:

Taxable securities
   9,189    7,011    23,949    20,617
Tax exempt securities
   1,189    1,041    3,272    3,124
Dividends
   459    301    1,093    1,020
Interest bearing cash at Federal Reserve and other banks
   615    292    1,384    1,080








Total interest and dividend income
   64,554    45,913    160,153    134,441








Interest expense:

Deposits
   2,072    1,028    4,402    2,896
Other borrowings
   1,178    149    2,106    164
Junior subordinated debt
   815    652    2,301    1,870








Total interest expense
   4,065    1,829    8,809    4,930








Net interest income
   60,489    44,084    151,344    129,511
Provision for (benefit from) loan losses
   2,651    765    1,777    (1,588 )








Net interest income after provision for (benefit from) loan losses
   57,838    43,319    149,567    131,099








Noninterest income:

Service charges and fees
   9,743    9,475    28,327    27,861
Commissions on sale ofnon-deposit investment products
   728    672    2,414    1,984
Increase in cash value of life insurance
   732    732    1,996    2,043
Gain on sale of loans
   539    606    1,831    2,293
Gain on sale of investment securities
   207    961    207    961
Other
   237    484    1,875    2,401








Total noninterest income
   12,186    12,930    36,650    37,543








Noninterest expense:

Salaries and related benefits
   25,823    20,933    68,928    62,320
Other
   21,555    16,289    54,482    46,628








Total noninterest expense
   47,378    37,222    123,410    108,948








Income before income taxes
   22,646    19,027    62,807    59,694
Provision for income taxes
   6,476    7,130    17,698    22,129








Net income
   $ 16,170    $ 11,897    $ 45,109    $ 37,565








Earnings per share:

Basic
   $ 0.54    $ 0.52    $ 1.78    $ 1.64
Diluted
   $ 0.53    $ 0.51    $ 1.76    $ 1.62


	Three months ended June 30,					Six months ended June 30,
	2019		2018			2019			2018
Interest and dividend income:
Loans, including fees	$	55,491	$	39,304		$	109,889		$	77,353
Investments:
Taxable securities		10,457		7,438			21,012			14,760
Tax exempt securities		1,061		1,042			2,134			2,083
Dividends		305		298			665			634
Interest bearing cash at Federal Reserve and other banks		866		396			1,937			769

Total interest and dividend income		68,180		48,478			135,637			95,599

Interest expense:
Deposits		2,999		1,234			5,718			2,330
Other borrowings		37		586			50			928
Junior subordinated debt		829		789			1,684			1,486

Total interest expense		3,865		2,609			7,452			4,744

Net interest income		64,315		45,869			128,185			90,855

Provision for (reversal of) loan losses		537		(638	)		(1,063	)		(874	)

Net interest income after provision for (benefit from reversal of) loan losses		63,778		46,507			129,248			91,729

Noninterest income:
Service charges and fees		10,128		9,228			19,198			18,584
Gain on sale of loans		575		666			987			1,292
Asset management and commission income		739		810			1,381			1,686
Increase in cash value of life insurance		746		656			1,521			1,264
Other		1,390		814			2,355			1,638

Total noninterest income		13,578		12,174			25,442			24,464

Noninterest expense:
Salaries and related benefits		26,719		21,453			51,847			43,105
Other		20,133		16,417			40,518			32,927

Total noninterest expense		46,852		37,870			92,365			76,032

Income before provision for income taxes		30,504		20,811			62,325			40,161
Provision for income taxes		7,443		5,782			16,538			11,222

Net income	$	23,061	$	15,029		$	45,787		$	28,939

Earnings per share:
Basic	$	0.76	$	0.65		$	1.50		$	1.26
Diluted	$	0.75	$	0.65		$	1.49		$	1.24

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands; unaudited)

   Three months ended
September 30, Nine months ended
September 30,
   2018 2017 2018 2017
Net income
   $ 16,170 $ 11,897 $ 45,109 $ 37,565
Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on available for sale securities arising during the period, after reclassifications
   (5,917 ) (166 ) (20,941 ) 3,137
Change in minimum pension liability, after reclassifications
   81 55 241 164


Other comprehensive income (loss)
   (5,836 ) (111 ) (20,700 ) 3,301


Comprehensive income
   $ 10,334 $ 11,786 $ 24,409 $ 40,866


	Three months ended June 30,					Six months ended June 30,
	2019		2018			2019		2018
Net income	$	23,061	$	15,029		$	45,787	$	28,939
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available for sale securities arising during the period		6,729		(3,998	)		15,681		(15,024	)
Change in minimum pension liability		—		80			—		160

Other comprehensive income (loss)		6,729		(3,918	)		15,681		(14,864	)

Comprehensive income	$	29,790	$	11,111		$	61,468	$	14,075

See accompanying notes to unaudited condensed consolidated financial statements.

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

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

   Accumulated
   Shares of Other
   Common Common Retained Comprehensive
   Stock Stock Earnings Income (loss) Total
Balance at December 31, 2016
   22,867,802 $ 252,820 $ 232,440 $ (7,913 ) $ 477,347
Net income
   37,565 37,565
Other comprehensive income
   3,301 3,301
Stock option vesting
   211 211
Service condition RSU vesting
   657 657
Market plus service condition RSU vesting
   316 316
Stock options exercised
   133,850 2,418 2,418
Service condition RSUs released
   28,397 —
Market plus service condition RSUs released
   18,805 —
Repurchase of common stock
   (107,390 ) (1,191 ) (2,663 ) (3,854 )
Dividends paid ($ 0.49 per share)
   (11,228 ) (11,228 )


Balance at September 30, 2017
   22,941,464 $ 255,231 $ 256,114 $ (4,612 ) $ 506,733


Balance at December 31, 2017
   22,955,963 $ 255,836 $ 255,200 $ (5,228 ) $ 505,808
Net income
   45,109 45,109
Adoption ASU2016-01
   (62 ) 62 —
Adoption ASU2018-02
   1,093 (1,093 ) —
Other comprehensive loss
   (20,700 ) (20,700 )
Stock option vesting
   75 75
Service condition RSU vesting
   745 745
Market plus service condition RSU vesting
   274 274
Service condition RSUs released
   32,516 —
Market plus service condition RSUs released
   25,512 —
Stock options exercised
   27,400 475 475
Issuance of common stock
   7,405,277 284,437 284,437
Repurchase of common stock
   (28,850 ) (323 ) (801 ) (1,124 )
Dividends paid ($ 0.51 per share)
   (12,984 ) (12,984 )


Balance at September 30, 2018
   30,417,818 $ 541,519 $ 287,555 $ (26,959 ) $ 802,115


	Shares of Common Stock			Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance at March 31, 2019		30,432,419		$	542,340		$	319,865		$	(8,927	)	$	853,278
Net income								23,061						23,061
Other comprehensive income											6,729			6,729
Stock option vesting														—
Stock options exercised		116,000			1,853									1,853
RSU vesting					289									289
PSU vesting					129									129
RSUs released		25,856												—
PSUs released		22,237												—
Repurchase of common stock		(93,755	)		(1,672	)		(1,988	)					(3,660	)
Dividends paid ($ 0.19 per share)								(5,793	)					(5,793	)

Three months ending June 30, 2019		30,502,757		$	542,939		$	335,145		$	(2,198	)	$	875,886

Balance at January 1, 2019		30,417,223		$	541,762		$	303,490		$	(17,879	)	$	827,373
Net income								45,787						45,787
Other comprehensive income											15,681			15,681
Stock option vesting														—
Stock options exercised		157,000			2,500									2,500
RSU vesting					567									567
PSU vesting					248									248
RSUs released		26,211												—
PSUs released		22,237												—
Repurchase of common stock		(119,914	)		(2,138	)		(2,557	)					(4,695	)
Dividends paid ($ 0.38 per share)								(11,575	)					(11,575	)

Six months ending June 30, 2019		30,502,757		$	542,939		$	335,145		$	(2,198	)	$	875,886

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

CHANGES IN SHAREHOLDERS’ EQUITY

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

   For the nine months ended September 30,
   2018 2017
Operating activities:

Net income
   $ 45,109 $ 37,565
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of premises and equipment, and amortization
   4,914 5,089
Amortization of intangible assets
   2,068 1,050
Provision for (benefit from) loan losses
   1,777 (1,588 )
Amortization of investment securities premium, net
   1,953 2,431
Gain on sale of investment securities
   (207 ) (961 )
Originations of loans for resale
   (63,912 ) (83,907 )
Proceeds from sale of loans originated for resale
   66,138 85,846
Gain on sale of loans
   (1,831 ) (2,293 )
Change in market value of mortgage servicing rights
   (38) 795
Provision for losses on foreclosed assets
   89 162
Gain on sale of foreclosed assets
   (390) (308 )
Loss on disposal of fixed assets
   206 61
Gain on sale of premises held for sale
   —   (3 )
Increase in cash value of life insurance
   (1,996) (2,043 )
Life insurance proceeds in excess of cash value
   —   (108 )
Loss on marketable equity securities
   92 —
Equity compensation vesting expense
   1,094 1,184
Change in:

Reserve for unfunded commitments
   (864) 270
Interest receivable
   (5,820) (629 )
Interest payable
   799 49
Other assets and liabilities, net
   10,724 3,155


Net cash from operating activities
   59,905 45,817


Investing activities:

Cash acquired in acquisition, net of consideration paid
   30,613 —
Proceeds from maturities of securities available for sale
   54,510 20,889
Proceeds from maturities of securities held to maturity
   54,203 64,969
Proceeds from sale of available for sale securities
   293,279 25,757
Purchases of securities available for sale
   (370,843) (195,465 )
Net redemption of restricted equity securities
   7,429 —
Loan origination and principal collections, net
   (178,596 ) (174,914 )
Proceeds from sale of foreclosed assets
   2,206 1,787
Proceeds from sale of premises held for sale
   —   3,338
Proceeds from sale of premises and equipment
   62 —
Purchases of premises and equipment
   (5,736 ) (10,874 )
Life insurance proceeds
   —   649


Net cash from investing activities
   (112,873 ) (263,864 )


Financing activities:

Net change in deposits
   92,051 31,896
Net change in other borrowings
   (4,335) 81,237
Repurchase of common stock
   (834) (1,629 )
Dividends paid
   (12,984) (11,228 )
Exercise of stock options
   185 193


Net cash from financing activities
   74,083 100,469


Net change in cash and cash equivalents
   21,115 (117,578 )


Cash and cash equivalents at beginning of year
   205,428 305,612


Cash and cash equivalents at end of year
   $ 226,543 $ 188,034


Supplemental disclosure of noncash activities:

Unrealized (loss) gain on securities available for sale
   $ (29,704 ) $ 5,411
Loans transferred to foreclosed assets
   $ 511 $ 726
Market value of shares tenderedin-lieu of cash to pay for exercise of options and/or related taxes
   $ 1,124 $ 3,854
Supplemental disclosure of cash flow activity:

Cash paid for interest expense
   $ 8,010 $ 4,881
Cash paid for income taxes
   $ 11,625 $ 15,450
Assets acquired in acquisition plus goodwill recognized, net
   $ 1,456,505 $ —
Liabilities assumed in acquisition
   $ 1,172,068 $ —


	Shares of Common Stock			Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance at March 31, 2018		22,956,323		$	256,226		$	266,235		$	(17,205	)	$	505,256
Net income								15,029						15,029
Adoption ASU 2016-01
Adoption ASU 2018-02
Other comprehensive loss											(3,918	)		(3,918	)
Stock option vesting					17									17
Stock options exercised		14,500			223									223
RSU vesting					233									233
PSU vesting					81									81
RSUs released		24,904												—
PSUs released		25,512												—
Repurchase of common stock		(17,086	)		(190	)		(477	)					(667	)
Dividends paid ($ 0.17 per share)								(3,910	)					(3,910	)

Three months ending June 30, 2018		23,004,153		$	256,590		$	276,877		$	(21,123	)	$	512,344

Balance at January 1, 2018		22,955,963		$	255,836		$	255,200		$	(5,228	)	$	505,808
Net income								28,939						28,939
Adoption ASU 2016-01								(62	)		62			—
Adoption ASU 2018-02								1,093			(1,093	)		—
Other comprehensive loss											(14,864	)		(14,864	)
Stock option vesting					54									54
Stock options exercised		14,500			223									223
RSU vesting					471									471
PSU vesting					197									197
RSUs released		25,398												—
PSUs released		25,512												—
Repurchase of common stock		(17,220	)		(191	)		(480	)					(671	)
Dividends paid ($ 0.34 per share)								(7,813	)					(7,813	)

Six months ending June 30, 2018		23,004,153		$	256,590		$	276,877		$	(21,123	)	$	512,344

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,
	2019			2018
Operating activities:
Net income	$	45,787		$	28,939
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment, and amortization		3,582			3,229
Amortization of intangible assets		2,862			678
Reversal of provision for loan losses		(1,063	)		(874	)
Amortization of investment securities premium, net		1,186			1,340
Originations of loans for resale		(46,936	)		(43,389	)
Proceeds from sale of loans originated for resale		45,407			45,437
Gain on sale of loans		(987	)		(1,292	)
Change in market value of mortgage servicing rights		1,197			(75	)
Provision for losses on foreclosed assets		62			90
Gain on transfer of loans to foreclosed assets		(97	)		—
Gain on sale of foreclosed assets		(199	)		(388	)
Loss on disposal of fixed assets		80			54
Increase in cash value of life insurance		(1,521	)		(1,264	)
Gain on life insurance death benefit		(728	)		—
(Gain) loss on marketable equity securities		(78	)		70
Equity compensation vesting expense		815			722
Change in:
Interest receivable		(1,578	)		(481	)
Interest payable		668			245
Other assets and liabilities, net		(14,592	)		(97	)

Net cash from operating activities		33,867			32,944

Investing activities:
Proceeds from maturities of securities available for sale		39,845			32,906
Proceeds from maturities of securities held to maturity		31,938			36,587
Purchases of securities available for sale		(37,253	)		(81,300	)
Loan origination and principal collections, net		(80,440	)		(131,073	)
Proceeds from sale of other real estate owned		1,082			2,150
Proceeds from sale of premises and equipment		11			36
Purchases of premises and equipment		(2,586	)		(4,119	)

Net cash from investing activities		(47,403	)		(144,813	)

Financing activities:
Net change in deposits		(24,293	)		68,091
Net change in other borrowings		(2,547	)		30,673
Repurchase of common stock, net		—			(448	)
Dividends paid		(11,575	)		(7,813	)

Net cash used by financing activities		(38,415	)		90,503

Net change in cash and cash equivalents		(51,951	)		(21,366	)

Cash and cash equivalents and beginning of year		227,533			205,428

Cash and cash equivalents at end of year	$	175,582		$	184,062

Supplemental disclosure of noncash activities:
Unrealized gain (loss) on securities available for sale	$	22,263		$	(21,304	)
Loans transferred to foreclosed assets		116			—
Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes		4,695			671
Obligations incurred in conjunction with leased assets		156			—
Supplemental disclosure of cash flow activity:
Cash paid for interest expense		6,982			4,499
Cash paid for income taxes		22,000			8,525

See accompanying notes to unaudited condensed consolidated financial statements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 ~~– Summary~~–Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

TriCo Bancshares (the “Company” or “we”) is a California corporation organized to act as a bank holding company for Tri Counties Bank (the “Bank”). The Company and the Bank are headquartered in Chico, California. The Bank is a California-chartered bank that is engaged in the general commercial banking business in 29 California counties. The ~~Bank operates from 69 traditional branches, 9in-store~~ ~~branches and 2 loan production offices. The~~ Company has

five

capital subsidiary business trusts (collectively, the “Capital Trusts”) that issued trust preferred securities, including

two

organized by the Company and three 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 ~~$1,741,000~~$1,716,000 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 ~~regulatinos~~regulations of the Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidtated financial statements and notes thereto included in the Company’s ~~Annua~~Annual Report on Form

10-K

for the year ended December 31, ~~2017~~2018 (the ~~“2017~~“2018 Annual Report”).

The Company believes that the disclosures made are adequate to make the inforamtion 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

one

business segment that it denotes as community banking.

Geographical Descriptions

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

~~Business Combinations~~

~~The Company accounts for acquisitions of businesses using the acquisition method of accounting. Under the acquisition method, assets acquired~~Bakersfield and liabilities assumed are recorded at their estimated fair values at the date of acquisition. Management utilizes various valuation techniques including discounted cash flow analyses to determine these fair values. Any excess of the purchase price over amounts allocated to the acquired assets, including identifiable intangible assets, and liabilities assumed is recorded as goodwill.

San Luis Obispo.

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.

~~Revenue Recognition~~

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation.

Most of our revenue-generating transactions are not subject to Topic 606, including revenue generated from financial instruments, such as our loans and investment securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. The Company’s noninterest revenue streams are largely based on transactional activity, or standard~~month-end~~ ~~revenue accruals such as asset management fees based onmonth-end~~ market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2018 and December 31, 2017, the Company did not have any significant contract balances. The Company has evaluated the nature of its revenue streams and determined that further disaggregation of revenue into more granular categories beyond what is presented in the Note 15 was not necessary.

Accounting Standards Adopted in ~~2018~~

~~FASB~~2019

The Financial Accounting Standards ~~Update (ASU) No. 2014- 09,~~ ~~Revenue from Contracts with Customers (Topic 606):~~ ~~ASU2014-09~~ is intended to clarify the principles for recognizing revenue, and to develop common revenue standards and disclosure requirements that would: (1) remove inconsistencies and weaknesses in revenue requirements; (2) provide a more robust framework for addressing revenue issues; (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (4) provide more useful information to users of financial statements through improved disclosures; and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. The guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required with regard to contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU~~2014-09~~ is effective for annual reporting periods beginning after December 15, 2017, including interim periods therein, with early adoption permitted for reporting periods beginning after December 15, 2016. ASU~~2014-09~~ ~~does not apply to revenue associated with financial instruments such as loans and investments, which are accounted for under other provisions of GAAP. The Company adopted ASU2014-09~~ on January 1, 2018 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary.

~~In January 2016, the FASB issued ASUNo. 2016-01,~~ ~~“Recognition and Measurement of Financial Assets and Financial Liabilities.”~~ This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to~~available-for-sale~~ ~~securities in combination with the entity’s other deferred tax assets. The adoption of ASUNo. 2016-01~~ on January 1, 2018 did not have a material impact on the Company’s Consolidated Financial Statements. In accordance with (1) above, the Company recorded a reclassification of cumulative unrealized losses of its marketable equity securities from accumulated other comprehensive income (loss) to retained earnings as of January 1, 2018. Additionally, the Company recognized changes in the fair value of its marketable equity securities in the condensed consolidated statements of net income for the three and nine months ended September 30, 2018. In accordance with (5) above, the Company measured the fair value of its loan portfolio as of September 30, 2018 using an exit price notion (see Note 18 ~~Fair Value Measurement~~Board (“FASB”).

~~FASB~~ issued ASU No.~~2016-18,~~ ~~Statement of Cash Flows - Restricted Cash (Topic 230).~~~~ASU 2016-18~~ requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the~~beginning-of-period~~ ~~andend-of-period~~ ~~total amounts shown on the statement of cash flows.ASU 2016-18~~ ~~was effective for the Company on January 1, 2018 and did not have a significant impact on the Company’s consolidated financial statements.~~

~~FASB issued ASUNo. 2017-01,~~~~Business Combinations - Clarifying the Definition of a Business (Topic 805).~~~~ASU 2017-01~~ ~~clarifies the definition and provides a more robust framework to use in determining when a set of assets and activities constitutes a business.ASU 2017-01~~ ~~is intended to provide guidance when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.ASU 2017-01~~ ~~was effective for the Company on January 1, 2018 and did not have a significant impact on the Company’s consolidated financial statements.~~

~~FASB issued ASUNo. 2017-07,~~~~Compensation - Retirement Benefits (Topic 715).~~~~ASU2017-07~~ requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component.~~ASU 2017-07~~ ~~was effective for the Company on January 1, 2018 and did not have a significant impact on the Company’s consolidated financial statements.~~

~~FASB issued ASU2017-09,~~ ~~Compensation - Stock Compensation (Topic 718).~~~~ASU 2017-09~~ ~~clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. UnderASU 2017-09,~~ an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the award’s fair value, (ii) the award’s vesting conditions and (iii) the award’s classification as an equity or liability instrument.~~ASU 2017-09~~ ~~was effective for the Company on January 1, 2018 and did not have a significant impact on the Company’s consolidated financial statements.~~

~~FASB issued ASU2018-02,~~~~Income Statement - Reporting Comprehensive Income (Topic 220).~~~~ASU2018-02~~ allows, but does not require, entities to reclassify certain income tax effects in accumulated other comprehensive income (AOCI) to retained earnings that resulted from the Tax Cuts and Jobs Act (Tax Act) that was enacted on December 22, 2017. The Tax Act included a reduction to the Federal corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. The amount of the reclassification would be the difference between the income tax effects in

2016-02,

AOCI calculated using the historical Federal corporate income tax rate of 35 percent and the income tax effects in AOCI calculated using the newly enacted 21 percent Federal corporate income tax rate. The amendments in ASU~~2018-02~~ ~~are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU2018-02~~ on January 1, 2018, and elected to reclassify certain income tax effects in AOCI to retained earnings. This change in accounting principle was accounted for as a cumulative-effect adjustment to the balance sheet resulting in a $1,093,000 increase to retained earnings and a corresponding decrease to AOCI on January 1, 2018.

~~Accounting Standards Pending Adoption~~

~~FASB issued ASUNo. 2016-02,~~

Leases (Topic 842)

.ASU ~~2016-2,~~

2016-02,

which among other things, requires lessees to recognize most leases

on-balance

sheet, increasing reported assets and liabilities. Lessor accounting remains substantially similar to current U.S. GAAP. The FASB has issued incremental guidance to Topic 842 standard through ASU No.

2018-11,

2018-20,

and

2019-01.

The Company has elected to use the transition relief approach as provided in ASU

2018-11,

which permits the Company to use January 1, 2019 as both the application date and the adoption date, rather than the modified retrospective approach which would have required an application date of January 1, 2017 and adoption date of January 1, 2019. The Company also elected certain relief options offered within the new standard, which include the package of practical expedients, the option not to recognize a

right-of-use

asset (ROUA) and lease liability that arise from short-term leases (i.e. leases with terms of 12 months or less), and the option of hindsight when determining lease term. Substantially

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all of the Company’s lease agreements are considered operating leases and were not previously recognized on the Company’s balance sheets. As of January 1, 2019, the Company recorded a ROUA and corresponding lease liability for all applicable operating leases. While the guidance increased the Company’s gross assets and liabilities, the adoption of ASU

2016-02 ~~will~~

did not have a material impact on the consolidated statements of income or the consolidated statements of cash flows. See Note 6 for more information.

The FASB issued ASU

2017-08,

Receivables - Nonrefundable Fees and Other Costs (Topic 310).

ASU

2017-08

shortens the amortization period for certain callable debt securities held at a premium to require such premiums to be amortized to the earliest call date unless applicable guidance related to certain pools of securities is applied to consider estimated prepayments. Under prior guidance, entities were generally required to amortize premiums on individual,

non-pooled

callable debt securities as a yield adjustment over the contractual life of the security. ASU

2017-08

does not change the accounting for callable debt securities held at a discount. ASU

2017-08

was effective for the Company on January 1, 2019, ~~utilizing the modified retrospective transition approach. FASB has issued incremental guidance to the new leasing standard through ASUNo. 2018-10~~and~~2018-11.~~ Based on current leases, subject to change, the Company estimates that the adoption of this standard will result in an increase in assets of approximately $30 million to recognize the present value of the lease obligations with a corresponding increase in liabilities of approximately $30 million. This amount is subject to change as the Company continues to evaluate the provisions of ASU~~No. 2016-02,2018-10~~ ~~and2018-11.~~ ~~The Company does~~ did not ~~expect this to~~ have ~~a material~~an impact on the Company’s ~~results of operations or cash flows.~~

consolidated financial statements.

Accounting Standards Pending Adoption

The FASB issued ASU No. 2016-13,

Financial Instruments –Credit Losses (Topic 326)

. ASU 2016-13 is the final guidance on the new current expected credit loss (‘‘CECL’’) model. ASU 2016-13, among other things, requires the incurred loss impairment methodology in current GAAP be replaced with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate future credit loss estimates. As CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity (‘‘HTM’’) debt securities. ASU 2016-13 amends the accounting for credit losses on available-for-sale securities (‘‘AFS’’), whereby credit losses will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for purchased loans with credit deterioration since origination, so that reserves are established at the date of acquisition for purchased loans. Lastly, ASU 2016-13 requires enhanced disclosures on the significant estimates and judgments used to estimate credit losses, as well as on the credit quality and underwriting standards of an organization’s portfolio. These disclosures require organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. ASU 2016-13 allows for a modified retrospective approach with a cumulative effect adjustment to the balance sheet upon adoption (charge to retained earnings instead of the income statement). ASU 2016-13 will be effective for the Company on January 1, 2020, and early adoption is permitted. While the Company is currently evaluating the provisions of ASU 2016-13 to determine the potential impact the new standard will have on the Company’s ~~Consolidated Financial Statements,~~consolidated financial statements, it has taken steps to prepare for the implementation when it becomes effective, such as forming an internal task force, gathering pertinent data, consulting with outside professionals, and evaluating its current IT systems. While detailed modeling efforts are ongoing, the validation of expected credit loss estimates will likely not be available until late in 2019. Management expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the first reporting period in which the new standard is effective, but cannot yet estimate the magnitude of the one-time adjustment or the overall impact of the new guidance on the Company’s financial position, results of operations or cash flows.

FASB issued ASU No.

2017-04, ~~Intangibles -~~

Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment ~~(Topic~~

(Topic 350):

ASU

2017-04

eliminates step two of the goodwill impairment test (the hypothetical purchase price allocation used to determine the implied fair value of goodwill) when step one (determining if the carrying value of a reporting unit exceeds its fair value) is failed. Instead, entities simply will compare the fair value of a reporting unit to its carrying amount and record goodwill impairment for the amount by which the reporting unit’s carrying amount exceeds its fair value.ASU

2017-04

will be effective for the Company on January 1, 2020 and is not expected to have a significant impact on the Company’s consolidated financial statements.

~~FASB issued ASU2017-08,~~~~Receivables - Nonrefundable Fees and Other Costs (Topic 310).~~~~ASU 2017-08~~ shortens the amortization period for certain callable debt securities held at a premium to require such premiums to be amortized to the earliest call date unless applicable guidance related to certain pools of securities is applied to consider estimated prepayments. Under prior guidance, entities were generally required to amortize premiums on individual,~~non-pooled~~ ~~callable debt securities as a yield adjustment over the contractual life of the security.ASU 2017-08~~ ~~does not change the accounting for callable debt securities held at a discount.ASU 2017-08~~ ~~will be effective for the Company on January 1, 2019, and is not expected to have a significant impact on the Company’s consolidated financial statements.~~

In August 2018, the FASB issued ASU No.

2018-13,

“Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.”

This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASUNo.

2018-13

is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As ASUNo.

2018-13

only revises disclosure requirements, it will not have a ~~material~~significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASUNo.

2018-14,

“Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit ~~Plans.~~Plans

.” This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. ASU

2018-14

is effective for fiscal years ending after December 15, 2020; early adoption is permitted. As ASU

2018-14

only revises disclosure requirements, it will not have a ~~material~~significant impact on the Company’s consolidated financial statements.

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Note 2 - Business Combinations

Merger with FNB Bancorp

On July 6, 2018, the Company completed the acquisition of FNB Bancorp (“FNBB”) for an aggregate transaction value of $291,132,000. FNBB was merged into the Company, and the Company issued 7,405,277 shares of common stock to the former shareholders of FNBB. FNBB’s subsidiary, First National Bank of Northern California, merged into the Bank on the same day. The Company also paid ~~$6.7~~$

6.7

million to settle and retire all FNBB stock options outstanding as of the acquisition date. Upon the consummation of the merger, the Company added 12 branches within San Mateo, San Francisco, and Santa Clara counties.

In accordance with accounting for business combinations, the Company recorded $156,661,000 of goodwill and $27,605,000 of core deposit intangibles on the acquisition date. The core deposit intangibles will be amortized over the weighted average remaining life of 6.2 years with no significant residual value. For tax purposes, purchase ~~prices~~price accounting adjustments including goodwill are all

non-taxable

and /or

non-deductible.

Acquisition related costs of ~~$4,150,000~~$601,000 and ~~$5,227,000~~ $1,077,000

are included in the consolidated statements of income ~~statement~~ for the three and ~~nine~~six months ended ~~September~~ June

30 ~~2018. During~~

2018

. There have been

acquisition costs incurred during the ~~nine~~six months ended ~~September~~ June

30 ~~2017, there were no acquisition costs incurred.~~

2019

The acquisition was consistent with the Company’s strategy to expand into the Bay Area market. The acquisition offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded region. Goodwill arising from the acquisition consisted largely of the estimated cost savings resulting from the combined operations.

The following table summarizes the consideration paid for FNBB and the amounts of assets acquired and liabilities assumed that were recorded at the acquisition date (in thousands).

   FNB Bancorp
July 6, 2018
Fair value of consideration transferred:

Fair value of shares issued
   $ 284,437
Cash consideration
   6,695


Total fair value of consideration transferred
   291,132


Assets acquired:

Cash and cash equivalents
   37,308
Securities available for sale
   335,667
Restricted equity securities
   7,723
Loans
   834,683
Premises and equipment
   30,522
Cash value of life insurance
   16,817
Core deposit intangible
   27,605
Other assets
   16,214


Total assets acquired
   1,306,539


Liabilities assumed:

Deposits
   991,935
Other liabilities
   15,133
Short-term borrowings - Federal Home Loan Bank
   165,000


Total liabilities assumed
   1,172,068


Total net assets acquired
   134,471


Goodwill recognized
   $ 156,661


	FNB Bancorp
	July 6, 2018
Fair value of consideration transferred:
Fair value of shares issued	$	284,437
Cash consideration		6,695

Total fair value of consideration transferred		291,132

Assets acquired:
Cash and cash equivalents		37,308
Securities available for sale		335,667
Restricted equity securities		7,723
Loans		834,683
Premises and equipment		30,522
Cash value of life insurance		16,817
Core deposit intangible		27,605
Other assets		16,214

Total assets acquired		1,306,539

Liabilities assumed:
Deposits		991,935
Other liabilities		15,133
Short-term borrowings - Federal Home Loan Bank		165,000

Total liabilities assumed		1,172,068

Total net assets acquired		134,471

Goodwill recognized	$	156,661

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A summary of the estimated fair value adjustments resulting in the goodwill recorded in the FNB Bancorp acquisition are presented below (in thousands):


	FNB Bancorp
	July 6, 2018
Value of stock consideration paid to FNB Bancorp Shareholders	$	284,437
Cash consideration		6,695

Less:
Cost basis net assets acquired		114,030
Fair value adjustments:
Investments		(1,081	)
Loans		(22,390	)
Premises and equipment		21,590
Core deposit intangible		27,327
Deferred income taxes		(6,394	)
Other		1,389

Goodwill	$	156,661

The fair value of net assets acquired includes fair value adjustments to certain loans that were not considered impaired (PNCI loans) as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. As such, these loans were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans (PCI loans), which have shown evidence of credit deterioration since origination. The gross contractual amounts receivable and fair value for PNCI loans as of the acquisition date was $866,189,000 and $833,381,000, respectively. The gross contractual amounts receivable and fair value for PCI loans as of the acquisition date was $1,683,000 and $1,302,000, respectively.

~~The accompanying condensed consolidated financial statements include the accounts of FNB Bancorp since July 6, 2018. The table below presents the unaudited pro forma information as if~~ At the acquisition ~~of FNB Bancorp had occurred on January 1, 2017 after giving effect~~date, the Company was unable to ~~certain acquisition accounting adjustments. The pro forma information for~~estimate the three and nine months ended September 30, 2018 and 2017 includes acquisition adjustments for the amortization/accretion on loans, core deposit intangibles, and related income tax effects. The pro forma financial information also includes~~one-time~~ ~~costs associated with the acquisition but does not include~~ expected ~~costs savings synergies that we expect~~contractual cash flows to ~~achieve. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.~~

   Three months ended    Nine months ended
   September 30,
2018    September 30,
2017    September 30,
2018    September 30,
2017
   ( in thousands, except per share data)
Summarized proforma income statement data:

Net interest income
   $ 61,259    $ 57,329    $ 178,434    $ 168,363
Provision for (benefit from) loan losses
   2,651    765    1,374    (1,728 )
Noninterest income
   12,288    13,902    38,517    40,537
Noninterest expense
   (40,850 )    (45,983 )    (135,048 )    (135,218 )








Income before taxes
   30,046    24,483    80,529    75,410
Income taxes
   8,384    9,055    22,996    27,436
Net income
   $ 21,662    $ 15,428    $ 57,533    $ 47,974








Basic earnings per share
   $ 0.72    $ 0.51    $ 1.76    $ 1.58
Diluted earnings per share
   $ 0.71    $ 0.50    $ 1.74    $ 1.56

~~It is impracticable to separately provide information regarding the revenue and earnings of FNB Bancorp included in the Company’s consolidated income statement~~be collected from the ~~July 6, 2018 acquisition date to September 30, 2018 because the operations~~purchased credit impaired loans.

Table of ~~FNB Bancorp were substantially comingled with the operations of the Company as of the system conversion date of July 22, 2018.~~

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Note 3 - Investment Securities

The amortized cost and estimated fair values of investments in debt securities are summarized in the following tables:

   September 30, 2018
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Estimated Fair
Value
   (in thousands)
Debt Securities Available for Sale

Obligations of U.S. government agencies
   $ 666,021    163    (27,308 )    $ 638,876
Obligations of states and political subdivisions
   129,072    107    (5,759 )    123,420
Corporate bonds
   4,368    65    (2 )    4,431
Asset backed securities
   289,550    181    (498 )    289,233








Total debt securities available for sale
   $ 1,089,011    $ 516    $ (33,567 )    $ 1,055,960








Debt Securities Held to Maturity

Obligations of U.S. government agencies
   $ 445,309    $ 88    $ (13,361 )    $ 432,036
Obligations of states and political subdivisions
   14,588    58    (395 )    14,251








Total debt securities held to maturity
   $ 459,897    $ 146    $ (13,756 )    $ 446,287








   December 31, 2017
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Estimated Fair
Value
   (in thousands)
Debt Securities Available for Sale

Obligations of U.S. government agencies
   $ 609,695    $ 695    $ (5,601 )    $ 604,789
Obligations of states and political subdivisions
   121,597    1,888    (329 )    123,156








Total debt securities available for sale
   $ 731,292    $ 2,583    $ (5,930 )    $ 727,945








Debt Securities Held to Maturity

Obligations of U.S. government agencies
   $ 500,271    $ 5,101    $ (1,889 )    $ 503,483
Obligations of states and political subdivisions
   14,573    146    (37 )    14,682








Total debt securities held to maturity
   $ 514,844    $ 5,247    $ (1,926 )    $ 518,165

Proceeds from sales of available for sale debt securities of $293,279,000 and $25,757,000 were received during the three months ended September 30, 2018 and 2017, respectively. Gross realized gains during the three months ended September 30, 2018 and 2017 were $207,000 and $961,000, respectively.


	June 30, 2019
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(in thousands)
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	627,996	$	5,193	$	(2,278	)	$	630,911
Obligations of states and political subdivisions		123,626		2,462		(108	)		125,980
Corporate bonds		4,407		114		—			4,521
Asset backed securities		376,676		252		(4,346	)		372,582

Total debt securities available for sale	$	1,132,705	$	8,021	$	(6,732	)	$	1,133,994

Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	398,714	$	3,661	$	(1,199	)	$	401,176
Obligations of states and political subdivisions		13,810		290		—			14,100

Total debt securities held to maturity	$	412,524	$	3,951	$	(1,199	)	$	415,276


	December 31, 2018
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(in thousands)
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	647,288	$	771	$	(18,078	)	$	629,981
Obligations of states and political subdivisions		128,890		294		(3,112	)		126,072
Corporate bonds		4,381		97		—			4,478
Asset backed securities		355,451		73		(1,019	)		354,505

Total debt securities available for sale	$	1,136,010	$	1,235	$	(22,209	)	$	1,115,036

Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	430,343	$	327	$	(7,745	)	$	422,925
Obligations of states and political subdivisions		14,593		82		(230	)		14,445

Total debt securities held to maturity	$	444,936	$	409	$	(7,975	)	$	437,370

There were no sales of investment securities during the ~~first~~ six months ~~of 2018 or 2017.~~ended June 30, 2019 and 2018. Investment securities with an aggregate carrying value of ~~$548,123,000~~$569,296,000 and ~~$285,596,000~~$597,591,000 at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, were pledged as collateral for specific borrowings, lines of credit ~~and~~or local agency deposits.

