What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-07 compared with 2020-11-06 · 449 added, 509 removed, 595 unchanged (62% of the section changed)

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CONDITION

September 30, 2020 and December 31, 2019

March 31, 2021 and December 31, 2020

(in thousands, except share data;

unaudited) September 30, 2020 December 31, 2019

unaudited) March 31, 2021 December 31, 2020

Cash, cash equivalents and restricted cash $ 142,819 $ 200,320

Investment securities:

Held-to-maturity, at amortized cost 117,350 137,413

Available-for-sale, at fair value 413,464 432,260

Held-to-maturity, at amortized cost (net of zero allowance for credit losses at March 31, 2021 and December 31, 2020 )

151,970 109,036

Available-for-sale, at fair value (net of zero allowance for credit losses at March 31, 2021 and December 31, 2020 )

518,568 392,351

Total investment securities 670,538 501,387

Loans, net of allowance for loan losses of $ 22,113 and $ 16,677 at

September 30, 2020 and December 31, 2019, respectively

Loans, at amortized cost 2,121,772 2,088,556

Allowance for credit losses ( 19,958 ) ( 22,874 )

Loans, net of allowance for credit losses

2,101,814 2,065,682

23 unchanged sentences

Authorized - 30,000,000 shares;

Issued and outstanding - 13,605,363 and 13,577,008 at

September 30, 2020 and December 31, 2019, respectively

issued and outstanding - 13,326,509 and 13,500,453 at March 31, 2021 and December 31, 2020, respectively

118,386 125,905

6 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended Nine months ended

Three months ended

(in thousands, except per share amounts;

unaudited) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

unaudited) March 31, 2021 March 31, 2020

Interest income

12 unchanged sentences

Net interest income 22,031 24,119

Provision for loan losses 1,250 400 5,450 400

Net interest income after provision for loan losses 23,316 23,751 67,610 71,386

(Reversal of) provision for credit losses on loans ( 2,929 ) 2,200

Net interest income after (reversal of) provision for credit losses 24,960 21,919

Non-interest income

Service charges on deposit accounts 284 439 1,028 1,403

Wealth Management and Trust Services 488 504

Debit card interchange fees, net 383 406 1,051 1,200

Merchant interchange fees, net 63 79 183 253

Earnings on bank-owned life insurance 232 795 741 970

Debit card interchange fees 366 360

Service charges on deposit accounts 281 451

Earnings on bank-owned life insurance, net 257 275

Dividends on Federal Home Loan Bank stock 149 208

Merchant interchange fees 57 73

Gains on sale of investment securities, net — 800

4 unchanged sentences

Occupancy and equipment 1,751 1,663

Depreciation and amortization 539 573 1,591 1,701

Federal Deposit Insurance Corporation insurance 181 1 299 354

Data processing 822 923 2,437 2,942

Professional services 863 544

Directors' expense 184 189 533 555

Data processing 819 786

Depreciation and amortization 459 526

Information technology 313 250

Amortization of core deposit intangible 204 213

Provision for losses on off-balance sheet commitments 248 — 610 129

Federal Deposit Insurance Corporation insurance 179 2

Directors' expense 175 174

Charitable contributions 31 167

(Reversal of) provision for credit losses on unfunded loan commitments ( 590 ) 102

Other expense 1,410 1,565

9 unchanged sentences

Diluted 13,469 13,656

Comprehensive income:

Comprehensive income (loss):

Net income $ 8,947 $ 7,228

Other comprehensive income

Change in net unrealized gains or losses on available-for-sale securities 299 936 11,605 13,857

Other comprehensive (loss) income

Change in net unrealized gains on available-for-sale securities ( 9,082 ) 9,812

Reclassification adjustment for (gains) on available-for-sale securities included in net income — ( 800 )

Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity 143 110

Other comprehensive income, before tax 448 1,059 11,084 14,130

Deferred tax expense 132 313 3,277 4,182

Other comprehensive income, net of tax 316 746 7,807 9,948

Other comprehensive (loss) income, before tax ( 8,939 ) 9,122

Deferred tax (benefit) expense ( 2,644 ) 2,697

Other comprehensive (loss) income, net of tax ( 6,295 ) 6,425

Total comprehensive income $ 2,652 $ 13,653

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the three months ended September 30, 2020 and 2019

(in thousands, except share data;

unaudited) Common Stock Retained

Earnings Accumulated Other

Comprehensive Income (Loss),

Net of Taxes Total

Shares Amount

Three months ended September 30, 2020

Balance at July 1, 2020 13,591,835 $ 128,633 $ 211,613 $ 11,994 $ 352,240

Net income — — 7,491 — 7,491

Other comprehensive income — — — 316 316

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 207 — — — —

Stock issued under employee stock purchase plan 728 20 — — 20

Stock issued under employee stock ownership plan 10,200 319 — — 319

Restricted stock forfeited / cancelled ( 1,466 ) — — — —

Stock-based compensation - stock options — 88 — — 88

Stock-based compensation - restricted stock — 99 — — 99

Cash dividends paid on common stock ($ 0.23 per share)

— — ( 3,128 ) — ( 3,128 )

Stock purchased by directors under director stock plan 746 25 — — 25

Stock issued in payment of director fees 3,113 100 — — 100

Balance at September 30, 2020 13,605,363 $ 129,284 $ 215,976 $ 12,310 $ 357,570

Three months ended September 30, 2019

Balance at July 1, 2019 13,659,143 $ 132,151 $ 190,416 $ 5,100 $ 327,667

Net income — — 9,448 — 9,448

Other comprehensive income — — — 746 746

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 3,452 101 — — 101

Stock issued under employee stock purchase plan 265 10 — — 10

Stock issued under employee stock ownership plan 7,600 311 — — 311

Stock-based compensation - stock options — 98 — — 98

Stock-based compensation - restricted stock — 142 — — 142

Cash dividends paid on common stock ($ 0.21 per share)

— — ( 2,865 ) — ( 2,865 )

Stock purchased by directors under director stock plan 392 16 — — 16

Stock issued in payment of director fees 2,800 117 — — 117

Stock repurchased, net of commissions ( 65,127 ) ( 2,726 ) — — ( 2,726 )

Balance at September 30, 2019 13,608,525 $ 130,220 $ 196,999 $ 5,846 $ 333,065

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 nine months ended September 30, 2020 and 2019

For the three months ended March 31, 2021 and 2020

(in thousands, except share data;

1 unchanged sentence

Earnings Accumulated Other

Comprehensive Income (Loss),

Comprehensive Income,

Net of Taxes Total

Shares Amount

Nine months ended September 30, 2020

Three months ended March 31, 2021

Balance at January 1, 2021 13,500,453 $ 125,905 $ 219,747 $ 12,601 $ 358,253

Net income — — 8,947 — 8,947

Other comprehensive income — — — 7,807 7,807

Other comprehensive loss — — — ( 6,295 ) ( 6,295 )

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 17,180 38 — — 38

11 unchanged sentences

Stock repurchased, net of commissions ( 224,013 ) ( 8,511 ) — — ( 8,511 )

Balance at September 30, 2020 13,605,363 $ 129,284 $ 215,976 $ 12,310 $ 357,570

Nine months ended September 30, 2019

Balance at March 31, 2021 13,326,509 $ 118,386 $ 225,600 $ 6,306 $ 350,292

Three months ended March 31, 2020

Balance at January 1, 2020 13,577,008 $ 129,058 $ 203,227 $ 4,503 $ 336,788

14 unchanged sentences

Stock repurchased, net of commissions ( 92,664 ) ( 3,230 ) — — ( 3,230 )

Balance at September 30, 2019 13,608,525 $ 130,220 $ 196,999 $ 5,846 $ 333,065

Balance at March 31, 2020 13,565,969 $ 127,684 $ 207,328 $ 10,928 $ 345,940

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2020 and 2019

For the three months ended March 31, 2021 and 2020

(in thousands;

unaudited) September 30, 2020 September 30, 2019

unaudited) March 31, 2021 March 31, 2020

Cash Flows from Operating Activities:

1 unchanged sentence

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

Provision for loan losses 5,450 400

Provision for losses on off-balance sheet commitments 610 129

(Reversal of) provision for credit losses on loans ( 2,929 ) 2,200

(Reversal of) provision for credit losses on unfunded loan commitments ( 590 ) 102

Noncash contribution expense to employee stock ownership plan 332 324

2 unchanged sentences

Amortization of core deposit intangible 204 213

Amortization of investment security premiums (discounts), net 864 1,282

Amortization of acquired loan (discounts) premiums, net ( 101 ) ( 208 )

Amortization of investment security premiums, net of accretion of discounts 685 ( 93 )

Accretion of (discounts) premiums on acquired loans ( 33 ) 11

Accretion of discount on subordinated debenture 1,347 17

3 unchanged sentences

Earnings on bank-owned life insurance policies ( 257 ) ( 275 )

Net change in operating assets and liabilities:

Net changes in:

Interest receivable and other assets 2,901 293

3 unchanged sentences

Cash Flows from Investing Activities:

Purchase of held-to-maturity securities ( 41,607 ) —

Purchase of available-for-sale securities ( 151,828 ) ( 54,902 )

5 unchanged sentences

Purchase of premises and equipment ( 144 ) ( 146 )

Purchase of Federal Home Loan Bank stock — ( 616 )

Cash paid for low income housing tax credit investment ( 313 ) ( 1,251 )

Net cash (used in) provided by investing activities ( 222,381 ) 95,475

Net cash used in investing activities ( 205,775 ) ( 1,540 )

Cash Flows from Financing Activities:

Net increase in deposits 232,800 49,684

Net increase (decrease) in deposits 151,950 ( 29,379 )

Proceeds from stock options exercised 38 824

Payment of tax withholdings for stock options exercised and vesting of restricted stock ( 73 ) ( 220 )

Payment of tax withholdings for vesting of restricted stock ( 156 ) ( 73 )

Proceeds from stock issued under employee and director stock purchase plans 46 34

Stock repurchased, net of commissions ( 8,792 ) ( 3,333 )

Repayment of Federal Home Loan Bank borrowings — ( 7,000 )

Repayment of subordinated debenture including execution costs ( 4,126 ) —

Repayment of finance lease obligations ( 28 ) ( 45 )

Cash dividends paid on common stock ( 3,094 ) ( 3,127 )

Net cash provided by financing activities 221,260 21,589

Net increase in cash, cash equivalents and restricted cash 30,196 148,265

Net cash provided by (used in) financing activities 135,838 ( 35,099 )

Net decrease in cash, cash equivalents and restricted cash ( 57,501 ) ( 27,114 )

Cash, cash equivalents and restricted cash at beginning of period 200,320 183,388

6 unchanged sentences

Amortization of net unrealized loss on available-for-sale securities transferred to held-to-maturity $ 143 $ 110

Purchase of investment security not yet settled $ 10,000 $ —

Stock issued to employee stock ownership plan $ 332 $ 324

12 unchanged sentences

generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to those rules and regulations.

Certain items in prior financial statements have been reclassified to conform to the current presentation.

Although we believe that the disclosures are adequate and the information presented is not misleading, we suggest that these interim financial statements be read in conjunction with the annual financial statements and the notes thereto included in our 2020 Annual Report on Form 10-K.

5 unchanged sentences

Bancorp's investment in the securities of the Trust is accounted for under the equity method and is included in interest receivable and other assets on the consolidated statements of condition.

Refer to Note 6, Borrowings, for additional information on the subordinated debenture due to NorCal Community Bancorp Trust II.

