What changed in this filing

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Item 1. Financial Statements

2021-05-07 compared with 2020-11-06 · 181 added, 348 removed, 1194 unchanged (31% of the section changed)

3 unchanged sentences

(In thousands, except share data;

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Cash and due from banks $ 94,157 $ 77,253

34 unchanged sentences

Preferred stock, no par value:

1,000,000 shares authorized, zero issued and outstanding at September 30, 2020 and December 31, 2019

1,000,000 shares authorized, zero issued and outstanding at March 31, 2021 and December 31, 2020

Common stock, no par value:

50,000,000 shares authorized;

29,769,389 and 30,523,824 issued and outstanding at September 30, 2020 and December 31, 2019, respectively

29,727,122 and 29,727,214 issued and outstanding at March 31, 2021 and December 31, 2020, respectively

531,367 530,835

Retained earnings 408,211 381,999

Accumulated other comprehensive income (loss), net of tax 5,576 ( 5,222 )

Accumulated other comprehensive income, net of tax 2,961 12,280

Total shareholders’ equity 942,539 925,114

5 unchanged sentences

Three months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

Interest and dividend income:

32 unchanged sentences

Dividends per share $ 0.25 $ 0.22

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In thousands;

Three months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

Net income $ 33,649 $ 16,121

Other comprehensive income, net of tax:

Unrealized gains on available for sale securities arising during the period 3,266 3,697 7,069 19,378

Other comprehensive income (loss), net of tax:

Unrealized losses on available for sale securities arising during the period ( 8,690 ) ( 20,822 )

Change in minimum pension liability — 912

Change in joint beneficiary agreements ( 629 ) —

Other comprehensive income 4,957 3,697 10,798 19,378

Comprehensive income $ 22,563 $ 27,092 $ 51,955 $ 88,560

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;

Stock Retained

Earnings Accumulated

Comprehensive

Income (Loss) Total

Balance at June 30, 2019 30,502,757 $ 542,939 $ 335,145 $ ( 2,198 ) $ 875,886

Net income 23,395 23,395

Other comprehensive income 3,697 3,697

Stock options exercised 9,000 146 146

RSU vesting 296 296

PSU vesting 102 102

RSUs released 4,250 —

PSUs released — —

Repurchase of common stock ( 3,820 ) ( 68 ) ( 79 ) ( 147 )

Dividends paid ($ 0.22 per share)

( 6,710 ) ( 6,710 )

Three months ended September 30, 2019 30,512,187 $ 543,415 $ 351,751 $ 1,499 $ 896,665

Balance at June 30, 2020 29,759,209 $ 530,422 $ 354,645 $ 619 $ 885,686

Net income 17,606 17,606

Other comprehensive income 4,957 4,957

Stock options exercised 16,000 259 259

RSU vesting 383 383

PSU vesting 162 162

RSUs released 2,619 —

PSUs released — —

Repurchase of common stock ( 8,439 ) ( 151 ) ( 91 ) ( 242 )

Dividends paid ($ 0.22 per share)

( 6,549 ) ( 6,549 )

Three months ended September 30, 2020 29,769,389 $ 531,075 $ 365,611 $ 5,576 $ 902,262

Other comprehensive income (loss) ( 9,319 ) ( 19,910 )

Comprehensive income (loss) $ 24,330 $ ( 3,789 )

See accompanying notes to unaudited condensed consolidated financial statements.

7 unchanged sentences

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 income 19,378 19,378

Other comprehensive loss ( 19,910 ) ( 19,910 )

Stock options exercised 8,000 148 148

2 unchanged sentences

RSUs released 362 —

PSUs released 22,237 —

Repurchase of common stock ( 558,670 ) ( 9,962 ) ( 7,333 ) ( 17,295 )

1 unchanged sentence

( 6,664 ) ( 6,664 )

Nine months ended September 30, 2019 30,512,187 $ 543,415 $ 351,751 $ 1,499 $ 896,665

Three months ended March 31, 2020 29,973,516 $ 534,623 $ 356,935 $ ( 25,132 ) $ 866,426

Balance at January 1, 2021 29,727,214 $ 530,835 $ 381,999 $ 12,280 $ 925,114

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 33,649 33,649

Other comprehensive income 10,798 10,798

Other comprehensive loss ( 9,319 ) ( 9,319 )

Stock options exercised — — —

2 unchanged sentences

RSUs released 201 —

PSUs released 20,265 —

Repurchase of common stock ( 293 ) ( 5 ) ( 5 ) ( 10 )

1 unchanged sentence

( 7,432 ) ( 7,432 )

Nine months ended September 30, 2020 29,769,389 $ 531,075 $ 365,611 $ 5,576 $ 902,262

Three months ended March 31, 2021 29,727,122 $ 531,367 $ 408,211 $ 2,961 $ 942,539

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands;

For the nine months ended September 30,

For the three months ended March 31,

Operating activities:

5 unchanged sentences

Amortization of investment securities premium, net 1,186 509

Gain on sale of investment securities ( 7 ) ( 107 )

Originations of loans for resale ( 65,970 ) ( 28,394 )

2 unchanged sentences

Change in market value of mortgage servicing rights ( 12 ) 1,258

Provision for losses on foreclosed assets — 56

Gain (loss) on transfer of loans to foreclosed assets 128 ( 151 )

Gain on sale of foreclosed assets ( 42 ) ( 41 )

Operating lease expense payments ( 1,204 ) ( 1,237 )

Loss on disposal of fixed assets 37 82

Increase in cash value of life insurance ( 673 ) ( 720 )

Gain on life insurance death benefit — ( 831 )

Gain on marketable equity securities ( 72 ) ( 100 )

Loss (gain) on marketable equity securities 53 ( 47 )

Equity compensation vesting expense 537 439

1 unchanged sentence

Interest payable ( 392 ) ( 421 )

Accretion (amortization) of operating lease ROUA 4,070 ( 463 )

Accretion of operating lease ROUA 1,317 1,362

Other assets and liabilities, net 7,376 2,609

3 unchanged sentences

Proceeds from maturities of securities held to maturity 23,850 15,592

Proceeds from sale of available for sale securities 229 125,247

Purchases of securities available for sale ( 372,917 ) ( 101,899 )