Table of Contents

The amortized cost and estimated fair value of debt securities at ~~September~~June 30, ~~2018~~2019 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, ~~2018,~~2019, obligations of U.S. government corporations and agencies with a cost basis totaling ~~$1,111,330,000~~$1,026,710,000 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, ~~2018,~~2019, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately ~~6.1~~5.1 years. Average remaining life is defined as the time span after which the principal balance has been reduced by half.

Debt Securities
   Available for Sale    Held to Maturity
(In thousands)    Amortized
Cost    Estimated Fair
Value    Amortized
Cost    Estimated Fair
Value
Due in one year
   $ 2,435    $ 2,434    $ —      $ —
Due after one year through five years
   12,486    12,501    1,231    1,240
Due after five years through ten years
   17,764    17,740    25,955    25,210
Due after ten years
   1,056,326    1,023,285    432,711    419,837








Totals
   $ 1,089,011    $ 1,055,960    $ 459,897    $ 446,287


Debt Securities	Available for Sale				Held to Maturity
(In thousands)	Amortized		Estimated		Amortized		Estimated
(In thousands)	Cost		Fair Value		Cost		Fair Value
Due in one year	$	2,415	$	2,421	$	—	$	—
Due after one year through five years		14,287		14,636		1,254		1,269
Due after five years through ten years		44,325		45,235		21,922		22,166
Due after ten years		1,071,678		1,071,702		389,348		391,841

Totals	$	1,132,705	$	1,133,994	$	412,524	$	415,276

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:

   Less than 12 months 12 months or more Total
   Fair Value    Unrealized
Loss Fair Value    Unrealized
Loss Fair Value    Unrealized
Loss
September 30, 2018       (in thousands)
Debt Securities Available for Sale

Obligations of U.S. government agencies
   $ 323,972    $ (10,839 ) $ 311,035    $ (16,469 ) $ 635,007    $ (27,308 )
Obligations of states and political subdivisions
   85,668    (3,659 ) 18,323    (2,100 ) 103,991    (5,759 )
Corporate bonds
   1,969    (2 ) —      —   1,969    (2 )
Asset backed securities
   79,943    (498 ) —      —   79,943    (498 )








Total debt securities available for sale
   $ 491,552    $ (14,998 ) $ 329,358    $ (18,569 ) $ 820,910    $ (33,567 )








Debt Securities Held to Maturity

Obligations of U.S. government agencies
   $ 307,432    $ (7,693 ) $ 109,312    $ (5,668 ) $ 416,744    $ (13,361 )
Obligations of states and political subdivisions
   8,971    (230 ) 3,076    (165 ) 12,047    (395 )








Total debt securities held to maturity
   $ 316,403    $ (7,923 ) $ 112,388    $ (5,833 ) $ 428,791    $ (13,756 )








   Less than 12 months 12 months or more Total
   Fair Value    Unrealized
Loss Fair Value    Unrealized
Loss Fair Value    Unrealized
Loss
December 31, 2017       (in thousands)
Debt Securities Available for Sale

Obligations of U.S. government agencies
   $ 284,367    $ (2,176 ) $ 166,338    $ (3,425 ) $ 450,705    $ (5,601 )
Obligations of states and political subdivisions
   4,904    (35 ) 17,085    (294 ) 21,989    (329 )








Total securities available for sale
   $ 289,271    $ (2,211 ) $ 183,423    $ (3,719 ) $ 472,694    $ (5,930 )








Debt Securities Held to Maturity

Obligations of U.S. government agencies
   $ 93,017    $ (567 ) $ 95,367    $ (1,322 ) $ 188,384    $ (1,889 )
Obligations of states and political subdivisions
   1,488    (7 ) 2,637    (30 ) 4,125    (37 )








Total debt securities held to maturity
   $ 94,505    $ (574 ) $ 98,004    $ (1,352 ) $ 192,509    $ (1,926 )


	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
	(in thousands)
June 30, 2019
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	—	$	—		$	247,286	$	(2,278	)	$	247,286	$	(2,278	)
Obligations of states and political subdivisions		5,208		(108	)		—		—			5,208		(108	)
Corporate Bonds		—		—			—		—			—		—
Asset backed securities		340,012		(4,346	)		—		—			340,012		(4,346	)
Total debt securities available for sale	$	345,220	$	(4,454	)	$	247,286	$	(2,278	)	$	592,506	$	(6,732	)
Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	—	$	—		$	110,702	$	(1,199	)	$	110,702	$	(1,199	)
Obligations of states and political subdivisions		—		—			—		—			—		—
Total debt securities held to maturity	$	—	$	—		$	110,702	$	(1,199	)	$	110,702	$	(1,199	)

	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
	(in thousands)
December 31, 2018
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	171,309	$	(3,588	)	$	394,630	$	(14,490	)	$	565,939	$	(18,078	)
Obligations of states and political subdivisions		63,738		(1,541	)		20,719		(1,571	)		84,457		(3,112	)
Asset backed securities		101,386		(1,019	)		—		—			101,386		(1,019	)
Total debt securities available for sale	$	336,433	$	(6,148	)	$	415,349	$	(16,061	)	$	751,782	$	(22,209	)
Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	223,810	$	(2,619	)	$	158,648	$	(5,126	)	$	382,458	$	(7,745	)
Obligations of states and political subdivisions		5,786		(114	)		4,042		(116	)		9,828		(230	)
Total debt securities held to maturity	$	229,596	$	(2,733	)	$	162,690	$	(5,242	)	$	392,286	$	(7,975	)

Obligations of U.S. government agencies: Unrealized losses on investments in obligations of U.S. government agencies are caused by interest rate increases. 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 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, these investments are not considered other-than-temporarily impaired. At ~~September, 2018, 171~~June 30, 2019, 46 debt securities representing obligations of U.S. government agencies had unrealized losses with aggregate depreciation of ~~(3.7%~~(1.0%) from the Company’s amortized cost basis.

Table of Contents

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 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, these investments are not considered other-than-temporarily impaired. At ~~September~~June 30, ~~2018, 132~~2019, 13 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of ~~(5.0%~~(2.0%) from the Company’s amortized cost basis.

Corporate bonds: The unrealized losses on investments in corporate bonds 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, these investments are not considered other-than-temporarily impaired. At September 30, 2018, one corporate bond had unrealized losses with aggregate depreciation of (0.1%) 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 in these types of securities. At the time of purchase, each of these securities ~~were~~was rated AA or AAA and through ~~September~~June 30, ~~2018 have~~2019 has not experienced any deterioration in credit rating. 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, these investments are not considered other-than-temporarily impaired. At ~~September~~June 30, ~~2018, 6asset~~2019, 28 asset backed securities had unrealized losses with aggregate depreciation of ~~(0.6%~~(1.3%) from the Company’s amortized cost basis.

Marketable equity securities: All unrealized losses recognized during the reporting period were for equity securities still held at ~~September~~June 30, ~~2018.~~

2019.

Note 4 – Loans

A summary of loan balances follows (in thousands):

   September 30, 2018
   Originated    PNCI    PCI    Total
Mortgage loans on real estate:

Residential1-4 family
   $ 340,515    $ 182,201    $ 1,698    $ 524,414
Commercial
   1,863,604    736,299    7,885    2,607,788








Total mortgage loans on real estate
   2,204,119    918,500    9,583    3,132,202
Consumer:

Home equity lines of credit
   284,956    44,881    1,299    331,136
Home equity loans
   35,556    4,690    447    40,693
Other
   26,294    23,120    42    49,456








Total consumer loans
   346,806    72,691    1,788    421,285
Commercial
   234,741    52,479    2,427    289,647
Construction:

Residential
   81,533    33,041    —      114,574
Commercial
   63,508    6,220    —      69,728








Total construction
   145,041    39,261    —      184,302








Total loans, net of deferred loan fees and discounts
   $ 2,930,707    $ 1,082,931    $ 13,798    $ 4,027,436








Total principal balance of loans owed, net of charge-offs
   $ 2,940,897    $ 1,120,654    $ 21,007    $ 4,082,558
Unamortized net deferred loan fees
   (10,190 )    —      —      (10,190 )
Discounts to principal balance of loans owed, net of charge-offs
   —      (37,723 )    (7,209 )    (44,932 )








Total loans, net of unamortized deferred loan fees and discounts
   $ 2,930,707    $ 1,082,931    $ 13,798    $ 4,027,436








Allowance for loan losses
   $ (30,927 )    $ (566 )    $ (110 )    $ (31,603 )








   December 31, 2017
   Originated    PNCI    PCI    Total
Mortgage loans on real estate:

Residential1-4 family
   $ 320,522    $ 63,519    $ 1,385    $ 385,426
Commercial
   1,690,510    215,823    8,563    1,914,896








Total mortgage loan on real estate
   2,011,032    279,342    9,948    2,300,322
Consumer:

Home equity lines of credit
   269,942    16,248    2,498    288,688
Home equity loans
   39,848    2,698    485    43,031
Other
   22,859    2,251    45    25,155








Total consumer loans
   332,649    21,197    3,028    356,874
Commercial
   209,437    8,391    2,584    220,412
Construction:

Residential
   67,920    10    —      67,930
Commercial
   69,364    263    —      69,627








Total construction
   137,284    273    —      137,557








Total loans, net of deferred loan fees and discounts
   $ 2,690,402    $ 309,203    $ 15,560    $ 3,015,165








Total principal balance of loans owed, net of charge-offs
   $ 2,699,053    $ 316,238    $ 23,181    $ 3,038,472
Unamortized net deferred loan fees
   (8,651 )    —      —      (8,651 )
Discounts to principal balance of loans owed, net of charge-offs
   —      (7,035 )    (7,621 )    (14,656 )








Total loans, net of unamortized deferred loan fees and discounts
   $ 2,690,402    $ 309,203    $ 15,560    $ 3,015,165








Allowance for loan losses
   $ (29,122 )    $ (929 )    $ (272 )    $ (30,323 )


	June 30, 2019
	Originated			PNCI			PCI			Total
Mortgage loans on real estate:
Residential 1-4 family	$	348,737		$	155,872		$	1,440		$	506,049
Commercial		2,005,985			660,737			5,959			2,672,681

Total mortgage loan on real estate		2,354,722			816,609			7,399			3,178,730
Consumer:
Home equity lines of credit		294,541			35,231			1,128			330,900
Home equity loans		29,041			2,875			429			32,345
Other		53,340			17,802			1			71,143

Total consumer loans		376,922			55,908			1,558			434,388
Commercial		248,523			24,984			2,538			276,045
Construction:
Residential		148,432			9,083			—			157,515
Commercial		56,289			720			—			57,009

Total construction		204,721			9,803			—			214,524

Total loans, net of deferred loan fees and discounts	$	3,184,888		$	907,304		$	11,495		$	4,103,687

Total principal balance of loans owed, net of charge-offs	$	3,193,938		$	940,627		$	17,975		$	4,152,540
Unamortized net deferred loan fees		(9,050	)		—			—			(9,050	)
Discounts to principal balance of loans owed, net of charge-offs		—			(33,323	)		(6,480	)		(39,803	)

Total loans, net of unamortized deferred loan fees and discounts	$	3,184,888		$	907,304		$	11,495		$	4,103,687

Allowance for loan losses	$	(32,273	)	$	(585	)	$	(10	)	$	( 32,868	)

Table of Contents


	December 31, 2018
	Originated			PNCI			PCI			Total
Mortgage loans on real estate:
Residential 1-4 family	$	343,796		$	169,792		$	1,674		$	515,262
Commercial		1,910,981			708,401			8,456			2,627,838

Total mortgage loan on real estate		2,254,777			878,193			10,130			3,143,100
Consumer:
Home equity lines of credit		284,453			40,957			1,167			326,577
Home equity loans		32,660			3,585			439			36,684
Other		34,020			21,659			42			55,721

Total consumer loans		351,133			66,201			1,648			418,982
Commercial		228,635			45,468			2,445			276,548
Construction:
Residential		90,703			30,593			—			121,296
Commercial		56,208			5,880			—			62,088

Total construction		146,911			36,473			—			183,384

Total loans, net of deferred loan fees and discounts	$	2,981,456		$	1,026,335		$	14,223		$	4,022,014

Total principal balance of loans owed, net of charge-offs	$	2,991,324		$	1,062,655		$	21,265		$	4,075,244
Unamortized net deferred loan fees		(9,868	)		—			—			(9,868	)
Discounts to principal balance of loans owed, net of charge-offs		—			(36,320	)		(7,042	)		(43,362	)

Total loans, net of unamortized deferred loan fees and discounts	$	2,981,456		$	1,026,335		$	14,223		$	4,022,014

Allowance for loan losses	$	(31,793	)	$	(667	)	$	(122	)	$	(32,582	)

The following is a summary of the change in accretable yield for PCI ~~loans~~ during the periods indicated (in thousands):

   Three months ended September 30,    Nine months ended September 30,
   2018    2017    2018    2017
Change in accretable yield:

Balance at beginning of period
   $ 3,996    $ 7,956    $ 4,262    $ 10,348
Accretion to interest income
   (253 )    (594 )    (769 )    (2,554 )
Reclassification (to) from nonaccretable difference
   (47 )    (2,893 )    203    (3,325 )








Balance at end of period
   $ 3,696    $ 4,469    $ 3,696    $ 4,469


	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Change in accretable yield:
Balance at beginning of period	$	5,747		$	6,022		$	6,059		$	6,137
Accretion to interest income		(109	)		(261	)		(410	)		(516	)
Reclassification (to) from nonaccretable difference		(320	)		110			(331	)		250

Balance at end of period	$	5,318		$	5,871		$	5,318		$	5,871

Table of Contents

Note 5 -– Allowance for Loan Losses

The following tables summarize the activity in the allowance for loan losses, and ending balance of loans, net of unearned fees for the periods indicated.

   Allowance for Loan Losses – Three Months Ended September 30, 2018
(in thousands)    Beginning
Balance    Charge-offs Recoveries    Provision
(benefit) Ending Balance
Mortgage loans on real estate:

Residential1-4 family
   $ 1,991    $ (25 ) $ —      $ 434 $ 2,400
Commercial
   11,607    —   15    1,257 12,879






Total mortgage loans on real estate
   13,598    (25 ) 15    1,691 15,279
Consumer:

Home equity lines of credit
   5,048    (172 ) 151    194 5,221
Home equity loans
   1,532    (23 ) 139    (55 ) 1,593
Other
   557    (229 ) 63    309 700






Total consumer loans
   7,137    (424 ) 353    448 7,514
Commercial
   6,378    (693 ) 202    337 6,224
Construction:

Residential
   1,434    —   —      192 1,626
Commercial
   977    —   —      (17 ) 960






Total construction
   2,411    —   —      175 2,586






Total
   $ 29,524    $ (1,142 ) $ 570    $ 2,651 $ 31,603






   Allowance for Loan Losses – Nine Months Ended September 30, 2018
(in thousands)    Beginning
Balance    Charge-offs Recoveries    Provision
(benefit) Ending Balance
Mortgage loans on real estate:

Residential1-4 family
   $ 2,317    $ (77 ) $ —      $ 160 $ 2,400
Commercial
   11,441    (15 ) 51    1,402 12,879






Total mortgage loans on real estate
   13,758    (92 ) 51    1,562 15,279
Consumer:

Home equity lines of credit
   5,800    (276 ) 677    (980 ) 5,221
Home equity loans
   1,841    (23 ) 176    (401 ) 1,593
Other
   586    (597 ) 208    503 700






Total consumer loans
   8,227    (896 ) 1,061    (878 ) 7,514
Commercial
   6,512    (952 ) 331    333 6,224
Construction:

Residential
   1,184    —   —      442 1,626
Commercial
   642    —   —      318 960






Total construction
   1,826    —   —      760 2,586






Total
   $ 30,323    $ (1,940 ) $ 1,443    $ 1,777 $ 31,603

   Allowance for Loan Losses – As of September 30, 2018
(in thousands)    Individually
evaluated for
impairment    Loans pooled
for evaluation    Loans acquired
with deteriorated
credit quality    Total allowance
for loan losses
Mortgage loans on real estate:

Residential1-4 family
   $ 57    $ 2,313    $ 30    $ 2,400
Commercial
   268    12,552    59    12,879








Total mortgage loans on real estate
   325    14,865    89    15,279
Consumer:

Home equity lines of credit
   168    5,046    7    5,221
Home equity loans
   175    1,418    —      1,593
Other
   103    597    —      700








Total consumer loans
   446    7,061    7    7,514
Commercial
   1,857    4,353    14    6,224
Construction:

Residential
   —      1,626    —      1,626
Commercial
   —      960    —      960








Total construction
   —      2,586    —      2,586








Total
   $ 2,628    $ 28,865    $ 110    $ 31,603


	Allowance for Loan Losses – Three Months Ended June 30, 2019
(in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision (benefit)			Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	2,500	$	(2	)	$	3	$	75		$	2,576
Commercial		12,330		—			10		(241	)		12,099

Total mortgage loans on real estate		14,830		(2	)		13		(166	)		14,675
Consumer:
Home equity lines of credit		6,015		—			183		(339	)		5,859
Home equity loans		1,286		—			171		(215	)		1,242
Other		1,040		(153	)		108		456			1,451

Total consumer loans		8,341		(153	)		462		(98	)		8,552
Commercial		6,078		(138	)		85		720			6,745
Construction:
Residential		2,408		—			—		130			2,538
Commercial		407		—			—		(49	)		358

Total construction		2,815		—			—		81			2,896

Total	$	32,064	$	(293	)	$	560	$	537		$	32,868


	Allowance for Loan Losses – Six Months Ended June 30, 2019
(in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision (benefit)			Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	2,676	$	(2	)	$	5	$	(103	)	$	2,576
Commercial		12,944		—			1,391		(2,236	)		12,099

Total mortgage loans on real estate		15,620		(2	)		1,396		(2,339	)		14,675
Consumer:
Home equity lines of credit		6,042		—			278		(461	)		5,859
Home equity loans		1,540		—			258		(556	)		1,242
Other		793		(360	)		183		835			1,451

Total consumer loans		8,375		(360	)		719		(182	)		8,552
Commercial		6,090		(657	)		253		1,059			6,745
Construction:
Residential		1,834		—			—		704			2,538
Commercial		663		—			—		(305	)		358

Total construction		2,497		—			—		399			2,896

Total	$	32,582	$	(1,019	)	$	2,368	$	(1,063	)	$	32,868

   Loans, Net of Unearned fees – As of September 30, 2018
(in thousands)    Individually
evaluated for
impairment    Loans pooled
for evaluation    Loans acquired
with deteriorated
credit quality    Total loans, net
of unearned fees
Mortgage loans on real estate:

Residential1-4 family
   $ 4,781    $ 517,935    $ 1,698    $ 524,414
Commercial
   13,244    2,586,659    7,885    2,607,788








Total mortgage loans on real estate
   18,025    3,104,594    9,583    3,132,202
Consumer:

Home equity lines of credit
   2,188    327,649    1,299    331,136
Home equity loans
   2,406    37,840    447    40,693
Other
   243    49,171    42    49,456








Total consumer loans
   4,837    414,660    1,788    421,285
Commercial
   4,632    282,588    2,427    289,647
Construction:

Residential
   —      114,574    —      114,574
Commercial
   —      69,728    —      69,728








Total construction
   —      184,302    —      184,302








Total
   $ 27,494    $ 3,986,144    $ 13,798    $ 4,027,436

   Allowance for Loan Losses – Year Ended December 31, 2017
(in thousands)    Beginning
Balance    Charge-offs Recoveries    Provision
(benefit) Ending
Balance
Mortgage loans on real estate:

Residential1-4 family
   $ 2,748    $ (60 ) $ —      $ (371 ) $ 2,317
Commercial
   11,517    (186 ) 397    (287 ) 11,441






Total mortgage loans on real estate
   14,265    (246 ) 397    (658 ) 13,758
Consumer:

Home equity lines of credit
   7,044    (98 ) 698    (1,844 ) 5,800
Home equity loans
   2,644    (332 ) 242    (713 ) 1,841
Other
   622    (1,186 ) 375    775 586






Total consumer loans
   10,310    (1,616 ) 1,315    (1,782 ) 8,227
Commercial
   5,831    (1,444 ) 428    1,697 6,512
Construction:

Residential
   1,417    (1,104 ) —      871 1,184
Commercial
   680    —   1    (39 ) 642






Total construction
   2,097    (1,104 ) 1    832 1,826






Total
   $ 32,503    $ (4,410 ) $ 2,141    $ 89 $ 30,323

   Allowance for Loan Losses – As of December 31, 2017
(in thousands)    Individually
evaluated for
impairment    Loans pooled
for evaluation    Loans acquired
with deteriorated
credit quality    Total allowance
for loan losses
Mortgage loans on real estate:

Residential1-4 family
   $ 230    $ 1,932    $ 155    $ 2,317
Commercial
   30    11,351    60    11,441








Total mortgage loans on real estate
   260    13,283    215    13,758
Consumer:

Home equity lines of credit
   427    5,356    17    5,800
Home equity loans
   107    1,734    —      1,841
Other
   57    529    —      586








Total consumer loans
   591    7,619    17    8,227
Commercial
   1,848    4,624    40    6,512
Construction:

Residential
   —      1,184    —      1,184
Commercial
   —      642    —      642








Total construction
   —      1,826    —      1,826








Total
   $ 2,699    $ 27,352    $ 272    $ 30,323

   Loans, Net of Unearned fees – As of December 31, 2017
(in thousands)    Individually
evaluated for
impairment    Loans pooled
for evaluation    Loans acquired
with deteriorated
credit quality    Total loans, net
of unearned fees
Mortgage loans on real estate:

Residential1-4 family
   $ 5,298    $ 378,743    $ 1,385    $ 385,426
Commercial
   13,911    1,892,422    8,563    1,914,896








Total mortgage loans on real estate
   19,209    2,271,165    9,948    2,300,322
Consumer:

Home equity lines of credit
   2,688    283,502    2,498    288,688
Home equity loans
   1,470    41,076    485    43,031
Other
   257    24,853    45    25,155








Total consumer loans
   4,415    349,431    3,028    356,874
Commercial
   4,470    213,358    2,584    220,412
Construction:

Residential
   140    67,790    —      67,930
Commercial
   —      69,627    —      69,627








Total construction
   140    137,417    —      137,557








Total
   $ 28,234    $ 2,971,371    $ 15,560    $ 3,015,165

   Allowance for Loan Losses – Three Months Ended September 30, 2017
(in thousands)    Beginning
Balance    Charge-
offs    Recoveries    Provision
(benefit)    Ending Balance
Mortgage loans on real estate:

Residential1-4 family
   $ 2,495    $ (60 )    $ —      $ (217 )    $ 2,218
Commercial
   10,119    (20 )    238    1,033    11,370










Total mortgage loans on real estate
   12,614    (80 )    238    816    13,588
Consumer:

Home equity lines of credit
   6,156    (14 )    189    (610 )    5,721
Home equity loans
   2,354    (94 )    121    (390 )    1,991
Other
   645    (349 )    91    203    590










Total consumer loans
   9,155    (457 )    401    (797 )    8,302
Commercial
   4,729    (291 )    61    303    4,802
Construction:

Residential
   1,179    (33 )    —      284    1,430
Commercial
   466    —      —      159    625










Total construction
   1,645    (33 )    —      443    2,055










Total
   $ 28,143    $ (861 )    $

700
   $ 765    $ 28,747

   Allowance for Loan Losses – Nine Months Ended September 30, 2017
(in thousands)    Beginning
Balance    Charge-offs Recoveries    Provision
(benefit) Ending Balance
Mortgage loans on real estate:

Residential1-4 family
   $ 2,748    $ (60 ) $    $ (470 ) $ 2,218
Commercial
   11,517    (170 ) 365    (342 ) 11,370






Total mortgage loans on real estate
   14,265    (230 ) 365    (812 ) 13,588
Consumer:

Home equity lines of credit
   7,044    (98 ) 487    (1,712 ) 5,721
Home equity loans
   2,644    (331 ) 146    (468 ) 1,991
Other
   622    (831 ) 300    499 590






Total consumer loans
   10,310    (1,260 ) 933    (1,681 ) 8,302
Commercial
   5,831    (1,188 ) 315    (156 ) 4,802
Construction:

Residential
   1,417    (1,104 ) —      1,117 1,430
Commercial
   680    —   1    (56 ) 625






Total construction
   2,097    (1,104 ) 1    1,061 2,055






Total
   $ 32,503    $ (3,782 ) $ 1,614    $ (1,588 ) $ 28,747

   Allowance for Loan Losses – As of September 30, 2017
(in thousands)    Individually
evaluated for
impairment    Loans pooled
for evaluation    Loans acquired
with deteriorated
credit quality    Total allowance
for loan losses
Mortgage loans on real estate:

Residential1-4 family
   $ 240    $ 1,978    $ —      $ 2,218
Commercial
   73    11,022    275    11,370








Total mortgage loans on real estate
   313    13,000    275    13,588
Consumer:

Home equity lines of credit
   363    5,346    12    5,721
Home equity loans
   111    1,880    —      1,991
Other
   77    513    —      590








Total consumer loans
   551    7,739    12    8,302
Commercial
   1,276    3,526    —      4,802
Construction:

Residential
   —      1,430    —      1,430
Commercial
   —      625    —      625








Total construction
   —      2,055    —      2,055








Total
   $ 2,140    $ 26,320    $ 287    $ 28,747








   Loans, Net of Unearned fees – As of September 30, 2017
(in thousands)    Individually
evaluated for
impairment    Loans pooled
for evaluation    Loans acquired
with deteriorated
credit quality    Total Loans
Mortgage loans on real estate:

Residential1-4 family
   $ 5,027    $ 384,640    $ 1,405    $ 391,072
Commercial
   19,788    1,775,843    8,171    1,803,802








Total mortgage loans on real estate
   24,815    2,160,483    9,576    2,194,874
Consumer:

Home equity lines of credit
   2,219    284,335    2,952    289,506
Home equity loans
   1,842    42,454    737    45,033
Other
   267    26,470    44    26,781








Total consumer loans
   4,328    353,259    3,733    361,320
Commercial
   2,938    221,846    2,695    227,479
Construction:

Residential
   144    74,976    —      75,120
Commercial
   —      72,820    —      72,820








Total construction
   144    147,796    —      147,940








Total
   $ 32,225    $ 2,883,384    $ 16,004    $ 2,931,613


	Allowance for Loan Losses – As of June 30, 2019
(in thousands)	Loans pooled for evaluation		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Total allowance for loan losses
Mortgage loans on real estate:
Residential 1-4 family	$	2,522	$	54	$	—	$	2,576
Commercial		12,015		84		—		12,099

Total mortgage loans on real estate		14,537		138		—		14,675
Consumer:
Home equity lines of credit		5,764		85		10		5,859
Home equity loans		1,181		61		—		1,242
Other		1,433		18		—		1,451

Total consumer loans		8,378		164		10		8,552
Commercial		4,605		2,140		—		6,745
Construction:
Residential		2,538		—		—		2,538
Commercial		358		—		—		358

Total construction		2,896		—		—		2,896

Total	$	30,416	$	2,442	$	10	$	32,868

Table of Contents


	Loans, Net of Unearned fees – As of June 30, 2019
(in thousands)	Loans pooled for evaluation		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Total loans, net of unearned fees
Mortgage loans on real estate:
Residential 1-4 family	$	500,304	$	4,305	$	1,440	$	506,049
Commercial		2,655,692		11,030		5,959		2,672,681

Total mortgage loans on real estate		3,155,996		15,335		7,399		3,178,730
Consumer:
Home equity lines of credit		327,726		2,046		1,128		330,900
Home equity loans		29,860		2,056		429		32,345
Other		70,986		156		1		71,143

Total consumer loans		428,572		4,258		1,558		434,388
Commercial		268,405		5,102		2,538		276,045
Construction:
Residential		157,515		—		—		157,515
Commercial		57,009		—		—		57,009

Total construction		214,524		—		—		214,524

Total	$	4,067,497	$	24,695	$	11,495	$	4,103,687


	Allowance for Loan Losses – Year Ended December 31, 2018
(in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision (benefit)			Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	2,317	$	(77	)	$	—	$	436		$	2,676
Commercial		11,441		(15	)		68		1,450			12,944

Total mortgage loans on real estate		13,758		(92	)		68		1,886			15,620
Consumer:
Home equity lines of credit		5,800		(277	)		846		(327	)		6,042
Home equity loans		1,841		(24	)		297		(574	)		1,540
Other		586		(783	)		288		702			793

Total consumer loans		8,227		(1,084	)		1,431		(199	)		8,375
Commercial		6,512		(1,188	)		541		225			6,090
Construction:
Residential		1,184		—			—		650			1,834
Commercial		642		—			—		21			663

Total construction		1,826		—			—		671			2,497

Total	$	30,323	$	(2,364	)	$	2,040	$	2,583		$	32,582


	Allowance for Loan Losses – As of December 31, 2018
(in thousands)	Loans pooled for evaluation		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Total allowance for loan losses
Mortgage loans on real estate:
Residential 1-4 family	$	2,620	$	56	$	—	$	2,676
Commercial		12,737		91		116		12,944

Total mortgage loans on real estate		15,357		147		116		15,620
Consumer:
Home equity lines of credit		5,838		198		6		6,042
Home equity loans		1,486		54		—		1,540
Other		779		14		—		793

Total consumer loans		8,103		266		6		8,375
Commercial		4,309		1,781		—		6,090
Construction:
Residential		1,834		—		—		1,834
Commercial		663		—		—		663

Total construction		2,497		—		—		2,497

Total	$	30,266	$	2,194	$	122	$	32,582

Table of Contents


		Loans, Net of Unearned fees – As of December 31, 2018
(in thousands)		Loans pooled for evaluation		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Total loans, net of unearned fees
Mortgage loans on real estate:
Residential 1-4 family		$	509,267	$	4,321	$	1,674	$	515,262
Commercial			2,606,819		12,563		8,456		2,627,838

Total mortgage loans on real estate	��		3,116,086		16,884		10,130		3,143,100
Consumer:
Home equity lines of credit			322,764		2,646		1,167		326,577
Home equity loans			33,142		3,103		439		36,684
Other			55,483		196		42		55,721

Total consumer loans			411,389		5,945		1,648		418,982
Commercial			268,885		5,218		2,445		276,548
Construction:
Residential			121,296		—		—		121,296
Commercial			62,088		—		—		62,088

Total construction			183,384		—		—		183,384

Total		$	3,979,744	$	28,047	$	14,223	$	4,022,014


	Allowance for Loan Losses – Three Months Ended June 30, 2018
(in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision (benefit)			Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	2,170	$	(51	)	$	—	$	(128	)	$	1,991
Commercial		11,495		(15	)		21		106			11,607

Total mortgage loans on real estate		13,665		(66	)		21		(22	)		13,598
Consumer:
Home equity lines of credit		5,412		(24	)		317		(657	)		5,048
Home equity loans		1,736		—			23		(227	)		1,532
Other		570		(174	)		66		95			557

Total consumer loans		7,718		(198	)		406		(789	)		7,137
Commercial		6,392		(54	)		80		(40	)		6,378
Construction:
Residential		1,351		—			—		83			1,434
Commercial		847		—			—		130			977

Total construction		2,198		—			—		213			2,411

Total	$	29,973	$	(318	)	$	507	$	(638	)	$	29,524


	Allowance for Loan Losses – Six Months Ended June 30, 2018
(in thousands)	Beginning Balance		Charge-offs			Recoveries		Provision (benefit)			Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	2,317	$	(52	)	$	—	$	(274	)	$	1,991
Commercial		11,441		(15	)		36		145			11,607

Total mortgage loans on real estate		13,758		(67	)		36		(129	)		13,598
Consumer:
Home equity lines of credit		5,800		(104	)		526		(1,174	)		5,048
Home equity loans		1,841		—			37		(346	)		1,532
Other		586		(368	)		144		195			557

Total consumer loans		8,227		(472	)		707		(1,325	)		7,137
Commercial		6,512		(259	)		130		(5	)		6,378
Construction:
Residential		1,184		—			—		250			1,434
Commercial		642		—			—		335			977

Total construction		1,826		—			—		585			2,411

Total	$	30,323	$	(798	)	$	873	$	(874	)	$	29,524

Table of Contents


	Allowance for Loan Losses – As of June 30, 2018
(in thousands)	Loans pooled for evaluation		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Total allowance for loan losses
Mortgage loans on real estate:
Residential 1-4 family	$	1,794	$	147	$	50	$	1,991
Commercial		11,466		82		59		11,607

Total mortgage loans on real estate		13,260		229		109		13,598
Consumer:
Home equity lines of credit		4,754		287		7		5,048
Home equity loans		1,340		192		—		1,532
Other		503		54		—		557

Total consumer loans		6,597		533		7		7,137
Commercial		4,228		2,127		23		6,378
Construction:
Residential		1,434		—		—		1,434
Commercial		977		—		—		977

Total construction		2,411		—		—		2,411

Total	$	26,496	$	2,889	$	139	$	29,524


	Loans, Net of Unearned fees – As of June 30, 2018
(in thousands)	Loans pooled for evaluation		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Total loans, net of unearned fees
Mortgage loans on real estate:
Residential 1-4 family	$	376,628	$	6,344	$	1,720	$	384,692
Commercial		1,997,591		11,162		7,595		2,016,348

Total mortgage loans on real estate		2,374,219		17,506		9,315		2,401,040
Consumer:
Home equity lines of credit		282,611		2,250		1,575		286,436
Home equity loans		38,074		2,457		455		40,986
Other		23,213		247		43		23,503

Total consumer loans		343,898		4,954		2,073		350,925
Commercial		230,395		4,751		2,473		237,619
Construction:
Residential		73,578		—		—		73,578
Commercial		83,151		—		—		83,151

Total construction		156,729		—		—		156,729

Total	$	3,105,241	$	27,211	$	13,861	$	3,146,313

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 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.

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.

Table of Contents

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.

