What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-08 compared with 2022-05-10 · 305 added, 138 removed, 1306 unchanged (25% of the section changed)

3 unchanged sentences

(In thousands, except share data;

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Cash and due from banks $ 49,630 $ 57,032

34 unchanged sentences

Preferred stock, no par value:

1,000,000 shares authorized, zero issued and outstanding at March 31, 2022 and December 31, 2021

1,000,000 shares authorized, zero issued and outstanding at June 30, 2022 and December 31, 2021

Common stock, no par value:

50,000,000 shares authorized;

33,837,935 and 29,730,424 issued and outstanding at March 31, 2022 and December 31, 2021, respectively

33,350,974 and 29,730,424 issued and outstanding at June 30, 2022 and December 31, 2021, respectively

696,441 532,244

8 unchanged sentences

Three months ended

June 30, Six months ended

2022 2021 2022 2021

Interest and dividend income:

35 unchanged sentences

Three months ended

June 30, Six months ended

2022 2021 2022 2021

Net income $ 31,364 $ 28,362 $ 51,738 $ 62,011

Other comprehensive loss, net of tax:

Unrealized losses on available for sale securities arising during the period ( 78,397 ) ( 8,690 )

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on available for sale securities arising during the period ( 68,611 ) 5,206 ( 147,008 ) ( 3,484 )

Change in minimum pension liability — — 58 —

Change in joint beneficiary agreements — — — ( 629 )

Other comprehensive loss ( 78,339 ) ( 9,319 )

Other comprehensive income (loss) ( 68,611 ) 5,206 ( 146,950 ) ( 4,113 )

Comprehensive income (loss) $ ( 37,247 ) $ 33,568 $ ( 95,212 ) $ 57,898

7 unchanged sentences

Income (Loss) Total

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

Balance at March 31, 2021 29,727,122 $ 531,367 $ 408,211 $ 2,961 $ 942,539

Net income 28,362 28,362

8 unchanged sentences

( 7,430 ) ( 7,430 )

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

Three months ended June 30, 2021 29,716,294 $ 531,038 $ 427,575 $ 8,167 $ 966,780

Balance at March 31, 2022 33,837,935 $ 706,672 $ 479,868 $ ( 77,358 ) $ 1,109,182

Net income 31,364 31,364

Other comprehensive loss ( 68,611 ) ( 68,611 )

Stock options exercised 12,000 201 201

RSU vesting 714 714

PSU vesting 216 216

RSUs released 45,482 —

PSUs released — —

Issuance of common stock — —

Repurchase of common stock ( 544,443 ) ( 11,362 ) ( 11,168 ) ( 22,530 )

Dividends paid ($ 0.25 per share)

( 8,359 ) ( 8,359 )

Three months ended June 30, 2022 33,350,974 $ 696,441 $ 491,705 $ ( 145,969 ) $ 1,042,177

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

6 unchanged sentences

PSUs released — —

Repurchase of common stock ( 55,307 ) ( 988 ) ( 1,573 ) ( 2,561 )

Dividends paid ($ 0.50 per share)

( 14,862 ) ( 14,862 )

Six months ended June 30, 2021 29,716,294 $ 531,038 $ 427,575 $ 8,167 $ 966,780

Balance at January 1, 2022 29,730,424 $ 532,244 $ 466,959 $ 981 $ 1,000,184

Net income 51,738 51,738

Other comprehensive loss ( 146,950 ) ( 146,950 )

Stock options exercised 15,325 256 256

RSU vesting 1,279 1,279

PSU vesting 463 463

RSUs released 45,482 —

PSUs released — —

Issuance of common stock 4,105,518 173,585 173,585

2 unchanged sentences

( 15,792 ) ( 15,792 )

Three months ended March 31, 2022 33,837,935 $ 706,672 $ 479,868 $ ( 77,358 ) $ 1,109,182

Six months ended June 30, 2022 33,350,974 $ 696,441 $ 491,705 $ ( 145,969 ) $ 1,042,177

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands;

For the three months ended March 31,

For the six months ended June 30,

Operating activities:

3 unchanged sentences

Amortization of intangible assets 2,930 2,862

Provision for (reversal of) credit losses 8,330 ( 6,060 )

Provision for (reversal of) credit losses on loans 10,145 ( 6,385 )

Amortization of investment securities premium, net 6,297 2,855

Gain on sale of investment securities — —

Originations of loans for resale ( 50,254 ) ( 129,684 )

3 unchanged sentences

Provision for losses on foreclosed assets — 9

Gain on transfer of loans to foreclosed assets ( 97 ) ( 20 )

Gain on sale of foreclosed assets — ( 46 )

19 unchanged sentences

Cash acquired from VRB, net of cash consideration paid 426,883 —

Net cash from (used by) investing activities 121,914 ( 460,561 )

Net cash used by investing activities ( 472,710 ) ( 570,986 )

Financing activities:

3 unchanged sentences

Dividends paid ( 15,792 ) ( 14,862 )

Exercise of stock options 256 28

Net cash from financing activities 121,017 482,369

48 unchanged sentences

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

Accrued interest receivable on HTM debt securities totaled was considered insignificant at March 31, 2022 and is therefore excluded from the estimate of credit losses.

