0000356171-24-000020.txt : 20240508
0000356171-24-000020.hdr.sgml : 20240508
20240508162529
ACCESSION NUMBER: 0000356171-24-000020
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 104
CONFORMED PERIOD OF REPORT: 20240331
FILED AS OF DATE: 20240508
DATE AS OF CHANGE: 20240508
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: TRICO BANCSHARES /
CENTRAL INDEX KEY: 0000356171
STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022]
ORGANIZATION NAME: 02 Finance
IRS NUMBER: 942792841
STATE OF INCORPORATION: CA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-10661
FILM NUMBER: 24926597
BUSINESS ADDRESS:
STREET 1: TRICO BANCSHARES
STREET 2: 63 CONSTITUTION DRIVE
CITY: CHICO
STATE: CA
ZIP: 95973
BUSINESS PHONE: 5308980300
MAIL ADDRESS:
STREET 1: TRICO BANCSHARES
STREET 2: 63 CONSTITUTION DRIVE
CITY: CHICO
STATE: CA
ZIP: 95973
10-Q
1
tcbk-20240331.htm
10-Q
tcbk-20240331
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended: March 31, 2024
☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period fromto
Commission File Number: 000-10661
___________________
(Exact Name of Registrant as Specified in Its Charter)
___________________
CA
94-2792841
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
63 Constitution Drive
Chico, California95973
(Address of Principal Executive Offices)(Zip Code)
(530) 898-0300
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
TCBK
The NASDAQ Stock Market
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 ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting 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 in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practical date:
Common stock, no par value: 33,174,385 shares outstanding as of May 6, 2024.
Available for sale debt securities, at fair value (amortized cost of $2,321,608 and $2,384,325)
2,073,888
2,152,504
Held to maturity debt securities, at amortized cost, net of allowance for credit losses of $0
127,811
133,494
Restricted equity securities
17,250
17,250
Loans held for sale
1,346
458
Loans
6,800,695
6,794,470
Allowance for credit losses
(124,394)
(121,522)
Total loans, net
6,676,301
6,672,948
Premises and equipment, net
71,001
71,347
Cash value of life insurance
137,695
136,892
Accrued interest receivable
35,783
36,768
Goodwill
304,442
304,442
Other intangible assets, net
9,522
10,552
Operating leases, right-of-use
26,240
26,133
Other assets
247,046
245,966
Total assets
$
9,813,767
$
9,910,089
Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Noninterest-bearing demand
$
2,600,448
$
2,722,689
Interest-bearing
5,387,210
5,111,349
Total deposits
7,987,658
7,834,038
Accrued interest payable
10,224
8,445
Operating lease liability
28,299
28,261
Other liabilities
131,006
145,982
Other borrowings
392,409
632,582
Junior subordinated debt
101,120
101,099
Total liabilities
8,650,716
8,750,407
Commitments and contingencies (Note 9)
Shareholders’ equity:
Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at March 31, 2024 and December 31, 2023
—
—
Common stock, no par value: 50,000,000 shares authorized; 33,168,770 and 33,268,102 issued and outstanding at March 31, 2024 and December 31, 2023, respectively
696,464
697,349
Retained earnings
630,954
615,502
Accumulated other comprehensive loss, net of tax
(164,367)
(153,169)
Total shareholders’ equity
1,163,051
1,159,682
Total liabilities and shareholders’ equity
$
9,813,767
$
9,910,089
See accompanying notes to unaudited condensed consolidated financial statements.
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 33 California counties. 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.
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. For financial reporting purposes, the Company’s investments in the Capital Trusts of $1.8 million are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet. See the footnote Junior Subordinated Debt for additional information on borrowings outstanding.
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 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”). The Company believes that the disclosures made are adequate to make the information not misleading.
Segment and Significant Group Concentration of Credit Risk
The Company grants agribusiness, commercial, consumer, and residential loans to customers located throughout 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.
Reclassification
Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.
Cash and Cash Equivalents
Net cash flows are reported for loan and deposit transactions and other borrowings. For purposes of the consolidated statement of cash flows, cash, due from banks with original maturities less than 90 days, interest-earning deposits in other banks, and Federal funds sold are considered to be cash equivalents.
Allowance for Credit Losses - Securities
The Company measures expected credit losses on HTM debt securities on a collective basis by major security type, then further disaggregated by sector and bond rating. Accrued interest receivable on HTM debt securities was considered insignificant at March 31, 2024 and December 31, 2023 and is therefore excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts based on current and expected changes in credit ratings and default rates. Based on the implied guarantees of the U. S. Government or its agencies related to certain of these investment securities, and the absence of any historical or expected losses, substantially all qualify for a zero loss
assumption. Management has separately evaluated its HTM investment securities from obligations of state and political subdivisions utilizing the historical loss data represented by similar securities over a period of time spanning nearly 50 years. As a result of this evaluation, management determined that the expected credit losses associated with these securities is not significant for financial reporting purposes and therefore, no allowance for credit losses has been recognized.
The Company evaluates AFS debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the allowance for credit losses and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers' financial condition, among other factors. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. No security credit losses were recognized during the three month periods ended March 31, 2024 and 2023, respectively.
Loans
Loans that management has the intent and ability to hold until maturity or payoff are reported at principle amount outstanding, net of deferred loan fees and costs. Loans are placed in nonaccrual status when reasonable doubt exists as to the full, timely collection of interest or principal, or a loan becomes contractually past due by 90 days or more with respect to interest or principal and is not well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is considered probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of Management, the loan is estimated to be fully collectible as to both principal and interest. Accrued interest receivable is not included in the calculation of the allowance for credit losses.
Allowance for Credit Losses - Loans
The ACL is a valuation account that is deducted from the loan's amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the allowance when management believes the recorded loan balance is confirmed as uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Regardless of the determination that a charge-off is appropriate for financial accounting purposes, the Company manages its loan portfolio by continually monitoring, where possible, a borrower's ability to pay through the collection of financial information, delinquency status, borrower discussion and the encouragement to repay in accordance with the original contract or modified terms, if appropriate.
Management estimates the allowance balance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Historical credit loss experience provides the basis for the estimation of expected credit losses, which captures loan balances as of a point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over the remaining life. The Company identified and accumulated loan cohort historical loss data beginning with the fourth quarter of 2008 and through the current period. In situations where the Company's actual loss history was not statistically relevant, the loss history of peers, defined as financial institutions with assets greater than three billion and less than ten billion, were utilized to create a minimum loss rate. Adjustments to historical loss information are made for differences in relevant current loan-specific risk characteristics, such as historical timing of losses relative to the loan origination. In its loss forecasting framework, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. These macroeconomic scenarios incorporate variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to changes in environmental conditions, such as California unemployment rates, household debt levels, changes in corporate debt yields, and U.S. gross domestic product.
PCD assets are assets acquired at a discount that is due, in part, to credit quality deterioration since origination. PCD assets are accounted for in accordance with ASC 326-20 and are initially recorded at fair value, by taking the sum of the present value of expected future cash flows and an allowance for credit losses, at acquisition. The allowance for credit losses for PCD assets is recorded through a gross-up of reserves on the balance sheet, while the allowance for acquired non-PCD assets, such as loans, is recorded through the provision for credit losses on the income statement, consistent with originated loans. Subsequent to acquisition, the allowance for credit losses for PCD loans will generally follow the same forward-looking estimation, provision, and charge-off process as non-PCD acquired and originated loans.
The Company has identified the following portfolio segments to evaluate and measure the allowance for credit loss:
Commercial real estate:
Commercial real estate - Non-owner occupied: These commercial properties typically consist of buildings which are leased to others for their use and rely on rents as the primary source of repayment. Property types are predominantly office, retail, or light industrial but the portfolio also has some special use properties. As such, the risk of loss associated with these properties is primarily driven by general
economic changes or changes in regional economies and the impact of such on a tenant’s ability to pay. Ultimately this can affect occupancy, rental rates, or both. Additional risk of loss can come from new construction resulting in oversupply, the costs to hold or operate the property, or changes in interest rates. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years.
Commercial real estate - Owner occupied: These credits are primarily susceptible to changes in the financial condition of the business operated by the property owner. This may be driven by changes in, among other things, industry challenges, factors unique to the operating geography of the borrower, change in the individual fortunes of the business owner, general economic conditions and changes in business cycles. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven more by general economic conditions, the underlying collateral may have devalued more and thus result in larger losses in the event of default. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years.
Multifamily: These commercial properties are generally comprised of more than four rentable units, such as apartment buildings, with each unit intended to be occupied as the primary residence for one or more persons. Multifamily properties are also subject to changes in general or regional economic conditions, such as unemployment, ultimately resulting in increased vacancy rates or reduced rents or both. In addition, new construction can create an oversupply condition and market competition resulting in increased vacancy, reduced market rents, or both. Due to the nature of their use and the greater likelihood of tenant turnover, the management of these properties is more intensive and therefore is more critical to the preclusion of loss.
Farmland: While the Company has few loans that were originated for the purpose of the acquisition of these commercial properties, loans secured by farmland represent unique risks that are associated with the operation of an agricultural businesses. The valuation of farmland can vary greatly over time based on the property's access to resources including but not limited to water, crop prices, foreign exchange rates, government regulation or restrictions, and the nature of ongoing capital investment needed to maintain the quality of the property. Loans secured by farmland typically represent less risk to the Company than other agriculture loans as the real estate typically provides greater support in the event of default or need for longer term repayment.
Consumer loans:
SFR 1-4 1st DT Liens: The most significant drivers of potential loss within the Company's residential real estate portfolio relate general, regional, or individual changes in economic conditions and their effect on employment and borrowers cash flow. Risk in this portfolio is best measured by changes in borrower credit score and loan-to-value. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the value of homes and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.
SFR HELOCs and Junior Liens: Similar to residential real estate term loans, HELOCs and junior liens performance is also primarily driven by borrower cash flows based on employment status. However, HELOCs carry additional risks associated with the fact that most of these loans are secured by a deed of trust in a position that is junior to the primary lien holder. Furthermore, the risk that as the borrower's financial strength deteriorates, the outstanding balance on these credit lines may increase as they may only be canceled by the Company if certain limited criteria are met. In addition to the allowance for credit losses maintained as a percent of the outstanding loan balance, the Company maintains additional reserves for the unfunded portion of the HELOC.
Other: The majority of consumer loans are secured by automobiles, with the remainder primarily unsecured revolving debt (credit cards). These loans are susceptible to three primary risks; non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value, if any. Typically non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of those factors. Credit card loans are unsecured and while collection efforts are pursued in the event of default, there is typically limited opportunity for recovery. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.
Commercial and Industrial:
Repayment of these loans is primarily based on the cash flow of the borrower, and secondarily on the underlying collateral provided by the borrower. A borrower's cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Most often, collateral includes accounts receivable, inventory, or equipment. Collateral securing these loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business. Actual and forecast changes in gross domestic product are believed to be corollary to losses associated with these credits.
Construction:
While secured by real estate, construction loans represent a greater level of risk than term real estate loans due to the nature of the additional risks associated with the not only the completion of construction within an estimated time period and budget, but also the need to either sell the building or reach a level of stabilized occupancy sufficient to generate the cash flows necessary to support debt service and operating costs. The Company seeks to mitigate the additional risks associated with construction lending by requiring borrowers to comply with lower loan to value ratios and additional covenants as well as strong tertiary support of guarantors. The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset as adjusted for macroeconomic factors.
Repayment of agricultural loans is dependent upon successful operation of the agricultural business, which is greatly impacted by factors outside the control of the borrower. These factors include adverse weather conditions, including access to water, that may impact crop yields, loss of livestock due to disease or other factors, declines in market prices for agriculture products, changes in foreign exchange, and the impact of government regulations. In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect the successful operation of the business. Consequently, agricultural production loans may involve a greater degree of risk than other types of loans.
Leases:
The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset. Leases typically represent an elevated level of credit risk as compared to loans secured by real estate as the collateral for leases is often subject to a more rapid rate of depreciation or depletion. The ultimate severity of loss is impacted by the type of collateral securing the exposure, the size of the exposure, the borrower’s industry sector, any guarantors and the geographic market. Assumptions of expected loss are conditioned to the economic outlook and the other variables discussed above.
Unfunded commitments:
The estimated credit losses associated with these unfunded lending commitments is calculated using the same models and methodologies noted above and incorporate utilization assumptions at time of default. The reserve for unfunded commitments is maintained on the consolidated balance sheet in other liabilities.
Accounting Standards Recently Issued or Adopted
FASB issued ASU 2024-02, Codification Improvements— Amendments to Remove References to the Concepts Statements. This ASU facilitates Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance, and other minor improvements. The resulting amendments are referred to as Codification improvements. The amendments in this Update are not intended to result in significant accounting change for most entities. However, the Board recognizes that changes to that guidance may result in accounting change for some entities. Therefore, the amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2024. The adoption of this accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements.
Note 2 - Investment Securities
The amortized cost, estimated fair values and allowance for credit losses of investments in debt securities are summarized in the following tables:
There were no sales of investment securities during the three months ended March 31, 2024. Proceeds from the sale of investment securities totaled $24.2 million for the three months ended March 31, 2023, resulting in gross realized losses of $0.2 million. Investment securities with an aggregate carrying value of $741.5 million and $702.2 million at March 31, 2024 and December 31, 2023, respectively, were pledged as collateral for specific borrowings, lines of credit or local agency deposits.
The amortized cost and estimated fair value of debt securities at March 31, 2024 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, 2024, obligations of U.S. government corporations and agencies with a cost basis totaling $1.3 billion 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, 2024, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately 7.25 years. Average remaining life is defined as the time span after which the principal balance has been reduced by half.
As of March 31, 2024, the contractual final maturity for available for sale and held to maturity investment securities is as follows:
Debt Securities
Available for Sale
Held to Maturity
(in thousands)
Amortized Cost
Estimated Fair Value
Amortized Cost
Estimated Fair Value
Due in one year
$
51,718
$
51,226
$
—
$
—
Due after one year through five years
49,150
46,062
5,396
5,206
Due after five years through ten years
371,852
358,110
92,951
86,475
Due after ten years
1,848,888
1,618,490
29,464
26,847
Totals
$
2,321,608
$
2,073,888
$
127,811
$
118,528
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:
Obligations of U.S. government agencies: The unrealized losses on investments in obligations of U.S. government agencies are caused by interest rate increases and illiquidity. The contractual cash flows of these securities are guaranteed by U.S. Government Sponsored Entities (principally Fannie Mae and Freddie Mac). It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded. At March 31, 2024, 168 debt securities representing obligations of U.S. government agencies had unrealized losses with aggregate depreciation of 13.29% from the Company’s amortized cost basis.
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 management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of March 31, 2024. At March 31, 2024, 157 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of 11.25% from the Company’s amortized cost basis.
Corporate bonds: The unrealized losses on investments in corporate bonds 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 management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of March 31, 2024. At March 31, 2024, 6 debt securities representing corporate bonds had unrealized losses with aggregate depreciation of 6.95% from the Company’s amortized cost basis.
Asset backed securities: The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors for these types of securities. At the time of purchase, each of these securities was rated AA or AAA and through March 31, 2024
has not experienced any deterioration in credit rating. At March 31, 2024, 29 asset backed securities had unrealized losses with aggregate depreciation of 1.56% from the Company’s amortized cost basis. The Company continues to monitor these securities for changes in credit rating or other indications of credit deterioration. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of March 31, 2024.
Non-agency collateralized mortgage obligations: The unrealized losses on investments in asset backed securities 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 management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses as of and for the year ended March 31, 2024. At March 31, 2024, 22 asset backed securities had unrealized losses with aggregate depreciation of 10.59% from the Company’s amortized cost basis.
The Company monitors credit quality of debt securities held-to-maturity through the use of credit rating. The Company monitors the credit rating on a monthly basis. The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator:
March 31, 2024
December 31, 2023
(in thousands)
AAA/AA/A
BBB/BB/B
AAA/AA/A
BBB/BB/B
Obligations of U.S. government agencies
$
125,131
$
—
$
130,823
$
—
Obligations of states and political subdivisions
2,680
—
2,671
—
Total debt securities held to maturity
$
127,811
$
—
$
133,494
$
—
Note 3 – Loans
A summary of loan balances at amortized cost are as follows:
(in thousands)
March 31, 2024
December 31, 2023
Commercial real estate:
CRE non-owner occupied
$
2,220,568
$
2,217,806
CRE owner occupied
974,968
956,440
Multifamily
982,290
949,502
Farmland
265,942
271,054
Total commercial real estate loans
4,443,768
4,394,802
Consumer:
SFR 1-4 1st DT liens
883,520
883,438
SFR HELOCs and junior liens
345,223
356,813
Other
75,014
73,017
Total consumer loans
1,303,757
1,313,268
Commercial and industrial
549,780
586,455
Construction
348,981
347,198
Agriculture production
145,159
144,497
Leases
9,250
8,250
Total loans, net of deferred loan fees and discounts
$
6,800,695
$
6,794,470
Total principal balance of loans owed, net of charge-offs
$
6,839,589
$
6,834,935
Unamortized net deferred loan fees
(15,588)
(15,826)
Discounts to principal balance of loans owed, net of charge-offs
(23,306)
(24,639)
Total loans, net of unamortized deferred loan fees and discounts
For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities:
Allowance for credit losses – Three months ended March 31, 2024
(in thousands)
Beginning Balance
Charge-offs
Recoveries
Provision (benefit)
Ending Balance
Commercial real estate:
CRE non-owner occupied
$
35,077
$
—
$
—
$
1,610
$
36,687
CRE owner occupied
15,081
—
—
1,030
16,111
Multifamily
14,418
—
—
1,264
15,682
Farmland
4,288
—
—
(593)
3,695
Total commercial real estate loans
68,864
—
—
3,311
72,175
Consumer:
SFR 1-4 1st DT liens
14,009
(26)
—
157
14,140
SFR HELOCs and junior liens
10,273
(32)
49
(348)
9,942
Other
3,171
(250)
40
398
3,359
Total consumer loans
27,453
(308)
89
207
27,441
Commercial and industrial
12,750
(130)
22
(775)
11,867
Construction
8,856
—
—
306
9,162
Agriculture production
3,589
(837)
21
935
3,708
Leases
10
—
—
31
41
Allowance for credit losses on loans
121,522
(1,275)
132
4,015
124,394
Reserve for unfunded commitments
5,850
—
—
290
6,140
Total
$
127,372
$
(1,275)
$
132
$
4,305
$
130,534
In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various econometrics, including California unemployment, gross domestic product, and corporate bond yields. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results.
The Company utilizes a forecast period of approximately eight quarters and obtains the forecast data from publicly available sources as of the balance sheet date. This forecast data continues to evolve and includes improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date. Despite continued declines on a year over year comparative basis, core inflation remains elevated from wage pressures, and higher living costs such as housing, energy and food prices. Management notes the rapid intervals of rate increases by the Federal Reserve may create repricing risk for certain borrowers and continued inversion of the yield curve, creates informed expectations of the US potentially entering a recession within 12 months. While projected cuts in interest rates from the Federal Reserve during 2024 may improve this outlook, the uncertainty associated with the extent and timing of these potential reductions has inhibited a change to forecasted reserve levels. As a result, management continues to believe that certain credit weaknesses are likely present in the overall economy and that it is appropriate to maintain a reserve level that incorporates such risk factors.
For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities:
Allowance for credit losses – Year ended December 31, 2023
(in thousands)
Beginning Balance
Charge-offs
Recoveries
Provision (benefit)
Ending Balance
Commercial real estate:
CRE non-owner occupied
$
30,962
$
—
$
—
$
4,115
$
35,077
CRE owner occupied
14,014
(3,637)
2
4,702
15,081
Multifamily
13,132
—
—
1,286
14,418
Farmland
3,273
—
—
1,015
4,288
Total commercial real estate loans
61,381
(3,637)
2
11,118
68,864
Consumer:
SFR 1-4 1st DT liens
11,268
—
262
2,479
14,009
SFR HELOCs and junior liens
11,413
(66)
723
(1,797)
10,273
Other
1,958
(558)
190
1,581
3,171
Total consumer loans
24,639
(624)
1,175
2,263
27,453
Commercial and industrial
13,597
(3,879)
316
2,716
12,750
Construction
5,142
—
—
3,714
8,856
Agriculture production
906
—
34
2,649
3,589
Leases
15
—
—
(5)
10
Allowance for credit losses on loans
105,680
(8,140)
1,527
22,455
121,522
Reserve for unfunded commitments
4,315
—
—
1,535
5,850
Total
$
109,995
$
(8,140)
$
1,527
$
23,990
$
127,372
Allowance for credit losses – Three months ended March 31, 2023
(in thousands)
Beginning Balance
Charge-offs
Recoveries
Provision (benefit)
Ending Balance
Commercial real estate:
CRE non-owner occupied
$
30,962
$
—
$
—
$
2,001
$
32,963
CRE owner occupied
14,014
—
—
545
14,559
Multifamily
13,132
—
—
741
13,873
Farmland
3,273
—
—
269
3,542
Total commercial real estate loans
61,381
—
—
3,556
64,937
Consumer:
SFR 1-4 1st DT liens
11,268
—
—
652
11,920
SFR HELOCs and junior liens
11,413
(42)
65
(522)
10,914
Other
1,958
(142)
51
195
2,062
Total consumer loans
24,639
(184)
116
325
24,896
Commercial and industrial
13,597
(1,574)
53
(7)
12,069
Construction
5,142
—
—
513
5,655
Agriculture production
906
—
1
(74)
833
Leases
15
—
—
2
17
Allowance for credit losses on loans
105,680
(1,758)
170
4,315
108,407
Reserve for unfunded commitments
4,315
—
—
(120)
4,195
Total
$
109,995
$
(1,758)
$
170
$
4,195
$
112,602
As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including, but not limited to, trends relating to (i) the level of criticized and classified loans, (ii) net charge-offs, (iii) non-performing loans, and (iv) delinquency within the portfolio. The Company analyzes loans individually to classify the loans as to credit risk and grading. This analysis is performed annually for all outstanding balances greater than $1 million and non-homogeneous loans, such as commercial real
estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation. Loans below the $1 million threshold and homogenous in nature are evaluated as needed for proper grading based on delinquency and borrower credit scores.
The Company utilizes a risk grading system to assign a risk grade to each of its loans. Loans are graded on a scale ranging from Pass to Loss. A description of the general characteristics of the risk grades is as follows:
•Pass – 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.
Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the period indicated:
Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2024
Analysis of Past Due Loans - As of December 31, 2023
(in thousands)
30-59 days
60-89 days
> 90 days
Total Past Due Loans
Current
Total
Commercial real estate:
CRE non-owner occupied
$
3,876
$
—
$
1,382
$
5,258
$
2,212,548
$
2,217,806
CRE owner occupied
34
—
247
281
956,159
956,440
Multifamily
—
—
—
—
949,502
949,502
Farmland
635
3,798
2,052
6485
264,569
271,054
Total commercial real estate loans
4,545
3,798
3,681
12,024
4,382,778
4,394,802
Consumer:
SFR 1-4 1st DT liens
141
1,449
490
2,080
881,358
883,438
SFR HELOCs and junior liens
16
—
623
639
356,174
356,813
Other
148
40
30
218
72,799
73,017
Total consumer loans
305
1,489
1,143
2,937
1,310,331
1,313,268
Commercial and industrial
244
605
1,654
2,503
583,952
586,455
Construction
—
—
—
—
347,198
347,198
Agriculture production
593
878
33
1,504
142,993
144,497
Leases
447
—
—
447
7,803
8,250
Total
$
6,134
$
6,770
$
6,511
$
19,415
$
6,775,055
$
6,794,470
The following table shows the ending balance of non accrual loans by loan category as of the date indicated:
Non Accrual Loans
As of March 31, 2024
As of December 31, 2023
(in thousands)
Non accrual with no allowance for credit losses
Total non accrual
Past due 90 days or more and still accruing
Non accrual with no allowance for credit losses
Total non accrual
Past due 90 days or more and still accruing
Commercial real estate:
CRE non-owner occupied
$
4,113
$
4,113
$
—
$
2,024
$
2,024
$
—
CRE owner occupied
3,905
3,905
—
3,994
3,994
—
Multifamily
—
—
—
—
—
—
Farmland
8,926
13,780
—
5,996
14,484
—
Total commercial real estate loans
16,944
21,798
—
12,014
20,502
—
Consumer:
SFR 1-4 1st DT liens
4,821
5,094
—
2,808
2,811
—
SFR HELOCs and junior liens
3,110
3,403
—
3,281
3,571
—
Other
64
99
—
39
105
—
Total consumer loans
7,995
8,596
—
6,128
6,487
—
Commercial and industrial
1,535
2,301
107
1,379
2,503
10
Construction
64
64
—
67
67
—
Agriculture production
311
1,376
—
—
2,322
—
Leases
—
—
—
—
—
—
Sub-total
26,849
34,135
107
19,588
31,881
10
Less: Guaranteed loans
(801)
(872)
—
(766)
(878)
Total, net
$
26,048
$
33,263
$
107
$
18,822
$
31,003
$
10
Interest income on non accrual loans that would have been recognized during the three months ended March 31, 2024 and 2023, if all such loans had been current in accordance with their original terms, totaled $0.85 million and $0.32 million, respectively. Interest income actually recognized on these originated loans during the three months ended March 31, 2024 and 2023 was $0.1 million and $0.02 million, respectively.
Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.
The following tables show the amortized cost basis of loans that were both experiencing financial difficulty and modified during the periods presented. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivables is also presented below.