Loan origination and principal collections, net ( 102,230 ) ( 70,903 )

Loans purchased ( 101,466 ) —

Proceeds from sale of other real estate owned 577 353

Proceeds from sale of premises and equipment — —

Purchases of premises and equipment ( 188 ) ( 761 )

Net cash (used by) from investing activities ( 639,947 ) 46,204

Net cash used by investing activities ( 460,561 ) ( 137,406 )

Financing activities:

3 unchanged sentences

Dividends paid ( 7,432 ) ( 6,664 )

Exercise of stock options — —

Net cash (used by) from financing activities 937,438 ( 90,956 )

Net cash from financing activities 359,336 12,748

Net change in cash and cash equivalents ( 60,029 ) ( 91,041 )

2 unchanged sentences

Supplemental disclosure of noncash activities:

Unrealized gain on securities available for sale $ 10,036 $ 27,511

Unrealized loss on securities available for sale $ ( 12,337 ) $ ( 29,561 )

Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes 2 148

Obligations incurred in conjunction with leased assets 1,308 3,393

Loans transferred to foreclosed assets 157 331

Supplemental disclosure of cash flow activity:

36 unchanged sentences

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.

Allowance for Credit Losses - Held to Maturity Securities

The Company measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type, then further disaggregated by sector and bond rating.

Accrued interest receivable on held-to-maturity (HTM) debt securities totaled $ 795,000 at September 30, 2020 and is excluded from the estimate of credit losses.

Allowance for Credit Losses - Securities

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

disaggregated by sector and bond rating.

Accrued interest receivable on held-to-maturity (HTM) debt securities totaled $ 668,000 at March 31, 2021 and is excluded from the estimate of credit losses.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current condition and reasonable and supportable forecasts based on current and expected changes in credit ratings and default rates.

3 unchanged sentences

As a result of this evaluation, management determined that the expected credit losses associated with these securities is not significant for financial reporting purposes and therefore, no allowance for credit losses has been recognized.

The Company evaluates available for sale debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors.

Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes.

Credit-related impairment is recognized as an allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings.

Both the allowance for credit losses and the adjustment to net income may be reversed if conditions change.

However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the security's amortized cost basis.

In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers' financial condition, among other factors.

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense.

Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

No security credit losses were recognized during the three month periods ended March 31, 2021 and 2020, respectively.

Loans that management has the intent and ability to hold until maturity or payoff are reported at principle amount outstanding, net of deferred loan fees and costs.

20 unchanged sentences

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.

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.

45 unchanged sentences

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.

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.

16 unchanged sentences

Accounting Standards Adopted in 2021

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.

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 be presented as an allowance rather than as a write-down on available for sale debt securities, based on management's intent to sell the security or likelihood the Company will be required to sell the security, before recovery of the amortized cost basis.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

Results for the reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchase credit impaired (PCI) and accounted for under ASC 310-30.

In accordance with ASC 326, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

The remaining noncredit discount (based on the adjusted amortized costs basis) will be accreted into interest income at the effective interest rate as of adoption.

The Company recognized an increase in the ACL for loans totaling $ 18,913,000 , including a reclassification of $ 481,000 from discounts on acquired loans to the allowance for credit losses, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $ 5,449,000 in taxes of $ 12,983,000 .

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 the Company adopted ASU 2017-04, Intangibles—Goodwill and Other:

Simplifying the Test for Goodwill Impairment (Topic 350), which eliminates step two of the goodwill impairment test (the hypothetical purchase price allocation used to determine the implied fair value of goodwill) when step one (determining if the carrying value of a reporting unit exceeds its fair value) is failed.

Instead, entities simply will compare the fair value of a reporting unit to its carrying amount and record goodwill impairment for the amount by

which the reporting unit’s carrying amount exceeds its fair value.

There was no goodwill impairment recorded during the three and nine month periods ended September 30, 2020.

On January 1, 2021, the Company adopted ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This ASU simplified the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The guidance also promoted consistent application and simplification of GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the Coronavirus Disease 2019 (COVID-19) pandemic.

The CARES Act provides optional temporary relief from troubled debt restructuring and impairment accounting requirements for loan modifications related to the COVID-19 pandemic made during the period from March 1, 2020 to the earlier of December 31, 2020 or 60 days after the national emergency concerning COVID-19 declared by the President terminates.

The applicable period for this relief was extended through 2021 by way of the Consolidated Appropriations Act.

Following the passage of the CARES Act legislation, the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus" was issued by federal bank regulators, which similarly offers temporary relief from troubled debt restructuring accounting for loan payment deferrals for certain customers whose businesses are experiencing economic hardship due to Coronavirus.

2 unchanged sentences

Accounting Standards Pending Adoption

FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The guidance also promotes consistent application and simplification of GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

2019-12 will be effective for the Company beginning January 1, 2021 and is not expected to have a significant impact on the Company’s consolidated financial statements.

FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform by providing optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected if certain criteria are met.

relationships, and other transactions affected if certain criteria are met.

The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

4 unchanged sentences

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

September 30, 2020

March 31, 2021

(in thousands) Amortized

14 unchanged sentences

(in thousands) Amortized

Losses Estimated

Losses Allowance for Credit Losses Estimated

Debt Securities Available for Sale

10 unchanged sentences

Total debt securities held to maturity $ 284,563 $ 14,163 $ — $ — $ 298,726

Proceeds from the sale of investment securities totaled $ 229,000 and $ 125,247,000 during the nine month periods ended September 30, 2020 and 2019, respectively.

Gross realized gains from the sale of investment securities totaled $ 7,000 during the three and nine months ended September 30, 2020, respectively.

There were no gross realized losses on the sale of securities during 2020.

Gross realized gains from the sale of investment securities totaled $ 335,000 during the three and nine months ended September 30, 2019, respectively.

Gross realized losses from the sale of investment securities during the three and nine months ended September 30, 2019 totaled $ 228,000 .