The following tables present ending loan balances by loan category and risk grade for the periods indicated:

   Credit Quality Indicators Originated Loans – As of September 30, 2018
(in thousands)    Pass    Special
Mention    Substandard    Doubtful / Loss    Total Originated
Loans
Mortgage loans on real estate:

Residential1-4 family
   $ 334,902    $ 1,690    $ 3,923    $ —      $ 340,515
Commercial
   1,821,995    28,747    12,862    —      1,863,604










Total mortgage loans on real estate
   2,156,897    30,437    16,785    —      2,204,119
Consumer:

Home equity lines of credit
   281,480    1,747    1,729    —      284,956
Home equity loans
   32,242    1,006    2,308    —      35,556
Other
   25,885    334    75    —      26,294










Total consumer loans
   339,607    3,087    4,112    —      346,806
Commercial
   220,328    9,942    4,471    —      234,741
Construction:

Residential
   81,235    32    266    —      81,533
Commercial
   62,660    848    —    —      63,508










Total construction
   143,895    880    266    —      145,041










Total loans
   $ 2,860,727    $ 44,346    $ 25,634    $ —      $ 2,930,707










   Credit Quality Indicators PNCI Loans – As of September 30, 2018
(in thousands)    Pass    Special
Mention    Substandard    Doubtful / Loss    Total PNCI
Loans
Mortgage loans on real estate:

Residential1-4 family
   $ 179,634    $ 880    $ 1,687    $ —      $ 182,201
Commercial
   729,261    3,478    3,560    —      736,299










Total mortgage loans on real estate
   908,895    4,358    5,247    —      918,500
Consumer:

Home equity lines of credit
   43,406    826    649    —      44,881
Home equity loans
   4,471    116    103    —      4,690
Other
   23,083    32    5    —      23,120










Total consumer loans
   70,960    974    757    —      72,691
Commercial
   51,633    734    112    —      52,479
Construction:

Residential
   33,041    —      —      —      33,041
Commercial
   6,220    —      —      —      6,220










Total construction
   39,261    —      —      —      39,261










Total loans
   $ 1,070,749    $ 6,066    $ 6,116    $ —      $ 1,082,931










   Credit Quality Indicators Originated Loans – As of December 31, 2017
(in thousands)    Pass    Special
Mention    Substandard    Doubtful / Loss    Total Originated
Loans
Mortgage loans on real estate:

Residential1-4 family
   $ 315,120    $ 2,234    $ 3,168    $ —      $ 320,522
Commercial
   1,649,333    18,434    22,743    —      1,690,510










Total mortgage loans on real estate
   1,964,453    20,668    25,911    —      2,011,032
Consumer:

Home equity lines of credit
   265,345    2,558    2,039    —      269,942
Home equity loans
   37,428    800    1,620    —      39,848
Other
   22,432    272    155    —      22,859










Total consumer loans
   325,205    3,630    3,814    —      332,649
Commercial
   195,208    9,492    4,737    —      209,437
Construction:

Residential
   67,813    —      107    —      67,920
Commercial
   64,492    4,872    —      —      69,364










Total construction
   132,305    4,872    107    —      137,284










Total loans
   $ 2,617,171    $ 38,662    $ 34,569    $ —      $ 2,690,402


	Credit Quality Indicators Originated Loans – As of June 30, 2019
(in thousands)	Pass		Special Mention		Substandard		Doubtful / Loss		Total Originated Loans
Mortgage loans on real estate:
Residential 1-4 family	$	342,847	$	1,048	$	4,842	$	—	$	348,737
Commercial		1,964,292		32,562		9,131		—		2,005,985

Total mortgage loans on real estate		2,307,139		33,610		13,973		—		2,354,722
Consumer:
Home equity lines of credit		290,524		1,673		2,344		—		294,541
Home equity loans		26,265		564		2,212		—		29,041
Other		53,044		189		107		—		53,340

Total consumer loans		369,833		2,426		4,663		—		376,922
Commercial		237,025		5,194		5,993		311		248,523
Construction:
Residential		148,178		—		254		—		148,432
Commercial		55,958		331		—		—		56,289

Total construction		204,136		331		254		—		204,721

Total loans	$	3,118,133	$	41,561	$	24,883	$	311	$	3,184,888


	Credit Quality Indicators PNCI Loans – As of June 30, 2019
(in thousands)	Pass		Special Mention		Substandard		Doubtful / Loss		Total PNCI Loans
Mortgage loans on real estate:
Residential 1-4 family	$	154,238	$	864	$	770	$	—	$	155,872
Commercial		650,821		3,141		6,775		—		660,737

Total mortgage loans on real estate		805,059		4,005		7,545		—		816,609
Consumer:
Home equity lines of credit		33,345		795		1,091		—		35,231
Home equity loans		2,727		69		79		—		2,875
Other		17,545		254		3		—		17,802

Total consumer loans		53,617		1,118		1,173		—		55,908
Commercial		24,650		1		333		—		24,984
Construction:
Residential		9,083		—		—		—		9,083
Commercial		475		—		245		—		720

Total construction		9,558		—		245		—		9,803

Total loans	$	892,884	$	5,124	$	9,296	$	—	$	907,304

   Credit Quality Indicators PNCI Loans – As of December 31, 2017
(in thousands)    Pass    Special
Mention    Substandard    Doubtful / Loss    Total PNCI
Loans
Mortgage loans on real estate:

Residential1-4 family
   $ 61,411    $ 218    $ 1,890    $ —      $ 63,519
Commercial
   203,751    11,513    559    —      215,823










Total mortgage loans on real estate
   265,162    11,731    2,449    —      279,342
Consumer:

Home equity lines of credit
   14,866    450    932    —      16,248
Home equity loans
   2,433    188    77    —      2,698
Other
   2,207    38    6    —      2,251










Total consumer loans
   19,506    676    1,015    —      21,197
Commercial
   8,390    1    —      —      8,391
Construction:

Residential
   10    —      —      —      10
Commercial
   263    —      —      —      263










Total construction
   273    —      —      —      273










Total
   $ 293,331    $ 12,408    $ 3,464    $ —      $ 309,203

Table of Contents


	Credit Quality Indicators Originated Loans – As of December 31, 2018
(in thousands)	Pass		Special Mention		Substandard		Doubtful / Loss		Total Originated Loans
Mortgage loans on real estate:
Residential 1-4 family	$	337,189	$	1,724	$	4,883	$	—	$	343,796
Commercial		1,861,627		33,483		15,871		—		1,910,981

Total mortgage loans on real estate		2,198,816		35,207		20,754		—		2,254,777
Consumer:
Home equity lines of credit		279,491		2,309		2,653		—		284,453
Home equity loans		29,289		1,054		2,317		—		32,660
Other		33,606		341		73		—		34,020

Total consumer loans		342,386		3,704		5,043		—		351,133
Commercial		217,126		6,127		5,382		—		228,635
Construction:
Residential		90,412		32		259		—		90,703
Commercial		55,863		345		—		—		56,208

Total construction		146,275		377		259		—		146,911

Total loans	$	2,904,603	$	45,415	$	31,438	$	—	$	2,981,456


	Credit Quality Indicators PNCI Loans – As of December 31, 2018
(in thousands)	Pass		Special Mention		Substandard		Doubtful / Loss		Total PNCI Loans
Mortgage loans on real estate:
Residential 1-4 family	$	167,908	$	1,086	$	798	$	—	$	169,792
Commercial		701,868		3,085		3,448		—		708,401

Total mortgage loans on real estate		869,776		4,171		4,246		—		878,193
Consumer:
Home equity lines of credit		38,780		1,124		1,053		—		40,957
Home equity loans		3,413		74		98		—		3,585
Other		21,481		173		5		—		21,659

Total consumer loans		63,674		1,371		1,156		—		66,201
Commercial		45,027		321		120		—		45,468
Construction:
Residential		30,593		—		—		—		30,593
Commercial		5,880		—		—		—		5,880

Total construction		36,473		—		—		—		36,473

Total	$	1,014,950	$	5,863	$	5,522	$	—	$	1,026,335

Table of Contents

Consumer loans, whether unsecured or secured by real estate, automobiles, or other personal property, 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. Typically, payment performance will follow general economic trends in the marketplace driven primarily by rises in the unemployment ~~rate,~~rate;

non-payment

is likely due to loss of employment. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of the two.

Problem consumer loans are generally identified by payment history and current performance of the borrower (delinquency). The Bank manages its consumer loan portfolios by monitoring delinquency and contacting borrowers to encourage repayment, ~~suggest~~suggesting modifications if appropriate, and, when continued scheduled payments become unrealistic, ~~initiate~~initiating repossession or foreclosure through appropriate channels.

Commercial real estate loans generally fall into two categories, owner-occupied and

non-owner

occupied. Loans secured by owner occupied real estate are primarily susceptible to changes in the business conditions of the related business. This may be driven by, among other things, industry changes, geographic business changes, changes in the individual fortunes of the business owner, and general economic conditions and changes in business cycles. These same risks apply to commercial loans whether secured by equipment or other personal property or unsecured. Losses on loans secured by owner occupied real estate, equipment, or other personal property generally are dictated by the value of underlying collateral at the time of default and liquidation of the collateral. 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 by more general economic conditions, underlying collateral generally has devalued more and results in larger losses due to default. Loans secured by

non-owner

occupied real estate are primarily susceptible to risks associated with swings in occupancy or vacancy and related shifts in lease rates, rental rates or room rates. Most often these shifts are a result of changes in general economic or market conditions or overbuilding and resultant over-supply. Losses are dependent on value of underlying collateral at the time of default. Values are generally driven by these same factors and influenced by interest rates and required rates of return as well as changes in occupancy costs.

Construction loans, whether owner occupied or

non-owner

occupied commercial real estate loans or residential development loans, are not only susceptible to the related risks described above but the added risks of construction itself including cost over-runs, mismanagement of the project, or lack of demand or market changes experienced at time of completion. Again, losses are primarily related to underlying collateral value and changes therein as described above.

Problem commercial loans are generally identified by periodic review of financial information which may include financial statements, tax returns, rent rolls and payment history of the borrower (delinquency). Based on this information the Bank may decide to take any of several courses of action including demand for repayment, additional collateral or guarantors, and, when repayment becomes unlikely through borrower’s income and cash flow, repossession or foreclosure of the underlying collateral.

Collateral values may be determined by appraisals obtained through Bank approved, licensed appraisers, qualified independent third parties, public value information (blue book values for autos), sales invoices, or other appropriate means. Appropriate valuations or revaluations are obtained at initiation of the credit and periodically, but not less than every twelve months depending on collateral type, once repayment is questionable and the loan has been classified.

Once a loan becomes delinquent and repayment becomes questionable, a Bank collection officer will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Bank will estimate its probable loss, using a recent valuation as appropriate to the underlying collateral less estimated costs of sale, and charge the loan down to the estimated net realizable amount. Depending on the length of time until ultimate collection, the Bank may revalue the underlying collateral and take additional charge-offs as warranted. Revaluations may occur as often as every

3-12

months depending on the underlying collateral and volatility of values. Final charge-offs or recoveries are taken when collateral is liquidated and actual loss is known. Unpaid balances on loans after or during collection and liquidation may also be pursued through lawsuit and attachment of wages or judgment liens on borrower’s other assets.

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 Originated Past Due Loans - As of September 30, 2018    ³ 90
Days
and Still
Accruing
(in thousands)    30-59 days    60-89 days    > 90 days    Total Past
Due Loans    Current    Total
Mortgage loans on real estate:

Residential1-4 family
   $ 275    $ 749    $ 738    $ 1,762    $ 338,753    $ 340,515    $ —
Commercial
   499    150    117    766    1,862,838    1,863,604    —














Total mortgage loans on real estate
   774    899    855    2,528    2,201,591    2,204,119    —
Consumer:

Home equity lines of credit
   1,450    97    112    1,659    283,297    284,956    —
Home equity loans
   527    293    411    1,231    34,325    35,556    —
Other
   262    24    —      286    26,008    26,294    —














Total consumer loans
   2,239    414    523    3,176    343,630    346,806    —
Commercial
   1,010    134    1,309    2,453    232,288    234,741    —
Construction:

Residential
   488    —      —      488    81,045    81,533    —
Commercial
   —      —      —      —      63,508    63,508    —














Total construction
   488    —      —      488    144,553    145,041    —














Total originated loans
   $ 4,511    $ 1,447    $ 2,687    $ 8,645    $ 2,922,062    $ 2,930,707    $ —


	Analysis of Originated Past Due Loans - As of June 30, 2019
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		> 90 Days and Still Accruing
Mortgage loans on real estate:
Residential 1-4 family	$	635	$	1,132	$	758	$	2,525	$	346,212	$	348,737	$	—
Commercial		1,022		174		901		2,097		2,003,888		2,005,985		—

Total mortgage loans on real estate		1,657		1,306		1,659		4,622		2,350,100		2,354,722		—
Consumer:
Home equity lines of credit		1,197		557		157		1,911		292,630		294,541		—
Home equity loans		565		89		217		871		28,170		29,041
Other		44		13		7		64		53,276		53,340		12

Total consumer loans		1,806		659		381		2,846		374,076		376,922		12
Commercial		1,154		1,560		333		3,047		245,476		248,523		10
Construction:
Residential		151		—		—		151		148,281		148,432		—
Commercial		—		—		—		—		56,289		56,289		—

Total construction		151		—		—		151		204,570		204,721		—

Total originated loans	$	4,768	$	3,525	$	2,373	$	10,666	$	3,174,222	$	3,184,888	$	22

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

   Analysis of PNCI Past Due Loans - As of September 30, 2018    ³ 90
Days
and Still
Accruing
(in thousands)    30-59 days    60-89 days    > 90 days    Total Past
Due Loans    Current    Total
Mortgage loans on real estate:

Residential1-4 family
   $    $ 397    $ 163    $ 560    $ 181,641    $ 182,201    $ —
Commercial
   992    18    949    1,959    734,340    736,299    949














Total mortgage loans on real estate
   992    415    1,112    2,519    915,981    918,500    949
Consumer:

Home equity lines of credit
   613    192    227    1,032    43,849    44,881    99
Home equity loans
   262    —      16    278    4,412    4,690    —
Other
   242    —      —      242    22,878    23,120    —














Total consumer loans
   1,117    192    243    1,552    71,139    72,691    99
Commercial
   30    472    —      502    51,977    52,479    —
Construction:

Residential
   —      —      —      —      33,041    33,041    —
Commercial
   —      —      —      —      6,220    6,220    —














Total construction
   —      —      —      —      39,261    39,261    —














Total PNCI loans
   $ 2,139    $ 1,079    $ 1,355    $ 4,573    $ 1,078,358    $ 1,082,931    $ 1,048


	Analysis of PNCI Past Due Loans - As of June 30, 2019
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		> 90 Days and Still Accruing
Mortgage loans on real estate:
Residential 1-4 family	$	—	$	682	$	—	$	682	$	155,190	$	155,872	$	—
Commercial		—		195		950		1,145		659,592		660,737		—

Total mortgage loans on real estate		—		877		950		1,827		814,782		816,609		—
Consumer:
Home equity lines of credit		101		73		24		198		35,033		35,231		—
Home equity loans		62		—		—		62		2,813		2,875		—
Other		119		—		—		119		17,683		17,802		—

Total consumer loans		282		73		24		379		55,529		55,908		—
Commercial		820		150		113		1,083		23,901		24,984		—
Construction:
Residential		—		—		—		—		9,083		9,083		—
Commercial		245		—		—		245		475		720		—

Total construction		245		—		—		245		9,558		9,803		—

Total PNCI loans	$	1,347	$	1,100	$	1,087	$	3,534	$	903,770	$	907,304	$	—

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

   Analysis of Originated Past Due Loans - As of December 31, 2017    ³ 90
Days
and Still
Accruing
(in thousands)    30-59 days    60-89 days    > 90 days    Total Past
Due Loans    Current    Total
Mortgage loans on real estate:

Residential1-4 family
   $ 1,740    $ 510    $ 243    $ 2,493    $ 318,029    $ 320,522    $ —
Commercial
   158    987    —      1,145    1,689,365    1,690,510    —














Total mortgage loans on real estate
   1,898    1,497    243    3,638    2,007,394    2,011,032    —
Consumer:

Home equity lines of credit
   528    48    372    948    268,994    269,942    —
Home equity loans
   511    107    373    991    38,857    39,848    —
Other
   56    36    3    95    22,764    22,859    —














Total consumer loans
   1,095    191    748    2,034    330,615    332,649    —
Commercial
   956    738    1,527    3,221    206,216    209,437    —
Construction:

Residential
   34    —      —      34    67,886    67,920    —
Commercial
   —      —      —      —      69,364    69,364    —














Total construction
   34    —      —      34    137,250    137,284    —














Total loans
   $ 3,983    $ 2,426    $ 2,518    $ 8,927    $ 2,681,475    $ 2,690,402    $ —


	Analysis of Originated Past Due Loans - As of December 31, 2018
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		> 90 Days and Still Accruing
Mortgage loans on real estate:
Residential 1-4 family	$	1,675	$	132	$	478	$	2,285	$	341,511	$	343,796	$	—
Commercial		431		1,200		296		1,927		1,909,054		1,910,981		—

Total mortgage loans on real estate		2,106		1,332		774		4,212		2,250,565		2,254,777		—
Consumer:
Home equity lines of credit		908		47		609		1,564		282,889		284,453		—
Home equity loans		1,043		24		214		1,281		31,379		32,660		—
Other		298		17		—		315		33,705		34,020		—

Total consumer loans		2,249		88		823		3,160		347,973		351,133		—
Commercial		1,053		579		1,247		2,879		225,756		228,635		—
Construction:
Residential		209		—		—		209		90,494		90,703		—
Commercial		—		—		—		—		56,208		56,208		—

Total construction		209		—		—		209		146,702		146,911		—

Total loans	$	5,617	$	1,999	$	2,844	$	10,460	$	2,970,996	$	2,981,456	$	—

Table of Contents

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

   Analysis of PNCI Past Due Loans - As of December 31, 2017    > 90 Days
and Still
Accruing
(in thousands)    30-59 days    60-89 days    > 90 days    Total Past
Due Loans    Current    Total
Mortgage loans on real estate:

Residential 1-4 family
   $ 1,495    $ 90    $ 109    $ 1,694    $ 61,825    $ 63,519    $ 81
Commercial
   70    —      —      70    215,753    215,823    —














Total mortgage loans on real estate
   1,565    90    109    1,764    277,578    279,342    81
Consumer:

Home equity lines of credit
   298    228    330    856    15,392    16,248    200
Home equity loans
   30    —      —      30    2,668    2,698    —
Other
   6    26    —      32    2,219    2,251    —














Total consumer loans
   334    254    330    918    20,279    21,197    200
Commercial
   —      —      —      —      8,391    8,391    —
Construction:

Residential
   —      —      —      —      10    10    —
Commercial
   —      —      —      —      263    263    —














Total construction
   —      —      —      —      273    273    —














Total loans
   $ 1,899    $ 344    $ 439    $ 2,682    $ 306,521    $ 309,203    $ 281


	Analysis of PNCI Past Due Loans - As of December 31, 2018
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		> 90 Days and Still Accruing
Mortgage loans on real estate:
Residential 1-4 family	$	1,009	$	133	$	156	$	1,298	$	168,494	$	169,792	$	—
Commercial		1,646		1,136		1,082		3,864		704,537		708,401		—

Total mortgage loans on real estate		2,655		1,269		1,238		5,162		873,031		878,193		—
Consumer:
Home equity lines of credit		304		35		237		576		40,381		40,957		—
Home equity loans		74		—		—		74		3,511		3,585		—
Other		160		—		—		160		21,499		21,659		—

Total consumer loans		538		35		237		810		65,391		66,201		—
Commercial		678		145		113		936		44,532		45,468		—
Construction:
Residential		—		—		—		—		30,593		30,593		—
Commercial		—		—		—		—		5,880		5,880		—

Total construction		—		—		—		—		36,473		36,473		—

Total loans	$	3,871	$	1,449	$	1,588	$	6,908	$	1,019,427	$	1,026,335	$	—

Interest income on originated nonaccrual loans that would have been recognized during the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, if all such loans had been current in accordance with their original terms, totaled ~~$338,000~~$289,000 and ~~$244,000,~~$341,000, respectively. Interest income actually recognized on these originated loans during the three months ended ~~September~~June 30, 2019 and 2018 was $53,000 and ~~2017 was $59,000 and $33,000,~~$53,000, respectively. Interest income on PNCI nonaccrual loans that would have been recognized during the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, if all such loans had been current in accordance with their original terms, totaled ~~$39,000~~$160,000 and ~~$90,000,~~$26,000, respectively. Interest income actually recognized on these PNCI loans during the three months ended ~~September~~June 30, 2019 and 2018 was $111,000 and ~~2017 was $12,000 and $2,000.~~

$12,000.

Interest income on originated nonaccrual loans that would have been recognized during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, if all such loans had been current in accordance with their original terms, totaled ~~$964,000~~$568,000 and ~~$617,000,~~$626,000, respectively. Interest income actually recognized on these originated loans during the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018 was $86,000 and ~~2017 was $133,000 and $49,000,~~$75,000, respectively. Interest income on PNCI nonaccrual loans that would have been recognized during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, if all such loans had been current in accordance with their original terms, totaled ~~$93,000~~$281,000 and ~~$188,000.~~$54,000, respectively. Interest income actually recognized on these PNCI loans during the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018 was $171,000 and ~~2017 was $23,000 and $14,000.~~

$11,000.

The following table shows the ending balance of nonaccrual originated

and PNCI loans by loan category as of the date indicated:

   Non Accrual Loans
   As of September 30, 2018    As of December 31, 2017
(in thousands)    Originated    PNCI    Total    Originated    PNCI    Total
Mortgage loans on real estate:

Residential 1-4 family
   $ 2,813    $ 1,219    $ 4,032    $ 1,725    $ 1,012    $ 2,737
Commercial
   7,876    305    8,181    8,144    —      8,144












Total mortgage loans on real estate
   10,689    1,524    12,213    9,869    1,012    10,881
Consumer:

Home equity lines of credit
   725    568    1,293    811    402    1,213
Home equity loans
   1,933    50    1,983    1,106    44    1,150
Other
   3    5    8    7    5    12












Total consumer loans
   2,661    623    3,284    1,924    451    2,375
Commercial
   3,737    —      3,737    3,669    —      3,669
Construction:

Residential
   —      —      —      —      —      —
Commercial
   —      —      —      —      —      —












Total construction
   —      —      —      —      —      —












Total non accrual loans
   $ 17,087    $ 2,147    $ 19,234    $ 15,462    $ 1,463    $ 16,925


	Non Accrual Loans
	As of June 30, 2019						As of December 31, 2018
(in thousands)	Originated		PNCI		Total		Originated		PNCI		Total
Mortgage loans on real estate:
Residential 1-4 family	$	3,357	$	300	$	3,657	$	3,244	$	334	$	3,578
Commercial		4,354		3,461		7,815		9,263		1,468		10,731

Total mortgage loans on real estate		7,711		3,761		11,472		12,507		1,802		14,309
Consumer:
Home equity lines of credit		880		516		1,396		1,429		885		2,314
Home equity loans		1,610		34		1,644		1,722		47		1,769
Other		58		3		61		3		4		7

Total consumer loans		2,548		553		3,101		3,154		936		4,090
Commercial		3,873		183		4,056		3,755		120		3,875
Construction:
Residential		—		—		—		—		—		—
Commercial		—		—		—		—		—		—

Total construction		—		—		—		—		—		—

Total non accrual loans	$	14,132	$	4,497	$	18,629	$	19,416	$	2,858	$	22,274

Impaired originated loans are those where management has concluded that it is probable that the borrower will be unable to pay all amounts due in accordance with the original contractual terms of the loan agreement. The following tables show the recorded investment (financial statement balance), unpaid principal balance, average recorded investment, and interest income recognized for impaired Originated and PNCI loans, segregated by those with no related allowance recorded and those with an allowance recorded for the periods indicated. The average recorded investment in impaired loans and interest income recognized ~~for~~on impaired loans during the three ~~month periods~~months ended ~~September~~June 30, 2019 and 2018 ~~and 2017 has not been separately presented as the amounts are~~was not considered significant for ~~disclosure.~~

financial reporting purposes.

   Impaired Originated Loans – As of, or for the Nine Months Ended, September 30, 2018
(in thousands)    Unpaid
principal
balance    Recorded
investment with
no related
allowance    Recorded
investment with
related
allowance    Total recorded
investment    Related
Allowance    Average
recorded
investment    Interest income
recognized
Mortgage loans on real estate:

Residential1-4 family
   $ 4,185    $ 3,251    $ 311    $ 3,562    $ 57    $ 3,883    $ 67
Commercial
   12,553    9,619    2,370    11,989    268    11,549    208














Total mortgage loans on real estate
   16,738    12,870    2,681    15,551    325    15,432    275
Consumer:

Home equity lines of credit
   1,444    1,346    59    1,405    19    1,410    32
Home equity loans
   2,554    1,960    157    2,117    30    1,753    24
Other
   3    —      3    3    3    3    —














Total consumer loans
   4,001    3,306    219    3,525    52    3,166    56
Commercial
   4,868    2,135    2,497    4,632    1,857    4,626    78
Construction:

Residential
   —      —      —      —      —      68    —
Commercial
   —      —      —      —      —      —      —














Total construction
   —      —      —      —      —      68    —














Total
   $ 25,607    $ 18,311    $ 5,397    $ 23,708    $ 2,234    $ 23,292    $ 409














   Impaired PNCI Loans – As of, or for the Nine Months Ended, September 30, 2018
(in thousands)    Unpaid
principal
balance    Recorded
investment with
no related
allowance    Recorded
investment with
related
allowance    Total recorded
investment    Related
Allowance    Average
recorded
investment    Interest income
recognized
Mortgage loans on real estate:

Residential1-4 family
   $ 1,302    $ 1,219    $ —      $ 1,219    $ —      $ 1,275    $ —
Commercial
   1,255    1,255    —      1,255    —      627    58














Total mortgage loans on real estate
   2,557    2,474    —      2,474    —      1,902    58
Consumer:

Home equity lines of credit
   852    625    158    783    149    909    13
Home equity loans
   296    50    239    289    145    287    9
Other
   240    —      240    240    100    257    7














Total consumer loans
   1,388    675    637    1,312    394    1,453    29
Commercial
   —      —      —      —      —      —      —
Construction:

Residential
   —      —      —      —      —      —      —
Commercial
   —      —      —      —      —      —      —














Total construction
   —      —      —      —      —      —      —














Total
   $ 3,945    $ 3,149    $ 637    $ 3,786    $ 394    $ 3,355    $ 87














   Impaired Originated Loans – As of, or for the Twelve Months Ended, December 31, 2017
(in thousands)    Unpaid
principal
balance    Recorded
investment with
no related
allowance    Recorded
investment with
related
allowance    Total recorded
investment    Related
Allowance    Average
recorded
investment    Interest income
recognized
Mortgage loans on real estate:

Residential1-4 family
   $ 4,023    $ 2,058    $ 1,881    $ 3,939    $ 230    $ 3,501    $ 143
Commercial
   14,186    13,101    810    13,911    30    13,851    645














Total mortgage loans on real estate
   18,209    15,159    2,691    17,850    260    17,352    788
Consumer:

Home equity lines of credit
   1,581    1,093    401    1,494    111    1,702    47
Home equity loans
   1,627    1,107    198    1,305    10    1,193    24
Other
   52    4    3    7    3    20    —














Total consumer loans
   3,260    2,204    602    2,806    124    2,915    71
Commercial
   4,566    575    3,895    4,470    1,848    4,283    184
Construction:

Residential
   140    140    —      140    —      76    9
Commercial
   —      —      —      —      —      —      —














Total construction
   140    140    —      140    —      76    9














Total
   $ 26,175    $ 18,078    $ 7,188    $ 25,266    $ 2,232    $ 24,626    $ 1,052

   Impaired PNCI Loans – As of, or for the Twelve Months Ended, December 31, 2017
(in thousands)    Unpaid
principal
balance    Recorded
investment with
no related
allowance    Recorded
investment with
related
allowance    Total recorded
investment    Related
Allowance    Average
recorded
investment    Interest income
recognized
Mortgage loans on real estate:

Residential1-4 family
   $ 1,404    $ 1,359    $ —      $ 1,359    $ —      $ 1,041    $ 24
Commercial
   —      —      —      —      —      979    —














Total mortgage loans on real estate
   1,404    1,359    —      1,359    —      2,020    24
Consumer:

Home equity lines of credit
   1,216    591    603    1,194    316    1,240    48
Home equity loans
   178    44    121    165    97    117    6
Other
   250    —      250    250    54    186    11














Total consumer loans
   1,644    635    974    1,609    467    1,543    65
Commercial
   —      —      —      —      —      —      —
Construction:

Residential
   —      —      —      —      —      —      —
Commercial
   —      —      —      —      —      —      —














Total construction
   —      —      —      —      —      —      —














Total
   $ 3,048    $ 1,994    $ 974    $ 2,968    $ 467    $ 3,563    $ 89














   Impaired Originated Loans – As of, or for the Nine Months Ended, September 30, 2017
(in thousands)    Unpaid
principal
balance    Recorded
investment with
no related
allowance    Recorded
investment with
related
allowance    Total recorded
investment    Related
Allowance    Average
recorded
investment    Interest income
recognized
Mortgage loans on real estate:

Residential1-4 family
   $ 3,489    $ 1,777    $ 1,644    $ 3,421    $ 167    $ 3,242    $ 90
Commercial
   18,643    17,039    1,150    18,189    73    15,990    514














Total mortgage loans on real estate
   22,132    18,816    2,794    21,610    240    19,232    604
Consumer:

Home equity lines of credit
   1,324    1,108    110    1,218    33    1,564    25
Home equity loans
   2,091    1,470    199    1,669    13    1,376    32
Other
   59    3    11    14    7    23    (25 )














Total consumer loans
   3,474    2,581    320    2,901    53    2,963    32
Commercial
   3,262    884    2,048    2,932    1,270    3,514    69
Construction:

Residential
   144    144    —      144    —      78    7
Commercial
   —      —      —      —      —      —      —














Total construction
   144    144    —      144    —      78    7














Total
   $ 29,012    $ 22,425    $ 5,162    $ 27,587    $ 1,563    $ 25,787    $ 712














   Impaired PNCI Loans – As of, or for the Nine Months Ended, September 30, 2017
(in thousands)    Unpaid
principal
balance    Recorded
investment with
no related
allowance    Recorded
investment with
related
allowance    Total recorded
investment    Related
Allowance    Average
recorded
investment    Interest income
recognized
Mortgage loans on real estate:

Residential1-4 family
   $ 1,634    $ 1,356    $ 250    $ 1,606    $ 73    $ 1,165    $ 24
Commercial
   1,869    1,599    —      1,599    —      1,778    —














Total mortgage loans on real estate
   3,503    2,955    250    3,205    73    2,943    24
Consumer:

Home equity lines of credit
   1,020    394    607    1,001    328    1,143    28
Home equity loans
   185    50    123    173    99    121    5
Other
   253    —      253    253    71    187    8














Total consumer loans
   1,458    444    983    1,427    498    1,451    41
Commercial
   6    —      —      —      6    3    —
Construction:

Residential
   —      —      —      —      —      —      —
Commercial
   —      —      —      —      —      —      —














Total construction
   —      —      —      —      —      —      —














Total
   $ 4,967    $ 3,399    $ 1,233    $ 4,632    $ 577    $ 4,397    $ 65

~~At September~~

Table of Contents


	Impaired Originated Loans – As of, or for the Six Months Ended, June 30, 2019
(in thousands)	Unpaid principal balance		Recorded investment with no related allowance		Recorded investment with related allowance		Total recorded investment		Related Allowance		Average recorded investment		Interest income recognized
Mortgage loans on real estate:
Residential 1-4 family	$	4,739	$	3,705	$	300	$	4,005	$	54	$	4,291	$	18
Commercial		7,906		5,103		2,465		7,568		808		10,004		40

Total mortgage loans on real estate		12,645		8,808		2,765		11,573		862		14,295		58
Consumer:
Home equity lines of credit		1,333		1,271		—		1,271		—		1,510		8
Home equity loans		2,373		1,571		268		1,839		61		2,003		4
Other		76		3		54		57		13		48		1

Total consumer loans		3,782		2,845		322		3,167		74		3,561		13
Commercial		5,150		1,884		3,035		4,919		1,301		5,065		15
Construction:
Residential		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—

Total construction		—		—		—		—		—		—		—

Total	$	21,577	$	13,537	$	6,122	$	19,659	$	2,237	$	22,921	$	86


	Impaired PNCI Loans – As of, or for the Six Months Ended, June 30, 2019
(in thousands)	Unpaid principal balance		Recorded investment with no related allowance		Recorded investment with related allowance		Total recorded investment		Related Allowance		Average recorded investment		Interest income recognized
Mortgage loans on real estate:
Residential 1-4 family	$	339	$	300	$	—	$	300	$	—	$	317	$	—
Commercial		5,079		3,462		—		3,462		—		2,465		171

Total mortgage loans on real estate		5,418		3,762		—		3,762		—		2,782		171
Consumer:
Home equity lines of credit		612		534		241		775		85		889		—
Home equity loans		167		148		69		217		44		229		—
Other		62		62		37		99		6		105		—

Total consumer loans		841		744		347		1,091		135		1,223		—
Commercial		113		113		70		183		70		151
Construction:
Residential		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—

Total construction		—		—		—		—		—		—		—

Total	$	6,372	$	4,619	$	417	$	5,036	$	205	$	4,156	$	171


	Impaired Originated Loans – As of, or for the Twelve Months Ended, December 31, 2018
(in thousands)	Unpaid principal balance		Recorded investment with no related allowance		Recorded investment with related allowance		Total recorded investment		Related Allowance		Average recorded investment		Interest income recognized
Mortgage loans on real estate:
Residential 1-4 family	$	4,594	$	3,663	$	308	$	3,971	$	56	$	3,517	$	90
Commercial		13,081		10,676		1,765		12,441		42		13,115		137

Total mortgage loans on real estate		17,675		14,339		2,073		16,412		98		16,632		227
Consumer:
Home equity lines of credit		1,900		1,749		111		1,860		71		1,885		43
Home equity loans		2,374		1,892		65		1,957		2		1,520		23
Other		3		—		3		3		3		17		2

Total consumer loans		4,277		3,641		179		3,820		76		3,422		68
Commercial		5,433		2,924		2,287		5,211		1,774		4,654		91
Construction:
Residential		—		—		—		—		—		5		—
Commercial		—		—		—		—		—		—		—

Total construction		—		—		—		—		—		5		—

Total	$	27,385	$	20,904	$	4,539	$	25,443	$	1,948	$	24,713	$	386

Table of Contents


	Impaired PNCI Loans – As of, or for the Twelve Months Ended, December 31, 2018
(in thousands)	Unpaid principal balance		Recorded investment with no related allowance		Recorded investment with related allowance		Total recorded investment		Related Allowance		Average recorded investment		Interest income recognized
Mortgage loans on real estate:
Residential 1-4 family	$	375	$	334	$	—	$	334	$	—	$	529	$	5
Commercial		3,110		1,468		—		1,468		—		1,713		183

Total mortgage loans on real estate		3,485		1,802		—		1,802		—		2,242		188
Consumer:
Home equity lines of credit		1,027		587		367		954		127		1,120		18
Home equity loans		252		47		197		244		101		155		—
Other		106		21		85		106		11		114		—

Total consumer loans		1,385		655		649		1,304		239		1,389		18
Commercial		120		113		7		120		7		60		1
Construction:
Residential		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—

Total construction		—		—		—		—		—		—		—

Total	$	4,990	$	2,570	$	656	$	3,226	$	246	$	3,691	$	207


	Impaired Originated Loans – As of, or for the Six Months Ended, June 30, 2018
(in thousands)	Unpaid principal balance		Recorded investment with no related allowance		Recorded investment with related allowance		Total recorded investment		Related Allowance		Average recorded investment		Interest income recognized
Mortgage loans on real estate:
Residential 1-4 family	$	5,656	$	3,947	$	1,050	$	4,997	$	147	$	4,600	$	28
Commercial		11,280		9,763		1,076		10,839		82		10,975		9

Total mortgage loans on real estate		16,936		13,710		2,126		15,836		229		15,575		37
Consumer:
Home equity lines of credit		1,244		1,108		106		1,214		29		1,315		3
Home equity loans		2,558		1,828		351		2,179		38		1,784		15
Other		3		—		3		3		3		3		—

Total consumer loans		3,805		2,936		460		3,396		70		3,102		18
Commercial		4,952		809		3,942		4,751		2,127		4,686		20
Construction:
Residential		—		—		—		—		—		68		—
Commercial		—		—		—		—		—		—		—

Total construction		—		—		—		—		—		68		—

Total	$	25,693	$	17,455	$	6,528	$	23,983	$	2,426	$	23,431	$	75


	Impaired PNCI Loans – As of, or for the Six Months Ended, June 30, 2018
(in thousands)	Unpaid principal balance		Recorded investment with no related allowance		Recorded investment with related allowance		Total recorded investment		Related Allowance		Average recorded investment		Interest income recognized
Mortgage loans on real estate:
Residential 1-4 family	$	1,417	$	1,348	$	—	$	1,348	$	—	$	1,339	$	—
Commercial		323		323		—		323		—		161		9

Total mortgage loans on real estate		1,740		1,671		—		1,671		—		1,500		9
Consumer:
Home equity lines of credit		1,098		529		506		1,035		258		1,035		2
Home equity loans		293		36		242		278		154		281		—
Other		244		—		244		244		51		259		—

Total consumer loans		1,635		565		992		1,557		463		1,575		2
Commercial		—		—		—		—		—				—
Construction:
Residential		—		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—

Total construction		—		—		—		—		—		—		—

Total	$	3,375	$	2,236	$	992	$	3,228	$	463	$	3,075	$	11

Originated loans classified as TDRs and impaired were $10,998,000, $10,253,000, and $9,450,000 at June 30, 2019, December 31, 2018, and June 30, 2018, ~~$8,845,000 of originated~~respectively. PNCI loans ~~were Troubled Debt Restructurings (TDRs) and~~ classified as ~~impaired.~~TDRs and impaired were $811,000, $615,000, and $1,459,000 at June 30, 2019, December 31, 2018 and June 30, 2018, respectively. The Company had no significant obligations to lend additional funds on ~~these~~Originated or PNCI TDRs as of ~~September~~June 30, ~~2018. At September 30, 2018, $840,000 of PNCI loans were TDRs and classified as impaired. The Company had no obligations to lend additional funds on these TDRs as of September 30, 2018.~~

At2019, December 31, ~~2017, $12,517,000~~2018, or June 30, 2018.