Accrued interest receivable on HTM debt securities totaled was considered insignificant at June 30, 2022 and is therefore excluded from the estimate of credit losses.

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

11 unchanged sentences

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, 2022 and 2021, respectively.

No security credit losses were recognized during the three and six month periods ended June 30, 2022 and 2021, 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.

92 unchanged sentences

Accounting Standards Pending Adoption

FASB issued ASU 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.

This ASU clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, and to introduce new disclosure requirements there within.

Amendments in this ASU are effective for the Company beginning after December 31, 2023, with early adoption permitted.

Management is evaluating the extent to which this standard will impact the consolidated financial statements..

FASB issued ASU 2022-02, Financial Instruments — Credit Losses (Topic 326):

12 unchanged sentences

Note 2 - Business Combinations

On March 25, 2022, the Company completed its acquisition of Valley Republic Bancorp, including the merger of Valley Republic Bank into Tri Counties Bank, with Tri Counties Bank as the surviving entity, in accordance with the terms of the merger agreement dated as of July 27, 2021.

On March 25, 2022, the Company completed its acquisition of Valley Republic Bancorp (VRB), including the merger of Valley Republic Bank into Tri Counties Bank, with Tri Counties Bank as the surviving entity, in accordance with the terms of the merger agreement dated as of July 27, 2021.

The cash and stock transaction was valued at approximately $ 174.0 million in aggregate, based on TriCo's closing stock price of $ 42.48 on March 25, 2022.

Under the terms of the merger agreement, the Company issued approximately 4.1 million shares, in addition to approximately $ 431,000 in cash paid out for settlement of stock option awards at VRB.

VRB was headquartered in Bakersfield, California, and had four branch locations in and around Bakersfield, which all now operate as branches for Tri Counties Bank, and a loan production office in Fresno, California.

The Company anticipates that Tri Counties Bank's previously existing Bakersfield branch and the VRB loan production office in Fresno will be consolidated, subject to regulatory approval, into the overlapping locations in the near future.

VRB was headquartered in Bakersfield, California, and had four branch locations at acquisition in and around Bakersfield, which all now operate as branches for Tri Counties Bank, and a loan production office in Fresno, California.

The Company's overlapping Bakersfield branch was consolidated into the acquired VRB branch during the quarter ended June 30, 2022, and the Company anticipates the VRB loan production office in Fresno will be consolidated with the nearby legacy loan production office during the third quarter of 2022.

The acquisition of VRB has been accounted for as a business combination.

We recorded the fair values based on the valuations available as of reporting date.

In accordance with business combination accounting guidance, we will continue to evaluate these fair values for up to one year following the merger date of March 25, 2022.

In accordance with business combination accounting guidance, we will continue to evaluate these fair values for up to

one year following the merger date of March 25, 2022.

While management believes the information available and presented below provide a reasonable basis for estimating fair value, we may obtain additional information and evidence during the measurement period that could result in changes to the estimated fair value amounts.

26 unchanged sentences

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

March 31, 2022

June 30, 2022

(in thousands) Amortized

Losses Allowance for Credit Losses Estimated

Losses Estimated

Debt Securities Available for Sale

4 unchanged sentences

Asset backed securities 448,742 104 ( 14,654 ) 434,192

Non-agency collateralized mortgage obligations 353,260 — ( 29,456 ) $ 323,804

Total debt securities available for sale $ 2,815,167 $ 772 $ ( 209,874 ) $ 2,606,065

6 unchanged sentences

(in thousands) Amortized

Losses Allowance for Credit Losses Estimated

Losses Estimated

Debt Securities Available for Sale

4 unchanged sentences

Asset backed securities 408,329 2,354 ( 1,131 ) 409,552

Non-agency collateralized mortgage obligations 345,856 — ( 3,859 ) 341,997

Total debt securities available for sale $ 2,208,330 $ 16,413 $ ( 16,805 ) $ 2,207,938

4 unchanged sentences

Total debt securities held to maturity $ 199,759 $ 8,381 $ — $ 208,140

There were no sales of investment securities during the three months ended March 31, 2022 and 2021, respectively.

Investment securities with an aggregate carrying value of $ 475,674,000 and $ 423,892,000 at March 31, 2022 and December 31, 2021, 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, 2022 by contractual maturity are shown below.

There were no sales of investment securities during the three and six months ended June 30, 2022 and 2021, respectively.

Investment securities with an aggregate carrying value of $ 551,717,000 and $ 423,892,000 at June 30, 2022 and December 31, 2021, 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 June 30, 2022 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 March 31, 2022, obligations of U.S.

At June 30, 2022, obligations of U.S.

government corporations and agencies with a cost basis totaling $ 1,617,707,000 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 March 31, 2022, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S.

At June 30, 2022, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S.

government corporations and agencies to be approximately 6.54 years.