For the three months ended
March 31, 2024
March 31, 2023
(in thousands)
Combination - Term Extension/Rate Change
Payment Delay/Term Extension
Total % of Loans Outstanding
Payment Delay/Term Extension
Total % of Loans Outstanding
CRE non-owner occupied
$
211
$
—
0.03
%
$
—
—
%
SFR HELOCs and junior liens
—
41
0.01
—
—
Commercial and industrial
—
516
0.07
177
0.03
Total
$
211
$
557
0.11
%
$
177
0.03
%
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the quarter ended March 31, 2024.
Modification Type
Loan Type
Financial Effect
Combination - Term extension / rate change
CRE non-owner occupied
Added 120 months to the life of the loan; converted from variable to fixed interest rate
Payment delay / term extension
SFR HELOCs and junior liens
Added 60 months to the life of the loan
Payment delay / term extension
Commercial and industrial
Added 66 months to the life of the loan
Payment delay / term extension
Commercial and industrial
Added 12 months to the life of the loan
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the quarter ended March 31, 2023.
Modification Type
Loan Type
Financial Effect
Payment delay / term extension
Commercial and industrial
Added 12 months to the life of the loan to delay balloon repayment
During the quarters ended March 31, 2024 and March 31, 2023, respectively, there were no loans with payment defaults by borrowers experiencing financial difficulty which had material modifications in rate, term or principal forgiveness during the twelve months prior to default.
Note 5 - Leases
The Company records a 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 also records a lease liability on the consolidated balance sheets for the present value of future payment commitments. All of the Company’s leases are comprised of operating leases in which the Company is lessee of real estate property for branches, ATM locations, and general administration and operations. The Company has elected not to include short-term leases (i.e. leases with initial terms of 12 month 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. 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 periods ended:
Three months ended March 31,
(in thousands)
2024
2023
Operating lease cost
$
1,434
$
1,609
Short-term lease cost
52
118
Variable lease cost
13
12
Sublease income
—
—
Total lease cost
$
1,499
$
1,739
The following table presents supplemental cash flow information related to leases for the periods ended:
Three months ended March 31,
(in thousands)
2024
2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
$
1,568
$
1,653
ROUA obtained in exchange for operating lease liabilities
$
1,327
$
4,484
The following table presents the weighted average operating lease term and discount rate as of the period ended:
March 31,
2024
2023
Weighted-average remaining lease term (years)
7.9
8.3
Weighted-average discount rate
3.42
%
3.27
%
At March 31, 2024, future expected operating lease payments are as follows:
(in thousands)
Periods ending December 31,
2024
$
4,376
2025
5,337
2026
4,799
2027
4,114
2028
3,061
Thereafter
10,973
32,660
Discount for present value of expected cash flows
(4,361)
Lease liability at March 31, 2024
$
28,299
Note 6 - Deposits
A summary of the balances of deposits follows:
(in thousands)
March 31, 2024
December 31, 2023
Noninterest-bearing demand
$
2,600,448
$
2,722,689
Interest-bearing demand
1,742,875
1,731,814
Savings
2,672,537
2,682,068
Time certificates, $250,000 or more
375,222
250,180
Other time certificates
596,576
447,287
Total deposits
$
7,987,658
$
7,834,038
Certificate of deposit balances of $100.0 million and $50.0 million from the State of California were included in time certificates, over $250,000, at March 31, 2024 and December 31, 2023, 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 $1.7 million and $1.8 million were classified as consumer loans at March 31, 2024 and December 31, 2023, respectively.
Note 7 - Other Borrowings
A summary of the balances of other borrowings follows:
March 31, 2024
December 31, 2023
(in thousands)
Term borrowing at FHLB, fixed rate of 4.75%, payable on April 8, 2024
$
200,000
$
200,000
Overnight borrowing at FHLB, fixed rate of 5.69%, payable on April 1, 2024
167,000
—
Overnight borrowing at FHLB, fixed rate of 5.70%, payable on January 2, 2024
—
400,000
Other collateralized borrowings, fixed rate, as of March 31, 2024 and December 31, 2023 of 0.05%, payable on April 1, 2024 and January 2, 2024, respectively
25,409
32,582
Total other borrowings
$
392,409
$
632,582
Note 8 - Junior Subordinated Debt
The following table summarizes the terms and recorded balances of each debenture as of the date indicated:
(in thousands)
Coupon Rate (Variable) 3 mo. SOFR +
As of March 31, 2024
As of December 31, 2023
Subordinated Debt Series
Maturity Date
Face Value
Current Coupon Rate
Recorded Book Value
Recorded Book Value
TriCo Cap Trust I
10/7/2033
$
20,619
3.05
%
8.63
%
$
20,619
$
20,619
TriCo Cap Trust II
7/23/2034
20,619
2.55
%
8.13
%
20,619
20,619
North Valley Trust II
4/24/2033
6,186
3.25
%
8.82
%
5,629
5,602
North Valley Trust III
7/23/2034
5,155
2.80
%
8.38
%
4,495
4,472
North Valley Trust IV
3/15/2036
10,310
1.33
%
6.92
%
7,673
7,615
VRB Subordinated
3/29/2029
16,000
3.52
%
9.08
%
16,953
17,000
VRB Subordinated - 5%
8/27/2035
20,000
Fixed
5.00
%
25,132
25,172
$
98,889
$
101,120
$
101,099
The VRB - 5% Subordinated Debt issuance is fixed at 5.0% through August 27, 2025, then will have a floating rate of 90-day average SOFR plus 4.9% until maturity.
Note 9 - Commitments and Contingencies
The following table presents a summary of the Bank’s commitments and contingent liabilities:
The Bank paid to the Company cash dividends in the aggregate amounts of $20.4 million and $18.2 million during the three months ended March 31, 2024 and 2023, respectively. The Bank is regulated by the FDIC and the DFPI. Absent approval from the Commissioner of the DFPI, 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 February 25, 2021, the Board of Directors authorized the repurchase of up to 2.0 million shares of the Company's common stock (the 2021 Repurchase Plan), which approximated 6.7% of the shares outstanding as of the approval date. The actual timing of any share repurchases can be determined by the Company's management and therefore the total value of the shares to be purchased under the 2021 Repurchase Plan is subject to change. The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations). During the three months ended March 31, 2024 and 2023, the Company repurchased 99,332 and 150,000 shares with market values of $3.4 million and $7.0 million, respectively.
Stock Repurchased Under Equity Compensation Plans
The Company's shareholder-approved equity compensation plans permit employees to tender recently vested shares in lieu of cash for the payment of exercise price, if applicable, and the tax withholding on such shares. During the three months ended March 31, 2024 and 2023, exercising option holders tendered zero shares, respectively, of the Company’s common stock in connection with option exercises. Employees also tendered zero and 12,381 shares in connection with the tax withholding requirements of other share-based awards during the three months ended March 31, 2024 and 2023, respectively. In total, shares of the Company's common stock tendered had market values of zero and $0.6 million during the quarters ended March 31, 2024 and 2023, respectively. The tendered shares were retired. The market value of tendered shares is the last market trade price at closing on the day an option is exercised or the other share-based award vests. Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the 2021 Stock Repurchase Plans.
Note 11 - Stock Options and Other Equity-Based Incentive Instruments
On April 16, 2019, the Board of Directors adopted the 2019 Equity Incentive Plan (2019 Plan) which was approved by shareholders on May 21, 2019. The 2019 Plan allows for up to 1,500,000 shares to be issued in connection with equity-based incentives. The Company’s 2009 Equity Incentive Plan (2009 Plan) expired on March 26, 2019. While no new awards can be granted under the 2009 Plan, existing grants continue to be governed by the terms, conditions and procedures set forth in any applicable award agreement.
Stock option activity during the three months ended March 31, 2024, is summarized in the following table:
Number of Shares
Weighted Average Exercise Price
Outstanding at December 31, 2023
7,500
$
23.21
Options granted
—
—
Options exercised
—
—
Options forfeited
—
—
Outstanding at March 31, 2024
7,500
$
23.21
The following table shows the number, weighted-average exercise price, intrinsic value, and weighted average remaining contractual life of options exercisable, options not yet exercisable and total options outstanding as of March 31, 2024:
Currently Exercisable
Currently Not Exercisable
Total Outstanding
Number of options
7,500
—
7,500
Weighted average exercise price
$
23.21
$
—
$
23.21
Intrinsic value (in thousands)
$
102
$
—
$
102
Weighted average remaining contractual term (yrs.)
0.5
n/a
0.5
As of March 31, 2024, all options outstanding are fully vested and are expected to be exercised prior to expiration. The Company did not modify any option grants during the three months ended March 31, 2024 or 2023.
Activity related to restricted stock unit awards during the three months ended March 31, 2024 is summarized in the following table:
RSUs added through dividend and performance credits
1,968
—
RSUs released
—
—
RSUs forfeited
(1,063)
(1,204)
Outstanding at March 31, 2024
210,559
178,414
The 210,559 of service condition vesting RSUs outstanding as of March 31, 2024 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 210,559 of service condition vesting RSUs outstanding as of March 31, 2024 are expected to vest, and be released, on a weighted-average basis, over the next 2.2 years. The Company expects to recognize $5.4 million of pre-tax compensation costs related to these service condition vesting RSUs between March 31, 2024 and their vesting dates. The Company did not modify any service condition vesting RSUs during the three months ended March 31, 2024 or 2023.
The 178,414 of market plus service condition vesting RSUs outstanding as of March 31, 2024 are expected to vest, and be released, on a weighted-average basis, over the next 2.3 years. The Company expects to recognize $3.0 million of pre-tax compensation costs related to these RSUs between March 31, 2024 and their vesting dates. As of March 31, 2024, 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 267,621 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 2023 or during the three months ended March 31, 2024.
Note 12 - Non-interest Income and Expense
The following table summarizes the Company’s non-interest income for the periods indicated:
The components of non-interest expense were as follows:
Three months ended March 31,
(in thousands)
2024
2023
Base salaries, net of deferred loan origination costs
$
24,020
$
23,000
Incentive compensation
3,257
2,895
Benefits and other compensation costs
7,027
6,668
Total salaries and benefits expense
34,304
32,563
Occupancy
3,951
4,160
Data processing and software
5,107
4,032
Equipment
1,356
1,383
Intangible amortization
1,030
1,656
Advertising
762
759
ATM and POS network charges
1,661
1,709
Professional fees
1,340
1,589
Telecommunications
511
595
Regulatory assessments and insurance
1,251
792
Postage
308
299
Operational losses
352
435
Courier service
480
339
(Gain) on sale or acquisition of foreclosed assets
(38)
—
Gain on disposal of fixed assets
5
—
Other miscellaneous expense
4,124
3,483
Total other non-interest expense
22,200
21,231
Total non-interest expense
$
56,504
$
53,794
Note 13 - 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 to outstanding stock options and restricted stock units (RSUs), and are determined using the treasury stock method. Earnings per share have been computed based on the following:
Three months ended March 31,
(in thousands)
2024
2023
Net income
$
27,749
$
35,833
Average number of common shares outstanding
33,245
33,296
Effect of dilutive stock options and restricted stock
125
142
Average number of common shares outstanding used to calculate diluted earnings per share
33,370
33,438
Options excluded from diluted earnings per share because of their antidilutive effect
—
—
Note 14 – Comprehensive Income (Loss)
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet identified as accumulated other comprehensive income (AOCI), such items, along with net income, are components of other comprehensive income (loss) (OCI).
The components of other comprehensive income (loss) and related tax effects are as follows:
Three months ended March 31,
(in thousands)
2024
2023
Unrealized holding gains (losses) on available for sale securities before reclassifications
$
(15,899)
$
34,540
Amounts reclassified out of AOCI:
Realized loss on debt securities
—
164
Unrealized holding gains (losses) on available for sale securities after reclassifications
(15,899)
34,704
Tax effect
4,701
(10,260)
Unrealized holding gains (losses) on available for sale securities, net of tax
(11,198)
24,444
Change in unfunded status of the supplemental retirement plans before reclassifications
459
114
Amounts reclassified out of AOCI:
Amortization of prior service cost
—
—
Amortization of actuarial losses
(459)
(114)
Total amounts reclassified out of accumulated other comprehensive loss
(459)
(114)
Change in unfunded status of the supplemental retirement plans after reclassifications
—
—
Tax effect
—
—
Change in unfunded status of the supplemental retirement plans, net of tax
—
—
Change in joint beneficiary agreement liability before reclassifications
—
—
Tax effect
—
—
Change in joint beneficiary agreement liability before reclassifications, net of tax
—
—
Total other comprehensive income (loss)
$
(11,198)
$
24,444
The components of accumulated other comprehensive loss, included in shareholders’ equity, are as follows:
(in thousands)
March 31, 2024
December 31, 2023
Net unrealized loss on available for sale securities
$
(247,720)
$
(231,821)
Tax effect
73,235
68,534
Unrealized holding loss on available for sale securities, net of tax
(174,485)
(163,287)
Unfunded status of the supplemental retirement plans
13,527
13,527
Tax effect
(3,999)
(3,999)
Unfunded status of the supplemental retirement plans, net of tax
9,528
9,528
Joint beneficiary agreement liability
590
590
Tax effect
—
—
Joint beneficiary agreement liability, net of tax
590
590
Accumulated other comprehensive loss
$
(164,367)
$
(153,169)
Note 15 - 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 no securities classified as Level 3 during any of the periods covered in these consolidated 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.
Individually evaluated loans - Loans are not recorded at fair value on a recurring basis. However, from time to time, certain loans have individual risk characteristics not consistent with a pool of loans and is individually evaluated for credit reserves. 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 typically individually evaluated. The fair value of these loans are estimated using one of several methods, including collateral value, fair value of similar debt, enterprise value, liquidation value and discounted cash flows. Those loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. 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 loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the loan as nonrecurring Level 3.
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 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 non-interest expense.
Mortgage servicing rights - Mortgage servicing rights are carried at fair value. A valuation model, which utilizes a discounted cash flow analysis using a discount rate and prepayment speed assumptions is used in the computation of the fair value measurement. While the prepayment speed assumption is currently quoted for comparable instruments, the discount rate assumption currently requires a significant degree of management judgment and is therefore considered an unobservable input. As such, the Company classifies mortgage servicing rights subjected to recurring fair value adjustments as Level 3.
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands):
Fair value at March 31, 2024
Total
Level 1
Level 2
Level 3
Marketable equity securities
$
2,606
$
2,606
$
—
$
—
Debt securities available for sale:
Obligations of U.S. government corporations and agencies
Obligations of U.S. government corporations and agencies
1,221,737
—
1,221,737
—
Obligations of states and political subdivisions
236,375
—
236,375
—
Corporate bonds
5,602
—
5,602
—
Asset backed securities
355,281
—
355,281
—
Non-agency mortgage backed securities
333,509
—
333,509
—
Loans held for sale
458
—
458
—
Mortgage servicing rights
6,606
—
—
6,606
Total assets measured at fair value
$
2,162,202
$
2,634
$
2,152,962
$
6,606
Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process. There were no transfers between any levels during the three months ended March 31, 2024 or March 31, 2023, respectively.
The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the time periods indicated. Had there been any transfer into or out of Level 3 during the time periods indicated, the amount included in the “Transfers into (out of) Level 3” column would represent the beginning balance of an item in the period (interim quarter) during which it was transferred (in thousands):
Three months ended March 31,
Beginning Balance
Transfers into (out of) Level 3
Change Included in Earnings
Issuances
Ending Balance
2024: Mortgage servicing rights
$
6,606
—
$
11
$
80
$
6,697
2023: Mortgage servicing rights
$
6,712
—
$
(209)
$
50
$
6,553
Three months ended March 31,
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).
The following table presents quantitative information about recurring Level 3 fair value measurements at March 31, 2024 and December 31, 2023:
As of March 31, 2024:
Fair Value (in thousands)
Valuation Technique
Unobservable Inputs
Range, Weighted Average
Mortgage Servicing Rights
$
6,697
Discounted cash flow
Constant prepayment rate
6% - 11%; 6.4%
Discount rate
10% - 14%; 12%
As of December 31, 2023:
Mortgage Servicing Rights
$
6,606
Discounted cash flow
Constant prepayment rate
6% - 12.8%; 7.0%
Discount rate
10% - 14%; 12%
The tables below present the recorded investment in assets and liabilities measured at fair value on a nonrecurring basis, as of the dates indicated, that had a write-down or an additional allowance provided during the periods indicated (in thousands):
The tables below present the gains (losses) resulting from non-recurring fair value adjustments of assets and liabilities for the periods indicated (in thousands):
Three months ended March 31,
2024
2023
Collateral dependent loans
$
128
$
(277)
Foreclosed assets
(224)
—
Total losses from non-recurring measurements
$
(96)
$
(277)
The individually evaluated loan amounts above represent collateral dependent loans that have been adjusted to fair value. When the Company identifies a collateral dependent loan with unique risk characteristics, the Company evaluates the need for an allowance using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals. If the Company determines that the value of the 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 credit losses. The loss represents charge-offs or impairments on collateral dependent loans for fair value adjustments based on the fair value of collateral. The carrying value of loans fully charged-off is 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 credit losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on real estate owned for fair value adjustments based on the fair value of the real estate.
The Company’s property appraisals are primarily based on the sales comparison approach and income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.
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, 2024:
March 31, 2024
Fair Value (in thousands)
Valuation Technique
Unobservable Inputs
Range, Weighted Average
Collateral dependent loans
$
5,056
Sales comparison approach Income approach
Adjustment for differences between comparable sales; Capitalization rate
Not meaningful N/A
Foreclosed assets (Residential real estate)
$
831
Sales comparison approach
Adjustment for differences between comparable sales
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, 2023:
December 31, 2023
Fair Value (in thousands)
Valuation Technique
Unobservable Inputs
Range, Weighted Average
Collateral dependent loans
$
4,175
Sales comparison approach Income approach
Adjustment for differences between comparable sales; Capitalization rate
Not meaningful N/A
Foreclosed assets (Residential real estate)
$
50
Sales comparison approach
Adjustment for differences between comparable sales
Not meaningful N/A
Fair values for financial instruments are management’s estimates of the values at which the instruments could be exchanged in a transaction between willing parties. The Company uses the exit price notion when measuring the fair value of financial instruments. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including, any mortgage banking operations, deferred tax assets, and premises and equipment. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of these estimates.
March 31, 2024
December 31, 2023
(in thousands)
Carrying Amount
Fair Value
Carrying Amount
Fair Value
Financial assets:
Level 1 inputs:
Cash and due from banks
$
73,322
$
73,322
$
81,626
$
81,626
Cash at Federal Reserve and other banks
9,514
9,514
17,075
17,075
Level 2 inputs:
Securities held to maturity
127,811
118,528
133,494
125,126
Restricted equity securities
17,250
N/A
17,250
n/a
Level 3 inputs:
Loans, net
6,676,301
6,291,078
6,672,948
6,278,577
Financial liabilities:
Level 2 inputs:
Deposits
7,987,658
7,982,067
7,834,038
7,828,554
Other borrowings
392,409
329,409
632,582
632,582
Level 3 inputs:
Junior subordinated debt
101,120
101,090
101,099
95,407
(in thousands)
Contract Amount
Fair Value
Contract Amount
Fair Value
Off-balance sheet:
Level 3 inputs:
Commitments
$
2,206,882
$
22,069
$
2,225,677
$
22,257
Standby letters of credit
41,912
419
38,449
385
Overdraft privilege commitments
129,273
1,293
121,539
1,215
Note 16 - Regulatory Matters
The Company is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios
(set forth in the table below) of total, Tier 1, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The following tables present actual and required capital ratios as of March 31, 2024 and December 31, 2023 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, 2024 and December 31, 2023 based on the then phased-in provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
Actual
Required for Capital Adequacy Purposes
Required to be Considered Well Capitalized
As of March 31, 2024:
Amount
Ratio
Amount
Ratio
Amount
Ratio
(dollars in thousands)
Total Capital (to Risk Weighted Assets):
Consolidated
$
1,212,626
14.97
%
$
850,469
10.50
%
N/A
N/A
Tri Counties Bank
$
1,202,415
14.85
%
$
850,265
10.50
%
$
809,776
10.00
%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated
$
1,068,911
13.20
%
$
688,475
8.50
%
N/A
N/A
Tri Counties Bank
$
1,100,831
13.59
%
$
688,310
8.50
%
$
647,821
8.00
%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated
$
1,011,649
12.49
%
$
566,979
7.00
%
N/A
N/A
Tri Counties Bank
$
1,100,831
13.59
%
$
566,843
7.00
%
$
526,355
6.50
%
Tier 1 Capital (to Average Assets):
Consolidated
$
1,068,911
11.01
%
$
388,326
4.00
%
N/A
N/A
Tri Counties Bank
$
1,100,831
11.34
%
$
388,253
4.00
%
$
485,316
5.00
%
Actual
Required for Capital Adequacy Purposes
Required to be Considered Well Capitalized
As of December 31, 2023:
Amount
Ratio
Amount
Ratio
Amount
Ratio
(dollars in thousands)
Total Capital (to Risk Weighted Assets):
Consolidated
$
1,196,106
14.73
%
$
852,850
10.50
%
N/A
N/A
Tri Counties Bank
$
1,190,542
14.66
%
$
852,648
10.50
%
$
812,046
10.00
%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated
$
1,052,063
12.95
%
$
690,402
8.50
%
N/A
N/A
Tri Counties Bank
$
1,088,717
13.41
%
$
690,239
8.50
%
$
649,637
8.00
%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated
$
994,907
12.25
%
$
568,566
7.00
%
N/A
N/A
Tri Counties Bank
$
1,088,717
13.41
%
$
568,432
7.00
%
$
527,830
6.50
%
Tier 1 Capital (to Average Assets):
Consolidated
$
1,052,063
10.75
%
$
391,620
4.00
%
N/A
N/A
Tri Counties Bank
$
1,088,717
11.12
%
$
391,574
4.00
%
$
489,468
5.00
%
As of March 31, 2024 and December 31, 2023, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules. Also, at March 31, 2024 and December 31, 2023, 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, 2024, the Company and the Bank are in compliance with the capital conservation buffer requirement.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
Cautionary Statements Regarding Forward-Looking Information
The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond our control. 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 conditions of the United States economy in general and the strength of the local economies in which we conduct operations; the impact of any future federal government shutdown and uncertainty regarding the federal government’s debt limit or changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; the impacts of inflation, interest rate, market and monetary fluctuations on the Company's business condition and financial operating results; the impact of changes in financial services industry policies, laws and regulations; regulatory restrictions affecting our ability to successfully market and price our products to consumers; the risks related to the development, implementation, use and management of emerging technologies, including artificial intelligence and machine learning; extreme weather, natural disasters and other catastrophic events that may or may not be caused by climate change and their effects on the Company's customers and the economic and business environments in which the Company operates; the impact of a slowing U.S. economy, decreases in housing and commercial real estate prices, and potentially increased unemployment on the performance of our loan portfolio, the market value of our investment securities and possible other-than-temporary impairment of securities held by us due to changes in credit quality or rates; the availability of, and cost of, sources of funding and the demand for our products; adverse developments with respect to U.S. or global economic conditions and other uncertainties, including the impact of supply chain disruptions, commodities prices, inflationary pressures and labor shortages on the economic recovery and our business; the impacts of international hostilities, wars, terrorism or geopolitical events; adverse developments in the financial services industry generally such as the recent bank failures and any related impact on depositor behavior or investor sentiment; risks related to the sufficiency of liquidity; the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital; the costs or effects of mergers, acquisitions or dispositions we may make, as well as whether we are able to obtain any required governmental approvals in connection with any such activities, or identify and complete favorable transactions in the future, and/or realize the anticipated financial and business benefits; the regulatory and financial impacts associated with exceeding $10 billion in total assets; the negative impact on our reputation and profitability in the event customers experience economic harm or in the event that regulatory violations are identified; the ability to execute our business plan in new markets; the future operating or financial performance of the Company, including our outlook for future growth and changes in the level and direction of our nonperforming assets and charge-offs; the appropriateness of the allowance for credit losses, including the assumptions made under our current expected credit losses model; any deterioration in values of California real estate, both residential and commercial; the effectiveness of the Company's asset management activities managing the mix of earning assets and in improving, resolving or liquidating lower-quality assets; the effect of changes in the financial performance and/or condition of our borrowers; changes in accounting standards and practices; changes in consumer spending, borrowing and savings habits; our ability to attract and maintain deposits and other sources of liquidity; the effects of changes in the level or cost of checking or savings account deposits on our funding costs and net interest margin; increasing noninterest expense and its impact on our financial performance; competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional competitors including retail businesses and technology companies; the challenges of attracting, integrating and retaining key employees; the vulnerability of the Company's operational or security systems or infrastructure, the systems of third-party vendors or other service providers with whom the Company contracts, and the Company's customers to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and data/security breaches and the cost to defend against and respond to such incidents; the impact of the 2023 cyber security ransomware incident on our operations and reputation; increased data security risks due to work from home arrangements and email vulnerability; failure to safeguard personal information, and any resulting litigation; the effect of a fall in stock market prices on our brokerage and wealth management businesses; the transition from the LIBOR to new interest rate benchmarks; the emergence or continuation of widespread health emergencies or pandemics; 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. There can be no assurance that future developments affecting us will be the same as those anticipated by management. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2023, which has been filed with the Securities and Exchange Commission (the “SEC”) and all subsequent filings with the SEC under Sections 13(a), 13(c), 14, and 15(d) of the Securities Act of 1934, as amended. Such filings are also available in the “Investor Relations” section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC. Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results. We undertake no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
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, and net interest yield are generally presented on a 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.
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 credit losses related to loans and investment securities, and impairment of intangible assets, can be found in Note 1 of the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2023.
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.