Table of originated loans were TDRs and classified as impaired. The Company had obligations to lend $1,000 of additional funds on these TDRs as of December 31, 2017. At December 31, 2017, $1,352,000 of PNCI loans were TDRs and classified as impaired. The Company had no obligations to lend additional funds on these TDRs as of December 31, 2017.

At September 30, 2017, $13,352,000 of originated loans were TDRs and classified as impaired. The Company had obligations to lend $209,000 of additional funds on these TDRs as of September 30, 2017. At September 30, 2017, $1,611,000 of PNCI loans were TDRs and classified as impaired. The Company had obligations to lend $3,000 of additional funds on these TDRs as of September 30, 2017.

Contents

The following tables show certain information regarding TDRs that occurred during the periods indicated:

   TDR Information for the Three Months Ended September 30, 2018
(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
Mortgage loans on real estate:

Residential1-4 family
   —      $ —      $ —      $ —   —      $ —      $ —
Commercial
   4    1,326    1,324    (308 ) —      —      —












Total mortgage loans on real estate
   4    1,326    1,324    (308 ) —      —      —
Consumer:

Home equity lines of credit
   —      —      —      —   1    128    —
Home equity loans
   1    478    478    —   —      —      —
Other
   —      —      —      —   —      —      —












Total consumer loans
   1    478    478    —   1    128    —
Commercial
   2    203    203    —   —      —      —
Construction:

Residential
   —      —      —      —   —      —      —
Commercial
   —      —      —      —   —      —      —












Total construction
   —      —      —      —   —      —      —












Total
   7    $ 2,007    $ 2,005    $ (308 ) 1    $ 128    $ —












   TDR Information for the Nine Months Ended September 30, 2018
(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
Mortgage loans on real estate:

Residential1-4 family
   —      $ —      $ —      $ —   —      $ —      $ —
Commercial
   6    1,743    1,741    (262 ) 1    169    —












Total mortgage loans on real estate
   6    1,743    1,741    (262 ) 1    169    —
Consumer:

Home equity lines of credit
   1    133    138    —   1    128    —
Home equity loans
   2    599    599    —   —      —      —
Other
   —      —      —      —   —      —      —












Total consumer loans
   3    732    737    —   1    128    —
Commercial
   4    619    623    (3 ) 4    340    (2 )
Construction:

Residential
   —      —      —      —   —      —      —
Commercial
   —      —      —      —   —      —      —












Total construction
   —      —      —      —   —      —      —












Total
   13    $ 3,094    $ 3,101    $ (265 ) 6    $ 637    $ (2 )


	TDR Information for the Three Months Ended June 30, 2019
(dollars in thousands)	Number		Pre-mod outstanding principal balance		Post-mod outstanding principal balance		Financial impact due to TDR taken as additional provision			Number that defaulted during the period		Recorded investment of TDRs that defaulted during the period		Financial impact due to the default of previous TDR taken as charge- offs or additional provisions
Mortgage loans on real estate:
Residential 1-4 family			$		$		$	—			—	$	—	$	—
Commercial		—		—		—		—			—		—		—

Total mortgage loans on real estate		—		—		—		—			—		—		—
Consumer:
Home equity lines of credit		1		65		68		—			—		—		—
Home equity loans		1		28		27		27			—		—		—
Other		—		—		—		—			—		—		—

Total consumer loans		2		93		95		27			—		—		—
Commercial		4		1,754		1,722		2							—
Construction:
Residential		—		—		—		—			—		—		—
Commercial		—		—		—		—			—		—		—

Total construction		—		—		—		—			—		—		—

Total		6	$	1,847	$	1,817	$	29			—	$	—	$	—


	TDR Information for the Six Months Ended June 30, 2019
(dollars in thousands)	Number		Pre-mod outstanding principal balance		Post-mod outstanding principal balance		Financial impact due to TDR taken as additional provision			Number that defaulted during the period		Recorded investment of TDRs that defaulted during the period		Financial impact due to the default of previous TDR taken as charge- offs or additional provisions
Mortgage loans on real estate:
Residential 1-4 family		1	$	163	$	162	$	—			—	$	—	$	—
Commercial		—		—		—		—			—		—		—

Total mortgage loans on real estate		1		163		162		—			—		—		—
Consumer:
Home equity lines of credit		1		65		68		—			—		—		—
Home equity loans		2		149		147		29			—		—		—
Other		—		—		—		—			—		—		—

Total consumer loans		3		214		215		29			—		—		—
Commercial		6		1,768		1,737		2			1		7		—
Construction:
Residential		—		—		—		—			—		—		—
Commercial		—		—		—		—			—		—		—

Total construction		—		—		—		—			—		—		—

Total		10	$	2,145	$	2,114	$	31			1	$	7	$	—


	TDR Information for the Three Months Ended June 30, 2018
(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
Mortgage loans on real estate:
Residential 1-4 family		—	$	—	$	—	$	—			—	$	—	$	—
Commercial		1		34		34		34			—		—		—

Total mortgage loans on real estate		1		34		34		34			—		—		—
Consumer:
Home equity lines of credit								—			—		—		—
Home equity loans								—			—		—		—
Other		—		—		—		—			—		—		—

Total consumer loans		—		—		—		—			—		—		—
Commercial		2		416		421		(2	)		4		340		(2	)
Construction:
Residential		—		—		—		—			—		—		—
Commercial		—		—		—		—			—		—		—

Total construction		—		—		—		—			—		—		—

Total		3	$	450	$	455	$	32			4	$	340	$	(2	)

~~The following tables show certain information regarding TDRs that occurred during the periods indicated:~~

   TDR Information for the Three Months Ended September 30, 2017
(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
Mortgage loans on real estate:

Residential1-4 family
   1    $ 939    $ 939    $ 169 1    $ 99    $ —
Commercial
   4    2,886    2,886    14 1    219    —












Total mortgage loans on real estate
   5    3,825    3,825    183 2    318    —
Consumer:

Home equity lines of credit
   —      —      —      —   —      —      —
Home equity loans
   1    252    252    —   —      —      —
Other
   —      —      —      —   —      —      —












Total consumer loans
   1    252    252    —   —      —      —
Commercial
   8    1,109    1,109    28    —
Construction:

Residential
   1    144    144    —   —      —      —
Commercial
   —      —      —      —   —      —      —












Total construction
   1    144    144    —   —      —      —












Total
   15    $ 5,330    $ 5,330    $ 211 2    $ 318    $ —












   TDR Information for the Nine Months Ended September 30, 2017
(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
Mortgage loans on real estate:

Residential1-4 family
   1    $ 939    $ 939    $ 169 2    $ 223    $ —
Commercial
   7    3,509    3,482    (111 ) 1    219    —












Total mortgage loans on real estate
   8    4,448    4,421    58 3    442    —
Consumer:

Home equity lines of credit
   3    187    187    27 —      —      —
Home equity loans
   1    252    252    —   —      —      —
Other
   1    14    14    11 —      —      —












Total consumer loans
   5    453    453    38 —      —      —
Commercial
   11    1,854    1,748    37    —
Construction:

Residential
   1    144    144    —   —      —      —
Commercial
   —      —      —      —   —      —      —












Total construction
   1    144    144    —   —      —      —












Total
   25    $ 6,899    $ 6,766    $ 133 3    $ 442    $ —

Table of Contents


	TDR Information for the Six Months Ended June 30, 2018
(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
Mortgage loans on real estate:
Residential 1-4 family		—	$	—	$	—	$	—			—	$	—	$	—
Commercial		2		417		417		46			1		169		—

Total mortgage loans on real estate		2		417		417		46			1		169		—
Consumer:
Home equity lines of credit		1		133		138		—			—		—		—
Home equity loans		1		121		121		—			—		—		—
Other		—		—		—		—			—		—		—

Total consumer loans		2		254		259		—			—		—		—
Commercial		2		416		421		(2	)		4		340		(2	)
Construction:
Residential		—		—		—		—			—		—		—
Commercial		—		—		—		—			—		—		—

Total construction		—		—		—		—			—		—		—

Total		6	$	1,087	$	1,097	$	44			5	$	509	$	(2	)

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.

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

Typically if a

TDR defaults during the period, the loan is then considered collateral dependent and, if it was not already considered collateral dependent, an appropriate provision will be reserved or charge will be taken. The additional provisions required resulting from default of previously modified TDR’s are noted above.

Loans that defaulted within the twelve month period subsequent to modification were not considered significant for financial reporting purposes.

Table of Contents

Note 6 – ~~Foreclosed Assets~~

~~A summary~~Leases

The Company adopted ASU

2016-02

“Leases” (Topic 842) as of January 1, 2019, which requires the Company to record 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 is also required to record a lease liability on the consolidated balance sheets for the present value of future payment commitments. All of the ~~activity~~Company’s leases are comprised of operating leases in ~~the balance of foreclosed assets follows (in thousands):~~

   Nine months ended September 30,
   2018    2017
Beginning balance, net
   $ 3,226    $ 3,986
Additions/transfers from loans
   536    726
Dispositions/sales
   (1,841 )    (1,479 )
Valuation adjustments
   (89 )    (162 )




Ending balance, net
   $ 1,832    $ 3,071




Ending valuation allowance
   $ (143 )    $ (248 )
Ending number of foreclosed assets
   11    11
Proceeds from sale of foreclosed assets
   $ 2,206    $ 1,787
Gain on sale of foreclosed assets
   $ 390    $ 308

~~As of September 30, 2018, $1,269,000 of foreclosed residential real estate properties, all of~~ which the Company ~~has obtained physical possession~~is lessee of real estate property for branches, ATM locations, and general administration and operations. The Company elected not to include short-term leases (i.e. leases with initial terms of twelve months 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 ~~foreclosed assets.~~ 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 one 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 three and six months ended June 30, 2019:


(in thousands)	Three months ended June 30, 2019			Six months ended June 30, 2019
Operating lease cost	$	1,310		$	2,621
Short-term lease cost		58			129
Variable lease cost		(17	)		(22	)
Sublease income		(32	)		(66	)

Total lease cost	$	1,319		$	2,662

Prior to the adoption of ASU

2016-02,

rent expense under operating leases was $892,000 and $1,776,000 during the three and six months ended June 30, 2018. Rent expense was offset by rent income of $10,000 and $21,000 during the three and six months ended June 30, 2018.

The following table presents supplemental cash flow information related to leases for the six months ended June 30, 2019:


(in thousands)	Three months ended June 30, 2019		Six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	1,229	$	2,447
ROUA obtained in exchange for operating lease liabilities	$	156	$	32,162

The following table presents the weighted average operating lease term and discount rate at June 30, 2019:


Weighted-average remaining lease term	9.5 years
Weighted-average discount rate	3.18	%

Table of Contents

At ~~September~~June 30, ~~2018, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings~~2019, future expected operating lease payments are ~~underway is $477,000.~~

as follows:


(in thousands)
Periods ending December 31,
2019	$	2,352
2020		4,387
2021		4,235
2022		3,896
2023		3,216
Thereafter		16,682

		34,768
Discount for present value of expected cash flows		(5,334	)

Lease liability at June 30, 2019	$	29,434

Note 7 - ~~Premises and Equipment~~

~~Premises and equipment were comprised of:~~

   September 30,    December 31,
   2018    2017
   (In thousands)
Land & land improvements
   $ 28,958    $ 9,959
Buildings
   64,178    50,340
Furniture and equipment
   44,271    35,939




   137,407    96,238
Less: Accumulated depreciation
   (49,073 )    (40,644 )




   88,334    55,594
Construction in progress
   956    2,148




Total premises and equipment
   $ 89,290    $ 57,742

Depreciation expense for premises and equipment amounted to $1,685,000 and $1,520,000 for the three months ended September 30, 2018 and 2017, respectively, and $4,442,000 and $4,224,000 for the nine months ended September 30, 2018 and 2017, respectively.

~~Note 8 - Goodwill and Other Intangible Assets~~

~~The following table summarizes the Company’s goodwill intangible as of the dates indicated:~~

   September 30,          December 31,
(in thousands)    2018    Additions    Reductions    2017
Goodwill
   $ 220,972    156,661    —      $ 64,311

~~The following table summarizes the Company’s core deposit intangibles (CDI) as of the dates indicated:~~

   September 30,       Reductions/    December 31,
(in thousands)    2018    Additions    Amortization    2017
Core deposit intangibles
   $ 37,163    27,605    —      $ 9,558
Accumulated amortization
   (6,452 )    —      $ (2,068 )    (4,384 )








Core deposit intangibles, net
   $ 30,711    27,605    $ (2,068 )    $ 5,174

The Company recorded additions to its CDI of $27,605,000 in conjunction with the acquisition of FNB Bancorp as of July 6, 2018. The following table summarizes the Company’s remaining estimated core deposit intangible amortization at September 30, 2018 (in thousands):

   Estimated Core Deposit
Years Ended    Intangible Amortization
2018
   $ 1,431
2019
   5,723
2020
   5,723
2021
   5,465
2022
   4,776
Thereafter
   7,593
Deposits

~~Note 9 – Other Assets~~

~~Other assets were comprised of (in thousands):~~

   September 30,
2018    December 31,
2017
Deferred tax asset, net
   $ 31,963    $ 21,697
Investment in low income housing tax credit funds
   23,572    16,854
Prepaid expense
   3,420    4,111
Tax refund receivable
   2,836    4,754
Capital trusts
   1,712    1,706
Software
   762    1,126
Life insurance proceeds receivable
   —      2,242
Miscellaneous other assets
   6,332    2,561




Total other assets
   $ 70,597    $ 55,051

~~Note 10 - Deposits~~

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

   September 30,
2018    December 31,
2017
Noninterest-bearing demand
   $ 1,710,505    $ 1,368,218
Interest-bearing demand
   1,152,705    971,459
Savings
   1,801,087    1,364,518
Time certificates, over $250,000
   140,805    73,596
Other time certificates
   288,015    231,340




Total deposits
   $ 5,093,117    $ 4,009,131


	June 30, 2019		December 31, 2018
Noninterest-bearing demand	$	1,780,339	$	1,760,580
Interest-bearing demand		1,263,635		1,252,366
Savings		1,856,749		1,921,324
Time certificates, $250,000 or more		130,061		132,429
Other time certificates		311,389		299,767

Total deposits	$	5,342,173	$	5,366,466

Certificate of deposit balances of ~~$69,000,000~~$50,000,000 and ~~$50,000,000~~$60,000,000 from the State of California were included in time certificates, over $250,000, at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The ~~Bank~~Company participates in a deposit program offered by the State of California whereby the State may make deposits at the ~~Bank’s~~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 ~~Bank.~~Company. Overdrawn deposit balances of ~~$1,375,000~~$1,242,000 and ~~$1,366,000~~$1,469,000 were classified as consumer loans at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Note ~~11 – Other Liabilities~~

~~Other liabilities were comprised of (in thousands):~~

   September 30,
2018    December 31,
2017
Pension liability
   $ 37,789    $ 28,472
Low income housing tax credit fund commitments
   9,146    8,554
Deferred compensation
   9,450    6,605
Accrued salaries and benefits expense
   8,990    6,619
Joint beneficiary agreements
   3,558    3,365
Loan escrow and servicing payable
   2,821    1,958
Deferred revenue
   1,978    1,228
Litigation contingency
   —      1,450
Miscellaneous other liabilities
   8,345    8,171




Total other liabilities
   $ 82,077    $ 66,422

~~Note 12~~8 - Commitments and Contingencies

~~At September 30, 2018, future minimum commitments undernon-cancelable~~ ~~operating leases with initial or remaining terms of one year or more are as follows:~~

   Operating Leases
   (in thousands)
2018
   $ 1,179
2019
   4,478
2020
   3,774
2021
   3,372
2022
   2,549
Thereafter
   4,097


Future minimum lease payments
   $ 19,449

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

(in thousands)    September 30,
2018    December 31,
2017
Financial instruments whose amounts represent risk:

Commitments to extend credit:

Commercial loans
   $ 310,844    $ 257,220
Consumer loans
   481,837    422,958
Real estate mortgage loans
   149,003    66,267
Real estate construction loans
   283,858    187,097
Standby letters of credit
   11,277    13,075
Deposit account overdraft privilege
   107,956    98,260


(in thousands)	June 30, 2019		December 31, 2018
Financial instruments whose amounts represent risk:
Commitments to extend credit:
Commercial loans	$	311,850	$	306,191
Consumer loans		506,448		496,575
Real estate mortgage loans		173,451		140,292
Real estate construction loans		210,143		248,996
Standby letters of credit		11,338		11,346
Deposit account overdraft privilege		108,941		111,956

Table of Contents

Note 139 – Shareholders’ Equity

Dividends Paid

The Bank paid to the Company cash dividends in the aggregate amounts of ~~$13,507,000~~$10,236,000 and ~~$5,185,000~~$4,770,000 during the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively and ~~$22,649,000~~$18,350,000 and ~~$14,394,000~~$9,142,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The Bank is regulated by the Federal Deposit Insurance Corporation (FDIC) and the State of California Department of Business Oversight (DBO). Absent approval from the Commissioner of the DBO, California banking laws generally limit the Bank’s ability to pay dividends to the lesser of (1) retained earnings or (2) net income for the last three fiscal years, less cash distributions paid during such period. ~~Under this law, at December 31, 2017, the Bank could have paid dividends of $85,254,000 to the Company without the approval of the Commissioner of the DBO.~~

Stock Repurchase Plan

On August 21, 2007, the Board of Directors adopted a plan to repurchase, as conditions warrant, up to 500,000 shares of the Company’s common stock on the open market. The timing of purchases and the exact number of shares to be purchased will depend on market conditions. ~~The 500,000 shares authorized for repurchase under this stock repurchase plan represented approximately 3.2% of the Company’s 15,814,662 outstanding common shares as of August 21, 2007.~~ This stock repurchase plan has no expiration date. As of ~~September~~June 30, ~~2018,~~2019, the Company had repurchased ~~166,600~~196,566 shares under this plan.

During the six month periods ended June 30, 2019 and 2018, there were no shares of common stock repurchased under this plan.

Stock Repurchased Under Equity Compensation Plans

During the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, employees tendered ~~11,630~~93,755 and ~~21,738~~17,086 shares, respectively, of the Company’s common stock with market value of ~~$453,000,~~$3,659,000, and ~~$762,000,~~$667,000, respectively, in lieu of cash to exercise options to purchase shares of the Company’s stock and to pay income taxes related to equity compensation plan instruments as permitted by the Company’s shareholder-approved equity compensation plans. During the six months ended June 30, 2019 and 2018, employees tendered 119,914 and 17,220 shares, respectively, of the Company’s common stock with market value of $4,695,000, and $671,000, respectively, in lieu of cash to exercise options to purchase shares of the Company’s stock and to pay income taxes related to equity compensation plan instruments as permitted by the Company’s shareholder-approved equity compensation plans. 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. Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the stock repurchase plan announced on August 21, 2007.

During the nine months ended September 30, 2018 and 2017 employees tendered 28,850 and 107,390 shares, respectively, of the Company’s common stock with market value of $1,124,000 and $3,854,000, respectively, in lieu of cash to exercise options to purchase shares of the Company’s stock and to satisfy tax withholding requirements related to such exercises and the release of restricted stock units (RSUs) as permitted by the Company’s shareholder-approved equity compensation plans. 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. Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the stock repurchase plan announced on August 21, 2007.

Note 1410 - Stock Options and Other Equity-Based Incentive Instruments

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 ratified by shareholders on May 21, 2019. The 2019 Plan allows for up to 1,500,000 shares to be issued in connection with equity-based incentives. All grants of equity awards made during the six months ended June 30, 2019 were made from the 2019 Plan.

Stock option activity during the ~~nine~~six months

ended ~~September~~June 30, ~~2018~~2019 is summarized in the following table:

   Number
of Shares    Option Price
per Share    Weighted
Average
Exercise
Price
Outstanding at December 31, 2017
   446,400    $ 12.63 to $23.21    $ 16.84
Options granted
   —      —  to —      —
Options exercised
   (27,400 )    $ 15.34 to $23.21    $ 17.33
Options forfeited
   (3,000 )    $ 23.21 to $23.21    $ 23.21



Outstanding at September 30, 2018
   416,000    $ 12.63 to $23.21    $ 16.77


	Number of Shares			Option Price per Share		Weighted Average Exercise Price
Outstanding at December 31, 2018		343,000			$ 12.63 to $23.21	$	16.67
Options granted		—			— to —		—
Options exercised		(157,000	)		$12.63 to $19.46		15.92
Options forfeited		—			— to —		—

Outstanding at June 30, 2019		186,000			$14.54 to $23.21	$	17.45

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, ~~2018:~~

   Currently
Exercisable    Currently Not
Exercisable    Total
Outstanding
Number of options
   413,000    3,000    416,000
Weighted average exercise price
   $ 16.72    $ 23.21    $ 16.77
Intrinsic value (in thousands)
   $ 9,045    $ 46    $ 9,091
Weighted average remaining contractual term (yrs.)
   3.2    6.0    3.2

2019:


	Currently Exercisable		Currently Not Exercisable		Total Outstanding
Number of options		185,250		750		186,000
Weighted average exercise price	$	17.43	$	23.21	$	17.45
Intrinsic value (in thousands)	$	3,774	$	11	$	3,785
Weighted average remaining contractual term (yrs.)		3.1		5.3		3.1

The ~~3,000~~750 options that are currently not exercisable as of ~~September~~June 30, ~~2018~~2019 are expected to vest, on a weighted-average basis, over the next ~~year.~~three months. The Company did not modify any option grants during ~~2017~~2018 or the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~

2019.

Table of Contents

Restricted stock unit (RSU) activity is summarized in the following table for the dates indicated:

   Service Condition Vesting RSUs    Market Plus Service
Condition Vesting RSUs
   Number
of RSUs    Weighted
Average Fair
Value on
Date of Grant    Number
of RSUs    Weighted
Average Fair
Value on
Date of Grant
Outstanding at December 31, 2017
   68,457       52,829
RSUs granted
   38,605    $ 39.08    16,939    $ 36.40
Additional market plus service condition RSUs vested
   —         8,506
RSUs added through dividend credits
   806       —
RSUs released through vesting
   (32,516 )       (25,512 )
RSUs forfeited/expired
   (4,744 )       (5,478 )





Outstanding at September 30, 2018
   70,608       47,284


	Service Condition Vesting RSUs			Market Plus Service Condition Vesting RSUs
Outstanding at December 31, 2018		66,947			45,536
RSUs granted		35,272			22,898
RSUs added through dividend and performance credits		519			7,414
RSUs released		(26,211	)		(22,237	)
RSUs forfeited/expired		—			—

Outstanding at June 30, 2019		76,527			53,611

The ~~70,608~~76,527 of service condition vesting RSUs outstanding as of ~~September~~June 30, ~~2018~~2019 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 ~~70,608~~dividend credits follow the same vesting requirements as the RSU awards and are not considered participating securities. The 76,527 of service condition vesting RSUs outstanding as of ~~September~~June 30, ~~2018~~2019 are expected to vest, and be released, on a weighted-average basis, over the next ~~1.6~~1.4 years. The Company expects to recognize ~~$2,063,000~~$2,495,000 of

pre-tax

compensation costs related to these service condition vesting RSUs between ~~September~~June 30, ~~2018~~2019 and their vesting dates. The Company did not modify any service condition vesting RSUs during ~~2017~~2018 or during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~

2019.

The ~~47,284~~53,611 of market plus service condition vesting RSUs outstanding as of ~~September~~June 30, ~~2018~~2019 are expected to vest, and be released, on a weighted-average basis, over the next ~~1.7~~2.1 years. The Company expects to recognize ~~$902,000~~$1,227,000 of

pre-tax

compensation costs related to these RSUs between ~~September~~June 30, ~~2018~~2019 and their vesting dates. As of ~~September~~June 30, ~~2018,~~2019, the number of market plus service condition vesting RSUs outstanding that will actually vest, and be released, may be reduced to zero or increased to ~~70,926~~80,417 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 ~~2017~~2018 or during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~

2019.

Note 1511 - Noninterest Income and Expense

The following table summarizes the Company’s noninterest income for the periods ~~indicated (in thousands):~~

   Three months ended September 30,    Nine months ended September 30,
   2018    2017    2018    2017
ATM and interchange fees
   $ 4,590    $ 4,209    $ 13,335    $ 12,472
Service charges on deposit accounts
   4,015    4,160    11,407    12,102
Other service fees
   676    917    2,020    2,521
Mortgage banking service fees
   499    514    1,527    1,561
Change in value of mortgage servicing rights
   (37 )    (325 )    38    (795 )








Total service charges and fees
   9,743    9,475    28,327    27,861








Commissions on sale ofnon-deposit investment products
   728    672    2,414    1,984
Increase in cash value of life insurance
   732    732    1,996    2,043
Gain on sale of loans
   539    606    1,831    2,293
Lease brokerage income
   186    234    514    601
Gain on sale of foreclosed assets
   2    37    390    308
Sale of customer checks
   88    89    327    287
Gain on sale of investment securities
   207    961    207    961
Loss on disposal of fixed assets
   (152 )    (33 )    (206 )    (61 )
Loss on marketable equity securities
   (22 )    —      (92 )    —
Other
   135    157    942    1,266








Total other noninterest income
   2,443    3,455    8,323    9,682








Total noninterest income
   $ 12,186    $ 12,930    $ 36,650    $ 37,543

indicated:


	Three months ended June 30,						Six months ended June 30,
(dollars in thousands)	2019			2018			2019			2018
ATM and interchange fees	$	5,404		$	4,510		$	9,985		$	8,745
Service charges on deposit accounts		4,182			3,613			8,062			7,392
Other service fees		619			630			1,390			1,344
Mortgage banking service fees		475			511			958			1,028
Change in value of mortgage servicing rights		(552	)		(36	)		(1,197	)		75

Total service charges and fees		10,128			9,228			19,198			18,584

Increase in cash value of life insurance		746			656			1,521			1,264
Asset management and commission income		739			810			1,381			1,686
Gain on sale of loans		575			666			987			1,292
Lease brokerage income		239			200			459			328
Sale of customer checks		135			138			275			239
Gain on sale of foreclosed assets		197			17			296			388
Gain (loss) on marketable equity securities		42			(23	)		78			(70	)
Loss on disposal of fixed assets		(42	)		(41	)		(80	)		(54	)
Other		819			523			1,327			807

Total other noninterest income		3,450			2,946			6,244			5,880

Total noninterest income	$	13,578		$	12,174		$	25,442		$	24,464

Table of Contents

The components of noninterest expense were as follows (in thousands):

   Three months ended September 30,    Nine months ended September 30,
   2018    2017    2018    2017
Base salaries, net of deferred loan origination costs
   $ 17,051    $ 13,600    $ 45,442    $ 40,647
Incentive compensation
   3,223    2,609    7,834    6,980
Benefits and other compensation costs
   5,549    4,724    15,652    14,693








Total salaries and benefits expense
   25,823    20,933    68,928    62,320








Occupancy
   3,173    2,799    8,574    8,196
Data processing and software
   2,786    2,495    7,979    7,332
Merger and acquisition expense
   4,150    —      5,227    —
Equipment
   1,750    1,816    4,938    5,344
ATM and POS network charges
   1,195    1,425    3,858    3,353
Advertising
   1,341    1,039    3,214    3,173
Professional fees
   929    901    2,475    2,357
Telecommunications
   819    716    2,201    2,027
Regulatory assessments and insurance
   537    427    1,384    1,252
Intangible amortization
   1,390    339    2,068    1,050
Postage
   275    325    934    1,058
Courier service
   278    235    769    752
Operational losses
   217    301    763    1,166
Foreclosed assets expense
   93    41    297    117
Provision for (reversal of) foreclosed asset losses
   (1 )    134    89    162
Other miscellaneous expense
   2,623    3,296    9,712    9,289








Total other noninterest expense
�� 21,555    16,289    54,482    46,628








Total noninterest expense
   $ 47,378    $ 37,222    $ 123,410    $ 108,948


	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Base salaries, net of deferred loan origination costs	$	17,211	$	14,429	$	33,968	$	28,391
Incentive compensation		3,706		2,159		6,273		4,611
Benefits and other compensation costs		5,802		4,865		11,606		10,103

Total salaries and benefits expense		26,719		21,453		51,847		43,105

Occupancy		3,738		2,720		7,512		5,401
Data processing and software		3,354		2,679		6,703		5,193
Equipment		1,752		1,637		3,619		3,188
Intangible amortization		1,431		339		2,862		678
Advertising		1,533		1,035		2,864		1,873
ATM and POS network charges		1,270		1,437		2,593		2,663
Professional fees		1,057		774		1,896		1,546
Telecommunications		773		681		1,570		1,382
Regulatory assessments and insurance		490		417		1,001		847
Merger and acquisition expense		—		601		—		1,077
Postage		315		301		625		659
Operational losses		226		252		451		546
Courier service		412		224		682		491
Other miscellaneous expense		3,782		3,320		8,140		7,383

Total other noninterest expense		20,133		16,417		40,518		32,927

Total noninterest expense	$	46,852	$	37,870	$	92,365	$	76,032

Note 1612 – 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 ~~solely~~ from 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 September 30,    Nine months ended September 30,
(in thousands)    2018    2017    2018    2017
Net income
   $ 16,170    $ 11,897    $ 45,109    $ 37,565
Average number of common shares outstanding
   30,011    22,932    25,317    22,901
Effect of dilutive stock options and restricted stock
   280    312    300    338








Average number of common shares outstanding used to calculate diluted earnings per share
   30,291    23,244    25,617    23,239








Options excluded from diluted earnings per share because the effect of these options was antidilutive
   10,000    —      10,000    —


	Three months ended June 30,
(in thousands)	2019		2018
Net income	$	23,061	$	15,029
Average number of common shares outstanding		30,458		22,983
Effect of dilutive stock options and restricted stock		185		293

Average number of common shares outstanding used to calculate diluted earnings per share		30,643		23,276

Options excluded from diluted earnings per share because the effect of these options was antidilutive		—		—


	Six months ended June 30,
(in thousands)	2019		2018
Net income	$	45,787	$	28,939
Average number of common shares outstanding		30,441		22,970
Effect of dilutive stock options and restricted stock		209		310

Average number of common shares outstanding used to calculate diluted earnings per share		30,650		23,280

Options excluded from diluted earnings per share because the effect of these options was antidilutive		—		—

Table of Contents

Note 1713 – Comprehensive Income

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, such items, along with net income, are components of other comprehensive income.

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


	Three months ended June 30,						Six months ended June 30,
(in thousands)	2019			2018			2019			2018
Unrealized holding gains (losses) on available for sale securities before reclassifications	$	9,553		$	(5,676	)	$	22,263		$	(20,941	)
Amounts reclassified out of accumulated other comprehensive income:
Adoption ASU 2016-01		—			—			—			62
Adoption ASU 2018-02		—			—			—			(425	)

Total amounts reclassified out of accumulated other comprehensive income		—			—			—			(363	)

Unrealized holding gains (losses) on available for sale securities after reclassifications		9,553			(5,676	)		22,263			(21,304	)
Tax effect		(2,824	)		1,678			(6,582	)		6,280

Unrealized holding gains (losses) on available for sale securities, net of tax		6,729			(3,998	)		15,681			(15,024	)

Change in unfunded status of the supplemental retirement plans before reclassifications		(89	)		—			(177	)		668
Amounts reclassified out of accumulated other comprehensive income:
Amortization of prior service cost		(13	)		(13	)		(27	)		(27	)
Amortization of actuarial losses		102			127			204			254
Adoption ASU 2018-02		—			—			—			(668	)

Total amounts reclassified out of accumulated other comprehensive income		89			114			177			(441	)

Change in unfunded status of the supplemental retirement plans after reclassifications		—			114			—			227
Tax effect		—			(34	)		—			(67	)

Change in unfunded status of the supplemental retirement plans, net of tax		—			80			—			160

Total other comprehensive income (loss)	$	6,729		$	(3,918	)	$	15,681		$	(14,864	)

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

   September 30,    December 31,
(in thousands)    2018    2017
Net unrealized loss on available for sale securities
   $ (33,051 )    (3,409 )
Tax effect
   9,771    1,433




Unrealized holding loss on available for sale securities, net of tax
   (23,280 )    (1,976 )




Unfunded status of the supplemental retirement plans
   (5,010 )    (5,352 )
Tax effect
   1,481    2,250




Unfunded status of the supplemental retirement plans, net of tax
   (3,529 )    (3,102 )




Joint beneficiary agreement liability
   (150 )    (150 )
Tax effect
   —      —




Joint beneficiary agreement liability, net of tax
   (150 )    (150 )




Accumulated other comprehensive loss
   $ (26,959 )    $ (5,228 )


	June 30,			December 31,
(in thousands)	2019			2018
Net unrealized loss on available for sale securities	$	1,289		$	(20,974	)
Tax effect		(381	)		6,201

Unrealized holding loss on available for sale securities, net of tax		908			(14,773	)

Unfunded status of the supplemental retirement plans		(4,802	)		(4,802	)
Tax effect		1,420			1,420

Unfunded status of the supplemental retirement plans, net of tax		(3,382	)		(3,382	)

Joint beneficiary agreement liability		276			276
Tax effect		—			—

Joint beneficiary agreement liability, net of tax		276			276

Accumulated other comprehensive loss	$	(2,198	)	$	(17,879	)

~~The components~~

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

Three months ended September 30, Nine months ended September 30,
(in thousands) 2018 2017 2018 2017
Unrealized holding gains (losses) on available for sale securities before reclassifications
$ (8,193 ) $ 674 $ (29,134 ) $ 6,372
Amounts reclassified out of accumulated other comprehensive income:

Realized gains on debt securities
(207 ) (961 ) (207 ) (961 )
Adoption ASU2016-01
—   —   62 —
Adoption ASU2018-02
—   —   (425 ) —

Total amounts reclassified out of accumulated other comprehensive income
(207 ) (961 ) (570 ) (961 )

Unrealized holding gains (losses) on available for sale securities after reclassifications
(8,400 ) (287 ) (29,704 ) 5,411
Tax effect
2,483 121 8,763 (2,274 )

Unrealized holding gains (losses) on available for sale securities, net of tax
(5,917 ) (166 ) (20,941 ) 3,137

Change in unfunded status of the supplemental retirement
plans before reclassifications
—   —   668 —
Amounts reclassified out of accumulated other comprehensive income:

Amortization of prior service cost
(13 ) (1 ) (40 ) (5 )
Amortization of actuarial losses
128 96 382 288
Adoption ASU2018-02
—   —   (668 ) —

Total amounts reclassified out of accumulated other comprehensive income
115 95 (326 ) 283

Change in unfunded status of the supplemental retirement plans after reclassifications
115 95 342 283
Tax effect
(34 ) (40 ) (101 ) (119 )

Change in unfunded status of the supplemental retirement plans, net of tax
81 55 241 164

Total other comprehensive income (loss)
$ (5,836 ) $ (111 ) $ (20,700 ) $ 3,301

Contents

Note 1814 - Fair Value Measurement

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, income approach, and/or the cost approach. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. ~~Securities~~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 ~~as loans held for sale,~~ loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application ~~of lower of cost or market accounting or~~ impairment write-downs of individual assets.

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

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

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

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

Marketable equity securities and debt securities available for sale

– Marketable equity securities and debt securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are

not

available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active

over-the-counter

markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. The Company had

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.

Impaired originated and PNCI loans

– Originated and PNCI loans are not recorded at fair value on a recurring basis. However, from time to time, an originated or PNCI loan is considered impaired and an allowance for loan losses is established. Originated and PNCI 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 considered impaired. The fair value of an impaired originated or PNCI loan is estimated using one of several methods, including collateral value, fair value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired originated and PNCI 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. Impaired originated and PNCI 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 impaired originated or PNCI 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 impaired originated or PNCI 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 impaired originated 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 noninterest 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

Table of Contents

measurement. While the prepayment speed assumption is currently quoted for comparable instruments, the discount rate assumption currently requires a significant degree of management judgment and is therefore considered an unobservable input. As such, the Company classifies mortgage servicing rights subjected to recurring fair value adjustments as Level 3.

