UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

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

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

for the quarterly period ended: ~~March 31, 2019~~

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

June 30, 2019

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

for the transition period from
to
.

Commission File Number:

000-10661

TriCo Bancshares

(Exact Name of Registrant as Specified in Its Charter)


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

63 Constitution Drive

Chico, California 95973

(Address of Principal Executive Offices)(Zip Code)

(530)

898-0300

(Registrant’s Telephone Number, Including Area Code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	TCBK	NASDAQ Global Select

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒

Yes

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒

Yes

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.

☒

Large accelerated ~~filer~~

filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

~~Emerging growth company~~

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

Indicate by check mark whether the registrant is a shell company (as defined inRule

12b-2

of the Exchange Act).

☐

Yes

☒

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


~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Common Stock~~	~~TCBK~~	~~NASDAQ Global Select~~

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

Common stock, no par value: ~~30,451,030~~30,509,637 shares outstanding as of ~~May 6,~~August 5, 2019

Table of Contents

TriCo Bancshares

FORM10-Q

TABLE OF CONTENTS


	Page
PART I – FINANCIAL INFORMATION		2
			~~Page~~
~~PART I~~Item 1 – ~~FINANCIAL INFORMATION~~Financial Statements (Unaudited)		2

	~~Item 1 – Financial Statements (Unaudited)~~			2

	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			3639


Item 3 – Quantitative and Qualitative Disclosures about Market Risk		5058


Item 4 – Controls and Procedures		5058

PART II – OTHER INFORMATION		5058


Item 1 – Legal Proceedings		5058


Item 1A – Risk Factors		5058


Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		5058


Item 6 – Exhibits		5159

	~~Signatures~~			52

	~~Exhibits~~Signatures			5360

Exhibits

Table of Contents

PART I – FINANCIAL INFORMATION

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

Item 1.

Financial Statements (unaudited)

TRICO BANCSHARES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data; unaudited)

   At March 31, At December 31,
   2019 2018
Assets:

Cash and due from banks
   $ 105,103 $ 119,781
Cash at Federal Reserve and other banks
   213,605 107,752


Cash and cash equivalents
   318,708 227,533
Investment securities:

Marketable equity securities
   2,910 2,874
Available for sale debt securities
   1,113,516 1,115,036
Held to maturity debt securities
   431,016 444,936
Restricted equity securities
   17,250 17,250
Loans held for sale
   5,410 3,687
Loans
   4,034,331 4,022,014
Allowance for loan losses
   (32,064 ) (32,582 )


Total loans, net
   4,002,267 3,989,432
Premises and equipment, net
   89,275 89,347
Cash value of life insurance
   117,841 117,318
Accrued interest receivable
   20,431 19,412
Goodwill
   220,972 220,972
Other intangible assets, net
   27,849 29,280
Operating leases,right-of-use
   30,942 —
Other assets
   73,465 75,364


Total assets
   $ 6,471,852 $ 6,352,441


Liabilities and Shareholders’ Equity:

Liabilities:

Deposits:

Noninterest-bearing demand
   $ 1,761,559 $ 1,760,580
Interest-bearing
   3,668,703 3,605,886


Total deposits
   5,430,262 5,366,466
Accrued interest payable
   2,195 1,997
Operating lease liability
   30,204 —
Other liabilities
   86,362 83,724
Other borrowings
   12,466 15,839
Junior subordinated debt
   57,085 57,042


Total liabilities
   5,618,574 5,525,068


Commitments and contingencies (Note 8)

Shareholders’ equity:

Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at March 31, 2019 and December 31, 2018
   —   —
Common stock, no par value: 50,000,000 shares authorized; 30,432,419 and 30,417,223 issued and outstanding at March 31, 2019 and December 31, 2018, respectively
   542,340 541,762
Retained earnings
   319,865 303,490
Accumulated other comprehensive loss, net of tax
   (8,927 ) (17,879 )


Total shareholders’ equity
   853,278 827,373


Total liabilities and shareholders’ equity
   $ 6,471,852 $ 6,352,441


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

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

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

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

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

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

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

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

Total shareholders’ equity		875,886			827,373

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

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data; unaudited)

   Three months ended
   March 31,
   2019 2018
Interest and dividend income:

Loans, including fees
   $ 54,398 $ 38,049
Investments:

Taxable securities
   10,555 7,322
Tax exempt securities
   1,073 1,041
Dividends
   360 336
Interest bearing cash at Federal Reserve and other banks
   1,071 373


Total interest and dividend income
   67,457 47,121


Interest expense:

Deposits
   2,719 1,096
Other borrowings
   13 342
Junior subordinated debt
   855 697


Total interest expense
   3,587 2,135


Net interest income
   63,870 44,986
Benefit from reversal of provision for loan losses
   (1,600 ) (236 )


Net interest income after benefit from reversal of provision for loan losses
   65,470 45,222


Noninterest income:

Service charges and fees
   9,070 9,356
Gain on sale of loans
   412 626
Asset management and commission income
   642 876
Increase in cash value of life insurance
   775 608
Other
   965 824


Total noninterest income
   11,864 12,290


Noninterest expense:

Salaries and related benefits
   25,128 21,652
Other
   20,385 16,510


Total noninterest expense
   45,513 38,162


Income before provision for income taxes
   31,821 19,350
Provision for income taxes
   9,095 5,440


Net income
   $ 22,726 $ 13,910


Earnings per share:

Basic
   $ 0.75 $ 0.61
Diluted
   $ 0.74 $ 0.60


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

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

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

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

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

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

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

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

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

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

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

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

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands; unaudited)

   Three months ended
   March 31,
   2019    2018
Net income
   $ 22,726    $ 13,910
Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on available for sale securities arising during the period
   8,952    (11,026 )
Change in minimum pension liability
   —      80




Other comprehensive income (loss)
   8,952    (10,946 )




Comprehensive income
   $ 31,678    $ 2,964


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

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

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

   Accumulated
   Shares of Other
   Common Common Retained Comprehensive
   Stock Stock Earnings Income (Loss) Total
Balance at January 1, 2018
   22,955,963 $ 255,836 $ 255,200 $ (5,228 ) $ 505,808
Net income
   13,910 13,910
Adoption ASU2016-01
   (62 ) 62 —
Adoption ASU2018-02
   1,093 (1,093 ) —
Other comprehensive loss
   (10,946 ) (10,946 )
Stock option vesting
   37 37
RSU vesting
   238 238
PSU vesting
   116 116
RSUs released
   494 —
Repurchase of common stock
   (134 ) (1 ) (3 ) (4 )
Dividends paid ($ 0.17 per share)
   (3,903 ) (3,903 )


Balance at March 31, 2018
   22,956,323 $ 256,226 $ 266,235 $ (17,205 ) $ 505,256


Balance at January 1, 2019
   30,417,223 $ 541,762 $ 303,490 $ (17,879 ) $ 827,373
Net income
   22,726 22,726
Other comprehensive income
   8,952 8,952
Stock options exercised
   41,000 647 647
RSU vesting
   278 278
PSU vesting
   119 119
RSUs released
   355
Repurchase of common stock
   (26,159 ) (466 ) (569 ) (1,035 )
Dividends paid ($ 0.19 per share)
   (5,782 ) (5,782 )


Balance at March 31, 2019
   30,432,419 $ 542,340 $ 319,865 $ (8,927 ) $ 853,278


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

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

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

CHANGES IN SHAREHOLDERS’ EQUITY

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

   For the three months ended March 31,
   2019 2018
Operating activities:

Net income
   $ 22,726 $ 13,910
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of premises and equipment, and amortization
   1,838 1,613
Amortization of intangible assets
   1,431 339
Reversal of provision for loan losses
   (1,600 ) (236 )
Amortization of investment securities premium, net
   571 700
Originations of loans for resale
   (18,119 ) (20,332 )
Proceeds from sale of loans originated for resale
   16,689 23,270
Gain on sale of loans
   (412 ) (626 )
Change in market value of mortgage servicing rights
   645 (111 )
Provision for losses on foreclosed assets
   —   90
Gain on transfer of loans to foreclosed assets
   (98 ) —
Gain on sale of foreclosed assets
   (99 ) (371 )
Loss on disposal of fixed assets
   38 13
Increase in cash value of life insurance
   (775 ) (608 )
Gain on life insurance death benefit
   (32 ) —
(Gain) loss on marketable equity securities
   (36 ) 48
Equity compensation vesting expense
   397 391
Change in:

Interest receivable
   (1,019 ) 1,365
Interest payable
   198 28
Other assets and liabilities, net
   (288 ) 4,231


Net cash from operating activities
   22,055 23,714


Investing activities:

Proceeds from maturities of securities available for sale
   15,133 15,643
Proceeds from maturities of securities held to maturity
   13,684 18,535
Purchases of securities available for sale
   (1,238 ) (39,647 )
Loan origination and principal collections, net
   (11,351 ) (54,682 )
Proceeds from sale of other real estate owned
   278 1,943
Proceeds from sale of premises and equipment
   11 —
Purchases of premises and equipment
   (1,650 ) (2,200 )


Net cash from investing activities
   14,867 (60,408 )


Financing activities:

Net increase in deposits
   63,796 75,273
Net change in other borrowings
   (3,373 ) (57,125 )
Repurchase of common stock, net
   (388 ) —
Dividends paid
   (5,782 ) (3,903 )


Net cash used by financing activities
   54,253 14,245


Net change in cash and cash equivalents
   91,175 (22,449 )


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


Cash and cash equivalents at end of year
   $ 318,708 $ 182,979


Supplemental disclosure of noncash activities:

Unrealized gain (loss) on securities available for sale
   $ 12,710 $ (15,628 )
Loans transferred to foreclosed assets
   116 —
Market value of shares tenderedin-lieu of cash to pay for exercise of options and/or related taxes
   647 4
Supplemental disclosure of cash flow activity:

Cash paid for interest expense
   3,389 2,107
Cash paid for income taxes
   —   —


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

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

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)


	For the six months ended June 30,
	2019			2018
Operating activities:
Net income	$	45,787		$	28,939
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment, and amortization		3,582			3,229
Amortization of intangible assets		2,862			678
Reversal of provision for loan losses		(1,063	)		(874	)
Amortization of investment securities premium, net		1,186			1,340
Originations of loans for resale		(46,936	)		(43,389	)
Proceeds from sale of loans originated for resale		45,407			45,437
Gain on sale of loans		(987	)		(1,292	)
Change in market value of mortgage servicing rights		1,197			(75	)
Provision for losses on foreclosed assets		62			90
Gain on transfer of loans to foreclosed assets		(97	)		—
Gain on sale of foreclosed assets		(199	)		(388	)
Loss on disposal of fixed assets		80			54
Increase in cash value of life insurance		(1,521	)		(1,264	)
Gain on life insurance death benefit		(728	)		—
(Gain) loss on marketable equity securities		(78	)		70
Equity compensation vesting expense		815			722
Change in:
Interest receivable		(1,578	)		(481	)
Interest payable		668			245
Other assets and liabilities, net		(14,592	)		(97	)

Net cash from operating activities		33,867			32,944

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

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

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

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

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

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

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 –Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

TriCo Bancshares (the “Company” or “we”) is a California corporation organized to act as a bank holding company for Tri Counties Bank (the “Bank”). The Company and the Bank are headquartered in Chico, California. The Bank is a California-chartered bank that is engaged in the general commercial banking business in 29 California counties. The Company has

five

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

two

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

The consolidated financial statements are prepared in accordance with accounting policies generally accepted in the United States of America and general practices in the banking industry. All adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. The financial statements include the accounts of the Company. All inter-company accounts and transactions have been eliminated in consolidation. For financial reporting purposes, the Company’s investments in the Capital Trusts of ~~$1,714,000~~$1,716,000 are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet. The subordinated debentures issued and guaranteed by the Company and held by the Capital Trusts are reflected as debt on the Company’s consolidated balance sheet.

Use of Estimates in the Preparation of Financial Statements

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

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

10-K

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

Segment and Significant Group Concentration of Credit Risk

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

one

business segment that it denotes as community banking.

Geographical Descriptions

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

Cash and Cash Equivalents

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

Accounting Standards Adopted in 2019

The Financial Accounting Standards Board (“FASB”) issued ASUNo.

2016-02,

Leases (Topic 842)

.ASU

2016-02,

which among other things, requires lessees to recognize most leases

on-balance

sheet, increasing reported assets and liabilities. Lessor accounting remains substantially similar to current U.S. GAAP. The FASB has issued incremental guidance to Topic 842 standard through ASUNo. ~~2018-11,2018-20,~~

2018-11,

2018-20,

and

2019-01.

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

2018-11,

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

right-of-use

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

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all of the Company’s lease agreements are considered operating

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

2016-02

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

The FASB issued ASU

2017-08,~~Receivables—~~

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

ASU

2017-08

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

non-pooled

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

2017-08

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

2017-08

was effective for the Company on January 1, 2019, and did not have an impact on the Company’s consolidated financial statements.

Accounting Standards Pending Adoption

The FASB issued ASUNo. 2016-13,

Financial Instruments – Credit Losses (Topic 326)

. ASU2016-13 is the final guidance on the new current expected credit loss (‘‘CECL’’) model. ASU2016-13, among other things, requires the incurred loss impairment methodology in current GAAP be replaced with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate future credit loss estimates. As CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity (‘‘HTM’’) debt securities. ASU2016-13 amends the accounting for credit losses onavailable-for-sale securities (‘‘AFS’’), whereby credit losses will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for purchased loans with credit deterioration since origination, so that reserves are established at the date of acquisition for purchased loans. Lastly, ASU2016-13 requires enhanced disclosures on the significant estimates and judgments used to estimate credit losses, as well as on the credit quality and underwriting standards of an organization’s portfolio. These disclosures require organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. ASU2016-13 allows for a modified retrospective approach with a cumulative effect adjustment to the balance sheet upon adoption (charge to retained earnings instead of the income statement). ASU2016-13 will be effective for the Company on January 1, 2020, and early adoption is permitted. While the Company is currently evaluating the provisions of ASU2016-13 to determine the potential impact the new standard will have on the Company’s ~~Consolidated Financial Statements,~~consolidated financial statements, it has taken steps to prepare for the implementation when it becomes effective, such as forming an internal task force, gathering pertinent data, consulting with outside professionals, and evaluating its current IT systems. While detailed modeling efforts are ongoing, the validation of expected credit loss estimates will likely not be available until late in 2019. Management expects to recognize aone-time cumulative effect adjustment to the allowance for loan losses as of the first reporting period in which the new standard is effective, but cannot yet estimate the magnitude of theone-time adjustment or the overall impact of the new guidance on the Company’s financial position, results of operations or cash flows.

FASB issued ASUNo.

2017-04,

Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment

(Topic 350):

ASU

2017-04

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

2017-04

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

In August 2018, the FASB issued ASUNo.

2018-13,

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

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

2018-13

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

2018-13

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

In August 2018, the FASB issued ASUNo.

2018-14,

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

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

2018-14

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

2018-14

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

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Note 2—2 - Business Combinations

Merger with FNB Bancorp

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

6.7

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

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

non-taxable

and /or

non-deductible.

Acquisition related costs of ~~$476,000~~ $601,000 and $1,077,000

are included in the consolidated statements of income for the three and six months ended ~~March 31, 2018.~~June

2018

. There have been

acquisition costs incurred during the ~~three~~six months ended ~~March 31, 2019.~~

June

2019

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

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

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

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


Total fair value of consideration transferred
   291,132


Assets acquired:

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


Total assets acquired
   1,306,539


Liabilities assumed:

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


Total liabilities assumed
   1,172,068


Total net assets acquired
   134,471


Goodwill recognized
   $ 156,661


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

Total fair value of consideration transferred		291,132

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

Total assets acquired		1,306,539

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

Total liabilities assumed		1,172,068

Total net assets acquired		134,471

Goodwill recognized	$	156,661

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

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

Cost basis net assets acquired
   114,030
Fair value adjustments:

Investments
   (1,081 )
Loans
   (22,390 )
Premises and Equipment
   21,590
Core deposit intangible
   27,327
Deferred income taxes
   (6,394 )
Other
   1,389


Goodwill
   $ 156,661


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

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

Goodwill	$	156,661

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

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Note 3—3 - Investment Securities

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

   March 31, 2019
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Estimated
Fair Value
   (in thousands)
Debt Securities Available for Sale

Obligations of U.S. government agencies
   $ 631,914    $ 1,862    $ (6,676 )    $ 627,100
Obligations of states and political subdivisions
   128,706    1,242    (599 )    129,349
Corporate bonds
   4,394    84    —      4,478
Asset backed securities
   356,766    141    (4,318 )    352,589








Total debt securities available for sale
   $ 1,121,780    $ 3,329    $ (11,593 )    $ 1,113,516








Debt Securities Held to Maturity

Obligations of U.S. government agencies
   $ 416,418    $ 2,190    $ (2,581 )    $ 416,027
Obligations of states and political subdivisions
   14,598    173    (25 )    14,746








Total debt securities held to maturity
   $ 431,016    $ 2,363    $ (2,606 )    $ 430,773

   December 31, 2018
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Estimated
Fair Value
   (in thousands)
Debt Securities Available for Sale

Obligations of U.S. government agencies
   $ 647,288    $ 771    $ (18,078 )    $ 629,981
Obligations of states and political subdivisions
   128,890    294    (3,112 )    126,072
Corporate bonds
   4,381    97    —      4,478
Asset backed securities
   355,451    73    (1,019 )    354,505








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








Debt Securities Held to Maturity

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








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


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

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

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

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


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

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

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

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

There were no sales of investment securities during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018. Investment securities with an aggregate carrying value of ~~$587,233,000~~$569,296,000 and $597,591,000 at ~~March 31,~~June 30, 2019 and December 31, 2018, respectively, were pledged as collateral for specific borrowings, lines of credit or local agency deposits.

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The amortized cost and estimated fair value of debt securities at ~~March 31,~~June 30, 2019 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At ~~March 31,~~June 30, 2019, obligations of U.S. government corporations and agencies with a cost basis totaling ~~$1,048,332,000~~$1,026,710,000 consist almost entirely of residential real estate mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages. For purposes of the following table, the entire outstanding balance of these mortgage-backed securities issued by U.S. government corporations and agencies is categorized based on final maturity date. At ~~March 31,~~June 30, 2019, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately ~~5.5~~5.1 years. Average remaining life is defined as the time span after which the principal balance has been reduced by half.

Debt Securities
   Available for Sale    Held to Maturity
(In thousands)    Amortized
Cost    Estimated
Fair Value    Amortized
Cost    Estimated
Fair Value
Due in one year
   $ 2,413    $ 2,418    $ —      $ —
Due after one year through five years
   10,584    10,798    1,246    1,260
Due after five years through ten years
   18,130    18,624    23,944    23,899
Due after ten years
   1,090,653    1,081,676    405,826    405,614








Totals
   $ 1,121,780    $ 1,113,516    $ 431,016    $ 430,773


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

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

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

   Less than 12 months 12 months or more Total
   Fair
Value    Unrealized
Loss Fair
Value    Unrealized
Loss Fair
Value    Unrealized
Loss
March 31, 2019    (in thousands)
Debt Securities Available for Sale

Obligations of U.S. government agencies
   $ 481    $ (2 ) $ 496,424    $ (6,674 ) $ 496,905    $ (6,676 )
Obligations of states and political subdivisions
   24,644    (598 ) 566    (1 ) 25,210    (599 )
Asset backed securities
   330,078    (4,318 ) —      —   330,078    (4,318 )








Total debt securities available for sale
   $ 355,203    $ (4,918 ) $ 496,990    $ (6,675 ) $ 852,193    $ (11,593 )








Debt Securities Held to Maturity
Obligations of U.S. government agencies
   $ —      $ —   $ 224,551    $ (2,581 ) $ 224,551    $ (2,581 )
Obligations of states and political subdivisions
   —      —   5,891    (25 ) 5,891    (25 )








Total debt securities held to maturity
   $ —      $ —   $ 230,442    $ (2,606 ) $ 230,442    $ (2,606 )

   Less than 12 months 12 months or more Total
   Fair
Value    Unrealized
Loss Fair
Value    Unrealized
Loss Fair
Value    Unrealized
Loss
December 31, 2018    (in thousands)
Debt Securities Available for Sale

Obligations of U.S. government agencies
   $ 171,309    $ (3,588 ) $ 394,630    $ (14,490 ) $ 565,939    $ (18,078 )
Obligations of states and political subdivisions
   63,738    (1,541 ) 20,719    (1,571 ) 84,457    (3,112 )
Asset backed securities
   101,386    (1,019 ) —      —   101,386    (1,019 )








Total debt securities available for sale
   $ 336,433    $ (6,148 ) $ 415,349    $ (16,061 ) $ 751,782    $ (22,209 )
Debt Securities Held to Maturity

Obligations of U.S. government agencies
   $ 223,810    $ (2,619 ) $ 158,648    $ (5,126 ) $ 382,458    $ (7,745 )
Obligations of states and political subdivisions
   5,786    (114 ) 4,042    (116 ) 9,828    (230 )








Total debt securities held to maturity
   $ 229,596    $ (2,733 ) $ 162,690    $ (5,242 ) $ 392,286    $ (7,975 )


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

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

Obligations of U.S. government agencies: Unrealized losses on investments in obligations of U.S. government agencies are caused by interest rate increases. The contractual cash flows of these securities are guaranteed by U.S. Government Sponsored Entities (principally Fannie Mae and Freddie Mac). It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, these investments are not considered other-than-temporarily impaired. At ~~March 31,~~June 30, 2019, 9346 debt securities representing obligations of U.S. government agencies had unrealized losses with aggregate depreciation of ~~(1.3%~~(1.0%) from the Company’s amortized cost basis.

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Obligations of states and political subdivisions: The unrealized losses on investments in obligations of states and political subdivisions were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, these investments are not considered other-than-temporarily impaired. At ~~March 31,~~June 30, 2019, 3313 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of (2.0%) from the Company’s amortized cost basis.

Asset backed securities: The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors in these types of securities. At the time of purchase, each of these securities was rated AA or AAA and through ~~March 31,~~June 30, 2019 has not experienced any deterioration in credit rating. The Company continues to monitor these securities for changes in credit rating or other indications of credit deterioration. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, these investments are not considered other-than-temporarily impaired. At ~~March 31,~~June 30, 2019, 28 asset backed securities had unrealized losses with aggregate depreciation of (1.3%) from the Company’s amortized cost basis.

Marketable equity securities: All unrealized losses recognized during the reporting period were for equity securities still held at ~~March 31,~~June 30, 2019.

