What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-09 compared with 2021-11-09 · 308 added, 446 removed, 792 unchanged (49% of the section changed)

3 unchanged sentences

(in thousands, except share data;

unaudited) September 30, 2021 December 31, 2020

unaudited) March 31, 2022 December 31, 2021

Cash, cash equivalents and restricted cash $ 170,901 $ 347,641

Investment securities

Held-to-maturity, at amortized cost (net of zero allowance for credit losses at September 30, 2021 and December 31, 2020 )

Held-to-maturity, at amortized cost (net of zero allowance for credit losses at March 31, 2022 and December 31, 2021)

790,264 342,222

Available-for-sale, at fair value (net of zero allowance for credit losses at September 30, 2021 and December 31, 2020 )

Available-for-sale, at fair value (net of zero allowance for credit losses at March 31, 2022 and December 31, 2021)

955,457 1,167,568

8 unchanged sentences

Bank premises and equipment, net 7,236 7,558

Core deposit intangible 6,998 3,831

Core deposit intangible, net 6,225 6,605

Other real estate owned 800 800

10 unchanged sentences

Borrowings and other obligations 388 419

Subordinated debenture — 2,777

Operating lease liabilities 25,351 25,429

1 unchanged sentence

Total liabilities 3,910,016 3,863,841

Commitments and contingent liabilities (Note 8)

Stockholders' Equity

3 unchanged sentences

Authorized - 30,000,000 shares;

issued and outstanding - 16,066,889 and 13,500,453 at September 30, 2021 and December 31, 2020, respectively

issued and outstanding - 16,003,847 and 15,929,243 at March 31, 2022 and December 31, 2021, respectively

213,204 212,524

Retained earnings 246,511 239,868

Accumulated other comprehensive income, net of taxes 6,848 12,601

Accumulated other comprehensive loss, net of taxes ( 39,307 ) ( 2,024 )

Total stockholders' equity 420,408 450,368

2 unchanged sentences

BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended Nine months ended

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three months ended

(in thousands, except per share amounts;

unaudited) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

unaudited) March 31, 2022 December 31, 2021 March 31, 2021

Interest income

12 unchanged sentences

Net interest income 29,898 30,633 22,031

Provision for (reversal of) credit losses on loans 1,800 1,250 ( 2,049 ) 5,450

Provision for (reversal of) credit losses on unfunded loan commitments — 248 ( 1,202 ) 610

Net interest income after provision for (reversal of) credit losses 25,953 23,068 77,569 67,000

(Reversal of) provision for credit losses on loans ( 485 ) 600 ( 2,929 )

(Reversal of) provision for credit losses on unfunded loan commitments ( 318 ) 210 ( 590 )

Net interest income after (reversal of) provision for credit losses 30,701 29,823 25,550

Non-interest income

Earnings on bank-owned life insurance, net 1,402 232 1,892 741

Wealth Management and Trust Services 600 607 488

Debit card interchange fees 483 383 1,268 1,051

Debit card interchange fees, net 505 544 366

Service charges on deposit accounts 488 531 281

Earnings on bank-owned life insurance, net 413 302 257

Dividends on Federal Home Loan Bank stock 259 255 149

Merchant interchange fees 129 63 247 183

Gains on sale of investment securities, net 1 — 1 915

Merchant interchange fees, net 140 175 57

Losses on sale of investment securities, net — ( 17 ) —

Other income 462 322 228

3 unchanged sentences

Occupancy and equipment 1,909 1,929 1,751

Professional services 2,472 655 4,321 1,749

Data processing 1,277 1,887 819

Depreciation and amortization 431 539 1,279 1,591

Professional services 913 653 863

Information technology 478 445 313

Depreciation and amortization 452 461 459

Amortization of core deposit intangible 380 393 204

17 unchanged sentences

Change in net unrealized (losses) gains on available-for-sale securities ( 38,228 ) ( 12,723 ) ( 9,082 )

Reclassification adjustment for gains on available-for-sale securities included in net income ( 1 ) — ( 1 ) ( 915 )

Reclassification adjustment for losses on available-for-sale securities included in net income — 17 —

Net unrealized losses on securities transferred from available-for-sale to held-to-maturity ( 14,847 ) — —

Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity 144 108 143

Other comprehensive income (loss), before tax ( 2,171 ) 448 ( 8,174 ) 11,084

Deferred tax (benefit) expense ( 641 ) 132 ( 2,421 ) 3,277

Other comprehensive income (loss), net of tax ( 1,530 ) 316 ( 5,753 ) 7,807

Total comprehensive income $ 3,752 $ 7,807 $ 17,761 $ 29,932

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 three months ended September 30, 2021 and 2020

(in thousands, except share data;

unaudited) Common Stock Retained

Earnings Accumulated Other

Comprehensive Income,

Net of Taxes Total

Shares Amount

Three months ended September 30, 2021

Balance at July 1, 2021 13,055,105 $ 108,430 $ 231,841 $ 8,378 $ 348,649

Net income — — 5,282 — 5,282

Other comprehensive income — — — ( 1,530 ) ( 1,530 )

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 3,098 72 — — 72

Stock issued under employee stock purchase plan 508 18 — — 18

Stock issued under employee stock ownership plan 9,100 332 — — 332

Stock-based compensation - stock options — 115 — — 115

Stock-based compensation - restricted stock — 98 — — 98

Cash dividends paid on common stock ($ 0.24 per share)

— — ( 3,126 ) — ( 3,126 )

Stock purchased by directors under director stock plan 515 17 — — 17

Stock issued in payment of director fees 3,063 99 — — 99

Stock issued to American River Bankshares shareholders 3,441,235 124,401 — — 124,401

Stock repurchased, net of commissions ( 445,735 ) ( 15,902 ) — — ( 15,902 )

Balance at September 30, 2021 16,066,889 $ 217,680 $ 233,997 $ 6,848 $ 458,525

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

Other comprehensive loss, before tax ( 52,931 ) ( 12,598 ) ( 8,939 )

Deferred tax benefit ( 15,648 ) ( 3,726 ) ( 2,644 )

Other comprehensive loss, net of tax ( 37,283 ) ( 8,872 ) ( 6,295 )

Total comprehensive (loss) income $ ( 26,818 ) $ 842 $ 2,652

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the nine months ended September 30, 2021 and 2020

For the three months ended March 31, 2022 and 2021

(in thousands, except share data;

4 unchanged sentences

Shares Amount

Nine months ended September 30, 2021

Three months ended March 31, 2022

Balance at January 1, 2022 15,929,243 $ 212,524 $ 239,868 $ ( 2,024 ) $ 450,368

2 unchanged sentences

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 35,543 739 — — 739

Stock issued under employee stock purchase plan 2,117 72 — — 72

Stock issued under employee stock ownership plan 12,000 417 — — 417

6 unchanged sentences

— — ( 3,822 ) — ( 3,822 )

Stock purchased by directors under director stock plan 1,034 34 — — 34

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

Stock issued to American River Bankshares shareholders 3,441,235 124,401 — — 124,401

Stock repurchased, net of commissions ( 967,683 ) ( 35,165 ) — — ( 35,165 )

Balance at September 30, 2021 16,066,889 $ 217,680 $ 233,997 $ 6,848 $ 458,525

Nine months ended September 30, 2020

Stock repurchased, including commissions ( 23,275 ) ( 877 ) — — ( 877 )

Balance at March 31, 2022 16,003,847 $ 213,204 $ 246,511 $ ( 39,307 ) $ 420,408

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

10 unchanged sentences

Stock issued in payment of director fees 3,347 117 — — 117

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

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

Stock repurchased, including commissions ( 224,013 ) ( 8,511 ) — — ( 8,511 )

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

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, 2021 and 2020

For the three months ended March 31, 2022 and 2021

(in thousands;

unaudited) September 30, 2021 September 30, 2020

unaudited) March 31, 2022 March 31, 2021

Cash Flows from Operating Activities:

8 unchanged sentences

Amortization of investment security premiums, net of accretion of discounts 2,497 685

Accretion of discounts on acquired loans ( 201 ) ( 101 )

Accretion of premiums (discounts) on acquired loans 115 ( 33 )

Accretion of discount on subordinated debenture — 1,347

Net change in deferred loan origination costs/fees ( 1,591 ) 2,658

Gain on sale of investment securities ( 1 ) ( 915 )

Depreciation and amortization 452 459

7 unchanged sentences

Purchase of available-for-sale securities ( 243,459 ) ( 151,828 )

Proceeds from sale of available-for-sale securities 4,099 33,756

Proceeds from paydowns/maturities of held-to-maturity securities 5,067 8,600

Proceeds from paydowns/maturities of available-for-sale securities 42,966 16,060

Loans originated and principal collected, net 193,265 ( 269,376 )

Purchase of bank-owned life insurance policies ( 1,943 ) ( 941 )

Loan principal collected, net of originations 54,524 ( 36,543 )

Cash receipts from bank-owned life insurance policies 350 —

Purchase of premises and equipment ( 130 ) ( 144 )

Cash acquired from American River Bankshares 140,577 —

Cash paid for low income housing tax credit investment ( 4 ) ( 313 )