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

   Total    Level 1    Level 2    Level 3
Fair value at September 30, 2018

Marketable equity securities
   $ 2,846    $ 2,846    $ —      $ —
Debt securities available for sale:

Obligations of U.S. government agencies
   638,876    —      638,876    —
Obligations of states and political subdivisions
   123,420    —      123,420    —
Corporate bonds
   4,431    —      4,431    —
Asset backed securities
   289,233    —      289,233    —
Loans held for sale
   3,824    —      3,824    —
Mortgage servicing rights
   7,122    —      —      7,122








Total assets measured at fair value
   $ 1,069,752    $ 2,846    $ 1,059,784    $ 7,122








   Total    Level 1    Level 2    Level 3
Fair value at December 31, 2017

Marketable equity securities
   $ 2,938    $ 2,938    $ —      $ —
Debt securities available for sale:

Obligations of U.S. government agencies
   604,789    —      604,789    —
Obligations of states and political subdivisions
   123,156    —      123,156    —
Loans held for sale
   4,616    —      4,616    —
Mortgage servicing rights
   6,687    —      —      6,687








Total assets measured at fair value
   $ 742,186    $ 2,938    $ 732,561    $ 6,687


Fair value at June 30, 2019	Total		Level 1		Level 2		Level 3
Marketable equity securities	$	2,952	$	2,952	$	—	$	—
Debt securities available for sale:
Obligations of U.S. government corporations and agencies		630,911		—		630,911		—
Obligations of states and political subdivisions		125,980		—		125,980		—
Corporate bonds		4,521		—		4,521		—
Asset backed securities		372,582		—		372,582		—
Loans held for sale		5,875		—		5,875		—
Mortgage servicing rights		6,229		—		—		6,229

Total assets measured at fair value	$	1,149,050	$	2,952	$	1,139,869	$	6,229


Fair value at December 31, 2018	Total		Level 1		Level 2		Level 3
Marketable equity securities	$	2,874	$	2,874	$	—	$	—
Debt securities available for sale:
Obligations of U.S. government corporations and agencies		629,981		—		629,981		—
Obligations of states and political subdivisions		126,072		—		126,072		—
Corporate bonds		4,478		—		4,478		—
Asset backed securities		354,505		—		354,505		—
Loans held for sale		3,687		—		3,687		—
Mortgage servicing rights		7,098		—		—		7,098

Total assets measured at fair value	$	1,128,695	$	2,874	$	1,118,723	$	7,098

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

transfers between any levels during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 or the year ended December 31, ~~2017.~~

2018.

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):

   Beginning
Balance    Transfers
into (out of)
Level 3    Change
Included
in Earnings Issuances    Ending
Balance
Three months ended September 30,

2018: Mortgage servicing rights
   $ 7,021    —      $ (37 ) $ 138    $ 7,122
2017: Mortgage servicing rights
   $ 6,596    —      $ (325 ) $ 148    $ 6,419
   Beginning
Balance    Transfers
into (out of)
Level 3    Change
Included
in Earnings Issuances    Ending
Balance
Nine months ended September 30,

2018: Mortgage servicing rights
   $ 6,687    —      $ 38 $ 397    $ 7,122
2017: Mortgage servicing rights
   $ 6,595    —      $ (795 ) $ 619    $ 6,419


			Transfers		Change
	Beginning		into (out of)		Included					Ending
Three months ended June 30,	Balance		Level 3		in Earnings			Issuances		Balance
2019: Mortgage servicing rights	$	6,572		—	$	(552	)	$	209	$	6,229
2018: Mortgage servicing rights	$	6,953		—	$	(36	)	$	104	$	7,021


Six months ended June 30,	Beginning Balance		Transfers into (out of) Level 3		Change Included in Earnings			Issuances		Ending Balance
2019: Mortgage servicing rights	$	7,098		—	$	(1,197	)	$	328	$	6,229
2018: Mortgage servicing rights	$	6,687		—	$	75		$	259	$	7,021

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).

Table of Contents

The following table presents quantitative information about recurring Level 3 fair value measurements at ~~September~~June 30, ~~2018:~~

   Fair Value    Valuation    Unobservable    Range,
Weighted
   (in thousands)    Technique    Inputs    Average
Mortgage Servicing Rights
   $ 7,122    Discounted
cash flow    Constant
prepayment rate    4.8%-33%, 7.3%
         Discount rate    12%, 12%

~~The following table presents quantitative information about recurring Level 3 fair value measurements at~~2019 and December 31, ~~2017:~~

   Fair Value    Valuation    Unobservable    Range,
Weighted
   (in thousands)    Technique    Inputs    Average
Mortgage Servicing Rights
   $ 6,687    Discounted
cash flow    Constant
prepayment rate    6.2%-22.0%, 8.9%
         Discount rate    13.0%-15.0%, 13.0%

2018:

Fair Value

Valuation

Unobservable

Range,

Weighted

As of June 30, 2019:

(in thousands)

Technique

Inputs

Average

Mortgage Servicing Rights

6,229

Discounted cash flow

Constant prepayment rate

6.9%

39.0%; 10.5

Discount rate

10% - 14%;12

As of December 31, 2018:

Mortgage Servicing Rights

7,098

Discounted cash flow

Constant prepayment rate

5.0% - 27.3%; 7.6

Discount rate

12% - 13%;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):

   Total    Level 1    Level 2    Level 3    Total Gains
(Losses)
Nine months ended September 30, 2018

Fair value:

Impaired Originated & PNCI loans
   $ 445    —      —      $ 445    $ (808 )
Foreclosed assets
   863    —      —      863    (23 )










Total assets measured at fair value
   $ 1,308    —      —      $ 1,308    $ (831 )










   Total    Level 1    Level 2    Level 3    Total Gains
(Losses)
Year ended December 31, 2017

Fair value:

Impaired Originated & PNCI loans
   $ 2,767    —      —      $ 2,767    $ (1,452 )
Foreclosed assets
   2,217    —      —      2,217    (135 )










Total assets measured at fair value
   $ 4,984    —      —      $ 4,984    $ (1,587 )










   Total    Level 1    Level 2    Level 3    Total Gains
(Losses)
Nine months ended September 30, 2017

Fair value:

Impaired Originated & PNCI loans
   $ 1,026    —      —      $ 1,026    $ (892 )
Foreclosed assets
   2,062    —      —      2,062    (157 )










Total assets measured at fair value
   $ 3,088    —      —      $ 3,088    $ (1,049 )


									Total Gains
June 30, 2019	Total		Level 1		Level 2		Level 3		(Losses)
Fair value:
Impaired Originated & PNCI loans	$	1,164		—		—	$	1,164	$	(808	)
Foreclosed assets		454		—		—		454		(63	)

Total assets measured at fair value	$	1,618		—		—	$	1,618	$	(871	)


									Total Gains
December 31, 2018	Total		Level 1		Level 2		Level 3		(Losses)
Fair value:
Impaired Originated & PNCI loans	$	281		—		—	$	281	$	(294	)
Foreclosed assets		1,311		—		—		1,311		(8	)

Total assets measured at fair value	$	1,592		—		—	$	1,592	$	(302	)


									Total Gains
June 30, 2018	Total		Level 1		Level 2		Level 3		(Losses)
Fair value:
Impaired Originated & PNCI loans	$	1,647		—		—	$	1,647	$	(505	)
Foreclosed assets		584		—		—		584		(90	)

Total assets measured at fair value	$	2,231		—		—	$	2,231	$	(595	)

The impaired originated and PNCI loan amount above represents impaired, collateral dependent loans that have been adjusted to fair value. When ~~we identify~~the Company identifies a collateral dependent loan as impaired, ~~we measure~~the Company measures the impairment 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 ~~we determine~~the Company determines that the value of the impaired loan is less than the recorded investment in the loan, ~~we recognize~~the Company recognizes this impairment and adjust the carrying value of the loan to fair value through the allowance for loan and lease 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 ~~zero.~~

zero

The foreclosed assets amount above represents impaired real estate that has been adjusted to fair value. Foreclosed assets represent real estate which the ~~Bank~~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 loan and lease 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~~non-covered~~ ~~other~~ 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.

Table of Contents

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, ~~2018:~~

   Fair Value    Valuation       Range,
   (in thousands)    Technique    Unobservable Inputs
Weighted Average
September 30, 2018

Impaired Originated & PNCI loans
   $ 445
Sales comparison
approach

Adjustment for differences
between comparable sales;
   (55.8%) - 60%; (28%)
      Income approach    Capitalization rate    N/A
Foreclosed assets (Residential real estate)
   $ 744
Sales comparison
approach

Adjustment for differences
between comparable sales
   (47%) - 52%; 0.9%
Foreclosed assets (Commercial real estate)
   $ 92
Sales comparison
approach

Adjustment for differences
between comparable sales
   (65%) - 20%; (45%)
Foreclosed assets (Land and construction)
   $ 27
Sales comparison
approach

Adjustment for differences
between comparable sales
   Information not meaningful

2019:

June 30, 2019

Fair Value
(in thousands)

Valuation

Technique

Unobservable Inputs

Range,
Weighted Average

Impaired Originated & PNCI loans

—

Sales comparison approach

Income approach

Adjustment for differences between comparable sales

Capitalization rate

Not meaningful
N/A

Foreclosed assets (Residential real estate)

—

Sales comparison approach

Adjustment for differences between comparable sales

Not meaningful

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, ~~2017:~~

   Fair Value    Valuation       Range,
   (in thousands)    Technique    Unobservable Inputs
Weighted Average
December 31, 2017

Impaired Originated & PNCI loans
   $ 2,767
Sales comparison
approach

Adjustment for differences
between comparable sales
   (74%) - 23%; (19.76%)
      Income approach    Capitalization rate    N/A
Foreclosed assets (Land & construction)
   $ 1,341
Sales comparison
approach

Adjustment for differences
between comparable sales
   (53%) - 283%; 167%
Foreclosed assets (Residential real estate)
   $ 622
Sales comparison
approach

Adjustment for differences
between comparable sales
   (47%) - 39%; (3.13%)
Foreclosed assets (Commercial real estate)
   $ 254
Sales comparison
approach

Adjustment for differences
between comparable sales
   (84%) - 19%; (84%)

In addition to the methods and assumptions used to estimate the fair value of each class of financial instrument noted above, the following methods and assumptions were used to estimate the fair value of other classes of financial instruments for which it is practical to estimate the fair value.

~~Short-term Instruments~~ - Cash and due from banks, fed funds purchased and sold, interest receivable and payable, and short-term borrowings are considered short-term instruments. For these short-term instruments their carrying amount approximates their fair value.

~~Securities held to maturity~~ – The fair value of securities held to maturity 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 no securities held to maturity classified as Level 3 during any of the periods covered in these financial statements.

~~Restricted Equity Securities~~ ~~- It is not practical to determine the fair value of restricted equity securities due to restrictions placed on their transferability.~~

2018:

December 31, 2018

Fair Value
(in thousands)

Valuation

Technique

Unobservable Inputs

Range,
Weighted Average

Impaired Originated & PNCI loans

281

Sales comparison approach

Income approach

Adjustment for differences between comparable sales

Capitalization rate

(16.3%)

35.14%; 10.45% N/A

Foreclosed assets (Residential real estate)

693

Sales comparison approach

Adjustment for differences between comparable sales

(21.83%) - 7.25%;
(3.75%)

Foreclosed assets (Commercial real estate)

618

Sales comparison approach

Adjustment for differences between comparable sales

(65%) - 20%; (45%)

~~Originated and PNCI loans~~- The fair value of variable rate originated and PNCI loans is the current carrying value. The interest rates on these originated and PNCI loans are regularly adjusted to market rates. The fair value of other types of fixed rate originated and PNCI loans is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. The allowance for loan losses is a reasonable estimate of the valuation allowance needed to adjust computed fair values for credit quality of certain originated and PNCI loans in the portfolio.

~~PCI Loans~~ ~~- PCI loans are measured at estimated fair value on the date of acquisition. Carrying value is calculated as the present value of expected cash flows and approximates fair value.~~

~~Deposit Liabilities~~- The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. These values do not consider the estimated fair value of the Company’s core deposit intangible, which is a significant unrecognized asset of the Company. The fair value of time deposits and other borrowings is based on the discounted value of contractual cash flows.

~~Other Borrowings~~~~- The fair value of other borrowings is calculated based on the discounted value of the contractual cash flows using current rates at which such borrowings can currently be obtained.~~

~~Junior Subordinated Debentures~~ - The fair value of junior subordinated debentures is estimated using a discounted cash flow model. The future cash flows of these instruments are extended to the next available redemption date or maturity date as appropriate based upon the spreads of recent issuances or quotes from brokers for comparable bank holding companies compared to the contractual spread of each junior subordinated debenture measured at fair value.

~~Commitments to Extend Credit and Standby Letters of Credit~~ - The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counter parties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counter parties at the reporting date.

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.

~~In January 2018, the Company adopted the provisions~~


	June 30, 2019				December 31, 2018
(in thouands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Level 1 inputs:
Cash and due from banks	$	106,939	$	106,939	$	119,781	$	119,781
Cash at Federal Reserve and other banks		68,643		68,643		107,752		107,752
Level 2 inputs:
Securities held to maturity		412,524		415,276		444,936		437,370
Restricted equity securities		17,250		N/A		17,250		N/A
Loans held for sale		5,875		5,875		3,687		4,616
Level 3 inputs:
Loans, net		4,070,819		4,057,792		3,989,432		4,006,986
Financial liabilities:
Level 2 inputs:
Deposits		5,342,173		5,341,105		5,366,466		5,362,173
Other borrowings		13,292		13,292		15,839		15,839
Level 3 inputs:
Junior subordinated debt		57,132		56,209		57,042		62,610

(in thouands)	Contract Amount		Fair Value		Contract Amount		Fair Value
Off-balance sheet:
Level 3 inputs:
Commitments	$	1,201,892	$	12,019	$	1,192,054	$	11,921
Standby letters of credit		11,338		113		11,346		113
Overdraft privilege commitments		108,941		1,089		111,956		1,120

Table of ~~Accounting Standard Update2016-01~~ “~~Recognition and Measurement of Financial Assets and Financial Liabilities~~”, which requires the Company to use the exit price notion when measuring the fair value of financial instruments. The Company used the exit price notion for valuing financial instruments in 2018 and the entry price notion for valuing financial instruments in 2017. The estimated fair values of financial instruments that are reported at amortized cost in the Company’s condensed consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, were as follows (in thousands):

   September 30, 2018    December 31, 2017
   Carrying    Fair    Carrying    Fair
   Amount    Value    Amount    Value
Financial assets:

Level 1 inputs:

Cash and due from banks
   $ 109,363    $ 109,363    $ 105,968    $ 105,968
Cash at Federal Reserve and other banks
   117,180    117,180    99,460    99,460
Level 2 inputs:

Securities held to maturity
   459,897    446,287    514,844    518,165
Restricted equity securities
   17,250    N/A    16,956    N/A
Level 3 inputs:

Loans, net
   3,995,833    3,987,841    2,984,842    2,992,225
Financial liabilities:

Level 2 inputs:

Deposits
   5,093,117    5,088,024    4,009,131    4,006,620
Other borrowings
   282,831    282,831    122,166    122,166
Level 3 inputs:

Junior subordinated debt
   56,996    58,930    56,858    58,466
   Contract    Fair    Contract    Fair
   Amount    Value    Amount    Value
Off-balance sheet:

Level 3 inputs:

Commitments
   $ 1,225,542    $ 12,255    $ 933,542    $ 9,335
Standby letters of credit
   11,277    113    13,075    131
Overdraft privilege commitments
   107,956    1,080    98,260    983
Contents

Note 1915 - 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, ~~2018~~2019 and December 31, ~~2017~~2018 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, ~~2018~~2019 and December 31, ~~2017~~2018 based on the then

phased-in

provisions of the Basel III Capital ~~Rules and~~Rules. As of January 1, 2019, the minimum required capital levels as of ~~January 1, 2019 when~~ 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.

      Minimum Capital Minimum Capital Required to be
      Required – Basel III Required – Basel III Considered Well
   Actual Phase-in Schedule Fully Phased In Capitalized
   Amount    Ratio Amount    Ratio Amount    Ratio Amount    Ratio
   (dollars in thousands)
As of September 30, 2018:

Total Capital (to Risk Weighted Assets):


Consolidated
   $ 664,197    13.90 % $ 471,956    9.875 % $ 501,826    10.50 % N/A    N/A
Tri Counties Bank
   $ 658,075    13.77 % $ 471,784    9.875 % $ 501,643    10.50 % $ 477,756    10.00 %
Tier 1 Capital (to Risk Weighted Assets):


Consolidated
   $ 630,294    13.19 % $ 376,370    7.875 % $ 406,240    8.50 % N/A    N/A
Tri Counties Bank
   $ 624,172    13.06 % $ 376,233    7.875 % $ 406,092    8.50 % $ 382,205    8.00 %
Common equity Tier 1 Capital (to Risk Weighted Assets):


Consolidated
   $ 575,010    12.03 % $ 304,680    6.375 % $ 334,551    7.00 % N/A    N/A
Tri Counties Bank
   $ 624,172    13.06 % $ 304,569    6.375 % $ 334,429    7.00 % $ 310,541    6.50 %
Tier 1 Capital (to Average Assets):

Consolidated
   $ 630,294    10.66 % $ 236,503    4.000 % $ 236,503    4.00 % N/A    N/A
Tri Counties Bank
   $ 624,172    10.56 % $ 236,496    4.000 % $ 236,496    4.00 % $ 295,620    5.00 %
      Minimum Capital Minimum Capital Required to be
      Required – Basel III Required – Basel III Considered Well
   Actual Phase-in Schedule Fully Phased In Capitalized
   Amount    Ratio Amount    Ratio Amount    Ratio Amount    Ratio
   (dollars in thousands)
As of December 31, 2017:

Total Capital (to Risk Weighted Assets):

Consolidated
   $ 528,805    14.07 % $ 347,694    9.250 % $ 394,679    10.50 % N/A    N/A
Tri Counties Bank
   $ 525,384    13.98 % $ 347,535    9.250 % $ 394,499    10.50 % $ 375,713    10.00 %
Tier 1 Capital (to Risk Weighted Assets):

Consolidated
   $ 495,318    13.18 % $ 272,517    7.250 % $ 319,502    8.50 % N/A    N/A
Tri Counties Bank
   $ 491,897    13.09 % $ 272,392    7.250 % $ 319,356    8.50 % $ 300,570    8.00 %
Common equity Tier 1 Capital (to Risk Weighted Assets):

Consolidated
   $ 440,643    11.72 % $ 216,134    5.750 % $ 263,120    7.00 % N/A    N/A
Tri Counties Bank
   $ 491,897    13.09 % $ 216,035    5.750 % $ 262,999    7.00 % $ 244,214    6.50 %
Tier 1 Capital (to Average Assets):

Consolidated
   $ 495,318    10.80 % $ 183,400    4.000 % $ 183,400    4.00 % N/A    N/A
Tri Counties Bank
   $ 491,897    10.73 % $ 183,394    4.000 % $ 183,394    4.00 % $ 229,243    5.00 %


	Actual					Minimum Capital Required – Basel III Fully Phased In					Required to be Considered Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
As of June 30, 2019:
Total Capital (to Risk Weighted Assets):
Consolidated	$	718,901		14.93	%	$	505,569		10.50	%		N/A		N/A
Tri Counties Bank	$	714,018		14.83	%	$	505,385		10.50	%	$	481,320		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	683,043		14.19	%	$	409,270		8.50	%		N/A		N/A
Tri Counties Bank	$	678,160		14.09	%	$	409,122		8.50	%	$	385,056		8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	627,627		13.03	%	$	337,046		7.00	%		N/A		N/A
Tri Counties Bank	$	678,160		14.09	%	$	336,924		7.00	%	$	312,858		6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	683,043		11.08	%	$	246,599		4.00	%		N/A		N/A
Tri Counties Bank	$	678,160		11.00	%	$	246,594		4.00	%	$	308,242		5.00	%


	Actual					Minimum Capital Required – Basel III Phase-in Schedule					Minimum Capital Required – Basel III Fully Phased In					Required to be Considered Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
As of December 31, 2018:
Total Capital (to Risk Weighted Assets):
Consolidated	$	682,419		14.40	%	$	467,874		9.875	%	$	497,486		10.50	%		N/A		N/A
Tri Counties Bank	$	680,624		14.37	%	$	467,704		9.875	%	$	497,305		10.50	%	$	473,624		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	647,262		13.66	%	$	373,115		7.875	%	$	402,727		8.50	%		N/A		N/A
Tri Counties Bank	$	645,467		13.63	%	$	372,979		7.875	%	$	402,581		8.50	%	$	378,899		8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	591,933		12.49	%	$	302,045		6.375	%	$	331,658		7.00	%		N/A		N/A
Tri Counties Bank	$	645,467		13.63	%	$	301,935		6.375	%	$	331,537		7.00	%	$	307,856		6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	647,262		10.68	%	$	242,452		4.000	%	$	242,452		4.00	%		N/A		N/A
Tri Counties Bank	$	645,467		10.65	%	$	242,447		4.000	%	$	242,447		4.00	%	$	303,059		5.00	%

As of ~~September~~June 30, 2019 and December 31, 2018, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital ~~Rules on a fullyphased-in~~ ~~basis.~~Rules. Also, at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Bank’s capital levels exceeded the minimum amounts necessary to be considered well capitalized under the current regulatory framework for prompt corrective action.

~~Beginning January 1, 2016, the~~

The Basel III Capital Rules ~~implemented a requirement~~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, ~~2018,~~2019, the Company and the Bank are in compliance with the capital conservation buffer requirement. The three risk-based capital ratios will increase by 0.625% each year through 2019, at which point, the common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratio minimums will be 7.0%, 8.5% and 10.5%, respectively.

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

Contents

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Cautionary Statements Regarding Forward-Looking Information

Certain statements contained in this Form

10-Q

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; mergers and acquisitions (including costs or difficulties related to integration of acquired companies); changes in the level of our nonperforming assets and charge-offs; 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; the impact of competition from other financial service providers; the possibility that any of the anticipated benefits of our recent merger with FNB Bancorp (“FNBB”) will not be realized or will not be realized within the expected time period, or that integration of FNBB’s operations will be more costly or difficult than expected; the challenges of integrating and retaining key employees; unanticipated regulatory or judicial proceedings; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and our ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in in Part II Item 1A of this report and our Annual Report on Form

10-K

for the year ended December 31, ~~2017,~~2018, 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.

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 financial statements included in the Company’s annual report of Form

10-K

for the ~~period~~year ended December 31, ~~2017.~~

2018.

Geographical Descriptions

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

Bakersfield and San Luis Obispo.

Table of Contents

Financial Highlights

Performance highlights and other developments for the Company included the following:

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company’s return on average assets was ~~1.05%~~1.44% and ~~1.15%~~1.43%, respectively, and the return on average equity was ~~9.11%~~10.65% and ~~10.44%.~~

10.71%, respectively.

~~The Company completed the merger of FNBB effective July 6, 2018 with the systems integration being achieved just two weeks later.~~

As of ~~September~~June 30, ~~2018,~~2019, the Company ~~reached record levels of~~reported total ~~assets,~~loans, total ~~loans~~assets and total deposits ~~which were $6.32~~of $4.10 billion, ~~$4.03~~$6.40 billion and ~~$5.09~~$5.34 billion, respectively.

The loan to deposit ratio ~~increased to 79.1% at September~~was 76.8% as of June 30, ~~2018~~2019 as compared to 74.3% at March 31, 2019 and 77.2% at June 30, ~~2018 and 75.2% at December 31, 2017.~~

2018.

Net interest margin grew 1834 basis points to ~~4.32%~~4.48% on a tax equivalent basis as compared to 4.14% in the ~~trailing quarter.~~

~~Annualized organic loan and deposit growth during the nine months~~quarter ended ~~September~~June 30, 2018 ~~was 7.9%~~ and ~~3.1%. During~~increased 2 basis points from the ~~current quarter, organic loan and deposit growth was 5.9% and 2.4% on an annualized basis.~~

trailing quarter.

Non-interest

bearing deposits as a percentage of total deposits were ~~33.6%~~33.3% at ~~September 30, 2018 and~~ June 30, ~~2018~~2019, as compared to ~~34.1%~~32.4% at ~~December~~March 31, ~~2017.~~

2019 and 33.6% at June 30, 2018.

The average rate of interest paid on deposits, including noninterest-bearing deposits, remained low but increased slightly to 0.22% for the second quarter of 2019 as compared with 0.20% for the trailing quarter, and ~~stable at 0.16%. This incorporates~~an increase of 10 basis points from the ~~impact~~average rate paid during the same quarter of the ~~FNBB deposit portfolio which had a 0.24% average cost of total deposits on the day of acquisition.~~

prior year.

Non-performing

assets to total assets were ~~0.46% as of September~~0.35% at June 30, ~~2018~~2019 as compared to ~~0.55%~~0.34% as of March 31, 2019 and ~~0.58%~~0.47% at ~~June 30, 2018 and~~ December 31, ~~2017, respectively.~~

2018.

The balance of nonperforming loans increased by $1.0 million, however recoveries on previously

charged-off

loans were $0.3 million and loans past due thirty days or more decreased by $2.18 million during the quarter.

The efficiency ratio remained flat at 60.15% as compared to the trailing quarter, which had an efficiency ratio of 60.10%.

Table of Contents

TRICO BANCSHARES

Financial Summary

(In thousands, except per share amounts; unaudited)

   Three months ended Nine months ended
   September 30, September 30,
   2018 2017 2018 2017
Net interest income
   $ 60,489 $ 44,084 $ 151,344 $ 129,511
Provision for (benefit from) loan losses
   2,651 765 1,777 (1,588 )
Noninterest income
   12,186 12,930 36,650 37,543
Noninterest expense
   (47,378 ) (37,222 ) (123,410 ) (108,948 )
Provision for income taxes
   (6,476 ) (7,130 ) (17,698 ) (22,129 )


Net income
   $ 16,170 $ 11,897 $ 45,109 $ 37,565


Share Data

Earnings per share:

Basic
   $ 0.54 $ 0.52 $ 1.78 $ 1.64
Diluted
   $ 0.53 $ 0.51 $ 1.76 $ 1.62
Per share:

Dividends paid
   $ 0.17 $ 0.17 $ 0.51 $ 0.49
Book value at period end
   $ 26.37 $ 22.09
Average common shares outstanding
   30,011 22,932 25,317 22,901
Average diluted common shares outstanding
   30,291 23,244 25,617 23,239
Shares outstanding at period end
   30,418 22,941
Financial Ratios

During the period (annualized):

Return on average assets
   1.05 % 1.02 % 1.15 % 1.14 %
Return on average equity
   9.11 % 9.38 % 10.44 % 10.09 %
Net interest margin¹
   4.32 % 4.26 % 4.21 % 4.19 %
Efficiency ratio
   65.2 % 65.3 % 65.6 % 65.2 %
Average equity to average assets
   11.5 % 11.1 % 11.0 % 10.9 %


	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Net interest income	$	64,315		$	45,869		$	128,185		$	90,855
(Provision for) benefit from reversal of loan losses		(537	)		638			1,063			874
Noninterest income		13,578			12,174			25,442			24,464
Noninterest expense		(46,852	)		(37,870	)		(92,365	)		(76,032	)
Provision for income taxes		(7,443	)		(5,782	)		(16,538	)		(11,222	)

Net income	$	23,061		$	15,029		$	45,787		$	28,939

Per Share Data:
Basic earnings per share	$	0.76		$	0.65		$	1.50		$	1.26
Diluted earnings per share	$	0.75		$	0.65		$	1.49		$	1.24
Dividends paid	$	0.19		$	0.17		$	0.38		$	0.34
Book value at period end							$	28.71		$	22.27

Average common shares outstanding		30,458			22,983			30,441			22,970
Average diluted common shares outstanding		30,643			23,276			30,650			23,280
Shares outstanding at period end								30,503			23,004

At period end:
Loans, net								4,070,819			3,116,789
Total investment securities								1,566,720			1,251,776
Total assets								6,395,172			4,863,153
Total deposits								5,342,173			4,077,222
Other borrowings								13,292			152,839
Shareholders’ equity								875,886			512,344

Financial Ratios:
During the period (annualized):
Return on average assets		1.44	%		1.25	%		1.43	%		1.21	%
Return on average equity		10.65	%		11.78	%		10.71	%		11.39	%
Net interest margin 1		4.48	%		4.14	%		4.47	%		4.14	%
Efficiency ratio		60.1	%		65.2	%		60.1	%		65.9	%
Average equity to average assets		13.6	%		10.6	%		13.3	%		10.6	%
At end of period:
Equity to assets								13.70	%		10.54	%
Total capital to risk-sdjusted assets								14.93	%		13.91	%

¹	Fully taxable equivalent (FTE)

   September 30,    June 30,    March 31,    December 31,    September 30,
Balance Sheet Data    2018    2018    2018    2017    2017
Total assets
   $ 6,318,865    $ 4,863,153    $ 4,779,957    $ 4,761,315    $ 4,656,435
Total investments
   1,535,953    1,251,776    1,251,776    1,262,683    1,231,759
Total loans
   4,027,436    3,116,789    3,069,733    3,015,165    2,931,613
Totalnon-interest bearing deposits
   1,710,505    1,369,834    1,359,996    1,368,218    1,283,949
Total deposits
   5,093,117    4,077,222    4,084,404    4,009,131    3,927,456
Total other borrowings
   282,831    153,839    65,041    122,166    98,730
Total junior subordinated debt
   56,996    56,950    56,905    56,858    56,810
Total shareholders’ equity
   802,115    512,344    505,256    505,808    506,733
Total tangible equity⁽¹⁾
   $ 550,432    $ 443,537    $ 436,110    $ 436,323    $ 436,909

~~NOTE:~~

⁽¹⁾	~~Tangible equity is calculated by subtracting Goodwill and Other intangible assets from Total shareholders’ equity.~~

Ending balances    As of September 30,    $ Change    Acquired    Organic Organic
($’s in thousands)    2018    2017    Balances    $ Change % Change
Total assets
   $ 6,318,865    $ 4,656,435    $ 1,662,430    $ 1,463,199    $ 199,231 4.28 %
Total loans
   4,027,436    2,931,613    1,095,823    834,683    261,140 8.91 %
Total investments
   1,535,953    1,231,759    304,194    335,667    (31,473 ) (2.56 %)
Total deposits
   $ 5,093,117    $ 3,927,456    $ 1,165,661    $ 991,935    $ 173,726 4.42 %

Table of Contents

Results of Operations

Overview

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


	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Net interest income (FTE)	$	64,613		$	46,182		$	128,804		$	91,480
(Provision for) Benefit from reversal of loan losses		(537	)		638			1,063			874
Noninterest income		13,578			12,174			25,442			24,464
Noninterest expense		(46,852	)		(37,870	)		(92,365	)		(76,032	)
Provision for income taxes (FTE)		(7,741	)		(6,095	)		(17,157	)		(11,847	)

Net income	$	23,061		$	15,029		$	45,787		$	28,939

The Company reported net income of ~~$16,170,000~~$23,061,000 and $45,787,000 for the quarter and six months ended ~~September~~June 30, ~~2018,~~2019, compared to $15,029,000 and ~~$11,897,000~~$28,939,000 for the ~~trailing~~ quarter and ~~the three~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively. Diluted earnings per share were ~~$0.53~~$0.75 and $1.49 for the quarter and six months ended ~~September~~June 30, ~~2018,~~2019, compared to $0.65 and ~~$0.51~~$1.24 for the ~~trailing~~ quarter and ~~three~~six months ended ~~September~~June 30, 2017. Overall results for the three and nine months ended September 30, 2018 were primarily benefited by the acquisition of First National Bank of Northern California, the wholly owned subsidiary of FNB Bancorp, effective July 6, 2018. ~~In connection with the acquisition and subsequent integration and restructuring, the Company incurred a variety of expenses. During the three and nine month periods ended September 30, 2018 totalnon-interest~~ ~~expenses increased by $10,156,000 and $14,462,000 as compared to the same periods in 2017. Thenon-recurring~~ costs included in those increases were $4,150,000 and $5,227,000 for the three and nine months ended September 30, 2018. The Company continued to benefit from the reduction in Federal income tax rate which declined to 21% effective January 1, 2018 as compared to 35% in prior periods.

In addition to the $834,683,000 in loans acquired, recorded net of a $33,417,000 discount, organic loan growth totaled $177,588,000 or an annualized rate of 7.9% during the first nine months of 2018. In addition to the $991,935,000 in acquired deposits, organic deposit growth for the first nine months of 2018 was $92,051,000 or 3.1% on an annualized basis. Total assets acquired from FNB Bancorp totaled $1,306,539,000, inclusive of the core deposit intangible. Goodwill associated with the acquisition of FNB Bancorp was $156,661,000 and the core deposit intangible, which will be amortized over an estimated weighted average life of 6.2 years, was $27,605,000.

~~Following is a summary of the components of FTE net income for the periods indicated (dollars in thousands):~~

   Three months ended    Nine months ended
   September 30,    September 30,
   2018    2017    2018    2017
Net interest income (FTE)
   $ 60,846    $ 44,708    $ 152,326    $ 131,385
Provision for (benefit from) loan losses
   2,651    765    1,777    (1,588 )
Noninterest income
   12,186    12,930    36,650    37,543
Noninterest expense
   (47,378 )    (37,222 )    (123,410 )    (108,948 )
Provision for income taxes (FTE)
   (6,833 )    (7,754 )    (18,680 )    (24,003 )








Net income
   $ 16,170    $ 11,897    $ 45,109    $ 37,565

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 ~~interest~~ income for the periods indicated (dollars in thousands):


	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Interest income	$	68,180		$	48,478		$	135,637		$	95,599
Interest expense		(3,865	)		(2,609	)		(7,452	)		(4,744	)
FTE adjustment		298			313			619			625

Net interest income (FTE)	$	64,613		$	46,182		$	128,804		$	91,480

Net interest margin (FTE)		4.48	%		4.14	%		4.47	%		4.14	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,904		$	559		$	3,559		$	1,191
Effect on average loan yield		0.19	%		0.07	%		0.18	%		0.08	%
Effect on net interest margin (FTE)		0.13	%		0.05	%		0.12	%		0.05	%

   Three months ended
   September 30,
   2018 2017 $ Change    % Change
Interest income
   $ 64,554 $ 45,913 $ 18,641    40.6 %
Interest expense
   (4,065 ) (1,829 ) (2,236 )    122.3 %



Net interest income (not FTE)
   60,489 44,084 16,405    37.2 %
FTE adjustment
   357 624 (267 )    (42.8 %)




Net interest income (FTE)
   $ 60,846 $ 44,708 $ 16,138    36.1 %




Net interest margin (FTE)
   4.32 % 4.24 %



Acquired loans discount accretion:

Purchased loan discount accretion
   $ 2,098 $ 1,364
Effect on average loan yield
   0.21 % 0.19 %
Effect of purchased loan discount accretion on net interest margin (FTE)
   0.15 % 0.13 %
   Three months ended
   September 30,
2018 June 30,
2018 $ Change    % Change
Interest income
   $ 64,554 $ 48,478 $ 16,076    33.2 %
Interest expense
   (4,065 ) (2,609 ) (1,456 )    55.8 %



Net interest income (not FTE)
   60,489 45,869 14,620    31.9 %
FTE adjustment
   357 313 44    14.1 %




Net interest income (FTE)
   $ 60,846 $ 46,182 $ 14,664    31.8 %
Net interest margin (FTE)
   4.32 % 4.14 %
Acquired loans discount accretion:

Purchased loan discount accretion
   $ 2,098 $ 559
Effect on average loan yield
   0.21 % 0.07 %
Effect of purchased loan discount accretion on net interest margin (FTE)
   0.15 % 0.05 %
   Nine months ended
September 30,
   2018 2017 $ Change    % Change
Interest income
   $ 160,153 $ 134,441 $ 25,712    19.1 %
Interest expense
   (8,809 ) (4,930 ) (3,879 )    78.7 %



Net interest income (not FTE)
   151,344 129,511 21,833    16.9 %
FTE adjustment
   982 1,874 (892 )    (47.6 %)




Net interest income (FTE)
   $ 152,326 $ 131,385 $ 20,941    15.9 %




Net interest margin (FTE)
   4.21 % 4.21 %



Acquired loans discount accretion:

Purchased loan discount accretion
   $ 3,289 $ 5,075
Effect on average loan yield
   0.13 % 0.24 %
Effect of purchased loan discount accretion on net interest margin (FTE)
   0.09 % 0.16 %

Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or accreted (added to) interest income over the remaining life of the loan. Generally, as time goes on, the effects of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining (unaccreted) discount or (unamortized) premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. During the three and six months ended June 30, 2019, purchased loan discount accretion was $1,904,000 and $3,599,000, respectively. During the three and six months ended June 30, 2018, purchased loan discount accretion was $559,000 and $1,191,000, respectively. The increase in discount accretion is directly attributable to the acquisition of FNB Bancorp in July 2018.

