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 ~~June 30, 2023~~March 31, 2024

☐ 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	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

☐

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 ~~July 31, 2023,~~April 30, 2024, there were ~~16,120,092 shares~~16,285,786 shares of common stock outstanding.

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION	3

ITEM 1.	Financial Statements (Unaudited)	3
	Consolidated Statements of Condition	3
	Consolidated Statements of Comprehensive ~~(Loss)~~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	2928

ITEM 3.	Quantitative and Qualitative Disclosure about Market Risk	4442

ITEM 4.	Controls and Procedures	4543

PART II	OTHER INFORMATION	4643

ITEM 1.	Legal Proceedings	4643

ITEM 1A.	Risk Factors	4643

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4643

ITEM 3.	Defaults Upon Senior Securities	4744

ITEM 4.	Mine Safety Disclosures	4744

ITEM 5.	Other Information	4744

ITEM 6.	Exhibits	4845

SIGNATURES

Page-2

PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements


BANK OF MARIN BANCORP CONSOLIDATED STATEMENTS OF CONDITION


(in thousands, except share data; unaudited)	(in thousands, except share data; unaudited)	June 30, 2023		December 31, 2022		(in thousands, except share data; unaudited)	March 31, 2024	December 31, 2023
Assets	Assets					Assets
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	39,657	$	45,424

Investment securities:	Investment securities:
Held-to-maturity, at amortized cost (net of zero allowance for credit losses at June 30, 2023 and December 31, 2022)		946,808		972,207
Available-for-sale, at fair value (net of zero allowance for credit losses at June 30, 2023 and December 31, 2022)		770,942		802,096

Investment securities:

Investment securities:
Held-to-maturity, at amortized cost (net of zero allowance for credit losses at March 31, 2024 and December 31, 2023)
Held-to-maturity, at amortized cost (net of zero allowance for credit losses at March 31, 2024 and December 31, 2023)
Held-to-maturity, at amortized cost (net of zero allowance for credit losses at March 31, 2024 and December 31, 2023)
Available-for-sale, at fair value (net of zero allowance for credit losses at March 31, 2024 and December 31, 2023)
Total investment securities	Total investment securities	1,717,750		1,774,303
Loans, at amortized cost	Loans, at amortized cost	2,102,796		2,092,546
Allowance for credit losses on loans	Allowance for credit losses on loans	(23,832)		(22,983)
Loans, net of allowance for credit losses on loans	Loans, net of allowance for credit losses on loans	2,078,964		2,069,563
Goodwill	Goodwill	72,754		72,754
Bank-owned life insurance	Bank-owned life insurance	67,367		67,066
Operating lease right-of-use assets	Operating lease right-of-use assets	22,739		24,821
Bank premises and equipment, net	Bank premises and equipment, net	8,683		8,134
Core deposit intangible, net	Core deposit intangible, net	4,431		5,116
Other real estate owned		415		455

Interest receivable and other assets
Interest receivable and other assets
Interest receivable and other assets	Interest receivable and other assets	79,373		79,828
Total assets	Total assets	$	4,092,133	$	4,147,464

Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Non-interest bearing	Non-interest bearing	$	1,588,723	$	1,839,114
Interest bearing
Interest bearing:
Transaction accounts
Transaction accounts
Transaction accounts	Transaction accounts	229,434		287,651
Savings accounts	Savings accounts	274,510		338,163
Money market accounts	Money market accounts	1,029,082		989,390
Time accounts	Time accounts	203,463		119,030
Total deposits	Total deposits	3,325,212		3,573,348
Short-term borrowings and other obligations		292,572		112,439
Borrowings and other obligations

Operating lease liabilities
Operating lease liabilities
Operating lease liabilities	Operating lease liabilities	25,220		26,639
Interest payable and other liabilities	Interest payable and other liabilities	25,188		22,946
Total liabilities	Total liabilities	3,668,192		3,735,372
Commitments and contingent liabilities (Note 8)	Commitments and contingent liabilities (Note 8)					Commitments and contingent liabilities (Note 8)
Stockholders' Equity	Stockholders' Equity					Stockholders' Equity
Preferred stock, no par value, Authorized - 5,000,000 shares, none issued	Preferred stock, no par value, Authorized - 5,000,000 shares, none issued	—		—
Common stock, no par value, Authorized - 30,000,000 shares; issued and outstanding - 16,107,192 and 16,029,138 at June 30, 2023 and December 31, 2022, respectively		216,589		215,057
Common stock, no par value, Authorized - 30,000,000 shares; issued and outstanding - 16,285,786 and 16,158,413 at March 31, 2024 and December 31, 2023, respectively
Retained earnings	Retained earnings	276,732		270,781
Accumulated other comprehensive loss, net of taxes	Accumulated other comprehensive loss, net of taxes	(69,380)		(73,746)
Total stockholders' equity	Total stockholders' equity	423,941		412,092
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	4,092,133	$	4,147,464

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

Page-3

BANK OF MARIN BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Three months ended Six months ended
(in thousands, except per share amounts; unaudited) June 30, 2023 March 31, 2023 June 30, 2022 June 30, 2023 June 30, 2022
Interest income
Interest and fees on loans $ 24,579 $ 24,258 $ 23,334 $ 48,837 $ 47,011
Interest on investment securities 9,994 10,033 8,273 20,027 14,966
Interest on federal funds sold and due from banks 48 56 180 104 286
Total interest income 34,621 34,347 31,787 68,968 62,263
Interest expense
Interest on interest-bearing transaction accounts 234 254 53 488 109
Interest on savings accounts 146 170 32 316 61
Interest on money market accounts 4,292 1,085 438 5,377 916
Interest on time accounts 946 223 67 1,169 81
Interest on borrowings and other obligations 4,873 2,716 — 7,589 1
Total interest expense 10,491 4,448 590 14,939 1,168
Net interest income 24,130 29,899 31,197 54,029 61,095
Provision for (reversal of) credit losses on loans 500 350 — 850 (485)
Reversal of credit losses on unfunded loan commitments (168) (174) — (342) (318)
Net interest income after provision for (reversal of) credit losses 23,798 29,723 31,197 53,521 61,898
Non-interest income
Wealth Management and Trust Services 559 511 630 1,070 1,230
Earnings on bank-owned life insurance, net 362 705 298 1,067 711
Service charges on deposit accounts 520 533 465 1,053 953
Debit card interchange fees, net 555 447 531 1,002 1,036
Dividends on Federal Home Loan Bank stock 290 302 249 592 508
Merchant interchange fees, net 127 133 149 260 289
Other income 326 304 406 630 868
Total non-interest income 2,739 2,935 2,728 5,674 5,595
Non-interest expense
Salaries and related benefits 11,416 10,930 10,341 22,346 21,889
Occupancy and equipment 1,980 2,414 1,891 4,394 3,798
Data processing 922 1,045 1,199 1,967 2,476
Professional services 797 1,123 665 1,920 1,578
Depreciation and amortization 400 882 393 1,282 845
Federal Deposit Insurance Corporation insurance 666 289 296 955 586
Information technology 357 370 468 727 946
Charitable contributions 638 49 511 687 556
Amortization of core deposit intangible 340 345 374 685 754
Directors' expense 300 321 294 621 605
Other real estate owned 44 4 3 48 5
Other expense 2,805 2,008 2,471 4,813 4,243
Total non-interest expense 20,665 19,780 18,906 40,445 38,281
Income before provision for income taxes 5,872 12,878 15,019 18,750 29,212
Provision for income taxes 1,321 3,438 3,953 4,759 7,681
Net income $ 4,551 $ 9,440 $ 11,066 $ 13,991 $ 21,531
Net income per common share:
Basic $ 0.28 $ 0.59 $ 0.70 $ 0.88 $ 1.35
Diluted $ 0.28 $ 0.59 $ 0.69 $ 0.87 $ 1.35
Weighted average shares:
Basic 16,009 15,970 15,921 15,990 15,898
Diluted 16,016 15,999 15,955 16,008 15,950
Comprehensive (loss) income:
Net income $ 4,551 $ 9,440 $ 11,066 $ 13,991 $ 21,531
Other comprehensive (loss) income:
Change in net unrealized gains or losses on available-for-sale securities (10,928) 16,213 (27,050) 5,285 (65,278)
Net unrealized losses on securities transferred from available-for-sale to held-to-maturity — — — — (14,847)
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity 451 463 472 914 616
Other comprehensive (loss) income, before tax (10,477) 16,676 (26,578) 6,199 (79,509)
Deferred tax (benefit) expense (3,097) 4,930 (7,857) 1,833 (23,505)
Other comprehensive (loss) income, net of tax (7,380) 11,746 (18,721) 4,366 (56,004)
Total comprehensive (loss) income $ (2,829) $ 21,186 $ (7,655) $ 18,357 $ (34,473)


BANK OF MARIN BANCORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	Three months ended
(in thousands, except per share amounts; unaudited)	March 31, 2024		December 31, 2023		March 31, 2023
Interest income
Interest and fees on loans	$	25,020	$	24,964	$	24,258
Interest on investment securities	8,805		9,289		10,033
Interest on federal funds sold and due from banks	321		1,170		56
Total interest income	34,146		35,423		34,347
Interest expense
Interest on interest-bearing transaction accounts	261		278		254
Interest on savings accounts	371		322		170
Interest on money market accounts	8,449		7,188		1,085
Interest on time accounts	2,280		1,991		223
Interest on borrowings and other obligations	91		1,380		2,716

Total interest expense	11,452		11,159		4,448
Net interest income	22,694		24,264		29,899
Provision for credit losses on loans	350		1,300		350
Reversal of credit losses on unfunded loan commitments	—		—		(174)
Net interest income after provision for (reversal of) credit losses	22,344		22,964		29,723
Non-interest income
Wealth management and trust services	553		560		511
Service charges on deposit accounts	529		522		533
Earnings on bank-owned life insurance, net	435		364		705
Debit card interchange fees, net	408		373		447
Dividends on Federal Home Loan Bank stock	377		349		302
Merchant interchange fees, net	167		119		133
Losses on sale of investment securities, net of gains	—		(5,907)		—
Other income	285		337		304
Total non-interest income	2,754		(3,283)		2,935
Non-interest expense
Salaries and related benefits	12,084		10,361		10,930
Occupancy and equipment	1,969		1,939		2,414
Professional services	1,078		921		1,123
Data processing	1,070		1,081		1,045
Deposit network fees	845		940		96
Federal Deposit Insurance Corporation insurance	435		454		289
Information technology	402		431		370
Depreciation and amortization	388		393		882
Directors' expense	317		319		321
Amortization of core deposit intangible	251		330		345

Other real estate owned	—		—		4
Other expense	2,330		2,120		1,961
Total non-interest expense	21,169		19,289		19,780
Income before provision for income taxes	3,929		392		12,878
Provision for income taxes	1,007		(218)		3,438
Net income	$	2,922	$	610	$	9,440
Net income per common share:
Basic	$	0.18	$	0.04	$	0.59
Diluted	$	0.18	$	0.04	$	0.59
Weighted average shares:
Basic	16,081		16,040		15,970
Diluted	16,092		16,052		15,999
Comprehensive income:
Net income	$	2,922	$	610	$	9,440
Other comprehensive (loss) income:
Change in net unrealized gains or losses on available-for-sale securities	(4,568)		28,865		16,213
Reclassification adjustment for realized losses on available-for-sale securities in net income	—		5,907		—
Reclassification adjustment for gains or losses on fair value hedges	1,217		(1,726)		—

Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity	361		418		463
Other comprehensive (loss) income, before tax	(2,990)		33,464		16,676
Deferred tax (benefit) expense	(884)		9,890		4,930
Other comprehensive (loss) income, net of tax	(2,106)		23,574		11,746
Total comprehensive income	$	816	$	24,184	$	21,186

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 ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~


(in thousands, except share data; unaudited)	(in thousands, except share data; unaudited)	Common Stock			Retained Earnings		Accumulated Other Comprehensive (Loss) Income, Net of Taxes		Total		(in thousands, except share data; unaudited)	Common Stock		Retained Earnings	Accumulated Other Comprehensive (Loss) Income, Net of Taxes	Total
		Shares	Amount									Shares	Amount
		Three months ended June 30, 2023
Balance at April 1, 2023		16,107,210	$	215,965	$	276,209	$	(62,000)	$	430,174
	Three months ended March 31, 2024																Three months ended March 31, 2024
Balance at January 1, 2024
Net income	Net income	—	—		4,551		—		4,551
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—		(7,380)		(7,380)

Stock issued under employee stock purchase plan	Stock issued under employee stock purchase plan	741	12		—		—		12

Stock issued under employee stock purchase plan

Stock issued under employee stock purchase plan
Stock issued under employee stock ownership plan	Stock issued under employee stock ownership plan	19,700	424		—		—		424

Restricted stock granted
Restricted stock surrendered for tax withholdings upon vesting	Restricted stock surrendered for tax withholdings upon vesting	(285)	(4)		—		—		(4)
Restricted stock forfeited / cancelled	Restricted stock forfeited / cancelled	(20,174)	—		—		—		—
Stock-based compensation - stock options	Stock-based compensation - stock options	—	21		—		—		21
Stock-based compensation - restricted stock	Stock-based compensation - restricted stock	—	171		—		—		171
Cash dividends paid on common stock ($0.25 per share)	Cash dividends paid on common stock ($0.25 per share)	—	—		(4,028)		—		(4,028)

Stock issued in payment of director fees
Stock issued in payment of director fees
Stock issued in payment of director fees

Balance at March 31, 2024

Balance at June 30, 2023		16,107,192	$	216,589	$	276,732	$	(69,380)	$	423,941
Balance at March 31, 2024
		Three months ended June 30, 2022
Balance at April 1, 2022		16,003,847	$	213,204	$	246,511	$	(39,307)	$	420,408
Balance at March 31, 2024
	Three months ended March 31, 2023																Three months ended March 31, 2023
Balance at January 1, 2023
Net income	Net income	—	—		11,066		—		11,066
Other comprehensive loss, net of tax		—	—		—		(18,721)		(18,721)
Other comprehensive income, net of tax

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
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	4,768	81		—		—		81
Stock issued under employee stock purchase plan	Stock issued under employee stock purchase plan	936	30		—		—		30
Stock issued under employee stock ownership plan	Stock issued under employee stock ownership plan	13,000	412		—		—		412
Restricted stock granted
Restricted stock surrendered for tax withholdings upon vesting

Restricted stock surrendered for tax withholdings upon vesting		(333)	(11)		—		—		(11)
Restricted stock forfeited / cancelled		(12,618)	—		—		—		—
Stock-based compensation - stock options
Stock-based compensation - stock options
Stock-based compensation - stock options	Stock-based compensation - stock options	—	29		—		—		29
Stock-based compensation - restricted stock	Stock-based compensation - restricted stock	—	119		—		—		119
Cash dividends paid on common stock ($0.24 per share)		—	—		(3,840)		—		(3,840)
Cash dividends paid on common stock ($0.25 per share)

Stock issued in payment of director fees
Stock issued in payment of director fees
Stock issued in payment of director fees

Balance at March 31, 2023

Balance at March 31, 2023

Balance at June 30, 2022		16,009,600	$	213,864	$	253,737	$	(58,028)	$	409,573
Balance at March 31, 2023

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, 2023 and 2022
(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, 2023
Balance at January 1, 2023 16,029,138 $ 215,057 $ 270,781 $ (73,746) $ 412,092
Net income — — 13,991 — 13,991
Other comprehensive income, net of tax — — — 4,366 4,366
Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 11,530 230 — — 230
Stock issued under employee stock purchase plan 1,156 21 — — 21
Stock issued under employee stock ownership plan 34,000 847 — — 847
Restricted stock granted 49,428 — — — —
Restricted stock surrendered for tax withholdings upon vesting (2,498) (70) — — (70)
Restricted stock forfeited / cancelled (20,174) — — — —
Stock-based compensation - stock options — 137 — — 137
Stock-based compensation - restricted stock — 217 — — 217
Cash dividends paid on common stock ($0.50 per share) — — (8,040) — (8,040)
Stock issued in payment of director fees 4,612 150 — — 150
Balance at June 30, 2023 16,107,192 $ 216,589 $ 276,732 $ (69,380) $ 423,941
Six months ended June 30, 2022
Balance at January 1, 2022 15,929,243 $ 212,524 $ 239,868 $ (2,024) $ 450,368
Net income — — 21,531 — 21,531
Other comprehensive loss, net of tax — — — (56,004) (56,004)
Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 40,311 820 — — 820
Stock issued under employee stock purchase plan 936 30 — — 30
Stock issued under employee stock ownership plan 25,000 829 — — 829
Restricted stock granted 46,672 — — — —
Restricted stock surrendered for tax withholdings upon vesting (1,169) (40) — — (40)
Restricted stock forfeited / cancelled (13,267) — — — —
Stock-based compensation - stock options — 115 — — 115
Stock-based compensation - restricted stock — 270 — — 270
Cash dividends paid on common stock ($0.48 per share) — — (7,662) — (7,662)
Stock issued in payment of director fees 5,149 193 — — 193
Stock repurchased, including commissions (23,275) (877) — — (877)
Balance at June 30, 2022 16,009,600 $ 213,864 $ 253,737 $ (58,028) $ 409,573
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 ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~


(in thousands; unaudited)	(in thousands; unaudited)	2023		2022		(in thousands; unaudited)	2024	2023
Cash Flows from Operating Activities:	Cash Flows from Operating Activities:					Cash Flows from Operating Activities:
Net income	Net income	$	13,991	$	21,531
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (reversal of) credit losses on loans		850		(485)
Provision for credit losses on loans
Provision for credit losses on loans
Provision for credit losses on loans
Reversal of credit losses on unfunded loan commitments	Reversal of credit losses on unfunded loan commitments	(342)		(318)

Noncash contribution expense to employee stock ownership plan
Noncash contribution expense to employee stock ownership plan
Noncash contribution expense to employee stock ownership plan	Noncash contribution expense to employee stock ownership plan	847		829
Noncash director compensation expense	Noncash director compensation expense	150		193
Stock-based compensation expense	Stock-based compensation expense	354		385
Amortization of core deposit intangible	Amortization of core deposit intangible	685		754
Amortization of investment security premiums, net of accretion of discounts	Amortization of investment security premiums, net of accretion of discounts	3,781		4,963
(Accretion of discounts) amortization of premiums on acquired loans, net		(415)		281
Accretion of discounts on acquired loans, net

Net change in deferred loan origination costs/fees	Net change in deferred loan origination costs/fees	(588)		(2,322)
Write-down of other real estate owned		40		—
Net change in deferred loan origination costs/fees
Net change in deferred loan origination costs/fees

Depreciation and amortization	Depreciation and amortization	1,282		845

Depreciation and amortization

Depreciation and amortization
Loss on disposal of premises and equipment

Earnings on bank-owned life insurance policies	Earnings on bank-owned life insurance policies	(1,067)		(711)

Earnings on bank-owned life insurance policies

Earnings on bank-owned life insurance policies

Net changes in interest receivable and other assets

Net changes in interest receivable and other assets

Net changes in interest receivable and other assets	Net changes in interest receivable and other assets	(1,354)		(443)
Net changes in interest payable and other liabilities	Net changes in interest payable and other liabilities	3,284		(5,894)
Total adjustments	Total adjustments	7,507		(1,923)
Net cash provided by operating activities	Net cash provided by operating activities	21,498		19,608
Cash Flows from Investing Activities:	Cash Flows from Investing Activities:					Cash Flows from Investing Activities:

Purchase of held-to-maturity securities		—		(208,784)
Purchase of available-for-sale securities		—		(243,459)

Proceeds from paydowns/maturities of held-to-maturity securities

Proceeds from paydowns/maturities of held-to-maturity securities

Proceeds from paydowns/maturities of held-to-maturity securities	Proceeds from paydowns/maturities of held-to-maturity securities	25,377		16,827
Proceeds from paydowns/maturities of available-for-sale securities	Proceeds from paydowns/maturities of available-for-sale securities	33,595		76,276

(Increase) decrease in loans receivable, net		(9,271)		93,875

Proceeds from bank-owned life insurance policies		766		350
Increase (decrease) in loans receivable, net

Increase (decrease) in loans receivable, net

Increase (decrease) in loans receivable, net
Purchase of bank-owned life insurance policies

Purchase of premises and equipment
Purchase of premises and equipment
Purchase of premises and equipment	Purchase of premises and equipment	(1,823)		(354)

Cash paid for low income housing tax credit investment	Cash paid for low income housing tax credit investment	(39)		(30)
Net cash provided by (used in) investing activities		48,605		(265,299)

Cash paid for low income housing tax credit investment

Cash paid for low income housing tax credit investment
Net cash provided by investing activities
Cash Flows from Financing Activities:	Cash Flows from Financing Activities:					Cash Flows from Financing Activities:
Net (decrease) increase in deposits		(248,136)		22,120
Proceeds from short-term Federal Home Loan Bank borrowings, net		180,200		—
Net decrease in deposits
(Repayment of) proceeds from short-term borrowings, net
Repayment of finance lease obligations	Repayment of finance lease obligations	(75)		(63)
Proceeds from stock options exercised	Proceeds from stock options exercised	230		820
Restricted stock surrendered for tax withholdings upon vesting	Restricted stock surrendered for tax withholdings upon vesting	(70)		(40)
Cash dividends paid on common stock	Cash dividends paid on common stock	(8,040)		(7,662)
Stock repurchased, including commissions		—		(1,250)

Proceeds from stock issued under employee and director stock purchase plans
Proceeds from stock issued under employee and director stock purchase plans
Proceeds from stock issued under employee and director stock purchase plans	Proceeds from stock issued under employee and director stock purchase plans	21		30

Net cash (used in) provided by financing activities		(75,870)		13,955
Net decrease in cash, cash equivalents and restricted cash		(5,767)		(231,736)
Net cash used in financing activities

Net cash used in financing activities

Net cash used in financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	45,424		347,641
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	39,657	$	115,905
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:
Cash paid in interest		$	14,151	$	1,175
Cash paid in income taxes		$	—	$	8,450
Interest paid on deposits and borrowings
Interest paid on deposits and borrowings
Interest paid on deposits and borrowings
Income taxes paid, net of refunds
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 gains or losses on available-for-sale securities	Change in net unrealized gains or losses on available-for-sale securities	$	5,285	$	(65,278)

Securities transferred from available-for-sale to held-to-maturity, at fair value		$	—	$	357,482
Amortization of net unrealized loss on available-for-sale securities transferred to held-to-maturity		$	914	$	616
Purchase of investment securities not yet settled		$	—	$	40,278
Change in net unrealized gains or losses on available-for-sale securities
Change in net unrealized gains or losses on available-for-sale securities

Amortization of net unrealized loss on available-for-sale securities transferred to held-to-maturity

Stock issued to employee stock ownership plan		$	847	$	829
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

Bank-owned life insurance benefit receivable

Bank-owned life insurance benefit receivable

Bank-owned life insurance benefit receivable

Restricted cash1	Restricted cash1	$	—	$	930

Restricted cash1

Restricted cash1

1 Restricted cash includes reserve requirements held with the Federal Reserve Bank of San Francisco and other cash pledged. ~~In response to the COVID-19 pandemic, the~~The Federal Reserve reduced the reserve requirement ratios to zero percent effective March 26, 2020.

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

Page-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1: Basis of Presentation

The consolidated financial statements include the accounts of Bancorp, a bank holding company, and its wholly-owned bank subsidiary, Bank of Marin, 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.

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 ~~2022~~2023 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 (loss), changes in stockholders’ equity, and cash flows for the periods presented. All material intercompany transactions have been eliminated. The results of these interim periods may not be indicative of the results for the full year or for any other period.

The following table shows: 1) weighted average basic shares, 2) potentially dilutive weighted average common shares related to stock options and unvested restricted stock awards, and 3) weighted average diluted shares. Basic earnings per share (“EPS”) are calculated by dividing net income by the weighted average number of common shares outstanding during each period, excluding unvested restricted stock awards. Diluted EPS are calculated using the weighted average number of potentially dilutive common shares. The number of potentially dilutive common shares included in the quarterly diluted EPS is computed using the average market prices during the three months included in the reporting period under the treasury stock method. The number of potentially dilutive common shares included in year-to-date diluted EPS is a year-to-date weighted average of potentially dilutive common shares included in each quarterly diluted EPS computation. In computing diluted EPS, we exclude anti-dilutive shares such as options whose exercise prices exceed the current common stock price, as they would not reduce EPS under the treasury stock method. We have two forms of outstanding common stock: common stock and unvested restricted stock awards. Holders of unvested restricted stock awards receive non-forfeitable dividends at the same rate as common shareholders and they both share equally in undistributed earnings. Under the two-class method, the difference in EPS is nominal for these participating securities.