3 unchanged sentences

Proceeds from stock options exercised 739 38

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

Restricted stock surrendered for tax withholdings upon vesting ( 29 ) ( 156 )

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

Stock repurchased, net of commissions ( 35,451 ) ( 3,333 )

Stock repurchased, including commissions ( 1,250 ) ( 8,792 )

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

Repayment of Federal Home Loan Bank borrowings ( 13,885 ) —

Repayment of finance lease obligations ( 31 ) ( 28 )

1 unchanged sentence

Net cash provided by financing activities 48,399 135,838

Net increase in cash, cash equivalents and restricted cash 384,419 30,196

Net decrease in cash, cash equivalents and restricted cash ( 176,740 ) ( 57,501 )

Cash, cash equivalents and restricted cash at beginning of period 347,641 200,320

4 unchanged sentences

Supplemental disclosure of noncash investing and financing activities:

Change in net unrealized gains on available-for-sale securities $ ( 8,558 ) $ 11,605

Change in net unrealized gain or loss on available-for-sale securities $ ( 38,228 ) $ ( 9,092 )

Securities transferred from available-for-sale to held-to-maturity, at fair value $ 357,482 $ —

Amortization of net unrealized loss on available-for-sale securities transferred to held-to-maturity $ 144 $ 143

1 unchanged sentence

Stock issued to employee stock ownership plan $ 417 $ 332

Stock issued for director compensation expense $ 347 $ 226

Stock issued in payment of director fees $ 193 $ 117

Repurchase of stock not yet settled $ — $ 132

Fair value of assets acquired, excluding cash acquired $ 757,844 $ —

Fair value of liabilities assumed $ 816,558 $ —

Restricted cash 1

1 Restricted cash includes reserve requirements held with the Federal Reserve Bank of San Francisco.

$ 930 $ 1,930

1 Restricted cash includes reserve requirements held with the Federal Reserve Bank of San Francisco and other cash pledged.

In response to the COVID-19 pandemic, the Federal Reserve reduced the reserve requirement ratios to zero percent effective March 26, 2020.

16 unchanged sentences

The results of these interim periods may not be indicative of the results for the full year or for any other period.

The NorCal Community Bancorp Trust II (the "Trust") was formed for the sole purpose of issuing trust preferred securities.

Bancorp is not considered the primary beneficiary of the Trust (a variable interest entity), therefore the Trust is not consolidated in our consolidated financial statements, but rather the subordinated debenture is shown as a liability on our consolidated statements of condition.

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

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

The following table shows:

8 unchanged sentences

Holders of unvested restricted stock awards receive non-forfeitable dividends at the same rate as common shareholders and they both share equally in undistributed earnings.

Under the two-class method, there is no difference in EPS when considering these participating securities.

Three months ended Nine months ended

(in thousands, except per share data) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

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

Three months ended

(in thousands, except per share data) March 31, 2022 March 31, 2021

Weighted average basic common shares outstanding 15,876 13,363

8 unchanged sentences

Recently Adopted and Issued Accounting Standards

Accounting Standards Adopted in 2021

In December 2019, the FASB issued ASU No.

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

Simplifying the Accounting for Income Taxes .

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

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

In January 2020, the FASB issued ASU No.

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

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

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

In October 2020, the FASB issued ASU No.

2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs .

This ASU was issued as part of the Board's ongoing project to improve codification or correct unintended application.

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

We adopted this ASU prospectively on January 1, 2021.

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

Accounting Standards Not Yet Effective

11 unchanged sentences

Amendments may be elected through December 31, 2022.

We have not elected to apply amendments at this time and 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.

As of March 31, 2022, we had four interest rate swap contracts with notional values totaling $ 12.8 million indexed to LIBOR that will either be subject to the fall-back index rate stipulated by the ISDA protocol or modified to other reference rates such as Prime or SOFR as mutually agreed by us and our counterparty .

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

In October 2021, the FASB issued ASU No.

2021-08, Accounting for Contract Assets and Contract Liabilities From Contracts With Customers (Topic 805).

The amendments address diversity in accounting practices and requires acquiring companies to apply ASC 606, Revenue from Contracts with Customers to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination, as opposed to other methods such as fair value.

The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination.

The amendments are to be applied prospectively to business combinations occurring on or after December 15, 2022 and early adoption is permitted.

In the event of a future business combination, we will assess the impact of the ASU on our financial condition and results of operations.

In March 2022, the FASB issued ASU No.

2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures .

The amendment eliminates the recognition measurement guidance for troubled debt restructured ("TDR") loans, and instead requires an entity to evaluate whether a modification represents a new loan or a continuation of an existing loan in accordance with ASC Topic 310-20, Receivables - Nonrefundable Fees and Other Costs .

In addition, the amendment requires that an entity include in its vintage disclosures the current period-gross loan charge-offs by year of origination.

The amendments are effective for years beginning after December 15, 2022, and should be applied prospectively, except that an entity has the option to apply a modified retrospective method for TDR loans, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

An entity may elect to early adopt each of the amendments separately.

As such, we early adopted the current period charge-off disclosures in the first quarter of 2022 and intend to adopt the loan modification amendments when effective in the first quarter of 2023.

Neither the early adoption of the amendments related to gross charge-off disclosures nor the future adoption of the TDR amendments had or will have a material impact on our financial condition or results of operations.

In March 2022, the FASB issued ASU No.

2022-01, Derivatives and Hedging (Topic 815):

Fair Value Hedging - Portfolio Layer Method .

Among other things, the ASU renames the "last-of-layer" method to the "portfolio layer" method and makes fair value hedging more accessible for hedge accounting of interest rate risk for portfolios and financial assets.

For example, the guidance permits an entity to apply the same portfolio hedging method to both prepayable and non-prepayable financial assets, thereby providing for consistency between accounting for similar hedges.

The amendments are effective for years beginning after December 15, 2022.

The adoption of the amendments will not impact our existing hedge accounting, disclosures, financial condition or results of operations.

Fair Value of Assets and Liabilities

6 unchanged sentences

Values are determined using pricing models and discounted cash flow models and may include significant management judgment and estimation.

Transfers between levels of the fair value hierarchy are recognized through our monthly and/or quarterly valuation process in the reporting period during which the event or circumstances that caused the transfer occurred.

No such transfers occurred in the years presented.

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

5 unchanged sentences

Changes in Fair Value Recorded In 1

September 30, 2021

March 31, 2022

Securities available-for-sale:

7 unchanged sentences

Asset-backed securities $ 1,761 $ — $ 1,761 $ — OCI

Derivative financial assets (interest rate contracts) $ 42 $ — $ 42 $ — NI

Derivative financial liabilities (interest rate contracts) $ 370 $ — $ 370 $ — NI

5 unchanged sentences

Debentures of government sponsored agencies $ 188,527 $ — $ 188,527 $ — OCI

Treasury securities $ 11,630 $ 11,630 $ — $ — OCI

Obligations of state and political subdivisions $ 134,000 $ — $ 134,000 $ — OCI

Corporate bonds $ 38,495 $ — $ 38,495 $ — OCI

Asset-backed securities $ 1,862 $ — $ 1,862 $ — OCI

Derivative financial liabilities (interest rate contracts) $ 1,085 $ — $ 1,085 $ — NI

5 unchanged sentences

If quoted market prices are not available, we obtain pricing information from a reputable third-party service provider, who may utilize valuation techniques that use current market-based or independently sourced parameters, such as bid/ask prices, dealer-quoted prices, interest rates, benchmark yield curves, prepayment speeds, probability of default, loss severity and credit spreads (Level 2).

Level 2 securities include

asset-backed securities, obligations of state and political subdivisions, U.S.

Level 2 securities include asset-backed securities, obligations of state and political subdivisions, U.S.

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

As of September 30, 2021 and December 31, 2020, there were no 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 nine months ended September 30, 2021 or September 30, 2020.

As of March 31, 2022 and December 31, 2021, there were no Level 3 securities.

Held-to-maturity securities may be written down to fair value as a result of an other-than-temporary impairment, and we did no t record any write-downs during the three months ended March 31, 2022 or March 31, 2021.

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

11 unchanged sentences

Certain financial assets may be measured at fair value on a non-recurring basis.

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

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

OREO represents collateral acquired through foreclosure and is initially recorded at fair value as established by a current appraisal of the collateral.

3 unchanged sentences

Our current OREO resulted from the ARB Merger.

The following table presents the carrying value of assets measured at fair value on a non-recurring basis and that were held in the consolidated statements of condition at each respective period end, by level within the fair value hierarchy as of September 30, 2021 and December 31, 2020.

(in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

September 30, 2021

March 31, 2022

Other real estate owned $ 800 $ — $ — $ 800

2 unchanged sentences

Disclosures about Fair Value of Financial Instruments

The table below is a summary of fair value estimates for financial instruments as of September 30, 2021 and December 31, 2020, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note).

The table below is a summary of fair value estimates for financial instruments as of March 31, 2022 and December 31, 2021, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note).

