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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-23877

Heritage Commerce Corp

(Exact name of Registrant as Specified in its Charter)

California
(State or Other Jurisdiction of
Incorporation or Organization)

77-0469558
(I.R.S. Employer Identification No.)

224 Airport Parkway, San Jose, California
(Address of Principal Executive Offices)

95110
(Zip Code)

(408947-6900

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

Title of each class:

    

Trading Symbol:

    

Name of each exchange on which registered:

Common Stock, No Par Value

HTBK

The Nasdaq Stock Market LLC

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, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “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 

The Registrant had 61,255,913 shares of Common Stock outstanding on April 29, 2024.

HERITAGE COMMERCE CORP

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

    

Page No.

Cautionary Note on Forward-Looking Statements

3

Part I. FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (unaudited)

6

Consolidated Balance Sheets

6

Consolidated Statements of Income

7

Consolidated Statements of Comprehensive Income

8

Consolidated Statements of Changes in Shareholders’ Equity

9

Consolidated Statements of Cash Flows

10

Notes to Unaudited Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

41

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

72

Item 4.

Controls and Procedures

72

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

73

Item 1A.

Risk Factors

73

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

98

Item 3.

Defaults Upon Senior Securities

98

Item 4.

Mine Safety Disclosures

98

Item 5.

Other Information

98

Item 6.

Exhibits

99

SIGNATURES

100

2

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”) of Heritage Commerce Corp (“we,” “us,” “our” or the “Company”) contains various statements that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, Rule 3b-6 promulgated thereunder and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These forward-looking statements often can be, but are not always, identified by the use of words such as “assume,” “expect,” “intend,” “plan,” “project,” “believe,” “estimate,” “predict,” “anticipate,” “may,” “might,” “should,” “could,” “goal,” “potential” and similar expressions. We base these forward-looking statements on our current expectations and projections about future events, our assumptions regarding these events and our knowledge of facts at the time the statements are made. Forward-looking statements may include, among other things, statements relating to our projected growth, anticipated future financial performance, management’s long-term performance goals and operational strategies, the performance of our loan and investment portfolios, as well as statements relating to the anticipated effects of those conditions, events and developments on the Company’s financial condition and results of operations.

These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially and adversely from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements including those set forth below under “Part II, Item 1A—Risk Factors” of this Report, and including, but not limited to the following:

factors that affect our liquidity and our ability to meet customer demands for deposit withdrawals, including our cash on hand and the availability of funds from our lines of credit;
media items and consumer confidence as those factors affect depositors’ confidence in the banking system generally and in our bank specifically;
factors that affect the value and liquidity of our investment portfolios, particularly the values of securities available-for-sale;
market fluctuations that affect the costs we pay for sources of funding, including the interest we pay on deposits and loans;
effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board and other factors that affect market interest rates generally;
our ability to estimate accurately, and to establish adequate reserves against, the risk of loss associated with our loan and lease portfolio;
events and circumstances that affect our borrowers' financial condition, results of operations and cash flows, which may, during periods of economic uncertainty or decline, adversely affect those borrowers' ability to repay our loans timely and in full, or to comply with their other obligations under our loan agreements with those customers;
factors that affect the relative strength or weakness of loan guarantees and the ability of the guarantors to fulfill the obligations of their guaranty agreements;
geopolitical and domestic political developments, including recent, current and potential future wars and international and multinational conflicts, acts of terrorism, insurrection, piracy and civil unrest, and events reflecting or resulting from social instability, any of which can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, can affect the physical security of our assets and the assets of our customers, and which may increase the volatility of financial markets;

