UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________

FORM 10-Q

~~FORM~~

~~10-Q~~

___________________

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

for the quarterly period ended: ~~June 30, 2019~~

March 31, 2020

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

for the transition period from

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 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒

~~Yes~~

☐

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

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

~~Indicate by check mark whether the registrant is a shell company (as defined in Rule~~

~~12b-2~~

~~of the Exchange Act).~~

☐

~~Yes~~

☒

~~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: 30,509,637 shares outstanding as of August 5, 2019~~

~~Table of Contents~~

TriCo Bancshares

(Exact Name of Registrant as Specified in Its Charter)

___________________


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

63 Constitution Drive

Chico, California 95973

(Address of Principal Executive Offices)(Zip Code)

(530) 898-0300

(Registrant’s Telephone Number, Including Area Code)

___________________

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

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

Common Stock

TCBK

The NASDAQ Stock Market

☒

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

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

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

Common stock, no par value: 29,721,523 shares outstanding as of May 8, 2020.

Table of Contents

TriCo Bancshares

FORM 10-Q

TABLE OF CONTENTS

Table of Contents

PART I – FINANCIAL INFORMATION

~~Item 1.~~

Item 1. Financial Statements (unaudited)

TRICO BANCSHARES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data; unaudited)


	At June 30, 2019			At December 31, 2018				March 31, 2020		December 31, 2019
Assets:							Assets:
Cash and due from banks	$	106,939		$	119,781		Cash and due from banks	$	95,364	$	92,816
Cash at Federal Reserve and other banks		68,643			107,752		Cash at Federal Reserve and other banks	90,102		183,691

Cash and cash equivalents		175,582			227,533		Cash and cash equivalents	185,466		276,507
Investment securities:							Investment securities:
Marketable equity securities		2,952			2,874		Marketable equity securities	3,007		2,960
Available for sale debt securities		1,133,994			1,115,036
Held to maturity debt securities		412,524			444,936
Available for sale debt securities, net of allowance for credit losses of $—							Available for sale debt securities, net of allowance for credit losses of $—	1,001,999		950,138
Held to maturity debt securities, net of allowance for credit losses of $—							Held to maturity debt securities, net of allowance for credit losses of $—	359,770		375,606
Restricted equity securities		17,250			17,250		Restricted equity securities	17,250		17,250
Loans held for sale		5,875			3,687		Loans held for sale	2,695		5,265
Loans		4,103,687			4,022,014		Loans	4,379,062		4,307,366
Allowance for loan losses		(32,868	)		(32,582	)

Allowance for credit losses							Allowance for credit losses	(57,911)		(30,616)
Total loans, net		4,070,819			3,989,432		Total loans, net	4,321,151		4,276,750
Premises and equipment, net		88,534			89,347		Premises and equipment, net	86,304		87,086
Cash value of life insurance		116,606			117,318		Cash value of life insurance	118,543		117,823
Accrued interest receivable		20,990			19,412		Accrued interest receivable	18,575		18,897
Goodwill		220,972			220,972		Goodwill	220,872		220,872
Other intangible assets, net		26,418			29,280		Other intangible assets, net	22,126		23,557
Operating leases, right-of-use		30,030			—		Operating leases, right-of-use	30,221		27,879
Other assets		72,626			75,364		Other assets	86,330		70,591

Total assets	$	6,395,172		$	6,352,441		Total assets	$	6,474,309	$	6,471,181

Liabilities and Shareholders’ Equity:							Liabilities and Shareholders’ Equity:
Liabilities:							Liabilities:
Deposits:							Deposits:
Noninterest-bearing demand	$	1,780,339		$	1,760,580		Noninterest-bearing demand	$	1,883,143	$	1,832,665
Interest-bearing		3,561,834			3,605,886		Interest-bearing	3,519,555		3,534,329

Total deposits		5,342,173			5,366,466		Total deposits	5,402,698		5,366,994
Accrued interest payable		2,665			1,997		Accrued interest payable	1,986		2,407
Operating lease liability		29,434			—		Operating lease liability	30,007		27,540
Other liabilities		74,590			83,724		Other liabilities	96,560		91,984
Other borrowings		13,292			15,839		Other borrowings	19,309		18,454
Junior subordinated debt		57,132			57,042		Junior subordinated debt	57,323		57,232

Total liabilities		5,519,286			5,525,068		Total liabilities	5,607,883		5,564,611

Commitments and contingencies (Note 8)
Commitments and contingencies (Note 7)							Commitments and contingencies (Note 7)
Shareholders’ equity:							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
Preferred stock, 0 par value: 1,000,000 shares authorized, 0 issued and outstanding at March 31, 2020 and December 31, 2019							Preferred stock, 0 par value: 1,000,000 shares authorized, 0 issued and outstanding at March 31, 2020 and December 31, 2019	—		—
Common stock, 0 par value: 50,000,000 shares authorized; 29,973,516 and 30,523,824 issued and outstanding at March 31, 2020 and December 31, 2019, respectively							Common stock, 0 par value: 50,000,000 shares authorized; 29,973,516 and 30,523,824 issued and outstanding at March 31, 2020 and December 31, 2019, respectively	534,623		543,998
Retained earnings		335,145			303,490		Retained earnings	356,935		367,794
Accumulated other comprehensive loss, net of tax		(2,198	)		(17,879	)

Accumulated other comprehensive income (loss), net of tax							Accumulated other comprehensive income (loss), net of tax	(25,132)		(5,222)
Total shareholders’ equity		875,886			827,373		Total shareholders’ equity	866,426		906,570

Total liabilities and shareholders’ equity	$	6,395,172		$	6,352,441		Total liabilities and shareholders’ equity	$	6,474,309	$	6,471,181

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data; unaudited)


	Three months ended March 31,
	2020		2019
Interest and dividend income:
Loans, including fees	$	56,258	$	54,398
Investments:
Taxable securities	8,211		10,555
Tax exempt securities	904		1,073
Dividends	361		360
Interest bearing cash at Federal Reserve and other banks	783		1,071
Total interest and dividend income	66,517		67,457
Interest expense:
Deposits	2,551		2,719
Other borrowings	5		13
Junior subordinated debt	769		855
Total interest expense	3,325		3,587
Net interest income	63,192		63,870
Provision for (reversal of) credit losses	8,000		(1,600)
Net interest income after credit loss provision (reversal)	55,192		65,470
Non-interest income:
Service charges and fees	9,126		9,070
Gain on sale of loans	891		412
Gain on sale of investment securities	—		—
Asset management and commission income	916		642
Increase in cash value of life insurance	720		775
Other	167		904
Total non-interest income	11,820		11,803
Non-interest expense:
Salaries and related benefits	27,272		25,128
Other	17,547		20,324
Total non-interest expense	44,819		45,452
Income before provision for income taxes	22,193		31,821
Provision for income taxes	6,072		9,095
Net income	$	16,121	$	22,726
Per share data:
Basic earnings per share	$	0.53	$	0.75
Diluted earnings per share	$	0.53	$	0.74
Dividends per share	$	0.22	$	0.19

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

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In thousands; unaudited)


	Three months ended March 31,
	2020		2019
Net income	$	16,121	$	22,726
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available for sale securities arising during the period	(20,822)		8,952
Change in minimum pension liability	912		—
Other comprehensive income (loss)	(19,910)		8,952
Comprehensive income (loss)	$	(3,789)	$	31,678

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

Table of Contents

TRICO BANCSHARES

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(In thousands; unaudited)~~

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)

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


	Shares of Common Stock	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance at January 1, 2019	30,417,223	$	541,762	$	303,490	$	(17,879)	$	827,373
Net income				22,726				22,726
Other comprehensive income						8,952		8,952
Stock options exercised	41,000	647						647
RSU vesting		278						278
PSU vesting		119						119
RSUs released	355							—
PSUs released	—							—
Repurchase of common stock	(26,159)	(466)		(569)				(1,035)
Dividends paid ($0.19 per share)				(5,782)				(5,782)
Three months ended March 31, 2019	30,432,419	$	542,340	$	319,865	$	(8,927)	$	853,278


Balance at January 1, 2020	30,523,824	$	543,998	$	367,794	$	(5,222)	$	906,570
Cumulative change from adoption of ASU 2016-13	—	—		(12,983)		—		(12,983)
Balance at January 1, 2020 (as adjusted for change in accounting principle)	30,523,824	$	543,998	354,811		(5,222)		893,587
Net income				16,121				16,121
Other comprehensive loss						(19,910)		(19,910)
Stock options exercised	8,000	148						148
RSU vesting		297						297
PSU vesting		142						142
RSUs released	362							—
PSUs released	—							—
Repurchase of common stock	(558,670)	(9,962)		(7,333)				(17,295)
Dividends paid ($0.22 per share)				(6,664)				(6,664)
Three months ended March 31, 2020	29,973,516	$	534,623	$	356,935	$	(25,132)	$	866,426

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TRICO BANCSHARES

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

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

Shares of
Common
Stock

Common
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total

Balance at 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,							For the three months ended March 31,
	2019			2018				2020		2019
Operating activities:							Operating activities:
Net income	$	45,787		$	28,939		Net income	$	16,121	$	22,726
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment, and amortization		3,582			3,229		Depreciation of premises and equipment, and amortization	1,618		1,838
Amortization of intangible assets		2,862			678		Amortization of intangible assets	1,431		1,431
Reversal of provision for loan losses		(1,063	)		(874	)
Provision for (reversal of) credit losses							Provision for (reversal of) credit losses	8,000		(1,600)
Amortization of investment securities premium, net		1,186			1,340		Amortization of investment securities premium, net	509		571

Originations of loans for resale		(46,936	)		(43,389	)	Originations of loans for resale	(28,394)		(18,119)
Proceeds from sale of loans originated for resale		45,407			45,437		Proceeds from sale of loans originated for resale	31,629		16,689
Gain on sale of loans		(987	)		(1,292	)	Gain on sale of loans	(891)		(412)
Change in market value of mortgage servicing rights		1,197			(75	)	Change in market value of mortgage servicing rights	1,258		645
Provision for losses on foreclosed assets		62			90

Gain on transfer of loans to foreclosed assets		(97	)		—		Gain on transfer of loans to foreclosed assets	—		(98)
Gain on sale of foreclosed assets		(199	)		(388	)	Gain on sale of foreclosed assets	(41)		(99)
Operating lease expense payments							Operating lease expense payments	(1,237)		(1,218)
Loss on disposal of fixed assets		80			54		Loss on disposal of fixed assets	—		38
Increase in cash value of life insurance		(1,521	)		(1,264	)	Increase in cash value of life insurance	(720)		(775)
Gain on life insurance death benefit		(728	)		—		Gain on life insurance death benefit	—		(32)
(Gain) loss on marketable equity securities		(78	)		70
Gain on marketable equity securities							Gain on marketable equity securities	(47)		(36)
Equity compensation vesting expense		815			722		Equity compensation vesting expense	439		397
Change in:							Change in:
Interest receivable		(1,578	)		(481	)	Interest receivable	322		(1,019)
Interest payable		668			245		Interest payable	(421)		198
Amortization of operating lease ROUA							Amortization of operating lease ROUA	1,362		480
Other assets and liabilities, net		(14,592	)		(97	)	Other assets and liabilities, net	2,609		450