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

As of March 31, 2022, the contractual final maturity for available for sale and held to maturity investment securities is as follows:

As of June 30, 2022, 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:

March 31, 2022:

June 30, 2022:

Less than 12 months 12 months or more Total

9 unchanged sentences

Asset backed securities 308,125 ( 9,125 ) 120,128 ( 5,529 ) 428,253 ( 14,654 )

Non-agency collateralized mortgage obligations 277,384 ( 28,979 ) 14,579 ( 477 ) 291,963 ( 29,456 )

Total debt securities available for sale $ 2,121,856 $ ( 174,945 ) $ 349,755 $ ( 34,929 ) $ 2,471,611 $ ( 209,874 )

2 unchanged sentences

government agencies $ 164,158 $ ( 5,679 ) $ — $ — $ 164,158 $ ( 5,679 )

Obligations of states and political subdivisions 545 ( 26 ) $ — $ — 545 ( 26 )

Total debt securities held to maturity $ 164,703 $ ( 5,705 ) $ — $ — $ 164,703 $ ( 5,705 )

December 31, 2021:

9 unchanged sentences

Asset backed securities 62,792 ( 259 ) 109,748 ( 872 ) 172,540 ( 1,131 )

Non-agency collateralized mortgage obligations 327,045 ( 3,859 ) — — 327,045 ( 3,859 )

Total debt securities available for sale $ 1,393,099 $ ( 14,640 ) $ 153,834 $ ( 2,165 ) $ 1,546,933 $ ( 16,805 )

7 unchanged sentences

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 March 31, 2022, 199 debt securities representing obligations of U.S.

At June 30, 2022, 243 debt securities representing obligations of U.S.

government agencies had unrealized losses with aggregate depreciation of 7.92 % 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.

At March 31, 2022, 79 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of 8.95 % from the Company’s amortized cost basis.

At June 30, 2022, 201 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of 10.06 % from the Company’s amortized cost basis.

Corporate bonds:

1 unchanged sentence

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

At March 31, 2022, 3 debt securities representing corporate bonds had unrealized losses with aggregate depreciation of 1.56 % from the Company’s amortized cost basis.

At June 30, 2022, 6 debt securities representing corporate bonds had unrealized losses with aggregate depreciation of 1.87 % 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 March 31, 2022 has not experienced any deterioration in credit rating.

At March 31, 2022, 29 asset backed securities had unrealized losses with aggregate depreciation of 1.49 % from the Company’s amortized cost basis.

At the time of purchase, each of these securities was rated AA or AAA and through June 30, 2022 has

not experienced any deterioration in credit rating.

At June 30, 2022, 37 asset backed securities had unrealized losses with aggregate depreciation of 3.31 % 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.

Non-agency collateralized mortgage obligations:

The unrealized losses on investments in non-agency collateralized mortgage obligations were caused by increases in required yields by investors in these types of securities.

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

At June 30, 2022, 20 debt securities representing corporate bonds had unrealized losses with aggregate depreciation of 9.16 % from the Company’s amortized cost basis.

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:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

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

7 unchanged sentences

A summary of loan balances follows:

(in thousands) March 31, 2022 December 31, 2021

(in thousands) June 30, 2022 December 31, 2021

Commercial real estate:

23 unchanged sentences

The SBA ended PPP and did not accept new borrowing applications, effective May 31, 2021.

PPP loan balances included in commercial and industrial loan totals above were $ 56,605,000 and $ 61,147,000 , net of approximately $ 1,190,000 and $ 2,164,000 in deferred fee income as of March 31, 2022 and December 31, 2021, respectively.

During the three months ended March 31, 2022, the Company recognized $ 974,000 in fees on PPP loans as compared with $ 3,482,000 and $ 4,978,000 for the three months ended December 31, 2021 and March 31, 2021, respectively.

PPP loan balances included in commercial and industrial loan totals above were $ 17,754,000 and $ 61,147,000 , net of approximately $ 318,000 and $ 2,164,000 in deferred fee income as of June 30, 2022 and December 31, 2021, respectively.

During the three months ended June 30, 2022, the Company recognized $ 872,000 in fees on PPP loans as compared with $ 974,000 and $ 2,344,000 for the three months ended March 31, 2022 and June, 2021, respectively.

Based on the payment guarantee provided by the SBA as well as the expected short-term duration of the PPP loans acquired from VRB, the fair value of these loans approximates the principal balance outstanding as of the merger date, and therefore, no purchase discount was recorded.

1 unchanged sentence

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

Allowance for credit losses – Three months ended March 31, 2022

Allowance for credit losses – Three months ended June 30, 2022

(in thousands) Beginning

Balance Charge-offs Recoveries Provision (benefit) Ending

Commercial real estate:

CRE non-owner occupied $ 28,055 $ — $ — $ 26 $ 28,081

CRE owner occupied 12,071 — 1 548 12,620

Multifamily 11,987 — — ( 192 ) 11,795

Farmland 2,879 — — 75 2,954

Total commercial real estate loans 54,992 — 1 457 55,450

SFR 1-4 1st DT liens 10,669 — 1 ( 359 ) 10,311

SFR HELOCs and junior liens 10,843 — 153 595 11,591

Other 2,167 ( 166 ) 76 ( 48 ) 2,029

Total consumer loans 23,679 ( 166 ) 230 188 23,931

Commercial and industrial 9,042 ( 235 ) 124 1,048 9,979

Construction 7,437 — — 85 7,522

Agriculture production 883 — 1 162 1,046

Leases 16 — — — 16

Allowance for credit losses on loans $ 96,049 $ ( 401 ) $ 356 $ 1,940 $ 97,944

Reserve for unfunded commitments 3,915 — — 160 4,075

Total $ 99,964 $ ( 401 ) $ 356 $ 2,100 $ 102,019

Allowance for credit losses – Six months ended June 30, 2022

(in thousands) Beginning

Balance ACL on PCD Loans Charge-offs Recoveries Provision (benefit) Ending

21 unchanged sentences

The Company utilizes a forecast period of approximately eight quarters and obtains the forecast data from publicly available sources as of the balance sheet date.