Note 4 – Loans

A summary of loan balances follows (in thousands):

   March 31, 2019
   Originated    PNCI    PCI    Total
Mortgage loans on real estate:

Residential1-4 family
   $ 357,559    $ 163,268    $ 1,585    $ 522,412
Commercial
   1,929,508    671,397    6,022    2,606,927








Total mortgage loan on real estate
   2,287,067    834,665    7,607    3,129,339
Consumer:

Home equity lines of credit
   279,075    38,090    1,088    318,253
Home equity loans
   31,245    3,356    436    35,037
Other
   45,020    20,001    41    65,062








Total consumer loans
   355,340    61,447    1,565    418,352
Commercial
   227,314    39,295    2,554    269,163
Construction:

Residential
   115,688    30,096    —      145,784
Commercial
   64,576    7,117    —      71,693








Total construction
   180,264    37,213    —      217,477








Total loans, net of deferred loan fees and discounts
   $ 3,049,985    $ 972,620    $ 11,726    $ 4,034,331








Total principal balance of loans owed, net of charge-offs
   $ 3,059,398    $ 1,007,678    $ 18,376    $ 4,085,452
Unamortized net deferred loan fees
   (9,413 )    —      —      (9,413 )
Discounts to principal balance of loans owed, net of charge-offs
   —      (35,058 )    (6,650 )    (41,708 )








Total loans, net of unamortized deferred loan fees and discounts
   $ 3,049,985    $ 972,620    $ 11,726    $ 4,034,331








Allowance for loan losses
   $ (31,088 )    $ (969 )    $ (7 )    $ (32,064 )


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

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

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

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

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

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

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

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

   December 31, 2018
   Originated    PNCI    PCI    Total
Mortgage loans on real estate:

Residential1-4 family
   $ 343,796    $ 169,792    $ 1,674    $ 515,262
Commercial
   1,910,981    708,401    8,456    2,627,838








Total mortgage loan on real estate
   2,254,777    878,193    10,130    3,143,100
Consumer:

Home equity lines of credit
   284,453    40,957    1,167    326,577
Home equity loans
   32,660    3,585    439    36,684
Other
   34,020    21,659    42    55,721








Total consumer loans
   351,133    66,201    1,648    418,982
Commercial
   228,635    45,468    2,445    276,548
Construction:

Residential
   90,703    30,593    —      121,296
Commercial
   56,208    5,880    —      62,088








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








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








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








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








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

Table of Contents


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

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

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

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

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

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

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

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

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

   Three months ended March 31,
   2019    2018
Change in accretable yield:

Balance at beginning of period
   $ 6,059    $ 6,137
Accretion to interest income
   (301 )    (255 )
Reclassification (to) from nonaccretable difference
   (11 )    140




Balance at end of period
   $ 5,747    $ 6,022


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

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

Table of Contents

Note 5 – Allowance for Loan Losses

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

   Allowance for Loan Losses – Three Months Ended March 31, 2019
(in thousands)    Beginning
Balance    Charge-offs Recoveries    Provision
(benefit) Ending Balance
Mortgage loans on real estate:

Residential1-4 family
   $ 2,676    $ —   $ 2    $ (178 ) $ 2,500
Commercial
   12,944    —   1,381    (1,995 ) 12,330






Total mortgage loans on real estate
   15,620    —   1,383    (2,173 ) 14,830
Consumer:

Home equity lines of credit
   6,042    —   95    (122 ) 6,015
Home equity loans
   1,540    —   87    (341 ) 1,286
Other
   793    (207 ) 75    379 1,040






Total consumer loans
   8,375    (207 ) 257    (84 ) 8,341
Commercial
   6,090    (519 ) 168    339 6,078
Construction:

Residential
   1,834    —   —      574 2,408
Commercial
   663    —   —      (256 ) 407






Total construction
   2,497    —   —      318 2,815






Total
   $ 32,582    $ (726 ) $ 1,808    $ (1,600 ) $ 32,064

   Allowance for Loan Losses – As of March 31, 2019
(in thousands)    Loans pooled
for evaluation    Individually
evaluated for
impairment    Loans acquired
with deteriorated
credit quality    Total
allowance
for loan losses
Mortgage loans on real estate:

Residential1-4 family
   $ 2,445    $ 55    $ —      $ 2,500
Commercial
   12,293    36    1    12,330








Total mortgage loans on real estate
   14,738    91    1    14,830
Consumer:

Home equity lines of credit
   5,879    130    6    6,015
Home equity loans
   1,216    70    —      1,286
Other
   1,023    17    —      1,040








Total consumer loans
   8,118    217    6    8,341
Commercial
   4,636    1,442    —      6,078
Construction:

Residential
   2,408    —      —      2,408
Commercial
   407    —      —      407








Total construction
   2,815    —      —      2,815








Total
   $ 30,307    $ 1,750    $ 7    $ 32,064

   Loans, Net of Unearned fees – As of March 31, 2019
(in thousands)    Loans pooled
for evaluation    Individually
evaluated for
impairment    Loans acquired
with deteriorated
credit quality    Total loans, net
of unearned fees
Mortgage loans on real estate:

Residential1-4 family
   $ 517,038    $ 3,789    $ 1,585    $ 522,412
Commercial
   2,592,994    7,911    6,022    2,606,927








Total mortgage loans on real estate
   3,110,032    11,700    7,607    3,129,339
Consumer:

Home equity lines of credit
   314,609    2,556    1,088    318,253
Home equity loans
   32,618    1,983    436    35,037
Other
   64,891    130    41    65,062








Total consumer loans
   412,118    4,669    1,565    418,352
Commercial
   261,933    4,676    2,554    269,163
Construction:

Residential
   145,784    —      —      145,784
Commercial
   71,693    —      —      71,693








Total construction
   217,477    —      —      217,477








Total
   $ 4,001,560    $ 21,045    $ 11,726    $ 4,034,331


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

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

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

Total construction		2,815		—			—		81			2,896

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


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

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

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

Total construction		2,497		—			—		399			2,896

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

   Allowance for Loan Losses – Year Ended December 31, 2018
(in thousands)    Beginning
Balance    Charge-offs Recoveries    Provision
(benefit) Ending Balance
Mortgage loans on real estate:

Residential1-4 family
   $ 2,317    $ (77 ) $ —      $ 436 $ 2,676
Commercial
   11,441    (15 ) 68    1,450 12,944






Total mortgage loans on real estate
   13,758    (92 ) 68    1,886 15,620
Consumer:

Home equity lines of credit
   5,800    (277 ) 846    (327 ) 6,042
Home equity loans
   1,841    (24 ) 297    (574 ) 1,540
Other
   586    (783 ) 288    702 793






Total consumer loans
   8,227    (1,084 ) 1,431    (199 ) 8,375
Commercial
   6,512    (1,188 ) 541    225 6,090
Construction:

Residential
   1,184    —   —      650 1,834
Commercial
   642    —   —      21 663






Total construction
   1,826    —   —      671 2,497






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

   Allowance for Loan Losses – As of December 31, 2018
(in thousands)    Loans pooled
for evaluation    Individually
evaluated for
impairment    Loans acquired
with deteriorated
credit quality    Total allowance
for loan losses
Mortgage loans on real estate:

Residential1-4 family
   $ 2,620    $ 56    $ —      $ 2,676
Commercial
   12,737    91    116    12,944








Total mortgage loans on real estate
   15,357    147    116    15,620
Consumer:

Home equity lines of credit
   5,838    198    6    6,042
Home equity loans
   1,486    54    —      1,540
Other
   779    14    —      793








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

Residential
   1,834    —      —      1,834
Commercial
   663    —      —      663








Total construction
   2,497    —      —      2,497








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

   Loans, Net of Unearned fees – As of December 31, 2018
(in thousands)    Loans pooled
for evaluation    Individually
evaluated for
impairment    Loans acquired
with deteriorated
credit quality    Total loans, net
of unearned fees
Mortgage loans on real estate:

Residential1-4 family
   $ 509,267    $ 4,321    $ 1,674    $ 515,262
Commercial
   2,606,819    12,563    8,456    2,627,838








Total mortgage loans on real estate
   3,116,086    16,884    10,130    3,143,100
Consumer:

Home equity lines of credit
   322,764    2,646    1,167    326,577
Home equity loans
   33,142    3,103    439    36,684
Other
   55,483    196    42    55,721








Total consumer loans
   411,389    5,945    1,648    418,982
Commercial
   268,885    5,218    2,445    276,548
Construction:

Residential
   121,296    —      —      121,296
Commercial
   62,088    —      —      62,088








Total construction
   183,384    —      —      183,384








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

   Allowance for Loan Losses – Three Months Ended March 31, 2018
(in thousands)    Beginning
Balance    Charge-offs Recoveries    Provision
(benefit) Ending Balance
Mortgage loans on real estate:

Residential1-4 family
   $ 2,317    $ (1 ) $ —      $ (146 ) $ 2,170
Commercial
   11,441    —   15    39 11,495






Total mortgage loans on real estate
   13,758    (1 ) 15    (107 ) 13,665
Consumer:

Home equity lines of credit
   5,800    (80 ) 209    (517 ) 5,412
Home equity loans
   1,841    —   14    (119 ) 1,736
Other
   586    (194 ) 78    100 570






Total consumer loans
   8,227    (274 ) 301    (536 ) 7,718
Commercial
   6,512    (205 ) 50    35 6,392
Construction:

Residential
   1,184    —   —      167 1,351
Commercial
   642    —   —      205 847






Total construction
   1,826    —   —      372 2,198






Total
   $ 30,323    $ (480 ) $ 366    $ (236 ) $ 29,973

   Allowance for Loan Losses – As of March 31, 2018
(in thousands)    Loans pooled
for evaluation    Individually
evaluated for
impairment    Loans acquired
with deteriorated
credit quality    Total allowance
for loan losses
Mortgage loans on real estate:

Residential1-4 family
   $ 1,910    $ 190    $ 70    $ 2,170
Commercial
   11,281    154    60    11,495








Total mortgage loans on real estate
   13,191    344    130    13,665
Consumer:

Home equity lines of credit
   4,956    448    8    5,412
Home equity loans
   1,606    130    —      1,736
Other
   514    56    —      570








Total consumer loans
   7,076    634    8    7,718
Commercial
   4,249    2,113    30    6,392
Construction:

Residential
   1,351    —      —      1,351
Commercial
   847    —      —      847








Total construction
   2,198    —      —      2,198








Total
   $ 26,714    $ 3,091    $ 168    $ 29,973

   Loans, Net of Unearned fees – As of March 31, 2018
(in thousands)    Loans pooled
for evaluation    Individually
evaluated for
impairment    Loans acquired
with deteriorated
credit quality    Total loans, net
of unearned fees
Mortgage loans on real estate:

Residential1-4 family
   $ 378,832    $ 5,535    $ 1,744    $ 386,111
Commercial
   1,954,120    11,110    8,038    1,973,268








Total mortgage loans on real estate
   2,332,952    16,645    9,782    2,359,379
Consumer:

Home equity lines of credit
   279,140    2,450    1,661    283,251
Home equity loans
   39,774    1,673    485    41,932
Other
   23,285    278    43    23,606








Total consumer loans
   342,199    4,401    2,189    348,789
Commercial
   208,889    4,621    2,505    216,015
Construction:

Residential
   71,462    136    —      71,598
Commercial
   73,952    —      —      73,952








Total construction
   145,414    136    —      145,550








Total
   $ 3,029,454    $ 25,803    $ 14,476    $ 3,069,733


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

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

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

Total construction		2,896		—		—		2,896

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

Table of Contents


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

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

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

Total construction		214,524		—		—		214,524

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


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

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

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

Total construction		1,826		—			—		671			2,497

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


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

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

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

Total construction		2,497		—		—		2,497

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

Table of Contents


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

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

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

Total construction			183,384		—		—		183,384

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


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

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

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

Total construction		2,198		—			—		213			2,411

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


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

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

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

Total construction		1,826		—			—		585			2,411

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

Table of Contents


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

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

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

Total construction		2,411		—		—		2,411

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


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

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

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

Total construction		156,729		—		—		156,729

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

As part of the

on-going

monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including, but not limited to, trends relating to (i) the level of criticized and classified loans, (ii) net charge-offs,(iii)

non-performing

loans, and (iv) delinquency within the portfolio.

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

•

~~Pass~~ – This grade represents loans ranging from acceptable to very little or no credit risk. These loans typically meet most if not all policy standards in regard to: loan amount as a percentage of collateral value, debt service coverage, profitability, leverage, and working capital.

•

~~Special Mention~~ – This grade represents “Other Assets Especially Mentioned” in accordance with regulatory guidelines and includes loans that display some potential weaknesses which, if left unaddressed, may result in deterioration of the repayment prospects for the asset or may inadequately protect the Company’s position in the future. These loans warrant more than normal supervision and attention.

•

~~Substandard~~ – This grade represents “Substandard” loans in accordance with regulatory guidelines. Loans within this rating typically exhibit weaknesses that are well defined to the point that repayment is jeopardized. Loss potential is, however, not necessarily evident. The underlying collateral supporting the credit appears to have sufficient value to protect the Company from loss of principal and accrued interest, or the loan has been written down to the point where this is true. There is a definite need for a well-defined workout/rehabilitation program.

•

~~Doubtful~~ – This grade represents “Doubtful” loans in accordance with regulatory guidelines. An asset classified as Doubtful has all the weaknesses inherent in a loan classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and financing plans.

•

~~Loss~~ – This grade represents “Loss” loans in accordance with regulatory guidelines. A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan, even though some recovery may be affected in the future. The portion of the loan that is graded loss should be charged off no later than the end of the quarter in which the loss is identified.

Pass

– This grade represents loans ranging from acceptable to very little or no credit risk. These loans typically meet most if not all policy standards in regard to: loan amount as a percentage of collateral value, debt service coverage, profitability, leverage, and working capital.

Special Mention

– This grade represents “Other Assets Especially Mentioned” in accordance with regulatory guidelines and includes loans that display some potential weaknesses which, if left unaddressed, may result in deterioration of the repayment prospects for the asset or may inadequately protect the Company’s position in the future. These loans warrant more than normal supervision and attention.

Substandard

– This grade represents “Substandard” loans in accordance with regulatory guidelines. Loans within this rating typically exhibit weaknesses that are well defined to the point that repayment is jeopardized. Loss potential is, however, not necessarily evident. The underlying collateral supporting the credit appears to have sufficient value to protect the Company from loss of principal and accrued interest, or the loan has been written down to the point where this is true. There is a definite need for a well-defined workout/rehabilitation program.

Table of Contents

Doubtful

– This grade represents “Doubtful” loans in accordance with regulatory guidelines. An asset classified as Doubtful has all the weaknesses inherent in a loan classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and financing plans.

Loss

– This grade represents “Loss” loans in accordance with regulatory guidelines. A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan, even though some recovery may be affected in the future. The portion of the loan that is graded loss should be charged off no later than the end of the quarter in which the loss is identified.

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

   Credit Quality Indicators Originated Loans– As of March 31, 2019
(in thousands)    Pass    Special
Mention    Substandard    Doubtful
/ Loss    Total Originated
Loans
Mortgage loans on real estate:

Residential1-4 family
   $ 350,256    $ 1,807    $ 5,496    $ —      $ 357,559
Commercial
   1,886,958    33,094    9,456    —      1,929,508










Total mortgage loans on real estate
   2,237,214    34,901    14,952    —      2,287,067
Consumer:

Home equity lines of credit
   273,144    2,867    3,064    —      279,075
Home equity loans
   27,328    1,533    2,384    —      31,245
Other
   44,611    309    100    —      45,020










Total consumer loans
   345,083    4,709    5,548    —      355,340
Commercial
   214,758    7,896    4,660    —      227,314
Construction:

Residential
   115,432    —      256    —      115,688
Commercial
   64,238    338    —      —      64,576










Total construction
   179,670    338    256    —      180,264










Total loans
   $ 2,976,725    $ 47,844    $ 25,416    $ —      $ 3,049,985


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

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

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

Total construction		204,136		331		254		—		204,721

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


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

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

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

Total construction		9,558		—		245		—		9,803

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

   Credit Quality Indicators PNCI Loans – As of March 31, 2019
(in thousands)    Pass    Special
Mention    Substandard    Doubtful / Loss    Total PNCI
Loans
Mortgage loans on real estate:

Residential1-4 family
   $ 161,351    $ 1,109    $ 808    $ —      $ 163,268
Commercial
   665,630    2,727    3,040    —      671,397










Total mortgage loans on real estate
   826,981    3,836    3,848    —      834,665
Consumer:

Home equity lines of credit
   35,888    925    1,277    —      38,090
Home equity loans
   3,174    98    84    —      3,356
Other
   19,790    208    3    —      20,001










Total consumer loans
   58,852    1,231    1,364    —      61,447
Commercial
   38,762    201    332    —      39,295
Construction:

Residential
   30,096    —      —      —      30,096
Commercial
   6,872    —      245    —      7,117










Total construction
   36,968    —      245    —      37,213










Total loans
   $ 961,563    $ 5,268    $ 5,789    $ —      $ 972,620

   Credit Quality Indicators Originated Loans– As of December 31, 2018
(in thousands)    Pass    Special
Mention    Substandard    Doubtful / Loss    Total Originated
Loans
Mortgage loans on real estate:

Residential1-4 family
   $ 337,189    $ 1,724    $ 4,883    $ —      $ 343,796
Commercial
   1,861,627    33,483    15,871    —      1,910,981










Total mortgage loans on real estate
   2,198,816    35,207    20,754    —      2,254,777
Consumer:

Home equity lines of credit
   279,491    2,309    2,653    —      284,453
Home equity loans
   29,289    1,054    2,317    —      32,660
Other
   33,606    341    73    —      34,020










Total consumer loans
   342,386    3,704    5,043    —      351,133
Commercial
   217,126    6,127    5,382    —      228,635
Construction:

Residential
   90,412    32    259    —      90,703
Commercial
   55,863    345    —      —      56,208










Total construction
   146,275    377    259    —      146,911










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

   Credit Quality Indicators PNCI Loans – As of December 31, 2018
(in thousands)    Pass    Special
Mention    Substandard    Doubtful / Loss    Total PNCI
Loans
Mortgage loans on real estate:

Residential1-4 family
   $ 167,908    $ 1,086    $ 798    $ —      $ 169,792
Commercial
   701,868    3,085    3,448    —      708,401










Total mortgage loans on real estate
   869,776    4,171    4,246    —      878,193
Consumer:

Home equity lines of credit
   38,780    1,124    1,053    —      40,957
Home equity loans
   3,413    74    98    —      3,585
Other
   21,481    173    5    —      21,659










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

Residential
   30,593    —      —      —      30,593
Commercial
   5,880    —      —      —      5,880










Total construction
   36,473    —      —      —      36,473










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

Table of Contents


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

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

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

Total construction		146,275		377		259		—		146,911

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


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

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

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

Total construction		36,473		—		—		—		36,473

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

Table of Contents

Consumer loans, whether unsecured or secured by real estate, automobiles, or other personal property, are susceptible to three primary risks;

non-payment

due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value. Typically, payment performance will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate;

non-payment

is likely due to loss of employment. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of the two. Problem consumer loans are generally identified by payment history and current performance of the borrower (delinquency). The Bank manages its consumer loan portfolios by monitoring delinquency and contacting borrowers to encourage repayment, suggesting modifications if appropriate, and, when continued scheduled payments become unrealistic, initiating repossession or foreclosure through appropriate channels.

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

non-owner

occupied. Loans secured by owner occupied real estate are primarily susceptible to changes in the business conditions of the related business. This may be driven by, among other things, industry changes, geographic business changes, changes in the individual fortunes of the business owner, and general economic conditions and changes in business cycles. These same risks apply to commercial loans whether secured by equipment or other personal property or unsecured. Losses on loans secured by owner occupied real estate, equipment, or other personal property generally are dictated by the value of underlying collateral at the time of default and liquidation of the collateral. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven by more general economic conditions, underlying collateral generally has devalued more and results in larger losses due to default. Loans secured by

non-owner

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

Construction loans, whether owner occupied or

non-owner

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

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

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

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

3-12

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

Table of Contents

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

   Analysis of Originated Past Due Loans - As of March 31, 2019
(in thousands)    30-59 days    60-89 days    > 90 days    Total Past
Due Loans    Current    Total    > 90 Days and
Still Accruing
Mortgage loans on real estate:

Residential1-4 family
   $ 2,231    $ —      $ 396    $ 2,627    $ 354,932    $ 357,559    $ —
Commercial
   767    —      901    1,668    1,927,840    1,929,508    —














Total mortgage loans on real estate
   2,998    —      1,297    4,295    2,282,772    2,287,067    —
Consumer:

Home equity lines of credit
   1,774    11    362    2,147    276,928    279,075    —
Home equity loans
   512    24    163    699    30,546    31,245    17
Other
   151    —      9    160    44,860    45,020    9














Total consumer loans
   2,437    35    534    3,006    352,334    355,340    26
Commercial
   1,122    453    371    1,946    225,368    227,314    14
Construction:

Residential
   785    —      —      785    114,903    115,688    —
Commercial
   —      —      —      —      64,576    64,576    —














Total construction
   785    —      —      785    179,479    180,264    —














Total originated loans
   $ 7,342    $ 488    $ 2,202    $ 10,032    $ 3,039,953    $ 3,049,985    $ 40


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

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

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

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

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

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

   Analysis of PNCI Past Due Loans - As of March 31, 2019
(in thousands)    30-59 days    60-89 days    > 90 days    Total Past
Due Loans    Current    Total    > 90 Days and
Still Accruing
Mortgage loans on real estate:

Residential1-4 family
   $ 1,457    $ 270    $ —      $ 1,727    $ 161,541    $ 163,268    $ —
Commercial
   2,898    —      949    3,847    667,550    671,397    —














Total mortgage loans on real estate
   4,355    270    949    5,574    829,091    834,665    —
Consumer:

Home equity lines of credit
   418    —      1    419    37,671    38,090    —
Home equity loans
   14    —      —      14    3,342    3,356    —
Other
   151    —      —      151    19,850    20,001    —














Total consumer loans
   583    —      1    584    60,863    61,447    —
Commercial
   2    99    233    334    38,961    39,295    —
Construction:

Residential
   —      —      —      —      30,096    30,096    —
Commercial
   —      —      —      —      7,117    7,117    —














Total construction
   —      —      —      —      37,213    37,213    —














Total PNCI loans
   $ 4,940    $ 369    $ 1,183    $ 6,492    $ 966,128    $ 972,620    $ —


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

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

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

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

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

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

   Analysis of Originated Past Due Loans - As of December 31, 2018
(in thousands)    30-59 days    60-89 days    > 90 days    Total Past
Due Loans    Current    Total    > 90 Days and
Still Accruing
Mortgage loans on real estate:

Residential1-4 family
   $ 1,675    $ 132    $ 478    $ 2,285    $ 341,511    $ 343,796    $ —
Commercial
   431    1,200    296    1,927    1,909,054    1,910,981    —














Total mortgage loans on real estate
   2,106    1,332    774    4,212    2,250,565    2,254,777    —
Consumer:

Home equity lines of credit
   908    47    609    1,564    282,889    284,453    —
Home equity loans
   1,043    24    214    1,281    31,379    32,660    —
Other
   298    17    —      315    33,705    34,020    —














Total consumer loans
   2,249    88    823    3,160    347,973    351,133    —
Commercial
   1,053    579    1,247    2,879    225,756    228,635    —
Construction:

Residential
   209    —      —      209    90,494    90,703    —
Commercial
   —      —      —      —      56,208    56,208    —














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














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


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

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

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

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

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

Table of Contents

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

   Analysis of PNCI Past Due Loans - As of December 31, 2018
(in thousands)    30-59 days    60-89 days    > 90 days    Total Past
Due Loans    Current    Total    > 90 Days and
Still Accruing
Mortgage loans on real estate:

Residential1-4 family
   $ 1,009    $ 133    $ 156    $ 1,298    $ 168,494    $ 169,792    $ —
Commercial
   1,646    1,136    1,082    3,864    704,537    708,401    —














Total mortgage loans on real estate
   2,655    1,269    1,238    5,162    873,031    878,193    —
Consumer:

Home equity lines of credit
   304    35    237    576    40,381    40,957    —
Home equity loans
   74    —      —      74    3,511    3,585    —
Other
   160    —      —      160    21,499    21,659    —














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

Residential
   —      —      —      —      30,593    30,593    —
Commercial
   —      —      —      —      5,880    5,880    —














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














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


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

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

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

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

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

Interest income on originated nonaccrual loans that would have been recognized during the three months ended ~~March 31,~~June 30, 2019 and 2018, if all such loans had been current in accordance with their original terms, totaled ~~$279,000~~$289,000 and ~~$285,000,~~$341,000, respectively. Interest income actually recognized on these originated loans during the three months ended ~~March 31,~~June 30, 2019 and 2018 was ~~$33,000~~$53,000 and ~~$22,000,~~$53,000, respectively. Interest income on PNCI nonaccrual loans that would have been recognized during the three months ended ~~March 31,~~June 30, 2019 and 2018, if all such loans had been current in accordance with their original terms, totaled ~~$121,000~~$160,000 and ~~$27,000,~~$26,000, respectively. Interest income actually recognized on these PNCI loans during the three months ended ~~March 31,~~June 30, 2019 and 2018 was ~~$60,000~~$111,000 and ~~$0.~~

$12,000.

