UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q
(Mark One)
 
x ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2017
March 31, 2024
OR
o ☐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  001-33572

Bank of Marin Bancorp
(Exact name of Registrant as specified in its charter)
California20-8859754
California
20-8859754
(State or other jurisdiction of incorporation)  incorporation or organization)  (IRS Employer Identification No.)
504 Redwood Blvd., Suite 100 Novato, CA NovatoCA94947
(Address of principal executive office)(Zip Code)
 
Registrant’s telephone number, including area code:  (415) 763-4520

Not Applicable
(Former name, former address and formal fiscal year, if changed since last report)
Securities registered pursuant to 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common stock, no par valueBMRCThe 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.
Yesx☒                 No  o☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes x☒                  No o☐
 
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 filero
☐
Accelerated filerx☒
Non-accelerated filero
(Do not check if a smaller reporting company)☐
Smaller reporting companyo☐
Emerging growth companyo
☐
 
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.☐
o


Indicate by check mark ifwhether the registrant is a shell company as(as defined in Rule 12b-2 of the Exchange Act.Act).
Yes   o☐    No  x☒

As of October 31, 2017,April 30, 2024, there were 6,177,990 shares16,285,786 shares of common stock outstanding.



TABLE OF CONTENTS
 
PART I
Page-33
ITEM 1.
Page-33
Consolidated Statements of Condition
Page-33
Consolidated Statements of Comprehensive Income
Page-44
Consolidated Statements of Changes in Stockholders' Equity
Page-55
Consolidated Statements of Cash Flows
Page-66
Notes to Consolidated Financial Statements
Page-77
ITEM 2.
Page-3128
ITEM 3.
Page-4542
ITEM 4.
Page-4643
PART II
Page-4643
ITEM 1.
Page-4643
ITEM 1A.
Page-4643
ITEM 2.
Page-4643
ITEM 3.
Page-4644
ITEM 4.
Page-4744
ITEM 5.
Page-4744
ITEM 6.
Page-4845
Page-49








Page-2
PART I       FINANCIAL INFORMATION
 
ITEM 1.  Financial Statements
BANK OF MARIN BANCORP
CONSOLIDATEDSTATEMENTS OFCONDITION
at September 30, 2017 and December 31, 2016
(in thousands, except share data; unaudited)March 31, 2024December 31, 2023
Assets  
Cash, cash equivalents and restricted cash$36,308 $30,453 
Investment securities: 
Held-to-maturity, at amortized cost (net of zero allowance for credit losses at March 31, 2024 and December 31, 2023)915,068 925,198 
Available-for-sale, at fair value (net of zero allowance for credit losses at March 31, 2024 and December 31, 2023)536,365 552,028 
Total investment securities1,451,433 1,477,226 
Loans, at amortized cost2,054,963 2,073,720 
Allowance for credit losses on loans(25,501)(25,172)
Loans, net of allowance for credit losses on loans
2,029,462 2,048,548 
Goodwill72,754 72,754 
Bank-owned life insurance69,747 68,102 
Operating lease right-of-use assets21,553 20,316 
Bank premises and equipment, net7,546 7,792 
Core deposit intangible, net3,515 3,766 
Interest receivable and other assets74,858 74,946 
Total assets$3,767,176 $3,803,903 
Liabilities and Stockholders' Equity  
Liabilities  
Deposits:  
Non-interest bearing$1,444,435 $1,441,987 
Interest bearing: 
Transaction accounts211,274 225,040 
Savings accounts224,262 233,298 
Money market accounts1,136,595 1,138,433 
Time accounts267,536 251,317 
Total deposits3,284,102 3,290,075 
Borrowings and other obligations260 26,298 
Operating lease liabilities24,150 22,906 
Interest payable and other liabilities21,984 25,562 
Total liabilities3,330,496 3,364,841 
Commitments and contingent liabilities (Note 8)
Stockholders' Equity  
Preferred stock, no par value,
    Authorized - 5,000,000 shares, none issued
— — 
Common stock, no par value,
Authorized - 30,000,000 shares; issued and outstanding - 16,285,786 and 16,158,413 at March 31, 2024 and December 31, 2023, respectively
218,342 217,498 
Retained earnings273,450 274,570 
Accumulated other comprehensive loss, net of taxes(55,112)(53,006)
Total stockholders' equity436,680 439,062 
Total liabilities and stockholders' equity$3,767,176 $3,803,903 
(in thousands, except share data; unaudited)September 30, 2017
December 31, 2016
Assets 
 
Cash and due from banks$149,124
$48,804
Investment securities 
 
Held-to-maturity, at amortized cost155,122
44,438
Available-for-sale, at fair value258,092
372,580
Total investment securities413,214
417,018
Loans, net of allowance for loan losses of $15,248 and $15,442 at
September 30, 2017 and December 31, 2016, respectively		1,509,199
1,471,174
Bank premises and equipment, net8,230
8,520
Goodwill6,436
6,436
Core deposit intangible2,226
2,580
Interest receivable and other assets67,472
68,961
Total assets$2,155,901
$2,023,493
   
Liabilities and Stockholders' Equity 
 
Liabilities 
 
Deposits 
 
Non-interest bearing$924,073
$817,031
Interest bearing 
 
Transaction accounts102,236
100,723
Savings accounts169,488
163,516
Money market accounts555,013
539,967
Time accounts140,160
151,463
Total deposits1,890,970
1,772,700
Subordinated debentures5,703
5,586
Interest payable and other liabilities14,179
14,644
Total liabilities1,910,852
1,792,930
   
Stockholders' Equity 
 
Preferred stock, no par value,
Authorized - 5,000,000 shares, none issued		—
—
Common stock, no par value,
Authorized - 15,000,000 shares;
Issued and outstanding - 6,175,751 and 6,127,314 at
September 30, 2017 and December 31, 2016, respectively		90,052
87,392
Retained earnings156,227
146,464
Accumulated other comprehensive loss, net(1,230)(3,293)
Total stockholders' equity245,049
230,563
Total liabilities and stockholders' equity$2,155,901
$2,023,493


The accompanying notes are an integral part of these consolidated financial statements (unaudited).

Page-3

BANK OF MARIN BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended Nine months ended
BANK OF MARIN BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
BANK OF MARIN BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
BANK OF MARIN BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended
(in thousands, except per share amounts; unaudited)
(in thousands, except per share amounts; unaudited)
(in thousands, except per share amounts; unaudited)September 30, 2017September 30, 2016 September 30, 2017September 30, 2016
Interest income  
   
Interest income
Interest income
Interest and fees on loans
Interest and fees on loans
Interest and fees on loans$16,738
$17,840
 $49,010
$51,078
Interest on investment securities    
Securities of U.S. government agencies1,525
1,283
 4,577
3,826
Obligations of state and political subdivisions511
569
 1,632
1,743
Corporate debt securities and other31
38
 104
220
Interest on Federal funds sold and short-term investments406
104
 623
155
Interest on investment securities
Interest on investment securities
Interest on federal funds sold and due from banks
Interest on federal funds sold and due from banks
Interest on federal funds sold and due from banks
Total interest income
Total interest income
Total interest income19,211
19,834
 55,946
57,022
Interest expense 
 
  
 
Interest expense
Interest expense
Interest on interest-bearing transaction accounts
Interest on interest-bearing transaction accounts
Interest on interest-bearing transaction accounts24
27
 74
82
Interest on savings accounts17
15
 48
43
Interest on savings accounts
Interest on savings accounts
Interest on money market accounts
Interest on money market accounts
Interest on money market accounts133
112
 360
330
Interest on time accounts138
190
 423
579
Interest on Federal Home Loan Bank ("FHLB") and other borrowings—
—
 —
478
Interest on subordinated debentures111
109
 328
325
Interest on time accounts
Interest on time accounts
Interest on borrowings and other obligations
Interest on borrowings and other obligations
Interest on borrowings and other obligations
Total interest expense
Total interest expense
Total interest expense423
453
 1,233
1,837
Net interest income18,788
19,381
 54,713
55,185
(Reversal of) provision for loan losses—
(1,550) —
(1,550)
Net interest income after provision for loan losses18,788
20,931
 54,713
56,735
Net interest income
Net interest income
Provision for credit losses on loans
Provision for credit losses on loans
Provision for credit losses on loans
Reversal of credit losses on unfunded loan commitments
Reversal of credit losses on unfunded loan commitments
Reversal of credit losses on unfunded loan commitments
Net interest income after provision for (reversal of) credit losses
Net interest income after provision for (reversal of) credit losses
Net interest income after provision for (reversal of) credit losses
Non-interest income 
   
 
Non-interest income
Non-interest income
Wealth management and trust services
Wealth management and trust services
Wealth management and trust services
Service charges on deposit accounts438
447
 1,337
1,344
Wealth Management and Trust Services539
506
 1,546
1,599
Debit card interchange fees390
393
 1,146
1,112
Merchant interchange fees88
114
 296
355
Earnings on bank-owned life insurance209
216
 628
626
Dividends on FHLB stock177
223
 585
577
Gains on investment securities, net—
—
 10
394
Service charges on deposit accounts
Service charges on deposit accounts
Earnings on bank-owned life insurance, net
Earnings on bank-owned life insurance, net
Earnings on bank-owned life insurance, net
Debit card interchange fees, net
Debit card interchange fees, net
Debit card interchange fees, net
Dividends on Federal Home Loan Bank stock
Dividends on Federal Home Loan Bank stock
Dividends on Federal Home Loan Bank stock
Merchant interchange fees, net
Merchant interchange fees, net
Merchant interchange fees, net
Losses on sale of investment securities, net of gains
Losses on sale of investment securities, net of gains
Losses on sale of investment securities, net of gains
Other income
Other income
Other income225
215
 729
691
Total non-interest income2,066
2,114
 6,277
6,698
Total non-interest income
Total non-interest income
Non-interest expense
Non-interest expense
Non-interest expense 
   
 
Salaries and related benefits7,344
6,683
 22,106
20,155
Salaries and related benefits
Salaries and related benefits
Occupancy and equipment1,364
1,275
 4,063
3,731
Occupancy and equipment
Occupancy and equipment
Professional services
Professional services
Professional services
Data processing
Data processing
Data processing
Deposit network fees
Deposit network fees
Deposit network fees
Federal Deposit Insurance Corporation insurance
Federal Deposit Insurance Corporation insurance
Federal Deposit Insurance Corporation insurance
Information technology
Information technology
Information technology
Depreciation and amortization489
449
 1,433
1,343
Federal Deposit Insurance Corporation insurance167
253
 490
760
Data processing946
894
 2,848
2,666
Professional services801
476
 1,845
1,528
Depreciation and amortization
Depreciation and amortization
Directors' expense175
143
 557
448
Information technology179
307
 563
665
Provision for losses on off-balance sheet commitments100
—
 57
150
Directors' expense
Directors' expense
Amortization of core deposit intangible
Amortization of core deposit intangible
Amortization of core deposit intangible
Other real estate owned
Other real estate owned
Other real estate owned
Other expense
Other expense
Other expense1,471
1,430
 4,716
4,491
Total non-interest expense13,036
11,910
 38,678
35,937
Total non-interest expense
Total non-interest expense
Income before provision for income taxes
Income before provision for income taxes
Income before provision for income taxes7,818
11,135
 22,312
27,496
Provision for income taxes2,686
4,171
 7,446
10,049
Provision for income taxes
Provision for income taxes
Net income
Net income
Net income$5,132
$6,964
 $14,866
$17,447
Net income per common share: 
   
 
Net income per common share:
Net income per common share:
Basic
Basic
Basic$0.84
$1.14
 $2.43
$2.87
Diluted$0.83
$1.14
 $2.41
$2.86
Diluted
Diluted
Weighted average shares:
Weighted average shares:
Weighted average shares:  
  
 
Basic6,123
6,083
 6,109
6,070
Basic
Basic
Diluted6,191
6,117
 6,179
6,106
Dividends declared per common share$0.29
$0.25
 $0.83
$0.75
Diluted
Diluted
Comprehensive income:
Comprehensive income:
Comprehensive income:    

Net income$5,132
$6,964
 $14,866
$17,447
Other comprehensive (loss) income



 



Change in net unrealized gain or loss on available-for-sale securities(362)(831) 3,273
4,211
Amortization of net unrealized loss on available for sale securities transferred to held-to-maturity securities135
—
 299
—
Reclassification adjustment for gains on available-for-sale securities included in net income—
—
 (10)(394)
Net change in unrealized loss on available-for-sale securities, before
tax
(227)(831) 3,562
3,817
Tax effect(96)(367) 1,499
1,583
Net income
Net income
Other comprehensive (loss) income:
Other comprehensive (loss) income:
Other comprehensive (loss) income:
Change in net unrealized gains or losses on available-for-sale securities
Change in net unrealized gains or losses on available-for-sale securities
Change in net unrealized gains or losses on available-for-sale securities
Reclassification adjustment for realized losses on available-for-sale securities in net income
Reclassification adjustment for realized losses on available-for-sale securities in net income
Reclassification adjustment for realized losses on available-for-sale securities in net income
Reclassification adjustment for gains or losses on fair value hedges
Reclassification adjustment for gains or losses on fair value hedges
Reclassification adjustment for gains or losses on fair value hedges
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity
Other comprehensive (loss) income, before tax
Other comprehensive (loss) income, before tax
Other comprehensive (loss) income, before tax
Deferred tax (benefit) expense
Deferred tax (benefit) expense
Deferred tax (benefit) expense
Other comprehensive (loss) income, net of tax(131)(464) 2,063
2,234
Comprehensive income$5,001
$6,500
 $16,929
$19,681
Other comprehensive (loss) income, net of tax
Other comprehensive (loss) income, net of tax
Total comprehensive income
Total comprehensive income
Total comprehensive income
The accompanying notes are an integral part of these consolidated financial statements (unaudited).

Page-4

BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
forFor the year ended December 31, 2016 and the ninethree months ended September 30, 2017March 31, 2024 and 2023
(in thousands, except share data; unaudited)Common StockRetained
Earnings		Accumulated Other
Comprehensive (Loss) Income,
Net of Taxes		 Total
SharesAmount
Three months ended March 31, 2024
Balance at January 1, 202416,158,413 $217,498 $274,570 $(53,006)$439,062 
Net income— — 2,922 — 2,922 
Other comprehensive loss, net of tax— — — (2,106)(2,106)
Stock issued under employee stock purchase plan621 10 — — 10 
Stock issued under employee stock ownership plan24,600 425 — — 425 
Restricted stock granted106,964 — — — — 
Restricted stock surrendered for tax withholdings upon vesting(3,338)(55)— — (55)
Restricted stock forfeited / cancelled(13,284)— — — — 
Stock-based compensation - stock options— 17 — — 17 
Stock-based compensation - restricted stock— 188 — — 188 
Cash dividends paid on common stock ($0.25 per share)— — (4,042)— (4,042)
Stock issued in payment of director fees11,810 259 — — 259 
Balance at March 31, 202416,285,786 $218,342 $273,450 $(55,112)$436,680 
Three months ended March 31, 2023
Balance at January 1, 202316,029,138 $215,057 $270,781 $(73,746)$412,092 
Net income— — 9,440 — 9,440 
Other comprehensive income, net of tax— — — 11,746 11,746 
Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings11,530 230 — — 230 
Stock issued under employee stock purchase plan415 9 — — 9 
Stock issued under employee stock ownership plan14,300 423 — — 423 
Restricted stock granted49,428 — — — — 
Restricted stock surrendered for tax withholdings upon vesting(2,213)(65)— — (65)
Stock-based compensation - stock options— 116 — — 116 
Stock-based compensation - restricted stock— 45 — — 45 
Cash dividends paid on common stock ($0.25 per share)— — (4,012)— (4,012)
Stock issued in payment of director fees4,612 150 — — 150 
Balance at March 31, 202316,107,210 $215,965 $276,209 $(62,000)$430,174 
(in thousands, except share data; unaudited)Common Stock
Retained
Earnings

Accumulated Other
Comprehensive Income (Loss),
Net of Taxes

 Total
Shares
Amount
Balance at December 31, 20156,068,543
$84,727
$129,553
$193
$214,473
Net income—
—
23,134
—
23,134
Other comprehensive loss—
—
—
(3,486)(3,486)
Stock options exercised36,117
1,227
—
—
1,227
Excess tax benefit - stock-based compensation—
161
—
—
161
Stock issued under employee stock purchase plan621
32
—
—
32
Restricted stock granted16,910
—
—
—
—
Stock-based compensation - stock options—
347
—
—
347
Stock-based compensation - restricted stock—
638
—
—
638
Cash dividends paid on common stock—
—
(6,223)—
(6,223)
Stock purchased by directors under director stock plan516
26
—
—
26
Stock issued in payment of director fees4,607
234
—
—
234
Balance at December 31, 20166,127,314
$87,392
$146,464
$(3,293)$230,563
Net income—
—
14,866
—
14,866
Other comprehensive income—
—
—
2,063
2,063
Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings8,786
28
—
—
28
Stock issued under employee stock purchase plan280
17
—
—
17
Stock issued to employee stock ownership plan ("ESOP")21,732
1,335
—
—
1,335
Restricted stock granted14,230
—
—
—
—
Stock-based compensation - stock options—
423
—
—
423
Stock-based compensation - restricted stock—
634
—
—
634
Cash dividends paid on common stock—
—
(5,103)—
(5,103)
Stock purchased by directors under director stock plan531
35
—
—
35
Stock issued in payment of director fees2,878
188
—
—
188
Balance at September 30, 20176,175,751
$90,052
$156,227
$(1,230)$245,049


The accompanying notes are an integral part of these consolidated financial statements (unaudited).



Page-5
BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS
forFor the ninethree months ended September 30, 2017March 31, 2024 and 20162023
(in thousands; unaudited)20242023
Cash Flows from Operating Activities:  
Net income$2,922 $9,440 
Adjustments to reconcile net income to net cash provided by operating activities: 
Provision for credit losses on loans350 350 
Reversal of credit losses on unfunded loan commitments— (174)
Noncash contribution expense to employee stock ownership plan425 423 
Noncash director compensation expense259 150 
Stock-based compensation expense205 161 
Amortization of core deposit intangible251 345 
Amortization of investment security premiums, net of accretion of discounts1,277 1,964 
Accretion of discounts on acquired loans, net(98)(168)
Net change in deferred loan origination costs/fees34 (324)
Depreciation and amortization388 882 
Loss on disposal of premises and equipment19 — 
Earnings on bank-owned life insurance policies(435)(705)
Net changes in interest receivable and other assets1,082 (203)
Net changes in interest payable and other liabilities(2,353)1,303 
Total adjustments1,404 4,004 
Net cash provided by operating activities4,326 13,444 
Cash Flows from Investing Activities:  
Proceeds from paydowns/maturities of held-to-maturity securities10,252 13,634 
Proceeds from paydowns/maturities of available-for-sale securities10,057 19,288 
Increase (decrease) in loans receivable, net18,690 (19,072)
Purchase of bank-owned life insurance policies(1,210)— 
Purchase of premises and equipment(161)(1,438)
Cash paid for low income housing tax credit investment(1)(38)
Net cash provided by investing activities37,627 12,374 
Cash Flows from Financing Activities:  
Net decrease in deposits(5,973)(322,774)
(Repayment of) proceeds from short-term borrowings, net(26,000)293,400 
Repayment of finance lease obligations(38)(37)
Proceeds from stock options exercised— 230 
Restricted stock surrendered for tax withholdings upon vesting(55)(65)
Cash dividends paid on common stock(4,042)(4,012)
Proceeds from stock issued under employee and director stock purchase plans10 9 
Net cash used in financing activities(36,098)(33,249)
Net increase (decrease) in cash, cash equivalents and restricted cash5,855 (7,431)
Cash, cash equivalents and restricted cash at beginning of period30,453 45,424 
Cash, cash equivalents and restricted cash at end of period$36,308 $37,993 
Supplemental disclosure of cash flow information:
Interest paid on deposits and borrowings$11,087 $4,290 
Income taxes paid, net of refunds$— $— 
Supplemental disclosure of noncash investing and financing activities:  
Change in net unrealized gains or losses on available-for-sale securities$(4,568)$16,213 
Amortization of net unrealized loss on available-for-sale securities transferred to held-to-maturity$361 $463 
Bank-owned life insurance benefit receivable$— $765 
Restricted cash1
$— $— 
(in thousands; unaudited)September 30, 2017 September 30, 2016
Cash Flows from Operating Activities:   
Net income$14,866
 $17,447
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Reversal of provision for loan losses—
 (1,550)
Provision for losses on off-balance sheet commitments57
 150
Noncash expense - contribution to ESOP637
 —
Noncash director compensation expense - common stock170
 146
Stock-based compensation expense1,057
 710
Amortization of core deposit intangible354
 400
Amortization of investment security premiums, net of accretion of discounts2,204
 2,293
Accretion of discount on acquired loans(706) (1,526)
Accretion of discount on subordinated debentures117
 145
Net amortization of deferred loan origination costs/fees85
 100
Write-down of other real estate owned—
 13
Gain on sale of investment securities(10) (394)
Depreciation and amortization1,433
 1,343
Loss on disposal of premises and equipment—
 3
Gain on sale of repossessed assets(1) —
Earnings on bank-owned life insurance policies(628) (626)
Net change in operating assets and liabilities: 
  
Deferred rent and other rent-related expenses38
 (287)
Interest receivable and other assets421
 2,362
Interest payable and other liabilities350
 (414)
Total adjustments5,578
 2,868
Net cash provided by operating activities20,444
 20,315
Cash Flows from Investing Activities: 
  
Purchase of held-to-maturity securities(4,496) (2,424)
Purchase of available-for-sale securities(51,130) (138,432)
Proceeds from sale of available-for-sale securities1,321
 68,673
Proceeds from paydowns/maturities of held-to-maturity securities22,352
 25,150
Proceeds from paydowns/maturities of available-for-sale securities37,126
 110,978
Loans originated and principal collected, net(37,370) (11,723)
Purchase of bank-owned life insurance policies—
 (2,133)
Purchase of premises and equipment(1,143) (652)
Proceeds from sale of repossessed assets170
 —
Purchase of Federal Home Loan Bank stock—
 (1,792)
Cash paid for low-income housing investment(899) (298)
Net cash (used in) provided by investing activities(34,069) 47,347
Cash Flows from Financing Activities: 
  
Net increase in deposits118,270
 73,243
Proceeds from stock options exercised88
 1,206
Payment of tax withholdings for stock options exercised(60) —
Proceeds from stock issued under employee and director stock purchase plans and ESOP750
 49
Federal Home Loan Bank repayments—
 (67,000)
Cash dividends paid on common stock(5,103) (4,573)
Net cash provided by financing activities113,945
 2,925
Net increase in cash and cash equivalents100,320
 70,587
Cash and cash equivalents at beginning of period48,804
 26,343
Cash and cash equivalents at end of period$149,124
 $96,930
Supplemental disclosure of cash flow information:   
Cash paid in interest$1,131
 $1,741
Cash paid in income taxes$6,815
 $9,095
Supplemental disclosure of noncash investing and financing activities: 
  
Change in net unrealized gain or loss on available-for-sale securities$3,273
 $3,817
Securities transferred from available-for-sale to held-to-maturity$128,965
 $—
Amortization of net unrealized loss on available-for-sale securities transferred to held-to-maturity$299
 $—
Stock issued in payment of director fees and to ESOP$825
 $234
1 Restricted cash includes reserve requirements held with the Federal Reserve Bank of San Francisco and other cash pledged. The Federal Reserve reduced the reserve requirement ratios to zero percent effective March 26, 2020.


The accompanying notes are an integral part of these consolidated financial statements (unaudited).

Page-6

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)
 
Note 1:  Basis of Presentation

The consolidated financial statements include the accounts of Bank of Marin Bancorp, (“Bancorp”), a bank holding company, and its wholly-owned bank subsidiary, Bank of Marin, (the “Bank”), a California state-chartered commercial bank. References to “we,” “our,” “us” mean the holding companyBancorp and the Bank that are consolidated for financial reporting purposes. The accompanying unaudited consolidated interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to those rules and regulations.

Although we believe that the disclosures are adequate and the information presented is not misleading, we suggest that these interim financial statements be read in conjunction with the annual financial statements and the notes thereto included in our 20162023 Annual Report on Form 10-K.  In the opinion of Management,management, the unaudited consolidated financial statements reflect all adjustments, which are necessary for a fair presentation of the consolidated financial position, the results of operations, changes in comprehensive income (loss), changes in stockholders’ equity, and cash flows for the periods presented. All material intercompany transactions have been eliminated. The results of these interim periods may not be indicative of the results for the full year or for any other period.

The NorCal Community Bancorp Trusts I and II, respectively (the "Trusts") were formed for the sole purpose of issuing trust preferred securities. Bancorp is not considered the primary beneficiary of the Trusts (variable interest entities), therefore the Trusts are not consolidated in our consolidated financial statements, but rather the subordinated debentures are shown as a liability on our consolidated statements of condition (See Note 6, Borrowings). Bancorp's investment in the securities of the Trusts is accounted for under the equity method and is included in interest receivable and other assets on the consolidated statements of condition.
 
The following table shows: 1) weighted average basic shares, 2) potentially dilutive weighted average common shares related to stock options and unvested restricted stock awards, and 3) weighted average diluted shares. Basic earnings per share (“EPS”) are calculated by dividing net income by the weighted average number of common shares outstanding during each period, excluding unvested restricted stock awards. Diluted EPS are calculated using the weighted average number of potentially dilutive common shares. The number of potentially dilutive common shares included in the quarterly diluted EPS is computed using the average market prices during the three months included in the reporting period under the treasury stock method. The number of potentially dilutive common shares included in year-to-date diluted EPS is a year-to-date weighted average of potentially dilutive common shares included in each quarterly diluted EPS computation. In computing diluted EPS, we exclude anti-dilutive shares such as options whose exercise prices exceed the current common stock price, as they would not reduce EPS under the treasury stock method. We have two forms of outstanding common stock: common stock and unvested restricted stock awards. Holders of unvested restricted stock awards receive non-forfeitable dividends at the same rate as common shareholders and they both share equally in undistributed earnings. Under the two-class method, the difference in EPS is not significantnominal for these participating securities.
Three months ended
(in thousands, except per share data)March 31, 2024March 31, 2023
Weighted average basic common shares outstanding16,081 15,970 
Potentially dilutive common shares related to:
Stock options— 14 
Unvested restricted stock awards11 15 
Weighted average diluted common shares outstanding16,092 15,999 
Net income$2,922 $9,440 
Basic EPS$0.18 $0.59 
Diluted EPS$0.18 $0.59 
Weighted average anti-dilutive common shares not included in the calculation of diluted EPS340 250 

 Three months ended Nine months ended
(in thousands, except per share data)September 30, 2017September 30, 2016 September 30, 2017September 30, 2016
Weighted average basic shares outstanding6,123
6,083
 6,109
6,070
Potentially dilutive common shares related to:     
Stock options53
27
 55
30
Unvested restricted stock awards15
7
 15
6
Weighted average diluted shares outstanding6,191
6,117
 6,179
6,106
Net income$5,132
$6,964
 $14,866
$17,447
Basic EPS$0.84
$1.14
 $2.43
$2.87
Diluted EPS$0.83
$1.14
 $2.41
$2.86
Weighted average anti-dilutive shares not included in the calculation of diluted EPS23
71
 19
65


Note 2: Recently Adopted and Issued Accounting Standards


Accounting Standards Adopted in 2024

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendment reduces diversity in practice by clarifying that a separate contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. In addition, this ASU provided amended examples to illustrate that a restriction that is a characteristic of the equity security, which market participants would take into account when pricing them, would be considered in measuring fair value. This ASU also introduced new disclosure requirements. The amendments were effective prospectively for years beginning after
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December 15, 2023. As discussed in Note 4, Investment Securities, in 2023 we sold our remaining shares of Visa Inc. Class B restricted common stock. As a result of the sale, this update had no impact our financial condition, results of operations or disclosures.

In March 2016,2023, the Financial Accounting Standards Board ("FASB")FASB issued Accounting Standards Update ("ASU")ASU No. 2016-05, Derivatives and Hedging2023-01, Leases (Topic 815)842): Effect of Derivative Contract Novations on Existing Hedge Accounting RelationshipsCommon Control Arrangements. A contract novation refersFor public companies, the amendment requires entities to replacing oneamortize leasehold improvements associated with common control lease arrangements over the useful life of the partiesimprovements to a derivative instrument with a new party. This ASU clarifies that a change in counterparty in a derivative instrument doesthe common control group, as opposed to the shorter of the remaining lease term and the useful life of the improvements for all other operating leases. The amendments were effective for years beginning after December 15, 2023, and may be adopted either prospectively or retrospectively. We currently do not in and of itself, require dedesignation of that hedging relationshiphave common control lease arrangements, and therefore discontinue the applicationadoption of hedge accounting. We adopted the amendments prospectively effective January 1, 2017, which did not have a materialhad no impact on our financial condition, or results of operations as there were no changes in counterparties.or disclosures.