Financial Highlights
Performance highlights and other developments for the Company as of or for the three months ended March 31, 2024, included the following:
•For the quarter ended March 31, 2024, the Company’s return on average assets was 1.13%, while the return on average equity was 9.50%; for the trailing quarter ended December 31, 2023, the Company’s return on average assets was 1.05%, while the return on average equity was 9.43%.
•Diluted earnings per share were $0.83 for the first quarter of 2024, compared to $0.78 for the trailing quarter and $1.07 during the first quarter of 2023.
•Net income was $27.7 million compared to $26.1 million in the trailing quarter; pre-tax pre-provision net revenue was $42.0 million compared to $42.4 million in the trailing quarter.
•Deposit balances increased $153.6 million or 7.8% (annualized) from the trailing quarter.
•The loan to deposit ratio decreased to 85.1% as of March 31, 2024, as compared to 86.7% for the trailing quarter end, as a result of deposit growth during the quarter.
•The efficiency ratio improved to 57.36% for the quarter ended March 31, 2024, as compared to 58.71% for the trailing quarter end, due to management's focus on expense control as well as the absence of non-recurring costs in the quarter.
•The provision for credit losses was approximately $4.3 million during the quarter ended March 31, 2024, as compared to $6.0 million during the trailing quarter end, reflecting the risks associated with general economic trends and forecasts.
•The allowance for credit losses (ACL) to total loans was 1.83% as of March 31, 2024, compared to 1.79% as of the trailing quarter end, and 1.69% as of March 31, 2023. Non-performing assets to total assets were 0.37% on March 31, 2024, as compared to 0.35% as of December 31, 2023, and 0.20% at March 31, 2023. At March 31, 2024, the ACL represented 363% of non-performing loans.
•Average yield on earning assets was 5.13%, an increase of 4 basis points over the 5.09% in the trailing quarter.
•Net interest margin was 3.68% in the recent quarter, narrowing 13 basis points from 3.81% in the trailing quarter; management expects that net interest margin will reach an inflection point in the second half of 2024.
•Non-interest bearing deposits averaged 33.8% of total deposits during the first quarter of 2024.
•The average cost of total deposits was 1.21%, an increase of 16 basis points as compared to 1.05% in the trailing quarter, and an increase of 96 basis points from 0.25% in the same quarter of the prior year; the Company's total cost of deposits have increased 117 basis points since FOMC rate actions began in March 2022, which translates to a cycle-to-date deposit beta of 22.3%.
(In thousands, except per share amounts; unaudited)
Three months ended March 31,
2024
2023
Net interest income
$
82,736
$
93,336
Provision for credit losses
(4,305)
(4,195)
Non-interest income
15,771
13,635
Non-interest expense
(56,504)
(53,794)
Provision for income taxes
(9,949)
(13,149)
Net income
$
27,749
$
35,833
Per Share Data:
Basic earnings per share
$
0.83
$
1.08
Diluted earnings per share
$
0.83
$
1.07
Dividends paid
$
0.33
$
0.30
Book value at period end
$
35.06
$
32.84
Average common shares outstanding
33,245
33,296
Average diluted common shares outstanding
33,370
33,438
Shares outstanding at period end
33,169
33,195
At period end:
Loans
$
6,800,695
$
6,422,421
Total investment securities
$
2,221,555
$
2,577,769
Total assets
$
9,813,767
$
9,842,394
Total deposits
$
7,987,658
$
8,025,865
Other borrowings
$
392,409
$
434,140
Shareholders’ equity
$
1,163,051
$
1,090,245
Financial Ratios:
During the period:
Return on average assets (annualized)
1.13
%
1.47
%
Return on average equity (annualized)
9.50
%
13.36
%
Net interest margin(1) (annualized)
3.68
%
4.20
%
Efficiency ratio
57.36
%
50.29
%
Average equity to average assets
11.92
%
11.00
%
At end of period:
Equity to assets
11.85
%
11.08
%
Total capital to risk-adjusted assets
14.97
%
14.50
%
(1) Fully Taxable Equivalent (FTE)
Results of Operations
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.
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.
Three months ended
(in thousands)
March 31, 2024
March 31, 2023
Change
% Change
Interest income
$
115,417
$
102,907
$
12,510
12.2
%
Interest expense
(32,681)
(9,571)
(23,110)
241.5
%
Fully tax-equivalent adjustment (FTE) (1)
275
392
(117)
(29.8)
%
Net interest income (FTE)
$
83,011
$
93,728
$
(10,717)
(11.4)
%
Net interest margin (FTE)
3.68
%
4.20
%
Acquired loans discount accretion, net:
Amount (included in interest income)
$
1,332
$
1,397
$
(65)
(4.7)
%
Net interest margin less effect of acquired loan discount accretion(1)
3.62
%
4.14
%
(0.52)
%
(1)Certain information included herein is presented on a FTE basis and/or to present additional financial details which may be desired by users of this financial information. The Company believes the use of this non-generally accepted accounting principles (non-GAAP) measure provides additional clarity in assessing its results, and the presentation of these measures is a common practice within the banking industry.
Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or the discount is accreted (added to) interest income over the remaining life of the loan. The dollar impact 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. Despite the elevated rate environment, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, remains consistent. During the quarter ended March 31, 2024 and March 31, 2023, the purchased loan discount accretion was $1.3 million and $1.4 million, respectively.
Summary of Average Balances, Yields/Rates and Interest Differential
The following table presents, for the three month 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, 2024
March 31, 2023
Average Balance
Interest Income/ Expense
Rates Earned /Paid
Average Balance
Interest Income/ Expense
Rates Earned /Paid
Assets:
Loans
$
6,785,840
$
96,485
5.72
%
$
6,413,958
$
82,415
5.21
%
Investment securities - taxable
2,127,420
17,829
3.37
%
2,415,485
18,916
3.18
%
Investment securities - nontaxable(1)
138,900
1,192
3.45
%
189,050
1,699
3.64
%
Total investments
2,266,320
19,021
3.38
%
2,604,535
20,615
3.21
%
Cash at Federal Reserve and other banks
14,377
186
5.20
%
26,818
269
4.07
%
Total interest-earning assets
9,066,537
115,692
5.13
%
9,045,311
103,299
4.63
%
Other assets
789,260
850,866
Total assets
$
9,855,797
$
9,878,927
Liabilities and shareholders’ equity:
Interest-bearing demand deposits
$
1,710,844
$
4,947
1.16
%
$
1,673,114
$
387
0.09
%
Savings deposits
2,651,917
10,900
1.65
%
2,898,463
4,154
0.58
%
Time deposits
811,894
7,682
3.81
%
274,805
604
0.89
%
Total interest-bearing deposits
5,174,655
23,529
1.83
%
4,846,382
5,145
0.43
%
Other borrowings
584,696
7,378
5.08
%
277,632
2,809
4.10
%
Junior subordinated debt
101,106
1,774
7.06
%
101,044
1,617
6.49
%
Total interest-bearing liabilities
5,860,457
32,681
2.24
%
5,225,058
9,571
0.74
%
Noninterest-bearing deposits
2,646,389
3,372,194
Other liabilities
174,359
194,202
Shareholders’ equity
1,174,592
1,087,473
Total liabilities and shareholders’ equity
$
9,855,797
$
9,878,927
Net interest spread(2)
2.89
%
3.89
%
Net interest income and interest margin(3)
$
83,011
3.68
%
$
93,728
4.20
%
(1)Fully taxable equivalent (FTE). All yields and rates are calculated using specific day counts for the period and year as applicable.
(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, then annualized based on the number of days in the given period.
Net interest income (FTE) during the three months ended March 31, 2024, decreased $4.0 million or 4.6% to $83.0 million compared to $87.0 million during the three months ended December 31, 2023. In addition, net interest margin declined 13 basis points to 3.68%, compared to the trailing quarter. The decrease in net interest income is primarily attributed to an additional $2.4 million or 11.4% in deposit interest expense due to changes in product mix as customers continue to be drawn towards higher yielding term deposit accounts. Deposit cost increases during the current quarter were also influenced by continued competitive pricing pressures. Net interest income for the quarter was also impacted by an increase of $1.0 million in other borrowings costs and declines in investment income totaling $1.4 million, with a partial offset from increased loan income of $1.0 million.
As compared to the same quarter in the prior year, average loan yields increased 51 basis points from 5.21% during the three months ended March 31, 2023, to 5.72% during the three months ended March 31, 2024. The accretion of discounts from acquired loans added 9 and 11 basis points to loan yields during the quarters ended March 31, 2024 and March 31, 2023, respectively. The rates paid on interest bearing deposits increased by 21 basis points during the quarter ended March 31, 2024, compared to the trailing quarter. The cost of interest-bearing deposits increased by 140 basis points between the quarter ended March 31, 2024, and the same quarter of the prior year. In addition, the average balance of noninterest-bearing deposits decreased by $170.3 million quarter over quarter and decreased by $725.8 million from three month average for the period ended March 31, 2023 amidst a continued migration of customer funds to interest-bearing products. As of March 31, 2024, the ratio of average total noninterest-bearing deposits to total average deposits was 33.8%, as compared to 35.2% and 41.0% at December 31, 2023 and March 31, 2023, 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.
Three months ended March 31, 2024 compared with three months ended March 31, 2023
(in thousands)
Volume
Rate
Total
Increase (decrease) in interest income:
Loans
$
4,859
$
9,211
$
14,070
Investment securities
(2,748)
1,154
(1,594)
Cash at Federal Reserve and other banks
(127)
44
(83)
Total interest-earning assets
1,984
10,409
12,393
Increase (decrease) in interest expense:
Interest-bearing demand deposits
8
4,552
4,560
Savings deposits
(357)
7,103
6,746
Time deposits
1,195
5,883
7,078
Other borrowings
3,147
1,422
4,569
Junior subordinated debt
1
156
157
Total interest-bearing liabilities
3,994
19,116
23,110
Decrease in net interest income
$
(2,010)
$
(8,707)
$
(10,717)
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, 2024 decreased $10.7 million to $83.0 million compared to $93.7 million during the three months ended March 31, 2023. The overall decrease in net interest income (FTE) was due to increasing interest rates elevating interest expense on interest-bearing liabilities, most significantly deposits and other borrowings, resulting in a net increase of $18.3 million and $4.5 million, respectively. Elevated interest rates also improved interest income on earning assets by $10.4 million, partially offsetting the increases in interest expense.
Asset Quality and Credit Loss Provisioning
During the three months ended March 31, 2024, the Company recorded a provision for credit losses of $4.3 million, as compared to $6.0 million during the trailing quarter, and $4.2 million during the first quarter of 2023.
Three months ended
(dollars in thousands)
March 31, 2024
December 31, 2023
March 31, 2023
Addition to allowance for credit losses
$
4,015
$
6,040
$
4,315
Addition to (reversal of) reserve for unfunded loan commitments
290
(50)
(120)
Total provision for (reversal of) credit losses
$
4,305
$
5,990
$
4,195
The allowance for credit losses (ACL) was $124.4 million or 1.83% of total loans as of March 31, 2024. The provision for credit losses on loans of $4.0 million during the recent quarter was the net effect of charge-offs and increases in reserves for qualitative factors and quantitative reserves under the cohort model, inclusive of a $1.5 million decrease in specific reserves for individually evaluated credits. On a comparative basis, the provision for credit losses of $4.3 million during the three months ended March 31, 2023, was attributed to both loan growth and qualitative components of the ACL model. For the current quarter, the qualitative components of the ACL resulted in a net increase in required reserves due primarily to year over year increases in concentrated loan growth and California unemployment trends. The quantitative component of the ACL decreased reserve requirements by approximately $1.3 million over the trailing quarter, primarily attributed to decreases in specific reserves.
The Company utilizes a forecast period of approximately eight quarters and obtains the forecast data from publicly available sources as of the balance sheet date. This forecast data continues to evolve and includes improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date. Despite continued declines on a year over year comparative basis, core inflation remains elevated from wage pressures, and higher living costs such as housing, energy and food prices. Management notes the rapid intervals of rate increases by the Federal Reserve may create repricing risk for certain borrowers and continued inversion of the yield curve, creates informed expectations of the US potentially entering a recession within 12 months. While projected cuts in interest rates from the Federal Reserve during 2024 may improve this outlook, the uncertainty associated with the extent and timing of these potential reductions has inhibited a material benefit to forecasted reserve levels. As a result, management continues to believe that certain credit weaknesses are likely present in the overall economy and that it is appropriate to cautiously maintain a reserve level that incorporates such risk factors.
Loans past due 30 days or more decreased by $2.9 million during the quarter ended March 31, 2024, to $16.5 million, as compared to $19.4 million at December 31, 2023. Of the total $16.5 million in loans identified as past due, approximately $4.7 million is less than 90 days past due, the majority of which is well-secured. Non-performing loans were $34.2 million at March 31, 2024, an increase of $2.4 million from $31.9 million as of December 31, 2023, and an increase of $18.2 million from $16.0 million as of March 31, 2023. The increase in non-performing loans as compared to the trailing quarter is concentrated between non-owner occupied commercial real estate and agriculture lending, specifically the result of declines in commodity pricing and therefore, expected revenue available to borrowers from harvest proceeds. Management continues to proactively work with these borrowers to identify actionable and appropriate resolution strategies which are customary for the industries. Of the $34.2 million loans designated as non-performing as of March 31, 2024, approximately $21.3 million are current with respect to payments required under their original loan agreements.
March 31,
% of Loans Outstanding
December 31,
% of Loans Outstanding
March 31
% of Loans Outstanding
(dollars in thousands)
2024
2023
2023
Risk Rating:
Pass
$
6,616,294
97.3
%
$
6,603,161
97.2
%
$
6,232,962
97.0
%
Special Mention
108,073
1.6
%
103,812
1.5
%
125,492
2.0
%
Substandard
76,328
1.1
%
87,497
1.3
%
63,967
1.0
%
Total
$
6,800,695
$
6,794,470
$
6,422,421
Classified loans to total loans
1.12
%
1.29
%
1.00
%
Loans past due 30+ days to total loans
0.24
%
0.29
%
0.12
%
The ratio of classified loans to total loans of 1.12% as of March 31, 2024 decreased 17 basis points from December 31, 2023 and increased 12 basis points from the comparative quarter ended 2023. The improvement in classified loans outstanding was spread amongst several substandard relationships primarily within commercial real estate. As a percentage of total loans outstanding, classified assets remain consistent with volumes experienced prior to the recent quantitative easing cycle spurred by the COVID pandemic, and reflects management's historically conservative approach to credit risk monitoring. The Company's combined criticized loan balances decreased during the quarter by $6.9 million to $184.4 million as of March 31, 2024 and Management believes the associated credit risk has been adequately reserved against.
As of March 31, 2024, other real estate owned consisted of 10 properties with a carrying value of approximately $2.5 million, a decrease of $0.2 million from the trailing quarter ended.
Non-performing assets of $36.7 million at March 31, 2024, represented 0.37% of total assets, a change from the $34.6 million or 0.35% and $19.5 million or 0.20% as of December 31, 2023 and March 31, 2023, respectively.
The following table summarizes the Company’s non-interest income for the periods indicated (in thousands):
Three months ended March 31,
(in thousands)
2024
2023
$ Change
% Change
ATM and interchange fees
$
6,169
$
6,344
$
(175)
(2.8)
%
Service charges on deposit accounts
4,663
3,431
1,232
35.9
%
Other service fees
1,366
1,166
200
17.2
%
Mortgage banking service fees
428
465
(37)
(8.0)
%
Change in value of mortgage servicing rights
11
(209)
220
(105.3)
%
Total service charges and fees
12,637
11,197
1,440
12.9
%
Increase in cash value of life insurance
803
802
1
0.1
%
Asset management and commission income
1,128
934
194
20.8
%
Gain on sale of loans
261
206
55
26.7
%
Lease brokerage income
161
98
63
64.3
%
Sale of customer checks
312
288
24
8.3
%
Loss on sale of investment securities
—
(164)
164
n/m
Gain (loss) on marketable equity securities
(28)
42
(70)
(166.7)
%
Other
497
232
265
114.2
%
Total other non-interest income
3,134
2,438
696
28.5
%
Total non-interest income
$
15,771
$
13,635
$
2,136
15.7
%
Non-interest income increased $2.1 million or 15.7% to $15.8 million during the three months ended March 31, 2024, compared to $13.6 million during the comparative quarter ended March 31, 2023. Service charges on deposit accounts increased by $1.2 million or 35.9% as compared to the equivalent period in 2023 following $0.9 million in waived or reversed fees due to a network outage in the earlier period.
The following table summarizes the Company’s non-interest expense for the periods indicated:
Three months ended March 31,
(in thousands)
2024
2023
$ Change
% Change
Base salaries, net of deferred loan origination costs
$
24,020
$
23,000
$
1,020
4.4
%
Incentive compensation
3,257
2,895
362
12.5
%
Benefits and other compensation costs
7,027
6,668
359
5.4
%
Total salaries and benefits expense
34,304
32,563
1,741
5.3
%
Occupancy
3,951
4,160
(209)
(5.0)
%
Data processing and software
5,107
4,032
1,075
26.7
%
Equipment
1,356
1,383
(27)
(2.0)
%
Intangible amortization
1,030
1,656
(626)
(37.8)
%
Advertising
762
759
3
0.4
%
ATM and POS network charges
1,661
1,709
(48)
(2.8)
%
Professional fees
1,340
1,589
(249)
(15.7)
%
Telecommunications
511
595
(84)
(14.1)
%
Regulatory assessments and insurance
1,251
792
459
58.0
%
Postage
308
299
9
3.0
%
Operational losses
352
435
(83)
(19.1)
%
Courier service
480
339
141
41.6
%
Gain on sale or acquisition of foreclosed assets
(38)
—
(38)
n/m
Loss on disposal of fixed assets
5
—
5
n/m
Other miscellaneous expense
4,124
3,483
641
18.4
%
Total other non-interest expense
22,200
21,231
969
4.6
%
Total non-interest expense
$
56,504
$
53,794
$
2,710
5.0
%
Average full time equivalent staff
1,188
1,219
(31)
(2.5)
%
Non-interest expense increased $2.7 million or 5.0% to $56.5 million during the three months ended March 31, 2024, as compared to $53.8 million for the quarter ended March 31, 2023. Total salaries and benefits expense increased by $1.7 million or 5.3% to $34.3 million, largely from annual compensation adjustments and other routine increases in benefits and compensation. Data processing and software expenses increased by $1.1 million or 26.7% related to ongoing investments in the Company's data management and security infrastructure. Regulatory assessment charges increased $0.5 million or 58.0% following the increase in assessment rates beginning in the second quarter of 2023.
Income Taxes
The Company’s effective tax rate was 26.4% for the quarter and year ended March 31, 2024, as compared to 28.4% for the period ended December 31, 2023. Differences between the Company's effective tax rate and applicable federal and state blended statutory rate of approximately 29.6% are due to the proportion of non-taxable revenues, non-deductible expenses, and benefits from tax credits as compared to the levels of pre-tax earnings.
Financial Condition
For financial reporting purposes, the Company does not separately track the changes in assets and liabilities based on branch location or regional geography. The following is a comparison of the quarterly change in certain assets and liabilities:
Loans outstanding increased by $6.2 million or 0.4% on an annualized basis during the quarter ended March 31, 2024. During the quarter, loan originations/draws totaled approximately $325.5 million while payoffs/repayments of loans totaled $321.3 million, which compares to originations/draws and payoffs/repayments during the trailing quarter ended of $450.0 million and $368.0 million, respectively. While origination volume decreased from the previous quarter, activity levels continue to be lower relative to the comparative period in 2023 due in part to disciplined pricing and underwriting, as well as decreased borrower demand given economic uncertainties. Investment security balances decreased $84.3 million or 14.6% on an annualized basis as the result of net prepayments, and maturities, collectively totaling approximating $66.4 million, in addition to net decreases in the market value of securities of $15.9 million. For the foreseeable future, management intends to utilize cash flows from the investment security portfolio and organic deposit growth to support loan growth or reduce borrowings, thus driving an improved mix of earning assets. Deposit balances increased by $153.6 million or 7.8% annualized during the period, led by growth within time deposits. Proceeds from the call or maturity of investment securities, and growth in deposits, during the quarter supported a net decrease of $240.2 million in short-term borrowings, which totaled $392.4 million at March 31, 2024.
The following is a comparison of the year over year change in certain assets and liabilities:
Ending balances
As of March 31,
% Change
(dollars in thousands)
2024
2023
$ Change
Total assets
$
9,813,767
$
9,842,394
$
(28,627)
(0.3)
%
Total loans
6,800,695
6,422,421
378,274
5.9
Total investments
2,221,555
2,577,769
(356,214)
(13.8)
Total deposits
7,987,658
8,025,865
(38,207)
(0.5)
Total other borrowings
392,409
434,140
(41,731)
(9.6)
Loan balances increased as a result of organic activities by approximately $378.3 million or 5.9% during the twelve-month period ending March 31, 2024. Over the same period deposit balances have declined by $38.2 million or 0.5%. The Company has offset these declines through the deployment of excess cash balances, runoff of investment security balances, and proceeds from short-term Federal Home Loan Bank (FHLB) borrowings.
Investment Securities
Investment securities available for sale decreased $84.3 million to $2.1 billion as of March 31, 2024, compared to December 31, 2023. The decrease is attributed to $66.4 million in calls and principal repayments, in addition to $15.9 million in market value declines. There were no sales of investment securities during the three months ended March 31, 2024. Proceeds from the sale of investment securities totaled $24.2 million for the three months ended March 31, 2023, resulting in gross realized losses of $0.2 million. The following table presents the available for sale debt securities portfolio by major type as of March 31, 2024 and December 31, 2023:
March 31, 2024
December 31, 2023
(in thousands)
Fair Value
%
Fair Value
%
Debt securities available for sale:
Obligations of U.S. government agencies
$
1,170,192
56.4
%
$
1,221,737
56.8
%
Obligations of states and political subdivisions
234,177
11.3
%
236,375
11.0
%
Corporate bonds
5,746
0.3
%
5,602
0.3
%
Asset backed securities
359,673
17.3
%
355,281
16.5
%
Non-agency mortgage backed
304,100
14.7
%
333,509
15.4
%
Total debt securities available for sale
$
2,073,888
100.0
%
$
2,152,504
100.0
%
March 31, 2024
December 31, 2023
(in thousands)
Amortized Cost
%
Amortized Cost
%
Debt securities held to maturity:
Obligations of U.S. government and agencies
$
125,131
97.9
%
$
130,823
98.0
%
Obligations of states and political subdivisions
2,680
2.1
%
2,671
2.0
%
Total debt securities held to maturity
$
127,811
100.0
%
$
133,494
100.0
%
Investment securities held to maturity decreased $5.7 million to $127.8 million as of March 31, 2024, as compared to December 31, 2023. This decrease is attributable to calls and principal repayments of $5.6 million, and amortization of net purchase premiums of $0.1 million.
The Company focuses its primary lending activities in six principal areas: commercial real estate loans, consumer loans, commercial and industrial loans, construction loans, agriculture production loans and leases. The interest rates charged for the loans made by the Company vary with the degree of risk, the size and duration 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, and local or regional businesses which service a variety of industries. 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:
(in thousands)
March 31, 2024
December 31, 2023
Commercial real estate
$
4,443,768
65.4
%
$
4,394,802
64.7
%
Consumer
1,303,757
19.2
%
1,313,268
19.3
%
Commercial and industrial
549,780
8.1
%
586,455
8.6
%
Construction
348,981
5.1
%
347,198
5.1
%
Agriculture production
145,159
2.1
%
144,497
2.2
%
Leases
9,250
0.1
%
8,250
0.1
%
Total loans
$
6,800,695
100.0
%
$
6,794,470
100.0
%
Nonperforming Assets
The following tables set forth the amount of the Company’s NPAs 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:
(in thousands)
March 31, 2024
December 31, 2023
Performing nonaccrual loans
$
22,449
$
25,380
Nonperforming nonaccrual loans
11,686
6,500
Total nonaccrual loans
34,135
31,880
Loans 90 days past due and still accruing
107
10
Total nonperforming loans
34,242
31,890
Foreclosed assets
2,493
2,705
Total nonperforming assets
$
36,735
$
34,595
Nonperforming assets to total assets
0.37
%
0.35
%
Nonperforming loans to total loans
0.50
%
0.47
%
Allowance for credit losses to nonperforming loans
Changes in nonperforming assets during the three months ended March 31, 2024
(in thousands)
Balance at December 31, 2023
New NPA / Valuation Adjustments
Pay-downs /Sales /Upgrades
Charge-offs/ (1)
Write-downs
Transfers to Foreclosed Assets
Balance at March 31, 2024
Commercial real estate:
CRE non-owner occupied
$
2,024
2,338
(250)
—
—
$
4,112
CRE owner occupied
3,994
—
(89)
—
—
3,905
Multifamily
—
—
—
—
—
—
Farmland
14,484
—
(704)
—
—
13,780
Total commercial real estate loans
20,502
2,338
(1,043)
—
—
21,797
Consumer
SFR 1-4 1st DT liens
2,811
2,490
(181)
(26)
—
5,094
SFR HELOCs and junior liens
3,571
557
(694)
(31)
—
3,403
Other
105
171
(4)
(173)
—
99
Total consumer loans
6,487
3,218
(879)
(230)
—
8,596
Commercial and industrial
2,513
720
(695)
(130)
—
2,408
Construction
67
9
—
—
(12)
64
Agriculture production
2,321
—
(107)
(837)
—
1,377
Leases
—
—
—
—
—
—
Total nonperforming loans
31,890
6,285
(2,724)
(1,197)
(12)
34,242
Foreclosed assets
2,705
(223)
(1)
—
12
2,493
Total nonperforming assets
$
34,595
6,062
(2,725)
(1,197)
—
$
36,735
(1) The table above does not include deposit overdraft charge-offs.