Net cash from operating activities		33,867			32,944		Net cash from operating activities	33,547		22,055

Investing activities:							Investing activities:
Proceeds from maturities of securities available for sale		39,845			32,906		Proceeds from maturities of securities available for sale	20,212		15,133
Proceeds from maturities of securities held to maturity		31,938			36,587		Proceeds from maturities of securities held to maturity	15,592		13,684

Purchases of securities available for sale		(37,253	)		(81,300	)	Purchases of securities available for sale	(101,899)		(1,238)
Loan origination and principal collections, net		(80,440	)		(131,073	)	Loan origination and principal collections, net	(70,833)		(11,351)
Proceeds from sale of other real estate owned		1,082			2,150		Proceeds from sale of other real estate owned	353		278
Proceeds from sale of premises and equipment		11			36		Proceeds from sale of premises and equipment	—		11
Purchases of premises and equipment		(2,586	)		(4,119	)	Purchases of premises and equipment	(761)		(1,650)

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

Net cash from (used by) investing activities							Net cash from (used by) investing activities	(137,336)		14,867
Financing activities:							Financing activities:
Net change in deposits		(24,293	)		68,091		Net change in deposits	35,704		63,796
Net change in other borrowings		(2,547	)		30,673		Net change in other borrowings	855		(3,373)
Repurchase of common stock, net		—			(448	)
Repurchase of common stock, net of option exercises							Repurchase of common stock, net of option exercises	(17,147)		(388)
Dividends paid		(11,575	)		(7,813	)	Dividends paid	(6,664)		(5,782)

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

Net cash used from financing activities							Net cash used from financing activities	12,748		54,253
Net change in cash and cash equivalents		(51,951	)		(21,366	)	Net change in cash and cash equivalents	(91,041)		91,175

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

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

Cash and cash equivalents, beginning of period							Cash and cash equivalents, beginning of period	276,507		227,533
Cash and cash equivalents, end of period							Cash and cash equivalents, end of period	$	185,466	$	318,708
Supplemental disclosure of noncash activities:							Supplemental disclosure of noncash activities:
Unrealized gain (loss) on securities available for sale	$	22,263		$	(21,304	)	Unrealized gain (loss) on securities available for sale	$	(29,561)	$	12,710
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		Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes	148		647
Obligations incurred in conjunction with leased assets		156			—		Obligations incurred in conjunction with leased assets	3,393		32,006
Loans transferred to foreclosed assets							Loans transferred to foreclosed assets	—		116
Supplemental disclosure of cash flow activity:							Supplemental disclosure of cash flow activity:
Cash paid for interest expense		6,982			4,499		Cash paid for interest expense	3,746		3,389
Cash paid for income taxes		22,000			8,525		Cash paid for income taxes	—		—

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 Company has

~~five~~

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

~~two~~

2 organized by the Company and ~~three~~3 acquired with the acquisition of North Valley Bancorp.

The consolidated financial statements are prepared in accordance with accounting policies generally accepted in the United States of America and general practices in the banking industry. All adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. The financial statements include the accounts of the Company. All inter-company accounts and transactions have been eliminated in consolidation. For financial reporting purposes, the Company’s investments in the Capital Trusts of ~~$1,716,000~~$1,792,000 are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet. The subordinated debentures issued and guaranteed by the Company and held by the Capital Trusts are reflected as debt on the Company’s consolidated balance sheet.

Use of Estimates in the Preparation of Financial Statements

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

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the audited ~~consolidtated~~consolidated financial statements and notes thereto included in the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2018~~2019 (the ~~“2018~~“2019 Annual Report”). The Company believes that the disclosures made are adequate to make the ~~inforamtion~~information not misleading.

Segment and Significant Group Concentration of Credit Risk

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

~~one~~

1 business segment that it denotes as community banking.

Geographical Descriptions

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

Reclassification

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

Cash and Cash Equivalents

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

~~Accounting Standards Adopted in 2019~~6

~~The Financial Accounting Standards Board (“FASB”) issued ASU No.~~

~~2016-02,~~

~~Leases (Topic 842)~~

~~. ASU~~

~~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 liabilityAllowance for ~~all applicable operating leases. While the guidance increased the Company’s gross assets and liabilities, the adoption of ASU~~

~~2016-02~~

~~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.~~Credit Losses - Held to Maturity Securities

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, and did not have an impact on the Company’s 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 reflectsmeasures expected credit losses on held-to-maturity debt securities on a collective basis by major security type, then further disaggregated by sector and ~~requires consideration~~bond rating. Accrued interest receivable on held-to-maturity debt securities totaled $920,000 at March 31, 2020 and is excluded from the estimate 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~~losses. The estimate of expected credit losses ~~extends~~considers historical credit loss information that is adjusted for current condition and reasonable and supportable forecasts based on current and expected changes in credit ratings and default rates. Based on the implied guarantees of the U. S. Government or its agencies related to ~~held~~certain of these investment securities, and the absence of any historical or expected losses, substantially all qualify for a zero loss assumption. Management has separately evaluated its HTM investment securities from obligations of state and political subdivisions utilizing the historical loss data represented by similar securities over a period of time spanning nearly 50 years. As a result of this evaluation, management determined that the expected credit losses associated with these securities is not significant for financial reporting purposes and therefore, no allowance for credit losses has been recognized.

Loans

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

Allowance for Credit Losses - Loans

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

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

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

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

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

Commercial mortgage loans:

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

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

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

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

Consumer loans:

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

Home equity loans: Similar to residential real estate term loans but secured by a deed of trust in a position that is junior to the primary lien holder.

Consumer - Automobile and other: The majority of consumer loans are secured by automobiles, with the remainder primarily unsecured revolving debt (credit cards). These loans are susceptible to three primary risks; non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value, if any. Typically non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by

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rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of those factors. Credit card loans are unsecured and while collection efforts are pursued in the event of default, there is typically limited opportunity for recovery. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.

Commercial:

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

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

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

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

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

Accounting Standards Adopted in 2020

On January 1, 2020, the Company adopted ASU 2016-03 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loan receivables and held-to-maturity debt securities. ~~ASU 2016-13 amends~~It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases. In addition, ASC 326 made changes to the accounting for available for sale debt securities. One such change is to require increases or decreases in credit losses ~~on available-for-sale securities (‘‘AFS’’), whereby credit losses will~~ be presented as an allowance rather than as ~~opposed~~a write-down on available for sale debt securities, based on management's intent to ~~a write-down. In addition, CECL~~sell the security or likelihood the Company will ~~modify~~be required to sell the ~~accounting~~security, before recovery of the amortized cost basis.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company adopted ASC 326 using the prospective transition approach for financial assets purchased ~~loans~~ with credit deterioration ~~since origination, so~~(PCD) that ~~reserves are established at~~were previously classified as purchase credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the Standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of ~~acquisition for purchased loans. Lastly, ASU 2016-13 requires enhanced disclosures~~adoption. The remaining noncredit discount (based on the ~~significant estimates and judgments used~~adjusted amortized costs basis) will be accreted into interest income at the effective interest rate as of adoption. The Company recognized an increase in the ACL for loans totaling $18,913,000, including a reclassification of $481,000 from discounts on acquired loans to ~~estimate~~the allowance for 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~~from change in accounting policies, with a corresponding decrease in retained earnings, ~~instead~~net of ~~the income statement). ASU 2016-13 will be effective for the Company on~~$5,449,000 in taxes

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of $12,983,000. Management has separately evaluated its held-to-maturity investment securities from obligations of state and political subdivisions and determined that no loss reserves were required.

On January 1, 2020 ~~and early adoption is permitted. While~~ the Company ~~is currently evaluating the provisions of~~adopted ASU 2016-13 to determine the potential impact the new standard will have on the Company’s 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—Goodwill and Other: Simplifying the Test for Goodwill Impairment

(Topic 350):

~~ASU~~

~~2017-04~~

, which eliminates step two of the goodwill impairment test (the hypothetical purchase price allocation used to determine the implied fair value of goodwill) when step one (determining if the carrying value of a reporting unit exceeds its fair value) is failed. Instead, entities simply will compare the fair value of a reporting unit to its carrying amount and record goodwill impairment for the amount by which the reporting unit’s carrying amount exceeds its fair value. There was 0 goodwill impairment recorded during the quarter ended March 31, 2020.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the Coronavirus Disease 2019 (COVID-19) pandemic. The CARES Act provides optional temporary relief from troubled debt restructuring and impairment accounting requirements for loan modifications related to the COVID-19 pandemic made during the period from March 1, 2020 to the earlier of December 31, 2020 or 60 days after the national emergency concerning COVID-19 declared by the President terminates. The election of any such suspension would be applicable for the term of the loan modification but solely with respect to any modification (including a forbearance arrangement, an interest rate modification, a repayment plan and any other similar arrangement that defers or delays the payment of principal or interest) that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. The ability to suspend TDR accounting does not apply to any adverse impact on the credit of a borrower that is not related to the COVID-19 pandemic nor does it apply to borrowers.

Accounting Standards Pending Adoption

FASB issued ASU

~~2017-04~~

2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The guidance also promotes consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU No. 2019-12 will be effective for the Company onbeginning January 1, ~~2020~~2021 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~~2020-04, Reference Rate Reform (Topic 848): Facilitation of the ~~Disclosure Requirements for Fair Value Measurement.”~~

Effects of Reference Rate Reform on Financial Reporting.This ASU ~~eliminates, adds~~provides temporary optional guidance to ease the potential burden in accounting for reference rate reform by providing optional expedients and ~~modifies~~exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected if certain ~~disclosure requirements for fair value measurements. Among the changes, entities will no longer~~criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be ~~required to disclose the amount~~discontinued because 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.reference rate reform. Amendments in this ASU ~~No.~~

~~2018-13~~

isare effective for ~~interim and annual reporting periods beginning after~~the Company as of March 12, 2020 through 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 ASU No.

~~2018-13~~

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

~~In August 2018, the FASB issued ASU No.~~

~~2018-14,~~

~~“Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit 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 significant impact on the Company’s consolidated financial statements.~~31, 2022.

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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~~

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 price accounting adjustments including goodwill are all

~~non-taxable~~

~~and /or~~

~~non-deductible.~~

~~Acquisition related costs of $601,000 and $1,077,000~~

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

~~2018~~

~~. There have been~~

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

~~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

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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. At the acquisition date, the Company was unable to estimate the expected contractual cash flows to be collected from the purchased credit impaired loans.

~~Table of Contents~~

~~Note 3 -~~ Investment Securities

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


	June 30, 2019
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair			March 31, 2020
	Cost		Gains		Losses			Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
	(in thousands)												(in thousands)
Debt Securities Available for Sale										Debt Securities Available for Sale
Obligations of U.S. government agencies	$	627,996	$	5,193	$	(2,278	)	$	630,911	Obligations of U.S. government agencies	$	447,736	$	21,482	$	—	$	—	$	469,218
Obligations of states and political subdivisions		123,626		2,462		(108	)		125,980	Obligations of states and political subdivisions	110,564		3,561		—		—		114,125
Corporate bonds		4,407		114		—			4,521	Corporate bonds	2,437		138		—		—		2,575
Asset backed securities		376,676		252		(4,346	)		372,582	Asset backed securities	467,436		8		(51,363)		—		416,081

Total debt securities available for sale	$	1,132,705	$	8,021	$	(6,732	)	$	1,133,994	Total debt securities available for sale	$	1,028,173	$	25,189	$	(51,363)	$	—	$	1,001,999

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

Table of Contents


	March 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Allowance for Credit Losses
	(in thousands)
Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	345,944	$	17,352	$	(4)	$	363,292	$	—
Obligations of states and political subdivisions	13,826		324		—		14,150		—
Total debt securities held to maturity	$	359,770	$	17,676	$	(4)	$	377,442	$	—


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

There were no sales of investment securities during the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018.~~respectively. Investment securities with an aggregate carrying value of ~~$569,296,000~~$463,165,000 and ~~$597,591,000~~$466,321,000 at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, were pledged as collateral for specific borrowings, lines of credit or local agency deposits.