Table of Contents

Summary of Average Balances, Yields/Rates and Interest Differential

The following table presents, for the 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, 2018 September 30, 2017
      Interest    Rates    Interest    Rates
   Average    Income/    Earned Average    Income/    Earned
   Balance    Expense    /Paid Balance    Expense    /Paid
Assets:

Loans
   $ 4,028,462    $ 53,102    5.27 % $ 2,878,944    $ 37,268    5.18 %
Investment securities - taxable
   1,336,361    9,648    2.89 % 1,114,112    7,312    2.63 %
Investment securities - nontaxable⁽¹⁾
   153,704    1,546    4.02 % 136,095    1,665    4.89 %









Total investments
   1,490,065    11,194    3.00 % 1,250,207    8,977    2.87 %
Cash at Federal Reserve and other banks
   119,635    615    2.06 % 85,337    292    1.37 %









Total interest-earning assets
   5,638,162    64,911    4.61 % 4,214,488    46,537    4.42 %
Other assets
   530,182       357,936





Total assets
   $ 6,168,344       $ 4,572,424





Liabilities and shareholders’ equity:

Interest-bearing demand deposits
   $ 1,125,159    248    0.09 % $ 949,348    206    0.09 %
Savings deposits
   1,803,022    833    0.18 % 1,365,249    419    0.12 %
Time deposits
   430,286    991    0.92 % 310,325    403    0.52 %









Total interest-bearing deposits
   3,358,467    2,072    0.25 % 2,624,922    1,028    0.16 %
Other borrowings
   246,637    1,178    1.91 % 65,234    149    0.91 %
Junior subordinated debt
   56,973    815    5.72 % 56,784    652    4.59 %










Total interest-bearing liabilities
   3,662,077    4,065    0.44 % 2,746,940    1,829    0.27 %
Noninterest-bearing deposits
   1,710,374       1,253,261
Other liabilities
   86,131       64,834
Shareholders’ equity
   709,762       507,389





Total liabilities and shareholders’ equity
   $ 6,168,344       $ 4,572,424





Net interest spread⁽²⁾
         4.17 %       4.15 %
Net interest income and interest margin⁽³⁾
      $ 60,846    4.32 %    $ 44,708    4.24 %


	For the three months ended
	June 30, 2019							June 30, 2018
	Average Balance		Interest Income/ Expense		Rates Earned /Paid			Average Balance		Interest Income/ Expense		Rates Earned /Paid
Assets:
Loans	$	4,044,044	$	55,492		5.49	%	$	3,104,126	$	39,304		5.06	%
Investment securities - taxable		1,432,550		10,762		3.00	%		1,122,534		7,736		2.76	%
Investment securities - nontaxable (1)		140,562		1,358		3.86	%		136,126		1,355		3.98	%

Total investments		1,573,112		12,120		3.08	%		1,258,660		9,091		2.89	%
Cash at Federal Reserve and other banks		147,810		866		2.34	%		94,874		396		1.67	%

Total interest-earning assets		5,764,966		68,478		4.75	%		4,457,660		48,791		4.38	%
Other assets		620,923							356,863

Total assets	$	6,385,889						$	4,814,523

Liabilities and shareholders’ equity:
Interest-bearing demand deposits	$	1,276,388	$	289		0.09	%	$	995,528	$	214		0.09	%
Savings deposits		1,888,234		1,306		0.28	%		1,393,121		427		0.12	%
Time deposits		441,116		1,404		1.27	%		313,556		593		0.76	%

Total interest-bearing deposits		3,605,738		2,999		0.33	%		2,702,205		1,234		0.18	%
Other borrowings		17,963		37		0.82	%		139,307		586		1.68	%
Junior subordinated debt		57,222		829		5.79	%		56,928		789		5.54	%

Total interest-bearing liabilities		3,680,923		3,865		0.42	%		2,898,440		2,609		0.36	%
Noninterest-bearing deposits		1,765,141							1,339,905
Other liabilities		73,541							65,745
Shareholders’ equity		866,284							510,433

Total liabilities and shareholders’ equity	$	6,385,889						$	4,814,523

Net interest spread (2)						4.33	%						4.02	%
Net interest income and interest margin (3)			$	64,613		4.48	%			$	46,182		4.14	%

   For the nine months ended
   September 30, 2018 September 30, 2017
      Interest    Rates    Interest    Rates
   Average    Income/    Earned Average    Income/    Earned
   Balance    Expense    /Paid Balance    Expense    /Paid
Assets:

Loans
   $ 3,390,447    $ 130,455    5.13 % $ 2,807,453    $ 108,600    5.16 %
Investment securities - taxable
   1,195,541    25,042    2.79 % 1,076,887    21,637    2.68 %
Investment securities - nontaxable⁽¹⁾
   142,061    4,254    3.99 % 136,213    4,998    4.89 %









Total investments
   1,337,602    29,296    2.92 % 1,213,100    26,635    2.93 %
Cash at Federal Reserve and other banks
   101,889    1,384    1.81 % 139,739    1,080    1.03 %










Total interest-earning assets
   4,829,938    161,135    4.45 % 4,160,292    136,315    4.37 %
Other assets
   416,520       359,489





Total assets
   $ 5,246,458       $ 4,519,781





Liabilities and shareholders’ equity:

Interest-bearing demand deposits
   $ 1,038,775    673    0.09 % $ 931,079    534    0.08 %
Savings deposits
   1,524,048    1,671    0.15 % 1,364,812    1,253    0.12 %
Time deposits
   350,559    2,058    0.78 % 321,150    1,109    0.46 %









Total interest-bearing deposits
   2,913,382    4,402    0.20 % 2,617,041    2,896    0.15 %
Other borrowings
   165,026    2,106    1.70 % 34,413    164    0.64 %
Junior subordinated debt
   56,928    2,301    5.39 % 56,737    1,870    4.39 %










Total interest-bearing liabilities
   3,135,336    8,809    0.37 % 2,708,191    4,930    0.24 %
Noninterest-bearing deposits
   1,462,209       1,247,201
Other liabilities
   72,772       67,854
Shareholders’ equity
   576,141       496,535





Total liabilities and shareholders’ equity
   $ 5,246,458       $ 4,519,781





Net interest spread⁽²⁾
         4.08 %       4.13 %
Net interest income and interest margin⁽³⁾
      $ 152,326    4.21 %    $ 131,385    4.21 %

⁽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.

In general, the change in average balances of assets and liabilities were significantly impacted by the July 6, 2018 acquisition of FNB Bancorp. 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 contributed to the year-over-year balance sheet changes. In addition to the balance sheet changes which resulted from the acquisition of FNB Bancorp, total assets grew by $68,819,000 (1.4%) between June 2018 and June 2019. This growth was led by $122,691,000 (3.9%) of organic loan growth which was funded by $273,016,000 (6.7%) in organic deposit growth. The following is a comparison of the year over year change in certain assets and liabilities:


	As of June 30,						Acquired		Organic			Organic
($‘s in thousands)	2019		2018		$ Change		Balances		$ Change			% Change
Ending balances
Total assets	$	6,395,172	$	4,863,153	$	1,532,019	$	1,463,200	$	68,819			1.4	%
Total loans		4,103,687		3,146,313		957,374		834,683		122,691			3.9	%
Total investments		1,566,720		1,251,776		314,944		335,667		(20,723	)		(1.7	%)
Total deposits	$	5,342,173	$	4,077,222	$	1,264,951	$	991,935	$	273,016			6.7	%

Table of Contents


	For the six months ended
	June 30, 2019							June 30, 2018
	Average Balance		Interest Income/ Expense		Rates Earned /Paid			Average Balance			Interest Income/ Expense		Rates Earned /Paid
Assets:
Loans	$	4,033,954	$	109,889		5.45	%	$	3,066,152		$	77,353		5.05	%
Investment securities - taxable		1,428,951		21,677		3.03	%		1,123,964			15,394		2.74	%
Investment securities - nontaxable (1)		141,397		2,753		3.89	%		136,143			2,708		3.98	%

Total investments		1,570,348		24,430		3.11	%		1,260,107			18,102		2.87	%
Cash at Federal Reserve and other banks		158,164		1,937		2.45	%		92,869			769		1.66	%

Total interest-earning assets		5,762,466		136,256		4.73	%		4,419,128			96,224		4.35	%
Other assets		643,592							358,747

Total assets	$	6,406,058						$	4,777,875

Liabilities and shareholders’ equity:
Interest-bearing demand deposits	$	1,274,882	$	576		0.09	%	$	994,867		$	425		0.09	%
Savings deposits		1,907,677		2,439		0.26	%		1,382,249			838		0.12	%
Time deposits		441,447		2,703		1.22	%		310,035			1,067		0.69	%

Total interest-bearing deposits		3,624,006		5,718		0.32	%		2,687,151			2,330		0.17	%
Other borrowings		16,736		50		0.60	%		123,544			928		1.50	%
Junior subordinated debt		57,086		1,684		5.90	%		56,905			1,486		5.22	%

Total interest-bearing liabilities		3,697,828		7,452		0.40	%		2,867,600			4,744		0.33	%
Noninterest-bearing deposits		1,754,973							1,336,070
Other liabilities		98,570							65,982
Shareholders’ equity		854,687							508,223
										��
Total liabilities and shareholders’ equity	$	6,406,058						$	4,777,875

Net interest spread (2)						4.33	%							4.02	%
Net interest income and interest margin (3)			$	128,804		4.47	%				$	91,480		4.14	%

(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.

As noted above, the change in average balances of assets and liabilities were significantly impacted by the July 6, 2018 acquisition of FNB Bancorp. Total average interest-earning assets increased as a percent of total average interest-bearing liabilities during these comparable

six-month

periods from 154% to 156%, which contributed to the growth in net interest income and net interest margin of $37,324,000 and 33 basis points, respectively.

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, 2018
   compared with three months
   ended September 30, 2017
   Volume    Rate    Total
Increase in interest income:

Loans
   $ 14,886    $ 948    $ 15,834
Investment securities
   1,676    541    2,217
Cash at Federal Reserve and other banks
   117    206    323






Total interest-earning assets
   16,679    1,695    18,374






Increase in interest expense:

Interest-bearing demand deposits
   40    2    42
Savings deposits
   131    283    414
Time deposits
   156    432    588
Other borrowings
   413    616    1,029
Junior subordinated debt
   2    161    163






Total interest-bearing liabilities
   742    1,494    2,236






Increase in net interest income
   $ 15,937    $ 201    $ 16,138






   Nine months ended September 30, 2018
   compared with nine months
   ended September 30, 2017
   Volume    Rate    Total
Increase (decrease) in interest income:

Loans
   $ 22,562    $ (707 )    $ 21,855
Investment securities
   2,599    62    2,661
Cash at Federal Reserve and other banks
   (292 )    596    304






Total interest-earning assets
   24,869    (49 )    24,820






Increase in interest expense:

Interest-bearing demand deposits
   65    74    139
Savings deposits
   143    275    418
Time deposits
   101    848    949
Other borrowings
   627    1,315    1,942
Junior subordinated debt
   6    425    431






Total interest-bearing liabilities
   942    2,937    3,879






Increase (decrease) in net interest income
   $ 23,927    $ (2,986 )    $ 20,941

Table of Contents


	Three months ended June 30, 2019 compared with three months ended June 30, 2018
	Volume			Rate			Total
Increase in interest income:
Loans	$	12,681		$	3,507		$	16,188
Investment securities (1)		2,391			638			3,029
Cash at Federal Reserve and other banks		273			197			470

Total interest-earning assets		15,345			4,342			19,687

Increase (decrease) in interest expense:
Interest-bearing demand deposits		63			12			75
Savings deposits		194			685			879
Time deposits		303			508			811
Other borrowings		(346	)		(203	)		(549	)
Junior subordinated debt		4			36			40

Total interest-bearing liabilities		218			1,038			1,256

Increase in net interest income	$	15,127		$	3,304		$	18,431

(1)	Fully taxable equivalent (FTE)


	Six months ended June 30, 2019 compared with six months ended June 30, 2018
	Volume			Rate			Total
Increase in interest income:
Loans	$	25,971		$	6,565		$	32,536
Investment securities (1)		4,733			1,595			6,328
Cash at Federal Reserve and other banks		695			473			1,168

Total interest-earning assets		31,399			8,633			40,032

Increase (decrease) in interest expense:
Interest-bearing demand deposits		126			25			151
Savings deposits		408			1,193			1,601
Time deposits		576			1,060			1,636
Other borrowings		(518	)		(360	)		(878	)
Junior subordinated debt		4			194			198

Total interest-bearing liabilities		596			2,112			2,708

Increase in net interest income	$	30,803		$	6,521		$	37,324

(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, ~~2018~~2019 increased ~~$16,138,000~~$18,431,000 or ~~36.1%~~39.9% to ~~$60,846,000~~$64,613,000 compared to ~~$44,708,000~~$46,182,000 during the three months ended ~~September~~June 30, ~~2017.~~2018. The increase in net interest income (FTE) was due primarily to an increase in the average balance of loans, which contributed an additional $12,681,000 in interest income. As discussed above, increases in average balances were primarily the result of the FNB Bancorp acquisition. Increases in market rates and ~~a 9 basis point increase in yield on loans, which was partially offset~~purchase discount accretion added $3,304,000 to net interest income, due to ~~an increase~~increases in ~~the average balance~~rates earned on interest-earnings assets outpacing increases paid in interest-bearing liabilities.

Table of ~~interest-bearing liabilities and a 17 basis point increase in the average rate paid on interest-bearing liabilities.~~

Contents

The index utilized in a significant portion of the Company’s variable rate loans, Wall Street Journal Prime, has increased by ~~1.00%~~0.50% to ~~5.25%~~5.50% at ~~September~~June 30, ~~2018~~2019 as compared to ~~4.25%~~5.00% at ~~September~~June 30, 2017. The 9 basis point increase in loan yields from 5.18% during the three months ended September 30, 2017 to 5.27% during the three months ended September 30, 2018 was primarily due to increases in market rates. More specifically, increases in purchased loan discount accretion between the three months ended September 30, 2018 and 2017 contributed to an increase net interest margin by only 2 basis points. More importantly, yields on loans increased 21 basis points as2018. As compared to the same quarter in the prior ~~quarter~~year, average loan yields increased 43 basis points from 5.06% ~~for~~during the three months ended June 30, 2018 of which 14 basis points were contributed by increases in loan discount accretion and the remaining 7 basis points were contributed by changes in the coupon rate associated with loans. On their acquisition date, the weighted average coupon rate was 4.88% for loans acquiredto 5.49% during the three ~~month period~~months ended ~~September~~June 30, ~~2018.~~

~~The~~2019. Of the 43 basis point increase in ~~the average rate paid~~yields on ~~interest-bearing liabilities for the trailing and comparable quarters of 8~~loans, 31 basis points ~~and 17 basis points, respectively,~~ was ~~due in part~~attributable to ~~differences~~increases in market rates while 12 basis points was from increased accretion of purchased loans.

As of June 30, 2019, the Bank’s $4,152,540,000 principal balance of loans, net of charge-offs, and not including deferred loan fees and purchase discounts, was made up of loans with principal balances totaling $1,352,921,000 that have fixed interest rates, and $2,799,619,000 of loans with interest rates that are variable.

The organic growth in deposits was driven primarily by normal and expected seasonal trends as well as the impact of deposit customer’s receipt of insurance proceeds from the property and casualty losses incurred in connection with the wildfires in Northern California. This growth in deposits allowed for the repayment of overnight borrowings resulting in a reduction in interest expense of $549,000 which was partially offset by the changes in volumes and rates associated with deposit products. During the twelve months ended June 30, 2019, the Federal Funds Target Rate was increased two times in 25 basis point increments from 2.00% to 2.50%. The Company’s cost of interest-bearing deposits ~~acquired~~increased from ~~First National Bank of Northern California and to increases in~~33 basis points during the ~~variable rates paid on other borrowings and subordinated debt. The weighted average rate associated with interest bearing acquired deposits was 0.29% fornon-time~~ ~~deposits and 0.92% for time deposits on the day of acquisition. The rate paid on other borrowings was 2.31% at September~~six months ended June 30, 2018 ~~as compared~~ to ~~2.05% and 1.11% as of~~40 basis points during the ~~trailing quarter and the same quarter in the prior year, respectively.~~

six months ended June 30, 2019.

Net interest income (FTE) during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 increased ~~$20,941,000~~$37,324,000 or ~~15.9%~~40.8% to ~~$152,326,000~~$128,804,000 compared to ~~$131,385,000~~$91,480,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The increase in net interest income (FTE) was due primarily to an increase in the average balance of loans, which was partially offset by an increase in the average balance of interest-bearing liabilities and a 137 basis point increase in the average rate paid on interest-bearing liabilities.

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the average balance of loans increased by ~~$582,994,000~~$967,802,000 or ~~20.8%~~31.6% to ~~$3,390,447,000.~~$4,033,954,000. The increase in net interest income was ~~partially offset~~further benefited by ~~a decrease~~an increase in the

year-to-date

purchased loan discount accretion from ~~$5,075,000~~$1,191,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$3,289,000~~$3,559,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. This ~~decrease~~increase in purchased loan discount accretion ~~reduced~~benefited loan yields by 118 basis points, and net interest margin by 75 basis points. The 137 basis point increase in the average rate paid on interest-bearing liabilities was primarily due to increases in market rates that increased the rates the Company pays on its time deposits. However, the growth in total average deposits during the comparable

six-month

periods allowed for the repayment of overnight borrowings ~~and junior subordinated debt.~~

~~Also affecting net interest margin during the three and nine months ended September 30, 2018, was the~~which, combined with changes in related rates, contributed to a decrease in ~~the Federal tax rate from 35% to 21%. This decrease in the Federal tax rate caused the fullytax-equivalent~~ ~~(FTE) yield on the Company’s nontaxable investments to decrease from 4.89% during the nine months ended September 30, 2017 to 3.99% during the nine months ended September 30, 2018.~~

Asinterest expense of September 30, 2018, the Bank’s $4,082,558,000 principal balance of loans, net of charge-offs, and not including deferred loan fees and purchase discounts, was made up of loans with principal balances totaling $1,297,815,000 that have fixed interest rates, and $2,784,743,000 of loans with interest rates that are variable. Included in the balance of variable rate loans as of September 30, 2018 were loans with principal balances of approximately $687,114,000 that had adjustable interest rates tied to the prime lending rate that adjust on or near the date of any prime rate change.

$878,000.

Asset Quality and Loan Loss Provisioning

The Company recorded provisions for loan losses of $2,651,000 and $765,000 during the three months ended September 30, 2018 and 2017, respectively. While the Company did record net charge-offs of $572,000 during the third quarter of 2018 as compared to net charge-offs of $161,000 in the 2017 quarter, the primary cause for the increase in provision for loan losses was due to changes in the Company’s analysis of qualitative factors associated with the California economy. More specifically, the Company has become more cautious about the risks associated with trends in California real estate prices and the decrease in affordability of housing in the markets served by the Company. Loan growth, excluding acquired loans, also contributed to the need for additional provisioning.

During the nine months ended September 30, 2018 the Company recorded a loan loss provision of $1,777,000 as compared to a reversal of provision for loan losses of $1,588,000 during the nine months ended September 30, 2017. Nonperforming loans were $27,148,000, or 0.67% of loans outstanding as of September 30, 2018, compared to $25,420,000, or 0.81% of loans outstanding as of June 30, 2018 and $24,394,000 or 0.81% of loans outstanding as of December 31, 2017. The fair value of loans acquired with deteriorated credit quality during the current quarter totaled $1,302,000.

The Company continued to experience improvement in the overall credit quality of its loan portfolio. At ~~September~~June 30, ~~2018~~2019, total nonperforming loans ~~past due greater than thirty days totaled $13,218,000~~decreased to $21,690,000 or ~~0.33%~~0.53% of total loans ~~outstanding,~~from $27,494,000 or 0.68% of total loans as of December 31, 2018.

The Company recorded provision for loan losses of $537,000 during the three months ended June 30, 2019 as compared to ~~$11,626,000 or 0.37% at~~a benefit from the reversal of provision of $638,000 in the same quarter of the prior year. The provision was necessitated in part by loan growth of $69,356,000 during the quarter and partially offset by $267,000 in net recoveries on previously

charged-off

loans during the second quarter of 2019 as compared to net recoveries of $189,000 in the second quarter of 2018. Additionally, while the Company remains cautious about the risks associated with trends in California real estate prices, the duration of economic trends and concentrations of credit, the qualitative factors associated with these measures reduced the level of calculated required reserves by approximately $632,000 during the quarter ended June 30, ~~2018 and $11,609,000 or 0.39% at December 31, 2017. At September 30, 2018, classified loans, which includes loans graded substandard or worse plus PCI loans, totaled $45,548,000 (1.13%~~2019, therefore, changes in those risks could result in additional levels of ~~total loans) compared to $44,202,000 (1.40%) and $53,593,000 (1.78%) at June 30, 2018 and December 31, 2017, respectively.~~

provisioning being required in the future.

Table of Contents

Noninterest Income

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

   Three months ended September 30,
   2018    2017    $ Change    % Change
ATM and interchange fees
   $ 4,590    $ 4,209    $ 381    9.1 %
Service charges on deposit accounts
   4,015    4,160    (145 )    (3.5 %)
Other service fees
   676    917    (241 )    (26.3 %)
Mortgage banking service fees
   499    514    (15 )    (2.9 %)
Change in value of mortgage servicing rights
   (37 )    (325 )    288    (88.6 %)








Total service charges and fees
   9,743    9,475    268    2.8 %








Commissions on sale ofnon-deposit investment products
   728    672    56    8.3 %
Increase in cash value of life insurance
   732    732    —      0.0 %
Gain on sale of loans
   539    606    (67 )    (11.1 %)
Lease brokerage income
   186    234    (48 )    (20.5 %)
Gain on sale of foreclosed assets
   2    37    (35 )    (94.6 %)
Sale of customer checks
   88    89    (1 )    (1.1 %)
Gain on sale of investment securities
   207    961    (754 )    (78.5 %)
Loss on disposal of fixed assets
   (152 )    (33 )    (119 )    360.6 %
Loss on marketable equity securities
   (22 )    —      (22 )    —
Other
   135    157    (22 )    (14.0 %)








Total other noninterest income
   2,443    3,455    (1,012 )    (29.3 %)








Total noninterest income
   $ 12,186    $ 12,930    $ (744 )    (5.8 %)


	Three months ended June 30,
(dollars in thousands)	2019			2018			$ Change			% Change
ATM and interchange fees	$	5,404		$	4,510		$	894			19.8	%
Service charges on deposit accounts		4,182			3,613			569			15.7	%
Other service fees		619			630			(11	)		(1.7	%)
Mortgage banking service fees		475			511			(36	)		(7.0	%)
Change in value of mortgage servicing rights		(552	)		(36	)		(516	)		1433.3	%

Total service charges and fees		10,128			9,228			900			9.8	%

Increase in cash value of life insurance		746			656			90			13.7	%
Asset management and commission income		739			810			(71	)		(8.8	%)
Gain on sale of loans		575			666			(91	)		(13.7	%)
Lease brokerage income		239			200			39			19.5	%
Sale of customer checks		135			138			(3	)		(2.2	%)
Gain on sale of foreclosed assets		197			17			180			1058.8	%
Gain (loss) on marketable equity securities		42			(23	)		65			(282.6	%)
Loss on disposal of fixed assets		(42	)		(41	)		(1	)		2.4	%
Other		819			523			296			56.6	%

Total other noninterest income		3,450			2,946			504			17.1	%

Total noninterest income	$	13,578		$	12,174		$	1,404			11.5	%


	Six months ended June 30,
(dollars in thousands)	2019			2018			$ Change			% Change
ATM and interchange fees	$	9,985		$	8,745		$	1,240			14.2	%
Service charges on deposit accounts		8,062			7,392			670			9.1	%
Other service fees		1,390			1,344			46			3.4	%
Mortgage banking service fees		958			1,028			(70	)		(6.8	%)
Change in value of mortgage servicing rights		(1,197	)		75			(1,272	)		(1696.0	%)

Total service charges and fees		19,198			18,584			614			3.3	%

Increase in cash value of life insurance		1,521			1,264			257			20.3	%
Asset management and commission income		1,381			1,686			(305	)		(18.1	%)
Gain on sale of loans		987			1,292			(305	)		(23.6	%)
Lease brokerage income		459			328			131			39.9	%
Sale of customer checks		275			239			36			15.1	%
Gain on sale of foreclosed assets		199			388			(189	)		(48.7	%)
Gain (loss) on marketable equity securities		78			(70	)		148			(211.4	%)
Loss on disposal of fixed assets		(80	)		(54	)		(26	)		48.1	%
Other		1,424			807			617			76.5	%

Total other noninterest income		6,244			5,880			364			6.2	%

Total noninterest income	$	25,442		$	24,464		$	978			4.0	%

Noninterest income ~~decreased $744,000 (5.8%~~increased $1,404,000 (11.5%) ~~to $12,186,000~~and $978,000 (4.0%) during the three ~~months~~and six month periods ended ~~September~~June 30, ~~2018~~2019 as compared to the three ~~months~~and six month periods ended ~~September~~June 30, ~~2017.~~2018, respectively. The ~~decrease~~increase was primarily driven by growth in ~~noninterest income was~~usage and, due largely in part to the ~~changes noted~~acquisition of FNB Bancorp, an increase in the table above. The decrease of $241,000 (26.3%) in other service fees was caused primarily by a decrease in merchant residual income due to the lagging effect of transitioning to a new processor, decreasing from $362,000customers and accounts that generate fee revenues. In addition, during the three ~~months~~and six month periods ended ~~September~~June 30, ~~2017~~2019 the company recorded other noninterest income associated with death benefit insurance proceeds of $696,000 and $728,000, respectively. These increases were offset by valuation changes in the Company’s mortgage servicing right asset of $516,000 and $1,272,000, respectively and declines in gains on sale of loans caused by less volume of mortgage loans sold of $91,000 and $305,000, respectively for the three and six month periods ended June 30, 2019 as compared to ~~$161,000~~the three and six month periods ended June 30, 2018. Additional partial offsets to the overall increase were due to declines in asset management and commission income of $71,000 and $305,000, respectively during the three ~~months~~and six month periods ended ~~September~~June 30, ~~2018. Gains from sales of investments securities decreased by $754,000 (78.5%) due to less sales activity during the three month period ending September 30, 2018. Offsetting the decreases innon-interest~~ income was an increase of $288,000 (88.6%) in change in value of mortgage servicing rights (MSRs) due to slight decreases in estimated prepayment speeds during the three months ended September 30, 2018.

   Nine months ended September 30,
   2018    2017    $ Change    % Change
ATM and interchange fees
   $ 13,335    $ 12,472    $ 863    6.9 %
Service charges on deposit accounts
   11,407    12,102    (695 )    (5.7 %)
Other service fees
   2,020    2,521    (501 )    (19.9 %)
Mortgage banking service fees
   1,527    1,561    (34 )    (2.2 %)
Change in value of mortgage servicing rights
   38    (795 )    833    (104.8 %)








Total service charges and fees
   28,327    27,861    466    1.7 %








Commissions on sale ofnon-deposit investment products
   2,414    1,984    430    21.7 %
Increase in cash value of life insurance
   1,996    2,043    (47 )    (2.3 %)
Gain on sale of loans
   1,831    2,293    (462 )    (20.1 %)
Lease brokerage income
   514    601    (87 )    (14.5 %)
Gain on sale of foreclosed assets
   390 �� 308    82    26.6 %
Sale of customer checks
   327    287    40    13.9 %
Gain on sale of investment securities
   207    961    (754 )    (78.5 %)
Loss on disposal of fixed assets
   (206 )    (61 )    (145 )    237.7 %
Loss on marketable equity securities
   (92 )    —      (92 )    —
Other
   942    1,266    (324 )    (25.6 %)








Total other noninterest income
   8,323    9,682    (1,359 )    (14.0 %)








Total noninterest income
   $ 36,650    $ 37,543    $ (893 )    (2.4 %)

~~Noninterest income decreased $893,000 (2.4%) to $36,650,000 during the nine months ended September 30, 2018~~2019 as compared to the ~~nine months~~three and six month periods ended ~~September~~June 30, ~~2017. The decrease in noninterest income was due to the changes noted in the table above. The $695,000 (5.7%) decrease in service charges on deposit accounts was made up~~2018.

Table of a $688,000 (10%) decrease in nonsufficient fund (NSF) fees to $6,220,000, and a $7,000 (0.1%) decrease in other deposit account service charges to $5,188,000. The decrease in NSF fees was due primarily to continued growth in customer adoption of the Company’s digital services that improves the ability of customers to manage funds and avoid overdrafts. The decrease in other deposit service charges was due primarily to the rapid growth of customer adoption of~~e-Statements~~ that reduces statement fees. While both of these revenue generating activities decreased, the Company has a net benefit through a reduction in actual operational costs. The decrease of $467,000 (18.5%) in other service fees was caused primarily by a decrease in merchant residual income due to the lagging effect of transitioning to a new processor, decreasing from $890,000 during the prior nine month period to $471,000 during the nine months ended September 30, 2018. Gains from sales of investments securities decreased by $754,000 (78.5%) due to less sales activity during the nine month period ending September 30, 2018. The $833,000 (104.8%) increase in change in value of mortgage servicing rights (MSRs) was due to slight decreases in prepayment speeds during the nine months ended September 30, 2018. During the nine months ended September 30, 2017, the Company recorded other~~non-interest~~ ~~income of $490,000 related to the termination of a loss sharing agreement with the FDIC.~~

Contents

Noninterest Expense

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

   Three months ended September 30,
   2018    2017    $ Change    % Change
Base salaries, net of deferred loan origination costs
   $ 17,051    $ 13,600    $ 3,451    25.4 %
Incentive compensation
   3,223    2,609    614    23.5 %
Benefits and other compensation costs
   5,549    4,724    825    17.5 %








Total salaries and benefits expense
   25,823    20,933    4,890    23.4 %








Occupancy
   3,173    2,799    374    13.4 %
Data processing and software
   2,786    2,495    291    11.7 %
Merger and acquisition expense
   4,150    —      4,150    —
Equipment
   1,750    1,816    (66 )    (3.6 %)
Intangible amortization
   1,390    339    1,051    310.0 %
Advertising
   1,341    1,039    302    29.1 %
ATM and POS network charges
   1,195    1,425    (230 )    (16.1 %)
Professional fees
   929    901    28    3.1 %
Telecommunications
   819    716    103    14.4 %
Regulatory assessments and insurance
   537    427    110    25.8 %
Courier service
   278    235    43    18.3 %
Postage
   275    325    (50 )    (15.4 %)
Operational losses
   217    301    (84 )    (27.9 %)
Foreclosed assets expense
   93    41    52    126.8 %
Provision for (reversal of) foreclosed asset losses
   (1 )    134    (135 )    (100.7 %)
Other miscellaneous expense
   2,623    3,296    (673 )    (20.4 %)








Total other noninterest expense
   21,555    16,289    5,266    32.3 %








Total noninterest expense
   $ 47,378    $ 37,222    $ 10,156    27.3 %








Average full-time equivalent staff
   1,146    993    153    15.4 %


	Three months ended June 30,
	2019		2018		$ Change			% Change
Base salaries, net of deferred loan origination costs	$	17,211	$	14,429	$	2,782			19.3	%
Incentive compensation		3,706		2,159		1,547			71.7	%
Benefits and other compensation costs		5,802		4,865		937			19.3	%

Total salaries and benefits expense		26,719		21,453		5,266			24.5	%

Occupancy		3,738		2,720		1,018			37.4	%
Data processing and software		3,354		2,679		675			25.2	%
Equipment		1,752		1,637		115			7.0	%
Intangible amortization		1,431		339		1,092			322.1	%
Advertising		1,533		1,035		498			48.1	%
ATM and POS network charges		1,270		1,437		(167	)		(11.6	%)
Professional fees		1,057		774		283			36.6	%
Telecommunications		773		681		92			13.5	%
Regulatory assessments and insurance		490		417		73			17.5	%
Merger and acquisition expense		—		601		(601	)		(100.0	%)
Postage		315		301		14			4.7	%
Operational losses		226		252		(26	)		(10.3	%)
Courier service		412		224		188			83.9	%
Other miscellaneous expense		3,782		3,320		462			13.9	%

Total other noninterest expense		20,133		16,417		3,716			22.6	%

Total noninterest expense	$	46,852	$	37,870	$	8,982			23.7	%

Average full time equivalent staff		1,138		1,001		137			13.7	%

	Six months ended June 30,
	2019		2018		$ Change			% Change
Base salaries, net of deferred loan origination costs	$	33,968	$	28,391	$	5,577			19.6	%
Incentive compensation		6,273		4,611		1,662			36.0	%
Benefits and other compensation costs		11,606		10,103		1,503			14.9	%

Total salaries and benefits expense		51,847		43,105		8,742			20.3	%

Occupancy		7,512		5,401		2,111			39.1	%
Data processing and software		6,703		5,193		1,510			29.1	%
Equipment		3,619		3,188		431			13.5	%
Intangible amortization		2,862		678		2,184			322.1	%
Advertising		2,864		1,873		991			52.9	%
ATM and POS network charges		2,593		2,663		(70	)		(2.6	%)
Professional fees		1,896		1,546		350			22.6	%
Telecommunications		1,570		1,382		188			13.6	%
Regulatory assessments and insurance		1,001		847		154			18.2	%
Merger and acquisition expense		—		1,077		(1,077	)		(100.0	%)
Postage		625		659		(34	)		(5.2	%)
Operational losses		451		546		(95	)		(17.4	%)
Courier service		682		491		191			38.9	%
Other miscellaneous expense		8,140		7,383		757			10.3	%

Total other noninterest expense		40,518		32,927		7,591			23.1	%

Total noninterest expense	$	92,365	$	76,032	$	16,333			21.5	%

Average full time equivalent staff		1,137		1,001		136			13.6	%

Table of Contents

Salary and benefit expenses increased ~~$4,890,000 (23.4%~~$5,266,000 (24.5%) to ~~$25,823,000~~$26,719,000 during the three months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$20,933,000~~$21,453,000 during the three months ended ~~September~~June 30, ~~2017.~~2018. Base salaries, net of deferred loan origination costs increased ~~$3,451,000 (25.4%~~$2,782,000 (19.3%) to ~~$17,051,000.~~$17,211,000. The increase in base salaries was due primarily ~~due~~to a 13.7% increase in average full time equivalent employees, largely attributable to the ~~additional full-time equivalent employees acquired with~~acquisition of FNB Bancorp, to 1,138 from 1,001 in the ~~FNBB merger. Average full-time equivalent employees increased by 153 or 15.4% during the comparable quarters.~~

year-ago

quarter. In addition, ~~increases in base salaries due to~~ annual merit increases ~~and~~impacted the ~~addition of employees with base salaries above the average base salary also~~quarter over quarter comparison but contributed to less than 3.0% of the annual increase. ~~Commissions and incentive compensation~~

Total other noninterest expense increased ~~$614,000 (23.5%~~$3,716,000 (22.6%) to ~~$3,223,000~~$20,133,000 during the three months ended ~~September~~June 30, ~~2018 compared to theyear-ago~~ quarter. Benefits & other compensation expense increased $825,000 (17.5%) to $5,549,000 during the three months ended September 30, 2018 due primarily to the increase in full time equivalent employees and to a lesser extent an increase in health insurance expense. Severance and other merger related~~non-recurring~~ ~~compensation costs are included with “merger and acquisition expense” in the table above.~~

~~Other noninterest expense increased $5,266,000 (32.3%) to $21,555,000 during the three months ended September 30, 2018~~2019 compared to the three months ended ~~September~~June 30, ~~2017.~~2018. The increase in other noninterest expense was due primarily to ~~the changes noted in the table above. During the three months ended September 30, 2018, the Company incurred $4,150,000 of merger~~increased overhead operating costs related ~~expense associated with the merger with FNB Bancorp.~~

   Nine months ended September 30,
   2018    2017    $ Change    % Change
Base salaries, net of deferred loan origination costs
   $ 45,442    $ 40,647    $ 4,795    11.8 %
Incentive compensation
   7,834    6,980    854    12.2 %
Benefits and other compensation costs
   15,652    14,693    959    6.5 %








Total salaries and benefits expense
   68,928    62,320    6,608    10.6 %








Occupancy
   8,574    8,196    378    4.6 %
Data processing and software
   7,979    7,332    647    8.8 %
Merger and acquisition expense
   5,227    —      5,227    —
Equipment
   4,938    5,344    (406 )    (7.6 %)
ATM and POS network charges
   3,858    3,353    505    15.1 %
Advertising
   3,214    3,173    41    1.3 %
Professional fees
   2,475    2,357    118    5.0 %
Telecommunications
   2,201    2,027    174    8.6 %
Regulatory assessments and insurance
   1,384    1,252    132    10.5 %
Intangible amortization
   2,068    1,050    1,018    97.0 %
Postage
   934    1,058    (124 )    (11.7 %)
Courier service
   769    752    17    2.3 %
Operational losses
   763    1,166    (403 )    (34.6 %)
Foreclosed assets expense
   297    117    180    153.8 %
Provision for (reversal of) foreclosed asset losses
   89    162    (73 )    (45.1 %)
Other miscellaneous expense
   9,712    9,289    423    4.6 %








Total other noninterest expense
   54,482    46,628    7,854    16.8 %








Total noninterest expense
   $ 123,410    $ 108,948    $ 14,462    13.3 %








Average full-time equivalent staff
   1,050    1,005    45    4.5 %

Salary and benefit expenses increased $6,608,000 (10.6%) to $68,928,000 during the nine months ended September 30, 2018 compared to $62,320,000 during the nine months ended September 30, 2017. Base salaries, net of deferred loan origination costs increased $4,795,000 (11.8%) to $45,442,000. The increase in base salaries was primarily due to the additional ~~full-time equivalent employees acquired with~~branches as a result of the ~~FNBB merger. Average full-time equivalent employees~~prior year acquisition of FNB Bancorp. Highlighting those increases were intangible amortization, occupancy, data processing and software, and advertising expenses, which increased by ~~45 or 4.5% during the comparable nine month periods. In addition, increases in base salaries due to annual merit increases~~$1,092,000, $1,018,000, $675,000 and the addition of employees with base salaries above the average base salary also contributed to the increase. Commissions and incentive compensation increased $854,000 (12.2%) to $7,834,000 during the nine months ended September 30, 2018$498,000, respectively, as compared to the prior~~year-to-date~~ ~~period. Benefits~~ year quarter. The increases in noninterest expenses were partially offset by decreased merger & ~~other compensation~~acquisition expenses of $601,000 during the comparable quarterly periods.