Investment securities with an aggregate carrying value of $ 460,317,000 and $ 466,321,000 at September 30, 2020 and December 31, 2019, respectively, were pledged as collateral for specific borrowings, lines of credit or local agency deposits.

The amortized cost and estimated fair value of debt securities at September 30, 2020 by contractual maturity are shown below.

There were no sales of investment securities during the three months ended March 31, 2021 and 2020, respectively.

Investment securities with an aggregate carrying value of $ 417,528,000 and $ 429,049,000 at March 31, 2021 and December 31, 2020, respectively, were pledged as collateral for specific borrowings, lines of credit or local agency deposits.

The amortized cost and estimated fair value of debt securities at March 31, 2021 by contractual maturity are shown below.

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

At September 30, 2020, obligations of U.S.

At March 31, 2021, obligations of U.S.

government corporations and agencies with a cost basis totaling $ 1,069,850,000 consist almost entirely of residential real estate mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages.

1 unchanged sentence

government corporations and agencies is categorized based on final maturity date.

At September 30, 2020, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S.

At March 31, 2021, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S.

government corporations and agencies to be approximately 4.58 years.

Average remaining life is defined as the time span after which the principal balance has been reduced by half.

As of September 30, 2020, the contractual final maturity for available for sale and held to maturity investment securities is as follows:

As of March 31, 2021, 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

9 unchanged sentences

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

September 30, 2020:

March 31, 2021:

Less than 12 months 12 months or more Total

18 unchanged sentences

government agencies $ 160,543 $ ( 891 ) $ — $ — $ 160,543 $ ( 891 )

Obligations of states and political subdivisions 778 ( 1 ) — — 778 ( 1 )

Asset backed securities 51,544 ( 441 ) 297,020 ( 4,710 ) 348,564 ( 5,151 )

Total debt securities available for sale $ 212,087 $ ( 1,332 ) $ 297,020 $ ( 4,710 ) $ 509,107 $ ( 6,042 )

Debt Securities Held to Maturity

Obligations of U.S.

government agencies:

Obligations of U.S.

government agencies:

The unrealized losses on investments in obligations of U.S.

3 unchanged sentences

It is expected that the securities would not be settled at a price less than the amortized cost of the investment.Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded.

At September 30, 2020, 13 debt securities representing obligations of U.S.

At March 31, 2021, 29 debt securities representing obligations of U.S.

government agencies had unrealized losses with aggregate depreciation of 1.15 % from the Company’s amortized cost basis.

2 unchanged sentences

It is expected that the securities would not be settled at a price less than the amortized cost of the investment.

Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of September 30, 2020.

At September 30, 2020, one ( 1 ) debt security representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of 1.33 % from the Company’s amortized cost basis.

At March 31, 2021, 13 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of 3.92 % from the Company’s amortized cost basis.

Asset backed securities:

The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors for these types of securities.

At the time of purchase, each of these securities was rated AA or AAA and through September 30, 2020 has not experienced any deterioration in credit rating.

At September 30, 2020, 9 asset backed securities had unrealized losses with aggregate depreciation of 2.41 % from the Company’s amortized cost basis.

At the time of purchase, each of these securities was rated AA or AAA and through March 31, 2021 has not experienced any deterioration in credit rating.

At March 31, 2021, 27 asset backed securities had unrealized losses with aggregate depreciation of 0.93 % from the Company’s amortized cost basis.

The Company continues to monitor these securities for changes in credit rating or other indications of credit deterioration.

The Company monitors credit quality of debt securities held-to-maturity through the use of credit rating.

1 unchanged sentence

The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

AAA/AA/A BBB/BB/B AAA/AA/A BBB/BB/B

7 unchanged sentences

A summary of loan balances follows:

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

(in thousands) March 31, 2021 December 31, 2020

Commercial real estate:

18 unchanged sentences

Allowance for credit losses on loans $ ( 85,941 ) $ ( 91,847 )

As of the quarter ended September 30, 2020, the total balance outstanding of PPP loans, which are included in commercial and industrial loans, was $ 437,793,000 (approximately 2,900 loans) as compared to total PPP originations of $ 438,510,000 .

Included in the balance of outstanding PPP loans as of September 30, 2020 are approximately 1,420 loans with outstanding balances of less than $50,000 each and with a total balance outstanding of approximately $ 32,296,000 .

In connection with the origination of these loans, the Company earned approximately $ 15,735,000 in loan fees, offset by deferred loan costs of approximately $ 763,000 , the net of which will be recognized over the earlier of loan maturity, repayment or receipt of forgiveness confirmation.

As of September 30, 2020 there was approximately $ 11,846,000 in net deferred fee income expected to be recognized.

During the three and nine months ended September 30, 2020, the Company recognized $ 2,603,000 and $ 4,959,000 , respectively, in interest and fees on PPP loans.

Note 4 – Allowance for Credit Losses on Loans

As of March 31, 2021 and December 31, 2021, the total balance outstanding of PPP loans, which are included in commercial and industrial loans, was $ 370,274,000 (approximately 2,484 loans) and $ 333,982,000 (approximately 2,300 loans), respectively, as compared to total PPP originations of $ 614,826,000 .

Included in the balance of outstanding PPP loans as of March 31, 2021 are approximately 1,303 loans with outstanding balances of less than $50,000 each and with a total balance outstanding of $ 26,895,000 .

In connection with the origination of the PPP loans, the Company earned $ 23,585,000 in loan fees, offset by deferred loan costs of $ 1,163,000 , the net of which will be recognized over the earlier of loan maturity, repayment or receipt of forgiveness confirmation.

As of March 31, 2021 and December 31, 2020, there was $ 9,430,000 and $ 7,212,000 , respectively, in net deferred fee income remaining to be recognized.

During the three months ended March 31, 2021 and 2020, the Company recognized $ 5,232,000 and zero , respectively, in fees on PPP loans.

