What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-08-07 · 226 added, 212 removed, 878 unchanged (33% of the section changed)

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CONSOLIDATED STATEMENTS OF CONDITION

June 30, 2020 and December 31, 2019

September 30, 2020 and December 31, 2019

(in thousands, except share data;

unaudited) June 30, 2020 December 31, 2019

unaudited) September 30, 2020 December 31, 2019

Cash, cash equivalents and restricted cash $ 213,584 $ 183,388

4 unchanged sentences

Loans, net of allowance for loan losses of $ 22,113 and $ 16,677 at

June 30, 2020 and December 31, 2019, respectively

September 30, 2020 and December 31, 2019, respectively

2,085,878 1,826,609

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Issued and outstanding - 13,605,363 and 13,577,008 at

June 30, 2020 and December 31, 2019, respectively

September 30, 2020 and December 31, 2019, respectively

129,284 129,058

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended Six months ended

Three months ended Nine months ended

(in thousands, except per share amounts;

unaudited) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

unaudited) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Interest income

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Provision for losses on off-balance sheet commitments 248 — 610 129

Charitable contributions 481 111 921 377

Other expense 1,245 1,403 4,232 4,356

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Change in net unrealized gains or losses on available-for-sale securities 299 936 11,605 13,857

Reclassification adjustment for gains on available-for-sale securities in net income ( 115 ) ( 61 ) ( 915 ) ( 55 )

Reclassification adjustment for gains on available-for-sale securities included in net income — — ( 915 ) ( 55 )

Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity 149 123 394 328

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the three months ended June 30, 2020 and 2019

For the three months ended September 30, 2020 and 2019

(in thousands, except share data;

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Shares Amount

Three months ended June 30, 2020

Balance at April 1, 2020 13,565,969 $ 127,684 $ 207,328 $ 10,928 $ 345,940

Three months ended September 30, 2020

Balance at July 1, 2020 13,591,835 $ 128,633 $ 211,613 $ 11,994 $ 352,240

Net income — — 7,491 — 7,491

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— — ( 3,128 ) — ( 3,128 )

Balance at June 30, 2020 13,591,835 $ 128,633 $ 211,613 $ 11,994 $ 352,240

Three months ended June 30, 2019

Balance at April 1, 2019 13,786,808 $ 137,125 $ 184,793 $ ( 1,254 ) $ 320,664

Stock purchased by directors under director stock plan 746 25 — — 25

Stock issued in payment of director fees 3,113 100 — — 100

Balance at September 30, 2020 13,605,363 $ 129,284 $ 215,976 $ 12,310 $ 357,570

Three months ended September 30, 2019

Balance at July 1, 2019 13,659,143 $ 132,151 $ 190,416 $ 5,100 $ 327,667

Net income — — 9,448 — 9,448

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Stock issued under employee stock ownership plan 7,600 311 — — 311

Restricted stock surrendered for tax withholdings upon vesting ( 420 ) ( 18 ) — — ( 18 )

Restricted stock forfeited / cancelled ( 9,932 ) — — — —

Stock-based compensation - stock options — 98 — — 98

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— — ( 2,865 ) — ( 2,865 )

Stock purchased by directors under director stock plan 392 16 — — 16

Stock issued in payment of director fees 2,800 117 — — 117

Stock repurchased, net of commissions ( 65,127 ) ( 2,726 ) — — ( 2,726 )

Balance at June 30, 2019 13,659,143 $ 132,151 $ 190,416 $ 5,100 $ 327,667

Balance at September 30, 2019 13,608,525 $ 130,220 $ 196,999 $ 5,846 $ 333,065

The accompanying notes are an integral part of these consolidated financial statements (unaudited).

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the six months ended June 30, 2020 and 2019

For the nine months ended September 30, 2020 and 2019

(in thousands, except share data;

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Shares Amount

Six months ended June 30, 2020

Nine months ended September 30, 2020

Balance at January 1, 2020 13,577,008 $ 129,058 $ 203,227 $ 4,503 $ 336,788

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Stock repurchased, net of commissions ( 92,664 ) ( 3,230 ) — — ( 3,230 )

Balance at June 30, 2020 13,591,835 $ 128,633 $ 211,613 $ 11,994 $ 352,240

Six months ended June 30, 2019

Balance at September 30, 2020 13,605,363 $ 129,284 $ 215,976 $ 12,310 $ 357,570

Nine months ended September 30, 2019

Balance at January 1, 2019 13,844,353 $ 140,565 $ 179,944 $ ( 4,102 ) $ 316,407

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Stock repurchased, net of commissions ( 313,651 ) ( 13,170 ) — — ( 13,170 )

Balance at June 30, 2019 13,659,143 $ 132,151 $ 190,416 $ 5,100 $ 327,667

Balance at September 30, 2019 13,608,525 $ 130,220 $ 196,999 $ 5,846 $ 333,065

The accompanying notes are an integral part of these consolidated financial statements (unaudited).

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CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2020 and 2019

For the nine months ended September 30, 2020 and 2019

(in thousands;

unaudited) June 30, 2020 June 30, 2019

unaudited) September 30, 2020 September 30, 2019

Cash Flows from Operating Activities:

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Purchase of premises and equipment ( 769 ) ( 419 )

Purchase of Federal Home Loan Bank stock — ( 616 )

Cash paid for low income housing tax credit investment ( 1,289 ) ( 339 )

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Cash Flows from Financing Activities:

Net increase (decrease) in deposits 443,377 ( 72,800 )

Net increase in deposits 232,800 49,684

Proceeds from stock options exercised 1,277 572

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Cash dividends paid on common stock ( 9,376 ) ( 8,107 )

Net cash provided by (used in) financing activities 434,961 ( 95,293 )

Net cash provided by financing activities 221,260 21,589

Net increase in cash, cash equivalents and restricted cash 30,196 148,265

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Under the two-class method, the difference in EPS is nominal for these participating securities.

Three months ended Six months ended

(in thousands, except per share data) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three months ended Nine months ended

(in thousands, except per share data) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Weighted average basic shares outstanding 13,539 13,571 13,526 13,654

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Measurement of Credit Losses on Financial Instruments .

The standard will replace today's "incurred loss" model with a "current expected credit loss" ("CECL") model.

The standard replaces the "incurred loss" model with a "current expected credit loss" ("CECL") model.