The increase in total noninterest expense ~~increased $959,000 (6.5%~~of $16,333,000 (21.5%) to ~~$15,652,000 during~~$92,365,000 for the ~~nine~~six month period ended June 30, 2019 compared to $76,032,000 for the same period in 2018 was also primarily attributable to the acquisition of FNB Bancorp, including the growth in full time equivalent staff and the expanded volume of operational activities.

Income Taxes

The Company’s effective tax rate was 24.4% for the quarter ended June 30, 2019 as compared to 27.8% for the same quarter in the prior year. The Company’s effective tax rate was 26.5% for the six months ended ~~September~~June 30, ~~2018 due~~2019 as compared to 27.9% for the six months ended June 30, 2018. The decrease in effective tax rates for the 2019 periods is primarily attributable to the increase in ~~full time equivalent employees~~nontaxable income related to death benefit insurance proceeds of $696,000 and ~~to a lesser extent an increase in health insurance expense.~~

~~Other noninterest expense increased $7,854,000 (16.8%) to $54,482,000~~$728,000 during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase in other noninterest expense was due to the changes noted in the table above. During the nine months ended September 30, 2018, the Company incurred $5,227,000 of merger related expense associated with the merger with FNB Bancorp.

~~Income Taxes~~

~~The effective combined Federal and State income tax rate on income was 28.6% and 28.2% for~~ the three and ~~nine months~~six month periods ended ~~September~~June 30, 2018, and 37.5% and 37.1% for the three and nine months ending September 30, 2017. This decrease in effective combined Federal and State income tax rate was due primarily to a decrease in the Federal tax rate from 35% to 21% effective January 1, 2018.

2019, respectively.

Table of Contents

Financial Condition

Investment Securities

~~Debt~~

Investment securities available for sale increased ~~$361,066,000~~$18,958,000 to ~~$1,089,011,000~~$1,133,994,000 as of ~~September~~June 30, ~~2018,~~2019, compared to December 31, ~~2017.~~2018. This increase is primarily attributable to ~~purchases of $370,843,000 that were primarily funded with proceeds from sales of securities of $293,279,000 from the FNBB merger, maturities and principal repayments of $54,510,000, a decrease~~an increase in fair value of ~~investments~~$22,263,000. There were no sales or transfers of

available-for-sale

investment securities ~~available for sale of $29,704,000~~during the six month periods ended June 30, 2019 and ~~amortization of net purchase price premiums of $1,209,000.~~

2018.

The following table presents the available for sale debt securities portfolio by major type as of June 30, ~~2018~~2019 and December 31, ~~2017:~~

(dollars in thousands)    September 30, 2018 December 31, 2017
   Fair Value    % Fair Value    %
Debt securities available for sale:

Obligations of U.S. government and agencies
   $ 638,876    60.5 % $ 604,789    83.1 %
Obligations of states and political subdivisions
   123,420    11.7 % 123,156    16.9 %
Corporate bonds
   4,431    0.4 % —      0.0 %
Asset backed securities
   289,233    27.4 % —      0.0 %






Total debt securities available for sale
   $ 1,055,960    100.0 % $ 727,945    100.0 %

2018:


(dollars in thousands)	June 30, 2019					December 31, 2018
	Fair Value		%			Fair Value		%
Debt securities available for sale:
Obligations of U.S. government agencies	$	630,911		55.6	%	$	629,981		56.5	%
Obligations of states and political subdivisions		125,980		11.1	%		126,072		11.3	%
Corporate bonds		4,521		0.4	%		4,478		0.4	%
Asset backed securities		372,582		32.9	%		354,505		31.8	%

Total debt securities available for sale	$	1,133,994		100.0	%	$	1,115,036		100.0	%

Investment securities held to maturity decreased ~~$54,857,000~~$32,412,000 to ~~$459,897,000~~$412,524,000 as of ~~September~~June 30, ~~2018,~~2019, as compared to December 31, ~~2017.~~2018. This decrease is attributable to principal repayments of ~~$54,203,000,~~$31,938,000, and amortization of net purchase price premiums of ~~$744,000.~~

$474,000.

The following table presents the held to maturity investment securities portfolio by major type as of June 30, ~~2018~~2019 and December 31, ~~2017:~~

(dollars in thousands)    September 30, 2018 December 31, 2017
   Cost Basis    % Cost Basis    %
Securities held to maturity:

Obligations of U.S. government agencies
   $ 445,309    96.8 % $ 500,271    97.2 %
Obligations of states and political subdivisions
   14,588    3.20 % 14,573    2.80 %






Total securities held to maturity
   $ 459,897    100 % $ 514,844    100.0 %

2018:


(dollars in thousands)	June 30, 2019					December 31, 2018
	Amortized Cost		%			Amortized Cost		%
Debt securities held to maturity:
Obligations of U.S. government and agencies	$	398,714		96.7	%	$	430,343		96.7	%
Obligations of states and political subdivisions		13,810		3.3	%		14,593		3.3	%

Total debt securities held to maturity	$	412,524		100	%	$	444,936		100.0	%

Loans

The Company concentrates its lending activities in four principal areas: real estate mortgage loans (residential and commercial loans), consumer loans, commercial loans (including agricultural loans), and real estate construction loans. The interest rates charged for the loans made by the Company vary with the degree of risk, the size and maturity of the loans, the borrower’s relationship with the Company and prevailing money market rates indicative of the Company’s cost of funds.

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

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

(dollars in thousands)    September 30, 2018 December 31, 2017
Real estate mortgage
   $ 3,132,202    77.8 % $ 2,300,322    76.3 %
Consumer
   421,285    10.5 % 356,874    11.8 %
Commercial
   289,647    7.1 % 220,412    7.3 %
Real estate construction
   184,302    4.6 % 137,557    4.6 %






Total loans
   $ 4,027,436    100 % $ 3,015,165    100 %


(dollars in thousands)	June 30, 2019				December 31, 2018
Real estate mortgage	$	3,178,730	77.5	%	$	3,143,100	78.1	%
Consumer		434,388	10.6	%		418,982	10.4	%
Commercial		276,045	6.7	%		276,548	6.9	%
Real estate construction		214,524	5.2	%		183,384	4.6	%

Total loans	$	4,103,687	100	%	$	4,022,014	100	%

At ~~September~~June 30, ~~2018~~2019 loans, including net deferred loan costs and discounts, totaled ~~$4,027,436,000~~$4,103,687,000 which was a ~~$1,012,271,000 (33.6%~~$81,673,000 (2.0%) increase over the balances at December 31, ~~2017. In addition to the $834,683,000 in loans acquired from FNBB, which were recorded net~~2018.

Table of ~~a $33,417,000 discount, organic loan growth totaled $177,588,000 or an annualized rate of 7.9% during the first nine months of 2018.~~

Contents

Asset Quality and Nonperforming Assets

Nonperforming Assets

The following ~~table sets~~tables set forth the amount of the Company’s nonperforming assets as of the dates indicated. ~~For purposes of the following table, PCI loans that are 90 days past due and still accruing are not considered nonperforming loans.~~ “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,
2018 December 31,
2017
Performing nonaccrual loans
   $ 22,429 $ 20,937
Nonperforming nonaccrual loans
   3,671 3,176


Total nonaccrual loans
   26,100 24,113
Originated and PNCI loans 90 days past due and still accruing
   1,048 281


Total nonperforming loans
   27,148 24,394
Foreclosed assets
   1,832 3,226


Total nonperforming assets
   $ 28,980 $ 27,620


Nonperforming assets to total assets
   0.46 % 0.58 %
Nonperforming loans to total loans
   0.67 % 0.81 %
Allowance for loan losses to nonperforming loans
   116 % 124 %
Allowance for loan losses, unamortized loan fees, and discounts to loan principal balances owed
   2.12 % 1.77 %

~~The following table set forth the amount~~


(dollars in thousands)	June 30, 2019			December 31, 2018
Performing nonaccrual loans	$	17,825		$	22,689
Nonperforming nonaccrual loans		3,844			4,805

Total nonaccrual loans		21,669			27,494
Loans 90 days past due and still accruing		22			—

Total nonperforming loans		21,691			27,494
Foreclosed assets		1,548			2,280

Total nonperforming assets	$	23,239		$	29,774

Nonperforming assets to total assets		0.36	%		0.47	%
Nonperforming loans to total loans		0.53	%		0.68	%
Allowance for loan losses to nonperforming loans		152	%		119	%
Allowance for loan losses, unamortized loan fees, and discounts to loan principal balances owed		1.97	%		2.11	%


	June 30, 2019
(dollars in thousands)	Originated			PNCI			PCI			Total
Performing nonaccrual loans	$	11,773		$	3,410		$	2,642		$	17,825
Nonperforming nonaccrual loans		2,360			1,087			397			3,844

Total nonaccrual loans		14,133			4,497			3,039			21,669
Loans 90 days past due and still accruing		22			—			—			22

Total nonperforming loans		14,155			4,497			3,039			21,691
Foreclosed assets		1,103			—			445			1,548

Total nonperforming assets	$	15,258		$	4,497		$	3,484		$	23,239

U.S. government, including its agencies and its government-sponsored agencies, guaranteed portion of nonperforming loans	$	790		$	—		$	294		$	1,084
Nonperforming assets to total assets		0.24	%		0.07	%		0.05	%		0.36	%
Nonperforming loans to total loans		0.35	%		0.11	%		0.07	%		0.53	%
Allowance for loan losses to nonperforming loans		228	%		13	%		0.33	%		152	%
Allowance for loan losses, unamortized loan fees, and discounts to loan principal balances owed		1.29	%		3.60	%		36.11	%		1.97	%

Table of the Company’s nonperforming assets as of the dates indicated. For purposes of the following table, PCI loans that are 90 days past due and still accruing are not considered nonperforming loans. “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:

   September 30, 2018
(dollars in thousands)    Originated PNCI PCI Total
Performing nonaccrual loans
   $ 14,401 $ 1,840 $ 6,188 $ 22,429
Nonperforming nonaccrual loans
   2,686 307 678 3,671


Total nonaccrual loans
   17,087 2,147 6,866 26,100
Originated and PNCI loans 90 days past due and still accruing
   —   1,048 —   1,048


Total nonperforming loans
   17,087 3,195 6,866 27,148
Foreclosed assets
   1,042 —   790 1,832


Total nonperforming assets
   $ 18,129 $ 3,195 $ 7,656 $ 28,980


U.S. government, including its agencies and its government-sponsored agencies, guaranteed portion of nonperforming loans
   $ 301 —   —   $ 301
Nonperforming assets to total assets
   0.29 % 0.05 % 0.12 % 0.46 %
Nonperforming loans to total loans
   0.42 % 0.08 % 0.17 % 0.67 %
Allowance for loan losses to nonperforming loans
   170 % 23 % 0.12 % 116.41 %
Allowance for loan losses, unamortized loan fees, and discounts to loan principal balances owed
   1.35 % 2.44 % 68.91 % 2.12 %
Contents

   December 31, 2017
(dollars in thousands)    Originated PNCI PCI Total
Performing nonaccrual loans
   $ 12,942 $ 1,305 $ 6,690 $ 20,937
Nonperforming nonaccrual loans
   2,520 158 498 3,176


Total nonaccrual loans
   15,462 1,463 7,188 24,113
Originated loans 90 days past due and still accruing
   —   281 —   281


Total nonperforming loans
   15,462 1,744 7,188 24,394
Foreclosed assets
   1,836 —   1,390 3,226


Total nonperforming assets
   $ 17,298 $ 1,744 $ 8,578 $ 27,620


U.S. government, including its agencies and its government-sponsored agencies, guaranteed portion of nonperforming loans
   $ 358 $ 358
Nonperforming assets to total assets
   0.36 % 0.04 % 0.18 % 0.58 %
Nonperforming loans to total loans
   0.57 % 0.56 % 46.20 % 0.81 %
Allowance for loan losses to nonperforming loans
   188 % 53 % 4 % 124 %
Allowance for loan losses, unamortized loan fees, and discounts to loan principal balances owed
   1.32 % 2.22 % 34.05 % 1.77 %


	December 31, 2018
(dollars in thousands)	Originated			PNCI			PCI			Total
Performing nonaccrual loans	$	16,573		$	1,269		$	4,847		$	22,689
Nonperforming nonaccrual loans		2,843			1,589			373			4,805

Total nonaccrual loans		19,416			2,858			5,220			27,494
Loans 90 days past due and still accruing		—			—			—			—

Total nonperforming loans		19,416			2,858			5,220			27,494
Foreclosed assets		1,490			—			790			2,280

Total nonperforming assets	$	20,906		$	2,858		$	6,010		$	29,774

U.S. government, including its agencies and its government-sponsored agencies, guaranteed portion of nonperforming loans	$	800		$	—		$	—		$	800
Nonperforming assets to total assets		0.33	%		0.04	%		0.09	%		0.47	%
Nonperforming loans to total loans		0.48	%		0.07	%		0.13	%		0.68	%
Allowance for loan losses to nonperforming loans		164	%		23.3	%		2.34	%		119	%
Allowance for loan losses, unamortized loan fees, and discounts to loan principal balances owed		1.39	%		3.48	%		33.69	%		2.11	%

Changes in nonperforming assets during the three months ended ~~September~~June 30, ~~2018~~

(in thousands):    Balance at
September 30,
2018    Additions
Advances/
Paydowns, net

Charge-offs/
Write-downs

Transfers to
Foreclosed
Assets
Category
Changes Balance at
June 30,
2018
Real estate mortgage:

Residential
   $ 3,038    $ 116    $ (73 ) $ —   $ —   $ (1,212 ) $ 4,207
Commercial
   15,129    2,688    (418 ) —   —   974 11,885
Consumer

Home equity lines
   2,133    549    (1,053 ) —   —   —   2,637
Home equity loans
   3,089    762    (76 ) (49 ) (511 ) 238 2,725
Other consumer
   8    1    (1 ) 8
Commercial
   3,751    513    (236 ) (484 ) —   —   3,958
Construction:

Residential
   —      —      —   —   —   —   —
Commercial
   —      —      —   —   —   —   —






Total nonperforming loans
   27,148    4,629    (1,857 ) (533 ) (511 ) —   25,420
Foreclosed assets
   1,832    25    (79 ) 1 511 —   1,374






Total nonperforming assets
   $ 28,980    $ 4,654    $ (1,936 ) $ (532 ) $ —   $ —   $ 26,794

2019


(in thousands):	Balance at June 30, 2019		New NPA / Valuation Adjustments			Pay-downs /Sales /Upgrades			Charge-offs/ Write-downs			Transfers to Foreclosed Assets		Balance at March 31, 2019
Real estate mortgage:
Residential	$	4,350	$	2,187		$	(503	)	$	(2	)	$	—	$	2,668
Commercial		8,678		579			(207	)		—			—		8,306
Consumer
Home equity lines		2,476		67			(25	)		—			—		2,434
Home equity loans		2,047		168			(708	)		—			—		2,587
Other consumer		74		81			(40	)		(37	)		—		70
Commercial		4,066		1,126			(422	)		(138	)		—		3,500
Construction:
Residential		—		—			—			—			—		—
Commercial		—		—			—			—			—		—

Total nonperforming loans		21,691		4,208			(1,905	)		(177	)		—		19,565
Foreclosed assets		1,548		(63	)		(704	)		—			—		2,315

Total nonperforming assets	$	23,239	$	4,145		$	(2,609	)	$	(177	)	$	—	$	21,880

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

Nonperforming assets increased during the ~~third~~second quarter of ~~2018~~2019 by ~~$2,186,000 (8.2%~~$1,359,000 (6.2%) to ~~$28,980,000 at September 30, 2018 compared to $26,794,000~~$23,239,000 at June 30, ~~2018.~~2019 compared to $21,880,000 March 31, 2019. The increase in nonperforming assets during the ~~third~~second quarter of ~~2018~~2019 was primarily the result of ~~acquired FNBB loans with credit deterioration of $1,300,000, new nonperforming loans totaling $3,354,000~~

pay-downs

and ~~advances on nonperforming loans of $294,000, that were partially offset by sales or~~ upgrades of nonperforming loans of ~~$2,151,000, dispositions~~$1,905,000, write-downs of $177,000 on nonperforming loans, and sales of foreclosed assets ~~totaling $79,000, and loan charge-offs~~ of ~~$532,000.~~

~~The $4,629,000 in~~$704,000, that were offset by new nonperforming loans of $4,208,000 and an increase in the valuation of $63,000 in foreclosed property.

The $4,208,000 of new nonperforming loans added during the ~~third~~second quarter of ~~2018~~2019 was mainly comprised of ~~increases~~4 loans totaling $3,746,000, of ~~$116,000 on one residential~~which $2,765,000 consisted of 3 real estate loans ~~$2,688,000 on six~~which management believes are sufficiently secured by collateral and $981,000 related to a loan secured by commercial ~~real estate~~vehicles. 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 ~~$1,311,000 on 10 home equity lines and loans, and $513,000 on 7 C&I loans. Related charge-offs are discussed below.~~

is sufficient as of June 30, 2019.

Loan charge-offs during the three months ended ~~September~~June 30, ~~2018~~

2019

In the ~~third~~second quarter of ~~2018,~~2019, the Company recorded ~~$1,014,000~~$177,000 in loan charge-offs and ~~$128,000~~$116,000 in deposit overdraft charge-offs less ~~$519,000~~$514,000 in loan recoveries and ~~$51,000~~$46,000 in deposit overdraft recoveries resulting in ~~$570,000~~$267,000 of net charge-offs. Primary causes of the loan charges taken in the third quarter of 2018 were gross charge-offs of $25,000 on 2 residential real estate loans, $195,000 on 3 home equity lines and loans, $229,000 on 23 other consumer loans, and $693,000 on 18 C&I loans.

recoveries.

Total charge-offs were generally comprised of individual charges of less than $250,000 each. Generally, losses are triggered by

non-performance

by the borrower and calculated based on any difference between the current loan amount and the current value of the underlying collateral less any estimated costs associated with the disposition of the collateral.

Table of Contents

Changes in nonperforming assets during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~

(in thousands):    Balance at
September 30,
2018    Additions    Advances/
Paydowns, net Charge-offs/
Write-downs Transfers to
Foreclosed
Assets Category
Changes Balance at
December 31,
2017
Real estate mortgage:

Residential
   $ 3,038    $ 903    $ (505 ) $ (51 ) $ —   $ (1,048 ) $ 3,739
Commercial
   15,129    4,257    (2,005 ) (15 ) —   1,072 11,820
Consumer
      —      —   —   —   —
Home equity lines
   2,133    2,153    (3,171 ) (104 ) —   (227 ) 3,482
Home equity loans
   3,089    1,973    (260 ) (50 ) (511 ) 301 1,636
Other consumer
   8    114    (30 ) (87 ) —   —   11
Commercial
   3,751    1,871    (985 ) (743 ) —   (98 ) 3,706
Construction:
      —      —   —   —   —
Residential
   —      —      —   —   —   —   —
Commercial
   —      —      —   —   —   —   —






Total nonperforming loans
   27,148    11,271    (6,956 ) (1,050 ) (511 ) —   24,394
Foreclosed assets
   1,832    25    (1,841 ) (89 ) 511 —   3,226






Total nonperforming assets
   $ 28,980    $ 11,296    $ (8,797 ) $ (1,139) $ —   $ —   $ 27,620

2019


(in thousands):	Balance at June 30, 2019		New NPA / Valuation Adjustments		Pay-downs /Sales /Upgrades			Charge-offs/ Write-downs			Transfers to Foreclosed Assets			Balance at December 31, 2018
Real estate mortgage:
Residential	$	4,350	$	2,187	$	(573	)	$	(2	)	$	(116	)	$	2,854
Commercial		8,678		846		(7,214	)		—			—			15,046
Consumer
Home equity lines		2,476		91		(364	)		—			—			2,749
Home equity loans		2,047		200		(1,116	)		—			—			2,963
Other consumer		74		145		(41	)		(37	)		—			7
Commercial		4,066		1,399		(581	)		(627	)		—			3,875
Construction:
Residential		—		—		—			—			—			—
Commercial		—		—		—			—			—			—

Total nonperforming loans		21,691		4,868		(9,889	)		(666	)		(116	)		27,494
Foreclosed assets		1,548		35		(883	)		—			116			2,280

Total nonperforming assets	$	23,239	$	4,903	$	(10,772	)	$	(666	)	$	—		$	29,774

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

Nonperforming assets ~~increased~~decreased during the ~~nine month period ending September 30, 2018~~first half of 2019 by ~~$1,360,000 (4.9%~~$6,535,000 (22.0%) to ~~$28,980,000~~$23,239,000 at ~~September~~June 30, ~~2018~~2019 compared to ~~$27,620,000~~$29,774,000 at December 31, ~~2017.~~2018. The ~~increase~~decrease in nonperforming assets during ~~2018~~the first half of 2019 was primarily the result of ~~additions of $11,296,000~~

pay-downs

and upgrades of nonperforming ~~assets outpacing net paydowns~~loans of ~~$8,797,000 and charge-offs/~~$9,889,000, write-downs of ~~$1,139,000.~~

$666,000 on nonperforming loans, and sales of foreclosed assets of $883,000, that were partially offset by new nonperforming assets of $4,902,000.

The $6,535,000 in reduction of nonperforming loans during the first half of 2019 was mainly comprised of decreases within commercial real estate, and included payoffs of three loans to two relationships with a combined balance $6,818,000. The decrease in home equity lines and loans were comprised of decreases of $1,189,000 from 98 home equity lines and loans. These decreases were offset by increases in commercial loans of $191,000 and consumer loans of $66,000.

Loan charge-offs during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~

~~During~~2019

In the first ~~nine months~~half of ~~2018,~~2019, the Company recorded ~~$1,594,000~~$791,000 in loan charge-offs and ~~$346,000~~$228,000 in deposit overdraft charge-offs less ~~$1,263,000~~$2,266,000 in loan recoveries and ~~$180,000~~$102,000 in deposit overdraft recoveries resulting in ~~$497,000~~$1,349,000 of net charge-offs. Primary causes of the loan charges taken during the nine month period during 2018 were gross charge-offs of $77,000 on 3 residential real estate loans, $150,000 on one commercial real estate loan, $299,000 on 9 home equity lines and loans, $597,000 on 61 other consumer loans, and $952,000 on 26 C&I loans.

~~Total charge-offs were generally comprised of individual charges of less than $250,000 each. Generally losses are triggered bynon-performance~~ by the borrower and calculated based on any difference between the current loan amount and the current value of the underlying collateral less any estimated costs associated with the disposition of the collateral.

~~Allowance for Loan Losses~~

recoveries.

The Components of the Allowance for Loan Losses

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

(dollars in thousands)    September 30,
2018 December 31,
2017
Allowance for originated and PNCI loan losses:

Environmental factors allowance
   $ 13,122 $ 10,252
Formula allowance
   15,743 17,100


Total allowance for originated and PNCI loan losses
   28,865 27,352
Allowance for impaired loans
   2,628 2,699
Allowance for PCI loan losses
   110 272


Total allowance for loan losses
   $ 31,603 $ 30,323


Allowance for loan losses to loans
   0.78 % 1.01 %


(dollars in thousands)	2019			2018
Allowance for originated and PNCI loan losses:
Environmental factors allowance	$	12,455		$	11,577
Formula allowance		17,961			18,689

Total allowance for originated and PNCI loan losses		30,416			30,266
Allowance for impaired loans		2,442			2,194
Allowance for PCI loan losses		10			122

Total allowance for loan losses	$	32,868		$	32,582

Allowance for loan losses to loans		0.80	%		0.81	%

For additional information regarding the allowance for loan losses, including changes in specific, formula, and environmental factors allowance categories, see

“~~Provision for~~Asset Quality and Loan ~~Losses”~~Loss Provisioning”

“Results of Operations” ~~and~~~~“Allowance for Loan Losses”~~

, above. Based on the current conditions of the loan portfolio, management believes that the ~~$31,603,000~~$32,868,000 allowance for loan losses at ~~September~~June 30, ~~2018~~2019 is adequate to absorb probable losses inherent in the Bank’s loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.

Table of Contents

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

(in thousands)    September 30, 2018 December 31, 2017
Real estate mortgage
   $ 15,353    48.6 % $ 13,758    45.4 %
Consumer
   7,440    23.5 % 8,227    27.1 %
Commercial
   6,224    19.7 % 6,512    21.5 %
Real estate construction
   2,586    8.2 % 1,826    6.0 %






Total allowance for loan losses
   $ 31,603    100.0 % $ 30,323    100.0 %


Real estate mortgage	$	14,675	44.7	%	$	15,620	47.9	%
Consumer		8,552	26.0	%		8,375	25.7	%
Commercial		6,745	20.5	%		6,090	18.7	%
Real estate construction		2,896	8.8	%		2,497	7.7	%

Total allowance for loan losses	$	32,868	100.0	%	$	32,582	100.0	%

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


Real estate mortgage	$	3,178,730	0.46	%	$	3,143,100	0.50	%
Consumer		434,388	1.97	%		418,982	2.00	%
Commercial		276,045	2.44	%		276,548	2.20	%
Real estate construction		214,524	1.35	%		183,384	1.36	%

Total allowance for loan losses	$	4,103,687	0.80	%	$	4,022,014	0.81	%

Table of Contents

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

   Three months ended September 30, Nine months ended September 30,
   2018 2017 2018 2017
Allowance for loan losses:

Balance at beginning of period
   $ 29,524 $ 31,017 $ 30,323 $ 32,503
Provision for loan losses
   2,651 (796 ) 1,777 (2,353 )
Loans charged off:

Real estate mortgage:

Residential
   (25 ) —   (77 ) —
Commercial
   —   (150 ) (15 ) (150 )
Consumer:

Home equity lines
   (172 ) (13 ) (276 ) (84 )
Home equity loans
   (23 ) (206 ) (23 ) (237 )
Other consumer
   (229 ) (308 ) (597 ) (482 )
Commercial
   (693 ) (764 ) (952 ) (897 )
Construction:

Residential
   —   (1,071 ) —   (1,071 )
Commercial
   —   —   —   —


Total loans charged off
   (1,142 ) (2,512 ) (1,940 ) (2,921 )
Recoveries of previouslycharged-off loans:

Real estate mortgage:

Residential
   —   —   —   —
Commercial
   15 17 51 127
Consumer:

Home equity lines
   151 252 677 298
Home equity loans
   139 13 176 25
Other consumer
   63 68 208 209
Commercial
   202 84 331 254
Construction:

Residential
   —   —   —   —
Commercial
   —   —   —   1


Total recoveries of previously charged off loans
   570 434 1,443 914


Net (charge-offs) recoveries
   (572 ) (2,078 ) (497 ) (2,007 )


Balance at end of period
   $ 31,603 $ 28,143 $ 31,603 $ 28,143


Average total loans
   $ 4,028,462 $ 2,878,944 $ 3,390,447 $ 2,807,453
Ratios (annualized):

Net charge-offs (recoveries) during period to average loans outstanding during period
   0.06 % 0.29 % 0.02 % 0.10 %
Provision for (benefit from) loan losses to average loans outstanding during period
   0.26 % (0.11 )% 0.07 % (0.11 )%


(in thousands)	2019			2018			2019			2018
Allowance for loan losses:
Balance at beginning of period	$	32,064		$	29,973		$	32,582		$	30,323
Reversal of provision for loan losses		537			(638	)		(1,063	)		(874	)
Loans charged off:
Real estate mortgage:
Residential		(2	)		(51	)		(2	)		(52	)
Commercial		—			(15	)		—			(15	)
Consumer:
Home equity lines		—			(24	)		—			(104	)
Home equity loans		—			—			—			—
Other consumer		(153	)		(174	)		(360	)		(368	)
Commercial		(138	)		(54	)		(657	)		(259	)
Construction:
Residential		—			—			—			—
Commercial		—			—			—			—

Total loans charged off		(293	)		(318	)		(1,019	)		(798	)
Recoveries of previously charged-off loans:
Real estate mortgage:
Residential		3			—			5			—
Commercial		10			21			1,391			36
Consumer:
Home equity lines		183			317			278			526
Home equity loans		171			23			258			37
Other consumer		108			66			183			144
Commercial		85			80			253			130
Construction:
Residential		—			—			—			—
Commercial		—			—			—			—

Total recoveries of previously charged off loans		560			507			2,368			873

Net recoveries (charge-offs)		267			189			1,349			75

Balance at end of period	$	32,868		$	29,524		$	32,868		$	29,524

Average total loans	$	4,044,044		$	3,104,126		$	4,033,954		$	3,066,152

Ratios (annualized):
Net charge-offs (recoveries) during period to average loans outstanding during period		(0.03	)%		(0.02	)%		(0.13	)%		(0.01	)%
Benefit from reversal of loan losses to average loans outstanding during period		0.05	%		(0.08	)%		(0.11	)%		(0.11	)%

Table of Contents

Foreclosed Assets, Net of Allowance for Losses

The following tables detail the components and summarize the activity in foreclosed assets, net of allowances for losses for the period ~~indicated (dollars in thousands):~~

   Balance at
September 30,
2018    Additions    Advances/
Capitalized
Costs/Other    Sales Valuation
Adjustments Balance at
December 31,
2017
Land & Construction
   $ 445    $ —      $ —      $ (1,341 ) $ —   $ 1,786
Residential real estate
   1,294    536    —      (356 ) (72 ) 1,186
Commercial real estate
   93    —      —      (144 ) (17 ) 254








Total foreclosed assets
   $ 1,832    $ 536    $ —      $ (1,841 ) $ (89 ) $ 3,226

~~Premises and Equipment~~

~~Premises and equipment were comprised of:~~

   September 30,
2018    December 31,
2017
   (In thousands)
Land & land improvements
   $ 28,958    $ 9,959
Buildings
   64,178    50,340
Furniture and equipment
   44,271    35,939




   137,407    96,238
Less: Accumulated depreciation
   (49,073 )    (40,644 )




   88,334    55,594
Construction in progress
   956    2,148




Total premises and equipment
   $ 89,290    $ 57,742

indicated:


(in thousands)	Balance at June 30, 2019		Sales			Valuation Adjustments			Transfers from Loans		Balance at December 31, 2018
Land & Construction	$	445	$	—		$	—		$	—	$	445
Residential real estate		1,015		(883	)		40			116		1,742
Commercial real estate		88		—			(5	)		—		93

Total foreclosed assets	$	1,548	$	(883	)	$	35		$	116	$	2,280

Deposits

During the ~~nine~~three and six months ended ~~September~~June 30, 2018, premises and equipment increased $31,548,000 due to acquired assets with a fair value of $30,522,000, purchases of $5,736,000, that were partially offset by depreciation of $4,442,000 and disposals of premises and equipment with net book value of $268,000.

~~Intangible Assets~~

~~Intangible assets at were comprised of the following as of the dates indicated:~~

   September 30,
2018    December 31,
2017
   (In thousands)
Core-deposit intangible
   $ 30,711    $ 5,174
Goodwill
   220,972    64,311




Total intangible assets
   $ 251,683    $ 69,485

The core-deposit intangible assets resulted from the Bank’s acquisition of FNB Bancorp (FNBB) on July 6, 2018, three bank branches from Bank of America on March 18, 2016, North Valley Bancorp in 2014, and Citizens Bank of Northern California in 2011. The goodwill intangible asset includes $156,661,000 from the acquisition of FNBB, $849,000 from the acquisition of three bank branches from Bank of America on March 18, 2016, $47,943,000 from the North Valley Bancorp acquisition in 2014, and $15,519,000 from the North State National Bank acquisition in 2003.

Amortization of core deposit intangible assets amounting to $1,390,000 and $339,000 was recorded during the three months ended September 30, 2018 and 2017, respectively. Amortization of core deposit intangible assets amounting to $2,068,000 and $1,050,000 was recorded during the nine months ended September 30, 2018 and 2017, respectively.

~~Investment in Low Income Housing Tax Credit Funds~~

During the nine months ended September 30, 2018, the Company’s investment in low income housing tax credit funds, recorded in other assets, increased $6,718,000 to $23,572,000 due to capital contributions and the acquisition of $2,794,000 in low income housing tax credit funds from FNBB. During the nine months ended September 30, 2018, the Company also made capital contributions to several of its existing low income housing tax credit fund investments reducing its commitment for future capital contributions to $6,725,000 at September 30, 2018. This commitment for low income housing tax credit funds is recorded in other liabilities.

~~Deposits~~

~~During the nine months ended September 30, 2018,~~2019, the Company’s deposits ~~increased $1,083,986,000~~decreased $88,089,000 and $24,293,000 respectively to ~~$5,093,117,000. In addition to the $991,935,000 in acquired deposits, organic deposit growth for the first nine months of 2018 was $92,051,000 or 3.1% on an annualized basis.~~$5,342,173,000. Included in the ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 certificate of deposit balances are ~~$69,000,000~~$50,000,000 and ~~$50,000,000,~~$60,000,000, respectively, from the State of California. The Company participates in a deposit program offered by the State of California whereby the ~~state~~State may make deposits at the Company’s request subject to collateral and creditworthiness constraints. The negotiated rates on these ~~state~~State deposits are generally more favorable than other wholesale funding sources available to the ~~Company..~~

Company.

Off-Balance

Sheet Arrangements

See Note 128 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.

The Company adopted and announced a stock repurchase plan on August 21, 2007 for the repurchase of up to 500,000 shares of the Company’s common stock from time to time as market conditions allow. The 500,000 shares authorized for repurchase under this plan represented approximately 3.2% of the Company’s approximately 15,815,000 common shares outstanding as of August 21, 2007. During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company did not repurchase any shares under this plan. This plan has no stated expiration date for the repurchases. As of ~~September~~June 30, ~~2018,~~2019, the Company had repurchased ~~166,600~~196,566 shares under this plan, which left ~~333,400~~303,434 shares available for repurchase under the plan. Shares that are repurchased in accordance with the provisions of a Company stock option plan or equity compensation plan are not counted against the number of shares repurchased under the repurchase plan adopted on August 21, 2007.