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

The following table shows the ending balance of nonaccrual originated

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

   Non Accrual Loans
   As of March 31, 2019    As of December 31, 2018
(in thousands)    Originated    PNCI    Total    Originated    PNCI    Total
Mortgage loans on real estate:

Residential1-4 family
   $ 3,066    $ 308    $ 3,374    $ 3,244    $ 334    $ 3,578
Commercial
   4,493    1,445    5,938    9,263    1,468    10,731












Total mortgage loans on real estate
   7,559    1,753    9,312    12,507    1,802    14,309
Consumer:

Home equity lines of credit
   1,366    501    1,867    1,429    885    2,314
Home equity loans
   1,599    36    1,635    1,722    47    1,769
Other
   28    4    32    3    4    7












Total consumer loans
   2,993    541    3,534    3,154    936    4,090
Commercial
   3,144    332    3,476    3,755    120    3,875
Construction:

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












Total construction
   —      —      —      —      —      —












Total non accrual loans
   $ 13,696    $ 2,626    $ 16,322    $ 19,416    $ 2,858    $ 22,274


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

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

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

Total construction		—		—		—		—		—		—

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

Impaired originated loans are those where management has concluded that it is probable that the borrower will be unable to pay all amounts due in accordance with the original contractual terms of the loan agreement. The following tables show the recorded investment (financial statement balance), unpaid principal balance, average recorded investment, and interest income recognized for impaired Originated and PNCI loans, segregated by those with no related allowance recorded and those with an allowance recorded for the periods indicated.

The average recorded investment in impaired loans and interest income recognized on impaired loans during the three months ended June 30, 2019 and 2018 was not considered significant for financial reporting purposes.

   Impaired Originated Loans – As of, or for the Three Months Ended, March 31, 2019
(in thousands)    Unpaid
principal
balance    Recorded
investment with
no related
allowance    Recorded
investment with
related
allowance    Total recorded
investment    Related
Allowance    Average
recorded
investment    Interest income
recognized
Mortgage loans on real estate:

Residential1-4 family
   $ 4,148    $ 3,481    $ —      $ 3,481    $ 55    $ 4,029    $ 6
Commercial
   6,771    5,874    592    6,466    37    9,453    22














Total mortgage loans on real estate
   10,919    9,355    592    9,947    92    13,482    28
Consumer:

Home equity lines of credit
   1,857    1,737    58    1,795    18    1,943    4
Home equity loans
   2,333    1,639    120    1,759    20    1,963    —
Other
   46    —      28    28    9    33    —














Total consumer loans
   4,236    3,376    206    3,582    47    3,939    4
Commercial
   4,538    2,301    2,043    4,344    1,223    4,778    —
Construction:

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














Total construction
   —      —      —      —      —      —      —














Total
   $ 19,693    $ 15,032    $ 2,841    $ 17,873    $ 1,362    $ 22,199    $ 32














   Impaired PNCI Loans – As of, or for the Three Months Ended, March 31, 2019
(in thousands)    Unpaid
principal
balance    Recorded
investment with
no related
allowance    Recorded
investment with
related
allowance    Total recorded
investment    Related
Allowance    Average
recorded
investment    Interest income
recognized
Mortgage loans on real estate:

Residential1-4 family
   $ 344    $ 308    $ —      $ 308    $ —      $ 321    $ —
Commercial
   3,089    1,445    —      1,445    —      1,456    58














Total mortgage loans on real estate
   3,433    1,753    —      1,753    —      1,777    58
Consumer:

Home equity lines of credit
   831    401    360    761    112    883    —
Home equity loans
   242    102    122    224    50    232    —
Other
   102    64    38    102    7    106    —














Total consumer loans
   1,175    567    520    1,087    169    1,221    —
Commercial
   335    113    219    332    219    226    2
Construction:

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














Total construction
   —      —      —      —      —      —      —














Total
   $ 4,943    $ 2,433    $ 739    $ 3,172    $ 388    $ 3,224    $ 60














   Impaired Originated Loans – As of, or for the Twelve Months Ended, December 31, 2018
(in thousands)    Unpaid
principal
balance    Recorded
investment with
no related
allowance    Recorded
investment with
related
allowance    Total recorded
investment    Related
Allowance    Average
recorded
investment    Interest income
recognized
Mortgage loans on real estate:

Residential1-4 family
   $ 4,594    $ 3,663    $ 308    $ 3,971    $ 56    $ 3,517    $ 90
Commercial
   13,081    10,676    1,765    12,441    42    13,115    137














Total mortgage loans on real estate
   17,675    14,339    2,073    16,412    98    16,632    227
Consumer:

Home equity lines of credit
   1,900    1,749    111    1,860    71    1,885    43
Home equity loans
   2,374    1,892    65    1,957    2    1,520    23
Other
   3    —      3    3    3    17    2














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

Residential
   —      —      —      —      —      5    —
Commercial
   —      —      —      —      —      —      —














Total construction
   —      —      —      —      —      5    —














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

   Impaired PNCI Loans – As of, or for the Twelve Months Ended, December 31, 2018
(in thousands)    Unpaid
principal
balance    Recorded
investment with
no related
allowance    Recorded
investment with
related
allowance    Total recorded
investment    Related
Allowance    Average
recorded
investment    Interest income
recognized
Mortgage loans on real estate:

Residential1-4 family
   $ 375    $ 334    $ —      $ 334    $ —      $ 529    $ 5
Commercial
   3,110    1,468    —      1,468    —      1,713    183














Total mortgage loans on real estate
   3,485    1,802    —      1,802    —      2,242    188
Consumer:

Home equity lines of credit
   1,027    587    367    954    127    1,120    18
Home equity loans
   252    47    197    244    101    155    —
Other
   106    21    85    106    11    114    —














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

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














Total construction
   —      —      —      —      —      —      —














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














   Impaired Originated Loans – As of, or for the Three Months Ended, March 31, 2018
(in thousands)    Unpaid
principal
balance    Recorded
investment with
no related
allowance    Recorded
investment with
related
allowance    Total recorded
investment    Related
Allowance    Average
recorded
investment    Interest income
recognized
Mortgage loans on real estate:

Residential1-4 family
   $ 4,378    $ 2,678    $ 1,525    $ 4,203    $ 190    $ 4,071    $ 28
Commercial
   11,407    9,848    1,262    11,110    154    12,510    44














Total mortgage loans on real estate
   15,785    12,526    2,787    15,313    344    16,581    72
Consumer:

Home equity lines of credit
   1,478    888    527    1,415    146    1,455    10
Home equity loans
   1,744    1,193    196    1,389    10    1,347    2
Other
   4    —      4    4    4    6    —














Total consumer loans
   3,226    2,081    727    2,808    160    2,808    12
Commercial
   4,756    881    3,740    4,621    2,113    4,545    26
Construction:

Residential
   136    136    —      136    —      138    2
Commercial
   —      —      —      —      —      —      —














Total construction
   136    136    —      136    —      138    2














Total
   $ 23,903    $ 15,624    $ 7,254    $ 22,878    $ 2,617    $ 24,072    $ 112














   Impaired PNCI Loans – As of, or for the Three Months Ended, March 31, 2018
(in thousands)    Unpaid
principal
balance    Recorded
investment with
no related
allowance    Recorded
investment with
related
allowance    Total recorded
investment    Related
Allowance    Average
recorded
investment    Interest income
recognized
Mortgage loans on real estate:

Residential1-4 family
   $ 1,390    $ 1,332    $ —      $ 1,332    $ —      $ 1,345    $ 2
Commercial
   —      —      —      —      —      —      —














Total mortgage loans on real estate
   1,390    1,332    —      1,332    —      1,345    2
Consumer:

Home equity lines of credit
   1,065    501    534    1,035    302    1,114    5
Home equity loans
   298    40    244    284    120    225    3
Other
   274    28    246    274    52    262    2














Total consumer loans
   1,637    569    1,024    1,593    474    1,601    10
Commercial
   —      —      —      —      —         —
Construction:

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














Total construction
   —      —      —      —      —      —      —














Total
   $ 3,027    $ 1,901    $ 1,024    $ 2,925    $ 474    $ 2,946    $ 12

Table of Contents


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

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

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

Total construction		—		—		—		—		—		—		—

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


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

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

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

Total construction		—		—		—		—		—		—		—

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


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

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

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

Total construction		—		—		—		—		—		5		—

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

Table of Contents


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

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

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

Total construction		—		—		—		—		—		—		—

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


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

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

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

Total construction		—		—		—		—		—		68		—

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


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

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

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

Total construction		—		—		—		—		—		—		—

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

Originated loans classified as TDRs and impaired were ~~$9,547,000,~~$10,998,000, $10,253,000, and ~~$9,871,000~~$9,450,000 at ~~March 31,~~June 30, 2019, December 31, 2018, and ~~March 31,~~June 30, 2018, respectively. PNCI loans classified as TDRs and impaired were ~~$823,000,~~$811,000, $615,000, and ~~$1,471,000~~$1,459,000 at ~~March 31,~~June 30, 2019, December 31, 2018 and ~~March 31,~~June 30, 2018, respectively. The Company had no significant obligations to lend additional funds on Originated or PNCI TDRs as of ~~March 31,~~June 30, 2019, December 31, 2018, or ~~March 31,~~June 30, 2018.

Table of Contents

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

   TDR Information for the Three Months Ended March 31, 2019
(dollars in thousands)    Number    Pre-mod
outstanding
principal
balance    Post-mod
outstanding
principal
balance    Financial
impact due to
TDR taken as
additional
provision    Number that
defaulted during
the period    Recorded
investment of
TDRs that
defaulted during
the period    Financial impact
due to the
default of
previous TDR
taken as charge-
offs or additional
provisions
Mortgage loans on real estate:

Residential1-4 family
   1    $ 163    $ 162    $ —      —      $ —      $ —
Commercial
   —      —      —      —      —      —      —














Total mortgage loans on real estate
   1    163    162    —      —      —      —
Consumer:

Home equity lines of credit
   —      —      —      —      —      —      —
Home equity loans
   1    121    120    1    —      —      —
Other
   —      —      —      —      —      —      —














Total consumer loans
   1    121    120    1    —      —      —
Commercial
   2    15    15    —      1    7    —
Construction:
         ��
Residential
   —      —      —      —      —      —      —
Commercial
   —      —      —      —      —      —      —














Total construction
   —      —      —      —      —      —      —














Total
   4    $ 299    $ 297    $ 1    1    $ 7    $ —














   TDR Information for the Three Months Ended March 31, 2018
(dollars in thousands)    Number    Pre-mod
outstanding
principal
balance    Post-mod
outstanding
principal
balance    Financial
impact due to
TDR taken as
additional
provision    Number that
defaulted during
the period    Recorded
investment of
TDRs that
defaulted during
the period    Financial impact
due to the
default of
previous TDR
taken as charge-
offs or additional
provisions
Mortgage loans on real estate:

Residential1-4 family
   —      $ —      $ —      $ —      —      $ —      $ —
Commercial
   1    384    384    11    1    169    —














Total mortgage loans on real estate
   1    384    384    11    1    169    —
Consumer:

Home equity lines of credit
   1    133    138    —      —      —      —
Home equity loans
   1    121    121    —      —      —      —
Other
   —      —      —      —      —      —      —














Total consumer loans
   2    254    259    —      —      —      —
Commercial
   —      —      —      —      —      —      —
Construction:

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














Total construction
   —      —      —      —      —      —      —














Total
   3    $ 638    $ 643    $ 11    1    $ 169    $ —


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

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

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

Total construction		—		—		—		—			—		—		—

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


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

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

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

Total construction		—		—		—		—			—		—		—

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


	TDR Information for the Three Months Ended June 30, 2018
(dollars in thousands)	Number		Pre-mod outstanding principal balance		Post-mod outstanding principal balance		Financial impact due to TDR taken as additional provision			Number that defaulted during the period		Recorded investment of TDRs that defaulted during the period		Financial impact due to the default of previous TDR taken as charge- offs or additional provisions
Mortgage loans on real estate:
Residential 1-4 family		—	$	—	$	—	$	—			—	$	—	$	—
Commercial		1		34		34		34			—		—		—

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

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

Total construction		—		—		—		—			—		—		—

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

Table of Contents


	TDR Information for the Six Months Ended June 30, 2018
(dollars in thousands)	Number		Pre-mod outstanding principal balance		Post-mod outstanding principal balance		Financial impact due to TDR taken as additional provision			Number that defaulted during the period		Recorded investment of TDRs that defaulted during the period		Financial impact due to the default of previous TDR taken as charge- offs or additional provisions
Mortgage loans on real estate:
Residential 1-4 family		—	$	—	$	—	$	—			—	$	—	$	—
Commercial		2		417		417		46			1		169		—

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

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

Total construction		—		—		—		—			—		—		—

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

Modifications classified as TDRs can include one or a combination of the following: rate modifications, term extensions, interest only modifications, either temporary or long-term, payment modifications, and collateral substitutions/additions.

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

Typically if a

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

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

Table of Contents

Note 6 – Leases

The Company adopted ASU

2016-02 ~~“Leases”~~

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

right-of-use

asset (“ROUA”) on the consolidated balance sheets for those leases that convey rights to control use of identified assets for a period of time in exchange for consideration. The Company is also required to record a lease liability on the consolidated balance sheets for the present value of future payment commitments. All of the Company’s leases are comprised of operating leases in which the Company is lessee of real estate property for branches, ATM locations, and general administration and operations. The Company elected not to include short-term leases (i.e. leases with initial terms of twelve months or less) within the ROUA and lease liability. Known or determinable adjustments to the required minimum future lease payments were included in the calculation of the Company’s ROUA and lease liability. Adjustments to the required minimum future lease payments that are variable and will not be determinable until a future period, such as changes in the consumer price index, are included as variable lease costs. Additionally, expected variable payments for common area maintenance, taxes and insurance were unknown and not determinable at lease commencement and therefore, were not included in the determination of the Company’s ROUA or lease liability.

The value of the ROUA and lease liability is impacted by the amount of the periodic payment required, length of the lease term, and the discount rate used to calculate the present value of the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. The lease liability is reduced based on the discounted present value of remaining payments as of each reporting period. The ROUA value is measured using the amount of lease liability and adjusted for prepaid or accrued lease payments, remaining lease incentives, unamortized direct costs (if any), and impairment (if any).

The following table presents the components of lease expense for the three and six months ended ~~March 31~~June 30, 2019:

   Three months ended
(in thousands)    March 31, 2019
Operating lease cost
   $ 1,311
Short-term lease cost
   71
Variable lease cost
   (5 )
Sublease income
   (34 )


Total lease cost
   $ 1,343


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

Total lease cost	$	1,319		$	2,662

Prior to the adoption of ASU

2016-02,

rent expense under operating leases was ~~$921,000~~$892,000 and $1,776,000 during the three and six months ended ~~March 31,~~June 30, 2018. Rent expense was offset by rent income of $10,000 and $21,000 during the three and six months ended ~~March 31,~~June 30, 2018.

The following table presents supplemental cash flow information related to leases for the ~~three~~six months ended ~~March 31,~~June 30, 2019:

   Three months ended
(in thousands)    March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases
   $ 1,218
ROUA obtained in exchange for operating lease liabilities
   $ 32,006


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

The following table presents the weighted average operating lease term and discount rate at ~~March 31,~~June 30, 2019:


~~As of March 31, 2019:~~
Weighted-average remaining lease term	9.5 years
Weighted-average discount rate	~~3.17~~ 3.18	%

Table of Contents

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

(in thousands)
Periods ending December 31,

2019
   $ 3,519
2020
   4,380
2021
   4,226
2022
   3,887
2023
   3,208
Thereafter
   16,455


   35,675
Discount for present value of expected cash flows
   (5,471 )


Lease liability at March 31, 2019
   $ 30,204


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

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

Lease liability at June 30, 2019	$	29,434

Note 7 - Deposits

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

   March 31,    December 31,
   2019    2018
Noninterest-bearing demand
   $ 1,761,559    $ 1,760,580
Interest-bearing demand
   1,297,672    1,252,366
Savings
   1,925,168    1,921,324
Time certificates, $250,000 and above
   135,716    132,429
Other time certificates
   310,147    299,767




Total deposits
   $ 5,430,262    $ 5,366,466


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

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

Certificate of deposit balances of $50,000,000 and $60,000,000 from the State of California were included in time certificates, over $250,000, at ~~March 31,~~June 30, 2019 and December 31, 2018, 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 ~~$1,207,000~~$1,242,000 and $1,469,000 were classified as consumer loans at ~~March 31,~~June 30, 2019 and December 31, 2018, respectively.

Note 8 - Commitments and Contingencies

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

(in thousands)    March 31,    December 31,
   2019    2018
Financial instruments whose amounts represent risk:

Commitments to extend credit:

Commercial loans
   $ 316,382    $ 306,191
Consumer loans
   514,413    496,575
Real estate mortgage loans
   163,733    140,292
Real estate construction loans
   232,385    248,996
Standby letters of credit
   11,743    11,346
Deposit account overdraft privilege
   115,552    111,956


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

Table of Contents

Note 9 – Shareholders’ Equity

Dividends Paid

The Bank paid to the Company cash dividends in the aggregate amounts of ~~$8,114,000~~$10,236,000 and ~~$4,372,000~~$4,770,000 during the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively and $18,350,000 and $9,142,000 during the six months ended June 30, 2019 and 2018, respectively. The Bank is regulated by the Federal Deposit Insurance Corporation (FDIC) and the State of California Department of Business Oversight (DBO). Absent approval from the Commissioner of the DBO, California banking laws generally limit the Bank’s ability to pay dividends to the lesser of (1) retained earnings or (2) net income for the last three fiscal years, less cash distributions paid during such period.

Stock Repurchase Plan

On August 21, 2007, the Board of Directors adopted a plan to repurchase, as conditions warrant, up to 500,000 shares of the Company’s common stock on the open market. The timing of purchases and the exact number of shares to be purchased will depend on market conditions. This stock repurchase plan has no expiration date. As of ~~March 31,~~June 30, 2019, the Company had repurchased 196,566 shares under this plan. During the ~~three~~six month periods ended ~~March 31,~~June 30, 2019 and 2018, there were no shares of common stock repurchased under this plan.

Stock Repurchased Under Equity Compensation Plans

During the three months ended ~~March 31,~~June 30, 2019 and 2018, employees tendered ~~16,418~~93,755 and ~~134~~17,086 shares, respectively, of the Company’s common stock with market value of ~~$647,000,~~$3,659,000, and ~~$4,000,~~$667,000, respectively, in lieu of cash to exercise options to purchase shares of the Company’s stock and to pay income taxes related to equity compensation plan instruments as permitted by the Company’s shareholder-approved equity compensation plans. During the six months ended June 30, 2019 and 2018, employees tendered 119,914 and 17,220 shares, respectively, of the Company’s common stock with market value of $4,695,000, and $671,000, respectively, in lieu of cash to exercise options to purchase shares of the Company’s stock and to pay income taxes related to equity compensation plan instruments as permitted by the Company’s shareholder-approved equity compensation plans. The tendered shares were retired. The market value of tendered shares is the last market trade price at closing on the day an option is exercised. Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the stock repurchase plan announced on August 21, 2007.

Note 10 - Stock Options and Other Equity-Based Incentive Instruments

The Company’s 2009 Equity Incentive Plan (2009 Plan) expired on March 26, 2019. While no new awards can be granted under the 2009 Plan, existing grants continue to be governed by the terms, conditions and procedures set forth in any applicable award agreement. On April 16, 2019, the Board of Directors adopted the 2019 Equity Incentive Plan (2019 Plan) which was ratified by shareholders on May 21, 2019. The 2019 Plan allows for up to 1,500,000 shares to be issued in connection with equity-based incentives. All grants of equity awards made during the six months ended June 30, 2019 were made from the 2019 Plan.

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

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

         Weighted
   Number    Option Price    Average
   of Shares    per Share    Exercise Price
Outstanding at December 31, 2018
   343,000    $12.63 to $23.21    $    16.67
Options granted
   —    — to —       —
Options exercised
   (41,000 )    $12.63 to $19.46       15.78
Options forfeited
   —    — to —       —



Outstanding at March 31, 2019
   302,000    $14.54 to $23.21       $ 16.88


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

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

The following table shows the number, weighted-average exercise price, intrinsic value, and weighted average remaining contractual life of options exercisable, options not yet exercisable and total options outstanding as of ~~March 31,~~June 30, 2019:

   Currently    Currently Not    Total
   Exercisable    Exercisable    Outstanding
Number of options
   300,875    1,125    302,000
Weighted average exercise price
   $ 16.86    $ 23.21    $ 16.88
Intrinsic value (in thousands)
   $ 5,095    $ 12    $ 5,107
Weighted average remaining contractual term (yrs.)
   3.4    5.8    3.4


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

The ~~1,125~~750 options that are currently not exercisable as of ~~March 31,~~June 30, 2019 are expected to vest, on a weighted-average basis, over the next ~~six~~three months. The Company did not modify any option grants during 2018 or the ~~three~~six months ended ~~March 31,~~June 30, 2019.