Note 4 – Allowance for Credit Losses

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

Allowance for Loan Losses – Three Months Ended September 30, 2020

(in thousands) Beginning

Balance Charge-offs Recoveries Provision Ending

Commercial real estate:

CRE non-owner occupied $ 26,091 $ — $ 23 $ 2,733 $ 28,847

CRE owner occupied 8,710 — 1 914 9,625

Multifamily 8,581 — — 1,451 10,032

Farmland 1,468 — — 322 1,790

Total commercial real estate loans 44,850 — 24 5,420 50,294

SFR 1-4 1st DT liens 8,015 ( 2 ) 2 922 8,937

SFR HELOCs and junior liens 12,108 — 126 ( 558 ) 11,676

Other 3,042 ( 98 ) 85 365 3,394

Total consumer loans 23,165 ( 100 ) 213 729 24,007

Commercial and industrial 4,018 ( 94 ) 142 468 4,534

Construction 6,775 — — 865 7,640

Agriculture production 919 — 2 172 1,093

Leases 12 — — ( 5 ) 7

Allowance for credit losses on loans 79,739 ( 194 ) 381 7,649 87,575

Reserve for unfunded commitments 3,000 — — — 3,000

Total $ 82,739 $ ( 194 ) $ 381 $ 7,649 $ 90,575

Allowance for Loan Losses – Nine months ended September 30, 2020

Allowance for credit losses – Three months ended March 31, 2021

(in thousands) Beginning

Balance Impact of CECL Adoption Charge-offs Recoveries Provision Ending

Balance Charge-offs Recoveries Provision (benefit) Ending

Commercial real estate:

19 unchanged sentences

Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results.

At both January 1, 2020, the adoption and implementation date of ASC Topic 326, and September 30, 2020, the 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 September 30, 2020 the majority of the increase in ACL reflects potential future credit deterioration.

Specifically, portfolio-wide qualitative indicators for changes in California Unemployment and US Policy uncertainty contributed to the majority of the increase in credit reserves on loans as of September 30, 2020 as compared to the trailing quarter, adding approximately $ 9,556,000 to the required reserves.

These increases were partially offset with a reduced need for reserves for concentration risks totaling $ 1,472,000 and reductions in specific reserves on individually evaluated loans of $ 321,000 .

Management noted that the majority of economic forecasts utilized in the ACL calculation have continued to identify an expanded duration of the current recessionary period as caused by the global pandemic and partially offset by the governmental stimulus that has been provided to date.

Management believes that the allowance for credit losses at September 30, 2020 appropriately reflected expected credit losses inherent in the loan portfolio at that date.

Allowance for Loan Losses – Year Ended December 31, 2019

(in thousands) Beginning

Balance Charge-offs Recoveries Provision

(benefit) Ending Balance

Commercial real estate:

CRE non-owner occupied $ 7,401 $ — $ 1,486 $ ( 2,939 ) $ 5,948

CRE owner occupied 2,711 ( 746 ) 42 20 2,027

Multifamily 2,429 — — 923 3,352

Farmland 403 — — 265 668

Total commercial real estate loans 12,944 ( 746 ) 1,528 ( 1,731 ) 11,995

SFR 1-4 1st DT liens 2,676 ( 2 ) 54 ( 422 ) 2,306

SFR HELOCs and junior liens 7,582 ( 3 ) 935 ( 2,331 ) 6,183

Other 793 ( 765 ) 321 1,246 1,595

Total consumer loans 11,051 ( 770 ) 1,310 ( 1,507 ) 10,084

Commercial and industrial 5,610 ( 2,104 ) 513 848 4,867

Construction 2,497 — — 891 3,388

Agriculture production 480 ( 19 ) 12 ( 212 ) 261

Leases — — — 21 21

Total $ 32,582 $ ( 3,639 ) $ 3,363 $ ( 1,690 ) $ 30,616

Allowance for Loan Losses – Three Months Ended September 30, 2019

The Company utilizes a reasonable and supportable forecast period of approximately eight quarters and obtains the forecast data from publicly available sources.

The Company also considers the impact of portfolio concentrations, changes in underwriting practices, imprecision in its economic forecasts, and other risk factors that might influence its loss estimation process.

During the quarter ended March 31, 2021, the majority of the change in ACL during the period is primarily attributed to portfolio-wide qualitative indicators related to forecasted changes in the US Unemployment outlook and concentration risk.

The aggregate change in these qualitative factors during the three months ended March 31, 2021 were $ 5,435,000 .

Further, quantitative calculations decreases based on historical loss experience further reduced required credit reserves by $ 471,000 as of March 31, 2021.

Management noted that the majority of economic forecasts utilized in the ACL calculation have recent estimates that forecast the U.S.

economy rebounding to pre-pandemic levels during 2021.

These forecasts remain cautious as a result of;

lingering supply chain interruptions caused by an imbalance in supply and demand, logistical and transportation issues, and resurgences in COVID variants in certain nations worldwide.

Management believes that the allowance for credit losses at March 31, 2021 appropriately reflected expected credit losses inherent in the loan portfolio at that date.

Allowance for credit losses – Year ended December 31, 2020

(in thousands) Beginning

Balance Charge-offs Recoveries Provision

Balance Adoption of CECL Charge-offs Recoveries Provision

(benefit) Ending Balance

13 unchanged sentences

Leases 21 ( 12 ) — — ( 4 ) 5

Allowance for credit losses on loans 30,616 18,913 ( 1,755 ) 1,885 42,188 91,847

Reserve for unfunded commitments 2,775 — — — 625 3,400

Total $ 33,391 $ 18,913 $ ( 1,755 ) $ 1,885 $ 42,813 $ 95,247

Allowance for Loan Losses – Nine months ended September 30, 2019

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.