Refer to Note 6, Borrowings, for additional information on the subordinated debenture due to NorCal Community Bancorp Trust II and the early redemption that occurred on March 15, 2021.

The following table shows:

9 unchanged sentences

Under the two-class method, the difference in EPS is nominal for these participating securities.

Three months ended Nine months ended

(in thousands, except per share data) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Weighted average basic shares outstanding 13,539 13,571 13,526 13,654

Three months ended

(in thousands, except per share data) March 31, 2021 March 31, 2020

Weighted average basic common shares outstanding 13,363 13,525

Potentially dilutive common shares related to:

5 unchanged sentences

Diluted EPS $ 0.66 $ 0.53

Weighted average anti-dilutive shares not included in the calculation of diluted EPS 202 39 152 34

Weighted average anti-dilutive common shares not included in the calculation of diluted EPS 80 70

Recently Adopted and Issued Accounting Standards

Accounting Standards Adopted in 2021

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement .

The amendments in this ASU remove, modify, and add disclosure requirements for the fair value reporting of assets and liabilities.

The modifications and additions relate to Level 3 fair value measurements at the end of the reporting period.

ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Entities should disclose and describe the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements.

We adopted this ASU prospectively effective January 1, 2020.

As the ASU’s requirements only relate to disclosures, the amendments did not impact our financial condition or results of operations.

Refer to Note 3, Fair Value of Assets and Liabilities, for additional disclosures.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract .

This standard aligns the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software regardless of whether they convey a license to the hosted software.

The accounting for the service element of a hosting arrangement that is a service contract is not affected by this ASU.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

An entity has the option to apply amendments in the ASU either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

We adopted this ASU prospectively on January 1, 2020, which did not impact our financial condition and results of operations.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The standard replaces the "incurred loss" model with a "current expected credit loss" ("CECL") model.

The CECL model applies to estimated credit losses on loans receivable, held-to-maturity debt securities, unfunded loan commitments, and certain other financial assets measured at amortized cost.

The CECL model is based on lifetime expected losses, rather than incurred losses, and requires the recognition of credit loss expense in the consolidated statement of income and a related allowance for credit losses on the consolidated statement of condition at the time of origination or purchase of a loan receivable or held-to-maturity debt security.

In addition, the CECL standard modifies the accounting for purchased loans and requires that an allowance for credit losses be established at the date of acquisition.

However, for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) that are measured at amortized cost, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense.

Subsequent changes in the allowance for credit losses on PCD assets are recognized through credit loss expense.

Under ASU 2016-13, available-for-sale debt securities are evaluated for impairment if fair value is less than amortized cost.

Estimated credit losses are recorded through a credit loss expense and an allowance, rather than a write-down of the investment.

Changes in fair value that are not credit-related will continue to be recorded in other comprehensive income.

The ASU also expands the disclosure requirements regarding assumptions, models, and methods for estimating the allowance for credit losses.

In addition, entities will disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

However, in accordance with the accounting relief provisions of the Coronavirus Aid, Relief and Economic Security ("CARES") Act passed in March 2020, we postponed the adoption of the CECL standard.

Implementation is delayed until the end of the national emergency or December 31, 2020, whichever occurs first.

Early CECL implementation activities focused on, among other things, capturing and validating data, segmenting the loan portfolio, evaluating various credit loss estimation methodologies, sourcing tools to forecast future economic conditions, running multiple loan loss driver analyses that correlate our credit loss experience with one or more economic factors, and evaluating the qualitative factor framework and assumptions.

Based on these activities, we determined that our primary credit loss methodology will utilize a discounted cash flow approach that considers the probability of default and loss given default.

Ongoing implementation activities included refining forecast methodologies, running parallel calculations, evaluating and validating results, and documenting internal controls.

The Bank has continued to run the CECL model in parallel with the incurred loss model and will adopt the CECL standard as of December 31, 2020.

Upon adoption of the CECL standard, we will record a cumulative adjustment to retained earnings in our financial statements, net of taxes, based on economic forecasts and other assumptions as of January 1, 2020.

That adjustment will result in an increase to our allowance for credit losses of approximately $ 1.6 million and an increase to the allowance for off-balance sheet commitments of approximately $ 122 thousand.

These adjustments do not include the subsequent COVID-19 pandemic-related impact.

Upon adoption on December 31, 2020, we will recognize the difference between the allowance for credit losses calculated under the CECL model as of December 31, 2020 and the allowance for credit losses calculated under the incurred loss model as of September 30, 2020 as a provision for credit losses and a provision for credit losses on off-balance sheet commitments, as applicable.

Based on information available at this time, we do not expect the fourth quarter provision for credit losses to exceed 10 % of the September 30, 2020 allowance for credit losses.

However, the exact amount will depend on certain forecasts, such as the California unemployment rate, and other assumptions available as of December 31, 2020, which could differ significantly from present levels.

In April 2019, the FASB issued ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments that clarifies and improves areas of guidance related to recently issued standards.

The provisions of this ASU under Topic 326 will be evaluated in conjunction with the adoption of ASU 2016-13, however, we do not expect it to have a material impact on our financial condition and results of operations.

All other provisions under this ASU were adopted as of January 1, 2020 and did not impact our financial condition and results of operations.

In May 2019, the FASB issued ASU No.

2019-05, Financial Instruments - Credit Losses (Topic 326):

Targeted Transition Relief .

This ASU allows an option for entities to irrevocably elect the fair value option on an instrument-by-instrument basis for eligible financial assets measured at amortized cost basis upon adoption of the credit loss standards.

This amendment provides relief for those entities electing the fair value option on newly originated or purchased financial assets, while maintaining existing similar financial assets at amortized cost, avoiding the requirement to maintain dual measurement methods for similar assets.

The fair value option does not apply to held-to-maturity debt securities.

The effective date for this ASU is the same as for ASU 2016-13, as discussed above.

We will evaluate this ASU in conjunction with the adoption of ASU 2016-13 to determine its impact on our financial condition and results of operations.

However, at this time we do not expect to elect the fair value option for our financial assets.

In November 2019, the FASB issued ASU No.

2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses .

This ASU, among other narrow-scope improvements, clarifies guidance around how to report expected recoveries.

“Expected recoveries” describes a situation in which an organization recognizes a full or partial write-off of the amortized cost basis of a financial asset, but then later determines that the amount written off, or a portion of that amount, will in fact be recovered.

This ASU permits organizations to record expected recoveries on PCD assets.

Additionally, this ASU reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities.

ASU 2019-11 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The amendments should be applied on a modified retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date of adoption.

The effective date for this ASU is the same as for ASU 2016-13, as discussed above.

We will evaluate this ASU in conjunction with the adoption of ASU 2016-13 to determine its impact on our financial condition and results of operations.

Accounting Standards Not Yet Effective

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

2019-12, Income Taxes (ASC Topic 740):

Simplifying the Accounting for Income Taxes .

This ASU is intended to reduce the cost and complexity related to accounting for income taxes by removing certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and simplifying aspects of the accounting for franchise taxes and enacted changes in tax laws or rates.

This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

Early adoption is permitted.

As this ASU is narrow in scope and applicability to us will likely be minimal, we do not expect that the ASU will have a material impact on our financial condition or results of operations.

This ASU is intended to reduce the cost and complexity related to accounting for income taxes by removing certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and simplifying aspects of the accounting for franchise taxes and enacted changes in tax laws or rates.

We adopted this ASU prospectively on January 1, 2021, which did not have a material impact on our financial condition or results of operations.

In January 2020, the FASB issued ASU No.

2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the

Interactions between Topic 321, Topic 323, and Topic 815 .

Among other things, this ASU clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, for the purposes of applying the measurement alternative in accordance with Topic 321.

This ASU is effective for fiscal years beginning after December 15, 2020.

Early adoption is permitted.

2020-01 should be applied prospectively at the beginning of the interim period that includes adoption.

We do not expect that the ASU will have a material impact on our financial condition or results of operations.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848) .

The amendments in this ASU are elective and provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform.

The amendments in this ASU provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The amendments in this ASU may be elected as of March 12, 2020 through December 31, 2022.

An entity may choose to elect the amendments in this update at an interim period subsequent to March 12, 2020 with adoption methods varying based on transaction type.

We have not elected to apply these amendments, however, we will assess the applicability of the ASU to us and continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.

2020-01, Investments - Equity Securities (ASC Topic 321), Investments - Equity Method and Joint Ventures (ASC Topic 323), and Derivatives and Hedging (ASC Topic 815) - Clarifying the Interactions between ASC 321, ASC 323, and ASC 815 .

Among other things, this ASU clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under ASC 323, for the purposes of applying the measurement alternative in accordance with ASC 321.

We adopted this ASU prospectively on January 1, 2021, which did not have a material impact on our financial condition or results of operations.

In October 2020, the FASB issued ASU No.

2 unchanged sentences

This ASU adds clarification to ASU 2017-08, which the Bank early-adopted in 2017, and delineates whether an entity with callable debt securities that have multiple call dates should amortize the amount above that which is repayable, to the next call date.

This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, on a prospective basis.

Early adoption is not permitted.

As this ASU is narrow in scope and for clarification purposes, we do not expect this ASU will have a material impact on our financial condition and results of operations.

We adopted this ASU prospectively on January 1, 2021.

Because this ASU was narrow in scope and for clarification purposes, it did not have a material impact on our financial condition and results of operations.

Accounting Standards Not Yet Effective

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848) .

The amendments in this ASU are elective and provide optional guidance for a limited period of time to ease the potential burden of accounting for, or recognizing the effects of reference rate reform.

The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The amendments in this ASU may be elected as of March 12, 2020 through December 31, 2022.

An entity may choose to elect the amendments in this update at an interim period subsequent to March 12, 2020 with adoption methods varying based on transaction type.

We have not elected to apply amendments at this time, however, will assess the applicability of this ASU to us as we continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.

In January 2021, the FASB issued ASU No.

2021-01, Reference Rate Reform (Topic 848).

The main amendments in this ASU are intended to clarify certain optional expedients and scope of derivative instruments.

The amendments are elective and effective immediately upon issuance of this ASU.

Amendments may be elected through December 31, 2022.

Fair Value of Assets and Liabilities

13 unchanged sentences

Changes in Fair Value Recorded In 1

September 30, 2020

March 31, 2021

Securities available-for-sale:

4 unchanged sentences

Obligations of state and political subdivisions 121,765 — 121,765 — OCI

Corporate bonds 5,789 — 5,789 — OCI

Derivative financial liabilities (interest rate contracts) 1,193 — 1,193 — NI

6 unchanged sentences

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

Corporate bonds 1,502 — 1,502 — OCI

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

5 unchanged sentences

agencies or government-sponsored agencies' debt securities, mortgage-backed securities, government agency-issued, privately-issued collateralized mortgage obligations, and corporate bonds.

As of September 30, 2020 and December 31, 2019, there were no Level 1 or Level 3 securities.

Held-to-maturity securities may be written down to fair value as a result of other-than-temporary impairment , and we did no t record any write-downs during the nine months ended September 30, 2020 or September 30, 2019.

As of March 31, 2021 and December 31, 2020, there were no Level 1 or Level 3 securities.

Held-to-maturity securities may be written down to fair value as a result of impairment through a provision for credit losses in investments securities.

We did no t record any write-downs during the three months ended March 31, 2021 or March 31, 2020.

Fair value of held-to-maturity securities is determined using the same techniques discussed above for available-for-sale securities.