Nonperforming assets increased during the three months ended March 31, 2024 by $2.1 million or 6.0% to $36.7 million compared to $34.6 million at December 31, 2023. The increase in nonperforming assets during the first quarter of 2024 was primarily the result of nonperforming loan increases/down-grades, which totaled $6.3 million during the quarter. Management is actively engaged in the collection and recovery efforts for all nonperforming assets and believes that the loan loss reserves associated with these loans is sufficient as of March 31, 2024.
Loan charge-offs during the three months ended March 31, 2024
In the first quarter of 2024, the Company recorded $1.2 million in loan charge-offs and $0.1 million in deposit overdraft charge-offs less $0.1 million in loan recoveries and $0.03 million in deposit overdraft recoveries, which collectively resulted in $1.1 million in net charge-offs.
(in thousands)
The Components of the Allowance for Credit Losses for Loans
The following table sets forth the allowance for credit losses for loans as of the dates indicated:
(in thousands)
March 31, 2024
December 31, 2023
March 31, 2023
Allowance for credit losses:
Qualitative and forecast factor allowance
$
88,526
$
84,291
$
75,467
Cohort model allowance reserves
34,385
34,139
32,054
Allowance for individually evaluated loans
1,483
3,092
886
Total allowance for credit losses
$
124,394
$
121,522
$
108,407
Allowance for credit losses for loans / total loans
1.83
%
1.79
%
1.69
%
For additional information regarding the allowance for loan losses, including changes in specific, formula, and environmental factors allowance categories, see “Asset Quality and Loan Loss Provisioning” at “Results of Operations”, above. Based on the current conditions of the loan portfolio, management believes that the $124.4 million allowance for loan losses at March 31, 2024 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.
The following table summarizes the allocation of the allowance for credit losses between loan types and by percentage of the total allowance for credit losses on loans as of the dates indicated:
(in thousands)
March 31, 2024
December 31, 2023
March 31, 2023
Commercial real estate
$
72,175
58.0
%
$
68,864
56.7
%
$
64,937
59.9
%
Consumer
27,441
22.1
%
27,453
22.6
%
24,896
23.0
%
Commercial and industrial
11,867
9.5
%
12,750
10.5
%
12,069
11.1
%
Construction
9,162
7.4
%
8,856
7.3
%
5,655
5.2
%
Agriculture production
3,708
2.9
%
3,589
2.9
%
833
0.7
%
Leases
41
0.1
%
10
—
%
17
0.1
%
Total allowance for credit losses
$
124,394
100.0
%
$
121,522
100.0
%
$
108,407
100.0
%
The following table summarizes the allocation of the allowance for credit losses as a percentage of the total loans for each loan category as of the dates indicated:
The following table details the components and summarize the activity in foreclosed assets, net of allowances for losses, for the three months ended March 31, 2024:
(in thousands)
Balance at December 31, 2023
Sales
Valuation Adjustments
Transfers from Loans
Balance at March 31, 2024
Land & construction
$
154
$
—
$
39
$
12
$
205
Residential real estate
1,673
—
(261)
—
1,412
Commercial real estate
877
—
—
—
877
Total foreclosed assets
$
2,704
$
—
$
(222)
$
12
$
2,494
Deposits
During the three months ended March 31, 2024, the Company’s deposits increased by $153.6 million to $8.0 billion at quarter end. There were no brokered deposits included in the deposit balances as of March 31, 2024 and December 31, 2023, respectively.
Off-Balance Sheet Arrangements
See Note 9 to the condensed consolidated financial statements at Item 1 of Part I of this report for information about the Company’s commitments and 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.
On February 25, 2021 the Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company's common stock (the 2021 Repurchase Plan), which approximated 6.7% of the shares outstanding as of the approval date. The actual timing of any share repurchases will be determined by the Company's management and therefore the total value of the shares to be purchased under the 2021 Repurchase Plan is subject to change. The Company may repurchase its outstanding shares of common stock from time to time in open market or privately-negotiated transactions, including block trades, or pursuant to 10b5-1 trading plans. The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations).
During the three months ended March 31, 2024 and 2023, the Company repurchased 99,332 and 150,000 shares with market values of $3.4 million and $7.0 million, respectively. During the quarter ended March 31, 2024, the Company repurchased 99,332 shares of common stock at an average price of $34.31 per share or 97.9% of the book value per share as of March 31, 2024. In addition, the Company’s Tier 1 common equity and tangible capital ratios increased to 12.5% and 8.9%, respectively as of March 31, 2024, compared to 12.2% and 8.8%, respectively, as of December 31, 2023.
Total shareholders' equity increased by $3.4 million during the quarter ended March 31, 2024, as net income of $27.7 million was partially offset by a $11.2 million increase in accumulated other comprehensive losses, and cash dividend payments on common stock of approximately $11.0 million. As a result, the Company’s book value grew to $35.06 per share at March 31, 2024, compared to $32.84 at March 31, 2023. The Company’s tangible book value per share, a non-GAAP measure, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, was $25.60 per share at March 31, 2024, as compared to $23.22 at March 31, 2023. As noted above, changes in the fair value of available-for-sale investment securities, net of deferred taxes continue to create moderate levels of volatility in tangible book value per share.
Trailing Quarter Balance Sheet Change
March 31, 2024
December 31, 2023
Ratio
Minimum Regulatory Requirement
Ratio
Minimum Regulatory Requirement
Total risk based capital
15.0
%
10.5
%
14.7
%
10.5
%
Tier I capital
13.2
%
8.5
%
13.0
%
8.5
%
Common equity Tier 1 capital
12.5
%
7.0
%
12.3
%
7.0
%
Leverage
11.0
%
4.0
%
10.8
%
4.0
%
See Note 10 and Note 16 to the condensed consolidated financial statements at Item 1 of Part I of this report for additional information about the Company’s capital resources.
As of March 31, 2024, we had an effective shelf registration statement on file with the Securities and Exchange Commission that allows us to issue various types of debt securities, as well as common stock, preferred stock, warrants, depository shares representing fractional interest in shares of preferred stock, purchase contracts and units from time to time in one or more offerings. Each issuance under the shelf registration statement will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. The registration statement does not limit the amount of securities that may be issued thereunder. Our ability to issue securities is subject to market conditions and other factors including, in the case of our debt securities, our credit ratings and compliance with current and prospective covenants in credit agreements.
Liquidity
The Company's primary sources of liquidity include the following for the periods indicated:
At March 31, 2024, the Company's primary sources of liquidity represented 50% of total deposits and 163% of estimated total uninsured (excluding collateralized municipal deposits and intercompany balances) deposits, respectively. As secondary sources of liquidity, the Company's held-to-maturity investment securities had a fair value of $118.5 million, including approximately $9.3 million in net unrealized losses.
At March 31, 2024, the Company had $200.0 million of short-term fixed rate FHLB borrowings maturing on April 8, 2024. This debt was repaid at maturity. Separately, on April 8, 2024, the Company borrowed four tranches of short-term fixed rate advances totaling $280.0 million from the FHLB as follows:
(in thousands)
Term borrowing at FHLB, fixed rate of 5.61%, payable on June 7, 2024
$
55,000
Term borrowing at FHLB, fixed rate of 5.59%, payable on July 8, 2024
75,000
Term borrowing at FHLB, fixed rate of 5.46%, payable on October 7, 2024
75,000
Term borrowing at FHLB, fixed rate of 5.23%, payable on April, 8, 2025
75,000
Total other borrowings
$
280,000
The Company’s profitability during the first three months of 2024 generated cash flows from operations of $25.1 million compared to $39.0 million during the first three months of 2023. Net cash from investing activities was $60.0 million for the three months ended March 31, 2024, compared to net cash from investing activities of $115.3 million during the three months ending 2023. Financing activities used $100.9 million during the three months ended March 31, 2024, compared to $151.1 million during the three months ended March 31, 2023.
The changes in contractual obligations of the Company and Bank, to include but not limited to term subordinated debt, operating leases, deferred compensation and supplemental retirement plans as well as off-balance sheet commitments such as unfunded loans and letters of credit. These contractual obligations are otherwise consistent with similar balances or totals as of December 31, 2023.
The Company is dependent upon the payment of cash dividends by the Bank to service its commitments, which have historically included dividends to shareholders, scheduled debt service payments, and general operations. Shareholder dividends are expected to continue subject to the Board’s discretion and management's continuing evaluation of capital levels, earnings, asset quality and other factors. The Company expects that the cash dividends paid by the Bank to the Company will be sufficient to cover the Company's cash flow needs. However, the Company and its ability to generate liquidity through either the issuance of stock or debt, also serves as a potential source of strength for the Bank. Dividends paid by the Company to holders of its common stock used $11.0 million and $10.0 million of cash during the three months ended March 31, 2024 and 2023, respectively. The Company’s liquidity is dependent on dividends received from the Bank. Dividends from the Bank are subject to certain regulatory restrictions.
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this filing contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this filing because it believes that they provide useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results, and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:
Three months ended
(dollars in thousands)
March 31, 2024
December 31, 2023
March 31, 2023
Net interest margin
Acquired loans discount accretion, net:
Amount (included in interest income)
$1,332
$1,459
$1,397
Effect on average loan yield
0.08
%
0.09
%
0.09
%
Effect on net interest margin (FTE)
0.06
%
0.06
%
0.06
%
Net interest margin (FTE)
3.68
%
3.81
%
4.20
%
Net interest margin less effect of acquired loan discount accretion (Non-GAAP)
3.62
%
3.75
%
4.14
%
Three months ended
(dollars in thousands)
March 31, 2024
December 31, 2023
March 31, 2023
Pre-tax pre-provision return on average assets or equity
Net income (GAAP)
$27,749
$26,075
$35,833
Exclude provision for income taxes
9,949
10,325
13,149
Exclude provision for credit losses
4,305
5,990
4,195
Net income before income tax and provision expense (Non-GAAP)
$42,003
$42,390
$53,177
Average assets (GAAP)
$9,855,797
$9,879,355
$9,878,927
Average equity (GAAP)
$1,174,592
$1,097,431
$1,087,473
Return on average assets (GAAP) (annualized)
1.13
%
1.05
%
1.47
%
Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)
1.71
%
1.70
%
2.18
%
Return on average equity (GAAP) (annualized)
9.50
%
9.43
%
13.36
%
Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)
Item 3.Quantitative and Qualitative Disclosures about Market Risk
Based on the changes in interest rates as well as the mix shift of interest earning assets and interest bearing liabilities occurring subsequent to December 31, 2023, the following update of the Company’s assessment of market risk as of March 31, 2024 is being provided. These updates and changes should be read in conjunction with the additional quantitative and qualitative disclosures in our Annual Report on Form 10-K for the year ended December 31, 2023.
As of March 31, 2024, the Company's loan portfolio consisted of approximately $6.8 billion in outstanding principal with a weighted average coupon rate of 5.47%. During the three-month periods ending March 31, 2024, December 31, 2023, and March 31, 2023, the weighted average coupon on loan production in the quarter was 7.78%, 7.54% and 6.91%, respectively. Included in the March 31, 2024 total loans are adjustable rate loans totaling $3.6 billion, of which, $974.1 million are considered floating based on the Wall Street Prime index. In addition, the Company holds certain investment securities with fair values totaling $345.6 million which are subject to repricing on not less than a quarterly basis.
Management funds the acquisition of nearly all of its earning assets through its core deposit gathering activities. As of March 31, 2024, non-interest bearing deposits represented 32.6% of total deposits. Further, during the quarter ended March 31, 2024, the cost of interest bearing deposits were 1.83% and the cost of total deposits were 1.21%. With the intent of stabilizing or increasing net interest income, management intends to continue to deploy its excess liquidity and seek to migrate certain earning assets into higher yielding categories (from investment securities and into loans, for example). However, in situations where deposit balances contract, management may rely upon various borrowing facilities or the use of brokered deposits. Through the first quarter of 2024 and during the entire 2023 year, management did not utilize any brokered deposits. Management did however utilize borrowing lines from the FHLB and expects that such borrowings will be needed through the remainder of the year and into 2025. As the rate paid on these borrowed funds are correlated with short-term interest rates, the costs associated with these borrowings will be correlated with the rate adjustment actions by the Federal Reserve, if any.
As of March 31, 2024 the overnight Federal funds rate, the rate primarily used in these interest rate shock scenarios, was 5.32%. These scenarios assume that 1) interest rates increase or decrease evenly (in a “ramp” fashion) over a twelve-month period and remain at the new levels beyond twelve months or 2) that interest rates change instantaneously (“shock”). The simulation results shown below assume no changes in the structure of the Company’s balance sheet over the twelve months being measured.
The following table summarizes the estimated effect on net interest income and market value of equity to changing interest rates as measured against a flat rate (no interest rate change) instantaneous parallel shock scenario over a twelve month period utilizing a interest sensitivity (GAP) analysis based on the Company's specific mix of interest earning assets and interest bearing liabilities as of March 31, 2024.
Interest Rate Risk Simulations:
Change in Interest Rates (Basis Points)
Estimated Change in Net Interest Income (NII) (as % of NII)
Estimated Change in Market Value of Equity (MVE) (as % of MVE)
+300 (shock)
(7.6)
%
(8.0)
%
+200 (shock)
(5.3)
%
(5.6)
%
+100 (shock)
(2.5)
%
(1.8)
%
+ 0 (flat)
—
—
-100 (shock)
0.3
%
(2.5)
%
-200 (shock)
0.2
%
(8.3)
%
-300 (shock)
0.6
%
(17.1)
%
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, 2024. Disclosure controls and procedures, as defined in Rule 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, 2024.
During the three months ended March 31, 2024, 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.
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 evaluating an investment in the Company's common stock, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024, and in the information contained in this Quarterly Report on Form 10-Q and our other reports and registration statements.
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 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 at period end (2)
January 1-31, 2024
—
$
—
—
1,209,802
February 1-29, 2024
—
—
—
1,209,802
March 1-31, 2024
—
34.31
99,332
1,110,470
Total
—
$
34.31
99,332
(1)Includes shares purchased by the Company’s Employee Stock Ownership Plan in open market purchases and shares tendered by employees pursuant to various other equity incentive plans. See Notes 10 and 11 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. See Note 11 to the condensed consolidated financial statements at Item 1 of Part I of this report, for a discussion of the Company’s stock repurchase plan.
Item 5 — Other Information
Rule 10b5-1 Trading Arrangements
During the three months ended March 31, 2024, none of the Company’s directors or officers (as defined in Rule 16a-1(f)) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (in each case, as defined in item 408 of Regulation S-K) for the purchase or sale of the Company's common stock.
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
(Registrant)
Date: May 8, 2024
/s/ Peter G. Wiese
Peter G. Wiese
Executive Vice President and Chief Financial Officer
(Duly authorized officer and principal financial and chief accounting officer)
1.I have reviewed this report on Form 10-Q of TriCo Bancshares;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
1.I have reviewed this report on Form 10-Q of TriCo Bancshares;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 8, 2024
/s/ Peter G. Wiese
Peter G. Wiese
Executive Vice President and Chief Financial Officer
In connection with the Quarterly Report of TriCo Bancshares (the “Company”) on Form 10-Q for the period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard P. Smith, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Richard P. Smith
Richard P. Smith
President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to TriCo Bancshares and will be retained by TriCo Bancshares and furnished to the Securities and Exchange Commission or its staff upon request.
In connection with the Quarterly Report of TriCo Bancshares (the “Company”) on Form 10-Q for the period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter G. Wiese, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company
/s/ Peter G. Wiese
Peter G. Wiese
Executive Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to TriCo Bancshares and will be retained by TriCo Bancshares and furnished to the Securities and Exchange Commission or its staff upon request.
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Fiscal period values are FY, Q1, Q2, and Q3. 1st, 2nd and 3rd quarter 10-Q or 10-QT statements have value Q1, Q2, and Q3 respectively, with 10-K, 10-KT or other fiscal year statements having FY.
This is focus fiscal year of the document report in YYYY format. For a 2006 annual report, which may also provide financial information from prior periods, fiscal 2006 should be given as the fiscal year focus. Example: 2006.
For the EDGAR submission types of Form 8-K: the date of the report, the date of the earliest event reported; for the EDGAR submission types of Form N-1A: the filing date; for all other submission types: the end of the reporting or transition period. The format of the date is YYYY-MM-DD.
The type of document being provided (such as 10-K, 10-Q, 485BPOS, etc). The document type is limited to the same value as the supporting SEC submission type, or the word 'Other'.
Indicate number of shares or other units outstanding of each of registrant's classes of capital or common stock or other ownership interests, if and as stated on cover of related periodic report. Where multiple classes or units exist define each class/interest by adding class of stock items such as Common Class A [Member], Common Class B [Member] or Partnership Interest [Member] onto the Instrument [Domain] of the Entity Listings, Instrument.
Indicate 'Yes' or 'No' whether registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. This information should be based on the registrant's current or most recent filing containing the related disclosure.
Commission file number. The field allows up to 17 characters. The prefix may contain 1-3 digits, the sequence number may contain 1-8 digits, the optional suffix may contain 1-4 characters, and the fields are separated with a hyphen.
Indicate whether the registrant is one of the following: Large Accelerated Filer, Accelerated Filer, Non-accelerated Filer. Definitions of these categories are stated in Rule 12b-2 of the Exchange Act. This information should be based on the registrant's current or most recent filing containing the related disclosure.
Boolean flag that is true when the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Sum of the carrying amounts as of the balance sheet date of all assets that are recognized. Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
Amount of currency on hand as well as demand deposits with banks or financial institutions. Includes other kinds of accounts that have the general characteristics of demand deposits. Also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Excludes cash and cash equivalents within disposal group and discontinued operation.
For banks and other depository institutions: Includes cash on hand (currency and coin), cash items in process of collection, noninterest bearing deposits due from other financial institutions (including corporate credit unions), and noninterest bearing balances with the Federal Reserve Banks, Federal Home Loan Banks and central banks.
Carrying amount as of the balance sheet date of amounts which could be received based on the terms of the insurance contract upon surrendering life policies owned by the entity.
Represents the caption on the face of the balance sheet to indicate that the entity has entered into (1) purchase or supply arrangements that will require expending a portion of its resources to meet the terms thereof, and (2) is exposed to potential losses or, less frequently, gains, arising from (a) possible claims against a company's resources due to future performance under contract terms, and (b) possible losses or likely gains from uncertainties that will ultimately be resolved when one or more future events that are deemed likely to occur do occur or fail to occur.
Aggregate par or stated value of issued nonredeemable common stock (or common stock redeemable solely at the option of the issuer). This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable common shares, par value and other disclosure concepts are in another section within stockholders' equity.
Amount excluding accrued interest, of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
The aggregate of all deposit liabilities held by the entity, including foreign and domestic, interest and noninterest bearing; may include demand deposits, saving deposits, Negotiable Order of Withdrawal (NOW) and time deposits among others.
Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.
Including the current and noncurrent portions, carrying value as of the balance sheet date of long-term debt (with maturities initially due after one year or beyond the operating cycle if longer) identified as Junior Subordinated Notes, which have a lower priority than senior instruments.
Sum of the carrying amounts as of the balance sheet date of all liabilities that are recognized. Liabilities are probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities in the future.
Amount, after valuation allowance, of financing receivable held for sale and not part of disposal group. Excludes loan covered under loss sharing agreement and loan classified as investment in debt security.
Aggregate par or stated value of issued nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer). This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable preferred shares, par value and other disclosure concepts are in another section within stockholders' equity.
Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures.
Investments which are not defined as or included in marketable (debt, equity, or other) securities whose use is restricted in whole or in part, generally by contractual agreements or regulatory requirements. For use in an unclassified balance sheet.
Total number of common shares of an entity that have been sold or granted to shareholders (includes common shares that were issued, repurchased and remain in the treasury). These shares represent capital invested by the firm's shareholders and owners, and may be all or only a portion of the number of shares authorized. Shares issued include shares outstanding and shares held in the treasury.
Amortized cost excluding accrued interest, before allowance for credit loss, of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
The maximum number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) permitted to be issued by an entity's charter and bylaws.
Total number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) issued to shareholders (includes related preferred shares that were issued, repurchased, and remain in the treasury). May be all or portion of the number of preferred shares authorized. Excludes preferred shares that are classified as debt.
Aggregate share number for all nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer) held by stockholders. Does not include preferred shares that have been repurchased.
The amount of net income (loss) for the period available to each share of common stock or common unit outstanding during the reporting period and to each share or unit that would have been outstanding assuming the issuance of common shares or units for all dilutive potential common shares or units outstanding during the reporting period.
The net realized gain (loss) on investments sold during the period, not including gains (losses) on securities separately or otherwise categorized as trading, available-for-sale, or held-to-maturity, which, for cash flow reporting, is a component of proceeds from investing activities.
The net gain (loss) resulting from a sale of loans, including adjustments to record loans classified as held-for-sale at the lower-of-cost-or-market and fair value adjustments to loan held for investment purposes.
Amount of income (loss) from continuing operations, including income (loss) from equity method investments, before deduction of income tax expense (benefit), and income (loss) attributable to noncontrolling interest.
Represents the total of interest and dividend income, including any amortization and accretion (as applicable) of discounts and premiums, earned from (1) loans and leases whether held-for-sale or held-in-portfolio; (2) investment securities; (3) federal funds sold; (4) securities purchased under agreements to resell; (5) investments in banker's acceptances, commercial paper, or certificates of deposit; (6) dividend income; or (7) other investments not otherwise specified herein.
The aggregate interest and fee income generated by: (1) loans the Entity has positive intent and ability to hold for the foreseeable future, or until maturity or payoff, including commercial and consumer loans, whether domestic or foreign, which may consist of: (a) industrial and agricultural; (b) real estate; and (c) real estate construction loans; (d) trade financing; (e) lease financing; (f) home equity lines-of-credit; (g) automobile and other vehicle loans; and (h) credit card and other revolving-type loans and (2) loans and leases held-for-sale which may include mortgage loans, direct financing, and sales-type leases.
Interest expense incurred during the reporting period on junior subordinated debentures. Includes amortization of expenses incurred in the issuance of subordinated notes and debentures.
Amount of interest expense incurred on long-term debt classified as other, including, but not limited to, interest on long-term notes and amortization of issuance costs.
Amount of interest income or expense, including any amortization and accretion (as applicable) of discounts and premiums, including consideration of the provisions for loan, lease, credit, and other related losses.
The aggregate interest income earned from (1) the lending of excess federal funds to another commercial bank requiring such for its legal reserve requirements and (2) securities purchased under agreements to resell.
Amount of operating interest income, including amortization and accretion of premiums and discounts, on securities exempt from state, federal and other income tax.
Amount of operating interest income, including amortization and accretion of premiums and discounts, on securities subject to state, federal and other income tax.
The total amount of noninterest income which may be derived from: (1) fees and commissions; (2) premiums earned; (3) insurance policy charges; (4) the sale or disposal of assets; and (5) other sources not otherwise specified.
Amount, including tax collected from customer, of revenue from satisfaction of performance obligation by transferring promised good or service to customer. Tax collected from customer is tax assessed by governmental authority that is both imposed on and concurrent with specific revenue-producing transaction, including, but not limited to, sales, use, value-added and excise.
Amount after tax of increase (decrease) in equity from transactions and other events and circumstances from net income and other comprehensive income, attributable to parent entity. Excludes changes in equity resulting from investments by owners and distributions to owners.
Amount, after tax and adjustment, of unrealized gain (loss) on investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale) and unrealized gain (loss) on investment in debt security measured at amortized cost (held-to-maturity) from transfer to available-for-sale.
Number of shares that have been repurchased during the period and have not been retired and are not held in treasury. Some state laws may govern the circumstances under which an entity may acquire its own stock and prescribe the accounting treatment therefore. This element is used when state law does not recognize treasury stock.
Equity impact of the value of stock that has been repurchased during the period and has not been retired and is not held in treasury. Some state laws may mandate the circumstances under which an entity may acquire its own stock and prescribe the accounting treatment therefore. This element is used when state law does not recognize treasury stock.
The sum of the periodic adjustments of the differences between securities' face values and purchase prices that are charged against earnings. This is called accretion if the security was purchased at a discount and amortization if it was purchased at premium. As a noncash item, this element is an adjustment to net income when calculating cash provided by or used in operations using the indirect method.
The aggregate expense charged against earnings to allocate the cost of intangible assets (nonphysical assets not used in production) in a systematic and rational manner to the periods expected to benefit from such assets. As a noncash expense, this element is added back to net income when calculating cash provided by or used in operations using the indirect method.
Amount of cash and cash equivalents, and cash and cash equivalents restricted to withdrawal or usage. Excludes amount for disposal group and discontinued operations. Cash includes, but is not limited to, currency on hand, demand deposits with banks or financial institutions, and other accounts with general characteristics of demand deposits. Cash equivalents include, but are not limited to, short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
Amount of increase (decrease) in cash and cash equivalents, and cash and cash equivalents restricted to withdrawal or usage; excluding effect from exchange rate change. Cash includes, but is not limited to, currency on hand, demand deposits with banks or financial institutions, and other accounts with general characteristics of demand deposits. Cash equivalents include, but are not limited to, short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
The aggregate net amount of depreciation, amortization, and accretion recognized during an accounting period. As a noncash item, the net amount is added back to net income when calculating cash provided by or used in operations using the indirect method.
Amount of realized gain (loss) from sale of investment in equity security measured at fair value with change in fair value recognized in net income (FV-NI).
The net realized gain (loss) on investments sold during the period, not including gains (losses) on securities separately or otherwise categorized as trading, available-for-sale, or held-to-maturity, which, for cash flow reporting, is a component of proceeds from investing activities.