This forecast data continues to evolve and included improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date.

This forecast data continues to evolve and included improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date, particularly CA unemployment trends.

However, management notes that the majority of economic forecasts utilized in the ACL calculation have remained directionally consistent with preceding quarters, as general economic conditions continue to improve, albeit at a pace slower than expected due to unforeseen disruptions in the supply chain and increasing energy prices.

In addition, management notes that the level of governmental assistance provided through PPP as well as other programs during the last several quarters has been unprecedented.

As a result, management continues to believe that certain credit weakness are likely present in the overall economy and that it is appropriate to maintain a reserve level that incorporates such risk factors.

In addition, management notes that the actual and forecast increases in inflation that were previously identified by the Federal Reserve Board as "transitory", combined with overseas conflicts and leading to the rise in short-term interest rates and flattening or inversion of the yield curve, may be further indication of future economic contraction.

As a result, management continues to believe that certain credit weakness are likely present in the overall economy and that it is appropriate to cautiously maintain a reserve level that incorporates such risk factors.

Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD.

29 unchanged sentences

Total $ 95,247 $ ( 2,392 ) $ 3,086 $ ( 6,775 ) $ 89,166

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

Allowance for credit losses – Three months ended June 30, 2021

(in thousands) Beginning

17 unchanged sentences

Total $ 89,521 $ ( 387 ) $ 653 $ ( 260 ) $ 89,527

Allowance for credit losses – Six months ended June 30, 2021

(in thousands) Beginning

Balance Charge-offs Recoveries Provision Ending Balance

Commercial real estate:

CRE non-owner occupied $ 29,380 $ — $ 2 $ ( 3,354 ) $ 26,028

CRE owner occupied 10,861 — 1 ( 399 ) 10,463

Multifamily 11,472 — — 1,724 13,196

Farmland 1,980 — — ( 30 ) 1,950

Total commercial real estate loans 53,693 — 3 ( 2,059 ) 51,637

SFR 1-4 1st DT liens 10,117 — 11 501 10,629

SFR HELOCs and junior liens 11,771 — 797 ( 1,867 ) 10,701

Other 3,260 ( 279 ) 165 ( 526 ) 2,620

Total consumer loans 25,148 ( 279 ) 973 ( 1,892 ) 23,950

Commercial and industrial 4,252 ( 334 ) 215 378 4,511

Construction 7,540 — — ( 2,589 ) 4,951

Agriculture production 1,209 — 22 ( 224 ) 1,007

Leases 5 — — 1 6

Allowance for credit losses on loans 91,847 ( 613 ) 1,213 ( 6,385 ) 86,062

Reserve for unfunded commitments 3,400 — — 65 3,465

Total $ 95,247 $ ( 613 ) $ 1,213 $ ( 6,320 ) $ 89,527

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including, but not limited to, trends relating to (i) the level of criticized and classified loans, (ii) net charge-offs, (iii) non-performing loans, and (iv) delinquency within the portfolio.

The Company analyzes loans individually to classify the loans as to credit risk and grading.

This analysis is performed annually for all outstanding balances greater than $ 1,000,000 and non-homogeneous loans, such as commercial real

estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation.

This analysis is performed annually for all outstanding balances greater than $ 1,000,000 and non-homogeneous loans, such as commercial real estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation.

Loans below the $ 1,000,000 threshold and homogenous in nature are evaluated as needed for proper grading based on delinquency and borrower credit scores.

20 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 March 31, 2022

Term Loans Amortized Cost Basis by Origination Year – As of June 30, 2022

(in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

13 unchanged sentences

Total CRE owner occupied risk ratings $ 148,623 $ 208,981 $ 130,595 $ 70,285 $ 52,211 $ 286,648 $ 36,246 $ — $ 933,589

Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2022

(in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Commercial real estate:

19 unchanged sentences

Total SFR 1st DT liens $ 87,716 $ 274,379 $ 141,996 $ 37,365 $ 35,803 $ 137,125 $ — $ 4,306 $ 718,690

Term Loans Amortized Cost Basis by Origination Year – As of June 30, 2022

(in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Consumer loans:

12 unchanged sentences

Total other consumer loans $ 7,930 $ 15,101 $ 12,393 $ 13,680 $ 6,753 $ 2,700 $ 929 $ — $ 59,486

Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2022

(in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Commercial and industrial loans:

19 unchanged sentences

Total agriculture production loans $ 304 $ 2,759 $ 3,313 $ 1,642 $ 3,281 $ 1,335 $ 58,739 $ — $ 71,373