2 unchanged sentences

Valuation adjustments may be made to reflect both our own credit risk and the counterparties’ credit risk in determining the fair value of the derivatives.

Level 2 inputs for the valuations are limited to observable market prices for London Interbank Offered Rate ("LIBOR") and Overnight Index Swap ("OIS") rates (for the very short term), quoted prices for LIBOR futures contracts, observable market prices for LIBOR and OIS swap rates, and one-month and three-month LIBOR basis spreads at commonly quoted intervals.

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

("OIS") rates (for the very short term), quoted prices for LIBOR futures contracts, observable market prices for LIBOR and OIS swap rates, and one-month and three-month LIBOR basis spreads at commonly quoted intervals.

Mid-market pricing of the inputs is used as a practical expedient in the fair value measurements.

3 unchanged sentences

Bank Composite rate and LIBOR for the closest maturity term corresponding to the duration of the swaps to derive the CVA.

A similar credit risk adjustment, correlated to the credit standing of the counterparty, is made

when collateral posted by the counterparty does not fully cover their liability to us.

A similar credit risk adjustment, correlated to the credit standing of the counterparty, is made when collateral posted by the counterparty does not fully cover their liability to us.

For further discussion on our methodology in valuing our derivative financial instruments, refer to Note 9, Derivative Financial Instruments and Hedging Activities.

1 unchanged sentence

These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets, such as impaired loans that are collateral dependent and other real estate owned ("OREO").

As of September 30, 2020 and December 31, 2019, we did no t carry any assets measured at fair value on a non-recurring basis.

As of March 31, 2021 and December 31, 2020, we did no t carry any assets measured at fair value on a non-recurring basis.

Disclosures about Fair Value of Financial Instruments

The table below is a summary of fair value estimates for financial instruments as of September 30, 2020 and December 31, 2019, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note).

The table below is a summary of fair value estimates for financial instruments as of March 31, 2021 and December 31, 2020, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note).

The carrying amounts in the following table are recorded in the consolidated statements of condition under the indicated captions.

1 unchanged sentence

Additionally, we held shares of Federal Home Loan Bank ("FHLB") of San Francisco stock and Visa Inc.

Class B common stock, both recorded at cost, as there was no impairment or changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer as of September 30, 2020 or December 31, 2019.

The values are discussed in Note 4, Investment Securities.

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

(in thousands) Carrying Amounts Fair Value Fair Value Hierarchy Carrying Amounts Fair Value Fair Value Hierarchy

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The value of unrecognized financial instruments is estimated based on the fee income associated with the commitments which, in the absence of credit exposure, is considered to approximate their settlement value.

The fair value of commitment fees was not material as of September 30, 2020 or December 31, 2019.

The fair value of commitment fees was not material as of March 31, 2021 or December 31, 2020.

Investment Securities

Our investment securities portfolio consists of obligations of state and political subdivisions, U.S.

Corporations, U.S.

federal government agencies such as Government National Mortgage Association ("GNMA") and Small Business Administration ("SBA"), U.S.

government-sponsored enterprises ("GSEs"), such as Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Farm Credit Banks Funding Corporation and FHLB.

We also invest in residential and commercial mortgage-backed securities (“MBS”/"CMBS")

and collateralized mortgage obligations (“CMOs”) issued or guaranteed by the GSEs, as reflected in the following table:

September 30, 2020 December 31, 2019

Amortized Fair Gross Unrealized Amortized Fair Gross Unrealized

(in thousands) Cost Value Gains (Losses) Cost Value Gains (Losses)

We also invest in residential and commercial mortgage-backed securities (“MBS”/"CMBS") and collateralized mortgage obligations (“CMOs”) issued or guaranteed by the GSEs, as reflected in the following table.

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

Held-to-maturity:

Amortized Cost 1

Allowance for Credit Losses Net Carrying Amount Gross Unrealized Fair Value

(in thousands) Gains (Losses)

March 31, 2021

Securities of U.S.

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MBS pass-through securities issued by FHLMC and FNMA $ 78,227 $ — $ 78,227 $ 3,283 $ — $ 81,510

SBA-backed securities 6,549 6,979 430 — 7,999 8,264 265 —

CMOs issued by FHLMC 30,207 — 30,207 1,105 ( 189 ) 31,123

CMOs issued by FNMA 7,305 — 7,305 347 — 7,652

SBA-backed securities 5,699 — 5,699 227 — 5,926

Debentures of government-sponsored agencies 29,950 — 29,950 — — 29,950

Obligations of state and political subdivisions 582 — 582 13 — 595

Total held-to-maturity $ 151,970 $ — $ 151,970 $ 4,975 $ ( 189 ) $ 156,756

December 31, 2020

Securities of U.S.

government-sponsored enterprises:

MBS pass-through securities issued by FHLMC and FNMA $ 65,579 $ — $ 65,579 $ 3,924 $ — $ 69,503

CMOs issued by FHLMC 27,201 — 27,201 1,441 — 28,642

CMOs issued by GNMA 1,230 1,235 5 — 3,763 3,816 53 —

Obligations of state and

political subdivisions 1,677 1,720 43 — 3,513 3,588 75 —

CMOs issued by FNMA 8,042 — 8,042 363 — 8,405

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

Obligations of state and political subdivisions 1,667 — 1,667 21 — 1,688

Total held-to-maturity $ 109,036 $ — $ 109,036 $ 6,149 $ — $ 115,185

1 Amortized cost and fair values exclude accrued interest receivable of $ 295 thousand and $ 366 thousand at March 31, 2021 and December 31, 2020, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

With regard to MBSs and CMOs issued or guaranteed by the GSEs, and SBA-backed securities, we expect to receive all the contractual principal and interest on these securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S.

Accordingly, no allowance for credit losses has been recorded for these securities.

With regard to securities issued by states and political subdivisions, management considers (i) issuer and/or guarantor credit ratings, (ii) historical probability of default and loss given default rates for given bond ratings and remaining maturity,(iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal credit review of the financial information, and (v) whether or not such securities have credit enhancements such as guarantees, contain a defeasance clause, or are pre-refunded by the issuers.

Based on the comprehensive analysis, no credit losses are expected.

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

(in thousands) Obligations of state and political subdivisions

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

Available-for-sale:

Amortized Cost 1

Gross Unrealized Allowance for Credit Losses Fair Value

(in thousands) Gains (Losses)

March 31, 2021

Securities of U.S.

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MBS pass-through securities issued by FHLMC and FNMA $ 65,871 $ 2,199 $ ( 56 ) $ — $ 68,014

SBA-backed securities 31,057 32,844 1,844 ( 57 ) 35,674 36,286 688 ( 76 )

CMOs issued by FNMA 18,285 18,961 676 — 22,702 23,092 390 —

CMOs issued by FHLMC 168,589 5,525 ( 948 ) — 173,166

CMOs issued by FNMA 21,663 537 ( 31 ) — 22,169

CMOs issued by GNMA 23,738 236 — — 23,974

SBA-backed securities 28,059 1,212 ( 53 ) — 29,218

Debentures of government- sponsored agencies 76,313 201 ( 2,041 ) — 74,473

Obligations of state and

political subdivisions 89,513 93,743 4,230 — 66,042 67,282 1,386 ( 146 )

Obligations of state and political subdivisions 118,118 3,842 ( 195 ) — 121,765

Corporate bonds 5,986 — ( 197 ) — 5,789

Total available-for-sale $ 508,337 $ 13,752 $ ( 3,521 ) $ — $ 518,568

Total investment securities $ 511,787 $ 537,447 $ 25,718 $ ( 58 ) $ 561,336 $ 571,902 $ 11,126 $ ( 560 )

The amortized cost a nd fair value of investment debt securities by contractual maturity at September 30, 2020 and December 31, 2019 are shown below.

December 31, 2020

Securities of U.S.

government-sponsored enterprises:

MBS pass-through securities issued by FHLMC and FNMA $ 50,686 $ 2,530 $ — $ — $ 53,216

CMOs issued by FHLMC 143,267 7,925 ( 1 ) — 151,191

CMOs issued by FNMA 16,450 580 — — 17,030

CMOs issued by GNMA 6,863 351 — — 7,214

SBA-backed securities 30,941 1,976 ( 55 ) — 32,862

Debentures of government- sponsored agencies 19,944 266 ( 24 ) — 20,186

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

Total available-for-sale $ 373,038 $ 19,393 $ ( 80 ) $ — $ 392,351

1 Amortized cost and fair value exclude accrued interest receivable of $ 1.9 million at both March 31, 2021 and December 31, 2020, which is included in interest receivable and other assets in the consolidated statements of condition.

The amortized cost a nd fair value of investment debt securities by contractual maturity at March 31, 2021 and December 31, 2020 are shown below.

Expected maturities may differ from contractual maturities if the issuers of the securities have the right to call or prepay obligations with or without call or prepayment penalties.

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Held-to-Maturity Available-for-Sale Held-to-Maturity Available-for-Sale

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

Three months ended Nine months ended

(in thousands) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Three months ended

(in thousands) March 31, 2021 March 31, 2020

Available-for-sale:

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Gross realized gains — 800

Gross realized losses — — ( 1 ) ( 159 )

Pledged investment securities are shown in the following table:

(in thousands) September 30, 2020 December 31, 2019

(in thousands) March 31, 2021 December 31, 2020

Pledged to the State of California:

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Total pledged investment securities $ 124,434 $ 132,431

Other-Than-Temporarily Impaired ("OTTI") Debt Securities

There were 8 and 40 securities in unrealized loss positions at September 30, 2020 and December 31, 2019, respectively.

There were 29 and 10 securities in unrealized loss positions at March 31, 2021 and December 31, 2020, respectively.

Those securities are summarized and classified according to the duration of the loss period in the tables below:

September 30, 2020 < 12 continuous months ≥ 12 continuous months Total securities

March 31, 2021 < 12 continuous months ≥ 12 continuous months Total securities

in a loss position

(in thousands) Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss

Held-to-maturity:

CMOs issued by FHLMC $ 4,235 $ ( 189 ) $ — $ — $ 4,235 $ ( 189 )

Total held-to-maturity 4,235 ( 189 ) — — 4,235 ( 189 )

Available-for-sale:

MBS pass-through securities issued by FHLMC and FNMA 10,013 ( 56 ) — — 10,013 ( 56 )

SBA-backed securities — — 1,699 ( 53 ) 1,699 ( 53 )

CMOs issued by FNMA 7,304 ( 31 ) — — 7,304 ( 31 )

CMOs issued by FHLMC 32,658 ( 948 ) — — 32,658 ( 948 )

Debentures of government- sponsored agencies 53,289 ( 2,041 ) — — 53,289 ( 2,041 )

Obligations of state and political subdivisions 28,529 ( 195 ) — — 28,529 ( 195 )

Corporate bonds 5,789 ( 197 ) — — 5,789 ( 197 )

Total available-for-sale 137,582 ( 3,468 ) 1,699 ( 53 ) 139,281 ( 3,521 )

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(in thousands) Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss

Held-to-maturity:

MBS pass-through securities issued by FHLMC and FNMA $ 14,203 $ ( 60 ) $ 6,073 $ ( 84 ) $ 20,276 $ ( 144 )

CMOs issued by FHLMC — — 1,725 ( 5 ) 1,725 ( 5 )

Total held-to-maturity 14,203 ( 60 ) 7,798 ( 89 ) 22,001 ( 149 )

Available-for-sale:

MBS pass-through securities issued by FHLMC and FNMA 4,367 ( 34 ) 4,464 ( 14 ) 8,831 ( 48 )

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

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

CMOs issued by GNMA 7,139 ( 6 ) — — 7,139 ( 6 )

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

Obligations of state and political subdivisions 20,579 ( 145 ) 659 ( 1 ) 21,238 ( 146 )

Corporate Bonds 500 ( 1 ) — — 500 ( 1 )

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

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

As of September 30, 2020, the investment portfolio included 5 investment securities that had been in a continuous loss position for twelve months or more and 3 investment securities that had been in a loss position for less than twelve months.