The CECL model applies to estimated credit losses on loans receivable, held-to-maturity debt securities, unfunded loan commitments, and certain other financial assets measured at amortized cost.

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The ASU also expands the disclosure requirements regarding assumptions, models, and methods for estimating the allowance for credit losses.

In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.

In addition, entities will disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

However, in accordance with the accounting relief provisions of the Coronavirus Aid, Relief and Economic Security ("CARES") Act passed in March 2020, we postponed the adoption of the CECL standard.

Implementation may be delayed until the end of the national emergency or December 31, 2020, whichever occurs first.

Had we adopted the CECL standard as of January 1, 2020, the increase to our allowance for loan losses would have ranged from 5 % to 15 % of the amount recorded at December 31, 2019, which were based on economic forecasts at that time and did not include the subsequent COVID-19 pandemic related impact.

Implementation is delayed until the end of the national emergency or December 31, 2020, whichever occurs first.

Early CECL implementation activities focused on, among other things, capturing and validating data, segmenting the loan portfolio, evaluating various credit loss estimation methodologies, sourcing tools to forecast future economic conditions, running multiple loan loss driver analyses that correlate our credit loss experience with one or more economic factors, and evaluating the qualitative factor framework and assumptions.

Based on these activities, we determined that our primary credit loss methodology will utilize a discounted cash flow approach that

considers the probability of default and loss given default.

Ongoing implementation activities include developing forecasts, running parallel calculations, evaluating results, and continuing model validation.

Based on these activities, we determined that our primary credit loss methodology will utilize a discounted cash flow approach that considers the probability of default and loss given default.

Ongoing implementation activities included refining forecast methodologies, running parallel calculations, evaluating and validating results, and documenting internal controls.

The Bank has continued to run the CECL model in parallel with the incurred loss model and will adopt the CECL standard as of December 31, 2020.

Upon adoption of the CECL standard, we will record a cumulative adjustment to retained earnings in our financial statements, net of taxes, based on economic forecasts and other assumptions as of January 1, 2020.

That adjustment will result in an increase to our allowance for credit losses of approximately $ 1.6 million and an increase to the allowance for off-balance sheet commitments of approximately $ 122 thousand.

These adjustments do not include the subsequent COVID-19 pandemic-related impact.

Upon adoption on December 31, 2020, we will recognize the difference between the allowance for credit losses calculated under the CECL model as of December 31, 2020 and the allowance for credit losses calculated under the incurred loss model as of September 30, 2020 as a provision for credit losses and a provision for credit losses on off-balance sheet commitments, as applicable.

Based on information available at this time, we do not expect the fourth quarter provision for credit losses to exceed 10 % of the September 30, 2020 allowance for credit losses.

However, the exact amount will depend on certain forecasts, such as the California unemployment rate, and other assumptions available as of December 31, 2020, which could differ significantly from present levels.

In April 2019, the FASB issued ASU No.

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In January 2020, the FASB issued ASU No.

2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 .

2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the

Interactions between Topic 321, Topic 323, and Topic 815 .

Among other things, this ASU clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, for the purposes of applying the measurement alternative in accordance with Topic 321.

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The amendments in this ASU are elective and provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform.

The amendments in this ASU provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued

because of reference rate reform.

The amendments in this ASU may be elected as of March 12, 2020 through December 31, 2022.

An entity may choose to elect the amendments in this update at an interim period subsequent to March 12, 2020 with adoption methods varying based on transaction type.

We have not elected to apply these amendments.

However, we will assess the applicability of the ASU to us and continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.

We have not elected to apply these amendments, however, we will assess the applicability of the ASU to us and continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.

In October 2020, the FASB issued ASU No.

2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs .

This ASU was issued as part of the Board's ongoing project to improve codification or correct unintended application.

This ASU adds clarification to ASU 2017-08, which the Bank early adopted in 2017, and delineates whether an entity with callable debt securities that have multiple call dates should amortize the amount above that which is repayable, to the next call date.

This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, on a prospective basis.

Early adoption is not permitted.

As this ASU is narrow in scope and for clarification purposes, we do not expect this ASU will have a material impact on our financial condition and results of operations.

Fair Value of Assets and Liabilities

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Changes in Fair Value Recorded In 1

June 30, 2020

September 30, 2020

Securities available-for-sale:

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When available, quoted market prices (Level 1) are used to determine the fair value of available-for-sale securities.

If quoted market prices are not available, we obtain pricing information from a reputable third-party service provider, who may utilize valuation

techniques that use current market-based or independently sourced parameters, such as bid/ask prices, dealer-quoted prices, interest rates, benchmark yield curves, prepayment speeds, probability of default, loss severity and credit spreads (Level 2).

If quoted market prices are not available, we obtain pricing information from a reputable third-party service provider, who may utilize valuation techniques that use current market-based or independently sourced parameters, such as bid/ask prices, dealer-quoted prices, interest rates, benchmark yield curves, prepayment speeds, probability of default, loss severity and credit spreads (Level 2).

Level 2 securities include obligations of state and political subdivisions, U.S.

agencies or government-sponsored agencies' debt securities, mortgage-backed securities, government agency-issued, privately-issued collateralized mortgage obligations, and corporate bonds.

As of June 30, 2020 and December 31, 2019, there were no Level 1 or Level 3 securities.

Held-to-maturity securities may be written down to fair value as a result of other-than-temporary impairment , and we did no t record any write-downs during the six months ended June 30, 2020 or June 30, 2019.

As of September 30, 2020 and December 31, 2019, there were no Level 1 or Level 3 securities.

Held-to-maturity securities may be written down to fair value as a result of other-than-temporary impairment , and we did no t record any write-downs during the nine months ended September 30, 2020 or September 30, 2019.

Fair value of held-to-maturity securities is determined using the same techniques discussed above for available-for-sale securities.

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Bank Composite rate and LIBOR for the closest maturity term corresponding to the duration of the swaps to derive the CVA.

A similar credit risk adjustment, correlated to the credit standing of the counterparty, is made when collateral posted by the counterparty does not fully cover their liability to us.

A similar credit risk adjustment, correlated to the credit standing of the counterparty, is made

when collateral posted by the counterparty does not fully cover their liability to us.