Term Loans Amortized Cost Basis by Origination Year – As of June 30, 2022

(in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Lease risk ratings

33 unchanged sentences

Total multifamily loans $ 278,942 $ 100,752 $ 76,127 $ 109,374 $ 85,932 $ 147,137 $ 25,236 $ — $ 823,500

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

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

Commercial real estate:

12 unchanged sentences

Total SFR 1st DT liens $ 269,846 $ 159,860 $ 40,947 $ 35,251 $ 36,869 $ 119,753 $ — $ 4,434 $ 666,960

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

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

Consumer loans:

19 unchanged sentences

Total commercial and industrial loans $ 92,972 $ 20,350 $ 27,550 $ 11,639 $ 7,230 $ 7,268 $ 91,306 $ 1,040 $ 259,355

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

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

Construction loans:

12 unchanged sentences

Total agriculture production loans $ 2,068 $ 878 $ 1,393 $ 951 $ 940 $ 895 $ 43,686 $ — $ 50,811

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

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

Lease risk ratings

11 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 March 31, 2022

Analysis of Past Due Loans - As of June 30, 2022

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

35 unchanged sentences

Non Accrual Loans

As of March 31, 2022 As of December 31, 2021

As of June 30, 2022 As of December 31, 2021

(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 $ 10,881 $ 11,925 $ — $ 25,704 $ 29,575 $ —

Interest income on non accrual loans that would have been recognized during the three months ended March 31, 2022 and 2021, if all such loans had been current in accordance with their original terms, totaled $ 167,000 and $ 536,000 , respectively.

Interest income actually recognized on these originated loans during the three months ended March 31, 2022 and 2021 was $ 13,000 and $ 17,000 , respectively.

Interest income on non accrual loans that would have been recognized during the three months ended June 30, 2022 and 2021, if all such loans had been current in accordance with their original terms, totaled $ 237,000 and $ 524,000 , respectively.

Interest income actually recognized on these originated loans during the three months ended June 30, 2022 and 2021 was $ 6,000 and $ 159,000 , respectively.

Interest income on non accrual loans that would have been recognized during the six months ended June 30, 2022 and 2021, if all such loans had been current in accordance with their original terms, totaled $ 404,000 and $ 1,060,000 , respectively.

Interest income actually recognized on these originated loans during the six months ended June 30, 2022 and 2021 was $ 13,000 and $ 176,000 , respectively.

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

As of March 31, 2022

As of June 30, 2022

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

32 unchanged sentences

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

TDR information for the three months ended March 31, 2022

TDR information for the three months ended June 30, 2022

(dollars in thousands) Number Pre-mod

25 unchanged sentences

Total — $ — $ — $ — 3 $ 168 $ —

TDR information for the three months ended March 31, 2021

TDR information for the three months ended June 30, 2021

(dollars in thousands) Number Pre-mod

25 unchanged sentences

Total 3 $ 2,706 $ 2,706 $ 999 — $ — $ —

TDR Information for the six months ended June 30, 2022

(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 — $ — $ — $ — — $ — $ —

CRE owner occupied — — — — — — —

Multifamily — — — — — — —

Farmland 3 1,228 1,440 — — — —

Total commercial real estate loans 3 1,228 1,440 — — — —

SFR 1-4 1st DT liens — — — — — — —

SFR HELOCs and junior liens — — — — 3 231 —

Other — — — — — — —

Total consumer loans — — — — 3 231 —

Commercial and industrial — — — — 1 22 —

Construction — — — — — — —

Agriculture production — — — — — — —

Leases — — — — — — —

Total 3 $ 1,228 $ 1,440 $ — 4 $ 253 $ —

TDR Information for the six months ended June 30, 2021

(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 $ 1,023 $ 1,018 $ 1,020 — $ — $ —

CRE owner occupied 1 740 742 742 — — —

Multifamily — — — — — — —

Farmland — — — — 3 847 —

Total commercial real estate loans 3 1,763 1,760 1,762 3 847 —

SFR 1-4 1st DT liens — — — — — — —

SFR HELOCs and junior liens — — — — — — —

Other — — — — — — —

Total consumer loans — — — — — — —

Commercial and industrial 5 2,316 2,310 603 1 247 —

Construction — — — — — — —

Agriculture production — — — — — — —

Leases — — — — — — —

Total 8 $ 4,079 $ 4,070 $ 2,365 4 $ 1,094 $ —

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

30 unchanged sentences

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

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

(in thousands) 2022 2021 2022 2021

5 unchanged sentences

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

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

(in thousands) 2022 2021 2022 2021

5 unchanged sentences

Weighted-average discount rate 2.91 % 3.03 %

At March 31, 2022, future expected operating lease payments are as follows:

At June 30, 2022, future expected operating lease payments are as follows:

(in thousands)

2 unchanged sentences

Discount for present value of expected cash flows ( 4,428 )

Lease liability at March 31, 2022 $ 30,500

Lease liability at June 30, 2022 $ 29,283

Note 7 - Deposits

A summary of the balances of deposits follows:

(in thousands) March 31,

(in thousands) June 30,

2022 December 31,

5 unchanged sentences

Total deposits $ 8,756,775 $ 7,367,159

Certificate of deposit balances of $ 1,000,000 from the State of California were included in time certificates, over $250,000, at March 31, 2022 and December 31, 2021, 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 $ 1,399,000 and $ 2,324,000 were classified as consumer loans at March 31, 2022 and December 31, 2021, respectively.