As of March 31, 2021, the investment portfolio included 5 investment securities that had been in a continuous loss position for twelve months or more and 24 investment securities that had been in a loss position for less than twelve months.

Securities issued by government-sponsored agencies, such as FNMA and FHLMC, usually have implicit credit support by the U.S.

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federal government, which protects us from credit losses on the contractual cash flows of the securities.

We routinely perform internal analyses of latest financial information of the issuers of obligations of state and political subdivisions, their credit ratings by major credit agencies, and/or credit enhancements.

Based on our comprehensive analyses, we determined that the decline in the fair values of obligations of state and political subdivisions and corporate bonds as of December 31, 2019 were primarily driven by factors other than credit, such as changes in market interest rates and liquidity spreads subsequent to purchase.

At September 30, 2020, Management determined that it did not intend to sell any investment securities with unrealized losses, and it is more likely than not that we will not be required to sell securities with unrealized losses before recovery of their amortized cost.

Therefore, we do not consider these investment securities to be other-than-temporarily impaired at September 30, 2020.

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

At March 31, 2021, management determined that it did not intend to sell any investment securities with unrealized losses, and it is more likely than not that we will not be required to sell securities with unrealized losses before recovery of their amortized cost.

Therefore, no allowances for credit losses has been recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality at March 31, 2021.

Non-Marketable Securities Included in Other Assets

FHLB Capital Stock

As a member of the FHLB, we are required to maintain a minimum investment in FHLB capital stock determined by the Board of Directors of the FHLB.

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Shares cannot be purchased or sold except between the FHLB and its members at the $ 100 per share par value.

We held $ 11.9 million and $ 11.7 million of FHLB stock included in other assets on the consolidated statements of condition at September 30, 2020 and December 31, 2019, respectively.

We held $ 11.9 million of FHLB stock included in other assets on the consolidated statements of condition at both March 31, 2021 and December 31, 2020.

The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks and they do not have a readily determinable market value.

Based on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock was not impaired at September 30, 2020 and December 31, 2019.

On October 29, 2020, FHLB announced a cash dividend for the third quarter of 2020 at an annualized dividend rate of 5.00 % to be distributed in mid-November 2020.

Based on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock was not impaired at March 31, 2021 and December 31, 2020.

On April 29, 2021, FHLB announced a cash dividend for the first quarter of 2021 at an annualized dividend rate of 6.00 % to be distributed in mid-May 2021.

Cash dividends paid on FHLB capital stock are recorded as non-interest income.

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 September 30, 2020 and December 31, 2019.

Class B common stock at March 31, 2021 and December 31, 2020.

These shares have a carrying value of zero and are restricted from resale to non-member banks of Visa U.S.A.

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Because of the restriction and the uncertainty on the conversion rate to Class A shares, these shares lack a readily determinable fair value.

When converting this Class B common stock to Class A common stock based on the conversion rate of 1.6228 both at September 30, 2020 and December 31, 2019, and the closing stock price of Class A shares at those respective dates, the converted value of our shares of Class B common stock would have been $ 3.4 million and $ 3.2 million at September 30, 2020 and December 31, 2019, respectively.

When converting this Class B common stock to Class A common stock based on the estimated conversion rate of 1.6228 both at March 31, 2021 and December 31, 2020, and the closing stock price of Class A shares at those respective dates, the converted value of our shares of Class B common stock would have been $ 3.6 million and $ 3.7 million at March 31, 2021 and December 31, 2020, respectively.

The conversion rate is subject to further adjustment upon the final settlement of the covered litigation against Visa Inc.

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For further information, refer to Note 8, Commitments and Contingencies.

We invest in low-income housing tax credit funds as a limited partner, which totaled $ 3.7 million and $ 4.1 million recorded in other assets as of September 30, 2020 and December 31, 2019, respectively.

In the first nine months of 2020, we recognized $ 490 thousand of low-income housing tax credits and other tax benefits, offset by $ 412 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense.

As of September 30, 2020, our unfunded commitments for these low-income housing tax credit funds totaled $ 886 thousand.

We did no t recognize any impairment losses on these low-income housing tax credit investments during the first nine months of 2020 or 2019, as the value of the future tax benefits exceeds the carrying value of the investments.

Loans and Allowance for Loan Losses

Credit Quality of Loans

The following table shows outstanding loans by class and payment aging as of September 30, 2020 and December 31, 2019.

Loan Aging Analysis by Class

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Total

September 30, 2020

30-59 days past due $ 198 $ — $ — $ — $ 217 $ — $ — $ 415

60-89 days past due — — — — 276 — 7 283

90 days or more past due — — — — — — — —

Total past due 198 — — — 493 — 7 698

Current 512,775 299,754 966,517 66,663 106,871 130,915 23,798 2,107,293

Total loans 1

$ 512,973 $ 299,754 $ 966,517 $ 66,663 $ 107,364 $ 130,915 $ 23,805 $ 2,107,991

Non-accrual loans 2

$ — $ — $ 886 $ — $ 532 $ — $ 24 $ 1,442

December 31, 2019

30-59 days past due $ 1 $ — $ 1,001 $ — $ 279 $ — $ 7 $ 1,288

60-89 days past due — — — — 98 — 95 193

90 days or more past due — — — — 167 — — 167

Total past due 1 — 1,001 — 544 — 102 1,648

Current 246,686 308,824 945,316 61,095 115,480 136,657 27,580 1,841,638

Total loans 1

$ 246,687 $ 308,824 $ 946,317 $ 61,095 $ 116,024 $ 136,657 $ 27,682 $ 1,843,286

Non-accrual loans 2

Low Income Housing Tax Credits

We invest in low-income housing tax credit funds as a limited partner, which totaled $ 3.4 million and $ 3.5 million recorded in other assets as of March 31, 2021 and December 31, 2020, respectively.

In the first three months of 2021, we recognized $ 160 thousand of low-income housing tax credits and other tax benefits, offset by $ 135 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense.

As of March 31, 2021, our unfunded commitments for these low-income housing tax credit funds totaled $ 508 thousand.

We did no t recognize any impairment losses on these low-income housing tax credit investments during the first three months of 2021 or 2020, as the value of the future tax benefits exceeds the carrying value of the investments.

Loans and Allowance for Credit Losses

Under the accounting relief provisions of the Coronavirus Aid, Relief and Economic Security ("CARES") Act passed in March 2020, we postponed the adoption of the CECL standard form January 1, 2020 to December 31, 2020.

Upon adoption we used a modified retrospective method effective October 1, 2020 (the beginning of the first reporting period in which the standard was effective due to the postponement of CECL) through a cumulative adjustment to retained earnings.

The cumulative adjustment to retained earnings was recorded, net of taxes, based on economic forecasts and other assumptions as of December 31, 2019.

Results for reporting periods beginning after September 30, 2020 have been presented under the new standard while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Certain prior period credit quality disclosures related to impaired loans and individually and collectively evaluated loans were superseded with the CECL accounting standards and have not been included below.

Refer to Notes 1 and 3 under Part II, Item 8, of our 2020 Form 10-K for for additional information regarding the adoption of CECL.

In addition, refer to Note 5 under Part I, Item 1, of our March 31, 2020 Form 10-Q for prior period information.

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

(in thousands) March 31, 2021 December 31, 2020

Commercial and industrial $ 545,069 $ 498,408

Commercial owner-occupied 308,266 304,963

Commercial investor-owned 955,021 961,208

Construction 71,066 73,046

Home equity 96,575 104,813

Other residential 124,383 123,395

Installment and other consumer loans 21,392 22,723

Total loans, at amortized cost 1

2,121,772 2,088,556

1 Amounts include net deferred loan origination (fees) costs of $( 5.1 ) million (including $ 6.5 million in deferred SBA PPP loan fees, net of costs) and $ 983 thousand at September 30, 2020 and December 31, 2019, respectively.

Amounts are also net of unaccreted purchase discounts on non-PCI loans of $ 878 thousand at September 30, 2020 and $ 983 thousand at December 31, 2019.

2 There were no loans past due more than ninety days accruing interest at September 30, 2020 or December 31, 2019.

We generally make commercial loans to established small and mid-sized businesses to provide financing for their growth and working capital needs, equipment purchases and acquisitions.

Allowance for credit losses on loans ( 19,958 ) ( 22,874 )

Total loans, net $ 2,101,814 $ 2,065,682

1 Amortized cost includes net deferred loan origination fees of $( 6.7 ) million and $( 4.9 ) million at March 31, 2021 and December 31, 2020, respectively.

Amounts are also net of unrecognized purchase discounts of $ 782 thousand and $ 815 thousand at March 31, 2021 and December 31, 2020, respectively.

Amortized cost excludes accrued interest, which totaled $ 8.5 million and $ 8.8 million at March 31, 2021 and December 31, 2020, respectively, and is included in interest receivable and other assets in the consolidated statements of condition.

Lending Risks

Commercial and Industrial Loans - Commercial loans are generally made to established small and mid-sized businesses to provide financing for their growth and working capital needs, equipment purchases and acquisitions.

Management examines historical, current, and projected cash flows to determine the ability of the borrower to repay obligations as agreed.

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

Pursuant to the CARES Act, the Bank funded over 1,800 loans to eligible small businesses and non-profit organizations who participated in the Paycheck Protection Program (“PPP”) administered by the U.S.

Small Business Administration (“SBA”).

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

In April 2020, the Bank began participating in the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP").

As of March 31, 2021, there were 2,513 PPP loans outstanding.

PPP loans totaling $ 365.0 million (net of $ 8.0 million in unrecognized fees and costs) and $ 291.6 million (net of $ 5.4 million in unrecognized fees and costs) as of March 31, 2021 and December 31, 2020, respectively, were included in commercial and industrial loan balances.

Of the PPP loans outstanding as of March 31, 2021, 841 loans totaling $ 119.5 million funded during the first quarter of 2021 under the second round of the PPP stimulus plan.

PPP loans have terms of two to five years and earn interest at 1%.

In addition, the Bank received a fee of 1%-5% from the SBA depending on the loan amount, which was netted with loan origination costs and amortized into interest income under the effective yield method over the contractual life of the loan.

The recognition of fees and costs is accelerated when the loan is forgiven by the SBA and/or paid off prior to maturity.

PPP loans are fully guaranteed by the SBA and are expected to be forgiven by the SBA if they meet the requirements of the program.

PPP loans totaling $ 301.7 million at September 30, 2020 are included in commercial and industrial loan balances.

The Bank ended its origination of new PPP loans on June 30, 2020.

On June 5, 2020, the PPP Flexibility Act was signed into law that modified, among other things, rules governing the PPP payment deferral period.

In October 2020, due to the continued delay in the PPP forgiveness process, the Bank modified the first payment due dates for PPP loans that originated prior to June 5, 2020 and extended the payment deferral period from six to sixteen months .

The extended payment deferral period will affect the timing over which the accretion of PPP net loan origination fees are recognized.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans discussed above.