For further discussion on our methodology in valuing our derivative financial instruments, refer to Note 9, Derivative Financial Instruments and Hedging Activities.

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These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets, such as impaired loans that are collateral dependent and other real estate owned ("OREO").

As of June 30, 2020 and December 31, 2019, we did no t carry any assets measured at fair value on a non-recurring basis.

As of September 30, 2020 and December 31, 2019, we did no t carry any assets measured at fair value on a non-recurring basis.

Disclosures about Fair Value of Financial Instruments

The table below is a summary of fair value estimates for financial instruments as of June 30, 2020 and December 31, 2019, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note).

The table below is a summary of fair value estimates for financial instruments as of September 30, 2020 and December 31, 2019, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note).

The carrying amounts in the following table are recorded in the consolidated statements of condition under the indicated captions.

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Additionally, we held shares of Federal Home Loan Bank ("FHLB") of San Francisco stock and Visa Inc.

Class B common stock, both recorded at cost, as there was no impairment or changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer as of June 30, 2020 or December 31, 2019.

The values are discussed in Note 4, Investment Securities.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(in thousands) Carrying Amounts Fair Value Fair Value Hierarchy Carrying Amounts Fair Value Fair Value Hierarchy

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The value of unrecognized financial instruments is estimated based on the fee income associated with the commitments which, in the absence of credit exposure, is considered to approximate their settlement value.

The fair value of commitment fees was not material as of June 30, 2020 or December 31, 2019.

The fair value of commitment fees was not material as of September 30, 2020 or December 31, 2019.

Investment Securities

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government-sponsored enterprises ("GSEs"), such as Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Farm Credit Banks Funding Corporation and FHLB.

We also invest in residential and commercial mortgage-backed securities (“MBS”/"CMBS") and collateralized mortgage obligations (“CMOs”) issued or guaranteed by the GSEs, as reflected in the following table:

June 30, 2020 December 31, 2019

We also invest in residential and commercial mortgage-backed securities (“MBS”/"CMBS")

and collateralized mortgage obligations (“CMOs”) issued or guaranteed by the GSEs, as reflected in the following table:

September 30, 2020 December 31, 2019

Amortized Fair Gross Unrealized Amortized Fair Gross Unrealized

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Total investment securities $ 511,787 $ 537,447 $ 25,718 $ ( 58 ) $ 561,336 $ 571,902 $ 11,126 $ ( 560 )

The amortized cost a nd fair value of investment debt securities by contractual maturity at June 30, 2020 and December 31, 2019 are shown below.

The amortized cost a nd fair value of investment debt securities by contractual maturity at September 30, 2020 and December 31, 2019 are shown below.

Expected maturities may differ from contractual maturities if the issuers of the securities have the right to call or prepay obligations with or without call or prepayment penalties.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Held-to-Maturity Available-for-Sale Held-to-Maturity Available-for-Sale

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Sales of investment securities and gross gains and losses are shown in the following table:

Three months ended Six months ended

(in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three months ended Nine months ended

(in thousands) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Available-for-sale:

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Pledged investment securities are shown in the following table:

(in thousands) June 30, 2020 December 31, 2019

(in thousands) September 30, 2020 December 31, 2019

Pledged to the State of California:

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Other-Than-Temporarily Impaired ("OTTI") Debt Securities

There were 7 and 40 securities in unrealized loss positions at June 30, 2020 and December 31, 2019, respectively.

There were 8 and 40 securities in unrealized loss positions at September 30, 2020 and December 31, 2019, respectively.

Those securities are summarized and classified according to the duration of the loss period in the tables below:

June 30, 2020 < 12 continuous months ≥ 12 continuous months Total securities

September 30, 2020 < 12 continuous months ≥ 12 continuous months Total securities

in a loss position

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Total temporarily impaired securities $ 96,161 $ ( 388 ) $ 18,350 $ ( 172 ) $ 114,511 $ ( 560 )

As of June 30, 2020, the investment portfolio included 5 investment securities that had been in a continuous loss position for twelve months or more and 2 investment securities that had been in a loss position for less than twelve months.

As of September 30, 2020, the investment portfolio included 5 investment securities that had been in a continuous loss position for twelve months or more and 3 investment securities that had been in a loss position for less than twelve months.

Securities issued by government-sponsored agencies, such as FNMA and FHLMC, usually have implicit credit support by the U.S.

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Based on our comprehensive analyses, we determined that the decline in the fair values of obligations of state and political subdivisions and corporate bonds as of December 31, 2019 were primarily driven by factors other than credit, such as changes in market interest rates and liquidity spreads subsequent to purchase.

At June 30, 2020, Management determined that it did not intend to sell any investment securities with unrealized losses, and it is more likely than not that we will not be required to sell securities with unrealized losses before recovery of their amortized cost.

Therefore, we do not consider these investment securities to be other-than-temporarily impaired at June 30, 2020.

At September 30, 2020, Management determined that it did not intend to sell any investment securities with unrealized losses, and it is more likely than not that we will not be required to sell securities with unrealized losses before recovery of their amortized cost.

Therefore, we do not consider these investment securities to be other-than-temporarily impaired at September 30, 2020.

Non-Marketable Securities Included in Other Assets

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Shares cannot be purchased or sold except between the FHLB and its members at the $ 100 per share par value.

We held $ 11.9 million and $ 11.7 million of FHLB stock included in other assets on the consolidated statements of condition at June 30, 2020 and December 31, 2019, respectively.

We held $ 11.9 million and $ 11.7 million of FHLB stock included in other assets on the consolidated statements of condition at September 30, 2020 and December 31, 2019, respectively.

The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks and they do not have a readily determinable market value.

Based on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock was not impaired at June 30, 2020 and December 31, 2019.

On July 23, 2020, FHLB announced a cash dividend for the second quarter of 2020 at an annualized dividend rate of 5.00 % to be distributed in mid-August 2020.

Based on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock was not impaired at September 30, 2020 and December 31, 2019.

On October 29, 2020, FHLB announced a cash dividend for the third quarter of 2020 at an annualized dividend rate of 5.00 % to be distributed in mid-November 2020.

Cash dividends paid on FHLB capital stock are recorded as non-interest income.

As a member bank of Visa U.S.A., we held 10,439 shares of Visa Inc.

Class B common stock at June 30, 2020 and December 31, 2019.

