What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-08 compared with 2023-05-09 · 231 added, 195 removed, 878 unchanged (33% of the section changed)

3 unchanged sentences

(in thousands, except share data;

unaudited) March 31, 2023 December 31, 2022

unaudited) June 30, 2023 December 31, 2022

Cash, cash equivalents and restricted cash $ 39,657 $ 45,424

Investment securities:

Held-to-maturity, at amortized cost (net of zero allowance for credit losses at March 31, 2023 and December 31, 2022)

Held-to-maturity, at amortized cost (net of zero allowance for credit losses at June 30, 2023 and December 31, 2022)

946,808 972,207

Available-for-sale, at fair value (net of zero allowance for credit losses at March 31, 2023 and December 31, 2022)

Available-for-sale, at fair value (net of zero allowance for credit losses at June 30, 2023 and December 31, 2022)

770,942 802,096

30 unchanged sentences

Authorized - 30,000,000 shares;

issued and outstanding - 16,107,210 and 16,029,138 at March 31, 2023 and December 31, 2022, respectively

issued and outstanding - 16,107,192 and 16,029,138 at June 30, 2023 and December 31, 2022, respectively

216,589 215,057

5 unchanged sentences

BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three months ended

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three months ended Six months ended

(in thousands, except per share amounts;

unaudited) March 31, 2023 December 31, 2022 March 31, 2022

unaudited) June 30, 2023 March 31, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Interest income

15 unchanged sentences

Non-interest income

Wealth Management and Trust Services 559 511 630 1,070 1,230

Earnings on bank-owned life insurance, net 362 705 298 1,067 711

Service charges on deposit accounts 520 533 465 1,053 953

Wealth Management and Trust Services 511 490 600

Debit card interchange fees, net 555 447 531 1,002 1,036

6 unchanged sentences

Occupancy and equipment 1,980 2,414 1,891 4,394 3,798

Professional services 1,123 985 913

Data processing 922 1,045 1,199 1,967 2,476

Professional services 797 1,123 665 1,920 1,578

Depreciation and amortization 400 882 393 1,282 845

Federal Deposit Insurance Corporation insurance 666 289 296 955 586

Information technology 357 370 468 727 946

Charitable contributions 638 49 511 687 556

Amortization of core deposit intangible 340 345 374 685 754

Directors' expense 300 321 294 621 605

Federal Deposit Insurance Corporation insurance 289 293 290

Charitable contributions 49 104 45

Other real estate owned 44 4 3 48 5

10 unchanged sentences

Diluted 16,016 15,999 15,955 16,008 15,950

Comprehensive income (loss):

Comprehensive (loss) income:

Net income $ 4,551 $ 9,440 $ 11,066 $ 13,991 $ 21,531

Other comprehensive income (loss):

Other comprehensive (loss) income:

Change in net unrealized gains or losses on available-for-sale securities ( 10,928 ) 16,213 ( 27,050 ) 5,285 ( 65,278 )

1 unchanged sentence

Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity 451 463 472 914 616

Other comprehensive income (loss), before tax 16,676 8,928 ( 52,931 )

Deferred tax expense (benefit) 4,930 2,639 ( 15,648 )

Other comprehensive income (loss), net of tax 11,746 6,289 ( 37,283 )

Total comprehensive income (loss) $ 21,186 $ 19,170 $ ( 26,818 )

Other comprehensive (loss) income, before tax ( 10,477 ) 16,676 ( 26,578 ) 6,199 ( 79,509 )

Deferred tax (benefit) expense ( 3,097 ) 4,930 ( 7,857 ) 1,833 ( 23,505 )

Other comprehensive (loss) income, net of tax ( 7,380 ) 11,746 ( 18,721 ) 4,366 ( 56,004 )

Total comprehensive (loss) income $ ( 2,829 ) $ 21,186 $ ( 7,655 ) $ 18,357 $ ( 34,473 )

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 three months ended March 31, 2023 and 2022

For the three months ended June 30, 2023 and 2022

(in thousands, except share data;

4 unchanged sentences

Shares Amount

Three months ended March 31, 2023

Three months ended June 30, 2023

Balance at April 1, 2023 16,107,210 $ 215,965 $ 276,209 $ ( 62,000 ) $ 430,174

Net income — — 4,551 — 4,551

Other comprehensive loss, net of tax — — — ( 7,380 ) ( 7,380 )

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

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

Restricted stock surrendered for tax withholdings upon vesting ( 285 ) ( 4 ) — — ( 4 )

Restricted stock forfeited / cancelled ( 20,174 ) — — — —

Stock-based compensation - stock options — 21 — — 21

Stock-based compensation - restricted stock — 171 — — 171

Cash dividends paid on common stock ($ 0.25 per share)

— — ( 4,028 ) — ( 4,028 )

Balance at June 30, 2023 16,107,192 $ 216,589 $ 276,732 $ ( 69,380 ) $ 423,941

Three months ended June 30, 2022

Balance at April 1, 2022 16,003,847 $ 213,204 $ 246,511 $ ( 39,307 ) $ 420,408

Net income — — 11,066 — 11,066

Other comprehensive loss, net of tax — — — ( 18,721 ) ( 18,721 )

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 4,768 81 — — 81

Stock issued under employee stock purchase plan 936 30 — — 30

Stock issued under employee stock ownership plan 13,000 412 — — 412

Restricted stock surrendered for tax withholdings upon vesting ( 333 ) ( 11 ) — — ( 11 )

Restricted stock forfeited / cancelled ( 12,618 ) — — — —

Stock-based compensation - stock options — 29 — — 29

Stock-based compensation - restricted stock — 119 — — 119

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

— — ( 3,840 ) — ( 3,840 )

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

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

BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the six months ended June 30, 2023 and 2022

(in thousands, except share data;

unaudited) Common Stock Retained

Earnings Accumulated Other

Comprehensive (Loss) Income,

Net of Taxes Total

Shares Amount

Six months ended June 30, 2023

Balance at January 1, 2023 16,029,138 $ 215,057 $ 270,781 $ ( 73,746 ) $ 412,092

6 unchanged sentences

Restricted stock surrendered for tax withholdings upon vesting ( 2,498 ) ( 70 ) — — ( 70 )

Restricted stock forfeited / cancelled ( 20,174 ) — — — —

Stock-based compensation - stock options — 137 — — 137

3 unchanged sentences

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

Balance at March 31, 2023 16,107,210 $ 215,965 $ 276,209 $ ( 62,000 ) $ 430,174

Three months ended March 31, 2022

Balance at June 30, 2023 16,107,192 $ 216,589 $ 276,732 $ ( 69,380 ) $ 423,941

Six months ended June 30, 2022

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

2 unchanged sentences

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 40,311 820 — — 820

Stock issued under employee stock purchase plan 936 30 — — 30

Stock issued under employee stock ownership plan 25,000 829 — — 829

8 unchanged sentences

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

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

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

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2023 and 2022

For the six months ended June 30, 2023 and 2022

(in thousands;

12 unchanged sentences

Net change in deferred loan origination costs/fees ( 588 ) ( 2,322 )

Write-down of other real estate owned 40 —

Depreciation and amortization 1,282 845

34 unchanged sentences

Amortization of net unrealized loss on available-for-sale securities transferred to held-to-maturity $ 914 $ 616

Bank-owned life insurance benefit receivable $ 765 $ —

Purchase of investment securities not yet settled $ — $ 40,278

Stock issued to employee stock ownership plan $ 847 $ 829

11 unchanged sentences

Although we believe that the disclosures are adequate and the information presented is not misleading, we suggest that these interim financial statements be read in conjunction with the annual financial statements and the notes thereto included in our 2022 Annual Report on Form 10-K.

In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, which are necessary for a fair presentation of the consolidated financial position, the results of operations, changes in comprehensive income, changes in stockholders’ equity, and cash flows for the periods presented.

In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, which are necessary for a fair presentation of the consolidated financial position, the results of operations, changes in comprehensive income (loss), changes in stockholders’ equity, and cash flows for the periods presented.

All material intercompany transactions have been eliminated.

5 unchanged sentences

The number of potentially dilutive common shares included in the quarterly diluted EPS is computed using the average market prices during the three months included in the reporting period under the treasury stock method.

The number of potentially dilutive common shares included in year-to-date diluted EPS is a year-to-date weighted average of potentially dilutive common shares included in each quarterly diluted EPS computation.

In computing diluted EPS, we exclude anti-dilutive shares such as options whose exercise prices exceed the current common stock price, as they would not reduce EPS under the treasury method.

3 unchanged sentences

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, 2023 March 31, 2022

Three months ended Six months ended

(in thousands, except per share data) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Weighted average basic common shares outstanding 16,009 15,921 15,990 15,898

15 unchanged sentences

We early adopted the current period charge-off disclosures in the first quarter of 2022.

We adopted the loan modification provisions as of January 1, 2023 using a modified retrospective method.

We adopted the loan modification provisions as

of January 1, 2023 using a modified retrospective method.

The cumulative-effect adjustment to retained earnings was considered immaterial.

11 unchanged sentences

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

The amendments in this ASU may be elected December 31, 2024 (as amended by ASU No.

2022-06 discussed below).

An entity may elect the amendments in this update at an interim period with adoption methods varying based on transaction type.

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.

In January 2021, the FASB issued ASU No.

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

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

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

Amendments may be elected through December 31, 2022.

As of March 31, 2023, we had four interest rate swap contracts with notional values totaling $ 11.8 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 our counterparty and us .

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 December 2022, the FASB issued ASU No.

2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848.

The objective of the guidance in Topic 848 was to provide temporary relief during the transition period, as noted in the discussion of ASU 2020-04 above, under which the sunset provision was based on an expectation that LIBOR would cease being published after December 31, 2021.

In March 2021, the UK Financial Conduct Authority ("FCA") announced that the intended cessation date of certain tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848.

Therefore, this amendment deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

Topic 848 was further amended in January 2021 with ASU No.

2021-01, which provided additional guidance on certain optional expedients and scope of derivative instruments, and in December 2022 with ASU 2022-06, which extended the sunset date of Topic 848 to December 31, 2024 given the UK Financial Conduct Authority ("FCA") March 2021 announcement that the intended cessation date of certain tenors of USD LIBOR would be June 30, 2023.

An entity may elect the amendments in these updates at an interim period with adoption methods varying based on transaction type.

As of June 30, 2023, we had four interest rate swap contracts with notional values totaling $ 11.5 million indexed to LIBOR, which transitioned to the Secured Overnight Financing Rate ("SOFR") effective July 1, 2023.

The transition to SOFR did not have a material impact to either our financial condition or results of operations.

In June 2022, the FASB issued ASU No.

6 unchanged sentences

Early adoption is permitted for both interim and annual financial statements.

As discussed in Note 4, Investment Securities, we hold Visa Inc.

Class B common stock that is legally restricted from resale to non-member banks of Visa U.S.A.

until the covered litigation against Visa Inc.

While the adoption of the amendments may require additional disclosures, we do not anticipate that it will impact our financial condition or results of operations.

As discussed in Note 4, Investment Securities, on July 13, 2023 we sold our remaining shares of Visa Inc.

Class B restricted common stock.

As a result of the sale, this update will not impact our financial condition, results of operations or disclosures.

In March 2023, the FASB issued ASU No.

4 unchanged sentences

Early adoption is permitted for both interim and annual financial statements.

We currently do not

have common control lease arrangements, and therefore do not anticipate that the amendments will impact our financial condition and results of operations.

We currently do not have common control lease arrangements, and therefore do not anticipate that the amendments will impact our financial condition and results of operations.

In March 2023, the FASB issued ASU No.

3 unchanged sentences

The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the consolidated statements of income as a component of income tax expense (benefit).

The amendments will allow entities to elect to account for all other equity investments made primarily for the purpose of receiving income tax credits to using the proportional amortization method, regardless of the tax credit program through which the investment earns income tax credits, when certain conditions are met.

when certain conditions are met.

The amendments are effective for fiscal years beginning after December 15, 2023, and may be adopted either on a modified retrospective basis or retrospectively.

17 unchanged sentences

Changes in Fair Value Recorded In 1

March 31, 2023

June 30, 2023

Securities available-for-sale:

8 unchanged sentences

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

Derivative financial liabilities (interest rate contracts) $ 23 $ — $ 23 $ — NI

December 31, 2022

17 unchanged sentences

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

As of March 31, 2023 and December 31, 2022, there were no Level 3 securities.

Held-to-maturity securities may be written down to fair value as a result of credit losses or other factors , and we did not record any write-downs during the three months ended March 31, 2023 or March 31, 2022.

As of June 30, 2023 and December 31, 2022, there were no Level 3 securities.

Held-to-maturity securities may be subject to an allowance for credit losses as a result of our evaluation of expected losses due to credit quality factors.

We did not record any credit loss expense on held-to-maturity securities during the six months ended June 30, 2023 or June 30, 2022.

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

19 unchanged sentences

Our current OREO resulted from the American River Bankshares ("AMRB") merger in 2021.

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

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

(Level 2) Significant Unobservable Inputs

March 31, 2023

June 30, 2023

Other real estate owned $ 415 $ — $ — $ 415

1 unchanged sentence

Other real estate owned $ 455 $ — $ — $ 455

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

Disclosures about Fair Value of Financial Instruments

The table below is a summary of fair value estimates for financial instruments as of March 31, 2023 and December 31, 2022, 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 June 30, 2023 and December 31, 2022, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note).

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

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

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

Class B common stock, both recorded at cost, as there was no impairment or changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer as of March 31, 2023 or December 31, 2022.

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

Class B common stock with no carrying value, 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 June 30, 2023 or December 31, 2022.

The values are discussed in Note 4, Investment Securities.

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

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

13 unchanged sentences

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, 2023 or December 31, 2022.

The fair value of commitment fees was not material as of June 30, 2023 or December 31, 2022.

Investment Securities

5 unchanged sentences

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

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

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

Held-to-maturity:

2 unchanged sentences

(in thousands) Gains (Losses)

March 31, 2023

June 30, 2023

Securities of U.S.

21 unchanged sentences

Total held-to-maturity $ 972,207 $ — $ 972,207 $ 70 $ ( 127,038 ) $ 845,239

1 Amortized cost and fair values exclude accrued interest receivable of $ 2.6 million and $ 3.7 million at March 31, 2023 and December 31, 2022, 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 $ 3.6 million and $ 3.7 million at June 30, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

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

With regard to MBSs and CMOs issued or

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

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

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

1 unchanged sentence

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

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

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

Based on our comprehensive analysis, no cr edit losses are expected.

Obligations of state and political subdivisions Corporate bonds

(in thousands) March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

AAA / Aaa $ 42,783 $ 42,986 $ — $ —

2 unchanged sentences

Total $ 62,268 $ 62,500 $ 30,000 $ 30,000

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

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

Available-for-sale:

2 unchanged sentences

(in thousands) Gains (Losses)

March 31, 2023

June 30, 2023

Securities of U.S.

25 unchanged sentences

Total available-for-sale $ 892,605 $ 34 $ ( 90,543 ) $ — $ 802,096

1 Amortized cost and fair value exclude accrued interest receivable of $ 3.1 million and $ 3.2 million at March 31, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

1 Amortized cost and fair value exclude accrued interest receivable of $ 3.1 million and $ 3.2 million at June 30, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

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

2 unchanged sentences

The net unrealized pre-tax loss of $ 14.8 million that remained and the related accumulated other comprehensive loss are accreted to interest income over the remaining lives of the securities.