~~Table of Contents~~

The amortized cost and estimated fair value of debt securities at ~~June 30, 2019~~March 31, 2020 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At ~~June 30, 2019,~~March 31, 2020, obligations of U.S. government corporations and agencies with a cost basis totaling ~~$1,026,710,000~~$793,680,000 consist almost entirely of residential real estate mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages. For purposes of the following table, the entire outstanding balance of these mortgage-backed securities issued by U.S. government corporations and agencies is categorized based on final maturity date. At ~~June 30, 2019,~~March 31, 2020, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately ~~5.1~~3.24 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

Estimated

Amortized

Estimated

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

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


Debt Securities	Available for Sale						Held to Maturity
(in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value

Due in one year	$	604	$	607	$	1,279	$	1,285
Due after one year through five years	18,264		18,958		—		—
Due after five years through ten years	114,545		103,673		22,271		23,136
Due after ten years	894,760		878,761		336,220		353,021
Totals	$	1,028,173	$	1,001,999	$	359,770	$	377,442

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and

Table of Contents

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

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
)


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



Asset backed securities	$	166,612	$	(13,000)	$	248,222	$	(38,363)	$	414,834	$	(51,363)

Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	707	$	(4)	$	—	$	—	$	707	$	(4)


	Less than 12 months						12 months or more						Total
December 31, 2019:	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
					(in thousands)
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	36,709	$	(309)	$	23,852	$	(111)	$	60,561	$	(420)
Obligations of states and political subdivisions	778		(1)		—		—		778		(1)
Asset backed securities	237,463		(4,535)		99,981		(2,378)		337,444		(6,913)
Total debt securities available for sale	$	274,950	$	(4,845)	$	123,833	$	(2,489)	$	398,783	$	(7,334)
Debt Securities Held to Maturity
Obligations of U.S. government agencies	18,813		(142)		62,952		(338)		81,765		(480)

Total debt securities held to maturity	$	18,813	$	(142)	$	62,952	$	(338)	$	81,765	$	(480)

Obligations of U.S. government agencies: Unrealized losses on investments in obligations of U.S. government agencies are caused by interest rate ~~increases.~~increases and illiquidity. The contractual cash flows of these securities are guaranteed by U.S. Government Sponsored Entities (principally Fannie Mae and Freddie Mac). It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because 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 ~~June 30, 2019, 46~~March 31, 2020, one debt ~~securities~~security representing obligations of U.S. government agencies had unrealized losses with aggregate depreciation of ~~(1.0%)~~0.56% from the Company’s amortized cost basis.

~~Table~~ The Company evaluates if a credit loss exists by monitoring to ensure it has adequate credit support and as 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 becauseMarch 31, 2020, 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 June 30, 2019, 13 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of (2.0%) from the Company’s amortized cost basis.believes there is no expected allowance for credit losses.

Asset backed securities: The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors infor these types of securities. At the time of purchase, each of these securities was rated AA or AAA and through ~~June 30, 2019~~March 31, 2020 has not experienced any deterioration in credit rating. At March 31, 2020, 15 asset backed securities had unrealized losses with aggregate depreciation of 11.02% from the Company’s amortized cost basis. The Company continues to monitor these securities for changes in credit rating or other indications of credit deterioration. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these ~~investments are not considered other-than-temporarily impaired. At June 30, 2019, 28 asset backed~~ securities ~~had unrealized~~and there has been no allowance for credit losses ~~with aggregate depreciation~~recorded as of ~~(1.3%) from~~March 31, 2020.

The Company monitors credit quality of debt securities held-to-maturity through the ~~Company’s~~use of credit rating. The Company monitors the credit rating on a monthly basis. The following table summarizes the amortized cost ~~basis.~~

~~Marketable equity securities: All unrealized losses recognized during~~of debt securities held-to-maturity at the ~~reporting period were for equity securities still held at June 30, 2019.~~

dates indicated, aggregated by credit quality indicator:

Table of Contents


	March 31, 2020						December 31, 2019
	AAA/AA/A		BBB/BB/B		AAA/AA/A		BBB/BB/B
	(In thousands)						(In thousands)
Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	345,944	$	—	$	361,785	$	—
Obligations of states and political subdivisions	13,137		689		13,136		685
Total debt securities held to maturity	$	359,081	$	689	$	374,921	$	685

Note 43 – Loans

A summary of loan balances ~~follows (in thousands):~~

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
)

follows:


(in thousands)	March 31, 2020		December 31, 2019
Mortgage loans on real estate:
Residential 1-4 family	$	506,833	$	509,508
Commercial	2,889,183		2,818,782
Total mortgage loans on real estate	3,396,016		3,328,290
Consumer:
Home equity lines of credit	341,461		334,300
Home equity loans	27,110		28,586
Other	82,427		82,656
Total consumer loans	450,998		445,542
Commercial	290,334		283,707
Construction:
Residential	42,333		46,146
Commercial	199,381		203,681
Total construction loans	241,714		249,827
Total loans, net of deferred loan fees and discounts	$	4,379,062	$	4,307,366
Total principal balance of loans owed, net of charge-offs	$	4,420,889	$	4,351,725
Unamortized net deferred loan fees	(8,794)		(8,927)
Discounts to principal balance of loans owed, net of charge-offs	(33,033)		(35,432)
Total loans, net of unamortized deferred loan fees and discounts	$	4,379,062	$	4,307,366
Allowance for loan losses	$	(57,911)	$	(30,616)

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 during the periods indicated (in thousands):~~

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 54 – Allowance for ~~Loan~~Credit Losses

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

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

indicated:


	Allowance for Loan Losses – Three Months Ended March 31, 2020
(in thousands)	Beginning Balance		Impact of CECL Adoption		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	2,306	$	2,675	$	—	$	410	$	259	$	5,650
Commercial	11,995		11,848		—		194		5,216		29,253
Total mortgage loans on real estate	14,301		14,523		—		604		5,475		34,903
Consumer:
Home equity lines of credit	5,572		4,549		—		33		369		10,523
Home equity loans	611		89		—		15		(42)		673
Other	1,595		971		(130)		94		216		2,746
Total consumer loans	7,778		5,609		(130)		142		543		13,942
Commercial	5,149		(2,152)		(380)		146		1,708		4,471
Construction:
Residential	630		189		—		—		5		824
Commercial	2,758		744		—		—		269		3,771
Total construction loans	3,388		933		—		—		274		4,595
Total	$	30,616	$	18,913	$	(510)	$	892	$	8,000	$	57,911

In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various econometrics, including California unemployment, gross domestic product, and corporate bond yields. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. At both January 1, 2020, the adoption and implementation date of ASC Topic 326, and March 31, 2020, the Company utilized a reasonable and supportable forecast period of approximately eight quarters and obtained the forecast data from publicly available sources. The Company also considered the impact of portfolio concentrations, changes in underwriting practices, imprecision in its economic forecasts, and other risk factors that might influence its loss estimation process. During the quarter ended March 31, 2020 the levels of actual and forecasted California unemployment and gross domestic product continued to deteriorate and as a result, were the primary cause for the increase in allowance for credit losses. Management believes that the allowance for credit losses at March 31, 2020 appropriately reflected expected credit losses inherent in the loan portfolio at that date.

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


	Allowance for Loan Losses – Year Ended December 31, 2019
(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	2,676	$	(2)	$	54	$	(422)	$	2,306
Commercial	12,944		(746)		1,528		(1,731)		11,995
Total mortgage loans on real estate	15,620		(748)		1,582		(2,153)		14,301
Consumer:
Home equity lines of credit	6,042		—		504		(974)		5,572
Home equity loans	1,540		(3)		431		(1,357)		611
Other	793		(765)		321		1,246		1,595
Total consumer loans	8,375		(768)		1,256		(1,085)		7,778
Commercial	6,090		(2,123)		525		657		5,149
Construction:
Residential	464		—		—		166		630
Commercial	2,033		—		—		725		2,758
Total construction loans	2,497		—		—		891		3,388
Total	$	32,582	$	(3,639)	$	3,363	$	(1,690)	$	30,616

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 – Three Months Ended March 31, 2019
(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Mortgage loans on real estate:
Residential 1-4 family	$	2,676	$	—	$	2	$	(178)	$	2,500
Commercial	12,944		—		1,381		(1,995)		12,330
Total mortgage loans on real estate	15,620		—		1,383		(2,173)		14,830
Consumer:
Home equity lines of credit	6,042		—		95		(122)		6,015
Home equity loans	1,540		—		87		(341)		1,286
Other	793		(207)		75		379		1,040
Total consumer loans	8,375		(207)		257		(84)		8,341
Commercial	6,090		(519)		168		339		6,078
Construction:
Residential	464		—		—		84		548
Commercial	2,033		—		—		234		2,267
Total construction loans	2,497		—		—		318		2,815
Total	$	32,582	$	(726)	$	1,808	$	(1,600)	$	32,064

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 analyzes loans individually to classify the loans as to credit risk and grading. This analysis is performed annually for all outstanding balances greater than $1,000,000 and non-homogeneous loans, such as commercial real estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation. Loans below the $1,000,000 threshold and homogenous in nature are evaluated as needed based on delinquency and borrower credit scores.

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

~~Pass~~15

Table of Contents

•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.