Class B common stock at September 30, 2020 and December 31, 2019.

These shares have a carrying value of zero and are restricted from resale to non-member banks of Visa U.S.A.

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Because of the restriction and the uncertainty on the conversion rate to Class A shares, these shares lack a readily determinable fair value.

When converting this Class B common stock to Class A common stock based on the conversion rate of 1.6228 both at June 30, 2020 and December 31, 2019, and the closing stock price of Class A shares at those respective dates, the converted value of our shares of Class B common stock would have been $ 3.3 million and $ 3.2 million at June 30, 2020 and December 31, 2019, respectively.

When converting this Class B common stock to Class A common stock based on the conversion rate of 1.6228 both at September 30, 2020 and December 31, 2019, and the closing stock price of Class A shares at those respective dates, the converted value of our shares of Class B common stock would have been $ 3.4 million and $ 3.2 million at September 30, 2020 and December 31, 2019, respectively.

The conversion rate is subject to further adjustment upon the final settlement of the covered litigation against Visa Inc.

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For further information, refer to Note 8, Commitments and Contingencies.

We invest in low-income housing tax credit funds as a limited partner, which totaled $ 3.8 million and $ 4.1 million recorded in other assets as of June 30, 2020 and December 31, 2019, respectively.

In the first six months of 2020, we recognized $ 327 thousand of low-income housing tax credits and other tax benefits, offset by $ 275 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense.

As of June 30, 2020, our unfunded commitments for these low-income housing tax credit funds totaled $ 886 thousand.

We did no t recognize any impairment losses on these low-income housing tax credit investments during the first six months of 2020 or 2019, as the value of the future tax benefits exceeds the carrying value of the investments.

We invest in low-income housing tax credit funds as a limited partner, which totaled $ 3.7 million and $ 4.1 million recorded in other assets as of September 30, 2020 and December 31, 2019, respectively.

In the first nine months of 2020, we recognized $ 490 thousand of low-income housing tax credits and other tax benefits, offset by $ 412 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense.

As of September 30, 2020, our unfunded commitments for these low-income housing tax credit funds totaled $ 886 thousand.

We did no t recognize any impairment losses on these low-income housing tax credit investments during the first nine months of 2020 or 2019, as the value of the future tax benefits exceeds the carrying value of the investments.

Loans and Allowance for Loan Losses

Credit Quality of Loans

The following table shows outstanding loans by class and payment aging as of June 30, 2020 and December 31, 2019.

The following table shows outstanding loans by class and payment aging as of September 30, 2020 and December 31, 2019.

Loan Aging Analysis by Class

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Total

June 30, 2020

September 30, 2020

30-59 days past due $ 198 $ — $ — $ — $ 217 $ — $ — $ 415

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$ — $ — $ — $ — $ 168 $ — $ 58 $ 226

1 Amounts include net deferred loan origination (fees) costs of $( 6.8 ) million (including $ 8.1 million in deferred SBA PPP loan fees, net of costs) and $ 983 thousand at June 30, 2020 and December 31, 2019, respectively.

Amounts are also net of unaccreted purchase discounts on non-PCI loans of $ 925 thousand at June 30, 2020 and $ 983 thousand at December 31, 2019.

2 There were no accruing loans past due more than ninety days at June 30, 2020 or December 31, 2019.

1 Amounts include net deferred loan origination (fees) costs of $( 5.1 ) million (including $ 6.5 million in deferred SBA PPP loan fees, net of costs) and $ 983 thousand at September 30, 2020 and December 31, 2019, respectively.

Amounts are also net of unaccreted purchase discounts on non-PCI loans of $ 878 thousand at September 30, 2020 and $ 983 thousand at December 31, 2019.

2 There were no loans past due more than ninety days accruing interest at September 30, 2020 or December 31, 2019.

We generally make commercial loans to established small and mid-sized businesses to provide financing for their growth and working capital needs, equipment purchases and acquisitions.

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We target stable businesses with guarantors who provide additional sources of repayment and have proven to be resilient in periods of economic stress.

Pursuant to the CARES Act, on April 6, 2020, the Bank began accepting applications from eligible small businesses and non-profit organizations to participate in the Paycheck Protection Program (“PPP”) administered by the U.S.

Pursuant to the CARES Act, the Bank funded over 1,800 loans to eligible small businesses and non-profit organizations who participated in the Paycheck Protection Program (“PPP”) administered by the U.S.

Small Business Administration (“SBA”).

PPP loans have terms of two to five years and earn interest at 1%.

In addition, the Bank receives a fee of 1%-5% from the SBA depending on the loan amount, which is netted with loan origination costs and amortized into interest income over the contractual life of the loan.

The recognition of fees/costs is accelerated when the loan is forgiven by the SBA and/or paid off prior to maturity.

In addition, the Bank received a fee of 1%-5% from the SBA depending on the loan amount, which was netted with loan origination costs and amortized into interest income under the effective yield method over the contractual life of the loan.

The recognition of fees and costs is accelerated when the loan is forgiven by the SBA and/or paid off prior to maturity.

PPP loans are fully guaranteed by the SBA and are expected to be forgiven by the SBA if they meet the requirements of the program.

PPP loans totaling $ 298.9 million at June 30, 2020 are included in commercial and industrial loan balances.

PPP loans totaling $ 301.7 million at September 30, 2020 are included in commercial and industrial loan balances.

The Bank ended its origination of new PPP loans on June 30, 2020.

On June 5, 2020, the PPP Flexibility Act was signed into law that modified, among other things, rules governing the PPP payment deferral period.

In October 2020, due to the continued delay in the PPP forgiveness process, the Bank modified the first payment due dates for PPP loans that originated prior to June 5, 2020 and extended the payment deferral period from six to sixteen months .

The extended payment deferral period will affect the timing over which the accretion of PPP net loan origination fees are recognized.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans discussed above.

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Construction loans are generally made to developers and builders to finance construction, renovation and occasionally land acquisitions in anticipation of near-term development.

Construction loans include interest reserves that are used for the payment of interest during the development and marketing periods and capitalized as part of the loan balance.

When a construction loan is placed on nonaccrual status before the depletion of the

interest reserve, we apply the interest funded by the interest reserve against the loan's principal balance.

Construction loans include interest reserves that are used for the payment of interest during the development and marketing periods and are capitalized as part of the loan balance.