Certificate of deposit balances of zero and $ 1,000,000 from the State of California were included in time certificates, over $250,000, at June 30, 2022 and December 31, 2021, respectively.

The Company participated in a deposit program offered by the State of California whereby the State made deposits at the Company’s request subject to collateral and credit worthiness constraints, generally more favorable than other wholesale funding sources available to the Company.

Overdrawn deposit balances of $ 1,257,000 and $ 2,324,000 were classified as consumer loans at June 30, 2022 and December 31, 2021, respectively.

Note 8 - Subordinated Debentures

1 unchanged sentence

Coupon Rate (Variable) 3 mo.

LIBOR + As of March 31, 2022 December 31, 2021

LIBOR + June 30, 2022 December 31, 2021

Subordinated Debt Series Maturity

16 unchanged sentences

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

(in thousands) March 31,

(in thousands) June 30,

2022 December 31,

9 unchanged sentences

Dividends Paid

The Bank paid to the Company cash dividends in the aggregate amounts of $ 7,782,000 and $ 7,772,000 during the three months ended March 31, 2022 and 2021, respectively.

The Bank paid to the Company cash dividends in the aggregate amounts of $ 27,723,000 and $ 8,367,000 during the three months ended June 30, 2022 and 2021, respectively, and $ 35,505,000 and $ 16,139,000 , respectively, during the equivalent six month periods then ended.

The Bank is regulated by the FDIC and the DFPI.

3 unchanged sentences

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 2021 Repurchase Plan is subject to change.

The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations) and no share repurchases were made by the Company during either of the three month periods ending March 31, 2022 and March 31, 2021.

The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations) and during the three and six month periods ending June 30, 2022, the Company repurchased 526,749 shares with a market value of $ 21,750,000 , respectively.

During the three and six month periods ending June 30, 2021, the Company repurchased 45,354 shares with a market value of $ 2,101,000 .

As of June 30, 2022, approximately 1,410,000 shares remained available for repurchase under the 2021 Repurchase Plan.

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, the Company repurchased 223 shares during the three months ended March 31, 2021.

Under the 2019 Repurchase Plan, the Company repurchased 223 shares during the six months ended June 30, 2021.

Stock Repurchased Under Equity Compensation Plans

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

During the three months ended March 31, 2022 and 2021, employees tendered zero shares, respectively, of the Company’s common stock in connection with option exercises.

Employees also tendered zero and 70 shares in connection with the tax withholding requirements of other share based awards during the three months ended March 31, 2022 and 2021, respectively.

In total, shares of the Company's common stock tendered had market values of $ 55,145 and $ 2,500 during the quarters ended March 31, 2022 and 2021, respectively.

The Company's shareholder-approved equity compensation plans permit award recipients the option 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 June 30, 2022 and 2021, equity award holders tendered 3,687 and zero shares, respectively, of the Company’s common stock in connection with option exercises.

During the six months ended June 30, 2022 and 2021, equity award holders tendered 5,019 and zero shares, respectively, of the Company’s common stock in connection with option exercises.

Equity holders also tendered 14,007 and 9,660 shares in connection with the tax withholding requirements of other share based awards during the three months ended June 30, 2022 and 2021, respectively, and 14,007 and 9,730 during the six months ended June 30, 2022 and 2021, respectively.

In total, shares of the Company's common stock tendered had market values of $ 775,000 and $ 450,000 during the quarters ended June 30, 2022 and 2021, respectively, and $ 830,000 and $ 452,000 during the year to date periods ended June 30, 2022 and 2021.

The tendered shares were retired.

The market value of tendered shares is the last market trade price at closing on the day an option is exercised or the other share based award vests.

The market value of tendered shares is the last market trade price at closing on the day an option is exercised or the share based award vests.

Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the 2021 or 2019 Stock Repurchase Plans.

4 unchanged sentences

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, 2022 is summarized in the following table:

Stock option activity during the six months ended June 30, 2022 is summarized in the following table:

of Shares Weighted

4 unchanged sentences

Options forfeited — —

Outstanding at March 31, 2022 75,500 $ 19.40

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 March 31, 2022:

Outstanding at June 30, 2022 63,500 $ 19.90

Exercisable Currently Not

4 unchanged sentences

Weighted average remaining contractual term (yrs.) 1.0 0 years 1.0

As of March 31, 2022 all options outstanding are fully vested and are expected to be exercised prior to expiration.

The Company did not modify any option grants during 2021 or the three months ended March 31, 2022.

Activity related to restricted stock unit awards during the three months ended March 31, 2022 is summarized in the following table:

As of June 30, 2022 all options outstanding are fully vested and are expected to be exercised prior to expiration.

The Company did not modify any option grants during 2021 or the six months ended June 30, 2022.