Table of Contents

~~The following tables present ending loan balances~~Based on the most recent analysis performed, the risk category of loans by ~~loan category and risk grade~~class of loans is as follows for the ~~periods~~period indicated:

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


(in thousands)	Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2020
	2020	2019	2018	2017	2016	Prior	Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term	Total
Mortgage loans on real estate:
Residential 1-4 family risk ratings
Pass	$25,698	$102,369	$59,278	$69,504	$60,063	$179,461	—	$117	$496,490
Special Mention	—	—	—	868	18	2,953	—	105	3,944
Substandard	—	—	574	996	51	4,778	—	—	6,399
Doubtful/Loss	—	—	—	—	—	—	—	—	—
Total residential 1-4 family - mortgage loans	$25,698	$102,369	$59,852	$71,368	$60,132	$187,192	$—	$222	$506,833


Mortgage loans on real estate:
Commercial risk ratings
Pass	$82,428	$457,462	$364,082	$443,054	$407,011	$967,584	$102,830	$1,501	$2,825,952
Special Mention	70	2,288	—	7,618	11,562	10,722	12,588	—	44,848
Substandard	200	1,394	1,445	1,580	3,191	9,801	772	—	18,383
Doubtful/Loss	—	—	—	—	—	—	—	—	—
Total commercial - mortgage loans	$82,698	$461,144	$365,527	$452,252	$421,764	$988,107	$116,190	$1,501	$2,889,183


Consumer loans:
Home equity line of credit risk ratings
Pass	$2,859	$8,591	$2,967	$714	$1,561	$10,815	$304,911	$627	$333,045
Special Mention	80	—	36	46	70	644	3,524	—	4,400
Substandard	—	—	57	529	80	1,078	2,266	6	4,016
Doubtful/Loss	—	—	—	—	—	—	—	—	—
Total home equity lines of credit - consumer loans	$2,939	$8,591	$3,060	$1,289	$1,711	$12,537	$310,701	$633	$341,461

Table of Contents


(in thousands)	Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2020
	2020	2019	2018	2017	2016	Prior	Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term	Total
Consumer loans:
Home equity loans risk ratings
Pass	$2	$580	$290	$378	$673	$21,191	$500	$16	$23,630
Special Mention	—	—	19	—	—	906	—	—	925
Substandard	153	—	—	—	145	2,257	—	—	2,555
Doubtful/Loss	—	—	—	—	—	—	—	—	—
Total home equity loans - consumer loans	$155	$580	$309	$378	$818	$24,354	$500	$16	$27,110


Consumer loans:
Other risk ratings
Pass	$7,679	$40,454	$20,465	$6,221	$1,883	$1,787	$1,747	$1,407	$81,643
Special Mention	—	53	170	141	44	158	83	2	651
Substandard	—	59	—	12	11	35	16	—	133
Doubtful/Loss	—	—	—	—	—	—	—	—	—
Total other - consumer loans	$7,679	$40,566	$20,635	$6,374	$1,938	$1,980	$1,846	$1,409	$82,427


Commercial loans:
Commercial risk ratings
Pass	$15,616	$66,145	$32,209	$25,226	$10,041	$17,434	$112,189	$5,164	$284,024
Special Mention	—	—	75	539	149	110	604	700	2,177
Substandard	—	153	382	1,236	1,262	201	725	174	4,133
Doubtful/Loss	—	—	—	—	—	—	—	—	—
Total commercial loans	$15,616	$66,298	$32,666	$27,001	$11,452	$17,745	$113,518	$6,038	$290,334

Table of Contents


(in thousands)	Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2020
	2020	2019	2018	2017	2016	Prior	Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term	Total
Construction loans:
Residential risk ratings
Pass	$1,725	$15,703	$17,067	$0	$3,459	$0	$0	$0	$37,954
Special Mention	—	—	—	—	4,379	—	—	—	4,379
Substandard	—	—	—	—	—	—	—	—	—
Doubtful/Loss	—	—	—	—	—	—	—	—	—
Total residential - construction loans	$1,725	$15,703	$17,067	$0	$7,838	$0	$0	$0	$42,333


Construction loans:
Commercial risk ratings
Pass	$14,081	$35,515	$82,740	$43,455	$15,793	$5,709	$0	$0	$197,293
Special Mention	—	—	—	—	—	1,845	—	—	1,845
Substandard	—	—	—	—	—	243	—	—	243
Doubtful/Loss	—	—	—	—	—	—	—	—	—
Total commercial - construction loans	$14,081	$35,515	$82,740	$43,455	$15,793	$7,797	$0	$0	$199,381


Total loans:
Risk ratings
Pass	$150,088	$726,819	$579,098	$588,552	$500,484	$1,203,981	$522,177	$8,832	$4,280,031
Special Mention	150	2,341	300	9,212	16,222	17,338	16,799	807	63,169
Substandard	353	1,606	2,458	4,353	4,740	18,393	3,779	180	35,862
Doubtful/Loss	—	—	—	—	—	—	—	—	—
Total loans	$150,591	$730,766	$581,856	$602,117	$521,446	$1,239,712	$542,755	$9,819	$4,379,062

Table of Contents


(in thousands)	Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2019
		2019	2018	2017	2016	Prior	Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term	Total
Mortgage loans on real estate:
Residential 1-4 family risk ratings
Pass		$102,613	$63,542	$73,195	$65,050	$194,214	—	—	$498,614
Special Mention		—	—	1,408	19	3,287	—	—	4,714
Substandard		—	813	711	52	4,604	—	—	6,180
Doubtful/Loss		—	—	—	—	—	—	—	$0
Total residential 1-4 family - mortgage loans		$102,613	$64,355	$75,314	$65,121	$202,105	$—	$—	$509,508


Mortgage loans on real estate:
Commercial risk ratings
Pass	$446,597	$373,065	$421,901	$415,568	$1,010,057	$107,965	$748	$2,775,901
Special Mention	—	—	4,965	9,373	8,467	2,253	—	25,058
Substandard	830	1,454	1,591	3,216	9,937	795	—	17,823
Doubtful/Loss	—	—	—	—	—	—	—	—
Total commercial - mortgage loans	$447,427	$374,519	$428,457	$428,157	$1,028,461	$111,013	$748	$2,818,782


Consumer loans:
Home equity line of credit risk ratings
Pass	$10,195	$3,436	$1,015	$1,729	$11,821	$297,458	$663	$326,317
Special Mention	—	11	47	31	665	3,398	37	4,189
Substandard	—	59	253	77	1,223	2,146	36	3,794
Doubtful/Loss	—	—	—	—	—	—	—	—
Total home equity lines of credit - consumer loans	$10,195	$3,506	$1,315	$1,837	$13,709	$303,002	$736	$334,300

Table of Contents


(in thousands)	Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2019
		2019	2018	2017	2016	Prior	Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term	Total
Consumer loans:
Home equity loans risk ratings
Pass		$607	$300	$382	$712	$22,655	$399	$37	$25,092
Special Mention		—	20	—	—	1,172	—	—	1,192
Substandard		—	—	—	156	2,146	—	—	2,302
Doubtful/Loss		—	—	—	—	—	—	—	—
Total home equity loans - consumer loans		$607	$320	$382	$868	$25,973	$399	$37	$28,586


Consumer loans:
Other risk ratings
Pass	$45,675	$23,014	$7,176	$2,245	$2,099	$1,602	$3	$81,814
Special Mention	56	182	176	52	172	81	—	719
Substandard	60	—	13	1	45	1	3	123
Doubtful/Loss	—	—	—	—	—	—	—	—
Total other - consumer loans	$45,791	$23,196	$7,365	$2,298	$2,316	$1,684	$6	$82,656


Commercial loans:
Commercial risk ratings
Pass	$77,614	$37,411	$27,195	$11,906	$17,806	$100,098	$3,623	$275,653
Special Mention	—	339	1,236	167	164	1,921	—	3,827
Substandard	—	48	1,481	1,646	393	611	48	4,227
Doubtful/Loss	—	—	—	—	—	—	—	—
Total commercial loans	$77,614	$37,798	$29,912	$13,719	$18,363	$102,630	$3,671	$283,707

Table of Contents


(in thousands)	Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2019
		2019	2018	2017	2016	Prior	Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term	Total
Construction loans:
Residential risk ratings
Pass		$18,516	$12,990	$0	$3,319	$0	$6,230	$889	$41,944
Special Mention		—	—	—	4,202	—	—	—	4,202
Substandard		—	—	—	—	—	—	—	—
Doubtful/Loss		—	—	—	—	—	—	—	—
Total residential - construction loans		$18,516	$12,990	$0	$7,521	$0	$6,230	$889	$46,146


Construction loans:
Commercial risk ratings
Pass	$31,031	$72,339	$76,043	$15,654	$7,322	$975	$0	$203,364
Special Mention	—	—	—	—	317	—	—	317
Substandard	—	—	—	—	—	—	—	—
Doubtful/Loss	—	—	—	—	—	—	—	—
Total commercial - construction loans	$31,031	$72,339	$76,043	$15,654	$7,639	$975	$0	$203,681


Total loans:
Risk ratings
Pass	$732,848	$586,097	$606,907	$516,183	$1,265,974	$514,727	$5,963	$4,228,699
Special Mention	56	552	7,832	13,844	14,244	7,653	37	44,218
Substandard	890	2,374	4,049	5,148	18,348	3,553	87	34,449
Doubtful/Loss	—	—	—	—	—	—	—	—
Total loans	$733,794	$589,023	$618,788	$535,175	$1,298,566	$525,933	$6,087	$4,307,366

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;

~~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, suggesting modifications if appropriate, and, when continued scheduled payments become unrealistic, 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 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


	Analysis of Past Due Loans - As of March 31, 2020
(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	$	699	$	—	$	1,763	$	2,462	$	504,371	$	506,833
Commercial	18,445		1,283		2,675		22,403		2,866,780		2,889,183
Total mortgage loans on real estate	19,144		1,283		4,438		24,865		3,371,151		3,396,016
Consumer:
Home equity lines of credit	572		85		1,118		1,775		339,686		341,461
Home equity loans	200		64		193		457		26,653		27,110
Other	100		12		114		226		82,201		82,427
Total consumer loans	872		161		1,425		2,458		448,540		450,998
Commercial	1,014		932		70		2,016		288,318		290,334
Construction:
Residential	—		—		—		—		42,333		42,333
Commercial	—		—		—		—		199,381		199,381
Total construction loans	—		—		—		—		241,714		241,714
Total originated loans	$	21,030	$	2,376	$	5,933	$	29,339	$	4,349,723	$	4,379,062

~~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 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, 2018															Analysis of Past Due Loans - As of December 31, 2019
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		> 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:															Mortgage loans on real estate:
Residential 1-4 family	$	1,675	$	132	$	478	$	2,285	$	341,511	$	343,796	$	—	Residential 1-4 family	$	1,149	$	371	$	1,957	$	3,477	$	506,031	$	509,508
Commercial		431		1,200		296		1,927		1,909,054		1,910,981		—	Commercial	581		136		2,431		3,148		2,815,634		2,818,782

Total mortgage loans on real estate		2,106		1,332		774		4,212		2,250,565		2,254,777		—	Total mortgage loans on real estate	1,730		507		4,388		6,625		3,321,665		3,328,290
Consumer:															Consumer:
Home equity lines of credit		908		47		609		1,564		282,889		284,453		—	Home equity lines of credit	1,083		363		956		2,402		331,898		334,300
Home equity loans		1,043		24		214		1,281		31,379		32,660		—	Home equity loans	175		216		132		523		28,063		28,586
Other		298		17		—		315		33,705		34,020		—	Other	172		1		23		196		82,460		82,656

Total consumer loans		2,249		88		823		3,160		347,973		351,133		—	Total consumer loans	1,430		580		1,111		3,121		442,421		445,542
Commercial		1,053		579		1,247		2,879		225,756		228,635		—	Commercial	652		298		24		974		282,733		283,707
Construction:															Construction:
Residential		209		—		—		209		90,494		90,703		—	Residential	—		—		—		—		46,146		46,146
Commercial		—		—		—		—		56,208		56,208		—	Commercial	—		—		—		—		203,681		203,681

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

Total construction loans															Total construction loans	—		—		—		—		249,827		249,827
Total loans	$	5,617	$	1,999	$	2,844	$	10,460	$	2,970,996	$	2,981,456	$	—	Total loans	$	3,812	$	1,385	$	5,523	$	10,720	$	4,296,646	$	4,307,366

Table of Contents

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


	Non Accrual Loans
	As of March 31, 2020										As of December 31, 2019
(in thousands)	Non accrual with no allowance for credit losses		Total non accrual		Past due 90 days or more and still accruing		Non accrual with no allowance for credit losses		Total non accrual		Past due 90 days or more and still accruing
Mortgage loans on real estate:
Residential 1-4 family	$	5,169	$	5,784	$	—	$	5,023	$	5,192	$	—
Commercial	5,451		5,514		—		5,316		5,316		—
Total mortgage loans on real estate	10,620		11,298		—		10,339		10,508		—
Consumer:
Home equity lines of credit	2,760		3,210		—		2,419		2,590		—
Home equity loans	1,523		1,654		—		1,574		1,626		—
Other	—		140		—		4		51		11
Total consumer loans	4,283		5,004				3,997		4,267		11
Commercial	298		1,653		—		489		2,089		—
Construction:
Residential	—		—		—		—		—		—
Commercial	—		—		—		—		—		—
Total construction	—		—		—		—		—		—
Total non accrual loans	$	15,201	$	17,955	$	—	$	14,825	$	16,864	$	11

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~~non accrual loans that would have been recognized during the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ if all such loans had been current in accordance with their original terms, totaled ~~$289,000~~$431,000 and ~~$341,000,~~$400,000, respectively. Interest income actually recognized on these originated loans during the three months ended ~~June 30,~~March 31, 2020 and 2019 was $47,000 and ~~2018 was $53,000 and $53,000,~~$93,000, respectively. Interest income on PNCI nonaccrual loans that would have been recognized during the three months ended June 30, 2019 and 2018, if all such loans had been current in accordance with their original terms, totaled $160,000 and $26,000, respectively. Interest income actually recognized on these PNCI loans during the three months ended June 30, 2019 and 2018 was $111,000 and $12,000.