3

current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values and overall slowdowns in economic growth should these events occur;
inflationary pressures and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans to customers, whether held in the portfolio or in the secondary market;
changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of our allowance for credit losses and our provision for credit losses;
volatility in credit and equity markets and its effect on the global economy;
conditions relating to the impact of recent and potential future pandemics, epidemics and other infectious illness outbreaks that may arise in the future, on our customers, employees, businesses, liquidity, financial results and overall condition including severity and duration of the associated uncertainties in U.S. and global markets;
our ability to compete effectively with other banks and financial services companies and the effects of competition in the financial services industry on our business;
our ability to achieve loan growth and attract deposits in our market area;
risks associated with concentrations in real estate related loans;
the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related vacancy rates, and asset and market prices;
increased capital requirements for our continual growth or as imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all;
regulatory limits and practical factors that affect Heritage Bank of Commerce’s ability to pay dividends to the Company;
operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent;
our inability to attract, recruit, and retain qualified officers and other personnel could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects;
possible adjustment of the valuation of our deferred tax assets or of the goodwill associated with previous acquisitions;
our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks, including those posed by the increasing use of artificial intelligence, such as data security breaches, “denial of service” attacks, “hacking” and identity theft affecting us or third party vendors or service providers;
inability of our framework to manage risks associated with our business, including operational risk and credit risk;
risks of loss of funding of the Small Business Administration (“SBA”) or SBA loan programs, or changes in those programs;
compliance with applicable laws and governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities, accounting and tax matters;

4

effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters;
the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise;
availability of and competition for acquisition opportunities;
geographic and sociopolitical factors that arise by virtue of the fact that we operate primarily in the general San Francisco Bay Area of Northern California;
risks of natural disasters (including earthquakes, fires, and flooding) and other events beyond our control;
actions taken, planned, or announced by federal, state, regional and local governments in response to the occurrence or threat of any of the foregoing; and
our success in managing the risks involved in the foregoing factors.

Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. You should consider any forward-looking statements in light of this explanation, and we caution you about relying on forward-looking statements.

5

Part I—FINANCIAL INFORMATION

ITEM 1—CONSOLIDATED FINANCIAL STATEMENTS

HERITAGE COMMERCE CORP

CONSOLIDATED BALANCE SHEETS

(Unaudited)

March 31, 

December 31, 

    

2024

    

2023

(Dollars in thousands)

Assets

Cash and due from banks

$

32,543

$

41,592

Other investments and interest-bearing deposits in other financial institutions

 

508,816

 

366,537

Total cash and cash equivalents

 

541,359

 

408,129

Securities available-for-sale, at fair value

 

404,474

 

442,636

Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $12

(fair value of $542,858 and $564,127, respectively)

636,249

 

650,565

Loans held-for-sale - SBA, at lower of cost or fair value, including deferred costs

 

1,946

 

2,205

Loans, net of deferred fees

 

3,336,102

 

3,350,378

Allowance for credit losses on loans

 

(47,888)

 

(47,958)

Loans, net

 

3,288,214

 

3,302,420

Federal Home Loan Bank ("FHLB"), Federal Reserve Bank ("FRB") stock and other investments, at cost

 

32,544

 

32,540

Company-owned life insurance

 

80,007

 

79,489

Premises and equipment, net

 

9,986

 

9,857

Goodwill

167,631

167,631

Other intangible assets

 

8,074

 

8,627

Accrued interest receivable and other assets

 

85,590

 

89,996

Total assets

$

5,256,074

$

5,194,095

Liabilities and Shareholders' Equity

Liabilities:

Deposits:

Demand, noninterest-bearing

$

1,242,059

$

1,292,486

Demand, interest-bearing

 

925,100

 

914,066

Savings and money market

 

1,124,900

 

1,087,518

Time deposits - under $250

 

38,105

 

38,055

Time deposits - $250 and over

 

200,739

 

192,228

Insured Cash Sweep ("ICS")/Certificates of Deposit Account Registry Service ("CDARS") -

interest-bearing demand, money market and time deposits

 

913,757

 

854,105

Total deposits

 

4,444,660

 

4,378,458

Subordinated debt, net of issuance costs

39,539

39,502

Accrued interest payable and other liabilities

 

95,579

 

103,234

Total liabilities

 

4,579,778

 

4,521,194

Shareholders' equity:

Preferred stock, no par value; 10,000,000 shares authorized; none issued and outstanding

at March 31, 2024 and December 31, 2023

Common stock, no par value; 100,000,000 shares authorized;

61,253,625 and 61,146,835 shares issued and outstanding, respectively

 

507,578

 

506,539

Retained earnings

 

181,306

 

179,092

Accumulated other comprehensive loss

 

(12,588)

 

(12,730)

Total shareholders' equity

 

676,296

 

672,901

Total liabilities and shareholders' equity

$

5,256,074

$

5,194,095

See notes to consolidated financial statements (unaudited).