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

   Service
Condition
Vesting RSUs    Market Plus
Service
Condition
Vesting RSUs
Outstanding at December 31, 2018
   66,947    45,536
RSUs granted
   —      —
RSUs added through dividend credits
   322    —
RSUs released
   (355 )    —
RSUs forfeited/expired
   —      —




Outstanding at March 31, 2019
   66,914    45,536


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

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

The ~~66,914~~76,527 of service condition vesting RSUs outstanding as of ~~March 31,~~June 30, 2019 include a feature whereby each RSU outstanding is credited with a dividend amount equal to any common stock cash dividend declared and paid, and the credited amount is divided by the closing price of the Company’s stock on the dividend payable date to arrive at an additional amount of RSUs outstanding under the original grant. The dividend credits follow the same vesting requirements as the RSU awards and are not considered participating securities. The ~~66,914~~76,527 of service condition vesting RSUs outstanding as of ~~March 31,~~June 30, 2019 are expected to vest, and be released, on a weighted-average basis, over the next ~~1.2~~1.4 years. The Company expects to recognize ~~$1,465,000~~$2,495,000 of

pre-tax

compensation costs related to these service condition vesting RSUs between ~~March 31,~~June 30, 2019 and their vesting dates. The Company did not modify any service condition vesting RSUs during 2018 or during the ~~three~~six months ended ~~March 31,~~June 30, 2019.

The ~~45,536~~53,611 of market plus service condition vesting RSUs outstanding as of ~~March 31,~~June 30, 2019 are expected to vest, and be released, on a weighted-average basis, over the next ~~1.2~~2.1 years. The Company expects to recognize ~~$633,000~~$1,227,000 of

pre-tax

compensation costs related to these RSUs between ~~March 31,~~June 30, 2019 and their vesting dates. As of ~~March 31,~~June 30, 2019, the number of market plus service condition vesting RSUs outstanding that will actually vest, and be released, may be reduced to zero or increased to ~~68,304~~80,417 depending on the total return of the Company’s common stock versus the total return of an index of bank stocks from the grant date to the vesting date. The Company did not modify any market plus service condition vesting RSUs during 2018 or during the ~~three~~six months ended ~~March 31,~~June 30, 2019.

Note 11 - Noninterest Income and Expense

The following table summarizes the Company’s noninterest income for the periods indicated:

   Three months ended March 31,
(dollars in thousands)    2019    2018
ATM and interchange fees
   $ 4,581    $ 4,235
Service charges on deposit accounts
   3,880    3,779
Other service fees
   771    714
Mortgage banking service fees
   483    517
Change in value of mortgage servicing rights
   (645 )    111




Total service charges and fees
   9,070    9,356




Increase in cash value of life insurance
   775    608
Asset management and commission income
   642    876
Gain on sale of loans
   412    626
Lease brokerage income
   220    128
Sale of customer checks
   140    101
Gain on sale of foreclosed assets
   99    371
Gain (loss) on marketable equity securities
   36    (48 )
Loss on disposal of fixed assets
   (38 )    (13 )
Other
   508    285




Total other noninterest income
   2,794    2,934




Total noninterest income
   $ 11,864    $ 12,290


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

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

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

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

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

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

   Three months ended March 31,
   2019    2018
Base salaries, net of deferred loan origination costs
   $ 16,757    $ 13,962
Incentive compensation
   2,567    2,452
Benefits and other compensation costs
   5,804    5,238




Total salaries and benefits expense
   25,128    21,652




Occupancy
   3,774    2,681
Data processing and software
   3,349    2,514
Equipment
   1,867    1,551
Intangible amortization
   1,431    339
Advertising
   1,331    838
ATM and POS network charges
   1,323    1,226
Professional fees
   839    773
Telecommunications
   797    701
Regulatory assessments and insurance
   511    430
Merger and acquisition expense
   —    476
Postage
   310    358
Operational losses
   225    294
Courier service
   270    267
Other miscellaneous expense
   4,358    4,062




Total other noninterest expense
   20,385    16,510




Total noninterest expense
   $ 45,513    $ 38,162


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

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

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

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

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

Note 12 – Earnings Per Share

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

   Three months ended March 31,
(in thousands)    2019    2018
Net income
   $ 22,726    $ 13,910
Average number of common shares outstanding
   30,424    22,956
Effect of dilutive stock options and restricted stock
   234    327




Average number of common shares outstanding used to calculate diluted earnings per share
   30,658    23,283




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


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

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

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


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

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

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

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Note 13 – Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on

available-for-sale

securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of other comprehensive income.

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

   Three months ended March 31,
(in thousands)    2019    2018
Unrealized holding gains (losses) on available for sale securities before reclassifications
   12,710    $ (15,265 )
Amounts reclassified out of accumulated other comprehensive income:

Adoption ASU2016-01
   —      62
Adoption ASU2018-02
   —      (425 )




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




Unrealized holding gains (losses) on available for sale securities after reclassifications
   12,710    (15,628 )
Tax effect
   (3,758 )    4,602




Unrealized holding gains (losses) on available for sale securities, net of tax
   8,952    (11,026 )




Change in unfunded status of the supplemental retirement plans before reclassifications
   (89 )    667
Amounts reclassified out of accumulated other comprehensive income:

Amortization of prior service cost
   (13 )    (13 )
Amortization of actuarial losses
   102    127
Adoption ASU2018-02
   —      (668 )




Total amounts reclassified out of accumulated other comprehensive income
   89 �� (554 )




Change in unfunded status of the supplemental retirement plans after reclassifications
   —      113
Tax effect
   —      (33 )




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




Total other comprehensive income (loss)
   $ 8,952    $ (10,946 )


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

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

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

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

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

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

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

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

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

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

   March 31,    December 31,
(in thousands)    2019    2018
Net unrealized loss on available for sale securities
   $ (8,264 )    $ (20,974 )
Tax effect
   2,443    6,201




Unrealized holding loss on available for sale securities, net of tax
   (5,821 )    (14,773 )




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




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




Joint beneficiary agreement liability
   276    276
Tax effect
   —      —




Joint beneficiary agreement liability, net of tax
   276    276




Accumulated other comprehensive loss
   $ (8,927 )    $ (17,879 )


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

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

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

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

Joint beneficiary agreement liability		276			276
Tax effect		—			—

Joint beneficiary agreement liability, net of tax		276			276

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

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Note 14 - Fair Value Measurement

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

available-for-sale,

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

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

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

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

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

Marketable equity securities and debt securities available for sale

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

not

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

over-the-counter

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

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

Loans held for sale

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

Impaired originated and PNCI loans

– Originated and PNCI loans are not recorded at fair value on a recurring basis. However, from time to time, an originated or PNCI loan is considered impaired and an allowance for loan losses is established. Originated and PNCI loans for which it is probable that payment of interest and principal will not be made in accordance with the original contractual terms of the loan agreement are considered impaired. The fair value of an impaired originated or PNCI loan is estimated using one of several methods, including collateral value, fair value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired originated and PNCI loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Impaired originated and PNCI loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the impaired originated or PNCI loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the impaired originated or PNCI loan as nonrecurring Level 3.

Foreclosed assets

- Foreclosed assets include assets acquired through, or in lieu of, loan foreclosure. Foreclosed assets are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, management periodically performs valuations and the assets are carried at the lower of carrying amount or fair value less cost to sell. When the fair value of foreclosed assets is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the impaired originated loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3. Revenue and expenses from operations and changes in the valuation allowance are included in other noninterest expense.

Mortgage servicing rights

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

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

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

   Total    Level 1    Level 2    Level 3
Fair value at March 31, 2019

Marketable equity securities
   $ 2,910    $ 2,910    $ —      $ —
Debt securities available for sale:

Obligations of U.S. government corporations and agencies
   627,100    —      627,100    —
Obligations of states and political subdivisions
   129,349    —      129,349    —
Corporate bonds
   4,478    —      4,478    —
Asset backed securities
   352,589    —      352,589    —
Loans held for sale
   5,410    —      5,410    —
Mortgage servicing rights
   6,572    —      —      6,572








Total assets measured at fair value
   $ 1,128,408    $ 2,910    $ 1,118,926    $ 6,572








   Total    Level 1    Level 2    Level 3
Fair value at December 31, 2018

Marketable equity securities
   $ 2,874    $ 2,874    $ —      $ —
Debt securities available for sale:

Obligations of U.S. government corporations and agencies
   629,981    —      629,981    —
Obligations of states and political subdivisions
   126,072    —      126,072    —
Corporate bonds
   4,478    —      4,478    —
Asset backed securities
   354,505    —      354,505    —
Loans held for sale
   3,687    —      3,687    —
Mortgage servicing rights
   7,098    —      —      7,098








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


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

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


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

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

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

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

The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the time periods indicated. Had there been any transfer into or out of Level 3 during the time periods indicated, the amount included in the “Transfers into (out of) Level 3” column would represent the beginning balance of an item in the period (interim quarter) during which it was transferred (in thousands):

   Beginning
Balance    Transfers
into (out of)
Level 3    Change
Included
in Earnings Issuances    Ending
Balance
Three months ended March 31,

2019: Mortgage servicing rights
   $ 7,098    —      $ (645 ) $ 119    $ 6,572
2018: Mortgage servicing rights
   $ 6,687    —      $ 111 $ 155    $ 6,953


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


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

The key unobservable inputs used in determining the fair value of mortgage servicing rights are mortgage prepayment speeds and the discount rate used to discount cash projected cash flows. Generally, any significant increases in the mortgage prepayment speed and discount rate utilized in the fair value measurement of the mortgage servicing rights will result in a negative fair value adjustments (and decrease in the fair value measurement). Conversely, a decrease in the mortgage prepayment speed and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement).

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The following table presents quantitative information about recurring Level 3 fair value measurements at ~~March 31,~~June 30, 2019 and December 31, 2018:

   Fair Value
(in thousands)    Valuation
Technique    Unobservable Inputs    Range,
Weighted
Average
As of March 31, 2019:

Mortgage Servicing Rights
   $ 6,572
Discounted
cash flow

Constant
prepayment rate

5.4% - 27.1%;
8.9%

         Discount rate
12% - 13%;
12%

As of December 31, 2018:

Mortgage Servicing Rights
   $ 7,098
Discounted
cash flow

Constant
prepayment rate

5.0% - 27.3%;
7.6%

         Discount rate
12% - 13%;
12%

Fair Value

Valuation

Unobservable

Range,

Weighted

As of June 30, 2019:

(in thousands)

Technique

Inputs

Average

Mortgage Servicing Rights

6,229

Discounted cash flow

Constant prepayment rate

6.9%

39.0%; 10.5

Discount rate

10% - 14%;12

As of December 31, 2018:

Mortgage Servicing Rights

7,098

Discounted cash flow

Constant prepayment rate

5.0% - 27.3%; 7.6

Discount rate

12% - 13%;12

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

   Total    Level 1    Level 2    Level 3    Total Gains
(Losses)
Three months ended March 31, 2019

Fair value:

Impaired Originated & PNCI loans
   $ 212    —      —      $ 212    $ (197 )
Foreclosed assets
   214    —      —      214    98










Total assets measured at fair value
   $ 426    —      —      $ 426    $ (99 )










   Total    Level 1    Level 2    Level 3    Total Gains
(Losses)
Year ended December 31, 2018

Fair value:

Impaired Originated & PNCI loans
   $ 281    —      —      $ 281    $ (294 )
Foreclosed assets
   1,311    —      —      1,311    (8 )










Total assets measured at fair value
   $ 1,592    —      —      $ 1,592    $ (302 )










   Total    Level 1    Level 2    Level 3    Total Gains
(Losses)
Three months ended March 31, 2018

Fair value:

Impaired Originated & PNCI loans
   $ 2,103    —      —      $ 2,103    $ (795 )
Foreclosed assets
   774    —      —      774    (87 )










Total assets measured at fair value
   $ 2,877    —      —      $ 2,877    $ (882 )


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

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


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

Total assets measured at fair value	$	1,592		—		—	$	1,592	$	(302	)


									Total Gains
June 30, 2018	Total		Level 1		Level 2		Level 3		(Losses)
Fair value:
Impaired Originated & PNCI loans	$	1,647		—		—	$	1,647	$	(505	)
Foreclosed assets		584		—		—		584		(90	)

Total assets measured at fair value	$	2,231		—		—	$	2,231	$	(595	)

The impaired originated and PNCI loan amount above represents impaired, collateral dependent loans that have been adjusted to fair value. When the Company identifies a collateral dependent loan as impaired, the Company measures the impairment using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals. If the Company determines that the value of the impaired loan is less than the recorded investment in the loan, the Company recognizes this impairment and adjust the carrying value of the loan to fair value through the allowance for loan and lease losses. The loss represents charge-offs or impairments on collateral dependent loans for fair value adjustments based on the fair value of collateral. The carrying value of loans fully

charged-off

is ~~zero.~~

zero

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

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

Table of Contents

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at ~~March 31,~~June 30, 2019:

   Fair Value
(in thousands)
Valuation
Technique

Unobservable Inputs
   Range,
Weighted Average
March 31, 2019

Impaired Originated & PNCI loans
   $ 212    Sales comparison approach    Adjustment for differences between comparable sales    Not meaningful
      Income approach    Capitalization rate    N/A
Foreclosed assets (Residential real estate)
   $ 214    Sales comparison approach    Adjustment for differences between comparable sales    Not meaningful

June 30, 2019

Fair Value
(in thousands)

Valuation

Technique

Unobservable Inputs

Range,
Weighted Average

Impaired Originated & PNCI loans

—

Sales comparison approach

Income approach

Adjustment for differences between comparable sales

Capitalization rate

Not meaningful
N/A

Foreclosed assets (Residential real estate)

—

Sales comparison approach

Adjustment for differences between comparable sales

Not meaningful

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at December 31, 2018:

   Fair Value
(in thousands)
Valuation
Technique

Unobservable Inputs

Range,
Weighted Average
December 31, 2018

Impaired Originated & PNCI loans
   $ 281    Sales comparison approach    Adjustment for differences between comparable sales    (16.3%) - 35.14%; 10.45%
      Income approach    Capitalization rate    N/A
Foreclosed assets (Residential real estate)
   $ 693    Sales comparison approach    Adjustment for differences between comparable sales    (21.83%) - 7.25%; (3.75%)
Foreclosed assets (Commercial real estate)
   $ 618    Sales comparison approach    Adjustment for differences between comparable sales    (65%) - 20%; (45%)

December 31, 2018

Fair Value
(in thousands)

Valuation

Technique

Unobservable Inputs

Range,
Weighted Average

Impaired Originated & PNCI loans

281

Sales comparison approach

Income approach

Adjustment for differences between comparable sales

Capitalization rate

(16.3%)

35.14%; 10.45% N/A

Foreclosed assets (Residential real estate)

693

Sales comparison approach

Adjustment for differences between comparable sales

(21.83%) - 7.25%;
(3.75%)

Foreclosed assets (Commercial real estate)

618

Sales comparison approach

Adjustment for differences between comparable sales

(65%) - 20%; (45%)

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

   March 31, 2019    December 31, 2018
(in thousands)    Carrying
Amount    Fair
Value    Carrying
Amount    Fair
Value
Financial assets:

Level 1 inputs:

Cash and due from banks
   $ 105,103    $ 105,103    $ 119,781    $ 119,781
Cash at Federal Reserve and other banks
   213,605    213,605    107,752    107,752
Level 2 inputs:

Securities held to maturity
   431,016    430,773    444,936    437,370
Restricted equity securities
   17,250    N/A    17,250    N/A
Loans held for sale
   5,410    5,410    3,687    4,616
Level 3 inputs:

Loans, net
   4,002,267    4,053,496    3,989,432    4,006,986
Financial liabilities:

Level 2 inputs:

Deposits
   5,430,262    5,427,004    5,366,466    5,362,173
Other borrowings
   12,466    12,466    15,839    15,839
Level 3 inputs:

Junior subordinated debt
   57,085    56,180    57,042    62,610
(in thousands)    Contract
Amount    Fair
Value    Contract
Amount    Fair
Value
Off-balance sheet:

Level 3 inputs:

Commitments
   $ 1,226,913    $ 12,269    $ 1,192,054    $ 11,921
Standby letters of credit
   11,743    117    11,346    113
Overdraft privilege commitments
   115,552    1,156    111,956    1,120


	June 30, 2019				December 31, 2018
(in thouands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Level 1 inputs:
Cash and due from banks	$	106,939	$	106,939	$	119,781	$	119,781
Cash at Federal Reserve and other banks		68,643		68,643		107,752		107,752
Level 2 inputs:
Securities held to maturity		412,524		415,276		444,936		437,370
Restricted equity securities		17,250		N/A		17,250		N/A
Loans held for sale		5,875		5,875		3,687		4,616
Level 3 inputs:
Loans, net		4,070,819		4,057,792		3,989,432		4,006,986
Financial liabilities:
Level 2 inputs:
Deposits		5,342,173		5,341,105		5,366,466		5,362,173
Other borrowings		13,292		13,292		15,839		15,839
Level 3 inputs:
Junior subordinated debt		57,132		56,209		57,042		62,610

(in thouands)	Contract Amount		Fair Value		Contract Amount		Fair Value
Off-balance sheet:
Level 3 inputs:
Commitments	$	1,201,892	$	12,019	$	1,192,054	$	11,921
Standby letters of credit		11,338		113		11,346		113
Overdraft privilege commitments		108,941		1,089		111,956		1,120

Table of Contents

Note 15 - Regulatory Matters

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

off-balance-sheet

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

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

phased-in

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

phased-in.

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

      Minimum Capital Required to be
      Required – Basel III Considered Well
   Actual Fully Phased In Capitalized
   Amount    Ratio Amount    Ratio Amount    Ratio
   (dollars in thousands)
As of March 31, 2019:

Total Capital (to Risk Weighted Assets):


Consolidated
   $ 700,542    14.73 % $ 449,380    10.50 % N/A    N/A
Tri Counties Bank
   $ 697,549    14.67 % $ 499,195    10.50 % $ 475,424    10.00 %
Tier 1 Capital (to Risk Weighted Assets):


Consolidated
   $ 665,688    14.00 % $ 404,260    8.50 % N/A    N/A
Tri Counties Bank
   $ 662,695    13.94 % $ 404,111    8.50 % $ 380,339    8.00 %
Common equity Tier 1 Capital (to Risk Weighted Assets):


Consolidated
   $ 610,317    12.83 % $ 332,920    7.00 % N/A    N/A
Tri Counties Bank
   $ 662,695    13.94 % $ 332,797    7.00 % $ 309,026    6.50 %
Tier 1 Capital (to Average Assets):


Consolidated
   $ 665,688    10.84 % $ 245,649    4.00 % N/A    N/A
Tri Counties Bank
   $ 662,695    10.79 % $ 245,643    4.00 % $ 307,054    5.00 %

      Minimum Capital Minimum Capital Required to be
      Required – Basel III Required – Basel III Considered Well
   Actual Phase-in Schedule Fully Phased In Capitalized
   Amount    Ratio Amount    Ratio Amount    Ratio Amount    Ratio
   (dollars in thousands)
As of December 31, 2018:

Total Capital (to Risk Weighted Assets):


Consolidated
   $ 682,419    14.40 % $ 467,874    9.875 % $ 497,486    10.50 % N/A    N/A
Tri Counties Bank
   $ 680,624    14.37 % $ 467,704    9.875 % $ 497,305    10.50 % $ 473,624    10.00 %
Tier 1 Capital (to Risk Weighted Assets):


Consolidated
   $ 647,262    13.66 % $ 373,115    7.875 % $ 402,727    8.50 % N/A    N/A
Tri Counties Bank
   $ 645,467    13.63 % $ 372,979    7.875 % $ 402,581    8.50 % $ 378,899    8.00 %
Common equity Tier 1 Capital (to Risk Weighted Assets):


Consolidated
   $ 591,933    12.49 % $ 302,045    6.375 % $ 331,658    7.00 % N/A    N/A
Tri Counties Bank
   $ 645,467    13.63 % $ 301,935    6.375 % $ 331,537    7.00 % $ 307,856    6.50 %
Tier 1 Capital (to Average Assets):


Consolidated
   $ 647,262    10.68 % $ 242,452    4.000 % $ 242,452    4.00 % N/A    N/A
Tri Counties Bank
   $ 645,467    10.65 % $ 242,447    4.000 % $ 242,447    4.00 % $ 303,059    5.00 %


	Actual					Minimum Capital Required – Basel III Fully Phased In					Required to be Considered Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
As of June 30, 2019:
Total Capital (to Risk Weighted Assets):
Consolidated	$	718,901		14.93	%	$	505,569		10.50	%		N/A		N/A
Tri Counties Bank	$	714,018		14.83	%	$	505,385		10.50	%	$	481,320		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	683,043		14.19	%	$	409,270		8.50	%		N/A		N/A
Tri Counties Bank	$	678,160		14.09	%	$	409,122		8.50	%	$	385,056		8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	627,627		13.03	%	$	337,046		7.00	%		N/A		N/A
Tri Counties Bank	$	678,160		14.09	%	$	336,924		7.00	%	$	312,858		6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	683,043		11.08	%	$	246,599		4.00	%		N/A		N/A
Tri Counties Bank	$	678,160		11.00	%	$	246,594		4.00	%	$	308,242		5.00	%


	Actual					Minimum Capital Required – Basel III Phase-in Schedule					Minimum Capital Required – Basel III Fully Phased In					Required to be Considered Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
As of December 31, 2018:
Total Capital (to Risk Weighted Assets):
Consolidated	$	682,419		14.40	%	$	467,874		9.875	%	$	497,486		10.50	%		N/A		N/A
Tri Counties Bank	$	680,624		14.37	%	$	467,704		9.875	%	$	497,305		10.50	%	$	473,624		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	647,262		13.66	%	$	373,115		7.875	%	$	402,727		8.50	%		N/A		N/A
Tri Counties Bank	$	645,467		13.63	%	$	372,979		7.875	%	$	402,581		8.50	%	$	378,899		8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	591,933		12.49	%	$	302,045		6.375	%	$	331,658		7.00	%		N/A		N/A
Tri Counties Bank	$	645,467		13.63	%	$	301,935		6.375	%	$	331,537		7.00	%	$	307,856		6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	647,262		10.68	%	$	242,452		4.000	%	$	242,452		4.00	%		N/A		N/A
Tri Counties Bank	$	645,467		10.65	%	$	242,447		4.000	%	$	242,447		4.00	%	$	303,059		5.00	%

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

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,~~June 30, 2019, the Company and the Bank are in compliance with the capital conservation buffer requirement.

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

Contents

Item 2.