		Three months ended				Six months ended
		Three months ended
		Three months ended
		Three months ended
(in thousands, except per share data)
(in thousands, except per share data)
(in thousands, except per share data)	(in thousands, except per share data)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Weighted average basic common shares outstanding	Weighted average basic common shares outstanding	16,009		15,921		15,990		15,898
Weighted average basic common shares outstanding
Weighted average basic common shares outstanding
Potentially dilutive common shares related to:
Potentially dilutive common shares related to:
Potentially dilutive common shares related to:	Potentially dilutive common shares related to:
Stock options	Stock options	—		24		7		38
Stock options
Stock options
Unvested restricted stock awards
Unvested restricted stock awards
Unvested restricted stock awards	Unvested restricted stock awards	7		10		11		14
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	16,016		15,955		16,008		15,950
Weighted average diluted common shares outstanding
Weighted average diluted common shares outstanding
Net income
Net income
Net income	Net income	$	4,551	$	11,066	$	13,991	$	21,531
Basic EPS	Basic EPS	$	0.28	$	0.70	$	0.88	$	1.35
Basic EPS
Basic EPS
Diluted EPS
Diluted EPS
Diluted EPS	Diluted EPS	$	0.28	$	0.69	$	0.87	$	1.35
Weighted average anti-dilutive common shares not included in the calculation of diluted EPS	Weighted average anti-dilutive common shares not included in the calculation of diluted EPS	389		230		358		167
Weighted average anti-dilutive common shares not included in the calculation of diluted EPS
Weighted average anti-dilutive common shares not included in the calculation of diluted EPS

Note 2: Recently Adopted and Issued Accounting Standards

Accounting Standards Adopted in ~~2023~~

~~In March 2022, the FASB issued ASU No. 2022-02,~~ ~~Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures~~. The amendment eliminated the recognition measurement guidance for troubled debt restructured ("TDR") loans and instead enhanced disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty. In addition, the amendment required that an entity include in its vintage disclosures the current period gross loan charge-offs by year of origination. We early adopted the current period charge-off disclosures in the first quarter of 2022. We adopted the loan modification provisions as

~~Page-7~~

~~of January 1, 2023 using a modified retrospective method. The cumulative-effect adjustment to retained earnings was considered immaterial. Refer to Note 5,~~ ~~Loans and Allowance for Credit Losses on Loans, for additional information.~~

~~In March 2022, the FASB issued ASU No. 2022-01,~~ ~~Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method~~. Among other things, the ASU renamed the "last-of-layer" method to the "portfolio layer" method and made fair value hedging more accessible for hedge accounting of interest rate risk for portfolios and financial assets. For example, the guidance permits an entity to apply the same portfolio hedging method to both prepayable and non-prepayable financial assets, thereby providing for consistency between accounting for similar hedges. We adopted the amendments on January 1, 2023, which had no effect on our existing hedge accounting, disclosures, financial condition or results of operations.

~~Accounting Standards Not Yet Effective~~

~~In March 2020, the FASB issued Accounting Standards Update ("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. Topic 848 was further amended in January 2021 with ASU No. 2021-01, which provided additional guidance on certain optional expedients and scope of derivative instruments, and in December 2022 with ASU 2022-06, which extended the sunset date of Topic 848 to December 31, 2024 ~~given~~ the UK Financial Conduct Authority ("FCA") March 2021 announcement that the intended cessation date of certain tenors of USD LIBOR would be June 30, 2023. An entity may elect the amendments in these updates at an interim period with adoption methods varying based on transaction type. As of June 30, 2023, we had four interest rate swap contracts with notional values totaling $11.5 million indexed to LIBOR, which transitioned to the Secured Overnight Financing Rate ("SOFR") effective July 1, 2023. The transition to SOFR did not have a material impact to either our financial condition or results of operations.

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendment reduces diversity in practice by clarifying that a separate contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. In addition, this ASU provided amended examples to illustrate that a restriction that is a characteristic of the equity security, which market participants would take into account when pricing them, would be considered in measuring fair value. This ASU also ~~introduces~~introduced new disclosure requirements. The amendments ~~are~~were effective prospectively for years beginning after

Page-7

December 15, 2023. ~~Early adoption is permitted for both interim and annual financial statements.~~ As discussed in Note 4, Investment Securities, ~~on July 13,~~in 2023 we sold our remaining shares of Visa Inc. Class B restricted common stock. As a result of the sale, this update ~~will not~~had no impact our financial condition, results of operations or disclosures.

In March 2023, the FASB issued ASU No. 2023-01, Leases (Topic 842): Common Control Arrangements. For public companies, the amendment requires entities to amortize leasehold improvements associated with common control lease arrangements over the useful life of the improvements to the common control group, as opposed to the shorter of the remaining lease term and the useful life of the improvements for all other operating leases. The amendments ~~are~~were effective for years beginning after December 15, 2023, and may be adopted either prospectively or retrospectively. ~~Early adoption is permitted for both interim and annual financial statements.~~ We currently do not have common control lease arrangements, and therefore ~~do not anticipate that~~the adoption of the amendments ~~will~~had no impact on our financial condition, ~~and~~ results of ~~operations.~~operations or disclosures.

In March 2023, the FASB issued ASU No. 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. Under current GAAP, an entity can only elect to apply the proportional amortization method to investments in low-income housing tax credit ("LIHTC") structures. The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the consolidated statements of income as a component of income tax expense (benefit). The amendments will allow entities to elect to account for all other equity investments made primarily for the purpose of receiving income tax credits to using the proportional amortization method, regardless of the tax credit program through which the investment earns income tax credits,

~~Page-8~~

when certain conditions are met. The amendments ~~are~~were effective for fiscal years beginning after December 15, 2023, and may be adopted either on a modified retrospective basis or retrospectively. Other than investments in LIHTC funds, as disclosed in Note 4, Investment Securities, we currently have no other equity investments made primarily for the purpose of receiving income tax credits, and therefore ~~do not anticipate that~~the adoption of this ASU had no impact on our financial condition, results of operations or disclosures.

Accounting Standards Not Yet Effective

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments are intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, enhanced interim disclosure requirements, clarifying circumstances in which an entity can disclose multiple segment measures of profit or loss, providing new segment disclosure requirements for entities with a single reportable segment, and requiring other disclosures. The amendments are effective for annual reporting periods beginning after December 15, 2023 (i.e., 2024 Form 10-K) and interim periods within fiscal years beginning after December 31, 2024, and shall be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. We currently have only one reportable segment and are evaluating the impact the amendments will ~~impact~~have on our financial ~~condition~~statement disclosures upon adoption.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments require disaggregated information about the effective tax rate reconciliation and ~~results~~additional disclosures on reconciling items and taxes paid that meet a quantitative threshold. The amendments are effective for annual reporting periods beginning after December 15, 2024, and may be adopted either prospectively or retrospectively. Early adoption is permitted. We are currently evaluating the impact of ~~operations.~~the amendments on our financial statement disclosures upon adoption.

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 into 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.

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

The following table summarizes our assets and liabilities that were required to be recorded at fair value on a recurring basis.

~~Page-9~~


(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
June 30, 2023
March 31, 2024
Securities available-for-sale:	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
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	$	449,823	$	—	$	449,823	$	—	OCI	$	340,908		$	—		$	340,908		$	—		OCI	OCI
SBA-backed securities	SBA-backed securities	$	36,649	$	—	$	36,649	$	—	OCI	SBA-backed securities		$	17,148		$	—		$	17,148		$	—		OCI	OCI
Debentures of government sponsored agencies	Debentures of government sponsored agencies	$	135,868	$	—	$	135,868	$	—	OCI	Debentures of government sponsored agencies		$	66,688		$	—		$	66,688		$	—		OCI	OCI
U.S. Treasury securities	U.S. Treasury securities	$	10,334	$	10,334	$	—	$	—	OCI	U.S. Treasury securities		$	10,534		$	10,534		$	—		$	—		OCI	OCI

Obligations of state and political subdivisions	Obligations of state and political subdivisions	$	102,916	$	—	$	102,916	$	—	OCI
Obligations of state and political subdivisions
Obligations of state and political subdivisions													$	90,343		$	—		$	90,343		$	—		OCI
Corporate bonds	Corporate bonds	$	34,043	$	—	$	34,043	$	—	OCI	Corporate bonds		$	10,744		$	—		$	10,744		$	—		OCI	OCI
Asset-backed securities		$	1,309	$	—	$	1,309	$	—	OCI

Derivative financial assets (interest rate contracts)	Derivative financial assets (interest rate contracts)	$	631	$	—	$	631	$	—	NI

December 31, 2022
Derivative financial assets (interest rate contracts)
Derivative financial assets (interest rate contracts)													$	400		$	—		$	400		$	—		NI
Derivative financial liabilities (interest rate contracts)											Derivative financial liabilities (interest rate contracts)		$	142		$	—		$	142		$	—		NI
December 31, 2023
Securities available-for-sale:	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
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	$	475,505	$	—	$	475,505	$	—	OCI	$	352,472		$	—		$	352,472		$	—		OCI	OCI
SBA-backed securities	SBA-backed securities	$	44,355	$	—	$	44,355	$	—	OCI	SBA-backed securities		$	19,471		$	—		$	19,471		$	—		OCI	OCI
Debentures of government sponsored agencies	Debentures of government sponsored agencies	$	135,106	$	—	$	135,106	$	—	OCI	Debentures of government sponsored agencies		$	66,862		$	—		$	66,862		$	—		OCI	OCI
U.S. Treasury securities	U.S. Treasury securities	$	10,269	$	10,269	$	—	$	—	OCI	U.S. Treasury securities		$	10,623		$	10,623		$	—		$	—		OCI	OCI

Obligations of state and political subdivisions	Obligations of state and political subdivisions	$	102,123	$	—	$	102,123	$	—	OCI
Obligations of state and political subdivisions
Obligations of state and political subdivisions													$	91,882		$	—		$	91,882		$	—		OCI
Corporate bonds	Corporate bonds	$	33,276	$	—	$	33,276	$	—	OCI	Corporate bonds		$	10,718		$	—		$	10,718		$	—		OCI	OCI
Asset-backed securities		$	1,462	$	—	$	1,462	$	—	OCI

Derivative financial assets (interest rate contracts)	Derivative financial assets (interest rate contracts)	$	602	$	—	$	602	$	—	NI

Derivative financial assets (interest rate contracts)
Derivative financial assets (interest rate contracts)													$	287		$	—		$	287		$	—		NI
Derivative financial liabilities (interest rate contracts)											Derivative financial liabilities (interest rate contracts)		$	1,361		$	—		$	1,361		$	—		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. Level 1 securities include U.S. Treasury securities. If quoted market prices are not available, we obtain pricing information from a reputable third-party service provider, who may utilize valuation techniques that use current market-based or independently sourced parameters, such as bid/ask prices, dealer-quoted prices, interest rates, benchmark yield curves, prepayment speeds, probability of default, loss severity and credit spreads (Level 2). Level 2 securities include ~~asset-backed securities,~~ obligations of state and political subdivisions, U.S. agencies or government-sponsored agencies' debt securities, mortgage-backed securities, government agency-issued securities, and corporate bonds. As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, there were no Level 3 securities.

Held-to-maturity securities may be subject to an allowance for credit losses as a result of our evaluation of expected losses due to credit quality factors. We did not record any credit loss expense on held-to-maturity securities during the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 or ~~June 30, 2022.~~March 31, 2023. Fair value of held-to-maturity securities is determined using the same techniques discussed above for available-for-sale securities.

Page-9

On a recurring basis, derivative financial instruments are recorded at fair value, which is based on the income approach using observable Level 2 market inputs, reflecting market expectations of future interest rates as of the measurement date. Standard valuation techniques are used to calculate the present value of the future expected cash flows assuming an orderly transaction. Valuation adjustments may be made to reflect both our own credit risk and the counterparties’ credit risk in determining the fair value of the derivatives. These unobservable inputs are not considered significant inputs to the fair value measurement overall. Level 2 inputs for the valuations are limited to observable market prices for ~~London Interbank Offered~~Secured Overnight Financing Rate ("~~LIBOR"~~SOFR") and Overnight Index Swap ("OIS") rates (for the very short term), quoted prices for ~~LIBOR~~SOFR futures contracts, observable market prices for ~~LIBOR~~SOFR and OIS swap rates, and one-month and three-month ~~LIBOR~~SOFR 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

~~Page-10~~

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~~SOFR for the closest maturity term corresponding to the duration of the swaps to derive the CVA. ~~A similar~~Because there is little to no counterparty risk, we did not incorporate credit ~~risk adjustment, correlated to the credit standing~~adjustments from our assessment of the counterparty ~~is made when collateral posted by the counterparty does not fully cover their liability to us.~~credit risk in determining fair value. For further discussion on our methodology infor valuing our derivative financial instruments, refer to Note 9, Derivative Financial Instruments and Hedging Activities.

Certain financial assets may be measured at fair value on a non-recurring basis. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets, such as individually analyzed loans that are collateral dependent and other real estate owned ("OREO").

OREO represents collateral acquired through foreclosure and is initially recorded at fair value as established by a current appraisal of the collateral. Subsequent to foreclosure, OREO is carried at the lower of cost or fair value, less estimated costs to sell. OREO values are reviewed on an ongoing basis and any subsequent decline in fair value is recorded as a foreclosed asset expense in the current period. The value of OREO is classified as Level 3. Our current OREO resulted from the American River Bankshares ("AMRB") merger in 2021.

The following table presents the carrying value of assets measured at fair value on a non-recurring basis and that were held in the consolidated statements of condition at each respective period end, by level within the fair value hierarchy as of June 30, 2023 and December 31, 2022.

(in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
June 30, 2023
Other real estate owned $ 415 $ — $ — $ 415
December 31, 2022
Other real estate owned $ 455 $ — $ — $ 455

~~On July 12, 2023, the Bank completed the sale of its only other real estate owned property and realized a negligible gain after sales costs.~~

(in thousands)

Carrying Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Disclosures about Fair Value of Financial Instruments

The table below is a summary of fair value estimates for financial instruments as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note). The carrying amounts in the following table are recorded in the consolidated statements of condition under the indicated captions. Further, we have not disclosed the fair value of financial instruments specifically excluded from disclosure requirements such as bank-owned life insurance policies ("BOLI"), lease obligations and non-maturity deposit liabilities. Additionally, we held shares of Federal Home Loan Bank ("FHLB") of San Francisco stock at cost as of March 31, 2024 and ~~Visa Inc. Class B common stock with~~December 31, 2023. There were no ~~carrying value, as there was no impairment~~impairments or changes resulting from observable price changes in orderly transactions for the identical or a similar ~~investment~~investments of the same issuer as of ~~June 30, 2023~~March 31, 2024 or December 31, ~~2022. The~~2023. See further discussion on values ~~are discussed in~~within Note 4, Investment Securities.

~~Page-11~~


		June 30, 2023					December 31, 2022							March 31, 2024										December 31, 2023
(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)
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents	Cash and cash equivalents	$	39,657	$	39,657	Level 1	$	45,424	$	45,424	Level 1	$	36,308		$	36,308		Level 1	Level 1			$	30,453		$	30,453		Level 1	Level 1
Investment securities held-to-maturity	Investment securities held-to-maturity	946,808		826,067		Level 2	972,207		845,239		Level 2	Investment securities held-to-maturity		915,068			795,909	795,909		Level 2	Level 2			925,198			814,830	814,830		Level 2	Level 2
Loans, net		2,078,964		1,985,481		Level 3	2,069,563		1,993,866		Level 3
Loans, net of allowance for credit losses												Loans, net of allowance for credit losses		2,029,462			1,913,418			Level 3				2,048,548			1,939,702			Level 3
Interest receivable	Interest receivable	12,810		12,810		Level 2	13,069		13,069		Level 2	Interest receivable		11,678			11,678	11,678		Level 2	Level 2			12,752			12,752	12,752		Level 2	Level 2
Financial liabilities (recorded at amortized cost):
Financial liabilities (recorded at amortized cost)
Time deposits	Time deposits	203,463		204,679		Level 2	119,030		118,333		Level 2
Federal Home Loan Bank short-term borrowings		292,200		292,200		Level 2	112,000		112,000		Level 2
Time deposits
Time deposits														267,536			268,758			Level 2				251,317			252,824			Level 2

FRBSF short-term borrowings under the BTFP
FRBSF short-term borrowings under the BTFP
FRBSF short-term borrowings under the BTFP														—			—			Level 2				26,000			25,998			Level 2

Interest payable	Interest payable	868		868		Level 2	75		75		Level 2

Interest payable

Interest payable														3,130			3,130			Level 2				2,752			2,752			Level 2

~~Fair~~The 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 differ from the actual price from a prospective buyer. The discounted cash flow valuation approach reflects key inputs and assumptions that are unobservable, such as loan probability of default, loss given default, prepayment speed, and market discount rates.

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

~~Due to the short-term nature of the FHLB borrowings, the carrying value approximates fair value.~~

Page-10

The value of off-balance-sheet financial instruments is estimated based on the fee income associated with the commitments, which in the absence of credit exposure, is considered to approximate their settlement value. The fair value of commitment fees was not material as of ~~June 30, 2023~~March 31, 2024 or December 31, ~~2022.~~2023.

Note 4: Investment Securities

Our investment securities portfolio consists of U.S. Treasury securities, obligations of state and political subdivisions, U.S. federal government agencies, such as the Government National Mortgage Association ("GNMA") and Small Business Administration ("SBA"), and U.S. government-sponsored enterprises ("GSEs"), such as the Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Farm Credit Banks Funding Corporation and FHLB, and U.S. ~~Corporations and one asset-backed security collateralized by student loan pools.~~Corporations. 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.

~~Page-12~~

A summary of the amortized cost, fair value and allowance for credit losses related to securities held-to-maturity as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 is presented below.


Held-to-maturity:	Held-to-maturity:	Amortized Cost 1		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized				Fair Value
Held-to-maturity:
Held-to-maturity:
(in thousands)	(in thousands)	Amortized Cost 1		Allowance for Credit Losses		Net Carrying Amount		Gains		(Losses)				Fair Value
June 30, 2023
(in thousands)
(in thousands)
March 31, 2024
March 31, 2024
March 31, 2024
Securities of U.S. government-sponsored enterprises:
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, FNMA and GNMA	MBS pass-through securities issued by FHLMC, FNMA and GNMA	$	316,968	$	—	$	316,968	$	—	$	(48,904)	$	268,064
MBS pass-through securities issued by FHLMC, FNMA and GNMA
MBS pass-through securities issued by FHLMC, FNMA and GNMA
CMOs issued by FHLMC
CMOs issued by FHLMC
CMOs issued by FHLMC	CMOs issued by FHLMC	231,217		—		231,217		177		(27,759)		203,635
CMOs issued by FNMA	CMOs issued by FNMA	106,894		—		106,894		113		(6,436)		100,571
CMOs issued by FNMA
CMOs issued by FNMA
CMOs issued by GNMA
CMOs issued by GNMA
CMOs issued by GNMA	CMOs issued by GNMA	51,511		—		51,511		216		(3,271)		48,456
SBA-backed securities	SBA-backed securities	1,977		—		1,977		—		(130)		1,847
SBA-backed securities
SBA-backed securities
Debentures of government-sponsored agencies
Debentures of government-sponsored agencies
Debentures of government-sponsored agencies	Debentures of government-sponsored agencies	145,973		—		145,973		—		(24,087)		121,886
Obligations of state and political subdivisions	Obligations of state and political subdivisions	62,268		—		62,268		6		(9,029)		53,245
Obligations of state and political subdivisions
Obligations of state and political subdivisions
Corporate bonds
Corporate bonds
Corporate bonds	Corporate bonds	30,000		—		30,000		—		(1,637)		28,363
Total held-to-maturity	Total held-to-maturity	$	946,808	$	—	$	946,808	$	512	$	(121,253)	$	826,067
December 31, 2022
Total held-to-maturity
Total held-to-maturity
December 31, 2023
December 31, 2023
December 31, 2023

Securities of U.S. government-sponsored enterprises:

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, FNMA and GNMA	MBS pass-through securities issued by FHLMC, FNMA and GNMA	$	331,281	$	—	$	331,281	$	—	$	(50,147)	$	281,134
MBS pass-through securities issued by FHLMC, FNMA and GNMA
MBS pass-through securities issued by FHLMC, FNMA and GNMA
CMOs issued by FHLMC
CMOs issued by FHLMC
CMOs issued by FHLMC	CMOs issued by FHLMC	235,971		—		235,971		59		(29,503)		206,527
CMOs issued by FNMA	CMOs issued by FNMA	111,904		—		111,904		—		(5,419)		106,485
CMOs issued by FNMA
CMOs issued by FNMA
CMOs issued by GNMA
CMOs issued by GNMA
CMOs issued by GNMA	CMOs issued by GNMA	52,356		—		52,356		11		(3,076)		49,291
SBA-backed securities	SBA-backed securities	2,372		—		2,372		—		(133)		2,239
SBA-backed securities
SBA-backed securities
Debentures of government-sponsored agencies
Debentures of government-sponsored agencies
Debentures of government-sponsored agencies	Debentures of government-sponsored agencies	145,823		—		145,823		—		(26,467)		119,356
Obligations of state and political subdivisions	Obligations of state and political subdivisions	62,500		—		62,500		—		(10,741)		51,759
Obligations of state and political subdivisions
Obligations of state and political subdivisions
Corporate bonds
Corporate bonds
Corporate bonds	Corporate bonds	30,000		—		30,000		—		(1,552)		28,448
Total held-to-maturity	Total held-to-maturity	$	972,207	$	—	$	972,207	$	70	$	(127,038)	$	845,239
1 Amortized cost and fair values exclude accrued interest receivable of $3.6 million and $3.7 million at June 30, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.
Total held-to-maturity
Total held-to-maturity
1 Amortized cost and fair values exclude accrued interest receivable of $2.5 million and $3.6 million at March 31, 2024 and December 31, 2023, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.
1 Amortized cost and fair values exclude accrued interest receivable of $2.5 million and $3.6 million at March 31, 2024 and December 31, 2023, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.
1 Amortized cost and fair values exclude accrued interest receivable of $2.5 million and $3.6 million at March 31, 2024 and December 31, 2023, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

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

Page-11

The following table summarizes the amortized cost of our portfolio of held-to-maturity securities issued by states and political subdivisions and corporate bonds by Moody's and/or Standard & Poor's bond ratings as of ~~June 30,~~March 31, 2024 and December 31, 2023.


		Obligations of state and political subdivisions				Corporate bonds
		Obligations of state and political subdivisions
		Obligations of state and political subdivisions
		Obligations of state and political subdivisions
(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
AAA / Aaa		$	42,783	$	42,986	$	—	$	—
AA / Aa		19,485		19,514		—		—
(in thousands)
(in thousands)
Aaa / AAA
Aaa / AAA
Aaa / AAA
Aa2 / AA
Aa2 / AA
Aa2 / AA
A2 / A
A2 / A
A2 / A	A2 / A	—		—		30,000		30,000
Total	Total	$	62,268	$	62,500	$	30,000	$	30,000
Total
Total

~~Page-13~~

A summary of the amortized cost, fair value and allowance for credit losses related to securities available-for-sale as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 is presented below.

Available-for-sale:
Amortized Cost 1
Gross Unrealized Allowance for Credit Losses Fair Value
(in thousands) Gains (Losses)
June 30, 2023
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC, FNMA and GNMA $ 102,420 $ 2 $ (11,758) $ — $ 90,664
CMOs issued by FHLMC 333,374 — (32,162) — 301,212
CMOs issued by FNMA 32,916 — (3,816) — 29,100
CMOs issued by GNMA 32,193 31 (3,377) — 28,847
SBA-backed securities 39,824 — (3,175) — 36,649
Debentures of government- sponsored agencies 149,129 — (13,261) — 135,868
U.S. Treasury securities 11,914 — (1,580) — 10,334
Obligations of state and political subdivisions 116,040 36 (13,160) — 102,916
Corporate bonds 36,991 — (2,948) — 34,043
Asset-backed securities 1,365 — (56) — 1,309
Total available-for-sale $ 856,166 $ 69 $ (85,293) $ — $ 770,942
December 31, 2022
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC, FNMA and GNMA $ 109,736 $ 3 $ (12,133) $ — $ 97,606
CMOs issued by FHLMC 347,437 — (33,682) — 313,755
CMOs issued by FNMA 36,172 — (3,852) — 32,320
CMOs issued by GNMA 35,120 — (3,296) — 31,824
SBA-backed securities 47,724 2 (3,371) — 44,355
Debentures of government- sponsored agencies 149,114 — (14,008) — 135,106
U.S. Treasury securities 11,904 — (1,635) 10,269
Obligations of state and political subdivisions 116,855 29 (14,761) — 102,123
Corporate bonds 36,990 — (3,714) — 33,276
Asset-backed securities 1,553 — (91) — 1,462
Total available-for-sale $ 892,605 $ 34 $ (90,543) $ — $ 802,096
1 Amortized cost and fair value exclude accrued interest receivable of $3.1 million and $3.2 million at June 30, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

As part of our ongoing review of our investment securities portfolio, we reassessed the classification of certain securities issued by government sponsored agencies. In March 2022, we transferred $357.5 million of these securities from available-for-sale to held-to-maturity at fair value. We intend and have the ability to hold these securities to maturity. The net unrealized pre-tax loss of $14.8 million that remained and the related accumulated other comprehensive loss are accreted to interest income over the remaining lives of the securities. Because these entries offset each other, there was no impact to net income.