6

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

March 31, 

    

2024

    

2023

(Dollars in thousands, except per share amounts)

Interest income:

Loans, including fees

$

44,600

$

44,112

Securities, taxable

 

6,183

 

7,056

Securities, exempt from Federal tax

 

226

 

247

Other investments, interest-bearing deposits

in other financial institutions and Federal funds sold

 

6,542

 

4,859

Total interest income

 

57,551

 

56,274

Interest expense:

Deposits

 

16,920

5,901

Short-term borrowings

578

Subordinated debt

 

538

537

Total interest expense

 

17,458

 

7,016

Net interest income before provision for credit losses on loans

 

40,093

49,258

Provision for credit losses on loans

 

184

32

Net interest income after provision for credit losses on loans

 

39,909

 

49,226

Noninterest income:

Service charges and fees on deposit accounts

 

877

1,743

Increase in cash surrender value of life insurance

 

518

493

Gain on sales of SBA loans

 

178

76

Servicing income

 

90

131

Termination fees

 

13

11

Other

 

371

312

Total noninterest income

 

2,047

 

2,766

Noninterest expense:

Salaries and employee benefits

 

15,509

14,809

Occupancy and equipment

 

2,443

2,400

Professional fees

 

1,327

1,399

Other

 

8,257

6,793

Total noninterest expense

 

27,536

 

25,401

Income before income taxes

 

14,420

 

26,591

Income tax expense

 

4,254

7,674

Net income

$

10,166

$

18,917

Earnings per common share:

Basic

$

0.17

$

0.31

Diluted

$

0.17

$

0.31

See notes to consolidated financial statements (unaudited).

7

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

March 31, 

    

2024

    

2023

 

(Dollars in thousands)

Net income

$

10,166

$

18,917

Other comprehensive income:

Change in net unrealized holding gains on

available-for-sale securities and I/O strips

 

248

 

3,631

Deferred income taxes

 

(72)

 

(1,054)

Change in unrealized gains on securities and I/O strips,

net of deferred income taxes

 

176

 

2,577

Change in net pension and other benefit plan liability adjustment

 

(26)

 

(34)

Deferred income taxes

 

(8)

 

(4)

Change in pension and other benefit plan liability, net of

deferred income taxes

 

(34)

 

(38)

Other comprehensive income

 

142

 

2,539

Total comprehensive income

$

10,308

$

21,456

See notes to consolidated financial statements (unaudited).

8

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

Accumulated

Other

Total

Common Stock

Retained

Comprehensive

Shareholders’

Shares

    

Amount

    

Earnings

    

Loss

    

Equity

(Dollars in thousands, except per share amounts)

Balance, January 1, 2023

60,852,723

$

502,923

$

146,389

$

(16,856)

$

632,456

Net income

18,917

18,917

Other comprehensive income

2,539

2,539

Amortization of restricted stock awards,

net of forfeitures and taxes

382

382

Cash dividend declared $0.13 per share

(7,916)

(7,916)

Stock option expense, net of forfeitures and taxes

147

147

Stock options exercised

95,884

683

683

Balance March 31, 2023

60,948,607

$

504,135

$

157,390

$

(14,317)

$

647,208

Balance, January 1, 2024

61,146,835

$

506,539

$

179,092

$

(12,730)

$

672,901

Net income

10,166

10,166

Other comprehensive income

142

142

Issuance of restricted stock awards, net of forfeitures

33,908

Amortization of restricted stock awards,

net of forfeitures and taxes

311

311

Cash dividend declared $0.13 per share

(7,952)

(7,952)

Restricted stock units ("RSUs") and performance-based

restricted stock units ("PRSUs") expense, net of taxes

198

198

Stock option expense, net of forfeitures and taxes

145

145

Stock options exercised

72,882

385

385

Balance March 31, 2024

61,253,625

$

507,578

$

181,306

$

(12,588)

$

676,296

See notes to consolidated financial statements (unaudited).

9

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

March 31, 

    

2024

    

2023

 

(Dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

10,166

$

18,917

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of premiums and accretion of discounts on securities

 

(936)

 

(1,258)

Gain on sale of SBA loans

 

(178)

 

(76)

Proceeds from sale of SBA loans originated for sale

 

1,978

 

1,045

SBA loans originated for sale

 

(1,541)

 

(1,305)

Provision for credit losses on loans

 

184

 

32

Increase in cash surrender value of life insurance

 

(518)

 

(493)

Depreciation and amortization

 

300

 

272

Amortization of other intangible assets

 

553

 

602

Stock option expense, net

 

145

 

147

RSUs and PRSUs expense

198

Amortization of restricted stock awards, net

 

311

 

382

Amortization of subordinated debt issuance costs

37

37

Effect of changes in:

Accrued interest receivable and other assets

 

4,861

 

(519)

Accrued interest payable and other liabilities

 

(8,222)

 

12,175

Net cash provided by operating activities

 

7,338

 

29,958

CASH FLOWS FROM INVESTING ACTIVITIES:

Maturities/paydowns/calls of securities available-for-sale

 

39,596

 

3,014

Maturities/paydowns/calls of securities held-to-maturity

 

14,072

 

16,485

Net change in loans

 

14,022

 

36,364

Changes in FHLB stock and other investments

 

(4)

 

(4)

Purchase of premises and equipment

 

(429)

 

(113)

Net cash provided by investing activities

 

67,257

 

55,746

CASH FLOWS FROM FINANCING ACTIVITIES:

Net change in deposits

 

66,202

 

54,934

Net change in short-term borrowings

300,000

Exercise of stock options

 

385

 

683

Payment of cash dividends

 

(7,952)

 

(7,916)

Net cash provided by financing activities

 

58,635

 

347,701

Net increase in cash and cash equivalents

 

133,230

 

433,405

Cash and cash equivalents, beginning of period

 

408,129

 

306,603

Cash and cash equivalents, end of period

$

541,359

$

740,008

Supplemental disclosures of cash flow information:

Interest paid

$

16,350

$

5,657

Supplemental schedule of non-cash activity:

Recording of right of use assets in exchange for lease obligations

$

$

384

See notes to consolidated financial statements (unaudited).

10

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

1) Basis of Presentation

The unaudited consolidated financial statements of Heritage Commerce Corp (the “Company” or “HCC”) and its wholly owned subsidiary, Heritage Bank of Commerce (the “Bank” or “HBC”), have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements are not included herein. The interim statements should be read in conjunction with the consolidated financial statements and notes that were included in the Company’s Form 10-K for the year ended December 31, 2023.

HBC is a commercial bank serving customers primarily located in Alameda, Contra Costa, Marin, San Benito, San Francisco, San Mateo, and Santa Clara counties of California. CSNK Working Capital Finance Corp. a California corporation, dba Bay View Funding (“Bay View Funding”) is a wholly owned subsidiary of HBC, and provides business-essential working capital factoring financing to various industries throughout the United States. No customer accounts for more than 10% of revenue for HBC or the Company. The Company reports its results for two segments: banking and factoring. The Company’s management uses segment results in its operating and strategic planning.

In management’s opinion, all adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. All intercompany transactions and balances have been eliminated.

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expense in the financial statements. Various elements of our accounting policies, by their nature, involve the application of highly sensitive and judgmental estimates and assumptions. Some of these policies and estimates relate to matters that are highly complex and contain inherent uncertainties. Material estimates that are particularly susceptible to significant change include the determination of the allowance for credit losses and any impairment of goodwill or intangible assets. It is possible that, in some instances, different estimates and assumptions could reasonably have been made and used by management, instead of those we applied, which might have produced different results that could have had a material effect on the financial statements.

The results for the three months ended March 31, 2024 are not necessarily indicative of the results expected for any subsequent period or for the entire year ending December 31, 2024.

Reclassifications

              Certain reclassifications of prior year balances have been made to conform to the current year presentation. These reclassifications had no impact on the Company’s consolidated financial position, results of operations or net change in cash and cash equivalents.

Adoption of New Accounting Standards

Accounting Standards Update (“ASU”) No. 2023-07,“Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” ("ASU 2023-07) requires filers to disclose significant segment expenses, an amount and description for other segment items, the title and position of the entity’s chief operating decision maker ("CODM") and an explanation of how the CODM uses the reported measures of profit or loss to assess segment performance, and, on an interim basis, certain segment related disclosures that previously were required only on an annual basis. ASU 2023-07 also clarifies that entities with a single reportable segment are subject to both new and existing segment reporting requirements and that an entity is permitted to disclose multiple measures of segment profit or loss, provided that certain criteria are met. ASU 2023-07 is effective for the Company for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Effective January 1, 2024, the Company adopted the guidance prescribed under ASU 2023-07, and it did not have a material impact on our consolidated financial statements for the first quarter of 2024.

11

Accounting Guidance Issued But Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The updated accounting guidance requires expanded income tax disclosures, including the disaggregation of existing disclosures related to the tax rate reconciliation and income taxes paid. The guidance is effective for annual periods beginning after December 15, 2024. Prospective application is required, with retrospective application permitted. Management is evaluating the impact of this ASU to the financial statement disclosures.

2) Earnings Per Share

Basic earnings per common share is computed by dividing net income by the weighted average common shares outstanding. Diluted earnings per share reflect potential dilution from outstanding stock options using the treasury stock method. Unvested restricted stock units are not considered participating securities and as a result are not considered outstanding under the two class method of computing basic earnings per common share. There were 1,904,786 weighted average stock options outstanding for the three months ended March 31, 2024 considered to be antidilutive and excluded from the computation of diluted earnings per share. There were 1,314,428 weighted average stock options outstanding for the three months ended March 31, 2023 considered to be antidilutive and excluded from the computation of diluted earnings per share. There were 65,805 weighted average RSUs outstanding for the three months ended March 31, 2024 considered to be antidilutive and excluded from the computation of diluted earnings per shares. There were no weighted average RSUs outstanding for the three months ended March 31, 2023 considered to be antidilutive and excluded from the computation of diluted earnings per shares. A reconciliation of these factors used in computing basic and diluted earnings per common share is as follows:

Three Months Ended

March 31, 

    

2024

    

2023

    

(Dollars in thousands, except per share amounts)

Net income

$

10,166

$

18,917

Weighted average common shares outstanding

for basic earnings per common share

 

61,186,623

 

60,908,221

Dilutive potential common shares

 

283,929

 

359,851

Shares used in computing diluted earnings per common share

$

61,470,552

$

61,268,072

Basic earnings per share

$

0.17

$

0.31

Diluted earnings per share

$

0.17

$

0.31

12

3) Accumulated Other Comprehensive Income (Loss) (“AOCI”)

The following table reflects the changes in AOCI by component for the periods indicated:

Three Months Ended March 31, 2024 and 2023

Unrealized

Gains (Losses)

on Available-

Defined

for-Sale

Benefit

Securities

Pension

and I/O

Plan

Strips

Items(1)

Total

(Dollars in thousands)

Beginning balance January 1, 2024, net of taxes

$

(7,029)

$

(5,701)

$

(12,730)

Other comprehensive income (loss) before reclassification,

net of taxes

 

176

(16)

160

Amounts reclassified from other comprehensive income (loss),

net of taxes

 

(18)

(18)

Net current period other comprehensive income (loss),

net of taxes

 

176

 

(34)

 

142

Ending balance March 31, 2024, net of taxes

$

(6,853)

$

(5,735)

$

(12,588)

Beginning balance January 1, 2023, net of taxes

$

(11,394)

$

(5,462)

$

(16,856)

Other comprehensive income (loss) before reclassification,

net of taxes

 

2,577

 

(14)

 

2,563

Amounts reclassified from other comprehensive income (loss),

net of taxes

 

 

(24)

 

(24)

Net current period other comprehensive income (loss),

net of taxes

 

2,577

 

(38)

 

2,539

Ending balance March 31, 2023, net of taxes

$

(8,817)

$

(5,500)

$

(14,317)

(1)This AOCI component is included in the computation of net periodic benefit cost (see Note 8—Benefit Plans) and includes split-dollar life insurance benefit plan.

Amounts Reclassified from

 

AOCI

 

Three Months Ended

 

March 31, 

Affected Line Item Where

 

Details About AOCI Components

    

2024

    

2023

    

Net Income is Presented

 

(Dollars in thousands)

 

Amortization of defined benefit pension plan items (1)

Prior transition obligation and actuarial losses (2)

$

52

$

47

Prior service cost and actuarial losses (3)

 

(26)

 

(13)

 

26