In addition, the SBA paid the Bank a fee of 1%-5% depending on the loan amount, which was netted with loan origination costs and accreted/amortized into interest income using the effective yield method over the contractual life of each loan.

The recognition of fees and costs is accelerated when the SBA forgives the loan and/or the loan is paid off prior to maturity.

PPP loans are fully

guaranteed by the SBA and have virtually no risk of loss.

We expect the vast majority of the PPP loans to be fully forgiven by the SBA.

Commercial Real Estate Loans - Commercial real estate loans, which include income producing investment properties and owner-occupied real estate used for business purposes, are subject to underwriting standards and processes similar to commercial loans discussed above.

We underwrite these loans to be repaid from cash flow and to be supported by real property collateral.

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Furthermore, a large majority of our loans are guaranteed by the owners of the properties.

Conditions in the real estate markets or in the general economy may adversely affect our commercial real estate loans.

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.

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As such, we have generally experienced a relatively low level of loss and delinquencies in this portfolio.

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 - 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.

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Repayment of construction loans is largely dependent on the ultimate success of the project.

Consumer loans primarily consist of home equity lines of credit, other residential loans and floating homes, along with a small number of installment loans.

Consumer Loans - Consumer loans primarily consist of home equity lines of credit, other residential loans and floating homes along with a small number of installment loans.

Our other residential loans include tenancy-in-common fractional interest loans ("TIC") located almost entirely in San Francisco County.

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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.

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Our internally assigned grades are as follows:

Pass and Watch :

Loans to borrowers of acceptable or better credit quality.

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.

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“Watch” is intended to be a transitional grade, with either an upgrade or downgrade within a reasonable period.

Special Mention :

Potential weaknesses that deserve close attention.

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.

Substandard - Inadequately protected by either the current sound worth and paying capacity of the obligor or the collateral pledged, if any.

A Substandard asset has a well-defined weakness or weaknesses that jeopardize(s) the liquidation of the debt.

Substandard assets are characterized by the distinct possibility that we will sustain some loss if such weaknesses or deficiencies are not corrected.

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.

Critical weaknesses that make collection or liquidation in full improbable.

Doubtful - Critical weaknesses that make collection or liquidation in full improbable.

There may be specific pending events that work to strengthen the asset;

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We also review loans graded “Watch” or worse, regardless of loan type, no less than quarterly.

The following table represents an analysis of the carrying amount in loans, net of deferred fees and costs and purchase premiums or discounts, by internally assigned risk grades, at September 30, 2020 and December 31, 2019.

Credit Risk Profile by Internally Assigned Risk Grade

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Total

September 30, 2020

The following tables present the loan portfolio by loan class, origination year and internal risk rating as of March 31, 2021 and December 31, 2020.

Generally, existing term loans that were re-underwritten are reflected in the table in the year of renewal.

Lines of credit that have a conversion feature at the time of origination, such as construction to perm loans, are presented by year of origination.

(in thousands) Term Loans - Amortized Cost by Origination Year Revolving Loans Amortized Cost

March 31, 2021 2021 2020 2019 2018 2017 Prior Total

Commercial and industrial:

Pass $ 116,598 $ 264,838 $ 21,201 $ 11,692 $ 4,111 $ 36,865 $ 76,742 $ 532,047

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Substandard — 1,649 390 — — — 496 2,535

Total loans $ 512,973 $ 299,754 $ 966,517 $ 66,663 $ 107,364 $ 130,915 $ 23,805 $ 2,107,991

December 31, 2019

Total commercial and industrial $ 116,598 $ 266,487 $ 22,403 $ 12,290 $ 4,226 $ 36,873 $ 86,192 $ 545,069

Commercial real estate, owner-occupied:

Pass $ 10,035 $ 30,459 $ 27,147 $ 41,816 $ 41,962 $ 110,896 $ — $ 262,315

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Substandard — 7,147 297 — — 6,205 — 13,649

Total commercial real estate, owner-occupied $ 10,035 $ 37,606 $ 27,444 $ 44,179 $ 59,038 $ 129,964 $ — $ 308,266

Commercial real estate, investor-owned:

Pass $ 29,585 $ 161,213 $ 146,537 $ 170,153 $ 87,813 $ 336,840 $ 110 $ 932,251

Special Mention — — 6,808 — 1,811 4,581 — 13,200

Substandard — — 2,715 4,428 — 2,427 — 9,570

Total commercial real estate, investor-owned $ 29,585 $ 161,213 $ 156,060 $ 174,581 $ 89,624 $ 343,848 $ 110 $ 955,021

Construction:

Pass $ 6,533 $ 29,510 $ 26,108 $ 8,915 $ — $ — $ — $ 71,066

Special Mention — — — — — — — —

Substandard — — — — — — — —

Total construction $ 6,533 $ 29,510 $ 26,108 $ 8,915 $ — $ — $ — $ 71,066

Pass $ — $ — $ — $ — $ — $ 793 $ 95,115 $ 95,908

Special Mention — — — — — — — —

Substandard — — — — — 388 279 667

Total home equity $ — $ — $ — $ — $ — $ 1,181 $ 95,394 $ 96,575

Other residential:

Pass $ 5,524 $ 33,498 $ 29,371 $ 23,363 $ 10,520 $ 22,107 $ — $ 124,383

Special Mention — — — — — — — —

Substandard — — — — — — — —

Total other residential $ 5,524 $ 33,498 $ 29,371 $ 23,363 $ 10,520 $ 22,107 $ — $ 124,383

Installment and other consumer:

Pass $ 1,757 $ 2,169 $ 3,334 $ 3,076 $ 1,260 $ 8,111 $ 1,685 $ 21,392

Special Mention — — — — — — — —

Substandard — — — — — — — —

Total installment and other consumer $ 1,757 $ 2,169 $ 3,334 $ 3,076 $ 1,260 $ 8,111 $ 1,685 $ 21,392

(in thousands) Term Loans - Amortized Cost by Origination Year Revolving Loans Amortized Cost

March 31, 2021 2021 2020 2019 2018 2017 Prior Total

Pass $ 170,032 $ 521,687 $ 253,698 $ 259,015 $ 145,666 $ 515,612 $ 173,652 $ 2,039,362

Total Special Mention $ — $ — $ 7,620 $ 2,961 $ 19,002 $ 17,452 $ 8,954 $ 55,989

Total Substandard $ — $ 8,796 $ 3,402 $ 4,428 $ — $ 9,020 $ 775 $ 26,421

Totals $ 170,032 $ 530,483 $ 264,720 $ 266,404 $ 164,668 $ 542,084 $ 183,381 $ 2,121,772

(in thousands) Term Loans - Amortized Cost by Origination Year Revolving Loans Amortized Cost

December 31, 2020 2020 2019 2018 2017 2016 Prior Total

Commercial and industrial:

Pass $ 308,237 $ 22,589 $ 12,596 $ 4,508 $ 5,915 $ 34,282 $ 85,889 $ 474,016

Special Mention — 2,034 1,318 141 11 49 19,092 22,645

Substandard 1,747 — — — — — — 1,747

Total commercial and industrial $ 309,984 $ 24,623 $ 13,914 $ 4,649 $ 5,926 $ 34,331 $ 104,981 $ 498,408

Commercial real estate, owner-occupied:

Pass $ 31,029 $ 27,581 $ 32,603 $ 43,843 $ 12,768 $ 101,014 $ — $ 248,838

Special Mention — — 11,764 17,062 7,343 6,601 — 42,770

Substandard 7,147 — — — 6,208 — — 13,355

Total commercial real estate, owner-occupied $ 38,176 $ 27,581 $ 44,367 $ 60,905 $ 26,319 $ 107,615 $ — $ 304,963

Commercial real estate, investor-owned:

Pass $ 162,300 $ 144,751 $ 173,955 $ 100,842 $ 94,862 $ 253,611 $ 117 $ 930,438

Special Mention — 10,695 — 1,819 — 8,124 — 20,638

Substandard — 2,716 4,435 — 1,553 1,428 — 10,132

Total commercial real estate, investor-owned $ 162,300 $ 158,162 $ 178,390 $ 102,661 $ 96,415 $ 263,163 $ 117 $ 961,208

Construction:

Pass $ 31,654 $ 30,150 $ 11,242 $ — $ — $ — $ — $ 73,046

Special Mention — — — — — — — —

Substandard — — — — — — — —

Total construction $ 31,654 $ 30,150 $ 11,242 $ — $ — $ — $ — $ 73,046

Pass $ — $ — $ — $ — $ 128 $ 694 $ 102,614 $ 103,436

Special Mention — — — — — — 799 799

Substandard — — — — — 391 187 578

Total home equity $ — $ — $ — $ — $ 128 $ 1,085 $ 103,600 $ 104,813

Other residential:

Pass $ 34,447 $ 31,079 $ 23,673 $ 10,574 $ 6,035 $ 17,587 $ — $ 123,395

Special Mention — — — — — — — —

Substandard — — — — — — — —

Total other residential $ 34,447 $ 31,079 $ 23,673 $ 10,574 $ 6,035 $ 17,587 $ — $ 123,395

Installment and other consumer:

Pass $ 2,361 $ 4,382 $ 3,483 $ 1,543 $ 3,423 $ 4,921 $ 2,593 $ 22,706

Special Mention — — — — — — — —

Substandard — — — 17 — — — 17

Total installment and other consumer $ 2,361 $ 4,382 $ 3,483 $ 1,560 $ 3,423 $ 4,921 $ 2,593 $ 22,723

Pass $ 570,028 $ 260,532 $ 257,552 $ 161,310 $ 123,131 $ 412,109 $ 191,213 $ 1,975,875

Total Special Mention $ — $ 12,729 $ 13,082 $ 19,022 $ 7,354 $ 14,774 $ 19,891 $ 86,852

Total Substandard $ 8,894 $ 2,716 $ 4,435 $ 17 $ 7,761 $ 1,819 $ 187 $ 25,829

Totals $ 578,922 $ 275,977 $ 275,069 $ 180,349 $ 138,246 $ 428,702 $ 211,291 $ 2,088,556

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

Loan Aging Analysis by Class

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Total

March 31, 2021

30-59 days past due $ — $ — $ 791 $ — $ 120 $ — $ 136 $ 1,047

60-89 days past due — — — — 96 — — 96

90 days or more past due — — 878 — — — — 878

Total past due — — 1,669 — 216 — 136 2,021

Current 545,069 308,266 953,352 71,066 96,359 124,383 21,256 2,119,751

Total loans 1

$ 545,069 $ 308,266 $ 955,021 $ 71,066 $ 96,575 $ 124,383 $ 21,392 $ 2,121,772

Non-accrual loans 2

$ — $ 7,147 $ 1,603 $ — $ 455 $ — $ — $ 9,205

Non-accrual loans with no allowance $ — $ 7,147 $ 1,603 $ — $ 455 $ — $ — $ 9,205

December 31, 2020

30-59 days past due $ — $ — $ 1,673 $ — $ 274 $ — $ 136 $ 2,083

60-89 days past due — — — — — — 622 622

90 days or more past due — — — — — — — —

Total past due — — 1,673 — 274 — 758 2,705

Current 498,408 304,963 959,535 73,046 104,539 123,395 21,965 2,085,851

Total loans 1

$ 498,408 $ 304,963 $ 961,208 $ 73,046 $ 104,813 $ 123,395 $ 22,723 $ 2,088,556

Non-accrual loans 2

$ — $ 7,147 $ 1,610 $ — $ 459 $ — $ 17 $ 9,233

Non-accrual loans with no allowance $ — $ 7,147 $ 1,610 $ — $ 459 $ — $ 17 $ 9,233

1 There were no loans past due more than ninety days accruing interest at March 31, 2021 or December 31, 2020.

2 None of the non-accrual loans as of March 31, 2021 or December 31, 2020 were earning interest on a cash basis.

We recognized no interest income on non-accrual loans for the three months ended March 31, 2021 and 2020.