The net gain (loss) resulting from a sale of loans, including adjustments to record loans classified as held-for-sale at the lower-of-cost-or-market and fair value adjustments to loan held for investment purposes.
The amount of cash paid during the current period to foreign, federal, state, and local authorities as taxes on income, net of any cash received during the current period as refunds for the overpayment of taxes.
The increase (decrease) during the reporting period in interest payable, which represents the amount owed to note holders, bond holders, and other parties for interest earned on loans or credit extended to the reporting entity.
Amount of cash paid for interest, excluding capitalized interest, classified as operating activity. Includes, but is not limited to, payment to settle zero-coupon bond for accreted interest of debt discount and debt instrument with insignificant coupon interest rate in relation to effective interest rate of borrowing attributable to accreted interest of debt discount.
Amount of cash inflow (outflow) from financing activities, including discontinued operations. Financing activity cash flows include obtaining resources from owners and providing them with a return on, and a return of, their investment; borrowing money and repaying amounts borrowed, or settling the obligation; and obtaining and paying for other resources obtained from creditors on long-term credit.
Amount of cash inflow (outflow) from investing activities, including discontinued operations. Investing activity cash flows include making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and equipment and other productive assets.
Amount of cash inflow (outflow) from operating activities, including discontinued operations. Operating activity cash flows include transactions, adjustments, and changes in value not defined as investing or financing activities.
The cash outflow associated with the acquisition of long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale; includes cash outflows to pay for construction of self-constructed assets.
Amount of cash inflow from maturity, prepayment and call of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Amount of cash inflow from sale of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
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 33 California counties. 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.
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. For financial reporting purposes, the Company’s investments in the Capital Trusts of $1.8 million are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet. See the footnote Junior Subordinated Debt for additional information on borrowings outstanding.
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 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”). The Company believes that the disclosures made are adequate to make the information not misleading.
Segment and Significant Group Concentration of Credit Risk
The Company grants agribusiness, commercial, consumer, and residential loans to customers located throughout 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.
Reclassification
Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.
Cash and Cash Equivalents
Net cash flows are reported for loan and deposit transactions and other borrowings. For purposes of the consolidated statement of cash flows, cash, due from banks with original maturities less than 90 days, interest-earning deposits in other banks, and Federal funds sold are considered to be cash equivalents.
Allowance for Credit Losses - Securities
The Company measures expected credit losses on HTM debt securities on a collective basis by major security type, then further disaggregated by sector and bond rating. Accrued interest receivable on HTM debt securities was considered insignificant at March 31, 2024 and December 31, 2023 and is therefore excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts based on current and expected changes in credit ratings and default rates. Based on the implied guarantees of the U. S. Government or its agencies related to certain of these investment securities, and the absence of any historical or expected losses, substantially all qualify for a zero loss
assumption. Management has separately evaluated its HTM investment securities from obligations of state and political subdivisions utilizing the historical loss data represented by similar securities over a period of time spanning nearly 50 years. As a result of this evaluation, management determined that the expected credit losses associated with these securities is not significant for financial reporting purposes and therefore, no allowance for credit losses has been recognized.
The Company evaluates AFS debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the allowance for credit losses and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers' financial condition, among other factors. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. No security credit losses were recognized during the three month periods ended March 31, 2024 and 2023, respectively.
Loans
Loans that management has the intent and ability to hold until maturity or payoff are reported at principle amount outstanding, net of deferred loan fees and costs. Loans are placed in nonaccrual status when reasonable doubt exists as to the full, timely collection of interest or principal, or a loan becomes contractually past due by 90 days or more with respect to interest or principal and is not well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is considered probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of Management, the loan is estimated to be fully collectible as to both principal and interest. Accrued interest receivable is not included in the calculation of the allowance for credit losses.
Allowance for Credit Losses - Loans
The ACL is a valuation account that is deducted from the loan's amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the allowance when management believes the recorded loan balance is confirmed as uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Regardless of the determination that a charge-off is appropriate for financial accounting purposes, the Company manages its loan portfolio by continually monitoring, where possible, a borrower's ability to pay through the collection of financial information, delinquency status, borrower discussion and the encouragement to repay in accordance with the original contract or modified terms, if appropriate.
Management estimates the allowance balance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Historical credit loss experience provides the basis for the estimation of expected credit losses, which captures loan balances as of a point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over the remaining life. The Company identified and accumulated loan cohort historical loss data beginning with the fourth quarter of 2008 and through the current period. In situations where the Company's actual loss history was not statistically relevant, the loss history of peers, defined as financial institutions with assets greater than three billion and less than ten billion, were utilized to create a minimum loss rate. Adjustments to historical loss information are made for differences in relevant current loan-specific risk characteristics, such as historical timing of losses relative to the loan origination. In its loss forecasting framework, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. These macroeconomic scenarios incorporate variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to changes in environmental conditions, such as California unemployment rates, household debt levels, changes in corporate debt yields, and U.S. gross domestic product.
PCD assets are assets acquired at a discount that is due, in part, to credit quality deterioration since origination. PCD assets are accounted for in accordance with ASC 326-20 and are initially recorded at fair value, by taking the sum of the present value of expected future cash flows and an allowance for credit losses, at acquisition. The allowance for credit losses for PCD assets is recorded through a gross-up of reserves on the balance sheet, while the allowance for acquired non-PCD assets, such as loans, is recorded through the provision for credit losses on the income statement, consistent with originated loans. Subsequent to acquisition, the allowance for credit losses for PCD loans will generally follow the same forward-looking estimation, provision, and charge-off process as non-PCD acquired and originated loans.
The Company has identified the following portfolio segments to evaluate and measure the allowance for credit loss:
Commercial real estate:
Commercial real estate - Non-owner occupied: These commercial properties typically consist of buildings which are leased to others for their use and rely on rents as the primary source of repayment. Property types are predominantly office, retail, or light industrial but the portfolio also has some special use properties. As such, the risk of loss associated with these properties is primarily driven by general
economic changes or changes in regional economies and the impact of such on a tenant’s ability to pay. Ultimately this can affect occupancy, rental rates, or both. Additional risk of loss can come from new construction resulting in oversupply, the costs to hold or operate the property, or changes in interest rates. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years.
Commercial real estate - Owner occupied: These credits are primarily susceptible to changes in the financial condition of the business operated by the property owner. This may be driven by changes in, among other things, industry challenges, factors unique to the operating geography of the borrower, change in the individual fortunes of the business owner, general economic conditions and changes in business cycles. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven more by general economic conditions, the underlying collateral may have devalued more and thus result in larger losses in the event of default. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years.
Multifamily: These commercial properties are generally comprised of more than four rentable units, such as apartment buildings, with each unit intended to be occupied as the primary residence for one or more persons. Multifamily properties are also subject to changes in general or regional economic conditions, such as unemployment, ultimately resulting in increased vacancy rates or reduced rents or both. In addition, new construction can create an oversupply condition and market competition resulting in increased vacancy, reduced market rents, or both. Due to the nature of their use and the greater likelihood of tenant turnover, the management of these properties is more intensive and therefore is more critical to the preclusion of loss.
Farmland: While the Company has few loans that were originated for the purpose of the acquisition of these commercial properties, loans secured by farmland represent unique risks that are associated with the operation of an agricultural businesses. The valuation of farmland can vary greatly over time based on the property's access to resources including but not limited to water, crop prices, foreign exchange rates, government regulation or restrictions, and the nature of ongoing capital investment needed to maintain the quality of the property. Loans secured by farmland typically represent less risk to the Company than other agriculture loans as the real estate typically provides greater support in the event of default or need for longer term repayment.
Consumer loans:
SFR 1-4 1st DT Liens: The most significant drivers of potential loss within the Company's residential real estate portfolio relate general, regional, or individual changes in economic conditions and their effect on employment and borrowers cash flow. Risk in this portfolio is best measured by changes in borrower credit score and loan-to-value. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the value of homes and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.
SFR HELOCs and Junior Liens: Similar to residential real estate term loans, HELOCs and junior liens performance is also primarily driven by borrower cash flows based on employment status. However, HELOCs carry additional risks associated with the fact that most of these loans are secured by a deed of trust in a position that is junior to the primary lien holder. Furthermore, the risk that as the borrower's financial strength deteriorates, the outstanding balance on these credit lines may increase as they may only be canceled by the Company if certain limited criteria are met. In addition to the allowance for credit losses maintained as a percent of the outstanding loan balance, the Company maintains additional reserves for the unfunded portion of the HELOC.
Other: The majority of consumer loans are secured by automobiles, with the remainder primarily unsecured revolving debt (credit cards). These loans are susceptible to three primary risks; non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value, if any. Typically non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of those factors. Credit card loans are unsecured and while collection efforts are pursued in the event of default, there is typically limited opportunity for recovery. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.
Commercial and Industrial:
Repayment of these loans is primarily based on the cash flow of the borrower, and secondarily on the underlying collateral provided by the borrower. A borrower's cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Most often, collateral includes accounts receivable, inventory, or equipment. Collateral securing these loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business. Actual and forecast changes in gross domestic product are believed to be corollary to losses associated with these credits.
Construction:
While secured by real estate, construction loans represent a greater level of risk than term real estate loans due to the nature of the additional risks associated with the not only the completion of construction within an estimated time period and budget, but also the need to either sell the building or reach a level of stabilized occupancy sufficient to generate the cash flows necessary to support debt service and operating costs. The Company seeks to mitigate the additional risks associated with construction lending by requiring borrowers to comply with lower loan to value ratios and additional covenants as well as strong tertiary support of guarantors. The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset as adjusted for macroeconomic factors.
Agriculture Production:
Repayment of agricultural loans is dependent upon successful operation of the agricultural business, which is greatly impacted by factors outside the control of the borrower. These factors include adverse weather conditions, including access to water, that may impact crop yields, loss of livestock due to disease or other factors, declines in market prices for agriculture products, changes in foreign exchange, and the impact of government regulations. In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect the successful operation of the business. Consequently, agricultural production loans may involve a greater degree of risk than other types of loans.
Leases:
The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset. Leases typically represent an elevated level of credit risk as compared to loans secured by real estate as the collateral for leases is often subject to a more rapid rate of depreciation or depletion. The ultimate severity of loss is impacted by the type of collateral securing the exposure, the size of the exposure, the borrower’s industry sector, any guarantors and the geographic market. Assumptions of expected loss are conditioned to the economic outlook and the other variables discussed above.
Unfunded commitments:
The estimated credit losses associated with these unfunded lending commitments is calculated using the same models and methodologies noted above and incorporate utilization assumptions at time of default. The reserve for unfunded commitments is maintained on the consolidated balance sheet in other liabilities.
Accounting Standards Recently Issued or Adopted
FASB issued ASU 2024-02, Codification Improvements— Amendments to Remove References to the Concepts Statements. This ASU facilitates Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance, and other minor improvements. The resulting amendments are referred to as Codification improvements. The amendments in this Update are not intended to result in significant accounting change for most entities. However, the Board recognizes that changes to that guidance may result in accounting change for some entities. Therefore, the amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2024. The adoption of this accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements.
The amortized cost, estimated fair values and allowance for credit losses of investments in debt securities are summarized in the following tables:
March 31, 2024
(in thousands)
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Allowance for Credit Losses
Estimated Fair Value
Debt Securities Available for Sale
Obligations of U.S. government agencies
$
1,349,679
$
1
$
(179,488)
$
—
$
1,170,192
Obligations of states and political subdivisions
262,777
132
(28,732)
—
234,177
Corporate bonds
6,175
—
(429)
—
5,746
Asset backed securities
362,877
623
(3,827)
—
359,673
Non-agency collateralized mortgage obligations
340,100
—
(36,000)
—
304,100
Total debt securities available for sale
$
2,321,608
$
756
$
(248,476)
$
—
$
2,073,888
Debt Securities Held to Maturity
Obligations of U.S. government agencies
$
125,131
$
1
$
(9,239)
—
115,893
Obligations of states and political subdivisions
2,680
—
(45)
—
2,635
Total debt securities held to maturity
$
127,811
$
1
$
(9,284)
$
—
$
118,528
December 31, 2023
(in thousands)
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Allowance for Credit Losses
Estimated Fair Value
Debt Securities Available for Sale
Obligations of U.S. government agencies
$
1,386,772
$
2
$
(165,037)
$
—
$
1,221,737
Obligations of states and political subdivisions
262,879
268
(26,772)
—
236,375
Corporate bonds
6,173
—
(571)
—
5,602
Asset backed securities
359,214
255
(4,188)
—
355,281
Non-agency collateralized mortgage obligations
369,287
—
(35,778)
—
333,509
Total debt securities available for sale
$
2,384,325
$
525
$
(232,346)
$
—
$
2,152,504
Debt Securities Held to Maturity
Obligations of U.S. government agencies
$
130,823
$
—
$
(8,331)
$
—
$
122,492
Obligations of states and political subdivisions
2,671
6
(43)
—
2,634
Total debt securities held to maturity
$
133,494
$
6
$
(8,374)
$
—
$
125,126
There were no sales of investment securities during the three months ended March 31, 2024. Proceeds from the sale of investment securities totaled $24.2 million for the three months ended March 31, 2023, resulting in gross realized losses of $0.2 million. Investment securities with an aggregate carrying value of $741.5 million and $702.2 million at March 31, 2024 and December 31, 2023, respectively, were pledged as collateral for specific borrowings, lines of credit or local agency deposits.
The amortized cost and estimated fair value of debt securities at March 31, 2024 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, 2024, obligations of U.S. government corporations and agencies with a cost basis totaling $1.3 billion 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, 2024, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately 7.25 years. Average remaining life is defined as the time span after which the principal balance has been reduced by half.
As of March 31, 2024, the contractual final maturity for available for sale and held to maturity investment securities is as follows:
Debt Securities
Available for Sale
Held to Maturity
(in thousands)
Amortized Cost
Estimated Fair Value
Amortized Cost
Estimated Fair Value
Due in one year
$
51,718
$
51,226
$
—
$
—
Due after one year through five years
49,150
46,062
5,396
5,206
Due after five years through ten years
371,852
358,110
92,951
86,475
Due after ten years
1,848,888
1,618,490
29,464
26,847
Totals
$
2,321,608
$
2,073,888
$
127,811
$
118,528
Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:
March 31, 2024:
Less than 12 months
12 months or more
Total
(in thousands)
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
Debt Securities Available for Sale
Obligations of U.S. government agencies
$
442
$
(3)
$
1,169,687
$
(179,485)
$
1,170,129
$
(179,488)
Obligations of states and political subdivisions
6,760
(152)
219,908
(28,580)
226,668
(28,732)
Corporate bonds
—
—
5,746
(429)
5,746
(429)
Asset backed securities
94,861
(350)
146,838
(3,477)
241,699
(3,827)
Non-agency collateralized mortgage obligations
43,223
(523)
260,877
(35,477)
304,100
(36,000)
Total debt securities available for sale
$
145,286
$
(1,028)
$
1,803,056
$
(247,448)
$
1,948,342
$
(248,476)
Debt Securities Held to Maturity
Obligations of U.S. government agencies
$
—
$
—
$
115,660
$
(9,239)
$
115,660
$
(9,239)
Obligations of states and political subdivisions
1,618
(8)
1,018
(37)
2,636
(45)
Total debt securities held to maturity
$
1,618
$
(8)
$
116,678
$
(9,276)
$
118,296
$
(9,284)
December 31, 2023:
Less than 12 months
12 months or more
Total
(in thousands)
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
Debt Securities Available for Sale
Obligations of U.S. government agencies
$
224
$
—
$
1,221,320
$
(165,037)
$
1,221,544
$
(165,037)
Obligations of states and political subdivisions
6,229
(75)
216,497
(26,697)
222,726
(26,772)
Corporate bonds
—
—
5,602
(571)
5,602
(571)
Asset backed securities
15,928
(93)
264,731
(4,095)
280,659
(4,188)
Non-agency collateralized mortgage obligations
44,276
(583)
289,233
(35,195)
333,509
(35,778)
Total debt securities available for sale
$
66,657
$
(751)
$
1,997,383
$
(231,595)
$
2,064,040
$
(232,346)
Debt Securities Held to Maturity
Obligations of U.S. government agencies
$
—
$
—
$
122,259
$
(8,331)
$
122,259
$
(8,331)
Obligations of states and political subdivisions
—
—
1,012
(43)
1,012
(43)
Total debt securities held to maturity
$
—
$
—
$
123,271
$
(8,374)
$
123,271
$
(8,374)
Obligations of U.S. government agencies: The unrealized losses on investments in obligations of U.S. government agencies are caused by interest rate increases and illiquidity. The contractual cash flows of these securities are guaranteed by U.S. Government Sponsored Entities (principally Fannie Mae and Freddie Mac). It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded. At March 31, 2024, 168 debt securities representing obligations of U.S. government agencies had unrealized losses with aggregate depreciation of 13.29% from the Company’s amortized cost basis.
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 management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of March 31, 2024. At March 31, 2024, 157 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of 11.25% from the Company’s amortized cost basis.
Corporate bonds: The unrealized losses on investments in corporate bonds 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 management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of March 31, 2024. At March 31, 2024, 6 debt securities representing corporate bonds had unrealized losses with aggregate depreciation of 6.95% from the Company’s amortized cost basis.
Asset backed securities: The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors for these types of securities. At the time of purchase, each of these securities was rated AA or AAA and through March 31, 2024
has not experienced any deterioration in credit rating. At March 31, 2024, 29 asset backed securities had unrealized losses with aggregate depreciation of 1.56% from the Company’s amortized cost basis. The Company continues to monitor these securities for changes in credit rating or other indications of credit deterioration. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of March 31, 2024.
Non-agency collateralized mortgage obligations: The unrealized losses on investments in asset backed securities 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 management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses as of and for the year ended March 31, 2024. At March 31, 2024, 22 asset backed securities had unrealized losses with aggregate depreciation of 10.59% from the Company’s amortized cost basis.
The Company monitors credit quality of debt securities held-to-maturity through the use of credit rating. The Company monitors the credit rating on a monthly basis. The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator:
The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.
For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities:
Allowance for credit losses – Three months ended March 31, 2024
(in thousands)
Beginning Balance
Charge-offs
Recoveries
Provision (benefit)
Ending Balance
Commercial real estate:
CRE non-owner occupied
$
35,077
$
—
$
—
$
1,610
$
36,687
CRE owner occupied
15,081
—
—
1,030
16,111
Multifamily
14,418
—
—
1,264
15,682
Farmland
4,288
—
—
(593)
3,695
Total commercial real estate loans
68,864
—
—
3,311
72,175
Consumer:
SFR 1-4 1st DT liens
14,009
(26)
—
157
14,140
SFR HELOCs and junior liens
10,273
(32)
49
(348)
9,942
Other
3,171
(250)
40
398
3,359
Total consumer loans
27,453
(308)
89
207
27,441
Commercial and industrial
12,750
(130)
22
(775)
11,867
Construction
8,856
—
—
306
9,162
Agriculture production
3,589
(837)
21
935
3,708
Leases
10
—
—
31
41
Allowance for credit losses on loans
121,522
(1,275)
132
4,015
124,394
Reserve for unfunded commitments
5,850
—
—
290
6,140
Total
$
127,372
$
(1,275)
$
132
$
4,305
$
130,534
In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various econometrics, including California unemployment, gross domestic product, and corporate bond yields. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results.
The Company utilizes a forecast period of approximately eight quarters and obtains the forecast data from publicly available sources as of the balance sheet date. This forecast data continues to evolve and includes improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date. Despite continued declines on a year over year comparative basis, core inflation remains elevated from wage pressures, and higher living costs such as housing, energy and food prices. Management notes the rapid intervals of rate increases by the Federal Reserve may create repricing risk for certain borrowers and continued inversion of the yield curve, creates informed expectations of the US potentially entering a recession within 12 months. While projected cuts in interest rates from the Federal Reserve during 2024 may improve this outlook, the uncertainty associated with the extent and timing of these potential reductions has inhibited a change to forecasted reserve levels. As a result, management continues to believe that certain credit weaknesses are likely present in the overall economy and that it is appropriate to maintain a reserve level that incorporates such risk factors.
For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities:
Allowance for credit losses – Year ended December 31, 2023
(in thousands)
Beginning Balance
Charge-offs
Recoveries
Provision (benefit)
Ending Balance
Commercial real estate:
CRE non-owner occupied
$
30,962
$
—
$
—
$
4,115
$
35,077
CRE owner occupied
14,014
(3,637)
2
4,702
15,081
Multifamily
13,132
—
—
1,286
14,418
Farmland
3,273
—
—
1,015
4,288
Total commercial real estate loans
61,381
(3,637)
2
11,118
68,864
Consumer:
SFR 1-4 1st DT liens
11,268
—
262
2,479
14,009
SFR HELOCs and junior liens
11,413
(66)
723
(1,797)
10,273
Other
1,958
(558)
190
1,581
3,171
Total consumer loans
24,639
(624)
1,175
2,263
27,453
Commercial and industrial
13,597
(3,879)
316
2,716
12,750
Construction
5,142
—
—
3,714
8,856
Agriculture production
906
—
34
2,649
3,589
Leases
15
—
—
(5)
10
Allowance for credit losses on loans
105,680
(8,140)
1,527
22,455
121,522
Reserve for unfunded commitments
4,315
—
—
1,535
5,850
Total
$
109,995
$
(8,140)
$
1,527
$
23,990
$
127,372
Allowance for credit losses – Three months ended March 31, 2023
(in thousands)
Beginning Balance
Charge-offs
Recoveries
Provision (benefit)
Ending Balance
Commercial real estate:
CRE non-owner occupied
$
30,962
$
—
$
—
$
2,001
$
32,963
CRE owner occupied
14,014
—
—
545
14,559
Multifamily
13,132
—
—
741
13,873
Farmland
3,273
—
—
269
3,542
Total commercial real estate loans
61,381
—
—
3,556
64,937
Consumer:
SFR 1-4 1st DT liens
11,268
—
—
652
11,920
SFR HELOCs and junior liens
11,413
(42)
65
(522)
10,914
Other
1,958
(142)
51
195
2,062
Total consumer loans
24,639
(184)
116
325
24,896
Commercial and industrial
13,597
(1,574)
53
(7)
12,069
Construction
5,142
—
—
513
5,655
Agriculture production
906
—
1
(74)
833
Leases
15
—
—
2
17
Allowance for credit losses on loans
105,680
(1,758)
170
4,315
108,407
Reserve for unfunded commitments
4,315
—
—
(120)
4,195
Total
$
109,995
$
(1,758)
$
170
$
4,195
$
112,602
As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including, but not limited to, trends relating to (i) the level of criticized and classified loans, (ii) net charge-offs, (iii) non-performing loans, and (iv) delinquency within the portfolio. The Company analyzes loans individually to classify the loans as to credit risk and grading. This analysis is performed annually for all outstanding balances greater than $1 million and non-homogeneous loans, such as commercial real
estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation. Loans below the $1 million threshold and homogenous in nature are evaluated as needed for proper grading based on delinquency and borrower credit scores.
The Company utilizes a risk grading system to assign a risk grade to each of its loans. Loans are graded on a scale ranging from Pass to Loss. A description of the general characteristics of the risk grades is as follows:
•Pass – 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.
Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the period indicated:
Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2024
(in thousands)
2024
2023
2022
2021
2020
Prior
Revolving Loans Amortized Cost Basis
Revolving Loans Converted to Term
Total
Commercial real estate:
CRE non-owner occupied risk ratings
Pass
$
11,059
$
184,318
$
418,964
$
282,676
$
142,738
$
983,609
$
147,552
$
—
$
2,170,916
Special Mention
—
—
1,295
—
—
34,021
2,252
—
37,568
Substandard
—
—
—
767
—
11,317
—
—
12,084
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
11,059
$
184,318
$
420,259
$
283,443
$
142,738
$
1,028,947
$
149,804
$
—
$
2,220,568
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Commercial real estate:
CRE owner occupied risk ratings
Pass
$
33,662
$
75,002
$
201,423
$
185,995
$
114,912
$
313,351
$
23,631
$
—
$
947,976
Special Mention
—
—
5,724
2,318
2,935
4,372
—
—
15,349
Substandard
—
—
2,912
7,706
—
1,025
—
—
11,643
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
33,662
$
75,002
$
210,059
$
196,019
$
117,847
$
318,748
$
23,631
$
—
$
974,968
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2024
(in thousands)
2024
2023
2022
2021
2020
Prior
Revolving Loans Amortized Cost Basis
Revolving Loans Converted to Term
Total
Commercial real estate:
Multifamily risk ratings
Pass
$
4,063
$
28,655
$
176,410
$
278,671
$
120,526
$
323,784
$
37,749
$
—
$
969,858
Special Mention
—
—
—
11,917
—
515
—
—
$
12,432
Substandard
—
—
—
—
—
—
—
—
—
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
4,063
$
28,655
$
176,410
$
290,588
$
120,526
$
324,299
$
37,749
$
—
$
982,290
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Commercial real estate:
Farmland risk ratings
Pass
$
1,396
$
21,093
$
45,682
$
36,854
$
15,571
$
55,897
$
46,551
$
—
$
223,044
Special Mention
—
—
2,984
5,803
427
4,674
1,155
—
15,043
Substandard
—
101
—
8,913
—
11,904
6,937
—
27,855
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
1,396
$
21,194
$
48,666
$
51,570
$
15,998
$
72,475
$
54,643
$
—
$
265,942
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Consumer loans:
SFR 1-4 1st DT liens risk ratings
Pass
$
21,136
$
127,324
$
187,809
$
257,773
$
121,334
$
152,951
$
—
$
3,847
$
872,174
Special Mention
—
70
—
—
—
2,068
—
27
2,165
Substandard
—
268
144
1,280
1,479
5,571
—
439
9,181
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
21,136
$
127,662
$
187,953
$
259,053
$
122,813
$
160,590
$
—
$
4,313
$
883,520
Current period gross write-offs
$
—
$
26
$
—
$
—
$
—
$
—
$
—
$
—
$
26
Consumer loans:
SFR HELOCs and Junior Liens
Pass
$
278
$
—
$
—
$
—
$
—
$
89
$
330,942
$
6,527
$
337,836
Special Mention
—
—
—
—
—
—
3,416
204
3,620
Substandard
—
—
—
—
—
—
3,260
507
3,767
Doubtful/Loss
—
Total
$
278
$
—
$
—
$
—
$
—
$
89
$
337,618
$
7,238
$
345,223
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
32
$
—
$
32
Consumer loans:
Other risk ratings
Pass
$
9,305
$
30,615
$
8,361
$
7,941
$
6,856
$
10,413
$
618
$
—
$
74,109
Special Mention
—
—
52
131
60
72
20
—
335
Substandard
—
85
177
157
3
146
2
—
570
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
9,305
$
30,700
$
8,590
$
8,229
$
6,919
$
10,631
$
640
$
—
$
75,014
Current period gross write-offs
$
76
$
67
$
—
$
60
$
28
$
15
$
4
$
—
$
250
Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2024
(in thousands)
2024
2023
2022
2021
2020
Prior
Revolving Loans Amortized Cost Basis
Revolving Loans Converted to Term
Total
Commercial and industrial loans:
Commercial and industrial risk ratings
Pass
$
17,591
$
62,336
$
70,850
$
46,756
$
7,801
$
15,418
$
316,769
$
246
$
537,767
Special Mention
—
—
743
156
86
—
2,046
—
3,031
Substandard
—
—
2,082
768
83
721
5,255
73
8,982
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
17,591
$
62,336
$
73,675
$
47,680
$
7,970
$
16,139
$
324,070
$
319
$
549,780
Current period gross write-offs
$
10
$
—
$
—
$
—
$
—
$
—
$
120
$
—
$
130
Construction loans:
Construction risk ratings
Pass
$
1,979
$
71,893
$
141,212
$
89,345
$
22,345
$
10,574
$
—
$
—
$
337,348
Special Mention
—
—
11,569
—
—
—
—
—
11,569
Substandard
—
—
—
—
—
64
—
—
64
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
1,979
$
71,893
$
152,781
$
89,345
$
22,345
$
10,638
$
—
$
—
$
348,981
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Agriculture production loans:
Agriculture production risk ratings
Pass
$
586
$
1,378
$
2,857
$
1,539
$
349
$
8,897
$
120,410
$
—
$
136,016
Special Mention
—
33
—
—
—
—
6,928
—
6,961
Substandard
—
—
164
490
152
—
1,376
—
2,182
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
586
$
1,411
$
3,021
$
2,029
$
501
$
8,897
$
128,714
$
—
$
145,159
Current period gross write-offs
$
—
$
—
$
173
$
—
$
—
$
—
$
664
$
—
$
837
Leases:
Lease risk ratings
Pass
$
9,250
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$9,250
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
9,250
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
9,250
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Total loans outstanding:
Risk ratings
Pass
$
110,305
$
602,614
$
1,253,568
$
1,187,550
$
552,432
$
1,874,983
$
1,024,222
$
10,620
$
6,616,294
Special Mention
—
103
22,367
20,325
3,508
45,722
15,817
231
108,073
Substandard
—
454
5,479
20,081
1,717
30,748
16,830
1,019
76,328
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
110,305
$
603,171
$
1,281,414
$
1,227,956
$
557,657
$
1,951,453
$
1,056,869
$
11,870
$
6,800,695
Current period gross write-offs
$
86
$
93
$
173
$
60
$
28
$
15
$
820
$
—
$
1,275
Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2023
(in thousands)
2023
2022
2021
2020
2019
Prior
Revolving Loans Amortized Cost Basis
Revolving Loans Converted to Term
Total
Commercial real estate:
CRE non-owner occupied risk ratings
Pass
$
180,326
$
413,863
$
290,210
$
137,656
$
206,408
$
792,875
$
141,686
$
—
$
2,163,024
Special Mention
—
1,329
—
5,281
17,093
14,174
1,247
—
39,124
Substandard
—
—
767
—
2,139
12,540
212
—
15,658
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
180,326
$
415,192
$
290,977
$
142,937
$
225,640
$
819,589
$
143,145
$
—
$
2,217,806
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Commercial real estate:
CRE owner occupied risk ratings
Pass
$
71,288
$
196,915
$
190,384
$
118,457
$
59,220
$
268,990
$
23,740
$
—
$
928,994
Special Mention
—
5,773
1,513
2,754
703
2,678
—
—
13,421
Substandard
—
2,972
7,835
—
111
3,107
—
—
14,025
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
71,288
$
205,660
$
199,732
$
121,211
$
60,034
$
274,775
$
23,740
$
—
$
956,440
Current period gross write-offs
$
—
$
—
$
—
$
1,380
$
—
$
2,228
$
29
$
—
$
3,637
Commercial real estate:
Multifamily risk ratings
Pass
$
28,445
$
177,032
$
279,660
$
89,106
$
104,108
$
225,446
$
33,470
$
—
$
937,267
Special Mention
—
—
11,914
—
—
321
—
—
12,235
Substandard
—
—
—
—
—
—
—
—
—
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
28,445
$
177,032
$
291,574
$
89,106
$
104,108
$
225,767
$
33,470
$
—
$
949,502
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Commercial real estate:
Farmland risk ratings
Pass
$
21,729
$
46,398
$
37,134
$
16,006
$
16,780
$
41,663
$
50,857
$
—
$
230,567
Special Mention
—
2,170
5,802
51
261
734
—
—
9,018
Substandard
101
813
9,053
377
—
13,266
7,859
—
31,469
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
21,830
$
49,381
$
51,989
$
16,434
$
17,041
$
55,663
$
58,716
$
—
$
271,054
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Consumer loans:
SFR 1-4 1st DT liens risk ratings
Pass
$
135,741
$
189,920
$
260,870
$
125,081
$
29,568
$
126,975
$
—
$
4,079
$
872,234
Special Mention
71
—
—
—
—
1,948
—
27
2,046
Substandard
—
140
1,296
1,490
531
5,265
—
436
9,158
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
135,812
$
190,060
$
262,166
$
126,571
$
30,099
$
134,188
$
—
$
4,542
$
883,438
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2023
(in thousands)
2023
2022
2021
2020
2019
Prior
Revolving Loans Amortized Cost Basis
Revolving Loans Converted to Term
Total
Consumer loans:
SFR HELOCs and Junior Liens
Pass
$
297
$
—
$
—
$
—
$
—
$
96
$
343,698
$
6,444
$
350,535
Special Mention
—
—
—
—
—
—
2,274
138
2,412
Substandard
—
—
—
—
—
—
3,212
654
3,866
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
297
$
—
$
—
$
—
$
—
$
96
$
349,184
$
7,236
$
356,813
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
66
$
66
Consumer loans:
Other risk ratings
Pass
$
34,441
$
9,061
$
8,908
$
7,419
$
6,825
$
4,619
$
659
$
—
$
71,932
Special Mention
21
54
203
63
54
37
18
—
450
Substandard
87
183
164
30
116
52
3
—
635
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
34,549
$
9,298
$
9,275
$
7,512
$
6,995
$
4,708
$
680
$
—
$
73,017
Current period gross write-offs
$
376
$
82
$
—
$
36
$
39
$
9
$
16
$
—
$
558
Commercial and industrial loans:
Commercial and industrial risk ratings
Pass
$
70,930
$
83,184
$
51,455
$
9,504
$
10,193
$
7,636
$
340,858
$
318
$
574,078
Special Mention
33
663
237
83
—
178
1,126
—
2,320
Substandard
—
2,014
782
103
4
762
6,318
74
10,057
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
70,963
$
85,861
$
52,474
$
9,690
$
10,197
$
8,576
$
348,302
$
392
$
586,455
Current period gross write-offs
$
153
$
287
$
240
$
2,285
$
—
$
—
$
896
$
18
$
3,879
Construction loans:
Construction risk ratings
Pass
$
56,378
$
136,294
$
85,144
$
47,632
$
4,583
$
6,518
$
—
$
—
$
336,549
Special Mention
—
10,582
—
—
—
—
—
—
10,582
Substandard
—
—
—
—
67
—
—
—
67
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
56,378
$
146,876
$
85,144
$
47,632
$
4,650
$
6,518
$
—
$
—
$
347,198
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Agriculture production loans:
Agriculture production risk ratings
Pass
$
945
$
2,749
$
1,595
$
396
$
620
$
8,491
$
114,935
$
—
$
129,731
Special Mention
—
183
543
176
—
—
11,302
—
12,204
Substandard
—
—
—
—
—
—
2,562
—
2,562
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
945
$
2,932
$
2,138
$
572
$
620
$
8,491
$
128,799
$
—
$
144,497
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2023
(in thousands)
2023
2022
2021
2020
2019
Prior
Revolving Loans Amortized Cost Basis
Revolving Loans Converted to Term
Total
Leases:
Lease risk ratings
Pass
$
8,250
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
8,250
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
8,250
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
8,250
Current period gross write-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Total loans outstanding:
Risk ratings
Pass
$
608,770
$
1,255,416
$
1,205,360
$
551,257
$
438,305
$
1,483,309
$
1,049,903
$
10,841
$
6,603,161
Special Mention
125
20,754
20,212
8,408
18,111
20,070
15,967
165
103,812
Substandard
188
6,122
19,897
2,000
2,968
34,992
20,166
1,164
87,497
Doubtful/Loss
—
—
—
—
—
—
—
—
—
Total
$
609,083
$
1,282,292
$
1,245,469
$
561,665
$
459,384
$
1,538,371
$
1,086,036
$
12,170
$
6,794,470
Current period gross write-offs
$
529
$
369
$
240
$
3,701
$
39
$
2,237
$
941
$
84
$
8,140
The following table shows the ending balance of current and past due originated loans by loan category as of the date indicated:
Analysis of Past Due Loans - As of March 31, 2024
(in thousands)
30-59 days
60-89 days
> 90 days
Total Past Due Loans
Current
Total
Commercial real estate:
CRE non-owner occupied
$
1,182
$
232
$
3,104
$
4,518
$
2,216,050
$
2,220,568
CRE owner occupied
1,803
32
244
2,079
972,889
974,968
Multifamily
—
—
—
—
982,290
982,290
Farmland
—
—
4,608
4,608
261,334
265,942
Total commercial real estate loans
2,985
264
7,956
11,205
4,432,563
4,443,768
Consumer:
SFR 1-4 1st DT liens
141
6
534
681
882,839
883,520
SFR HELOCs and junior liens
—
282
572
854
344,369
345,223
Other
76
—
84
160
74,854
75,014
Total consumer loans
217
288
1,190
1,695
1,302,062
1,303,757
Commercial and industrial
482
352
1,270
2,104
547,676
549,780
Construction
52
—
—
52
348,929
348,981
Agriculture production
—
—
1,376
1,376
143,783
145,159
Leases
—
42
—
42
9,208
9,250
Total
$
3,736
$
946
$
11,792
$
16,474
$
6,784,221
$
6,800,695
Analysis of Past Due Loans - As of December 31, 2023
(in thousands)
30-59 days
60-89 days
> 90 days
Total Past Due Loans
Current
Total
Commercial real estate:
CRE non-owner occupied
$
3,876
$
—
$
1,382
$
5,258
$
2,212,548
$
2,217,806
CRE owner occupied
34
—
247
281
956,159
956,440
Multifamily
—
—
—
—
949,502
949,502
Farmland
635
3,798
2,052
6485
264,569
271,054
Total commercial real estate loans
4,545
3,798
3,681
12,024
4,382,778
4,394,802
Consumer:
SFR 1-4 1st DT liens
141
1,449
490
2,080
881,358
883,438
SFR HELOCs and junior liens
16
—
623
639
356,174
356,813
Other
148
40
30
218
72,799
73,017
Total consumer loans
305
1,489
1,143
2,937
1,310,331
1,313,268
Commercial and industrial
244
605
1,654
2,503
583,952
586,455
Construction
—
—
—
—
347,198
347,198
Agriculture production
593
878
33
1,504
142,993
144,497
Leases
447
—
—
447
7,803
8,250
Total
$
6,134
$
6,770
$
6,511
$
19,415
$
6,775,055
$
6,794,470
The following table shows the ending balance of non accrual loans by loan category as of the date indicated:
Non Accrual Loans
As of March 31, 2024
As of December 31, 2023
(in thousands)
Non accrual with no allowance for credit losses
Total non accrual
Past due 90 days or more and still accruing
Non accrual with no allowance for credit losses
Total non accrual
Past due 90 days or more and still accruing
Commercial real estate:
CRE non-owner occupied
$
4,113
$
4,113
$
—
$
2,024
$
2,024
$
—
CRE owner occupied
3,905
3,905
—
3,994
3,994
—
Multifamily
—
—
—
—
—
—
Farmland
8,926
13,780
—
5,996
14,484
—
Total commercial real estate loans
16,944
21,798
—
12,014
20,502
—
Consumer:
SFR 1-4 1st DT liens
4,821
5,094
—
2,808
2,811
—
SFR HELOCs and junior liens
3,110
3,403
—
3,281
3,571
—
Other
64
99
—
39
105
—
Total consumer loans
7,995
8,596
—
6,128
6,487
—
Commercial and industrial
1,535
2,301
107
1,379
2,503
10
Construction
64
64
—
67
67
—
Agriculture production
311
1,376
—
—
2,322
—
Leases
—
—
—
—
—
—
Sub-total
26,849
34,135
107
19,588
31,881
10
Less: Guaranteed loans
(801)
(872)
—
(766)
(878)
Total, net
$
26,048
$
33,263
$
107
$
18,822
$
31,003
$
10
Interest income on non accrual loans that would have been recognized during the three months ended March 31, 2024 and 2023, if all such loans had been current in accordance with their original terms, totaled $0.85 million and $0.32 million, respectively. Interest income actually recognized on these originated loans during the three months ended March 31, 2024 and 2023 was $0.1 million and $0.02 million, respectively.
The following tables present the amortized cost basis of collateral dependent loans by class of loans as of the following periods:
As of March 31, 2024
(in thousands)
Retail
Office
Warehouse
Other
Multifamily
Farmland
SFR-1st Deed
SFR-2nd Deed
Automobile/Truck
A/R and Inventory
Equipment
Total
Commercial real estate:
CRE non-owner occupied
$
2,459
$
381
$
506
$
767
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
4,113
CRE owner occupied
593
—
293
3,019
—
—
—
—
—
—
—
3,905
Multifamily
—
—
—
—
—
—
—
—
—
—
—
—
Farmland
—
—
—
—
—
13,780
—
—
—
—
—
13,780
Total commercial real estate loans
3,052
381
799
3,786
—
13,780
—
—
—
—
—
21,798
Consumer:
SFR 1-4 1st DT liens
—
—
—
—
—
—
5,089
—
—
—
—
5,089
SFR HELOCs and junior liens
—
—
—
—
—
—
1,403
1,739
—
—
—
3,142
Other
—
—
—
—
—
—
—
—
89
—
—
89
Total consumer loans
—
—
—
—
—
—
6,492
1,739
89
—
—
8,320
Commercial and industrial
—
—
—
—
—
—
—
—
—
1,294
807
2,101
Construction
—
—
—
—
—
—
64
—
—
—
—
64
Agriculture production
—
—
—
1,376
—
—
—
—
—
—
—
1,376
Leases
—
—
—
—
—
—
—
—
—
—
—
—
Total
$
3,052
$
381
$
799
$
5,162
$
—
$
13,780
$
6,556
$
1,739
$
89
$
1,294
$
807
$
33,659
As of December 31, 2023
(in thousands)
Retail
Office
Warehouse
Other
Multifamily
Farmland
SFR -1st Deed
SFR -2nd Deed
Automobile/Truck
A/R and Inventory
Equipment
Total
Commercial real estate:
CRE non-owner occupied
$
124
$
615
$
519
$
766
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
2,024
CRE owner occupied
614
—
297
3,083
—
—
—
—
—
—
—
3,994
Multifamily
—
—
—
—
—
—
—
—
—
—
—
—
Farmland
—
—
—
635
—
13,849
—
—
—
—
—
14,484
Total commercial real estate loans
738
615
816
4,484
—
13,849
—
—
—
—
—
20,502
Consumer:
SFR 1-4 1st DT liens
—
—
—
—
—
—
2,808
—
—
—
—
2,808
SFR HELOCs and junior liens
—
—
—
—
—
—
1,816
1,467
—
—
—
3,283
Other
—
—
—
—
—
—
—
—
95
—
—
95
Total consumer loans
—
—
—
—
—
—
4,624
1,467
95
—
—
6,186
Commercial and industrial
—
—
—
—
—
—
—
—
—
1,712
791
2,503
Construction
—
—
—
—
—
—
67
—
—
—
—
67
Agriculture production
—
—
—
2,288
—
—
—
—
—
—
33
2,321
Leases
—
—
—
—
—
—
—
—
—
—
—
—
Total
$
738
$
615
$
816
$
6,772
$
—
$
13,849
$
4,691
$
1,467
$
95
$
1,712
$
824
$
31,579
Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.
The following tables show the amortized cost basis of loans that were both experiencing financial difficulty and modified during the periods presented. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivables is also presented below.
For the three months ended
March 31, 2024
March 31, 2023
(in thousands)
Combination - Term Extension/Rate Change
Payment Delay/Term Extension
Total % of Loans Outstanding
Payment Delay/Term Extension
Total % of Loans Outstanding
CRE non-owner occupied
$
211
$
—
0.03
%
$
—
—
%
SFR HELOCs and junior liens
—
41
0.01
—
—
Commercial and industrial
—
516
0.07
177
0.03
Total
$
211
$
557
0.11
%
$
177
0.03
%
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the quarter ended March 31, 2024.
Modification Type
Loan Type
Financial Effect
Combination - Term extension / rate change
CRE non-owner occupied
Added 120 months to the life of the loan; converted from variable to fixed interest rate
Payment delay / term extension
SFR HELOCs and junior liens
Added 60 months to the life of the loan
Payment delay / term extension
Commercial and industrial
Added 66 months to the life of the loan
Payment delay / term extension
Commercial and industrial
Added 12 months to the life of the loan
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the quarter ended March 31, 2023.
Modification Type
Loan Type
Financial Effect
Payment delay / term extension
Commercial and industrial
Added 12 months to the life of the loan to delay balloon repayment
During the quarters ended March 31, 2024 and March 31, 2023, respectively, there were no loans with payment defaults by borrowers experiencing financial difficulty which had material modifications in rate, term or principal forgiveness during the twelve months prior to default.
The Company records a 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 also records a lease liability on the consolidated balance sheets for the present value of future payment commitments. All of the Company’s leases are comprised of operating leases in which the Company is lessee of real estate property for branches, ATM locations, and general administration and operations. The Company has elected not to include short-term leases (i.e. leases with initial terms of 12 month 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. 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 periods ended:
Three months ended March 31,
(in thousands)
2024
2023
Operating lease cost
$
1,434
$
1,609
Short-term lease cost
52
118
Variable lease cost
13
12
Sublease income
—
—
Total lease cost
$
1,499
$
1,739
The following table presents supplemental cash flow information related to leases for the periods ended:
Three months ended March 31,
(in thousands)
2024
2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
$
1,568
$
1,653
ROUA obtained in exchange for operating lease liabilities
$
1,327
$
4,484
The following table presents the weighted average operating lease term and discount rate as of the period ended:
March 31,
2024
2023
Weighted-average remaining lease term (years)
7.9
8.3
Weighted-average discount rate
3.42
%
3.27
%
At March 31, 2024, future expected operating lease payments are as follows:
The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability.
Certificate of deposit balances of $100.0 million and $50.0 million from the State of California were included in time certificates, over $250,000, at March 31, 2024 and December 31, 2023, 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 $1.7 million and $1.8 million were classified as consumer loans at March 31, 2024 and December 31, 2023, respectively.
The entire disclosure for deposit liabilities including data and tables. It may include a description of the entity's deposit liabilities, the aggregate amount of time deposits (including certificates of deposit) in denominations of $100,000 or more at the balance sheet date; the aggregate amount of any demand deposits that have been reclassified as loan balances, such as overdrafts, at the balance sheet date; deposits that are received on terms other than those in the normal course of business, the amount of accrued interest on deposit liabilities; securities, mortgage loans or other financial instruments that serve as collateral for deposits; for time deposits having a remaining term of more than one year, the aggregate amount of maturities for each of the five years following the balance sheet date; and the weighted average interest rate for all deposit liabilities held by the entity.
A summary of the balances of other borrowings follows:
March 31, 2024
December 31, 2023
(in thousands)
Term borrowing at FHLB, fixed rate of 4.75%, payable on April 8, 2024
$
200,000
$
200,000
Overnight borrowing at FHLB, fixed rate of 5.69%, payable on April 1, 2024
167,000
—
Overnight borrowing at FHLB, fixed rate of 5.70%, payable on January 2, 2024
—
400,000
Other collateralized borrowings, fixed rate, as of March 31, 2024 and December 31, 2023 of 0.05%, payable on April 1, 2024 and January 2, 2024, respectively
The following table summarizes the terms and recorded balances of each debenture as of the date indicated:
(in thousands)
Coupon Rate (Variable) 3 mo. SOFR +
As of March 31, 2024
As of December 31, 2023
Subordinated Debt Series
Maturity Date
Face Value
Current Coupon Rate
Recorded Book Value
Recorded Book Value
TriCo Cap Trust I
10/7/2033
$
20,619
3.05
%
8.63
%
$
20,619
$
20,619
TriCo Cap Trust II
7/23/2034
20,619
2.55
%
8.13
%
20,619
20,619
North Valley Trust II
4/24/2033
6,186
3.25
%
8.82
%
5,629
5,602
North Valley Trust III
7/23/2034
5,155
2.80
%
8.38
%
4,495
4,472
North Valley Trust IV
3/15/2036
10,310
1.33
%
6.92
%
7,673
7,615
VRB Subordinated
3/29/2029
16,000
3.52
%
9.08
%
16,953
17,000
VRB Subordinated - 5%
8/27/2035
20,000
Fixed
5.00
%
25,132
25,172
$
98,889
$
101,120
$
101,099
The VRB - 5% Subordinated Debt issuance is fixed at 5.0% through August 27, 2025, then will have a floating rate of 90-day average SOFR plus 4.9% until maturity.
The Bank paid to the Company cash dividends in the aggregate amounts of $20.4 million and $18.2 million during the three months ended March 31, 2024 and 2023, respectively. The Bank is regulated by the FDIC and the DFPI. Absent approval from the Commissioner of the DFPI, 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 February 25, 2021, the Board of Directors authorized the repurchase of up to 2.0 million shares of the Company's common stock (the 2021 Repurchase Plan), which approximated 6.7% of the shares outstanding as of the approval date. The actual timing of any share repurchases can be determined by the Company's management and therefore the total value of the shares to be purchased under the 2021 Repurchase Plan is subject to change. The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations). During the three months ended March 31, 2024 and 2023, the Company repurchased 99,332 and 150,000 shares with market values of $3.4 million and $7.0 million, respectively.
Stock Repurchased Under Equity Compensation Plans
The Company's shareholder-approved equity compensation plans permit employees to tender recently vested shares in lieu of cash for the payment of exercise price, if applicable, and the tax withholding on such shares. During the three months ended March 31, 2024 and 2023, exercising option holders tendered zero shares, respectively, of the Company’s common stock in connection with option exercises. Employees also tendered zero and 12,381 shares in connection with the tax withholding requirements of other share-based awards during the three months ended March 31, 2024 and 2023, respectively. In total, shares of the Company's common stock tendered had market values of zero and $0.6 million during the quarters ended March 31, 2024 and 2023, respectively. The tendered shares were retired. The market value of tendered shares is the last market trade price at closing on the day an option is exercised or the other share-based award vests. Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the 2021 Stock Repurchase Plans.
Stock Options and Other Equity-Based Incentive Instruments
On April 16, 2019, the Board of Directors adopted the 2019 Equity Incentive Plan (2019 Plan) which was approved by shareholders on May 21, 2019. The 2019 Plan allows for up to 1,500,000 shares to be issued in connection with equity-based incentives. The Company’s 2009 Equity Incentive Plan (2009 Plan) expired on March 26, 2019. While no new awards can be granted under the 2009 Plan, existing grants continue to be governed by the terms, conditions and procedures set forth in any applicable award agreement.
Stock option activity during the three months ended March 31, 2024, is summarized in the following table:
Number of Shares
Weighted Average Exercise Price
Outstanding at December 31, 2023
7,500
$
23.21
Options granted
—
—
Options exercised
—
—
Options forfeited
—
—
Outstanding at March 31, 2024
7,500
$
23.21
The following table shows the number, weighted-average exercise price, intrinsic value, and weighted average remaining contractual life of options exercisable, options not yet exercisable and total options outstanding as of March 31, 2024:
Currently Exercisable
Currently Not Exercisable
Total Outstanding
Number of options
7,500
—
7,500
Weighted average exercise price
$
23.21
$
—
$
23.21
Intrinsic value (in thousands)
$
102
$
—
$
102
Weighted average remaining contractual term (yrs.)
0.5
n/a
0.5
As of March 31, 2024, all options outstanding are fully vested and are expected to be exercised prior to expiration. The Company did not modify any option grants during the three months ended March 31, 2024 or 2023.