Interest income on originated nonaccrual loans that would have been recognized during the six months ended June 30, 2019 and 2018, if all such loans had been current in accordance with their original terms, totaled $568,000 and $626,000, respectively. Interest income actually recognized on these originated loans during the six months ended June 30, 2019 and 2018 was $86,000 and $75,000, respectively. Interest income on PNCI nonaccrual loans that would have been recognized during the six months ended June 30, 2019 and 2018, if all such loans had been current in accordance with their original terms, totaled $281,000 and $54,000, respectively. Interest income actually recognized on these PNCI loans during the six months ended June 30, 2019 and 2018 was $171,000 and $11,000.

Table of Contents

The following ~~table shows~~tables present the ~~ending balance~~amortized cost basis of ~~nonaccrual originated~~

~~and PNCI~~collateral dependent loans by ~~loan category~~class of loans as of the ~~date indicated:~~following periods:


	As of March 31, 2020
(in thousands)	Retail		Office		Warehouse		Other		Multifamily		Farmland		SFR -1st Deed		SFR -2nd Deed		Automobile/Truck		A/R and Inventory		Equipment		Unsecured		Total
Mortgage loans on real estate:
Residential 1-4 family	$	—	$	—	$	—	$	—	$	—	$	—	$	5,815	$	—	$	—	$	—	$	—	$	—	$	5,815
Commercial	2,483		161		1,866		506		2,060		1,203		—		—		—		—		—		—		8,279
Total mortgage loans on real estate	2,483		161		1,866		506		2,060		1,203		5,815		—		—		—		—		—		14,094
Consumer:
Home equity lines of credit	—		—		—		—		—		—		—		1,936		—		—		—		—		1,936
Home equity loans	—		—		—		—		—		—		—		2,106		—		—		—		—		2,106
Other	—		—		—		—		—		156		47		—		127		—		—		4		334
Total consumer loans	—		—		—		—		—		156		47		4,042		127		—		—		4		4,376
Commercial	—		—		—		—		—		—		—		—		—		1,824		1,012		116		2,952




Total collateral dependent loans	$	2,483	$	161	$	1,866	$	506	$	2,060	$	1,359	$	5,862	$	4,042	$	127	$	1,824	$	1,012	$	120	$	21,422


	As of December 31, 2019
(in thousands)	Retail		Office		Warehouse		Other		Multifamily		Farmland		SFR -1st Deed		SFR -2nd Deed		Automobile/Truck		A/R and Inventory		Equipment		Unsecured		Total
Mortgage loans on real estate:
Residential 1-4 family	$	—	$	—	$	—	$	—	$	—	$	—	$	5,293	$	—	$	—	$	—	$	—	$	—	$	5,293
Commercial	2,506		163		1,640		509		2,060		1,242		—		—		—		—		—		—		8,120
Total mortgage loans on real estate	2,506		163		1,640		509		2,060		1,242		5,293		—		—		—		—		—		13,413
Consumer:
Home equity lines of credit	—		—		—		—		—		—		—		1,808		—		—		—		—		1,808
Home equity loans	—		—		—		—		—		—		—		2,040		—		—		—		—		2,040
Other	—		—		—		—		—		—		48		—		27		—		—		4		79
Total consumer loans	—		—		—		—		—		—		48		3,848		27		—		—		4		3,927
Commercial	—		—		—		—		—		—		—		—		—		1,952		1,026		107		3,085




Total collateral dependent loans	$	2,506	$	163	$	1,640	$	509	$	2,060	$	1,242	$	5,341	$	3,848	$	27	$	1,952	$	1,026	$	111	$	20,425

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

Table of Contents

~~Impaired originated loans~~The CARES Act, in addition to providing financial assistance to both businesses and consumers, provides financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. The banking regulatory agencies have likewise issued guidance encouraging financial institutions to work prudently with borrowers who are, ~~those where management has concluded that it is probable that the borrower will~~or may be, unable to ~~pay all amounts due in accordance with the original~~meet their contractual ~~terms~~payment obligations because of the ~~loan agreement. The following tables show~~effects of COVID-19. That guidance, with concurrence of the ~~recorded investment (financial statement balance), unpaid principal balance, average recorded investment,~~Financial Accounting Standards Board and ~~interest income recognized for impaired Originated and PNCI loans, segregated by those~~provisions of the CARES Act, allow modifications made on a good faith basis in response to COVID-19 to borrowers who were generally current with ~~no related allowance recorded and those with an allowance recorded for~~their payments prior to any relief, to not be treated as troubled debt restructurings. To the ~~periods indicated. The average recorded investment in impaired loans and interest income recognized on impaired loans during~~extent that such modifications meet the ~~three months ended June 30, 2019 and 2018 was~~criteria previously described, such modifications are not ~~considered significant for financial reporting purposes.~~

~~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~~expected to be 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, respectively. PNCI loans classified as 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 Originated or PNCI TDRs as of June 30, 2019, December 31, 2018, or June 30, 2018.

~~Table of Contents~~

troubled debt restructurings. The following tables show certain information regarding TDRs that occurred during the periods indicated:

TDR Information for the Three Months Ended June 30, 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
)


	TDR Information for the three months ended March 31, 2020
(dollars in thousands)	Number	Pre-mod outstanding principal balance		Post-mod outstanding principal balance		Financial impact due to TDR taken as additional provision		Number that defaulted during the period	Recorded investment of TDRs that defaulted during the period		Financial impact due to the default of previous TDR taken as charge- offs or additional provisions
Mortgage loans on real estate:
Residential 1-4 family	—	$	—	$	—	$	—	1	$	302	$	—
Commercial	3	487		549		—		—	—		—
Total mortgage loans on real estate	3	487		549		—		1	302		—
Consumer:
Home equity lines of credit	—	—		—		—		—	—		—
Home equity loans	2	172		169		—		—	—		—
Other	—	—		—		—		—	—		—
Total consumer loans	2	172		169		—		—	—		—
Commercial	1	21		20		21		—	—		—
Construction:
Residential	—	—		—		—		—	—		—
Commercial	—	—		—		—		—	—		—
Total construction loans	—	—		—		—		—	—		—
Total	6	$	680	$	738	$	21	1	$	302	$	—


	TDR Information for the three months ended March 31, 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	—	$	163	$	162	$	—	$	—	$	—	$	—
Commercial	—	—		—		—		—		—		—
Total mortgage loans on real estate	1	163		162		—		—		—		—
Consumer:
Home equity lines of credit	—	—		—		—		—		—		—
Home equity loans	1	121		120		1		—		—		—
Other	—	—		—		—		—		—		—
Total consumer loans	1	121		120		1		—		—		—
Commercial	2	15		15		—		1		7		—
Construction:
Residential	—	—				—		—		—		—
Commercial	—	—				—		—		—		—
Total construction loans	—	—		—		—		—		—		—
Total	4	$	299	$	297	$	1	1		$	7	$	—

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
)

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

For all new TDRs, an impairment analysis is conducted. If the loan is determined to be collateral dependent, any additional amount of impairment will be calculated based on the difference between estimated collectible value and the current carrying balance of the loan. This difference could result in an increased provision and is typically charged off. If the asset is determined not to be collateral dependent, the impairment is measured on the net present value difference between the expected cash flows of the restructured loan and the cash flows which would have been received under the original terms. The effect of this could result in a requirement for additional provision to the 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 –~~5 - Leases

The Company ~~adopted ASU~~

~~2016-02~~

~~“Leases” (Topic 842) as of January 1, 2019, which requires the Company to record~~records a

right-of-use

asset (“ROUA”) on the consolidated balance sheets for those leases that convey rights to control use of identified assets for a period of time in exchange for consideration. The Company is also ~~required to record~~records a lease liability on the consolidated balance sheets for the present value of future payment commitments. All of the Company’s leases are comprised of operating leases in which the Company is lessee of real estate property for branches, ATM locations, and general administration and operations. The Company elected not to include short-term leases (i.e. leases with initial terms of 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 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~~1 or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a

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

The following table presents the components of lease expense for the three ~~and six~~ months ~~ended June 30, 2019:~~ended:


(in thousands)	March 31, 2020		March 31, 2019
Operating lease cost	$	1,294	$	1,311
Short-term lease cost	63		71
Variable lease cost	6		(5)
Sublease income	(34)		(34)
Total lease cost	$	1,329	$	1,343

(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~~Table of ~~ASU~~

~~2016-02,~~Contents

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~~three 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

ended:


(in thousands)	March 31, 2020		March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	1,237	$	1,218
ROUA obtained in exchange for operating lease liabilities	$	3,393	$	32,006

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~~	%

as of the periods ended:


	As of March 31, 2020		As of March 31, 2019
Weighted-average remaining lease term	10.3		9.5
Weighted-average discount rate	3.17	%	3.17	%

~~Table of Contents~~

At ~~June 30, 2019,~~March 31, 2020, future expected operating lease payments are as follows:


(in thousands)
Periods ending December 31,
2020	$	3,412
2021	4,428
2022	4,089
2023	3,410
2024	3,130
Thereafter	17,337
	35,806
Discount for present value of expected cash flows	(5,799)
Lease liability at March 31, 2020	$	30,007

(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 76 - Deposits

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


	March 31, 2020		December 31, 2019
Noninterest-bearing demand	$	1,883,143	$	1,832,665
Interest-bearing demand	1,243,192		1,242,274
Savings	1,857,684		1,851,549
Time certificates, $250,000 or more	111,262		129,061
Other time certificates	307,417		311,445
Total deposits	$	5,402,698	$	5,366,994

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 ~~$50,000,000 and $60,000,000~~$30,000,000 from the State of California were included in time certificates, over $250,000, at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The Company participates in a deposit program offered by the State of California whereby the State may make deposits at the Company’s request subject to collateral and credit worthiness constraints. The negotiated rates on these State deposits are generally more favorable than other wholesale funding sources available to the Company. Overdrawn deposit balances of ~~$1,242,000~~$1,543,000 and ~~$1,469,000~~$1,550,000 were classified as consumer loans at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Table of Contents

Note 87 - Commitments and Contingencies

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


(in thousands)	March 31, 2020		December 31, 2019
Financial instruments whose amounts represent risk:
Commitments to extend credit:
Commercial loans	$	360,793	$	363,793
Consumer loans	541,848		533,576
Real estate mortgage loans	189,921		188,959
Real estate construction loans	204,170		222,998
Standby letters of credit	12,084		12,014
Deposit account overdraft privilege	109,752		110,402

(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 ~~9 –~~8 - Shareholders’ Equity

Dividends Paid

The Bank paid to the Company cash dividends in the aggregate amounts of ~~$10,236,000~~$26,754,000 and ~~$4,770,000~~$8,114,000 during the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively and $18,350,000 and $9,142,000 during the six months ended June 30, 2019 and 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.

Stock Repurchase Plan

On ~~August 21, 2007,~~November 12, 2019 the Board of Directors ~~adopted a plan~~approved the authorization to repurchase ~~as conditions warrant,~~ up to ~~500,000~~1,525,000 shares of the ~~Company’s~~Company's common stock on(the 2019 Repurchase Plan), which approximated 5.0% of the ~~open market.~~shares outstanding as of the approval date. The actual timing of ~~purchases~~any share repurchases will be determined by the Company's management and therefore the ~~exact number~~total value of the shares to be purchased ~~will depend on market conditions. This stock repurchase plan~~under the program is subject to change. The 2019 Repurchase Plan has no expiration ~~date. As~~date and as of ~~June 30,~~and for quarter ended December 31, 2019, the Company had repurchased ~~196,566 shares under this plan.~~0 shares. During the ~~six month periods~~quarter ended ~~June 30,~~March 31, 2020, the Company repurchased 553,869 shares with a market value of $17,139,000.

In connection with approval of the 2019 ~~and 2018, there~~Repurchase Plan, the Company’s previous repurchase program adopted on August 21, 2007 (the 2007 Repurchase Plan) was terminated. There were no0 shares of common stock repurchased under ~~this plan.~~the 2007 Repurchase Plan during 2019.

Stock Repurchased Under Equity Compensation Plans

The Company's shareholder-approved equity compensation plans permit employees to tender recently vested shares in lieu of cash for the payment of withholding taxes on such shares. During the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ employees tendered ~~93,755~~4,668 and ~~17,086~~26,068 shares, respectively, of the Company’s common stock in connection with ~~market value~~option exercises. Employees also tendered 133 and 91 shares in connection with the tax withholding requirements of ~~$3,659,000,~~other share based awards during the three months ended March 31, 2020 and ~~$667,000, respectively, in lieu of cash to exercise options to purchase~~2019, respectively. In total, 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’sCompany's common stock ~~with~~tendered had market ~~value~~values of ~~$4,695,000,~~$153,000 and ~~$671,000, respectively, in lieu of cash to exercise options to purchase shares of~~$1,036,000 during the ~~Company’s stock~~quarter ended March 31, 2020 and ~~to pay income taxes related to equity compensation plan instruments as permitted by the Company’s shareholder-approved equity compensation plans.~~2019, respectively. The tendered shares were retired. The market value of tendered shares is the last market trade price at closing on the day an option is ~~exercised.~~exercised or the other share based award vests. Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the ~~stock repurchase plan announced on August 21, 2007.~~

2019 or 2007 Stock Repurchase Plans.

Note 109 - 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~~approved by shareholders on May 21, 2019. The 2019 Plan allows for up to 1,500,000 shares to be issued in connection with equity-based incentives. All grants of equity awards made during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020, if any, were made from the 2019 Plan.

Table of Contents

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

ended ~~June 30, 2019~~March 31, 2020 is summarized in the following table:


	Number of Shares	Option Price per Share	Weighted Average Exercise Price
Outstanding at December 31, 2019	160,500	$14.54 to $23.21	$	17.60
Options granted	—	—	—
Options exercised	(8,000)	$17.54 to $19.46	18.50
Options forfeited	—	—	—
Outstanding at March 31, 2020	152,500	$14.54 to $23.21	$	17.55

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 ~~June 30, 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

March 31, 2020:


	Currently Exercisable		Currently Not Exercisable		Total Outstanding
Number of options	152,500		—		152,500
Weighted average exercise price	$	17.55	$	—	$	17.55
Intrinsic value (in thousands)	$	1,871	$	—	$	1,871
Weighted average remaining contractual term (yrs.)	2.6		0		2.6

~~The 750~~As of March 31, 2020 all options ~~that~~outstanding are ~~currently not exercisable as of June 30, 2019~~fully vested and are expected to ~~vest, on a weighted-average basis, over the next three months.~~be exercised prior to expiration. The Company did not modify any option grants during ~~2018~~2019 or the ~~six~~three months ended ~~June 30, 2019.~~

March 31, 2020.

~~Table of Contents~~

~~Restricted~~Activity related to restricted stock unit ~~(RSU) activity~~awards during the three months ended March 31, 2020 is summarized in the following ~~table for the dates indicated:~~

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

table:


	Service Condition Vesting RSUs	Market Plus Service Condition Vesting RSUs
Outstanding at December 31, 2019	68,597	51,312
RSUs granted	—	—
RSUs added through dividend and performance credits	521	—
RSUs released	(362)	—
RSUs forfeited/expired	(80)	(78)
Outstanding at March 31, 2020	68,676	51,234

The ~~76,527~~68,676 of service condition vesting RSUs outstanding as of ~~June 30, 2019~~March 31, 2020 include a feature whereby each RSU outstanding is credited with a dividend amount equal to any common stock cash dividend declared and paid, and the credited amount is divided by the closing price of the Company’s stock on the dividend payable date to arrive at an additional amount of RSUs outstanding under the original grant. The dividend credits follow the same vesting requirements as the RSU awards and are not considered participating securities. The ~~76,527~~68,676 of service condition vesting RSUs outstanding as of ~~June 30,~~March 31, 2020 are expected to vest, and be released, on a weighted-average basis, over the next 1.1 years. The Company expects to recognize $1,537,782 of pre-tax compensation costs related to these service condition vesting RSUs between March 31, 2020 and their vesting dates. The Company did not modify any service condition vesting RSUs during 2019 or during the three months ended March 31, 2020.

The 51,234 of market plus service condition vesting RSUs outstanding as of March 31, 2020 are expected to vest, and be released, on a weighted-average basis, over the next 1.4 years. The Company expects to recognize ~~$2,495,000~~$759,307 of

pre-tax

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

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

~~pre-tax~~

compensation costs related to these RSUs between ~~June 30, 2019~~March 31, 2020 and their vesting dates. As of ~~June 30, 2019,~~March 31, 2020, the number of market plus service condition vesting RSUs outstanding that will actually vest, and be released, may be reduced to ~~zero~~0 or increased to ~~80,417~~76,851 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 ~~2018~~2019 or during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

Table of Contents

Note 1110 - ~~Noninterest~~Non-interest Income and Expense

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


	Three months ended March 31,
(dollars in thousands)	2020		2019
ATM and interchange fees	$	5,111	$	4,581
Service charges on deposit accounts	4,046		3,880
Other service fees	758		771
Mortgage banking service fees	469		483
Change in value of mortgage servicing rights	(1,258)		(645)
Total service charges and fees	9,126		9,070
Increase in cash value of life insurance	720		775
Asset management and commission income	916		642
Gain on sale of loans	891		412
Lease brokerage income	193		220
Sale of customer checks	124		140
Gain on sale of investment securities	—		—
Gain on marketable equity securities	47		36
Other	(197)		508
Total other non-interest income	2,694		2,733
Total non-interest income	$	11,820	$	11,803

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


	Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
	2019		2018		2019		2018			2020		2019
Base salaries, net of deferred loan origination costs	$	17,211	$	14,429	$	33,968	$	28,391	Base salaries, net of deferred loan origination costs	$	17,623	$	16,757
Incentive compensation		3,706		2,159		6,273		4,611	Incentive compensation	3,101		2,567
Benefits and other compensation costs		5,802		4,865		11,606		10,103	Benefits and other compensation costs	6,548		5,804

Total salaries and benefits expense		26,719		21,453		51,847		43,105	Total salaries and benefits expense	27,272		25,128

Occupancy		3,738		2,720		7,512		5,401	Occupancy	3,875		3,774
Data processing and software		3,354		2,679		6,703		5,193	Data processing and software	3,367		3,349
Equipment		1,752		1,637		3,619		3,188	Equipment	1,512		1,867
Intangible amortization		1,431		339		2,862		678	Intangible amortization	1,431		1,431
Advertising		1,533		1,035		2,864		1,873	Advertising	665		1,331
ATM and POS network charges		1,270		1,437		2,593		2,663	ATM and POS network charges	1,373		1,323
Professional fees		1,057		774		1,896		1,546	Professional fees	703		839
Telecommunications		773		681		1,570		1,382	Telecommunications	725		797
Regulatory assessments and insurance		490		417		1,001		847	Regulatory assessments and insurance	95		511
Merger and acquisition expense		—		601		—		1,077
Postage		315		301		625		659	Postage	290		310
Operational losses		226		252		451		546	Operational losses	221		225
Courier service		412		224		682		491	Courier service	331		270
Gain on sale of foreclosed assets									Gain on sale of foreclosed assets	(41)		(99)
Loss on disposal of fixed assets									Loss on disposal of fixed assets	—		24
Other miscellaneous expense		3,782		3,320		8,140		7,383	Other miscellaneous expense	3,000		4,372

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

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

Total other non-interest expense									Total other non-interest expense	17,547		20,324
Total non-interest expense									Total non-interest expense	$	44,819	$	45,452

Table of Contents

Note ~~12 –~~11 - Earnings Per Share

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


	Three months ended June 30,					Three months ended March 31,
(in thousands)	2019		2018		(in thousands)	2020		2019
Net income	$	23,061	$	15,029	Net income	$	16,121	$	22,726
Average number of common shares outstanding		30,458		22,983	Average number of common shares outstanding	30,395		30,424
Effect of dilutive stock options and restricted stock		185		293	Effect of dilutive stock options and restricted stock	128		234

Average number of common shares outstanding used to calculate diluted earnings per share		30,643		23,276	Average number of common shares outstanding used to calculate diluted earnings per share	30,523		30,658

Options excluded from diluted earnings per share because the effect of these options was antidilutive		—		—	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 1312 – 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,							Three months ended March 31,
(in thousands)	2019			2018			2019			2018			(in thousands)	2020		2019
Unrealized holding gains (losses) on available for sale securities before reclassifications	$	9,553		$	(5,676	)	$	22,263		$	(20,941	)	Unrealized holding gains (losses) on available for sale securities before reclassifications	$	(29,561)	$	12,710
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		Tax effect	8,739		(3,758)

Unrealized holding gains (losses) on available for sale securities, net of tax		6,729			(3,998	)		15,681			(15,024	)	Unrealized holding gains (losses) on available for sale securities, net of tax	(20,822)		8,952