There were no new loans placed on non accrual status during the three months ended March 31, 2021.

Accrued interest of $ 13 thousand was reversed from interest income for loans that were placed on non-accrual status during the three months ended March 31, 2020.

Collateral Dependent Loans

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

Amortized Cost by Collateral Type

(in thousands) Commercial Real Estate Residential Real Estate Other Total Allowance for Credit Losses

March 31, 2021

Commercial real estate, owner-occupied $ 7,147 $ — $ — $ 7,147 $ —

Commercial real estate, investor-owned 1,603 — — 1,603 —

Home equity — 454 — 454 —

Total $ 8,750 $ 454 $ — $ 9,204 $ —

December 31, 2020

Commercial real estate, owner-occupied $ 7,147 $ — $ — $ 7,147 $ —

Commercial real estate, investor-owned 1,610 — — 1,610 —

Home equity — 459 — 459 —

Installment and other consumer — — 17 17 —

Total $ 8,757 $ 459 $ 17 $ 9,233 $ —

No collateral-dependent loans were in process of foreclosure at March 31, 2021 or December 31, 2020.

In addition, the weighted average loan-to-value of collateral dependent loans was approximately 59.2 % at both March 31, 2021 and December 31, 2020.

Troubled Debt Restructuring

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These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions.

TDRs on non-accrual status at the time of restructure may be returned to accruing status after Management considers the borrower’s sustained repayment performance for a reasonable period, generally nine months, and obtains reasonable assurance of repayment and performance.

TDRs on non-accrual status at the time of restructure may be returned to

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

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

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

The same Management level that approved the loan classification upgrade must approve the removal of TDR status.

There were no loans removed from TDR designation during the nine months ended September 30, 2020.

There was one commercial loan with a recorded investment of $ 3 thousand removed from TDR designation during the nine months ended September 30, 2019 after meeting all of the conditions above.

Section 4013 of the CARES Act provided optional, temporary relief from evaluating loans that may have been considered TDRs under GAAP.

This relief applies to loan modifications executed between March 1, 2020 and the earlier of 60 days after the national emergency is terminated or December 31, 2020.

The Bank elected to apply these temporary accounting provisions to payment relief loans beginning in March 2020.

The Bank approved 264 loan modifications for full payment deferral or interest-only payments for up to 120 days on loan balances exceeding $ 388.5 million.

As of October 19, 2020, 20 loans totaling $ 47.2 million had either requested additional payment relief or the relief period had not expired.

There were no loans removed from TDR designation during the three months ended March 31, 2021 and 2020.

In accordance with section 4013 of the CARES Act, subsequently amended by section 541 of the Economic Aid Act, we elected to apply the temporary accounting relief provisions for loan modifications that met certain criteria, which would otherwise be designated TDRs under existing GAAP.

As of March 31, 2021, 13 borrowing relationships with 20 loans totaling $ 65.4 million were continuing to benefit from payment relief.

Subsequent to quarter end and prior to the filing of this report, two relationships with three loans totaling $ 6.2 million transitioned out of the payment relief program and began making normal contractual payments.

The weighted average loan-to-value ratio of the remaining payment relief loans was 40 %.

We accrue and recognize interest income on loans under payment relief based on the original contractual interest rates.

When payments resume at the end of the relief period, the payments will generally be applied to accrued interest due until accrued interest is fully paid.

The following table summarizes the carrying amount of TDR loans by loan class as of September 30, 2020 and December 31, 2019.

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

(in thousands)

Recorded Investment in Troubled Debt Restructurings 1

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Commercial and industrial $ 854 $ 1,021

2 unchanged sentences

Home equity 277 281

Other residential — 452

Installment and other consumer 756 752

Total $ 10,775 $ 12,506

1 There was one acquired home equity TDR loan with a recorded investment of $ 276 thousand as of September 30, 2020.

There were no acquired TDR loans as of December 31, 2019.

TDR loans on non-accrual status totaled $ 300 thousand and $ 58 thousand at September 30, 2020 and December 31, 2019, respectively.

1 TDR loans on non-accrual status totaled $ 7.4 million at both March 31, 2021 and December 31, 2020.

Unfunded commitments for TDR loans totaled $ 845 thousand a s of March 31, 2021

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

1 unchanged sentence

(dollars in thousands) Number of Contracts Modified Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment at Period End

TDRs during the three months ended September 30, 2020:

Commercial real estate, investor-owned 1 $ 1,553 $ 1,553 $ 1,553

TDRs during the three months ended September 30, 2019:

TDRs during the three months ended March 31, 2021:

None — $ — $ — $ —

TDRs during the nine months ended September 30, 2020:

TDRs during the three months ended March 31, 2020:

Commercial and industrial 1 $ 170 $ 162 $ 144

Commercial real estate, investor-owned 1 1,553 1,553 1,553

Home equity 1 276 276 276

Installment and other consumer 2 103 103 103

6 $ 2,210 $ 2,202 $ 2,163

TDRs during the nine months ended September 30, 2019:

Commercial and industrial 1 $ 298 $ 298 $ 173

Total 3 $ 273 $ 265 $ 247

The loans modified in 2020 reflected debt consolidation, interest rate concessions, and/or other loan term and payment modifications.

The loan modified during the first nine months of 2019 reflected a maturity extension and interest rate concession.

During the nine months ended September 30, 2020 and 2019, there were no defaults on loans that had been modified in a TDR within the prior twelve-month period.

During the three months ended March 31, 2021 and 2020, there were no defaults on loans that had been modified in a TDR within the prior twelve-month period.

We report defaulted TDRs based on a payment default definition of more than ninety days past due.

Impaired Loans

The following tables summarize information by class on impaired loans and their related allowances.

Total impaired loans include non-accrual loans and accruing TDR loans.

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Total

September 30, 2020

Recorded investment in impaired loans:

With no specific allowance recorded $ 291 $ — $ 885 $ — $ 532 $ — $ 89 $ 1,797

With a specific allowance recorded 726 7,003 3,310 — 251 — 680 11,970

Total recorded investment in impaired loans $ 1,017 $ 7,003 $ 4,195 $ — $ 783 $ — $ 769 $ 13,767

Unpaid principal balance of impaired loans $ 1,012 $ 6,993 $ 4,187 $ — $ 801 $ — $ 767 $ 13,760

Specific allowance 19 225 697 — 4 — 161 1,106

Average recorded investment in impaired loans during the quarter ended

September 30, 2020 798 7,002 3,430 — 829 — 774 12,833

Interest income recognized on impaired loans during the quarter ended

September 30, 2020 1

11 64 30 — 3 — 7 115

Average recorded investment in impaired loans during the nine months ended

September 30, 2020 948 7,000 2,832 — 740 225 730 12,475

Interest income recognized on impaired loans during the nine months ended

September 30, 2020 1

32 197 68 — 10 4 22 333

Average recorded investment in impaired loans during the quarter ended

September 30, 2019 1,324 7,000 1,791 684 413 456 659 12,327

Interest income recognized on impaired loans during the quarter ended

September 30, 2019 1

16 67 20 400 9 4 6 522

Average recorded investment in impaired loans during the nine months ended

September 30, 2019 1,495 6,998 1,804 1,687 497 458 670 13,609

Interest income recognized on impaired loans during the nine months ended September 30, 2019 1

56 199 59 456 42 14 18 844

1 No interest income was recognized on a cash basis during the three and nine months ended September 30, 2020.

Interest income recognized on a cash basis of $ 393 thousand and $ 416 thousand during the respective three and nine months ended September 30, 2019 was related to a principal payment applied to interest collected but unrecognized on a former non-accrual land development loan and the pay-off of three non-accrual loans.

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Total

December 31, 2019

Recorded investment in impaired loans:

With no specific allowance recorded $ 349 $ — $ — $ — $ 167 $ 452 $ 98 $ 1,066

With a specific allowance recorded 874 6,998 1,770 — 251 — 541 10,434

Total recorded investment in impaired loans $ 1,223 $ 6,998 $ 1,770 $ — $ 418 $ 452 $ 639 $ 11,500

Unpaid principal balance of impaired loans $ 1,209 $ 6,992 $ 1,764 $ — $ 417 $ 451 $ 638 $ 11,471

Specific allowance $ 103 $ 195 $ 41 $ — $ 5 $ — $ 53 $ 397

Management monitors delinquent loans continuously and identifies problem loans (loans on non-accrual status and loans modified in a TDR) to evaluate individually for impairment.

Generally, the recorded investment in impaired loans is net of any charge-offs from estimated losses related to specifically-identified impaired loans when they are deemed uncollectible.

There were no charged-off amounts on impaired loans at September 30, 2020 or December 31, 2019.

In addition, the recorded investment in impaired loans is net of purchase discounts or premiums on acquired loans and deferred fees and costs.

At September 30, 2020 and December 31, 2019, unused commitments to extend credit on impaired loans, including performing loans to borrowers whose terms have been modified in TDRs, totaled $ 500 thousand and $ 534 thousand, respectively.

The following tables disclose activity in the allowance for loan losses ("ALLL") and the recorded investment in loans by class, as well as the related ALLL disaggregated by impairment evaluation method.

Allowance for Loan Losses Rollforward for the Period

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

Allowance for Credit Losses Rollforward

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Unallocated Total

Three months ended September 30, 2020

Beginning balance $ 2,609 $ 2,910 $ 10,403 $ 836 $ 1,044 $ 1,266 $ 426 $ 1,374 $ 20,868

Provision (reversal) ( 79 ) 225 1,221 24 ( 6 ) ( 6 ) ( 20 ) ( 109 ) 1,250

Charge-offs ( 10 ) — — — — — — — ( 10 )

Recoveries 5 — — — — — — — 5

Ending balance $ 2,525 $ 3,135 $ 11,624 $ 860 $ 1,038 $ 1,260 $ 406 $ 1,265 $ 22,113

Three months ended September 30, 2019

Beginning balance $ 2,368 $ 2,321 $ 7,721 $ 619 $ 907 $ 849 $ 323 $ 727 $ 15,835

Provision (reversal) 326 21 211 ( 117 ) ( 28 ) 56 ( 28 ) ( 41 ) 400

Charge-offs — — — — — — — — —

Recoveries 5 — — — — — — — 5

Ending balance $ 2,699 $ 2,342 $ 7,932 $ 502 $ 879 $ 905 $ 295 $ 686 $ 16,240

Allowance for Loan Losses Rollforward for the Period

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor Construction Home equity Other residential Installment and other consumer Unallocated Total

Nine months ended September 30, 2020

Three months ended March 31, 2021

Beginning balance $ 2,530 $ 2,778 $ 12,682 $ 1,557 $ 738 $ 998 $ 291 $ 1,300 $ 22,874

Provision (reversal) 208 673 3,141 219 188 287 122 612 5,450

Provision (reversal) - CECL ( 880 ) ( 474 ) ( 1,826 ) ( 254 ) ( 218 ) ( 241 ) ( 36 ) 1,000 ( 2,929 )

Charge-offs — — — — — — — — —

1 unchanged sentence

Ending balance $ 1,654 $ 2,304 $ 10,856 $ 1,312 $ 520 $ 757 $ 255 $ 2,300 $ 19,958