In March 2016,2023, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation2023-02, Investments—Equity Method and Joint Ventures (Topic 718)323): ImprovementsAccounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. Under current GAAP, an entity can only elect to Employee Share-Based Payment Accounting ("ASU 2016-09"apply the proportional amortization method to investments in low-income housing tax credit ("LIHTC"). This ASU identifies areas for simplification involving several aspects structures. The proportional amortization method results in the cost of accounting for share-based payment transactions, includingthe investment being amortized in proportion to the income tax consequences, classification of awards as equity or liabilities, forfeiture accounting,credits and classifications onother income tax benefits received, with the statement of cash flows. We adopted the requirements of this ASU effective January 1, 2017, which impacted the following areas:

Forfeiture rates: We have elected to account for forfeitures as they occur. Previously, we accounted for forfeitures based on an estimateamortization of the number of awards expected to vest. The policy change was applied using a modified retrospective approachinvestment and did not have a material effect on our financial condition or results of operations.

Income taxes: We have recorded excessthe income tax benefits (deficiencies) resulting from the exercise of non-qualified stock options, the disqualifying disposition of incentive stock options and vesting of restricted stock awards as tax benefits (expense)credits being presented net in the consolidated statements of comprehensive income with a corresponding decrease (increase) to current taxes payable. Previous to the adoption of this ASU, excess tax benefits (deficiencies) were recognized as an increase (decrease) to common stock in the consolidated statements of changes in stockholders' equity. In addition, we have reflected excess tax benefits as an operating activity in the consolidated statements of cash flows. Previous to the adoption of this ASU, excess tax benefits were shown as a financing activity. We applied the amendment prospectively and prior period financial statements have not been restated. For the three and nine months ended September 30, 2017, we recognized $40 thousand and $210 thousand, respectively, in excess tax benefits recorded as a reduction tocomponent of income tax expense.

Statutory tax withholding: Cash paid for tax withholdings when shares are surrendered in a cashless stock option exchange has been classified as a financing activity in the consolidated statements of cash flows. There were no shares surrendered for tax withholdings prior to the adoption of ASU 2016-09.

In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securitiesexpense (benefit). The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium and require the premiumwill allow entities to be amortizedelect to the earliest call date. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those periods. We early adopted this ASU effective January 1, 2017, which did not have a material impact on our financial condition and results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU is a converged standard involving FASB and International Financial Reporting Standards that provides a single comprehensive revenue recognition modelaccount for all contracts with customers across transactions and industries. The core principalother equity investments made primarily for the purpose of receiving income tax credits to using the proportional amortization method, regardless of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount and at a time that reflects the consideration totax credit program through which the entity expects to be entitled in exchange for those goods or services. Subsequent updates related to Revenue from Contracts with Customers (Topic 606)investment earns income tax credits, when certain conditions are as follows:

August 2015 ASU No. 2015-14 - Deferral of the Effective Date, institutes a one-year deferral of the effective date of this amendment to annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
March 2016 ASU No. 2016-08 - Principal versus Agent Considerations (Reporting Revenue Gross versus Net), clarifies the implementation guidance on principal versus agent considerations and on the use of indicators that assist an entity in determining whether it controls a specified good or service before it is transferred to the customer.


April 2016 ASU No. 2016-10 - Identifying Performance Obligations and Licensing, provides guidance in determining performance obligations in a contract with a customer and clarifies whether a promise to grant a license provides a right to access or the right to use intellectual property.
May 2016 ASU No. 2016-12 - Narrow Scope Improvements and Practical Expedients, gives further guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition.
December 2016 ASU No. 2016-20 - Technical Corrections and Improvements to Topic 606, further clarifies specific aspects of previously issued guidance or corrects unintended application of the guidance.

Our revenue is mainly comprised of interest income on financial instruments, which is explicitly excluded from the scope of ASU 2014-09. We have identified applicable sources of non-interest income and are gathering and reviewing related contracts and evaluating their potential impact to our revenue recognition under the new standards. While the recognition of certain components of our non-interest income may be affected by the ASU, we do not expect it to have a material impact on our financial condition and results of operations.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.met. The amendments in this ASU make improvements to accounting standards related to financial instruments, including the following:
Requires equity investments, except for those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When impairment exists, an entity is required to measure the investment at fair value.
Eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is currently required to be disclosed for financial instruments measured at amortized cost on the balance sheet.
Requires public companies to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.
Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.

ASU 2016-01 iswere effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This2023, and may be adopted either on a modified retrospective basis or retrospectively. Other than investments in LIHTC funds, as disclosed in Note 4, Investment Securities, we currently have no other equity investments made primarily for the purpose of receiving income tax credits, and therefore the adoption of this ASU may affect our financial statement presentation and related footnotes, but we do not expect it to have a materialhad no impact on our financial condition, or results of operations.operations or disclosures.


Accounting Standards Not Yet Effective
In February 2016,November 2023, the FASB issued ASU No. 2016-02, Leases2023-07, Segment Reporting (Topic 842)280): Improvements to Reportable Segment Disclosures. The amendments are intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, enhanced interim disclosure requirements, clarifying circumstances in this ASU intend to increase transparencywhich an entity can disclose multiple segment measures of profit or loss, providing new segment disclosure requirements for entities with a single reportable segment, and comparability among organizations by recognizing an asset, which represents the right to use the asset for the lease term, and a lease liability, which is a lessee's obligation to make lease payments measured on a discounted basis. This ASU generally applies to leasing arrangements exceeding a twelve month term. ASU 2016-02 isrequiring other disclosures. The amendments are effective for annual periods, including interim periods within those annualreporting periods beginning after December 15, 20182023 (i.e., 2024 Form 10-K) and requires a modified retrospective method of adoption. Early application of the amendments is permitted. We intend to adopt this ASU during the first quarter of 2019, as required, and are continuing to evaluate our lease agreements and potential accounting software solutions as they become available. As of September 30, 2017, our undiscounted operating lease obligations that were off-balance sheet totaled $18.4 million (See Note 8, Commitments and Contingencies). Upon adoption of this ASU, the present values of leases currently classified as operating leases will be recognized as lease assets and liabilities on our balance sheet. Additional disclosures of key information about our leasing arrangements will also be required. We do not expect that the ASU will have a material impact on our capital ratios or return on average assets when adopted and we are currently evaluating the effect that the ASU will have on other components of our financial condition and results of operations.



In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Under the new guidance, entities will be required to measure expected credit losses by utilizing forward-looking information to assess an entity's allowance for credit losses. The measurement of expected credit losses will be based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of a credit over its remaining life. In addition, the ASU amends the accounting for potential credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective forinterim periods within fiscal years beginning after December 15, 2019, including interim31, 2024, and shall be applied retrospectively to all prior periods within those fiscal years.presented in the financial statements. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management refined our allowance for loan loss model in 2016permitted. We currently have only one reportable segment and enhanced our loan-level data collection and methodology for analyzing credit losses in preparation forare evaluating the new accounting standards. We will continue our evaluation of the provisions of this ASU and will be monitoring developments, additional guidance and the potential outcomeimpact the amendments will have on our financial condition and results of operationsstatement disclosures upon adoption in the first quarter of 2020.adoption.


In August 2016,December 2023, the FASB issued ASU No. 2016-15, Statement of Cash Flows2023-09, Income Taxes (Topic 230)740): Classification of Certain Cash Receipts and Cash Payments. This ASU provides guidance on howImprovements to present and classify eight specific cash flow topics in the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition method to each period presented, if practical. This ASU may affect our presentation of certain cash flows and their categorization as operating, investing or financing activities in the consolidated statements of cash flows, but we do not expect it to have a material impact on our financial condition or results of operations.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a BusinessIncome Tax Disclosures. The amendments are intended to help companies evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businessesrequire disaggregated information about the effective tax rate reconciliation and provideadditional disclosures on reconciling items and taxes paid that meet a more robust framework to use in determining when a set of assets and activities is a business.quantitative threshold. The amendments are effective for annual periods after December 31, 2017, including interim periods within those periods. The amendments will be adopted prospectively. We will consider these amendments in our evaluation of the accounting for any future business acquisitions or asset disposals.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This amendment simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test, which would measure a goodwill impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. Instead, an entity will perform only Step 1 of its quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment, which Bancorp currently uses. The ASU is effective for fiscal yearsperiods beginning after December 15, 2019.2024, and may be adopted either prospectively or retrospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.permitted. We anticipate that this ASU will simplify our evaluationare currently evaluating the impact of the impairment of goodwill and do not expect it to have a material impactamendments on our financial condition and results of operations.statement disclosures upon adoption.


In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU applies to entities that change the terms or conditions of a share-based payment award. The FASB adopted this ASU to provide clarity in what constitutes a modification and to reduce diversity in practice in applying Topic 718. In order for a change to a share-based arrangement to not require Topic 718 modification accounting treatment, all of the following must be met: no change in fair value, no change in vesting conditions and no change in the balance sheet classification of the modified award. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted, including adoption in an interim period. The amendments should be applied prospectively to an award modified on or after the adoption date. We do not expect this ASU to have a material impact on our financial condition or results of operations.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This amendment changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. It is intended to more closely align hedge accounting with companies' risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The ASU is effective for fiscal years beginning after


December 15, 2018, and interim periods within those fiscal years. The amended presentation and disclosure guidance will be required prospectively. We expect this amendment to affect the presentation of our hedging activities, but we do not expect it to have a material impact on our financial condition or results of operations.

Note 3:  Fair Value of Assets and Liabilities
 
Fair Value Hierarchy and Fair Value Measurement
 
We group our assets and liabilities that are measured at fair value ininto three levels within the fair value hierarchy, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
 
Level 1: Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
 
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Level 2: Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations for which all significant assumptions are observable or can be corroborated by observable market data.
 
Level 3: Valuations are based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Values are determined using pricing models and discounted cash flow models and may include significant Managementmanagement judgment and estimation.


Transfers between levels of the fair value hierarchy are recognized through our monthly and/or quarterly valuation process in the reporting period during which the event or circumstances that caused the transfer occurred. No such transfers occurred in the years presented.


The following table summarizes our assets and liabilities that were required to be recorded at fair value on a recurring basis.
(in thousands)  
Description of Financial Instruments
Carrying ValueQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs 
(Level 3)
Measurement Categories: Changes in Fair Value Recorded In1
March 31, 2024    
Securities available-for-sale:    
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies$340,908 $— $340,908 $— OCI
SBA-backed securities$17,148 $— $17,148 $— OCI
Debentures of government sponsored agencies$66,688 $— $66,688 $— OCI
U.S. Treasury securities$10,534 $10,534 $— $— OCI
Obligations of state and political subdivisions$90,343 $— $90,343 $— OCI
Corporate bonds$10,744 $— $10,744 $— OCI
Derivative financial assets (interest rate contracts)$400 $— $400 $— NI
Derivative financial liabilities (interest rate contracts)$142 $— $142 $— NI
December 31, 2023
Securities available-for-sale:  
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies$352,472 $— $352,472 $— OCI
SBA-backed securities$19,471 $— $19,471 $— OCI
Debentures of government sponsored agencies$66,862 $— $66,862 $— OCI
U.S. Treasury securities$10,623 $10,623 $— $— OCI
Obligations of state and political subdivisions$91,882 $— $91,882 $— OCI
Corporate bonds$10,718 $— $10,718 $— OCI
Derivative financial assets (interest rate contracts)$287 $— $287 $— NI
Derivative financial liabilities (interest rate contracts)$1,361 $— $1,361 $— NI
(in thousands)  
Description of Financial Instruments
Carrying Value
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
September 30, 2017 
  
 
Securities available-for-sale:    
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government agencies$147,370
$—
$146,818
$552
Debentures of government sponsored agencies30,382
—
30,382
—
Privately-issued collateralized mortgage obligations128
—
128
—
Obligations of state and political subdivisions75,181
—
75,181
—
Corporate bonds5,031
—
5,031
—
Derivative financial assets (interest rate contracts)38
—
38
—
Derivative financial liabilities (interest rate contracts)909
—
909
—
December 31, 2016 
  
 
Securities available-for-sale: 
  
 
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government agencies$254,041
$—
$253,434
$607
Debentures of government sponsored agencies35,403
—
35,403
—
Privately-issued collateralized mortgage obligations419
—
419
—
Obligations of state and political subdivisions77,701
—
77,701
—
Corporate bonds5,016
—
5,016
—
Derivative financial assets (interest rate contracts)55
—
55
—
Derivative financial liabilities (interest rate contracts)933
—
933
—
 1 Other comprehensive income ("OCI") or net income ("NI").

Securities available-for-saleAvailable-for-sale securities are recorded at fair value on a recurring basis. When available, quoted market prices (Level 1) are used to determine the fair value of available-for-sale securities. Level 1 securities available-for-sale.include U.S. Treasury securities. If quoted market prices are not available,


we obtain pricing information from a reputable third-party service provider, who may utilize valuation techniques that use current market-based or independently sourced parameters, such as bid/ask prices, dealer-quoted prices, interest rates, benchmark yield curves, prepayment speeds, probability of default, loss severity and credit spreads (Level 2).   Level 2 securities include obligations of state and political subdivisions, U.S. agencies or government-sponsored agencies' debt securities, mortgage-backed securities, government agency-issued privately-issued collateralized mortgage obligations,securities, and corporate bonds. As of September 30, 2017March 31, 2024 and December 31, 2016,2023, there were no securities that were considered Level 1 securities. As of September 30, 2017, we had one available-for-sale security that was considered a Level 3 security. The security is a U.S. government agency obligation collateralized by a small number of business equipment loans guaranteed by the Small Business Administration ("SBA") program. The security is not actively traded and is owned only by a few investors. The significant unobservable data that is reflected in the fair value measurement include dealer quotes, projected prepayment speeds/average life and credit information, among other things. The unrealized loss on this SBA-guaranteed security recorded as part of other comprehensive income decreased by $2 thousand in the first nine months of 2017.securities.


Securities held-to-maturityHeld-to-maturity securities may be written downsubject to fairan allowance for credit losses as a result of our evaluation of expected losses due to credit quality factors. We did not record any credit loss expense on held-to-maturity securities during the three months ended March 31, 2024 or March 31, 2023. Fair value (determinedof held-to-maturity securities is determined using the same techniques discussed above for securities available-for-sale) as a result of other-than-temporary impairment, and we did not record any write-downs during 2017 or 2016.available-for-sale securities.

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On a recurring basis, derivative financial instruments are recorded at fair value, which is based on the income approach using observable Level 2 market inputs, reflecting market expectations of future interest rates as of the measurement date.  Standard valuation techniques are used to calculate the present value of the future expected cash flows assuming an orderly transaction. Valuation adjustments may be made to reflect both our own credit risk and the counterparties’ credit risk in determining the fair value of the derivatives. These unobservable inputs are not considered significant inputs to the fair value measurement overall. Level 2 inputs for the valuations are limited to observable market prices for London Interbank OfferedSecured Overnight Financing Rate ("LIBOR"SOFR") and Overnight Index Swap ("OIS") rates (for the very short term), quoted prices for LIBORSOFR futures contracts, observable market prices for LIBORSOFR and OIS swap rates, and one-month and three-month LIBORSOFR basis spreads at commonly quoted intervals.   Mid-market pricing of the inputs is used as a practical expedient in the fair value measurements.  We project spot rates at reset days specified by each swap contract to determine future cash flows, then discount to present value using either LIBOR or OIS curves depending on whether the swap positions are fully collateralized as of the measurement date.  When the value of any collateral placed with counterparties is less than the interest rate derivative liability, a credit valuation adjustment ("CVA") is applied to reflect the credit risk we pose to counterparties.  We have used the spread between the Standard & Poor's BBB rated U.S. Bank Composite rate and LIBORSOFR for the closest maturity term corresponding to the duration of the swaps to derive the CVA. A similarBecause there is little to no counterparty risk, we did not incorporate credit risk adjustment, correlated to the credit standingadjustments from our assessment of the counterparty is made when collateral posted by the counterparty does not fully cover their liability to the Bank.credit risk in determining fair value. For further discussion on our methodology infor valuing our derivative financial instruments, refer to Note 9, Derivative Financial Instruments and Hedging Activities.


Certain financial assets may be measured at fair value on a non-recurring basis. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets, such as impairedindividually analyzed loans that are collateral dependent and other real estate owned ("OREO").
The following table presents the carrying value of assets measured at fair value on a non-recurring basis and that were held in the consolidated statements of condition at each respective period end, by level within the fair value hierarchy as of September 30, 2017 and December 31, 2016.
(in thousands)Carrying Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs 
(Level 3)

September 30, 2017  
 
 
Other real estate owned238
—
—
238
December 31, 2016 
 
 
 
Other real estate owned408
—
—
408

When a loan is identified as impaired, it is reported at the lower of cost or fair value, measured based on the loan's observable market price (Level 1) or the current net realizable value of the underlying collateral securing the loan, if the loan is collateral dependent (Level 3).  Net realizable value of the underlying collateral is the fair value of the collateral less estimated selling costs and any prior liens. Appraisals, recent comparable sales, offers and listing prices are factored in when valuing the collateral. We review and verify the qualifications and licenses of the certified general


appraisers used for appraising commercial properties or certified residential appraisers for residential properties. Real estate appraisals may utilize a combination of approaches including replacement cost, sales comparison and the income approach. Comparable sales and income data are analyzed by the appraisers and adjusted to reflect differences between them and the subject property such as property characteristics, leasing status and physical condition. When appraisals are received, Management reviews the underlying assumptions and methodology utilized, as well as the overall resulting value in conjunction with independent data sources such as recent market data and industry-wide statistics. We generally use a 6% discount for selling costs which is applied to all properties, regardless of size. Appraised values may be adjusted to reflect changes in market conditions that have occurred subsequent to the appraisal date, or for revised estimates regarding the timing or cost of the property sale. These adjustments are based on qualitative judgments made by Management on a case-by-case basis and are generally unobservable valuation inputs as they are specific to the underlying collateral. There have been no significant changes in the valuation techniques during 2017. As of September 30, 2017 and December 31, 2016, there were no collateral-dependent loans whose principal balances had been written down to or below the values of the underlying collateral.

OREO represents collateral acquired through foreclosure and is initially recorded at fair value as established by a current appraisal, adjusted for disposition costs. Subsequently, OREO is measured at lower of cost or fair value. OREO values are reviewed on an ongoing basis and any subsequent decline in fair value is recorded as a foreclosed asset expense in the current period. The value of OREO is determined based on independent appraisals, similar to the process used for impaired loans, discussed above, and is classified as Level 3. All OREO resulted from an acquisition. There was no change in the estimated fair values of OREO during the first nine months of 2017 and a decrease of $13 thousand in 2016.

(in thousands)Carrying ValueQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs 
(Level 3)
Disclosures about Fair Value of Financial Instruments
 
The table below is a summary of fair value estimates for financial instruments as of September 30, 2017March 31, 2024 and December 31, 2016,2023, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note). The carrying amounts in the following table are recorded in the consolidated statements of condition under the indicated captions. Further, we have not disclosed the fair value of financial instruments specifically excluded from disclosure requirements such as bank-owned life insurance policies ("BOLI")., lease obligations and non-maturity deposit liabilities. Additionally, we holdheld shares of FHLB stock and Visa Inc. Class B commonFederal Home Loan Bank ("FHLB") of San Francisco stock at cost. These shares are restrictedcost as of March 31, 2024 and December 31, 2023. There were no impairments or changes resulting from resale, except among member banks, and theirobservable price changes in orderly transactions for the identical or similar investments of the same issuer as of March 31, 2024 or December 31, 2023. See further discussion on values are discussed inwithin Note 4, Investment Securities.
 March 31, 2024December 31, 2023
(in thousands)Carrying AmountsFair ValueFair Value HierarchyCarrying AmountsFair ValueFair Value Hierarchy
Financial assets (recorded at amortized cost)  
Cash and cash equivalents$36,308 $36,308 Level 1$30,453 $30,453 Level 1
Investment securities held-to-maturity915,068 795,909 Level 2925,198 814,830 Level 2
Loans, net of allowance for credit losses2,029,462 1,913,418 Level 32,048,548 1,939,702 Level 3
Interest receivable11,678 11,678 Level 212,752 12,752 Level 2
Financial liabilities (recorded at amortized cost)  
Time deposits267,536 268,758 Level 2251,317 252,824 Level 2
FRBSF short-term borrowings under the BTFP— — Level 226,000 25,998 Level 2
Interest payable3,130 3,130 Level 22,752 2,752 Level 2
 September 30, 2017 December 31, 2016
(in thousands)Carrying Amounts
Fair Value
Fair Value Hierarchy Carrying Amounts
Fair Value
Fair Value Hierarchy
Financial assets       
Cash and cash equivalents$149,124
$149,124
Level 1 $48,804
$48,804
Level 1
Investment securities held-to-maturity155,122
156,149
Level 2 44,438
45,097
Level 2
Loans, net1,509,199
1,491,306
Level 3 1,471,174
1,473,360
Level 3
Interest receivable5,978
5,978
Level 2 6,319
6,319
Level 2
Financial liabilities 
 
   
 
 
Deposits1,890,970
1,891,097
Level 2 1,772,700
1,773,102
Level 2
Subordinated debentures5,703
5,089
Level 3 5,586
5,083
Level 3
Interest payable120
120
Level 2 134
134
Level 2


Following is a description of methods and assumptions used to estimate the fair value of each class of financial instrument not recorded at fair value but required for disclosure purposes:
Cash and Cash Equivalents - The carrying amounts of cash and cash equivalents approximate their fair value because of the short-term nature of these instruments.
Held-to-maturity Securities - Held-to-maturity securities, which generally consist of obligations of state and political subdivisions and corporate bonds, are recorded at their amortized cost. Their fair value for disclosure purposes is determined using methodologies similar to those described above for available-for-sale securities using Level 2 inputs. If Level 2 inputs are not available, we may utilize pricing models that incorporate unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities (Level 3).  As of


September 30, 2017 and December 31, 2016, we did not hold any held-to-maturity securities whose fair value was measured using significant unobservable inputs.
Loans - The fair value of loans with variable interest rates approximates their current carrying value, because their ratesis based on exit price techniques and obtained from an independent third-party that uses its proprietary valuation model and methodology and may differ from the actual price from a prospective buyer. The discounted cash flow valuation approach reflects key inputs and assumptions that are regularly adjusted to currentunobservable, such as loan probability of default, loss given default, prepayment speed, and market discount rates.
The fair value of fixed rate loans or variable loans at negotiated interest rate floors or ceilings with remaining maturities in excess of one year is estimated by discounting the future cash flows using current market rates at which similar loans would be made to borrowers with similar creditworthiness and similar remaining maturities. The allowance for loan losses (“ALLL”) is considered to be a reasonable estimate of the portion of loan discount attributable to credit risks.
Interest Receivable and Payable - The interest receivable and payable balances approximate their fair value due to the short-term nature of their settlement dates.

Deposits - The fair value of deposits without stated maturity, such as transaction accounts, savings accounts and money market accounts, is the amount payable on demand at the reporting date. The fair value offixed-rate time deposits is estimated by discounting the future contractual cash flows using discount rates that reflect the current observable market rates offered for time deposits of similar remaining maturities.
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Federal Home Loan Bank Borrowing - The fair value is estimated by discounting the future cash flows using current rates offered by the FHLB for similar credit advances corresponding to the remaining term of our fixed-rate credit advances.

Subordinated Debentures - The fair values of the subordinated debentures are estimated by discounting the future cash flows (interest payment at a rate of three-month LIBOR plus 3.05% and 1.40%) to their present values using current market rates at which similar bonds would be issued with similar credit ratings as ours and similar remaining maturities. Each interest payment is discounted at the spot rate of the corresponding term, determined based on the yields and terms of comparable trust preferred securities, plus a liquidity premium. In July 2010, the Dodd-Frank Act was signed into law and limits the ability of certain bank holding companies to treat trust preferred security debt issuances as Tier 1 capital. This law effectively closed the trust preferred securities markets for new issuances and led to the absence of observable or comparable transactions in the market place. Due to the use of unobservable inputs of trust preferred securities, we consider the fair value to be a Level 3 measurement. See Note 6, Borrowings, for further information.

Commitments - The value of unrecognizedoff-balance-sheet financial instruments is estimated based on the fee income associated with the commitments, which in the absence of credit exposure, is considered to approximate their settlement value. The fair value of commitment fees was not material at September 30, 2017 andas of March 31, 2024 or December 31, 2016, respectively.2023.


Note 4:  Investment Securities
 
Our investment securities portfolio consists of U.S. Treasury securities, obligations of state and political subdivisions, corporate bonds, U.S. federal government agency securities, including residential and commercial mortgage-backed securities (“MBS”agencies, such as the Government National Mortgage Association ("GNMA") and collateralized mortgage obligations (“CMOs”Small Business Administration ("SBA") issued or guaranteed by, and U.S. government-sponsored enterprises ("GSEs"), such as the Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), or Government National Mortgage Association ("GNMA"), debentures issued by government-sponsored agencies such as FNMA, Federal Farm Credit Bureau,Banks Funding Corporation and FHLB, and FHLMC, as well as privatelyU.S. Corporations. We also invest in residential and commercial mortgage-backed securities (“MBS”/"CMBS") and collateralized mortgage obligations (“CMOs”) issued CMOs,or guaranteed by the GSEs, as reflected in the table below:following table.



A summary of the amortized cost, fair value and allowance for credit losses related to securities held-to-maturity as of March 31, 2024 and December 31, 2023 is presented below.
Held-to-maturity:
Amortized Cost 1
Allowance for Credit LossesNet Carrying AmountGross UnrealizedFair Value
(in thousands)Gains(Losses)
March 31, 2024
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC, FNMA and GNMA$300,976 $— $300,976 $— $(48,474)$252,502 
CMOs issued by FHLMC224,676 — 224,676 — (26,902)197,774 
CMOs issued by FNMA98,951 — 98,951 — (6,009)92,942 
CMOs issued by GNMA50,695 — 50,695 — (5,436)45,259 
SBA-backed securities1,652 — 1,652 — (95)1,557 
Debentures of government-sponsored agencies146,202 — 146,202 — (22,942)123,260 
Obligations of state and political subdivisions61,916 — 61,916 4 (8,022)53,898 
Corporate bonds30,000 — 30,000 — (1,283)28,717 
Total held-to-maturity$915,068 $— $915,068 $4 $(119,163)$795,909 
December 31, 2023
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC, FNMA and GNMA$306,261 $— $306,261 $— $(44,396)$261,865 
  CMOs issued by FHLMC226,416 — 226,416 28 (24,869)201,575 
  CMOs issued by FNMA101,502 — 101,502 — (4,779)96,723 
  CMOs issued by GNMA51,006 — 51,006 — (5,235)45,771 
  SBA-backed securities1,853 — 1,853 — (90)1,763 
Debentures of government-sponsored agencies146,126 — 146,126 — (21,994)124,132 
Obligations of state and political subdivisions62,034 — 62,034 47 (7,884)54,197 
Corporate bonds30,000 — 30,000 — (1,196)28,804 
Total held-to-maturity$925,198 $— $925,198 $75 $(110,443)$814,830 
1 Amortized cost and fair values exclude accrued interest receivable of $2.5 million and $3.6 million at March 31, 2024 and December 31, 2023, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

Management measures expected credit losses on held-to-maturity securities collectively by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to MBSs and CMOs issued or guaranteed by the GSEs, and SBA-backed securities, we expect to receive all the contractual principal and interest on these securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by states and political subdivisions and corporate bonds, management considers: (i) issuer and/or guarantor credit ratings, (ii) historical probability of default and loss given default rates for given bond ratings and remaining maturity, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal credit review of the financial information, and (v) whether or not such securities have credit enhancements such as guarantees, contain a defeasance clause, or are pre-refunded by the issuers. Based on the comprehensive analysis, no credit losses are expected.

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 September 30, 2017 December 31, 2016
 AmortizedFairGross Unrealized AmortizedFairGross Unrealized
(in thousands)CostValueGains(Losses) CostValueGains(Losses)
Held-to-maturity:         
Obligations of state and
political subdivisions
$20,213
$20,790
$577
$—

$30,856
$31,544
$694
$(6)
Corporate bonds—
—
—
—

3,519
3,518
—
(1)
MBS pass-through securities issued by FHLMC and FNMA103,624
103,904
425
(145)
10,063
10,035
126
(154)
  CMOs issued by FHLMC31,285
31,455
173
(3) —
—
—
—
Total held-to-maturity155,122
156,149
1,175
(148)
44,438
45,097
820
(161)
Available-for-sale:         
Securities of U.S. government agencies:         
MBS pass-through securities issued by FHLMC and FNMA91,404
91,716
551
(239)
193,998
190,566
145
(3,577)
CMOs issued by FNMA11,504
11,529
68
(43)
13,790
13,772
91
(109)
CMOs issued by FHLMC35,317
35,360
56
(13)
43,452
42,758
37
(731)
CMOs issued by GNMA8,754
8,765
62
(51)
6,844
6,945
102
(1)
Debentures of government- sponsored agencies30,492
30,382
—
(110)
35,486
35,403
7
(90)
Privately issued CMOs127
128
1
—

419
419
1
(1)
Obligations of state and
political subdivisions
74,903
75,181
675
(397)
79,306
77,701
135
(1,740)
Corporate bonds4,967
5,031
64
—

4,959
5,016
57
—
Total available-for-sale257,468
258,092
1,477
(853)
378,254
372,580
575
(6,249)
Total investment securities$412,590
$414,241
$2,652
$(1,001)
$422,692
$417,677
$1,395
$(6,410)
The following table summarizes the amortized cost of our portfolio of held-to-maturity securities issued by states and political subdivisions and corporate bonds by Moody's and/or Standard & Poor's bond ratings as of March 31, 2024 and December 31, 2023.