When a construction loan is placed on nonaccrual status before the depletion of the interest reserve, we apply the interest funded by the interest reserve against the loan's principal balance.

These loans are underwritten after evaluation of the borrower's financial strength, reputation, prior track record, and independent appraisals.

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We also review loans graded “Watch” or worse, regardless of loan type, no less than quarterly.

The following table represents an analysis of the carrying amount in loans, net of deferred fees and costs and purchase premiums or discounts, by internally assigned risk grades, at June 30, 2020 and December 31, 2019.

Credit Risk Profile by Internally Assigned Risk Grade

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Total

June 30, 2020

September 30, 2020

Pass $ 484,305 $ 251,741 $ 946,166 $ 66,663 $ 105,824 $ 130,915 $ 23,665 $ 2,009,279

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The same Management level that approved the loan classification upgrade must approve the removal of TDR status.

There were no loans removed from TDR designation during the six months ended June 30, 2020.

There was one commercial loan with a recorded investment of $ 3 thousand removed from TDR designation during the six months ended June 30, 2019 after meeting all of the conditions above.

There were no loans removed from TDR designation during the nine months ended September 30, 2020.

There was one commercial loan with a recorded investment of $ 3 thousand removed from TDR designation during the nine months ended September 30, 2019 after meeting all of the conditions above.

Section 4013 of the CARES Act provided optional, temporary relief from evaluating loans that may have been considered TDRs under GAAP.

This relief applies to loan modifications executed between March 1, 2020 and either the earlier of 60 days after the national emergency is terminated or December 31, 2020.

This relief applies to loan modifications executed between March 1, 2020 and the earlier of 60 days after the national emergency is terminated or December 31, 2020.

The Bank elected to apply these temporary accounting provisions to payment relief loans beginning in March 2020.

As of July 10, 2020, the Bank approved over 260 loan modifications for full payment deferral or interest-only payments for up to 120 days on loan balances exceeding $ 386 million.

The Bank approved 264 loan modifications for full payment deferral or interest-only payments for up to 120 days on loan balances exceeding $ 388.5 million.

As of October 19, 2020, 20 loans totaling $ 47.2 million had either requested additional payment relief or the relief period had not expired.

We accrue and recognize interest income on loans under payment relief based on the original contractual interest rates.

When payments resume at the end of the relief period, the payments will first be applied to the accrued interest due and nothing will be applied to principal until the accrued interest is fully paid.

We have been reaching out to each borrower before the expiration of the initial 120 day relief period to determine if additional short-term relief is necessary.

The following table summarizes the carrying amount of TDR loans by loan class as of June 30, 2020 and December 31, 2019.

When payments resume at the end of the relief period, the payments will generally be applied to accrued interest due until accrued interest is fully paid.

The following table summarizes the carrying amount of TDR loans by loan class as of September 30, 2020 and December 31, 2019.

(in thousands)

Recorded Investment in Troubled Debt Restructurings 1

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Commercial and industrial $ 1,017 $ 1,223

5 unchanged sentences

Total $ 12,625 $ 11,333

1 There was one acquired home equity TDR loan with a recorded investment of $ 276 thousand as of June 30, 2020.

1 There was one acquired home equity TDR loan with a recorded investment of $ 276 thousand as of September 30, 2020.

There were no acquired TDR loans as of December 31, 2019.

TDR loans on non-accrual status totaled $ 331 thousand and $ 58 thousand at June 30, 2020 and December 31, 2019, respectively.

TDR loans on non-accrual status totaled $ 300 thousand and $ 58 thousand at September 30, 2020 and December 31, 2019, respectively.

The following table presents information for loans modified in a TDR during the presented periods, including the number of modified contracts, the recorded investment in the loans prior to modification, and the recorded investment in the loans at period end after being restructured.

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(dollars in thousands) Number of Contracts Modified Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment at Period End

TDRs during the three months ended June 30, 2020:

Home equity 1 $ 276 $ 276 $ 276

Installment and other consumer 1 108 108 108

2 $ 384 $ 384 $ 384

TDRs during the three months ended June 30, 2019:

Commercial and industrial 1 $ 298 $ 298 $ 298

TDRs during the six months ended June 30, 2020:

TDRs during the three months ended September 30, 2020:

Commercial real estate, investor-owned 1 $ 1,553 $ 1,553 $ 1,553

TDRs during the three months ended September 30, 2019:

None — $ — $ — $ —

TDRs during the nine months ended September 30, 2020:

Commercial and industrial 1 $ 170 $ 162 $ 125

Commercial real estate, investor-owned 1 1,553 1,553 1,553

Home equity 1 276 276 276

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6 $ 2,210 $ 2,202 $ 2,163

TDRs during the six months ended June 30, 2019:

TDRs during the nine months ended September 30, 2019:

Commercial and industrial 1 $ 298 $ 298 $ 173

The loans modified in 2020 reflected debt consolidation, interest rate concessions, and/or other loan term and payment modifications.

The loan modified during the first six months of 2019 reflected a maturity extension and interest rate concession.

During the six months ended June 30, 2020 and 2019, there were no defaults on loans that had been modified in a TDR within the prior twelve-month period.

The loan modified during the first nine months of 2019 reflected a maturity extension and interest rate concession.

During the nine months ended September 30, 2020 and 2019, there were no defaults on loans that had been modified in a TDR within the prior twelve-month period.

We report defaulted TDRs based on a payment default definition of more than ninety days past due.