Because these entries offset each other, there is no impact to net income.

The amortized cost a nd fair value of investment debt securities by contractual maturity at March 31, 2023 and December 31, 2022 are shown below.

Because these entries offset each other, there was no impact to net income.

The amortized cost a nd fair value of investment debt securities by contractual maturity at June 30, 2023 and December 31, 2022 are shown below.

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

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

5 unchanged sentences

Total $ 946,808 $ 826,067 $ 856,166 $ 770,942 $ 972,207 $ 845,239 $ 892,605 $ 802,096

There were no sales of investment securities in the first quarter of 2023 or 2022.

There were no sales of investment securities in either the first half of 2023 or 2022.

However, in July 2023, the Bank sold $ 82.7 million of available-for-sale securities for a net loss of $ 2.8 million.

In addition, on July 13, 2023, the Bank sold its remaining investment in Visa Inc.

Class B restricted common stock, which had a zero carrying value, for a $ 2.8 million gain.

Three months ended

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

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Pledged to the State of California:

7 unchanged sentences

Total pledged investment securities $ 868,041 $ 238,570

There were 397 and 407 securities in unrealized loss positions at March 31, 2023 and December 31, 2022, respectively.

There were 396 and 407 securities in unrealized loss positions at June 30, 2023 and December 31, 2022, respectively.

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

March 31, 2023 < 12 continuous months ≥ 12 continuous months Total securities

June 30, 2023 < 12 continuous months ≥ 12 continuous months Total securities

in a loss position

49 unchanged sentences

Total securities at loss position $ 714,008 $ ( 57,620 ) $ 903,222 $ ( 159,961 ) $ 1,617,230 $ ( 217,581 )

As of March 31, 2023, the investment portfolio included 353 investment securities that had been in a continuous loss position for twelve months or more and 44 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.

As of June 30, 2023, the investment portfolio included 373 investment securities that had been in a continuous loss position for twelve months or more and 23 investment securities that had been in a loss position for less than twelve months.

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

federal government.

4 unchanged sentences

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

At March 31, 2023, 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 March 31, 2023.

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

For additional details, refer to Note 9, Derivative Financial Instruments and Hedging Activities.

Non-Marketable Securities Included in Other Assets

3 unchanged sentences

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

We held $ 16.7 million of FHLB stock included in other assets on the consolidated statements of condition at both March 31, 2023 and December 31, 2022.

We held $ 16.7 million of FHLB stock included in other assets on the consolidated statements of condition at both June 30, 2023 and December 31, 2022.

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, 2023 and December 31, 2022.

On April 27, 2023, FHLB announced a cash dividend for the first quarter of 2023 at an annualized dividend rate of 7.00 % to be distributed on May 11, 2023.

Based on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock was not impaired at June 30, 2023 and December 31, 2022.

On July 27, 2023, FHLB announced a cash dividend for the second quarter of 2023 at an annualized dividend rate of 7.75 % to be distributed on August 10, 2023.

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

1 unchanged sentence

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

Class B common stock at March 31, 2023 and December 31, 2022.

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

Class B common stock at June 30, 2023 and December 31, 2022.

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

until their conversion into Class A (voting) shares upon the termination of Visa Inc.'s Covered Litigation escrow account.

Because of the restriction and the uncertainty on the conversion rate to Class A shares, these shares 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 1.5991 at March 31, 2023 and December 31, 2022, 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 $ 3.5 million at March 31, 2023 and December 31, 2022, respectively.

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

and its member banks.

As such, the fair value of these Class B shares can differ significantly from their converted values.

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

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

On July 13, 2023, the Bank sold the entirety of its remaining investment in Visa Inc.

Class B restricted common stock for a $ 2.8 million gain.

For further information on the Covered Litigation, refer to Note 8, Commitments and Contingencies.

Low Income Housing Tax Credits

We invest in low-income housing tax credit funds as a limited partner, which totaled $ 2.4 million and $ 2.5 million recorded in other assets as of March 31, 2023 and December 31, 2022, respectively.

In the first three months of 2023, we recognized $ 151 thousand of low-income housing tax credits and other tax benefits, offset by $ 127 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense.

As of March 31, 2023, our unfunded commitments for these low-income housing tax credit funds totaled $ 347 thousand.

We did not recognize any impairment losses on these low-income housing tax credit investments during the first three months of 2023 or 2022, 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 $ 2.3 million and $ 2.5 million recorded in other assets as of June 30, 2023 and December 31, 2022, respectively.

In the first six months of 2023, we recognized $ 300 thousand of low-income housing tax credits and other tax benefits, offset by $ 252 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense.

As of June 30, 2023, our unfunded commitments for these low-income housing tax credit funds totaled $ 346 thousand.

We did not recognize any impairment losses on these low-income housing tax credit investments during the first six months of 2023 or 2022, as the value of the future tax benefits exceeds the carrying value of the investments.