Available-for-sale:	Amortized Cost 1		Gross Unrealized				Allowance for Credit Losses		Fair Value
(in thousands)			Gains		(Losses)
March 31, 2024
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC, FNMA and GNMA	$	79,460	$	2	$	(10,073)	$	—	$	69,389
CMOs issued by FHLMC	261,797		—		(26,837)		—		234,960
CMOs issued by FNMA	23,099		—		(2,835)		—		20,264
CMOs issued by GNMA	19,486		—		(3,191)		—		16,295
SBA-backed securities	18,805		—		(1,657)		—		17,148
Debentures of government- sponsored agencies	73,906		—		(7,218)		—		66,688

U.S. Treasury securities	11,928		—		(1,394)		—		10,534
Obligations of state and political subdivisions	101,911		—		(11,568)		—		90,343
Corporate bonds	11,992		—		(1,248)		—		10,744

Total available-for-sale	$	602,384	$	2	$	(66,021)	$	—	$	536,365
December 31, 2023
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC, FNMA and GNMA	$	81,937	$	2	$	(9,516)	$	—	$	72,423
CMOs issued by FHLMC	266,407		—		(24,758)		—		241,649
CMOs issued by FNMA	23,987		—		(2,715)		—		21,272
CMOs issued by GNMA	20,006		—		(2,878)		—		17,128
SBA-backed securities	21,126		—		(1,655)		—		19,471
Debentures of government- sponsored agencies	73,899		—		(7,037)		—		66,862

U.S. Treasury securities	11,923		—		(1,300)				10,623
Obligations of state and political subdivisions	102,202		1		(10,321)		—		91,882
Corporate bonds	11,992		—		(1,274)		—		10,718

Total available-for-sale	$	613,479	$	3	$	(61,454)	$	—	$	552,028
1 Amortized cost and fair value exclude accrued interest receivable of $2.3 million and $2.3 million at March 31, 2024 and December 31, 2023, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

The amortized cost and fair value of investment debt securities by contractual maturity at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 are shown below. Expected maturities may differ from contractual maturities if the issuers of the securities have the right to call or prepay obligations with or without call or prepayment penalties.


		June 30, 2023								December 31, 2022									March 31, 2024				December 31, 2023
		Held-to-Maturity				Available-for-Sale				Held-to-Maturity				Available-for-Sale					Held-to-Maturity		Available-for-Sale			Held-to-Maturity		Available-for-Sale
(in thousands)	(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		(in thousands)	Amortized Cost	Fair Value	Amortized Cost	Fair Value		Amortized Cost	Fair Value	Amortized Cost	Fair Value
Within one year	Within one year	$	—	$	—	$	26,665	$	25,344	$	450	$	446	$	1,254	$	1,239
After one but within five years	After one but within five years	89,625		85,060		354,735		324,368		87,418		83,663		335,813		307,843
After five years through ten years	After five years through ten years	266,785		227,818		130,738		117,530		262,072		222,280		185,997		166,273
After ten years	After ten years	590,398		513,189		344,028		303,700		622,267		538,850		369,541		326,741
Total	Total	$	946,808	$	826,067	$	856,166	$	770,942	$	972,207	$	845,239	$	892,605	$	802,096

~~Page-14~~

There were no sales of investment securities in ~~either~~ the first ~~half~~quarter of ~~2023~~2024 or 2022. However, in July 2023, the Bank sold $82.7 million of available-for-sale securities for a net loss of $2.8 million. In addition, on July 13, 2023, the Bank sold its remaining investment in Visa Inc. Class B restricted common stock, which had a zero carrying value, for a $2.8 million gain.2023.

Three months ended

Page-12

The ~~carrying~~reported values of pledged investment securities are shown in the following ~~table:~~table.


(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		(in thousands)	March 31, 2024	December 31, 2023
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
Secure public deposits in compliance with the Local Agency Security Program	Secure public deposits in compliance with the Local Agency Security Program	$	199,327	$	235,587
Collateral for trust deposits	Collateral for trust deposits	672		677
Collateral for Wealth Management and Trust Services checking account	Collateral for Wealth Management and Trust Services checking account	565		569
Total investment securities pledged to the State of California	Total investment securities pledged to the State of California	200,564		236,833
Bankruptcy trustee deposits pledged with Federal Reserve Bank	Bankruptcy trustee deposits pledged with Federal Reserve Bank	1,594		1,737
Pledged to FHLB Securities-Backed Credit Program	Pledged to FHLB Securities-Backed Credit Program	391,668		—
Pledged to the Federal Reserve Bank Term Funding Program ("BTFP")		274,215		—
Pledged to the Federal Reserve "BTFP"
Pledged to the Federal Reserve Discount Window
Total pledged investment securities	Total pledged investment securities	$	868,041	$	238,570

There were ~~396~~317 and ~~407~~313 securities in unrealized loss positions at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Those securities are summarized and classified according to the duration of the loss period in the tables below:


June 30, 2023		< 12 continuous months				≥ 12 continuous months				Total securities in a loss position
March 31, 2024														March 31, 2024	< 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:
MBS pass-through securities issued by FHLMC, FNMA and GNMA
MBS pass-through securities issued by FHLMC, FNMA and GNMA
MBS pass-through securities issued by FHLMC, FNMA and GNMA	MBS pass-through securities issued by FHLMC, FNMA and GNMA	$	4,178	$	(132)	$	263,886	$	(48,772)	$	268,064	$	(48,904)
CMOs issued by FHLMC	CMOs issued by FHLMC	31,915		(1,171)		162,369		(26,588)		194,284		(27,759)
CMOs issued by FNMA	CMOs issued by FNMA	43,167		(2,064)		39,161		(4,372)		82,328		(6,436)
CMOs issued by GNMA	CMOs issued by GNMA	27,024		(1,895)		9,902		(1,376)		36,926		(3,271)
SBA-backed securities	SBA-backed securities	—		—		1,847		(130)		1,847		(130)
Debentures of government-sponsored agencies	Debentures of government-sponsored agencies	29,245		(749)		92,642		(23,338)		121,887		(24,087)
Obligations of state and political subdivisions	Obligations of state and political subdivisions	—		—		50,154		(9,029)		50,154		(9,029)
Corporate bonds	Corporate bonds	—		—		28,363		(1,637)		28,363		(1,637)
Total held-to-maturity	Total held-to-maturity	135,529		(6,011)		648,324		(115,242)		783,853		(121,253)
Available-for-sale:	Available-for-sale:
MBS pass-through securities issued by FHLMC, FNMA and GNMA	MBS pass-through securities issued by FHLMC, FNMA and GNMA	4,422		(177)		85,498		(11,581)		89,920		(11,758)
MBS pass-through securities issued by FHLMC, FNMA and GNMA
MBS pass-through securities issued by FHLMC, FNMA and GNMA
CMOs issued by FHLMC	CMOs issued by FHLMC	12		—		301,200		(32,162)		301,212		(32,162)
CMOs issued by FNMA	CMOs issued by FNMA	37		(1)		29,063		(3,815)		29,100		(3,816)
CMOs issued by GNMA	CMOs issued by GNMA	—		—		25,070		(3,377)		25,070		(3,377)
SBA-backed securities	SBA-backed securities	29		—		36,309		(3,175)		36,338		(3,175)
Debentures of government- sponsored agencies	Debentures of government- sponsored agencies	—		—		135,868		(13,261)		135,868		(13,261)
U.S. Treasury securities	U.S. Treasury securities	—		—		10,334		(1,580)		10,334		(1,580)

Obligations of state and political subdivisions	Obligations of state and political subdivisions	4,799		(54)		90,869		(13,106)		95,668		(13,160)
Obligations of state and political subdivisions
Obligations of state and political subdivisions
Corporate bonds	Corporate bonds	—		—		34,043		(2,948)		34,043		(2,948)
Asset-backed securities		—		—		1,309		(56)		1,309		(56)

Total available-for-sale
Total available-for-sale
Total available-for-sale	Total available-for-sale	9,299		(232)		749,563		(85,061)		758,862		(85,293)
Total securities at loss position	Total securities at loss position	$	144,828	$	(6,243)	$	1,397,887	$	(200,303)	$	1,542,715	$	(206,546)

~~Page-15~~Page-13


December 31, 2022		< 12 continuous months				≥ 12 continuous months				Total securities in a loss position
December 31, 2023														December 31, 2023	< 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:
MBS pass-through securities issued by FHLMC, FNMA and GNMA
MBS pass-through securities issued by FHLMC, FNMA and GNMA
MBS pass-through securities issued by FHLMC, FNMA and GNMA	MBS pass-through securities issued by FHLMC, FNMA and GNMA	$	62,627	$	(5,960)	$	218,507	$	(44,187)	$	281,134	$	(50,147)
CMOs issued by FHLMC	CMOs issued by FHLMC	78,144		(5,874)		113,796		(23,629)		191,940		(29,503)
CMOs issued by FNMA	CMOs issued by FNMA	106,485		(5,419)		—		—		106,485		(5,419)
CMOs issued by GNMA	CMOs issued by GNMA	27,570		(1,676)		10,331		(1,400)		37,901		(3,076)
SBA-backed securities	SBA-backed securities	2,239		(133)		—		—		2,239		(133)
Debentures of government- sponsored agencies	Debentures of government- sponsored agencies	38,645		(2,530)		80,711		(23,937)		119,356		(26,467)
Obligations of state and political subdivisions	Obligations of state and political subdivisions	15,155		(589)		36,603		(10,152)		51,758		(10,741)
Corporate Bonds	Corporate Bonds	28,448		(1,552)		—		—		28,448		(1,552)
Total held-to-maturity	Total held-to-maturity	359,313		(23,733)		459,948		(103,305)		819,261		(127,038)
Available-for-sale:	Available-for-sale:
MBS pass-through securities issued by FHLMC, FNMA and GNMA	MBS pass-through securities issued by FHLMC, FNMA and GNMA	44,630		(4,501)		52,235		(7,632)		96,865		(12,133)
MBS pass-through securities issued by FHLMC, FNMA and GNMA
MBS pass-through securities issued by FHLMC, FNMA and GNMA
CMOs issued by FHLMC	CMOs issued by FHLMC	169,760		(15,144)		143,995		(18,538)		313,755		(33,682)
CMOs issued by FNMA	CMOs issued by FNMA	4,790		(235)		27,529		(3,617)		32,319		(3,852)
CMOs issued by GNMA	CMOs issued by GNMA	8,214		(374)		23,612		(2,922)		31,826		(3,296)
SBA-backed securities	SBA-backed securities	37,845		(3,228)		6,133		(143)		43,978		(3,371)
Debentures of government- sponsored agencies	Debentures of government- sponsored agencies	19,054		(946)		116,052		(13,062)		135,106		(14,008)
U.S. Treasury securities	U.S. Treasury securities	—		—		10,269		(1,635)		10,269		(1,635)
Obligations of state and political subdivisions	Obligations of state and political subdivisions	70,402		(9,459)		28,711		(5,302)		99,113		(14,761)
Corporate Bonds	Corporate Bonds	—		—		33,276		(3,714)		33,276		(3,714)

Asset-backed securities		—		—		1,462		(91)		1,462		(91)

Total available-for-sale

Total available-for-sale

Total available-for-sale	Total available-for-sale	354,695		(33,887)		443,274		(56,656)		797,969		(90,543)
Total securities at loss position	Total securities at loss position	$	714,008	$	(57,620)	$	903,222	$	(159,961)	$	1,617,230	$	(217,581)

As of ~~June 30, 2023,~~March 31, 2024, the investment portfolio included ~~373~~306 investment securities that had been in a continuous loss position for twelve months or more and 2311 investment securities that had been in a loss position for less than twelve months.

Securities issued by government-sponsored ~~enterprises,~~agencies, such as FNMA and FHLMC, usually have implicit credit support byfrom 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.~~government while FNMA and FHLMC remain under conservatorship. Securities issued by the SBA and GNMA have explicit credit guarantees by the U.S. federal government, which protects us from credit losses on the contractual cash flows of the securities.

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

No allowances for credit losses have been recognized on available-for-sale securities in an unrealized loss position, as management does not believe any of the securities are impaired due to credit risk factors at either ~~June 30, 2023~~March 31, 2024 or December 31, ~~2022.~~2023. In addition, for any available-for-sale securities in an unrealized loss position at March 31, 2024 and December 31, 2023, the Bank assessed whether it intended to sell the securities, or if it was more likely than not that it would be required to sell the securities before recovery of its amortized cost basis, which would require a write-down to fair value through net income. Because the Bank did not intend to sell those securities that were in an unrealized loss position, and it was not more-likely-than-not that the Bank would be required to sell the securities before recovery of their amortized cost bases, the Bank determined that no write-down was necessary as of the reporting date.

On July 7, 2023, the Bank entered into various interest rate swap agreements with notional values totaling $101.8 million to hedge balance sheet interest rate sensitivity and protect selected securities in its available-for-sale

Page-14

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

~~Page-16~~

Non-Marketable Securities Included in Other Assets

FHLB Capital Stock

As a member of the FHLB, we are required to maintain a minimum investment in FHLB capital stock as determined by the Board of Directors of the FHLB. The minimum investment requirements can increase in the event we increase our total asset size or borrowings with the FHLB. Shares cannot be purchased or sold except between the FHLB and its members at the $100 per share par value. We held $16.7 million of FHLB stock included in other assets on the consolidated statements of condition at both ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks and they do not have a readily determinable market value. Based on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock ~~was~~was not ~~impaired~~impaired at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~ 2023. On ~~July 27, 2023,~~April 25, 2024, FHLB announced a cash dividend for the ~~second~~first quarter of ~~2023~~2024 at an annualized dividend rate of ~~7.75%~~ 8.25% to be distributed ~~on August 10, 2023.~~ in mid-May 2024. 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 June 30, 2023 and December 31, 2022. These shares had a carrying value of zero and were 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 lacked a readily determinable fair value. On July 13, 2023, the Bank sold the entirety of its remaining investment in Visa Inc. Class B restricted common stock for a $2.8 million gain.

For further information, ~~on the Covered Litigation,~~ 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 ~~$2.3~~$1.9 million and ~~$2.5~~$2.0 million recorded in other assets as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. In the first ~~six~~three months of ~~2023,~~2024, we recognized ~~$300~~$133 thousand of low-income housing tax credits and other tax benefits, offset by ~~$252~~$111 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense. As of ~~June 30, 2023,~~March 31, 2024, our unfunded commitments for these low-income housing tax credit funds totaled ~~$346~~$343 thousand. We did not recognize any impairment losses on these low-income housing tax credit investments during the first ~~six~~three months of ~~2023~~2024 or ~~2022,~~2023, as the value of the future tax benefits exceeds the carrying value of the investments.

Note 5: Loans and Allowance for Credit Losses on Loans

The following table presents the amortized cost of loans by portfolio class as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.


(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		(in thousands)	March 31, 2024	December 31, 2023
Commercial and industrial	Commercial and industrial	$	183,157	$	173,547
Real estate:	Real estate:
Commercial owner-occupied
Commercial owner-occupied
Commercial owner-occupied	Commercial owner-occupied	344,951		354,877
Commercial non-owner occupied	Commercial non-owner occupied	1,196,158		1,191,889
Construction	Construction	108,986		114,373
Home equity	Home equity	85,587		88,748
Other residential	Other residential	118,646		112,123
Installment and other consumer loans	Installment and other consumer loans	65,311		56,989
Total loans, at amortized cost 1	Total loans, at amortized cost 1	2,102,796		2,092,546
Allowance for credit losses on loans	Allowance for credit losses on loans	(23,832)		(22,983)
Total loans, net of allowance for credit losses on loans	Total loans, net of allowance for credit losses on loans	$	2,078,964	$	2,069,563

1 Amortized cost includes net deferred loan origination costs of ~~$2.4~~$2.6 million and ~~$1.8~~$2.7 million at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Amounts are also net of unrecognized purchase discounts of ~~$2.2~~$1.9 million and ~~$2.6~~$2.0 million at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Amortized cost excludes accrued interest, which totaled ~~$6.0~~$6.3 million and ~~$6.1~~$6.6 million at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively, and is included in interest receivable and other assets in the consolidated statements of condition.

~~Page-17~~

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

Page-15

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

Commercial Real Estate Loans - Commercial real estate loans, which include income producing investment properties and owner-occupied real estate used for business purposes, are subject to underwriting standards and processes similar to commercial loans discussed above. We underwrite these loans to be repaid from cash flow from either the business or investment property and 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, floating homes, and indirect luxury auto loans, along with a small number of installment loans. Our other residential loans include tenancy-in-common fractional interest loans ("TIC") located almost entirely in San Francisco County. We originate consumer loans utilizing credit score information, debt-to-income ratio and loan-to-value ratio analysis. Diversification among consumer loan types, coupled with relatively small loan amounts that are spread across many individual borrowers, mitigates risk. 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

~~Page-18~~

or operational setbacks without significant financial consequences. Negative external industry factors are generally not present. The loan may be secured, unsecured or supported by non-real estate collateral for which the value is more difficult to determine and/or marketability is more uncertain. This category also includes “Watch” loans, where the primary source of repayment has been delayed. “Watch” is intended to be a transitional grade, with either an upgrade or downgrade within a reasonable period.

Page-16

Special Mention - Potential weaknesses that deserve close attention. If left uncorrected, those potential weaknesses may result in deterioration of the payment prospects for the asset. Special Mention assets do not present sufficient risk to warrant adverse classification.

Substandard - Inadequately protected by either the current sound worth and paying capacity of the obligor or the collateral pledged, if any. A Substandard asset has a well-defined ~~weakness or~~ weaknesses that ~~jeopardize(s)~~jeopardize the liquidation of the debt. Substandard assets are characterized by the distinct possibility that we will sustain some loss if such weaknesses or deficiencies are not corrected. Well-defined weaknesses include adverse trends or developments of the borrower’s financial condition, managerial weaknesses 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 and at each quarterly and year-end reporting period. 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 portfolio class, ~~origination~~origination/renewal year and internal risk rating as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. The current year vintage table reflects gross charge-offs by loan portfolio class and year of origination. Generally, existing term loans that were re-underwritten are reflected in the table in the year of renewal. Lines of credit that have a conversion feature at the time of origination, such as construction to perm loans, are presented by year of origination.


(in thousands)	(in thousands)	Term Loans - Amortized Cost by Origination Year												Revolving Loans Amortized Cost
June 30, 2023		2023		2022		2021		2020		2019		Prior				Total
March 31, 2024
March 31, 2024
March 31, 2024																		2024	2023	2022	2021	2020	Prior	Total
Commercial and industrial:	Commercial and industrial:
Pass and Watch
Pass and Watch
Pass and Watch	Pass and Watch	$	30,686	$	11,481	$	3,726	$	5,173	$	16,419	$	25,287	$	67,323	$	160,095
Special Mention	Special Mention	—		—		—		—		2,718		664		8,656		12,038
Substandard	Substandard	—		274		—		1,030		—		3,641		6,079		11,024
Total commercial and industrial	Total commercial and industrial	$	30,686	$	11,755	$	3,726	$	6,203	$	19,137	$	29,592	$	82,058	$	183,157
Gross current period charge-offs	Gross current period charge-offs	$	—	$	—	$	—	$	—	$	(3)	$	—	$	—	$	(3)

Commercial real estate, owner-occupied:	Commercial real estate, owner-occupied:
Commercial real estate, owner-occupied:
Commercial real estate, owner-occupied:
Pass and Watch
Pass and Watch
Pass and Watch	Pass and Watch	$	1,045	$	55,268	$	50,712	$	39,447	$	44,398	$	125,506	$	—	$	316,376
Special Mention	Special Mention	—		—		15,919		—		293		10,537		—		26,749
Substandard	Substandard	—		—		—		—		—		1,826		—		1,826

Total commercial real estate, owner-occupied	Total commercial real estate, owner-occupied	$	1,045	$	55,268	$	66,631	$	39,447	$	44,691	$	137,869	$	—	$	344,951
Total commercial real estate, owner-occupied
Total commercial real estate, owner-occupied

Commercial real estate, non-owner occupied:	Commercial real estate, non-owner occupied:
Commercial real estate, non-owner occupied:
Commercial real estate, non-owner occupied:
Pass and Watch
Pass and Watch
Pass and Watch	Pass and Watch	$	21,865	$	175,197	$	208,613	$	153,439	$	145,528	$	419,415	$	—	$	1,124,057
Special Mention	Special Mention	—		2,815		3,320		11,918		15,903		13,797		—		47,753
Substandard	Substandard	—		—		2,227		—		—		22,121		—		24,348

Total commercial real estate, non-owner occupied	Total commercial real estate, non-owner occupied	$	21,865	$	178,012	$	214,160	$	165,357	$	161,431	$	455,333	$	—	$	1,196,158
Total commercial real estate, non-owner occupied
Total commercial real estate, non-owner occupied

~~Page-19~~Page-17


(in thousands)	(in thousands)	Term Loans - Amortized Cost by Origination Year												Revolving Loans Amortized Cost
June 30, 2023		2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost		Total
March 31, 2024
March 31, 2024
March 31, 2024																		2024	2023	2022	2021	2020	Prior	Total
Construction:	Construction:
Pass and Watch	Pass and Watch	$	10,537	$	45,971	$	24,061	$	28,417	$	—	$	—	$	—	$	108,986
Pass and Watch
Pass and Watch
Special Mention

Total construction
Total construction
Total construction	Total construction	$	10,537	$	45,971	$	24,061	$	28,417	$	—	$	—	$	—	$	108,986

Home equity:	Home equity:
Home equity:
Home equity:
Pass and Watch
Pass and Watch
Pass and Watch	Pass and Watch	$	—	$	—	$	—	$	—	$	—	$	717	$	84,007	$	84,724

Substandard
Substandard
Substandard	Substandard	—		—		—		—		—		441		422		863
Total home equity	Total home equity	$	—	$	—	$	—	$	—	$	—	$	1,158	$	84,429	$	85,587

Other residential:	Other residential:
Other residential:
Other residential:
Pass and Watch
Pass and Watch
Pass and Watch	Pass and Watch	$	12,521	$	20,322	$	13,818	$	27,340	$	21,605	$	23,040	$	—	$	118,646

Total other residential	Total other residential	$	12,521	$	20,322	$	13,818	$	27,340	$	21,605	$	23,040	$	—	$	118,646

Total other residential

Total other residential

Installment and other consumer:
Installment and other consumer:
Installment and other consumer:	Installment and other consumer:
Pass and Watch	Pass and Watch	$	14,426	$	16,790	$	11,884	$	5,182	$	5,741	$	10,264	$	1,024	$	65,311
Pass and Watch
Pass and Watch

Substandard
Substandard
Substandard
Total installment and other consumer	Total installment and other consumer	$	14,426	$	16,790	$	11,884	$	5,182	$	5,741	$	10,264	$	1,024	$	65,311
Gross current period charge-offs	Gross current period charge-offs	$	(6)	$	(5)	$	—	$	(4)	$	—	$	(1)	$	(4)	$	(20)
Total loans:	Total loans:
Pass and Watch
Pass and Watch
Pass and Watch	Pass and Watch	$	91,080	$	325,029	$	312,814	$	258,998	$	233,691	$	604,229	$	152,354	$	1,978,195
Total Special Mention	Total Special Mention	$	—	$	2,815	$	19,239	$	11,918	$	18,914	$	24,998	$	8,656	$	86,540
Total Substandard	Total Substandard	$	—	$	274	$	2,227	$	1,030	$	—	$	28,029	$	6,501	$	38,061

Totals	Totals	$	91,080	$	328,118	$	334,280	$	271,946	$	252,605	$	657,256	$	167,511	$	2,102,796
Totals
Totals
Total gross current period charge-offs	Total gross current period charge-offs	$	(6)	$	(5)	$	—	$	(4)	$	(3)	$	(1)	$	(4)	$	(23)


(in thousands)	(in thousands)	Term Loans - Amortized Cost by Origination Year												Revolving Loans Amortized Cost
December 31, 2022		2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost		Total
December 31, 2023
December 31, 2023
December 31, 2023																		2023	2022	2021	2020	2019	Prior	Total
Commercial and industrial:	Commercial and industrial:
Pass and Watch
Pass and Watch
Pass and Watch	Pass and Watch	$	15,349	$	6,679	$	7,603	$	19,982	$	5,362	$	24,954	$	84,655	$	164,584
Special Mention	Special Mention	275		—		—		2,272		3,836		—		402		6,785
Substandard	Substandard	—		—		1,252		—		—		625		301		2,178
Total commercial and industrial	Total commercial and industrial	$	15,624	$	6,679	$	8,855	$	22,254	$	9,198	$	25,579	$	85,358	$	173,547

Commercial real estate, owner-occupied:	Commercial real estate, owner-occupied:
Commercial real estate, owner-occupied:
Commercial real estate, owner-occupied:
Pass and Watch
Pass and Watch
Pass and Watch	Pass and Watch	$	54,188	$	52,080	$	40,369	$	44,798	$	29,856	$	104,377	$	—	$	325,668
Special Mention	Special Mention	—		16,199		—		304		5,255		4,493		—		26,251
Substandard	Substandard	—		—		—		1,160		—		1,699		—		2,859
Doubtful		—		—		99		—		—		—		—		99

Total commercial real estate, owner-occupied
Total commercial real estate, owner-occupied
Total commercial real estate, owner-occupied	Total commercial real estate, owner-occupied	$	54,188	$	68,279	$	40,468	$	46,262	$	35,111	$	110,569	$	—	$	354,877
Commercial real estate, non-owner occupied:	Commercial real estate, non-owner occupied:
Pass and Watch
Pass and Watch
Pass and Watch	Pass and Watch	$	177,822	$	211,228	$	155,278	$	160,670	$	129,166	$	308,509	$	57	$	1,142,730
Special Mention	Special Mention	—		1,172		12,097		3,934		678		9,290		—		27,171
Substandard	Substandard	—		2,264		—		—		—		19,724		—		21,988
Total commercial real estate, non-owner occupied	Total commercial real estate, non-owner occupied	$	177,822	$	214,664	$	167,375	$	164,604	$	129,844	$	337,523	$	57	$	1,191,889
Construction:	Construction:
Pass and Watch	Pass and Watch	$	49,262	$	19,393	$	28,861	$	7,745	$	9,112	$	—	$	—	$	114,373
Pass and Watch
Pass and Watch
Special Mention

Total construction
Total construction
Total construction	Total construction	$	49,262	$	19,393	$	28,861	$	7,745	$	9,112	$	—	$	—	$	114,373
Home equity:	Home equity:
Pass and Watch	Pass and Watch	$	—	$	—	$	—	$	—	$	—	$	883	$	86,971	$	87,854
Pass and Watch
Pass and Watch

Substandard
Substandard
Substandard	Substandard	—		—		—		—		—		480		414		894
Total home equity	Total home equity	$	—	$	—	$	—	$	—	$	—	$	1,363	$	87,385	$	88,748
Other residential:	Other residential:
Pass and Watch	Pass and Watch	$	21,154	$	14,547	$	29,018	$	21,890	$	11,064	$	14,450	$	—	$	112,123
Pass and Watch
Pass and Watch

Total other residential

Total other residential

Total other residential	Total other residential	$	21,154	$	14,547	$	29,018	$	21,890	$	11,064	$	14,450	$	—	$	112,123
Installment and other consumer:	Installment and other consumer:
Pass and Watch	Pass and Watch	$	20,054	$	13,022	$	5,727	$	6,492	$	4,181	$	6,478	$	944	$	56,898
Pass and Watch
Pass and Watch

Substandard		—		—		—		—		—		91		—		91

Total installment and other consumer

Total installment and other consumer

Total installment and other consumer	Total installment and other consumer	$	20,054	$	13,022	$	5,727	$	6,492	$	4,181	$	6,569	$	944	$	56,989

Total loans:	Total loans:
Total loans:
Total loans:
Pass and Watch
Pass and Watch
Pass and Watch	Pass and Watch	$	337,829	$	316,949	$	266,856	$	261,577	$	188,741	$	459,651	$	172,627	$	2,004,230
Total Special Mention	Total Special Mention	$	275	$	17,371	$	12,097	$	6,510	$	9,769	$	13,783	$	402	$	60,207
Total Substandard	Total Substandard	$	—	$	2,264	$	1,252	$	1,160	$	—	$	22,619	$	715	$	28,010
Total Doubtful		$	—	$	—	$	99	$	—	$	—	$	—	$	—	$	99

Totals	Totals	$	338,104	$	336,584	$	280,304	$	269,247	$	198,510	$	496,053	$	173,744	$	2,092,546

Totals
Totals

~~Page-20~~Page-18

The following table shows the amortized cost of loans by portfolio class, payment aging and non-accrual status as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.


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, non-owner occupied		Construction		Home equity		Other residential		Installment and other consumer		Total		(in thousands)	Commercial and industrial	Commercial real estate, owner-occupied	Commercial real estate, non-owner occupied	Construction	Home equity	Other residential	Installment and other consumer	Total
June 30, 2023
March 31, 2024																		March 31, 2024
30-59 days past due	30-59 days past due	$	—	$	—	$	371	$	—	$	124	$	—	$	51	$	546
60-89 days past due	60-89 days past due	436		—		—		—		91		—		1		528
90 days or more past due		—		164		906		—		218		—		—		1,288
90 days or more past due 1
Total past due	Total past due	436		164		1,277		—		433		—		52		2,362
Current	Current	182,721		344,787		1,194,881		108,986		85,154		118,646		65,259		2,100,434
Total loans 1	Total loans 1	$	183,157	$	344,951	$	1,196,158	$	108,986	$	85,587	$	118,646	$	65,311	$	2,102,796
Non-accrual loans 2	Non-accrual loans 2	$	—	$	457	$	906	$	—	$	749	$	—	$	—	$	2,112
Non-accrual loans with no allowance	Non-accrual loans with no allowance	$	—	$	457	$	906	$	—	$	749	$	—	$	—	$	2,112
December 31, 2022
December 31, 2023																		December 31, 2023
30-59 days past due	30-59 days past due	$	3	$	—	$	—	$	—	$	319	$	93	$	5	$	420
60-89 days past due	60-89 days past due	—		—		—		—		244		—		—		244
90 days or more past due		264		—		—		—		414		—		—		678
90 days or more past due 1
Total past due	Total past due	267		—		—		—		977		93		5		1,342
Current	Current	173,280		354,877		1,191,889		114,373		87,771		112,030		56,984		2,091,204
Total loans 1	Total loans 1	$	173,547	$	354,877	$	1,191,889	$	114,373	$	88,748	$	112,123	$	56,989	$	2,092,546
Non-accrual loans 2	Non-accrual loans 2	$	—	$	1,563	$	—	$	—	$	778	$	—	$	91	$	2,432
Non-accrual loans with no allowance	Non-accrual loans with no allowance	$	—	$	1,563	$	—	$	—	$	778	$	—	$	91	$	2,432

1 There was one non-owner occupied commercial real estate loan 90 days past due and accruing interest as of March 31, 2024 that has been in extended renewal negotiations, but it is well-secured and expected to be restored to a current payment status in the near future. There were no non-performing loans over 90 days past due ~~more than ninety days~~ and accruing interest as of ~~June 30, 2023 and~~ December 31, ~~2022.~~2023.

2 None of the non-accrual loans as of ~~June 30, 2023~~March 31, 2024 or December 31, ~~2022~~2023 were earning interest on a cash or accrual basis. We ~~recognized no~~reversed $10 thousand in accrued interest income ~~on non-accrual~~for loans ~~for the three and six months ended June 30, 2023 and 2022. We reversed interest income of $14 thousand and less than $8 thousand for loans~~that were placed on non-accrual status during the ~~six~~three months ended ~~June 30, 2023 and June 30, 2022, respectively.~~March 31, 2024. We reversed accrued interest income of $16 thousand for loans that were placed on non-accrual status during the three months ended March 31, 2023.

Collateral Dependent Loans

The following table presents the amortized cost basis of individually analyzed collateral-dependent loans, which ~~are~~were all on non-accrual status, by portfolio class at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.


		Amortized Cost by Collateral Type
	Amortized Cost by Collateral Type
(in thousands)
(in thousands)
(in thousands)	(in thousands)	Commercial Real Estate		Residential Real Estate		Other		Total 1		Allowance for Credit Losses		Commercial Real Estate	Residential Real Estate	Blanket Lien	Other	Total 1	Allowance for Credit Losses

June 30, 2023
March 31, 2024
March 31, 2024
March 31, 2024

Commercial real estate, owner-occupied

Commercial real estate, owner-occupied

Commercial real estate, owner-occupied	Commercial real estate, owner-occupied	$	457	$	—	$	—	$	457	$	—
Commercial real estate, non-owner occupied	Commercial real estate, non-owner occupied	906		—		—		906		—

Home equity	Home equity	—		749		—		749		—
Home equity
Home equity

Installment and other consumer
Installment and other consumer
Installment and other consumer
Total
December 31, 2023
Commercial and industrial
Commercial and industrial
Commercial and industrial
Commercial real estate, owner-occupied
Commercial real estate, non-owner occupied
Home equity

Total	Total	$	1,363	$	749	$	—	$	2,112	$	—
December 31, 2022
Commercial real estate, owner-occupied		$	1,563	$	—	$	—	$	1,563	$	—
Home equity		—		778		—		778		—

Installment and other consumer		—		—		91		91		—

Total	Total	$	1,563	$	778	$	91	$	2,432	$	—

Total

1 There were no collateral-dependent residential real estate mortgage loans in process of foreclosure or in substance repossessed at ~~June 30, 2023 or~~March 31, 2024 and December 31, ~~2022.~~2023. The weighted average loan-to-value of real estate secured collateral dependent loans was approximately ~~40%~~82% at ~~June 30, 2023~~March 31, 2024 and ~~42%~~70% at December 31, ~~2022.~~

~~Loan Modifications~~

~~We adopted ASU No. 2022-02,~~ ~~Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures~~ on January 1, 2023, as described in Note 2, Recently Adopted and Issued Accounting Standards. The amendments enhanced disclosures related to certain types of loan modifications for borrowers experiencing financial difficulty, including principal forgiveness, interest rate reductions, other-than-insignificant payment delays, and/or term extensions. There were no material modifications during the six months ended June 30, 2023 requiring disclosure.2023.

Loan Modifications to Borrowers Experiencing Financial Difficulty

The following table summarizes the amortized cost of loans as of March 31, 2024 that were modified during the three months ended March 31, 2024 by portfolio class and type of modification granted. There were no modifications of loans during the three months ended March 31, 2023 requiring disclosure.

~~Page-21~~

Page-19


(in thousands)	Term Extension		Percent of Portfolio Class Total
Three months ended March 31, 2024
Commercial and industrial	$	2,191	1.5	%



Home equity	82		0.1	%


Total	$	2,273

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

The following table summarizes the financial effect of loan modifications presented in the table above during the three months ended March 31, 2024 by portfolio class.


(in thousands)									Weighted-Average Term Extension (in years)
Three months ended March 31, 2024
Commercial and industrial									0.3



Home equity									15.0

The loan modifications did not significantly impact the determination of the allowance for credit losses on loans during the three months ended March 31, 2024.

The Bank closely monitors the performance of the modified loans to understand the effectiveness of its modification efforts. The following table summarizes the amortized cost and payment status of loans as of March 31, 2024 that were modified during the three months ended March 31, 2024 by portfolio class.


(in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total		Non-Accrual
Three months ended March 31, 2024
Commercial and industrial	$	2,191	$	—	$	—	$	—	$	2,191	$	2,191



Home equity	82		—		—		—		82		82


Total	$	2,273	$	—	$	—	$	—	$	2,273	$	2,273

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

Allocation of the Allowance for Credit Losses on Loans

The following table presents the details of the allowance for credit losses on loans segregated by loan portfolio ~~segments~~class as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023.


Allocation of the Allowance for Credit Losses on Loans	Allocation of the Allowance for Credit Losses on Loans																			Allocation of the Allowance for Credit Losses on Loans
(in thousands)	(in thousands)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, non-owner occupied		Construction		Home equity		Other residential		Installment and other consumer		Unallocated		Total		(in thousands)	Commercial and industrial	Commercial real estate, owner-occupied	Commercial real estate, non-owner occupied	Construction	Home equity	Other residential	Installment and other consumer	Unallocated	Total
June 30, 2023
March 31, 2024																				March 31, 2024
Modeled expected credit losses	Modeled expected credit losses	$	1,100	$	1,329	$	7,441	$	195	$	486	$	558	$	609	$	—	$	11,718
Qualitative adjustments	Qualitative adjustments	711		1,260		5,760		1,747		75		40		331		2,169		12,093
Specific allocations	Specific allocations	20		—		—		—		—		1		—		—		21
Total	Total	$	1,831	$	2,589	$	13,201	$	1,942	$	561	$	599	$	940	$	2,169	$	23,832
December 31, 2022
December 31, 2023																				December 31, 2023
Modeled expected credit losses	Modeled expected credit losses	$	1,079	$	1,497	$	7,937	$	453	$	504	$	571	$	610	$	—	$	12,651
Qualitative adjustments	Qualitative adjustments	706		990		4,739		1,484		54		24		258		2,068		10,323
Specific allocations	Specific allocations	9		—		—		—		—		—		—		—		9
Total	Total	$	1,794	$	2,487	$	12,676	$	1,937	$	558	$	595	$	868	$	2,068	$	22,983

Page-20

Allowance for Credit Losses on Loans Rollforward

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


Allowance for Credit Losses on Loans 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, non-owner occupied		Construction		Home equity		Other residential		Installment and other consumer		Unallocated		Total		(in thousands)	Commercial and industrial	Commercial real estate, owner-occupied	Commercial real estate, non-owner occupied	Construction	Home equity	Other residential	Installment and other consumer	Unallocated	Total
Three months ended June 30, 2023
Three months ended March 31, 2024
Beginning balance
Beginning balance
Beginning balance	Beginning balance	$	1,941	$	2,640	$	12,701	$	2,019	$	538	$	577	$	882	$	2,032	$	23,330
(Reversal) Provision	(Reversal) Provision	(111)		(51)		500		(86)		23		22		66		137		500
(Charge-offs)	(Charge-offs)	—		—		—		—		—		—		(9)		—		(9)
Recoveries	Recoveries	1		—		—		9		—		—		1		—		11
Ending balance	Ending balance	$	1,831	$	2,589	$	13,201	$	1,942	$	561	$	599	$	940	$	2,169	$	23,832
Three months ended June 30, 2022
Three months ended March 31, 2023
Beginning balance	Beginning balance	$	1,784	$	2,622	$	12,301	$	1,717	$	549	$	628	$	641	$	2,305	$	22,547
(Reversal) Provision		(89)		(5)		138		12		(19)		(43)		112		(106)		—
Beginning balance
Beginning balance
Provision (Reversal)

(Charge-offs)
(Charge-offs)
(Charge-offs)	(Charge-offs)	—		—		—		—		—		—		(20)		—		(20)
Recoveries	Recoveries	4		—		—		8		—		—		—		—		12
Ending balance	Ending balance	$	1,699	$	2,617	$	12,439	$	1,737	$	530	$	585	$	733	$	2,199	$	22,539

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, 2023
Beginning balance $ 1,794 $ 2,487 $ 12,676 $ 1,937 $ 558 $ 595 $ 868 $ 2,068 $ 22,983
Provision (reversal) 36 102 525 (12) 3 4 91 101 850
Charge-offs (3) — — — — — (20) — (23)
Recoveries 4 — — 17 — — 1 — 22
Ending balance $ 1,831 $ 2,589 $ 13,201 $ 1,942 $ 561 $ 599 $ 940 $ 2,169 $ 23,832
Six months ended June 30, 2022
Beginning balance $ 1,709 $ 2,776 $ 12,739 $ 1,653 $ 595 $ 644 $ 621 $ 2,286 $ 23,023
(Reversal) Provision (17) (159) (300) 68 (65) (59) 134 (87) (485)
Charge-offs — — — — — — (22) — (22)
Recoveries 7 — — 16 — — — — 23
Ending balance $ 1,699 $ 2,617 $ 12,439 $ 1,737 $ 530 $ 585 $ 733 $ 2,199 $ 22,539

~~Page-22~~

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 ~~$1.293~~$1.299 billion and ~~$1.298~~$1.288 billion at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. In addition, we pledge eligible TIC loans, which totaled ~~$109.0~~$108.5 million and ~~$105.0~~$110.4 million at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB"). For additional information, see Note 6, Borrowings.

Related Party Loans

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

The following table shows changes in net loans to related parties for each of the three years ended March 31, 2024.

Related party loans totaled ~~$6.3~~$5.8 million ~~at June 30, 2023~~as of both March 31, 2024 and ~~$6.4 million at~~ December 31, ~~2022.~~2023. In addition, undisbursed commitments to related parties totaled ~~$562~~$212 thousand atas of both ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

Note 6: ~~Short-Term~~ Borrowings and Other Obligations

Federal Home Loan ~~Bank – As of June 30, 2023 and December 31, 2022, the~~Bank: The Bank had ~~total~~ lines of credit with the FHLB totaling ~~$1.034~~$951.2 million and $1.009 billion as of March 31, 2024 and ~~$711.6 million,~~December 31, 2023, respectively, based on eligible collateral of certain loans and investment securities.

Federal Funds Lines of ~~Credit –~~Credit: The Bank had unsecured lines of credit with correspondent banks for overnight borrowings totaling $125.0 million and $135.0 million ~~and $150.0 million at June 30, 2023~~as of March 31, 2024 and December 31, ~~2022,~~2023, respectively. In general, interest rates on these lines approximate the federal funds target rate.

Federal Reserve ~~Bank –~~Bank: The Bank ~~has~~had a line of credit ~~with~~through the Discount Window at the Federal Reserve Bank of San Francisco ("FRBSF") totaling $350.0 million as of March 31, 2024, secured by ~~certain~~investment securities and residential loans. ~~At June 30, 2023 and~~As of December 31, ~~2022,~~2023, the Bank had ~~total borrowing capacity under this~~a line of ~~$58.0~~credit through the Discount Window totaling $64.0 million, secured by residential loans, and ~~$58.7~~a $270.2 million ~~respectively.~~ ~~In addition,~~line under the Federal ~~Reserve’s new~~ ~~BTFP~~ ~~facility, the~~Reserve's temporary Bank ~~could borrow up to an additional~~ ~~$279.0 million~~Term Funding Program ("BTFP") based on the par ~~value~~values of pledged investment securities. When the BTFP program ended on March 11, 2024, the investment securities ~~as of~~ ~~June 30, 2023~~were used to collateralize borrowings through the Discount Window.

Page-21

Other ~~Obligations –~~ Obligations: Finance lease liabilities totaling ~~$372~~$260 thousand and ~~$439~~$298 thousand ~~at June 30, 2023~~as of March 31, 2024 and December 31, ~~2022,~~2023, respectively, are included in ~~short-term~~ borrowings and other obligations in the consolidated statements of condition. ~~See~~Refer to Note 8, Commitments and Contingencies, for additional information.

~~Outstanding balances~~The carrying values and weighted average interest rates on ~~short-term~~ borrowings and other obligations as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 are summarized in the following table.

June 30, 2023 December 31, 2022
(dollars in thousands) Outstanding Balance Weighted
Average Rate Outstanding Balance Weighted Average Rate
FHLB - short-term borrowings $ 292,200 5.28 % $ 112,000 4.65 %
Federal funds lines of credit — — % — — %
FRBSF - federal funds purchased — — % — — %
FRBSF - short-term borrowings under the BTFP — — % — — %
Other obligations (finance leases) 372 1.97 % 439 1.86 %
Total short-term borrowings and other obligations $ 292,572 5.28 % $ 112,439 4.64 %


	March 31, 2024				December 31, 2023
(dollars in thousands)	Carrying Value		Weighted Average Rate		Carrying Value		Weighted Average Rate
FHLB short-term borrowings	$	—	—	%	$	—	—	%
Federal funds lines of credit	—		—	%	—		—	%
FRBSF federal funds purchased	—		—	%	—		—	%
FRBSF short-term borrowings under the BTFP	—		—	%	26,000		5.30	%
Other obligations (finance leases)	260		2.14	%	298		1.88	%
Total borrowings and other obligations	$	260	2.14	%	$	26,298	5.26	%

Note 7: Stockholders' Equity

Dividends

On ~~April 21, 2023,~~January 25, 2024, Bancorp declared a $0.25 per share cash dividend, paid February 15, 2024 to shareholders of record at the close of business on February 8, 2024. Subsequent to quarter end on April 25, 2024, Bancorp declared a $0.25 per share cash dividend, payable on May ~~12, 2023~~16, 2024 to shareholders of record at the close of business on May ~~5, 2023. Subsequent to quarter end on July 21, 2023, Bancorp declared a $0.25~~

~~Page-23~~

~~per share cash dividend, payable on August 11, 2023 to shareholders of record at the close of business on August 4, 2023.~~9, 2024.

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 ~~(loss)~~ 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~~Stock options and restricted stock awards issued include a retirement eligibility clause whereby the requisite service period is satisfied at the retirement eligibility date. For those awards, we accelerate the recording of stock-based compensation when the award holder is eligible to retire. However, retirement eligibility does not affect the vesting of restricted stock or the exercisability of the stock options, which are based on the scheduled vesting period.

Performance-based stock awards (restricted stock) are issued to a selected group of employees. Stock award vesting is contingent upon the achievement of pre-established long-term performance goals set by the Compensation Committee of the Board of Directors. Performance is measured over a three-year period and 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.

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.

Page-22

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 six months ended June 30, 2023, we withheld 3,132 shares totaling $86 thousand at a weighted-average price of $27.57 for cashless exercises. During the six months ended June 30, 2022, we withheld 10,208 shares totaling $351 thousand at a weighted-average price of $34.38 for cashless exercises. Shares withheld under net settlement arrangements are available for future grants. The table below depicts the total number of shares, amount, and weighted average price withheld for cashless exercises for the periods presented.


	Three Months Ended
	March 31, 2024		March 31, 2023
Number of shares withheld	3,338		2,847
Total amount withheld (in thousands)	$	55	$	82
Weighted-average price	$	16.62	$	28.74

Share Repurchase Program

Bancorp had an approved share repurchase program with $34.7 million outstanding at June 30, 2023. There have been no repurchases in 2023. Cumulative shares repurchased under this program totaled 618,991 shares as of June 30, 2023 at an average price of $36.04 per share. Subsequent to quarter end onOn July 21, 2023, ~~Bancorp adopted a~~the Board of Directors approved the adoption of Bancorp's new share repurchase program ~~which replaced the existing program that expired on July 31, 2023,~~ for up to $25.0 million and expiring on July 31, 2025. There have been no repurchases to date in 2024 or in 2023.

Note 8: Commitments and Contingent Liabilities

Financial Instruments with Off-Balance Sheet Risk

We make commitments to extend credit in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit in the form of loans or through standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other

~~Page-24~~

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.

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)	June 30, 2023		December 31, 2022		(in thousands)	March 31, 2024	December 31, 2023
Commercial lines of credit	Commercial lines of credit	$	236,895	$	292,204
Revolving home equity lines	Revolving home equity lines	219,144		218,907
Undisbursed construction loans	Undisbursed construction loans	22,683		43,179
Personal and other lines of credit	Personal and other lines of credit	9,701		10,842
Standby letters of credit	Standby letters of credit	1,157		1,738
Total unfunded loan commitments and standby letters of credit	Total unfunded loan commitments and standby letters of credit	$	489,580	$	566,870

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 $1.1 million ~~and $1.5 million as of June 30, 2023~~at both March 31, 2024 and December 31, ~~2022, respectively,~~2023, which is included in interest payable and other liabilities in the consolidated statements of condition. ~~The $168 thousand reversal of the~~There was no provision for credit losses on unfunded loan commitments in the ~~second~~first quarter of ~~2023 was due primarily to a $39.9 million decrease in total unfunded commitments. This compares to no provision for the same quarter in 2022.~~2024. The ~~$342~~$174 thousand reversal of the provision for credit losses on unfunded loan commitments in the first ~~half~~quarter of 2023 was due primarily to a ~~$77.3~~$37.4 million decrease in total unfunded ~~commitments, compared to a $318 thousand provision reversal in the first half of 2022, due to improved economic forecasts at the time.~~commitments.

Leases

We lease premises under long-term non-cancelable operating leases with remaining terms of ~~10 months~~30 days to 18 years, 115 months, most of which include escalation clauses and one or more options to extend the lease term, and some of

Page-23

which contain lease termination clauses. Lease terms may include certain renewal options that were considered reasonably certain to be exercised.

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

The following table shows the balances of operating and finance lease right-of-use assets and lease liabilities.


(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		(in thousands)	March 31, 2024	December 31, 2023
Operating leases:	Operating leases:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	22,739	$	24,821
Operating lease right-of-use assets
Operating lease right-of-use assets
Operating lease liabilities	Operating lease liabilities	$	25,220	$	26,639
Finance leases:	Finance leases:
Finance lease right-of-use assets
Finance lease right-of-use assets
Finance lease right-of-use assets	Finance lease right-of-use assets	$	608	$	616
Accumulated amortization	Accumulated amortization	(245)		(187)
Finance lease right-of-use assets, net1	Finance lease right-of-use assets, net1	$	363	$	429
Finance lease liabilities2	Finance lease liabilities2	$	372	$	439
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.
2 Included in borrowings and other obligations in the consolidated statements of condition.

~~Page-25~~

The following table shows supplemental disclosures of noncash investing and financing activities for the periods presented.
Six months ended
(in thousands) June 30, 2023 June 30, 2022
Right-of-use assets obtained in exchange for operating lease liabilities, net of tenant improvement allowances received $ 572 $ 1,124
Right-of-use assets obtained in exchange for finance lease liabilities $ 7 $ —


	Three months ended
(in thousands)	March 31, 2024		March 31, 2023
Right-of-use assets obtained in exchange for operating lease liabilities	$	2,417	$	—

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


		Three months ended
		Three months ended
		Three months ended
(in thousands)
(in thousands)
(in thousands)
Operating lease cost 1
Operating lease cost 1
Operating lease cost 1

		Three months ended				Six months ended
(in thousands)		June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Operating lease cost		$	1,322	$	1,295	$	2,932	$	2,579
Variable lease cost		—		—		—		—
Total operating lease cost1		$	1,322	$	1,295	$	2,932	$	2,579
Finance lease cost:

Finance lease cost:

Finance lease cost:	Finance lease cost:
Amortization of right-of-use assets2	Amortization of right-of-use assets2	$	37	$	31	$	74	$	62
Amortization of right-of-use assets 2
Amortization of right-of-use assets 2
Interest on finance lease liabilities 3
Interest on finance lease liabilities 3
Interest on finance lease liabilities3	Interest on finance lease liabilities3	2				4		1
Total finance lease cost	Total finance lease cost	$	39	$	31	$	78	$	63
Total finance lease cost
Total finance lease cost
Total lease cost	Total lease cost	$	1,361	$	1,326	$	3,010	$	2,642
Total lease cost
Total lease cost
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 ~~June 30, 2023.~~March 31, 2024. The discount rates used to calculate the present value of lease liabilities were based on the collateralized FHLB borrowing rates that were commensurate with lease terms and minimum payments on the lease commencement date.


(in thousands)	(in thousands)	June 30, 2023						(in thousands)	March 31, 2024
Year	Year	Operating Leases			Finance Leases			Year	Operating Leases		Finance Leases
2023		$	2,587		$	78
2024	2024	4,753			155
2025	2025	4,112			108
2026	2026	3,373			37
2027	2027	3,097			5
2028
Thereafter	Thereafter	10,017			—
Total minimum lease payments	Total minimum lease payments	27,939			383
Amounts representing interest (present value discount)	Amounts representing interest (present value discount)	(2,719)			(11)
Present value of net minimum lease payments (lease liability)	Present value of net minimum lease payments (lease liability)	$	25,220		$	372
Weighted average remaining term (in years)	Weighted average remaining term (in years)	7.5			2.6			Weighted average remaining term (in years)	8.0		2.0
Weighted average discount rate	Weighted average discount rate	2.36		%	1.97		%	Weighted average discount rate	2.72	%	2.14	%

Page-24

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"). We sold our remaining shares on July 13, 2023, however our proportionate share of the litigation indemnification liability does not change or transfer upon the sale of our Class B Visa shares to member banks or, per the terms of the sale, to the recent purchaser of our shares. Visa established an escrow account for the Covered Litigation that it periodically funds, which is expected to cover the settlement payment obligations.

~~Page-26~~

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~~The Bank is exposed to certain risks from both its business operations and changes in economic conditions. As part of our asset/liability and interest rate risk management strategy, we may enter into interest rate ~~swap~~derivative contracts to modify repricing characteristics of certain of our interest-earning assets and interest-bearing liabilities. The Bank generally designates interest rate hedging agreements ~~primarily as an asset/liability management strategy, in order to mitigate the changes~~utilized in the ~~fair value~~management 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 (which transitioned to the SOFR effective July 1, 2023 due to the cessation of the LIBOR index on June 30, 2023) protects us against changes in theas either fair value ~~of our loans associated with fluctuating interest rates.~~hedges or cash flow hedges.

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

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

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

~~totaled~~

~~$7 thousand~~
at ~~June 30, 2023 and $5 thousand at December 31, 2022.~~

Page-25

Information on our derivatives follows:

Asset Derivatives Liability Derivatives
(in thousands) June 30,
2023 December 31, 2022 June 30,
2023 December 31, 2022
Fair value hedges:
Interest rate contracts notional amount $ 11,535 $ 12,046 $ — $ —
Interest rate contracts fair value1
$ 631 $ 602 $ — $ —


	Asset derivatives				Liability derivatives
(in thousands)	March 31, 2024		December 31, 2023		March 31, 2024		December 31, 2023
Available-for-sale securities:
Interest rate swaps - notional amount	$	—	$	—	$	101,770	$	101,770
Interest rate swaps - fair value1	$	—	$	—	$	142	$	1,359
Loans receivable:
Interest rate contracts - notional amount	$	8,366	$	6,441	$	—	$	2,157
Interest rate contracts - fair value1	$	400	$	287	$	—	$	2

1 ~~See~~Refer to 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 ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

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 Amounts of Fair Value Hedging Adjustments Included in the Carrying Amounts of the Hedged Assets

(in thousands)

June 30, 2023

December 31, 2022

June 30, 2023

December 31, 2022

(in thousands)

March 31, 2024

December 31, 2023

March 31, 2024

December 31, 2023

Loans

10,786

11,319

(749)

(726)

Available-for-sale securities 1

Loans receivable 2

1 Carrying value equals the amortized cost basis of the securities underlying the hedge relationship, which is the book value net of the fair value hedge adjustment. Amortized cost excludes accrued interest totaling $233 thousand and $222 thousand as of March 31, 2024 and December 31, 2023, respectively.

2 Carrying value equals the amortized cost basis of the loans underlying the hedge relationship, which is the loan balance net of deferred loan origination fees and cost and the fair value hedge adjustment. Amortized cost excludes accrued interest, which was not material.

~~Page-27~~

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

Three months ended Six months ended
(in thousands) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022
Interest and fees on loans 1
$ 24,579 $ 23,334 $ 48,837 $ 47,011
Increase (decrease) in fair value of designated interest rate swaps due to LIBOR interest rate movements $ 250 $ 430 $ 29 $ 1,187
Receivable (payment) on interest rate swaps 66 (65) 118 (150)
(Decrease) increase in fair value hedging adjustment of hedged loans (243) (428) (23) (1,180)
Decrease in value of yield maintenance agreement (2) (2) (4) (5)
Net gain (loss) on fair value hedging relationships recognized in interest income $ 71 $ (65) $ 120 $ (148)

1 ~~Represents the income line item in the statement of comprehensive income in which the effects of~~ fair value hedges ~~are recorded.~~for the years presented.


	Three months ended
(in thousands)	March 31, 2024		March 31, 2023
Interest on investment securities 1
Increase in fair value of interest rate swaps hedging available-for-sale securities	$	1,217	$	—
Hedged interest earned	206		—
Decrease in carrying value included in the hedged available-for-sale securities	(1,217)		—
Net gain (loss) recognized in interest income on investment securities	$	206	$	—
Interest and fees on loans 1
Increase (decrease) in fair value of interest rate swaps hedging loans receivable	$	115	$	(221)
Hedged interest earned	54		51
(Decrease) increase in carrying value included in the hedged loans	(110)		221
Decrease in value of yield maintenance agreement	(2)		(2)
Net gain recognized in interest income on loans	$	57	$	49
1 Represents the income line item in the statement of comprehensive income in which the effects of fair value hedges are recorded.

Our derivative transactions with ~~counterparties~~the counterparty are under an International Swaps and Derivative Association (“ISDA”) master ~~agreements~~agreement that ~~include~~includes “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
Gross Amounts Net Amounts of Gross Amounts Not Offset in
Gross Amounts Offset in the Assets Presented the Statements of Condition
of Recognized Statements of in the Statements Financial Cash Collateral
(in thousands)
Assets1
Condition
of Condition1
Instruments Received Net Amount
June 30, 2023
Counterparty $ 631 $ — $ 631 $ — $ — $ 631
December 31, 2022
Counterparty $ 602 $ — $ 602 $ — $ — $ 602

Page-26

~~Offsetting of Financial Liabilities and Derivative Liabilities~~


Offsetting of Financial Assets and Derivative Assets
			Gross Amounts		Net Amounts of		Gross Amounts Not Offset in
	Gross Amounts		Offset in the		Assets Presented		the Statements of Condition
	of Recognized		Statements of		in the Statements		Financial		Cash Collateral
(in thousands)	Assets1		Condition		of Condition1		Instruments		Received		Net Amount
March 31, 2024

Counterparty	$	400	$	—	$	400	$	—	$	—	$	400
Total	$	400	$	—	$	400	$	—	$	—	$	400
December 31, 2023

Counterparty	$	287	$	—	$	287	$	—	$	—	$	287
Total	$	287	$	—	$	287	$	—	$	—	$	287



Offsetting of Financial Liabilities and Derivative Liabilities
			Gross Amounts		Net Amounts of		Gross Amounts Not Offset in
	Gross Amounts		Offset in the		Assets Presented		the Statements of Condition
	of Recognized		Statements of		in the Statements		Financial		Cash Collateral
(in thousands)	Assets1		Condition		of Condition1		Instruments		Received		Net Amount
March 31, 2024

Counterparty	142		—		142		(142)		—		—
Total	$	142	$	—	$	142	$	(142)	$	—	$	—
December 31, 2023
Counterparty	$	1,361	$	—	$	1,361	$	(287)	$	(330)	$	744

Total	$	1,361	$	—	$	1,361	$	(287)	$	(330)	$	744

1 Amounts exclude accrued interest 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 ~~2022~~2023 Form 10-K filed with the SEC on March ~~16, 2023.~~

On July 7, 2023, the Bank entered into various interest rate swap agreements with notional values totaling approximately $101.8 million and split evenly between terms of 2.5 and 3.0 years to hedge balance sheet interest rate sensitivity and protect selected securities in its available-for-sale portfolio against changes in fair value related to changes in the benchmark interest rate. ~~The interest rate swaps are expected to be immediately accretive to earnings.~~14, 2024.

~~Page-28~~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 unaudited consolidated financial statements in this Form 10-Q and with the audited consolidated financial statements and accompanying notes included in our ~~2022~~2023 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~~The discussion of financial results in this Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "1933 Act") and Section 21E of the Securities Exchange Act of 1934, as amended, (the "1934 Act"). Those sections of the 1933 Act and 1934 Act provide a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their financial performance so long as they provide meaningful, cautionary statements identifying important factors that could cause actual results to differ significantly from projected results.

Our forward-looking statements include descriptions of plans or objectives of 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 impact Bancorp's earnings in future periods. Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions and the economic uncertainty in the United States and abroad, including economic or other disruptions to financial markets caused by acts of terrorism, ~~war~~wars or other conflicts, ~~such as Russia's military action in Ukraine,~~ impacts from inflation, supply ~~change~~chain disruptions, changes in interest rates (including the actions taken by the Federal Reserve to control inflation), California's unemployment rate, deposit flows, real estate values, and expected future cash flows on loans and securities; the impact of adverse developments at other banks, including bank failures, that impact general sentiment regarding the stability and liquidity of banks; costs or effects of acquisitions; competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; natural disasters (such 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; and successful integration of acquisitions.

Important factors that could cause results or performance to differ materially ~~differ~~ from those expressed in our prior forward-looking statements are detailed in ITEM 1A, Risk Factors section of our ~~2022~~2023 Form 10-K as filed with the SEC, and ITEM 1A Risk Factors ~~herein, copies of which are available from us at no charge.~~herein. Forward-looking statements speak only as of the date they are made. ~~We do not undertake~~Bancorp undertakes no obligation to ~~update~~release publicly the result of any revisions to these forward-looking statements that may be made to reflect ~~circumstances~~events or ~~events~~circumstances that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events.

Critical Accounting Estimates

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation and uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. 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. Our critical estimates include: Allowance for Credit Losses on Loans and Unfunded Commitments, ~~Income Taxes,~~ Fair Value Measurements, and ~~Business Combinations.~~ Goodwill.

Page-28

Goodwill

Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Our annual impairment assessment is performed in the fourth quarter. However, with triggering events occurring in the first quarter of 2024, including a persistent depressed stock price as a result of changes in macroeconomic conditions, market volatility resulting from rising interest rates and the failure of several regional banks in 2023, coupled with a revised five-year strategic forecast for the Bank, we performed a quantitative assessment in the first quarter of 2024, similar to the analysis performed in fourth quarter 2023. The results of this assessment indicated the value of goodwill was not impaired as of March 31, 2024. For a detailed discussion of goodwill accounting and impairment assessment methodology, refer to Note 1, Summary of Significant Accounting Policies, and the Critical Accounting Estimates section of our ~~2022~~2023 Form 10-K filed with the SEC on March ~~16, 2023.~~

~~Page-29~~

14, 2024.

Executive Summary

We generated earnings of ~~$4.6~~$2.9 million for the ~~second~~first quarter of 2024, compared to $610 thousand for the fourth quarter of 2023 ~~compared to~~and $9.4 million for the first quarter of 2023. Diluted earnings per share were ~~$0.28~~$0.18 for the ~~second~~first quarter of ~~2023,~~2024, compared to $0.04 for the preceding quarter and $0.59 for the ~~preceding quarter. Earnings for~~same quarter a year ago. Net interest margin compression due to the ~~first six months of 2023 totaled $14.0 million, compared to $21.5 million~~rapid rise in interest rates this cycle is clearly evident in the ~~same period last year. Diluted earnings per share were $0.87~~comparison of 2024 and ~~$1.35 for the~~2023 first six months of 2023 and 2022, respectively. 2023 earnings presented were impacted by the increased cost of interest bearing deposits catching up to market interest rates and higher average balances on borrowings.quarter earnings. In addition, prior quarter results reflected a $5.9 million pretax loss from balance sheet restructuring.

The following are highlights of our operating and financial performance for the periods presented. Additional performance details can be found in the pages that follow.

•~~Deposits totaled $3.325 billion as of June 30, 2023, a decrease of $248.1 million~~The first quarter tax-equivalent net interest margin stabilized at 2.50% from ~~$3.573 billion at December 31, 2022. We are closing~~2.53% the ~~gap~~previous quarter. Climbing deposit rates continued to put pressure on the ~~deposit outflows experienced~~margin this quarter. While the average cost of deposits increased 23 basis points to 1.38% in the first quarter ~~of 2023. Our deposit franchise exhibited good growth in new and existing relationships~~compared to a 21 basis point increase in the ~~second~~prior quarter, ~~of 2023 as~~monthly trends since January show a ~~result of our extensive customer outreach, with the addition of over 1,400 new accounts~~clear slow down in the ~~quarter~~pace of increase. Although we reduced borrowings to zero and ~~over 2,400 new accounts year-to-date at~~gained ground in higher yields on loans, the overall average rates well below our cost of borrowing. In fact, total deposits increased by $69 million post quarter-end through July 31, 2023, following a $75 million increase in second quarter as previously reported in our earnings release, and were less than $80 million below levels immediately precedingearning asset balances decreased, limiting the ~~first quarter bank failures that resulted in industry disruption.~~positive impact on the margin.

•Non-interest bearing deposits made up 47.8% of total deposits at June 30, 2023, compared to 51.5% at December 31, 2022. We have successfully maintained high non-interest bearing deposit balances consistent with pre-pandemic levels, despite market and industry turbulence. Customer participation in the reciprocal deposit network program grew to $421.0 million, bringing estimated FDIC insured and/or collateralized deposits up to 71% of total deposits as of June 30, 2023. Our largest depositor represented 1.3% of total deposits as of June 30, 2023.

•A Contingent liquidity provided 209% coverage of estimated uninsured and/or uncollateralized deposits at June 30, 2023. The Bank has long followed sound liquidity management practices similar to large banks with robust liquidity requirements and regular liquidity stress testing that have been enhanced subsequent to events of the first quarter.

•$350 thousandThe credit quality of our loan portfolio remains strong with classified loans at only 1.81% of total loans and manageable delinquencies with no meaningful credit surprises during the first half of the year. Non-accrual loans were 0.10% of total loans as of June 30, 2023, compared to 0.12% at December 31, 2022. We recorded a $500 thousand provision for credit losses on loans in the ~~second~~first quarter, compared to a provision of ~~$350 thousand~~$1.3 million in the previous ~~quarter. For six months ended June 30, 2023, we recorded a provision~~quarter, brought the allowance for credit losses onto 1.24% of total loans, ~~of $850 thousand,~~ compared to ~~a reversal~~1.21% as of ~~$485 thousand for the same period in 2022.~~December 31, 2023.

•Non-accrual loans declined to 0.31% of total loans at quarter end, from 0.39% at December 31, 2023, and net charge-offs were minimal. Classified loans increased to 2.67% of total loans from 1.56% last quarter, which we believe evidences our diligent monitoring of customers impacted by current economic conditions.

•Loan balances of ~~$2.103~~$2.055 billion ~~increased $10.3~~as of March 31, 2024, were relatively stable from $2.074 billion as of December 31, 2023, reflecting originations of $12.4 million and payoffs of $21.8 million. During the quarter, interest rates on loan originations averaged approximately 266 basis points above those that paid off. Loan amortization from scheduled repayments, partially offset by a net increase in utilization of credit lines was $9.4 million during the ~~six months ended June 30, 2023. Loan originations~~quarter.

•Total deposits of $3.284 billion as of March 31, 2024, were ~~$67.7~~essentially flat, compared to $3.290 billion as of December 31, 2023. Non-interest bearing deposits increased $2.5 million ~~and payoffs were $46.8 million for the six months ended June 30,~~representing 44.0% of total deposits as of March 31, 2024, compared to 43.8% as of December 31, 2023.

•~~The second quarter tax-equivalent net~~Total borrowings was reduced to zero representing a $26.0 million decrease from December 31, 2023 and a $97.5 million quarter-over-quarter decrease in average balances, resulting in a $1.3 million decline in interest margin decreased 59 basis points to 2.45% from 3.04% for the previous quarter due primarily to increased deposit costs and average borrowing balances, partially offset by higher loan yields. The tax-equivalent net interest margin for the first six monthsexpense. Net available funding sources of ~~2023~~$1.905 billion provided 208% coverage of ~~2.74% decreased 27 basis points from 3.01% for the same period~~an estimated $915.4 million in ~~2022 for the same reasons mentioned above.~~uninsured deposits, representing only 28% of total deposits at March 31, 2024.

•Return on average assets ("ROA") was ~~0.44% for the second quarter of 2023, compared to 0.92%~~0.31% for the first quarter of ~~2023. Return~~2024, compared to 0.06% for the fourth quarter of 2023, and return on average equity ("ROE") was 4.25% for the second quarter of 2023, compared to 9.12% for the prior quarter. ROA was 0.68% for the six months ended June 30, 2023, compared to 1.00% in the same period of the prior year. ROE was 6.65% for the six months ended June 30, 2023, compared to 10.16% in the same period of the prior year. The efficiency ratio for the second quarter of 2023 was 76.91%2.70%, compared to ~~60.24%~~0.57% for the prior quarter. The efficiency ratio ~~was 67.74%~~ for the ~~six months ended June 30, 2023,~~first quarter of 2024 was 83.18%, compared to ~~57.40% in the same period of~~91.94% for the prior ~~year. The sequential declines in ROA and ROE and increase in the efficiency ratio in the first six months of 2023 were due primarily to a $13.8 million increase in interest expense.~~quarter.

~~Page-30~~Page-29

•~~All capital ratios were above well-capitalized regulatory requirements. The~~Bancorp's and the Bank's total risk-based capital ratios ~~at June 30, 2023 for Bancorp~~increased during the quarter to 17.05% and ~~the Bank were 16.4% and 16.0%~~16.71%, ~~respectively.~~respectively, as of March 31, 2024, well above regulatory requirements. Bancorp's tangible common equity to tangible assets ("TCE ratio") ~~was 8.6% at June 30, 2023, compared~~increased to ~~8.2%~~9.76% as of ~~December~~March 31, ~~2022. As of June 30, 2023, Bancorp's~~2024, and the Bank's TCE ratio was 9.53%, consistent with prior quarter. While we do not intend to sell our held-to-maturity securities, the TCE ratio, net of ~~after tax~~after-tax unrealized losses on held-to-maturity securities as if the losses were realized was ~~6.7%,~~7.67% as of March 31, 2024, compared to ~~6.2% at~~7.80% as of December 31, ~~2022 (ref~~er2023 (refer to ~~page 45 for a discussion~~the discussion and reconciliation of this non-GAAP financial ~~measure)~~measure in the section below entitled Statement Regarding Use of Non-GAAP Financial Measures).

•~~On July 12, 2023,~~The Bank optimized its facilities by consolidating two commercial banking offices, closing the ~~Bank completed~~San Mateo office in April 2024. We expect the ~~sale~~combination of ~~its only other real estate owned property, which was obtained in the 2021 merger with American River Bankshares. After previously recorded write-downs totaling $385 thousand, including $40~~both personnel and facilities pre-tax savings to total approximately $650 thousand in ~~the second quarter of 2023, the Bank realized a negligible gain after sales costs.~~

•~~On July 7, 2023, the Bank entered into various interest rate swap agreements with notional values totaling $101.8 million~~2024 and $800 thousand in 2025. These savings will be deployed to hedge balance sheet interest rate sensitivity and protect selected securities in its available-for-sale portfolio against changes in fair value related to changes in the benchmark interest rate. The interest rate swaps are expected to be immediately accretive to earnings.

•In July 2023, the Bank sold $82.7 million of available-for-sale securities for a net loss of $2.8 million. We held the sales proceeds in cash as part of our liquidity strategy. The loss was offset by a $2.8 million gain from the July 13, 2023 sale of our remaining investment in Visa Inc. Class B restricted common stock, which had a zero carrying value.self-fund talent acquisition aimed at loan growth initiatives.

•The Board of Directors declared a cash dividend of $0.25 per share on ~~July 21, 2023,~~April 25, 2024, which represents the 7376rdth consecutive quarterly dividend paid by Bancorp. The dividend is payable on ~~August 11, 2023,~~May 16, 2024, to shareholders of record at the close of business on ~~August 4, 2023.~~May 9, 2024.

•On July 21, 2023, the Board of Directors approved the adoption of Bancorp's new share repurchase program for up to $25.0 million and expiring on July 31, 2025, replacing the program that expired on July 31, 2023.

~~Page-31~~Page-30

RESULTS OF OPERATIONS

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


		Three months ended						Six months ended
		Three months ended
		Three months ended
		Three months ended
(dollars in thousands, except per share data)
(dollars in thousands, except per share data)
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	June 30, 2023			March 31, 2023				June 30, 2023			June 30, 2022
Selected operating data:	Selected operating data:
Selected operating data:
Selected operating data:
Net interest income	Net interest income	$	24,130		$	29,899			$	54,029		$	61,095
Provision for (reversal of) credit losses on loans		500			350				850			(485)
Net interest income
Net interest income
Provision for credit losses on loans
Provision for credit losses on loans
Provision for credit losses on loans
Reversal of credit losses on unfunded loan commitments
Reversal of credit losses on unfunded loan commitments
Reversal of credit losses on unfunded loan commitments	Reversal of credit losses on unfunded loan commitments	(168)			(174)				(342)			(318)
Non-interest income	Non-interest income	2,739			2,935				5,674			5,595
Non-interest income
Non-interest income
Non-interest expense
Non-interest expense
Non-interest expense	Non-interest expense	20,665			19,780				40,445			38,281
Net income	Net income	4,551			9,440				13,991			21,531
Net income
Net income
Net income per common share:
Net income per common share:
Net income per common share:	Net income per common share:
Basic	Basic	$	0.28		$	0.59			$	0.88		$	1.35
Basic
Basic
Diluted
Diluted
Diluted	Diluted	$	0.28		$	0.59			$	0.87		$	1.35
Performance and other financial ratios:	Performance and other financial ratios:
Performance and other financial ratios:
Performance and other financial ratios:
Return on average assets
Return on average assets
Return on average assets	Return on average assets	0.44		%	0.92		%		0.68		%	1.00		%
Return on average equity	Return on average equity	4.25		%	9.12		%		6.65		%	10.16		%
Return on average equity
Return on average equity
Tax-equivalent net interest margin
Tax-equivalent net interest margin
Tax-equivalent net interest margin	Tax-equivalent net interest margin	2.45		%	3.04		%		2.74		%	3.01		%
Cost of deposits	Cost of deposits	0.69		%	0.20		%		0.44		%	0.06		%
Cost of deposits
Cost of deposits
Cost of funds
Cost of funds
Cost of funds
Efficiency ratio	Efficiency ratio	76.91		%	60.24		%		67.74		%	57.40		%
Net (recoveries) charge-offs		$	(2)		$	3			$	1		$	(1)
Efficiency ratio
Efficiency ratio
Net charge-offs (recoveries)
Net charge-offs (recoveries)
Net charge-offs (recoveries)
Cash dividend payout ratio on common stock 1	Cash dividend payout ratio on common stock 1	89.29		%	42.37		%		56.82		%	35.56		%
Cash dividend payout ratio on common stock 1
Cash dividend payout ratio on common stock 1


(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	June 30, 2023			December 31, 2022			(dollars in thousands, except per share data)	March 31, 2024			December 31, 2023
Selected financial condition data:	Selected financial condition data:
Total assets
Total assets
Total assets	Total assets	$	4,092,133		$	4,147,464
Investment securities	Investment securities	1,717,750			1,774,303
Loans, net	Loans, net	2,078,964			2,069,563
Deposits	Deposits	3,325,212			3,573,348
Short-term borrowings and other obligations	Short-term borrowings and other obligations	292,572			112,439

Stockholders' equity	Stockholders' equity	423,941			412,092
Stockholders' equity
Stockholders' equity
Book value per share	Book value per share	26.32			25.71
Asset quality ratios:	Asset quality ratios:
Allowance for credit losses on loans to total loans	Allowance for credit losses on loans to total loans	1.13		%	1.10		%
Allowance for credit losses on loans to total loans
Allowance for credit losses on loans to total loans									1.24		%	1.21	%

Allowance for credit losses on loans to non-performing loans
Allowance for credit losses on loans to non-performing loans
Allowance for credit losses on loans to non-performing loans	Allowance for credit losses on loans to non-performing loans	11.28x			9.45x			4.05x		3.15x
Non-accrual loans to total loans	Non-accrual loans to total loans	0.10		%	0.12		%	Non-accrual loans to total loans	0.31		%	0.39	%
Capital ratios:	Capital ratios:
Equity to total assets ratio
Equity to total assets ratio
Equity to total assets ratio	Equity to total assets ratio	10.36		%	9.94		%	11.59	%	11.54		%
Tangible common equity to tangible assets	Tangible common equity to tangible assets	8.64		%	8.21		%	Tangible common equity to tangible assets	9.76		%	9.73	%
Total capital (to risk-weighted assets)	Total capital (to risk-weighted assets)	16.36		%	15.90		%	Total capital (to risk-weighted assets)	17.05		%	16.89	%
Tier 1 capital (to risk-weighted assets)	Tier 1 capital (to risk-weighted assets)	15.45		%	15.02		%	Tier 1 capital (to risk-weighted assets)	16.05		%	15.91	%
Tier 1 capital (to average assets)	Tier 1 capital (to average assets)	10.10		%	9.60		%	Tier 1 capital (to average assets)	10.92		%	10.46	%
Common equity Tier 1 capital (to risk weighted assets)	Common equity Tier 1 capital (to risk weighted assets)	15.45		%	15.02		%	Common equity Tier 1 capital (to risk weighted assets)	16.05		%	15.91	%
1 Calculated as dividends on common shares divided by basic net income per common share.	1 Calculated as dividends on common shares divided by basic net income per common share.							1 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, investments 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 ~~tables compare~~table compares interest income, average interest-earning assets, interest expense, and average interest-bearing liabilities for the periods presented. The tables also ~~presents~~present net interest income, net interest margin and net interest rate spread for each period reported.


				Three months ended						Three months ended
				June 30, 2023						March 31, 2023
						Interest						Interest
				Average		Income/		Yield/		Average		Income/		Yield/
			Three months ended																														Three months ended									Three months ended
			March 31, 2024																														March 31, 2024									December 31, 2023								March 31, 2023
					Interest
				Average
				Average
				Average																Income/			Yield/			Average			Income/			Yield/			Average			Income/			Yield/
(dollars in thousands)	(dollars in thousands)			Balance		Expense		Rate		Balance		Expense		Rate		(dollars in thousands)	Balance			Expense			Rate			Balance			Expense			Rate			Balance			Expense			Rate
Assets	Assets
		Interest-earning deposits with banks 1		$	3,578	$	48	5.35	%	$	4,863	$	56	4.58	%
		Investment securities 2, 3		1,819,486		10,103		2.22	%	1,851,743		10,194		2.20	%
		Loans 1, 3, 4		2,108,260		24,700		4.63	%	2,121,718		24,415		4.60	%
		Total interest-earning assets 1		3,931,324		34,851		3.51	%	3,978,324		34,665		3.49	%
		Cash and non-interest-bearing due from banks		38,154						39,826
		Bank premises and equipment, net		8,546						8,396
		Interest receivable and other assets, net		141,130						137,114
		Interest-earning deposits with banks 1
		Interest-earning deposits with banks 1
		Interest-earning deposits with banks 1															$	23,439		$	321		5.42		%	$	84,864		$	1,170		5.40		%	$	4,863		$	56		4.58		%
	Investment securities 2, 3																		Investment securities 2, 3			1,529,985			8,880			2.32		%	1,625,084			9,368			2.31		%	1,851,743			10,194			2.20		%
	Loans 1, 3, 4, 5																		Loans 1, 3, 4, 5			2,067,431			25,130			4.81		%	2,072,654			25,081			4.73		%	2,121,718			24,415			4.60		%
	Total interest-earning assets 1																		Total interest-earning assets 1			3,620,855			34,331			3.75		%	3,782,602			35,619			3.68		%	3,978,324			34,665			3.49		%
	Cash and non-interest-bearing due from banks
		Bank premises and equipment, net
		Bank premises and equipment, net
		Bank premises and equipment, net
		Interest receivable and other assets, net
		Interest receivable and other assets, net
		Interest receivable and other assets, net
Total assets
Total assets
Total assets	Total assets			$	4,119,154					$	4,163,660
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity
Liabilities and Stockholders' Equity
Liabilities and Stockholders' Equity
		Interest-bearing transaction accounts
		Interest-bearing transaction accounts
		Interest-bearing transaction accounts															$	215,001		$	261		0.49		%	$	228,168		$	278		0.48		%	$	272,353		$	254		0.38		%
	Savings accounts																		Savings accounts			230,133			371			0.65		%	245,712			322			0.52		%	329,299			170			0.21		%
	Money market accounts																		Money market accounts			1,150,637			8,449			2.95		%	1,105,286			7,188			2.58		%	952,479			1,085			0.46		%
	Time accounts including CDARS																		Time accounts including CDARS			264,594			2,280			3.47		%	244,661			1,991			3.23		%	126,030			223			0.72		%
	Borrowings and other obligations 1																		Borrowings and other obligations 1			7,323			91			4.93		%	104,855			1,380			5.15		%	222,571			2,716			4.88		%
		Interest-bearing transaction accounts		$	232,090	$	234	0.41	%	$	272,353	$	254	0.38	%
		Savings accounts		285,745		146		0.20	%	329,299		170		0.21	%
		Money market accounts		948,670		4,292		1.81	%	952,479		1,085		0.46	%
		Time accounts including CDARS		174,471		946		2.18	%	126,030		223		0.72	%
		Short-term borrowings and other obligations 1		372,308		4,873		5.18	%	222,571		2,716		4.88	%

		Total interest-bearing liabilities		2,013,284		10,491		2.09	%	1,902,732		4,448		0.95	%
		Demand accounts		1,627,730						1,792,998
		Interest payable and other liabilities		49,116						48,233
		Stockholders' equity		429,024						419,697
		Total interest-bearing liabilities
		Total interest-bearing liabilities
		Total interest-bearing liabilities															1,867,688			11,452			2.47		%	1,928,682			11,159			2.30		%	1,902,732			4,448			0.95		%
	Demand accounts
		Interest payable and other liabilities
		Interest payable and other liabilities
		Interest payable and other liabilities
		Stockholders' equity
		Stockholders' equity
		Stockholders' equity
Total liabilities & stockholders' equity	Total liabilities & stockholders' equity			$	4,119,154					$	4,163,660
Total liabilities & stockholders' equity
Total liabilities & stockholders' equity
Tax-equivalent net interest income/margin 1
Tax-equivalent net interest income/margin 1
Tax-equivalent net interest income/margin 1	Tax-equivalent net interest income/margin 1					$	24,360	2.45	%			$	30,217	3.04	%			$	22,879		2.50	2.50	%							$	24,460		2.53	2.53	%							$	30,217		3.04	3.04	%
Reported net interest income/margin 1	Reported net interest income/margin 1					$	24,130	2.43	%			$	29,899	3.01	%	Reported net interest income/margin 1							$	22,694		2.48	2.48	%							$	24,264		2.51	2.51	%							$	29,899	3.01	3.01	%
Tax-equivalent net interest rate spread	Tax-equivalent net interest rate spread							1.42	%					2.54	%	Tax-equivalent net interest rate spread													1.28		%													1.38		%						2.54	%

~~Page-33~~

Six months ended Six months ended
June 30, 2023 June 30, 2022
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(in thousands) Balance Expense Rate Balance Expense Rate
Assets
Interest-earning deposits with banks 1
$ 4,217 $ 104 4.91 % $ 163,064 $ 286 0.35 %
Investment securities 2, 3
1,835,525 20,297 2.21 % 1,717,624 15,340 1.79 %
Loans 1, 3, 4
2,114,952 49,115 4.62 % 2,211,062 47,403 4.26 %
Total interest-earning assets 1
3,954,694 69,516 3.50 % 4,091,750 63,029 3.06 %
Cash and non-interest-bearing due from banks 38,985 62,679
Bank premises and equipment, net 8,471 7,305
Interest receivable and other assets, net 139,134 167,265
Total assets $ 4,141,284 $ 4,328,999
Liabilities and Stockholders' Equity
Interest-bearing transaction accounts $ 252,110 $ 488 0.39 % $ 297,734 $ 109 0.07 %
Savings accounts 307,402 316 0.21 % 343,333 61 0.04 %
Money market accounts 950,564 5,377 1.14 % 1,099,439 916 0.17 %
Time accounts including CDARS 150,384 1,169 1.57 % 146,061 81 0.11 %
Short-term borrowings and other obligations 1
297,853 7,589 5.07 % 384 1 0.62 %
Total interest-bearing liabilities 1,958,313 14,939 1.54 % 1,886,951 1,168 0.12 %
Demand accounts 1,709,907 1,963,832
Interest payable and other liabilities 48,678 50,846
Stockholders' equity 424,386 427,370
Total liabilities & stockholders' equity $ 4,141,284 $ 4,328,999
Tax-equivalent net interest income/margin 1
$ 54,577 2.74 % $ 61,861 3.01 %
Reported net interest income/margin 1
$ 54,029 2.72 % $ 61,095 2.97 %
Tax-equivalent net interest rate spread 1.96 % 2.94 %
1 Interest income/expense is divided by actual number of days in the period times 360 days to correspond to stated interest rate terms, where applicable.
2 Yields on available-for-sale securities are calculated based on amortized cost balances rather than fair value, as changes in fair value are reflected as a component of stockholders' equity. Investment security interest is earned on 30/360 day basis monthly.
3 Yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the Federal statutory rate of 21 percent in 2023 and 2022.
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.

1 Interest income/expense is divided by actual number of days in the period times 360 days to correspond to stated interest rate terms, where applicable.

2 Yields on available-for-sale securities are calculated based on amortized cost balances rather than fair value, as changes in fair value are reflected as a component of stockholders' equity. Investment security interest is earned on 30/360 day basis monthly.

3 Yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the Federal statutory rate of 21 percent.

4 Average balances on loans outstanding include non-performing loans. The amortized portion of net loan origination fees is included in interest income on loans, representing an adjustment to the yield.

5 Net loan origination costs in interest income totaled $375 thousand, $324 thousand, and $190 thousand for the three months ended March 31, 2024, December 31, 2023 and March 31, 2023, respectively.

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

Page-32

decrease in average balances multiplied by prior period rates. Rate variances are equal to the increase or decrease in rates multiplied by prior period average balances. Mix variances are attributable to the change in yields or rates multiplied by the change in average balances, including one ~~more~~ day less in the three months ended ~~June 30, 2023,~~March 31, 2024, compared to the three months ended December 31, 2023 and one day more in the three months ended March 31, 2024, compared to the same period in 2023.

Three Months Ended June 30, 2023 Compared to Three Months Ended
March 31, 2023 Six Months Ended June 30, 2023 Compared to Six Months Ended
June 30, 2022
(in thousands) Volume Yield/Rate Mix Total Volume Yield/Rate Mix Total
Interest-earning deposits with banks $ (15) $ 9 $ (2) $ (8) $ (280) $ 3,735 $ (3,637) $ (182)
Investment securities 1
(178) 88 (1) (91) 1,053 3,653 251 4,957
Loans 1
(155) 170 270 285 (2,061) 3,944 (171) 1,712
Total interest-earning assets (348) 267 267 186 (1,288) 11,332 (3,557) 6,487
Interest-bearing transaction accounts (38) 18 — (20) (17) 467 (71) 379
Savings accounts (22) (4) 2 (24) (6) 292 (31) 255
Money market accounts (4) 3,177 34 3,207 (124) 5,303 (718) 4,461
Time accounts, including CDARS 86 453 184 723 2 1,054 32 1,088
Short-term borrowings and other obligations 1,827 165 165 2,157 775 8 6,805 7,588
Total interest-bearing liabilities 1,849 3,809 385 6,043 630 7,124 6,017 13,771
Changes in tax-equivalent net interest income $ (2,197) $ (3,542) $ (118) $ (5,857) $ (1,918) $ 4,208 $ (9,574) $ (7,284)
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-34~~


	Three months ended March 31, 2024 compared to three months ended December 31, 2023								Three months ended March 31, 2024 compared to three months ended March 31, 2023
(in thousands)	Volume		Yield/Rate		Mix		Total		Volume		Yield/Rate		Mix		Total
Interest-earning deposits with banks	$	(847)	$	5	$	(7)	$	(849)	$	214	$	10	$	41	$	265
Investment securities 1	(548)		64		(4)		(488)		(1,771)		553		(96)		(1,314)
Loans 1	(63)		390		(278)		49		(625)		1,092		248		715
Total interest-earning assets	(1,458)		459		(289)		(1,288)		(2,182)		1,655		193		(334)
Interest-bearing transaction accounts	(16)		3		(4)		(17)		(53)		73		(13)		7
Savings accounts	(20)		78		(9)		49		(51)		355		(103)		201
Money market accounts	295		1,017		(51)		1,261		226		5,832		1,306		7,364
Time accounts, including CDARS	162		141		(14)		289		245		851		961		2,057
Borrowings and other obligations	(1,284)		(63)		58		(1,289)		(2,627)		20		(18)		(2,625)

Total interest-bearing liabilities	(863)		1,176		(20)		293		(2,260)		7,131		2,133		7,004
Changes in tax-equivalent net interest income	$	(595)	$	(717)	$	(269)	$	(1,581)	$	78	$	(5,476)	$	(1,940)	$	(7,338)
1 Yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the federal statutory rate of 21%.

~~Second~~First Quarter of ~~2023~~2024 Compared to the ~~First~~Fourth Quarter of 2023

Net interest income totaled ~~$24.1~~$22.7 million ~~in the second quarter of 2023, compared to $29.9 million in~~for the first quarter of ~~2023.~~2024, compared to $24.3 million for the prior quarter. The ~~$5.8~~$1.6 million decrease from the prior quarter was primarily related to an increase of $1.6 million in interest expense on deposits and a decrease of $1.3 million in interest on cash and investments. These were partially offset by a $1.3 million decrease in borrowing costs. Quarter-over-quarter, average interest-bearing deposit balances increased by $36.5 million to $1.860 billion, raising the cost of total deposits by 23 basis points to 1.38%. Average borrowings and ~~higher~~other obligations decreased by $97.5 million to $7.3 million, and average ~~borrowing balances.~~investment security balances were down a similar amount.

The tax-equivalent net interest margin was ~~2.45% in the second quarter of 2023, compared to 3.04% in~~2.50% for the first quarter of ~~2023.~~2024, compared to 2.53% for the prior quarter. The ~~decline from prior quarter was primarily due to~~ higher ~~deposit and~~cost of deposits reduced the margin by 23 basis points, while higher loan yields added 15 basis points. The effect of lower wholesale borrowing ~~costs slightly~~balances, partially offset by ~~higher yields on loans. Average interest-bearing deposit balances decreased by $39.2 million while the cost increased by 95~~lower interest-earning deposits with banks, added 5 basis points. Average borrowing balances increased by $149.7 million and the cost of borrowings increased by 30 basis points. Average loan balances decreased by $13.5 million while the average yield increased by 3 basis points.

First ~~Six Months~~Quarter of ~~2023~~2024 Compared to the First ~~Six Months~~Quarter of ~~2022~~2023

Net interest income totaled ~~$54.0~~$22.7 million for the ~~six~~three months ended ~~June 30, 2023, a decrease of $7.1 million,~~March 31, 2024, compared to $29.9 million for the ~~six months ended June 30, 2022.~~same period in the prior year. The $7.2 million decrease from the prior year was primarily due to a higher ~~deposit costs resulting in an incremental $6.2~~cost of deposits totaling $9.6 million, ~~in interest expense, and~~partially offset by lower borrowing costs of $7.6 million. These decreases were partially offset by higher average balances and yields on the investment portfolio, generating incremental income of $5.1 million, and higher yields on loans, adding $1.8$2.6 million.

The tax-equivalent net interest margin was ~~2.74% in~~2.50% for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~3.01% in~~3.04% for the same period in the prior year. The decrease was primarily attributed to higher ~~borrowing and~~ deposit costs, reducing the margin by 107 basis points, partially offset by higher yields on ~~investments and loans. Average interest-bearing deposits balances decreased by $226.1 million while the cost increased by 77~~loans, adding 29 basis points, ~~mainly for money market~~ and ~~time deposit account types. Average borrowing balances increased by $297.5 million at an average cost of 4.45%. Average loan balances decreased by $96.1 million while the average yield increased by 36~~decreases in borrowings contributing 26 basis points.

Market Interest Rates

Market interest rates are, in part, based on the target federal funds interest rate (the interest rate banks charge each

other for short-term borrowings) implemented by the Federal Reserve Open Market Committee ("FOMC").

In response to the evolving risks to economic activity caused by the COVID-19 pandemic, the FOMC made two emergency federal funds rate cuts totaling 150 basis points in March 2020. The federal funds rate range remained between 0.0% toand 0.25% through the beginning of 2022, putting downward pressure on our asset yields and net interest margin. Beginning in March 2022, the FOMC began successive increases to the federal funds rate due to ~~the~~ evolving inflation risks, ~~complicated by~~ international political unrest, and oil and other supply chain disruptions. As a result of seven

Page-33

rate adjustments during 2022, the federal funds target rate range increased to ~~a range of~~between 4.25% toand 4.50% at year-end ~~2022.~~2022 and our net interest margin increased gradually over the course of the year. In 2023, on each of February 1st, March 22nd, May 3rd, and July 26th, the FOMC increased the target rate by 25 basis points to a range of 5.25% to 5.50%. Rising interest rates resulted in rapid increases in the cost of funds through rising deposit costs and increased average borrowings, putting pressure on the net interest margin. Federal Reserve policymakers continue to monitor inflation and economic developments ~~throughout 2023.~~and are considering rate changes during the balance of 2024. 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.

The following table shows the activity for the periods presented.

Three months ended Six months ended
(dollars in thousands) June 30, 2023 March 31, 2023 June 30, 2023 June 30, 2022
Provision for (reversal of) credit losses on loans $ 500 $ 350 $ 850 $ (485)

~~Page-35~~

We recorded a $500 thousand provision for credit losses on loans in the second quarter. The provision was due primarily to increases in qualitative risk factors from continued negative trends in adversely graded loans and/or collateral values on our non-owner occupied commercial real estate office and multi-family real estate portfolios. These increases were partially offset by the impact of a decrease in loan balances.


	Three months ended
(dollars in thousands)	March 31, 2024		December 31, 2023		March 31, 2023
Provision for credit losses on loans	$	350	$	1,300	$	350

We recorded a $350 thousand provision for credit losses on loans in the first quarter. The provision was due primarily to adjustments to certain qualitative risk factors to account for continued negative trends in adversely graded loans for our non-owner occupied commercial real estate and commercial and industrial portfolios, adjustments to the discounted cash flow modeling assumptions related to estimated default timing, and a slight increase in Moody's Analytics' Baseline Forecast of California's unemployment rates, partially offset by the impact of a decrease in pooled loans and changes in loan mix.

We recorded a $1.3 million provision for credit losses on loans in the fourth quarter. The provision was due primarily to an increase in specific allowances related to a few loans that exhibited certain credit risk characteristics over time that were not indicative of pooled loans. Of the specific allowances, a portion was related to two loans with existing substandard risk ratings and collateral valuation issues caused by persistently higher than average vacancy rates. In addition, a portion was related to two loans that were placed on non-accrual status during the fourth quarter, where the estimated credit losses were derived using either discounted expected cash flows or adjusted collateral values and loss rates. A large portion of these specific allowances was previously recognized in the quantitative and qualitative estimated credit losses for pooled loans and shifted to the allowance for individually evaluated loans in the fourth quarter. Other elements of the provision included a $406 thousand loss on the note sale of a loan to an unrelated third party that was charged to the allowance concurrent with the sale, a decrease in loans, and a stable California unemployment rate forecast for the next four quarters. Net adjustments to qualitative factors in the fourth quarter did not materially affect the provision.

The provision totaling $350 thousand for the three months ended March 31, 2023 was due primarily toto increases in qualitative risk factors to account for continued uncertainty about inflation and recession risks. Management believed that these risk factors were not adequately captured in the modeled quantitative portion of the allowance and took athe more prudent approach to account for loan and collateral concentration risks, mainly in our construction and commercial real estate portfolios, and the need for heightened portfolio management in light of ~~current~~ economic ~~conditions.~~conditions at that time. In ~~addition, the~~addition, a $19.8 million increase in loans ~~contributed~~contributed modestly to the ~~provision in the first quarter.~~provision. These increases were partially offset by the quantitative impact of an improvement in Moody's Analytics' baseline California unemployment rate forecasts ~~over the next four quarters~~ at the time.

~~The reversal of the allowance for credit losses on loans for the six months ended June 30, 2022 primarily resulted from improved unemployment rate forecasts at the time.~~

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

Page-34

Non-interest Income

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


		Three months ended								Three months ended				Quarter over quarter				Year over year
(dollars in thousands)	(dollars in thousands)	June 30, 2023		March 31, 2023		Amount Change		Percent Change			(dollars in thousands)	March 31, 2024		December 31, 2023		March 31, 2023		Amount Change		Percent Change			Amount Change		Percent Change
Wealth Management and Trust Services		$	559	$	511	$	48	9.4	%
Wealth management and trust services											Wealth management and trust services	$	553	$	560	511		$	(7)	(1.3)		%	$	42	8.2		%
Service charges on deposit accounts											Service charges on deposit accounts	529		522		533		7		1.3		%	(4)		(0.8)		%
Earnings on bank-owned life insurance, net	Earnings on bank-owned life insurance, net	362		$	705	(343)		(48.7)	%		Earnings on bank-owned life insurance, net	435		$	364	$	705	71	71	19.5	19.5	%	(270)		(38.3)	(38.3)	%
Service charges on deposit accounts		520		533		(13)		(2.4)	%
Debit card interchange fees, net	Debit card interchange fees, net	555		447		108		24.2	%		Debit card interchange fees, net	408		373	373	447	447	35	35	9.4	9.4	%	(39)		(8.7)	(8.7)	%
Dividends on Federal Home Loan Bank stock	Dividends on Federal Home Loan Bank stock	290		302		(12)		(4.0)	%		Dividends on Federal Home Loan Bank stock	377		349	349	302	302	28	28	8.0	8.0	%	75		24.8	24.8	%
Merchant interchange fees, net	Merchant interchange fees, net	127		133		(6)		(4.5)	%		Merchant interchange fees, net	167		119	119	133	133	48	48	40.3	40.3	%	34		25.6	25.6	%

Losses on sale of investment securities, net											Losses on sale of investment securities, net	—		(5,907)		—		5,907		—		%	—		—		%
Other income	Other income	326		304		22		7.2	%		Other income	285		337	337	304	304	(52)	(52)	(15.4)	(15.4)	%	(19)		(6.3)	(6.3)	%
Total non-interest income	Total non-interest income	$	2,739	$	2,935	$	(196)	(6.7)	%		Total non-interest income	$	2,754	$	(3,283)	$	2,935	$	6,037	(183.9)	(183.9)	%	$	(181)	(6.2)	(6.2)	%

Six months ended Amount Change Percent Change
(dollars in thousands) June 30, 2023 June 30, 2022
Wealth Management and Trust Services $ 1,070 $ 1,230 $ (160) (13.0) %
Earnings on bank-owned life insurance, net 1,067 711 356 50.1 %
Service charges on deposit accounts 1,053 953 100 10.5 %
Debit card interchange fees, net 1,002 1,036 (34) (3.3) %
Dividends on Federal Home Loan Bank stock 592 508 84 16.5 %
Merchant interchange fees, net 260 289 (29) (10.0) %
Other income 630 868 (238) (27.4) %
Total non-interest income $ 5,674 $ 5,595 $ 79 1.4 %

First Quarter of 2024 Compared to the Fourth Quarter of 2023

~~Second~~Non-interest income totaled $2.8 million for the first quarter of 2024, compared to a loss of $3.3 million for the prior quarter. The $6.0 million increase from the prior quarter was primarily attributed to a $5.9 million net loss on sale of available-for-sale investment securities in the prior quarter.

First Quarter of ~~2023~~2024 Compared to the First Quarter of 2023

Non-interest income totaled ~~$2.7~~$2.8 million for the ~~second~~first quarter of ~~2023, compared to $2.9 million for the prior quarter. The $196 thousand decrease~~2024, materially unchanged from ~~the prior quarter was primarily related to~~ ~~the recognition of a bank-owned life insurance benefit payment in the prior quarter, partially offset by increases in ATM and debit card interchange fees.~~

~~First Six Months of 2023 Compared to the First Six Months of 2022~~

~~Non-interest income totaled $5.7 million for the six months ended June 30, 2023, compared to $5.6 million for~~ the same period of the prior year. The ~~$79~~$181 thousand ~~increase~~decrease from the prior year period was mostly attributable to ~~the~~

~~Page-36~~

~~higher~~a decrease in bank-owned life insurance ~~balances and~~ benefit payments due to the recognition of a death benefit in 2023, partially offset by ~~decreases in~~higher dividend rates paid on Federal Home Loan Bank stock and higher wealth management and trust services income ~~and other income including one-way deposit and cash management fees.~~in 2024.

Non-interest Expense

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


		Three months ended								Three months ended					Quarter over quarter						Year over year
(dollars in thousands)	(dollars in thousands)	June 30, 2023		March 31, 2023		Amount Change		Percent Change			(dollars in thousands)	March 31, 2024			December 31, 2023			March 31, 2023			Amount Change			Percent Change			Amount Change			Percent Change
Salaries and related benefits	Salaries and related benefits	$	11,416	$	10,930	$	486	4.4	%		Salaries and related benefits	$	12,084		$	10,361		$	10,930		$	1,723		16.6	16.6	%	$	1,154		10.6	10.6	%
Occupancy and equipment	Occupancy and equipment	1,980		2,414		(434)		(18.0)	%		Occupancy and equipment	1,969			1,939	1,939		2,414	2,414		30	30		1.5	1.5	%	(445)			(18.4)	(18.4)	%
Professional services											Professional services	1,078			921			1,123			157			17.0		%	(45)			(4.0)		%
Data processing	Data processing	922		1,045		(123)		(11.8)	%		Data processing	1,070			1,081	1,081		1,045	1,045		(11)	(11)		(1.0)	(1.0)	%	25			2.4	2.4	%
Professional services		797		1,123		(326)		(29.0)	%
Depreciation and amortization		400		882		(482)		(54.6)	%
Deposit network fees											Deposit network fees	845			940			96			(95)			(10.1)		%	749			780.2		%
Federal Deposit Insurance Corporation insurance	Federal Deposit Insurance Corporation insurance	666		289		377		130.4	%		Federal Deposit Insurance Corporation insurance	435			454	454		289	289		(19)	(19)		(4.2)	(4.2)	%	146			50.5	50.5	%
Information technology	Information technology	357		370		(13)		(3.5)	%		Information technology	402			431	431		370	370		(29)	(29)		(6.7)	(6.7)	%	32			8.6	8.6	%
Charitable contributions		638		49		589		1,202.0	%
Depreciation and amortization											Depreciation and amortization	388			393			882			(5)			(1.3)		%	(494)			(56.0)		%
Directors' expense											Directors' expense	317			319			321			(2)			(0.6)		%	(4)			(1.2)		%
Amortization of core deposit intangible	Amortization of core deposit intangible	340		345		(5)		(1.4)	%		Amortization of core deposit intangible	251			330	330		345	345		(79)	(79)		(23.9)	(23.9)	%	(94)			(27.2)	(27.2)	%
Directors' expense		300		321		(21)		(6.5)	%

Other real estate owned
Other real estate owned
Other real estate owned	Other real estate owned	44		4		40		1,000.0	%		—		—	—		4	4		—	—		N/A	N/A		(4)			(100.0)	(100.0)	%
Other non-interest expense	Other non-interest expense
Advertising
Advertising
Advertising	Advertising	300		278		22		7.9	%		296		347	347		278	278		(51)	(51)		(14.7)	(14.7)	%	18			6.5	6.5	%
Other expense	Other expense	2,505		1,730		775		44.8	%		Other expense	2,034			1,773	1,773		1,683	1,683		261	261		14.7	14.7	%	351			20.9	20.9	%
Total other non-interest expense	Total other non-interest expense	2,805		2,008		797		39.7	%		Total other non-interest expense	2,330			2,120	2,120		1,961	1,961		210	210		9.9	9.9	%	369			18.8	18.8	%
Total non-interest expense	Total non-interest expense	$	20,665	$	19,780	$	885	4.5	%		Total non-interest expense	$	21,169		$	19,289		$	19,780		$	1,880		9.7	9.7	%	$	1,389		7.0	7.0	%

Six months ended Amount Change Percent Change
(dollars in thousands) June 30, 2023 June 30, 2022
Salaries and related benefits $ 22,346 $ 21,889 $ 457 2.1 %
Occupancy and equipment 4,394 3,798 596 15.7 %
Data processing 1,967 2,476 (509) (20.6) %
Professional services 1,920 1,578 342 21.7 %
Depreciation and amortization 1,282 845 437 51.7 %
Federal Deposit Insurance Corporation insurance 955 586 369 63.0 %
Information technology 727 946 (219) (23.2) %
Charitable contributions 687 556 131 23.6 %
Amortization of core deposit intangible 685 754 (69) (9.2) %
Directors' expense 621 605 16 2.6 %
Other real estate owned 48 5 43 NM
Other non-interest expense
Advertising 578 568 10 1.8 %
Other expense 4,235 3,675 560 15.2 %
Total other non-interest expense 4,813 4,243 570 13.4 %
Total non-interest expense $ 40,445 $ 38,281 $ 2,164 5.7 %
NM - Not Meaningful

Page-35

First Quarter of 2024 Compared to the Fourth Quarter of 2023

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

First Quarter of ~~2023~~2024 Compared to the First Quarter of 2023

Non-interest expense totaled ~~$20.7~~$21.2 million for the ~~three months ended June 30, 2023,~~first quarter of 2024, compared to ~~$19.8~~$19.8 million for the ~~prior quarter.~~ Thfirst quarter of 2023, an increase of $1.4 million. Significant fluctuations were as follows:

•~~e $885 thousand increase~~ ~~from the prior quarter included~~ ~~$589 thousand in charitable contributions as part of our annual grant program, $486 thousand in salaries~~Salaries and related benefits ~~which included annual merit increases, and $393 thousand in expenses and fees associated with an~~increased by $1.2 million largely due to the increase in ~~our customers' participation~~full time equivalent employees to 330 from 311 at the same time in prior year.

•Deposit network fees increased by $749 thousand as customers sought additional FDIC insurance protection through reciprocal deposit networks to bolster their FDIC insured balances. In addition, our FDIC insurance expense increased by $377 thousand as the statutory rates increased uniformly by 2 basis points for all depository institutions effective January 1, 2023 in order to strengthen the FDIC's Deposit Insurance Fund. networks.

•These ~~and other lesser~~ increases were partially offset by ~~a $482 thousand reduction~~decreases in depreciation and amortization expense and $434 thousand decrease in occupancy and equipment expense, primarily due to the acceleration of lease-related costs for branches closed in the first quarter. These branch closures also reduced maintenance, janitorial and

~~Page-37~~

~~utilities expenses for the quarter. In addition, professional services decreased by $326 thousand, mainly due to timing of audit work performed.~~

~~First Six Months of 2023 Compared to the First Six Months of 2022~~

~~Non-interest expense totaled~~ ~~$40.4 million for~~ ~~the~~ ~~six months ended June 30, 2023, compared to~~ ~~$38.3 million~~ ~~for the~~ ~~six months ended June 30, 2022, an increase of$2.2 million.~~ ~~The most significant~~ ~~increases over prior year came from~~occupancy and equipment and depreciation and amortization expenses ~~which rose $596~~of $445 thousand and ~~$437~~$494 thousand, respectively, mainly from the acceleration of lease-related costs for branch closures in the first quarter of ~~2023. In addition, expenses associated with reciprocal deposits placed into deposit networks included~~2023. Beginning in ~~other expenses increased $497 thousand due to higher average balances and fees.~~ ~~Salaries and related benefits increased by $457 thousand primarily due to regularly scheduled~~2024, the estimated annual merit and other increases and lower deferred origination costs, which were partially offset by an adjustment to our incentive bonus accrual. The FDIC insurance assessment and professional services also increased by $369 thousand and $342 thousand, respectively, for the same reasons mentioned above. These increases were partially offset by a $509 thousand decrease in data processing expenses due to our core system contract renegotiation for the current period and because the prior year included data processing expenses largely eliminated after the systems conversion associated with the American River Bankshares merger. In addition, the pre-tax savings ~~in 2023~~ from ~~the~~ branch closures ~~net of accelerated costs, are expected to be approximately $470 thousand, and future annual pre-tax savings~~ are expected to be approximately $1.4 million.

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, bank-owned life insurance ("BOLI") ~~income,~~, 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 ~~second~~first quarter of ~~2023~~2024 totaled ~~$1.3~~$1.0 million at an effective tax rate of ~~22.5%~~25.6%, compared to provision reversal of $218 thousand at a negative effective tax rate of (55.6)% in the prior quarter and $3.4 million at an effective tax rate of 26.7% in the ~~prior quarter.~~same quarter last year. The ~~decrease~~increase in the ~~provision~~provision for income taxes in the ~~second~~first quarter of ~~2023~~2024 reflected ~~lower~~higher pre-tax ~~income.~~income as compared to the prior quarter. The ~~420~~increase in the effective tax rate in the first quarter of 2024 was primarily due to the tax provision reversal recorded in the prior quarter that primarily resulted from a $5.9 million pre-tax loss on the sale of available-for-sale investment securities. The 110 basis point decrease in the effective tax rate in the ~~second~~first quarter of ~~2023~~2024, as compared to the same quarter a year ago, was primarily due to the larger proportional effect of permanent tax differences on lower pretax income. This decrease was partially offset by a reduction in the tax-exempt interest exclusion (due to a larger IRC Section 291(e) interest expense disallowance) ~~and lower tax-exempt BOLI income in the second quarter,~~, compared to the prior ~~quarter.~~

period.

The provision for income taxes for the first half of 2023 totaled $4.8 million at an effective tax rate of 25.4%, compared to $7.7 million at an effective tax rate of 26.3% for the first half of 2022. The 90 basis point decrease in the effective tax rate in the first half of 2023, as compared to the same period a year ago, was primarily due the larger proportional effect of permanent tax differences on lower pretax income and higher tax-exempt BOLI income.

We file a consolidated return in the U.S. ~~Federal~~federal tax jurisdiction and a combined return in the ~~State~~state of California tax jurisdiction. There were no ongoing federal or state income tax examinations at the time of the issuance of this report. ~~At June 30, 2023,~~As of March 31, 2024, neither the Bank nor Bancorp had accruals for interest or penalties related to unrecognized tax benefits.

Page-36

FINANCIAL CONDITION SUMMARY

Cash, Cash Equivalents and Restricted Cash

Total cash, cash equivalents and restricted cash were ~~$39.7~~$36.3 million at ~~June 30, 2023,~~March 31, 2024, an increase of $5.9 million compared to ~~$45.4~~$30.5 million at December 31, ~~2022. The $5.8 million decrease was due primarily to increases in loans and decreases in deposits, partially offset by cash flows from investment securities and increased borrowings.~~2023.

Investment Securities

The investment securities portfolio totaled ~~$1.718~~$1.451 billion at ~~June 30, 2023,~~March 31, 2024, a decrease of ~~$56.6~~$25.8 million from ~~$1.774~~$1.477 billion at December 31, ~~2022.~~2023. The decrease was primarily the result of principal repayments ~~and maturities~~ totaling

~~Page-38~~

~~$58.9~~ $20.3 million, ~~partially offset by~~ a ~~$5.3~~$4.6 million ~~decrease~~increase in pre-tax unrealized losses on available-for-sale investment securities, ~~along with $2.9 million~~and $900 thousand in net ~~amortization in the first half of 2023.~~ amortization. Both the available-for-sale and ~~held-to maturity~~held-to-maturity portfolios are eligible for pledging to ~~either the~~ FHLB or the Federal Reserve as collateral for ~~borrowing.~~ borrowings. The portfolios are comprised of high credit quality investments with average effective ~~duratio~~nsdurations of ~~3.8~~4.41 on available-for-sale securities and ~~5.8~~5.66 on held-to-maturity securities. Both portfolios generate cash ~~inflows~~flows monthly from interest, principal amortization and payoffs, which supports the Bank's ~~liquidity~~.liquidity. Those cash ~~inflows~~flows totaled ~~$82.9~~$31.3 million in the first ~~six months~~quarter of ~~2023.~~

Subsequent to quarter end, the Bank sold $82.7 million of available-for-sale securities and recognized a $2.8 million net loss. We held the sales proceeds in cash as part of our liquidity strategy. The net loss was offset with the $2.8 million gain from the July 13, 2023 sale of the Bank's remaining investment in Visa Inc. Class B restricted common stock, which had a zero carrying value.2024. See Note 4, Investment Securities, for additional information.

The following table summarizes our investment in obligations of state and political subdivisions at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.


				June 30, 2023								December 31, 2022
			March 31, 2024																										March 31, 2024						December 31, 2023
(dollars in thousands)	(dollars in thousands)			Amortized Cost			Fair Value			% of Total State and Political Subdivisions		Amortized Cost			Fair Value			% of Total State and Political Subdivisions		(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:	Within California:
		General obligation bonds		$	25,755		$	21,352		14.4	%	$	25,806		$	20,768		14.4	%
		Revenue bonds		3,513			2,902			2.0		3,719			2,987			2.1
		General obligation bonds
		General obligation bonds
		General obligation bonds																			$	24,165	$	19,964	14.8		%	$	24,191	$	20,009	14.7		%
	Revenue bonds

Total within California	Total within California			29,268			24,254			16.4		29,525			23,755			16.5
Total within California
Total within California
Outside California:	Outside California:
		General obligation bonds		121,232			107,777			68.0		121,908			106,375			68.0
		Revenue bonds		27,808			24,130			15.6		27,922			23,752			15.5
		General obligation bonds
		General obligation bonds
		General obligation bonds
	Revenue bonds
Total outside California	Total outside California			149,040			131,907			83.6		149,830			130,127			83.5
Total obligations of state and political subdivisions	Total obligations of state and political subdivisions			$	178,308		$	156,161		100.0	%	$	179,355		$	153,882		100.0	%	Total obligations of state and political subdivisions	$	163,827	$	144,242	100.0	100.0	%	$	164,236	$	146,079	100.0	100.0	%
Percent of investment portfolio	Percent of investment portfolio			9.7		%	9.5		%			9.6		%	9.3		%

Of the total investment in obligations of state and political subdivisions, the largest concentrations outside of California are in Texas ~~(39.7%~~(37.1%), Washington ~~(14.3%~~(15.3%) and Wisconsin ~~(8.9%~~(9.0%). 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).

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

Page-37

Loans and Credit Quality

During the first ~~half~~three months of ~~2023,~~2024, loans ~~increased~~decreased by ~~$10.3~~$18.8 million and totaled ~~$2.103~~$2.055 billion ~~at June 30, 2023,~~as of March 31, 2024, compared to ~~$2.093~~$2.074 billion as of December 31, 2023. Loan originations were $12.4 million for the three months ended March 31, 2024, compared to $53.8 million for the fourth quarter of 2023. While originations were muted, the pipeline has grown, and key opportunistic hires and new compensation plans have already accelerated calling activity, pipeline growth and diversification.

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

Non-accrual loans totaled $6.3 million, or 0.31% of the loan portfolio, at March 31, 2024, compared to $8.0 million, or 0.39% at December 31, ~~2022. Loan originations were $67.7~~2023. The $1.7 million ~~for the six months ended June 30, 2023, compared~~decrease resulted from various payoffs and paydowns. Three loan relationships totaling $370 thousand moved to ~~$152.0 million for~~non-accrual status in the first ~~six months~~quarter, partially offsetting the decrease. Of the total non-accrual loans as of ~~2022. Excluding PPP loans, payoffs~~March 31, 2024 approximately 50% were ~~$45.0 million in~~paying as agreed, with the ~~six months ended June 30, 2023, compared to $159.1 million~~remaining 50% closely monitored for ~~the same period in 2022. PPP loan payoffs during the six months ended June 30, 2023~~payments, and ~~2022~~63% were ~~$1.8 million and $94.2 million, respectively. In addition, loan amortization from scheduled repayments totaling $39.9 million was partially offset by a net increase in~~real estate secured.

~~Page-39~~

~~utilization of credit lines of $29.7 million for the six months ended June 30, 2023.~~While Bank of Marin has continued its ~~usual~~ steadfast conservative underwriting practices and has not changed its credit standards or policies ~~specifically~~ in reaction to ~~the~~ current market ~~conditions.~~conditions, our portfolio management and credit teams are exercising heightened awareness of the potential for credit quality weakening. Classified loans totaled $54.8 million as of March 31, 2024, compared to $32.3 million as of December 31, 2023. The ~~Bank continues~~increase of $22.5 million was due primarily to ~~be focused~~a migration of $24.4 million in loans from special mention to substandard risk ratings. The majority of these downgrades were due to protracted issues, therefore, these borrowers' financial conditions merit extra attention and proactive management. The three significant relationships downgraded are of different types and geographies. Two of these are commercial real estate loans that are fully secured and supported with owner-level personal guarantees that have ample liquidity, and we believe there is minimal loss potential in these credits. Only 1% of the additions were on ~~achieving risk-adjusted returns.~~non-accrual status as of March 31, 2024, with 11% of all classified loans on non-accrual status. Excluding the accruing loan over 90 days past due mentioned below, 98% of all classified loans were current on their payments as of March 31, 2024. Additions to classified loans were offset by $2.9 million in payoffs and paydowns.

~~The ratio of allowance for credit losses on loans to total loans was 1.13% at June 30, 2023 compared to 1.10% at December 31, 2022.~~

~~Non-accrual loans decreased $320 thousand to $2.1 million, or 0.10% of the loan portfolio at June 30, 2023 from $2.4 million, or 0.12% at December 31, 2022.~~ ~~All of the non-accrual loans are collateralized by real estate with no expected credit loss as of~~ ~~June 30, 2023.~~ Accruing loans past due 30 to 89 days totaled $1.9 million as of March 31, 2024, compared to $1.0 million ~~at June 30, 2023, compared to $664 thousand at~~as of December 31, ~~2022.~~

Classified loans with risk ratings of substandard or doubtful totaled $38.1 million at June 30, 2023, compared to $28.1 million at December 31, 2022. Increases in 2023 were primarily due to a $5.8 million increase in the usage of a revolving line of credit that was previously downgraded and the addition of eight loans to seven borrowers totaling $7.4 million. Approximately 90% of the additions were comprised of2023. We had one ~~commercial loan and two non-owner occupied~~accruing non-owner-occupied commercial real estate ~~loans. Partially offsetting~~loan over 90 days past due as of March 31, 2024 totaling $8.1 million that has been in extended renewal negotiations, but it is well-secured and expected to be restored to a current payment status in the ~~additions were $2.3 million in payoffs and paydowns~~ ~~and $939 thousand in upgrades to pass risk rating.~~near future.

Loans designated special mention, which are not considered adversely classified, ~~increased~~decreased by ~~$26.3~~$34.3 million to ~~$86.5~~$100.9 million ~~at June 30, 2023~~as of March 31, 2024, from ~~$60.2~~$135.2 million atas of December 31, ~~2022.~~2023. The ~~increase~~decrease was largely due to ~~$35.9~~$24.4 million in downgrades from special mention to substandard mentioned above, $10.5 million in upgrades to pass risk ratings, and $1.8 million in net paydowns and payoffs, partially offset by $2.0 million in downgrades from pass risk ratings and $443 thousand in balance ~~increases of $548 thousand, which were partially offset by $5.9 million in downgrades from~~increases. Of the loans designated special mention, ~~to substandard and $4.2 million in paydowns and payoffs.~~98% were real estate secured. All but one of the loans, outside of not-for-profits, are guaranteed by owners or sponsors.

~~With~~Net charge-offs for the heightened market concern about non-owner occupied commercial real estate, and in particular the office portfolios, we are providing the following additional information. Non-owner occupied commercial real estate loans made up 64%first quarter of ~~total classified loans as of June 30, 2023,~~2024 totaled $21 thousand, compared to ~~88%~~net charge-offs of $387 thousand for the fourth quarter of 2023. The ratio of allowance for credit losses to total loans was 1.24% at March 31, 2024, compared to 1.21% at December 31, 2022 and all are currently paying in accordance with loan terms. We continue to maintain diversity among property types and within our geographic footprint. Specifically, our office commercial real estate portfolio in the City of San Francisco represents just 3% of our total loan portfolio and 6% of our total non-owner occupied commercial real estate portfolio. As of the last annual review period (generally December 2022), the average loan-to-value and debt-service coverage for the entire non-owner occupied office portfolio ~~were 55% and 1.67x,~~ ~~respectively. For the eleven non-owner occupied office loans in the City of San Francisco totaling $71.4 with an average loan balance of $6.5 million,~~ ~~the average loan-to-value and debt-service coverage ratios were 63% and 1.20x, respectively.~~2023.

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

Liabilities - Deposits and Borrowings

During the first ~~six~~three months of ~~2023,~~2024, total liabilities decreased by ~~$67.2~~$34.3 million to ~~$3.668~~$3.330 billion. Deposits totaled ~~$3.325~~$3.284 billion at ~~June 30, 2023,~~March 31, 2024, a decrease of ~~$248.1~~$6.0 million, compared to ~~$3.573~~$3.290 billion at December 31, ~~2022. Federal Home Loan~~2023. The Bank had zero outstanding borrowings ~~increased $180.2 million~~at March 31, 2024, compared to ~~$292.2 million at June 30, 2023 from $112.0~~$26.0 million at December 31, 2022. Post quarter end, we reduced borrowings by another $92 million through July 31, 2023 and maintained excess cash, mostly from the sale of available-for-sale securities mentioned above, that is available for further reductions.2023.

Page-38

Non-interest bearing deposits ~~decreased $250.4 million, while money~~ made up 44.0% of total deposits at March 31, 2024, compared to 43.8% at December 31, 2023. Money market ~~deposits increased $39.7 million~~balances remained constant at 34.6% and time deposits ~~increased $84.4 million in the first six months of 2023. There was a small shift in deposit composition in the first half of 2023, dropping non-interest bearing deposits~~increased from ~~51.5%~~7.6% to 8.1% of total deposits ~~to 47.8%,~~with a weighted average rate of 3.17% and raising money markets from 27.7% to 30.9% and time deposits from 3.3% to 6.1%. While there was some runoff in the first quarter attributed to industry disruptions and bank deposits moving to money market funds, the Bank experienced a modest recovery and gained deposit growth momentum in the second quarter.average term of six months. Additionally, the Bank's competitive and balanced approach to relationship management and focused outreach supported the ~~growth adding over 1,400~~ addition of nearly 1,200 new accounts during the ~~second~~first quarter ~~bringing the total to over 2,400~~, 34% of which were new ~~accounts in 2023~~relationships (excluding new reciprocal accounts). ~~Of those, approximately 40% were new relationships to the Bank.~~ ~~The average cost of deposits was 0.44% in the first half of 2023, compared to 0.06% in the same period of 2022.~~

~~Page-40~~

~~At June 30, 2023,~~During the ~~Bank had $292.2~~first quarter of 2024, outstanding borrowings decreased by $26.0 million ~~outstanding in overnight borrowings~~to zero at March 31, 2024, resulting from ~~the Federal Home Loan Bank at~~investment and loan cash flows. Although available as a ~~rate of 5.28%, an increase of $180.2 million, compared to~~ ~~$112.0 million i~~n overnight borrowings at December 31, 2022 at a rate of 4.65%. The Bank is actively evaluating strategies for reducing borrowings in the current environment and as market conditions change. Total immediate contingentliquidity source, we have not utilized brokered deposits. Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and remaining borrowing capacity was ~~$1.992~~$1.905 billion, or ~~60%~~58% of total deposits and ~~209%~~and 208% of estimated uninsured and/or uncollateralized deposits as of ~~June 30, 2023.~~March 31, 2024.

Capital Adequacy

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

Management reviews capital ratios on a regular basis and produces a five-year capital plan semi-annually to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs. Stress tests are performed on capital ratios and include scenarios such as additional unrealized losses on the investment portfolio, additional deposit growth and potential share repurchases. For all periods presented, the Bank’s ratios exceed the regulatory definition of “well capitalized” under the regulatory framework for prompt corrective action and Bancorp’s ratios exceed the required minimum ratios to be considered a well-capitalized bank holding company. 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 ~~June 30, 2023.~~March 31, 2024. 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.

Bancorp's TCE ratio was ~~8.6%~~9.76% at ~~June 30, 2023,~~March 31, 2024, compared to ~~8.2%~~9.73% at December 31, ~~2022.~~ 2023. Bancorp's TCE ratio, net of after tax unrealized losses on held-to-maturity securities, was ~~6.7%~~7.67%, compared to ~~6.2%~~7.80% at December 31, ~~2022.~~2023. Management believes this non-GAAP measure is important because it reflects the level of capital available to withstand drastic changes in market conditions (~~ref~~errefer to ~~page 45 for a discussion~~the discussion and reconciliation of this non-GAAP financial ~~measure)~~measure in the section below entitled Statement Regarding Use of Non-GAAP Financial Measures).

The Bancorp’s and Bank’s capital adequacy ratios as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 are presented in the following tables.


Bancorp Capital Ratios (dollars in thousands)	Bancorp Capital Ratios (dollars in thousands)	Actual				Adequately Capitalized Threshold 1				Threshold to be a Well Capitalized Bank Holding Company				Bancorp Capital Ratios (dollars in thousands)		Actual						Adequately Capitalized Threshold 1						Threshold to be a Well Capitalized Bank Holding Company
June 30, 2023		Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2024														March 31, 2024		Amount			Ratio			Amount			Ratio			Amount			Ratio
Total Capital (to risk-weighted assets)	Total Capital (to risk-weighted assets)	$	440,340	16.36	%	$	282,667	10.50	%	$	269,207	10.00	%	Total Capital (to risk-weighted assets)		$	441,181		17.05	17.05	%	$	271,680		10.50	10.50	%	$	258,743		10.00	10.00	%
Tier 1 Capital (to risk-weighted assets)	Tier 1 Capital (to risk-weighted assets)	$	415,943	15.45	%	$	228,826	8.50	%	$	215,365	8.00	%	Tier 1 Capital (to risk-weighted assets)		$	415,157		16.05	16.05	%	$	219,931		8.50	8.50	%	$	206,994		8.00	8.00	%
Tier 1 Leverage Capital (to average assets)	Tier 1 Leverage Capital (to average assets)	$	415,943	10.10	%	$	164,763	4.00	%	$	205,954	5.00	%	Tier 1 Leverage Capital (to average assets)		$	415,157		10.92	10.92	%	$	152,035		4.00	4.00	%	$	190,043		5.00	5.00	%
Common Equity Tier 1 (to risk-weighted assets)	Common Equity Tier 1 (to risk-weighted assets)	$	415,943	15.45	%	$	188,445	7.00	%	$	174,984	6.50	%	Common Equity Tier 1 (to risk-weighted assets)		$	415,157		16.05	16.05	%	$	181,120		7.00	7.00	%	$	168,183		6.50	6.50	%
December 31, 2022
December 31, 2023
Total Capital (to risk-weighted assets)
Total Capital (to risk-weighted assets)
Total Capital (to risk-weighted assets)	Total Capital (to risk-weighted assets)	$	431,667	15.90	%	$	285,079	10.50	%	$	271,504	10.00	%	$	440,842		16.89	16.89	%	$	274,002		10.50	10.50	%	$	260,954		10.00	10.00	%
Tier 1 Capital (to risk-weighted assets)	Tier 1 Capital (to risk-weighted assets)	$	407,912	15.02	%	$	230,778	8.50	%	$	217,203	8.00	%	Tier 1 Capital (to risk-weighted assets)		$	415,224		15.91	15.91	%	$	221,811		8.50	8.50	%	$	208,763		8.00	8.00	%
Tier 1 Leverage Capital (to average assets)	Tier 1 Leverage Capital (to average assets)	$	407,912	9.60	%	$	169,948	4.00	%	$	212,435	5.00	%	Tier 1 Leverage Capital (to average assets)		$	415,224		10.46	10.46	%	$	158,771		4.00	4.00	%	$	198,464		5.00	5.00	%
Common Equity Tier 1 (to risk-weighted assets)	Common Equity Tier 1 (to risk-weighted assets)	$	407,912	15.02	%	$	190,053	7.00	%	$	176,478	6.50	%	Common Equity Tier 1 (to risk-weighted assets)		$	415,224		15.91	15.91	%	$	182,668		7.00	7.00	%	$	169,620		6.50	6.50	%

~~Page-41~~Page-39


Bank Capital Ratios (dollars in thousands)	Bank Capital Ratios (dollars in thousands)	Actual				Adequately Capitalized Threshold 1				Threshold to be Well Capitalized under Prompt Corrective Action Provisions				Bank Capital Ratios (dollars in thousands)	Actual					Adequately Capitalized Threshold 1					Threshold to be Well Capitalized under Prompt Corrective Action Provisions
June 30, 2023		Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2024														March 31, 2024	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to risk-weighted assets)	Total Capital (to risk-weighted assets)	$	430,491	15.99	%	$	282,659	10.50	%	$	269,199	10.00	%	Total Capital (to risk-weighted assets)	$	432,306	16.71	16.71	%	$	271,640	10.50	10.50	%	$	258,705	10.00	10.00	%
Tier 1 Capital (to risk-weighted assets)	Tier 1 Capital (to risk-weighted assets)	$	406,094	15.09	%	$	228,819	8.50	%	$	215,359	8.00	%	Tier 1 Capital (to risk-weighted assets)	$	406,282	15.70	15.70	%	$	219,899	8.50	8.50	%	$	206,964	8.00	8.00	%
Tier 1 Leverage Capital (to average assets)	Tier 1 Leverage Capital (to average assets)	$	406,094	9.86	%	$	164,759	4.00	%	$	205,949	5.00	%	Tier 1 Leverage Capital (to average assets)	$	406,282	10.69	10.69	%	$	152,026	4.00	4.00	%	$	190,033	5.00	5.00	%
Common Equity Tier 1 (to risk-weighted assets)	Common Equity Tier 1 (to risk-weighted assets)	$	406,094	15.09	%	$	188,439	7.00	%	$	174,979	6.50	%	Common Equity Tier 1 (to risk-weighted assets)	$	406,282	15.70	15.70	%	$	181,094	7.00	7.00	%	$	168,158	6.50	6.50	%
December 31, 2022
December 31, 2023														December 31, 2023
Total Capital (to risk-weighted assets)	Total Capital (to risk-weighted assets)	$	427,108	15.73	%	$	285,052	10.50	%	$	271,478	10.00	%	Total Capital (to risk-weighted assets)	$	433,598	16.62	16.62	%	$	273,986	10.50	10.50	%	$	260,939	10.00	10.00	%
Tier 1 Capital (to risk-weighted assets)	Tier 1 Capital (to risk-weighted assets)	$	403,352	14.86	%	$	230,757	8.50	%	$	217,183	8.00	%	Tier 1 Capital (to risk-weighted assets)	$	407,981	15.64	15.64	%	$	221,798	8.50	8.50	%	$	208,751	8.00	8.00	%
Tier 1 Leverage Capital (to average assets)	Tier 1 Leverage Capital (to average assets)	$	403,352	9.49	%	$	169,940	4.00	%	$	212,425	5.00	%	Tier 1 Leverage Capital (to average assets)	$	407,981	10.28	10.28	%	$	158,767	4.00	4.00	%	$	198,459	5.00	5.00	%
Common Equity Tier 1 (to risk-weighted assets)	Common Equity Tier 1 (to risk-weighted assets)	$	403,352	14.86	%	$	190,035	7.00	%	$	176,461	6.50	%	Common Equity Tier 1 (to risk-weighted assets)	$	407,981	15.64	15.64	%	$	182,657	7.00	7.00	%	$	169,610	6.50	6.50	%

1 Except for Tier 1 Leverage Capital, the adequately capitalized thresholds reflect the regulatory minimum plus a 2.5% capital conservation buffer as required under the Basel III Capital Standards in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses.

Liquidity and Capital Resources

The goal of liquidity management is to provide adequate funds to meet loan demand and to fund operating activities and deposit withdrawals. We accomplish this goal by maintaining an appropriate level of liquid assets and formal lines of credit with the FHLB, FRBSF and correspondent banks that enable us to borrow funds as seen in the table below and discussed in Note 6 to the Consolidated Financial Statements in ITEM 1 of this report. Our Asset Liability Management Committee ("ALCO"), which is comprised of Bank directors and the Bank's Chief Executive Officer, is responsible for approving and monitoring our liquidity targets and strategies. The Bank has long-established minimum liquidity ~~and diversification~~ requirements that are regularly monitored using metrics and tools similar to those used by larger banks, such as the ~~Liquidity Coverage Ratio~~liquidity coverage ratio, and multi-scenario, long-horizon stress ~~testing.~~tests. Our contingency funding plan provides for early detection of potential liquidity issues in the market or the Bank and institutes prompt responses that may prevent or alleviate a ~~potential~~ liquidity crisis. Management monitors liquidity daily and regularly adjusts our position based on current and future liquidity needs. We also have relationships with third-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 maintained $2.2 million in off-balance sheet one-way deposit sales with our deposit networks at both June 30, 2023 and December 31, 2022.~~

Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity was ~~$1.992~~$1.905 billion, or ~~209%~~208% of estimated uninsured and/or uncollateralized deposits as of ~~June 30, 2023. The Federal Reserve's new BTFP facility offers borrowing capacity based on par values of securities pledged making it less sensitive to changes in market rates.~~ March 31, 2024.

The following table details the components of our contingent liquidity sources as of ~~June 30, 2023.~~March 31, 2024.


(in thousands)	(in thousands)	Total Available		Amount Used		Net Availability		(in thousands)	Total Available	Amount Used	Net Availability
Internal Sources	Internal Sources
Unrestricted cash 1	Unrestricted cash 1	$	16,705	N/A		$	16,705
Unrestricted cash 1
Unrestricted cash 1
Unencumbered securities at market value	Unencumbered securities at market value	761,472		N/A		761,472
External Sources	External Sources
FHLB line of credit	FHLB line of credit	1,033,792		$	(292,200)	741,592
FRB line of credit and BTFP facility		337,047		—		337,047
FHLB line of credit
FHLB line of credit
FRB line of credit
Lines of credit at correspondent banks	Lines of credit at correspondent banks	135,000		—		135,000
Total Liquidity	Total Liquidity	$	2,284,016	$	(292,200)	$	1,991,816

1 Excludes cash items in transit.

Note: Brokered deposits available through third party networks are not included above.

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

~~Page-42~~

Customer deposits are a significant component of our daily liquidity position. The attraction and retention of new deposits depend 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.

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Our cash and cash equivalents ~~decreased $5.8~~increased $5.9 million in the first ~~half~~three months of ~~2023.~~ 2024. The most significant sources of liquidity during the first three months of 2024 were proceeds from principal paydowns and maturities of investment securities of $20.3 million, and proceeds from loans collected net of originations totaling $18.7 million. In addition, $4.3 million in net cash was provided by operating activities.

Significant uses of liquidity during ~~2023~~the first three months of 2024 were ~~$248.1~~$26.0 million in repayments of short-term borrowings, $6.0 million in net withdrawals of deposits ~~$9.3 million in loan originations~~ and ~~advances, net of principal collected, and $8.0~~$4.0 million in cash dividends paid on common stock to our shareholders.

The most significant sources of liquidity during the first half of 2023 were increased Federal Home Loan Bank borrowings of $180.2 million, proceeds from principal paydowns and maturities of investment securities of $59.0 million, and $21.5 million in net cash provided by operating activities. Refer to the Consolidated Statement of Cash Flows in this Form 10-Q for additional information on our sources and uses of liquidity. Management anticipates that our current strong liquidity position, as detailed in this report, and contingent funding sources outlined in the table above are adequate to support our operational needs.

Unfunded loan commitments, as discussed in Note 8 to the Consolidated Financial Statements in this Form 10-Q, totaled ~~$489.6~~$489.4 million at ~~June 30, 2023.~~March 31, 2024. We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, principal paydowns of investment securities, and liquid assets.

Over the next twelve months, ~~$179.4~~$251.4 million of time deposits will mature. We expect to replace these funds with new deposits or excess liquidity. ~~Our~~We believe our emphasis on local deposits, combined with our immediately available funding sources, provides a very stable base for our liquidity needs.

We had no borrowings under our credit facilities of ~~$292.2 million~~ at ~~June 30, 2023,~~March 31, 2024, and ~~$112.0~~$26.0 million at December 31, ~~2022,~~2023, as discussed in Note 6 to the Consolidated Financial Statements in ITEM 1 of this report.

~~Since~~Because 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 ~~$9.7~~$8.6 million in cash at ~~June 30, 2023~~March 31, 2024 and management anticipates that there will be sufficient ~~earnings~~capacity at the Bank to provide dividends to Bancorp to meet its funding requirements for the foreseeable future.

Statement Regarding use of Non-GAAP Financial Measures

Our first half of 2022 was impacted by costs associated with our 2021 acquisition of American River Bankshares, which we considered immaterial to discuss in this report. For additional information regarding the impact of non-GAAP adjustments to our first half of 2022 performance measures, refer to Form 10-Q filed on August 8, 2022.

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

~~Page-43~~

Reconciliation of GAAP and Non-GAAP Financial Measures


(in thousands, unaudited)	(in thousands, unaudited)		June 30, 2023			December 31, 2022		(in thousands, unaudited)				March 31, 2024		December 31, 2023
Tangible Common Equity - Bancorp	Tangible Common Equity - Bancorp
Total stockholders' equity
Total stockholders' equity
Total stockholders' equity	Total stockholders' equity		$	423,941		412,092
Goodwill and core deposit intangible	Goodwill and core deposit intangible		(77,185)			(77,870)
Total TCE	Total TCE	a	346,756			334,222
Unrealized losses on HTM securities, net of tax 1	Unrealized losses on HTM securities, net of tax 1		(85,046)			(89,432)
TCE, net of unrealized losses on HTM securities (non-GAAP)	TCE, net of unrealized losses on HTM securities (non-GAAP)	b	$	261,710		244,790
Total assets	Total assets		$	4,092,133		4,147,464
Goodwill and core deposit intangible	Goodwill and core deposit intangible		(77,185)			(77,870)
Total tangible assets	Total tangible assets	d	4,014,948			4,069,594
Unrealized losses on HTM securities, net of tax 1	Unrealized losses on HTM securities, net of tax 1		(85,046)			(89,432)
Total tangible assets, net of unrealized losses on HTM securities (non-GAAP)	Total tangible assets, net of unrealized losses on HTM securities (non-GAAP)	e	$	3,929,902		3,980,162
Bancorp TCE ratio	Bancorp TCE ratio	a / d	8.6		%	8.2	%	Bancorp TCE ratio	a / c	9.8	%	9.7	%
Bancorp TCE ratio, net of unrealized losses on HTM securities (non-GAAP)	Bancorp TCE ratio, net of unrealized losses on HTM securities (non-GAAP)	b / e	6.7		%	6.2	%	Bancorp TCE ratio, net of unrealized losses on HTM securities (non-GAAP)	b / d	7.7	%	7.8	%

1 Net unrealized losses on held-to-maturity securities as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 of ~~$120.7~~$119.2 million and ~~$127.0,~~$110.4 million, respectively, as shown in Note 4, net of an estimated ~~$35.7~~$35.2 million and ~~$37.5,~~$32.6 million, respectively, in deferred tax benefits based on a blended state and federal statutory tax rate of 29.56%.

Page-41

ITEM 3. Quantitative and Qualitative ~~Disclosure~~Disclosures 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 component of market risk is interest rate risk, which is inherent in our lending, investment, borrowing and deposit gathering activities. The Bank manages interest rate sensitivity to minimize the exposure of our net interest margin, earnings, and capital to changes in interest rates. Interest rate changes can create fluctuations in the net interest margin due to an imbalance in the timing of repricing, or maturity of assets or liabilities. Interest rate changes can also affect the market value of our financial instruments, such as available-for-sale securities and the related unrealized gains or losses, which ~~affects~~affect our equity value.

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 and liability management policy~~Asset/Liability Management Policy sets limits on the acceptable amount of change to net interest income and the economic value of equity in different interest rate environments.

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

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 in the context of policy guidelines. A simplified 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. Governing policies are subject to review by regulators and are updated to incorporate their observations and to adapt to changes in idiosyncratic and systemic risks. ~~At June 30, 2023,~~As of March 31, 2024, 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 and a static balance sheet is a series of immediate parallel shifts in the yield curve. Our most recent analysis of our interest rate sensitivity is provided in the following table as an example rather than an expectation of likely interest rate movements.

~~Page-44~~


Immediate and Parallel Shift 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)						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	(18.0)	%	(4.9)	%	up 400	(10.8)	%	0.7	%
up 300	up 300	(13.6)	%	(3.8)	%	up 300	(7.9)	%	0.7	%
up 200	up 200	(9.1)	%	(2.8)	%	up 200	(5.1)	%	0.7	%
up 100	up 100	(4.5)	%	(1.2)	%	up 100	(2.3)	%	0.6	%
down 100	down 100	4.9	%	2.9	%	down 100	0.6	%	(0.9)	%
down 200	down 200	9.1	%	4.8	%	down 200	2.5	%	0.9	%
down 300						down 300	4.4	%	2.6	%
down 400						down 400	7.0	%	4.6	%

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, lower deposit growth than modeled may cause the Bank to increase its borrowing position, thereby increasing its liability sensitivity. Additionally, assets and liabilities may react differently to changes in market interest rates in terms of both timing and responsiveness to market rate movements. Important deposit modeling assumptions include the speed of deposit run-off and the amount by which interest-bearing deposit rates increase or decrease when market interest rates change, otherwise known as the deposit beta. ~~We applied~~The above tables reflect deposit betas ~~up t~~of u~~o 45%~~p to 68%, averaging ~~35%~~40%, to rates paid on non-maturity interest-bearing deposits in rising rate scenarios ~~reflected~~and deposit betas of up to 60%, averaging 34%, to rates paid on non-maturity interest-bearing deposits in ~~the table above.~~falling rate scenarios. The actual rates and timing of prepayments on loans and investment securities could vary significantly from the assumptions applied

Page-42

in the various scenarios. Lastly, uneven changes in different tenors of U.S. Treasury rates that result in changes to the shape of the yield curve could produce different results from those presented in the table. Accordingly, the results presented should not be relied upon as indicative of actual results in the event of changing market interest rates.

ITEM 4. 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 ~~June 30, 2023,~~March 31, 2024, there were no significant changes that materially affected, or ~~were~~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.

~~Page-45~~

PART II OTHER INFORMATION

ITEM 1 Legal Proceedings

Refer to Note 12 to the Consolidated Financial Statements in Item 8 of our ~~2022~~2023 Form 10-K and Note 8 to the Consolidated Financial Statements in this Form 10-Q.

ITEM 1A Risk Factors

Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. In evaluating an investment in Bancorp's common stock, investors should consider, among other things, the risks previously disclosed in Part I, Item 1A, "Risk Factors" of our ~~2022~~2023 Form 10-K, and the information contained in this quarterly report on Form 10-Q and other reports and registration statements filed with the SEC, which are incorporated herein by reference. ~~Other than as noted below, there~~There have been no material changes into the risk factors disclosed in our ~~2022~~2023 Form 10-K.

~~Recent Negative Developments Affecting the Banking Industry and Resulting Media Coverage Have Eroded Customer and Investor Confidence in the Banking System~~

The recent high-profile bank failures involving Silicon Valley Bank, Signature Bank, and First Republic Bank, as well as media and market coverage of the Bay Area economy and local financial institutions, have generated significant market volatility among publicly traded bank holding companies and, in particular, regional and community banks like the Company. These market developments have negatively impacted customer confidence in the safety and soundness of regional and community banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations. Additionally, these recent events have, and could continue to, adversely impact the market price and volatility of the Company’s common stock independent from the Company’s actual underlying financial performance.

Rising Interest Rates Have Decreased the Value of the Company’s Held-To-Maturity and Available-for-Sale Securities Portfolio, and the Company Would Realize Losses if It Were Required to Sell Such Securities to Meet Liquidity Needs

Because of inflationary pressures and the resulting rapid increases in interest rates over the last year, the trading value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the held-to-maturity portion of U.S. banks’ securities portfolios and unrealized losses on available-for-sale securities reflected in the Company’s accumulated other comprehensive income. While the Company may use the sale of eligible securities in the normal course of business as a source of liquidity or to reposition the balance sheet for strategic purposes, it is not our intention to sell securities at a net loss. However, if the Company were to sell such securities it may incur losses that could impair the Company’s capital, financial condition, and results of operations and may require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability.

~~Any Regulatory Examination Scrutiny or New Regulatory Requirements Arising From the Recent Events in the Banking Industry Could Increase the Company’s Expenses and Affect the Company’s Operations~~

The Company also anticipates increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank, designed to address the recent negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability. As primarily a commercial bank, the Bank has a higher percentage of uninsured deposits compared to primarily retail focused banks. As a result, the Bank could face increased scrutiny or be viewed as higher risk by regulators and the investor community.

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.

~~Page-46~~

Issuer Purchases of Equity Securities

On July 16, 2021, 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 July 31, 2023. On October 22, 2021, Bancorp Board of Directors approved an amendment, which increased the total authorization to $57.0 million and left the expiration date unchanged. The last activity under the program was in the first quarter of 2022.

~~On July~~ 21, 2023, ~~Bancorp~~the Board of Directors approved the adoption of ~~a new~~Bancorp's share repurchase program ~~under which Bancorp could repurchase~~for up to $25.0 million ~~of its outstanding common stock~~and expiring on July 31, ~~2025, which replaced the existing program.~~2025. There were no repurchases under this program in either 2024 or 2023.

Page-43

ITEM 3 Defaults upon Senior Securities

None.

ITEM 4 Mine Safety Disclosures

Not applicable.

ITEM 5 Other Information

Not applicable.

~~Page-47~~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

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

Description of Capital Stock

10-K

001-33572

4.01

March 16, 2023

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

2010 Annual Individual Incentive Compensation Plan, revised 2019

10-K

001-33572

10.07

March 15, 2021

10.07

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

8-K

001-33572

10.2

November 4, 2014

10.08

2007 Form of Change in Control Agreement

8-K

001-33572

10.1

October 31, 2007

10.09

Director Deferred Fee Plan, dated December 17, 2020

10-K

001-33572

10.13

March 15, 2021

10.10

Employment Agreement with Timothy Myers, dated September 23, 2021

8-K

001-33572

10.1

September 24, 2021

10.11

Salary Continuation Agreement, as amended for executive officer Timothy Myers, Chief Executive Officer, dated January 1, 2022

8-K

001-33572

10.1

December 21, 2022

10.12

Salary Continuation Agreement for executive officer Nicolette Sloan, Head of Commercial Banking, dated January 1, 2022

8-K

001-33572

10.2

December 21, 2022

10.13

Salary Continuation Agreement for executive officer Misako Stewart, Chief Credit Officer, dated January 1, 2022

8-K

001-33572

10.3

December 21, 2022

10.14

Salary Continuation Agreement for executive officer Brandi Campbell, Head of Retail Banking, dated July 1, 2022

8-K

001-33572

10.4

December 21, 2022

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-48~~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)


			~~August 8, 2023~~May 9, 2024						/s/ Timothy D. Myers
			Date						Timothy D. Myers
									President and Chief Executive Officer
									(Principal Executive Officer)



			~~August 8, 2023~~May 9, 2024						/s/ Tani Girton
			Date						Tani Girton
									Executive Vice President &
									Chief Financial Officer
									(Principal Financial Officer)


			~~August 8, 2023~~May 9, 2024						/s/ David A. Merck
			Date						David A. Merck
									First Vice President & Controller
									(Principal Accounting Officer)

~~Page-49~~Page-46


BANK OF MARIN BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the six months ended June 30, 2023 and 2022

(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, 2023
Balance at January 1, 2023	16,029,138	$	215,057	$	270,781	$	(73,746)	$	412,092
Net income	—	—		13,991		—		13,991
Other comprehensive income, net of tax	—	—		—		4,366		4,366

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings	11,530	230		—		—		230
Stock issued under employee stock purchase plan	1,156	21		—		—		21
Stock issued under employee stock ownership plan	34,000	847		—		—		847
Restricted stock granted	49,428	—		—		—		—
Restricted stock surrendered for tax withholdings upon vesting	(2,498)	(70)		—		—		(70)
Restricted stock forfeited / cancelled	(20,174)	—		—		—		—
Stock-based compensation - stock options	—	137		—		—		137
Stock-based compensation - restricted stock	—	217		—		—		217
Cash dividends paid on common stock ($0.50 per share)	—	—		(8,040)		—		(8,040)

Stock issued in payment of director fees	4,612	150		—		—		150


Balance at June 30, 2023	16,107,192	$	216,589	$	276,732	$	(69,380)	$	423,941
	Six months ended June 30, 2022
Balance at January 1, 2022	15,929,243	$	212,524	$	239,868	$	(2,024)	$	450,368
Net income	—	—		21,531		—		21,531
Other comprehensive loss, net of tax	—	—		—		(56,004)		(56,004)

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings	40,311	820		—		—		820
Stock issued under employee stock purchase plan	936	30		—		—		30
Stock issued under employee stock ownership plan	25,000	829		—		—		829
Restricted stock granted	46,672	—		—		—		—
Restricted stock surrendered for tax withholdings upon vesting	(1,169)	(40)		—		—		(40)
Restricted stock forfeited / cancelled	(13,267)	—		—		—		—
Stock-based compensation - stock options	—	115		—		—		115
Stock-based compensation - restricted stock	—	270		—		—		270
Cash dividends paid on common stock ($0.48 per share)	—	—		(7,662)		—		(7,662)

Stock issued in payment of director fees	5,149	193		—		—		193

Stock repurchased, including commissions	(23,275)	(877)		—		—		(877)
Balance at June 30, 2022	16,009,600	$	213,864	$	253,737	$	(58,028)	$	409,573
The accompanying notes are an integral part of these consolidated financial statements (unaudited).


	Three Months Ended June 30, 2023 Compared to Three Months Ended March 31, 2023								Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
(in thousands)	Volume		Yield/Rate		Mix		Total		Volume		Yield/Rate		Mix		Total
Interest-earning deposits with banks	$	(15)	$	9	$	(2)	$	(8)	$	(280)	$	3,735	$	(3,637)	$	(182)
Investment securities 1	(178)		88		(1)		(91)		1,053		3,653		251		4,957
Loans 1	(155)		170		270		285		(2,061)		3,944		(171)		1,712
Total interest-earning assets	(348)		267		267		186		(1,288)		11,332		(3,557)		6,487
Interest-bearing transaction accounts	(38)		18		—		(20)		(17)		467		(71)		379
Savings accounts	(22)		(4)		2		(24)		(6)		292		(31)		255
Money market accounts	(4)		3,177		34		3,207		(124)		5,303		(718)		4,461
Time accounts, including CDARS	86		453		184		723		2		1,054		32		1,088
Short-term borrowings and other obligations	1,827		165		165		2,157		775		8		6,805		7,588

Total interest-bearing liabilities	1,849		3,809		385		6,043		630		7,124		6,017		13,771
Changes in tax-equivalent net interest income	$	(2,197)	$	(3,542)	$	(118)	$	(5,857)	$	(1,918)	$	4,208	$	(9,574)	$	(7,284)
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%.