Allowance for loan losses – Three months ended March 31, 2020

(in thousands) Beginning

Balance Charge-offs Recoveries Provision

Balance Adoption of CECL Charge-offs Recoveries Provision

(benefit) Ending Balance

13 unchanged sentences

Leases 21 ( 12 ) — — 2 11

Allowance for credit losses on loans 30,616 18,913 ( 510 ) 892 8,000 57,911

Reserve for unfunded commitments 2,775 — — — — 2,775

Total $ 33,391 $ 18,913 $ ( 510 ) $ 892 $ 8,000 $ 60,686

24 unchanged sentences

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

Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2020

Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2021

(in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

6 unchanged sentences

Total CRE non-owner occupied risk ratings $ 58,047 $ 130,667 $ 212,044 $ 160,881 $ 265,236 $ 651,023 $ 77,029 $ — $ 1,554,927

Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2021

(in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Commercial real estate:

26 unchanged sentences

Total SFR 1st DT liens $ 125,704 $ 186,594 $ 72,921 $ 35,107 $ 48,511 $ 161,513 $ — $ 6,474 $ 636,824

Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2020

(in thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Consumer loans:

5 unchanged sentences

Total SFR HELOCs and Junior Liens $ 700 $ 85 $ — $ 28 $ 343 $ 1,130 $ 313,690 $ 15,357 $ 331,333

Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2021

(in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Consumer loans:

26 unchanged sentences

Total agriculture production loans $ 262 $ 897 $ 1,959 $ 1,477 $ 1,582 $ 1,160 $ 32,416 $ — $ 39,753

Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2020

(in thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Lease risk ratings

4 unchanged sentences

Total leases $ 4,697 $ — $ — $ — $ — $ — $ — $ — $ 4,697

Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2021

(in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Total loans outstanding:

4 unchanged sentences

Total loans outstanding $ 536,620 $ 847,549 $ 626,452 $ 456,616 $ 508,988 $ 1,383,436 $ 584,436 $ 22,880 $ 4,966,977

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

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2020

14 unchanged sentences

Total CRE owner occupied risk ratings $ 105,896 $ 76,677 $ 55,405 $ 66,297 $ 58,802 $ 235,790 $ 25,508 $ — $ 624,375

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2019

(in thousands) 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Commercial real estate:

5 unchanged sentences

Total multifamily loans $ 87,087 $ 123,096 $ 113,882 $ 70,715 $ 92,144 $ 124,290 $ 28,266 $ — $ 639,480

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2020

(in thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Commercial real estate:

26 unchanged sentences

Total other consumer loans $ 25,977 $ 29,829 $ 14,527 $ 4,386 $ 1,056 $ 1,172 $ 1,085 $ — $ 78,032

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2019

(in thousands) 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Commercial and industrial loans:

5 unchanged sentences

Total commercial and industrial loans $ 356,701 $ 49,241 $ 21,214 $ 14,488 $ 6,028 $ 9,816 $ 67,664 $ 1,175 $ 526,327

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2020

(in thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Construction loans:

25 unchanged sentences

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

Analysis of Past Due Loans - As of September 30, 2020

Analysis of Past Due Loans - As of March 31, 2021

(in thousands) 30-59 days 60-89 days > 90 days Total Past

15 unchanged sentences

Total $ 824 $ 1,025 $ 8,701 $ 10,550 $ 4,956,427 $ 4,966,977

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

Analysis of Past Due Loans - As of December 31, 2020

18 unchanged sentences

Non Accrual Loans

As of September 30, 2020 As of December 31, 2019

As of March 31, 2021 As of December 31, 2020

(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

16 unchanged sentences

Total, net $ 24,138 $ 27,882 $ 245 $ 21,703 $ 26,053 $ —

Interest income on non accrual loans that would have been recognized during the three months ended September 30, 2020 and 2019, if all such loans had been current in accordance with their original terms, totaled $ 303,000 and $ 325,000 , respectively.

Interest income actually recognized on these originated loans during the three months ended September 30, 2020 and 2019 was $ 187,000 and $ 151,000 , respectively.

Interest income on non accrual loans that would have been recognized during the nine months ended September 30, 2020 and 2019, if all such loans had been current in accordance with their original terms, totaled $ 1,162,000 and $ 1,014,000 , respectively.

Interest income actually recognized on these originated loans during the nine months ended September 30, 2020 and 2019 was $ 321,000 and $ 297,000 , respectively.

Interest income on non accrual loans that would have been recognized during the three months ended March 31, 2021 and 2020, if all such loans had been current in accordance with their original terms, totaled $ 536,000 and $ 431,000 , respectively.

Interest income actually recognized on these originated loans during the three months ended March 31, 2021 and 2020 was $ 17,000 and $ 47,000 , respectively.

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

As of September 30, 2020

As of March 31, 2021

(in thousands) Retail Office Warehouse Other Multifamily Farmland SFR -1st Deed SFR -2nd Deed Automobile/Truck A/R and Inventory Equipment Total

36 unchanged sentences

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

TDR information for the three months ended September 30, 2020

TDR information for the three months ended March 31, 2021

(dollars in thousands) Number Pre-mod

25 unchanged sentences

Total 5 $ 1,373 $ 1,366 $ 1,366 4 $ 1,094 $ —

TDR information for the three months ended September 30, 2019

TDR information for the three months ended March 31, 2020

(dollars in thousands) Number Pre-mod

25 unchanged sentences

Total 6 $ 680 $ 738 $ 21 1 $ 302 $ —

TDR Information for the nine months ended September 30, 2020

(dollars in thousands) Number Pre-mod

balance Post-mod

balance Financial

impact due to

provision Number that

defaulted during

the period Recorded

investment of

defaulted during

the period Financial impact

taken as charge-

offs or additional

Commercial real estate:

CRE non-owner occupied 2 $ 576 $ 565 $ 314 1 $ 141 $ —

CRE owner occupied 5 2,422 2,341 67 2 1,401 —

Multifamily — — — — — — —

Farmland 2 229 298 — — — —

Total commercial real estate loans 9 3,227 3,204 381 3 1,542 —

SFR 1-4 1st DT liens — — — — 2 1,037 —

SFR HELOCs and junior liens 2 172 169 — — — —

Other — — — — — — —

Total consumer loans 2 172 169 — 2 1,037 —

Commercial and industrial — — — — — — —

Construction 1 21 20 21 — — —

Total 12 $ 3,420 $ 3,393 $ 402 5 $ 2,579 $ —

TDR Information for the nine months ended September 30, 2019

(dollars in thousands) Number Pre-mod

balance Post-mod

balance Financial

impact due to

provision Number that

defaulted during

the period Recorded

investment of

defaulted during

the period Financial impact

taken as charge-

offs or additional

Commercial real estate:

CRE non-owner occupied 2 $ 60 $ 67 $ — — $ — $ —

CRE owner occupied — — — — — — —

Multifamily — — — — — — —

Farmland — — — — — — —

Total commercial real estate loans 2 60 67 — — — —

SFR 1-4 1st DT liens 3 659 662 30 — — —

SFR HELOCs and junior liens 3 214 215 29 — — —

Other — — — — — — —

Total consumer loans 6 873 877 59 — — —

Commercial and industrial 10 1,918 1,885 — 1 7 —

Construction — — — — — — —

Total 18 $ 2,851 $ 2,829 $ 59 1 $ 7 $ —

The Company also modified the terms of select loans in an effort to assist borrowers that were not related to the COVID-19 pandemic.

31 unchanged sentences

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

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands) 2021 2020

5 unchanged sentences

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

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands) 2021 2020

3 unchanged sentences

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

September 30,

Weighted-average remaining lease term (years) 9.8 10.3

Weighted-average discount rate 3.03 % 3.17 %

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

At March 31, 2021, future expected operating lease payments are as follows:

(in thousands)

2 unchanged sentences

Discount for present value of expected cash flows ( 4,920 )

Lease liability at September 30, 2020 $ 28,894

Lease liability at March 31, 2021 $ 27,780

Note 6 - Deposits

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

September 30,

2021 December 31,

5 unchanged sentences

Total deposits $ 6,863,400 $ 6,505,934

Certificate of deposit balances of $ 30,000,000 from the State of California were included in time certificates, over $250,000, at September 30, 2020 and December 31, 2019, respectively.

Certificate of deposit balances of $ 10,000,000 from the State of California were included in time certificates, over $250,000, at March 31, 2021 and December 31, 2020, respectively.

The Company participates in a deposit program offered by the State of California whereby the State may make deposits at the Company’s request subject to collateral and credit worthiness constraints.

The negotiated rates on these State deposits are generally more favorable than other wholesale funding sources available to the Company.

Overdrawn deposit balances of $ 1,139,000 and $ 1,550,000 were classified as consumer loans at September 30, 2020 and December 31, 2019, respectively.

Overdrawn deposit balances of $ 813,000 and $ 985,000 were classified as consumer loans at March 31, 2021 and December 31, 2020, respectively.

Note 7 - Commitments and Contingencies

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

(in thousands) September 30,

(in thousands) March 31,

2021 December 31,

9 unchanged sentences

Dividends Paid

The Bank paid to the Company cash dividends in the aggregate amounts of $ 6,913,000 and $ 7,011,000 during the three months ended September 30, 2020 and 2019, respectively and $ 46,361,000 and $ 25,361,000 during the nine months ended September 30, 2020 and 2019, respectively.

The Bank paid to the Company cash dividends in the aggregate amounts of $ 7,772,000 and $ 26,754,000 during the three months ended March 31, 2021 and 2020, respectively.

The Bank is regulated by the Federal Deposit Insurance Corporation (FDIC) and the State of California Department of Business Oversight (DBO).

1 unchanged sentence

Stock Repurchase Plan

On November 12, 2019 the Board of Directors approved the authorization to repurchase up to 1,525,000 shares of the Company's common stock (the 2019 Repurchase Plan), which approximated 5.0 % of the shares outstanding as of the approval date.

On February 25, 2021 the Board of Directors approved the authorization to repurchase up to 2,000,000 shares of the Company's common stock (the 2021 Repurchase Plan), which approximated 6.7 % of the shares outstanding as of the approval date.

The actual timing of any share repurchases will be determined by the Company's management and therefore the total value of the shares to be purchased under the program is subject to change.

The 2019 Repurchase Plan has no expiration date and during the year ended 2019, the Company had repurchased no shares.

During the three and nine months ended September 30, 2020, the Company repurchased 0 and 813,862 shares with a market value of $ 0 and $ 24,809,000 , respectively.

In connection with approval of the 2019 Repurchase Plan, the Company’s previous repurchase program adopted on August 21, 2007 (the 2007 Repurchase Plan) was terminated.

There were no shares of common stock repurchased under the 2007 Repurchase Plan during 2019.

The 2021 Repurchase Plan has no expiration date and the Company has had no share repurchases during the quarter ended March 31, 2021.

In connection with approval of the 2021 Repurchase Plan, the Company’s previous repurchase program adopted on November 12, 2019 (the 2019 Repurchase Plan) was terminated.

Under the 2019 Repurchase Plan, during the three months ended March 31, 2021, the Company repurchased 223 shares with a market value of approximately $ 8,260 .

The Company repurchased 858,717 shares during 2020.

Stock Repurchased Under Equity Compensation Plans

The Company's shareholder-approved equity compensation plans permit employees to tender recently vested shares in lieu of cash for the payment of withholding taxes on such shares.

During the three months ended September 30, 2020 and 2019, employees tendered 7,820 and 3,820 shares, respectively, of the Company’s common stock in connection with option exercises.

During the nine months ended September 30, 2020 and 2019, employees tendered 12,488 and 108,492 shares, respectively, of the Company’s common stock in connection with option exercises.

Employees also tendered 619 and 0 shares in connection with the tax withholding requirements of other share based awards during the three months ended September 30, 2020 and 2019, respectively, and 12,058 and 15,242 shares during the nine months period ended September 30, 2020 and 2019, respectively.

In total, shares of the Company's common stock tendered had market values of $ 242,000 and $ 147,000 during the quarter ended September 30, 2020 and 2019, respectively, and $ 588,000 and $ 4,842,000 year to date September 30, 2020 and 2019, respectively.

The Company's shareholder-approved equity compensation plans permit employees to tender recently vested shares in lieu of cash for the payment of exercise price, if applicable, and the tax withholding on such shares.

During the three months ended March 31, 2021 and 2020, employees tendered zero and 4,668 shares, respectively, of the Company’s common stock in connection with option exercises.

Employees also tendered 70 and 133 shares in connection with the tax withholding requirements of other share based awards during the three months ended March 31, 2021 and 2020, respectively.