Nine months ended September 30, 2019

Three months ended March 31, 2020

Beginning balance $ 2,334 $ 2,462 $ 8,483 $ 638 $ 850 $ 973 $ 284 $ 653 $ 16,677

Provision (reversal) 256 ( 65 ) 217 ( 254 ) ( 36 ) 105 ( 15 ) 192 400

Provision - incurred loss 446 335 742 86 132 125 79 255 2,200

Charge-offs — — — — — — — — —

1 unchanged sentence

Ending balance $ 2,784 $ 2,797 $ 9,225 $ 727 $ 982 $ 1,098 $ 363 $ 908 $ 18,884

Allowance for Loan Losses and Recorded Investment in Loans

(dollars in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor-owned Construction Home equity Other residential Installment and other consumer Unallocated Total

September 30, 2020

Ending ALLL related to loans collectively evaluated for impairment $ 2,506 $ 2,910 $ 10,927 $ 860 $ 1,034 $ 1,260 $ 245 $ 1,265 $ 21,007

Ending ALLL related to loans individually evaluated for impairment 19 225 697 — 4 — 161 — 1,106

Ending balance $ 2,525 $ 3,135 $ 11,624 $ 860 $ 1,038 $ 1,260 $ 406 $ 1,265 $ 22,113

Recorded Investment:

Collectively evaluated for impairment $ 511,956 $ 292,751 $ 962,322 $ 66,663 $ 106,581 $ 130,915 $ 23,036 $ — $ 2,094,224

Individually evaluated for impairment 1,017 7,003 4,195 — 783 — 769 — 13,767

Total $ 512,973 $ 299,754 $ 966,517 $ 66,663 $ 107,364 $ 130,915 $ 23,805 $ — $ 2,107,991

Ratio of allowance for loan losses to total loans 0.49 % 1.05 % 1.20 % 1.29 % 0.97 % 0.96 % 1.71 % NM 1.05 %

Allowance for loan losses to non-accrual loans NM NM 1,312 % NM 195 % NM 1,692 % NM 1,533 %

NM - Not Meaningful

Allowance for Loan Losses and Recorded Investment in Loans

December 31, 2019

Ending ALLL related to loans collectively evaluated for impairment $ 2,231 $ 2,267 $ 8,442 $ 638 $ 845 $ 973 $ 231 $ 653 $ 16,280

Ending ALLL related to loans individually evaluated for impairment 103 195 41 — 5 — 53 — 397

Ending balance $ 2,334 $ 2,462 $ 8,483 $ 638 $ 850 $ 973 $ 284 $ 653 $ 16,677

Recorded Investment:

Collectively evaluated for impairment $ 245,464 $ 301,826 $ 944,547 $ 61,095 $ 115,606 $ 136,205 $ 27,043 $ — $ 1,831,786

Individually evaluated for impairment 1,223 6,998 1,770 — 418 452 639 — 11,500

Total $ 246,687 $ 308,824 $ 946,317 $ 61,095 $ 116,024 $ 136,657 $ 27,682 $ — $ 1,843,286

Ratio of allowance for loan losses to total loans 0.95 % 0.80 % 0.90 % 1.04 % 0.73 % 0.71 % 1.03 % NM 0.90 %

Allowance for loan losses to non-accrual loans NM NM NM NM 506 % NM 490 % NM 7,379 %

NM - Not Meaningful

We adopted the CECL accounting standard on December 31, 2020, which we had previously postponed under the optional accounting relief provisions of the CARES Act passed in March 2020 to the earlier of the end of the national emergency or December 31, 2020.

During the first three months of 2020, we applied the incurred loss method under previous GAAP in determining the allowance for credit losses on loans.

Pledged Loans

Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $ 1,149.5 million and $ 1,133.4 million at September 30, 2020 and December 31, 2019, respectively.

In addition, we pledge eligible TIC loans, which totaled $ 120.4 million and $ 115.7 million at September 30, 2020 and December 31, 2019, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $ 1.103 billion and $ 1.165 billion at March 31, 2021 and December 31, 2020, respectively.

In addition, we pledge eligible TIC loans, which totaled $ 112.4 million and $ 113.6 million at March 31, 2021 and December 31, 2020, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

Also, see Note 6, Borrowings.

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Likewise, these transactions do not involve more than the normal risk of collectability or present other unfavorable features.

Related party loans totaled $ 7.2 million at September 30, 2020 and $ 8.3 million at December 31, 2019.

In addition, undisbursed commitments to related parties totaled $ 8.7 million at September 30, 2020 and $ 9.2 million at December 31, 2019.

Related party loans totaled $ 5.9 million at March 31, 2021 and $ 6.4 million at December 31, 2020.

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

Borrowings and Other Obligations

Federal Funds Purchased – The Bank had unsecured lines of credit with correspondent banks for overnight borrowings totaling $ 135.0 million at September 30, 2020 and $ 92.0 million at December 31, 2019.

Federal Funds Purchased – The Bank had unsecured lines of credit with correspondent banks for overnight borrowings totaling $ 135.0 million at March 31, 2021 and December 31, 2020.

In general, interest rates on these lines approximate the federal funds target rate.

We had no overnight borrowings under these credit facilities at September 30, 2020 or December 31, 2019 .

Federal Home Loan Bank Borrowings – As of September 30, 2020 and December 31, 2019, the Bank had lines of credit with the FHLB totaling $ 696.2 million and $ 648.0 million, respectively, based on eligible collateral of certain loans.

There were no FHLB overnight borrowings at September 30, 2020 or December 31, 2019.

We had no overnight borrowings under these credit facilities at March 31, 2021 or December 31, 2020 .

Federal Home Loan Bank Borrowings – As of March 31, 2021 and December 31, 2020, the Bank had lines of credit with the FHLB totaling $ 634.2 million and $ 642.5 million, respectively, based on eligible collateral of certain loans.

There were no FHLB overnight borrowings at March 31, 2021 or December 31, 2020.

Federal Reserve Line of Credit – The Bank has a line of credit with the FRBSF secured by certain residential loans.

At September 30, 2020 and December 31, 2019, the Bank had borrowing capacity under this line totaling $ 83.1 million and $ 80.3 million, respectively, and had no outstanding borrowings with the FRBSF.

Subordinated Debenture – As part of an acquisition in 2013, Bancorp assumed a subordinated debenture due to NorCal Community Bancorp Trust II (the "Trust"), established for the sole purpose of issuing trust preferred securities.

The trust preferred securities were sold and issued in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended.

The subordinated debenture was recorded at fair

value totaling $ 2.14 million at the acquisition date with a contractual balance of $ 4.12 million.

The difference between the contractual balance and the fair value at the acquisition date is accreted into interest expense over the life of the debenture.

Accretion on the subordinated debenture totaled $ 52 thousand and $ 51 thousand for the nine months ended September 30, 2020 and 2019, respectively.

Bancorp has the option to defer payment of the interest on the subordinated debenture for a period of up to five years , as long as there is no event of default.

In the event of interest deferral, dividends to Bancorp common stockholders are prohibited.

Bancorp has guaranteed, on a subordinated basis, distributions and other payments due on trust preferred securities totaling $ 4.0 million issued by the Trust, which have identical maturity, repricing and payment terms as the subordinated debenture.

The subordinated debenture due to NorCal Community Bancorp Trust II on March 15, 2036 with interest payable quarterly (repricing quarterly, based on 3-month LIBOR plus 1.40 %, or 1.65 % as of September 30, 2020) is redeemable in whole or in part on any interest payment date.

At March 31, 2021 and December 31, 2020, the Bank had borrowing capacity under this line totaling $ 77.5 million and $ 78.7 million, respectively, and had no outstanding borrowings with the FRBSF.

Subordinated Debenture – As part of an acquisition in 2013, Bancorp assumed a subordinated debenture with a contractual balance of $ 4.1 million due to NorCal Community Bancorp Trust II (the "Trust"), established for the sole purpose of issuing trust preferred securities.

On March 15, 2021, Bancorp redeemed in full the $ 2.8 million (book value) subordinated debenture due to the Trust, which had an effective interest rate of 5.7 % in 2020.

The higher effective rate in the first quarter of 2021 included accelerated accretion of the $ 1.3 million remaining purchase discount due to the early redemption.

Accretion was $ 17 thousand for the three months ended March 31, 2020.

Other Obligations – The Bank leases certain equipment under finance leases, which are included in borrowings and other obligations in the consolidated statements of condition.

See Note 8, Commitments and Contingencies, for additional information.

Stockholders' Equity

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

Share-Based Payments

The fair value of stock options as of the grant date is recorded as stock-based compensation expense in the consolidated statements of comprehensive income over the requisite service period, which is generally the vesting period, with a corresponding increase in common stock.

Stock-based compensation also includes compensation expense related to the issuance of restricted stock awards.

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

Beginning in 2018, stock option and restricted stock awards issued include a retirement eligibility clause whereby the requisite service period is satisfied at the retirement eligibility date.

For those awards, we accelerate the recording of stock-based compensation when the award holder is eligible to retire.

However, retirement eligibility does not affect the vesting of restricted stock or the exercisability of the stock options, which are based on the scheduled vesting period.

Performance-based stock awards (restricted stock) are issued to a selected group of employees.

Stock award vesting is contingent upon the achievement of pre-established long-term performance goals set by the Compensation Committee of the Board of Directors.

Performance is measured over a three-year period and cliff vested.

These performance-based stock awards were granted at a maximum opportunity level, and based on the achievement of the pre-established goals, the actual payouts can range from 0 % to 200 % of the target award.

For performance-based stock awards, an estimate is made of the number of shares expected to vest based on the probability that the performance criteria will be achieved to determine the amount of compensation expense to be recognized.

The estimate is re-evaluated quarterly and total compensation expense is adjusted for any change in the current period.

We record excess tax benefits (deficiencies) resulting from the exercise of non-qualified stock options, the disqualifying disposition of incentive stock options and vesting of restricted stock awards as income tax benefits (expense) in the consolidated statements of comprehensive income with a corresponding decrease (increase) to current taxes payable.

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

Tax benefits for dividends paid on unvested restricted stock awards are recorded as tax benefits in the consolidated statements of comprehensive income with a corresponding decrease to current taxes payable.

Dividends on forfeited awards are included in stock-based compensation expense.

Stock options and restricted stock may be net settled in a cashless exercise by a reduction in the number of shares otherwise deliverable upon exercise or vesting in satisfaction of the exercise payment and/or applicable tax withholding requirements.

During the three months ended March 31, 2021, we withheld 27,547 shares totaling $ 1.1 million at a weighted-average price of $ 38.87 for cashless exercises.

During the three months ended March 31, 2020, we withheld 8,409 shares totaling $ 346 thousand at a weighted-average price of $ 41.17 for cashless exercises.

Shares withheld under net settlement arrangements are available for future grants.

Share Repurchase Program

On April 23, 2018, Bancorp announced that its Board of Directors approved a Share Repurchase Program under which Bancorp may repurchase up to $ 25.0 million of its outstanding common stock through May 1, 2019.

Bancorp's Board of Directors subsequently extended the Share Repurchase Program through February 28, 2020.

After expiration of this Share Repurchase Program, our new Share Repurchase Program began on March 1, 2020.

The new program was approved on January 24, 2020 by Bancorp Board of Directors, allowing Bancorp to repurchase up to $ 25.0 million of its outstanding common stock through February 28, 2022.

The new share repurchase program, which began on March 1, 2020, was suspended by the Board of Directors on March 20, 2020 in response to the COVID-19 pandemic.