The Company’s primary capital resource is shareholders’ equity, which was ~~$802,115,000~~$875,886,000 at ~~September~~June 30, ~~2018.~~2019. This amount represents an increase of ~~$296,307,000 (59%~~$48,513,000 (5.9%) from December 31, ~~2017,~~2018, the net result of ~~issued stock of $284,437,000,~~ comprehensive income for the period of ~~$24,409,000,~~$61,468,000, the effect of equity compensation vesting of ~~$1,044,000,~~$815,000, and the exercise of stock options of ~~$475,000,~~$2,499,000, that were partially offset by dividends paid of ~~$12,984,000,~~$11,575,000, and repurchase of common stock of ~~$1,124,000.~~$4,694,000. The Company’s ratio of equity to total assets was ~~12.7%~~13.7% and ~~10.6%~~13.0% as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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, ~~2018.~~2019. The following summarizes the Company’s ratios of capital to risk-adjusted assets as of the dates indicated:

   September 30, 2018 December 31, 2017
   Ratio Minimum
Regulatory
Requirement Ratio Minimum
Regulatory
Requirement
Total capital
   13.90 % 9.875 % 14.07 % 9.25 %
Tier I capital
   13.19 % 7.875 % 13.18 % 7.25 %
Common equity Tier 1 capital
   12.03 % 6.375 % 11.72 % 5.75 %
Leverage
   10.66 % 4.00 % 10.80 % 4.00 %


	June 30, 2019						December 31, 2018
	Ratio			Minimum Regulatory Requirement			Ratio			Minimum Regulatory Requirement
Total capital		14.93	%		10.50	%		14.40	%		9.25	%
Tier I capital		14.19	%		8.50	%		13.66	%		7.25	%
Common equity Tier 1 capital		13.03	%		7.00	%		12.49	%		5.75	%
Leverage		11.08	%		4.00	%		10.68	%		4.00	%

See Note 139 and Note 1915 to the condensed consolidated financial statements at Item 1 of Part I of this report for additional information about the Company’s capital resources.

Table of Contents

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. At ~~September~~June 30, ~~2018,~~2019, cash at Federal Reserve and other banks in excess of reserve requirements and investment securities available for sale totaled ~~$1,163,349,000,~~$1,136,946,000, or ~~18.4%~~17.8% of total assets, representing an increase of $312,044,000 from $851,305,000, or 17.3% of total assets at December 31, 2017. This increase in cash and securities available for sale is due mainly to deposit growth and net cash and available for sale investment securities received in the acquisition of FNBB that was partially offset by new loan originations being in excess of cash received from the maturity and principal repayment of investment securities during the nine months ended September 30, 2018.assets. The Company’s profitability during the first ~~nine~~six months of ~~2018~~2019 generated cash flows from operations of ~~$59,905,000~~$33,867,000 compared to ~~$45,817,000~~$32,944,000 during the first ~~nine~~six months of ~~2017.~~2018. Net cash used byin investing activities ~~of $112,873,000~~was $47,403,000 and $144,813,000 during the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, respectively. Financing activities used $38,415,000 during the six months ended June 30, 2019, compared to net cash used by investing activities of $263,864,000 during the nine months ended September 30, 2017. Financing activities provided net cash of $74,083,000 during the nine months ended September 30, 2018, compared to net provided by financing activities of ~~$100,469,000~~$90,503,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Deposit balance ~~increases~~changes accounted for ~~$92,051,000~~($24,293,000) and ~~$31,896,000~~$68,091,000 of financing ~~sources of~~ funds activity during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Dividends paid used ~~$12,984,000~~$11,575,000 and ~~$11,228,000~~$7,813,000 of cash during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The Company’s liquidity is dependent on dividends received from the Bank. Dividends from the Bank are subject to certain regulatory restrictions.

Table of Contents~~Item 3. Quantitative and Qualitative Disclosures about Market Risk~~

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The Company’s assessment of market risk as of ~~September~~June 30, ~~2018~~2019 indicates there are no material changes in the quantitative and qualitative disclosures from those in our Annual Report on Form

10-K

for the year ended December 31, ~~2017.~~

~~Item 4. Controls and Procedures~~

2018.

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, ~~2018.~~2019. Disclosure controls and procedures, as defined inRule

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, ~~2018.~~

2019.

During the ~~nine~~three and six months ended ~~September~~June 30, ~~2018,~~2019, 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.

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 report, you should carefully consider the factors discussed under “Part I—Item 1A—Risk Factors” in our Form

10-K

for the year ended December 31, ~~2017~~2018 which are incorporated by reference herein. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report.

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 ~~three months ended September 30, 2018:~~

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
shares that may yet
be purchased under the
plans or programs⁽²⁾
July1-31, 2018
   49,996    $ 37.72    —      333,400
August1-31, 2018
   41,485    $ 38.95    —      333,400
September1-30, 2018
   11,211    $ 39.15    —      333,400








Total
   102,692    $ 38.37    —      333,400

periods indicated:


Period	(a) Total number of shares purchased (1)		(b) Average price paid per share		(c) Total number of shares purchased as of part of publicly announced plans or programs		(d) Maximum number of shares that may yet be purchased under the plans or programs (2)
April 1-30, 2019		38,087	$	39.91		—		303,434
May 1-31, 2019		12,487	$	39.88		—		303,434
June 1-30, 2019		43,181	$	38.28		—		303,434

Total		93,755	$	39.16		—		303,434

(1)

Includes shares purchased by the Company’s Employee Stock Ownership Plan and pursuant to various other equity incentive plans. See Note 149 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.

Table of Contents

Item 6 – Exhibits

EXHIBIT INDEX


~~Exhibit No.~~		~~Exhibit~~
~~31.1~~
Exhibit No.			Exhibit

	31.1		Rule13a-14(a)/15d-14(a) Certification of CEO
~~31.2~~
	31.2		Rule13a-14(a)/15d-14(a) Certification of CFO
~~32.1~~
	32.1		Section 1350 Certification of CEO
~~32.2~~
	32.2		Section 1350 Certification of CFO
~~101.INS~~
	99.1*		Form of Restricted Stock Unit Agreement and Grant Notice for Non-Employee Directors pursuant to TriCo’s 2019 Equity Incentive Plan.

	99.2*		Form of Restricted Stock Unit Agreement and Grant Notice for Employees pursuant to TriCo’s 2019 Equity Incentive Plan.

	99.3*		Form of Performance Award Agreement and Grant Notice pursuant to TriCo’s 2019 Equity Incentive Plan.

	101.INS		XBRL Instance Document
~~101.SCH~~
	101.SCH		XBRL Taxonomy Extension Schema Document
~~101.CAL~~
	101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
~~101.LAB~~
	101.LAB		XBRL Taxonomy Extension Label Linkbase Document
~~101.PRE~~
	101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
~~101.DEF~~
	101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

*	Management contract or compensatory plan or arrangement.

Table of Contents

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 9, ~~2018~~2019						/s/ Peter G. Wiese
						Peter G. Wiese
						Executive Vice President and Chief Financial Officer
						(Duly authorized officer and principal financial and chief accounting officer)


	At September 30, 2018			At December 31, 2017
Assets:
Cash and due from banks	$	109,363		$	105,968
Cash at Federal Reserve and other banks		117,180			99,460

Cash and cash equivalents		226,543			205,428
Investment securities:
Marketable equity securities		2,846			2,938
Available for sale debt securities		1,055,960			727,945
Held to maturity debt securities		459,897			514,844
Restricted equity securities		17,250			16,956
Loans held for sale		3,824			4,616
Loans		4,027,436			3,015,165
Allowance for loan losses		(31,603	)		(30,323	)

Total loans, net		3,995,833			2,984,842
Foreclosed assets, net		1,832			3,226
Premises and equipment, net		89,290			57,742
Cash value of life insurance		116,596			97,783
Accrued interest receivable		19,592			13,772
Goodwill		220,972			64,311
Other intangible assets, net		30,711			5,174
Mortgage servicing rights		7,122			6,687
Other assets		70,597			55,051

Total assets	$	6,318,865		$	4,761,315

Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Noninterest-bearing demand	$	1,710,505		$	1,368,218
Interest-bearing		3,382,612			2,640,913

Total deposits		5,093,117			4,009,131
Accrued interest payable		1,729			930
Other liabilities		82,077			66,422
Other borrowings		282,831			122,166
Junior subordinated debt		56,996			56,858

Total liabilities		5,516,750			4,255,507

Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at September 30, 2018 and December 31, 2017		—			—
Common stock, no par value: 50,000,000 shares authorized; issued and outstanding:
30,417,818 at September 30, 2018
22,955,963 at December 31, 2017		541,519			255,836
Retained earnings		287,555			255,200
Accumulated other comprehensive loss, net of tax		(26,959	)		(5,228	)

Total shareholders’ equity		802,115			505,808

Total liabilities and shareholders’ equity	$	6,318,865		$	4,761,315


	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Interest and dividend income:
Loans, including fees	$	53,102	$	37,268	$	130,455	$	108,600
Investments:
Taxable securities		9,189		7,011		23,949		20,617
Tax exempt securities		1,189		1,041		3,272		3,124
Dividends		459		301		1,093		1,020
Interest bearing cash at Federal Reserve and other banks		615		292		1,384		1,080

Total interest and dividend income		64,554		45,913		160,153		134,441

Interest expense:
Deposits		2,072		1,028		4,402		2,896
Other borrowings		1,178		149		2,106		164
Junior subordinated debt		815		652		2,301		1,870

Total interest expense		4,065		1,829		8,809		4,930

Net interest income		60,489		44,084		151,344		129,511
Provision for (benefit from) loan losses		2,651		765		1,777		(1,588	)

Net interest income after provision for (benefit from) loan losses		57,838		43,319		149,567		131,099

Noninterest income:
Service charges and fees		9,743		9,475		28,327		27,861
Commissions on sale ofnon-deposit investment products		728		672		2,414		1,984
Increase in cash value of life insurance		732		732		1,996		2,043
Gain on sale of loans		539		606		1,831		2,293
Gain on sale of investment securities		207		961		207		961
Other		237		484		1,875		2,401

Total noninterest income		12,186		12,930		36,650		37,543

Noninterest expense:
Salaries and related benefits		25,823		20,933		68,928		62,320
Other		21,555		16,289		54,482		46,628

Total noninterest expense		47,378		37,222		123,410		108,948

Income before income taxes		22,646		19,027		62,807		59,694
Provision for income taxes		6,476		7,130		17,698		22,129

Net income	$	16,170	$	11,897	$	45,109	$	37,565

Earnings per share:
Basic	$	0.54	$	0.52	$	1.78	$	1.64
Diluted	$	0.53	$	0.51	$	1.76	$	1.62


										Accumulated
	Shares of									Other
	Common			Common			Retained			Comprehensive
	Stock			Stock			Earnings			Income (loss)			Total
Balance at December 31, 2016		22,867,802		$	252,820		$	232,440		$	(7,913	)	$	477,347
Net income								37,565						37,565
Other comprehensive income											3,301			3,301
Stock option vesting					211									211
Service condition RSU vesting					657									657
Market plus service condition RSU vesting					316									316
Stock options exercised		133,850			2,418									2,418
Service condition RSUs released		28,397												—
Market plus service condition RSUs released		18,805												—
Repurchase of common stock		(107,390	)		(1,191	)		(2,663	)					(3,854	)
Dividends paid ($ 0.49 per share)								(11,228	)					(11,228	)

Balance at September 30, 2017		22,941,464		$	255,231		$	256,114		$	(4,612	)	$	506,733

Balance at December 31, 2017		22,955,963		$	255,836		$	255,200		$	(5,228	)	$	505,808
Net income								45,109						45,109
Adoption ASU2016-01								(62	)		62			—
Adoption ASU2018-02								1,093			(1,093	)		—
Other comprehensive loss											(20,700	)		(20,700	)
Stock option vesting					75									75
Service condition RSU vesting					745									745
Market plus service condition RSU vesting					274									274
Service condition RSUs released		32,516												—
Market plus service condition RSUs released		25,512												—
Stock options exercised		27,400			475									475
Issuance of common stock		7,405,277			284,437									284,437
Repurchase of common stock		(28,850	)		(323	)		(801	)					(1,124	)
Dividends paid ($ 0.51 per share)								(12,984	)					(12,984	)

Balance at September 30, 2018		30,417,818		$	541,519		$	287,555		$	(26,959	)	$	802,115


	For the nine months ended September 30,
	2018			2017
Operating activities:
Net income	$	45,109		$	37,565
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment, and amortization		4,914			5,089
Amortization of intangible assets		2,068			1,050
Provision for (benefit from) loan losses		1,777			(1,588	)
Amortization of investment securities premium, net		1,953			2,431
Gain on sale of investment securities		(207	)		(961	)
Originations of loans for resale		(63,912	)		(83,907	)
Proceeds from sale of loans originated for resale		66,138			85,846
Gain on sale of loans		(1,831	)		(2,293	)
Change in market value of mortgage servicing rights		(38)			795
Provision for losses on foreclosed assets		89			162
Gain on sale of foreclosed assets		(390)			(308	)
Loss on disposal of fixed assets		206			61
Gain on sale of premises held for sale		—			(3	)
Increase in cash value of life insurance		(1,996)			(2,043	)
Life insurance proceeds in excess of cash value		—			(108	)
Loss on marketable equity securities		92			—
Equity compensation vesting expense		1,094			1,184
Change in:
Reserve for unfunded commitments		(864)			270
Interest receivable		(5,820)			(629	)
Interest payable		799			49
Other assets and liabilities, net		10,724			3,155

Net cash from operating activities		59,905			45,817

Investing activities:
Cash acquired in acquisition, net of consideration paid		30,613			—
Proceeds from maturities of securities available for sale		54,510			20,889
Proceeds from maturities of securities held to maturity		54,203			64,969
Proceeds from sale of available for sale securities		293,279			25,757
Purchases of securities available for sale		(370,843)			(195,465	)
Net redemption of restricted equity securities		7,429			—
Loan origination and principal collections, net		(178,596	)		(174,914	)
Proceeds from sale of foreclosed assets		2,206			1,787
Proceeds from sale of premises held for sale		—			3,338
Proceeds from sale of premises and equipment		62			—
Purchases of premises and equipment		(5,736	)		(10,874	)
Life insurance proceeds		—			649

Net cash from investing activities		(112,873	)		(263,864	)

Financing activities:
Net change in deposits		92,051			31,896
Net change in other borrowings		(4,335)			81,237
Repurchase of common stock		(834)			(1,629	)
Dividends paid		(12,984)			(11,228	)
Exercise of stock options		185			193

Net cash from financing activities		74,083			100,469

Net change in cash and cash equivalents		21,115			(117,578	)

Cash and cash equivalents at beginning of year		205,428			305,612

Cash and cash equivalents at end of year	$	226,543		$	188,034

Supplemental disclosure of noncash activities:
Unrealized (loss) gain on securities available for sale	$	(29,704	)	$	5,411
Loans transferred to foreclosed assets	$	511		$	726
Market value of shares tenderedin-lieu of cash to pay for exercise of options and/or related taxes	$	1,124		$	3,854
Supplemental disclosure of cash flow activity:
Cash paid for interest expense	$	8,010		$	4,881
Cash paid for income taxes	$	11,625		$	15,450
Assets acquired in acquisition plus goodwill recognized, net	$	1,456,505		$	—
Liabilities assumed in acquisition	$	1,172,068		$	—


	FNB Bancorp July 6, 2018
Fair value of consideration transferred:
Fair value of shares issued	$	284,437
Cash consideration		6,695

Total fair value of consideration transferred		291,132

Assets acquired:
Cash and cash equivalents		37,308
Securities available for sale		335,667
Restricted equity securities		7,723
Loans		834,683
Premises and equipment		30,522
Cash value of life insurance		16,817
Core deposit intangible		27,605
Other assets		16,214

Total assets acquired		1,306,539

Liabilities assumed:
Deposits		991,935
Other liabilities		15,133
Short-term borrowings - Federal Home Loan Bank		165,000

Total liabilities assumed		1,172,068

Total net assets acquired		134,471

Goodwill recognized	$	156,661


	Three months ended						Nine months ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
	( in thousands, except per share data)
Summarized proforma income statement data:
Net interest income	$	61,259		$	57,329		$	178,434		$	168,363
Provision for (benefit from) loan losses		2,651			765			1,374			(1,728	)
Noninterest income		12,288			13,902			38,517			40,537
Noninterest expense		(40,850	)		(45,983	)		(135,048	)		(135,218	)

Income before taxes		30,046			24,483			80,529			75,410
Income taxes		8,384			9,055			22,996			27,436
Net income	$	21,662		$	15,428		$	57,533		$	47,974

Basic earnings per share	$	0.72		$	0.51		$	1.76		$	1.58
Diluted earnings per share	$	0.71		$	0.50		$	1.74		$	1.56


	September 30, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	666,021		163		(27,308	)	$	638,876
Obligations of states and political subdivisions		129,072		107		(5,759	)		123,420
Corporate bonds		4,368		65		(2	)		4,431
Asset backed securities		289,550		181		(498	)		289,233

Total debt securities available for sale	$	1,089,011	$	516	$	(33,567	)	$	1,055,960

Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	445,309	$	88	$	(13,361	)	$	432,036
Obligations of states and political subdivisions		14,588		58		(395	)		14,251

Total debt securities held to maturity	$	459,897	$	146	$	(13,756	)	$	446,287


	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	609,695	$	695	$	(5,601	)	$	604,789
Obligations of states and political subdivisions		121,597		1,888		(329	)		123,156

Total debt securities available for sale	$	731,292	$	2,583	$	(5,930	)	$	727,945

Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	500,271	$	5,101	$	(1,889	)	$	503,483
Obligations of states and political subdivisions		14,573		146		(37	)		14,682

Total debt securities held to maturity	$	514,844	$	5,247	$	(1,926	)	$	518,165


	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Change in accretable yield:
Balance at beginning of period	$	3,996		$	7,956		$	4,262		$	10,348
Accretion to interest income		(253	)		(594	)		(769	)		(2,554	)
Reclassification (to) from nonaccretable difference		(47	)		(2,893	)		203			(3,325	)

Balance at end of period	$	3,696		$	4,469		$	3,696		$	4,469


	Analysis of Originated Past Due Loans - As of September 30, 2018												³ 90 Days and Still Accruing
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		³ 90 Days and Still Accruing
Mortgage loans on real estate:
Residential1-4 family	$	275	$	749	$	738	$	1,762	$	338,753	$	340,515	$	—
Commercial		499		150		117		766		1,862,838		1,863,604		—

Total mortgage loans on real estate		774		899		855		2,528		2,201,591		2,204,119		—
Consumer:
Home equity lines of credit		1,450		97		112		1,659		283,297		284,956		—
Home equity loans		527		293		411		1,231		34,325		35,556		—
Other		262		24		—		286		26,008		26,294		—

Total consumer loans		2,239		414		523		3,176		343,630		346,806		—
Commercial		1,010		134		1,309		2,453		232,288		234,741		—
Construction:
Residential		488		—		—		488		81,045		81,533		—
Commercial		—		—		—		—		63,508		63,508		—

Total construction		488		—		—		488		144,553		145,041		—

Total originated loans	$	4,511	$	1,447	$	2,687	$	8,645	$	2,922,062	$	2,930,707	$	—


	Analysis of PNCI Past Due Loans - As of December 31, 2017												> 90 Days and Still Accruing
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		> 90 Days and Still Accruing
Mortgage loans on real estate:
Residential 1-4 family	$	1,495	$	90	$	109	$	1,694	$	61,825	$	63,519	$	81
Commercial		70		—		—		70		215,753		215,823		—

Total mortgage loans on real estate		1,565		90		109		1,764		277,578		279,342		81
Consumer:
Home equity lines of credit		298		228		330		856		15,392		16,248		200
Home equity loans		30		—		—		30		2,668		2,698		—
Other		6		26		—		32		2,219		2,251		—

Total consumer loans		334		254		330		918		20,279		21,197		200
Commercial		—		—		—		—		8,391		8,391		—
Construction:
Residential		—		—		—		—		10		10		—
Commercial		—		—		—		—		263		263		—

Total construction		—		—		—		—		273		273		—

Total loans	$	1,899	$	344	$	439	$	2,682	$	306,521	$	309,203	$	281


	Non Accrual Loans
	As of September 30, 2018						As of December 31, 2017
(in thousands)	Originated		PNCI		Total		Originated		PNCI		Total
Mortgage loans on real estate:
Residential 1-4 family	$	2,813	$	1,219	$	4,032	$	1,725	$	1,012	$	2,737
Commercial		7,876		305		8,181		8,144		—		8,144

Total mortgage loans on real estate		10,689		1,524		12,213		9,869		1,012		10,881
Consumer:
Home equity lines of credit		725		568		1,293		811		402		1,213
Home equity loans		1,933		50		1,983		1,106		44		1,150
Other		3		5		8		7		5		12

Total consumer loans		2,661		623		3,284		1,924		451		2,375
Commercial		3,737		—		3,737		3,669		—		3,669
Construction:
Residential		—		—		—		—		—		—
Commercial		—		—		—		—		—		—

Total construction		—		—		—		—		—		—

Total non accrual loans	$	17,087	$	2,147	$	19,234	$	15,462	$	1,463	$	16,925


	September 30,			December 31,
	2018			2017
	(In thousands)
Land & land improvements	$	28,958		$	9,959
Buildings		64,178			50,340
Furniture and equipment		44,271			35,939

		137,407			96,238
Less: Accumulated depreciation		(49,073	)		(40,644	)

		88,334			55,594
Construction in progress		956			2,148

Total premises and equipment	$	89,290		$	57,742


	September 30,					Reductions/			December 31,
(in thousands)	2018			Additions		Amortization			2017
Core deposit intangibles	$	37,163			27,605		—		$	9,558
Accumulated amortization		(6,452	)		—	$	(2,068	)		(4,384	)

Core deposit intangibles, net	$	30,711			27,605	$	(2,068	)	$	5,174


	Estimated Core Deposit
Years Ended	Intangible Amortization
2018	$	1,431
2019		5,723
2020		5,723
2021		5,465
2022		4,776
Thereafter		7,593


	September 30, 2018		December 31, 2017
Deferred tax asset, net	$	31,963	$	21,697
Investment in low income housing tax credit funds		23,572		16,854
Prepaid expense		3,420		4,111
Tax refund receivable		2,836		4,754
Capital trusts		1,712		1,706
Software		762		1,126
Life insurance proceeds receivable		—		2,242
Miscellaneous other assets		6,332		2,561

Total other assets	$	70,597	$	55,051


	September 30, 2018		December 31, 2017
Pension liability	$	37,789	$	28,472
Low income housing tax credit fund commitments		9,146		8,554
Deferred compensation		9,450		6,605
Accrued salaries and benefits expense		8,990		6,619
Joint beneficiary agreements		3,558		3,365
Loan escrow and servicing payable		2,821		1,958
Deferred revenue		1,978		1,228
Litigation contingency		—		1,450
Miscellaneous other liabilities		8,345		8,171

Total other liabilities	$	82,077	$	66,422


	Operating Leases
	(in thousands)
2018	$	1,179
2019		4,478
2020		3,774
2021		3,372
2022		2,549
Thereafter		4,097

Future minimum lease payments	$	19,449


	Number of Shares			Option Price per Share		Weighted Average Exercise Price
Outstanding at December 31, 2017		446,400		$	12.63 to $23.21	$	16.84
Options granted		—			— to —		—
Options exercised		(27,400	)	$	15.34 to $23.21	$	17.33
Options forfeited		(3,000	)	$	23.21 to $23.21	$	23.21

Outstanding at September 30, 2018		416,000		$	12.63 to $23.21	$	16.77


	Service Condition Vesting RSUs					Market Plus Service Condition Vesting RSUs
	Number of RSUs			Weighted Average Fair Value on Date of Grant		Number of RSUs			Weighted Average Fair Value on Date of Grant
Outstanding at December 31, 2017		68,457					52,829
RSUs granted		38,605		$	39.08		16,939		$	36.40
Additional market plus service condition RSUs vested		—					8,506
RSUs added through dividend credits		806					—
RSUs released through vesting		(32,516	)				(25,512	)
RSUs forfeited/expired		(4,744	)				(5,478	)

Outstanding at September 30, 2018		70,608					47,284


	September 30, 2018				December 31, 2017
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Level 1 inputs:
Cash and due from banks	$	109,363	$	109,363	$	105,968	$	105,968
Cash at Federal Reserve and other banks		117,180		117,180		99,460		99,460
Level 2 inputs:
Securities held to maturity		459,897		446,287		514,844		518,165
Restricted equity securities		17,250		N/A		16,956		N/A
Level 3 inputs:
Loans, net		3,995,833		3,987,841		2,984,842		2,992,225
Financial liabilities:
Level 2 inputs:
Deposits		5,093,117		5,088,024		4,009,131		4,006,620
Other borrowings		282,831		282,831		122,166		122,166
Level 3 inputs:
Junior subordinated debt		56,996		58,930		56,858		58,466

	Contract		Fair		Contract		Fair
	Amount		Value		Amount		Value
Off-balance sheet:
Level 3 inputs:
Commitments	$	1,225,542	$	12,255	$	933,542	$	9,335
Standby letters of credit		11,277		113		13,075		131
Overdraft privilege commitments		107,956		1,080		98,260		983


						Minimum Capital					Minimum Capital					Required to be
						Required – Basel III					Required – Basel III					Considered Well
	Actual					Phase-in Schedule					Fully Phased In					Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
As of September 30, 2018:
Total Capital (to Risk Weighted Assets):
Consolidated	$	664,197		13.90	%	$	471,956		9.875	%	$	501,826		10.50	%		N/A		N/A
Tri Counties Bank	$	658,075		13.77	%	$	471,784		9.875	%	$	501,643		10.50	%	$	477,756		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	630,294		13.19	%	$	376,370		7.875	%	$	406,240		8.50	%		N/A		N/A
Tri Counties Bank	$	624,172		13.06	%	$	376,233		7.875	%	$	406,092		8.50	%	$	382,205		8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	575,010		12.03	%	$	304,680		6.375	%	$	334,551		7.00	%		N/A		N/A
Tri Counties Bank	$	624,172		13.06	%	$	304,569		6.375	%	$	334,429		7.00	%	$	310,541		6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	630,294		10.66	%	$	236,503		4.000	%	$	236,503		4.00	%		N/A		N/A
Tri Counties Bank	$	624,172		10.56	%	$	236,496		4.000	%	$	236,496		4.00	%	$	295,620		5.00	%

						Minimum Capital					Minimum Capital					Required to be
						Required – Basel III					Required – Basel III					Considered Well
	Actual					Phase-in Schedule					Fully Phased In					Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
As of December 31, 2017:
Total Capital (to Risk Weighted Assets):
Consolidated	$	528,805		14.07	%	$	347,694		9.250	%	$	394,679		10.50	%		N/A		N/A
Tri Counties Bank	$	525,384		13.98	%	$	347,535		9.250	%	$	394,499		10.50	%	$	375,713		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	495,318		13.18	%	$	272,517		7.250	%	$	319,502		8.50	%		N/A		N/A
Tri Counties Bank	$	491,897		13.09	%	$	272,392		7.250	%	$	319,356		8.50	%	$	300,570		8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	440,643		11.72	%	$	216,134		5.750	%	$	263,120		7.00	%		N/A		N/A
Tri Counties Bank	$	491,897		13.09	%	$	216,035		5.750	%	$	262,999		7.00	%	$	244,214		6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	495,318		10.80	%	$	183,400		4.000	%	$	183,400		4.00	%		N/A		N/A
Tri Counties Bank	$	491,897		10.73	%	$	183,394		4.000	%	$	183,394		4.00	%	$	229,243		5.00	%


	September 30,		June 30,		March 31,		December 31,		September 30,
Balance Sheet Data	2018		2018		2018		2017		2017
Total assets	$	6,318,865	$	4,863,153	$	4,779,957	$	4,761,315	$	4,656,435
Total investments		1,535,953		1,251,776		1,251,776		1,262,683		1,231,759
Total loans		4,027,436		3,116,789		3,069,733		3,015,165		2,931,613
Totalnon-interest bearing deposits		1,710,505		1,369,834		1,359,996		1,368,218		1,283,949
Total deposits		5,093,117		4,077,222		4,084,404		4,009,131		3,927,456
Total other borrowings		282,831		153,839		65,041		122,166		98,730
Total junior subordinated debt		56,996		56,950		56,905		56,858		56,810
Total shareholders’ equity		802,115		512,344		505,256		505,808		506,733
Total tangible equity⁽¹⁾	$	550,432	$	443,537	$	436,110	$	436,323	$	436,909


Ending balances	As of September 30,				$ Change		Acquired		Organic			Organic
($’s in thousands)	2018		2017		$ Change		Balances		$ Change			% Change
Total assets	$	6,318,865	$	4,656,435	$	1,662,430	$	1,463,199	$	199,231			4.28	%
Total loans		4,027,436		2,931,613		1,095,823		834,683		261,140			8.91	%
Total investments		1,535,953		1,231,759		304,194		335,667		(31,473	)		(2.56	%)
Total deposits	$	5,093,117	$	3,927,456	$	1,165,661	$	991,935	$	173,726			4.42	%


	For the three months ended
	September 30, 2018							September 30, 2017
			Interest		Rates					Interest		Rates
	Average		Income/		Earned			Average		Income/		Earned
	Balance		Expense		/Paid			Balance		Expense		/Paid
Assets:
Loans	$	4,028,462	$	53,102		5.27	%	$	2,878,944	$	37,268		5.18	%
Investment securities - taxable		1,336,361		9,648		2.89	%		1,114,112		7,312		2.63	%
Investment securities - nontaxable⁽¹⁾		153,704		1,546		4.02	%		136,095		1,665		4.89	%

Total investments		1,490,065		11,194		3.00	%		1,250,207		8,977		2.87	%
Cash at Federal Reserve and other banks		119,635		615		2.06	%		85,337		292		1.37	%

Total interest-earning assets		5,638,162		64,911		4.61	%		4,214,488		46,537		4.42	%
Other assets		530,182							357,936

Total assets	$	6,168,344						$	4,572,424

Liabilities and shareholders’ equity:
Interest-bearing demand deposits	$	1,125,159		248		0.09	%	$	949,348		206		0.09	%
Savings deposits		1,803,022		833		0.18	%		1,365,249		419		0.12	%
Time deposits		430,286		991		0.92	%		310,325		403		0.52	%

Total interest-bearing deposits		3,358,467		2,072		0.25	%		2,624,922		1,028		0.16	%
Other borrowings		246,637		1,178		1.91	%		65,234		149		0.91	%
Junior subordinated debt		56,973		815		5.72	%		56,784		652		4.59	%

Total interest-bearing liabilities		3,662,077		4,065		0.44	%		2,746,940		1,829		0.27	%
Noninterest-bearing deposits		1,710,374							1,253,261
Other liabilities		86,131							64,834
Shareholders’ equity		709,762							507,389

Total liabilities and shareholders’ equity	$	6,168,344						$	4,572,424

Net interest spread⁽²⁾						4.17	%						4.15	%
Net interest income and interest margin⁽³⁾			$	60,846		4.32	%			$	44,708		4.24	%


	For the nine months ended
	September 30, 2018							September 30, 2017
			Interest		Rates					Interest		Rates
	Average		Income/		Earned			Average		Income/		Earned
	Balance		Expense		/Paid			Balance		Expense		/Paid
Assets:
Loans	$	3,390,447	$	130,455		5.13	%	$	2,807,453	$	108,600		5.16	%
Investment securities - taxable		1,195,541		25,042		2.79	%		1,076,887		21,637		2.68	%
Investment securities - nontaxable⁽¹⁾		142,061		4,254		3.99	%		136,213		4,998		4.89	%

Total investments		1,337,602		29,296		2.92	%		1,213,100		26,635		2.93	%
Cash at Federal Reserve and other banks		101,889		1,384		1.81	%		139,739		1,080		1.03	%

Total interest-earning assets		4,829,938		161,135		4.45	%		4,160,292		136,315		4.37	%
Other assets		416,520							359,489

Total assets	$	5,246,458						$	4,519,781

Liabilities and shareholders’ equity:
Interest-bearing demand deposits	$	1,038,775		673		0.09	%	$	931,079		534		0.08	%
Savings deposits		1,524,048		1,671		0.15	%		1,364,812		1,253		0.12	%
Time deposits		350,559		2,058		0.78	%		321,150		1,109		0.46	%

Total interest-bearing deposits		2,913,382		4,402		0.20	%		2,617,041		2,896		0.15	%
Other borrowings		165,026		2,106		1.70	%		34,413		164		0.64	%
Junior subordinated debt		56,928		2,301		5.39	%		56,737		1,870		4.39	%

Total interest-bearing liabilities		3,135,336		8,809		0.37	%		2,708,191		4,930		0.24	%
Noninterest-bearing deposits		1,462,209							1,247,201
Other liabilities		72,772							67,854
Shareholders’ equity		576,141							496,535

Total liabilities and shareholders’ equity	$	5,246,458						$	4,519,781

Net interest spread⁽²⁾						4.08	%						4.13	%
Net interest income and interest margin⁽³⁾			$	152,326		4.21	%			$	131,385		4.21	%


	Three months ended September 30, 2018
	compared with three months
	ended September 30, 2017
	Volume			Rate			Total
Increase in interest income:
Loans	$	14,886		$	948		$	15,834
Investment securities		1,676			541			2,217
Cash at Federal Reserve and other banks		117			206			323

Total interest-earning assets		16,679			1,695			18,374

Increase in interest expense:
Interest-bearing demand deposits		40			2			42
Savings deposits		131			283			414
Time deposits		156			432			588
Other borrowings		413			616			1,029
Junior subordinated debt		2			161			163

Total interest-bearing liabilities		742			1,494			2,236

Increase in net interest income	$	15,937		$	201		$	16,138


	Nine months ended September 30, 2018
	compared with nine months
	ended September 30, 2017
	Volume			Rate			Total
Increase (decrease) in interest income:
Loans	$	22,562		$	(707	)	$	21,855
Investment securities		2,599			62			2,661
Cash at Federal Reserve and other banks		(292	)		596			304

Total interest-earning assets		24,869			(49	)		24,820

Increase in interest expense:
Interest-bearing demand deposits		65			74			139
Savings deposits		143			275			418
Time deposits		101			848			949
Other borrowings		627			1,315			1,942
Junior subordinated debt		6			425			431

Total interest-bearing liabilities		942			2,937			3,879

Increase (decrease) in net interest income	$	23,927		$	(2,986	)	$	20,941


(in thousands):	Balance at September 30, 2018		Additions		Advances/ Paydowns, net			Charge-offs/ Write-downs			Transfers to Foreclosed Assets			Category Changes			Balance at June 30, 2018
Real estate mortgage:
Residential	$	3,038	$	116	$	(73	)	$	—		$	—		$	(1,212	)	$	4,207
Commercial		15,129		2,688		(418	)		—			—			974			11,885
Consumer
Home equity lines		2,133		549		(1,053	)		—			—			—			2,637
Home equity loans		3,089		762		(76	)		(49	)		(511	)		238			2,725
Other consumer		8		1		(1	)											8
Commercial		3,751		513		(236	)		(484	)		—			—			3,958
Construction:
Residential		—		—		—			—			—			—			—
Commercial		—		—		—			—			—			—			—

Total nonperforming loans		27,148		4,629		(1,857	)		(533	)		(511	)		—			25,420
Foreclosed assets		1,832		25		(79	)		1			511			—			1,374

Total nonperforming assets	$	28,980	$	4,654	$	(1,936	)	$	(532	)	$	—		$	—		$	26,794


	Balance at September 30, 2018		Additions		Advances/ Capitalized Costs/Other		Sales			Valuation Adjustments			Balance at December 31, 2017
Land & Construction	$	445	$	—	$	—	$	(1,341	)	$	—		$	1,786
Residential real estate		1,294		536		—		(356	)		(72	)		1,186
Commercial real estate		93		—		—		(144	)		(17	)		254

Total foreclosed assets	$	1,832	$	536	$	—	$	(1,841	)	$	(89	)	$	3,226


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 shares that may yet be purchased under the plans or programs⁽²⁾
July1-31, 2018	49,996	$	37.72		—		333,400
August1-31, 2018	41,485	$	38.95		—		333,400
September1-30, 2018	11,211	$	39.15		—		333,400

Total	102,692	$	38.37		—		333,400