In total, shares of the Company's common stock tendered had market values of $ 2,500 and $ 153,000 during the quarter ended March 31, 2021 and 2020, respectively.

The tendered shares were retired.

2 unchanged sentences

Note 9 - 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 approved by shareholders on May 21, 2019.

The 2019 Plan allows for up to 1,500,000 shares to be issued in connection with equity-based incentives.

All grants of equity awards made during the nine months ended September 30, 2020, were made from the 2019 Plan.

Stock option activity during the nine months ended September 30, 2020 is summarized in the following table:

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.

Stock option activity during the three months ended March 31, 2021 is summarized in the following table:

of Shares Option Price

5 unchanged sentences

Options forfeited — —

Outstanding at September 30, 2020 128,500 $ 14.54 to $ 23.21

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

Outstanding at March 31, 2021 128,500 $ 14.54 to $ 23.21

Exercisable Currently Not

4 unchanged sentences

Weighted average remaining contractual term (yrs.) 1.7 n/a 1.7

As of September 30, 2020 all options outstanding are fully vested and are expected to be exercised prior to expiration.

The Company did not modify any option grants during 2019 or the nine months ended September 30, 2020.

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

As of March 31, 2021 all options outstanding are fully vested and are expected to be exercised prior to expiration.

The Company did not modify any option grants during 2020 or the three months ended March 31, 2021.

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

Vesting RSUs Market Plus

4 unchanged sentences

RSUs forfeited/expired ( 55 ) —

Outstanding at September 30, 2020 104,572 81,615

During the three months ended September 30, 2020 and 2019 there were no restricted stock unit awards granted under the 2019 Plan.

The 104,572 of service condition vesting RSUs outstanding as of September 30, 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.

Outstanding at March 31, 2021 100,057 81,615

During the three months ended March 30, 2021 and 2020 there were no restricted stock unit awards granted under the 2019 Plan.

The 100,057 of service condition vesting RSUs outstanding as of March 31, 2021 include a feature whereby each RSU outstanding is credited with a dividend amount equal to any common stock cash dividend declared and paid, and the credited amount is divided by the closing price of the Company’s stock on the dividend payable date to arrive at an additional amount of RSUs outstanding under the original grant.

The dividend credits follow the same vesting requirements as the RSU awards and are not considered participating securities.

The 104,572 of service condition vesting RSUs outstanding as of September 30, 2020 are expected to vest, and be released, on a weighted-average basis, over the next 1.60 years.

The Company expects to recognize $ 2,782,321 of pre-tax compensation costs related to these service condition vesting RSUs between September 30, 2020 and their vesting dates.

The Company did not modify any service condition vesting RSUs during 2019 or during the nine months ended September 30, 2020.

The 81,615 of market plus service condition vesting RSUs outstanding as of September 30, 2020 are expected to vest, and be released, on a weighted-average basis, over the next 2.10 years.

The Company expects to recognize $ 1,469,701 of pre-tax compensation costs related to these RSUs between September 30, 2020 and their vesting dates.

As of September 30, 2020, the number of market plus service condition vesting RSUs outstanding that will actually vest, and be released, may be reduced to zero or increased to 122,423 depending on the total return of the Company’s common stock versus the total return of an index of bank stocks from the grant date to the vesting date.

The Company did not modify any market plus service condition vesting RSUs during 2019 or during the nine months ended September 30, 2020.

The 100,057 of service condition vesting RSUs outstanding as of March 31, 2021 are expected to vest, and be released, on a weighted-average basis, over the next 1.2 years.

The Company expects to recognize $ 2,058,000 of pre-tax compensation costs related to these service condition vesting RSUs between March 31, 2021 and their vesting dates.

The Company did not modify any service condition vesting RSUs during 2020 or during the three months ended March 31, 2021.

The 81,615 of market plus service condition vesting RSUs outstanding as of March 31, 2021 are expected to vest, and be released, on a weighted-average basis, over the next 1.6 years.

The Company expects to recognize $ 1,096,000 of pre-tax compensation costs related to these RSUs between March 31, 2021 and their vesting dates.

As of March 31, 2021, the number of market plus service condition vesting RSUs outstanding that will actually vest, and be released, may be reduced to zero or increased to 122,423 depending on the total return of the Company’s common stock versus the total return of an index of bank stocks from the grant date to the vesting date.

The Company did not modify any market plus service condition vesting RSUs during 2020 or during the three months ended March 31, 2021.

Note 10 - Non-interest Income and Expense

1 unchanged sentence

Three months ended

September 30, Nine months ended

September 30,

(dollars in thousands) 2021 2020

11 unchanged sentences

Gain on sale of investment securities — —

Gain on marketable equity securities — 22 72 100

(Loss) gain on marketable equity securities ( 53 ) 47

Other 704 ( 197 )

3 unchanged sentences

Three months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

Base salaries, net of deferred loan origination costs $ 15,511 $ 17,623

15 unchanged sentences

Gain on sale of foreclosed assets ( 51 ) ( 41 )

Loss on disposal of fixed assets 22 2 37 82

Other miscellaneous expense 2,349 2,930

6 unchanged sentences

Earnings per share have been computed based on the following:

Three months ended September 30,

(in thousands) 2020 2019

Net income $ 17,606 $ 23,395

Average number of common shares outstanding 29,764 30,509

Effect of dilutive stock options and restricted stock 80 120

Average number of common shares outstanding used to calculate diluted earnings per share 29,844 30,629

Options excluded from diluted earnings per share because of their antidilutive effect — 42

Nine months ended September 30,

Three months ended March 31,

(in thousands) 2021 2020

4 unchanged sentences

Options excluded from diluted earnings per share because of their antidilutive effect — —

Note 12 – Comprehensive Income

Note 12 – Comprehensive Income (Loss)

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.

Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet identified as accumulated other comprehensive income (AOCI), such items, along with net income, are components of other comprehensive income (OCI).