Change in unfunded status of the supplemental retirement plans before reclassifications		(89	)		—			(177	)		668		Change in unfunded status of the supplemental retirement plans before reclassifications	448		(89)
Amounts reclassified out of accumulated other comprehensive income:
Amounts reclassified out of accumulated other comprehensive income (loss):													Amounts reclassified out of accumulated other comprehensive income (loss):
Amortization of prior service cost		(13	)		(13	)		(27	)		(27	)	Amortization of prior service cost	(14)		(13)
Amortization of actuarial losses		102			127			204			254		Amortization of actuarial losses	478		102
Adoption ASU 2018-02		—			—			—			(668	)

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

Total amounts reclassified out of accumulated other comprehensive income (loss)													Total amounts reclassified out of accumulated other comprehensive income (loss)	464		89
Change in unfunded status of the supplemental retirement plans after reclassifications		—			114			—			227		Change in unfunded status of the supplemental retirement plans after reclassifications	912		—
Tax effect		—			(34	)		—			(67	)	Tax effect	—		—

Change in unfunded status of the supplemental retirement plans, net of tax		—			80			—			160		Change in unfunded status of the supplemental retirement plans, net of tax	912		—

Total other comprehensive income (loss)	$	6,729		$	(3,918	)	$	15,681		$	(14,864	)	Total other comprehensive income (loss)	$	(19,910)	$	8,952

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


	June 30,			December 31,
(in thousands)	2019			2018			(in thousands)	March 31, 2020		December 31, 2019
Net unrealized loss on available for sale securities	$	1,289		$	(20,974	)
Net unrealized gain (loss) on available for sale securities							Net unrealized gain (loss) on available for sale securities	$	(26,174)	$	3,387
Tax effect		(381	)		6,201		Tax effect	7,738		(1,001)

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

Unrealized holding gain (loss) on available for sale securities, net of tax							Unrealized holding gain (loss) on available for sale securities, net of tax	(18,436)		2,386
Unfunded status of the supplemental retirement plans		(4,802	)		(4,802	)	Unfunded status of the supplemental retirement plans	(11,193)		(11,193)
Tax effect		1,420			1,420		Tax effect	3,309		3,309

Unfunded status of the supplemental retirement plans, net of tax		(3,382	)		(3,382	)	Unfunded status of the supplemental retirement plans, net of tax	(7,884)		(7,884)

Joint beneficiary agreement liability		276			276		Joint beneficiary agreement liability	1,188		276
Tax effect		—			—		Tax effect	—		—

Joint beneficiary agreement liability, net of tax		276			276		Joint beneficiary agreement liability, net of tax	1,188		276

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

Accumulated other comprehensive income (loss)							Accumulated other comprehensive income (loss)	$	(25,132)	$	(5,222)

~~Table of Contents~~

Note 1413 - Fair Value Measurement

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, income approach, and/or the cost approach. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Marketable equity securities, debt securities

available-for-sale,

loans held for sale, and mortgage servicing rights are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application impairment write-downs of individual assets.

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

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

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

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

Marketable equity securities and debt securities available for sale

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

not

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

over-the-counter

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

0 securities classified as Level 3 during any of the periods covered in these financial statements.

Loans held for sale

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

~~Impaired originated and PNCI~~Individually evaluated loans

~~– Originated and PNCI loans~~- Loans are not recorded at fair value on a recurring basis. However, from time to time, ~~an originated or PNCI loan~~certain loans have individual risk characteristics not consistent with a pool of loans and is ~~considered impaired and an allowance~~individually evaluated for ~~loan losses is established. Originated and PNCI loans~~credit reserves.

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

Mortgage servicing rights

- Mortgage servicing rights are carried at fair value. A valuation model, which utilizes a discounted cash flow analysis using a discount rate and prepayment speed assumptions is used in the computation of the fair value

~~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):


Fair value at June 30, 2019	Total		Level 1		Level 2		Level 3
Fair value at March 31, 2020									Fair value at March 31, 2020	Total		Level 1		Level 2		Level 3
Marketable equity securities	$	2,952	$	2,952	$	—	$	—	Marketable equity securities	$	3,007	$	3,007	$	—	$	—
Debt securities available for sale:									Debt securities available for sale:
Obligations of U.S. government corporations and agencies		630,911		—		630,911		—	Obligations of U.S. government corporations and agencies	469,218		—		469,218		—
Obligations of states and political subdivisions		125,980		—		125,980		—	Obligations of states and political subdivisions	114,125		—		114,125		—
Corporate bonds		4,521		—		4,521		—	Corporate bonds	2,575		—		2,575		—
Asset backed securities		372,582		—		372,582		—	Asset backed securities	416,081		—		416,081		—
Loans held for sale		5,875		—		5,875		—	Loans held for sale	2,695		—		2,695		—
Mortgage servicing rights		6,229		—		—		6,229	Mortgage servicing rights	5,168		—		—		5,168

Total assets measured at fair value	$	1,149,050	$	2,952	$	1,139,869	$	6,229	Total assets measured at fair value	$	1,012,869	$	3,007	$	1,004,694	$	5,168


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


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

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 ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 or the year ended December 31, ~~2018.~~2019.

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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):

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


Three months ended March 31,	Beginning Balance		Transfers into (out of) Level 3	Change Included in Earnings		Issuances		Ending Balance
2020: Mortgage servicing rights	$	6,200	—	$	(1,258)	$	226	$	5,168
2019: Mortgage servicing rights	$	7,098	—	$	(645)	$	119	$	6,572

Three months ended March 31,

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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~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
%

2019:

As of March 31, 2020:

Fair Value
(in thousands)

Valuation
Technique

Unobservable
Inputs

Range,
Weighted
Average

Mortgage Servicing Rights

5,168

Discounted cash flow

Constant prepayment rate

7% - 42%; 11%

Discount rate

10% - 14%; 12%

As of December 31, 2019:

Mortgage Servicing Rights

6,200

Discounted cash flow

Constant prepayment rate

6% - 42.0%; 11.0%

Discount rate

10% - 14%; 12%

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

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
)


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


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


March 31, 2019	Total		Level 1	Level 2	Level 3		Total Losses
Fair value:
Individually evaluated loans	$	212	—	—	$	212	$	(197)
Foreclosed assets	214		—	—	214		—
Total assets measured at fair value	$	426	—	—	$	426	$	(197)

The ~~impaired originated and PNCI~~individually evaluated loan ~~amount~~amounts above ~~represents impaired,~~represent collateral dependent loans that have been adjusted to fair value. When the Company identifies a collateral dependent loan ~~as impaired,~~with unique risk characteristics, the Company ~~measures~~evaluates the ~~impairment~~need for an allowance using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals. If the Company determines that the value of the ~~impaired~~ loan is less than the recorded investment in the loan, the Company recognizes this impairment and adjust the carrying value of the

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loan to fair value through the allowance for ~~loan and lease~~credit losses. The loss represents charge-offs or impairments on collateral dependent loans for fair value adjustments based on the fair value of collateral. The carrying value of loans fully

charged-off is 0.

~~zero~~

The foreclosed assets amount above represents impaired real estate that has been adjusted to fair value. Foreclosed assets represent real estate which the Company has taken control of in partial or full satisfaction of loans. At the time of foreclosure, other real estate owned is recorded at fair value less costs to sell, which becomes the property’s new basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for ~~loan and lease~~credit losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on real estate owned for fair value adjustments based on the fair value of the real estate.

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

~~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 ~~June 30, 2019:~~March 31, 2020:

~~June 30, 2019~~

March 31, 2020

Fair Value
(in thousands)

Valuation
Technique

~~Valuation~~

~~Technique~~

Unobservable Inputs

Range,
Weighted Average

~~Impaired Originated & PNCI~~Individually evaluated loans

$105

—

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, ~~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%)

2019:

December 31, 2019

Fair Value
(in thousands)

Valuation
Technique

Unobservable Inputs

Range,
Weighted Average

Individually evaluated loans

1,055

Sales comparison
approach
Income approach

Adjustment for differences between
comparable sales
Capitalization rate

Not meaningfulN/A

Foreclosed assets (Residential real estate)

417

Sales comparison
approach

Adjustment for differences between
comparable sales

Not meaningfulN/A

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

June 30, 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

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	March 31, 2020						December 31, 2019
(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Level 1 inputs:
Cash and due from banks	$	95,364	$	95,364	$	92,816	$	92,816
Cash at Federal Reserve and other banks	90,102		90,102		183,691		183,691
Level 2 inputs:
Securities held to maturity	359,770		377,442		375,606		381,525
Restricted equity securities	17,250		N/A		17,250		N/A

Level 3 inputs:
Loans, net	4,321,151		4,307,323		4,276,750		4,263,064
Financial liabilities:
Level 2 inputs:
Deposits	5,402,698		5,401,617		5,366,994		5,365,921
Other borrowings	19,309		19,309		18,454		18,454
Level 3 inputs:
Junior subordinated debt	57,323		56,254		57,232		56,297


(in thousands)	Contract Amount		Fair Value		Contract Amount		Fair Value
Off-balance sheet:
Level 3 inputs:
Commitments	$	1,296,732	$	12,967	$	1,309,326	$	13,093
Standby letters of credit	12,084		121		12,014		120
Overdraft privilege commitments	109,752		1,098		110,402		1,104

Note 1514 - Regulatory Matters

The Company is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain

off-balance-sheet

items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The following tables present actual and required capital ratios as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 for the Company and the Bank under applicable Basel III Capital Rules. The minimum capital amounts presented include the minimum required capital levels as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 based on the then

phased-in

provisions of the Basel III Capital Rules. As of January 1, 2019, the minimum required capital levels of the Basel III Capital Rules have been fully

phased-in.

Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

Actual

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
%

Table of Contents


	Actual						Required for Capital Adequacy Purposes						Required to be Considered Well Capitalized
As of March 31, 2020:	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(dollars in thousands)
Total Capital (to Risk Weighted Assets):
Consolidated	$	762,763	15.12	%	$	529,576	10.50	%	N/A		N/A
Tri Counties Bank	$	755,893	14.99	%	$	529,388	10.50	%	$	504,179	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	702,007	13.92	%	$	428,705	8.50	%	N/A		N/A
Tri Counties Bank	$	695,137	13.79	%	$	428,552	8.50	%	$	403,343	8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	646,407	12.82	%	$	353,051	7.00	%	N/A		N/A
Tri Counties Bank	$	695,137	13.79	%	$	352,925	7.00	%	$	327,716	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	702,007	11.22	%	$	250,216	4.00	%	N/A		N/A
Tri Counties Bank	$	695,137	11.11	%	$	250,209	4.00	%	$	312,762	5.00	%


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

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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules. Also, at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Bank’s capital levels exceeded the minimum amounts necessary to be considered well capitalized under the current regulatory framework for prompt corrective action.

The Basel III Capital Rules require for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the risk-based capital ratios but not the leverage ratio. At ~~June 30, 2019,~~March 31, 2020, the Company and the Bank are in compliance with the capital conservation buffer requirement.