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(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Total

June 30, 2020

September 30, 2020

Recorded investment in impaired loans:

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Average recorded investment in impaired loans during the quarter ended

June 30, 2020 777 6,999 2,681 — 880 225 755 12,317

September 30, 2020 798 7,002 3,430 — 829 — 774 12,833

Interest income recognized on impaired loans during the quarter ended

June 30, 2020 1

September 30, 2020 1

11 64 30 — 3 — 7 115

Average recorded investment in impaired loans during the six months ended

June 30, 2020 926 6,999 2,377 — 726 300 717 12,045

Interest income recognized on impaired loans during the six months ended

June 30, 2020 1

Average recorded investment in impaired loans during the nine months ended

September 30, 2020 948 7,000 2,832 — 740 225 730 12,475

Interest income recognized on impaired loans during the nine months ended

September 30, 2020 1

32 197 68 — 10 4 22 333

Average recorded investment in impaired loans during the quarter ended

June 30, 2019 1,498 7,000 1,804 1,590 503 458 670 13,523

Interest income recognized on impaired loans during the quarter ended June 30, 2019 1

September 30, 2019 1,324 7,000 1,791 684 413 456 659 12,327

Interest income recognized on impaired loans during the quarter ended

September 30, 2019 1

16 67 20 400 9 4 6 522

Average recorded investment in impaired loans during the six months ended

June 30, 2019 1,607 6,998 1,809 1,956 523 460 675 14,028

Interest income recognized on impaired loans during the six months ended

June 30, 2019 1

Average recorded investment in impaired loans during the nine months ended

September 30, 2019 1,495 6,998 1,804 1,687 497 458 670 13,609

Interest income recognized on impaired loans during the nine months ended September 30, 2019 1

56 199 59 456 42 14 18 844

1 No interest income was recognized on a cash basis during the three and six months ended June 30, 2020.

Interest income recognized on a cash basis during the three and six months ended June 30, 2019 totaled $ 24 thousand related to the pay-off of a non-accrual home equity loan.

1 No interest income was recognized on a cash basis during the three and nine months ended September 30, 2020.

Interest income recognized on a cash basis of $ 393 thousand and $ 416 thousand during the respective three and nine months ended September 30, 2019 was related to a principal payment applied to interest collected but unrecognized on a former non-accrual land development loan and the pay-off of three non-accrual loans.

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Total

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Generally, the recorded investment in impaired loans is net of any charge-offs from estimated losses related to specifically-identified impaired loans when they are deemed uncollectible.

There were no charged-off amounts on impaired loans at June 30, 2020 or December 31, 2019.

There were no charged-off amounts on impaired loans at September 30, 2020 or December 31, 2019.

In addition, the recorded investment in impaired loans is net of purchase discounts or premiums on acquired loans and deferred fees and costs.

At June 30, 2020 and December 31, 2019, unused commitments to extend credit on impaired loans, including performing loans to borrowers whose terms have been modified in TDRs, totaled $ 979 thousand and $ 534 thousand, respectively.

At September 30, 2020 and December 31, 2019, unused commitments to extend credit on impaired loans, including performing loans to borrowers whose terms have been modified in TDRs, totaled $ 500 thousand and $ 534 thousand, respectively.

The following tables disclose activity in the allowance for loan losses ("ALLL") and the recorded investment in loans by class, as well as the related ALLL disaggregated by impairment evaluation method.

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(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Unallocated Total

Three months ended June 30, 2020

Three months ended September 30, 2020

Beginning balance $ 2,609 $ 2,910 $ 10,403 $ 836 $ 1,044 $ 1,266 $ 426 $ 1,374 $ 20,868

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Ending balance $ 2,525 $ 3,135 $ 11,624 $ 860 $ 1,038 $ 1,260 $ 406 $ 1,265 $ 22,113

Three months ended June 30, 2019

Three months ended September 30, 2019

Beginning balance $ 2,368 $ 2,321 $ 7,721 $ 619 $ 907 $ 849 $ 323 $ 727 $ 15,835

5 unchanged sentences

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor Construction Home equity Other residential Installment and other consumer Unallocated Total

Six months ended June 30, 2020

Nine months ended September 30, 2020

Beginning balance $ 2,334 $ 2,462 $ 8,483 $ 638 $ 850 $ 973 $ 284 $ 653 $ 16,677

3 unchanged sentences

Ending balance $ 2,525 $ 3,135 $ 11,624 $ 860 $ 1,038 $ 1,260 $ 406 $ 1,265 $ 22,113

Six months ended June 30, 2019

Nine months ended September 30, 2019

Beginning balance $ 2,436 $ 2,407 $ 7,703 $ 756 $ 915 $ 800 $ 310 $ 494 $ 15,821

5 unchanged sentences

(dollars in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Unallocated Total

June 30, 2020

September 30, 2020

Ending ALLL related to loans collectively evaluated for impairment $ 2,506 $ 2,910 $ 10,927 $ 860 $ 1,034 $ 1,260 $ 245 $ 1,265 $ 21,007

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Pledged Loans

Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $ 1,154.4 million and $ 1,133.4 million at June 30, 2020 and December 31, 2019, respectively.

In addition, we pledge eligible TIC loans, which totaled $ 120.8 million and $ 115.7 million at June 30, 2020 and December 31, 2019, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $ 1,149.5 million and $ 1,133.4 million at September 30, 2020 and December 31, 2019, respectively.

In addition, we pledge eligible TIC loans, which totaled $ 120.4 million and $ 115.7 million at September 30, 2020 and December 31, 2019, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

Also, see Note 6, Borrowings.

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Likewise, these transactions do not involve more than the normal risk of collectability or present other unfavorable features.

Related party loans totaled $ 7.7 million at June 30, 2020 and $ 8.3 million at December 31, 2019.

In addition, undisbursed commitments to related parties totaled $ 8.8 million at June 30, 2020 and $ 9.2 million at December 31, 2019.

Related party loans totaled $ 7.2 million at September 30, 2020 and $ 8.3 million at December 31, 2019.

In addition, undisbursed commitments to related parties totaled $ 8.7 million at September 30, 2020 and $ 9.2 million at December 31, 2019.

Borrowings and Other Obligations

Federal Funds Purchased – The Bank had unsecured lines of credit with correspondent banks for overnight borrowings totaling $ 135.0 million at June 30, 2020 and $ 92.0 million at December 31, 2019.

Federal Funds Purchased – The Bank had unsecured lines of credit with correspondent banks for overnight borrowings totaling $ 135.0 million at September 30, 2020 and $ 92.0 million at December 31, 2019.

In general, interest rates on these lines approximate the federal funds target rate.

We had no overnight borrowings under these credit facilities at June 30, 2020 or December 31, 2019 .

Federal Home Loan Bank Borrowings – As of June 30, 2020 and December 31, 2019, the Bank had lines of credit with the FHLB totaling $ 674.4 million and $ 648.0 million, respectively, based on eligible collateral of certain loans.

There were no FHLB overnight borrowings at June 30, 2020 or December 31, 2019.

We had no overnight borrowings under these credit facilities at September 30, 2020 or December 31, 2019 .