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

Further, we have not disclosed the fair value of financial instruments specifically excluded from disclosure requirements such as bank-owned life insurance policies ("BOLI") and non-maturity deposit liabilities.

Additionally, we held shares of Federal Home Loan Bank ("FHLB") of San Francisco

stock and Visa Inc.

Class B common stock, both recorded at cost, as there was no impairment or changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer as of September 30, 2021 or December 31, 2020.

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

The values are discussed in Note 4, Investment Securities.

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

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

6 unchanged sentences

Time deposits 145,135 145,553 Level 2 150,235 150,475 Level 2

Subordinated debenture — — Level 3 2,777 3,115 Level 3

Interest payable 71 71 Level 2 81 81 Level 2

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

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

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

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

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

The fair value of commitment fees was not material as of September 30, 2021 or December 31, 2020.

Fair value of loans is based on exit price techniques and obtained from an independent third-party that uses its proprietary valuation model and methodology and may differ from actual price from a prospective buyer.

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

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

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

The fair value of commitment fees was not material as of March 31, 2022 or December 31, 2021.

Investment Securities

1 unchanged sentence

Treasury securities, 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.

Corporations and one asset-backed security collateralized by student loan pools.

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.

In addition, we hold an asset-backed security collateralized by student loan pools through the ARB acquisition.

A summary of the amortized cost, fair value and allowance for credit losses related to securities held-to-maturity as of September 30, 2021 and December 31, 2020 is presented below.

A summary of the amortized cost, fair value and allowance for credit losses related to securities held-to-maturity as of March 31, 2022 and December 31, 2021 is presented below.

Held-to-maturity:

2 unchanged sentences

(in thousands) Gains (Losses)

September 30, 2021

March 31, 2022

Securities of U.S.

government-sponsored enterprises:

MBS pass-through securities issued by FHLMC and FNMA $ 70,085 $ — $ 70,085 $ 2,828 $ ( 38 ) $ 72,875

MBS pass-through securities issued by FHLMC, FNMA and GNMA $ 339,149 $ — $ 339,149 $ 148 $ ( 18,528 ) $ 320,769

CMOs issued by FHLMC 187,459 — 187,459 42 ( 11,811 ) 175,690

CMOs issued by FNMA 51,732 — 51,732 — ( 1,000 ) 50,732

CMOs issued by GNMA 12,375 — 12,375 — ( 431 ) 11,944

SBA-backed securities 3,245 — 3,245 — ( 29 ) 3,216

1 unchanged sentence

Obligations of state and political subdivisions 50,701 — 50,701 1 ( 4,667 ) 46,035

Corporate bonds 30,000 30,000 — — 30,000

Total held-to-maturity $ 790,264 $ — $ 790,264 $ 191 $ ( 45,943 ) $ 744,512

2 unchanged sentences

government-sponsored enterprises:

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

MBS pass-through securities issued by FHLMC, FNMA and GNMA $ 126,990 $ — $ 126,990 $ 2,110 $ ( 712 ) $ 128,388

CMOs issued by FHLMC 106,851 — 106,851 668 ( 1,045 ) 106,474

1 unchanged sentence

SBA-backed securities 4,840 — 4,840 198 — 5,038

Debentures of government-sponsored agencies 51,472 — 51,472 — ( 901 ) 50,571

Obligations of state and political subdivisions 47,203 — 47,203 296 ( 209 ) 47,290

Total held-to-maturity $ 342,222 $ — $ 342,222 $ 3,400 $ ( 2,867 ) $ 342,755

1 Amortized cost and fair values exclude accrued interest receivable of $ 451 thousand and $ 366 thousand at September 30, 2021 and December 31, 2020, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

1 Amortized cost and fair values exclude accrued interest receivable of $ 1.8 million and $ 1.1 million at March 31, 2022 and December 31, 2021, 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.

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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 September 30, 2021.

Obligations of state and political subdivisions

(in thousands) September 30, 2021 December 31, 2020

AAA $ 7,455 $ —

AA 14,975 1,461

The following table summarizes the amortized cost of our portfolio of held-to-maturity securities issued by states and political subdivisions and corporate bonds by Moody's and/or Standard & Poor's bond ratings as of March 31, 2022.

Obligations of state and political subdivisions Corporate bonds

(in thousands) March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021

AAA / Aaa $ 37,735 $ 34,229 $ — $ —

AA / Aa 12,866 12,873 — —

A2 / A 100 101 30,000 —

Total $ 50,701 $ 47,203 $ 30,000 $ —

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

A summary of the amortized cost, fair value and allowance for credit losses related to securities available-for-sale as of March 31, 2022 and December 31, 2021 is presented below.

Available-for-sale:

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(in thousands) Gains (Losses)

September 30, 2021

March 31, 2022

Securities of U.S.

14 unchanged sentences

government-sponsored enterprises:

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

MBS pass-through securities issued by FHLMC, FNMA and GNMA $ 316,090 $ 1,224 $ ( 2,784 ) $ — $ 314,530

CMOs issued by FHLMC 343,047 3,209 ( 4,829 ) — 341,427

3 unchanged sentences

Debentures of government- sponsored agencies 191,449 25 ( 2,947 ) — 188,527

Treasury securities 11,886 — ( 256 ) 11,630

Obligations of state and political subdivisions 129,009 5,372 ( 381 ) — 134,000

Corporate bonds 39,001 — ( 506 ) — 38,495

Asset-backed securities 1,866 — ( 4 ) — 1,862

Total available-for-sale $ 1,169,520 $ 11,074 $ ( 13,026 ) $ — $ 1,167,568

1 Amortized cost and fair value exclude accrued interest receivable of $ 2.9 million and $ 1.9 million September 30, 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 September 30, 2021 and December 31, 2020 are shown below.

1 Amortized cost and fair value exclude accrued interest receivable of $ 3.3 million and $ 3.7 million at March 31, 2022 and December 31, 2021, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

As part of our ongoing review of our investment securities portfolio, we reassessed the classification of certain securities issued by government sponsored agencies.

In March 2022, we transferred $ 357.5 million of these securities from available-for-sale to held-to-maturity at fair value.

We intend and have the ability to hold these securities to maturity.

The net unrealized pre-tax loss of $ 14.8 million remained in accumulated other comprehensive loss and is accreted over the remaining lives of the securities.

The amortized cost a nd fair value of investment debt securities by contractual maturity at March 31, 2022 and December 31, 2021 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, 2021 December 31, 2020

March 31, 2022 December 31, 2021

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

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Total $ 790,264 $ 744,512 $ 995,637 $ 955,457 $ 342,222 $ 342,755 $ 1,169,520 $ 1,167,568

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, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Available-for-sale:

Sales proceeds $ 4,099 $ — $ 4,099 $ 33,756

Gross realized gains 1 — 1 916

Gross realized losses — — — ( 1 )

There were no sales of investment securities in the first quarter of 2022 or 2021.

Three months ended

Pledged investment securities are shown in the following table:

(in thousands) September 30, 2021 December 31, 2020

(in thousands) March 31, 2022 December 31, 2021

Pledged to the State of California:

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Total pledged investment securities $ 211,874 $ 217,849

There were 165 and 10 securities in unrealized loss positions at September 30, 2021 and December 31, 2020, respectively.

There were 354 and 217 securities in unrealized loss positions at March 31, 2022 and December 31, 2021, respectively.

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

September 30, 2021 < 12 continuous months ≥ 12 continuous months Total securities

March 31, 2022 < 12 continuous months ≥ 12 continuous months Total securities

in a loss position

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Held-to-maturity:

MBS pass-through securities issued by FHLMC and FNMA $ 17,074 $ ( 38 ) $ — $ — $ 17,074 $ ( 38 )

MBS pass-through securities issued by FHLMC, FNMA and GNMA $ 299,200 $ ( 18,528 ) $ — $ — $ 299,200 $ ( 18,528 )

CMOs issued by FHLMC 165,101 ( 11,498 ) 4,328 ( 313 ) 169,429 ( 11,811 )

CMOs issued by FNMA 25,350 ( 1,000 ) — — 25,350 ( 1,000 )

CMOs issued by GNMA 11,944 ( 431 ) — — 11,944 ( 431 )

SBA-backed securities 3,216 ( 29 ) — — 3,216 $ ( 29 )

Debentures of government-sponsored agencies 65,826 ( 6,510 ) 40,300 ( 2,967 ) 106,126 $ ( 9,477 )

Obligations of state and political subdivisions 42,348 ( 4,667 ) — — 42,348 ( 4,667 )

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

Available-for-sale:

Held-to-maturity:

MBS pass-through securities issued by FHLMC and FNMA $ 76,619 $ ( 712 ) $ — $ — 76,619 $ ( 712 )

CMOs issued by FHLMC 54,811 ( 1,045 ) — — 54,811 ( 1,045 )

Obligations of state and political subdivisions 19,203 ( 209 ) — — 19,203 ( 209 )

Debentures of government-sponsored agencies 50,571 ( 901 ) — — 50,571 ( 901 )

Total held-to-maturity 201,204 ( 2,867 ) — — 201,204 ( 2,867 )

Available-for-sale:

MBS pass-through securities issued by FHLMC and FNMA 263,474 ( 2,784 ) — — 263,474 ( 2,784 )

SBA-backed securities 7,478 ( 112 ) 1,209 ( 43 ) 8,687 ( 155 )

CMOs issued by FHLMC 226,175 ( 4,677 ) 4,415 ( 152 ) 230,590 ( 4,829 )

CMOs issued by GNMA $ 44,790 $ ( 553 ) $ — $ — $ 44,790 $ ( 553 )

CMOs issued by FNMA 37,348 ( 611 ) — — 37,348 ( 611 )

Debentures of government- sponsored agencies 148,979 ( 2,527 ) 8,549 ( 420 ) 157,528 ( 2,947 )

Treasury securities 11,629 ( 256 ) — — 11,629 ( 256 )

Obligations of state and political subdivisions 17,552 ( 381 ) — — 17,552 ( 381 )

Corporate Bonds 38,495 ( 506 ) — — 38,495 ( 506 )

Asset-backed securities 1,861 ( 4 ) — — 1,861 ( 4 )

Total available-for-sale 797,781 ( 12,411 ) 14,173 ( 615 ) 811,954 ( 13,026 )

Total securities at loss position $ 998,985 $ ( 15,278 ) $ 14,173 $ ( 615 ) $ 1,013,158 $ ( 15,893 )

As of September 30, 2021, the investment portfolio included 6 investment securities that had been in a continuous loss position for twelve months or more and 159 investment securities that had been in a loss position for less than twelve months.

As of March 31, 2022, the investment portfolio included 17 investment securities that had been in a continuous loss position for twelve months or more and 337 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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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 September 30, 2021, management determined that it did not intend to sell any investment securities with unrealized losses, and it is more likely than not that we will not be required to sell securities with unrealized losses before recovery of their amortized cost.

No allowances for credit losses have been recognized on available-for-sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality at September 30, 2021.

At March 31, 2022, 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.

Non-Marketable Securities Included in Other Assets

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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 $ 16.7 million and $ 11.9 million of FHLB stock included in other assets on the consolidated statements of condition at September 30, 2021 and December 31, 2020, respectively.

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, 2021 and December 31, 2020.

On October 28, 2021, FHLB announced a cash dividend for the third quarter of 2021 at an annualized dividend rate of 6.00 % to be distributed in mid-November 2021.

We held $ 16.7 million of FHLB stock included in other assets on the consolidated statements of condition at both March 31, 2022 and December 31, 2021.

The carrying amounts of

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

Based on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock was not impaired at March 31, 2022 and December 31, 2021.

On April 28, 2022, FHLB announced a cash dividend for the first quarter of 2022 at an annualized dividend rate of 6.00 % to be distributed in mid-May 2022.

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

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As a member bank of Visa U.S.A., we held 10,439 shares of Visa Inc.

Class B common stock at September 30, 2021 and December 31, 2020.

Class B common stock at March 31, 2022 and December 31, 2021.

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

1 unchanged sentence

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

When converting this Class B common stock to Class A common stock based on the estimated conversion rate of 1.6228 both at September 30, 2021 and December 31, 2020, and the closing stock price of Class A shares at those respective dates, the converted value of our shares of Class B common stock would have been $ 3.8 million and $ 3.7 million at September 30, 2021 and December 31, 2020, respectively.

When converting this Class B common stock to Class A common stock based on the estimated conversion rate of 1.6181 both at March 31, 2022 and December 31, 2021, 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 $ 3.7 million at both March 31, 2022 and December 31, 2021.

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

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Low Income Housing Tax Credits

We invest in low-income housing tax credit funds as a limited partner, which totaled $ 3.2 million and $ 3.5 million recorded in other assets as of September 30, 2021 and December 31, 2020, respectively.

In the first nine months of 2021, we recognized $ 484 thousand of low-income housing tax credits and other tax benefits, offset by $ 406 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense.

As of September 30, 2021, our unfunded commitments for these low-income housing tax credit funds totaled $ 425 thousand.

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

We invest in low-income housing tax credit funds as a limited partner, which totaled $ 2.9 million and $ 3.0 million recorded in other assets as of March 31, 2022 and December 31, 2021, respectively.

In the first three months of 2022, we recognized $ 159 thousand of low-income housing tax credits and other tax benefits, offset by $ 134 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense.

As of March 31, 2022, our unfunded commitments for these low-income housing tax credit funds totaled $ 419 thousand.

We did no t recognize any impairment losses on these low-income housing tax credit investments during the first three months of 2022 or 2021, as the value of the future tax benefits exceeds the carrying value of the investments.

Loans and Allowance for Credit Losses on Loans

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

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

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

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

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

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

In addition, refer to Note 5 under Part I, Item 1, of our September 30, 2020 Form 10-Q for prior period information.

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

(in thousands) September 30, 2021 December 31, 2020

The following table presents the amortized cost of loans by class as of March 31, 2022 and December 31, 2021.

(in thousands) March 31, 2022 December 31, 2021

Commercial and industrial $ 248,625 $ 301,602

8 unchanged sentences

Allowance for credit losses on loans ( 22,547 ) ( 23,023 )

Total loans, net $ 2,294,605 $ 2,065,682

1 Amortized cost includes net deferred loan origination fees of $( 2.9 ) million and $( 4.9 ) million at September 30, 2021 and December 31, 2020, respectively.

Amounts are also net of unrecognized purchase discounts of $ 2,834 thousand and $ 815 thousand at September 30, 2021 and December 31, 2020, respectively.

Amortized cost excludes accrued interest, which totaled $ 7.7 million and $ 8.8 million at September 30, 2021 and December 31, 2020, respectively, and is included in interest receivable and other assets in the consolidated statements of condition.

Total loans, net of allowance for credit losses on loans $ 2,179,307 $ 2,232,622

1 Amortized cost includes net deferred loan origination costs (fees) of $ 690 thousand and $( 901 ) thousand at March 31, 2022 and December 31, 2021, respectively.

Amounts are also net of unrecognized purchase discounts of $ 2.6 million and $ 2.5 million at March 31, 2022 and December 31, 2021, respectively.

Amortized cost excludes accrued interest, which totaled $ 6.2 million and $ 7.1 million at March 31, 2022 and December 31, 2021, respectively, and is included in interest receivable and other assets in the consolidated statements of condition.

Lending Risks

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

Commercial loans are made based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral and guarantor support.

Commercial loans are made based primarily on the identified cash flows

of the borrower and secondarily on the underlying collateral and guarantor support.

The cash flows of borrowers, however, may not occur as expected, and the collateral securing these loans may fluctuate in value.

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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 September 30, 2021, there were 871 PPP loans outstanding, including 31 loans totaling $ 9.6 million that ARB financed prior to the merger date.

PPP loans totaling $ 164.8 million (net of $ 4.2 million in unrecognized fees and costs) and $ 291.6 million (net of $ 5.4 million in unrecognized fees and costs) as of September 30, 2021 and December 31, 2020, respectively, were included in commercial and industrial loan balances.

Of the 871 PPP loans outstanding as of September 30, 2021, 790 loans totaling $ 123.9 million were funded by Bank of Marin and ARB during the first half of 2021 under the second round of the PPP stimulus plan.

Pursuant to the 2020 CARES Act, Bank of Marin originated 2,876 guaranteed loans totaling $ 444.1 million in two rounds of the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP").

Additionally in 2021, Bank of Marin assumed 113 PPP loans totaling $ 18.6 million from ARB as of the merger date.

As of March 31, 2022, there were 191 PPP loans outstanding totaling $ 40.6 million (net of $ 993 thousand in unrecognized fees and costs), compared to 368 loans outstanding at December 31, 2021 totaling $ 111.2 million (net of $ 2.5 million in unrecognized fees and costs) included in commercial and industrial loan balances.

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

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

The recognition of fees and

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

PPP loans are fully 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.

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 if they meet the requirements of the program.

As expected, the vast majority of the PPP loans have been fully forgiven by the SBA and we expect the majority of remaining loans to be forgiven as well.

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.

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

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

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

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

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

The following tables present the loan portfolio by loan class, origination year and internal risk rating as of September 30, 2021 and December 31, 2020.

The following tables present the loan portfolio by loan class, origination year and internal risk rating as of March 31, 2022 and December 31, 2021.

We early adopted the vintage disclosure requirements of ASU 2022-02 prospectively as described in Note 2 beginning with the first quarter of 2022.

Accordingly, the 2022 vintage table reflects gross charge-offs by loan class and year of origination.