Table of Contents

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

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

FORWARD-LOOKING STATEMENTS

Cautionary Statements Regarding Forward-Looking Information

~~Certain~~The statements contained ~~in this Form~~

~~10-Q~~

herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There can be no assurance that future developments affecting us will be the same as those anticipated by management. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the impact of changes in financial services policies, laws and regulations; technological changes; ~~mergers~~weather, natural disasters and ~~acquisitions (including~~other catastrophic events that may or may not be caused by climate change and their effects on economic and business environments in which the Company operates; the adverse impact on the U.S. economy, including the markets in which we operate, of the novel coronavirus, which causes the Coronavirus disease 2019 (“COVID-19”), global pandemic, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of sources of funding and the demand for our products; the costs or ~~difficulties related to integration~~effects of ~~acquired companies);~~mergers, acquisitions or dispositions we may make; the future operating or financial performance of the Company, including our outlook for future growth, changes in the level of our nonperforming assets and charge-offs; the appropriateness of the allowance for credit losses including the timing and effects of the implementation of the current expected credit losses model; any deterioration in values of California real estate, both residential and commercial; the effect of changes in accounting standards and practices; possible other-than-temporary impairment of securities held by us; changes in consumer spending, borrowing and savings habits; our ability to attract deposits and other sources of liquidity; changes in the financial performance and/or condition of our borrowers; our noninterest expense and the ~~impact of~~efficiency ratio; competition ~~from other~~and innovation with respect to 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;products and services by banks, financial institutions and non-traditional providers including retail businesses and technology companies; the challenges of integrating and retaining key employees; ~~unanticipated regulatory or judicial proceedings;~~ the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber-attacks and the cost to defend against such attacks; the effect of a fall in stock market prices on our brokerage and wealth management businesses; and our ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in ~~in Part II Item 1A of this report and~~ our Annual Report on Form

10-K

for the year ended December 31, ~~2018,~~2019, which is on file with the Securities and Exchange Commission (the “SEC”) and available in the “Investor Relations” section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC. Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results.

General

As TriCo Bancshares (referred to in this report as “we”, “our” or the “Company”) has not commenced any business operations independent of Tri Counties Bank (the “Bank”), the following discussion pertains primarily to the Bank. Average balances, including such balances used in calculating certain financial ratios, are generally comprised of average daily balances for the Company. Within Management’s Discussion and Analysis of Financial Condition and Results of Operations, interest income, net interest income, net interest yield, and efficiency ratio are generally presented on a fully

tax-equivalent

(“FTE”) basis. The Company believes the use of these

non-generally

accepted accounting principles

(non-GAAP)

measures provides additional clarity in assessing its results, and the presentation of these measures on a FTE basis is a common practice within the banking industry. Interest income and net interest income are shown on a

non-FTE

basis in the Part I –- Financial Information section of this Form

10-Q,

and a reconciliation of the FTE and

non-FTE

presentations is provided below in the discussion of net interest income.

Critical Accounting Policies and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an

on-going

basis, the Company evaluates its estimates, including those that materially affect the financial statements and are related to the adequacy of the allowance for loan losses, investments, mortgage servicing rights, fair value

Table of Contents

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

10-K

for the year ended December 31, ~~2018.~~2019.

Geographical Descriptions


		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			39

Item 3 – Quantitative and Qualitative Disclosures about Market Risk			58
	54
Item 4 – Controls and Procedures			58
	54
PART II – OTHER INFORMATION			58
	56
Item 1 – Legal Proceedings			58
	56
Item 1A – Risk Factors			58
	56
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			58
	57
Item 6 – Exhibits			59
	58
Signatures			60

~~Exhibits~~	59


	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


	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


	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	)


	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


	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 – 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


(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


	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


	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


			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


									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	)


	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


	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	%


Rank	County	% of Total PPP Loans		Rank	County	% of Total PPP Loans		Rank	County	% of Total PPP Loans
1	Placer	10.5	%	5	Shasta	9.4	%	9	Marin	3.8	%
2	Butte	10.2	%	6	San Francisco	7.9	%	10	Sutter	3.0	%
3	San Mateo	9.8	%	7	Nevada	6.7	%	11	Kern	2.8	%
4	Sacramento	9.6	%	8	Stanislaus	4.3	%	12	Glenn	2.2	%


	Three months ended
	March 31, 2020		December 31, 2019		March 31, 2019
Net interest income	$	63,192	$	64,196	$	63,870
(Provision for) reversal of credit losses	(8,000)		298		1,600
Non-interest income	11,820		14,186		11,803
Non-interest expense	(44,819)		(46,964)		(45,452)
Provision for income taxes	(6,072)		(8,826)		(9,095)
Net income	$	16,121	$	22,890	$	22,726


	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


	For the three months ended															For the three months ended
	June 30, 2019							June 30, 2018								March 31, 2020										March 31, 2019
	Average Balance		Interest Income/ Expense		Rates Earned /Paid			Average Balance		Interest Income/ Expense		Rates Earned /Paid				Average Balance		Interest Income/ Expense		Rates Earned /Paid		Average Balance		Interest Income/ Expense		Rates Earned /Paid
Assets:															Assets:
Loans	$	4,044,044	$	55,492		5.49	%	$	3,104,126	$	39,304		5.06	%	Loans	$	4,329,357	$	56,258	5.23	%	$	4,023,864	$	54,398	5.48	%
Investment securities - taxable		1,432,550		10,762		3.00	%		1,122,534		7,736		2.76	%	Investment securities - taxable	1,235,672		8,572		2.79	%	1,425,352		10,915		3.11	%
Investment securities - nontaxable (1)		140,562		1,358		3.86	%		136,126		1,355		3.98	%	Investment securities - nontaxable⁽¹⁾	118,992		1,175		3.97	%	142,232		1,395		3.98	%

Total investments		1,573,112		12,120		3.08	%		1,258,660		9,091		2.89	%	Total investments	1,354,664		9,747		2.89	%	1,567,584		12,310		3.18	%
Cash at Federal Reserve and other banks		147,810		866		2.34	%		94,874		396		1.67	%	Cash at Federal Reserve and other banks	199,729		783		1.58	%	168,518		1,071		2.58	%

Total interest-earning assets		5,764,966		68,478		4.75	%		4,457,660		48,791		4.38	%	Total interest-earning assets	5,883,750		66,788		4.57	%	5,759,966		67,779		4.77	%
Other assets		620,923							356,863						Other assets	622,837						666,261

Total assets	$	6,385,889						$	4,814,523						Total assets	$	6,506,587					$	6,426,227

Liabilities and shareholders’ equity:															Liabilities and shareholders’ equity:
Interest-bearing demand deposits	$	1,276,388	$	289		0.09	%	$	995,528	$	214		0.09	%	Interest-bearing demand deposits	$	1,245,896	$	169	0.05	%	$	1,273,376	$	287	0.09	%
Savings deposits		1,888,234		1,306		0.28	%		1,393,121		427		0.12	%	Savings deposits	1,864,967		1,062		0.23	%	1,927,120		1,133		0.24	%
Time deposits		441,116		1,404		1.27	%		313,556		593		0.76	%	Time deposits	430,064		1,320		1.23	%	441,778		1,300		1.19	%

Total interest-bearing deposits		3,605,738		2,999		0.33	%		2,702,205		1,234		0.18	%	Total interest-bearing deposits	3,540,927		2,551		0.29	%	3,642,274		2,720		0.30	%
Other borrowings		17,963		37		0.82	%		139,307		586		1.68	%	Other borrowings	22,790		5		0.09	%	15,509		13		0.34	%
Junior subordinated debt		57,222		829		5.79	%		56,928		789		5.54	%	Junior subordinated debt	57,272		769		5.40	%	56,950		855		6.09	%

Total interest-bearing liabilities		3,680,923		3,865		0.42	%		2,898,440		2,609		0.36	%	Total interest-bearing liabilities	3,620,989		3,325		0.37	%	3,714,733		3,588		0.39	%
Noninterest-bearing deposits		1,765,141							1,339,905						Noninterest-bearing deposits	1,855,006						1,744,805
Other liabilities		73,541							65,745						Other liabilities	121,959						123,599
Shareholders’ equity		866,284							510,433						Shareholders’ equity	908,633						843,090

Total liabilities and shareholders’ equity	$	6,385,889						$	4,814,523						Total liabilities and shareholders’ equity	$	6,506,587					$	6,426,227

Net interest spread (2)						4.33	%						4.02	%	Net interest spread⁽²⁾					4.20	%					4.38	%
Net interest income and interest margin (3)			$	64,613		4.48	%			$	46,182		4.14	%	Net interest income and interest margin⁽³⁾			$	63,463	4.34	%			$	64,191	4.52	%


	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	%


	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	%


(in thousands)	Three months ended March 31, 2020 compared with three months ended March 31, 2019
	Volume		Rate		Total
Increase in interest income:
Loans	$	4,840	$	(2,980)	$	1,860
Investment securities⁽¹⁾	(1,532)		(1,031)		(2,563)
Cash at Federal Reserve and other banks	262		(550)		(288)
Total interest-earning assets	3,570		(4,561)		(991)
Increase (decrease) in interest expense:
Interest-bearing demand deposits	(6)		(112)		(118)
Savings deposits	(32)		(39)		(71)
Time deposits	(70)		90		20
Other borrowings	12		(20)		(8)
Junior subordinated debt	5		(91)		(86)
Total interest-bearing liabilities	(91)		(172)		(263)
Increase in net interest income	$	3,661	$	(4,389)	$	(728)


	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


	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


	As of March 31,						$ Change		% Change
($‘s in thousands)	2020		2019
Ending balances
Total assets	$	6,474,309	$	6,471,852	$	2,457	0.04	%
Total loans	4,379,062		4,034,331		344,731		8.5	%
Total investments	1,382,026		1,564,692		(182,666)		(11.7)	%
Total deposits	5,402,698		5,430,262		(27,564)		(0.5)	%
Total noninterest-bearing deposits	1,883,143		1,761,559		121,584		6.9	%
Total other borrowings	19,309		12,466		6,843		54.9	%


(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


(in thousands)	Balance at December 31, 2019		New NPA / Valuation Adjustments		Pay-downs /Sales /Upgrades		Charge-offs/ ⁽¹⁾ Write-downs		Transfers to Foreclosed Assets		Balance at March 31, 2020
Real estate mortgage:
Residential	$	5,068	$	985	$	(388)	$	—	$	—	$	5,665
Commercial	5,203		311		(113)		—		—		5,401
Consumer
Home equity lines	2,740		852		(236)		—		—		3,356
Home equity loans	1,600		163		(136)		—		—		1,627
Other consumer	51		113		(2)		(23)		—		139
Commercial	2,194		463		(510)		(380)		—		1,767


Construction	—		—		—		—		—		—
Total nonperforming loans	16,856		2,887		(1,385)		(403)		—		17,955
Foreclosed assets	2,541				(312)		—		—		2,229
Total nonperforming assets	$	19,397	$	2,887	$	(1,697)	$	(403)	$	—	$	20,184


	March 31, 2020						December 31, 2019
Real estate mortgage	$	34,902	60.3	%	$	14,301	46.8	%
Consumer	13,942		24.1	%	7,778		25.4	%
Commercial	4,472		7.7	%	5,149		16.8	%
Real estate construction	4,595		7.9	%	3,388		11.0	%
Total allowance for credit losses	$	57,911	100.0	%	$	30,616	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	%


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	%

~~Large accelerated filer~~

~~Accelerated filer~~

~~Non-accelerated filer~~

~~Smaller reporting company~~

~~Emerging growth company~~