Federal Home Loan Bank Borrowings – As of September 30, 2020 and December 31, 2019, the Bank had lines of credit with the FHLB totaling $ 696.2 million and $ 648.0 million, respectively, based on eligible collateral of certain loans.

There were no FHLB overnight borrowings at September 30, 2020 or December 31, 2019.

Federal Reserve Line of Credit – The Bank has a line of credit with the FRBSF secured by certain residential loans.

At June 30, 2020 and December 31, 2019, the Bank had borrowing capacity under this line totaling $ 82.0 million and $ 80.3 million, respectively, and had no outstanding borrowings with the FRBSF.

At September 30, 2020 and December 31, 2019, the Bank had borrowing capacity under this line totaling $ 83.1 million and $ 80.3 million, respectively, and had no outstanding borrowings with the FRBSF.

Subordinated Debenture – As part of an acquisition in 2013, Bancorp assumed a subordinated debenture due to NorCal Community Bancorp Trust II (the "Trust"), established for the sole purpose of issuing trust preferred securities.

The trust preferred securities were sold and issued in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended.

The subordinated debenture was recorded at fair value totaling $ 2.14 million at the acquisition date with a contractual balance of $ 4.12 million.

The difference

between the contractual balance and the fair value at the acquisition date is accreted into interest expense over the life of the debenture.

Accretion on the subordinated debenture totaled $ 35 thousand and $ 34 thousand for the six months ended June 30, 2020 and 2019, respectively.

The subordinated debenture was recorded at fair

value totaling $ 2.14 million at the acquisition date with a contractual balance of $ 4.12 million.

The difference between the contractual balance and the fair value at the acquisition date is accreted into interest expense over the life of the debenture.

Accretion on the subordinated debenture totaled $ 52 thousand and $ 51 thousand for the nine months ended September 30, 2020 and 2019, respectively.

Bancorp has the option to defer payment of the interest on the subordinated debenture for a period of up to five years , as long as there is no event of default.

1 unchanged sentence

Bancorp has guaranteed, on a subordinated basis, distributions and other payments due on trust preferred securities totaling $ 4.0 million issued by the Trust, which have identical maturity, repricing and payment terms as the subordinated debenture.

The subordinated debenture due to NorCal Community Bancorp Trust II on March 15, 2036 with interest payable quarterly (repricing quarterly, based on 3-month LIBOR plus 1.40 %, or 1.71 % as of June 30, 2020) is redeemable in whole or in part on any interest payment date.

The subordinated debenture due to NorCal Community Bancorp Trust II on March 15, 2036 with interest payable quarterly (repricing quarterly, based on 3-month LIBOR plus 1.40 %, or 1.65 % as of September 30, 2020) is redeemable in whole or in part on any interest payment date.

Other Obligations – The Bank leases certain equipment under finance leases, which are included in borrowings and other obligations in the consolidated statements of condition.

See Note 8, Commitments and Contingencies, for additional information.

Stockholders' Equity

On July 17, 2020, Bancorp declared a $ 0.23 per share cash dividend, payable on August 7, 2020 to shareholders of record at the close of business on July 31, 2020.

Share-Based Payments

The fair value of stock options as of the grant date is recorded as stock-based compensation expense in the consolidated statements of comprehensive income over the requisite service period, which is generally the vesting period, with a corresponding increase in common stock.

Stock-based compensation also includes compensation expense related to the issuance of restricted stock awards.

The grant-date fair value of the restricted stock awards, which equals the grant date price, is recorded as compensation expense over the requisite service period with a corresponding increase in common stock as the shares vest.

Beginning in 2018, stock option and restricted stock awards issued include a retirement eligibility clause whereby the requisite service period is satisfied at the retirement eligibility date.

For those awards, we accelerate the recording of stock-based compensation when the award holder is eligible to retire.

However, retirement eligibility does not affect the vesting of restricted stock or the exercisability of the stock options, which are based on the scheduled vesting period.

Performance-based stock awards (restricted stock) are issued to a selected group of employees.

Stock award vesting is contingent upon the achievement of pre-established long-term performance goals set by the Compensation Committee of the Board of Directors.

Performance is measured over a three -year period and cliff vested.

These performance-based stock awards were granted at a maximum opportunity level, and based on the achievement of the pre-established goals, the actual payouts can range from 0 % to 200 % of the target award.

For performance-based stock awards, an estimate is made of the number of shares expected to vest based on the probability that the performance criteria will be achieved to determine the amount of compensation expense to be recognized.

The estimate is re-evaluated quarterly and total compensation expense is adjusted for any change in the current period.

We record excess tax benefits (deficiencies) resulting from the exercise of non-qualified stock options, the disqualifying disposition of incentive stock options and vesting of restricted stock awards as income tax benefits (expense) in the consolidated statements of comprehensive income with a corresponding decrease (increase) to current taxes payable.

The holders of unvested restricted stock awards are entitled to dividends on the same per-share ratio as holders of common stock.

Tax benefits for dividends paid on unvested restricted stock awards are recorded as tax benefits in the consolidated statements of comprehensive income with a corresponding decrease to current taxes payable.

Dividends on forfeited awards are included in stock-based compensation expense.

Stock options and restricted stock may be net settled in a cashless exercise by a reduction in the number of shares otherwise deliverable upon exercise or vesting in satisfaction of the exercise payment and/or applicable tax withholding requirements.

During the six months ended June 30, 2020, we withheld 8,409 shares totaling $ 346 thousand at a weighted-average price of $ 41.17 for cashless exercises.

During the six months ended June 30,

2019, we withheld 6,937 shares totaling $ 290 thousand at a weighted-average price of $ 41.78 for cashless exercises.

Shares withheld under net settlement arrangements are available for future grants.

Share Repurchase Program

On April 23, 2018, Bancorp announced that its Board of Directors approved a Share Repurchase Program under which Bancorp may repurchase up to $ 25.0 million of its outstanding common stock through May 1, 2019.

Bancorp's Board of Directors subsequently extended the Share Repurchase Program through February 28, 2020.

On January 24, 2020, Bancorp Board of Directors approved a new Share Repurchase Program under which Bancorp may repurchase up to $ 25.0 million of its outstanding common stock through February 28, 2022.