Activity related to restricted stock unit awards during the six months ended June 30, 2022 is summarized in the following table:

Vesting RSUs Market Plus

4 unchanged sentences

RSUs forfeited/expired ( 1,375 ) ( 1,572 )

Outstanding at March 31, 2022 125,844 99,763

The 125,844 of service condition vesting RSUs outstanding as of March 31, 2022 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 June 30, 2022 99,554 98,191

The 99,554 of service condition vesting RSUs outstanding as of June 30, 2022 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 125,844 of service condition vesting RSUs outstanding as of March 31, 2022 are expected to vest, and be released, on a weighted-average basis, over the next 2.0 years.

The Company expects to recognize $ 3,269,785 of pre-tax compensation costs related to these service condition vesting RSUs between March 31, 2022 and their vesting dates.

The Company did not modify any service condition vesting RSUs during 2021 or during the three months ended March 31, 2022.

The 99,763 of market plus service condition vesting RSUs outstanding as of March 31, 2022 are expected to vest, and be released, on a weighted-average basis, over the next 1.8 years.

The Company expects to recognize $ 1,352,856 of pre-tax compensation costs related to these RSUs between March 31, 2022 and their vesting dates.

As of March 31, 2022, 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 149,645 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 2021 or during the three months ended March 31, 2022.

The 99,554 of service condition vesting RSUs outstanding as of June 30, 2022 are expected to vest, and be released, on a weighted-average basis, over the next 0.9 years.

The Company expects to recognize $ 3,351,000 of pre-tax compensation costs related to these service condition vesting RSUs between June 30, 2022 and their vesting dates.

The Company did not modify any service condition vesting RSUs during 2021 or during the six months ended June 30, 2022.

The 98,191 of market plus service condition vesting RSUs outstanding as of June 30, 2022 are expected to vest, and be released, on a weighted-average basis, over the next 1.0 years.

The Company expects to recognize $ 1,090,000 of pre-tax compensation costs related to these RSUs between June 30, 2022 and their vesting dates.

As of June 30, 2022, 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 147,287 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 2021 or during the six months ended June 30, 2022.

Note 12 - Non-interest Income and Expense

1 unchanged sentence

Three months ended

June 30, Six months ended

(in thousands) 2022 2021 2022 2021

11 unchanged sentences

Gain on sale of investment securities — — — —

Loss on marketable equity securities ( 137 ) ( 53 )

(Loss) gain on marketable equity securities ( 94 ) 8 ( 231 ) ( 45 )

Other 468 115 972 819

3 unchanged sentences

Three months ended

June 30, Six months ended

(in thousands) 2022 2021 2022 2021

14 unchanged sentences

Postage 313 124 541 322

Operational (gain) losses ( 183 ) 209

Operational losses 456 212 273 421

Courier service 486 288 900 582

Gain on sale or acquisition of foreclosed assets ( 98 ) ( 15 ) ( 98 ) ( 66 )

Gain on disposal of fixed assets ( 1,078 ) —

Loss (gain) on disposal of fixed assets 5 ( 426 ) ( 1,073 ) ( 426 )

Other miscellaneous expense 4,017 2,855 6,502 5,204

6 unchanged sentences

Earnings per share have been computed based on the following:

Three months ended March 31,

Three months ended June 30,

(in thousands) 2022 2021

4 unchanged sentences

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

Six months ended June 30,

(in thousands) 2022 2021

Net income $ 51,738 $ 62,011

Average number of common shares outstanding 31,815 29,723

Effect of dilutive stock options and restricted stock 148 181

Average number of common shares outstanding used to calculate diluted earnings per share 31,963 29,904

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

Note 14 – Comprehensive Income (Loss)

2 unchanged sentences

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

Three months ended March 31,

Three months ended June 30, Six months ended

June 30, 2022

(in thousands) 2022 2021 2022 2021

Unrealized holding losses on available for sale securities before reclassifications $ ( 111,302 ) $ ( 12,337 )

Unrealized holding losses (gains) on available for sale securities before reclassifications $ ( 97,408 ) $ 7,392 $ ( 208,710 ) $ ( 4,945 )

Amounts reclassified out of AOCI:

Realized gain on debt securities — —

Unrealized holding losses on available for sale securities after reclassifications ( 111,302 ) ( 12,337 )

Realized gains on debt securities — — — —

Unrealized holding losses (gains) on available for sale securities after reclassifications ( 97,408 ) 7,392 ( 208,710 ) ( 4,945 )

Tax effect 28,797 ( 2,186 ) 61,702 1,461

Unrealized holding losses on available for sale securities, net of tax ( 78,397 ) ( 8,690 )

Unrealized holding losses (gains) on available for sale securities, net of tax ( 68,611 ) 5,206 ( 147,008 ) ( 3,484 )

Change in unfunded status of the supplemental retirement plans before reclassifications 5 ( 49 ) 92 ( 98 )

9 unchanged sentences

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

Total other comprehensive income (loss) $ ( 78,339 ) $ ( 9,319 )

Total other comprehensive (loss) income $ ( 68,611 ) $ 5,206 $ ( 146,950 ) $ ( 4,113 )

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

(in thousands) March 31,

(in thousands) June 30,

2022 December 31,

Net unrealized gain on available for sale securities $ ( 111,694 ) $ ( 392 )

Net unrealized loss on available for sale securities $ ( 208,710 ) $ ( 392 )

Tax effect 61,426 116

Unrealized holding gain on available for sale securities, net of tax ( 78,673 ) ( 276 )

Unrealized holding loss on available for sale securities, net of tax ( 147,284 ) ( 276 )

Unfunded status of the supplemental retirement plans 2,481 2,399

2 unchanged sentences

Joint beneficiary agreement liability ( 433 ) ( 433 )

Tax effect — —

Joint beneficiary agreement liability, net of tax ( 433 ) ( 433 )

31 unchanged sentences

When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the loan as nonrecurring Level 2.