Obligations of state and political subdivisionsCorporate bonds
(in thousands)March 31, 2024December 31, 2023March 31, 2024December 31, 2023
Aaa / AAA$42,474 $42,577 $— $— 
Aa2 / AA19,442 19,457 — — 
A2 / A— — 30,000 30,000 
Total$61,916 $62,034 $30,000 $30,000 

A summary of the amortized cost, fair value and allowance for credit losses related to securities available-for-sale as of March 31, 2024 and December 31, 2023 is presented below.
Available-for-sale:
Amortized Cost 1
Gross UnrealizedAllowance for Credit LossesFair Value
(in thousands)Gains(Losses)
March 31, 2024
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC, FNMA and GNMA$79,460 $2 $(10,073)$— $69,389 
CMOs issued by FHLMC261,797 — (26,837)— 234,960 
CMOs issued by FNMA23,099 — (2,835)— 20,264 
CMOs issued by GNMA19,486 — (3,191)— 16,295 
SBA-backed securities18,805 — (1,657)— 17,148 
Debentures of government- sponsored agencies73,906 — (7,218)— 66,688 
U.S. Treasury securities11,928 — (1,394)— 10,534 
Obligations of state and political subdivisions101,911 — (11,568)— 90,343 
Corporate bonds11,992 — (1,248)— 10,744 
Total available-for-sale$602,384 $2 $(66,021)$— $536,365 
December 31, 2023
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC, FNMA and GNMA$81,937 $2 $(9,516)$— $72,423 
CMOs issued by FHLMC266,407 — (24,758)— 241,649 
CMOs issued by FNMA23,987 — (2,715)— 21,272 
CMOs issued by GNMA20,006 — (2,878)— 17,128 
SBA-backed securities21,126 — (1,655)— 19,471 
Debentures of government- sponsored agencies73,899 — (7,037)— 66,862 
U.S. Treasury securities11,923 — (1,300)10,623 
Obligations of state and political subdivisions102,202 1 (10,321)— 91,882 
Corporate bonds11,992 — (1,274)— 10,718 
Total available-for-sale$613,479 $3 $(61,454)$— $552,028 
1 Amortized cost and fair value exclude accrued interest receivable of $2.3 million and $2.3 million at March 31, 2024 and December 31, 2023, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

The amortized cost and and fair value of investment debt securities by contractual maturity at September 30, 2017March 31, 2024 and December 31, 2023 are shown below. Expected maturities may differ from contractual maturities if the issuers of the securities have the right to call or prepay obligations with or without call or prepayment penalties.
 March 31, 2024December 31, 2023
 Held-to-MaturityAvailable-for-SaleHeld-to-MaturityAvailable-for-Sale
(in thousands)Amortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair Value
Within one year$15,000 $14,615 $4,181 $4,076 $— $— $101 $100 
After one but within five years72,200 69,109 249,923 228,662 87,887 84,541 226,669 208,444 
After five years through ten years304,877 259,599 62,426 54,421 304,976 261,654 95,552 85,447 
After ten years522,991 452,586 285,854 249,206 532,335 468,635 291,157 258,037 
Total$915,068 $795,909 $602,384 $536,365 $925,198 $814,830 $613,479 $552,028 
 September 30, 2017 December 31, 2016
 Held-to-Maturity Available-for-Sale Held-to-Maturity Available-for-Sale
(in thousands)Amortized CostFair Value Amortized CostFair Value Amortized CostFair Value Amortized CostFair Value
Within one year$2,092
$2,132
 $8,884
$8,893
 $13,473
$13,506
 $20,136
$20,109
After one but within five years15,206
15,565
 67,085
67,065
 16,706
17,150
 58,334
58,267
After five years through ten years56,607
56,979
 101,756
101,880
 3,000
3,125
 113,576
110,842
After ten years81,217
81,473
 79,743
80,254
 11,259
11,316
 186,208
183,362
Total$155,122
$156,149
 $257,468
$258,092
 $44,438
$45,097
 $378,254
$372,580

SalesThere were no sales of investment securities and gross gains and lossesin the first quarter of 2024 or 2023.
Three months ended
Page-12
The reported values of pledged investment securities are shown in the following table.
(in thousands)March 31, 2024December 31, 2023
Pledged to the State of California:
Secure public deposits in compliance with the Local Agency Security Program$282,826 $287,436 
Collateral for trust deposits659 666 
   Collateral for Wealth Management and Trust Services checking account557 562 
Total investment securities pledged to the State of California284,042 288,664 
Bankruptcy trustee deposits pledged with Federal Reserve Bank1,003 1,151 
Pledged to FHLB Securities-Backed Credit Program296,614 383,484 
Pledged to the Federal Reserve "BTFP"— 265,660 
Pledged to the Federal Reserve Discount Window345,896 — 
Total pledged investment securities$927,555 $938,959 
 Three months ended Nine months ended
(in thousands)September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Available-for-sale:       
Sales proceeds$—
 $—
 $1,321
 $68,673
Gross realized gains—
 —
 13
 458
Gross realized losses—
 —
 (3) (64)


For the respective periods of September 30, 2017 and December 31, 2016, investment securities carried at $112.4 million and $109.1 million were pledged with the State of California: $111.6 million and $108.3 million to secure public deposits in compliance with the Local Agency Security Program, and $777 thousand and $822 thousand to provide collateral for trust deposits. In addition, investment securities carried at $2.0 million and $2.1 million were pledged to collateralize a Wealth Management and Trust Services (“WMTS”) checking account at September 30, 2017 and December 31, 2016, respectively.



As part of our ongoing review of our investment securities portfolio, we reassessed the classification of certain MBS pass-through and CMOs securities issued by FHLMC and FNMA. Effective February 24, 2017, we transferred $129 million of these securities, which we intend and have the ability to hold to maturity, from available-for-sale securities to held-to-maturity at fair value. The unrealized pre-tax loss of $3.0 million at the date of transfer remained in accumulated other comprehensive income and is amortized over the remaining lives of the securities.

Other-Than-Temporarily Impaired ("OTTI") Debt Securities
We have evaluated the credit of our investment securities and their issuers and/or insurers. Based on our evaluation, Management has determined that no investment security in our investment portfolio is other-than-temporarily impaired as of September 30, 2017. We do not have the intent and it is more likely than not that we will not have to sell the remaining securities temporarily impaired at September 30, 2017 before recovery of the amortized cost basis.
There were 67317 and 134investment313 securities in unrealized loss positions at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively. Those securities are summarized and classified according to the duration of the loss period in the tables below:
March 31, 2024< 12 continuous months≥ 12 continuous monthsTotal securities
 in a loss position
(in thousands)Fair valueUnrealized lossFair valueUnrealized lossFair valueUnrealized loss
Held-to-maturity:
MBS pass-through securities issued by FHLMC, FNMA and GNMA$— $— $252,501 $(48,474)$252,501 $(48,474)
CMOs issued by FHLMC12,455 (68)185,319 (26,834)197,774 (26,902)
CMOs issued by FNMA40,962 (1,054)51,980 (4,955)92,942 (6,009)
CMOs issued by GNMA10,808 (350)34,452 (5,086)45,260 (5,436)
SBA-backed securities— — 1,556 (95)1,556 (95)
Debentures of government-sponsored agencies— — 123,260 (22,942)123,260 (22,942)
Obligations of state and political subdivisions6,589 (46)44,242 (7,976)50,831 (8,022)
Corporate bonds— — 28,717 (1,283)28,717 (1,283)
Total held-to-maturity70,814 (1,518)722,027 (117,645)792,841 (119,163)
Available-for-sale:
MBS pass-through securities issued by FHLMC, FNMA and GNMA3 — 69,152 (10,073)69,155 (10,073)
CMOs issued by FHLMC958 (4)234,002 (26,833)234,960 (26,837)
CMOs issued by FNMA— — 20,264 (2,835)20,264 (2,835)
CMOs issued by GNMA— — 16,295 (3,191)16,295 (3,191)
SBA-backed securities— — 17,148 (1,657)17,148 (1,657)
Debentures of government- sponsored agencies— — 66,688 (7,218)66,688 (7,218)
U.S. Treasury securities— — 10,534 (1,394)10,534 (1,394)
Obligations of state and political subdivisions557 (2)89,786 (11,566)90,343 (11,568)
Corporate bonds— — 10,744 (1,248)10,744 (1,248)
Total available-for-sale1,518 (6)534,613 (66,015)536,131 (66,021)
Total securities at loss position$72,332 $(1,524)$1,256,640 $(183,660)$1,328,972 $(185,184)
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December 31, 2023December 31, 2023< 12 continuous months≥ 12 continuous monthsTotal securities
 in a loss position
(in thousands)(in thousands)Fair valueUnrealized lossFair valueUnrealized lossFair valueUnrealized loss
Held-to-maturity:
MBS pass-through securities issued by FHLMC, FNMA and GNMA
MBS pass-through securities issued by FHLMC, FNMA and GNMA
MBS pass-through securities issued by FHLMC, FNMA and GNMA
CMOs issued by FHLMC
CMOs issued by FNMA
CMOs issued by GNMA
SBA-backed securities
Debentures of government- sponsored agencies
Obligations of state and political subdivisions
Corporate Bonds
Total held-to-maturity
Available-for-sale:
MBS pass-through securities issued by FHLMC, FNMA and GNMA
MBS pass-through securities issued by FHLMC, FNMA and GNMA
MBS pass-through securities issued by FHLMC, FNMA and GNMA
CMOs issued by FHLMC
CMOs issued by FNMA
CMOs issued by GNMA
SBA-backed securities
Debentures of government- sponsored agencies
U.S. Treasury securities
Obligations of state and political subdivisions
Corporate Bonds
September 30, 2017< 12 continuous months ≥ 12 continuous months 
Total securities
 in a loss position
(in thousands)Fair valueUnrealized loss Fair valueUnrealized loss Fair valueUnrealized loss
Held-to-maturity:     
MBS pass-through securities issued by FHLMC and FNMA17,764
(115) 31,501
(30) 49,265
(145)
CMOs issued by FHLMC—
—
 1,505
(3) 1,505
(3)
Total held-to-maturity17,764
(115) 33,006
(33) 50,770
(148)
Available-for-sale:     
MBS pass-through securities issued by FHLMC and FNMA21,619
(229) 2,321
(10) 23,940
(239)
CMOs issued by FNMA8,005
(43) —
—
 8,005
(43)
CMOs issued by FHLMC15,014
(13) —
—
 15,014
(13)
CMOs issued by GNMA4,807
(51) —
—
 4,807
(51)
Debentures of government- sponsored agencies19,929
(64) 9,953
(46) 29,882
(110)
Obligations of state and political subdivisions6,129
(38) 18,010
(359) 24,139
(397)
Total available-for-sale75,503
(438) 30,284
(415) 105,787
(853)
Total temporarily impaired securities$93,267
$(553) $63,290
$(448) $156,557
$(1,001)
Total available-for-sale
Total available-for-sale
Total securities at loss position


December 31, 2016< 12 continuous months ≥ 12 continuous months 
Total securities
 in a loss position
(in thousands)Fair valueUnrealized loss Fair valueUnrealized loss Fair valueUnrealized loss
Held-to-maturity:        
Obligations of state and political subdivisions$2,250
$(154) $—
$—
 $2,250
$(154)
Corporate bonds3,362
(6) —
—
 3,362
(6)
MBS pass-through securities issued by FHLMC and FNMA3,518
(1) —
—
 3,518
(1)
Total held-to-maturity9,130
(161) —
—
 9,130
(161)
Available-for-sale:



 



 



MBS pass-through securities issued by FHLMC and FNMA162,016
(3,577) —
—
 162,016
(3,577)
CMOs issued by FNMA9,498
(109) —
—
 9,498
(109)
CMOs issued by FHLMC31,545
(731) —
—
 31,545
(731)
CMOs issued by GNMA1,583
(1) —
—
 1,583
(1)
Debentures of government- sponsored agencies19,951
(38) 9,946
(52) 29,897
(90)
Obligations of state and political subdivisions59,567
(1,740) —
—
 59,567
(1,740)
Corporate bonds154
(1) —
—
 154
(1)
Total available-for-sale284,314
(6,197) 9,946
(52) 294,260
(6,249)
Total temporarily impaired securities$293,444
$(6,358) $9,946
$(52) $303,390
$(6,410)


As of September 30, 2017, there was one debenture of government-sponsored agency security, one CMO issued by FHLMC, five MBS pass-through securities issued by FNMA and thirty obligations of U.S. state and political subdivisionsMarch 31, 2024, the investment portfolio included 306 investment securities that havehad been in a continuous loss position for twelve months or more. Wemore and 11 investment securities that had been in a loss position for less than twelve months.

Securities issued by government-sponsored agencies, such as FNMA and FHLMC, usually have evaluatedimplicit credit support from the securitiesU.S. federal government. However, since 2008, FNMA and believe that the decline in fair value is primarily driven by factors other than credit. It is probable that we will be able to collect all amounts due according to theFHLMC have been under government conservatorship and, therefore, contractual terms and no other-than-temporary impairment exists oncash flows for these securities. The debenture of government-sponsored agency security is supportedinvestments carry explicit guarantees by the U.S. Federal Government,federal government while FNMA and FHLMC remain under conservatorship. Securities issued by the SBA and GNMA have explicit credit guarantees by the U.S. federal government, which protects us from credit losses. Based upon our assessmentlosses on the contractual cash flows of the credit fundamentals, we concluded that these securities were not other-than-temporarily impaired at September 30, 2017.securities.

There were thirty investment securitiesOur investments in our portfolio that had been in temporary loss positions for less than twelve months as of September 30, 2017, and their temporary loss positions mainly arose from changes in interest rates since purchase. They consisted of one debenture of a U.S. government-sponsored agency, eight obligations of U.S. state and political subdivisions, twelve MBS securities and nine CMOs issued by government-sponsored agencies. Securities of government-sponsored agencies are supported by the U.S. Federal Government, which protects us from credit losses. Other temporarily impaired securitiessubdivision bonds are deemed creditworthy after internalour comprehensive analysis of the issuers' latest financial information, credit ratings by major credit agencies, and/or credit enhancements.
No allowances for credit losses have been recognized on available-for-sale securities in an unrealized loss position, as management does not believe any of the securities are impaired due to credit risk factors at either March 31, 2024 or December 31, 2023. In addition, for any available-for-sale securities in an unrealized loss position at March 31, 2024 and credit enhancement. Additionally, all are ratedDecember 31, 2023, the Bank assessed whether it intended to sell the securities, or if it was more likely than not that it would be required to sell the securities before recovery of its amortized cost basis, which would require a write-down to fair value through net income. Because the Bank did not intend to sell those securities that were in an unrealized loss position, and it was not more-likely-than-not that the Bank would be required to sell the securities before recovery of their amortized cost bases, the Bank determined that no write-down was necessary as investment grade by at least one major rating agency. As a result of this impairment analysis, we concluded that thesethe reporting date.

On July 7, 2023, the Bank entered into various interest rate swap agreements with notional values totaling $101.8 million to hedge balance sheet interest rate sensitivity and protect selected securities were not other-than-temporarily impaired at September 30, 2017.in its available-for-sale

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portfolio against changes in fair value related to changes in the benchmark interest rate. For additional details, refer to Note 9, Derivative Financial Instruments and Hedging Activities.

Non-Marketable Securities Included in Other Assets


FHLB Capital Stock

As a member of the FHLB, we are required to maintain a minimum investment in FHLB capital stock as determined by the Board of Directors of the FHLB. The minimum investment requirements can increase in the event we increase our total asset size or borrowings with the FHLB. Shares cannot be purchased or sold except between the FHLB and its members at the $100$100 per share par value. We held $10.2$16.7 million of FHLB stock recorded at costincluded in other assets on the consolidated statements of condition at both September 30, 2017March 31, 2024 and December 31, 2016.2023. The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks and they do not have a readily determinable market value. Management does not believeBased on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock is other-than-temporarily-impaired, due to FHLB's current financial condition. was not impaired at March 31, 2024 and December 31, 2023. On October 26, 2017,April 25, 2024, FHLB announced a cash dividend to be distributed in mid-November 2017for the first quarter of 2024 at an annualized dividend rate of 7.00%. 8.25% to be distributed in mid-May 2024. Cash dividends paid on FHLB capital stock are recorded as non-interest income.




As a member bank of Visa U.S.A., we hold 16,939 shares of Visa Inc. Class B common stock with a carrying value of zero, which is equal to our cost basis. These shares are restricted from resale until their conversion into Class A (voting) shares upon the termination of Visa Inc.'s Covered Litigation escrow account. As a result of the restriction, these shares are not considered available-for-sale and are not carried at fair value. When converting this Class B common stock to Class A common stock based on the conversion rate of 1.6483 and the closing stock price of Class A shares, the value of our shares of Class B common stock would have been $2.9 million and $2.2 million at September 30, 2017 and December 31, 2016, respectively. The conversion rate is subject to further reduction upon the final settlement of the covered litigation against Visa Inc. and its member banks. For further information, seerefer to Note 8, Commitments and Contingencies.


Low Income Housing Tax Credits

We invest in low-income housing tax credit funds as a limited partner, which totaled $2.3$1.9 million and $2.5$2.0 million recorded in other assets as of September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively. In the first ninethree months of 2017,2024, we recognized $249$133 thousand of low-income housing tax credits and other tax benefits, net of $199offset by $111 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense. As of September 30, 2017,March 31, 2024, our unfunded commitments for these low-income housing tax credit funds totaled $549$343 thousand. We did not recognize any impairment losses on these low-income housing tax credit investments during the first ninethree months of 20172024 or 2016.2023, as the value of the future tax benefits exceeds the carrying value of the investments.


Note 5:  Loans and Allowance for LoanCredit Losses

Credit Quality of on Loans

The following table shows outstandingpresents the amortized cost of loans by portfolio class and payment aging as of September 30, 2017 and DecemberMarch 31, 2016.
Loan Aging Analysis by Loan Class
(in thousands)Commercial and industrial
Commercial real estate, owner-occupied
Commercial real estate, investor
Construction
Home equity
Other residential 1

Installment and other consumer
Total
September 30, 2017 
 
 
 
 
 
 
 
 30-59 days past due$—
$—
$—
$—
$100
$—
$5
$105
 60-89 days past due—
—
—
—
307
—
1
308
 90 days or more past due—
—
—
—
—
—
—
—
Total past due—
—
—
—
407
—
6
413
Current218,681
264,732
721,576
76,179
120,959
96,937
24,970
1,524,034
Total loans 3
$218,681
$264,732
$721,576
$76,179
$121,366
$96,937
$24,976
$1,524,447
Non-accrual loans 2
$—
$—
$1,024
$—
$292
$—
$—
$1,316
December 31, 2016 
 
 
 
 
 
 
 
 30-59 days past due$283
$—
$—
$—
$77
$—
$2
$362
 60-89 days past due—
—
—
—
—
—
49
49
 90 days or more past due—
—
—
—
91
—
—
91
Total past due283
—
—
—
168
—
51
502
Current218,332
247,713
724,228
74,809
117,039
78,549
25,444
1,486,114
Total loans 3
$218,615
$247,713
$724,228
$74,809
$117,207
$78,549
$25,495
$1,486,616
Non-accrual loans 2
$—
$—
$—
$—
$91
$—
$54
$145
1 Our residential loan portfolio does not include sub-prime loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages", the characteristics of which are loans lacking full documentation, borrowers having low FICO scores or higher loan-to-value ratios.
2 There were no purchased credit impaired ("PCI") loans that had stopped accreting interest at September 30, 20172024 and December 31, 2016. Amounts exclude accreting PCI loans of $2.3 million and $2.9 million at September 30, 2017 and December 31, 2016, respectively, as we have a reasonable expectation about future cash flows to be collected and we continue to recognize accretable yield on these loans in interest income. There were no accruing loans past due more than ninety days at September 30, 2017 or December 31, 2016.2023.
3 Amounts include
(in thousands)March 31, 2024December 31, 2023
Commercial and industrial$150,896 $153,750 
Real estate:
  Commercial owner-occupied328,560 333,181 
  Commercial non-owner occupied1,236,633 1,219,385 
  Construction71,494 99,164 
  Home equity86,794 82,087 
  Other residential113,479 118,508 
Installment and other consumer loans67,107 67,645 
Total loans, at amortized cost 1
2,054,963 2,073,720 
Allowance for credit losses on loans(25,501)(25,172)
Total loans, net of allowance for credit losses on loans$2,029,462 $2,048,548 
1 Amortized cost includes net deferred loan origination costs of $798 thousand$2.6 million and $883 thousand$2.7 million at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively. Amounts are also net of unaccretedunrecognized purchase discounts on non-PCI loans of $1.3$1.9 million and $1.8$2.0 million at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively. Amortized cost excludes accrued interest, which totaled $6.3 million and $6.6 million at March 31, 2024 and December 31, 2023, respectively, and is included in interest receivable and other assets in the consolidated statements of condition.


Our commercialLending Risks

Commercial and Industrial Loans - Commercial loans are generally made to established small and mid-sized businesses to provide financing for their growth and working capital needs, equipment purchases and acquisitions.  Management examines historical, current, and projected cash flows to determine the ability of the
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borrower to repay obligations as agreed. Commercial loans are made based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral and guarantor support. The cash flows of borrowers, however, may not occur as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed,


such as accounts receivable and inventory, and typically include a personal guarantee.guarantees. We target stable businesses with guarantors thatwho provide additional sources of repayment and have proven to be resilient in periods of economic stress.  Typically,A weakened economy, and resultant decreased consumer and/or business spending, may have an effect on the guarantors provide an additional sourcecredit quality of repayment for most of our credit extensions.commercial loans.

Commercial Real Estate Loans - Commercial real estate loans, which include income producing investment properties and owner-occupied real estate used for business purposes, are subject to underwriting standards and processes similar to commercial loans discussed above. We underwrite these loans to be repaid from cash flow from either the business or investment property and to be supported by real property collateral. Underwriting standards for commercial real estate loans include, but are not limited to, debt coverage and loan-to-value ratios. Furthermore, substantially alla large majority of our loans are guaranteed by the owners of the properties. Commercial real estate loans may be adversely affected by conditionsConditions in the real estate markets or downturn in the general economy.economy may adversely affect our commercial real estate loans. In the event of a vacancy, we expect guarantors are expected to carry the loans until they find a replacement tenant can be found.tenant.  The owner's substantial equity investment provides a strong economic incentive to continue to support the commercial real estate projects. As such, we have generally experienced a relatively low level of loss and delinquencies in this portfolio.


Construction Loans - Construction loans are generally made to developers and builders to finance construction, renovation and occasionally land acquisitions in anticipation of near-term development. Construction loans include interest reserves that are used for the payment of interest during the development and marketing periods and are capitalized as part of the loan balance. When a construction loan is placed on nonaccrual status before the depletion of the interest reserve, we apply the interest funded by the interest reserve against the loan's principal balance. These loans are underwritten after evaluation of the borrower's financial strength, reputation, prior track record, and independent appraisals. TheWe monitor all construction industryprojects to determine whether they are on schedule, completed as planned and in accordance with the approved construction budgets. Significant events can be affected by significant events,affect the construction industry, including: the inherent volatility of real estate markets and vulnerability to delays due to weather, change orders, inability to obtain construction permits, labor or material shortages, and price changes. Estimates of construction costs and value associated with the completed project may be inaccurate. Repayment of construction loans is largely dependent on the ultimate success of the project.

Consumer Loans - Consumer loans primarily consist of home equity lines of credit, and other residential tenancy-in-common fractional interest loans, ("TIC"), floating homes, and mobile homesindirect luxury auto loans, along with a small number of installment loans. Our other residential loans include tenancy-in-common fractional interest loans ("TIC") located almost entirely in San Francisco County. We originate consumer loans utilizing credit score information, debt-to-income ratio and loan-to-value ratio analysis. Diversification among consumer loan types, coupled with relatively small loan amounts that are spread across many individual borrowers, mitigates risk. Our otherWe do not originate sub-prime residential mortgage loans, include TIC units located almost entirely in San Francisco County.nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages," the characteristics of which are reduced documentation, borrowers with low FICO scores or collateral with high loan-to-value ratios.


Credit Quality Indicators
We use a risk rating system to evaluate asset quality, and to identify and monitor credit risk in individual loans, and in the loan portfolio. DefinitionsOur definitions of loans that are“Special Mention” risk graded “Special Mention”loans, or worse, are consistent with those used by the Federal Deposit Insurance Corporation ("FDIC").  Our internally assigned grades are as follows:

Pass and Watch: - Loans to borrowers of acceptable or better credit quality. Borrowers in this category demonstrate fundamentally sound financial positions, repayment capacity, credit history and management expertise.  Loans in this category must have an identifiable and stable source of repayment and meet the Bank’s policy regarding debt service coveragedebt-service-coverage ratios.  These borrowers are capable of sustaining normal economic, market or operational setbacks without significant financial consequences.  Negative external industry factors are generally not present.  The loan may be secured, unsecured or supported by non-real estate collateral for which the value is more difficult to determine and/or marketability is more uncertain. This category also includes “Watch” loans, where the primary source of repayment has been delayed. “Watch” is intended to be a transitional grade, with either an upgrade or downgrade within a reasonable period.
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Special Mention: - Potential weaknesses that deserve close attention. If left uncorrected, those potential weaknesses may result in deterioration of the payment prospects for the asset. Special Mention assets do not present sufficient risk to warrant adverse classification.

Substandard: - Inadequately protected by either the current sound worth and paying capacity of the obligor or the collateral pledged, if any. A Substandard asset has a well-defined weakness or weaknesses that jeopardize(s)jeopardize the liquidation of the debt. Substandard assets are characterized by the distinct possibility that we will sustain some loss if such weaknesses or deficiencies are not corrected. Well-defined weaknesses include adverse trends or developments of the borrower’s financial condition, managerial weaknesses andand/or significant collateral deficiencies.

Doubtful: - Critical weaknesses that make collection or liquidation in full improbable. There may be specific pending events that work to strengthen the asset; however, the amount or timing of the loss may not be determinable. Pending events generally occur within one year of the asset being classified as Doubtful. Examples include: merger, acquisition, or liquidation; capital injection; guarantee; perfecting liens on additional collateral; and refinancing. Such loans are placed on non-accrual status and usually are collateral-dependent.


We regularly review our credits for accuracy of risk grades whenever we receive new information is received.and at each quarterly and year-end reporting period. Borrowers are generally required to submit financial information at regular intervals. Generally,Typically, commercial borrowers with lines of credit are


required to submit financial information with reporting intervals ranging from monthly to annually depending on credit size, risk and complexity. InvestorIn addition, investor commercial real estate borrowers with loans exceeding a certain dollar threshold are generallyusually required to submit rent rolls or property income statements annually. ConstructionWe monitor construction loans are monitored monthly, and reviewed on an ongoing basis. Homemonthly. We review home equity and other consumer loans are reviewed based on delinquency. LoansWe also review loans graded “Watch” or worse, regardless of loan type, are reviewed no less than quarterly.


The following tables present the loan portfolio by loan portfolio class, origination/renewal year and internal risk rating as of March 31, 2024 and December 31, 2023. The current year vintage table reflects gross charge-offs by loan portfolio class and year of origination. Generally, existing term loans that were re-underwritten are reflected in the table in the year of renewal. Lines of credit that have a conversion feature at the time of origination, such as construction to perm loans, are presented by year of origination.
(in thousands)Term Loans - Amortized Cost by Origination YearRevolving Loans Amortized Cost
March 31, 202420242023202220212020PriorTotal
Commercial and industrial:
Pass and Watch$2,650 $23,105 $9,107 $2,726 $3,474 $33,698 $64,683 $139,443 
Special Mention— — — — — 306 1,443 1,749 
Substandard— — — — — 2,191 7,513 9,704 
Total commercial and industrial$2,650 $23,105 $9,107 $2,726 $3,474 $36,195 $73,639 $150,896 
Gross current period charge-offs$— $— $— $— $— $— $(4)$(4)
Commercial real estate, owner-occupied:
Pass and Watch$3,187 $14,053 $45,948 $49,506 $36,162 $148,036 $5 $296,897 
Special Mention— 386 — 15,491 816 10,113 — 26,806 
Substandard— — 2,201 — — 2,656 — 4,857 
Total commercial real estate, owner-occupied$3,187 $14,439 $48,149 $64,997 $36,978 $160,805 $5 $328,560 
Commercial real estate, non-owner occupied:
Pass and Watch$20,233 $76,466 $171,120 $196,087 $161,259 $502,571 $10,102 $1,137,838 
Special Mention— — 2,776 8,309 11,696 36,797 — 59,578 
Substandard278 872 — 2,174 — 35,893 — 39,217 
Total commercial real estate, non-owner occupied$20,511 $77,338 $173,896 $206,570 $172,955 $575,261 $10,102 $1,236,633 
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(in thousands)Term Loans - Amortized Cost by Origination YearRevolving Loans Amortized Cost
March 31, 202420242023202220212020PriorTotal
Construction:
Pass and Watch$13,915 $7,661 $17,794 $— $19,310 $— $— $58,680 
Special Mention— 12,814 — — — — — 12,814 
Total construction$13,915 $20,475 $17,794 $— $19,310 $— $— $71,494 
Home equity:
Pass and Watch$— $— $— $— $— $764 $85,149 $85,913 
Substandard82 — — — — 177 622 881 
Total home equity$82 $— $— $— $— $941 $85,771 $86,794 
Other residential:
Pass and Watch$— $17,765 $20,010 $13,295 $25,462 $36,947 $— $113,479 
Total other residential$— $17,765 $20,010 $13,295 $25,462 $36,947 $— $113,479 
Installment and other consumer:
Pass and Watch$3,379 $20,119 $13,769 $10,129 $4,489 $14,078 $1,003 $66,966 
Substandard— — — 141 — — — 141 
Total installment and other consumer$3,379 $20,119 $13,769 $10,270 $4,489 $14,078 $1,003 $67,107 
Gross current period charge-offs$— $(14)$— $(3)$— $— $— $(17)
Total loans:
Pass and Watch$43,364 $159,169 $277,748 $271,743 $250,156 $736,094 $160,942 $1,899,216 
Total Special Mention$— $13,200 $2,776 $23,800 $12,512 $47,216 $1,443 $100,947 
Total Substandard$360 $872 $2,201 $2,315 $— $40,917 $8,135 $54,800 
Totals$43,724 $173,241 $282,725 $297,858 $262,668 $824,227 $170,520 $2,054,963 
Total gross current period charge-offs$— $(14)$— $(3)$— $— $(4)$(21)
(in thousands)Term Loans - Amortized Cost by Origination YearRevolving Loans Amortized Cost
December 31, 202320232022202120202019PriorTotal
Commercial and industrial:
Pass and Watch$25,615 $9,187 $2,970 $3,718 $15,128 $21,004 $62,486 $140,108 
Special Mention— — — — 334 — 9,300 9,634 
Substandard— — — — 1,311 2,697 — 4,008 
Total commercial and industrial$25,615 $9,187 $2,970 $3,718 $16,773 $23,701 $71,786 $153,750 
Commercial real estate, owner-occupied:
Pass and Watch$13,128 $41,808 $49,887 $37,708 $40,994 $114,018 $56 $297,599 
Special Mention1,431 4,498 15,636 820 286 8,902 — 31,573 
Substandard— 2,231 — — — 1,778 — 4,009 
Total commercial real estate, owner-occupied$14,559 $48,537 $65,523 $38,528 $41,280 $124,698 $56 $333,181 
Commercial real estate, non-owner occupied:
Pass and Watch$76,718 $172,028 $196,340 $150,831 $139,860 $368,675 $9,832 $1,114,284 
Special Mention— 2,790 9,498 11,776 15,708 41,602 — 81,374 
Substandard878 272 2,204 — — 20,373 — 23,727 
Total commercial real estate, non-owner occupied$77,596 $175,090 $208,042 $162,607 $155,568 $430,650 $9,832 $1,219,385 
Construction:
Pass and Watch$13,138 $24,403 $19,521 $29,512 $— $— $— $86,574 
Special Mention12,590 — — — — — — 12,590 
Total construction$25,728 $24,403 $19,521 $29,512 $— $— $— $99,164 
Home equity:
Pass and Watch$— $— $— $— $— $734 $80,773 $81,507 
Substandard— — — — — 369 211 580 
Total home equity$— $— $— $— $— $1,103 $80,984 $82,087 
Other residential:
Pass and Watch$17,861 $20,114 $13,390 $25,637 $20,935 $20,571 $— $118,508 
Total other residential$17,861 $20,114 $13,390 $25,637 $20,935 $20,571 $— $118,508 
Installment and other consumer:
Pass and Watch$22,038 $14,528 $10,632 $4,687 $5,300 $9,399 $1,061 $67,645 
Total installment and other consumer$22,038 $14,528 $10,632 $4,687 $5,300 $9,399 $1,061 $67,645 
Total loans:
Pass and Watch$168,498 $282,068 $292,740 $252,093 $222,217 $534,401 $154,208 $1,906,225 
Total Special Mention$14,021 $7,288 $25,134 $12,596 $16,328 $50,504 $9,300 $135,171 
Total Substandard$878 $2,503 $2,204 $— $1,311 $25,217 $211 $32,324 
Totals$183,397 $291,859 $320,078 $264,689 $239,856 $610,122 $163,719 $2,073,720 


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The following table represents an analysisshows the amortized cost of the carrying amount in loans netby portfolio class, payment aging and non-accrual status as of deferred fees and costs and purchase premiums or discounts, by internally assigned risk grades, including PCI loans, at September 30, 2017March 31, 2024 and December 31, 2016.2023.
Loan Aging Analysis by Class
(in thousands)Commercial and industrialCommercial real estate, owner-occupiedCommercial real estate, non-owner occupiedConstructionHome equityOther residentialInstallment and other consumerTotal
March 31, 2024        
 30-59 days past due$13 $101 $872 $1,057 $360 $— $3 $2,406 
 60-89 days past due390 — — — — — — 390 
 90 days or more past due 1
29 140 10,292 — — — — 10,461 
Total past due432 241 11,164 1,057 360 — 3 13,257 
Current150,464 328,319 1,225,469 70,437 86,434 113,479 67,104 2,041,706 
Total loans 1
$150,896 $328,560 $1,236,633 $71,494 $86,794 $113,479 $67,107 $2,054,963 
Non-accrual loans 2
$2,220 $416 $3,045 $— $473 $— $141 $6,295 
Non-accrual loans with no allowance$— $416 $872 $— $473 $— $141 $1,902 
December 31, 2023        
 30-59 days past due$2,991 $618 $— $— $43 $83 $195 $3,930 
 60-89 days past due69 — 2,204 — — — 1 2,274 
 90 days or more past due 1
1,311 149 — — — — — 1,460 
Total past due4,371 767 2,204 — 43 83 196 7,664 
Current149,379 332,414 1,217,181 99,164 82,044 118,425 67,449 2,066,056 
Total loans 1
$153,750 $333,181 $1,219,385 $99,164 $82,087 $118,508 $67,645 $2,073,720 
Non-accrual loans 2
$4,008 $434 $3,081 $— $469 $— $— $7,992 
Non-accrual loans with no allowance$1,311 $434 $877 $— $469 $— $— $3,091 
1 There was one non-owner occupied commercial real estate loan 90 days past due and accruing interest as of March 31, 2024 that has been in extended renewal negotiations, but it is well-secured and expected to be restored to a current payment status in the near future. There were no non-performing loans over 90 days past due and accruing interest as of December 31, 2023.
Credit Risk Profile by Internally Assigned Risk Grade
(in thousands)Commercial and industrial
Commercial real estate, owner-occupied
Commercial real estate, investor
Construction
Home equity
Other residential
Installment and other consumer
Purchased credit-impaired
Total
September 30, 2017         
Pass$195,500
$244,100
$717,760
$73,210
$119,856
$96,937
$24,739
$2,272
$1,474,374
Special Mention6,153
10,437
—
—
—
—
—
—
16,590
Substandard16,991
9,055
2,818
2,969
1,413
—
237
—
33,483
Total loans$218,644
$263,592
$720,578
$76,179
$121,269
$96,937
$24,976
$2,272
$1,524,447
December 31, 2016 
 
 
 
 
 
 
 
 
Pass$201,987
$234,849
$720,417
$71,564
$115,680
$78,549
$25,083
$2,920
$1,451,049
Special Mention9,197
4,799
607
—
1,334
—
—
—
15,937
Substandard7,391
6,993
1,498
3,245
91
—
412
—
19,630
Total loans$218,575
$246,641
$722,522
$74,809
$117,105
$78,549
$25,495
$2,920
$1,486,616
Troubled Debt Restructuring
Our loan portfolio includes certain2 None of the non-accrual loans as of March 31, 2024 or December 31, 2023 were earning interest on a cash or accrual basis. We reversed $10 thousand in accrued interest income for loans that have been modified in a troubled debt restructuring (“TDR”), where economic concessions have been granted to borrowers experiencing financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRswere placed on non-accrual status atduring the timethree months ended March 31, 2024. We reversed accrued interest income of restructure may be returned to accruing$16 thousand for loans that were placed on non-accrual status after Management considersduring the borrower’s sustained repayment performance for a reasonable period, generally sixthree months and obtains reasonable assurance of repayment and performance.ended March 31, 2023.

A loan may no longer be reported as a TDR if all of the following conditions are met:Collateral Dependent Loans

The loan is subsequently refinanced or restructuredfollowing table presents the amortized cost basis of individually analyzed collateral-dependent loans, which were all on non-accrual status, by portfolio class at current market interest ratesMarch 31, 2024 and the new terms are consistent with the treatment of creditworthy borrowers under regular underwriting standards;December 31, 2023.
The borrower is no longer considered to be in financial difficulty;
Amortized Cost by Collateral Type
(in thousands)Commercial Real EstateResidential Real EstateBlanket LienOther
Total 1
Allowance for Credit Losses
March 31, 2024
Commercial real estate, owner-occupied$416 $— $— $— $416 $— 
Commercial real estate, non-owner occupied3,046 — — — 3,046 496 
Home equity— 473 — — 473 — 
Installment and other consumer— — — 141 141 — 
Total$3,462 $473 $— $141 $4,076 $496 
December 31, 2023
Commercial and industrial$1,311 $— $— $— $1,311 $— 
Commercial real estate, owner-occupied434 — — — 434 — 
Commercial real estate, non-owner occupied3,081 — — 3,081 408 
Home equity— 469 — — 469 — 
Total$4,826 $469 $— $— $5,295 $408 
Performance on the loan is reasonably assured; and;
Existing loan did not have any forgiveness of principal or interest.

The removal of TDR status must be approved by the same Management level that approved the upgrading of the loan classification. 1 There were no collateral-dependent residential real estate mortgage loans removed from TDR designation during 2017in process of foreclosure or in substance repossessed at March 31, 2024 and 2016.December 31, 2023. The weighted average loan-to-value of real estate secured collateral dependent loans was approximately 82% at March 31, 2024 and 70% at December 31, 2023.

Loan Modifications to Borrowers Experiencing Financial Difficulty

The following table summarizes the carrying amountamortized cost of TDR loans by loan class as of September 30, 2017March 31, 2024 that were modified during the three months ended March 31, 2024 by portfolio class and December 31, 2016.
(in thousands) 
Recorded investment in Troubled Debt Restructurings 1
September 30, 2017
December 31, 2016
Commercial and industrial$2,050
$2,207
Commercial real estate, owner-occupied6,999
6,993
Commercial real estate, investor2,193
2,256
Construction2,969
3,245
Home equity348
625
Other residential1,159
1,965
Installment and other consumer666
877
Total$16,384
$18,168
1 type of modification granted. There were no TDRmodifications of loans on non-accrual status at September 30, 2017 and Decemberduring the three months ended March 31, 2016.2023 requiring disclosure.

Page-19

(in thousands)Term ExtensionPercent of Portfolio Class Total
Three months ended March 31, 2024
Commercial and industrial$2,191 1.5 %
Home equity82 0.1 %
Total$2,273 


As of March 31, 2024, there were no unfunded loan commitments for loans that were modified during the period presented.

The following table presents information for loans modifiedsummarizes the financial effect of loan modifications presented in a TDRthe table above during the presented periods, includingthree months ended March 31, 2024 by portfolio class.
(in thousands)Weighted-Average Term Extension (in years)
Three months ended March 31, 2024
Commercial and industrial0.3
Home equity15.0

The loan modifications did not significantly impact the numberdetermination of contracts modified, the recorded investment in theallowance for credit losses on loans prior to modification, and the recorded investment in the loans after being restructured. The table excludes fully charged-off TDR loans and loans modified in a TDR and subsequently paid-off during the years presented.three months ended March 31, 2024.
(dollars in thousands)Number of Contracts Modified
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment at Period End
Troubled Debt Restructurings during the three months ended September 30, 2017:
None—
$—
$—
$—
Troubled Debt Restructurings during the three months ended September 30, 2016:




None—
$—
$—
$—

Troubled Debt Restructurings during the nine months ended
September 30, 2017:		    
Installment and consumer1
$50
$50
$49
Troubled Debt Restructurings during the nine months ended
September 30, 2016:		 
 
 
 
Commercial real estate, investor2
$1,830
$1,826
$1,808
Home equity 1
1
87
222
222
Total3
$1,917
$2,048
$2,030

1 The home equity TDR modification during the second quarter of 2016 included debt consolidation, which increased the post-modification balance.

The modificationsBank closely monitors the performance of the modified loans to understand the effectiveness of its modification efforts. The following table summarizes the amortized cost and payment status of loans as of March 31, 2024 that were modified during the ninethree months endedSeptember 30, 2017 and 2016 primarily involved interest rate concessions, renewals, and other changes to loan terms. During the first nine months of 2017 and 2016, there March 31, 2024 by portfolio class.

(in thousands)Current30-59 Days Past Due60-89 Days Past Due90 Days or More Past DueTotalNon-Accrual
Three months ended March 31, 2024
Commercial and industrial$2,191 $— $— $— $2,191 $2,191 
Home equity82 — — — 82 82 
Total$2,273 $— $— $— $2,273 $2,273 

There were no defaultsloans that defaulted (fully or partially charged-off or became 90 days or more past due) that were modified during the three months ended March 31, 2024.

Allocation of the Allowance for Credit Losses on Loans

The following table presents the details of the allowance for credit losses on loans that had been modified in a TDR within the prior twelve-month period. We report defaulted TDRs basedsegregated by loan portfolio class as of March 31, 2024 and December 31, 2023.

Allocation of the Allowance for Credit Losses on Loans
(in thousands)Commercial and industrialCommercial real estate, owner-occupiedCommercial real estate, non-owner occupiedConstructionHome equityOther residentialInstallment and other consumerUnallocatedTotal
March 31, 2024        
Modeled expected credit losses$940 $1,326 $7,744 $119 $559 $670 $655 $— $12,013 
Qualitative adjustments628 1,174 6,767 1,163 68 22 265 2,049 12,136 
Specific allocations159 — 1,193 — — — — — 1,352 
Total$1,727 $2,500 $15,704 $1,282 $627 $692 $920 $2,049 $25,501 
December 31, 2023        
Modeled expected credit losses$897 $1,270 $7,380 $185 $482 $619 $634 $— $11,467 
Qualitative adjustments622 1,205 6,327 1,647 70 33 342 2,038 12,284 
Specific allocations193 1 1,226 — — 1 — — 1,421 
Total$1,712 $2,476 $14,933 $1,832 $552 $653 $976 $2,038 $25,172 

Page-20
Allowance for Credit Losses on a payment default definition of more than ninety days past due.Loans Rollforward

Impaired Loans


The following tables summarize information by class on impaired loans and their related allowances. Total impaired loans include non-accrual loans, accruing TDR loans and accreting PCI loans that have experienced post-acquisition declines in cash flows expected to be collected.


(in thousands)Commercial and industrial
Commercial real estate, owner-occupied
Commercial real estate, investor
Construction
Home equity
Other residential
Installment and other consumer
Total
September 30, 2017 
 
 
 
 
 
 
Recorded investment in impaired loans:      
With no specific allowance recorded$311
$—
$1,024
$2,691
$292
$998
$47
$5,363
With a specific allowance recorded1,740
6,999
2,193
278
348
160
619
12,337
Total recorded investment in impaired loans$2,051
$6,999
$3,217
$2,969
$640
$1,158
$666
$17,700
Unpaid principal balance of impaired loans$2,030
$6,993
$3,230
$2,963
$637
$1,157
$665
$17,675
Specific allowance35
84
369
5
6
2
85
586
Average recorded investment in impaired loans during the quarter ended
September 30, 2017		2,063
7,000
3,236
3,104
607
1,164
802
17,976
Interest income recognized on impaired loans during the quarter ended
September 30, 2017 1
27
67
22
39
5
14
9
183
Average recorded investment in impaired loans during the nine months ended
September 30, 2017		2,100
6,998
3,010
3,174
660
1,367
871
18,180
Interest income recognized on impaired loans during the nine months ended
September 30, 2017 1
74
199
65
110
19
48
29
544
Average recorded investment in impaired loans during the quarter ended
September 30, 2016		3,352
7,169
3,146
3,238
1,140
1,981
1,113
21,139
Interest income recognized on impaired loans during the quarter ended
September 30, 2016 1
44
67
1,385
32
38
22
12
1,600
Average recorded investment in impaired loans during the nine months ended
September 30, 2016		3,802
7,081
3,397
3,238
1,098
1,993
1,179
21,788
Interest income recognized on impaired loans during the nine months ended
September 30, 2016 1
142
133
1,489
105
48
67
37
2,021
1 No interest income on impaired loans was recognized on a cash basis during the three and nine months ended September 30, 2017. Interest income recognized on a cash basis totaled $1.4 million for the three and nine months ended September 30, 2016 and was primarily related to an interest recovery upon the pay-off of a partially charged-off non-accrual commercial real estate loan during the third quarter.
(in thousands)Commercial and industrial
Commercial real estate, owner-occupied
Commercial real estate, investor
Construction
Home equity
Other residential
Installment and other consumer
Total
December 31, 2016 
 
 
 
 
 
 
Recorded investment in impaired loans: 
 
 
 
 
 
With no specific allowance recorded$315
$—
$—
$2,692
$91
$1,008
$103
$4,209
With a specific allowance recorded1,892
6,993
2,256
553
624
957
829
14,104
Total recorded investment in impaired loans$2,207
$6,993
$2,256
$3,245
$715
$1,965
$932
$18,313
Unpaid principal balance of impaired loans$2,177
$6,993
$2,252
$3,238
$713
$1,965
$932
$18,270
Specific allowance$285
$163
$375
$8
$7
$55
$98
$991

Management monitors delinquent loans continuously and identifies problem loans, generally loans graded substandard or worse, loans on non-accrual status and loans modified in a TDR, to be evaluated individually for impairment testing. Generally, the recorded investment in impaired loans is net of any charge-offs from estimated losses related to specifically-identified impaired loans when they are deemed uncollectible. There were no charged-off portions of impaired loans outstanding at September 30, 2017 and December 31, 2016. In addition, the recorded investment in impaired loans is net of purchase discounts or premiums on acquired loans and deferred fees and costs. At September 30, 2017 and December 31, 2016, respectively, unused commitments to extend credit on impaired loans, including performing loans to borrowers whose terms have been modified in TDRs, totaled $1.1 million and $1.6 million.

The following tables disclosetable discloses activity in the allowance for loancredit losses ("ALLL") andon loans for the recorded investment in loans by class, as well as the related ALLL disaggregated by impairment evaluation method.periods presented.

Allowance for Credit Losses on Loans Rollforward
(in thousands)Commercial and industrialCommercial real estate, owner-occupiedCommercial real estate, non-owner occupiedConstructionHome equityOther residentialInstallment and other consumerUnallocatedTotal
Three months ended March 31, 2024
Beginning balance$1,712 $2,476 $14,933 $1,832 $552 $653 $976 $2,038 $25,172 
(Reversal) Provision19 24 771 (550)75 39 (39)11 350 
(Charge-offs)(4)— — — — — (17)— (21)
Recoveries— — — — — — — — — 
Ending balance$1,727 $2,500 $15,704 $1,282 $627 $692 $920 $2,049 $25,501 
Three months ended March 31, 2023
Beginning balance$1,794 $2,487 $12,676 $1,937 $558 $595 $868 $2,068 $22,983 
Provision (Reversal)147 153 25 74 (20)(18)25 (36)350 
(Charge-offs)(3)— — — — — (11)— (14)
Recoveries3 — — 8 — — — — 11 
Ending balance$1,941 $2,640 $12,701 $2,019 $538 $577 $882 $2,032 $23,330 


Allowance for Loan Losses Rollforward for the Period
(in thousands)Commercial and industrial
Commercial real estate, owner-occupied
Commercial real estate, investor
Construction
Home equity
Other residential
Installment and other consumer
Unallocated
Total
Three months ended September 30, 2017






Beginning balance$3,932
$2,082
$6,065
$411
$981
$509
$340
$912
$15,232
Provision (reversal)612
(56)33
217
21
33
(5)(855)—
Charge-offs(5)—
—
—
—
—
(1)—
(6)
Recoveries21
—
—
—
—
—
1
—
22
Ending balance$4,560
$2,026
$6,098
$628
$1,002
$542
$335
$57
$15,248
Three months ended September 30, 2016       
Beginning balance$2,637
$1,631
$6,595
$831
$1,076
$426
$437
$1,454
$15,087
Provision (reversal)828
(10)(2,416)105
(125)22
(73)119
(1,550)
Charge-offs—
—
—
—
—
—
—
—
—
Recoveries29
—
2,146
—
1
—
—
—
2,176
Ending balance$3,494
$1,621
$6,325
$936
$952
$448
$364
$1,573
$15,713
Allowance for Loan Losses Rollforward for the Period
(in thousands)Commercial and industrial
Commercial real estate, owner-occupied
Commercial real estate, investor
Construction
Home equity
Other residential
Installment and other consumer
Unallocated
Total
Nine months ended September 30, 2017       
Allowance for loan losses:       
Beginning balance$3,248
$1,753
$6,320
$781
$973
$454
$372
$1,541
$15,442
Provision (reversal)1,509
273
(222)(153)29
88
(40)(1,484)—
Charge-offs(289)—
—
—
—
—
(3)—
(292)
Recoveries92
—
—
—
—
—
6
—
98
Ending balance$4,560
$2,026
$6,098
$628
$1,002
$542
$335
$57
$15,248
Nine months ended September 30, 2016       
Allowance for loan losses:       
Beginning balance$3,023
$2,249
$6,178
$724
$910
$394
$425
$1,096
$14,999
Provision (reversal)388
(628)(2,009)212
40
54
(84)477
(1,550)
Charge-offs(9)—
—
—
—
—
(4)—
(13)
Recoveries92
—
2,156
—
2
—
27
—
2,277
Ending balance$3,494
$1,621
$6,325
$936
$952
$448
$364
$1,573
$15,713
          


Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands)Commercial and industrial
Commercial real estate, owner-occupied
Commercial real estate, investor
Construction
Home equity
Other residential
Installment and other consumer
Unallocated
Total
September 30, 2017
Ending ALLL related to loans collectively evaluated for impairment$4,525
$1,942
$5,729
$623
$996
$540
$250
$57
$14,662
Ending ALLL related to loans individually evaluated for impairment35
84
369
5
6
2
85
—
586
Ending ALLL related to purchased credit-impaired loans—
—
—
—
—
—
—
—
—
Ending balance$4,560
$2,026
$6,098
$628
$1,002
$542
$335
$57
$15,248
Recorded Investment: 
 
 
 
 
  
Collectively evaluated for impairment$216,594
$256,593
$717,361
$73,210
$120,629
$95,778
$24,310
$—
$1,504,475
Individually evaluated for impairment2,050
6,999
3,217
2,969
640
1,159
666
—
17,700
Purchased credit-impaired37
1,140
998
—
97
—
—
—
2,272
Total$218,681
$264,732
$721,576
$76,179
$121,366
$96,937
$24,976
$—
$1,524,447
Ratio of allowance for loan losses to total loans2.09%0.77%0.85%0.82%0.83%0.56%1.34%NM
1.00%
Allowance for loan losses to non-accrual loansNM
NM
596%NM
343%NM
NM
NM
1,159%
NM - Not Meaningful
Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands)Commercial and industrial
Commercial real estate, owner-occupied
Commercial real estate, investor
Construction
Home equity
Other residential
Installment and other consumer
Unallocated
Total
December 31, 2016
Ending ALLL related to loans collectively evaluated for impairment$2,963
$1,590
$5,945
$773
$966
$399
$274
$1,541
$14,451
Ending ALLL related to loans individually evaluated for impairment285
163
375
8
7
55
98
—
991
Ending ALLL related to purchased  credit-impaired loans—
—
—
—
—
—
—
—
—
Ending balance$3,248
$1,753
$6,320
$781
$973
$454
$372
$1,541
$15,442
Recorded Investment: 
 
 
 
 
 
 
Collectively evaluated for impairment$216,368
$239,648
$720,266
$71,564
$116,390
$76,584
$24,563
$—
$1,465,383
Individually evaluated for impairment2,207
6,993
2,256
3,245
715
1,965
932
—
18,313
Purchased credit-impaired40
1,072
1,706
—
102
—
—
—
2,920
Total$218,615
$247,713
$724,228
$74,809
$117,207
$78,549
$25,495
$—
$1,486,616
Ratio of allowance for loan losses to total loans1.49%0.71%0.87%1.04%0.83%0.58%1.46%NM
1.04%
Allowance for loan losses to non-accrual loansNM
NM
NM
NM
1,071%NM
683%NM
10,650%
NM - Not Meaningful

Purchased Credit-Impaired Loans
Acquired loans are considered credit-impaired if there is evidence of significant deterioration of credit quality since origination and it is probable, at the acquisition date, that we will be unable to collect all contractually required payments receivable. Management has determined certain loans purchased in our two bank acquisitions to be PCI loans based on credit indicators such as nonaccrual status, past due status, loan risk grade, loan-to-value ratio, etc. Revolving credit agreements (e.g., home equity lines of credit and revolving commercial loans) are not considered PCI loans as cash flows cannot be reasonably estimated.


The following table reflects the unpaid principal balance and related carrying value of PCI loans.
PCI LoansSeptember 30, 2017December 31, 2016

(in thousands)
Unpaid Principal Balance
Carrying Value
Unpaid Principal Balance
Carrying Value
Commercial and industrial$37
$37
$45
$40
Commercial real estate, owner occupied1,309
1,140
1,344
1,072
Commercial real estate, investor998
998
1,713
1,706
Home equity236
97
248
102
Total purchased credit-impaired loans$2,580
$2,272
$3,350
$2,920
The activities in the accretable yield, or income expected to be earned over the remaining lives of the PCI loans were as follows:
Accretable YieldThree months endedNine months ended
(in thousands)September 30, 2017September 30, 2016September 30, 2017September 30, 2016
Balance at beginning of period$1,306
$1,655
$1,476
$2,618
Removals 1
—
—
—
(778)
Accretion(76)(89)(246)(274)
Reclassifications from nonaccretable difference 2
—
—
—
—
Balance at end of period$1,230
$1,566
$1,230
$1,566
1 Represents the accretable difference that is relieved when a loan exits the PCI population due to pay-off, full charge-off, or transfer to repossessed assets, etc.
2 Primarily relates to changes in expected credit performance and changes in expected timing of cash flows.

Pledged Loans

Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $872.0 million$1.299 billion and $869.2 million$1.288 billion at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively. In addition, we pledge a certain residential loan portfolio,eligible TIC loans, which totaled $67.5$108.5 million and $54.6$110.4 million at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB"). AlsoFor additional information, see Note 6, Borrowings.

Related Party Loans
 
The Bank has, and expects to have in the future, banking transactions in the ordinary course of its business with directors, officers, principal shareholders and their businesses or associates. These transactions, including loans, are granted on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with persons not related to us. Likewise, these transactions do not involve more than the normal risk of collectability or present other unfavorable features. During the first quarter of 2017, a new director joined our Board of Directors resulting

The following table shows changes in the reclassification of existingnet loans to related parties for each of the director's business to related party status. three years ended March 31, 2024.
Related party loans totaled $8.7$5.8 million at September 30, 2017 compared to $2.0 million atas of both March 31, 2024 and December 31, 2016.2023. In addition, undisbursed commitments to related parties totaled $9.2 million and $1.1 million at September 30, 2017$212 thousand as of both March 31, 2024 and December 31, 2016, respectively.2023.


Note 6: Borrowings and Other Obligations
 
Federal Home Loan Bank: The Bank had lines of credit with the FHLB totaling $951.2 million and $1.009 billion as of March 31, 2024 and December 31, 2023, respectively, based on eligible collateral of certain loans and investment securities.

Federal Funds Purchased –Lines of Credit: The Bank had unsecured lines of credit totaling $92.0 million with correspondent banks for overnight borrowings at both September 30, 2017totaling $125.0 million and $135.0 million as of March 31, 2024 and December 31, 2016.2023, respectively.  In general, interest rates on these lines approximate the federal funds target rate. We had no overnight borrowings under these credit facilities at September 30, 2017 or December 31, 2016.

Federal Home Loan Bank Borrowings – As of September 30, 2017 and December 31, 2016, theReserve Bank: The Bank had lines of credit with the FHLB totaling $525.1 million and $513.7 million, respectively, based on eligible collateral of certain loans. We had no FHLB overnight borrowings at September 30, 2017or December 31, 2016.
Federal Reserve Line of Credit – The Bank has a line of credit withthrough the Discount Window at the Federal Reserve Bank of San Francisco ("FRBSF") totaling $350.0 million as of March 31, 2024, secured by certaininvestment securities and residential loans. At September 30, 2017As of December 31, 2023, the Bank had a line of credit through the Discount Window totaling $64.0 million, secured by residential loans, and a $270.2 million line under the Federal Reserve's temporary Bank Term Funding Program ("BTFP") based on the par values of pledged investment securities. When the BTFP program ended on March 11, 2024, the investment securities were used to collateralize borrowings through the Discount Window.

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Other Obligations: Finance lease liabilities totaling $260 thousand and $298 thousand as of March 31, 2024 and December 31, 2016,2023, respectively, are included in borrowings and other obligations in the Bank hadconsolidated statements of condition. Refer to Note 8, Commitments and Contingencies, for additional information.



borrowing capacity under this line totaling $52.1 millionThe carrying values and $43.1 million, respectively,weighted average interest rates on borrowings and had no outstanding borrowings with the FRBSF.