The new share repurchase program began on March 1, 2020 and was suspended indefinitely by the Board of Directors on March 20, 2020 to focus our resources on responding to customer needs during the COVID-19 pandemic.

Under the Share Repurchase Program, Bancorp may purchase shares of its common stock through various means such as open market transactions, including block purchases, and privately negotiated transactions.

The number of shares repurchased and the timing, manner, price and amount of any repurchases will be determined at Bancorp's discretion.

Factors include, but are not limited to, stock price, trading volume and general market conditions, along with Bancorp’s general business conditions.

The program may be suspended or discontinued at any time and does not obligate Bancorp to acquire any specific number of shares of its common stock.

As part of the Share Repurchase Program, Bancorp entered into a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

The 10b5-1 trading plan permits common stock to be repurchased at times that might otherwise be prohibited under insider trading laws or self-imposed trading restrictions.

The 10b5-1 trading plan is administered by an independent broker and is subject to price, market volume and timing restrictions.

During the six months ended June 30, 2020, Bancorp repurchased 92,664 shares totaling $ 3.2 million for a cumulative 619,881 shares totaling $ 25.2 million repurchased from May 1, 2018 through June 30, 2020.

Due to the suspension of the program in March 2020, there were no shares repurchased during the three months ended June 30, 2020.

Commitments and Contingencies

10 unchanged sentences

The contractual amount of undrawn loan commitments and standby letters of credit not reflected in the consolidated statements of condition are as follows:

(in thousands) June 30, 2020 December 31, 2019

(in thousands) September 30, 2020 December 31, 2019

Commercial lines of credit $ 301,107 $ 287,533

5 unchanged sentences

We record an allowance for losses on these off-balance sheet commitments based on an estimate of probabilities of the utilization of these commitments according to our historical experience on different types of commitments and expected loss.

The allowance for losses on off-balance sheet commitments totaled $ 1.4 million and $ 1.1 million as of June 30, 2020 and December 31, 2019, respectively, which is recorded in interest payable and other liabilities in the consolidated statements of condition.

The allowance for losses on off-balance sheet commitments totaled $ 1.7 million and $ 1.1 million as of September 30, 2020 and December 31, 2019, respectively, which is recorded in interest payable and other liabilities in the consolidated statements of condition.

We lease premises under long-term non-cancelable operating leases with remaining terms of 1 year to 12 years, most of which include escalation clauses and one or more options to extend the lease term, and some of which contain lease termination clauses.

2 unchanged sentences

The equipment finance leases do not contain renewal options, bargain purchase options or residual value guarantees.

The following table shows the balances of operating and finance lease right-of-use assets and lease liabilities as of June 30, 2020.

(in thousands) June 30, 2020 December 31, 2019

The following table shows the balances of operating and finance lease right-of-use assets and lease liabilities as of September 30, 2020.

(in thousands) September 30, 2020 December 31, 2019

Operating leases:

9 unchanged sentences

The following table shows supplemental disclosures of noncash investing and financing activities for the period presented.

Six months ended

(in thousands) June 30, 2020 June 30, 2019

Nine months ended

(in thousands) September 30, 2020 September 30, 2019

Right-of-use assets obtained in exchange for operating lease liabilities $ 18,021 $ 1,661

2 unchanged sentences

The following table shows components of operating and finance lease cost.

Three months ended Six months ended

(in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three months ended Nine months ended

(in thousands) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Operating lease cost $ 1,165 $ 1,051 $ 3,334 $ 3,123

11 unchanged sentences

3 Included in interest on borrowings and other obligations in the consolidated statements of comprehensive income.

The following table shows the future minimum lease payments, weighted average remaining lease terms, and weighted average discount rates under operating and finance lease arrangements as of June 30, 2020.

Total minimum lease payments do not include obligations of approximately $ 3.1 million for operating lease modifications related to two existing retail branches and an operating lease agreement for a new loan production office in San Mateo that commenced subsequent to June 30, 2020.

The discount rates used to calculate the present value of lease liabilities were based on the collateralized FHLB borrowing rates that were commensurate with lease terms and minimum payments on the later of the date we adopted the new lease accounting standards or lease commencement date.

(in thousands) June 30, 2020

(in thousands) September 30, 2020

Year Operating Leases Finance Leases

18 unchanged sentences

In 2012, Visa had reached a $ 4.0 billion interchange multidistrict litigation class settlement agreement with plaintiffs representing a class of U.S.

On September 17, 2018, Visa signed an amended settlement agreement with the putative class action plaintiffs of the U.S.

On September 17, 2018, Visa signed an amended settlement agreement with

the putative class action plaintiffs of the U.S.

interchange multidistrict litigation that superseded the 2012 settlement agreement.

3 unchanged sentences

On December 27, 2019, Visa received a takedown payment of approximately $ 467 million, which was deposited into the litigation escrow account with a corresponding increase in accrued litigation to address opt-out claims.

The escrow balance of $ 1.1 billion as of June 30, 2020, combined with funds previously deposited with the court, are expected to cover the settlement payment obligations.

The escrow balance of $ 1.1 billion as of June 30, 2020 (most recent information available), combined with funds previously deposited with the court, are expected to cover the settlement payment obligations.

The outcome of the Covered Litigation affects the conversion rate of Visa Class B common stock held by us to Visa Class A common stock, as discussed above and in Note 4, Investment Securities.

The final conversion rate might change depending on the final settlement payments, and the full effect on member banks is still uncertain.

Litigation is ongoing and until the court approval process is complete, there is no assurance that Visa will resolve the claims

as contemplated by the amended class settlement agreement, and additional lawsuits may arise from individual merchants who opted out of the class settlement.

Litigation is ongoing and until the court approval process is complete, there is no assurance that Visa will resolve the claims as contemplated by the amended class settlement agreement, and additional lawsuits may arise from individual merchants who opted out of the class settlement.

However, until the escrow account is fully depleted and the conversion rate of Class B to Class A common stock is reduced to zero, no future cash settlement payments are required by the member banks, such as us, on the Covered Litigation.

Therefore, we are not required to record any contingent liabilities for the indemnification related to the Covered Litigation, as we consider the probability of losses to be remote.

Stockholders' Equity

On October 23, 2020, Bancorp declared a $ 0.23 per share cash dividend, payable on November 13, 2020 to shareholders of record at the close of business on November 6, 2020.