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

1 unchanged sentence

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

September 30, 2021 2021 2020 2019 2018 2017 Prior Total

March 31, 2022 2022 2021 2020 2019 2018 Prior Total

Commercial and industrial:

Pass $ 130,037 $ 54,621 $ 28,941 $ 18,245 $ 3,044 $ 33,707 $ 101,044 $ 369,639

Pass and Watch $ 2,563 $ 44,716 $ 12,583 $ 24,654 $ 7,862 $ 30,950 $ 112,839 $ 236,167

Special Mention — — — 530 4,330 — 3 4,863

2 unchanged sentences

Commercial real estate, owner-occupied:

Pass $ 40,399 $ 43,782 $ 50,976 $ 53,139 $ 42,410 $ 109,020 $ — $ 339,726

Pass and Watch $ 14,542 $ 53,334 $ 43,851 $ 47,384 $ 35,681 $ 151,304 $ — $ 346,096

Special Mention 6,215 16,471 — 1,763 5,419 5,152 — 35,020

2 unchanged sentences

Total commercial real estate, owner-occupied $ 20,757 $ 69,805 $ 51,123 $ 49,147 $ 41,100 $ 159,992 $ — $ 391,924

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

March 31, 2022 2022 2021 2020 2019 2018 Prior Total

Commercial real estate, investor-owned:

Pass $ 153,943 $ 188,064 $ 188,508 $ 135,653 $ 83,895 $ 352,715 $ 90 $ 1,102,868

Pass and Watch $ 42,615 $ 222,832 $ 177,077 $ 177,477 $ 141,444 $ 374,554 $ 78 $ 1,136,077

Special Mention — — 1,213 2,714 9,761 9,621 — 23,309

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Construction:

Pass $ 26,902 $ 63,355 $ 25,696 $ 9,107 $ — $ — $ — $ 125,060

Pass and Watch $ 2,708 $ 30,721 $ 79,544 $ 8,933 $ 9,109 $ — $ — $ 131,015

Total construction $ 2,708 $ 30,721 $ 79,544 $ 8,933 $ 9,109 $ — $ — $ 131,015

Pass $ — $ — $ — $ — $ — $ 259 $ 91,333 $ 91,592

Pass and Watch $ — $ 24 $ — $ — $ — $ 320 $ 87,173 $ 87,517

Special Mention — — — — — — 66 66

Substandard — — — — — 370 139 509

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Other residential:

Pass $ 14,229 $ 32,700 $ 26,347 $ 17,476 $ 8,374 $ 18,652 $ — $ 117,778

Pass and Watch $ 5,249 $ 15,690 $ 31,776 $ 24,342 $ 14,848 $ 22,372 $ — $ 114,277

Total other residential $ 5,249 $ 15,690 $ 31,776 $ 24,342 $ 14,848 $ 22,372 $ — $ 114,277

Installment and other consumer:

Pass $ 12,311 $ 8,514 $ 11,620 $ 5,777 $ 1,129 $ 6,833 $ 1,749 $ 47,933

Pass and Watch $ 6,038 $ 15,852 $ 7,074 $ 8,219 $ 4,873 $ 7,103 $ 1,828 $ 50,987

Substandard — — — — — 16 — 16

Total installment and other consumer $ 6,038 $ 15,852 $ 7,074 $ 8,219 $ 4,873 $ 7,119 $ 1,828 $ 51,003

Pass $ 377,821 $ 391,036 $ 332,088 $ 239,397 $ 138,852 $ 521,186 $ 194,216 $ 2,194,596

Gross current period charge-offs $ — $ — $ — $ — $ — $ — $ 2 $ 2

Pass and Watch $ 73,715 $ 383,169 $ 351,905 $ 291,009 $ 213,817 $ 586,603 $ 201,918 $ 2,102,136

Total Special Mention $ 6,215 $ 16,471 $ 1,213 $ 5,007 $ 19,510 $ 14,773 $ 69 $ 63,258

2 unchanged sentences

Totals $ 79,930 $ 399,640 $ 361,966 $ 296,016 $ 233,327 $ 622,830 $ 208,145 $ 2,201,854

Total gross current period charge-offs $ — $ — $ — $ — $ — $ — $ 2 $ 2

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

1 unchanged sentence

Commercial and industrial:

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

Pass and Watch $ 96,643 $ 35,967 $ 25,754 $ 12,763 $ 2,729 $ 31,280 $ 90,744 $ 295,880

Special Mention — 1,700 584 273 — — 2,088 4,645

2 unchanged sentences

Commercial real estate, owner-occupied:

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

Pass and Watch $ 58,395 $ 43,216 $ 49,485 $ 36,174 $ 42,430 $ 104,898 $ — $ 334,598

Special Mention 16,748 — — 7,846 — 16,996 — 41,590

Substandard — 7,155 285 — — 8,603 — 16,043

Doubtful — 114 — — — — — 114

Total commercial real estate, owner-occupied $ 75,143 $ 50,485 $ 49,770 $ 44,020 $ 42,430 $ 130,497 $ — $ 392,345

Commercial real estate, investor-owned:

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

Pass and Watch $ 225,722 $ 186,214 $ 187,418 $ 143,028 $ 75,419 $ 325,882 $ 84 $ 1,143,767

Special Mention — 1,214 2,714 11,773 1,787 9,540 — 27,028

2 unchanged sentences

Construction:

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

Pass and Watch $ 31,269 $ 70,528 $ 8,935 $ 9,108 $ — $ — $ — $ 119,840

Total construction $ 31,269 $ 70,528 $ 8,935 $ 9,108 $ — $ — $ — $ 119,840

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

Special Mention — — — — — — 799 799

Pass and Watch $ — $ — $ — $ — $ 10 $ 268 $ 87,693 $ 87,971

Substandard — — — — — 377 398 775

1 unchanged sentence

Other residential:

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

Pass and Watch $ 15,800 $ 31,981 $ 25,529 $ 15,411 $ 7,964 $ 17,873 $ — $ 114,558

Total other residential $ 15,800 $ 31,981 $ 25,529 $ 15,411 $ 7,964 $ 17,873 $ — $ 114,558

Installment and other consumer:

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

Substandard — — — 17 — — — 17

Pass and Watch $ 17,207 $ 7,748 $ 9,436 $ 5,633 $ 1,123 $ 6,620 $ 1,766 $ 49,533

Total installment and other consumer $ 17,207 $ 7,748 $ 9,436 $ 5,633 $ 1,123 $ 6,620 $ 1,766 $ 49,533

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

Pass and Watch $ 445,036 $ 375,654 $ 306,557 $ 222,117 $ 129,675 $ 486,821 $ 180,287 $ 2,146,147

Total Special Mention $ 16,748 $ 2,914 $ 3,298 $ 19,892 $ 1,787 $ 26,536 $ 2,088 $ 73,263

Total Substandard $ — $ 7,155 $ 285 $ 695 $ — $ 26,511 $ 1,475 $ 36,121

Doubtful $ — $ 114 $ — $ — $ — $ — $ — $ 114

Totals $ 461,784 $ 385,837 $ 310,140 $ 242,704 $ 131,462 $ 539,868 $ 183,850 $ 2,255,645

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

The following table shows the amortized cost of loans by class, payment aging and non-accrual status as of March 31, 2022 and December 31, 2021.

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, 2021

March 31, 2022

30-59 days past due $ 435 $ 324 $ — $ — $ 399 $ 635 $ 337 $ 2,130

19 unchanged sentences

Non-accrual loans with no allowance $ — $ 7,269 $ 694 $ — $ 413 $ — $ — $ 8,376

1 There were no loans past due more than ninety days accruing interest at September 30, 2021 or December 31, 2020.

2 None of the non-accrual loans as of September 30, 2021 or December 31, 2020 were earning interest on a cash basis.

We recognized no interest income on non-accrual loans for the three and nine months ended September 30, 2021 and 2020.

Other than a $ 118 thousand owner-occupied commercial real estate loan assumed in the ARB acquisition, there were no new loans placed on non-accrual status during the nine months ended September 30, 2021.

Accrued interest of $ 20 thousand was reversed from interest income for loans that were placed on non-accrual status during the nine months ended September 30, 2020.

1 There were no loans past due more than ninety days accruing interest at March 31, 2022.

There were two SBA PPP loans past due more than ninety days totaling $ 229 thousand accruing interest as of December 31, 2021 for which we requested "guarantee" payment from the SBA.

The SBA subsequently purchased both loans in January 2022.

2 None of the non-accrual loans as of March 31, 2022 or December 31, 2021 were earning interest on a cash basis.

We recognized no interest income on non-accrual loans for the three months ended March 31, 2022 and 2021.

There was one loan with amortized cost of $ 16 thousand placed on non-accrual status during the three months ended March 31, 2022 for which we reversed less than one thousand in interest income at the time of change in status.

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

Collateral Dependent Loans

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

The following table presents the amortized cost basis of individually analyzed collateral-dependent non-accrual loans by class at March 31, 2022 and December 31, 2021.

Amortized Cost by Collateral Type

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

September 30, 2021

March 31, 2022

Commercial real estate, owner-occupied $ 7,272 $ — $ — $ 7,272 $ —

Commercial real estate, investor-owned 709 — — 709 —

Home equity — 390 — 390 —

Installment and other consumer — — 16 16 $ —

Total $ 7,272 $ 390 $ 16 $ 7,678 $ —

3 unchanged sentences

Home equity — 413 — 413 —

Installment and other consumer — — 17 17 —

Total $ 7,963 $ 413 $ — $ 8,376 $ —

No collateral-dependent loans were in process of foreclosure at September 30, 2021 or December 31, 2020.