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

FORWARD-LOOKING STATEMENTS

Cautionary Statements Regarding Forward-Looking Information

Certain statements contained in this Form

10-Q

that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There can be no assurance that future developments affecting us will be the same as those anticipated by management. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the impact of changes in financial services policies, laws and regulations; technological changes; mergers and acquisitions (including costs or difficulties related to integration of acquired companies); changes in the level of our nonperforming assets and charge-offs; any deterioration in values of California real estate, both residential and commercial; the effect of changes in accounting standards and practices; possible other-than-temporary impairment of securities held by us; changes in consumer spending, borrowing and savings habits; our ability to attract deposits and other sources of liquidity; changes in the financial performance and/or condition of our borrowers; the impact of competition from other financial service providers; the possibility that any of the anticipated benefits of our recent merger with FNB Bancorp (“FNBB”) will not be realized or will not be realized within the expected time period, or that integration of FNBB’s operations will be more costly or difficult than expected; the challenges of integrating and retaining key employees; unanticipated regulatory or judicial proceedings; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and our ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in in Part II Item 1A of this report and our Annual Report on Form

10-K

for the year ended December 31, 2018, which is on file with the Securities and Exchange Commission (the “SEC”) and available in the “Investor Relations” section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC.

General

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

tax-equivalent

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

non-generally

accepted accounting principles

(non-GAAP)

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

non-FTE

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

10-Q,

and a reconciliation of the FTE and

non-FTE

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

Critical Accounting Policies and Estimates

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

on-going

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

10-K

for the year ended December 31, 2018.

Geographical Descriptions

Table of Contents

Financial Highlights

Performance highlights and other developments for the Company included the following:

~~Return~~

For the three and six months ended June 30, 2019, the Company’s return on average assets was ~~1.41%~~1.44% and 1.43%, respectively, and the return on average equity was ~~10.78% for the first quarter of 2019.~~

10.65% and 10.71%, respectively.

As of ~~March 31,~~June 30, 2019, the Company ~~reached record levels of~~reported total loans, total assets and total deposits ~~which were $4.03~~of $4.10 billion, ~~$6.47~~$6.40 billion and ~~$5.43~~$5.34 billion, respectively.

The loan to deposit ratio ~~remained stable at~~was 76.8% as of June 30, 2019 as compared to 74.3% at March 31, 2019 ~~as compared to 75.0%~~and 77.2% at ~~December 31, 2018 and 75.2% at March 31,~~June 30, 2018.

Net interest margin grew 3234 basis points to ~~4.46%~~4.48% on a tax equivalent basis as compared to 4.14% in the quarter ended ~~March 31,~~June 30, 2018 and ~~decreased by 7~~increased 2 basis points from the trailing quarter.

Non-interest

bearing deposits as a percentage of total deposits were 33.3% at June 30, 2019, as compared to 32.4% at March 31, 2019 ~~as compared to 32.8%~~and 33.6% at ~~December 31, 2018 and 33.3% at March 31,~~June 30, 2018.

The average rate of interest paid on deposits, including noninterest-bearing deposits, remained low atbut increased slightly to 0.22% for the second quarter of 2019 as compared with 0.20%~~, with no change from~~ for the trailing quarter, and an increase of 910 basis points from the average rate paid during the same quarter of the prior year.

Non-performing

assets to total assets were 0.35% at June 30, 2019 as compared to 0.34% as of March 31, 2019 ~~as compared to~~and 0.47% ~~and 0.54%~~ at December 31, ~~2018 and March 31, 2018, respectively.~~

2018.

The balance of nonperforming loans ~~decreased~~increased by ~~$7.9~~$1.0 million, ~~and~~however recoveries on previously

charged-off

loans ~~significantly contributed to the $1.6~~were $0.3 million ~~reversal of the allowance for loan losses~~and loans past due thirty days or more decreased by $2.18 million during the ~~period.~~

quarter.

The efficiency ratio ~~increased slightly to 60.1%~~remained flat at 60.15% as compared to the trailing quarter, which had an efficiency ratio of ~~59.1%~~60.10%.

Table of Contents

TRICO BANCSHARES

Financial Summary

(In thousands, except per share amounts; unaudited)

   Three months ended
   March 31, March 31,
   2019 2018
Net interest income
   $ 63,870 $ 44,986
Benefit from reversal of provision for loan losses
   1,600 236
Noninterest income
   11,864 12,290
Noninterest expense
   (45,513 ) (38,162 )
Provision for income taxes
   (9,095 ) (5,440 )


Net income
   $ 22,726 $ 13,910



Per share:

Basic Earnings per share
   $ 0.75 $ 0.61
Diluted earnings per share
   $ 0.74 $ 0.60
Dividends paid
   $ 0.19 $ 0.17
Book value at period end
   $ 28.04 $ 22.01
Average common shares outstanding
   30,424,184 22,956,239
Average diluted common shares outstanding
   30,657,833 23,283,127
Shares outstanding at period end
   30,432,419 22,956,323
At period end:

Loans, net
   $ 4,002,267 $ 3,039,760
Total investment securities
   1,547,442 1,234,820
Total assets
   6,471,852 4,779,957
Total deposits
   5,430,262 4,084,404
Other borrowings
   12,466 65,041
Junior subordinated debt
   57,085 56,905
Shareholders’ equity
   853,278 505,256
Financial Ratios:

During the period (annualized):

Return on average assets
   1.41 % 1.17 %
Return on average equity
   10.78 % 11.00 %
Net interest margin¹
   4.46 % 4.14 %
Efficiency ratio
   60.10 % 66.63 %
At period end:

Equity to assets
   13.18 % 10.57 %
Total capital to risk-adjusted assets
   14.73 % 13.91 %

¹ ~~Fully taxable equivalent (FTE)~~


	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Net interest income	$	64,315		$	45,869		$	128,185		$	90,855
(Provision for) benefit from reversal of loan losses		(537	)		638			1,063			874
Noninterest income		13,578			12,174			25,442			24,464
Noninterest expense		(46,852	)		(37,870	)		(92,365	)		(76,032	)
Provision for income taxes		(7,443	)		(5,782	)		(16,538	)		(11,222	)

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

Per Share Data:
Basic earnings per share	$	0.76		$	0.65		$	1.50		$	1.26
Diluted earnings per share	$	0.75		$	0.65		$	1.49		$	1.24
Dividends paid	$	0.19		$	0.17		$	0.38		$	0.34
Book value at period end							$	28.71		$	22.27

Average common shares outstanding		30,458			22,983			30,441			22,970
Average diluted common shares outstanding		30,643			23,276			30,650			23,280
Shares outstanding at period end								30,503			23,004

At period end:
Loans, net								4,070,819			3,116,789
Total investment securities								1,566,720			1,251,776
Total assets								6,395,172			4,863,153
Total deposits								5,342,173			4,077,222
Other borrowings								13,292			152,839
Shareholders’ equity								875,886			512,344

Financial Ratios:
During the period (annualized):
Return on average assets		1.44	%		1.25	%		1.43	%		1.21	%
Return on average equity		10.65	%		11.78	%		10.71	%		11.39	%
Net interest margin 1		4.48	%		4.14	%		4.47	%		4.14	%
Efficiency ratio		60.1	%		65.2	%		60.1	%		65.9	%
Average equity to average assets		13.6	%		10.6	%		13.3	%		10.6	%
At end of period:
Equity to assets								13.70	%		10.54	%
Total capital to risk-sdjusted assets								14.93	%		13.91	%

1	Fully taxable equivalent (FTE)

Table of Contents

Results of Operations

Overview

The following discussion and analysis is designed to provide a better understanding of the significant changes and trends related to the Company and the Bank’s financial condition, operating results, asset and liability management, liquidity and capital resources and should be read in conjunction with the Condensed Consolidated Financial Statements of the Company and the Notes thereto located at Item 1 of this report.

   Three months ended
   March 31,
   2019    2018
Net interest income (FTE)
   $ 64,192    $ 45,298
Benefit from reversal of provision for loan losses
   1,600    236
Noninterest income
   11,864    12,290
Noninterest expense
   (45,513 )    (38,162 )
Provision for income taxes (FTE)
   (9,417 )    (5,752 )




Net income
   $ 22,726    $ 13,910


	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Net interest income (FTE)	$	64,613		$	46,182		$	128,804		$	91,480
(Provision for) Benefit from reversal of loan losses		(537	)		638			1,063			874
Noninterest income		13,578			12,174			25,442			24,464
Noninterest expense		(46,852	)		(37,870	)		(92,365	)		(76,032	)
Provision for income taxes (FTE)		(7,741	)		(6,095	)		(17,157	)		(11,847	)

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

The Company reported net income of ~~$22,726,000~~$23,061,000 and $45,787,000 for the quarter and six months ended ~~March 31,~~June 30, 2019, compared to ~~$23,211,000~~$15,029,000 and ~~$13,910,000~~$28,939,000 for the ~~trailing~~ quarter and ~~the three~~six months ended ~~March 31,~~June 30, 2018, respectively. Diluted earnings per share were ~~$0.74~~$0.75 and $1.49 for the quarter and six months ended ~~March 31,~~June 30, 2019, compared to ~~$0.76~~$0.65 and ~~$0.60~~$1.24 for the ~~trailing~~ quarter and ~~three~~six months ended ~~March 31,~~June 30, 2018.

Net Interest Income

The Company’s primary source of revenue is net interest income, or the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Following is a summary of the components of FTE net income for the periods indicated (dollars in thousands):

   Three months ended
   March 31,
   2019 2018
Interest income
   $ 67,457 $ 47,121
Interest expense
   (3,587 ) (2,135 )
FTE adjustment
   322 312


Net interest income (FTE)
   $ 64,192 $ 45,298


Net interest margin (FTE)
   4.46 % 4.14 %


Acquired loans discount accretion, net:

Amount (included in interest income)
   $ 1,655 $ 632
Effect on average loan yield
   0.17 % 0.09 %
Effect on net interest margin (FTE)
   0.12 % 0.06 %


	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Interest income	$	68,180		$	48,478		$	135,637		$	95,599
Interest expense		(3,865	)		(2,609	)		(7,452	)		(4,744	)
FTE adjustment		298			313			619			625

Net interest income (FTE)	$	64,613		$	46,182		$	128,804		$	91,480

Net interest margin (FTE)		4.48	%		4.14	%		4.47	%		4.14	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,904		$	559		$	3,559		$	1,191
Effect on average loan yield		0.19	%		0.07	%		0.18	%		0.08	%
Effect on net interest margin (FTE)		0.13	%		0.05	%		0.12	%		0.05	%

Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or accreted (added to) interest income over the remaining life of the loan. Generally, as time goes on, the effects of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining (unaccreted) discount or (unamortized) premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. During the three and six months ended ~~March 31,~~June 30, 2019, ~~December 31, 2018~~purchased loan discount accretion was $1,904,000 and ~~March 31,~~$3,599,000, respectively. During the three and six months ended June 30, 2018, purchased loan discount accretion was ~~$1,655,000, $1,982,000,~~$559,000 and ~~$632,000,~~$1,191,000, respectively. ~~During~~The increase in discount accretion is directly attributable to the ~~three months ended March 31, 2019, loans purchased at net premiums several years ago were repaid prior to expected maturity resulting~~acquisition of FNB Bancorp in ~~approximately $259,000~~July 2018.

Table of ~~accelerated amortization.~~

Contents

Summary of Average Balances, Yields/Rates and Interest Differential

The following table presents, for the periods indicated, information regarding the Company’s consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income from average interest-earning assets and resulting yields, and the amount of interest expense paid on interest-bearing liabilities. Average loan balances include nonperforming loans. Interest income includes proceeds from loans on nonaccrual loans only to the extent cash payments have been received and applied to interest income. Yields on securities and certain loans have been adjusted upward to reflect the effect of income thereon exempt from federal income taxation at the current statutory tax rate (dollars in thousands).

   For the three months ended
   March 31, 2019 March 31, 2018
      Interest    Rates    Interest    Rates
   Average    Income/    Earned Average    Income/    Earned
   Balance    Expense    /Paid Balance    Expense    /Paid
Assets:

Loans
   $ 4,023,864    $ 54,398    5.41 % $ 3,028,178    $ 38,049    5.03 %
Investment securities - taxable
   1,425,352    10,915    3.06 % 1,125,394    7,658    2.72 %
Investment securities - nontaxable⁽¹⁾
   142,232    1,395    3.92 % 136,160    1,353    3.97 %










Total investments
   1,567,584    12,310    3.14 % 1,261,554    9,011    2.86 %
Cash at Federal Reserve and other banks
   168,518    1,071    2.54 % 90,864    373    1.64 %










Total interest-earning assets
   5,759,966    67,779    4.71 % 4,380,596    47,433    4.33 %
Other assets
   666,261       360,631





Total assets
   $ 6,426,227       $ 4,741,227





Liabilities and shareholders’ equity:

Interest-bearing demand deposits
   $ 1,279,639    $ 287    0.09 % $ 994,206    $ 211    0.08 %
Savings deposits
   1,926,339    1,133    0.24 % 1,371,377    411    0.12 %
Time deposits
   441,778    1,299    1.18 % 306,514    474    0.62 %










Total interest-bearing deposits
   3,647,756    2,719    0.30 % 2,672,097    1,096    0.16 %
Other borrowings
   15,509    13    0.34 % 107,781    342    1.27 %
Junior subordinated debt
   56,950    855    6.01 % 56,882    697    4.90 %










Total interest-bearing liabilities
   3,720,215    3,587    0.39 % 2,836,760    2,135    0.30 %
Noninterest-bearing deposits
   1,745,432       1,332,235
Other liabilities
   117,490       66,219
Shareholders’ equity
   843,090       506,013





Total liabilities and shareholders’ equity
   $ 6,426,227       $ 4,741,227





Net interest spread⁽²⁾
         4.32 %       4.03 %
Net interest income and interest margin⁽³⁾
      $ 64,192    4.46 %    $ 45,298    4.14 %


	For the three months ended
	June 30, 2019							June 30, 2018
	Average Balance		Interest Income/ Expense		Rates Earned /Paid			Average Balance		Interest Income/ Expense		Rates Earned /Paid
Assets:
Loans	$	4,044,044	$	55,492		5.49	%	$	3,104,126	$	39,304		5.06	%
Investment securities - taxable		1,432,550		10,762		3.00	%		1,122,534		7,736		2.76	%
Investment securities - nontaxable (1)		140,562		1,358		3.86	%		136,126		1,355		3.98	%

Total investments		1,573,112		12,120		3.08	%		1,258,660		9,091		2.89	%
Cash at Federal Reserve and other banks		147,810		866		2.34	%		94,874		396		1.67	%

Total interest-earning assets		5,764,966		68,478		4.75	%		4,457,660		48,791		4.38	%
Other assets		620,923							356,863

Total assets	$	6,385,889						$	4,814,523

Liabilities and shareholders’ equity:
Interest-bearing demand deposits	$	1,276,388	$	289		0.09	%	$	995,528	$	214		0.09	%
Savings deposits		1,888,234		1,306		0.28	%		1,393,121		427		0.12	%
Time deposits		441,116		1,404		1.27	%		313,556		593		0.76	%

Total interest-bearing deposits		3,605,738		2,999		0.33	%		2,702,205		1,234		0.18	%
Other borrowings		17,963		37		0.82	%		139,307		586		1.68	%
Junior subordinated debt		57,222		829		5.79	%		56,928		789		5.54	%

Total interest-bearing liabilities		3,680,923		3,865		0.42	%		2,898,440		2,609		0.36	%
Noninterest-bearing deposits		1,765,141							1,339,905
Other liabilities		73,541							65,745
Shareholders’ equity		866,284							510,433

Total liabilities and shareholders’ equity	$	6,385,889						$	4,814,523

Net interest spread (2)						4.33	%						4.02	%
Net interest income and interest margin (3)			$	64,613		4.48	%			$	46,182		4.14	%

⁽¹⁾	Fully taxable equivalent (FTE)

⁽²⁾	Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

⁽³⁾	Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets.

In general, the change in average balances of assets and liabilities were significantly impacted by the July 6, 2018 acquisition of FNB Bancorp. For financial reporting purposes, the Company does not separately track the changes in assets and liabilities based on branch location or regional geography. ~~However, management believes that~~Organic growth, inclusive of seasonal fluctuation, also contributed to the ~~assets and liabilities acquired in the acquisition provide a reasonable approximation of those balances as of March 31, 2019.~~year-over-year balance sheet changes. In addition to the balance sheet changes which resulted from the acquisition of FNB Bancorp, total assets grew by ~~$228,695,000 (4.8%~~$68,819,000 (1.4%) between ~~March~~June 2018 and ~~March~~June 2019. This growth was led by ~~$129,915,000 (4.2%~~$122,691,000 (3.9%) of organic loan growth which was funded by ~~$353,923,000 (8.7%~~$273,016,000 (6.7%) in organic deposit growth. The following is a comparison of the year over year change in certain assets and liabilities:

($’s in thousands)    As of March 31,       Acquired    Organic Organic
Ending balances    2019    2018    $ Change    Balances    $ Change % Change
Total assets
   $ 6,471,852    $ 4,779,957    $ 1,691,895    $ 1,463,200    $ 228,695 4.8 %
Total loans
   4,034,331    3,069,733    964,598    834,683    129,915 4.2 %
Total investments
   1,564,692    1,251,776    312,916    335,667    (22,751 ) (1.8 %)
Total deposits
   $ 5,430,262    $ 4,084,404    $ 1,345,858    $ 991,935    $ 353,923 8.7 %


	As of June 30,						Acquired		Organic			Organic
($‘s in thousands)	2019		2018		$ Change		Balances		$ Change			% Change
Ending balances
Total assets	$	6,395,172	$	4,863,153	$	1,532,019	$	1,463,200	$	68,819			1.4	%
Total loans		4,103,687		3,146,313		957,374		834,683		122,691			3.9	%
Total investments		1,566,720		1,251,776		314,944		335,667		(20,723	)		(1.7	%)
Total deposits	$	5,342,173	$	4,077,222	$	1,264,951	$	991,935	$	273,016			6.7	%

Table of Contents


	For the six months ended
	June 30, 2019							June 30, 2018
	Average Balance		Interest Income/ Expense		Rates Earned /Paid			Average Balance			Interest Income/ Expense		Rates Earned /Paid
Assets:
Loans	$	4,033,954	$	109,889		5.45	%	$	3,066,152		$	77,353		5.05	%
Investment securities - taxable		1,428,951		21,677		3.03	%		1,123,964			15,394		2.74	%
Investment securities - nontaxable (1)		141,397		2,753		3.89	%		136,143			2,708		3.98	%

Total investments		1,570,348		24,430		3.11	%		1,260,107			18,102		2.87	%
Cash at Federal Reserve and other banks		158,164		1,937		2.45	%		92,869			769		1.66	%

Total interest-earning assets		5,762,466		136,256		4.73	%		4,419,128			96,224		4.35	%
Other assets		643,592							358,747

Total assets	$	6,406,058						$	4,777,875

Liabilities and shareholders’ equity:
Interest-bearing demand deposits	$	1,274,882	$	576		0.09	%	$	994,867		$	425		0.09	%
Savings deposits		1,907,677		2,439		0.26	%		1,382,249			838		0.12	%
Time deposits		441,447		2,703		1.22	%		310,035			1,067		0.69	%

Total interest-bearing deposits		3,624,006		5,718		0.32	%		2,687,151			2,330		0.17	%
Other borrowings		16,736		50		0.60	%		123,544			928		1.50	%
Junior subordinated debt		57,086		1,684		5.90	%		56,905			1,486		5.22	%

Total interest-bearing liabilities		3,697,828		7,452		0.40	%		2,867,600			4,744		0.33	%
Noninterest-bearing deposits		1,754,973							1,336,070
Other liabilities		98,570							65,982
Shareholders’ equity		854,687							508,223
										��
Total liabilities and shareholders’ equity	$	6,406,058						$	4,777,875

Net interest spread (2)						4.33	%							4.02	%
Net interest income and interest margin (3)			$	128,804		4.47	%				$	91,480		4.14	%

(1)	Fully taxable equivalent (FTE)

(2)	Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

(3)	Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets.

As noted above, the change in average balances of assets and liabilities were significantly impacted by the July 6, 2018 acquisition of FNB Bancorp. Total average interest-earning assets increased as a percent of total average interest-bearing liabilities during these comparable

six-month

periods from 154% to 156%, which contributed to the growth in net interest income and net interest margin of $37,324,000 and 33 basis points, respectively.

Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid

The following table sets forth, for the period identified, a summary of the changes in interest income and interest expense from changes in average asset and liability balances (volume) and changes in average interest rates for the periods indicated. Changes not solely attributable to volume or rates have been allocated in proportion to the respective volume and rate components (in thousands).

   Three months ended March 31, 2019
   compared with three months
   ended March 31, 2018
   Volume    Rate    Total
Increase in interest income:

Loans
   $ 12,521    $ 3,828    $ 16,349
Investment securities⁽¹⁾
   2,100    1,199    3,299
Cash at Federal Reserve and other banks
   318    380    698






Total interest-earning assets
   14,939    5,407    20,346






Increase (decrease) in interest expense:

Interest-bearing demand deposits
   57    19    76
Savings deposits
   165    557    722
Time deposits
   209    616    825
Other borrowings
   (293 )    (36 )    (329 )
Junior subordinated debt
   1    157    158






Total interest-bearing liabilities
   139    1,313    1,452






Increase in net interest income
   $ 14,800    $ 4,094    $ 18,894

Table of Contents


	Three months ended June 30, 2019 compared with three months ended June 30, 2018
	Volume			Rate			Total
Increase in interest income:
Loans	$	12,681		$	3,507		$	16,188
Investment securities (1)		2,391			638			3,029
Cash at Federal Reserve and other banks		273			197			470

Total interest-earning assets		15,345			4,342			19,687

Increase (decrease) in interest expense:
Interest-bearing demand deposits		63			12			75
Savings deposits		194			685			879
Time deposits		303			508			811
Other borrowings		(346	)		(203	)		(549	)
Junior subordinated debt		4			36			40

Total interest-bearing liabilities		218			1,038			1,256

Increase in net interest income	$	15,127		$	3,304		$	18,431

⁽¹⁾	Fully taxable equivalent (FTE)


	Six months ended June 30, 2019 compared with six months ended June 30, 2018
	Volume			Rate			Total
Increase in interest income:
Loans	$	25,971		$	6,565		$	32,536
Investment securities (1)		4,733			1,595			6,328
Cash at Federal Reserve and other banks		695			473			1,168

Total interest-earning assets		31,399			8,633			40,032

Increase (decrease) in interest expense:
Interest-bearing demand deposits		126			25			151
Savings deposits		408			1,193			1,601
Time deposits		576			1,060			1,636
Other borrowings		(518	)		(360	)		(878	)
Junior subordinated debt		4			194			198

Total interest-bearing liabilities		596			2,112			2,708

Increase in net interest income	$	30,803		$	6,521		$	37,324

(1)	Fully taxable equivalent (FTE)

The following commentary regarding net interest income, interest income and interest expense may be best understood while referencing the

Summary of Average Balances, Yields/Rates and Interest Differential

and the

Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid

shown above.

Net interest income (FTE) during the three months ended ~~March 31,~~June 30, 2019 increased ~~$18,894,000~~$18,431,000 or ~~41.7%~~39.9% to ~~$64,192,000~~$64,613,000 compared to ~~$45,298,000~~$46,182,000 during the three months ended ~~March 31,~~June 30, 2018. The increase in net interest income (FTE) was due primarily to an increase in the average balance of loans, which contributed an additional ~~$12,521,000~~$12,681,000 in interest income. As discussed above, increases in average balances were primarily the result of the FNB Bancorp acquisition. Increases in market rates and purchase discount accretion added ~~$4,094,000~~$3,304,000 to net interest income, due to increases in rates earned on interest-earnings assets outpacing increases paid in interest-bearing liabilities.

Table of Contents

The index utilized in a significant portion of the Company’s variable rate loans, Wall Street Journal Prime, has increased by ~~1.50%~~0.50% to 5.50% at ~~March 31,~~June 30, 2019 as compared to ~~4.00%~~5.00% at ~~March 31,~~June 30, 2018. As compared to the same quarter in the prior year, average loan yields increased 3843 basis points from ~~5.03%~~5.06% during the three months ended ~~March 31,~~June 30, 2018 to ~~5.41%~~5.49% during the three months ended ~~March 31,~~June 30, 2019. Of the 3843 basis point increase in yields on loans, 3031 basis points was attributable to increases in market rates while 812 basis points was from increased accretion of purchased loans.

As of ~~March 31,~~June 30, 2019, the Bank’s ~~$4,085,452,000~~$4,152,540,000 principal balance of loans, net of charge-offs, and not including deferred loan fees and purchase discounts, was made up of loans with principal balances totaling ~~$1,391,682,000~~$1,352,921,000 that have fixed interest rates, and ~~$2,693,770,000~~$2,799,619,000 of loans with interest rates that are variable. Included in the balance of variable rate loans as of March 31, 2019 were loans with principal balances of approximately $916,044,000 that had adjustable interest rates tied to the prime lending rate that adjust on or near the date of any prime rate change.

The organic growth in deposits was driven primarily by normal and expected seasonal trends as well as the impact of deposit customer’s receipt of insurance proceeds from the property and casualty losses incurred in connection with the wildfires in Northern California. This growth in deposits allowed for the repayment of overnight borrowings resulting in a reduction in interest expense of ~~$329,000~~$549,000 which was partially offset by the changes in volumes and rates associated with deposit products. During the twelve months ended ~~March 31,~~June 30, 2019, the Federal Funds Target Rate was increased ~~four~~two times in 25 basis point increments from ~~1.50%~~2.00% to 2.50%. ~~During this same period, the~~The Company’s cost of interest-bearing deposits increased from 1633 basis points during the six months ended June 30, 2018 to 40 basis points during the six months ended June 30, 2019.

Net interest income (FTE) during the six months ended June 30, 2019 increased $37,324,000 or 40.8% to $128,804,000 compared to $91,480,000 during the six months ended June 30, 2018. The increase in net interest income (FTE) was due primarily to an increase in the average balance of loans, which was partially offset by an increase in the average balance of interest-bearing liabilities and a 7 basis point increase in the average rate paid on interest-bearing liabilities.

During the six months ended June 30, 2019, the average balance of loans increased by $967,802,000 or 31.6% to $4,033,954,000. The increase in net interest income was further benefited by an increase in the

year-to-date

purchased loan discount accretion from $1,191,000 during the six months ended June 30, 2018 to $3,559,000 during the six months ended June 30, 2019. This increase in purchased loan discount accretion benefited loan yields by 8 basis points, and net interest margin by 5 basis points.

The 7 basis point increase in the average rate paid on interest-bearing liabilities was primarily due to increases in market rates that increased the rates the Company pays on its time deposits. However, the growth in total average deposits during the comparable

six-month

periods allowed for the repayment of overnight borrowings which, combined with changes in related rates, contributed to a decrease in interest expense of $878,000.

Asset Quality and Loan Loss Provisioning

The Company continued to experience improvement in the overall credit quality of its loan portfolio. At ~~March 31,~~June 30, 2019, total nonperforming loans decreased to ~~$19,565,000~~$21,690,000 or ~~0.48%~~0.53% of total loans from $27,494,000 or 0.68% of total loans as of December 31, 2018.

The Company recorded ~~a benefit from the reversal of~~ provision for loan losses of ~~$1,600,000~~$537,000 during the three months ended ~~March 31,~~June 30, 2019 as compared to a benefit from the reversal of provision of ~~$236,000~~$638,000 in the same quarter of the prior year. The ~~benefit from the reversal of the~~ provision was necessitated in part by ~~$1,082,000~~loan growth of $69,356,000 during the quarter and partially offset by $267,000 in net recoveries on previously

charged-off

loans during the ~~first~~second quarter of 2019 as compared to net ~~charge-offs~~recoveries of ~~$114,000~~$189,000 in the ~~first~~second quarter of 2018. Additionally, while the Company remains cautious about the risks associated with trends in California real estate prices, the duration of economic trends and ~~the affordability~~concentrations of ~~housing in~~credit, the ~~markets served by the Company, changes in home affordability and energy related index rates improved during the quarter ended March 31, 2019. The~~ qualitative factors associated with these ~~two~~ measures reduced the level of calculated required reserves by approximately ~~$1,059,000.~~

$632,000 during the quarter ended June 30, 2019, therefore, changes in those risks could result in additional levels of provisioning being required in the future.

Table of Contents

Noninterest Income

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

   Three months ended March 31,
(dollars in thousands)    2019    2018    $ Change    % Change
ATM and interchange fees
   $ 4,581    $ 4,235    $ 346    8.2 %
Service charges on deposit accounts
   3,880    3,779    101    2.7 %
Other service fees
   771    714    57    8.0 %
Mortgage banking service fees
   483    517    (34 )    (6.6 %)
Change in value of mortgage servicing rights
   (645 )    111    (756 )    (681.1 %)








Total service charges and fees
   9,070    9,356    (286 )    (3.1 %)








Increase in cash value of life insurance
   775    608    167    27.5 %
Asset management and commission income
   642    876    (234 )    (26.7 %)
Gain on sale of loans
   412    626    (214 )    (34.2 %)
Lease brokerage income
   220    128    92    71.9 %
Sale of customer checks
   140    101    39    38.6 %
Gain on sale of foreclosed assets
   99    371    (272 )    (73.3 %)
Gain (loss) on marketable equity securities
   36    (48 )    84    (175.0 %)
Loss on disposal of fixed assets
   (38 )    (13 )    (25 )    192.3 %
Other
   508    285    223    78.2 %








Total other noninterest income
   2,794    2,934    (140 )    (4.8 %)








Total noninterest income
   $ 11,864    $ 12,290    $ (426 )    (3.5 %)


	Three months ended June 30,
(dollars in thousands)	2019			2018			$ Change			% Change
ATM and interchange fees	$	5,404		$	4,510		$	894			19.8	%
Service charges on deposit accounts		4,182			3,613			569			15.7	%
Other service fees		619			630			(11	)		(1.7	%)
Mortgage banking service fees		475			511			(36	)		(7.0	%)
Change in value of mortgage servicing rights		(552	)		(36	)		(516	)		1433.3	%

Total service charges and fees		10,128			9,228			900			9.8	%

Increase in cash value of life insurance		746			656			90			13.7	%
Asset management and commission income		739			810			(71	)		(8.8	%)
Gain on sale of loans		575			666			(91	)		(13.7	%)
Lease brokerage income		239			200			39			19.5	%
Sale of customer checks		135			138			(3	)		(2.2	%)
Gain on sale of foreclosed assets		197			17			180			1058.8	%
Gain (loss) on marketable equity securities		42			(23	)		65			(282.6	%)
Loss on disposal of fixed assets		(42	)		(41	)		(1	)		2.4	%
Other		819			523			296			56.6	%

Total other noninterest income		3,450			2,946			504			17.1	%

Total noninterest income	$	13,578		$	12,174		$	1,404			11.5	%


	Six months ended June 30,
(dollars in thousands)	2019			2018			$ Change			% Change
ATM and interchange fees	$	9,985		$	8,745		$	1,240			14.2	%
Service charges on deposit accounts		8,062			7,392			670			9.1	%
Other service fees		1,390			1,344			46			3.4	%
Mortgage banking service fees		958			1,028			(70	)		(6.8	%)
Change in value of mortgage servicing rights		(1,197	)		75			(1,272	)		(1696.0	%)

Total service charges and fees		19,198			18,584			614			3.3	%

Increase in cash value of life insurance		1,521			1,264			257			20.3	%
Asset management and commission income		1,381			1,686			(305	)		(18.1	%)
Gain on sale of loans		987			1,292			(305	)		(23.6	%)
Lease brokerage income		459			328			131			39.9	%
Sale of customer checks		275			239			36			15.1	%
Gain on sale of foreclosed assets		199			388			(189	)		(48.7	%)
Gain (loss) on marketable equity securities		78			(70	)		148			(211.4	%)
Loss on disposal of fixed assets		(80	)		(54	)		(26	)		48.1	%
Other		1,424			807			617			76.5	%

Total other noninterest income		6,244			5,880			364			6.2	%

Total noninterest income	$	25,442		$	24,464		$	978			4.0	%

Noninterest income ~~decreased $426,000 (3.5%~~increased $1,404,000 (11.5%) ~~to $11,864,000~~and $978,000 (4.0%) during the three ~~months~~and six month periods ended ~~March 31,~~June 30, 2019 as compared to the three ~~months~~and six month periods ended ~~March 31, 2018.~~June 30, 2018, respectively. The ~~decrease~~increase was primarily driven by growth in usage and, due largely in part to the acquisition of FNB Bancorp, an increase in customers and accounts that generate fee revenues. In addition, during the three and six month periods ended June 30, 2019 the company recorded other noninterest income ~~was due primarily to a $756,000 (681.1%) decrease~~associated with death benefit insurance proceeds of $696,000 and $728,000, respectively. These increases were offset by valuation changes in the ~~fair value~~Company’s mortgage servicing right asset of $516,000 and $1,272,000, respectively and declines in gains on sale of loans caused by less volume of mortgage ~~servicing rights, $234,000 (26.7%) decrease~~loans sold of $91,000 and $305,000, respectively for the three and six month periods ended June 30, 2019 as compared to the three and six month periods ended June 30, 2018. Additional partial offsets to the overall increase were due to declines in asset management and commission income ~~$214,000 (34.2%) decrease in gain on sale~~ of ~~loans,~~$71,000 and ~~a $272,000 (73.3%) decrease on~~$305,000, respectively during the ~~gain on sale of foreclosed assets. Offsetting the decreases innon-interest~~ ~~income was an increase in ATM~~three and interchange fees of $346,000 (8.2%), an increase in service charges on deposit accounts of $101,000 (2.7%), and an increase in the cash value of life insurance of $167,000 (27.5%). The fair value of the mortgage servicing asset decreasedsix month periods ended June 30, 2019 as compared to the ~~first quarter in the prior year due to changes in the assumptions utilized in determining the fair value. Specifically, increased prepayment speeds~~three and ~~decreases in the 15 and~~six month periods ended June 30, ~~year mortgage rates were the largest contributors to the decline in fair value~~2018.

Table of ~~the mortgage servicing asset.~~

Contents

Noninterest Expense

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

   Three months ended March 31,
   2019    2018    $ Change    % Change
Base salaries, net of deferred loan origination costs
   $ 16,757    $ 13,962    $ 2,795    20.0 %
Incentive compensation
   2,567    2,452    115    4.7 %
Benefits and other compensation costs
   5,804    5,238    566    10.8 %








Total salaries and benefits expense
   25,128    21,652    3,476    16.1 %








Occupancy
   3,774    2,681    1,093    40.8 %
Data processing and software
   3,349    2,514    835    33.2 %
Equipment
   1,867    1,551    316    20.4 %
Intangible amortization
   1,431    339    1,092    322.1 %
Advertising
   1,331    838    493    58.8 %
ATM and POS network charges
   1,323    1,226    97    7.9 %
Professional fees
   839    773    66    8.6 %
Telecommunications
   797    701    96    13.7 %
Regulatory assessments and insurance
   511    430    81    18.8 %
Merger and acquisition expense
   —      476    (476 )    (100.0 %)
Postage
   310    358    (48 )    (13.4 %)
Operational losses
   225    294    (69 )    (23.5 %)
Courier service
   270    267    3    1.1 %
Other miscellaneous expense
   4,358    4,062    296    7.3 %








Total other noninterest expense
   20,385    16,510    3,875    23.5 %








Total noninterest expense
   $ 45,513    $ 38,162    $ 7,351    19.3 %








Average full time equivalent staff
   1,138    1,002    136    13.6 %


	Three months ended June 30,
	2019		2018		$ Change			% Change
Base salaries, net of deferred loan origination costs	$	17,211	$	14,429	$	2,782			19.3	%
Incentive compensation		3,706		2,159		1,547			71.7	%
Benefits and other compensation costs		5,802		4,865		937			19.3	%

Total salaries and benefits expense		26,719		21,453		5,266			24.5	%

Occupancy		3,738		2,720		1,018			37.4	%
Data processing and software		3,354		2,679		675			25.2	%
Equipment		1,752		1,637		115			7.0	%
Intangible amortization		1,431		339		1,092			322.1	%
Advertising		1,533		1,035		498			48.1	%
ATM and POS network charges		1,270		1,437		(167	)		(11.6	%)
Professional fees		1,057		774		283			36.6	%
Telecommunications		773		681		92			13.5	%
Regulatory assessments and insurance		490		417		73			17.5	%
Merger and acquisition expense		—		601		(601	)		(100.0	%)
Postage		315		301		14			4.7	%
Operational losses		226		252		(26	)		(10.3	%)
Courier service		412		224		188			83.9	%
Other miscellaneous expense		3,782		3,320		462			13.9	%

Total other noninterest expense		20,133		16,417		3,716			22.6	%

Total noninterest expense	$	46,852	$	37,870	$	8,982			23.7	%

Average full time equivalent staff		1,138		1,001		137			13.7	%

	Six months ended June 30,
	2019		2018		$ Change			% Change
Base salaries, net of deferred loan origination costs	$	33,968	$	28,391	$	5,577			19.6	%
Incentive compensation		6,273		4,611		1,662			36.0	%
Benefits and other compensation costs		11,606		10,103		1,503			14.9	%

Total salaries and benefits expense		51,847		43,105		8,742			20.3	%

Occupancy		7,512		5,401		2,111			39.1	%
Data processing and software		6,703		5,193		1,510			29.1	%
Equipment		3,619		3,188		431			13.5	%
Intangible amortization		2,862		678		2,184			322.1	%
Advertising		2,864		1,873		991			52.9	%
ATM and POS network charges		2,593		2,663		(70	)		(2.6	%)
Professional fees		1,896		1,546		350			22.6	%
Telecommunications		1,570		1,382		188			13.6	%
Regulatory assessments and insurance		1,001		847		154			18.2	%
Merger and acquisition expense		—		1,077		(1,077	)		(100.0	%)
Postage		625		659		(34	)		(5.2	%)
Operational losses		451		546		(95	)		(17.4	%)
Courier service		682		491		191			38.9	%
Other miscellaneous expense		8,140		7,383		757			10.3	%

Total other noninterest expense		40,518		32,927		7,591			23.1	%

Total noninterest expense	$	92,365	$	76,032	$	16,333			21.5	%

Average full time equivalent staff		1,137		1,001		136			13.6	%

Table of Contents

Salary and benefit expenses increased ~~$3,476,000 (16.1%~~$5,266,000 (24.5%) to ~~$25,128,000~~$26,719,000 during the three months ended ~~March 31,~~June 30, 2019 compared to ~~$21,652,000~~$21,453,000 during the three months ended ~~March 31,~~June 30, 2018. Base salaries, net of deferred loan origination costs increased ~~$2,795,000 (20.0%~~$2,782,000 (19.3%) to ~~$16,757,000.~~$17,211,000. The increase in base salaries was due primarily to a ~~13.6%~~13.7% increase in average full time equivalent employees, largely attributable to the acquisition of FNB Bancorp, to 1,138 from ~~1,002~~1,001 in the

year-ago

quarter. ~~Commissions and incentive compensation~~In addition, annual merit increases impacted the quarter over quarter comparison but contributed to less than 3.0% of the annual increase.

Total other noninterest expense increased ~~$115,000 (4.7%~~$3,716,000 (22.6%) to ~~$2,567,000~~$20,133,000 during the three months ended ~~March 31, 2019 compared to theyear-ago~~ quarter due primarily to organic loan and deposit growth. Benefits & other compensation expense increased $566,000 (10.8%) to $5,804,000 during the three months ended March 31, 2019 due primarily to increases in the average full time equivalent employees, as mentioned above.

~~Other noninterest expense increased $3,875,000 (23.5%) to $20,385,000 during the three months ended March 31,~~June 30, 2019 compared to the three months ended ~~March 31,~~June 30, 2018. The increase in other noninterest expense was due primarily to increased overhead operating costs related to the additional branches as a result of the prior year acquisition of FNB Bancorp. Highlighting those increases were intangible amortization, occupancy, data processing and software, and advertising expenses, which increased by $1,092,000, ~~$1,093,000, $835,000~~$1,018,000, $675,000 and ~~$493,000,~~$498,000, respectively, as compared to the prior year quarter. The increases in noninterest expenses were partially offset by decreased merger & acquisition expenses of ~~$476,000.~~

$601,000 during the comparable quarterly periods.

The increase in total noninterest expense of $16,333,000 (21.5%) to $92,365,000 for the six month period ended June 30, 2019 compared to $76,032,000 for the same period in 2018 was also primarily attributable to the acquisition of FNB Bancorp, including the growth in full time equivalent staff and the expanded volume of operational activities.

Income Taxes

The Company’s effective tax rate was ~~28.6%~~24.4% for the quarter ended ~~March 31,~~June 30, 2019 as compared to ~~28.1%~~27.8% for the same quarter in the prior year. ~~As previously reported, the~~The Company’s effective tax rate was ~~24.0%~~26.5% for the ~~quarter~~six months ended ~~December 31, 2018 which was benefited by certain tax method elections. Absent~~June 30, 2019 as compared to 27.9% for the ~~benefits made possible through these elections, the Company’s~~six months ended June 30, 2018. The decrease in effective tax ~~rate would have been 27.5%~~rates for the ~~quarter~~2019 periods is primarily attributable to the increase in nontaxable income related to death benefit insurance proceeds of $696,000 and $728,000 during the three and six month periods ended ~~December 31, 2018.~~

June 30, 2019, respectively.

Table of Contents

Financial Condition

Investment Securities

Investment securities available for sale ~~decreased $1,520,000~~increased $18,958,000 to ~~$1,113,516,000~~$1,133,994,000 as of ~~March 31,~~June 30, 2019, compared to December 31, 2018. This ~~decrease~~increase is primarily attributable to ~~maturities and principal repayments of $15,133,000 and amortization of net purchase price premiums of $335,000, which was offset by~~ an increase in fair value of ~~debt securities available for sale of $12,710,000.~~$22,263,000. There were no sales or transfers of

available-for-sale

investment securities during the ~~three~~six month periods ended ~~March 31,~~June 30, 2019 and 2018.

The following table presents the available for sale debt securities portfolio by major type as of ~~March 31,~~June 30, 2019 and December 31, 2018:

(dollars in thousands)    March 31, 2019 December 31, 2018
   Fair Value    % Fair Value    %
Debt securities available for sale:

Obligations of U.S. government agencies
   $ 627,100    56.3 % $ 629,981    56.5 %
Obligations of states and political subdivisions
   129,349    11.6 % 126,072    11.3 %
Corporate bonds
   4,478    0.4 % 4,478    0.4 %
Asset backed securities
   352,589    31.7 % 354,505    31.8 %






Total debt securities available for sale
   $ 1,113,516    100.0 % $ 1,115,036    100.0 %


(dollars in thousands)	June 30, 2019					December 31, 2018
	Fair Value		%			Fair Value		%
Debt securities available for sale:
Obligations of U.S. government agencies	$	630,911		55.6	%	$	629,981		56.5	%
Obligations of states and political subdivisions		125,980		11.1	%		126,072		11.3	%
Corporate bonds		4,521		0.4	%		4,478		0.4	%
Asset backed securities		372,582		32.9	%		354,505		31.8	%

Total debt securities available for sale	$	1,133,994		100.0	%	$	1,115,036		100.0	%

Investment securities held to maturity decreased ~~$13,920,000~~$32,412,000 to ~~$431,016,000~~$412,524,000 as of ~~March 31,~~June 30, 2019, as compared to December 31, 2018. This decrease is attributable to principal repayments of ~~$13,684,000,~~$31,938,000, and amortization of net purchase price premiums of ~~$236,000.~~

$474,000.

The following table presents the held to maturity investment securities portfolio by major type as of ~~March 31,~~June 30, 2019 and December 31, 2018:

(dollars in thousands)    March 31, 2019 December 31, 2018
   Cost Basis    % Cost Basis    %
Debt securities held to maturity:

Obligations of U.S. government and agencies
   $ 416,418    96.6 % $ 430,343    96.7 %
Obligations of states and political subdivisions
   14,598    3.4 % 14,593    3.3 %






Total debt securities held to maturity
   $ 431,016    100 % $ 444,936    100.0 %


(dollars in thousands)	June 30, 2019					December 31, 2018
	Amortized Cost		%			Amortized Cost		%
Debt securities held to maturity:
Obligations of U.S. government and agencies	$	398,714		96.7	%	$	430,343		96.7	%
Obligations of states and political subdivisions		13,810		3.3	%		14,593		3.3	%

Total debt securities held to maturity	$	412,524		100	%	$	444,936		100.0	%

Loans

The Company concentrates its lending activities in four principal areas: real estate mortgage loans (residential and commercial loans), consumer loans, commercial loans (including agricultural loans), and real estate construction loans. The interest rates charged for the loans made by the Company vary with the degree of risk, the size and maturity of the loans, the borrower’s relationship with the Company and prevailing money market rates indicative of the Company’s cost of funds.

The majority of the Company’s loans are direct loans made to individuals, farmers and local businesses. The Company relies substantially on local promotional activity and personal contacts by bank officers, directors and employees to compete with other financial institutions. The Company makes loans to borrowers whose applications include a sound purpose, a viable repayment source and a plan of repayment established at inception and generally backed by a secondary source of repayment.

The following table shows the Company’s loan balances, net deferred loan costs and discounts, as of the dates indicated:

(dollars in thousands)    March 31, 2019 December 31, 2018
Real estate mortgage
   $ 3,129,339    77.6 % $ 3,143,100    78.1 %
Consumer
   418,352    10.4 % 418,982    10.4 %
Commercial
   269,163    6.6 % 276,548    6.9 %
Real estate construction
   217,477    5.4 % 183,384    4.6 %






Total loans
   $ 4,034,331    100 % $ 4,022,014    100 %


(dollars in thousands)	June 30, 2019				December 31, 2018
Real estate mortgage	$	3,178,730	77.5	%	$	3,143,100	78.1	%
Consumer		434,388	10.6	%		418,982	10.4	%
Commercial		276,045	6.7	%		276,548	6.9	%
Real estate construction		214,524	5.2	%		183,384	4.6	%

Total loans	$	4,103,687	100	%	$	4,022,014	100	%

At ~~March 31,~~June 30, 2019 loans, including net deferred loan costs and discounts, totaled ~~$4,034,331,000~~$4,103,687,000 which was a ~~$12,317,000 (0.3%~~$81,673,000 (2.0%) increase over the balances at December 31, 2018.

Table of Contents

Asset Quality and Nonperforming Assets

Nonperforming Assets

The following tables set forth the amount of the Company’s nonperforming assets as of the dates indicated. “Performing nonaccrual loans” are loans that may be current for both principal and interest payments, or are less than 90 days past due, but for which payment in full of both principal and interest is not expected, and are not well secured and in the process of collection:

(dollars in thousands)    March 31, 2019 December 31, 2018
Performing nonaccrual loans
   $ 14,567 $ 22,689
Nonperforming nonaccrual loans
   4,958 4,805


Total nonaccrual loans
   19,525 27,494
Loans 90 days past due and still accruing
   40 —


Total nonperforming loans
   19,565 27,494
Foreclosed assets
   2,315 2,280


Total nonperforming assets
   $ 21,880 $ 29,774


Nonperforming assets to total assets
   0.34 % 0.47 %
Nonperforming loans to total loans
   0.48 % 0.68 %
Allowance for loan losses to nonperforming loans
   164 % 119 %
Allowance for loan losses, unamortized loan fees, and discounts to loan principal balances owed
   2.04 % 2.11 %

   March 31, 2019
(dollars in thousands)    Originated PNCI PCI Total
Performing nonaccrual loans
   $ 10,341 $ 1,443 $ 2,783 $ 14,567
Nonperforming nonaccrual loans
   3,355 1,183 420 4,958


Total nonaccrual loans
   13,696 2,626 3,203 19,525
Loans 90 days past due and still accruing
   40 —   —   40


Total nonperforming loans
   13,736 2,626 3,203 19,565
Foreclosed assets
   1,525 —   790 2,315


Total nonperforming assets
   $ 15,261 $ 2,626 $ 3,993 $ 21,880


U.S. government, including its agencies and its government-sponsored agencies, guaranteed portion of nonperforming loans
   $ 778 $ —   $ 320 $ 1,098
Nonperforming assets to total assets
   0.24 % 0.04 % 0.06 % 0.34 %
Nonperforming loans to total loans
   0.33 % 0.07 % 0.08 % 0.48 %
Allowance for loan losses to nonperforming loans
   226 % 37 % 0.22 % 164 %
Allowance for loan losses, unamortized loan fees, and discounts to loan principal balances owed
   1.32 % 3.58 % 36.23 % 2.04 %


(dollars in thousands)	June 30, 2019			December 31, 2018
Performing nonaccrual loans	$	17,825		$	22,689
Nonperforming nonaccrual loans		3,844			4,805

Total nonaccrual loans		21,669			27,494
Loans 90 days past due and still accruing		22			—

Total nonperforming loans		21,691			27,494
Foreclosed assets		1,548			2,280

Total nonperforming assets	$	23,239		$	29,774

Nonperforming assets to total assets		0.36	%		0.47	%
Nonperforming loans to total loans		0.53	%		0.68	%
Allowance for loan losses to nonperforming loans		152	%		119	%
Allowance for loan losses, unamortized loan fees, and discounts to loan principal balances owed		1.97	%		2.11	%


	June 30, 2019
(dollars in thousands)	Originated			PNCI			PCI			Total
Performing nonaccrual loans	$	11,773		$	3,410		$	2,642		$	17,825
Nonperforming nonaccrual loans		2,360			1,087			397			3,844

Total nonaccrual loans		14,133			4,497			3,039			21,669
Loans 90 days past due and still accruing		22			—			—			22

Total nonperforming loans		14,155			4,497			3,039			21,691
Foreclosed assets		1,103			—			445			1,548

Total nonperforming assets	$	15,258		$	4,497		$	3,484		$	23,239

U.S. government, including its agencies and its government-sponsored agencies, guaranteed portion of nonperforming loans	$	790		$	—		$	294		$	1,084
Nonperforming assets to total assets		0.24	%		0.07	%		0.05	%		0.36	%
Nonperforming loans to total loans		0.35	%		0.11	%		0.07	%		0.53	%
Allowance for loan losses to nonperforming loans		228	%		13	%		0.33	%		152	%
Allowance for loan losses, unamortized loan fees, and discounts to loan principal balances owed		1.29	%		3.60	%		36.11	%		1.97	%

Table of Contents


	December 31, 2018
(dollars in thousands)	Originated			PNCI			PCI			Total
Performing nonaccrual loans	$	16,573		$	1,269		$	4,847		$	22,689
Nonperforming nonaccrual loans		2,843			1,589			373			4,805

Total nonaccrual loans		19,416			2,858			5,220			27,494
Loans 90 days past due and still accruing		—			—			—			—

Total nonperforming loans		19,416			2,858			5,220			27,494
Foreclosed assets		1,490			—			790			2,280

Total nonperforming assets	$	20,906		$	2,858		$	6,010		$	29,774

U.S. government, including its agencies and its government-sponsored agencies, guaranteed portion of nonperforming loans	$	800		$	—		$	—		$	800
Nonperforming assets to total assets		0.33	%		0.04	%		0.09	%		0.47	%
Nonperforming loans to total loans		0.48	%		0.07	%		0.13	%		0.68	%
Allowance for loan losses to nonperforming loans		164	%		23.3	%		2.34	%		119	%
Allowance for loan losses, unamortized loan fees, and discounts to loan principal balances owed		1.39	%		3.48	%		33.69	%		2.11	%

Changes in nonperforming assets during the three months ended ~~March 31,~~June 30, 2019

(in thousands):    Balance at
March 31,
2019    New NPA /
Valuation
Adjustments    Pay-downs
/Sales
/Upgrades Charge-offs/
Write-downs Transfers to
Foreclosed
Assets Balance at
December 31,
2018
Real estate mortgage:

Residential
   $ 2,668    $ —      $ (70 ) $ —   $ (116 ) $ 2,854
Commercial
   8,306    267    (7,007 ) —   —   15,046
Consumer

Home equity lines
   2,434    24    (339 ) —   —   2,749
Home equity loans
   2,587    32    (408 ) —   —   2,963
Other consumer
   70    64    (1 ) —   —   7
Commercial
   3,500    273    (159 ) (489 ) —   3,875
Construction:

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






Total nonperforming loans
   19,565    660    (7,984 ) (489 ) (116 ) 27,494
Foreclosed assets
   2,315    98    (179 ) —   116 2,280






Total nonperforming assets
   $ 21,880    $ 758    $ (8,163 ) $ (489 ) $ —   $ 29,774


(in thousands):	Balance at June 30, 2019		New NPA / Valuation Adjustments			Pay-downs /Sales /Upgrades			Charge-offs/ Write-downs			Transfers to Foreclosed Assets		Balance at March 31, 2019
Real estate mortgage:
Residential	$	4,350	$	2,187		$	(503	)	$	(2	)	$	—	$	2,668
Commercial		8,678		579			(207	)		—			—		8,306
Consumer
Home equity lines		2,476		67			(25	)		—			—		2,434
Home equity loans		2,047		168			(708	)		—			—		2,587
Other consumer		74		81			(40	)		(37	)		—		70
Commercial		4,066		1,126			(422	)		(138	)		—		3,500
Construction:
Residential		—		—			—			—			—		—
Commercial		—		—			—			—			—		—

Total nonperforming loans		21,691		4,208			(1,905	)		(177	)		—		19,565
Foreclosed assets		1,548		(63	)		(704	)		—			—		2,315

Total nonperforming assets	$	23,239	$	4,145		$	(2,609	)	$	(177	)	$	—	$	21,880

The table above does not include deposit overdraft charge-offs.

Nonperforming assets increased during the second quarter of 2019 by $1,359,000 (6.2%) to $23,239,000 at June 30, 2019 compared to $21,880,000 March 31, 2019. The increase in nonperforming assets during the second quarter of 2019 was primarily the result of

pay-downs

and upgrades of nonperforming loans of $1,905,000, write-downs of $177,000 on nonperforming loans, and sales of foreclosed assets of $704,000, that were offset by new nonperforming loans of $4,208,000 and an increase in the valuation of $63,000 in foreclosed property.

The $4,208,000 of new nonperforming loans added during the second quarter of 2019 was mainly comprised of 4 loans totaling $3,746,000, of which $2,765,000 consisted of 3 real estate loans which management believes are sufficiently secured by collateral and $981,000 related to a loan secured by commercial vehicles. Management is actively engaged in the collection and recovery efforts for all nonperforming assets and believes that the specific loan loss reserves associated with these loans is sufficient as of June 30, 2019.

Loan charge-offs during the three months ended June 30, 2019

In the second quarter of 2019, the Company recorded $177,000 in loan charge-offs and $116,000 in deposit overdraft charge-offs less $514,000 in loan recoveries and $46,000 in deposit overdraft recoveries resulting in $267,000 of net recoveries.

Total charge-offs were generally comprised of individual charges of less than $250,000 each. Generally, losses are triggered by

non-performance

by the borrower and calculated based on any difference between the current loan amount and the current value of the underlying collateral less any estimated costs associated with the disposition of the collateral.

Table of Contents

Changes in nonperforming assets during the six months ended June 30, 2019


(in thousands):	Balance at June 30, 2019		New NPA / Valuation Adjustments		Pay-downs /Sales /Upgrades			Charge-offs/ Write-downs			Transfers to Foreclosed Assets			Balance at December 31, 2018
Real estate mortgage:
Residential	$	4,350	$	2,187	$	(573	)	$	(2	)	$	(116	)	$	2,854
Commercial		8,678		846		(7,214	)		—			—			15,046
Consumer
Home equity lines		2,476		91		(364	)		—			—			2,749
Home equity loans		2,047		200		(1,116	)		—			—			2,963
Other consumer		74		145		(41	)		(37	)		—			7
Commercial		4,066		1,399		(581	)		(627	)		—			3,875
Construction:
Residential		—		—		—			—			—			—
Commercial		—		—		—			—			—			—

Total nonperforming loans		21,691		4,868		(9,889	)		(666	)		(116	)		27,494
Foreclosed assets		1,548		35		(883	)		—			116			2,280

Total nonperforming assets	$	23,239	$	4,903	$	(10,772	)	$	(666	)	$	—		$	29,774

The table above does not include deposit overdraft charge-offs.

Nonperforming assets decreased during the first ~~quarter~~half of 2019 by ~~$7,894,000 (26.5%~~$6,535,000 (22.0%) to ~~$21,880,000~~$23,239,000 at ~~March 31,~~June 30, 2019 compared to $29,774,000 at December 31, 2018. The decrease in nonperforming assets during the first ~~quarter~~half of 2019 was primarily the result of

pay-downs

and upgrades of nonperforming loans of ~~$7,984,000,~~$9,889,000, write-downs of ~~$489,000~~$666,000 on nonperforming loans, and sales of foreclosed assets of ~~$179,000,~~$883,000, that were partially offset by new nonperforming assets of ~~$660,000 and an increase in the valuation of a foreclosed property at the time of repossession.~~

$4,902,000.

The ~~$7,984,000~~$6,535,000 in reduction of nonperforming loans during the first ~~quarter~~half of 2019 was mainly comprised of decreases within commercial real estate, and included payoffs of three loans to two relationships with a combined balance $6,818,000. The decrease in home equity lines and loans were comprised of decreases of ~~$339,000~~$1,189,000 from 5998 home equity lines and loans. These decreases were offset by increases in commercial loans of ~~credit~~$191,000 and ~~$408,000 from 34 home equity loans.~~

consumer loans of $66,000.

Loan charge-offs during the ~~three~~six months ended ~~March 31,~~June 30, 2019

In the first ~~quarter~~half of 2019, the Company recorded ~~$614,000~~$791,000 in loan charge-offs and ~~$112,000~~$228,000 in deposit overdraft charge-offs less ~~$1,752,000~~$2,266,000 in loan recoveries and ~~$56,000~~$102,000 in deposit overdraft recoveries resulting in ~~$1,082,000~~$1,349,000 of net ~~charge-offs. Primary causes of the loan charges taken in the first quarter of 2019 were gross charge-offs of $94,000 on 16 consumer loans and $520,000 on 5 C&I loans.~~

~~Total charge-offs were generally comprised of individual charges of less than $250,000 each. Generally losses are triggered bynon-performance~~ by the borrower and calculated based on any difference between the current loan amount and the current value of the underlying collateral less any estimated costs associated with the disposition of the collateral.

recoveries.

~~Allowance for Loan Losses~~

The Components of the Allowance for Loan Losses

The following table sets forth the allowance for loan losses as of the dates indicated:

(dollars in thousands)    March 31,
2019 December 31,
2018
Allowance for originated and PNCI loan losses:

Environmental factors allowance
   $ 10,638 $ 11,577
Formula allowance
   19,669 18,689


Total allowance for originated and PNCI loan losses
   30,307 30,266
Allowance for impaired loans
   1,750 2,194
Allowance for PCI loan losses
   7 122


Total allowance for loan losses
   $ 32,064 $ 32,582


Allowance for loan losses to loans
   0.79 % 0.81 %


(dollars in thousands)	2019			2018
Allowance for originated and PNCI loan losses:
Environmental factors allowance	$	12,455		$	11,577
Formula allowance		17,961			18,689

Total allowance for originated and PNCI loan losses		30,416			30,266
Allowance for impaired loans		2,442			2,194
Allowance for PCI loan losses		10			122

Total allowance for loan losses	$	32,868		$	32,582

Allowance for loan losses to loans		0.80	%		0.81	%

For additional information regarding the allowance for loan losses, including changes in specific, formula, and environmental factors allowance categories, see

“~~Provision for~~Asset Quality and Loan ~~Losses”~~Loss Provisioning”

“Results of Operations” ~~and~~~~“Allowance for Loan Losses”~~

, above. Based on the current conditions of the loan portfolio, management believes that the ~~$32,064,000~~$32,868,000 allowance for loan losses at ~~March 31,~~June 30, 2019 is adequate to absorb probable losses inherent in the Bank’s loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.

Table of Contents

The following table summarizes the allocation of the allowance for loan losses between loan types and by percentage of the total allowance for loan losses as of the dates indicated:

(in thousands)    March 31, 2019 December 31, 2018
Real estate mortgage
   $ 14,830    46.2 % $ 15,620    47.9 %
Consumer
   8,341    26.0 % 8,375    25.7 %
Commercial
   6,078    19.0 % 6,090    18.7 %
Real estate construction
   2,815    8.8 % 2,497    7.7 %






Total allowance for loan losses
   $ 32,064    100.0 % $ 32,582    100.0 %


Real estate mortgage	$	14,675	44.7	%	$	15,620	47.9	%
Consumer		8,552	26.0	%		8,375	25.7	%
Commercial		6,745	20.5	%		6,090	18.7	%
Real estate construction		2,896	8.8	%		2,497	7.7	%

Total allowance for loan losses	$	32,868	100.0	%	$	32,582	100.0	%

The following table summarizes the allocation of the allowance for loan losses as a percentage of the total loans for each loan category as of the dates indicated:

   March 31, 2019 December 31, 2018
Real estate mortgage
   $ 3,129,339    0.47 % $ 3,143,100    0.50 %
Consumer
   418,352    1.99 % 418,982    2.00 %
Commercial
   269,163    2.26 % 276,548    2.20 %
Real estate construction
   217,477    1.29 % 183,384    1.36 %






Total allowance for loan losses
   $ 4,034,331    0.79 % $ 4,022,014    0.81 %


Real estate mortgage	$	3,178,730	0.46	%	$	3,143,100	0.50	%
Consumer		434,388	1.97	%		418,982	2.00	%
Commercial		276,045	2.44	%		276,548	2.20	%
Real estate construction		214,524	1.35	%		183,384	1.36	%

Total allowance for loan losses	$	4,103,687	0.80	%	$	4,022,014	0.81	%

Table of Contents

The following table summarizes the activity in the allowance for loan losses for the periods indicated (dollars in thousands):

   Three months ended March 31,
   2019 2018
Allowance for loan losses:

Balance at beginning of period
   $ 32,582 $ 30,323
Reversal of provision for loan losses
   (1,600 ) (236 )
Loans charged off:

Real estate mortgage:

Residential
   —   (1 )
Commercial
   —   —
Consumer:

Home equity lines
   —   (80 )
Home equity loans
   —   —
Other consumer
   (207 ) (194 )
Commercial
   (519 ) (205 )
Construction:

Residential
   —   —
Commercial
   —   —


Total loans charged off
   (726 ) (480 )
Recoveries of previouslycharged-off loans:

Real estate mortgage:

Residential
   2 —
Commercial
   1,381 15
Consumer:

Home equity lines
   95 209
Home equity loans
   87 14
Other consumer
   75 78
Commercial
   168 50
Construction:

Residential
   —   —
Commercial
   —   —


Total recoveries of previously charged off loans
   1,808 366


Net recoveries (charge-offs)
   1,082 (114 )


Balance at end of period
   $ 32,064 $ 29,973


Average total loans
   $ 4,023,864 $ 3,028,178
Ratios (annualized):

Net charge-offs (recoveries) during period to average loans outstanding during period
   (0.11 )% 0.02 %
Benefit from reversal of loan losses to average loans outstanding during period
   (0.16 )% (0.03 )%


(in thousands)	2019			2018			2019			2018
Allowance for loan losses:
Balance at beginning of period	$	32,064		$	29,973		$	32,582		$	30,323
Reversal of provision for loan losses		537			(638	)		(1,063	)		(874	)
Loans charged off:
Real estate mortgage:
Residential		(2	)		(51	)		(2	)		(52	)
Commercial		—			(15	)		—			(15	)
Consumer:
Home equity lines		—			(24	)		—			(104	)
Home equity loans		—			—			—			—
Other consumer		(153	)		(174	)		(360	)		(368	)
Commercial		(138	)		(54	)		(657	)		(259	)
Construction:
Residential		—			—			—			—
Commercial		—			—			—			—

Total loans charged off		(293	)		(318	)		(1,019	)		(798	)
Recoveries of previously charged-off loans:
Real estate mortgage:
Residential		3			—			5			—
Commercial		10			21			1,391			36
Consumer:
Home equity lines		183			317			278			526
Home equity loans		171			23			258			37
Other consumer		108			66			183			144
Commercial		85			80			253			130
Construction:
Residential		—			—			—			—
Commercial		—			—			—			—

Total recoveries of previously charged off loans		560			507			2,368			873

Net recoveries (charge-offs)		267			189			1,349			75

Balance at end of period	$	32,868		$	29,524		$	32,868		$	29,524

Average total loans	$	4,044,044		$	3,104,126		$	4,033,954		$	3,066,152

Ratios (annualized):
Net charge-offs (recoveries) during period to average loans outstanding during period		(0.03	)%		(0.02	)%		(0.13	)%		(0.01	)%
Benefit from reversal of loan losses to average loans outstanding during period		0.05	%		(0.08	)%		(0.11	)%		(0.11	)%

Table of Contents

Foreclosed Assets, Net of Allowance for Losses

The following tables detail the components and summarize the activity in foreclosed assets, net of allowances for losses for the period ~~indicated (dollars in thousands):~~

   Balance at
March 31,
2019    Sales Valuation
Adjustments    Transfers
from Loans    Balance at
December 31,
2018
Land & Construction
   $ 445    $ —   $ —      $ —      $ 445
Residential real estate
   1,777    (179 ) 98    116    1,742
Commercial real estate
   93    —   —      —      93








Total foreclosed assets
   $ 2,315    $ (179 ) $ 98    $ 116    $ 2,280

indicated:


(in thousands)	Balance at June 30, 2019		Sales			Valuation Adjustments			Transfers from Loans		Balance at December 31, 2018
Land & Construction	$	445	$	—		$	—		$	—	$	445
Residential real estate		1,015		(883	)		40			116		1,742
Commercial real estate		88		—			(5	)		—		93

Total foreclosed assets	$	1,548	$	(883	)	$	35		$	116	$	2,280

Deposits

During the three and six months ended ~~March 31,~~June 30, 2019, the Company’s deposits ~~increased $63,796,000~~decreased $88,089,000 and $24,293,000 respectively to ~~$5,430,262,000.~~$5,342,173,000. Included in the ~~March 31,~~June 30, 2019 and December 31, 2018 certificate of deposit balances are $50,000,000 and $60,000,000, respectively, from the State of California. The Company participates in a deposit program offered by the State of California whereby the State may make deposits at the Company’s request subject to collateral and creditworthiness constraints. The negotiated rates on these State deposits are generally more favorable than other wholesale funding sources available to the Company.

Off-Balance

Sheet Arrangements

See Note 8 to the condensed consolidated financial statements at Item 1 of Part I of this report for information about the Company’s commitments and ~~contingenciesincluding~~contingencies

including

off-balance-sheet

arrangements.

Capital Resources

The current and projected capital position of the Company and the impact of capital plans and long-term strategies are reviewed regularly by Management.

The Company adopted and announced a stock repurchase plan on August 21, 2007 for the repurchase of up to 500,000 shares of the Company’s common stock from time to time as market conditions allow. The 500,000 shares authorized for repurchase under this plan represented approximately 3.2% of the Company’s approximately 15,815,000 common shares outstanding as of August 21, 2007. During the ~~three~~six months ended ~~March 31,~~June 30, 2019, the Company did not repurchase any shares under this plan. This plan has no stated expiration date for the repurchases. As of ~~March 31,~~June 30, 2019, the Company had repurchased 196,566 shares under this plan, which left 303,434 shares available for repurchase under the plan. Shares that are repurchased in accordance with the provisions of a Company stock option plan or equity compensation plan are not counted against the number of shares repurchased under the repurchase plan adopted on August 21, 2007.

The Company’s primary capital resource is shareholders’ equity, which was ~~$853,278,000~~$875,886,000 at ~~March 31,~~June 30, 2019. This amount represents an increase of ~~$25,905,000 (3.1%~~$48,513,000 (5.9%) from December 31, 2018, the net result of comprehensive income for the period of ~~$31,678,000,~~$61,468,000, the effect of equity compensation vesting of ~~$397,000,~~$815,000, and the exercise of stock options of ~~$647,000,~~$2,499,000, that were partially offset by dividends paid of ~~$5,782,000,~~$11,575,000, and repurchase of common stock of ~~$1,035,000.~~$4,694,000. The Company’s ratio of equity to total assets was ~~13.2%~~13.7% and 13.0% as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively. We believe that the Company and the Bank were in compliance with applicable minimum capital requirements set forth in the final Basel III Capital rules as of ~~March 31,~~June 30, 2019. The following summarizes the Company’s ratios of capital to risk-adjusted assets as of the dates indicated:

   March 31, 2019 December 31, 2018
   Ratio Minimum
Regulatory
Requirement Ratio Minimum
Regulatory
Requirement
Total capital
   14.73 % 10.50 % 14.40 % 9.25 %
Tier I capital
   14.00 % 8.50 % 13.66 % 7.25 %
Common equity Tier 1 capital
   12.83 % 7.00 % 12.49 % 5.75 %
Leverage
   10.84 % 4.00 % 10.68 % 4.00 %


	June 30, 2019						December 31, 2018
	Ratio			Minimum Regulatory Requirement			Ratio			Minimum Regulatory Requirement
Total capital		14.93	%		10.50	%		14.40	%		9.25	%
Tier I capital		14.19	%		8.50	%		13.66	%		7.25	%
Common equity Tier 1 capital		13.03	%		7.00	%		12.49	%		5.75	%
Leverage		11.08	%		4.00	%		10.68	%		4.00	%

See Note 9 and Note 15 to the condensed consolidated financial statements at Item 1 of Part I of this report for additional information about the Company’s capital resources.

Table of Contents

Liquidity

The Company’s principal source of asset liquidity is cash at the Federal Reserve Bank of San Francisco (“Federal Reserve”) and other banks and marketable investment securities available for sale. At ~~March 31,~~June 30, 2019, cash at Federal Reserve and other banks in excess of reserve requirements and investment securities available for sale totaled ~~$1,314,124,000,~~$1,136,946,000, or ~~20.3%~~17.8% of total assets, representing an increase of $90,872,000 from $1,223,252,000, or 19.3% of total assets at December 31, 2018. This increase in cash and securities available for sale is due mainly to deposit growth and excess cash received from the maturity and principal repayment of investment securities that was not deployed for new loan originations during the three months ended March 31, 2019.assets. The Company’s profitability during the first ~~three~~six months of 2019 generated cash flows from operations of ~~$22,055,000~~$33,867,000 compared to ~~$23,714,000~~$32,944,000 during the first ~~three~~six months of 2018. Net cash ~~provided by~~used in investing activities was ~~$14,867,000~~$47,403,000 and $144,813,000 during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, respectively. Financing activities used $38,415,000 during the six months ended June 30, 2019, compared to net cash used by investing activities of $60,408,000 during the three months ended March 31, 2018. Financing activities provided net cash of $54,253,000 during the three months ended March 31, 2019, compared to net provided by financing activities of ~~$14,245,000~~$90,503,000 during the ~~three~~six months ended ~~March 31,~~June 30, 2018. Deposit balance ~~increases~~changes accounted for ~~$63,796,000~~($24,293,000) and ~~$75,273,000~~$68,091,000 of financing ~~sources of~~ funds activity during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, respectively. Dividends paid used ~~$5,782,000~~$11,575,000 and ~~$3,903,000~~$7,813,000 of cash during the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, respectively. The Company’s liquidity is dependent on dividends received from the Bank. Dividends from the Bank are subject to certain regulatory restrictions.

Table of Contents~~Item 3. Quantitative and Qualitative Disclosures about Market Risk~~

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The Company’s assessment of market risk as of ~~March 31,~~June 30, 2019 indicates there are no material changes in the quantitative and qualitative disclosures from those in our Annual Report on Form

10-K

for the year ended December 31, 2018.

~~Item 4. Controls and Procedures~~

Item 4.

Controls and Procedures

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~March 31,~~June 30, 2019. Disclosure controls and procedures, as defined inRule

13a-15(e)

under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are controls and procedures designed to reasonably assure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported on a timely basis. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2019.

During the three and six months ended ~~March 31,~~June 30, 2019, there were no changes in our internal controls or in other factors that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

Due to the nature of our business, we are involved in legal proceedings that arise in the ordinary course of our business. While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

Item 1A – Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Part I—Item 1A—Risk Factors” in our Form

10-K

for the year ended December 31, 2018 which are incorporated by reference herein. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report.

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

The following table shows the repurchases made by the Company or any affiliated purchaser (as defined in Rule

10b-18(a)(3)

under the Exchange Act) during the ~~three months ended March 31, 2019:~~

Period
   (a) Total number of
shares purchased⁽¹⁾    (b) Average price
paid per share    (c) Total number of shares
purchased as of part
of publicly announced
plans or programs    (d) Maximum number
of shares that may
yet be purchased under
the plans or programs ⁽²⁾
January1-31, 2019
   45    $ 34.08    —      303,434
February1-28, 2019
   3,414    $ 37.50    —      303,434
March1-31, 2019
   22,700    $ 39.91    —      303,434








Total
   26,159    $ 39.59    —      303,434

periods indicated:


Period	(a) Total number of shares purchased (1)		(b) Average price paid per share		(c) Total number of shares purchased as of part of publicly announced plans or programs		(d) Maximum number of shares that may yet be purchased under the plans or programs (2)
April 1-30, 2019		38,087	$	39.91		—		303,434
May 1-31, 2019		12,487	$	39.88		—		303,434
June 1-30, 2019		43,181	$	38.28		—		303,434

Total		93,755	$	39.16		—		303,434

⁽¹⁾

Includes shares purchased by the Company’s Employee Stock Ownership Plan and pursuant to various other equity incentive plans. See Note 9 to the condensed consolidated financial statements at Item 1 of Part I of this report, for a discussion of the Company’s stock repurchased under equity compensation plans.

⁽²⁾	Does not include shares that may be purchased by the Company’s Employee Stock Ownership Plan and pursuant to various other equity incentive plans.

Table of Contents

Item 6 – Exhibits

EXHIBIT INDEX


~~Exhibit No.~~		~~Exhibit~~
Exhibit No.			Exhibit
~~31.1~~
	31.1		Rule13a-14(a)/15d-14(a) Certification of CEO

~~31.2~~
	31.2		Rule13a-14(a)/15d-14(a) Certification of CFO

~~32.1~~
	32.1		Section 1350 Certification of CEO

~~32.2~~
	32.2		Section 1350 Certification of CFO

~~101.INS~~
	99.1*		Form of Restricted Stock Unit Agreement and Grant Notice for Non-Employee Directors pursuant to TriCo’s 2019 Equity Incentive Plan.

	99.2*		Form of Restricted Stock Unit Agreement and Grant Notice for Employees pursuant to TriCo’s 2019 Equity Incentive Plan.

	99.3*		Form of Performance Award Agreement and Grant Notice pursuant to TriCo’s 2019 Equity Incentive Plan.

	101.INS		XBRL Instance Document

~~101.SCH~~
	101.SCH		XBRL Taxonomy Extension Schema Document

~~101.CAL~~
	101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

~~101.LAB~~
	101.LAB		XBRL Taxonomy Extension Label Linkbase Document

~~101.PRE~~
	101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

~~101.DEF~~
	101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

*	Management contract or compensatory plan or arrangement.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	~~TRICO BANCSHARES~~	TRICO BANCSHARES
	~~(Registrant)~~
	(Registrant)
~~Date: May 9, 2019~~
Date: August 9, 2019		/s/ Peter G. Wiese
		Peter G. Wiese
		Executive Vice President and Chief Financial Officer
		(Duly authorized officer and principal financial and chief accounting officer)


	At March 31,			At December 31,
	2019			2018
Assets:
Cash and due from banks	$	105,103		$	119,781
Cash at Federal Reserve and other banks		213,605			107,752

Cash and cash equivalents		318,708			227,533
Investment securities:
Marketable equity securities		2,910			2,874
Available for sale debt securities		1,113,516			1,115,036
Held to maturity debt securities		431,016			444,936
Restricted equity securities		17,250			17,250
Loans held for sale		5,410			3,687
Loans		4,034,331			4,022,014
Allowance for loan losses		(32,064	)		(32,582	)

Total loans, net		4,002,267			3,989,432
Premises and equipment, net		89,275			89,347
Cash value of life insurance		117,841			117,318
Accrued interest receivable		20,431			19,412
Goodwill		220,972			220,972
Other intangible assets, net		27,849			29,280
Operating leases,right-of-use		30,942			—
Other assets		73,465			75,364

Total assets	$	6,471,852		$	6,352,441

Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Noninterest-bearing demand	$	1,761,559		$	1,760,580
Interest-bearing		3,668,703			3,605,886

Total deposits		5,430,262			5,366,466
Accrued interest payable		2,195			1,997
Operating lease liability		30,204			—
Other liabilities		86,362			83,724
Other borrowings		12,466			15,839
Junior subordinated debt		57,085			57,042

Total liabilities		5,618,574			5,525,068

Commitments and contingencies (Note 8)
Shareholders’ equity:
Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at March 31, 2019 and December 31, 2018		—			—
Common stock, no par value: 50,000,000 shares authorized; 30,432,419 and 30,417,223 issued and outstanding at March 31, 2019 and December 31, 2018, respectively		542,340			541,762
Retained earnings		319,865			303,490
Accumulated other comprehensive loss, net of tax		(8,927	)		(17,879	)

Total shareholders’ equity		853,278			827,373

Total liabilities and shareholders’ equity	$	6,471,852		$	6,352,441


	Three months ended
	March 31,
	2019			2018
Interest and dividend income:
Loans, including fees	$	54,398		$	38,049
Investments:
Taxable securities		10,555			7,322
Tax exempt securities		1,073			1,041
Dividends		360			336
Interest bearing cash at Federal Reserve and other banks		1,071			373

Total interest and dividend income		67,457			47,121

Interest expense:
Deposits		2,719			1,096
Other borrowings		13			342
Junior subordinated debt		855			697

Total interest expense		3,587			2,135

Net interest income		63,870			44,986
Benefit from reversal of provision for loan losses		(1,600	)		(236	)

Net interest income after benefit from reversal of provision for loan losses		65,470			45,222

Noninterest income:
Service charges and fees		9,070			9,356
Gain on sale of loans		412			626
Asset management and commission income		642			876
Increase in cash value of life insurance		775			608
Other		965			824

Total noninterest income		11,864			12,290

Noninterest expense:
Salaries and related benefits		25,128			21,652
Other		20,385			16,510

Total noninterest expense		45,513			38,162

Income before provision for income taxes		31,821			19,350
Provision for income taxes		9,095			5,440

Net income	$	22,726		$	13,910

Earnings per share:
Basic	$	0.75		$	0.61
Diluted	$	0.74		$	0.60


										Accumulated
	Shares of									Other
	Common			Common			Retained			Comprehensive
	Stock			Stock			Earnings			Income (Loss)			Total
Balance at January 1, 2018		22,955,963		$	255,836		$	255,200		$	(5,228	)	$	505,808
Net income								13,910						13,910
Adoption ASU2016-01								(62	)		62			—
Adoption ASU2018-02								1,093			(1,093	)		—
Other comprehensive loss											(10,946	)		(10,946	)
Stock option vesting					37									37
RSU vesting					238									238
PSU vesting					116									116
RSUs released		494												—
Repurchase of common stock		(134	)		(1	)		(3	)					(4	)
Dividends paid ($ 0.17 per share)								(3,903	)					(3,903	)

Balance at March 31, 2018		22,956,323		$	256,226		$	266,235		$	(17,205	)	$	505,256

Balance at January 1, 2019		30,417,223		$	541,762		$	303,490		$	(17,879	)	$	827,373
Net income								22,726						22,726
Other comprehensive income											8,952			8,952
Stock options exercised		41,000			647									647
RSU vesting					278									278
PSU vesting					119									119
RSUs released		355
Repurchase of common stock		(26,159	)		(466	)		(569	)					(1,035	)
Dividends paid ($ 0.19 per share)								(5,782	)					(5,782	)

Balance at March 31, 2019		30,432,419		$	542,340		$	319,865		$	(8,927	)	$	853,278


	For the three months ended March 31,
	2019			2018
Operating activities:
Net income	$	22,726		$	13,910
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment, and amortization		1,838			1,613
Amortization of intangible assets		1,431			339
Reversal of provision for loan losses		(1,600	)		(236	)
Amortization of investment securities premium, net		571			700
Originations of loans for resale		(18,119	)		(20,332	)
Proceeds from sale of loans originated for resale		16,689			23,270
Gain on sale of loans		(412	)		(626	)
Change in market value of mortgage servicing rights		645			(111	)
Provision for losses on foreclosed assets		—			90
Gain on transfer of loans to foreclosed assets		(98	)		—
Gain on sale of foreclosed assets		(99	)		(371	)
Loss on disposal of fixed assets		38			13
Increase in cash value of life insurance		(775	)		(608	)
Gain on life insurance death benefit		(32	)		—
(Gain) loss on marketable equity securities		(36	)		48
Equity compensation vesting expense		397			391
Change in:
Interest receivable		(1,019	)		1,365
Interest payable		198			28
Other assets and liabilities, net		(288	)		4,231

Net cash from operating activities		22,055			23,714

Investing activities:
Proceeds from maturities of securities available for sale		15,133			15,643
Proceeds from maturities of securities held to maturity		13,684			18,535
Purchases of securities available for sale		(1,238	)		(39,647	)
Loan origination and principal collections, net		(11,351	)		(54,682	)
Proceeds from sale of other real estate owned		278			1,943
Proceeds from sale of premises and equipment		11			—
Purchases of premises and equipment		(1,650	)		(2,200	)

Net cash from investing activities		14,867			(60,408	)

Financing activities:
Net increase in deposits		63,796			75,273
Net change in other borrowings		(3,373	)		(57,125	)
Repurchase of common stock, net		(388	)		—
Dividends paid		(5,782	)		(3,903	)

Net cash used by financing activities		54,253			14,245

Net change in cash and cash equivalents		91,175			(22,449	)

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

Cash and cash equivalents at end of year	$	318,708		$	182,979

Supplemental disclosure of noncash activities:
Unrealized gain (loss) on securities available for sale	$	12,710		$	(15,628	)
Loans transferred to foreclosed assets		116			—
Market value of shares tenderedin-lieu of cash to pay for exercise of options and/or related taxes		647			4
Supplemental disclosure of cash flow activity:
Cash paid for interest expense		3,389			2,107
Cash paid for income taxes		—			—


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

Total fair value of consideration transferred		291,132

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

Total assets acquired		1,306,539

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

Total liabilities assumed		1,172,068

Total net assets acquired		134,471

Goodwill recognized	$	156,661


	March 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	631,914	$	1,862	$	(6,676	)	$	627,100
Obligations of states and political subdivisions		128,706		1,242		(599	)		129,349
Corporate bonds		4,394		84		—			4,478
Asset backed securities		356,766		141		(4,318	)		352,589

Total debt securities available for sale	$	1,121,780	$	3,329	$	(11,593	)	$	1,113,516

Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	416,418	$	2,190	$	(2,581	)	$	416,027
Obligations of states and political subdivisions		14,598		173		(25	)		14,746

Total debt securities held to maturity	$	431,016	$	2,363	$	(2,606	)	$	430,773


	Three months ended March 31,
	2019			2018
Change in accretable yield:
Balance at beginning of period	$	6,059		$	6,137
Accretion to interest income		(301	)		(255	)
Reclassification (to) from nonaccretable difference		(11	)		140

Balance at end of period	$	5,747		$	6,022


	Analysis of Originated Past Due Loans - As of March 31, 2019
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		> 90 Days and Still Accruing
Mortgage loans on real estate:
Residential1-4 family	$	2,231	$	—	$	396	$	2,627	$	354,932	$	357,559	$	—
Commercial		767		—		901		1,668		1,927,840		1,929,508		—

Total mortgage loans on real estate		2,998		—		1,297		4,295		2,282,772		2,287,067		—
Consumer:
Home equity lines of credit		1,774		11		362		2,147		276,928		279,075		—
Home equity loans		512		24		163		699		30,546		31,245		17
Other		151		—		9		160		44,860		45,020		9

Total consumer loans		2,437		35		534		3,006		352,334		355,340		26
Commercial		1,122		453		371		1,946		225,368		227,314		14
Construction:
Residential		785		—		—		785		114,903		115,688		—
Commercial		—		—		—		—		64,576		64,576		—

Total construction		785		—		—		785		179,479		180,264		—

Total originated loans	$	7,342	$	488	$	2,202	$	10,032	$	3,039,953	$	3,049,985	$	40


	Non Accrual Loans
	As of March 31, 2019						As of December 31, 2018
(in thousands)	Originated		PNCI		Total		Originated		PNCI		Total
Mortgage loans on real estate:
Residential1-4 family	$	3,066	$	308	$	3,374	$	3,244	$	334	$	3,578
Commercial		4,493		1,445		5,938		9,263		1,468		10,731

Total mortgage loans on real estate		7,559		1,753		9,312		12,507		1,802		14,309
Consumer:
Home equity lines of credit		1,366		501		1,867		1,429		885		2,314
Home equity loans		1,599		36		1,635		1,722		47		1,769
Other		28		4		32		3		4		7

Total consumer loans		2,993		541		3,534		3,154		936		4,090
Commercial		3,144		332		3,476		3,755		120		3,875
Construction:
Residential		—		—		—		—		—		—
Commercial		—		—		—		—		—		—

Total construction		—		—		—		—		—		—

Total non accrual loans	$	13,696	$	2,626	$	16,322	$	19,416	$	2,858	$	22,274


					Weighted
	Number			Option Price	Average
	of Shares			per Share	Exercise Price
Outstanding at December 31, 2018		343,000		$12.63 to $23.21	$		16.67
Options granted		—		— to —			—
Options exercised		(41,000	)	$12.63 to $19.46			15.78
Options forfeited		—		— to —			—

Outstanding at March 31, 2019		302,000		$14.54 to $23.21		$	16.88


	Currently		Currently Not		Total
	Exercisable		Exercisable		Outstanding
Number of options		300,875		1,125		302,000
Weighted average exercise price	$	16.86	$	23.21	$	16.88
Intrinsic value (in thousands)	$	5,095	$	12	$	5,107
Weighted average remaining contractual term (yrs.)		3.4		5.8		3.4


	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range, Weighted Average
December 31, 2018
Impaired Originated & PNCI loans	$	281	Sales comparison approach	Adjustment for differences between comparable sales	(16.3%) - 35.14%; 10.45%
			Income approach	Capitalization rate	N/A
Foreclosed assets (Residential real estate)	$	693	Sales comparison approach	Adjustment for differences between comparable sales	(21.83%) - 7.25%; (3.75%)
Foreclosed assets (Commercial real estate)	$	618	Sales comparison approach	Adjustment for differences between comparable sales	(65%) - 20%; (45%)


						Minimum Capital					Required to be
						Required – Basel III					Considered Well
	Actual					Fully Phased In					Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
As of March 31, 2019:
Total Capital (to Risk Weighted Assets):
Consolidated	$	700,542		14.73	%	$	449,380		10.50	%		N/A		N/A
Tri Counties Bank	$	697,549		14.67	%	$	499,195		10.50	%	$	475,424		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	665,688		14.00	%	$	404,260		8.50	%		N/A		N/A
Tri Counties Bank	$	662,695		13.94	%	$	404,111		8.50	%	$	380,339		8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	610,317		12.83	%	$	332,920		7.00	%		N/A		N/A
Tri Counties Bank	$	662,695		13.94	%	$	332,797		7.00	%	$	309,026		6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	665,688		10.84	%	$	245,649		4.00	%		N/A		N/A
Tri Counties Bank	$	662,695		10.79	%	$	245,643		4.00	%	$	307,054		5.00	%


	For the three months ended
	March 31, 2019							March 31, 2018
			Interest		Rates					Interest		Rates
	Average		Income/		Earned			Average		Income/		Earned
	Balance		Expense		/Paid			Balance		Expense		/Paid
Assets:
Loans	$	4,023,864	$	54,398		5.41	%	$	3,028,178	$	38,049		5.03	%
Investment securities - taxable		1,425,352		10,915		3.06	%		1,125,394		7,658		2.72	%
Investment securities - nontaxable⁽¹⁾		142,232		1,395		3.92	%		136,160		1,353		3.97	%

Total investments		1,567,584		12,310		3.14	%		1,261,554		9,011		2.86	%
Cash at Federal Reserve and other banks		168,518		1,071		2.54	%		90,864		373		1.64	%

Total interest-earning assets		5,759,966		67,779		4.71	%		4,380,596		47,433		4.33	%
Other assets		666,261							360,631

Total assets	$	6,426,227						$	4,741,227

Liabilities and shareholders’ equity:
Interest-bearing demand deposits	$	1,279,639	$	287		0.09	%	$	994,206	$	211		0.08	%
Savings deposits		1,926,339		1,133		0.24	%		1,371,377		411		0.12	%
Time deposits		441,778		1,299		1.18	%		306,514		474		0.62	%

Total interest-bearing deposits		3,647,756		2,719		0.30	%		2,672,097		1,096		0.16	%
Other borrowings		15,509		13		0.34	%		107,781		342		1.27	%
Junior subordinated debt		56,950		855		6.01	%		56,882		697		4.90	%

Total interest-bearing liabilities		3,720,215		3,587		0.39	%		2,836,760		2,135		0.30	%
Noninterest-bearing deposits		1,745,432							1,332,235
Other liabilities		117,490							66,219
Shareholders’ equity		843,090							506,013

Total liabilities and shareholders’ equity	$	6,426,227						$	4,741,227

Net interest spread⁽²⁾						4.32	%						4.03	%
Net interest income and interest margin⁽³⁾			$	64,192		4.46	%			$	45,298		4.14	%


($’s in thousands)	As of March 31,						Acquired		Organic			Organic
Ending balances	2019		2018		$ Change		Balances		$ Change			% Change
Total assets	$	6,471,852	$	4,779,957	$	1,691,895	$	1,463,200	$	228,695			4.8	%
Total loans		4,034,331		3,069,733		964,598		834,683		129,915			4.2	%
Total investments		1,564,692		1,251,776		312,916		335,667		(22,751	)		(1.8	%)
Total deposits	$	5,430,262	$	4,084,404	$	1,345,858	$	991,935	$	353,923			8.7	%


	Three months ended March 31, 2019
	compared with three months
	ended March 31, 2018
	Volume			Rate			Total
Increase in interest income:
Loans	$	12,521		$	3,828		$	16,349
Investment securities⁽¹⁾		2,100			1,199			3,299
Cash at Federal Reserve and other banks		318			380			698

Total interest-earning assets		14,939			5,407			20,346

Increase (decrease) in interest expense:
Interest-bearing demand deposits		57			19			76
Savings deposits		165			557			722
Time deposits		209			616			825
Other borrowings		(293	)		(36	)		(329	)
Junior subordinated debt		1			157			158

Total interest-bearing liabilities		139			1,313			1,452

Increase in net interest income	$	14,800		$	4,094		$	18,894


(dollars in thousands)	March 31, 2019			December 31, 2018
Allowance for originated and PNCI loan losses:
Environmental factors allowance	$	10,638		$	11,577
Formula allowance		19,669			18,689

Total allowance for originated and PNCI loan losses		30,307			30,266
Allowance for impaired loans		1,750			2,194
Allowance for PCI loan losses		7			122

Total allowance for loan losses	$	32,064		$	32,582

Allowance for loan losses to loans		0.79	%		0.81	%


Period	(a) Total number of shares purchased⁽¹⁾		(b) Average price paid per share		(c) Total number of shares purchased as of part of publicly announced plans or programs		(d) Maximum number of shares that may yet be purchased under the plans or programs ⁽²⁾
January1-31, 2019		45	$	34.08		—		303,434
February1-28, 2019		3,414	$	37.50		—		303,434
March1-31, 2019		22,700	$	39.91		—		303,434

Total		26,159	$	39.59		—		303,434