Activity related to restricted stock unit awards during the three months ended March 31, 2024 is summarized in the following table:
Service Condition Vesting RSUs
Market Plus Service Condition Vesting RSUs
Outstanding at December 31, 2023
144,487
123,102
RSUs granted
65,167
56,516
RSUs added through dividend and performance credits
1,968
—
RSUs released
—
—
RSUs forfeited
(1,063)
(1,204)
Outstanding at March 31, 2024
210,559
178,414
The 210,559 of service condition vesting RSUs outstanding as of March 31, 2024 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 210,559 of service condition vesting RSUs outstanding as of March 31, 2024 are expected to vest, and be released, on a weighted-average basis, over the next 2.2 years. The Company expects to recognize $5.4 million of pre-tax compensation costs related to these service condition vesting RSUs between March 31, 2024 and their vesting dates. The Company did not modify any service condition vesting RSUs during the three months ended March 31, 2024 or 2023.
The 178,414 of market plus service condition vesting RSUs outstanding as of March 31, 2024 are expected to vest, and be released, on a weighted-average basis, over the next 2.3 years. The Company expects to recognize $3.0 million of pre-tax compensation costs related to these RSUs between March 31, 2024 and their vesting dates. As of March 31, 2024, 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 267,621 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 2023 or during the three months ended March 31, 2024
The entire disclosure for other income or other expense items (both operating and nonoperating). Sources of nonoperating income or nonoperating expense that may be disclosed, include amounts earned from dividends, interest on securities, profits (losses) on securities, net and miscellaneous other income or income deductions.
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 to outstanding stock options and restricted stock units (RSUs), and are determined using the treasury stock method. Earnings per share have been computed based on the following:
Three months ended March 31,
(in thousands)
2024
2023
Net income
$
27,749
$
35,833
Average number of common shares outstanding
33,245
33,296
Effect of dilutive stock options and restricted stock
125
142
Average number of common shares outstanding used to calculate diluted earnings per share
33,370
33,438
Options excluded from diluted earnings per share because of their antidilutive effect
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet identified as accumulated other comprehensive income (AOCI), such items, along with net income, are components of other comprehensive income (loss) (OCI).
The components of other comprehensive income (loss) and related tax effects are as follows:
Three months ended March 31,
(in thousands)
2024
2023
Unrealized holding gains (losses) on available for sale securities before reclassifications
$
(15,899)
$
34,540
Amounts reclassified out of AOCI:
Realized loss on debt securities
—
164
Unrealized holding gains (losses) on available for sale securities after reclassifications
(15,899)
34,704
Tax effect
4,701
(10,260)
Unrealized holding gains (losses) on available for sale securities, net of tax
(11,198)
24,444
Change in unfunded status of the supplemental retirement plans before reclassifications
459
114
Amounts reclassified out of AOCI:
Amortization of prior service cost
—
—
Amortization of actuarial losses
(459)
(114)
Total amounts reclassified out of accumulated other comprehensive loss
(459)
(114)
Change in unfunded status of the supplemental retirement plans after reclassifications
—
—
Tax effect
—
—
Change in unfunded status of the supplemental retirement plans, net of tax
—
—
Change in joint beneficiary agreement liability before reclassifications
—
—
Tax effect
—
—
Change in joint beneficiary agreement liability before reclassifications, net of tax
—
—
Total other comprehensive income (loss)
$
(11,198)
$
24,444
The components of accumulated other comprehensive loss, included in shareholders’ equity, are as follows:
(in thousands)
March 31, 2024
December 31, 2023
Net unrealized loss on available for sale securities
$
(247,720)
$
(231,821)
Tax effect
73,235
68,534
Unrealized holding loss on available for sale securities, net of tax
(174,485)
(163,287)
Unfunded status of the supplemental retirement plans
13,527
13,527
Tax effect
(3,999)
(3,999)
Unfunded status of the supplemental retirement plans, net of tax
The entire disclosure for comprehensive income, which includes, but is not limited to, 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income.
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 no securities classified as Level 3 during any of the periods covered in these consolidated 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.
Individually evaluated loans - Loans are not recorded at fair value on a recurring basis. However, from time to time, certain loans have individual risk characteristics not consistent with a pool of loans and is individually evaluated for credit reserves. 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 typically individually evaluated. The fair value of these loans are estimated using one of several methods, including collateral value, fair value of similar debt, enterprise value, liquidation value and discounted cash flows. Those loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. 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 loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the loan as nonrecurring Level 3.
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 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 non-interest expense.
Mortgage servicing rights - Mortgage servicing rights are carried at fair value. A valuation model, which utilizes a discounted cash flow analysis using a discount rate and prepayment speed assumptions is used in the computation of the fair value measurement. While the prepayment speed assumption is currently quoted for comparable instruments, the discount rate assumption currently requires a significant degree of management judgment and is therefore considered an unobservable input. As such, the Company classifies mortgage servicing rights subjected to recurring fair value adjustments as Level 3.
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands):
Fair value at March 31, 2024
Total
Level 1
Level 2
Level 3
Marketable equity securities
$
2,606
$
2,606
$
—
$
—
Debt securities available for sale:
Obligations of U.S. government corporations and agencies
1,170,192
—
1,170,192
—
Obligations of states and political subdivisions
234,177
—
234,177
—
Corporate bonds
5,746
—
5,746
—
Asset backed securities
359,673
—
359,673
—
Non-agency mortgage backed securities
304,100
—
304,100
—
Loans held for sale
1,346
—
1,346
—
Mortgage servicing rights
6,697
—
—
6,697
Total assets measured at fair value
$
2,084,537
$
2,606
$
2,075,234
$
6,697
Fair value at December 31, 2023
Total
Level 1
Level 2
Level 3
Marketable equity securities
$
2,634
$
2,634
$
—
$
—
Debt securities available for sale:
Obligations of U.S. government corporations and agencies
1,221,737
—
1,221,737
—
Obligations of states and political subdivisions
236,375
—
236,375
—
Corporate bonds
5,602
—
5,602
—
Asset backed securities
355,281
—
355,281
—
Non-agency mortgage backed securities
333,509
—
333,509
—
Loans held for sale
458
—
458
—
Mortgage servicing rights
6,606
—
—
6,606
Total assets measured at fair value
$
2,162,202
$
2,634
$
2,152,962
$
6,606
Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process. There were no transfers between any levels during the three months ended March 31, 2024 or March 31, 2023, respectively.
The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the time periods indicated. Had there been any transfer into or out of Level 3 during the time periods indicated, the amount included in the “Transfers into (out of) Level 3” column would represent the beginning balance of an item in the period (interim quarter) during which it was transferred (in thousands):
Three months ended March 31,
Beginning Balance
Transfers into (out of) Level 3
Change Included in Earnings
Issuances
Ending Balance
2024: Mortgage servicing rights
$
6,606
—
$
11
$
80
$
6,697
2023: Mortgage servicing rights
$
6,712
—
$
(209)
$
50
$
6,553
Three months ended March 31,
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).
The following table presents quantitative information about recurring Level 3 fair value measurements at March 31, 2024 and December 31, 2023:
As of March 31, 2024:
Fair Value (in thousands)
Valuation Technique
Unobservable Inputs
Range, Weighted Average
Mortgage Servicing Rights
$
6,697
Discounted cash flow
Constant prepayment rate
6% - 11%; 6.4%
Discount rate
10% - 14%; 12%
As of December 31, 2023:
Mortgage Servicing Rights
$
6,606
Discounted cash flow
Constant prepayment rate
6% - 12.8%; 7.0%
Discount rate
10% - 14%; 12%
The tables below present the recorded investment in assets and liabilities measured at fair value on a nonrecurring basis, as of the dates indicated, that had a write-down or an additional allowance provided during the periods indicated (in thousands):
March 31, 2024
Total
Level 1
Level 2
Level 3
Fair value:
Collateral dependent loans
$
5,056
—
—
$
5,056
Foreclosed assets
831
—
—
831
Total assets measured at fair value
$
5,887
—
—
$
5,887
December 31, 2023
Total
Level 1
Level 2
Level 3
Fair value:
Collateral dependent loans
$
4,175
—
—
$
4,175
Foreclosed assets
50
—
—
50
Total assets measured at fair value
$
4,225
—
—
$
4,225
The tables below present the gains (losses) resulting from non-recurring fair value adjustments of assets and liabilities for the periods indicated (in thousands):
Three months ended March 31,
2024
2023
Collateral dependent loans
$
128
$
(277)
Foreclosed assets
(224)
—
Total losses from non-recurring measurements
$
(96)
$
(277)
The individually evaluated loan amounts above represent collateral dependent loans that have been adjusted to fair value. When the Company identifies a collateral dependent loan with unique risk characteristics, the Company evaluates the need for an allowance using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals. If the Company determines that the value of the 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 credit losses. The loss represents charge-offs or impairments on collateral dependent loans for fair value adjustments based on the fair value of collateral. The carrying value of loans fully charged-off is 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 credit losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on real estate owned for fair value adjustments based on the fair value of the real estate.
The Company’s property appraisals are primarily based on the sales comparison approach and income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.
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, 2024:
March 31, 2024
Fair Value (in thousands)
Valuation Technique
Unobservable Inputs
Range, Weighted Average
Collateral dependent loans
$
5,056
Sales comparison approach Income approach
Adjustment for differences between comparable sales; Capitalization rate
Not meaningful N/A
Foreclosed assets (Residential real estate)
$
831
Sales comparison approach
Adjustment for differences between comparable sales
Not meaningful N/A
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, 2023:
December 31, 2023
Fair Value (in thousands)
Valuation Technique
Unobservable Inputs
Range, Weighted Average
Collateral dependent loans
$
4,175
Sales comparison approach Income approach
Adjustment for differences between comparable sales; Capitalization rate
Not meaningful N/A
Foreclosed assets (Residential real estate)
$
50
Sales comparison approach
Adjustment for differences between comparable sales
Not meaningful N/A
Fair values for financial instruments are management’s estimates of the values at which the instruments could be exchanged in a transaction between willing parties. The Company uses the exit price notion when measuring the fair value of financial instruments. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including, any mortgage banking operations, deferred tax assets, and premises and equipment. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of these estimates.
The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.
The Company is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios
(set forth in the table below) of total, Tier 1, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The following tables present actual and required capital ratios as of March 31, 2024 and December 31, 2023 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, 2024 and December 31, 2023 based on the then phased-in provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
Actual
Required for Capital Adequacy Purposes
Required to be Considered Well Capitalized
As of March 31, 2024:
Amount
Ratio
Amount
Ratio
Amount
Ratio
(dollars in thousands)
Total Capital (to Risk Weighted Assets):
Consolidated
$
1,212,626
14.97
%
$
850,469
10.50
%
N/A
N/A
Tri Counties Bank
$
1,202,415
14.85
%
$
850,265
10.50
%
$
809,776
10.00
%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated
$
1,068,911
13.20
%
$
688,475
8.50
%
N/A
N/A
Tri Counties Bank
$
1,100,831
13.59
%
$
688,310
8.50
%
$
647,821
8.00
%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated
$
1,011,649
12.49
%
$
566,979
7.00
%
N/A
N/A
Tri Counties Bank
$
1,100,831
13.59
%
$
566,843
7.00
%
$
526,355
6.50
%
Tier 1 Capital (to Average Assets):
Consolidated
$
1,068,911
11.01
%
$
388,326
4.00
%
N/A
N/A
Tri Counties Bank
$
1,100,831
11.34
%
$
388,253
4.00
%
$
485,316
5.00
%
Actual
Required for Capital Adequacy Purposes
Required to be Considered Well Capitalized
As of December 31, 2023:
Amount
Ratio
Amount
Ratio
Amount
Ratio
(dollars in thousands)
Total Capital (to Risk Weighted Assets):
Consolidated
$
1,196,106
14.73
%
$
852,850
10.50
%
N/A
N/A
Tri Counties Bank
$
1,190,542
14.66
%
$
852,648
10.50
%
$
812,046
10.00
%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated
$
1,052,063
12.95
%
$
690,402
8.50
%
N/A
N/A
Tri Counties Bank
$
1,088,717
13.41
%
$
690,239
8.50
%
$
649,637
8.00
%
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated
$
994,907
12.25
%
$
568,566
7.00
%
N/A
N/A
Tri Counties Bank
$
1,088,717
13.41
%
$
568,432
7.00
%
$
527,830
6.50
%
Tier 1 Capital (to Average Assets):
Consolidated
$
1,052,063
10.75
%
$
391,620
4.00
%
N/A
N/A
Tri Counties Bank
$
1,088,717
11.12
%
$
391,574
4.00
%
$
489,468
5.00
%
As of March 31, 2024 and December 31, 2023, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules. Also, at March 31, 2024 and December 31, 2023, 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, 2024, the Company and the Bank are in compliance with the capital conservation buffer requirement.
The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.
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 33 California counties. 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.
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. For financial reporting purposes, the Company’s investments in the Capital Trusts of $1.8 million are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet. See the footnote Junior Subordinated Debt for additional information on borrowings outstanding.
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 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”). The Company believes that the disclosures made are adequate to make the information not misleading.
Segment and Significant Group Concentration of Credit Risk
The Company grants agribusiness, commercial, consumer, and residential loans to customers located throughout 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.
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.
Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.
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.
The Company measures expected credit losses on HTM debt securities on a collective basis by major security type, then further disaggregated by sector and bond rating. Accrued interest receivable on HTM debt securities was considered insignificant at March 31, 2024 and December 31, 2023 and is therefore excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts based on current and expected changes in credit ratings and default rates. Based on the implied guarantees of the U. S. Government or its agencies related to certain of these investment securities, and the absence of any historical or expected losses, substantially all qualify for a zero loss
assumption. Management has separately evaluated its HTM investment securities from obligations of state and political subdivisions utilizing the historical loss data represented by similar securities over a period of time spanning nearly 50 years. As a result of this evaluation, management determined that the expected credit losses associated with these securities is not significant for financial reporting purposes and therefore, no allowance for credit losses has been recognized.
The Company evaluates AFS debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the allowance for credit losses and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers' financial condition, among other factors. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Loans that management has the intent and ability to hold until maturity or payoff are reported at principle amount outstanding, net of deferred loan fees and costs. Loans are placed in nonaccrual status when reasonable doubt exists as to the full, timely collection of interest or principal, or a loan becomes contractually past due by 90 days or more with respect to interest or principal and is not well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is considered probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of Management, the loan is estimated to be fully collectible as to both principal and interest. Accrued interest receivable is not included in the calculation of the allowance for credit losses.
Allowance for Credit Losses - Loans
The ACL is a valuation account that is deducted from the loan's amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the allowance when management believes the recorded loan balance is confirmed as uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Regardless of the determination that a charge-off is appropriate for financial accounting purposes, the Company manages its loan portfolio by continually monitoring, where possible, a borrower's ability to pay through the collection of financial information, delinquency status, borrower discussion and the encouragement to repay in accordance with the original contract or modified terms, if appropriate.
Management estimates the allowance balance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Historical credit loss experience provides the basis for the estimation of expected credit losses, which captures loan balances as of a point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over the remaining life. The Company identified and accumulated loan cohort historical loss data beginning with the fourth quarter of 2008 and through the current period. In situations where the Company's actual loss history was not statistically relevant, the loss history of peers, defined as financial institutions with assets greater than three billion and less than ten billion, were utilized to create a minimum loss rate. Adjustments to historical loss information are made for differences in relevant current loan-specific risk characteristics, such as historical timing of losses relative to the loan origination. In its loss forecasting framework, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. These macroeconomic scenarios incorporate variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to changes in environmental conditions, such as California unemployment rates, household debt levels, changes in corporate debt yields, and U.S. gross domestic product.
PCD assets are assets acquired at a discount that is due, in part, to credit quality deterioration since origination. PCD assets are accounted for in accordance with ASC 326-20 and are initially recorded at fair value, by taking the sum of the present value of expected future cash flows and an allowance for credit losses, at acquisition. The allowance for credit losses for PCD assets is recorded through a gross-up of reserves on the balance sheet, while the allowance for acquired non-PCD assets, such as loans, is recorded through the provision for credit losses on the income statement, consistent with originated loans. Subsequent to acquisition, the allowance for credit losses for PCD loans will generally follow the same forward-looking estimation, provision, and charge-off process as non-PCD acquired and originated loans.
The Company has identified the following portfolio segments to evaluate and measure the allowance for credit loss:
Commercial real estate:
Commercial real estate - Non-owner occupied: These commercial properties typically consist of buildings which are leased to others for their use and rely on rents as the primary source of repayment. Property types are predominantly office, retail, or light industrial but the portfolio also has some special use properties. As such, the risk of loss associated with these properties is primarily driven by general
economic changes or changes in regional economies and the impact of such on a tenant’s ability to pay. Ultimately this can affect occupancy, rental rates, or both. Additional risk of loss can come from new construction resulting in oversupply, the costs to hold or operate the property, or changes in interest rates. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years.
Commercial real estate - Owner occupied: These credits are primarily susceptible to changes in the financial condition of the business operated by the property owner. This may be driven by changes in, among other things, industry challenges, factors unique to the operating geography of the borrower, change in the individual fortunes of the business owner, general economic conditions and changes in business cycles. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven more by general economic conditions, the underlying collateral may have devalued more and thus result in larger losses in the event of default. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years.
Multifamily: These commercial properties are generally comprised of more than four rentable units, such as apartment buildings, with each unit intended to be occupied as the primary residence for one or more persons. Multifamily properties are also subject to changes in general or regional economic conditions, such as unemployment, ultimately resulting in increased vacancy rates or reduced rents or both. In addition, new construction can create an oversupply condition and market competition resulting in increased vacancy, reduced market rents, or both. Due to the nature of their use and the greater likelihood of tenant turnover, the management of these properties is more intensive and therefore is more critical to the preclusion of loss.
Farmland: While the Company has few loans that were originated for the purpose of the acquisition of these commercial properties, loans secured by farmland represent unique risks that are associated with the operation of an agricultural businesses. The valuation of farmland can vary greatly over time based on the property's access to resources including but not limited to water, crop prices, foreign exchange rates, government regulation or restrictions, and the nature of ongoing capital investment needed to maintain the quality of the property. Loans secured by farmland typically represent less risk to the Company than other agriculture loans as the real estate typically provides greater support in the event of default or need for longer term repayment.
Consumer loans:
SFR 1-4 1st DT Liens: The most significant drivers of potential loss within the Company's residential real estate portfolio relate general, regional, or individual changes in economic conditions and their effect on employment and borrowers cash flow. Risk in this portfolio is best measured by changes in borrower credit score and loan-to-value. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the value of homes and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.
SFR HELOCs and Junior Liens: Similar to residential real estate term loans, HELOCs and junior liens performance is also primarily driven by borrower cash flows based on employment status. However, HELOCs carry additional risks associated with the fact that most of these loans are secured by a deed of trust in a position that is junior to the primary lien holder. Furthermore, the risk that as the borrower's financial strength deteriorates, the outstanding balance on these credit lines may increase as they may only be canceled by the Company if certain limited criteria are met. In addition to the allowance for credit losses maintained as a percent of the outstanding loan balance, the Company maintains additional reserves for the unfunded portion of the HELOC.
Other: The majority of consumer loans are secured by automobiles, with the remainder primarily unsecured revolving debt (credit cards). These loans are susceptible to three primary risks; non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value, if any. Typically non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of those factors. Credit card loans are unsecured and while collection efforts are pursued in the event of default, there is typically limited opportunity for recovery. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.
Commercial and Industrial:
Repayment of these loans is primarily based on the cash flow of the borrower, and secondarily on the underlying collateral provided by the borrower. A borrower's cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Most often, collateral includes accounts receivable, inventory, or equipment. Collateral securing these loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business. Actual and forecast changes in gross domestic product are believed to be corollary to losses associated with these credits.
Construction:
While secured by real estate, construction loans represent a greater level of risk than term real estate loans due to the nature of the additional risks associated with the not only the completion of construction within an estimated time period and budget, but also the need to either sell the building or reach a level of stabilized occupancy sufficient to generate the cash flows necessary to support debt service and operating costs. The Company seeks to mitigate the additional risks associated with construction lending by requiring borrowers to comply with lower loan to value ratios and additional covenants as well as strong tertiary support of guarantors. The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset as adjusted for macroeconomic factors.
Agriculture Production:
Repayment of agricultural loans is dependent upon successful operation of the agricultural business, which is greatly impacted by factors outside the control of the borrower. These factors include adverse weather conditions, including access to water, that may impact crop yields, loss of livestock due to disease or other factors, declines in market prices for agriculture products, changes in foreign exchange, and the impact of government regulations. In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect the successful operation of the business. Consequently, agricultural production loans may involve a greater degree of risk than other types of loans.
Leases:
The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset. Leases typically represent an elevated level of credit risk as compared to loans secured by real estate as the collateral for leases is often subject to a more rapid rate of depreciation or depletion. The ultimate severity of loss is impacted by the type of collateral securing the exposure, the size of the exposure, the borrower’s industry sector, any guarantors and the geographic market. Assumptions of expected loss are conditioned to the economic outlook and the other variables discussed above.
Unfunded commitments:
The estimated credit losses associated with these unfunded lending commitments is calculated using the same models and methodologies noted above and incorporate utilization assumptions at time of default. The reserve for unfunded commitments is maintained on the consolidated balance sheet in other liabilities.
FASB issued ASU 2024-02, Codification Improvements— Amendments to Remove References to the Concepts Statements. This ASU facilitates Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance, and other minor improvements. The resulting amendments are referred to as Codification improvements. The amendments in this Update are not intended to result in significant accounting change for most entities. However, the Board recognizes that changes to that guidance may result in accounting change for some entities. Therefore, the amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2024. The adoption of this accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements.
Disclosure of accounting policy for cash and cash equivalents, including the policy for determining which items are treated as cash equivalents. Other information that may be disclosed includes (1) the nature of any restrictions on the entity's use of its cash and cash equivalents, (2) whether the entity's cash and cash equivalents are insured or expose the entity to credit risk, (3) the classification of any negative balance accounts (overdrafts), and (4) the carrying basis of cash equivalents (for example, at cost) and whether the carrying amount of cash equivalents approximates fair value.
Disclosure of accounting policy for credit loss on financial instrument measured at amortized cost basis, net investment in lease, off-balance sheet credit exposure, and available-for-sale debt security. Includes, but is not limited to, methodology used to estimate allowance for credit loss, how writeoff of uncollectible amount is recognized, and determination of past due status and nonaccrual status.
Disclosure of accounting policy pertaining to new accounting pronouncements that may impact the entity's financial reporting. Includes, but is not limited to, quantification of the expected or actual impact.
Disclosure of accounting policy for reclassification affecting comparability of financial statement. Excludes amendment to accounting standards, other change in accounting principle, and correction of error.
Disclosure of accounting policy for the use of estimates in the preparation of financial statements in conformity with generally accepted accounting principles.
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:
Tabular disclosure of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Tabular disclosure of the various types of trade accounts and notes receivable and for each the gross carrying value, allowance, and net carrying value as of the balance sheet date. Presentation is categorized by current, noncurrent and unclassified receivables.