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

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands) 2021 2020

Unrealized holding gains on available for sale securities before reclassifications $ 4,645 $ 5,355 $ 10,043 $ 27,618

Unrealized holding losses on available for sale securities before reclassifications $ ( 12,337 ) $ ( 29,561 )

Amounts reclassified out of AOCI:

Realized gain on debt securities — —

Unrealized holding gains (losses) on available for sale securities after reclassifications 4,638 5,248 10,036 27,511

Unrealized holding losses on available for sale securities after reclassifications ( 12,337 ) ( 29,561 )

Tax effect 3,647 8,739

Unrealized holding gains on available for sale securities, net of tax 3,266 3,697 7,069 19,378

Unrealized holding losses on available for sale securities, net of tax ( 8,690 ) ( 20,822 )

Change in unfunded status of the supplemental retirement plans before reclassifications ( 49 ) 448

9 unchanged sentences

Change in joint beneficiary agreement liability before reclassifications, net of tax ( 629 ) —

Total other comprehensive income $ 4,957 $ 3,697 $ 10,798 $ 19,378

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

(in thousands) September 30,

Total other comprehensive loss $ ( 9,319 ) $ ( 19,910 )

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

(in thousands) March 31,

2021 December 31,

8 unchanged sentences

Joint beneficiary agreement liability, net of tax ( 949 ) ( 320 )

Accumulated other comprehensive income (loss) $ 5,576 $ ( 5,222 )

Accumulated other comprehensive income $ 2,961 $ 12,280

Note 13 - Fair Value Measurement

26 unchanged sentences

The fair value of these loans are estimated using one of several methods, including collateral value, fair value of similar debt, enterprise value, liquidation value and discounted cash flows.

Those loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

Those loans not requiring an allowance represent

loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

Loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.

12 unchanged sentences

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

Fair value at September 30, 2020 Total Level 1 Level 2 Level 3

Fair value at March 31, 2021 Total Level 1 Level 2 Level 3

Marketable equity securities $ 2,971 $ 2,971 $ — $ —

20 unchanged sentences

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process.

There were no transfers between any levels during the three and nine months ended September 30, 2020, or the year ended December 31, 2019.

There were no transfers between any levels during the three months ended March 31, 2021, or the year ended December 31, 2020.

The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the time periods indicated.

Had there been any transfer into or out of Level 3 during the time periods indicated, the amount included in the “Transfers into (out of) Level 3” column would represent the beginning balance of an item in the period (interim quarter) during which it was transferred (in thousands):

Three months ended September 30, Beginning

Balance Transfers

into (out of)

Level 3 Change

in Earnings Issuances Ending

Mortgage servicing rights $ 4,250 — $ 236 $ 434 $ 4,920

Mortgage servicing rights $ 6,229 — $ ( 455 ) $ 298 $ 6,072

Nine months ended September 30, 2020 Beginning

Three months ended March 31, Beginning

Balance Transfers

7 unchanged sentences

Conversely, a decrease in the mortgage prepayment speed and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement).

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

As of September 30, 2020:

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

As of March 31, 2021:

(in thousands) Valuation

7 unchanged sentences

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):

September 30, 2020 Total Level 1 Level 2 Level 3 Total Losses

Individually evaluated loans $ 1,024 — — $ 1,024 $ ( 309 )

December 31, 2019 Total Level 1 Level 2 Level 3 Total Losses

March 31, 2021 Total Level 1 Level 2 Level 3 Total Gains (Losses)

Individually evaluated loans $ 4,557 — — $ 4,557 $ ( 2,710 )

1 unchanged sentence

Total assets measured at fair value $ 4,771 $ — $ — $ 4,771 $ ( 2,741 )

September 30, 2019 Total Level 1 Level 2 Level 3 Total Losses

December 31, 2020 Total Level 1 Level 2 Level 3 Total Gains (Losses)

Individually evaluated loans $ 1,424 — — $ 1,424 $ ( 1,489 )

1 unchanged sentence

Total assets measured at fair value $ 2,403 — — $ 2,403 $ ( 1,334 )

March 31, 2020 Total Level 1 Level 2 Level 3 Total Gains (Losses)

Individually evaluated loans $ 105 — — $ 105 $ ( 107 )

The individually evaluated loan amounts above represent collateral dependent loans that have been adjusted to fair value.

7 unchanged sentences

At the time of foreclosure, other real estate owned is recorded at fair value less costs to sell, which becomes the property’s new basis.

Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses.

Any write-downs based on the asset’s fair value at the

date of acquisition are charged to the allowance for credit losses.

After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell.

6 unchanged sentences

Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

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

September 30, 2020 Fair Value

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

March 31, 2021 Fair Value

(in thousands) Valuation

5 unchanged sentences

Capitalization rate Not meaningful

Foreclosed assets (Residential real estate) $ 214 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, 2020:

15 unchanged sentences

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.

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

(in thousands) Carrying

28 unchanged sentences

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets.

The following tables present actual and required capital ratios as of September 30, 2020 and December 31, 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 September 30, 2020 and December 31, 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.

The following tables present actual and required capital ratios as of March 31, 2021 and December 31, 2020 for the Company and the Bank under applicable Basel III Capital Rules.

The minimum capital amounts presented include the minimum required capital levels as of March 31, 2021 and December 31, 2020 based on the then phased-in provisions of the Basel III Capital Rules.

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.

1 unchanged sentence

Considered Well

As of September 30, 2020:

As of March 31, 2021:

Amount Ratio Amount Ratio Amount Ratio

29 unchanged sentences

Tri Counties Bank $ 714,811 9.76 % $ 292,949 4.00 % $ 366,186 5.00 %

As of September 30, 2020 and December 31, 2019, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules.

Also, at September 30, 2020 and December 31, 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.

As of March 31, 2021 and December 31, 2020, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules.

Also, at March 31, 2021 and December 31, 2020, the Bank’s capital levels exceeded the minimum amounts necessary to be considered well capitalized under the current regulatory framework for prompt corrective action.

The Basel III Capital Rules require for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers.

The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the risk-based capital ratios but not the leverage ratio.

At September 30, 2020, the Company and the Bank are in compliance with the capital conservation buffer requirement.

At March 31, 2021, the Company and the Bank are in compliance with the capital conservation buffer requirement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements