UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~March 31,~~June 30, 2021

☐ 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)

California

20-8859754

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

504 Redwood Blvd.

Suite 100

Novato

94947

(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 class	Trading symbol	Name of each exchange on which registered
Common stock, no par value and attached Share Purchase Rights	BMRC	The Nasdaq Stock Market

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

Yes ☒ No ☐

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

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

(Do not check if a smaller reporting company)

Smaller reporting company

☐

Emerging growth company

☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of ~~April 30,~~July 31, 2021, there were ~~13,210,129~~13,021,501 shares of common stock outstanding.

TABLE OF CONTENTS



PART I	FINANCIAL INFORMATION	3

ITEM 1.	Financial Statements	3

	Consolidated Statements of Condition	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Changes in Stockholders' Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

ITEM 3.	Quantitative and Qualitative Disclosure about Market Risk	4042

ITEM 4.	Controls and Procedures	4143

PART II	OTHER INFORMATION	4143

ITEM 1.	Legal Proceedings	4143

ITEM 1A.	Risk Factors	4244

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4244

ITEM 3.	Defaults Upon Senior Securities	4244

ITEM 4.	Mine Safety Disclosures	4244

ITEM 5.	Other Information	4244

ITEM 6.	Exhibits	4345

SIGNATURES

Page-2

PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements


BANK OF MARIN BANCORP CONSOLIDATED STATEMENTS OF CONDITION ~~March 31, 2021 and December 31, 2020~~


(in thousands, except share data; unaudited)	(in thousands, except share data; unaudited)	March 31, 2021		December 31, 2020		(in thousands, except share data; unaudited)	June 30, 2021		December 31, 2020
Assets	Assets					Assets
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	142,819	$	200,320	Cash, cash equivalents and restricted cash	$	257,543	$	200,320

Investment securities:	Investment securities:					Investment securities:
Held-to-maturity, at amortized cost (net of 0 allowance for credit losses at March 31, 2021 and December 31, 2020 )		151,970		109,036
Available-for-sale, at fair value (net of 0 allowance for credit losses at March 31, 2021 and December 31, 2020 )		518,568		392,351
Held-to-maturity, at amortized cost (net of 0 allowance for credit losses at June 30, 2021 and December 31, 2020 )						Held-to-maturity, at amortized cost (net of 0 allowance for credit losses at June 30, 2021 and December 31, 2020 )	169,038		109,036
Available-for-sale, at fair value (net of 0 allowance for credit losses at June 30, 2021 and December 31, 2020 )						Available-for-sale, at fair value (net of 0 allowance for credit losses at June 30, 2021 and December 31, 2020 )	517,963		392,351
Total investment securities	Total investment securities	670,538		501,387		Total investment securities	687,001		501,387
Loans, at amortized cost	Loans, at amortized cost	2,121,772		2,088,556		Loans, at amortized cost	2,002,767		2,088,556
Allowance for credit losses		(19,958)		(22,874)
Loans, net of allowance for credit losses		2,101,814		2,065,682
Allowance for credit losses on loans						Allowance for credit losses on loans	(19,100)		(22,874)
Loans, net of allowance for credit losses on loans						Loans, net of allowance for credit losses on loans	1,983,667		2,065,682
Bank premises and equipment, net	Bank premises and equipment, net	4,604		4,919		Bank premises and equipment, net	5,248		4,919
Goodwill	Goodwill	30,140		30,140		Goodwill	30,140		30,140
Core deposit intangible	Core deposit intangible	3,627		3,831		Core deposit intangible	3,423		3,831
Operating lease right-of-use assets	Operating lease right-of-use assets	24,559		25,612		Operating lease right-of-use assets	23,506		25,612
Interest receivable and other assets	Interest receivable and other assets	80,032		80,035		Interest receivable and other assets	83,290		80,035
Total assets	Total assets	$	3,058,133	$	2,911,926	Total assets	$	3,073,818	$	2,911,926

Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Liabilities	Liabilities					Liabilities
Deposits	Deposits					Deposits
Non-interest bearing	Non-interest bearing	$	1,445,282	$	1,354,650	Non-interest bearing	$	1,460,076	$	1,354,650
Interest bearing	Interest bearing					Interest bearing
Transaction accounts	Transaction accounts	176,390		183,552		Transaction accounts	168,226		183,552
Savings accounts	Savings accounts	224,748		201,507		Savings accounts	230,730		201,507
Money market accounts	Money market accounts	714,824		667,107		Money market accounts	729,193		667,107
Time accounts	Time accounts	94,955		97,433		Time accounts	95,350		97,433
Total deposits	Total deposits	2,656,199		2,504,249		Total deposits	2,683,575		2,504,249
Borrowings and other obligations	Borrowings and other obligations	30		58		Borrowings and other obligations	438		58
Subordinated debenture	Subordinated debenture	0		2,777		Subordinated debenture	0		2,777
Operating lease liabilities	Operating lease liabilities	25,993		27,062		Operating lease liabilities	24,919		27,062
Interest payable and other liabilities	Interest payable and other liabilities	25,619		19,527		Interest payable and other liabilities	16,237		19,527
Total liabilities	Total liabilities	2,707,841		2,553,673		Total liabilities	2,725,169		2,553,673

Stockholders' Equity	Stockholders' Equity					Stockholders' Equity
Preferred stock, no par value, Authorized - 5,000,000 shares, NaN issued	Preferred stock, no par value, Authorized - 5,000,000 shares, NaN issued	0		0		Preferred stock, no par value, Authorized - 5,000,000 shares, NaN issued	0		0
Common stock, no par value, Authorized - 30,000,000 shares; issued and outstanding - 13,326,509 and 13,500,453 at March 31, 2021 and December 31, 2020, respectively		118,386		125,905
Common stock, no par value, Authorized - 30,000,000 shares; issued and outstanding - 13,055,105 and 13,500,453 at June 30, 2021 and December 31, 2020, respectively						Common stock, no par value, Authorized - 30,000,000 shares; issued and outstanding - 13,055,105 and 13,500,453 at June 30, 2021 and December 31, 2020, respectively	108,430		125,905
Retained earnings	Retained earnings	225,600		219,747		Retained earnings	231,841		219,747
Accumulated other comprehensive income, net of taxes	Accumulated other comprehensive income, net of taxes	6,306		12,601		Accumulated other comprehensive income, net of taxes	8,378		12,601
Total stockholders' equity	Total stockholders' equity	350,292		358,253		Total stockholders' equity	348,649		358,253
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	3,058,133	$	2,911,926	Total liabilities and stockholders' equity	$	3,073,818	$	2,911,926

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
(in thousands, except per share amounts; unaudited) March 31, 2021 March 31, 2020
Interest income
Interest and fees on loans $ 20,661 $ 20,887
Interest on investment securities 3,129 4,165
Interest on federal funds sold and due from banks 42 332
Total interest income 23,832 25,384
Interest expense
Interest on interest-bearing transaction accounts 39 66
Interest on savings accounts 19 16
Interest on money market accounts 286 971
Interest on time accounts 96 161
Interest on borrowings and other obligations 0 2
Interest on subordinated debenture 1,361 49
Total interest expense 1,801 1,265
Net interest income 22,031 24,119
(Reversal of) provision for credit losses on loans (2,929) 2,200
Net interest income after (reversal of) provision for credit losses 24,960 21,919
Non-interest income
Wealth Management and Trust Services 488 504
Debit card interchange fees 366 360
Service charges on deposit accounts 281 451
Earnings on bank-owned life insurance, net 257 275
Dividends on Federal Home Loan Bank stock 149 208
Merchant interchange fees 57 73
Gains on sale of investment securities, net 0 800
Other income 228 449
Total non-interest income 1,826 3,120
Non-interest expense
Salaries and related benefits 9,208 9,477
Occupancy and equipment 1,751 1,663
Professional services 863 544
Data processing 819 786
Depreciation and amortization 459 526
Information technology 313 250
Amortization of core deposit intangible 204 213
Federal Deposit Insurance Corporation insurance 179 2
Directors' expense 175 174
Charitable contributions 31 167
(Reversal of) provision for credit losses on unfunded loan commitments (590) 102
Other expense 1,410 1,565
Total non-interest expense 14,822 15,469
Income before provision for income taxes 11,964 9,570
Provision for income taxes 3,017 2,342
Net income $ 8,947 $ 7,228
Net income per common share:
Basic $ 0.67 $ 0.53
Diluted $ 0.66 $ 0.53
Weighted average shares:
Basic 13,363 13,525
Diluted 13,469 13,656
Comprehensive income (loss):
Net income $ 8,947 $ 7,228
Other comprehensive (loss) income
Change in net unrealized gains on available-for-sale securities (9,082) 9,812
Reclassification adjustment for (gains) on available-for-sale securities included in net income 0 (800)
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity 143 110
Other comprehensive (loss) income, before tax (8,939) 9,122
Deferred tax (benefit) expense (2,644) 2,697
Other comprehensive (loss) income, net of tax (6,295) 6,425
Total comprehensive income $ 2,652 $ 13,653


	Three months ended				Six months ended
(in thousands, except per share amounts; unaudited)	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Interest income
Interest and fees on loans	$	21,429	$	21,217	$	42,090	$	42,104
Interest on investment securities	3,504		3,741		6,633		7,906
Interest on federal funds sold and due from banks	54		39		96		371
Total interest income	24,987		24,997		48,819		50,381
Interest expense
Interest on interest-bearing transaction accounts	39		39		78		105
Interest on savings accounts	21		17		40		33
Interest on money market accounts	312		383		598		1,354
Interest on time accounts	81		142		177		303
Interest on borrowings and other obligations	0		1		0		3
Interest on subordinated debenture	0		40		1,361		89
Total interest expense	453		622		2,254		1,887
Net interest income	24,534		24,375		46,565		48,494
(Reversal of) provision for credit losses on loans	(920)		2,000		(3,849)		4,200
(Reversal of) provision for credit losses on unfunded loan commitments	(612)		260		(1,202)		362
Net interest income after (reversal of) provision for credit losses	26,066		22,115		51,616		43,932
Non-interest income
Wealth Management and Trust Services	530		421		1,018		925
Debit card interchange fees	419		308		785		668
Service charges on deposit accounts	317		293		598		744
Earnings on bank-owned life insurance, net	233		234		490		509
Dividends on Federal Home Loan Bank stock	177		146		326		354
Merchant interchange fees	61		47		118		120
Gains on sale of investment securities, net	0		115		0		915
Other income	285		249		513		698
Total non-interest income	2,022		1,813		3,848		4,933
Non-interest expense
Salaries and related benefits	8,888		7,864		18,096		17,341
Occupancy and equipment	1,751		1,661		3,502		3,324
Professional services	986		550		1,849		1,094
Data processing	820		829		1,639		1,615
Charitable contributions	462		273		493		440
Depreciation and amortization	389		526		848		1,052
Information technology	296		252		609		502
Directors' expense	230		175		405		349
Amortization of core deposit intangible	204		213		408		426
Federal Deposit Insurance Corporation insurance	182		116		361		118
Other expense	1,348		1,422		2,758		2,987
Total non-interest expense	15,556		13,881		30,968		29,248
Income before provision for income taxes	12,532		10,047		24,496		19,617
Provision for income taxes	3,247		2,641		6,264		4,983
Net income	$	9,285	$	7,406	$	18,232	$	14,634
Net income per common share:
Basic	$	0.71	$	0.55	$	1.38	$	1.08
Diluted	$	0.71	$	0.55	$	1.37	$	1.07
Weighted average shares:
Basic	13,092		13,514		13,227		13,519
Diluted	13,164		13,585		13,316		13,621
Comprehensive income (loss):
Net income	$	9,285	$	7,406	$	18,232	$	14,634
Other comprehensive income (loss):
Change in net unrealized gains on available-for-sale securities	2,798		1,494		(6,284)		11,306
Reclassification adjustment for gains on available-for-sale securities included in net income	0		(115)		0		(915)

Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity	138		135		281		245
Other comprehensive income (loss), before tax	2,936		1,514		(6,003)		10,636
Deferred tax expense (benefit)	864		448		(1,780)		3,145
Other comprehensive income (loss), net of tax	2,072		1,066		(4,223)		7,491
Total comprehensive income	$	11,357	$	8,472	$	14,009	$	22,125

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
For the three months ended ~~March 31,~~June 30, 2021 and 2020


(in thousands, except share data; unaudited)	(in thousands, except share data; unaudited)	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income, Net of Taxes		Total		(in thousands, except share data; unaudited)	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income, Net of Taxes		Total
		Shares	Amount									Shares	Amount
		Three months ended March 31, 2021										Three months ended June 30, 2021
Balance at January 1, 2021		13,500,453	$	125,905	$	219,747	$	12,601	$	358,253
Net income		—	—		8,947		—		8,947
Other comprehensive loss		—	—		—		(6,295)		(6,295)

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings		17,180	38		—		—		38
Stock issued under employee stock purchase plan		778	28		—		—		28
Stock issued under employee stock ownership plan		9,000	332		—		—		332
Restricted stock granted		27,054	—		—		—		0
Restricted stock surrendered for tax withholdings upon vesting		(3,961)	(156)		—		—		(156)
Restricted stock forfeited / cancelled		(3,848)	—		—		—		—
Stock-based compensation - stock options		—	172		—		—		172
Stock-based compensation - restricted stock		—	443		—		—		443
Cash dividends paid on common stock ($0.23 per share)		—	—		(3,094)		—		(3,094)
Stock purchased by directors under director stock plan		519	18		—		—		18
Stock issued in payment of director fees		3,347	117		—		—		117

Stock repurchased, net of commissions		(224,013)	(8,511)		—		—		(8,511)
Balance at March 31, 2021		13,326,509	$	118,386	$	225,600	$	6,306	$	350,292
		Three months ended March 31, 2020
Balance at January 1, 2020		13,577,008	$	129,058	$	203,227	$	4,503	$	336,788
Balance at April 1, 2021											Balance at April 1, 2021	13,326,509	$	118,386	$	225,600	$	6,306	$	350,292
Net income	Net income	—	—		7,228		—		7,228		Net income	—	—		9,285		—		9,285
Other comprehensive income	Other comprehensive income	—	—		—		6,425		6,425		Other comprehensive income	—	—		—		2,072		2,072

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings	Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings	49,055	824		—		—		824		Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings	14,000	314		—		—		314
Stock issued under employee stock purchase plan	Stock issued under employee stock purchase plan	547	16		—		—		16		Stock issued under employee stock purchase plan	831	25		—		—		25
Stock issued under employee stock ownership plan	Stock issued under employee stock ownership plan	7,900	324		—		—		324		Stock issued under employee stock ownership plan	9,300	336		—		—		336
Restricted stock granted	Restricted stock granted	29,100	0		—		—		0		Restricted stock granted	2,400	—		—		—		—
Restricted stock surrendered for tax withholdings upon vesting		(2,200)	(73)		—		—		(73)

Stock-based compensation - stock options											Stock-based compensation - stock options	—	28		—		—		28
Stock-based compensation - restricted stock											Stock-based compensation - restricted stock	—	95		—		—		95
Cash dividends paid on common stock ($0.23 per share)											Cash dividends paid on common stock ($0.23 per share)	—	—		(3,044)		—		(3,044)

Stock repurchased, net of commissions											Stock repurchased, net of commissions	(297,935)	(10,754)		—		—		(10,754)
Balance at June 30, 2021											Balance at June 30, 2021	13,055,105	$	108,430	$	231,841	$	8,378	$	348,649
												Three months ended June 30, 2020
Balance at April 1, 2020											Balance at April 1, 2020	13,565,969	$	127,684	$	207,328	$	10,928	$	345,940
Net income											Net income	—	—		7,406		—		7,406
Other comprehensive income											Other comprehensive income	—	—		—		1,066		1,066

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings											Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings	14,760	453		—		—		453
Stock issued under employee stock purchase plan											Stock issued under employee stock purchase plan	537	17		—		—		17
Stock issued under employee stock ownership plan											Stock issued under employee stock ownership plan	11,500	324		—		—		324

Restricted stock forfeited / cancelled	Restricted stock forfeited / cancelled	(5,787)	—		—		—		—		Restricted stock forfeited / cancelled	(931)	—		—		—		—
Stock-based compensation - stock options	Stock-based compensation - stock options	—	169		—		—		169		Stock-based compensation - stock options	—	42		—		—		42
Stock-based compensation - restricted stock	Stock-based compensation - restricted stock	—	461		—		—		461		Stock-based compensation - restricted stock	—	113		—		—		113
Cash dividends paid on common stock ($0.23 per share)	Cash dividends paid on common stock ($0.23 per share)	—	—		(3,127)		—		(3,127)		Cash dividends paid on common stock ($0.23 per share)	—	—		(3,121)		—		(3,121)
Stock purchased by directors under director stock plan		400	18		—		—		18
Stock issued in payment of director fees		2,610	117		—		—		117

Stock repurchased, net of commissions		(92,664)	(3,230)		—		—		(3,230)
Balance at March 31, 2020		13,565,969	$	127,684	$	207,328	$	10,928	$	345,940

Balance at June 30, 2020											Balance at June 30, 2020	13,591,835	$	128,633	$	211,613	$	11,994	$	352,240

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


BANK OF MARIN BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the six months ended June 30, 2021 and 2020


(in thousands, except share data; unaudited)	Common Stock			Retained Earnings		Accumulated Other Comprehensive (Loss) Income, Net of Taxes		Total
	Shares	Amount
	Six months ended June 30, 2021
Balance at January 1, 2021	13,500,453	$	125,905	$	219,747	$	12,601	$	358,253
Net income	—	—		18,232		—		18,232
Other comprehensive (loss)	—	—		—		(4,223)		(4,223)

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings	31,180	351						351
Stock issued under employee stock purchase plan	1,609	53		—		—		53
Stock issued under employee stock ownership plan	18,300	668		—		—		668
Restricted stock granted	29,454	—		—		—		—
Restricted stock surrendered for tax withholdings upon vesting	(3,961)	(156)		—		—		(156)
Restricted stock forfeited / cancelled	(3,848)	—		—		—		—
Stock-based compensation - stock options	—	200		—		—		200
Stock-based compensation - restricted stock	—	538		—		—		538
Cash dividends paid on common stock ($0.46 per share)	—	—		(6,138)		—		(6,138)
Stock purchased by directors under director stock plan	519	18		—		—		18
Stock issued in payment of director fees	3,347	117		—		—		117

Stock repurchased, net of commissions	(521,948)	(19,264)		—		—		(19,264)
Balance at June 30, 2021	13,055,105	$	108,430	$	231,841	$	8,378	$	348,649
	Six months ended June 30, 2020
Balance at January 1, 2020	13,577,008	$	129,058	$	203,227	$	4,503	$	336,788
Net income	—	—		14,634		—		14,634
Other comprehensive income	—	—		—		7,491		7,491

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings	63,815	1,277		—		—		1,277
Stock issued under employee stock purchase plan	1,084	33		—		—		33
Stock issued under employee stock ownership plan	19,400	648		—		—		648
Restricted stock granted	29,100	—		—		—		—
Restricted stock surrendered for tax withholdings upon vesting	(2,200)	(73)		—		—		(73)
Restricted stock forfeited / cancelled	(6,718)	—		—		—		—
Stock-based compensation - stock options	—	211		—		—		211
Stock-based compensation - restricted stock	—	574		—		—		574
Cash dividends paid on common stock ($0.46 per share)	—	—		(6,248)		—		(6,248)
Stock purchased by directors under director stock plan	400	18		—		—		18

Stock issued in payment of director fees	2,610	117		—		—		117
Stock repurchased, net of commissions	(92,664)	(3,230)		—		—		(3,230)
Balance at June 30, 2020	13,591,835	$	128,633	$	211,613	$	11,994	$	352,240

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

Page-5


BANK OF MARIN BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS
For the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020


(in thousands; unaudited)	(in thousands; unaudited)	March 31, 2021		March 31, 2020		(in thousands; unaudited)	June 30, 2021		June 30, 2020
Cash Flows from Operating Activities:	Cash Flows from Operating Activities:					Cash Flows from Operating Activities:
Net income	Net income	$	8,947	$	7,228	Net income	$	18,232	$	14,634
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
(Reversal of) provision for credit losses on loans	(Reversal of) provision for credit losses on loans	(2,929)		2,200		(Reversal of) provision for credit losses on loans	(3,849)		4,200
(Reversal of) provision for credit losses on unfunded loan commitments	(Reversal of) provision for credit losses on unfunded loan commitments	(590)		102		(Reversal of) provision for credit losses on unfunded loan commitments	(1,202)		362

Noncash contribution expense to employee stock ownership plan	Noncash contribution expense to employee stock ownership plan	332		324		Noncash contribution expense to employee stock ownership plan	668		648
Noncash director compensation expense	Noncash director compensation expense	162		75		Noncash director compensation expense	162		150
Stock-based compensation expense	Stock-based compensation expense	615		630		Stock-based compensation expense	738		785
Amortization of core deposit intangible	Amortization of core deposit intangible	204		213		Amortization of core deposit intangible	408		426
Amortization of investment security premiums, net of accretion of discounts	Amortization of investment security premiums, net of accretion of discounts	685		(93)		Amortization of investment security premiums, net of accretion of discounts	1,753		344
Accretion of (discounts) premiums on acquired loans		(33)		11
Accretion of discounts on acquired loans						Accretion of discounts on acquired loans	(78)		(55)
Accretion of discount on subordinated debenture	Accretion of discount on subordinated debenture	1,347		17		Accretion of discount on subordinated debenture	1,347		35
Net change in deferred loan origination costs/fees	Net change in deferred loan origination costs/fees	2,658		(225)		Net change in deferred loan origination costs/fees	1,146		7,829

Gain on sale of investment securities	Gain on sale of investment securities	0		(800)		Gain on sale of investment securities	0		(915)
Depreciation and amortization	Depreciation and amortization	459		526		Depreciation and amortization	848		1,052

Earnings on bank-owned life insurance policies	Earnings on bank-owned life insurance policies	(257)		(275)		Earnings on bank-owned life insurance policies	(490)		(509)
Net changes in:	Net changes in:					Net changes in:

Interest receivable and other assets	Interest receivable and other assets	2,901		293		Interest receivable and other assets	952		(2,174)
Interest payable and other liabilities	Interest payable and other liabilities	(2,065)		(701)		Interest payable and other liabilities	(866)		2,816
Total adjustments	Total adjustments	3,489		2,297		Total adjustments	1,537		14,994
Net cash provided by operating activities	Net cash provided by operating activities	12,436		9,525		Net cash provided by operating activities	19,769		29,628
Cash Flows from Investing Activities:	Cash Flows from Investing Activities:					Cash Flows from Investing Activities:

Purchase of held-to-maturity securities	Purchase of held-to-maturity securities	(41,607)		0		Purchase of held-to-maturity securities	(74,521)		0
Purchase of available-for-sale securities	Purchase of available-for-sale securities	(151,828)		(54,902)		Purchase of available-for-sale securities	(170,161)		(56,912)
Proceeds from sale of available-for-sale securities	Proceeds from sale of available-for-sale securities	0		27,442		Proceeds from sale of available-for-sale securities	0		33,756
Proceeds from paydowns/maturities of held-to-maturity securities	Proceeds from paydowns/maturities of held-to-maturity securities	8,600		6,217		Proceeds from paydowns/maturities of held-to-maturity securities	14,376		11,530
Proceeds from paydowns/maturities of available-for-sale securities	Proceeds from paydowns/maturities of available-for-sale securities	16,060		20,924		Proceeds from paydowns/maturities of available-for-sale securities	36,936		36,951

Loans originated and principal collected, net	Loans originated and principal collected, net	(36,543)		1,117		Loans originated and principal collected, net	84,259		(273,169)
Purchase of bank-owned life insurance policies	Purchase of bank-owned life insurance policies	0		(941)		Purchase of bank-owned life insurance policies	(1,943)		(941)
Purchase of premises and equipment	Purchase of premises and equipment	(144)		(146)		Purchase of premises and equipment	(765)		(242)

Cash paid for low income housing tax credit investment	Cash paid for low income housing tax credit investment	(313)		(1,251)		Cash paid for low income housing tax credit investment	(346)		(1,251)
Net cash used in investing activities	Net cash used in investing activities	(205,775)		(1,540)		Net cash used in investing activities	(112,165)		(250,278)
Cash Flows from Financing Activities:	Cash Flows from Financing Activities:					Cash Flows from Financing Activities:
Net increase (decrease) in deposits		151,950		(29,379)
Net increase in deposits						Net increase in deposits	179,326		443,377
Proceeds from stock options exercised	Proceeds from stock options exercised	38		824		Proceeds from stock options exercised	351		1,277

Payment of tax withholdings for vesting of restricted stock	Payment of tax withholdings for vesting of restricted stock	(156)		(73)		Payment of tax withholdings for vesting of restricted stock	(156)		(73)
Proceeds from stock issued under employee and director stock purchase plans	Proceeds from stock issued under employee and director stock purchase plans	46		34		Proceeds from stock issued under employee and director stock purchase plans	71		51
Stock repurchased, net of commissions	Stock repurchased, net of commissions	(8,792)		(3,333)		Stock repurchased, net of commissions	(19,677)		(3,333)
Repayment of subordinated debenture including execution costs	Repayment of subordinated debenture including execution costs	(4,126)		0		Repayment of subordinated debenture including execution costs	(4,126)		0

Repayment of finance lease obligations	Repayment of finance lease obligations	(28)		(45)		Repayment of finance lease obligations	(32)		(90)
Cash dividends paid on common stock	Cash dividends paid on common stock	(3,094)		(3,127)		Cash dividends paid on common stock	(6,138)		(6,248)

Net cash provided by (used in) financing activities		135,838		(35,099)
Net decrease in cash, cash equivalents and restricted cash		(57,501)		(27,114)
Net cash provided by financing activities						Net cash provided by financing activities	149,619		434,961
Net increase in cash, cash equivalents and restricted cash						Net increase in cash, cash equivalents and restricted cash	57,223		214,311
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	200,320		183,388		Cash, cash equivalents and restricted cash at beginning of period	200,320		183,388
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	142,819	$	156,274	Cash, cash equivalents and restricted cash at end of period	$	257,543	$	397,699
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid in interest	Cash paid in interest	$	492	$	1,260	Cash paid in interest	$	951	$	1,871
Cash paid in income taxes	Cash paid in income taxes	$	0	$	0	Cash paid in income taxes	$	6,000	$	0
Supplemental disclosure of noncash investing and financing activities:	Supplemental disclosure of noncash investing and financing activities:					Supplemental disclosure of noncash investing and financing activities:

Change in net unrealized gain or loss on available-for-sale securities		$	(9,082)	$	9,812
Change in net unrealized gains on available-for-sale securities						Change in net unrealized gains on available-for-sale securities	$	(6,284)	$	11,306

Amortization of net unrealized loss on available-for-sale securities transferred to held-to-maturity	Amortization of net unrealized loss on available-for-sale securities transferred to held-to-maturity	$	143	$	110	Amortization of net unrealized loss on available-for-sale securities transferred to held-to-maturity	$	281	$	245
Purchase of investment security not yet settled		$	10,000	$	0

Stock issued to employee stock ownership plan	Stock issued to employee stock ownership plan	$	332	$	324	Stock issued to employee stock ownership plan	$	668	$	648
Stock issued in payment of director fees		$	117	$	117
Repurchase of stock not yet settled		$	132	$	0
Stock issued for director compensation expense						Stock issued for director compensation expense	$	162	$	150

Restricted cash1	Restricted cash1	$	0	$	0	Restricted cash1	$	0	$	0

1 Restricted cash includes reserve requirements held with the Federal Reserve Bank of San Francisco. In response to the COVID-19 pandemic, 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).

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NOTES TO CONSOLIDATED FINANCIAL 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 Bancorp 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. Certain items in prior financial statements ~~have been~~were reclassified to conform to the current ~~presentation.~~ presentation, including the reclassification of the provision for credit losses on unfunded commitments in the second quarter of 2021 from non-interest expense to a separate line item under the provision for credit losses on loans in the consolidated statements of comprehensive income.

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 2020 Annual Report on Form 10-K. In the opinion of 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, 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 Trust II (the "Trust") was formed for the sole purpose of issuing trust preferred securities. Bancorp is not considered the primary beneficiary of the Trust (a variable interest entity), therefore the Trust is not consolidated in our consolidated financial statements, but rather the subordinated debenture is shown as a liability on our consolidated statements of condition. Bancorp's investment in the securities of the Trust is accounted for under the equity method and is included in interest receivable and other assets on the consolidated statements of condition. Refer to Note 6, Borrowings, for additional information on the subordinated debenture due to NorCal Community Bancorp Trust II and the early redemption that occurred on March 15, 2021.

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 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 nominal for these participating securities.

Three months ended
(in thousands, except per share data) March 31, 2021 March 31, 2020
Weighted average basic common shares outstanding 13,363 13,525
Potentially dilutive common shares related to:
Stock options 81 106
Unvested restricted stock awards 25 25
Weighted average diluted shares outstanding 13,469 13,656
Net income $ 8,947 $ 7,228
Basic EPS $ 0.67 $ 0.53
Diluted EPS $ 0.66 $ 0.53
Weighted average anti-dilutive common shares not included in the calculation of diluted EPS 80 70

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	Three months ended				Six months ended
(in thousands, except per share data)	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Weighted average basic common shares outstanding	13,092		13,514		13,227		13,519
Potentially dilutive common shares related to:
Stock options	54		54		67		80
Unvested restricted stock awards	18		17		22		22
Weighted average diluted shares outstanding	13,164		13,585		13,316		13,621
Net income	$	9,285	$	7,406	$	18,232	$	14,634
Basic EPS	$	0.71	$	0.55	$	1.38	$	1.08
Diluted EPS	$	0.71	$	0.55	$	1.37	$	1.07
Weighted average anti-dilutive common shares not included in the calculation of diluted EPS	111		207		88		109

Note 2: Recently Adopted and Issued Accounting Standards

Accounting Standards Adopted in 2021

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (ASC Topic 740): Simplifying the Accounting for Income Taxes. This ASU is intended to reduce the cost and complexity related to accounting for income taxes by removing certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and simplifying aspects of the accounting for franchise taxes and enacted changes in tax laws or rates. We adopted this ASU prospectively on January 1, 2021, which did not have a material impact on our financial condition or results of operations.

In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (ASC Topic 321), Investments - Equity Method and Joint Ventures (ASC Topic 323), and Derivatives and Hedging (ASC Topic 815) - Clarifying the Interactions between ASC 321, ASC 323, and ASC 815. Among other things, this ASU clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under ASC 323, for the purposes of applying the measurement alternative in accordance with ASC 321. We adopted this ASU prospectively on January 1, 2021, which did not have a material impact on our financial condition or results of operations.

In October 2020, the FASB issued ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs. This ASU was issued as part of the Board's ongoing project to improve codification or correct unintended application. This ASU adds clarification to ASU 2017-08, which the Bank early-adopted in 2017, and delineates whether an entity with callable debt securities that have multiple call dates should amortize the amount above that which is repayable, to the next call date. We adopted this ASU prospectively on January 1, 2021. Because this ASU was narrow in scope and for clarification purposes, it did not have a material impact on our financial condition and results of operations.

Accounting Standards Not Yet Effective

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The amendments in this ASU are elective and provide optional guidance for a limited period of time to ease the potential burden of accounting for, or recognizing the effects of reference rate reform. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this ASU may be elected as of March 12, 2020 through December 31, 2022. An entity may choose to elect the amendments in this update at an interim period subsequent to March 12, 2020 with adoption methods varying based on transaction type. We have not elected to apply amendments at this time, however, will assess the applicability of this ASU to us as we continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848). The main amendments in this ASU are intended to clarify certain optional expedients and scope of derivative instruments. The amendments are elective and effective immediately upon issuance of this ASU. Amendments may be elected through December 31, 2022. We have not elected to apply amendments at this time, however, will assess the applicability of this ASU to us as we continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.

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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 in 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.

~~Page-8~~

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 management judgment and estimation.

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	(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)		Measurement Categories: Changes in Fair Value Recorded In1	(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)		Measurement Categories: Changes in Fair Value Recorded In1
March 31, 2021
June 30, 2021											June 30, 2021
Securities available-for-sale:	Securities available-for-sale:										Securities available-for-sale:
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies	Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies	$	287,323	$	0	$	287,323	$	0	OCI	Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies	$	284,783	$	0	$	284,783	$	0	OCI
SBA-backed securities	SBA-backed securities	29,218		0		29,218		0		OCI	SBA-backed securities	29,460		0		29,460		0		OCI
Debentures of government sponsored agencies	Debentures of government sponsored agencies	74,473		0		74,473		0		OCI	Debentures of government sponsored agencies	74,711		0		74,711		0		OCI

Obligations of state and political subdivisions	Obligations of state and political subdivisions	121,765		0		121,765		0		OCI	Obligations of state and political subdivisions	123,224		0		123,224		0		OCI
Corporate bonds	Corporate bonds	5,789		0		5,789		0		OCI	Corporate bonds	5,785		0		5,785		0		OCI

Derivative financial liabilities (interest rate contracts)	Derivative financial liabilities (interest rate contracts)	1,193		0		1,193		0		NI	Derivative financial liabilities (interest rate contracts)	1,363		0		1,363		0		NI
December 31, 2020	December 31, 2020										December 31, 2020
Securities available-for-sale:	Securities available-for-sale:										Securities available-for-sale:
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies	Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies	$	228,651	$	0	$	228,651	$	0	OCI	Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies	$	228,651	$	0	$	228,651	$	0	OCI
SBA-backed securities	SBA-backed securities	32,862		0		36,286		0		OCI	SBA-backed securities	32,862		0		36,286		0		OCI
Debentures of government sponsored agencies	Debentures of government sponsored agencies	20,186		0		20,186		0		OCI	Debentures of government sponsored agencies	20,186		0		20,186		0		OCI

Obligations of state and political subdivisions	Obligations of state and political subdivisions	110,652		0		110,652		0		OCI	Obligations of state and political subdivisions	110,652		0		110,652		0		OCI

Derivative financial liabilities (interest rate contracts)	Derivative financial liabilities (interest rate contracts)	1,912		0		1,912		0		NI	Derivative financial liabilities (interest rate contracts)	1,912		0		1,912		0		NI

1 Other comprehensive income ("OCI") or net income ("NI").

Available-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. 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, and corporate bonds. As of ~~March 31,~~June 30, 2021 and December 31, 2020, there were 0 Level 1 or Level 3 securities.

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Held-to-maturity securities may be written down to fair value as a result of impairment through a provision for credit losses in investments securities. We did 0t record any write-downs during the ~~three~~six months ended ~~March 31,~~June 30, 2021 or ~~March 31,~~June 30, 2020. Fair value of held-to-maturity securities is determined using the same techniques discussed above for available-for-sale securities.

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. Level 2 inputs for the valuations are limited to observable market prices for London Interbank Offered Rate ("LIBOR") and Overnight Index Swap

~~Page-9~~

("OIS") rates (for the very short term), quoted prices for LIBOR futures contracts, observable market prices for LIBOR and OIS swap rates, and one-month and three-month LIBOR 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 OIS curves 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 LIBOR for the closest maturity term corresponding to the duration of the swaps to derive the CVA. A similar credit risk adjustment, correlated to the credit standing of the counterparty, is made when collateral posted by the counterparty does not fully cover their liability to us. For further discussion on our methodology in 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 impaired loans that are collateral dependent and other real estate owned ("OREO"). As of ~~March 31,~~June 30, 2021 and December 31, 2020, we did 0t carry any assets measured at fair value on a non-recurring basis.

Disclosures about Fair Value of Financial Instruments

The table below is a summary of fair value estimates for financial instruments as of ~~March 31,~~June 30, 2021 and December 31, 2020, 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") and non-maturity deposit liabilities. Additionally, we held shares of Federal Home Loan Bank ("FHLB") of San Francisco stock and Visa Inc. Class B common stock, both recorded at cost, as there was no impairment or changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer as of ~~March 31,~~June 30, 2021 or December 31, 2020. The values are discussed in Note 4, Investment Securities.


		March 31, 2021					December 31, 2020						June 30, 2021					December 31, 2020
(in thousands)	(in thousands)	Carrying Amounts		Fair Value		Fair Value Hierarchy	Carrying Amounts		Fair Value		Fair Value Hierarchy	(in thousands)	Carrying Amounts		Fair Value		Fair Value Hierarchy	Carrying Amounts		Fair Value		Fair Value Hierarchy
Financial assets (recorded at amortized cost)	Financial assets (recorded at amortized cost)											Financial assets (recorded at amortized cost)
Cash and cash equivalents	Cash and cash equivalents	$	142,819	$	142,819	Level 1	$	200,320	$	200,320	Level 1	Cash and cash equivalents	$	257,543	$	257,543	Level 1	$	200,320	$	200,320	Level 1
Investment securities held-to-maturity	Investment securities held-to-maturity	151,970		156,756		Level 2	109,036		115,185		Level 2	Investment securities held-to-maturity	169,038		174,138		Level 2	109,036		115,185		Level 2
Loans, net	Loans, net	2,101,814		2,114,691		Level 3	2,065,682		2,089,192		Level 3	Loans, net	2,002,767		1,993,373		Level 3	2,065,682		2,089,192		Level 3
Interest receivable	Interest receivable	10,589		10,589		Level 2	10,922		10,922		Level 2	Interest receivable	10,160		10,160		Level 2	10,922		10,922		Level 2
Financial liabilities (recorded at amortized cost)	Financial liabilities (recorded at amortized cost)											Financial liabilities (recorded at amortized cost)
Time deposits	Time deposits	94,955		95,241		Level 2	97,433		97,769		Level 2	Time deposits	95,350		95,572		Level 2	97,433		97,769		Level 2

Subordinated debenture	Subordinated debenture	0		0		Level 3	2,777		3,115		Level 3	Subordinated debenture	0		0		Level 3	2,777		3,115		Level 3
Interest payable	Interest payable	59		59		Level 2	97		97		Level 2	Interest payable	53		53		Level 2	97		97		Level 2

Fair value of loans is based on exit price techniques and obtained from an independent third-party that uses its proprietary valuation model and methodology and may not reflect actual or prospective market valuations. The

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discounted cash flow valuation approach reflects key inputs and assumptions such as loan probability of default, loss given default, prepayment speed, and market discount rates.

Fair value of fixed-rate time deposits is estimated by discounting future contractual cash flows using discount rates that reflect the current market rates offered for time deposits of similar remaining maturities.

Fair value of the subordinated debenture is estimated using a discounted cash flow approach based on current interest rates for similar financial instruments adjusted for credit and liquidity spreads.

The value of unrecognized 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 as of ~~March 31,~~June 30, 2021 or December 31, 2020.

~~Page-10~~

Note 4: Investment Securities

Our investment securities portfolio consists of obligations of state and political subdivisions, U.S. Corporations, U.S. federal government agencies such as Government National Mortgage Association ("GNMA") and Small Business Administration ("SBA"), U.S. government-sponsored enterprises ("GSEs"), such as Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Farm Credit Banks Funding Corporation and FHLB. We also invest in residential and commercial mortgage-backed securities (“MBS”/"CMBS") and collateralized mortgage obligations (“CMOs”) issued or guaranteed by the GSEs, as reflected in the 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,~~June 30, 2021 and December 31, 2020 is presented below.


Held-to-maturity:	Amortized Cost 1		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized				Fair Value
(in thousands)							Gains		(Losses)
June 30, 2021
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC and FNMA	$	74,115	$	0	$	74,115	$	3,247	$	0	$	77,362
CMOs issued by FHLMC	38,641		0		38,641		1,142		(38)		39,745
CMOs issued by FNMA	6,274		0		6,274		265		0		6,539

SBA-backed securities	5,697		0		5,697		361		0		6,058
Debentures of government-sponsored agencies	43,731		0		43,731		115		0		43,846
Obligations of state and political subdivisions	580		0		580		8		0		588
Total held-to-maturity	$	169,038	$	0	$	169,038	$	5,138	$	(38)	$	174,138
December 31, 2020
Corporate bonds	$	0	$	0	$	0	$	0	$	0	$	0
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC and FNMA	$	65,579	$	0	$	65,579	$	3,924	$	0	$	69,503
CMOs issued by FHLMC	27,201		0		27,201		1,441		0		28,642
CMOs issued by FNMA	8,042		0		8,042		363		0		8,405

SBA-backed securities	6,547		0		6,547		400		0		6,947

Obligations of state and political subdivisions	1,667		0		1,667		21		0		1,688
Total held-to-maturity	$	109,036	$	0	$	109,036	$	6,149	$	0	$	115,185
1 Amortized cost and fair values exclude accrued interest receivable of $550 thousand and $366 thousand at June 30, 2021 and December 31, 2020, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

Held-to-maturity:
Amortized Cost 1
Allowance for Credit Losses Net Carrying Amount Gross Unrealized Fair Value
(in thousands) Gains (Losses)
March 31, 2021
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC and FNMA $ 78,227 $ 0 $ 78,227 $ 3,283 $ 0 $ 81,510
CMOs issued by FHLMC 30,207 0 30,207 1,105 (189) 31,123
CMOs issued by FNMA 7,305 0 7,305 347 0 7,652
SBA-backed securities 5,699 0 5,699 227 0 5,926
Debentures of government-sponsored agencies 29,950 0 29,950 0 0 29,950
Obligations of state and political subdivisions 582 0 582 13 0 595
Total held-to-maturity $ 151,970 $ 0 $ 151,970 $ 4,975 $ (189) $ 156,756
December 31, 2020
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC and FNMA $ 65,579 $ 0 $ 65,579 $ 3,924 $ 0 $ 69,503
CMOs issued by FHLMC 27,201 0 27,201 1,441 0 28,642
CMOs issued by FNMA 8,042 0 8,042 363 0 8,405
SBA-backed securities 6,547 0 6,547 400 0 6,947
Obligations of state and political subdivisions 1,667 0 1,667 21 0 1,688
Total held-to-maturity $ 109,036 $ 0 $ 109,036 $ 6,149 $ 0 $ 115,185
1 Amortized cost and fair values exclude accrued interest receivable of $295 thousand and $366 thousand at March 31, 2021 and December 31, 2020, 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 on a collective basis 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, no0 allowance for credit losses has been recorded for these securities. With regard to securities issued by states and political subdivisions, management considers (i) issuer and/or guarantor credit

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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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The following table summarizes the amortized cost of our portfolio of held-to-maturity securities issued by states and political subdivisions by Moody's and/or Standard & Poor's bond ratings as of ~~March 31,~~June 30, 2021.

~~(in thousands)~~

~~Obligations of state and political subdivisions~~

~~377~~

~~205~~

~~Total~~

~~582~~


	Obligations of state and political subdivisions
(in thousands)	June 30, 2021		December 31, 2020
AA	$	376	$	1,461
A	204		206
Total	$	580	$	1,667

A summary of the amortized cost, fair value and allowance for credit losses related to securities available-for-sale as of ~~March 31,~~June 30, 2021 and December 31, 2020 is presented below.


Available-for-sale:	Available-for-sale:	Amortized Cost 1		Gross Unrealized				Allowance for Credit Losses		Fair Value		Available-for-sale:	Amortized Cost 1		Gross Unrealized				Allowance for Credit Losses		Fair Value
(in thousands)	(in thousands)			Gains		(Losses)						(in thousands)			Gains		(Losses)
March 31, 2021
June 30, 2021												June 30, 2021
Securities of U.S. government-sponsored enterprises:	Securities of U.S. government-sponsored enterprises:											Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC and FNMA	MBS pass-through securities issued by FHLMC and FNMA	$	65,871	$	2,199	$	(56)	$	0	$	68,014	MBS pass-through securities issued by FHLMC and FNMA	$	57,653	$	1,867	$	0	$	0	$	59,520
CMOs issued by FHLMC	CMOs issued by FHLMC	168,589		5,525		(948)		0		173,166		CMOs issued by FHLMC	160,949		5,573		(436)		0		166,086
CMOs issued by FNMA	CMOs issued by FNMA	21,663		537		(31)		0		22,169		CMOs issued by FNMA	36,636		428		0		0		37,064
CMOs issued by GNMA	CMOs issued by GNMA	23,738		236		0		0		23,974		CMOs issued by GNMA	21,855		258		0		0		22,113
SBA-backed securities	SBA-backed securities	28,059		1,212		(53)		0		29,218		SBA-backed securities	27,938		1,568		(46)		0		29,460
Debentures of government- sponsored agencies	Debentures of government- sponsored agencies	76,313		201		(2,041)		0		74,473		Debentures of government- sponsored agencies	76,321		128		(1,738)		0		74,711

Obligations of state and political subdivisions	Obligations of state and political subdivisions	118,118		3,842		(195)		0		121,765		Obligations of state and political subdivisions	117,595		5,694		(65)		0		123,224
Corporate bonds	Corporate bonds	5,986		0		(197)		0		5,789		Corporate bonds	5,987		0		(202)		0		5,785
Total available-for-sale	Total available-for-sale	$	508,337	$	13,752	$	(3,521)	$	0	$	518,568	Total available-for-sale	$	504,934	$	15,516	$	(2,487)	$	0	$	517,963
December 31, 2020	December 31, 2020											December 31, 2020
Securities of U.S. government-sponsored enterprises:	Securities of U.S. government-sponsored enterprises:											Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC and FNMA	MBS pass-through securities issued by FHLMC and FNMA	$	50,686	$	2,530	$	0	$	0	$	53,216	MBS pass-through securities issued by FHLMC and FNMA	$	50,686	$	2,530	$	0	$	0	$	53,216
CMOs issued by FHLMC	CMOs issued by FHLMC	143,267		7,925		(1)		0		151,191		CMOs issued by FHLMC	143,267		7,925		(1)		0		151,191
CMOs issued by FNMA	CMOs issued by FNMA	16,450		580		0		0		17,030		CMOs issued by FNMA	16,450		580		0		0		17,030
CMOs issued by GNMA	CMOs issued by GNMA	6,863		351		0		0		7,214		CMOs issued by GNMA	6,863		351		0		0		7,214
SBA-backed securities	SBA-backed securities	30,941		1,976		(55)		0		32,862		SBA-backed securities	30,941		1,976		(55)		0		32,862
Debentures of government- sponsored agencies	Debentures of government- sponsored agencies	19,944		266		(24)		0		20,186		Debentures of government- sponsored agencies	19,944		266		(24)		0		20,186

Obligations of state and political subdivisions	Obligations of state and political subdivisions	104,887		5,765		0		0		110,652		Obligations of state and political subdivisions	104,887		5,765		0		0		110,652

Total available-for-sale	Total available-for-sale	$	373,038	$	19,393	$	(80)	$	0	$	392,351	Total available-for-sale	$	373,038	$	19,393	$	(80)	$	0	$	392,351
1 Amortized cost and fair value exclude accrued interest receivable of $1.9 million at both March 31, 2021 and December 31, 2020, which is included in interest receivable and other assets in the consolidated statements of condition.
1 Amortized cost and fair value exclude accrued interest receivable of $2.4 million and $1.9 million June 30, 2021 and December 31, 2020, which is included in interest receivable and other assets in the consolidated statements of condition.												1 Amortized cost and fair value exclude accrued interest receivable of $2.4 million and $1.9 million June 30, 2021 and December 31, 2020, which is included in interest receivable and other assets in the consolidated statements of condition.

The amortized cost and fair value of investment debt securities by contractual maturity at ~~March 31,~~June 30, 2021 and December 31, 2020 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, 2021 December 31, 2020
Held-to-Maturity Available-for-Sale Held-to-Maturity Available-for-Sale
(in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
Within one year $ 246 $ 248 $ 15,013 $ 15,219 $ 246 $ 250 $ 11,530 $ 11,687
After one but within five years 8,847 9,284 55,101 57,955 7,550 7,961 59,028 62,397
After five years through ten years 62,415 65,241 193,424 198,301 52,113 55,872 144,908 154,089
After ten years 80,462 81,983 244,799 247,093 49,127 51,102 157,572 164,178
Total $ 151,970 $ 156,756 $ 508,337 $ 518,568 $ 109,036 $ 115,185 $ 373,038 $ 392,351

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	June 30, 2021								December 31, 2020
	Held-to-Maturity				Available-for-Sale				Held-to-Maturity				Available-for-Sale
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	245	$	246	$	14,263	$	14,403	$	246	$	250	$	11,530	$	11,687
After one but within five years	20,203		21,184		53,194		55,835		7,550		7,961		59,028		62,397
After five years through ten years	58,465		60,963		183,706		189,492		52,113		55,872		144,908		154,089
After ten years	90,125		91,745		253,771		258,233		49,127		51,102		157,572		164,178
Total	$	169,038	$	174,138	$	504,934	$	517,963	$	109,036	$	115,185	$	373,038	$	392,351

Sales of investment securities and gross gains and losses are shown in the following table:


		Three months ended				Three months ended						Six months ended
(in thousands)	(in thousands)	March 31, 2021		March 31, 2020			(in thousands)	June 30, 2021		June 30, 2020			June 30, 2021		June 30, 2020
Available-for-sale:	Available-for-sale:						Available-for-sale:
Sales proceeds	Sales proceeds	$	0	$	27,442		Sales proceeds	$	0	$	6,314		$	0	$	33,756
Gross realized gains	Gross realized gains	0		800			Gross realized gains	0		116			0		916
Gross realized losses							Gross realized losses	0		(1)			0		(1)

Pledged investment securities are shown in the following table:


(in thousands)	(in thousands)	March 31, 2021		December 31, 2020		(in thousands)	June 30, 2021		December 31, 2020
Pledged to the State of California:	Pledged to the State of California:					Pledged to the State of California:
Secure public deposits in compliance with the Local Agency Security Program	Secure public deposits in compliance with the Local Agency Security Program	$	123,085	$	131,051	Secure public deposits in compliance with the Local Agency Security Program	$	145,128	$	131,051
Collateral for trust deposits	Collateral for trust deposits	735		751		Collateral for trust deposits	742		751
Total investment securities pledged to the State of California	Total investment securities pledged to the State of California	123,820		131,802		Total investment securities pledged to the State of California	145,870		131,802
Collateral for Wealth Management and Trust Services checking account	Collateral for Wealth Management and Trust Services checking account	614		629		Collateral for Wealth Management and Trust Services checking account	624		629
Total pledged investment securities	Total pledged investment securities	$	124,434	$	132,431	Total pledged investment securities	$	146,494	$	132,431

There were 2923 and 10 securities in unrealized loss positions at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Those securities are summarized and classified according to the duration of the loss period in the tables below:


March 31, 2021		< 12 continuous months				≥ 12 continuous months				Total securities in a loss position
June 30, 2021														June 30, 2021	< 12 continuous months				≥ 12 continuous months				Total securities in a loss position
(in thousands)	(in thousands)	Fair value		Unrealized loss		Fair value		Unrealized loss		Fair value		Unrealized loss		(in thousands)	Fair value		Unrealized loss		Fair value		Unrealized loss		Fair value		Unrealized loss
Held-to-maturity:	Held-to-maturity:													Held-to-maturity:

CMOs issued by FHLMC	CMOs issued by FHLMC	$	4,235	$	(189)	$	0	$	0	$	4,235	$	(189)	CMOs issued by FHLMC	$	4,372	$	(38)	$	0	$	0	$	4,372	$	(38)

Total held-to-maturity	Total held-to-maturity	4,235		(189)		0		0		4,235		(189)		Total held-to-maturity	4,372		(38)		0		0		4,372		(38)
Available-for-sale:	Available-for-sale:													Available-for-sale:
MBS pass-through securities issued by FHLMC and FNMA	MBS pass-through securities issued by FHLMC and FNMA	10,013		(56)		0		0		10,013		(56)		MBS pass-through securities issued by FHLMC and FNMA	0		0		0		0		0		0
SBA-backed securities	SBA-backed securities	0		0		1,699		(53)		1,699		(53)		SBA-backed securities	0		0		1,417		(46)		1,417		(46)
CMOs issued by FNMA	CMOs issued by FNMA	7,304		(31)		0		0		7,304		(31)		CMOs issued by FNMA	0		0		0		0		0		0
CMOs issued by FHLMC	CMOs issued by FHLMC	32,658		(948)		0		0		32,658		(948)		CMOs issued by FHLMC	33,740		(436)		0		0		33,740		(436)

Debentures of government- sponsored agencies	Debentures of government- sponsored agencies	53,289		(2,041)		0		0		53,289		(2,041)		Debentures of government- sponsored agencies	63,594		(1,738)		0		0		63,594		(1,738)

Obligations of state and political subdivisions	Obligations of state and political subdivisions	28,529		(195)		0		0		28,529		(195)		Obligations of state and political subdivisions	2,550		(65)		0		0		2,550		(65)
Corporate bonds	Corporate bonds	5,789		(197)		0		0		5,789		(197)		Corporate bonds	5,785		(202)		0		0		5,785		(202)
Total available-for-sale	Total available-for-sale	137,582		(3,468)		1,699		(53)		139,281		(3,521)		Total available-for-sale	105,669		(2,441)		1,417		(46)		107,086		(2,487)
Total temporarily impaired securities	Total temporarily impaired securities	$	141,817	$	(3,657)	$	1,699	$	(53)	$	143,516	$	(3,710)	Total temporarily impaired securities	$	110,041	$	(2,479)	$	1,417	$	(46)	$	111,458	$	(2,525)

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December 31, 2020	< 12 continuous months				≥ 12 continuous months				Total securities in a loss position
(in thousands)	Fair value		Unrealized loss		Fair value		Unrealized loss		Fair value		Unrealized loss






Available-for-sale:

SBA-backed securities	$	0	$	0	$	1,790	$	(55)	$	1,790	$	(55)

CMOs issued by FHLMC	5,975		(1)		0		0		5,975		(1)

Debentures of government- sponsored agencies	3,943		(24)		0		0		3,943		(24)



Total available-for-sale	9,918		(25)		1,790		(55)		11,708		(80)
Total temporarily impaired securities	$	9,918	$	(25)	$	1,790	$	(55)	$	11,708	$	(80)

As of ~~March 31,~~June 30, 2021, the investment portfolio included 54 investment securities that had been in a continuous loss position for twelve months or more and 2419 investment securities that had been in a loss position for less than twelve months.

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Securities issued by government-sponsored agencies, such as FNMA and FHLMC, usually have implicit credit support by the U.S. federal government. However, since 2008, FNMA and FHLMC have been under government conservatorship and, therefore, contractual cash flows for these investments carry explicit guarantees by the U.S. federal government. Securities issued by the SBA and GNMA have explicit credit guarantees by the U.S. federal government, which protects us from credit losses on the contractual cash flows of the securities.

Our investment in obligations of state and political subdivisions bonds are deemed credit worthy after our comprehensive analysis of the issuers' latest financial information, credit ratings by major credit agencies, and/or credit enhancements.

At ~~March 31,~~June 30, 2021, management determined that it did not intend to sell any investment securities with unrealized losses, and it is more likely than not that we will not be required to sell securities with unrealized losses before recovery of their amortized cost. Therefore, no0 allowances for credit losses has 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 reasons of credit quality at ~~March 31,~~June 30, 2021.

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 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 per share par value. We held $11.9 million of FHLB stock included in other assets on the consolidated statements of condition at both ~~March 31,~~June 30, 2021 and December 31, 2020. 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. Based on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock was not impaired at ~~March 31,~~June 30, 2021 and December 31, 2020. On ~~April~~July 29, 2021, FHLB announced a cash dividend for the ~~first~~second quarter of 2021 at an annualized dividend rate of 6.00% to be distributed in ~~mid-May~~mid-August 2021. Cash dividends paid on FHLB capital stock are recorded as non-interest income.

VISA Inc. Class B Common Stock

As a member bank of Visa U.S.A., we held 10,439 shares of Visa Inc. Class B common stock at ~~March 31,~~June 30, 2021 and December 31, 2020. These shares have a carrying value of 0 and are restricted from resale to non-member banks of Visa U.S.A. until their conversion into Class A (voting) shares upon the termination of Visa Inc.'s Covered Litigation escrow account. Because of the restriction and the uncertainty on the conversion rate to Class A shares, these shares lack a readily determinable fair value. When converting this Class B common stock to Class A common stock based on the estimated conversion rate of 1.6228 both at ~~March 31,~~June 30, 2021 and December 31, 2020, and the closing stock price of Class A shares at those respective dates, the converted value of our shares of Class B common stock would have been ~~$3.6~~$4.0 million and $3.7 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The conversion rate is subject to further adjustment upon the final settlement of the covered litigation

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against Visa Inc. and its member banks. As such, the fair value of these Class B shares can differ significantly from their converted values. For further information, refer 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 ~~$3.4~~$3.3 million and $3.5 million recorded in other assets as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. In the first ~~three~~six months of 2021, we recognized ~~$160~~$323 thousand of low-income housing tax credits and other tax benefits, offset by ~~$135~~$271 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense. As of ~~March 31,~~June 30, 2021, our unfunded commitments for these low-income housing tax credit funds totaled ~~$508~~$474 thousand. We did 0t recognize any impairment losses on these low-income housing tax credit investments during the first ~~three~~six months of 2021 or 2020, as the value of the future tax benefits exceeds the carrying value of the investments.

~~Page-14~~

Note 5: Loans and Allowance for Credit Losses on Loans

Under the accounting relief provisions of the Coronavirus Aid, Relief and Economic Security ("CARES") Act passed in March 2020, we postponed the adoption of the CECL standard ~~form~~from January 1, 2020 to December 31, 2020. Upon adoption we used a modified retrospective method effective October 1, 2020 (the beginning of the first reporting period in which the standard was effective due to the postponement of CECL) through a cumulative adjustment to retained earnings. The cumulative adjustment to retained earnings was recorded, net of taxes, based on economic forecasts and other assumptions as of December 31, 2019. Results for reporting periods beginning after September 30, 2020 have been presented under the new standard while prior period amounts continue to be reported in accordance with previously applicable GAAP. Certain prior period credit quality disclosures related to impaired loans and individually and collectively evaluated loans were superseded with the CECL accounting standards and have not been included below. Refer to Notes 1 and 3 under Part II, Item 8, of our 2020 Form 10-K for ~~for~~ additional information regarding the adoption of CECL. In addition, refer to Note 5 under Part I, Item 1, of our ~~March 31,~~June 30, 2020 Form 10-Q for prior period information.

The following table presents the amortized cost of loans by class as of ~~March 31,~~June 30, 2021 and December 31, 2020.


(in thousands)	(in thousands)	March 31, 2021		December 31, 2020		(in thousands)	June 30, 2021		December 31, 2020
Commercial and industrial	Commercial and industrial	$	545,069	$	498,408	Commercial and industrial	$	423,646	$	498,408
Real estate:	Real estate:					Real estate:
Commercial owner-occupied	Commercial owner-occupied	308,266		304,963		Commercial owner-occupied	296,407		304,963
Commercial investor-owned	Commercial investor-owned	955,021		961,208		Commercial investor-owned	967,335		961,208
Construction	Construction	71,066		73,046		Construction	80,841		73,046
Home equity	Home equity	96,575		104,813		Home equity	92,510		104,813
Other residential	Other residential	124,383		123,395		Other residential	120,903		123,395
Installment and other consumer loans	Installment and other consumer loans	21,392		22,723		Installment and other consumer loans	21,125		22,723
Total loans, at amortized cost 1	Total loans, at amortized cost 1	2,121,772		2,088,556		Total loans, at amortized cost 1	2,002,767		2,088,556
Allowance for credit losses on loans	Allowance for credit losses on loans	(19,958)		(22,874)		Allowance for credit losses on loans	(19,100)		(22,874)
Total loans, net	Total loans, net	$	2,101,814	$	2,065,682	Total loans, net	$	1,983,667	$	2,065,682

1 Amortized cost includes net deferred loan origination fees of ~~$(6.7)~~$(5.2) million and $(4.9) million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Amounts are also net of unrecognized purchase discounts of ~~$782~~$737 thousand and $815 thousand at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Amortized cost excludes accrued interest, which totaled ~~$8.5~~$7.3 million and $8.8 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, and is included in interest receivable and other assets in the consolidated statements of condition.

Lending 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 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 personal guarantees. We target stable businesses with guarantors who provide additional sources of repayment and have proven to be resilient in periods of economic stress. A weakened

Page-15

economy, and resultant decreased consumer and/or business spending, may have an effect on the credit quality of commercial loans.

In April 2020, the Bank began participating in the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP"). As of ~~March 31,~~June 30, 2021, there were ~~2,513~~1,532 PPP loans outstanding. PPP loans totaling ~~$365.0~~$248.3 million (net of ~~$8.0~~$6.5 million in unrecognized fees and costs) and $291.6 million (net of $5.4 million in unrecognized fees and costs) as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, were included in commercial and industrial loan balances. Of the 1,532 PPP loans outstanding as of ~~March 31,~~June 30, 2021, ~~841~~1,060 loans totaling ~~$119.5~~$136.0 million were funded during the first ~~quarter~~half of 2021 under the second round of the PPP stimulus plan. PPP loans have terms of two to five years and earn interest at 1%. In addition, the SBA paid the Bank a fee of 1%-5% depending on the loan amount, which was netted with loan origination costs and accreted/amortized into interest income using the effective yield method over the contractual life of each loan. The recognition of fees and costs is accelerated when the SBA forgives the loan and/or the loan is paid off prior to maturity. PPP loans are fully

~~Page-15~~

guaranteed by the SBA and have virtually no risk of loss. We expect the vast majority of the PPP loans to be fully forgiven by the SBA.

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 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, a large majority of our loans are guaranteed by the owners of the properties. Conditions in the real estate markets or downturn in the general economy may adversely affect our commercial real estate loans. In the event of a vacancy, we expect guarantors to carry the loans until they find a replacement 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. We monitor all construction projects to determine whether they are on schedule, completed as planned and in accordance with the approved construction budgets. Significant events can 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, other residential loans and floating homes 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. We do not originate sub-prime residential mortgage loans, 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. Our definitions of “Special Mention” risk graded 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-coverage ratios. These borrowers are capable of sustaining normal economic, market or operational setbacks without significant financial consequences. Negative external industry factors are generally

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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.

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) the liquidation of the debt. Substandard assets are characterized by the distinct possibility that we will sustain some

~~Page-16~~

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 and/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. Borrowers are generally required to submit financial information at regular intervals. 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. In addition, investor commercial real estate borrowers with loans exceeding a certain dollar threshold are usually required to submit rent rolls or property income statements annually. We monitor construction loans monthly. We review home equity and other consumer loans based on delinquency. We also review loans graded “Watch” or worse, regardless of loan type, no less than quarterly.

The following tables present the loan portfolio by loan class, origination year and internal risk rating as of ~~March 31,~~June 30, 2021 and December 31, 2020. 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)	(in thousands)	Term Loans - Amortized Cost by Origination Year												Revolving Loans Amortized Cost				(in thousands)	Term Loans - Amortized Cost by Origination Year												Revolving Loans Amortized Cost
March 31, 2021		2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost		Total
June 30, 2021																		June 30, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost		Revolving Loans Amortized Cost		Total
Commercial and industrial:	Commercial and industrial:																	Commercial and industrial:															Revolving Loans Amortized Cost
Pass	Pass	$	116,598	$	264,838	$	21,201	$	11,692	$	4,111	$	36,865	$	76,742	$	532,047	Pass	$	137,058	$	129,992	$	20,274	$	10,797	$	3,621	$	35,228	$	82,806	$	419,776
Special Mention	Special Mention	0		0		812		598		115		8		8,954		10,487		Special Mention	0		0		638		442		101		5		445		1,631
Substandard	Substandard	0		1,649		390		0		0		0		496		2,535		Substandard	0		1,099		369		0		0		0		771		2,239
Total commercial and industrial	Total commercial and industrial	$	116,598	$	266,487	$	22,403	$	12,290	$	4,226	$	36,873	$	86,192	$	545,069	Total commercial and industrial	$	137,058	$	131,091	$	21,281	$	11,239	$	3,722	$	35,233	$	84,022	$	423,646
Commercial real estate, owner-occupied:	Commercial real estate, owner-occupied:																	Commercial real estate, owner-occupied:
Pass	Pass	$	10,035	$	30,459	$	27,147	$	41,816	$	41,962	$	110,896	$	0	$	262,315	Pass	$	19,776	$	29,440	$	26,861	$	40,403	$	40,695	$	94,071	$	0	$	251,246
Special Mention	Special Mention	0		0		0		2,363		17,076		12,863		0		32,302		Special Mention	0		0		0		2,360		16,419		8,173		0		26,952
Substandard	Substandard	0		7,147		297		0		0		6,205		0		13,649		Substandard	0		7,148		293		0		0		10,768		0		18,209
Total commercial real estate, owner-occupied	Total commercial real estate, owner-occupied	$	10,035	$	37,606	$	27,444	$	44,179	$	59,038	$	129,964	$	0	$	308,266	Total commercial real estate, owner-occupied	$	19,776	$	36,588	$	27,154	$	42,763	$	57,114	$	113,012	$	0	$	296,407
Commercial real estate, investor-owned:	Commercial real estate, investor-owned:																	Commercial real estate, investor-owned:
Pass	Pass	$	29,585	$	161,213	$	146,537	$	170,153	$	87,813	$	336,840	$	110	$	932,251	Pass	$	115,580	$	159,350	$	142,354	$	136,108	$	72,393	$	311,508	$	98	$	937,391
Special Mention	Special Mention	0		0		6,808		0		1,811		4,581		0		13,200		Special Mention	0		0		5,203		5,461		1,803		7,920		0		20,387
Substandard	Substandard	0		0		2,715		4,428		0		2,427		0		9,570		Substandard	0		0		2,715		4,422		0		2,420		0		9,557
Total commercial real estate, investor-owned	Total commercial real estate, investor-owned	$	29,585	$	161,213	$	156,060	$	174,581	$	89,624	$	343,848	$	110	$	955,021	Total commercial real estate, investor-owned	$	115,580	$	159,350	$	150,272	$	145,991	$	74,196	$	321,848	$	98	$	967,335
Construction:	Construction:																	Construction:
Pass	Pass	$	6,533	$	29,510	$	26,108	$	8,915	$	0	$	0	$	0	$	71,066	Pass	$	3,699	$	43,733	$	24,379	$	9,030	$	0	$	0	$	0	$	80,841
Special Mention	Special Mention	0		0		0		0		0		0		0		0		Special Mention	0		0		0		0		0		0		0		0
Substandard	Substandard	0		0		0		0		0		0		0		0		Substandard	0		0		0		0		0		0		0		0
Total construction	Total construction	$	6,533	$	29,510	$	26,108	$	8,915	$	0	$	0	$	0	$	71,066	Total construction	$	3,699	$	43,733	$	24,379	$	9,030	$	0	$	0	$	0	$	80,841
Home equity:	Home equity:																	Home equity:
Pass	Pass	$	0	$	0	$	0	$	0	$	0	$	793	$	95,115	$	95,908	Pass	$	0	$	0	$	0	$	0	$	0	$	511	$	91,191	$	91,702
Special Mention	Special Mention	0		0		0		0		0		0		0		0		Special Mention	0		0		0		0		0		0		0		0
Substandard	Substandard	0		0		0		0		0		388		279		667		Substandard	0		0		0		0		0		386		422		808
Total home equity	Total home equity	$	0	$	0	$	0	$	0	$	0	$	1,181	$	95,394	$	96,575	Total home equity	$	0	$	0	$	0	$	0	$	0	$	897	$	91,613	$	92,510
Other residential:
Pass		$	5,524	$	33,498	$	29,371	$	23,363	$	10,520	$	22,107	$	0	$	124,383
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0
Total other residential		$	5,524	$	33,498	$	29,371	$	23,363	$	10,520	$	22,107	$	0	$	124,383
Installment and other consumer:
Pass		$	1,757	$	2,169	$	3,334	$	3,076	$	1,260	$	8,111	$	1,685	$	21,392
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0
Total installment and other consumer		$	1,757	$	2,169	$	3,334	$	3,076	$	1,260	$	8,111	$	1,685	$	21,392

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(in thousands) Term Loans - Amortized Cost by Origination Year Revolving Loans Amortized Cost
March 31, 2021 2021 2020 2019 2018 2017 Prior Total
Total loans:
Pass $ 170,032 $ 521,687 $ 253,698 $ 259,015 $ 145,666 $ 515,612 $ 173,652 $ 2,039,362
Total Special Mention $ 0 $ 0 $ 7,620 $ 2,961 $ 19,002 $ 17,452 $ 8,954 $ 55,989
Total Substandard $ 0 $ 8,796 $ 3,402 $ 4,428 $ 0 $ 9,020 $ 775 $ 26,421
Totals $ 170,032 $ 530,483 $ 264,720 $ 266,404 $ 164,668 $ 542,084 $ 183,381 $ 2,121,772


(in thousands)	Term Loans - Amortized Cost by Origination Year												Revolving Loans Amortized Cost
June 30, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost		Total
Other residential:
Pass	$	12,426	$	33,282	$	27,503	$	18,566	$	8,948	$	20,178	$	0	$	120,903
Special Mention	0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0
Total other residential	$	12,426	$	33,282	$	27,503	$	18,566	$	8,948	$	20,178	$	0	$	120,903
Installment and other consumer:
Pass	$	3,318	$	2,038	$	3,320	$	2,305	$	1,248	$	7,183	$	1,713	$	21,125
Special Mention	0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0
Total installment and other consumer	$	3,318	$	2,038	$	3,320	$	2,305	$	1,248	$	7,183	$	1,713	$	21,125
Total loans:
Pass	$	291,857	$	397,835	$	244,691	$	217,209	$	126,905	$	468,679	$	175,808	$	1,922,984
Total Special Mention	$	0	$	0	$	5,841	$	8,263	$	18,323	$	16,098	$	445	$	48,970
Total Substandard	$	0	$	8,247	$	3,377	$	4,422	$	0	$	13,574	$	1,193	$	30,813
Totals	$	291,857	$	406,082	$	253,909	$	229,894	$	145,228	$	498,351	$	177,446	$	2,002,767


(in thousands)	Term Loans - Amortized Cost by Origination Year												Revolving Loans Amortized Cost
December 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost		Total
Commercial and industrial:
Pass	$	308,237	$	22,589	$	12,596	$	4,508	$	5,915	$	34,282	$	85,889	$	474,016
Special Mention	0		2,034		1,318		141		11		49		19,092		22,645
Substandard	1,747		0		0		0		0		0		0		1,747
Total commercial and industrial	$	309,984	$	24,623	$	13,914	$	4,649	$	5,926	$	34,331	$	104,981	$	498,408
Commercial real estate, owner-occupied:
Pass	$	31,029	$	27,581	$	32,603	$	43,843	$	12,768	$	101,014	$	0	$	248,838
Special Mention	0		0		11,764		17,062		7,343		6,601		0		42,770
Substandard	7,147		0		0		0		6,208		0		0		13,355
Total commercial real estate, owner-occupied	$	38,176	$	27,581	$	44,367	$	60,905	$	26,319	$	107,615	$	0	$	304,963
Commercial real estate, investor-owned:
Pass	$	162,300	$	144,751	$	173,955	$	100,842	$	94,862	$	253,611	$	117	$	930,438
Special Mention	0		10,695		0		1,819		0		8,124		0		20,638
Substandard	0		2,716		4,435		0		1,553		1,428		0		10,132
Total commercial real estate, investor-owned	$	162,300	$	158,162	$	178,390	$	102,661	$	96,415	$	263,163	$	117	$	961,208
Construction:
Pass	$	31,654	$	30,150	$	11,242	$	0	$	0	$	0	$	0	$	73,046
Special Mention	0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0
Total construction	$	31,654	$	30,150	$	11,242	$	0	$	0	$	0	$	0	$	73,046
Home equity:
Pass	$	0	$	0	$	0	$	0	$	128	$	694	$	102,614	$	103,436
Special Mention	0		0		0		0		0		0		799		799
Substandard	0		0		0		0		0		391		187		578
Total home equity	$	0	$	0	$	0	$	0	$	128	$	1,085	$	103,600	$	104,813
Other residential:
Pass	$	34,447	$	31,079	$	23,673	$	10,574	$	6,035	$	17,587	$	0	$	123,395
Special Mention	0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0
Total other residential	$	34,447	$	31,079	$	23,673	$	10,574	$	6,035	$	17,587	$	0	$	123,395
Installment and other consumer:
Pass	$	2,361	$	4,382	$	3,483	$	1,543	$	3,423	$	4,921	$	2,593	$	22,706
Special Mention	0		0		0		0		0		0		0		0
Substandard	0		0		0		17		0		0		0		17
Total installment and other consumer	$	2,361	$	4,382	$	3,483	$	1,560	$	3,423	$	4,921	$	2,593	$	22,723
Total loans:
Pass	$	570,028	$	260,532	$	257,552	$	161,310	$	123,131	$	412,109	$	191,213	$	1,975,875
Total Special Mention	$	0	$	12,729	$	13,082	$	19,022	$	7,354	$	14,774	$	19,891	$	86,852
Total Substandard	$	8,894	$	2,716	$	4,435	$	17	$	7,761	$	1,819	$	187	$	25,829
Totals	$	578,922	$	275,977	$	275,069	$	180,349	$	138,246	$	428,702	$	211,291	$	2,088,556

~~Page-18~~

The following table shows the amortized cost of loans by class, payment aging and non-accrual status as of ~~March 31,~~June 30, 2021 and December 31, 2020.

Page-18


Loan Aging Analysis by Class	Loan Aging Analysis by Class																	Loan Aging Analysis by Class
(in thousands)	(in thousands)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor-owned		Construction		Home equity		Other residential		Installment and other consumer		Total		(in thousands)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor-owned		Construction		Home equity		Other residential		Installment and other consumer		Total
March 31, 2021
June 30, 2021																		June 30, 2021
30-59 days past due	30-59 days past due	$	0	$	0	$	791	$	0	$	120	$	0	$	136	$	1,047	30-59 days past due	$	367	$	0	$	0	$	0	$	0	$	0	$	0	$	367
60-89 days past due	60-89 days past due	0		0		0		0		96		0		0		96		60-89 days past due	0		0		0		0		121		0		0		121
90 days or more past due	90 days or more past due	0		0		878		0		0		0		0		878		90 days or more past due	0		0		878		0		0		0		0		878
Total past due	Total past due	0		0		1,669		0		216		0		136		2,021		Total past due	367		0		878		0		121		0		0		1,366
Current	Current	545,069		308,266		953,352		71,066		96,359		124,383		21,256		2,119,751		Current	423,279		296,407		966,457		80,841		92,389		120,903		21,125		2,001,401
Total loans 1	Total loans 1	$	545,069	$	308,266	$	955,021	$	71,066	$	96,575	$	124,383	$	21,392	$	2,121,772	Total loans 1	$	423,646	$	296,407	$	967,335	$	80,841	$	92,510	$	120,903	$	21,125	$	2,002,767
Non-accrual loans 2	Non-accrual loans 2	$	0	$	7,147	$	1,603	$	0	$	455	$	0	$	0	$	9,205	Non-accrual loans 2	$	0	$	7,148	$	1,597	$	0	$	445	$	0	$	0	$	9,190
Non-accrual loans with no allowance	Non-accrual loans with no allowance	$	0	$	7,147	$	1,603	$	0	$	455	$	0	$	0	$	9,205	Non-accrual loans with no allowance	$	0	$	7,148	$	1,597	$	0	$	445	$	0	$	0	$	9,190
December 31, 2020	December 31, 2020																	December 31, 2020
30-59 days past due	30-59 days past due	$	0	$	0	$	1,673	$	0	$	274	$	0	$	136	$	2,083	30-59 days past due	$	0	$	0	$	1,673	$	0	$	274	$	0	$	136	$	2,083
60-89 days past due	60-89 days past due	0		0		0		0		0		0		622		622		60-89 days past due	0		0		0		0		0		0		622		622
90 days or more past due	90 days or more past due	0		0		0		0		0		0		0		0		90 days or more past due	0		0		0		0		0		0		0		0
Total past due	Total past due	0		0		1,673		0		274		0		758		2,705		Total past due	0		0		1,673		0		274		0		758		2,705
Current	Current	498,408		304,963		959,535		73,046		104,539		123,395		21,965		2,085,851		Current	498,408		304,963		959,535		73,046		104,539		123,395		21,965		2,085,851
Total loans 1	Total loans 1	$	498,408	$	304,963	$	961,208	$	73,046	$	104,813	$	123,395	$	22,723	$	2,088,556	Total loans 1	$	498,408	$	304,963	$	961,208	$	73,046	$	104,813	$	123,395	$	22,723	$	2,088,556
Non-accrual loans 2	Non-accrual loans 2	$	0	$	7,147	$	1,610	$	0	$	459	$	0	$	17	$	9,233	Non-accrual loans 2	$	0	$	7,147	$	1,610	$	0	$	459	$	0	$	17	$	9,233
Non-accrual loans with no allowance	Non-accrual loans with no allowance	$	0	$	7,147	$	1,610	$	0	$	459	$	0	$	17	$	9,233	Non-accrual loans with no allowance	$	0	$	7,147	$	1,610	$	0	$	459	$	0	$	17	$	9,233

1 There were 0 loans past due more than ninety days accruing interest at ~~March 31,~~June 30, 2021 or December 31, 2020.

2 NaN of the non-accrual loans as of ~~March 31,~~June 30, 2021 or December 31, 2020 were earning interest on a cash basis. We recognized 0 interest income on non-accrual loans for the three and six months ended ~~March 31,~~June 30, 2021 and 2020. There were 0 new loans placed on ~~non accrual~~non-accrual status during the ~~three~~six months ended ~~March 31,~~June 30, 2021. Accrued interest of ~~$13~~$20 thousand was reversed from interest income for loans that were placed on non-accrual status during the ~~three~~six months ended ~~March 31,~~June 30, 2020.

Collateral Dependent Loans

The following table presents the amortized cost basis of individually analyzed collateral-dependent non-accrual loans by class at ~~March 31,~~June 30, 2021 and December 31, 2020.


		Amortized Cost by Collateral Type										Amortized Cost by Collateral Type
(in thousands)	(in thousands)	Commercial Real Estate		Residential Real Estate		Other		Total		Allowance for Credit Losses			(in thousands)	Commercial Real Estate		Residential Real Estate		Other		Total		Allowance for Credit Losses

March 31, 2021
June 30, 2021													June 30, 2021
Commercial real estate, owner-occupied	Commercial real estate, owner-occupied	$	7,147	$	0	$	0	$	7,147	$	0		Commercial real estate, owner-occupied	$	7,148	$	0	$	0	$	7,148	$	0
Commercial real estate, investor-owned	Commercial real estate, investor-owned	1,603		0		0		1,603		0			Commercial real estate, investor-owned	1,597		0		0		1,597		0

Home equity	Home equity	0		454		0		454		0			Home equity	0		445		0		445		0

Total	Total	$	8,750	$	454	$	0	$	9,204	$	0		Total	$	8,745	$	445	$	0	$	9,190	$	0
December 31, 2020	December 31, 2020												December 31, 2020
Commercial real estate, owner-occupied	Commercial real estate, owner-occupied	$	7,147	$	0	$	0	$	7,147	$	0		Commercial real estate, owner-occupied	$	7,147	$	0	$	0	$	7,147	$	0
Commercial real estate, investor-owned	Commercial real estate, investor-owned	1,610		0		0		1,610		0			Commercial real estate, investor-owned	1,610		0		0		1,610		0

Home equity	Home equity	0		459		0		459		0			Home equity	0		459		0		459		0

Installment and other consumer	Installment and other consumer	0		0		17		17		0			Installment and other consumer	0		0		17		17		0
Total	Total	$	8,757	$	459	$	17	$	9,233	$	0		Total	$	8,757	$	459	$	17	$	9,233	$	0

NaN collateral-dependent loans were in process of foreclosure at ~~March 31,~~June 30, 2021 or December 31, 2020. In addition, the weighted average loan-to-value of collateral dependent loans was approximately 58.7% at June 30, 2021 and 59.2% at ~~both March 31, 2021 and~~ December 31, 2020.

Troubled Debt Restructuring

Our loan portfolio includes certain loans modified in a troubled debt restructuring (“TDR”), where we have granted economic concessions 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. TDRs on non-accrual status at the time of restructure may be returned to

~~Page-19~~

accruing status after management considers the borrower’s sustained repayment performance for a reasonable period, generally nine months, and obtains reasonable assurance of repayment and performance.

We may remove a loan from TDR designation if it meets all of the following conditions:

Page-19

•The loan is subsequently refinanced or restructured at current market interest rates and the new terms are consistent with the treatment of creditworthy borrowers under regular underwriting standards;

•The borrower is no longer considered to be in financial difficulty;

•Performance on the loan is reasonably assured; and

•Existing loan did not have any forgiveness of principal or interest.

There were 0 loans removed from TDR designation during the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020.

In accordance with section 4013 of the CARES Act, subsequently amended by section 541 of the Economic Aid Act, we elected to apply the temporary accounting relief provisions for loan modifications that met certain criteria, which would otherwise be designated TDRs under existing GAAP. As of ~~March 31,~~June 30, 2021, 137 borrowing relationships with 2012 loans totaling ~~$65.4~~$49.8 million were continuing to benefit from payment relief. Subsequent to quarter end and prior to the filing of this report, ~~2 relationships~~1 relationship with 3 loans totaling ~~$6.2~~$6.4 million transitioned out of the payment relief program and ~~began making~~resumed normal contractual payments. The weighted average loan-to-value ratio of the remaining payment relief loans was ~~40%~~approximately 41%. We accrue and recognize interest income on loans under payment relief based on the original contractual interest rates. When payments resume at the end of the relief period, the payments will generally be applied to accrued interest due until accrued interest is fully paid.

The following table summarizes the carrying amount of TDR loans by loan class as of ~~March 31,~~June 30, 2021 and December 31, 2020.


(in thousands)	(in thousands)					(in thousands)
Recorded Investment in Troubled Debt Restructurings 1	Recorded Investment in Troubled Debt Restructurings 1	March 31, 2021		December 31, 2020		Recorded Investment in Troubled Debt Restructurings 1	June 30, 2021		December 31, 2020
Commercial and industrial	Commercial and industrial	$	854	$	1,021	Commercial and industrial	$	821	$	1,021
Commercial real estate, owner-occupied	Commercial real estate, owner-occupied	7,147		7,147		Commercial real estate, owner-occupied	7,148		7,147
Commercial real estate, investor-owned	Commercial real estate, investor-owned	1,741		3,305		Commercial real estate, investor-owned	1,729		3,305

Home equity	Home equity	277		281		Home equity	276		281

Installment and other consumer	Installment and other consumer	756		752		Installment and other consumer	745		752
Total	Total	$	10,775	$	12,506	Total	$	10,719	$	12,506

1TDR loans on non-accrual status totaled $7.4 million at both ~~March 31,~~June 30, 2021 and December 31, 2020. Unfunded commitments for TDR loans totaled $845 thousand asas of ~~March 31,~~June 30, 2021

The following table presents information for loans modified in a TDR during the presented periods, including the number of modified contracts, the recorded investment in the loans prior to modification, and the recorded investment in the loans at period end 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, if applicable.


(dollars in thousands)	(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		(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
TDRs during the three months ended March 31, 2021:
TDRs during the three months ended June 30, 2021:									TDRs during the three months ended June 30, 2021:
None	None	0	$	0	$	0	$	0	None	0	$	0	$	0	$	0

TDRs during the three months ended March 31, 2020:
Commercial and industrial		1	$	170	$	162	$	144
TDRs during the three months ended June 30, 2020:									TDRs during the three months ended June 30, 2020:
Home equity									Home equity	1	$	276	$	276	$	276
Installment and other consumer	Installment and other consumer	2	103		103		103		Installment and other consumer	1	108		108		108
Total	Total	3	$	273	$	265	$	247	Total	2	$	384	$	384	$	384



TDRs during the six months ended June 30, 2021:
None	0	$	0	$	0	$	0
TDRs during the six months ended June 30, 2020:
Commercial and industrial	1	$	170	$	162	$	144
Home equity	1	276		276		276
Installment and other consumer	3	211		211		210
Total	5	$	657	$	649	$	630

The loans modified in 2020 reflected debt consolidation, interest rate concessions, and/or other loan term and payment modifications. During the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, there were 0 defaults on loans that had been modified in a TDR within the prior twelve-month period. We report defaulted TDRs based on a payment default definition of more than ninety days past due.

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The following table discloses activity in the allowance for credit losses on loans for the periods presented.


Allowance for Credit Losses Rollforward
Allowance for Credit Losses on Loans Rollforward																				Allowance for Credit Losses on Loans Rollforward
(in thousands)	(in thousands)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor-owned		Construction		Home equity		Other residential		Installment and other consumer		Unallocated		Total		(in thousands)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor-owned		Construction		Home equity		Other residential		Installment and other consumer		Unallocated		Total
Three months ended March 31, 2021
Three months ended June 30, 2021																				Three months ended June 30, 2021
Beginning balance	Beginning balance	$	2,530	$	2,778	$	12,682	$	1,557	$	738	$	998	$	291	$	1,300	$	22,874	Beginning balance	$	1,654	$	2,304	$	10,856	$	1,312	$	520	$	757	$	255	$	2,300	$	19,958
Provision (reversal) - CECL	Provision (reversal) - CECL	(880)		(474)		(1,826)		(254)		(218)		(241)		(36)		1,000		(2,929)		Provision (reversal) - CECL	(68)		(267)		(95)		(178)		(158)		(144)		(17)		7		(920)
Charge-offs	Charge-offs	0		0		0		0		0		0		0		0		0		Charge-offs	0		0		0		0		0		0		0		0		0
Recoveries	Recoveries	4		0		0		9		0		0		0		0		13		Recoveries	4		0		0		8		50		0		0		0		62
Ending balance	Ending balance	$	1,654	$	2,304	$	10,856	$	1,312	$	520	$	757	$	255	$	2,300	$	19,958	Ending balance	$	1,590	$	2,037	$	10,761	$	1,142	$	412	$	613	$	238	$	2,307	$	19,100
Three months ended March 31, 2020
Three months ended June 30, 2020																				Three months ended June 30, 2020
Beginning balance	Beginning balance	$	2,334	$	2,462	$	8,483	$	638	$	850	$	973	$	284	$	653	$	16,677	Beginning balance	$	2,784	$	2,797	$	9,225	$	727	$	982	$	1,098	$	363	$	908	$	18,884
Provision - incurred loss	Provision - incurred loss	446		335		742		86		132		125		79		255		2,200		Provision - incurred loss	(159)		113		1,178		109		62		168		63		466		2,000
Charge-offs	Charge-offs	0		0		0		0		0		0		0		0		0		Charge-offs	(20)		0		0		0		0		0		0		0		(20)
Recoveries	Recoveries	4		0		0		3		0		0		0		0		7		Recoveries	4		0		0		0		0		0		0		0		4
Ending balance	Ending balance	$	2,784	$	2,797	$	9,225	$	727	$	982	$	1,098	$	363	$	908	$	18,884	Ending balance	$	2,609	$	2,910	$	10,403	$	836	$	1,044	$	1,266	$	426	$	1,374	$	20,868



Allowance for Credit Losses on Loans Rollforward
(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
Six months ended June 30, 2021
Beginning balance	$	2,530	$	2,778	$	12,682	$	1,557	$	738	$	998	$	291	$	1,300	$	22,874
Provision (reversal) - CECL	(947)		(741)		(1,921)		(433)		(376)		(385)		(53)		1,007		(3,849)
Charge-offs	0		0		0		0		0		0		0		0		0
Recoveries	7		0		0		18		50		0		0		0		75
Ending balance	$	1,590	$	2,037	$	10,761	$	1,142	$	412	$	613	$	238	$	2,307	$	19,100
Six months ended June 30, 2020
Beginning balance	$	2,334	$	2,462	$	8,483	$	638	$	850	$	973	$	284	$	653	$	16,677
Provision - incurred loss	287		448		1,920		195		194		293		142		721		4,200
Charge-offs	(20)		0		0		0		0		0		0		0		(20)
Recoveries	8		0		0		3		0		0		0		0		11
Ending balance	$	2,609	$	2,910	$	10,403	$	836	$	1,044	$	1,266	$	426	$	1,374	$	20,868

We adopted the CECL accounting standard on December 31, 2020, which we had previously postponed under the optional accounting relief provisions of the CARES Act passed in March 2020 to the earlier of the end of the national emergency or December 31, 2020. During the first ~~three~~six months of 2020, we applied the incurred loss method under previous GAAP in determining the allowance for credit losses on loans.

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 ~~$1.103~~$1.092 billion and $1.165 billion at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. In addition, we pledge eligible TIC loans, which totaled ~~$112.4~~$113.0 million and $113.6 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB"). Also, 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 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. Related party loans totaled ~~$5.9~~$5.3 million at ~~March 31,~~

Page-21

June 30, 2021 and $6.4 million at December 31, 2020. In addition, undisbursed commitments to related parties totaled $9.1 million at ~~March 31,~~June 30, 2021 and December 31, 2020.

Note 6: Borrowings and Other Obligations

Federal Funds Purchased – The Bank had unsecured available lines of credit with correspondent banks for overnight borrowings totaling $115.0 million at June 30, 2021 and $135.0 million at ~~March 31, 2021 and~~ December 31, 2020. In general, interest rates on these lines approximate the federal funds target rate. We had 0 overnight borrowings under these credit facilities at ~~March 31,~~June 30, 2021 or December 31, 2020.

Federal Home Loan Bank Borrowings – As of ~~March 31,~~June 30, 2021 and December 31, 2020, the Bank had available lines of credit with the FHLB totaling ~~$634.2~~$629.9 million and $642.5 million, respectively, based on eligible collateral of certain loans. There were 0 FHLB overnight borrowings at ~~March 31,~~June 30, 2021 or December 31, 2020.

Federal Reserve Line of Credit – The Bank has aan available line of credit with the FRBSF secured by certain residential loans. At ~~March 31,~~June 30, 2021 and December 31, 2020, the Bank had borrowing capacity under this line totaling ~~$77.5~~$77.6 million and $78.7 million, respectively, and had 0 outstanding borrowings with the FRBSF.

~~Page-21~~

Subordinated Debenture – As part of an acquisition in 2013, Bancorp assumed a subordinated debenture with a contractual balance of $4.1 million due to NorCal Community Bancorp Trust II (the "Trust"), established for the sole purpose of issuing trust preferred securities. On March 15, 2021, Bancorp redeemed in full the $2.8 million (book value) subordinated debenture due to the Trust, which had an effective interest rate of ~~5.7% in~~6.5% for the first six months of 2020. The higher effective rate infor the first ~~quarter~~six months of 2021 included accelerated accretion of the $1.3 million remaining purchase discount due to the early redemption. Accretion was $17 thousand and $35 thousand for the three and six months ended ~~March 31, 2020.~~June 30, 2020, respectively.

Other Obligations – ~~The Bank leases certain equipment under finance leases, which~~Finance lease liabilities totaling $438 thousand and $58 thousand at June 30, 2021 and December 31, 2020, respectively, are included in borrowings and other obligations in the consolidated statements of condition. See Note 8, Commitments and Contingencies, for additional information.

Note 7: Stockholders' Equity

Dividends

On ~~April~~July 16, 2021, Bancorp declared a ~~$0.23~~$0.24 per share cash dividend, payable on ~~May 7,~~August 6, 2021 to shareholders of record at the close of business on ~~April~~July 30, 2021.

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 restricted stock awards. The grant-date fair value of the restricted stock awards, which equals the grant date price, is recorded as compensation expense over the requisite service period with a corresponding increase in common stock as the shares vest. Beginning in 2018, stock option 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 cliff 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.

Page-22

We 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.

The holders of unvested restricted stock awards are entitled to dividends on the same per-share ratio as holders of common stock. Tax benefits for 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.

Stock options and restricted stock 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 and/or applicable tax withholding requirements. During the ~~three~~six months ended ~~March 31,~~June 30, 2021, we withheld 27,547 shares totaling $1.1 million at a weighted-average price of $38.87 for cashless exercises. During the ~~three~~six months ended ~~March 31,~~June 30, 2020, we withheld 8,409 shares totaling $346 thousand at a weighted-average price of $41.17 for cashless exercises. Shares withheld under net settlement arrangements are available for future grants.

~~Page-22~~

Share Repurchase Program

On April 23, 2018, Bancorp announced that its Board of Directors approved a ~~Share Repurchase Program~~share repurchase program under which Bancorp may repurchase up to $25.0 million of its outstanding common stock through May 1, 2019. Bancorp's Board of Directors subsequently extended the ~~Share Repurchase Program~~share repurchase program through February 28, 2020. After expiration of this ~~Share Repurchase Program, our~~share repurchase program, a new ~~Share Repurchase Program~~share repurchase program began on March 1,5, 2020. ~~The~~This new program was approved on January 24, 2020 by Bancorp Board of Directors, allowing Bancorp to repurchase up to $25.0 million of its outstanding common stock through February 28, 2022. The ~~new~~ share repurchase program, which began on March 1,5, 2020, was suspended by the Board of Directors on March 20, 2020 in response to the COVID-19 pandemic. The program was reactivated by the Board of Directors on October 23, ~~2020.~~2020 and completed in May 2021 upon depletion of repurchase funds. A new share repurchase program was approved by Bancorp Board of Directors on July 16, 2021 under which Bancorp may repurchase up to $25.0 million of its outstanding common stock through July 31, 2023.

Under the ~~Share Repurchase Program,~~share repurchase program, Bancorp may purchase shares of its common stock through various means such as open market transactions, including block purchases, and privately negotiated transactions. The number of shares repurchased and the timing, manner, price and amount of any repurchases will be determined at Bancorp's discretion. Factors include, but are not limited to, stock price, trading volume and general market conditions, along with Bancorp’s general business conditions. The program may be suspended or discontinued at any time and does not obligate Bancorp to acquire any specific number of shares of its common stock.

As part of the ~~Share Repurchase Program,~~share repurchase program, Bancorp entered into a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The 10b5-1 trading plan permits common stock to be repurchased at times that might otherwise be prohibited under insider trading laws or self-imposed trading restrictions. The 10b5-1 trading plan is administered by an independent broker and is subject to price, market volume and timing restrictions.

During the ~~three~~six months ended ~~March 31,~~June 30, 2021, Bancorp repurchased ~~224,013~~521,948 shares totaling ~~$8.5~~$19.3 million for a cumulative ~~393,594~~691,519 shares amounting to ~~$14.3~~$25.0 million under the $25.0 million share repurchase program that was approved by the Board of Directors on January 24, 2020.

Note 8: Commitments and Contingencies

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, the total commitment amount does not necessarily represent future cash requirements.

Page-23

Our 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's credit evaluation of the borrower. Collateral types pledged may include accounts receivable, inventory, other personal property and real property.

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


(in thousands)	(in thousands)	March 31, 2021		December 31, 2020		(in thousands)	June 30, 2021		December 31, 2020
Commercial lines of credit	Commercial lines of credit	$	309,469	$	287,533	Commercial lines of credit	$	282,611	$	287,533
Revolving home equity lines	Revolving home equity lines	199,332		189,035		Revolving home equity lines	201,986		189,035
Undisbursed construction loans	Undisbursed construction loans	89,605		41,033		Undisbursed construction loans	73,757		41,033
Personal and other lines of credit	Personal and other lines of credit	10,431		9,567		Personal and other lines of credit	10,185		9,567
Standby letters of credit	Standby letters of credit	1,917		1,964		Standby letters of credit	3,167		1,964
Total commitments and standby letters of credit	Total commitments and standby letters of credit	$	610,754	$	529,132	Total commitments and standby letters of credit	$	571,706	$	529,132

~~Page-23~~

We record an allowance for credit losses on unfunded loan commitments at the balance sheet date based on estimates of the probability that these commitments will be drawn upon according to historical utilization experience of the different types of commitments and expected loss rates determined for pooled funded loans. The allowance for credit losses on unfunded commitments totaled ~~$2.2~~$1.6 million and $2.8 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, which is recorded in interest payable and other liabilities in the consolidated statements of condition. We adopted the CECL accounting standard on December 31, 2020. We applied the incurred loss method under previous GAAP in determining the allowance for credit losses on unfunded commitments for the three and six month ~~period~~periods ended ~~March 31,~~June 30, 2020. We recorded ~~a $590 thousand reversal~~reversals of the allowance for credit losses on unfunded commitments totaling $612 thousand and $1.2 million for the three ~~months~~and six month periods ended ~~March 31,~~June 30, 2021, ~~compared~~respectively. This compares to ~~a $102 thousand provision~~provisions for credit losses on unfunded commitments for the three and six month periods ended June 30, 2020 totaling $260 thousand and $362 thousand, respectively. In the current period, ~~ended March 31, 2020.~~we reclassified the provision for credit losses on unfunded commitments from non-interest expense to a separate line item under the provision for credit losses on loans in the consolidated statements of comprehensive income.

Leases

We lease premises under long-term non-cancelable operating leases with remaining terms of 1 year to 1211 years, most of which include escalation clauses and one or more options to extend the lease term, and some of 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 54 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 finance lease right-of-use assets and lease liabilities.


(in thousands)	(in thousands)	March 31, 2021		December 31, 2020		(in thousands)	June 30, 2021		December 31, 2020
Operating leases:	Operating leases:					Operating leases:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	24,559	$	25,612	Operating lease right-of-use assets	$	23,506	$	25,612
Operating lease liabilities	Operating lease liabilities	$	25,993	$	27,062	Operating lease liabilities	$	24,919	$	27,062
Finance leases:	Finance leases:					Finance leases:
Finance lease right-of-use assets	Finance lease right-of-use assets	$	62	$	365	Finance lease right-of-use assets	$	473	$	365
Accumulated amortization	Accumulated amortization	(31)		(307)		Accumulated amortization	(37)		(307)
Finance lease right-of-use assets, net1	Finance lease right-of-use assets, net1	$	31	$	58	Finance lease right-of-use assets, net1	$	436	$	58
Finance lease liabilities2	Finance lease liabilities2	$	30	$	58	Finance lease liabilities2	$	438	$	58
1 Included in premises and equipment in the consolidated statements of condition.	1 Included in premises and equipment in the consolidated statements of condition.					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.	2 Included in borrowings and other obligations in the consolidated statements of condition.					2 Included in borrowings and other obligations in the consolidated statements of condition.

Page-24

The following table shows supplemental disclosures of noncash investing and financing activities for the period presented.


		Three months ended					Six months ended
(in thousands)	(in thousands)	March 31, 2021		March 31, 2020		(in thousands)	June 30, 2021		June 30, 2020
Right-of-use assets obtained in exchange for operating lease liabilities	Right-of-use assets obtained in exchange for operating lease liabilities	$	0	$	12,178	Right-of-use assets obtained in exchange for operating lease liabilities	$	0	$	14,030
Right-of-use assets obtained in exchange for finance lease liabilities	Right-of-use assets obtained in exchange for finance lease liabilities	$	0	$	18	Right-of-use assets obtained in exchange for finance lease liabilities	$	412	$	18

~~Page-24~~

The following table shows components of operating and finance lease cost.


		Three months ended					Three months ended						Six months ended
(in thousands)	(in thousands)	March 31, 2021		March 31, 2020				(in thousands)	June 30, 2021		June 30, 2020			June 30, 2021		June 30, 2020
Operating lease cost	Operating lease cost	$	1,164	$	1,055			Operating lease cost	$	1,164	$	1,114		$	2,328	$	2,169
Variable lease cost	Variable lease cost	0		2				Variable lease cost	0		2			0		3
Total operating lease cost1	Total operating lease cost1	$	1,164	$	1,057			Total operating lease cost1	$	1,164	$	1,116		$	2,328	$	2,172
Finance lease cost:	Finance lease cost:							Finance lease cost:
Amortization of right-of-use assets2	Amortization of right-of-use assets2	$	27	$	44			Amortization of right-of-use assets2	$	7	$	44		$	34	$	88
Interest on finance lease liabilities3	Interest on finance lease liabilities3	0		1				Interest on finance lease liabilities3	0		1			0		$	2
Total finance lease cost	Total finance lease cost	27		45				Total finance lease cost	7		45			$	34	$	90
Total lease cost	Total lease cost	$	1,191	$	1,102			Total lease cost	$	1,171	$	1,161		$	2,362	$	2,262
1 Included in occupancy and equipment expense in the consolidated statements of comprehensive income.	1 Included in occupancy and equipment expense in the consolidated statements of comprehensive income.					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.	2 Included in depreciation and amortization 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.	3 Included in interest on borrowings and other obligations 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 operating and finance lease arrangements as of ~~March 31,~~June 30, 2021. 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 later of the date we adopted the new lease accounting standards or lease commencement date.


(in thousands)	(in thousands)	March 31, 2021						(in thousands)	June 30, 2021
Year	Year	Operating Leases			Finance Leases			Year	Operating Leases			Finance Leases
2021	2021	$	3,431		$	13		2021	$	2,246		$	52
2022	2022	4,424			14			2022	4,424			118
2023	2023	4,004			4			2023	4,004			108
2024	2024	3,300			0			2024	3,300			104
2025	2025	2,876			0			2025	2,876			61
Thereafter	Thereafter	9,867			0			Thereafter	9,867			0
Total minimum lease payments	Total minimum lease payments	27,902			31			Total minimum lease payments	26,717			443
Amounts representing interest (present value discount)	Amounts representing interest (present value discount)	(1,909)			(1)			Amounts representing interest (present value discount)	(1,798)			(5)
Present value of net minimum lease payments (lease liability)	Present value of net minimum lease payments (lease liability)	$	25,993		$	30		Present value of net minimum lease payments (lease liability)	$	24,919		$	438
Weighted average remaining term (in years)	Weighted average remaining term (in years)	7.6			2.0			Weighted average remaining term (in years)	7.5			4.0
Weighted average discount rate	Weighted average discount rate	1.79		%	1.93		%	Weighted average discount rate	1.79		%	0.66		%

Litigation Matters

Bancorp may be party to legal actions that arise from time to time in the normal course of business. Bancorp's management is not aware of any pending legal proceedings to which either it or the Bank may be a party or has recently been a party that will have a material adverse effect on the financial condition or results of operations of Bancorp or the Bank.

The Bank is responsible for a 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"). Our proportionate share of the litigation indemnification liability does not change or transfer upon the sale of our Class B Visa shares to member banks. Visa established an escrow account to pay for settlements or judgments in the Covered Litigation. Under the terms of the U.S. retrospective responsibility plan, when Visa funds the litigation escrow account, it triggers a conversion rate reduction of the Class B common stock

Page-25

to shares of Class A common stock, effectively reducing the aggregate value of the Class B common stock held by Visa's member banks like us.

In 2012, Visa had reached a $4.0 billion interchange multidistrict litigation class settlement agreement with plaintiffs representing a class of U.S. retailers. The escrow balance of $894 ~~thousand~~million as of ~~March 31,~~June 30, 2021, combined with funds previously deposited with the court, are expected to cover the settlement payment obligations.

~~Page-25~~

The outcome of the Covered Litigation affects the conversion rate of Visa Class B common stock held by us to Visa Class A common stock, as discussed above and in Note 4, Investment Securities. The final conversion rate is subject to change depending on the final settlement payments, and the full effect on member banks is still uncertain. Litigation is ongoing and until the court approval process is complete, there is no assurance that Visa will resolve the claims as contemplated by the amended class settlement agreement, and additional lawsuits may arise from individual merchants who opted out of the class settlement. However, until the escrow account is fully depleted and the conversion rate of Class B to Class A common stock is reduced 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 entered into interest rate swap agreements, primarily as an asset/liability management strategy, in order to mitigate the changes in the fair value 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 the fair value of our loans associated with fluctuating interest rates.

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 ~~March 31,~~June 30, 2021, we had 4 interest rate swap agreements, which are scheduled to mature in June 2031, October 2031, July 2032, and October 2037. All of our derivatives are accounted for as fair value hedges. 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 $10 thousand at June 30, 2021 and $11 thousand at ~~both March 31, 2021 and~~ December 31, 2020. Information on our derivatives follows:


		Asset Derivatives				Liability Derivatives					Asset Derivatives				Liability Derivatives
(in thousands)	(in thousands)	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020		(in thousands)	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Fair value hedges:	Fair value hedges:									Fair value hedges:
Interest rate contracts notional amount	Interest rate contracts notional amount	$	0	$	0	$	13,754	$	13,991	Interest rate contracts notional amount	$	0	$	0	$	13,518	$	13,991
Interest rate contracts fair value1	Interest rate contracts fair value1	$	0	$	0	$	1,193	$	1,912	Interest rate contracts fair value1	$	0	$	0	$	1,363	$	1,912

1 See Note 3, Fair Value of Assets and Liabilities, for valuation methodology.

The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge accounting that is included in the carrying amount of hedged assets as of ~~March 31,~~June 30, 2021 and December 31, 2020.


		Carrying Amounts of Hedged Assets				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Loans					Carrying Amounts of Hedged Assets				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Loans
(in thousands)	(in thousands)	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020		(in thousands)	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Loans	Loans	$	14,793	$	15,745	$	1,039	$	1,753	Loans	$	14,734	$	15,745	$	1,216	$	1,753

~~Page-26~~

The following table presents the net losses recognized in interest income on loans on the consolidated statements of comprehensive income related to our derivatives designated as fair value hedges.

Three months ended
(in thousands) March 31, 2021 March 31, 2020
Interest and fees on loans 1
$ 20,661 $ 20,887
Increase (decrease) in fair value of designated interest rate swaps due to LIBOR interest rate movements $ 719 $ (1,440)
Payment on interest rate swaps (93) (67)
(Decrease) increase in value of hedged loans (714) 1,470
Decrease in value of yield maintenance agreement (3) (3)
Net losses on fair value hedging relationships recognized in interest income $ (91) $ (40)

Page-26


	Three months ended				Six months ended
(in thousands)	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Interest and fees on loans 1	$	21,429	$	21,217	$	42,090	$	42,104
(Decrease) increase in fair value of designated interest rate swaps due to LIBOR interest rate movements	$	(170)	$	(63)	$	549	$	(1,504)
Payment on interest rate swaps	(93)		(96)		(185)		(146)
Increase (decrease) in fair value hedging adjustment of hedged loans	177		59		(537)		1,529
Decrease in value of yield maintenance agreement	(2)		(3)		(6)		(6)
Net losses on fair value hedging relationships recognized in interest income	$	(88)	$	(103)	$	(179)	$	(127)

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 counterparties are under International Swaps and Derivative Association (“ISDA”) master agreements that include “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:


Offsetting of Financial Assets and Derivative Assets	Offsetting of Financial Assets and Derivative Assets													Offsetting of Financial Assets and Derivative Assets
				Gross Amounts		Net Amounts of		Gross Amounts Not Offset in									Gross Amounts		Net Amounts of		Gross Amounts Not Offset in
		Gross Amounts		Offset in the		Assets Presented		the Statements of Condition							Gross Amounts		Offset in the		Assets Presented		the Statements of Condition
		of Recognized		Statements of		in the Statements		Financial		Cash Collateral					of Recognized		Statements of		in the Statements		Financial		Cash Collateral
(in thousands)	(in thousands)	Assets		Condition		of Condition		Instruments		Received		Net Amount		(in thousands)	Assets		Condition		of Condition		Instruments		Received		Net Amount
March 31, 2021
June 30, 2021														June 30, 2021
Derivatives by Counterparty:	Derivatives by Counterparty:													Derivatives by Counterparty:
Counterparty A	Counterparty A	$	0	$	0	$	0	$	0	$	0	$	0	Counterparty A	$	0	$	0	$	0	$	0	$	0	$	0

December 31, 2020	December 31, 2020													December 31, 2020
Derivatives by Counterparty:	Derivatives by Counterparty:													Derivatives by Counterparty:
Counterparty A	Counterparty A	$	0	$	0	$	0	$	0	$	0	$	0	Counterparty A	$	0	$	0	$	0	$	0	$	0	$	0


Offsetting of Financial Liabilities and Derivative Liabilities	Offsetting of Financial Liabilities and Derivative Liabilities													Offsetting of Financial Liabilities and Derivative Liabilities
				Gross Amounts		Net Amounts of		Gross Amounts Not Offset in									Gross Amounts		Net Amounts of		Gross Amounts Not Offset in
		Gross Amounts		Offset in the		Liabilities Presented		the Statements of Condition							Gross Amounts		Offset in the		Liabilities Presented		the Statements of Condition
		of Recognized		Statements of		in the Statements		Financial		Cash Collateral					of Recognized		Statements of		in the Statements		Financial		Cash Collateral
(in thousands)	(in thousands)	Liabilities1		Condition		of Condition1		Instruments		Pledged		Net Amount		(in thousands)	Liabilities1		Condition		of Condition1		Instruments		Pledged		Net Amount
March 31, 2021
June 30, 2021														June 30, 2021
Derivatives by Counterparty:	Derivatives by Counterparty:													Derivatives by Counterparty:
Counterparty A	Counterparty A	$	1,193	$	0	$	1,193	$	0	$	(1,193)	$	0	Counterparty A	$	1,363	$	0	$	1,363	$	0	$	(1,363)	$	0

December 31, 2020	December 31, 2020													December 31, 2020
Derivatives by Counterparty:	Derivatives by Counterparty:													Derivatives by Counterparty:
Counterparty A	Counterparty A	$	1,912	$	0	$	1,912	$	0	$	(1,912)	$	0	Counterparty A	$	1,912	$	0	$	1,912	$	0	$	(1,912)	$	0

1 Amounts exclude accrued interest 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 2020 Form 10-K filed with the SEC on March ~~13,~~15, 2021.

Note 10: Merger Agreement

On April 16, 2021, Bancorp entered into a definitive agreement to acquire American River Bankshares ("AMRB"), parent company of American River Bank ("ARB"), whereby AMRB will merge with and into Bancorp and immediately thereafter ARB will merge with and into Bank of Marin (collectively, the "Merger"). The acquisition will expand Bank of Marin's presence throughout the Greater Sacramento, Amador and Sonoma County Regions where ARB has 10 branches. Under the terms of the merger agreement, AMRB shareholders will receive a fixed exchange ratio of 0.575 shares of Bancorp's common stock for each share of AMRB's common stock outstanding upon consummation of the Merger. AMRB had total assets of ~~$916.1~~$906.1 million, total deposits of ~~$788.6~~$787.7 million, and total loans of ~~$475.4~~$434.2 million as of ~~March 31,~~June 30, 2021. These amounts are subject to fair value adjustments upon the close of the Merger. The merger has been approved by the Boards of Directors of each company, all applicable regulatory agencies and shareholders of AMRB and BMRC. The Merger is expected to ~~be completed in the third quarter of 2021, subject to approval by shareholders of Bancorp and AMRB, receipt of required regulatory and other approvals and satisfaction of customary closing conditions.~~close on August 6, 2021.

Page-27

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 consolidated financial statements in this Form 10-Q and with the audited consolidated financial statements and accompanying notes included in our 2020 Annual Report on Form 10-K. Average balances, including balances used in calculating certain financial ratios, are generally comprised of average daily balances.

Forward-Looking Statements

This discussion of financial results 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 management 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's current expectations regarding economic, legislative, and regulatory issues that may affect our earnings in future periods. A number of factors, many of which are beyond management’s control, could cause future results to vary materially from current management expectations. Such factors include, but are not limited to, general economic conditions and the economic uncertainty in the United States and abroad, including changes in interest rates, deposit flows, real estate values, and expected future cash flows on loans and securities; costs or effects of acquisitions; competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation (including the Coronavirus Aid, Relief and Economic Security Act of 2020, as amended, and the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act of 2020); our borrowers’ actual payment performance as loan deferrals related to the COVID-19 pandemic expire, including the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance; natural disasters (such as 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 cybersecurity threats) affecting our operations, pricing, products and services.

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

•the businesses of Bancorp and AMRB 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 required regulatory and shareholder approvals, and the ability to complete the acquisition within the expected timeframe may be more difficult, time-consuming or costly than expected.

Important factors that could cause results or performance to materially differ from those expressed in our prior forward-looking statements are detailed in the Risk Factors section of our 2020 Form 10-K as filed with the SEC, copies of which are available from us at no charge. We do not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events.

Page-28

Critical Accounting Policies and Estimates

The SEC requires us to disclose "critical accounting policies" defined as those that are both most important to the presentation of our financial condition and results of operations and require management's most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and imprecise. 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 (iii) changes in the accounting estimate are reasonably likely to occur in the future and could have a material impact on our financial statements. There have been no material changes to our critical accounting policies, which include: Allowance for Credit Losses on Loans and Unfunded Commitments, Allowance for Credit Losses on Investments Securities, Accounting for Income Taxes, and Fair Value Measurements. For a detailed discussion of these accounting policies, refer to Note 1 toin the Consolidated Financial Statements included in our 2020 Form 10-K filed with the SEC on March 15, 2021.

~~Page-29~~

Executive Summary

OnAs previously reported, on April 16, 2021, Bancorp entered into a definitive agreement to acquire American River Bankshares ("AMRB"), parent company of American River Bank ("ARB"), whereby AMRB will merge with and into Bancorp and immediately thereafter ARB will merge with and into Bank of ~~Marin.~~Marin (collectively, the "Merger"). We expect the transaction to be accretive to Bancorp's earnings, adding to shareholder value. AMRB shareholders will receive a fixed exchange ratio of 0.575 shares of Bancorp common stock for each share of AMRB common stock outstanding. Based on Bancorp's closing stock price of $39.06 on April 16, 2021 (date of merger agreement), the transaction iswas valued at $134.5 million (with approximately 3.4 million of additional shares of Bancorp common stock to be issued), or $22.46 per share of AMRB common stock, which includes the value of AMRB options being paid in cash. Such value will fluctuate with changes in Bancorp's stock price. ~~The transaction is expected to close in the third quarter of 2021, and based~~Based on information currently available, Bank of Marin will have approximately $4.0 billion in assets and operate 31 branches in ten counties (Alameda, Amador, Contra Costa, Marin, Napa, Placer, Sacramento, San Francisco, San Mateo, and Sonoma) upon closing. The merger has been approved by the Boards of Directors of each company, all applicable regulatory agencies and shareholders of AMRB and BMRC. The Merger is expected to close on August 6, 2021. For other important factors regarding the AMRB acquisition, please see Note 10, Merger Agreement, and the Forward-Looking Statements section of this Form 10-Q.

Net income for the ~~first~~second quarter of 2021 totaled ~~$8.9~~$9.3 million, compared to ~~$7.2~~$7.4 million in the ~~first~~second quarter of 2020. Diluted earnings per share were ~~$0.66~~$0.71 in the ~~first~~second quarter of 2021, compared to ~~$0.53~~$0.55 in the same quarter a year ago. Earnings for the first six months of 2021 totaled $18.2 million, compared to $14.6 million in the same period a year ago. Diluted earnings per share were $1.37, compared to $1.07 in the first half of 2020.

~~First~~Net income included the recognition of $2.6 million and $4.3 million of SBA PPP fees, net of costs in the second quarter of 2021 ~~earnings included~~and first six months of 2021, respectively, compared to $1.2 million in the same periods a ~~$2.9 million reversal~~year ago. Additionally, reversals of the allowance for credit losses on loans totaling $920 thousand and ~~$590 thousand reversal~~$3.8 million in the second quarter and first half of ~~allowance for credit losses on unfunded loan commitments. Additionally,~~2021 contributed to the increase in earnings when compared to provisions of $2.0 million and $4.2 million in the comparative periods a year ago. Increases to income in the first half of 2021 were partially offset by the early redemption of our last subordinated debenture, ~~generated~~generating $1.3 million accelerated discount accretion in interest ~~expense.~~expense in the first quarter of 2021.

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

•Loans totaled ~~$2.122~~$2.003 billion at ~~March 31,~~June 30, 2021, compared to $2.089 billion at December 31, 2020, ~~an increase~~a decrease of ~~$33.2~~$85.8 million, or ~~1.6%~~4.1%. The ~~increase was attributed to~~first half of 2021 included a ~~$73.4~~$43.3 million net ~~increase~~decrease in PPP ~~loans, partially offset by a $40.2 million decrease in non-PPP~~ loans. Non-PPP-related loan originations of ~~$25.3~~$69.1 million were more than offset by loan payoffs of ~~$34.6~~$95.4 million and a ~~$27.9~~$34.8 million decrease in line utilization.

•As of March 31, 2021, there were 2,513 PPP loans outstanding totaling $365.0 million (net of $8.0 million in unrecognized fees and costs), which included 841 loans totaling $119.5 million funded during the first quarter of 2021 under the second round of the PPP stimulus plan. Approximately 1,940 loans (or 77%) totaling $89.6 million were less than or equal to $150 thousand and had access to streamlined forgiveness processing. As of March 31, 2021, 142 of the first round PPP loans amounting to $55.6 million had been forgiven and paid off by the SBA. As of May 4, 2021, an additional 866 loans totaling $61.7 million had been forgiven by the SBA and no applications were denied. We expect the forgiveness of the first round of PPP loans to continue to accelerate during the second quarter of 2021.

•As of May 4, 2021, 10 borrowing relationships with 16 loans totaling $56.1 million were benefiting from payment relief. We monitor the financial situation of these clients closely and expect the majority to resume payments as the economy reopens. The following table summarizes these loans by industry or collateral type.

Payment Relief by Type
Industry/Collateral Type (dollars in thousands)
Outstanding Loan Balance Weighted Average LTV
Education $ 17,076 26 %
Health Clubs 13,352 49 %
Office and Mixed Use 13,794 42 %
Hospitality 7,135 48 %
Retail Related CRE 4,760 58 %
Payment Relief Totals $ 56,117 41 %

~~Page-30~~

•Credit quality ~~remains~~remained strong, with non-accrual loans representing $9.2 million at June 30, 2021 and December 31, 2020, or ~~0.43%~~0.46% and 0.44% of total loans, ~~at March 31, 2021, compared to $9.2 million, or 0.44% at December 31, 2020.~~respectively. The ratio of allowance for credit losses on loans to total loans was ~~0.94%~~0.95% at ~~March 31,~~June 30, 2021 and 1.10% at December 31, 2020. Excluding ~~SBA-guaranteed~~acquired and SBA PPP loans, the allowance for credit losses on loans represented ~~1.14%~~1.09% of total loans as of ~~March 31,~~June 30, 2021, compared to 1.27% as of December 31, 2020 (see Results of Operations for a definition of this non-GAAP financial measure).

Page-29

•Return on average assets ("ROA") and return on average equity ("ROE") were 1.20% and 10.72% in the second quarter of 2021, compared to 1.21% and ~~10.22%, respectively, for the quarter ended March 31, 2021. These reflect meaningful increases as ROA was 1.09% and ROE was 8.54%~~10.47% in the first half of 2021, respectively. ROA and ROE were 1.01% and 8.52% in the second quarter of ~~2020.~~

•~~Our strong capital~~2020, compared to 1.05% and ~~liquidity position afforded us~~8.53% in the ~~opportunity to eliminate a high cost funding source. On March 15, 2021 we redeemed a $2.8 million subordinated debenture, which carried an effective rate~~first half of ~~approximately 5.7%.~~2020.

•The tax-equivalent net interest margin was ~~3.19%~~3.37% and ~~3.88%~~3.53% in the ~~first~~second quarters of 2021 and 2020, respectively. The decrease from the same quarter a year ago was primarily attributed to the low interest rate environment. SBA PPP loans contributed 12 basis points to the second quarter's net interest margin due to PPP loans forgiven and paid off by the SBA. The tax-equivalent net interest margin was 3.28% in the first six months of 2021 compared to 3.70% in the first six months a year ago. The decrease from the same period a year ago was primarily attributed to the lower interest rate ~~environment and~~environment. SBA PPP loans added 5 basis points to the first six months' net interest margin as compared to a 2 basis points reduction to the same period a year ago. The early redemption of ~~the~~our last subordinated ~~debenture. While the redemption decreased our~~debenture reduced first quarter 2021 tax-equivalent net interest margin by approximately 18 basis ~~points in the first quarter of 2021, it will serve to improve net interest margin in the future.~~points.

•The efficiency ratio was ~~62.13%~~58.58% for the three months ended ~~March 31,~~June 30, 2021, up from ~~56.79%~~53.01% in the comparative period a year ~~ago. Without the $1.3~~ago, mainly due to a $1.7 million ~~accelerated discount accretion from the early redemption of the subordinated debenture our~~increase in non-interest expense mostly attributable to fewer salary-related deferred SBA PPP loan origination costs and ARB acquisition-related expenses. The efficiency ratio ~~would have been 58.92%.~~for the first half of 2021 was 61.43%, compared to 54.74% the same period a year ago. The increase was primarily due to a $1.9 million decrease in net interest income and $1.1 million decrease in non-interest income. Additionally, non-interest expenses increased by $1.7 million.

•Total deposits increased ~~$152.0~~$179.3 million ~~in the first three months of 2021~~ to ~~$2.656~~$2.684 billion at ~~March~~June 30, 2021 from $2.504 billion at December 31, ~~2021.~~2020. The increase was primarily due to ~~increases~~customers depositing PPP funds into their accounts and new account openings in ~~PPP borrower-related balances and normal fluctuations in some~~the second quarter of ~~our large business accounts.~~2021. Non-interest bearing deposits represented 54% of total deposits as of ~~the end of the first quarter of~~June 30, 2021 ~~compared to 49% as of the end of the first quarter of~~and December 31, 2020. The cost of average deposits was 0.07% in the second quarter and first ~~quarter~~half of 2021, a decrease of 142 basis points and 8 basis points from the ~~same quarter~~equivalent periods a year ago.

•All capital ratios were above well capitalized regulatory requirements. The total risk-based capital ratio for Bancorp was ~~15.7%~~15.5% at ~~March 31,~~June 30, 2021, compared to 16.0% at December 31, 2020. Tangible common equity to tangible assets was ~~10.5%~~10.4% at ~~March 31,~~June 30, 2021, compared to 11.3% at December 31, 2020 (see Results of Operations for a definition of this non-GAAP financial measure). The subordinated debt redemption contributed to the decline in total risk-based capital, and share repurchases were the primary driver of the declines in both total risk-based capital and tangible common equity. The total risk-based capital ratio for the Bank was ~~14.8%~~15.3% at ~~March 31,~~June 30, 2021, compared to 15.8% at December 31, 2020.

•The Board of Directors declared a cash dividend of ~~$0.23~~$0.24 per share on ~~April~~July 16, ~~2021.~~2021, a $0.01 increase from the prior quarter. This represents the ~~64th~~65th consecutive quarterly dividend paid by Bank of Marin Bancorp. The dividend is payable on ~~May 7,~~August 6, 2021, to shareholders of record at the close of business on ~~April~~July 30, 2021.

•Given our strong capital and liquidity, the Board of Directors approved a new share repurchase program on July 16, 2021 under which Bancorp may repurchase up to $25.0 million of its outstanding common stock through July 31, 2023. The share repurchase program became effective July 22, 2021.

•As announced in May 2021, Tim Myers, Chief Operating Officer, was promoted from Executive Vice President to President. Tim is now responsible for the management of Centralized Operations and Technology in addition to Commercial Banking, Retail Banking, Wealth Management & Trust, and Marketing.

Bank of Marin's strong balance sheet is built from our core values - relationship banking, disciplined fundamentals and commitment to the communities that we serve. ~~For the remainder of 2021, we~~We believe that our robust liquidity and capital positions, high credit quality loan portfolio, excellent credit metrics, and low-cost deposit base, as well as our acquisition of AMRB ~~should help~~will reinforce the long-term success of the bank and position us ~~navigate~~well for the ~~low interest rate environment.~~remainder of 2021.

~~Page-31~~Page-30

RESULTS OF OPERATIONS

Highlights of the financial results are presented in the following tables:


(dollars in thousands)	(dollars in thousands)	March 31, 2021			December 31, 2020			(dollars in thousands)	June 30, 2021			December 31, 2020
Selected financial condition data:	Selected financial condition data:							Selected financial condition data:
Total assets	Total assets	$	3,058,133		$	2,911,926		Total assets	$	3,073,818		$	2,911,926
Loans, net	Loans, net	2,101,814			2,065,682			Loans, net	1,983,667			2,065,682
Deposits	Deposits	2,656,199			2,504,249			Deposits	2,683,575			2,504,249
Borrowings and other obligations	Borrowings and other obligations	30			58			Borrowings and other obligations	438			58
Subordinated debenture	Subordinated debenture	—			2,777			Subordinated debenture	—			2,777
Stockholders' equity	Stockholders' equity	350,292			358,253			Stockholders' equity	348,649			358,253
Asset quality ratios:	Asset quality ratios:							Asset quality ratios:
Allowance for credit losses to total loans		0.94		%	1.10		%
Allowance for credit losses to total loans, excluding SBA PPP loans 1		1.14		%	1.27		%
Allowance for credit losses to non-accrual loans		2.17x			2.48x
Allowance for credit losses on loans to total loans								Allowance for credit losses on loans to total loans	0.95		%	1.10		%
Allowance for credit losses on loans to total loans, excluding SBA PPP loans 1								Allowance for credit losses on loans to total loans, excluding SBA PPP loans 1	1.09		%	1.27		%
Allowance for credit losses on loans to non-accrual loans								Allowance for credit losses on loans to non-accrual loans	2.08x			2.48x
Non-accrual loans to total loans	Non-accrual loans to total loans	0.43		%	0.44		%	Non-accrual loans to total loans	0.46		%	0.44		%
Capital ratios:	Capital ratios:							Capital ratios:
Equity to total assets ratio	Equity to total assets ratio	11.45		%	12.30		%	Equity to total assets ratio	11.34		%	12.30		%
Tangible common equity to tangible assets 2	Tangible common equity to tangible assets 2	10.47		%	11.27		%	Tangible common equity to tangible assets 2	10.36		%	11.27		%
Total capital (to risk-weighted assets)	Total capital (to risk-weighted assets)	15.68		%	16.03		%	Total capital (to risk-weighted assets)	15.53		%	16.03		%
Tier 1 capital (to risk-weighted assets)	Tier 1 capital (to risk-weighted assets)	14.63		%	14.82		%	Tier 1 capital (to risk-weighted assets)	14.54		%	14.82		%
Tier 1 capital (to average assets)	Tier 1 capital (to average assets)	10.51		%	10.80		%	Tier 1 capital (to average assets)	10.04		%	10.80		%
Common equity Tier 1 capital (to risk weighted assets)	Common equity Tier 1 capital (to risk weighted assets)	14.63		%	14.69		%	Common equity Tier 1 capital (to risk weighted assets)	14.54		%	14.69		%


		Three months ended						Three months ended								Six months ended
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	March 31, 2021			March 31, 2020				(dollars in thousands, except per share data)	June 30, 2021			June 30, 2020				June 30, 2021			June 30, 2020
Selected operating data:	Selected operating data:								Selected operating data:
Net interest income	Net interest income	$	22,031		$	24,119			Net interest income	$	24,534		$	24,375			$	46,565		$	48,494
(Reversal of) provision for credit losses on loans	(Reversal of) provision for credit losses on loans	(2,929)			2,200				(Reversal of) provision for credit losses on loans	(920)			2,000				(3,849)			4,200
Non-interest income	Non-interest income	1,826			3,120				Non-interest income	2,022			1,813				3,848			4,933
Non-interest expense	Non-interest expense	14,822			15,469				Non-interest expense	15,556			13,881				30,968			29,248
Net income	Net income	8,947			7,228				Net income	9,285			7,406				18,232			14,634
Net income per common share:	Net income per common share:								Net income per common share:
Basic	Basic	$	0.67		$	0.53			Basic	$	0.71		$	0.55			$	1.38		$	1.08
Diluted	Diluted	$	0.66		$	0.53			Diluted	$	0.71		$	0.55			$	1.37		$	1.07
Performance and other financial ratios:	Performance and other financial ratios:								Performance and other financial ratios:
Return on average assets	Return on average assets	1.21		%	1.09		%		Return on average assets	1.20		%	1.01		%		1.21		%	1.05		%
Return on average equity	Return on average equity	10.22		%	8.54		%		Return on average equity	10.72		%	8.52		%		10.47		%	8.53		%
Tax-equivalent net interest margin 3	Tax-equivalent net interest margin 3	3.19		%	3.88		%		Tax-equivalent net interest margin 3	3.37		%	3.53		%		3.28		%	3.70		%
Cost of deposits	Cost of deposits	0.07		%	0.21		%		Cost of deposits	0.07		%	0.09		%		0.07		%	0.15		%
Efficiency ratio	Efficiency ratio	62.13		%	56.79		%		Efficiency ratio	58.58		%	53.01		%		61.43		%	54.74		%
Cash dividend payout ratio on common stock 4	Cash dividend payout ratio on common stock 4	34.33		%	43.40		%		Cash dividend payout ratio on common stock 4	32.39		%	41.82		%		33.33		%	42.59		%

1 The allowance for credit losses on loans to total loans, excluding SBA-guaranteed PPP loans, is considered a meaningful non-GAAP financial measure, as it represents only those loans that were considered in the calculation of the allowance for credit ~~losses.~~losses on loans. SBA PPP loans at ~~March 31,~~June 30, 2021 and December 31, 2020 totaled ~~$365.0~~$248.3 million and $291.6 million, respectively.

2 Tangible common equity to tangible assets is considered to be a meaningful non-GAAP financial measure of capital adequacy and is useful for investors to assess Bancorp's ability to absorb potential losses. Tangible common equity of ~~$317~~$315 million and $324 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, includes common stock, retained earnings and unrealized gains (losses) on available-for sale securities, net of tax, less goodwill and intangible assets. Tangible assets exclude goodwill and intangible assets of ~~$33.8~~$33.6 million and $34.0 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

3 Tax-equivalent net interest margin is computed by dividing taxable equivalent net interest income, which is adjusted for taxable equivalent income on tax-exempt loans and securities based on Federal statutory rate of 21 percent, by total average interest-earning assets.

4 Calculated as dividends on common shares divided by basic net income per common share.

~~Page-32~~Page-31

Net Interest Income

Net interest income is the interest earned on loans, investment and other interest-earning assets minus 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 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 table also presents net interest income, net interest margin and net interest rate spread for each period reported.

Three months ended Three months ended
March 31, 2021 March 31, 2020
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rate Balance Expense Rate
Assets
Interest-earning deposits with banks 1
$ 165,788 $ 42 0.10 % $ 99,362 $ 332 1.32 %
Investment securities 2, 3
540,970 3,282 2.43 % 556,897 4,266 3.06 %
Loans 1, 3, 4
2,099,847 20,836 3.97 % 1,833,180 21,066 4.55 %
Total interest-earning assets 1
2,806,605 24,160 3.44 % 2,489,439 25,664 4.08 %
Cash and non-interest-bearing due from banks 50,931 40,844
Bank premises and equipment, net 4,777 5,939
Interest receivable and other assets, net 133,693 118,909
Total assets $ 2,996,006 $ 2,655,131
Liabilities and Stockholders' Equity
Interest-bearing transaction accounts $ 174,135 $ 39 0.09 % $ 138,395 $ 66 0.19 %
Savings accounts 214,049 19 0.04 % 163,439 16 0.04 %
Money market accounts 703,577 286 0.16 % 760,616 971 0.51 %
Time accounts including CDARS 96,349 96 0.40 % 96,157 161 0.67 %
Borrowings and other obligations 1
36 — 1.99 % 358 2 1.81 %
Subordinated debenture 1, 5
2,164 1,361 251.54 %

2,715 49 7.19 %
Total interest-bearing liabilities 1,190,310 1,801 0.61 % 1,161,680 1,265 0.44 %
Demand accounts 1,406,123 1,119,975
Interest payable and other liabilities 44,551 33,045
Stockholders' equity 355,022 340,431
Total liabilities & stockholders' equity $ 2,996,006 $ 2,655,131
Tax-equivalent net interest income/margin 1
$ 22,359 3.19 % $ 24,399 3.88 %
Reported net interest income/margin 1
$ 22,031 3.14 % $ 24,119 3.83 %
Tax-equivalent net interest rate spread 2.83 % 3.64 %

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%.~~

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 ~~First quarter 2021 interest expense includes $1.3 million accelerated discount accretion from the early redemption of our last subordinated debenture on March 15, 2021.~~


		Three months ended						Three months ended
		June 30, 2021						June 30, 2020
				Interest						Interest
		Average		Income/		Yield/		Average		Income/		Yield/
(dollars in thousands)		Balance		Expense		Rate		Balance		Expense		Rate
Assets
	Interest-earning deposits with banks 1	$	193,749	$	54	0.11	%	$	173,161	$	39	0.09	%
	Investment securities 2, 3	661,361		3,666		2.22	%	550,483		3,886		2.82	%
	Loans 1, 3, 4	2,062,497		21,601		4.14	%	2,043,197		21,399		4.14	%
	Total interest-earning assets 1	2,917,607		25,321		3.43	%	2,766,841		25,324		3.62	%
	Cash and non-interest-bearing due from banks	39,252						37,680
	Bank premises and equipment, net	4,795						5,543
	Interest receivable and other assets, net	131,667						133,639
Total assets		$	3,093,321					$	2,943,703
Liabilities and Stockholders' Equity
	Interest-bearing transaction accounts	$	167,787	$	39	0.09	%	$	142,778	$	39	0.11	%
	Savings accounts	227,767		21		0.04	%	182,371		17		0.04	%
	Money market accounts	735,784		312		0.17	%	794,654		383		0.19	%
	Time accounts including CDARS	95,354		81		0.34	%	95,076		142		0.60	%
	Borrowings and other obligations 1	61		—		1.15	%	156		1		2.62	%
	Subordinated debenture 1, 5	—		—		—	%	2,733		40		5.73	%
	Total interest-bearing liabilities	1,226,753		453		0.15	%	1,217,768		622		0.21	%
	Demand accounts	1,478,119						1,332,986
	Interest payable and other liabilities	40,976						43,255
	Stockholders' equity	347,473						349,694
Total liabilities & stockholders' equity		$	3,093,321					$	2,943,703
Tax-equivalent net interest income/margin 1				$	24,868	3.37	%			$	24,702	3.53	%
Reported net interest income/margin 1				$	24,534	3.33	%			$	24,375	3.49	%
Tax-equivalent net interest rate spread						3.28	%					3.41	%

~~Page-33~~Page-32


		Six months ended						Six months ended
		June 30, 2021						June 30, 2020
				Interest						Interest
		Average		Income/		Yield/		Average		Income/		Yield/
(in thousands)		Balance		Expense		Rate		Balance		Expense		Rate
Assets
	Interest-earning deposits with banks 1	$	179,846	$	96	0.11	%	$	136,261	$	371	0.54	%
	Investment securities 2, 3	601,498		6,948		2.31	%	553,690		8,151		2.94	%
	Loans 1, 3, 4	2,081,069		42,437		4.06	%	1,938,189		42,465		4.33	%
	Total interest-earning assets 1	2,862,413		49,481		3.44	%	2,628,140		50,987		3.84	%
	Cash and non-interest-bearing due from banks	45,059						39,262
	Bank premises and equipment, net	4,786						5,741
	Interest receivable and other assets, net	132,675						126,274
Total assets		$	3,044,933					$	2,799,417
Liabilities and Stockholders' Equity
	Interest-bearing transaction accounts	$	170,943	$	78	0.09	%	$	140,587	$	105	0.15	%
	Savings accounts	220,946		40		0.04	%	172,905		33		0.04	%
	Money market accounts	719,769		598		0.17	%	777,635		1,354		0.35	%
	Time accounts including CDARS	95,849		177		0.37	%	95,616		303		0.64	%
	Borrowings and other obligations 1	50		—		1.46	%	257		3		2.06	%
	Subordinated debenture 1, 5	1,076		1,361		251.54	%	2,724		89		6.46	%
	Total interest-bearing liabilities	1,208,633		2,254		0.38	%	1,189,724		1,887		0.32	%
	Demand accounts	1,442,320						1,226,481
	Interest payable and other liabilities	42,753						38,150
	Stockholders' equity	351,227						345,062
Total liabilities & stockholders' equity		$	3,044,933					$	2,799,417
Tax-equivalent net interest income/margin 1				$	47,227	3.28	%			$	49,100	3.70	%
Reported net interest income/margin 1				$	46,565	3.24	%			$	48,494	3.65	%
Tax-equivalent net interest rate spread						3.06	%					3.52	%

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%.
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 2021 interest on subordinated debenture included $1.3 million in accelerated discount accretion from the early redemption of our last subordinated debenture on March 15, 2021.

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 periods indicated. Volume variances are equal to the increase or 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, including one more day in the ~~three~~six months ended ~~March 31,~~June 30, 2020.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
(in thousands) Volume Yield/Rate Mix Total
Interest-earning deposits with banks $ 222 $ (307) $ (205) $ (290)
Investment securities 1
(122) (887) 25 (984)
Loans 1
3,064 (2,674) (620) (230)
Total interest-earning assets 3,164 (3,868) (800) (1,504)
Interest-bearing transaction accounts 17 (35) (9) (27)
Savings accounts 5 (2) — 3
Money market accounts (73) (658) 46 (685)
Time accounts, including CDARS — (64) (1) (65)
Borrowings and other obligations (2) — — (2)
Subordinated debenture (10) 1,677 (355) 1,312
Total interest-bearing liabilities (63) 918 (319) 536
Changes in tax-equivalent net interest income $ 3,227 $ (4,786) $ (481) $ (2,040)
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%.

Page-33


	Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020								Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
(in thousands)	Volume		Yield/Rate		Mix		Total		Volume		Yield/Rate		Mix		Total
Interest-earning deposits with banks	$	5	$	9	$	1	$	15	$	119	$	(298)	$	(96)	$	(275)
Investment securities 1	783		(835)		(168)		(220)		704		(1,755)		(152)		(1,203)
Loans 1	202		—		—		202		3,130		(2,723)		(435)		(28)
Total interest-earning assets	990		(826)		(167)		(3)		3,953		(4,776)		(683)		(1,506)
Interest-bearing transaction accounts	7		(6)		(1)		—		23		(40)		(10)		(27)
Savings accounts	4		—		—		4		9		—		(2)		7
Money market accounts	(28)		(46)		3		(71)		(101)		(704)		49		(756)
Time accounts, including CDARS	—		(61)		—		(61)		1		(125)		(2)		(126)
Borrowings and other obligations	(1)		—		—		(1)		(2)		(1)		—		(3)
Subordinated debenture 2	(40)		—		—		(40)		(54)		1,326		—		1,272
Total interest-bearing liabilities	(58)		(113)		2		(169)		(124)		456		35		367
Changes in tax-equivalent net interest income	$	1,048	$	(713)	$	(169)	$	166	$	4,077	$	(5,232)	$	(718)	$	(1,873)
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%.
2 Six months ended June 30, 2021 includes $1.3 million in accelerated discount accretion from the early redemption of our last subordinated debenture on March 15, 2021.

~~First~~Second Quarter of 2021 Compared to ~~First~~Second Quarter of 2020

Net interest income totaled ~~$22.0~~$24.5 million in the ~~first~~second quarter of 2021, compared to ~~$24.1~~$24.4 million in the same quarter a year ago. The ~~$2.1 million decrease from the first quarter of 2020~~$159 thousand increase was primarily ~~caused by lower yields across all interest earning assets stemming~~due to higher income from ~~the low interest rate environment, $1.3 million in accelerated discount accretion from the early redemption of our last subordinated debenture,~~SBA PPP loans, higher average investment securities and ~~lower average~~ commercial ~~and home equity~~real estate loan ~~balances. These negative variances were partially offset by interest and fees on PPP loans~~balances, and lower rates on interest-bearing liabilities. Increases were mostly offset by lower yields on investment securities, and lower average commercial, home equity, and other residential loan balances.

The tax-equivalent net interest margin was ~~3.19%~~3.37% in the ~~first~~second quarter of 2021 compared to ~~3.88%~~3.53% in the same quarter of the previous year. The decrease in tax-equivalent net interest margin was primarily attributed to the lower interest rate environment. ~~Additionally,~~SBA PPP loans added 12 basis points to the ~~early redemption of our last subordinated debenture reduced the first~~second quarter ~~of 2021 tax-equivalent~~2021's net interest margin ~~by approximately 18~~as compared to 3 basis points ~~but will improve~~reduction for the ~~net interest margin going forward.~~

~~SBA PPP loans lowered first~~same quarter ~~2021 net interest margin by 1 basis point compared to 13 basis points in the fourth quarter 2020~~a year ago due to higher fee income accretion in the ~~first~~second quarter of 2021 as more PPP loans were forgiven and paid off by the SBA. ~~There were no PPP loans~~

First Six Months of 2021 Compared to First Six Months of 2020

Net interest income totaled $46.6 million in the six months ended June 30, 2021, compared to $48.5 million in the same period a year ago. The decrease was primarily attributed to $1.3 million in accelerated discount accretion from the early redemption of a subordinated debenture in the first quarter of ~~2020.~~2021, lower yielding interest-earning assets, lower average balances of commercial and consumer loans, and one less day in the period. Decreases were partially offset by higher income from SBA PPP loans and higher investment securities, commercial real estate, and construction loan balances, and lower rates on interest-bearing liabilities. We ~~expect~~recognized $4.3 million in SBA PPP fees, net of cost in the first six months of 2021, compared to $1.2 million in the first six months a year ago. As of June 30, 2021 $6.5 million PPP fees, net of deferred costs remain outstanding and will be recognized into income in future periods.

The tax-equivalent net interest margin was 3.28% in the six months ended June 30, 2021, compared to ~~improve~~3.70% in ~~second quarter~~the same period a year ago. The decrease from the first six months of ~~2021 as more~~2020 was primarily attributed to the lower interest rate environment. SBA PPP loans ~~are forgiven and paid off by~~added 5 basis points to the ~~SBA.~~first six months' net interest margin as compared to a 2 basis points reduction to the same period a year ago.

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").

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In response to the evolving risks to economic activity posed by the COVID-19 pandemic, the ~~Federal Reserve Open Market Committee ("FOMC")~~FOMC made two emergency cuts totaling 150 basis points to the federal funds rate in March 2020. The federal funds target rate range has resided between 0.0% and 0.25% since March 15, 2020, putting downward pressure on our asset yields and net interest margin. A low interest rate environment will continue to

~~Page-34~~

put downward pressure on our asset yields and net interest margin. See ITEM 3. Quantitative and Qualitative Disclosure about Market Risk for further information.

Provision for Credit Losses on Loans

Management assesses the adequacy of the allowance for credit losses on loans quarterly based on several factors including growth of the loan portfolio, past events, current conditions, and reasonable and supportable forecasts to estimate expected losses over the contractual terms of our loans. The allowance for credit losses on loans is increased by provisions charged to expense and loss recoveries and decreased by loans charged off.

~~We recorded a $2.9 million reversal of~~The following table shows the provision for credit losses ~~in the first quarter of 2021, compared to a $2.5 million provision for credit losses~~activity for the ~~same period~~periods presented.


	Three months ended				Six months ended
(dollars in thousands)	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
(Reversal of) provision for credit losses on loans	$	(920)	$	2,000	$	(3,849)	$	4,200

The provision reversals in ~~2020. The reversal of the provision in the first quarter of~~ 2021 ~~was~~were primarily due to continued improvements in the forecasted California unemployment rates over the next four quarters and a ~~$40.2~~$42.5 million year-to-date decrease in non-PPP loan balances. Our allowance model is particularly sensitive to current and forecasted California unemployment rates, which decreased to ~~8.2%~~8.0% at ~~March 31,~~June 30, 2021 from 9.1% at December 31, 2020. The provision for credit losses ~~for the first quarter of~~in 2020 ~~which was determined~~calculated under the incurred loss method (prior to the adoption of the excepted credit loss method on December 31, 2020), was largely due to the uncertainty about the impact of the COVID-19 pandemic on the local and regional economies and our customers at that time.

Loans designated special mention, which isare not considered adversely classified, decreased by ~~$30.9~~$37.9 million to ~~$56.0~~$49.0 million at ~~March 31,~~June 30, 2021 from $86.9 million at December 31, 2020. The decrease was largely due to the upgrading of several borrowing relationships totaling approximately ~~$23.7~~$25.5 million because of their improved financial condition, ~~and~~ loan reductions and payoffs totaling approximately ~~$6.7~~$16.4 million, and the downgrade from special mention to substandard of one well-secured commercial real estate loan totaling $4.6 million. These decreases were partially offset by two well-secured commercial real estate loans totaling $8.8 million that were downgraded from pass to special mention risk rating. Classified assets (loans with risk ratings of substandard or ~~doubtful risk grades)~~doubtful) totaled ~~$26.4~~$30.8 million at ~~March 31,~~June 30, 2021, compared to $25.8 million at December 31, 2020. The $5.0 million increase was primarily due to the downgrade of a $4.6 million commercial real estate loan mentioned above. There were no loans ~~with~~considered doubtful ~~risk grades~~ at ~~March 31,~~June 30, 2021 or December 31, 2020.

The ratio of allowance for credit losses on loans to total loans was ~~0.94%~~0.95% at ~~March 31,~~June 30, 2021, compared to 1.10% at December 31, 2020. Excluding SBA-guaranteed PPP loans, the ratio of the allowance for credit losses on loans to total loans was ~~1.14%~~1.09% and 1.27% at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively (Refer to footnote 1 on page 3231 for a definition and reconciliation of this non-GAAP financial measure). Non-accrual loans totaled $9.2 million, or ~~0.43%~~0.46% of total loans at ~~March 31,~~June 30, 2021, and remained largely unchanged from $9.2 million, or 0.44% of total loans at December 31, 2020.

For more information, refer to Note 5 to the consolidated financial statements in this Form 10-Q.

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Non-interest Income

The following table details the components of non-interest income.


		Three months ended				Amount		Percent			Three months ended					Amount			Percent
(dollars in thousands)	(dollars in thousands)	March 31, 2021		March 31, 2020		Increase (Decrease)		Increase (Decrease)		(dollars in thousands)	June 30, 2021		June 30, 2020			Increase (Decrease)			Increase (Decrease)
Wealth Management and Trust Services	Wealth Management and Trust Services	$	488	$	504	$	(16)	(3.2)	%	Wealth Management and Trust Services	$	530	$	421		$	109		25.9	%
Debit card interchange fees	Debit card interchange fees	366		360		6		1.7	%	Debit card interchange fees	419		308			111			36.0	%
Service charges on deposit accounts	Service charges on deposit accounts	281		451		(170)		(37.7)	%	Service charges on deposit accounts	317		293			24			8.2	%
Earnings on bank-owned life insurance, net	Earnings on bank-owned life insurance, net	257		275		(18)		(6.5)	%	Earnings on bank-owned life insurance, net	233		234			(1)			(0.4)	%
Dividends on FHLB stock	Dividends on FHLB stock	149		208		(59)		(28.4)	%	Dividends on FHLB stock	177		146			31			21.2	%
Merchant interchange fees	Merchant interchange fees	57		73		(16)		(21.9)	%	Merchant interchange fees	61		47			14			29.8	%
Gains on sale of investment securities, net	Gains on sale of investment securities, net	—		800		(800)		(100.0)	%	Gains on sale of investment securities, net	—		115			(115)			(100.0)	%
Other income	Other income	228		449		(221)		(49.2)	%	Other income	285		249			36			14.5	%
Total non-interest income	Total non-interest income	$	1,826	$	3,120	$	(1,294)	(41.5)	%	Total non-interest income	$	2,022	$	1,813		$	209		11.5	%

									Six months ended						Amount			Percent

(dollars in thousands)										(dollars in thousands)	June 30, 2021		June 30, 2020			Increase (Decrease)			Increase (Decrease)
Wealth Management and Trust Services										Wealth Management and Trust Services	$	1,018	$	925		$	93		10.1	%
Debit card interchange fees										Debit card interchange fees	785		668			117			17.5	%
Service charges on deposit accounts										Service charges on deposit accounts	598		744			(146)			(19.6)	%
Earnings on bank-owned life insurance, net										Earnings on bank-owned life insurance, net	490		509			(19)			(3.7)	%
Dividends on FHLB stock										Dividends on FHLB stock	326		354			(28)			(7.9)	%
Merchant interchange fees										Merchant interchange fees	118		120			(2)			(1.7)	%
Gains on sale of investment securities, net										Gains on sale of investment securities, net	—		915			(915)			(100.0)	%
Other income										Other income	513		698			(185)			(26.5)	%
Total non-interest income										Total non-interest income	$	3,848	$	4,933		$	(1,085)		(22.0)	%

~~First~~Second Quarter of 2021 Compared to Second Quarter of 2020

Non-interest income increased by $209 thousand in the second quarter of 2021 to $2.0 million, compared to $1.8 million in the same quarter a year ago. The increase was mostly attributed to debit card interchange fees from increased levels of activity and volume, and higher wealth management and trust services income generated from new accounts and favorable market performance. Increases relative to the prior year quarter were partially offset by the absence of gains on investment security sales in the second quarter of 2021.

First ~~Quarter~~Six Months of 2021 Compared to First Six Months of 2020

Non-interest income decreased by ~~$1.3~~$1.1 million in the first ~~quarter~~six months of 2021 to ~~$1.8~~$3.8 million, ~~compared to $3.1~~from $4.9 million in the ~~same quarter a year ago.~~first half of 2020. The decrease was ~~mostly~~primarily attributed to the absence of gains on investment security sales in the first six months of ~~investment securities,~~2021, versus $915 thousand realized in the same period a year ago, lower service charges on deposit accounts, and lower fee income from one-way deposit sales to third-party deposit networks in the first quarter of 2021. On March 30, 2020, we implemented temporary waivers for all ATM fees, overdraft fees and early withdrawal penalties for time deposits to help ease the financial burden customers began experiencing due to the pandemic. After honoring the fee waivers for one year, we provided our customers a 30-day notice and reinstituted the fees as of May 3, 2021.

~~Page-35~~Page-36

Non-interest Expense

The following table details the components of non-interest expense.


											Three months ended				Amount		Percent
(dollars in thousands)										(dollars in thousands)	June 30, 2021		June 30, 2020		Increase (Decrease)		Increase (Decrease)
Salaries and related benefits										Salaries and related benefits	$	8,888	$	7,864	$	1,024	13.0	%
Occupancy and equipment										Occupancy and equipment	1,751		1,661		90		5.4	%
Professional services										Professional services	986		550		436		79.3	%
Data processing										Data processing	820		829		(9)		(1.1)	%
Charitable contributions										Charitable contributions	462		273		189		69.2	%
Depreciation and amortization										Depreciation and amortization	389		526		(137)		(26.0)	%
Information technology										Information technology	296		252		44		17.5	%
Directors' expense										Directors' expense	230		175		55		31.4	%
Amortization of core deposit intangible										Amortization of core deposit intangible	204		213		(9)		(4.2)	%
Federal Deposit Insurance Corporation insurance										Federal Deposit Insurance Corporation insurance	182		116		66		56.9	%
Other non-interest expense										Other non-interest expense
Advertising										Advertising	175		158		17		10.8	%
Other expense										Other expense	1,173		1,264		(91)		(7.2)	%
Total other non-interest expense										Total other non-interest expense	1,348		1,422		(74)		(5.2)	%
Total non-interest expense										Total non-interest expense	$	15,556	$	13,881	$	1,675	12.1	%

		Three months ended				Amount		Percent			Six months ended				Amount		Percent
(dollars in thousands)	(dollars in thousands)	March 31, 2021		March 31, 2020		Increase (Decrease)		Increase (Decrease)		(dollars in thousands)	June 30, 2021		June 30, 2020		Increase (Decrease)		Increase (Decrease)
Salaries and related benefits	Salaries and related benefits	$	9,208	$	9,477	$	(269)	(2.8)	%	Salaries and related benefits	$	18,096	$	17,341	$	755	4.4	%
Occupancy and equipment	Occupancy and equipment	1,751		1,663		88		5.3	%	Occupancy and equipment	3,502		3,324		178		5.4	%
Professional services	Professional services	863		544		319		58.6	%	Professional services	1,849		1,094		755		69.0	%
Data processing	Data processing	819		786		33		4.2	%	Data processing	1,639		1,615		24		1.5	%
Depreciation and amortization	Depreciation and amortization	459		526		(67)		(12.7)	%	Depreciation and amortization	848		1,052		(204)		(19.4)	%
Information technology	Information technology	313		250		63		25.2	%	Information technology	609		502		107		21.3	%
Charitable contributions										Charitable contributions	493		440		53		12.0	%
Amortization of core deposit intangible	Amortization of core deposit intangible	204		213		(9)		(4.2)	%	Amortization of core deposit intangible	408		426		(18)		(4.2)	%
Directors' expense										Directors' expense	405		349		56		16.0	%
Federal Deposit Insurance Corporation insurance	Federal Deposit Insurance Corporation insurance	179		2		177		8,850.0	%	Federal Deposit Insurance Corporation insurance	361		118		243		205.9	%
Directors' expense		175		174		1		0.6	%
Charitable contributions		31		167		(136)		(81.4)	%
(Reversal of) provision for credit losses on unfunded loan commitments		(590)		102		(692)		(678.4)	%
Other non-interest expense	Other non-interest expense									Other non-interest expense
Advertising	Advertising	239		251		(12)		(4.8)	%	Advertising	414		409		5		1.2	%
Other expense	Other expense	1,171		1,314		(143)		(10.9)	%	Other expense	2,343		2,578		(235)		(9.1)	%
Total other non-interest expense	Total other non-interest expense	1,410		1,565		(155)		(9.9)	%	Total other non-interest expense	2,758		2,987		(229)		(7.7)	%
Total non-interest expense	Total non-interest expense	$	14,822	$	15,469	$	(647)	(4.2)	%	Total non-interest expense	$	30,968	$	29,248	$	1,720	5.9	%

~~First~~Second Quarter of 2021 Compared to ~~First~~Second Quarter of 2020

Non-interest expense ~~decreased~~increased by ~~$647 thousand~~$1.7 million to ~~$14.8~~$15.6 million in the second quarter of 2021, compared to ~~$15.5~~$13.9 million in the same period a year ago. The ~~decrease~~increase was primarily attributed to ~~a $590~~$1.0 million in higher salaries and related benefits (mostly attributable to fewer deferred SBA PPP loan origination costs), $351 thousand ~~reversal~~increase in ARB acquisition-related expenses (mostly related to professional services), and $189 thousand increase in charitable contributions. We expect higher ARB acquisition related expenses in the next two quarters. The majority of ~~allowance for credit losses on unfunded~~our expected 2021 charitable contributions were disbursed in the second quarter.

First Six Months of 2021 Compared to First Six Months of 2020

Non-interest expense increased by $1.7 million to $31.0 million in the first half of 2021, compared to $29.2 million in the first half of 2020. The increase was driven by higher salaries and related benefits of $755 thousand, most of which was attributed to fewer deferred SBA PPP loan ~~commitments versus a $102~~origination costs. Professional services increased by $755 thousand due to some pandemic-related delays in 2020 activities and ARB acquisition-related activities. In addition,

Page-37

FDIC deposit insurance expenses increased by $243 thousand relative to the first six months of 2020 due to the absence of assessment credits, which were fully utilized as of June 30, 2020.

The (reversal of) or provision for credit losses on unfunded ~~loan~~ commitments was reclassified out of non-interest expense and included as a separate line item under net interest income in the ~~first quarter a year ago. In addition, salaries and related benefits decreased $269 thousand (mostly attributed~~consolidated statements of comprehensive income for all periods presented. Efficiency ratios for all periods reported have been updated to ~~$421 thousand additional deferred loan origination costs from funding~~reflect the second round of SBA PPP loans), charitable contributions decreased $136 thousand, and other expense included several small declines. These positive variances were partially offset by an increase in professional service expenses duereclassification. Reclassification conforms to some pandemic related delays in 2020 activities, and the discontinuation of Federal Deposit Insurance Corporation insurance credits received in 2020. Bank of Marin has been committed to donating at least 1% of net income before tax to nonprofits in our communities each year. In recent years, this has typically been around $500 thousand. In response to the COVID-19 pandemic, we more than doubled our charitable contributions to non-profit organizations in our community to over $1.0 million in 2020. In 2021, we are returning to our typical giving levels of at least $500 thousand with the majority being disbursed in the second quarter of 2021.Call Report instructions.

Provision for Income Taxes

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. Provisions also reflect permanent differences between income for tax and financial reporting purposes (such as earnings on tax exempt loans and municipal securities, BOLI, low-income housing tax credits, and stock-based compensation from the exercise of stock options, disqualifying dispositions of incentive stock options and vesting of restricted stock awards).

The provision for income taxes for the ~~first~~second quarter of 2021 totaled ~~$3.0~~$3.2 million at an effective tax rate of ~~25.2%~~25.9%, compared to ~~$2.3~~$2.6 million at an effective tax rate of ~~24.5%~~26.3% in the same quarter last year. The provision for income taxes for the first half of 2021 totaled $6.3 million at an effective tax rate of 25.6%, compared to $5.0 million at an effective tax rate of 25.4% for the first half of 2020. The increase in the provision reflected higher pre-tax income for both the second quarter and first half of 2021 compared to the same periods a year ago. The 40 basis point decrease in the ~~first~~effective tax rate in the second quarter of 2021 as compared to the same quarter a year ago was primarily due to ~~higher pre-tax income and lower discrete~~the true-up of low-income tax benefits from the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options compared to the first quarter of 2020. The 70 bps increase in effective tax rate in the first quarter of 2021 as compared to the same quarter last year was primarily due to a lower level of tax benefits from the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options.credits.

~~Page-36~~

We file a consolidated return in the U.S. Federal tax jurisdiction and a combined return in the State of California tax jurisdiction. There were no ongoing federal or state income tax examinations at the issuance of this report. At ~~March 31,~~June 30, 2021, neither the Bank nor Bancorp had accruals for interest nor penalties related to unrecognized tax benefits.

FINANCIAL CONDITION SUMMARY

At ~~March 31,~~June 30, 2021, assets totaled ~~$3,058.1 million,~~$3.074 billion, an increase of ~~$146.2~~$161.9 million, from ~~$2,911.9 million~~$2.912 billion at December 31, 2020, mainly due to increases in investment securities ~~and loans~~ as we redeploy our excess liquidity from deposit inflows as discussed below.

Cash, Cash Equivalents and Restricted Cash

Total cash, cash equivalents and restricted cash were ~~$142.8~~$257.5 million at ~~March 31,~~June 30, 2021, compared to $200.3 million at December 31, 2020. The ~~reduction~~increase was mainly due to ~~increases in investment securities and loans as we redeploy our excess liquidity from deposit inflows, some related to new~~SBA PPP loan ~~funding.~~forgiveness and an increase in deposits. Cash and cash equivalents do not include ~~$180.8~~$174.0 million and $173.4 million in temporary one-way sale transfers of deposits to third-party deposit networks as part of our liquidity management at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

Investment Securities

The investment securities portfolio totaled ~~$670.5~~$687.0 million at ~~March 31,~~June 30, 2021, an increase of ~~$169.2~~$185.6 million from December 31, 2020. The increase was primarily due to purchases of ~~$203.4~~$244.7 million to deploy excess cash into interest earning assets in a more favorable interest rate environment in 2021, partially offset by paydowns, calls and maturities of ~~$24.7~~$51.3 million. Additionally, the fair value of available-for-sale securities decreased ~~$9.1~~$6.3 million as a result of the higher interest rate environment in the first ~~quarter~~six months of 2021. There were no security sales in the first ~~quarter~~six months of 2021. See Note 4, Investment Securities, for additional information.

The following table summarizes our investment in obligations of state and political subdivisions at ~~March 31,~~June 30, 2021 and December 31, 2020.

March 31, 2021 December 31, 2020
(dollars in thousands) Amortized Cost Fair Value % of Total State and Political Subdivisions Amortized Cost Fair Value % of Total State and Political Subdivisions
Within California:
General obligation bonds $ 3,321 $ 3,503 2.8 % $ 3,327 $ 3,565 3.1 %
Revenue bonds 2,296 2,377 1.9 2,352 2,448 2.2
Tax allocation bonds 1,748 1,779 1.5 2,832 2,876 2.7
Total within California 7,365 7,659 6.2 8,511 8,889 8.0
Outside California:
General obligation bonds 91,611 93,957 77.2 78,299 82,100 73.5
Revenue bonds 19,724 20,744 16.6 19,744 21,351 18.5
Total outside California 111,335 114,701 93.8 98,043 103,451 92.0
Total obligations of state and political subdivisions $ 118,700 $ 122,360 100.0 % $ 106,554 $ 112,340 100.0 %

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		June 30, 2021						December 31, 2020
(dollars in thousands)		Amortized Cost		Fair Value		% of Total State and Political Subdivisions		Amortized Cost		Fair Value		% of Total State and Political Subdivisions
Within California:
	General obligation bonds	$	3,315	$	3,532	2.8	%	$	3,327	$	3,565	3.1	%
	Revenue bonds	2,044		2,113		1.7		2,352		2,448		2.2
	Tax allocation bonds	1,746		1,767		1.5		2,832		2,876		2.7
Total within California		7,105		7,412		6.0		8,511		8,889		8.0
Outside California:
	General obligation bonds	91,366		95,434		77.3		78,299		82,100		73.5
	Revenue bonds	19,704		20,966		16.7		19,744		21,351		18.5
Total outside California		111,070		116,400		94.0		98,043		103,451		92.0
Total obligations of state and political subdivisions		$	118,175	$	123,812	100.0	%	$	106,554	$	112,340	100.0	%

The portion of the portfolio outside the state of California is distributed among eleven states. Of the total investment in obligations of state and political subdivisions, the largest concentrations outside of California are in Texas ~~(50.9%~~(51.0%), Washington ~~(16.1%~~(16.0%) and Maryland (5.7%). Our 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 utilities and transportation). We have $6.0 million in obligations of Texas school district issuers having high concentrations in oil and gas industry taxpayers and all of them have credit guarantees from PSF. We have little or no exposure to municipal sectors such as higher education or health care that are most vulnerable to credit risks posed by the COVID-19 pandemic.

~~Page-37~~

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

During the first ~~three~~six months of 2021, loans ~~increased~~decreased by ~~$33.2~~$85.8 million and totaled ~~$2,121.8 million~~$2.003 billion at ~~March 31,~~June 30, 2021, primarily due to SBA PPP loans which totaled ~~$365.0~~$248.3 million at ~~March 31,~~June 30 2021, compared to $291.6 million at December 31, 2020. New non-PPP related loan originations totaled ~~$25.3~~$69.1 million in the first ~~three~~six months of 2021. Payoffs totaled ~~$34.6~~$95.4 million and credit line utilization decreased ~~$27.9~~$34.8 million during the first ~~three~~six months of 2021. Loan payoffs in the first half of 2021 consisted largely of loans on which underlying assets were sold or paid off with cash (including completed construction projects). Residential real estate and consumer loan payoffs as well as loans refinanced with other banks contributed to the decline.

As of June 30, 2021, there were 1,532 PPP loans outstanding totaling $248.3 million (net of $6.5 million in unrecognized fees and costs). Of the total 2,876 PPP loans granted amounting to $444.1 million, we funded 1,813 loans totaling $307.9 million in the first round and 1,063 loans totaling $136.2 million in the second round. As of June 30, 2021, PPP loans forgiven and paid off were 1,344 totaling $189.3 million. Forgiveness of PPP loans continues with an additional 126 loans totaling $24.1 million approved between June 30, 2021 and July 31, 2021. Of the number of PPP loans remaining as of July 31, 2021, 71% (1,002 loans) totaling $43.0 million were less than or equal to $150 thousand and had access to streamlined forgiveness processing.

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As of July 31, 2021, 6 borrowing relationships with 9 loans totaling $43.4 million were benefiting from payment relief. We monitor the financial situation of these clients closely and expect the majority to resume payments as the economy continues to reopen.

Liabilities

During the first ~~three~~six months of 2021, total liabilities increased by ~~$154.2~~$171.5 million to ~~$2,707.8 million.~~$2.725 billion. Deposits increased ~~$152.0~~$179.3 million in the first ~~three~~six months of 2021, primarily driven by a combination of PPP loan proceeds and normal fluctuations in some of our larger commercial accounts. Non-interest bearing deposits increased ~~$90.6~~$105.4 million in the first ~~three~~six months of 2021 to ~~$1,445.3 million,~~$1.460 billion, and represented 54.4% of total deposits at ~~March 31,~~June 30, 2021, compared to 54.1% at December 31, 2020. ~~Liabilities as~~The cost of ~~March 31,~~average deposits was 0.07% in the second quarter and first half of 2021, ~~included operating lease liabilities totaling $26.0 million,~~ a decrease of ~~1.1 million~~2 basis points and 8 basis points from ~~December 31,2020.~~the equivalent periods a year ago.

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 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 to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs. 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. In addition, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action as of ~~March 31,~~June 30, 2021. There are no conditions or events since that notification that management believes have changed the Bank’s categories and we expect the Bank to remain well capitalized for prompt corrective action purposes.

In August 2018, the Board of Governors of the Federal Reserve System changed the definition of a "Small Bank Holding Company" by increasing the asset threshold from $1.0 billion to $3.0 billion. As a result, Bancorp was not subject to separate minimum capital requirements as of December 31, 2020. However, we disclosed comparative capital ratios for Bancorp, which would have exceeded well-capitalized levels had Bancorp been subject to the same minimum capital requirements in 2020.

The Bancorp’s and Bank’s capital adequacy ratios as of ~~March 31,~~June 30, 2021 and December 31, 2020 are presented in the following tables. As of December 31, 2020, Bancorp's Tier 1 capital included a subordinated debenture, which was not included at the Bank level. On March 15, 2021, Bancorp redeemed in full our last subordinated debenture

~~Page-38~~

due to NorCal Community Bancorp Trust II. The redemption reduced Bancorp's total risk-based capital ratio by approximately 18 basis points.

Capital Ratios for Bancorp
(dollars in thousands)
Actual Ratio Adequately Capitalized Threshold Ratio to be a Well Capitalized Bank Holding Company
March 31, 2021 Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk-weighted assets) $ 331,739 15.68 % ≥ $ 222,195 ≥ 10.50 % ≥ $ 211,614 ≥ 10.00 %
Tier 1 Capital (to risk-weighted assets) $ 309,592 14.63 % ≥ $ 179,872 ≥   8.50 % ≥ $ 169,291 ≥   8.00 %
Tier 1 Capital (to average assets) $ 309,592 10.51 % ≥ $ 117,794 ≥   4.00 % ≥ $ 147,242 ≥   5.00 %
Common Equity Tier 1 (to risk-weighted assets) $ 309,592 14.63 % ≥ $ 148,130 ≥   7.00 % ≥ $ 137,549 ≥   6.50 %
December 31, 2020
Total Capital (to risk-weighted assets) $ 339,544 16.03 % ≥ $ 222,393 ≥ 10.50 % ≥ $ 211,802 ≥ 10.00 %
Tier 1 Capital (to risk-weighted assets) $ 313,891 14.82 % ≥ $ 180,032 ≥   8.50 % ≥ $ 169,442 ≥   8.00 %
Tier 1 Capital (to average assets) $ 313,891 10.80 % ≥ $ 116,224 ≥   4.00 % ≥ $ 145,280 ≥   5.00 %
Common Equity Tier 1 (to risk-weighted assets) $ 311,114 14.69 % ≥ $ 148,262 ≥   7.00 % ≥ $ 137,672 ≥   6.50 %

Page-40


Capital Ratios for the Bank (dollars in thousands)		Actual Ratio				Adequately Capitalized Threshold				Ratio to be Well Capitalized under Prompt Corrective Action Provisions
March 31, 2021		Amount		Ratio		Amount		Ratio		Amount		Ratio
Capital Ratios for Bancorp (dollars in thousands)														Capital Ratios for Bancorp (dollars in thousands)	Actual Ratio				Adequately Capitalized Threshold				Ratio to be a Well Capitalized Bank Holding Company
June 30, 2021														June 30, 2021	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to risk-weighted assets)	Total Capital (to risk-weighted assets)	$	312,649	14.78	%	≥ $	222,160	≥ 10.50	%	≥ $	211,581	≥ 10.00	%	Total Capital (to risk-weighted assets)	$	326,698	15.53	%	≥ $	220,955	≥ 10.50	%	≥ $	210,433	≥ 10.00	%
Tier 1 Capital (to risk-weighted assets)	Tier 1 Capital (to risk-weighted assets)	$	290,502	13.73	%	≥ $	179,844	≥ 8.50	%	≥ $	169,265	≥ 8.00	%	Tier 1 Capital (to risk-weighted assets)	$	306,021	14.54	%	≥ $	178,868	≥ 8.50	%	≥ $	168,346	≥ 8.00	%
Tier 1 Capital (to average assets)	Tier 1 Capital (to average assets)	$	290,502	9.87	%	≥ $	117,789	≥ 4.00	%	≥ $	147,236	≥ 5.00	%	Tier 1 Capital (to average assets)	$	306,021	10.04	%	≥ $	121,892	≥ 4.00	%	≥ $	152,365	≥ 5.00	%
Common Equity Tier 1 (to risk-weighted assets)	Common Equity Tier 1 (to risk-weighted assets)	$	290,502	13.73	%	≥ $	148,107	≥ 7.00	%	≥ $	137,528	≥ 6.50	%	Common Equity Tier 1 (to risk-weighted assets)	$	306,021	14.54	%	≥ $	147,303	≥ 7.00	%	≥ $	136,781	≥ 6.50	%
December 31, 2020	December 31, 2020													December 31, 2020
Total Capital (to risk-weighted assets)	Total Capital (to risk-weighted assets)	$	334,686	15.80	%	≥ $	222,391	≥ 10.50	%	≥ $	211,801	≥ 10.00	%	Total Capital (to risk-weighted assets)	$	339,544	16.03	%	≥ $	222,393	≥ 10.50	%	≥ $	211,802	≥ 10.00	%
Tier 1 Capital (to risk-weighted assets)	Tier 1 Capital (to risk-weighted assets)	$	309,033	14.59	%	≥ $	180,031	≥ 8.50	%	≥ $	169,441	≥ 8.00	%	Tier 1 Capital (to risk-weighted assets)	$	313,891	14.82	%	≥ $	180,032	≥ 8.50	%	≥ $	169,442	≥ 8.00	%
Tier 1 Capital (to average assets)	Tier 1 Capital (to average assets)	$	309,033	10.64	%	≥ $	116,224	≥ 4.00	%	≥ $	145,280	≥ 5.00	%	Tier 1 Capital (to average assets)	$	313,891	10.80	%	≥ $	116,224	≥ 4.00	%	≥ $	145,280	≥ 5.00	%
Common Equity Tier 1 (to risk-weighted assets)	Common Equity Tier 1 (to risk-weighted assets)	$	309,033	14.59	%	≥ $	148,261	≥ 7.00	%	≥ $	137,671	≥ 6.50	%	Common Equity Tier 1 (to risk-weighted assets)	$	311,114	14.69	%	≥ $	148,262	≥ 7.00	%	≥ $	137,672	≥ 6.50	%


Capital Ratios for the Bank (dollars in thousands)	Actual Ratio				Adequately Capitalized Threshold				Ratio to be Well Capitalized under Prompt Corrective Action Provisions
June 30, 2021	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to risk-weighted assets)	$	321,837	15.30	%	≥ $	220,905	≥ 10.50	%	≥ $	210,386	≥ 10.00	%
Tier 1 Capital (to risk-weighted assets)	$	301,160	14.31	%	≥ $	178,828	≥ 8.50	%	≥ $	168,309	≥ 8.00	%
Tier 1 Capital (to average assets)	$	301,160	9.88	%	≥ $	121,877	≥ 4.00	%	≥ $	152,346	≥ 5.00	%
Common Equity Tier 1 (to risk-weighted assets)	$	301,160	14.31	%	≥ $	147,270	≥ 7.00	%	≥ $	136,751	≥ 6.50	%
December 31, 2020
Total Capital (to risk-weighted assets)	$	334,686	15.80	%	≥ $	222,391	≥ 10.50	%	≥ $	211,801	≥ 10.00	%
Tier 1 Capital (to risk-weighted assets)	$	309,033	14.59	%	≥ $	180,031	≥ 8.50	%	≥ $	169,441	≥ 8.00	%
Tier 1 Capital (to average assets)	$	309,033	10.64	%	≥ $	116,224	≥ 4.00	%	≥ $	145,280	≥ 5.00	%
Common Equity Tier 1 (to risk-weighted assets)	$	309,033	14.59	%	≥ $	148,261	≥ 7.00	%	≥ $	137,671	≥ 6.50	%

Liquidity

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 discussed in Note 6 to the Consolidated Financial Statements in ITEM 1 of this report. Our Asset Liability Management Committee ("ALCO"), which is comprised of independent Bank directors and the Bank's Chief Executive Officer, is responsible for approving and monitoring our liquidity targets and strategies. ALCO has adopted a contingency funding plan that provides 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-party deposit networks and can adjust the placement of our deposits via reciprocal or one-way sales as part of our cash management strategy.

We obtain funds from the repayment and maturity of loans, deposit inflows, investment security maturities and paydowns, federal funds purchases, FHLB advances, other borrowings, and cash flow from operations. 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.

The most significant component of our daily liquidity position is customer deposits. The attraction and retention of new deposits depends upon the variety and effectiveness of our customer account products, service and convenience, rates paid to customers, and 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.

~~Page-39~~

Since 2020, the banking industry experienced abundant liquidity driven by pandemic-related government programs such as PPP and stimulus checks as well as an elevated savings rate system-wide.

Page-41

The most significant source of liquidity during 2021 was an increase in deposits of ~~$152.0~~$179.3 million. The increase was primarily due to increases in PPP borrower-related accounts and normal fluctuations in some of our large business accounts. Proceeds from loans collected net of loan origination was $84.3 million. Proceeds from principal paydowns and maturities of securities totaled ~~$24.7~~$51.3 million, and ~~$12.4~~$19.8 million in net cash was provided by operating activities.

Significant uses of liquidity during 2021 were ~~$193.4~~$244.7 million in investment securities purchased, ~~$36.5 million in loan originations and advances, net of principal collected, $8.8~~$19.7 million in common stock repurchases, ~~$4.1 million in repayment of a subordinated debenture, and $3.1~~$6.1 million in cash dividends paid on common stock to our ~~shareholders.~~shareholders, and $4.1 million in repayment of a subordinated debenture. 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 and core deposit base are adequate to fund our operations.

Undrawn credit commitments, as discussed in Note 8 to the Consolidated Financial Statements in this Form 10-Q, totaled ~~$610.8~~$571.7 million at ~~March 31,~~June 30, 2021. We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, deposit growth and liquid assets. Over the next twelve months, ~~$69.9~~$69.0 million of time deposits will mature. We expect to replace these funds with new deposits. Our emphasis on local deposits, combined with our liquid investment portfolio, provides a very stable funding base.

Since 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 ~~$18.9~~$4.6 million of cash at ~~March 31,~~June 30, 2021. Combined with $34.0 million of dividend from the Bank to the Bancorp in July 2021, ~~which~~there is ~~deemed~~ sufficient cash to cover Bancorp's operational needs, share repurchases, and cash dividends to shareholders through ~~the end of 2021.~~2022. Management anticipates that there will be sufficient earnings at the Bank to provide dividends to Bancorp to meet its funding requirements for the foreseeable future.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

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 form 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.

To mitigate interest rate risk, the structure of our 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 policy sets limits on the acceptable amount of change to net interest income and 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 specified long-term fixed-rate loans and firm commitments to enter into long-term fixed-rate loans caused by changes in interest rates. See Note 9 to the Consolidated Financial Statements in this Form 10-Q.

ALCO and the Board of Directors review our exposure to interest rate risk at least quarterly. We use simulation models to measure interest rate risk and to evaluate strategies to improve profitability. 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, management may adjust the asset and liability mix to bring the risk position within approved limits or take other actions. At ~~March 31,~~June 30, 2021, interest rate risk was within policy guidelines established by ALCO and the Board. One set of interest rates modeled and evaluated against flat interest rates is a series of immediate parallel shifts in the yield curve. These are provided in the following table as an example rather than an expectation of likely interest rate movements.

~~Page-40~~Page-42


Immediate Changes in Interest Rates (in basis points)	Immediate Changes in Interest Rates (in basis points)	Estimated Change in Net Interest Income in Year 1, as percent of Net Interest Income		Estimated Change in Net Interest Income in Year 2, as percent of Net Interest Income		Immediate Changes in Interest Rates (in basis points)	Estimated Change in Net Interest Income in Year 1, as percent of Net Interest Income		Estimated Change in Net Interest Income in Year 2, as percent of Net Interest Income
up 400	up 400	8.9	%	23.3	%	up 400	9.1	%	25.2	%
up 300	up 300	6.7	%	17.6	%	up 300	6.9	%	19.2	%
up 200	up 200	4.4	%	11.3	%	up 200	4.6	%	12.8	%
up 100	up 100	1.8	%	4.6	%	up 100	2.2	%	6.1	%
down 100	down 100	(1.2)	%	(2.3)	%	down 100	(1.9)	%	(3.6)	%

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 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 choose to pay interest on certain business deposits that are currently non-interest bearing, causing those deposits to become rate sensitive in the future, we would become less asset sensitive than the model currently indicates. Assets and liabilities may react differently to changes in market interest rates in terms of both timing and responsiveness to market rate movements. Important deposit modeling assumptions are the speed of deposit run-off and the amount by which interest-bearing deposit rates increase or decrease when market interest rates change. Further, the actual rates and timing of prepayments on loans and investment securities could vary significantly from the assumptions applied in the various scenarios. Lastly, changes in U.S. Treasury rates accompanied by a change in 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. Controls and 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, 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 et 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, 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 Control over Financial Reporting

During the quarter ended ~~March 31,~~June 30, 2021, 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

~~Page-41~~Page-43

Refer to Note 12 to the Consolidated Financial Statements in Item 8 of our 2020 Form 10-K and Note 8 to the Consolidated Financial Statements in this Form 10-Q.

ITEM 1A Risk Factors

There have been no material changes from the risk factors previously disclosed in our 2020 Form 10-K. Refer to "Risk Factors" in Item 1A of our 2020 Form 10-K, pages 12 through 21.

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities during the period covered by this report.

Issuer Purchases of Equity Securities

On January 24, 2020, Bancorp Board of Directors approved a share repurchase program under which Bancorp could repurchase up to $25.0 million of its outstanding common stock through February 28, 2022. During the three months ended June 30, 2021, Bancorp repurchased 297,935 shares at an average price of $36.04 per share for a total cost of $10.7 million. This share repurchase program ended in May 2021 with 691,519 cumulative shares repurchased totaling $25.0 million. The following table reflects repurchases under this share repurchase program for the periods presented.


(in thousands, except per share data)	Total Number of Shares Purchased	Average Price Paid per Share 1		Total Number of Shares Purchased as Part of Publicly Announced Programs	Approximate Dollar Value That May yet Be Purchased Under the Program


Period



April 1-30, 2021	130,680	$	36.63	130,680	$	5,959
May 1-31, 2021	167,255	35.58		167,255	$	—
June 1-30, 2021	—	—		—	$	—






Total	297,935	$	36.04	297,935
1 Average price paid per share excludes commission.

On July 16, 2021, the Board of Directors approved a new ~~Share Repurchase Program~~share repurchase program under which Bancorp may repurchase up to $25.0 million of its outstanding common stock through ~~February 28, 2022.~~ ~~Bancorp repurchased 224,013 shares totaling $8.5 million in the first quarter of 2021 for a cumulative total of 393,584 shares amounting to $14.3 million.~~

~~The following table reflects repurchases under the Share Repurchase Program for the period presented.~~

(in thousands, except per share data) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs Approximate Dollar Value That May yet Be Purchased Under the Program
Period
January 1-31, 2021 54,815 $ 37.64 54,815 $ 17,198
February 1-28, 2021 109,964 37.35 109,964 13,085
March 1-31, 2021 59,234 39.32 59,234 10,753
Total 224,013 37.94 224,013
July 31, 2023.

ITEM 3 Defaults upon Senior Securities

None.

ITEM 4 Mine Safety Disclosures

Not applicable.

ITEM 5 Other Information

None.

~~Page-42~~Page-44

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 Number Exhibit Description Form File No. Exhibit Filing Date Herewith
2.01
Agreement To Merge And Plan Of Reorganization, dated as of April 16, 2021 by and among Bank of Marin Bancorp and American River Bankshares
8-K 001-33572 2.1 April 19, 2021
3.01
Articles of Incorporation, as amended
10-Q 001-33572 3.01 November 7, 2007
3.02
Bylaws
10-Q 001-33572 3.02 May 9, 2011
3.02a
Bylaws Amendment
8-K 001-33572 3.03 July 6, 2015
4.01
Rights Agreement, dated July 6, 2017
8-A12B 001-33572 4.1 July 7, 2017
4.02
Description of Capital Stock
10-K 001-33572 4.02 March 13, 2020
10.01
Employee Stock Ownership Plan
S-8 333-218274 4.1 May 26, 2017
10.02
2017 Employee Stock Purchase Plan
S-8 333-221219 4.1 October 30, 2017
10.03
2017 Equity Plan, as amended
S-8 333-227840 4.1 October 15, 2018
10.04
2020 Director Stock Plan
S-8 333-239555 4.1 June 30, 2020
10.05
Form of Indemnification Agreement for Directors and Executive Officers, dated August 9, 2007
10-Q 001-33572 10.06 November 7, 2007
10.06
Form of Employment Agreement, dated January 23, 2009
8-K 001-33572 10.1 January 26, 2009
10.07
2010 Annual Individual Incentive Compensation Plan, revised 2019
10-K 001-33572 10.07 March 15, 2021
10.08
Salary Continuation Agreement for executive officer Russell Colombo, Chief Executive Officer, dated January 1, 2011
8-K 001-33572 10.1 January 6, 2011
10.09
Salary Continuation Agreement for executive officer Tani Girton, Chief Financial Officer, dated October 18, 2013
8-K 001-33572 10.2 November 4, 2014
10.10
Salary Continuation Agreement for executive officer Elizabeth Reizman, Chief Credit Officer, dated July 20, 2014
8-K 001-33572 10.3 November 4, 2014
10.11
2007 Form of Change in Control Agreement
8-K 001-33572 10.1 October 31, 2007
10.12
Salary Continuation Agreement for executive officer Timothy Myers, Commercial Banking Manager, dated January 1, 2016
10-Q 001-33572 10.12 November 6, 2020
10.13
Director Deferred Fee Plan, dated December 17, 2020
10-K 001-33572 10.13 March 15, 2021
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.INS Inline XBRL Instance Document Filed
101.SCH Inline XBRL Taxonomy Extension Schema Document Filed
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Filed
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Filed

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

Herewith

2.01

Agreement to Merge and Plan of Reorganization, dated April 16, 2021 by and among Bank of Marin Bancorp and American River Bankshares

8-K

001-33572

2.1

April 19, 2021

3.01

Articles of Incorporation, as amended

S-4

333-257025

3.01

June 11, 2021

3.02

Bylaws, as amended

S-4

333-257025

3.02

June 11, 2021

4.01

Rights Agreement, dated July 6, 2017

8-A12B

001-33572

4.1

July 7, 2017

4.02

Description of Capital Stock

10-K

001-33572

4.02

March 13, 2020

10.01

Employee Stock Ownership Plan

S-8

333-218274

4.1

May 26, 2017

10.02

2017 Employee Stock Purchase Plan

S-8

333-221219

4.1

October 30, 2017

10.03

2017 Equity Plan, as amended

S-8

333-227840

4.1

October 15, 2018

10.04

2020 Director Stock Plan

S-8

333-239555

4.1

June 30, 2020

10.05

Form of Indemnification Agreement for Directors and Executive Officers, dated August 9, 2007

10-Q

001-33572

10.06

November 7, 2007

10.06

Form of Employment Agreement, dated January 23, 2009

8-K

001-33572

10.1

January 26, 2009

10.07

2010 Annual Individual Incentive Compensation Plan, revised 2019

10-K

001-33572

10.07

March 15, 2021

10.08

Salary Continuation Agreement for executive officer Russell Colombo, Chief Executive Officer, dated January 1, 2011

8-K

001-33572

10.1

January 6, 2011

10.09

Salary Continuation Agreement for executive officer Tani Girton, Chief Financial Officer, dated October 18, 2013

8-K

001-33572

10.2

November 4, 2014

10.10

Salary Continuation Agreement for executive officer Elizabeth Reizman, Chief Credit Officer, dated July 20, 2014

8-K

001-33572

10.3

November 4, 2014

10.11

2007 Form of Change in Control Agreement

8-K

001-33572

10.1

October 31, 2007

10.12

Salary Continuation Agreement for executive officer Timothy Myers, President and Chief Operating Officer, dated January 1, 2016

10-Q

001-33572

10.12

November 6, 2020

10.13

Director Deferred Fee Plan, dated December 17, 2020

10-K

001-33572

10.13

March 15, 2021

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.INS

Inline XBRL Instance Document

Filed

101.SCH

Inline XBRL Taxonomy Extension Schema Document

Filed

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Filed

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

Filed

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Filed

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

Filed

~~Page-43~~Page-45

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 7,~~August 5, 2021						/s/ Russell A. Colombo
			Date						Russell A. Colombo
									~~President &~~
									Chief Executive Officer
									(Principal Executive Officer)



			~~May 7,~~August 5, 2021						/s/ Tani Girton
			Date						Tani Girton
									Executive Vice President &
									Chief Financial Officer
									(Principal Financial Officer)


			~~May 7,~~August 5, 2021						/s/ David A. Merck
			Date						David A. Merck
									Vice President &
									Financial Reporting Manager
									(Principal Accounting Officer)

~~Page-44~~Page-46


Payment Relief by Type
Industry/Collateral Type (dollars in thousands)	Outstanding Loan Balance		Weighted Average LTV
Education	$	17,076	26	%
Health Clubs	13,352		49	%
Office and Mixed Use	13,794		42	%
Hospitality	7,135		48	%
Retail Related CRE	4,760		58	%
Payment Relief Totals	$	56,117	41	%


(in thousands, except per share data)	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Approximate Dollar Value That May yet Be Purchased Under the Program


Period
January 1-31, 2021	54,815	$	37.64	54,815	$	17,198
February 1-28, 2021	109,964	37.35		109,964	13,085
March 1-31, 2021	59,234	39.32		59,234	10,753









Total	224,013	37.94		224,013