For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities:
Allowance for credit losses – Three months ended March 31, 2024
(in thousands)
Beginning Balance
Charge-offs
Recoveries
Provision (benefit)
Ending Balance
Commercial real estate:
CRE non-owner occupied
$
35,077
$
—
$
—
$
1,610
$
36,687
CRE owner occupied
15,081
—
—
1,030
16,111
Multifamily
14,418
—
—
1,264
15,682
Farmland
4,288
—
—
(593)
3,695
Total commercial real estate loans
68,864
—
—
3,311
72,175
Consumer:
SFR 1-4 1st DT liens
14,009
(26)
—
157
14,140
SFR HELOCs and junior liens
10,273
(32)
49
(348)
9,942
Other
3,171
(250)
40
398
3,359
Total consumer loans
27,453
(308)
89
207
27,441
Commercial and industrial
12,750
(130)
22
(775)
11,867
Construction
8,856
—
—
306
9,162
Agriculture production
3,589
(837)
21
935
3,708
Leases
10
—
—
31
41
Allowance for credit losses on loans
121,522
(1,275)
132
4,015
124,394
Reserve for unfunded commitments
5,850
—
—
290
6,140
Total
$
127,372
$
(1,275)
$
132
$
4,305
$
130,534
For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities:
Allowance for credit losses – Year ended December 31, 2023
(in thousands)
Beginning Balance
Charge-offs
Recoveries
Provision (benefit)
Ending Balance
Commercial real estate:
CRE non-owner occupied
$
30,962
$
—
$
—
$
4,115
$
35,077
CRE owner occupied
14,014
(3,637)
2
4,702
15,081
Multifamily
13,132
—
—
1,286
14,418
Farmland
3,273
—
—
1,015
4,288
Total commercial real estate loans
61,381
(3,637)
2
11,118
68,864
Consumer:
SFR 1-4 1st DT liens
11,268
—
262
2,479
14,009
SFR HELOCs and junior liens
11,413
(66)
723
(1,797)
10,273
Other
1,958
(558)
190
1,581
3,171
Total consumer loans
24,639
(624)
1,175
2,263
27,453
Commercial and industrial
13,597
(3,879)
316
2,716
12,750
Construction
5,142
—
—
3,714
8,856
Agriculture production
906
—
34
2,649
3,589
Leases
15
—
—
(5)
10
Allowance for credit losses on loans
105,680
(8,140)
1,527
22,455
121,522
Reserve for unfunded commitments
4,315
—
—
1,535
5,850
Total
$
109,995
$
(8,140)
$
1,527
$
23,990
$
127,372
Allowance for credit losses – Three months ended March 31, 2023
The following tables present the amortized cost basis of collateral dependent loans by class of loans as of the following periods:
As of March 31, 2024
(in thousands)
Retail
Office
Warehouse
Other
Multifamily
Farmland
SFR-1st Deed
SFR-2nd Deed
Automobile/Truck
A/R and Inventory
Equipment
Total
Commercial real estate:
CRE non-owner occupied
$
2,459
$
381
$
506
$
767
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
4,113
CRE owner occupied
593
—
293
3,019
—
—
—
—
—
—
—
3,905
Multifamily
—
—
—
—
—
—
—
—
—
—
—
—
Farmland
—
—
—
—
—
13,780
—
—
—
—
—
13,780
Total commercial real estate loans
3,052
381
799
3,786
—
13,780
—
—
—
—
—
21,798
Consumer:
SFR 1-4 1st DT liens
—
—
—
—
—
—
5,089
—
—
—
—
5,089
SFR HELOCs and junior liens
—
—
—
—
—
—
1,403
1,739
—
—
—
3,142
Other
—
—
—
—
—
—
—
—
89
—
—
89
Total consumer loans
—
—
—
—
—
—
6,492
1,739
89
—
—
8,320
Commercial and industrial
—
—
—
—
—
—
—
—
—
1,294
807
2,101
Construction
—
—
—
—
—
—
64
—
—
—
—
64
Agriculture production
—
—
—
1,376
—
—
—
—
—
—
—
1,376
Leases
—
—
—
—
—
—
—
—
—
—
—
—
Total
$
3,052
$
381
$
799
$
5,162
$
—
$
13,780
$
6,556
$
1,739
$
89
$
1,294
$
807
$
33,659
As of December 31, 2023
(in thousands)
Retail
Office
Warehouse
Other
Multifamily
Farmland
SFR -1st Deed
SFR -2nd Deed
Automobile/Truck
A/R and Inventory
Equipment
Total
Commercial real estate:
CRE non-owner occupied
$
124
$
615
$
519
$
766
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
2,024
CRE owner occupied
614
—
297
3,083
—
—
—
—
—
—
—
3,994
Multifamily
—
—
—
—
—
—
—
—
—
—
—
—
Farmland
—
—
—
635
—
13,849
—
—
—
—
—
14,484
Total commercial real estate loans
738
615
816
4,484
—
13,849
—
—
—
—
—
20,502
Consumer:
SFR 1-4 1st DT liens
—
—
—
—
—
—
2,808
—
—
—
—
2,808
SFR HELOCs and junior liens
—
—
—
—
—
—
1,816
1,467
—
—
—
3,283
Other
—
—
—
—
—
—
—
—
95
—
—
95
Total consumer loans
—
—
—
—
—
—
4,624
1,467
95
—
—
6,186
Commercial and industrial
—
—
—
—
—
—
—
—
—
1,712
791
2,503
Construction
—
—
—
—
—
—
67
—
—
—
—
67
Agriculture production
—
—
—
2,288
—
—
—
—
—
—
33
2,321
Leases
—
—
—
—
—
—
—
—
—
—
—
—
Total
$
738
$
615
$
816
$
6,772
$
—
$
13,849
$
4,691
$
1,467
$
95
$
1,712
$
824
$
31,579
The following tables show the amortized cost basis of loans that were both experiencing financial difficulty and modified during the periods presented. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivables is also presented below.
For the three months ended
March 31, 2024
March 31, 2023
(in thousands)
Combination - Term Extension/Rate Change
Payment Delay/Term Extension
Total % of Loans Outstanding
Payment Delay/Term Extension
Total % of Loans Outstanding
CRE non-owner occupied
$
211
$
—
0.03
%
$
—
—
%
SFR HELOCs and junior liens
—
41
0.01
—
—
Commercial and industrial
—
516
0.07
177
0.03
Total
$
211
$
557
0.11
%
$
177
0.03
%
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the quarter ended March 31, 2024.
Modification Type
Loan Type
Financial Effect
Combination - Term extension / rate change
CRE non-owner occupied
Added 120 months to the life of the loan; converted from variable to fixed interest rate
Payment delay / term extension
SFR HELOCs and junior liens
Added 60 months to the life of the loan
Payment delay / term extension
Commercial and industrial
Added 66 months to the life of the loan
Payment delay / term extension
Commercial and industrial
Added 12 months to the life of the loan
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the quarter ended March 31, 2023.
Modification Type
Loan Type
Financial Effect
Payment delay / term extension
Commercial and industrial
Added 12 months to the life of the loan to delay balloon repayment
Tabular disclosure of financing receivables by credit quality indicator. The credit quality indicator is a statistic about the credit quality of financing receivables. Examples include, but not limited to, consumer credit risk scores, credit-rating-agency ratings, an entity's internal credit risk grades, loan-to-value ratios, collateral, collection experience and other internal metrics.
Tabular disclosure of lessee's lease cost. Includes, but is not limited to, interest expense for finance lease, amortization of right-of-use asset for finance lease, operating lease cost, short-term lease cost, variable lease cost and sublease income.
Tabular disclosure of undiscounted cash flows of lessee's operating lease liability. Includes, but is not limited to, reconciliation of undiscounted cash flows to operating lease liability recognized in statement of financial position.
A summary of the balances of other borrowings follows:
March 31, 2024
December 31, 2023
(in thousands)
Term borrowing at FHLB, fixed rate of 4.75%, payable on April 8, 2024
$
200,000
$
200,000
Overnight borrowing at FHLB, fixed rate of 5.69%, payable on April 1, 2024
167,000
—
Overnight borrowing at FHLB, fixed rate of 5.70%, payable on January 2, 2024
—
400,000
Other collateralized borrowings, fixed rate, as of March 31, 2024 and December 31, 2023 of 0.05%, payable on April 1, 2024 and January 2, 2024, respectively
Tabular disclosure of borrowings under subordinated debt agreements that qualify as available in computing net capital under SEC uniform net capital rules for broker-dealers, including restrictive covenants, collateral, interest rates and due dates, amounts due by date and amount owed in total.
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, 2024:
Currently Exercisable
Currently Not Exercisable
Total Outstanding
Number of options
7,500
—
7,500
Weighted average exercise price
$
23.21
$
—
$
23.21
Intrinsic value (in thousands)
$
102
$
—
$
102
Weighted average remaining contractual term (yrs.)
Tabular disclosure for stock option plans. Includes, but is not limited to, outstanding awards at beginning and end of year, grants, exercises, forfeitures, and weighted-average grant date fair value.
Disclosure of the number and weighted-average grant date fair value for restricted stock and restricted stock units that were outstanding at the beginning and end of the year, and the number of restricted stock and restricted stock units that were granted, vested, or forfeited during the year.
Tabular disclosure of number, weighted-average exercise price or conversion ratio, aggregate intrinsic value, and weighted-average remaining contractual term for outstanding and exercisable options that are fully vested and expected to vest. Includes, but is not limited to, unvested options for which requisite service period has not been rendered but that are expected to vest based on achievement of performance condition, if forfeitures are recognized when they occur.
Potential common shares that may be issued by the Company relate to outstanding stock options and restricted stock units (RSUs), and are determined using the treasury stock method. Earnings per share have been computed based on the following:
Three months ended March 31,
(in thousands)
2024
2023
Net income
$
27,749
$
35,833
Average number of common shares outstanding
33,245
33,296
Effect of dilutive stock options and restricted stock
125
142
Average number of common shares outstanding used to calculate diluted earnings per share
33,370
33,438
Options excluded from diluted earnings per share because of their antidilutive effect
Tabular disclosure of an entity's basic and diluted earnings per share calculations, including a reconciliation of numerators and denominators of the basic and diluted per-share computations for income from continuing operations.
Tabular disclosure of the net gain (loss) and net prior service cost or credit recognized in other comprehensive income (loss) for the period for pension plans and/or other employee benefit plans, and reclassification adjustments of other comprehensive income (loss) for the period, as those amounts, including amortization of the net transition asset or obligation, are recognized as components of net periodic benefit cost.
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):
The tables below present the recorded investment in assets and liabilities measured at fair value on a nonrecurring basis, as of the dates indicated, that had a write-down or an additional allowance provided during the periods indicated (in thousands):
March 31, 2024
Total
Level 1
Level 2
Level 3
Fair value:
Collateral dependent loans
$
5,056
—
—
$
5,056
Foreclosed assets
831
—
—
831
Total assets measured at fair value
$
5,887
—
—
$
5,887
December 31, 2023
Total
Level 1
Level 2
Level 3
Fair value:
Collateral dependent loans
$
4,175
—
—
$
4,175
Foreclosed assets
50
—
—
50
Total assets measured at fair value
$
4,225
—
—
$
4,225
The tables below present the gains (losses) resulting from non-recurring fair value adjustments of assets and liabilities for the periods indicated (in thousands):
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, 2024:
March 31, 2024
Fair Value (in thousands)
Valuation Technique
Unobservable Inputs
Range, Weighted Average
Collateral dependent loans
$
5,056
Sales comparison approach Income approach
Adjustment for differences between comparable sales; Capitalization rate
Not meaningful N/A
Foreclosed assets (Residential real estate)
$
831
Sales comparison approach
Adjustment for differences between comparable sales
Not meaningful N/A
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, 2023:
December 31, 2023
Fair Value (in thousands)
Valuation Technique
Unobservable Inputs
Range, Weighted Average
Collateral dependent loans
$
4,175
Sales comparison approach Income approach
Adjustment for differences between comparable sales; Capitalization rate
Not meaningful N/A
Foreclosed assets (Residential real estate)
$
50
Sales comparison approach
Adjustment for differences between comparable sales
Tabular disclosure of input and valuation technique used to measure fair value and change in valuation approach and technique for each separate class of asset and liability measured on recurring and nonrecurring basis.
Tabular disclosure of assets and liabilities by class, including financial instruments measured at fair value that are classified in shareholders' equity, if any, that are measured at fair value on a nonrecurring basis in periods after initial recognition (for example, impaired assets). Disclosures may include, but are not limited to: (a) the fair value measurements recorded and the reasons for the measurements and (b) the level within the fair value hierarchy in which the fair value measurements are categorized in their entirety (levels 1, 2, 3).
Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.
Tabular disclosure of assets and liabilities, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, that are measured at fair value on a recurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).
Tabular disclosure of the capital amounts and ratios as of the balance sheet date, indicating whether the entity or entities are in compliance with regulatory capital requirements, by entity.
Period between issuance and maturity of loan held for sale, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents reported fact of one year, five months, and thirteen days.
Number of operating segments. An operating segment is a component of an enterprise: (a) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise), (b) whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (c) for which discrete financial information is available. An operating segment may engage in business activities for which it has yet to earn revenues, for example, start-up operations may be operating segments before earning revenues.
Amortization period for the recovery of regulatory liability, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
Amount, before tax, of unrealized gain in accumulated other comprehensive income (AOCI) on investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Amount, before tax, of unrealized loss in accumulated other comprehensive income (AOCI) on investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Amount of allowance for credit loss on investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Amortized cost excluding accrued interest, before allowance for credit loss, of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Amount excluding accrued interest, of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Amount of allowance for credit loss on investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Amount excluding accrued interest, of allowance for credit loss on investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Number of investments in debt securities measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), in unrealized loss position, without allowance for credit loss. Includes beneficial interest in securitized financial asset.
The cumulative amount of credit losses recognized in earnings related to debt securities held for which a portion of an other than temporary impairment (OTTI) was recognized in other comprehensive income (a component of shareholders' equity).
Debt securities issued by a United States government agency such as Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and Federal National Mortgage Association (Fannie Mae), which are short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three-years ago does not become a cash equivalent when its remaining maturity is three months.
Amortized cost of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), with single maturity date and allocated without single maturity date, maturing in sixth through tenth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Fair value of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), with single maturity date and allocated without single maturity date, maturing in sixth through tenth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amortized cost of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), with single maturity date and allocated without single maturity date, maturing in second through fifth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Fair value of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), with single maturity date and allocated without single maturity date, maturing in second through fifth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amortized cost of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), with single maturity date and allocated without single maturity date, maturing after tenth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Fair value of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), with single maturity date and allocated without single maturity date, maturing after tenth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amortized cost of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), with single maturity date and allocated without single maturity date, maturing in next fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Fair value of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), with single maturity date and allocated without single maturity date, maturing in next fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amortized cost excluding accrued interest, before allowance for credit loss, of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Amount excluding accrued interest, of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Fair value of investment in debt security measured at amortized cost (held-to-maturity), with single maturity date and allocated without single maturity date, maturing in sixth through tenth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amount, after allowance for credit loss, of investment in debt security measured at amortized cost (held-to-maturity) with single maturity date and allocated without single maturity date, maturing in sixth through tenth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Fair value of investment in debt security measured at amortized cost (held-to-maturity), with single maturity date and allocated without single maturity date, maturing in second through fifth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amount, after allowance for credit loss, of investment in debt security measured at amortized cost (held-to-maturity) with single maturity date and allocated without single maturity date, maturing in second through fifth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Fair value of investment in debt security measured at amortized cost (held-to-maturity), with single maturity date and allocated without single maturity date, maturing after tenth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amount, after allowance for credit loss, of investment in debt security measured at amortized cost (held-to-maturity) with single maturity date and allocated without single maturity date, maturing after tenth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Fair value of investment in debt security measured at amortized cost (held-to-maturity), with single maturity date and allocated without single maturity date, maturing in next fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amount, after allowance for credit loss, of investment in debt security measured at amortized cost (held-to-maturity) with single maturity date and allocated without single maturity date, maturing in next fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amount of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), in continuous unrealized loss position for more than 12 months, without allowance for credit loss. Includes beneficial interest in securitized financial asset.
Amount of accumulated unrealized loss on investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), in continuous unrealized loss position for 12 months or longer, without allowance for credit loss. Includes beneficial interest in securitized financial asset.
Amount of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), in continuous unrealized loss position for less than 12 months, without allowance for credit loss. Includes beneficial interest in securitized financial asset.
Amount of accumulated unrealized loss on investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), in continuous unrealized loss position for less than 12 months, without allowance for credit loss. Includes beneficial interest in securitized financial asset.
Amount of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), in unrealized loss position without allowance for credit loss.
Amount of accumulated unrealized loss on investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), in unrealized loss position, without allowance for credit loss. Includes beneficial interest in securitized financial asset.
Amount of accumulated unrealized loss on investment in debt security measured at amortized cost (held-to-maturity), in continuous loss position for 12 months or longer.
Amount of accumulated unrealized loss on investment in debt security measured at amortized cost (held-to-maturity), in continuous loss position for less than 12 months.
Fair value of investment in debt security measured at amortized cost (held-to-maturity), in continuous unrealized loss position for less than 12 months.
Fair value of investment in debt security measured at amortized cost (held-to-maturity), in continuous unrealized loss position for 12 months or longer.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Amortized cost, before allowance for credit loss, fee, and loan in process, of financing receivable. Excludes financing receivable covered under loss sharing agreement and net investment in lease.
Amount of fee received for commitment to originate or purchase financing receivable where likelihood of commitment being exercised is remote, to be recognized as service income.
Amount of unamortized loan commitment, origination, and other costs (fees) and purchase premium (discount) on financing receivable recognized as adjustment to yield. Excludes financing receivable covered under loss sharing agreement.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Amount of expected credit loss for credit exposure on off-balance-sheet commitment, including but not limited to, loan commitment, standby letter of credit, financial guarantee not accounted for as insurance. Excludes off-balance sheet credit exposure accounted for as insurance and instrument accounted for under derivatives and hedging.
Amount of expense (reversal of expense) for expected credit loss for off-balance sheet credit exposure. Excludes off-balance sheet credit exposure accounted for as insurance and instrument accounted for under derivatives and hedging.
Amortized cost excluding accrued interest, of financing receivable originated more than five years prior to current fiscal year. Excludes net investment in lease.
Amount, excluding accrued interest, of writeoff of financing receivable originated more than five years before current fiscal year. Excludes net investment in lease.
Amortized cost excluding accrued interest, of financing receivable originated four years prior to current fiscal year. Excludes net investment in lease.
Amount, excluding accrued interest, of writeoff of financing receivable originated four years before current fiscal year. Excludes net investment in lease.
Amortized cost excluding accrued interest, of financing receivable originated three years prior to current fiscal year. Excludes net investment in lease.
Amount, excluding accrued interest, of writeoff of financing receivable originated three years before current fiscal year. Excludes net investment in lease.
Amortized cost excluding accrued interest, of financing receivable originated two years prior to current fiscal year. Excludes net investment in lease.
Amount, excluding accrued interest, of writeoff of financing receivable originated two years before current fiscal year. Excludes net investment in lease.
Amortized cost excluding accrued interest of financing receivable originated in fiscal year prior to current fiscal year. Excludes net investment in lease.
Amount, excluding accrued interest, of writeoff of financing receivable originated in fiscal year before current fiscal year. Excludes net investment in lease.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Period of increase in weighted average maturity of financing receivable modified for debtor experiencing financial difficulty, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
Amount of single lease cost, calculated by allocation of remaining cost of lease over remaining lease term. Includes, but is not limited to, single lease cost, after impairment of right-of-use asset, calculated by amortization of remaining right-of-use asset and accretion of lease liability.
Weighted average remaining lease term for operating lease, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents reported fact of one year, five months, and thirteen days.
Amount of lessee's undiscounted obligation for lease payment for operating lease to be paid in next fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amount of lessee's undiscounted obligation for lease payment for operating lease to be paid in fourth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amount of lessee's undiscounted obligation for lease payment for operating lease to be paid in third fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amount of lessee's undiscounted obligation for lease payment for operating lease to be paid in second fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach).
Amount of lessee's undiscounted obligation for lease payment for operating lease having initial or remaining lease term in excess of one year to be paid in remainder of current fiscal year.
The aggregate of all deposit liabilities held by the entity, including foreign and domestic, interest and noninterest bearing; may include demand deposits, saving deposits, Negotiable Order of Withdrawal (NOW) and time deposits among others.
Amount of interest bearing deposits with no stated maturity, which may include passbook and statement savings accounts and money-market deposit accounts (MMDAs).
Amount of money in interest-bearing domestic accounts that entitle the depositor to withdraw funds at any time without prior notice, also known as demand deposits.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Including the current and noncurrent portions, carrying value as of the balance sheet date of long-term debt (with maturities initially due after one year or beyond the operating cycle if longer) identified as Junior Subordinated Notes, which have a lower priority than senior instruments.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Represents the caption on the face of the balance sheet to indicate that the entity has entered into (1) purchase or supply arrangements that will require expending a portion of its resources to meet the terms thereof, and (2) is exposed to potential losses or, less frequently, gains, arising from (a) possible claims against a company's resources due to future performance under contract terms, and (b) possible losses or likely gains from uncertainties that will ultimately be resolved when one or more future events that are deemed likely to occur do occur or fail to occur.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Number of shares that have been repurchased during the period and have not been retired and are not held in treasury. Some state laws may govern the circumstances under which an entity may acquire its own stock and prescribe the accounting treatment therefore. This element is used when state law does not recognize treasury stock.
Equity impact of the value of stock that has been repurchased during the period and has not been retired and is not held in treasury. Some state laws may mandate the circumstances under which an entity may acquire its own stock and prescribe the accounting treatment therefore. This element is used when state law does not recognize treasury stock.
The number of non-vested equity-based payment instruments, excluding stock (or unit) options, that validly exist and are outstanding as of the balance sheet date.
Weighted average remaining contractual term for equity-based awards excluding options, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
The number of shares under options that were cancelled during the reporting period as a result of occurrence of a terminating event specified in contractual agreements pertaining to the stock option plan.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Weighted average remaining contractual term for option awards outstanding, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
The number of grants made during the period on other than stock (or unit) option plans (for example, phantom stock or unit plan, stock or unit appreciation rights plan, performance target plan).
The number of non-vested equity-based payment instruments, excluding stock (or unit) options, that validly exist and are outstanding as of the balance sheet date.
Amount of realized gain (loss) from sale of investment in equity security measured at fair value with change in fair value recognized in net income (FV-NI).
The net realized gain (loss) on investments sold during the period, not including gains (losses) on securities separately or otherwise categorized as trading, available-for-sale, or held-to-maturity, which, for cash flow reporting, is a component of proceeds from investing activities.
The net gain (loss) resulting from a sale of loans, including adjustments to record loans classified as held-for-sale at the lower-of-cost-or-market and fair value adjustments to loan held for investment purposes.
The total amount of noninterest income which may be derived from: (1) fees and commissions; (2) premiums earned; (3) insurance policy charges; (4) the sale or disposal of assets; and (5) other sources not otherwise specified.
Represents the total of noninterest income derived from certain activities and assets including (for example): (1) venture capital investments; (2) bank owned life insurance; (3) foreign currency transactions; and (4) mortgage servicing rights.
Amount, excluding tax collected from customer, of revenue from satisfaction of performance obligation by transferring promised good or service to customer. Tax collected from customer is tax assessed by governmental authority that is both imposed on and concurrent with specific revenue-producing transaction, including, but not limited to, sales, use, value added and excise.
Amount charged to advertising expense for the period, which are expenses incurred with the objective of increasing revenue for a specified brand, product or product line.
The aggregate expense charged against earnings to allocate the cost of intangible assets (nonphysical assets not used in production) in a systematic and rational manner to the periods expected to benefit from such assets. As a noncash expense, this element is added back to net income when calculating cash provided by or used in operations using the indirect method.
This element represents equipment expense including depreciation, repairs, rentals, and service contract costs. This item also includes equipment purchases which do not qualify for capitalization in accordance with the entity's accounting policy. This item may also include furniture expenses.
Amount of gain (loss) on sale or disposal of assets, including but not limited to property plant and equipment, intangible assets and equity in securities of subsidiaries or equity method investee.
Amount of net occupancy expense that may include items, such as depreciation of facilities and equipment, lease expenses, property taxes and property and casualty insurance expense.
A fee charged for services from professionals such as doctors, lawyers and accountants. The term is often expanded to include other professions, for example, pharmacists charging to maintain a medicinal profile of a client or customer.
Securities (including those issuable pursuant to contingent stock agreements) that could potentially dilute basic earnings per share (EPS) or earnings per unit (EPU) in the future that were not included in the computation of diluted EPS or EPU because to do so would increase EPS or EPU amounts or decrease loss per share or unit amounts for the period presented.
Additional shares included in the calculation of diluted EPS as a result of the potentially dilutive effect of share based payment arrangements using the treasury stock method.
The average number of shares or units issued and outstanding that are used in calculating diluted EPS or earnings per unit (EPU), determined based on the timing of issuance of shares or units in the period.
Number of [basic] shares or units, after adjustment for contingently issuable shares or units and other shares or units not deemed outstanding, determined by relating the portion of time within a reporting period that common shares or units have been outstanding to the total time in that period.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Amount of tax expense (benefit) allocated to other comprehensive income (loss) before reclassification adjustment from accumulated other comprehensive income (loss).
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Amount before tax of increase (decrease) in accumulated equity from transactions and other events and circumstances from non-owner sources, attributable to parent. Excludes net income (loss), and accumulated changes in equity from transactions resulting from investments by owners (distributions to owners).
Fair Value Measurement - Recorded Amount of Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - Fair Value Measurements on Recurring Basis - USD ($) $ in Thousands
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Fair Value Measurement - Reconciliation of Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) on Recurring Basis (Detail) - Mortgage servicing rights - USD ($) $ in Thousands
Amount of issuances of financial instrument classified as a liability measured using unobservable inputs that reflect the entity's own assumption about the assumptions market participants would use in pricing.
Fair value of financial instrument classified as a liability measured using unobservable inputs that reflect the entity's own assumption about the assumptions market participants would use in pricing.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Fair value of an asset representing net future revenue from contractually specified servicing fees, late charges, and other ancillary revenues, in excess of future costs related to servicing arrangements.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Fair Value Measurement - Quantitative Information about (Level 3) Fair Value Measurements for Financial Instruments Measured at Fair Value on Nonrecurring Basis (Detail) - USD ($) $ in Thousands
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Fair Value Measurement - Estimated Fair Values of Financial Instruments that are Reported at Amortized Cost in Consolidated Balance Sheets (Detail) - USD ($)
For banks and other depository institutions: Includes cash on hand (currency and coin), cash items in process of collection, noninterest bearing deposits due from other financial institutions (including corporate credit unions), and noninterest bearing balances with the Federal Reserve Banks, Federal Home Loan Banks and central banks.
Fair value portion of deposit liabilities held by the entity, including, but not limited to, foreign and domestic, interest and noninterest bearing, demand deposits, saving deposits, negotiable orders of withdrawal (NOW) and time deposits.
The fair value of financial liabilities, which are not recognized in the financial statements (off-balance sheet) because they fail to meet some other criterion for recognition.
The face amount of financial liabilities, which are not recognized in the financial statements (off-balance sheet) because they fail to meet some other criterion for recognition.
Including the current and noncurrent portions, carrying value as of the balance sheet date of long-term debt (with maturities initially due after one year or beyond the operating cycle if longer) identified as Junior Subordinated Notes, which have a lower priority than senior instruments.
Fair value portion of loan receivable, including, but not limited to, mortgage loans held for investment, finance receivables held for investment, policy loans on insurance contracts.
Ratio of minimum total risk-based capital to risk-weighted assets categorized as well capitalized as defined by regulatory framework for prompt corrective action.
Amount of minimum Common Equity Tier 1 risk-based capital categorized as well capitalized as defined by regulatory framework for prompt corrective action.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Ratio of minimum Tier 1 leverage capital to average assets categorized as well capitalized as defined by regulatory framework for prompt corrective action.
Ratio of minimum Tier 1 risk-based capital to risk-weighted assets categorized as well capitalized as defined by regulatory framework for prompt corrective action.