In addition, the weighted average loan-to-value of collateral dependent loans was approximately 61.7 % at September 30, 2021 and 59.2 % at December 31, 2020.

No collateral-dependent loans were in process of foreclosure at March 31, 2022 or December 31, 2021.

In addition, the weighted average loan-to-value of collateral dependent loans was approximately 69 % at March 31, 2022 and 67 % at December 31, 2021.

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.

We removed one commercial loan with a remaining amortized cost of $ 2 thousand and an unfunded commitment of $ 600 thousand from TDR designation during the nine months ended September 30, 2021 after meeting all of the conditions above.

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

As of September 30, 2021, 2 borrowing relationships with 5 loans totaling $ 23.6 million were continuing to benefit from payment relief.

There were no loans removed from TDR designation during the three months ended March 31, 2022 and 2021.

In accordance with section 4013 of the CARES Act, subsequently amended by section 541 of the 2020 Economic Aid Act, we elected to apply the temporary accounting relief provisions for loan modifications that met certain criteria, which would otherwise be designated as TDRs under existing GAAP.

As of March 31, 2022, two borrowing relationships with three loans totaling $ 23.6 million were continuing to benefit from payment relief.

The weighted average loan-to-value ratio of the remaining payment relief loans was approximately 44 %.

1 unchanged sentence

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, 2021 and December 31, 2020.

(in thousands)

Recorded Investment in Troubled Debt Restructurings 1

September 30, 2021 December 31, 2020

We monitor the financial situation of these clients closely and expect them to resume payments as the economy continues to recover.

The following table summarizes the amortized cost of TDR loans by loan class as of March 31, 2022 and December 31, 2021.

(in thousands) March 31, 2022 December 31, 2021

Commercial and industrial $ 1,180 $ 1,183

3 unchanged sentences

Installment and other consumer 596 607

Total $ 11,246 $ 12,506

1 TDR loans on non-accrual status totaled $ 7.4 million at both September 30, 2021 and December 31, 2020.

Unfunded commitments for TDR loans totaled $ 242 thousand as of September 30, 2021.

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

The table excludes fully charged-off TDR loans and loans modified in a TDR and subsequently paid-off during the years presented, if applicable.

(dollars in thousands) 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, 2021:

Commercial and industrial 1 $ 1,101 $ 1,101 $ 1,101

TDRs during the three months ended September 30, 2020:

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

TDRs during the nine months ended September 30, 2021:

Commercial and industrial 1 $ 1,101 $ 1,101 $ 1,101

TDRs during the nine months ended September 30, 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 3 211 211 210

Total 6 $ 2,210 $ 2,202 $ 2,183

The loan modified in 2021 reflected a maturity date extension and other loan term and payment modifications.

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

During the nine months ended September 30, 2021 and 2020, there were no defaults on loans that had been modified in a TDR within the prior twelve-month period.

$ 9,492 $ 9,510

1 TDR loans on non-accrual status totaled $ 7.4 million at both March 31, 2022 and December 31, 2021.

Unfunded commitments for TDR loans totaled $ 241 thousand and $ 441 thousand as of March 31, 2022 and December 31, 2021, respectively.

There were no loans modified in a TDR during the three months ended March 31, 2022 and 2021.

During the three months ended March 31, 2022 and March 31, 2021, 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.

Purchased Loans with Credit Deterioration

For purchased loans with a more-than-insignificant amount of credit deterioration since origination ("PCD loans") the initial allowance for credit losses at the date of acquisition was added to the purchase price (or fair value) to determine the initial amortized cost basis.

Subsequent changes in expected credit losses (favorable or unfavorable) are recognized through net income as adjustments to the allowance for credit losses on loans.

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

A reconciliation of the unpaid principal balance (or par value) to the purchase price (or fair value) for PCD loans as of the August 6, 2021 merger date is presented below.

(in thousands)

Unpaid principal balance (par value) $ 92,029

Non-credit discount ( 1,662 )

Amortized cost basis 90,367

Initial allowance for credit losses on PCD loans ( 1,505 )

Purchase price (PCD loans at fair value) $ 88,862

Allowance for Credit Losses on Loans Rollforward

2 unchanged sentences

(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, 2021

Beginning balance $ 1,590 $ 2,037 $ 10,761 $ 1,142 $ 412 $ 613 $ 238 $ 2,307 $ 19,100

Provision (reversal) - CECL 126 ( 30 ) 1,011 77 247 4 384 ( 19 ) 1,800

Initial allowance for PCD loans 405 559 533 — — 6 2 — 1,505

Charge-offs — — — — — — ( 2 ) — ( 2 )

Recoveries 3 — — 8 — — — — 11

Ending balance $ 2,124 $ 2,566 $ 12,305 $ 1,227 $ 659 $ 623 $ 622 $ 2,288 $ 22,414

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 - incurred loss ( 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

Allowance for Credit Losses on Loans Rollforward

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

Nine months ended September 30, 2021

Three months ended March 31, 2022

Beginning balance $ 1,709 $ 2,776 $ 12,739 $ 1,653 $ 595 $ 644 $ 621 $ 2,286 $ 23,023

Provision (reversal) - CECL ( 821 ) ( 771 ) ( 910 ) ( 356 ) ( 129 ) ( 381 ) 331 988 ( 2,049 )

Initial allowance for PCD loans 405 559 533 — — 6 2 — 1,505

Provision (reversal) 72 ( 154 ) ( 438 ) 56 ( 46 ) ( 16 ) 22 19 ( 485 )

Charge-offs — — — — — — ( 2 ) — ( 2 )

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Ending balance $ 1,784 $ 2,622 $ 12,301 $ 1,717 $ 549 $ 628 $ 641 $ 2,305 $ 22,547

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 - incurred loss 208 673 3,141 219 188 287 122 612 5,450

Provision (reversal) ( 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

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 nine 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 $ 1.091 billion and $ 1.165 billion at September 30, 2021 and December 31,

2020, respectively.

In addition, we pledge eligible TIC loans, which totaled $ 109.2 million and $ 113.6 million at September 30, 2021 and December 31, 2020, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

Also, see Note 6, Borrowings.

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 $ 1.295 billion and $ 1.330 billion at March 31, 2022 and December 31, 2021, respectively.

In addition, we pledge eligible TIC loans, which totaled $ 102.2 million and $ 106.2 million at March 31, 2022 and December 31, 2021, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

For additional information, see Note 6, Borrowings.

Related Party Loans

The Bank has, and expects to have in the future, banking transactions in the ordinary course of its business with directors, officers, principal shareholders and their businesses or associates.

These loans are granted on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with persons not related to us.

These transactions, including loans, are granted on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with persons not related to us.

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

Related party loans totaled $ 8.6 million at September 30, 2021 and $ 6.4 million at December 31, 2020.

In addition, undisbursed commitments to related parties totaled $ 8.6 million at September 30, 2021 and $ 9.1 million at December 31, 2020.

Related party loans totaled $ 5.1 million at March 31, 2022 and $ 7.9 million at December 31, 2021.

In addition, undisbursed commitments to related parties totaled $ 562 thousand at March 31, 2022 and $ 8.6 million at December 31, 2021.

The decreases in both the outstanding amount and undisbursed commitment as of March 31, 2022 were primarily due to a Director retirement in the first quarter.

Borrowings and Other Obligations

Federal Funds Purchased – The Bank had unsecured available lines of credit with correspondent banks for overnight borrowings totaling $ 115.0 million at September 30, 2021 and $ 135.0 million at December 31, 2020.

Federal Funds Purchased – The Bank had unsecured available lines of credit with correspondent banks for overnight borrowings totaling $ 150.0 million at March 31, 2022 and December 31, 2021.

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, 2021 or December 31, 2020 .

Federal Home Loan Bank Borrowings – As of September 30, 2021 and December 31, 2020, the Bank had available lines of credit with the FHLB totaling $ 651.4 million and $ 642.5 million, respectively, based on eligible collateral of certain loans.

There were no FHLB overnight borrowings at September 30, 2021 or December 31, 2020.

We had no overnight borrowings under these credit facilities at March 31, 2022 or December 31, 2021 .

Federal Home Loan Bank Borrowings – As of March 31, 2022 and December 31, 2021, the Bank had available lines of credit with the FHLB totaling $ 799.5 million and $ 820.5 million, respectively, based on eligible collateral of certain loans.

There were no FHLB overnight borrowings at March 31, 2022 or December 31, 2021.

As part of our acquisition of ARB, we assumed FHLB advances in the amount of $ 13.8 million that we paid off on August 25, 2021.

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

At September 30, 2021 and December 31, 2020, the Bank had borrowing capacity under this line totaling $ 72.7 million and $ 78.7 million, respectively, and had no outstanding borrowings with the FRBSF.

Federal Reserve Line of Credit – The Bank has an available line of credit with the Federal Reserve Bank of San Francisco ("FRBSF") secured by certain residential loans.

At March 31, 2022 and December 31, 2021, the Bank had borrowing capacity under this line totaling $ 57.3 million and $ 70.8 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 6.0 % for the first nine months of 2020.

The 251.5 % effective rate for the first nine months of 2021 included accelerated accretion of the $ 1.3 million remaining purchase discount due to the early redemption.