When an appraised value is not available or management determines the fair value of the collateral is further

impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the loan as nonrecurring Level 3.

When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Foreclosed assets - Foreclosed assets include assets acquired through, or in lieu of, loan foreclosure.

9 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 March 31, 2022 Total Level 1 Level 2 Level 3

Fair value at June 30, 2022 Total Level 1 Level 2 Level 3

Marketable equity securities $ 2,706 $ 2,706 $ — $ —

5 unchanged sentences

Asset backed securities 434,192 — 434,192 —

Non-agency collateralized mortgage obligations 323,804 — 323,804 —

Loans held for sale 1,216 — 1,216 —

9 unchanged sentences

Asset backed securities 409,552 — 409,552 —

Non-agency collateralized mortgage obligations 341,997 — 341,997 —

Loans held for sale 3,466 — 3,466 —

2 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 months ended March 31, 2022, or the year ended December 31, 2021.

There were no transfers between any levels during the six months ended June 30, 2022, or the year ended December 31, 2021.

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 March 31, Beginning

Three months ended June 30, Beginning

Balance Transfers

4 unchanged sentences

Mortgage servicing rights $ 5,607 — $ ( 471 ) $ 467 $ 5,603

Three months ended March 31,

Six months ended June 30, Beginning

Balance Transfers

into (out of)

Level 3 Change

in Earnings Issuances Ending

Mortgage servicing rights $ 5,874 — $ 410 $ 383 $ 6,667

Mortgage servicing rights $ 5,092 — $ ( 459 ) $ 970 $ 5,603

The key unobservable inputs used in determining the fair value of mortgage servicing rights are mortgage prepayment speeds and the discount rate used to discount cash projected cash flows.

1 unchanged sentence

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 March 31, 2022 and December 31, 2021:

As of March 31, 2022:

The following table presents quantitative information about recurring Level 3 fair value measurements at June 30, 2022 and December 31, 2021:

As of June 30, 2022:

(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):

March 31, 2022 Total Level 1 Level 2 Level 3 Total Losses

Individually evaluated loans $ 684 — — $ 684 $ ( 615 )

June 30, 2022 Total Level 1 Level 2 Level 3 Total Gains (Losses)

Foreclosed assets 375 — — 375 98

4 unchanged sentences

Total assets measured at fair value $ 3,683 — — $ 3,683 $ ( 1,105 )

March 31, 2021 Total Level 1 Level 2 Level 3 Total Losses

June 30, 2021 Total Level 1 Level 2 Level 3 Total Losses

Individually evaluated loans $ 4,912 — — $ 4,912 $ ( 1,604 )

14 unchanged sentences

The loss represents impairments on real estate owned for fair value adjustments based on the fair value of the real estate.

The Company’s property appraisals are primarily based on the sales comparison approach and income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the

general assumptions that a market participant would make when analyzing the property for purchase.

These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property.

2 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 March 31, 2022:

March 31, 2022 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 June 30, 2022:

June 30, 2022 Fair Value

(in thousands) Valuation

1 unchanged sentence

Weighted Average

Individually evaluated loans $ 684 Sales comparison

Income approach Adjustment for differences between

comparable sales;

Capitalization rate Not meaningful

Foreclosed assets (Residential real estate) $ 375 Sales comparison

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.

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(in thousands) Carrying

26 unchanged sentences

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.

The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Company’s

capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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

The following tables present actual and required capital ratios as of March 31, 2022 and December 31, 2021 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, 2022 and December 31, 2021 based on the then phased-in provisions of the Basel III Capital Rules.

The following tables present actual and required capital ratios as of June 30, 2022 and December 31, 2021 for the Company and the Bank under applicable Basel III Capital Rules.

The minimum capital amounts presented include the minimum required capital levels as of June 30, 2022 and December 31, 2021 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 March 31, 2022:

As of June 30, 2022:

Amount Ratio Amount Ratio Amount Ratio

29 unchanged sentences

Tri Counties Bank $ 811,713 9.77 % $ 332,196 4.00 % $ 415,245 5.00 %

As of March 31, 2022 and December 31, 2021, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules.

Also, at March 31, 2022 and December 31, 2021, 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 June 30, 2022 and December 31, 2021, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules.

Also, at June 30, 2022 and December 31, 2021, 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 March 31, 2022, the Company and the Bank are in compliance with the capital conservation buffer requirement.

At June 30, 2022, 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