Loans and Allowance for Credit Losses on Loans

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

(in thousands) March 31, 2023 December 31, 2022

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

(in thousands) June 30, 2023 December 31, 2022

Commercial and industrial $ 183,157 $ 173,547

9 unchanged sentences

Total loans, net of allowance for credit losses on loans $ 2,078,964 $ 2,069,563

1 Amortized cost includes net deferred loan origination costs of $ 2.1 million and $ 1.8 million at March 31, 2023 and December 31, 2022, respectively.

Amounts are also net of unrecognized purchase discounts of $ 2.4 million and $ 2.6 million at March 31, 2023 and December 31, 2022, respectively.

Amortized cost excludes accrued interest, which totaled $ 6.1 million at both March 31, 2023 and December 31, 2022, and is included in interest receivable and other assets in the consolidated statements of condition.

1 Amortized cost includes net deferred loan origination costs of $ 2.4 million and $ 1.8 million at June 30, 2023 and December 31, 2022, respectively.

Amounts are also net of unrecognized purchase discounts of $ 2.2 million and $ 2.6 million at June 30, 2023 and December 31, 2022, respectively.

Amortized cost excludes accrued interest, which totaled $ 6.0 million and $ 6.1 million at June 30, 2023 and December 31, 2022, respectively, and is included in interest receivable and other assets in the consolidated statements of condition.

Lending Risks

35 unchanged sentences

Loans in this category must have an identifiable and stable source of repayment and meet the Bank’s policy regarding debt-service-coverage ratios.

These borrowers are capable of sustaining normal economic, market or operational setbacks without significant financial consequences.

These borrowers are capable of sustaining normal economic, market

or operational setbacks without significant financial consequences.

Negative external industry factors are generally not present.

26 unchanged sentences

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

The following tables present the loan portfolio by loan class, origination year and internal risk rating as of March 31, 2023 and December 31, 2022.

The following tables present the loan portfolio by loan class, origination year and internal risk rating as of June 30, 2023 and December 31, 2022.

The current year vintage table reflects gross charge-offs by loan class and year of origination.

2 unchanged sentences

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

March 31, 2023 2023 2022 2021 2020 2019 Prior Total

June 30, 2023 2023 2022 2021 2020 2019 Prior Total

Commercial and industrial:

14 unchanged sentences

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

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

June 30, 2023 2023 2022 2021 2020 2019 Prior Total

Construction:

14 unchanged sentences

Total Substandard $ — $ 274 $ 2,227 $ 1,030 $ — $ 28,029 $ 6,501 $ 38,061

Total Doubtful $ — $ — $ — $ — $ — $ — $ — $ —

Totals $ 91,080 $ 328,118 $ 334,280 $ 271,946 $ 252,605 $ 657,256 $ 167,511 $ 2,102,796

26 unchanged sentences

Pass and Watch $ 21,154 $ 14,547 $ 29,018 $ 21,890 $ 11,064 $ 14,450 $ — $ 112,123

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

December 31, 2022 2022 2021 2020 2019 2018 Prior Total

Total other residential $ 21,154 $ 14,547 $ 29,018 $ 21,890 $ 11,064 $ 14,450 $ — $ 112,123

8 unchanged sentences

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

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

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

Loan Aging Analysis by Class

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

March 31, 2023

June 30, 2023

30-59 days past due $ — $ — $ 371 $ — $ 124 $ — $ 51 $ 546

19 unchanged sentences

Non-accrual loans with no allowance $ — $ 1,563 $ — $ — $ 778 $ — $ 91 $ 2,432

1 There were no non-performing loans past due more than ninety days and accruing interest as of March 31, 2023 and December 31, 2022.

2 None of the non-accrual loans as of March 31, 2023 or December 31, 2022 were earning interest on a cash basis.

We recognized no interest income on non-accrual loans for the three months ended March 31, 2023 and 2022.

We reversed interest income totaling $ 16 thousand and less than one thousand for loans placed on non-accrual status during the three months ended March 31, 2023 and March 31, 2022, respectively.

1 There were no non-performing loans past due more than ninety days and accruing interest as of June 30, 2023 and December 31, 2022.

2 None of the non-accrual loans as of June 30, 2023 or December 31, 2022 were earning interest on a cash basis.

We recognized no interest income on non-accrual loans for the three and six months ended June 30, 2023 and 2022.

We reversed interest income of $ 14 thousand and less than $ 8 thousand for loans on non-accrual status during the six months ended June 30, 2023 and June 30, 2022, respectively.

Collateral Dependent Loans

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

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

Amortized Cost by Collateral Type

1 unchanged sentence

Allowance for Credit Losses

March 31, 2023

June 30, 2023

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

1 unchanged sentence

Home equity — 749 — 749 —

Installment and other consumer — — 3 3 3

Total $ 1,363 $ 749 $ — $ 2,112 $ —

4 unchanged sentences

Total $ 1,563 $ 778 $ 91 $ 2,432 $ —

1 There were no collateral-dependent residential real estate mortgage loans in process of foreclosure or in substance repossessed at March 31, 2023 or December 31, 2022.

The weighted average loan-to-value of collateral dependent loans was approximately 42 % at both March 31, 2023 and December 31, 2022.

1 There were no collateral-dependent residential real estate mortgage loans in process of foreclosure or in substance repossessed at June 30, 2023 or December 31, 2022.

The weighted average loan-to-value of collateral dependent loans was approximately 40 % at June 30, 2023 and 42 % at December 31, 2022.

Loan Modifications

3 unchanged sentences

The amendments enhanced disclosures related to certain types of loan modifications for borrowers experiencing financial difficulty, including principal forgiveness, interest rate reductions, other-than-insignificant payment delays, and/or term extensions.

There were no such modifications during the three months ended March 31, 2023 requiring disclosure.

There were no material modifications during the six months ended June 30, 2023 requiring disclosure.

Allocation of the Allowance for Credit Losses on Loans

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

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

Allocation of the Allowance for Credit Losses on Loans

March 31, 2023

June 30, 2023

Modeled expected credit losses $ 1,100 $ 1,329 $ 7,441 $ 195 $ 486 $ 558 $ 609 $ — $ 11,718

11 unchanged sentences

Three months ended March 31, 2023

Three months ended June 30, 2023

Beginning balance $ 1,941 $ 2,640 $ 12,701 $ 2,019 $ 538 $ 577 $ 882 $ 2,032 $ 23,330

Provision (reversal) 147 153 25 74 ( 20 ) ( 18 ) 25 ( 36 ) 350

(Reversal) Provision ( 111 ) ( 51 ) 500 ( 86 ) 23 22 66 137 500

(Charge-offs) — — — — — — ( 9 ) — ( 9 )

1 unchanged sentence

Ending balance $ 1,831 $ 2,589 $ 13,201 $ 1,942 $ 561 $ 599 $ 940 $ 2,169 $ 23,832

Three months ended March 31, 2022

Three months ended June 30, 2022

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

(Reversal) Provision ( 89 ) ( 5 ) 138 12 ( 19 ) ( 43 ) 112 ( 106 ) —

(Charge-offs) — — — — — — ( 20 ) — ( 20 )

Recoveries 4 — — 8 — — — — 12

Ending balance $ 1,699 $ 2,617 $ 12,439 $ 1,737 $ 530 $ 585 $ 733 $ 2,199 $ 22,539

Allowance for Credit Losses on Loans Rollforward

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

Six months ended June 30, 2023

Beginning balance $ 1,794 $ 2,487 $ 12,676 $ 1,937 $ 558 $ 595 $ 868 $ 2,068 $ 22,983

Provision (reversal) 36 102 525 ( 12 ) 3 4 91 101 850

2 unchanged sentences

Ending balance $ 1,831 $ 2,589 $ 13,201 $ 1,942 $ 561 $ 599 $ 940 $ 2,169 $ 23,832

Six months ended June 30, 2022

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

(Reversal) Provision ( 17 ) ( 159 ) ( 300 ) 68 ( 65 ) ( 59 ) 134 ( 87 ) ( 485 )

Charge-offs — — — — — — ( 22 ) — ( 22 )

Recoveries 7 — — 16 — — — — 23

Ending balance $ 1,699 $ 2,617 $ 12,439 $ 1,737 $ 530 $ 585 $ 733 $ 2,199 $ 22,539

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 $ 1.308 billion and $ 1.298 billion at March 31, 2023 and December 31, 2022, respectively.

In addition, we pledge eligible TIC loans, which totaled $ 106.2 million and $ 105.0 million at March 31, 2023 and December 31, 2022, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $ 1.293 billion and $ 1.298 billion at June 30, 2023 and December 31, 2022, respectively.

In addition, we pledge eligible TIC loans, which totaled $ 109.0 million and $ 105.0 million at June 30, 2023 and December 31, 2022, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

For additional information, see Note 6, Borrowings.

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

Related party loans totaled $ 6.4 million at March 31, 2023 and at December 31, 2022.

In addition, undisbursed commitments to related parties totaled $ 562 thousand at both March 31, 2023 and December 31, 2022.

Related party loans totaled $ 6.3 million at June 30, 2023 and $ 6.4 million at December 31, 2022.

In addition, undisbursed commitments to related parties totaled $ 562 thousand at both June 30, 2023 and December 31, 2022.

Short-Term Borrowings and Other Obligations

Federal Home Loan Bank – As of March 31, 2023 and December 31, 2022, the Bank had total lines of credit with the FHLB totaling $ 1.037 billion and $ 711.6 million, respectively, based on eligible collateral of certain loans and investment securities.

Federal Funds Lines of Credit – The Bank had unsecured lines of credit with correspondent banks for overnight borrowings totaling $ 150.0 million at March 31, 2023 and December 31, 2022.

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

Federal Funds Lines of Credit – The Bank had unsecured lines of credit with correspondent banks for overnight borrowings totaling $ 135.0 million and $ 150.0 million at June 30, 2023 and December 31, 2022, respectively.

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

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

At March 31, 2023 and December 31, 2022, the Bank had total borrowing capacity under this line of $ 60.6 million and $ 58.7 million, respectively.

In addition, under the Federal Reserve’s new BTFP facility, the Bank could borrow up to an additional $ 283.6 million based on the par value of pledged investment securities as of March 31, 2023.

Other Obligations – Finance lease liabilities totaling $ 402 thousand and $ 439 thousand at March 31, 2023 and December 31, 2022, respectively, are included in short-term borrowings and other obligations in the consolidated statements of condition.

At June 30, 2023 and December 31, 2022, the Bank had total borrowing capacity under this line of $ 58.0 million and $ 58.7 million, respectively.

In addition, under the Federal Reserve’s new BTFP facility, the Bank could borrow up to an additional $ 279.0 million based on the par value of pledged investment securities as of June 30, 2023 .

Other Obligations – Finance lease liabilities totaling $ 372 thousand and $ 439 thousand at June 30, 2023 and December 31, 2022, respectively, are included in short-term borrowings and other obligations in the consolidated statements of condition.

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

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

March 31, 2023 December 31, 2022

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

June 30, 2023 December 31, 2022

(dollars in thousands) Outstanding Balance Weighted

7 unchanged sentences

Stockholders' Equity

On January 20, 2023, Bancorp declared a $ 0.25 per share cash dividend, paid February 10, 2023 to shareholders of record at the close of business on February 3, 2023.

Subsequent to quarter end on April 21, 2023, Bancorp declared a $ 0.25 per share cash dividend, payable on May 12, 2023 to shareholders of record at the close of business on May 5, 2023.

On April 21, 2023, Bancorp declared a $ 0.25 per share cash dividend, paid May 12, 2023 to shareholders of record at the close of business on May 5, 2023.

Subsequent to quarter end on July 21, 2023, Bancorp declared a $ 0.25

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

Share-Based Payments

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

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

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

The grant-date fair value of the restricted stock awards,

which equals the grant date price, is recorded as compensation expense over the requisite service period with a corresponding increase in common stock as the shares vest.

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.

12 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 three months ended March 31, 2023, we withheld 2,847 shares totaling $ 82 thousand at a weighted-average price of $ 28.74 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 six months ended June 30, 2023, we withheld 3,132 shares totaling $ 86 thousand at a weighted-average price of $ 27.57 for cashless exercises.

During the six months ended June 30, 2022, we withheld 10,208 shares totaling $ 351 thousand at a weighted-average price of $ 34.38 for cashless exercises.

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

Share Repurchase Program

Bancorp has an approved share repurchase program with $ 34.7 million outstanding at March 31, 2023.

Bancorp had an approved share repurchase program with $ 34.7 million outstanding at June 30, 2023.

There have been no repurchases in 2023.

Cumulative shares repurchased under the current program totaled 618,991 shares as of March 31, 2023 at an average price of $ 36.04 per share.

Cumulative shares repurchased under this program totaled 618,991 shares as of June 30, 2023 at an average price of $ 36.04 per share.

Subsequent to quarter end on July 21, 2023, Bancorp adopted a new share repurchase program, which replaced the existing program that expired on July 31, 2023, for up to $ 25.0 million and expiring on July 31, 2025.

Commitments and Contingent Liabilities

3 unchanged sentences

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Commitments generally have fixed expiration dates or other

termination clauses and may require payment of a fee.

Because various commitments will expire without being fully drawn, the total commitment amount does not necessarily represent future cash requirements.

4 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) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Commercial lines of credit $ 236,895 $ 292,204

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 $ 1.3 million and $ 1.5 million as of March 31, 2023 and December 31, 2022, respectively, which is included in interest payable and other liabilities in the consolidated statements of condition.

The $ 174 thousand reversal of the provision for credit losses on unfunded loan commitments in the first quarter of 2023 was due primarily to a $ 37.4 million decrease in total unfunded commitments, compared to a $ 318 thousand provision reversal in the first quarter of 2022, due mainly to an improvement in the underlying economic forecasts at the time.

We lease premises under long-term non-cancelable operating leases with remaining terms of 4 months to 19 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 $ 1.1 million and $ 1.5 million as of June 30, 2023 and December 31, 2022, respectively, which is included in interest payable and other liabilities in the consolidated statements of condition.

The $ 168 thousand reversal of the provision for credit losses on unfunded loan commitments in the second quarter of 2023 was due primarily to a $ 39.9 million decrease in total unfunded commitments.

This compares to no provision for the same quarter in 2022.

The $ 342 thousand reversal of the provision for credit losses on unfunded loan commitments in the first half of 2023 was due primarily to a $ 77.3 million decrease in total unfunded commitments, compared to a $ 318 thousand provision reversal in the first half of 2022, due to improved economic forecasts at the time.

We lease premises under long-term non-cancelable operating leases with remaining terms of 10 months to 18 years, 11 months , 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) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Operating leases:

9 unchanged sentences

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

Three months ended

(in thousands) March 31, 2023 March 31, 2022

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

Six months ended

(in thousands) June 30, 2023 June 30, 2022

Right-of-use assets obtained in exchange for operating lease liabilities, net of tenant improvement allowances received $ 572 $ 1,124

Right-of-use assets obtained in exchange for finance lease liabilities $ 7 $ —

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

Three months ended

(in thousands) March 31, 2023 March 31, 2022

Three months ended Six months ended

(in thousands) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Operating lease cost $ 1,322 $ 1,295 $ 2,932 $ 2,579

4 unchanged sentences

Amortization of right-of-use assets 2

$ 37 $ 31 $ 74 $ 62

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 March 31, 2023.

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

(in thousands) March 31, 2023

(in thousands) June 30, 2023

Year Operating Leases Finance Leases

14 unchanged sentences

("Visa") by its member banks in connection with Visa's lawsuits related to anti-trust charges and interchange fees ("Covered Litigation").

Our proportionate share of the litigation indemnification liability does not change or transfer upon the sale of our Class B Visa shares to member banks.

Visa established an escrow account to pay for settlements or judgments in the Covered Litigation.

Under the terms of the U.S.

retrospective responsibility plan, when Visa funds the litigation escrow account, it triggers a conversion rate reduction of the Class B common stock to shares of Class A common stock, effectively reducing the aggregate value of the Class B common stock held by Visa's member banks like us.

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

During its six month fiscal reporting period ended March 31, 2023, Visa deposited an additional $ 350 million into the litigation escrow account to address claims of certain merchants who opted out of the Amended Settlement Agreement for a balance of $ 1.6 billion.

Combined with funds previously deposited with the court, these funds are expected to cover the settlement payment obligations.

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

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

We sold our remaining shares on July 13, 2023, however our proportionate share of the litigation indemnification liability does not change or transfer upon the sale of our Class B Visa shares to member banks or, per the terms of the sale, to the recent purchaser of our shares.

Visa established an escrow account for the Covered Litigation that it periodically funds, which is expected to cover the settlement payment obligations.

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

5 unchanged sentences

Converting our fixed-rate interest payments to floating-rate interest payments, generally benchmarked to the one-month U.S.

dollar LIBOR index, protects us against changes in the fair value of our loans associated with fluctuating interest rates.

dollar LIBOR index (which transitioned to the SOFR effective July 1, 2023 due to the cessation of the LIBOR index on June 30, 2023) protects us against changes in the fair value of our loans associated with fluctuating interest rates.

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

1 unchanged sentence

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

As of March 31, 2023, we had four interest rate swap agreements, which are scheduled to mature at various dates ranging from June 2031 to October 2037.

As of June 30, 2023, we had four interest rate swap agreements, which are scheduled to mature at various dates ranging from June 2031 to 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 receivable on the swaps totaled $ 6 thousand at March 31, 2023 and $ 5 thousand at December 31, 2022.

Accrued interest receivable on the swaps totaled $ 7 thousand at June 30, 2023 and $ 5 thousand at December 31, 2022.

Information on our derivatives follows:

Asset Derivatives Liability Derivatives

(in thousands) March 31,

2023 December 31, 2022 March 31,

(in thousands) June 30,

2023 December 31, 2022 June 30,

2023 December 31, 2022

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 March 31, 2023 and December 31, 2022.

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

(in thousands) March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

Loans $ 10,786 $ 11,319 $ ( 749 ) $ ( 726 )

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

Three months ended

(in thousands) March 31, 2023 March 31, 2022

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

Three months ended Six months ended

(in thousands) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Interest and fees on loans 1

$ 24,579 $ 23,334 $ 48,837 $ 47,011

(Decrease) increase in fair value of designated interest rate swaps due to LIBOR interest rate movements $ ( 221 ) $ 757

Increase (decrease) in fair value of designated interest rate swaps due to LIBOR interest rate movements $ 250 $ 430 $ 29 $ 1,187

Receivable (payment) on interest rate swaps 66 ( 65 ) 118 ( 150 )

Increase (decrease) in fair value hedging adjustment of hedged loans 221 ( 752 )

(Decrease) increase in fair value hedging adjustment of hedged loans ( 243 ) ( 428 ) ( 23 ) ( 1,180 )

Decrease in value of yield maintenance agreement ( 2 ) ( 2 ) ( 4 ) ( 5 )

Net gain (losses) on fair value hedging relationships recognized in interest income $ 49 $ ( 83 )

Net gain (loss) on fair value hedging relationships recognized in interest income $ 71 $ ( 65 ) $ 120 $ ( 148 )

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

8 unchanged sentences

( in thousands)

Assets Condition of Condition Instruments Received Net Amount

March 31, 2023

Counterparty $ 404 $ — $ 404 $ ( 23 ) $ — $ 381

December 31, 2022

Counterparty $ 602 $ — $ 602 $ — $ — $ 602

Offsetting of Financial Liabilities and Derivative Liabilities

Gross Amounts Net Amounts of Gross Amounts Not Offset in

Gross Amounts Offset in the Liabilities Presented the Statements of Condition

of Recognized Statements of in the Statements Financial Cash Collateral

(in thousands) Liabilities 1

Condition of Condition 1

Instruments Pledged Net Amount

March 31, 2023

Instruments Received Net Amount

June 30, 2023

Counterparty $ 631 $ — $ 631 $ — $ — $ 631

1 unchanged sentence

Counterparty $ 602 $ — $ 602 $ — $ — $ 602

Offsetting of Financial Liabilities and Derivative Liabilities

1 Amounts exclude accrued interest on swaps.

For more information on how we account for our interest rate swaps, refer to Note 1 to the Consolidated Financial Statements included in our 2022 Form 10-K filed with the SEC on March 16, 2023.

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

The interest rate swaps are expected to be immediately accretive to earnings.

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

What changed 10-Q

Item 1. Financial Statements