As partother obligations as of an acquisition, Bancorp assumed two subordinated debentures due to NorCal Community Bancorp Trusts I and II (the "Trusts"), established for the sole purpose of issuing trust preferred securities on September 22, 2003March 31, 2024 and December 29, 2005, respectively. The trust preferred securities were sold and issued in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended. Bancorp has guaranteed, on a subordinated basis, distributions and other payments due on trust preferred securities totaling $8.0 million issued by the Trusts which have identical maturity, repricing and payment terms as the subordinated debentures. The subordinated debentures were recorded at fair values totaling $4.95 million at acquisition date with contractual values totaling $8.2 million. The difference between the contractual balance and the fair value at acquisition date is accreted into interest expense over the lives of the debentures. Accretion on the subordinated debentures totaled $117 thousand and $145 thousand31, 2023 are summarized in the first nine months of 2017 and 2016, respectively. Bancorp has the option to defer payment of the interest on the subordinated debentures for a period of up to five years, as long as there is no default on the subordinated debentures. In the event of interest deferral, dividends to Bancorp common stockholders are prohibited. following table.

March 31, 2024December 31, 2023
(dollars in thousands)Carrying ValueWeighted
Average Rate		Carrying ValueWeighted Average Rate
FHLB short-term borrowings$— — %$— — %
Federal funds lines of credit— — %— — %
FRBSF federal funds purchased— — %— — %
FRBSF short-term borrowings under the BTFP— — %26,000 5.30 %
Other obligations (finance leases)260 2.14 %298 1.88 %
Total borrowings and other obligations$260 2.14 %$26,298 5.26 %
The following is a summary of the contractual terms of the subordinated debentures due to the Trusts as of September 30, 2017:
(in thousands) 
Subordinated debentures due to NorCal Community Bancorp Trust I on October 7, 2033 with interest payable quarterly, based on 3-month LIBOR plus 3.05%, repricing quarterly (4.35% as of September 30, 2017), redeemable, in whole or in part, on any interest payment date$4,124
Subordinated debentures due to NorCal Community Bancorp Trust II on March 15, 2036 with interest payable quarterly, based on 3-month LIBOR plus 1.40%, repricing quarterly (2.72% as of September 30, 2017), redeemable, in whole or in part, on any interest payment date4,124
   Total$8,248

Note 7:  Stockholders' Equity

Dividends

Presented below is a summary of cash dividends paid to common shareholders, recorded as a reduction of retained earnings.
 Three months ended Nine months ended
(in thousands, except per share data)September 30, 2017September 30, 2016 September 30, 2017September 30, 2016
Cash dividends to common stockholders$1,788
$1,528
 $5,103
$4,573
Cash dividends per common share$0.29
$0.25
 $0.83
$0.75

The Board of DirectorsOn January 25, 2024, Bancorp declared a $0.25 per share cash dividend, of $0.29 per share on October 20, 2017 payable on November 10, 2017paid February 15, 2024 to shareholders of record at the close of business on November 3, 2017.February 8, 2024. Subsequent to quarter end on April 25, 2024, Bancorp declared a $0.25 per share cash dividend, payable on May 16, 2024 to shareholders of record at the close of business on May 9, 2024.

A Rights Agreement filed with the SEC on July, 7, 2017, is designed to discourage takeovers that involve abusive tactics or do not provide fair value to shareholders. Each right entitles the registered holder to purchase from Bancorp one one-hundredth of a share of Series A Junior Participating Preferred Stock, no par value, of Bancorp at a price of $90 per one one-hundredth of a preferred share, subject to adjustment. The new Rights Agreement, which expires on July 23, 2022, replaces the previous Rights Agreement, which expired on July 23, 2017. The description and terms of the rights are set forth in the Rights Agreement.


Share-Based Payments

The fair value of stock options as of the grant date is recorded as stock-based compensation expense in the consolidated statements of comprehensive income over the requisite service period, which is generally the vesting period, with a corresponding increase in common stock. Stock-based compensation also includes compensation expense related to the issuance of unvested restricted stock awards and performance-based stock awards pursuant to the 2007 Equity Plan.awards. The grant-date fair value of the restricted stock awards, and performance-based stock awards, which is equal toequals the intrinsic value on thatgrant date price, is


being recorded as compensation expense over the requisite service period with a corresponding increase in common stock as the shares vest. Stock options and restricted stock awards issued include a retirement eligibility clause whereby the requisite service period is satisfied at the retirement eligibility date. For those awards, we accelerate the recording of stock-based compensation when the award holder is eligible to retire. However, retirement eligibility does not affect the vesting of restricted stock or the exercisability of the stock options, which are based on the scheduled vesting period.


Performance-based stock awards (restricted stock) are issued to a selected group of employees. Stock award vesting is contingent upon the achievement of pre-established long-term performance goals set by the Compensation Committee of the Board of Directors. Performance is measured over a three-year period and the stock awards cliff vest.vested. These performance-based stock awards were granted at a maximum opportunity level, and based on the achievement of the pre-established goals, the actual payouts can range from 0% to 200% of the target award. For performance-based stock awards, an estimate is made of the number of shares expected to vest based on the probability that the performance criteria will be achieved to determine the amount of compensation expense to be recognized. The estimate is re-evaluated quarterly and total compensation expense is adjusted for any change in the current period.


We adopted ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting effective January 1, 2017 as discussed in Note 2, which requires us to record excess tax benefits (deficiencies) resulting from the exercise of non-qualified stock options, the disqualifying disposition of incentive stock options and vesting of restricted stock awards as income tax benefits (expense) in the consolidated statements of comprehensive income with a corresponding decrease (increase) to current taxes payable. Previous to the adoption of this ASU, excess tax benefits (deficiencies) were recognized as an increase to common stock in the consolidated statements of changes in stockholders' equity.

The holders of unvested restricted stock awards and performance-based stock awards are entitled to dividends on the same per-share ratio as holders of common stock. Upon the adoption of the above ASU, taxTax benefits onfor dividends paid on unvested restricted stock awards are recorded as tax benefits in the consolidated statements of comprehensive income with a corresponding decrease to current taxes payable. Dividends on forfeited awards are included in stock-based compensation expense. Previous to the adoption of the ASU, tax benefits on dividends were recognized as an increase to common

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Stock options and restricted stock in the consolidated statements of changes in stockholders' equity.

On March 17, 2017, the Board of Directors approved the 2017 Equity Plan, which was affirmed by Bancorp's shareholders on May 16, 2017 and replaced the 2007 Equity Plan. As of the 2017 Equity Plan's effective date, there were 118,668 shares available for future grants, which represented the remaining shares available under the 2007 Equity Plan. There were no material differences in the design, terms or conditions of the 2017 and 2007 Equity Plans. The available shares do not include shares to be issued upon the exercise of the substitution stock options by the Bank of Napa option holders, whose options will be converted into options to purchase our shares, pending the completion of the merger as discussed in Note 10 herein.
Under the 2017 Equity Plan, stock options may be net settled in a cashless exercise by a reduction in the number of shares otherwise deliverable upon exercise or vesting in satisfaction of the exercise payment andand/or applicable tax withholding requirements. During the first nine months of 2017, we withheld 11,938 shares totaling $782 thousand at a weighted-average price of $65.50 for cashless stock option exercises. There were no stock options exercised under net settlement arrangements in 2016. Shares withheld under net settlement arrangements are available for future grants undergrants. The table below depicts the 2017 Equity Plan.total number of shares, amount, and weighted average price withheld for cashless exercises for the periods presented.

Three Months Ended
March 31, 2024March 31, 2023
Number of shares withheld3,338 2,847 
Total amount withheld (in thousands)$55 $82 
Weighted-average price$16.62 $28.74 

Share Repurchase Program

On July 21, 2023, the Board of Directors approved the adoption of Bancorp's new share repurchase program for up to $25.0 million and expiring on July 31, 2025. There have been no repurchases to date in 2024 or in 2023.
.

Note 8:  Commitments and ContingenciesContingent Liabilities

Financial Instruments with Off-Balance Sheet Risk

We make commitments to extend credit in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit in the form of loans or through standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because various commitments will expire without being fully drawn, upon, the total commitment amount does not necessarily represent future cash requirements.

We are exposed toOur credit loss exposure is equal to the contractual amount of the commitment in the event of nonperformance by the borrower. We use the same credit underwriting criteria for all credit exposure. The amount of collateral obtained, if deemed necessary by us, is based on Management'smanagement's credit evaluation of the borrower. Collateral types pledged may include accounts receivable, inventory, other personal property and real property.

The contractual amount of undrawnunfunded loan commitments and standby letters of credit not reflected onin the consolidated statements of condition are as follows:

(in thousands)March 31, 2024December 31, 2023
Commercial lines of credit$250,602 $259,989 
Revolving home equity lines216,387 218,935 
Undisbursed construction loans10,176 13,943 
Personal and other lines of credit9,132 9,136 
Standby letters of credit3,147 3,147 
   Total unfunded loan commitments and standby letters of credit$489,444 $505,150 

(in thousands)September 30, 2017
December 31, 2016
Commercial lines of credit$198,160
$216,774
Revolving home equity lines160,935
148,143
Undisbursed construction loans34,266
44,798
Personal and other lines of credit11,735
10,635
Standby letters of credit1,773
1,939
   Total commitments and standby letters of credit$406,869
$422,289


We record an allowance for credit losses on these off-balanceunfunded loan commitments at the balance sheet commitmentsdate based on an estimateestimates of probabilities ofthe probability that these commitments beingwill be drawn upon according to our historical utilization experience onof the different types of commitments and expected loss. We set aside anloss rates determined for pooled funded loans. The allowance for credit losses on off-balance sheetunfunded commitments in the amount of $957 thousand and $899 thousand as of September 30, 2017totaled $1.1 million at both March 31, 2024 and December 31, 2016, respectively,2023, which is recordedincluded in interest payable and other liabilities onin the consolidated statements of condition. There was no provision for credit losses on unfunded loan commitments in the first quarter of 2024. The $174 thousand reversal of the provision for credit losses on unfunded loan commitments in the first quarter of 2023 was due primarily to a $37.4 million decrease in total unfunded commitments.


Operating Leases

We rent certainlease premises under long-term non-cancelable operating leases expiring at various dates throughwith remaining terms of 30 days to 18 years, 5 months, most of which include escalation clauses and one or more options to extend the year 2032. Mostlease term, and some of the leases
Page-23
which contain lease termination clauses. Lease terms may include certain renewal options that were considered reasonably certain to be exercised.

We lease certain equipment under finance leases with initial terms of 3 years to 5 years. The equipment finance leases do not contain renewal options, bargain purchase options or residual value guarantees.

The following table shows the balances of operating and escalation clauses. At September 30, 2017,finance lease right-of-use assets and lease liabilities.
(in thousands)March 31, 2024December 31, 2023
Operating leases:
Operating lease right-of-use assets$21,553 $20,316 
Operating lease liabilities$24,150 $22,906 
Finance leases:
Finance lease right-of-use assets$608 $608 
Accumulated amortization(356)(319)
Finance lease right-of-use assets, net1
$252 $289 
Finance lease liabilities 2
$260 $298 
1 Included in premises and equipment in the consolidated statements of condition.
2 Included in borrowings and other obligations in the consolidated statements of condition.

The following table shows supplemental disclosures of noncash investing and financing activities for the approximate minimum future commitments payable under non-cancelable contracts for leased premises are as follows:periods presented.
Three months ended
(in thousands)March 31, 2024March 31, 2023
Right-of-use assets obtained in exchange for operating lease liabilities$2,417 $— 

(in thousands)2017
2018
2019
2020
2021
Thereafter
Total
Operating leases1
$984
$3,932
$3,739
$3,420
$2,138
$4,234
$18,447
The following table shows components of operating and finance lease cost.
1 Minimum payments have not been reduced by minimum sublease rentals of $76 thousand due in
Three months ended
(in thousands)March 31, 2024March 31, 2023
Operating lease cost 1
$1,318 $1,610 
Finance lease cost:
Amortization of right-of-use assets 2
$37 $37 
Interest on finance lease liabilities 3
1 2 
Total finance lease cost$38 $39 
Total lease cost$1,356 $1,649 
1 Included in occupancy and equipment expense in the consolidated statements of comprehensive income.
2 Included in depreciation and amortization in the consolidated statements of comprehensive income.
3 Included in interest on borrowings and other obligations in the consolidated statements of comprehensive income.

The following table shows the future minimum lease payments, weighted average remaining lease terms, and weighted average discount rates under non-cancelable subleases.operating and finance lease arrangements as of March 31, 2024. The discount rates used to calculate the present value of lease liabilities were based on the collateralized FHLB borrowing rates that were commensurate with lease terms and minimum payments on the lease commencement date.

(in thousands)March 31, 2024
YearOperating LeasesFinance Leases
2024$3,630 $117 
20254,295 108 
20263,561 37 
20273,291 5 
20282,910 — 
Thereafter9,856 — 
Total minimum lease payments27,543 267 
Amounts representing interest (present value discount)(3,393)(7)
Present value of net minimum lease payments (lease liability)$24,150 $260 
Weighted average remaining term (in years)8.02.0
Weighted average discount rate2.72 %2.14 %
Rent expense included in occupancy expense totaled $3.0 million and $2.8 million for the nine months ended September 30, 2017 and 2016, respectively.
Page-24

Litigation Matters


General

WeBancorp may be party to legal actions whichthat arise from time to time duringin the normal course of business. We believe, after consultation withBancorp's management is not aware of any pending legal counsel,proceedings to which either it or the Bank may be a party or has recently been a party that litigation contingent liability, if any, would notwill have a material adverse effect on our consolidatedthe financial position,condition or results of operations of Bancorp or cash flows.the Bank.


Visa U.S.A. (Covered Litigation)

We areThe Bank is responsible for oura proportionate share of certain litigation indemnifications provided to Visa U.S.A. ("Visa") by its member banks in connection with Visa's lawsuits related to anti-trust charges and interchange fees ("Covered Litigation"). We sold our remaining shares on July 13, 2023, however our proportionate share of the litigation indemnification liability does not change or transfer upon the sale of our Class B Visa maintainsshares to member banks or, per the terms of the sale, to the recent purchaser of our shares. Visa established an escrow account from which settlements of, or judgments in, the Covered Litigation are paid. While the accrual related to the Covered Litigation could be higher or lower than the litigation escrow account balance, Visa did not record an additional accrual for the Covered Litigation during 2017. At June 30, 2017, accordingthat it periodically funds, which is expected to cover the latest SEC Form 10-Q filed by Visa, Inc. on July 20, 2017, the balance of the escrow account was $978.0 million. In 2012, Visa reached a $4.0 billion interchange multidistrict litigation class settlement agreement. However, in February 2017, a number of class plaintiffs sought to either file an amended complaint for damages or file a new class complaint against Visa claiming for putative injunction relief. Visa has reached settlement agreements with individual merchants representing 34% of the sales volume of merchants who opted out of the 2012 Settlement Agreement. payment obligations.

Litigation is ongoing and until the appealcourt approval process is complete, Visathere is uncertain whether itno assurance that Visa will resolve the claims as contemplated by the amended class settlement agreement, and additional lawsuits may arise. Thearise from individual merchants who opted out of the class settlement. However, until the escrow account is fully depleted and the conversion rate of Visa Class B common stock held by us to Class A common stock (as discussed in Note 4, Investment Securities) may decrease if Visa makes more Covered Litigation settlement payments in the future, and the full effect on member banks is still uncertain. However, we are not aware of significantreduced to zero, no future cash settlement payments are required by the member banks, such as us, on the Covered Litigation. Therefore, we are not required to record any contingent liabilities for the indemnification related to the Covered Litigation, as we consider the probability of losses to be remote.




Note 9: Derivative Financial Instruments and Hedging Activities


We have enteredThe Bank is exposed to certain risks from both its business operations and changes in economic conditions. As part of our asset/liability and interest rate risk management strategy, we may enter into interest rate swapderivative contracts to modify repricing characteristics of certain of our interest-earning assets and interest-bearing liabilities. The Bank generally designates interest rate hedging agreements primarily as an asset/liability management strategy, in order to mitigate the changesutilized in the fair valuemanagement of specified long-term fixed-rate loans (or firm commitments to enter into long-term fixed-rate loans) caused by changes in interest rates. These hedges allow us to offer long-term fixed-rate loans to customers without assuming the interest rate risk of a long-term asset. Converting our fixed-rate interest payments to floating-rate interest payments, generally benchmarked to the one-month U.S. dollar LIBOR index, protects us against changes in theas either fair value of our loans associated with fluctuating interest rates.hedges or cash flow hedges.


Our credit exposure, if any, on interest rate swap asset positions is limited to the fair value (net of any collateral pledged to us) and interest payments of all swaps by each counterparty. Conversely, when an interest rate swap is in a liability position exceeding a certain threshold, we may be required to post collateral to the counterparty in an amount determined by the agreements. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values.


As of September 30, 2017, we had fiveOn July 7, 2023, the Bank entered into various interest rate swap agreements with notional values totaling $101.8 million split evenly between terms of 2.5 and 3.0 years to hedge balance sheet interest rate sensitivity and protect certain of our fixed rate available-for-sale securities against changes in fair value related to changes in the benchmark interest rate. The interest rate swaps involve the receipt of floating rate interest from a counterparty in exchange for us making fixed-rate interest payments over the lives of the agreements, without the exchange of the underlying notional values. The transactions were designated as partial term fair value hedges and structured such that the changes in the fair value of the interest rate swaps are expected to be perfectly effective in offsetting the changes in the fair value of the hedged items attributable to changes in the SOFR OIS swap rate, the designated benchmark interest rate. Because the hedges met the criteria for using the shortcut method, there is no need to periodically reassess effectiveness during the term of the hedges. For fair value designated hedges, the gains or losses on the hedging instruments as well as the offsetting loss or gain on the hedged items, are recognized in current earnings as their fair values change.

In addition, we had three interest rate swap agreements on certain loans with our customers, which are scheduled to mature inat various dates ranging from June 2031 to July 2032. In December 2023, one interest rate swap, scheduled to mature in October 2031, July 2032, August 2037, and October 2037. All of our derivatives are accounted forwas terminated as the hedged loan was paid off. The loan interest rate swaps were designated as fair value hedges.hedges and allowed us to offer long-term fixed-rate loans to customers without assuming the interest rate risk of a long-term asset. Converting our fixed-rate interest payments to floating-rate interest payments, generally benchmarked to the one-month U.S. dollar SOFR index, protects us against changes in the fair value of our loans associated with fluctuating interest rates. The notional amounts of the interest rate contracts are equal to the notional amounts of the hedged loans. Our interest rate swap payments are settled monthly with counterparties. Accrued interest on the swaps totaled $9 thousand and $13 thousand as of September 30, 2017 and December 31, 2016, respectively.



Page-25
Information on our derivatives follows:
Asset derivativesLiability derivatives
(in thousands)March 31,
2024		December 31, 2023March 31,
2024		December 31, 2023
Available-for-sale securities:
Interest rate swaps - notional amount$— $— $101,770 $101,770 
Interest rate swaps - fair value1
$— $— $142 $1,359 
Loans receivable:
Interest rate contracts - notional amount$8,366 $6,441 $— $2,157 
Interest rate contracts - fair value1
$400 $287 $— $2 
 Asset derivatives Liability derivatives
(in thousands)September 30, 2017December 31, 2016 September 30, 2017December 31, 2016
Fair value hedges:     
Interest rate contracts notional amount$4,070
$4,217
 $14,984
$15,495
Interest rate contracts fair value1
$38
$55
 $909
$933
 
  Three months ended
(in thousands) September 30, 2017September 30, 2016
Increase in value of designated interest rate swaps due to LIBOR interest rate movements recognized in interest income $25
$241
Payment on interest rate swaps recorded in interest income $(76)$(132)
Decrease in value of hedged loans recognized in interest income $(43)$(268)
Decrease in value of yield maintenance agreement recognized against interest income $(4)$(67)
Net loss on derivatives recognized against interest income 2
 $(98)$(226)
      
    Nine months ended
(in thousands) September 30, 2017September 30, 2016
Increase (decrease) in value of designated interest rate swaps due to LIBOR interest rate movements recognized in interest income $7
$(825)
Payment on interest rate swaps recorded in interest income $(261)$(445)
Increase in value of hedged loans recognized in interest income $35
$1,022
Decrease in value of yield maintenance agreement recognized against interest income $(11)$(90)
Net loss on derivatives recognized against interest income 2
 $(230)$(338)
      
1 SeeRefer to Note 3,Fair Value of Assets and Liabilities,, for valuation methodology.
2 Includes
The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge ineffectiveness lossaccounting that is included in the carrying amount of $22 thousandhedged assets as of March 31, 2024 and loss of $94 thousand forDecember 31, 2023.
Carrying Amounts of Hedged AssetsCumulative Amounts of Fair Value Hedging Adjustments Included in the Carrying Amounts of the Hedged Assets
(in thousands)March 31, 2024December 31, 2023March 31, 2024December 31, 2023
Available-for-sale securities 1
$108,125 $107,181 $(142)$(1,359)
Loans receivable 2
$7,841 $8,183 $(478)$(367)
1 Carrying value equals the amortized cost basis of the securities underlying the hedge relationship, which is the book value net of the fair value hedge adjustment. Amortized cost excludes accrued interest totaling $233 thousand and $222 thousand as of March 31, 2024 and December 31, 2023, respectively.
2 Carrying value equals the amortized cost basis of the loans underlying the hedge relationship, which is the loan balance net of deferred loan origination fees and cost and the fair value hedge adjustment. Amortized cost excludes accrued interest, which was not material.

The following table presents the quarters ended September 30, 2017 and September 30, 2016, respectively. Ineffectiveness gain of $31 thousand and gain of $107 thousand were recordedpretax net gains (losses) recognized in interest income during the nine months ended September 30, 2017 and September 30, 2016, respectively. Changes in value of swaps were included in the assessment of hedge effectiveness. Hedge ineffectiveness is the measure of the extentrelated to which the change in theour fair value ofhedges for the hedging instruments does not exactly offset the change in the fair value of the hedged items from period to period.years presented.

Three months ended
(in thousands)March 31, 2024March 31, 2023
Interest on investment securities 1
Increase in fair value of interest rate swaps hedging available-for-sale securities$1,217 $— 
Hedged interest earned206 — 
Decrease in carrying value included in the hedged available-for-sale securities(1,217)— 
Net gain (loss) recognized in interest income on investment securities$206 $— 
Interest and fees on loans 1
Increase (decrease) in fair value of interest rate swaps hedging loans receivable$115 $(221)
Hedged interest earned54 51 
(Decrease) increase in carrying value included in the hedged loans(110)221 
Decrease in value of yield maintenance agreement(2)(2)
Net gain recognized in interest income on loans$57 $49 
1 Represents the income line item in the statement of comprehensive income in which the effects of fair value hedges are recorded.
Our derivative transactions with counterpartiesthe counterparty are under an International Swaps and Derivative Association (“ISDA”) master agreementsagreement that includeincludes “right of set-off” provisions. “Right of set-off” provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes.



Information on financial instruments that are eligible for offset in the consolidated statements of condition follows:
Page-26
Offsetting of Financial Assets and Derivative Assets
  Gross AmountsNet Amounts ofGross Amounts Not Offset in 
 Gross AmountsOffset in theAssets Presentedthe Statements of Condition 
 of RecognizedStatements ofin the StatementsFinancialCash Collateral 
(in thousands)
Assets1
Condition
of Condition1
InstrumentsReceivedNet Amount
September 30, 2017      
Derivatives by Counterparty:      
Counterparty A$38
$—
$38
$(38)$—
$—
December 31, 2016      
Derivatives by Counterparty:      
Counterparty A$55
$—
$55
$(55)$—
$—
Offsetting of Financial Assets and Derivative Assets
Gross AmountsNet Amounts ofGross Amounts Not Offset in
Gross AmountsOffset in theAssets Presentedthe Statements of Condition
of RecognizedStatements ofin the StatementsFinancialCash Collateral
(in thousands)
Assets1
Condition
of Condition1
InstrumentsReceivedNet Amount
March 31, 2024
Counterparty$400 $— $400 $— $— $400 
Total$400 $— $400 $— $— $400 
December 31, 2023
Counterparty$287 $— $287 $— $— $287 
Total$287 $— $287 $— $— $287 
Offsetting of Financial Liabilities and Derivative Liabilities
Gross AmountsNet Amounts ofGross Amounts Not Offset in
Gross AmountsOffset in theAssets Presentedthe Statements of Condition
of RecognizedStatements ofin the StatementsFinancialCash Collateral
(in thousands)
Assets1
Condition
of Condition1
InstrumentsReceivedNet Amount
March 31, 2024
   Counterparty142 — 142 (142)— — 
Total$142 $— $142 $(142)$— $— 
December 31, 2023
Counterparty$1,361 $— $1,361 $(287)$(330)$744 
Total$1,361 $— $1,361 $(287)$(330)$744 
1 Amounts exclude accrued interest totaling $1 thousand at both September 30, 2017 and December 31, 2016, respectively.
Offsetting of Financial Liabilities and Derivative Liabilities
  Gross AmountsNet Amounts ofGross Amounts Not Offset in 
 Gross AmountsOffset in theLiabilities Presentedthe Statements of Condition 
 of RecognizedStatements ofin the StatementsFinancialCash Collateral 
(in thousands)
Liabilities2
Condition
of Condition2
InstrumentsPledgedNet Amount
September 30, 2017      
Derivatives by Counterparty:      
Counterparty A$909
$—
$909
$(38)$(871)$—
December 31, 2016      
Derivatives by Counterparty:      
Counterparty A$933
$—
$933
$(55)$(878)$—

2 Amounts exclude accrued interest totaling $8 thousand and $12 thousand at September 30, 2017 and December 31, 2016, respectively.

on swaps.
For more information on how we account for our interest rate swaps, refer to Note 1 to the Consolidated Financial Statements included in our 20162023 Form 10-K filed with the SEC on March 14, 2017.2024.

Page-27
Note 10: Merger Agreement

On July 31, 2017, Bancorp entered into a definitive agreement to acquire Bank of Napa, N.A. ("Napa") whereby Napa will merge with and into Bank of Marin. The acquisition will enable Bank of Marin to expand its consumer and commercial business relationships, lending operations, and community presence in Napa County. Under the terms of the merger agreement, Napa shareholders will receive 0.307 of a share of Bancorp's common stock for each share of Napa's common stock upon consummation of the merger. Napa has two branch offices serving Napa County, and had assets of $255.3 million, total deposits of $226.1 million, and total loans of $140.5 million as of September 30, 2017. These amounts are subject to fair value adjustments upon the close of the merger. Subject to Napa shareholders' approval, the transaction is expected to close on November 20, 2017.



ITEM 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Management's discussion of the financial condition and results of operations, which is unaudited, should be read in conjunction with the related unaudited consolidated financial statements in this Form 10-Q and with the audited consolidated financial statements and accompanying notes included in our 20162023 Annual Report on Form 10-K and the Registration Statement on Form S-4 filed with the SEC on October 2, 2017 (as amended).10-K. Average balances, including balances used in calculating certain financial ratios, are generally comprised of average daily balances.

Forward-Looking Statements


ThisThe discussion of financial results in this Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "1933 Act") and Section 21E of the Securities Exchange Act of 1934, as amended, (the "1934 Act"). Those sections of the 1933 Act and 1934 Act provide a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their financial performance so long as they provide meaningful, cautionary statements identifying important factors that could cause actual results to differ significantly from projected results.
 
Our forward-looking statements include descriptions of plans or objectives of Managementmanagement for future operations, products or services, and forecasts of revenues, earnings or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words "believe," "expect," "intend," "estimate" or words of similar meaning, or future or conditional verbs preceded by "will," "would," "should," "could" or "may."
 
Forward-looking statements are based on Management'smanagement's current expectations regarding economic, legislative, and regulatory issues that may affect ourimpact Bancorp's earnings in future periods. A number of factors, many of which are beyond Management’s control,Factors that could cause future results to vary materially from current Management expectations. Such factorsmanagement expectations include, but are not limited to, general economic conditions and the economic uncertainty in the United States and abroad, including economic or other disruptions to financial markets caused by acts of terrorism, wars or other conflicts, impacts from inflation, supply chain disruptions, changes in interest rates (including the actions taken by the Federal Reserve to control inflation), California's unemployment rate, deposit flows, real estate values, and expected future cash flows on loans and securities; integrationthe impact of adverse developments at other banks, including bank failures, that impact general sentiment regarding the stability and liquidity of banks; costs or effects of acquisitions; competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; natural disasters such(such as the recent wildfires;wildfires and earthquakes in our area); adverse weather conditions; interruptions of utility service in our markets for sustained periods; and other economic, competitive, governmental, regulatory and technological factors (including external fraud and cyber-securitycybersecurity threats) affecting our operations, pricing, products and services.services; and successful integration of acquisitions.


The events or factors that could cause results or performance to materially differ from those expressed in the forward-looking statements concerning the Bank of Napa acquisition include, but are not limited to:

the businesses of Bancorp and Napa may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected;
expected cost savings from the acquisition may not be fully realized or realized within the expected time frame;
revenues following the merger may be lower than expected;
customer and employee relationships and business operations may be disrupted by the acquisition; and
the ability to obtain approval from the shareholders of Bank of Napa, and the ability to complete the acquisition on the expected timeframe may be more difficult, time-consuming or costly than expected;

Important factors that could cause results or performance to differ materially differ from those expressed in our prior forward-looking statements are detailed in the Risk Factors section of this Form 10-Q and in ItemITEM 1A,. Risk Factors section of our 20162023 Form 10-K as filed with the SEC, copies of which are available from us at no charge.and ITEM 1A Risk Factors herein. Forward-looking statements speak only as of the date they are made. We do not undertakeBancorp undertakes no obligation to updaterelease publicly the result of any revisions to these forward-looking statements that may be made to reflect circumstancesevents or eventscircumstances that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events.



Critical Accounting Policies and Estimates


Critical accounting policiesestimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation and uncertainty and have had or are both very importantreasonably likely to the portrayal ofhave a material impact on our financial condition and results of operationsoperations. We consider accounting estimates to be critical to our financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain, (ii) management could have applied different assumptions during the reported period, and require Management's most difficult, subjective, or complex judgments, often(iii) changes in the accounting estimate are reasonably likely to occur in the future and could have a material impact on our financial statements. Our critical estimates include: Allowance for Credit Losses on Loans and Unfunded Commitments, Fair Value Measurements, and Goodwill.




Page-28
Goodwill

Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Our annual impairment assessment is performed in the fourth quarter. However, with triggering events occurring in the first quarter of 2024, including a persistent depressed stock price as a result of changes in macroeconomic conditions, market volatility resulting from rising interest rates and the needfailure of several regional banks in 2023, coupled with a revised five-year strategic forecast for the Bank, we performed a quantitative assessment in the first quarter of 2024, similar to make estimates about the effectanalysis performed in fourth quarter 2023. The results of matters that are inherently uncertain and imprecise. There have been no material changes to our critical accounting policies, which include: Allowance for Loan Losses, Other-than-temporary Impairmentthis assessment indicated the value of Investment Securities, Accounting for Income Taxes, and Fair Value Measurements.goodwill was not impaired as of March 31, 2024. For a detailed discussion of goodwill accounting and impairment assessment methodology, refer to Note 1, toSummary of Significant Accounting Policies, and the Consolidated Financial Statements included inCritical Accounting Estimates section of our 20162023 Form 10-K filed with the SEC on March 14, 2017.2024.


Executive Summary
Earnings inWe generated earnings of $2.9 million for the thirdfirst quarter of 2017 totaled $5.1 million,2024, compared to $7.0 million in$610 thousand for the thirdfourth quarter of 2016.2023 and $9.4 million for the first quarter of 2023. Diluted earnings per share were $0.83 in$0.18 for the thirdfirst quarter of 2017,2024, compared to $1.14 in$0.04 for the preceding quarter and $0.59 for the same quarter a year ago. Earnings forNet interest margin compression due to the first nine months of 2017 totaled $14.9 million compared to $17.4 millionrapid rise in interest rates this cycle is clearly evident in the same period last year. Diluted earnings per share were $2.41comparison of 2024 and $2.86 in the2023 first nine months of 2017 and 2016, respectively. Earnings in the third quarter and the first nine months of 2017 included $495 thousand in expenses related to the pending Bank of Napa acquisition, without which diluted earnings per share would have been $0.88 and $2.46, respectively. Additionally, earnings in the thirdearnings. In addition, prior quarter and first nine months of 2016 were $0.35 per share higher than the same periods of 2017 due toresults reflected a large recovery of a problem credit and an early payoff of an acquired loan in 2016.$5.9 million pretax loss from balance sheet restructuring.


The following are highlights of our operating and financial performance for the periods presented:

On July 31, 2017, Bancorp entered into a definitive agreement to acquire Bank of Napa. The transaction is expected to close on November 20, 2017. Upon consummation of the transaction, the Bank will have approximately $2.4 billion in assets and operate twenty-three branches in San Francisco, Marin, Sonoma, Napa and Alameda counties.

On October 16, 2017, James S. Kimball, formerly of Wells Fargo Bank, joined the Bank as an executive vice presidentpresented. Additional performance details can be found in the newly created positionpages that follow.

•The first quarter tax-equivalent net interest margin stabilized at 2.50% from 2.53% the previous quarter. Climbing deposit rates continued to put pressure on the margin this quarter. While the average cost of Chief Operating Officer. Mr. Kimball is responsibledeposits increased 23 basis points to 1.38% in the first quarter compared to a 21 basis point increase in the prior quarter, monthly trends since January show a clear slow down in the pace of increase. Although we reduced borrowings to zero and gained ground in higher yields on loans, the overall average earning asset balances decreased, limiting the positive impact on the margin.

•A $350 thousand provision for Commercial Banking, Retail Banking, Wealth Management & Trust, and Marketing. His addition strengthenscredit losses on loans in the management team.

Deposits totaled $1,891.0 million at September 30, 2017, first quarter, compared to $1,772.7a provision of $1.3 million in the previous quarter, brought the allowance for credit losses to 1.24% of total loans, compared to1.21% as of December 31, 2023.

•Non-accrual loans declined to 0.31% of total loans at quarter end, from 0.39% at December 31, 2016, an $118.32023, and net charge-offs were minimal. Classified loans increased to 2.67% of total loans from 1.56% last quarter, which we believe evidences our diligent monitoring of customers impacted by current economic conditions.

•Loan balances of $2.055 billion as of March 31, 2024, were relatively stable from $2.074 billion as of December 31, 2023, reflecting originations of $12.4 million increase.and payoffs of $21.8 million. During the quarter, interest rates on loan originations averaged approximately 266 basis points above those that paid off. Loan amortization from scheduled repayments, partially offset by a net increase in utilization of credit lines was $9.4 million during the quarter.

•Total deposits of $3.284 billion as of March 31, 2024, were essentially flat, compared to $3.290 billion as of December 31, 2023. Non-interest bearing deposits increased $2.5 million representing 44.0% of total deposits represented 48.9%as of March 31, 2024, compared to 43.8% as of December 31, 2023.

•Total borrowings was reduced to zero representing a $26.0 million decrease from December 31, 2023 and a $97.5 million quarter-over-quarter decrease in average balances, resulting in a $1.3 million decline in interest expense. Net available funding sources of $1.905 billion provided 208% coverage of an estimated $915.4 million in uninsured deposits, representing only 28% of total deposits at September 30, 2017, and the cost of total deposits dropped one basis point to 0.07%, from the first nine months of 2016.March 31, 2024.


Loans increased by $37.8 million and totaled $1,524.4 million at September 30, 2017, compared to $1,486.6 million at December 31, 2016. New loan originations in the first nine months of 2017 of $121.6 million were primarily in commercial real estate, including both owner-occupied and investor-owned, spread throughout our markets, and tenancy-in-common fractional interest loans. In addition to loan originations, we purchased $7.0 million in high quality tenancy-in-common loans. Loan originations combined with changes in the utilization of loan commitments, purchases, pay-offs of $106.1 million, and scheduled payments, produced the net increase from December 31, 2016. Our current pipeline is slightly larger than last year at this time, and is expected to translate into continued loan growth throughout the remainder of 2017 and into 2018.

Strong credit quality remains the hallmark of our culture. Non-accrual loans totaled $1.3 million, or 0.09% of loans at September 30, 2017, compared to $145.0 thousand, or 0.01% of loans at December 31, 2016. A well secured $1.0 million commercial real estate loan•Return on average assets ("ROA") was placed on non-accrual status during0.31% for the first quarter of 2017. Classified loans totaled $33.5 million at September 30, 2017, up from $19.6 million at December 31, 2016. One relationship with a balance2024, compared to 0.06% for the fourth quarter of $12.3 million2023, and return on average equity ("ROE") was 2.70%, compared to 0.57% for the $1.0 million non-accrual loan previously mentioned were downgraded to substandard inprior quarter. The efficiency ratio for the first quarter of 2017. Accruing loans past due 30 to 89 days totaled $205 thousand at September 30, 2017,2024 was 83.18%, compared to $410 thousand at December 31, 2016.91.94% for the prior quarter.

Page-29
All capital ratios exceed regulatory requirements for a well-capitalized institution. The
•Bancorp's and the Bank's total risk-based capital ratios increased during the quarter to 17.05% and 16.71%, respectively, as of March 31, 2024, well above regulatory requirements. Bancorp's tangible common equity to tangible assets ("TCE ratio") increased to 9.76% as of March 31, 2024, and the Bank's TCE ratio for Bancorp was 15.1% at September 30, 20179.53%, consistent with prior quarter. While we do not intend to sell our held-to-maturity securities, the TCE ratio, net of after-tax unrealized losses on held-to-maturity securities as if the losses were realized was 7.67% as of March 31, 2024, compared to 14.3% at7.80% as of December 31, 2016.

Return on assets was 0.95% for2023 (refer to the quarterdiscussion and 0.96% for the nine months ended September 30, 2017, compared to 1.35% for the quarter and 1.17% for the nine months ended September 30, 2016. Return on


equity was 8.37% for the quarter and 8.35% for the nine months ended September 30, 2017, compared to 12.08% for the quarter and 10.40% for the nine months ended September 30, 2016.

The efficiency ratio was 62.51% for the quarter and 63.42% for the nine months ended September 30, 2017, compared to 55.41% for the quarter and 58.07% for the nine months ended September 30, 2016. The increasesreconciliation of this non-GAAP financial measure in the efficiency ratios were primarily duesection below entitled Statement Regarding Use of Non-GAAP Financial Measures).

•The Bank optimized its facilities by consolidating two commercial banking offices, closing the San Mateo office in April 2024. We expect the combination of both personnel and facilities pre-tax savings to decreasestotal approximately $650 thousand in net interest income2024 and non-interest income, and increases$800 thousand in non-interest expense, which are explained in the related sections that follow.2025. These savings will be deployed to self-fund talent acquisition aimed at loan growth initiatives.


•The Board of Directors declared a cash dividend of $0.29$0.25 per share on October 20, 2017. ThisApril 25, 2024, which represents the 50th76th consecutive quarterly dividend paid by BankBancorp. The dividend is payable on May 16, 2024, to shareholders of Marin Bancorp.

Looking forward through the end of the year and into 2018, we believe we are well-positioned for future growth with strong capital and liquidity, potential net interest margin expansion resulting from market anticipated interest rate increases and a low cost deposit base. With a robust loan pipeline, and credit quality that remainsrecord at the topclose of our peer group, we are looking forward to continued success.business on May 9, 2024.

We have ample liquidity and capital to support both organic growth and potential acquisitions, such as the Bank of Napa transaction. Acquisitions will continue to remain a component of our strategic plan.


While we are investing in a number of strategic initiatives that aim at our long-term profitability, our non-interest expenses are likely to increase in the upcoming quarters, primarily due to Bank of Napa acquisition-related expenses including the costs of the planned Bank of Napa core processing system conversion in April 2018. In addition to the announced acquisition, we are expanding our geographic reach by adding a commercial banking office in the East Bay, which continues to be one of the strongest growth markets in the Bay Area region.


Our disciplined credit culture and relationship banking will continue to be keys to our success.


North Bay Wildfires

Page-30
Beginning on October 8, 2017, much of the North Bay region of Northern California was struck by widespread and destructive wildfires. Fortunately, there was no damage to bank facilities and no significant impairment to services. Management has preliminarily assessed the impact of the fires on our loan and investment portfolios; including mapping client addresses and locations of municipal bond issuers to areas affected by the fires and evaluating any known damage to collateral and businesses. Based on our preliminary assessment, the loss to properties and businesses located in the affected areas that are pledged as collateral to our loans or bonds is minimal and we do not expect to increase our allowance for loan losses as a result of the fires. In addition, Bank of Napa’s management has completed a similar assessment and has not identified any known material losses at this time. We will continue to update and refine our estimates of the wildfires’ impact on our business and result of operations as they become known. However, the long-term impact to the Napa and Sonoma regional economies is uncertain. Management of Bank of Marin and Bank of Napa are closely monitoring the situation and will continue to respond to the immediate needs of customers and employees.



RESULTS OF OPERATIONS
 
Highlights of the financial results are presented in the following tables:
Three months ended
(dollars in thousands, except per share data)March 31, 2024December 31, 2023March 31, 2023
Selected operating data:
Net interest income$22,694 $24,264 $29,899 
Provision for credit losses on loans350 1,300 350 
Reversal of credit losses on unfunded loan commitments— — (174)
Non-interest income2,754 (3,283)2,935 
Non-interest expense21,169 19,289 19,780 
Net income2,922 610 9,440 
Net income per common share:
Basic$0.18 $0.04 $0.59 
Diluted$0.18 $0.04 $0.59 
Performance and other financial ratios:
Return on average assets0.31 %0.06 %0.92 %
Return on average equity2.70 %0.57 %9.12 %
Tax-equivalent net interest margin2.50 %2.53 %3.04 %
Cost of deposits1.38 %1.15 %0.20 %
Cost of funds1.38 %1.27 %0.49 %
Efficiency ratio83.18 %91.94 %60.24 %
Net charge-offs (recoveries)$21 $387 $3 
Cash dividend payout ratio on common stock 1
138.89 %625.00 %42.37 %
(dollars in thousands, except per share data)March 31, 2024December 31, 2023
Selected financial condition data:
Total assets$3,767,176 $3,803,903 
Investment securities1,451,433 1,477,226 
Loans, net2,029,462 2,048,548 
Deposits3,284,102 3,290,075 
Short-term borrowings and other obligations260 26,298 
Stockholders' equity436,680 439,062 
Book value per share26.81 27.17 
Asset quality ratios:
Allowance for credit losses on loans to total loans1.24 %1.21 %
Allowance for credit losses on loans to non-performing loans4.05x3.15x
Non-accrual loans to total loans0.31 %0.39 %
Capital ratios:
Equity to total assets ratio11.59 %11.54 %
Tangible common equity to tangible assets9.76 %9.73 %
Total capital (to risk-weighted assets)17.05 %16.89 %
Tier 1 capital (to risk-weighted assets)16.05 %15.91 %
Tier 1 capital (to average assets)10.92 %10.46 %
Common equity Tier 1 capital (to risk weighted assets)16.05 %15.91 %
1 Calculated as dividends on common shares divided by basic net income per common share.

Page-31
   
(dollars in thousands)September 30, 2017December 31, 2016
Selected financial condition data:  
Total assets$2,155,901
$2,023,493
Loans, net1,509,199
1,471,174
Deposits1,890,970
1,772,700
Borrowings5,703
5,586
Stockholders' equity245,049
230,563
Asset quality ratios:  
Allowance for loan losses to total loans1.00%
1.04%
Allowance for loan losses to non-accrual loans11.58x106.50x
Non-accrual loans to total loans0.09%
0.01%
Capital ratios:  
Equity to total assets ratio11.37%11.39%
Total capital (to risk-weighted assets)15.05%14.32%
Tier 1 capital (to risk-weighted assets)14.11%13.37%
Tier 1 capital (to average assets)11.43%11.39%
Common equity Tier 1 capital (to risk weighted assets)13.79%13.07%

 Three months ended Nine months ended
(dollars in thousands, except per share data)September 30, 2017September 30, 2016 September 30, 2017September 30, 2016
Selected operating data:     
Net interest income$18,788
$19,381
 $54,713
$55,185
Non-interest income2,066
2,114
 6,277
6,698
Non-interest expense13,036
11,910
 38,678
35,937
Net income5,132
6,964
 14,866
17,447
Net income per common share:     
Basic$0.84
$1.14
 $2.43
$2.87
Diluted$0.83
$1.14
 $2.41
$2.86
Performance and other financial ratios:     
Return on average assets0.95%
1.35%
 0.96%
1.17%
Return on average equity8.37%
12.08%
 8.35%
10.40%
Tax-equivalent net interest margin3.77%
4.05%
 3.80%
3.95%
Efficiency ratio62.51%
55.41%
 63.42%
58.07%
Dividend payout ratio on common stock34.52%
21.93%
 34.16%
26.13%



Net Interest Income

Net interest income is the difference between the interest earned on loans, investments and other interest-earning assets andminus the interest expense incurred on deposits and other interest-bearing liabilities. Net interest income is impacted by changes in general market interest rates and by changes in the amounts and composition of interest-earning assets and interest-bearing liabilities. Interest rate changes can create fluctuations in the net interest income and/or margin due to an imbalance in the timing of repricing and maturity of assets and liabilities. We manage interest rate risk exposure with the goal of minimizing the impact of interest rate volatility on net interest income. For more information, refer to Item 3. Quantitative and Qualitative Disclosure about Market Risk in this Form 10-Q.

Net interest margin is expressed as net interest income divided by average interest-earning assets. Net interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate incurred on total interest-bearing liabilities. Both of these measures are reported on a taxable-equivalent basis. Net interest margin is the higher of the two because it reflects interest income earned on assets funded with non-interest-bearing sources of funds, which include demand deposits and stockholders’ equity.

Average Statements of Condition and Analysis of Net Interest Income


The following table compares interest income, average interest-earning assets, interest expense, and average interest-bearing liabilities for the periods presented. The tabletables also presentspresent net interest income, net interest margin and net interest rate spread for each period reported.
Three months endedThree months endedThree months ended
March 31, 2024December 31, 2023March 31, 2023
InterestInterestInterest
AverageIncome/Yield/AverageIncome/Yield/AverageIncome/Yield/
(dollars in thousands)BalanceExpenseRateBalanceExpenseRateBalanceExpenseRate
Assets
Interest-earning deposits with banks 1
$23,439 $321 5.42 %$84,864 $1,170 5.40 %$4,863 $56 4.58 %
Investment securities 2, 3
1,529,985 8,880 2.32 %1,625,084 9,368 2.31 %1,851,743 10,194 2.20 %
Loans 1, 3, 4, 5
2,067,431 25,130 4.81 %2,072,654 25,081 4.73 %2,121,718 24,415 4.60 %
   Total interest-earning assets 1
3,620,855 34,331 3.75 %3,782,602 35,619 3.68 %3,978,324 34,665 3.49 %
Cash and non-interest-bearing due from banks35,302 35,572 39,826 
Bank premises and equipment, net7,708 8,027 8,396 
Interest receivable and other assets, net147,405 128,587 137,114 
Total assets$3,811,270 $3,954,788 $4,163,660 
Liabilities and Stockholders' Equity
Interest-bearing transaction accounts$215,001 $261 0.49 %$228,168 $278 0.48 %$272,353 $254 0.38 %
Savings accounts230,133 371 0.65 %245,712 322 0.52 %329,299 170 0.21 %
Money market accounts1,150,637 8,449 2.95 %1,105,286 7,188 2.58 %952,479 1,085 0.46 %
Time accounts including CDARS264,594 2,280 3.47 %244,661 1,991 3.23 %126,030 223 0.72 %
Borrowings and other obligations 1
7,323 91 4.93 %104,855 1,380 5.15 %222,571 2,716 4.88 %
   Total interest-bearing liabilities1,867,688 11,452 2.47 %1,928,682 11,159 2.30 %1,902,732 4,448 0.95 %
Demand accounts1,458,686 1,556,437 1,792,998 
Interest payable and other liabilities48,923 48,322 48,233 
Stockholders' equity435,973 421,347 419,697 
Total liabilities & stockholders' equity$3,811,270 $3,954,788 $4,163,660 
Tax-equivalent net interest income/margin 1
$22,879 2.50 %$24,460 2.53 %$30,217 3.04 %
Reported net interest income/margin 1
$22,694 2.48 %$24,264 2.51 %$29,899 3.01 %
Tax-equivalent net interest rate spread1.28 %1.38 %2.54 %


Three months ended
Three months ended


September 30, 2017
September 30, 2016



Interest


Interest


AverageIncome/Yield/
AverageIncome/Yield/
(dollars in thousands)BalanceExpenseRate
BalanceExpenseRate
Assets






 
Interest-bearing due from banks 1
$125,846
$406
1.26%
$79,672
$104
0.51%
 
Investment securities 2, 3
400,659
2,294
2.29%
394,980
2,120
2.15%
 
Loans 1, 3, 4
1,500,167
17,228
4.49%
1,454,617
18,182
4.89%
 
   Total interest-earning assets 1
2,026,672
19,928
3.85%
1,929,269
20,406
4.14%
 Cash and non-interest-bearing due from banks45,009



48,901


 Bank premises and equipment, net8,430



8,808


 Interest receivable and other assets, net60,622



61,649


Total assets$2,140,733



$2,048,627


Liabilities and Stockholders' Equity






 Interest-bearing transaction accounts$96,504
$24
0.10%
$91,035
$27
0.12%
 Savings accounts171,187
17
0.04%
152,370
15
0.04%
 Money market accounts560,486
133
0.09%
531,130
112
0.08%
 Time accounts including CDARS140,736
138
0.39%
160,595
190
0.47%
 
Overnight borrowings 1
—
—
—% —
—
—%
 
FHLB fixed-rate advances 1
—
—
—%
—
—
—%
 
Subordinated debentures 1
5,682
111
7.63%
5,516
109
7.68%
    Total interest-bearing liabilities974,595
423
0.17%
940,646
453
0.19%
 Demand accounts909,900



864,460


 Interest payable and other liabilities13,055



14,124


 Stockholders' equity243,183



229,397


Total liabilities & stockholders' equity$2,140,733



$2,048,627


Tax-equivalent net interest income/margin 1

$19,505
3.77%

$19,953
4.05%
Reported net interest income/margin 1

$18,788
3.63%

$19,381
3.93%
Tax-equivalent net interest rate spread

3.68%


3.95%
1 Interest income/expense is divided by actual number of days in the period times 360 days to correspond to stated interest rate terms, where applicable.
2 Yields on available-for-sale securities are calculated based on amortized cost balances rather than fair value, as changes in fair value are reflected as a component of stockholders' equity. Investment security interest is earned on 30/360 day basis monthly.
3 Yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the Federal statutory rate of 21 percent.
4 Average balances on loans outstanding include non-performing loans. The amortized portion of net loan origination fees is included in interest income on loans, representing an adjustment to the yield.
5 Net loan origination costs in interest income totaled $375 thousand, $324 thousand, and $190 thousand for the three months ended March 31, 2024, December 31, 2023 and March 31, 2023, respectively.


  Nine months ended Nine months ended
  September 30, 2017 September 30, 2016
   Interest   Interest 
  AverageIncome/Yield/ AverageIncome/Yield/
(dollars in thousands)BalanceExpenseRate BalanceExpenseRate
Assets       
 
Interest-bearing due from banks 1
$70,947
$623
1.16% $39,293
$155
0.52%
 
Investment securities 2, 3
407,798
7,011
2.29% 403,986
6,458
2.13%
 
Loans 1, 3, 4
1,488,771
50,317
4.46% 1,446,053
52,072
4.73%
 
   Total interest-earning assets 1
1,967,516
57,951
3.88% 1,889,332
58,685
4.08%
 Cash and non-interest-bearing due from banks43,140




 39,788
  
 Bank premises and equipment, net8,420




 8,926
  
 Interest receivable and other assets, net59,593




 60,022
  
Total assets$2,078,669




 $1,998,068
  
Liabilities and Stockholders' Equity





    
 Interest-bearing transaction accounts$97,458
$74
0.10% $95,112
$82
0.11%
 Savings accounts165,212
48
0.04% 148,050
43
0.04%
 Money market accounts539,560
360
0.09% 523,641
330
0.08%
 Time accounts including CDARS144,559
423
0.39% 160,523
579
0.48%
 
Overnight borrowings 1
—
—
—% 7,190
22
0.42%
 
FHLB fixed-rate advances 1
—
—
—% 9,087
456
6.59%
 
Subordinated debentures 1
5,645
328
7.65% 5,469
325
7.80%
    Total interest-bearing liabilities952,434
1,233
0.17% 949,072
1,837
0.26%
 Demand accounts874,995




 810,190


 
 Interest payable and other liabilities13,151




 14,651


 
 Stockholders' equity238,089




 224,155


 
Total liabilities & stockholders' equity$2,078,669




 $1,998,068


 
Tax-equivalent net interest income/margin 1


$56,718
3.80%  $56,848
3.95%
Reported net interest income/margin 1


$54,713
3.67% 

$55,185
3.84%
Tax-equivalent net interest rate spread



3.71%  

3.82%
         
1 Interest income/expense is divided by actual number of days in the period times 360 days to correspond to stated interest rate terms, where applicable.
2 Yields on available-for-sale securities are calculated based on amortized cost balances rather than fair value, as changes in fair value are reflected as a component of stockholders' equity. Investment security interest is earned on 30/360 day basis monthly.
3 Yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the Federal statutory rate of 35 percent.
4 Average balances on loans outstanding include non-performing loans. The amortized portion of net loan origination fees is included in interest income on loans, representing an adjustment to the yield.


Analysis of Changes in Net Interest Income


The following table presents the effects of changes in average balances (volume) or changes in average rates on tax-equivalent net interest income for the yearsperiods indicated. Volume variances are equal to the increase or
Page-32
decrease in average balances multiplied by prior period rates. Rate variances are equal to the increase or decrease in rates multiplied by prior period average balances. Mix variances are attributable to the change in yields or rates multiplied by the change in average balances.balances, including one day less in the three months ended March 31, 2024, compared to the three months ended December 31, 2023 and one day more in the three months ended March 31, 2024, compared to the same period in 2023.
Three months ended March 31, 2024 compared to three months ended
December 31, 2023
Three months ended March 31, 2024 compared to three months ended
March 31, 2023
(in thousands)VolumeYield/RateMixTotalVolumeYield/RateMixTotal
Interest-earning deposits with banks$(847)$5 $(7)$(849)$214 $10 $41 $265 
Investment securities 1
(548)64 (4)(488)(1,771)553 (96)(1,314)
Loans 1
(63)390 (278)49 (625)1,092 248 715 
Total interest-earning assets(1,458)459 (289)(1,288)(2,182)1,655 193 (334)
Interest-bearing transaction accounts(16)3 (4)(17)(53)73 (13)7 
Savings accounts(20)78 (9)49 (51)355 (103)201 
Money market accounts295 1,017 (51)1,261 226 5,832 1,306 7,364 
Time accounts, including CDARS162 141 (14)289 245 851 961 2,057 
Borrowings and other obligations(1,284)(63)58 (1,289)(2,627)20 (18)(2,625)
Total interest-bearing liabilities(863)1,176 (20)293 (2,260)7,131 2,133 7,004 
Changes in tax-equivalent net interest income$(595)$(717)$(269)$(1,581)$78 $(5,476)$(1,940)$(7,338)
1 Yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the federal statutory rate of 21%.
 Three Months Ended September 30, 2017 Compared to Three Months Ended
September 30, 2016		Nine Months Ended September 30, 2017 Compared to Nine Months Ended
September 30, 2016
(in thousands)Volume
Yield/Rate
Mix
Total
Volume
Yield/Rate
Mix
Total
Interest-bearing due from banks$60
$153
$89
$302
$125
$190
$153
$468
Investment securities 1
30
141
3
174
61
487
5
553
Loans 1
569
(1,477)(46)(954)1,538
(3,199)(94)(1,755)
Total interest-earning assets659
(1,183)46
(478)1,724
(2,522)64
(734)
Interest-bearing transaction accounts2
(5)—
(3)2
(10)—
(8)
Savings accounts2
—
—
2
5
—
—
5
Money market accounts6
14
1
21
10
19
1
30
Time accounts, including CDARS(23)(33)4
(52)(57)(109)10
(156)
FHLB borrowings and overnight borrowings—
—
—
—
(478)—
—
(478)
Subordinated debentures3
(1)—
2
10
(7)—
3
Total interest-bearing liabilities(10)(25)5
(30)(508)(107)11
(604)
 $669
$(1,158)$41
$(448)$2,232
$(2,415)$53
$(130)
1 Yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the federal statutory rate of 35%.

ThirdFirst Quarter of 20172024 Compared to Thirdthe Fourth Quarter of 20162023


Net interest income totaled $18.8$22.7 million for the first quarter of 2024, compared to $24.3 million for the prior quarter. The $1.6 million decrease from the prior quarter was primarily related to an increase of $1.6 million in the third quarterinterest expense on deposits and a decrease of 2017, compared to $19.4$1.3 million in the same quarter a year ago. The $593 thousand decrease was primarily due to a $1.4 million interest recovery on a problem credit in the third quarter of 2016. Additionally, acquired loan income decreased by $486 thousand in the third quarter of 2017 compared to the same period last year.cash and investments. These declines were partially offset by a $97.4$1.3 million increasedecrease in borrowing costs. Quarter-over-quarter, average earning assets. Higher yields oninterest-bearing deposit balances increased by $36.5 million to $1.860 billion, raising the cost of total deposits by 23 basis points to 1.38%. Average borrowings and other obligations decreased by $97.5 million to $7.3 million, and average investment securities and interest-bearing cash, and upward repricing of variable rate loans also positively impacted interest income for the current quarter. security balances were down a similar amount.

The tax-equivalent net interest margin was 3.77% in2.50% for the thirdfirst quarter of 2017,2024, compared to 4.05% in2.53% for the same quarterprior quarter. The higher cost of deposits reduced the previous year.  margin by 23 basis points, while higher loan yields added 15 basis points. The effect of lower wholesale borrowing balances, partially offset by lower interest-earning deposits with banks, added 5 basis points.

First Nine MonthsQuarter of 20172024 Compared to the First Nine MonthsQuarter of 20162023


Net interest income totaled $54.7$22.7 million infor the first ninethree months of 2017,ended March 31, 2024, compared to $55.2$29.9 million in the same period of 2016. The $472 thousand decline was driven by the decrease in acquired loan income and the interest recovery mentioned above, partially offset by a $78.2 million increase in average earning assets compared tofor the same period in 2016. Additionally,the prior year. The $7.2 million decrease from the prior year was primarily due to a higher yields on investment securities and interest-earning cash, a decline in the cost of funds and the upward repricingdeposits totaling $9.6 million, partially offset by lower borrowing costs of variable rate loans positively impacted net interest income. $2.6 million.

The tax-equivalent net interest margin was 3.80% and 3.95%2.50% for the three months ended March 31, 2024, compared to 3.04% for the same period in the first nine months of 2017prior year. The decrease was primarily attributed to higher deposit costs, reducing the margin by 107 basis points, partially offset by higher yields on loans, adding 29 basis points, and 2016, respectively.decreases in borrowings contributing 26 basis points.


Market Interest Rates


Market interest rates are, in part, based on the target federal funds interest rate (the interest rate banks charge each
other for short-term borrowings) implemented by the Federal Reserve Open Market Committee ("FOMC"). Actions

In response to the evolving risks to economic activity caused by the COVID-19 pandemic, the FOMC made two emergency federal funds rate cuts totaling 150 basis points in March 2020. The federal funds rate range remained between 0.0% and 0.25% through the beginning of 2022, putting downward pressure on our asset yields and net interest margin. Beginning in March 2022, the FOMC began successive increases to increasethe federal funds rate due to evolving inflation risks, international political unrest, and oil and other supply chain disruptions. As a result of seven
Page-33
rate adjustments during 2022, the federal funds target rate range increased to between 4.25% and 4.50% at year-end 2022 and our net interest margin increased gradually over the course of the year. In 2023, on each of February 1st, March 22nd, May 3rd, and July 26th, the FOMC increased the target federal funds rate by 25 basis points in December 2015, December 2016, March 2017 and June 2017, have positively impacted yields on our rate sensitive interest-earning assets. The increase in June 2017, to the current targeta range for the federal funds rate of 1.00%5.25% to 1.25%, was the fourth rate hike since 2008. If5.50%. Rising interest rates resulted in rapid increases in the cost of funds through rising deposit costs and increased average borrowings, putting pressure on the net interest margin. Federal Reserve policymakers continue to rise, we anticipate that our net interest income will increase. While short-term interest rates have risenmonitor inflation and improvedeconomic developments and are considering rate changes during the Bank’s yields on prime-rate adjustable assets, there has been little movement in longer-term rates that influence competitive pricingbalance of 2024. See ITEM 3. Quantitative and Qualitative Disclosure about Market Risk for fixed-rate lending activities.further information.




Impact of Acquired Loans on Net Interest Margin

As our acquired loans from prior acquisitions continue to pay off, we expect the accretion on these loans to continue to decline. Accretion and gains on payoffs of purchased loans recorded to interest income were as follows:

 Three months ended Nine months ended
 September 30, 2017
September 30, 2016 September 30, 2017 September 30, 2016
(dollars in thousands)Dollar AmountBasis point impact to net interest margin
Dollar AmountBasis point impact to net interest margin Dollar AmountBasis point impact to net interest margin Dollar AmountBasis point impact to net interest margin
Accretion on PCI loans$76
2 bps
$89
2 bps $246
2 bps $274
2 bps
Accretion on non-PCI loans$132
3 bps
$605
12 bps $460
3 bps $1,252
9 bps
Gains on pay-offs of PCI loans$—
0 bps
$—
0 bps $84
1 bps $740
5 bps

Provision for LoanCredit Losses on Loans

Management assesses the adequacy of the allowance for loancredit losses on loans quarterly based on several factors including growth of the loan portfolio, analysispast events, current conditions, and reasonable and supportable forecasts to estimate expected losses over the contractual terms of probable losses in the portfolio, historical loss experience and the current economic climate.  Actualour loans. The allowance for credit losses on loans are charged against the allowance, and the allowance is increased by provisions charged to expense and loss recoveries and provisionsdecreased by loans charged off.

The following table shows the activity for loan losses charged to expense.  the periods presented.
Three months ended
(dollars in thousands)March 31, 2024December 31, 2023March 31, 2023
Provision for credit losses on loans$350 $1,300 $350 
There was no
We recorded a $350 thousand provision for loancredit losses recordedon loans in the third quarter of 2017. In the third quarter of 2016, a $1.6 million reversal of thefirst quarter. The provision was due primarily to adjustments to certain qualitative risk factors to account for loan losses resulted from a charged-off principal recovery of $2.2 million on a problem credit. Net recoveriescontinued negative trends in the third quarter of 2017 totaled $16 thousand compared to net recoveries of $2.2 million in the same quarter a year ago.

The ratio of loan loss reserves to totaladversely graded loans was 1.00% at September 30, 2017, compared to 1.04% at December 31, 2016. At September 30, 2017, total loan loss reserve to loans excluding acquired loans was 1.05%. Non-accrual loans totaled $1.3 million, or 0.09% of total loans, at September 30, 2017, compared to $145 thousand, or 0.01%, at December 31, 2016. A well secured $1.0 millionfor our non-owner occupied commercial real estate and commercial and industrial portfolios, adjustments to the discounted cash flow modeling assumptions related to estimated default timing, and a slight increase in Moody's Analytics' Baseline Forecast of California's unemployment rates, partially offset by the impact of a decrease in pooled loans and changes in loan mix.

We recorded a $1.3 million provision for credit losses on loans in the fourth quarter. The provision was due primarily to an increase in specific allowances related to a few loans that exhibited certain credit risk characteristics over time that were not indicative of pooled loans. Of the specific allowances, a portion was related to two loans with existing substandard risk ratings and collateral valuation issues caused by persistently higher than average vacancy rates. In addition, a portion was related to two loans that were placed on non-accrual status during the firstfourth quarter, where the estimated credit losses were derived using either discounted expected cash flows or adjusted collateral values and loss rates. A large portion of 2017.

No provision for loan lossesthese specific allowances was recordedpreviously recognized in the first nine months of 2017. As described above, a $1.6 million reversalquantitative and qualitative estimated credit losses for pooled loans and shifted to the allowance for individually evaluated loans in the fourth quarter. Other elements of the provision included a $406 thousand loss on the note sale of a loan loss provisionto an unrelated third party that was recordedcharged to the allowance concurrent with the sale, a decrease in loans, and a stable California unemployment rate forecast for the next four quarters. Net adjustments to qualitative factors in the first nine months of 2016. Net charge-offs were $194 thousand infourth quarter did not materially affect the first nine months of 2017, compared to net recoveries of $2.3 million in the first nine months of 2016.provision.


Impaired loan balances totaled $17.7 million at September 30, 2017 and $18.3 million at December 31, 2016, with specific valuation allowances of $586 thousand and $991The provision totaling $350 thousand for the same respective dates. Classified assets (loans with substandard or doubtfulthree months ended March 31, 2023 was due primarily to increases in qualitative risk grades) increasedfactors to $33.5 million at September 30, 2017, from $19.6 million at December 31, 2016. The increase was primarily relatedaccount for continued uncertainty about inflation and recession risks. Management believed that these risk factors were not adequately captured in the modeled quantitative portion of the allowance and took the more prudent approach to one relationship of $12.3 millionaccount for loan and collateral concentration risks, mainly in our construction and commercial real estate portfolios, and the non-accrual loanneed for heightened portfolio management in light of $1.0economic conditions at that time. In addition, a $19.8 million mentioned above thatincrease in loans contributed modestly to the provision. These increases were downgraded to substandardpartially offset by the quantitative impact of an improvement in Moody's Analytics' baseline California unemployment rate forecasts at the first quarter of 2017. There were no loans with doubtful risk grades at September 30, 2017 or December 31, 2016.time.


For more information, refer to Note 5, Loans and Allowance for Credit Losses on Loans,to the Consolidated Financial Statementsconsolidated financial statements in this Form 10-Q.



Page-34

Non-interest Income
 
The tables below detailfollowing table details the components of non-interest income.
 Three months endedQuarter over quarterYear over year
(dollars in thousands)March 31, 2024December 31, 2023March 31, 2023Amount ChangePercent ChangeAmount ChangePercent Change
Wealth management and trust services$553 $560 511 $(7)(1.3)%$42 8.2 %
Service charges on deposit accounts529 522 533 7 1.3 %(4)(0.8)%
Earnings on bank-owned life insurance, net435 $364 $705 71 19.5 %(270)(38.3)%
Debit card interchange fees, net408 373 447 35 9.4 %(39)(8.7)%
Dividends on Federal Home Loan Bank stock377 349 302 28 8.0 %75 24.8 %
Merchant interchange fees, net167 119 133 48 40.3 %34 25.6 %
Losses on sale of investment securities, net— (5,907)— 5,907 — %— — %
Other income285 337 304 (52)(15.4)%(19)(6.3)%
Total non-interest income$2,754 $(3,283)$2,935 $6,037 (183.9)%$(181)(6.2)%
 Three months ended Amount Percent
(dollars in thousands)September 30, 2017September 30, 2016 Increase (Decrease) Increase (Decrease)
Service charges on deposit accounts$438
$447
 $(9) (2.0)%
Wealth Management and Trust Services539
506
 33
 6.5 %
Debit card interchange fees390
393
 (3) (0.8)%
Merchant interchange fees88
114
 (26) (22.8)%
Earnings on bank-owned life insurance209
216
 (7) (3.2)%
Dividends on FHLB stock177
223
 (46) (20.6)%
Other income225
215
 10
 4.7 %
Total non-interest income$2,066
$2,114
 $(48) (2.3)%
       
 Nine months ended Amount Percent
(dollars in thousands)September 30, 2017September 30, 2016 Increase (Decrease) Increase (Decrease)
Service charges on deposit accounts$1,337
$1,344
 $(7) (0.5)%
Wealth Management and Trust Services1,546
1,599
 (53) (3.3)%
Debit card interchange fees1,146
1,112
 34
 3.1 %
Merchant interchange fees296
355
 (59) (16.6)%
Earnings on bank-owned life insurance628
626
 2
 0.3 %
Dividends on FHLB stock585
577
 8
 1.4 %
Gains on investment securities, net10
394
 (384) (97.5)%
Other income729
691
 38
 5.5 %
Total non-interest income$6,277
$6,698
 $(421) (6.3)%

ThirdFirst Quarter of 20172024 Compared to Thirdthe Fourth Quarter of 20162023


Non-interest income decreased by $48 thousand in the third quarter of 2017 to $2.07 million, compared to $2.11 million in the same quarter a year ago. The decrease was primarily due to a lower dividend yield on FHLB stock.

First Nine Months of 2017 Compared to First Nine Months of 2016

Non-interest income decreased by $421 thousand to $6.3 million in the first nine months of 2017, compared to $6.7totaled $2.8 million for the first nine monthsquarter of 2016.2024, compared to a loss of $3.3 million for the prior quarter. The decrease$6.0 million increase from the prior quarter was primarily attributed to a $5.9 million net loss on sale of available-for-sale investment securities in the prior quarter.

First Quarter of 2024 Compared to the First Quarter of 2023

Non-interest income totaled $2.8 million for the first quarter of 2024, materially unchanged from the same period of the prior year. The $181 thousand decrease from the prior year period was mostly attributable to a decrease in bank-owned life insurance benefit payments due to the recognition of a $384 thousand decreasedeath benefit in gains from the sale of investment securities.

2023, partially offset by higher dividend rates paid on Federal Home Loan Bank stock and higher wealth management and trust services income in 2024.


Non-interest Expense
 
The tables below detailfollowing table details the components of non-interest expense.
 Three months endedQuarter over quarterYear over year
(dollars in thousands)March 31, 2024December 31, 2023March 31, 2023Amount ChangePercent ChangeAmount ChangePercent Change
Salaries and related benefits$12,084 $10,361 $10,930 $1,723 16.6 %$1,154 10.6 %
Occupancy and equipment1,969 1,939 2,414 30 1.5 %(445)(18.4)%
Professional services1,078 921 1,123 157 17.0 %(45)(4.0)%
Data processing1,070 1,081 1,045 (11)(1.0)%25 2.4 %
Deposit network fees845 940 96 (95)(10.1)%749 780.2 %
Federal Deposit Insurance Corporation insurance435 454 289 (19)(4.2)%146 50.5 %
Information technology402 431 370 (29)(6.7)%32 8.6 %
Depreciation and amortization388 393 882 (5)(1.3)%(494)(56.0)%
Directors' expense317 319 321 (2)(0.6)%(4)(1.2)%
Amortization of core deposit intangible251 330 345 (79)(23.9)%(94)(27.2)%
Other real estate owned— — 4 — N/A(4)(100.0)%
Other non-interest expense
Advertising296 347 278 (51)(14.7)%18 6.5 %
Other expense2,034 1,773 1,683 261 14.7 %351 20.9 %
Total other non-interest expense2,330 2,120 1,961 210 9.9 %369 18.8 %
Total non-interest expense$21,169 $19,289 $19,780 $1,880 9.7 %$1,389 7.0 %
Page-35
 Three months ended Amount Percent
(dollars in thousands)September 30, 2017 September 30, 2016 Increase (Decrease) Increase (Decrease)
Salaries and related benefits$7,344
 $6,683
 $661
 9.9 %
Occupancy and equipment1,364
 1,275
 89
 7.0 %
Depreciation and amortization489
 449
 40
 8.9 %
Federal Deposit Insurance Corporation insurance167
 253
 (86) (34.0)%
Data processing946
 894
 52
 5.8 %
Professional services801
 476
 325
 68.3 %
Directors' expense175
 143
 32
 22.4 %
Information technology179
 307
 (128) (41.7)%
Provision for losses on off-balance sheet commitments100
 —
 100
 NM
Other non-interest expense       
Advertising155
 177
 (22) (12.4)%
    Other expense1,316
 1,253
 63
 5.0 %
Total other non-interest expense1,471
 1,430
 41
 2.9 %
Total non-interest expense$13,036
 $11,910
 $1,126
 9.5 %
        
 Nine months ended Amount Percent
(dollars in thousands)September 30, 2017 September 30, 2016 Increase (Decrease) Increase (Decrease)
Salaries and related benefits$22,106
 $20,155
 $1,951
 9.7 %
Occupancy and equipment4,063
 3,731
 332
 8.9 %
Depreciation and amortization1,433
 1,343
 90
 6.7 %
Federal Deposit Insurance Corporation insurance490
 760
 (270) (35.5)%
Data processing2,848
 2,666
 182
 6.8 %
Professional services1,845
 1,528
 317
 20.7 %
Directors' expense557
 448
 109
 24.3 %
Information technology563
 665
 (102) (15.3)%
Provision for losses on off-balance sheet commitments57
 150
 (93) (62.0)%
Other non-interest expense  
    
Advertising359
 378
 (19) (5.0)%
    Other expense4,357
 4,113
 244
 5.9 %
Total other non-interest expense4,716
 4,491
 225
 5.0 %
Total non-interest expense$38,678
 $35,937
 $2,741
 7.6 %
        
NM - Not Meaningful       

ThirdFirst Quarter of 20172024 Compared to Thirdthe Fourth Quarter of 20162023


Non-interest expense increased by $1.1 million to $13.0 million in the third quarter of 2017, compared to $11.9 million in the same quarter a year ago. The increase was primarily due to higher salaries and benefits related to growth strategies and filling open positions, incentive bonuses, acquisition-related professional expenses, and a provision for losses on off-balance sheet commitments in the third quarter of 2017 primarily related to an increase in total commitments during the quarter. Information technology costs were lower in the third quarter of 2017, compared to the third quarter of 2016, which included expenses related to a loan imaging project and computer hardware upgrades. In addition, FDIC assessment expense was lower in in 2017 due to decreased assessment rates.


First Nine Months of 2017 Compared to First Nine Months of 2016

Non-interest expense totaled $38.7$21.2 million for the first quarter of 2024, compared to $19.3 million for the prior quarter, an increase of $1.9 million. Salaries and related benefits increased $1.7 million largely due to various factors, both in prior and current quarter. Last quarter, profit sharing, supplemental executive retirement plan and stock-based compensation accrual adjustments reduced expenses. In the first quarter of 2024, there were lower deferred loan origination costs, an increase to the 401(k) contribution matching associated with the usual reset and bonus payments at the beginning of the year, and increased salary costs due to new talent acquisition, partially offset by incentive adjustments. In addition, professional services expenses from certain legal, accounting, and consulting costs increased by $157 thousand.

First Quarter of 2024 Compared to the First Quarter of 2023

Non-interest expense totaled $21.2 million for the first quarter of 2024, compared to $19.8 million for the first quarter of 2023, an increase of $1.4 million. Significant fluctuations were as follows:

•Salaries and related benefits increased by $1.2 million largely due to the increase in full time equivalent employees to 330 from 311 at the same time in prior year.

•Deposit network fees increased by $749 thousand as customers sought additional FDIC insurance protection through reciprocal deposit networks.

•These increases were partially offset by decreases in occupancy and equipment and depreciation and amortization expenses of $445 thousand and $494 thousand, respectively, mainly from the acceleration of lease-related costs for branch closures in the first nine monthsquarter of 2017, compared2023. Beginning in 2024, the estimated annual pre-tax savings from branch closures are expected to $35.9 million in the same period of 2016. The increase was primarily due to higher salaries and benefits related to growth strategies and filling open positions, which resulted in additional incentive bonuses, stock-based compensation and 401(k) employer match. The search for qualified employees resulted in recruiting fees, which contributed to an increase in other expenses. Expenses associated with the pending Bank of Napa acquisition (primarily professional services) also contributed to the increase. Significant costs associated with integrating the two banks may continue into the first half of 2018. Occupancy and equipment expense also increased, primarily due to higher rent and maintenance costs associated with our new Healdsburg branch and a new lease on our San Francisco office. These increases are offset by lower FDIC assessment expense due to decreased assessment rates.be approximately $1.4 million.


Provision for Income Taxes


The provision for income taxes for the third quarter of 2017 totaled $2.7 million at an effective tax rate of 34.4%, compared to $4.2 million at an effective tax rate of 37.5% in the same quarter last year. The provision for income taxes for the first nine months of 2017 totaled $7.4 million at an effective tax rate of 33.4%, compared to $10.0 million at an effective tax rate of 36.5% for the first nine months of 2016. The decrease in the year-to-date effective tax rate is primarily due to higher tax-exempt interest on municipal securities and loans and lower pre-tax income. Additionally, discrete tax benefits from the exercise of stock options and vesting of restricted stock increased in 2017 as a result of the adoption of ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, as discussed in Note 2 to the Consolidated Financial Statements in Item 1 of this report. Income tax provisions reflect accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon reported pre-tax income, and adjusted for the effects of allincome. Provisions also reflect permanent differences between income for tax and financial reporting purposes (such as earnings on tax exempt loans and municipal securities, BOLI, andbank-owned life insurance ("BOLI"), low-income housing tax credits)credits, and stock-based compensation from the exercise of stock options, disqualifying dispositions of incentive stock options and vesting of restricted stock awards). There may be fluctuations

The provision for income taxes for the first quarter of 2024 totaled $1.0 million at an effective tax rate of 25.6%, compared to provision reversal of $218 thousand at a negative effective tax rate of (55.6)% in the prior quarter and $3.4 million at an effective tax rate of 26.7% in the same quarter last year. The increase in the provision for income taxes in the first quarter of 2024 reflected higher pre-tax income as compared to the prior quarter. The increase in the effective tax rate in the first quarter of 2024 was primarily due to the tax provision reversal recorded in the prior quarter that primarily resulted from period to period baseda $5.9 million pre-tax loss on the relationshipsale of netavailable-for-sale investment securities. The 110 basis point decrease in the effective tax rate in the first quarter of 2024, as compared to the same quarter a year ago, was primarily due to the larger proportional effect of permanent tax differences on lower pretax income. This decrease was partially offset by a reduction in the tax-exempt interest exclusion (due to income before tax.a larger IRC Section 291(e) interest expense disallowance), compared to the prior period.


We file a consolidated return in the U.S. Federalfederal tax jurisdiction and a combined return in the Statestate of California tax jurisdiction. There were no ongoing federal or state income tax examinations at the time of the issuance of this report. At September 30, 2017,As of March 31, 2024, neither the Bank nor Bancorp had accruals for interest noror penalties related to unrecognized tax benefits.


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FINANCIAL CONDITION SUMMARY


At September 30, 2017, assets totaled $2,155.9Cash, Cash Equivalents and Restricted Cash

Total cash, cash equivalents and restricted cash were $36.3 million at March 31, 2024, an increase of $132.4$5.9 million when compared to $2,023.5$30.5 million at December 31, 2016, primarily due to an increase in cash of $100.3 million and loans of $37.8 million. We maintain liquidity to support our future loan growth by holding investment securities averaging less than 5 years duration and cash earning 1.25% at the Federal Reserve Bank.2023.


Investment Securities


The investment securities portfolio totaled $413.2$1.451 billion at March 31, 2024, a decrease of $25.8 million from $1.477 billion at September 30, 2017, a $3.8 million decrease from December 31, 2016. Year-to-date2023. The decrease was primarily the result of principal repayments totaling $20.3 million, a $4.6 million increase in pre-tax unrealized losses on available-for-sale investment security purchases totaling $55.6 million partially offsetsecurities, and $900 thousand in net amortization. Both the paydownsavailable-for-sale and maturities totaling $59.5 million. Effective February 24, 2017, $129held-to-maturity portfolios are eligible for pledging to FHLB or the Federal Reserve as collateral for borrowings. The portfolios are comprised of high credit quality investments with average effective durations of 4.41 on available-for-sale securities and 5.66 on held-to-maturity securities. Both portfolios generate cash flows monthly from interest, principal amortization and payoffs, which supports the Bank's liquidity. Those cash flows totaled $31.3 million in mortgage-backed securities were transferred from available-for-sale securities to held-to-maturity at fair value to reduce balance sheet volatility, which was made possible by our strong liquidity position.the first quarter of 2024.See Note 4, Investment Securities, for additional information.




The following table below summarizes our investment in obligations of state and political subdivisions at September 30, 2017March 31, 2024 and December 31, 2016.2023.
March 31, 2024December 31, 2023
(dollars in thousands)Amortized CostFair Value% of Total State and Political SubdivisionsAmortized CostFair Value% of Total State and Political Subdivisions
Within California:
General obligation bonds$24,165 $19,964 14.8 %$24,191 $20,009 14.7 %
Revenue bonds3,504 2,926 2.1 3,507 2,917 2.1 
Total within California27,669 22,890 16.9 27,698 22,926 16.8 
Outside California:
General obligation bonds108,523 96,700 66.2 108,846 98,139 66.3 
Revenue bonds27,635 24,652 16.9 27,692 25,014 16.9 
Total outside California136,158 121,352 83.1 136,538 123,153 83.2 
Total obligations of state and political subdivisions$163,827 $144,242 100.0 %$164,236 $146,079 100.0 %
Percent of investment portfolio10.8 %10.8 %10.7 %10.7 %
  September 30, 2017 December 31, 2016
(dollars in thousands)Amortized CostFair Value% of Total State and Political Subdivisions Amortized CostFair Value% of Total State and Political Subdivisions
Within California:       
 General obligation bonds$14,332
$14,478
15.1% $15,777
$15,660
14.3%
 Revenue bonds5,493
5,683
5.7
 10,895
11,127
9.9
 Tax allocation bonds2,617
2,773
2.8
 4,043
4,178
3.7
Total within California22,442
22,934
23.6
 30,715
30,965
27.9
Outside California:       
 General obligation bonds64,928
65,232
68.3
 71,534
70,376
64.9
 Revenue bonds7,746
7,805
8.1
 7,913
7,904
7.2
Total outside California72,674
73,037
76.4
 79,447
78,280
72.1
Total obligations of state and political subdivisions$95,116
$95,971
100.0% $110,162
$109,245
100.0%


The portionOf the total investment in obligations of the portfolio outside the state of California is distributed among twenty states. Theand political subdivisions, the largest concentrations outside of California are in Washington (13.6%Texas (37.1%), Minnesota (12.9%Washington (15.3%), and Texas (12.5%Wisconsin (9.0%). Revenue bonds, both within and outside California, primarily consist of bonds relating toOur investment in obligations issued by municipal issuers in Texas are either guaranteed by the AAA rated Texas Permanent School Fund ("PSF") or backed by revenue sources from essential services (such as public improvements, transportationutilities and utilities) and school district bonds.transportation).


Investments in states, municipalities and political subdivisions are subject to an initial pre-purchase credit assessment and ongoing monitoring. Key considerations include:


•The soundness of a municipality’s budgetary position and stability of its tax revenues
•Debt profile and level of unfunded liabilities, diversity of revenue sources, taxing authority of the issuer
•Local demographics/economics including unemployment data, largest taxpayers and local employers, income indices and home values
•For revenue bonds, the source and strength of revenue for municipal authorities including the obligor’s financial condition and reserve levels, annual debt service and debt coverage ratio, and credit enhancement (such as insurer’s strength and collateral in escrow accounts)
•Credit ratings by major credit rating agencies


Loans

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Loans increasedand Credit Quality

During the first three months of 2024, loans decreased by $37.8$18.8 million and totaled $1,524.4 million at September 30, 2017,$2.055 billion as of March 31, 2024, compared to $1,486.6$2.074 billion as of December 31, 2023. Loan originations were $12.4 million for the three months ended March 31, 2024, compared to $53.8 million for the fourth quarter of 2023. While originations were muted, the pipeline has grown, and key opportunistic hires and new compensation plans have already accelerated calling activity, pipeline growth and diversification.

Loan payoffs were $21.8 million for the three months ended March 31, 2024, compared to $50.3 million for the fourth quarter of 2023. The largest portion of payoffs were the result of construction project completions, followed by refinances of loans not meeting our strategic and risk profile standards, and cash payoffs. There was no dominant overlying trend noted in the quarter.

Non-accrual loans totaled $6.3 million, or 0.31% of the loan portfolio, at March 31, 2024, compared to $8.0 million, or 0.39% at December 31, 2023. The $1.7 million decrease resulted from various payoffs and paydowns. Three loan relationships totaling $370 thousand moved to non-accrual status in the first quarter, partially offsetting the decrease. Of the total non-accrual loans as of March 31, 2024 approximately 50% were paying as agreed, with the remaining 50% closely monitored for payments, and 63% were real estate secured.
While Bank of Marin has continued its steadfast conservative underwriting practices and has not changed its credit standards or policies in reaction to current market conditions, our portfolio management and credit teams are exercising heightened awareness of the potential for credit quality weakening. Classified loans totaled $54.8 million as of March 31, 2024, compared to $32.3 million as of December 31, 2023. The increase of $22.5 million was due primarily to a migration of $24.4 million in loans from special mention to substandard risk ratings. The majority of these downgrades were due to protracted issues, therefore, these borrowers' financial conditions merit extra attention and proactive management. The three significant relationships downgraded are of different types and geographies. Two of these are commercial real estate loans that are fully secured and supported with owner-level personal guarantees that have ample liquidity, and we believe there is minimal loss potential in these credits. Only 1% of the additions were on non-accrual status as of March 31, 2024, with 11% of all classified loans on non-accrual status. Excluding the accruing loan over 90 days past due mentioned below, 98% of all classified loans were current on their payments as of March 31, 2024. Additions to classified loans were offset by $2.9 million in payoffs and paydowns.

Accruing loans past due 30 to 89 days totaled $1.9 million as of March 31, 2024, compared to $1.0 million as of December 31, 2023. We had one accruing non-owner-occupied commercial real estate loan over 90 days past due as of March 31, 2024 totaling $8.1 million that has been in extended renewal negotiations, but it is well-secured and expected to be restored to a current payment status in the near future.

Loans designated special mention, which are not considered adversely classified, decreased by $34.3 million to $100.9 million as of March 31, 2024, from $135.2 million as of December 31, 2023. The decrease was largely due to $24.4 million in downgrades from special mention to substandard mentioned above, $10.5 million in upgrades to pass risk ratings, and $1.8 million in net paydowns and payoffs, partially offset by $2.0 million in downgrades from pass risk ratings and $443 thousand in balance increases. Of the loans designated special mention, 98% were real estate secured. All but one of the loans, outside of not-for-profits, are guaranteed by owners or sponsors.

Net charge-offs for the first quarter of 2024 totaled $21 thousand, compared to net charge-offs of $387 thousand for the fourth quarter of 2023. The ratio of allowance for credit losses to total loans was 1.24% at March 31, 2024, compared to 1.21% at December 31, 2023.

For more information, refer to Note 5, Loans and Allowance for Credit Losses on Loans, to the consolidated financial statements in this Form 10-Q.

Liabilities - Deposits and Borrowings

During the first three months of 2024, total liabilities decreased by $34.3 million to $3.330 billion. Deposits totaled $3.284 billion at March 31, 2024, a decrease of $6.0 million, compared to $3.290 billion at December 31, 2023. The Bank had zero outstanding borrowings at March 31, 2024, compared to $26.0 million at December 31, 2016. New loan originations in2023.

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Non-interest bearing deposits made up 44.0% of total deposits at March 31, 2024, compared to 43.8% at December 31, 2023. Money market balances remained constant at 34.6% and time deposits increased from 7.6% to 8.1% of total deposits with a weighted average rate of 3.17% and average term of six months. Additionally, the Bank's competitive and balanced approach to relationship management and focused outreach supported the addition of nearly 1,200 new accounts during the first nine monthsquarter, 34% of 2017 of $121.6 millionwhich were primarily in commercial real estate, including both owner-occupied and investor-owned, spread throughout our markets, and tenancy-in-common fractional interest loans. Loan originations combined with changes in the utilization of loan commitments, the purchase of $7.0 million in high quality tenancy-in-common loans, pay-offs of $106.1 million, and scheduled payments, produced the net increase from December 31, 2016. Our current pipeline is slightly larger than last year at this time, and should translate into loan growth throughout the remainder of 2017 and into 2018.new relationships (excluding new reciprocal accounts).

Liabilities


During the first nine monthsquarter of 2017, total liabilities increased2024, outstanding borrowings decreased by $117.9$26.0 million to $1,910.9 million. Deposits increased $118.3 million in the first nine months of 2017, primarily due to fluctuationszero at March 31, 2024, resulting from large commercial clients' operationalinvestment and loan cash flows. These increases include the placement by existing clients of funds from their asset sales that will be distributed to the beneficiaries of trustsAlthough available as a liquidity source, we have not utilized brokered deposits. Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and remaining borrowing capacity was $1.905 billion, or reinvested and large contractors performing municipal work where funds are deposited and then flow out over the life of the contract. Non-interest bearing deposits totaled $924.1 million, or 48.9%58% of total deposits at September 30, 2017, compared to 46.1% at Decemberand 208% of estimated uninsured and/or uncollateralized deposits as of March 31, 2016.2024.




Capital Adequacy

We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements as set forth in the following tables below can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and the Bank’s prompt corrective action classification are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors.

Management reviews capital ratios on a regular basis and produces a five-year capital plan semi-annually to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs.  Stress tests are performed on capital ratios and include scenarios such as additional unrealized losses on the investment portfolio, additional deposit growth and potential share repurchases. For all periods presented, the Bank’s ratios exceed the regulatory definition of “well capitalized” under the regulatory framework for prompt corrective action and Bancorp’s ratios exceed the required minimum ratios to be considered a well-capitalized bank holding company. TheIn addition, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action as of June 30, 2017.March 31, 2024. There are no conditions or events since that notification that Managementmanagement believes have changed the Bank’s categories and we expect the Bank to remain well capitalized for prompt corrective action purposes.


In July 2013,Bancorp's TCE ratio was 9.76% at March 31, 2024, compared to 9.73% at December 31, 2023. Bancorp's TCE ratio, net of after tax unrealized losses on held-to-maturity securities, was 7.67%, compared to 7.80% at December 31, 2023. Management believes this non-GAAP measure is important because it reflects the Federal Reserve Boardlevel of Governors,capital available to withstand drastic changes in market conditions (refer to the FDICdiscussion and the Officereconciliation of the Comptroller of the Currency finalized regulatory capital rules known as "Basel III". The rules became effective beginning January 2015, and will be phased-in by January 2019. The guidelines, among other things, changed the minimum capital requirements of banks and bank holding companies by increasing the Tier 1 capital to risk-weighted assets ratio to 6%, and introduced a new requirement to maintain a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%. By 2019, when fully phasedthis non-GAAP financial measure in the rules will require further increases to certain minimum capital requirements and a capital conservation buffersection below entitled Statement Regarding Use of an additional 2.5% of risk-weighted assets. Basel III permits certain banks such as us to exclude accumulated other comprehensive income or loss from regulatory capital through a one-time election in the first quarter of 2015. As it was consistent with our existing treatment, there were no changes to our capital ratios as a result of making this election. The Basel III changes that affected us most significantly include:Non-GAAP Financial Measures).
shifting off-balance sheet items with an original maturity of one year or less from 0% to 20% risk weight,
moving past due loan balances from 100% to 150% risk weight,
deducting deferred tax assets associated with NOLs and tax credits from common equity Tier 1 capital, and
subjecting deferred tax assets related to temporary timing differences that exceed certain thresholds to 250% risk-weighting, beginning in 2018.

We have modeled our ratios under the fully phased-in Basel III rules, and based on present facts, we do not expect that we will be required to raise additional capital as a result of the fully phased-in rules.

The Bancorp’s and Bank’s capital adequacy ratios as of September 30, 2017March 31, 2024 and December 31, 20162023 are presented in the following tables. Bancorp's
Bancorp Capital Ratios

(dollars in thousands)
Actual
Adequately Capitalized Threshold 1
Threshold to be a Well Capitalized Bank Holding Company
March 31, 2024AmountRatioAmountRatioAmountRatio
Total Capital (to risk-weighted assets)$441,181 17.05 %$271,680 10.50 %$258,743 10.00 %
Tier 1 Capital (to risk-weighted assets)$415,157 16.05 %$219,931 8.50 %$206,994 8.00 %
Tier 1 Leverage Capital (to average assets)$415,157 10.92 %$152,035 4.00 %$190,043 5.00 %
Common Equity Tier 1 (to risk-weighted assets)$415,157 16.05 %$181,120 7.00 %$168,183 6.50 %
December 31, 2023   
Total Capital (to risk-weighted assets)$440,842 16.89 %$274,002 10.50 %$260,954 10.00 %
Tier 1 Capital (to risk-weighted assets)$415,224 15.91 %$221,811 8.50 %$208,763 8.00 %
Tier 1 Leverage Capital (to average assets)$415,224 10.46 %$158,771 4.00 %$198,464 5.00 %
Common Equity Tier 1 (to risk-weighted assets)$415,224 15.91 %$182,668 7.00 %$169,620 6.50 %
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Bank Capital Ratios


(dollars in thousands)
Actual
Adequately Capitalized Threshold 1
Threshold to be Well Capitalized under Prompt Corrective Action Provisions
March 31, 2024AmountRatioAmountRatioAmountRatio
Total Capital (to risk-weighted assets)$432,306 16.71 %$271,640 10.50 %$258,705 10.00 %
Tier 1 Capital (to risk-weighted assets)$406,282 15.70 %$219,899 8.50 %$206,964 8.00 %
Tier 1 Leverage Capital (to average assets)$406,282 10.69 %$152,026 4.00 %$190,033 5.00 %
Common Equity Tier 1 (to risk-weighted assets)$406,282 15.70 %$181,094 7.00 %$168,158 6.50 %
December 31, 2023      
Total Capital (to risk-weighted assets)$433,598 16.62 %$273,986 10.50 %$260,939 10.00 %
Tier 1 Capital (to risk-weighted assets)$407,981 15.64 %$221,798 8.50 %$208,751 8.00 %
Tier 1 Leverage Capital (to average assets)$407,981 10.28 %$158,767 4.00 %$198,459 5.00 %
Common Equity Tier 1 (to risk-weighted assets)$407,981 15.64 %$182,657 7.00 %$169,610 6.50 %
1 Except for Tier 1 capital includesLeverage Capital, the subordinated debentures, which are not included at the Bank level. We continued to build capital in 2017 through the accumulation of net income.
Capital Ratios for Bancorp
(dollars in thousands)
Actual Ratio
Adequately Capitalized Threshold1
Ratio to be a Well Capitalized Bank Holding Company
September 30, 2017Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital (to risk-weighted assets)$259,848
15.05%≥ $159,667
≥ 9.250%≥ $172,613
≥ 10.00%
Tier 1 Capital (to risk-weighted assets)$243,644
14.11%≥ $125,145
≥ 7.250%≥ $138,091
≥ 8.00%
Tier 1 Capital (to average assets)$243,644
11.43%≥ $85,256
≥ 4.000%≥ $106,570
≥ 5.00%
Common Equity Tier 1 (to risk-weighted assets)$238,115
13.79%≥ $99,253
≥ 5.750%≥ $112,199
≥ 6.50%
December 31, 2016 
  
 
  
Total Capital (to risk-weighted assets)$247,453
14.32%≥ $149,039
≥ 8.625%≥ $172,799
≥ 10.00%
Tier 1 Capital (to risk-weighted assets)$231,111
13.37%≥ $114,479
≥ 6.625%≥ $138,239
≥ 8.00%
Tier 1 Capital (to average assets)$231,111
11.39%≥ $81,189
≥ 4.000%≥ $101,486
≥ 5.00%
Common Equity Tier 1 (to risk-weighted assets)$225,925
13.07%≥ $88,559
≥ 5.125%≥ $112,319
≥ 6.50%


1 The adequately capitalized threshold includesthresholds reflect the regulatory minimum plus a 2.5% capital conservation buffer that was effective January 1, 2016. These ratios are not reflectedas required under the Basel III Capital Standards in order to avoid limitations on a fully phased-in basis, which will occurpaying dividends, engaging in January 2019.share repurchases, and paying discretionary bonuses.

Capital Ratios for the Bank
(dollars in thousands)
Actual Ratio
Adequately Capitalized Threshold1
Ratio to be Well Capitalized under Prompt Corrective Action Provisions
September 30, 2017Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital (to risk-weighted assets)$253,803
14.71%≥ $159,619
≥ 9.250%≥ $172,561
≥ 10.00%
Tier 1 Capital (to risk-weighted assets)$237,598
13.77%≥ $125,107
≥ 7.250%≥ $138,049
≥ 8.00%
Tier 1 Capital (to average assets)$237,598
11.15%≥ $85,244
≥ 4.000%≥ $106,555
≥ 5.00%
Common Equity Tier 1 (to risk-weighted assets)$237,598
13.77%≥ $99,223
≥ 5.750%≥ $112,165
≥ 6.50%
December 31, 2016 
 
 
 
 
 
Total Capital (to risk-weighted assets)$243,468
14.09%≥ $149,016
≥ 8.625%≥ $172,772
≥ 10.00%
Tier 1 Capital (to risk-weighted assets)$227,127
13.15%≥ $114,462
≥ 6.625%≥ $138,218
≥ 8.00%
Tier 1 Capital (to average assets)$227,127
11.19%≥ $81,176
≥ 4.000%≥ $101,469
≥ 5.00%
Common Equity Tier 1 (to risk-weighted assets)$227,127
13.15%≥ $88,546
≥ 5.125%≥ $112,302
≥ 6.50%
1 The adequately capitalized threshold includes the capital conservation buffer that was effective January 1, 2016. These ratios are not reflected on a fully phased-in basis, which will occur in January 2019.

Liquidity and Capital Resources

The goal of liquidity management is to provide adequate funds to meet loan demand and to fund operating activities and deposit withdrawals. We accomplish this goal by maintaining an appropriate level of liquid assets and formal lines of credit with the FHLB, FRBSF and correspondent banks that enable us to borrow funds as seen in the table below and discussed in Note 6 to the Consolidated Financial Statements in ITEM 1 of this Form 10-Q.report. Our Asset Liability Management Committee ("ALCO"), which is comprised of certain Bank directors and the Bank's Chief Executive Officer, is responsible for approving and monitoring our liquidity targets and strategies. ALCOThe Bank has adopted a contingencylong-established minimum liquidity requirements that are regularly monitored using metrics and tools similar to those used by larger banks, such as the liquidity coverage ratio, and multi-scenario, long-horizon stress tests. Our contingency funding plan that provides for early detection of potential liquidity issues in the market or the Bank and institutes prompt responses that may prevent or alleviate a potential liquidity crisis. Management monitors liquidity daily and regularly adjusts our position based on current and future liquidity needs. We also have relationships with third partythird-party deposit networks and can adjust the placement of our deposits via reciprocal or one-way sales as part of our cash management strategy.

Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity was $1.905 billion, or 208% of estimated uninsured and/or uncollateralized deposits as of March 31, 2024.

The following table details the components of our contingent liquidity sources as of March 31, 2024.

(in thousands)		Total AvailableAmount UsedNet Availability
Internal Sources
Unrestricted cash 1
$13,452 N/A$13,452 
Unencumbered securities at market value464,959 N/A464,959 
External Sources
FHLB line of credit951,238 $— 951,238 
FRB line of credit349,991 — 349,991 
Lines of credit at correspondent banks125,000 — 125,000 
Total Liquidity$1,904,640 $— $1,904,640 
1 Excludes cash items in transit.
Note: Brokered deposits available through third party networks are not included above.

We obtain funds from the repayment and maturity of loans, deposit inflows, investment securitysecurities sales, maturities and paydowns, federal funds purchases, FRB and FHLB advances, other borrowings, and cash flow from operations.  Although available as a liquidity source, we have not needed to utilize brokered deposits. Our primary uses of funds are the origination of loans, the purchase of investment securities, withdrawals of deposits, maturity of certificates of deposit, repayment of borrowings, and dividends to common stockholders.stockholders, and operating expenses.

The mostCustomer deposits are a significant factor incomponent of our daily liquidity position has been the levelposition. The attraction and retention of customer deposits. We attract and retain new deposits which dependsdepend upon the variety and effectiveness of our customer account products, service and convenience, and rates paid to customers, as well asand our financial strength. The cash cycles and unique business activities of some of our large commercial depositors may cause short-term fluctuations in their deposit balances held with us.

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At September 30, 2017 our liquid assets, which included unencumbered available-for-sale securities and cash, totaled $348.6 million, an increase of $33.7 million from December 31, 2016. Our cash and cash equivalents increased $100.3$5.9 million from December 31, 2016.in the first three months of 2024. The primarymost significant sources of fundsliquidity during the first ninethree months of 2017 included an increase in net deposits of $118.3 million, $60.8 million in pay-downs2024 were proceeds from principal paydowns and maturities of investment securities of $20.3 million, and $20.4proceeds from loans collected net of originations totaling $18.7 million. In addition, $4.3 million in net cash was provided by operating activities. The primary

Significant uses of liquidity during the first ninethree months of 2017 was $55.62024 were $26.0 million in investment securities purchased, $37.4repayments of short-term borrowings, $6.0 million in loans originated (netnet withdrawals of loan principal collected)deposits and $5.1$4.0 million in cash dividends paid on common stock to our shareholders. Refer to the Consolidated Statement of Cash Flows in this Form 10-Q for additional information on our sources and uses of liquidity. Management anticipates that our current strong liquidity position, as detailed in this report, and core deposit base will providecontingent funding sources outlined in the table above are adequate liquidity to fundsupport our operations.operational needs.

Undrawn creditUnfunded loan commitments, as discussed in Note 8 to the Consolidated Financial Statements in this Form 10-Q, totaled $406.9$489.4 million at September 30, 2017. TheseMarch 31, 2024. We expect to fund these commitments to the extent used, are expected to be fundedutilized primarily through the repayment of existing loans, deposit growthprincipal paydowns of investment securities, and liquid assets.

Over the next twelve months, $91.5$251.4 million of time deposits will mature. We expect to replace these funds to be replaced with new deposits. Ourdeposits or excess liquidity. We believe our emphasis on local deposits, combined with our well capitalized equity position,immediately available funding sources, provides a very stable funding base.base for our liquidity needs.


We had no borrowings under our credit facilities of at March 31, 2024, and $26.0 million at December 31, 2023, as discussed in Note 6 to the Consolidated Financial Statements in ITEM 1 of this report.


SinceBecause Bancorp is a holding company and does not conduct regular banking operations, its primary sources of liquidity are dividends from the Bank. Under the California Financial Code, payment of a dividend from the Bank to Bancorp without advance regulatory approval is restricted to the lesser of the Bank’s retained earnings or the amount of the Bank’s net profits from the previous three fiscal years less the amount of dividends paid during that period. The primary uses of funds for Bancorp are shareholder dividends and ordinary operating expenses.  Bancorp held $5.7$8.6 million ofin cash at September 30, 2017, which is deemed sufficient to cover Bancorp's operational needsMarch 31, 2024 and cash dividends to shareholders through early 2018. Managementmanagement anticipates that there will be sufficient earningscapacity at the Bank to provide dividends to Bancorp to meet its funding requirements for the foreseeable future.


Statement Regarding use of Non-GAAP Financial Measures
Financial results are presented in accordance with GAAP and with reference to certain non-GAAP financial measures. Management believes that, given recent industry turmoil, the presentation of Bancorp's non-GAAP TCE ratio reflecting the after tax impact of unrealized losses on held-to-maturity securities provides useful supplemental information to investors because it reflects the level of capital remaining after a hypothetical liquidation of the entire securities portfolio. Because there are limits to the usefulness of this measure to investors, Bancorp encourages readers to consider its annual and quarterly consolidated financial statements and notes related thereto in their entirety, as filed with the Securities and Exchange Commission, and not to rely on any single financial measure. A reconciliation of the non-GAAP TCE ratio is presented below.

Reconciliation of GAAP and Non-GAAP Financial Measures
(in thousands, unaudited)March 31, 2024December 31, 2023
Tangible Common Equity - Bancorp
Total stockholders' equity$436,680 439,062 
Goodwill and core deposit intangible(76,269)(76,520)
Total TCEa360,411 362,542 
Unrealized losses on HTM securities, net of tax 1
(83,931)(77,739)
TCE, net of unrealized losses on HTM securities (non-GAAP)b$276,480 284,803 
Total assets$3,767,176 3,803,903 
Goodwill and core deposit intangible(76,269)(76,520)
Total tangible assetsc3,690,907 3,727,383 
Unrealized losses on HTM securities, net of tax 1
(83,931)(77,739)
Total tangible assets, net of unrealized losses on HTM securities (non-GAAP)d$3,606,976 3,649,644 
Bancorp TCE ratioa / c9.8 %9.7 %
Bancorp TCE ratio, net of unrealized losses on HTM securities (non-GAAP)b / d7.7 %7.8 %
1 Net unrealized losses on held-to-maturity securities as of March 31, 2024 and December 31, 2023 of $119.2 million and $110.4 million, respectively, as shown in Note 4, net of an estimated $35.2 million and $32.6 million, respectively, in deferred tax benefits based on a blended state and federal statutory tax rate of 29.56%.
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ITEM 3.     Quantitative and Qualitative DisclosureDisclosures about MarketRisk


Market risk is defined as the risk of loss arising from an adverse change in the market value (or prices) of financial instruments. A significant formcomponent of market risk is interest rate risk, which is inherent in our lending, investment, borrowing lending and deposit gathering activities. The Bank manages interest rate sensitivity to minimize the exposure of our net interest margin, earnings, and capital to changes in interest rates. Interest rate changes can create fluctuations in the net interest margin due to an imbalance in the timing of repricing, or maturity of assets or liabilities. Interest rate changes can also affect the market value of our financial instruments, such as available-for-sale securities and the related unrealized gains or losses, which affect our equity value.


To mitigate interest rate risk, the structure of the Consolidated Statement of Conditionour assets and liabilities is managed with the objective of correlating the effects of interest rate changes on loans and investments with those of deposits and borrowings. The asset liability management policyAsset/Liability Management Policy sets limits on the acceptable amount of change to net interest income and the economic value of equity in different interest rate environments.


From time to time, we enter into interest rate swap contracts to mitigate the changes in the fair value of selected investment securities and specified long-term fixed-rate loans and firm commitments to enter into long-term fixed-rate loans caused by changes in interest rates. SeeRefer to Note 9 to the Consolidated Financial Statements in this Form 10-Q.report.


Exposure to interest rate risk is reviewed at least quarterly by ALCO and the Board of Directors. SimulationDirectors review our exposure to interest rate risk at least quarterly. We use simulation models are used to measure interest rate risk and to evaluate strategies to improve profitability.profitability in the context of policy guidelines. A simplified static statement of condition is prepared on a quarterly basis as a starting point, using instrument level data of our actual loans, investments, borrowings and deposits as inputs. If potential changes to net equity value and net interest income resulting from hypothetical interest rate changes are not within the limits established by the Board of Directors, Managementmanagement may adjust the asset and liability mix to bring the risk position within approved limits.

The following table estimates the effect of interest ratelimits or take other actions. Governing policies are subject to review by regulators and are updated to incorporate their observations and adapt to changes in all pointsidiosyncratic and systemic risks. As of the yield curve as measured against a flat rate scenario. The Bank currently has lowMarch 31, 2024, interest rate risk and, in general, is slightly asset sensitive (net interest margin is expected to increase if rates go up due to our significant amount of cash, adjustable rate loans and our significant non-interest bearing deposit base). Our net interest income remains most vulnerable to a falling interest rate environment. Interest rate risk remainswas within policy guidelines established by ALCO and the BoardBoard. One set of Directors.interest rates modeled and evaluated against flat interest rates and a static balance sheet is a series of immediate parallel shifts in the yield curve. Our most recent analysis of our interest rate sensitivity is provided in the following table as an example rather than an expectation of likely interest rate movements.
Immediate Changes in Interest Rates (in basis points)Estimated Change in Net Interest Income in Year 1, as Percent of Net Interest IncomeEstimated Change in Net Interest Income in Year 2, as Percent of Net Interest Income
up 400(10.8)%0.7 %
up 300(7.9)%0.7 %
up 200(5.1)%0.7 %
up 100(2.3)%0.6 %
down 1000.6 %(0.9)%
down 2002.5 %0.9 %
down 3004.4 %2.6 %
down 4007.0 %4.6 %
Immediate Changes in Interest Rates (in basis points)Estimated Change in NII in Year 1 (as percent of NII)
Estimated Change in NII in Year 2 (as percent of NII)
up 2002.5 %8.5 %
down 100(8.0)%(13.1)%


Interest rate sensitivity is a function of the repricing characteristics of our assets and liabilities. The Bank runs a combination of scenarios and sensitivities in its attempt to capture the range of interest rate risk.risk including the simulations mentioned above. As with any simulation model or other method of measuring interest rate risk, limitations are inherent in the process and dependent on assumptions. For example, if we chooselower deposit growth than modeled may cause the Bank to pay interest on certain business deposits that are currently non-interest bearing, causing these deposits to become rate sensitive in the future, we would become less asset sensitive than the model currently indicates. Assetsincrease its borrowing position, thereby increasing its liability sensitivity. Additionally, assets and liabilities may react differently to changes in market interest rates in terms of both timing and responsiveness to market rate movements. Further,Important deposit modeling assumptions include the speed of deposit run-off and the amount by which interest-bearing deposit rates increase or decrease when market interest rates change, otherwise known as the deposit beta. The above tables reflect deposit betas of up to 68%, averaging 40%, to rates paid on non-maturity interest-bearing deposits in rising rate scenarios and deposit betas of up to 60%, averaging 34%, to rates paid on non-maturity interest-bearing deposits in falling rate scenarios. The actual rates and timing of prepayments on loans and investment securities and the behavior of depositors, could vary significantly from the assumptions applied
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in the various scenarios. Lastly, uneven changes in different tenors of U.S. Treasury rates accompanied by a changethat result in changes to the shape of the yield curve could produce different results from those presented in the table. Accordingly, the results presented should not be relied upon as indicative of actual results in the event of changing market interest rates.





ITEM 4.       Controlsand Procedures

Evaluation of Disclosure Controls and Procedures


Bank of Marin Bancorp and its subsidiary (the "Company") conducted an evaluation under the supervision and with the participation of our Management,management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 (the “Act”)) as of the end of the period covered by this report. The term disclosure controls and procedures means controls and other procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Act (15 U.S.C. 78a etseq. seq.) is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Act is accumulated and communicated to our Management,management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.



Changes in Internal ControlsControl over Financial Reporting


During the last fiscal quarter ended March 31, 2024, there were no significant changes that materially affected, or are reasonably likely to affect, our internal control over financial reporting. The term internal control over financial reporting, as defined by Rule 15d-15(f) of the Act, is a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.


PART II       OTHER INFORMATION
 
ITEM 1         Legal Proceedings
On October 6, 2017, a purported shareholder of Bank of Napa, N.A., filed a putative class action lawsuit in the United States District Court for the Northern District of California, entitled Parshall v. Bank of Napa, N.A., Case No. 3:17-cv-05773-RS (N.D. Cal. filed Oct. 6, 2017), naming the Bank of Napa, its directors, Bank of Marin Bancorp and Bank of Marin alleging violations of the federal securities laws in connection with registration statement filed by Bancorp with the SEC for the pending acquisition of Bank of Napa. On October 20, 2017, the plaintiff filed a voluntary dismissal of the case.


Refer to Note 12 to the Consolidated Financial Statements in Item 8 of our 20162023 Form 10-K and Note 8 to the Consolidated Financial Statements in this Form 10-Q.


ITEM 1A      Risk Factors

Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. In addition toevaluating an investment in Bancorp's common stock, investors should consider, among other information contained in this report, including matters under the section “Forward-Looking Statements,”things, the risks previously disclosed in sectionPart I, Item 1A, “Risk Factors”"Risk Factors" of our 20162023 Form 10-K, you should carefully considerand the information contained in this quarterly report on Form 10-Q and other reports and registration statements filed with the SEC, which are incorporated herein by reference. There have been no material changes to the risk factors disclosed in connection with the proposed acquisition of the Bank of Napa, N.A. (“Napa”) as discussed in the Registration Statement onour 2023 Form S-4 filed with the SEC on October 2, 2017 (as amended).10-K.


ITEM 2       Unregistered Sales of Equity Securities and Use ofProceeds

We did not have anyThere were no unregistered sales or repurchases of our equity securities during the nine months ended September 30, 2017.period covered by this report.

Issuer Purchases of Equity Securities

On July 21, 2023, the Board of Directors approved the adoption of Bancorp's share repurchase program for up to $25.0 million and expiring on July 31, 2025. There were no repurchases under this program in either 2024 or 2023.
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ITEM 3       Defaults upon Senior Securities
None.
 


ITEM 4      Mine Safety Disclosures
Not applicable.


ITEM 5      Other Information
Not applicable.
None.
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ITEM 6       Exhibits


The following exhibits are filed as part of this report or hereby incorporated by references to filings previously made with the SEC.
 Incorporated by Reference 
Exhibit NumberExhibit DescriptionFormFile No.ExhibitFiling DateHerewith
3.01S-4333-2570253.01June 11, 2021 
3.02S-4333-2570253.02June 11, 2021
4.0110-K001-335724.01March 16, 2023
10.01S-8333-2182744.1May 26, 2017 
10.02S-8333-2212194.1October 30, 2017
10.03S-8333-2278404.1October 15, 2018 
10.04S-8333-2395554.1June 30, 2020 
10.0510-Q001-3357210.06November 7, 2007 
10.0610-K001-3357210.07March 15, 2021 
10.078-K001-3357210.2November 4, 2014
10.088-K001-3357210.1October 31, 2007 
10.0910-K001-3357210.13March 15, 2021
10.108-K001-3357210.1September 24, 2021
10.118-K001-3357210.1December 21, 2022
10.128-K001-3357210.2December 21, 2022
10.138-K001-3357210.3December 21, 2022
10.148-K001-3357210.4December 21, 2022
31.01    Filed
31.02    Filed
32.01    Filed
101.INSInline XBRL Instance DocumentFiled
101.SCHInline XBRL Taxonomy Extension Schema DocumentFiled
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentFiled
101.LABInline XBRL Taxonomy Extension Label Linkbase Document    Filed
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentFiled
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentFiled
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  Incorporated by Reference 
Exhibit NumberExhibit DescriptionFormFile No.ExhibitFiling DateHerewith
2.01
Agreement to Merger and Plan of Reorganization with Bank of Napa, dated July 31, 2017
8-K001-335722.1August 2, 2017 
3.01
Articles of Incorporation, as amended
10-Q001-335723.01November 7, 2007 
3.02
Bylaws
10-Q001-335723.02May 9, 2011 
3.02a
Bylaw Amendment
8-K001-335723.03July 6, 2015 
4.01
Rights Agreement, dated July 6, 2017
8-A12B001-335724.1July 7, 2017 
10.01
Employee Stock Ownership Plan
S-8333-1448104.1May 26, 2017 
10.02
2007 Employee Stock Purchase Plan
S-8333-1448104.1July 24, 2007 
10.03
2017 Equity Plan
S-8333-1448094.1June 30, 2017 
10.04
2010 Director Stock Plan
S-8333-1676394.1June 21, 2010 
10.05
Form of Indemnification Agreement for Directors and Executive Officers, dated August 9, 2007
10-Q001-3357210.06November 7, 2007 
10.06
Form of Employment Agreement, dated January 23, 2009
8-K001-3357210.1January 26, 2009 
10.07
2010 Annual Individual Incentive Compensation Plan
8-K001-3357299.1October 21, 2010 
10.08
Salary Continuation Agreement for executive officer Russell Colombo, Chief Executive Officer, dated January 1, 2011
8-K001-3357210.1January 6, 2011 
10.09
Salary Continuation Agreement for executive officer Peter Pelham, Director of Retail Banking, dated January 1, 2011
8-K001-3357210.4January 6, 2011 
10.10
Salary Continuation Agreement for executive officer Tani Girton, Chief Financial Officer, dated October 18, 2013
8-K001-3357210.2
November 4, 2014 
10.11
Salary Continuation Agreement for executive officer Elizabeth Reizman, Chief Credit Officer, dated July 20, 2014
8-K001-3357210.3November 4, 2014 
10.12
Salary Continuation Agreement for executive officer Timothy Myers, Executive Vice President and Commercial Banking Manager, dated May 28, 2015
8-K001-3357210.4June 2, 2015 
10.13
2007 Form of Change in Control Agreement
8-K001-3357210.1October 31, 2007 
10.14
Information Technology Services Agreement with Fidelity Information Services, LLC, dated July 11, 2012
8-K001-3357210.1July 17, 2012 
11.01
Earnings Per Share Computation - included in Note 1 to the Consolidated Financial Statements
    Filed
31.01
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    Filed
31.02
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    Filed
32.01
Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002
    Filed
101.01*XBRL Interactive Data File    Furnished
*As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.



SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Bank of Marin Bancorp
(registrant)
May 9, 2024/s/ Timothy D. Myers
DateTimothy D. Myers
November 6, 2017/s/ Russell A. Colombo
DateRussell A. Colombo
President &
and Chief Executive Officer
(Principal Executive Officer)
May 9, 2024November 6, 2017/s/ Tani Girton
DateDateTani Girton
Executive Vice President &
Chief Financial Officer
(Principal Financial Officer)
May 9, 2024/s/ David A. Merck
DateDavid A. Merck
November 6, 2017/s/ Cecilia Situ
DateCecilia Situ
First Vice President & Controller
Manager of Finance & Treasury
(Principal Accounting Officer)



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