Accretion was $ 17 thousand and $ 52 thousand for the three and nine months ended September 30, 2020, respectively.

Other Obligations – Finance lease liabilities totaling $ 451 thousand and $ 58 thousand at September 30, 2021 and December 31, 2020, respectively, are included in borrowings and other obligations in the consolidated statements of condition.

On March 15, 2021, Bancorp redeemed in full the $ 2.8 million (book value) subordinated debenture due to the Trust, which had a 251.5 % effective rate for the first three months of 2021, and included accelerated accretion of the $ 1.3 million remaining purchase discount due to the early redemption.

Other Obligations – Finance lease liabilities totaling $ 388 thousand and $ 419 thousand at March 31, 2022 and December 31, 2021, respectively, 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 October 22, 2021, Bancorp declared a $ 0.24 per share cash dividend, payable on November 12, 2021 to shareholders of record at the close of business on November 5, 2021.

On April 22, 2022, Bancorp declared a $ 0.24 per share cash dividend, payable on May 13, 2022 to shareholders of record at the close of business on May 6, 2022.

Share-Based Payments

2 unchanged sentences

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.

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.

11 unchanged sentences

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 nine months ended September 30, 2021, we withheld 27,679 shares totaling $ 1.1 million at a weighted-average price of $ 38.86 for cashless exercises.

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 three months ended March 31, 2022, we withheld 8,003 shares totaling $ 278 thousand at a weighted-average price of $ 34.76 for cashless exercises.

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.

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

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Bancorp's Board of Directors subsequently extended the share repurchase program through February 28, 2020.

After expiration of this share repurchase program, a new share repurchase program began on March 5, 2020.

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

The share repurchase program, which began on March 5, 2020, was suspended by the Board of Directors on March 20, 2020 in response to the COVID-19 pandemic.

The program was reactivated by the Board of Directors on October 23, 2020 and completed in May 2021 upon depletion of repurchase funds.

A new share repurchase program was approved by Bancorp Board of Directors on July 16, 2021 under which Bancorp may repurchase up to $ 25.0 million of its outstanding common stock through July 31, 2023.

A new share repurchase program was approved by the Board of Directors on January 24, 2020, which began on March 1, 2020 and allowed Bancorp to repurchase up to $ 25.0 million of its outstanding common stock and ended May 2021.

On July 16, 2021, Bancorp Board of Directors approved a share repurchase program under which Bancorp could repurchase up to $ 25.0 million of its outstanding common stock through July 31, 2023.

On October 22, 2021, Bancorp's Board of Directors approved an amendment to the current share repurchase program, which increased the total authorization from $ 25.0 million to $ 57.0 million and left the expiration date unchanged.

6 unchanged sentences

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

Bancorp repurchased 445,735 shares totaling $ 15.9 million in the third quarter of 2021 for a cumulative total of 967,683 shares and $ 35.2 million in the first nine months of 2021.

Bancorp repurchased 23,275 shares totaling $ 877 thousand in the first quarter of 2022.

Cumulative shares repurchased under the current program totaled 618,991 shares as of March 31, 2022 at an average price of $ 36.04 per share.

Commitments and Contingencies

10 unchanged sentences

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) September 30, 2021 December 31, 2020

(in thousands) March 31, 2022 December 31, 2021

Commercial lines of credit $ 294,162 $ 330,234

5 unchanged sentences

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

The allowance for credit losses on unfunded commitments totaled $ 1.6 million and $ 2.8 million as of September 30, 2021 and December 31, 2020, respectively, which is included in interest payable and other liabilities in the consolidated statements of condition.

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

We applied the incurred loss method under previous GAAP in determining the allowance for credit losses on unfunded commitments for the three and nine month periods ended September 30, 2020.

We recorded no provision for credit losses on unfunded commitments for the three months ended September 30, 2021 and a reversal of the allowance for credit losses on unfunded commitments totaling $ 1.2 million for the nine month period ended September 30, 2021.

This compares to provisions for credit losses on unfunded commitments for the three and nine month periods ended September 30, 2020 totaling $ 248 thousand and $ 610 thousand, respectively.

In the second quarter of 2021, we reclassified the provision for credit losses on unfunded commitments from non-interest expense to a separate line item under the provision for credit losses on loans in the consolidated statements of comprehensive income.

We lease premises under long-term non-cancelable operating leases with remaining terms of 1 year to 11 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.

The allowance for credit losses on unfunded commitments totaled $ 1.5 million and 1.8 million as of March 31, 2022 and December 31, 2021, respectively, which is included in interest payable and other liabilities in the consolidated statements of condition.

We recorded a reversals of the allowance for credit losses on unfunded commitments of $ 318 thousand and $ 590 thousand for the three months ended March 31, 2022 and 2021 due to improved economic forecasts.

We lease premises under long-term non-cancelable operating leases with remaining terms of 7 months to 11 years, most of which include escalation clauses and one or more options to extend the lease term, and some of which contain lease termination clauses.

Lease terms may include certain renewal options that were considered reasonably certain to be exercised.

2 unchanged sentences

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

(in thousands) September 30, 2021 December 31, 2020

(in thousands) March 31, 2022 December 31, 2021

Operating leases:

9 unchanged sentences

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

Nine months ended

(in thousands) September 30, 2021 September 30, 2020

Three months ended

(in thousands) March 31, 2022 March 31, 2021

Right-of-use assets obtained in exchange for operating lease liabilities $ 1,120 $ —

Right-of-use assets obtained in exchange for finance lease liabilities $ 444 $ 18

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

Three months ended Nine months ended

(in thousands) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Three months ended

(in thousands) March 31, 2022 March 31, 2021

Operating lease cost $ 1,284 $ 1,164

4 unchanged sentences

Amortization of right-of-use assets 2

$ 31 $ 41 $ 65 $ 129

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, 2021.

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

(in thousands) September 30, 2021

(in thousands) March 31, 2022

Year Operating Leases Finance Leases

3 unchanged sentences

2025 3,328 66

2025 3,152 66

Thereafter 8,468 —

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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.

The escrow balance of $ 894 million as of June 30, 2021 (latest information available), combined with funds previously deposited with the court, are expected to cover the settlement payment obligations.

The escrow balance of $ 882 million as of March 31, 2022, 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.

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Our credit exposure, if any, on interest rate swap asset positions is limited to the fair value (net of any collateral pledged to us) and interest payments of all swaps by each counterparty.

Conversely, when an interest rate swap is

in a liability position exceeding a certain threshold, we may be required to post collateral to the counterparty in an amount determined by the agreements.

Conversely, when an interest rate swap is in a liability position exceeding a certain threshold, we may be required to post collateral to the counterparty in an amount determined by the agreements.

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

As of September 30, 2021, we had four interest rate swap agreements, which are scheduled to mature in June 2031, October 2031, July 2032, and October 2037.

As of March 31, 2022, 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 $ 10 thousand at September 30, 2021 and $ 11 thousand at December 31, 2020.

Accrued interest on the swaps totaled $ 10 thousand at March 31, 2022 and $ 11 thousand at December 31, 2021.

Information on our derivatives follows:

Asset Derivatives Liability Derivatives

(in thousands) September 30,

2021 December 31, 2020 September 30,

(in thousands) March 31,

2022 December 31, 2021 March 31,

2022 December 31, 2021

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, 2021 and December 31, 2020.

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

(in thousands) September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020

(in thousands) March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021

Loans $ 12,979 $ 13,976 $ 187 $ 939

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, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Three months ended

(in thousands) March 31, 2022 March 31, 2021

Interest and fees on loans 1

$ 23,677 $ 20,661

Increase (decrease) in fair value of designated interest rate swaps due to LIBOR interest rate movements $ 97 $ 152 $ 646 $ ( 1,351 )

Increase in fair value of designated interest rate swaps due to LIBOR interest rate movements $ 757 $ 719

Payment on interest rate swaps ( 85 ) ( 93 )

Decrease (increase) in fair value hedging adjustment of hedged loans ( 94 ) ( 155 ) ( 631 ) 1,374

Decrease in fair value hedging adjustment of hedged loans ( 752 ) ( 714 )

Decrease in value of yield maintenance agreement ( 3 ) ( 3 )

5 unchanged sentences

Information on financial instruments that are eligible for offset in the consolidated statements of condition follows:

Offsetting of Financial Assets and Derivative Assets

Gross Amounts Net Amounts of Gross Amounts Not Offset in

Gross Amounts Offset in the Assets Presented the Statements of Condition

of Recognized Statements of in the Statements Financial Cash Collateral

( in thousands)

Assets Condition of Condition Instruments Received Net Amount

March 31, 2022

Derivatives by Counterparty:

Counterparty A $ 42 $ — $ 42 $ ( 42 ) $ — $ —

December 31, 2021

Derivatives by Counterparty:

Counterparty A $ — $ — $ — $ — $ — $ —

Offsetting of Financial Liabilities and Derivative Liabilities

5 unchanged sentences

Instruments Pledged Net Amount

September 30, 2021

March 31, 2022

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 2021 Form 10-K filed with the SEC on March 15, 2022.

Bancorp completed its merger with American River Bankshares ("AMRB") on August 6, 2021 (the "merger date"), with Bancorp continuing as the surviving entity, followed thereafter at 12:05 a.m.

on August 7, 2021 by the merger of American River Bank ("ARB") with and into Bank of Marin (collectively, the "Merger"), with Bank of Marin surviving.

On August 6, 2021, each share of AMRB's common stock issued and outstanding immediately prior to the Merger was converted into 0.575 shares of Bancorp's common stock resulting in the issuance of 3,441,235 shares of Bancorp common stock.

As described in Note 1, Basis of Presentation, Bancorp completed its merger with American River Bankshares in August 2021.

The Merger expanded Bank of Marin's presence throughout the Greater Sacramento, Amador and Sonoma County Regions where ARB had ten branches.

T he Merger added $ 297.8 million in investment securities, $ 419.4 million in loans and $ 790.0 million in deposits to Bank of Marin as of the merger date.

Bancorp accounted for the Merger as a business combination under the acquisition method of accounting.

The assets acquired and liabilities assumed, both tangible and intangible, were recorded at their fair values as of the merger date in accordance with ASC 805, Business Combinations .

AMRB shareholders received 0.575 shares of Bancorp's common stock for each share of AMRB common stock outstanding immediately prior to the Merger resulting in the issuance of 3,441,235 shares of Bancorp common stock.

In addition, merger consideration included cash paid for outstanding stock options and cash paid in lieu of fractional shares, as summarized in the following table.

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Total merger consideration $ 124,477

Bancorp accounted for the Merger using the acquisition method of accounting in accordance with ASC 805, Business Combinations .

We recorded the estimated fair values of acquired assets and liabilities based on initial valuations as of August 6, 2021.

Under ASC 805, during the measurement period of up to one year, the acquirer is allowed to adjust the amounts recognized at the acquisition date and may recognize additional assets or liabilities to reflect new information obtained from facts and circumstances that existed as of the merger date that, if known, would have affected the measurement of the amounts recognized as of that date.

Measurement period adjustments are recognized in the reporting period in which they are determined.

As such, the estimated fair values are considered preliminary as of September 30, 2021 and subject to adjustment for up to one year after August 6, 2021.

Fair value amounts subject to change include, but are not limited to, loans, certain deposits, deferred tax assets and liabilities and certain other assets and other liabilities.

The following table presents the preliminary fair values of the assets acquired and liabilities assumed, and the resulting goodwill as of August 6, 2021.

(in thousands)

Total merger consideration $ 124,477

Assets acquired:

Cash and cash equivalents 140,577

Investment securities 297,797

Loans 419,435

Bank-owned life insurance 16,259

Operating lease right-of-use assets 2,376

Bank premises and equipment, net 2,891

Core deposit intangible 3,909

Other real estate owned 800

Interest receivable and other assets 14,377

Total assets acquired 898,421

Liabilities assumed:

Non-interest bearing 331,459

Interest bearing 458,563

Total deposits 790,022

FHLB borrowings 13,885

Operating lease liabilities 2,798

Interest payable and other liabilities 9,853

Total liabilities assumed 816,558

Fair value of net assets acquired 81,863

Goodwill $ 42,614

We recorded $ 42.6 million in goodwill, which represents the excess of the total merger consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed.

Goodwill mainly reflects expected value created through the combined operations of AMRB and Bancorp.

It is evaluated for impairment annually.

The following are descriptions of the methods used to determine the fair values of significant assets and liabilities presented above.

Cash and cash equivalents - The carrying amount of cash and cash equivalents is a reasonable estimate of fair value based on the short-term nature of these assets.

Investment securities - Fair values for securities are based on quoted market prices, where available.

If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market.

In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies.

Loans - The loan valuation methodology was based on a discounted cash flow approach that considered factors including the type of loan, risk classification status, fixed or variable interest rates, term, amortization status and current discount rates.

Loans were grouped according to similar credit risk characteristics when applying various valuation techniques.

The discount rates applied were based on current market rates for new originations of comparable loans and included adjustments for interest rate risk, equity return, servicing, credit and liquidity risk.

ARB's allowance for credit losses and any existing deferred fees or costs and premiums and discounts were not carried over at the merger date.

Bank-owned life insurance - The cash surrender values of bank-owned life insurance policies approximated fair value.

Operating lease right-of-use assets and lease liabilities - Operating lease right-of-use assets were measured at the present value of the remaining lease payments, as if the acquired leases commenced on the merger date, and

adjusted to reflect favorable and unfavorable terms of the leases when compared to current market terms.

Lease liabilities were measured at the present value of the remaining lease payments.

Bank premises and equipment - The value of the land and buildings acquired were based on independent third-party appraisals.

The fair values of other premises and equipment, such as tenant improvements, furniture and fixtures and equipment, approximated their carrying values.

Core deposit Intangible - The core deposit intangible ("CDI") represents the estimated future benefits of acquired deposits and is recorded separately from the related deposits.

The value of the core deposit intangible asset was calculated using a discounted cash flow approach to arrive at the cost differential between the core deposits (non-maturity deposits such as transaction, savings and money market accounts) and alternative funding sources.

It was calculated as the present value of the difference in cash flows between maintaining the core deposits (interest and net maintenance costs) and the cost of an equal amount of funds with a similar term from an alternative source.

The core deposit intangible is amortized on an accelerated basis over an estimated ten-year life, and is evaluated periodically for impairment.

We recorded a core deposit intangible asset of $ 3.9 million at acquisition, of wh ich $ 129 thousand was amortized from the merger date to September 30, 2021.

The future amortization expense for the CDI arising from the Merger is as follows:

(in thousands) 2021 2022 2023 2024 2025 Thereafter Total

Core deposit intangible amortization $ 189 $ 707 $ 630 $ 552 $ 475 $ 1,227 $ 3,780

Other real estate owned - The value of other real estate owned was based on an independent third-party appraisal.

Deposits - The fair values for the demand and savings deposits equaled the amount payable on demand at the merger date.

The fair values for time deposits were estimated using a discounted cash flow calculation that applied interest rates currently being offered to the contractual interest rates on such time deposits.

FHLB borrowings - The carrying value of Federal Home Loan Bank borrowings was adjusted to reflect prepayment fees, which approximated fair value.

Pro Forma Results of Operations

AMRB's unaudited contributions to net interest income and net income from the August 6, 2021 merger date to September 30, 2021 included in the consolidated statements of comprehensive income are presented in the following table.

(in thousands)

Net interest income 1

1 AMRB's net interest income and net loss include merger-related costs incurred from the merger date to September 30, 2021, accretion of the net purchase discount on acquired loans, premises fair value adjustment depreciation, CDI amortization and time deposit premium amortization, as applicable.

The pro forma net loss does not include allowance for credit losses adjustments related to acquired loans.

The following table presents certain unaudited pro forma net interest income and net income for illustrative purposes only for the three and nine months ended September 30, 2021 and 2020 as if AMRB was acquired on January 1, 2020.

This unaudited pro forma information combines Bancorp's and AMRB's historical results and includes adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods.

The pro forma information is not indicative of what would have occurred had the acquisition consummated as of the beginning of the year prior to the acquisition.

The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loans at fair value, cost savings, or business synergies.

As a result, actual amounts would have differed from the unaudited pro forma information presented, and the differences could be significant.

Three months ended Nine months ended

(in thousands) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Net interest income - Pro forma $ 30,488 $ 31,386 $ 91,240 $ 92,791

Net interest income - Actual $ 27,753 $ 24,566 $ 74,318 $ 73,060

Net income - Pro forma 1

$ 9,953 $ 9,182 $ 33,422 $ 19,638

Net income - Actual $ 5,282 $ 7,491 $ 23,514 $ 22,125

1 The 2021 pro forma combined net income was adjusted to exclude merger-related costs of $ 5.4 million incurred by Bancorp and $ 3.6 million incurred by AMRB.

These merger-related costs were included in the combined net income for the nine months ended September 30, 2020 as if the merger occurred on January 1, 2020.

Goodwill mainly reflects expected value created through the combined operations of AMRB and Bancorp and is evaluated for impairment annually.

The core deposit intangible ("CDI") represents the estimated future benefits of acquired deposits and is recorded separately from the related deposits.

We recorded a core deposit intangible asset of $ 3.9 million related to the ARB merger, of w hich $ 184 thousand was amort ized in the first quarter of 2022 and no amortization was recognized in the comparable quarter of 2021.

The CDI is amortized on an accelerated basis over an estimated ten-year life and is evaluated periodically for impairment.

No impairment loss was recognized as of March 31, 2022.

Merger-related one time and conversion costs are recognized as incurred and continue until all systems have been converted and operational functions are fully integrated.

Bancorp's merger-related costs reflected in the consolidated statements of comprehensive income are summarized in the following table.

Three months ended Nine months ended

(in thousand, unaudited) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Three months ended

(in thousands, unaudited) March 31, 2022 March 31, 2021

Personnel and severance $ 335 $ —

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What changed 10-Q

Item 1. Financial Statements