The program was reactivated by the Board of Directors on October 23, 2020.

Under the Share Repurchase Program, Bancorp may purchase shares of its common stock through various means such as open market transactions, including block purchases, and privately negotiated transactions.

The number of shares repurchased and the timing, manner, price and amount of any repurchases will be determined at Bancorp's discretion.

Factors include, but are not limited to, stock price, trading volume and general market conditions, along with Bancorp’s general business conditions.

The program may be suspended or discontinued at any time and does not obligate Bancorp to acquire any specific number of shares of its common stock.

As part of the Share Repurchase Program, Bancorp entered into a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

The 10b5-1 trading plan permits common stock to be repurchased at times that might otherwise be prohibited under insider trading laws or self-imposed trading restrictions.

The 10b5-1 trading plan is administered by an independent broker and is subject to price, market volume and timing restrictions.

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

Commitments and Contingencies

9 unchanged sentences

Collateral types pledged may include accounts receivable, inventory, other personal property and real property.

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

(in thousands) September 30, 2020 December 31, 2019

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) March 31, 2021 December 31, 2020

Commercial lines of credit $ 309,469 $ 287,533

4 unchanged sentences

Total commitments and standby letters of credit $ 610,754 $ 529,132

We record an allowance for losses on these off-balance sheet commitments based on an estimate of probabilities of the utilization of these commitments according to our historical experience on different types of commitments and expected loss.

The allowance for losses on off-balance sheet commitments totaled $ 1.7 million and $ 1.1 million as of September 30, 2020 and December 31, 2019, respectively, which is recorded in interest payable and other liabilities in the consolidated statements of condition.

We record an allowance for credit losses on unfunded loan commitments at the balance sheet date based on estimates of the probability that these commitments will be drawn upon according to historical utilization experience of the different types of commitments and expected loss rates determined for pooled funded loans.

The allowance for credit losses on unfunded commitments totaled $ 2.2 million and $ 2.8 million as of March 31, 2021 and December 31, 2020, respectively, which is recorded in interest payable and other liabilities in the consolidated statements of condition.

We adopted the CECL accounting standard on December 31, 2020.

We applied the incurred loss method under previous GAAP in determining the allowance for credit losses on unfunded commitments for the three month period ended March 31, 2020.

We recorded a $ 590 thousand reversal of the allowance for credit losses on unfunded commitments for the three months ended March 31, 2021, compared to a $ 102 thousand provision for credit losses on unfunded commitments for the three month period ended March 31, 2020.

We lease premises under long-term non-cancelable operating leases with remaining terms of 1 year to 12 years, most of which include escalation clauses and one or more options to extend the lease term, and some of which contain lease termination clauses.

2 unchanged sentences

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 as of September 30, 2020.

(in thousands) September 30, 2020 December 31, 2019

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

(in thousands) March 31, 2021 December 31, 2020

Operating leases:

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

Nine months ended

(in thousands) September 30, 2020 September 30, 2019

Three months ended

(in thousands) March 31, 2021 March 31, 2020

Right-of-use assets obtained in exchange for operating lease liabilities $ — $ 12,178

Right-of-use assets obtained in exchange for finance lease liabilities $ — $ 18

Reclassification of deferred rent and unamortized lease incentives from other liabilities to operating lease right-of-use assets upon adoption of ASC 842 $ — $ 1,967

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

Three months ended Nine months ended

(in thousands) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Three months ended

(in thousands) March 31, 2021 March 31, 2020

Operating lease cost $ 1,164 $ 1,055

4 unchanged sentences

Amortization of right-of-use assets 2

$ 41 $ 43 $ 129 $ 128

Interest on finance lease liabilities 3

4 unchanged sentences

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 September 30, 2020.

The discount rates used to calculate the present value of lease liabilities were based on the collateralized FHLB borrowing rates that were commensurate with lease terms and minimum payments on the later of the date we adopted the new lease accounting standards or lease commencement date.

(in thousands) September 30, 2020

(in thousands) March 31, 2021

Year Operating Leases Finance Leases

1 unchanged sentence

2022 4,424 14

2022 4,318 13

Thereafter 9,867 —

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In 2012, Visa had reached a $ 4.0 billion interchange multidistrict litigation class settlement agreement with plaintiffs representing a class of U.S.

On September 17, 2018, Visa signed an amended settlement agreement with

the putative class action plaintiffs of the U.S.

interchange multidistrict litigation that superseded the 2012 settlement agreement.

Visa's share of the settlement amount under the amended class settlement agreement increased to $ 4.1 billion.

On September 27, 2019, Visa deposited an additional $ 300 million into the litigation escrow account.

Certain merchants chose to opt out of the class settlement agreement and on December 13, 2019, the court entered the final judgment order approving the amended settlement agreement.

On December 27, 2019, Visa received a takedown payment of approximately $ 467 million, which was deposited into the litigation escrow account with a corresponding increase in accrued litigation to address opt-out claims.

The escrow balance of $ 1.1 billion as of June 30, 2020 (most recent information available), combined with funds previously deposited with the court, are expected to cover the settlement payment obligations.

The escrow balance of $ 894 thousand as of March 31, 2021, combined with funds previously deposited with the court, are expected to cover the settlement payment obligations.

The outcome of the Covered Litigation affects the conversion rate of Visa Class B common stock held by us to Visa Class A common stock, as discussed above and in Note 4, Investment Securities.

The final conversion rate might change depending on the final settlement payments, and the full effect on member banks is still uncertain.

The final conversion rate is subject to change depending on the final settlement payments, and the full effect on member banks is still uncertain.

Litigation is ongoing and until the court approval process is complete, there is no assurance that Visa will resolve the claims as contemplated by the amended class settlement agreement, and additional lawsuits may arise from individual merchants who opted out of the class settlement.

1 unchanged sentence

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.

Stockholders' Equity

On October 23, 2020, Bancorp declared a $ 0.23 per share cash dividend, payable on November 13, 2020 to shareholders of record at the close of business on November 6, 2020.

Share-Based Payments

Stock-based compensation also includes compensation expense related to the issuance of restricted stock awards.

Beginning in 2018, stock option and restricted stock awards issued include a retirement eligibility clause whereby the requisite service period is satisfied at the retirement eligibility date.

For those awards, we accelerate the recording of stock-based compensation when the award holder is eligible to retire.

However, retirement eligibility does not affect the vesting of restricted stock or the exercisability of the stock options, which are based on the scheduled vesting period.

Performance-based stock awards (restricted stock) are issued to a selected group of employees.

Stock award vesting is contingent upon the achievement of pre-established long-term performance goals set by the Compensation Committee of the Board of Directors.

Performance is measured over a three -year period and cliff vested.

The estimate is re-evaluated quarterly and total compensation expense is adjusted for any change in the current period.

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.

During the nine months ended September 30, 2020, we withheld 9,214 shares totaling $ 369 thousand at a weighted-average price of $ 40.01 for cashless exercises.

During the nine months ended September 30, 2019, we withheld 7,795 shares totaling $ 326 thousand at a weighted-average price of $ 41.84 for cashless exercises.

Shares withheld under net settlement arrangements are available for future grants.

Share Repurchase Program

Bancorp's Board of Directors subsequently extended the Share Repurchase Program through February 28, 2020.

On January 24, 2020, Bancorp Board of Directors approved a new Share Repurchase Program under which Bancorp may repurchase up to $ 25.0 million of its outstanding common stock through February 28, 2022.

The new share repurchase program which began on March 1, 2020 was suspended by the Board of Directors on March 20, 2020 in response to the COVID-19 pandemic.

The program was reactivated by the Board of Directors on October 23, 2020.

The number of shares repurchased and the timing, manner, price and amount of any repurchases will be determined at Bancorp's discretion.

Factors include, but are not limited to, stock price, trading volume and general market conditions, along with Bancorp’s general business conditions.

The program may be suspended or discontinued at any time and does not obligate Bancorp to acquire any specific number of shares of its common stock.

As part of the Share Repurchase Program, Bancorp entered into a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

The 10b5-1 trading plan permits common stock to be repurchased at times that might otherwise be prohibited under insider trading laws or self-imposed trading restrictions.

The 10b5-1 trading plan is administered by an independent broker and is subject to price, market volume and timing restrictions.

During the nine months ended September 30, 2020, Bancorp repurchased 92,664 shares totaling $ 3.2 million for a cumulative 619,881 shares totaling $ 25.2 million repurchased from May 1, 2018 through September 30, 2020.

Due to the suspension of the program in March 2020, there were no shares repurchased during the second or third quarters of 2020.

Derivative Financial Instruments and Hedging Activities

6 unchanged sentences

Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values.

As of September 30, 2020, we had five interest rate swap agreements, which are scheduled to mature in June 2031, October 2031, July 2032, August 2037 and October 2037.

As of March 31, 2021, we had four interest rate swap agreements, which are scheduled to mature in June 2031, October 2031, July 2032, and October 2037.

All of our derivatives are accounted for as fair value hedges.

1 unchanged sentence

Our interest rate swap payments are settled monthly with counterparties.

Accrued interest on the swaps

totaled $ 13 thousand at September 30, 2020 and $ 6 thousand at December 31, 2019.

Accrued interest on the swaps totaled $ 11 thousand at both March 31, 2021 and December 31, 2020.

Information on our derivatives follows:

Asset Derivatives Liability Derivatives

(in thousands) September 30,

2020 December 31, 2019 September 30,

(in thousands) March 31,

2021 December 31, 2020 March 31,

2021 December 31, 2020

4 unchanged sentences

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

The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge accounting that is included in the carrying amount of hedged assets as of September 30, 2020 and December 31, 2019.

Carrying Amounts of Hedged Assets Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Loans

(in thousands)

September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019

(in thousands) March 31, 2021 December 31, 2020 March 31, 2021 December 31, 2020

Loans $ 14,793 $ 15,745 $ 1,039 $ 1,753

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

Three months ended Nine months ended

(in thousands) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Three months ended

(in thousands) March 31, 2021 March 31, 2020

Interest and fees on loans 1

16 unchanged sentences

Assets Condition of Condition Instruments Received Net Amount

September 30, 2020

March 31, 2021

Derivatives by Counterparty:

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Instruments Pledged Net Amount

September 30, 2020

March 31, 2021

Derivatives by Counterparty:

5 unchanged sentences

For more information on how we account for our interest rate swaps, refer to Note 1 to the Consolidated Financial Statements included in our 2020 Form 10-K filed with the SEC on March 13, 2021.

Merger Agreement

On April 16, 2021, Bancorp entered into a definitive agreement to acquire American River Bankshares ("AMRB"), parent company of American River Bank ("ARB"), whereby AMRB will merge with and into Bancorp and immediately thereafter ARB will merge with and into Bank of Marin (collectively, the "Merger").

The acquisition will expand Bank of Marin's presence throughout the Greater Sacramento, Amador and Sonoma County Regions where ARB has ten branches.

Under the terms of the merger agreement, AMRB shareholders will receive a fixed exchange ratio of 0.575 shares of Bancorp's common stock for each share of AMRB's common stock outstanding upon consummation of the Merger.

AMRB had total assets of $ 916.1 million, total deposits of $ 788.6 million, and total loans of $ 475.4 million as of March 31, 2021.

These amounts are subject to fair value adjustments upon the close of the Merger.

The Merger is expected to be completed in the third quarter of 2021, subject to approval by shareholders of Bancorp and AMRB, receipt of required regulatory and other approvals and satisfaction of customary closing conditions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements